Dcit Cir 1(1), vs Assessee

Before Shri N.K.Billaiya, AM and Shri Amit Shukla, JM

ITA No.741/Coch/2007 : Asst.Year 1997-98

The Dy.Commissioner of Income-tax M/s.Kochi Refineries Circle 1(1) बना म/ (Now merged with M/s.Bharat Ernakulam. Vs. Petroleum Corporation Ltd.) Ambalamugal Ernakulam -682 302 PAN : AABCC1084G. (अपी लाथ /Appellant) ( यथ/Respondent)

अपी लाथ क ओरसे /Appellant by : Shri Kishan Vyas [CIT-DR] यथ क ओरसे /Respondent by : Shri Girish Dave

सन ुवा ई क ता रख / घोषणाक ता रख/ Date of Hearing : 05.02.2015 Date of Pronouncement : 05.03.2015.

आदे श/ ORDER

Per Amit Shukla (JM) :

The aforesaid appeal has been filed by the Revenue against order dated 14.06.2007, passed by the Commissioner of Income-tax-II, Kochi [CIT(A)] u/s 154, for the assessment year 1997-98, mainly on the following grounds:-

"1. The learned Commissioner of Income-tax (Appeals) erred in deleting the additions made by the Assessing Officer in computing the book profit u/s 115JA of the Income-tax Act, on account of disallowance of provision for customs duty and provision for obsolete stores, amounting to Rs.12,20,728/- and 2 ITA No.741/Coch/2007 M/s.Kochi Refineries Ltd.(Bharat Petroleum Corpn. Ltd.)

Rs.100,10,163/- respectively, by holding that the above provisions are not unascertained liabilities. The Commissioner of Income-tax (Appeals) overlooked the fact that while computing the income under the normal provisions of the Act, the assessee itself had added back these provisions, evidencing that the same were made towards unascertained liabilities.

2. The learned Commissioner of Income-tax (Appeals) erred in directing to grant interest u/s 244A of the Income-tax Act, on the interest u/s 220(2) of the Act, which was denied by the Assessing Officer for the reason that it does not come under the purview of any of the clauses (a) and (b) of Section 244A(1) of the Act. The Commissioner of Income-tax (Appeals) erred in relying on the decision reported in 106 ITD page 308 as the decision is not applicable to the facts of this case.

3. The learned Commissioner of Income-tax (Appeals) erred in not considering the defect in column No.5 to form No.35 in the appeal filed by the assessee before him."

2. As per the revised return filed by the assessee, the total income computed under the normal provisions of the Act was at Rs.25,60,56,320 and under the provisions of section 115JA, the income was shown at Rs.32,67,85,620. However, as per the assessment order passed u/s 143(3), the income under the normal provisions of the Act was computed at a higher figure than the book profit u/s 115JA. Thereafter as a result of order passed by the appellate authorities, the computation of income as per the normal provisions of the Act was determined at Rs.11,33,87,900. Since this figure was less than book profit u/s 115JA, the same was omitted to be computed and the book profit u/s 115JA was considered to be the deemed income. The Assessing Officer (AO) issued notice u/s 154 seeking to rectify the provision 3 ITA No.741/Coch/2007 M/s.Kochi Refineries Ltd.(Bharat Petroleum Corpn. Ltd.)

for `obsolete stores' and provision for `custody duty' , which was to be added back in the book profit, but was deducted by the assessee. In the order passed u/s 154, he added back the provision for custom duty of Rs.12,20,728 and also the provision for obsolete stores of Rs.1,00,10,163. The assessee had also moved a petition for rectification u/s.154 on the ground that refund of interest u/s 220(2) was eligible for interest u/s 244A, after relying upon the decision of the Delhi High Court in the case of Modipon Limited v. CIT [(2004) 270 ITR 257 (Del.)] and Gujarat High Court in the case of CIT v. Gujarat State Warehousing [(2001) 256 ITR 596 (Guj.)]. However, the AO held that, both the decisions relied upon by the assessee pertain to interest u/s 244(1A) prior to the assessment year 1989-90, whereas the assessee' s case relates to grant of interest u/s 244A. Accordingly, he rejected the assessee' s application for interest u/s 244A for the refund of interest u/s 220(2).

3. In the first appeal, it was submitted that so far as the provisions for custom duty is concerned, the same is not an unascertained liability. It relates to goods already imported and kept under bond and custody of custom authorities. The total duty demanded was Rs.6,45,47,796, which has been quantified and ascertained as per the provisions of Customs Act, for which the assessee has created this provision. The assessee, however, made an actual payment of Rs.6,33,27,068. The AO, after applying the provisions of section 43B, has allowed the actual payment and disallowed difference of Rs.12,20,728. The learned CIT(A) held that the custom duty is as per the demand notice sent by the Custom Authorities and hence it is a quantified and ascertained liability. The AO is not dealing with the normal 4 ITA No.741/Coch/2007 M/s.Kochi Refineries Ltd.(Bharat Petroleum Corpn. Ltd.)

provisions of the Act, but the allowability of claim u/s 115JA. The disallowance can be made only if the liability is not quantified or unascertained. Since the liability is crystallized and ascertained in this case and is in accordance with the demand notice issued by the Custom Authorities, therefore, such an addition made by the AO is uncalled for. Regarding the disallowance of provisions of obsolete stores, it was clarified before the CIT(A) that the amount has been ascertained on the basis of the extent of moving stock and the difference between the book value and the net realizable value of this stock. The provision created is towards the loss on realization of this item and hence it is not an item of liability. It is actually diminution or reduction in the value of inventory which has been computed as per the Standard Accounting norms. The learned CIT(A), after examining the issue in detail, agreed with the assessee that here it was a case of reduction in the value of assets, which has been computed as per the applicable accounting norms. It is not a case of unascertained liability. Accordingly, he deleted the said disallowance. Lastly, regarding non-granting of interest u/s 244A on the interest paid u/s 220(2) of Rs.7,58,40,853, the CIT(A) relied upon the decision of the ITAT Cochin Bench in the case of State Bank of Travancore, reported in 106 ITD 308 and held that the AO is bound to grant interest to the assessee on the amount of interest on the tax refundable, which was delayed by the department.

4. After hearing the parties, we find that so far as the disallowance of provision of custom duty by the AO, it is not a case of unascertained liability because the custom duty has been determined as per the demand notice sent by the Custom Authorities, which is not only quantified but also 5 ITA No.741/Coch/2007 M/s.Kochi Refineries Ltd.(Bharat Petroleum Corpn. Ltd.)

ascertained. Once it is an ascertained liability, the same has to be allowed while computing the book profit u/s 115JA, which is prepared in accordance with Schedule VI of the Companies Act. Thus, we do not find any reason to deviate from the finding of the CIT(A), which is legally correct. Regarding the disallowance of provision for obsolete stores, it is seen that the amount has been ascertained by the assessee on the basis of extent of moving stock and the difference between the book value and net realizable value. The provision is created towards the loss on realization of the obsolete stores, which is actually a diminution or reduction in the value of inventory, which has been computed as per the Standard Accounting Norms. Hence, it cannot be held that it is an unascertained liability. Accordingly, the order of the CIT(A) on this score is confirmed.

5. Lastly, on the issue of grant of interest u/s 244 on the interest paid u/s 220(2) and 244A, we agree with the finding of the CIT(A) because section 244A clearly stipulates that if the refund of any amount becomes due to the assessee under this Act, then he shall be entitled to receive the interest. The interest paid u/s 220(2) is also a part of the demand under the provisions of the Act, and while working out the refund, the AO is bound to give interest on refund of such amount. It does not tantamount to interest on interest Accordingly, the Revenue' s ground on this score is dismissed.

6. Regarding ground No.4 that, the CIT(A) has erred in not considering the defect in column No.5 of Form No.35, we find that instead of mentioning in the column the order passed u/s 154, the assessee has mentioned order u/s 143(3), this itself cannot be a fatal mistake so as to render the entire 6 ITA No.741/Coch/2007 M/s.Kochi Refineries Ltd.(Bharat Petroleum Corpn. Ltd.)

order of the CIT(A) as illegal. Such a ground is devoid of any merit and hence same is dismissed.

7. पर णामतःर ाज व क अपी ल खार ज क जा तीह ै।In the result, the appeal by the Revenue is dismissed.

Order pronounced on this 05th day of March, 2015.

आदे श क घो षणा दना क ंः कोक गई ।

Sd/- Sd/- (N.K.Billaiya) (Amit Shukla) ले खासद य/ ACCOUNTANT MEMBER या ियक सद य/ JUDICIAL MEMBER

मं ब ुईMumbai; दना क ं Dated : 05th March, 2015. Devdas*

आदेशक ितिलप अ े षत/Copy of the Order forwarded to : 1. अपी लाथ / The Appellant 2. यथ / The Respondent. 3. आयकरआयु(अपी ल) / The CIT 4. आयकरआयु / CIT, Kochi. 5. वभागी य ि तिनि ध, आयकरअपीली य अि धकर ण, मु बई / DR, ं ITAT, Mumbai 6. गाड फा ईल / Guard file. आदे शानु सार / BY ORDER, स यापत ि त//True Copy//

उप/सहा यक पं जीका र(Dy./Asstt. Registrar) आयकरअपी लीय अि धकर ण, मु बई/ ITAT, Mumbai ं