2016 (10) TMI 247 - HC - Income Tax

Exclusion of excise duty at the time of valuing closing stock at the end of accounting - Held that - Taking into consideration the view taken by this court in the case of Assistant Commissioner of Income-tax v. Narmada Chematur Petrochemicals Ltd. (2010 (8) TMI 263 - Gujarat High Court ) we are of the view that the Tribunal has not committed any error in excluding the excise duty at the time of valuation of the closing stock. In that view of the matter, we answer the issue in favour of the assessee

Summary

Issues:
Valuation of closing stock - Excluding excise duty

Analysis:
The appeal under section 260A of the Income-tax Act, 1961 was filed by the appellant-revenue against the order of the Income-tax Appellate Tribunal, Ahmedabad, which confirmed the decision of the Commissioner (Appeals) partially allowing the appeal of the assessee. The assessee had declared a loss in the return of income for the assessment year 1998-99, which was processed by the Assessing Officer resulting in certain additions/disallowances. Both the revenue and the assessee appealed to the Tribunal, which passed its order on 31.8.2007.

The substantial question of law framed by the court was whether the Tribunal was correct in law to exclude excise duty while valuing the closing stock at the end of the accounting period. The revenue contended that the Tribunal erred in not including excise duty in the valuation of closing stock, while the senior counsel for the assessee argued that the exclusion was justified. He relied on a previous decision of the court in a similar case to support his contention.

After hearing both parties and considering the arguments along with the previous court decision, the High Court held that there was no error in excluding excise duty while valuing the closing stock. The court referred to the previous judgment, emphasizing that no deduction for the liability had been 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 disturbing the value of closing stock by adding excise duty would affect the profits of the next accounting period, making the exercise revenue neutral over time. Ultimately, the court dismissed the appeal in favor of the assessee, upholding the exclusion of excise duty in the valuation of closing stock.