Preval Pumps & Accessories (I) P.Ltd, ... vs Assessee

सव[ौी जोगींि िसंह, Ûयाियक सदःय एवं नरे Ûि कुमार ǒबãलैáया, लेखा सदःय के सम¢

BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND

SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER

आयकर अपील सं./I.T.A. No. 4868/Mum/2013 िनधा[रण वष[ / Assessment Year : 2007-08 (िनधा[

M/s.Preval Pumps & बनाम The DCIT, Cir. 7, बनाम/ Accessories (I) Pvt. Ltd. Mumbai. Vs. 228, Pragati Industrial Estate, N.M.Joshi Marg, Lower Parel, Mumbai 400001 ःथायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AACCP 1851F (अपीलाथȸ /Appellant) .. (ू×यथȸ / Respondent) अपीलाथȸ ओर से/ Appellant by: Shri D.J.Shukla ू×यथȸ कȧ ओर से/Respondent by: Shri R.N.D'souza

सुनवाई कȧ तारȣख / Date of Hearing :27.01.2015 घोषणा कȧ तारȣख /Date of Pronouncement :27.01.2015

आदे श / O R D E R

PER N.K. BILLAIYA, AM:

With this appeal the assessee has challenged correctness of the order of the Ld. CIT(A)-12, Mumbai dated 06/03/2013 pertaining to assessment year 2007-08. The assessee has raised four substantive ground of appeal..

2 I.T.A. No. 4868/Mum/2013 2. Before us the assessee has moved an application for withdrawing Ground No.3. Ground No.3 is accordingly dismissed as withdrawn.

3. Ground No.1 relates to the addition made under section 43B of the Income Tax Act, 1961(the Act) in respect of Modvat. During the course of the assessment proceedings, after considering the information given by the auditors in the tax audit report the AO observed that assessee has shown Rs.7,29,142/- as outstanding with the Excise Authorities. While invoking the provisions of section 43B of the Act, the AO was of the opinion that this statutory liability was not paid on or before the due date of filing of the return. The AO accordingly, disallowed Rs.7,29,142/-.

3.1 The assessee carried the matter before the Ld. CIT(A) and explained its method of accounting of modvat. It was explained that the assessee is following exclusive system of accounting. It was further explained that the method of accounting followed by the assessee is supported by the guidance note of ICAI. The Ld. CIT(A) was of the opinion that as the appellant has followed exclusive system of accounting regarding the valuation of stock it stand that the same has not been done as required to be done under section 145A of the Act. Upholding the addition made by the AO the Ld. CIT(A) observed that the AO has correctly held that the amount of Rs.7,29,142/- shown in the balance sheet as balance of deposit with excise authorities would need to be brought to tax. Aggrieved by this the assessee is before us.

3.2 Ld. Counsel for the assessee reiterated what has been stated before lower authorities. It is the say of Ld. Counsel that on identical set of facts the Hon'ble Bombay High Court in the case of CIT vs. Mahalakshmi 3 I.T.A. No. 4868/Mum/2013

Glass Works Pvt., 318 ITR 116 (Bom) has decided the issue in favour of the assessee.

3.3 Per contra, Ld. Departmental Representative supported the order of the Ld. CIT(A).

3.4 We have carefully perused the orders of the authorities below. We find that the Revenue authorities have not appreciated the facts in the right perspective. We also find that the accounting entries have not been properly understood by the Revenue authorities. Adjustment of Modvat to the value of closing stock would be revenue neutral if the entries are understood in the right perspective. We, therefore, restore this issue to the file of AO. The AO is directed to verify the entries explained by the assessee in relation to the modvat, be it inclusive or exclusive method, the assessee is directed to show that the adjustment would be revenue neutral. The AO is directed to verify the same. Ground No.1 is allowed for statistical purposes.

4. Ground No.2 relates to disallowance made by the AO to the extent of Rs.32,65,260/- out of the expenses shared by the assessee with its holding company.

