Commissioner of Income Tax vs Dynavision Ltd.

S.R. singharavelu, J.—The substantial question of law involved in this case is :

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in upholding the order of the Commissioner of Income Tax (Appeals) directing the exclusion of the excise duty from the closing stock valuation ?"

The assessee is a private limited company carrying on the business of manufacture and sale of television sets. The assessment year is 1987-88. The assessee was following a consistent system of accounting in excluding excise duty in the valuation of its stock from year to year. The introduction of Section 43B of the Income Tax Act has also made this a very convenient system of accounting.

Even according to the Assessing Officer, there was no attempt made by the assessee in changing the system of accounting that had been consistently followed. It is also not the case of the Assessing Officer that the assessee failed to disclose true and correct profits. It has also been consistently held that excise duty need not be included in the cost price while valuing the closing stock. It has now become an accepted proposition that the assessee is empowered to change its method of accounting regularly followed provided the change is bona fide and there is no attempt to evade taxes or hoodwink the Department.

It has been held in the case of Commissioner of Income Tax Vs. English Electric Co. of India Ltd., , that the liability for payment of excise duty is incurred only when the process of manufacture is complete. Such liabilities are shown in the excise duty account maintained by the assessee. The inclusion of excise duty in the valuation of closing stock was held to be permissible only if the liability for that amount in the excise duty account was given a deduction. It was further held that if the duty element due is included while valuing the closing stock, the result would be anomalous and therefore, the liability was 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 and thus, the excise duty liability is not to be included in the valuation of closing stock. Since the excise duty is not a part of manufacturing cost, it is to be taken only in determining the net profit.

In this view of the matter and following the principle of law enunciated in the above cited case law, the substantial question of law that as framed is answered in favour of the assessee and against the Revenue.