Law: Income Tax Act, 1922

Section:

Income-tax---Valuation of stock---Closing stock valued at cost.--Excise duty liability not to be included in valuation of closing stock--Indian Income Tax Act, 1961. 'The assessee, a manufacturer of electrical goods, followed the mercantile system of accounting and for the assessment year 1984-85 valued its closing stock at cost. The Income-tax Officer did not accept this valuation as it did not include the assessee's liability for payment of excise duty. The Tribunal held that the excise duty payable did not form part of the value of the closing stock. On a reference: Held, that the liability for payment of excise duty was incurred when the process of manufacture was complete in relation to an excisable item. All payments and liability incurred towards duty were exhibited separately. The assessee's liability for payment of 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 could not be converted into an asset in that manner. 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 could be added to the value of the closing stock. JUDGMENT R. JAYASIMHA BABU, J.---The assessee is a manufacturer of electrical goods. Its accounts are maintained in mercantile system. For the assessment year 1984-85, it had valued its closing stock at cost. The valuation so made, according to the Assessing Officer, was incurred as it did not include the assessee's liability for payment of excise duty. That view of the Income-tax Officer was confirmed by the Commissioner. The Tribunal on further appeal held that the excise duty payable on the closing stock did not form part of the value of the closing stock. It was submitted by counsel for the Revenue that the liability for payment of excise duty arises at the point of manufacture and, therefore, that liability goes to increase the value of the stock…

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