TaxTMI 
TaxTMI 
2019 (5) TMI 1185
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....prescribed under section 145A of the Act and the assessee has not added taxes and duties in purchase, sales or valuation on closing stock and hence the method of accounting, even though consistently followed does not disclose true income of the assessee. 2. The facts of the case are that for the assessment year 2014- 15, the assessee filed its return of income declaring a loss of Rs. 8,89,14,624/-. The assessee filed revised return of income declaring loss of Rs. 9,16,08,656/-. The assessment was completed by the Assessing Officer on a total loss of Rs. 6,23,97,655/-. The Assessing Officer, while making the addition of Rs. 2,92,11,000/-, on account of valuation of closing stock, held as follows:- "In view of above discussion, it is clear that the assessee was required to prepare/re-cast the accounts on gross basis or required by section 145A, which the assessee failed to do so. The assessee's contention that it has no effect on the P & L account of the company is not correct. Further, the effect of addition in closing stock is not given in opening stock as assessee preferred appeal against the order of Assessing Officer in earlier assessment year. The assessee is statin....
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.... erred in law and on facts in deleting the addition of Rs. 2,92,11,000/- made on account of valuation of closing stock, ignoring the provisions of section 145A of the Income-tax Act, 1961, which clearly lays down that the excise duty shall mandatorily be included in the closing stock. It was further contended that the ld. CIT(A) was not justified in deleting the addition by ignoring the fact that the assessee's method of accounting is not in accordance with the method of valuation prescribed under section 145A of the Act and the assessee has not added taxes and duties in purchase, sales or valuation on closing stock, and hence, the method of accounting, even though consistently followed, does not disclose the true income of the assessee. 6. The ld. A.R. of the assessee has placed reliance on the impugned order. 7. Heard. The assessee is a Limited company, engaged in the manufacture and sale of asbestos sheets and allied products & trading of asbestos fiber. The assessee did not add the excise duty of Rs. 2,92,11,000/- on closing stock of its finished goods, contending that the liability accrued, was not due on its stock of finished goods, as on 31/3/2014. The assessee has not....
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....n 3(i) of the Excises Act provides for levy of excise duty and collection thereof in such manner as may be prescribed. As per section 2(g), 'prescribed' means prescribed by Rules made under the Excises Act. Section 37(1) states that the Central Government may make rules to carry into effect the purposes of the Excise Act. According to section 37(2)(i-b), such rules may, inter alia, provided for the collection of duties of excise. 12. Thus, section 3(i) of the Excises Act is the authority of law enabling levy of excise duty. It, however, does not lay down the stage at which the duty is to attach, or the date with reference to which the rates, set forth in the Schedule, have to be applied. The collection of the duties has been subjected by the Legislature, by delegation of legislation to the Central Government, under rules to be framed by the Central Government. The duties, as per section 3(i), shall be levied on all excisable goods produced or manufactured in India. 13. The Central Excise Rules, 1944 (hereinafter, 'the Rules') were made by the Central government, inter alia, for the purpose of providing for the assessment and collection of duties imposed by the Excises Act. Ru....
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....xcise 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. 18. The Hon'ble Supreme Court, in the case of 'Wallace Flour Mills Co. Ltd. Vs. CCE', 186 ITR 440 (SC), summed up the legal position as under: "It is well settled lay the scheme of the Act as clarified by several decisions that even though the taxable event is the manufacture or production of an excisable article, the duty can be levied and collected at a later stage for administrative convenience. The Scheme of the said Act read with the relevant rules framed under the Act particularly Rule 9A of the said rules, reveals that the taxable event is the fact of manufacture or production of an excisable goods and the payment of duty is related to the date of removal of such article from the factory." 19. The Hon'ble Supreme Court, in the case of 'Collector of Central Excise, Pune vs. Dai Ichi Karkaria Ltd.', 1999 (112) ELT 353 (SC), has held that the excise duty paid on raw material, modvatted, should not be included in determining the case of production of excisable product....
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....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." 24. The expression 'incurred by the assessee' in Section 145A(a) of the Act 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 bri....
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....ome for the purpose of preparing the return of income. These adjustments are as follows:- (a) Any tax, duty, cess or fee actually paid or incurred on inputs should be added to the cost of inputs (raw materials, stores, etc.) if not already added in the books of account. (b) Any tax, duty, cess or fee actually paid or incurred on sale of goods should be added to the sales, if not already added in the books of account. (c) Any tax, duty, cess or fee actually paid or incurred on the inventory (finished goods, work-in-progress, raw material) should be added to the inventories, if not already added while valuing the inventory in the accounts. 26. The excise duty is an expense which needs to be debited in the trading account. It is only if it is so debited that the credit side of the trading account will show the value of the closing stock inclusive of excise duty. This methodology is essential to be followed, so that both the sides of the trading account match inter se. In the present case, the assessee did not debit the excise duty in its trading account. In its Notes to Accounts, which form part of the balance sheet of a company and without reading which,....