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6. In the result, appeal of the assessee is allowed for statistical purposes.

आयकर अपीऱ सं./I.T.A. No.4445/M/2011 (AY: 1999-2000) (By Revenue)

7. This appeal filed by the Revenue on 2.6.2011 against the order of the CIT (A)-16, Mumbai dated 16.3.2011 for the AY 1999-2000 and the grounds raised in this appeal as under:

"1. On the facts and in the circumstances of the case and in law, the ld CIT (A) erred in deleting the addition of Rs. 9,28,13,355/- made on account of inclusion of exercise duty in the violation of closing stock as per section 145A of the Act, without appreciating that section 145A was inserted by the Finance (No.2) Act, 1988, w.e.f. 1.4.1999 and therefore, applicable to the year under consideration.

8. Ground no.1 relates to the adjustments to the closing stock qua the excise duty amounting to Rs. 9,28,13,355/-. The Revenue's objection to the relief granted by the CIT (A) in this regard is restricted to the argument that the opening stocks account need not be adjusted being the AY 1999-2000 is the first year after amendment to section 145A of the Act. Otherwise, both the parties mentioned that this issue has to be decided in line with the order of the ITAT in ITA No.3198/M/2011 (AY: 1998-1999) and ITA No.5435/M/2010 (AY: 2007-2008) dated 26.6.2013. In this regard Ld DR relied on the order of the coordinate Bench of ITAT in the case of Croydon Chemical Works Ltd vs. ACIT [2007] 11 SOT 295 (Mum.) and another decision in the case of J.B. Chemicals & Pharmaceuticals Ltd [2006] 10 SOT 362 (Mum.). These decisions are relevant for the proposition that the Modvat credit available to assessee will have to be included while valuing stock, sales and purchase and it is not necessary that opening stock should be disturbed for the AY 1999-2000.

8.3.2. the Hon'ble Supreme Court in the case of CIT vs. Indo Nippon chemicals Ltd reported in 261 ITR 275 has held that it is not permissible for the AO to adopt different method of valuation of excise duty paid raw material when purchased and the unconsumed raw material on hand at the end of the year. The AO was not justified in adopting the gross method at the time of purchase and the net method of valuation at the time of valuation of stock on hand. The Hon'ble Supreme Court further 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 income which is liable to be taxed. However, the position has changed with the insertion of section 145A to the Act. Section 145A was inserted by Finance Act, 1998 w.e.f 1.4.1999 wherein it is incumbent upon the AO to adjust the amount of any tax duty or assess or fee actually paid or incurred by the assesse to bring the goods to the place of its locations and condition as on the date of valuation. The present case, which in appeal before me; is AY 1999-2000, which is after the insertion of section 145A of the Act. Therefore, the provision of section 145A applied to the appellant in this case.

8.3.3. In the case of CIT vs. Mahalaxmi Glass Works (P) Ltd (2009) 318 ITR 116 (Bom.) the question raised by revenue before the Hon'ble Bombay High Court was "whether, on the facts and circumstances of the case and in law, the Hon'ble Tribunal was justified in confirming the order of the CIT (A) whereby he directed the AO to make adjustment of unutilized Modvat credit to the opening stock and thus ignoring the ratio laid down in Melmould Corporation vs. CIT [1993] 202 ITR 789 (Bom) wherein it was held that changing the value of opening stock will lead to chain reaction and hence the same should not be done?" The Hon'ble High court held in this case that this question has been dealt with and answered by the Delhi High Court in the case of CIT vs. Mahavir Alluminimum Ltd [2008] 297 ITR 77 (Del.). This question concerns the method of valuation of inventory as contemplated by Section 145A of the Act. In the case before the Delhi High Court, the AO contended that section 145A did not permit the assessee to make a change in the valuation of the opening stock as on March, 31, 1999. The question before the Delhi High court was that the adjustment of excise duty could be made in the opening stock also. In this connection, relying upon the decision of the Privy Council in the case of CIT vs. Ahmadabad New Cotton Mills Co. Ltd AIR 1930 PC 56, the Delhi High Court took a view that to give effect to section 145A, if there is any change in the closing stock at the end of the year then there must necessarily be a corresponding adjustment made in the opening stock of the year. It has been held that this would not amount to giving double benefit to the assessee and would be necessary to compute the true and correct profit for the purpose of assessment. The appellant also demonstrated that in case, the adjustment is made to both opening and closing stock, the adjustment would be tax neutral, though it is a fact that AO has taken into consideration the adjustment required to be made in the opening stock of this year but failed to take note of the adjustment required to be made in the previous year which become cumulative in case he accepts this proposition in this year. The appellant's alternative proposal is based on the correct position of law that if additions were made of Modvat credit availed or available, the quantum of addition should be restricted to Rs. 30,94,680/- (closing Modvat credit Rs. 91,23,719/- Less opening Modvat credit Rs. 60,29,040/-). Accordingly, the addition on this could is thus restricted to Rs. 30,94,680/- and this ground of appeal is partly allowed."