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2021 (1) TMI 162 - AT - Income TaxMethod of accounting - Valuation of closing stock - Addition of CENVAT Credit receivable - unutilized Modvat Credit was required to be included in the closing stock of raw material and work in progress - valuation method prescribed under Section 145A - HELD THAT:- Assessee is following the exclusive method of accounting consistently for years together where the purchase of capital goods as well as raw materials, stores and spares etc. and services availed/procured is recorded and charged off to Profit and Loss Account which are net of duties/taxes for which CENVAT credit is available to the assessee. CENVAT Credit receivable is being shown as an asset in the Balance Sheet and will be adjusted against excise duty liabilities as and when the same is utilized. Further that in the exclusive method of accounting, no deduction is being claimed in respect of the duties, taxes paid on purchase of material as the same was recorded as an asset in CENVAT Credit receivable account rather than being charged as an expense in the Profit and Loss Account. Whereas in the inclusive method of accounting deduction is claimed in respect of duties, taxes paid on purchase of material by treating the same as part of the purchase cost. The assessee also submitted that the method of accounting/treatment as aforesaid has been consistently followed by it over the years. We find that the assessee has also relied upon the guidance note on tax audit issued by the ICAI in support of his explanation as rendered before the authorities below. The assessee has also illustrated its contention of the revenue being neutral irrespective of the method of accounting being followed by placing the statement showing effect of both the method of accounting exclusive and inclusive as available at Page 13 of the Paper Book filed before us which we have already perused and in our considered opinion the same is acceptable. As relying on M/S. AMBUJA INTERMEDIATES LTD. [2018 (2) TMI 1631 - ITAT AHMEDABAD] we find no merit in such addition made by the AO and further enhancement thereof by Ld. CIT(A) when the unutilized CENVAT credit only represents the availability of excise credit at the disposal of the assessee at the end of the year eligible to be set off against future liability and, therefore, the unutilized CENVAT credit cannot be adopted for the purposes of valuation of inventories in exercise of Section 145A of the Act where the effect is revenue neutral. We observe that inclusive method of accounting has not altered the resultant profits and a revenue neutral exercise over a period of time. We, therefore, with the above observation delete the addition made by the authorities below.
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