2015 (12) TMI 41 - AT - Income Tax

Tribunal upholds Assessee's position on CENVAT credit, dismisses Revenue's appeal.

The Tribunal dismissed the Revenue's appeal and allowed the Assessee's cross-objection, ruling that no addition on account of unutilized CENVAT credit was ... Valuation of closing stock - Scope of section 145A - inclusion of Excise duty and VAT to the value of closing stock, in a case where the Assessee is following exclusion method of accounting of Excise and VAT for valuation of stock - Held that:- Merely because the Central Government has not notified in the Official Gazette 'accounting standards' to be followed by any class of assessees or in respect of any class of income, it cannot be stated that the Accounting Standards prescribed by the Institute of Chartered Accountants of India or the Accounting Standards reflected in the 'guidance note' cannot be adopted as an accounting method by an Assessee. It further held that notwithstanding the fact that the opinion of the Chartered Accountants of India was expressed in the 'guidance note', which had not attend a mandatory status, would not be a ground to discard the books of accounts of the Assessee or the method of accounting followed. See Snehal Pharma Chem [2015 (2) TMI 151 - ITAT AHMEDABAD ] No addition on account of unutilized CENVAT Credit was called for in the present case. We thus dismiss the appeal of Revenue and allow the C.O of Assessee. Issues Involved:1. Addition to closing stock under Section 145A.2. Method of accounting for CENVAT credit.Issue-Wise Detailed Analysis:1. Addition to Closing Stock under Section 145A:The Revenue appealed against the order of CIT(A)-I, Surat, which restricted the addition made under Section 145A from Rs. 18,84,923/- to Rs. 5,03,187/-. The Assessing Officer (A.O.) had initially added Rs. 18,84,923/- to the closing stock, arguing that the unutilized CENVAT credit should form part of the Profit and Loss account. The CIT(A) partially upheld the A.O.'s decision, concluding that the excise duty component must be included in the valuation of closing stock as per Section 145A, which mandates the inclusion of any tax, duty, cess, or fee paid or incurred by the assessee.The CIT(A) explained that the adjustment under Section 145A is not profit-neutral and will increase the profits by Rs. 5,03,187/-. This decision was based on the principle that the excise duty component of the cost of raw materials must be included in the closing stock valuation, irrespective of the CENVAT claim. The CIT(A) also criticized the guidance notes issued by the Institute of Chartered Accountants of India (ICAI) for not reflecting the correct impact on taxable profits.2. Method of Accounting for CENVAT Credit:The Assessee argued that it followed the exclusive method of accounting for CENVAT credit, as per the ICAI guidance notes, and that this method had no effect on its profitability. The Assessee relied on decisions from the Ahmedabad Tribunal in the case of Asiatic Industries and the Mumbai Tribunal in the case of Hawkins Cookers Ltd., which supported the exclusive method of accounting.The Tribunal reviewed the case and noted that the Assessee's method of accounting was not contested by the Revenue. The Tribunal referred to its previous decisions in similar cases, such as Asiatic Industries and Snehal Pharma Chem, where it was held that the inclusion of excise duty in the closing stock should not affect the profits if the exclusive method of accounting is followed. The Tribunal also cited the case of Bloom Dekor Ltd., where the addition of excise duty to the closing stock was deemed unnecessary as it would be revenue-neutral over time.The Tribunal concluded that no addition on account of MODVAT and VAT was warranted in the present case, as the Assessee's method of accounting was consistent with the guidance notes and previous Tribunal decisions. The Tribunal also referenced the High Court of Telangana and Andhra Pradesh's decision in CIT vs. Pacts Securities and Financial Services Ltd., which supported the adoption of ICAI's accounting standards even if they were not officially notified by the Central Government.Conclusion:The Tribunal dismissed the Revenue's appeal and allowed the Assessee's cross-objection, ruling that no addition on account of unutilized CENVAT credit was necessary. The Tribunal emphasized that the Assessee's method of accounting was valid and consistent with established legal precedents.Order Pronounced:The appeal of the Revenue was dismissed, and the cross-objection of the Assessee was allowed. The order was pronounced in Open Court on 4.9.2015.