TaxTMI 
TaxTMI 
2013 (11) TMI 939
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.... Act (No.2 Act), 1998 w.e.f 01.04.1999 is necessarily to be valued at inclusive of any tax, duty, cess, or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. The assessee was accordingly questioned in this respect by the Assessing Officer (A.O.). The assessee explained of following exclusive method of accounting, and which ought not to affect its income for the year/s at all. The same was found not acceptable by the A.O. in view of the clear provision of section 145A, a non obstante clause, as well as the applicable decisions by the hon'ble High Courts and the CBDT circular/s. He, accordingly, worked out the cenvat relatable to the opening and closing stock for both the years, and effected additions in the sum of Rs.67.64 lakhs and Rs.58.68 lakhs for the two consecutive years respectively. 2.2 In appeal, it was, among others, contended by the assessee that a part of the closing stock for the relevant years, i.e., 31.03.2005, 31.03.2006 and 31.03.2007, was lying in the bonded warehouse/s pending clearing and, therefore, no liability on account of duty stood incurred on th....
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....n record. 4.1 We find, on a review of the entire facts and circumstances of the case, including the conduct of the assessee, and which gets repeated twice over, i.e., for the two consecutive years under reference, find its claim as regards goods lying in bonded warehouse as untenable and, accordingly, its case in its respect as not maintainable. The assessee admittedly follows mercantile method of accounting, so that the entire cost/s or income/s, as accrued, would go into the valuation of the purchases and sales and, consequently, the closing stock as at the year-end. The statement of 'significant accounting policies', forming part of the balance-sheet as on 31.03.2007 (which is the only balance-sheet on record), at Schedule-22 thereto, under the title heads "valuation of inventories" and "revenue recognition", reads as under (PB-II/pgs. 15, 16):- Inventories Inventories are valued as under Raw Materials* - at the lower cost or net realizable value Consumable Stores* - at cost Work in progress** - at cost Finished goods*** - at lower of cost net realizable value Cost are arrived at b....
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.... AR, on being questioned in this respect by the Bench during the hearing, would submit that it is so as there was no occasion for the assessee to represent so before the A.O. Even assuming that the A.O. did not project his mind during the assessment proceedings (though he had appropriately questioned the assessee in the matter), we find the assessee's explanation to be inconsistent. Where is the question of the duty being attracted or levied, if the goods are lying in a bonded warehouse, so that the question of duty having been incurred on the goods lying in stock to that extent just does not arise. This, thus, would have been rather the first argument advanced by the assessee. Secondly, why then we wonder there is no corresponding ground of appeal before the first appellate authority, i.e., qua the goods lying in bonded warehouse/s. Quite on the contrary, the assessee maintains the same stand before the AO even a year later, exactly by the date, i.e., in relation to the second year under reference; it corresponding with the A.O. vide letter dated 18.12.2009 (in assessment proceedings for A.Y. 2007-08) likewise, i.e., as earlier for A.Y. 2006-07, making no reference to the goods ly....
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.... sufficient opportunities for furnishing the relevant details, however, the assessee seeking adjournments and thereby delaying the proceedings. The assessee in the course of appellate proceedings simply stated that the stock includes the stock kept in the bonded warehouse, however, when such details have been asked the assessee has been seeking adjournments. Though the assessee has been provided amply opportunities by granting adjournments, however, the assessee failed to file the relevant details which have been specifically asked for. In absence of any proper evidences, the e claim of the assessee that certain stock lying at the bonded warehouse is not at all acceptable and accordingly the claim of the assessee is rejected." It is in view of these clear findings by the A.O. that the ld. CIT(A) considered the assessee's claim of the goods, or a part thereof, as lying in the bonded warehouse, as not acceptable, noting the fact of several opportunities by the A.O. in the remand proceedings, and also the fact that the matter had been outstanding with him (A.O.) since November, 2009. The assessee has neither before the ld. CIT(A) nor before us disputed the factual findings by the A.O....
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....ds made out before us. Even so, as we see it, this should yet cause no prejudice to the assessee as, where, one may ask, is the question of payment or even incurring of any duty if the goods are lying in bonded warehouse/s, i.e., even ignoring the inconsistencies that we observe in the assessee's stand. The custom/excise duty could only be considered as a part of the cost where levied, which would not be so if the goods - to whatever extent - are actually lying in the bonded warehouse. That is, the assessee's case, if true, would stand to be proved by the fact of non-incurrence of any liability toward custom/excise duty on the corresponding goods, which is only on their removable/clearance (refer: CIT v. Loknete Balasaheb Desai S.S.K. Ltd. [2011] 339 ITR 288 (Bom)), so that this aspect could be shown with reference to the relevant records. 4.3 This leads us to the next question, i.e., the issue on merits. With regard to the merits of the case, we find the Revenue stand to be equally incomprehensible. This is as, as afore-stated, if no liability to excise duty/cenvat is attracted, as where the goods as at the year-end (or a part thereof) are lying in a bonded warehous....
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....account in arriving at the profit or loss for the said period by setting it off against their sale value. In fact, we observe that while the valuation of cenvat as applicable to the closing stock as at 31.03.2006 is taken at Rs.331.77 lakhs in the assessment order for A.Y. 2006-07, it is taken at Rs.402.78 lakhs in the assessment order for A.Y. 2007-08. The assesse has also pointed out some discrepancies in the figures of cenvat credit as taken by the A.O. before the ld. CIT(A) vide its letter dated 24/8/2010 (PB pgs. 1-9). Clearly, the Revenue has also not applied itself to the matter, and neither has the assessee awaited the appeal effect giving order; the ld. CIT(A) having directed the A.O. to include the duty cost on purchases and sales as well, and which would address its grievance. In fact, we find that the assessee has made such a working (PB pg. 4), exhibiting profit neutrality, which is what ought to have been led to the A.O. in the assessment proceedings, or at least in the appeal-effect giving proceedings by the assessee. The Revenue having in our view not adopted the prescription of section 145A in full, but only to the valuation of the inventories, the matter would nec....
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....nly the duty component of goods sold qua which, as a part of the purchase cost, that deduction is being claimed, which becomes implicit when the law (per sec. 145A) provides for inclusion of duty as a part of cost. Even otherwise, if section 43B is considered to have an overriding effect, it would again be to no moment. This is as where the duty is paid during the relevant year (or by the due date of furnishing the return of income) the mandate of section 43B is satisfied; the same tax/duty would stand to be allowed. And where not paid by that date, it cannot be said to have been 'incurred' due to the overriding effect of section 43B (r.w.s 43(2)). That being the case, neither would it stand to be reckoned as cost nor, consequently, liable for inclusion in the valuation of the purchases, irrespective of the method of accounting being followed. As such, even as in principle the inclusion of duty or tax cost, where incurred or suffered, should not result in any variation in the profit as disclosed, the matter would require being restored back to the file of the A.O. for necessary verification of the same, as well as determining the valuation of the closing stock as at the end of the ....