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TMI Blog2008 (9) TMI 399X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Stock - CIT(A) in directed the AO to make adjustments in the opening stock when addition is made on account of unutilized portion of Cenvat to the closing stock - assessee was following exclusive method for accounting duty and was forced to adopt an increased valuation in its closing stock on account of application of s. 145A - HELD THAT:- Sec. 145A, mandates that the changes on account of adjustments mentioned therein have to be given effect on purchase, sale of goods and inventory. Therefore, in our opinion, the decision of the Hon'ble Delhi High Court in the case of Mahavir Aluminium Ltd. [ 2007 (11) TMI 41 - HIGH COURT OF DELHI] would be squarely applicable on the facts. The Hon'ble Delhi High Court was dealing with application of s. 145A and clearly held that when on account of application of that section a change is per se forced upon the assessee in the valuation of its closing stock, a corresponding adjustment in opening stock has to be carried out for consistency - Therefore, following the decision of the Hon'ble Delhi High Court, we are of the opinion that the learned CIT(A) was justified in directing the AO to make corresponding adjustments in the openin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd income should not be disallowed. In reply, the assessee stated that the entire receipt of exempt income was dividend received from UTI amounting to Rs. 3.30 lakhs. These investments in UTI were made years back and were made out of assessee's own funds and not out of the borrowed funds. Hence, it was submitted that no portion of interest expenditure incurred during the year could be attributed to the investment made in UTI in the earlier years. Similarly, there was no expenditure incurred during the year to earn the said dividend, it was submitted. The AO held that the assessee has not given any bifurcation of expenses incurred for earning dividend income and by virtue of provisions of s. 14A, expenditure incurred by the assessee for earning income which is exempt, proportionately to be disallowed. Coming to the quantum of interest attributable for earning dividend, AO held that, as rightly mentioned by the assessee, it was difficult to say that the monies invested in the shares and securities have come from totally assessee's own funds or from borrowed funds. He held that the assessee has used reserves and surplus funds for making the investments. Since both the borrowed funds a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r accounting excise duty. Assessee also gave a workout whereby it asserted that if all the items mentioned in s. 145A of the Act, viz., opening stock, purchase cost, closing stock were considered, the net impact of such adjustments would be nil. The AO, after considering assessee's explanation was of the opinion that even if exclusive method was followed for making the adjustments required under s. 145A of the Act, assessee was bound to follow the decision of Hon'ble Bombay High Court in the case of Melmould Corporation. According to the AO, a change in method of accounting, if it results change in value of closing stock, no corresponding adjustment would be required in opening stock since such a change would have the effect of disturbing the accounts leading to a chain reaction. In this view of the matter, the learned AO added back Rs. 14,18,294 to the closing stock of the assessee. 8. In its appeal before learned CIT(A), assessee submitted that if similar adjustment as made in the closing stock was not made in the opening inventory, it would result in artificial inflation of profits. According to the assessee, s. 145A of the Act laid down the principles of valuation of inventor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d opening inventory as well. It is to be noted that the section mentions 'inventory' and limiting it only to 'closing inventory' disregarding the 'opening inventory' will be not in accordance with the plain meaning of the term 'inventory' used in the section. Inventory will necessarily include within its fold both opening as well as closing. In the case of Melmould Corporation, the jurisdictional High Court was not dealing with the issue regarding application of s. 145A of the Act. Issue there was change in method of valuation and how the effect thereof has to be given. Hon'ble Court was not dealing with an issue where it was called to interpret the application of s. 145A of the Act. In Melmould Corporation's case, assessee had made a change in the method of valuation, which was not thrusted upon the assessee but voluntarily elected by it. Such a change suo motu done would definitely be different from the one, which is statutorily inflicted where an assessee per se is forced to make an adjustment to value of its inventory. Here, in the case before us, assessee was following exclusive method for accounting duty and was forced to adopt an increased valuation in its closing stock on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amount (Rs.) Net profit as per P L a/c 8,03,30,177 Add: Amounts referred to in cls. (a) to (f) of Explanation to sub-s. (2) of s. 115JB viz., provision for gratuity (pertaining to amalgamating company) made on estimated basis 28,478 8,03,58,455 Less: Amounts referred to in cls. (i) to (vii) of Explanation to sub-s. (2) of s. 115JB Nil Book profits for the purpose of s. 115JB 8,03,58,455 Tax @ 8.475% (i.e., 7.5% plus surcharge on income-tax @ 13%) on book profits. 68,10,39 However since it received the order from the High Court on 20th Sept., 2001, it sought to revise the work out of MAT liability. According to the company, this became necessary since the amalgamating company had losses in its P L a/c coming to Rs. 17,21,42,732 which had to be set off against the balance in the P L a/c of the assessee company as on 1st April, 2001. According to the assessee company, brought forward losses of the amalgamating company had to be nett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction mentioned at Expln. (iii) to sub-s. (2) of s. 115JB of the Act. However, the learned AO was not impressed since according to him there was no express provision in the statute to debit any brought forward loss of amalgamating company from the book profit of the amalgamated company and proceeded to complete the assessment based on the original computation submitted by the assessee. 17. Before the learned CIT(A), assessee submitted that on account of retrospective operation of Bombay High Court decision approving the scheme of amalgamation, book losses of the amalgamating company also became the loss of the assessee as on 1st Jan., 2001 and, therefore, such losses had to be considered while computing book profit under s. 115JB of the Act. It was argued by the assessee that AO having given effect to s. 72A for the purpose of computing assessee's total income under the provisions of the IT Act, erred in ignoring such amalgamation for the purpose of computing book profit under s. 115JB of the Act. Submission of the assessee was that it had followed an Accounting Standard mandated by the ICAI and the provisions of the Companies Act while preparing its final accounts and such f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-s. (2) of s. 115JB of the Act. Decision of the apex Court in Apollo Tyres Ltd.'s case, it was mentioned by the learned Authorised Representative, was in relation to s. 115J, and sub-s. (1A) of s. 115J and sub-s. (2) of s. 115JB according to him differed materially. It was argued by the learned Authorised Representative that provisos which are present in sub-s. (2) of s. 115JB of the Act were not there in sub-s. (1A) of s. 115J. According to him, first proviso to sub-s. (2) of s. 115JB clearly implied that an assessee could prepare separate annual accounts, other than the one it had filed before the RoC but the only condition was that it had to prepare the same in accordance with Accounting Standards and depreciation rates as adopted for preparing such accounts which were laid by it in its annual general meeting in accordance with s. 210 of the Companies Act, 1956. He also relied on the case of Swan Mills Ltd. vs. Addl. CIT (2006) 6 SOT 420 (Mumbai), which according to him justified the preparation of separate P L a/c for the purpose of computing MAT liability. 19. As against the above, the learned Departmental Representative strongly supported the orders of the authorities bel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purposes of this section, prepare its P L a/c for the relevant previous year in accordance with the provisions of Parts II and III in of Sch. VI to the Companies Act, 1956 (1 of 1956): Provided that while preparing the annual accounts including P L a/c- (i) the accounting policies; (ii) the Accounting Standards adopted for preparing such accounts including P L a/c; (iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including P L a/c and laid before the company at the annual general meeting in accordance with the provisions of s. 210 of the Companies Act, 1956 (1 of 1956): Provided further .............." A bare reading of this sub-section brings out the position that an assessee is bound to prepare its account in accordance with provisions of Parts II and III of Sch. VI to the Companies Act. Proviso also says that while preparing such annual accounts including P L a/c, it has to adopt the same accounting policies, Accounting Standards, method and rates for depreciation which it had adopted for the purpose of preparing such accounts which it had laid before its ann ..... X X X X Extracts X X X X X X X X Extracts X X X X
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