CIT V. LAKSHMI SUGAR MILLS CO LTD

ITA/1288/2011

AI Insights

The case involves an appeal by the revenue against the order of the Income Tax Appellate Tribunal (ITAT), which had confirmed the deletion of additions made by the Assessing Officer regarding excise duty and a claimed expense under 'Molasses Storage Fund'. The Assessee, Lakshmi Sugar Mills Co. Ltd., had filed a return declaring a loss and claimed certain deductions which were disallowed by the Assessing Officer. The CIT(A) and ITAT had earlier allowed the Assessee's appeal, leading to the revenue's appeal in the High Court. The main legal contention revolved around the interpretation and application of Sections 43B and 145A of the Income Tax Act concerning the timing and inclusion of excise duty in the valuation of closing stock.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 688535 (HC-DELHI)
• Appeal Type: Others
• Pronouncement Date: 03-12-2012
• Assessment Year: misc
• Other Referred Cases: CIT v. English Electric Company of India Ltd., Chainrup Sampatram v. CIT, CIT v. Xomox (India) Ltd., Chemicals & Plastics India Ltd. v. CIT, CIT v. British Paints India Ltd., CIT, Tamil Nadu v. M/s. Dynavision Limited, Shyam Biri Works Ltd. v. CIT, ACIT v. Narmada Petrochemicals Ltd., Orient Paper Mills Ltd. Vs. Union of India
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: S N KUMAR; K B SONI
• Assessee Lawyers: SANJEEV SABHARWAL; PUNEET GUPTA
• Keywords: Assessment; CIT(A); Excise Duty; Income Tax; ITAT; Molasses Storage Fund
• Section: 143(3); 43B; 260A; 145A

Judgement Text

"ITA-1288/2011 Page 1 * IN THE HIGH COURT OF DELHI AT NEW DELHI % DECIDED ON:03.12.2012 + ITA 1288/2011 CIT …Appellant Through: Mr. Sanjeev Sabharwal, Sr. Standing Counsel with Mr. Puneet Gupta, Jr. Standing Counsel. Versus LAKSHMI SUGAR MILLS CO LTD. …Respondent Through: Mr. S.N. Kumar with Mr. K.B. Soni, Advocates. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE R.V. EASWAR MR. JUSTICE S.RAVINDRA BHAT (OPEN COURT) 1. This is an appeal by the revenue, under Section 260A of the Income Tax Act, 1961(herein after called 'the Act') against the order of the Income Tax Appellate Tribunal (ITAT) in ITA No. 3445/Del/2010 for the assessment year 2005-06, whereby the appeal of the Revenue has been disallowed. 2. The brief facts of the case are that the Assessee, M/s. Lakshmi Sugar Mills Co. Ltd. is a limited company and derives income from manufacturing of crystal sugar and from house property. The Assessee filed its return of income on 25.10.2011 ITA-1288/2011 Page 2 declaring a loss of Rs 28,36,167/- for the relevant year and the same was assessed under the provisions of Section 143(3) of the Act. 3. It was found, during the assessment proceedings, that Assessee had claimed a sum of Rs.2,34,567/- out of sales amount on the head of 'Molasses Storage Fund' and it was asked to furnish justification for claiming the said expenses. The Assessee was, further, asked to furnish details of such expenditure towards the specific purposes. However, the specified details were not provided by the Assessee; therefore, the Assessment Officer held that an amount of Rs. 2,34,567/- has been suppressed by the Assessee and thus, addition of the same amount was made. 4. Similarly, additions pertaining to Excise Duty amounting to Rs. 69,91,983/- were made by the Assessing Officer as per the provisions of Section 43B read with Section 145A of the Act. However, the CIT(A), on appeal by the Assessee, allowed the appeal on both of the above stated issues. This was pursuant to the findings of the CIT(A) in the case of Assessee for A.Y. 2001-02 and 2004-05 and also the order of the ITAT for the A.Y. 1990-91. He accordingly deleted both the additions. Aggrieved by the decision of the CIT(A), Revenue filed an appeal before the ITAT which confirmed the stand of the CIT(A) on both counts. The Revenue is in appeal before this Court. The appeal raises the following question of law: ITA-1288/2011 Page 3 \" Whether the Ld. ITAT erred in deleting the addition of Rs. 69,91,983/- made by the Assessing Officer under section 43B read with Section 145A of the Act on account of Excise Duty?\" 5. The revenue argues that the impugned order of the ITAT is contrary to law, as it failed to appreciate the fact that the Assessee has not incurred any expenditure for specific purposes and that he has suppressed an amount of Rs. 2,34,567/- from being assessed to tax. It is also contended that ITAT erroneously deleted the sum of Rs. 69,91,983/- added by the Assessing Officer without proper analysis of the provisions of Section 43B and Section 145A of the Act. It is pertinent to mention here that the tax audit of the Assessee, indicated the total excise duty to be levied on closing stock was Rs. 2,80,56,430/- out of which Rs. 2,10,64,447/- was paid. Thus, the balance amount remained outstanding. Moreover, the Assessee failed to furnish the details of this outstanding amount and the same has not been considered by the ITAT in the impugned order. In CIT v. English Electric Company of India Ltd. reported in (2000) 243 ITR 512 (Mad), it was held that the assessee was not entitled to deduction of unpaid tax from value of the closing stock. Therefore, the Appellant argued that the ITAT has erred in deleting the addition of the abovesaid amount. 6. Reliance was placed on the decision of Chainrup Sampatram v. CIT, reported in (1953) 24 ITR 481 (SC) where it was held by the Supreme Court that valuation of unsold stock at the close of the accounting period was a necessary part of the process of ITA-1288/2011 Page 4 determining the trading results of that period. Therefore, the true purpose of crediting the value of the unsold stock is to balance the cost of the goods entered on the other side of the account at the time of purchase, so that on cancelling out of the entries relating to the same stock from both sides of the account would leave only the transactions in which actual sales in the course of the year has taken place and thereby showing the profit or loss realized on the year's trading. 7. The Appellant also submitted that the provisions of Section 43B and 145A should be read together as the amount has been shown payable in Form No. 3CD report filed with the return of the assessee. It is essential to note that the provisions of section 145A of the Act mandate that the value of opening stock, purchases and closing stocks were required to be valued by including all duties payable. In the case of CIT v. Xomox (India)Ltd. reported in (2004) 271 ITR 228 (Mad) which followed the decision of Chemicals & Plastics India Ltd. v. CIT reported in (2003) 260 ITR 193 (Mad), it was held that whether excise duty has been paid or not, excise element would be ordinarily included in the valuation of closing stock. Similarly, customs duty will be included in respect of imported raw materials. Thus, the appellant submits that all items had to be valued in accordance with provisions of Section 145A of the Act and if any tax, duty, etc enumerated in Section 43B was payable and not paid before the due date, was required to be disallowed as per the provisions of the Act. ITA-1288/2011 Page 5 8. The assessee argues that no entry was been booked, relating to excise duty leviable at the time of removal of goods from the factory, nor was any expenditure claimed. Furthermore, Section 43B and Section 145A are two different sections and cannot be read together. Hence, the amount directed to be deleted by ITAT is correct and should be upheld by this Court. Therefore, there is no error on the part of the ITAT in holding that Section 43B is not applicable in the case of the assessee. 9. Further, the assessee contends that Section 145A is also not applicable in the instant case. Increase in value of stock under section 145A to include impact of excise duty on finished goods would also be against the law. Section 145A was introduced to bring uniformity in valuation of stock; it requires that stock valuation should be inclusive of any tax, duty, cess or fee actually paid by the assessee to bring the goods to the place of its location and condition as on date of valuation, even if such tax or duty is refundable. Thus, the Revenue has misconstrued Section 145A and presumed that it requires that excise duty payable on finished goods should be added to the inventory valuation even if not paid as goods are lying in the factory. 10. The assessee also contends that the excise duty payable on the value of closing stock should not be included. Also, there is no requirement that the excise duty which might be payable at the time of removal of goods in subsequent year is to be included. Reliance has been placed on the judgment of CIT v. British Paints ITA-1288/2011 Page 6 India Ltd. reported in (1991) 188 ITR 44 (SC). In this case, the Supreme Court held that the provisions of section 145A of the Act, do not require inclusion of excise duty payable on the value of closing stock. Similarly, in the case of CIT, Tamil Nadu v. M/s. Dynavision Limited, (2012) 348 ITR 380 (SC) the Supreme Court reiterated that inclusion of the element of excise duty in the closing stock is not necessary. 11. Section 145A and its effect was explained by the CBDT in its Circular No. 772 dated 23.12.1998. The relevant part of the circular reads as follows: \"52. Method of accounting in certain cases. 52.1. The issue relating to whether the value of the closing stock of the inputs work-in-progress and finished goods must necessarily include the element for which MODVAT credit is available, has been a matter of considerable litigation over the years. 52.2 Consequent with the other provisions of the Act, with a view to put an end to this point litigation and in order to ensure that the value of opening and closing stock reflect the correct value, a new section 145A is inserted. This section provides that the valuation of purchase, sale and inventory shall be made in accordance with the method of accounting regularly employed by the assessee and such valuation shall be further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called), actually paid or incurred by the assessee to bring to goods to the place of its location and condition as on the date of valuation.\" Therefore, the assessee submits that the Assessing Officer was not justified in adding the excise duty to the cost of the raw materials, ITA-1288/2011 Page 7 etc in computing the value of goods. Hence, the order of ITAT does not call for interference. 12. The assessee has, further, relied on the order of ITAT, Allahabad Bench in Shyam Biri Works Ltd. v. CIT (2007) 108 ITD 489 (All) as well as the case of ACIT v. Narmada Petrochemicals Ltd, reported in (2010) 327 ITR 369 (Guj). In both these cases it was held that the excise duty will be payable only when the goods are removed from the warehouse or factory premises and not otherwise. 13. Section 145-A reads as follows: “145A. Notwithstanding anything to the contrary contained in section 145,— (a) the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head “Profits and gains of business or profession” shall be— (i) in accordance with the method of accounting regularly employed by the assessee; and (ii) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. Explanation.—For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment. (b) interest received by an assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it is received.” ITA-1288/2011 Page 8 Section 145 of the Act obliges every assessee to maintain, subject to accounting standards which may be notified by the Central Government, books of accounts on cash or mercantile basis. Section 145-A begins with a non-obstante clause, and prescribes that the value of goods shall be “further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid”. This provision was introduced in 1999, and overrides other provisions. Its object is to include, for the purpose of valuation of goods, the actual amount of tax, duty, cess or fee, paid by the assessee. Unlike in the case of Section 43-B, which mandates the inclusion, in the computation of income, amounts paid, towards certain liabilities, including tax, but not actually arising or accruing at the time of payment, this provision (Section 145-A) directs inclusion of the amounts of tax, duty etc, actually paid for the purpose of valuation alone. 14. The decision of the Supreme Court in Orient Paper Mills Ltd. Vs. Union of India AIR 1967 SC 1564 is now an authority on the issue that removal of goods from the factory premises, or other specified place implies that it is leviable, and not postponed. The observation of the Supreme Court in that regard are as follows: “Thus, though Section 3 of the Excise Act talks of levy and collection, the actual collection is only at the time of removed of excisable goods from the factory premises or any other specified place of removal. The duty is leviable and is premises or any other specified place of removal. The duty is leviable and is actually imposed on the transaction value defined in subsection (3) (d) of section 4 of the Excise Act. In ITA-1288/2011 Page 9 these circumstances, it is not possible to state that under the Excise Act, the duty has become due and payable only by operation of section 3 simplicter. If Section 3 of the Excise Act is considered to be the only charging section and section 4 of the Excise Act is considered as only a provision for assessment, the charge levied by section 3 of the Excise Act cannot be brought home. Section 3 and 4 have to be read together to bring the charge home. The charge is partially embedded in both the provisions”. 15. In the present case, the sum of Rs. 69,91,983/- no doubt was unpaid; however, the assessee’s contention is not merited, because the goods were admittedly removed, and therefore the duty was payable. The assessee cannot profit or take advantage from that default or omission. Having regard to the object and the wording of Section 145-A, it is held that the AO’s opinion could not have been faulted in the facts of the case. 16. As a result of the above discussion, the question of law framed is answered in favour of the revenue and against the assessee. The appeal is consequently allowed. S. RAVINDRA BHAT (JUDGE) R.V. EASWAR (JUDGE) DECEMBER 03, 2012 "