TMI Blog2016 (3) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... come for the year under consideration, the above said amount has been reduced for the purpose of adjustment u/s 145A of the Act. The Assessing Officer has considered the same as claim of deduction. The said impression of the Assessing Officer was for the reason that net effect of increasing the opening stock and the closing stock by the value of excise stock shall be nil. However, w.e.f. 04.10.2004, the assessee surrendered its excise registration, which meant that the assessee was not availing Cenvat Credit. The assessee has also enclosed Annexure-2 with the computation of income filed alongwith the return of income for the year under consideration, which is placed on record, wherein it has shown that the profit of ₹ 35,16,309/- by way of adjustment u/s 145A of the Act in the immediate preceding Assessment Year i.e. AY 2004-05 was added to the opening stock in the year under consideration. Thus, there is no confusion that whatever is added to the closing stock in any year, automatically becomes the opening stock in the next year, and it is precisely what the assessee has done u/s 145A of the Act, as far as the amount of ₹ 35,16,309/- is concerned. CIT(A) rightly delete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total income of ₹ 1,03,76,430/- along with tax audit report u/s 44AB of the Act. The said return was processed u/s 143(1) on 23.03.2006. Subsequently, the assessment was reopened u/s 147 of the Act on 25.03.2010 for the reason that the case records of the assessee revealed that the firm had reduced profit of ₹ 35,16,309/- by making adjustment u/s 145A of the Act, which is not permissible, as even the guidance note on tax audit report u/s 44AB of the Act, provides that there is no effect on closing stock u/s 145A of the Act. In response to aforesaid notice, the assessee sought reasons for reopening of the assessment, which was duly provided by the Assessing Officer vide letter dtd.29.062010. Subsequently, the Assessing Officer issued notice u/s 142(1) of the Act, alongwith questionnaire. After due consideration of the reply received from the assessee, the Assessing Officer show caused the assessee, as to why in the Financial Year 2004-05, i.e. after 04.10.2004, due to surrender of excise registration, when there is no effect of excise on purchases or sales, and whatever the excise duty was paid on the opening stock was simultaneously included in the products sold during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exclusive method, nor inclusive method in accounting for the taxes paid and has itself admitted that it was following hybrid method which is not prescribed in any accounting standards, whereas with the introduction of section 145A of the Act, from 01.04.1999 onwards every assessee has to follow inclusive method of accounting, and by not mentioning the amount of excise duty paid on purchases and sales, the assessee has not given clear picture of exact amount of excise paid on purchases and collected from sales, instead it chose to show piece meal information. The Assessing Officer, accordingly, held that the surrender of excise registration on 04.10.2004, and lifting of the excise duty on textile products, has no effect of excise duty on the valuation of closing stock and, whatever the excise duty has been paid by the assessee has been accounted for in the form of Cenvat credit availed, and was utilized by setting off excise duty payable on sales. The Assessing Officer has also held that the assessee has squared up the notional book entry, which has resulted due to his own method of accounting and does not qualify the laid down accounting standards. He has finally concluded that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own u/s 145A of the Act. The first year, the assessee had to resort to the above adjustment for the financial year 2003- 04 relevant to assessment year 2004-05. Therefore, in the assessment year 2004-05, the assessee followed the same method of accounting it had been following over the years. However, since the payment of excise duty on grey cloth had to be made w.e.f. 01.4.2003, the assessee had to make adjustment on account of valuation of grey cloth as at the end of the year. Assessee carried out this exercise in the computation of income, wherein the assessee made addition of ₹ 35,16,309/- u/s 145A of the Act. The assessee has also placed Annexure-1 being a computation of the P L a/c, by both methods, viz. inclusive and exclusive method, i.e. in terms of section 145A of the Act, as per which the business profit increased by ₹ 35,16,309/-; i.e. from ₹ 62,90,312/- to ₹ 98,06,621/-, Thus, the above amount of ₹ 35,16,309/- which was offered for taxation by way of adjustment u/s 145A of the Act, was the amount of profit after increasing the value of inventory with the amount of excise duty paid on the same. In the computation of income filed along wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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