Asiatic Industries, Ahmedabad V. The Dy.CIT., Cent.Circle-3, Ahmedabad

ITA 753/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80241 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 23-07-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 09-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Keywords: Principle of natural justice
• Section: 43B; 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI MUKUL KR. SHRAWAT, J.M. & SHRI ANIL CH ATURVEDI, A.M.) I.T. A. NO. 753 /AHD/2011 (ASSESSMENT YEAR: 2007-08) M/S. ASIATIC INDUSTRIES 1505, PHASE-I, G.I.D.C. NARODA, AHMEDABAD V/S THE D.C.I.T, CENTRAL CIRCLE3, AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AACCFA 8887H APPELLANT BY : SHRI TUSHAR P. HEMANI, A.R . RESPONDENT BY : SHRI DINESH SINGH, SR. D.R. ( )/ ORDER DATE OF HEARING : 23-07-2014 DATE OF PRONOUNCEMENT : 07-08-2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF CIT(A)-XVI, AHMEDABAD DATED 13.01.2011 FOR A.Y. 2007-08. 2. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. 3. ASSESSEE IS PARTNERSHIP FIRM STATED TO BE ENGAGED I N THE BUSINESS OF TRADING AND MANUFACTURING OF DYES. ASSESSEE ELECTRO NICALLY FILED ITS RETURN OF INCOME FOR A.Y. 07-08 ON 31.10.2007 DECLA RING TOTAL INCOME OF RS. 33,48,105/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ITA NO 753 /AHD/2011 . A.Y. 2007-08 2 ASSESSMENT WAS FRAMED U/S. 143(3) VIDE ORDER DATED 29.12.2009 AND THE TOTAL INCOME WAS ASSESSED AT RS. 46,95,050/-. AGGRI EVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT (A) VIDE ORDER DATED 13.01.2011 GRANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS:- 1. THE ORDER PASSED U/S. 250 OF THE I.T. ACT ON 13 TH JANUARY, 2011 FOR A.Y. 2007-08 BY CIT(A)-XVI, AHMEDABAD UPHOLDING THE ADDITION OF RS. 11,68,817 I S WHOLLY ILLEGAL, UNLAWFUL AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 2. THE ED. CIT(A) HAS GRIEVOUSLY ERRED IN UPHOLDING TH E ADDITION OF RS. 11,68,817 UNUTILIZED CENVAT/MODVAT, EXCISE DUTY AND VAT TAX CREDIT RECEI VABLE AS INCOME U/S. 145A OF THE ACT AS ASSESSEE IS BOUND TO VALUE ITS CLOSING STOCK INCLUS IVE OF SUCH TAXES/DUTY/CESS/FEE WHICH HAS BEEN INCURRED BY THE ASSESSEE FOR INVENTORY AND W.E.F. 0 1/04/1999, THE ASSESSEE IS NOT ENTITLED TO VALUE THE CLOSING STOCK EXCLUSIVE OF SUCH TAXES/DUTY/CESS /FEE. 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. C1T(A) OUGHT NOT TO HAVE HELD THE UNUTILIZED CENVAT/MODVAT, EXCISE DUTY AND VAT TAX CREDIT RECEI VABLE AS INCOME U/S. 145 A OF THE ACT. 4. THE FIRM HAS ALREADY CONSUMED UNUTILIZED CREDIT OF EXCISE DUTY & VAT ON STOCK BEFORE DUE DATE OF FILLING OF RETURN UNDER SEC 43B OF THE IT ACT. 4. BEFORE US, LD. A.R. SUBMITTED THAT THOUGH THE ASSES SEE HAS RAISED VARIOUS GROUNDS, THE ONLY EFFECTIVE GROUND IS WITH RESPECT TO ADDITION OF RS. 11,68,817/-ON ACCOUNT OF UNUTILIZED CENVAT AND MODV AT EXCISE DUTY AND VAT CREDIT RECEIVABLE. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NO TICED THAT ASSESSEE HAD DECLARED CLOSING STOCK AFTER EXCLUDING EXCISE D UTY AND VAT ON THE STOCK. HE ALSO NOTICED THAT NON INCLUSION OF EXCISE DUTY AND VAT HAS RESULTED INTO UNDER STATEMENT TO THE VALUE OF CLOSI NG STOCK. ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE EXCISE DUTY AND VAT RECEIVABLE NOT BE ADDED TO THE CLOSING STOCK VALUE SO AS TO ARRIVE AT THE CORRECT PROFIT AS PER THE PROVISIONS OF SECTION 145A OF THE ACT, IN R ESPONSE TO WHICH ASSESSEE INTERALIA SUBMITTED THAT IT WAS CONSISTENT LY ADOPTING EXCLUSION METHOD OF CLOSING STOCK VALUATION. IT WAS ALSO SUBM ITTED THAT IT WAS ITA NO 753 /AHD/2011 . A.Y. 2007-08 3 DEBITING THE PURCHASE ACCOUNT ONLY WITH THE PURCHAS ES AND NOT THE EXCISE DUTY OR VAT WHICH WAS TAKE TO BALANCE SHEET DIRECTL Y. IT WAS FURTHER SUBMITTED THAT OUT OF THE TOTAL EXCISE DUTY OF RS. 124.37 LACS DEBITED, IT HAD UTILIZED THE EXCISE DUTY OF RS. 140.53 LACS WHI CH MEANS THAT IT HAS ALREADY UTILIZED THE PAYMENT OF EXCISE DUTY DURING THE YEAR AND HAD ALSO PAID RS. 16.16. LACS. THE SUBMISSIONS OF THE ASSESS EE WERE NOT FOUND ACCEPTABLE TO THE A..O AS WAS OF THE VIEW THAT BY A DOPTING EXCLUSION METHOD OF CLOSING STOCK VALUATION, THE CORRECT PROF IT OF THE BUSINESS WAS NOT REFLECTED BY THE ASSESSEE AS THERE WAS UNDER VA LUATION OF CLOSING STOCK. A.O WAS OF THE VIEW THAT IN VIEW OF THE PROV ISIONS OF SECTION 145A OF THE ACT, UNUTILIZED CENVAT MODVAT CREDIT RE CEIVABLE NEEDS TO BE INCLUDED IN THE VALUE OF CLOSING STOCK. HE TH EREFORE INCLUDED THE EXCISE DUTY OF RS. 8,24,118/- AND VAT CREDIT OF RS. 3,44,699/- AGGREGATING TO RS. 11,68,817/- IN THE VALUE OF CLOS ING STOCK AND ACCORDINGLY ADDED THE AMOUNT TO THE TOTAL INCOME. A GGRIEVED BY THE ORDER OF A.O, ASSESSEE CARRIED THE MATTER BEFORE CI T(A). CIT(A) AFTER RELYING ON THE VARIOUS DECISIONS CITED IN HIS ORDER UPHELD THE ADDITION MADE BY THE A.O BY HOLDING AS UNDER:- 3.3.3 FROM THE ABOVE, IT IS CLEAR THAT EVEN IF THE ASSESSEE FOLLOWS EXCLUSIVE METHOD OF ACCOUNTING, ST ILL IT HAS TO GIVE EFFECT TO THE ADJUSTMENTS AS PER SEC TION 145A. AS STATED ABOVE, THE APPELLANT IS REQUIR ED TO ADD THE TAXES, DUTIES, ETC, TO BOTH OPENING AND CLOSING STOCK AS WELL AS IN THE PURCHASES AND SALES . HOWEVER, IN THE FIRST YEAR THE OPENING STOCK CANNOT BE CHANGED FROM THE CLOSING STOCK OF THE EARLIER YEAR AS PER THE BASIC ACCOUNTING PRINCIPLE AND AS D ISCUSSED BY THE HON'BIE ITAT IN THE CASE OF WEST COST PAPER MILLS LTD, (SUPRA). THIS PRINCIPLE HAS B EEN UPHELD BY THE HON'BLE ITAT, AHMEDABAD ALSO IN THE CASE OF J.K. PAPER LTD, (SUPRA). 