Judgment:
K. Raviraja Pandian, J.
1. The appeal is filed against the order of the Tribunal dated 22.08.2003 made in I.T.A. No. 875/Mds/1996 relating to the assessment year 1992-93.
2. The facts:
(i) The assessee company is the manufacturer of piston, piston rings cylinders, liners etc. The assessee claimed deduction of excise duty and custom duty payable from the value of closing stock. The Assessing Officer of the opinion that the excise duty payable on finished goods is not taken into account for the purpose of valuation of stock of finished goods. The Income tax Officer added back the excise duty payable on finished goods. The first appellate authority deleted the addition so made. The department preferred an appeal before the Income Tax Appellate Tribunal and the Income Tax Appellate Tribunal following the decision in the case of Commissioner of Income Tax v. English Electric Co. of India Limited reported in : 243 ITR 512 held that excise liability not to be included in valuation of closing stock. The Assessing Officer disallowed the investment allowance claim on the ground that by notification 50 233(e) dated 19.03.1990, the Government abolished the scheme of investment allowance with effect from 01.04.1990.
(ii) The First Appellate Authority set aside that finding and directed the Assessing Officer to allow assessee's claim in respect of incremental cost after verifying the arithmetical accuracy of the actual sum which is claimed and after ensuring that other conditions in this behalf is satisfied. Against that, the revenue preferred an appeal before the Income Tax Appellate Tribunal. The Tribunal, by reason of the impugned order, rejected the appeal. The revenue once again on appeal before this Court under Section 260A of the Income Tax Act.
3. The tax case appeal was admitted on the following questions of law:
1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the Excise duty and custom duty liability is not to be included in valuation of closing stock?
2. Whether on the facts and in the circumstances of the case the Appellate Tribunal was right in holding that the increase in the liability of the assessee during the previous year on account of change in the ratio of exchange was part of the actual cost of the machinery acquired from a foreign country and the assessee would be entitled to investment allowance on the additional cost?.
4. We have heard the argument of the learned Counsel appearing for the assessee as well as the revenue and perused the materials available on record.
5. Upon hearing the counsel and on perusing the materials available on record, we are of the view that both the issue is covered by the decision of this Court. The facts are not disputed that the imported materials are not cleared by the assessee and are kept in the bonded warehouse. Likewise, the manufactured goods are also not cleared from the factory of the assessee and it is still available in the factory.
6. In the above said circumstances of the case, in order to value the closing stock, whether the customs duty payable on the raw materials imported, which is still not cleared from the customs frontier and the excise duty payable on the goods not cleared from the factory and when the taxable event is yet to come, whether the excise duty can be included in the valuation is the point that arises for consideration.
7. The issue came up before this Court in the case of Commissioner of Income Tax v. English Electric Co. of India Ltd. reported in : 243 ITR 512, wherein, this Court while rejecting the submission of the learned Counsel for the revenue held that the liability for payment of excise duty arises at the point of manufacture and, therefore, that liability goes to increase the value of stock awaiting sale. By observing that the argument proceeded on a misconception held that the stock which the assessee has at the end of the financial year is required to be valued at cost meaning thereby all the costs incurred by the assessee for the purpose of manufacturing the goods including the overheads or at market price at the option of the asessee; that the liability for payment of excise duty is incurred by the assessee when the process of manufacture was complete in relation to that excisable item; that liability of the assessee was a liability that was shown in the excise duty account maintained by the assessee, all payments and liability so incurred towards such duty are being exhibited separately as amounts paid as excise duty or as liability incurred for payment of excise duty. The Court further observed that if the argument of the revenue was accepted, the result would be anomalous, that the liability for payment of duty would then be regarded as part of the assets held by the assessee in the form of the higher value assigned to the closing stock; that the liability cannot be converted into an asset in that manner. The same analogy would equally applicable to the customs duty payable in respect of the goods which are under bond.
8. The learned Counsel appearing for the revenue sought to distinguish the Judgment by placing reliance on the Judgment of this Court in the case of Southern Asbestos Cement Limited v. Commissioner of Income Tax reported in : 259 ITR 631 to contend that the cost of imported raw material of the assessee would necessarily include the customs duty paid thereon, as without the payment of such duty, the assessee would not be entitled to remove the imported raw material from the ports. On payment of such duty, it necessarily constituted a part of the cost of the raw material to the assessee. The value of that imported raw material would not undergo any change depending on whether it is used up in the course of manufacture, or is stored in the godown to be used at a future point of time in the course of manufacture. The value of the imported raw material was, therefore, required to be shown uniformly when it was used up in the process of manufacture as also when it was required to be valued as part of the closing stock by including the customs duty component. We find there is a material difference between the Southern Asbestos case with which reliance has been made by the learned Counsel for the revenue and the present case. In that Southern Asbestos's case, the assessee has imported asbestos fibre and cleared the goods from the customs authority on payment of customs duty. So the cost of asbestos fibre was directed to include the customs duty paid and the other expenses incurred to bring the goods to the factory of the assessee. There is also a factual statement available in the Southern Asbestos's case to the effect that the assessee claimed revenue deduction for excise duty paid on the cost of the finished products after paying duty and removing the same from its godown and moving it to other places of storage, on the ground that until sales are effected, excise duty paid should be regarded as a separate item, and the amount of duty paid thereon is to be deducted from the value of the closing stock of those finished products. Hence, reliance placed on the decision reported in : 259 ITR 631, in our view is misplaced reliance as the facts are different, in the sense in the Southern Asbestos's case the goods are imported, customs duty paid and goods are available with the assessee. In respect of manufactured goods, the goods are manufactured and cleared from the factory by paying the excise duty. But, here in the case on hand, the imported goods are yet to be cleared from the customs and they still remain in the bonded warehouse and the manufactured goods are also very much available within the assessee's factory and it is not cleared by payment of excise duty. Hence, the said different factor make an ocean of difference with the Southern Asbestos's case. But the facts are identical with that of English Electric Co.'s case. Hence the first issue is answered in favour of the assessee.
9. In respect of the 2nd question of law, we are of the vies that the issue is already covered in favour of the assessee in Southern Asbestos's case referred to above. In that case also, the question of law to the following effect was referred for opinion.
Whether on the facts and in the circumstances of the case, and on a proper construction of Section 43B of the Income Tax Act, 1961, the assessee is entitled to a revenue deduction in respect of customs and excise duty component of the value of the closing stock?.
10. After referring to the statutory provision Section 43 and the Supreme Court case in the case of Commissioner of Income Tax v. Arvind Mills Limited reported in : [1992] 193 ITR 255 and the circular issued by the Central Board of Direct Taxes explaining the scope of Section 43A and taking note of the decision of this Court in the case of Commissioner of Income Tax v. Chengalvarayan Co-operative Sougar Mills Ltd. reported in : [2000] 242 ITR 440 ultimately held that increase in the liability of the assessee during the previous year on account of the change in the rate of exchange is part of the actual cost of the machinery acquired from a foreign country and the assessee is entitled to investment allowance on the additional cost. The said decision is squarely applicable to the facts of the present case. Hence, the 2nd question of law is also answered in favour of the assessee and against the revenue.
11. We find no merit in the appeal filed by the revenue and hence the same is dismissed. No costs.