The supreme court has upheld the principle of exclusion of excise duty component from valuation of closing stock in the case of Dynavision Limited (SC). The important principle laid down in the case of Chainrup Sampatram (24 ITR 481 (SC)) & Hindustan Zinc Ltd (291 ITR 391 SC)) has been reiterated in its decision :
“That, the true purpose of crediting the value of unsold stock is to balance the cost of the goods entered on the other side of the account at the time of the purchase, so that on cancelling out of the entries relating to the same stock from both sides of the account would leave only the transactions in which actual sales in the course of the year has taken place and thereby showing the profit or loss actually realized on the year’s trading. The entry for stock which appears in the trading account is intended to cancel the charge for the goods bought which have remained unsold which should represent the cost of the goods”.
One may also take note of the other decisions of the Supreme Court on this subject – British Paints India 188 ITR 44 (SC) where it was held that all “overheads” had to be included in closing stock valuation and Berger Paints 266 ITR 99 (SC) where it was held that in view of Section 43B, excise duty need not be included in closing stock.
