Nimit Texo Fab.Pvt.Ltd.,, Surat v. The Income tax Officer, Ward-1(4),, Surat

ITA 3566/AHD/2007 | 2004-2005
Pronouncement Date: 13-01-2011 | Result: Allowed

Appeal Details

RSA Number 356620514 RSA 2007
Bench Ahmedabad
Appeal Number ITA 3566/AHD/2007
Duration Of Justice 3 year(s) 4 month(s) 20 day(s)
Appellant Nimit Texo Fab.Pvt.Ltd.,, Surat
Respondent The Income tax Officer, Ward-1(4),, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 13-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted D
Tribunal Order Date 13-01-2011
Date Of Final Hearing 03-01-2011
Next Hearing Date 03-01-2011
Assessment Year 2004-2005
Appeal Filed On 24-08-2007
Judgment Text
- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI MAHAVIR SINGH JM AND D.C.AGRAWAL AM NIMIT TEXO FAB (P) LTD. 4026 WORLD TRADE CENTRE UDHNA DARWAJA RING ROAD SURAT. VS. THE INCOME-TAX OFFICER WARD 1(4) SURAT. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SMT. URVASHI SHODHAN AR RESPONDENT BY:- SMT. SUMIT KAUR D.R. O R D E R PER D.C. AGRAWAL ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A) RAISING FOLLOWING GROUNDS :- (!) LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CON FIRMING THE ADDITION OF CENVAT ON OPENING STOCK OF RAW MATERIALS AMOUNTING TO RS. 14 55 081/- LD CIT(A) HAS GROSSLY IGNORED THE FACTS PROVISIONS OF SECTION 145 A OF T HE I.T. ACT WITHOUT CONSIDERING THE EFFECT GIVEN IN P. & L. A/E BALANCE SHEET AND COMP UTED RETURN INCOME. IN THE PRESENT CASE THE BOOKS OF ACCOUNT MAINTAINED AS PER MANDAT ORY ACCOUNTING STANDARD AS-2 TO THE EXTENT OF VALUATION OF INVENTORIES AND EFFECT GIVEN ACCORDINGLY IN THE BOOKS OF ACCOUNT. HOWEVER AS PER PROVISION OF SECTION 145 A THE VAL UATION OF INVENTORIES SHOULD BE CONSIDERED BY ADDING THE ELEMENTS OF EXCISE DUTY AN D HENCE TAXABLE INCOME COMPUTED ACCORDINGLY. (2) LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN COR NING TO CONCLUSION THAT THE ASSESSEE CANNOT INCREASE ITS OPENING STOCK BY ADDING EXCISE DUTY (CENVAT) IN THE CURRENT YEAR WHEN IT WAS NOT ADDED IN THE LAST YEAR. IN FACT ALL THES E CALCULATION AND ENTRIES HAVE BEEN MADE FOR ARRIVING THE QUANTUM OF CENVAT TO BE PAID AND W HILE COMPUTED THE TAXABLE INCOME. ALL THE EFFECT OF CENVAT IS WIPE OUT AND THERE WERE NO RELEVANT THE FACTS COVERED IN THE CASE QUOTED BY THE LD. CIT(A). ITA NO.3566/AHD/2007 ASST. YEAR 2004-05 ITA NO.3566/AHD/2007 ASST. YEAR 2004-05 2 (3) BOTH THE LOWER AUTHORITIES HAVE ERRED IN LAW AN D ON FACTS IN PASSING THE ORDER WITHOUT ANY APPLICATION OF MIND AND WITHOUT PROPERLY APPREC IATING THE FACTS AND FURTHER ERRED IN GROSSLY IGNORING VARIOUS SUBMISSION EXPLANATIONS A ND INFORMATION SUBMITTED BY THE APPELLANT FROM TIME TO TIME WHICH OUGHT TO HAVE BEE N CONSIDERED BEFORE PASSING THE IMPUGNED ORDERS. (4) INITIATION OF PENALTY PROCEEDINGS U/S. 271(1) ( C) OF THE ACT IS NOT JUSTIFIED AS ALL THE FACTS HAVE BEEN DISCLOSED IN THE RETURN OF INCOME AND THERE WAS NO FAILURE TO DISCLOSE THE TRUE PARTICULARS OF INCOME/ FOR FURNISHING IN ACC URATE PARTICULARS OF INCOME OR CONCEALED THE PARTICULARS OF INCOME. THE APPELLANT CRAVES LEA VE TO ADD AMEND ALTER EDIT DELETE MODIFY OR CHANGE ALL OR ANY OF THE GROUNDS OF APPEA L AT THE TIME OF OR BEFORE THE HEARING THE APPEAL. 