DCIT, CIRCLE- 11(1), NEW DELHI vs. HALLA VISTEON CLIMATE SYSTEMS INDIA LTD., BHIWADI

ORDER PER O.P. KANT, AM:

This appeal has been filed by the Revenue against the order dated 15/02/2017 passed by the learned CIT(Appeals)-39, New Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2010-11 raising following grounds:

1. Whether on the facts & circumstances of the case, the learned CIT(A) is correct in deleting the addition of Rs.3,74,11,219/- on account of difference in trading account ignoring the fact that the assessee has failed to reflect correct income as per memorandum of trading account as per provisions of section 145A of the IT Act, 1961.

raised above at the time of the hearing.

2. Briefly stated facts of the case are that the assessee was engaged in the business of manufacturing and sale of radiators, in cooling modules and intercoolers. The assessee filed return of income on 15/10/2000 and declaring income of ₹ 24,66,84,120/- The case was selected for scrutiny assessment and notice under section 143(2) of the Income-tax Act, 1961 (in short ‘the Act’) was issued and complied with. In the scrutiny assessment completed under section 143(3) of the Act on 24/03/2014, the Assessing Officer made certain additions/disallowances. The further appeal filed by the assessee was allowed partly by the Ld. CIT(A) vide impugned order dated 15/02/2017. Aggrieved, the Revenue is in appeal before the Tribunal raising the grounds as reproduced above.

3. Before us, the learned DR relied on the order of the Assessing Officer and submitted that addition in dispute might be sustained.

4. On the contrary, the learned counsel of the assessee filed a copy of the Tax Audit Report in the case of the assessee and referred to the Appendix -II of the said report, which is the statement showing details of effect of inclusive and exclusive method for valuation of the stock on the profit and loss account. The learned counsel submitted that profit before tax in both the inclusive and exclusive method of the valuation is same and therefore no addition was justified. He also submitted that the identical issue was raised in earlier assessment year 2008-09 and 2009-10 and the Tribunal in and 995/del/2013 has allowed in favour of the assessee.

“5.5 Coming to the ground at (c) above with respect to the disallowance on account of the difference in trading account u/s 145A in the impugned order, it is observed there from that it is mentioned, inter alia, “...The assessee has failed to reflect income as per memorandum of trading account as above. The plea of the assessee that duty expenses were utilized cannot be accepted because as per provisions of section 145A, opening stock, purchases, sales and closing stock will include duty/cess/fee etc. and accordingly in memorandum trading account all the head of trading account includes duty /cess / fee in other words all the items of original trading account includes duty either in credit side or in debit side and after inclusion of duty in all these items the gross profit of the assessee comes more by Rs.37411219/- and which is clearly income of the assessee u/s 145a. Therefore the plea of the assessee on this account cannot be accepted. In the case of CIT Vs British Paints India Limited (1991) 188 ITR 44 the Hon’ble Supreme Court held as under: In the valuation of closing stock of good-in-process or finished goods, all overhead expenses, besides the cost of raw material, had to be added. If any system of accounting excluded these expenses, it will result in distorted picture of profits as the profit of one year was likely to be shifted to another year. Each year being a self-contained unit under the Income Tax Act, it was not only the right but the duty of the assessing authority to determine what would be the correct income of the relevant year. In view of the position explained above an amount of Rs.3,74,11,219/- is hereby disallowed...” From the extract taken from the impugned order, it is observed that the reason behind the allowance is the difference in the trading account u/s 145A of the Act - there is a difference in the profit between the trading account computed under the exclusive method wherein duty is not included in the value of an expenditure or inventory or sale or closing stock and under the inclusive method duty is included; the sanctity of the account will remain only if under both methods, the results (profits) are same.

5.6 From the submission of the AR of the appellant it is observed that in the calculation mentioned in the impugned order, arithmetical errors have crept in inadvertently whereby the difference in profit has arisen in the trading accounts between both methods. Also, other mistakes pointed out during the appeal hearing appear plausible as these do appear in the calculations contained in the impugned order –

• Totaling error - total on both debit and credit side does not match • Payment of Excise duty A/A T not considered under inclusive method • Increase in sales on credit side by including sales tax not done • Closing stock of finished goods mentioned twice (closing stock and WIP)

On rectifying the aforementioned errors, the figures for the GP tally with that disclosed in the return of income thereby quashing the theory of concealment in the impugned order. Accordingly, the contention of the appellant, borne out from records and in accordance with the extant law, the disallowance of Rs.3,74,11,219/- made on this point in the impugned order, is deleted. This ground of appeal is allowed.”

5.1 Before us, the learned counsel has referred to the relevant pages of the Tax Audit Report, wherein the Tax Auditor has analysed the inclusive as well as exclusive method of valuation and the impact on the profit and loss account. The relevant part of the Tax Audit Report (supra) filed by the learned counsel is reproduced as under:

5.2 The learned Auditor has pointed out that there is no difference in the profit before tax in both the inclusive and exclusive method of indirect taxes/duty/cess/fee etc. for valuation of the stock. 5.3 The Tribunal in the case of the assessee in assessment year 2008-09 and 2009-10 in and 995/Del/2013, has on the basis of the report of the Tax Auditor upheld the order of the Ld. CIT(A). The relevant finding of the Tribunal is reproduced as under: “7. On considering rival contentions, we find that the learned Commissioner of Income Tax (Appeals) has examined the factual matrix and has granted relief to the assessee. The exercise as to whether an adjustment/addition is required consequent to computation of income by applying inclusive method as required u/s 145A, was examined by the tax auditor and this report was accepted by the learned CIT(A). Under these circumstances, we see no reason as to why the issue should be sent back to the Assessing Officer for fresh verification. In the result, the finding of the First Appellate Authority is upheld and that of the Assessing Officer is dismissed.” 5.4 In view of the identical issue of valuation of the stock and addition under section 145A of the Act involved, respectfully following the finding of the Tribunal (supra), we are of the view that that no addition is required under section 145A of the Act following the inclusive method. The finding of the Ld. CIT(A) on the issue in dispute is upheld. The ground Nos. 1 & 2 of the appeal of the Revenue are accordingly dismissed.