ASSTT.COMMISSIONER OF INCOME TAX, CIRCLE 4, BARODA vs. MILESTONE LIMITED

O/TAXAP/329/2007 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 329 of 2007 With TAX APPEAL NO. 330 of 2007

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI Sd/- and HONOURABLE MR.JUSTICE K.J.THAKER Sd/-

================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? No 2 To be referred to the Reporter or not ? No 3 Whether their Lordships wish to see the fair copy of the judgment ? No 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? No 5 Whether it is to be circulated to the civil judge ? No ================================================================ ASSTT.COMMISSIONER OF INCOME TAX, CIRCLE 4, BARODA....Appellant(s) Versus MILESTONE LIMITED....Opponent(s) ================================================================ Appearance: MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1 RULE SERVED for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Page 1 of 8

O/TAXAP/329/2007 JUDGMENT

Date : 09/12/2014 COMMON ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE K.J.THAKER) 1. Though served, no one appears for the respondent. 2. By way of the above Appeals, the Department has challenged the orders of the

Income-Tax

Appellate

Tribunal, Ahmedabad Bench “C” dated 28.07.2006, as per the following details :- Tax Appeal ITA No. Asstt.Year 329/2007 1558/Ahd./2002 1998-1999 330/2007 1557/Ahd./2002 1997-1998 3. While admitting the Tax Appeals on 27.11.2007, the following substantial question of law arose for consideration :- “Whether on the facts and in the circumstances of the case, the Tribunal was right in law to exclude the excise duty at the time of valuing closing stock at end of accounting period?” 4. The facts in brief which are in common and which give rise to the above Appeals Page 2 of 8

O/TAXAP/329/2007 JUDGMENT are that :- The assessee is a public limited company engaged in the manufacturing of dyes and its intermediates. Common ground in both the appeals is deleting the addition of Rs.15,18,117/- and Rs.28,65,709/- respectively on account of excise duty payable on the closing stock of finished goods. The Assessing Officer has made the addition of excise duty payable on closing stock of the finished goods. The Assessing Officer had considered that liability of excise duty accrued at the time of manufacturing and it should have been added to the value of closing stock of finished goods, as it becomes cost of finished goods. The matter was carried to CIT(A). The CIT(A) deleted the same by observing that :- “On consideration of the facts of the case, I find that the issue is Page 3 of 8

O/TAXAP/329/2007 JUDGMENT covered by the decision of Madras High Court in the case of English Electric Company. The High Court in the said case has held that the assessee's liability for payment of excise duty could not be regarded as part of the assets held by the assessee in the form of higher value assigned to the closing stock. A liability was an item deductible for the purpose of arriving at the Profits for the year and only when such deduction was given, the amount would be added to the value of closing stock. In this case, it is seen that the appellant has not claimed any deduction for excise duty payable in respect of the finished goods. This liability cannot form part of closing stock as held by the Madras High Court as mentioned above. The decision of Supreme Court in the case of British Pains relates to inclusion of overhead expenses in the closing stock. The expenses under consideration are claimed whereas the excise duty payable in this case has not been claimed by the Appellant. Hence, the said decision of the Supreme Court is not applicable to the facts of the present case. In view of the above, the addition made is deleted.” 5. The Income Tax Appellate Tribunal after hearing the contentions of the contesting parties held that the Madras Page 4 of 8

O/TAXAP/329/2007 JUDGMENT High Court considered this issue in the case of English Electric Company, wherein it has been held that liability of payment of excise duty could not be regarded as part of assets as held by the assessee in form of higher valuation assigned to closing stock. The assessment year under consideration was prior to 01.04.1999. In the result, both the Appeals of the Revenue were dismissed. 6. We have heard learned Advocate appearing for the appellant – Department. In the above Appeals preferred at the instance of Revenue, the question of law posed for our consideration is concluded by the judgment of this jurisdictional High Court in the case of Assistant Commissioner of Income-tax v. Narmada Chematur Petrochemicals Ltd. reported in [2010] 327 Income Tax Reports 369 (Guj), wherein it is held : “It was held, that the Tribunal was justified in excluding the excise duty at the time of valuation of the closing stock of finished goods at the end of the accounting period because : Page 5 of 8

O/TAXAP/329/2007 JUDGMENT (a) no deduction for the liability has been claimed by the assessee. The excise duty payable on the finished goods lying in the closing stock at the end of the relevant accounting period has been paid in the subsequent year before the due date of filing of the return of income and that was how the amount was available considering the fact that the assessment had been framed and the show-cause notice was issued much after the close of accounting year; (b) The Assessing Officer had not had recourse to sub-section (3) of section 145 of the Act. The assessee

was

following

the mercantile system of accounting but it was not the case of the Assessing

Officer

that

the Assessing Officer was not in a position to deduce true profits of the year under consideration. Such duty of Central Excise if added to enhance the value of closing stock would result in enhanced opening stock on the first day of next accounting period, namely, April 1, 1997. So the next year's profits would get depressed accordingly. Over a period of time the whole exercise would even out, in other words, be revenue neutral. At the same time while disturbing the value of the closing stock the assessing authority could not change the Page 6 of 8

O/TAXAP/329/2007 JUDGMENT method of accounting regularly employed. (C) the assessment year being 1997-98 the provisions of section 145A of the Act inserted by the Finance (No.2) Act, 1998 with effect from April 1, 1999 could not be invoked.” Therefore, without delving further into the factual scenario as they are perused by us and they are similar to the facts, which cannot be distinguished, we do not give elaborate reasons on the question of law posed hereinabove. 7. Hence, we are of the view that the Tribunal was right in law to calculate the Excise Duty at the time of valuing the closing stock at the end of the Accounting Period. Therefore, the question of law posed hereinabove is answered against the Revenue and in favour of the Assessee. 8. In view of the above, both the Appeals stand disposed of. Sd/- (K.S. JHAVERI, J.) Page 7 of 8

O/TAXAP/329/2007 JUDGMENT Sd/- (K.J.THAKER, J.) CAROLINE Page 8 of 8