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2016 (10) TMI 313 - ITAT KOLKATA

2016 (10) TMI 313 - ITAT KOLKATA - TMI - Disallowance u/s 14A - Held that:- The facts stated remain undisputed and hence the same are not reiterated for the sake of brevity. We find that the ld AO had resorted to make disallowance u/s 14A of the Act on a notional basis by assuming that the borrowed funds were utilized for making investments. But from the aforesaid facts, we find that it is clearly established that the investments were purely made only out of surplus funds lying in the current ac .....

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order of the ld CIT-A in this regard. - Addition made on account of valuation of closing stock of work in progress - Held that:- We find that the ld CITA had given categorical findings with regard to the treatment given by the assessee in the valuation of closing stock of work in progress as on 31.3.2007. The ld DR was not able to controvert any of the findings given by the ld CITA before us. Under these circumstances, we do not find it necessary to interfere with the order of the ld CITA in .....

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the Income tax Act, 1961 (hereinafter referred to as the Act ) for AY 2007-08 vide his order dated 18.12.2009. 2. At the outset, we find that there is a delay of 23 days in filing the appeal before us by the revenue which is supported with condonation petition. In view of the concession given by the ld AR for condonation of delay, we hereby condone the delay and admit the appeal of the revenue for adjudication. 3. The first issue to be decided in this appeal is as to whether the ld CITA is just .....

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xpenses incurred in earning the income claimed as exempt from taxation. The assessee replied before the ld AO that it had made short term investments in mutual funds and the same were also sold out before the end of the previous year and accordingly there was neither opening balance nor closing balance of investments in the audited financial statements. The assessee taking strength from its financial statements submitted that the borrowed funds outstanding as on 31.3.2006 consists of deferred sa .....

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assessee either for making these investments in mutual funds or for earning dividend income. It was claimed that no bank charges or collection charges for earning of dividend were incurred by the assessee. It was also submitted that the provisions of Rule 8D would be applicable only from Asst Year 2008-09 and hence not applicable for the year under appeal. The ld AO observed that the assessee had totally paid interest expenditure of ₹ 3.87 crores on its borrowed funds which were invested .....

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essee company. This interest expenditure included a sum of ₹ 1.35 lacs paid towards interest on cash credit facility and ₹ 2.93 lacs incurred towards export bill discounting facility charges. The interest on cash credit was paid entirely in connection with working capital requirements of the business and the export bill discounting charges have nothing to do with the investment activities as they are paid to the bank for discounting the export bills of the assessee. The ld CITA obser .....

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ingly the entire disallowance u/s 14A of the Act was directed to be deleted. Aggrieved, the revenue is in appeal before us on the following ground:- 1. That on facts the Ld. CIT(A) erred in deleting the disallowance u/s. 14A entirely though there is provision in section 14A & 14A(3) to determine the amount of expenditure incurred in relation to the earning of exempt income, even if the assessee claims that no expenditure has been incurred in relation to income which does not form part of the .....

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ct from 1.4.1962. In response to this, the ld AR vehemently relied on the order of the ld CITA. 3.3. We have heard the rival submissions and perused the materials available on record. The facts stated hereinabove remain undisputed and hence the same are not reiterated for the sake of brevity. We find that the ld AO had resorted to make disallowance u/s 14A of the Act on a notional basis by assuming that the borrowed funds were utilized for making investments. But from the aforesaid facts, we fin .....

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e u/s 14A of the Act is to be made, stands defeated in view of the aforesaid finding. Hence we find no infirmity in the order of the ld CITA in this regard. Accordingly, the ground no. 1 raised by the revenue is dismissed. 4. The last ground to be decided in this appeal is as to whether the ld CITA is justified in deleting the addition made on account of valuation of closing stock of work in progress in the sum of ₹ 1,68,57,093/- in the facts and circumstances of the case. 4.1. The brief f .....

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submit the basis of arriving at the figure of closing work in progress in order to cross check the correctness of the closing work in progress. The Ld. AR of the assessee was also required to submit copy of sales ledger for the month of April 2007. The ld AO observed that the perusal of the sales ledger of 2007 revealed that the assessee company has effected sales at higher rate than the value of work in progress disclosed in the balance sheet. The discrepancies noticed in respect of 3 parties .....

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ACC, Wadi 85,67,625 43,22,302 20.04.07 24.04.07 30.04.07 30.04.07 30.04.07 30.04.07 30.04.07 Total 10,79,770 39,59,155 89,86,083 32,960 13,497 20,58,491 81,000 1,62,10,956 TOTAL 76,43,331 3,93,00,474 The ld AO observed that on perusal of the above, it transpired that the assessee company has shown manufacturing goods much more than the value of closing work-in-progress shown as at 31.03.2007. In this context, he further observed that the assessee manufactured various items such as bulker tanks, .....

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nt month of April, 2007. In view of this discrepancy, the AR of the assessee was required to furnish the basis of arriving at the value of closing work-in-progress along with supporting documents. He observed that the AR of the assessee had expressed his inability to furnish such details stating that the assessee company had not maintained item wise work-in-progress and the purchases and consumption are common for all products. The ld AO did not accept the contention of the assessee in view of t .....

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ted the cost of production. Since the AR of the assessee has not been able to substantiate their arguments with supporting evidences and had not been able to contradict the value of sales made immediately after the end of the FY as depicted hereinabove, he concluded that the difference in the value of closing work-in-progress with sales of April, 2007 is to be considered as total value of closing work-in-progress as at 31.03.2007. Accordingly, the difference of ₹ 3,98,00,474/- is considere .....

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ore the ld CITA that on receipt of the information requisitioned on 9.12.2009, the ld AO required the assessee to furnish information with regard to invoices raised on the customers in April 2007, whose orders were under execution on March 31, 2007. The said statement was also submitted subsequent to 9.12.2009. On receipt of the said information, the ld AO then required the assessee to reconcile the value of closing WIP with the total cost incurred on executions of the orders leading to sales ex .....

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is inability to furnish the required information in the prescribed format. The impugned order was passed on 18.12.2009. The assessee submits that it was never its case that it did not maintain details of job/order wise particulars of material consumption or item wise WIP. It was only because of the paucity of time and lack of adequate opportunity of being heard, the assessee could not substantiate the explanations & details furnished in support of value of closing WIP as on 31.3.07. The asse .....

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perused the assessment order. I have also gone through the details and documents filed by the appellant, the remand report submitted by the AO and the counter comments of the appellant. On examination of assessment order, it appears that the AO had made the addition to the closing value of WIP primarily for the reason that he was of the opinion that compared with the sale value realized by the appellant in April, 2007, the value of the work in progress disclosed by the appellant as on 31.03.200 .....

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parties in the month of April, 2007 was aggregating to ₹ 4,97,85,680/- whereas the value of WIP shown as on 31.03.2007 shown in these cases was ₹ 1,42,27,206/-. Hence, he was of the opinion that there is difference in the value of WIP vis-a-vis the sale value of ₹ 3,55,58,474/-. However, in the assessment order he worked out the difference at ₹ 3,98,00,474/- which was due to arithmetical mistake. The said mistake was later on rectified by the AO u/s 154 of the Act vide o .....

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Since, the appellant had disclosed the value of WIP at ₹ 2,28,16,020/-, he made addition of differential amount of ₹ 1,68,57,093/- i.e. (Rs.3,96,73,l13 - ₹ 2,28,16,020). However, in the course of appellate proceedings as well as the remand proceedings, the appellant proved that not only there was arithmetical mistake of ₹ 42,42,000/- in working out the difference as mentioned above, but there was also mistake in the GP rate adopted by the AO to make the addition. The corr .....

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2%, the amount of GP comes to ₹ 1,13,78,712/-. Thus, as per the working of the AO, the correct value of the WIP should have been at ₹ 2,41,79,762/- i.e. (Rs.3,55,58,474 - ₹ 1,13,78,712). Since, the appellant had disclosed the closing WIP at ₹ 2,28,16,020/-, the difference comes to ₹ 13,63,742/- i.e. (Rs.2,41,79, 762 - ₹ 2,28,16,020). However, considering the submission of the appellant, documents produced and the verification made by the AO in the course of re .....

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inished goods which was sold as it is. But, it is not factually correct. The appellant company had made further value addition to the WIP to manufacture the finished goods before selling them. This fact was verified by the AO during the remand proceedings with reference to the submission made by the appellant in the course of appellate proceedings. Further, as on 31.03.2007, the appellant had disclosed the WIP at ₹ 2,28,16,020/- as admitted by the AO in the assessment order. However, to ma .....

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premise for making the addition was that the machineries which the appellant sold to Birla Tyres Ltd., Mangalam Cement Works and ACC Wadi in April 2007 were substantially completed by 31.03.2007 and the sale was made by the appellant without further incurring any costs or without consuming any further materials. However, before drawing such inference the AO did not bring on record any material on the basis of which he could hold that in April, 2007 either the appellant did not carry on manufactu .....

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er expenses or that the appellant did not further consume materials for production of the machineries till its dispatch. On the contrary, the appellant placed on record documentary evidences which showed that even after 31.03.2007 the appellant continued with manufacturing process of these machines and for that purpose raw-materials were issued for production. Besides the appellant also incurred production over-heads to complete the manufacture of machine. Detailed workings of the materials cons .....

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invoiced value of sales which inter-alia included Sales Tax & Excise Duty for which liability arose only at the time of dispatch of goods in April 2007. In determining the value of WIP as on 31.03.2007; liability for the statutory levies was not includible. For example, in the case of machines supplied to Mangalam Cement Works invoiced value was ₹ 3,41,24,965/-, but the basic sale price i.e. net off Excise duty & VAT, was only ₹ 2,80,11,940./-. Similarly, in the case of ACC .....

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se in the addition. 18. I agree with the basic accounting principle and the methodology by which the AO proceed to value the inventory of WIP. Arithmetically, for arriving at the cost of manufactured goods one can reduce the basic sales value by the gross profit margin. It is for the simple reason that by reducing the direct material cost and production over-heads from the basic sales value one arrives at the gross profit margin. In the circumstances, if one reduces the gross profit margin from .....

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t in its submissions had given comparative working of the gross profit margin which it earned on sale of machines to Mangalam Cement Works, ACC Wadi and Birla Tyres. In its working of gross profit margin the appellant took into account the value of WIP as on 31.03.2007, cost of materials consumed post 31.03.2007; over-heads incurred in April 2007 and the basic invoice value of goods sold. From the comparative figures made available by the appellant, it appeared that the net invoice value of mach .....

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