2009 (12) TMI 1021 - AT - Income Tax

Summary

Issues:
1. Valuation of closing stock based on unutilized Modvat credit
2. Treatment of late payment of employees' contribution to PF

Valuation of Closing Stock:
The appeal was filed by the department against the order of CIT(A) regarding the deletion of an addition on account of unutilized Modvat credit affecting the closing stock valuation and profits of the assessee for the assessment year 2004-05. The Assessing Officer required the assessee to explain why the amount of &8377; 27,47,258 should not be added back to the value of closing stock as per section 145A of the Income-tax Act, 1961. The assessee contended that excise duty was only added to the closing stock of finished goods, not raw material or work-in-progress. The CIT(A) accepted the assessee's submission, stating that the method of accounting for excise duty would not affect the profit. However, the tribunal found that the Assessing Officer had not fully applied section 145A and remitted the matter back for re-examination to ascertain any necessary disallowance under the Act.

Late Payment of Employees' Contribution to PF:
The second ground of the appeal concerned the addition of &8377; 1,78,244 on account of late payment of employees' contribution to PF, deemed as income u/s 2(24)(x) of the Income-tax Act. The Assessing Officer disallowed the late payments, but the CIT(A) allowed remittances made within the grace period as per PF Rules, except for a sum of &8377; 9,033. The tribunal upheld the CIT(A)'s decision, stating that deductions could be claimed for remittances made within the grace period allowed under the relevant statutes. Therefore, the appeal of the revenue was partly allowed for statistical purposes.

Conclusion:
The tribunal directed a re-examination of the valuation of closing stock in relation to unutilized Modvat credit and upheld the allowance of deductions for late payments of employees' contribution to PF made within the grace period. The decisions were based on the provisions of the Income-tax Act and relevant case law interpretations.