2019 (11) TMI 1700 - AT - Income Tax

Revision u/s 263 by CIT - Addition of Notional Provision of Excise duty on Closing Stock of Finished goods (which is not the actual liability arised as on 31.03.2014) - HELD THAT - We observe from the trading profit and loss account submitted by the assessee, he has made provision on excise duty from the closing stock of finished goods and showing it as a liability in the balance sheet. From the statements of the assessee that there is no effect in the profit and loss account, it is notable that if there is no effect in the profit and loss account after making provisions and showing as liability in the balance sheet then why the assessee is making provisions in his profit and loss account. The reason for making provision could not be explained by the assessee. In this regard, he just submitted that the provisions have been made at the end of the year and it is reversed in the opening of next financial year. While going through the assessment order passed by the AO, the AO has not examined this issue as to what for the reason for making provisions and showing it as a liability and reversed it into the opening of the next financial year. This issue should have examined by the AO, however, he did not do so. After considering the totality of facts and circumstances of the case, the ld.Pr. CIT has rightly invoked his revisonary powers u/s.263 of the Act. Accordingly, we do not see any good reason to interfere with the findings recorded by the Pr. CIT in directing the AO to modify the scrutiny assessment order by disallowing sum which had been debited towards provision of excise duty on closing stock of finished goods u/s.43B - Decided against assessee.

Summary

Issues:
1. Addition of Notional Provision of Excise duty on Closing Stock of Finished goods.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax, Sambalpur, for the assessment year 2014-2015. The Principal CIT invoked revisionary powers under section 263 of the Act, directing to revise the assessment order by disallowing the sum of ?25,73,921 added as notional provision of excise duty on closing stock of finished goods. The assessee contended that the provision of excise duty was reversed in the books, not claimed as an expense, and did not affect the profit and loss account. The assessee argued that the method followed was consistent with Accounting Standard-1 and the concept of consistency should be maintained. Additionally, the assessee highlighted that the actual excise duty was paid in April 2014, rendering the addition under section 43B incorrect.

The main contention revolved around whether the provision of excise duty on closing stock of finished goods, which was not claimed as an expense, should be added under section 43B. The assessee maintained that the provision did not impact the profit and loss account as it was reversed in the subsequent year, and the actual excise duty was paid in April 2014. The assessee emphasized the consistency in following the method and compliance with Accounting Standard-1. However, the Principal CIT and the Department argued that the AO did not examine the rationale behind making provisions and showing them as liabilities, leading to the invocation of revisionary powers under section 263. The Tribunal upheld the decision of the Principal CIT, emphasizing the need for the AO to scrutinize the provision of excise duty and its impact on the financial statements. Consequently, the appeal of the assessee was dismissed, affirming the addition of ?25,73,921 as notional provision of excise duty on closing stock of finished goods under section 43B of the Act.