Maruti Dyechem Industries, Ahmedabad V. The Jt.CIT.,Range-3, Ahmedabad

ITA 1585/AHD/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7925 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 04-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: A C SHAH
• Section: 145

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD LOZJH IZNHI DQEKJ DSFM;K] YS[KK LNL; ,OA EGKOHN IZL KN] LOZJH IZNHI DQEKJ DSFM;K] YS[KK LNL; ,OA EGKOHN IZL KN] LOZJH IZNHI DQEKJ DSFM;K] YS[KK LNL; ,OA EGKOHN IZL KN] LOZJH IZNHI DQEKJ DSFM;K] YS[KK LNL; ,OA EGKOHN IZL KN] U;KF;D LNL; DS LE{KA U;KF;D LNL; DS LE{KA U;KF;D LNL; DS LE{KA U;KF;D LNL; DS LE{KA BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NO.1585/AHD/2015 ( / ASSESSMENT YEAR : 2011-12) MARUTI DYECHEM INDUSTRIES, C-1, B-6, RAJMATA RUBBER PRODUCTS COMPOUND, GIDC, NARODA, AHMEDABAD - 382330 / VS. THE JCIT, RANGE 3, AHMEDABAD ./ ./ PAN/GIR NO. : AAEFM 6593 L ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI A. C. SHAH, A.R. / RESPONDENT BY : SHRI V. K. SINGH, SR. D.R. / DATE OF HEARING 23/11/2017 !'# / DATE OF PRONOUNCEMENT 19/12/2017 $% / O R D E R PER MAHAVIR PRASAD, JUDICIAL MEMBER : THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE OR DER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-7, AHMEDABAD, D ATED 03/03/2015 FOR THE ASSESSMENT YEAR (AY) 2011-12, ON THE FOLLOWING GROUNDS: I. THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT SECTIO N 145A IS APPLICABLE ON THE FACTS OF THE CASE AND THEREBY HAS ERRED IN CONFIRMING THE ADDITION OF RS.6,06,260/- BEING THE CENVAT CREDIT IN AS MUCH AS SECTION 145A IS NOT APPLICABLE TO THE ASSESSEE ON THE FACTS OF THE CASE SINCE THE ASSESSEE FOLLOWS TH E EXCLUSIVE METHOD OF ACCOUNTING AND THAT THE LEARNED C1T(A) ER RED IN GIVING DIRECTION TO THE AO TO GIVE CREDIT OF CENVAT CREDIT IN THE ITA NO.1585/AHD /2015 MARUTI DYECHEM INDUSTRIES VS. JCIT ASST.YEAR 2011-12 - 2 - OPENING STOCK INSTEAD OF HOLDING THAT SECTION 145A IS NOT APPLICABLE ON THE FACTS OF THE CASE. II. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ADDI TION OF RS.6,37,681/- THE DIRECT EXPENSES TO THE VALUE OF S EMI FINISHED GOODS IN AS MUCH AS THE ASSESSEE FOLLOWS THE METHOD OF VALUATION OF SEMI FINISHED GOODS CONSISTENTLY AND THAT THE LEARNED CIT(A) HAS ALSO ERRED M DIRECTING THE AO TO GIVE THE CREDI T OF DIRECT EXPENSES IN THE OPENING STOCK. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- THE ASSESSEE IS PARTNERSHIP FIRM AND DERIVING INCOM E MAINLY FROM MANUFACTURING AND TRADING OF REACTIVE DYES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSEE WAS ASKED TO SUBMIT DETAILS OF CLOSING STOCK AND BASIS OF ITS VALUATION. ASSESSEE HAS SUBM ITTED THE SAME AND PERUSAL OF EXPLANATION REVEAL THAT NO PROPER JUSTIF ICATION HAS GIVEN IN RESPECT OF VALUATION OF CLOSING STOCK RELATING TO S EMI FINISHED GOODS. THEREFORE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF THE SAME. THE ASSESSEE SUBMITTED EXPLANATION REGARDING CLOSING ST OCK VALUATION OF SEMI FINISHED GOODS AND HAS STATED THAT IN THE CLOSING S TOCK VALUATION OF SEMI FINISHED GOODS TO THE TUNE OF RS.6,37,681/- IS REQU IRED TO BE MADE AS DIRECT EXPENSES PERTAINING TO THE SAME HAS NOT BEEN ADDED AND RS.6,37,681/- IS BEING ADDED TO THE TOTAL INCOME. 2.2 ON VERIFICATION OF COL. NO.L3(B) OF FORM 3CD AN NEXURE TO AUDIT REPORT U/S 44AB OF THE ACT, IT IS SEEN THAT THERE I S UNUTILIZED TAX CREDIT OF RS,6,06,260/- WHICH HAS NOT BEEN EITHER CREDITED IN THE PROFIT AND LOSS ACCOUNT OR THE SAME HAS NOT BEEN CONSIDERED FOR THE VALUATION OF CLOSING STOCK. IN VIEW OF THE ABOVE, SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE ITA NO.1585/AHD /2015 MARUTI DYECHEM INDUSTRIES VS. JCIT ASST.YEAR 2011-12 - 3 - TO SHOW CAUSE AS TO WHY THE UNUTILIZED TAX CREDIT O F RS.6,06,260/- SHOULD NOT BE CONSIDERED FOR THE VALUATION OF CLOSING STOC K. IN RESPONSE TO WHICH THE ASSESSEE FURNISHED REPLY STATING THAT AS FOLLOW S:- 'REGARDING 145A WE HAVE TO SUBMIT AS UNDER: 1. THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA HAS ISSUED A GUIDANCE NOTE, WHEREBY, IT HAS RECOMMENDED TWO ALTE RNATIVE METHODS FOR ACCOUNTING FOR MODVAT. ACCORDING TO THI S GUIDANCE NOTE MODVAT CAN EITHER BE INCLUDED IN ALL PURCHASES AND STOCKS, AND FINALLY ADJUSTED IT FROM RAW MATERI AL CONSUMPTION OR IN AN ALTERNATIVE METHOD MODVAT CAN BE EXCLUDED WHERE ACCOUNTING IS DONE ON 'NET BASIS'. HOWEVER W.E.F. 01.04.1999 THE ACCOUNTING FOR MODVAT CAN BE DONE ONLY ON THE 'NET BASIS' AS THE ICAI HAS WITHDRAWN THE OT HER METHOD OF ACCOUNTING FOR MODVAT FROM THE GUIDANCE NOTE. THIS VIEW IS ALSO SUPPORTED BY (REVISED) ACCOUNTING STANDARD -2[ AS-2] ISSUED BY ICAI . INCLUSIVE METHOD IS NOT PERMITTED BY AS-2, WHICH IS MADE MANDATORY FROM ACCOUNTING YEAR BEGINNING ON OR AFTER 01.04.1999. 2. GUIDANCE NOTE ON TAX AUDIT U/S.44-AB, ACCORDING TO THE GUIDANCE NOTE ISSUED BY THE ICAI SECTION 145 A, P ROVIDES THAT THE VALUATION OF PURCHASE AND SALE OF GOODS AN D INVENTORY FOR THE PURPOSE OF COMPUTATION OF INCOME FROM BUSIN ESS OR PROFESSION SHALL BE MADE ON THE BASIS OF THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSED BUT T HIS SHALL BE SUBJECT TO CERTAIN ADJUSTMENTS, THEREFORE IT IS NOT NECESSARY TO CHANGE THE METHOD OF VALUATION OF PURCHASE, SALE AN D INVENTORY REGULARLY EMPLOYED IN THE BOOK OF ACCOUNTS. THE ADJ USTMENT IT MAY BE NOTED THAT WHEN THE ADJUSTMENT ARE MADE IN T HE VALUATION OF INVENTORIES, THIS WILL AFFECT BOTH THE OPENING A S WELL AS CLOSING STOCK. WHATEVER ADJUSTMENT IS MADE IN THE VALUATION OF CLOSING