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2016 (3) TMI 444 - AT - Income TaxAddition made on account of adjustment due to deviation u/s 145A - accounting entry made for adjustment of element of excise duty in the closing stock u/s 145A - Held that:- Since the payment of excise duty on grey cloth had to be made w.e.f. 01.4.2003, the assessee had to make adjustment on account of valuation of grey cloth as at the end of the year. Assessee carried out this exercise in the computation of income, wherein the assessee made addition of ₹ 35,16,309/- u/s 145A of the Act. The assessee has also placed Annexure-1 being a computation of the P & L a/c, by both methods, viz. inclusive and exclusive method, i.e. in terms of section 145A of the Act, as per which the business profit increased by ₹ 35,16,309/-; i.e. from ₹ 62,90,312/- to ₹ 98,06,621/-, Thus, the above amount of ₹ 35,16,309/- which was offered for taxation by way of adjustment u/s 145A of the Act, was the amount of profit after increasing the value of inventory with the amount of excise duty paid on the same. In the computation of income filed along with the return of income for the year under consideration, the above said amount has been reduced for the purpose of adjustment u/s 145A of the Act. The Assessing Officer has considered the same as claim of deduction. The said impression of the Assessing Officer was for the reason that net effect of increasing the opening stock and the closing stock by the value of excise stock shall be nil. However, w.e.f. 04.10.2004, the assessee surrendered its excise registration, which meant that the assessee was not availing Cenvat Credit. The assessee has also enclosed Annexure-2 with the computation of income filed alongwith the return of income for the year under consideration, which is placed on record, wherein it has shown that the profit of ₹ 35,16,309/- by way of adjustment u/s 145A of the Act in the immediate preceding Assessment Year i.e. AY 2004-05 was added to the opening stock in the year under consideration. Thus, there is no confusion that whatever is added to the closing stock in any year, automatically becomes the opening stock in the next year, and it is precisely what the assessee has done u/s 145A of the Act, as far as the amount of ₹ 35,16,309/- is concerned. CIT(A) rightly deleted the addition - Decided against revenue Whether any excise duty is deemed to be added to the closing stock of the assessee? - Held that:- When because of surrender of excise registration w.e.f. 04.10.2004, no cenvat credit was available at the end of the year, the closing stock has been valued at cost or market value whichever is lower. Therefore, it was the presentation made by the assessee which gave the impression that profit has been reduced by ₹ 35,16,309/-. If the assessee had not separately carried out the above adjustment u/s 145A of the Act in the statement of income and had given the above effect in the P & L a/c., then also the business profit would have been ₹ 1,03,82,028/- and not ₹ 1,38,98,337/-. The action of the Assessing Officer in adding back the amount of ₹ 35,16,309/- means the above amount was not utilized by the assessee and remained at the end of the year was not correct. In view of the above discussion, the CIT(A) was justified in deleting the amount of ₹ 35,16,309/- made by the Assessing Officer u/s 145A of the Act.- Decided against revenue
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