TMI Blog2023 (6) TMI 1265X X X X Extracts X X X X X X X X Extracts X X X X ..... T HIGH COURT] and findings of CIT(A), we find no infirmity in the order of CIT(A). Hence, this issue of Revenue s appeal is dismissed. Inclusion of excise duty component in the closing stock of consumables - HELD THAT:- As excise law, an assessee incurs liability to pay excise duty only upon both events taking place, namely, manufacture of excisable goods and removal of excisable goods and for purpose of Income-tax Act, position in law is not different. Therefore, excise duty cannot be included in value of closing stock of finished goods at end of accounting period. In view of the above decisions including one rendered by the jurisdictional Gujarat High Court in the case of Narmada Chematur Petrochemicals [ 2010 (4) TMI 1198 - GUJARAT HIGH COURT] ground number 4 of the assessee s appeal is allowed. Disallowance out of consultancy expenses by treating the expenses as capital in nature - HELD THAT:- The assessee has produced copy of the contract with M/s B.J. Services for our perusal as wellwhich indicates that these expenses have been incurred for carrying out high pressure pneumatic testing of piping system by use of liquid / gaseous nitrogen and the same have been incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income-tax (Appeals) has grievously erred in confirming the disallowance of Rs.2,82,584/- being 10% of office expenses. 2. That on facts and in law, the learned CIT(A) has grievously erred in confirming disallowance of Rs.1,18,311/- being 25% of Attimari Coolie expenses. 3. That on facts and in law, the learned CIT(A) has grievously erred in holding that even otherwise provisions of section 40A(3) of the Act are applicable to payments of Rs.1,16,433/- 4. That on facts and in law, the learned CIT(A) has grievously erred in enhancing the assessment by including excise duty component of Rs.4,89,852/- in closing stock of consumables. 5. That on facts, and in law, the learned CIT(A) has grievously erred in enhancing the assessment by making disallowance out of consultancy expenses by treating the following expenses as capital in nature : i) Matters with due diligence 30,27,548/- ii) Property valuation matter 11,236/- iii) Business financial consultant 70,78,680/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 09-07-2010 allowed the appeal of the assessee on this identical issue. The relevant extracts of the ruling is reproduced below for reference: 4. On consideration of the above facts and submissions of the learned DR, we do not find any merit in the departmental appeal. The AO has not brought any material on record to show as to which of the bills/vouchers of the expenditure has not been produced before him. Even, no quantum of amount is specified as to how which expenditure was not supported by any bills/vouchers. The AO has also not pointed out as to which of the expenditure was inadmissible in nature. It, therefore, appears that the AO has made ad hoc addition of 15% out of the total expenditure. The learned CIT(A) was, therefore, justified in deleting the addition. 5. As a result, departmental appeal is dismissed. 7. In view of the above observations made by the ITAT, ground number 1 of the assessee s appeal is allowed. Ground number 2: disallowance of Attimari Coolie expenses: 8. The brief facts in relation to this disallowance are that the assessee claimed Attimari Coolie expenses amounting to 4,73,245/- out of which Ld. CIT(Appeals) confirme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copies of claimed bills and vouchers. It is noticed the payment for the labour work have been shown made to various claimed workers' unions, rather than payment being made directly to the labourers or contractors etc. The following pertinent observations are culled out from them: 1) The claimed bills from the workers' unions have neither address nor phone number on them. Therefore, they are not verifiable. 2) All payments are shown in cash, even one of them is not by cheque. Now going by the judgment of Hon'ble Gujarat High Court in the case of Joshi v CIT (209 ITR 324) wherein the High Court has observed that observed that in order to be entitled to deduction of payments made to persons whose names are not disclosed, the assessee has to: a) Establish the practice prevailing in That line of business for making such payments: b) To adduce satisfactory evidence to establish The payments: and c) To satisfy the authorities that the payments were made for the purpose of business. The appellant may have sufficiently established the practice prevailing but the payments have not been established nor the extent of the requirement or purpose fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are enclosed at pages 5 to 163 of the assessee's paper book. We find that similar disallowance in earlier years have not been challenged by Revenue, deleted by CIT(A). Going by the decision of Hon'ble Gujarat High Court in the case of G.G. Joshi (supra), and findings of CIT(A), we find no infirmity in the order of CIT(A). Hence, this issue of Revenue's appeal is dismissed. 10. In light of the submission by the counsel for the assessee, ground number 2 and 3 of the assessee s appeal are dismissed as being not pressed. Ground number 3: applicability of provisions of section 40A(3) of the Act to Attimari Coolie expenses: 11. As per the counsel for the assessee, since ground number 2 and 3 of the assessee s appeal are with respect to the same issue, and the ITAT Mumbai in the assessee s own case for assessment year 2011-12 has confirmed the addition to the extent of 25%, the assessee shall not be pressing for grounds of appeal number 3. 12. In the result, ground number 3 of the assessee s appeal is being dismissed as not pressed. Ground number 4: inclusion of excise duty component of 4,89,852/- in the closing stock of consumables 13. The bri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nished goods. Referring to the judgment of the Supreme Court in the case of CIT v. British Paints India Ltd.[1991] 188 ITR 44/ 54 Taxman 499 as well as accounting practices of the ICAI, the Assessing Officer held that excise duty would be part of manufacturing expenses and, hence, an integral element for valuation of inventory of finished goods. The Commissioner (Appeals) allowed the assessee's appeal. The Tribunal upheld the order of the Commissioner (Appeals). In appeal, the High Court held that under excise law, an assessee incurs liability to pay excise duty only upon both events taking place, namely, manufacture of excisable goods and removal of excisable goods and for purpose of Income-tax Act, position in law is not different. Therefore, excise duty cannot be included in value of closing stock of finished goods at end of accounting period. 16. In view of the above decisions including one rendered by the jurisdictional Gujarat High Court in the case of Narmada Chematur Petrochemicals supra, ground number 4 of the assessee s appeal is allowed. Ground number 5: CIT erred in enhancing the assessment by making disallowance out of consultancy expenses by treating the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d an amount to its foreign associate entity which helped assessee to identify potential investors in different countries and its efforts had benefitted assessee in its business, impugned payment made by assessee was to be allowed under section 37(1) of the Act. A perusal of the contents of the business consultancy services suggests that the expenses are revenue in nature incurred during the course of business, with a view to expanding the existing business. The Ld. CIT(A) has not given any specific reason why this expenditure qualifies as a capital expenditure. Now, coming to agreement with M/s AZB Partners, we observe that the assessee has paid a sum of 30,27,548/- towards due diligence services. This expenditure was incurred keeping in line the strategy of the assessee company to attract investors to invest in the assessee company. These services were availed at the behest of M/s Franklin Templeton, who wanted a due diligence study conducted on the company so as to decide whether financial investments could be made in the assessee company. In the case of Onmobile Global Ltd. [2021] 129 taxmann.com 254 (Karnataka), the High Court held that Legal and professional expenditure incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above expenses were required to be capitalized by the assessee. In result, looking into the facts of the instant case, we are of the considered view that the expenses are revenue in nature and in the light of above discussion, ground Number 5 of the assessee s appeal is allowed. 20. Accordingly, ground number 5 of the assessee s appeal is allowed. 21. Regarding the additional grounds raised by the assessee, since the issue under consideration the additional Grounds of appeal have already been adjudicated upon in the preceding paragraphs, we are not separately discussing the additional Grounds of appeal. 22. In the combined result, the appeal of the assessee is partly allowed. ITA No. 2038/Ahd/2013 23. This is an appeal filed by the assessee against the penalty confirmed by Ld. CIT(Appeals) in respect of the aforesaid additions. 24. In the quantum proceedings, we have allowed the assessee s appeal on merits in respect of some of the Grounds (Grounds 1, 4 and 5), while some grounds were not pressed by the assessee (Grounds 2 and 3). With respect of Grounds of Appeal number 2 and 3, the assessee has agreed to follow the order of ITAT of earlier years, in whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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