INCOME TAX APPELLATE TRIBUNAL,MUMBAI-"B",BENCH
Before S/Sh. Rajendra,Accountant Member & Shaktijit Dey,Judicial Member
/.ITA No.4501/Mum/2013, /Assessment Year-2008-09
Astt. CIT-24(1), C-13, Room M/s. N.R. Jasani
No.503, Prayakshakar Bhavan, 139/G, Agarwal Indl. Estate
Bandra (E) Mumbai-400 051. Vs S.V. Road, Jogeshwari (W)
PAN:AAAFN 1478 K
( /Appellant) ( / Respondent)
/Assessee by :Shri K. Gopal
/ Revenue by :Shri Santosh Mankoskar-Sr.AR
/ Date of Hearing : 30 - 09 -2015
/ Date of Pronouncement : 30 -09-2015
, 1961 254(1)
Order u/s.254(1)of the Income-tax Act,1961(Act)
PER RAJENDRA, AM-
Challenging the order dated 25.03.2013 of CIT(A)-34,Mumbai,the Assessing Officer(AO)has
raised following grounds of appeal:
"1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in
deleting the addition of Rs. 15,35,292/- made by the AC on account of non-inclusion method of
MODVAT credit adopted by the assessee when the method adopted leads to double benefits to
the assessee, firstly by excluding of excise duty from the value of sales and secondly by
reducing the value of stock to the extent of MODVAT credit.
The appellant prays that the order of CIT(A) be set aside and matte may be decided
according to law. The appellant craves leave to amend 0 alter any ground or add a new
ground which may be necessary".
Assessee-firm,engage in the business of manufacturing of modular furniture,filed its return of
income on 29.09.2008,admitting taxable income of Rs.2.05Crores.The AO completed the
assessment on 29.12.2007,u/s.143(3) of the Act, determining income of the assessee at Rs.2,
2.Effective ground of appeal is about deleting the addition of Rs.15.35 lakhs made by the AO
on account of MODVAT credit.During the assessment proceedings, the AO found that the
assessee had shown closing stock of Rs.2.19 Crores,that the assessee was following non
inclusive method of Modvat credit.He directed the assessee to file explanation in that regard.
After considering the submissions of the assessee,he held that non inclusive method would
result in decrease in taxable income.He re-worked out the value of the closing stock by
including the excise duty quoted on the total as well as the value of Modvat credit included in
the cost of raw material and the value of Modvat credit on purchases.Thus,he added the
unutilized Modvat Credit at the end of the year and included element of Modvat credit on the
purchases made.He finally arrived at a difference of Rs.15,35,292/- and treating it `suppre -
ssion in value of the closing stock'added the sum to the income of the assessee.
3.Aggrieved by the order of the AO,the assessee preferred an appeal before the First
Appellate Authority(FAA).Before him it was contended the method of valuation of closing
stock was followed year after year and was accepted by the department as a proper method
and it reflected the correct profit,that no change or alteration could be made by the AO,that
there would no difference in the taxable income even if the assessee would follow inclusive
method.The assessee filed reworked statement of Modvat credit before the FAA.After
considering the assessment order and the submissions of the assessee,he held that the issue
was squarely covered by the decision of the Hon'ble Supreme Court delivered in the case of
Indo Nippon Chemicals(261ITR275).He further held that when addition was made to closing
stock corresponding adjustment was to be made to opening stock,that if addition was to be
made to closing stock corresponding adjustment had to be made to opening stock,that the
exercise would be revenue neutral,that the department had accepted the method of valuation
of closing stock for last so many years.Finally,he deleted the addition made by the AO.
4.Before us,Departmental Representative(DR)supported the order of the AO.The Authorised
Representative(AR)relied upon the order of the FAA and stated that in the subsequent years
while completing the assessments u/s.143(3)of the Act,the AO had accepted the same method
of valuation,that following the principle of consistency the order the AO should not have
made the addition.
5.We have heard the rival submissions and perused the material before us.We find that the
assessee was following the exclusive method of Modvat Credit while valuing the closing
stock from AY.1995-96,that the AO.s.in the earlier and subsequent years have accepted the
method while completing the assessment u/s. 143(3) of the Act, that the AO had not given
any reason for not following the method for the year under appeal, that the FAA had given a
categorical finding of fact that whole exercise was revenue neutral in nature.We find that in
the case of Indo Nippon Chemical (supra) the Hon'ble Supreme Court has held as under :
"It is not open to the Assessing Officer to treat outgoings as income under section 145 of the
Income-tax Act, 1961. Whatever method the Assessing Officer adopts after invoking section
145, it has to be consistent with accepted principles of accountancy....(i)that merely because
the Modvat credit was an irreversible credit available to manufacturers upon purchase of
duty-paid raw material, that would not amount to income which was liable to be taxed under
the Act : income was not generated to the extent of the Modvat credit on unconsumed raw
material ;(ii) that it was not permissible for the Assessing Officer to adopt the "gross method"
for valuation of raw materials at the time of purchase and the "net method" for valuation of
stock on hand.
Respectfully,following the above judgment of the Hon'ble Apex Court we are of the opinion
that the order of the FAA does not suffer from any legal infirmity. Therefore, confirming his
order we decide the effective ground of appeal against the AO.
As a result,appeal filed by AO stands dismissed
Order pronounced in the open court on 30th,September,2015.
( / Shaktijit Dey) ( / RAJENDRA)
/ JUDICIAL MEMBER / ACCOUNTANT MEMBER
/Mumbai, /Date: 30.09.2015
/Copy of the Order forwarded to :
1.Appellant / 2. Respondent /
3.The concerned CIT(A)/ , 4.The concerned CIT /
5.DR " B" Bench, ITAT, Mumbai / , ,.. .
/ BY ORDER,
/ Dy./Asst. Registrar
, /ITAT, Mumbai.