ACIT, New Delhi v. Beena Gupta,, New Delhi

ITA 3771/DEL/2009 | 2006-2007
Pronouncement Date: 08-01-2010 | Result: Dismissed

Appeal Details

RSA Number 377120114 RSA 2009
Bench Delhi
Appeal Number ITA 3771/DEL/2009
Duration Of Justice 4 month(s) 3 day(s)
Appellant ACIT, New Delhi
Respondent Beena Gupta,, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 08-01-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 08-01-2010
Date Of Final Hearing 04-11-2009
Next Hearing Date 04-11-2009
Assessment Year 2006-2007
Appeal Filed On 04-09-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B NEW DELHI BEFORE SHRI DEEPAK R SHAH ACCOUNTANT MEMBER AND SHRI RAJPAL YADAV JUDICIAL MEMBER ITA NO.3771/DEL/09 ASSTT. YEAR 2006-07 ACIT CIRCLE 25 (1) 315-D 3 RD FLOOR VIKAS BHAWAN NEW DELHI. VS. BEENA GUPTA HD-48 UDYOG NAGAR ROHTAK ROAD NEW DELHI. (APPELLANT) (RESPONDENT) AND ITA NO.3772/DEL/09 ASSTT. YEAR 2006-07 ACIT CIRCLE 25 (1) 315-D 3 RD FLOOR VIKAS BHAWAN NEW DELHI. VS. SHYAM MOHAN GUPTA HD-48 UDYOG NAGAR ROHTAK ROAD NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHOK K. SAROHA DR RESPONDENT BY : MOHD. IRSHAD QIDWAI ADVOCATE & C A RANJAN CHOPRA ORDER PER DEEPAK R SHAH ACCOUNTANT MEMBER ITA NO.3771 3772/DEL/09 ASSTT. YEAR 2006-07 2 BOTH THESE APPEALS BY REVENUE ARE DIRECTED AGAINST THE ORDERS OF LD. CIT(A) XXIV DATED 24 TH JUNE 2009 IN AN APPEAL AGAINST ASSTT. FRAMED U/S 143(3)OF THE INCOME TAX ACT (THE ACT). 2. SINCE COMMON ISSUES ARE INVOLVED IN BOTH THESE A PPEALS THE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OFF BY COMMON ORDER. 3. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAINST DELETION OF ADDITION MADE ON ACCOUNT OF REVALUATION OF CLOSING STOCK. THE ASSESS EE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF CONCEALINE COILS SPOOL PLASTIC PRE-FABRICATED OFFICE SHELTER AND PICKET ANGLES. 4. THE ASSESSEE WAS ASKED TO FURNISH THE BASIS OF V ALUATION OF CLOSING STOCK. THE ASSESSEE FURNISHED THE DETAILS OF VARIOUS ITEMS OF CLOSING STOCK LIKE RAW MATERIAL FINISHED GOODS ETC. THE AO NOTED THAT AS PER SECTION 145A THE VALUATION OF PURCHASE AND SALE OF GOODS AND INVENTORY FOR THE PURPOSE OF DETERMINING THE INCOME UNDER THE HEAD PROFIT AND GAINS OF BUSINESS SHALL BE FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY TAX DUTY CESS ETC. ACTUA LLY PAID TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE D ATE OF VALUATION. SECTION 145A HAS BEEN INSERTED VIDE FINANCE (NO. 2) ACT 1998 .W .E.F. 1.4.99. THE AO ALSO NOTED THAT HONBLE SUPREME COURT IN THE CASE OF CIT VS. BRITISH PAINTS INDIA LTD. REPORTED IN 188 ITR 44 WHEREIN IT WAS HELD AS UNDER :- ANY SYSTEM OF ACCOUNTING WHICH EXCLUDES FOR THE V ALUATION OF THE STOCK- IN-TRADE ALL COSTS OTHER THAN THE COST OF RAW MATE RIALS FOR THE GOODS-IN- ITA NO.3771 3772/DEL/09 ASSTT. YEAR 2006-07 3 PROCESS AND FINISHED PRODUCTS IS LIKELY TO RESULT IN A DISTORTED PICTURE OF THE TRUE STATE OF THE BUSINESS FOR THE PURPOSE OF COMPU TING THE CHARGEABLE INCOME . SUCH A SYSTEM MAY PRODUCE A COMPARATIVELY LOWER VALUATION OF THE OPENING STOCK AND THE CLOSING STOCK THUS SHOWI NG A COMPARATIVELY LOWER VALUATION OF THE OPENING STOCK AND THE CLOSIN G STOCK THUS SHOWING A COMPARATIVELY LOW DIFFERENCE BETWEEN THE TWO. IN A PERIOD OF RISING TURNOVER AND RISING PRICES THE SYSTEM ADOPTED BY T HE ASSESSEE AS FOUND BY THE TRIBUNAL IS APT TO DIMINISH THE ASSESSMENT OF THE TAXABLE PROFIT OF A YEAR. THE PROFIT OF ONE YEAR IS LIKELY TO BE SHIFTE D TO ANOTHER YEAR WHICH IS AN INCORRECT METHOD OF COMPUTING PROFITS AND GAINS FOR THE PURPOSE OF ASSESSMENTS. EACH YEAR BEING A SELF-CONTAINED UNIT AND THE TAXES OF A PARTICULAR YEAR BEING PAYABLE WITH REFERENCE TO THE INCOME OF THAT YEAR AS COMPUTED IN TERMS OF THE ACT THE METHOD ADOPTED BY THE ASSESSEE HAS BEEN FOUND TO BE SUCH THAT INCOME CANNOT PROPERLY B E DEDUCTED THEREFROM. IT IS THEREFORE NOT ONLY THE RIGHT BUT THE DUTY OF THE ASSESSING OFFICER TO ACT IN EXERCISE OF HIS STATUTORY POWER AS HE HAS DONE IN THE INSTANT CASE FOR DETERMINING WHAT IN HIS OPINION IS THE CORRECT TAXABLE INCOME. 5. THE AO THEREFORE HELD THAT BY NOT INCLUDING THE MODVAT ELEMENT IN THE CLOSING STOCK IN RESPECT OF RAW MATERIALS THE PROF ITS OF THE CONCERN HAS BEEN UNDERSTATED. THE ASSESSEE HAS INCLUDED SUCH COMPONE NT OF TAX / DUTIES IN RESPECT OF FINISHED GOODS. WHEREAS AS EVIDENT FROM THE SUBMISSION OF THE ASSESSEE SUCH COMPONENT HAS BEEN EXCLUDED FROM THE VALUATION OF CLOSING STOCK OF RAW MATERIALS. 6. BEFORE LD. CIT(A) IT WAS CONTENDED THAT THERE IS NO CHANGE IN THE METHOD OF ACCOUNT DURING THE YEAR. EVER SINCE SECTION 145A HAS BEEN INTRODUCED THE SAME HAS BEEN COMPLIED WITH. THE ASSESSEE ALSO SUB MITTED THAT THE VALUATION IS IN ACCORDANCE WITH THE ACCOUNTING STANDARD PRESCRIB ED BY THE INSTITUTE OF CHARTERED ACCOUNTANT OF INDIA IN AS2. THE SAME WAS EXPLAINED WITH EXAMPLES BY INCLUDING AS WELL AS EXCLUDING THE MODVAT CREDIT ON THE GOODS AND IT WAS ITA NO.3771 3772/DEL/09 ASSTT. YEAR 2006-07 4 EXPLAINED THAT UNDER EITHER OF THE METHOD THERE IS NO DIFFERENCE IN THE PROFITS