2014 (8) TMI 842 - AT - Income Tax

ITAT Mumbai Upholds Commissioner's Decisions on Bond Issue & Raw Material Stock

Asstt. Commissioner of Income Tax-4(2) Versus M/s. Hindustan Organics Chemicals Ltd.

The Appellate Tribunal ITAT Mumbai upheld the decisions of the Commissioner (Appeals) in both issues. The disallowance of bond issue expenses and the ... Bond issue expenses incurred for raising capital – Held that:- The matter has been decided by the High Court in assessee’s own case for the earlier assessment year in the judgment of Commissioner of Income Tax-4 Versus M/s. Hindustan Organics Chemicals Ltd. [2014 (7) TMI 477 - BOMBAY HIGH COURT] – Tribunal has rightly came to the finding that the expenditure was a revenue expenditure and allowable u/s 37(i) of the Act - the finding of the Tribunal cannot be in any way said to be vitiated on the ground of perversity or any error apparent on the face of the record – Decided against Revenue. Closing stock of raw materials on ad-hoc basis @ 2% made u/s 145A – Held that:- As decided in assessee’s own case for the earlier assessment year, it has been held that 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 to the closing stock in accordance with the provisions of section 145A of the Act - CIT(A) gave a finding that the assessee 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 and there is no change in the valuation of the stock - 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 – Decided against Revenue. Issues involved:1. Disallowance of bond issue expenses2. Disallowance in closing stock of raw material under section 145AIssue 1: Disallowance of bond issue expensesThe appeal was filed by the Revenue challenging the order passed by the Commissioner (Appeals) regarding the disallowance of bond issue expenses amounting to Rs. 9,13,519 under section 143(3) of the Income Tax Act, 1961 for the assessment year 2009-10. The Assessing Officer contended that the bond issue expenses were incurred to raise capital and should be treated as capital expenditure. However, the Commissioner (Appeals) accepted the assessee's contention, relying on earlier Tribunal orders and directed the Assessing Officer to allow the expenditure as revenue expenditure. Both parties agreed that the issue was decided in favor of the assessee by the Tribunal and the High Court also confirmed this decision. The Tribunal affirmed the Commissioner (Appeals) order, dismissing the Department's appeal.Issue 2: Disallowance in closing stock of raw material under section 145AThe second issue pertained to the disallowance made in the closing stock of raw material on an ad-hoc basis under section 145A. The Assessing Officer estimated 2% of the total value of the closing stock of raw materials as direct expenses and made an addition of Rs. 54,35,420. The assessee argued that the closing stock value already included freight charges and other direct expenses, supported by relevant documents. The Commissioner (Appeals) allowed the assessee's ground, following earlier Tribunal orders in the assessee's favor. Both parties acknowledged that this issue was decided in favor of the assessee by the Tribunal up to the assessment year 2008-09. The Tribunal, consistent with previous decisions, found no merit in the Department's appeal and dismissed it, upholding the Commissioner (Appeals) order.In conclusion, the Appellate Tribunal ITAT Mumbai upheld the decisions of the Commissioner (Appeals) in both issues, regarding the disallowance of bond issue expenses and the disallowance in the closing stock of raw material under section 145A. The Tribunal's rulings were based on previous Tribunal orders and the confirmation by the High Court, leading to the dismissal of the Revenue's appeal in both instances.