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2016 (10) TMI 694 - AT - Income TaxAddition of unutilised CENVAT credit to the closing stock - exclusive method of accounting - Held that - We find that the ld.CIT(A) while deciding the issue in favour of assessee has given a finding that assessee is following exclusive method of accounting whereby the excise duty is not included in the valuation of stock and raw-materials as the excise duty paid and collected is not made part and parcel of the Profit & Loss A/c. He has further given a finding that assessee has complied with the provisions of section 145A of the Act and the effect of including excise duty in valuation of closing stock does not affect the profit and is Revenue neutral. He has further relied on the decision of Hon ble Gujarat High Court in the case of Narmada Chematur Petrochemicals Ltd.(2010 (8) TMI 263 - Gujarat High Court ) Before us, Revenue has neither controverted the finding of ld.CIT(A) nor has placed any contrary binding decision in its support. We further find that the Hon ble Apex Court in the case of Indo Nippo Chemicals (2003 (1) TMI 8 - SUPREME Court) has held that unavailed MODVAT credit cannot be construed as income and there is no liability to pay tax on such unavailed MODVAT credit. In view of the aforesaid facts, we find no reason to interfere with the order of the ld.CIT(A). - Decided against revenue
Issues Involved:
1. Addition to closing stock on account of unutilized CENVAT credit as mandated by the provisions of Section 145A of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Addition to Closing Stock on Account of Unutilized CENVAT Credit: The Revenue's appeal challenges the order of the Commissioner of Income Tax (Appeals) [CIT(A)] which deleted the addition of ?1,12,23,462/- made to the closing stock due to unutilized CENVAT credit. The Assessing Officer (AO) had originally added this amount to the closing stock, arguing that it was required under Section 145A of the Income Tax Act, 1961. Facts and Arguments: - The assessee, a company engaged in manufacturing Blow Film Extrusion Machines, filed its return for AY 2008-09 declaring an income of ?1,34,75,950/-. The AO initially determined the income at ?1,59,50,747/- but later reopened the case under Section 147, reassessing the income at ?2,71,74,210/-. - The AO noticed that the assessee accounted for purchases, sales, and closing stock net of excise duty using the exclusive method of accounting. The AO added the unutilized CENVAT credit of ?1,12,23,462/- to the closing stock, asserting that the correct value of the closing stock was not reflected. - The CIT(A) deleted this addition, accepting the assessee's argument that the exclusive method of accounting and the unutilized CENVAT credit did not impact the valuation of the closing stock. The CIT(A) also noted that the inclusion of excise duty in the closing stock valuation would be revenue-neutral. CIT(A)'s Findings: - The CIT(A) agreed with the assessee that the unutilized CENVAT credit, including components of service tax and education cess, should not be added to the closing stock as they do not impact the valuation. - The CIT(A) observed that the assessee had been consistently following the exclusive method of accounting and that the excise duty was not part of the profit and loss account. - The CIT(A) cited the Gujarat High Court's decision in Narmada Chematur Petrochemicals Ltd. (327 ITR 369), which supported the view that the inclusion of excise duty in closing stock valuation is revenue-neutral and that unutilized CENVAT credit cannot be treated as profit. Tribunal's Decision: - The Tribunal upheld the CIT(A)'s order, noting that the assessee had complied with Section 145A by including an annexure in the 3CD report, showing that the impact of including excise duty in the closing stock was revenue-neutral. - The Tribunal referenced the Supreme Court's decision in Indo Nippo Chemicals (2003) 261 ITR 375, which held that unavailed MODVAT credit cannot be construed as income. - The Tribunal found no reason to interfere with the CIT(A)'s order, as the Revenue did not provide any contrary binding decision or controvert the CIT(A)'s findings. Conclusion: The Tribunal dismissed the Revenue's appeal, affirming that no addition to the closing stock on account of unutilized CENVAT credit was warranted, as it was revenue-neutral and consistent with judicial precedents. Order Pronouncement: The order was pronounced in open court on 31/08/2016, dismissing the Revenue's appeal.
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