Income Tax Appellate Tribunal - Ahmedabad
The Dy.Commissioner Of Income Tax, ... vs M/S. Adani Petronet( Dahej) Pvt. Ltd.,, ... on 1 February, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "B" BENCH
(BEFORE SHRI PRAMOD KUMAR, VICE PRESIDENT
& SHRI MAHAVIR PRASAD, JUDICIAL MEMBER)
ITA. No: 3459/AHD/2015
(Assessment Year: 2011-12)
DCIT, Circle-1(1)(1), V/S M/s. Adani Petronet
Ahmedabad (Dahej) Pvt. Ltd. Adani
House, Nr. Mithakhali Six
Road, Navrangpura,
Ahmedabad-380009
(Appellant) (Respondent)
PAN: AAECA 5046R
Appellant by : Shri Mudit Nagpal, Sr. DR
and Smt. Aparna Agarwal, CIT/DR
Respondent by : Shri S. N. Soparkar & Parin Shah, A.R.
(आदे श)/ORDER
Date of hearing : 01 -11-2018
Date of Pronouncement : 01 -02-2019
PER MAHAVIR PRASAD, JUDICIAL MEMBER
1. This appeal filed by the Revenue is directed against the order of the Ld. CIT(A)-1, Ahmedabad dated 30.09.2015 pertaining to A.Y. 2011-12 and following grounds have been taken:
2 ITA No. 3459/Ahd/2015. A.Y. 2011-12
1. The ld, CIT(A) has erred in law and on facts in deleting the addition of Rs.14,69,47,567/- made by the Assessing Officer on account of unutilized CENVAT credit by following the exclusive method for accounting CENVAT as against the inclusive method mandated under section 145A of the I. T. Act.
2. The ld.CIT(A) has erred in law and on facts in deleting the disallowance ofRs.36,64,551/- made by the AO with respect of leasehold land when there is no such provision in the Income Tax Act to allow depreciation or amortization on such leasehold land.
3. The ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs.13,28,114/- made by the Assessing Officer u/s,14A read with Rule 8D of the IT. Act.
4. The ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs.13,28,114/- made by the Assessing Officer u/s 14A r.w. Rule 8D of the I. T. Act while computing the Book Profit u/s.115JB of the Act.
2. "On. examination of column No. 22(a) of 3CD Report, it is seen that unutilized CENVAT credit at the end of the year is as under:
Particulars Rs.
Available CENVAT credit 162125219 utilized CENVAT credit 15177652 unutilized CENVAT credit 146947S6?
The assessee followed exclusive method for accounting CENVAT as against inclusive method mandated under section 145A of the Act. The assessee vide order sheet entry dated 20/03/2014 requested to explain as to why unutilized CENVAT credit of Rs.14,69,47,567/- has not been offered for income. In response, the assessee submitted its reply as under:-
"Your good self has sought an explanation as to why unutilized cenvat credit should not be treated as income. In this regard we would like to draw your attention to section 145A which is reproduced herein under:
USA. Notwithstanding anything to the contrary contained in section 145.--
(a) the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head "Profits and gains of business or profession" shall be--
(i) in accordance with the method of accounting regularly employed by the assessee; and 3 ITA No. 3459/Ahd/2015 . A.Y. 2011-12
(ii) further adjusted to include the amount 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.
Explanation.--For the purposes of this section* any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment;
(b) interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall he deemed to be the income of the year in which it is received.
Since the company is engaged in the business of Mining and Exploration activities i.e. service sector, Section 145A is not applicable to assessee company more particularly in view of the fact that the assessee does not deal in goods as is the requirement for triggering Section 145A of the IT Act. Further, we submit that it not the case that the above CENVAT credit pertains to inventories, it pertains to services received by the assessee company. In view of the above, the difference of CENVAT cannot be considered as an income of the assessee. This is also evident on perusal of Clause 12(b) of the Tax Audit Report wherein also stated by the tax auditor that section 145A is not applicable to the company."
The submission of the assessee is perused but the same is not tenable. CENVAT credit accrues as soon as raw material is purchased provided the purchase cost includes excise duty element. Here, the point of purchase of raw material is the right to receive the CENVAT credit. The right to receive CENVAT credit is known as "CENVAT availed." Such credit does not depend upon the actual utilization of the raw material, the closing stock of raw material or the finished goods. Thus, the CENVAT credit availed on purchases made during the year, forms part of income of that particular year. Section 5 of the Act includes deemed income in its ambit. Excise Duty on sales is the duty collected by the assessee on its sales and which it is liable to pay to the Government. Under section 438 of the Act, deduction for expenses will be available only on payment of the Excise Duty.
Excise Duty on purchase forms part of the cost of the goods of the purchaser. The purchaser does not have any liability to pay the duty. The liability to pay duty to the Government rests with the seller of goods. Hence, 43B is not applicable on purchase of goods by purchaser.
The assessee has adopted the mercantile system for accounting i.e. on accrual basis. The provisions of section USA state that, notwithstanding the provisions of section 145 of the Act; the sale, purchase and closing stock have to be further adjusted with duty, cess, tax, etc. Thus, the Act requires that the gross value of the ° goods purchased, 4 ITA No. 3459/Ahd/2015 . A.Y. 2011-12 o goods sold and, o the closing stock is to be considered for arriving at the taxable income. It means that all the taxes, duties, etc. are also to be considered for arriving at income. When the duty, tax etc. is included in purchase, sale and inventory, the CENVAT credit accruing at the point of purchase has also to be taken into account as it is corollary to such purchases. The method adopted by the assessee in accounting is at variance with the requirements of the Act u/s. 145A of the Act.
Following aspects associated with CENVAT are important while determining the impact of section 145A, the assessee has adopted the mercantile system for accounting:
• That the purchase cost of raw materials include Excise Duty element. o Such Excise Duty forms part of the purchase cost and is included in the value of the • closing stock of raw materials o actual consumption of raw materials • Excise Duty on purchase is not purchaser's statutory liability, • The Excise Duty is always the seller's statutory liability. • As soon as raw materials are purchased by a manufacturer; purchaser claims CENVAT credit to the extent of Excise Duty component in the cost of such purchases by filing RG23A with Excise Department.
0 The credit so received is considered as CENVAT credit availed. Example, if a person following mercantile system, purchases raw material valued Rs.1000, on which ED @10 per cent is collected by the seller; then the cost of purchases would be Rs.1100 and the CENVAT credit would be Rs.100 as under:
purchase of raw material Rs. 1000
ED @10 per cent on purchase Rs. 100
total cost of purchase Rs.1100
CENVAT credit availed Rs. 100
Thus, for every pie incurred as Excise Duty on purchase of raw material, the purchaser would avail CENVAT credit to that extent.
o CENVAT credit accrues as soon as raw material is purchased, is automatic and following events have no impact on the CENVAT credit availed:5 ITA No. 3459/Ahd/2015
. A.Y. 2011-12 actual consumption of raw materials actual sale of finished goods the closing stock of finished goods « the closing stock of raw materials o The Excise Duty component in the purchases and, the CENVAT credit availed is distinct as shown above. Excise Duty forms part of the cost of raw material purchased and CENVAT credit is the benefit/ credit allowed to the extent of duty in purchased raw material.
o For example, the values adopted from the immediately preceding table, would reflect at the 'asset' side of the balance sheet as follows; provided, entire raw material remained unconsumed during the year of its purchase:
Assets Inventory Closing stock of raw Rs.1100 Rs.100 material including CENVAT credit receivable Total Rs.1200 Thus, the closing stock of raw material of Rs.1100 includes Excise Duty of Rs.100 and the CENVAT credit receivable of Rs.100 equivalent to Excise Duty would also be included in the closing stock. Against purchase of raw material valued Rs.1100 including Excise Duty; the value of assets would be Rs.1200 including Rs.100 as CENVAT. CENVAT credit availed is to be utilized against the Excise Duty liability arising on sale of finished goods. o Credit can be utilized without maintaining proportionate balance vis-a-vis closing stock of raw material o CENVAT credit utilized is not linked with the consumption of raw material.
Now, it is mainly observed that the assessee is follow the mercantile system of accounting; keep the CENVAT element / excise duty outside the profit and loss account. Such account is mentioned by them as exclusive method of accounting. This method is at variance with the method prescribed under section 145A of the Act. Section 145A requires that the income under the head "profits and gains of business or profession" by computed by making adjustment of duties and taxes on purchases, safes and inventory. Hence, in computing the profit and gains of business of profession, following adjustments are necessary.
" Excise Duty relating to the raw materials consumed is to be reduced from the income Excise Duty relating to sales and closing stock of finished goods is to be included in income. This however, will be deductible u/s.43B on payment of duty before due date of filing return.6 ITA No. 3459/Ahd/2015
. A.Y. 2011-12 8 Excise Duty relating to unconsumed raw materials will be included in income along with closing stock of raw materials " Since, the CENVAT credit accrues as soon as purchases inclusive of Excise Duty is made, entire CENVAT credit availed is to be included in income The CENVAT credit balance at the beginning of the previous year relevant to A.Y. is to be reduced from income.
The above adjustments invariably alter the income under the head "profits and gains of business or profession."
However, the assessees vouch that there is no impact on profits, even if the assessee follows exclusive method of accounting. They provide - • in clause 12(b) of Form 3CD, a 'certificate' that the impact of the deviation between the exclusive method adopted by the assessee and the one provided in the Act is 'NIL'.
• in clause 22(a) of Form 3CD, details of the CENVAT credit availed, utilized and balance / unutilized CENVAT credit, if any. The balance/ unutilized CENVAT credit is shown as CENVAT receivable under the loans and advances of the Balance Sheet.0
The unutilized CENVAT is not passed through the P&L account. It is always found that the information provided in clause 12(b) of Form 3CD does not include the CENVAT credit or the unutilized portion of the CENVAT credit. Thus, the conclusion drawn that, there is no impact due to the deviation is not tenable because it is done by excluding the CENVAT credit balance.
The following examples will illustrate the impact of section 145A. Both, the inclusive method and exclusive method is illustrated based on the same value of goods and rate of Excise Duty. The values are as under:
Particulars Amount Total
amount
including
ED.
Raw material purchased Rs.2000 Rs.2400
ED @ 20 per cent on raw material Rs.400
purchased
Sales of finished goods Rs.2200 Rs.2420
ED on sales @ 10 per cent on sales Rs.220
Closing stock of raw materia! Rs.400 Rs.480
7 ITA No. 3459/Ahd/2015
. A.Y. 2011-12
ED on closing stock of raw material @ Rs.80
20 per
Closing stock of finished goods Rs.300 Rs.330
ED on closing stock of finished goods Rs.30
@10%
CENVAT credit availed on purchase of Rs,400 Rs.400
raw materials i.e. equivalent to ED on
purchases
Net profit as per 'Inclusive method of accounting' or on adjustment as required under section 145A would be as under:
Trading and Manufacturing account
Expenditure Rs. Income Rs.
Purchase of Raw 2400 Sales of finished goods 2420
material
CENVAT credit availed 400
Closing stock of Raw 480
material
Gross profit 1230 Closing stock of 330
finished goods
Total 3630 Total 3630
Profit & loss account
CENVAT utilized 220 Gross profit 1230
on sale
ED paid PLA/ 30
CENVAT on
closing stock of
finished goods
Net profit 980 1230
Total 1230 Total
8 ITA No. 3459/Ahd/2015
. A.Y. 2011-12
Net profit as per "exclusive method of accounting' as maintained by assessee would be as under:
Trading and Manufacturing account
Expenditure Rs. Income Rs.
Purchase of Raw 2000 Sales of finished goods 2200
material
Closing stock of Raw 400
material
Gross profit 900 Closing stock of finished 300
goods
Total 2900 Total 2900
Profit & loss account
Gross profit 900
Net profit 900
Total 900 Total 900
As could be seen, the net profit increases by Rs.80 (Rs.980-Rs.900) in inclusive method. Reliance is also on the following judgments. One of the judgments is rendered by the Delhi Tribunal in the case of Maruti Udyog Ltd. (921 ITD 199 Delhi). In the said decision, it was held that "unutilized CENVAT credit is to be added to the total income and that, the CENVAT credit is in the nature of a subsidy. Further, it has been very clearly mentioned that section 43B does not apply to CENVAT credit and both are different. Further, the Hon. High Court of Bombay in the case of Cartini India Ltd. (Formerly, Godrej Appliances Ltd.) Vs. ACIT and Ore., [2007] 291 ITR 355 (Bom) in paragraph 19 of its order has observed as under:
"19. As per the new provisions of Section 145A of the IT ACT, 1961, the unutilized MODVAT credit had to be included in the closing stock of raw material and work in progress, whereas the excise duty paid on unsold finished gods had to be included in the inventory of finished goods.9 ITA No. 3459/Ahd/2015
. A.Y. 2011-12 The above observation makes it clear that unutilized CENVAT credit had to be included in closing stock of raw material thereby reducing the cost of consumption of goods charged to the profit and loss account.8
Further, reliance is also placed on the decision of the Hon. High Court of Delhi dated 28.11.2007 in the case of CIT Vs. M/s. Mahavir Aluminum Ltd. Further, Section 145A of the Act was inserted by Finance (No.2) Act, 1998 w.e.f. 1.4.1999 to end the litigation relating to element of MODVAT credit as could be derived from CBDT Circular No. 772 dated 23-12-1998 giving Explanatory Notes to the Finance Act.
In view of the above, unutilized CENVAT credits of Rs.14,69,47,5677- is added to the total income of the assessee."
"2.1 While passing the assessment order, Assessing Officer has observed that Appellant has availed CENVAT credit of Rs.16,21,25,2197- during the year and has utilized CENVAT credit of Rs. 1,51,77,6527- hence net amount of unutilized CENVAT credit amounting to Rs.14,69,47,567/- is added to total income of appellant.
2.2 In this connection, the appellant submits that entire addition is unwarranted and made on presumption by the assessing officer. While making the impugned addition the assessing officer failed to appreciate the fact inter alia:
(i) that credit receivable of Rs. 15,49,38,5307- represents an amount paid on account of service tax inputs on which the credit shall be availed against future service tax liability on outputs.
(ii) that no adverse inference was required by the assessing officer since appellant is neither manufacturer nor seller of excisable goods. As mentioned in clause 8(a) of the tax audit report, the appellant is engaged in the business of development, operation and maintenance of solid cargo port terminal at Dahej hence impugned credit is in respect of service tax which is paid by third party on input services and such credit is adjustable against service tax which may be payable by appellant on output services as and when services are rendered by the appellant.
(iii) that CENVAT credit on service tax input received by appellant represent excise duty, countervailing duties and service tax amount paid by the company on input capital goods, input & input services which is proposed to be set off from service tax payments on the port activities.
(iv) that CENVAT credit relating to input & input services for Rs 16.21 crore, Rs 70.99 lacs only pertains operation of appellant company. The learned Assessing Officer ought to have appreciate that total expenditure debited in Profit & loss account other than interest expenses and depreciation is Rs 13.45 crore hence unutilized CENVAT credit considered for making impugned addition of Rs 14.70 crore(net) cannot be relating to expenditure of Rs 13.45 crore but is mainly relating to capital expenditure or Fixed assets. It is undisputed fact that port operations were commenced only from 01/09/2010 hence any expenditure prior to such date 10 ITA No. 3459/Ahd/2015 . A.Y. 2011-12 was already capitalised hence majority CENVAT availed during the year under consideration pertains to such expenditure.
So far as CENVAT credit relating to port operation and expenditure claimed in Profit & loss account Is concerned, it is submitted that the appellant has followed exclusive method of accounting and the value of input services do not include the amount of input Service Tax credit. If addition of unutilized CENVAT Credit of Service Tax is made considering the same as income of the appellant then the corresponding addition should also be made to the cost of input services availed by the appellant which will neutralize the impact on the Profit and loss account. By following the exclusive method of accounting, the appellant was itself at a disadvantage since the expenses claimed in profit and loss account is at lower amount. If the appellant would have followed inclusive method, the amount of expenses would have been higher by the amount debited to CENVAT credit account.
Apart from the above, the appellant would like to draw your attention towards the accounting followed by the appellant to prove that the method followed by the appellant is in accordance with section 145A of the Act. As an example, the entry made by appellant in the books of accounts is as follows:
Expenses A/c Dr. 100 [Debited to P/L Account]
CENVAT Credit A/c Dr. 20
[Reflected in Balance Sheet as Advance Recoverable in cash or in kind] To party A/c 120 As evident from the above entry made in books of account, exclusive method is followed by the appellant wherein the expense account is net of value of service tax amount, in such circumstance, the amounts of expenses booked are with a lower amount. Had the appellant followed inclusive method, the entry would have been made as follows:
Expenses A/c Dr. 120 To Party A/c 120In this case the amount of expense claimed in profit and loss account would have been Rs.120/- instead of Rs.100/- as claimed in the above case. Therefore by following the above method of accounting the appellant is at a disadvantage since the amount of expenses has been credited at a lower amount due to creation of a separate CENVAT credit account. In such a case instead of disallowing the unutilized credit, as erroneously done by the assessing officer, the appellant is liable to claim the unclaimed expenditure of Rs. 70.99 lacs
(v) that balance CENVAT credit relating to capital expenditure or Fixed Assets was not at all routed through Profit & loss account hence same cannot be 11 ITA No. 3459/Ahd/2015 . A.Y. 2011-12 considered for making impugned adjustment u/s 145A of the Act. The Learned Assessing Officer ought to have appreciated that by following exclusive method, appellant has capitalised cost of Fixed asset net of such CENVAT credit and if inclusive method is followed, such CENVAT credit is also required to be capitalised and appellant would be entitled to depreciation on such higher value hence even on this ground Assessing Officer was not justified in making addition u/s 145A on unutilized CENVAT credit(service tax) relatable to capital expenditure/fixed assets.
2.3 Regarding applicability of provisions of section 145A to Service Industry:
The provision of section 145A does not apply to the present case of the Appellant. The appellant is engaged in the business of development, operation and maintenance of solid cargo port terminal at Dahej. Since the appellant company is engaged in the business of Port i.e. service sector, Section The provisions of 145A is not applicable to appellant more particularly in view of the fact that the appellant does not deal in goods. Section 145A are restricted to purchase and sale of good and it does not extend to service The non applicability of provisions of section 145A is due to following reasons: (i) The liability of Service Tax is fastened to the transaction of sales and once such sale is affected, the dealer becomes liable to pay Service tax under section 68 of the Finance Act, 1994. The liability for payment of service Tax arises only after the service provider has received the payments for Service rendered by It If there is no liability to make the payment to the credit of the Centra! Government because of non-receipt of payments from the receiver of the services, then it cannot said to be income of the appellant.
(ii) Service tax was not being routed through the profit and loss account by the appellant, engaged in the Service rendering business. As the appellant has never claimed deduction on account of service tax which is collected on behalf of the Government from the services .availed by it and paid to the Government accordingly by the service provider. Further the appellant's would be eligible to availed credit of Service Tax paid by it on input service on when the it receives the payment for services rendered by it. Therefore, a service provider is merely acting as an agent of the Government and the amount of CENVAT Credit unutilized in the account of appellant can't be treated as income of the Appellant.
In this connection, appellant relies on decision of Hon'ble Mumbal Tribunal in case of Pharma Search vs. ACIT (2013) 82 DTR 303 (Mum) [BCAJ] ITA NO. 7303/MUM/2010 dated 2nd May, 2013 Facts:
The assessee was engaged in the business of rendering consultation in pharmaceuticals, chemicals and drugs. In the P & L A/c, the assessee has shown 12 ITA No. 3459/Ahd/2015 . A.Y. 2011-12 fees for rendering consultancy services net of service tax. The service charges of Rs. 32 lakh were not realised and outstanding at the year end. The Assessing Officer was of the view that the service tax should have been shown as receipts in the P & L A/c on the principle laid down by the Honourable Supreme Court in the case of Chowringhee Sales Bureau (P) Ltd. vs. CIT [87 ITR 542] and also as per the provisions of section 145A. The Assessing Officer made an addition of Rs. 3,91,6807- on account of service tax on the ground that the assessee ought to have made payment of the service-tax in order to claim deduction as per provisions of section 43B.
Held:
As per the service tax law, service tax is payable as and when the payments/fees for underlying service provided are realised. As the assessee has not received the sum till the end of the financial year, question of paying the same did not arise at all. If for any reason the payment for services rendered is not realised, there was no liability as to payment of service tax. Thus, the service tax law stands on a different footing as compared to other laws like Central excise or VAT.
The application of section 145A is restricted to purchase and sale of goods only, and does not extent to service contracts. Therefore, the action of the Assessing Officer in The rigours of section 43B might be applicable to the case of sales-tax or excise duty, but the same could not be said to be the position in case of service tax because of two reasons. Firstly, the assessee is never allowed deduction on account of service tax which is collected on behalf of the Government and is paid to the Government account. Therefore, a service-provider is merely acting as an agent of the Government.
Secondly, section 43B(a) uses the expression "any sum payable". If there is no liability to make the payment to the credit of the Central Government because of non receipt of payments from the receiver of the services, then it cannot be said that such service tax has become payable in terms of section 43B(a). In light of the Fact and judicial pronouncement as discussed above, it can be said that the appellant is service provider and not manufacturer. In case of Service Provider the liability for payment of Service tax will arise only at the time when the payment for service rendered by the appellant is received and A.O is erred in applying provisions of section 145A to the case of appellant who is engaged in providing sen/ices.
iice to the same, with reference to the contentions of the A.O based on the Example given in the Guidance note on section 145A even if it is presumed that it is applicable to the case of service provider also, as stated above the appellant follows exclusive method and that therefore as explained in herein above the unutilized CENVAT Credit have neutralizing effect on the total income.13 ITA No. 3459/Ahd/2015
. A.Y. 2011-12 2.4 In light of the above narrated facts the appellant would like to mention that the disallowance made by the assessing officer is without considering the details and explanations offered by the appellant. The disallowance has been made against the principles of law as laid down in section 145A of the Income Tax Act, 1961. The example reproduced by the assessing officer, in the assessment order, itself proves that the facts of the case have not been considered carefully and addition has been made on an illogical manner. In support of the contention, reference is drawn towards Guidance Note on Tax Audit under Section 44AB of the Income-tax Act, 1961 wherein applicability of section USA has been explained in detail. The relevant extracts are reproduced herein below:
23.22 Section 145A of the Income Tax Act provides that the valuation of purchase and sales of goods and inventory for the purpose of computation of income from business or profession shall be made on the of method of accounting regularly employed by the but this shall be subject to certain adjustments. Therefore, it is not necessary to change the method of valuation of purchase, sale and inventory regularly employed in the books of account. The adjustment provided for in this section should be made while computing the income for the purpose of preparing the return of income. Therefore the recommended method for accounting of VAT will not result in non-compliance of section 145A of the Income Tax Act.
Hence the fact that the method employed by appellant is in accordance with principles laid down in section 145A is proved beyond doubt. 2.5 The Ld. Assessing Officer has not appreciated the same in its right perspective and considered the submission of the appellant as not tenable. The Ld. Assessing Officer has observed as under.
"if a person following mercantile system, purchases raw material valued Rs. 1000, on which ED @ 10 per cent is collected by the seller, then the cost of purchases would be Rs. 1100 and the CENVAT credit would be Rs. 100 as under:
Purchase of raw material Rs. 1000
ED @ 10 percent on purchase Rs. 100
Total cost of purchase Rs. 1100
CENVAT Rs. 100
Thus, for every pie incurred as Excise Duty on purchase of raw material, the purchaser would avail CENVAT credit to that extent. ....... ........For example, the value adopted from the immediately preceding table, would reflect at the 'asset' side of the balance sheet as follows; provided, entire raw material remained unconsumed during the year of its purchase:14 ITA No. 3459/Ahd/2015
. A.Y. 2011-12
Assets
Inventory Closing stock of raw Rs. 1100
material Including ED CENVAT Rs. 100
credit receivable
Total Rs. 1200
Thus, the closing stock of raw material of Rs. 1100 includes Excise Duty of Rs. 100 and CENVAT credit receivable of Rs. 100 equivalent to Excise Duty would also be included in the closing stock. Against purchase of raw material valued Rs. 1100 including Excise Duty; the value of assets would be Rs. 1200 including Rs. 100 as CENVAT."
Further the Ld. Assessing Officer vide para 2 page 7 stated that "the following examples will illustrate the impact of section 145A. Both, the inclusive method and exclusive method is illustrated based on the same value of goods and rate of Excise Duty. The Values are as under:
Particulars Amount Total amount
(Rs.) Including ED (Rs.)
Raw material purchased Rs. 2000 Rs. 2400
ED @ 20 percent on raw Rs, 400
material purchased
Sales of finished goods Rs. 2200 Rs. 2420
ED on sales @ 1 0 percent on Rs. 220
sales
Closing stock of raw material Rs.400 Rs. 480
ED on closing stock of raw Rs.80
material @ 20 percent
Closing stock of finished Rs. 300 Rs. 330
goods
ED on closing stock of finished Rs.30
goods @ 10%
CENVAT credit availed on Rs. 400 Rs. 400
purchase of raw materials i. e.
equivalent to ED on purchases
15 ITA No. 3459/Ahd/2015
. A.Y. 2011-12
Net profit as per 'Inclusive Method of Accounting' or on adjustment as required under section 145A would be as under:
Trading and Manufacturing Account Expenditure Rs. Income Rs.
Purchase of Raw 2400 Sales of Finished 2420
Material Goods
CENVAT credit 400
availed
Closing stock of RM 480
Gross Profit 1230 Closing stock of FG 330
Total 3630 Total 3630
Profit and Loss Account
Cenvat utilized on 220 Gross profit 1230
sale
ED paid PLA / 30
CENVAT on closing
stock of finished
goods
Net Profit 980
Total 1230 Total 1230
Net profit as per 'exclusive method of accounting' as maintained by Assessee Company would be as under:
Trading and Manufacturing Account Expenditure Rs. Income Rs.
Purchase of 2000 Sales of Finished 2200
Raw Material Goods
16 ITA No. 3459/Ahd/2015
. A.Y. 2011-12
Closing stock of RM 400
Gross Profit 900 Closing stock of FG 300
Total 2900 Total 2900
Profit and Loss Account
Gross profit 900
Net profit 900
Total 900 Total 900
As could be seen, the net profit increases by Rs. 80 (Rs. 980 - Rs. 900) in inclusive method."
2.6 In this regard appellant submits that the Ld. Assessing Officer made error in example referred herein above for adjusting excise duty to give effect of section 145A, if the Excise Duty paid at the time of purchase of Raw Material is included in the Closing Stock the value of stock can never exceed the actual purchase price including excise duty. In the said example the value of Raw Material as per Exclusive Method shall be Rs. 1000 and the value as per Inclusive Method shall be Rs.1100. The purpose of CENVAT credit is to avoid cascading effect of incidence of indirect taxes in the hands various persons engaged in the chain of supplying of raw material to processing the raw materials and manufacturing the finished goods to distributing the finished goods to the end user.
Further the appellant company submits that the Ld. Assessing Officer erred in example referred to in paras above while computing profit as per inclusive method adjustment for CENVAT CREDIT AVAILED as Rs. 400 and adjustment for closing stock of Raw Material as Rs. 80. However, total excise duty paid by the appellant company on purchase of Raw Material is Rs. 400 and total CENVAT CREDIT AVAILED by the appellant company is also Rs. 400. the Ld. AO failed to appreciate the fact that closing stock of raw material already included CENVAT element of Rs. 80A which needs to be excluded from the amount of Rs. 400/- as when Rs. 400/- is taken and in inclusive method closing stock of raw material includes excise duty the same is taken twice. Therefore while arriving at the figure of CENVAT credit availed the amount of Rs.80/- being excise duty on closing stock of raw material needs to be reduced. The appellant company utilized CENVAT credit for material consumed to the tune of Rs. 320 only. Adjusting total excise duty paid on 17 ITA No. 3459/Ahd/2015 . A.Y. 2011-12 purchase of Raw Material as CENVAT credit availed and adjusting it further in Closing Stock results in duplication of adjustment to the tune of Rs. 80 i.e. material not consumed and the CENVAT credit of which is not utilized. As a result the closing stock valuation gets inflated artificially.
The profit and loss account as per inclusive method as explained above after adjustment is restated as under:
Trading and Manufacturing Account Expenditure Rs. Income Rs.
Purchase of Raw 2400 Sales of Finished 2420
Material Goods
CENVAT credit availed 320
Closing stock of RM 480
Gross Profit 1150 Closing stock of FG 330
Total 3550 Total 3550
Profit and Loss Account
Cenvat utilized on 220 Gross profit 1150
sale
ED paid PLA/ 30
CENVAT on
closing stock of
finished goods
Net Profit 900
Total 1150 Total 1150
3. Against the said addition, assessee preferred first statutory appeal before the ld.
CIT(A) who partly allowed the appeal of the assessee.
18 ITA No. 3459/Ahd/2015. A.Y. 2011-12
4. We have gone through the relevant record and impugned order. Assessee company is engaged in the business of development/operation and maintenance of solid cargo port terminal at Dahej.
5. We will first deal ground relating to deleting the addition of Rs. 14,69,47,567/- made on account of unutilized CENVAT credit. The A.O. has discussed this issue at page no. 2 to 9 in Para 2 and ld. CIT(A) has discussed this issue at page 2 to 17 in Para 3 of the appellate order. And ld. CIT(A) granted relief of Rs. 14,69,47,567/- on account of unutilized CENVAT credited by the assessee following the exclusive method for accounting.
6. As we can see, that CENVAT credit referred by the A.O. is pertaining to service tax input and not pertaining to excisable goods. Hence, provision of Section 145A cannot be made applicable and assessee is following exclusive method of accounting. It has recognized expenditure in profit and loss account net of CENVAT credit received by it. Hence to the extent expenditure already debited by lower amount. Assessee submitted audited balance sheet and we can see that the CENVAT credit pertains to expenditure and not raw material and assessee is consistently following exclusive method of accounting.
7. Assessee's case also draw support from the case of Bell Granito Ceramica Ltd. of Hon'ble Gujarat High Court wherein in similar circumstances, appeal of the Revenue was dismissed and held that if assessee incurs liability to pay excise duty only upon both the events taking place, namely manufacture of excisable goods and removal of excisable goods; excise duty is not therefore includible in the valuation of closing stock.
19 ITA No. 3459/Ahd/2015. A.Y. 2011-12
8. Therefore respectfully following the above said High Court judgment, we dismiss this ground of appeal of the revenue.
9. Now we come to ground relating to deleting the disallowance of Rs. 36,64,551/- for depreciation/amortization on lease hold land. The ld. A.O. has discussed this issue at page 9 to 14 and ld. CIT(A) has discussed this issue at page 18 to 29 in Para 4.
10. It is seen from the computation of income that assessee has claimed amortization of land of Rs. 36,64,551/- and page to Gujarat Industrial Development Corporation and Forest Department. Though, ownership of land is not invested with the assessee and advance rent paid by the assessee on execution of lease deed and contended that assessee is entitled for depreciation/amortization. On the other hand, Assessing Officer held that same is not allowable. In similar circumstances, Hon'ble Gujarat High Court in the matter of Sun Pharmaceuticals Ltd. vs. DCIT 227 CTR 206 has held that premium paid by assessee for land taken on lease as revenue expenditure in the year in which such expenditure was incurred. And in the case of General Motors (India) Pvt. Ltd. vs. DCIT, Co-ordinate Bench has held that such expenditure are allowable and on account of aforesaid binding decision, we hold that ld. CIT(A) has rightly granted relief to the assessee. Thus, this ground of appeal of the Revenue is dismissed.
11. Now we come to ground relating to deleting the disallowance of Rs. 13,28,114/- u/s. 14A r.w.r. 8D.
20 ITA No. 3459/Ahd/2015. A.Y. 2011-12
12. The ld. A.O. has discussed this issue at page no. 14 to 21 in Para 4 and ld. CIT(A) has discussed this issue at page no. 29 to 43 in Para 5. In this case, assessee has investment of Rs. 100000000/- and A.O. made disallowance of Rs. 13,28,114/- u/s. 14A r.w.r. 8D and addition for the like amount while computing book profit u/s. 115JB of the Act.
13. In appeal before the ld. CIT(A), ld. CIT(A) granted relief to the assessee.
14. After going through the impugned order and record, we can see that assessee has not earned any exempt income from investment made by it which is apparent from audited annual accounts as well as computation of total income as submitted before Assessing Officer as well as before the ld.CIT(A). In such case, assessee's case draw support from the case of CIT vs. Corrtech Energy P. Ltd. of Hon'ble Gujarat High Court wherein on identical issue, assessee was granted relief by holding that if assessee did not make any claim for exemption of any income from payment of tax. It was on this basis, the Tribunal held that disallowance u/s. 14A of the Act cannot be made.
15. Considering the facts and circumstances of the case, as assessee has not earned any exempt income. Therefore, in such case disallowance u/s. 14A r.w.r. 8D cannot be made.
16. In the result, this ground of appeal is dismissed.
17. Now we come to ground relating to deleting disallowance of Rs. 1328114/- u/s. 14A r.w.r. 8D of the Act while computing book profit u/s. 115JB.
21 ITA No. 3459/Ahd/2015. A.Y. 2011-12
18. As in earlier ground, we have held that assessee has not earned any exempt income, therefore, disallowance u/s. 14A cannot be made and in our considered opinion, ld. CIT(A) has passed detailed and reasoned order. Therefore, we do not want to interfere at our end in this issue. Thus, this ground of appeal of the Revenue is dismissed.
19. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in Open Court on 01- 02- 2019
Sd/- Sd/-
(PRAMOD KUMAR) (MAHAVIR PRASAD)
VICE PRESIDENT True copy JUDICIAL MEMBER
Ahmedabad: Dated 01 /02/2019
Rajesh
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) -
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad