BRITACEL SILICONES LTD, MUMBAI V. ASST CIT 8(1), MUMBAI

ITA 8184/MUM/2010

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0422 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 24-03-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 26-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K AGARWAL
• Keywords: Cost of acquisition
• Section: 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI BEFORE SHRI P K BANSAL, VP & SHRI PAWAN SINGH, JM ITA NOS. 8183 & 8184/MUM/2010 ASSESSMENT YEARS : 2006-07, 2004-05 M/S. BRITACEL SILICONES LTD. F-18, F BLOCK ROAD, MIDC, MAROL, ANDHERI (EAST) MUMBAI 400 093 PAN : AABCB2289A VS. ADDL. CIT RANGE 8(1) MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PRAMOD KUMAR PARIDA RESPONDENT BY : SHRI V K AGARWAL (DR) DATE OF HEARING : 0 1 .0 6 .2017 DATE OF PRONOUNCEMENT : 12 .0 6 .2017 O R D E R PER P K BANSAL, VICE-PRESIDENT: THE AFORESAID APPEALS PERTAIN TO THE SAME ASSESSEE AND, THEREFORE, DISPOSED OF BY THIS COMMON ORDER. 2. ITA NO. 8184/MUM/2010 FOR A.Y. 2004-05: THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF AP PEAL: 1. ALLEGED ADDITION ON ACCOUNT OF UNUTILIZED MODAVT CREDIT -RS.31.58.170/- THE LD. CIT(A) ERRED IN CONFIRMING THE ALLEGED ADDI TION ON ACCOUNT OF UNITIZED MODVAT CREDIT WITHOUT APPRECIATING TO T HE FACT THAT FOR SEVERAL YEARS THE APPELLANT HAD BEEN FOLLOWING THE INCLUSIVE METHOD WHERE FURTHER ADJUSTMENT IN THE VALUATION OF CLOSING STOCK WAS NOT WARRANTED. AS THE ENTRIES ON ACCOUNT OF THA T WERE PASSED ONLY AS PROFORMA ENTRIES AND BY IMPLICATION TO RECO NCILE THE EXCISE RECORDS NO ADDITION ON ACCOUNT OF UNUTILIZED MODVAT CREDIT IS REQUIRED/TO BE MADE TO THE VALUE OF CLOSING STOCK A ND THEREFORE, ITA NO.8183 & 8184/MUM/2010 BRITACEL SILICONES LTD. 2 ID. CIT(A) IS WRONG TO HOLD THAT THE PROVISION OF S EC. 145A HAS TO BE GIVEN EFFECT TO IRRESPECTIVE OF METHOD OF ACCOUN TING. 2. LEVY OF PENAL INTEREST U/S. 234A. 234B. 234C AND 234D THE APPELLANT, ON MERITS, DENIES ITS LIABILITY TO P ENAL INTEREST . 3. GROUND NO.1 RELATES TO THE ISSUE WHETHER MODVAT CREDIT IS TO BE ADDED WHILE VALUING THE CLOSING STOCK. THE ASSESSI NG OFFICER FOUND THAT THE ASSESSEE HAS NOT ADDED THE MODVAT CREDIT TO THE CLO SING STOCK. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLAN ATION OF THE ASSESSEE. HE WAS OF THE OPINION THAT AS PER THE PROVISIONS OF SE CTION 145/145A, MODVAT CREDIT WAS REQUIRED TO BE ADDED TO THE CLOSING STOC K OF THE ASSESSEE. HENCE, HE ADDED THE SUM OF ` 31,58,170/- TO THE INCOME OF THE ASSESSEE. 4. WHEN THE MATTER WENT BEFORE THE CIT(A), THE CIT( A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER IN VIEW OF THE PROVI SIONS OF SECTION 145A OF THE ACT. 5. BEFORE US, THE LEARNED AR REITERATED THE SUBMISS IONS MADE BEFORE THE ASSESSING OFFICER AND CONTENDED THAT THE ASSESSEE I S CONSISTENTLY FOLLOWING THE INCLUSIVE METHOD OF VALUING ITS CLOSING STOCK A T THE END OF THE YEAR AT ITS LANDED COST WHICH IS INCLUSIVE OF COST OF MATERIAL, EXCISE DUTY AND OTHER INCIDENTAL TAXES AND ANY ADDITIONS WILL AFFECT THE TRUE PROFITABILITY. REFERRING TO THE PROVISIONS OF SECTION 145A, IT WAS CONTENDED THAT INVENTORY SHOULD BE ITA NO.8183 & 8184/MUM/2010 BRITACEL SILICONES LTD. 3 VALUED CONSISTENTLY WITH THE METHOD OF ACCOUNTING E MPLOYED BY THE ASSESSEE, WHICH SHOULD BE A RECOGNIZED METHOD. THE QUESTION OF ADJUSTMENT OF UNUSED MODVAT CREDIT IS NECESSARY WHEN THE ASSESSEE FOLLOW S EXCLUSIVE METHOD, THEREFORE, IT IS NOT NECESSARY TO CARRY OUT ANY KIN D OF ADJUSTMENT ON ACCOUNT OF UNUTILIZED MODVAT CREDIT FOLLOWED BY THE ASSESSE E. 6. THE LEARNED DR, ON THE OTHER HAND, RELIED ON THE ORDER OF THE ASSESSING OFFICER. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE CAR EFULLY CONSIDERED THE SAME. IN OUR VIEW THE ASSESSEE CAN VALUE THE CLOSI NG STOCK EITHER ON INCLUSIVE METHOD OR EXCLUSIVE METHOD. ULTIMATELY, I T WILL NOT AFFECT THE PROFIT OF THE ASSESSEE. THE ASSESSEE HAS CONSISTENTLY FOL LOWED THE INCLUSIVE METHOD AND, ACCORDINGLY, VALUING ITS STOCK. MODVAT IS A P ROCEDURE WHEREBY MANUFACTURER CAN UTILIZE CREDIT FOR INPUT DUTY AGAI NST DUTY PAYABLE ON FINAL PRODUCTS. DUTY CREDIT TAKEN ON INPUT IS OF THE NAT URE OF SET OFF AVAILABLE AGAINST THE EXCISE DUTY PAYABLE ON FINAL PRODUCTS. IN THE CASE OF MODVAT WHAT HAPPENS PRACTICALLY IS THAT SAY A MANUFACTUR ES A PRODUCT X AND EX- FACTORY PRICE OF SUCH PRODUCT IS ` .140 (INCLUSIVE OF EXCISE DUTY ` 20) AND SUCH PRODUCT X IS USED AS INPUT BY ANOTHER MANUFACTURER B FOR THE PURPOSES OF MANUFACTURING OF PRODUCT Y EX-FACTORY PRICE OF WHIC H IS ` .200 (INCLUSIVE OF EXCISE DUTY ` .30), THEN B WILL PAY EXCISE DUTY TO THE TUNE OF ` 10 ONLY TAKING CREDIT FOR THE DUTY PAID BY A. IN INCLUSIVE METHOD THE COST OF INPUT MAY BE ITA NO.8183 & 8184/MUM/2010 BRITACEL SILICONES LTD. 4 RECORDED AT THE TOTAL AMOUNT PAID TO THE SUPPLIER I NCLUSIVE OF INPUT DUTY. TO THE EXTENT THE MODVAT CREDIT IS UTILIZED FOR PAYMEN T OF EXCISE DUTY ON FINAL PRODUCTS, THE AMOUNT COULD BE CREDITED TO A SEPARAT E ACCOUNT I.E. MODVAT CREDIT AVAILED ACCOUNT. OUT OF THE MODVAT CREDIT A VAILED ACCOUNT, THE AMOUNT OF MODVAT CREDIT AVAILED IN RESPECT OF CONSUMPTION OF INPUTS WOULD BE REDUCED FROM THE TOTAL COST OF INPUTS CONSUMED. IN EXCLUSIVE METHOD, DUTY