Income Tax Appellate Tribunal - Kolkata
Stone India Limited, Kolkata vs Department Of Income Tax on 18 November, 2015
I . T. A . N o. 2 2 0 0 / KO L . / 2 0 1 0
Assessment year: 2007-2008
Page 1 of 6
IN THE INCOME TAX APPELLATE TRIBUNAL,
KOLKATA 'A' BENCH, KOLKATA
Before Shri P.M. Jagtap, Accountant Member
and Shri S.S. Viswanethra Ravi, Judicial Member
I.T .A. No. 2200/KOL/ 2010
Assessment Year : 2007-2008
Deputy Commissioner of income Tax,........ ........................Appellant
Circle-1, Ko lkata,
Aayakar Bhawan, 7 t h Floor,
P-7, Chowringhee Square,
Kolkata-700 069
-Vs.-
M/s. Stone India Lim ited,...................................................Respondent
16, Taratala Ro ad,
Kolkata-700 088
[PAN : AAECS 4155 K]
Appearances by:
Shri Sridhar Bhattacharyya, JCIT, Sr. D.R., for the Department
Shri D.S. Damle, FCA , fo r the assessee
Date of concluding th e hearing : November 04, 2015
Date of pronouncing the order : November 18, 2015
O R D E R
Per Shri P.M. Jagtap:-
This appeal is preferred by the Revenue against the order of ld. Commissioner of Income Tax (Appeals)-I, Kolkata dated 30.08.2010 for the assessment year 2007-08, and the solitary issue arising out of the same for our consideration relates to the deletion by the ld. CIT(Appeals) of the addition of Rs.40,73,440/- made by the Assessing Officer by way of adjustment in the value of closing stock purportedly as per the provision of section 145A of the Income Tax Act, 1961.
2. The assessee in the present case is a Company, which is engaged in the business of manufacture and sale of equipments for Railways and Defence. The return of income for the year under consideration was filed I . T. A . N o. 2 2 0 0 / KO L . / 2 0 1 0 Assessment year: 2007-2008 Page 2 of 6 by it on 31.10.2007 declaring a loss of Rs.63,72,290/-. During the course of assessment proceedings, the valuation of closing stock as shown by the assessee was examined by the Assessing Officer. On such examination, he was of the view that the CST and VAT component paid on the raw material to the extent, the same was lying in closing stock was not included by the assessee in the value of stock as required by the provisions of section 145A. He, therefore, invoked the said provisions and included the value of CST and VAT in the opening as well as the closing stock of raw material, which resulted in the addition of Rs.40,73,440/-.
3. The addition of Rs.40,73,440/- made by the Assessing Officer by way of adjustment in the value of stock by invoking the provision of section 145A was disputed by the assessee in the appeal filed before the ld. CIT(Appeals). During the course of appellate proceedings before the ld. CIT(Appeals), it was submitted by the assessee, inter alia, that since no set off was permissible on account of CST paid on raw material, the same was recognized as expenditure of the year under consideration and it was also included in the value of stock of raw material. As regards VAT, it was submitted that the assessee was entitled to set off the VAT paid only on raw material against VAT recovered by it on sales and the same, therefore, was not debited to the Profit & Loss Account and consequently was not included in the value of stock of raw material. It was contended that if at all the VAT was to be included in the value of opening as well as closing stock as done by the Assessing Officer in accordance with the provisions of section 145A, the same should be done even in respect of purchases and sales and if it is so done, there would be no impact on profit and loss of the year under consideration as certified by the auditors.
4. Ld. CIT(Appeals) found merit in the submissions made on behalf of the assessee and deleted the addition of Rs.40,73,440/- made by the Assessing Officer on this issue for the following reasons given in paragraphs no. 4 to 6 of his impugned order:-
I . T. A . N o. 2 2 0 0 / KO L . / 2 0 1 0 Assessment year: 2007-2008 Page 3 of 6 "4. I h ave carefully considered the AO's findings; the submissio ns of th e A/R h ave perused and h ave through th e Annexure-A of the Tax Audit Report wherein the Audito r certified adjustments carried out to the value of o pening stock, purchases, sales and closing stock on acco unt of impact of VAT & CENVAT paid on t he purchases of th e relevant year. On consideration of the submissions and document s on record, I find merits in th e A/R's submissions. The AO due to a possible mis-
appreciat ion of the legal provisions concerning C ST & VAT made adjust ments onl y to t he opening & closing inventory. It appears from the assessment order that the value of both opening & closing stock was increased by the AO @ 8%; on the ground that the assessee was liable to pay C ST as well as VAT @ 4% each. Apparentl y, there is no valid basis for AO' s assumption. Central Sales Tax is paid in respect int er-st ate sal es, where t ax IS paid on intra st ate purchases. On any sale/purchase t ransaction t ax is therefo re paid eit her by way of CST o r VAT and not both. I therefo re agree with the submissio ns of the Ld. A/R that the VAT & CST are mutually exclusive and cannot co-exist . The AO was therefo re in erro r in considering both CST & VAT totalling 8% for the purpo se of making adjust ments to the val ue of th e opening & closing sto ck. A wrong understanding of pro visio ns of CST & VAT has result ed in an excessive addition because of the opening & closing inventory which could h ave arisen either out of inter-st ate sate o r intra-state sale o n wh ich either CST or VAT was payable and not both.
5) As rightly pointed out by the Ld. A/R, a dealer is not entitled to set off CST paid on "input" against the dealer's liability to pay C ST or VAT o n his own sales. In th e circumst ances, the CST paid on material purch ase is part of the material consumption cost and is charged t o profit & loss etc in the year of purch ase. It is in respect of int ra-st ate purch ase the VAT is paid by a dealer who is ent itled to set off the same against his liabilit y t o pay VAT on his own sales. Since VAT is payable on the mat erials purchased and is allowed credit against the dealers' own liabilit y to pay VAT on its sales: - VAT on input material is not considered as expenditure & therefore not debited to the P&L A/c. As per the account ing practice recommended by the ICAI, VAT & CENVAT for which input credit is allowed are not t reated as part of mat erial consumption cost & and therefo re not debited to P&L A/c. For this reason in valuation of inventory; VAT & CENVAT on the material in stock is not included in the value of stock. As per the judg ment of the Apex Court referred t o by the A/R in his written submission th e value of closing stock is credited in the Profit & Loss A/c onl y to cancel out the effect of debit entries in t he Profit & Loss A/c relat able to goods remaining in stock on the balanc e-sh eet date. Since VAT & C ENVAT are not debited to the Profit & Loss A/c and the cost of mat erial consumption debit ed in P&L A/c is "net" of these t axes, value of closing stock credited In the P/L A/c also does not include the component of VAT & C ENVAT.
I . T. A . N o. 2 2 0 0 / KO L . / 2 0 1 0 Assessment year: 2007-2008 Page 4 of 6
6. Sec. 145A of the Income Tax Act however pro vides for inclusion of VAT & CENVAT in the value of inventory. Reference to such Sec. 145A(a)(b) however shows t hat the adjustment o f VAT & CENVAT are t o be made only to the value of opening & closing stock but also to the purch ases and sales of the relevant previous year. The A/R in his submissions pointed o ut that in Annexure-A of Tax Audit Repo rt the Tax Audito r had cert ified the adjustments o n account of VAT and CENVAT to purch ase, sales and o pening and closing invento ry as per which "net effect"
of the adjustments specified in S. 145A on the profit or loss for the year was 'Nil'. In the impugned order, the AO however considered the impact of VAT only with respect of opening and closing inventory but he did not carry out any adjust ment s to purchase and sales during the year because of which addition was made. I find th at in the Tax Audit Report , the Auditor considered the impact of VAT & CENVAT on the value of purchase sale and opening & cl osing stock and th en certified th at profit o r loss for the year was not impact ed even aft er carrying out adjust ments fo r payment of VAT & CENVAT on materials purchased. In so far as CST paid on the inter-state purchases this was considered by the appellant in the revised accounts as part of the material consumption cost and in valuat ion of closing inventory such cost of mat erial was t ak en into acco unt and therefo re no separate addit ion on a/c. of C ST was necessary. On these facts, therefore, I hold that the addition of Rs.40,73,440/- was not justified and accordingl y the AO is direct ed to delete the addit ion of Rs.40,73,4 40/-.
In conclusion the appeal st ands allowed" .
5. Aggrieved by the order of the ld. CIT(Appeals), the Revenue has preferred this appeal before the Tribunal.
6. At the time of hearing before us, ld. D.R. relied on the order of the Assessing Officer in support of the revenue's case on the issue involved in this appeal.
7. Ld. Counsel for the assessee, on the other hand, strongly supporte d the impugned order of the ld. CIT(Appeals) and took us through the submissions made on behalf of the assessee before the ld. CIT(Appeals) to explain the accounting treatment given by the assessee in its books of account for CST and VAT as well as for the purpose of valuation of stock. He contended that this treatment given by the assessee was not I . T. A . N o. 2 2 0 0 / KO L . / 2 0 1 0 Assessment year: 2007-2008 Page 5 of 6 understood by the Assessing Officer, while the ld. CIT(Appeals) has appreciated the same in the right perspective and has given relief to the assessee on such appreciation.
8 We have considered the rival submissions and also perused the relevant material available on record. It is observed that the CST paid by the assessee on the raw material purchased was claimed as expenditure by debiting the said amount to the Profit & Loss A/c, as the assessee was not entitled to claim in set off for the same and the same was included in the value of closing stock as found by the ld. CIT(Appeals). The VAT was, however, was not claimed by the assessee as expenditure as the assessee was entitled to set off the same against the VAT collected by it and it was, therefore, not included either in the value of opening stock or in the value of closing stock. The VAT paid thus was kept in the separate account by the assessee and the same was adjusted against the VAT collected by it on sale. The exclusive method in respect of the VAT thus was followed by the assessee and as rightly held by the ld. CIT(Appeals), if the inclusive method was to be adopted as per the provisions of section 145A of the Act, the same should have been applied in respect of purchases and sales also in addition to the opening and closing stock. As certified by the auditors, if such adjustments are made as per the provision of section 145A on account of VAT in respect of opening and closing stock as well as purchases and sales, the impact on profit and loss of the year under consideration was going to be nil, calling for no addition to the total income of the assessee on this issue. We, therefore, find that as per the accounting treatment given by the assessee in respect of CST and VAT, no addition to its total income was required to be made on account of adjustment, if any, made in the value of stock as per the provision of section 145A. It appears that this accounting treatment given by the assessee, however, was not properly appreciated by the Assessing Officer, whereas the ld. CIT(Appeals) has appreciated the same in the right perspective while deleting the addition made by the Assessing Officer on this issue, as rightly contended by the ld. Counsel for the I . T. A . N o. 2 2 0 0 / KO L . / 2 0 1 0 Assessment year: 2007-2008 Page 6 of 6 assessee. We, therefore, find no infirmity in the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue and upholding the same, we dismiss this appeal filed by the revenue.
9. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open Court on November 18, 2015.
Sd/- Sd/-
(S.S. Viswanethra Ravi) (P.M. Jagtap)
Judicial Member Accountant Member
Kolkata, the 18 t h day of November, 2015
Copies to : (1) Deputy Commissioner of income Tax,
Circle-1, Ko lkata,
Aayakar Bhawan, 7 t h Floor,
P-7, Chowringhee Square,
Kolkata-700 069
(2) M/s. Stone India Lim ited,
16, Taratala Ro ad,
Kolkata-700 088
(3) Commissioner of Inco me-t ax (Appeals)- I, Kolkata (4) Commissioner of Income Tax, Kolkata (5) The Depart ment al Represent ative (6) Guard File By order Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S.