D.C. Agrawal, A.M. - (1.) THIS is an appeal filed by the revenue against the order of CIT(A) for the assessment year 1995-96 raising the following effective ground: "On the facts and in the circumstances of the case and in law, the CIT(A) erred in treating the excise duty of Rs. 3,03,080 as allowable under section 43B when the said amount was relating to closing stock of current assessment year and sales of next assessment year totally disregarding the established principle of matching income with expenses available in sections 28 & 29."
(2.) The main grievance of the revenue is that CIT(A) had deleted the addition of Rs. 3,03,080 added to the closing stock on account of excise duty paid by the assessee before filing of the return and claimed as payable under section 43B by virtue of first proviso thereof. The facts of the case are that the assessee is a manufacturer of drugs and organic items. It showed finished goods in the closing stock at Rs. 25,18,192. This was kept, after manufacture, in the bonded warehouse. In respect of these goods excise duty of Rs. 3,03,080 was paid before filing of the return for the assessment year 1995-96 and was claimed as deduction under section 43B in the assessment year 1995-96. The assessing officer, however, thought that the assessee company could not specify any date during financial year 1994-95 when the said excise duty could have been said to have been crystallised. According to him, it was a contingent liability. This had arisen only in April, 1995, when the goods were sold. In response to the queries raised by assessing officer on this issue, the assessee vide his letter dated 13-2-1998, replied to the assessing officer that liability to pay excise duty arises when the excisable goods are manufactured and not when goods are removed. The assessee relied on the decisions in Lakhanpal National Ltd. v. ITO (1986) 162 ITR 240, and decision of ITAT, Delhi S.R. Pauskar v. Third ITO (1994) 49 ITD 36 (Del) and Philipson Stow v. Inland Revenue Commissioner (1963) 49 ITR 21 (HLR). While disallowing the claim of the assessing officer under section 43B, the assessing officer made the following observations : 1. If a particular expenditure is not a part of the books of account of accounting year 1994-95, there cannot be any question of this expenditure finding its way to closing stock. 2. The excise duty claimed as deduction in computation of income is not part of the profit and loss account and it has not been included in the valuation of closing stock : The assessee-company has not shown as how exactly the price of closing stock was worked out. The costing of final product with regard to cost incurred in manufacturing process, was not submitted. 3. The CIT(A) deleted the addition by making following observations : 2.1 "The assessee's representative in his elaborate submissions stated that the assessing officer's contention is not correct. As the value of the closing stock includes the element of excise duty, the liability to excise duty takes place when the goods are manufactured in the factory. Thus, the closing stock as on 31-3-1995 consisted an element of excise duty. When the part of the closing stock has been sold on 3-4-1995 to 12-4-1995 and the liability of excise duty is paid before filing of the return, the proviso to section 43B would apply in this case as the liability to pay such amount was incurred by the assessee during the accounting year 1-4-1994 to 31-3-1995 itself. Hence, the payment made before filing of the return should be allowed as deduction under section 43B, i.e., in the assessment year 1995-96 only and not in the assessment year 1996-97 as stated by the assessing officer. In support of his contention the assessee has relied on Delhi ITAT's decision in the case of Indian Communication Network (P) Ltd. v. Inspecting Asstt. CIT and ITAT orders in the case of ITO v. Food Specialities India Ltd. 2.2 After going through the submissions and also the order of the assessing officer, 1 am of the view that assessee's contention that assessee-company has incurred liability of the payment of excise duty on the finished goods is correct. As per the proviso to section 43B, the assessee has incurred the liability to pay such duty. The assumption of the assessing officer that liability to pay excise duty takes place only when the goods are removed from the factory premises is not correct and the fact remains that once goods are manufactured as finished entity, they cannot be removed without the payment of the duty. In strict sense, the liability to pay duty arises when excisable goods are manufactured in the finished form. Thus, when the closing stock when included an element of excise duty was sold in the subsequent period and the duty has been paid before the filing of return the same is allowable under section 43B. 2.3 More so, when the excise duty which is claimed by the assessee in the return on the basis of payment in subsequent year is written back in the return of income in the next year to void the double claim. Hence the disallowances unwarranted and the same is deleted." The revenue is in appeal against the above order of the CIT(A).
(3.) BEFORE us, the learned Department Representative submitted that it is necessary that accounting entries should have been passed by increasing the value of closing stock by excise duty. If it is not done, then the claim cannot be allowed during the financial year, as there is no evidence that claim pertained to the accounting year 1994-95 relevant to assessment year 1995-96.;