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TMI Blog2013 (3) TMI 804X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was that the assessee had shown capital WIP including capital advances but no interest expense had been capitalised. It was noted by the AO that the capital advances were of Rs. 14.38 crores. The assessee's answer was that the capital advance was made from own funds and not from borrowed funds. However, the AO was not convinced and invoked the provisions of section 36(1)(iii) and calculated the disallowance as under:- "From the records it is observed that the assessee has incurred interest expense of Rs. 273116/-. In view of the above mentioned facts the proportionate disallowance of interest expenses of Rs. 273116/- for which the assessee could not give any proof that the same is not used for Capital WIP, need to be made u/s.36(1)(iii) of the Act. The total funds available with the assessee company in the form of share capital, reserve and surplus and secured/unsecured loans amounts to Rs. 2646739432/-. The assessee has pad interest of Rs. 273116/- for which the assessee could not prove that no part of it was used for capital WIP of 143839345/-. Accordingly proportionate interest disallowable is being worked out as under:- Interest to be disallowed = Interest expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he closing stock is also valued net off CENVAT. The company does not have any stock of Finished Goods as on 31st Mach, 2009 and therefore; there is no question of inclusion of CENVAT in the stock of Finished Goods. Further, the unutilized balance of CENVAT is not a income and is used against Excise Duty Payable in the subsequent year, and therefore the same cannot be treated as income. The details of the CENVAT credit utilized is give in Schedule-8 to the the Tax Audit Report. It may also be noted that the cost of Raw material debited to profit and loss account does not include excise duty paid on purchases and therefore the question of inclusion of unutilized excise duty in the closing stock does not arise. This principle is settled by Supreme court in the case of Chainroop Sampatram. Further the unutilized balance of cenvat credit cannot be included in the closing stock is also taken by Gujarat HC in case of Narmada Chematur Private Limited." 4.2. However, the AO was not convinced; although he has noted that as per the Auditor's Report u/s.44AB, the assessee had followed "exclusive method of accounting". The AO has opined that the unutilized credit of taxes., i.e. MODVAT/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed without taking into account the duty/cess. He has placed reliance on few decisions; namely, CIT vs. British Paints India Ltd. (1991)188 ITR 44(SC), Chainrup Sampatram vs. CIT(1953) 24 ITR 481 (SC) and CIT vs. J.K.Synthetics Ltd. (1983) 143 ITR 271(All.) for the legal proposition that if the Valuation of the closing stock is done by excluding the expenses, then such rejection of method by the AO is correct u/s.145 of the IT Act. 6.1. From the side of the Assessee, ld.AR Mr. A.C. Shah appeared and first of all placed reliance on a decision of ITAT "B" Bench Ahmedabad pronounced in the case of Udaikumar Chhabildas Patel vs. Jt.CIT/ACIT bearing ITA Nos.3304/Ahd/2010 & 2585/Ahd/2011 dated 28/09/2012. He has also placed reliance on decision of ACIT vs. Narmada Chematur Petrochemicals Ltd. (2010) 327 ITR 369 (Guj.). 7. We have heard both the sides at some length. This is purely a legal question and presently stood covered by few decisions. In the case of Narmada Chematur Petrochemicals Ltd. 327 ITR 369 (Guj.), the Hon'ble Court has observed that unless and until the amount of the Duty is not entered on one side as an item of cost, it cannot be taken as a component of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of verification of this fact the matter can go back to the AO but only after ascertaining the correct position of law. As far as the legal aspect of this issue is concerned, we have already discussed few case laws hereinabove and, therefore, it is expected from the AO to follow the same only after ascertaining the method of accounting adopted by the assessee in respect of the Duties in question. With these directions, we hereby restore this ground for a fresh adjudication as directed, hence to be treated as allowed but for statistical purposes." 7.1. In the result, on the same lines we deem it proper to restore this ground back to the stage of the A.O. to verify the facts as also the accounting policy adopted by the assessee in respect of Modvat/Cenvat incentives and if find according to the law laid down, then not to disturb the method of accounting of the assessee in this regard. We direct accordingly. This ground may be treated as allowed but for statistical purposes only. 8. Ground No.3 reads as under:- 3) The Ld. Commissioner of Income-tax (Appeals)-XIV, Ahmedabad erred in law and on facts in restricting the disallowance made on account of disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urrent previous year and, therefore, should be allowed. The submission of the appellant is supported by documentary evidence and should therefore be accepted. It is not a commission for sake, but it is a reimbursement of certain expenses. The party to whom it has been paid is established and the other payments made to that party have been allowed as deduction. The deduction of Rs. 3,00,000/- is, therefore, directed to be allowed to the appellant company. In view of the above discussion, out of the disallowance of Rs. 3,93,379/-, a disallowance of Rs. 1,12,500/- is upheld and rest is directed to be deleted. The ground of appeal is accordingly partly allowed." 9. Having heard the submissions of both the sides, we have noted that the payment made to Oriental Containers Ltd. was duly explained and substantiated. It was a case of reimbursement of certain expenses and not the payment of commission. However, in respect of payment to Sangeeta Patil there was no evidence supporting the impugned claim, therefore ld.CIT(A) has confirmed the addition of Rs. 1,12,500/-. Considering all these facts, we are not inclined to interfere with the factual finding of the ld.CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquired on or after 01/01/2009 but before 01/04/2009 and is put to use before 01/04/2009 for the purpose of business or profession. Further paragraph 6 of the note below the table defines commercial vehicles which includes Light Motor Vehicles as per the Motor Vehicle Acts, the specifications for which are reproduced in the preceding paragraph. Therefore, it is clear that the appellant is etitled for depreciation @ 50% which was given as an incentive for a short period between 01/01/2009 to 01/04/2009 but the period was later on extended upto 01/10/2009. The vehicle purchased by the appellant fulfills all the conditions prescribed in the Income Tax Act and the related Motor Vehicle Act and falls within the definition of Commercial Vehicle. The Act has nowhere prescribed that a commercial vehicle should be a vehicle which is used for the purpose of hire. It only prescribes that the vehicle should be used for the purpose of business or profession. The appellant is, therefore, entitled for the depreciation @50%. The ground of appeal is accordingly allowed." 11. On hearing both the sides, we are of the considered view that ld.CIT(A) has rightly interpreted the relevant provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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