Principal Commissioner Of Income Tax I vs. Bridgestone India Pvt. Ltd.

- 1 - HIGH C

OURT OF MADHYA PRADESH : BENCH AT INDORE

DIVISION BENCH: HON’BLE MR. JUSTICE S. C. SHARMA & HON’BLE MR. JUSTICE ALOK VERMA I. T. A. No.130/2016 Pr. Commissioner of Income Tax-I Versus Bridgestone India Pvt. Ltd. I. T. A. No.131/2016 Pr. Commissioner of Income Tax-I Versus Bridgestone India Pvt. Ltd. I. T. A. No.132/2016 Pr. Commissioner of Income Tax-I Versus Bridgestone India Pvt. Ltd. I. T. A. No.133/2016 Pr. Commissioner of Income Tax-I Versus Bridgestone India Pvt. Ltd. Ms. Veena Mandlik, learned counsel for the appellant(s). Mr. P. M. Choudhary, learned senior counsel with Mr. Anand Prabhawalkar, learned counsel for the respondent(s). O R D E R (Delivered on this

st November, 2017

) - 2 - As per S. C. Sharma, J. Regard being had to the similitude in the controversy involved in the present cases, the appeals were analogously heard and by a common order, they are being disposed of by this Court. Facts of I. T. No.130/2016 are narrated hereunder. 02- The present appeal along with three connected appeals has been filed against consolidated order dated 20/06/2016 passed by the Income Tax Appellate Tribunal, Indore in I.T.A.No.547, 548 and 738/Ind/2014 (Revenue's appeal) for assessment 2005-06, 2008-09 and 2009-10. Though four different appeals have been filed but a common substantial question of law is being sought to be raised in all the appeals. 03- The brief facts of case reveal that the assessee is a private limited Company engaged in manufacture and sale of various types of Tyres used in automobile vehicles having its factory in the State of Madhya Pradesh at Pithampur Distt. Dhar. The assessee’s assessment in the respect of assessment year in consideration were completed by the Assessing Authority under Section 143(3), making additions on the ground of under valuation of closing stock. 04- According to AO after insertion of section 145A in the Income Tax Act, 1961, the value of closing stock is required to be adjusted to include the amount of Excise Duty paid. Aggrieved by the additions made by the AO, the assessee preferred appeal - 3 - before CIT(A), Indore, who partly allowed the appeals vide his order dated 09/05/2014. The learned CIT(A) while partly upholding the addition made by AO in value of closing stock deleted the addition in subsequent years. 05- Both respondent as well as revenue preferred appeals before Income Tax Appellate Tribunal, Indore Bench, Indore. The said appeals have been disposed off by Income Tax Appellate Tribunal vide its impugned common order dated 20/06/2016. Before the Income Tax Appellate Tribunal, the assessee contended that the inventory has been valued by him as per the method of accounting regularly employed by it. 06- According to the method of accounting the inventory of finished goods is calculated inclusive of Excise Duty and raw materials, stores and spares, fuel & oil are shown in Balance Sheet net of Excise Duty because the tax paid on input is available on set off against the tax payable on sale or is refundable. This method is in accordance with the accounting standard AS-2 issued by Institute of Chartered Accountants of India. It was further contended by assessee that no adjustment can be made merely to closing stock because unless the opening stock is also adjusted on the same basis, adjustment merely in the value of closing stock will distort the profit . 07- The assessee submits that the Income Tax Appellate Tribunal vide its detailed and well considered order has come to - 4 - the conclusion that the provisions of section 145A have overriding effect on section 145 but as per the said provisions, the method of valuation and the provision regarding adjustment of taxes will be applicable not only to the closing stock but on inventory i.e opening and closing stock as well as both on purchases and sale . 08- On the basis of such conclusion the Income Tax Appellate Tribunal had held that the AO was not justified in adding Excise Duty only in closing stock of raw material and incidental goods and has accordingly directed the AO to compute total income by adding Cess, duty or tax paid not only in closing stock but also in purchases, opening stock and sales . 09- The Income Tax Appellate Tribunal has thus, remanded the matter back to AO with above direction to adjust the values of opening stock, purchases, sales and closing stock with the amount of Excise Duty paid. Since the assessee has furnished the working regarding such valuation the Income Tax Appellate Tribunal directed the AO to verify such working. It is this order of the Income Tax Appellate Tribunal by which the revenue is aggrieved as according to revenue the substantial questions of law arise out of such order. 10- The revenue in its appeals has sought to raise two substantial questions of law which are identical in all appeals. The first question sought to be raised by revenue relates to - 5 - challenge the Income Tax Appellate Tribunal's order regarding deletion of addition made by AO. 11- In this respect it is crystal clear that no such question of law arises out of the order of Income Tax Appellate Tribunal because Income Tax Appellate Tribunal has not deleted any addition made by AO but has directed the AO to recompute the assessee’s income after adjusting the values of opening stock, purchases, sales as well as closing stock and has directed the AO to verify the working submitted by assessee before Income Tax Appellate Tribunal. 12- The relevant directions of the Income Tax Appellate Tribunal along with detailed discussion on the issue are found in Para 5 (internal page 12 to 14 of the ITAT’s order) and the same reads as under:- “5. We have heard the rival contentions of both the parties. The assessee's contention that regarding addition of value of closing stock in respect of excise duty, the excise component in closing stock of raw materials and spares in accordance with closing stock by invoking the provisions of Section 145A of the Act by observing that such provisions require that closing stock has been worked out in accordance with the method of accounting regularly employed by the assessee and further adjusted to include the amount of any cess, duty or tax actually paid or incurred. The above provision has overriding effect on Section 145. The assessee's contention that as per the audit report, the assessee has accounted these purchases of raw materials and incidental goods net of excise duty as Cenvet is available. Therefore, the assessee submitted that if the excise duty is added only to the closing stock of raw material and incidental goods, then it will result to distortion of profit unless purchases and opening stock are increased by component of excise duty. We are of the view that as per Section 145A of the Income Tax Act, 1961, - 6 - wherein method of valuation will be applicable not only in closing stock, but on inventory i.e. opening and closing stock as well as on both purchases and sales. Therefore, the AO is not justified in adding the excise duty in closing stock of raw materials and incidental goods. We, therefore, direct the AO to compute the total income by adding cess, duty or tax paid incurred not only in closing stock but also in purchases, opening stock, sales, wherever such excise duty is already added. The AO is directed to verify the working given by the assessee on pages 3, 4, 5, 6, 7, 8, 9 and 10 for the assessment year 2002-03 to assessment year 2009-10. The AO is directed to verify the same and pass the order accordingly. We also get support from the decision of Hon'ble Delhi High Court in the case of CIT vs. Mahavir Aluminium Limited, (2008) 297 ITR 0077 wherein it is held as under:- “In the present case, there is no question of any double benefit being given to the assessee. Para 23.13 of the Guidance Note itself makes it clear that whenever any adjustment is made in the valuation of Inventory, this will affect both the opening as well as the closing stock. It is also to be noted that if any adjustment is required to be made by a statute (as for example Section 145A), effect to the same should be given irrespective of any consequences on the computation of income for tax purposes. Sec. 145A begins with a non obstante clause, and therefore, to give effect to Section 145A, if there is a change in the closing stock as on 31 st March, 1999, there must necessarily be a corresponding adjustment made in the opening stock as on 1 st April, 1998. Para 23.14 of the Guidance Note postulates that adjustment should be made in such a manner that no double deduction is claimed for the same expenditure. In the present case, the question of double deduction does not arise, since no adjustment was made by the assessee in the profit and loss account for the year ending 31st March,1998. Tribunal was correct in law in allowing the adjustment of Rs.54,83,272 to the assessee in the opening stock for the previous asst. yr. 1998-99 (being a transitional year) under s.145A.” 13- Needless to say that the ground and the question sought to be raised by revenue is misconceived and without appreciation of the operative part of the Income Tax Appellate Tribunal’s order, as such, the revenue’s appeal to that extent deserves to be dismissed. - 7 - 14- As to the other question is concerned, the revenue seeks to raise the question regarding applicability of section 145A to the value of closing stock on the ground of its overriding effect on the provisions of section 145. In this regard it is difficult to understand as to how the revenue can be said to be aggrieved by Income Tax Appellate Tribunal’s order, because the Income Tax Appellate Tribunal in expressed terms has already held that the provisions of section 145A has overriding effect on the provisions of section 145 but has further held that the said provisions are applicable not only on closing stock but on inventory i.e opening and closing stock both and even on purchases and sales. 15- Thus, since the Income Tax Appellate Tribunal has already upheld applicability of section 145A, the substantial questions sought to be posed by revenue becomes purely academic. In fact revenue cannot be said to be aggrieved by order of Income Tax Appellate Tribunal. As to the direction of Income Tax Appellate Tribunal regarding re-computation of income after adjusting the values of opening stock, purchases, sales and closing stock, such direction is supported not only by language of the section 145A itself but even by circular issued by CBDT being Circular No 772 dated 23/12/1998, explaining the provisions of Finance (No.2) Act, 1998, which introduced provisions of section 145A. - 8 - 16- The relevant extract of provisions of section 145A as also extract of Circular No.772 dated 23/12/1998 are on record as Annex.-R/1 & R/2. As to the applicability of the circulars of CBDT, the legal position is well settled that the circulars issued by CBDT are binding upon the officers and persons employed in execution of the Act. 17- The apex Court in the case of Navnit Lal C. Javeri Vs. K.K. Sen AAC of Income Tax reported in (1965) 56 ITR 198 has held that the circulars issued by CBDT are binding on all officers and persons employed in the execution of the Income Tax Act under Section 5(8) of the Act. A similar view has been taken by the Hon'ble Supreme Court in the case of Jay Kishan Gopi Kishan & Sons Vs. CIT reported in (1989) 178 ITR 481 and K.P. Varghese Vs. ITO reported in (1981) 131 ITR 597. 18- Not only this in the case of CIT Vs. Mahaveer Alluminium Ltd reported in (2008) 168 Taxman 27 (Del), where in Delhi High Court has held that to give effect to provisions of section 145A if there is change in closing stock as on 31/03/1999, corresponding adjustment must be made in opening stock as on 01/04/1998. The Delhi High Court has also referred to above circular of CBDT. Again a similar view has been taken by Delhi High Court in the case of CIT V/s Mahalaxmi Glass Works Ltd. reported in (2009) 318 ITR 116 (Bom.). 19- In light the above factual and legal position the - 9 - present appeals filed by revenue deserves to be dismissed in limine, particularly in the circumstances that Income Tax Appellate Tribunal has merely remanded the matter back to AO for re-computing the income after giving effect to the provisions of section 145A. Since no final decision has been taken by Income Tax Appellate Tribunal but Income Tax Appellate Tribunal has remanded back the matter to AO for re-computation and for verification of the calculation furnished by assessee, no question of law much less a substantial question of law can be said to arise from the order of Income Tax Appellate Tribunal, specially in light of the decision of Gujarat High Court in the case of ACIT v/s B.N. Corporation reported in (2000) 245 ITR 238. 20- In light of the aforesaid, this Court is of the opinion that no substantial question of law arises in the present appeal and other connected appeals. Resultantly, the admission is declined and all other connected appeals are also dismissed. Certified Copy as per rules. (S. C. SHARMA) J U D G E (ALOK VERMA) J U D G E Tej Tej Prakash Vyas 2017.12.09 14:10:27 -08'00'