PANAMA PETROCHEM LTD, MUMBAI V. DCIT CIR 7(1), MUMBAI

ITA 3409/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55753 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 31-10-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 30-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANTAM BOSE
• Assessee Lawyers: ANIL R SHAH
• Keywords: Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI C BENCH BEFORE SHRI D. MANMOHAN, VICE PRESIDENT & BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NO.3409/MUM/2010 A.Y 2006 07. PANAMA PETROCHEM LIMITED, 3,MAHAVIR DARSHAN, 416, NARSHI NATHA STREET, MUMBAI 400 009. PAN: AACCP 4358 D VS. DY. COMMISSIONER OF I.T., CIRCLE 7(1), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANIL R. SHAH. RESPONDENT BY : SHRI SANTAM BOSE. DATE OF HEARING: 01-11-2011 DATE OF PRONOUNCEMENT: 4-11-2011 O R D E R PER T.R.SOOD, AM: IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWI NG GROUNDS: THE LEARNED CIT(A) HAS ERRED IN NOT ALLOWING DEDUCT ION OF RS.52,352 BEING CONTRIBUTION MADE BY YOUR APPELLANT TO PROVID ENT FUND. IT IS SUBMITTED THAT AS PER THE PROVISIONS OF LAW S INCE THE ENTIRE AMOUNT OF PROVIDENT FUND IS PAID/DEPOSITED BEFORE F ILING RETURN OF INCOME THE CIT(A) OUGHT TO HAVE DELETED THE ENTIRE DISALLOWANCE OF RS.52,352. 2) (A) THE LEARNED CIT(A) HAS ALSO ERRED IN NOT DEL ETING RS.46,8 1,360 ADDED BY THE ASSESSING OFFICER ULS.145A ASSUMING IT TO BE BALANCE OF CENVAT CREDIT UNUTILIZED AND DIRECTING THE ASSESSI NG OFFICER TO REWORK THE ADDITION WHICH IS ERRONEOUS BOTH ON POIN T OF LAW AND ON POINT OF FACT. (B) YOUR APPELLANT SUBMITS THAT ON FACTS OF THE CAS E AND AS PER THE CLEAR CUT PROVISIONS OF LAW THE APPELLANT HAVING VA LUED THE CLOSING STOCK ON A CONSISTENT AND THE SAME METHOD OF ACCOUN TING FROM YEAR TO YEAR AND ALSO IN THE YEAR UNDER APPEAL, THE LEARNED CIT(A) OUGHT TO HAVE DELETED THE ENTIRE DISALLOWANCE ULS.145A OF RS .46,81,360 MADE BY THE ASSESSING OFFICER PARTICULARLY KEEPING IN MI ND THERE NOT BEING BALANCE OF CENVAT CREDIT UNUTILIZED AS ALLEGED BY THE ASSESSING OFFICER. IT IS THEREFORE SUBMITTED THAT RELIEF CLAIMED ABOVE BE ALLOWED AND THE ORDER OF THE ASSESSING OFFICER BE MODIFIED ACCORDIN GLY. ITA NO.3409 OF 10 2 2. GROUND NO.1 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURIN G THE ASSESSMENT PROCEEDINGS AO NOTICED THAT IN THE T AX AUDIT REPORT IT HAS BEEN MENTIONED THAT A SUM OF RS.52,352/- ON ACC OUNT OF EMPLOYEES SHARE OF P.F. HAS BEEN PAID LATE. THEREF ORE, THIS CLAIM WAS DISALLOWED. 3. BEFORE THE LD. CIT(A) IT WAS POINTED OUT THAT TH E CORRECT AMOUNT IS RS.42,325/- AND NOT RS.52,352/-. THIS ASPECT WAS SENT BACK TO THE AO FOR VERIFICATION. IT WAS FURTHER ARGUED THAT THE AMOUNT WAS ACTUALLY PAID ON 20-10-2005 AND DUE DATE OF THE SAME WAS 15- 10-2005. THUS, PAYMENT WAS MADE LATE BY FIVE DAYS WHICH IS COVERED BY THE GRACE PERIOD AND, THEREFORE, THIS DISALLOWANCE SHOULD NOT BE MADE. HOWEVER, LD. CIT(A) DID NOT AGREE WITH THIS SUBMISSION. 4. WE HAVE HEARD BOTH THE PARTIES AND FIND THAT SIN CE PAYMENT HAS BEEN MADE LATE BY FIVE DAYS I.E. WITHIN THE GRACE P ERIOD, THEREFORE, NO DISALLOWANCE COULD HAVE BEEN MADE. THE HON'BLE MADR AS HIGH COURT IN THE CASE OF CIT VS. SHRI GANAPATHY MILLS COMPANY LT D. [243 ITR 879] HAS HELD AS UNDER: HELD, (I) THAT THE TRIBUNAL WAS RIGHT IN HOLDING THAT THE PAYMENTS TOWARDS PROVIDENT FUND AND EMPLOYEES STATE INSURANC E HAVING BEEN MADE WITHIN THE GRACE TIME ALLOWED UNDER THE RELEVA NT STATUTE, THOSE AMOUNTS WERE REQUIRED TO BE DEDUCTED IN THE COMPUTA TION OF THE TAXABLE INCOME OF THE ASSESSEE. NO QUESTION OF LAW AROSE FROM ITS ORDER. THEREFORE, FOLLOWING THE ABOVE DECISION, WE DELETE THE DISALLOWANCE. 5. GROUND NO.2 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURIN G THE ASSESSMENT PROCEEDINGS AO NOTICED THAT AS PER T AX AUDIT REPORT A CENVAT OF RS.13,80,56,920/- WAS AVAILED DURING THE YEAR. FURTHER AS ITA NO.3409 OF 10 3 PER SIGNIFICANT ACCOUNTING POLICY RAW MATERIALS WER E VALUED AT COST ON FIRST IN FIRST OUT BASIS AFTER ADJUSTING CENVAT CRE DIT/COUNTER VEILING DUTY AND SALES TAX SET OFF. HE FURTHER NOTICED THAT THE BALANCE IN CENTRAL EXCISE ACCOUNT AMOUNTING TO RS.46,81,360/- IS REQUIRED TO BE ADDED BY WAY OF ADJUSTMENT WHICH WAS WORKED OUT AS UNDER: OPENING CR.BALANCE WITH EXCISE 7324453 CENVAT CR. AVAILED DURING THE YEAR 138956920 146281373 LESS: UTILISED (BALANCING FIGURE) -141600013 4681360 6. THE LD. CIT(A) DECIDED THE ISSUE AS UNDER: 4.1 SECTION 145A INSERTED W.E.F 1.4.99 READS AS UND ER: THE VALUATION OF PURCHASE AND SALE OF GOODS AND INV ENTORY FOR PURPOSES OF THE DETERMINING THE INCOME CHARGEABLE U NDER THE HEAD PROFITS AND GAINS OF BUSINESS OF PROFESSIONA L SHALL BE- (A) IN ACCORDANCE WITH THE METHOD OF ACCOUNTING RE GULARLY 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 I NCURRED 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, AN Y 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 CONSEQUENCE TO SUCH PAYMENT. ACCORDINGLY, IN THE LIGHT OF THE PROVISIONS U/S.14 5A, THE ASSESSEE MUST HAVE PREPARED ITS PROFIT AND LOSS ACC OUNT BY INCLUDING THE ELEMENT OF DUTY AS UNDER OPENING STOCK SHOWN BY THE ASSESSEE (ADD: MODVAT (TO BE ADDED IN RESPECT OF RAW MATERIALS) +EXCISE LEVIABLE ON FINISHED GOODS.) SALES + EXCISE DUTY COLLECTED BY THE ASSESSEE. PURCHASES + EXCISE DUTY PAID BY THE ASSESSEE ON THESE PURCHASES ADD: CENVAT SET-OFF/UTILIZED ON MATERIALS CONSUMED CLOSING STOCK [ADD: MODVAT (TO BE INCLUDED IN RESPECT OF RAW MATERIALS -- EXCISE LEVIABLE ON FINISHED GOODS)] PROFIT SHOWN + *RESULTANT OF ABOVE CHANGES IT IS THEREFORE HELD AS UNDER: ITA NO.3409 OF 10 4 I)* RESULTANT CHANGE, IF ANY , WILL HAVE TO BE ADDED TO THE ASSESSEES INCOME. II) THE ADDITION ON ACCOUNT OF DUTY FOLLOWING THE PROVISIONS OF 45A PRINCIPALLY IS CALLED FOR. HOWEVER, THE A.O SHOULD AN ADJUSTMENT IN THE OPENING STOCK/ PURCHASES. THE VIE W HAS ALSO BEEN CONFIRMED IN THE CASE OF CIT VS. MAHAVIR ALUMI NIUM LTD, 297 ITR 77 (DEL). THEREFORE WHERE EXCLUSIVE ME THOD IS FOLLOWED THEN THE MODVAT ELEMENT WHICH IS REQUIRED TO BE ADDED IN THE CLOSING STOCK SHOULD BE THE SAME AS TH E MODVAT CREDIT YET TO BE AVAILED ON ACCOUNT OF PURCHASES SH OWN IN THE BALANCE SHEET, NO ADDITION ON ACCOUNT OF APPLICABIL ITY SEC. 145A COULD BE MADE. HOWEVER, IF THE MODVAT ELEMENT IS TO BE INCLUDED IN THE CLOSING STOCK, IS MORE THAN THE MOD VAT BALANCE AVAILABLE IN THE MODVAT CREDIT ACCOUNT OCCURRING ON THE ASSET SIDE OF THE BALANCE SHEET, THE BALANCE IS REQUIRED TO BE ADDED. III) THE A.O IS DIRECTED TO VERIFY THESE FACTS AN D FIGURES AND MAKE ADDITION AS PER AFORESAID DIRECTIONS. 7. BEFORE US IT WAS MAINLY SUBMITTED THAT ASSESSEE WAS CONSISTENTLY FOLLOWING THIS METHOD OF ACCOUNTING AN D, THEREFORE, NO ADJUSTMENT WAS REQUIRED. IN ANY CASE, IF ADJUSTMENT HAS TO BE MADE THEN OPENING STOCK HAS ALSO TO BE ADJUSTED AND IN T HIS REGARD RELIANCE WAS PLACED ON THE DECISION OF THE ITAT MUMBAI IN TH E CASE OF ACIT VS. KUNKEL WAGNER (I) (P) LTD. [46 SOT 120] (MUM). 8. ON THE OTHER HAND, LD. DR SUBMITTED THAT SINCE T HERE IS A CLEAR MANDATE OF SEC.145A TO INCLUDE EXCISE DUTY IN THE V ALUE OF INVENTORY, THEREFORE, ADJUSTMENT MADE WAS JUSTIFIED. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT ADJUSTMENT HAS TO BE MADE IN TERMS OF SEC.145A. HOW EVER, AT THE SAME TIME, IF SUCH ADJUSTMENT IS MADE, THEN OPENING STOCK IS ALSO REQUIRED TO BE ADJUSTED. IN THE CASE OF ACIT VS. KU NKEL WAGNER (I) (P) LTD., [SUPRA] IT WAS HELD AS UNDER: I. SECTION 145A OF THE INCOME-TAX ACT, 1961 - MET HOD OF ACCOUNTING - IN CERTAIN CASES - ASSESSMENT YEAR 20 01-02 - WHETHER ADJUSTMENT ON ACCOUNT OF UNUTILIZED MODVAT CREDIT ITA NO.3409 OF 10 5 UNDER PROVISIONS BE MADE IN OPENING STOCK-HELD, YE S -ASSESSEE HAD BEEN FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING AS PER WHICH MODVAT DEBITS/CREDITS WERE NOT ROOTED THROUGH TRAD ING ACCOUNT - ASSESSEE HAD NOT INCLUDED UNUTILIZED MODVAT CREDIT IN VALUATION OF CLOSING STOCK ASSESSING OFFICER OBSERVED THAT NO ADJUSTMENT WAS REQUIRED TO BE MADE ON ACCOUNT OF OPENING STOC K AND MADE ADDITION- WHETHER SINCE IN THIS CASE AFTER MAKING ADJUSTMENT TO OPENING STOCK, THERE WAS NO ADDITION REQUIRED TO B E MADE, ASSESSING OFFICER WAS UNJUSTIFIED IN MAKING ADDITI ON WITHOUT MODVAT ADJUSTMENT TO OPENING STOCK HELD, YES FOLLOWING THE ABOVE DECISION, WE SET ASIDE THE ORDE R OF THE LD. CIT(A) AND REMIT THE ISSUE TO THE FILE OF THE AO FOR MAKIN G ADJUSTMENT AFTER CONSIDERING THE ADJUSTMENT OF OPENING STOCK AS HELD BY THE TRIBUNAL IN THE CASE OF ACIT VS. KUNKEL WAGNER (I) (P) LTD., [S UPRA]. 10. IN THE RESULT, APPEAL IS PARTLY ALLOWED FOR STA TISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 4/11/2011. SD/- SD/- (D.MANMOHAN) (T.R.SOOD) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI: 4/11/2011. P/-*