M/S M K Pharma Pvt. Ltd.,, Hyderabad vs Department Of Income Tax

Dy. Commissioner of Income-tax, vs. M/s M.K. Pharma Pvt. Ltd., Circle - 16(2), Hyderabad. Hyderabad.

PAN - AACCM3033G

(Appellant) (Respondent) Revenue by : Shri B. Rajaram Assessee by : None

Date of hearing 23-06-2015 Date of pronouncement 26-06-2015

O RDE R PER SAKTIJIT DEY:

This appeal of the department is directed against order dated 07/11/2013 of ld. CIT(A)-V, Hyderabad pertaining to AY 2007-08.

2. When the appeal was called for hearing, no one appeared on behalf of assessee-respondent. Considering the nature of dispute, we, therefore, proceed to dispose of the appeal after hearing ld. DR.

3. The only effectively ground raised by the department is as follows:

"2. The CIT(A) ought to have appreciated the fact that the AO disallowed the double claim of expenditure towards excise duty."

4. Briefly the facts are, assessee a company is engaged in the business of manufacture and sale of pharmaceutical formulations. For the AY under consideration, assessee filed its return of income declaring total income of Rs. 13,32,380. In course of assessment proceeding, AO noticed that assessee has reduced excise duty of Rs.

2 ITA No. 766 /Hyd/2014 M/s M.K. Pharma Pvt. Ltd.

92,55,868 from sales without reducing excise duty of Rs. 63,10,435 from purchases, which, according to AO, has resulted in double deduction on account of excise duty. Assessee in response to the query raised by AO submitted that it is following the principle of accounting as per which the excise duty paid on purchase of inputs ( raw materials, consumables, stores, etc.) is accounted to the CENVAT credit receivable/Excise duty deposit account by reducing the cost of inputs. It was submitted, the said CENVAT credit receivable/Excise duty deposit account was adjusted against excise duty payable on its finished goods by crediting the said account and debiting excise duty account. Therefore, there is no need to make any further adjustment. However, AO did not find merit in the submissions of assessee. He observed that as per column 12-B and 22A of the 3CD report, there are no adjustments to be made as per Annexure-I and that there is no outstanding balance representing CENVAT at the end of the year. Whereas assessee has made adjustments which has resulted in claim of double deduction of excise duty. He further observed that under the hybrid system of accounting, assessee's claim that purchases are net of excise duty cannot be acceded. Accordingly, AO disallowed an amount of Rs. 63,10,435 by observing that assessee has made additional claim of deduction to that extent. Being aggrieved of such disallowance, assessee preferred appeal before ld. CIT(A).

5. Reiterating what was stated before AO, assessee submitted before ld. CIT(A) that in order to comply with the prescribed accounting standard in respect of sales, they are grossing up the sales by adding the amount of excise duty and again reducing the same in the P&L A/c admitting the net sales. It was submitted, the gross sales of Rs. 6,05,32,497 were reduced by the excise duty collected at Rs. 92,55,868 and the net sale of Rs. 5,12,76,629 was offered for taxation. As far as the purchases are concerned, it was submitted that assessee is following exclusive method of accounting 3 ITA No. 766 /Hyd/2014 M/s M.K. Pharma Pvt. Ltd.

by accounting the excise duty paid on the said purchases of inputs to the CENVAT credit receivable/Excise duty deposit account by reducing the cost of inputs. To support its claim, assessee also submitted the details of purchase of raw materials, packing materials and excise duty accounted. Explaining further, it was submitted that the excise duty of Rs. 63,10435 (basic duty plus cess) paid on the purchase was transferred to CENVAT credit receivable/Excise duty deposit account and utilized against excise duty liability on sales of the finished goods. In this context, assessee also produced the purchase register showing purchase of raw materials and packing materials along with entries made in the books of account in respect of purchases and sales, treatment of excise duty in respect of purchases, sales and on finished goods. Ld. CIT(A) after examining the books of account and verifying the facts and figures found that total purchases during the year are to the tune of Rs. 4,26,60,641. CENVAT credit on these purchases amounted to Rs. 63,10,435. Therefore, the total purchases inclusive of CENVAT comes to Rs. 4,89,71,076. As against the aforesaid purchases in the P&L A/c, assessee under Schedule-I brought in the figures of Rs. 3,60,05,782 (raw material), Rs. 66,54,859 (packing material), exclusive of CENVAT paid on these purchases. He, therefore, observed that since the purchases shown in the P&L A/c is net of excise duty there is no need to further reduce the excise duty of Rs. 63,10,435 from the purchases. Accordingly, he deleted the addition made by AO.

6. We have heard the ld. DR and perused the orders of revenue authorities as well as other material on record. As could be seen from the assessment order, AO being of the view that assessee has reduced the excise duty from sales whereas he did not reduce from the purchases, has made disallowance of Rs. 63,10,435 by reducing it form the purchases. However, as could be seen from the order of ld. CIT(A), assessee has demonstrated before him by producing the books of account that purchases shown in the P&L A/c is net of 4 ITA No. 766 /Hyd/2014 M/s M.K. Pharma Pvt. Ltd.

excise duty. That being the case, in our view, AO has made disallowance without proper verification of the books of account and other relevant information. Accordingly, factually there being no claim of double deduction on account of excise duty by assessee, as alleged by AO, we do not find any infirmity in the order of ld. CIT(A) in deleting addition made by AO. Accordingly, we uphold the order of ld. CIT(A) by dismissing the ground raised.

7. In the result, appeal of department is dismissed.

Pronounced in the open court on 26 th June, 2015.

Sd/- Sd/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Hyderabad, Dated: 26 th June, 2015 kv

Copy to:-

1) DCIT, Circle - 16(2),Room No. 611, 6 th Floor, Aayakar Bhavan, Basheerbagh, Hyderabad.

2) M/s M.K. Pharma Pvt. Ltd., 415, Aditya Enclave, Ameerpet, Hyderabad 3 CIT(A)-V, Hyderabad

4) CIT-IV, Hyderabad

5) The Departmental Representative, I.T.A.T., Hyderabad.