TMI Blog2015 (12) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... n the present case. We thus dismiss the appeal of Revenue and allow the C.O of Assessee. - ITA No. 1450/AHD/2012, CO No. 135/AHD/2012 - - - Dated:- 4-9-2015 - Anil Chaturvedi, AM And Kul Bharat, JM For the Appellant : Shri Narendra Singh, Sr. DR For the Respondent : Shri R B Shah, AR ORDER Per Anil Chaturvedi, Accountant Member 1. This appeal filed by the Revenue is against the order of CIT(A)-I, Surat dated 13.04.2012 for A.Y. 2005-06 and Assessee has also filed C.O. 2. The relevant facts as culled out from the material on record are as under. 3. Assessee is a company stated to be engaged in the business of manufacturing of dyed yarn, knitted fabrics and dying of fabrics on job work basis. Assessee originally filed its return of income for A.Y. 2005-06 on 25.10.2005 showing total income at Rs. Nil under normal provisions of the Act and ₹ 1,17,88,590/- under MAT. Thereafter the assessment was framed under section 143(3) vide order dated 28.12.2007 and the total income was determined at ₹ 12,98,300/- under normal provisions of the Act and of ₹ 1,17,88,590/- under MAT. Thereafter notice u/s. 148 was issued on 29.03.2011 and the case wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of A.O., Assessee carried the matter before ld. CIT(A) who granted partial relief to the Assessee by holding as under:- 9.1 The appellant claims that inclusion of the same will reduce its profits. Before deciding the issue let us understand the issue involved. The appellant has not included excise duty in the valuation of its closing stock. Under section 145A the appellant should include excise duty component of purchase price of raw material while valuing the closing stock of raw material, WIP and finished goods. The appellant claims that the non - inclusion of the same will have no effect on its profits. 9.2 The section 145A reads as under :- Method of accounting in certain cases. Notwithstanding anything to the contrary contained in section 145 the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the heard Profits and gains of business or profession ' shall be- (a) In accordance with the method of accounting regularly employed by the assessee; and (b) Further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost of raw material and also a part of closing stock of finished goods. 9.6 The modvat/cenvat scheme only allows a rebate on excise duty payable on sale / clearance of goods manufactured by assessee calculated on the basis of excise duty rate applicable on raw material which is actually paid by raw material manufacturer. The mechanism of modvat / cenvat is just an administrative mechanism to ensure that the Government collects excise duty only on the value addition by manufacturing process. It does not change the cost of inputs. 9.7 The guidance notes for tax audit issued by ICAI and relied upon by the tax auditors cannot override the specific provisions of the Act. Without prejudice to the same, the illustration given in Guidance Notes, is discussed herein under:- 9.8 In the illustration the following figures have been assumed ;- Opening stock 10Kgs Duty ₹ 20/-(@2/-) Cost without duty ₹ 100 ( @ 10) Purchases 90Kgs Duty ₹ 180/-(@2/-) Cost without duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CENVAT credit allowed on purchase of raw material 180 EXCISE ACCOUNT AS PER GUIDANCE NOTES CENVAT set off claimed 180 Excise duty payable on goods sold 180 Total 180 Total 180 9.9 In the above illustration of inclusive method the assessee has claimed Cenvat set off of ₹ 180/- (in respect of raw material purchased of 90 Kgs for discharging its excise liability of ₹ 180/- without making any PLA payment. However, it has credited the set off only ₹ 160/- , which is the Cenvat component of raw material consumed of 80 Kgs. This means that assessee has taken advance credit of Cenvat ofRs 20/- (in respect of 10 Kgs raw material not, consumed in manufacturing ). This results in the income of the current year being shown less by ₹ 20/- on this account alone. If this income is considered, the profit U/s 145Awill be ₹ 20/- , more than the excl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Profit 180 Total 2360 Total 2360 The cenvat scheme reduces the excise liability on goods sold from ₹ 180 to 60/- thereby increasing profits to ₹ 3007- However, the assessee 's cash profits go to ₹ 3607- due to set off of advance credit of Cenvat. This income of ₹ 607- escapes assessment in the illustration in the guidance notes of ICAI. 9.11 The correct Trading Account as per section 145A will appear as under INCLUSIVE METHOD AS PER GUIDANCE NOTES O.S 120 Sales 1680 Raw Material 1080 CENVAT credit 180 Production Cost 800 C S finished goods 500 Excise liability discharged 180 C S Raw Material 240 Excise in C S of finishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Cenvat Credit on raw material inputs 24,36,535 Cenvat Credit on raw material allowed 1,58,71,813 Set off claimed out of above. 1,65,38,533 Balance (CB) 17,69,815 (h) Opening Balance of Cenvat Credit on Capital Goods Cenvat credit allowed on Capital goods 5,70,000 Set off claimed in respect of Cenvat Credit on Capital 4,58,359 Goods 2,25,840 Balance ( CB) of Cenvat Credit on Capital goods 8,02,519 It is not understood how A. O. arrived at figure of ₹ 18,84,923/- 9.13 On the above basis the impact on profit U/s 145A is worked out as under :- Decrease in profits Increase in profits Cenvat set off claimed Out of raw material credit Out of Capital goods credit 1,65 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ported the order of A.O. On the other hand ld. A.R. reiterated the submissions made before A.O and ld. CIT(A) and further submitted that since Assessee was following exclusive method of accounting for CENVAT and which was as per the Guidance Note issued by the Institute of Chartered Accountant of India and by not including the excise duty, there was no effect on the profitability of the Assessee. He further placed reliance on the decision of Ahmedabad Tribunal in the case of Asiatic Industries (in ITA NO. 753/A/2011 order dated 07.08.2014 and the order of Mumbai Tribunal in the case of Hawkins Cookers Ltd. in ITA No. 7195/Mum/2008 order dated 22nd April, 2010. He also placed on record, the copy of the aforesaid orders. He therefore submitted that in the present case no addition was called for. 9. We have heard the rival submissions and perused the material on record. The issue in the present case is with respect to inclusion of excise duty to the value of closing stock. Before us, it is Assessee s submission that in follows exclusive method of accounting of excise for the valuation of stock. The aforesaid submission of the Assessee has not controverted by Revenue by placing any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statements Assessing Officer noticed that as per the notes to accounts, excise duty on finished goods not cleared as per factory was estimated at R. 47.38 lacs and custom duty on stock lying at port estimated at ₹ 46.5 lacs was not provided for in the books and was also not considered in the valuation of Inventories. Assessing Officer was of the view that as per provision of Section 145A inserted with effect from 1.04.1999 excise duty has to be added while valuing finished goods. He thus considered the amount of excise duty on finished goods not cleared from factory at ₹ 47.38 lacs and custom duty on stock lying at port at 46.51 lacs aggregating to ₹ 93,89,000/- and added it to the value of inventory. Aggrieved by the action of the Assessing Officer, Assessee carried the matter before CIT(A). CIT(A) after considering the submissions of the Assessee and relying on the decision of Ahmedabad Tribunal in the case of ITA 1358/Ahd/2009 allowed the appeal of the assessee by holding as under:- The appellant also pointed out that Hon'ble IT AT, Ahmedabad vide ITA No. 1358/Ahd/2009 has also concurred with a view that excise duty and/or customs duty should not be in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the appellant are thus allowed. 5. Aggrieved by the order of the Assessing Officer Revenue is now in appeal before us. 6. Before us, learned D.R. relied on the order of the Assessing Officer. 7. We have heard the learned D.R. and perused the material on record. CIT(A) while deleting the addition has held that the issue is squarely covered by the decision of jurisdictional Tribunal and accordingly relying on the aforesaid decision deleted the addition. Nothing has been brought on record to controvert the findings of CIT(A) and thus we find no reason to interfere in his order and this the appeal of Revenue is dismissed. 10.Since the issue in the present appeal is similar to the issues in the appeals cited hereinabove, we respectfully following the decisions of co-ordinate Bench of Tribunal cited hereinabove, we are of the view that no addition on account of MODVAT and VAT as made by the A.O needs to be made in the present case. We therefore direct its deletion. Thus this ground of Assessee is allowed. 10. We further find that on the issue of Guidance Notes and Accounting Standards issued by the Institute of Chartered Accountant of India, the High Court of Te ..... X X X X Extracts X X X X X X X X Extracts X X X X
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