Facts of the Case

The Revenue challenged the order of the Income Tax Appellate Tribunal, Delhi Bench "C", relating to Assessment Year 1997-98. The dispute concerned the allowability of deduction of excise duty paid by the assessee on goods manufactured and cleared from the factory but not sold during the relevant previous year. These goods formed part of the closing stock at the end of the accounting period.

The assessee claimed deduction of the excise duty actually paid during the year under Section 43B of the Income Tax Act, 1961. The Revenue disputed the claim on the ground that the goods remained unsold and continued to form part of closing stock.

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Issues Involved

Whether excise duty actually paid by the assessee on goods manufactured and cleared, but remaining unsold and included in the closing stock at the end of the relevant previous year, is allowable as a deduction under Section 43B of the Income Tax Act, 1961.

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Petitioner’s Arguments

The Revenue contended that since the goods on which excise duty had been paid were not sold and continued to be reflected in the closing stock, the deduction claimed by the assessee should not be allowed while computing taxable income.

The Revenue challenged the Tribunal's order allowing the deduction and sought interference by the High Court.

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Respondent’s Arguments

The assessee argued that Section 43B specifically permits deduction of statutory liabilities, including excise duty, in the year in which the amount is actually paid.

According to the assessee, the provision is concerned solely with actual payment of excise duty and does not make deductibility dependent upon the sale of goods. Therefore, once excise duty has been paid, deduction cannot be denied merely because the goods remain unsold and are included in closing stock.

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Court Order Findings

The Delhi High Court held that Section 43B clearly provides that deduction of excise duty is allowable in the previous year in which the amount is actually paid.

The Court observed that the provision has no reference to the sale of goods and is concerned only with the actual payment of excise duty.

The Court relied upon the following precedents:

  1. Commissioner of Income Tax vs Bharat Petroleum Corporation Ltd. (2001) 252 ITR 43 (Bom)
  2. Chemicals and Plastics India Ltd. vs Commissioner of Income Tax (2003) 260 ITR 193 (Mad)

In both cases, it had been held that excise duty actually paid is deductible under Section 43B even where the goods remain unsold.

The Court agreed with the views expressed by the Bombay High Court and Madras High Court and held that no substantial question of law arose for consideration.

Accordingly, the appeal filed by the Revenue was dismissed.

Important Clarification

Section 43B allows deduction of excise duty on the basis of actual payment.

The deduction is not dependent upon:

  • Sale of the goods.
  • Recognition of revenue from such goods.
  • Whether the goods form part of closing stock.

Once excise duty is actually paid during the relevant previous year, deduction is allowable under Section 43B subject to fulfillment of statutory conditions.

This judgment reaffirms the principle that actual payment is the governing criterion under Section 43B and not the sale status of the goods.

Sections Involved: Section 43B of the Income Tax Act, 1961

Link to Download the Order-https://delhihighcourt.nic.in/app/case_number_pdf/2006:DHC:24595-DB/MBL07092006ITA12932006_170406.pdf

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