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2014 (7) TMI 210 - AT - Income TaxValuation of purchases and sales of goods and inventory Increase in value of closing stock Balance under CENVAT account added - Held that - The decision in COMMISSIONER OF INCOME-TAX Versus MAHALAXMI GLASS WORKS P. LTD. 2009 (4) TMI 182 - BOMBAY HIGH COURT followed - to give effect to Section 145A, if there is any change at the closing stock at the end of the year due to inclusion of CENVAT credit available then there must necessarily be a corresponding adjustment made in the opening stock of that year and this would not amount to give double benefit to the assessee and would be necessary to compute the true and correct profit for the purpose of assessment. As per provisions of sec.145A adjustment is to be done in the opening and closing stock of the year under consideration so as to ascertain the true profits thus, the AO is directed not to disturb the closing stock of past years and to make adjustment in the opening and closing stock of the year under consideration by the amount of value of Cenvat credit available to the assessee as at the beginning and at the end of the year thus, the order of the CIT(A) is modified Decided partly in favour of assessee.
Issues:
Cross appeals filed by assessee and Revenue against CIT(A) order for assessment year 2007-08 regarding the addition made to closing stock by including CENVAT credit balance. Analysis: The main issue in this case revolves around the determination of income chargeable under the head "profit and gains of business" by considering the valuation of purchases, sales of goods, and inventory as per Section 145A of the Income Tax Act. The AO observed that the assessee understated income by not including the CENVAT credit balance in the closing stock, leading to an adjustment of Rs. 4,11,37,363 in the income. The CIT(A) directed the AO to adjust the opening stock by the value of CENVAT credit and to set the chain reaction in motion as per the decision of the Bombay High Court. Both the assessee and Revenue appealed this direction. The ITAT Mumbai analyzed the issue by referring to the decision of the Hon'ble Bombay High Court in the case of Mahalaxmi Glass Works, emphasizing the need for corresponding adjustments in both opening and closing stock to compute the true profit. The ITAT noted that the Delhi High Court also addressed a similar question in the case of Mahavir Aluminium Ltd., where it was held that adjustments in both opening and closing stock are necessary to determine the correct profit for assessment purposes. The ITAT further cited the Privy Council's decision in the case of Ahmedabad New Cotton Mills Co. Ltd. to support the principle that valuation adjustments in both opening and closing stock are essential for accurate profit calculation. Based on the precedents and legal interpretations, the ITAT concluded that adjustments should be made in both opening and closing stock by the amount of CENVAT credit available to ensure the accurate computation of profits as mandated by Section 145A. Consequently, the ITAT modified the CIT(A) order to include adjustments in both opening and closing stock for the relevant assessment year. As a result, the appeals of both the assessee and Revenue were allowed in part, in line with the directions provided by the ITAT. In summary, the judgment highlights the significance of adjusting both opening and closing stock values to reflect the true profit of a business, especially concerning the inclusion of CENVAT credit balances. The decision underscores the importance of adhering to statutory provisions like Section 145A to ensure accurate income assessment and avoid any potential double benefits to the assessee.
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