IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A : LUCKNOW BEFORE SHRI H. L. KARWA, HONBLE VICE PRESIDENT AND SHRI N. K. SAINI, ACCOUNTANT MEMBER I.T.A. NO.769/LKW/10 ASSESSMENT YEAR:2001-2002 INCOME TAX OFFICER-VI(1), VS. M/S SIN GHAL PAINTS (P) LTD., LUCKNOW. 1, AISHBAGH ROAD, LUCKNOW. PAN:AADCS4087R (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI H. P. SINGH, ADVOCATE RESPONDENT BY: SHRI ANADI VERMA, D. R. ORDER PER N. K. SAINI: THIS IS AN APPEAL FILED BY THE DEPARTMENT AGAINST T HE ORDER DATED 03/08/2010 OF CIT(A)-III, LUCKNOW RELEVANT TO ASSES SMENT YEAR 2001-2002. IN THIS APPEAL THE DEPARTMENT HAS RAISED THE FOLLOW ING GROUNDS: 1.1 LD. CIT (A) HAS ERRED IN LAW AND FACTS IS DELE TING THE ADDITION OF ` 15,80,520/- MADE TO CLOSING STOCK IN RESPECT OF EXCISE DUTY ON GOODS LYING WITHIN THE BO NDED WAREHOUSE. 1.2 IN DOING SO, LD. CIT (A) FAILED TO APPRECIATE T HAT IN THE CASE OF CIT VS. ENGLISH ELECTRIC CO. OF INDIA LTD. (MAD) 243 ITR 512, IT WAS HELD THAT LIABILITY INCURRED FO R PAYMENT IF EXCISE DUTY CAN BE ADDED TO VALUE OF CLO SING STOCK IF SUCH LIABILITY WAS DEDUCTED FOR COMPUTING PROFIT. 1.3 ANY OTHER GROUND THAT MAY ARISE OR BECOMES INCI DENTAL DURING THE PENDENCY OF APPEAL. 2 2. APPELLANT CRAVES LEAVE TO ADD OR AMEND ANYONE OR MORE OF THE GROUNDS OF APPEAL, AS STATED ABOVE AS AND WH EN NEED OF DOING SO ARISES WITH THE PRIOR PERMISSION O F THE HON'BLE TRIBUNAL. 2. FROM THE ABOVE GROUNDS IT IS GATHERED THAT THE ONLY GRIEVANCE OF THE DEPARTMENT IN THIS APPEAL RELATES TO THE DELETION O F ADDITION OF ` 15,80,520/- MADE BY THE ASSESSING OFFICER TO THE CLOSING IN RES PECT OF EXCISE DUTY ON GOODS LYING WITHIN THE BONDED WAREHOUSE. 3. THE FACTS RELATED TO THIS CASE, IN BRIEF, ARE TH AT THE ASSESSEE FILED ITS RETURN OF INCOME ON 31/10/2001 SHOWING NET LOSS OF ` 10,41,640/- WHICH WAS ASSESSED AT THE NET LOSS OF ` 10,03,640/-. LATER ON, THE SAID ASSESSMENT ORDER WAS REVIEWED BY THE LEARNED CIT BY INVOKING THE PROVISIONS OF SECTION 263 OF THE I.T. ACT AND IT WA S HELD THAT THE ASSESSMENT ORDER DATED 08/03/2004 WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE SINCE THE EXCISE DUTY PAYABLE W AS NOT INCLUDED IN THE VALUE OF THE CLOSING STOCK. IN CONSEQUENCE TO THE DIRECTIONS ISSUED U/S 263 OF THE I.T. ACT, THE ASSESSING OFFICER INCLUDED A S UM OF ` 15,80,520/- AS THE AMOUNT OF EXCISE DUTY IN THE CLOSING STOCK AND ADDI TION WAS ACCORDINGLY MADE TO THE TOTAL INCOME OF THE ASSESSEE. THE ASSE SSEE CONTESTED THE ASSESSMENT ORDER PASSED IN CONSEQUENCE TO THE REVIE W PROCEEDINGS BEFORE THE CIT (A), WHO VIDE HIS ORDER DATED 17/04/ 2009 CONFIRMED THE ADDITION MADE TO THE VALUE OF THE CLOSING STOCK BY RELYING UPON THE DECISION 3 DATED 15/09/2006 OF ITAT, LUCKNOW BENCH IN I.T.A. N O.909/LUC/05 FOR THE ASSESSMENT YEAR 2002-2003 IN THE CASE OF KISAN SAHK ARI CHINI MILLS LTD. VS. DCIT. THE ASSESSEE CARRIED THE MATTER TO THE I TAT IN I.T.A. NO. 328/LUC/09 AND THE ISSUE WAS SET ASIDE BACK TO THE FILE OF THE LEARNED CIT (A) FOR FRESH ADJUDICATION VIDE ORDER DATED 11/11/2 009 BY OBSERVING IN PARA 7 TO 7.2 AS UNDER: 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CA REFULLY GONE THROUGH THE MATERIALS AVAILABLE ON THE RECORD. IN THE PRESENT CASE, IT IS NOTICED THAT THE LEARNED CIT(A) WHILE CONFIRMING THE ACTION OF THE ASSESSING OFFICER HAS STATED AS UNDER: '5.3 I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE SUBMISSION OF THE AR. THE FACTS OF THE CASE IN HAND ARE ENTIRELY