The Commissioner Of Income Taxnungambakkam High Roadchennai-34 v. M/S.parry Confectionary Ltddare Housemadras – 600 001

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 18.6.2007 CORAM: THE HONOURABLE MR.JUSTICE P.D.DINAKARANANDTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case (Appeal) No.294 of 2004 The Commissioner of Income TaxNungambakkam High RoadChennai-34. ..Appellant Vs M/s.Parry Confectionary LtdDare HouseMadras – 600 001...Respondent Appeal under Section 260A of the Income Tax Act, 1961 against theorder of the Income Tax Appellate Tribunal, Chennai, 'B' Bench dated7.11.2003 made in I.T.A.No. 320/Mds/1997 for the assessment year 1993-94against the order of the Commiossioner of Income tax (Appeals-V) Madrasdated 29.11.1996 in IT/WT/GT/appeals No. ITA.No. 62/96-97 against theorder of the Deputy Commissioner of Income Tax Special Range VI Madras -34dated 15.3.1996 and made in PAN/GIR/No. 47-004-CZ-6871/12-P. For Appellant : Mrs.Pushya Sitaraman Sr.Standing Counsel (IT) For Respondent: Mr.M.P.Senthilkumar JUDGMENT (Delivered by P.D.DINAKARAN,J.) This appeal is directed against the order of the Income Tax AppellateTribunal, Madras, 'B' Bench dated 7.11.2003 made in I.T.A.No.320/Mds/1997for the assessment year 1993-94, raising the following substantialquestions of law: "(i) Whether on the facts and in the circumstances of the case,the Tribunal is right in law in holding that a sum ofRs.7,33,000/- being the excise duty on the closing stock notcleared from the factory should not be included? and (ii) Whether on the facts and in the circumstances of the case,the Tribunal is right in law in not following the judgment of theSupreme Court reported in 266 ITR 99 wherein it has been clearlyheld that under Section 43B, the deduction is to be made only onthe actual payments?" 2.1. The Assessing Officer, while valuing the closing stock, includedthe excise duty element on the stock cleared from the factory and also onthe closing stock not cleared from the factory. On appeal, by theassessee, the Commissioner of Income Tax (Appeals) deleted the saidadditions made by the Assessing Officer. 2.2. The Tribunal, in the appeal preferred by the Revenue, followingCIT v. English Electric Co. of India Ltd., [2000] 243 ITR 512 held thatthe excise duty liability is not to be included in the valuation ofclosing stock. Hence, the present appeal raising the substantialquestions of law referred to above. 3. When the matter was taken up for final hearing today, Mrs.PushyaSitaraman, learned Senior Standing Counsel for the appellant fairlyconceded that the first issue raised in this appeal is squarely covered infavour of the assessee by the decision of this Court in Commissioner ofIncome-tax v. English Electric Co. of India Ltd.[2000] 243 ITR 512, whichwas also followed in Commissioner of Income-tax v. Dynavision Ltd. [2004]267 ITR 600. 4. In Commissioner of Income-tax v. English Electric Co. of IndiaLtd., [2000] 243 ITR 512, the Division Bench of this Court held as under: "the liability for payment of excise duty was incurred when theprocess of manufacture was complete in relation to an excisableitem. All payments and liability incurred towards duty wereexhibited separately. The assessee's liability for payment of dutycould not be regarded as part of the assets held by the assessee inthe form of higher value assigned to the closing stock. A liabilitycould not be converted into an asset in that manner. A liabilitywas an item deductible for the purpose of arriving at the profitsfor the year and only when such deduction was given the amountcould be added to the value of the closing stock. " 5. Following the ratio laid down in the decision referred supra, thisCourt in Commissioner of Income-tax v. Dynavision Ltd. [2004] 267 ITR 600held as under: "the liability for payment of excise duty was incurred when theprocess of manufacture was complete in relation to an excisableitem. All payments and liability incurred towards duty wereexhibited separately. The assessee's liability for payment of dutycould not be regarded as part of the assets held by the assessee inthe form of higher value assigned to the closing stock. A liabilitycould not be converted into an asset in that manner. A liabilitywas an item deductible for the purpose of arriving at the profitsfor the year and only when such deduction was given the amountcould be added to the value of the closing stock. " 5. Following the ratio laid down in the decision referred supra, thisCourt in Commissioner of Income-tax v. Dynavision Ltd. [2004] 267 ITR 600held as under: "The liability for payment of excise duty is incurred only when theprocess of manufacture is complete. Such liabilities are shown inthe excise duty account maintained by the assessee. The inclusionof excise duty in the valuation of closing stock is permissibleonly if the liability for that amount in the excise duty accountwas given as a deduction. Thus, the excise duty liability is not tobe included in the valuation of closing stock." 6. In view of the law enunciated from the decisions referred supra,we are of the firm opinion that the excise duty on the closing stock notcleared from the factory should not be included while valuing the closingstock. Accordingly, we answer the first substantial question of law raisedin favour of the assessee and against the Revenue. 7. As far as the second substantial question of law raised isconcerned, the same being only consequential, we are of the consideredopinion that the same need not be answered. In the result, this appeal is dismissed. No costs.sasi Sd/Asst. Registrar/true copy/Sub Asst.Registrar To 1. THE ASSISTANT REGISTRAR,INCOME-TAX APPEALLATE TRIBUNAL,RAJAJI BHAVAN, BESANT NAGAR, CHENNAI 2. THE COMMISSIONER OF INCOME TAX(APPEALS-V), MADRAS. 3. THE COMMISSIONER OF INCOME TAXTAMIL NADU-I, MADRAS. 4. THE DEPUTY COMMISSIONER OFINCOME TAX, SPECIAL RANGE VI, MADRAS.+ One cc to M/s. Pusya Sitaraman Counsel for Income Tax SR 35683BV (co)sg 3/7/07Tax Case (Appeal) No.294 of 200418.6.2007