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Income Tax Appellate Tribunal, “ D ” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED & MS. MADHUMITA ROY
आदेश / O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)–7, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)-7/128/15-16 dated 21/06/2016 arising in the assessment order passed under s.143(3) r.w.s.147 of the Income Tax Act, 1961(hereinafter referred to as "the Act") dated 11/09/2015 relevant to Assessment Year (AY) 2008-09.
The Revenue has raised following ground of appeal:-
ITA No.2197/Ahd/2016 ACIT vs. M/s.Lubi Electronics Asst.Year - 2008-09 - 2 - 1. That under the facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition made by the AO of Rs.90,61,172/- u/s.145A.
The only issue raised by the Revenue is that the Ld. CIT(A) erred in deleting the addition made by the Assessing Officer for Rs. 90,61,172/-u/s 145A of the Act.
The facts of the case are that the assessee is a partnership firm and engaged in the business of manufacturing and trading of electronic goods and spares. The assessee during the assessment proceedings claimed that it has been following the exclusive method of accounting. Therefore, the opening stock, purchases, sales and closing stock of the goods were recorded in the books of accounts without including the amount of CENVAT/VAT.
4.1. However, the Assessing Officer observed that it is mandatory to value the closing stock as per the provisions of section 145A of the Act i.e. after including the element of the taxes. Accordingly, the Assessing Officer found that there was a closing balance of CENVAT as on 31/03/2008 for Rs. 2,09,33,355/- whereas the opening balance was of Rs.1,18,72,183/- only. Thus, the difference of Rs.90,61,172/- (Rs.2,09,33,355 – Rs.1,18,72,183) is representing the element of CENVAT not included in the closing stock of the goods as on 3103/2008. Hence, the Assessing Officer was of the view that the assessee has undervalued its closing stock by the amount of
ITA No.2197/Ahd/2016 ACIT vs. M/s.Lubi Electronics Asst.Year - 2008-09 - 3 - Rs. 90,61,172/- and accordingly the same was added to the total income of the assessee.
The aggrieved assessee, preferred an appeal to the Ld. CIT(A) who has deleted the addition made by the Assessing Officer 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 clued in the same manner. The other method is the “net method”, in which the raw material purchased is valued at the actual cost, that is the actual purchase price and, on this, Modvat credit would be available. If this method is to be adopted, then uniformly the same method must be adopted while valuing the unconsumed stock at the end of the year. Whichever method one adopts, the result would be same...”
5.2.1 It is seen that the AO has only partially followed the provisions of Section 145A of the I.T. Act. I am inclined to agree with the contention of the appellant that it is not appropriate to include the amount of tax etc includible in the value of closing stock only without modifying the figures of purchases, sales and opening stock. Moreover, the appellant has been following this method of accounting for the past many years. The method of accounting regularly followed by the taxpayer which was accepted by the AO in the past cannot be rejected in future years without expressing a dissatisfaction about the correctness or completeness of the accounts of the taxpayer, which has not been done in this case. In view of the facts of the case and the decision of the Hon’ble Supreme Court, the said addition of Rs. 90,61,712/- u/s. 145A made by the Assessing Officer is deleted. Ground of appeal No.2 is allowed.
ITA No.2197/Ahd/2016 ACIT vs. M/s.Lubi Electronics Asst.Year - 2008-09 - 4 -
Ground of appeal No. 3 is residual in nature and is therefore treated as dismissed for statistical purposes. 7. In the result, the appeal is partly allowed.”
Being aggrieved by the order of Ld. CIT(A), the Revenue is in appeal before us.
Both the parties before us relied on the orders of the authorities below as favorable to them. The Ld.AR filed a paper-book containing page Nos.1 to 51.
We have heard the rival contentions and perused the materials available on record. The allegation of the Assessing Officer in the instant case is that the assessee while valuing the closing stock of its goods as on 31/03/2008 has not included the amount of CENVAT which is contrary to the provisions of section 145A of the Act. Therefore, the closing stock of the assessee was enhanced by the amount of CENVAT of Rs.90,61,172/- as attributable to the closing stock of the assessee.
However, the Ld. CIT(A) deleted the addition made by the Assessing Officer by observing that the assessee has been following its method of valuation consistently and there was no dissatisfaction of the Assessing Officer about the correctness/completeness of the books of accounts of the assessee.
ITA No.2197/Ahd/2016 ACIT vs. M/s.Lubi Electronics Asst.Year - 2008-09 - 5 - 10. From the preceding discussion, we note that the assessee has been recording its transactions of purchase, sales, and valuation of inventories, net of CENVAT/VAT consistently. Thus, if the inventory of closing stock is enhanced by the amount of CENVAT credit attributable to it, then the amount of corresponding purchases should also be increased by the said amount which will result in tax neutral exercise. Thus, in our considered view, the Assessing Officer erred in enhancing the value of closing stock without giving effect to the purchases. In this regard, we find support and guidance from the judgment of Hon’ble Gujarat High Court in the case of Pr.CIT vs. Gujarat Gas Company Ltd. In Tax Appeal No.90 of 2017 vide order dated 07/02/2017, wherein it was held as under:-
“3.03. Now, so far as question No. [B] i.e. with respect to addition made by the A.O. on account of unutilized modvat/cenvat credit of Rs. 56,08,089/- is connected, it is required to be noted that the learned tribunal has taken note that with respect to modvat receivable account, there is corresponding less debit to the purchase account and hence to that extent there is already income offered for tax. If that be so, there was no question of further adding modvat/cenvat credit to the income of the assessee for the year under consideration. Under the circumstances, we see no reason to interfere with the impugned judgement and order passed by the learned tribunal so far as confirming the order passed by the learned CIT(A) deleting the addition made by the A.O. on account of unutilised modvat/cenvat credit of Rs. 56,08,089/-. We are in complete agreement with the view taken by the learned tribunal.”
There is no ambiguity that the assessee has been following the exclusive method of accounting. However, the assessee to comply the provisions of section 145A of the Act has given the effect of CENVAT/VAT in the opening stock, purchases, sales and closing stock
ITA No.2197/Ahd/2016 ACIT vs. M/s.Lubi Electronics Asst.Year - 2008-09 - 6 - in the memorandum profit and loss account which is placed at page No.21 of the paper-book. We further note that the assessee has made its computation of income after taking the profit as shown in the memorandum profit and loss account as on 31/03/2008. Thus, we can safely conclude that though the assessee is following the exclusive method of accounting which is contrary to the provisions of section 145A of the Act, but the effect of the same has been duly considered by the assessee in its memorandum profit and loss account which was offered to tax. Thus, there cannot be any fault of the assessee merely on the reasoning that the assessee has not valued its closing stock as per the provisions of section 145A of the Act.
In view of the above, we concur with the view of the Ld. CIT(A) and accordingly decline to interfere in his order. Hence, the ground of appeal of the Revenue is dismissed.
In the result, Revenue’s appeal stands dismissed. This Order pronounced in Open Court on 18/02/2018
Sd/- Sd/- (MS.MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 18/02/2019
ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS
ITA No.2197/Ahd/2016 ACIT vs. M/s.Lubi Electronics Asst.Year - 2008-09
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 1. Date of dictation 5.2.2019 (dictation pad 13-pages attached at the end of this appeal-file) 2. Date on which the typed draft is placed before the Dictating Member 06.02.2019 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S … 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…….20.2.19 7. Date on which the file goes to the Bench Clerk…………………20.2.19 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……………