DIFFERENT FROM THE FACTS IN THE CASE OF M/ S SHYAM BIRI WORKS VS. ACIT [108 ITD 489] WHICH WAS CITED BY THE AR FOR THE APPELLANT. IT HAS BEEN HEL D BY THE HON'BLE ITAT, LUCKNOW BENCH IN THE CASE OF KISA N SAHKARI CHINI MILLS LTD. VS. DCIT IN ITA NO. 909/LU C/05 FOR THE ASSESSMENT YEAR 2002-2003 ORDER DATED 15/09/2006 THAT PROVISIONS OF SECTION 145A OF THE I .T. ACT HAS BEEN INSERTED BY FINANCE ACT, 1998 W.E.F. 01/04/1999 AND THAT THE CLOSING STOCK WILL INCLUDE THE AMOUNT OF EXCISE DUTY WHICH HAS BEEN INCURRED BY TH E ASSESSEE TO BRING THE GOODS ON THE PLACE OF ITS LOC ATION AND CONDITION AS ON THE DATE OF VALUATION. RESPECTF ULLY FOLLOWING THE HON'BLE LUCKNOW BENCH DECISION, THE ADDITION MADE BY THE ASSESSING OFFICER IS CONFIRMED .' 7.1 FROM THE ABOVE OBSERVATIONS OF THE LEARNED CIT( A), IT IS NOTICED THAT HE HAD NEITHER DISCUSSED THE FACTS INVOLVED IN THE CASE FOLLOWED BY HIM NOR IN THE CASE DISTINGUIS HED BY HIM. IN OTHER WORDS, IT IS NOT CLEAR HOW THE CASE RELIED BY THE ASSESSEE WAS NOT APPLICABLE AND HOW THE CASE RELIED BY THE 4 CIT(A) WAS APPLICABLE. NO OTHER FINDINGS HAVE BEEN GIVEN BY THE LEARNED CIT(A), SO THE ORDER PASSED BY HIM IS A NON SPEAKING ORDER IN THE EYES OF LAW. 7.2 WE, THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS, SET ASIDE THIS ISSUE BACK TO THE FILE OF THE CIT(A) FOR FRESH ADJUDICATION IN ACCORDANCE WITH LAW AFTER PROVIDING DUE AND REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. 3.1 ON THE ABOVE DIRECTION OF THE ITAT, THE LEARNED CIT (A) STARTED THE PROCEEDINGS AND THE ASSESSEE, VIDE REPLY DATED 12/0 4/2010, SUBMITTED TO HIM AS UNDER: THE APPELLANT FURNISHED ITS RETURN OF INCOME FOR A .Y. 2001- 2002 SHOWING A LOSS OF `10,03, 640/-. AS PER PROFIT & LOSS ACCOUNT, THE POSITION OF OPENING & CLOSING STOCK WA S AS UNDER: OPENING STOCK 1,02,46,221/- CLOSING STOCK 1,13,48,543/- 2, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT O N A LOSS OF ` 10,03,640/- MAKING A DISALLOWANCE OF ` 38,000/- OUT OF CERTAIN EXPENSES. SUBSEQUENTLY, THE COMMISSIONER O F INCOME TAX (CENTRAL) VIDE HIS ORDER DATED 23.01.06 UNDER SEC. 263 OF THE I.T. ACT, SET ASIDE THE ASSESSMENT WITH THE DIRECTION THAT THE ASSESSING OFFICER SHOULD CORRECTLY APPLY T HE PROVISIONS OF SEC. 145A OF THE I.T. ACT, 1961. THE ASSESSING OFFICER VIDE HIS ORDER DT. 17.11.06 HAS ENHANCED TH E VALUE OF CLOSING STOCK AND MADE A FURTHER ADDITION OF ` 15,80,520/- BEING EQUIVALENT TO THE EXCISE DUTY PAYABLE ON THE VALUE OF CLOSING STOCK IN THE BONDED WAREHOUSE AT LUCKNOW. 3. THE APPELLANT CHALLENGED THIS ASSESSMENT ORDER B EFORE THE HON'BLE CIT(A) MAINLY ON THE FOLLOWING TWO GROU NDS 5 A) NO EXCISE DUTY IS INCURRED TILL THE STOCKS REMAI N IN THE BONDED WAREHOUSE AND THEREFORE THE ADDITION ON THE BASIS OF EXCISE DUTY PAYABLE ON THE CLOSING STOCKS IN THE BONDED WAREHOUSE SHOULD NOT HAVE BEEN MADE AND, B) EVEN IF ASSUMING THAT THE EXCISE DUTY PAYABLE ON THE STOCKS LYING IN THE BONDED WAREHOUSE IS TO BE ADDED TO THE VALUE OF STOCK, THE SAME SHOULD BE ADDED IN THE VALUE OF OPENING STOCK ALSO AND NOT ONLY IN THE VALUE OF CLOSING STOCK. THE HON'BLE CIT(A) DISMISSED THE ASSESSEE'S APPEAL VIDE ORDER DT. 17.04.2009 HOLDING THAT THE APPELLANT'S C ASE ON POINT (A) WAS FULLY COVERED BY THE CASE OF M/S KISAN CHIN I MILLS LTD. VS. ACIT DECIDED BY THE HON'BLE ITAT, LUCKNOW AND T HE CASE OF M/S SHYAM BIRI WORKS VS. ACIT (108 ITD 489) DOES NOT APPLY BEING ON DIFFERENT FACTS. FURTHER THE LEARNED CIT(A) DID NOT GIVE ANY DECISION ON POINT (B). THE APPELLANT F ILED APPEAL BEFORE THE HON'BLE ITAT WHO VIDE THEIR ORDER DATED 11.11.2009 SENT THE MATTER BACK TO HON'BLE CIT(A) F OR DECIDING THE MATTER AFRESH. 4. TAKING UP THE FIRST POINT OF DISPUTE IT IS SUBMI TTED THAT THE APPELLANT'S CASE IS SQUARELY COVERED, BY THE DE CISION OF HON'BLE ITAT IN THE CASE OF M/S SHYAM BIRI WORKS VS . ACIT (108 ITD 489). IN THAT CASE ALSO WHILE VALUING THE CLOSING STOCK THE ASSESSEE HAD INCLUDED THE AMOUNT OF EXCISE DUTY ON STOCKS WHICH HAD BEEN MOVED FROM THE BONDED WAREHOU SE BUT DID NOT INCLUDE THE SAME IN RESPECT OF STOCKS W HICH WERE LYING IN THE BONDED WAREHOUSE. THE APPELLANT BEFORE YOUR HONOUR HAS ALSO FOLLOWED THE SAME PRACTICE. THE VAL UE OF STOCKS AT GODOWNS OTHER THAN THE BONDED WAREHOUSE A T LUCKNOW HAS BEEN WORKED OUT BY INCLUDING THE EXCISE DUTY INCURRED. HOWEVER, SINCE NO EXCISE DUTY HAS BEEN IN CURRED ON THE STOCKS IN THE BONDED WAREHOUSE THE SAME HAS NOT BEEN INCLUDED IN THE VALUATION OF SUCH STOCKS. THE LEARN ED CIT(A) IS THEREFORE NOT AT ALL JUSTIFIED IN SAYING THAT THE F ACTS OF THE TWO CASES ARE ENTIRELY DIFFERENT. AS A MATTER OF FACT T HE APPELLANT CASE IS FULLY COVERED BY THE CASE OF M/S SHYAM BIRI WORKS. 6 AS REGARDS THE CASE OF M/S KISAN SAHKARI CHINI MILL S LTD. VS. ACIT, DECIDED BY THE HON'BLE ITAT, LUCKNOW. IN THIS PARTICULAR CASE THE DECISION WAS GIVEN WITHOUT CONSIDERING WHE THER THE EXCISE DUTY IS INCURRED EVEN IN RESPECT OF STOCKS W HICH ARE IN THE BONDED WAREHOUSE. AS SUCH, THE RATIO OF THIS D ECISION IS NOT APPLICABLE IN THE APPELLANT'S CASE. THE ONLY PO INT DECIDED IN THIS CASE IS THAT THE EXCISE DUTY LEVIABLE ON TH E CLOSING STOCK HAS TO BE INCLUDED WHILE VALUING CLOSING STOC K AS PER PROVISIONS OF SEC. 145A OF THE INCOME TAX ACT, 1961 . 5. COMING TO THE NEXT POINT THAT PROVISIONS OF SEC. 145A WILL HAVE TO BE APPLIED BOTH TO THE OPENING STOCK A S WELL AS THE CLOSING STOCK AND NOT ONLY TO THE CLOSING STOCK, IT IS SUBMITTED THAT THE PROVISIONS OF SEC. 145A APPLY IN ASSESSMEN T YEAR 1999-2000 & SUBSEQUENT YEAR. SINCE THE APPELLANT N EVER FOLLOWED THE PRACTICE OF VALUATION AS PER SEC. 145A , ITS VALUATION OF CLOSING STOCK FOR ALL THE YEAR W.E.F A .Y. 1999-2000 IS INCORRECTLY MADE. IN SUCH CIRCUMSTANCES, TO ARRI VE AT CORRECT INCOME OR LOSS FOR THE PREVIOUS YEAR RELEVANT TO A. Y. 2001 - 02, THE OPENING AS WELL AS CLOSING STOCKS BOTH WILL HAVE TO BE VALUED AS PER PROVISIONS OF SEC. 145A. THE RELIANCE IS PLACED ON THE FOLLOWING JUDGMENTS: CIT VS BENGAL JUTE MILLS CO. LTD. [1992] 107 CTR 34 KANTI LAL CHANDU LAL VS. CIT 104 ITR 487 IT MAY FURTHER BE POINTED OUT THAT THE VALUATION OF CLOSING STOCK IS NOT TO BE ADJUSTED IN SUCH CASES ONLY WHERE THE ASSESSEE HAS BEEN PERMITTED TO CHANGE THE METHOD OF VALUATIO N OF CLOSING STOCK. THE DIFFERENT APPROACH TO BE MADE IN REGARD TO ADJUSTMENT OF OPENING STOCK IN THE TWO TYPES OF CAS ES, ONE WHERE THERE IS A CHANGE IN THE METHOD OF VALUATION OF STOCK & SECOND WHERE THE VALUATION OF OPENING & CLOSING STO CKS BOTH IS INCORRECT HAS BEEN WELL DISCUSSED IN THE CASE OF M/S MELMOULD CORPORATION VS. CIT, 202 ITR 789 (BOM) IN THE FOLLOWING MANNER : , 'RELIANCE WAS PLACED BY THE REVENUE ON A DECISION O F THE PRIVY COUNCIL IN THE CASE OF CIT V. AHMEDABAD NEW C OTTON MILLS LTD. AIR 1930 PC 56. IN THE CASE BEFORE THE PRIVY 7 COUNCIL BOTH THE OPENING AND CLOSING STOCK WERE UND ERVALUED. THE PRIVY COUNCIL OBSERVED IN THIS CONNECTION 'MIST AKE CANNOT BE RECTIFIED BY RAISING VALUATION OF CLOSING STOCK ONLY, THE VALUATION OF BOTH THE OPENING AND CLOSING STOCK HAD TO BE RAISED'. THIS DECISION HAS NO APPLICATION TO THE QUESTION BE FORE US WHICH DEALS WITH THE CHANGE METHOD OF VALUATION AND THE MANNER IN WHICH SUCH CHANGE HAS TO BE BROUGHT ABOUT '. IT WOULD THUS BE SEEN THAT THE APPELLANT'S CLAIM BE FORE THE LOWER AUTHORITIES THAT VALUATION OF BOTH OPENING AS WELL AS CLOSING STOCKS HAS TO BE ADJUSTED IN THIS CASE WAS CORRECT. THE APPELLANT RELIES UPON THE FOLLOWING CASES LAWS WHICH DEAL SPECIFICALLY WITH THE APPLICATION OF SEC. 145A. 1. CIT VS. MAHAVIR ALUMINUM LTD. 297 ITR 77 (DELHI) 2. CIT VS. MAHALAXMI GLASS (BOMBAY HIGH COURT) 3. HAWKINS COOKER VS. ITO (ITAT MUMBAI) IN VIEW OF THE ABOVE SUBMISSIONS, IT IS SUBMITTED T HAT THE APPEAL MAY KINDLY BE ALLOWED BECAUSE, FIRSTLY THE E XCISE DUTY ON CLOSING STOCK LYING IN THE BONDED WAREHOUSE HAS NOT BEEN INCURRED AND THEREFORE SHOULD NOT BE INCLUDED IN TH E VALUE OF THE CLOSING STOCK AND SECONDLY EVEN IF IT IS INCLUD ED, IT SHOULD BE INCLUDED IN THE VALUE OF CLOSING STOCK AS WELL A S THE OPENING STOCK SO THAT CORRECT PROFIT FOR THE PREVIO US YEAR ARE WORKED OUT.' 3.2 THE LEARNED CIT (A) AGAIN REQUIRED THE ASSESSEE TO JUSTIFY THE RATE OF VALUATION ADOPTED FOR ITEMS VALUED AT ` 50,000/- OR MORE ALONG WITH THE COPIES OF PURCHASE BILLS AND THE JUSTIFICATION FOR THE RELIEF CLAIMED AND ALSO AS TO HOW THE DECISION OF ITAT IN THE CASE OF KISAN SAHKARI CHINI MILLS LTD. (SUPRA), WAS NOT APPLICABLE TO THE FACTS OF THE CAS E. THE ASSESSEE VIDE REPLY DATED 18.08.2010 SUBMITTED AS UNDER: 8 AT THE LAST DATE THE APPELLANT HAD BEEN ASKED TO G IVE COPIES OF BILLS FOR RAW MATERIAL AS WELL AS PACKING MATERI AL WHICH HAD BEEN CONSIDERED FOR THE VALUATION OF CLOSING STOCK AS ON 31.03.2000 & 31.03.2001. ALL THE COPIES OF BILLS A RE ANNEXED ALONG WITH FOR YOUR HONOURS KIND PERUSAL AND RECORD . FURTHER, WE WOULD ALSO LIKE TO BRING TO YOUR KIND ATTENTION THAT ONLY BILLS FOR THOSE ITEMS HAVE BEEN GIVEN WHICH HAD A CLOSING STOCK OF ` 50,000/- AND MORE AND WHICH ATTRACTED EXCISE. FURTHER WE WOULD ALSO LIKE TO SUBMIT THAT THE CASE OF M/S KISAN SAHKARI CHINI MILLS LTD. VS. DCIT IN ITA NO. 909/LUC/05 FOR A.Y. 2002-03 RELIED UPON BY THE HON'BLE CIT (AP PEALS) WHILE DISPOSING OFF THE APPEAL IS NOT EXACTLY MATCH ING THE FACTS OF THE APPELLANT'S CASE. IN THE SAID CASE THE HON' BLE BENCH HAS HELD THAT THE CLOSING STOCK WILL INCLUDE THE A MOUNT OF EXCISE DUTY WHICH HAS BEEN INCURRED BY THE ASSESSEE TO BRING THE GOODS ON THE PLACE OF ITS LOCATION AND CONDITIO N AS ON THE DATE OF VALUATION.' THE APPELLANT WOULD LIKE TO DRA W YOUR HONOUR'S ATTENTION TO THE WORD 'INCURRED' WHICH IND ICATES THAT THE AMOUNT HAS BEEN SPENT OR THE LIABILITY TO PAY A CERTAIN SUM HAS ACCRUED. NOW, IN THE CASE OF EXCISE DUTY THE L IABILITY TO PAY EXCISE ACCRUES ONCE THE MANUFACTURED GOODS HAVE BEEN REMOVED FROM THE BONDED WAREHOUSE OR THE FACTORY PR EMISES WHATEVER BE THE CASE. IN THE PRESENT CASE THE APPEL LANT HAS ADDED THE EXCISE DUTY ELEMENT ON ITEMS WHICH HAVE B EEN REMOVED FROM THE FACTORY PREMISES AND TRANSPORTED T O THE GODOWNS OF THE APPELLANT AT LUDHIANA AND JAIPUR. W HILE VALUING THE STOCK LYING AT THE APPELLANT'S PREMISE S AT LUDHIANA AND JAIPUR THE ELEMENT OF EXCISE HAS BEEN ADDED TO THE COST OF THE MANUFACTURED GOODS. NOW LET'S TURN OUR ATTENTION TO THE GOODS LYING IN THE FACTORY PREMISE S. NO EXCISE DUTY IS TO BE PAID ON THE SAME TILL SUCH TIME THAT THESE ARE NOT REMOVED FROM THE PREMISES. THEREFORE, NO EXCISE DUT Y HAS BEEN ADDED TO THE CLOSING STOCK OF GOODS WHILE VALU ING THE SAME. THE APPELLANT WOULD LIKE TO REITERATE HERE T HAT THE LIABILITY TO PAY EXCISE DUTY IS INCURRED BY THE APP ELLANT AT THE TIME THAT THE GOODS ARE REMOVED FROM THE BONDED WAR EHOUSE OR FACTORY PREMISES ONLY. THIS HAS ALSO BEEN CLEAR LY LAID DOWN IN THE CASE OF M/S SHYAM BIRI WORKS VS. ACIT (108 I TD 489). THE CASE OF SHYAM BIRI WORKS IS ALSO SUPPORTING THE VIEW POINT OF THE APPELLANT THAT THE EXCISE SHOULD NOT B E ADDED TO 9 THE VALUATION IF THE GOODS ARE IN BONDED WAREHOUSE AND HAVE NOT LEFT THE FACTORY PREMISES.' 3.3 THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMI SSIONS OF THE ASSESSEE, OBSERVED THAT ALTHOUGH THE LIABILITY TO P AY THE EXCISE DUTY ARISES ON ACCOUNT OF MANUFACTURING OF GOODS, HOWEVER, THE DUTY IS PAYABLE ONLY AT THE TIME OF WITHDRAWAL FROM THE BONDED WAREHOUSE. THE LEARNED CIT (A) DELETED THE ADDITION BY OBSERVING AS UNDER: 5. IN VIEW OF THE ABOVE AND THE DECISIONS RELIED U PON BY THE ASSESSEE, THERE APPEARS MERIT IN THE CONTENTION OF THE ASSESSEE THAT SINCE THE CLOSING STOCK LYING AT THE FACTORY PREMISES HAS NOT BEEN SUBJECTED TO PAYMENT OF EXCIS E DUTY, AND WHILE VALUING THE RAW MATERIAL, THE MODVAT CRED IT HAD BEEN SEPARATELY ACCOUNTED FOR, THEREFORE, THERE WAS NO JUSTIFICATION FOR ADDING THE EXCISE DUTY PAYABLE IN RESPECT OF THE STOCK LYING IN THE FACTORY PREMISES FOR NO LIAB ILITY HAVING BEEN INCURRED BY THE ASSESSEE. THE DECISION RELIED UPON BY MY PREDECESSOR IN THE CASE OF KISAN SAHKARI CHINI M ILLS LTD. APPEARS TO BE DISTINGUISHABLE ON FACTS, AS THE CONC EPT OF BONDED WAREHOUSE DOES NOT APPEAR TO HAVE BEEN CONSI DERED AND IT IS NOT APPARENT, WHETHER THE EXCISE DUTY HAD BEEN DEBITED IN THE MANUFACTURING ACCOUNT OR NOT IN THAT CASE. THE FACTS OF THE CASE OF M/S SHYAM BIRI WORKS (SUPRA) A S ALSO THE FACTS OF THE CASE OF CIT VS. INDO NIPPON CHEMICALS CO. LTD. (SUPRA) ARE APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE. THEREFORE, SINCE THE ASSESSEE HAD INCURRED NO LIABI LITY OF EXCISE DUTY IN RESPECT OF GOODS MANUFACTURED AND LY ING WITHIN THE FACTORY PREMISES, WHEREAS THE LIABILITY INCURRE D IN RESPECT OF STOCK TRANSFERRED TO JAIPUR AND LUDHIANA GODOWNS HAD BEEN DULY ACCOUNTED FOR WHILE VALUING THE CLOSING S TOCK, THEREFORE, THERE WAS NO JUSTIFICATION FOR MAKING AD DITION OF EXCISE DUTY PAYABLE FOR THE STOCK LYING WITHIN THE FACTORY PREMISES AS NO LIABILITY TO PAY THE EXCISE DUTY ARI SES UNLESS THE STOCK IS TAKEN OUT OF THE BONDED WAREHOUSE AND NO LIABILITY HAD BEEN INCURRED BY THE ASSESSEE, THE AD DITION MADE 10 BY THE ASSESSING OFFICER TO THE CLOSING STOCK IS HE REBY DELETED. THIS IS ALSO SUPPORTED BY THE FACT THAT S ECTION 145A OF THE I.T. ACT WOULD BE EQUALLY APPLICABLE FOR THE CLOSING STOCK OF A.Y. 2001-02 AND IF THE EXCISE DUTY PAYABLE (THO UGH NOT PAID) FOR THE STOCK LYING WITHIN THE FACTORY PREMIS ES AS ON 31.03.2000 IS ALSO CONSIDERED, THE INCOME OF THE AS SESSEE WOULD BE REDUCED AS PER THE WORKING GIVEN BY THE AS SESSEE. 6. HENCE, IN VIEW OF THE DISCUSSIONS MADE ABOVE, TH E APPEAL OF THE ASSESSEE IS ALLOWED IN RESPECT OF GRO UNDS NO. 1, 2 & 3 AND THE ADDITION OF ` 15,80,520/- MADE TO THE CLOSING STOCK IN RESPECT OF EXCISE DUTY ON GOODS LYING WITH IN THE BONDED WAREHOUSE IS HEREBY DELETED. NOW THE DEPARTMENT IS IN APPEAL. 4. THE LEARNED D. R. STRONGLY SUPPORTED THE ORDER O F THE ASSESSING OFFICER AND FURTHER SUBMITTED THAT THE ASSESSEE WAS REQUIRED TO INCLUDE THE EXCISE DUTY WHILE VALUING THE CLOSING STOCK WHICH W AS NOT DONE, THEREFORE, THE ASSESSING OFFICER RIGHTLY MADE THE ADDITION. T HE RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: (I) COMMISSIONER OF INCOME-TAX VS ENGLISH ELECTRIC CO. OF INDIA LTD. [2000] 243 ITR 512 (MAD) (II) COMMISSIONER OF INCOME-TAX VS BRITISH PAINTS I NDIA LTD. 188 ITR 44 (SC) 5. IN HIS RIVAL SUBMISSIONS, THE LEARNED COUNSEL FO R THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LEARNED CIT (A) AND FURTHER SUBMITTED THAT THE JUDGMENT OF HON'BLE MADRAS HIGH COURT RELIED BY THE LEARNED D. R. IS IN FAVOUR OF THE ASSESSEE AND NOT IN FAVOUR OF THE DEPARTMENT. HE FURTHER SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY 11 THE JUDGMENT OF HON'BLE MADRAS HIGH COURT IN THE CA SE OF COMMISSIONER OF INCOME-TAX VS INDIA PISTONS LTD. [2010] 320 ITR 257 (MAD) AND THE DECISION OF THIS BENCH OF THE ITAT IN THE CASE OF M /S SHYAM BIRI WORKS VS. ACIT 108 ITD 489. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN T HE PRESENT CASE IT IS NOT IN DISPUTE THAT THE ASSESSEE, WHILE VALUING THE CLOSIN G STOCK IN RESPECT OF THE GOODS LYING IN BONDED WAREHOUSE, HAS NOT INCLUDED T HE EXCISE DUTY. HOWEVER, IN RESPECT OF THE STOCK, WHICH WAS WITHDRA WN FROM THE FACTORY PREMISES AND LYING IN BRANCH GODOWNS AT LUDHIANA AN D JAIPUR, THE EXCISE DUTY WAS INCLUDED. THIS FACT HAS ALSO BEEN MENTION ED BY THE ASSESSING OFFICER IN ASSESSMENT ORDER DATED 17/11/2006. NOW THE CONTROVERSY TO BE RESOLVED IS AS TO WHETHER THE EXCISE DUTY PAYABLE W AS TO BE INCLUDED IN THE CLOSING STOCK OF FINISHED GOODS LYING IN THE BO NDED WAREHOUSE OF THE ASSESSEE. IN SUCH TYPE OF CASES, IT IS WELL SETTLE D THAT THE LIABILITY TO PAY THE EXCISE DUTY ARISES ON ACCOUNT OF MANUFACTURING OF GOODS, HOWEVER, THE DUTY IS PAYABLE ONLY AT THE TIME OF WITHDRAWAL FROM THE BONDED WAREHOUSE. IN THE PRESET CASE, THE STOCK IN QUESTION WAS NOT W ITHDRAWN FROM THE BONDED WAREHOUSE, SO THERE WAS NO QUESTION OF ADDIN G THE LIABILITY OF THE EXCISE DUTY PAYABLE TO THE COST OF THE CLOSING STOC K BECAUSE NO EXCISE DUTY WAS PAID. THIS VIEW IS FORTIFIED BY THE DECIS ION OF THIS BENCH OF THE 12 TRIBUNAL IN THE CASE OF M/S SHYAM BIRI WORKS VS. A CIT 108 ITD 489 (SUPRA), WHEREIN IT HAS BEEN HELD AS UNDER: THEREFORE, THE ASSESSEE WAS NOT REQUIRED TO MAKE T HE PAYMENT OF EXCISE DUTY ON THE GOODS KEPT IN THE BOU NDED WAREHOUSE UNTIL THOSE WERE REMOVED THEREFROM. THUS, WHILE VALUING THE CLOSING STOCK OF THE GOODS KEPT IN THE BOUNDED PREMISES, EXCISE DUTY NOT PAID WAS NOT LIABLE TO BE INCLUDED IN THE CLOSING STOCK. THUS, THE COMMISSIONER WAS NOT J USTIFIED IN HOLDING THAT EXCISE DUTY PAYABLE WAS TO BE INCLUDED IN THE VALUATION OF CLOSING STOCK IN THE BOUNDED WAREHOUSE . SINCE THERE WAS NO ERROR IN THE ORDER OF THE ASSESSING OF FICER ON THIS ACCOUNT, ORDER OF THE ASSESSING OFFICER WAS NOT ERR ONEOUS INSOFAR AS IT WAS NOT PREJUDICIAL TO THE INTEREST O F REVENUE. ALL THE FACTS WERE AVAILABLE ON RECORD OF THE ASSESSING OFFICER AND, THEREFORE, THERE WAS NO CASE OF CARRYING OUT A NY ENQUIRY FOR TAKING A DECISION AS TO WHETHER EXCISE DUTY WAS INCLUDED IN THE VALUATION OF STOCK OR NOT. IN FACT, THE COMMISS IONER HAD HELD THE LEGAL VIEW AND THERE WAS NO DIRECTION AS T O COLLECT SOME MORE FACTS. THE LEGAL VIEW HELD BY THE COMMISS IONER WAS NOT CORRECT AND, THEREFORE, CANCELLATION OF THE ASSESSMENT ORDER BY HIM WAS NOT PROPER. THEREFORE, THE IMPUGNE D ORDER WAS TO BE CANCELLED. 6.1 THIS VIEW IS ALSO IN CONSONANCE WITH THE JUDGME NT OF HON'BLE MADRAS HIGH COURT IN THE CASE OF COMMISSIONER OF IN COME-TAX VS INDIA PISTONS LTD. [2010] 320 ITR 257 (MAD) WHERE IT HAS BEEN HELD AS UNDER: THAT THE IMPORTED MATERIALS WERE NOT CLEARED BY TH E ASSESSEE AND WERE KEPT IN THE BONDED WAREHOUSE. LIKEWISE, TH E MANUFACTURED GOODS WERE ALSO NOT CLEARED FROM THE F ACTORY OF THE ASSESSEE AND THEY WERE STILL AVAILABLE IN THE F ACTORY. THEREFORE, THE EXCISE DUTY AND CUSTOMS DUTY LIABILI TY WAS NOT TO BE INCLUDED IN VALUATION OF CLOSING STOCK. 13 6.2 AS REGARDS TO THE JUDGMENT OF HON'BLE SUPREME C OURT RELIED BY THE LEARNED D. R. IN THE CASE OF COMMISSIONER OF INCOME -TAX VS BRITISH PAINTS INDIA LTD. 188 ITR 44 (SC) IS CONCERNED, THE FACTS OF THAT CASE ARE DISTINGUISHABLE FROM THE FACTS OF THE PRESENT CASE BECAUSE IN THE SAID CASE, IT HAS BEEN HELD THAT ANY SYSTEM OF ACCOUNTIN G WHICH EXCLUDED, FOR THE VALUATION OF STOCK-IN-TRADE, ALL COSTS OTHER TH AN THE COST OF RAW MATERIALS FOR THE GOODS-IN-PROCESS AND FINISHED PRODUCTS, WAS LIKELY TO RESULT IN A DISTORTED PICTURE OF THE TRUE STATE OF THE BUSINESS FOR THE PURPOSE OF COMPUTING THE CHARGEABLE INCOME. SUCH A SYSTEM MIGH T PRODUCE A COMPARATIVELY LOWER VALUATION OF THE OPENING STOCK AND THE CLOSING STOCK, THUS SHOWING A COMPARATIVELY LOW DIFFERENCE BETWEEN THE TWO. IN A PERIOD OF RISING TURNOVER AND RISING PRICES, SUCH A SYSTEM WAS APT TO DIMINISH THE ASSESSMENT OF TAXABLE PROFIT OF A YEAR. THE PROFIT OF ONE YEAR WAS LIKELY TO BE SHIFTED TO ANOTHER YEAR WHICH WOULD BE AN INCORR ECT METHOD OF COMPUTING PROFITS. EACH YEAR BEING A SELF-CONTAINED UNIT, AND THE TAXES OF A PARTICULAR YEAR BEING PAYABLE WITH REFERENCE TO THE INCOME OF THAT YEAR, AS COMPUTED IN TERMS OF THE ACT, THE METHOD ADOPTED BY THE RESPONDENT WAS FOUND TO BE SUCH THAT INCOME COULD NOT PROPERLY BE DEDUCED THEREFROM. IT WAS, THEREFORE, NOT ONLY THE RIGHT BUT THE DUTY OF THE INCOME-TAX OFFICER TO ACT IN EXERCISE OF HIS STATUTORY POWER FOR DETERMIN ING WHAT, IN HIS OPINION, WOULD BE THE CORRECT INCOME. IN THE SAID CASE OF C IT VS. BRITISH PAINTS 14 (INDIA) LTD., AS THE ASSESSEE DID NOT INCLUDE THE O VERHEAD EXPENSES WHILE VALUING THE CLOSING STOCK AND THE ASSESSING OFFICER ADDED THE OVERHEAD EXPENDITURE TO THE VALUE OF THE CLOSING STOCK. THE APPELLATE ASSISTANT COMMISSIONER CONFIRMED THAT ORDER WHICH WAS FURTHER CONFIRMED BY THE ITAT. HOWEVER, THE HON'BLE HIGH COURT ON A REFEREN CE, REVERSED THE DECISION OF THE TRIBUNAL. THE SAID DECISION OF THE HON'BLE HIGH COURT WAS REVERSED BY THE HON'BLE SUPREME COURT. THEREFORE, IN THE SAID CASE THE FACTS INVOLVED WERE DIFFERENT FROM THE ASSESSEES C ASE BECAUSE IN THAT CASE THE OVERHEAD EXPENDITURE WERE NOT INCLUDED WHI LE VALUING THE CLOSING STOCK BUT IN THE PRESENT CASE, THE FACTS ARE ALTOGE THER DIFFERENT BECAUSE THE ASSESSING OFFICER INCLUDED EXCISE DUTY WHICH WAS TO BE PAID ONLY ON WITHDRAWAL OF THE STOCK FROM THE BONDED WAREHOUSE. THEREFORE, SINCE THE GOODS WERE KEPT IN THE BONDED WAREHOUSE, THE EXCISE DUTY WAS NOT TO BE INCLUDED. AS REGARDS TO THE JUDGMENT OF HON'BLE M ADRAS HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS ENGLISH ELECT RIC CO. OF INDIA LTD. 243 ITR 512 (MAD) RELIED BY THE LEARNED D. R. IS CO NCERNED, THAT CASE IS OF NO HELP TO THE DEPARTMENT, RATHER SUPPORTS THE CASE OF THE ASSESSEE, THE SAID JUDGMENT HAS ALSO BEEN CONSIDERED BY THE HON'B LE MADRAS HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS INDIA PISTONS LTD. [2010] 320 ITR 257 (MAD) AND THEIR LORDSHIPS, VIDE PARA 7 OF THE SAID JUDGMENT, OBSERVED AS UNDER: 15 THE ISSUE CAME UP BEFORE THIS COURT IN THE CASE OF CIT V. ENGLISH ELECTRIC CO. OF INDIA LTD. REPORTED IN [2000] 243 ITR 512 ( MAD), WHEREIN THIS COURT, WHILE REJECTING THE SUBM ISSION OF THE LEARNED COUNSEL FOR THE REVENUE, HELD THAT THE LIABILITY FOR PAYMENT OF EXCISE DUTY ARISES AT THE POINT OF M ANUFACTURE AND, THEREFORE, THAT LIABILITY GOES TO INCREASE THE VALUE OF STOCK AWAITING SALE. BY OBSERVING THAT THE ARGUMENT PROCE EDED ON A MISCONCEPTION HELD THAT THE STOCK WHICH THE ASSESSE E HAS AT THE END OF THE FINANCIAL YEAR IS REQUIRED TO BE VA LUED AT COST MEANING THEREBY ALL THE COSTS INCURRED BY THE ASSE SSEE FOR THE PURPOSE OF MANUFACTURING THE GOODS INCLUDING TH E OVERHEADS OR AT MARKET PRICE AT THE OPTION OF THE A SSESSEE ; THAT THE LIABILITY FOR PAYMENT OF EXCISE DUTY IS I NCURRED BY THE ASSESSEE WHEN THE PROCESS OF MANUFACTURE WAS COMPL ETE IN RELATION TO THAT EXCISABLE ITEM ; THAT LIABILITY O F THE ASSESSEE WAS A LIABILITY THAT WAS SHOWN IN THE EXCISE DUTY A CCOUNT MAINTAINED BY THE ASSESSEE, ALL PAYMENTS AND LIABIL ITY SO INCURRED TOWARDS SUCH DUTY ARE BEING EXHIBITED SEP ARATELY AS AMOUNTS PAID AS EXCISE DUTY OR AS LIABILITY INCURR ED FOR PAYMENT OF EXCISE DUTY. THE COURT FURTHER OBSERVED THAT IF THE ARGUMENT OF THE REVENUE WAS ACCEPTED, THE RESULT WO ULD BE ANOMALOUS, THAT THE LIABILITY FOR PAYMENT OF DUTY W OULD THEN BE REGARDED AS PART OF THE ASSETS HELD BY THE ASSESSE E IN THE FORM OF THE HIGHER VALUE ASSIGNED TO THE CLOSING ST OCK ; THAT THE LIABILITY CANNOT BE CONVERTED INTO AN ASSET IN THAT MANNER. THE SAME ANALOGY WOULD EQUALLY BE APPLICABLE TO THE CUSTOMS DUTY PAYABLE IN RESPECT OF THE GOODS WHICH ARE UNDER BOND. 6.3 FROM THE ABOVE OBSERVATIONS IT IS CLEAR THAT TH E LIABILITY FOR PAYMENT OF EXCISE DUTY WAS NOT TO BE INCLUDED WHILE VALUING THE CLOSING STOCK KEPT UNDER BOND. IN THE AFORESAID REFERRED TO CASE OF C OMMISSIONER OF INCOME- TAX V. INDIA PISTONS LTD. 320 ITR 257 THE FACTS INV OLVED ARE SIMILAR TO THE FACTS OF THE ASSESSEES CASE WHICH IS CLEAR FROM TH E OBSERVATION GIVEN AT PAGES NO. 261 AND 262 WHICH READ AS UNDER: 16 IN RESPECT OF MANUFACTURED GOODS, THE GOODS ARE MANUFACTURED AND CLEARED FROM THE FACTORY BY PAYING THE EXCISE DUTY. BUT, HERE IN THE CASE ON HAND, THE IM PORTED GOODS ARE YET TO BE CLEARED FROM THE CUSTOMS AND T HEY STILL REMAIN IN THE BONDED WAREHOUSE AND THE MANUFACTURED GOODS ARE ALSO VERY MUCH AVAILABLE WITHIN THE ASSESSEE'S FACTORY AND THEY ARE NOT CLEARED BY PAYMENT OF EXCISE DUTY. 6.4 WE, THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS AND THE MATERIAL ON RECORD ALONG WITH THE VARIOUS JUDICIAL PRONOUNCE MENTS DISCUSSED HEREIN ABOVE, ARE OF THE VIEW THAT THE LEARNED CIT (A) COR RECTLY APPRECIATED THE FACTS AND RENDERED THE DECISION, WHICH IS UNEXCEPTI ONABLE. WE, THEREFORE, DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE F INDING OF THE LEARNED CIT (A). ACCORDINGLY, WE DO NOT SEE ANY MERIT IN THIS APPEAL OF THE DEPARTMENT. 6.5 IN THE RESULT, THE APPEAL IS DISMISSED. (THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 25/0 3/2011) SD/. SD/. ( H. L. KARWA ) (N. K. SAINI) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 25/03/2011 *SINGH COPY FORWARDED TO THE: 1. APPELLANT. 2. RESPONDENT. 3. CIT (A) 4. CIT 5. DR. ASSISTANT REGISTRAR