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2016 (3) TMI 115 - AT - Income TaxAddition with respect to unutilized balance of MODVAT credits - inclusion of excise duty to the value of closing stock - Scope of section 145A - Held that - Merely because the Central Government has not notified in the Official Gazette accounting standards to be followed by any class of assessees or in respect of any class of income, it cannot be stated that the Accounting Standards prescribed by the Institute of Chartered Accountants of India or the Accounting Standards reflected in the guidance note cannot be adopted as an accounting method by an Assessee. It further held that notwithstanding the fact that the opinion of the Chartered Accountants of India was expressed in the guidance note , which had not attend a mandatory status, would not be a ground to discard the books of accounts of the Assessee or the method of accounting followed. As relying on ACIT vs. M/s. Kiran Industries Pvt. Ltd. (12) TMI 41 - ITAT AHMEDABAD no addition on account of unutilized MODVAT credit is called for in the present case - Decided in favour of assessee
Issues Involved:
1. Validity of the assessment order. 2. Addition of unutilized balance of MODVAT credits. 3. Levy of interest under sections 234B and 234C. 4. Initiation of penalty proceedings under section 271(1)(c). Comprehensive, Issue-Wise Detailed Analysis: 1. Validity of the Assessment Order: The Assessee challenged the validity of the assessment order, but the CIT(A) dismissed this ground as being general in nature and not requiring adjudication. The Tribunal did not specifically address this issue further, focusing instead on the substantive grounds of the appeal. 2. Addition of Unutilized Balance of MODVAT Credits: The primary issue in this appeal was the addition of Rs. 54,16,674 on account of unutilized balance of MODVAT credits. The Assessee argued that it followed the exclusive method of accounting for excise duty, which aligns with the Accounting Standards issued by the Institute of Chartered Accountants of India. The Assessing Officer, however, added the MODVAT credits to the closing stock as per Section 145A of the Income-tax Act, 1961, leading to an increased total income. The CIT(A) upheld this addition, stating that Section 145A mandates the inclusion of excise duty in the valuation of closing stock, regardless of the accounting method followed by the Assessee. The CIT(A) referenced several judicial precedents to support this view, including the decisions of the Gujarat High Court and the Supreme Court, distinguishing them based on the applicability of Section 145A. Upon appeal, the Tribunal reviewed similar cases and precedents, noting that the inclusion of excise duty in the closing stock should also reflect in the opening stock to avoid double deduction. The Tribunal referenced the decisions of Co-ordinate Benches in similar cases, which favored the Assessee, stating that the method of accounting should not affect the profit and loss account if adjustments are consistently applied. Consequently, the Tribunal concluded that no addition on account of unutilized MODVAT credit was warranted and allowed this ground of the Assessee. 3. Levy of Interest Under Sections 234B and 234C: The Assessee contested the levy of interest under sections 234B and 234C, which the CIT(A) dismissed as mandatory. The Tribunal did not provide further analysis on this issue, implying agreement with the CIT(A)'s decision that the levy of interest is indeed mandatory under the provisions of the Income-tax Act. 4. Initiation of Penalty Proceedings Under Section 271(1)(c): The Assessee also challenged the initiation of penalty proceedings under section 271(1)(c), which the CIT(A) dismissed as premature. The Tribunal did not delve into this issue, focusing instead on the primary ground concerning the addition of MODVAT credits. Conclusion: The Tribunal allowed the Assessee's appeal regarding the addition of unutilized MODVAT credits, finding that no such addition was necessary if the accounting method was consistently applied. The other grounds concerning the validity of the assessment order, the levy of interest, and the initiation of penalty proceedings were either dismissed or not specifically addressed, indicating agreement with the CIT(A)'s rulings on those issues.
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