3.3.4 IN VIEW OF THE ABOVE IT IS CLEAR THAT THE REQ UIREMENT OF SECTION 145A IS THAT THE ASSESSEE MUST INCLUDE TAX DUTIES, CESS ETC. FOR VALUING THE CLOSI NG STOCK. THE ASSESSEE CAN FOLLOW THE EXCLUSIVE MET HOD FOR THE BOOK PURPOSES BUT FOR THE PURPOSE OF TAX AU DIT REPORT AND DISALLOWANCE U/S.43B IT IS NECESSARY THAT THE ASSESSEE MUST SHOW THE EFFECT OF SECTION 1 45A BY FOLLOWING THE INCLUSIVE METHOD I.E. BY INCLUDING ALL TAX, DUTIES, CESS ETC. IN THE CLOSING STOCK. THESE TAXES, DUTIES, ETC. WILL HAVE TO BE A DDED TO THE CLOSING STOCK OF THE CURRENT YEAR IN VIEW OF TH E ABOVE DISCUSSION. HOWEVER, THE ASSESSEE HAS TO NECESSARILY FOLLOW THE CLOSING STOCK OF LAST YEAR A S OPENING STOCK OF THE CURRENT YEAR. AS STATED EARL IER THE ASSESSEE WILL GET BACK REFUND OF THESE EXCISE D UTY RECEIVABLE & VAT RECEIVABLE IF HE IS FULLY EXPO RTER OR THEY WILL BE ADJUSTED IF DOES LOCAL SALES AND HE NCE THESE ARE HIS INCOME OF THE CURRENT YEAR. IN VI EW OF THIS REASON, THE ADDITION OF EXCISE DUTY AND VAT TO THE CLOSING STOCK IS CORRECT. THIS GROUND OF APPEAL IS DISMISSED. ITA NO 753 /AHD/2011 . A.Y. 2007-08 4 6. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS NOW I N APPEAL BEFORE US. 7. BEFORE US. LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE CIT(A) AND SUBMITTED THAT IT WAS FOLLOWING EXCLUSIVE METHOD OF ACCOUNTING AND IF THE EXCISE DUTY IS ADDED TO THE CLOSING STOCK, THE SAME HAS ALSO TO BE ADDED TO THE PURCHASES. HE FURTHER SUBMITTED THAT THE ENT IRE EXERCISE THEREFORE BE TAX NEUTRAL AND THEREFORE URGED THAT THE ADDITIO N MADE BY THE A.O BE DELETED. HE FURTHER PLACED RELIANCE ON THE DECISIO N OF CO-ORDINATE BENCH OF TRIBUNAL IN THE CASE OF SNEHAL PHARMA CHEM ITA N O. 444/A/2013 AND DECISION IN THE CASE OF BLOOM DEKOR LTD. ITA NO . 328/A.11. HE ALSO PLACED ON RECORD, THE COPY OF THE AFORESAID ORDERS. THE LD. D.R. ON THE OTHER HAND RELIED ON THE ORDER OF A.O. AND CIT(A). 8. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE ISSUE IN THE PRESENT APPEAL IS WIT H RESPECT TO INCLUSION OF EXCISE DUTY AND VAT TO THE VALUE OF CLOSING STOCK, IN A CASE WHERE THE ASSESSEE IS FOLLOWING EXCLUSION METHOD OF ACCOUNTIN G OF EXCISE AND VAT FOR VALUATION OF STOCK. WE FIND SIMILAR ISSUE W ERE BEFORE THE CO- ORDINATE BENCH OF TRIBUNAL. WE FURTHER FIND THAT IN THE CASE OF SNEHAL PHARMA CHEM (SUPRA) THE ISSUE WAS DECIDED IN THE FA VOUR OF ASSESSEE BY THE CO-ORDINATE BENCH OF TRIBUNAL BY HOLDING AS UND ER:- 3. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. D. R. AND HAVE GONE THROUGH THE MATERIAL ON RECORD AND THE ORDERS PASSED BY AUTHORITIES BELOW. WE FIND THAT THERE IS SUBMISSION OF THE ASSESSEE BEFORE TH E AUTHORITIES BELOW THAT WHILE THE ENTIRE AMOUNT OF E XCISE DUTY REALIZED ON SALES WAS INCLUDED IN THE SA LE AMOUNT BUT OUT OF ENTIRE AMOUNT OF EXCISE DUTY PAID ON PURCHASES, ONLY THAT PORTION OF SUCH EXCISE DUT Y PAID WHICH WAS UTILIZED BY WAY OF MOD VAT, HAD BEEN INCLUDED IN THE VALUE OF PURCHASES AND THE BALANCE AMOUNT OF MODVAT CREDIT WHICH COULD NOT BE UTILIZED IN THE PRESENT YEAR WAS SHOWN IN THE BALANCE SHEET AS AN AMOUNT RECEIVABLE AND THIS PORT ION OF RS.L1,25,3427- WAS NOT INCLUDED IN THE VALUE OF PURCHASES. LD. D.R. COULD NOT CONTROVERT THESE S UBMISSIONS OF THE ASSESSEE MADE BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW. ONCE IT IS ACCEPTED T HAT THESE SUBMISSIONS OF THE ASSESSEE ARE CORRECT, IT MEANS THAT EXCISE DUTY PAID BUT NOT INCLUDED IN THE PURCHASES WAS SHOWN IN THE BALANCE SHEET AS EXCISE DUTY RECEIVABLE AND THEREFORE, THERE CANNOT BE A RE ASON TO MAKE ANY ADDITION IN THE INCOME OF THE ASSESSEE BECAUSE EVEN IF WE INCLUDE SUCH EXCISE DUT Y RECEIVABLE IN THE VALUE OF CLOSING STOCK, THE SAM E ITA NO 753 /AHD/2011 . A.Y. 2007-08 5 IS ALSO REQUIRED TO BE INCLUDED IN THE VALUE OF PUR CHASES AND IT WILL HAVE NO IMPACTS ON THE PROFITS O F THE ASSESSEE. THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LD. CIT(A). 9. WE FURTHER FIND THAT IN THE CASE OF BLOOM DEKOR LTD . (SUPRA) SIMILAR ISSUE WAS DECIDED BY THE CO-ORDINATE BENCH OF TRIBUNAL IN FAVOUR OF THE ASSESSEE BY HOLDING AS UNDER:- 4. ON PERUSING THE FINANCIAL STATEMENTS ASSESSING O FFICER NOTICED THAT AS PER THE NOTES TO ACCOUNTS, EXCISE DUTY ON FINISHED GOODS NOT CLEARED AS PER FA CTORY WAS ESTIMATED AT R. 47.38 LACS AND CUSTOM DUTY ON STOCK LYING AT PORT ESTIMATED AT RS. 46.5 L ACS WAS NOT PROVIDED FOR IN THE BOOKS AND WAS ALSO NOT CONSIDERED IN THE VALUATION OF INVENTORIES. AS SESSING OFFICER WAS OF THE VIEW THAT AS PER PROVISI ON OF SECTION 145A INSERTED WITH EFFECT FROM 1.04.1999 EXCISE DUTY HAS TO BE ADDED WHILE VALUING FINISHED GOODS. HE THUS CONSIDERED THE AMOUNT OF EXCISE DUTY ON FINISHED GOODS NOT CLEARED FROM FACTORY AT RS. 47.38 LACS AND CUSTOM DUTY ON STOCK LYING AT PORT A T 46.51 LACS AGGREGATING TO RS. 93,89,000/- AND ADDED IT TO THE VALUE OF INVENTORY. AGGRIEVED BY TH E ACTION OF THE ASSESSING OFFICER, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND RELYING ON THE DECISION OF AHMEDABAD TRIBUNAL IN THE CASE OF ITA 1 358/AHD/2009 ALLOWED THE APPEAL OF THE ASSESSEE BY HOLDING AS UNDER:- THE APPELLANT ALSO POINTED OUT THAT HON'BLE IT AT, AHMEDABAD VIDE ITA NO. 1358/AHD/2009 HAS ALSO CONCURRED WITH A VIEW THAT EXCISE DUTY AND/OR CUSTOMS DUTY SHOULD NOT BE INCLUDED IN THE CLOSING STOCK. THE OPERATIVE PART INDICATING OBSERVATION OF THE HON'BLE ITAT IS REPRODUCED HEREIN AS UNDER: 'AT THE TIME OF HEARING, BOTH THE PARTIES AGREED TH AT THE ISSUE IS NOW SQUARELY COVERED BY THE DECISIO N OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ACIT VS. NARMADA CHEMATUR PETROCHEMICALS LTD. 327 ITR 369 (GUJ.), WHEREIN FOLLOWING WAS HELD: 'HELD, DISMISSING THE APPEAL, THAT TRIBUNAL WAS JUS TIFIED IN EXCLUDING THE EXCISE DUTY AT THE TIME OF VALUATION OF THE CLOSING STOCK OF FINISHED GOODS AT THE END OF THE ACCOUNTING PERIOD BECAUSE: (A) NO DEDUCT ION FOR THE LIABILITY HAD BEEN CLAIME D BY THE ASSESSEE.THE EXCISE DUTY PAYABLE ON THE FINISHED GOODS LYING IN THE CLOSING STOCK AT THE EN D OF THE RELEVANT ACCOUNTING PERIOD HAD BEEN PAID I N THE SUBSEQUENT YEAR BEFORE_THE DUE DATE OF FILING O F THE RETURN OF INCOME AND THAT WAS HOW THE AMOUNT WAS AVAILABLE CONSIDERING THE FACT THAT THE ASSESS MENT HAD BEEN FRAMED AND THE SHOW-CAUSE NOTICE WAS ISSUED MUCH AFTER THE CLOSE OF THE ACCOUNTING Y EAR; (B) THE ASSESSING OFFICE HAD NOT HAD RECOURSE TO SU B-SECTION (3) OF SECTION 145 OF THE ACT. THE ASSESSEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACC OUNTING BUT IT WAS NOT THE CASE OF THE ASSESSING OFFICER THAT THE ASSESSING OFFICER WAS NOT IN A POS ITION TO DEDUCE TRUE PROFITS OF THE YEAR UNDER CONSIDERATION. SUCH DUTY OF 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, APRIL 1, 1997. SO T HE NEXT YEAR'S PROFITS WOULD GET DEPRESSED ACCORDINGLY , OVER A PERIOD OF TIME THE WHOLE EXERCISE WOULD EVEN OUT, IN OTHER WORDS, BE REVENUE NATURAL. AT TH E SAME TIME WHILE DISTURBING THE VALUE OF THE CLOSI NG STOCK THE ASSESSING AUTHORITY COULD NOT CHANGE THE METHOD OF ACCOUNTING REGULARLY EMPLOYED. [C] THE ASSESSMENT YEAR BEING 1997-98 THE PROVISIO NS OF SECTION 145A OF THE ACT INSERTED BY THE FINANCE (NO. 2) ACT, 1998 WITH EFFECT FROM APRIL 1, 1999 COULD NOT BE INVOKED. [4.4] I HAVE PERUSED THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSIONS MADE IN THIS REGARD. SINCE THE ISSUE IS SQUARELY COVERED BY THE JURISDICTIONAL 1TA T, I AM OF THE VIEW THAT NO ADDITION SHOULD BE MADE ON ACCOUNT OF EXCISE AND CUSTOMS DUTY IN THE VALUAT ION OF CLOSING STOCK. THE ADDITION MADE BY THE AO IS THUS DIRECTED TO BE DELETED. THE GROUNDS RAISED BY THE APPELLANT ARE THUS ALLOWED. 5. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER REVENUE IS NOW IN APPEAL BEFORE US. 6. BEFORE US, LEARNED D.R. RELIED ON THE ORDER OF T HE ASSESSING OFFICER. ITA NO 753 /AHD/2011 . A.Y. 2007-08 6 7. WE HAVE HEARD THE LEARNED D.R. AND PERUSED THE M ATERIAL ON RECORD. CIT(A) WHILE DELETING THE ADDITION HAS HELD THAT THE ISSUE IS SQUARELY COVERE D BY THE DECISION OF JURISDICTIONAL TRIBUNAL AND ACCORDINGLY RELYING ON THE AFORESAID DECISION DELET ED THE ADDITION. NOTHING HAS BEEN BROUGHT ON RECORD TO CONTROVERT THE FINDINGS OF CIT(A) AND THU S WE FIND NO REASON TO INTERFERE IN HIS ORDER AND T HIS THE APPEAL OF REVENUE IS DISMISSED. 10. SINCE THE ISSUE IN THE PRESENT APPEAL IS SIMILAR TO THE ISSUES IN THE APPEALS CITED HEREINABOVE, WE RESPECTFULLY FOLLOWING THE DE CISIONS OF CO-ORDINATE BENCH OF TRIBUNAL CITED HEREINABOVE, WE ARE OF THE VIEW THAT NO ADDITION ON ACCOUNT OF MODVAT AND VAT AS MADE BY THE A.O NEE DS TO BE MADE IN THE PRESENT CASE. WE THEREFORE DIRECT ITS DELETI ON. THUS THIS GROUND OF ASSESSEE IS ALLOWED. 11. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 07 - 08 - 2014. SD/- SD/- (MUKUL KR. SHRAWAT) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AH MEDABAD