MSL DRIVELINE SYSTEMS LIMITED,MUMBAI vs. ACIT 2(2)(2), MUMBAI

Briefly stated, the assessee is engaged in the business of manufacturing and supply of automotive components such as propeller shafts, axle shafts, clutch repair kits and allied products. For the year under consideration, the assessee filed its return of income declaring a total income of ₹26,21,07,940/-. The assessment was completed under section 143(3) of the Act, wherein the Assessing Officer made an addition on account of MODVAT credit forming part of inventory by applying section 145A.

Before us, the learned counsel for the assessee submitted that the learned CIT(A) failed to adjudicate the issue on merits on a mistaken assumption that the Assessing Officer had already rectified the assessment order under section 154 and granted relief, which is factually incorrect. It was submitted that no such rectification order exists on record and, therefore, the appellate order suffers from a serious juri ictional infirmity.

It was further submitted that the issue is squarely covered in favour of the assessee by a consistent line of decisions of the Tribunal in the assessee’s own case for earlier assessment MSL Driveline Systems Limited

We have carefully considered the rival submissions, perused the orders of the authorities below, and examined the material placed on record. The relevant portion of the assessment order, wherein the computation of income and the basis for making the impugned addition have been set out, is reproduced hereunder:

Subject to the above remarks, the total income of the assessee-company is computed as under:-

Assessed under section 143(3) of the Income-tax Act, 1961. Tax liability and interest u/s. 234A, 234B, 234C, 234D, wherever applicable, are computed and credit for pre-paid taxes is given as per ITNS-150A, which is an integral part of this order Demand Notice/Refund is being issued accordingly. Penalty notice u/s 270A is being issued for misreporting of income.

From the above, it is evident that the Assessing Officer has made the impugned addition in a mechanical manner by invoking section 145A, without undertaking the necessary corresponding adjustments or examining whether the alleged deviation had any real impact on the profits of the assessee.

The assessee has consistently explained that it follows the exclusive method of accounting, whereby purchases and inventories are recorded net of CENVAT and sales tax, excise duty on finished goods is separately provided, and sales are accounted inclusive of excise duty. It has been demonstrated through reconciliation statements that the impact on profits is nil, a position which has been judicially accepted in the assessee’s own case for several earlier years.

The relevant findings of the Tribunal for assessment year 2014–15, having a direct and material bearing on the issue under consideration, are reproduced hereunder: MSL Driveline Systems Limited

On an appraisal of the above findings, we notice that the learned CIT(A) has decided the issue by following the decision of the Tribunal in the assessee’s own case. Since the issue stands covered in favour of the assessee, we find no infirmity in the order of the learned CIT(A) and the same does not call for any interference.”

Having regard to the above, we now proceed to record our findings. It is manifest that section 145A is a computation provision intended to ensure uniformity in valuation and not a charging provision designed to create artificial income. The Assessing Officer has not pointed out any defect in the method of accounting regularly followed by the assessee, nor has he demonstrated that the alleged adjustment has resulted in understatement of income.

The Tribunal, in the assessee’s own case for earlier years, has consistently held that where reconciliation establishes MSL Driveline Systems Limited

In the year under consideration, there is no change either in facts or in law. The Revenue has not brought on record any distinguishing feature warranting a departure from the settled position. Judicial consistency and discipline demand that the view consistently taken in the assessee’s own case be followed.

The action of the learned CIT(A) in not adjudicating the issue on merits, on the assumption that relief had already been granted under section 154, is found to be factually incorrect and legally untenable. The statutory duty to decide the appeal on merits could not have been avoided on such a premise.

In view of the foregoing discussion and respectfully following the binding precedents in the assessee’s own case, we hold that the addition of ₹38,26,165/- made by the Assessing Officer under section 145A of the Act on account of MODVAT / CENVAT credit is unsustainable and is hereby deleted. MSL Driveline Systems Limited