2012 (3) TMI 661 - AT - Income Tax

ITAT emphasizes stock adjustments, upholds CIT(A) direction on capital goods exclusion.

The ITAT partially allowed the appeal, emphasizing the need for corresponding adjustments in opening stock as per judicial precedents and directing ... Application of section 145A to valuation of inventory - Cenvat Credit treated as part of excise duty for stock valuation - statutory adjustment to opening and closing stock when valuation is altered by statute - effect of a non-obstante clause in requiring statutory valuation overrides accounting practiceApplication of section 145A to valuation of inventory - Cenvat Credit treated as part of excise duty for stock valuation - Whether unutilised Cenvat Credit receivable shown in books is required to be included in the valuation of closing stock for computation of income under section 145A. - HELD THAT: - The Tribunal held that the provisions of section 145A bring within their ambit all taxes, duties or fees by whatever name called, and that Cenvat Credit forms part of excise duty which must be adjusted and included in the valuation of closing stock. The Assessing Officer's approach, as affirmed by the CIT(A), of adding the unutilised Cenvat Credit to the closing stock valuation was upheld. The Tribunal rejected the contention that accounting practice excluding excise duty could override the statutory requirement, noting that statutory provisions under section 145A prevail and may affect computation of income. [Paras 2, 3, 4, 6]Addition of unutilised Cenvat Credit to closing stock valuation upheld; exclusion from stock valuation on basis of accounting practice disallowed.Statutory adjustment to opening and closing stock when valuation is altered by statute - effect of a non-obstante clause in requiring statutory valuation overrides accounting practice - Whether a corresponding adjustment to opening stock is required when closing stock valuation is altered by section 145A, and whether any portion relating to capital goods should be excluded after verification. - HELD THAT: - Relying on the decision of the High Courts (as cited), the Tribunal held that if a statutory provision requires adjustment in the valuation of inventory, effect must be given to that adjustment by altering both closing and corresponding opening stock. The Tribunal directed the Assessing Officer to make the corresponding adjustment to the opening stock as on 01.04.2006. Further, the Tribunal affirmed the CIT(A)'s direction that the Assessing Officer verify whether a specified portion pertains to capital goods and, if so, exclude that amount after verification. That verification and exclusion was remanded to the Assessing Officer for determination. [Paras 4, 6]Directed corresponding adjustment to opening stock and remitted to the Assessing Officer the limited factual verification as to exclusion of amount pertaining to capital goods for appropriate adjustment.Final Conclusion: The Tribunal partly allowed the appeal: it upheld the inclusion of unutilised Cenvat Credit in closing stock valuation under section 145A, directed a corresponding adjustment to opening stock as on 01.04.2006, and remanded to the Assessing Officer the limited factual verification regarding exclusion of amounts shown as pertaining to capital goods. Issues involved: Appeal against order dated 02.03.2011 passed by CIT (Appeals)-5, Mumbai u/s.143(3) for Assessment Year 2007-08. Issues raised: 1. Addition of unutilised Cenvat Credit Receivable as income. 2. Adjustment to taxable income after section 145A adjustments. 3. Deletion of addition made for unutilized Cenvat Credit.Issue 1: Addition of unutilised Cenvat Credit Receivable as incomeThe appellant, a Private limited company in chemical manufacturing, showed unutilised Cenvat Credit receivable in balance sheet. Assessing Officer added the amount to closing stock per section 145A, citing CBDT circular no. 772 and ITAT Mumbai Bench decisions. Appellant argued Cenvat Credit not income, not routed through profit and loss account, and is a benefit set off against excise duty. CIT(Appeals) agreed with Assessing Officer, stating exclusion violates section 145A, but directed verification of capital goods exclusion.Issue 2: Adjustment to taxable income after section 145A adjustmentsAppellant contended that if Cenvat Credit is in closing stock, adjustment should be made in opening stock too, citing judgments of Hon'ble Bombay High Court and Delhi High Court. ITAT upheld inclusion of Cenvat Credit in closing stock per section 145A but directed corresponding adjustment in opening stock as per judicial precedents.Issue 3: Deletion of addition made for unutilized Cenvat CreditITAT partly allowed the appeal, directing Assessing Officer to make corresponding adjustment in opening stock as per judicial precedents and verify exclusion of capital goods amount. Upheld CIT(Appeals) direction for exclusion of capital goods amount if found correct.Conclusion: ITAT partially allowed the appeal, emphasizing the need for corresponding adjustments in opening stock as per judicial precedents and directing verification of exclusion of capital goods amount.