2013 (6) TMI 115 - AT - Income Tax

Re opening of assessment - non inclusion of excise duty in the closing stock - Held that - As decided in ACIT Vs Narmada Chematur Petrochemicals Ltd. 2010 (8) TMI 263 - Gujarat High Court Tribunal was justified in excluding the excise duty at the time of valuation of the closing stock of finished goods as no deduction for the liability had been claimed by the assessee. The excise duty payable on the finished goods lying in the closing stock at the end of the relevant accounting period had been paid in the subsequent year before the due date of filing of the return of income and that was how the amount was available considering the fact that the assessment had been framed and the show-cause notice was issued much after the close of the accounting year. The assessment year being 1997-98 the provisions of section 145A inserted by the Finance (No. 2) Act, 1998 with effect from April 1, 1999 could not be invoked - In favour of assessee.

Summary

Issues:
1. Justification of notice u/s 148 for reopening assessment.
2. Addition of excise duty in closing stock.

Analysis:
1. The appeal was against the order of CIT(A) for the assessment year 2003-04. The first ground challenged the justification of issuing notice u/s 148 for reopening the assessment. The appellant did not press this ground during the hearing, leading to its dismissal.

2. The second ground focused on the addition of Rs. 14,09,510 on account of non-inclusion of excise duty in the closing stock. The AO observed that excise duty was not included in the closing stock as required by Section 145A of the Income Tax Act, 1961. The AO proposed the addition after issuing a show-cause notice. The appellant argued that their accounting practice followed the accounting standards issued by the Institute of Chartered Accountants of India, where excise duty was not included in the valuation of closing stock as purchases were accounted for net of excise duty. The appellant cited a High Court case to support their argument. However, the CIT(A) upheld the AO's decision.

3. During the hearing, both parties agreed that the issue was covered by a High Court decision in the case of ACIT Vs Narmada Chematur Petrochemicals Ltd. The High Court held that excise duty should be excluded from the valuation of closing stock. The Court reasoned that no deduction for the liability had been claimed, the AO did not resort to a specific section of the Act, and adding excise duty would distort profits over time. Following this precedent, the Tribunal deleted the addition made by the AO and upheld by the CIT(A).

4. Consequently, the Tribunal allowed the appeal, and the addition of excise duty in the closing stock was deleted. The decision was pronounced in open court on 17th June 2011.