2011 (6) TMI 48 - HC - Income Tax

Method of accounting in certain cases - Whether u/s 145A the excise duty element cannot be added to the value of unsold sugar lying in stock on the last day of the accounting year - In the present case, it is not in dispute that the manufactured sugar was lying in stock and the same were not cleared from the factory - in respect of unsold sugar lying in stock, central excise liability was not incurred and consequently the addition of excise duty made by the assessing officer to the value of the excisable goods was liable to be deleted - Decided in the favour of assessee

Summary

Issues:
Interpretation of Section 145A of the Income Tax Act, 1961 regarding the addition of excise duty to the value of unsold sugar in stock on the last day of the accounting year.

Detailed Analysis:

1. Background and Assessment Year (AY) 2001-02:
The appellant, engaged in the business of white sugar manufacture and sale, disputed the assessing officer's decision to add excise duty on unsold sugar to the closing stock under Section 145A(b) of the Income Tax Act, 1961.

2. CIT(A) and ITAT Decisions:
The CIT(A) upheld the assessing officer's decision, stating that excise duty liability continues while goods are in stock. However, the ITAT, citing a Madhya Pradesh High Court judgment, ruled against adding excise duty to unsold sugar's value in stock on the last day of the accounting year.

3. Interpretation of Section 145A:
Section 145A mandates adjusting the value of goods to include taxes or duties incurred by the assessee to bring goods to their location and condition on the valuation date. The term 'incurred by the assessee' refers to actual liability borne by the assessee.

4. Excise Duty Liability and Clearance Date:
The Supreme Court precedent establishes that excise duty liability crystallizes on the date of goods clearance, not manufacture. As the manufactured sugar was unsold and remained in stock, no excise duty liability was incurred until clearance, aligning with the ITAT's decision.

5. Conclusion and Judgment:
The ITAT's decision was deemed justified as no excise duty liability was incurred on unsold sugar in stock. Consequently, the addition of excise duty by the assessing officer was deemed inappropriate. The judgment favored the assessee, leading to the disposal of the appeal with no costs awarded.