2014 (7) TMI 342 - AT - Income Tax

Reopening of assessment u/s 147/148 of the Act - Valuation of closing stock u/s 145A of the Act - Unutilized CENVAT credit Held that - No evidence of reversal before Excise Authority has been filed even during the Appellate proceedings - there has been a failure on the part of the appellant to disclose fully and truly all the material facts even in respect of second ground of reopening - certain discrepancies were noticed in the excise accounting of the appellant, as a result of which correct amount of addition u/s 145A needed to be enhanced to ₹ 40, 95, 280 - notice of enhancement U/s 251 (2) of the I T Act was issued on 08.08. 2012 - The appellant has claimed to reversal of the credit taken during the year itself, while the credit continues in the Excise Records - Since the appellant follows Exclusive Method of accounting, it may still take credit for the same in future. Assessee had not included the value of excise while valuation of stock - provisions of s. 145A are mandatory and it mandates that the valuation of purchase and sale of goods and inventory shall be in accordance with the method of accounting regularly followed by the assessee and it should include the amount of any tax, duty, cess or fee actually paid or incurred by the assessee to bring the goods to the place of its location and condition on the date of valuation - since the Assessee has not followed the mandatory requirement of provisions of s. 145A - the AO was fully justified in resorting to the reopening of assessment - CIT(A) by a well-reasoned and detailed order has rightly upheld the order of Assessing Officer and enhanced the income of the Assessee by the amount of ₹ 40,95,280/- as per the provisions of Section 145A of the Act Decided against Assessee.

Summary

Issues Involved:
1. Reopening of assessment under Section 147/148 of the Income Tax Act.
2. Valuation of closing stock as per Section 145A of the Income Tax Act.
3. Enhancement of addition by the CIT(A).

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147/148:
The Assessee's original return for AY 2005-06 declared a total loss of Rs. 13,15,660/-. The assessment was initially framed under Section 143(3) with a total income of Rs. 21,04,940/-. Later, the AO noticed discrepancies related to unutilized CENVAT credit and non-inclusion in the closing stock valuation, prompting reopening under Section 148. The CIT(A) upheld the reopening, citing the Assessee's failure to fully and truly disclose all material facts. The Tribunal agreed, noting the mandatory nature of Section 145A and the absence of opening stock, thus justifying the reopening.

2. Valuation of Closing Stock as per Section 145A:
The Assessee did not include excise duty in the valuation of its closing stock, contrary to Section 145A requirements. The CIT(A) emphasized that Section 145A mandates the inclusion of all taxes, duties, and fees in the valuation of purchase and sale of goods and inventory, irrespective of CENVAT credit. The CIT(A) also dismissed the Assessee's argument that such inclusion is tax neutral, explaining that the CENVAT scheme is an administrative mechanism and does not alter the cost of inputs. The Tribunal upheld this view, highlighting the mandatory nature of Section 145A and the lack of opening stock in the first year of manufacturing, making the Assessee's tax neutrality argument inapplicable.

3. Enhancement of Addition by the CIT(A):
The CIT(A) enhanced the addition to Rs. 40,95,280/- after identifying discrepancies in the Assessee's excise accounting, which were not adequately explained. The Assessee's failure to comply with notices and provide satisfactory explanations led to this enhancement. The CIT(A) also noted that the Assessee's claim of reversal of CENVAT credits was not supported by evidence of such reversal in excise records. The Tribunal supported this enhancement, agreeing with the CIT(A)'s detailed reasoning and the mandatory application of Section 145A.

Conclusion:
The Tribunal dismissed the Assessee's appeal, affirming the CIT(A)'s order. The reopening of assessment was justified due to the Assessee's failure to disclose material facts fully and truly. The valuation of closing stock under Section 145A was mandatory, and the Assessee's arguments on tax neutrality were inapplicable. The enhancement of addition by the CIT(A) was upheld due to discrepancies in excise accounting and the lack of evidence for CENVAT credit reversal. The Tribunal found the CIT(A)'s detailed and reasoned order to be correct, leading to the dismissal of the Assessee's appeal.