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TMI Blog2014 (7) TMI 342X X X X Extracts X X X X X X X X Extracts X X X X ..... that unutilised CENVAT credit of Rs. 10,22,141/- was charged to Profit and loss account by reversal of credit and since the assessee was following exclusive method of accounting, the amount charged and reversed was not admissible as deduction and therefore he reopened the case by issuing notice u/s 148 of the Act and thereafter assessment was framed u/s 143(3) rws 147 of the Act vide order dated 9.12.2011 and the revised the total income was determined at Rs. 14,90,560/-. Aggrieved by the order of A.O, Assessee carried the matter before CIT(A). CIT(A) vide order dated 24.9.2012 apart from upholding the addition also enhanced the addition made by the AO, appeal of the Assessee by holding as under:- 9. During the course of appellate proceedings, it has been noticed that the comments of the Auditor given in Column No. 12b of Tax Audit report is that column 12b is not applicable. The auditors did not state that there has been a deviation and such deviation has no effect on the profit of the appellant. The section 145 A makes if mandatory for an assessee to include oil taxes paid on inputs in the vaiuafion of closing stock. This was not done by the appellant. The Auditor's comment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute of Chartered Accountants of India which say that the provisions of section 145A are revenue neutral. These guidelines need to be examined, as these guidelines are relied upon by the Tax Auditors and the appellants in most of the cases involving similar additions. 10.2 The appellant has not included excise duty in the valuation of its closing stock. Under section 145A the appellant should include excise duty component of purchase price of raw material while valuing the closing stock of raw material, WIP and finished goods. The appellant claims that the non - inclusion of the same will have no effect on its profits. 10.3 The section 145A reads as under :- " Method of accounting in certain cases. Notwithstanding anything to the contrary contained in section 145 the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the heard ' Profits and gains of business or profession * shall be- (a) In accordance with the method of accounting regularly employed by the assessee; and (b) (b) Further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called} actually paid or incurred by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and also a part of closing stock of finished goods. 10.7 The modvat/ cenvat scheme only allows a rebate on excise duty payable on sale / clearance of goods manufactured by assessee calculated on the basis of excise duty rate applicable on raw material which is actually paid by raw material manufacturer. The mechanism of modvat / cenvat is just an administrative mechanism to ensure that the Government collects excise duty only on the value addition by manufacturing process, it does not change the cost of inputs. 10.8 The guidance notes for tax audit issued by ICAI and relied upon by the tax auditors cannot override the specific provisions of the Act Without prejudice to the same, the illustration given in Guidance Notes, is discussed herein under:- 10.9 In the illustration the following figures have been assumed ................. 10.10 In the above illustration of inclusive method the assessee has claimed Cenvat set off of Rs. 180/- (in respect of raw material purchased of 90 Kgs for discharging its excise liability of Rs. 18G/- without making any PLA payment. However, it has credited the set off only Rs. 1607- , which is the Cenvat component of raw material consumed of 80 Kgs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... %s argument is found to be not in accordance with law and provision of section 145A are not profit neutral. 11. From a perusal of the details submitted by the appellant, certain discrepancies were noticed in the excise accounting of the appellant, as a result of which correct amount of addition u/s 145 A needed to be enhanced to Rs. 40, 95, 280/-. Therefore, notice of enhancement U/s 251 (2) of the I T Act was issued on 08.08. 2012 which is reproduced herein in under :- .............................. 11.1 The appellant was required to file a reply by 7. 9. 2012. On request, the case was adjourned to 12.09.2012. However, there has been no compliance on 12. 9. 2012. Therefore another notice was issued on 17. 9. 2012 fixing up the date of hearing on 24. 9. 2012. However, in the meantime, it was learnt that the appellant filed one written submission in the Centralized "ASK" Center on 13. 9. 2012. The said submission was received in this office on 17.9.2012. On 24. 09. 2012, the appellant requested for adjournment. The same was not granted as notice dated 17.09.2012 was issued due to no compliance on 12. 9. 2012 for the reason that the appellant "s submission filed on 13. 9. 2012 in " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial to which, the credit is related. The credit may be taken against excise duty payable on other products as well. Therefore, reversal of credit in Books of Account ' or return of income, without surrendering this claim before excise authorities amounts to different stands before two different revenue authorities. Such part reversal cannot be allowed as 'deduction'. 12.3 In the case of the appellant, it is the first year of manufacturing and there is no opening stock. The appellant has claimed to reversal of the credit taken during the year itself, while the credit continues in the Excise Records (i.e RG 23 Part A). Since the appellant follows "Exclusive Method 'of accounting, it may still take credit for the same in future. Even otherwise, such reversal is neither allowable u/s 37 (1) nor u/s 36 (1) (vii) of the Income Tax Act. Therefore, the A.O's decision not to allow deduction of Rs. 10,22,141/- is upheld. However, there will be no separate addition for this amount, as this amount stands included in the enhanced addition of Rs. 40, 95, 280/- (supra). 12.4 The appellant's argument that the issue of reversal of Cenvat credit was decided by the ITAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decisions in the case of Calcutta Discount Co Ltd vs ITO (1961) 41 ITR 191 (SC), CIT vs Modipon Ltd (ITA No 533 of 2011 Delhi HC) and CIT Vs Kelvinator of India Ltd (SC). He further submitted that the adjustment made to the closing stock on account of adjustment of excise is tax neutral because the adjustment made to closing stock will have to be given to opening stock. He also submitted that the AO had not rejected the books of accounts. He thus submitted that even on merits, no addition is called for. Ld DR on the other hand submitted that provisions of s. 145A have overriding effect and therefore is mandatory and therefore the Assessee should have included the excise duty while valuing the stock. He further submitted that the plea of the Assessee that the adjustment to stock is tax neutral is not correct in view of the fact that the year under consideration was the first year of manufacturing and there was no opening stock to which the adjustment of excise duty was to be made. He also took through the findings of CIT(A) and thus supported his order. He further placed reliance on the decisions in the case of Sun Pharmaceuticals Ind. Ltd Vs DCIT 353 ITR 474 (Guj). 6. We have h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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