ALTA LABORATORIES LTD, MUMBAI V. ITO 6(1)-2, MUMBAI

ITA 6741/MUM/2010

• Counselvise Citation: 674119914 RSA 2010
• Duration Of Justice: 1 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 22-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K B MENON
• Assessee Lawyers: PRASAD BAPAT
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI BEFORE SHRI N.V. VASUDEVAN, J.M. AND SHRI RAJENDRA SINGH, A.M. ITA NO. : 6741/MUM/2010 ASSESSMENT YEAR : 2006-07 ITA NO. :4295/MUM/2011 ASSESSMENT YEAR : 2007-08 ALTA LABORATORIES LIMITED 532, ALTA BHAVAN, SENAPATI BAPAT MARG, DADAR MUMBAI-400 028. PAN NO.: AAACA 1012 B VS. INCOME TAX OFFICER WARD 2(2)(4) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PRASAD BAPAT RESPONDENT BY : SHRI P.K.B. MENON DATE OF HEARING : 15.5.2012 DATE OF PRONOUNCEMENT : 15.5.2012 O R D E R PER RAJENDRA SINGH, AM: THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST DIFFERE NT ORDERS DATED 30.6.2010 AND 28.2.2011 OF CIT(A) FOR T HE ASSESSMENT YEARS 2006-07 AND 2007-08. THE ONLY DISPUTE RAISED IN THESE APPEALS IS REGARDING ADJUSTMENT MADE UNDER SECTION 145A OF THE INCOME TAX ACT, 1961(THE ACT). SINCE DISPUTE RAISED IS IDENTICAL IN BOTH THE YEARS THESE APPEALS ARE BEING DISPOSED OF BY A SINGLE CONSOLIDAT ED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 6741/M/10 & 4295/M/11 A.Y.06-07 & 07-08 2 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE WAS FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING AS PER WHICH TAX AND DUTIES PAID WE RE NOT ROUTED THROUGH TRADING ACCOUNT. THE AO DURING THE ASSESSM ENT PROCEEDINGS OBSERVED THAT, UNDER THE PROVISIONS OF SECTIO N 145A APPLICABLE FROM ASSESSMENT YEAR 1999-2000, THE VALUATION OF PURCHASES, SALES AND INVENTORY FOR THE PURPOSE OF DETERMI NING INCOME CHARGEABLE TO TAX IS REQUIRED TO BE MADE IN ACCORDANCE WITH METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE AND FURTHER ADJUSTMENT IS REQUIRED TO BE MADE TO INCLUDE THE AMOUNT OF TAX, DUTY, CESS OR FEES INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON THE DATE OF VALUATION. THE AO NOT ED THAT THE ASSESSEE HAD NOT MADE ANY ADJUSTMENT UNDER SECTION 145 ON ACCOUNT OF TAX, DUTY, CESS ETC. IN ANY OF THE YEARS. THE AO COMP UTED ADJUSTMENT AS PER FORMAT SUGGESTED IN PAPER PUBLISHED I N DECEMBER 2007 MAGAZINE OF THE INSTITUTE OF CHARTERED ACCOUNTAN TS OF INDIA (ICAI). THE AO DETERMINED THE ADJUSTMENT AT RS.5,65,9 73/- IN ASSESSMENT YEAR 2006-07 AND RS.4,53,329/- IN ASSESSMENT YEA R 2007-08. THE ASSESSEE DISPUTED THE DECISION OF AO AND SUBMI TTED BEFORE CIT(A) THAT THE FORMAT USED BY AO FOR COMPUTIN G THE ADJUSTMENT UNDER SECTION 145A DID NOT ACCOUNT FOR MODV AT CREDIT ON UNITS CONSUMED. IT WAS ALSO SUBMITTED THAT ADJUSTMENTS WER E ALSO REQUIRED TO BE MADE TO THE OPENING STOCK IN VIEW OF T HE JUDGMENT OF HONBLE DELHI HIGH COURT IN CASE OF CIT VS. MAHAVIR ALUM INIUM LTD. (297 ITR 77) AND OTHER JUDGMENTS. THE ASSESSEE FURTHER SU BMITTED THAT THE AUDITORS IN TAX AUDIT REPORT AS PER ANNEX-II I HAD COMPUTED IMPACT OF ADJUSTMENT UNDER SECTION 145A ON THE PROFIT OF THE ASSESSEE AS PER GUIDANCE NOTE FOR TAX AUDIT UNDER SECTION 44AB I SSUED BY ICAI, WHICH WAS FOUND TO BE NIL IN BOTH THE YEARS. CIT(A), H OWEVER, DID NOT ITA NO. 6741/M/10 & 4295/M/11 A.Y.06-07 & 07-08 3 ACCEPT THE EXPLANATION GIVEN. IT WAS OBSERVED BY HIM TH AT AO HAD MADE ADJUSTMENTS TO OPENING AND CLOSING STOCK AND, THERE FORE, THERE WAS NO ERROR IN THE METHOD EMPLOYED BY AO. CIT(A) AL SO OBSERVED THAT IN ASSESSMENT YEAR 2007-08, THE IMPACT UNDER SECTION 145A WAS RS.8,89,660/- AND NOT RS.4,53,329/- AS COMPUTED BY AO. HE, THEREFORE CONFIRMED THE ORDER OF AO IN ASSESSMENT YEAR 2 006-07 AND DIRECTED THE AO TO MAKE ADJUSTMENT OF RS.8,89,660/- I N ASSESSMENT YEAR 2007-08. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSE E IS IN APPEAL BEFORE THE TRIBUNAL IN BOTH THE YEARS. 3. BEFORE US, THE LD. AR SUBMITTED THAT CIT(A) WAS NO T CORRECT IN STATING THAT THE AO HAD MADE ADJUSTMENT BOTH TO OPEN ING AND CLOSING STOCK. IT WAS POINTED OUT BY HIM THAT NO ADJUSTMENT HAD BEEN MADE TO OPENING STOCK. IT WAS ALSO SUBMITTED THAT AUDITORS HAD CO MPUTED ADJUSTMENT FOLLOWING GUIDELINES ISSUED BY ICAI AS PER WHICH THE ADJUSTMENT REQUIRED TO BE MADE WAS NIL. IT WAS POIN TED OUT THAT IN ASSESSMENT YEAR 2006-07, THE ADDITIONS ON ACCOUNT OF TAX, CESS ETC. WAS REQUIRED TO BE MADE AT RS.4,40,70,046/- AND THE SA ME AMOUNT WAS REQUIRED TO BE REDUCED THUS MAKING ADJUSTMENT AT NI L. SIMILARLY IN ASSESSMENT YEAR 2007-08 ADDITIONS TO BE MADE UNDER SE CTION 145A WERE TO THE TUNE OF RS.3,84,65,202/- AND SAME AMOUNT WAS REQUIRED TO BE REDUCED MAKING NET IMPACT AT NIL. DETAILED WORK ING MADE BY AUDITORS WAS PLACED ON RECORD. THE LD. DR ON THE OTHER HAND PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ADJUSTMENT TO BE MADE UNDER SECTION 145A OF THE ACT AS PER WHICH VALUATION OF PURCHAS ES, SALES AND INVENTORIES FOR THE PURPOSE OF DETERMINING INCOME IS RE QUIRED TO BE ITA NO. 6741/M/10 & 4295/M/11 A.Y.06-07 & 07-08 4 MADE ACCORDING TO METHOD OF ACCOUNTING REGULARLY EMPLOY ED BY THE ASSESSEE AND FURTHER ADJUSTMENT IS REQUIRED TO BE MADE T O INCLUDE THE AMOUNT OF TAX, DUTY, CESS OR FEES INCURRED BY THE ASSESSEE T O BRING THE GOODS TO THE PLACE OF ITS LOCATION AND CONDITION AS ON TH E DATE OF VALUATION. IT HAS BEEN HELD BY THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF MAHAVIR ALUMINIUM LTD.(SUPRA), AND IN SEVERAL O THER JUDGMENTS THAT ADJUSTMENT IS REQUIRED TO BE MADE BOTH TO THE OPENING STOCK AND CLOSING STOCK OF A PARTICULAR YEAR. SINCE IN T HE PRESENT CASE ASSESSEE WAS FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING, THE ADJUSTMENT ON ACCOUNT OF TAX, DUTY, CESS ETC. IS REQUIRED TO BE MADE NOT ONLY TO CLOSING STOCK AND OPENING STOCK BUT ALSO AT IN TERMITTENT STAGES, AT THE POINT OF PURCHASES, MANUFACTURING, SALE ETC . THE AO IN THIS CASE HAS COMPUTED ADJUSTMENT ON THE BASIS OF SOME PAPER PUBLISHED IN THE MAGAZINE OF ICAI WHICH IS NOT A CORRECT PROCEDURE. THE ADJUSTMENT IS REQUIRED TO BE COMPUTED AS PER GUID ANCE NOTE ISSUED BY ICAI AND NOT ON THE BASIS OF SOME PAPER PUBLISH ED IN THE MAGAZINE OF ICAI. THE ASSESSEE HAS FILED A DETAILED WORK ING OF THE ADJUSTMENTS MADE BY AUDITORS IN THE AUDIT REPORT AS PE R WHICH NET ADJUSTMENT IS NIL. IN OUR VIEW THIS ISSUE REQUIRES TO B E VERIFIED. THE CLAIM OF THE ASSESSEE THAT AO MADE NO ADJUSTMENT TO THE OPENING STOCK ALSO REQUIRES VERIFICATION. THUS IN OUR VIEW WORKIN G OF ADJUSTMENT UNDER SECTION 145A REQUIRES FRESH EXAMINATIO N AT THE LEVEL OF AO. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A) F OR BOTH THE YEARS AND RESTORE THE MATTER TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION IN THE LIGHT OF OBSERVATIONS MADE ABOVE AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. ITA NO. 6741/M/10 & 4295/M/11 A.Y.06-07 & 07-08 5 5. IN THE RESULT ASSESSEES APPEALS ARE ALLOWED FOR STATIST ICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 15.5.2012. SD/- SD/- (N.V. VASUDEVAN ) JUDICIAL MEMBER (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 15.05.2012. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.