Income Tax Appellate Tribunal - Pune
Bemco Sleepers Ltd.,, Aurangabad vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
Pune Bench "B" , Pune
Before Shri G.S. Pannu Accountant Member and
Shri. R.S. Padvekar, Judicial Member
ITA No. 715/PN/2011
(Asstt. Year : 2004-05)
The Asstt. Commissioner of Income Tax, ... Appellant
Circle-1, Aurangabad
v.
M/s. Bemco Sleepers Ltd., ... Respondent
3, Chetna Apartment,
Station Road,
Aurangabad
Appellant by : Shri Alok Mishra
Respondent by : None
Date of Hearing : 20/06/12
Date of Pronouncement : 25-6-12
ORDER
Per R.S. Padvekar, JM
In this appeal, the revenue has challenged impugned order of the Ld CIT(A)-III, Aurangabad dated 25/02/2011 for the A.Y. 2004-05.
2. The revenue has raised the following grounds in the appeal :
"1. Whether on the facts and circumstances of the case the CIT(A) is correct in deciding that the unutilized MODVAT credit is not a part of closing stock ?
2) Whether the Ld. CIT(A) was right in deciding that Section 145A of the I.T. Act, 1961 is not applicable?
3) On the facts and in the circumstances of the case, the order of the AO be restored and that of the CIT(A) be vacated."
3. The short issue in controversy is whether the un-utilized Modvat credit is to be added to the total income of the assessee. It was noticed by the A.O that the assessee has shown an amount of Rs. 19,36,472/- towards un-utilized Modvat credit. In the opinion of the A.O, the 2 ITA . No.715/PN/2011 M/s. Bemco Sleepers Ltd., A.Y. 2004-05 Page of 3 assessee should have included the same in the closing stock or should have added in computation of total income. A.O. made the addition in respect of un-utilized Modvat credit shown by the assessee in the Balance Sheet. Assessee challenged the addition before Ld. CIT(A) who deleted the said addition, by following the decision of Hon'ble High Court of Bombay in the case of CIT V/s. Indo Nippon Chemicals Co. Ltd., 245 ITR
384. The operative part of the finding of Ld. CIT(A) is as under :
"7.2 I have carefully considered the facts of the case, assessment order of the A.O. and submission of the appellant. The contention of the appellant that it has adopted exclusive method for valuing opening stock, purchases, sales and closing stock consistently and even if as required by section 145A of the Act, the inclusive method is followed, the profit remains the same is found to be correct as this of law is upheld by Hon'ble Bombay High Court in the case of CIT Vs. Indo Nippon Chemicals Co. Ltd. (2000) 245 ITR 384. In this case the Hon'ble Bombay High Court has held as under :
"Reading the two methods given by the Institute of Chartered Accountants of India, it is clear that in both cases the Modvat credit is related only to the raw material consumed. Even a bare reading of r.57A of Central Excise Rules shows that the Modvat Scheme provides for instant credit of the input only on the raw material consumed. The credit has a direct linkage with the consumption of the raw material. It is obtained on the date when the raw material is purchased. Hence, it is clear that whether one applies the net method or the gross method the gross profit remains the same."
Further the above decision in the case of Indo Nippon Chemical Co. Ltd. has been confirmed by Hon'ble Supreme Court in the year 2003 reported in 261 ITR 275, wherein it has been held that merely because Modvat credit is an irreversible credit available to the manufacturers upon purchase of duty paid raw material, it would not amount to income which is liable to be taxed. The amendment to section 145A in respect of applicability of inclusive method has come into force w.e.f. 1/4/1999 and the decision in the case of Indo Nippon Chemicals Co. Ltd. relates to A.Y. 1989-90. However, the Hon'ble Bombay High Court has clearly stated in para-9 that whether one applies the net method or gross method i.e. exclusive method or inclusive method profit remains the same." 3 ITA . No.715/PN/2011
M/s. Bemco Sleepers Ltd., A.Y. 2004-05 Page of 3
4. We have heard the Ld. D.R. We find that the assessee is following the exclusive method for valuation of purchases, sales and closing stock consistently. As rightly held by the Ld CIT(A), even if inclusive method is followed, the profits remain the same. If the A.O was desiring to make adjustment of the closing stock, then the consequential effect should have been given to the opening stock also. We find no reason to interfere with the order of Ld CIT(A) as the same is in accordance with the law. Also, in the case of CIT Vs. Mahalaxmi Glass Pvt. Ltd., 318 ITR 116 (Bom), it is held that wherein the closing stock un-utilised modvat credit is adjusted, similar adjustment should be made to the opening stock also and adjustment cannot only be made to closing stock. Relevant grounds taken by the revenue are thus dismissed.
5. In result, revenue's appeal is dismissed.
Order pronounced in the open Court on 25th June, 2012.
Sd/- Sd/-
(G.S.PANNU) (R.S. PADVEKAR)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Pune, dated the 25th June, 2012
US
Copy of the order is forwarded to :
1. The Appellant
2. The Respondent
3. The CIT, Aurangabad
4. The CIT(A)- Aurangabad
4. The D.R. "B" Bench, Pune
5. Guard File
-True Copy-/ By order
Senior Private Secretary
Income Tax Appellate Tribunal
Pune