PAID ON INPUTS MAY BE DEBITED TO A SEPARATE ACCOUNT EG. MODVAT CREDIT RECEIVABLE ACCOUNT. AS AND WHEN THE MODVAT CREDIT IS ACTUALLY UTILIZED AGAINST PAYMENT OF EXCISE DUTY ON FINAL PRODUCTS APPROPRIAT E ACCOUNTING ENTRIES WILL BE REQUIRED TO ADJUST THE EXCISE DUTY PAID OUT OF M ODVAT CREDIT RECEIVABLE ACCOUNT TO THE ACCOUNT MAINTAINED FOR PAYMENT/PROVI SION OF EXCISE DUTY ON FINAL PRODUCT, IN THIS CASE, THE PURCHASE COST OF T HE INPUTS WOULD BE NET OF INPUT DUTY. THEREFORE, THE INPUTS CONSUMED AND THE INVENTORY OF INPUTS WOULD BE VALUED ON THE BASIS OF PURCHASE COST NET O F INPUT DUTY. NO DOUBT, EXCISE DUTY ADJUSTMENT TO THE CLOSING STOCK IS AN A LLOWABLE REVENUE EXPENSE. THE ADDITION OF ENTIRE BALANCE IN MODVAT CREDIT IS NOT PROPER BECAUSE THE NATURE OF THIS ACCOUNT IS PERSONAL ACCOUNT, AN ITEM ON ASSETS SIDE OF THE BALANCE SHEET ALWAYS HAVING DEBIT BALANCE. QUESTIO N OF ALLOWABLE/DISALLOWABLE ARISES ONLY IN RESPECT OF EX CISE EXPENDITURE WHERE THE ASSESSEE FOLLOWS EXCLUSIVE METHOD OF ACCOUNTING AND EFFECT OF SECTION 145A IS TO BE GIVEN. ITA NO.8183 & 8184/MUM/2010 BRITACEL SILICONES LTD. 5 8. IN THE IMPUGNED CASE, THE ASSESSEE IS FOLLOWING INCLUSIVE METHOD THEREFORE IN OUR VIEW, NO ADJUSTMENT ON ACCOUNT OF MODVAT CREDIT IS TO BE GIVEN. OUR AFORESAID VIEW IS DULY SUPPORTED BY THE DECISION OF THIS TRIBUNAL IN THE CASE OF INDIAN PETROCHEMICAL CORP LTD. IN ITA N O. 1426/AHD/2009 DATED 18.11.2015. NO CONTRARY DECISION WAS BROUGHT TO OU R NOTICE. RESPECTFULLY FOLLOWING THE SAID DECISION, WE DELETE THE ADDITION . GROUND NO. 1 IS ALLOWED. 9. GROUND NO.2 IS CONSEQUENTIAL IN NATURE AND, THER EFORE, THE ASSESSING OFFICER IS DIRECTED TO RE-COMPUTE THE INTEREST CHAR GEABLE U/S. 234A, 234B, 234C & 234D AFTER GIVING EFFECT TO THIS ORDER. 10. ITA NOS. 8183/MUM/2010 IN THIS APPEAL THE ASSESSEE HAS TAKEN FOLLOWING GR OUNDS OF APPEAL: 1. INTEREST INCOME (OF RS. 21,19,132/-) TREATED AS INCOME FROM OTHER SOURCES AND REDUCTION OF IN THE C LAIM OF DEDUCTION U/S. 80IB BY EXCLUDING THE SAME FROM ELIG IBLE PROFITS : THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF TH E ASSESSING OFFICER TO TREAT INTEREST INCOME AS INCOME FROM OTH ER SOURCES AND ALSO ERRED IN REDUCING THE CLAIM OF DEDUCTION U/S. 80IB BY EXCLUDING THE INTEREST INCOME FROM ELIGIBLE PROFITS WITHOUT A PPRECIATING THAT THERE WAS CLOSE NEXUS OF THE IMPUGNED RECEIPT WITH THE MANUFACTURING ACTIVITY CARRIED ON BY THE APPELLANT. THE LD. CIT(A) OUGHT TO HAVE ALLOWED THE NETTING OFF OF INTEREST A S EARNING OF INTEREST WAS NOT TO MOTIVE. THEREFORE, THE EXCLUSIO N OF INTEREST FOR ELIGIBLE PROFITS IS UNCALLED FOR AND MAY BE ALLOWED . 2. LEVY OF PENAL INTEREST THE APPELLANT, ON MERITS, DENIES ITS LIABILITY TO P ENAL INTEREST. ITA NO.8183 & 8184/MUM/2010 BRITACEL SILICONES LTD. 6 11. THE ISSUE INVOLVED IN GROUND NO.1 RELATES TO TR EATMENT OF THE INTEREST INCOME RECEIVED BY THE ASSESSEE FROM BANK FIXED DEP OSIT TO BE INCOME ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCE S AND CONSEQUENTLY TO EXCLUDE IT FOR THE PURPOSE OF DEDUCTION U/S. 80IB. 12. AFTER HEARING THE RIVAL SUBMISSIONS OF BOTH THE PARTIES, WE ARE OF THE OPINION THAT THE ISSUE INVOLVED IS NO MORE RES INTE GRA IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF PANDIAN CHEMICALS LTD. VS. CIT 262 ITR 278 (SC),IN WHICH THE HONBLE SUPREME COURT IN RESPECT OF INTEREST EARNED BY THE ASSESSEE ON THE DEPOSITS MADE WITH TH E ELECTRICITY BOARD HELD AS UNDER: THE WORDS DERIVED FROM IN SECTION 80HH OF THE IN COME-TAX ACT, 1961, MUST BE UNDERSTOOD AS SOMETHING WHICH HAS A D IRECT OR IMMEDIATE NEXUS WITH THE ASSESSEES INDUSTRIAL UNDE RTAKING. ALTHOUGH ELECTRICITY MAY BE REQUIRED FOR THE PURPOS ES OF INDUSTRIAL UNDERTAKING, THE DEPOSIT REQUIRED FOR ITS SUPPLY IS A STEP REMOVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING. HELD ACCORDINGLY, THAT INTEREST DERIVED BY THE INDU STRIAL UNDERTAKING OF THE ASSESSEE ON DEPOSITS MADE WITH THE ELECTRICI TY BOARD FOR THE SUPPLY OF ELECTRICITY FOR RUNNING THE INDUSTRIAL UN DERTAKING COULD NOT BE SAID TO FLOW DIRECTLY FROM THE INDUSTRIAL UNDERT AKING ITSELF AND WAS NOT PROFITS OR GAINS DERIVED BY THE UNDERTAKING FOR THE PURPOSE OF SPECIAL DEDUCTION UNDER SECTION 80HH. CIT V. RAJA BAHADUR KAMAKHYA NARAYAN SINGH [1948] 1 6 ITR 325 (PC) AND MRS BACHA F GUZDAR V. CIT [1955] 27 ITR 1 (SC) APPLIED CIT V. PANDIAN CHEMICALS LTD. [1988] 233 ITR 497 (M AD) APPROVED. ITA NO.8183 & 8184/MUM/2010 BRITACEL SILICONES LTD. 7 WE ACCORDINGLY, CONFIRM THE ORDER OF THE CIT(A) ON THIS ISSUE AND DISMISS THE GROUND. 13. GROUND NO.2 IS CONSEQUENTIAL IN NATURE. WE, TH EREFORE, DIRECT THE ASSESSING OFFICER TO RE-COMPUTE THE INTEREST CHARGE ABLE U/S. 234A, 234B, 234C & 234D AFTER GIVING EFFECT TO THIS ORDER. 14. IN THE RESULT, THE APPEAL IN ITA NO.8184/MUM/20 10 IS ALLOWED AND THAT IN ITA NO.8183/MUM/2010 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH DAY OF JUNE, 2017. SD/- SD/- (PAWAN SINGH) (P K BA NSAL) JUDICIAL MEMBER VICE-PRESIDENT MUMBAI; DATED: 12 TH JUNE, 2017 SA COPY OF THE ORDER FORWARDED TO : 1. THE APP ELL ANT. 2. THE RESPONDENT. 3. T HE CIT(A), MUMBAI 4. THE CIT 5. DR, B BENCH, ITAT, MUMBAI BY ORDER, #TRUE COPY # ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI