The assessee has not come out with the
case that in the opening stock, the excise duty was not included. The
explanation furnished by the assessee is that since in the subsequent
assessment year, the turnover was less than one crore of rupees and as
such, the goods were not liable to excise duty, therefore, in the
closing stock of the relevant assessment year, the excise duty has not
been added, is not legally tenable.
The Tribunal has found that the assessee
has not been able to show that the closing stock was valued by it on
the basis of realizable value in the earlier year or in the subsequent
year.
The method of valuation of closing stock
cannot be changed midway. Each year being self contained unit and taxes
of a particular year being payable with reference to the income of that
year, as computed in the terms of the Act. The method adopted by the
assessee has been found to be such that the income cannot properly be
deduced therefrom. Therefore, The Assessing Authority was right in
adding the excise duty in the valuation of the closing stock.
HIGH COURT OF ALLAHABAD
Krishi Discs (P.) Ltd.
v.
Commissioner of Income-tax, Bareilly
IT APPEAL No. 214 of 2005
MARCH 11, 2013
JUDGMENT
Ram Surat Ram (Maurya), J. – Heard
Sri Suyash Agrawal, learned counsel for the appellant and Sri Dhananjay
Awasthi, learned Senior Standing Counsel for the Revenue.
2. The assessee has filed the
aforementioned appeal from the order of Income Tax Appellate Tribunal,
Lucknow Bench, Lucknow (Tribunal) dated 19.11.2004 passed in ITA
No.591/LUC/2004. The appellant has proposed the following substantial
question of law in the memo of appeal.
“Whether the Tribunal was right in
directing to include the Excise Duty in valuation of closing stock in
the case of assessee company, which is a small Scale Unit and is not
liable to pay the Excise Duty on the first clearance upto Rs.100 lacs in
the financial year?”
3. The appeal relates Assessment
Year 2001-02. The facts giving rise to the present appeal are that the
assessee is engaged in the business of manufacture and sale of
Industrial Knives. The assessee has filed income-tax return on
29.10.2001 showing business loss. The return was processed on 17.5.2002.
Subsequently, it was taken for scrutiny and notices under Section
142(1)/143(2)(ii) of the Income-tax Act, 1961, hereinafter referred to
as “the Act”, were issued to the assessee. The assessee appeared before
the Assessing Officer and produced its papers. The assessee claimed
deduction of excess consumption of stores amounting to Rs. 1,87,840/-,
depreciation of Rs. 25,000/- towards repair of plant and machinery and
depreciation of Rs. 3,11,600/- for contribution towards Employees State
Insurance as well as Employees Provident Fund . The Assessing Officer
vide order dated 16.4.2004 made addition of Rs. 1,86,840/- for excess
consumption of stores, Rs. 25,000/- for repair of plant and machinery,
Rs. 1,84,664/- for Excise Duty not shown in the closing stock of
finished goods and Rs. 3,11,600/- for Employees Provident Fund and
Employees State Insurance contribution.
4. The assessee filed an appeal
from the aforesaid order. The appeal was heard by the Commissioner of
Income Tax (Appeals), Bareilly, who vide order dated 18.6.2004 allowed
the appeal and set aside the additions made by the Assessing Officer.
Feeling aggrieved, the Revenue filed an appeal before the Tribunal from
the aforesaid order and contested the appeal on two grounds – first
excess amount of consumption of stores has been shown which is liable to
be added and second excise duty was payable on the finished goods and
it has not been shown in the closing stock although during the relevant
assessment year the excise duty was payable accordingly an addition of
Rs. 1,84,664/- for non inclusion of excise duty in the valuation of the
closing stock is liable to be made. The Tribunal vide judgment and order
dated 19.11.2004 has held that the depreciation claimed in the head of
consumption of stores has rightly been allowed. However, it has held
that since in the relevant year excise duty was payable as such excise
duty was liable to be included in the closing stock in the price of the
finished goods. Accordingly, the order of Assessing Officer for addition
of Rs. 1,84,664/- was upheld.
5. Counsel for the appellant
submitted that the assessee is a small scale industry and under Central
Excise Act, it was granted exemption upto the total sale of Rs.1.00
crore. Since in the next year the sale was within one crore, therefore,
there was no liability of payment of excise duty, accordingly the excise
duty was not included in the valuation of the closing stock. Closing
stock was valued on the basis of realizable value , which was
permissible. The realisable value includes excise duty, accordingly the
assessee was not required again to include the excise duty in the
closing stock and the order of the Tribunal in this respect is illegal.
6. We have considered the arguments of the counsel for the parties.
7. It is settled legal position
and accepted principle of accounting that the closing stock has to be
valued at the option of the assessee, at cost or market price, whichever
is lower, as has been laid down by the Apex Court in the case of Chainrup Sampatram v. CIT[1953] 24 ITR 481 (SC).
8. The Supreme Court has observed
that it is wrong to assume that the valuation of the closing stock at
the market rate has, for its object the bringing into charge any
appreciation in the value of such stock. The true purpose of crediting
the value of unsold stock is to balance the cost of those goods entered
on the other side of the account at the time of their purchase, so that
the cancelling out of the entries relating to the same stock from both
sides of the account would leave only the transactions on which there
have been actual sales in the course of the year showing the profit or
loss actually realised on the year’s trading.
9. The learned counsel for the appellant has relied upon Asstt. CIT v. Narmada Chematur Petrochemicals Ltd.,[2010] 327 ITR 369and CIT v. Dynavision Ltd.,[2012]
348 ITR 380, wherein it has been laid down that it was not necessary
for the assessee to include the excise duty in the value of the closing
stock. The argument of the assessee does not hold good in the facts of
the present case. It has been consistently laid down that the opening
stock and closing stock should be maintained in the same manner either
at the cost price or at the sale price.
10. The assessee has not come out
with the case that in the opening stock, the excise duty was not
included. The explanation furnished by the assessee is that since in the
subsequent assessment year, the turnover was less than one crore of
rupees and as such, the goods were not liable to excise duty, therefore,
in the closing stock of the relevant assessment year, the excise duty
has not been added, is not legally tenable.
11. The Tribunal has found that
the assessee has not been able to show that the closing stock was valued
by it on the basis of realizable value in the earlier year or in the
subsequent year.
12. The method of valuation of
closing stock cannot be changed midway. Each year being self contained
unit and taxes of a particular year being payable with reference to the
income of that year, as computed in the terms of the Act. The method
adopted by the assessee has been found to be such that the income cannot
properly be deduced therefrom. Therefore, The Assessing Authority was
right in adding the excise duty in the valuation of the closing stock.
13. We, therefore, do not find any merit in the present appeal. The appeal is dismissed. But no order as to costs.