TMI Blog2016 (10) TMI 694X X X X Extracts X X X X X X X X Extracts X X X X ..... d that unavailed MODVAT credit cannot be construed as income and there is no liability to pay tax on such unavailed MODVAT credit. In view of the aforesaid facts, we find no reason to interfere with the order of the ld.CIT(A). - Decided against revenue - I.T.A. No.2387/Ahd/2013 - - - Dated:- 31-8-2016 - SHRI RAJPAL YADAV, JUDICIAL MEMBER And SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER For The Appellant : Shri James Kurian, Sr.DR For The Respondent : Shri M.J. Shah, AR ORDER PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER : This appeal by the Revenue is directed against the order of the Commissioner of Income Tax(Appeals)-VIII, Ahmedabad dated 29/07/2013 for the Assessment Year (AY) 2008-09. 2. The relevant facts as culled out from the materials on record are as under:- 2.1. Assessee is a company stated to be engaged in the business of manufacturing of Blow Film Extrusion Machines. Assessee filed its return of income for AY 2008-09 on 29/09/2008 declaring total income of ₹ 1,34,75,950/-. Thereafter, assessment was initially framed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide order dated 30/11/2010 and the total i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further submitted that out of the addition of ₹ 1,12,23,462/- made by the AO there is a component of CENVAT of service tax, which is receivable on account of the service tax paid by the appellant on the services availed and CENVAT of education cess and was unutilised during the year. The appellant has submitted that even if the submission regarding no inclusion of CENVAT credit was not accepted the component of service tax credit and education cess cannot be added to the valuation of closing stock. The submission of the appellant has merit. The service tax and education cess component which remain to be utilised cannot be added in the valuation of closing stock as it has no impact on the purchase of raw material as well as in the valuation of closing stock. Therefore the component of service tax and education, cess which has been added by the A.O amounting to ₹ 44,98,454/- and ₹ 1,07,860/- are directed to be deleted. Regarding the CENVAT credit on purchase of raw material it is noted that the appellant is following exclusive method of accounting wherein the excise duty is not included in valuation of the stock and raw material. The excise duty paid and coll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en included in the purchases. The assessee in support of the above argument relied upon the view expressed by the Institute of Chartered Accountants of India in its guidelines, wherein it was explained that following of either inclusive method of accounting or exclusive method of accounting will not have any effect on the profit disclosed by the profit and loss account. The only effect of following inclusive method will be that the excise duty liability will appear in the balance sheet which will be added back to the income of the assessee in view of the provisions of section 43B to the extent not paid by the assessee before the due date of furnishing of return of income under section 139(1) of the Act. The above view was also expressed by this Bench of the Tribunal in the case of The Deputy Commissioner of Income Tax, Circle-1, Baroda Vs. Gujarat Fluoro-Chemicals Ltd. in ITA No.3742/AHD/2002 Assessment Year 1999-00 order dated 28.09.2006. In our considered opinion, the lower authorities have not properly appreciated the effect of section 145A of the Act. The Learned Commissioner of Income Tax(Appeals) by way of an illustration concluded that there will be a difference in the profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto from yet another angle. Section 145A requires revaluation of not inventory alone but also requires revaluation of purchase and sales. On revaluation of purchase by including the amount of excise duty in respect of which Modvat Credit is available to the assessee, the purchase of the assessee will increase resulting in corresponding decrease in the profit of the assessee. The assessee's contention that value of closing stock is credited in the profit and loss account to set off the value of unconsumed items of purchase and therefore, both should have same basis cannot be controverted. The only exception to this theory is that when the Modvat value is less than the cost then effectively unrealised loss is allowed as a deduction to the assessee on the well settled principles. In the instant case, the lower authorities were not justified in revaluing only closing stock so as to include the amount of excise duty paid on purchase without revaluing the corresponding purchases. We have gone through the guidelines explained by the ICAI and find ourselves in agreement therewith that there will not be any effect on the profit of loss arrived at either by following inclusive method of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng stock. We find that the ld.CIT(A) while deciding the issue in favour of assessee has given a finding that assessee is following exclusive method of accounting whereby the excise duty is not included in the valuation of stock and raw-materials as the excise duty paid and collected is not made part and parcel of the Profit Loss A/c. He has further given a finding that assessee has complied with the provisions of section 145A of the Act and the effect of including excise duty in valuation of closing stock does not affect the profit and is Revenue neutral. He has further relied on the decision of Hon ble Gujarat High Court in the case of Narmada Chematur Petrochemicals Ltd.(supra). Before us, Revenue has neither controverted the finding of ld.CIT(A) nor has placed any contrary binding decision in its support. We further find that the Hon ble Apex Court in the case of Indo Nippo Chemicals (2003) 261 ITR 375 has held that unavailed MODVAT credit cannot be construed as income and there is no liability to pay tax on such unavailed MODVAT credit. In view of the aforesaid facts, we find no reason to interfere with the order of the ld.CIT(A). Thus, this ground of Revenue is dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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