STOCK, THE SAME WILL BE REFLECTED IN THE OPENING ST OCK ALSO. IT IS NOW WELL SETTLED THAT IF ANY ADJUSTMENTS IS REQUIRE D TO BE MADE BY A STATUE, EFFECT TO SAME SHOULD BE GIVEN IRRESPECTI VE OF ANY CONSEQUENCES ON THE COMPUTATION OF INCOME FOR TAX P URPOSE. SECTION 145A STARTS WITH THE NON OBSTINATE CLAUSE 'NOT WITHSTANDING ANYTHING TO THE CONTRARY CONJOINE D M SECTION 145. THEREFORE TO GIVE EFFECT TO SECTION 145A, THE OPENING STOCK WILL HOVE TO BE INCREASED BY ANY TAX, DUTY, CESS OR FEE ACTUALLY ITA NO.1585/AHD /2015 MARUTI DYECHEM INDUSTRIES VS. JCIT ASST.YEAR 2011-12 - 4 - PAID OR INCURRED WITH REFERENCE TO SUCH STOCK IF HE SAME HAS, NOT BEEN ADDED FOR THE PURPOSE OF VALUATION IN THE ACCO UNTS. WE HAD MAINTAIN OUR BOOKS OF ACCOUNTS ON BASIS PRIC E, EXCISE, E.CESS, AND H.E. CESS, VAT (IN PUT OUT VAT) A/C, SEPARATELY MAINTAIN, MEANS IN OP. STOCK AND PURCHASE, SALES AN D CLOSING STOCK, ONLY BASIS PRICES SHAWN, SEPARATELY, ACCOUNT S MAINTAIN FOR CENVAT, AS PER SEC. 145-A, THE METHOD OF VALUAT ION OF CLOSING STOCK MUST BE CONSISTENTLY FOLLOWED FROM YE AR TO YEAR AND THE METHOD FOLLOWED MUST BE BROUGHT OUT CLEARLY , IF THE CENVAT BALANCE ADDED IN ONLY CLOSING STOCK, IF SHOULD BE ADDED IN OPENING STOCK ALSO. WE HAD NOT DEBITED PUR CHASE AND OPENING STOCK SIDE CENVAT AND VAT AS AN EXPS. OR NO T ADDED IN PURCHASE, SAME METHOD WE HAD NOT CREDITED SALES AND CLOSING STOCK SIDE CENVAT, AND VAT AS ON INCOME OR NOT ADDE D IN SALES. 2.3 BUT LD. AO WAS NOT CONVINCED WITH THE REPLY OF THE ASSESSEE HENCE, HE MADE AN ADDITION OF RS.6,06,260/- ON ACCOUNT OF VALUATION OF STOCK. 3. AGAINST THE SAID ORDER ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD.CIT(A) WHO PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 4. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMP UGNED ORDER. THERE IS DELAY OF EIGHT DAYS AND LD. AR HAS FILED A N AFFIDAVIT ALONG WITH AN APPLICATION WITH THE REASONS STATED THEREIN FOR CONDONATION OF DELAY. WE ARE SATISFIED WITH THE REASONS THEREFORE, WE CON DONE THE DELAY. IN SUPPORT OF ITS CONTENTION APPELLANT FILED PROFIT & ACCOUNTS FOR ASST. YEAR 2011-12 AND SUBMITTED A CHART WHEREIN DETAILS HAVE BEEN GIVEN WITH REGARD TO EXCLUSIVE AND INCLUSIVE METHOD BEING ADOP TED BY THE ASSESSEE. ASSESSEE HAS ALSO FILED AN ORDER OF CO-ORDINATE BEN CH IN ITA ITA NO.1585/AHD /2015 MARUTI DYECHEM INDUSTRIES VS. JCIT ASST.YEAR 2011-12 - 5 - NO.278/AHD/2011 FOR ASST. YEAR 2007-08, WHEREIN ITA T HAS DECIDED THE CASE IN FAVOUR OF THE ASSESSEE BY FOLLOWING OBSERVA TIONS: 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO INCLUS ION OF UNUTILIZED CENVAT CREDIT AND OTHER TAXES TO THE CLOSING STOCK. IT IS AN UNDISPUTED FACT THAT ASSESSEE IS FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING WHEREBY IT