Closing stock valuation excludes excise duty not yet accrued as a legally enforceable liability.

Excise duty not yet due and payable on the valuation date could not be added to the closing stock of finished goods for income-tax purposes. Closing stock is valued on ordinary commercial accounting principles, ordinarily at cost or market price, whichever is lower, unless displaced by statute; here, the excise levy became enforceable only on the statutory trigger of removal, so no accrued liability existed when the goods remained in stock. The general principle in British Paints did not justify loading a not-yet-incurred statutory liability into stock valuation, and section 145A of the Income-tax Act, 1961 was not applicable to the assessment year. The Tribunal's exclusion of excise duty from closing stock was upheld.

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Issues: Whether excise duty relatable to finished goods lying in closing stock as on the last day of the accounting period had accrued so as to be included in the valuation of closing stock for income-tax purposes.

Analysis: The valuation of closing stock is governed by ordinary commercial accounting principles, namely cost or market price, whichever is lower, unless displaced by statute. Excise duty is a post-manufacturing impost, but under the excise scheme its levy and collection are linked with removal of the goods and the transaction value under sections 3 and 4 of the Central Excise Act, 1944. On the relevant date, when the goods remained in stock and duty had not become due and payable in law, no enforceable liability had accrued. The general principle in British Paints does not permit inclusion of a not-yet-incurred statutory liability in closing stock merely to alter taxable income, and section 145A of the Income-tax Act, 1961 was not applicable to the assessment year in question.

Conclusion: The excise duty was not required to be added to the closing stock valuation, and the Revenue's contention failed.

Final Conclusion: The appeal was dismissed and the Tribunal's view excluding excise duty from the valuation of closing stock of finished goods was upheld.

Ratio Decidendi: A statutory duty that has not yet accrued as a legally enforceable liability on the valuation date cannot be loaded into closing stock for income-tax purposes, particularly where the charging and collection scheme of the relevant fiscal statute shows that the liability becomes due only on removal or other statutory trigger.

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