The ACIT,(OSD), Circle-5, Ahmedabad V. Puneet Industries Pvt.Ltd., Ahmedabad

ITA 1443/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1431 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 06-06-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 29-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAVEEN KUMARSR
• Assessee Lawyers: A L THAKKAR
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD .., , !' BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ./ I.T.A. NO.1443/AHD/2012 ( / ASSESSMENT YEAR : 2006-07) ACIT (OSD) CIRCLE-5 AHMEDBAD / VS. PUNEET INDUSTRIES PVT.LTD. 306, SPAN TRADE CENTRE OPP.KOCHRAB ASHRAM ROAD AHMEDABAD-380 007 $ ./ ./ PAN/GIR NO. : AACCP 9025 D ( $' / APPELLANT ) .. ( ()$' / RESPONDENT ) $'* / APPELLANT BY : SHRI PRAVEEN KUMAR,SR.DR ()$'+* / RESPONDENT BY : SHRI A.L. THAKKAR, AR ,+ / DATE OF HEARING 06/06/2016 -./+ / DATE OF PRONOUNCEMENT 10/06/2016 / O R D E R PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-XI, AHMEDABAD D ATED 24/04/2012 FOR THE ASSESSMENT YEAR 2006-07. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- ITA NO. 1443/AH D/2012 ACIT (OSD) VS. PUNEET INDUSTRIES PVT.LTD. ASST.YEAR 2006-07 - 2 - 2.1. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUSINESS OF SHIP BREAKING. ASSESSEE FILED ITS RETURN OF INCOME FOR AY 2006-07 DECLARING TOTAL INCOME AT RS.24,96,764/-. THE ASSESSMENT WAS FRAMED U/S.143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO A S 'THE ACT') AND THE TOTAL INCOME WAS DETERMINED AT RS.25,40,150/-. SUB SEQUENTLY, THE ASSESSMENT WAS REOPENED BY ISSUING NOTICE U/S.148 O F THE ACT DATED 14/03/2011 FOR THE REASON THAT ASSESSEE HAD NOT INC LUDED THE UNUTILIZED CENVAT CREDIT AT THE END OF THE YEAR OF RS.,65,71,9 59/- TO THE CLOSING STOCK OF RAW-MATERIAL WHICH ACCORDING TO THE ASSESS ING OFFICER (AO) WAS MANDATORY IN VIEW OF THE PROVISIONS OF SECTION 145A OF THE ACT AND THE NON-INCLUSION OF CENVAT CREDIT HAD RESULTED INTO ES CAPEMENT OF INCOME. THEREAFTER, THE ASSESSMENT WAS FRAMED U/S. 143(3) R.W.S.147 AND THE TOTAL INCOME WAS DETERMINED AT RS.1,91,12,110/- . AGGRIEVED BY THE ORDER OF THE AO, ASSESSEE CARRIED THE MATTER BEFORE THE LD.CIT(A), WHO VIDE ORDER DATED 26/04/2012 (IN APPEAL NO.CIT(A)-XI /213/ACIT.CIR- 5/11-12) DECIDED THE ISSUE IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER:- 4.2 I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. I HAVE ALSO PERUSED VARIOUS CASE LAWS RELIED UPON BY THE APPELL ANT. ON THIS ISSUE I AM INCLINED TO AGREE WITH THE SUBMISSIONS OF THE ID . A.R. FOR THE FOLLOWING REASONS:- (A) THE APPELLANT IS FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING. ACCORDING TO THIS METHOD OF ACCOUNTING PAYMENT AND RECEIPT OF CENVAT IS A BALANCE SHEET ITEM AND IT IS NOT DEBITE D OR CREDITED IN THE P & L A/C. IN THIS REGARD I AM INCLINED TO A GREE WITH THE ITA NO. 1443/AH D/2012 ACIT (OSD) VS. PUNEET INDUSTRIES PVT.LTD. ASST.YEAR 2006-07 - 3 - CONTENTION OF THE ID. A.R. THAT AN AMOUNT OF RS.1,6 5,71,959/- BEING CENVAT BALANCE IN THE BALANCE SHEET ,IS REVEN UE NEUTRAL. THE APPELLANT HAS ALSO PLACED RELIANCE ON INDO NIPP ON CHEMICAL CO. LTD. (2003) 261 ITR 275 (SC). I HAVE ALSO PERUS ED THE OTHER CASE LAWS RELIED UPON BY THE APPELLANT AND RATIOS O F THESE CASE LAWS ALSO SUPPORT THE CASE OF THE APPELLANT. SOME O F THESE CASE LAWS ARE MENTIONED BELOW :- I) SANDVIK ASIA LTD. VS DCIT (2011) 13 3 ITD 136(PUNE.) II) R.R. KABEL LIMITED VS ADDL.CIT (2012) 66 DTR (MUM.) AND (III) HAWKINS COOKERS LIMITED VS ITO (2008) 14 DTR (MUM). (B) THE A.O. HAS NOT COMMENTED ON THE ACCOUNTING PO LICIES FOLLOWED BY THE APPELLANT. THE POLICY OF VALUATION OF CLOSING STOCK CONSISTENTLY FOLLOWED BY THE APPELLANT IN THE PREVIOUS YEARS AS WELL AS IN THE SUCCEEDING YEARS. THE HON'BLE GUJ ARAT HIGH COURT IN THE CASE OF VOLTAMP TRANSFORMERS LTD. V/S. CIT (2008) REPORTED ON 217 CTR 254 HAS HELD THAT A.O. HAS GOT VERY LIMITED POWERS TO CHANGE METHOD OF VALUATION OF CLOSING STO CK WHICH IS INTEGRAL PART OF ACCOUNTING POLICY. THE A.O. CANNOT CHANGE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSE SSEE WITHOUT VALID REASONS. (C) HON'BLE SUPREME COURT IN THE CASE OF CHAINRUP S AMPATRAM (1953) REPORTED ON 24 ITR 481 HAS CLEARLY HELD THAT PROFITS DOES NOT ARISE OUT OF VALUATION OF CLOSING STOCK AND SIT US OF ITS ARISING OR ACCRUING WHERE THE VALUATION IS MADE AND VALUATI ON OF UNSOLD STOCK IS NECESSARY PART OF THE PROCESS OF DETERMINI NG TRADING RESULTS BUT IT CAN IN NO SENSE BE REGARDED AS SOURC E OF SUCH PROFIT. (D) IT IS CLEARLY HELD IN THE CASE OF CIT V/S. AHM EDABAD NEW COTTON MILLS REPORTED AT 4 ITC 245 THAT WHEN THE OPENING A ND CLOSING STOCK OF BUSINESS ARE BOTH UNDERVALUED, IF THE METH OD OF ITA NO. 1443/AH D/2012 ACIT (OSD) VS. PUNEET INDUSTRIES PVT.LTD. ASST.YEAR 2006-07 - 4 - ALTERATION OF BOTH VALUATION IS NOT ADOPTED, IT IS PERFECTLY PLAIN THAT PROFITS WHICH IS BROUGHT FORWARD IS NOT REAL O NE. IN SUCH CASES, THE REAL PROFITS OF A PARTICULAR YEAR CANNOT BE ASCERTAINED BY MERELY RAISING VALUE OF CLOSING STOCK, NOT TAKIN G INTO CONSIDERATION THE SIMILAR VALUATION OF OPENING STOC K. AS PER THE RATIO OF THIS CASE, ENHANCING THE VALUE OF CLOSING STOCK WITHOUT GIVING CORRESPONDING EFFECT TO THE VALUATION OF OPE NING STOCK IS NOT PROPER. FURTHER RELIANCE IS PLACED ON DCIT VS B ECK INDIA LTD. (2010) 127 TTJ 410 (MUM.) AND CIT VS MAHAVIR ALLUMINIUM LTD. (2008) 297 ITR 77 (DEL.). PERUSAL O F RECORD FURTHER REVEALS THAT DURING THE ASSESSMENT PROCEEDI NGS THE APPELLANT HAD GIVEN A WORKING OF PROFITS, WHEREIN T HE EFFECT OF CENVAT WAS TAKEN BOTH IN THE OPENING STOCK AND CLOS ING STOCK. THIS EXERCISE HAD NOT RESULTED IN CHANGE OF PROFITS BY A SUM OF RS. 4,178/-, WHICH IS INSIGNIFICANT AND DOES NOT DE SERVE HUGE EXERCISE OF ENHANCING THE INCOME BY RS.1,61,75,959/ -. 4.3. IN VIEW OF THE ABOVE FACTS, I AM NOT CONVINCED ABOUT THE MAINTAINABILITY OF ADDITION OF RS.1,65,71,959/- IN VALUATION OF CLOSING STOCK. THE A.O. IS DIRECTED TO DELETE ADDITION OF RS.1,65,71,959/-. THIS GROUND OF APPEAL IS ALLOWED. 