COMPUTED. IN THE CASE OF SMT. BEENA GUPTA THE ASSES SEE FURNISHED PROFIT AND LOSS ACCOUNT SHOWING THE EFFECT OF ADJUSTMENT OF SE CTION 145A ON THE PROFITABILITY. THE SAME IS EXTRACTED HEREIN :- PROFIT & LOSS ACCOUNT SHOWING THE EFFECT OF ADJUSTM ENT OF SECTION 145A ON PROFITABILITY (FOR THE YEAR ENDING 31.3.2006 EXPENDITURE INCOME AMOUNT AMOUNT_____________ WITHOUT MODVAT/ WITH WITHOUT MODVAT/ WITH MODVAT EXCISE MODVAT MODVAT EXCISE MODVAT _________________________________ ___ __________________________ OPENING STOCK 12 898 355 8 00 180 13 698 535 SALES 223 255 850 9 559 496 23 2 815 346 PURCHASES 198 247 484 9 518 113 207 765 597 CLOSING STOCK EXCISE DUTY 1 746 603 1 746 603 RAW MATERIALS 16 156 500 2 505 400 18 661 900 (ED) PAYABLE ON VALUE ADDITION {ED ON SALES- (ED ON OS & PUR-ED ON RM STOCK)] EXCISE DUTY - 1 137 583 1 137 583 ON FINISHED GOODS GROSS PROFIT 40 746 110 - 40 746 110 251 891 949 13 202 479 265 094 428 251 891 949 13 202 47 9 265 094 428 SIMILAR COMPUTATION WAS GIVEN IN THE CASE OF SHYAM MOHAN GUPTA.THE ASSESSEE PLACED FURTHER RELIANCE ON THE FOLLOWING C ASES :- ITA NO.3771 3772/DEL/09 ASSTT. YEAR 2006-07 5 CIT LUDHIANA V. VANAIK SPG. MILLS LTD. 2008 (174 )-TAXMAN-0145-P&H ACIT INDORE V. D & H SECHERON ELECTRODES (P.) LTD . 2008-(173)- TAXMAN-0188-MP CIT LUDHIANA V. NAHAR SPG. MILLS LTD. 2008-(172)-T AXMAN-0005-P & H IN THE ITAT MUMBAI BENCH E IN THE CASE OF DCIT VS. BECK INDIA LIMITED ITA NO. 483/MUM/2005. LD. CIT (A) HELD AS UNDER :- 4.2 ADVERTING BACK TO THE FACTS OF THE CASE IT IS OBSERVED THAT THE AO HAS WORKED OUT THE QUANTUM OF MODVAT CREDIT AND ADDED T HE SAME TO THE VALUE OF THE CLOSING STOCK WITHOUT MAKING ANY ADJUSTMENT TO THE OPENING STOCK. FROM A BARE READING OF SECTION 145A IT IS CLEAR TH AT AN ADJUSTMENT HAS TO BE CARRIED OUT FOR TAX DUTY CESS OR FEE ON PURCHASES AND SALE OF GOODS AND INVENTORY FOR THE PURPOSES OF DETERMINING INCOME UN DER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THEREFORE IF THE AO HAS APPLIED SECTION 145A TO INCLUDE MODVAT CREDIT IN THE CLOSING INVENT ORY HE WAS DUTY BOUND TO MAKE CORRESPONDING INCREASES IN THE PURCHASES S ALE OF GOODS AND OPENING INVENTORY AS WELL. THE SECTION MENTIONS IN VENTORY AND LIMITING IT ONLY TO CLOSING INVENTORY DISREGARDING THE OPENING INV ENTORY WOULD BE NOT IN ACCORDANCE WITH THE PLAIN MEANING OF THE TERM INVE NTORY USED IN THE SECTION. INVENTORY WILL NECESSARILY INCLUDE WITHIN ITS FOLD BOTH OPENING AS WELL AS CLOSING. REVENUE IS IN FURTHER APPEAL BEFORE US. 7. LD. DR SUBMITTED