4.1 While scrutinizing the return the AO noticed that assessee has made payments to M/s. Precision Valve (India) Ltd. amounting to Rs.45,74,304/-. The assessee was asked to explain the same. It was explained that the assessee is 100% subsidiary of M/s. Precision Valve (India) Pvt. Ltd. and there are common expenses incurred by the parent company which is shared by the assessee. However, no details were 4 I.T.A. No. 4868/Mum/2013

furnished by the assessee. The AO, therefore, disallowed the same and added back to the business income of the assessee.

4.2 The assessee carried the matter before Ld. CIT(A) and filed necessary details with documentary evidences. Such details were sent to the AO. In his remand report the AO stated that since specific query was raised during the assessment proceedings, the assessee did not file any detail in support of the claim of expenditure, and the AO asked Ld. CIT(A) not to accept these additional evidences. Ld. CIT(A) proceeded by observing that the assessee is sharing rent of the office premises with the holding company but no agreement was furnished. Similarly, director's remuneration is also not supported by any documents to show the sharing of the remuneration between the assessee and its holding company. Ld. IT(A) was convinced that the AO has rightly invoked the provisions of section 40A(2)(b) of the Act. Aggrieved by this, the assessee is before us.

4.3 Ld. Counsel for the assessee vehemently submitted that all necessary details were filed before the first appellate authority. The same were transmitted to the AO for verification/comments. The AO did not do so. It is the say of the Ld. Counsel that the claim of the expenditure is supported by documentary evidences.

4.4 Per contra, the Ld. Departmental Representative supported the findings of Revenue Authorities.

4.5 Having heard the rival submissions, we have carefully perused the orders of the authorities below. We find that the assessee has submitted details with supporting documents before Ld. CIT(A). It is also a fact 5 I.T.A. No. 4868/Mum/2013

that the same were transmitted to the AO for verification/comments. It is also a fact that the AO did not verify the same. In our considered opinion and in the interest of justice this issue needs verification at the assessment stage. We, therefore, restore this issue to the file of the AO. The assessee is directed to file the necessary details with supporting evidences before the AO and the AO is directed to decide the issue afresh after considering the details with supporting evidences filed by the assessee. Ground No.2 is treated as allowed for statistical purposes.

5. Ground No.4 relates to the treatment of interest income as income from other sources instead of business income. At the outset Ld. Counsel for the assessee stated that in the earlier assessment year interest of fixed deposits has been accepted under the head profits and gains of business or profession. Without assigning any reason the AO has changed the head of income and the Ld. CIT(A) confirmed the same. In our considered opinion this issue also needs to be verified that whether in earlier assessment years interest on bank deposits was taxed under the head profits and gains of business or profession and if found correct the same treatment should be given during the year under consideration. Ground No.4 is allowed for statistical purposes.

6. In the result, the appeal filed by the assessee is treated as partly allowed for statistical purposes.

Order pronounced in the open court at the time of hearing on 27th January, 2015.

Sd/- Sd/- (JOGINDER SINGH ) (N.K. BILLAIYA) Ûयाियक सदःय/JUDICIAL MEMBER लेखा सदःय / ACCOUNTANT MEMBER मुंबई Mumbai; Ǒदनांक Dated : 27.01.2015 6 I.T.A. No. 4868/Mum/2013

व.िन.स./ VM , Sr. PS

आदे श कȧ ूितिलǒप अमेǒषत/Copy षत of the Order forwarded to : 1. अपीलाथȸ / The Appellant 2. ू×यथȸ / The Respondent. 3. आयकर आयुƠ(अपील) / The CIT(A)- 4. आयकर आयुƠ / CIT

5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai

6. गाड[ फाईल / Guard file.

आदे शानुसार/ ार BY ORDER, स×याǒपत ूित //True Copy// उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुंबई / ITAT, Mumbai