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TMI Blog2008 (9) TMI 615X X X X Extracts X X X X X X X X Extracts X X X X ..... of Haji Moosa & Co. 157 ITR 422 (sic). The CIT(A) upheld the action of the Assessing Officer by holding that no evidences or facts could be produced during the appellate proceedings by the assessee and the assessee could not be distinguished on facts against the decision relied upon by the Assessing Officer. 4. Before us the submission of the learned AR is that the expenditure incurred on foreign travelling is incidental to business purpose. Because of urgency, even the health of the Chairman was not good, he was forced to go abroad and, hence, the wife accompanied him to look after him on the advice of the doctor which was approved by the management. He further submitted that assessee being a company, there is no disallowance can be made on account of personal element, for which he relied upon the judgment of Sayaji Iron & Engg. Co. v. CIT [2002] 253 ITR 749 1 (Guj.). 5. The learned DR, on the other hand, relied upon the orders of the revenue authorities. 6. We have heard the learned representatives of the parties and perused the record. In order to claim deduction of expenditure under section 37(1) of the Income-tax Act, the following conditions should be satisfied : (i)The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able procedure. That is that the purpose of foreign visit is to discuss in detail in Board Meeting of the company. After a detailed discussion regarding the business issues which are to be discussed with the parties, a proposed report is to be prepared on the foreign visit. It is required to be pointed out in board meeting that ultimately what result will be achieved by such foreign visit. The approval of foreign visit of an employee or a director by board of director is based on commercial consideration and commercial expediency. After completion of foreign visit, a complete account report of achievement, progress and outcome of the foreign visits are required to be put on record. Achievements on account of foreign visits are to be discussed in detail. If the foreign visit is found successful for the purpose of the business, further steps are to recommend as to how the business target is to be achieved in the form of sales, purchases etc. Such discussion is also required to incorporate in directors' report as affairs of the company. Such report is required to prepare as per section 217 of Companies Act, annually and the same are to attach with balance sheet to be placed before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of PF and ESIC payments. 10. Ground No. 3 is in respect of addition of Rs. 12,28,727 on account of MODVAT credit. 11. The revenue authorities made disallowance on account of MODVAT credit relating to closing stock by disregarding the method of accounting consistently followed by the assessee. 12. The learned AR has submitted that the issue is decided in favour of the assessee by the ITAT, Mumbai in the following decisions:- (i)IT Appeal No. 3522 (Mum.) of 2005 ("G" Bench) in the case of Cabot India Ltd., for assessment year 1999-2000 vide order dated 30-1-2008. (ii)ITA No. 4/Mum./2004 and ITA No. 3759/Mum./2005 for assessment year 2001-02 ("K" Bench) vide order dated 1-4-2008. (iii)IT Appeal No. 6136 (Mum.) of 2004 in the case of Diamond Dye Chem Ltd. for assessment year 2001-02 ('D' Bench) vide order dated 2-4-2008. 12.1 The copies of the aforesaid decisions are available on record. 13. The learned DR on the other hand relied on the orders of the revenue authorities. 14. We have heard the learned representatives of the parties and record perused. There are two types of controversy while giving effect the section 145A. The first issue under consideration whether enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red on sale of goods should be added to the sales, if not already added in the books of account. (c)Any tax, duty, cess or fee actually paid or incurred on the inventory (finished goods, work-in-progress, raw materials, etc.) should be added to the inventories, if not already added while valuing the inventory in the accounts. 14.3 The Institute of Chartered Accountants of India on insertion of section 145A issued Guidance Note on Tax Audit under section 44AB of the Act explaining the statutory requirements to give the effect of section 145A which are as under:- "23.9 The statutory required under section 145A can be explained by the following example : Particulars Qty. Rate Rate of excluding excise excise duty duty Opening Stock 10 10 2 Raw material purchased 90 10 2 Other manufacturing cost 80 10 - Finished goods manufactured 80 - - Sales of finished goods 60 25 3 Closing stock of raw material 20 10 2 Closing stock of finished goods 20 20 3 The input-output ratio of raw material to finished goods is 1:1 I. Duty paid on inputs may, be debited to a separate account, e.g. MODVAT credit re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material ( d) Raw 80 10 800 material consumed ( e) To 80 10 800 manufac- turing cost ( f) To excise 0 duty on finished goods sold ( g) To gross 300 profit Total 1900 Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; goods ( q) To excise 20 3 60 duty on closing stock of finished goods ( r) To gross 300 profit Total 2140 Total 2140 23.11 It may be pointed out that the 'inclusive method' is not permitted by AS2 which is made mandatory from accounting year beginning on or after 1-4-1999. Further, in the Guidance Note on Accounting for MODVAT the second method (inclusive method) has been withdrawn with effect from accounting year commencing from 1-4-1999. In vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 300 Add: Adjustments required under section 145A (1) Excise duty on sales (Rs. 3 per unit for 60 units) 180 (2) Excise duty on closing stock of raw materials (Rs. 2 per unit for 20 units) 40 (3) Excise duty on closing stock of finished goods (Rs. 3 per unit for 20 units) 60 Rs. Rs. Rs. (4) MODVAT credit utilized on consumption of raw materials (Rs. 2 per unit for 80 units) 160 440 740 Less: (1) Excise duty on opening stock of raw material (Rs. 2 per unit for 10 units) 20 (2) Excise duty on purchase of raw materials (Rs. 2 per unit on 90 units) 180 (3) Excise duty on sales (paid or incurred as per section 145A) 180 380 (-)380 60 Less: De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note that the issue pertaining to simple adjustment of balance in MODVAT account was before the ITAT Special Bench, Chandigarh. While giving effect of section 145A, the adjustment of balance in MODVAT account was not before the ITAT Special Bench Chandigarh. In cases where there are statutory compilation under section 145A to give adjustment in closing stock, in such cases it has to presume that the assessee has exercised his option to set off against MODVAT account. On the basis of ratio laid down by the ITAT Special Bench Chandigarh in the case of Glaxo Smithkline Consumer Healthcare Ltd. (supra) it is to be presumed that the assessee exercises his option to set off MODVAT account against excise liability, which amounts to payment of excise duty and accordingly the assessee is entitled to deduction under section 43B. The above presumption is based on legal fiction created by section 145A of the Act. However, to avoid double deduction the assessee should ensure that there will be no double adjustment of MODVAT account firstly at the time of giving effect to the section 145A and secondly at the time of final exercise option for adjustment of MODVAT account. In this regard burden i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itigation and in order to ensure that the value of opening and closing stock reflect the correct value, a new section 145A is inserted. This section provides that the valuation of purchase, sale and inventory shall be made in accordance with the method of accounting regularly employed by the assessee and such valuation shall be further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called), actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation." 14.9 The CBDT has clarified that with a view to put an end to this point of litigation, both the opening and closing stock should reflect the correct value and that is why section 145A was inserted to the statute book. It is further stated that the valuation shall be further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called), actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. The Delhi High Court in the case of Mahavir Alluminium Ltd. (supra), has held that corresponding adjustment must be made in opening stock subj ..... X X X X Extracts X X X X X X X X Extracts X X X X
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