TMI Blog2008 (9) TMI 615X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Madras High Court in the case of Haji Moosa Co. 157 ITR 422 ( sic ). The CIT(A) upheld the action of the Assessing Officer by holding that no evidences or facts could be produced during the appellate proceedings by the assessee and the assessee could not be distinguished on facts against the decision relied upon by the Assessing Officer. 4. Before us the submission of the learned AR is that the expenditure incurred on foreign travelling is incidental to business purpose. Because of urgency, even the health of the Chairman was not good, he was forced to go abroad and, hence, the wife accompanied him to look after him on the advice of the doctor which was approved by the management. He further submitted that assessee being a company, there is no disallowance can be made on account of personal element, for which he relied upon the judgment of Sayaji Iron Engg. Co. v. CIT [2002] 253 ITR 749 1 (Guj.). 5. The learned DR, on the other hand, relied upon the orders of the revenue authorities. 6. We have heard the learned representatives of the parties and perused the record. In order to claim deduction of expenditure under section 37(1) of the Income-tax Act, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade for the purpose of the business, the company is to follow some reasonable procedure. That is that the purpose of foreign visit is to discuss in detail in Board Meeting of the company. After a detailed discussion regarding the business issues which are to be discussed with the parties, a proposed report is to be prepared on the foreign visit. It is required to be pointed out in board meeting that ultimately what result will be achieved by such foreign visit. The approval of foreign visit of an employee or a director by board of director is based on commercial consideration and commercial expediency. After completion of foreign visit, a complete account report of achievement, progress and outcome of the foreign visits are required to be put on record. Achievements on account of foreign visits are to be discussed in detail. If the foreign visit is found successful for the purpose of the business, further steps are to recommend as to how the business target is to be achieved in the form of sales, purchases etc. Such discussion is also required to incorporate in directors report as affairs of the company. Such report is required to prepare as per section 217 of Companies Act, annua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the CIT(A) in confirming the disallowance made by the Assessing Officer on account of PF and ESIC payments. 10. Ground No. 3 is in respect of addition of Rs. 12,28,727 on account of MODVAT credit. 11. The revenue authorities made disallowance on account of MODVAT credit relating to closing stock by disregarding the method of accounting consistently followed by the assessee. 12. The learned AR has submitted that the issue is decided in favour of the assessee by the ITAT, Mumbai in the following decisions: ( i )IT Appeal No. 3522 (Mum.) of 2005 ("G" Bench) in the case of Cabot India Ltd., for assessment year 1999-2000 vide order dated 30-1-2008. ( ii )ITA No. 4/Mum./2004 and ITA No. 3759/Mum./2005 for assessment year 2001-02 ("K" Bench) vide order dated 1-4-2008. ( iii )IT Appeal No. 6136 (Mum.) of 2004 in the case of Diamond Dye Chem Ltd. for assessment year 2001-02 ( D Bench) vide order dated 2-4-2008. 12.1 The copies of the aforesaid decisions are available on record. 13. The learned DR on the other hand relied on the orders of the revenue authorities. 14. We have heard the learned representatives of the parties and record per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of inputs (raw materials, stores, etc.); if not already added in the books of account. ( b )Any tax, duty, cess or fee actually paid or incurred on sale of goods should be added to the sales, if not already added in the books of account. ( c )Any tax, duty, cess or fee actually paid or incurred on the inventory (finished goods, work-in-progress, raw materials, etc.) should be added to the inventories, if not already added while valuing the inventory in the accounts. 14.3 The Institute of Chartered Accountants of India on insertion of section 145A issued Guidance Note on Tax Audit under section 44AB of the Act explaining the statutory requirements to give the effect of section 145A which are as under: "23.9 The statutory required under section 145A can be explained by the following example : Particulars Qty. Rate Rate of excluding excise excise duty duty Opening Stock 10 10 2 Raw material purchased 90 10 2 Other manufacturing cost 80 10 - F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock of finished goods Total 100 10 1000 ( c ) Less 20 10 200 closing stock of raw material ( d ) Raw 80 10 800 material consumed ( e ) To 80 10 800 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock ( m ) Less 80 2 160 MODVAT credit Item Particulars Unit Rate Amt. Amt. Item Particulars Unit Rate Amt. ( n ) Raw 80 10 800 material consumed ( o ) To 80 10 800 manufac- turing cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Increase in purchase cost of 180 raw material on inclusion of excise duty on which MODVAT credit is available/availed ( k-b ) 3. Increase in sales of finished 180 goods on inclusion of excise duty ( s-h ) Sl. No. Particulars (Rs.) (Rs.) Increase Decrease in profit in profit 4. Excise duty paid on sale of 180 finished goods as a result of its inclusion in sales ( p-f ) 5. Increase in closing stock of 40 raw material on inclusion of excise duty ( l-c ) 6. Increase in closing stock of 60 finished goods on inclusion of excise duty ( t-i ) 7. Increase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 380 (-)380 60 Less: Deduction under section 43B on the assumption that the amount is paid on or before due date of filing return of income in respect of excise duty payable on finished goods. 60 Profit 300" 14.4 From above illustration we noticed that if an assessee has followed the above procedure as laid down by The Institute of Chartered Accountants of India and tax auditor reported this aspect in clause 12( b ) in form 3CD of tax audit report, in such case the point remained to examine is allowably 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 having a debit balance. Question of allowable/disallowable arises only in respect of excise d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime of giving effect to the section 145A and secondly at the time of final exercise option for adjustment of MODVAT account. In this regard burden is on the assessee. 14.6 Now we take the second aspect of the matter. The learned AR submitted that effect of the section 145A to opening stock is also to be given, he relied upon the decision of Delhi High Court in the case of CIT v. Mahavir Alluminium Ltd. [2008] 168 Taxman 27. The DR on the other hands relied upon orders of revenue authorities. He has also relied upon following decisions: ( i ) West Coast Paper Mills Ltd. v. Asstt. CIT [2006] 103 ITD 19 (Mum.). ( ii ) CIT v. Indo Nippon Chemicals Co. Ltd. [2003] 261 ITR 275 (SC). ( iii ) J.B. Chemicals Pharmaceuticals Ltd. v. Addl. CIT [2006] 10 SOT 362 (Mum.). ( iv )ITA No. 7751/M/04 - order dated 28-1-2008. ( v ) Glaxo Smithkline Consumer Healthcare Ltd. s case ( supra ). 14.7 We have heard the learned representatives of the parties, record perused and gone through decisions cited. In this connection, it is worth- while to note that the Memorandum and CBDT Circular explaining the provisions of section 145A inserted by the Finance (No. 2) Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... location and condition as on the date of valuation. The Delhi High Court in the case of Mahavir Alluminium Ltd. ( supra ), has held that corresponding adjustment must be made in opening stock subject; however, to a condition that such adjustment should not result in double deduction for same expenditure. The Delhi High Court judgment is the only High Court judgment available on the issue. In such circumstance the judicial proprietary demands that we are to follow the above judgment of the High Court. Since we follow the judgment of the Delhi High Court therefore the decisions of Tribunal relied upon by the Ld. DR does not help to revenue. The judgment of the Apex Court in the case of Indo Nippon Chemicals Co. Ltd. ( supra ), cited by the Ld. DR is distinguishable on facts as the said case decided by the Apex Court considering the facts of that case. The Apex Court in that case held that adopting gross method for purchases and net methods for unconsumed stock at the end of year is not per-missible. 14.10 On consideration of section 145A, above Memorandum and CBDT circular explaining the provisions of section 145A and above judgment of the Delhi High Court we noted that when ..... X X X X Extracts X X X X X X X X Extracts X X X X
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