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS WHETHE R EXCISE DUTY ELEMENT IS TO BE INCLUDED WHILE VALUING CLOSING STO CK. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADIN G OF YARN. THE AO SOUGHT TO ADD SUM OF RS.14 55 081/- BEING THE EXCIS E DUTY ELEMENT IN THE CLOSING STOCK BY INVOKING THE PROVISIONS OF SECTION 145A. THE ASSESSEE SUBMITTED THAT ELEMENT OF CENVAT SHOULD BE CONSIDER ED BOTH IN OPENING AS WELL AS CLOSING STOCK. THIS PLEA WAS REJECTED BY TH E AO. THE LD. CIT(A) DECIDED TO MAKE ADDITION OF EXCISE DUTY IN THE CLOS ING STOCK ONLY SAYING THAT VALUE OF OPENING STOCK IS THE SAME AS THE CLOS ING STOCK OF THE EARLIER YEAR. THE LD. CIT(A) TOOK THE FOLLOWING VIEW :- 2.4 IN VIEW OF THE ABOVE IT IS CLEAR THAT THIS BE ING THE FIRST YEAR OF CHANGE THE ASSESSEE CANNOT BE ALLOWED TO ADJUST ITS OPENING STOCK BY ADDING EXCISE DUTY BECAUSE THE OPENING STOCK OF THE CURRENT YEAR HAS TO BE NECESSARILY THE SAME AS CLOSING STOCK OF THE LAS T YEAR. THEREFORE THE CLAIM MADE BY THE ASSESSEE IS PATENTLY WRONG AND HE NCE IT WAS RIGHTLY DISALLOWED BY THE AO. THE DISALLOWANCE MADE BY THE AO IS THEREFORE CONFIRMED AND THE GROUND OF APPEAL IS DISMISSED. WHILE TAKING ABOVE VIEW THE LD. CIT(A) RELIED ON TH E DECISION OF THE TRIBUNAL IN THE CASE OF WEST COAST PAPER MILLLS LTD . VS. ACIT 286 ITR (AT) 0252 WHEREIN IT IS HELD THAT THE PROVISIONS OF SECTION 145 SHALL PREVAIL AND PROVISIONS OF SECTION 145A SHALL NOT HA VE OVER RIDE EFFECT OVER SECTION 145. IT WAS ALSO HELD THAT WHENEVER TH E ASSESSEES CHANGED ITA NO.3566/AHD/2007 ASST. YEAR 2004-05 3 THEIR METHOD OF ACCOUNTING FROM ONE RECOGNIZED METH OD TO ANOTHER RECOGNIZED METHOD THERE IS BOUND TO BE TAX EFFECT IN THE YEAR OF CHANGE. BUT OVER THE YEARS IT IS TAX NEUTRAL THEN SUCH CHA NGE SHOULD BE ACCEPTED. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE ISSUE IS NOW COVERED PARTIALLY IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBU NAL IN THE CASE OF M/S VIPOR CHEMICALS P. LTD. VS. ADDL. CIT CIRCLE 4(2) BARODA IN ITA NO.4142/AHD/2008 PRONOUNCED ON 30/07/2010 AS UNDER :- 6. THE THIRD GROUND RELATES TO VALUATION OF CLOSIN G STOCK UNDER SECTION 145A AND RESULTANT ADDITION OF RS.1 86 469/- ON ACC OUNT OF EXCISE DUTY COMPONENT OF THE CLOSING STOCK. THE ISSUE IS NOW CO VERED BY THE DECISIONS OF HON. BOMBAY HIGH COURT IN CIT VS. MAHALAXMI GLAS S WORKS (P) LTD. (2009) 318 ITR 116 (BOM) CIT VS. MAHAVIR ALLUMINIU M LTD. (2008) 297 ITR 77 (DEL) ACCORDING TO WHICH ELEMENT OF EXCISE D UTY RELATING TO STOCK HAS TO BE CONSIDERED WHILE VALUING OPENING STOCK AS WELL AS CLOSING STOCK. IN THE PRESENT CASE THE AO HAS ONLY CONSIDERED THE EFFECT OF EXCISE DUTY COMPONENT IN THE CLOSING STOCK WHICH IS NOT PROPER. HE SHOULD ALSO CONSIDER THE EFFECT OF EXCISE DUTY IN OPENING STOCK AS WELL AND WORK OUT THE RESULTANT ADDITION. THE VALUATION OF CLOSING ST OCK THIS YEAR DONE AFTER INCLUDING DUTY COMPONENT WOULD OBVIOUSLY BE OPENING STOCK FOR SUBSEQUENT YEAR AS CONTENDED BY THE LD. AR. ACCORDI NGLY WE RESTORE THIS ISSUE TO THE FILE OF AO TO CALCULATE THE RESULTANT ADDITION AFTER ADJUSTING BOTH OPENING AS WELL AS CLOSING STOCK WITH THE EXCI SE DUTY COMPONENT. THIS GROUND OF ASSESSEES APPEAL IS ALLOWED BUT FOR STATISTICAL PURPOSES. 