TMI Blog2014 (7) TMI 342X X X X Extracts X X X X X X X X Extracts X X X X ..... l be in accordance with the method of accounting regularly followed by the assessee and it should include the amount of any tax, duty, cess or fee actually paid or incurred by the assessee to bring the goods to the place of its location and condition on the date of valuation - since the Assessee has not followed the mandatory requirement of provisions of s. 145A - the AO was fully justified in resorting to the reopening of assessment - CIT(A) by a well-reasoned and detailed order has rightly upheld the order of Assessing Officer and enhanced the income of the Assessee by the amount of ₹ 40,95,280/- as per the provisions of Section 145A of the Act – Decided against Assessee. - I.T.A. No. 2631/AHD/2012 - - - Dated:- 19-6-2014 - Shri D. K. Tyagi, J. M. And Shri Anil Chaturvedi, A.M.,JJ. For the Appellant : Shri Rajesh Shah A.R. For the Respondent : Shri K. C. Mathews, Sr. D.R. ORDER Per Shri Anil Chaturvedi,A. M. 1. This appeal is filed by the Assessee against the order of CIT(A)-I, Surat dated 24.09.2012 for A.Y. 2005-06. 2. The facts culled out from the material on record are as under. 3. Assessee is a company stated to have been engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant to disclose fully and truly all material facts. Appellant had not given the details of tax component of cost of inputs at the time of original assessment. This was also a failure on the part of the appellant to disclose truly and fully all material facts. Lastly, the appellant s contention that non - inclusion of faxes paid on inputs does not have any effect on profits is also factually incorrect as held subsequently in this order. This was another failure on the part of the appellant to disclose fully and truly al the material facts. 9.2 While the second fact i.e. the reversal of Cenvai credits was mentioned at Sr No. f of Schedule ' O ' (I) of audited accounts by way of a note , there was total failure on the part of the appellant to disclosure fully and truly all material facts in respect of the first ground of re - opening. Even in respect of second ground, ie reversal of cenvat, credits, though the fact regarding reversal was mentioned, it was never disclosed as to whether the similar reversal was done in the Excise records i.e. RG -23 part 'A' and in the monthly Excise Return ER -1 filed before the Excise Authorities or not. As noticed subsequently in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng stock of the inputs, work in progress and finished goods must necessarily include the element for which MODVAT credit is available. Subsequent to this amendment tax auditors started putting a remark in the audit report that such inclusion does not have any impact on taxable profits. This interpretation that there is no impact of this amendment on taxable profits, puts a question mark on the legislative wisdom of the parliament. If the intention behind this amendment was to have no effect on taxable profit, there was no need for this clarificatcry amendment. 10.5 A plain reading of the above section makes it clear that after computing the 'Profits and Gains of' Business or Profession as per the method of accounting regularly employed by the assessee the profits shall be further adjusted to include excise duty component of purchase cost paid by appellant notwithstanding any right (ie. Cenvatj arising as a consequence of such payment. Therefore, there is no discretion in this matter and excise component of the cost of inputs i.e. raw material/ packing material etc has to be included in closing stock valuation irrespective of cenvat claim. 10.6 The claim that the adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- ( 20 x 2 ) pertaining to raw material component in finished goods which are yet to be cleared for excise payment. The total advance credit therefore, comes fo ₹ 60/ (20 + 40). The guidance notes jusfify this calculation without commenting on treatment of this advance credit of Cenvat in excess of cenvaf pertaining to goods actually sold. The Cenvat concept intends to give duty rebate at the time of sale. However, the mechanism of advance credit allows the assessee to claim benefit of set off of Cenvat in respect of entire duty paid though the corresponding goods may still remain in closing stock as raw material or finished goods on which no liability to pay duty has arisen. If we try to work put only the cash profits of the assessee, the Trading Account will appear as under:- .. i.e the cash profits are ₹ 340/- There will be no debit of excise duty as no excise payment has actually been made. Against this the guidance notes show taxable profits of ₹ 300/- only. The difference of ₹ 60/- actually pertains to set off of advance credit of Cenvat as explained above. 10.11 Had there been no Cenvat scheme, the Trading Account would have appeared as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be same while, the corresponding details in the tax Audit Report are stated to be different. In short, it is just a reproduction of the statistics given in the enhancement notice without explaining and establishing the reasons for the same. Remaining submission basically reiterates that the provisions of Section 145A are revenue neutral and the appellant follows exclusive method of accounting. However, it has been discussed and demonstrated (supra) that this is not the case and application of the provision of 145A will lead to increase in income by ₹ 40,95,280/-. Therefore, the addition made by the Assessing Officer at ₹ 6,83,473/- ( part of addition of ₹ 17,05,614/-) is enhanced to ₹ 40, 95, 280/-. 12. As regards the second component of addition of ₹ 17, 05, 614/- i.e. ₹ 10,22,141/- debited to P L Account, the appellant's argument is that in view of excise duty on finished products @ 8% and on raw material @ 16 %, the appellant may not be able to use the Cenvat credits to its full extent and that is the reason for debiting this amount in the Profit Loss account. However, as discussed ( supra), this amount has been debited in the Prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords was not apparently disclosed before the Tribunal, the fact is that the decision of the ITAT is with respect of excess claim of depreciation on account of reversal of Cenvat leading to the increase in actual cost as per Explanation 9 of Section 43 (1). The said decision does not deal with the provisions of section 145 A or the debit of reversal of credit of balance in the RG -23 ( Part A) i.e. credit on revenue account without surrendering the claim before the excise authorities. The Cenvat credit in respect of capital goods is not dealt within Section 145A of the IT Act. 4. Aggrieved by the order of CIT(A), Assessee is now in appeal before us and has raised the following grounds:- 1. The learned Deputy Commissioner of Income tax has erred in re-opening of assessment u/s 147/148 of the Act for change of opinion and learned Commissioner of Income tax (Appeal) has erred in confirming the same on the issue which were available during the assessment proceedings. 2. The learned Commissioner of Income tax (Appeal) has erred in not only confirming the addition made by learned AO but enhanced the addition to the tune of ₹ 40,95,280/- on account of valuation of closing st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and it should include the amount of any tax, duty, cess or fee actually paid or incurred by the assessee to bring the goods to the place of its location and condition on the date of valuation. Before us, Ld DR has submitted that the argument that the non inclusion of excise in stock is tax neutral would not arise in the year under consideration as it being the first year of production and there was no opening stock. The aforesaid submission of the DR could not be controverted by AR by placing any tangible material on record. In view of the aforesaid facts and since the Assessee has not followed the mandatory requirement of provisions of s. 145A we are of the view that the AO was fully justified in resorting to the reopening of assessment. In view of this ld. CIT(A) by a well reasoned and detailed order has rightly upheld the order of Assessing Officer and enhanced the income of the Assessee by the amount of ₹ 40,95,280/- as per the provisions of Section 145A of the Act. We further find that the decisions relied upon by the Ld AR are not applicable to the facts of the case. In view of the above these grounds of the Assessee are dismissed. 8. In the result, the appeal o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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