THE DCIT, CIRCLE-4(1)(2), AHMEDABAD vs. TRANSFORMERS AND RECTIFIERS (INDIA) LTD., AHMEDABAD

The only grievance of the Revenue is that the CIT(A) erred in deleting the addition made by the Assessing Officer on account of disallowance made under section 145A of the Income Tax Act, 1961 (‘the Act’ hereinafter).

The assessee declared total income at Rs.52.71 crores by filing return of income on 22.09.2011. The return was selected for scrutiny assessment and accordingly statutory notices were issued and served upon the assessee. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has shown the amount receivable on account of unutilised/closing balance on account of MODVAT/CENVAT credit in the tax audit report. The Assessing Officer noticed that the same was not included in the value of closing stock. Invoking provisions of section 145A of the Act the Assessing Officer formed the belief that the value of the closing

Assessee carried the matter before the CIT(A) and explained that it is following exclusive method of account by which it is crediting MODVAT/CENVAT separately and the same is not charged to Profit & Loss Account. Therefore, there is no reason why the same should be adjusted in the value of closing stock.

After considering the facts and submissions, the CIT(A) found the method of accounting in line with the guidelines issued by the ICAI and accordingly directed the Assessing Officer to delete the addition.

Aggrieved by this, the Revenue is before us. Learned Departmental Representative strongly supported the findings of the Assessing Officer. Per contra, learned Counsel for the assessee reiterated what has been stated before the lower authorities.

We have carefully considered the orders of the authorities below. We find force in the contention of the learned counsel for the assessee. The assessee has been consistently accounting for the raw material and other inputs purchased as per exclusive method i.e. billed cost minus amount of input tax credits available/availed of. Correspondingly, the stock of unconsumed materials is also valued as per exclusive method. In our considered view, if the provisions of section 145A has to be followed, the purchases would have to be adjusted for the duty/tax credits and correspondingly unconsumed stock of materials would also be valued at billed cost. In any case, parity has to be maintained and while making the addition on account of unutilised MODVAT/CENVAT credit, it disturbs the party of accounting. We also find that the assessee has also given a statement showing inclusive method and exclusive method under section 145A of the Act vide annexure to form 3CD by which it has proved that even if inclusive method of accounting has been followed by the assessee, there would not have been any impact on the profit of the assessee for the assessment year under consideration.

Considering the fact in totality, we do not find any reason to interfere with the findings of the CIT(A).