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TMI Blog2006 (7) TMI 240X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the excise duty is accounted for as and when paid on the clearance of the goods from bounded premises and that no provision was made for excise duty in respect of finished product lying in the bounded premises. As per Schedules 9 and 18 of the accounts of the assessee, it is noticed that there was a closing stock of finished goods of 2,18,13,63,608 number of biris as on 31-3-2001 which was valued at Rs. 173,457,499. As per the accounting policies followed by the assessee, it is clear that the excise duty payable on the stock of finished goods of biri was not included while valuing the closing stock. In this regard, your attention is drawn to the provisions of section 145A of the Income-tax Act, 1961 - inserted with effect from 1-4-1999 which are reproduced as under: 145A. 'Notwithstanding anything to the contrary in section 145, the valuation of purchase and sale of goods and Inventory for the purposes of determining the income chargeable under the head 'Profit and gains of business or profession', shall be- (a) in accordance with the method of accounting regularly employed by the assessee; and (b) further adjusted to include the amount of any tax, duty cess or fee ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se duty on finished goods lying in the bounded premises is not required to be added while valuing the closing stock. However, the Ld. CIT did not accept the argument of the assessee that excise duty is not payable on the goods kept in the bounded premises. According to the Ld. CIT, excise duty is payable at the point of time at which manufacture is completed. Ld. CIT relied on the decision of Hon'ble Supreme Court in McDowell Co. Ltd. v. CTO [1985] 154 ITR 148. The Ld. CIT also relied on the decision of ITAT, Bombay Bench, in Godfrey Philips India Ltd. v. ITO [1992] 41 ITD 544, wherein it is held that excise duty is includible in the computation of stock for the purposes of valuation of closing stock. Finally Ld. CIT held as under: "7. Respectfully following the decision of the Hon'ble Supreme Court in McDowell's case and the aforesaid decision of the Hon'ble ITAT, Bombay 'A' Bench in the case of Godfrey Philips India Ltd., it is held that excise duty, payable on the finished goods lying in the bounded premises was liable to be included for valuing the closing stock. The assessment order dated 26-3-2004 passed by the Assessing Officer without examining the issue of valuation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but only excise duty actually paid or actually incurred will have to be included. The assessee has in fact included the excise duty actually paid while valuing the closing stock as pointed out above. 5. In fact, according to the Ld. A.R. while making reassessment after the order having been set aside, the Ld. Assessing Officer has accepted the contention of the assessee to the extent that if the excise duty actually paid by it has been included in the closing stock, the same has been allowed as deduction under section 43B as it was actually paid. The Ld. CIT relied on the decision in CIT v. British Paints India Ltd. [1991] 188 ITR 44 (SC) while issuing notice under section 263. On this Ld. A.R. submitted that this decision was on different set of facts. The assessee has not taken into consideration overhead charges while valuing the closing stock though it had included such overhead charges in earlier years. On those set of facts, it was held by Hon'ble Supreme Court that the overhead charges being actual cost has to be included while valuing the closing stock. In fact, the issue of excise duty was not before the Hon'ble Apex Court in British Paints India , Ltd.'s case, Ld. A.R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s he can explain to the Assessing Officer the factual and legal position of reassessment and in fact his viewpoint has been accepted by the Assessing Officer when reassessment was framed. An order passed without carrying out the inquiry would be erroneous insofar as it is prejudicial to the interest of revenue. 8. We have considered the rival submissions and perused the material on record. We find that CIT has set aside the assessment directing the Assessing Officer to frame it afresh as per law and it was also set aside on the limited issue of valuation of stock. 9. So far as power of CIT to set aside the assessment for carrying out enquiry is concerned, we are of the view that he is well within his power to do so. We find support of the decision of Hon'ble Allahabad High Court in Mannulal Matadeen v. CIT [2005] 277 ITR 346 and various other decisions like Addl. CIT v. Mukur Corpn. [1978] 111 ITR 312 (Guj.) where ITO allowed certain deductions without probing into the claim, Kanhaiyalal v. CIT [1982] 136 ITR 243 (Raj.), where the ITO failed to consider unexplained investment, Nandlal Bhandari Sons v. CIT [1984] 147 ITR 710 (MP) where CIT noticed non-application of mind by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o pay the duty of excise under this Act and includes his agent; (b) persons shall be deemed to be 'related' if- (i) they are inter-connected undertakings; (ii) they are relatives; (iii) amongst them the buyer is a relative and distributor of the assessee, or a sub-distributor of such distributor; or (iv) they are so associated that they have interest, directly or indirectly, in the business of each other; Explanation.- In this clause- (i) 'inter-connected undertakings' shall have the meaning assigned to it in clause (g) of section 2 of the Monopolies and Restrictive Trade Practices Act, 1969 (64 of 1969); and (ii) 'relative' shall have the meaning assigned to it in clause (41) of section 2 of the Companies Act, 1956 (1 of 1956); and (c) 'Place of removal' means- (i) a factory or any other place or premises of production or manufacture of the excisable goods; (ii) a warehouse or any other place or premises of production wherein the excisable goods have been permitted to be deposited without payment of duty; (iii) a depot, premises of a consignment agent or another place or premises from where the excisable goods are to be sold after their clearance from the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mand duty due on any goods claimed by the manufacturer as unfit for consumption or for marketing subject to such conditions as may be imposed by the Collector by order in writing." From a combined reading of rule 4 and rule 49 it is seen that excise duty is payable either at the point of time of manufacture of the goods or at the time of removal of such manufactured goods kept at an approved place of storage. Thus, it is not necessary that excise duty is chargeable every time when goods are removed from place of manufacture, i.e. factory premises. When goods are removed for sale from factory premises, then excise goods are chargeable at that time but after manufacturing the goods and kept in bounded warehouse as approved by Commissioner, Central Excise. Excise duty will be charged when the goods are removed from such bounded warehouses. Before this point of time the assessee is not liable to pay excise duty. Therefore, Ld. CIT was not correct that assessee had always to pay excise duty when the goods are manufactured. Further, section 145A clearly provides that excise duty is includible in closing stock only when it is actually paid. Since assessee had not paid excise duty on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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