THAT ONLY ADJUSTMENT IN CLOSING STOCK IS REQUIRED TO BE MADE. NO ADJUSTMENT CAN BE MADE IN THE OPENING STOC K AS THE OPENING STOCK OF THIS YEAR IS WHAT WAS THE CLOSING STOCK OF THE EARL IER YEAR. SINCE THE CLOSING STOCK OF THE EARLIER YEAR HAS NOT BEEN AMENDED THE OPENIN G STOCK OF THIS YEAR ALSO CANNOT BE AMENDED. LD. COUNSEL FOR ASSESSEE ON THE OTHER HAND SUBMITTED THAT IF SECTION 145A IS TO BE APPLIED THE SAME IS APPLIC ABLE TO INVENTORY AS A WHOLE AND NOT ONLY TO THE CLOSING STOCK ALONE. THOUGH SEC TION 145A WAS INTRODUCED FROM THE ASSTT. YEAR 1999-2000 ONLY FOR THIS YEAR THE AO HAS APPLIED THE SAME. ITA NO.3771 3772/DEL/09 ASSTT. YEAR 2006-07 6 THE ASSESSEE HAS DEMONSTRATED THAT IN EITHER CASE T HERE IS NO EFFECT ON THE ULTIMATE PROFIT TO BE COMPUTED AND THIS FACT HAS NO T BEEN PROVED TO BE INCORRECT BY THE AO. THE DECISION RENDERED BY COMMISSIONER (A ) IS IN ACCORDANCE WITH THE PRINCIPLE LAID DOWN BY VARIOUS DECISIONS OF THE TRI BUNAL AND ALSO IN ACCORDANCE WITH THE LAW LAID DOWN BY HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MAHAVIR ALLUMINIUM LTD. 297 ITR 77. 8. WE HAVE CAREFULLY CONSIDERED THE RELEVANT FACTS ARGUMENTS ADVANCED AND THE CASE LAWS CITED. THE ADDITION IS MADE BY AO IS ON BASIS OF HIS OBSERVATION IN PARA 5 (I) OF ITS ORDER. IN RESPONSE TO THE ASSERT ION OF THE ASSESSEE THAT WHETHER THE ACCOUNTS ARE PREPARED AS PER SECTION 145A OF TH E INCOME TAX ACT OR IN ACCORDANCE WITH THE AS2 RECOMMENDED BY THE INSTITUT E OF THE CHARTERED ACCOUNTANTS OF INDIA THERE WILL BE NO EFFECT ON TH E PROFITABILITY STATEMENT OF THE ENTERPRISE THE AO HAS CONTENDED THAT THE ASSERTION OF THE ASSE SSEE IS NOT CORRECT. IN ARRIVING AT THIS CONCLUSION HE HAS TAKEN SUPPORT FROM THE DECISION OF THE SUPREME COURT IN THE CASE OF BRITISH PAINTS INDIA LTD. REPORTED IN 188 ITR 44. HE HAS FURTHER OBSERVED IN PARA 5 (II) OF ITS ORDER THAT : THE CONTENTION OF THE ASSESSEE IS ACCEPTED ONLY TO THE LIMITED EXTENT OF ITS IMPACT ON PROFITABILITY CALCULATED ON THE BASIS OF SALE AND PURCHASE. HOWEV ER THE EXCLUSION OF SUCH DUTIES AND TAXES FROM THE VALUE OF CLOSING STO CK IS LIKELY TO RESULT IN A DISTORTED PICTURE OF THE TRUE STATE OF THE BUSINESS FOR THE PURPOSE OF COMPUTING THE CHARGEABLE INCOME. ITA NO.3771 3772/DEL/09 ASSTT. YEAR 2006-07 7 HERE WE FAIL TO UNDERSTAND HERE THAT HOW IN THE O PINION OF THE AO THERE IS NO EFFECT ON PROFITABILITY IF THE PROFIT IS CALCULATED ONLY ON THE BASIS OF SALE/PURCHASE AS COMPARED TO A SITUATION WHEN PROFIT IS CALCULATED WHERE SOME GOODS/MATERIALS ARE IN STOCK AS STOCK IS NOTHING B UT THE VALUE OF UNSOLD PURCHASES WHICH ARE REDUCED FROM THE VALUE OF PURC HASES WHILE ARRIVING AT PROFIT BY WAY OF CREDIT ENTRY IN THE PROFIT & LOSS ACCOUNT ; AND THEREFORE UNDER NO CIRCUMSTANCES THIS VALUE OF UNSOLD PURCHASES CAN EX CEED THE COST OF PURCHASE. THUS IF THE COST OF PURCHASE DOES NOT INCLUDE THE E XCISE DUTY THE VALUE OF CLOSING STOCK CAN NEVER INCLUDE THE SAME BY WAY OF THE PRINCIPLE OF BALANCING. 8.1. IT IS A WELL SETTLED PRINCIPLE OF LAW THAT VAL UATION OF CLOSING STOCK (INVENTORY) HAS TO BE ON THE BASIS OF PURCHASE COST IF THE PUR CHASES INCLUDE AN ELEMENT OF MODVAT BENEFIT THEN THE CLOSING STOCK SHOULD ALSO C ORRESPONDINGLY INCLUDE THE MODVAT BENEFIT. IN THE CASE OF CHAINRUP SAMPATRAM V . CIT [1953] 24 ITR 481 THE SUPREME COURT HAS DISCUSSED THE ABOVE PRINCIPLE OF BALANCING. IT HAS LAID DOWN FIRSTLY THAT PROFITS DO NOT ARISE OUT OF VAL UATION OF CLOSING STOCK. SECONDLY THAT VALUATION OF UNSOLD STOCK AT THE CLOSE OF THE ACCOUNTING PERIOD IS A NECESSARY PART OF THE PROCESS OF DETERMINING THE TRADING RESU LTS AND IT CANNOT BE REGARDED AS SOURCE OF SUCH PROFITS. THE TRUE PURPOSE OF CRED ITING THE VALUE OF UNSOLD STOCK IS TO BALANCE THE COST OF THE GOODS ENTERED ON THE OTHER SIDE OF THE ACCOUNT AT THE TIME OF THEIR PURCHASE SO THAT THE CANCELING OUT OF THE ENTRIES RELATING TO THE SAME STOCK FROM BOTH SIDES OF THE ACCOUNT WOULD LEAVE ON LY THE TRANSACTIONS ON WHICH THERE HAVE BEEN ACTUAL SALES IN THE COURSE OF THE Y EAR SHOWING THE PROFIT OR LOSS ITA NO.3771 3772/DEL/09 ASSTT. YEAR 2006-07 8 ACTUALLY REALIZED ON THE YEARS TRADING. IN SHORT THIS IS THE PRINCIPLE OF BALANCING. THE SUPREME COURT HAS FURTHER LAID DOWN THAT AS THE ENTRY FOR STOCK WHICH APPEARS IN A TRADING ACCOUNT IS MERELY TO CANCEL TH E CHARGE FOR THE GOODS PURCHASED AND WHICH HAVE NOT BEEN SOLD IT SHOULD N ECESSARILY REPRESENT THE COST OF THE GOODS. THEREFORE AS STATED HEREINABOVE WHATEVER IS IN PURCHASE SHOULD BE IN THE CLOSING STOCK. FOR EXAMPLE ONE BUYS 100 UNITS OF A MATERIAL @ 10/ - + EXCISE DUTY @ RS. 10% I.E. FOR RS. 1 100. SCENARIO 1 EXAMPLE OF PROFITABILITY WITHOUT STOCK IN HAND NOW IF ALL THE 100 UNITS ARE SOLD @ RS. 15/- + EXCI SE DUTY 10% I.E. FOR RS. 1650 THE PROFITABILITY UNDER BOTH THE METHOD AS HAS BEE N ADMITTED BY THE LEARNED JCIT IN PARA 5(II) OF ITS ORDER REMAIN THE SAME AS FOLL OWS : UNITS EXCLUSIVE INCLUSIVE METHOD METHOD SALE PRICE 100 1500 1650 LESS: PURCHASE 100 1000 1100 _____ 550 LESS EXCISE DUTY PAYABLE ON GOODS SOLD (NET OF MODVAT ) = 100*0.50 50 PROFIT 500 500 SCENARIO 2 EXAMPLE OF PROFITABILITY WITH STOCK IN HAND NOW IF OUT OF 100 UNITS PURCHASED AS ABOVE ONLY 90 UNITS ARE SOLD @ RS. 15/- + EXCISE DUTY 10% I.E. FOR RS. 1485 THE PROFITABILIT Y UNDER BOTH THE METHOD WILL STILL REMAIN THE SAME AS FOLLOW:- ITA NO.3771 3772/DEL/09 ASSTT. YEAR 2006-07 9 UNITS EXCLUSIVE INCLU SIVE METHOD METHOD SALE 90 1350 1485 LESS: COST OF SALES PURCHASE 100 STOCK 10 ------- 90 900 --------- 990 450 495 LESS EXCISE DUTY PAYABLE ON GOODS SOLD (NET OF MODVAT ) = 90*0.50 PROFIT 450 450 8.2 AS FAR THE CASE OF BRITISH PAINTS INDIA LIMITED IS CONCERNED IN THIS CASE THE SUPREME COURT WAS NOT DEALING THE CASE WHERE C OSTS; WHICH WERE EXCLUDED BY THE ASSESSEE FROM THE VALUATION OF STOCK WERE NO T PART OF COST IN THE PROFIT & LOSS ACCOUNT. IT WAS A CASE WHERE THE STOCK-IN-TR ADE HAD BEEN VALUED AT 84.49 PER CENT REPRESENTING THE ACTUAL COST OF THE RAW M ATERIALS. THE OVERHEAD CHARGES REPRESENTING 15.51 PER CENT OF THE TOTAL CO ST WHICH FORMED THE PART OF EXPENSES IN THE PROFIT & LOSS ACCOUNT HAD BEEN EXC LUDED FROM THE ASSESEES VALUATION OF THE STOCKS. IN THE PRESENT CASE THE VA LUE CENVAT CREDIT WHICH THE LEARNED JCIT HAS INCLUDED IN THE VALUATION OF CLOSI NG STOCK NEVER FORMED THE PART OF THE COST IN THE PROFIT & LOSS ACCOUNT. HENCE THE FACTS OF THE CASE OF BRITISH PAINTS INDIA LIMITED ARE CLEARLY DISTINGUISHABLE FROM THE PRESENT CASE. ITA NO.3771 3772/DEL/09 ASSTT. YEAR 2006-07 10 THIS ISSUE HAS BEEN PUT AT REST BY THE SUPREME COUR T IN CIT V. INDO NIPPON CHEMICAL CO. LTD. [2003] 130 TAXMAN 179 (SC) AFFIRM ING THE ORDER OF MUMBAI HIGH COURT IN [2000] 245 ITR 384/112 TAXMAN 555 (BO M.) AND CIT V. ANTIFRICTION BEARING CORPN. LTD. [2000] 246 ITR 295 (BOM.). RELE VANT EXCERPTS OF THE JUDGMENT ARE PRODUCED HEREUNDER : THE HIGH COURT HAS TAKEN THE SEVERAL ILLUSTRATIONS IN THE CHARTS PLACED BEFORE IT BY BOTH SIDES AND DEMONSTRATED THAT THERE ARE TWO POSSIBLE METHODS OF VALUATION OF STOCK. THE FIRST WOULD BE T HE GROSS METHOD IN WHICH THE STOCK IS VALUED AT COST PRICE INCLUSIVE O F THE EXCISE DUTY6 ELEMENT. IT THIS METHOD IS ADOPTED THEN THE UNCONS UMED STOCK ALSO MUST NECESSARILY BE VALUED IN THE SAME MANNER. THE OTHER METHOD IS THE NET METHOD IN WHICH THE RAW MATERIAL PURCHASED IS VAL UED AT THE ACTUAL COST THAT IS THE ACTUAL PURCHASE PRICE AND ON THIS MODV AT CREDIT WOULD BE AVAILABLE. IF THIS METHOD IS TO BE ADOPTED THEN UN IFORMLY THE SAME METHOD MUST BE ADOPTED WHILE VALUING THE UNCONSUMED STOCK AT THE END OF THE