9911796707
TMI Blog2015 (12) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... e u/s. 148 was issued on 29.03.2011 and the case was re-opened for the reason that the unutilized CENVAT credit was not and taken into consideration while working out the closing stock and thus the value of closing stock was under stated. Subsequently assessment was framed u/s. 143(3) r.w.s. 147 vide order dated 16.11.2011 by making addition of Rs. 18,84,923/- to closing stock u/s. 145A of the Act. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who vide order dated 13.04.2012 granted substantial relief to the Assessee. Aggrieved by the order of ld. CIT(A), Revenue is now in appeal before us and Assessee has also filed C.O. The grounds raised by the Revenue reads as under:- 1. On the facts and circumstance of the case and in law, the Ld. CIT(A)-I, Surat has erred in restricting the addition of Rs. 18,84,923/-made as per provisions of Section 145A to Rs. 5,03,187/- without appreciating the fact that the amount pertains to raw material which was required to be added to the total income by the assessee, as per the provisions of Section 145A, which it failed to do. 4. On the other hand the grounds raised by the Assessee in the C.O reads as under:- 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee to bring the goods to the place of its location and condition as on the date of valuation. Explanation : For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequences to such payment " Any right here means cenvat credit available to the assessee. 9.3 Explanatory notes to this amendment by Finance Act, 1998 say that the clarificatory retrospective amendment was made to end the controversy on 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. Subsequent to this amendment tax auditors started putting a remark in the audit report that such inclusion does not have any impact on taxable profits. This interpretation that there is no impact of this amendment on taxable profits, puts a question mark on the legislative wisdom of the parliament. If the intention behind this amendment was to have no effect on taxable profits, there was no need for this clarificatory amendment. 9.4 A plain reading of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; Closing stock raw material 20 Kgs Closing stock finished goods 20 Kgs INCLUSIVE METHOD AS PER GUIDANCE NOTES 120 Sales 1500 + 180 1680 O.S 100 + 20 Raw Material 900 + 180 1080 CENVAT CREDIT 160 Production cost 800 C.S finished goods 400 + 60 460 EXCISE liability discharged on goods sold 180 CS Raw material 200 + 40 240 Excise in CS of finished goods (claimed U/s 43B) 60 Profit 300 Total 2540 Total 2540 EXCLUSIVE METHOD AS PER GUIDANCE NOTES TRARDING ACCOUNT O.S 100 Sales Exclusive of excise duty 1500 Raw Material 900 C S finished goods 400 Production cost 800 CS raw material 200 Profit 300 Total 2100 Total 2100 Cenvat account as per guidance notes Cenvat set off claimed for discharging excise liability 180 CENVAT credit allowed on purchase of raw material 180 EXCISE ACCOUNT AS PER GUIDANCE NOTES CENVAT set off claimed 180 Excise duty payable on goods sold 180 Total 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1080 C S finished goods 200 + 200 + 40 440 Production cost 800 CS raw material 240 Excise Payment 180 Profit 180 Total 2360 Total 2360 The cenvat scheme reduces the excise liability on goods sold from Rs. 180 to 60/- thereby increasing profits to Rs. 3007- However, the assessee 's cash profits go to Rs. 3607- due to set off of advance credit of Cenvat. This income of Rs. 607- escapes assessment in the illustration in the guidance notes of ICAI. 9.11 The correct Trading Account as per section 145A will appear as under INCLUSIVE METHOD AS PER GUIDANCE NOTES O.S 120 Sales 1680 Raw Material 1080 CENVAT credit 180 Production Cost 800 C S finished goods 500 Excise liability discharged 180 C S Raw Material 240 Excise in C S of finished goods claimed u/s43B 60 Profit 360 Total 2600 Total 2600 Closing stock of finished goods is arrived as under:- Raw material cost 200 Raw material duty 20 Manufacturing cost 200 Excise duty payable (Distrinct 60 From excise component of raw 500 Mater cost or cenvat) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crease in profits Excise liability on manufactured finished goods paid/payable in Opening Stock NIL Excise liability on manufactured finished goods paid/payable in Closing Stock NIL Therefore, this adjustment is also profit neutral OPENING STOCK DECREASE IN PROFITS CLOSIGN STOCK INCREASE IN PROFITS Excise component of cost in raw material/ Pkg mat, WIP / finished goods NIL (as discussed supra) Excise component of cost in raw material / Pkg mat/ WIP / finished goods 503187 Total Excise component of cost in C.S NIL Total Excise component of cost in C.D 503187 Increase in profits 503187 Therefore, this adjustment is not profit neutral and will also not decrease the profits as claimed by the appellant. Therefore, if correct inclusive method is followed, appellant *s income will increase by Rs. 5,03,187/- The Chart filed by the Appellant does not show this impact and shows reduced gross profit (29.05 Lakhs as per exclusive method and 15. 23 lakhs as per inclusive method ) due to the fact that while the excise on raw material has been added on the debit side, the corresponding Cenvat / Modavat credit allowed has not been added on the Credit side. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sale amount but out of entire amount of excise duty paid on purchases, only that portion of such excise duty paid which was utilized by way of MOD VAT, had been included in the value of purchases and the balance amount of Modvat credit which could not be utilized in the present year was shown in the balance sheet as an amount receivable and this portion of Rs.l1,25,3427- was not included in the value of purchases. Ld. D.R. could not controvert these submissions of the assessee made by the assessee before the authorities below. Once it is accepted that these submissions of the assessee are correct, it means that excise duty paid but not included in the purchases was shown in the balance sheet as excise duty receivable and therefore, there cannot be a reason to make any addition in the income of the assessee because even if we include such excise duty receivable in the value of closing stock, the same is also required to be included in the value of purchases and it will have no impacts on the profits of the assessee. Therefore, we do not find any reason to interfere in the order of Ld. CIT(A). 9.We further find that in the case of Bloom Dekor Ltd. (supra) similar issue was decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection (3) of section 145 of the Act. The assessee was following the mercantile system of accounting but it was not the case of the assessing Officer that the Assessing Officer was not in a position to deduce true profits of the year under consideration. Such duty of Central excise if added to enhance the value of closing stock would result in enhanced opening stock on the first day of the next accounting period, namely, April 1, 1997. So the next year's profits would get depressed accordingly, over a period of time the whole exercise would even out, in other words, be revenue natural. At the same time while disturbing the value of the closing stock the assessing authority could not change the method of accounting regularly employed. [c] The assessment year being 1997-98 the provisions of section 145A of the Act inserted by the Finance (No. 2) Act, 1998 with effect from April 1, 1999 could not be invoked". [4.4] I have perused the assessment order and the written submissions made in this regard. Since the issue is squarely covered by the Jurisdictional 1TAT, I am of the view that no addition should be made on account of excise and customs duty in the valuation of closing st ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