2.2. AGGRIEVED BY THE ORDER OF THE LD.CIT(A), REVEN UE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUND:- I) THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.1,61,75,959/- U/S.145A OF THE ACT, B EING CENVAT PAID ON RAW-MATERIAL. 2.3. BEFORE US, LD.DR SUBMITTED THAT AO NOTED THAT AS PER FORM NO.3CD FILED BY THE ASSESSEE, THE UNUTILIZED CENVAT CREDIT ON THE END OF PREVIOUS YEAR 2005-06 WAS RS.1,61,75,959/- WHICH WAS NOT INCLUDED WHILE VALUING THE CLOSING STOCK OF RAW-MATERIAL. HE SUBMITTED THAT ITA NO. 1443/AH D/2012 ACIT (OSD) VS. PUNEET INDUSTRIES PVT.LTD. ASST.YEAR 2006-07 - 5 - SECTION 145A OF THE ACT, WHICH MANDATE THAT ASSESS EE FOLLOW EXCLUSIVE METHOD OF ACCOUNTING AND, ACCORDINGLY, THE AO WAS JUSTIFIED IN HOLDING THAT THE UNUTILIZED CENVAT CREDIT SHOULD HAVE BEEN INCLUDED IN THE CLOSING STOCK OF RAW-MATERIAL. LD.DR THEREFORE SUP PORTED THE ORDER OF THE AO. LD.AR, ON THE OTHER HAND, REITERATED THE S UBMISSIONS MADE BEFORE THE AO AND CIT(A) AND FURTHER SUBMITTED THAT IN VIEW OF THE VARIOUS DECISIONS RELIED UPON BY THE LD.CIT(A), THE APPEAL OF REVENUE NEEDS TO BE DISMISSED. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO IN CLUSION OF UNUTILIZED CENVAT CREDIT TO THE CLOSING STOCK. WE FIND THAT L D.CIT(A) WHILE DELETING THE ADDITION HAS GIVEN A FINDING THAT THE ASSESSEE WAS FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING AND THE CENVAT WAS N OT DEBITED OR CREDITED TO THE PROFIT & LOSS ACCOUNT AND THE AFORE SAID METHOD HAS BEEN CONSISTENTLY FOLLOWED BY THE ASSESSEE IN EARLIER AN D SUCCEEDING YEARS. WE FURTHER FIND THAT THE HONBLE APEX COURT IN THE CASE OF CIT VS. INDO NIPPON CHEMICALS CO.LTD. REPORTED AT (2003) 261 ITR 275 (SC) OBSERVED THAT UNAVAILED MODVAT CREDIT CANNOT BE CON STRUED AS INCOME AND THERE IS NO LIABILITY TO PAY TAX ON SUCH UNAVAI LED MODVAT CREDIT. FURTHER, BEFORE US, REVENUE HAS NOT BROUGHT ANY CON TRARY BINDING DECISION IN ITS SUPPORT. IN VIEW OF THE AFORESAID FACTS, WE DO NOT SEE ANY ITA NO. 1443/AH D/2012 ACIT (OSD) VS. PUNEET INDUSTRIES PVT.LTD. ASST.YEAR 2006-07 - 6 - REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A) . THUS, THE GROUND OF REVENUE IS DISMISSED. 4. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED . THIS ORDER PRONOUNCED IN OPEN COURT ON 10/06/2016 SD/- SD/- .. () () ( R.P. TOLANI) ( ANIL CHATURVEDI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 10 / 06 /2016 3..,.../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. $' / THE APPELLANT 2. ()$' / THE RESPONDENT. 3. 456 7 / CONCERNED CIT 4. 7 ( ) / THE CIT(A)-XI, AHMEDABAD 5. 89:(56 , 56/ , 4 / DR, ITAT, AHMEDABAD 6. :<=, / GUARD FILE. / BY ORDER, )8( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 6.6.16 (DICTATION-PAD 8 PA GES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 7.6.16/8.6.16 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.10.6.16 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 10.6.16 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER