THE ACIT, -2(1), Bhopal V. M/s. Kilpest India Ltd., Bhopal

ITA 689/IND/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5319 (ITAT-INDORE)
• Duration Of Justice: 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 24-11-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 23-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHD JAVED
• Assessee Lawyers: S S DESH
• Keywords: Audit objection; Question of law
• Section: 143(3); 145

Judgement Text

ITA NO. 689/IND/2016 M/S KILPEST INDIA LTD. 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE .., ..!', #$ # !% BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI O.P. MEENA, ACCOUNTANT MEMBER I.T.A. NO. 689/IND/2016 ASSESSMENT YEAR: 2007-08 ACIT 2(1) BHOPAL :: APPELLANT VS M/S KILPEST INDIA LTD. BHOPAL ./ PAN: AABCK 3873D :: RESPONDENT REVENUE BY SHRI MOHD. JAVED ASSESSEE BY SHRI S.S. DESHPANDE ! ' #$ DATE OF HEARING 24.11.2016 %&'( #$ DATE OF PRONOUNCEMENT 15.11.2016 * O R D E R PER SHRI D.T. GARASIA, JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED CIT(A)-I, BHOPAL, DATED 23.3.201 6. ITA NO. 689/IND/2016 M/S KILPEST INDIA LTD. 2 2. THE ONLY GROUND TAKEN BY THE REVENUE IN THIS APPEAL IS THAT THE LEARNED CIT(A) WAS NOT JUSTIFIED IN ADDITION O F RS.17,77,067/- MADE BY THE ASSESSING OFFICER AS PER T HE PROVISIONS OF SECTION 145A OF THE ACT. 3. THE SHORT FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007-08 ON 31.10.2007. THE ASSESSING OFFICER FOUND THAT THE VALUATION OF CLOSING STOCK OF FINISHED GOODS HAS B EEN DONE WITHOUT CHARGING CENTRAL EXCISE DUTY. AS PER THE PROVISIONS OF SECTION 145A OF THE ACT, VALUE OF CLOS ING STOCK IS REQUIRED TO BE DETERMINED INCLUDING ALL TAXES DUTY , CESS AND FEES. AS PER THE ASSESSING OFFICER, THE ASSESSEE HASA DISCLOSED STOCK OF FINISHED GOODS OF RS. 1088893/- ON WHICH EXCISE DUTY WORKS OUT TONRS.177067/- WHICH HAS NOT BEEN TAKEN INTO CONSIDERATION WHILE VALUING THE C LOSING STOCK. THE SHOW CAUSE NOTICE WAS GIVEN AND IN REPLY TO SHOW CAUSE NOTICE THE ASSESSEE SUBMITTED THAT THE ITA NO. 689/IND/2016 M/S KILPEST INDIA LTD. 3 ASSESSEES LIABILITY OF PAYMENT OF EXCISE DUTY COMES ONLY WHEN THE GOODS ARE SOLD AND LEVY OF EXCISE DUTY IS O N MANUFACTURE OF FINISHED PRODUCTS AND THE SAME IS QUANTIFIED AND COLLECTED ON SELLING PRICE. THE ASSESSI NG OFFICER DID NOT ACCEPT THE ASSESSEES CONTENTION. HE, THEREFORE, ADDED THE AMOUNT OF RS.17,77,067/- TO THE TOTAL INCOME OF THE ASSESSEE. 4. THE MATTER TRAVELLED TO THE LEARNED CIT(A) AND THE LEARNED CIT(A) DELETED THE ADDITION WITH THE FOLLOWIN G OBSERVATIONS :- 8. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA ASE AND THE SUBMISSIONS OF THE APPELLANT. IT IS SEEN TH AT THE APPELLANT HAS CONSISTENTLY FOLLOWED THE SAME METHOD OF ACCOUNTING AND THE ASSESSING OFFICER HAS ACCEPTED T HE SAME IN THE ASSESSMENT ORDERS PASSED U/S 143(3) FOR THE SUCCEEDING AS WELL AS PRECEDING ASSESSMENT YEAR S. IT SEEMS THAT THE ORDER IN APPEAL WAS REOPENED IN ITA NO. 689/IND/2016 M/S KILPEST INDIA LTD. 4 CONSEQUENCE TO SOME AUDIT OBJECTION. HAVING GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE MATTER, IT IS SEEN THAT THE A.O. HAS TOTALLY MISCONSTRUED THE PROVISIONS OF SECTION 145A OF THE IT ACT. THE SAME ARE REPRODUCED HERE BELOW FOR READY REFERENCE :- 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 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 RE GULARLY EMPLOYED BY THE ASSESSEE; AND (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 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 COMPENSATIO N 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. 9. THE LAW CLEARLY PROVIDES THAT ADJUSTMENTS ARE NE EDED FOR THE VALUATION OF INVENTORY BY THE AMOUNT OF TAX, DUTY, CESS OR FEE ETC. ACTUALLY PAID OR INCURRED BY THE ASSESSEE TO BRING THE GOODS TO THE PLACE ITA NO. 689/IND/2016 M/S KILPEST INDIA LTD. 5 OF ITS LOCATION AND CONDITION AS ON THE DATE OF VAL UATION. THE A.O. HAS WITHOUT APPRECIATING THE FACTS OR LAW TRIED TO ADD EXCISE AT THE RATE OF 16.32% TO THE VALUE OF CLOSING STOCK. THE A.O. HAS MADE NO EFFORT TO FIND OUT WHETHER THE EXCISE WAS PAID/INCURRED ON THE SAM E OR NOT. THIS ACTION OF THE A.O. CANNOT BE APPROVED. THE APPELLANT HAS G IVEN COMPLETE RECONCILIATION OF THE EXCISE DUTY INCURRED/PAID IN REGARD TO AT THE STOCK OF MICRO/BIO FERTILIZERS WHICH IS NON EXCISABLE COM MODITY AND PESTICIDES WHICH ARE EXCISABLE AND HAS DEMONSTRATED THAT THE S AME HAS BEEN INCLUDED IN THE VALUATION OF CLOSING STOCK. WHEREVE R THE EXCISE DUTY WAS NOT PAID OR PAYABLE THE SAME HAS NOT BEEN INCLUDED IN THE VALUATION. VERY SUBSTANTIAL PART OF THE STOCK ON WHICH EXCISE DUTY HAS BEEN CHARTED AND VALUED BY THE A.O. ON ASSUMPTION BASIS WAS NOT EVEN EXCISABLE PRODUCT. THE CONTENTION OF THE APPELLANT IS THEREFO RE ACCEPTABLE AS ITS VALUATION IS NOT VIOLATIVE OF SECTION 145A. ACCORDI NGLY, THE ADDITION MADE BY THE A.O. ON ACCOUNT OF EXCISE DUTY OF RS. 1 7,77,067/- IS DELETED. THEREFORE, THE GROUNDS OF APPEAL ARE ALLOWED. 5. DURING THE COURSE OF HEARING, THE LEARNED DR SUBMITTED THAT THE ASSESSEES LIABILITY FOR EARLIER PAY MENT OF EXCISE DUTY COMES ONLY WHEN THE GOODS SOLD ARE NOT R IGHT. ITA NO. 689/IND/2016 M/S KILPEST INDIA LTD. 6 AS PER THE PROVISIONS OF SECTION 145A OF THE ACT, T HE VALUE OF CLOSING STOCK IS REQUIRED TO BE DETERMINED INCLUD ING ALL TAXES, DUTY, CESS AND FEES. THEREFORE, THE LEARNED C IT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION. 6. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE ORDER OF THE LEARNED CIT(A) AND ALSO THE DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. M/S AVERY CYCLES IND. LTD. AS ALSO THE DECISION OF THE HO N'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. SVP INDUSTRI ES LTD. DELIVERED ON 7 TH JANUARY, 2015. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE SIDES . LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE LEARNED CIT(A) HAS DELETED THE ADDITION ON THE GROUND THAT WHILE WORKING OUT THE CLOSING STOCK, EXC ISE DUTY IS NOT TO BE INCLUDED IN THE VALUATION AS PER THE PROVISIONS OF SECTION 145A OF THE ACT AND THE EXCISE DUTY HAS TO BE PAID WHEN THE GOODS ARE SOLD. WE FIND THAT TH E ITA NO. 689/IND/2016 M/S KILPEST INDIA LTD. 7 ISSUE IN CONTROVERSY IS COVERED BY THESE JUDGMENTS. IN THE CASE OF CIT VS. M/S AVERY CYCLES IND. LTD. IT IS HEL D AS UNDER:- A PERUSAL OF SECTION 145(A) OF THE ACT AND THE CLARIFICATION RELATING TO THE METHOD OF ACCOUNTING, CONTAINED IN THE CIRCULAR ISSUED BY THE INSTITUTE O F CHARTERED ACCOUNTANT, DOES NOT ENABLE US TO HOLD TH AT THE OPINION RECORDED BY THE TRIBUNAL IS IN ANY MANN ER PERVERSE OR ARBITRARY. THE FACT THAT THE JUDGMENT I N M/S INDO NIPPON CHEMICAL INDUSTRIES LIMITEDS CASE (SUP RA) RELATES TO MODVAT CREDIT WOULD MAKE NO DIFFERENCE A S IT IS THE METHOD OF ACCOUNTANCY AND THE PRINCIPLE AFFI RMED IN M/S INDO NIPPON CHEMICAL INDUSTRIES LIMITEDS CASE(SUPRA) THAT IS RELEVANT. CONSEQUENTLY, THE SEC OND QUESTION IS ANSWERED AGAINST THE REVENUE. IN THE CASE OF CITVS. SVP INDUSTRIES LTD.; THE HON'B LE DELHI HIGH COURT HELD AS UNDER :- ITA NO. 689/IND/2016 M/S KILPEST INDIA LTD. 8 9. WE MAY NOTE THAT IN THE PRESENT CASE, IT IS NOT CONTENTION OF THE REVENUE THAT MODVAT CREDIT OR DUT Y IN RESPECT OF THE INPUTS HAS NOT BEEN INCLUDED IN T HE VALUE OF THE CLOSING STOCK. THIS IS NOT WHAT IS AVE RRED AND ASSERTED IN THE ASSESSMENT ORDER OR AN ARGUMENT , WHICH WAS RAISED BEFORE THE TRIBUNAL OR EVEN BEFORE US. WHEN WE TURN TO THE FACTUAL MATRIX OF THE PRESENT C ASE, IT IS NOTICEABLE THAT THE ASSESSING OFFICER, WHILE MAKING THE ADDITION, DID NOT GO INTO THESE FACTORS AND ISS UES. HE PROCEEDED ON A WRONG ASSUMPTION THAT AS PER THE DECISION OF THE SUPREME COURT IN BRITISH PAINTS LTD . (SUPRA), EXCISE DUTY, EVEN IF NOT PAID OR LEVIABLE OR INCURRED, MUST BE ADDED TO VALUE THE CLOSING STOCK. THIS IS NOT THE CORRECT POSITION IN LAW AND THE MANDATE OF SECTION 145A OF THE ACT. 10. COMMISSIONER OF INCOME TAX (APPEALS), ON EXAMINATION OF THE ISSUE, HAD RIGHTLY HELD THAT AS PER ITA NO. 689/IND/2016 M/S KILPEST INDIA LTD. 9 THE RESPONDENT-ASSESSEE, THE EXCISE DUTY WAS PAYABL E AT THE TIME OF REMOVAL OF GOODS AND NOT AT THE TIME OF MANUFACTURE AND THE ON THE LAST DATE OF THE ACCOUNT ING YEAR, THE GOODS WERE LYING IN THE BONDED WAREHOUSE AND THE DUTY WOULD BE PAYABLE ONLY AT THE TIME OF UNBONDING. THUS, THE CONTENTION OF THE RESPONDENT- ASSESSEE WAS THAT NEITHER EXCISE DUTY WAS PAID NOR THE DUTY WAS INCURRED. FURTHER, THE DUTY HAD NOT BEEN INCLUDED AND DID NOT FORM PART OF THE COST AS IT WA S NOT CLAIMED IN THE PROFIT AND LOSS ACCOUNT. THE COMMISSIONER OF INCOME TAX (APPEALS) THEREFORE DELE TED THE ADDITION. 11. THE TRIBUNAL HAS AFFIRMED THE AFORESAID FINDING AND DISMISSED THE APPEAL OF THE REVENUE. THERE IS NOTHI NG ON RECORD TO SHOW THAT THE REVENUE IN THE APPEAL PREFERRED BEFORE THE TRIBUNAL HAD RAISED THE CONTEN TION THAT THE EXCISE DUTY HAD, IN FACT, BECOME PAYABLE A ND ITA NO. 689/IND/2016 M/S KILPEST INDIA LTD. 10 HAD BEEN INCURRED IN TERMS OF THE EXCISE ACT OR THE APPLICABLE RULES. 12. IN THESE CIRCUMSTANCES, WE HAVE TO HOLD THAT TH E DECISION OF THE TRIBUNAL IS CORRECT AND ACCORDINGLY , SUBSTANTIAL QUESTION OF LAW MENTIONED ABOVE, IS ANSWERED IN FAVOUR OF THE RESPONDENT-ASSESSEE AND AGAINST THE APPELLANT-REVENUE. THE APPEAL IS ACCORDINGLY DISPOSED OF. THERE WILL B E NO ORDER AS TO COSTS. FOLLOWING THE ABOVE DECISIONS OF THE HON'BLE HIGH CO URT OF PUNJAB & HARYANA AND HON'BLE DELHI HIGH COURT, WE FIND NO FLAW IN THE ORDER OF THE LEARNED CIT(A) AND ACCORDI NGLY UPHOLD THE SAME. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED . ITA NO. 689/IND/2016 M/S KILPEST INDIA LTD. 11 THE ORDER HAS BEEN PRONOUNCED IN OPEN COURT ON 15 DECEMBER, 2016. SD SD ( ..!') (..) #$ (O.P.MEENA) (D.T.GARASIA) ACCOUNTANT MEMBER J UDICIAL MEMBER )'* / DATED : 15 DECEM BER, 2016. DN/ ITA NO. 689/IND/2016 M/S KILPEST INDIA LTD. 12