The DCIT, (OSD), Circle-8,, Ahmedabad v. M/s. Transformers & Rectifiers (India) Ltd.,, Ahmedabad

ITA 702/AHD/2014 | 2010-2011
Pronouncement Date: 29-09-2016 | Result: Dismissed

Appeal Details

RSA Number 70220514 RSA 2014
Assessee PAN AACCT8243P
Bench Ahmedabad
Appeal Number ITA 702/AHD/2014
Duration Of Justice 2 year(s) 6 month(s) 20 day(s)
Appellant The DCIT, (OSD), Circle-8,, Ahmedabad
Respondent M/s. Transformers & Rectifiers (India) Ltd.,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 29-09-2016
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 29-09-2016
Date Of Final Hearing 27-09-2016
Next Hearing Date 27-09-2016
Assessment Year 2010-2011
Appeal Filed On 10-03-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (BEFORE SHRI N.K. BILLAIYA ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD JUDICIAL MEMBER) ITA. NO: 702/AHD/2014 (ASSESSMENT YEAR: 2010-11) D.C.I.T. (OSD) CIRCLE-8 AHMEDABAD V/S M/S. TRANSFORMERS & RECTIFIERS (INDIA) LTD. SURVEY NO. 340-350 CHANGODAR SARKHEJ BAVALA HIGHWAY SANAND AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AACCT8243P APPELLANT BY : SHRI PRASOON KABRA SR. D. R. RESPONDENT BY : NONE ( )/ ORDER DATE OF HEARING :27 -09-2016 DATE OF PRONOUNCEMENT : 29-09-2016 PER N.K. BILLAIYA ACCOUNTANT MEMBER: 1. THIS APPEAL BY THE REVENUE IS PREFERRED AGAINST THE ORDER OF LD. CIT(A)-XIV AHMEDABAD DATED 04.12.2013 PERTAINING T O A.Y. 2010-11. ITA NO702/AH D/2014 . A.Y. 2010-20 11 2 2. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE LD. C IT(A) ERRED IN DELETING THE ADDITION OF RS. 1 51 68 124/- MADE ON ACCOUNT OF CLOSING/UNUTILIZED BALANCE OF CENVAT/MODVAT TO THE CLOSING STOCK U/S. 145A OF THE ACT. 3. SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH SID ES WERE HEARD AT LENGTH. HAVING HEARD THE SUBMISSIONS WE HAVE CAREF ULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. 4. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS TH E A.O. OBSERVED THAT THE ASSESSEE HAD SHOWN THE AMOUNT RECEIVABLE O N ACCOUNT OF UNUTILIZED/CLOSING BALANCE ON ACCOUNT OF MODVAT/CEN VAT CREDIT IN THE TAX AUDIT REPORT WHICH WAS NOT INCLUDED IN THE VALU E OF CLOSING STOCK. INVOKING THE PROVISIONS OF SECTION 145A OF THE ACT THE A.O. ASKED THE ASSESSEE TO EXPLAIN WHY ADDITION U/S. 145A SHOULD N OT BE MADE. ASSESSEE FILED A DETAILED REPLY VIDE LETTER DATED 2 4.12.2012 EXPLAINING TO THE A.O. THAT IT IS FOLLOWING EXCLUSIVE METHOD O F ACCOUNTING INSOFAR AS CENVAT/MODVAT IS CONCERNED. IT WAS EXPLAINED THA T THIS METHOD HAS BEEN WELL RECOGNIZED BY THE CHARTERED ACCOUNTAN TS OF INDIA AND IS FOLLOWED CONSISTENTLY YEAR AFTER YEAR AND THE REVEN UE HAS ACCEPTED IN THE PAST. 5. THE CONTENTIONS OF THE ASSESSEE DID NOT FIND ANY FA VOUR WITH THE A.O. RELYING UPON CERTAIN JUDICIAL DECISIONS THE A.O. M ADE AN ADDITION OF RS. 1 51 68 124/-. 6. ASSESSEE STRONGLY AGITATED THE ISSUE BEFORE THE LD. CIT(A) AND REITERATED ITS CONTENTION THAT IT IS FOLLOWING EXCL USIVE METHOD ITA NO702/AH D/2014 . A.Y. 2010-20 11 3 THEREFORE NO ADDITION SHOULD BE MADE ON ACCOUNT OF UNUTILIZED/CLOSING BALANCE ON ACCOUNT OF MODVAT/CENVAT CREDIT. 7. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS TH E LD. CIT(A) WAS CONVINCED THAT THE ASSESSEE HAS BEEN FOLLOWING EXCL USIVE METHOD FOR VALUING THE INVENTORY OF GOODS WHICH IT IS FOLLOWIN G FROM PRECEDING YEARS AND THE AUDITORS HAVE MADE NOTES TO THE ACCOU NTS THAT IF THE ADJUSTMENT ON ACCOUNT OF 145A IS MADE IT WOULD BE TAXED NEUTRAL. THE LD. CIT(A) ALSO DISAGREED WITH THE OBSERVATIONS OF THE A.O. THAT THE CREDIT OF MODVAT/CENVAT IS AN INCENTIVE. DRAWING SU PPORT FROM THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F INDO NIPPON CHEMICALS CO. LTD. 261 ITR 275 THE LD. CIT(A) WAS OF THE OPINION THAT THE ASSESSEE CANNOT CLAIM THE REFUND OF THIS ACCOUN T EVEN IF THE INDUSTRY IS CLOSED. THE LD. CIT(A) FINALLY CONCLUDE D BY OBSERVING THAT THE MODVAT/CENVAT CREDIT BALANCE AVAILABLE WITH THE ASSESSEE IS NEITHER INCOME NOR ANY INCENTIVE OR SUBSIDY WHICH C AN BE CONSIDERED AS INCOME OF THE ASSESSEE. INSOFAR AS THE APPLICA BILITY OF THE PROVISIONS OF SECTION 145A IS CONCERNED THE LD. CI T(A) HELD THAT ANY ADJUSTMENT WOULD BE TAX NEUTRAL AND ACCORDINGLY DEL ETED THE ADDITION OF RS. 1 51 68 124/-. 8. AGGRIEVED BY THIS THE REVENUE IS BEFORE US. THE LD . D.R. STRONGLY SUPPORTED THE FINDINGS OF THE A.O. PER CONTRA THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. 9. THE UNDISPUTED FACT IS THAT ANY ADJUSTMENT ON THIS ACCOUNT WOULD BE TAX NEUTRAL. THE CO-ORDINATE BENCH IN THE CASE OF A LPANIL INDUSTRIES IN ITA 169 & 170/AHD/2005 AS DISCUSSED THE PRINCIPLE RELATING TO THE ITA NO702/AH D/2014 . A.Y. 2010-20 11 4 VALUATION OF CLOSING STOCK U/S. 145A OF THE ACT AND THE RELEVANT FINDINGS OF THE CO-ORDINATE BENCH READ AS UNDER:- '17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE THE DISPUTE IS REGARDING VALUATION OF CLOSING STOCK IN VIEW OF THE INSERTION OF PROVISIONS OF SECTION USA OF THE ACT. THE LEARNED ASSESSING OFFIC ER OBSERVED THAT THE ASSESSEE HAS NOT INCLUDED THE ELEMENT OF EXCISE DUTY WHICH W AS PAID BY THE ASSESSEE ON HIS PURCHASES OF RAW MATERIAL. IN VIEW OF NON INCLUSION OF THIS EXCISE DUTY IN RESPECT OF WHICH MODVAT CREDIT WAS AVAILABLE TO THE ASSESSE E ACCORDING TO THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) INCOME OF RS.2 6 95 884/- WAS UNDERSTATED BY THE ASSESSEE. ON THE OTHER HAND THE CLAIM OF THE ASSESSEE IS THAT BY INCLUSION OF THIS EXCISE DUTY IN THE CLOSING STOCK THERE WILL NO EFFECT IN THE PROFIT AS THE CORRESPONDING AMOUNT WILL ALSO BE THEN INCLUDED IN THE PURCHASES. THE ASSESSEE IN SUPPORT OF THE ABOVE ARGUMENT RELIED UPON THE VI EW EXPRESSED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA IN ITS GUIDELINES WHEREIN IT WAS EXPLAINED THAT FOLLOWING OF EITHER INCLUSIVE METHOD OF ACCOUNTING OR EXCLUSIVE METHOD OF ACCOUNTING WILL NOT HAVE ANY EFFECT ON THE PROFIT D ISCLOSED BY THE PROFIT AND LOSS ACCOUNT. THE ONLY EFFECT OF FOLLOWING INCLUSIVE MET HOD WILL BE THAT THE EXCISE DUTY LIABILITY WILL APPEAR IN THE BALANCE SHEET WHICH WI LL BE ADDED HACK TO THE INCOME OF THE ASSESSEE IN VIEW OF THE PROVISIONS OF SECTIO N 43B TO THE EXTENT NOT PAID BY THE ASSESSEE BEFORE THE DUE DATE OF FURNISHING OF R ETURN OF INCOME UNDER SECTION 139(1} OF THE ACT. THE ABOVE VIEW WAS ALSO EXPRESSE D BY THIS BENCH OF THE TRIBUNAL IN THE CASE OF THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-1 BARODA VS. GUJARAT FLUORO-CHEMICALS LTD. IN ITA N0. 3742/AHD/2002 ASSESSMENT YEAR 1999-00 ORDER DATED 28.09.2006. IN OUR CONSIDERED OPINION THE LOWER AUTHORITIES HAVE NOT PROPERLY APPRECIATED T HE EFFECT OF SECTION 145A OF THE ACT. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS ) BY WAY OF AN ILLUSTRATION CONCLUDED THAT THERE WILL BE A DIFFERENCE IN THE PR OFIT ON FOLLOWING INCLUSIVE AND EXCLUSIVE METHOD OF ACCOUNTING FOR EXCISE DUTY. IN THE ILLUSTRATION CITED IN THE ORDER THE LEARNED COMMISSIONER OF INCOME TAX(APPEA LS) FOUND THE DIFFERENCE AT RS.80/-. ACCORDING TO THE LEARNED COMMISSIONER OF-I NCOME TAX(APPEALS) IN THE ITA NO702/AH D/2014 . A.Y. 2010-20 11 5 INCLUSIVE METHOD IN THE ILLUSTRATION THE ASSESSEE' S PROFIT WORKED OUT TO RS.380/- WHEREAS IN THE EXCLUSIVE METHOD THE ASSESSEE'S PRO FIT COMES TO RS.300/~. THUS THERE WAS- A DIFFERENCE OF RS.80/- IN THE PROFIT W E ON A CLOSER LOOK AT THE ILLUSTRATION FIND THAT THE DIFFERENCE HAS OCCURRED DUE TO AN ERROR BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN NOT CONSIDER ING THE EXCISE DUTY EXPENDITURE OF THE ASSESSEE. IT WAS OBSERVED FROM T HE ILLUSTRATION THAT ASSESSEE HAS COLLECTED EXCISE DUTY OF RS.180/- BY UTILIZING THE: ROW MATERIAL ON WHICH EXCISE DUTY OF RS. 100/- WAS PAID TO THE GOVERNMENT . THUS THE ASSESSEE WAS LIABLE TO PAY A FURTHER EXCISE DUTY OF RS.80/- TO THE GOVE RNMENT. WHEN THE EXPENDITURE OF RS.80/- IS TAKEN INTO ACCOUNT IN THE ILLUSTRATION G IVEN FOR INCLUSIVE METHOD THEN THE PROFIT AS PER INCLUSIVE METHOD ALSO WORKS OUT TO RS .300/- WINCH IS EXACTLY THE SAME AS PER EXCLUSIVE METHOD FURTHER THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THE ILLUSTRATION CITED IN HIS ORDER HAS NOT ACCOUNTED FOR THE AMOUNT OF MODVAT UTILIZED BY THE ASSESSEE IN PAYMEN T OF EXCISE DUTY IN RESPECT OF RAW MATERIAL NOT UTILIZED FOR MANUFACTURING. IN THE ILLUSTRATION THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS SHOWN THAT ASSESSEE HAS UTILIZED AMOUNT OF RS.180/-OUT OF AMOUNT OF RS.200/- OF EXCI SE DUTY PAID ON PURCHASE AGAINST THE EXCISE DUTY LIABILITY OF RS.180 ON SALE S. HOWEVER THIS UTILIZATION OF'RS.180/- WAS ALLOWED TO THE ASSESSEE IN RESPECT OF STOCK WHICH WAS NOT USED FOR MANUFACTURING ALSO TO THE EXTENT OF RS.80/-. THE LE ARNED COMMISSIONER OF INCOME TAX(APPEALS) IGNORED THE FACT THAT IF IN FUTURE THE CLOSING STOCK IS NOT UTILIZED FOR MANUFACTURING THEN THE MODVAT CREDIT UTILIZED WOUL D HE REVERSED AND THE ASSESSEE WOULD BE FURTHER LIABLE TO PAY RS.80/ TO T HE GOVERNMENT. IN A NUTSHELL THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ARRIVED AT A WRONG CONCLUSION BECAUSE OF NOT CONSIDERING THE ASSESSEE'S LIABILITY FOR UTILIZATION OF MODVAT CREDIT IN RESPECT OF UNCONSUMED RAW MATERIAL. THE ISSUE CA N BE LOOKED INTO FROM YET ANOTHER ANGLE. SECTION 145A REQUIRES REVALUATION OF NOT INVENTORY ALONE BUT ALSO REQUIRES REVALUATION OF PURCHASE AND SALES. ON REVA LUATION OF PURCHASE BY INCLUDING THE AMOUNT OF EXCISE DUTY IN RESPECT OF W HICH MODVAT CREDIT IS AVAILABLE TO THE ASSESSEE THE PURCHASE OF THE ASSE SSEE WILL INCREASE RESULTING IN CORRESPONDING DECREASE IN THE PROFIT OF THE ASSESSE E. THE ASSESSEE'S CONTENTION ITA NO702/AH D/2014 . A.Y. 2010-20 11 6 THAT VALUE OF CLOSING STOCK IS CREDITED IN THE PROF IT AND LOSS ACCOUNT TO SET OFF THE VALUE OF UNCONSUMED ITEMS OF PURCHASE AND THEREFORE BOTH SHOULD HAVE SAME BASIS CANNOT BE CONTROVERTED. THE ONLY EXCEPTION TO THIS THEORY IS THAT WHEN THE MODVAT VALUE IS LESS THAN THE COST THEN EFFECTIVELY UNREALIZED LOSS IS ALLOWED AS A DEDUCTION TO THE ASSESSEE ON THE WELL SETTLED PRINC IPLES. IN THE INSTANT CASE THE LOWER AUTHORITIES WERE NOT JUSTIFIED IN REVALUING O NLY CLOSING STOCK SO AS TO INCLUDE THE AMOUNT OF EXCISE DUTY PAID ON PURCHASE WITHOUT REVALUING THE CORRESPONDING PURCHASES. WE HAVE GONE THROUGH THE GUIDELINES EXPLAINED BY THE ICAI AND FIND OURSELVES IN AGREEMENT THEREWITH THAT THERE WILL NOT BE ANY EFFECT ON THE PROFIT OF LOSS ARRIVED AT EITHER BY FOLLOWING I NCLUSIVE METHOD OF ACCOUNTING OR EXCLUSIVE METHOD OF ACCOUNTING FOR EXCISE DUTY. THE ONLY EFFECT WILL BE THAT THE EXCISE DUTY PAYABLE ON CLOSING STOCK OF FINISHED GO ODS WILL BE TO THE EXTENT NOT DEPOSITED WITH THE GOVERNMENT BEFORE THE DUE DATE O F FURNISHING OF RETURN WILL BE ADDED TO THE INCOME OF THE ASSESSEE IN VIEW OF PROV ISION OF SECTION 43B OF THE ACT. IN VIEW OF THE DISCUSSION MADE HEREINABOVE IN OUR CONSIDERED OPINION THERE WILL BE NO EFFECT IN THE TAXABLE PROFIT OF THE ASSESSEE BY INCLUDING THE AMOUNT OF EXCISE DUTY PAID ON PURCHASES IN THE VALUE OF CLOSING STOC K OF RAW MATERIAL WHETHER AS RAW MATERIAL OR AS FORMING PART OF WORK-IN PROGRESS OR FINISHED GOODS. WE THEREFORE SET ASIDE THE ORDERS OF THE LOWER AUTHOR ITIES ON THIS ISSUE IN BOTH THE YEAR UNDER APPEAL AND ALLOW THE GROUNDS OF APPEAL O F THE ASSESSEE.' 10. DRAWING SUPPORT FROM THE AFOREMENTIONED FINDINGS OF THE CO- ORDINATE BENCH WE DO NOT FIND ANY ERROR OR INFIRMI TY IN THE FINDINGS OF THE LD. CIT(A). APPEAL FILED BY THE REVENUE IS ACCO RDINGLY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 29 - 09- 2 016. SD/- SD/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH