Dy. Commissioner of Income Tax, Lucknow V. M/s U.P Asbestos Ltd., Lucknow

ITA 583/LKW/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 0232 (ITAT-LUCKNOW)
• Duration Of Justice: 10 month(s) 13 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 27-06-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 13-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K SINGH
• Keywords: Revised return
• Section: 43B; 37(1); 201; 145; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A , LUCKNOW BEFORE SHRI. A. D. JAIN, VICE PRESIDENT AND SHRI T. S. KAPOOR, ACCOUNTANT MEMBER ITA NO. 583/LKW/2018 ASSESSMENT YEAR: 2014 - 15 ASSTT. CIT RANGE 6 LUCKNOW V. M/S U.P. ASBESTOS LTD. MA HMOODABAD ESTATE BUILDING 15, HAZRATGANJ LUCKNOW T AN /PAN : AAACU1994L (APP ELL ANT) (RESPONDENT) APPELLANT BY: SHRI C. K. SINGH, D.R. RESPONDENT BY: MS. SHWETA MITTAL, FCA DATE OF HEARING: 08 0 3 201 9 DATE OF PRONOUNCEMENT: 15 0 3 201 9 O R D E R PER A. D. JAIN, V.P . : THIS IS REVENUES APPEAL AGAINST THE ORDER OF THE LD. CIT(A) - II, LUCKNOW , DATED 6/5/2018 , FOR ASSESSMENT YEAR 2014 - 15, TAKING THE FOLLOWING GROUNDS OF APPEAL: - 1. TH E COMMISSIONER OF INCOME TAX (APPEAL) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.2,92 ,11,000/ - MADE ON AC COUNT OF VALUATION OF CLOSING STOCK I GNORING THE PROVISIONS OF SECT ION - 1 45A O F THE INCOME - TAX ACT, 1961 WHICH CL EARLY LAYS DOWN THAT EXCISE DUTY SHALL MANDATORILY BE INCLUDED IN THE CLOSING STOCK. 2. T HE COMMISSIONER OF INCOME TAX (APPEAL) WAS NOT JUSTIFIED IN DELETING THE ADDITION OF RS. 2,92,11, 000 / - MADE ON ACCOUNT O F CLOSING STOCK IGNORING THE FACT THAT THE ASSESSEES METHOD OF ACCOUNTING IS NOT ENTIRELY IN ACCORDANCE WITH THE METHOD OF VALUATION PRE SCRIBED UNDER SECTION 145A OF THE ACT AND THE ASSESSEE HAS NOT ADDED TAXES AND DUTIES IN PURCHASE, SALES OR VALUATION ON CLOSING STOCK AND HENCE THE METHOD OF ACCOUNTING, ITA NO.583/LKW/2018 PAGE 2 OF 13 EVEN THOUGH CONSISTENTLY FOLLOWED DOES NOT DISCLOSE TRUE INCOME OF THE ASSESSEE. 2 . THE FACTS OF THE CASE ARE THAT FOR THE ASSESSMENT YEAR 2014 - 15, THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING A LOSS OF RS.8,89,14,624/ - . THE ASSESSEE FILED REVISED RETURN OF INCOME DECLARING LOSS OF RS.9,16,08,656/ - . THE ASSESSMENT WAS COMPLETED BY THE ASSESSING OFFICER ON A TOTAL LOSS OF RS.6,23,97,655/ - . THE ASSESSING OFFICER, WHILE MAKING THE ADDITION OF RS.2,92,11,000/ - , ON ACCOUNT OF VALUATION OF CLOSING STOCK, HELD AS FOLLOWS: - IN VIEW OF ABOVE DISCUSSION, IT IS CL EAR THAT THE ASSESSEE WAS REQUI RED TO PREPARE/RE - CAST THE ACCOUNTS ON GROSS BASIS OR REQUIRED BY SECTION 1 45A, WHICH THE ASSESS EE F A ILED TO D O SO. T HE ASSESSEES CONTENTION THAT IT HAS NO EFFECT ON THE P & L ACCOUNT OF THE COMPANY I S NOT CORRECT . FURT HER , THE EFFECT O F ADDITION I N CL OS ING STOCK IS NOT GIVEN IN O P ENING S T OCK A S ASSESSE E PREFERRED AP P EAL AGAINST THE ORDER OF ASSESSING OFFICER IN EARLIER ASSESSMENT YE AR . THE ASSESSE E IS STATING THAT AS THERE I S LIABILITY OF RS. 2,92,11,000/ - ON ACCOUNT OF EXCISE DUTY ACCRUED BUT NOT D U E ON STOCK OF FINISHED GOODS AS ON 31 - 03 - 2014 , T H E S A ME AMOUNT IS NOT INCLUDED IN VALUATION OF FINIS H ED GOODS. T HE ASSESSEE'S CONTENTION IS NOT ACCEPTABLE . A S ALREADY DISCUSSED ABO VE , THE ASSESSEE HAS TO RE - C A ST ITS A CCOUNTS AS REQUIRED UNDER SECTION 145A. TH E EXCISE DUTY LIABILITY OF RS.2,92,11,000/ - ON CLOSING STOCK OF FINISHED GOODS IS ONLY D EDUCTIBLE IF IT IS PAID ON OR BEFORE THE DUE DATE OF FILING OF THE RETURN AS RE QUI RED UNDER SECTION 43B OF THE ACT. FURTHER, ASSESSEES CONTENTION THAT THIS PRACTICE IS CONTINUOUSLY FOLLOWED BY THE ASSESSEE COMPANY FOR AIL ASSESSMENT YEAR I S NOT OF MUCH RELEVANCE IN VIEW OF T HE HON'BLE APEX COURT'S JUDGMENT IN TH E CASE OF CIT VS. BRITISH INDIA PAINTS LT D. (SC) , 188 I TR 44 WHEREIN IT HAS BEEN HELD THAT WHERE METHOD OF ACCO UNTING EVEN THOUGH CONSISTEN T LY FALLO WE D DOES NOT DISCLOSED TRUE A N D PROPER INCOME, APPROPRIATE COMPUTATION TO DETERMINE TRUE INCO M E IS TO BE MADE , T HE ADDITION ON THIS GROUND WAS M ADE IN PREVIOUS ASSESSMENT YEAR ALSO. IN VIEW OF THE ABOVE DISCUSSION, THE EXCISE DUTY OF RS.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 ITA NO.583/LKW/2018 PAGE 3 OF 13 FILING OF RETURN OF INCOME AS IS REQUIRED UNDER SECTION 43B OF THE ACT IS ADDED TO THE INCOME OF THE ASSESSEE. 3 . THE LD. CIT(A) DELETED THE ADDITION, OBSERVING THAT : IN THE PRESENT CASE, IT IS NOT IN DISPUTE THAT THE MANUFACTURED FINISHED GOODS WAS LYING IN STOCK AND THE SAME WERE NOT CLEARED FROM THE FACTORY. THE LIABILITY OF EXCISE DUTY ON FINISHED GOODS OF RS.2, 92,11,000/ - HAS ACCRUED AS THE GOODS HAVE BEEN MANUFACTURED BUT THE SAME HAS NOT BECOME DUE AS ON 31.03.2014 BECAUSE THE GOODS HAVE NOT BEEN CLEARED. THEREFORE, CONSIDERING THE FACTS OF THE PRESENT CASE, EXCISE DU T Y LIABILITY, IN RESPECT OF FINISHED GOODS LYING IN STOCK, WAS NOT INCURRED. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE DECISIONS OF HON'BLE ITAT, LUCKNOW BENCH, LUCKNOW'S DATED 10 - 04 - 2017 (SUPRA), ADDITION OF EXCISE DUTY OF RS. 2,92,11,000 / - MA DE BY THE AO TO THE VA L UE OF THE CLOS ING STOCK IS H E LD TO UNJUSTIFIED A N D IS HEREBY DELETED. THE APPELLANT GETS CONSEQUENTIAL RELIEF. 4 . AGGRIEVED, THE DEPART MENT IS IN APPEAL. 5 . THE LD. D.R. HAS CONTENDED THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.2,92,11,00 0/ - MADE ON ACCOUNT OF VALUATION OF CLOSING STOCK, IGNORING THE PROVISIONS OF SECTION 145A OF THE INCOME - TAX ACT, 1961 , WHICH CLEARLY LAYS DOWN THAT THE EXCISE DUTY SHALL MANDATORILY BE INCLUDED IN THE CLOSING STOCK. IT WAS FURTHER CONTENDED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION BY IGNORING THE FACT THAT THE ASSESSEES METHOD OF ACCOUNTING IS NOT IN ACCORDANCE WITH THE METHOD OF VALUATION PRESCRIBED UNDER SECTION 145A OF THE ACT AND THE ASSESSEE HAS NOT ADDED TAXES AND DUTIES IN PU RCHASE, SALES OR VALUATION ON CLOSING STOCK , AND HENCE , THE METHOD OF ACCOUNTING, EVEN THOUGH CONSISTENTLY FOLLOWED , DOES NOT DISCLOSE THE TRUE INCOME OF THE ASSESSEE. 6 . THE LD. A.R. OF THE ASSESSEE HAS PLACED RELIANCE ON THE IMPUGNED ORDER. ITA NO.583/LKW/2018 PAGE 4 OF 13 7 . HEARD. THE ASSE SSEE IS A LIMITED COMPANY, ENGAGED IN THE MANUFACTURE AND SALE OF A SBESTOS S HEETS AND ALLIED PRODUCTS & TRADING OF A SBESTOS F IBER. THE ASSESSEE DID NOT ADD THE EXCISE DUTY OF RS.2,92,11,000/ - ON CLOSING STOCK OF ITS FINISHED GOODS, CONTENDING THAT THE LIA BILITY ACCRUED, WAS NOT DUE ON ITS STOCK OF FINISHED GOODS, AS ON 31/3/2014. THE ASSESSEE HAS NOT DEBITED THE EXCISE DUTY IN ITS PROFIT & LOSS ACCOUNT , AS ACCORDING TO IT, THOUGH IT HAD ACCRUED, IT HAD NOT BECOME DUE AS ON 31.3.2014 . THE ASSESSING OFFICE R 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 CORR ECT. 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 DY E ING 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 WH ETHER THE EXCISE DUTY HAD ALREADY BEEN PAID, AS THEY HAVE NO MEANS OF KNOWING IT. THE PURCHASER OR THE MANUFACTURER REALIZES THE INDIRECT TAX ON THE GOODS MANUFACTURED AND PAYS IT TO THE GOVERNMENT, BEFORE THE GOODS PASS ON IN THE HANDS OF THE CONSUMERS. 9 . E NTRY 84 OF LIST - I OF THE SEVENTH SCHEDULE OF THE CONSTITUTION OF INDIA EMPOWERS THE PARLIAMENT TO MAKE A LAW PROVIDING FOR LEVY OF ITA NO.583/LKW/2018 PAGE 5 OF 13 DUTIES OF EXCISE ON GOODS MANUFACTURED IN INDIA, AS PRESCRIBED THEREIN. THERE WERE NUMEROUS STATUTES AND REGULATIONS GOVERN ING INTERNAL COMMODITY TAXATION. THIS AGGLOMERATION OF STATUTES AND REGULATIONS DEALING WITH SIMILAR MATTERS WERE FOUND NEITHER CONVENIENT TO THE PUBLIC, NOR CONDUC IV E TO WELL - ORGANIZED ADMINISTRATION. THUS, THE CENTRAL EXCISE AND SALT ACT, 1944 (NOW KNO WN AS THE CENTRAL EXCISES ACT, 1944 AND, HEREINAFTER, REFERRED TO, FOR SHORT, AS THE EXCISE S ACT) WAS ENACTED TO CONSOLIDATE, IN A SINGLE ENACTMENT, ALL THE LAWS RELATING TO, INTER ALIA, C ENTRAL DUTIES OF E XCISE AND TO EMBODY THEREIN A SCHEDULE SETTING F ORTH THE RATES OF DUTY LEVIABLE ON EACH CLASS OF GOODS. 10 . ARTICLE 265 OF THE CONSTITUTION CONTEMPLATES THAT NO TAX SHALL BE LEVIED OR COLLECTED EXCEPT BY AN AUTHORITY OF LAW. 11 . SECTION 3(I) OF THE EXCISE S ACT PROVIDES FOR LEVY OF EXCISE DUTY AND COLLECTION T HEREOF IN SUCH MANNER AS MAY BE PRESCRIBED. AS PER SECTION 2(G), PRESCRIBED MEANS PRESCRIBED BY RULES MADE UNDER THE EXCISES ACT. SECTION 37(1) STATES THAT THE CENTRAL GOVERNMENT MAY MAKE R ULES TO CARRY INTO EFFECT THE PURPOSES OF THE EXCISE ACT. ACCO RDING TO SECTION 37(2)(I - B), SUCH RULES MAY, INTER ALIA, PROVIDED FOR THE COLLECTION OF DUTIES OF EXCISE. 12 . THUS, SECTION 3(I) OF THE EXCISES ACT IS THE AUTHORITY OF LAW ENABLING LEVY OF EXCISE DUTY. IT, HOWEVER, DOES NOT LAY DOWN THE STAGE AT WHICH THE DUT Y IS TO ATTACH, OR THE DATE WITH REFERENCE TO WHICH THE RATES, SET FORTH IN THE SCHEDULE, HAVE TO BE APPLIED. THE COLLECTION OF THE DUTIES HAS BEEN SUBJECTED BY THE LEGISLATURE, BY DELEGATION OF LEGISLATION TO THE CENTRAL GOVERNMENT, UNDER R ULES TO BE FRA MED BY THE CENTRAL GOVERNMENT. THE DUTIES, AS PER SECTION 3(I), SHALL BE LEVIED ON ALL EXCISABLE GOODS PRODUCED OR MANUFACTURED IN INDIA. ITA NO.583/LKW/2018 PAGE 6 OF 13 13 . THE CENTRAL EXCISE RULES, 1944 (HEREINAFTER , THE RULES) WERE MADE BY THE CENTRAL GOVERNMENT, I NTER ALIA , FOR THE PU RPOSE OF PROVIDING FOR THE ASSESSMENT AND COLLECTI O N OF DUTIES IMPOSED BY THE EXCISES ACT . RULE 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 ALI A , EXCISE D UTY 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 DE T ERMINED 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 C O. 1996 (83) ELT 3 ( SC) HELD AS UNDER: WE ARE O F TH E OPINION THA T SECTION 3 CANNOT BE READ AS S HIFTING T HE LEVY FROM THE STAGE OF MAN UFACTURE OR PRODUCTION OF GOODS T O THE STAGE OF REMOVAL. THE LEVY IS A ND REMAINS UPON THE MANUFACTURE OR PRODUCTION ALONE. ONLY THE COLLECTION PA RT OF IT IS SHIFTED TO THE STA GE OF REMOVA L. 17 . THE HON'BLE APEX COURT IN THE CASE OF COMMISSIONER OF CENTRAL EXCISE V S. POLYSET CORPORATION AND ANOTHER REPORTED IN 115 ELT 41 (SC) , HAS HELD THAT THE DUTIABILITY OF THE EXCISABLE GOODS IS ITA NO.583/LKW/2018 PAGE 7 OF 13 DETERMINED WITH REFERENCE TO THE DATE OF MANUFACTURE AND THE RATE OF EXCISE DUTY PAYABLE HAS TO BE DETERMINED WITH REFERENCE TO THE DATE OF CLEARANCE OF THE GOODS. THEREFORE, THOUGH THE DATE OF MANUFACTURE IS THE RELEVANT DATE FOR DUTIABILITY, THE RELEVANT DATE FOR THE DUTY LIABILITY IS THE DATE ON WHICH THE GOODS ARE CLEARED. IN OTHER WORDS, IN RESPECT OF THE EXCISABLE GOODS MANUFACTURED AND LYING IN STOCK, THE EXCISE DUTY LIABILITY WOULD GET CRYSTALLIZED ON THE DATE OF CLEARANCE OF GOODS AND NOT ON THE DATE OF MANUFACTURE. THEREFORE, TILL THE DATE OF CLEARANCE OF THE EXCISABLE GOODS, THE EXCISE DUTY PAYABLE ON THE SAID GOODS DOES NOT GET CRYSTALLIZED AND , AS SUCH, THE ASSESSEE CANNOT BE SAID TO HAVE INCURRED THE EXCISE DUTY LIABILITY. IN RESPECT OF THE EXCISABLE GOODS LYING IN STOCK, NO LIABILITY IS DETERMINED AS P AYABLE AND, CONSEQUENTLY, THERE WOULD BE NO QUESTION OF INCURRING EXCISE DUTY LIABILITY. 18 . THE HON'BLE SUPREME COURT , IN THE CASE OF WALLACE FLOUR MILLS CO. LTD. VS. CCE , 186 ITR 440 (SC) , SUMMED UP THE LEGAL POSITION AS UNDER: 'IT IS WELL SETTLED LAY THE SCHEME OF THE ACT AS CLARIFIED BY SEVERAL DECISIONS THAT EVEN THOUGH THE TAXABLE EVENT IS THE MANUFACTURE OR PRODUCTION OF AN EXCISABLE ARTICLE, THE DUTY CAN BE LEVIED AND COLLECTED AT A LATER STAGE FOR ADMINISTRATIVE CONVENIENCE . THE SCHEME OF THE SAID AC T READ WITH THE RELEVANT RULES FRAMED UNDER THE ACT PARTICULARLY RULE 9A OF THE SAID RULES, REVEALS THAT THE TAXABLE EVENT IS THE FACT OF MANUFACTURE OR PRODUCTION OF AN EXCISABLE GOODS AND THE PAYMENT OF DUTY IS RELATED TO THE DATE OF REMOVAL OF SUCH ARTI CLE FROM THE FACTORY.' 19 . THE HON'BLE SUPREME COURT, IN THE CASE OF COLLECTOR OF CENTRAL EXCISE, PUNE VS. DAI ICHI KARKARIA LTD., 1999 (112) ELT 353 (SC), HAS HELD THAT THE EXCISE DUTY PAID ON RAW MATERIAL, MODVATTED, SHOULD NOT BE INCLUDED IN DETERMINING T HE CASE OF PRODUCTION OF EXCISABLE PRODUCTS. 20 . THE AFORESAID VIEW HAS BEEN TAKEN, AMONGST OTHERS, IN THE FOLLOWING JUDGMENTS ALSO: ITA NO.583/LKW/2018 PAGE 8 OF 13 (1) CIT VS . DYNAVISION LTD., 210 TAXMAN 239 (SC) ( 2 ) ACIT VS. TORRENT CABLES LTD., 210 TAXMAN 579 (SC) ( 3 ) CIT VS. SHRI RAM HON DA POWER EQUIPMENT LTD. 2 10 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.1 82/LKO/2016 , IN THE ASSESSEES OWN CASE, DISMISSED THE APPEAL S PREFERRED BY THE R EVENUE 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 INCURR ED LIABILITY TO PAY EXCISE DUTY ON THE MANUFACTURED GOODS. THEREFORE , AS ON 31.3.2012 IN OUR VIEW THE LIABILITY OF RS.4,06,80,000/ - ON ACCOUNT OF EXCISE DUTY EVEN THOUGH ACCRUED NOT BECOME DUE, ON THE FINISHED GOODS. THEREFORE, IT CANNOT BE SAID THAT THE A SSESSEE HAS INCURRED LIABILITY TO PAY EXCISE DUTY ON HIS MANUFACTURED GOODS. AS THE ASSESSEE INCURRED LIABILITY, THE ASSESSEE WOULD HAVE DEBITED IT IN THE PROFIT & LOSS ACCOUNT. THE EXCISE DUTY IS A TAX OR DUTY ON THE MANUFACTURE OF GOODS. HOWEVER, THE EXC ISE DUTY IS PAYABLE ON CLEARANCE OF THE GOODS FROM THE FACTORY. IF THE GOODS MANUFACTURED AND LYING AT THE FACTORY, THOUGH EXCISE DUTY IS ON MANUFACTURE OF GOODS, BUT THE RATE OF EXCISE DUTY PAYABLE WILL BE RATES APPLICABLE ON THE DAY OF CLEARANCE OF GOODS FROM THE FACTORY OR EXCISE BONDED WA REHOUSE. THEREFORE, IT CANNOT BE SAID THAT EXCISE DUTY IS PAYABLE ON THE GOODS LYING IN THE F ACTORY SO AS TO BRING THE GOODS, IN THE PRESENT CONDITION AND LOCATION. THE ASSESSEE HAS ACCORDINGLY NEITHER DEBITED EXCISE DU TY TO THE PROFIT & LOSS ACCOUNT NOR TAKEN IT AS PART OF VALUATION OF THE CLOSING STOCK. IT IS NOT IN VIOLATION OF THE PROVISIONS OF SECTION 145A OF THE ACT. 22 . THIS IS THE POSITION SO FAR AS REGARDS THE EXCISES ACT AND THE EXCISE RULES. HOWEVER, THE ASSES SING OFFICER HAS INVOKED THE PROVISIONS ITA NO.583/LKW/2018 PAGE 9 OF 13 OF SECTION 145A OF THE I.T. ACT AND HAS HELD THAT THE ASSESSEE HAS FAILED TO RE - CAST ITS ACCOUNTS IN ACCORDANCE WITH THIS SECTION. 23 . SECTION 145A OF THE ACT INSERTED BY THE FINANCE (NO.2) ACT, 1998 WITH EFFECT FROM 1/4 /1999 READS AS FOLLOWS: '145A METHOD OF ACCOUNTING IN CERTAIN CASES - NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN SECTION 145, THE VALUATION OF PURCHASE AND SALE OF GOODS AND INVENTORY FOR THE PURPOSES OF DETERMINING THE INCOME CHARGEABLE UNDER T HE HEAD 'PROFITS 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 TAX, DUTY, CESS OR FEE (BY WHATEVER NAME CALLED) ACTUALL Y 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 BEI NG IN FORCE, SHALL INCLUDE ALL SUCH PAYMENTS NOTWITHSTANDING ANY RIGHT ARISING AS A CONSEQUENCE TO SUCH PAYMENT.' 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 LOCAT ION 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 EXPLANA TION 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 T HE 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 O N THE ITA NO.583/LKW/2018 PAGE 10 OF 13 MANUFACTURED GOODS IS THE QUESTION. IN THE INSTANT CASE , THE LIABILITY OF RS. 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) HAS NOT INCUR RED THE LIABILITY TO PAY EXCISE DUTY ON THE MANUFACTURED GOODS AND THE SAID EXCISE DUTY HAS NOT BEEN DEBITED IN THE PROFIT AND LOSS ACCOUNT , HAVING ACCRUED, BUT NOT BECOME DUE. 25 . ACCORDING TO S EC TION 145 OF THE I. T. ACT, THE BOOKS OF ACCOUNT AND FINANCIAL S TATEMENTS ARE TO BE PREPARED IN ACCORDANCE WITH THE REGULAR METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE. HOWEVER, ACCORDING TO SECTION 1 45A OF THE ACT , WHILE DETERMINING THE IN COME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION , THE VALUATION OF THE PURCHASE AND SALE O F THE GOODS AND INVENTORY SHOULD BE NOT ONLY IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE , BUT IT SHOULD BE FURTHER ADJUSTED AS FOLLOWS: ( I ) SA L E & PURCHASE OF GOODS SHOULD BE SHOWN AT G ROSS AMOUNT INCLUDING DUTY, TAX, CESS ETC; ( II ) WHILE VALUING OPENING A N D CLOSING INVENTORY TAX, DU T Y, CESS, ETC., SHOULD BE INCLUDED AS PART OF COST (OR VALUE) OF THE INVENTORY. IF AN ASSESSEE IS ACCOUNTING FOR PURCHASE & SALES ON NET BASIS, I.E, THE AMOUNT OF SALE OR PURCHASE ARE SHOWN NET OF EXCISE, SALES TAX, ETC., THEN, FOR ACCOUNTING PURPOSES, THERE IS NO BAR ON CONTINUING THE SAME, BUT FOR INCOME - TAX PURPOSES, THE ASSESSEE WILL HAVE TO RECAST THE ACCOUNTS ON GROSS BASIS AS REQUIRED BY SECTION 145A OF TH E ACT. THEREFORE, IT IS NOT NECESSARY TO CHANGE THE METHOD OF VALUATION OF PURCHASE, SALE AND INVENTORY REGULARLY EMPLOYED IN THE BOOKS OF ACCOUNT. THE ADJUSTMENTS PROVIDED IN SECTION 145A CAN BE MADE WHILE COMPUTING THE INCOME FOR THE PURPOSE OF PREPARING THE RETURN OF INCOME. THESE ADJUSTMENTS ARE AS FOLLOWS: - ITA NO.583/LKW/2018 PAGE 11 OF 13 (A) ANY TAX, DUTY, CESS OR FEE ACTUALLY PAID OR INCURRED ON INPUTS SHOULD B E ADDED TO THE COST OF INPUTS (RAW MATERIALS, STORES, ETC.) IF NOT ALREADY ADDED IN THE BOOKS OF ACCOUNT. (B) ANY TAX, DUTY , CESS OR FEE ACTUALLY PAID OR INCURRED ON SALE OF GOODS SHOULD B E ADDED TO THE SALES, IF NOT ALREADY ADDED IN THE BOOKS OF ACCOUNT. (C) ANY TAX, DUTY, CESS OR FEE ACTUALLY PAID OR INCURRED ON THE INVENTORY (FINISHED GOODS, WORK - IN - PROGRESS, RAW MATERIAL) SHOULD BE ADDED TO THE INVENTORIES, IF NOT ALREADY ADDED WHILE VALUING THE INVENTORY IN THE ACCOUNTS. 26 . THE EXCISE DUTY IS AN EXPENSE WHICH NEEDS TO BE DEBITED IN THE TRADING ACCOUNT. IT IS ONLY IF IT IS SO DEBITED THAT THE CREDIT SIDE OF THE TRADING ACCOUN T 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 TRADIN G 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 ACCOUNT ANCY , 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 REFINEMENT S, AS TO WHAT SHOULD BE INCLUDED IN THE COST AND WHAT NOT. THE C OSTS , 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 NOT DEBITED IN THE PROFIT AND LOSS ACCOUNT, THEN , THE EXCISE DUTY CANNOT BE CONSIDERED AS PART OF VALUATION OF SUCH STOCK. ONLY WHEN THE EXCISE DUTY RELATING TO THE CLOSING STOCK IS DEB ITED IN THE PROFIT & LOSS ITA NO.583/LKW/2018 PAGE 12 OF 13 ACCOUNT , WOULD THE QUESTION OF ADDING SUCH EXCISE DUTY IN THE VALUE OF STOCK ARISE. 28 . THE PURCHASES AND SERVICES FORMING PART OF THE INPUTS IN THE MANUFACTURE OF FINISHED GOODS, HA VE BEEN RECORDED BY THE ASSESSEE NET OF THE EXCISE D UTY, SERVICE TAX, VALUE ADDED TAX . THESE ARE AVAILABLE AS CENVAT/ INPUT CREDIT AND ARE ADJUSTABLE FROM THE DUTIES AND TAXES PAYABLE ON THE FINISHED GOODS. THE ASSESSEE HAS NOT ADDED TO THE VALUE OF PURCHASE & SALE, THEIR TAXES AND DUTIES , WHERE CENVAT IS A VAILED BY THEM , AS THOSE TAXES WHICH ARE REFUNDABLE, CANNOT FORM PART OF THE COST OF PRODUCTION , AND SUCH ADDITION WOULD BE AGAINST THE GENERAL PRINCIPLE S OF ACCOUNT ANCY . THE A CCOUNTING S TANDARD ON VALUATION OF INVENTORIES (AS - 2 - VALUATION OF INVENTORIES), ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA AND RATIFIED UNDER THE COMPANIES (ACCOUNTING STANDARD S ) RULE S , 2006, IS MANDATORY IN NATURE AND THE ASSESSEE COMPANY IS STATUTORILY REQUIRED TO FOLLOW IT IN THE PREPARATION OF ITS FINANCIAL ACCOUNT S . THIS ACCOUNTING STANDARD HAS ALSO RECOMMENDED THAT WHILE VALUING THE INVENTORY OF THE RAW MATERIALS, THE AMOUNT OF CENVAT AVAILED AS CREDIT ON THE PURCHASE O F RAW MATERIALS SHOULD NOT BE INCLUDED IN THE COST OF SUCH RAW MATERIALS. THE S TATUTORY A UDITO R S / I NDEPENDENT A UDITOR S OF THE COMPANY HAVE NOT QUALIFIED THEIR REPORT IN RESPECT OF THE VALUATION OF STOCK OF FINISHED GOODS , AS WELL AS OF THE RAW MATERIAL , AND THEY HAVE ALSO NOT QUALIFIED THEIR OPINION IN RESPECT OF EITHER THE ACCOUNTING POLICY ADOPTED BY THE COMPANY IN RELATION TO THE VALUATION OF STOCK, OR THE ACCOUNTING OF THE SALES AND THE PURCHASES M A DE BY THE ASSESSEE COMPANY. THE METHOD PRESCRIBED BY THE A CCOUNTING S TANDARD IS CALLED THE EXCLUSIVE METHOD AND THE METHOD PRESCRIBED IN SECTION 1 4 5A OF THE ACT IS CALLED THE INCLUSIVE METHOD . HENCE, ALTHOUGH THE METHOD OF VALUATION O F STOCK FOLLOWED BY THE ASSESSEE COMPANY IS NOT IN CONFORMITY WITH THE PRESCRIPTION ITA NO.583/LKW/2018 PAGE 13 OF 13 UNDER SECTION 145A OF THE ACT, THE DEVIATIONS WILL HAVE NO EFFECT ON THE PROFIT & LOSS ACCOUNT OF THE RELEVANT FINANCIAL YEAR. 29 . THEN , IT REMAINS UNDISPUTED THAT NO EXCISABLE ITEM OF THE CLOSING STACK OF THE ASSESSEE WAS REMOVED FROM THE FACTORY PREMISES TILL THE END O F THE ACCOUNTING YEAR. THUS, FOLLOWING THE NET METHOD OF VALUATION OF CL OSING STOCK, EXCISE D UTY HAS RIGHTLY BEEN EXCLUDED FROM T H E VALUE OF CL OSING STOCK OF FINISHED GOODS AT THE END OF THE ACCOUNTING PERIOD. THE ASSESSEE HAS CONSISTENTLY FO LLOWED THE METHOD OF ACCOUNTING ADOPTED BY IT . THE METHOD OF VALUATION OF CLOSING ST OCK IS AT C O ST OR NET REALIZABLE VALUE, WHICHEVER IS LOWER . IN VALUING THE STOCK , THE EXCISE DUTY , ETC ., ARE NOT ADDED T O THE PURCHASES, SALES O R VALUATION OF INVENTORIES. 30 . IN VIEW OF THE ABOVE , FINDING THAT THE LD. CIT(A) HAS CORRECTLY DELETED THE ADDITIO N WRONGLY MADE, THE IMPUGNED ORDER IS CONFIRMED AND THE GRIEVANCE SOUGHT TO BE RAISED BY THE DEPARTMENT IS REJECTED, BEING SHORN OF MERIT. 31 . IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 / 0 3 /201 9 . SD/ - SD/ - [ T. S. KAPOOR ] [ A. D. JAIN ] ACCOUNTANT MEMBER VICE PRESIDENT DATED 15 /03/ 201 9 JJ: 0803 COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT 5 . DR