M/s. Priyanka Developers Pvt.Ltd., Surat V. The Dy.CIT.,Circle-1, Surat

ITA 2631/AHD/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76843 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 24-03-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 22-11-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K C MATHEWS
• Keywords: Reopening of assessment; Rejection of books of accounts; Depreciation; Retrospective amendment; Cost of acquisition; Tangible material; Difference of opinion; Change of opinion
• Section: 143(3); 147; 145; 148; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD (BEFORE SHRI D.K. TYAGI, J.M. & SHRI ANIL CHATURV EDI, A.M.) I.T. A. NO. 2631/AHD/2012 (ASSESSMENT YEAR: 2005-06) M/S. PRIYANKA DEVELOPERS PVT. LTD. 301, JEEVANDEEP COMPLEX, OPP SUB JAIL, RING ROAD, SURAT-395002 V/S DCIT, CIRCLE-1, SURAT (APPELLANT) (RESPONDENT) PAN: AACCP0054A APPELLANT BY : SHRI RAJESH SHAH A.R. RESPONDENT BY : SHRI K.C. MATHEWS, SR. D.R. ( )/ ORDER DATE OF HEARING : 24-03-201 4 DATE OF PRONOUNCEMENT : 19 -06-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-I, SURAT DATED 24.09.2012 FOR A.Y. 2005-06. 2. THE FACTS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS A COMPANY STATED TO HAVE BEEN ENGAGE D IN THE BUSINESS OF TEXTURISING AND TRADING OF YARN. ASSESSEE FILED ORI GINAL RETURN OF INCOME FOR AY 2005-06 ON 21.10.2005 DECLARING TOTAL LOSS OF RS 13 ,15,660/-. THE ASSESSMENT WAS FRAMED U/S 143(3) VIDE ORDER DATED 1 3.12.2007 AND THE TOTAL ITA NO 2631/ AHD/2012 . A.Y.2005- 06 2 INCOME WAS DETERMINED AT RS 21,04,940/-. LATER ON A O NOTICED THAT ASSESSEE HAD UNUTILISED CENVAT CREDIT OF RS 6,83,47 3/- AT THE END OF THE FINANCIAL YEAR ENDING 31.3.2005 WHICH WAS NOT CONSI DERED FOR ADJUSTMENT AS REQUIRED U/S 145A OF THE ACT AND NOT INCLUDED IN TH E VALUATION OF CLOSING STOCK. HE ALSO NOTICED THAT UNUTILISED CENVAT CREDIT OF RS 10,22,141/- WAS CHARGED TO PROFIT AND LOSS ACCOUNT BY REVERSAL OF CREDIT AN D SINCE THE ASSESSEE WAS FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING, THE AMOUN T CHARGED AND REVERSED WAS NOT ADMISSIBLE AS DEDUCTION AND THEREFORE HE RE OPENED THE CASE BY ISSUING NOTICE U/S 148 OF THE ACT AND THEREAFTER AS SESSMENT WAS FRAMED U/S 143(3) RWS 147 OF THE ACT VIDE ORDER DATED 9.12.201 1 AND THE REVISED THE TOTAL INCOME WAS DETERMINED AT RS 14,90,560/-. AGGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) V IDE ORDER DATED 24.9.2012 APART FROM UPHOLDING THE ADDITION ALSO EN HANCED THE ADDITION MADE BY THE AO, APPEAL OF THE ASSESSEE BY HOLDING AS UND ER:- 9. DURING THE COURSE OF APPELLATE PROCEEDINGS , IT HAS BEEN NOTICED THAT THE COMMENTS OF THE AUDITOR GIVEN IN COLUMN NO. 12B OF TAX AUDIT REPO RT IS THAT COLUMN 12B IS NOT APPLICABLE. THE AUDITORS DID NOT STATE THAT THERE HAS BEEN A DEVIA TION AND SUCH DEVIATION HAS NO EFFECT ON THE PROFI T OF THE APPELLANT. THE SECTION 145 A MAKES IF MANDATO RY FOR AN ASSESSEE TO INCLUDE OIL TAXES PAID ON INPUTS IN THE VAIUAFION OF CLOSING STOCK. THIS WAS NOT DONE BY THE APPELLANT. THE AUDITOR'S COMMENT IS THEREFORE, FACTUALLY INCORRECT. MOREOVER, APPELLANT S INTERPRETATION OF THE COMMENT IS ALSO INCORRE CT THE COMMENT N.A ' DOES NOT MEAN THAT' THERE HAS BEEN A DEVIATION BUT IT HAD NO EFFECT ON THE PROFIT. THEREFORE, THERE WAS A FAILURE ON THE P ART OF THE APPELLANT TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS. MOREOVER, COLUMN NO. 22(A) OF T HE TAX AUDIT REPORT, REQUIRES DETAILS OF MODIFIED VALUE ADDED TAX TO BE GIVEN. HOWEVER, AS DISCUSSED SUBSEQUENTLY IN THIS ORDER, THE DETAILS GIVEN IN THE TAX AUDIT REPORT DID NOT TALLY WITH THE DETAILS AS PER THE EXCISE RECORDS. THIS WAS ANOTHER FAIL URE ON THE PART OF THE APPELLANT TO DISCLOSE FULLY AN D TRULY ALL MATERIAL FACTS. APPELLANT HAD NOT GIVEN THE DETAILS OF TAX COMPONENT OF COST OF INPUTS AT THE TIME OF ORIGINAL ASSESSMENT. THIS WAS ALSO A FAILURE ON THE PART OF THE APPELLANT TO DISCLOSE TR ULY AND FULLY ALL MATERIAL FACTS. LASTLY, THE APPEL LANT 'S CONTENTION THAT NON - INCLUSION OF FAXES PAID ON IN PUTS DOES NOT HAVE ANY EFFECT ON PROFITS IS ALSO FACTUALLY INCORRECT AS HELD SUBSEQUENTLY IN THIS O RDER. THIS WAS ANOTHER FAILURE ON THE PART OF THE APPELLANT TO DISCLOSE FULLY AND TRULY AL THE MATER IAL FACTS. 9.2 WHILE THE SECOND FACT I.E. THE REVERSAL OF CENV AI CREDITS WAS MENTIONED AT SR NO. F OF SCHEDULE ' O ' (I) OF AUDITED ACCOUNTS BY WAY OF A NOTE , THERE WA S TOTAL FAILURE ON THE PART OF THE APPELLANT TO DISCLOSURE FULLY AND TRULY ALL MATERIAL FACTS IN RE SPECT OF THE FIRST GROUND OF RE - OPENING. EVEN IN RESPECT OF SECOND GROUND, IE REVERSAL OF CENVAT, CR EDITS, THOUGH THE FACT REGARDING REVERSAL WAS MENTIONED, IT WAS NEVER DISCLOSED AS TO WHETHER THE SIMILAR REVERSAL WAS DONE IN THE EXCISE RECORDS I. E. RG -23 PART 'A' AND IN THE MONTHLY EXCISE RETURN ER -1 FILED BEFORE THE EXCISE AUTHORITIES OR NOT. AS NOTICED SUBSEQUENTLY IN THIS ORDER, NO EVIDENCE OF SUCH REVERSAL BEFORE EXCISE AUTHORITY HAS BEEN FILE D EVEN DURING THE APPELLATE PROCEEDINGS AND FROM THE SUBMISSIONS OF THE APPELLANT, IT IS APPARENT THAT N O SUCH REVERSAL HAS BEEN MADE. CONSIDERING THE SAME, IT IS HELD THAT THERE HAS BEEN A FAILURE ON THE PAR T OF THE APPELLANT TO DISCLOSE FULLY AND TRULY ALL TH E MATERIAL FACTS EVEN IN RESPECT OF SECOND GROUND O F REOPENING. CONSEQUENTLY, GROUND NO. I OT APPEAL IS DECIDED AGAINST THE APPELLANT. 10. GROUND NO. 2 10.1 BEFORE PROCEEDING FURTHER, IT IS NECESSARY TO DISCUSS THE GUIDELINES OF INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA WHICH SAY THAT THE PROVISIONS OF SECTION 145A ARE REVENUE NEUTRAL. THESE ITA NO 2631/ AHD/2012 . A.Y.2005- 06 3 GUIDELINES NEED TO BE EXAMINED, AS THESE GUIDELINES ARE RELIED UPON BY THE TAX AUDITORS AND THE APPELLANTS IN MOST OF THE CASES INVOLVING SIMILAR A DDITIONS. 10.2 THE APPELLANT HAS NOT INCLUDED EXCISE DUTY IN THE VALUATION OF ITS CLOSING STOCK. UNDER SECTION 145A THE APPELLANT SHOULD INCLUDE EXCISE DUTY COMPO NENT OF PURCHASE PRICE OF RAW MATERIAL WHILE VALUING THE CLOSING STOCK OF RAW MATERIAL, WIP AND FINISHED GOODS. THE APPELLANT CLAIMS THAT THE NON - INCLUSION OF THE SAME WILL HAVE NO EFFECT ON ITS PR OFITS. 10.3 THE SECTION 145A READS AS UNDER :- ' METHOD OF ACCOUNTING IN CERTAIN CASES. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 145 THE VALUATION OF PURCHASE AND SALE OF GOODS AND INVENTORY FOR THE PURPOSES OF DETERMIN ING THE INCOME CHARGEABLE UNDER THE HEARD ' PROFITS AND GAINS OF BUSINESS OR PROFESSION * SHALL BE- (A) IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULAR LY EMPLOYED BY THE ASSESSEE; AND (B) (B) FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY TAX, 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 BEING IN FORCE, SHALL INCLUDE ALL SUCH PAYMENT NOTWITHSTANDING ANY RIGHT ARISING AS A CONSEQUENCES TO SUCH PAYMENT. ' ANY RIGHT HERE MEANS CENVAT CREDIT AVAILABLE TO THE ASSESSEE. 10.4 EXPLANATORY NOTES TO THIS AMENDMENT BY FINANCE ACT, 1998 SAY THAT THE CLARITICATORY RETROSPECTIVE AMENDMENT WAS MADE TO END THE CONTROVERSY ON THE IS SUE RELATING TO WHETHER THE VALUE OF CLOSING STOCK OF THE INPUTS, WORK IN PROGRESS AND FINISHED GOODS MUST NECESSARILY INCLUDE THE ELEMENT FOR WHICH MODVAT CREDIT IS AVAILABLE. SUBSEQUENT TO THIS AMENDMENT TAX AUDITORS STARTED P UTTING A REMARK IN THE AUDIT REPORT THAT SUCH INCLUSION DOES NOT HAVE ANY IMPACT ON TAXABLE PROFITS. THIS INTERPRETATION THAT THERE IS NO IMPACT OF THIS AMENDMENT ON TAXABL E PROFITS, PUTS A QUESTION MARK ON THE LEGISLATIVE WISDOM OF THE PARLIAMENT. IF THE INTENTION BEHIND T HIS AMENDMENT WAS TO HAVE NO EFFECT ON TAXABLE PROFIT, THERE WAS NO NEED FOR THIS CLARIFICATCRY AM ENDMENT. 10.5 A PLAIN READING OF THE ABOVE SECTION MAKES IT CLEAR THAT AFTER COMPUTING THE 'PROFITS AND GAINS' OF' BUSINESS OR PROFESSION' AS PER THE METHOD OF AC COUNTING REGULARLY EMPLOYED BY THE ASSESSEE THE PROFITS SHALL BE FURTHER ADJUSTED TO INCLUDE EXCISE DUTY COMPONENT OF PURCHASE COST PAID BY APPELLANT NOTWITHSTANDING ANY RIGHT (IE. CENVATJ ARISING AS A CONSEQUENCE OF SUCH PAYMENT. THEREFORE, THERE IS NO DISCRETION IN THIS MATTER AND EXCISE COMPONENT O F THE COST OF INPUTS I.E. RAW MATERIAL/ PACKING MATERIAL ETC HAS TO BE INCLUDED IN CLOSING STOCK VA LUATION IRRESPECTIVE OF CENVAT CLAIM. 10.6 THE CLAIM THAT THE ADJUSTMENT U/S I45A WILL NO T AFFECT TAXABLE PROFITS IS NOT CORRECT. BEFORE ESTABLISHING THE SAME, IT IS NECESSARY TO DISCUSS T HE VALUATION OF STOCK OF FINISHED GOODS. THE STOCK OF FINISHED GOODS HAS THEE COST COMPONENTS, THE RAW MA TERIAL COST, THE PRODUCTION COST AND THE EXCISE DUT Y PAID ON PURCHASE OF RAW MATERIAL. THIS COMPONENT OF EXCISE DUTY IS DIFFERENT FROM EXCISE DUTY PAID / PAYABLE ON FINISHED GOODS. IN FACT THE EXCISE DUTY COMPONENT OF RAW MATERIAL IS AN INDIRECT COST CHARGED BY THE MANUFACTURER OF RAW MATERIAL FROM TH E ASSESSEE WHO IS THE PURCHASER. IF IS A PART OF TH E COST OF RAW MATERIAL AND ALSO A PART OF CLOSING STO CK OF FINISHED GOODS. 10.7 THE MODVAT/ CENVAT SCHEME ONLY ALLOWS A REBATE ON EXCISE DUTY PAYABLE ON SALE / CLEARANCE OF GOODS MANUFACTURED BY ASSESSEE CALCULATED ON THE BA SIS OF EXCISE DUTY RATE APPLICABLE ON RAW MATERIAL WHICH IS ACTUALLY PAID BY RAW MATERIAL MANUFACTURER . THE MECHANISM OF MODVAT / CENVAT IS JUST AN ADMINISTRATIVE MECHANISM TO ENSURE THAT THE GOVERNM ENT COLLECTS EXCISE DUTY ONLY ON THE VALUE ADDITION BY MANUFACTURING PROCESS, IT DOES NOT CHAN GE THE COST OF INPUTS. 10.8 THE GUIDANCE NOTES FOR TAX AUDIT ISSUED BY ICA I AND RELIED UPON BY THE TAX AUDITORS CANNOT OVERRIDE THE SPECIFIC PROVISIONS OF THE ACT WITHOUT PREJUDICE TO THE SAME, THE ILLUSTRATION GIVEN IN GUIDANCE NOTES, IS DISCUSSED HEREIN UNDER:- 10.9 IN THE ILLUSTRATION THE FOLLOWING FIGURES HA VE BEEN ASSUMED .. 10.10 IN THE ABOVE ILLUSTRATION OF INCLUSIVE ME THOD THE ASSESSEE HAS CLAIMED CENVAT SET OFF OF R S 180/- (IN RESPECT OF RAW MATERIAL PURCHASED OF 90 K GS FOR DISCHARGING ITS EXCISE LIABILITY OF RS 18G/- WITHOUT MAKING ANY PLA PAYMENT. HOWEV ER, IT HAS CREDITED THE SET OFF ONLY RS 1607- , WHICH IS THE CENVAT COMPONENT OF RAW MATERIAL CONSUMED OF 80 KGS. THIS MEANS THAT ASSESSEE HAS TAKEN ADVANCE CREDIT OF CENVAT OF RS 20/- IN RE SPECT OF 10 KGS RAW MATERIAL NOT, CONSUMED IN MANUFACTURING ). THIS RESULTS IN THE INCOME OF THE CURRENT YEAR BEING SHOWN LESS BY RS 20/- ON THIS ACCOUNT ALONE. IF THIS INCOME IS CONSIDERED, THE PROFIT U/S 145A WILL BE RS 20/- , MORE THAN T HE ITA NO 2631/ AHD/2012 . A.Y.2005- 06 4 EXCLUSIVE METHOD FOLLOWED BY THE ASSESSEE. FURTHER, THE SALES ARE ONLY OF 60 KGS I.E. THE ASSESSEE'S ACTUAL CENVAT CREDIT ENTITLEMENT IS RS 120/- ( 60 X 2 ) BY CLAIMING SET OFF OF RS I5O/-IF HAS TAKEN FURTHER ADVANCE CREDIT OF CENVAF OF RS 40/- ( 20 X 2 ) PERTAINING TO RAW MATERIAL COMPONENT IN FINISHED GOODS WHICH ARE YET TO BE CLEARED FOR EX CISE PAYMENT. THE TOTAL ADVANCE CREDIT THEREFORE, COMES FO RS 60/ (20 + 40). THE GUIDANCE NOTES JUSFI FY THIS CALCULATION WITHOUT COMMENTING ON TREATMENT OF THIS ADVANCE CREDIT OF CENVAT IN EXCES S OF CENVAF PERTAINING TO GOODS ACTUALLY SOLD. THE CENVAT CONCEPT INTENDS TO GIVE DUTY REBATE AT THE T IME OF SALE. HOWEVER, THE MECHANISM OF ADVANCE CREDIT ALLOWS THE ASSESSEE TO CLAIM BENEFIT OF SE T OFF OF CENVAT IN RESPECT OF ENTIRE DUTY PAID THOU GH THE CORRESPONDING GOODS MAY STILL REMAIN IN CLOSING STOCK AS RAW MATERIAL OR FINISHED GOODS ON WHICH NO LIABILITY TO PAY DUTY HAS ARISEN. IF WE TRY TO WORK PUT ONLY THE CASH PROFITS OF THE ASSESSEE, THE TRADING ACCOUNT WILL APPEAR AS UNDER:-.. I.E THE CASH PROFITS ARE RS. 340/- THERE WILL BE NO DEBIT OF EXCISE DUTY AS NO EXCISE PAYMENT HAS ACTU ALLY BEEN MADE. AGAINST THIS THE GUIDANCE NOTES SHOW TAX ABLE PROFITS OF RS. 300/- ONLY. THE DIFFERENCE OF RS 60/- ACTUALLY PERTAINS TO SET OFF OF ADVANCE CRE DIT OF CENVAT AS EXPLAINED ABOVE. 10.11 HAD THERE BEEN NO CENVAT SCHEME, THE TRADING ACCOUNT WOULD HAVE APPEARED AS UNDER:- THE CENVAT SCHEME REDUCES THE EXCISE LIABILITY ON G OODS SOLD FROM RS 180 TO 607- THEREBY INCREASING PROFITS TO RS 300- HOWEVER, THE ASSESSEE 'S CASH PR OFITS GO TO RS 360/- DUE TO SET OFF OF ADVANCE CRED IT OF CENVAT. THIS INCOME OF RS60/- ESCAPES ASSESSMENT IN THE ILLUSTRATION IN THE GUIDANCE NOTES OF ICAI. 10.12 THE CORRECT TRADING ACCOUNT AS PER SECTION 14 5A WILL APPEAR AS UNDER:- THOUGH THIS MAY REDUCE THE PROFITS NEXT YEAR, BUT T HAT IS NATURAL CONSEQUENCE OF ADVANCE CREDIT OF CENVAT ALLOWED TO THE ASSESSEE. 10.13 CONSIDER THE ABOVE DISCUSSION, THE APPELLANT % S ARGUMENT IS FOUND TO BE NOT IN ACCORDANCE WITH LAW AND PROVISION OF SECTION 145A ARE NOT PROFIT NE UTRAL. 11. FROM A PERUSAL OF THE DETAILS SUBMITTED BY THE APPELLANT, CERTAIN DISCREPANCIES WERE NOTICED IN TH E EXCISE ACCOUNTING OF THE APPELLANT, AS A RESULT OF WHICH CORRECT AMOUNT OF ADDITION U/S 145 A NEEDED T O BE ENHANCED TO RS 40, 95, 280/-. THEREFORE, NOTICE OF ENHANCEMENT U/S 251 (2) OF THE I T ACT WAS ISSUED ON 08.08. 2012 WHICH IS REPRODUCED HEREIN IN UNDER :- 11.1 THE APPELLANT WAS REQUIRED TO FILE A REPLY BY 7. 9. 2012. ON REQUEST, THE CASE WAS ADJOURNED TO 12.09.2012. HOWEVER, THERE HAS BEEN NO COMPLIANCE O N 12. 9. 2012. THEREFORE ANOTHER NOTICE WAS ISSUED ON 17. 9. 2012 FIXING UP THE DATE OF HEARING ON 24. 9. 2012. HOWEVER, IN THE MEANTIME, IT WAS LEARNT THAT THE APPELLANT FILED ONE WRITTEN SUBMISS ION IN THE CENTRALIZED 'ASK' CENTER ON 13. 9. 2012. THE SAID SUBMISSION WAS RECEIVED IN THIS OFFICE ON 17.9.2012. ON 24. 09. 2012, THE APPELLANT REQUESTED FOR ADJOURNMENT. THE SAME WAS NOT GRANTED AS NOTICE DATED 17.09.2012 WAS ISSUED DUE TO NO COMPLIANCE ON 12. 9. 2012 FOR THE REASON THAT THE A PPELLANT 'S SUBMISSION FILED ON 13. 9. 2012 IN ' AS K ' HAD NOT REACHED THIS OFFICE BY THAT TIME. 11.2 THE SAID SUBMISSION DEALS WITH THE ISSUES RA ISED IN ENHANCEMENT NOTICE DATED 08.08.2012 , THOUGH IT DOES NOT ANSWER THE SPECIFIC ISSUES RAISE D IN THE ENHANCEMENT NOTICE AND MAKES A GENERAL STATEMENT THAT THE ONLY DIFFERENCE IN THE EXCISE RE CORDS AND THE BOOKS OF ACCOUNTS IS DUE TO REVERSAL OF UNUTILIZED CENVAT CREDITS IN THE BOOKS OF ACCOUNTS. THE CHART ENCLOSED WITH THAT LETTER IS ENCLOSED AS ANNEXURE A' TO THIS ORDER. IN THE SAID CHART, THE EXCI SE DETAILS AS PER EXCISE RECORDS AND BOOKS OF ACCOUNTS ARE STATED TO BE SAME WHILE, THE CORRESPO NDING DETAILS IN THE TAX AUDIT REPORT ARE STATED TO BE DIFFERENT. IN SHORT, IT IS JUST A REPRODUC TION OF THE STATISTICS GIVEN IN THE ENHANCEMEN T NOTICE WITHOUT EXPLAINING AND ESTABLISHING THE REASONS FOR THE SAME. REMAINING SUBMISSION BASICALLY REITERATES THAT THE PROVISIONS OF SECTION 145A ARE REVENUE NEUTRAL AND THE APPELLANT FOLLOWS EXCLUSIVE METHOD OF ACCOUNTING. HOWEVER, IT HAS B EEN DISCUSSED AND DEMONSTRATED (SUPRA) THAT THIS IS NOT THE CASE AND APPLICATION OF THE PROVISION OF 145A WILL LEAD TO INCREASE IN INCOME BY RS. 40,95,280/-. THEREFORE, THE ADDITION MADE BY THE A SSESSING OFFICER AT RS. 6,83,473/- ( PART O F ADDITION OF RS. 17,05,614/-) IS ENHANCED TO RS. 40, 95, 280/-. 12 AS REGARDS THE SECOND COMPONENT OF ADDITION OF R S. 17, 05, 614/- I.E. RS 10,22,141/- DEBITED TO P & L ACCOUNT, THE APPELLANT'S ARGUMENT IS THAT IN VIEW OF EXCISE DUTY ON FINISHED PRODUCTS @ 8% AND ON RAW MATERIAL @ 16 %, THE APPELLANT MAY NOT BE ABLE TO USE THE CENVAT CREDITS TO ITS FULL EXTENT AND TH AT IS THE REASON FOR DEBITING THIS AMOUNT IN THE PROFI T & LOSS ACCOUNT. HOWEVER, AS DISCUSSED ( SUPRA), THIS AMOUNT HAS BEEN DEBITED IN THE PROFIT & LOSS A CCOUNT BUT, NO EVIDENCE OF REVERSAL OF THIS CLAIM I .E. ITA NO 2631/ AHD/2012 . A.Y.2005- 06 5 SURRENDER OF THIS CLAIM BEFORE THE EXCISE AUTHORITI ES AND ITS ENTRY IN RG - 23 ( PART A) OR ITS MENTIO N IN THE MONTHLY EXCISE RETURN ( ER -01) HAS BEEN FILED. 12.1 THE CENVAT CREDIT IS ALLOWED TO THE APPELLANT ON THE EXCISE DUTY PAID ON INPUTS. THIS CREDIT IS AVAILABLE TO MANUFACTURER WITHOUT ANY LIMITATION UN LESS, THE MANUFACTURER ITSELF CHOOSES, NOT TO USE RAW MATERIAL IN ITS EXCISABLE PRODUCT. THERE IS NO CO - RELATION OF THE RAW MATERIAL AND THE FINAL PRODUCT I.E. TO SAY, IT IS NOT AS IF CREDIT CAN BE TAKEN ONLY ON A FINAL PRODUCT IE MANUFACTURED OUT O F THE PARTICULAR RAW MATERIAL TO WHICH, THE CREDIT IS REL ATED. THE CREDIT MAY BE TAKEN AGAINST EXCISE DUTY PAYABLE ON OTHER PRODUCTS AS WELL. THEREFORE, REVER SAL OF CREDIT IN BOOKS OF ACCOUNT ' OR RETURN OF INCOME, WITHOUT SURRENDERING THIS CLAIM BEFORE EXCI SE AUTHORITIES AMOUNTS TO DIFFERENT STANDS BEFORE TWO DIFFERENT REVENUE AUTHORITIES. SUCH PART REVERS AL CANNOT BE ALLOWED AS 'DEDUCTION'. 12.3 IN THE CASE OF THE APPELLANT, IT IS THE FIRST YEAR OF MANUFACTURING AND THERE IS NO OPENING STO CK. THE APPELLANT HAS CLAIMED TO REVERSAL OF THE CREDIT TAKEN DURING THE YEAR ITSELF, WHILE THE CREDIT CONTINUES IN THE EXCISE RECORDS (I.E RG 23 PART A). SINCE THE APPELLANT FOLLOWS 'EXCLUSIVE METHOD 'OF ACCOUNTING, IT MAY STILL TAKE CREDIT FOR THE SAME I N FUTURE. EVEN OTHERWISE, SUCH REVERSAL IS NEITHER ALLOWABLE U/S 37 (1) NOR U/S 36 (1) (VII) OF THE IN COME TAX ACT. THEREFORE, THE A.O'S DECISION NOT TO ALLOW DEDUCTION OF RS.10,22,141/- IS UPHELD. HOWEVE R, THERE WILL BE NO SEPARATE ADDITION FOR THIS AMOUNT, AS THIS AMOUNT STANDS INCLUDED IN THE ENHAN CED ADDITION OF RS 40, 95, 280/- (SUPRA). 12.4 THE APPELLANT'S ARGUMENT THAT THE ISSUE OF REV ERSAL OF CENVAT CREDIT WAS DECIDED BY THE ITAT IN THE FIRST ROUND IS NOT CORRECT IN THE SENSE THAT TH E ISSUE INVOLVED THEREIN WAS EXPLANATION 9 OF SECTI ON 43 (1) OF THE I T ACT WHICH DEALS WITH THE DEFINITI ON OF ACTUAL COST OF AN ASSET FOR THE PURPOSE OF DEPRECIATION. THE ASSESSING OFFICER IN THE FIRST RO UND OF ASSESSMENT, HAD MADE AN ADDITION OF RS. 11, 11, 585/- ON ACCOUNT OF EXCESS CLAIM OF DEPRECIATIO N ON THE REVERSAL OF THE MODVAT IN RESPECT OF CAPITAL GOODS I.E. CREDIT IN RG - 23 PART ' C\ THOU GH THE FACT THAT THE SAID REVERSAL HAS NOT BEEN MAD E IN THE EXCISE RECORDS WAS NOT APPARENTLY DISCLOSED BEFORE THE TRIBUNAL, THE FACT IS THAT THE DECISION OF THE ITAT IS WITH RESPECT OF EXCESS CLAIM OF DEPRECI ATION ON ACCOUNT OF REVERSAL OF CENVAT LEADING TO T HE INCREASE IN ACTUAL COST AS PER EXPLANATION 9 OF SEC TION 43 (1). THE SAID DECISION DOES NOT DEAL WITH T HE PROVISIONS OF SECTION 145 A OR THE DEBIT OF REVERSA L OF CREDIT OF BALANCE IN THE RG -23 ( PART A) I.E. CREDIT ON REVENUE ACCOUNT WITHOUT SURRENDERING THE CLAIM BEFORE THE EXCISE AUTHORITIES. THE CENVAT CREDIT IN RESPECT OF CAPITAL GOODS IS NOT DEALT WIT HIN SECTION 145A OF THE IT ACT. 4. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NO W IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS:- 1. THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX HAS E RRED IN RE-OPENING OF ASSESSMENT U/S 147/148 OF THE ACT FOR CHANGE OF OPINION AND LEARNE D COMMISSIONER OF INCOME TAX (APPEAL) HAS ERRED IN CONFIRMING THE SAME ON THE ISSUE WHICH WER E AVAILABLE DURING THE ASSESSMENT PROCEEDINGS. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) HAS ERRED IN NOT ONLY CONFIRMING THE ADDITION MADE BY LEARNED AO BUT ENHANCED THE ADDITION TO THE TUNE OF RS. 40,95,280/- ON ACCOUNT OF VALUATION OF CLOSING STOCK AS PER SECTION 145 A OF THE ACT. 5. THROUGH THE ABOVE TWO GROUNDS THE ASSESSEE HAS C HALLENGED THE REOPENING OF ASSESSMENT AND THE ENHANCEMENT OF ADDITION AT TH E END OF CIT(A). BEFORE US, THE LD.A.R. SUBMITTED THAT THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL F ACTS NECESSARY FOR THE ASSESSMENT AT THE TIME OF ORIGINAL ASSESSMENT. HE F URTHER SUBMITTED THAT IN THE TAX AUDIT REPORT THE AUDITOR HAS CERTIFIED THAT THERE WAS NO EFFECT ON THE PROFIT DUE TO S. 145A OF THE ACT. HE THEREFORE SUBM ITTED THAT THE REOPENING ITA NO 2631/ AHD/2012 . A.Y.2005- 06 6 AMOUNTS TO CHANGE OF OPINION WHICH WAS NOT PERMISSI BLE AS PER THE PROVISIONS OF THE ACT. HE ALSO PLACED RELIANCE ON T HE DECISIONS IN THE CASE OF CALCUTTA DISCOUNT CO LTD VS ITO (1961) 41 ITR 191 ( SC), CIT VS MODIPON LTD (ITA NO 533 OF 2011 DELHI HC) AND CIT VS KELVINATOR OF INDIA LTD (SC). HE FURTHER SUBMITTED THAT THE ADJUSTMENT MADE TO THE C LOSING STOCK ON ACCOUNT OF ADJUSTMENT OF EXCISE IS TAX NEUTRAL BECAUSE THE ADJ USTMENT MADE TO CLOSING STOCK WILL HAVE TO BE GIVEN TO OPENING STOCK. HE AL SO SUBMITTED THAT THE AO HAD NOT REJECTED THE BOOKS OF ACCOUNTS. HE THUS SUB MITTED THAT EVEN ON MERITS, NO ADDITION IS CALLED FOR. LD DR ON THE OTH ER HAND SUBMITTED THAT PROVISIONS OF S. 145A HAVE OVERRIDING EFFECT AND TH EREFORE IS MANDATORY AND THEREFORE THE ASSESSEE SHOULD HAVE INCLUDED THE EXC ISE DUTY WHILE VALUING THE STOCK. HE FURTHER SUBMITTED THAT THE PLEA OF TH E ASSESSEE THAT THE ADJUSTMENT TO STOCK IS TAX NEUTRAL IS NOT CORRECT I N VIEW OF THE FACT THAT THE YEAR UNDER CONSIDERATION WAS THE FIRST YEAR OF MANUFACTU RING AND THERE WAS NO OPENING STOCK TO WHICH THE ADJUSTMENT OF EXCISE DUT Y WAS TO BE MADE. HE ALSO TOOK THROUGH THE FINDINGS OF CIT(A) AND THUS S UPPORTED HIS ORDER. HE FURTHER PLACED RELIANCE ON THE DECISIONS IN THE CAS E OF SUN PHARMACEUTICALS IND. LTD VS DCIT 353 ITR 474 (GUJ). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. 7. IT IS AN UNDISPUTED FACT THAT THE YEAR UNDER CON SIDERATION WAS THE FIRST YEAR OF MANUFACTURING AND THERE WAS NO OPENING STOCK. IT IS ALSO A FACT THAT ASSESSEE HAD NOT INCLUDED THE VALUE OF EXCISE WHILE VALUATIO N OF STOCK. IT IS ALSO A FACT THAT PROVISIONS OF S. 145A ARE MANDATORY AND IT MAN DATES THAT THE VALUATION OF PURCHASE AND SALE OF GOODS AND INVENTORY SHALL BE I N ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSE SSEE AND IT SHOULD INCLUDE THE AMOUNT OF ANY TAX, DUTY, CESS OR FEE AC TUALLY PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION ON THE DATE OF VALUATION. BEFORE US, LD DR HAS SUBMITT ED THAT THE ARGUMENT THAT THE NON INCLUSION OF EXCISE IN STOCK IS TAX NEUTRAL WOULD NOT ARISE IN THE YEAR ITA NO 2631/ AHD/2012 . A.Y.2005- 06 7 UNDER CONSIDERATION AS IT BEING THE FIRST YEAR OF P RODUCTION AND THERE WAS NO OPENING STOCK. THE AFORESAID SUBMISSION OF THE DR C OULD NOT BE CONTROVERTED BY AR BY PLACING ANY TANGIBLE MATERIAL ON RECORD. I N VIEW OF THE AFORESAID FACTS AND SINCE THE ASSESSEE HAS NOT FOLLOWED THE M ANDATORY REQUIREMENT OF PROVISIONS OF S. 145A WE ARE OF THE VIEW THAT THE A O WAS FULLY JUSTIFIED IN RESORTING TO THE REOPENING OF ASSESSMENT. IN VIEW O F THIS LD. CIT(A) BY A WELL REASONED AND DETAILED ORDER HAS RIGHTLY UPHELD THE ORDER OF ASSESSING OFFICER AND ENHANCED THE INCOME OF THE ASSESSEE BY THE AMOU NT OF RS. 40,95,280/- AS PER THE PROVISIONS OF SECTION 145A OF THE ACT. W E FURTHER FIND THAT THE DECISIONS RELIED UPON BY THE LD AR ARE NOT APPLICAB LE TO THE FACTS OF THE CASE. IN VIEW OF THE ABOVE THESE GROUNDS OF THE ASSESSEE ARE DISMISSED. 8. IN THE RESULT, THE APPEAL OF ASSESSEE IS DISMISS ED. ORDER PRONOUNCED IN OPEN COURT ON 19 - 06 - 2014. SD/- SD/- (D.K.TYAGI) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT, AHMEDABAD