THE DCIT(OSD-1)CIRCLE-4, AHMEDABAD vs. KIRI DYES & CHEMICALS LTD., AHMEDABAD

This appeal by the Revenue is preferred against the order of the Ld. CIT(A)- VIII, Ahmedabad dated 20.09.2013 pertaining to A.Y. 2008-09.

During the course of the scrutiny assessment proceedings and on verification of the balance sheet of the assessee, the A.O. noticed that the balance of CENVAT receivable as on 01.04.2007 was Rs. 1,77,54,832/- as against the CENVAT receivable as on 31.03.2008 of Rs. 2,66,66,516/-. The A.O. was of the opinion that the difference in CENVAT receivable amounting to Rs. 89,11,684/- has to be added in the closing stock of the assessee as per the provisions of Section 145A of the Act. The A.O. accordingly completed the assessment by making addition of Rs. 89,11,684/-.

Assessee carried the matter before the ld. CIT(A) and vehemently stated that it is maintaining exclusive method of accounting since past many years. It was brought to the notice of the ld. CIT(A) that even if the assessee followed inclusive method of accounting, the effect thereto to the Profit and Los account would have been zero. It was further contended that as per the guidelines issued by the ICAI, the assessee can have either “inclusive method” for accounting entries with regard to MODVAT or “exclusive method”.

After considering the facts and the submissions, the ld. CIT(A) was convinced with the contention of the assessee and drawing support from various judicial decisions directed the A.O. to delete the impugned additions.

Aggrieved by this, the revenue is before us.

We have given a thoughtful consideration to the orders of the authorities below. It is true that the assessee has been following “exclusive method” of accounting which means that the cost of raw material debited in the purchase account is net of MODVAT element. A separate account for accounting for the excise duty payable and the MODVAT credit available is maintained in the “inclusive method”, the purchase of raw material debited in the books of accounts is inclusive of the corresponding MODVAT element. This means that if the assessee is following “inclusive method” then the closing stock has to be valued inclusive of MODVAT element. In either case, the effect would be neutral. This can be understood from the following chart:- Increase in Amt (Rs.) Increase in Amt (Rs.) Expenditure/Decrease income/increase in in profitability profitability

A perusal of the aforementioned chart shows that there is no impact of profitability whether an assessee follows “exclusive method” or “inclusive method”. Accordingly, no addition is called for u/s. 145A of the Act. For this proposition we draw support from the decision of the Hon’ble Supreme Court in the case of Indo Nippon Chemicals Co. Ltd. 261 ITR 275 and Hon’ble High

Considering the judicial decisions in favour of the assessee. We decline to interfere with the findings of the ld. CIT(A). Appeal filed by the Revenue is accordingly dismissed.