2013 (5) TMI 981 - AT - Income Tax

Summary

Issues involved: Assessment of excise duty on stock of finished goods for valuation purposes u/s 145A of the Income Tax Act, 1961.

Summary:

Issue 1: Assessment of excise duty on stock of finished goods by Assessing Officer (AO)

The AO found that the assessee did not provide for excise duty on the stock of finished goods. The assessee argued that the closing stock is valued at cost or market value, whichever is lower, and that the excise duty payable was not debited to the Profit & Loss Account. The AO held that the principles of certain cases were not applicable due to the introduction of section 145A. The AO stated that excise duty cannot be debited to the P&L Account as the liability is not ascertained by the year-end.

Issue 2: Appeal before CIT(A) and interpretation of section 145A

The assessee contended before the CIT(A) that excise duty is only liable when finished goods are moved outside the factory premises, and since the stock was within the factory, no excise duty was payable. The CIT(A) observed that as the finished goods had not been moved out of the factory premises, the liability for excise duty did not arise. The CIT(A) relied on court decisions to support the view that excise duty liability crystallizes upon the clearance of goods, not at the date of manufacture.

Issue 3: Decision by Appellate Tribunal ITAT HYDERABAD

The Appellate Tribunal upheld the CIT(A)'s decision, stating that since the liability for excise duty did not crystallize as the goods were not cleared from the factory, the provisions of section 145A were not applicable. The Tribunal dismissed the revenue's appeal, affirming the deletion of the addition made towards the valuation of closing stock.

This judgment addresses the assessment of excise duty on stock of finished goods for valuation purposes under section 145A of the Income Tax Act, 1961. The Assessing Officer initially raised concerns regarding the non-inclusion of excise duty in the valuation of closing stock by the assessee. However, both the CIT(A) and the Appellate Tribunal concluded that as the finished goods had not been moved out of the factory premises, the liability for excise duty did not arise, and therefore, the provisions of section 145A were deemed inapplicable in this case. The Tribunal dismissed the revenue's appeal, upholding the deletion of the addition made towards the valuation of closing stock.