ASSISTANT COMMISSIONER OF INCOME TAX Vs. SCHWABE INCOTE
LAWS(IT)-2014-5-61
INCOME TAX APPELLATE TRIBUNAL
Decided on May 22,2014

ASSISTANT COMMISSIONER OF INCOME TAX Appellant
VERSUS
Schwabe Incote Respondents

JUDGEMENT

P.M.JAGTAP,AM. - (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 assessee.
(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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