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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 ..... n the decision of Hon'ble Madras High Court in the case 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the business, the company is to follow some reasonable 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the disallowance made by the Assessing Officer on account 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 sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount. (b)Any tax, duty, cess or fee actually paid or incurred 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 credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tem Particulars Unit Rate Amt. ( n) Raw 80 10 800 material consumed ( o) To 80 10 800 manufac- turing cost ( p) To excise 60 3 180 duty on finished 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 view of the above, the adjustments under section 145A will have to be made in all cases where 'exclusive method' is followed. 23.15 When the exclusive method is followed in the accounts, the adjustments to be made under section 145A can be explained by the following illustrations which is required to be reported under clause 12(b). Sl. No. Particulars (Rs.) (Rs.) Increase Decrease in profit in profit 1. Increase in cost of opening 20 stock on inclusion of excise duty on which MODVAT credit is available/availed (j-a ) 2. Increase in purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses. The addition of entire balance in MODVAT account is not proper because the nature of this account is personal account, an item of assets side of the Balance Sheet which always having a debit balance. Question of allowable/disallowable arises only in respect of excise duty expenditure where the assessee follows exclusive method of accounting and effect of the section 145A is to be given. It may be noted that after making the addition to the closing stock under section 145A, it will be possible to claim a separate deduction for excise duty actually paid after the year end but before the due date for filing the return of income on production of evidence as provided under section 43B. Therefore, in the above illustration if the assessee has paid Rs. 60 added in the valuation of closing stock of finished goods before due date of filing the return deduction for the same can be separately claimed in the computation of income under section 43B, if other conditions of that sections are satisfied. 14.5 In case of where there is no actual payment but adjustable against MODVAT account whether the assessee is entitled to claim deduction under section 43B. For this purpose we would like ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he parties, record perused and gone through decisions cited. In this connection, it is worth- while to note that the Memorandum and CBDT Circular explaining the provisions of section 145A inserted by the Finance (No. 2) Act, 1998 states as follows : "Computation of value of inventory The issue relating to whether the value of closing stock of the inputs, work-in-progress and finished goods must necessarily include the element for which MODVAT credit is available has been the matter of considerable litigation. In order to ensure that the value of opening and closing stock (bold for emphasis) reflect the correct value, it is proposed to insert a new section to clarify that while computing the value of the inventory as per the method of accounting regularly employed by the assessee, the same shall include the amount of any tax, duty, cess or fees paid or liability incurred for the same under any law in force. The proposed amendment which is clarificatory in nature shall take effect retrospectively from the 1st day of April, 1986 and will accordingly apply in relation to assessment year 1986-87 and subsequent years. [Clause 45]" 14.8 Circular No. 772, dated 23-12-1998 issued by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear is not per-missible. 14.10 On consideration of section 145A, above Memorandum and CBDT circular explaining the provisions of section 145A and above judgment of the Delhi High Court we noted that when the adjustments are made in the valuation of inventories, this will affect both the opening as well as closing stock. Whatever adjustment is made in the valuation of closing stock, the same will be reflected in the opening stock also irrespective of any consequences on the computation of income for tax purposes. We further noticed that section 145A starts with the non obstante clause "Notwithstanding anything to the contrary contained in section 145". Therefore, to give effect to section 145A, the opening stock as on 1-4-1998 will have to be increased by any tax, duty, cess or fee actually paid or incurred with reference to such stock if the same has not been added for the purpose of valuation in the accounts. 14.11 In the case under consideration the contention of the learned AR is that the assessee has given effect to the section 145A. But above submissions of Ld. AR and deduction under section 43B in accordance with above discussion are subject to verification therefore, we se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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