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Case Law Details

Case Name : M/S Krishi Discs (P) Ltd. Industrial Area Vs. The Commissioner Of Income Tax (Allahabad High Court)
Appeal Number : IT Appeal No. 214 of 2005
Date of Judgement/Order : 11/03/2013
Related Assessment Year :

HIGH COURT OF ALLAHABAD

Krishi Discs (P.) Ltd.

versus

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 realizable 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 realized on the year’s trading.

9. The learned counsel for the appellant has relied upon Asst. 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.

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