2019 (3) TMI 1558 - HC - Income Tax

Deduction u/s 43B - provision for payment of excise duty on obsolete inventory , which was not removed from the factory premises on or before the due date for filing of Return of Income - addition insisting on a direct correlation between the duty paid and the goods manufactured - valuation of obsolete inventory - HELD THAT - The admitted position is that the amount in question was actually paid by way of excise duty. This liability was computed on the basis of goods manufactured by the Assessee. On the valuation of such goods, the Assessee would make a provision of excise duty liability and actually pay the same either before the end of the financial year of at any rate, latest by the due date of filing the return. Tribunal was correct in holding that the deduction could not have been disallowed by insisting on a direct correlation between the duty paid and the goods manufactured. If for any reason it is found later on that the excise duty was paid in relation to certain goods manufactured, but the funds were not cleared and that therefore, no excise duty liability arose, the adjustment would automatically be made in the later years when the Assessee would estimate its liability for payment of excise duty. Such a situation may arise under various circumstances such as damage or destruction of the goods. However, it would be inconceivable that the Assessee would not claim the reduced liability for paying excise duty. - Decided against revenue Addition of closing stock being provision for obsolete inventory - provision has been made on the basis of internal guidelines and not as per provisions of Income Tax Act, which provides for valuation of closing stock either at cost or at market price - ITAT deleted the addition - HELD THAT - Tribunal noted that the Assessee has been consistently following this method of evaluating the stock which the Department has also accepted. - Decided against revenue

Summary

Issues:
1. Deduction under Section 43B of the Income Tax Act for provision of excise duty on obsolete inventory.
2. Valuation of closing stock based on internal guidelines versus provisions of the Income Tax Act.

Analysis:
1. The first issue revolves around the deduction claimed by the Assessee under Section 43B of the Income Tax Act for provision of excise duty on obsolete inventory. The Assessing Officer objected to part of this claim, arguing that the goods were treated as obsolete and not cleared for sale, thus questioning the liability to pay excise duty. However, it was established that the Assessee had paid the excise duty within the stipulated time under Section 43B. The Tribunal clarified that Section 43B does not mandate a direct correlation between excise duty paid and the manufactured goods. The provision of excise duty liability and its payment before the due date of filing the return sufficed. The Tribunal rightly held that the deduction could not be disallowed based on a strict correlation requirement, as adjustments could be made in subsequent years if the excise duty liability was not realized due to various circumstances like damage or destruction of goods. The Appeal challenging the Tribunal's decision was dismissed.

2. The second issue pertains to the valuation of closing stock by the Assessee based on internal guidelines, which the Revenue contended was not in line with Section 145A of the Income Tax Act. The Assessee justified its method of stock valuation, reducing values based on the time unsold due to the fast depreciation of specialized machinery. The Tribunal observed that the Assessee had consistently followed this valuation method, which was also accepted by the Department. Consequently, the Tribunal found no legal question arising from this issue. Therefore, the Income Tax Appeal was dismissed on both counts, affirming the Tribunal's decision on the deduction under Section 43B and the valuation of closing stock based on internal guidelines.