2025 (4) TMI 199 - AT - Income Tax

Addition on account of alleged under-valuation of closing work-in- progress ( WIP ) by not including the excise duty payable in the value of CWIP - factual position that during the year under consideration closing stock of work in progress which was required to be loaded with Excise Duty applicable @ 12.625% - HELD THAT - As respectfully following above order of our Coordinate Bench in the Assessee own cases we dismiss the present appeal of Revenue as the issue is squarely covered. CIT(A) has rightly deleted the addition. We also hold that Section 145A contemplates valuation of inventory to be made at lower of actual cost or net realisable value and tax duty cess or fee (by whatsoever called) shall not be includible in value of closing work in progress as no such amount of excise duty is paid as the stage of levy in law has not arisen. What is contemplated in law is actual payment and not proposed payment. Disallowance u/s 43B - Disallowance of payment of bonus / Ex gratia made - HELD THAT - As payment of bonus / ex-gratia made before due date of filing the return of income u/s 139(1) of the Act i.e; 30/11/2018 we hold that requisite payment perse appears to have been made as is demonstrated before us. Even section 43B/36 speaks of certain deduction shall apply only on actual payment. Emphasis is on actual payment on or before of filing of return of income and evidence of such payment is furnished by the assessee. We are therefore of the considered view that Ld. CIT has rightly asked the Ld. AO to cross check such evidence of payment and the date of such payment a task primarily to be done by AO. On this issue to seek remand report from Ld. AO or to contend that CIT(A) has no power of Remand is far fetched. CIT(A) in the impugned order is simply directing the Ld. AO to verify whether payment has been made on or before 30/11/2018 or not so that it is verified factually that condition of 43B is adhered to it or not by assessee. The directions in sum and substance is on to check evidence / proof of payment and the relevant date of it therefore it can be said to be limited verification and not remand.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the CIT(A) erred in allowing the appeal of the assessee by deleting the addition of Rs. 5,65,59,368/- on account of under-valuation of closing work-in-progress by not including the excise duty payable.
• Whether the CIT(A) acted beyond its powers by setting aside the issue of allowance/disallowance under Section 43B to the assessing officer, contrary to the amendment brought in Section 251(1)(a) of the Income Tax Act, 1961.
• Whether the CIT(A) erred in observing that the amount of Rs. 2,42,59,981/- disallowed by the Assessing Officer was deposited before the due date of filing the ITR merely based on a certificate issued by a C.A.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Under-valuation of Closing Work-in-Progress

• Relevant Legal Framework and Precedents: Section 145A of the Income Tax Act mandates the inclusion of excise duty in the valuation of inventory. However, the Tribunal referred to previous judgments, including the assessee's own case for earlier years where similar additions were deleted, citing that excise duty is only payable on manufactured goods moved out of the factory.
• Court's Interpretation and Reasoning: The Tribunal reiterated that no excise duty was payable on the closing work-in-progress as the goods were not moved out of the factory. It emphasized that if excise duty were to be included in the closing stock, it should also be included in the opening stock, which would nullify any difference.
• Key Evidence and Findings: The Tribunal noted prior decisions where similar additions were deleted and found no justification for the addition made by the assessing officer.
• Application of Law to Facts: The Tribunal applied the principle that excise duty should not be included unless it is actually paid or incurred, which was not the case here.
• Treatment of Competing Arguments: The Tribunal favored the assessee's consistent accounting method and previous favorable rulings over the Revenue's insistence on inclusion of excise duty.
• Conclusions: The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 5,65,59,368/-.

Issue 2: Disallowance of Payment of Bonus/Ex-gratia

• Relevant Legal Framework and Precedents: Sections 43B and 36 of the Income Tax Act allow deductions for payments made before the due date for filing returns. The Tribunal considered these provisions to determine the legitimacy of the claimed deductions.
• Court's Interpretation and Reasoning: The Tribunal recognized that the payments were made before the due date for filing returns and were supported by a certificate from an independent Chartered Accountant.
• Key Evidence and Findings: The Tribunal examined the payment dates and amounts, confirming that they were made before the due date of filing the return.
• Application of Law to Facts: The Tribunal applied the provisions of Sections 43B and 36, concluding that the payments were rightfully deductible.
• Treatment of Competing Arguments: The Tribunal dismissed the Revenue's argument that the CIT(A) lacked the power to direct verification of payments, viewing it as a necessary step to ensure compliance with Section 43B.
• Conclusions: The Tribunal upheld the CIT(A)'s decision to allow the deduction, subject to verification by the assessing officer.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "We do not find any justification in making the aforesaid addition. We, therefore, uphold the decision of the CIT(A) in deleting the addition on this issue."
• Core Principles Established: The Tribunal emphasized that excise duty should only be included in inventory valuation if actually paid or incurred, aligning with previous judgments in similar cases.
• Final Determinations on Each Issue: The Tribunal dismissed the Revenue's appeal, sustaining the CIT(A)'s order to delete the addition for under-valuation of closing work-in-progress and allowing the deduction for bonus/ex-gratia payments, subject to verification.