TaxTMI 
TaxTMI 
2021 (1) TMI 162
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....s total turnover and the gross profit was of Rs. 23,39,79,711/- i.e. 37.39%. 3. During the course of assessment proceeding it came to the notice of the Ld. AO from the annexure to the tax audit report that the assessee company had unutilized Modvat credit of raw material amounting to Rs. 16,09,091/- as on 31.03.2010. According to the Ld. AO such unutilized Modvat Credit was required to be included in the closing stock of raw material and work in progress and, therefore, an explanation was called for on 11.03.2014 as to why unutilized Modvat Credit of raw material should not be added back to the closing stock according to the valuation method prescribed under Section 145Aof the Act. The assessee submitted before the Ld. AO that it follows an exclusive method of accounting for recording duties, taxes, cess in the books of accounts. Irrespective of the method of accounting followed, the net profit remains the same meaning thereby that there would be no loss to the revenue with either of the two methods being followed as the contention made by the assessee before the authorities below. However, such contentions made by the assessee was not found acceptable by the Ld. AR and the unuti....
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....as been deleted; a copy whereof has been submitted before us. However, the Ld. DR relied upon the orders passed by the authorities below. 5. We have heard the respective parties and we have also perused the relevant materials available on record. In the first appeal the Ld. CIT(A) while confirming the order passed by the Ld. AR observed as follows:- "4.3 I have considered the facts of the case, submissions of the appellant and the AO's observations. The contention of the appellant that the CENVAT credit receivable by it is contingent in nature is not correct as the right to receive the same has already accrued the appellant. Similarly, the appellant's contention that the appellant can follow either inclusive method or exclusive method is also not correct. Judicial pronouncements relied upon by the appellant are either for the Asst. Year 1998-99 and prior to that year, and are on the subject of inclusion of excise duty in the valuation of finished goods, where the finished goods have not been removed from the factory premises. Section 145A is applicable from AY 1999-2000 and after that, the assessees are compulsorily required to prepare their accounts as per the inclus....
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....e said 'profit' or 'loss', wnere accounts are maintained, as in the instant case, on exclusive basis, would adjust the outstanding in the UCC A/c, increasing or decreasing respectively the debit balance in the said account, so as to state it at its correct value, bringing the profit per the two statements, i.e., following the inclusive and exclusive methods, at par. The said profit, which gets automatically reflected under the gross method, and requires to be separately accounted for under the exclusive (net) method, is, however, accompanied by 3 corresponding liability, i.e., the excise duty on the value addition, for which no deduction would be eligible unless paid, being allowable only on payment basis, and in which event it would, in any case, stand to be deducted in the computation of the taxable profit. In the case of 'loss', i.e., a short recovery of excise, there is no case of 'refund' or 'credit', which lapses, so as to be borne by the assessee, so that the said loss would stand to be written off to the profit and loss account, where maintained on net basis. The liability against excess recovery of excise realised on sales is met a....
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....examples of different trading scenarios assumed by the assessee, and adopted by us (for the sake of simplicity), is difficult to establish in real life manufacturing cases, where a variety of inputs, if not also outputs, obtain. Secondly, the closing inventory, loaded with all input duties/levies, would only state the same at actual cost, even as advocated by AS-2 by ICAI. Again, this only would state the current asset, which it represents, at its proper value, i.e., in the balance sheet, and at which the same is to be carried forward to the following year. Even where accounted for separately, the same is to be carried forward as a cost which is recoverable. Only 3 correct statement of the current assets and liabilities, i.e., which are not on capital account, in the balance-sheet, would enable reflection of the correct operating results for the relevant accounting period. Toward this, only the booking of profit (against excess recovery of excise duty) would enable an agreement of the outstanding balance in the UCC a/c with the excise component in the closing inventories, so that the accounts -whether maintained on gross or net basis, reflect the current asset in respect of excise ....
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....flected, and that per the statement drawn by excluding excise (Ann. 2-A), restating the closing stock also, thus, at Rs. 25.S6 lakhs, or at a profit of Rs. 5.53 lakhs, would yield the profit or loss, as the case may be, embedded in "the UCC A/c; its opening balance being nil. The assessee may pass an accounting entry in its accounts in its respect, which would have the effect of stating the said account at the correct amount of current asset or current liability, as the case may be, reflected by it. (d) We may, before closing, clarify that the exercise of drawing the statement in terms of s. 145A could have the effect of either increasing, or decreasing the returned profit of Rs. 8,92,850/-, i.e., depending on the excise component in the finished and semi-finished goods. The CENVAT credit account gets, thus, effectively incorporated in the profit and loss account, depressing the profit by the outstanding debit balance therein, while increasing it with the excise component in the closing stock. We decide accordingly," 4.3.1 Thus, it is held that the appellant was required in the current assessment year to prepare its accounts as per the inclusive method prescribed by section 145....
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....Thus the computation in this annexure is as per method prescribed in the case of Hercules Pigment Industries (supra) for computation of profit as per inclusive method, except, for the deduction claimed u/s 43B without there being any accrued liability for payment of excise duty as on 31.3.2010. 4.3.2. Thus the computation filed in Annexure-A is as per the method which should have been followed by the appellant for preparation of this P & L Account except for the deduction claimed of Rs. 72,21,235/- as excise duty paid on or before filing of income tax return. Hence, the correct profit of the appellant as per this computation should have been Rs. 11,95,61,485/-as against Rs. 11,23,40,250/- shown by the appellant in its P & L Account. Thus, in the return of income the addition to be made was Rs. 72,21,235/- as against f 16,09,091/- made by the AO. Hence, the assessed income is enhanced by the amount of Rs. 56,12,144/-. Accordingly, the appeal is dismissed and enhanced as discussed by Rs. 56,12,144/-." The case made out by the assessee as we find that the assessee is following the exclusive method of accounting consistently for years together where the purchase of capital goods as ....