2006 (3) TMI 206 - AT - Income Tax

Tribunal partially allows Revenue's appeal for 1998-99, upholds CIT(A) decisions, and remands AO to recompute values.

The Tribunal partly allowed the Revenue's appeal for the assessment year 1998-99, upholding the CIT(A)'s decisions on some grounds and reversing others. ... Business Expenditure Issues Involved:1. Inclusion of unutilized Modvat Credit in the value of closing stock.2. Disallowance made under Section 43B of the IT Act.3. Deletion of addition being estimated profit on unrecorded sales.4. Application of Section 145A for valuation of closing stock.Issue-wise Detailed Analysis:1. Inclusion of Unutilized Modvat Credit in the Value of Closing Stock:For the assessment year 1998-99, the issue of including Rs. 17,63,875 of unutilized Modvat Credit in the closing stock was addressed. The learned counsel pointed out that this issue was covered in favor of the assessee by the Hon'ble Supreme Court in CIT vs. Indo-Nippon Chemicals Co. Ltd. (2003) 261 ITR 275 (SC). The Departmental Representative accepted this, leading to the rejection of this ground.For the assessment year 1999-2000, a similar issue arose with Rs. 20,22,002 on account of unutilized Modvat Credit. The learned Departmental Representative argued that Section 145A, enacted by the Finance (No. 2) Act, 1998, should be considered. The Tribunal concluded that the learned CIT(A) was not right in deleting the addition without considering adjustments as per Section 145A. The AO was directed to recompute the value of purchases, sales, opening stock, and closing stock according to Section 145A, ensuring no double deduction for the assessee.2. Disallowance Made Under Section 43B of the IT Act:For the assessment year 1998-99, the AO disallowed Rs. 32,122 (employer's contribution to PF) and Rs. 28,224 (employee's contribution to PF) as they were not deposited before the due date. The CIT(A) deleted these disallowances, and the Tribunal upheld the deletion for the employer's contribution, as the cheques were realized within 15 days from the due date. However, the Tribunal reversed the CIT(A)'s decision regarding the employee's contribution, as Section 43B did not apply to it. The employee's contribution is deemed as income under Section 2(24)(x) and is deductible under Section 36(1)(va) if deposited within the due date prescribed under the relevant Act.3. Deletion of Addition Being Estimated Profit on Unrecorded Sales:For the assessment year 1998-99, the AO added Rs. 4,18,251 as estimated profit on unrecorded sales based on the statement of Mr. Naresh B. Vora, who indicated that the assessee sold goods at higher prices than recorded. The assessee contested this, claiming a violation of natural justice as they were denied cross-examination of Mr. Vora. The CIT(A) deleted the addition, citing the arbitrary nature of the AO's action and the lack of evidence. The Tribunal upheld the CIT(A)'s decision, noting the AO's failure to provide cross-examination and lack of evidence of premium realization.For the assessment year 1999-2000, a similar issue arose. The Tribunal applied the same reasoning as in the previous year, rejecting the Revenue's grounds.4. Application of Section 145A for Valuation of Closing Stock:For the assessment year 1999-2000, the Tribunal addressed the application of Section 145A, which requires adjustments to the valuation of purchases, sales, and inventories to include any tax, duty, cess, or fee actually paid or incurred. The Tribunal directed the AO to recompute the values in accordance with Section 145A, ensuring no double deduction for the assessee.Conclusion:The Tribunal partly allowed the Revenue's appeal for the assessment year 1998-99, upholding the CIT(A)'s decisions on some grounds and reversing others. For the assessment year 1999-2000, the appeal was partly allowed for statistical purposes, with directions to the AO to recompute values as per Section 145A.