Umedica Laboratories Pvt. Ltd.,, Vapi vs Assessee

These two appeals filed by the assessee are directed against two separate orders dated 17.02.2011 for the Asst. Years 2003-04 & 2007-08. Since these appeals pertain to the same assessee, these ITA NoS.1455 & 1456/Ahd/2011 2 Asst. Years 2003-04 & 2007-08

were heard together and are being disposed of by this common order for the sake of convenience.

2. In ITA No.1455/Ahd/2011 the assessee has filed the appeal on following grounds:-

1. The ld. Asstt. CIT erred in disallowing deduction u/s 80HHC on sale of DEPB without considering the facts. Considering it deduction u/s 80HHC is to be allowed on sale of DEPB.

2. The appellant craves, leave to add, to allow or substitute all or above grounds of appeal.

3. The assessee is engaged in the business of formulations and manufactures tables and syrup in pharma. In this case assessment was originally completed u/s 143(3) determining total income at Rs.1,73,19,981/-. While finalizing the assessment DEPB license income of Rs.1,10,45,628/- was excluded from the profits eligible for deduction u/s 80HHC and deduction to the extent of 90% of export incentive was denied. The CIT(A) dismissed the appeal of assessee and the assessee came in appeal before the Tribunal. The Tribunal restored the matter to the file of Assessing Officer on the belief that the Assessing Officer had no occasion to go through the amendment made out in the provisions of section 80HHC by Finance Act, 2005. In the re-assessment proceedings the Assessing Officer restored the findings in the original assessment after ITA NoS.1455 & 1456/Ahd/2011 3 Asst. Years 2003-04 & 2007-08

considering the submissions made before him. On appeal before CIT(A) the assessee submitted that the issue is covered in favour of assessee by the decision of Hon'ble Bombay High Court in the case of CIT vs. Kalpaturu Colours & Chemicals 233 CTR (Bom) 313 but the first appellate authority dismissed the appeal of assessee. Now the assessee is in second appeal before us.

4. Before us, the ld. AR Ms. Ukti Parikh submitted that this issue is covered in favour of assessee by the decision of Hon'ble Supreme Court Court in the case of Topman Exports vs. CIT (2012) 342 ITR 49 (SC) wherein reversing the decision in the case of CIT vs. Kalpataru Colours & Chemicals (supra) has been decided in favour of assessee by observing as under :-

"As the DEPB credit has direct nexus with the cost of imports for manufacturing an export product, any amount realized by the assessee over and above the DEPB credit on transfer of the DEPB credit would represent profit on the transfer of the DEPB credit. Thus, while the face value of the DEPB credit will fall under clause (iiib) of section 28 of the Act, the difference between the sale value and the face value of the DEPB credit will fall under clause (iiid) of section 28 of the Act. The cost of acquiring the DEPB credit is not nil because the person acquires it by paying customs duty on the import content of the export product and the DEPB credit which accrues to a person against exports has a cost element in it. The DEPB credit represents part of the cost incurred by a person for manufacture of the export product and hence even where the DEPB credit is not utilized by the exporter but is transferred to another person, the credit continues to remain as a cost to the exporter. When, therefore, ITA NoS.1455 & 1456/Ahd/2011 4 Asst. Years 2003-04 & 2007-08

the DEPB credit is transferred by a person, the entire sum received by him on such transfer does not become his profit. It is only the amount that he receives in excess of the DEPB credit which represents his profits on transfer of the DEPB credit."

5. Facts being similar and even nothing contrary was brought to our notice by the Revenue, in view of the above decision of the Hon'ble Supreme Court we set aside the orders of lower authorities and Assessing Officer is directed to grant relief to assessee in light of above legal discussion. As a result, the appeal filed by the assessee is allowed.

6. In ITA No.1456/Ahd/2011 for AY 2007-08 the assessee has raised the following grounds:-

1. The ld. Addl. CIT erred in disallowing adjustment u/s 145(A) of Rs.5,23,379/- without considering the facts. He has not considered same principles should apply while valuing opening stock also. The addition made on this ground is required to be deleted.

2. The ld. Addl. CIT has failed to understand that the valuation of closing stock is done on same principle since last 10 years.

He added excise duty u/s 145 (a) while valuing the closing stock. He has not applied same principles for the valuation of opening stock. There can not be two set of principle to value the opening stock as well as closing stock. If addition is not deleted on first ground of appeal, the valuation of opening stock shall be done on same principle as that done for closing stock. The opening stock should also be valued including excise duty.

