TMI Blog2021 (1) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... inclusive method of accounting deduction is claimed in respect of duties, taxes paid on purchase of material by treating the same as part of the purchase cost. The assessee also submitted that the method of accounting/treatment as aforesaid has been consistently followed by it over the years. We find that the assessee has also relied upon the guidance note on tax audit issued by the ICAI in support of his explanation as rendered before the authorities below. The assessee has also illustrated its contention of the revenue being neutral irrespective of the method of accounting being followed by placing the statement showing effect of both the method of accounting exclusive and inclusive as available at Page 13 of the Paper Book filed before us which we have already perused and in our considered opinion the same is acceptable. As relying on M/S. AMBUJA INTERMEDIATES LTD. [ 2018 (2) TMI 1631 - ITAT AHMEDABAD] we find no merit in such addition made by the AO and further enhancement thereof by Ld. CIT(A) when the unutilized CENVAT credit only represents the availability of excise credit at the disposal of the assessee at the end of the year eligible to be set off against future liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit remains the same meaning thereby that there would be no loss to the revenue with either of the two methods being followed as the contention made by the assessee before the authorities below. However, such contentions made by the assessee was not found acceptable by the Ld. AR and the unutilized Modvat Credit for the year under consideration to the tune of ₹ 16,09,091/- has been added to the total income of the assessee. In the appellate proceeding the deduction claimed to the tune of ₹ 72,21,235/- in computing the profit and loss of the assessee has been rejected on the ground of no liability accrued under Section 43B of the Act for payment of excise duty as on 31.03.2010. The addition, therefore, was enhanced from ₹ 16,09,091/- to ₹ 72,21,235/- by the Ld. CIT(A). Hence, against the addition the instant appeal before us. 4. At the time of hearing of the instant appeal the Ld. Counsel appearing for the assessee submitted before us that the assessee is following the exclusive method of accounting for years together with due certification by the tax auditor for recording the inventory which is the subject matter to dispute in valuation. Irrespective o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8-99 and prior to that year, and are on the subject of inclusion of excise duty in the valuation of finished goods, where the finished goods have not been removed from the factory premises. Section 145A is applicable from AY 1999-2000 and after that, the assessees are compulsorily required to prepare their accounts as per the inclusive method only. The TTAT Mumbai Bench in its decision in the case of Hercules Pigment Industries 35 taxmann.com 650 (Mumbai-TRIB) has explained this issue as follows: 4. We believe that we have amply explained and adequately determined the two issues arising for our adjudication as referred to at para 3.3 supra. We, therefore, hold as under: (a) The assessee's accounts (Annexure 2-B), reflecting a profit of ₹ 5,53,073/-, cannot, accordingly, be said to be in accordance with section 145A inasmuch as ₹ 10,39,886/-, reflected as a part of the cost of raw material as at the year-end is the balancing figure, and does not represent the excise component on the raw material, or even that on the dosing inventories of finished and semi-finished goods. The correct valuation of raw-material, i.e., inclusive of excise levied thereon, is und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of 'loss', i.e., a short recovery of excise, there is no case of 'refund' or 'credit', which lapses, so as to be borne by the assessee, so that the said loss would stand to be written off to the profit and loss account, where maintained on net basis. The liability against excess recovery of excise realised on sales is met against excise paid on fresh purchases under the excise rules. We have already clarified that it is immaterial or irrelevant whether this excise liability is met against subsequent purchases or through direct payment, so that the same would continue to outstand in the assessee's accounts until adjusted. The divergence between the excise rules and the tenets of accountancy insofar as accounting of excise is concerned has a/so been noted. The purport of the two is different. The difference or conflict, it may be appreciated, is on account of the excise department following 'cash basis', allowing full credit for the excise on purchases, whether consumed or not, while accountancy would admit of credit/adjustment only to the extent of raw material consumed. The modvat credit in respect of unconsumed raw material (₹ 40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t operating results for the relevant accounting period. Toward this, only the booking of profit (against excess recovery of excise duty) would enable an agreement of the outstanding balance in the UCC a/c with the excise component in the closing inventories, so that the accounts -whether maintained on gross or net basis, reflect the current asset in respect of excise paid thereon at the same, correct value. Further, it is only this, reckoning the 'profit' on excess recovery as the difference between the profit per the two statements prepared on net and gross basis, that would state the UCC a/c at the correct value of the current asset represented by it, where the accounts are maintained on net basis, bringing the profit per the two methods at par. Thirdly, the provision becomes tax-neutral only when duty is paid on value addition, else not, in view of the non obstante provision of S.43B, which has to be given effect to (refer Ann. 1). That, however, in any case, cannot be a ground for not observing the method of accounting that yields correct profits or operating results. Further, even where the accounting treatment provides correct results, the provision of s. 436 would ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t account gets, thus, effectively incorporated in the profit and loss account, depressing the profit by the outstanding debit balance therein, while increasing it with the excise component in the closing stock. We decide accordingly, 4.3.1 Thus, it is held that the appellant was required in the current assessment year to prepare its accounts as per the inclusive method prescribed by section 145A only. In this regard, the other contention of the appellant is that even if the inclusive method is used, there will be no change in its taxable income. For this purpose, the appellant has filed several examples as well as computation as per Annexure-A to the Form 3CD, as reproduced above, to show that the profit would remain the same whether exclusive method is used or inclusive method is used. The examples given as per the Annexure A to Form 3CD is based upon the provision of Section 145A as well as the provision of section 43B of the Act. Now the provisions of section 43B are applicable to the statutory liability in the nature of tax, fee, CESS which has accrued to the assessee as on the end of the previous year, but, has remained unpaid. Under such circumstance, if the liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me the addition to be made was ₹ 72,21,235/- as against f 16,09,091/- made by the AO. Hence, the assessed income is enhanced by the amount of ₹ 56,12,144/-. Accordingly, the appeal is dismissed and enhanced as discussed by ₹ 56,12,144/-. The case made out by the assessee as we find that the assessee is following the exclusive method of accounting consistently for years together where the purchase of capital goods as well as raw materials, stores and spares etc. and services availed/procured is recorded and charged off to Profit and Loss Account which are net of duties/taxes for which CENVAT credit is available to the assessee. CENVAT Credit receivable is being shown as an asset in the Balance Sheet and will be adjusted against excise duty liabilities as and when the same is utilized. Further that in the exclusive method of accounting, no deduction is being claimed in respect of the duties, taxes paid on purchase of material as the same was recorded as an asset in CENVAT Credit receivable account rather than being charged as an expense in the Profit and Loss Account. Whereas in the inclusive method of accounting deduction is claimed in respect of duties, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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