ITXA1651_17.doc IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL (IT) NO.1651 OF 2017 Pr. Commissioner of Income Tax-15 Appellant Vs. Classic Marble Company Limited Respondent Mr. Suresh Kumar a/w. Ms Sumandevi Yadav and Ms Priyanka Tiwary for 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 for appellant and Mr. Jhaveri, learned counsel for respondent / assessee. 2. This appeal under Section 260-A of Income Tax Act, 1961 has been preferred by Revenue against order dated 25.11.2016 passed by Income Tax Appellate Tribunal, Bench 'C', Mumbai in I.T.A.No. 1320/Mum/2015 for assessment year 2010-11. 3. appeal has been preferred on following questions stated to be substantial questions of law: "1. Whether on facts and in circumstances of case, Tribunal was right in not appreciating guidelines of Institute of Chartered Accountants of India (ICAI) that adjustment made under Section 145-A of Income Tax Act, 1961 in cases where exclusive method is followed will be revenue neutral? 2. Whether on facts and in circumstances of case, Tribunal was right in upholding adjustment made under Section 145-A of Income Tax Act, 1961 on ground that assessee is consistently following same method ignoring fact that same was not in accordance with provisions of law? 3. Whether on facts and in circumstances of 1/5 Uploaded on - 26/02/2020 Downloaded on - 26/02/2020 15:28:40 ITXA1651_17.doc case, Tribunal was right in confirming decision of Commissioner without appreciating fact that in working submitted as per formula laid down in case of M/s. Hawkins Cooker Ltd., assessee has reduced excise duty on closing stock of finished goods twice to arrive at adjustment under Section 145-A of Income Tax Act, 1961?" 4. Respondent is assessee under Income Tax Act, 1961 (briefly 'the Act' hereinafter). It is company engaged in business of manufacturing and dealing in all types of marble and granite products. For assessment year under consideration, respondent filed return of income declaring total income at nil. Case of respondent was taken up for assessment scrutiny. In scrutiny assessment, assessing officer observed that respondent had claimed reduction in profit due to adjustment under Section 145-A of Act at Rs.3,80,91,536.00. Notice was issued to respondent to explain as to why said adjustment should not be disallowed. Respondent submitted reply. After considering reply of respondent, assessing officer vide assessment order dated 13.03.2013 disallowed claim of deduction made by respondent. As result, aforesaid amount was added back to total income of respondent. 5. In appeal before Commissioner of Income Tax (Appeals)-22, Mumbai, first appellate authority, aforesaid addition was deleted vide order dated 10.12.2014 on grounds and reasons mentioned therein. As matter of fact, first appellate authority followed its own order in case of respondent for assessment year 2009-10. 6. Aggrieved by aforesaid, Revenue approached Tribunal in appeal. Tribunal, after hearing matter, took note of finding returned by Co-ordinate Bench in case of respondent for assessment year 2009-10 and following said decision dismissed appeal filed by revenue. 7. Hence, present appeal by revenue. 2/5 Uploaded on - 26/02/2020 Downloaded on - 26/02/2020 15:28:40 ITXA1651_17.doc 8. Respondent had explained before assessing officer that adjustment under Section 145-A was on account of variation in excise duty paid by procuring raw materials and discharge of excise duty liability on non-finished goods. It was also mentioned that adjustment was due to difference in CENVAT credit availed on opening stock and purchases of raw material made during year against CENVAT credit utilized on discharge of excise duty liability on sale of finished goods. Respondent had pointed out that there was always excess amount of CENVAT credit taken on raw materials remaining unutilized as excise duty payable on finished goods manufactured from those raw materials was less. 9. In appellate proceedings, first appellate authority elaborately examined payment of excise duty by respondent and fact that respondent had applied Accounting Standard 2 issued by Institute of Chartered Accountants of India (ICAI). First appellate authority noted that under this method, entry in books of accounts at purchase of raw materials is made only on cost of goods and not with regard to excise duty paid to supplier. Such amount of excise duty is credited to CENVAT credit receivable account at time of payment of excise duty on finished goods. Thus, manufacturer is entitled to set-off against credit available in CENVAT credit receivable account in order to discharge excise duty payable on clearance of finished goods. 9.1. First appellate authority also noted that respondent followed above accounting method while accounting for its excise duty paid on raw materials and final products. Respondent had explained which was accepted by first appellate authority that ICAI mandates usage of exclusive method as per which amount of excise duty actually paid on inputs cannot be debited to profit and loss account. But this was expenditure which had actually been incurred and thus, adjustment 3/5 Uploaded on - 26/02/2020 Downloaded on - 26/02/2020 15:28:40 ITXA1651_17.doc under Section 145-A should be allowed to respondent and deducted from profits subject to tax in India. Following its earlier decision in case of respondent itself for assessment year 2009-10, first appellate authority took view that deduction on account of adjustment under Section 145-A should be allowed. 10. When matter came up before Tribunal, Tribunal also relied upon its own decision in case of respondent itself for assessment year 2009-10 and upheld finding of first appellate authority. decision of Tribunal in case of respondent for assessment year 2009-10 is extracted hereunder: "10. Rival contentions have been heard and record perused. We have also deliberated on judicial pronouncements referred by AO and CIT(A) in his order as well as cited by ld. AR and DR during course of hearing before us, in context of factual matrix of case. From record we found that assessee used to pay custom duty on import of raw marbles blocks, which is based on its weight. custom duty paid on these blocks include component of CENVAT, which assessee is entitled to take credit for set-off, M/s Classic Marble Co. Pvt. Ltd. under "inverted duty structure". CIT(A) has categorically recorded finding to effect that excise duty paid on final product was less than taxes paid on raw materials, assessee was always left with huge balances in CENVAT Credit Receivable Account. However, AO has made addition on assumption that input is equal to output through rate of Excise Duty on opening stock/purchases of raw material should be equal to rate of Excise Duty on value of consumption of raw materials/closing stock of raw materials. Since duty paid by assessee on raw materials is much more than duty payable on final products, hypothetical equation drawn by AO was not applicable to facts of present case. categorical finding has also been recorded by CIT(A) to effect that because of "inverted duty structure" huge balance has been accumulated in CENVAT Credit Receivable Account, hence, assessee's case is exception to general rule. CIT(A) is also dealt with decision of Tribunal in case of Hawkins Cooker Ltd. and after calling facts and figures of assessee, came to conclusion it that formula laid down in case of Hawkins Cooker Ltd., is not applicable to facts of this case. CIT(A) also taken into consideration increase in case of opening stock on inclusion of excise duty on which MODVAT credit is available/availed and also increase in purchase of raw materials, increase in sales of finished goods on inclusion of excise duty. 4/5 Uploaded on - 26/02/2020 Downloaded on - 26/02/2020 15:28:40 ITXA1651_17.doc excise duty paid on sale of finished goods, as result of inclusion in sales, were also taken into account. After giving detailed finding at para 3.3 to 3.12, CIT(A) deleted addition. detailed finding recorded by CIT(A) after observing that assessee has been consistently following same method of adjustment u/s.145A over years has not been controverted by Id. DR by brining any positive material on record. detailed working so arrived at by CIT(A) and findings given there on are as per material on record, thus, do not require any interference on our part. Accordingly, we upheld order of CIT(A) for deleting addition made by AO u/s. 145A of I.T. Act." 11. During hearing, Mr. Kumar fairly submitted that appeal being Income Tax Appeal No.1400 of 2017 filed by Revenue against above decision of Tribunal for assessment year 2009-10 was withdrawn on 20.12.2018 as tax effect was below prescribed limit in terms of C.B.D.T. Circular No.3 of 2018 dated 11.07.2018. 12. Irrespective of fact that Revenue s appeal for assessment year 2009-10 was dismissed on withdrawal on ground that tax effect was below prescribed limit, we have independently applied our mind to said order which has been followed by Tribunal for present assessment year and we find that view taken by first appellate authority as affirmed by Tribunal is correct and no interference is called for. first appellate authority had rightly deleted addition, which has been affirmed by Tribunal. 13. On thorough consideration, we do not find any merit in this appeal as no substantial question of law arises out of order of Tribunal. 14. Consequently, appeal is dismissed. (MILIND N. JADHAV, J.) (UJJAL BHUYAN, J.) Minal Parab 5/5 Uploaded on - 26/02/2020 Downloaded on - 26/02/2020 15:28:40 Pr. Commissioner of Income-tax-15 v. Classic Marble Company Limited