ESSEL PROPACK LTD ( FORMERLY ESSEL PACKAGING LTD), MUMBAI V. ADDL CIT RG 6(2), MUMBAI

ITA 1354/MUM/2011

• Counselvise Citation: 135419914 RSA 2011
• Duration Of Justice: 2 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 29-01-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 15-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Assessee Lawyers: RAJESH CHAMARIA
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 1354/MUM/2011 ASSESSMENT YEAR: 2006-07 ESSEL PROPACK LIMITED (FORMERLY ESSEL PACKAGING LTD.) 10 TH FLOOR, TIMES TOWER, KAMALA CITY SENAPATI BAPAT MARG. LOWER PAREL MUMBAI-. 400 013 VS. ACIT RANGE 6(2) MUMBAI. (APPELLANT) (RESPONDENT) PERMANENT ACCOUNT NO. :- AAACE 1568 L APPELLANT BY : SHRI RAJESH CHAMARIA RESPONDENT BY : SHRI PITAMBAR DAS DATE OF HEARING : 29.01.2014 DATE OF PRONOUNCEMENT : 07.02.2014 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD.CIT(A)-12, MUMBAI DATED 24.11.2010 FOR THE ASSES SMENT YEAR 2006-07. 2. IN THIS APPEAL, THE ASSESSEE HAS AGITATED THE AC TION OF THE LD.CIT(A) IN UPHOLDING THE ADDITION OF RS.390.86 LAKHS TO VALUE OF CLOSING STOCK ON ACCOUNT OF CENVAT CREDIT UNDER SECTION 145A OF THE INCOME TAX ACT. 3. BRIEFLY STATED, THE ASSESSEE, A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURER AND DEALER OF LAMINATES AND MULTILAYER COLLAPSIBLE LAMINATED TUBES, FOR THE YEAR UNDER CONSIDERATION, DECLARED A TOTAL INCO ME OF RS.52,06,39,609/-. THE AO COMPLETED THE ASSESSMENT U/S 143(3) BY ASSESSING TO TAL INCOME AT ITA NO. 1354/MUM/2011 ESSEL PROPACK LIMITED ASSESSMENT YEAR: 2006-07 2 RS.55,84,78,936/- AFTER MAKING VARIOUS ADDITIONS AN D DISALLOWANCES. THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING FOR VALUATION OF CLOSING STOCK OF EXCLUDING THE CENVAT. HOWEVER, THE AO REVALUED THE CLOSING STOCK BY INCLUDING CENVAT/MODVAT CREDIT IN CLOSING STOCKS ON THE GROUND THAT NON INCLUSION OF CENVAT CREDIT IS NOT ONLY IMPROPER BUT ALSO CANNOT DEPICT THE TRUE AND FAIR PICTURE OF TAXABLE PROFIT OF THE BUSINESS. ACC ORDINGLY, THE AO ADDED RS.390.86 LAKHS TO THE CLOSING STOCK BEING CENVAT CREDIT ATTR IBUTABLE TO IT WITHOUT MAKING CORRESPONDING INCREASE IN THE OPENING STOCK BY ADOP TING INCLUSIVE METHOD OF STOCK VALUATION. ON APPEAL, THE LD.CIT(A), WHILE UPHOLDIN G THE ADDITION OF CENVAT TO CLOSING STOCK, BY FOLLOWING THE DECISION OF THE JUR ISDICTIONAL HIGH COURT IN THE CASE OF MAHALAXMI GLASS WORKS P. LTD. 318 ITR 116, DIRECTED THE AO TO MAKE CORRESPONDING ADJUSTMENTS IN OPENING STOCK OF THE YEAR. AGGRIEVED BY THE IMPUGNED DECISION, THE ASSESSEE IS IN APPEAL BEFORE US. 4. BEFORE US, IT IS THE CONTENTION OF THE LD.AR OF THE ASSESSEE THAT THE LD.CIT(A) OUGHT TO HAVE ACCEPTED THE ACCOUNTING POLICY CONSIS TENTLY FOLLOWED BY THE ASSESSEE IN EARLIER YEARS. BUT IF UN-UTILIZED MODVAT CREDIT IS ADDED TO CLOSING STOCK THEN SIMILAR ADJUSTMENT SHOULD BE MADE EVEN IN OPENING S TOCK AND PURCHASES. IN SUPPORT OF THE SAID CLAIM, THE LD.AR HAS RELIED ON THE ORDE R OF THE TRIBUNAL IN THE CASE OF JINDAL IRON & STEEL COMPANY LTD. VS. DCIT 57 SOT 317. ON THE OTHER HAND THE LD. DR HAS RELIED ON THE ORDERS OF THE AO AND LD.CIT(A) . 5. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD. IT IS PERTINENT TO MENTION THAT THE LD.CIT(A) HAS OBSERVE D THAT SECTION 145A OF THE INCOME TAX ACT IS A MANDATORY STATUTORY PROVISION, WHICH HAS TO BE FOLLOWED AND ACCORDINGLY UPHELD THE ACTION OF THE AO TO THAT EXT ENT. HOWEVER, FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF MAHALAXMI GLASS WORKS P. LTD (SUPRA), WHEREIN IT HAS BEEN HELD THAT TO GIVE EFFECT U/S 14 5A, IF THERE IS ANY CHANGE IN CLOSING STOCK AT THE END OF THE YEAR THERE MUST BE NECESSARILY OF CORRESPONDING ADJUSTMENT IN THE OPENING STOCK OF THAT YEAR AND AC CORDINGLY DIRECTED THE AO TO CALCULATE DISALLOWANCE/ADDITION AFTER VERIFICATION. IN THIS CONNECTION IT IS PERTINENT TO MENTION THAT THE TRIBUNAL IN THE CASE OF JINDAL IRON & STEEL COMPANY LTD. (SUPRA) HAS HELD THAT IF UNUTILIZED MODVAT CREDIT IS ADDED TO CLOSING STOCK, THEN SIMILAR ITA NO. 1354/MUM/2011 ESSEL PROPACK LIMITED ASSESSMENT YEAR: 2006-07 3 ADJUSTMENT SHOULD BE MADE EVEN IN OPENING STOCK AND PURCHASES. THE TRIBUNAL FURTHER HELD THAT FROM THE PLAIN READING OF PROVISI ONS OF SECTION 145A, IT IS EVIDENT THAT FOR THE PURPOSE OF VALUATION OF PURCHASE AND S ALE OF GOODS AND INVENTORIES ON ACCOUNT OF TAX, DUTY, CESS OR FEE ACTUALLY PAID ARE INCURRED BY THE ASSESSEE HAS TO BE MADE. EXCISE DUTY COMPONENT IN THE FORM OF MODVAT I N THE RAW MATERIALS HAS TO BE INCLUDED WHILE VALUING THE PURCHASES AND SALES OF G OODS AND INVENTORIES AS IT HAS DIRECT BEARING ON VALUATION OF STOCK. THE TRIBUNAL IN THE SAID DECISION HAS CONSIDERED THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN TH E CASE OF MAHALAXMI GLASS WORKS P. LTD (SUPRA) WHICH HAS BEEN RELIED BY THE LD.CIT(A) . THEREFORE, FOLLOWING THE AFOREMENTIONED DECISION OF THE TRIBUNAL, WE MOD IFY THE DIRECTION OF THE LD.CIT(A) IN SUCH A MANNER THAT THE ISSUE IS REMITT ED BACK TO THE FILE OF THE AO WITH THE DIRECTION TO MAKE THE ADJUSTMENTS AS PER SECTIO N 145A ON ACCOUNT OF CENVAT CREDIT TO THE VALUE OF PURCHASES/SALES OF OPENING A ND CLOSING STOCK AND ACCORDINGLY RE-COMPUTE THE ADDITION IF ANY TO BE MADE ON THIS I SSUE. WE ORDER AND DIRECT ACCORDINGLY. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 7 TH DAY OF FEBRUARY, 2014. SD/- SD/- (P.M. JAGTAP) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 07.02.2014 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR H BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.