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2014 (2) TMI 1381 - AT - Income TaxAddition to value of closing stock on account of CENVAT credit u/s 145A - assessee has been consistently following exclusive method of accounting for valuation of closing stock of excluding the CENVAT - AO revalued the closing stock by including CENVAT/MODVAT credit in closing stocks on the ground that non inclusion of CENVAT credit is not only improper but also cannot depict the true and fair picture of taxable profit of the business - HELD THAT - Jurisdictional High Court in the case of Mahalaxmi Glass Works P. Ltd 2009 (4) TMI 182 - BOMBAY HIGH COURT wherein it has been held that to give effect u/s 145A if there is any change in closing stock at the end of the year there must be necessarily of corresponding adjustment in the opening stock of that year and accordingly directed the AO to calculate disallowance/addition after verification. Tribunal in the case of Jindal Iron Steel Company Ltd. 2013 (1) TMI 182 - ITAT MUMBAI has held that if unutilized MODVAT credit is added to closing stock then similar adjustment should be made even in opening stock and purchases. The Tribunal further held that from the plain reading of provisions of section 145A it is evident that for the purpose of valuation of purchase and sale of goods and inventories on account of tax duty cess or fee actually paid are incurred by the assessee has to be made. Excise duty component in the form of MODVAT in the raw materials has to be included while valuing the purchases and sales of goods and inventories as it has direct bearing on valuation of stock. The Tribunal in the said decision has considered the decision of the Hon ble Bombay High Court in the case of Mahalaxmi Glass Works P. Ltd (supra) which has been relied by the Ld.CIT(A). Therefore following the aforementioned decision of the Tribunal we modify the direction of the Ld.CIT(A) in such a manner that the issue is remitted back to the file of the AO with the direction to make the adjustments as per section 145A on account of CENVAT credit to the value of purchases/sales of opening and closing stock and accordingly re-compute the addition if any to be made on this issue. Appeal filed by the assessee is allowed for statistical purpose.
Issues:
1. Inclusion of CENVAT credit in the valuation of closing stock under section 145A of the Income Tax Act. Analysis: The appeal involved a dispute regarding the addition of Rs. 390.86 lakhs to the value of closing stock by including CENVAT credit, as directed by the Ld.CIT(A) for the Assessment Year 2006-07. The assessee, a company dealing in laminates and collapsible laminated tubes, had consistently excluded CENVAT credit in valuing closing stock. However, the AO revalued the closing stock by including CENVAT credit, leading to the addition. The Ld.CIT(A) upheld this addition, citing a decision of the jurisdictional High Court and directed corresponding adjustments in opening stock. The assessee challenged this decision before the Appellate Tribunal. The Ld.AR of the assessee contended that the accounting policy followed by the assessee should have been accepted, and if unutilized MODVAT credit is added to closing stock, similar adjustments should be made in opening stock and purchases. The Ld. DR supported the orders of the AO and Ld.CIT(A. The Tribunal noted that section 145A is a mandatory provision and upheld the AO's action. However, considering the decision of the jurisdictional High Court and another Tribunal decision, the Tribunal modified the Ld.CIT(A)'s direction. The Tribunal remitted the issue back to the AO with directions to make adjustments as per section 145A on account of CENVAT credit in the valuation of purchases/sales of opening and closing stock. Ultimately, the appeal filed by the assessee was allowed for statistical purposes. The Tribunal's decision highlighted the importance of complying with section 145A of the Income Tax Act in valuing closing stock by including CENVAT credit and making corresponding adjustments in opening stock, purchases, and sales to reflect the true taxable profit of the business.
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