TMI Blog2006 (5) TMI 417X X X X Extracts X X X X X X X X Extracts X X X X ..... ent should be taken as the opening stock of the year under consideration and any change as a result of the provisions of section 145A is only upon the closing stock. There is no ambiguity in the provisions of section 145A of the Act. In the result, appeal of the assessee is treated as partly allowed only for statistical purposes. - R.K. GUPTA AND V.V.S.N. MURTHY, JJ. P.J. Pardiwalla for the Appellant. Ashwani Mahajan for the Respondent. ORDER V.V.S.N. Murthy, Accountant Member. - This is an appeal filed by the assessee against the order of CIT(A) arising out of the assessment order passed under section 143(3) for the assessment year 1999-2000. The first ground urged is that CIT(A) erred in upholding the stand of the Assessing Officer in adding an amount of Rs. 10,49,854 being unutilised MODVAT credit for the purpose of valuation of closing stock. Alternatively, it is urged that CIT(A) further erred in not directing the Assessing Officer to increase the value of opening stock of the subsequent assessment year i.e., 2000-01 by a similar amount. 2. Facts of the case are that assessee filed return of income for assessment year 1999-2000 on 31-12-1999 declaring a total income of Rs. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d MODVAT credit as on 1-4-1998 amounting to Rs. 17,12,961 may be allowed to be set off against the unutilised MODVAT credit as on 31-3-1999, the same was not accepted by the Assessing Officer, stating that the addition of Rs. 17,12,961 made during the assessment proceedings for assessment year 1998-99 has been deleted by the CIT(A) and relying on the decision of jurisdictional High Court in the case of Melmould Corpn. v. CIT [1993] 202 ITR 789 1 (Bom.), wherein it has been held that the change has to be effected by adopting the new method for valuing the closing stock which will, in its turn become the value of opening stock of the next year. If instead, a procedure is adopted for changing the value of opening stock also, it will lead to a chain reaction of changes in the sense that the closing value of the stock of the year preceding will also have to change and correspondingly the value of opening stock of that year and so on. He further observed that, as per the above decision, a new method of valuation of stock is to be adopted, it has to be done in the case of valuation of closing stock only. The valuation of opening stock for the same year cannot be altered. Section 145A has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the ratio of the hon ble jurisdictional High Court in the case of Indo Nippon Chemical Co. Ltd. ( supra ) as upheld by the hon ble Apex Court in CIT v. Indo Nippon Chemicals Co. Ltd. [2003] 261 ITR 275 2 , still applies to the facts in assessee s case, even after the introduction of the provisions of section 145A. AR filed before us a Note containing workings in respect of the above claim and also relied on Guidance Note issued by the Institute of Chartered Accountants of India, in support of the submissions that MODVAT credit is not liable to be considered for credit in respect of the entire purchases though not consumed. 7. DR strongly relied on the orders of lower authorities and the provisions of section 145A. 8. We have considered the arguments of both the sides, perused the material on record and the orders of lower authorities. We are of the view that as per the provisions of newly introduced section 145A, inventory has to be valued by including the element of tax, duty, cess or fee etc. There were two alternative methods that were prevalent up to 31-3-1999 being, one inclusive and the other is exclusive. In the inclusive method, the element of tax, duty, cess or fee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usive method as against the prevailing practice of the valuing the same by exclusive method. When the said retrospective amendment was objected very strongly by the tax payer, the amendment was made prospective in nature and was made applicable from the assessment year 1999-2000. As a result of this amendment, the purchases and sales as well as inventory shall always include the element of tax, duty, cess or fee paid. Therefore, in the year when the provisions are implemented for the first time, there is bound to be an impact in that year, whereas in the subsequent year whatever valuation is put to the closing stock will surface as opening stock and thereby a debit to that year s profit and loss account. In other words, the changed method will have neutral tax effect over the years. Only the method of valuation of the closing stock gets switched over from exclusive method to inclusive method. If the assessee is allowed to adjust the opening stock of the year in question then it would amount to distortion of the value of the closing stock of the earlier year. Unless such addition is made in the earlier year, the debit to this year s profit and loss account by means of addition to th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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