ITO 16(2)(4), MUMBAI V. INDU A ARYA, MUMBAI

ITA 4052/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8707 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 04-10-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 16-05-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N K MEHTA
• Assessee Lawyers: SUNIL BOHRA
• Section: 143(3); 145

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI . .. . . .. . , ,, , ! ! ! ! , ' ' ' ' # $% # $% # $% # $% , ,, , & ! & ! & ! & ! ' ' ' ' BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER . / ITA NO. 4052/MUM./2011 ( &( ) '*) / ASSESSMENT YEAR : 200607 ) INCOME TAX OFFICER WARD16(2)(4), MATRU MANDIR TARDEO ROAD. MUMBAI 400 007 .. +, / APPELLANT ( V/S MRS. INDU A. ARYA B2, 26 TH FLOOR, PRITHVI APARTMENT ALTAMOUNT ROAD, MUMBAI 400 026 .... -.+, / RESPONDENT !+ . / PERMANENT ACCOUNT NUMBER AAIPA1562F &( )0 1 2 / ASSESSEE BY : MR. SUNIL BOHRA !' 1 2 / REVENUE BY : MR. N.K. MEHTA (' 1 / DATE OF HEARING 04.10.2012 $ 34* 1 / DATE OF ORDER 12.10.2012 $ $ $ $ / ORDER # $% # $% # $% # $% , ,, , & ! & ! & ! & ! 5 5 5 5 / PER AMIT SHUKLA, J.M. THE PRESENT APPEAL PREFERRED BY THE REVENUE, IS DIR ECTED AGAINST THE IMPUGNED ORDER DATED 24 TH JANUARY 2011, PASSED BY THE COMAXXVII, MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ) ON THE FOLLOWING GROUNDS: MRS. INDU A. ARYA 2 1. THE LEARNED CIT(A) ERRED IN LAW AND FACTS IN NO T ALLOWING THE PROVISIONS UNDER SECTION 145A OF THE ACT EFFECT IVE FROM 1.4.1999, WHICH IS APPLICABLE TO THE CASE OF THE AP PELLANT. 2. THE LEARNED CIT(A) ERRED IN NOT RELYING ON THE D ECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF BRITISH PAINTS INDIA LTD., 188 ITR 44. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE A SSESSEE IS A PROPRIETOR OF SILVASSA SPAN YARN INDUSTRIES, WHICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF TEXTURISED YARN. DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER, ON P ERUSAL OF ANNEXURE-5 TO FORM 3CD, ATTACHED ALONG WITH THE RETURN OF INCO ME, FOUND THAT THE AUDITORS HAS STATED THAT THE BALANCE OF ` 190,11,645, WAS AVAILABLE AS MODVAT CREDIT AS ON 31 ST MARCH 2006, AFTER AWAILING AND UTILIZING THE REQUIRED MODVAT OUT OF AVAILABLE CREDIT DURING THE YEAR. THE ASSESSEE HAD OPENING CREDIT OF MODVAT OF ` 22,14,841, AT THE BEGINNING OF THE YEAR PERTAINING TO RAW MATERIALS AND HAS ACCUMULATED CRE DIT OF ` 5,04,37,768, DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE H AS AVAILED UNUTILIZED MODVAT OF ` 3,36,40,964, LEAVING A CREDIT BALANCE OF ` 1,90,11,645, AT THE END OF THE YEAR. THIS UNUTILIZED CREDIT BALANCE HAS ARISEN DUE TO PURCHASE OF RAW MATERIAL AND REMAINED UNUTILIZED AT THE END OF THIS YEAR. HE FURTHER OBSERVED THAT THIS UNUTILIZED MODVAT IS GENERATED OUT OF REVENUE ITEM FORMING PART OF THE PROFIT & LOSS ACCO UNT AND SAME SHOULD HAVE BEEN ADDED IN THE CLOSING STOCK OF THE ASSESSE E. HOWEVER, THE ASSESSEE HAS FAILED TO DO SO. THE ASSESSING OFFICER , AFTER APPLYING THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN CIT V/S BRITISH PAINTS (I) LTD. [1999] 188 ITR 44 (SC) , ADDED THE UNUTILIZED MODVAT CREDIT TO THE ASSESSEES CLOSING STOCK VALUE AND THEREBY TREATED THE SAME AS ASSESSEES INCOME AND, ACCORDINGLY, THE ADDITION OF ` 1,90,11,645, WAS MADD TO THE TOTAL INCOME OF THE ASSESSEE. 3. AGGRIEVED BY THE AFORESAID ORDER, THE ASSESSEE CARR IED THE MATTER IN FIRST APPEAL, WHEREIN BEFORE THE COMMISSIONER (APPE ALS) IT WAS SUBMITTED THAT SHE HAS BEEN CONSISTENTLY FOLLOWING NET METHOD OF ACCOUNTING THE MODVAT CREDIT AND TO THE EXTENT OF ITS UTILIZATION IT IS CHARGED TO THE VALUE OF FINISHED GOODS SOLD / CLOSING STOCK OF FINISHED GOODS. OTHERWISE, THE MRS. INDU A. ARYA 3 MODVAT CREDIT IS TAKEN TO THE ASSET SIDE OF THE BAL ANCE SHEET. RELIANCE WAS PLACED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN CIT V/S INDO NIPPON CHEMICALS CO. LTD., [2003] 261 ITR 0275 (SC) . THE COMMISSIONER (APPEALS) APPRECIATED THE CONTENTION OF THE ASSESSE E AND RELYING UPON THE SAID JUDGMENT, DELETED THE ADDITION MADE BY THE ASS ESSING OFFICER. BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIB UNAL. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE, BEFORE US, SUBMITTED THAT IN VIEW OF THE PROVISIONS OF SECTION 145A OF THE AC T, ANY TAX, DUTY, CESS OR FEE HAS TO BE TAKEN INTO ACCOUNT ON THE DATE OF THE VALUATION I.E., IN THE CLOSING STOCK AND, ACCORDINGLY, PROFITS HAS TO BE S HOWN IN THE PROFIT & LOSS ACCOUNT. IT WAS FURTHER SUBMITTED THAT EVEN IF THE ASSESSEE HAS BEEN FOLLOWING THE SAME SYSTEM OF ACCOUNTING FROM THE EA RLIER YEARS, THE SAME CANNOT UPHOLD AS IT WAS IN VIOLATION OF THE PROVISI ONS OF SECTION 145A AND, ACCORDINGLY, THE ADDITION MADE BY THE ASSESSING OFF ICER IS WHOLLY JUSTIFIED. 5. THE LEARNED COUNSEL, ON BEHALF OF THE ASSESSEE, SUB MITTED THAT THE ASSESSEE HAS BEEN CONSISTENTLY VALUING ITS STOCK UN IFORMLY ADOPTING THE NET METHOD OF ACCOUNTING I.E., VALUING THE RAW MATERIALS AT THE PURCHASE PRICE (MINUS) THE MODVAT CREDIT AND THIS METHOD WAS ALSO ADOPTED WHILE VALUING THE UNCONSUMED RAW MATERIALS. HE FURTHER SU BMITTED THAT ON SIMILAR FACTS, ASSESSEES CASE IS SQUARELY COVERED BY THE JUDGMENT OF HON'BLE SUPREME COURT IN INDO NIPPON CHEMICALS CO. LTD. (SUPRA) WHICH HAS BEEN RELIED UPON BY THE COMMISSIONER (APPEALS). HE, THUS, STRONGLY RELIED UPON THE FINDINGS GIVEN BY THE COMMISSIONER (APPEALS). 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS OF THE PARTIES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE MATERIAL PLACED ON RECORD. THE ASSESSEE HAS BEEN FOLLOWING THE NET METHOD OF ACCOUNTING OF THE MODVAT CREDIT, WHEREIN THE CLOSING STOCK / I NVENTORIES IS VALUED AT NET OF INPUT DUTY PAID ON THE RAW MATERIALS WHICH D OES NOT FORM PART OF THE STOCK OF INVENTORY / CLOSING STOCK. IN SUPPORT OF T HIS, RELIANCE HAS BEEN PLACED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN INDO NIPPON CHEMICALS CO. LTD. (SUPRA) WHICH HAS BEEN FOLLOWED BY THE COMMISSIONER (APPEALS) ALSO. ON GOING THROUGH THE JUDGMENT OF TH E HON'BLE SUPREME MRS. INDU A. ARYA 4 COURT WHICH HAS AFFIRMED THE JUDGMENT PASSED BY THE JURISDICTIONAL HIGH COURT IN CIT V/S INDO NIPPON CHEMICALS LTD., [2000] 245 ITR 384 (SC) , IT IS SEEN THAT THIS CASE PERTAINS TO ASSESSMENT YEAR 1989-90 AND THE HIGH COURT HAD SPECIFICALLY HELD THAT PROVISIONS OF SECT ION 145A, HAS NO APPLICABILITY IN THIS YEAR AS THE SAME HAS BEEN BRO UGHT IN THE STATUTE W.E.F. 1 ST APRIL 1999. THUS, THE PROVISIONS OF SECTION 145A, WAS NOT A SUBJECT MATTER OF ADJUDICATION EITHER BY THE HIGH COURT OR BY THE HON'BLE SUPREME COURT. SECTION 145A, HAS BEEN BROUGHT IN THE STATUT E W.E.F. 1 ST APRIL 1999, WHICH IS A NON-OBSTANTE CLAUSE TO SECTION 145, PROV IDES THAT METHOD OF ACCOUNTING IN CERTAIN CASES. 145A. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 145 , (A) THE VALUATION OF PURCHASE AND SALE OF GOODS AN D 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 REGULARLY EMPLOYED BY THE ASSESSEE; AND (II) FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF AN Y TAX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) ACTUALLY PAID OR INCU RRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOC ATION AND 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 NOTWITHSTA NDING ANY RIGHT ARISING AS A CONSEQUENCE TO SUCH PAYMENT; (B) INTEREST RECEIVED BY AN ASSESSEE ON COMPENSATI ON OR ON ENHANCED COMPENSATION, AS THE CASE MAY BE, SHALL BE DEEMED T O BE THE INCOME OF THE YEAR IN WHICH IT IS RECEIVED.] 7. FROM THE ABOVE, IT IS AMPLY CLEAR THAT FOR THE PURP OSE OF VALUATION OF PURCHASE AND SALE OF GOODS AND INVENTORY, ADJUSTMEN T ON ACCOUNT OF TAX, DUTY, CESS OR FEE ACTUALLY PAID OR INCURRED BY THE ASSESSEE HAS TO BE MADE. THE EXCISE DUTY COMPONENT IN THE FORM OF MODVAT IN THE RAW MATERIALS HAS TO BE INCLUDED WHILE VALUING THE PURCHASES, SAL ES OF GOODS AND INVENTORY, AS IT HAS A DIRECT BEARING ON THE VALUAT ION OF STOCK AND THE MANUFACTURED GOODS. THUS, WE ARE OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER WHO MRS. INDU A. ARYA 5 WILL CARRY OUT THE NECESSARY VALUATION ON ACCOUNT O F MODVAT IN PURCHASE AND SALE OF GOODS AND INVENTORY IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTION 145A. THE ASSESSEE WILL PROVID E NECESSARY DETAILS AND WORKING TO THE ASSESSING OFFICER, WHO WILL VERIFY T HE SAME. THE ASSESSING OFFICER IS ALSO DIRECTED TO MAKE CORRESPONDING ADJU STMENT IN THE OPENING STOCK IN VIEW OF THE PRINCIPLES LAID DOWN BY THE BO MBAY HIGH COURT IN CIT V/S MAHALAXMI GLASS WORKS P. LTD., [2009] 318 ITR 116 (BOM.) . WE ORDER ACCORDINGLY. THUS, THE GROUND RAISED BY THE D EPARTMENT IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 8. 0 7 !' 1 81 9:; # !' 1 <= > ? 8. IN THE RESULT, REVENUES APPEAL IS ALLOWED FOR S TATISTICAL PURPOSES. $ 1 4* @ A (7 12 TH OCTOBER 2012 4 1 > ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH OCTOBER 2012 SD/- . .. . . .. . ! ! ! ! P.M. JAGTAP ACCOUNTANT MEMBER SD/- # # # # $% $% $% $% & ! & ! & ! & ! AMIT SHUKLA JUDICIAL MEMBER MUMBAI, A ( A ( A ( A ( DATED: 12 TH OCTOBER 2012 $ 1 -&#B CB* / COPY OF THE ORDER FORWARDED TO : (1) &( )0 / THE ASSESSEE; (2) !' / THE REVENUE; (3) D () / THE CIT(A); (4) D / THE CIT, MUMBAI CITY CONCERNED; (5) B'G -&&( , , / THE DR, ITAT, MUMBAI; (6) H) I / GUARD FILE. .B -& / TRUE COPY $( / BY ORDER - . JK / PRADEEP J. CHOWDHURY '0L &( J' / SR. PRIVATE SECRETARY 9 / < / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI