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2020 (2) TMI 1283 - HC - Income TaxAdjustment under Section 145-A - Variation in excise duty paid by procuring raw materials and discharge of excise duty liability on non-finished goods - HELD THAT - Respondent followed the above accounting method while accounting for its excise duty paid on raw materials and final products. Respondent had explained which was accepted by the first appellate authority that ICAI mandates usage of exclusive method as per which the amount of excise duty actually paid on inputs cannot be debited to the profit and loss account. But this was an expenditure which had actually been incurred and thus, adjustment under Section 145-A should be allowed to the respondent and deducted from the profits subject to tax in India. Following its earlier decision in the case of the respondent itself for the assessment year 2009-10 2017 (2) TMI 39 - ITAT MUMBAI the first appellate authority took the view that deduction on account of adjustment under Section 145-A should be allowed. Irrespective of the fact that Revenue s appeal for the assessment year 2009-10 was dismissed on withdrawal on the ground that the tax effect was below the prescribed limit, we have independently applied our mind to the said order which has been followed by the Tribunal for the present assessment year and we find that the view taken by the first appellate authority as affirmed by the Tribunal is correct and no interference is called for. The first appellate authority had rightly deleted the addition, which has been affirmed by the Tribunal. On thorough consideration, we do not find any merit in this appeal as no substantial question of law arises out of the order of the Tribunal.
Issues:
1. Interpretation of guidelines of Institute of Chartered Accountants of India (ICAI) under Section 145-A of the Income Tax Act, 1961. 2. Upholding adjustment made under Section 145-A despite inconsistency with provisions of law. 3. Decision on reduction of excise duty on closing stock of finished goods for adjustment under Section 145-A. Analysis: 1. The appellant, the Revenue, challenged the order of the Income Tax Appellate Tribunal regarding the adjustment under Section 145-A for the assessment year 2010-11. The appellant contended that the Tribunal erred in not considering the ICAI guidelines, arguing that adjustments under Section 145-A should be revenue-neutral when the exclusive method is followed. The Tribunal upheld the adjustment, emphasizing the consistent method followed by the assessee, despite the deviation from the provisions of law. The Tribunal also confirmed the decision of the Commissioner without delving into the double reduction of excise duty on closing stock, prompting the Revenue to appeal. 2. The respondent, a company dealing in marble and granite products, claimed a reduction in profit due to adjustments under Section 145-A. The assessing officer disallowed this claim, leading to its addition to the total income of the respondent. However, the Commissioner of Income Tax (Appeals) deleted this addition, following the precedent set for the assessment year 2009-10. The Tribunal, relying on its previous decision, dismissed the Revenue's appeal, prompting the present appeal. 3. The respondent explained that the adjustment under Section 145-A was due to variations in excise duty on raw materials and finished goods. The first appellate authority noted the application of Accounting Standard 2 by the respondent, where excise duty paid on raw materials is not debited to the profit and loss account. The authority accepted the ICAI's exclusive method, allowing the adjustment under Section 145-A. The Tribunal concurred with the first appellate authority's decision, citing the exception to the general rule due to an inverted duty structure, and upheld the deletion of the addition. Despite the withdrawal of the Revenue's appeal for the assessment year 2009-10, the Tribunal found no merit in the present appeal, affirming the correctness of the first appellate authority's decision to delete the addition. In conclusion, the High Court upheld the Tribunal's decision, dismissing the Revenue's appeal as no substantial question of law arose from the order.
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