2013 (11) TMI 1480 - AT - Income Tax

Reassessment - Duplicate claim of same payment - valuation of stock - Held that - The excise duty amount debited in the profit and loss account is included in the value of closing stock - The assessee has disclosed this fact in the significant accounting policies - The assessee has made provision for excise duty under the head outstanding liabilities - The assessee is of the view that incidence of excise duty arises as soon as the product is manufacture - AO has not disturbed the value of closing stock value declared by the assessee, i.e., he has accepted the value disclosed by the assessee, which included the amount of Excise duty payable on the closing stock. Hence, the AO may not be correct in holding that the liability to pay excise duty would arise only in the succeeding year upon sale of the closing stock. - Therefore both the views as that of assessee as well as AO ultimately will result in the same figure - Decided in favour of assessee.

Summary

Issues:
1. Validity of re-opening of assessment u/s. 147 of the Act.
2. Disallowance of excess provision of Rs. 70,99,758/-.

Analysis:

Issue 1: Validity of re-opening of assessment u/s. 147 of the Act
The original assessment was completed under section 143(3) of the Act, accepting the returned income. However, the assessment was re-opened under section 147 of the Act due to a perceived duplication in the treatment of excise duty in the accounts. The Assessing Officer contended that there was no justification for reducing excise duty collected from gross sales, leading to a potential escape of taxable income. The assessee argued that the excise duty provision was made in accordance with Accounting Standard-2 and was allowable under section 43B as it was paid before filing the return. The CIT(A) upheld the addition, citing the absence of the provision in the balance sheet. However, the Tribunal noted that the provision was part of outstanding liabilities and the system of accounting was consistent over the years, ultimately directing the deletion of the disallowance.

Issue 2: Disallowance of excess provision of Rs. 70,99,758/-
The Assessing Officer disallowed the provision of Rs. 70,99,758/- as he believed it related to the succeeding year and hence not allowable under section 43B. The CIT(A) also confirmed this disallowance based on the absence of the provision in the balance sheet. However, the Tribunal found that the provision was included in outstanding liabilities and the system of accounting followed by the assessee was consistent and accepted by the department in earlier years. As the excise duty was included in the closing stock value and the liability arose upon manufacturing, the Tribunal held that the provision was correctly made and directed the assessing officer to delete the disallowance.

In conclusion, the Tribunal allowed the appeal filed by the assessee, directing the deletion of the disallowance and highlighting the consistency in the accounting treatment of excise duty provision. The Tribunal did not address the validity of the re-opening of assessment as the disallowance was deleted.