TMI Blog2019 (5) TMI 1185X X X X Extracts X X X X X X X X Extracts X X X X ..... followed by the assessee company is not in conformity with the prescription u/s 145A, the deviations will have no effect on the profit loss account of the relevant financial year. No excisable item of the closing stack of the assessee was removed from the factory premises till the end of the accounting year. Thus, following the net method of valuation of closing stock, excise duty has rightly been excluded from the value of closing stock of finished goods at the end of the accounting period. The assessee has consistently followed the method of accounting adopted by it. The method of valuation of closing stock is at cost or net realizable value, whichever is lower. In valuing the stock, the excise duty, etc., are not added to the purchases, sales or valuation of inventories. In view of the above, finding that the ld. CIT(A) has correctly deleted the addition wrongly made, the impugned order is confirmed and the grievance sought to be raised by the Department is rejected, being shorn of merit. - ITA No. 583/LKW/2018 - - - Dated:- 15-3-2019 - SHRI. A. D. JAIN, VICE PRESIDENT AND SHRI T. S. KAPOOR, ACCOUNTANT MEMBER For The Appellant : Shri C. K. Sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee's contention is not acceptable. As already discussed above, the assessee has to re-cast its accounts as required under section 145A. The excise duty liability of ₹ 2,92,11,000/- on closing stock of finished goods is only deductible if it is paid on or before the due date of filing of the return as required under section 43B of the Act. Further, assessee s contention that this practice is continuously followed by the assessee company for ail assessment year is not of much relevance in view of the Hon'ble Apex Court's judgment in the case of CIT Vs. British India Paints Ltd.(SC), 188 ITR 44 wherein it has been held that where method of accounting even though consistently fallowed does not disclosed true and proper income, appropriate computation to determine true income is to be made, the addition on this ground was made in previous assessment year also. In view of the above discussion, the excise duty of ₹ 2,92,11,000/- not added in the valuation of closing stock as required under section 145A of the Act and also not paid before filing of return of income as is required under section 43B of the Act is added to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h it had accrued, it had not become due as on 31.3.2014. The Assessing Officer added the liability, holding that the assessee had not followed the method of valuation prescribed by section 145A of the Income-tax Act, 1961. The ld. CIT(A) has deleted the addition. The question is as to whether this action of the ld. CIT(A) is correct. 8. The dictionary meaning of excise is given as duty charged on home goods during the manufacture or before sale to home consumers. It is an indirect tax through duty on the commodities produced or manufactured, collected by the Central Government at the source of manufacture or production. The duty of excise is principally a duty levied on a manufacturer or producer in respect of the commodity manufactured or produced [ Collector of Central Excise vs. Decent Dyeing company , 1990 (45) ELT 201 (SC)]. Under the excise system, no goods can be removed from the place of manufacturer without first paying the excise duty, therefore, a purchaser can presume that the goods are duty paid. It would be intolerable if the purchasers were required to ascertain whether the excise duty had already been paid, as they have no means of knowing it. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(7) defines duty to mean the duty payable under section 3 of Excises Act. As per Rule 7, which deals with the recovery of excise duty, inter alia, excise duty shall be paid at such time as may be designated in or under the authority of the Rules. Rule 9A(i)(ii) applies the rate prevailing on the date of actual removal of the goods from the factory or warehouse, in the case of goods removed therefrom. 14. Hence, whereas section 3(i) of the Excises Act, i.e., the charging provision licences the levy of the duty, the collection thereof is governed by the machinery provision, i.e., Rule 9(i)(ii) of the Rules, when the goods are removed from the factory or warehouse. 15. Undisputedly, and this also supports the scheme of the Excises Act, the material point of time with reference to which the value is determined under section 4 of the Excises Act, which provision deals with determination of value for the purposes of duty, is the time of removal of the article chargeable with duty from the factory or warehouse, and not when it is manufactured or produced. 16. The Supreme Court, in CCE vs. Vazir Sultan Tobacco Co. 1996 (83) ELT 3 (SC) h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on raw material, modvatted, should not be included in determining the case of production of excisable products. 20. The aforesaid view has been taken, amongst others, in the following judgments also: ( 1) CIT vs. Dynavision Ltd., 210 Taxman 239 (SC) ( 2) ACIT vs. Torrent Cables Ltd., 210 Taxman 579 (SC) ( 3) CIT vs. Shri Ram Honda Power Equipment Ltd. 210 Taxman 577 (SC) ( 4) CIT vs Loknete Balasahem Desai S.S.K. Ltd., 200 Taxman 238 (Bom) ( 5) CIT vs. Indian Telephone Industries, 202 Taxman 307 (Karn) ( 6) Shyam Biri Works Ltd. vs. ACIT, (9) MTC 104 (All.) 21. The ITAT, Lucknow Bench, vide order dated 10/4/2017, in ITA No.182/LKO/2016, in the assessee s own case, dismissed the appeals preferred by the Revenue on an identical issue, for A.Y. 2012-13 and A.Y. 2013-2014, holding as under: 10. It cannot be said that the assessee has incurred liability to pay excise duty on the manufactured goods. Therefore, as on 31.3.2012 in our view the liability of ₹ 4,06,80,000/- on acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24. The expression 'incurred by the assessee' in Section 145A(a) of the Act is followed by the words to bring the goods to the place of its location and condition as on the date of valuation.' Thus, the expression 'incurred by the assessee' relates to the liability determined as tax, duty, cess or fee payable in bringing the goods to the place of its location and condition of the goods. The Explanation to section 145A(a) of the Act makes it further clear that the income chargeable under the head profits and gains of business shall be adjusted by the amount paid as tax, duty, cess or fee. Therefore, the expression 'incurred' in section 145A(a) of the Act must be construed to mean the liability actually incurred by the assessee. Where the excisable goods are manufactured and are lying in stock on the last day of the accounting year, whether the manufacturer has incurred liability to pay excise duty on the manufactured goods is the question. In the instant case, the liability of ₹ 2,92,11,000/- on account of excise duty has accrued, but has not become due on the finished goods as on 31.03.2014. In other words, the manufacturer (assessee) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trading account. It is only if it is so debited that the credit side of the trading account will show the value of the closing stock inclusive of excise duty. This methodology is essential to be followed, so that both the sides of the trading account match inter se. In the present case, the assessee did not debit the excise duty in its trading account. In its Notes to Accounts, which form part of the balance sheet of a company and without reading which, such balance sheet cannot be read, the assessee has shown the excise duty as a contingent liability. This means that the liability has not crystallized. 27. As per the matching principal of accountancy, including the valuation of stock, the general rule is that the cost debited in accounts should be considered as the cost for the purpose of ascertaining the cost of the goods sold and the cost of the goods remaining in the stock. This is subject to certain refinements, as to what should be included in the cost and what not. The costs, which have no connection with the production, are in the nature of periodical costs. Therefore, in case the excise duty relating to the stock on the closing day of the previous year is n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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