2014 (1) TMI 812 - HC - Income Tax

Whether excise duty is excluded form value closing stock - Held that - Following Assistant Commissioner of Income Tax Vs. Narmada Chematur Petrochemicals Ltd. 2010 (8) TMI 263 - Gujarat High Court - the issue / dispute in the present case is with respect to the period prior to amendment in the Act i.e. 1/4/1999 - The duty of Central excise if added to enhance the value of closing stock would result in enhanced opening stock on the first day of the next accounting period - So the next year s profits would get depressed accordingly - Over a period of time the whole excise would even out, in other words, be revenue neutral. At the same time while disturbing the value of the closing stock the assessing authority could not change the method of accounting regularly employed - Decided against Revenue. Whether interest from Bank Guarantee Deposits, letter of Credit be eligible for deduction u/s 80IA - Held that - Following Liberty India Vs. Commissioner of Income Tax 2009 (8) TMI 63 - SUPREME COURT - They should be treated as separate items of revenue or income and accounted for accordingly - These cannot be credited against the cost of manufacture of goods debited in the Profit & Loss account for purposes of Sections 80-IA/80-IB as such remissions would constitute independent source of income beyond the first degree nexus between profits and the industrial undertaking - Decided against Revenue. Interest on delayed payments - Held that - Following Nirma Industries Ltd. Vs. Deputy Commissioner of Income Tax 2006 (2) TMI 92 - GUJARAT High Court - While computing special deduction under section 80I, interest received from trade debtor towards late payment of sale consideration is to be included in the profits of the industrial undertaking - Decided in favour of revenue.

Summary

Issues:
1. Valuation of closing stock excluding excise duty.
2. Eligibility of interest for deduction under section 80IA.

Issue 1: Valuation of Closing Stock Excluding Excise Duty:

The appellant challenged the ITAT's decision approving the exclusion of excise duty from the valuation of closing stock of finished goods. The court referred to a previous decision by the Division Bench in a similar case, establishing that excise duty should be excluded from the valuation of closing stock. The reasons provided by the Division Bench included the fact that no deduction for the liability was claimed by the assessee, and the excise duty was paid in the subsequent year before the due date of filing the return of income. The court also noted that adding excise duty to enhance the value of closing stock would affect the profits of the next accounting period and disturb the regular accounting method. Consequently, the court upheld the exclusion of excise duty from the valuation of closing stock based on the precedent set by the Division Bench.

Issue 2: Eligibility of Interest for Deduction under Section 80IA:

Regarding the eligibility of interest for deduction under section 80IA, the court differentiated between interest derived from Bank Guarantee Deposits and Letter of Credit and interest on delayed payments. Citing a Supreme Court decision in the case of Liberty India, the court held that interest from Bank Guarantee Deposits and Letter of Credit is eligible for deduction under section 80IA. However, for interest on delayed payments, the court referred to a Division Bench decision in the case of Nirma Industries Ltd., which stated that such interest should be included in the profits of the industrial undertaking while computing special deductions under section 80I. Consequently, the court ruled in favor of the revenue for interest on delayed payments but against the revenue for interest derived from Bank Guarantee Deposits and Letter of Credit. The appeal was partly allowed based on these conclusions.

In conclusion, the High Court of Gujarat addressed the issues related to the valuation of closing stock excluding excise duty and the eligibility of interest for deduction under section 80IA. The judgment provided detailed analyses for each issue, citing relevant legal precedents and decisions to arrive at the final rulings.