YEAR. WHICHEVER METHOD ONE ADOPTS THE RESULT WOULD BE TH E SAME. THE AFORESAID VIEW OF OURS ALSO FINDS SUPPORT FROM THE FOLLOWING RECENT CASES: CIT LUDHIANA V. VANAIK SPG. MILLS LTD. 2008-(174)- TAXMAN-0145-P&H ACIT INDORE V. D & H SECHERON ELECTRODES (P.) LTD. 2008-(173)- TAXMAN-0188 MP CIT LUDHIANA V. NAHAR SPG. MILLS LTD. 2008-(172)-T AXMAN-0005-P&H IN THE ITAT MUMBAI BENCH E IN THE CASE OF DCIT V S. BECK INDIA LIMITED ITAT NO. 483/MUM/2005. 8.3. THIS FINDING OF THE AO IS NOT A PROPER INTERPR ETATION OF THE LAW AS SECTION 145A DOES NOT FORCE UPON THE ASSESSEE THE PARTICULA R METHOD OF VALUATION OF STOCKS IT ONLY MEANS THAT IN CASE THE VALUE OF PU RCHASE SALE AND INVENTORY (NOT MERELY CLOSING INVENTORY) SHOULD ADJUSTED AS AFORESAID IN CASE THE SAME IS NOT INCLUSIVE OF IT AND THE TAXABLE PROFITS SHOULD BE W ORKED OUT ACCORDINGLY. THE MOST ITA NO.3771 3772/DEL/09 ASSTT. YEAR 2006-07 11 IMPORTANT POINT TO BE NOTED HERE IS THAT THE INVEN TORY HERE MEANS THE VALUE OF OPENING STOCK AS WELL AS CLOSING STOCK AS MAY B E INFERRED FROM PARA 52.2 CIRCULAR NO. 772 DATED 23 RD DECEMBER 1998 AS QUOTED BY THE AO IN PARA 6.2 OF ITS ASSESSMENT ORDER. THE AO HAS ONLY ADJUSTED THE VALUE OF CLOSING STOCK LEAVING ASIDE THE ADJUSTMENTS TO BE MADE IN VALUES OF PURCHASES SALES AND OPENING STOCKS AS PER THE MANDATE OF SECTION 145A O F THE INCOME TAX ACT 1961. 8.4. THE ITAT MUMBAI IN ITS ORDER DATED 11 TH SEPTEMBER 2008 IN THE CASE OF DCIT V. BECK INDIA LTD. IN ITA BNO. 383 AND 483 (MUM) OF 2005 IN THIS REGARD HAS OBSERVED AS UNDER :- FROM A BARE READING OF SECTION 145A IT IS CLEAR T HAT AN ADJUSTMENT HAS TO BE CARRIED OUT FOR TAX DUTY CESS OR FEE ON PURCHA SES AND SALE OF GOODS AND INVENTORY FOR THE PURPOSES OF DETERMINING INCOM E UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THUS IF THE ASSESSING OFFICER APPLIED SECTION 145A TO INCLUDE MODVAT CREDIT IN TH E CLOSING INVENTORY HE WAS DUTY BOUND TO MAKE CORRESPONDING INCREASES I N THE PURCHASE SALE OF GOODS AND OPENING INVENTORY AS WELL. THE SECTION MENTIONS INVENTORY AND LIMITING IT ONLY TO CLOSING INVENTORY DISREGA RDING THE OPENING INVENTORY WOULD BE NOT IN ACCORDANCE WITH THE PLAIN MEANING O F THE TERM INVENTORY USED IN THE SECTION. INVENTORY WILL NECESSARILY INC LUDE WITHIN ITS FOLD BOTH OPENING AS WELL AS CLOSING. [PARA 10] IN MELMOULD CORPN.S CASE (SUPRA) THE ASSESSEE HAD MADE A CHANGE IN THE METHOD OF VALUATION WHICH WAS NOT THRUSTED UPO N THE ASSESSEE BUT VOLUNTARILY ELECTED BY IT. SUCH A CHANGE SUO MOTU D ONE WOULD DEFINITELY BE DIFFERENT FROM ONE WHICH IS STATUTORILY INFLICTED WHERE AN ASSESSEE PER SE IS FORCED TO MAKE AN ADJUSTMENT TO VALUE OF ITS INV ENTORY. IN THE INSTANT CASE THE ASSESSEE WAS FOLLOWING EXCLUSIVE METHOD F OR ACCOUNTING DUTY AND WAS FORCED TO ADOPT AN INCREASED VALUATION IN I TS CLOSING STOCK ON ACCOUNT OF APPLICATION OF SECTION 145A. WHEN SUCH A CHANGE WAS THRUSTED UPON THE ASSESSEE DUE TO APPLICATION OF A STATUTORY PROVISION THE EFFECT THEREOF HAD TO BE GIVEN IN FULL. SECTION 145A MANDA TES THAT THE CHANGES ON ACCOUNT OF ADJUSTMENTS MENTIONED THEREIN HAVE TO BE GIVEN EFFECT ON PURCHASE SALE OF GOODS AND INVENTORY IN THE CASE OF CIT V. MAHAVIR ALLUMINIUM LTD. [2008] 297 ITR 77 THE DELHI HIGH CO URT HELD THAT WHEN ON ACCOUNT OF APPLICATION OF SECTION 145A A CHANGE PER SE IS FORCED UPON THE ITA NO.3771 3772/DEL/09 ASSTT. YEAR 2006-07 12 ASSESSEE IN THE VALUATION OF ITS CLOSING STOCK A C ORRESPONDING ADJUSTMENT IN OPENING STOCK HAS TO BE CARRIED OUT FOR CONSISTE NCY. 8.5. HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS . MAHAVIR ALLUMINIUM LTD. UPHELD THE DECISION OF TRIBUNAL WHEREIN IT WAS HELD THAT ADJUSTMENT ON ACCOUNT OF MODVAT CREDIT AND EXCISE DUTY COULD BE MADE IN OPEN ING STOCK ALSO. HONBLE HIGH COURT FURTHER HELD THAT PARAGRAPH 23.13 OF THE GUID ANCE NOTE ON TAX AUDIT UNDER SECTION 44AB ISSUED BY THE INSTITUTE OF CHARTERED A CCOUNTANTS OF INDIA MADE IT CLEAR THAT WHENEVER ANY ADJUSTMENT IS MADE IN THE V ALUATION OF INVENTORY THIS WILL AFFECT BOTH THE OPENING AS WELL AS THE CLOSING STOC K. IF ANY ADJUSTMENT WAS REQUIRED TO BE MADE BY A STATUTE EFFECT SHOULD BE GIVEN TO IT IRRESPECTIVE OF ANY CONSEQUENCES ON THE COMPUTATION OF INCOME FOR TAX P URPOSES. SECTION 145A BEGINS WITH A NON OBSTANTE CLAUSE AND THEREFORE TO GIVE EFFECT TO SECTION 145A IF THERE IS A CHANGE IN THE OPENING STOCK AS ON MARCH3 1 1999 THERE MUST NECESSARILY BE A CORRESPONDING ADJUSTMENT MADE IN T HE OPENING STOCK AS ON APRIL 1 1998. THUS THE QUESTION OF DOUBLE DEDUCTION DID NOT ARISE SINCE NO ADJUSTMENT WAS MADE BY THE ASSESSEE IN THE PROFIT A ND LOSS ACCOUNT FOR THE YEAR ENDING MARCH 31 1998. IN VIEW OF THE ABOVE THERE IS NO JUSTIFICATION FOR SUSTAINING THE ADDITION MADE BY AO. IN THE RESULT BOTH THE APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 8.1.2010. [RAJPAL YADAV] [DEEPAK R SHAH] JUDICIAL MEMBER ACCOUNTANT MEMBER VEENA DATED : ITA NO.3771 3772/DEL/09 ASSTT. YEAR 2006-07 13 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT TRUE COPY BY ORDER D EPUTY REGISTRAR ITAT