A.L. Gehlot, Accountant Member -
(1.) THIS appeal filed by the Asessee is directed against the order of learned CIT(A)-XII, Mumbai, passed on 06.11.2003, for the assessment year 1999-2000.
(2.) The grounds of appeal raised by the revenue read as under:
1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the addition of Rs. 29,39,872/- made by the AO under Section 145A of the Income Tax Act, 1961.
Without prejudice to the generality of the ground, the learned CIT(A) erred in concluding that the only effect of Section 145A was that value of inventory of finished goods and raw materials had to be increased by the amount of Tax, Duty, etc. when in fact, the section requires that purchases, sales and inventories should be valued inclusive of Tax, duty etc.
2. Without prejudice to the above ground, the learned CIT(A) further erred in not accepting the contention of the appellant that unutilized Modvat credit of Rs. 18,04,587/- relatable to the stock as on 01.04.1998 merited to be excluded from Rs. 29,39,872/- added to the total income by the AO.
Briefly the facts of the case are that during the assessment proceedings the AO noticed that there was an unutilized Modvat credit of Rs. 29,39,872/- at the end of the year. The AO further noticed that the assessee was following exclusive method for Modvat Accounting on the basis of the recommendation of ICAI. It was submitted on behalf of the assessee before the AO that the guidelines issued by the Institute clearly show that in both i.e. inclusive and exclusive methods for Modvat, the profit remains unchanged and therefore the effect on Modvat credit available at the end of the financial year is NIL. It was further submitted on behalf of the assessee that even if the unutilized Modvat credit is to be added to the income, it should be the difference between the opening Modvat and closing Modvat available at the beginning and end of the year respectively. The AO did not accept submissions because there was no addition of unutilized Modvat credit to the closing stock of the assessee in the earlier year. He accordingly made the addition of Rs. 29,39,872/-. On appeal to the CIT(A), the CIT(A) decided the issue against the assessee as under:
2.3 I have carefully considered the facts of the case and the arguments made before me. I have also analysed the provisions of Section 145A in view of the findings of the Hon'ble Supreme Court in 261 ITR 275 in the case of Indo Nippon Chemicals Co. Ltd. The decision in the case of Indo Nippon Chemicals Co. Ltd. which affirm the decision of jurisdictional High Court related to the period when Section 145A was not on the statute book. The Supreme Court decision referred to the circumstances existing prior to 1.4.99 i.e. prior to incorporation of Section 145A. Therefore, the said decision of the Supreme Court or jurisdictional High Court in the case of Indo Nippon Chemicals Co. Ltd. does not have any sanctity in so far as the present year is concerned. Section 145A which was introduced w.e.f. 1.4.1999 clearly provides the valuation of purchases, sales and inventories for the purpose of determining the income chargeable under the profit and gains of business and profession shall be in accordance with the method of accounting regularly employed by the assessee and further adjusted to include the amount of any tax, duty etc. as on the date of valuation. In the instant case, for A.Y. 1999-2000, the only effect of Section 145A would be the loading of the finished goods and the raw materials by the amount of tax, duty etc., in the closing stock. That alone constitute the closing stock of work in progress and finished goods and thus the inventory of the Appellant. Under the circumstances, when, as a result of Section 145A, which was brought on the statute to tide over the complications arising as a result of the decision of the jurisdictional High Court in the Indo Nippon's case, I am inclined to agree with the findings of the AO that the amount represented by the unutilized Modvat credit has to be taxed in the year under consideration. Ground No. 1 is thus decided against the appellant subject to my findings in Ground No. 3 below.
2.3 In Ground No. 2, the appellant has without prejudice to ground No. 1 submitted that the AO erred in not adjusting the unutilized Modvat credit of Rs. 18,04,587/- relatable to the value of stock at the beginning of the year against Rs. 29,39,872/- added to the value of closing stock. In this connection, I find that the Provisions of Section 145A were brought on the statute with effect from 1.4.99 and the inventory for the purpose of determining the income chargeable under the head profits and gains means only the inventory of work in progress or finished goods at the end of the year. Therefore, what is envisaged here is the loading of the closing stock of finished goods and raw materials by the tax, duty etc. This being the first year, therefore, addition has to be made taking in view the newly introduced provisions of Section 145A, without allowing deduction for unutilized Modvat credit of the immediately previous year which according to the Appellant is Rs. 18,04,587/-. Ground No. 2 is thus decided against the appellant.
(3.) THE learned AR reiterated the submissions which were made before the revenue authorities and submitted that entire unutilized modvat credit was not related to closing stock. THE AR submitted that the assessee has already given effect of Section 145A in the books of account of assessee following guidelines in this regard issued by the Institute of Chartered Accountants of India. On the other hand, the learned DR relied upon the orders of the AO & CIT(A).;