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Issues: Whether excise duty relatable to finished goods lying in closing stock at the end of the year was required to be included in the value of inventory under section 145A of the Income-tax Act, 1961, and whether the addition could be sustained under section 43B of that Act.
Analysis: Excise duty is levied on manufacture, but its collection is linked to removal of goods, and the duty on stock lying in the factory does not crystallize until clearance. Section 145A requires valuation of inventory by including tax, duty, cess or fee actually paid or incurred to bring goods to the place of their location and condition as on the date of valuation. Where the excise duty on finished goods in stock has accrued but has not become due, it cannot be treated as liability actually incurred for the purpose of inventory valuation. The assessee followed a consistent method of accounting and had not debited such duty in the profit and loss account. In the absence of crystallized liability and in the light of the accepted treatment of stock valuation, the addition made by the Assessing Officer was not justified.
Conclusion: The deletion of the addition was correct. Excise duty on finished goods lying in closing stock was not required to be added to inventory value on the facts of the case, and the Revenue's challenge failed.
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