ASSISTANT COMMISSIONER OF INCOME TAX Vs. SCHWABE INCOTE
INCOME TAX APPELLATE TRIBUNAL
ASSISTANT COMMISSIONER OF INCOME TAX
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(1.) THIS appeal is preferred by the Revenue against the order of Id. CIT(A) - 27, Mumbai dated 30.11.2012 whereby he deleted the addition made by AO on account of excise duty/modvat credit by invoking the
provisions of section 145A of the Income Tax Act, 1961 (the Act).
(2.) THE assessee in the present case is a partnership firm which is engaged in the business of manufacturing of PVDC Coating on PVC film. The return of income for the year under consideration was
filed by it on 11.9.2009 declaring total income of Rs.39,54,100/ -. During the course of assessment
proceedings, it was noticed by the AO that the assessee has followed exclusive method of accounting for
recording its purchase and sales as well as for valuing the opening and closing sock. He also noted that
there was a difference of Rs.23,11,296/ - between modvat credit claimed by the assessee and expenses
claimed on account of excise duty. According to him, this difference amount represented the modvat credit
pertaining to the goods lying in the closing stock and as per the provisions of section 145A of the Act, the
same was liable to be included in the valuation of closing stock shown by the assessee. Accordingly, the
value of closing stock of the assessee was enhanced by the AO to that extent and an addition of
Rs.23,11,296/ - was made to the total income of the assessee. The AO also found that the assessee has
claimed expenditure of Rs.76,01,770/ - on account of excise duty under the head "duties and taxes".
According to the AO, since exclusive method of accounting was followed by the assessee whereby
purchases and sales were recorded on net of excise duty, the expenditure claimed by the assessee on
account of excise duty paid amounted to double deduction. He, therefore, disallowed the expenditure
claimed by the assessee on excise duty and added the sum of Rs.76,01,770/ - to the total income of the
(3.) AGAINST the order passed by the AO u/s 143(3) of the Act, the appeal was preferred by the assessee before the ld. CIT(A) disputing the addition made by the AO on account of excise duty/modvat credit.
During the course of appellant proceedings before the ld. CIT(A), the detailed working was filed by the
assessee showing that even if exclusive method is followed for accounting the opening and closing stock
as well as purchases and sales, the net profit would be the same as that worked out by following the
inclusive method of accounting. It was submitted that even if adjustments as envisaged u/s 145A of the
Act are made, the same would be revenue neutral warranting no addition to the total income of the
assessee as made by the AO. The ld. CIT(A) found merits in the submissions of the assessee and deleted
the addition made by AO on excise duty/modvat. Aggrieved by the order of ld. CIT(A), the revenue has
preferred this appeal before the Tribunal.
We have heard the arguments of both the sides and also perused the material on record. As per the provisions of section 145A, the valuation of purchases and sales of goods and inventory for the purpose of
determining the income chargeable under the head "profit or gain from business or profession" is required
to be made in accordance with the method of accounting regularly employed by the assessee and further
adjustment is required to be made to include the amount of any tax, duty, cess actually paid as incurred
by the assessee to bring the goods to the place of its location and condition as on the date of valuation.
We are therefore of the view that when the assessee is following exclusive method of accounting for the
valuation of purchase and sale of goods as well as inventory, the further adjustment is required to be
made to include the amount of excise duty in such valuation as per the provisions of section 145A of the
Act. At the time of hearing before us, the ld. Representatives of both the sides have not disputed this
position. The ld. counsel for the assessee has submitted that detailed working was filed by the assessee
before the ld. CIT(A) to show that the adjustments required to be made as per the provisions of section
145A of the Act are revenue neutral having no effect on the final profit of the assessee and after taking into consideration the said working, the ld. CIT(A) deleted the addition made by the AO by invoking the
provisions of section 145A of the Act. The ld. DR, on the other hand, has submitted that working furnished
by the assessee before the ld CIT(A) for the first time in support of its claim by the assessee has been
relied upon by the ld. CIT(A) to give relief to the assessee without giving an opportunity to AO to verify
the same. He has pointed out that there is also nothing in the impugned order of ld. CIT(A) to show that
the said working has been verified by him. Keeping in view this submission of the ld. DR, we consider it
fair and proper to restore this issue to the file of the AO for the limited purpose to verity the working
furnishing by the assessee before the ld. CIT(A) to show that the adjustments required to be made u/s
145A of the Act are revenue neutral having no effect on its final profit. The issue is accordingly restored to the fie of AO for this limited purpose.;
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