ITA NoS.1455 & 1456/Ahd/2011 5 Asst. Years 2003-04 & 2007-08

7. At the outset of hearing, ld. AR Ms Ukti Parikh submitted that the AO made addition of Rs.5,23,379/- on account of closing stock valuation by invoking provisions u/s 145(A) of the Act. Similar ground was raised by the assessee in AY 2005-06. While adjudicating the appeal for AY 2005-06 the CIT(A) held :-

''The issue relating to whether the value of closing stock of the inputs, work-in-progress and finished goods must necessary include the element for which MODVAT credit is available was a hotly debated topic. Sec.145A was inducted to clarify that while computing the value of the inventory as per the method of accounting regularly employed by the assessee, the same shall include the amount of any tax, duty, cess or fees paid or liability incurred for the same under any law in force, notwithstanding anything to the contrary contained in section 145. The explanation to section 145A provides that for the purposes of this section, any tax, duty, cess or fees (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment. In this circumstances the appellant has no choice but to include the excise duty liability for the inventory. Therefore, this ground of appeal is dismissed."

7.1 The facts and issue involved in the Asst. Year 2005-06 were similar, therefore, the CIT(A) by following his earlier order dismissed .this ground. The assessee being aggrieved and is in appeal before us.

ITA NoS.1455 & 1456/Ahd/2011 6 Asst. Years 2003-04 & 2007-08

7.2 Before us the ld. AR submitted that the issue of Asst. Year 2005-06 travelled upto the Tribunal and the Tribunal vide its order in ITA No.2316/Ahd/2010 dated 28/11/2013 decided the issue in favour of assessee by observing as under :-

''4. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the ld.CIT(A) has decided this issue vide paragraph No.5.2 of his order by observing as under:-

"5.2. I have carefully considered the order of the AO and the submission made by the appellant. The issue relating to whether the value of closing stock of the inputs, work-in-progress and finished goods must necessary include the element for which MODVAT credit is available was a hotly debated topic. Sec. 145A was inducted to clarify that while computing the value of the inventory as per the method of accounting regularly employed by the assessee, the same shall include the amount of any tax, duty, cess or fees paid or liability incurred for the same under any law in force, notwithstanding anything to the contrary contained in Section1 45. The explanation to section 145A provides that for the purposes of this section, any tax, duty, cess or fees (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment. In this circumstances the appellant has no choice but to include the excise duty liability for the inventory. Therefore, this ground of appeal is dismissed."

4.1. In the decision of the ld.CIT(A) the case-law as relied upon by the ld.counsel for the assessee was not considered. The Hon'ble High Court of Delhi in the case of CIT vs. Mahavir Aluminium Ltd. reported at (2008) 297 ITR 77 ::

168 Taxman 27 (Delhi) has held that whenever any adjustment is made in the valuation of stock, this will effect both; opening as well as closing stock. In the present case also, the AO has not taken into consideration the opening as well as closing stock. Therefore, respectfully following the aforesaid decision, we hereby direct the AO to restrict the addition to Rs.61,387/- and delete a sum of Rs.4,03,662/-, Thus, this ground of assessee's appeal is allowed to that extent. ''

8. Nothing contrary was brought to our knowledge so we hold that CIT(A) erred in disallowing the adjustment under section 145A of Rs.5,23,379/-. The Assessing Officer failed to refer to his ITA NoS.1455 & 1456/Ahd/2011 7 Asst. Years 2003-04 & 2007-08

order for previous year. The same practice was followed for all preceding assessment years. As in the closing stock of current year excise duty of Rs.5,23,379/- was not included also excise duty of Rs.5,22,238 was not included in opening stock of current Assessment Year. The Assessing Officer has not considered the same consistent policy, being followed for all preceding Assessment Years. So, he has not followed the same principles while considering the value of opening stock. In this background, addition made on this ground is required to be restricted to Rs.1,141/- considering the valuation of opening stock, which is also exclusive of excise duty. The Assessing Officer is directed accordingly.

9. In view of the above, the appeal filed by the assessee is disposed of as indicated above.

10. In the result, both the appeals are allowed as indicated above.

Pronounced in the open Court on this the 29th day of June, 2015.

Sd/- Sd/- (Anil Chaturvedi) (Shailendra Kumar Yadav) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated :_29/6/2015

Mahata/- ITA NoS.1455 & 1456/Ahd/2011 8 Asst. Years 2003-04 & 2007-08

Copy of the order forwarded to: 1. The Appellant 2. The Respondent 3. The CIT concerned 4. The CIT(A) concerned 5. The DR, ITAT, Ahmedabad 6. Guard File BY ORDER

Dy.Registrar,ITAT, Ahmedabad

1. Date of dictation: 5/6/2015

2. Date on which the typed draft is placed before the Dictating Member: 17/6/2015 other Member:

3. Date on which approved draft comes to the Sr. P. S./P.S.:

4. Date on which the fair order is placed before the Dictating Member for pronouncement: __________

5. Date on which the fair order comes back to the Sr. P.S./P.S.:

6. Date on which the file goes to the Bench Clerk: 29/6/2015

7. Date on which the file goes to the Head Clerk:

8. The date on which the file goes to the Assistant Registrar for signature on the order:

9. Date of Despatch of the Order: