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August 2013

Business expenditure- Amount lying credited in the Modvat account at the end of the accounting year was expenditure allowable u/s. 37 read with section 43B.

By Kishor Karia, Chartered Accountants
Atul Jasani, Advocate
Reading Time 1 mins
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CIT vs. Shri Ram Honda Power Equipment Ltd. [2013] 352 ITR 481 (SC)

The Delhi High Court answered the following question of law in favour of the assessee and against the department in view of its decision in CIT vs. Modipon Ltd. (2002) 303 ITR 438(Del).

“Whether the Income-tax Appellate Tribunal was right in holding that the amount lying credited in the Modvat account at the end of the accounting year is expenditure allowable u/s. 37 read with section 43B of the Income-tax Act, 1961?”

The appeal pertained to the assessment year 1995-96.

On further appeal by the revenue, the Supreme Court observed that the judgment of the Bombay High Court in CIT vs. Indo Nippon Chemicals Co. Ltd. (2000) 245 ITR 384 (Bom) squarely applied to this case and the said decision was affirmed by the Supreme Court in (2003) 261 ITR 275(SC). The Supreme Court held that since the assessee followed net method of valuation of closing stock, the authorities below were right in coming to the conclusion that Modvat credit is excise duty paid.

Note: The above decision was followed in Asst. CIT vs. Torrent Cables Ltd. (2013) 354 ITR 163(SC) which also pertained to the assessment year 1995-96.

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