2014 (3) TMI 964 - AT - Income Tax

Disallowance u/s 145A - addition to closing stock the excise duty payable on closing inventory of finished stock - Held that - liability of excise duty in cases such as this case gets crystallized only on the date of clearance of goods and not on the date of manufactur. Since in the present case the goods have not been cleared and the excise duty is not exigible on the same hence the excise duty should not be included in the valuation of the closing stock - excise duty payable in this case is to be included in the closing inventory - Decided in favour of assessee.

Summary

Issues:
1. Addition of excise duty to closing stock under section 145A of the Income Tax Act.

Analysis:
The primary issue in this case revolves around the addition of excise duty to the closing stock of finished goods under section 145A of the Income Tax Act. The appellant had initially shown a difference in the valuation of closing stock in the Balance Sheet and the Profit and Loss account, attributing it to excise duty payable on the closing stock. The Assessing Officer (AO) contended that excise duty liability should be included in the valuation of closing stock as per the accounting method prescribed under section 145A, citing the Central Excise Act and relevant case laws. The AO emphasized that excise duty liability accrues upon production or manufacture of goods, and therefore, should be part of the closing stock valuation. The AO, after considering the appellant's arguments and case laws, added the excise duty amount to the closing stock.

Upon appeal, the Commissioner of Income Tax (Appeals) upheld the AO's decision, stating that excise duty, being payable immediately upon production or manufacture of goods, should be included in the closing stock valuation. The CIT(A) referred to the decision in British Paints India Ltd. to support this stance.

In response, the appellant cited various case laws, including CIT vs. Dynavision Ltd. and ACIT vs. Narmada Chematur Petrochemicals Ltd., arguing that excise duty should not be included in the closing stock valuation. The appellant contended that these cases supported the exclusion of excise duty from the closing stock value.

The Tribunal, after considering the arguments and case laws presented by both parties, referred to the decision of the Bombay High Court in CIT vs. Loknete Balasher Besai S.S. K Ltd. The High Court clarified that excise duty liability crystallizes only upon the clearance of goods, not upon manufacture. Therefore, in cases where goods have not been cleared, excise duty should not be included in the closing stock valuation. Based on this interpretation and precedent, the Tribunal allowed the appeal by the Assessee, setting aside the orders of the lower authorities and ruling that excise duty payable in this case should not be included in the closing inventory valuation.