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2015 (12) TMI 41 - ITAT AHMEDABAD

2015 (12) TMI 41 - ITAT AHMEDABAD - TMI - Valuation of closing stock - Scope of section 145A - inclusion of Excise duty and VAT to the value of closing stock, in a case where the Assessee is following exclusion method of accounting of Excise and VAT for valuation of stock - Held that:- Merely because the Central Government has not notified in the Official Gazette "accounting standards" to be followed by any class of assessees or in respect of any class of income, it cannot be stated that the Acc .....

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harma Chem [2015 (2) TMI 151 - ITAT AHMEDABAD ]

No addition on account of unutilized CENVAT Credit was called for in 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 t .....

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AT. 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 was re-opened for the reason that the unutilized CENVAT credit was not and taken into consideration while working out the closing stock and thus the value of closing stock was under stated. Subsequently assessme .....

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e and in law, the Ld. CIT(A)-I, Surat has erred in restricting the addition of ₹ 18,84,923/-made as per provisions of Section 145A to ₹ 5,03,187/- without appreciating the fact that the amount pertains to raw material which was required to be added to the total income by the assessee, as per the provisions of Section 145A, which it failed to do. 4. On the other hand the grounds raised by the Assessee in the C.O reads as under:- 1. On the facts and in circumstances of the case as well .....

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w materials. A.O was of the view that the duty paid forms part of the cost of the goods purchased and the Profit and Loss account is to be charged with the cost of goods consumed during the year. Further the closing stock of raw material should include the excise duty on the goods consumed. He was of the view that the unutilized CENVAT credit should form part of Profit and Loss account. The submission of the Assessee that it was following the exclusive method of accounting for valuation of closi .....

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on 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 invent .....

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section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequences to such payment " Any right here means cenvat credit available to the assessee. 9.3 Explanatory notes to this amendment by Finance Act, 1998 say that the clarificatory retrospective amendment was made to end the controversy on the issue relating to whether the value of closing stock of the inputs, work in .....

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d for this clarificatory amendment. 9.4 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. Cenvat) arising as a consequence of such payment. Therefore, there is no discretion in this matter and excise component of t .....

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duty is different from excise duty paid / payable on finished goods. In fact the excise duty component of raw material is an indirect cost charged by the manufacturer of raw material from the assessee who is the purchaser. It is a part of 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 .....

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ssed 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 ₹ 900 ( @ 10 Consumption 80 Kgs Production 80 Kgs Sale 60Kgs Duty liability on sales ₹ 180 ( @ 3/- Sale price without duty 1500 ( @ 25) Closing stock raw material 20 Kgs Closing stock finished goods 20 Kgs INCLUSIVE METHOD AS PER GUIDANCE NOTES 120 Sales 1500 .....

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t account as per guidance notes Cenvat set off claimed for discharging excise liability 180 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 .....

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ee. Further, the sales are only of 60 Kgs i.e. the assessee's actual Cenvat credit entitlement is ₹ 120/- ( 60 x 2 ) By claiming set off of ₹ 180/- it has taken further advance credit of Cenvat of ₹ 40/- ( 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 to ₹ 60/ ( 20 + 40). The guidance notes justify this calculation without commenting on treatment of this advance .....

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l appear as under:- O.S. 120 Sales 1680 Raw Material 1080 C S finished goods 200 + 200 + 40 440 Production cost 800 CS raw material 240 Profit 360 Total 2360 Total 0 i.e the cash profits are ₹ 3407- 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 ₹ 3007- only. The difference of ₹ 60/- actually pertains to set off of advance credit of Cenvat as explained above. 9.10 Had there been no Cenva .....

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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 finished goods claimed u/s43B 60 Profit 360 Total 2600 Total 2600 Closing stock of finished goods is arrived as under:- Raw material cost 200 Raw material du .....

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ods From PLA payment 10,42,799 Total excise liability discharged 1,78,07,172 (c) Excise component of cost of raw/ pkg i.e. material Cenvat credit allowed 1,58,71,813 (d) Closing stock - Excise duty component Excise component of cost in raw material / Pkg mat/ WIP/finished goods worked out on estimate basis estimated by the appellant at average excise rate on inputs ( @ 22. 38%) as no such details are maintained 5,03,189 (e) Opening Stock - Excise duty Component NIL. Due to discussion on page 7. .....

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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 1,65,30,533 2,25,040 Excise liability 1,78,07,172 PLA Payment 10,42,799 Total 1,78,07,172 Therefore, this adjustment is p .....

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N PROFITS Excise component of cost in raw material/ Pkg mat, WIP / finished goods NIL (as discussed supra) Excise component of cost in raw material / Pkg mat/ WIP / finished goods 503187 Total Excise component of cost in C.S NIL Total Excise component of cost in C.D 503187 Increase in profits 503187 Therefore, this adjustment is not profit neutral and will also not decrease the profits as claimed by the appellant. Therefore, if correct inclusive method is followed, appellant *s income will incre .....

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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 ( .....

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s 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 contrary material on record. We further find that on similar issue, the Co-ordinate Bench of Tribunal in the case of Asiatic Industries (supra) had decided the issue in favour of the Assessee by holding as under:- 8.We have heard the rival submission and perused the material on record. We find that the .....

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ns of the Ld. D.R. and have gone through the material on record and the orders passed by authorities below. We find that there is submission of the assessee before the authorities below that while the entire amount of excise duty realized on sales was included in the sale amount but out of entire amount of excise duty paid on purchases, only that portion of such excise duty paid which was utilized by way of MOD VAT, had been included in the value of purchases and the balance amount of Modvat cre .....

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herefore, there cannot be a reason to make any addition in the income of the assessee because even if we include such excise duty receivable in the value of closing stock, the same is also required to be included in the value of purchases and it will have no impacts on the profits of the assessee. Therefore, we do not find any reason to interfere in the order of Ld. CIT(A). 9.We further find that in the case of Bloom Dekor Ltd. (supra) similar issue was decided by the Co-ordinate Bench of Tribun .....

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om 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 .....

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decision of Hon'ble Jurisdictional High Court in the case of ACIT Vs. Narmada Chematur Petrochemicals Ltd. 327 ITR 369 (Guj.), wherein following was held: "Held, dismissing the appeal, that Tribunal was justified in excluding the excise duty at the time of valuation of the closing stock of finished goods at the end of the accounting period because: (a) No deduct ion for the liability had been claimed by the assessee.The excise duty payable on the finished goods lying in the closing sto .....

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f the assessing Officer that the Assessing Officer was not in a position to deduce true profits of the year under consideration. Such duty of Central excise if added to enhance the value of closing stock would result in enhanced opening stock on the first day of the next accounting period, namely, April 1, 1997. So the next year's profits would get depressed accordingly, over a period of time the whole exercise would even out, in other words, be revenue natural. At the same time while distur .....

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e made on account of excise and customs duty in the valuation of closing stock. The addition made by the AO is thus directed to be deleted. The grounds raised by 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 cover .....

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