M/s. Ahlcon Parenterals (India) Ltd., New Delhi V. DCIT, New Delhi

ITA 4818/DEL/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5505 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 10-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Assessee Lawyers: A L SEHGAL
• Section: 145

Judgement Text

ITA NO. 4818/DEL/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A, NEW DELHI BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 4 8 18/ DEL/2012 A.Y. : 2008-09 M/S AHLCON PARENTERALS (INDIA) LTD., C/O A.K. SEHGAL & CO., CHARTERED ACCOUNTANTS, 1102, PRAKASH DEEP, 7, TOLSTOY MARG, NEW DELHI 110 001 (PAN: AAACA1112C) VS. DCIT, CIRCLE 1(1), NEW DELHI (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SH. A.L. SEHGAL, CA DEPARTMENT BY : MS. Y. KAKKAR, DR ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-IV, NE W DELHI DATED 09.8.2012 PERTAINING TO ASSESSMENT YEAR 2008-09. 2. THE ISSUE RAISED IS THAT LD. CIT(A) ERRED IN CO NFIRMING THE ADDITION OF RS. 10,48,187/- U/S. 145A OF THE I.T. A CT BY ADDING TO CLOSING STOCK THE EXCISE DUTY PAYABLE ON CLOSING IN VENTORY OF FINISHED STOCK 3. IN THIS CASE AS PER THE FACTS OF THE CASE, THE A PPELLANT HAD SHOWN THE VALUE OF CLOSING STOCK OF FINISHED GOODS AT ITA NO. 4818/DEL/2012 2 RS.1,86,15,485/- IN SCHEDULE 5 TO THE BALANCE SHEET AS ON 31.03.2008. HOWEVER, THE VALUE OF CLOSING STOCK OF FINISHED GOODS WAS SHOWN AT RS. 1,75,67,402/- IN SCHEDULE 14 (RELA TING TO INCREASE / DECREASE OF STOCK) TO THE PROFIT AND LOSS ACCOUNT F OR THE YEAR ENDED 31.03.2008. ON BEING ASKED TO EXPLAIN THE DIFFERENC E OF RS. 10,48,183/- IN THE VALUATION OF CLOSING STOCK OF FI NISHED GOODS AS AT THE CLOSE OF THE FINANCIAL YEAR UNDER CONSIDERATION , IT WAS SUBMITTED BY THE ASSESSEE THAT THE DIFFERENCE WAS AN ACCOUNT OF EXCISE DUTY PAYABLE ON THE CLOSING STOCK WHICH HAS BEEN REDUCE D FROM THE VALUE OF THE CLOSING STOCK FOR THE PURPOSE OF P&L ACCOUNT AND HAS BEEN SHOWN AS STATUTORY LIABILITIES IN SCHEDULE 10 . IT WAS OBSERVED BY THE AO THAT THE METHOD OF ACCOUNTING PRESCRIBED U/S. 145A OF THE ACT MANDATED THAT THE VALUATION OF INVENTORY FOR TH E PURPOSES OF DETERMINING THE INCOME CHARGEABLE UNDER THE HEAD 'P ROFITS AND GAINS OF BUSINESS OR PROFESSION SHALL 'INCLUDE THE AMOUNT OF ANY TAX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) ACTUALL Y PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VALUATION.' IT WAS FU RTHER OBSERVED BY THE AO THAT AS PER SECTION 3 OF THE CENTRAL EXCISE ACT, 1944, EXCISE DUTY LIABILITY AROSE IMMEDIATELY UPON PRODUCTION OR MANUFACTURE OF GOODS AND SUCH DUTY WAS PAYABLE AT THE PRESCRIBED R ATES. THEREFORE, AO NOTED THAT ON THE LAST DATE OF ACCOUNTING PERIO D THE CLOSING STOCK OF MANUFACTURED GOODS IS TO BE VALUED BY INCL UDING THE COMPONENT OF EXCISE DUTY LIABILITY. THE AO REFERRED TO THE DECISION OF THE HON'BLE SUPREME COURT IN MORIROKU UT INDIA (P) LIMITED V. STATE OF UTTAR PRADESH [2008] 4 SCC 548 WHEREIN IT WAS HE LD THAT THE LEVY OF EXCISE DUTY WAS ON THE TAXABLE EVENT OF MANUFACT URE AND IS CALCULATED ON THE VALUE OF MANUFACTURE GOODS. THE A O ALSO REFERRED TO THE DECISION OF THE HON'BLE APEX COURT IN CIT VS . BRITISH PAINTS INDIA LTD. (1991) 188 ITR 44 TO THE EFFECT THAT THE VALUATION OF STOCK- INTRADE SHOULD INCLUDE ALL ASSOCIATED COSTS SO AS NOT TO GIVE A ITA NO. 4818/DEL/2012 3 DISTORTED PICTURE OF THE TRUE STATE OF THE BUSINESS FOR THE PURPOSE OF COMPUTING THE CHARGEABLE INCOME FOR THE YEAR UNDER CONSIDERATION. IN THE ABOVE CASE, IT WAS HELD BY THE HON'BLE APEX COURT THAT AN INCORRECT SYSTEM OF ACCOUNTING FOR THE VALUATION OF STOCK-IN-TRADE WHICH EXCLUDES ALL COSTS OTHER THAN THE COST OF RAW MATERIALS MAY DIMINISH THE ASSESSMENT OF THE TAXABLE PROFIT FOR T HE YEAR UNDER CONSIDERATION. IT WAS OBSERVED BY THE AO THAT SINCE THE GOODS HAD BEEN MANUFACTURED AND WERE READY FOR DISPATCH, THE LIABILITY OF EXCISE DUTY HAD ALREADY ACCRUED AND HENCE FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY THE APPELLANT AND THE ACCOUNTING METHOD PRESCRIBED U/S 145A THE EXCISE DUTY COMPONEN T WAS TO BE INCLUDED IN THE VALUE OF CLOSING STOCK. THE AO AFTE R GIVING SHOW- CAUSE TO THE ASSESSEE AND DISTINGUISHING THE CASE L AWS CITED BY THE ASSESSEE, HAS ADDED THE ABOVE AMOUNT OF RS.10,48,18 3/-. 4. UPON ASSESSEES APPEAL LD. CIT(A) REJECTED THE A SSESSEES CONTENTION THAT ON THE BASIS OF CONSISTENCY OF METH OD, APPELLANTS CLAIM SHOULD BE ALLOWED. HE HELD THAT PRINCIPLE O F RESJUDICATA DOES NOT APPLY TO INCOME TAX MATTERS. LD. CIT(A) FURTHE R HELD THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG AND THAT THE EXCISE DUTY IS PAYABLE IMMEDIATELY ON PRODUCTION O R MANUFACTURE OF GOODS. THEREFORE, IT WAS HELD THAT THERE IS NO RE ASON AS TO WHY EXCISE DUTY LIABILITY SHOULD NOT BE INCLUDED FOR VALUATION OF CLOSING STOCK OF FINISHED GOODS. LD. CIT(A) FURTHER REFERR ED TO THE DECISION OF THE HONBLE APEX COURT IN BRITISH PAINTS INDIA LTD . AND ACCORDINGLY, HE AFFIRMED THE ADDITION MADE BY THE AO. 5. AGAINST THE ABOVE ORDER THE ASSESSEE IS IN APPEA L BEFORE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ISSUE AS TO WHETHER THE EXCISE DUTY IS INCLUDED IN THE CLOSING STOCK HAS BE EN CONSIDERED BY ITA NO. 4818/DEL/2012 4 THE HONBLE APEX COURT AND THE HONBLE JURISDICTION AL HIGH COURT AND ANOTHER HONBLE HIGH COURTS. HE CLAIMED THAT IT H AS BEEN DECIDED THAT EXCISE DUTY IS NOT TO BE INCLUDED IN THE VALUE OF CLOSING STOCK. IN THIS REGARD, HE REFERRED TO THE FOLLOWING CASES LAWS AND SHORT NOTES:- - CIT VS. DYNAVISION LTD. (2012) 348 ITR 380 (SC) VALUATION OF STOCK EXCISE DUTY NOT INCLUDIBLE IN VALUING CLOSING STOCK INCOME TAX ACT, 1961 WHERE, ON THE GROUND THAT THE ASSESSEE HAD NOT INCL UDED IN THE CLOSING STOCK THE ELEMENT OF EXCISE DUTY THE AO ADDED A SUM OF RS. 16,39,000/- TO THE INCOME OF THE ASSESSEE ON THE GROUND OF UNDERVALUATION OF CLOSING STOCK. HELD, AFFIRMING THE DECISION OF HIGH COURT, THAT T HE ADDITION OF RS. 16,39,000/- TO THE INCOME OF THE AS SESSEE ON THE GROUND OF UNDERVALUATION OF THE CLOSING STOC K WAS WRONG. DECISION IN MADRAS HIGH COURT IN CIT VS. DYNAVISION LTD. (2004) 267 ITR 600 (MAD) AFFIRMED. - CIT VS. MODIPON LTD. (NO. 2) 334 ITR 106 (DELHI) VALUATION OF CLOSING EXCISE AND CUSTOMS DUTIES ASSESSEE ENTITLED TO EXCLUDE EXCISE AND CUSTOMS DUT IES PAID FROM VALUE OF CLOSING STOCK INCOME TAX ACT, 1961. - ACIT VS. NARMADA CHEMATUR PETROCHEMICALS LTD. 327 ITR 369 (GUJ.). ACCOUNTING CLOSING STOCK VALUATION EXCISE DUTY LIABILITY ONLY AT TIME OF REMOVAL OF GOODS NOT INCLUDIBLE IN VALUATION OF CLOSING STOCK OF FIN ISHED GOODS AT END OF ACCOUNTING PERIOD. ITA NO. 4818/DEL/2012 5 - CIT VS. LOKNETE BALASHAER BESAI S.S. LTD. 339 ITR 2 88 (BOM.) SEC. 145A VALUATION OF STOCK LAW APPLICABLE E FFECT OF INSERTION OF SECTION 145A W.E.F. 1.4.99 EXCISE DU TY ON UNSOLD STOCK NOT TO BE TAKEN IN TO ACCOUNT. 7. LD. DR ON THE OTHER HAND SUBMITTED THAT AS PER T HE EXPRESS PROVISIONS OF THE ACT AS MENTIONED IN SECTION 145 O F THE I.T. ACT, ASSESSEE SHOULD HAVE INCLUDED EXCISE DUTY IN THE VA LUATION OF THE CLOSING STOCK. SHE FURTHER CLAIMED THAT THE CASE LAW REFERRED BY THE ASSESSEES COUNSEL ARE PERTAINING TO THE PERIOD W HICH IS PRIOR TO AMENDMENT IN SECTION 145A. 8. WE HAVE CAREFULLY CONSIDERED THE ISSUE. WE FIN D THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. LOKNETE B ALASHER BESAI S.S. K LTD. 339 ITR 288 HAD THE OCCASION TO EXAMINE THE ISSUE AND THE EFFECT OF AMENDMENT OF SECTION 145A W.E.F. 1.4 .1999. THE HONBLE HIGH COURT HAS EXPOUNDED AS UNDER:- SECTION 145A OF THE INCOME TAX ACT, 1961, WAS INSE RTED BY THE FINANCE (NO. 2) ACT, 1998, WITH EFFECT FROM APRIL 1, 1999. IT PROVIDES FOR VALUATION OF PURCHASE AND SA LE OF GOODS AND INVENTORY FOR THE PURPOSES OF DETERMINING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAIN S OF BUSINESS OR PROFESSION. THE EXPRESSION INCURRED BY THE ASSESSEE IN SECTION 145A(B) IS FOLLOWED BY THE WOR DS TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CO NDITION AS ON THE DATE OF VALUATION. THUS, THE EXPRESSION ITA NO. 4818/DEL/2012 6 INCURRED BY THE ASSESSEE RELATES TO THE LIABILITY DETERMINED AS TAX, DUTY, CESS OR FEE PAYABLE IN B RINGING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITIO N OF THE GOODS. THE EXPLANATION TO SECTION 145A(B) MAKES IT FURTHER CLEAR THAT THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS SHALL BE ADJUSTED B Y THE AMOUNT PAID AS TAX, DUTY, CESS OR FEE. THEREFORE, T HE EXPRESSION INCURRED IN SECTION 145A(B) MUST BE CONSTRUED TO MEAN THE LIABILITY ACTUALLY INCURRED B Y THE ASSESSEE. THOUGH THE DATE OF MANUFACTURE IS THE RELEVANT DATE FOR DUTIABILITY, THE RELEVANT DATE FO R THE DUTY LIABILITY IS THE DATE ON WHICH THE GOODS ARE C LEARED. IN OTHER WORDS, IN RESPECT OF EXCISABLE GOODS, MANUFACTURED AND LYING IN STOCK, THE EXCISE DUTY LI ABILITY WOULD GET CRYSTALLISED ON THE DATE OF CLEARANCE OF GOODS AND NO ON THE DATE OF MANUFACTURE. 9. FROM THE AFORESAID EXPOSITION, IT IS CLEAR THAT THE LIABILITY OF EXCISE DUTY IN CASES SUCH AS THIS CASE GETS CRYSTA LLIZED ONLY ON THE DATE OF CLEARANCE OF GOODS AND NOT ON THE DATE OF M ANUFACTUR. SINCE IN THE PRESENT CASE THE GOODS HAVE NOT BEEN CLEARED AND THE EXCISE DUTY IS NOT EXIGIBLE ON THE SAME, HENCE, THE EXCISE DUTY SHOULD NOT BE INCLUDED IN THE VALUATION OF THE CLOSING STOCK. ACCORDINGLY, IN LIGHT OF THE AFORESAID PRECEDENT AND DISCUSSION, W E SET ASIDE THE ITA NO. 4818/DEL/2012 7 ORDERS OF THE AUTHORITIES BELOW AND HOLD THAT EXCIS E DUTY PAYABLE IN THIS CASE IS TO BE INCLUDED IN THE CLOSING INVENTO RY AND ACCORDINGLY, THIS APPEAL BY THE ASSESSEE STANDS ALLOWED. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24/3/2014. SD/- SD/- [ [[ [R.P. TOLAN] R.P. TOLAN] R.P. TOLAN] R.P. TOLAN] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 24/3/2014 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED COPY FORWARDED COPY FORWARDED COPY FORWARDED TO: TO: TO: TO: - -- - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES ITA NO. 4818/DEL/2012 8