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

ITA 171/AHD/2005

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1893 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 08-12-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 19-01-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJEEV AGARWAL
• Assessee Lawyers: SAURABH N SOPARKAR
• Keywords: Set aside
• Section: 43B; 139(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD (BEFORE DR. O. K. NARAYANAN, VP AND SHRI BHAVNESH S AINI, JM) ITA NOS.171/AHD/2005 A. Y.: 2001-02 M/S. ALPANIL INDUSTRIES, PLOT NO.81-82, PHASE-II, GIDC, VATVA, AHMEDABAD PA NO. AAEFA 4803 D VS THE A. C. I. T., CIRCLE-6, AAYAKAR BHAVAN, AHMEDABAD (APPELLANT) (RESPONDENT) APPELLANT BY SHRI SAURABH N. SOPARKAR, AR RESPONDENT BY SHRI RAJEEV AGARWAL, DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-XII, AHMEDABAD DATE D 03-11-2004 FOR THE ASSESSMENT YEAR 2001-02. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF AUTHORITIES BELOW AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. 3. THE ASSESSEE HAS RAISED THE FOLLOWING ADDITIONAL GROUNDS OF APPEAL: 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 WELL BEFORE THE DUE DATE OF FILIN G THE RETURN OF INCOME AND THEREFORE EXCISE DUTY PAYMENT IS ALLOWAB LE AS DEDUCTION U/S 43B OF THE ACT. ITA NOS.171/AHD/2005 M/S. ALPANIL INDUSTRIES 2 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT IDENTICAL GROUNDS OF APPEAL WERE ADMITTED BY THE ITAT, AHMEDA BAD A BENCH IN THE CASE OF THE SAME ASSESSEE IN THE PRECEDING ASSE SSMENT YEARS 1999- 2000 AND 2000-01 AND BOTH THE IDENTICAL ADDITIONAL GROUNDS ARE ALLOWED IN ITA NOS. 169 AND 170/AHD/2005 VIDE ORDER DATED 1 1-09-2009. CONSIDERING THE ABOVE FACTS AND THAT THE ISSUES ARE LEGAL IN NATURE, WE, THEREFORE, FOLLOWING THE DECISION OF THE HONBLE SU PREME COURT IN THE CASE OF NATIONAL THERMAL POWER CORPORATION LTD. VS. CIT 229 ITR 383 (SC) ADMIT BOTH THE ADDITIONAL GROUNDS FOR CONSIDER ATION. 5. IT IS STATED THAT THE ISSUES ARE COVERED BY THE ORDER OF THE TRIBUNAL DATED 11-09-2009 IN WHICH IN PARA 17, THE TRIBUNAL IN THE CASE OF THE ASSESSEE HELD AS UNDER: 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABL E ON 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 ASSESSE E HAS NOT INCLUDED THE ELEMENT OF EXCISE DUTY WHICH WAS PAID BY THE ASSESSEE ON HIS PURCHASES OF RAW MATERIAL. IN VIEW OF NON IN CLUSION OF THIS EXCISE DUTY IN RESPECT OF WHICH MODVAT CREDIT WAS A VAILABLE TO THE ASSESSEE, ACCORDING TO THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), INCOME OF RS.26,95,884/- WAS UNDERST ATED BY THE ASSESSEE. ON THE OTHER HAND THE CLAIM OF THE ASSESS EE IS THAT BY INCLUSION OF THIS EXCISE DUTY IN THE CLOSING STOCK THERE WILL NO EFFECT IN THE PROFIT AS THE CORRESPONDING AMOUNT WILL ALSO BE THEN INCLUDED IN THE PURCHASES. THE ASSESSEE IN SUPPORT OF THE A BOVE ARGUMENT RELIED UPON THE VIEW EXPRESSED BY THE 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 EFFECT ON TH E PROFIT DISCLOSED BY THE PROFIT AND LOSS ACCOUNT. THE ONLY EFFECT OF FOLLOWING INCLUSIVE METHOD WILL BE THAT THE EXCISE DUTY LIABILITY 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 T O THE EXTENT NOT PAID BY THE ASSESSEE BEFORE THE DUE DATE OF FURNISH ING OF RETURN OF INCOME UNDER SECTION 139(1) OF THE ACT. THE ABOVE V IEW WAS ALSO EXPRESSED BY THIS BENCH OF THE TRIBUNAL IN THE CASE OF THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1, BARODA VS. GU JARAT FLUORO- ITA NOS.171/AHD/2005 M/S. ALPANIL INDUSTRIES 3 CHEMICALS LTD. IN ITA NO.3742/AHD/2002 ASSESSMENT Y EAR 1999- 00 ORDER DATED 28.09.2006. IN OUR CONSIDERED OPINIO N, THE LOWER AUTHORITIES HAVE NOT PROPERLY APPRECIATED THE EFFEC T OF SECTION 145A OF THE ACT. THE LEARNED COMMISSIONER OF INCOME TAX( APPEALS) BY WAY OF AN ILLUSTRATION CONCLUDED THAT THERE WILL BE A DIFFERENCE IN THE PROFIT ON FOLLOWING INCLUSIVE AND EXCLUSIVE METHOD OF ACCOUNTING FOR EXCISE DUTY. IN THE ILLUSTRATION CITED IN THE ORDE R, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) FOUND THE DIFFE RENCE AT RS.80/-. ACCORDING TO THE LEARNED COMMISSIONER OF I NCOME TAX(APPEALS) IN THE INCLUSIVE METHOD IN THE ILLUSTR ATION, THE ASSESSEES PROFIT WORKED OUT TO RS.380/- WHEREAS IN THE EXCLUSIVE METHOD, THE ASSESSEES PROFIT COMES TO RS.300/-. TH US, 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 OBSERVED FROM THE ILLUSTRATION THAT ASSESSEE HAS COLLECTED EXCISE DUTY OF RS.180/- BY UTILIZING THE RAW MATERIAL ON WHICH EXCISE DUTY OF RS.100/- WAS PAID TO THE GOVERNMENT. THUS, THE ASSESSEE WAS LIAB LE TO PAY A FURTHER EXCISE DUTY OF RS.80/- TO THE GOVERNMENT. W HEN THE EXPENDITURE OF RS.80/- IS TAKEN INTO ACCOUNT IN THE ILLUSTRATION, GIVEN FOR INCLUSIVE METHOD THEN THE PROFIT AS PER INCLUSI VE 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 HIS ORDER HAS NOT ACCO UNTED FOR THE AMOUNT OF MODVAT UTILISED BY THE ASSESSEE IN PAYMENT OF EX CISE DUTY IN RESPECT OF RAW MATERIAL NOT UTILISED FOR MANUFACTUR ING. IN THE ILLUSTRATION, THE LEARNED COMMISSIONER OF INCOME TA X(APPEALS) HAS SHOWN THAT ASSESSEE HAS UTILISED AMOUNT OF RS.180/- OUT OF AMOUNT OF RS.200/- OF EXCISE DUTY PAID ON PURCHASE AGAINS T THE EXCISE DUTY LIABILITY OF RS.180 ON SALES. HOWEVER, THIS UTILIZA TION OF RS.180/- WAS ALLOWED TO THE ASSESSEE IN RESPECT OF STOCK WHI CH WAS NOT USED FOR MANUFACTURING ALSO TO THE EXTENT OF RS.80/-. TH E LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IGNORED THE FAC T THAT IF IN FUTURE THE CLOSING STOCK IS NOT UTILISED FOR MANUFA CTURING, THEN THE MODVAT CREDIT UTILISED WOULD BE REVERSED AND THE AS SESSEE WOULD BE FURTHER LIABLE TO PAY RS.80/- TO THE GOVERNMENT. IN A NUTSHELL THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ARRIVED AT A WRONG CONCLUSION BECAUSE OF NOT CONSIDERING THE ASSESSEE S LIABILITY FOR UTILIZATION OF MODVAT CREDIT IN RESPECT OF UNCONSUM ED RAW MATERIAL. THE ISSUE CAN BE LOOKED INTO FROM YET ANOTHER ANGLE . SECTION 145A REQUIRES REVALUATION OF NOT INVENTORY ALONE BUT ALS O REQUIRES REVALUATION OF PURCHASE AND SALES. ON REVALUATION O F PURCHASE BY INCLUDING THE AMOUNT OF EXCISE DUTY IN RESPECT OF W HICH MODVAT CREDIT IS AVAILABLE TO THE ASSESSEE, THE PURCHASE O F THE ASSESSEE WILL INCREASE RESULTING IN CORRESPONDING DECREASE IN THE PROFIT OF THE ITA NOS.171/AHD/2005 M/S. ALPANIL INDUSTRIES 4 ASSESSEE. THE ASSESSEES CONTENTION THAT VALUE OF C LOSING STOCK IS CREDITED IN THE PROFIT AND LOSS ACCOUNT TO SET OFF THE VALUE OF UNCONSUMED ITEMS OF PURCHASE AND THEREFORE, BOTH SH OULD HAVE SAME BASIS CANNOT BE CONTROVERTED. THE ONLY EXCEPTI ON TO THIS THEORY IS THAT WHEN THE MODVAT VALUE IS LESS THAN THE COST THEN EFFECTIVELY UNREALISED LOSS IS ALLOWED AS A DEDUCTION TO THE AS SESSEE ON THE WELL SETTLED PRINCIPLES. IN THE INSTANT CASE, THE L OWER AUTHORITIES WERE NOT JUSTIFIED IN REVALUING ONLY CLOSING STOCK SO AS TO INCLUDE THE AMOUNT OF EXCISE DUTY PAID ON PURCHASE WITHOUT REVA LUING THE CORRESPONDING PURCHASES. WE HAVE GONE THROUGH THE G UIDELINES EXPLAINED BY THE ICAI AND FIND OURSELVES IN AGREEME NT THEREWITH THAT THERE WILL NOT BE ANY EFFECT ON THE PROFIT OF LOSS ARRIVED AT EITHER BY FOLLOWING INCLUSIVE METHOD OF ACCOUNTING OR EXCL USIVE METHOD OF ACCOUNTING FOR EXCISE DUTY. THE ONLY EFFECT WILL BE THAT THE EXCISE DUTY PAYABLE ON CLOSING STOCK OF FINISHED GOODS WIL L BE TO THE EXTENT NOT DEPOSITED WITH THE GOVERNMENT BEFORE THE DUE DA TE OF FURNISHING OF RETURN WILL BE ADDED TO THE INCOME OF THE ASSESS EE 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 AMO UNT OF EXCISE DUTY PAID ON PURCHASES IN THE VALUE 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 UNDER AP PEAL AND ALLOW THE GROUNDS OF APPEAL OF THE ASSESSEE. 6. CONSIDERING THE ABOVE AND BY FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE, WE SET ASIDE THE ORDERS O F THE LOWER AUTHORITIES ON THIS ISSUE AND DIRECT THE AO TO FOLLOW THE ORDER OF THE TRIBUNAL IN THE ASSESSMENT YEAR UNDER APPEAL ALSO, AS IS DIRECTED I N THE EARLIER YEARS ABOVE. AS A RESULT, THE ADDITIONAL GROUNDS ARE ALLO WED. 7. ON GROUNDS NO.1 TO 3, THE ASSESSEE HAS CHALLENGE D THE ORDERS OF AUTHORITIES BELOW IN DENYING DEDUCTION U/S 80 IA OF THE INCOME TAX ACT ON THE SALE OF DEPB LICENSES AND SALE OF LICENSES O N THE GROUND THAT SAME ARE NOT DERIVED FROM THE INDUSTRIAL UNDERTAKIN GS OUT OF ITS MANUFACTURING ACTIVITIES. THE LEARNED CIT(A) CONFIR MED THE ORDER OF THE AO BY HOLDING THAT THE AO WAS JUSTIFIED IN EXCLUDIN G THE AMOUNT OF DEPB BENEFITS AND PROFIT ON SALE OF LICENSES FOR THE PUR POSE OF CALCULATING DEDUCTION ITA NOS.171/AHD/2005 M/S. ALPANIL INDUSTRIES 5 ALLOWABLE TO THE ASSESSEE U/S 80 IA OF THE INCOME T AX ACT. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE I S NOW COVERED AGAINST THE ASSESSEE. ON CONSIDERATION OF THE ABOVE, WE MA Y NOTE THAT THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA VS CIT 317 ITR 218 (SC) HELD AS UNDER: DUTY DRAWBACK RECEIPTS AND DEPB BENEFITS DO NOT FO RM PART OF THE NET PROFITS OF ELIGIBLE INDUSTRIAL UNDERTAKINGS FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80 IA/80-IB OF THE INCOME- TAX ACT, 1961. THEREFORE, THE ISSUE IS SQUARELY COVERED AGAINST TH E ASSESSEE BY THE ABOVE DECISION OF THE HONBLE SUPREME COURT. AS A R ESULT, GROUNDS NO. 1 TO 3 OF THE APPEAL OF THE ASSESSEE ARE DISMISSED. 8. ON GROUNDS NO.4 AND 5 OF THE APPEAL THE ASSESSEE HAS CHALLENGED THE ORDER OF THE LEARNED CIT(A) IN CONFIRMING THE A CTION OF THE AO IN CALCULATING THE DEDUCTION U/S 80 IA OF THE INCOME T AX ACT AND THEN CALCULATING THE DEDUCTION U/S 80 HHC OF THE INCOME TAX ACT AFTER EXCLUDING THE DEDUCTION CLAIMED U/S 80 IA OF THE IN COME TAX ACT FROM THE GROSS TOTAL INCOME OF THE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED AGAINS T THE ASSESSEE BY THE JUDGMENT OF ITAT, SPECIAL BENCH, DELHI IN THE CASE OF ACIT VS HINDUSTAN MINT & AGRO PRODUCTS PVT. LTD. REPORTED IN 315 ITR (AT) (SB) 401 AND ALSO REPORTED IN 119 ITD 107 (SB) IN WHICH IT WAS H ELD AS UNDER: THUS, DEDUCTION TO BE ALLOWED UNDER ANY OTHER PROV ISION OF CHAPTER VI-A WITH THE HEADING C, (WHICH INCLUDES SECTIONS 80 H, 80 HHC, ETC.) IS TO BE REDUCED BY AN AMOUNT OF DEDUCTION AL LOWED UNDER SECTION 80-IA/80-IB. [PARA 37]. 9. CONSIDERING THE ABOVE, WE FIND THAT THIS ISSUE I S COVERED AGAINST THE ASSESSEE BY THE ABOVE JUDGMENT OF THE SPECIAL B ENCH OF THE TRIBUNAL. THESE GROUNDS OF APPEAL OF THE ASSESSEE ARE ACCORDI NGLY DISMISSED. ITA NOS.171/AHD/2005 M/S. ALPANIL INDUSTRIES 6 10. LEVY OF INTEREST IS CONSEQUENTIAL IN NATURE AND THAT INITIATION OF THE PENALTY U/S 271 (1) ( C ) OF THE INCOME TAX ACT IS A MATTER WHICH THE ASSESSEE CAN AGITATE IN THE PENALTY PROCEEDINGS SEP ARATELY. AS A RESULT, BOTH THE GROUNDS NO. 6 AND 7 OF THE APPEAL OF THE A SSESSEE ARE DISMISSED. 11. IN VIEW OF THE ABOVE, THE APPEAL OF THE ASSESSE E IS PARTLY ALLOWED AS NOTED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 10-12-2009 SD/- SD/- (DR. O. K. NARAYANAN) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 10-12-2009 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD