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COMMISSIONER OF INCOME TAX-II Vs. M/S. LAKSHMI SUGAR MILLS CO. LIMITED
September, 18th 2014
$~22

*       IN THE HIGH COURT OF DELHI AT NEW DELHI

                                         Date of Decision: September 01, 2014

+                                   ITA 233/2013

COMMISSIONER OF INCOME TAX-II
                                                                ..... Appellant
                           Through:      Mr.Kamal Sawhney, Sr.Standing
                                         Counsel with Mr.Sanjay Kumar,
                                         Advocate

                           versus

M/S. LAKSHMI SUGAR MILLS CO. LIMITED
                                                             ..... Respondent
                           Through:      Mr.Rahul Chaudhary, Advocate

CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE V. KAMESWAR RAO

SANJIV KHANNA, J (ORAL)

1.      By order dated 09.10.2013, the following substantial question of law

was framed in this appeal, which pertains to the Assessment Year 2008-09

and arises out of the order dated 17.07.2012 passed by the Income Tax

Appellate Tribunal (Tribunal, in short):-

               "Whether the Income Tax Appellate Tribunal was right in
            holding that excise duty of Rs. 70,87,357/- shown as payable
            but not paid can be allowed as an expenditure under Section
            43B read with Section 145A of the Income Tax Act, 1961?"




ITA No. 233/2013                                             Page 1 of 9
2.      The respondent-assessee was engaged in the business of manufacture

and sale of sugar. It was also having income from house property.

3.      The Assessing Officer disallowed amount of Rs. 70,87,357/- by

invoking Section 43B of the Income Tax Act, 1961 (Act, in short), relying

upon the audit report wherein, this amount was shown as Excise Duty

payable. He observed that similar treatment was given to the excise duty

payable in the Assessment Year 2005-06. There is no other discussion and

elucidation in the order passed by the Assessing Officer.

4.      In the first appeal, the Commissioner of Income Tax (Appeals)

deleted the said addition relying upon the order passed by the Tribunal in

respect of the Assessment Year 2005-06 in favour of the respondent-

assessee. On further appeal by the Revenue, this issue was decided in

favour of the respondent-assessee and against the Revenue by again relying

upon order passed by the Tribunal for the Assessment Year 2005-06.

5.      Learned counsel for the Revenue has drawn our attention to the order

dated 03.12.2012 passed in ITA No. 1288/2011, Commissioner of Income

Tax Vs. Lakshmi Sugar Mills Co. Ltd. relating to the Assessment Year

2005-06 and it is submitted that the decision of the Tribunal has been

reversed. This is correct; the decision of the Tribunal for the Assessment







ITA No. 233/2013                                            Page 2 of 9
Year 2005-06 has been reversed by the High Court and the issue decided

against the respondent-assessee. The reasoning given by the High Court in

ITA No. 1288/2011, CIT Vs. Lakshmi Sugar Mills Co. Ltd. decided on

03.12.2012 reads as under:

        "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."

        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




ITA No. 233/2013                                              Page 3 of 9
        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 [sic, removal] 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.
        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




ITA No. 233/2013                                               Page 4 of 9
        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".

6.      The aforesaid paragraphs state that as per Section 145A, which is a

non-obstante provision and prescribes manner of valuation of goods, any

tax, duty, cess or fee actually paid or incurred has to be added to the value of

the stock. Thus, Section 145A of the Act directs inclusion of tax, duty etc.,

actually paid or incurred for the purpose of valuation.         Reference was

thereafter made to Orient Paper Mills Ltd. Vs. Union of India, AIR 1967

SC 1564 and it was observed that levy of duty arises only at the time when

the excisable goods are removed from the factory premises or any other

specified place of removal. The duty is leviable and is actually imposed on

the transaction value defined in the Excise Act as per Sections 3 and 4,

which have to be read together harmoniously. Paragraph 15 of the said

judgment specifically records that the goods in the said case were admittedly

removed, and therefore, the duty was payable but had not been paid. Thus,

the question was decided against the respondent-assessee.

7.      Learned counsel for the respondent-assessee, on this aspect, has

drawn our attention to the decision of the Bombay High Court in

Commissioner of Income Tax-III, Pune Vs. Loknete Balasaheb Desai

S.S.K. Ltd., [2011] 339 ITR 288 (Bom.) wherein, it has been observed as




ITA No. 233/2013                                             Page 5 of 9
under:

         "8. Section 145A inserted by the Finance (No. 2) Act, 1998
         w.e.f. 1/4/1999 reads thus:

         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 the 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) 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 payments
         notwithstanding any right arising as a consequence to such
         payment.

         9. The expression 'incurred by the Assessee' in Section 145A(b)
         is followed by the words 'to bring the goods to the place of its
         location 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.
         Explanation to Section 145A(b) 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(b) must be
         construed to mean the liability actually incurred by the
         Assessee.







ITA No. 233/2013                                             Page 6 of 9
        10. 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 on the
        manufactured goods is the question.

        11. The Apex Court in the case of Commissioner of Central
        Excise v. Polyset Corporation and Anr. reported in 115 ELT 41
        (S.C.) has held that the dutiability of excisable goods is
        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 excisable goods
        manufactured and lying in stock, the excise duty liability would
        get crystallised 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 crystalised and consequently 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
        payable and consequently, there would be no question of
        incurring excise duty liability.

        12. In the present case, it is not in dispute that the
        manufactured sugar was lying in stock and the same were not
        cleared from the factory. Therefore, in the facts of the present
        case, the ITAT was justified in holding that in respect of unsold
        sugar lying in stock, central excise liability was not incurred
        and consequently the addition of excise duty made by the
        assessing officer to the value of the excisable goods was liable
        to be deleted."

8.      This Court, on 21.10.2013 had passed a detailed order, noticing the

fact that the closing stock can consist of opening stock, purchases and

manufactured stock. Reference was then made to the statutory mandate of




ITA No. 233/2013                                              Page 7 of 9
Section 145A of the Act, that the valuation of the closing stock must include

any tax, duty, cess or fee actually paid or incurred by the assessee to bring

the goods to the place of its location and condition on the date of valuation.

The issue in the present case relates to valuation of the manufactured goods.

The contention of the respondent-assessee was that on manufactured goods,

excise duty is payable after adjustment of CENVAT or MODVAT credit on

the date of removal and not on the date of manufacture.             Thereafter,

reference was made to Central Board of Direct Taxes (CBDT) circular No.

772 dated 23.12.1998, which was quoted in paragraph 11 of the decision

dated 03.12.2012 in CIT Vs. Lakshmi Sugar Mills Co. Ltd. (supra), clearly

observing that MODVAT credit cannot be reduced from the value of

opening or closing stock. Directions were given to the parties to verify and

ascertain facts. However, we do not think, the aforesaid exercise can be

safely and under the Statute undertaken by this Court in an appeal under

Section 260A of the Act, which relates to substantial questions of law. We

have already noticed the facts in the present case that the appellate

authorities had simply relied on the order passed by the Tribunal in the

Assessment Year 2005-06, which as noticed above, stands reversed by the

High Court. Facts are also not clearly brought out in the assessment order.




ITA No. 233/2013                                            Page 8 of 9
In these circumstances, we deem it appropriate to answer the aforesaid

question of law in favour of the Revenue but, with an order of remand, and

direct the Tribunal to decide the issue afresh in the light of the aforesaid

observations and the position of law. The Tribunal, before deciding the

issue, will first ascertain and determine the actual and true factual position.

9.      The appeal stands disposed of. No costs.


                                                        SANJIV KHANNA, J


                                                    V. KAMESWAR RAO, J
SEPTEMBER 01, 2014/akb




ITA No. 233/2013                                              Page 9 of 9

 
 
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