The DCIT, Circle-2, Surat V. M/s. Balvant Lallubhai Rotliwala, Surat

ITA 1885/AHD/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9712 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-12-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 28-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K PANDAY
• Section: 43B; 142(1); 147; 145

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ./ ITA NO. 1885/AHD/2011 / ASSESSMENT YEAR: 2005-06 DCIT, CIRCLE-2, SURAT .. APPELLANT VS M/S. BALVANT LALLUBHAI ROTLIWALA, S. NO.15, PLOT NO.115, PAIKI 15/B/1/D&E, BAMROLI ROAD, SURAT .. RESPONDENT PAN : AACFB 4688 H REVENUE BY : SHRI A.K. PANDAY , SR - D R ASSESSEE(S) BY : SHRI ANKUR SHAH , AR / DATE OF HEARING 11/12/2015 /DATE OF PRONOUNCEMENT 01/02/2016 / O R D E R PER SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER: THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, SURAT DATED 27.05.2011 FOR ASSESSMENT YEAR 2005-06, ON THE FOLL OWING GROUNDS:- 1. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND IN LAW, THE LD. CIT(A)-II, SURAT HAS ERRED IN DELETING THE ADDITION OF RS.35,16,309/- MADE ON ACCOUNT OF ADJUSTMENT DUE TO DEVIATION U/S 145A OF THE I.T. ACT. ITA NO. 1885/AHD/2011 ITO VS. M/S. BALVANT LALLUBHAI ROTLIWALA. AY 2005-06 - 2 - 2. ON THE FACTS AND CIRCUMSTANCE OF THE CASE AND I N LAW THE LD. CIT(A) ERRED IN DELETING THE BOOKS ADJUSTME NT U/S 145A OF THE I.T. ACT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AS SESSING OFFICER. 4. IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE CIT(A) MAY BE SET ASIDE AND THAT OF ASSESSING OFFICER MAY BE R ESTORED TO THE ABOVE EXTENT. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A FIRM, ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE O F GREY CLOTH. THE ORIGINAL RETURN WAS FILED ON 21.07.2005 AT A TOTAL INCOME OF RS.1,03,76,430/- ALONG WITH TAX AUDIT RE PORT U/S 44AB OF THE ACT. THE SAID RETURN WAS PROCESSED U/S 143(1) ON 23.03.2006. SUBSEQUENTLY, THE ASSESSMENT WAS REOPEN ED U/S 147 OF THE ACT ON 25.03.2010 FOR THE REASON THAT TH E CASE RECORDS OF THE ASSESSEE REVEALED THAT THE FIRM HAD REDUCED PROFIT OF RS.35,16,309/- BY MAKING ADJUSTMENT U/S 1 45A OF THE ACT, WHICH IS NOT PERMISSIBLE, AS EVEN THE GUIDANCE NOTE ON TAX AUDIT REPORT U/S 44AB OF THE ACT, PROVIDES THAT THE RE IS NO EFFECT ON CLOSING STOCK U/S 145A OF THE ACT. IN RE SPONSE TO AFORESAID NOTICE, THE ASSESSEE SOUGHT REASONS FOR R EOPENING OF THE ASSESSMENT, WHICH WAS DULY PROVIDED BY THE ASSE SSING ITA NO. 1885/AHD/2011 ITO VS. M/S. BALVANT LALLUBHAI ROTLIWALA. AY 2005-06 - 3 - OFFICER VIDE LETTER DTD.29.062010. SUBSEQUENTLY, TH E ASSESSING OFFICER ISSUED NOTICE U/S 142(1) OF THE ACT, ALONGW ITH QUESTIONNAIRE. AFTER DUE CONSIDERATION OF THE REPLY RECEIVED FROM THE ASSESSEE, THE ASSESSING OFFICER SHOW CAUSE D THE ASSESSEE, AS TO WHY IN THE FINANCIAL YEAR 2004-05, I.E. AFTER 04.10.2004, DUE TO SURRENDER OF EXCISE REGISTRATION , WHEN THERE IS NO EFFECT OF EXCISE ON PURCHASES OR SALES, AND W HATEVER THE EXCISE DUTY WAS PAID ON THE OPENING STOCK WAS SIMUL TANEOUSLY INCLUDED IN THE PRODUCTS SOLD DURING THE PERIOD BEF ORE 04.10.2004, THEREBY RESULTING IN NO EFFECT ON THE C LOSING STOCK REMAINING AT THE YEAR END, NO ADJUSTMENT U/S 145A W AS REQUIRED TO BE MADE TO THE PROFITS DECLARED, WHY AD JUSTMENT OF RS. 35,16,309/- BY WAY OF DEDUCTION, MAY NOT BE DIS ALLOWED. IN RESPONSE TO THE SAID SHOW CAUSE, THE ASSESSEE SUBMI TTED THAT IT WAS FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING FOR VA LUATION OF STOCK AND THE AMOUNT OF SALES REFLECTED IN THE P & L A/C WAS NET OF DISCOUNT AND GOODS RETURN, AND THE AMOUNT OF SALES REFLECTED IN THE P & L A/C WAS AT SALE PRICE INCLUD ING EXCISE DUTY ON CLEARANCE, AND, THEREFORE, THE AMOUNT OF EX CISE DUTY WAS NOT DEDUCTED FROM SALES, BUT WAS REFLECTED ON T HE EXPENSE SIDE AS EXCISE DUTY EXPENSES, WHICH EFFECTIVELY MEA NS, THE SALE WAS SHOWN EXCLUSIVE OF EXCISE DUTY, HOWEVER, THE PR ESENTATION ITA NO. 1885/AHD/2011 ITO VS. M/S. BALVANT LALLUBHAI ROTLIWALA. AY 2005-06 - 4 - WAS DIFFERENT, AS THE AMOUNT OF EXCISE DUTY HAS BEE N SHOWN SEPARATELY, INSTEAD OF NETTING IT OFF FROM THE AMOU NT OF SALES. THE ASSESSEE FURTHER SUBMITTED THAT THE TOTAL AMOUN T OF EXCISE DUTY INCLUDED IN PURCHASES HAS BEEN SHOWN SEPARATEL Y UNDER CENVAT CREDIT AVAILED ACCOUNT, AND THE TOTAL AMOUNT OF EXCISE DUTY PAID ON CLEARANCE OF GOODS HAS BEEN PAID BY UT ILIZATION OF CENVAT CREDIT AVAILED ACCOUNT AND PAYMENT OF DUTY T HROUGH PLA. IT WAS THUS STATED THAT THE FIRM HAS DISCHARGE D LIABILITY OF PAYMENT OF EXCISE DUTY BY AVAILING CENVAT CREDIT AN D BY PAYMENT THROUGH TR-6 CHALLAN WHICH WAS VERIFIABLE F ROM THE QUARTERLY ER-3 FORMS SUBMITTED TO THE EXCISE DEPART MENT. THE ASSESSEE'S CLAIM, THEREFORE, WAS THAT SINCE THE TOT AL AMOUNT OF EXCISE DUTY HAS BEEN PAID BEFORE FILING OF RETURN O F INCOME, THE SAME WAS AVAILABLE AS DEDUCTION U/S 43B OF THE ACT. IT FURTHER STATED THAT DUE TO CHANGES IN THE EXCISE LAW, THE F IRM SURRENDERED THE EXCISE LICENSE ON 04.10.2004, AND H AS TAKEN THE PURCHASES EFFECTED AFTER 04.10.2004 AT GROSS AM OUNT AND SALES ALSO AT THE GROSS AMOUNT, AS A RESULT, THE FI RM REVERSED THE CREDIT AVAILABLE ON CLOSING STOCK OF RAW MATERI AL AS ON 04.10.2004, AND THERE WAS NO CLOSING STOCK OF FINIS HED GOODS AS ON 04.10.2004. THE ASSESSEE FURTHER SUBMITTED T HAT IT WAS NOT FOLLOWING HYBRID SYSTEM ACCOUNTING, AND IT WAS ONLY ON ITA NO. 1885/AHD/2011 ITO VS. M/S. BALVANT LALLUBHAI ROTLIWALA. AY 2005-06 - 5 - ACCOUNT OF CHANGE IN LAW THAT THE EFFECT OF CENVAT HAS BEEN TAKEN TILL THE DATE OF SURRENDER OF LICENSE. THE AS SESSING OFFICER DID NOT ACCEPT THE ABOVE SUBMISSION OF THE ASSESSEE ON THE GROUND THAT THE FIRM WAS NEITHER FOLLOWING EXCLUSIV E METHOD, NOR INCLUSIVE METHOD IN ACCOUNTING FOR THE TAXES PA ID AND HAS ITSELF ADMITTED THAT IT WAS FOLLOWING HYBRID METHOD WHICH IS NOT PRESCRIBED IN ANY ACCOUNTING STANDARDS, WHEREAS WIT H THE INTRODUCTION OF SECTION 145A OF THE ACT, FROM 01.04 .1999 ONWARDS EVERY ASSESSEE HAS TO FOLLOW INCLUSIVE METH OD OF ACCOUNTING, AND BY NOT MENTIONING THE AMOUNT OF EXC ISE DUTY PAID ON PURCHASES AND SALES, THE ASSESSEE HAS NOT G IVEN CLEAR PICTURE OF EXACT AMOUNT OF EXCISE PAID ON PURCHASES AND COLLECTED FROM SALES, INSTEAD IT CHOSE TO SHOW PIEC E MEAL INFORMATION. THE ASSESSING OFFICER, ACCORDINGLY, HE LD THAT THE SURRENDER OF EXCISE REGISTRATION ON 04.10.2004, AND LIFTING OF THE EXCISE DUTY ON TEXTILE PRODUCTS, HAS NO EFFECT OF EXCISE DUTY ON THE VALUATION OF CLOSING STOCK AND, WHATEVER THE EXCISE DUTY HAS BEEN PAID BY THE ASSESSEE HAS BEEN ACCOUNTED FO R IN THE FORM OF CENVAT CREDIT AVAILED, AND WAS UTILIZED BY SETTING OFF EXCISE DUTY PAYABLE ON SALES. THE ASSESSING OFFICER HAS ALSO HELD THAT THE ASSESSEE HAS SQUARED UP THE NOTIONAL BOOK ENTRY, WHICH HAS RESULTED DUE TO HIS OWN METHOD OF ACCOUNT ING AND ITA NO. 1885/AHD/2011 ITO VS. M/S. BALVANT LALLUBHAI ROTLIWALA. AY 2005-06 - 6 - DOES NOT QUALIFY THE LAID DOWN ACCOUNTING STANDARDS . HE HAS FINALLY CONCLUDED THAT THE IMPACT OF DEVIATION AS P ER SECTION 145A DUE TO CANCELLATION OF EXCISE DUTY ON TEXTILE PRODUCTS W.E.F. 04.10.2004 ON THE CLOSING STOCK AND FINISHED GOODS WAS NIL, AND THERE WAS NO IMPACT ON THE PROFITS CALCULA TED U/S 145 OF THE ACT. THE ASSESSING OFFICER, THEREFORE; REJEC TED THE COMPUTATION OF INCOME OF THE ASSESSEE, WHEREIN ADJU STMENT OF RS.35,16,309/- HAS BEEN MADE U/S 145A OF THE ACT, A ND ADDED THE SAME TO THE ASSESSEES INCOME. 3. MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AU THORITY, WHEREIN VARIOUS CONTENTIONS WERE RAISED ON BEHALF O F THE ASSESSEE AND HAVING CONSIDERED THE SAME, THE CIT(A) GRANTED RELIEF TO THE ASSESSEE WHICH HAS BEEN OPPOSED BEFOR E US BY THE REVENUE INTER ALIA SUBMITTING THAT THE CIT(A) ERRED IN DELETING THE ADDITION OF RS.35,16,309/- MADE ON ACCOUNT OF A DJUSTMENT DUE TO DEVIATION U/S 145A OF THE INCOME-TAX ACT AND THE CIT(A) ALSO ERRED IN DELETING THE BOOKS ADJUSTMENT U/S 145 A OF THE ACT. ACCORDINGLY, THE DEPARTMENTAL REPRESENTATIVE PLEADED THAT THE ORDER OF THE CIT(A) MAY BE SET ASIDE AND T HAT OF ASSESSING OFFICER MAY BE RESTORED. ON THE OTHER HA ND, THE AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUPPORTE D THE ORDER OF THE CIT(A). ITA NO. 1885/AHD/2011 ITO VS. M/S. BALVANT LALLUBHAI ROTLIWALA. AY 2005-06 - 7 - 4. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE SIDES AND GONE THROUGH THE RECORD CAREFULLY. WE FIND THAT TH E ISSUE BEFORE US RELATES TO ACCOUNTING ENTRY MADE FOR ADJU STMENT OF ELEMENT OF EXCISE DUTY IN THE CLOSING STOCK U/S 145 A OF THE ACT. AS DISCUSSED ABOVE, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF GREY CLOTH. THE EXCIS E DUTY ON SALE OF GREY CLOTH, CAME TO BE LEVIED WITH EFFECT F ROM 01.4.2003 ONWARDS WHEREAS, SECTION 145A OF THE ACT, WHICH BRO UGHT AMENDMENT THAT THE VALUATION OF PURCHASE AND SALE O F GOODS AND INVENTORY FOR THE PURPOSE DETERMINING THE INCOM E CHARGEABLE UNDER THE HEAD PROFIT AND GAINS OF BUSIN ESS OR PROFESSION SHALL BE (I) IN ACCORDANCE WITH THE METH OD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSES, AND (II) AMOUNT OF ANY TAX, DUTY, CESS OR FEE ACTUALLY PAID OR INCU RRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOC ATION AND CONDITION SHALL BE INCLUDED FOR ADJUSTMENT AS ON TH E DATE OF VALUATION. THE SAID SECTION WAS ORIGINALLY INSERTED BY FINANCE (NO.2) ACT, 1996 W.E.F. 01.04.1999. THUS, FROM 01. 04.1999 TO 01.04.2003, THE ASSESSEE WAS NOT REQUIRED TO MAKE A NY ADJUSTMENT FOR VALUATION OF THE CLOSING STOCK OR IN VENTORY AS LAID DOWN U/S 145A OF THE ACT. THE FIRST YEAR, THE ASSESSEE HAD TO RESORT TO THE ABOVE ADJUSTMENT FOR THE FINANCIAL YEAR 2003- ITA NO. 1885/AHD/2011 ITO VS. M/S. BALVANT LALLUBHAI ROTLIWALA. AY 2005-06 - 8 - 04 RELEVANT TO ASSESSMENT YEAR 2004-05. THEREFORE, IN THE ASSESSMENT YEAR 2004-05, THE ASSESSEE FOLLOWED THE SAME METHOD OF ACCOUNTING IT HAD BEEN FOLLOWING OVER THE YEARS. HOWEVER, SINCE THE PAYMENT OF EXCISE DUTY ON GREY C LOTH HAD TO BE MADE W.E.F. 01.4.2003, THE ASSESSEE HAD TO MAKE ADJUSTMENT ON ACCOUNT OF VALUATION OF GREY CLOTH AS AT THE END OF THE YEAR. ASSESSEE CARRIED OUT THIS EXERCISE IN THE COMPUTATION OF INCOME, WHEREIN THE ASSESSEE MADE AD DITION OF RS.35,16,309/- U/S 145A OF THE ACT. THE ASSESSEE HA S ALSO PLACED ANNEXURE-1 BEING A COMPUTATION OF THE P & L A/C, BY BOTH METHODS, VIZ. INCLUSIVE AND EXCLUSIVE METHOD, I.E. IN TERMS OF SECTION 145A OF THE ACT, AS PER WHICH THE BUSINE SS PROFIT INCREASED BY RS.35,16,309/-; I.E. FROM RS.62,90,312 /- TO RS.98,06,621/-, THUS, THE ABOVE AMOUNT OF RS.35,16, 309/- WHICH WAS OFFERED FOR TAXATION BY WAY OF ADJUSTMENT U/S 145A OF THE ACT, WAS THE AMOUNT OF PROFIT AFTER INCREASI NG THE VALUE OF INVENTORY WITH THE AMOUNT OF EXCISE DUTY PAID ON THE SAME. IN THE COMPUTATION OF INCOME FILED ALONG WITH THE R ETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION, THE ABOVE SAID AMOUNT HAS BEEN REDUCED FOR THE PURPOSE OF ADJUSTME NT U/S 145A OF THE ACT. THE ASSESSING OFFICER HAS CONSIDER ED THE SAME AS CLAIM OF DEDUCTION. THE SAID IMPRESSION OF THE ASSESSING ITA NO. 1885/AHD/2011 ITO VS. M/S. BALVANT LALLUBHAI ROTLIWALA. AY 2005-06 - 9 - OFFICER WAS FOR THE REASON THAT NET EFFECT OF INCRE ASING THE OPENING STOCK AND THE CLOSING STOCK BY THE VALUE OF EXCISE STOCK SHALL BE NIL. HOWEVER, W.E.F. 04.10.2004, THE ASSES SEE SURRENDERED ITS EXCISE REGISTRATION, WHICH MEANT TH AT THE ASSESSEE WAS NOT AVAILING CENVAT CREDIT. THE ASSESS EE HAS ALSO ENCLOSED ANNEXURE-2 WITH THE COMPUTATION OF INCOME FILED ALONGWITH THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION, WHICH IS PLACED ON RECORD, WHEREIN I T HAS SHOWN THAT THE PROFIT OF RS.35,16,309/- BY WAY OF ADJUSTM ENT U/S 145A OF THE ACT IN THE IMMEDIATE PRECEDING ASSESSME NT YEAR I.E. AY 2004-05 WAS ADDED TO THE OPENING STOCK IN T HE YEAR UNDER CONSIDERATION. THUS, THERE IS NO CONFUSION TH AT WHATEVER IS ADDED TO THE CLOSING STOCK IN ANY YEAR, AUTOMATI CALLY BECOMES THE OPENING STOCK IN THE NEXT YEAR, AND IT IS PRECISELY WHAT THE ASSESSEE HAS DONE U/S 145A OF THE ACT, AS FAR AS THE AMOUNT OF RS.35,16,309/- IS CONCERNED. 5. IN VIEW OF ABOVE DISCUSSED, WE ARE NOT INCLINED TO INTERFERE WITH THE FINDINGS OF THE CIT(A) WHO HAS RIGHTLY DEL ETED THE ADDITION OF RS.35,16,309/- AND THE SAME IS UPHELD. 6. NEXT ISSUE IS WITH REGARD TO WHETHER ANY EXCISE DUTY IS DEEMED TO BE ADDED TO THE CLOSING STOCK OF THE ASSE SSEE. IN THIS REGARD, THE DETAILS WERE SUBMITTED BY THE ASSE SSEE DURING ITA NO. 1885/AHD/2011 ITO VS. M/S. BALVANT LALLUBHAI ROTLIWALA. AY 2005-06 - 10 - THE COURSE OF ASSESSMENT PROCEEDINGS, WHICH WERE AL SO DISCUSSED IN THE ASSESSMENT ORDER. IT HAS ALSO NOT BEEN DISPUTED BY THE ASSESSING OFFICER THAT W.E.F. 04.10 .2004, THE ASSESSEE SURRENDERED ITS EXCISE REGISTRATION AND CH OSE TO PAY THE EXCISE THROUGH PERSONAL LEDGER A/C. (PLA). THE EFFECT OF THE SAME WAS THAT THE AMOUNT OF CENVAT CREDIT AVAILABLE TO THE ASSESSEE DURING THE YEAR, I.E. RS.1,06,70,279/-, WH ICH INCLUDED THE ABOVE AMOUNT OF RS.35,16,309/-- WAS ENTIRELY U TILIZED DURING THE YEAR. IN FACT, OVER AND ABOVE THE AMOUNT OF RS.1.06 CRORES, THE ASSESSEE ALSO HAD TO PAY EXCISE DUTY OF RS.40,99,439/- FROM THE PLA. THUS, WHEN BECAUSE OF SURRENDER OF EXCISE REGISTRATION W.E.F. 04.10.2004, NO CENVAT CREDIT WAS AVAILABLE AT THE END OF THE YEAR, THE CL OSING STOCK HAS BEEN VALUED AT COST OR MARKET VALUE WHICHEVER I S LOWER. THEREFORE, IT WAS THE PRESENTATION MADE BY THE ASSE SSEE WHICH GAVE THE IMPRESSION THAT PROFIT HAS BEEN REDUCED BY RS.35,16,309/-. IF THE ASSESSEE HAD NOT SEPARATELY CARRIED OUT THE ABOVE ADJUSTMENT U/S 145A OF THE ACT IN THE STA TEMENT OF INCOME AND HAD GIVEN THE ABOVE EFFECT IN THE P & L A/C., THEN ALSO THE BUSINESS PROFIT WOULD HAVE BEEN RS.1,03,82 ,028/- AND NOT RS.1,38,98,337/-. THE ACTION OF THE ASSESSING O FFICER IN ADDING BACK THE AMOUNT OF RS.35,16,309/- MEANS THE ABOVE ITA NO. 1885/AHD/2011 ITO VS. M/S. BALVANT LALLUBHAI ROTLIWALA. AY 2005-06 - 11 - AMOUNT WAS NOT UTILIZED BY THE ASSESSEE AND REMAINE D AT THE END OF THE YEAR WAS NOT CORRECT. IN VIEW OF THE AB OVE DISCUSSION, THE CIT(A) WAS JUSTIFIED IN DELETING TH E AMOUNT OF RS.35,16,309/- MADE BY THE ASSESSING OFFICER U/S 14 5A OF THE ACT. THEREFORE, WE DO NOT SEE ANY REASON TO INTERF ERE WITH THE ORDER OF CIT(A) WHICH IS CONFIRMED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 1 ST OF FEBRUARY, 2016 AT AHMEDABAD. SD/- SD/- ( RAJESH KUMAR ) ACCOUNTANT MEMBER ( SHAILENDRA KUMAR YADAV ) JUDICIAL MEMBER AHMEDABAD; DATED 01/02/2016 *BT !'# $#! / 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, //TRUE COPY// / (DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD