2015 (3) TMI 1 - AT - Income Tax

Excise and VAT for valuation of stock - inclusion v/s exclusion - Held that - There is submission of the assessee before the authorities below that while the entire amount of excise duty realized on sales was included in the sale amount but out of entire amount of excise duty paid on purchases, only that portion of such excise duty paid which was utilized by way of MOD VAT, had been included in the value of purchases and the balance amount of Modvat credit which could not be utilized in the present year was shown in the balance sheet as an amount receivable and this portion was not included in the value of purchases. Ld. D.R. could not controvert these submissions of the assessee made by the assessee before the authorities below. Once it is accepted that these submissions of the assessee are correct, it means that excise duty paid but not included in the purchases was shown in the balance sheet as excise duty receivable and therefore, there cannot be a reason to make any addition in the income of the assessee because even if we include such excise duty receivable in the value of closing stock, the same is also required to be included in the value of purchases and it will have no impacts on the profits of the assessee. Therefore, we do not find any reason to interfere in the order of Ld. CIT(A). Thus no addition on account of MODVAT and VAT as made by the A.O needs to be made in the present case. See Snehal Pharma Chem 2015 (2) TMI 151 - ITAT AHMEDABAD and The DCIT, Circle 1, Versus M/s Bloom Dekor Ltd. 2013 (8) TMI 180 - ITAT AHMEDABAD - Decided in favour of assessee.

Summary

Issues:
Appeal against order of CIT(A)-XVI, Ahmedabad for A.Y. 2007-08 - Inclusion of unutilized CENVAT/MODVAT, Excise Duty, and VAT tax credit receivable as income u/s. 145A of the Act - Valuation of closing stock - Adherence to accounting principles.

Analysis:
The appeal was filed by the Assessee against the CIT(A)'s order for A.Y. 2007-08. The primary issue revolved around the inclusion of unutilized CENVAT/MODVAT, Excise Duty, and VAT tax credit receivable as income u/s. 145A of the Act. The Assessee, a partnership firm engaged in Trading and Manufacturing of Dyes, electronically filed its return declaring total income. The assessment was framed u/s. 143(3) with the total income assessed at a higher amount. The Assessee contested this addition before CIT(A) and subsequently before the ITAT.

The core contention was the method of valuation of closing stock. The Assessee followed an exclusion method of accounting for Excise Duty and VAT in stock valuation. However, the A.O. insisted on including unutilized credits in the closing stock value, citing Section 145A of the Act. The A.O. added the unutilized amounts to the total income, leading to the appeal. CIT(A) upheld the A.O.'s decision, emphasizing the need to include taxes, duties, etc., in closing stock valuation as per Section 145A.

During the ITAT proceedings, the Assessee argued for the deletion of the addition, citing the tax-neutrality of the exercise. The Assessee referred to precedent cases where similar issues were decided in favor of the Assessee. The ITAT considered these precedents and concluded that no addition on account of MODVAT and VAT should be made, directing the deletion of the added amount. The ITAT's decision aligned with the principles established in previous cases and upheld the Assessee's appeal.

The ITAT's judgment highlighted the importance of adhering to accounting principles while valuing closing stock and emphasized the relevance of Section 145A in including taxes, duties, etc., in stock valuation. The decision provided clarity on the treatment of unutilized credits in stock valuation and underscored the need for consistency in accounting practices. Ultimately, the ITAT allowed the Assessee's appeal, directing the deletion of the addition made by the A.O., based on the precedents and legal provisions discussed during the proceedings.