S. 145A Value of inventory must include amount of excise duty paid on it

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ITAT MUMBAI BENCH ‘K’

Petro Araldite (P.) Ltd.

v.

Deputy Commissioner of Income-tax

Income Tax Appeal No. 6217 (Mum.) of 2012
[A. Y. 2008-09]

Date of Pronouncement – 18.01.2013

 

During the course of assessment proceedings it was observed by AO that the assessee was following ‘exclusive method’ of valuing the cost of its inventory by not increasing it with the amount of excise duty paid thereon, although as per section 145A purchases and inventories are required to be grossed up to include to duty element. That is how an addition of Rs. 1,25,91,360/- was made.

After considering the rival submissions and perusing the relevant material on record it is observed that section 145A came to be inserted by the Finance (No.2) Act, 1995 w.e.f. 1.4.1999 providing for the valuation of purchase and sale of goods and inventory in accordance with the method of accounting regularly employed by the assessee and further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. Pursuant to insertion of section 145A it has now become mandatory to value inventory on ‘inclusive’ and not ‘exclusive’ method which was followed by the assessee. Under the section, not only purchase and sale of goods but also the inventory is required to be valued as inclusive of the amount of tax, duty or fee etc. Further, such duty is to be included not only in the value of closing stock but also the opening stock. The Hon’ble jurisdictional High Court in the case of CIT v. Mahalaxmi Glass Works (P.) Ltd. [2009] 318 ITR 116 (Bom) has held that where unutilized Modvat credit is adjusted in the closing stock, similar adjustment should also be made to the opening stock as well. The Hon’ble Delhi High Court in the case of CIT v. Mahavir Alluminium Ltd. [2008] 297 ITR 77 has also canvassed similar view. Respectfully following the above precedents, we set aside the impugned order on this issue and direct the AO to decide it as per law. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in this regard.