Itxa1651_17.Doc v. This Appeal Under Section 260-A Of The Income Tax Act, 1961 Hasbeen Preferred By The Revenue Against The Order Dated 25.11.2016 Passedby The Income Tax Appellat

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONINCOME TAX APPEAL (IT) NO.1651 OF 2017 Pr. Commissioner of Income Tax-15…AppellantVs.Classic Marble Company Limited…Respondent Mr. Suresh Kumar a/w. Ms Sumandevi Yadav and Ms Priyanka Tiwaryfor Appellant.Mr. B. V. Jhaveri for Respondent. CORAM : UJJAL BHUYAN,MILIND N. JADHAV, JJ.DATE :FEBRUARY 05, 2020 P.C.: Heard Mr. Suresh Kumar, learned standing counsel Revenue forthe appellant and Mr. Jhaveri, learned counsel for the respondent /assessee. 2.This appeal under Section 260-A of the Income Tax Act, 1961 hasbeen preferred by the Revenue against the order dated 25.11.2016 passedby the Income Tax Appellate Tribunal, Bench 'C', Mumbai in I.T.A.No.1320/Mum/2015 for the assessment year 2010-11. 3.The appeal has been preferred on the following questions stated tobe substantial questions of law: "1.Whether on the facts and in the circumstances of thecase, the Tribunal was right in not appreciating the guidelines ofInstitute of Chartered Accountants of India (ICAI) thatadjustment made under Section 145-A of the Income Tax Act,1961 in cases where exclusive method is followed will berevenue neutral? 2.Whether on the facts and in the circumstances of thecase, the Tribunal was right in upholding the adjustment madeunder Section 145-A of the Income Tax Act, 1961 on the groundthat the assessee is consistently following the same methodignoring the fact that the same was not in accordance with theprovisions of law? 3.Whether on the facts and in the circumstances of the case, the Tribunal was right in confirming the decision of theCommissioner without appreciating the fact that in the workingsubmitted as per formula laid down in the case of M/s. HawkinsCooker Ltd., the assessee has reduced the excise duty on closingstock of finished goods twice to arrive at the adjustment underSection 145-A of the Income Tax Act, 1961?" 4.Respondent is an assessee under the Income Tax Act, 1961(briefly 'the Act' hereinafter). It is a company engaged in the business ofmanufacturing and dealing in all types of marble and granite products.For the assessment year under consideration, respondent filed return ofincome declaring total income at nil. Case of the respondent was takenup for assessment scrutiny. In the scrutiny assessment, assessing officerobserved that respondent had claimed reduction in profit due toadjustment under Section 145-A of the Act at Rs.3,80,91,536.00. Noticewas issued to the respondent to explain as to why the said adjustmentshould not be disallowed. Respondent submitted reply. After consideringthe reply of the respondent, assessing officer vide the assessment orderdated 13.03.2013 disallowed the claim of deduction made by therespondent. As a result, the aforesaid amount was added back to the totalincome of the respondent. 5.In appeal before the Commissioner of Income Tax (Appeals)-22,Mumbai, the first appellate authority, the aforesaid addition was deletedvide order dated 10.12.2014 on the grounds and reasons mentionedtherein. As a matter of fact, the first appellate authority followed its ownorder in the case of the respondent for the assessment year 2009-10. 6.Aggrieved by the aforesaid, Revenue approached the Tribunal inappeal. Tribunal, after hearing the matter, took note of the findingreturned by a Co-ordinate Bench in the case of the respondent for theassessment year 2009-10 and following the said decision dismissed theappeal filed by the revenue. 7.Hence, the present appeal by the revenue. 5.In appeal before the Commissioner of Income Tax (Appeals)-22,Mumbai, the first appellate authority, the aforesaid addition was deletedvide order dated 10.12.2014 on the grounds and reasons mentionedtherein. As a matter of fact, the first appellate authority followed its ownorder in the case of the respondent for the assessment year 2009-10. 6.Aggrieved by the aforesaid, Revenue approached the Tribunal inappeal. Tribunal, after hearing the matter, took note of the findingreturned by a Co-ordinate Bench in the case of the respondent for theassessment year 2009-10 and following the said decision dismissed theappeal filed by the revenue. 7.Hence, the present appeal by the revenue. 8.Respondent had explained before the assessing officer that theadjustment under Section 145-A was on account of variation in exciseduty paid by procuring raw materials and discharge of excise dutyliability on non-finished goods. It was also mentioned that theadjustment was due to difference in CENVAT credit availed on openingstock and purchases of raw material made during the year against theCENVAT credit utilized on discharge of excise duty liability on sale offinished goods. Respondent had pointed out that there was always excessamount of CENVAT credit taken on raw materials remaining unutilizedas excise duty payable on the finished goods manufactured from thoseraw materials was less. 9.In the appellate proceedings, the first appellate authorityelaborately examined payment of excise duty by the respondent and thefact that respondent had applied Accounting Standard 2 issued by theInstitute of Chartered Accountants of India (ICAI). First appellateauthority noted that under this method, entry in the books of accounts atthe purchase of raw materials is made only on the cost of goods and notwith regard to the excise duty paid to the supplier. Such amount ofexcise duty is credited to CENVAT credit receivable account at the timeof payment of excise duty on finished goods. Thus, the manufacturer isentitled to set-off against the credit available in the CENVAT creditreceivable account in order to discharge the excise duty payable on theclearance of finished goods. 9.1.First appellate authority also noted that respondent followed theabove accounting method while accounting for its excise duty paid onraw materials and final products. Respondent had explained which wasaccepted by the first appellate authority that ICAI mandates usage ofexclusive method as per which the amount of excise duty actually paidon inputs cannot be debited to the profit and loss account. But this wasan expenditure which had actually been incurred and thus, adjustment under Section 145-A should be allowed to the respondent and deductedfrom the profits subject to tax in India. Following its earlier decision inthe case of the respondent itself for the assessment year 2009-10, thefirst appellate authority took the view that deduction on account ofadjustment under Section 145-A should be allowed. 10.When the matter came up before the Tribunal, Tribunal also reliedupon its own decision in the case of the respondent itself for theassessment year 2009-10 and upheld the finding of the first appellateauthority. The decision of the Tribunal in the case of the respondent forthe assessment year 2009-10 is extracted hereunder: under Section 145-A should be allowed to the respondent and deductedfrom the profits subject to tax in India. Following its earlier decision inthe case of the respondent itself for the assessment year 2009-10, thefirst appellate authority took the view that deduction on account ofadjustment under Section 145-A should be allowed. 10.When the matter came up before the Tribunal, Tribunal also reliedupon its own decision in the case of the respondent itself for theassessment year 2009-10 and upheld the finding of the first appellateauthority. The decision of the Tribunal in the case of the respondent forthe assessment year 2009-10 is extracted hereunder: "10.Rival contentions have been heard and record perused.We have also deliberated on the judicial pronouncementsreferred by AO and CIT(A) in his order as well as cited by ld.AR and DR during the course of hearing before us, in thecontext of factual matrix of the case. From the record we foundthat assessee used to pay custom duty on import of raw marblesblocks, which is based on its weight. The custom duty paid onthese blocks include a component of CENVAT, which assessee isentitled to take a credit for set-off, M/s Classic Marble Co. Pvt.Ltd. under "inverted duty structure". The CIT(A) hascategorically recorded a finding to the effect that excise dutypaid on final product was less than the taxes paid on the rawmaterials, the assessee was always left with huge balances inCENVAT Credit Receivable Account. However, the AO hasmade addition on the assumption that input is equal to outputthrough rate of Excise Duty on the opening stock/purchases ofraw material should be equal to the rate of Excise Duty on valueof consumption of raw materials/closing stock of raw materials.Since the duty paid by the assessee on raw materials is muchmore than the duty payable on final products, the hypotheticalequation drawn by the AO was not applicable to the facts of thepresent case. The categorical finding has also been recorded bythe CIT(A) to the effect that because of "inverted duty structure"huge balance has been accumulated in the CENVAT CreditReceivable Account, hence, the assessee's case is exception tothe general rule. The CIT(A) is also dealt with the decision ofthe Tribunal in the case of Hawkins Cooker Ltd. and aftercalling the facts and figures of the assessee, came to theconclusion it that formula laid down in the case of HawkinsCooker Ltd., is not applicable to the facts of this case. TheCIT(A) also taken into consideration increase in case of openingstock on inclusion of excise duty on which MODVAT credit isavailable/availed and also increase in purchase of raw materials,increase in sales of finished goods on inclusion of excise duty. The excise duty paid on sale of finished goods, as a result ofinclusion in sales, were also taken into account. After givingdetailed finding at para 3.3 to 3.12, the CIT(A) deleted theaddition. The detailed finding recorded by CIT(A) afterobserving that assessee has been consistently following the samemethod of adjustment u/s.145A over the years has not beencontroverted by Id. DR by brining any positive material onrecord. The detailed working so arrived at by CIT(A) and thefindings given there on are as per material on record, thus, donot require any interference on our part. Accordingly, we upheldthe order of the CIT(A) for deleting the addition made by theAO u/s. 145A of the I.T. Act." 11.During the hearing, Mr. Kumar fairly submitted that appeal beingIncome Tax Appeal No.1400 of 2017 filed by the Revenue against theabove decision of the Tribunal for the assessment year 2009-10 waswithdrawn on 20.12.2018 as the tax effect was below the prescribedlimit in terms of C.B.D.T. Circular No.3 of 2018 dated 11.07.2018. 11.During the hearing, Mr. Kumar fairly submitted that appeal beingIncome Tax Appeal No.1400 of 2017 filed by the Revenue against theabove decision of the Tribunal for the assessment year 2009-10 waswithdrawn on 20.12.2018 as the tax effect was below the prescribedlimit in terms of C.B.D.T. Circular No.3 of 2018 dated 11.07.2018. 12.Irrespective of the fact that Revenue’s appeal for the assessmentyear 2009-10 was dismissed on withdrawal on the ground that the taxeffect was below the prescribed limit, we have independently appliedour mind to the said order which has been followed by the Tribunal forthe present assessment year and we find that the view taken by the firstappellate authority as affirmed by the Tribunal is correct and nointerference is called for. The first appellate authority had rightly deletedthe addition, which has been affirmed by the Tribunal. 13.On thorough consideration, we do not find any merit in thisappeal as no substantial question of law arises out of the order of theTribunal. 14.Consequently, the appeal is dismissed. (MILIND N. JADHAV, J.) (UJJAL BHUYAN, J.)