M/s. Alpanil Industries, Ahmedabad V. The ACIT., Circle-6, Ahmedabad

ITA 169/AHD/2005

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9049 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 20-08-2009
• Assessment Year: 1999-2000
• Appeal Filed On: 19-01-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJEEV AGARWAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Initiation of penalty proceedings; Set aside
• Section: 271(1)(c); 43B; 80HHC; 80IA; 80HH; 139(1); 147; 145; 148; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI T.K.SHARMA, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING : 20.08.09 DRAFTED ON:2.09.09 ITA NO.169/AHD/2005, 170/AHD/2005 ASSESSMENT YEAR : 1999-00, 2000-01 M/S. ALPANIL INDUSTRIES, PLOT NO.81-82, PHASE- II, GIDC, VATVA, AHMEDABAD VS. A.C.I.T., CIRCLE-6, AHMEDABAD. PAN/GIR NO. : AAEFA 4823 D (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI S.N.SOPARKAR A.R. RESPONDENT BY: SHRI RAJEEV AGARWAL D.R. O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THESE ARE THE APPEALS ARE FILED BY THE ASSESSEE A GAINST THE ORDER OF THE LD. CIT(A)-XII, AHMEDABAD DATED 04.11.2004 A ND 18.10.2004 RESPECTIVELY. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING COMMON ADDI TIONAL GROUNDS OF APPEAL IN BOTH THE YEARS UNDER CONSIDERATION WHI CH ARE AS UNDER. 1. ALTERNATIVELY AND WITHOUT PREJUDICE, PROVISIONS OF S. 145A MAY KINDLY BE APPLIED TO THE OPENING STOCK FOR THE YEAR UNDER CONSIDERATION AND THE SAME MAY KINDLY BE APPROPRIAT ELY MODIFIED. 2. ALTERNATIVELY AND WITHOUT PREJUDICE, IN ANY CASE THE APPELLANT HAS CLEARED THE CLOSING STOCK AND THUS PAID THE EXC ISE DUTY ON THE CLOSING STOCK WILL BEFORE THE DUE DATE OF FILING TH E RETURN OF ITA NO. 169/AHD/2005, 170/AHD/2005 M/S. ALPANIL INDUSTRIES ASST . YEAR 1999-00, 2000-01 - 2 - INCOME AND THEREFORE, EXCISE DUTY PAYMENT IS ALLOWA BLE AS DEDUCTION UNDER SECTION 43B OF THE ACT. 3. AFTER HEARING THE RIVAL SUBMISSIONS THE BENCH AD MITTED THE ABOVE GROUNDS OF APPEAL AND THE PARTIES WERE ALLOWED TO M AKE THEIR SUBMISSION ON THE SAME. 4. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE SUBMITTED THAT HE IS NOT PRESSING GROUND NO.1 TAKEN IN THE AD DITIONAL GROUND OF APPEAL. HENCE, THE SAME IS DISMISSED AS NOT PRESSED . 5. IN ASSESSMENT YEAR 1999-00, THE ASSESSEE HAS TAK EN FOLLOWING GROUNDS OF APPEAL. 1. THE LD. CIT(A) HAS ERRED NI LAW AND ON FACTS IN CONFIRMING THE ACTION OF LEARNED ASSESSING OFFICER IN REOPENING TH E ASSESSMENT PROCEEDINGS UNDER SECTION 147 OF THE I.T.ACT. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ACTION OF REOPENING IS WITHOUT JURISDICTION AND NOT PERMISSIBLE EITHER IN LAW OR O N FACT. THE PRESENT PROCEEDINGS, THEREFORE, ARE REQUIRED TO BE QUASHED. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN ADDING RS.24,29,893/-, BEING THE AM OUNT OF EXCISE DUTY MODVAT TO THE VALUE OF THE CLOSING STOC K UNDER SECTION 145A OF THE ACT. 3. BOTH THE LOWER AUTHORITIES HAVE ERRED IN LAW AND ON FACTS IN NOT PROPERLY APPRECIATING AND CONSIDERING VARIOUS SUBMI SSIONS, EVIDENCES AND SUPPORTING PLACED ON RECORD DURING TH E COURSE OF THE ASSESSMENT PROCEEDINGS AND NOT PROPERLY APPRECI ATING VARIOUS FACTS AND LAW IN ITS PROPER PERSPECTIVE. 4. LEVY OF INTEREST UNDER SECTION 234A/B/C OF THE ACT IS NOT JUSTIFIED. 5. INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 27(1)(C) OF THE ACT IS NOT JUSTIFIED. ITA NO. 169/AHD/2005, 170/AHD/2005 M/S. ALPANIL INDUSTRIES ASST . YEAR 1999-00, 2000-01 - 3 - 6. AT THE TIME OF THE HEARING, LEARNED AUTHORISED R EPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT HE IS NOT PRESSING GROU ND NO.1 AND GROUND NO.3 OF THE APPEAL. HENCE, THEY ARE DISMISSED AS NO T PRESSED. 7. GROUND NO.2 OF THE APPEAL IS DIRECTED AGAINST AD DING OF RS.24,29,893/- IN ASSESSMENT YEAR 1999-00 AND 28,23 ,036/- IN THE ASSESSMENT YEAR 2000-01 BEING THE AMOUNT OF EXCISE DUTY MODVAT TO THE VALUE OF CLOSING STOCK UNDER SECTION 145A OF TH E ACT. 8. GROUND NO.2 OF THE ADDITIONAL GROUND RELATES TO ALLOWING DEDUCTION FOR EXCISE DUTY PAID ON CLOSING STOCK BEF ORE THE DUE DATE OF FILING THE RETURN OF INCOME UNDER SECTION 43B OF TH E ACT. 9. SINCE, THE FACTS AND ISSUE INVOLVED IN THE ABOVE GROUNDS ARE COMMON, THEY ARE CONSIDERED AND DECIDED TOGETHER AS UNDER. 10. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE, A REGISTERED FIRM, CARRIED ON BUSINESS OF MANUFACTURING, TRADING AS WE LL AS EXPORTING OF SYNTHETIC ORGANIC PIGMENT DYES & CHEMICALS FROM ANN EXURE-1 TO PARA 12B OF THE AUDIT REPORT UNDER SECTION 44AB FILED BY THE ASSESSEE WITH THE RETURN OF INCOME, IT WAS NOTICED BY THE AO THAT IN ASSESSMENT YEAR 1999-2000, THE ASSESSEE DID NOT SHOW ANY DEVIATION IN VIEW OF SECTION 145A OF THE I.T.ACT. ACCORDINGLY, THE ASSESSEE DID NOT INCREASE THE VALUE OF CLOSING STOCK FOR ASSESSMENT YEAR 1999-2000 AND WHICH CONSEQUENTLY REMAINED THE OPENING STOCK FOR ASSESSMENT YEAR 2000 -01. AS PER THE CLOSING STOCK OF THE ASSESSEE FOR THE ASSESSMENT YE AR UNDER CONSIDERATION SHOULD HAVE GONE UP BY THE EXCISE DUT Y OF RS.11,84,151/-. ITA NO. 169/AHD/2005, 170/AHD/2005 M/S. ALPANIL INDUSTRIES ASST . YEAR 1999-00, 2000-01 - 4 - DURING THE ASSESSMENT PROCEEDINGS, IT WAS EXPLAINED BY THE ASSESSEE THAT THEY FOLLOWED THE PRACTICE TO CREDIT THE INTER EST OF MODVAT IN PURCHASE ACCOUNT. THEREFORE, THE TOTAL PURCHASE WAS STATED TO HAVE BEEN REDUCED BY THE AMOUNT OF MODVAT WHICH IN TURN WAS UTILISED AGAINST THE PAYMENT OF EXCISE DUTY ON SALE OF THE F INISHED GOODS. IT WAS THEREFORE SUBMITTED BEFORE THE LEARNED ASSESSING OF FICER THAT AS THE ASSESSEE HAS DEBITED THE PURCHASE OF RAW MATERIAL E XCLUDING THE MODVAT ELEMENT, THE CLOSING STOCK WAS RIGHTLY VALUE D BY THEM AT THE PURCHASE VALUE LESS MODVAT CREDIT. AS PER THE ASSES SEE, IF THE VALUE OF STOCK WAS INCREASED IN THEIR CASE THEN SIMULTANEOUS LY THE VALUE OF PURCHASE WOULD ALSO HAVE INCREASED. IT WAS THEREFOR E, CONTENDED THAT THERE WOULD NOT BE ANY IMPACT ON PROFIT EITHER BY U SING INCLUSIVE OR EXCLUSIVE METHOD. THE CONTENTION OF THE ASSESSEE WAS HOWEVER, NOT ACCEPTED BY THE LEARNED ASSESSING OFFICER. HE OBSER VED THAT THE PURCHASE PRICE OF THE RAW MATERIAL CONSISTED OF TWO ELEMENTS I.E. BASIC PURCHASE PRICE + MODVAT CREDIT. AS PER THE LEARNED ASSESSING OFFICER, THEREFORE, UNDER SECTION 145A OF THE IT ACT, THE CL OSING STOCK OF RAW MATERIALS AND FINISHED GOODS ETC. SHOULD HAVE BEEN VALUED AT A PRICE INCLUSIVE OF EXCISE DUTY PAID ON PURCHASE OF SUCH R AW MATERIAL, ETC. THE AO WORKED OUT THE RATIO (AVERAGE) REFERRED TO BY H IM AS RATIO M OF MODVAT CREDIT IN PURCHASE OF RAW MATERIAL BEING 798 1469/71497311 I.E. 11%. FURTHER FROM THE INFORMATION PROVIDED IN CLAUSE (D) OF PARA 32 OF THE AUDIT REPORT UNDER SECTION 44AB. THE LEARNED ASSESSING OFFICER FOUND OUT THE RATIO OF VALUE OF RAW MATERIAL CONSUM ED TO PRODUCE THE FINISHED GOODS/VALUE OF FINISHED GOODS PRODUCED. TH IS RATIO HAS BEEN REFERRED TO AS RATIO A BY THE LEARNED ASSESSING O FFICER IN THE ITA NO. 169/AHD/2005, 170/AHD/2005 M/S. ALPANIL INDUSTRIES ASST . YEAR 1999-00, 2000-01 - 5 - ASSESSMENT ORDER. AS PER THE AO, THE INCREASE IN TH E VALUE OF CLOSING STOCK WAS TO BE WORKED OUT AS UNDER. IN RESPECT OF STOCK OF RAW MATERIAL = VALUE OF STOC K OF RAW MATERIAL EXCLUDING MODVAT X RATIO IN RESPECT OF STOCK OF FIN ISHED GOODS = STOCK OF FINISHED GOODS EXCLUDING MODVAT X RATIO A X RA TIO M. IN RESPECT OF WORK IN PROGRESS = STOCK OF WORK IN P ROGRESS EXCLUDING MODVAT X (1+A)/2 X RATIO M. THE APPELLANT HAD SHOWN THE CLOSING STOCK OF RAW MA TERIAL AT RS.1,54,03,983/- AND THE WORK IN PROGRESS AT RS.1,1 8,61,250/-. IN VIEW OF THE ABOVE FORMULA , THE AO WORKED OUT THE INCREASE IN THE VALUE OF CLOSING STOCK ON ACCOUNT OF MODVAT ELEMENT AS UNDER :- =(15403983 + 11861250 (1+ 0.73)/2X A+0X A)X (M = 11%) =(15403983 + 11861250 X 0.865) X (M =11%)=RS.29,9 9,176/- =(25663964) X (M = 11%) = RS.28,23,036/- AS AGAINST THIS THE ASSESSEE HAD SHOWN THE INCREASE IN THE CLOSING STOCK ON ACCOUNT OF INCLUSIVE METHOD AT RS.16,36,885/-. T HE AO THEREFORE, OBSERVED THAT THE PROFIT TO THE EXTENT OF RS.11,84, 151/- (RS.28,23,036/- - RS.16,38,885/-) REMAINED TO BE ACCOUNTED FOR ON ACC OUNT OF MODIFIED PROVISIONS OF ACCOUNTING UNDER SECTION 145A OF THE I.T.ACT. FOR WORKING OUT THE ADDITION, THE LEARNED ASSESSING OFFICER DID NOTICE THAT ANY ADJUSTMENTS IN THE VALUE OF OPENING STOCK WOULD CHA NGE THE ADDITION TO THIS ACCOUNT. HOWEVER, ACCORDING TO THE LEARNED COM MISSIONER OF INCOME TAX(APPEALS), THE VALUE OF OPENING STOCK IN THIS CASE HAS TO BE ADOPTED AT THE SAME FIGURE WHICH HAS BEEN CONSIDERE D AS THE CLOSING STOCK FOR ASSESSMENT YEAR 1999-2000. THEREFORE, AS PER HIM, NO ITA NO. 169/AHD/2005, 170/AHD/2005 M/S. ALPANIL INDUSTRIES ASST . YEAR 1999-00, 2000-01 - 6 - ADJUSTMENTS ON THIS ACCOUNT WAS TO BE MADE BY HIM A T THE TIME OF FINALIZING THE ASSESSMENT UNDER CONSIDERATION. HOWE VER, LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ALSO OBSERVED T HAT THE ASSESSMENT FOR ASSESSMENT YEAR 1999-2000 HAD BEEN R EOPENED BY ISSUING NOTICE UNDER SECTION 148 OF THE I.T.ACT AND THAT IF ANY ADDITION WAS CONSIDERED FOR THAT YEAR ON SIMILAR BASIS THE A DDITION MADE AS ABOVE IN THE ASSESSMENT YEAR UNDER CONSIDERATION WOULD BE CONSIDERED FOR RECTIFICATION AND RELIEF TO THE EXTENT OF ADDITIONS , IF ANY, TO THE CLOSING STOCK IN THAT YEAR, WOULD BE ALLOWED TO THE ASSESSE E. THE LEARNED ASSESSING OFFICER THEREFORE, MADE ADDITION OF RS.1 1,84,151/- TO THE TOTAL INCOME OF THE ASSESSEE ON THIS ACCOUNT. 11. IN APPEAL BEFORE THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS), IT IS CONTENDED THAT THE ADDITION MAD E BY THE LEARNED ASSESSING OFFICER IS NOT JUSTIFIED. IT IS CONTENDED THAT AS PER THE GUIDELINES ISSUED BY INSTITUTE OF CHARTERED ACCOUNT ANTS OF INDIA, AN ASSESSEE CAN HAVE EITHER INCLUSIVE METHOD FOR ACC OUNTING ENTRIES WITH REGARD TO MODVAT OR EXCLUSIVE METHOD. IT IS EXPLA INED THAT IN THE INCLUSIVE METHOD, THE PURCHASE OF RAW MATERIAL DE BITED IN THE BOOKS OF ACCOUNTS IS INCLUSIVE OF THE CORRESPONDING MODVAT E LEMENT. IT IS SUBMITTED THAT IF AN ASSESSEE IS FOLLOWING THIS MET HOD THEN THE CLOSING STOCK HAS TO BE VALUED INCLUSIVE OF MODVAT ELEMENT. ON THE OTHER HAND, IN THE EXCLUSIVE METHOD THE COST OF RAW MATERIAL DEBITED IN THE PURCHASE ACCOUNT IS NET OF MODVAT ELEMENT. IN THIS SYSTEM, THE ASSESSEE HAVE A SEPARATE ACCOUNT FOR ACCOUNTING FOR THE EXCISE DUTY PAYABLE AND THE MODVAT CREDIT AVAILABLE TO IT. IT I S EXPLAINED THAT IT AN ITA NO. 169/AHD/2005, 170/AHD/2005 M/S. ALPANIL INDUSTRIES ASST . YEAR 1999-00, 2000-01 - 7 - ASSESSEE WAS FOLLOWING THIS METHOD OF ACCOUNTING TH EN THE CLOSING STOCK HAS TO BE VALUED EXCLUSIVE OF MODVAT ELEMENT. IT IS HOWEVER, EXPLAINED THAT IN EITHER OF THE METHODS ADOPTED AS ABOVE, THE PROFIT OF THE ASSESSEE WOULD NOT CHANGE. THE LD. COUNSEL, THEREFO RE, CONTENDED THAT THOUGH THE ASSESSEE WAS FOLLOWING EXCLUSIVE METHO D OF ACCOUNTING AND THAT THEREFORE, THE CLOSING STOCK OF THE ASSESS EE WAS TO BE VALUED EXCLUDING THE MODVAT ELEMENT, THE PROFIT OF THE AS SESSEE WOULD NOT HAVE CHANGED IF THE ASSESSEE HAD CONSIDERED THE INC LUSIVE METHOD. IN THE LATER CASE, THE CLOSING STOCK WOULD HAVE BEEN V ALUED AFTER INCLUDING THE CORRESPONDING MODVAT ELEMENT. IT IS, THEREFORE, EXPLAINED THAT AS THE METHOD ADOPTED BY THE ASSESSEE HAD NOT RESULTED INTO ANY REDUCTION IN THE INCOME OF THE ASSESSEE, THERE WAS NO JUSTIFI CATION IN THE LEARNED ASSESSING OFFICER MAKING ADDITION OF RS. 11,84,151/ -. IT IS THEREFORE, CONTENDED THAT THE ADDITION SHOULD BE DELETED. 12. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVE D THAT ANY INCREASE IN THE VALUE OF CLOSING IN ONE YEAR WOULD RESULT IN CERTAIN ADDITIONS IN THE RELEVANT ASSESSMENT YEAR. HOWEVER, AS THIS CLOSING STOCK WOULD BECOME THE OPENING STOCK FOR THE NEXT SUCCEEDING ASSESSMEN T YEAR, THIS ADDITION TO THE INCOME WOULD RESULT IN SIMILAR REDUCTION OF INCOME IN THE SAID SUCCEEDING ASSESSMENT YEAR. THEREFORE, IF AN OVER A LL VIEW IS TAKEN, ANY ADJUSTMENTS OF THIS NATURE ULTIMATELY WOULD NOT AMO UNT TO ANY NET INCREASE OR DECREASE OF THE PROFIT WHEN CONSIDERED FOR A FEW NUMBER OF YEARS TAKEN TOGETHER. HOWEVER, NOW IN VIEW OF THE P ROVISIONS OF SECTION 145A INTRODUCED FROM ASSESSMENT YEAR 1999-2000, THE VALUATION OF ITA NO. 169/AHD/2005, 170/AHD/2005 M/S. ALPANIL INDUSTRIES ASST . YEAR 1999-00, 2000-01 - 8 - PURCHASE AND SALES OF GOODS AND INVENTORY FOR THE P URPOSE DETERMINING THE INCOME CHARGEABLE UNDER THE HEAD PROFIT AND GA INS OF BUSINESS OR PROFESSION IS REQUIRED TO BE ADJUSTED TO INCLUDE T HE AMOUNT OF ANY TAX, DUTY, CESS OR FEE ACTUALLY PAID OR INCURRED BY AN A SSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VALUATION. IT IS THEREFORE, MANDATORY TO VALUE THE CLOSING STOCK BY INCLUDING THE CORRESPONDING MODVAT ELEMENTS. THEREF ORE, IN VIEW OF THIS SPECIFIC PROVISIONS OF SECTION 145A OF THE IT ACT, THE LEARNED ASSESSING OFFICER WAS FULLY JUSTIFIED IN WORKING OU T THE VALUE OF CLOSING STOCK OF RAW MATERIAL, WORK IN PROGRESS AND FINISHE D GOODS IN THE MANNER AS ABOVE. THOUGH IN APPEAL, IT IS SUBMITTED THAT THE PROFIT OF THE ASSESSEE WOULD NOT CHANGE EVEN IF INCLUSIVE METHOD IS USED, SOMEHOW IT IS NOT EXPLAINED SATISFACTORILY AS TO HOW IN ASS ESSEES OWN CASE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION SUCH METHOD WOU LD NOT HAVE RESULTED INTO ANY CHANGE IN THE TOTAL INCOME OF THE ASSESSEE. IT IS FURTHER SUBMITTED THAT IN VIEW OF THE PROVISIONS OF SECTION 145A, THE VALUE OF PURCHASE SHOULD ALSO BE INCREASED BY INCLUDING THE CORRESPONDING MODVAT ELEMENT. HOWEVER, IT IS SEEN THAT IF THE PUR CHASE, SALES, OPENING STOCK AND CLOSING ALL ARE CONSIDERED INCLUS IVE OF THE EXCISE DUTY/MODVAT ELEMENT, IT WOULD BE THE ADJUSTMENT TO THE OPENING STOCK AND CLOSING STOCK ONLY, WHICH WOULD AFFECT THE INCO ME OF AN ASSESSEE. THIS IS SO BECAUSE THE EXCISE DUTY CREDITED IN THE SALES WOULD BE SET OFF BY THE MODVAT ELEMENT DEBITED IN THE PURCHASE ACCOU NT. THIS POSITION CAN BE EXPLAINED IN THE FOLLOWING SIM PLE EXAMPLES. IN THIS EXAMPLE FOR SIMPLIFYING THE POSITION, THE OPENING S TOCK VALUE HAS BEEN TAKEN AT NIL. FURTHER, TOTAL EXCISE CREDITED IN S ALES IS TAKEN TO BE LESS ITA NO. 169/AHD/2005, 170/AHD/2005 M/S. ALPANIL INDUSTRIES ASST . YEAR 1999-00, 2000-01 - 9 - THAN THE TOTAL MODVAT CREDIT AVAILABLE ON THE PURCH ASE OF RAW MATERIAL AS IS ALSO IN THE CASE OF THE ASSESSEE FOR THE ASSE SSMENT YEAR UNDER CONSIDERATION. INCLUSIVE METHOD TRADING AND MANUFACTURING A/C. PARTICULARS AMT. MODVAT TOTAL PARTICULARS AMT. EXCISE TOTAL PURCHASE OF RAW MATERIAL 1000 200 1200 BY SALES 1500 180 1680 MANUFACTURING EXP. GROSS PROFIT 800 800 GROSS PROFIT 380 2380 BY CLOSING STOCK 600 100 700 2380 EXCLUSIVE METHOD TRADING AND MANUFACTURING A/C. PARTICULARS AMOUNT (RS.) PARTICULARS AMOUNT (RS.) PURCHASE OF RAW MATERIAL MANUFACTURING EXP. GROSS PROFIT 1000 800 300 2100 BY SALES BY CLOSING STOCK 1500 600 2100 EXCISE A/C. PARTICULARS AMOUNT (RS.) PARTICULARS AMOUNT (RS.) MODVAT 200 _____ 200 BY EXCISE ON SALES C/F. (TAKEN TO BALANCE SHEET) 180 _20 200 ITA NO. 169/AHD/2005, 170/AHD/2005 M/S. ALPANIL INDUSTRIES ASST . YEAR 1999-00, 2000-01 - 10 - IN THE EXCLUSIVE METHOD THE BALANCING FIGURE IS TAK EN TO THE BALANCE SHEET ONLY AND IT IS NOT TAKEN TO THE PROFIT & LOSS ACCOUNT. THEREFORE, AS COULD BE SEEN THE GROSS PROFIT IN THE INCLUSIVE ME THOD IS HIGHER ON ACCOUNT OF THE INCREASE IN THE VALUE OF THE CLOSING STOCK BY CORRESPONDING MODVAT ELEMENT. THE TOTAL INCREASE IN THE VALUE OF CLOSING STOCK AND THEREFORE, THE INCREASE IN THE GR OSS PROFIT IN THE INCLUSIVE METHOD CAN BE WORKED AS UNDER:- TOTAL MODVAT CREDIT CORRESPONDING TO THE RAW MATERI AL OR FINISHED GOODS, ETC. IN THE CLOSING STOCK EXCESS OF MODVAT CREDIT OVER THE EXCISE PAYABLE ON THE SALES MADE DURING THE RELEVAN T PRECIOUS YEAR. IN THE ABOVE EXAMPLE, THIS WORKS OUT AS UNDER:- 100-20=80 THEREFORE, IN THE ASSESSEES CASE ALSO THE INCOME W OULD BE AFFECTED BY ANY ADJUSTMENT TO THE CLOSING STOCK AND OPENING STO CK. WITH REGARD TO THE ADJUSTMENT TO THE CLOSING STOCK AS MADE BY THE LEARNED ASSESSING OFFICER THE SAME APPEARS TO BE IN THE FULLY JUSTIFI ED IN VIEW OF THE SPECIFIC PROVISIONS OF SECTION 145A. THE LEARNED ASSESSING O FFICER HAS ALSO HIMSELF OBSERVED IN THE ASSESSMENT ORDER THAT THE ASSESSMENT OF THE ASSESSMENT YEAR 1999-2000 HAD ALREADY BEEN REOPENED AND THAT ANY ADJUSTMENT TO THE CLOSING STOCK OF THAT ASSESSMENT YEAR WOULD BE DULY CONSIDERED BY HIM FOR ALLOWING NECESSARY RELIEF ON ACCOUNT OF SUCH CONSEQUENTIAL ADJUSTMENTS IN THE OPENING STOCK OF T HE ASSESSMENT YEAR UNDER CONSIDERATION. THEREFORE, THE APPELLANT CANNO T HAVE ANY GRIEVANCE ON THIS ACCOUNT AT PRESENT. FURTHER, IT IS SEEN THA T THE RATIOS A AND M CONSIDERED BY THE AO IN THE ASSESSMENT ORDER ARE BA SED ON THE FACT AND FIGURES GIVEN IN ASSESSEES ACCOUNTS AND THEIR AUD IT REPORT ITSELF. IN THE ITA NO. 169/AHD/2005, 170/AHD/2005 M/S. ALPANIL INDUSTRIES ASST . YEAR 1999-00, 2000-01 - 11 - ABSENCE OF SPECIFIC INFORMATION AS TO WHAT ENTRIES PERTAINED TO THE MODVAT CREDIT FOR THE SPECIFIC ITEMS OF CLOSING STO CK OF RAW MATERIAL ETC. REMAINING AS ON 31.03.2000, THE LEARNED ASSESS ING OFFICER CANNOT BE FAULTED FOR COMPUTING THE VALUE OF INCREASE IN T HE CLOSING STOCK IN THIS MANNER. IN VIEW OF THE ABOVE DISCUSSION, THE ADDITI ON MADE BY THE LEARNED ASSESSING OFFICER TO THE TOTAL INCOME OF TH E ASSESSEE ON THIS ACCOUNT IS CONFIRMED IN PRINCIPLE. IT MAY BE POINTE D OUT THAT THE ADDITION ON ACCOUNT OF MODVAT ELEMENT CORRESPONDING TO THE R AW MATERIAL AND WORK IN PROGRESS SHOWN IN THE CLOSING WORKED OUT TO RS.28,23,036/- AS COMPUTED BY THE AO ALSO. THEREFORE, FROM THIS FIGUR E THE AO COULD NOT REDUCE RS.16,38,885/- AS DONE BY HIM. THIS IS SO BE CAUSE THIS AMOUNT IS SHOWN TO BE THE INCREASE IN THE CLOSING STOCK VALUE WORKED OUT BY THE ASSESSEE IF THEY HAD USED INCLUSIVE METHOD. HOWEV ER, AS THE ASSESSEE WAS FOLLOWING EXCLUSIVE METHOD EXPLAINED ABOVE, T HIS FIGURE OF RS.16,38,885/- WAS NOT THE ACTUAL INCREASE IN THE V ALUE OF THE CLOSING STOCK BUT JUST A CALCULATION IF THE ASSESSEE HAD FO LLOWED INCLUSIVE METHOD. THEREFORE, THIS AMOUNT OF RS.16,38,885/- W AS NOT REQUIRED TO BE REDUCED FROM THE ADDITION OF RS.28,23,036/-. WHE N THIS WAS DISCUSSED WITH THE LD. COUNSEL FOR THE ASSESSEE HE ALSO ADMITTED THAT THOUGH IN PRINCIPLE THE ASSESSEE WAS CONTENTING THA T ADDITION MADE BY THE LEARNED ASSESSING OFFICER WAS NOT JUSTIFIED AT ALL YET THE ADDITION ON THE BASIS OF METHOD ADOPTED BY THE LEARNED ASSESSIN G OFFICER SHOULD HAVE BEEN OF RS.28,23,036/-. FURTHER , AS PER THE B ALANCE SHEET OF THE ASSESSEE AS ON 31.03.2000, EXCESS OF MODVAT CREDIT OVER THE EXCISE PAYABLE ON THE SALES MADE DURING THE RELEVANT PREVI OUS YEAR IS SHOWN AT RS. 1,27,152/-. THEREFORE, AS DISCUSSED WHILE EXPLA INING THE EXAMPLE ITA NO. 169/AHD/2005, 170/AHD/2005 M/S. ALPANIL INDUSTRIES ASST . YEAR 1999-00, 2000-01 - 12 - ABOVE, THE NET ADDITION REQUIRED TO BE MADE TO THE CLOSING STOCK AND THEREFORE, TO THE GROSS PROFIT WOULD COME TO RS. 26 ,95,884(RS.26,23,036- RS.1,27,152). HOWEVER, AS THE LEARNED ASSESSING OFF ICER IS GOING TO CARRY OUT THE ADJUSTMENT ON ACCOUNT OF VALUE OF THE OPENI NG STOCK FOR THIS ASSESSMENT YEAR AFTER COMPLETING THE REOPENED ASSES SMENT FOR ASSESSMENT YEAR 1999-2000, HE MAY KEEP THE ABOVE PO SITION IN MIND AND WORK OUT THE FINAL FIGURE OF ADDITION ON THIS A CCOUNT CONSIDERING THE TOTAL INCREASE IN THE VALUE OF CLOSING STOCK FOR TH E ASSESSMENT YEAR UNDER CONSIDERATION AT RS. 26,95,884/- ONLY. THIS GROUND OF APPEAL IS DISPOSED OFF ACCORDINGLY. 13. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE SUBMITTED THAT TO THE EXTENT THE GOODS HAD NOT LEFT THE PREMI SES OF THE ASSESSEE NO EXCISE DUTY SHOULD BE INCLUDED IN THE CLOSING STOCK AND WHERE THE GOODS HAVE LEFT THE PREMISES OF THE ASSESSEE AND EXCISE D UTY IS INCLUDED IN THE CLOSING STOCK DEDUCTION SHOULD BE ALLOWED TO THE AS SESSEE TO THE EXTENT THE PAYMENT HAVE BEEN MADE BEFORE THE DUE DATE OF F ILING RETURN UNDER SECTION 43B OF THE ACT. HE RELIED ON THE DECISION O F THE HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF ASST. COMMISSIONE R OF INCOME-TAX-I(1), INDORE VS. D & H SECHERON ELECTRODES PVT. LTD.(2008 ) 173 TAXMAN 188 (MP) WHEREIN IT HAS BEEN HELD THAT A BARE LOOK AT S. 145A MANIFESTS THAT IT IS ONLY WHEN THE TAX, DUTY, CESS OR FEE IS ACTUALLY PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOC ATION THAT THE SAID AMOUNT FORMS PART OF THE VALUE. IT IS NOT DISPUTED IN THE PRESENT CASE THAT THE EXCISE DUTY HAS NOT BEEN PAID BY THE ASSESSEE ON THE GOODS IN STOCK AS THE GOODS DID NOT LEAVE THE PREMISES. UNDER THESE CIRCUMSTANCES, THERE WAS NO JUSTIFICATION ON THE PART OF THE AO IN ADDING THE EXCISE DUTY TO THE PRICE OF THE RAW MATERIAL ITA NO. 169/AHD/2005, 170/AHD/2005 M/S. ALPANIL INDUSTRIES ASST . YEAR 1999-00, 2000-01 - 13 - ETC. IN COMPUTING THE VALUE OF THE GOODS. THEREFORE , THE QUESTION FORMULATED BY THE DEPARTMENT DOES NOT ARISE OUT OF THE FACTS O F THE CASE. ACCORDINGLY, THIS APPEAL IS DISMISSED SUMMARILY. IT FURTHER SUBMITTED THAT THE ABOVE DECISION OF THE MADHYA PRADESH HIGH COURT HAS BEEN FOLLOWED BY THE AHMEDABAD BENCHES OF THE TRIBUNAL IN ASST. COMMISSIONER OF IN COME-TAX, NAVSARI CIRCLE VS. M/S. NARAN LALA PVT. LTD. IN ITA NO.686/AHD/200 6 ORDER DATED 20.3.2009., AND M/S. CHEMICALS & DYESTUFF INDUSTRIES VS. CIT-II ,BARODA ITA. NO.1077/AHD/2009 ORDER DATED 19.6.2009. 14. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE RELIED ON THE DECISION OF AHMEDABAD BENCH OF THE TRIBUNAL IN THE CASE OF DEPUTY COMMISSIONER OF INCOME-TAX, BARODA ,CIRCLE-1, BAROD A VS. GUJARAT FLUORO- CHEMICALS LTD. ITA NO. 3472/AHM/2002 DATED 28.09.20 06, WHEREIN IT WAS HELD THAT : 145A . NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINE D IN SECTION 145 THE VALUATION OF PURCHASE AND SALE OF GOODS AND INVENTO RY FOR THE PURPOSES OF DETERMINING THE INCOME CHARGEABLE UNDER THE HEAD 'P ROFITS AND GAINS OF BUSINESS OR PROFESSION' SHALL BE (A) IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REG ULARLY EMPLOYED BY THE ASSESSEE; AND (B) FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY T AX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) ACTUALLY PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VALUATION. EXPLANATION : FOR THE PURPOSES OF THIS SECTION, ANY TAX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) UNDER ANY LAW FOR THE TIME BE ING IN FORCE, SHALL INCLUDE ALL SUCH PAYMENT NOTWITHSTANDING ANY RIGHT ARISING AS A CONSEQUENCE TO SUCH PAYMENT.] 5. THE SAID SECTION HAS BEEN INSERTED BY THE FINANC E ACT, 1998 W.E.F. 01.04.1999, I.E., IT IS APPLICABLE FROM ASSESSMENT YEAR 1999-2000, I.E. THE IMPUGNED ASSESSMENT YEAR. THE CBDT VIDE ITS CIRCULA R NO.772 DATED 27.12.1998 BEING EXPLANATORY NOTES ON PROVISIONS RE LATING TO THE DIRECT TAXES IN FINANCE (NO.2) ACT, 1998 VIDE PARA 52.2 (235 ITR 74 (ST)) HIGHLIGHTED THE PURPOSE OF INTRODUCING SECTION 145A BY STATING THAT IN ORDER TO ENSURE THAT THE VALUE OF OPENING AND CLOSING REFLECT THE CORREC T VALUE A NEW SECTION 145A IS INSERTED. FROM THE PERUSAL OF SEC.145A(B) IT IS APPARENT THAT THIS SECTION REQUIRES THAT THE VALUATION OF PURCHASE AND SALE OF GOODS AND INVENTORY ITA NO. 169/AHD/2005, 170/AHD/2005 M/S. ALPANIL INDUSTRIES ASST . YEAR 1999-00, 2000-01 - 14 - SHOULD BE FURTHER ADJUSTED SO AS TO INCLUDE THE AMO UNT OF ANY TAX DUTY, CESS, OR FEE ACTUALLY PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VAL UATION. THERE IS NO DISPUTE THAT THE EXCISE IS INCURRED THE MOMENT THE GOODS AR E MANUFACTURED. THEREFORE, THE EXCISE DUTY INCURRED, IN OUR VIEW, W ILL BECOME PART OF THE VALUE OF THE FINISHED GOODS THE MOMENT THE FINISHED GOODS ARE MANUFACTURED. THE FACT THAT THE EXCISE DUTY IS PAYABLE ONLY WHEN THE FINISHED GOODS ARE TAKEN FROM THE FACTORY, WILL NOT POSTPONE THE INCURRENCE OF THE LIABILITY TO PAY THE EXCISE DUTY. THEREFORE, WE ARE OF THE VIEW THAT IN VIEW OF SECTION 145A(B) THE EXCISE DUTY INCURRED IN RESPECT OF THE FINISHED GOO DS AS SHOWN IN THE STOCK WILL FORM PART OF THE VALUE OF THE FINISHED GOODS. IT IS A SETTLED LAW THAT THE LIABILITY OF THE EXCISE DUTY IS AN EXPENDITURE ALLOWABLE TO T HE ASSESSEE UNDER SECTION 37 OF THE ACT. SECTION 43B LAYS DOWN THAT CERTAIN E XPENSES ARE TO BE ALLOWED ONLY ON ACTUAL PAYMENT. THIS SECTION PUT AN EMBARGO ABUT THE DEDUCTIBILITY OF CERTAIN EXPENDITURE WHICH ARE OTHERWISE ALLOWABLE U NDER THIS ACT. IN VIEW OF THE PROVISION OF SECTION 43B(A) ANY SUM PAYABLE BY THE ASSESSEE BY WAY OF EXCISE DUTY SHALL BE ALLOWED IRRESPECTIVE OF THE PR EVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED ONLY IN THE PREVIOUS YEAR IN WHICH SUCH SUM IS ACTUALLY PAID. PROVISO TO SECTION.43B RELAXE S THESE PROVISIONS AND PERMITS AN ASSESSEE TO MAKE THE PAYMENT ON OR BEFOR E THE DUE DATE OF FURNISHING OF THE INCOME TAX RETURN UNDER SECTION 139(1) OF THE ACT. THE FACT RELATING TO THE PAYMENT OF EXCISE DUTY IN RESPECT OF FINISHED GOODS IS NOT AVAILABLE ON RECORD. WE, THEREFORE, DIRECT THE LEAR NED ASSESSING OFFICER TO ALLOW THE DEDUCTION TO THE ASSESSEE IN RESPECT OF T HE EXCISE DUTY INCURRED RELATING TO THE FINISHED GOODS. IF THE EXCISE DUTY IS PAID BY THE ASSESSEE BEFORE THE DUTY DATE OF FILING OF THE INCOME TAX RETURN. T HUS, WE ARE OF THE VIEW THAT THE EXCISE DUTY INCURRED ON THE FINISHED GOODS MANU FACTURED BY THE ASSESSEE AND LAYING IN THE STOCK SHOULD FORM PART OF THE VAL UE OF THE CLOSING STOCK OF THE FINISHED GOODS BUT AT THE SAME TIME THE ASSESSE E SHOULD BE ALLOWED DEDUCTION IN RESPECT OF THE LIABILITY SO INCURRED P ROVIDED THE ASSESSEE HAS MADE THE PAYMENT FOR THE SAID EXCISE DUTY BEFORE TH E DUE DATE OF FILING OF THE INCOME TAX RETURN FOR THE IMPUGNED ASSESSMENT YEAR. THUS, THIS ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ON THIS ISSUE IS SET ASIDE AND THE SAME IS RESTORED TO THE FILE OF THE LEARNED ASS ESSING OFFICER ONLY FOR THE PURPOSE OF VERIFYING THE FACT WHETHER THE ASSESSEE HAS PAID THE EXCISE DUTY BEFORE THE DUE DATE OF FILING OF THE INCOME TAX RET URN. 15. THE LEARNED AUTHORISED REPRESENTATIVE OF THE AS SESSEE SUBMITTED THAT WHENEVER ANY ADJUSTMENT IS MADE IN THE VALUATI ON OF INVENTORY, THIS WILL AFFECT BOTH THE OPENING AS WELL AS THE CLOSING STOCKS. HE RELIED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. MAHAVIR ALUMINIUM LTD. (2008) 214 CTR (DEL) 45 : ITA NO. 169/AHD/2005, 170/AHD/2005 M/S. ALPANIL INDUSTRIES ASST . YEAR 1999-00, 2000-01 - 15 - (2008) 297 ITR 77 (DEL) : (2008) 168 TAXMAN 27 WHER EIN IT WAS HELD THAT IN THE PRESENT CASE, THERE IS NO QUESTION OF ANY DO UBLE BENEFIT BEING GIVEN TO THE ASSESSEE. PARA 23.13 OF THE GUIDANCE N OTE ISSUED BY THE ICAI ON TAX AUDIT UNDER S. 44AB ITSELF MAKES IT CLE AR THAT WHENEVER ANY ADJUSTMENT IS MADE IN THE VALUATION OF INVENTORY, T HIS WILL AFFECT BOTH THE OPENING AS WELL AS THE CLOSING STOCKS. IT IS ALSO T O BE NOTED THAT IF ANY ADJUSTMENT IS REQUIRED TO BE MADE BY A STATUTE (AS FOR EXAMPLE S. 145A), EFFECT TO THE SAME SHOULD BE GIVEN IRRESPECTIVE OF ANY CONSEQUENCES ON THE COMPUTATION OF INCOME FOR TAX PURPOSES. SEC. 14 5A BEGINS WITH A NON OBSTANTE CLAUSE, AND THEREFORE, TO GIVE EFFECT TO S. 145A, IF THERE IS A CHANGE IN THE CLOSING STOCK AS ON 31ST MARCH, 1999, THERE MUST NECESSARILY BE A CORRESPONDING ADJUSTMENT MADE IN T HE OPENING STOCK AS ON 1ST APRIL, 1998. PARA 23.14 OF THE GUIDANCE NOTE POSTULATES THAT ADJUSTMENT SHOULD BE MADE IN SUCH A MANNER THAT NO DOUBLE DEDUCTION IS CLAIMED FOR THE SAME EXPENDITURE. IN THE PRESENT CASE, THE QUESTION OF DOUBLE DEDUCTION DOES NOT ARISE, SINCE NO ADJUSTMEN T WAS MADE BY THE ASSESSEE IN THE P&L A/C FOR THE YEAR ENDING 31ST MA RCH, 1998. TRIBUNAL WAS CORRECT IN LAW IN ALLOWING THE ADJUSTMENT OF RS . 54,83,272 TO THE ASSESSEE IN THE OPENING STOCK FOR THE PREVIOUS ASST . YR. 1998-99 (BEING A TRANSITIONAL YEAR) UNDER S. 145A. THE LEARNED AUTH ORISED REPRESENTATIVE OF THE ASSESSEE FURTHER SUBMITTED THAT THIS DECISIO N WAS FOLLOWED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF THE COMMIS SIONER OF INCOME TAX-6 VS. M/S. THE MAHALAXMI GLASS WORKS PVT. LTD. INCOME TAX APPEAL NO.192/2009 ORDER DATED 1.04.2009. 16. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). ITA NO. 169/AHD/2005, 170/AHD/2005 M/S. ALPANIL INDUSTRIES ASST . YEAR 1999-00, 2000-01 - 16 - 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE O N RECORD. IN THE INSTANT CASE, THE DISPUTE IS REGARDING VALUATION OF CLOSING STOCK IN VIEW OF THE INSERTION OF PROVISIONS OF SECTION 145A OF THE ACT. THE LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NO T INCLUDED THE ELEMENT OF EXCISE DUTY WHICH WAS PAID BY THE ASSESS EE ON HIS PURCHASES OF RAW MATERIAL. IN VIEW OF NON INCLUSION OF THIS E XCISE DUTY IN RESPECT OF WHICH MODVAT CREDIT WAS AVAILABLE TO THE ASSESSEE, ACCORDING TO THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), INCOME OF RS.26,95,884/- 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 CO RRESPONDING AMOUNT WILL ALSO BE THEN INCLUDED IN THE PURCHASES. THE ASSESSE E IN SUPPORT OF THE ABOVE ARGUMENT RELIED UPON THE VIEW EXPRESSED BY TH E 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 EF FECT ON THE PROFIT DISCLOSED BY THE PROFIT AND LOSS ACCOUNT. THE ONLY EFFECT OF FOLLOWING INCLUSIVE METHOD WILL BE THAT THE EXCISE DUTY LIABI LITY WILL APPEAR IN THE BALANCE SHEET WHICH WILL BE ADDED BACK TO THE INCOM E OF THE ASSESSEE IN VIEW OF THE PROVISIONS OF SECTION 43B TO THE EXTENT NOT PAID BY THE ASSESSEE BEFORE THE DUE DATE OF FURNISHING OF RETUR N OF INCOME UNDER SECTION 139(1) OF THE ACT. THE ABOVE VIEW WAS ALSO EXPRESSED BY THIS BENCH OF THE TRIBUNAL IN THE CASE OF THE DEPUTY COM MISSIONER OF INCOME TAX, CIRCLE-1, BARODA VS. GUJARAT FLUORO-CHEMICALS LTD. IN ITA NO.3742/AHD/2002 ASSESSMENT YEAR 1999-00 ORDER DATE D 28.09.2006. ITA NO. 169/AHD/2005, 170/AHD/2005 M/S. ALPANIL INDUSTRIES ASST . YEAR 1999-00, 2000-01 - 17 - IN OUR CONSIDERED OPINION, THE LOWER AUTHORITIES HA VE NOT PROPERLY APPRECIATED THE EFFECT OF SECTION 145A OF THE ACT. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) BY WAY OF AN IL LUSTRATION CONCLUDED THAT THERE WILL BE A DIFFERENCE IN THE PR OFIT ON FOLLOWING INCLUSIVE AND EXCLUSIVE METHOD OF ACCOUNTING FOR EX CISE DUTY. IN THE ILLUSTRATION CITED IN THE ORDER, THE LEARNED COMMIS SIONER OF INCOME TAX(APPEALS) FOUND THE DIFFERENCE AT RS.80/-. ACCOR DING TO THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THE INCLUSIV E METHOD IN THE ILLUSTRATION, THE ASSESSEES PROFIT WORKED OUT TO R S.380/- WHEREAS IN THE EXCLUSIVE METHOD, THE ASSESSEES PROFIT COMES TO RS .300/-. THUS, THERE WAS A DIFFERENCE OF RS.80/- IN THE PROFIT. WE 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 CONSIDERING THE EXCISE DUTY EXPENDITURE OF THE ASSESSEE. IT WAS OBS ERVED FROM THE ILLUSTRATION THAT ASSESSEE HAS COLLECTED EXCISE DUT Y OF RS.180/- BY UTILIZING THE RAW MATERIAL ON WHICH EXCISE DUTY OF RS.100/- W AS PAID TO THE GOVERNMENT. THUS, THE ASSESSEE WAS LIABLE TO PAY A FURTHER EXCISE DUTY OF RS.80/- TO THE GOVERNMENT. WHEN THE EXPENDITURE OF RS.80/- IS TAKEN INTO ACCOUNT IN THE ILLUSTRATION, GIVEN FOR INCLUSI VE METHOD THEN THE PROFIT AS PER INCLUSIVE METHOD ALSO WORKS OUT TO RS.300/- WHICH IS EXACTLY THE SAME AS PER EXCLUSIVE METHOD. FURTHER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IN THE ILLUSTRATION CITED IN HI S ORDER HAS NOT ACCOUNTED FOR THE AMOUNT OF MODVAT UTILISED BY THE ASSESSEE IN PAYMENT OF EXCISE DUTY IN RESPECT OF RAW MATERIAL N OT UTILISED FOR MANUFACTURING. IN THE ILLUSTRATION, THE LEARNED COM MISSIONER OF INCOME TAX(APPEALS) HAS SHOWN THAT ASSESSEE HAS UTILISED A MOUNT OF RS.180/- ITA NO. 169/AHD/2005, 170/AHD/2005 M/S. ALPANIL INDUSTRIES ASST . YEAR 1999-00, 2000-01 - 18 - OUT OF AMOUNT OF RS.200/- OF EXCISE DUTY PAID ON P URCHASE AGAINST THE EXCISE DUTY LIABILITY OF RS.180 ON SALES. 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 LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IGNORED THE FAC T THAT IF IN FUTURE THE CLOSING STOCK IS NOT UTILISED FOR MANUFACTURING , THEN THE MODVAT CREDIT UTILISED WOULD BE REVERSED AND THE ASSESSEE WOULD BE FURTHER LIABLE TO PAY RS.80/- TO THE GOVERNMENT. IN A NUTSH ELL THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ARRIVED AT A WR ONG CONCLUSION BECAUSE OF NOT CONSIDERING THE ASSESSEES LIABILITY FOR UTILIZATION OF MODVAT CREDIT IN RESPECT OF UNCONSUMED RAW MATERIAL . THE ISSUE CAN BE LOOKED INTO FROM YET ANOTHER ANGLE. SECTION 145A RE QUIRES REVALUATION OF NOT INVENTORY ALONE BUT ALSO REQUIRES REVALUATION O F PURCHASE AND SALES. ON REVALUATION OF PURCHASE BY INCLUDING THE AMOUNT OF EXCISE DUTY IN RESPECT OF WHICH MODVAT CREDIT IS AVAILABLE TO THE ASSESSEE, THE PURCHASE OF THE ASSESSEE WILL INCREASE RESULTING IN CORRESPONDING DECREASE IN THE PROFIT OF THE ASSESSEE. THE ASSESSE ES CONTENTION THAT VALUE OF CLOSING STOCK IS CREDITED IN THE PROFIT AN D LOSS ACCOUNT TO SET OFF THE VALUE OF UNCONSUMED ITEMS OF PURCHASE AND THERE FORE, BOTH SHOULD HAVE SAME BASIS CANNOT BE CONTROVERTED. THE ONLY EX CEPTION TO THIS THEORY IS THAT WHEN THE MODVAT VALUE IS LESS THAN T HE COST THEN EFFECTIVELY UNREALISED LOSS IS ALLOWED AS A DEDUCTI ON TO THE ASSESSEE ON THE WELL SETTLED PRINCIPLES. IN THE INSTANT CASE, T HE LOWER AUTHORITIES WERE NOT JUSTIFIED IN REVALUING ONLY CLOSING STOCK SO AS TO INCLUDE THE AMOUNT OF EXCISE DUTY PAID ON PURCHASE WITHOUT REVALUING T HE CORRESPONDING PURCHASES. WE HAVE GONE THROUGH THE GUIDELINES EXPL AINED BY THE ICAI ITA NO. 169/AHD/2005, 170/AHD/2005 M/S. ALPANIL INDUSTRIES ASST . YEAR 1999-00, 2000-01 - 19 - AND FIND OURSELVES IN AGREEMENT THEREWITH THAT THER E WILL NOT BE ANY EFFECT ON THE PROFIT OF LOSS ARRIVED AT EITHER BY F OLLOWING INCLUSIVE METHOD OF ACCOUNTING OR EXCLUSIVE METHOD OF ACCOUNT ING FOR EXCISE DUTY. THE ONLY EFFECT WILL BE THAT THE EXCISE DUTY PAYABL E ON CLOSING STOCK OF FINISHED GOODS WILL BE TO THE EXTENT NOT DEPOSITED WITH THE GOVERNMENT BEFORE THE DUE DATE OF FURNISHING OF RETURN WILL BE ADDED TO THE INCOME OF THE ASSESSEE IN VIEW OF PROVISION 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 VALU E OF CLOSING STOCK 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 AUTHORITIES ON THIS ISSUE IN BOTH THE YEAR UN DER APPEAL AND ALLOW THE GROUNDS OF APPEAL OF THE ASSESSEE. 18. GROUND NO.3 OF THE APPEAL, IN ASSESSMENT YEAR 1 999-00 IS GENERAL IN NATURE AND HENCE REQUIRES NO ADJUDICATION BY US. 19. GROUND NO.4 OF THE APPEAL IS DIRECTED AGAINST T HE CHARGING OF INTEREST UNDER SECTION 234A, 234B, 234C OF THE ACT. AT THE TIME OF HEARING, NO ARGUMENTS WERE MADE ON THIS GROUND OF A PPEAL. WE HOLD THAT CHARGING OF INTEREST IS CONSEQUENTIAL AND ACCO RDINGLY DISPOSED OF THIS GROUND OF APPEAL. ITA NO. 169/AHD/2005, 170/AHD/2005 M/S. ALPANIL INDUSTRIES ASST . YEAR 1999-00, 2000-01 - 20 - 20. GROUND NO.5 OF THE APPEAL IS DIRECTED AGAINST T HE INITIATION OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. THIS GR OUND OF APPEAL OF THE ASSESSEE IS DISMISSED AS PREMATURE. 21. GROUND NO.3 OF THE APPEAL IN ASSESSMENT YEAR 20 00-01 READS AS UNDER: 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN CALCULATING THE DEDUCTION UNDER SECTION 80IA FIRST AND THEN CALCULATING THE DEDUCTI ON UNDER SECTION 80HHC AFTER EXCLUDING DEDUCTION CLAI MED UNDER SECTION 80IA FROM THE GROSS TOTAL INCOME OF T HE APPELLANT. BOTH THESE DEDUCTIONS OUGHT TO HAVE BEEN GRATED ON THE SAME AMOUNT OF GROSS TOTAL INCOME. 22. AT THE TIME OF THE HEARING, BOTH THE PARTIES AG REED BEFORE US THAT THIS GROUND OF APPEAL IS COVERED AGAINST THE ASSESS EE BY DECISION OF THE TRIBUNAL IN THE CASE OF ASSISTANT COMMISSIONER OF I NCOME TAX VS. ROGINI GARMENTS & ORS. ITAT, CHENNAI D SPECIAL BENCH ( 2007) 108 ITD 49 (CHENNAI)(SB), WHEREIN IT WAS HELD THAT IN VIEW OF THE SPECIFIC RESTRICTION PROVIDED UNDER S. 80-IA(9), RELIEF UNDER S. 80-IA S HOULD BE DEDUCTED FROM PROFITS AND GAINS OF BUSINESS BEFORE COMPUTING RELI EF UNDER S. 80HHC. THEREFORE, THIS GROUND OF THE APPEAL OF THE ASSESSE E IS DISMISSED. 23. GROUND NO.4 OF THE APPEAL IN ASSESSMENT YEAR 2 000-01 READS AS UNDER: 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF AO IN REDUCING INTEREST INCOME OF RS.8,24,331/- FROM THE PROFITS OF THE BUSINESS FOR THE PURPOSE OF CALCULATING DEDUCTION UNDER SECTION 80HH C OF THE ACT. ITA NO. 169/AHD/2005, 170/AHD/2005 M/S. ALPANIL INDUSTRIES ASST . YEAR 1999-00, 2000-01 - 21 - 24. AT THE TIME OF THE HEARING, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT HIS ONLY PRAYER IN THE ABOVE GROUND OF APPEAL IS THAT NETTING OFF OF INTEREST SHOULD BE ALLOWED TO THE ASSESSEE IN VIEW OF THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF COMMISSIONE R OF INCOME TAX VS. SHRI RAM HONDA POWER EQUIP & ORS. (2007) 289 ITR 47 5 (DEL) , WHEREIN IT WAS HELD THAT WHERE SURPLUS FUNDS ARE PARKED WITH T HE BANK AND INTEREST IS EARNED THEREON, IT CAN ONLY BE CATEGORISED AS IN COME FROM OTHER SOURCES AND NOT AS 'PROFITS AND GAINS OF BUSINESS O R PROFESSION'; INTEREST EARNED ON FIXED DEPOSITS MADE FOR THE PURPOSES OF A VAILING CREDIT FACILITIES FROM THE BANK ALSO DOES NOT HAVE AN IMME DIATE NEXUS WITH THE EXPORT BUSINESS AND DOES NOT QUALIFY FOR DEDUCTION UNDER S. 80HHC. HOWEVER, WHERE INTEREST INCOME IS TREATED AS BUSINE SS INCOME, THE AMOUNT OF INTEREST TO BE REDUCED IN TERMS OF CL. (B AA) OF EXPLANATION TO S. 80HHC IS THE NET INTEREST, I.E. GROSS INTEREST LESS EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING SUCH INTEREST. THE LEARNED D EPARTMENTAL REPRESENTATIVE ALSO AGREED WITH THE SUBMISSIONS OF THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE. WE THERE FORE, SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES RESTORE THIS MATTER BACK TO THE FILE OF LEARNED ASSESSING OFFICER TO DECIDE ISSUE AFRESH IN THE LIGHT OF THE OBSERVATION MADE HEREINABOVE AFTER ALLOWING PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS, THIS GROUND OF APPEA L IS ALLOWED FOR STATISTICAL PURPOSES. 25. GROUND NO.5 OF THE APPEAL IN ASSESSMENT YEAR 20 00-01 IS GENERAL IN NATURE AND HENCE REQUIRES NO ADJUDICATION BY US. ITA NO. 169/AHD/2005, 170/AHD/2005 M/S. ALPANIL INDUSTRIES ASST . YEAR 1999-00, 2000-01 - 22 - 26. GROUND NO.6 OF THE APPEAL IS DIRECTED AGAINST T HE CHARGING OF INTEREST UNDER SECTION 234A, 234B, 234C OF THE ACT. AT THE TIME OF HEARING, NO ARGUMENTS WERE MADE ON THIS GROUND OF A PPEAL. WE HOLD THAT CHARGING OF INTEREST IS CONSEQUENTIAL AND ACCO RDINGLY DISPOSED OF THIS GROUND OF APPEAL. 27. GROUND NO.7 OF THE APPEAL IS DIRECTED AGAINST T HE INITIATION OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. THIS GR OUND OF APPEAL OF THE ASSESSEE IS DISMISSED AS PREMATURE. 28. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 11/09/2009. SD/- SD/- ( T.K. SHARMA ) ( N.S. SAINI ) JUDICIAL MEMBER A CCOUNTANT MEMBER AHMEDABAD; DATED 11/09/2009 PARAS# COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD.CIT(A) -XII, AHMEDABAD. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD