The Dy. Commr. Income Tax, Circle-1 (1), RAJKOT-GUJARAT V. Intricast Pvt. Ltd., RAJKOT-GUJARAT

ITA 716/RJT/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9028 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 30-05-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 10-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GIRISH PARIKH
• Keywords: Depreciation
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT [CONDUCTED THROUGH E-COURT AT AH MEDABAD] (BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER & SHRI MAHAVIR PRASAD, JUDICIAL MEMBER) ITA. NO: 716/RJT/2014 (ASSESSMENT YEAR: 2007-08) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1), RAJKOT V/S INTRICAST PVT. LTD. NH-8B, SHAPAR, RAJKOT (APPELLANT) (RESPONDENT) PAN: AAACI4681E APPELLANT BY : SHRI GIRISH PARIKH, A.R. RESPONDENT BY : SHRI PRAVIN VERMA, SR. D.R. ( )/ ORDER DATE OF HEARING : 30 -05-201 7 DATE OF PRONOUNCEMENT : 31 -05-2017 PER N.K. BILLAIYA, ACCOUNTANT MEMBER 1. THIS APPEAL BY THE REVENUE IS PREFERRED AGAINST THE ORDER OF THE LD. CIT(A)- I, RAJKOT DATED 11.09.2014 PERTAINING TO A.Y. 2007- 08. ITA NO. 716/ RJT/2014 . A.Y. 2007-08 2 2. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE LD. C IT(A) ERRED IN DELETING THE ADDITION OF RS. 59.48 LACS ON ACCOUNT OF UNUTILIZED CENVAT. 3. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURING OF STEEL FORGING. THE RETURN FOR THE YEAR UNDER CONSIDERATION WAS SELECTE D FOR SCRUTINY ASSESSMENT. DURING THE COURSE OF THE SCRUTINY ASSES SMENT PROCEEDINGS, THE A.O. NOTICED THAT THERE WAS UNUTILIZED CENVAT CREDI T OF RS. 59.48 LACS. THE A.O. WAS OF THE OPINION THAT THE UNUTILIZED CENVAT CREDIT WAS REQUIRED TO BE INCLUDED IN THE CLOSING STOCK OF RAW MATERIALS A ND WIP. INVOKING THE PROVISIONS OF SECTION 145A OF THE ACT, THE A.O. MAD E ADDITION OF RS. 59.48 LACS. 4. ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) A ND STRONGLY CONTENDED THAT SECTION 145A DOES NOT MANDATE INCLUSIVE METH OD OF INVENTORY VALUATION AS ADOPTED BY THE A.O. IT WAS BROUGHT TO THE NOTICE OF THE LD. CIT(A) THAT THE ASSESSEE HAS CHARGED PURCHASE EXPEN SES AT BASIC PRICE I.E. EXCLUSIVE OF EXCISE CENVAT CREDIT AVAILABLE AND ACC ORDINGLY DEBITED LESS EXPENSES TO ITS P&L ACCOUNT AND CENVAT RECEIVABLE T O THE EXTENT NOT AVAILED AND UTILIZED AT THE YEAR END SHOWN AS ADVA NCE IN THE BALANCE SHEET. STRONG RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT OF GUJARAT IN THE CASE OF NARMADA CHEMATUR PETRO CHEMICALS LTD. 327 ITR 369 AND ALSO ON THE DECISION OF CO-ORDINATE BENCH IN THE CASE OF UDAYKUMAR CHHABILDAS PATEL. 5. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS IN THE LIGHT OF THE JUDICIAL DECISIONS RELIED UPON BY THE ASSESSEE, THE LD. CIT( A) WAS CONVINCED THAT THE ITA NO. 716/ RJT/2014 . A.Y. 2007-08 3 RATIO OF THE DECISION IN THE CASE OF NARMADA CHEMAT UR PETRO CHEMICALS LTD. (SUPRA) SQUARELY APPLY AND FOLLOWING THE SAME, THE LD. CIT(A) DIRECTED FOR THE DELETION OF THE ADDITION. 6. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 7. THE LD. D.R. STRONGLY SUPPORTED THE FINDINGS OF THE A.O. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN S TATED BEFORE THE LOWER AUTHORITIES. 8. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF THE AUTH ORITIES BELOW AND HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE JUDICIAL DE CISIONS RELIED UPON BY THE LD. COUNSEL. IF THE PROFIT AND LOSS ACCOUNT IS CONS IDERED IN THE LIGHT OF THE EXCLUSIVE METHOD AND INCLUSIVE METHOD THE POSI TION COMES AS UNDER:- PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2007 SR. NO. PARTICULARS EXCLUSIVE METHOD CENVAT INCLUSIVE METHOD I INCOME: SALES (NET) 234824316.45 10509932.00 245334248.45 OTHER INCOME 12730226.65 12730226.65 PROFIT IN SALE AFFIXED ASSETS 62123.00 62 J 23. 00 WIND MILL DIVISION INCOME 8933610.58 8933610.58 CLOSING STOCK 23961694.00 23961694.00 CENVAT CREDIT UTILIZE FROM PURCHASE CENVAT 5975394.00 5975394.00 280511970.68 164 85326.00 296997296.68 ITA NO. 716/ RJT/2014 . A.Y. 2007-08 4 2 EXPENDITURE OPENING STOCK 20036002.00 20036002.00 RAW MATERILA CONSUMED 15 A 108507172.49 15664540.00 124171712.49 MOULD PURCHASE 15B 2579038.00 2579038.00 RE - SALE PURCHASE 0.00 0.00 POWER AND FUEL 16 21171376.23 21171376.23 MANUFACTURING EXPENSES 17 37136865.40 37136865.40 REPAIRS & MAINTENANCE 18 1615379.89 1615379.89 EMPLOYEES REMUNERATION & BENEFITS 19 4553925.00 4553925.00 ADMINISTRATIVE EXPE NSES 20 5800961.93 5800961.93 SELLING EXPENSES 21 4976571.29 4976571.29 FINANCIAL EXPENSES 22 966129.02 966129.02 WIND MILL DIVISON EXPENSES 23B 314119.00 314119.00 DEPRECIATION ; 5 10276053.00 10276053.00 CENVAT ON CLOSING STOCK OF RAW MATERIAL WHICH IS INCLUDED IN PURCHASE 820786.00 820786.00 TOTAL 217933593.25 16485326.00 234418919.25 3 NET PROFIT BEFORE INCOME TAX 62578377.43 0.00 62578377.43 SCHEDU LE: 15 MATERIAL CONSUMED: EXCLUSIVE METHOD CENVAT INCLUSIVE METHOD (A) RAW, PROCESS & OTHERS; OPENING STOCK (INCL. FREIGHT) ADD.: PURCHASES (NET) 15985040.00 113487322.49 1615237.00 16485326.00 17600277.00 129972648.49 ITA NO. 716/ RJT/2014 . A.Y. 2007-08 5 ADD.: FREI GHT EXPENSES HIGHSES/IMPORT EXPENSES INSURANCE ON TRANSIT MATERIAL SCRAP CUTTING & LOADING AND UNLOADING 129472362.49 553657.00 40118.00 9921.00 150861.00 18100563.00 147572925.49 553657.00 40118.00 9921.00 150861.00 LESS: G.S.T. SET OFF CLOSING STOCK 130226919.49 696988.00 21022759.00 18100563.00 2436023.00 148327482.49 696988.00 234587 82.00 108507172.49 15664540. 00 124171712.49 R. G. 23 PART II (CENVAT ACCOUNT) OPENING BALANCE 3167712.00 ADD: CENVAT ON RAW MATERIAL 16485326.00 19653038.00 LESS: CENVAT ON SALES 10509932.00 CENVAT ON NOT RETURN MATERIAL 27346.00 CLOSING BALANCE 9115760.00 DIFF. BETWEEN OPE. BALANCE & CLO. BALANCE 5948048.0 0 ADD: CENVAT ON NOT RETURN MATERIAL 27346.00 5975394.00 9. THE HONBLE HIGH JURISDICTIONAL HIGH COURT (SUPRA) HAS HELD AS UNDER:- THE QUESTION TO BE ASKED IS WHETHER THE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE EXCLUDES, FOR THE VALUATION OF THE STOCK-I N-TRADE, ANY COST OTHER THAN THE COST OF RAW MATERIALS SO AS TO RESULT IN A DISTORTE D PICTURE OF TRUE STATE OF BUSINESS FOR THE PURPOSE OF COMPUTING THE CHARGEABLE INCOME. THE EMPHASIS IS ON THE PHRASE 'CHARGEABLE INCOME'. IF THE DUTY OF CENTRAL EXCISE IS NOT DUE AND PAYABLE, IT CANNOT BE TERMED TO BE A COST IN RELATION TO THE RA W MATERIALS. SUCH DUTY ALSO CANNOT BE TERMED TO BE A COST QUA THE FINISHED GOOD S APPEARING IN THE CLOSING STOCK BECAUSE, ADMITTEDLY, ON THE SAID DAY (PRESUMP TION BEING THAT SUCH GOODS ITA NO. 716/ RJT/2014 . A.Y. 2007-08 6 ARE EXCISABLE GOODS), NO EXCISE DUTY IS DUE AND PAY ABLE AT (HE SAID STAGE AND FOR THE PURPOSES OF THE EXCISE ACT, THE LEVY IS NOT COM PLETE UNLESS AND UNTIL SECTIONS 3 AND 4 OF THE EXCISE ACT OPERATE TOGETHER. IF FOR TH E PURPOSE OF THE SAID STATUTE, WHICH IS THE ONLY STATUTE UNDER WHICH DUTY OF CENTR AL EXCISE CAN BE LEVIED AND COLLECTED, THE CHARGE IS NOT FASTENED, IN LAW, IT C ANNOT BE STALED THAT FOR THE PURPOSE OF COMPUTING CHARGEABLE INCOME SUCH A CHARG E GETS FASTENED QUA THE FINISHED GOODS APPEARING AS PART OF CLOSING STOCK. TO STATE SO WOULD RESULT INTO AN ANOMALOUS SITUATION UNDER THE TWO STATUTES, THE EXC ISE ACT AND THE INCOME-TAX ACT LEADING TO CONTRARY POSITIONS UNDER BOTH THE ST ATUTES. THE NORMAL RULE OF INTERPRETATION SHOULD BE TO HARMONIOUSLY READ DIFFE RENT STATUTES SO AS TO ENSURE THAT THERE IS NO CONFLICT IN RELATION TO THE SAME T RANSACTION.- THIS IS SUBJECT TO THE EXCEPTION THAT A SPECIFIC PROVISION APPEARS IN ONE OF THE STATUTES TO INDICATE TO THE CONTRARY. IT IS NOT POSSIBLE TO FIND ANY SUCH S PECIFIC PROVISION EITHER UNDER THE EXCISE ACT OR UNDER THE INCOME-TAX ACT. HENCE, WITH OUT THERE BEING ANY DISPUTE AS REGARDS THE GENERAL PROPOSITIONS LAID DOWN IN TH E JUDGMENT OF BRITISH PAINTS INDIA LTD. (SUPRA), SUFFICE IT TO STATE THAT IN THE FACTS OF THE INSTANT CASE, EVEN ON APPLICATION OF THE SAID GENERAL PRINCIPLES, THE ADD ITION SOUGHT TO BE MADE BY THE REVENUE COULD NOT BE SUSTAINED. ...... THERE IS ONE MORE ASPECT OF THE MATTER. SUCH DUTY O F CENTRAL EXCISE IF ADDED TO ENHANCE THE VALUE OF CLOSING STOCK WOULD RESULT IN ENHANCED OPENING STOCK ON THE FIRST DAY OF THE NEXT ACCOUNTING PERIOD, NAMELY, 1- 4-1997. SO, NEXT YEAR'S PROFITS WOULD GET DEPRESSED ACCORDINGLY. OVER A PERIOD OF T IME, THE WHOLE EXERCISE RESULTS IN EVENING OUT; IN OTHER WORDS, REVENUE NEU TRAL. AT THE SAME TIME, WHILE DISTURBING THE VALUE OF THE CLOSING STOCK THE ASSES SING AUTHORITY CANNOT CHANGE THE METHOD OF ACCOUNTING REGULARLY EMPLOYED. ..... THE POSITION, IN LAW, IS WELL-SETTLED THAT MAKING O F AN ENTRY OR ABSENCE OF AN ENTRY CANNOT DETERMINE RIGHTS AND LIABILITIES OF THE PART IES. IN OTHER WORDS, IF THE LAW DOES NOT LEAD TO INCURRING OF A LIABILITY, OR DOES NOT LEAD TO A CORRESPONDING RIGHT ITA NO. 716/ RJT/2014 . A.Y. 2007-08 7 TO INSIST ON DISCHARGING SUCH A LIABILITY, ANY ACCO UNTING PRACTICE (EVEN IF SUGGESTED BY THE ICAI) CANNOT LAY DOWN ANYTHING TO THE CONTRARY.... ON BEHALF OF THE REVENUE RELIANCE HAD ALSO BEEN PLA CED ON PROVISIONS OF SECTION 145A WHICH HAS BEEN INSERTED BY THE FINANCE (NO. 2) ACT, 1998 WITH EFFECT FROM 1- 4-1999. THE ASSESSMENT YEAR BEING 1997-98 THE SAID PROVISION COULD NOT BE INVOKED. WHAT IS MORE MATERIAL IS THAT THE SAME REL ATES TO INCLUSION IN THE VALUE OF INVENTORY THE AMOUNT OF ANY TAX, DUTY, ETC., PAI D OR LIABILITY INCURRED FOR THE SAME UNDER ANY LAW IN FORCE, MEANING THEREBY SUCH T AX, DUTY, ETC., SHOULD HAVE BEEN ACTUALLY PAID OR SHOULD BE ACTUALLY DUE AND PA YABLE UNDER THE LAW APPLICABLE TO SUCH TAX, DUTY, ETC., IN FORCE. OTHER WISE EVEN SECTION 145 A WILL ALSO NOT CARRY CASE OF THE REVENUE ANY FURTHER...... ACCORDINGLY, THE TRIBUNAL WAS JUSTIFIED, IN LAW, IN EXCLUDING THE EXCISE DUTY AT THE TIME OF VALUATION OF THE CLOSING STOCK OF FINISHED GOODS AT THE END OF THE ACCOUNTING PERIOD. THE APPEAL WAS TO BE DISMISSED A CCORDINGLY.' 10. IF THE RE-CASTED PROFIT AND LOSS ACCOUNT EXHIBIT ED ELSEWHERE IS CONSIDERED IN THE LIGHT OF THE RATIO DECIDED BY THE HONBLE JU RISDICTIONAL HIGH COURT (SUPRA), IN OUR CONSIDERED OPINION, THE FIRST APPEL LATE AUTHORITY HAS RIGHTFULLY FOLLOWED THE RATIO LAID DOWN BY THE HON BLE JURISDICTIONAL HIGH COURT AND AS NO DISTINGUISHING DECISION HAS BEEN BR OUGHT TO OUR NOTICE BY THE LD. D.R. WE DECLINE TO INTERFERE. 11. APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 31 - 05 - 2017 SD/- SD/- (MAHAVIR PRASAD) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED: 31/05/2017