- (1.) In all these appeals, the pivotal issue involved is: is it permissible for the assessing officer under the Income Tax Act to adopt different methods of valuation of excise duty-paid raw material when purchased and the unconsumed raw material on hand at the end of the year
(2.) The assessees are manufacturing units liable to excise duty. Under the MODVAT Scheme, they get credit for the excise duty already paid on the raw materials purchased by them and utilized in manufacture of excisable goods. When they manufacture the goods and sell them, the proportionate part of the MODVAT credit is set off against their excise duty liability. In each of these cases, the assessing officer took the view that the MODVAT credit that is available should be treated as an income or an advantage in the nature of income, and, therefore, added back the said amount to the income of each of these assessees. The Commissioner of Income Tax in some of the cases agreed with the view of the assessing officer, and in some cases differed. However, when the matter came to the Tribunal, the Tribunal uniformly took the view that the MODVAT credit could not be added back to the income of the assessee.
(3.) Upon appeal to the High Court under Section 260-A of the Act, the High Court addressed itself to the issue as to whether the value of the closing stock of the duty-paid inputs, work-in-progress and finished goods must necessarily include the element of MODVAT credit available. The High Court took the view that unless the assessing officer acted under circumstances indicated in Section 145 of the Act, the assessing officer is bound to adopt the method of computation of income regularly employed by the assessee. However, if he comes to the conclusion that the method of accounting employed by the assessee makes it impossible to correctly compute the income, then the assessing officer is entitled to adopt any other suitable accounting method. We may add that, whatever method the assessing officer adopts, the method has to be consistent with the accepted principles of accountancy. It is not open to the assessing officer to treat outgoings as income under Section 145 of the Act.;