2020 (10) TMI 879 - AT - Income Tax

Adjustment u/s 145A - Whether unutilized CENVAT credit was to be included in the value of closing stock in pursuance to the provision of section 145A? - assessee has shown less income by not including unutilized CENVAT credit in the value of closing stock shown as on 31/03/2006 AO added the same to the total income of the assessee - HELD THAT - The provisions of section 145A of the Act mandate to follow the exclusive method of accounting which requires to record the transaction of purchase, sales of the stock after including taxes incurred in relation to purchase/sales of goods. But in the case on hand we find that the assessee has not included such taxes in the amount of purchases, sales and closing stock. We note that if such taxes are included in the opening stock, purchase, sales and closing stock then there will not be any difference in the total income declared by the assessee. It is because such exercise is tax neutral in the given facts and the circumstances. Assessee has placed a chart in the paper book which is placed depicting the profit under both the method of accounting i.e. inclusive and exclusive method of accounting as provided u/s 145A of the Act. On perusal of the chart there is no difference in the profit declared by the assessee except a minor difference of ₹ 5091/- only. See PUNEET INDUSTRIES PVT. LTD. 2016 (6) TMI 1167 - ITAT AHMEDABAD assessee was following exclusive method of accounting and the CENVAT was not debited or credited to the Profit Loss account and the aforesaid method has been consistently followed by the assessee in earlier and succeeding years - unavailed MOD VAT credit cannot be construed as income and there is no liability to pay tax on such unavailed MODVAT credit. - Decided against revenue.

Summary

Issues:
- Appeal by Revenue against CIT(A)'s order deleting addition for unutilized CENVAT credit in closing stock under section 145A of the Income Tax Act, 1961 for Assessment Year 2006-2007.

Analysis:
1. The Revenue contested the deletion of an addition of ?3,80,07,933 for unutilized CENVAT credit in the closing stock by the AO. The AO argued that the unutilized credit should have been included in the closing stock value as per section 145A of the Act, leading to less income shown by the assessee.

2. The CIT(A) deleted the addition, citing the appellant's consistent use of an exclusive method of inventory valuation, which is revenue-neutral. The CIT(A) referred to precedents like M/s.G.H. Industries and ACIT v/s Puneet Industries P Ltd., where similar issues were resolved in favor of the assessee. The CIT(A) emphasized that the addition made by the AO was unjustified.

3. The ITAT reviewed the contentions of both parties and examined the provisions of section 145A, which require accounting for taxes related to purchases and sales in the closing stock. However, it was noted that including such taxes would not alter the total income declared by the assessee, making it a tax-neutral exercise in this case.

4. The ITAT acknowledged the assessee's argument that MODVAT/CENVAT balances were not claimed as expenses in the Profit & Loss account, hence not necessitating their inclusion in closing stock valuation. The ITAT also referred to a chart provided by the assessee showing minimal profit differences under both inclusive and exclusive accounting methods.

5. Referring to a previous ITAT judgment in a similar case, the ITAT concluded that the exclusive method of accounting followed by the assessee, where CENVAT was not debited or credited to the Profit & Loss account, was consistent and valid. The ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition.

6. Consequently, the ITAT found no flaws in the CIT(A)'s order and dismissed the Revenue's appeal, affirming the decision in favor of the assessee. The judgment was pronounced on 20/10/2020 at Ahmedabad.