DOES NOT DEBITS THE TAXES PAID TO THE PURCHASES, CONSUMPTION OF STOCK AND THE AFORESAID METHOD OF ACCOUNTING OF TAXES HAS BEEN CONSISTENTLY FOLLOWED BY THE ASSESSEE IN EARLIER AND SUCCEEDING YEARS AND IS ALSO STATED TO HAVE BEEN ACCEPTED BY REVENUE. WE FIND TH AT THE HON'BLE APEX COURT IN THE CASE OF CIT VS. INDO NIPPON CHEMICALS CO. LTD. REPORTED AT (2003) 261 ITR 275 (SC) HAS OBSERVED THAT UNAVAILED MODVAT CREDIT CANNOT BE CONSTRUED AS INCOME AND THERE IS NO LIABI LITY TO PAY TAX ON SUCH UNAVAILED MODVAT CREDIT. WE FURTHER FIND THAT ON IDENTICAL FACTS, THE COORDINATE BENCH OF TRIBUNAL IN THE CASE OF SHR I PARAGBHAI RAMANLAL PATEL (SUPRA) HAS DECIDED THE ISSUE IN FAV OUR OF THE ASSESSEE OBSERVING AS UNDER: 8. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT LD.CIT(A) AFTER RE LYING ON THE DECISION CITED IN THE ORDER HAS HELD THAT ASSESSEE MUST SHOW THE EFFECT OF SECTION 145A BY FOLLOWING THE INCLUSIVE M ETHOD I.E. BY INCLUDING TAXES, DUES, CESS ETC. IN THE CLOSING STO CK. HE HAS FURTHER HELD THAT EXCISE DUTY WHICH IS ADDED TO THE CLOSING STOCK HAS TO BE ALLOWED U/S.43B OF THE ACT ON PAYMENT BAS IS. BEFORE US, REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO C ONTROVERT THE FINDINGS OF LD. CIT(A) NOR HAS BROUGHT ANY CONT RARY BINDING DECISION IN ITS SUPPORT. WE THEREFORE FIND NO REASO N TO INTERFERE WITH THE ORDER OF LD. CIT(A). THUS THIS GROUND OF R EVENUE IS DISMISSED. 5.1 FURTHER, BEFORE US, REVENUE HAS NOT BROUGHT ANY CONTRARY BINDING DECISION IN ITS SUPPORT. IN VIEW OF THE AFO RESAID FACTS AND FOLLOWING THE DECISIONS CITED HEREINABOVE, WE ARE O F THE VIEW THAT NO ADDITION CAN BE MADE IN THE PRESENT CASE AND THUS T HIS GROUND OF ASSESSEE IS ALLOWED. 5. AFTER GOING THROUGH THE ABOVE SAID ORDER, WE ALL OW THE APPEAL OF THE ASSESSEE BECAUSE SIMILAR GROUNDS HAVE BEEN ALLO WED IN THE ABOVE ITA NO.1585/AHD /2015 MARUTI DYECHEM INDUSTRIES VS. JCIT ASST.YEAR 2011-12 - 6 - MENTIONED ITAT ORDER. THEREFORE, RESPECTFULLY FOLLO WING THE ORDER OF THE CO-ORDINATE BENCH, WE ALLOW THE APPEAL OF THE ASSES SEE. 6. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 19/12/2017 SD/- SD/- IZNHI DQEKJ DSFM;K IZNHI DQEKJ DSFM;K IZNHI DQEKJ DSFM;K IZNHI DQEKJ DSFM;K EGKOHJ IZLKN EGKOHJ IZLKN EGKOHJ IZLKN EGKOHJ IZLKN YKS[KK LN YKS[KK LN YKS[KK LN YKS[KK LNL; L; L; L; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; (PRADIP KUMAR KEDIA) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 19/12/2017 PRITI YADAV, SR.PS !'#$ %$' / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. & '( ) / CONCERNED CIT 4. ) () / THE CIT(A)-7, AHMEDABAD. 5. ,-. //'( , '(# , 12$&$ / DR, ITAT, AHMEDABAD 6. .34 5 / GUARD FILE. & ' / BY ORDER, , / //TRUE COPY // (/' )* ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD