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2013 (10) TMI 606 - AT - Income TaxSection 145A of the Income Tax Act – Valuation of closing stock, inclusive of excise duty or exclusive of it – Effect of valuation on the profit of the company – Held that:- the proper manner in which the correct profit in terms of section 145A could be determined is by scrupulously following the mandate of section 145A - All the constituents of the manufacturing account that are subject to levy/incidence of excise (or any other tax for that matter) are to be loaded therewith. That the provision is tax-neutral is no argument for not observing the same, as the same (tax neutrality) would have to be established in each case with reference to the accounts as being maintained. This is as in practical situations, a one-to-one correspondence between input/s and outputs, as manifest and apparent in the examples of different trading scenarios assumed by the assesse, and adopted by us (for the sake of simplicity), is difficult to establish in real life manufacturing cases, where a variety of inputs, if not also outputs, obtain. Secondly, the closing inventory, loaded with all input duties/levies, would only state the same at actual cost, even as advocated by AS-2 by ICAI. Again, this only would state the current asset, which it represents, at its proper value, i.e., in the balance sheet, and at which the same is to be carried forward to the following year - Only a correct statement of the current assets and liabilities, i.e., which are not on capital account, in the balance-sheet, would enable reflection of the correct operating results for the relevant accounting period. Toward this, only the booking of profit (against excess recovery of excise duty) would enable an agreement of the outstanding balance in the UCC a/c with the excise component in the closing inventories, so that the accounts whether maintained on gross or net basis, reflect the current asset in respect of excise paid thereon at the same, correct value - Further, it is only this, reckoning the `profit' on excess recovery as the difference between the profit per the two statements prepared on net and gross basis, that would state the UCC a/c at the correct value of the current asset represented by it, where the accounts are maintained on net basis, bringing the profit per the two methods at par. Thirdly, the provision becomes tax-neutral only when duty is paid on value addition, else not, in view of the non obstante provision of s.43B, which has to be given effect to – In any case, cannot be a ground for not observing the method of accounting that yields correct profits or operating results. Further, even where the accounting treatment provides correct results, the provision of s. 43B would have to be given due effect. The same cannot be defeated by non-booking the statutory liability in respect of excise in accounts, even if payable in due course, understating simultaneously the corresponding asset/s, to contend non-difference in operating results - In final analysis, the tax neutrality of the net method is subject to it being established, with the non obstante provision of s. 43B, which in fact obtains irrespective of the method of accounting followed. The total expenditure on telephone and internet expenses as claimed is at Rs.1.56 lakhs – The A.O. effected the disallowance only in respect of the expenditure qua the telephones installed at the residences of the partners, i.e., Rs.0.37 lakhs, estimating the personal (non-business) user thereof at 50% - Held that:- Rs.0.37 lakhs of the total expenditure of Rs.1.56 lakhs being on telephone at the partners/s residences, the same could not be subject to FBT. This is for the reason that the same is, on account of the manner of its incurring, considered by the Revenue as toward personal purposes of the partners, i.e., for non-business purposes, while the FBT could only be in respect of the expenses incurred for the purposes of its business by the assessee - Disallowance effected only on the ground of it's being personal or non-business in nature, the said disallowance would not stand to be impacted by the mere fact of charge of FBT – The disallowance not to be impacted.
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