Asstt. Commissioner Of Income-Tax v. Hindustan Organic Chemicals Ltd.

Durga Rao, J.M:— This appeal filed by the Revenue is directed against the order of CIT(A)-10, Mumbai, passed on 06/12/2010 for the assessment year 2006–2007.

2. Ground No. 1 reads as under:—

“On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 2,98,02,560/- on account of delayed payment of employees' contribution to wards provident fund under the provisions of section 43B read with section 36(1)(va) of the Act.”

3. The AO disallowed the employees contribution towards PF of Rs. 2,98,02,560/- on the ground that the same was paid beyond the prescribed due date. Before the CIT(A), the assessee submitted that the entire contribution was paid before the due date of filing of income tax return and relied upon various case laws including the judgement of Hon'ble Supreme Court in the case of CIT v. Alom Extrusion Ltd., 319 ITR 306 (SC) wherein it was held that payment of employers contribution to PF is allowable on actual payment basis made before the due date of filing of return of income. The CIT(A) after considering the submissions of the assessee and following various case laws including the decision of Hon'ble Supreme Court in the case of Alom Extrusion Ltd. (supra) allowed the claim of the assessee. Aggrieved, the revenue is in appeal before us.

4. Before us, the learned counsel for the assessee canvassed that the issue stands covered by the decision of the ITAT, Mumbai in the own case of the assessee in ITA No. 3683.Mum/2010 for AY 2006–2007 vide order dated 26 August, 2011. A copy of the said order is available on record. The learned DR did not controvert the submissions made by the learned counsel for the assessee.

5. After hearing the parties and perusing the record, we find that the issue is covered by the decision of the ITAT in assessee's own case for AY 2006–2007 (supra) wherein the co-ordinate Bench respectfully following the decision of Hon'ble Supreme Court in the case of Alom Extrusion Ltd. (supra) allowed the claim of the assessee. Respectfully following the decision of the Coordinate bench in assessee's own case for AY 2006–2007 (supra), we uphold the order of the CIT(A) on this count and dismiss the ground raised by the revenue.

6. Ground No. 2 is directed against the action of the CIT(A) in deleting the disallowance of staff welfare expenses of Rs. 2,60,000/- u/s 40A(9) of the Act.

7. The AO noted that as per Annexure 6 to Form No. 3CD, an amount of Rs. 2,60,000/- is disallowable being the sum paid by the assessee as an employer, not allowable u/s 40A(9) of the Act, as the sum was claimed to have incurred for the celebration of the Independence Day and other occasions. On appeal, the CIT(A) allowed the claim of the assessee following the decision in the case of CIT v. B.G Shrike & Co., 264 ITR 83 (Bom.), on which reliance placed by the assessee. Aggrieved the revenue is in appeal before us.

8. Before us, the learned counsel for the assessee submitted this issue is also covered by the decision of the ITAT for AY 2006–2007 (supra) in assessee's own case. The learned DR on the other hand did not controvert the said submission of the learned counsel for the assessee.

9. After hearing both the parties and perusing the record, we find that this issue is also covered by the decision of the co-ordinate bench in assessee's own case for AY 2006–2007, wherein the Bench held as under:—

“6. The assessee explained to the AO that the said expenditure has been incurred for the celebration of sports and cultural activities on the occasion on the Independence Day and several other occasions. The AO did not accept the explanation of the assessee and disallowed the entire claim of Rs. 4 lakh u/s 40A(9) of the Act. The assessee carried the said issue bef ore the ld. CIT(A) who following the order for the AY 2004–2005 allowed the claim of the assessee. The learned DR fairly conceded that this issue stands covered in favour of the assessee in assessee's own case for AY 2004–2005. We, therefore, find no reason to interf ere with the order of the CIT(A) and accordingly same is confirmed.”

10. Since the issue is identical to that of AY 2006–2007, respectfully following the decision of the ITAT in that year, we uphold the order of the CIT(A) in allowing the claim of the assessee and dismiss the ground raised by the revenue.

