The Dy.Commissioner of Income Tax, Circle-1(1)(1), Ahmedabad V. M/s. Adani Petronet( Dahej) Pvt. Ltd., Ahmedabad

ITA 3459/AHD/2015

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6348 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 10-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APARNA A GARWAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Depreciation; Earning of tax free income; Deemed to accrue or arise in india; Cost of acquisition; Revenue expenditure; Capital expenditure; Rule 8D
• Section: 43B; 14A; 115JB; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH (BEFORE SHRI PRAMOD KUMAR, VICE PRESIDENT & SHRI MAHAVIR PRASAD, JUDICIAL MEMBE R) ITA. NO: 3459/AHD/2015 (ASSESSMENT YEAR: 2011-12) DCIT, CIRCLE-1(1)(1), AHMEDABAD V/S M/S. ADANI PETRONET (DAHEJ) PVT. LTD. ADANI HOUSE, NR. MITHAKHALI SIX ROAD, NAVRANGPURA, AHMEDABAD-380009 (APPELLANT) (RESPONDENT) PAN: AAECA 5046R APPELLANT BY : SHRI MUDIT NAGPAL, SR. DR AND SMT. APARNA AGARWAL, CIT/DR RESPONDENT BY : SHRI S. N. SOPARKAR & PARIN SHAH, A.R. ( )/ ORDER DATE OF HEARING : 01 -11-201 8 DATE OF PRONOUNCEMENT : 01 -02-2019 PER MAHAVIR PRASAD, JUDICIAL MEMBER 1. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE LD. CIT(A)-1, AHMEDABAD DATED 30.09.2015 PERTAINING TO A.Y. 2011-12 AND FOLLOWING GROUNDS HAVE BEEN TAKEN: ITA NO. 3459 /AHD/2015 . A.Y. 2011-1 2 2 1. THE LD, CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.14,69,47,567/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF UNUTILIZED CENVAT CREDIT BY FOLLOWING THE EXCLUSIVE METHOD FOR ACCOUN TING CENVAT AS AGAINST THE INCLUSIVE METHOD MANDATED UNDER SECTION 145A OF THE I. T. ACT. 2. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING THE DISALLOWANCE OFRS.36,64,551/- MADE BY THE AO WITH RESPECT OF LEA SEHOLD LAND WHEN THERE IS NO SUCH PROVISION IN THE INCOME TAX ACT TO ALLOW DEPRE CIATION OR AMORTIZATION ON SUCH LEASEHOLD LAND. 3. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING THE DISALLOWANCE OF RS.13,28,114/- MADE BY THE ASSESSING OFFICER U/S,14 A READ WITH RULE 8D OF THE IT. ACT. 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.13,28,114/- MADE BY THE ASSESSING OFFICER U/S 14 A R.W. RULE 8D OF THE I. T. ACT WHILE COMPUTING THE BOOK PROFIT U/S.115JB OF THE AC T . 2. 'ON. EXAMINATION OF COLUMN NO. 22(A) OF 3CD REPORT, IT IS SEEN THAT UNUTILIZED CENVAT CREDIT AT THE END OF THE YEAR IS AS UNDER: PARTICULARS RS. AVAILABLE CENVAT CREDIT 162125219 UTILIZED CENVAT CREDIT 15177652 UNUTILIZED CENVAT CREDIT 146947S6? THE ASSESSEE FOLLOWED EXCLUSIVE METHOD FOR ACCOUNTI NG CENVAT AS AGAINST INCLUSIVE METHOD MANDATED UNDER SECTION 145A OF THE ACT. THE ASSESSEE VIDE ORDER SHEET ENTRY DATED 20/03/2014 REQUESTED TO EXP LAIN AS TO WHY UNUTILIZED CENVAT CREDIT OF RS.14,69,47,567/- HAS NOT BEEN OFF ERED FOR INCOME. IN RESPONSE, THE ASSESSEE SUBMITTED ITS REPLY AS UNDER :- 'YOUR GOOD SELF HAS SOUGHT AN EXPLANATION AS TO WHY UNUTILIZED CENVAT CREDIT SHOULD NOT BE TREATED AS INCOME. IN THIS REGARD WE WOULD LIKE TO DRAW YOUR ATTENTION TO SECTION 145A WHICH IS REPRODUCED HEREI N UNDER: USA. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTA INED IN SECTION 145. (A) THE VALUATION OF PURCHASE AND SALE OF GOODS AND INVENTORY FOR THE PURPOSES OF DETERMINING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' SHALL BE (I) IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REG ULARLY EMPLOYED BY THE ASSESSEE; AND ITA NO. 3459 /AHD/2015 . A.Y. 2011-1 2 3 (II) 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 BE ING IN FORCE, SHALL INCLUDE ALL SUCH PAYMENT NOTWITHSTANDING ANY RIGHT ARISING AS A CONSEQUENCE TO SUCH PAYMENT; (B) INTEREST RECEIVED BY AN ASSESSEE ON COMPENSATIO N OR ON ENHANCED COMPENSATION, AS THE CASE MAY BE, SHALL HE DEEMED T O BE THE INCOME OF THE YEAR IN WHICH IT IS RECEIVED. SINCE THE COMPANY IS ENGAGED IN THE BUSINESS OF MIN ING AND EXPLORATION ACTIVITIES I.E. SERVICE SECTOR, SECTION 145A IS NOT APPLICABLE TO ASSESSEE COMPANY MORE PARTICULARLY IN VIEW OF THE FACT THAT THE ASSE SSEE DOES NOT DEAL IN GOODS AS IS THE REQUIREMENT FOR TRIGGERING SECTION 145A OF T HE IT ACT. FURTHER, WE SUBMIT THAT IT NOT THE CASE THAT THE ABOVE CENVAT CREDIT PERTAINS TO INVENTORIES, IT PERTAINS TO SERVICES RECEIVED BY THE ASSESSEE COMPA NY. IN VIEW OF THE ABOVE, THE DIFFERENCE OF CENVAT CANNOT BE CONSIDERED AS AN INCOME OF THE ASS ESSEE. THIS IS ALSO EVIDENT ON PERUSAL OF CLAUSE 12(B) OF THE TAX AUDIT REPORT WHEREIN ALS O STATED BY THE TAX AUDITOR THAT SECTION 145A IS NOT APPLICABLE TO THE COMPANY.' THE SUBMISSION OF THE ASSESSEE IS PERUSED BUT THE S AME IS NOT TENABLE. CENVAT CREDIT ACCRUES AS SOON AS RAW MATERIAL IS PU RCHASED PROVIDED THE PURCHASE COST INCLUDES EXCISE DUTY ELEMENT. HERE, T HE POINT OF PURCHASE OF RAW MATERIAL IS THE RIGHT TO RECEIVE THE CENVAT CREDIT. THE RIGHT TO RECEIVE CENVAT CREDIT IS KNOWN AS 'CENVAT AVAILED.' SUCH CR EDIT DOES NOT DEPEND UPON THE ACTUAL UTILIZATION OF THE RAW MATERIAL, TH E CLOSING STOCK OF RAW MATERIAL OR THE FINISHED GOODS. THUS, THE CENVAT CREDIT AVAI LED ON PURCHASES MADE DURING THE YEAR, FORMS PART OF INCOME OF THAT PARTI CULAR YEAR. SECTION 5 OF THE ACT INCLUDES DEEMED INCOME IN ITS AMBIT. EXCISE DUT Y ON SALES IS THE DUTY COLLECTED BY THE ASSESSEE ON ITS SALES AND WHICH IT IS LIABLE TO PAY TO THE GOVERNMENT. UNDER SECTION 438 OF THE ACT, DEDUCTION FOR EXPENSES WILL BE AVAILABLE ONLY ON PAYMENT OF THE EXCISE DUTY. EXCISE DUTY ON PURCHASE FORMS PART OF THE COST OF T HE GOODS OF THE PURCHASER. THE PURCHASER DOES NOT HAVE ANY LIABILITY TO PAY TH E DUTY. THE LIABILITY TO PAY DUTY TO THE GOVERNMENT RESTS WITH THE SELLER OF GOO DS. HENCE, 43B IS NOT APPLICABLE ON PURCHASE OF GOODS BY PURCHASER. THE ASSESSEE HAS ADOPTED THE MERCANTILE SYSTEM FOR ACCOUNTING I.E. ON ACCRUAL BASIS. THE PROVISIONS OF SECTION USA STATE THAT, NO TWITHSTANDING THE PROVISIONS OF SECTION 145 OF THE ACT; THE SALE, PURCHASE AND C LOSING STOCK HAVE TO BE FURTHER ADJUSTED WITH DUTY, CESS, TAX, ETC. THUS, THE ACT REQUIRES THAT THE GROSS VALUE OF THE GOODS PURCHASED, ITA NO. 3459 /AHD/2015 . A.Y. 2011-1 2 4 O GOODS SOLD AND, O THE CLOSING STOCK IS TO BE CONSIDERED FOR ARRIVING AT THE TAXABLE INC OME. IT MEANS THAT ALL THE TAXES, DUTIES, ETC. ARE ALSO TO BE CONSIDERED FOR ARRIVING AT INCOME. WHEN THE DUTY, TAX ETC. IS INCLUDED IN PURC HASE, SALE AND INVENTORY, THE CENVAT CREDIT ACCRUING AT THE POINT OF PURCHASE HAS ALSO TO BE TAKEN INTO ACCOUNT AS IT IS COROLLARY TO SUCH PURCHASES. THE M ETHOD ADOPTED BY THE ASSESSEE IN ACCOUNTING IS AT VARIANCE WITH THE REQU IREMENTS OF THE ACT U/S. 145A OF THE ACT. FOLLOWING ASPECTS ASSOCIATED WITH CENVAT ARE IMPORT ANT WHILE DETERMINING THE IMPACT OF SECTION 145A, THE ASSESSEE HAS ADOPTE D THE MERCANTILE SYSTEM FOR ACCOUNTING: THAT THE PURCHASE COST OF RAW MATERIALS INCLU DE EXCISE DUTY ELEMENT. O SUCH EXCISE DUTY FORMS PART OF THE PURCHASE CO ST AND IS INCLUDED IN THE VALUE OF THE CLOSING STOCK OF RAW MATERIALS O ACTUAL CONSUMPTION OF RAW MATERIALS EXCISE DUTY ON PURCHASE IS NOT PURCHASER'S STATUTOR Y LIABILITY, THE EXCISE DUTY IS ALWAYS THE SELLER'S STATUTOR Y LIABILITY. AS SOON AS RAW MATERIALS ARE PURCHASED BY A MANUF ACTURER; PURCHASER CLAIMS CENVAT CREDIT TO THE EXTENT OF EXCISE DUTY COMPONEN T IN THE COST OF SUCH PURCHASES BY FILING RG23A WITH EXCISE DEPARTMENT. 0 THE CREDIT SO RECEIVED IS CONSIDERED AS CENVAT CREDIT AVAILED. EXAMPLE, IF A PERSON FOLLOWING MERCANTILE SYSTEM, P URCHASES RAW MATERIAL VALUED RS.1000, ON WHICH ED @10 PER CENT IS COLLECTED BY THE SELLER; THEN THE COST OF PURCHASES WOULD BE RS.1100 AND THE CENVAT C REDIT WOULD BE RS.100 AS UNDER: PURCHASE OF RAW MATERIAL RS. 1000 ED @10 PER CENT ON PURCHASE RS. 100 TOTAL COST OF PURCHASE RS.1100 CENVAT CREDIT AVAILED RS. 100 THUS, FOR EVERY PIE INCURRED AS EXCISE DUTY ON PURC HASE OF RAW MATERIAL, THE PURCHASER WOULD AVAIL CENVAT CREDIT TO THAT EXTENT. O CENVAT CREDIT ACCRUES AS SOON AS RAW MATERIAL I S PURCHASED, IS AUTOMATIC AND FOLLOWING EVENTS HAVE NO IMPACT ON THE CENVAT C REDIT AVAILED: ITA NO. 3459 /AHD/2015 . A.Y. 2011-1 2 5 ACTUAL CONSUMPTION OF RAW MATERIALS ACTUAL SALE OF FINISHED GOODS THE CLOSING STOCK OF FINISHED GOODS THE CLOSING STOCK OF RAW MATERIALS O THE EXCISE DUTY COMPONENT IN THE PURCHASES AND, T HE CENVAT CREDIT AVAILED IS DISTINCT AS SHOWN ABOVE. EXCISE DUTY FOR MS PART OF THE COST OF RAW MATERIAL PURCHASED AND CENVAT CREDIT IS THE BENEFIT / CREDIT ALLOWED TO THE EXTENT OF DUTY IN PURCHASED RAW MATERIAL. O FOR EXAMPLE, THE VALUES ADOPTED FROM THE IMMEDIAT ELY PRECEDING TABLE, WOULD REFLECT AT THE 'ASSET' SIDE OF THE BALANCE SH EET AS FOLLOWS; PROVIDED, ENTIRE RAW MATERIAL REMAINED UNCONSUMED DURING THE YEAR OF ITS PURCHASE: ASSETS INVENTORY CLOSING STOCK OF RAW MATERIAL INCLUDING CEN VAT CREDIT RECEIVABLE RS.1100 RS.100 TOTAL RS.1200 THUS, THE CLOSING STOCK OF RAW MATERIAL OF RS.1100 INCLUDES EXCISE DUTY OF RS.100 AND THE CENVAT CREDIT RECEIVABLE OF RS.100 E QUIVALENT TO EXCISE DUTY WOULD ALSO BE INCLUDED IN THE CLOSING STOCK. AGAINS T PURCHASE OF RAW MATERIAL VALUED RS.1100 INCLUDING EXCISE DUTY; THE VALUE OF ASSETS WOULD BE RS.1200 INCLUDING RS.100 AS CENVAT. CENVAT CREDIT AVAILED I S TO BE UTILIZED AGAINST THE EXCISE DUTY LIABILITY ARISING ON SALE OF FINISH ED GOODS. O CREDIT CAN BE UTILIZED WITHOUT MAINTAINING PROPOR TIONATE BALANCE VIS-A-VIS CLOSING STOCK OF RAW MATERIAL O CENVAT CREDIT UTILIZED IS NOT LINKED WITH THE CONSUMPTION OF RAW MATERIAL. NOW, IT IS MAINLY OBSERVED THAT THE ASSESSEE IS FOL LOW THE MERCANTILE SYSTEM OF ACCOUNTING; KEEP THE CENVAT ELEMENT / EXCISE DUTY O UTSIDE THE PROFIT AND LOSS ACCOUNT. SUCH ACCOUNT IS MENTIONED BY THEM AS EXCLUSIVE METHOD OF ACCOUNTING. THIS METHOD IS AT VARIANCE WITH THE MET HOD PRESCRIBED UNDER SECTION 145A OF THE ACT. SECTION 145A REQUIRES THAT THE INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' BY CO MPUTED BY MAKING ADJUSTMENT OF DUTIES AND TAXES ON PURCHASES, SAFES AND INVENTORY. HENCE, IN COMPUTING THE PROFIT AND GAINS OF BUSINESS OF PROFE SSION, FOLLOWING ADJUSTMENTS ARE NECESSARY. ' EXCISE DUTY RELATING TO THE RAW MATERIALS CONSUMED IS TO BE REDUCED FROM THE INCOME EXCISE DUTY RELATING TO SALES AND CLOSING STOCK OF FINISHED GOODS IS TO BE INCLUDED IN INCOME. THIS HOWEVER, WILL BE DEDUCTIBL E U/S.43B ON PAYMENT OF DUTY BEFORE DUE DATE OF FILING RETURN. ITA NO. 3459 /AHD/2015 . A.Y. 2011-1 2 6 8 EXCISE DUTY RELATING TO UNCONSUMED RAW MATERIA LS WILL BE INCLUDED IN INCOME ALONG WITH CLOSING STOCK OF RAW MATERIALS ' SINCE, THE CENVAT CREDIT ACCRUES AS SOON AS PURCHAS ES INCLUSIVE OF EXCISE DUTY IS MADE, ENTIRE CENVAT CREDIT AVAILED I S TO BE INCLUDED IN INCOME THE CENVAT CREDIT BALANCE AT THE BEGINNING OF THE P REVIOUS YEAR RELEVANT TO A.Y. IS TO BE REDUCED FROM INCOME. THE ABOVE ADJUSTMENTS INVARIABLY ALTER THE INCOME U NDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION.' HOWEVER, THE ASSESSEES VOUCH THAT THERE IS NO IMPAC T ON PROFITS, EVEN IF THE ASSESSEE FOLLOWS EXCLUSIVE METHOD OF ACCOUNTING. TH EY PROVIDE - IN CLAUSE 12(B) OF FORM 3CD, A 'CERTIFICATE' THAT THE IMPACT OF THE DEVIATION BETWEEN THE EXCLUSIVE METHOD ADOPTED BY THE ASSESSE E AND THE ONE PROVIDED IN THE ACT IS 'NIL'. IN CLAUSE 22(A) OF FORM 3CD, DETAILS OF THE CENVA T CREDIT AVAILED, UTILIZED AND BALANCE / UNUTILIZED CENVAT CREDIT, IF ANY. THE BALANCE/ UNUTILIZED CENVAT CREDIT IS SHOWN AS CENVAT RECEIVABLE UNDER T HE LOANS AND ADVANCES OF THE BALANCE SHEET. 0 THE UNUTILIZED CENVAT IS NOT PASSED THROUGH THE P&L ACCOUNT. IT IS ALWAYS FOUND THAT THE INFORMATION PROVIDED IN CLAUSE 12(B) OF FORM 3CD DOES NOT INCLUDE THE CENVAT CREDIT OR THE UNUTILIZE D PORTION OF THE CENVAT CREDIT. THUS, THE CONCLUSION DRAWN THAT, THE RE IS NO IMPACT DUE TO THE DEVIATION IS NOT TENABLE BECAUSE IT IS DONE BY EXCLUDING THE CENVAT CREDIT BALANCE. THE FOLLOWING EXAMPLES WILL ILLUSTRATE THE IMPACT O F SECTION 145A. BOTH, THE INCLUSIVE METHOD AND EXCLUSIVE METHOD IS ILLUSTRATE D BASED ON THE SAME VALUE OF GOODS AND RATE OF EXCISE DUTY. THE VALUES ARE AS UNDER: PARTICULARS AMOUNT TOTAL AMOUNT INCLUDING ED. RAW MATERIAL PURCHASED RS.2000 RS.2400 ED @ 20 PER CENT ON RAW MATERIAL PURCHASED RS.400 SALES OF FINISHED GOODS RS.2200 RS.2420 ED ON SALES @ 10 PER CENT ON SALES RS.220 CLOSING STOCK OF RAW MATERIA! RS.400 RS.480 ITA NO. 3459 /AHD/2015 . A.Y. 2011-1 2 7 ED ON CLOSING STOCK OF RAW MATERIAL @ 20 PER RS.80 CLOSING STOCK OF FINISHED GOODS RS.300 RS.330 ED ON CLOSING STOCK OF FINISHED GOODS @10% RS.30 CENVAT CREDIT AVAILED ON PURCHASE OF RAW MATERIALS I.E. EQUIVALENT TO ED ON PURCHASES RS,400 RS.400 NET PROFIT AS PER 'INCLUSIVE METHOD OF ACCOUNTING' OR ON ADJUSTMENT AS REQUIRED UNDER SECTION 145A WOULD BE AS UNDER : TRADING AND MANUFACTURING ACCOUNT EXPENDITURE RS. INCOME RS. PURCHASE OF RAW MATERIAL 2400 SALES OF FINISHED GOODS 2420 CENVAT CREDIT AVAILED 400 CLOSING STOCK OF RAW MATERIAL 480 GROSS PROFIT 1230 CLOSING STOCK OF FINISHED GOODS 330 TOTAL 3630 TOTAL 3630 PROFIT & LOSS ACCOUNT CENVAT UTILIZED ON SALE 220 GROSS PROFIT 1230 ED PAID PLA/ CENVAT ON CLOSING STOCK OF FINISHED GOODS 30 NET PROFIT 980 1230 TOTAL 1230 TOTAL ITA NO. 3459 /AHD/2015 . A.Y. 2011-1 2 8 NET PROFIT AS PER 'EXCLUSIVE METHOD OF ACCOUNTING' AS MAINTAINED BY ASSESSEE WOULD BE AS UNDER : TRADING AND MANUFACTURING ACCOUNT EXPENDITURE RS. INCOME RS. PURCHASE OF RAW MATERIAL 2000 SALES OF FINISHED GOODS 2200 CLOSING STOCK OF RAW MATERIAL 400 GROSS PROFIT 900 CLOSING STOCK OF FINISHED GOODS 300 TOTAL 2900 TOTAL 2900 PROFIT & LOSS ACCOUNT GROSS PROFIT 900 NET PROFIT 900 TOTAL 900 TOTAL 900 AS COULD BE SEEN, THE NET PROFIT INCREASES BY RS.80 (RS.980-RS.900) IN INCLUSIVE METHOD. RELIANCE IS ALSO ON THE FOLLOWING JU DGMENTS. ONE OF THE JUDGMENTS IS RENDERED BY THE DELHI TRIBU NAL IN THE CASE OF MARUTI UDYOG LTD. (921 ITD 199 DELHI). IN THE SAID DECISIO N, IT WAS HELD THAT 'UNUTILIZED CENVAT CREDIT IS TO BE ADDED TO THE TOTAL INCOME AN D THAT, THE CENVAT CREDIT IS IN THE NATURE OF A SUBSIDY. FURTHER, IT HAS BEEN VERY CLEARLY MENTIONED THAT SECTION 43B DOES NOT APPLY TO CENVAT CREDIT AND BOT H ARE DIFFERENT. FURTHER, THE HON. HIGH COURT OF BOMBAY IN THE CASE OF CARTINI INDIA LTD. (FORMERLY, GODREJ APPLIANCES LTD.) VS. ACIT AND ORE ., [2007] 291 ITR 355 (BOM) IN PARAGRAPH 19 OF ITS ORDER HAS OBSERVED AS UNDER: '19. AS PER THE NEW PROVISIONS OF SECTION 145A OF T HE IT ACT, 1961, THE UNUTILIZED MODVAT CREDIT HAD TO BE INCLUDED IN THE CLOSING STO CK OF RAW MATERIAL AND WORK IN PROGRESS, WHEREAS THE EXCISE DUTY PAID ON UNSOLD FINISHED GOD S HAD TO BE INCLUDED IN THE INVENTORY OF FINISHED GOODS. ITA NO. 3459 /AHD/2015 . A.Y. 2011-1 2 9 THE ABOVE OBSERVATION MAKES IT CLEAR THAT UNUTILIZE D CENVAT CREDIT HAD TO BE INCLUDED IN CLOSING STOCK OF RAW MATERIAL THEREBY R EDUCING THE COST OF CONSUMPTION OF GOODS CHARGED TO THE PROFIT AND LOSS ACCOUNT. 8 FURTHER, RELIANCE IS ALSO PLACED ON THE DECISION O F THE HON. HIGH COURT OF DELHI DATED 28.11.2007 IN THE CASE OF CIT VS. M/S. MAHAVI R ALUMINUM LTD. FURTHER, SECTION 145A OF THE ACT WAS INSERTED BY FI NANCE (NO.2) ACT, 1998 W.E.F. 1.4.1999 TO END THE LITIGATION RELATING TO ELEMENT OF MODVAT CREDIT AS COULD BE DERIVED FROM CBDT CIRCULAR NO. 772 DATED 23-12-1998 GIVING EXPLANATORY NOTES TO THE FINANCE ACT. IN VIEW OF THE ABOVE, UNUTILIZED CENVAT CREDITS OF RS.14,69,47,5677- IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE.' '2.1 WHILE PASSING THE ASSESSMENT ORDER, ASSESSING OFFICER HAS OBSERVED THAT APPELLANT HAS AVAILED CENVAT CREDIT OF RS.16,21,25, 2197- DURING THE YEAR AND HAS UTILIZED CENVAT CREDIT OF RS. 1,51,77,6527- HEN CE NET AMOUNT OF UNUTILIZED CENVAT CREDIT AMOUNTING TO RS.14,69,47,567/- IS ADD ED TO TOTAL INCOME OF APPELLANT. 2.2 IN THIS CONNECTION, THE APPELLANT SUBMITS THAT ENTIRE ADDITION IS UNWARRANTED AND MADE ON PRESUMPTION BY THE ASSESSING OFFICER. W HILE MAKING THE IMPUGNED ADDITION THE ASSESSING OFFICER FAILED TO APPRECIATE THE FACT INTER ALIA: (I) THAT CREDIT RECEIVABLE OF RS. 15,49,38,5307- RE PRESENTS AN AMOUNT PAID ON ACCOUNT OF SERVICE TAX INPUTS ON WHICH THE CREDIT S HALL BE AVAILED AGAINST FUTURE SERVICE TAX LIABILITY ON OUTPUTS. (II) THAT NO ADVERSE INFERENCE WAS REQUIRED BY THE ASSESSING OFFICER SINCE APPELLANT IS NEITHER MANUFACTURER NOR SELLER OF EXCISABLE GOODS. AS MENTIONED IN CLAUSE 8(A) OF THE TAX AUDIT REPORT, THE APPELLANT IS ENGAGED IN T HE BUSINESS OF DEVELOPMENT, OPERATION AND MAINTENANCE OF SOLID CARGO PORT TERMI NAL AT DAHEJ HENCE IMPUGNED CREDIT IS IN RESPECT OF SERVICE TAX WHICH IS PAID B Y THIRD PARTY ON INPUT SERVICES AND SUCH CREDIT IS ADJUSTABLE AGAINST SERVICE TAX WHICH MAY BE PAYABLE BY APPELLANT ON OUTPUT SERVICES AS AND WHEN SERVICES ARE RENDERED B Y THE APPELLANT. (III) THAT CENVAT CREDIT ON SERVICE TAX INPUT RECEI VED BY APPELLANT REPRESENT EXCISE DUTY, COUNTERVAILING DUTIES AND SERVICE TAX AMOUNT PAID BY THE COMPANY ON INPUT CAPITAL GOODS, INPUT & INPUT SERVICES WHICH I S PROPOSED TO BE SET OFF FROM SERVICE TAX PAYMENTS ON THE PORT ACTIVITIES. (IV) THAT CENVAT CREDIT RELATING TO INPUT & INPUT S ERVICES FOR RS 16.21 CRORE, RS 70.99 LACS ONLY PERTAINS OPERATION OF APPELLANT COM PANY. THE LEARNED ASSESSING OFFICER OUGHT TO HAVE APPRECIATE THAT TOTAL EXPENDI TURE DEBITED IN PROFIT & LOSS ACCOUNT OTHER THAN INTEREST EXPENSES AND DEPRECIATI ON IS RS 13.45 CRORE HENCE UNUTILIZED CENVAT CREDIT CONSIDERED FOR MAKING IMPU GNED ADDITION OF RS 14.70 CRORE(NET) CANNOT BE RELATING TO EXPENDITURE OF RS 13.45 CRORE BUT IS MAINLY RELATING TO CAPITAL EXPENDITURE OR FIXED ASSETS. IT IS UNDIS PUTED FACT THAT PORT OPERATIONS WERE COMMENCED ONLY FROM 01/09/2010 HENCE ANY EXPEN DITURE PRIOR TO SUCH DATE ITA NO. 3459 /AHD/2015 . A.Y. 2011-1 2 10 WAS ALREADY CAPITALISED HENCE MAJORITY CENVAT AVAIL ED DURING THE YEAR UNDER CONSIDERATION PERTAINS TO SUCH EXPENDITURE. SO FAR AS CENVAT CREDIT RELATING TO PORT OPERATION AND EXPENDITURE CLAIMED IN PROFIT & LOSS ACCOUNT IS CONCERNED, IT IS SUBMITTED THAT THE APPELLANT HAS FOLLOWED EXCLUSIVE METHOD OF ACCOUNTING AND THE VALUE OF INP UT SERVICES DO NOT INCLUDE THE AMOUNT OF INPUT SERVICE TAX CREDIT. IF ADDITION OF UNUTILIZED CENVAT CREDIT OF SERVICE TAX IS MADE CONSIDERING THE SAME AS INCOME OF THE APPELLANT THEN THE CORRESPONDING ADDITION SHOULD ALSO BE MADE TO THE C OST OF INPUT SERVICES AVAILED BY THE APPELLANT WHICH WILL NEUTRALIZE THE IMPACT O N THE PROFIT AND LOSS ACCOUNT. BY FOLLOWING THE EXCLUSIVE METHOD OF ACCOUNTING, TH E APPELLANT WAS ITSELF AT A DISADVANTAGE SINCE THE EXPENSES CLAIMED IN PROFIT A ND LOSS ACCOUNT IS AT LOWER AMOUNT. IF THE APPELLANT WOULD HAVE FOLLOWED INCLUS IVE METHOD, THE AMOUNT OF EXPENSES WOULD HAVE BEEN HIGHER BY THE AMOUNT DEBIT ED TO CENVAT CREDIT ACCOUNT. APART FROM THE ABOVE, THE APPELLANT WOULD LIKE TO D RAW YOUR ATTENTION TOWARDS THE ACCOUNTING FOLLOWED BY THE APPELLANT TO PROVE THAT THE METHOD FOLLOWED BY THE APPELLANT IS IN ACCORDANCE WITH SECTION 145A OF THE ACT. AS AN EXAMPLE, THE ENTRY MADE BY APPELLANT IN THE BOOKS OF ACCOUNTS IS AS FO LLOWS: EXPENSES A/C DR. 100 [DEBITED T O P/L ACCOUNT] CENVAT CREDIT A/C DR. 20 [REFLECTED IN BALANCE SHEET AS ADVANCE RECOVERABLE IN CASH OR IN KIND] TO PARTY A/C 120 AS EVIDENT FROM THE ABOVE ENTRY MADE IN BOOKS OF AC COUNT, EXCLUSIVE METHOD IS FOLLOWED BY THE APPELLANT WHEREIN THE EXPENSE ACCOU NT IS NET OF VALUE OF SERVICE TAX AMOUNT, IN SUCH CIRCUMSTANCE, THE AMOUNTS OF EX PENSES BOOKED ARE WITH A LOWER AMOUNT. HAD THE APPELLANT FOLLOWED INCLUSIVE METHOD, THE ENTRY WOULD HAVE BEEN MADE AS FOLLOWS: EXPENSES A/C DR. 120 TO PARTY A/C 120 IN THIS CASE THE AMOUNT OF EXPENSE CLAIMED IN PROFI T AND LOSS ACCOUNT WOULD HAVE BEEN RS.120/- INSTEAD OF RS.100/- AS CLAIMED IN THE ABOVE CASE. THEREFORE BY FOLLOWING THE ABOVE METHOD OF ACCOUNTING THE APPELL ANT IS AT A DISADVANTAGE SINCE THE AMOUNT OF EXPENSES HAS BEEN CREDITED AT A LOWER AMOUNT DUE TO CREATION OF A SEPARATE CENVAT CREDIT ACCOUNT. IN SUCH A CASE INST EAD OF DISALLOWING THE UNUTILIZED CREDIT, AS ERRONEOUSLY DONE BY THE ASSES SING OFFICER, THE APPELLANT IS LIABLE TO CLAIM THE UNCLAIMED EXPENDITURE OF RS. 70 .99 LACS (V) THAT BALANCE CENVAT CREDIT RELATING TO CAPITAL EXPENDITURE OR FIXED ASSETS WAS NOT AT ALL ROUTED THROUGH PROFIT & LOSS ACCOUNT HENCE SAME CANNOT BE ITA NO. 3459 /AHD/2015 . A.Y. 2011-1 2 11 CONSIDERED FOR MAKING IMPUGNED ADJUSTMENT U/S 145A OF THE ACT. THE LEARNED ASSESSING OFFICER OUGHT TO HAVE APPRECIATED THAT BY FOLLOWING EXCLUSIVE METHOD, APPELLANT HAS CAPITALISED COST OF FIXED ASSET NET O F SUCH CENVAT CREDIT AND IF INCLUSIVE METHOD IS FOLLOWED, SUCH CENVAT CREDIT IS ALSO REQUIRED TO BE CAPITALISED AND APPELLANT WOULD BE ENTITLED TO DEPR ECIATION ON SUCH HIGHER VALUE HENCE EVEN ON THIS GROUND ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING ADDITION U/S 145A ON UNUTILIZED CENVAT CREDIT(SERVICE TAX) R ELATABLE TO CAPITAL EXPENDITURE/FIXED ASSETS. 2.3 REGARDING APPLICABILITY OF PROVISIONS OF SECTIO N 145A TO SERVICE INDUSTRY: THE PROVISION OF SECTION 145A DOES NOT APPLY TO THE PRESENT CASE OF THE APPELLANT. THE APPELLANT IS ENGAGED IN THE BUSINESS OF DEVELOP MENT, OPERATION AND MAINTENANCE OF SOLID CARGO PORT TERMINAL AT DAHEJ. SINCE THE APPELLANT COMPANY IS ENGAGED IN THE BUSINESS OF PORT I.E. SERVICE SECTOR , SECTION THE PROVISIONS OF 145A IS NOT APPLICABLE TO APPELLANT MORE PARTICULARLY IN VIEW OF THE FACT THAT THE APPELLANT DOES NOT DEAL IN GOODS. SECTION 145A ARE RESTRICTED TO PURCHASE AND SALE OF GOOD AND IT DOES NOT EXTEND TO SERVICE THE NON APPLICABILITY OF PROVISIONS OF SECTION 145A IS DUE TO FOLLOWING REASONS: (I) THE LIABILITY OF SERVICE TAX IS FASTENED TO THE TRA NSACTION OF SALES AND ONCE SUCH SALE IS AFFECTED, THE DEALER BECOMES LIABLE TO PAY SERVICE TAX UNDER SECTION 68 OF THE FINANCE ACT, 1994. THE LIABILITY FOR PAYMENT OF SER VICE TAX ARISES ONLY AFTER THE SERVICE PROVIDER HAS RECEIVED THE PAYMENTS FOR SERV ICE RENDERED BY IT IF THERE IS NO LIABILITY TO MAKE THE PAYMENT TO THE CREDIT OF THE CENTRA! GOVERNMENT BECAUSE OF NON-RECEIPT OF PAYMENTS FROM THE RECEIVER OF THE SE RVICES, THEN IT CANNOT SAID TO BE INCOME OF THE APPELLANT. (II) SERVICE TAX WAS NOT BEING ROUTED THROUGH THE P ROFIT AND LOSS ACCOUNT BY THE APPELLANT, ENGAGED IN THE SERVICE RENDERING BUSINES S. AS THE APPELLANT HAS NEVER CLAIMED DEDUCTION ON ACCOUNT OF SERVICE TAX WHICH I S COLLECTED ON BEHALF OF THE GOVERNMENT FROM THE SERVICES .AVAILED BY IT AND PAI D TO THE GOVERNMENT ACCORDINGLY BY THE SERVICE PROVIDER. FURTHER THE AP PELLANT'S WOULD BE ELIGIBLE TO AVAILED CREDIT OF SERVICE TAX PAID BY IT ON INPUT S ERVICE ON WHEN THE IT RECEIVES THE PAYMENT FOR SERVICES RENDERED BY IT. THEREFORE, A S ERVICE PROVIDER IS MERELY ACTING AS AN AGENT OF THE GOVERNMENT AND THE AMOUNT OF CEN VAT CREDIT UNUTILIZED IN THE ACCOUNT OF APPELLANT CAN'T BE TREATED AS INCOME OF THE APPELLANT. IN THIS CONNECTION, APPELLANT RELIES ON DECISION OF HON'BLE MUMBAL TRIBUNAL IN CASE OF PHARMA SEARCH VS. ACIT (2013) 82 DTR 303 (M UM) [BCAJ] ITA NO. 7303/MUM/2010 DATED 2 ND MAY, 2013 FACTS: THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF RENDERI NG CONSULTATION IN PHARMACEUTICALS, CHEMICALS AND DRUGS. IN THE P & L A/C, THE ASSESSEE HAS SHOWN ITA NO. 3459 /AHD/2015 . A.Y. 2011-1 2 12 FEES FOR RENDERING CONSULTANCY SERVICES NET OF SERV ICE TAX. THE SERVICE CHARGES OF RS. 32 LAKH WERE NOT REALISED AND OUTSTANDING AT TH E YEAR END. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SERVICE TAX SHOULD HAVE BEEN SHOWN AS RECEIPTS IN THE P & L A/C ON THE PRINCIPLE LAID DOWN BY THE HON OURABLE SUPREME COURT IN THE CASE OF CHOWRINGHEE SALES BUREAU (P) LTD. VS. CIT [87 ITR 542] AND ALSO AS PER THE PROVISIONS OF SECTION 145A. THE ASSESSING OFFICER M ADE AN ADDITION OF RS. 3,91,6807- ON ACCOUNT OF SERVICE TAX ON THE GROUND THAT THE ASSESSEE OUGHT TO HAVE MADE PAYMENT OF THE SERVICE-TAX IN ORDER TO CLAIM D EDUCTION AS PER PROVISIONS OF SECTION 43B. HELD: AS PER THE SERVICE TAX LAW, SERVICE TAX IS PAYABLE AS AND WHEN THE PAYMENTS/FEES FOR UNDERLYING SERVICE PROVIDED ARE REALISED. AS TH E ASSESSEE HAS NOT RECEIVED THE SUM TILL THE END OF THE FINANCIAL YEAR, QUESTION OF PAYING THE SAME DID NOT ARISE AT ALL. IF FOR ANY REASON THE PAYMENT FOR SERVICES REN DERED IS NOT REALISED, THERE WAS NO LIABILITY AS TO PAYMENT OF SERVICE TAX. THUS, THE S ERVICE TAX LAW STANDS ON A DIFFERENT FOOTING AS COMPARED TO OTHER LAWS LIKE CENTRAL EXCI SE OR VAT. THE APPLICATION OF SECTION 145A IS RESTRICTED TO PU RCHASE AND SALE OF GOODS ONLY, AND DOES NOT EXTENT TO SERVICE CONTRACTS. THEREFORE, THE ACTION OF THE ASSESSING OFFICER IN THE RIGOURS OF SECTION 43B MIGHT BE APPLICABLE TO THE CASE OF S ALES-TAX OR EXCISE DUTY, BUT THE SAME COULD NOT BE SAID TO BE T HE POSITION IN CASE OF SERVICE TAX BECAUSE OF TWO REASONS. FIRSTLY, THE ASSESSEE IS NE VER ALLOWED DEDUCTION ON ACCOUNT OF SERVICE TAX WHICH IS COLLECTED ON BEHALF OF THE GOVERNMENT AND IS PAID TO THE GOVERNMENT ACCOUNT. THEREFORE, A SERVICE-PROVIDER I S MERELY ACTING AS AN AGENT OF THE GOVERNMENT. SECONDLY, SECTION 43B(A) USES THE EXPRESSION 'ANY S UM PAYABLE'. IF THERE IS NO LIABILITY TO MAKE THE PAYMENT TO THE CREDIT OF THE CENTRAL GOVERNMENT BECAUSE OF NON RECEIPT OF PAYMENTS FROM THE RECEIVER OF THE SE RVICES, THEN IT CANNOT BE SAID THAT SUCH SERVICE TAX HAS BECOME PAYABLE IN TERMS O F SECTION 43B(A). IN LIGHT OF THE FACT AND JUDICIAL PRONOUNCEMENT AS DISCUSSED ABOVE, IT CAN BE SAID THAT THE APPELLANT IS SERVICE PROVIDER AND NOT MANU FACTURER. IN CASE OF SERVICE PROVIDER THE LIABILITY FOR PAYMENT OF SERVICE TAX W ILL ARISE ONLY AT THE TIME WHEN THE PAYMENT FOR SERVICE RENDERED BY THE APPELLANT IS RE CEIVED AND A.O IS ERRED IN APPLYING PROVISIONS OF SECTION 145A TO THE CASE OF APPELLANT WHO IS ENGAGED IN PROVIDING SEN/ICES. IICE TO THE SAME, WITH REFERENCE TO THE CONTENTIONS OF THE A.O BASED ON THE EXAMPLE GIVEN IN THE GUIDANCE NOTE ON SECTION 145A EVEN IF IT IS PRESUMED THAT IT IS APPLICABLE TO THE CASE OF SERVICE PROVIDER ALSO, AS STATED ABOVE THE APPELLANT FOLLOWS EXCLUSIVE METHOD AND THAT THEREFORE AS EXPL AINED IN HEREIN ABOVE THE UNUTILIZED CENVAT CREDIT HAVE NEUTRALIZING EFFECT O N THE TOTAL INCOME. ITA NO. 3459 /AHD/2015 . A.Y. 2011-1 2 13 2.4 IN LIGHT OF THE ABOVE NARRATED FACTS THE APPELL ANT WOULD LIKE TO MENTION THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS WITHO UT CONSIDERING THE DETAILS AND EXPLANATIONS OFFERED BY THE APPELLANT. THE DISALLOW ANCE HAS BEEN MADE AGAINST THE PRINCIPLES OF LAW AS LAID DOWN IN SECTION 145A OF T HE INCOME TAX ACT, 1961. THE EXAMPLE REPRODUCED BY THE ASSESSING OFFICER, IN THE ASSESSMENT ORDER, ITSELF PROVES THAT THE FACTS OF THE CASE HAVE NOT BEEN CONSIDERED CAREFULLY AND ADDITION HAS BEEN MADE ON AN ILLOGICAL MANNER. IN SUPPORT OF THE CONT ENTION, REFERENCE IS DRAWN TOWARDS GUIDANCE NOTE ON TAX AUDIT UNDER SECTION 44 AB OF THE INCOME-TAX ACT, 1961 WHEREIN APPLICABILITY OF SECTION USA HAS BEEN EXPLAINED IN DETAIL. THE RELEVANT EXTRACTS ARE REPRODUCED HEREIN BELOW: 23.22 SECTION 145A OF THE INCOME TAX ACT PROVIDES T HAT THE VALUATION OF PURCHASE AND SALES OF GOODS AND INVENTORY FOR THE PURPOSE OF COMPUTATION OF INCOME FROM BUSINESS OR PROFESSION SHALL BE MADE ON THE OF METH OD OF ACCOUNTING REGULARLY EMPLOYED BY THE BUT THIS SHALL BE SUBJECT TO CERTAI N ADJUSTMENTS. THEREFORE, IT IS NOT NECESSARY TO CHANGE THE METHOD OF VALUATION OF PURCHASE, SALE AND INVENTORY REGULARLY EMPLOYED IN THE BOOKS OF ACCOUNT. THE ADJ USTMENT PROVIDED FOR IN THIS SECTION SHOULD BE MADE WHILE COMPUTING THE INCOME F OR THE PURPOSE OF PREPARING THE RETURN OF INCOME. THEREFORE THE RECOMMENDED MET HOD FOR ACCOUNTING OF VAT WILL NOT RESULT IN NON-COMPLIANCE OF SECTION 145A O F THE INCOME TAX ACT. HENCE THE FACT THAT THE METHOD EMPLOYED BY APPELLAN T IS IN ACCORDANCE WITH PRINCIPLES LAID DOWN IN SECTION 145A IS PROVED BEYO ND DOUBT. 2.5 THE LD. ASSESSING OFFICER HAS NOT APPRECIATED T HE SAME IN ITS RIGHT PERSPECTIVE AND CONSIDERED THE SUBMISSION OF THE APPELLANT AS N OT TENABLE. THE LD. ASSESSING OFFICER HAS OBSERVED AS UNDER. 'IF A PERSON FOLLOWING MERCANTILE SYSTEM, PURCHASES RAW MATERIAL VALUED RS. 1000, ON WHICH ED @ 10 PER CENT IS COLLECTED BY THE SELLE R, THEN THE COST OF PURCHASES WOULD BE RS. 1100 AND THE CENVAT CREDIT WOULD BE RS . 100 AS UNDER: PURCHASE OF RAW MATERIAL RS. 1000 ED @ 10 PERCENT ON PURCHASE RS. 100 TOTAL COST OF PURCHASE RS. 1100 CENVAT RS. 100 THUS, FOR EVERY PIE INCURRED AS EXCISE DUTY ON PURC HASE OF RAW MATERIAL, THE PURCHASER WOULD AVAIL CENVAT CREDIT TO THAT EXTENT. ....... ........FOR EXAMPLE, THE VALUE ADOPTED FROM THE IMM EDIATELY PRECEDING TABLE, WOULD REFLECT AT THE 'ASSET' SIDE OF THE BALANCE SHEET AS FOLLOWS; P ROVIDED, ENTIRE RAW MATERIAL REMAINED UNCONSUMED DURING THE YEAR OF ITS PURCHASE : ITA NO. 3459 /AHD/2015 . A.Y. 2011-1 2 14 ASSETS INVENTORY CLOSING STOCK OF RAW MATERIAL INCLUDING ED CENVAT CREDIT RECEIVABLE RS. 1100 RS. 100 TOTAL RS. 1200 THUS, THE CLOSING STOCK OF RAW MATERIAL OF RS. 1100 INCLUDES EXCISE DUTY OF RS. 100 AND CENVAT CREDIT RECEIVABLE OF RS. 100 EQUIVAL ENT TO EXCISE DUTY WOULD ALSO BE INCLUDED IN THE CLOSING STOCK. AGAINS T PURCHASE OF RAW MATERIAL VALUED RS. 1100 INCLUDING EXCISE DUTY; THE VALUE OF ASSETS WOULD BE RS. 1200 INCLUDING RS. 100 AS CENVAT.' FURTHER THE LD. ASSESSING OFFICER VIDE PARA 2 PAGE 7 STATED THAT 'THE FOLLOWING EXAMPLES WILL ILLUSTRATE THE IMPACT OF SECTION 145A . BOTH, THE INCLUSIVE METHOD AND EXCLUSIVE METHOD IS ILLUSTRATED BASED ON THE SA ME VALUE OF GOODS AND RATE OF EXCISE DUTY. THE VALUES ARE AS UNDER: PARTICULARS AMOUNT (RS.) TOTAL AMOUNT INCLUDING ED (RS.) RAW MATERIAL PURCHASED RS. 2000 RS. 2400 ED @ 20 PERCENT ON RAW MATERIAL PURCHASED RS, 400 SALES OF FINISHED GOODS RS. 2200 RS. 2420 ED ON SALES @ 1 0 PERCENT ON SALES RS. 220 CLOSING STOCK OF RAW MATERIAL RS.400 RS. 480 ED ON CLOSING STOCK OF RAW MATERIAL @ 20 PERCENT RS.80 CLOSING STOCK OF FINISHED GOODS RS. 300 RS. 330 ED ON CLOSING STOCK OF FINISHED GOODS @ 10% RS.30 CENVAT CREDIT AVAILED ON PURCHASE OF RAW MATERIALS I. E. EQUIVALENT TO ED ON PURCHASES RS. 400 RS. 400 ITA NO. 3459 /AHD/2015 . A.Y. 2011-1 2 15 NET PROFIT AS PER 'INCLUSIVE METHOD OF ACCOUNTING' OR ON ADJUSTMENT AS REQUIRED UNDER SECTION 145A WOULD BE AS UNDER : TRADING AND MANUFACTURING ACCOUNT EXPENDITURE RS. INCOME RS. PURCHASE OF RAW MATERIAL 2400 SALES OF FINISHED GOODS 2420 CENVAT CREDIT AVAILED 400 CLOSING STOCK OF RM 480 GROSS PROFIT 1230 CLOSING STOCK OF FG 330 TOTAL 3630 TOTAL 3630 PROFIT AND LOSS ACCOUNT CENVAT UTILIZED ON SALE 220 GROSS PROFIT 1230 ED PAID PLA / CENVAT ON CLOSING STOCK OF FINISHED GOODS 30 NET PROFIT 980 TOTAL 1230 TOTAL 1230 NET PROFIT AS PER 'EXCLUSIVE METHOD OF ACCOUNTING' AS MAINTAINED BY ASSESSEE COMPANY WOULD BE AS UNDER: TRADING AND MANUFACTURING ACCOUNT EXPENDITURE RS. INCOME RS. PURCHASE OF RAW MATERIAL 2000 SAL ES OF FINISHED GOODS 2200 ITA NO. 3459 /AHD/2015 . A.Y. 2011-1 2 16 CLOSING STOCK OF RM 400 GROSS PROFIT 900 CLOSING STOCK OF FG 300 TOTAL 2900 TOTAL 2900 PROFIT AND LOSS ACCOUNT GROSS PROFIT 900 NET PROFIT 900 TOTAL 900 TOTAL 900 AS COULD BE SEEN, THE NET PROFIT INCREASES BY RS. 8 0 (RS. 980 - RS. 900) IN INCLUSIVE METHOD.' 2.6 IN THIS REGARD APPELLANT SUBMITS THAT THE LD. A SSESSING OFFICER MADE ERROR IN EXAMPLE REFERRED HEREIN ABOVE FOR ADJUSTING EXCI SE DUTY TO GIVE EFFECT OF SECTION 145A, IF THE EXCISE DUTY PAID AT THE TIME O F PURCHASE OF RAW MATERIAL IS INCLUDED IN THE CLOSING STOCK THE VALUE OF STOCK CAN NEVER EXCEED THE ACTUAL PURCHASE PRICE INCLUDING EXCISE DUTY. IN THE SAID E XAMPLE THE VALUE OF RAW MATERIAL AS PER EXCLUSIVE METHOD SHALL BE RS. 1000 AND THE VALUE AS PER INCLUSIVE METHOD SHALL BE RS.1100. THE PURPOSE OF C ENVAT CREDIT IS TO AVOID CASCADING EFFECT OF INCIDENCE OF INDIRECT TAXES IN THE HANDS VARIOUS PERSONS ENGAGED IN THE CHAIN OF SUPPLYING OF RAW MATERIAL T O PROCESSING THE RAW MATERIALS AND MANUFACTURING THE FINISHED GOODS TO D ISTRIBUTING THE FINISHED GOODS TO THE END USER. FURTHER THE APPELLANT COMPANY SUBMITS THAT THE LD. ASSESSING OFFICER ERRED IN EXAMPLE REFERRED TO IN PARAS ABOVE WHILE COMPUTING PROFIT AS PER INCLUSIVE METHOD ADJUSTMENT FOR CENVAT CREDIT AVAILED AS RS. 400 AND ADJUSTMENT FOR CLOSING STOCK OF RAW MATERIAL AS RS. 80. HOWEVER, TOTAL EXCISE DUTY PAID BY THE APPELLANT COMPANY ON PURCHASE OF R AW MATERIAL IS RS. 400 AND TOTAL CENVAT CREDIT AVAILED BY THE APPELLANT COMPAN Y IS ALSO RS. 400. THE LD. AO FAILED TO APPRECIATE THE FACT THAT CLOSI NG STOCK OF RAW MATERIAL ALREADY INCLUDED CENVAT ELEMENT OF RS. 80A WHICH NE EDS TO BE EXCLUDED FROM THE AMOUNT OF RS. 400/- AS WHEN RS. 400/- IS T AKEN AND IN INCLUSIVE METHOD CLOSING STOCK OF RAW MATERIAL INCLUDES EXCIS E DUTY THE SAME IS TAKEN TWICE. THEREFORE WHILE ARRIVING AT THE FIGURE OF CE NVAT CREDIT AVAILED THE AMOUNT OF RS.80/- BEING EXCISE DUTY ON CLOSING STOC K OF RAW MATERIAL NEEDS TO BE REDUCED. THE APPELLANT COMPANY UTILIZED CENVAT C REDIT FOR MATERIAL CONSUMED TO THE TUNE OF RS. 320 ONLY. ADJUSTING TOT AL EXCISE DUTY PAID ON ITA NO. 3459 /AHD/2015 . A.Y. 2011-1 2 17 PURCHASE OF RAW MATERIAL AS CENVAT CREDIT AVAILED A ND ADJUSTING IT FURTHER IN CLOSING STOCK RESULTS IN DUPLICATION OF ADJUSTMENT TO THE TUNE OF RS. 80 I.E. MATERIAL NOT CONSUMED AND THE CENVAT CREDIT OF WHIC H IS NOT UTILIZED. AS A RESULT THE CLOSING STOCK VALUATION GETS INFLATED AR TIFICIALLY. THE PROFIT AND LOSS ACCOUNT AS PER INCLUSIVE METHOD AS EXPLAINED ABOVE AFTER ADJUSTMENT IS RESTATED AS UNDER: TRADING AND MANUFACTURING ACCOUNT EXPENDITURE RS. INCOME RS. PURCHASE OF RAW MATERIAL 2400 SALES OF FINISHED GOODS 2420 CENVAT CREDIT AVAILED 320 CLOSING STOCK OF RM 480 GROSS PROFIT 1150 CLOSING STOCK OF FG 330 TOTAL 3550 TOTAL 3550 PROFIT AND LOSS ACCOUNT CENVAT UTILIZED ON SALE 220 GROSS PROFIT 1150 ED PAID PLA/ CENVAT ON CLOSING STOCK OF FINISHED GOODS 30 NET PROFIT 900 TOTAL 1150 TOTAL 1150 3. AGAINST THE SAID ADDITION, ASSESSEE PREFERRED FIRST STATUTORY APPEAL BEFORE THE LD. CIT(A) WHO PARTLY ALLOWED THE APPEAL OF THE ASSESSE E. ITA NO. 3459 /AHD/2015 . A.Y. 2011-1 2 18 4. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMPUGN ED ORDER. ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF DEVELOPMENT/O PERATION AND MAINTENANCE OF SOLID CARGO PORT TERMINAL AT DAHEJ. 5. WE WILL FIRST DEAL GROUND RELATING TO DELETING THE ADDITION OF RS. 14,69,47,567/- MADE ON ACCOUNT OF UNUTILIZED CENVAT CREDIT. THE A. O. HAS DISCUSSED THIS ISSUE AT PAGE NO. 2 TO 9 IN PARA 2 AND LD. CIT(A) H AS DISCUSSED THIS ISSUE AT PAGE 2 TO 17 IN PARA 3 OF THE APPELLATE ORDER. AND LD. C IT(A) GRANTED RELIEF OF RS. 14,69,47,567/- ON ACCOUNT OF UNUTILIZED CENVAT CRED ITED BY THE ASSESSEE FOLLOWING THE EXCLUSIVE METHOD FOR ACCOUNTING. 6. AS WE CAN SEE, THAT CENVAT CREDIT REFERRED BY THE A .O. IS PERTAINING TO SERVICE TAX INPUT AND NOT PERTAINING TO EXCISABLE G OODS. HENCE, PROVISION OF SECTION 145A CANNOT BE MADE APPLICABLE AND ASSESSEE IS FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING. IT HAS RECOGNIZED EXPENDITURE IN PROFIT AND LOSS ACCOUNT NET OF CENVAT CREDIT RECEIVED BY IT. HENCE TO THE E XTENT EXPENDITURE ALREADY DEBITED BY LOWER AMOUNT. ASSESSEE SUBMITTED AUDITED BALANCE SHEET AND WE CAN SEE THAT THE CENVAT CREDIT PERTAINS TO EXPENDITURE AND NOT RAW MATERIAL AND ASSESSEE IS CONSISTENTLY FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING. 7. ASSESSEES CASE ALSO DRAW SUPPORT FROM THE CASE OF BELL GRANITO CERAMICA LTD. OF HONBLE GUJARAT HIGH COURT WHEREIN IN SIMILAR CI RCUMSTANCES, APPEAL OF THE REVENUE WAS DISMISSED AND HELD THAT IF ASSESSEE INC URS LIABILITY TO PAY EXCISE DUTY ONLY UPON BOTH THE EVENTS TAKING PLACE, NAMELY MANUFACTURE OF EXCISABLE GOODS AND REMOVAL OF EXCISABLE GOODS; EXCISE DUTY I S NOT THEREFORE INCLUDIBLE IN THE VALUATION OF CLOSING STOCK. ITA NO. 3459 /AHD/2015 . A.Y. 2011-1 2 19 8. THEREFORE RESPECTFULLY FOLLOWING THE ABOVE SAID HIG H COURT JUDGMENT, WE DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 9. NOW WE COME TO GROUND RELATING TO DELETING THE DISA LLOWANCE OF RS. 36,64,551/- FOR DEPRECIATION/AMORTIZATION ON LEASE HOLD LAND. THE LD. A.O. HAS DISCUSSED THIS ISSUE AT PAGE 9 TO 14 AND LD. CIT(A) HAS DISCUSSED THIS ISSUE AT PAGE 18 TO 29 IN PARA 4. 10. IT IS SEEN FROM THE COMPUTATION OF INCOME THAT ASSE SSEE HAS CLAIMED AMORTIZATION OF LAND OF RS. 36,64,551/- AND PAGE TO GUJARAT INDUSTRIAL DEVELOPMENT CORPORATION AND FOREST DEPARTMENT. THOU GH, OWNERSHIP OF LAND IS NOT INVESTED WITH THE ASSESSEE AND ADVANCE RENT PAID BY THE ASSESSEE ON EXECUTION OF LEASE DEED AND CONTENDED THAT ASSESSEE IS ENTITLED FOR DEPRECIATION/AMORTIZATION. ON THE OTHER HAND, ASSES SING OFFICER HELD THAT SAME IS NOT ALLOWABLE. IN SIMILAR CIRCUMSTANCES, HO NBLE GUJARAT HIGH COURT IN THE MATTER OF SUN PHARMACEUTICALS LTD. VS. DCIT 227 CTR 206 HAS HELD THAT PREMIUM PAID BY ASSESSEE FOR LAND TAKEN ON LEASE AS REVENUE EXPENDITURE IN THE YEAR IN WHICH SUCH EXPENDITURE WAS INCURRED. AND IN THE CASE OF GENERAL MOTORS (INDIA) PVT. LTD. VS. DCIT, CO-ORDINATE BENC H HAS HELD THAT SUCH EXPENDITURE ARE ALLOWABLE AND ON ACCOUNT OF AFORESA ID BINDING DECISION, WE HOLD THAT LD. CIT(A) HAS RIGHTLY GRANTED RELIEF TO THE ASSESSEE. THUS, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 11. NOW WE COME TO GROUND RELATING TO DELETING THE DISA LLOWANCE OF RS. 13,28,114/- U/S. 14A R.W.R. 8D. ITA NO. 3459 /AHD/2015 . A.Y. 2011-1 2 20 12. THE LD. A.O. HAS DISCUSSED THIS ISSUE AT PAGE NO. 1 4 TO 21 IN PARA 4 AND LD. CIT(A) HAS DISCUSSED THIS ISSUE AT PAGE NO. 29 TO 4 3 IN PARA 5. IN THIS CASE, ASSESSEE HAS INVESTMENT OF RS. 100000000/- AND A.O . MADE DISALLOWANCE OF RS. 13,28,114/- U/S. 14A R.W.R. 8D AND ADDITION FOR THE LIKE AMOUNT WHILE COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. 13. IN APPEAL BEFORE THE LD. CIT(A), LD. CIT(A) GRANTED RELIEF TO THE ASSESSEE. 14. AFTER GOING THROUGH THE IMPUGNED ORDER AND RECORD, WE CAN SEE THAT ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME FROM INVESTMENT MA DE BY IT WHICH IS APPARENT FROM AUDITED ANNUAL ACCOUNTS AS WELL AS CO MPUTATION OF TOTAL INCOME AS SUBMITTED BEFORE ASSESSING OFFICER AS WELL AS BE FORE THE LD.CIT(A). IN SUCH CASE, ASSESSEES CASE DRAW SUPPORT FROM THE CASE OF CIT VS. CORRTECH ENERGY P. LTD. OF HONBLE GUJARAT HIGH COURT WHEREIN ON IDEN TICAL ISSUE, ASSESSEE WAS GRANTED RELIEF BY HOLDING THAT IF ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION OF ANY INCOME FROM PAYMENT OF TAX. IT WAS ON THIS B ASIS, THE TRIBUNAL HELD THAT DISALLOWANCE U/S. 14A OF THE ACT CANNOT BE MADE. 15. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE , AS ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME. THEREFORE, IN SUCH CASE DISALLOW ANCE U/S. 14A R.W.R. 8D CANNOT BE MADE. 16. IN THE RESULT, THIS GROUND OF APPEAL IS DISMISSED. 17. NOW WE COME TO GROUND RELATING TO DELETING DISALLOW ANCE OF RS. 1328114/- U/S. 14A R.W.R. 8D OF THE ACT WHILE COMPUTING BOOK PROFIT U/S. 115JB. ITA NO. 3459 /AHD/2015 . A.Y. 2011-1 2 21 18. AS IN EARLIER GROUND, WE HAVE HELD THAT ASSESSEE HA S NOT EARNED ANY EXEMPT INCOME, THEREFORE, DISALLOWANCE U/S. 14A CANNOT BE MADE AND IN OUR CONSIDERED OPINION, LD. CIT(A) HAS PASSED DETAILED AND REASONED ORDER. THEREFORE, WE DO NOT WANT TO INTERFERE AT OUR END I N THIS ISSUE. THUS, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 19. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 01- 02- 2019 SD/- SD/- (PRAMOD KUMAR) (MAHAVIR PRASAD) VICE PRESIDENT TRUE COPY JUDICIAL MEMBER AHMEDABAD: DATED 01 /02/2019 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,AHME DABAD