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Income Tax Appellate Tribunal, MUMBAI BENCH “ E ”, MUMBAI
This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘the CIT(A)’] dated 07/07/2022 for the Assessment Year 2007-08.
The appeal by the Revenue is time barred by 45 days. The Revenue has filed an application citing reasons for delay in filing of the present appeal. No serious objection has been raised by the ld. Authorized Representative for the assessee on the aforesaid application of the Revenue. We have examined the contents of the application and are satisfied that the delay of 45 days in filing of the appeal is for bonafide reasons. Hence, the delay is condoned and the appeal is admitted for hearing on merits.
The brief facts of the case as emanating from records are: This is the third round of appeal in assessee’s case for Assessment Year 2007-08. In assessment order u/s. 143(3) of the Income Tax Act, 1961 [ in short ‘theAct’] the Assessing Officer vide order dated 20/10/2010 had disallowed assessee’s claim of MODVAT / CENVAT credit on purchases. The matter travelled to the Tribunal. The Tribunal in vide order dated 12/02/2014 directed the Assessing Officer to make necessary adjustments and give CENVAT credit on account of purchases. The Assessing Officer in assessment proceedings u/s. 143(3) r.w.s. 254 of the Act did not follow the directions of the Tribunal and sustained the addition vide order dated 31/03/2015. In first appeal the CIT(A) directed the Assessing Officer to give credit as per law in pursuance to the directions of Tribunal. Still aggrieved, the assessee carried the issue in appeal before the Tribunal in ITA No.1397/Mum/2017. The Tribunal vide order dated 28/09/2018 allowed assessee’s claim following the order of Co-ordinate Bench for Assessment Year 2008-09 in ITA No.4116/Mum/2013.
The assessee had also filed rectification petition u/s. 154 of the Act before the Assessing Officer seeking rectification in the assessment order dated 31/03/2015. The Assessing Officer rejected the assessee’s contention with regard to Cenvat credit on purchases vide order dated 19/08/2016. Against said order the assessee filed appeal before CIT(A). The CIT(A) following the decision of Tribunal in (supra) allowed assessee’s appeal, hence, the present appeal by the Revenue.
Both sides heard. The solitary issue in appeal by the Department is with regard to deleting the addition of Rs.9,54,99,360/- on account of MODVAT credit and excise duty. In assessee’s case this issue has already been laid to rest by the Co- ordinate Bench of Tribunal in appeal by the assessee in (supra). For the sake of completeness the relevant extract of the said Tribunal order is reproduced herein below:
“ 7. The 2nd ground of appeal
Addition on account of cenvat credit in valuation of Stock i. The CIT(A) failed to appreciate that even if the Appellant followed the inclusive method of accounting as contemplated under section 145A, there would be no effect to the total income as even certified by the Tax Auditor in Form 3CD. In view of the above, the CIT(A) ought to have deleted the addition of Rs.3,55,56,741/-.
8. The above issue pertains to adjustment made u/s 145A of the Act, wherein the AO has added the value of CENVAT credit availed, to the value of closing stock and accordingly increased the profits for the year under consideration. The ITAT has set aside the issue to the file of the AO holding that the issue stands covered by the decision in the case of CIT v. Mahalaxmi Glass Works Pvt. Ltd. 318 ITR 116. The AO has noted that vide the said decision, the Hon’ble High Court has observed that once the value of closing stock is increased by making adjustment u/s 145A, correspondingly the value of opening stock should also be given credit for the same. The AO noted that inspite of being asked to furnish the details/breakup of opening and closing stock, the assessee failed to file the same. Therefore, the AO made an addition of the difference of CENVAT credit of Rs.3,55,56,741/- to the total income shown by the assessee.
9. In appeal, the Ld. CIT(A) directed the AO to give credit as per law in pursuance to the ITAT’s order dated 12.02.2014 in appellant’s own case (ITA No. 1327/Mum/2012) which reads as under: “The Ld. counsel for the assessee submitted that the adjustment has to be made on the purchases also. We agree with the contentions of the Ld. counsel that for the purpose of valuation of purchase and sale of goods and inventories adjustment on account of tax, duty, cess or fee, actually paid or incurred by the assessee has to be made in view of the provisions of section 145A of the Act. Thus, the AO is directed to make necessary adjustment and give CENVAT credit on account of purchases also. Ground No. 2 of the assessee is treated partly allowed.”
10. Before us, the Ld. counsel of the assessee relies on the order of the Tribunal in assessee’s own case for AY 2008-09 and also the decision in CIT v. Diamond Dye Chem Ltd. (2017) 88 taxmann.com 499 (Bom). On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A).
We have heard the rival submissions and perused the relevant materials on record. Similar issue arose before the ITAT ‘E’ Bench, Mumbai in assessee’s own case for AY 2008-09 in ITA No. 4116/Mum/2013. At para 9 of the said order, the Tribunal held as under: “9. We heard the rival submissions and gone through the orders of the tax authorities below. We noted that provisions of Section 145A were effective from 01.04.1999 and applies from A.Y. 1999-200 onwards. The scope and effect of section 145A have been elaborated by the Departmental circular No. 772 dated 23rd December, 1998 as under: - “52.1 Method of accounting in certain cases:- 52.1 The issue relating to whether the Value of the closing stock of the inputs, work-inprogress and finished goods must necessarily include the element for which MODVAT credit is available, has been a matter of considerable litigation over the years. 52.2 Consistent with the other provisions of the Finance (No.2) Act, 1998, with a view to put an end to this point of litigation and in order to ensure that the value of opening and closing stock reflect the correct value, a new section 145A is inserted. The section provides that the valuation of purchase, sale and inventory shall be made in accordance with the method of accounting regularly employed by the assessee and such valuation shall be further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called), actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation.” From the said circular it is apparent that the main object to introduce section 145A is to ensure that value of opening and closing stock reflect the correct value so that there is no unnecessary litigation. The assessee in the instant case is following exclusive method. If the AO had to increase the value of closing stock by taking into consideration the Cenvat credit then he has to take into consideration all purchases also to include the Cenvat credit. Had once that included in the purchases ultimately there is no effect on the profit and understatement of the profit would not arise. Similar view has been taken by the Hon'ble Supreme Court in the case of CIT vs. Indo Nippon Chemicals Co. Ltd. 261 ITR 275. Similar view was also taken by the Hon'ble Calcutta High Court in the case of CIT vs. Berger Paints India Ltd. 264 ITR 503. The Hon'ble Bombay High Court in the case of CIT vs. Mahalaxmi Glass Works (P) Ltd. 318 ITR 116 following the Hon'ble Delhi High Court decision in the case of Mahavir Alluminimum Limited 297 ITR 77 held that to give effect to section 145A if there is a change in the closing stock at the end of the year, there must necessarily be a corresponding adjustment made in the opening stock of that year. This does not amount to giving total benefit to the assessee. It would be necessary to compute the true and correct profit for the purpose of the assessment.” Facts being identical, we follow the above order of the Coordinate Bench and allow the 2nd ground of appeal.” The CIT(A) following the above orders of Tribunal has granted relief to the assessee. We find no infirmity in the impugned order hence, the of CIT(A) is upheld and appeal by the Revenue is dismissed.
Order pronounced in the open court on Friday the 13th day of January, 2023.