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Seal for Life India P. Ltd. (Formerly Known as Berry Plastics Pvt. Ltd.) Versus Pr. Commissioner of Income Tax, Vadodara

2017 (9) TMI 964 - ITAT AHMEDABAD

Revision u/s 263 - Omission at the end of the AO not to treat this unutilized CENVAT credit as a part of closing stock rendered his order erroneous which is prejudicial to the interest of the Revenue - Held that:- According to the assessee, it has not claimed as deduction as a part of purchases. It is separately debited to CENVAT credit receivable account. If that was the situation, which has been verified in the Asstt.Year 2010-11 by the ld.CIT(A) vide order dated 1.12.2014 what was the occasio .....

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usive finding have been recorded by the ld.CIT(A) in the Asstt.Year 2010-11 before the order passed under section 263 that payment of alleged gratuity was towards a approved fund. This order was not challenged. Appellant has made payment to an approved gratuity fund and therefore payment made is allowable as deduction u/s.36(1)(v) of the Act - Thus we are of the view that no case is made out for taking action under section 263 of the Income Tax Act, 1961 - Decided in favour of assessee. - IT .....

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e assessee-company at the relevant time was engaged in the business of manufacturing of joint coating systems comprising of heat shrinkable sleeves and accessories. It has filed its return of income electronically on 30.9.2009 declaring total income at ₹ 11,56,74,030/-. The case of the assessee was selected for scrutiny assessment, and assessment order under section 143(3) r.w.s Section 144C of the Income Tax Act was passed on 14.3.2013 whereby the ld.AO has determined the taxable income o .....

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served that the assessee had made payment to PF, EPF and superannuation gratuity fund amounting to ₹ 15,58,850/-. According to the CIT this contribution was not made towards an approved gratuity fund created by the assessee, and therefore, it ought to have been disallowed. Omission on the part of the AO not to conduct an inquiry and allowing these amount has resulted his order as erroneous, which is prejudicial to the interest of the Revenue. Armed with these two reasons, the ld.Commission .....

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CIT, the ld.counsel for the assessee has raised two fold of submissions. He pointed out that action under section 263 should be taken if an order passed by the AO is erroneous as well as it caused some prejudice to the Revenue. He conceded that as far as first contention is concerned, there may not be much dispute, because the AO has not issued show cause notice under section 142(1) for inquiring these two issues. But the second contention is not available. There is no prejudice to the Revenue f .....

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880/-. We submit that the sum of ₹ 16,72,88Q/-is with respect to Service Tax credit charged on various input expenditures. The some can be used on payment of excise duty as well as service tax liability if any. The assesses has therefore debited such expenditure net of service tax i.e. after reducing amount of service tax. Such service tax is therefore not claimed as deduction under the Act. Accordingly unutilized service tax credit was already taxed under the Act. The assesses has already .....

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required to debit such amount to the profit and loss account (by increase the value of expenditure.) having no impact on the net profit of the assessee company. 19. With respect to unutilized CENVAT credit of ₹ 35,59,038/-, we submit that the Assesses Company is following the exclusive method of accounting for accounting of CENVAT credit in its books of accounts. The CENVAT duty paid on purchases of Raw material is debited to CENVAT credit receivable (Inputs) Account, as and when the CENVA .....

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tilized CENVAT credit of ₹ 35,59,038/- to tax by reducing the said amount from the cost of total purchase and services debited to profit and loss account. Accordingly the unutilized CENVAT credit of ₹ 35,59,038/- was already taxed under the Act. Your office may note that purchases and services are accounted net of CBNVAT credit in the hooks of accounts. White debited the cost of purchase the assesses has only debited the cost net of CENVAT credit of profit and loss account and CENVAT .....

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as deduction as part of the purchase prices it is separately debited to the CENVAT credit receivable account (Part of the current Assets). As your office will appreciate that the function of closing stock is to nullify the: effect of debit made 1o the profit and loss account on account of purchases of raw material by crediting the amount of the closing stock, to the extent the material is not utilized during the year Therefore if material worth of ₹ 100 is purchased. ₹ 100 is debite .....

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low the inclusive method of accounting for CENVAT wherein the amount debited to the profit and loss account and consequently the stock etc. should he inclusive of CENVAT. 22. We further submit that the valuation of stock of Raw Materials is made excluding the value of CENVAT Credit in view of the Accounting Standard 2 issued by Institute of Charted Accountants of India. Purchases are accounted net of CENVAT since the credit of the CENVAT is available against the payment of excise duty on sales. .....

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ed out that the appeal for the Asstt.Year 2010-11 was decided vide order dated 1.12.2014 i.e. much prior to the action taken by the ld.Commissioner under section 263. This order was also brought to the notice of the ld.Commissioner and he was appraised that there was no prejudice to the Revenue on this issue. Similarly, he pointed out that as far as second point is concerned, the assessee has pointed out to the ld.Commssioner that out of total sum of ₹ 15,58,850/- only ₹ 1,88,670.0 w .....

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final on both these issues, because none has challenged it. In spite of appraising this decision, the ld.Commsisoiner did not consider both the issue on merit, and set aside the assessment for further inquiry. The ld.Commissioner ought to have considered these issues, and therefore, ought to have dropped 263 proceedings. 6. On the other hand, the ld.DR submitted that admittedly, the AO has not carried out any investigation. He has not touched both these issues. This order passed by the AO is an .....

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tinent to take note of fundamental tests propounded in various judgments relevant for judging the action of the CIT taken under section 263 of the Act. It is also pertinent to observe that the ld.counsel for the assessee has filed a paper book containing 20 judgments. The ITAT in the case of Mrs.Khatiza S. Oomerbhoy Vs. ITO, Mumbai, 101 TTJ 1095 analysed in details various authoritative pronouncements including decision of the Hon ble Supreme Court in the case of Malabar Industries, 243 ITR 83 a .....

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pplication of law will suffice the requirement of order being erroneous. (iv) If the order is passed without application of mind, such order will fall under the category of erroneous order. (v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree. If cannot be treated as an erroneous order, unless the .....

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on, such conclusion cannot be termed to be erroneous simply because the CIT does not fee stratified with the conclusion. (viii) The CIT, before exercising his jurisdiction under s. 263 must have material on record to arrive at a satisfaction. (ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allows the claim on being satisfied with the explanation of the assessee, .....

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e absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged inadequate investigation , it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsidera .....

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precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT vs. Shree Manjunathesware Packing Products, 231 ITR 53 (SC)]. Nothing bars/prohibits the CIT from collecting and relying up .....

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. The ld.Commissioner did not dispute it. With regard to the balance ₹ 35,59,038/-, it was contended by the assessee that when it had purchased raw-material, the same is debited to profit & loss account without including therein the amount CENVAT available as credit. Thus, according to the assessee, it has not claimed as deduction as a part of purchases. It is separately debited to CENVAT credit receivable account. If that was the situation, which has been verified in the Asstt.Year 20 .....

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