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M/s. Bigesto Technologies Ltd. Versus DCIT, Circle-3 (1) , New Delhi

2017 (10) TMI 587 - ITAT DELHI

Addition of excise duty to the closing stock - assessee has not followed the provision of section 145A - Held that:- following the provisions of section 145A of the Act, effect of taxes or duty etc. paid has to be given to purchase and sales of goods and inventory including, both the closing and opening stock, which the authorities have not considered. Accordingly, we feel it appropriate to restore the issue to the file of the Ld. CIT-(A) with the direction to adjudicate the issue of the effect .....

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has not considered the objection of the assessee that there were no expenditure of personal nature in foreign travelling expenses. In our opinion, if expenditure has not been incurred wholly and exclusive for the purpose of business then said disallowance could be made under section 37(1) of the Act. Since the Ld. CIT-(A) has sustained the disallowance without taking into account objection of the assessee and verifying the factual claim of the assessee that no expenses of personal nature were i .....

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der dated 09/09/2014 of the Commissioner of Income-tax( Appeals)-VI, New Delhi [ in short the CIT-(A)] for assessment year 2010-11 raising following grounds of appeal: On the facts and in the circumstances of the case and in law, the CIT (A) incorrect and unjustified in: a) Dismissing the appeal of the assessee. b) Holding that the AO was justified in including the amount of excise duty in the value of the closing stock. c) Passing the appeal order without considering the Judgments including the .....

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e CIT (A) erred in uphold the additions without making any adjustment in the Opening Stock. g) Upholding the addition of ₹ 1,50,000/- without any reason basis and also without considering the submissions made by the assessee in appeal proceedings. h) Upholding the addition of ₹ 1,50,000/- on ad-hoc basis based on personal sweet will and how the CIT(A) found the addition or disallowance reasonable. 2. At the outset, it is mentioned that notice of hearing was sent to the appellant i.e. .....

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n the assessment completed, the Assessing Officer made addition of the excise duty to the closing stock in terms of section 145A of the Act, amounting to ₹ 8,77,134/- and made disallowance of ₹ 1,50,000/- out of travelling expenses on account of personal use by the directors. 3.1 The assessee challenged the disallowance before the first appellate authority, however, the Ld. CIT-(A) upheld both the addition/disallowance made by the Assessing Officer. 3.2 On the issue of addition of ex .....

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company to furnish Details of excise duty component in closing stock. The appellant was requested to submit the computation of closing stock in accordance with inclusive method as prescribed by Section 145A of the I.T. Act, 1961. In response, the assessee submitted as below: Valuation of closing as given in Balance if exclusive of Tax, Cenvat etc. ICAO has introduced revised accounting standard As-2 which is mandatory w.e.f 01.04.1999. This standard closely follows IAS-2. As per AS-2 of ICAI, i .....

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to the place of its location and condition as on date of valuation, even if such tax or duty is includible even if any right arise as a consequence to such payment. Thus, duty paid on in puts will have to be added while valuing stock, even if Cenvat credit availed of such duty paid. In respect of finished stock, excise duty payable should be added to the inventory valuation even if not paid as goods are still lying in the factory. Both opening as well as closing stod should be valued on same bas .....

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ue. Inventory should be valued on FIFO (First in First Out) method or weighted average. (LIFO is not permitted). The AS-2 has been made mandatory w.e.f. 1st April 1999. For purposes of Income Tax, inventory is required to be valued inclusive of excise duty, even if assessee is entitled to get Cenvat credit of duty. However, for purposes of balance sheet as per Companies Act, inventory should be valued exclusive or excise duty, if assessee is entitled to get Cenvat credit of duty paid on inputs. .....

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than the dosing stock. In this circumstances we request your honor not to consider inclusive method in valuing the closing stock. 4.1.2. Section 145 of the i.T. Act, 1956 provides that Profit and Gains of Business or Profession shall be computed in accordance with either cash or mercantile system of accounting, as regularly employed by the assessee. In CIT Vs. Me Millan & Co(1958) 33ITR 182 (SC), it was held that the choice of method of accounting lies with the assessee, but the assessee mus .....

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d). In the mercantile system of accounting, the profit or loss at the end of the accounting period is not based on the difference between what was actually received and what was actually paid out, but on the difference between the right to receive and the liability to pay. Therefore, even under the mercantile system, a mere claim by the assessee is not sufficient to make income accrue. The profit must actually become due. Likewise, a mere claim against the assessee is not sufficient to justify a .....

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actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. 4.1.4 In CIT Vs. British Paints(lndia) Ltd. (1991) 188 ITR 44(SC) t has been held that the AO has power to substitute correct method in place of wrong method of valuing closing stock adopted by the assessee. Merely because the wrong method was consistently followed, it cannot be accepted. Consistency should be with reference to the correct method. Therefore, the A .....

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n these matters and the officer is not bound by the method followed in earlier years. * The officer has to consider the material placed before him or her if upon such consideration, he or she is of the opinion that correct profits & gains could not be derived from the accounts, the officer will then be obliged to have recourse to the proviso to Section 145 which provides that opportunity shall be given by the AO by serving a notice for a best judgement assessment. 4.1.5. Section 145 of the A .....

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in accounting policies (AS2) These two accounting standards were similar to the corresponding standards issued by ICAI i.e. AS1 & AS 5, respectively. 4.1.6. Further Accounting Standard (AS) 2, issued by ICAI relates to Valuation of Inventories. A primary issue in accounting for inventories is the determination of the value at which inventories are carried in the financial statements until the related revenues are recognized. This standard deals with the determination of such value, including .....

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ntory of same product line that have similar purposes or end uses and are produced and marketed in the same geographical area & cannot be practically evaluated separately from the other items in that product line. However, it is not appropriate to write down inventories based on classification of inventory e.g. Finished Inventory or all the inventories in a particular business segment. 4.1.7. Accordingly, reliance is placed on the following judgments: (i) CIT Vs. Majestic Auto Ltd. [2013] 39 .....

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ann.com 136/215 Taxman 132 (All.) wherein it was held that where the assessee was liable to pay excise duty on finished goods, revenue authorities were justified in adding amount of excise duty so payable during relevant year at time of valuation of closing stock. 4.1.8. Considering the matter in its entirety, the action of the AO is upheld and this ground of appeal of the appellant is dismissed being not tenable. 3.3 The disallowance of ₹ 1,50,000/- out of travelling expenses was adjudica .....

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l income of the appellant. 4.3.1. I have carefully considered the submission of the appellant and assessment order. The addition made by the on account of personal use to the extent of ₹ 1,50,000/- found reasonable, therefore, this ground of appeal is dismissed. 3.4 Aggrieved, the assessee is in appeal before the Tribunal, raising the grounds as reproduced above. 4. Before us, the Ld. Sr. DR supported the order of the lower authorities and submitted that additions/disallowance might be uph .....

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amount of any tax, duty, cess or fee actually paid or incurred by the assessee. In the submission before the Ld. CIT-(A), the assessee has accepted this fact, however, the assessee submitted that for the purpose of balance sheet as per the Companies Act, inventory should be valued exclusive of excise duty, if assessee is entitled to get Cenvat credit of duty paid on inputs. The assessee further submitted before the Ld. CIT- (A) that in view of this conflict with section 145A of the Act, the Inst .....

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idance of the Institute of Chartered Accountant. In principle, we agree with the finding of the Ld. CIT-(A) that assessee should follow the provision of section 145A of the Act. However, we do not agree with the approach of the authorities in invoking the provision of section 145A only for valuation of the closing stock. In ground No. (f), the assessee has made alternative payer of allowing the corresponding adjustment to opening stock. 5.1 In our opinion, following the provisions of section 145 .....

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f applying selectively only on the closing stock. The assessee shall be afforded adequate opportunity of being heard. Accordingly, the grounds of the appeal from (b) to (f) are allowed for statistical purpose. 7. In ground No. (g) the assessee has challenged disallowance of ₹ 1,50,000/- out of the travelling expenses. The assessee has claimed total travelling expenses of ₹ 20,07,565/- which included director travelling expenses amounting to ₹ 9,45,059/-. On perusal of the Ledge .....

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