Nitrochem India Pvt. Ltd., Baroda V. The ACIT.,Cent.Circle-2, Baroda

ITA 2737/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6113 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 27-06-2011
• Assessment Year: 1996-1997
• Appeal Filed On: 05-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K GUPTA
• Keywords: Depreciation; Tax effect; Set aside
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, C BENCH (BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER) ITA NO.2737 AND 2738/AHD/2009 [ASSTT. YEAR : 1996-1997 AND 2006-2007] AND ITA NO.86, 87, 88, 89, 90 AND 91/AHD/2009 [ASSTT.YEAR : 2000-01, 2001-02, 2002-03, 2003-04, 2 004-05 AND 2005-06] NITROCHEM INDIA PVT. LTD., 74, SAMPATRAO COLONY ALKAPURI, BARODA. PAN : AAACN 7067 P VS. ACIT, CENT.CIR.2 BARODA. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MUKUND BAKSHI REVENUE BY : SHRI S.K. GUPTA O R D E R PER G.D. AGARWAL, VICE-PRESIDENT : THESE ARE EIGHT APPEALS BY THE ASSESSEE AGAINST THE ORDERS OF THE LEARNED C OMMISSIONER OF INCOME-TAX (APPEALS)-IV, AHMEDABAD FOR THE ABOVE AS SESSMENT YEARS ARISING OUT OF THE ORDERS OF THE ASSESSING OFFICER UNDER SECTION 153A(B) R.W.S. 143(3) OF THE I.T. ACT, 1961. SINCE ISSUE R AISED IN ALL THE APPEALS IS COMMON EXCEPT QUANTUM, FOR THE SAKE OF CONVENIENCE, WE DISPOSE OFF ALL THE APPEALS BY THIS CONSOLIDATED ORDER. 2. FIRST WE TAKE UP THE ASSESSEES APPEALS FOR A.Y. 1996-97 AND 2006- 2007. 3. AT THE TIME OF HEARING BEFORE US, IT WAS POINTED OUT BY THE LEARNED COUNSEL THAT THIS IS THE SECOND ROUND OF THE APPEAL AND IN THE FIRST ROUND THE MATTER WAS SET ASIDE BY THE ITAT TO THE FILE OF THE AO FOR THE LIMITED PURPOSE OF VERIFICATION AS TO WHETHER THE JOB CHARG ES PAID TO THE ASSESSEE WERE ON FOR BASIS. MEANING THEREBY THE TRANSPORTAT ION EXPENSES WAS NITROCHEM INDIA PVT. LTD. VS. ACIT -2- INCURRED BY THE ASSESSEE. HE HAS SUBMITTED THAT TH E ASSESSEE WAS DOING THE JOB WORK ON ACCOUNT OF M/S.ALEMBIC CHEMICAL WOR KS AND AS PER THE AGREEMENT WITH THEM THE ASSESSEE WAS GETTING JOB CH ARGES ON FOR BASIS. THEREFORE, THE ENTIRE TRANSPORTATION CHARGES WAS TO BE INCURRED BY THE ASSESSEE AND WHICH WERE NOT TO BE REIMBURSED BY M/S .ALEMBIC CHEMICAL WORKS. THAT DURING THE SET ASIDE PROCEEDINGS, THE ASSESSEE PRODUCED CONFIRMATION FROM ALEMBIC CHEMICALS THAT JOB WORK W AS ON FOR BASIS. THAT THE SAID SET ASIDE PROCEEDINGS WERE TAKEN UP I N THE YEAR 2006-2007 THE MATTER BEING MORE THAN 10 YEARS OLD, IT WAS NOT POSSIBLE FOR THE ASSESSEE TO PRODUCE ANY OTHER EVIDENCE. THE COPY O F THE CERTIFICATE WAS ALSO PRODUCED BEFORE US. 4. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW. 5. WE HAVE CAREFULLY CONSIDERED ARGUMENTS OF BOTH T HE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THA T THE TRANSPORT CHARGES I.E. FREIGHT EXPENSES OF RS.1,67,603/ WAS DISALLOWE D BY THE AO ON THE ONLY GROUND THAT THE ASSESSEE DID NOT PRODUCE ANY D OCUMENTARY EVIDENCE TO ESTABLISH THAT THE JOB WORK WAS ON FOR BASIS. WE FIND THAT THE ASSESSEE HAS PRODUCED A DECLARATION WHICH WAS DULY SIGNED BY M/S.ALEMBIC CHEMICALS LTD. THE DECLARATION WHICH I S SIGNED BY THE ASSESSEE AS WELL AS ALEMBIC CHEMICALS READS AS UNDE R: TO WHOMSOEVER IT MAY CONCERN THIS IS TO CERTIFY THAT REPROCESSING OF POTASSIUM ACETATE FOR THE FINANCIAL YEAR 1995-96 HAS BEEN DON E BY US ON JOB WORK BASIS FOR M/S.ALEMBIC LTD., BARODA (PREVIOUSLY ALEMBIC CHEMICAL WORKS LIMITED). NITROCHEM INDIA PVT. LTD. VS. ACIT -3- DURING THE SAID YEAR NO TRANSPORTATION CHARGES HAS BEEN REIMBURSED TO US EITHER TOWARDS TRANSPORTATION OUTWARD (I.E. LIFTING OF CRUDE MATERIAL OR TRANSPOR T INWARD (I.E. RETURN OF REPROCESSED MATERIAL FROM OU R PLANT AT ANKLESWHAR TO M/S. ALEMBIC LTD., BARODA) THE SAID JOB WORK HAS BEEN CARRIED OUT ON JOB WORK CHARGES OF RS.18,000/- PER MT FOR ALEMBIC LIMITED BARODA AND ALL TRANSPORTATION WHATSOEVER HAS NOT BEEN REIMBURSED DURING THE FINANCIAL YEAR 1995-96. FOR AKSHAY CHEMICALS (A UNIT OF NITROCHEM IDNIA LTD.) SD/- PLACE BARODA AUTHORISED SIGNATORY DATE : 30/11/2000. FOR ALEMBIC LIMITED SD/- AUTHORISED SIGNATURE. FROM THE ABOVE, IT IS EVIDENT THAT THE ASSESSEE DID THE JOB WORK FOR ALEMBIC CHEMICALS LTD., ON FOR BASIS AND NO TRANSPO RTATION CHARGES WERE SEPARATELY PAID TO THE ASSESSEE. IN VIEW OF T HE ABOVE, WE DO NOT FIND ANY JUSTIFICATION FOR THE DISALLOWANCE OF TRANSPORT ATION CHARGES OF RS.1,67,603/-. THE SAME IS DELETED AND THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO.86, 87, 88, 89, 90 AND 91/AHD/2009 FOR ASSTT.YEAR : 2000-01, 2001-02, 2002-03, 2003-04, 2004-05 AND 200 5-06: 6. THE GROUND NO.1 OF THE ASSESSEE WHICH IS COMMON FOR ALL THE YEARS UNDER APPEAL READS AS UNDER: 1. THE LD. AO HAS ERRED IN LAW AND IN FACTS IN MAK ING ADDITION OF ITEMS REFLECTED/DISCLOSED IN THE RETURN OF INCOM E FILED U/S.139. IN THE SEARCH PROCEEDINGS, NO INCRIMINATING MATERIAL W AS FOUND AND, THEREFORE, THE ASSESSMENT OF THE IMPUGNED YEAR COUL D NOT HAVE BEEN DISTURBED BY RESORTING TO THE PROCEEDINGS U/S,.153A /153C. THE NITROCHEM INDIA PVT. LTD. VS. ACIT -4- ADDITIONS THUS MADE BEING CONTRARY TO LAW AND FACTS IS PRAYED TO BE DELETED. 7. AT THE TIME OF HEARING BEFORE US, THE LEARNED CO UNSEL FOR THE ASSESSEE DID NOT PRESS THE GROUND NO.1 OF THE ASSES SEES APPEAL. ACCORDINGLY, THE GROUND NO.1 OF THE ASSESSEES APPE AL FOR ALL THE YEARS I.E. A.Y.2000-2001 TO 2006-2007 IS REJECTED. 8. GROUND NO.2 OF THE ASSESSEES APPEAL IS COMMON F OR ALL THE YEARS. WE THEREFORE REPRODUCE HEREINBELOW GROUND NO.2 OF T HE ASSESSEES APPEAL FOR A.Y.2000-2001. 2. THE LD.CIT(A) HAS ERRED IN FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN MAKING AN ADDITION OF RS.62,995 /- BEING THE AMOUNT OF EXCISE DUTY, WHICH ACCORDING TO THE AO IS REQUIRED TO BE INCLUDED IN THE VALUE OF CLOSING STOCK OF FINISHED GOODS. THE ADDITION OF RS.62,995/- BEING ERRONEOUS IN FACTS AN D IN LAW IS PRAYED TO BE DIRECTED TO BE DELETED. 9. IN A.Y.2001-2002 TO 2006-2007, SIMILAR GROUND IS RAISED WITH VARIATION IN AMOUNT OF ADDITION. THE DETAILS OF WH ICH IS AS UNDER: ASSTT.YEAR AMOUNT (RS.) 2001-02 2,28,350/- 2002-03 73,806/- 2003-04 1,34,554/- 2004-05 1,71,196/- 2005-06 1,37,391/- 2006-07 87,970/- 10. AT THE TIME OF HEARING BEFORE US, IT IS STATED BY THE LEARNED COUNSEL THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE IN THE CASE OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF AC IT VS. NARMADA CHEMATUR PETROCHEMICALS LTD., 327 ITR 369 AND ALSO THE DECISION OF THE ITAT IN THE CASE OF ASIAN TUBES LTD. VS. DCIT, ITA NO.1358/AHD/2009 NITROCHEM INDIA PVT. LTD. VS. ACIT -5- WHEREIN THE ABOVE DECISION OF THE HONBLE JURISDICT IONAL HIGH COURT WAS FOLLOWED. THE LEARNED DR, ON THE OTHER HAND, STATE D THAT THE ABOVE DECISION OF THE GUJARAT HIGH COURT WAS PRIOR TO INS ERTION OF SECTION 145A. THE EXCISE DUTY IS LIABLE TO BE INCLUDED IN THE VAL UATION OF THE CLOSING STOCK. IN SUPPORT OF THIS CONTENTION, HE RELIED UP ON THE DECISION OF THE ITAT, MUMBAI BENCH IN THE CASE OF WEST COAST PAPER MILLS LTD., VS. ACIT, ITA NO.3187/MUM/2003. 11. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF B OTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THA T THE HONBLE JURISDICTIONAL HIGH COURT HAS CONSIDERED THE IDENTI CAL ISSUE IN THE CASE OF NARMADA CHEMATUR PETROCHEMICALS LTD. (SUPRA) AND HE LD AS UNDER: ONE READS S. 3(1) OF THE EXCISE ACT IN ISOLATION, IT APPEARS TO INDICATE THAT THE CHARGE IS LEVIED IN S 3 AND THE LIABILITY STANDS INCURRED UPON MANUFACTURE OF EXCISABLE GOODS AT THE RATES SET OUT IN FIRST SCHED ULE TO THE CENTRAL EXCISE TARIFF ACT, 1985. HOWEVER, TH OUGH THE OPENING PORTION OF SUBS. (1) STATES THAT THERE SHALL BE LEVIED AND COLLECTED, THERE IS NO OTHER PROVISION FOR COLLECTION IN THE SAID SECTION AND TH E MANNER OF COLLECTION AS WELL AS LEVY ARE FOUND IN T HE RULES AS PRESCRIBED. IT MAY INDICATE THAT S. 4 WOUL D BE A STANDALONE PROVISION, BUT WHEN ONE READS THE S AID PROVISION IT BECOMES CLEAR THAT THE LEVY IS INCOMPL ETE, IN AS MUCH AS THE ASSESSEE UNDER THE EXCISE ACT IS NOT REQUIRED TO DISCHARGE THE LIABILITY TO PAY DUTY LEV IED UPON THE MANUFACTURE OF EXCISABLE GOODS, TILL SUCH GOODS ARE REMOVED FROM THE FACTORY PREMISES, OR A BONDED WAREHOUSE. THE TEST TO DETERMINE AS TO WHETH ER THE LIABILITY HAD BEEN INCURRED OR NOT WOULD BE AS TO WHETHER A CORRESPONDING RIGHT IS AVAILABLE WITH THE EXCISE AUTHORITY TO ENFORCE SUCH A LIABILITY. MERE PRODUCTION OR MANUFACTURE BY ITSELF WOULD NOT BE SUFFICIENT. THOUGH THERE MIGHT BE LEVY UNDER S. 3 O F THE EXCISE ACT, YET NEITHER THE RATE NOR THE VALUE WOULD BE DETERMINABLE TILL THE POINT OF TIME OF REMOVAL OF THE EXCISABLE GOODS FROM THE FACTORY PREMISES AND HENCE THE SCHEME ITSELF INDICATES THAT SO FAR AS AN ASSESSEE IS CONCERNED, HE INCURS LIABILIT Y TO PAY EXCISE DUTY ONLY UPON BOTH THE EVENTS TAKING PL ACE, NAMELY MANUFACTURE OF EXCISABLE GOODS AND REMOVAL O F EXCISABLE GOODS. THIS POSITION HAS TO BE NECESSARIL Y NITROCHEM INDIA PVT. LTD. VS. ACIT -6- ADOPTED CONSIDERING THAT THE DUTY OF CENTRAL EXCISE IS LEVIED AND COLLECTED ON AN AD VALOREM BASIS. IN OTH ER WORDS, UNLESS AND UNTIL THE VALUE IS KNOWN, THE LEV Y AND THE COLLECTION WOULD NOT BE CORRECT AND VALID. THE DUTY IS LEVIABLE AND IS ACTUALLY IMPOSED ON THE TRANSACTION VALUE DEFINED IN SUB-S. (3)(D) OF S. 4 OF THE EXCISE ACT. IN THESE CIRCUMSTANCES, IT IS NOT POSSIBLE TO STATE THAT UNDER THE EXCISE ACT, THE DU TY HAS BECOME DUE AND PAYABLE ONLY BY OPERATION OF S. 3 SIMPLICITER. IF S. 3 OF EXCISE ACT IS CONSIDERED TO BE THE ONLY CHARGING SECTION AND S. 4 OF THE EXCISE AC T IS CONSIDERED AS ONLY A PROVISION FOR ASSESSMENT, THE CHARGE LEVIED BY S. 3 OF THE EXCISE ACT CANNOT BE BROUGHT HOME. SECS. 3 AND 4 HAVE TO BE READ TOGETHE R TO BRING THE CHARGE HOME. THE CHARGE IS PARTIALLY EMBEDDED IN BOTH THE PROVISIONS. IT IS IN THIS CONT EXT THAT ONE FINDS VARIOUS JUDGMENTS IN RELATION TO DISPUTES RAISED ON THE BASIS OF A PARTICULAR CUT-OF F DATE SAY, 28TH FEBRUARY OR 1ST MARCH QUA THE GOODS ALREADY MANUFACTURED AND LYING IN STOCK UPTO 28TH FEBRUARY WHICH BECOME AMENABLE TO DUTY OF CENTRAL EXCISE ONLY UPON THE POINT OF TIME OF REMOVAL, NAMELY, AFTER 1ST MARCH. THEREFORE, TO READ PROVISIONS OF S. 3 OF THE EXCISE ACT TO BE A COMPLE TE PROVISION FOR THE PURPOSES OF CHARGING DUTY OF CENT RAL EXCISE WOULD NOT BE A FULLY CORRECT PROPOSITION OF LAW. UNDER A TAXING STATUTE WHEN A CHARGE IS FASTENED, T HE PURPOSE IS TO COLLECT TAX. A LEVY IS FOR THE PURPOS ES OF IMPOSING A TAX OR A DUTY, BY WHATEVER NAME CALLE D, AND FOR THE PURPOSES OF COLLECTION OF SUCH IMPOST. A STATE CANNOT BE INTERESTED IN A LEVY WHICH DOES NOT RESULT IN INFLOW OF REVENUE TO THE EXCHEQUER. THE POSITION IN LAW IS, THEREFORE, THAT FOR THE PURPOSE S OF LEVY AND COLLECTION OF DUTY OF CENTRAL EXCISE, THE PROVISIONS OF EXCISE ACT READ WITH RULES THEREU NDER EVOLVE A SELF-CONTAINED SCHEME UPON A CONJOINT READ ING OF SS. 3 AND 4 OF THE EXCISE ACT WITH RR. 9 AND 9A OF THE CENTRAL EXCISE RULES. THEN, FOR THE PURPOSES OF THE ACT, NAMELY, IT ACT, THE POSITION IN LAW CANNOT BE DIFFERENT. AN INTERPRETATION OF A PARTICULAR STATUT E SHOULD NOT ORDINARILY BE IN CONFLICT WITH ANOTHER STATUTE UNLESS AND UNTIL SPECIFICALLY PROVIDED SO BY THE OTHER STATUTE. THE ACT DOES NOT PROVIDE FOR ANY CONTRARY INTERPRETATION, I.E., WHAT IS CONTRARY TO THE POSITION PREVAILING UNDER THE EXCISE LAW. TH E POINT OF TIME OF REMOVAL OF EXCISABLE GOODS IS THE POINT OF TIME WHEN THE LIABILITY TO PAY CENTRAL EXC ISE DUTY IS INCURRED RESULTING IN CORRESPONDING RIGHT U NDER LAW IN THE EXCISE DEPARTMENT TO TAKE STEPS TO EFFEC T RECOVERY IF THE LIABILITY IS NOT DISCHARGED. TILL T HAT POINT OF TIME LIABILITY TO PAY DUTY OF CENTRAL EXCI SE CANNOT BE STATED TO HAVE BEEN INCURRED IN LAW AS TH E SAME IS NOT DUE AND PAYABLE. NITROCHEM INDIA PVT. LTD. VS. ACIT -7- ON BEHALF OF THE REVENUE RELIANCE HAS ALSO BEEN PLA CED ON PROVISIONS OF S. 145A WHICH HAS BEEN INSERTED BY FINANCE (NO. 2) ACT, 1998, W.E.F. 1ST APRIL, 1999. THE ASSESSMENT YEAR BEING 1997-98 THE SAID PROVISION CA NNOT BE INVOKED. THOUGH THE BILL PROPOSED RETROSPECTIVE INSERTION ULTIMATELY THE SECTION HAS COME ON THE STATUTE BOOK ONLY FROM 1ST APRIL, 1999. WHAT IS MOR E MATERIAL IS THAT THE SAME RELATES TO INCLUSION IN T HE VALUE OF INVENTORY THE AMOUNT OF ANY TAX, DUTY ETC. PAID OR LIABILITY INCURRED FOR THE SAME UNDER ANY L AW IN FORCE. MEANING THEREBY SUCH TAX, DUTY, ETC. SHOULD HAVE BEEN ACTUALLY PAID OR SHOULD BE ACTUALLY DUE AND PAYABLE UNDER THE LAW APPLICABLE TO SUCH TAX, DUTY, ETC. IN FORCE. OTHERWISE EVEN S. 145A WILL ALSO NOT CARRY CASE OF REVENUE ANY FURTHER. THE TRIBUNAL WAS THEREFORE JUSTIFIED IN LAW IN EXCLUDING THE EXCISE DUTY AT THE TIME OF VALUATION OF THE CLOSING STOCK OF FINISHED GOODS AT THE END OF THE ACCOUNTING PERIOD. FROM THE ABOVE, IT IS EVIDENT THAT THEIR LORDSHIPS HAVE EXAMINED THE LIABILITY OF THE ASSESSEE TO THE EXCISE DUTY AND HA VE ARRIVED AT THE CONCLUSION THAT THE LIABILITY OF EXCISE DUTY IS INC URRED ONLY WHEN TWO EVENTS TAKES PLACE, VIZ. MANUFACTURER OF EXCISABLE GOODS AND ALSO REMOVAL OF EXCISABLE GOODS. THEIR LORDSHIPS HAVE ALSO EXAMI NED THE SECTION 145A AND HAVE HELD THAT THE SECTION 145A WILL BE AP PLICABLE FROM A.Y.1999-2000 AND HAS ALSO EXAMINED UNDER WHAT CIRC UMSTANCES SECTION 145A WOULD BE APPLICABLE. THEIR LORDSHIPS HELD THA T THE SECTION 145A WOULD BE APPLICABLE WHEN THE LIABILITY OF THE TAX O R DUTY IS ACTUALLY PAID OR ACTUALLY DUE AND PAYABLE AS PER THE LAW. HOWEVE R, SINCE THE LIABILITY OF EXCISE DUTY IS DUE AND PAYABLE ONLY UPON THE REMOVA L OF THE EXCISABLE GOODS, NO LIABILITY IS INCURRED BY THE ASSESSEE DUR ING THE YEAR UNDER CONSIDERATION WITH REGARD TO CLOSING STOCK. SINCE NO LIABILITY IS INCURRED BY THE ASSESSEE, THE SAME CANNOT BE INCLUDED IN THE VALUATION OF THE CLOSING STOCK EVEN AFTER THE APPLICABILITY OF SECTI ON 145A. NITROCHEM INDIA PVT. LTD. VS. ACIT -8- 12. THE LEARNED DR HAS RELIED UPON THE ORDER OF THE ITAT, MUMBAI BENCH IN THE CASE OF WEST COAST PAPER MILLS LTD. (S UPRA) WHEREIN THE ITAT HELD AS UNDER: THE PROVISION OF S. 145A IN A WAY SEEKS TO RECOGNIZE AND MAKE IT COMPULSORY TO VALUE THE STOCK IN AN INCLUSIVE METHOD AS AGAINST THE PREVAILING PRACTICE OF VALUING THE SAME BY EXCLUSIVE METHOD. AS A RESULT OF THIS AMENDMENT, THE PURCHASES AND SALES AS WELL AS INVENTORY SHALL ALWAYS INCLUDE THE ELEMENT OF TAX, DUTY, CESS OR FEE PAID. THEREFORE, IN THE YEAR WHE N THE PROVISIONS ARE IMPLEMENTED FOR THE FIRST TIME, THERE IS BOUND TO BE AN IMPACT IN THAT YEAR, WHEREAS IN T HE SUBSEQUENT YEAR WHATEVER VALUATION IS PUT TO THE CL OSING STOCK WILL SURFACE AS OPENING STOCK AND THEREBY A D EBIT TO THAT YEARS P&L A/C. IN OTHER WORDS, THE CHANGED M ETHOD WILL HAVE NEUTRAL TAX EFFECT OVER THE YEARS. ONLY THE METHOD OF VALUATION OF THE CLOSING STOCK GETS SWITC HED OVER FROM EXCLUSIVE METHOD TO INCLUSIVE METHOD. IF THE ASSESSEE IS ALLOWED TO ADJUST THE OPENING STOCK OF THE YEAR IN QUESTION THEN IT WOULD AMOUNT TO DISTORTION OF THE VALUE OF THE CLOSING STOCK OF THE EARLIER YEAR. UN LESS SUCH ADDITION IS MADE IN THE EARLIER YEAR, THE DEBI T TO THIS YEARS P&L A/C. BY MEANS OF ADDITION TO THE OP ENING STOCK WILL REDUCE THE TAXABLE INCOME AND WILL ONLY RESULT IN NOT APPLYING THE PROVISIONS OF S. 145A IN THE YE AR IN QUESTION. THE PROVISIONS, AS INTRODUCED WILL HAVE ONLY TO TAKE INTO CONSIDERATION THE ELEMENT OF THE TAX, DUT Y, CESS OR FEE PAID IN THE SALES, PURCHASES AND INVENTORY. IT WILL NOT HAVE IMPACT ON THE CLOSING STOCK CARRIED F ORWARD BECAUSE WHAT CAN BE DEBITED TO THIS YEAR'S P&L A/C IS THE CLOSING STOCK OF THE EARLIER YEAR. THERE CAN BE NO EXCEPTION TO THE RULE THAT THE CLOSING STOCK OF THE EARLIER YEAR WILL HAVE TO BE NECESSARILY THE OPENIN G STOCK OF THIS YEAR. NOTWITHSTANDING WHAT S CONTAINE D IN S. 145, THE PROVISIONS OF S. 145A SHALL PREVAIL. TH E SUM AND SUBSTANCE OF THAT INTENT CAN ONLY BE ACHIEVED BY MAKING AN ADDITION TO THE VALUE OF THE CLOSING STOC K BY ITS ELEMENT OF TAX, DUTY, CESS OR FEE, ETC., AND NO T BY ALTERING THE OPENING STOCK. WHENEVER THE ASSESSEES CHANGED THEIR METHOD OF ACCOUNTING FROM ONE RECOGNIZED METH OD TO ANOTHER RECOGNIZED METHOD, THERE IS BOUND TO BE TAX EFFECT IN THE YEAR OF CHANGE. BUT, OVER THE YEAR IT IS TAX NEUTRAL. ON THE SAME ANALOGY, WHEN THE LEGISLAT URE HAS IMPOSED A NEW SYSTEM OF VALUING THE CLOSING STO CK IT IS BOUND TO HAVE AN IMPACT IN THAT YEAR, BUT BECOME S NEUTRAL IN NATURE IN THE SUBSEQUENT YEAR. HOWEVER, FROM THE PERUSAL OF THE ABOVE DECISION, IT IS EVIDENT THAT IN THE ABOVE CASE, THERE WAS NO DISPUTE WITH REGARD TO THE ADDITION TO THE CLOSING NITROCHEM INDIA PVT. LTD. VS. ACIT -9- STOCK BUT THE DISPUTE BEFORE THE ITAT WAS WHETHER T HE CORRESPONDING CHANGE IS TO BE MADE IN THE VALUATION OF THE OPENIN G STOCK WHICH THE LEARNED MEMBERS OF THE ITAT REFUSED AND HELD THAT T HE OPENING STOCK IS NOT REQUIRED TO BE REVALUED. THEREFORE, THE ABOVE DECISION OF THE ITAT WOULD NOT BE APPLICABLE TO THE CASE UNDER APPEAL BE FORE US. IN ANY CASE, THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED B Y THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT WHICH IS BINDING UPON US. WE THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF T HE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF NARMADA CHEMATUR PETROCHE MICALS LTD. (SUPRA) ALLOW GROUND NO.2 OF THE ASSESSEES APPEAL IN ALL T HE YEARS. 13. GROUND NO.3 OF THE ASSESSEES APPEAL FOR ALL TH E YEARS IS AGAINST THE DISALLOWANCE OUT OF TELEPHONE EXPENSES, WHICH READS AS UNDER: ASSTT.YEAR AMOUNT (RS.) 2000-01 7,184 2001-03 9,387 2002-04 8,300/- 2003-05 7,396/- 2004-06 6,181/- 2005-07 6,520/- 14. AT THE TIME OF HEARING BEFORE US, THE LEARNED C OUNSEL FOR THE ASSESSEE HAS NOT PRESSED THIS GROUND OF THE APPEAL, ACCORDINGLY, THIS GROUND OF THE ASSESSEES APPEAL IS REJECTED AND DIS ALLOWANCE OUT OF TELEPHONE EXPENSES IS SUSTAINED. 15. IN ASSTT.YEAR 2002-03 TO 2006-2007, THERE IS ON E MORE GROUND WHICH IS AGAINST DISALLOWANCE OUT OF DEPRECIATION. WE REPRODUCE THE GROUND FOR A.Y.2002-2003, WHICH READS AS UNDER: 3. THE LD.CIT(A) HAS ERRED IN FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING AN AMOUNT OF RS.4,5 0,671/- OUT OF NITROCHEM INDIA PVT. LTD. VS. ACIT -10- DEPRECIATION RELATABLE TO PLANT AND MACHINERY, FACT ORY BUILDING AND FURNITURE & FIXTURE ON THE GROUND THAT THE APPE LLANT COMPANY COULD NOT PRODUCE BILLS OR OTHER CORROBORATIVE EVID ENCES. THE DISALLOWANCE OF RS.4,50,671/- BEING ERRONEOUS IN FA CTS AND IN LAW IS PRAYED TO BE DIRECTED TO BE ALLOWED AS CLAIMED. 16. IN ASSTT.YEAR 2002-03 TO 2006-2007, THE SAME GR OUND IS RAISED WITH VARIATION IN THE DISALLOWANCE OF DEPRECIATION. THE DETAILS OF WHICH ARE AS UNDER: ASSTT.YEAR AMOUNT (RS.) 2003-04 RS.3,38,964/- 2004-05 RS.2,54,808/- 2005-06 RS.1,91,633/- 2006-07 RS.87,658/- 17. AT THE TIME OF HEARING BEFORE US, THE LEARNED C OUNSEL FAIRLY CONCEDED THAT THE DISALLOWANCE OUT OF DEPRECIATION IS ONLY CONSEQUENCE TO SIMILAR DISALLOWANCE OUT OF DEPRECIATION IN THE EAR LIER YEAR. IN THE EARLIER YEAR, THIS ISSUE IS SETTLED AGAINST THE ASSESSEE BY THE DECISION OF THE ITAT. HE THEREFORE FAIRLY ADMITTED THAT THIS GROUND IS TO BE ADJUDICATED AGAINST THE ASSESSEE. IN VIEW OF FAIR ADMISSION ON THE PAR T OF THE LEARNED COUNSEL, THE DISALLOWANCE OUT OF DEPRECIATION FOR A.Y.2002-0 3 TO 2006-2007 IS SUSTAINED. 18. TO SUMMARIES - I) ASSTT.YEAR 1996-97, DISALLOWANCE OF FREIGHT EXPENSE S IS DELETED; II) ASSTT.YEAR 2000-01 TO 2006-07 ADDITION TO THE VALUA TION OF THE CLOSING STOCK ON ACCOUNT OF EXCISE DUTY IS DELE TED; III) ALL OTHER GROUNDS FOR A.Y.2000-2001 TO 2006-07 ARE REJECTED. NITROCHEM INDIA PVT. LTD. VS. ACIT -11- 19. IN THE RESULT, ASSESSEES APPEAL FOR A.Y.1996-9 7 IS ALLOWED AND A.Y.2000-2001 TO 2006-2007 ARE PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 8 TH JULY, 2011 SD/- SD/- (MUKUL KR. SHRAWAT) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 08-07-2011 C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD