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Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: SHRI AMARJIT SINGH&
PER Ms. MADHUMITA ROY - JM:
The instant appeal filed by the revenue is against the order dated 06.03.2017 passed by the Commissioner of Income Tax (Appeals)-7, Ahmedabad arising out of the assessment order dated 27.10.2016 passed by the ACIT, Circle-7(2), Ahmedabad under section (u/s) 143(3) of the Income Tax Act, 1961 (hereinafter referred as to “The Act”) for the Assessment Year 2014-15 whereby and whereunder the addition made by the Learned Assessing Officer to the tune of Rs. 2,81,64,098/- u/s 145A of the Act has been deleted.
The assessee engaged in the business of manufacturing of paper converting machine and reselling of parts under the name and style of M/s. Line-O-Matic Graphic Industries filed its return of income on 31.10.2014 declaring total income of
- 2 - ITA No.1171/Ahd/2017 DCIT vs. Udaykumar C. Patel Asst.Year – 2014-15 Rs.16,35,31,520/- for A.Y. 2014-15 which was processed u/s 143(1) of the Act. Under scrutiny through CASS notice u/s 143(2) of the Act dated 01.09.2015 was issued. Upon verification of the books of accounts and details submitted by the assessee during the course of assessment proceeding, it was observed that according to Item No. 12(a) of the 3CD report, the assessee is valuing closing stock at cost or market price whichever is less. The auditor in his report u/s 44AB of the Act had certified that there was no deviation from the method of valuation as prescribed u/s 145A of the Act but it was submitted that the element of Excise and VAT were not included in the value of closing stock of raw materials and packing material and other goods as well since the assessee is following exclusive method of accounting. According to the Leaned AO the assessee requires to adjust the closing stock after giving effect of element of Excise and VAT levied/leviable which has not been followed in terms of Section 145A of the Act while calculating the valuation of closing stock. Hence, the assessee was issued a show-cause with a request to explain as to why the element of indirect taxes includible in the value of closing stock, shall not be included in value of stock in terms of Section 145A of the Act.
By and under letter dated 23.09.2016, the assessee filed its reply; the sum of substance whereof is that since the assessee is following exclusive method of accounting meaning thereby the Excise, Service Tax and VAT is not debited to the Profit and Loss account. If there is debit then only there should be corresponding credit. Therefore, the question of including the same in the closing stock does not arise. However, the explanation extended by the assessee was not found tenable and the assessment order was finalized with an addition of Rs. 2,81,64,098/- u/s 145A of the Act to the total income of the assessee on account of valuation of Closing Stock.
In appeal, the Learned CIT(A) reversed the order by deleting such addition made by the Learned AO. Being aggrieved by the such order of deletion of addition made by the Learned CIT(A) revenue has come up in appeal before us.
- 3 - ITA No.1171/Ahd/2017 DCIT vs. Udaykumar C. Patel Asst.Year – 2014-15
At the time of hearing of the appeal, the Learned representative of the assessee submitted before us that in the earlier two years i.e. A.Y. 2012-13 and 2013-14 as well, the Learned CIT(A) passed orders on identical issues following the judgment passed by the Hon’ble ITAT in assessee’s own case for A.Y. 2007-08, 2008-09, 2009-10 & 2010- 11. In that view of the matter he prays for confirmation of the order passed by the Learned CIT(A) by quashing the appeal preferred by the revenue. The assessee also relied upon the judgment passed by the Jurisdictional High Court in the case of ACIT-vs- Narmada Chematur Petrochemicals Ltd. reported in (2010) 327 ITR 369 (Guj.) in support of his contentions. On the other hand, Learned DR relied upon the order passed by the Learned AO.
We have heard the respective parties, perused the relevant materials available on record. We have also carefully considered the order passed by the Co-ordinate Bench in assessee’s own case in ITA No.3109/Ahd/2013 for A.Y. 2010-11; the relevant portion whereof is as follows: “4. Assessee has filed the appeal before CIT(A) against the order of A.O. Ld. CIT(A) deleted the addition made by A.O. stating that identical issue arose in A.Y. 2007-08 & 2008-09, ITAT vide consolidated order dated 28.09.2012 in ITA No.3304/Ahd/2010 and ITA No.2585/Ahd/2011 passed the order in favor of assessee. The portion of the judgment decided by CIT(A) is reproduced as under:
“6.2 Identical issue arose in the A.Yrs. 2007-08 & 2008-09 in appellant’s own case. Tribunal passed consolidated order dtd. 28/09/2012 in ITA No.3304/Ahd/2010 and ITA No.2585/Ahd/2011, wherein it was held:
“5. On this issue, we have heard both the sides. As far as the legal aspect is concerned, the Hon'ble Jurisdictional High Court in the case of Narmada Chematur Petrochemicals 327 ITR 369 (Guj.) has held that unless and until the amount of the Duty is not entered on one side as an item of cost, it cannot be taken as a component of the value of the closing stock on the either side. The true purpose of crediting the value of unsold stock is to balance to cost of those goods entered into other side of account. There is an another decision of an Hon'ble Gujarat High Court pronounced in the
- 4 - ITA No.1171/Ahd/2017 DCIT vs. Udaykumar C. Patel Asst.Year – 2014-15 case of CIT vs. Unique Industries 307 ITR 350 (Guj.), wherein it was held that the Excise duty, Sales Tax and other duties form part of the closing stock when the same are incurred. In that case, it was noted that the assessee had not debited any excise duty or sales-tax to the purchase account or P&L account. The Court has held that the question of including the excise duty in the value of stock arises only if the purchases debited to P&L account are inclusive of excise duty. Rather, the Court has clarified that the expenditure incurred on excise duty but if purchases debited are exclusive of excise duty, then the question of including the same in the closing stock account does not arise since the assessee has not incurred any expenditure by debiting to P&L account. Ld.AR has cited the case of CIT vs. Indo Nippon Chemicals Ltd. 261 ITR 275 (SC). However, we have noted that the issue before the Hon'ble Supreme Court was slightly different than the issue in hand because in that case the AO had adopted different methods of valuation of excise duty paid when raw-material was purchased and at the time valuing the unconsumed raw-material in the hands of the assessee at the end of the year. The Hon'ble Court has thus held that the AO was not justified in adopting the "gross method" at the time of purchases and the "net method" of valuation at the time of valuation of stock on hand. However, the basic question which is yet to be ascertained is that whether the assessee has adopted "exclusive method" or the "inclusive method". While arguing before us, Id.AR has in subtle manner expressed that only for the purpose of verification of this fact the matter can go back to the AO but only after ascertaining the correct position of law. As far as the legal aspect of this issue is concerned, we have already discussed few case laws hereinabove and, therefore, it is expected from the AO to follow the same only after ascertaining the method of accounting adopted by the assessee in respect of the Duties in question. With these directions, we hereby restore this ground for a fresh adjudication as directed, hence to be treated as allowed but for statistical purposes. 6.3 AO is directed to follow the directions of the Tribunal for the year under consideration and modify the order accordingly. This ground of appeal is treated as allowed for statistical purposes.”
During proceedings before us, ld. D.R. relied on the order of A.O. On the other hand, ld. A.R. supported the order of CIT(A) and also produced the copy of ITAT, Ahmedabad Co-ordinate Bench decision on the identical issue in favour of assessee vide ITA No.535/Ahd/2013 for A.Y.2009-10. In this order, the Hon’ble ITAT has stated that the Hon’ble Jurisdictional High Court in case of Narmada Chematur Petrochemicals Ltd. (2010) 377 ITR 369 has held that unless and until the amount of the duty is not entered on one side as an item of cost, it cannot be taken as a component of the value of the closing stock on the other side.
- 5 - ITA No.1171/Ahd/2017 DCIT vs. Udaykumar C. Patel Asst.Year – 2014-15 6. After hearing both sides and perused the material on record, we find that Hon’ble ITAT, Ahmedabad Co-ordinate Bench for A.Y.2009-10 and also in respect of earlier year i.e. A.Y.2007-08 have decided the identical issue in favour of the assessee by keeping reliance on the decision of Hon’ble Jurisdictional High Court rendered in the case of ACIT vs. Narmada Chematur Petrochemicals Ltd. (2010) 327 ITR 369 (Guj.) In view of above facts and legal findings, we consider that ld. CIT(A) has correctly deleted the addition in favour of assessee. Revenue’s appeal on this issue is rejected.”
It also appears from the order passed by the Learned CIT(A) that while deleting addition the Learned CIT(A) further directed the Learned AO to follow the direction passed by the Learned Tribunal for the year under consideration and to modify the disallowance made accordingly by carrying out the exercise of verification of revenue neutral statement.
We find no infirmity in the order passed by the Learned First Appellate Authority relying upon the order passed by the Co-ordinate Bench in assessee’s own case as cited hereinbefore following the judgment passed by the Jurisdictional High Court in the case of Narmada Chematur Petrochemicals Ltd. [2010] 327 ITR 369. Revenue’s appeal is thus devoid of any merit and hence dismissed.
In the result, revenue’s appeal is dismissed. This Order pronounced in Open Court on 04/03/2019
Sd/- Sd/- ( AMARJIT SINGH ) ( Ms. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 04/03/2019 Priti Yadav, Sr.PS
- 6 - ITA No.1171/Ahd/2017 DCIT vs. Udaykumar C. Patel Asst.Year – 2014-15
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-7, Ahmedabad. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad
Date of dictation 01/03/2019 (Dictation Pages 6) 2. Date on which the typed draft is placed before the Dictating Member 04/03/2019 3. Other Member…………. 4. Date on which the approved draft comes to the Sr.P.S./P.S 04/03/2019 5. Date on which the fair order is placed before the Dictating Member for pronouncement… 6. Date on which the fair order comes back to the Sr.P.S./P.S……. 7. Date on which the file goes to the Bench Clerk………………… 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………