TMI Blog1992 (11) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... e 5,85,87,181 current year Less : Amount actually charged 4,87,61,348 ------------------------- Balance being the amount of Excise Duty and custom duty actually paid 98,25,833 but not charged in the profit and -----------------------Loss Account. Amended total income 94,96,037 ------------------------- Rounded off to the nearest multiple or 94,96,040 of ten rupees Sd Berger Paints India Ltd. Director " A covering letter dated 4-11-1986 was also filed along with the revised computation. The covering letter is as under : " Ref. LIT/NG BERGER Berger Paints India Limited 32, Chowringhee Road, 4-11-1986 Calcutta - 700071 Telephone 29-9724(6 lines) The Inspecting Asstt. 29-9755/9757 Commissioner of Income-tax, Telex 021-7400/5482 Assessment Range-IV, Cables 'Bergerise' Calcutta Aayakar Bhawan, Calcutta-700069 Permanent Account No. 11-000- CN-7753 CAL/ASSMT/R-IV Dear Sir, Re : Income-tax Assessment for the assessment year 1984-85 corresponding to our accounting year ended on 31-12-1983. On an examination of the return filed by us on 31-8-1984 we find that in making the computation of total income we omitted to take into account certain adjus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is as under : "The assessee further invited my attention to the decision of the Gujarat High Court in Lakhanpal National Ltd. v. ITO [1986] 162 ITR 240 and submitted that under almost identical circumstances the Gujarat High Court has held that the assessee was entitled to a deduction of such amount of Excise Duty and Customs Duty actually paid but taken credit of in the closing stock in determining the value thereof. Therefore, the assessee claimed that it was entitled to a deduction of Rs. 5,85,87,181 which In terms of provisions of section 43B of the Income-tax Act and in the light of the decision of the Gujarat High Court was mandatorily to be allowed to the assessee. I have gone through the judgment of the Gujarat High Court cited by the assessee. I agree that in view of the clear provision of sectioon 43B the assessee is entitled to the deduction of the actual amount of Central Excise Duty and Customs Duty paid. In this case the assessee has actually paid during the previous year a sum of Rs. 5,85,89,181 and in valuing the closing stock. however, the assessee has included the proportionate amount of Excise Duty and Customs Duty actually paid in respect of that stock, being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at once the value of the closing stock is determined at a particular figure, the different elements which entered into the determination of the cost or market price do not have their separate existence any more. He, therefore, found that the allowance of the amount of Rs. 98,25,833 for customs and excise duties, on the ground raised by the assessee, was not correct. He, therefore, enhanced the total income by Rs. 98,25,833 and directed the ITO to issue a demand notice and challan. 8. It is against the aforesaid order passed by the CIT under section 263 of the Act that the assessee is in appeal before us. The learned counsel for the assessee vehemently contended that the order of the CIT was without jurisdiction. It was pointed out by him that the ITO had followed the Gujarat High Court decision which was the only decision directly on the point and, therefore, the assessment cannot be held to be erroneous or prejudicial to the interests of the revenue. He referred to the decision of the Bombay High Court in the case of CIT v. Smt. Godavaridevi Saraf [1978] 113 ITR 589 and to the decision of the Calcutta High Court in the case of Russell Properties (P.) Ltd. v. A. Chowdhury, Addl. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the closing stock. Once the closing stock is valued at a particular figure, whether it is at cost or at the market price or on the principle of the lower of the cost or market price, the various elements that go into the valuation of the stock do not have any separate existence. It is not possible to break up the value of the closing stock and identify the different elements that go to make up the value. It cannot be stated that by adding a portion of the expenses that are debited in the profit and loss account to the value of the closing stock the deduction claimed in respect of those expenses in the profit and loss account is reduced. If this logic is extended, it may lead to some absurd situations. For example, the sale proceeds can be broken up to identify the different elements that go to make up the same. Part of the sale proceeds represents recovery of the cost of the goods themselves. Then there is the margin of profit. A portion of the expenses is also recovered. It will, therefore, be possible to contend that the cost of the goods having been credited to the profit and loss account as part of the sale proceeds, the debit to the profit and loss account towards the cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctually granted double allowance of the claim. The assessment is, therefore, clearly erroneous and prejudicial to the interests of the revenue and the CIT certainly had jurisdiction to take remedial action under section 263 of the Act. 12. The decision of the Gujarat High Court in Lakhanpal National Ltd.'s case relied on by the learned counsel for the assessee is distinguishable on facts. In that case the proportionate excise and customs duty credited as part of the value of the closing stock was not debited to the profit and loss account at all. This will be clear if regard is had to the factual position set out by the High Court at page 243 of the report. The said paragraph is as under : " The petitioner's chartered accountant thereafter wrote a letter to the respondent on 20-12-1984. Along with the said letter, he submitted a statement showing the total customs duty actually paid as Rs. 2,78,54,262 out of which the customs duty included in the valuation of the closing stock was deducted i.e., the amount of Rs. 1,24,94,085 was deducted and the remaining amount of Rs. 1,53,60,177 was debited to the profit and loss account. Similarly, in the statement with regard to excise duty, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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