Daniel Measurement Solutions Pvt. Ltd., Vadodara V. The Dy. CIT, Circle-1(1), Vadodara

ITA 1661/AHD/2016

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 9541 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 03-06-2020
• Assessment Year: 2010-2011
• Appeal Filed On: 17-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M K PATEL
• Keywords: Cost of acquisition
• Section: 43B; 44AB; 13; 145; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD (CONDUCTED THROUGH VIRTUAL COURT) BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER I.T.A. NO. 1661/AHD/2016 (ASSESSMENT YEAR: 2010-11) DANIEL MEASUREMENT SOLUTIONS PVT. LTD. 301/303, 3 RD FLOOR, SYNERGY SQUARE, KRISHNA INDUSTRIAL ESTATE, GORWA, VADODARA- 390016 VS. THE DCIT CIRCLE-1(1), BARODA PAN NO. AACCD5920F ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI M. K. PATEL, AR RESPONDENT BY : SHRI VEDANSHU TRIPATHI, SR. DR DATE OF HEARING 03.12.2020 DATE OF PRONOUNCEMENT 04 . 0 1 . 20 2 1 O R D E R PER MS. MADHUMITA ROY - JM: THE INSTANT APPEAL FILED BY THE ASSESSEE IS DIRECT ED AGAINST THE ORDER DATED 15.03.2016 PASSED BY THE COMMISSIONER O F INCOME TAX (APPEALS) 1, VADODARA ARISING OUT OF THE ORDER DAT ED 21.03.2014 PASSED BY THE DCIT, CIRCLE-1(1), BARODA UNDER SECTION 143( 3) R.W.S. 144C(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED AS T O THE ACT) FOR ASSESSMENT YEAR 2010-11 CHALLENGING THE ADDITION OF CENVAT CREDIT RECEIVABLE. ITA NO.1661/AHD/2016 DANIEL MEASUREMENT SOLUTIONS PVT. LTD. VS. DCIT ASST.YEAR 2010-11 - 2 - 2. THE ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF DESIGN & MARKETING OF GAS AND LIQUID MEASUREMENT AND ANALYTI C PRODUCTS, SYSTEMS, SERVICES AND SOLUTIONS FOR THE PRODUCTION, TRANSMIS SION, DISTRIBUTION AND PROCESS INDUSTRIES FILED ITS RETURN OF INCOME ON 13 .10.2010 DECLARING TOTAL INCOME AT RS. 11,98,21,169/-. RS. 62,58,45,124/- W AS SHOWN AS TOTAL TURNOVER AND THE GROSS PROFIT WAS OF RS. 23,39,79,7 11/- I.E. 37.39%. 3. DURING THE COURSE OF ASSESSMENT PROCEEDING IT CA ME TO THE NOTICE OF THE LD. AO FROM THE ANNEXURE TO THE TAX AUDIT RE PORT THAT THE ASSESSEE COMPANY HAD UNUTILIZED MODVAT CREDIT OF RAW MATERIA L AMOUNTING TO RS. 16,09,091/- AS ON 31.03.2010. ACCORDING TO THE LD. AO SUCH UNUTILIZED MODVAT CREDIT WAS REQUIRED TO BE INCLUDED IN THE CL OSING STOCK OF RAW MATERIAL AND WORK IN PROGRESS AND, THEREFORE, AN EX PLANATION WAS CALLED FOR ON 11.03.2014 AS TO WHY UNUTILIZED MODVAT CREDI T OF RAW MATERIAL SHOULD NOT BE ADDED BACK TO THE CLOSING STOCK ACCOR DING TO THE VALUATION METHOD PRESCRIBED UNDER SECTION 145AOF THE ACT. TH E ASSESSEE SUBMITTED BEFORE THE LD. AO THAT IT FOLLOWS AN EXCL USIVE METHOD OF ACCOUNTING FOR RECORDING DUTIES, TAXES, CESS IN THE BOOKS OF ACCOUNTS. IRRESPECTIVE OF THE METHOD OF ACCOUNTING FOLLOWED, THE NET PROFIT REMAINS THE SAME MEANING THEREBY THAT THERE WOULD BE NO LOS S TO THE REVENUE WITH EITHER OF THE TWO METHODS BEING FOLLOWED AS THE CON TENTION MADE BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW. HOWEVER, SUCH CONTENTIONS MADE BY THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE LD. AR AND THE UNUTILIZED MODVAT CREDIT FOR THE YEAR UNDER CONSIDE RATION TO THE TUNE OF RS. 16,09,091/- HAS BEEN ADDED TO THE TOTAL INCOME OF THE ASSESSEE. IN THE APPELLATE PROCEEDING THE DEDUCTION CLAIMED TO THE T UNE OF RS. 72,21,235/- ITA NO.1661/AHD/2016 DANIEL MEASUREMENT SOLUTIONS PVT. LTD. VS. DCIT ASST.YEAR 2010-11 - 3 - IN COMPUTING THE PROFIT AND LOSS OF THE ASSESSEE HA S BEEN REJECTED ON THE GROUND OF NO LIABILITY ACCRUED UNDER SECTION 43B OF THE ACT FOR PAYMENT OF EXCISE DUTY AS ON 31.03.2010. THE ADDITION, THE REFORE, WAS ENHANCED FROM RS. 16,09,091/- TO RS. 72,21,235/- BY THE LD. CIT(A). HENCE, AGAINST THE ADDITION THE INSTANT APPEAL BEFORE US. 4. AT THE TIME OF HEARING OF THE INSTANT APPEAL THE LD. COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE ASSESSEE IS FOLLOWING THE EXCLUSIVE METHOD OF ACCOUNTING FOR YE ARS TOGETHER WITH DUE CERTIFICATION BY THE TAX AUDITOR FOR RECORDING THE INVENTORY WHICH IS THE SUBJECT MATTER TO DISPUTE IN VALUATION. IRRESPECTI VE OF THE METHOD OF ACCOUNTING BEING FOLLOWED THE NET PROFIT CHARGEABLE TO TAX REMAINS THE SAME IF THE DUTY IS PAID ON OR BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME AND THERE WOULD BE NO LOSS OF REVENUE WITH E ITHER OF THE TWO METHODS BEING FOLLOWED. SO FAR AS THE DISALLOWANCE OF RS. 72,21,235/- MADE BY THE LD. CIT(A) IS CONCERNED THE LD. AR SUBM ITTED THAT THE SAME REPRESENTS EXCISE DUTY COMPONENT ON RAW MATERIALS. HE FURTHER ADDED THE SAID AMOUNT WAS CLAIMED UNDER SECTION 43B OF THE AC T IN THE WORKING SHEET PREPARED FOR COMPLIANCE TO SECTION 145A OF TH E ACT ON THE BASIS OF THE FACT THAT THE EXCISE DUTY AMOUNT IS PAID ON THE SALE OF GOODS. HOWEVER, THE SAID DEDUCTION WAS NOT CLAIMED IN THE RETURN OF INCOME BUT ONLY IN ANNEXURE A TO THE FORM 3CD AS ANNEXED AT PAGE 11 OF THE PAPER BOOK FILED BEFORE US. AS THE APPELLANT IS FO LLOWING EXCLUSIVE METHOD OF ACCOUNTING, SO FAR AS THE EXCISE DUTY IS CONCERNED, THE REQUIREMENT OF DEEMED DEDUCTION ARISES DUE TO DEEME D EXCLUSION OF EXCISE DUTY COMPONENT ON OPENING STOCK, PURCHASE, S ALE AND CLOSING ITA NO.1661/AHD/2016 DANIEL MEASUREMENT SOLUTIONS PVT. LTD. VS. DCIT ASST.YEAR 2010-11 - 4 - STOCK IN COMPLIANCE TO SECTION 145A OF THE ACT AS W AS THE ULTIMATE CONTENTION MADE BY THE LD. A. R. IN THAT VIEW OF T HE MATTER THE ADDITION OF RS. 72,21,235/- IS NOT SUSTAINABLE AS ARGUED BY THE LD. COUNSEL APPEARING FOR THE ASSESSEE. FURTHER THAT THE LD. A R RELIED UPON THE JUDGMENT PASSED BY THE CO-ORDINATE BENCH IN ITA NO. 599/AHD/2015 FOR A.Y. 2008-09 AND C.O. NO. 78/AHD/2015 FOR A.Y. 200- 09 WHEREBY AND WHEREUNDER ADDITION OF UNUTILIZED CENVAT CREDIT HAS BEEN DELETED; A COPY WHEREOF HAS BEEN SUBMITTED BEFORE US. HOWEVER , THE LD. DR RELIED UPON THE ORDERS PASSED BY THE AUTHORITIES BELOW. 5. WE HAVE HEARD THE RESPECTIVE PARTIES AND WE HAVE ALSO PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. IN THE FIRST APPEAL THE LD. CIT(A) WHILE CONFIRMIN G THE ORDER PASSED BY THE LD. AR OBSERVED AS FOLLOWS:- 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE, SUBMI SSIONS OF THE APPELLANT AND THE AO'S OBSERVATIONS. THE CONTENTION OF THE APPELLANT THAT THE CENVAT CREDIT RECEIVABLE BY IT IS CONTINGENT IN NATURE IS NOT COR RECT AS THE RIGHT TO RECEIVE THE SAME HAS ALREADY ACCRUED THE APPELLANT. SIMILARLY, THE A PPELLANT'S CONTENTION THAT THE APPELLANT CAN FOLLOW EITHER INCLUSIVE METHOD OR EXC LUSIVE METHOD IS ALSO NOT CORRECT. JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE APPELLAN T ARE EITHER FOR THE ASST. YEAR 1998-99 AND PRIOR TO THAT YEAR, AND ARE ON THE SUBJ ECT OF INCLUSION OF EXCISE DUTY IN THE VALUATION OF FINISHED GOODS, WHERE THE FINISHED GOODS HAVE NOT BEEN REMOVED FROM THE FACTORY PREMISES. SECTION 145A IS APPLIC ABLE FROM AY 1999-2000 AND AFTER THAT, THE ASSESSEES ARE COMPULSORILY REQUIRED TO PR EPARE THEIR ACCOUNTS AS PER THE INCLUSIVE METHOD ONLY. THE TTAT MUMBAI BENCH IN ITS DECISION IN THE CASE OF HERCULES PIGMENT INDUSTRIES 35 TAXMANN.COM 650 (MUM BAI-TRIB) HAS EXPLAINED THIS ISSUE AS FOLLOWS: 4. WE BELIEVE THAT WE HAVE AMPLY EXPLAINED AND ADEQ UATELY DETERMINED THE TWO ISSUES ARISING FOR OUR ADJUDICATION AS REFERRED TO AT PARA 3.3 SUPRA. WE, THEREFORE, HOLD AS UNDER: ITA NO.1661/AHD/2016 DANIEL MEASUREMENT SOLUTIONS PVT. LTD. VS. DCIT ASST.YEAR 2010-11 - 5 - (A) THE ASSESSEE'S ACCOUNTS (ANNEXURE 2-B), REFLECTING A PROFIT OF RS.5,53,073/-, CANNOT, ACCORDINGLY, BE SAID TO BE I N ACCORDANCE WITH SECTION 145A INASMUCH AS RS. 10,39,886/-, REFLECTED AS A PART OF THE COST OF RAW MATERIAL AS AT THE YEAR-END IS THE BALANCING FIGURE, AND DOES NOT REPRESENT THE EXCISE COMPONENT ON THE RAW MATERIAL, OR EVEN THAT ON THE DOSING INVENTORIES OF FINISHED AND SEMI-FINISHED GO ODS. THE CORRECT VALUATION OF RAW-MATERIAL, I.E., INCLUSIVE OF EXCIS E LEVIED THEREON, IS UNDENIABLY RS.28,96,023/-, AND NOT RS.35,96,132/-, AS ADOPTED. ONLY ADOPTING ALL THE FIGURES AT THE CORRECT VALUES WOUL D LEAD TO THE CORRECT PROFIT IN TERMS OF S.145A, AND THE BALANCE IN THE U CC A/C (FOR THE TIME BEING) CANNOT BE TAKEN AS A SURROGATE MEASURE OF TH E EXCISE COMPONENT IN THE INVENTORIES AT THAT POINT OF TIME. THAT IS, THE SAME, BASED AS IT IS ON EXCISE RULES, DOES NOT REPRESENT THE UNUTILIZED CRE DIT AVAILABLE ON GOODS HELD IN STOCK. THIS IS AS IT, IN DISREGARD OF THE A CCOUNTING PRINCIPLES, ALLOWS FULL ADJUSTMENT OF THE EXCISE LIABILITY ON T HE REMOVAL OF GOODS, I.E., INCLUDING THE EXCISE LIABILITY ON THE VALUE ADDITIO N, AGAINST EXCISE PAID ON PURCHASES, AND, CONCOMITANTLY, FOR SUCH AN ADJ USTMENT EVEN IN RESPECT OF RAW MATERIAL NOT CONSUMED BUT LYING IN STOCK. THE UCC A/C, AS BEING PREPARED, IS THUS NOT IN CONSISTE NCE WITH THE ACCOUNTING PRINCIPLES. IT IS ONLY THE DRAWING OF THE OPERATING STATEMENT IN ACCORDANCE WITH SEC. 145 A, VALUING ALL THE INGRE DIENTS OF THE TRADING ACCOUNT AT INCLUSIVE OF EXCISE (INPUT LEVIES) THAT WOULD LEAD TO THE REMOVAL OF THESE ANOMALIES, BRINGING FORTH THE CORR ECT PROFIT. NO SEPARATE ACCOUNTING FOR THE 'PROFIT' OR 'LOSS' EMBEDDED IN THE UNUTILISED CENVAT CREDIT ACCOUNT, AS WARRANTED BY M ERCANTILE BOOK- KEEPING, WOULD THEN BE REQUIRED AS BOTH THE 'PROFIT ' AND 'LOSS' GET SUBSUMED IN THE TRADING PROFIT (LOSS) AS REFLECTED PER THE TRADING ACCOUNT PREPARED ON INCLUSIVE BASIS; THE UCC A/C BECOMING PART OF OR IN EFFECT INCORPORATED THEREIN. IN FACT, BOOKING THE SAID 'P ROFIT' OR 'LOSS', WNERE ACCOUNTS ARE MAINTAINED, AS IN THE INSTANT CASE, ON EXCLUSIVE BASIS, WOULD ADJUST THE OUTSTANDING IN THE UCC A/C, IN CREASING OR DECREASING RESPECTIVELY THE DEBIT BALANCE IN THE SA ID ACCOUNT, SO AS TO STATE IT AT ITS CORRECT VALUE, BRINGING THE PROFIT PER THE TWO STATEMENTS, I.E., FOLLOWING THE INCLUSIVE AND EXCLUSI VE METHODS, AT PAR. THE SAID PROFIT, WHICH GETS AUTOMATICALLY REFLECTED UND ER THE GROSS METHOD, AND REQUIRES TO BE SEPARATELY ACCOUNTED FOR UNDER T HE EXCLUSIVE (NET) METHOD, IS, HOWEVER, ACCOMPANIED BY 3 CORRESPOND ING LIABILITY, I.E., THE EXCISE DUTY ON THE VALUE ADDITION, FOR WHICH NO DED UCTION WOULD BE ELIGIBLE UNLESS PAID, BEING ALLOWABLE ONLY ON PAYME NT BASIS, AND IN WHICH EVENT IT WOULD, IN ANY CASE, STAND TO BE DEDU CTED IN THE COMPUTATION OF THE TAXABLE PROFIT. IN THE CASE OF ' LOSS', I.E., A SHORT RECOVERY OF EXCISE, THERE IS NO CASE OF 'REFUND' OR 'CREDIT', WHICH LAPSES, SO AS TO BE BORNE BY THE ASSESSEE, SO THAT THE SAID LOSS WOULD STAND TO BE WRITTEN OFF TO THE PROFIT AND LOSS ACCOUNT, WHERE M AINTAINED ON NET BASIS. THE LIABILITY AGAINST EXCESS RECOVERY OF EXCISE REA LISED ON SALES IS MET AGAINST EXCISE PAID ON FRESH PURCHASES UNDER THE EX CISE RULES. WE HAVE ALREADY CLARIFIED THAT IT IS IMMATERIAL OR IRRELEVA NT WHETHER THIS EXCISE LIABILITY IS MET AGAINST SUBSEQUENT PURCHASES OR TH ROUGH DIRECT PAYMENT, ITA NO.1661/AHD/2016 DANIEL MEASUREMENT SOLUTIONS PVT. LTD. VS. DCIT ASST.YEAR 2010-11 - 6 - SO THAT THE SAME WOULD CONTINUE TO OUTSTAND IN THE ASSESSEE'S ACCOUNTS UNTIL ADJUSTED. THE DIVERGENCE BETWEEN THE EXCISE R ULES AND THE TENETS OF ACCOUNTANCY INSOFAR AS ACCOUNTING OF EXCISE IS CONC ERNED HAS A/SO BEEN NOTED. THE PURPORT OF THE TWO IS DIFFERENT. THE DIF FERENCE OR CONFLICT, IT MAY BE APPRECIATED, IS ON ACCOUNT OF THE EXCISE DEP ARTMENT FOLLOWING 'CASH BASIS', ALLOWING FULL CREDIT FOR THE EXCISE O N PURCHASES, WHETHER CONSUMED OR NOT, WHILE ACCOUNTANCY WOULD ADMIT OF C REDIT/ADJUSTMENT ONLY TO THE EXTENT OF RAW MATERIAL CONSUMED. THE MO DVAT CREDIT IN RESPECT OF UNCONSUMED RAW MATERIAL (RS. 400/- IN T HE EXAMPLE # 1/ANN. 1A) HAS TO BE NECESSARILY CARRIED FORWARD TO THE FO LLOWING PERIOD, IRRESPECTIVE OF THE NOMENCLATURE OF THE ACCOUNT UND ER WHICH IT IS SO, AND CANNOT BE AVAILED OF MERELY ON THE BASIS THAT EXCIS E-STANDS PAID THEREON. IN FACT, THE TAX AUDIT REPORT U/S. 44AB REQUIRES R EPORTING OF THE UNUTILIZED CREDIT OF MODVAT AVAILABLE. THE TWO, I.E ., THE ACCOUNTS AND THE EXCISE RECORDS, PROCEED INDEPENDENTLY, THOUGH ARE R ECONCILABLE. A PERIODIC RECONCILIATION IS, IN ANY CASE, RECOMMENDE D. PERHAPS, ONLY A PROVISION IN THE EXCISE LAW FOR DIRECT PAYMENT OF E XCISE ON VALUE-ADDITION OR, EQUIVALENTLY, MAINTAINING THE BALANCE IN THE PL A (UCC A/C) AT PAR WITH THE EXCISE COMPONENT ON THE INVENTORIES (RS. 4 00/- IN OUR EXAMPLE/ANN. IA), WOULD RESTORE PARITY BETWEEN THE TWO. IN SUM, WE REITERATE THE PRIMACY OF S.145A; THE EXCISE RULES B EING INCONSISTENT WITH THE TENETS OF ACCOUNTANCY. (B) IN OUR DEAR VIEW, THUS, THE PROPER MANNER IN WH ICH THE CORRECT PROFIT IN TERMS OF SECTION 145A COULD BE DETERMINED IS BY SCR UPULOUSLY FOLLOWING THE MANDATE OF THE SAID SECTION. ALL THE CONSTITUENTS O F THE MANUFACTURING ACCOUNT THAT ARE SUBJECT TO LEVY/INCIDENCE OF EXCIS E (OR ANY OTHER TAX FOR THAT MATTER) ARE TO BE LOADED THEREWITH. THAT THE PROVIS ION IS TAX-NEUTRAL IS NO ARGUMENT FOR NOT OBSERVING THE SAME, AS THE SAME (T AX NEUTRALITY) WOULD HAVE TO BE ESTABLISHED IN EACH CASE WITH REFERENCE TO TH E ACCOUNTS AS BEING MAINTAINED. THIS IS AS IN PRACTICAL SITUATIONS, A O NE-TO-ONE CORRESPONDENCE BETWEEN INPUT/S AND OUTPUT/S, AS MANIFEST AND APPAR ENT IN THE EXAMPLES OF DIFFERENT TRADING SCENARIOS ASSUMED BY THE ASSESSEE , AND ADOPTED BY US (FOR THE SAKE OF SIMPLICITY), IS DIFFICULT TO ESTABLISH IN REAL LIFE MANUFACTURING CASES, WHERE A VARIETY OF INPUTS, IF NOT ALSO OUTPU TS, OBTAIN. SECONDLY, THE CLOSING INVENTORY, LOADED WITH ALL INPUT DUTIES/LEV IES, WOULD ONLY STATE THE SAME AT ACTUAL COST, EVEN AS ADVOCATED BY AS-2 BY I CAI. AGAIN, THIS ONLY WOULD STATE THE CURRENT ASSET, WHICH IT REPRESENTS, AT ITS PROPER VALUE, I.E., IN THE BALANCE SHEET, AND AT WHICH THE SAME IS TO BE C ARRIED FORWARD TO THE FOLLOWING YEAR. EVEN WHERE ACCOUNTED FOR SEPARATELY , THE SAME IS TO BE CARRIED FORWARD AS A COST WHICH IS RECOVERABLE. ONL Y 3 CORRECT STATEMENT OF THE CURRENT ASSETS AND LIABILITIES, I.E., WHICH ARE NOT ON CAPITAL ACCOUNT, IN THE BALANCE-SHEET, WOULD ENABLE REFLECTION OF THE CORRE CT OPERATING RESULTS FOR THE RELEVANT ACCOUNTING PERIOD. TOWARD THIS, ONLY T HE BOOKING OF PROFIT (AGAINST EXCESS RECOVERY OF EXCISE DUTY) WOULD ENAB LE AN AGREEMENT OF THE OUTSTANDING BALANCE IN THE UCC A/C WITH THE EXCISE COMPONENT IN THE CLOSING INVENTORIES, SO THAT THE ACCOUNTS -WHETHER MAINTAIN ED ON GROSS OR NET BASIS, REFLECT THE CURRENT ASSET IN RESPECT OF EXCISE PAID THEREON AT THE SAME, CORRECT ITA NO.1661/AHD/2016 DANIEL MEASUREMENT SOLUTIONS PVT. LTD. VS. DCIT ASST.YEAR 2010-11 - 7 - VALUE. FURTHER, IT IS ONLY THIS, RECKONING THE 'PRO FIT' ON EXCESS RECOVERY AS THE DIFFERENCE BETWEEN THE PROFIT PER THE TWO STATEMENT S PREPARED ON NET AND GROSS BASIS, THAT WOULD STATE THE UCC A/C AT THE CO RRECT VALUE OF THE CURRENT ASSET REPRESENTED BY IT, WHERE THE ACCOUNTS ARE MAI NTAINED ON NET BASIS, BRINGING THE PROFIT PER THE TWO METHODS AT PAR. THI RDLY, THE PROVISION BECOMES TAX-NEUTRAL ONLY WHEN DUTY IS PAID ON VALUE ADDITION, ELSE NOT, IN VIEW OF THE NON OBSTANTE PROVISION OF S.43B, WHICH HAS TO BE GIVEN EFFECT TO (REFER ANN. 1). THAT, HOWEVER, IN ANY CASE, CANNOT BE A GROUND FOR NOT OBSERVING THE METHOD OF ACCOUNTING THAT YIELDS CORR ECT PROFITS OR OPERATING RESULTS. FURTHER, EVEN WHERE THE ACCOUNTING TREATME NT PROVIDES CORRECT RESULTS, THE PROVISION OF S. 436 WOULD HAVE TO BE G IVEN DUE EFFECT THE SAME CANNOT BE DEFEATED BY NON-BOOKING THE STATUTORY LIA BILITY IN RESPECT OF EXCISE IN ACCOUNTS, EVEN IF PAYABLE IN DUE COURSE, UNDERST ATING SIMULTANEOUSLY THE CORRESPONDING ASSET, TO CONTEND NON-DIFFERENCE IN O PERATING RESULTS. THE TRIBUNAL, IN RAJ -PETRO SPECIALITIES (P.) LTD. V. A SSTT. CFT[IT APPEAL NOS. 7260 & 7261/(MUM)/2010 DATED 15-3-2013] HAS CLARIFI ED THAT SS. 43B AND 145A, BOTH NON OBSTANTE PROVISIONS, ARE TO BE READ IN HARMONY AND, FURTHER, EXPLAINED THAT THERE WAS IN FACT NO CONFLICT OR INC ONSISTENCY BETWEEN THE TWO SECTIONS. IN FINAL ANALYSIS, THE TAX NEUTRALITY OF THE NET METHOD IS SUBJECT TO IT BEING ESTABLISHED, WITH THE NON OBSTANTE PROVISION OF S. 438, WHICH IN FACT OBTAINS IRRESPECTIVE OF THE METHOD OF ACCOUNTING FO LLOWED, ASSUMING A CRUCIAL SIGNIFICANCE WHEN THE LIABILITY IN RESPECT OF ALL THE LEVIES AS ACCRUED ARE BOOKED OR ACCOUNTED FOR. (C) COMING TO THE FACTS AND FIGURES OF THE CASE, TH E OPERATING STATEMENT AT GROSS VALUES (ANNEXURE 2-B) WOULD NEED TO BE MODIFI ED IN THE FOLLOWING MANNER, SO AS TO BRING IT IN CONFORMITY WITH SECTIO N 145A: INCREASE THE VALUE OF THE OPENING STOCK OF FG AND R MS BY THE AMOUNT OF EXCISE DUTY, IF ANY, SUFFERED THEREON; STATE THE DOSING STOCK OF FG AND RMS, SIMILARLY, AT VALUES INCLUSIVE OF EXCISE DUTY THEREON, AND NOT BY ADDING THE DEBIT AMOUNT OU TSTANDING IN THE UCC A/C; AND CARRY FORWARD THE CLOSING STOCK, SO VALUED, AS THE VALUE OF THE OPENING STOCK FOR COMPUTING THE PROFITS U/S.145 R.W.S. 145A FOR T HE FOLLOWING YEAR. THE DIFFERENCE IN THE PROFIT SO REFLECTED, AND THAT PER THE STATEMENT DRAWN BY EXCLUDING EXCISE (ANN. 2-A), RESTATING THE CLOSING STOCK ALSO, THUS, AT RS.25.S6 LAKHS, OR AT A PROFIT OF RS.5.53 LAKHS, WO ULD YIELD THE PROFIT OR LOSS, AS THE CASE MAY BE, EMBEDDED IN 'THE UCC A/C; ITS O PENING BALANCE BEING NIL. THE ASSESSEE MAY PASS AN ACCOUNTING ENTRY IN I TS ACCOUNTS IN ITS RESPECT, WHICH WOULD HAVE THE EFFECT OF STATING THE SAID ACC OUNT AT THE CORRECT AMOUNT OF CURRENT ASSET OR CURRENT LIABILITY, AS THE CASE MAY BE, REFLECTED BY IT. (D) WE MAY, BEFORE CLOSING, CLARIFY THAT THE EXERCI SE OF DRAWING THE STATEMENT IN TERMS OF S. 145A COULD HAVE THE EFFECT OF EITHER INCREASING, OR DECREASING THE RETURNED PROFIT OF RS.8,92,850/-, I.E., DEPENDI NG ON THE EXCISE COMPONENT ITA NO.1661/AHD/2016 DANIEL MEASUREMENT SOLUTIONS PVT. LTD. VS. DCIT ASST.YEAR 2010-11 - 8 - IN THE FINISHED AND SEMI-FINISHED GOODS. THE CENVAT CREDIT ACCOUNT GETS, THUS, EFFECTIVELY INCORPORATED IN THE PROFIT AND LO SS ACCOUNT, DEPRESSING THE PROFIT BY THE OUTSTANDING DEBIT BALANCE THEREIN, WH ILE INCREASING IT WITH THE EXCISE COMPONENT IN THE CLOSING STOCK. WE DECIDE AC CORDINGLY,' 4.3.1 THUS, IT IS HELD THAT THE APPELLANT WAS REQUI RED IN THE CURRENT ASSESSMENT YEAR TO PREPARE ITS ACCOUNTS AS PER THE INCLUSIVE METHOD PRESCRIBED BY SECTION 145A ONLY. IN THIS REGARD, THE OTHER CONTENTION OF THE APPELLA NT IS THAT EVEN IF THE INCLUSIVE METHOD IS USED, THERE WILL BE NO CHANGE IN ITS TAXA BLE INCOME. FOR THIS PURPOSE, THE APPELLANT HAS FILED SEVERAL EXAMPLES AS WELL AS COM PUTATION AS PER ANNEXURE-A TO THE FORM 3CD, AS REPRODUCED ABOVE, TO SHOW THAT THE PRO FIT WOULD REMAIN THE SAME WHETHER EXCLUSIVE METHOD IS USED OR INCLUSIVE METHO D IS USED. THE EXAMPLES GIVEN AS PER THE ANNEXURE A TO FORM 3CD IS BASED UPON THE PR OVISION OF SECTION 145A AS WELL AS THE PROVISION OF SECTION 43B OF THE ACT. NOW THE PROVISIONS OF SECTION 43B ARE APPLICABLE TO THE STATUTORY LIABILITY IN THE NATURE OF TAX, FEE, CESS WHICH HAS ACCRUED TO THE ASSESSEE AS ON THE END OF THE PREVIOUS YEAR, BUT, HAS REMAINED UNPAID. UNDER SUCH CIRCUMSTANCE, IF THE LIABILITY IS PAID TO BY T HE ASSESSEE BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME, THE DEDUCTION FOR THE S AME IS ALLOWED IN THE YEAR IN WHICH THE LIABILITY HAD ACCRUED. IF IT IS NOT PAID BEFORE THE DUE DATE OF FILING ITS RETURN OF INCOME, THEN THE DEDUCTION IS ALLOWED IN THE YEAR I N WHICH SUCH PAYMENT IS MADE. THUS FOR APPLICABILITY OF THE PROVISIONS OF SECTION 43B, THE LIABILITY OF THE NATURE MENTIONED IN THIS SECTION MUST HAVE ACCRUED TO THE ASSESSEE AS OF THE END OF THE PREVIOUS YEAR. IN THE CURRENT CASE, THE FINISHED GO ODS AS AT THE END OF THE PREVIOUS YEAR WERE NIL. THUS, THERE WAS NO LIABILITY WHICH H AD ACCRUED TO THE ASSESSEE FOR PAYMENT OF EXCISE DUTY OF FINISHED GOODS AS ON 31.0 3.2010. UNDER SUCH CIRCUMSTANCES, NO SUCH LIABILITY CAN BE DEDUCTED WH ILE COMPUTING THE PROFIT OF THE APPELLANT AS PER INCLUSIVE METHOD AS HAS BEEN CLAIM ED BY THE APPELLANT IN ANNEXURE A TO FORM 3CD AS WELL AS IN THE EXAMPLES GIVEN IN T HE WRITTEN SUBMISSIONS. THE OTHER ADJUSTMENTS MADE IN THIS COMPUTATION ARE AS P ER THE METHOD PRESCRIBED IN THE DECISION IN THE CASE OF HERCULES PIGMENT INDUSTRIES (SUPRA). THUS, WHILE COMPUTING THE PROFIT AND LOSS OF THE APPELLANT, THE DEDUCTION OFF 72,21,235/- CLAIMED IN THE COMPUTATION IN THE ANNEXURE A IS TO BE IGNORED. BES IDES, IT IS SEEN THAT THE EXCISE DUTY OF RS. 51,46,079/- HAS BEEN COLLECTED BY THE A PPELLANT ON SALES WHICH HAD BEEN PAID OR ADJUSTED AGAINST CENVAT CREDIT. THUS, THERE WAS NO LIABILITY ON THE APPELLANT FOR PAYMENT OF SUCH EXCISE DUTY ALSO. THE COMPUTATION IN ANNEXURE-A HAS ALSO TAKEN INTO ACCOUNT THE FACT OF OPENING BALANCE OF CENVAT CREDIT. THUS THE COMPUTATION IN THIS ANNEXURE IS AS PER METHOD PRESC RIBED IN THE CASE OF HERCULES PIGMENT INDUSTRIES (SUPRA) FOR COMPUTATION OF PROFI T AS PER INCLUSIVE METHOD, EXCEPT, FOR THE DEDUCTION CLAIMED U/S 43B WITHOUT THERE BEING ANY ACCRUED LIA BILITY FOR PAYMENT OF EXCISE DUTY AS ON 31.3.2010. 4.3.2. THUS THE COMPUTATION FILED IN ANNEXURE-A IS AS PER THE METHOD WHICH SHOULD HAVE BEEN FOLLOWED BY THE APPELLANT FOR PREPARATION OF THIS P & L ACCOUNT EXCEPT FOR THE DEDUCTION CLAIMED OF RS.72,21,235/- AS EXCISE D UTY PAID ON OR BEFORE FILING OF INCOME TAX RETURN. HENCE, THE CORRECT PROFIT OF THE APPELLANT AS PER THIS COMPUTATION SHOULD HAVE BEEN RS.11,95,61,485/-AS AGAINST RS.11, 23,40,250/- SHOWN BY THE APPELLANT IN ITS P & L ACCOUNT. THUS, IN THE RETURN OF INCOME THE ADDITION TO BE MADE WAS RS. 72,21,235/- AS AGAINST F 16,09,091/- MADE B Y THE AO. HENCE, THE ASSESSED ITA NO.1661/AHD/2016 DANIEL MEASUREMENT SOLUTIONS PVT. LTD. VS. DCIT ASST.YEAR 2010-11 - 9 - INCOME IS ENHANCED BY THE AMOUNT OF RS. 56,12,144/- . ACCORDINGLY, THE APPEAL IS DISMISSED AND ENHANCED AS DISCUSSED BY RS. 56,12,14 4/-. THE CASE MADE OUT BY THE ASSESSEE AS WE FIND THAT T HE ASSESSEE IS FOLLOWING THE EXCLUSIVE METHOD OF ACCOUNTING CONSIS TENTLY FOR YEARS TOGETHER WHERE THE PURCHASE OF CAPITAL GOODS AS WEL L AS RAW MATERIALS, STORES AND SPARES ETC. AND SERVICES AVAILED/PROCURE D IS RECORDED AND CHARGED OFF TO PROFIT AND LOSS ACCOUNT WHICH ARE NE T OF DUTIES/TAXES FOR WHICH CENVAT CREDIT IS AVAILABLE TO THE ASSESSEE. CENVAT CREDIT RECEIVABLE IS BEING SHOWN AS AN ASSET IN THE BALANC E SHEET AND WILL BE ADJUSTED AGAINST EXCISE DUTY LIABILITIES AS AND WHE N THE SAME IS UTILIZED. FURTHER THAT IN THE EXCLUSIVE METHOD OF ACCOUNTING, NO DEDUCTION IS BEING CLAIMED IN RESPECT OF THE DUTIES, TAXES PAID ON PUR CHASE OF MATERIAL AS THE SAME WAS RECORDED AS AN ASSET IN CENVAT CREDIT RECE IVABLE ACCOUNT RATHER THAN BEING CHARGED AS AN EXPENSE IN THE PROF IT AND LOSS ACCOUNT. WHEREAS IN THE INCLUSIVE METHOD OF ACCOUNTING DEDUC TION IS CLAIMED IN RESPECT OF DUTIES, TAXES PAID ON PURCHASE OF MATERI AL BY TREATING THE SAME AS PART OF THE PURCHASE COST. THE ASSESSEE ALSO SU BMITTED THAT THE METHOD OF ACCOUNTING/TREATMENT AS AFORESAID HAS BEEN CONSI STENTLY FOLLOWED BY IT OVER THE YEARS. WE FIND THAT THE ASSESSEE HAS ALSO RELIED UPON THE GUIDANCE NOTE ON TAX AUDIT ISSUED BY THE ICAI IN SU PPORT OF HIS EXPLANATION AS RENDERED BEFORE THE AUTHORITIES BELO W. THE ASSESSEE HAS ALSO ILLUSTRATED ITS CONTENTION OF THE REVENUE BEIN G NEUTRAL IRRESPECTIVE OF THE METHOD OF ACCOUNTING BEING FOLLOWED BY PLACING THE STATEMENT SHOWING EFFECT OF BOTH THE METHOD OF ACCOUNTING EXC LUSIVE AND INCLUSIVE AS AVAILABLE AT PAGE 13 OF THE PAPER BOOK FILED BEF ORE US WHICH WE HAVE ALREADY PERUSED AND IN OUR CONSIDERED OPINION THE S AME IS ACCEPTABLE. ITA NO.1661/AHD/2016 DANIEL MEASUREMENT SOLUTIONS PVT. LTD. VS. DCIT ASST.YEAR 2010-11 - 10 - 6. WE HAVE FURTHER CONSIDERED THE JUDGMENT PASSED B Y THE CO- ORDINATE BENCH IN ITA NO. 599/AHD/2015 FOR A.Y. 200 8-09 AND C.O. NO. 78/AHD/2015 FOR A.Y. 2008-09. WHILE DEALING WITH THE ISSUE AND DECIDING THE MATTER IN FAVOUR OF THE ASSESSEE THE C O-ORDINATE BENCH AS ALSO BEEN PLEASED TO OBSERVE AS FOLLOWS:- 6. WITH THE ASSISTANCE OF THE LD.AR FOR THE ASSESS EE AND LD. DR FOR THE REVENUE, WE NOTE THE ASSERTIONS MADE ON BEHALF OF T HE ASSESSEE THAT ASSESSEE HAS CONSISTENTLY FOLLOWED EXCLUSIVE METHOD OF ACCOUNTIN G WITH DUE CERTIFICATION BY THE LAX AUDITOR FOR RECORDING THE INVENTORY WHICH IS SUBJEC T MATTER OF DISPUTE IN VALUATION. WE ALSO NOTICE THE PLEA OF THE ASSESSEE THAT ADOPTING INCLUSIVE METHOD OF ACCOUNTING WILL NOT ALTER THE RESULTANT PROFITS AND SUCH CHANGE OF ACCOUNTING WILL BE A REVENUE NEUTRAL EXERCISE OVER A PERIOD OF TIME. W E ALSO NOTICE THAT SIMILAR ISSUE RAISED AGAINST THE ASSESSEE IN ITS OWN CASE FOR AY 2009-10 WAS ALSO REVERSED BY THE CIT(A). HAVING REGARD TO THESE FACTS, WE CONCUR WIT H THE VIEW TAKEN BY THE CIT(A). IT IS NOT GAIN SAYING THAT UNUTILIZED CENVAT CREDIT ON LY REPRESENTS THE AVAILABILITY OF EXCISE CREDIT AT THE DISPOSAL OF THE ASSESSEE AT TH E END OF THE YEAR ELIGIBLE TO BE SET OF AGAINST FUTURE LIABILITY THEREFORE, APPARENTLY THE UNUTILIZED CENVAT CREDIT CANNOT BE ADOPTED FOR THE PURPOSES OF VALUATION OF INVENTO RIES IN SPHERE OF S.145A OF THE ACT. IN THESE FACTS, WE FIND NO INFIRMITY IN THE OR DER OF THE CIT(A). WE ALSO FIND THAT THE ISSUE IS ALSO COVERED IN FAVOUR OF ASSESSEE BY THE JUDGMENT OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF PR.CIT VS. GUJARAT GAS CO . LTD. IN TAX APPEAL NO.90 OF 2017 DATED 07/02/2017. 7. IN VIEW OF THE AFORESAID DISCUSSION AND IN THE L IGHT OF JUDICIAL PRECEDENT, APPEAL OF THE REVENUE IS DISMISSED. 7. THUS, RESPECTFULLY RELYING UPON THE SAME WE FIND NO MERIT IN SUCH ADDITION MADE BY THE AO AND FURTHER ENHANCEMENT THE REOF BY LD. CIT(A) WHEN THE UNUTILIZED CENVAT CREDIT ONLY REPRESENTS T HE AVAILABILITY OF EXCISE CREDIT AT THE DISPOSAL OF THE ASSESSEE AT TH E END OF THE YEAR ELIGIBLE TO BE SET OFF AGAINST FUTURE LIABILITY AND, THEREFO RE, THE UNUTILIZED CENVAT CREDIT CANNOT BE ADOPTED FOR THE PURPOSES OF VALUATION OF INVENTORIES IN EXERCISE OF SECTION 145A OF THE ACT WHERE THE EFFECT IS REVENUE NEUTRAL. WE OBSERVE THAT INCLUSIVE METHOD OF ACCOUNTING HAS NOT ITA NO.1661/AHD/2016 DANIEL MEASUREMENT SOLUTIONS PVT. LTD. VS. DCIT ASST.YEAR 2010-11 - 11 - ALTERED THE RESULTANT PROFITS AND A REVENUE NEUTRAL EXERCISE OVER A PERIOD OF TIME. WE, THEREFORE, WITH THE ABOVE OBSERVATION DELETE THE ADDITION MADE BY THE AUTHORITIES BELOW. 8. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 04/01/2021 SD/- SD/- (PRADIP KUAMR KEDIA) (MS. MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 04/01/2021 TANMAY, SR. PS TRUE COPY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A)- 5. , ! ' , #$%% / DR, ITAT, AHMEDABAD 6. &' () / GUARD FILE. / BY ORDER, / (DY./ASSTT. REGISTRAR) !, #$ / ITAT, AHMEDABAD 1. DATE OF DICTATION 08.12.2020 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 09.12.2020 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 09 .12.2020 & 15.12.2020 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT .01.2021 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S 04.01.2021 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 04.01.2021 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