INCOME TAX ACT, 1961

Section 145A

Valuation of closing stock - Adjustment of unutilized CENVAT - Unutilized CENVAT credit shown in balance sheet -

Assessee-company showed unutilized CENVAT credit in its balance sheet. As per AO, the amount of unutilized CENVAT credit was to be included in the value of closing stock in pursuance to provision of section 145A but the same had not been done so. Accordingly, the AO was of the view that the assessee declared less income by not including the unutilized CENVAT credit in the value of closing stock. Thus, the AO added the same to the total income of the assessee. Held: Provisions of section 145A mandates to follow exclusive method of accounting which requires recording the transactions of purchase and sales of the stock after including taxes incurred in relation to purchase/sales of goods. In instant case, assessee was following exclusive method of accounting, however, it had not included such taxes in the amount of purchases, sales and closing stock and the said method had been consistently followed by the assessee in earlier and succeeding years. Further, even if, such taxes were included in the opening stock, purchase, sales and closing stock, then there would not be any difference in the total income declared by the assessee because such exercise was tax neutral. Furthermore, unutilized CENVAT credit had not been claimed by way of expenditure while drawing the P&L A/C, therefore, the question of including the same while valuing the closing stock would not arise. Moreover, the unutilized CENVAT credit could not be construed as income and there was no liability to pay tax on such unutilized CENVAT credit.

REFERRED : CIT v. Indo Nippon Chemicals Co. Ltd. (2003) 261 ITR 275 (SC) : 2003 TaxPub(DT) 972 (SC) and Asstt. CIT v. Puneet Industries Pvt. Ltd. [ITA No. 1443/Ahd/2012, assessment year 2006- 07, Order, dated 10-6-2016].

FAVOUR : In assessee's favour.

A.Y. : 2006- 2007

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