TMI Blog2017 (9) TMI 964X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. - ITA.No.1543/Ahd/2015 - - - Dated:- 14-9-2017 - SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER For The Assessee : Shri Saumya Sheth, AR For The Revenue : Shri Surendra Kumar, CIT-DR ORDER PER RAJPAL YADAV, JUDICIAL MEMBER: Present appeal is directed at the instance of the assessee against order passed by the ld.Pr.Commissioner of Income Tax, under section 263 ( 263 Order for short) of the Income Tax Act, 1961 in the Asstt.Year 2009-10. 2. Brief acts of the case are that the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue regarding CENVAT credit is concerned, the ld.Commisisoner sought explanation of the assessee qua a sum of ₹ 52,31,918/-. The Assessee has made elaborate explanation about this issue which has been reproduced by the ld.CIT. He took us through para 18 to 22, which reads as under: 18. Further with respect to closing balance of CENVAT of ₹ 52,31,918/- [ ₹ 35,59,038/- + ₹ 16,72,880/-. 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 paid tax on ₹ 16,72.880/ on such amount. We therefore submit that the same is therefore not required to he added hack to the credit side of dosing stock. Further service tax is not relating to goods and therefore not required to be added to value of closing stock. Since servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciate 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 debited to profit and to.ss account. Out of the said, sum of ₹ 30 is not sold/ utilised at the end of the year, then ₹ 30 is credited to profit and loss account so that the net effect of debiting ₹ 70 being the cost of material sold/ consumed during the year. Therefore, if the amount of CENVAT is not included in ₹ 100 debited to profit and loss account, the question of including the same in the closing stock does not arise. Section 145A prescribes that the assessee ought to follow 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 Accounta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a must. In the absence of any inquiry, it is not practically possible to find the prejudice caused to the Revenue. 7. We have duly considered rival contentions and gone through the record. Before adverting to the facts of the present case, we deem it pertinent 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 and has propounded the following broader proposition to judge action of CIT taken under section 263: (i) The CIT must record satisfaction that the order of the AO is erroneous and prejudicial to the interest of the Revenue. Both the conditions must be fulfilled. (ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional 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 upon ne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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