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TMI Blog2013 (11) TMI 939X X X X Extracts X X X X X X X X Extracts X X X X ..... out the valuation on both - net and gross - basis. The assessee, however, and inexplicably, does not do so. The fallacy in the A.O.'s working, as it would appear to us, is that while he includes the incidence of duty on the opening and closing stock of goods, he does not do so qua purchases and sales. It is only where the cost is incurred that the same would stand to form part of the operating statement, and qualify for being recognised as a part of cost of goods unsold as at the year-end, i.e., the closing stock by definition. It is this adding of the tax/duty cost to the value of the closing stock without making a corresponding allowance for the same in the trading account that would lead to a distorted picture and a profit figure inconsistent with the actual profit earned/accrued. Section 145A does not purport to yield a notional, but only actual profit, by prescribing inclusion of all cost elements, including tax and duty, where and to the extent attracted/ incurred, in the valuation process. This is, thus, akin to an accounting policy, statutorily prescribed, for uniform application by all assessees. - matter remanded back for re-computation. Deduction u/s 43B - Held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licable decisions by the hon'ble High Courts and the CBDT circular/s. He, accordingly, worked out the cenvat relatable to the opening and closing stock for both the years, and effected additions in the sum of Rs.67.64 lakhs and Rs.58.68 lakhs for the two consecutive years respectively. 2.2 In appeal, it was, among others, contended by the assessee that a part of the closing stock for the relevant years, i.e., 31.03.2005, 31.03.2006 and 31.03.2007, was lying in the bonded warehouse/s pending clearing and, therefore, no liability on account of duty stood incurred on the same for it to be added to the value of that part of the closing stock. Secondly, it is not only the closing inventory, but also the purchases and sales that are to be so valued, i.e., by including the duty component incidental thereon. The matter requiring verification, a remand report was called for by the ld. CIT(A) from the A.O. Vide his remand report dated 21.07.2010 (PB pgs. 42 - 43), it was reported by the A.O. that the assessee had not been able to substantiate its claim of the stock being kept in the bonded warehouse/s. The remand report had been called for as far back as in November, 2009, and the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cies', forming part of the balance-sheet as on 31.03.2007 (which is the only balance-sheet on record), at Schedule-22 thereto, under the title heads "valuation of inventories" and "revenue recognition", reads as under (PB-II/pgs. 15, 16):- Inventories Inventories are valued as under Raw Materials* - at the lower cost or net realizable value Consumable Stores* - at cost Work in progress** - at cost Finished goods*** - at lower of cost net realizable value Cost are arrived at by using FIFO method and it includes the following: * Cost of raw materials and consumables includes purchase price plus transportation costs, insurance, handling costs and customs duty (net of Cenvat and VAT credits, whenever applicable). ** Costs of work in progress includes landed cost of raw materials and proportionate labour and overheads on absorption costing basis. *** Cost of finished goods includes landed cost of raw materials plus excise duty payable and proportionate labour and overheads on absorption costing basis. Revenue Recognition Sales are recognized when goods are supplied and are recorded net of rebates and sales tax/ VAT and inclusive o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding ground of appeal before the first appellate authority, i.e., qua the goods lying in bonded warehouse/s. Quite on the contrary, the assessee maintains the same stand before the AO even a year later, exactly by the date, i.e., in relation to the second year under reference; it corresponding with the A.O. vide letter dated 18.12.2009 (in assessment proceedings for A.Y. 2007-08) likewise, i.e., as earlier for A.Y. 2006-07, making no reference to the goods lying in bonded warehouse. The argument, which is essentially a matter of fact, is adopted for the first time only before the ld. CIT(A) and, as it appears, vide letter dated 23/11/2009. He, accordingly, taking a considerate view of the matter; the assessee not citing any reason for not stating this fact earlier before the AO, and for two years in succession, nor does its balance sheet/s containing any reference thereto, much less adducing any evidence in relation thereto, remits the matter to the A.O., calling for a remand report vide letter dated 30/11/2009. However, the assessee, despite several opportunities being afforded to it, was unable to produce evidence in support of its claim. Para 3 and 4 of the A.O.'s remand report ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these clear findings by the A.O. that the ld. CIT(A) considered the assessee's claim of the goods, or a part thereof, as lying in the bonded warehouse, as not acceptable, noting the fact of several opportunities by the A.O. in the remand proceedings, and also the fact that the matter had been outstanding with him (A.O.) since November, 2009. The assessee has neither before the ld. CIT(A) nor before us disputed the factual findings by the A.O.; rather, concedes to the fact that the relevant evidences could not be furnished by 21.07.2010. Further, as we see it, and even as observed by the Bench during hearing, the same would only form part of the assessee's records, so that it ought to be readily adduced in the first instance itself - we rather having expressed surprise at the assessee having not raised this issue much earlier; in fact, as a first objection to the Revenue's stand. Each bonded warehouse is separate, and the assessee would have separate records in respect thereof, and that by itself should satisfy the initial onus on the assessee. Why, the movement of goods to and from bonded warehouse, as well as the payment of hire charges for the same, would only be readily borne o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2011] 339 ITR 288 (Bom)), so that this aspect could be shown with reference to the relevant records. 4.3 This leads us to the next question, i.e., the issue on merits. With regard to the merits of the case, we find the Revenue stand to be equally incomprehensible. This is as, as afore-stated, if no liability to excise duty/cenvat is attracted, as where the goods as at the year-end (or a part thereof) are lying in a bonded warehouse, there is no question of the said cost being loaded to the cost of the goods purchased in terms of s.145A. On the other hand, if it is, the same to the extent sold, would yield profit or loss, as the case may be, with the sale being again valued at gross of all such rates and taxes. To the extent the goods are not sold, the same would stand valued on the same basis as the purchases, so that the same by itself does not yield either any profit or loss, except where the goods are finished goods, and their net realizable value is lower than cost, in which case, following the principle of conservatism, the said lower value would stand to be adopted. That is, while there is no scope of the adoption of the said valuation leading to any profit, it may under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d which would address its grievance. In fact, we find that the assessee has made such a working (PB pg. 4), exhibiting profit neutrality, which is what ought to have been led to the A.O. in the assessment proceedings, or at least in the appeal-effect giving proceedings by the assessee. The Revenue having in our view not adopted the prescription of section 145A in full, but only to the valuation of the inventories, the matter would necessarily require being restored back to the file of the A.O. for the purpose. As afore-stated, the question of the goods being in bonded warehouse or not would get subsumed by the fact of excise/custom duty, which is attracted on removal/clearance, as actually 'incurred' being loaded to the cost of the goods purchased, so that the same proves itself with reference to the underlying records qua incidence of duty and its payment. 4.4 We may next consider the issue of applicability of section 43B to the duty component of the cost. The said issue is, to our mind, largely misplaced. The same would have application or relevance only where the duty or tax recovered or recoverable from the customer, stands billed thereto, forming a part of the sales and, thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in the valuation of the purchases, irrespective of the method of accounting being followed. As such, even as in principle the inclusion of duty or tax cost, where incurred or suffered, should not result in any variation in the profit as disclosed, the matter would require being restored back to the file of the A.O. for necessary verification of the same, as well as determining the valuation of the closing stock as at the end of the relevant years in terms of section 145A, which would then be carried forward to the subsequent years. We decide accordingly. 4.5 Finally, before parting with the order, we may also clarify that the decision by the tribunal in the case of Amforge Industries Ltd. (supra), on the basis of which the assessee's claim stands not accepted by the ld. CIT(A) is not germane or relevant in the facts and circumstances of the case. The same pertains to the advance payment of sums specified u/s.43B, with the tribunal clarifying with reference to the language of provision as well as Explanation 2 thereto, that the same is applicable only where the sum specified therein is otherwise allowable, so that an advance payment would not be subject to the restriction of se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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