Murli Fabrics, Surat vs Department Of Income Tax

Income-tax Officer, Ward- 2(4), Romm No.119, 1st Floor, Ayakar Bhavan, Majura Gate, Surat Appellant

Vs.

M/s. Murli Fabrics, 572, Road No.5, GIDC, Surat Respondent

PAN: AAKFM3991J

अपीलाथ क ओर से /By Appellant : Shri M. K. Singh, Sr.D.R. ू यथ क ओर से/By Respondent : Shri M. K Patel, A.R. सुनवाई क तार!ख/Date of Hearing : 02.03.2015 घोषणा क तार!ख/Date of Pronouncement : 13.03.2015

ORDER

PER SHAILENDRA KUMAR YADAV, J.M:

This appeal has been filed by Revenue against the order of Commissioner of Income Tax (Appeals)-II, Surat, dated 30.06.2011 for A.Y. 2005-06 on the following grounds.

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"1. On the facts and circumstance of the case and in law, the Ld. CIT(A)-II, Surat, has erred in deleting the addition of Rs.14,32,533/- towards unutilized MODVAT/CENVAT without noting the facts that unutilized MODVAT/CENVAT credit was required to be included in the total income of the assessee and the assessee failed to substantiate the reason for not doing so."

2. Only issue in appeal with regards to addition of Rs.14,32,533/- on account of unutilized MODVAT/CENVAT credit. The above addition has been made vide order dated 29.11.2010 u/s. 154 of the Income Tax Act, wherein Assessing Officer has discussed that in balance sheet of assessee, at the end of previous year in ending on 31.03.2005, unutilized MODVAT/CENVAT credit of Rs.14,32,533/- has been shown, and same was required to be added u/s.154 of the Act and therefore, added the same after rejecting the objection on behalf of assessee.

2.1 Matter was carried before the First Appellate Authority, wherein various contentions were raised on behalf of assessee and having considered the same CIT(A) has deleted the addition.

2.2 Same has been opposed before us on behalf of Revenue inter alia submitted that CIT(A) erred in deleting addition of Rs. 14,32,533/- towards unutilized MODVAT/CENVAT credit without noting the facts that unutilized MODVAT/CENVAT credit was required to be included in total income of assessee I T A N o . 2 2 4 6 / A h d / 1 1 A. Y . 2 0 0 5 -0 6 [ I T O v s . M / s . M u r l i F a b r ic s ] Page 3

and assessee failed to substantiate the reason for not doing so. Accordingly, order of CIT(A) be set aside and that of Assessing Officer be restored. On other hand, learned Authorized Representative supported the order of CIT(A) and submitted that this issue is covered in favour of assessee by order of Hon'ble Supreme Court of India in CIT vs. Indo Nippon Chemicals Co. Ltd. [2003] 261 ITR 275 (SC). Accordingly, order of CIT(A) be upheld.

2.3 After going through rival submissions and material on record, we find that Assessing Officer had taken debit balance entry of MODVAT/CENVAT credit, as credit balance. Assessee is debiting its purchases and crediting sales, inclusive of MODVAT and is also following the method of valuing its closing stock with the MODVAT amount. Balance appearing in the MODVAT receivable under account was on account of fact that while excise duty on purchases of input (yarn) was 12%, which was available to assessee for set off against payment of excise duty on cloth manufactured by it, rate of excise duty on cloth manufactured was only 4%. Therefore, there was a debit balance in the MODVAT receivable account at the beginning of the year at Rs.13,13,782/- . During the year, an amount of Rs.12,23,462/- has been further debited, being the excise duty on purchase account against which the appellant credited Rs.7,36,858/- and Rs.3,67,833/- being excise duty on sales account and MODVAT reversed account respectively. Thus, closing balance in the MODVAT receivable account was I T A N o . 2 2 4 6 / A h d / 1 1 A. Y . 2 0 0 5 -0 6 [ I T O v s . M / s . M u r l i F a b r ic s ] Page 4

Rs.14,32,533/-. Assessee stated that debit balance is appearing because provisions of MODVAT on manufacturing of cloth were made voluntary from 01.8.2004 and it had opted not to claim MODVAT on yarn and paid the same on cloth. The stand of assessee has also been that u/s 145 A of the Act, the closing stock is to be assessed with any tax, duty, cess or fee, and since the closing stock has already been valued at cost inclusive of excise duty. There was no justification for adding debit balance in MODVAT receivable account to the income of the assessee. In this background, CIT(A) was justified in holding that debit balance appearing in MODVAT receivable account is amount which the assessee has already debited in books of account alongwith purchases and since it has opted out of scheme of excise duty payment on manufactured cloth from the MODVAT account, assessee has not been able to set off the above receivable account against any payment of excise duty under the MODVAT scheme. The purchases which have been debited in the P & L account alongwith MODVAT account and appearing in the closing stock are also with MODVAT account. Thus, no adjustment u/s. 145 was required to be made. Accordingly, CIT(A) was justified in deleting addition of Rs.14,32,533/-. Same is upheld. This view is fortified by decision of Hon'ble Supreme Court in case of CIT vs. Indo Nippon Chemicals Co. Ltd. (supra), wherein it has been held that MODVAT credit was an irreversible credit available to manufacturers upon purchase of duty-paid raw material. It I T A N o . 2 2 4 6 / A h d / 1 1 A. Y . 2 0 0 5 -0 6 [ I T O v s . M / s . M u r l i F a b r ic s ] Page 5

would not amount to income which was liable to be taxed under Income Tax Act, 1961.

3. In the result, appeal filed by Revenue is dismissed.

Pronounced in the open Court on this the 13th day of March, 2015.

Sd/- Sd/- (N. S. SAINI) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad: Dated 13/03/2015 True Copy S.K.SINHA

आदे श क ूितिल'प अमे'षत / Copy of Order Forwarded to:-

1. राजःव / Revenue

2. आवेदक / Assessee

3. संबंिधत आयकर आयु0 / Concerned CIT

4. आयकर आयु0- अपील / CIT (A)

5. 'वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड9 फाइल / Guard file.

By order/आदे श से,

उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, अहमदाबाद ।