SUNSHIELD CHEMICALS LTD, MUMBAI V. ITO 7(2)(3), MUMBAI

ITA 5045/MUM/2010

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2169 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 11-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 17-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P J PARDIWALA
• Keywords: Business income; Depreciation; Transfer pricing; Principle of natural justice; International transaction; Revised return; Unabsorbed depreciation
• Section: 43B; 143(3); 32; 145; 37; 28; 10

Judgement Text

H IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 5045 /MUM/2010 ( / ASSESSMENT YEAR : 2007-08) SUNSHIELD CHEMICALS PVT. LTD., C/O, KALYANIWALLA & MISTRY ARMY & NAVY BUILDING,148, MAHATMA GANDHI ROAD MUMBAI-400 001 / V. INCOME TAX OFFICER- 7(2)(3), MUMBAI ./ PAN :AABCG3365J ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI P.J.PARDIWALA & MS AARTI SATHE REVENUE BY : SHRI NITIN WAGHMODE ,DR / DATE OF HEARING : 02-11-2015 / DATE OF PRONOUNCEMENT : 09-12-2015 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER : THIS APPEAL, FILED BY THE ASSESSEE COMPANY, BEING I TA NO. 5045/MUM/2011, IS DIRECTED AGAINST THE ORDER DATED 29-03-2011 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 1 3, MUMBAI (HEREINAFTER CALLED THE CIT(A)), FOR THE ASSESSMENT YEAR 2007- 08. ITA 5045/M/10 2 2. THE ASSESSEE COMPANY HAS RAISED THE FOLLOWING GR OUNDS OF APPEAL IN THE MEMO OF APPEAL FILED WITH THE TRIBUNAL:- 1) THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ERR ED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN D ENYING THE SET OFF IN RESPECT OF THE CURRENT YEARS DEPRECIATION ALLOW ABLE AGAINST THE CAPITAL GAINS FOR THE YEAR. 2) THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ERR ED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN N OT SPECIFYING/ CARRYING FORWARD THE UNABSORBED DEPRECIATION AND BR OUGHT FORWARD BUSINESS LOSSES OF THE APPELLANT. 3) THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ERR ED IN DIRECTING THE ASSESSING OFFICER TO MAKE ADDITION ON ACCOUNT O F THE PROVISIONS OF SECTION 145A OF THE ACT. 4) THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) ERR ED IN DIRECTING THE ASSESSING OFFICER TO INVOKE THE PROVISIONS OF S ECTION 145A OF THE ACT WITHOUT MAKING ANY ADJUSTMENT TO THE OPENING ST OCK OF THE APPELLANT. ITA 5045/M/10 3 5) THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS ) ER RED IN NOT DIRECTING THE ASSESSING OFFICER TO RE-COMPUTE THE O PENING STOCK, PURCHASES, SALES AND CLOSING STOCK IN ACCORDANCE WI TH THE PROVISIONS OF SECTION 145A OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF CHEMICALS. THE CASE OF THE ASSESSEE COMPANY WAS SELECTED FOR SCRUTINY FOR FRAMING ASSESSMENT U/S 14 3(3) OF THE INCOME TAX ACT,1961(HEREINAFTER CALLED THE ACT) READ WIT H SECTION 143(2) OF THE ACT. THE ASSESSEE COMPANY E-FILED ITS RETURN OF INCOME ON 30.10.2007 DECLARING TOTAL INCOME OF (-) RS. 4,46,0 7,722. NOTICE U/S 143(2) OF THE ACT WAS ISSUED TO THE ASSESSEE COMPAN Y ON 18.08.2008.THE ORIGINAL RETURN WAS REVISED BY THE A SSESSEE COMPANY BY FILING REVISED RETURN OF INCOME ON 30.03.2009 REVIS ING THE LOSS TO (-) RS.32,92,004/-. THE LOSS IS REDUCED IN THE REVISED RETURN AS COMPARED TO THE ORIGINAL RETURN OF INCOME FILED WITH REVENUE DUE TO DECLARATION OF ADDITIONAL INCOME BEING LONG TERM CAPITAL GAIN OF R S.4,27,50,000/- ON SALE OF TENANCY RIGHTS IN OFFICE PREMISES AT JANKI NIWAS, DADAR, MUMBAI. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) OBSERVED THAT THE ASSESSEE ITA 5045/M/10 4 COMPANY HAS SHOWN BUSINESS LOSS OF RS.4,46,09,522/- WHICH INCLUDED DEPRECIATION U/S 32 OF THE ACT AMOUNTING TO RS.3,20 ,97,526/- WHICH THE ASSESSEE COMPANY HAS SET OFF AGAINST THE LONG T ERM CAPITAL GAINS OF RS.4,27,50,000/-. THUS, THE ASSESSEE COMPANY HAS SET OFF THE BUSINESS LOSS AND THE DEPRECIATION AGAINST THE LONG TERM CAPITAL GAIN EARNED DURING THE ASSESSMENT YEAR. 5. IN THE OPINION OF THE AO , SECTION 71 OF THE ACT ALLOWS FOR ADJUSTMENT OF BUSINESS LOSS AGAINST THE INCOME UNDER THE HEAD CA PITAL GAINS. AS PER THE AO, THE BUSINESS LOSS IS TO BE COMPUTED AS PER SECTION 29 OF THE ACT I.E. SECTION 32 IS TO BE GIVEN EFFECT FOR COMPU TING BUSINESS LOSS. SECTION 32(2) OF THE ACT RESTRICTS THE ALLOWABLE DE PRECIATION TO THE PROFITS AND GAINS OF BUSINESS. THEREFORE, IN THE OP INION OF THE AO, THE CURRENT YEARS ALLOWABLE DEPRECIATION CANNOT EXCEED THE BUSINESS INCOME. HENCE AS PER AO, THE ASSESSEES CLAIM OF SE T OFF DEPRECIATION AGAINST CAPITAL GAINS CANNOT BE ALLOWED. THE AO THE N REFERRED TO PROVISIONS OF SECTION 29 AND 32(2) OF THE ACT TO CO ME TO THE CONCLUSION THAT IF THERE IS NO INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR WHERE THE PROFIT UNDER THE HEAD BUSINESS IS LESS THAN THE DEPRECIATION ALLOWABLE U/S 32(1) OF THE ACT, THEN T HE ALLOWANCE OF PART OF THE ALLOWANCE TO WHICH EFFECT CANNOT BE GIVEN SH ALL BE ADDED TO THE DEPRECIATION ALLOWANCE FOR THE NEXT PREVIOUS YEAR A ND SHALL BE SET OFF ITA 5045/M/10 5 AGAINST THE INCOME UNDER THE HEAD PROFITS AND GAIN S OF BUSINESS LEFT AFTER ALLOWING DEDUCTIONS U/S 30 TO 43D OF THE ACT (EXCLUDING DEPRECIATION ALLOWANCE U/S 32 OF THE ACT) AND IF TH E INCOME UNDER THE HEAD PROFIT AND GAINS OF BUSINESS IS NOT SUFFICIE NT FOR THE DEPRECIATION ALLOWANCE, THEN THE SAME IS TO BE TREATED AS PER TH E SECTION 32(2) OF THE ACT I.E. TO BE ADDED TO THE DEPRECIATION ALLOWABLE U/S 32(1) OF THE ACT NEXT YEAR.THE AO THEN REFERRED TO THE PROVISIONS OF SECTION 71, 72 AND 32 OF THE ACT AND RECONCILED THE SAID SECTIONS IN A MANNER TO COME TO CONCLUSION THAT THE DEPRECIATION OF THE CURRENT YEA R IS NOT TO BE ALLOWED TO BE SET OFF AGAINST THE INCOME UNDER THE HEAD LO NG TERM CAPITAL GAINS VIDE ASSESSMENT ORDERS DATED 18.12.2009 U/S 143(3) OF THE ACT. 6. AGGRIEVED BY THE AFORE-STATED ASSESSMENT ORDER D ATED 18.12.2009, THE ASSESSEE COMPANY FILED FIRST APPEAL WITH THE CIT(A) . THE ASSESSEE COMPANY RELIED UPON THE FOLLOWING CASE LAWS IN SUPP ORT OF ITS CONTENTIONS: 1. CIT V. JAIPURIA CHINA CLAY MINES PRIVATE LIMITED-59 ITR 555(SC), 2. RAJAPALAYAM MILLS LIMITED V. CIT -115 ITR 777(SC), 3. GARDEN SILK WVG FACTORY-189 ITR 512(SC), 4. CIT V. VIRMANI INDS. P. LTD. & ORS.-216 ITR 607(SC) , ITA 5045/M/10 6 5. RALLIES INDIA LIMITED IN ITA NO. 4898/M/2006. IN THE LIGHT OF THE ABOVE DECISIONS , THE ASSESSEE COMPANY ARGUED THAT THE ASSESSEE COMPANY HAS SET OFF THE DEPRECIATION A LLOWANCE FOR THE YEAR UNDER CONSIDERATION COMPUTED AS PER PROVISIONS OF SECTION 32(1) OF THE ACT AGAINST THE LONG TERM CAPITAL GAINS FOR THE YEAR AND SUCH SET OFF IS ALLOWABLE AS PER PROVISIONS OF SECTION 71 OF THE ACT.THE ASSESSEE COMPANY CONTENDED THAT THE PROVISIONS OF SECTION 32 (2) OF THE ACT ARE NOT ATTRACTED IN THE APPELLANT COMPANYS CASE AND T HE RELIANCE OF AO ON SECTION 32(2) OF THE ACT IS DEVOID OF MERIT AND HEN CE THE SET OFF OF THE DEPRECIATION AGAINST THE LONG TERM CAPITAL GAINS FO R THE YEAR BE ALLOWED TO THE ASSESSEE COMPANY . 7. THE CIT(A) REJECTED THE CONTENTIONS OF THE ASSESSEE COMPANY VIDE ORDERS DATED 29-03-2010 ON THE GROUNDS THAT UNDER SECTION 32(2) OF THE ACT R.W.S. SECTION 14 OF THE ACT , THE WORDS PROFITS AN D GAINS ARE SPECIFICALLY CONFINED TO PROFITS AND GAINS OF BUSINESS ONLY AN D THUS , CURRENT YEAR DEPRECIATION WHICH COULD NOT BE SET OFF AGAINST THE PROFITS AND GAINS OF BUSINESS SHALL BE CARRIED FORWARD TO BE ADJUSTED A S PER PROVISIONS OF SECTION 32(2) OF THE ACT R.W.S. 72(2) OF THE ACT AN D SECTION 32(2) OF THE ACT ALSO STIPULATES THAT CURRENT YEAR DEPRECIATION CAN BE SET OFF ONLY AGAINST PROFITS AND GAINS OF BUSINESS AND NOT OTHER HEADS OF INCOME. THE CIT(A) ITA 5045/M/10 7 ALSO HELD THAT THE CASE LAWS RELIED UPON BY THE ASS SESSEE COMPANY MOSTLY PERTAINED TO OLD INCOME TAX ACT OF 1922 WHEREBY UND ER THE OLD ACT OF 1922 VIDE SECTION 6 , THE WORD PROFITS AND GAINS HAS BEE N ATTRIBUTED TO VARIOUS OTHER HEADS OF INCOME ALSO VIZ. SALARY/INTEREST ON SECURITIES, INCOME FROM PROPERTIES AND CAPITAL GAINS WHILE THE NEW 1961 ACT VIDE SECTION 14 RESTRICT THE WORDS PROFITS AND GAINS TO PROFITS AND GAINS OF BUSINESS OR PROFESSION ONLY. 8. AGGRIEVED BY THE ORDERS DATED 29-03-2010 PASSED BY THE CIT(A), THE ASSESSEE COMPANY IS IN APPEAL BEFORE THE TRIBUNAL. 9. THE LD. COUNSEL OF THE ASSESSEE COMPANY SUBMITTED T HAT THE ASSESSEE COMPANY HAS SET OFF UNABSORBED DEPRECIATION OF RS.3 ,20,97,526/- AGAINST THE LONG TERM CAPITAL GAINS EARNED DURING THE YEAR. THE AO HAS NOT ALLOWED SET-OFF OF UNABSORBED DEPRECIATION AGAINST THE LONG TERM CAPITAL GAINS EARNED DURING THE YEAR BY THE ASSESSEE COMPANY ON T HE GROUNDS THAT SECTION 32(2) OF THE ACT RESTRICTS THE ALLOWABLE DE PRECIATION TO THE EXTENT OF THE PROFITS AND GAINS OF BUSINESS AND THAT THE CURR ENT YEARS DEPRECIATION CANNOT EXCEED THE PROFITS AND GAINS CHARGEABLE TO T AX FOR THAT PREVIOUS YEAR. THE LD. COUNSEL DREW OUR ATTENTIONS TO SECTIO N 32(2) , 71(2) AND 72(2) OF THE ACT TO CONTEND THAT ASSESSEE COMPANY HAS RIG HTLY SET OFF THE UNABSORBED DEPRECIATION OF RS.3,20,97,526/- AGAINST THE LONG TERM CAPITAL ITA 5045/M/10 8 GAINS EARNED BY THE ASSESSEE COMPANY DURING THE YEA R. THE LD. COUNSEL RELIED UPON THE JUDGMENT OF HONBLE SUPREME COURT I N CIT V. VIRMANI INDUSTRIES PRIVATE LIMITED IN (1995)216 ITR 607(SC) , JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF AMBIKA SILK MILLS COMPANY LIMITED V. CIT IN (1952) ITR 58 (BOM.) AND THE DECISION IN THE CASE OF RALLIS INDIA LIMITED V. JCIT IN ITA NO. 4889/MUM/2006 TO CONTEND THAT THE ASSESSEE COMPANY IS ENTITLED FOR SET-OFF OF UN-ABSORBED DEPR ECIATION ALLOWANCE AGAINST THE LONG TERM CAPITAL GAIN EARNED BY THE AS SESSEE COMPANY.WHILE ON THE OTHER HAND THE LD. DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL ON RECORD INCLUDING CASE LAWS. WE HAVE OBSERVED THAT T HE ASSESSEE COMPANY HAS SET OFF UNABSORBED DEPRECIATION OF RS.3,20,97,5 26/- AGAINST THE LONG TERM CAPITAL GAINS EARNED DURING THE YEAR WHICH HAS NOT BEEN ALLOWED BY THE AO AND THE SAME WAS CONFIRMED BY THE CIT(A). 11. WE HAVE OBSERVED THAT THIS ISSUE HAS BEEN DECIDED B Y THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ITA NO. 4898/MUM/06 IN THE CASE OF RALLIS INDIA LIMITED V. JCIT FOR THE ASSESSMENT YEAR 2002-03 IN FAVOUR OF THE TAXPAYER BY HOLDING THAT THE TAXPAYER IS ENTITLED TO SET OFF OF UNABSORBED CARRY FORWARD DEPRECIATION AGAINST THE INCOME COMPUTED UN DER THE HEAD LONG ITA 5045/M/10 9 TERM CAPITAL GAIN OF THE YEAR UNDER CONSIDERATION AND THE RELEVANT PARAS ARE AS UNDER: 7. BEFORE PROCEEDING FURTHER, WE WOULD LIKE TO SEE THE PROVISIONS OF SECTION 32(2) AS EXISTED PRIOR TO AY 1997-98, EX ISTED FROM AY 1997-98 TO AY 2001-02 AND EXISTED FROM AY 2002-03 O NWARDS, WHICH ARE AS UNDER: SECTION 32(2) AS IT EXISTED PRIOR TO AY 1997-98 : (2) WHERE, IN THE ASSESSMENT OF THE ASSESSEE, 34 [***] FULL EFFECT CANNOT BE GIVEN TO ANY ALLOWANCE 35 [UNDER CLAUSE (II) OF SUB-SECTION (1)] IN ANY PREVIOUS YEA R, OWING TO THERE BEING NO PROFITS OR GAINS CHARGEABLE FOR THAT PREVIOUS YEAR, OR OWING TO THE PROFITS OR GAIN S CHARGEABLE BEING LESS THAN THE ALLOWANCE, THEN, SUBJECT TO THE PROVISIONS OF SUB-SECTION (2) OF SEC TION 72 AND SUB-SECTION (3) OF SECTION 73, THE ALLOWANCE OR PART OF THE ALLOWANCE TO WHICH EFFECT HAS NOT BEEN GIVEN , AS THE CASE MAY BE, SHALL BE ADDED TO THE AMOUNT OF TH E ALLOWANCE FOR DEPRECIATION FOR THE FOLLOWING PREVIO US YEAR AND DEEMED TO BE PART OF THAT ALLOWANCE, OR IF THERE IS NO SUCH ALLOWANCE FOR THAT PREVIOUS YEAR, BE DEEMED TO BE THE ALLOWANCE FOR THAT PREVIOUS YEAR, AND SO ON FOR THE SUCCEEDING PREVIOUS YEARS. ITA 5045/M/10 10 SECTION 32(2) AS IT EXISTED FROM AY 1997-98 TO AY 2 001-02: [(2) WHERE IN THE ASSESSMENT OF THE ASSESSEE FULL EFFECT CANNOT BE GIVEN TO ANY ALLOWANCE UNDER CLAUSE (II) OF SUB-SECTION (1) IN ANY PREVIOUS YEAR OWING TO THERE BEING NO PROFITS OR GAINS CHARGEABLE FOR T HAT PREVIOUS YEAR OR OWING TO THE PROFITS OR GAINS BEIN G LESS THAN THE ALLOWANCE, THEN, THE ALLOWANCE OR THE PART OF ALLOWANCE TO WHICH EFFECT HAS NOT BEEN GIVE N (HEREINAFTER REFERRED TO AS UNABSORBED DEPRECIATION ALLOWANCE), AS THE CASE MAY BE, (I) SHALL BE SET OFF AGAINST THE PROFITS AND GAINS, IF ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM AND ASSESSABLE FOR THAT ASSESSMENT YEAR ; (II) IF THE UNABSORBED DEPRECIATION ALLOWANCE CANNOT BE WHOLLY SET OFF UNDER CLAUSE (I), THE AMOUNT NOT SO SET OFF SHALL BE SET OFF FROM THE INCOME UNDER ANY OTHER HEAD, IF ANY, ASSESSABLE FOR THAT ASSESSMENT YEAR; (III) IF THE UNABSORBED DEPRECIATION ALLOWANCE CANNOT BE WHOLLY SET OFF UNDER CLAUSE (I) AND ITA 5045/M/10 11 CLAUSE (II), THE AMOUNT OF ALLOWANCE NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSESS- MENT YEAR AND (A) IT SHALL BE SET OFF AGAINST THE PROFITS AND GAINS, IF ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY HIM AND ASSESSABLE FOR THAT ASSESSMENT YEAR ; (B) IF THE UNABSORBED DEPRECIATION ALLOWANCE CANNOT BE WHOLLY SO SET OFF, THE AMOUNT OF UNABSORBED DEPRECIATION ALLOW- ANCE NOT SO SET OFF SHALL BE CARRIED FORWARD TO THE FOLLOWING ASSESSMENT YEAR NOT BEING MORE THAN EIGHT ASSESSMENT YEARS IMMEDIATELY SUCCEEDING THE ASSESSMENT YEAR FOR WHICH THE AFORESAID ALLOWANCE WAS FIRST COMPUTED . SECTION 32(2) AS IT EXISTS FROM AY 2002-03 TILL DAT E: [(2) WHERE, IN THE ASSESSMENT OF THE ASSESSEE, FUL L EFFECT CANNOT BE GIVEN TO ANY ALLOWANCE UNDER SUB- SECTION (1) IN ANY PREVIOUS YEAR, OWING TO THERE BE ING NO PROFITS OR GAINS CHARGEABLE FOR THAT PREVIOUS YE AR 71 , ITA 5045/M/10 12 OR OWING TO THE PROFITS OR GAINS CHARGEABLE BEING L ESS THAN THE ALLOWANCE, THEN, SUBJECT TO THE PROVISIONS OF SUB-SECTION (2) OF SECTION 72 AND SUB-SECTION (3) OF SECTION 73 , THE ALLOWANCE OR THE PART OF THE ALLOWANCE TO WHICH EFFECT HAS NOT BEEN GIVEN, AS TH E CASE MAY BE, SHALL BE ADDED TO THE AMOUNT OF THE ALLOWANCE FOR DEPRECIATION FOR THE FOLLOWING PREVIO US YEAR AND DEEMED TO BE PART OF THAT ALLOWANCE, OR IF THERE IS NO SUCH ALLOWANCE FOR THAT PREVIOUS YEAR, BE DEEMED TO BE THE ALLOWANCE FOR THAT PREVIOUS YEAR, AND SO ON FOR THE SUCCEEDING PREVIOUS YEARS.] 7.1 WE HAVE ALSO SEEN THE DECISIONS OF THE APEX COU RT IN THE CASE OF VIRMANI INDUSTRIES LTD(SUPRA) COPY OF WHICH IS PLACED ON RECORD AND FOUND THAT THE WORDINGS OF SEC .32(2) AS EXISTED FOR AY 2002-03 ARE IDENTICAL TO THE WORDING S TO SEC. 32(2) WITH THE YEAR BEFORE THE HONBLE SUPREME COUR T I.E. AY 1956-57. 7.2 THE FACTS BEFORE THE HONBLE SUPREME COURT IN T HE CASE OF VIRMANI INDUSTRIES LTD.(SUPRA) WERE AS UNDER: ITA 5045/M/10 13 THE ASSESSEE WAS ENGAGED IN THE MANUFACTURE OF SOAP AND OIL DURING THE PREVIOUS YEAR RELEVANT TO T HE ASSESSMENT YEAR 1956-57. THE BUSINESS WAS STOPPED IN THAT YEAR WHERE AFTER THE FACTORY WAS LET OUT ON HIRE. TEN YEARS LATER, I.E. IN THE PREVIOUS YEAR RE LEVANT TO THE ASSESSMENT YEAR 1965-66, THE ASSESSEE STARTE D THE BUSINESS OF MANUFACTURE OF STEEL PIPES. FOR THE PURPOSE OF THIS BUSINESS, A PART OF THE OLD MACHINE RY USED IN THE MANUFACTURE OF SOAP AND OIL WAS UTILIZE D. IN THE ASSESSMENT PROCEEDING RELATING TO THE ASSESSMENT YEAR 1965-66 , THE ASSESSEE CLAIMED THAT THE UNABSORBED DEPRECIATION , TO THE EXTENT IT PERT AINED TO THE OLD MACHINERY UTILIZED IN THE NEW BUSINESS, SHOULD BE BROUGHT FORWARD AND SET OFF AGAINST THE PROFITS OF THE NEW BUSINESS. THIS CLAIM WAS REJECTE D BY THE ITO AND BY THE APPELLATE ASSISTANT COMMISSIONER. THIS CLAIM WAS REJECTED BY THE ITO AN D BY THE APPELLATE ASSISTANT COMMISSIONER. THE TRIBUNAL UPHELD THE ASSESSEES CLAIM AND THE HIGH COURT AFFIRMED THE DECISION OF THE TRIBUNAL. ITA 5045/M/10 14 7.3 ON APPEAL BEFORE THE HONBLE SUPREME COURT, THE HONBLE SUPREME COURT HAS OBSERVED AND HAS HELD AS UNDER: THE WORDS NO PROFITS OR GAINS CHARGEABLE FOR THAT YEAR IN SECTION 32(2) OF THE I T ACT , 1961 ARE NO T CONFINED TO PROFITS AND GAINS DERIVED FROM BUSINESS . THEY REFER TO THE TOTALITY OF THE PROFITS OR GAINS COMPUTED UNDER THE VARIOUS HEADS AND CHARGEABLE TO TAX. IT IS, THEREFORE, CLEAR THAT EFFECT MUST BE GI VEN TO DEPRECIATION ALLOWANCE FIRST AGAINST THE PROFITS AN D GAINS OF THE PARTICULAR BUSINESS WHOSE INCOME IS BE ING COMPUTED UNDER SECTION 28 AND IF THE PROFITS OF THA T BUSINESS ARE NOT SUFFICIENT TO ABSORB THE DEPRECIAT ION ALLOWANCE, THE ALLOWANCE TO THE EXTENT TO WHICH IT IS NOT ABSORBED WOULD BE SET OFF AGAINST THE PROFITS O F ANY OTHER BUSINESS AND IF A PART OF THE DEPRECIATIO N ALLOWANCE STILL REMAINS UNABSORBED , IT WOULD BE LI ABLE TO BE SET OFF AGAINST THE PROFITS AND GAINS CHARGEA BLE UNDER ANY OTHER HEAD OF AND IT IS ONLY IF SOME PART OF THE DEPRECIATION ALLOWANCE STILL REMAINS THAT IT CA N BE CARRIED FORWARD TO THE NEXT ASSESSMENT YEAR. BUT WHERE ANY PART OF THE DEPRECIATION REMAINS UNABSORBED AFTER BEING SET OFF AGAINST THE TOTAL IN COME ITA 5045/M/10 15 CHARGEABLE TO TAX, IT CAN BE CARRIED FORWARD TO THE FOLLOWING YEAR AND SET OFF AGAINST THE YEARS INCOM E AND SO ON FOR SUCCEEDING YEARS. THE METHOD ADOPTED BY THE STATUTE FOR ACHIEVING THE RESULT IS THAT THE CARRIED FORWARD DEPRECIATION ALLOWANCE IS DEEMED TO BE PART OF AND STANDS ON EXACTLY THE SAME FOOTING A S THE CURRENT DEPRECIATION FOR THE ASSESSMENT YEAR AN D IS THIS ALLOWABLE AS A DEDUCTION. 7.4 WHILE DECIDING THE ISSUE, THE HONBLE SUPREME C OURT HAS FOLLOWED THE EARLIER DECISIONS OF THE APEX COUR T IN THE CASE OF JAIPURIA CHINA CLAY MINES (P) LTD. IN 59 IT R 555, RAJAPALAYAM MILLS LTD. IN 115 ITR 777 WHICH WERE RE NDERED BY THE BENCH CONSISTING OF THREE JUDGES. THE HONBL E SUPREME COURT HAS ALSO OBSERVED THAT SINCE THE BENC H HEADED BY THREE HONBLE JUDGES, THEREFORE, THE DECI SIONS OF EARLIER BENCH ARE BINDING ON THEM. AT PAGE 216 IN P ARA F , THE HONBLE SUPREME COURT HAS OBSERVED THAT ; WE HAVE EXTRACTED THE RELEVANT OBSERVATIONS FROM BOTH THE JUDGMENTS HEREINABOVE , WHICH SAY THAT THE UNABSORBED DEPRECIATION ALLOWANCE HAS NOT ONLY TO B E SET OF AGAINST OTHER HEADS OF INCOME IN THE RELEVAN T ITA 5045/M/10 16 PREVIOUS YEAR BUT WHERE IT IS CARRIED FORWARD, IT STANDS ON EXACTLY THE SAME FOOTING AS CURRENT DEPRECIATION. 8. AFTER OBSERVING THESE OBSERVATIONS , THE HONBLE SUPREM COURT HAS ANSWERED THE REFERENCE APPLICATION IN F AVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. 9. AFTER GOING THROUGH THE DECISION OF THE APEX COU RT AND THE FACTS OF THE PRESENT CASE, WE FIND THAT BOTH THE LO WER AUTHORITIES WERE NOT JUSTIFIED IN NOT ACCEPTING THE CLAIM OF THE ASSESSEE.THE LD. CIT(A) ALSO NOT JUSTIFIED IN HOLDI NG THAT THE DECISION OF THE APEX COURT IS NOT RELEVANT FOR AY 2 002-03 . AS STATED ABOVE, THE WORDINGS OF SECTION 32(2) ARE SIMILAR TO THE WORDINGS OF SEC. 32(2) EXISTING PRIOR TO AY 199 7-98. THEREFORE, WE HAVE NO HESITATION IN HOLDING THAT TH E DECISION OF THE APEX COURT IS SQUARELY APPLICABLE ON THE FAC TS OF THE PRESENT CASE. ACCORDINGLY, WE DIRECT THE AO TO ALLO W THE SET OFF OF CARRY FORWARD UNABSORBED DEPRECIATION AGAINS T THE INCOME COMPUTED UNDER THE HEAD LONG TERM CAPITAL G AIN OF THE YEAR UNDER CONSIDERATION. WE ORDER ACCORDINGLY. ITA 5045/M/10 17 PERUSAL OF THE WORDINGS OF SECTION 32(2) AS APPLICA BLE TO ASSESSMENT YEAR 2007-08 I.E. THE IMPUGNED ASSESSMENT YEAR WILL REVEAL THAT THE WORDINGS ARE SIMILAR TO THE WORDINGS AS APPLICABLE FOR ASSESSMENT YEAR 2002-03 FOR WHICH THE APPEAL IN THE CASE OF RALLIS INDIA LIMITED(SUPRA) IN ITA NO. 4898/MUM/06 WAS DECIDED BY THE TRIBUNAL AND FACTS ARE IDENTICAL. RESPECTFULLY FOLLOWING THE DECISION OF H ONBLE SUPREME COURT IN THE CASE OF CIT V. VIRMANI INDUSTRIES PRIVATE LI MITED (1995) 216 ITR 607(SC) AND DECISION OF CO-ORDINATE BENCH IN THE CA SE OF RALLIS INDIA LIMITED V. JCIT IN ITA NO. 4898/MUM/2006 , WE HOLD THAT THE ASSESSEE COMPANY IS ENTITLED TO SET OFF OF UNABSORBED DEPREC IATION AGAINST LONG TERM CAPITAL GAIN EARNED DURING THE YEAR BY THE ASS ESSEE COMPANY.WE ORDER ACCORDINGLY. 12. THE OTHER GRIEVANCE OF THE ASSESSEE COMPANY ARE CON TAINED IN GROUND NO 3 TO 5 WHICH ARE MAINLY WITH RESPECT TO THE CIT( A) DIRECTING THE AO TO INVOKE THE PROVISIONS OF SECTION 145A OF THE ACT BY MAKING ADDITIONS TO THE CLOSING STOCK AND THAT TOO WITHOUT MAKING CORRESPO NDING ADJUSTMENTS TO THE OPENING STOCK , PURCHASE AND SALE OF THE ASSESS EE COMPANY. 13. THE AO OBSERVED THAT THE ASSESSEE COMPANY HAS NOT I NCLUDED EXCISE DUTY IN THE VALUATION OF THE CLOSING STOCK AS PER M ANDATE OF SECTION 145A OF THE ACT WHEREBY THE ASSESSEE COMPANY SHOULD HAVE INCLUDED EXCISE ITA 5045/M/10 18 DUTY COMPONENT OF PURCHASE PRICE OF RAW MATERIAL WH ILE VALUING THE CLOSING STOCK OF RAW MATERIAL, WIP AND FINISHED GOODS. THE ASSESSEE COMPANY SUBMITTED THAT THE NON INCLUSION OF THE SAME WILL H AVE NO EFFECT ON ITS PROFITS WHICH CONTENTION WAS REJECTED BY THE AO. TH E AO HELD THAT THE PLAIN READING OF SECTION 145A OF THE ACT MAKES IT C LEAR THAT AFTER COMPUTING PROFIT AND GAINS OF BUSINESS OR PROFESSIO N AS PER THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE COMPA NY , THE PROFITS SHALL BE FURTHER ADJUSTED TO INCLUDE EXCISE DUTY COMPONEN T OF COST PAID BY THE ASSESSEE COMPANY NOT WITHSTANDING ANY RIGHT (I.E. C ENVAT) ARISING AS A CONSEQUENCE TO SUCH PAYMENT AND HENCE EXCISE COMPON ENT OF THE COST OF INPUTS I.E. RAW MATERIAL/PACKAGING MATERIAL ETC HAS TO INCLUDED IN CLOSING STOCK VALUATION IRRESPECTIVE OF CENVAT CLAIM. IN TH E OPINION OF AO , THE EXCISE DUTY COMPONENT OF RAW MATERIAL IS AN INDIREC T COST CHARGED BY THE MANUFACTURER OF RAW MATERIAL FROM THE ASSESSEE COMP ANY AND IS PART OF THE COST OF RAW MATERIAL AND HENCE IT IS TO BE INCL UDED AS PART OF CLOSING STOCK OF FINISHED GOODS AND THE MODVAT/CENVAT SCHEM E ONLY ALLOWS A REBATE ON EXCISE DUTY PAYABLE ON SALE/CLEARANCE OF GOODS MANUFACTURED BY ASSESSEE COMPANY CALCULATED ON THE BASIS OF EXCISE DUTY RATE APPLICABLE ON RAW MATERIAL WHICH IS ACTUALLY PAID BY MANUFACTURER OF RAW MATERIAL. THE AO HELD THAT RELIANCE OF THE ASSESSEE COMPANY ON TH E GUIDANCE NOTE ISSUED BY THE ICAI FOR TAX AUDIT CANNOT OVERRIDE TH E SPECIFIC PROVISIONS OF THE ACT AS CONTAINED IN SECTION 145A OF THE ACT. TH E AO REFERRED TO THE ITA 5045/M/10 19 INCLUSIVE METHOD AND EXCLUSIVE METHOD AS PER GU IDANCE NOTE ISSUED BY THE ICAI FOR TAX AUDIT IN HIS ASSESSMENT ORDER WHIC H ARE CONTAINED IN PAGE 7-8 OF ASSESSMENT ORDER WHICH SHOWED THAT THERE WIL L NOT BE ANY IMPACT ON PROFITS WHETHER INCLUSIVE METHOD OR EXCLUSIVE ME THOD BUT THE AO HELD THAT THE GUIDANCE NOTE ISSUED BY ICAI ALLOWED THE A DVANCE CREDIT OF CENVAT TO BE TAKEN ON THE RAW MATERIAL WHICH IS NOT CONSUM ED AND FURTHER ADVANCE CENVAT CREDIT IS TAKEN PERTAINING TO RAW M ATERIAL COMPONENT IN FINISHED GOODS WHICH ARE YET TO BE CLEARED FOR EXCI SE PAYMENT. THUS, IN NUTSHELL, THE AO HELD THAT THIS MECHANISM OF ADVANC E CREDIT ALLOWS THE ASSESSEE TO CLAIM BENEFIT OF SET OFF OF CENVAT IN R ESPECT OF ENTIRE DUTY PAID THOUGH THE CORRESPONDING GOODS MAY STILL REMAIN IN CLOSING STOCK AS RAW MATERIAL OR FINISHED GOODS ON WHICH NO LIABILITY TO PAY DUTY HAS ARISEN. THUS, THE AO BASED ON THE AVERAGE RATE OF DUTY ON P URCHASES WORK OUT EXCISE DUTY OF RS.84,64,424/- ON VALUE OF CLOSING S TOCK OF RAW MATERIAL, WIP AND FINISHED GOODS HELD BY THE ASSESSEE COMPANY AT THE YEAR END AND CORRESPONDING ADDITION TO THE RETURNED INCOME WAS M ADE . THE AO BASED ON THE AVERAGE RATE OF SALES TAX IN THE VALUE OF R AW MATERIAL , WIP AND FINISHED GOODS MADE AN ADDITION OF RS.17,73,391/- T O THE CLOSING STOCK OF RAW MATERIAL, WIP AND CLOSING STOCK OF THE ASSESSEE COMPANY HELD AS AT THE YEAR END BY THE ASSESSEE COMPANY AND CORRESPOND INGLY ADDITION TO THE RETURNED INCOME WAS MADE TO THAT EXTENT. AS PER THE AO , THE EXCISE DUTY AND SALES TAX IS TO BE ADDED TO CLOSING STOCK OF RA W MATERIAL,WORK-IN- ITA 5045/M/10 20 PROGRESS AND FINISHED GOODS HELD BY THE ASSESSEE CO MPANY AT THE YEAR END AS PER SECTION 145A OF THE ACT WHILE NO CORRESPONDI NG ADJUSTMENT IN THE OPENING STOCK OF RAW MATERIAL, WORK-IN-PROGRESS AND FINISHED GOODS IS TO MADE RELYING ON THE DECISION OF MELMOULD CORPORATIO N V. CIT 202 ITR 789(BOM.). 14. AGGRIEVED BY THE ASSESSMENT ORDER OF THE AO, THE AS SESSEE COMPANY FILED FIRST APPEAL WITH THE CIT(A) AND THE CIT(A) H ELD THAT THE ASSESSEE COMPANY SHOULD HAVE PREPARED ITS PROFIT AND LOSS AC COUNT AS PER PROVISIONS OF SECTION 145A OF THE ACT WHEREBY THE E XCISE DUTY AND VAT/SALES TAX ARE TO BE INCLUDED IN PURCHASE, SALE AND CLOSING STOCK WHILE NO ADJUSTMENT IS REQUIRED IN THE OPENING STOCK AND RESULTANT CHANGE , IF ANY IS TO BE ADDED TO THE INCOME OF THE ASSESSEE CO MPANY. THE CIT(A) HELD THAT THE ANOMALY MAY ARISE DUE TO THE FACT THAT THE ASSESSEE COMPANY HAS UTILIZED PLA A/C INSTEAD OF CENVAT/VAT CREDIT AVAI LABLE FOR PAYMENT OF THE DUTY TO THE GOVERNMENT A/C. THE AMOUNT OF PAYMENT M ADE OUT OF THE PLA A/C TO THE EXTENT OF THE CENVAT/VAT CREDIT WAS STIL L AVAILABLE IN THE CENVAT/VAT REGISTER SHALL BE ADDED TO THE CENVAT/VA T SET OFF/UTILIZED DURING THE YEAR . THE VAT IS PAYABLE AT THE TIME OF SALES AND NOT ON CLOSING STOCK OF FINISHED GOODS . THUS, THE CIT(A) REJECTED THE APPEAL OF THE ASSESSEE COMPANY ON THIS GROUND AND HELD THAT THE A DDITION ON ACCOUNT OF DUTY FOLLOWING THE PROVISIONS OF SECTION 145A OF TH E ACT IS CALLED FOR. THE ITA 5045/M/10 21 CIT(A) FURTHER HELD THAT NO ADJUSTMENT IN THE OPENI NG STOCK IS TO BE MADE RELYING ON THE DECISION OF MELMOULD CORPORATION V. CIT(SUPRA) AND THE IMPUGNED ASSESSMENT YEAR BEING ASSESSMENT YEAR 2007 -08 CANNOT BE SAID TO BE TRANSITIONAL YEAR AS THE PROVISIONS OF SECTIO N 145A OF THE ACT HAS COME INTO FORCE W.E.F. 01.04.1998 AND HENCE THE JUD GMENT OF MAHAVIR ALUMINIUM LIMITED 297 ITR 77(DEL.) IS NOT APPLICABL E. THUS, THE CIT(A) DIRECTED THE AO TO VERIFY THE FACTS AND FIGURES AND MAKE ADDITIONS AS PER DIRECTIONS. 15. AGGRIEVED BY THE ORDERS OF THE CIT(A) , THE ASSESSE E COMPANY IS IN APPEAL BEFORE THE TRIBUNAL. THE LD. COUNSEL OF THE ASSESSEE COMPANY REITERATED SUBMISSIONS AS MADE BEFORE THE AUTHORITI ES BELOW AND SUBMITTED BEFORE US THAT THE ASSESSEE COMPANY IS FO LLOWING EXCLUSIVE METHOD ALSO CALLED NET METHOD OF ACCOUNTING WHER EBY COST OF PURCHASES ARE ACCOUNTED FOR WITHOUT TAKING INTO EFFECT EXCISE DUTY AND VAT PAID ON RAW MATERIAL AS THE ASSESSEE COMPANY IS ENTITLED FO R CREDIT UNDER VALUE ADDED TAX SCHEME OF GOVERNMENT WHEREBY SET OFF IS A LLOWED OF THESE DUTIES AND TAXES ON INPUTS AGAINST THE EXCISE DUTY/VAT PAY ABLE ON FINISHED GOODS. THE LD. COUNSEL SUBMITTED THAT IF ADJUSTMENT ON ACCOUNT OF EXCISE DUTY/SALES TAX(VAT) IS REQUIRED TO BE MADE IN CLOSI NG STOCK, THEN CORRESPONDING ADJUSTMENT IS TO MADE TO OPENING STOC K, PURCHASES AND SALES . THE LD. COUNSEL OF THE ASSESSEE COMPANY REL IED UPON THE DECISION ITA 5045/M/10 22 OF HONBLE SUPREME COURT IN CIT V. INDO NIPPON CHEM ICALS CO. LTD. IN (2003) 261 ITR 275(SC) TO SUPPORT ITS CONTENTIONS W HILE THE LD. DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 16. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD INCLUDING CASE LAWS RELIED UPON BY THE BOTH THE PAR TIES. WE HAVE OBSERVED THAT THE WHOLE CONTROVERSY REVOLVES AROUND THE METH OD OF ACCOUNTING EMPLOYED BY THE ASSESSEE COMPANY AND VALUATION OF P URCHASES, SALES AND INVENTORIES AS THE ASSESSEE COMPANY IS FOLLOWING EXCLUSIVE METHOD ALSO CALLED AS NET METHOD OF ACCOUNTING CONSISTENTLY W HEREBY PURCHASES ARE REDUCED AT INCEPTION BY THE CENVAT CREDIT AVAILABLE AND ARE ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS BY THE ASSESSEE COMPANY EX CLUSIVE OF CENVAT CREDIT AVAILABLE AND CONSEQUENTIALLY THE ASSESSEE C OMPANY HAS VALUED STOCK NET OF CENVAT WITHOUT INCLUDING TAXES, DUTIES , CESS, FEE ETC AS PROVIDED U/S 145A OF THE ACT WHILE THE AUTHORITIES BELOW HAVE HELD THAT THE CLOSING INVENTORIES AS ON YEAR END SHALL INCLUD E TAXES, DUTIES, FEE, CESS AS PROVIDED U/S 145A OF THE ACT AND NO ADJUSTMENT I N THE OPENING STOCK IS CALLED FOR . BEFORE WE PROCEED FURTHER IT IS IMPORTANT TO UNDER STAND THE ENTIRE BACKGROUND TO UNDERSTAND THE DISPUTE IN THE PRESENT APPEAL IN THE RIGHT PERSPECTIVE. ITA 5045/M/10 23 FIRSTLY, WE REFER TO THE PROVISIONS OF SECTION 145A OF THE ACT AS APPLICABLE FOR ASSESSMENT YEAR 2007-08 ARE REPRODUCED BELOW: SECTION - 145A, INCOME-TAX ACT, 1961 - 2006 2 [ METHOD OF ACCOUNTING IN CERTAIN CASES. 145A. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 145 , THE VALUATION OF PURCHASE AND SALE OF GOODS AND I NVENTORY FOR THE PURPOSES OF DETERMINING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION 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 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 TIM E BEING IN FORCE, SHALL INCLUDE ALL SUCH PAYMENT NOTWITHSTANDING ANY RIGHT ARISING AS A CONSEQUENCE TO SUCH PAYMENT.] THE SECTION 145A OF THE ACT WAS INTRODUCED BY THE F INANCE ACT(NO. 2) ACT,1998 W.E.F. APRIL 1,1999 AND STARTS WITH A NON- OBSTANTE CLAUSE THAT ITA 5045/M/10 24 NOTWITHSTANDING ANYTHING CONTAINED IN SECTION 145 O F ACT , THE VALUATION OF PURCHASE AND SALES OF GOODS AND INVENT ORY FOR THE PURPOSES OF DETERMINING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION SHALL BE IN ACCORDANCE W ITH THE METHOD OF ACCOUNTANCY REGULARLY EMPLOYED BY THE TAXPAYER AND SHALL BE FURTHER ADJUSTED TO INCLUDE THE AMOUNT OF ANY TAX, DUTY , C ESS OR FEE (BY WHATEVER NAME CALLED) ACTUALLY PAID OR INCURRED BY THE TAXPAYER TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CO NDITION AS ON THE DATE OF VALUATION. THE EXPLANATION TO SECTION 145A OF TH E ACT STIPULATES THAT FOR THE PURPOSES OF THIS SECTION, ANY TAX , DUTY , CESS OR FEE UNDER ANY LAW IN FORCE SHALL INCLUDE ALL PAYMENT NOTWITHSTANDING ANY RIGHT ARISING AS A CONSEQUENCE TO SUCH PAYMENT . IT IS IMPORTANT TO UNDERSTAND THE STRUCTURE OF VARI OUS TAXES, DUTIES , CESS AND FEES WHICH HAVE BEARING ON BRINGING THE GO ODS TO THE PLACE OF ITS LOCATION AND CONDITIONS AS ON THE DATE OF VALUA TION. THERE ARE BROADLY TWO CATEGORIES OF TAXES, DUTIES , CESS AND FEES BASED ON CHARGEABILITY PREVALENT IN INDIA HAVING BEARING ON BRINGING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITIONS AS ON THE DATE OF VALUATION OF THE GOODS AS UNDER: ITA 5045/M/10 25 1. FIRST CATEGORY OF THE TAXES, DUTIES , CESS AND FEES HAVING BEARING ON BRINGING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITIONS AS ON THE DATE OF VALUATION OF THE GOODS ARE THOSE WHICH AR E TO BE ABSORBED BY THE ENTERPRISE AS PART OF THE COMPONENT OF ITS COST S AS PER PREVAILING RELEVANT LAWS,RULES AND REGULATIONS , WITHOUT ANY B ENEFIT GRANTED BY LAW OF ADJUSTING THESE TAXES, DUTIES , CESS AND FEES AG AINST THE FINAL EXCISE DUTY PAYABLE ON THE FINISHED GOODS MANUFACTURED BY THE ENTERPRISE. FOR EXAMPLE , CUSTOM DUTY PAYABLE ON IMPORT OF RAW MATE RIALS BROADLY HAS THREE ELEMENTS OF DUTIES APART FROM EDUCATION AND S ECONDARY EDUCATION CESS VIZ. (A) BASIC CUSTOM DUTY (B) COUNTER VEILIN G DUTY (CVD) (C) SPECIAL ADDITIONAL DUTIES(SAD). THE BASIC CUSTOM DU TY PAID ON IMPORT OF RAW MATERIALS FOR MANUFACTURE OF FINISHED GOODS IS NOT ALLOWED AS A CREDIT OF TAXES TO BE SET OFF AGAINST THE EXCISE DU TY PAYABLE ON THE FINISHED GOODS MANUFACTURED BY THE ENTERPRISES UNDE R THE CURRENT VALUE ADDED TAX REGIME KNOWN AS CENVAT CREDIT SCHEM E AND HENCE IS TO BE ABSORBED AS COST COMPONENT BY THE ENTERPRISE WHI LE IN THE CASE OF THE CVD & SAD COMPONENT IN CUSTOM DUTY PAID BY THE ENTERPRISE ON IMPORT OF RAW MATERIALS FOR MANUFACTURE OF FINISHED GOODS, THE SAME ARE ALLOWED AS CENVAT CREDIT TO BE SET OFF/ UTILIZED FO R PAYMENT OF EXCISE DUTY ON THE FINISHED GOODS. SIMILARLY, CENTRAL SALE S TAX(CST) PAID ON PURCHASE OF RAW MATERIAL FROM ANOTHER STATE , NO OF FSET IS ALLOWED AGAINST THE STATE VAT OR CST ON FINISHED GOODS SOLD BY THE ENTERPRISE ITA 5045/M/10 26 AS PER CURRENT SCHEMES PERTAINING TO SALES TAX AND HENCE IS TO BE ABSORBED AS PART OF COMPONENT OF COST BY THE ENTERP RISE WHILE STATE VAT PAID ON PURCHASE OF RAW MATERIAL FROM SUPPLIER WITHIN THE STATE IS ALLOWED TO BE SET-OFF AGAINST THE VAT/CST PAYABLE O N SALE OF FINISHED GOODS TO AVOID CASCADING EFFECT OF TAXES. 2. THE SECOND CATEGORIES OF TAXES, DUTIES , CESS AND F EES HAVING BEARING ON BRINGING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITIONS AS ON THE DATE OF VALUATION OF THE GOODS ARE KNOWN AS VALU E ADDED TAXES-THESE VALUE ADDED TAXES WERE INTRODUCED IN INDIA IN 1986 TO AVOID CASCADING EFFECT OF TAXES WITH AN OBJECTIVE TO REDUCE TRANSAC TION COST AND BRING TRANSPARENCY IN THE SYSTEM . THE SCHEME ALLOWED SE TTING OFF OF DUTIES PAID ON PROCUREMENTS OF INPUTS AGAINST THE DUTY PAY ABLE ON FINISHED GOODS MANUFACTURED BY THE ENTERPRISE THEREBY RESTRI CTING THE LEVY OF TAX TO VALUE ADDITION DONE BY THE ENTERPRISE IN MANUFAC TURING THE FINISHED GOODS. THE SCHEME WHEN LAUNCHED IN 1986 WAS CALLE D MODIFIED VALUE ADDED TAX SCHEME (POPULARLY KNOWN AS MODVAT SCHEME) WHICH ALLOWED CREDIT/SET OFF OF DUTIES PAID ON SPECIFIED INPUTS USED IN MANUFACTURE OF EXCISABLE GOODS AGAINST THE EXCISE D UTY LIABILITY OF THE ENTERPRISE ON MANUFACTURE OF GOODS AS PER PROVISIO NS OF EXCISE LAWS , RULES AND REGULATIONS. THE SCHEME WAS EXPANDED AND CREDIT OF DUTY PAID ON CAPITAL GOODS WAS ALSO BROUGHT UNDER THE AM BIT OF THE SCHEME ITA 5045/M/10 27 MODVAT IN THE YEAR 1994. THE SCHEME WAS LATER RENAM ED CENVAT CREDIT SCHEME IN THE YEAR 2000. THE SERVICE TAX W AS INTRODUCED IN INDIA FROM THE YEAR 1994 AND SERVICE TAX CREDIT RUL ES, 2002 WERE INTRODUCED IN THE YEAR 2002 TO ALLOW CREDIT ON INPU T SERVICES USED IN PROVIDING TAXABLE OUTPUT SERVICES. IN THE YEAR 2004 , CENVAT CREDIT RULES, 2002 AND SERVICE TAX CREDIT RULES, 2002 WERE UNIFIED AND NEW CENVAT CREDIT RULES, 2004 WERE INTRODUCED. THE NEW CENVAT CREDIT RULES, 2004 ALLOWED BOTH MANUFACTURERS AND SERVICE PROVIDERS TO TAKE INPUT CREDIT ON GOODS AND SERVICES APART FROM CAPIT AL GOODS ALLOWING CROSS SECTORIAL AVAILMENT AND UTILIZATION OF CREDIT . THE CENVAT CREDIT RULES PERMIT ADJUSTMENT OF EXCISE DUTIES PAID ON IN PUTS , CVD/SAD ON IMPORTS OF RAW MATERIAL , EXCISE DUTIES ON CAPITAL GOODS AND SERVICE TAX ON INPUT SERVICES AGAINST THE EXCISE DUTY PAYABLE O N FINISHED GOODS MANUFACTURED BY THE ENTERPRISE WITHOUT ONE TO ONE C O-RELATION REQUIRED BY THE ENTERPRISE TO ESTABLISH BEFORE AVAILING THE CENVAT CREDIT. THE CENTRAL GOVERNMENT HAS NOW ANNOUNCED ITS INTENTION TO INTRODUCE UNIFIED GOODS AND SERVICE TAX , POPULARLY KNOWN AS GST WHICH IS LIKELY TO BE ROLLED OUT SHORTLY WHICH IS LIKELY TO FURTHER UNIFY AND MERGE VARIOUS INDIRECT TAXES BOTH CENTRAL AND STATE LEVIE S INTO AN UNIFIED TAX TO BE KNOWN AS GST AND ALLOW CREDIT OF VARIOUS IN DIRECT TAXES ACROSS GOODS AND SERVICES BOTH CENTRAL AND STATE LEVIES AS PER SCHEME TO BE NOTIFIED WHICH WILL FURTHER HELP IN CUTTING DOWN TR ANSACTION COSTS AND ITA 5045/M/10 28 BRING IN TRANSPARENCY INTO THE SYSTEM. THE HONBLE SUPREME COURT IN THE CASE OF EICHER MOTORS V. UOI, 1999(106) E.L.T. 3 (S.C.) HAS OBSERVED THAT CREDIT ONCE VALIDLY TAKEN BY THE MANUFACTURER CANNOT BE EFFACED. THE RELEVANT EXTRACT OF DECISION OF HONBLE SUPREME COURT IS AS UNDER:- 5. RULE 57-F(4-A) WAS INTRODUCED INTO THE RULES PU RSUANT TO THE BUDGET FOR 1995-96 PROVIDING FOR LAPSING OF CREDIT LYING UNUTILISED ON 16-3-1995 WITH A MANUFACTURER OF TRACTORS FALLIN G UNDER HEADING NO. 87.01 OR MOTOR VEHICLES FALLING UNDER H EADING NOS. 87.02 AND 87.04 OR CHASSIS OF SUCH MOTOR VEHICLES U NDER HEADING NO. 87.06. HOWEVER, CREDIT TAKEN ON INPUTS WHICH WE RE LYING IN THE FACTORY ON 16-3-1995 EITHER AS PARTS OR CONTAINED I N FINISHED PRODUCTS LYING IN STOCK ON 16-3-1995 WAS ALLOWED. P RIOR TO THE 1995-96 BUDGET, THE CENTRAL EXCISE/ADDITIONAL DUTY OF CUSTOMS PAID ON INPUTS WAS ALLOWED AS CREDIT FOR PAYMENT OF EXCISE DUTY ON THE FINAL PRODUCTS, IN THE MANUFACTURE OF WHICH SUC H INPUTS WERE USED. THE CONDITION REQUIRED FOR THE SAME WAS THAT THE CREDIT OF DUTY PAID ON INPUTS COULD HAVE BEEN USED FOR DISCHA RGE OF DUTY/LIABILITY ONLY IN RESPECT OF THOSE FINAL PRODU CTS IN THE MANUFACTURE OF WHICH SUCH INPUTS WERE USED. THUS IT WAS CLAIMED THAT THERE WAS A NEXUS BETWEEN THE INPUTS AND THE F INAL PRODUCTS. IN THE 1995-96 BUDGET, THE MODVAT SCHEME WAS ITA 5045/M/10 29 LIBERALISED/SIMPLIFIED AND THE CREDIT EARNED ON ANY INPUT WAS ALLOWED TO BE UTILISED FOR PAYMENT OF DUTY ON A NY FINAL PRODUCT MANUFACTURED WITHIN THE SAME FACTORY IRRESP ECTIVE OF WHETHER SUCH INPUTS WERE USED IN ITS MANUFACTURE OR NOT. THE EXPERIENCE SHOWED THAT CREDIT ACCRUED ON INPUTS IS LESS THAN THE DUTY LIABLE TO BE PAID ON THE FINAL PRODUCTS AN D THUS THE CREDIT OF DUTY EARNED ON INPUTS GETS FULLY UTILISED AND SO ME AMOUNT HAS TO BE PAID BY THE MANUFACTURED BY WAY OF CASH. PRIO R TO THE 1995- 96 BUDGET, THE EXCISE DUTY ON INPUTS USED IN THE MA NUFACTURE OF TRACTORS AND COMMERCIAL VEHICLES VARIED FROM 15% TO 25%, WHEREAS THE FINAL PRODUCTS ATTRACTED EXCISE DUTY OF 10% OR 15% ONLY. THE VALUE ADDITION WAS ALSO NOT OF SUCH A MAGNITUDE THA T THE EXCISE DUTY REQUIRED TO BE PAID ON FINAL PRODUCTS COULD HA VE EXCEEDED THE TOTAL INPUT CREDIT ALLOWED. SINCE THE EXCESS CREDIT COULD NOT HAVE BEEN UTILISED FOR PAYMENT OF THE EXCISE DUTY ON ANY OTHER PRODUCT, THE UNUTILISED CREDIT WAS GETTING ACCUMULATED. THE STAND OF THE ASSESSEES IS THAT THEY HAVE UTILISED THE FACILITY O F PAYING EXCISE DUTY ON THE INPUTS AND CARRIED THE CREDIT TOWARDS E XCISE DUTY PAYABLE ON THE FINISHED PRODUCTS. FOR THE PURPOSE O F UTILISATION OF THE CREDIT, ALL VESTITIVE (SIC) FACTS OR NECESSARY INCIDENTS THERETO HAVE TAKEN PLACE PRIOR TO 16-3-1995 OR UTILISATION OF THE FINISHED PRODUCTS PRIOR 16-3-1995. THUS THE ASSESSEES BECAME ENTITLED ITA 5045/M/10 30 TO TAKE THE CREDIT OF THE INPUT INSTANTANEOUSLY ONC E THE INPUT IS RECEIVED IN THE FACTORY ON THE BASIS OF TH E EXISTING SCHEME. NOW BY APPLICATION OF RULE 57- F(4-A), THE CREDIT ATTRIBUTABLE TO INPUTS ALREADY USED IN THE MANUFACT URE OF THE FINAL PRODUCTS AND THE FINAL PRODUCTS WHICH HAVE ALREADY BEEN CLEARED FROM THE FACTORY ALONE IS SOUGHT TO BE LAPSED, THAT IS, THE AMOUNT THAT IS SOUGHT TO BE LAPSED RELATES TO THE INPUTS A LREADY USED IN THE MANUFACTURE OF THE FINAL PRODUCTS BUT THE FINAL PRO DUCTS HAVE ALREADY BEEN CLEARED FROM THE FACTORY BEFORE 16-3-1 995. THUS THE RIGHT TO THE CREDIT HAS BECOME ABSOLUTE AT ANY RATE WHEN THE INPUT IS USED IN THE MANUFACTURE OF THE FINAL PRODU CT. THE BASIC POSTULATE THAT THE SCHEME IS MERELY BEING ALT ERED AND, THEREFORE, DOES NOT HAVE ANY RETROSPECTIVE OR RETRO ACTIVE EFFECT, SUBMITTED ON BEHALF OF THE STATE, DOES NOT APPEAL T O US. AS POINTED OUT BY US THAT WHEN ON THE STRENGTH OF THE RULES AVAILABLE, CERTAIN ACTS HAVE BEEN DONE BY THE PARTI ES CONCERNED, INCIDENTS FOLLOWING THERETO MUST TAKE PL ACE IN ACCORDANCE WITH THE SCHEME UNDER WHICH THE DUTY HAD BEEN PAID ON THE MANUFACTURED PRODUCTS AND IF SUCH A SIT UATION IS SOUGHT TO BE ALTERED, NECESSARILY IT FOLLOWS THA T THE RIGHT, WHICH HAD ACCRUED TO A PARTY SUCH AS THE AVAILABILI TY OF A SCHEME, IS AFFECTED AND, IN PARTICULAR, IT LOSES SI GHT OF THE ITA 5045/M/10 31 FACT THAT THE PROVISION FOR FACILITY OF CREDIT IS A S GOOD AS TAX PAID TILL TAX IS ADJUSTED ON FUTURE GOODS ON THE BA SIS OF THE SEVERAL COMMITMENTS WHICH WOULD HAVE BEEN MADE BY T HE ASSESSES CONCERNED. THEREFORE, THE SCHEME SOUGHT TO BE INTRODUCED CANNOT BE MADE APPLICABLE TO THE GOODS W HICH HAD ALREADY COME INTO EXISTENCE IN RESPECT OF WHICH THE EARLIER SCHEME WAS APPLIED UNDER WHICH THE ASSESSEES HAD AVAILED O F THE CREDIT FACILITY FOR PAYMENT OF TAXES. IT IS ON THE BASIS O F THE EARLIER SCHEME NECESSARILY THAT THE TAXES HAVE TO BE ADJUSTED AND PAYMENT MADE COMPLETE. ANY MANNER OR MODE OF APPLICATION OF THE SAID RULE WOULD RESULT IN AFFECTING THE RIGHTS OF THE ASSESSE S. 6. WE MAY LOOK AT THE MATTER FROM ANOTHER ANGLE. IF ON THE INPUTS, THE ASSESSEE HAD ALREADY PAID THE TAXES ON THE BASIS THAT WHEN THE GOODS ARE UTILISED IN THE MANUFACTURE OF FURTHER PRODUCTS AS INPUTS THERETO THEN THE TAX ON THESE GOODS GETS ADJUSTED WHICH ARE FINISHED SUBSEQUENTLY . THUS A RIGHT ACCRUED TO THE ASSESSEE ON THE DATE WHEN THEY PAID THE TAX ON THE RAW MATERIALS OR THE INPUTS AND THAT RIGHT WOULD CONTINUE UNTIL THE FACILITY AVAILABLE THERETO GETS WORKED OUT OR UNTIL THOSE GOODS EXISTED. THEREFORE, IT BECOMES CLEAR THAT SECTION 37 OF THE ACT DOES NOT ENABLE THE AUTHORITIES CONCERNED TO MAKE A RULE WHICH IS IMPUGNED HEREIN A ND, THEREFORE, ITA 5045/M/10 32 WE MAY HAVE NO HESITATION TO HOLD THAT THE RULE CAN NOT BE APPLIED TO THE GOODS MANUFACTURED PRIOR TO 16-3-1995 ON WHI CH DUTY HAD BEEN PAID AND CREDIT FACILITY THERETO HAS BEEN AVAI LED OF FOR THE PURPOSE OF MANUFACTURE OF FURTHER GOODS 7. THERE ARE SEVERAL DECISIONS REFERRED TO BY THE L EARNED COUNSEL ON EITHER SIDE BUT WE DO NOT THINK THAT THOSE DECISION S HAVE ANY RELEVANCE TO THE POINT UNDER DISCUSSION 8. WE ALLOW THE PETITIONS FILED BY THE ASSESSEES AN D DECLARE THAT THE SAID RULE CANNOT BE APPLIED EXCEPT IN THE MANNE R INDICATED BY US ABOVE. NO ORDERS AS TO COSTS THUS IN NUT-SHELL , IT CAN BE SAID THAT THE CENVATA BLE DUTIES AND TAXES PAID ON PROCUREMENT OF INPUTS AND SERVICES WHICH AR E USED IN OR IN RELATION TO MANUFACTURE OF FINISHED GOODS ARE ALLO WED TO BE SET OFF AGAINST THE LIABILITY OF EXCISE DUTY DETERMINED ON THE FINISHED GOODS MANUFACTURED BY THE ENTERPRISE AND HONBLE APEX COU RT HAS ALREADY HELD THAT CENVAT CREDIT ONCE VALIDLY TAKEN CANNOT B E EFFACED. THUS , IT CAN BE SAID THAT CENVAT CREDIT ONCE VALIDLY TAKEN CREATES AN ACCRUED RIGHT IN FAVOUR OF THE ENTERPRISE TO GET IT ADJUSTE D AGAINST THE EXCISE DUTY PAYABLE ON THE FINISHED GOODS MANUFACTURED BY THE ENTERPRISE , WHICH IS WELL KNOWN TO THE ENTERPRISE IN ADVANCE AB -INITIO AT THE STAGE OF PROCURING INPUTS AND SERVICES ITSELF THAT THESE TAXES ON INPUTS AND SERVICES ON PROCUREMENT PAID BY THE ENTERPRISE SHAL L BE SET OFF AGAINST ITA 5045/M/10 33 THE LIABILITY FOR EXCISE DUTY PAYABLE ON FINISHED GOODS MANUFACTURED BY THE ENTERPRISES TO AVOID CASCADING EFFECT OF MULTIP LE TAXES AT MULTIPLE STAGES. THE CENVAT CREDIT RULES ALSO PERMIT REFUND OF TAXES AND DUTIES ON INPUTS AND SERVICES USED IN CASE OF EXPORT OF GO ODS ON FULFILLMENT OF STIPULATED CONDITIONS AS STIPULATED UNDER EXCISE LA WS, RULES AND REGULATIONS. THE ACCOUNTING STANDARD AS-2 ISSUED BY THE INSTITUT E OF CHARTERED ACCOUNTANTS OF INDIA(ICAI) WHICH IS A MANDATORY STA NDARD STIPULATES THAT THE COST OF INVENTORIES SHOULD COMPRISE ALL CO STS OF PURCHASE, COSTS OF CONVERSION AND OTHER COSTS INCURRED IN BRINGING THE INVENTORIES TO THEIR PRESENT LOCATION AND CONDITION. THE COSTS OF PURCHASE IS DEFINED IN THE AS-2 WHICH CONSISTS OF THE PURCHASE PRICE IN CLUDING DUTIES AND TAXES (OTHER THAN THOSE SUBSEQUENTLY RECOVERABLE BY THE E NTERPRISE FROM THE TAXING AUTHORITIES), FREIGHT INWARDS AND OTHER EXPENDITURE DIRECTLY ATTRIBUTABLE TO THE ACQUISITION. THUS AS-2 WHICH IS A MANDATORY STANDARD REQUIRES THAT DUTIES AND TAXES PAID ON PU RCHASE ARE TO FORM PART OF COST OF PURCHASES BUT OTHER THAN THOSE DUTIES AND TAXES SUBSEQUENTLY RECOVERABLE BY THE ENTERPRISE FROM THE TAXING AUTHORITIES MEANING THEREBY THAT THE CENVAT CREDIT OF DUTIES A ND TAXES PAID ON INPUTS WHICH IS RECOVERABLE FROM THE REVENU E AUTHORITIES BY WAY OF SET OFF AGAINST THE EXCISE DUTY PAYABLE ON F INISHED GOODS ITA 5045/M/10 34 MANUFACTURED BY THE ENTERPRISE SHALL NOT FORM PART OF THE COST OF PURCHASE OF THE INVENTORIES IN BRINGING THE SAME TO THEIR PRESENT LOCATION AND CONDITION. THUS, THE ICAI STIPULATED ENTERPRISES TO FOLLOW EXCLUSIVE METHOD ALSO CALLED AS NET METHOD OF A CCOUNTING ( WHICH IN THE INSTANT CASE , THE ASSESSEE COMPANY IS ALSO FOL LOWING) WHEREBY THE TAXES AND DUTIES PAID WHICH ARE RECOVERABLE FROM RE VENUE AUTHORITIES SHALL NOT BE INCLUDED IN THE COST OF PURCHASES AND IN VALUING INVENTORIES . ON THE OTHER HAND SECTION 145A OF THE ACT REQUIRES FOLLOWING THE INCLUSIVE METHOD ALSO CALLED AS GR OSS METHOD OF ACCOUNTING WHEREBY IT REQUIRES THE VALUATION OF PUR CHASE, SALE AND INVENTORY TO BE FURTHER ADJUSTED TO INCLUDE THE AMO UNT OF ANY TAX, DUTY, CESS OR FEE ACTUALLY PAID OR INCURRED BY THE TAXPAY ER TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON TH E DATE OF VALUATION NOTWITHSTANDING ANY RIGHT ARISING AS A CONSEQUENCE TO SUCH PAYMENT OF TAXES, DUTIES, CESS OR FEE. HONBLE SUPREME COURT I N THE CASE OF CIT V. INDO NIPPON CHEMICALS CO. LIMITED IN (2003) 261 ITR 275(SC) HAS OBSERVED THAT UNDER BOTH THE METHODS VIZ GROSS MET HOD OR NET METHOD AS DISCUSSED ABOVE, THE TRADING RESULTS SHA LL BE SAME BY OBSERVING AS UNDER: THE HIGH COURT HAS TAKEN THE SEVERAL ILLUSTRATION S IN THE CHARTS PLACED BEFORE IT BY BOTH SIDES AND DEMONSTRATED THA T THERE ARE TWO ITA 5045/M/10 35 POSSIBLE METHODS OF VALUATION OF STOCK. THE FIRST W OULD BE THE GROSS METHOD , IN WHICH THE STOCK IS VALUED AT CO ST PRICE INCLUSIVE OF THE EXCISE DUTY ELEMENT . IF THIS METHOD IS ADOP TED , THEN THE UNCONSUMED STOCK ALSO MUST NECESSARILY BE VALUED IN THE SAME MANNER. THE OTHER METHOD IS THE NET METHOD , IN W HICH THE RAW MATERIAL PURCHASED IS VALUED AT THE ACTUAL COST,THA T IS THE ACTUAL PURCHASE PRICE AND , ON THIS, MODVAT CREDIT WOULD B E AVAILABLE. IF THIS METHOD IS TO BE ADOPTED, THEN UNIFORMLY THE SA ME METHOD MUST BE ADOPTED WHILE VALUING THE UNCONSUMED STOCK AT THE END OF THE YEAR. WHICHEVER METHOD ONE ADOPTS, THE RESULT WOULD BE THE SAME. SIMILARLY , ICAI HAS ALSO IN THE GUIDANCE NOTE ON T AX AUDIT U/S 44AB OF THE INCOME TAX ACT,1961 AT PARA 23.23 HAS DEMONSTRA TED WITH PRACTICAL EXAMPLES THAT UNDER BOTH THE METHODS I.E. INCLUSI VE METHOD ALSO CALLED AS GROSS METHOD OR EXCLUSIVE METHOD ALSO CALLED AS NET METHOD, THE GROSS PROFITS IN TRADING ACCOUNT SHA LL BE THE SAME . IT IS DIFFICULT TO BELIEVE THAT THE ENTERPRISE WILL MAKE PROFITS ON TAXES, DUTIES , CESS AND FEE PAYABLE TO GOVERNMENT IN THE MIDST OF PREVAILING LAWS CONCERNING AND WITH REFERENCE TO DOCTRINE OF UNJUST ENRICHMENT. THE RELEVANT EXTRACTS FROM THE GUIDANCE NOTE ON TAX AUD IT U/S 44AB OF THE INCOME TAX ACT,1961 ISSUED BY ICAI ARE REPRODUCED B ELOW: ITA 5045/M/10 36 23.11 IT MAY BE POINTED OUT THAT THE 'INCLUSIVE ME THOD' IS NOT PERMITTED BY AS-2 WHICH IS MADE MANDATORY FROM ACCO UNTING YEAR BEGINNING ON OR AFTER 01.04.1999. FURTHER, IN THE G UIDANCE NOTE ON ACCOUNTING FOR CENVAT THE SECOND METHOD (INCLUSIVE METHOD) HAS BEEN WITHDRAWN WITH EFFECT FROM ACCOUNTING YEAR COM MENCING FROM 1.4.1999. IN VIEW OF THE ABOVE, THE ADJUSTMENTS UND ER SECTION 145A WILL HAVE TO BE MADE IN ALL CASES WHERE 'EXCLU SIVE METHOD' IS FOLLOWED. 23.12 IN THIS CONNECTION, IT IS WORTHWHILE TO NOTE THAT THE MEMORANDUM EXPLAINING THE PROVISIONS OF SECTION 145 A INSERTED BY THE FINANCE (NO.2) BILL, 1998 STATES AS FOLLOWS: C OMPUTATION OF VALUE OF INVENTORY. THE ISSUE RELATING TO WHETHER T HE VALUE OF CLOSING STOCK OF THE INPUTS, WORK-IN-PROGRESS AND F INISHED GOODS MUST NECESSARILY INCLUDE THE ELEMENT FOR WHICH MODV AT* CREDIT IS AVAILABLE HAS BEEN THE MATTER OF CONSIDERABLE LITIG ATION. IN ORDER TO ENSURE THAT THE VALUE OF OPENING AND CLOSING STOCK (BOLD FOR EMPHASIS) REFLECT THE CORRECT VALUE, IT IS PROPOSED TO INSERT A NEW SECTION TO CLARIFY THAT WHILE COMPUTING THE VALUE O F THE INVENTORY AS PER THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE, THE SAME SHALL INCLUDE THE AMOUNT OF ANY TAX, DUTY, CESS OR FEES PAID OR LIABILITY INCURRED FOR THE SAME UNDER ANY L AW IN FORCE. THE ITA 5045/M/10 37 PROPOSED AMENDMENT WHICH IS CLARIFICATORY IN NATURE SHALL TAKE EFFECT RETROSPECTIVELY FROM THE 1ST DAY OF APRIL, 1 986 AND WILL ACCORDINGLY APPLY IN RELATION TO ASSESSMENT YEAR 19 86-87 AND SUBSEQUENT YEARS. [CLAUSE 45] *NOW CENVAT. (SECTION 145A WAS INITIALLY PROPOSED T O BE APPLICABLE IN RELATION TO ASSESSMENT YEAR 1986-87 A ND SUBSEQUENT YEARS. HOWEVER, LATER ON, WHEN THE FINANCE (NO.2) B ILL, 1998 WAS ENACTED INTO LAW THE PROVISION WAS MADE APPLICABLE FROM 1.4.1999 I.E. ASSESSMENT YEAR 1999-2000) 23.13 IT MAY BE NOT ED THAT WHEN THE ADJUSTMENTS ARE MADE IN THE VALUATION OF INVENT ORIES, THIS WILL AFFECT BOTH THE OPENING AS WELL AS CLOSING STOCK. W HATEVER ADJUSTMENT IS MADE IN THE VALUATION OF CLOSING STOC K, THE SAME WILL BE REFLECTED IN THE OPENING STOCK ALSO. QUESTION FO R CONSIDERATION IS WHETHER THE OPENING STOCK AS ON 1.4.1998 SHOULD BE ADJUSTED AS REQUIRED UNDER SECTION 145A. IT IS NOW WELL SETTLED THAT IF ANY ADJUSTMENT IS REQUIRED TO BE MADE BY A STATUTE, EFF ECT TO THE SAME SHOULD BE GIVEN IRRESPECTIVE OF ANY CONSEQUENCES ON THE COMPUTATION OF INCOME FOR TAX PURPOSES. SECTION 145 A STARTS WITH THE NON OBSTANTE CLAUSE 'NOTWITHSTANDING ANYTHING T O THE CONTRARY CONTAINED IN SECTION 145'. THEREFORE, TO GIVE EFFEC T TO SECTION 145A, THE OPENING STOCK AS ON 1.4.98 WILL HAVE TO BE INCR EASED BY ANY TAX, DUTY, CESS OR FEE ACTUALLY PAID OR INCURRED WI TH REFERENCE TO ITA 5045/M/10 38 SUCH STOCK IF THE SAME HAS NOT BEEN ADDED FOR THE P URPOSE OF VALUATION IN THE ACCOUNTS. 23.14 IT MAY BE NOTED TH AT WHILE MAKING THE ADJUSTMENTS STATED IN PARA 23.8 AND 23.13 ABOVE , THE TAX AUDITOR SHOULD ENSURE THAT IF ANY DEDUCTION IS CLAI MED FOR ANY TAX, DUTY, CESS OR FEE ON THE ITEMS COVERED BY THESE TWO PARAGRAPHS BY WAY OF DEBIT IN THE PROFIT AND LOSS ACCOUNT, EITHER IN THE EARLIER YEAR OR IN THE YEAR UNDER REPORT, ADJUSTMENT FOR THE SAM E SHOULD BE MADE IN SUCH A MANNER THAT NO DOUBLE DEDUCTION IS C LAIMED FOR THE SAME EXPENDITURE. SIMILARLY, ADJUSTMENT SHOULD BE M ADE FOR ANY ITEM OF INCOME TO ENSURE THAT THE SAME ITEM IS NOT TREATED AS INCOME TWICE. .. 23.22 SECTION 145A OF THE INCOME-TAX ACT PROVIDES T HAT THE VALUATION OF PURCHASE AND SALES OF GOODS AND INVENT ORY FOR THE PURPOSE OF COMPUTATION OF INCOME FROM BUSINESS OR P ROFESSION SHALL BE MADE ON THE BASIS OF METHOD OF ACCOUNTING REGULA RLY EMPLOYED BY THE ASSESSEE 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 ADJUSTMENT PROVIDED FOR IN THIS SECTIO N SHOULD BE MADE WHILE COMPUTING THE INCOME FOR THE PURPOSE OF PREPARING THE ITA 5045/M/10 39 RETURN OF INCOME. THEREFORE, THE RECOMMENDED METHOD FOR ACCOUNTING OF VAT WILL NOT RESULT IN NON-COMPLIANCE OF SECTION 145A OF THE INCOME-TAX ACT. 23.23 THE ADJUSTMENTS ENVISAGED BY SECTION 145A WIL L NOT HAVE ANY IMPACT ON THE TRADING ACCOUNT OF THE ASSESSEE. IN OTHER WORDS BOTH UNDER EXCLUSIVE METHOD OF ACCOUNTING AND INCLU SIVE METHOD OF ACCOUNTING, THE GROSS PROFIT IN THE TRADING ACCOUNT WILL REMAIN THE SAME. THE PRESENT REGIME OF VALUE ADDED TAXATION HAS PROG RESSED WAY AHEAD NOW AS COMPARED TO THE YEAR 1998 WHEN SECTION 145A OF THE ACT WAS INTRODUCED WHEREBY NOW THE CENVAT CREDIT SCHEME IS ALLOWING ACROSS THE BOARD CREDIT OF VARIOUS TAXES, DUTIES, CESS, FE E AS PER APPLICABLE LAWS, RULES AND REGULATION LIKE EXCISE DUTY ON INP UTS, CVD/SAD ON IMPORT OF INPUTS, SERVICE TAX ON SERVICES UTILIZED FOR MANUFACTURING OF FINISHED GOODS, EXCISE DUTY ON CAPITAL GOODS ETC. P AID TO BE SET OFF AGAINST LIABILITY OF EXCISE DUTY ON FINISHED GOODS MANUFACTURED BY THE ENTERPRISE WITHOUT ANY ONE TO ONE CO-RELATION WHICH IS LIKELY TO BE FURTHER REVOLUTIONIZED WITH THE INTRODUCTION OF GS T SHORTLY WITH AN INTENT AND PURPOSE OF ELIMINATING CASCADING EFFECT OF TAXES LEVIED AT MULTIPLE STAGES TO REDUCE TRANSACTION COST AND BRIN G IN TRANSPARENCY ITA 5045/M/10 40 INTO THE SYSTEM AND APEX COURT HAS ALREADY HELD IN THE CASE OF EICHER MOTORS (SUPRA) THAT CENVAT CREDIT ONCE VALIDLY TAKE N CANNOT BE EFFACED AND CREATES AN ACCRUED RIGHT IN FAVOUR OF ENTERPRIS E, IT BECOMES APPARENT THAT EXCLUSIVE METHOD ALSO CALLED AS NE T METHOD APPEARS CERTAINLY TO BE BETTER CHOICE IN THE PRESENT SCENAR IO VIS--VIS INCLUSIVE METHOD ALSO CALLED GROSS METHOD OF ACCOUNTING F OR MAINTAINING BOOKS OF ACCOUNTS FOR ACCOUNTING FOR COST OF PURCHASES WH ICH IS ALSO STIPULATED BY ICAI BECAUSE THESE CENVATABLE DUTIES AND TAXES ON PROCUREMENT OF GOODS AND SERVICES PAID BY THE ENTER PRISE ARE PAYMENTS MADE BY THE ENTERPRISE WITH AN ATTACHED AND ACCRUED RIGHT IN FAVOUR OF THE ENTERPRISE THAT THESE CENVATABLE TAXES SO PAID ON RAW MATERIALS, INPUT SERVICES ONCE VALIDLY TAKEN CANNOT BE EFFACE D AND SHALL BE PAID BACK TO THE ENTERPRISE BY THE GOVERNMENT BY WAY OF SET OFF AGAINST THE EXCISE DUTY LIABILITY ON FINISHED GOODS MANUFACTURE D BY THE ENTERPRISE AND THESE CENVAT CREDIT IS MORE AKIN TO CURRENT ASSETS RATHER THAN PART OF THE COST OF PURCHASES AND INVENTORY BEING T AXES RECOVERABLE FROM GOVERNMENT BY WAY OF ADJUSTMENT AGAINST THE EX CISE DUTY PAYABLE ON FINISHED GOODS MANUFACTURED BY THE ENTERPRISE , MORE-SO THE RESULT BY THE BOTH THE METHODS OF ACCOUNTING VIZ. GROSS M ETHOD OR NET METHOD WILL BE SAME AS OBSERVED BY APEX COURT IN T HE JUDGMENT OF INDO NIPPON CHEMICALS CO. LTD.(SUPRA) AND ALSO DEMO NSTRATED BY ICAI IN ITS GUIDANCE NOTE AS DETAILED ABOVE. THE ICAI IN VIEW OF DIVERGENCE ITA 5045/M/10 41 BETWEEN AS-2 AND MANDATORY REQUIREMENTS OF SECTION 145A OF THE ACT HAS STIPULATED IN THE GUIDANCE NOTE ON TAX AUDIT AT PARA 23.22 THAT BOOKS OF ACCOUNTS ARE TO BE MAINTAINED BY THE ENTER PRISE FOLLOWING EXCLUSIVE METHOD ALSO CALLED AS NET METHOD , WH ILE DUE TO MANDATORY REQUIREMENT OF SECTION 145A OF THE ACT WHILE PREPA RING RETURN OF INCOME TO BE FILED WITH REVENUE , IT IS STIPULATED BY ICAI TO FOLLOW INCLUSIVE METHOD ALSO CALLED AS GROSS METHOD BUT THE GROSS PROFITS UNDER BOTH THE METHODS WILL YIELD SAME PROFITS WHIC H IN ANY CASE WILL NOT CAUSE ANY PREJUDICE TO THE REVENUE. THE PROVISI ONS OF SECTION 43B OF THE ACT ALSO PROTECT THE INTEREST OF REVENUE TH AT THE TAXES, DUTIES , FEE AND CESS PAYABLE AS AT THE YEAR END BY THE TAXP AYER SHALL ONLY BE ALLOWED AS DEDUCTION FROM THE INCOME UNDER THE ACT IF THE SAME ARE ACTUALLY PAID TO THE CREDIT OF GOVERNMENT BEFORE TH E DUE DATE OF FILING OF RETURN OF INCOME AS STIPULATED U/S 139(1) OF THE A CT. THE EXCISE LAWS , RULES AND REGULATION ALSO REQUIRES THE RECORDS TO B E MAINTAINED IN AN PRESCRIBED MANNER WHEREBY CENVAT CREDIT AVAILED AND UTILIZED CAN BE CLEARLY DEMARCATED TO ESTABLISH THAT CORRECT CENVAT CREDIT IS AVAILED AND UTILIZED BY THE ENTERPRISE. THE INCOME TAX ACT,1961 CANNOT WORK IN VACCUM IN ISOLATION BUT HAS TO PROGRESS ALONG-WITH THE RAPID DEVELOPMENT TAKING PLACE IN THE ECONOMY AS IT IS A LIVING ACT AND HARMONIZATION OF VARIOUS LAWS IS THE NEED OF THE HO UR TO REDUCE COMPLEXITIES AND BRING IN THE EASE OF DOING BUSINES S, OF COURSE , ITA 5045/M/10 42 WITHOUT COMPROMISING / SACRIFICING WITH THE BASIC INTENT AND MANDATE OF THE INCOME TAX ACT, 1961 TO COLLECT CORRECT TAXE S AS PER PROVISIONS OF THE ACT. DURING THE LAST FEW DECADES, THINGS HAVE R ADICALLY AND DRASTICALLY CHANGED IN THE ECONOMY THE WAY BUSINES SES ARE CONDUCTED AS NOW E-COMMERCE AND INTERNATIONAL TRANSACTIONS HA VE TAKEN PRIMACY IN THE ECONOMY WHICH ARE NOW THE KEY AREAS OF CHALL ENGE UNDER THE INCOME TAX LAWS. IT IS FOR THE PARLIAMENT TO FRAME AND AMEND LAWS TO KEEP PACE WITH THE FAST CHANGING ENVIRONMENT IN THE ECONOMY. WE HAVE SEEN ABOVE THAT SECTION 145A OF THE ACT WAS BROUGHT INTO STATUTE IN 1998 WHEN MODVAT SCHEME WAS PREVALENT WHICH ALLOWED CREDIT / SET OFF ON SPECIFIED INPUTS USED IN MANUFACTURE OF EXCI SABLE GOODS APART FROM CAPITAL GOODS BUT NOW WITH CENVAT SCHEME IN OP ERATION WHICH ALLOWS BOTH MANUFACTURERS AND SERVICE PROVIDERS TO TAKE INPUT CREDITS ON GOODS AND SERVICES APART FROM CAPITAL GOODS ACRO SS CROSS SECTORS WITHOUT ANY ONE TO ONE CORRELATION AND THE APEX COU RT ALREADY HOLDING IN EICHER MOTOR(SUPRA) THAT CENVAT CREDIT ONCE VALI DLY TAKEN CANNOT BE EFFACED AND CREATES AN ACCRUED RIGHT IN FAVOUR OF T HE ENTERPRISE,THERE IS A NEED TO ALIGN SECTION 145A OF THE ACT WITH THE PR ESENT REGIME OF INDIRECT TAXATION WHICH PARLIAMENT ALONE IN ITS WIS DOM CAN DO TO KEEP PACE WITH THE DEVELOPMENTS TAKING PLACE IN ECONOMY. ITA 5045/M/10 43 AS FAR AS THE FIRST CATEGORY OF TAXES, FEES, DUTIE S, CESS HAVING BEARING ON BRINGING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITIONS AS ON THE DATE OF VALUATION OF THE GOODS DISCUSSED IN THE P RECEDING PARAS ABOVE ARE CONCERNED WHICH ARE PAID ON RAW MATERIALS AND ALSO DURING WIP STAGE ON WHICH NO CENVAT CREDIT IS ALLOWED BY THE LAW UNDER CENVAT SCHEME AND ARE ABSORBED IN THE PROFIT AND LOSS ACCO UNT BY THE ENTERPRISE AS ONE OF THE COMPONENTS AND ITEM OF TH E COST, WE ARE OF THE CONSIDERED OPINION THAT SUCH TAXES, DUTIES, FEES, C ESS (BY WHATEVER NAME CALLED) HAVING BEARING ON BRINGING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITIONS AS ON THE DATE OF VALUATIO N OF THE GOODS HAS TO BE INCLUDED IN THE COST OF PURCHASE AND VALUATION O F THE GOODS IRRESPECTIVE OF WHETHER THE ENTERPRISE IS FOLLOWIN G EXCLUSIVE METHOD OR INCLUSIVE METHOD OF ACCOUNTING TO SATISFY THE MAN DATORY REQUIREMENT OF SECTION 145A OF THE ACT . SIMILARLY , FOR VALUA TION OF FINISHED GOODS MANUFACTURED BY THE ENTERPRISES , THE EXCISE DUTY O N FINISHED GOODS MANUFACTURED BY THE ENTERPRISES IS TO BE ADDED TO V ALUE OF FINISHED GOODS AS THE EXCISE DUTY ON FINISHED GOODS IS ACTUA LLY PAID OR INCURRED BY THE TAXPAYER TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITIONS AS ON THE DATE OF VALUATION IRRESPECTIVE OF WHETHER THE ENTERPRISE IS FOLLOWING EXCLUSIVE METHOD OR INCL USIVE METHOD OF ACCOUNTING. ITA 5045/M/10 44 AS PER SECTION 145A OF THE ACT AS IT EXISTS IN THE STATUTE, THE ASSESSEE COMPANY HAS TO MANDATORILY PREPARE ITS ACCOUNTS AS PER INCLUSIVE METHOD OR GROSS METHOD TO COMPUTE PROFIT CHARGE ABLE TO TAX IN ACCORDANCE WITH SECTION 145A OF THE ACT WHILE FILIN G RETURN OF INCOME WITH THE REVENUE . THUS AS PER SECTION 145A OF THE ACT AS IT EXISTS IN THE STATUTE, WE HOLD THAT THE ASSESSEE COMPANY HAS TO COMPULSORILY VALUE THE PURCHASE AND SALE OF GOODS AND INVENTORY FOR THE PURPOSES OF DETERMINING THE INCOME CHARGEABLE TO TAX UNDER THE HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED AND FURTHER ADJUSTED TO INCLUDE TAXES, DUTIES, CESS OR FEE(BY WHATEVER NAME CALLED) UNDER ANY LAW FOR THE TIME BEING IN FORCE, ACTUALLY PAID OR INCURRED TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VAL UATION NOTWITHSTANDING ANY RIGHT ARISING AS A CONSEQUENCE TO SUCH PAYMENT. THIS IS THE MANDATE OF SECTION 145A OF THE ACT WHICH WE HOLD IS MANDATORY. AT THIS STAGE WE ARE REMINDED OF THE DECISION OF TH E PRIVY COUNCIL, IN THE CASE OF CIT V. AHMEDABAD NEW COTTON MILLS CO. LTD. AIR 1930 PC 56 THAT WHILE CONSIDERING THE EFFECT OF ALTERING THE M ETHOD OF VALUATION, PRIVY COUNCIL HELD THAT WHENEVER THERE IS A CHANGE IN THE VALUATION AT ONE END (ON 31-3-2007 IN THE INSTANT CASE), THEN TH ERE MUST NECESSARILY BE A CORRESPONDING CHANGE AT THE OTHER END (ON 1-4- 2006 AS IN THE ITA 5045/M/10 45 INSTANT CASE) OTHERWISE, THE TRUE PROFIT WOULD NOT BE REFLECTED. THIS VIEW OF PRIVY COUNCIL IS FURTHER FORTIFIED AND SUPPORTED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT V. DYNAVIS ION LTD. IN (2012) 26 TAXMANN.COM 40 (SC). THE RELIANCE OF THE REVENUE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN MELMOULD CORPORATION V . CIT IN 202 ITR 789 (BOM) IS DEVOID OF MERITS AS IN THE SAID CASE T HE TAXPAYER WAS REGULARLY FOLLOWING METHOD OF VALUATION OF INVENTOR Y AT COST PLUS OVERHEAD AND THEN DURING THE IMPUGNED ASSESSMENT YE AR, THE TAXPAYER CHOSE TO CHANGE METHOD OF VALUATION OF CLOSING INVE NTORY AT COST WHEREBY OVERHEADS WERE NOT INCLUDED IN THE VALUATIO N OF INVENTORY AND THEN IN THE CONTEXT AND LIGHT OF CHANGE OF METHOD O F VALUATION OF INVENTORY BY THE TAXPAYER ITSELF , THE HONBLE BOMB AY HIGH COURT HELD THAT THERE IS NO CHANGE CALLED FOR IN THE OPENING S TOCK WHILE CHANGING THE METHOD OF VALUATION OF CLOSING STOCK AT COST EX CLUDING OVERHEAD AS OTHERWISE IT WILL LEAD TO CHAIN REACTION AS IN THE EARLIER YEARS ALSO THE VALUES OF INVENTORY WILL BE CHANGED . HOWEVER, IN T HE INSTANT CASE , THE ASSESSEE COMPANY IS CONSISTENTLY AND REGULARLY FOL LOWING THE METHOD OF ACCOUNTING BY FOLLOWING EXCLUSIVE METHOD ALSO CAL LED NET METHOD WHICH IS ONE OF THE ACCEPTED METHOD OF ACCOUNTANCY WHEREBY THE TAXES PAID ON PURCHASE OF RAW MATERIAL ARE NOT INCLUDED I N THE COST OF PURCHASE ON THE PREMISE THAT THE ASSESSEE COMPANY I S ENTITLED FOR CENVAT CREDIT ON THE SAME TO BE ADJUSTED AGAINST TH E EXCISE DUTY ITA 5045/M/10 46 LIABILITY ON FINISHED GOODS MANUFACTURED BY THE ASS ESSEE COMPANY , WHILE THE BASIC FALLACY IN CONTENTION OF THE REVENU E IS THAT THE REVENUE IS CONTEMPLATING ADDING THE EXCISE DUTY PAID TO THE VALUE OF CLOSING INVENTORY FOLLOWING THE INCLUSIVE METHOD ALSO CAL LED AS GROSS METHOD AND NOT TO THE TOTALITY OF ALL RELEVANT TRANSACTIO NS DURING THE PREVIOUS YEAR TO ARRIVE AT A CORRECT INCOME CHARGEABLE TO TA X AS PER THE ACT AND HENCE , IN OUR CONSIDERED VIEW, , THE INCLUSIVE M ETHOD ALSO CALLED AS GROSS METHOD AS MANDATED BY SECTION 145A OF THE A CT, IS TO BE APPLIED TO THE TOTALITY OF ALL RELEVANT TRANSACTIONS DURING THE PREVIOUS YEAR TO ARRIVE AT A CORRECT INCOME CHARGEABLE TO TAX AS PER THE ACT AND THE SAME CANNOT BE APPLIED IN A PIECEMEAL AND AD-HOC MANNER TO A FEW HANDFUL CHOSEN AND SELECTED TRANSACTIONS AS IS DONE BY TH E REVENUE IN THE INSTANT CASE WHICH WILL LEAD TO DISTORTION OF INCOM E CHARGEABLE TO TAX WHICH IS NOT PERMISSIBLE UNDER THE ACT. OUR ABOVE OBSERVATIONS AND DISCUSSIONS IN PRECEDING PARAS ARE EQUALLY APPLICABLE TO VAT/SALES TAX ON THE RAW MATERIALS, W IP AND FINISHED GOODS. IN OUR CONSIDERED VIEW , THE INTEREST OF JUSTICE WI LL BE BEST SERVED , IF THE MATTER IS RESTORED TO THE FILE OF THE AO TO RE-DETE RMINE THE CORRECT INCOME CHARGEABLE TO TAX AS PER THE ACT AFTER CONSI DERING THE PROVISIONS OF SECTION 145A OF THE ACT IN LIGHT OF OUR OBSERVAT IONS AS CONTAINED IN THE PRECEDING PARAS. NEEDLESS TO SAY THAT PROPER A ND ADEQUATE ITA 5045/M/10 47 OPPORTUNITY WILL BE GIVEN TO THE ASSESSEE COMPANY B Y THE AO IN ACCORDANCE WITH THE PRINCIPLES OF NATURAL JUSTICE A S ENSHRINED IN DOCTRINE OF AUDI ALTERAM PARTEM IN ACCORDANCE WITH LAW AND THE ASSESSEE COMPANY WILL BE ALLOWED TO PRODUCE NECESSA RY EVIDENCE IN SUPPORT OF ITS DEFENSE. WE ORDER ACCORDINGLY. 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE COMPANY IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH DECEMBER, 2015. # $% &' 09-12-2015 ( ) SD/- SD/- (AMIT SHUKLA) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 09-12-2015 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI H BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI FIT FOR PUBLICATION JM AM