ASSISSTANT COMMISSIONER OF INCOME TAX, MUMBAI vs. DASSAULT SYSTEMES SOLUTIONS LAB PRIVATE LIMITED , MUMBAI

PDF · subscribers
ITA 6805/MUM/2025Status: DisposedITAT Mumbai11 May 2026AY 2018-196 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that Section 145A mandates the inclusion of taxes in the valuation of inventory, regardless of the accounting method. However, the AO erred by not adjusting the opening stock, thus the addition was partly allowed.

What were the facts?

The assessee followed an exclusive method of accounting for service tax, not debiting CENVAT credit to the P&L account. The AO added the unutilized CENVAT credit to the income, invoking Section 145A, but the CIT(A) deleted the addition.

What were the issues?

Whether unutilized CENVAT credit should be included in income under Section 145A, and whether the AO correctly applied the section without adjusting opening stock.

Which sections of the Income-tax Act were involved?

Section 145A

AI-generated summary — verify with the full judgment below

IN THE INCOME-TAX APPELLATE TRIBUNAL, MUMBAI “D” BENCH, MUMBAI BEFORE SHRI SANDEEP GOSIAN, JUDICIAL MEMBER AND SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER ITA No.6805/MUM/2025 (AY: 2018-19) Assisstant Commissioner of vs. Dassault Systemes Solutions Lab Income Tax Private Limited Ayakar Bhavan Churchgate, Plant 11, 3rd Floor Pirojshanagar Mumbai-400079. Vikhroli West, Mumbai-400079. PAN/GIR No: AAACZ1421B (Appellant) (Respondent) Assessee by Shri Jeet Kamdar Revenue by Shri Annavaram Kosuri (SR AR) Date of Hearing 11.05.2026 Date of Pronouncement 13.07.2026 O R D E R PER BIJYANANDA PRUSETH, AM:

This appeal filed by the revenue emanates from the order passed under

section 250 of the Income-tax Act, 1961 (in short, ‘Act’) by the National Faceless

Appeal Centre [in short, ‘CIT(A)’], dated 14.08.2025 for the assessment year

(AY) 2018-19.

2.

The grounds of appeal raised by the revenue are as under:

“1. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A)erred in deleting the addition of Rs. 5,14,35,765/-being the net difference between the opening and closing balance of unutilized CENVAT Credit, without duly considering the mandatory provisions of Section 145A of the Income-tax Act, 1961, which requires taxes, duties, and cess to be included for the purpose of valuation of inventory.

2.

Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in accepting the appellant's contention that the 'exclusive method of accounting' has no impact on profit or loss, thereby failing to appreciate that Section 145A mandates the inclusion of any tax, duty, cess, or fee, and the difference in the unutilized balance of 1

ITA No.6805/MUM/2025 Dassault Systemes Solutions Lab Pvt. Ltd. CENVAT Credit constitutes income as per the inclusive method required by the said section.

3.

Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition merely on the premise that the refund of credit is a recovery of an asset and not income, without demonstrating and justifying in the appellate order as to how following the mandatory inclusive method of accounting prescribed by Section 145A would result in no impact on the net profit or loss for the year under consideration.” 3. Facts of the case, in brief, are that the assessee electronically filed return of income for the AY 2018-19 on 30.08.2018 declaring total income at Rs.79,26,41,410/-. The AO observed from the TAR that an amount of Rs.5,68,85,331/-, being refund of duty of service tax, which was admitted as due by the concerned authority, was not credited to the profit and loss account. The AO issued query u/s 142(1) in this regard, in response to which, the assessee submitted that it follows exclusive method of accounting for service tax. The input credit on the services availed by the assessee is not debited to the profit and loss account but the same is debited to the CENVAT Credit Receivable Account and is shown under the head “short-term loans and advances” in the balance sheet. Thus, the profit of the assessee is already increased. When the refund is received, the same is credited to the Input Credit Availed Asset account. Since the assessee has not debited the amount of service tax to the P&L account, the refund of CENVAT credit is not required to be credited to the P&L account. The AO did not accept the reply of the assessee and made the addition by invoking the provisions of section 145A of the Act, which requires the assessee to follow the inclusive method for valuation of closing stock inventory.

ITA No.6805/MUM/2025 Dassault Systemes Solutions Lab Pvt. Ltd. 4. Aggrieved by the order of AO, the assessee filed appeal before the CIT(A). The CIT(A) accepted the contention of the assessee and deleted the addition by observing as under: “After consideration of appellant's submission as well as assessment order, it reveals that appellant has not booked Cenvat/Service Tax credit as an expenditure in the profit and loss account under the exclusive accounting treatment and accounting method that appellant has consistently followed. Refund of Cenvat credit is governed by specific provisions and rules and are allowed subject to certain conditions. The amount of Cenvat credit not booked as an expense is recorded as a receivable item or asset in the books and when refunded, it is not income because it is a recovery of an asset that does not form part of the income of the appellant. The appellant has consistently followed this special/exclusive accounting practice and nowhere it is in doubt. The AO has no reason to deviate from the same and therefore refund of an input/service tax credit should not be assessable as income of the appellant. This view aligns with the principles against unjust enrichment and accounting treatment accepted by authorities and courts.”

5.

Aggrieved by the order of CIT(A), the revenue has filed the present appeal before the Tribunal. The Sr. AR has relied on the order of AO and submitted that as per the provisions of section 145A of the Act, the inventory of stock shall include the amount of any tax, cess, duty or fee actually paid of incurred by the assessee. Therefore, the assessee should have included the CENVAT credit in the profit and loss account. The failure to include the same has resulted in under reporting of income, which was rightly taxed by the AO by making the impugned addition. 6. On the other hand, the Ld. AR supported the order of CIT(A). He submitted that the assessee has not remitted the input credit on the services to the profit and loss account and correspondingly, it has also marked credited the refund in the profit and loss account. The assessee has been following the exclusive method

ITA No.6805/MUM/2025 Dassault Systemes Solutions Lab Pvt. Ltd. of accounting consistently. The Ld. AR has relied on the following decisions: (i) CIT vs. Diamond Dye Chem Ltd. (2017) 88 taxmann.com 499 (Bom.), (ii) Aditya Birla Nuvo Ltd. vs. ACIT (2015) 56 taxmann.com 168 (Mum-Trib.), (iii) CIT vs. Indo Nippon Chemicals Co. Ltd. (2003) 130 taxmann.com 179 (SC) and (iv) Mahindra & Mahindra Ltd. vs. DCIT (2020) 113 taxmann.com 230 (Mum-Trib.). 7. We have heard both sides and perused the materials on record. We have also deliberated on the decisions relied upon by the Ld. AR. We have also gone through the provisions of section 145A of the Act. The AO made the addition by invoking on the provisions of the section 145A of the Act. Section 145A was substituted and section 145B inserted retrospectively with effect from April 1, 2017, i.e., for assessment year 2017-18 and subsequent years, by the Finance Act, 2018, in order to bring certainty in the wake of various judicial pronouncements on the issue of applicability of the Income Computation and Disclosure Standards (ICDS). Section 145A of the Act, as substituted, provides that for the purpose of determining the income chargeable under the head "Profits and gains of business or profession", (a) the valuation of inventory shall be made at lower of actual cost or net realizable value computed in the manner provided in ICDS notified under section 145(2), (b) the valuation of purchase and sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty, cess or fee actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation, (c) inventory being securities not listed, or listed but not quoted, on a recognized stock exchange, shall be valued at actual cost initially recognized in the manner provided in ICDS

ITA No.6805/MUM/2025 Dassault Systemes Solutions Lab Pvt. Ltd. notified under section 145(2); and (d) inventory being listed securities, shall be valued at lower of actual cost or net realizable value in the manner provided in ICDS notified under section 145(2) and for this purpose the comparison of actual cost and net realisable value shall be done category-wise. Section 145A of the Act mandates that the valuation of inventory as well as purchase of goods and sale of goods must include the value of any taxes, duties, cesses or fees actually paid or incurred to bring the items to their present location and condition, regardless of the accounting method regularly employed by the assessee. The actual cost of inventory must include all direct and indirect taxes paid to acquire the goods. These applies even if the assessee is ultimately eligible for a refund or input tax credit. Therefore, the AO has rightly added the amount to the total income of the assessee because the amended provisions of section 145A of the Act came into effect from AY 2017-18 onwards. The decisions relied upon by the Ld. AR pertain to assessment years prior to AY 2017-18 and hence, will not apply to the facts of the instant appeal. The AYs involved in Diamond Dye Chem Ltd., Mahindra & Mahindra Ltd., Aditya Birla Nuvo Ltd. and Indo Nippon Chemicals Co. Ltd. (supra) were 2008-09, 2024-25, 2003-04 to 2005-06 and 1989-90 respectively. Hence, the ratio of the above decisions is not applicable to the present appeal. Therefore, the action of the AO to invoke provisions of section 145A of the Act is as per law and cannot be said to be unjust. Since the AY involved in this appeal is 2018-19, the AO has rightly invoked clause (ii) of section 145A of the Act to include the CENVAT credit. However, we find that the assessee has been consistently following the method of valuation of stock and the AO has revalued only the closing stock

ITA No.6805/MUM/2025 Dassault Systemes Solutions Lab Pvt. Ltd. without making any corresponding adjustment to the opening stock. Therefore,

he is directed to make necessary adjustment to the opening stock and make

addition thereafter. Accordingly, the ground is partly allowed for statistical

purpose.

8.

In the result, the appeal of the revenue is partly allowed for statistical

purpose.

Order is pronounced on 13.07.2026.

Sd/- Sd/- (SANDEEP GOSAIN) (BIJYANANDA PRUSETH) JUDICIAL MEMBER ACCOUNTANT MEMBER

*Aniket Chand; Sr. PS MUMBAI Date: 13.07.2026 Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, MUMBAI 6. Guard File

By Order

Assistant Registrar ITAT, MUMBAI

More judgments on Section 145A

All 656 judgments and leading authorities on Section 145A →

Recent GST High Court judgments

Search GST case law →