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TMI Blog2018 (5) TMI 1599X X X X Extracts X X X X X X X X Extracts X X X X ..... ave to add or alter any further grounds of appeal before or during the course of hearing." 3. The first issue raised by the Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by the AO for Rs. 30,29,969/- u/s 145A of the Act. 4. Briefly stated facts are that the assessee is a partnership firm and engaged in the Manufacturing business of Energy Saving Devices, Spare Parts etc. The assessee in its balance sheet has shown closing stock as on 31-03-2012 for Rs. 3,15,46,606/- without including the amount of VAT/Excise expenditure incurred on the purchases. The necessary details of the closing stock as on 31-03- 2012 without including amount of VAT/Excise vis-à-vis after including the amount of VAT/Excise stands as under : Product Amount Rs. (Without VAT/Excise) Amount Rs. With VAT/Excise Difference Burner 3283709 3375101 91392 Consumable Items 3089966 3318419 228453 Electric Goods 756651 812331 55680 Semi Finished Goods 4490772 4785044 294272 Raw Materials 5943208 6359097 415889 Burner Spares 1398847 1454939 56092 WIP 12583453 14471644 1888191 Total 31546606 34576575 3029969 TOTAL 3029969 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting, which is represented as under: Increase in Profit (in Rs.) Decrease in Profit (In Rs.) Increase in opening stock as a result of inclusion of VAT on which VAT credit is available/availed 96,467/- Increase in cost of raw material on inclusion of VAT on which VAT credit was available/availed 91,35,663/- Increase in sales of finished goods on inclusion of VAT/CST 90,94,139/- Increase in closing stock on inclusion of VAT 1,37,991/- 92,32,130/- 92,32,130/- 8. The Ld. CIT(A) after considering the submission of the assessee deleted the addition made by the AO by observing as under: "5.2 I have considered the assessment order and the submissions made by the appellant. The Hon'ble Supreme Court in the case of CIT Indo Nippon Chemicals Co. Ltd. (2003) 130 Taxman 179 has held as under: ".......there are two possible methods of valuation of stock. The first would be the "gross method", in which the stock is valued at cost price inclusive of the excise duty element. If this method is adopted, then the unconsumed stock also must necessarily be valued in the same manner. The other method is the "net method", in which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e duty/tax credits and correspondingly unconsumed stock of materials would also be valued at billed cost. In any case, parity has to be maintained and while making the addition on account of unutilised MODVAT/CENVAT credit, it disturbs the party of accounting. We also find that the assessee has also given a statement showing inclusive method and exclusive method under section 145A of the Act vide annexure to form 3CD by which it has proved that even if inclusive method of accounting has been followed by the assessee, there would not have been any impact on the profit of the assessee for the assessment year under consideration. 8. Considering the fact in totality, we do not find any reason to interfere with the findings of the CIT(A)." 9. In the result, appeal filed by the Revenue is dismissed." The Ld. AR vehemently supported the order of Ld. CIT(A). 9. We have heard the rival contentions and perused the materials available on record. The issue in the present case relates to the disallowance made by the AO on account of non-inclusion of Excise/VAT in the closing stock of the inventory. As per the AO, the assessee was under the obligation to include the value of Excise/VAT wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he total income of the assessee. 11. Aggrieved assessee preferred an appeal to Ld. CIT(A). Assessee before the Ld. CIT(A) submitted that it has supplied various energy saving devices and spare parts to GSML, which inter alia included following payments terms : 10.0 Terms of payment: The terms of payment shall be as under: 1. 10% advance against ABG 2. 70% Against delivery 3. 10% Against performance bank guarantee 4. 10% Against performance norms. Bank guarantees issued by any nationalized bank shall only be acceptable. In view of above, GSML has retained a sum of Rs. 30,76,230/- from the payment to be made to the assessee. However, the assessee booked the sales at 100% value without reducing the amount retained by GSML. But the assessee created a provision in its profit and loss accounts against the amount retained by GSML. Therefore, the assessee has created a provision in the round figure of Rs. 30,00,000/- during the year, whereas, GSML has retained a sum of Rs. 30,76,230/-. 12. The assessee also submitted that the amount retained by GSML shall be released to it upon the satisfactory completion of the job assigned by GSML. As such the amount retained by GSML ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income in the year in which it has been received. Ground of appeal Nos. 3.1 to 3.3 are allowed, subject to verification by the Assessing Officer." Being aggrieved by the order of ld. CIT(A) Revenue is in appeal before us. The Ld. DR before us submitted that the assessee has booked all the expense in respect of the goods supplied to M/s. GSML but the entire income on account of such supplies has not been offered to tax. In fact the amount withheld by GSML does not represent the retention of the money of the assessee rather it represents the profit on the goods supplied to GSML. Therefore, as per matching principle between the income and expense the assessee is required to offer the entire amount of sales without creating any provision for warranty against it. The Ld. DR vehemently supported the order of the AO. On the other hand, the Ld. AR submitted that the assessee has been following the method for recording the provisions for guarantee consistently. 13. The amount of money retained by GSML has not been accrued to it as it will become due upon the satisfactory completion of work. 14. The Ld. AR also submitted that the amount was retained by GSML @10% on the total supplies of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, if there is no immediate right to receive the retention money, the said amount cannot be said to have accrued to the assessee.
18. In view of above, we hold that the provisions created on scientific basis can be claimed as deduction against the profit determined under the head business and profession.
It is undisputed fact that the total value of the goods as per the purchase order is of Rs. 1,60,89,262/- only. Thus, the assessee at the most was eligible to create the provision of Rs. 16,08,926/- being 10% of purchase order. However, the assessee in the case of hand as created provision of Rs. 30,00,000/-, which is in excess of the amount of retention money as quantified on the basis of purchase order. Therefore, we are inclined to restore this issue to the file of the AO for fresh adjudication with the direction to calculate the amount of retention money in the light of aforesaid facts and circumstances and in accordance with the provision of law. Thus, the ground of appeal raised by the Revenue is allowed for statistical purposes.
19. In the result, appeal of the Revenue is partly allowed for statistical purposes.
This Order pronounced in Open Court on 24052018 X X X X Extracts X X X X X X X X Extracts X X X X
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