2013 (4) TMI 347 - AT - Income Tax

Addition of excise duty payable on closing stock as per the provisions of section 145A - Held that - As decided in CIT-vs- Loknete Balasaheb Desai S.S.K. Ltd. 2011 (6) TMI 48 - BOMBAY HIGH COURT in respect of excisable goods, manufactured and lying in stock, the excise duty liability would get crystallised on the date of clearance of goods and not on the date of manufacture. Thus held, that the manufactured sugar lying in stock and was not cleared from the factory Central excise liability was not incurred and consequently the addition of excise duty made by the Assessing Officer to the value of the excisable goods was liable to be deleted - in favour of assessee. Expenditure of interest paid on capital borrowed disallowed when the capital borrowed was used to give interest free loans to subsidiary and other companies - Held that - Set aside the order of the CIT(A) and restore this issue to the file of the AO with the direction that the AO shall re-decide this issue, as per direction of the Hon ble High Court for the assessment year 1994-95. This ground stands allowed for statistical purposes.

Summary

Issues Involved:
1. Addition of excise duty payable on closing stock under section 145A of the Act.
2. Allowance of interest paid on capital borrowed used for interest-free loans to subsidiary companies.

Analysis:

Issue 1: Addition of excise duty on closing stock under section 145A:
The appeal by the Revenue challenges the allowance of excise duty on closing stock by the ld. CIT(A). The Tribunal referred to a similar issue in a previous case and cited the decision of the Hon'ble Bombay High Court regarding section 145A. The High Court clarified that excise duty liability crystallizes on the date of clearance of goods, not the date of manufacture. Since the manufactured sugar was unsold and in stock, the excise duty liability was not incurred. The Tribunal upheld the decision of the CIT(A) based on this interpretation and dismissed the Revenue's ground.

Issue 2: Allowance of interest on capital borrowed for interest-free loans:
The second issue pertains to the allowance of interest paid on capital borrowed, which was used to provide interest-free loans to subsidiary companies. The Tribunal noted a similar issue decided in a previous case and referred to a decision where the issue was restored to the AO for fresh consideration based on a High Court directive. Following this precedent, the Tribunal set aside the CIT(A)'s order and directed the AO to re-decide the issue in line with the High Court's direction for the assessment year 1994-95. Consequently, the Tribunal allowed this ground for statistical purposes.

In conclusion, the appeal filed by the Revenue was allowed partly for statistical purposes, with the Tribunal dismissing the first ground related to excise duty on closing stock and setting aside the order on the second ground regarding interest paid on capital borrowed for further consideration by the AO.