4. IN A RECENT JUDGMENT IN THE CASE OF ACIT VS. BOD AL CHEMICAL LTD. (AMALGAMATED WITH MILESTONE ORGANICS LTD.) IN ITA N O.1757/AHD/2010 ASST. YEAR 2000-01 PRONOUNCED ON 16.12.2010 THE DEC ISION HAS BEEN TAKEN AS UNDER :- 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE DECISION OF HON. GUJARAT HIGH COURT IN ACIT VS. NARMADA CHEMATUR PETROCHEMICALS LTD.(SU PRA) IS APPLICABLE ONLY FOR AND UPTO ASST. YEAR 1998-99 AS THAT JUDGME NT WAS GIVEN IN RESPECT OF THE FACTS OF THE CASE FOR ASST. YEAR 199 7-98. AFTER THE ITA NO.3566/AHD/2007 ASST. YEAR 2004-05 4 AMENDMENT BY THE FINANCE ACT (NO.2) 1998 WITH EFFEC T FROM 1 ST APRIL 1999 ABOVE AUTHORITY CANNOT BE MADE APPLICABLE. EV EN HON. GUJARAT HIGH COURT HAS OBSERVED THAT FOR ASST. YEAR 1997-98 PROVISIONS OF SECTION 145A COULD NOT BE INVOKED MEANING THEREBY T HAT POSITION WOULD BE DIFFERENT W.E.F. 1.4.1999 AFTER THE INTRODUCTION OF SECTION 145A. SECTION 145A READS AS UNDER :- SEC.145A METHOD OF ACCOUNTING IN CERTAIN CASES NOTWITHST ANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 145 THE VALUATION OF PURCHASE AND SALE OF GOODS AND INVENTORY FOR THE PURPOSES OF DETERMING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION SHALL BE (A) IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULAR LY EMPLOYED BY THE ASSESSEE; AND (B) FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY TAX DUTY CESS OR FEE (BY WHATEVER NAME CALLED) ACTUALLY PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VALUATION EXPLANATION FOR THE PURPOSES OF THIS SECTION ANY TAX DUTY CESS OR FEE (BY WHATEVER NAME CALLED) UNDER ANY LAW FOR THE TIME BE ING IN FORCE SHALL INCLUDE ALL SUCH PAYMENT NOTWITHSTANDING ANY RIGHT ARISING AS A CONSEQUENCE TO SUCH PAYMENT. A BARE READING OF ABOVE PROVISION SHOWS THAT VALUAT ION OF PURCHASES AND SALES OF GOODS AS WELL AS INVENTORY WILL NOT ONLY B E IN ACCORDANCE WITH THE ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE B UT ALSO WILL FURTHER BE ADJUSTED BY THE AMOUNT OF ANY TAX DUTY CESS OR FE ES ACTUALLY PAID BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOC ATION. THEREFORE EXCISE DUTY ACTUALLY PAID OR INCURRED BY THE ASSESSEE IN R ESPECT OF OPENING STOCK PURCHASE SALE OR CLOSING STOCK WOULD BE CONSIDERED FOR COMPUTING PROFITS AND GAINS OF THE BUSINESS OF THE ASSESSEE. THE DECI SION OF HON. GUJARAT HIGH COURT IN ACIT VS. NARMADA CHEMATUR PETROCHEMIC ALS LTD. (SUPRA) DOES NOT REALLY COME INTO CONFLICT WITH THE ABOVE P ROVISION AS EXCISE DUTY WHICH IS NOT ACTUALLY PAID WILL NOT FORM PART OF VA LUATION OF CLOSING STOCK AS PER SECTION 145A AND ALSO IN ACCORDANCE WITH THE DECISION OF HON. GUJARAT HIGH COURT IN THE ABOVE CASE WHICH ONLY SAY S THAT EXCISE DUTY WOULD BE PAYABLE ONLY ON THE REMOVAL OF GOODS FROM THE WAREHOUSE. THUS WHERE EXCISE DUTY IS NOT PAID AS THE GOODS ARE NOT REMOVED FROM THE WARE HOUSE QUESTION OF INCLUSION OF ANY EXCISE DUTY PAYA BLE ON FINISHED GOODS WOULD NOT ARISE UNLESS ASSESSEE HAS ACTUALLY PAID OR INCURRED SUCH EXCISE DUTY DURING THE COURSE OF PURCHASE OR MANUFACTURING . THE EXCISE DUTY WHICH IS NOT ACTUALLY PAID OR INCURRED CANNOT BE IN CLUDED EITHER BECAUSE OF THE JUDGMENT OF HON. GUJARAT HIGH COURT IN ACIT VS. NARMADA ITA NO.3566/AHD/2007 ASST. YEAR 2004-05 5 CHEMATUR PETROCHEMICALS LTD. (SUPRA) CASE OR BECAUS E OF PROVISIONS OF SECTION 145A. IN OTHER WORDS THE PROFIT UNDER THE HEAD BUSINESS OR PROFESSION HAS TO BE COMPUTED BY INCLUSION PRINCIP LE I.E. BY INCLUDING ELEMENT OF EXCISE DUTY CESS OR FEES ACTUALLY PAID O R INCURRED BY THE ASSESSEE IN RELATION TO THE ITEMS IN OPENING STOCK PURCHASE SALE OR CLOSING STOCK WHERE ASSESSEE IS ADOPTING A METHOD O F ACCOUNTING OPENING STOCK PURCHASE SALES AND CLOSING STOCK BY EXCLUSIO N PRINCIPLE THEN SUCH EXCLUSION PRINCIPLE WILL NO LONGER BE ACCEPTABLE AF TER INSERTION OF SECTION 145A AND FOR THE PURPOSES OF DETERMINING PROFITS UN DER THE HEAD BUSINESS OR PROFESSION ASSESSEE HAS TO NECESSARIL Y ADOPT INCLUSION PRINCIPLE. FOR ASST. YEAR PRIOR TO 1.4.1999 WHEN PR OVISIONS OF SECTION 145A WERE NOT IN FORCE ASSESSEE WAS FREE TO ADOPT E ITHER INCLUSION METHOD OR EXCLUSION METHOD FOR ACCOUNTING THE FOUR INGREDI ENTS OF TRADING/MANUFACTURING ACCOUNT I.E. OPENING STOCK P URCHASE SALES AND CLOSING STOCK AND WHERE ASSESSEE ADOPTED EXCLUSION METHOD THEN AO COULD NOT VALUE THE INVENTORY ALONE BY INCLUDING EX CISE DUTY ELEMENT IF GOODS ARE NOT REMOVED FROM THE WAREHOUSE. BUT NOW F OR ASST. YEAR SUBSEQUENT TO ASST. YEAR 1999-00 ASSESSEE MAY ADOPT ANY METHOD FOR HIS ACCOUNT BOOKS BUT FOR THE PURPOSE OF COMPUTING PROF IT UNDER THE HEAD BUSINESS OR PROFESSION HE HAS TO SHOW SUCH COMPUT ATION THROUGH INCLUSION PRINCIPLE IN VIEW OF THE PROVISIONS OF SE CTION 145A WITH THE RIDER THAT ONLY EXCISE DUTY CESS OR FEES ACTUALLY PAID OR INCURRED WILL HAVE TO BE ACCOUNTED FOR ADJUSTMENT. SINCE ASSESSEE HAS NOT FOLLOWED INCLUSION PRINCIPLE IN THE PRESENT CASE FOR COMPUTI NG PROFITS UNDER THE HEAD BUSINESS WE RESTORE THE MATTER TO THE AO TO GIVE OPPORTUNITY TO THE ASSESSEE TO COMPUTE SUCH PROFITS BY INCLUSION PRINC IPLES AND DIFFERENCE IF ANY HAS TO BE TREATED AS PROFIT OF THE ASSESSEE PR OVIDED IT IS ON POSITIVE SIDE. IF BY INCLUSION PRINCIPLE PROFITS TEND TO BE REDUCED THEN NO VARIATION IN THE PROFIT COMPUTED BY THE ASSESSEE IS CALLED FO R AS ASSESSEE IS NOT IN APPEAL BEFORE US. AS A RESULT APPEAL OF THE REVENU E IS ALLOWED BUT FOR STATISTICAL PURPOSES. THUS FOLLOWING THE INCLUSION PRINCIPLES THE AO WIL L CALCULATE THE NET EFFECT IN THE COMPUTATION OF PROFIT AFTER INCLUSION OF EXCISE DUTY ELEMENTS IN ALL THE FOUR INGREDIENTS OF TRADING ACCOUNT I.E. OPENING STOCK PURCHASE CLOSING STOCK AND SALES. WITH THE ABOVE OBSERVATION WE RESTORE THE MATTER TO THE FILE OF AO. THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ITA NO.3566/AHD/2007 ASST. YEAR 2004-05 6 5. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED BUT FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN OPEN COURT ON 13.1.11. SD/- SD/- (MAHAVIR SINGH) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEM BER AHMEDABAD DATED : 13.1.11. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD 1.DATE OF DICTATION 4/1/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 10/1/ 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..