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2016 (10) TMI 694 - ITAT AHMEDABAD

2016 (10) TMI 694 - ITAT AHMEDABAD - TMI - Addition of unutilised CENVAT credit to the closing stock - exclusive method of accounting - Held that:- 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 f .....

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further find that the Hon’ble Apex Court in the case of Indo Nippo Chemicals (2003 (1) TMI 8 - SUPREME Court) 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). - 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 Fo .....

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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 income was determined at ₹ 1,59,50,747/-. Thereafter, the case was reopened u/s.147 of the Act and the notice u/s.148 of the Act was issued and served on assessee on 23/10/2012. The case was selected for sc .....

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The Ld.CIT(A) has erred in law and on facts in deleting the addition of ₹ 1,12,23,462/- made to the closing stock on account of CENVAT credit as mandated by the provisions of Sec.145A of the IT Act. 3. On perusing the accounts and other details furnished by the assessee AO noticed that the purchases, sales and closing stock were accounted net of excise duty by following the exclusive method of accounting and the unutilised balance of CENVAT credit as at the end of the year was ₹ 1,1 .....

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r:- 2.4 Decision: I have carefully considered the assessment order, facts of the case and the written submission of the appellant. The A.O has made an addition of Rs.l,12,23,462/- on account of unutilised balance of CENVAT. It was held by the AO that the appellant should have included this unutilised credit in the valuation of closing stock as per the provisions of section 145A. The appellant has submitted that it was following exclusive method of accounting and unutilised credit has no its impa .....

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ission 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 h .....

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ns of section 145A by enclosing an annexure in 3CD report. According to the report the effect of including excise duty in the valuation of closing the stock is revenue neutral. The appellant has been following this practice since last several years. It has furnished before me 3CD report of preceding three years and it is noted that the annexure complying with the provisions of section 145A was enclosed for all these years and as per the annexure the impact of including Excise duty is profit neut .....

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ed as profit of the appellant. Honourable ITAT Bench of Ahmedabad in a decision in the case of Alpanil Industreis Vs. ACIT in ITA No.169/Ahd/2005 and 170/Ahd/2005 for A. Y. 1999-2000 & 2000-01 has discussed the principle related to valuation of closing stock u/s. 145A of the Act and it would be relevant to quote the finding of the Honourable Bench which clarifies the issue completely. "77. We have heard the rival submissions and perused the orders of the lower authorities and the materi .....

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), income of ₹ 26,95,884/- was understated by the assessee. On the other hand the claim of the assessee is that by inclusion of this excise duty in the closing stock there will no effect in the profit as the corresponding amount will also be then 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 acc .....

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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 profit on following inclusive and exclusive method of a .....

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that the difference has occurred due to an error by the Learned Commissioner of Income Tax(Appeals) in not considering the excise duty expenditure of the assessee. It was observed from the illustration that assessee has collected excise duty of ₹ 180/- by utilizing the raw material on which excise duty ofRS.100/- was paid to the Government. Thus, the assessee was liable to pay a further excise duty of ₹ 80/- to the Government. When the expenditure of ₹ 80/- is taken into accou .....

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n that assessee has utilised amount of ₹ 180/- out of amount of ₹ 200/- of excise duty paid on purchase against the excise duty liability of ₹ 180 on sales. However, this utilization of ₹ 180/- was allowed to the assessee in respect of stock which was not used for manufacturing also to the extent of ₹ 80/-. The Learned Commissioner of Income Tax(Appeals) ignored the fact that if in future the closing stock is not utilised for manufacturing, then the Modvat Credit ut .....

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on 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 .....

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rrived at either by following inclusive method of accounting or exclusive method of accounting for excise duty. The only effect will be that the excise duty payable on closing stock of finished goods will be to the extent not deposited with the government before the due date of furnishing of return will be added to the income of the assessee in view of provision of Section 43B of the Act. In view of the discussion made hereinabove, in our considered opinion, there will be no effect in the taxabl .....

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VAT credit can be made to the income of the appellant. Respectfully following the prevailing judicial opinion, it is held that no addition on this ground can be made. The addition of ₹ 66,17,145/- is also directed to be deleted. The ground of appeal is accordingly allowed. In the result the total addition of ₹ 1,12,23,462/- is directed to be deleted. The ground of appeal is accordingly allowed. 4. Aggrieved by the order of ld.CIT(A), Revenue is now in appeal before us. 4.1. Before us .....

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