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TMI Blog2010 (8) TMI 472X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to include the said amount in the value of closing stock as per the provisions of section 145A and there was thus under valuation of closing stock of the assessee company to that extent. He, therefore, required the assessee to explain as to why the unutilized Modvat credit should not be included in the value of closing stock as per the provisions of section 145A. In reply, it was submitted on behalf of the assesse that the closing stock was valued by adopting exclusive method which was consistently being followed. It was submitted that as per the said method, excise duty was not added in the value of purchases and sales as well as that of opening and closing stock. It was contended that if such duty is added to the corresponding purchases, sales as well as stocks, it will not have any impact on the profits. Without prejudice to this contention and as an alternative, it was also submitted on behalf of the assessee company that adjustment on account of excise duty is required to be made even to the value of opening stock on account of unutilized Modvat credit, which was to the tune of Rs. 2,25,82,000/- and only the net amount of Rs. 52,54,000/-, at the most, could be ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition made by the A.O. on this issue was confirmed by the ld. CIT(A). 6. The ld. Counsel for the assessee submitted that the entire amount paid/payable by the purchaser for the raw material, qua him, is purchase cost notwithstanding the fact that it may include the excise duty paid by the manufacturer supplying him such raw material. He contended that as far as the assessee company being the purchaser is concerned, no excise duty thus is actually paid or incurred by it and no addition on account of unutilized excise duty, therefore, can be made by invoking the provisions of section 145A. In support of this contention, he relied on the decision of Special Bench of ITAT in the case of DCIT v. Glaxo Smithkline Health care Ltd. 107 ITD 343 (SB) wherein it was held that unutilized modvat credit available to the purchaser of the raw material would not be allowable as deduction u/s. 43B as the same is not tax or duty, but is merely a part of the purchase price of the raw material. 7. Without prejudice to the above contention, the ld. Counsel submitted that if at all the amount in question being excise duty pertaining to closing stock is to be added to the value of closing stock as per t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty qua the assessee company and it is only a part of the cost of purchases as held by the Special Bench of ITAT in the case of Glaxo Smithkline Health care Ltd. (supra), it is observed that the assessee company has followed the exclusive method whereby only the net amount of purchases is debited to the purchase account and the balance amount representing excise duty is debited separately to modvat account. Going by the said method, the assessee company itself thus is not considering the duty paid on raw material as part of the cost of purchases in its books of account and the same is treated separately as duty. The stand being taken now by the assessee that the said duty is part of purchases thus is contrary to the accounting treatment given to the relevant transactions. In any case, if it is part of cost of purchases of the raw material lying in the closing stock, it is even otherwise liable to be added to the value of closing stock being the cost incurred in respect of the said raw material. As rightly submitted by the ld. DR, it is not the excise duty payable by the assessee under any law but it is a case of reimbursement of excise duty paid by the supplier of the said raw mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Bombay High Court, however, is applicable only in the case where the assessee has sold the DEPB credit and not in the case like the one on hand where the assessee has utilized the DEPB credit for paying the customs duty on the imported goods. In this regard, he has invited our attention to para 33 of the judgment of Hon'ble Bombay High Court in the case of Kalpataru Colours & Chemicals (supra) wherein it has been observed by their Lordships that exporters who transfer the DEPB credit and make a profit cannot be placed on par with those exporters who utilize the credit for paying the customs duty on the imported goods. He contended that such assessees thus are required to be treated differently from the assessees who transfer the DEPB credit and make the profit and in the cases of assessees who have utilized the credit for paying the excise duty on the imported goods, the DEPB credit so utlised would still be covered by section 28(iiib) and not u/s 28(iiid). 12. On a careful reading of the judgment of Hon'ble Bombay High Court in the case of Kalpataru Colours & Chemicals (supra), we find it difficult to accept the contention of the ld. Counsel for the assessee. In order to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf of the assessee submits that the entire amount received on the transfer of the DEPB credit is business profit, but it was contended that what is included in section 28(iiid) is the amount received on the transfer of the DEPB credit in excess of the face value of the DEPB and the amount received to the extent of the face value of the DEPB would be covered under section 28(iiib). There is no merit in this contention because (a) the DEPB credit was not in existence when section 28(iiib) was inserted by the Finance Act of 1990. DEPB credit was introduced with effect from 1 April, 1997 which was after the insertion of clause (iiib) in section 28; ( b) section 28(iiib) refers to cash assistance (by whatever name called) received by the assessee from the Government pursuant to a scheme of the Government. The amount received on the transfer of the DEPB credit is not received by the assessee from the Government pursuant to a scheme of the Government within the meaning of clause (iiic) and (c) When section 28(iiid) specifically deals with profits realized on the transfer of the DEPB credit, it would be impermissible as a matter of first principle to bifurcate the face value of the DEPB an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 14. As a matter of the fact, a specific contention raised on behalf of the assessee in this regard to the effect that the amount received to the extent of face value of the DEPB would be covered u/s 28(iiib) was not accepted by the Hon'ble Bombay High Court observing that the DEPB credit which was introduced w.e.f 1st April, 1997 was not even in existence when section 28(iiib) was inserted in the statute by the finance Act, 1990. It was also observed by the Hon'ble Bombay High Court in this context that section 28(iiib) refers to cash assistance received by the assessee from the Government pursuant to the scheme of the Government whereas the amount received on the transfer of the DEPB credit is not the amount received by the assessee from the Government pursuant to any scheme. It was further observed by the Hon'ble Bombay High Court that when section 28(iiid) specifically deals with profits realized on the transfer of the DEPB credit, it would be impermissible as a matter of first principle to bifurcate the face value of the DEPB and the amount received in excess of the face value of the DEPB. 15. In para 25 of the judgment, Hon'ble Bombay High Court considered the nature of DE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we find it difficult to accept the merit in the contention raised by the ld. Counsel for the assessee that in the case of an assessee who has realized the DEPB credit for paying the custom duty on the imported goods, such DEPB credit is still covered by section 28(iiib). As already discussed, it has been held by the Hon'ble Bombay High Court at several places in its judgment in the case of Kalpataru Colours & Chemicals (supra) that the face value of the DEPB credit is covered by clause (iiid) and not by clause (iiib). Respectfully following the said decision of the Hon'ble Bombay High Court in the case of Kalpataru Colours & Chemicals (supra), we uphold the impugned order of the ld. CIT(A) on this issue and dismiss ground No. 2 of assessee's appeal. 17. Ground No. 2(b) raised by the assessee in this appeal reads as under: "On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred on not deciding the following sub-grounds in Ground no. 3 of the grounds of appeal, in the context of claim for deduction under section 80HHC, while disposing of the appeal. He should accordingly be directed to give his decision on the said grounds: (1) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,801/- on the ground that the same was on account of work- in- progress to the extent of Rs. 7,70,190/- and there were no bills produced by the assessee to support and substantiate its claim for the said expenditure to the extent of Rs. 39,76,739/-. Before the ld. CIT(A) also, the assessee could not produce such bills to support and substantiate its claim and the disallowance made by the A.O. on this issue was accordingly confirmed by him. Even before us, the ld. Counsel for the assessee has not been able to produce the said bills and in the absence of the same, we find no justifiable reason to interfere with the impugned order of the ld. CIT(A) sustaining the disallowance made by the A.O. on this issue to the extent of Rs. 39,76,739/- for want of supporting bills. 22. As regards the balance disallowance of Rs. 7,70,190/- made by the A.O. on account of work-in-progress, it is observed from the impugned order of ld. CIT(A) that neither any specific submissions were made on behalf of the assessee nor any specific decision was rendered by the ld. CIT(A) on this issue. At the time of hearing before us, the ld. Counsel for the assessee has relied on the provisions of clause (iv) of su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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