11. Ground No. 3 is directed against the action of the CIT(A) in deleting the disallowance of Rs. 58,09,097/- u/s 145 of the Act.

12. The AO noted that the tax audit report showed that the assessee company had not considered the direct expenses while computing the value of closing stock. The AO, therefore, was of the view that such expenses were required to be loaded with for valuing the closing stock and the direct expenses, freight, storage, etc. were incurred on account of purchase of raw material. Since no details of the direct expenses had been furnished, the AO estimated the direct expenses at 2% of the total value of closing stock of raw materials and stores, which resulted in to the addition of Rs. 58,09,097/- to the closing stock in accordance with the provisions of section 145A of the Act. Aggrieved, the assessee carried the matter in appeal before the CIT(A).

13. Before the CIT(A), the AR of the assessee submitted that the AO had made addition of Rs. 58,09,97/- on estimate basis towards the transportation cost and other direct cost like freight, storage as incurred to closing stock of raw materials and a spare parts. He further submitted that no details were asked for by the AO. It was further submitted that the value of closing stock of raw materials and the stores were recorded at cost inclusive of freight and transportation. The AR submitted that the purchase book and general ledger of a particular day reflects that the purchase is accounted at Rs. 2,90,70,603/- which is inclusive of freight of Rs. 58,850/- and the general ledger reflects that the closing stock of Rs. 11,9,27,965/- is inclusive of freight. It was also brought to the notice of the CIT(A) that the issue is covered in favour of the assessee by the order of CIT(A) for AY 1999–1900, 2002–2003, 2004–2005 and 2006–2007. After considering the submissions of the assessee, the CIT(A) deleted the disallowance made by the AO by holding as under:—

“4.3 I have considered the fact. It is seen that the appellant has been valuing its closing stock of raw material inclusive of freight charges as ref lected from the purchase day book and general ledger of item having the value of Rs. 2.90 crore. It is further seen that there is no change in the valuation of the stock. I find that the valuation method has not been changed by the AO in past year and that no adjustment to this effect was made in the subsequent year. The closing stock of previous year would be the opening is stock of the year and theref ore estimation of the stock is not justif ied. Further the appellant is consistently following the same method of valuation of closing stock. This issue is also covered in favour of the appellant by the order of CIT(A) for assessment years 1999–1900, 2002–2003, 2004–2005 and 2006–2007 dated 17/12/2010. In view of these facts, the addition made by the AO is deleted. This ground of appeal is theref ore allo wed.”

14. Aggrieved by the order of CIT(A), the revenue is in appeal before us.

15. The learned DR besides relying upon the order of the AO submitted that since no details of direct expenses filed by the Assessee, the AO estimated the direct expenses at 2% of the total value of closing stock of raw materials and stores, which is proper and the same is in accordance with the provisions of section 145 of the Act.

16. On the other hand, the learned counsel for the assessee has strongly relied upon the order of the CIT(A).

17. We have considered the rival submissions, perused the record and gone through the orders of the authorities below. It is seen that since no details of the direct expenses were furnished, the AO estimated the direct expenses at 2% of the total value of closing stock of raw materials and stores, which resulted in to the addition of Rs. 58,09,097/- to the closing stock in accordance with the provisions of section 145A of the Act. The CIT(A) gave a finding that the appellant has been valuing its closing stock of raw material inclusive of freight charges as reflected from the purchase day book and general ledger of item having the value of Rs. 2.90 crore and there is no change in the valuation of the stock. The CIT(A) held that the closing stock of previous year would be the opening is stock of the year and therefore estimation of the stock is not justified. The CIT(A) finally deleted the addition following the earlier orders of CIT(A) in assessee's own case. After considering the facts of the case, we find no infirmity in the order of the CIT(A) in deleting the addition made by the AO and the same is hereby upheld. Accordingly, the ground raised by the revenue is dismissed.

18. In the result, appeal of the revenue is dismissed.