Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2008 (8) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2008 (8) TMI 904 - AT - Income TaxModvat Credit - Adjustment under Section 145-A - Meaning of ''Modvat'' - Variation in excise duty paid by procuring raw materials and discharge of excise duty liability on non-finished goods - whether entire balance whatever in the Modvat account is to be added to closing stock while giving effect to the s. 145A of the Act - effect of the s. 145A to opening stock - Assessee submitted that the guidelines issued by the institute clearly show that in both i.e., inclusive and exclusive methods for Modvat, the profit remains unchanged and therefore the effect on Modvat credit available at the end of the financial year is nil. AO did not accept submissions because there was no addition of unutilized Modvat credit to the closing stock of the assessee in the earlier year - accordingly made the addition - CIT(A) decided the issue against the assessee. HELD THAT:- Modvat is a procedure whereby manufacturer can utilize credit for input duty against duty payable on final products. Duty credit taken on input is of the nature of set off available against the excise duty payable on the final products. It may be pointed out that the 'inclusive method' is not permitted by AS-2 which is made mandatory from accounting year beginning on or after 1st April, 1999. Further, in the Guidance Note on Accounting for Modvat the second method (inclusive method) has been withdrawn with effect from accounting year commencing from 1st April, 1999. In view of the above, the adjustments u/s. 145A will have to be made in all cases where 'exclusive method' is followed. We noticed that if an assessee has followed the procedure as laid down by the ICAI and tax auditor reported this aspect in cl. 12(b) in Form 3CD of tax audit report, in such case the point remained to examine is allowability of amount of excise duty which has been adjusted in closing stock of finished goods. No doubt the excise duty adjusted to the closing stock is an allowable revenue expenses. The addition of entire balance in Modvat account is not proper because the nature of this account is personal account, an item of assets side of the balance sheet which always have a debit balance. It may be noted that after making the addition to the closing stock u/s 145A, it will be possible to claim a separate deduction for excise duty actually paid after the year end but before the due date for filing the return of income on production of evidence as provided u/s 43B. The contention of the assessee is that the assessee has given effect to the s. 145A. The ld AR in support of that filed a chart and demonstrated accordingly. Such detailed working is also given in tax audit report as required in cl. 12(b) of Form 3CD. But submissions of ld AR and deduction u/s 43B in accordance with discussion are subject to verification therefore, we send the matter back to the file of the AO for limited purpose to verify the facts of the case of assessee. If the AO finds that the assessee has given effect to s. 145A and also deduction u/s. 43B is made as per discussion, the addition made by him u/s 145A may be deleted. Thus, the grounds of appeal raised by the assessee in this regard are treated as allowed for statistical purposes. Now we take the second aspect of the matter. The ld AR submitted that effect of the s. 145A to opening stock is also to be given - On consideration of s. 145A and CBDT circular explaining the provisions of s. 145A and judgment of the Delhi High Court in CIT vs. Mahavir Aluminium Ltd.[2007 (11) TMI 41 - HIGH COURT OF DELHI]. we noted that when the adjustments are made in the valuation of inventories, this will affect both the opening as well as closing stock. Whatever adjustment is made in the valuation of closing stock, the same will be reflected in the opening stock also irrespective of any consequences on the computation of income for tax purposes. We further noticed that s. 145A starts with the non obstante clause "notwithstanding anything to the contrary contained in s. 145". Therefore, to give effect to s. 145A, the opening stock as on 1st April, 1998 will have to be increased by any tax, duty, cess or fee actually paid or incurred with reference to such stock if the same has not been added for the purpose of valuation in the accounts. The AO is directed to give the effect of s. 145A as per discussion. In the result, the appeal of the assessee is allowed for statistical purposes.
|