The DCIT, Central Circle-2(2), Ahmedabad V. Smt. Charulataben B.Shah, Mumbai

ITA 2125/AHD/2009

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6443 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 30-05-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 03-07-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A K PATEL
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' BEFORE SHRI T K SHARMA,JM & SHRI A N PAHUJA,AM ITA NO.2125/AHD/2009 (ASSESSMENT YEAR:-2003-04) DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 2(2),ROOM NO. 309,3 RD FLOOR, AAYAKAR BHAVAN, AHMEDABAD V/S SMT. CHARULATABEN B SHAH, D-2, ADITYA APARTMENT, OLD NAGARDAS ROAD, ANDHERI (E), MUMBAI, MAHARASHTRA- 400 069 PAN: AAYPS 4066 Q [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI A K PATEL, DR ASSESSEE BY:- NONE O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATED 26- 03-2009 OF THE LD. CIT(APPEALS)-III, AHMEDABAD FOR THE ASSESSMENT YEAR 2003-04, RAISES THE FOLLOWING GROUNDS:- (I) THE CIT(A) HAS ERRED IN LAW AND FACTS IN DELET ING ADDITION OF RS.7,00,251/- ON ACCOUNT OF UNDER VALUATION OF CLOS ING STOCK. (II) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. (III) IT IS, THEREFORE, PRAYED THAT THE ORDER OF TH E LD. CIT(A) MAY BE SET ASIDE AND THAT OF THE AO BE RESTORED TO THE ABOVE E XTENT. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE DESPI TE SERVICE OF NOTICE ON 14.5.2011[AD ON RECORD] NOR ANY REQUEST F OR ADJOURNMENT HAS BEEN RECEIVED. CONSIDERING THE NATURE OF ISSUE, WE, THEREFORE, DECIDED TO DISPOSE OF THE APPEAL AFTER HEARING THE LEARNED DEPARTMENTAL REPRESENTATIVE. 3. ADVERTING FIRST TO GROUND NO.1 IN THE APPEAL, F ACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT IN PURSUANCE TO RETURN DECLARING INCOME OF RS.5,75,910/- FILED ON 24-10-2003 BY THE ASSESS EE, MANUFACTURING IRON & CTD BARS, ASSESSMENT U/S 143( 3) OF THE 2 ITA N O.2125/AHD/2009 2 INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS TH E ACT] WAS FINALIZED ON 27-03-2006, ACCEPTING THE RETURNED INC OME. SUBSEQUENTLY, A NOTICE U/S 148 OF THE ACT WAS ISSUE D ON 07-03-2008 BY THE DCIT, CC 2(2), AHMEDABAD AFTER RECORDING THE REASONS FOR ISSUING SUCH NOTICE. DURING THE COURSE OF REASSESSM ENT PROCEEDINGS, THE ASSESSING OFFICER[AO IN SHORT] NOTICED FROM THE TAX AUDIT REPORT THAT THERE WAS DEBIT BALANCE OF RS.1,74,051/- IN T HE MODVAT ACCOUNT AND AFTER CONSIDERING ADDITION OF RS.1,19,78.220 (1 6,70,000 + 1,03,08,220) AND UTILIZATION OF RS.1,14,49,471/- DU RING THE YEAR, THERE WAS A DEBIT BALANCE OF RS.7,02,800/- AT THE E ND OF THE YEAR. ON VERIFICATION OF BOOKS OF ACCOUNTS, REGISTERS MAI NTAINED FOR SALES TAX, EXCISE DUTY, UTILIZATION OF MODVAT CREDIT, EVI DENCE FOR PAYMENTS OF EXCISE DUTY, ETC., THE AO SHOWCAUSED THE ASSESS EE VIDE LETTER DATED 15/12/2008 AS TO WHY PROVISIONS OF SEC. 145A BE NOT INVOKED FOR VALUATION OF CLOSING STOCK. IN RESPONSE, THE AS SESSEE REPLIED THAT THE CLOSING STOCK COMPRISED THREE COMPONENTS VIZ. I) RAW MATERIAL, I.E. IRON-STEEL SCRAP, MS PLATES, ETC.;II) WASTAGE SCRA P; & III) FINISHED GOODS, I.E. CTD BARS. WHILE SUBMITTING THE WORKING OF EFFECT OF THE EXCISE DUTY IN OPENING STOCK, PURCHASES, SALES AND CLOSING STOCK, THE ASSESSEE PO INTED OUT THAT THE VALUE OF THE FINISHED GOODS WAS TAKEN AS PER THE CONSISTENT METHOD FOLLOWED AND AS PER THE ACCOUNTING PRINCIPLES. SINCE THE COST PRICE OF THE FINISHED GOODS IS ARRIVED AT AFTER CONSIDERING THE RAW MATERIALS INCLUDING TAX E LEMENT AND THE MARKET PRICE OF FINISHED GOODS IS NATURALLY THE PRICE WITH THE EXCI SE DUTY AND HENCE THE EFFECT OF UNTILIZED MODVAT CREDIT HAS BEEN AUTOMATICALLY INCL UDED IN CLOSING STOCK, THE ASSESSEE SUBMITTED. AS REGARDS, SCRAP WASTAGE, THE ASSESSEE SUBMITTED THAT THE SAME HAS BEEN VALUED AT NET REALIZABLE RATE IN ACCO RDANCE WITH CONSISTENT PRACTICE. REGARDING RAW MATERIAL , THE ASSESSEE P OINTED OUT THAT THIS WAS VALUED AT THE AVERAGE PRICE OF THE WHOLE YEAR AND THIS METHOD WAS THE WELL ACCEPTED ACCOUNTING PRINCIPLE AS PER THE GUIDELINES ISSUED BY THE INSTITUTE OF THE CHARTERED ACCOUNTANT. HOWEVER, THE AO DID NOT ACCEP T THE SUBMISSIONS OF THE ASSESSEE ON THE GROUND THAT IN TERMS OF PROVISIONS OF SECTION 145A OF THE ACT, IN ADDITION TO THE METHOD OF ACCOUNTING REGULARLY EMPL OYED BY THE ASSESSE, FURTHER ADJUSTMENT HAS TO BE CONSIDERED IN RESPECT OF TAX, DUTY, ETC. ACTUALLY PAID OR 3 ITA N O.2125/AHD/2009 3 INCURRED BY THE ASSESSEE. AS THE ASSESSEE AVAILED THE BENEFIT OF MODVAT WHILE EXCISE DUTY COLLECTED WAS MORE THAN THE DUTY ADJUST ED AGAINST THE OPENING STOCK & PURCHASES DURING THE YEAR [11449471 - (632186+101 67016) = 6,50,269] AND THE ASSESSEE HAVING REMITTED PAYMENT OF RS.16,70,00 0/- TOWARDS MODVAT, STILL THERE IS DEBIT BALANCE FOR MODVAT ADJUSTMENT. ACCOR DINGLY, ON THE TOTAL CLOSING STOCK OF RS.8440754/- THE EXCISE DUTY @ 16% WORKE D OUT TO RS.13,50,520/- OUT OF WHICH MODVAT CREDIT RS.650269/- WAS ADJUSTED AND DIFFERENCE AMOUNT I.E.RS.7,00,251/- CONSIDERED AS ELEMENT OF EXCISE D UTY EMBEDDED IN THE CLOSING STOCK WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE . 4. ON APPEAL, THE LEARNED CIT(A) DELETED THE ADDITI ON IN THE FOLLOWING TERMS:- 7. IN RESPECT OF THE ADDITION TO THE CLOSING STOCK , THE EXPLANATION OF THE APPELLANT THAT IN TERMS OF EXCISE DUTY / MODVAT THE RE WOULD BE NO EFFECT SINCE ADDITION WOULD BE COUNTER BALANCED BY THE DED UCTION ALLOWED FOR MODVAT, AS HELD. THE A0 HAS NOT RECORDED ANY ANOMAL Y IN THE MODVAT ADJUSTMENT MADE BY THE APPELLANT AND HAS ACCORDINGL Y NOTED THAT 'IN RESPECT OF MODVAT UTILIZED NO INFERENCE WAS DRAWN MEANING THEREBY THAT NO ADVERSE INFERENCE WAS DRAWN. THIS BEING SO, THER E WAS NO OCCASION TO MAKE ADDITION TO THE CLOSING STOCK, MOREOVER, WITHO UT ALLOWING FOR ITS CONSEQUENTIAL EFFECT IN THE SUBSEQUENT YEAR. ON A H OLISTIC CONSIDERATION, THE ADDITION TO THE CLOSING STOCK IS NOT SUSTAINABL E AND IS DELETED. 5. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR WHIL E SUPPORTING THE ORDER OF THE AO CONTENDED THAT THE IMPUGNED ORDER O F THE LD. CIT(A) IS NON- SPEAKING NOR HE RECORDED ANY FINDINGS ON T HE APPLICABILITY OF PROVISIONS OF SEC. 145A OF THE ACT. 6. WE HAVE HEARD THE LEARNED DR AND GONE THROUGH TH E FACTS OF THE CASE. WE FIND THAT THE LD. CIT(A) DID NOT EXAMI NE THE APPLICABILITY OF PROVISIONS OF SEC. 145A OF THE ACT NOR RECORDED HIS SPECIFIC FINDINGS ON THE THE FACTS POINTED OUT BY THE AO. BEFORE PROCEEDING FURTHER, WE MAY HAVE A LOOK AT THE EXTAN T PROVISIONS OF SEC. 145A OF THE ACT , WHICH READ AS UNDER: 4 ITA N O.2125/AHD/2009 4 '145A METHOD OF ACCOUNTING IN CERTAIN CASES-NOTWITH STANDING ANYTHING TO THE CONTRARY CONTAINED IN S. 145, THE V ALUATION OF PURCHASE AND SALE OF GOODS AND INVENTORY FOR THE PU RPOSES 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 INCU RRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOC ATION AND CONDITIONS AS ON THE DATE OF VALUATION. EXPLANATION: FOR THE PURPOSES OF THIS SECTION, ANY TAX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) ACTUALLY UNDER ANY LA W FOR THE TIME BEING IN FORCE, SHALL INCLUDE ALL SUCH PAYMENT NOTW ITHSTANDING ANY RIGHT ARISING AS A CONSEQUENCE TO SUCH PAYMENT.' THE AFORESAID PROVISIONS OF THE ACT STIPULATE TH AT THE VALUATION OF PURCHASE AND SALE OF GOODS AND INVENTORY FOR THE PU RPOSE OF COMPUTATION OF INCOME FROM BUSINESS OF PROFESSION O R PROFESSION SHALL BE MADE ON THE BASIS OF THE METHOD OF ACCOUNT ING REGULARLY EMPLOYED BY THE ASSESSEE, SUBJECT TO CERTAIN ADJUST MENTS PROVIDED THEREIN. THE ADJUSTMENTS PROVIDED IN THIS SECTION C AN BE MADE WHILE COMPUTING THE INCOME FOR THE PURPOSE OF PREPARING T HE RETURN OF INCOME AND THESE ARE AS UNDER: (I) ANY TAX, DUTY, CESS OR FEE ACTUALLY PAID OR I NCURRED OR INPUTS SHOULD BE ADDED TO THE COST OF INPUTS (RAW MATERIAL S, STORES, ETC.) IF NOT ALREADY ADDED IN THE BOOKS OF ACCOUNT. (II) ANY TAX, DUTY, CESS OR FEE ACTUALLY PAID OR I NCURRED ON SALE OF GOODS SHOULD BE ADDED TO THE SALES, IF NOT ALREADY ADDED IN THE BOOKS OF ACCOUNT. (III) ANY TAX, DUTY, CESS OR FEE ACTUALLY PAID OR INCURRED ON THE INVENTORY (FINISHED GOODS, WORK-IN-PROGRESS, RAW MA TERIALS, ETC.) SHOULD BE ADDED TO THE INVENTORIES, IF NOT ALREADY ADDED WHILE VALUING THE INVENTORY IN THE ACCOUNTS. 6.1 THE LANGUAGE IN S. 145A OF THE ACT IS ABSOLU TELY CLEAR, WHEN IT STIPULATES THAT PURCHASE, SALES AND INVENTORY ARE T O BE ADJUSTED AND NOT ONLY THE CLOSING STOCK. THE ASSESSEE IS, THEREF ORE, REQUIRED TO 5 ITA N O.2125/AHD/2009 5 ADJUST THE VALUE OF PURCHASE, SALES, OPENING STOCK AND CLOSING STOCK IN ACCORDANCE WITH THE PROVISIONS OF S. 145A OF THE ACT . A MERE GLANCE AT THE IMPUGNED ORDER REVEALS THAT THE LD. CIT(A) WITHOUT EXAMINING THE APPLICABILITY OF STATUTORY PROVISIONS OF SEC. 145A OF THE ACT, MERELY DELETED THE ADDITION ON THE SUBMI SSIONS MADE BY THE ASSESSEE. AS FOR THE ADJUSTMENTS U/S.145A OF TH E ACT, HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MAHAVIR ALU MINIUM LTD. 297 ITR 77, HELD THAT WHILE VALUING CLOSING STOCK, ADJU STMENT ON ACCOUNT OF EXCISE DUTY AND MODVAT CREDIT HAS NECESSARILY TO BE MADE AS STIPULATED IN SECTION 145A OF THE ACT. IN VIEW OF THE AFORESAID PROVISIONS, IRRESPECTIVE OF THE METHOD FOLLOWED BY AN ASSESSEE FOR ACCOUNTING, ADJUSTMENT ON ACCOUNT OF EXCISE DUTY AND MODVAT CREDIT HAS TO BE MADE. THE LD. CIT(A) WITHOUT EVE N APPRECIATING THE LAW AS CONTAINED IN SECTION L45A OF THE ACT, HA S SIMPLY ACCEPTED ASSESSEES CONTENTION THAT THERE WAS NO OCCASION T O MAKE ADDITION TO THE CLOSING STOCK. IT IS NOT THE QUESTION OF WH AT EFFECT WOULD BE THERE ON THE PROFITS BUT WHEN THE STATUTE STIPULATE S A PARTICULAR METHODOLOGY OF ADJUSTMENTS FOR TAX, DUTY, CESS OR F EE THEN IT HAS TO BE FOLLOWED. NEITHER THE ASSESSEE NOR THE AO OR T HE LD. CIT(A) HAVE ANY POWERS TO IGNORE THE PROVISIONS OF SEC. 14 5A OF THE ACT OR TO MAKE ANY VARIATION THEREIN. IN THESE CIRCUMSTANC ES, ESPECIALLY WHEN THERE IS NO MATERIAL BEFORE US TO ASCERTAIN A S TO WHETHER OR NOT THE ASSESSEE HAS FOLLOWED THE METHOD PRESCRIBED IN SEC. 145A OF THE ACT NOR THE LD. CIT(A) RECORDED ANY FINDINGS ON THE APPLICABILITY OF THESE PROVISIONS AND NOR EVEN ANALYSED THE ISSUE IN PROPER PERSPECTIVE IN THE LIGHT OF FACTS FOUND BY THE AO, IN THE INTEREST OF JUSTICE AND FAIR PLAY , WE VACATE THE FINDINGS OF T HE LD. CIT(A) AND RESTORE THE MATTER TO HIS FILE FOR ASCERTAINING T HE DISALLOWANCE IF ANY TO BE MADE U/S.145A OF THE ACT AFTER TAKING INTO ACCOUNT THE ADJUSTMENTS THAT ARE TO BE MADE IN ALL THE THREE ELEMENTS VIZ. PURCHASES, SALE S AND INVENTORIES IN RESPECT OF TAX, DUTIES AND CESS PAID OR INCURRED BY THE ASSESS EE. THEREAFTER, THE LD. CIT(A) SHALL PASS A SPEAKING ORDER IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT 6 ITA N O.2125/AHD/2009 6 OPPORTUNITY TO BOTH THE PARTIES. WITH THESE DIRECTI ONS, GROUND NO.1 IN THE APPEAL IS DISPOSED OF. 7. GROUND NOS.2 AND 3 BEING MERE PRAYER NOR ANY SU BMISSIONS HAVING BEEN MADE ON THESE GROUNDS, DO NOT REQUIRE A NY SEPARATE ADJUDICATION AND ARE, THEREFORE, DISMISSED. 8. IN THE RESULT, APPEAL IS ALLOWED BUT FOR STATIST ICAL PURPOSES. ORDER PRONOUNCED IN THE COURT TODAY ON 31 -05-2011 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 31-05-2011 COPY OF THE ORDER FORWARDED TO: 1. SMT. CHARULATABEN B SHAH, D-2, ADITYA APARTMENT, OLD NAGARDAS ROAD, ANDHERI (E), MUMBAI, MAHARASHTRA-400 069 2. DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCL E 2(2), AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-III, AHMEDABAD 5. DR, ITAT, AHMEDABAD BENCH-A, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD