Facts of the Case

The assessee, M/s Unipatch Rubber Ltd., had paid excise duty on goods manufactured by it. However, those goods had not been sold during the relevant previous year and formed part of the closing stock. The assessee claimed deduction of the excise duty paid under Section 43B of the Income Tax Act, 1961.

The Income Tax Appellate Tribunal allowed the claim of the assessee. Aggrieved by the Tribunal's order dated 27 October 2004 passed in ITA No. 3311/Del/2001 relating to Assessment Year 1997-98, the Revenue filed an appeal before the Delhi High Court.

Issues Involved

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

Petitioner’s Arguments

The Revenue challenged the order of the Income Tax Appellate Tribunal and contended that deduction of excise duty should not be permitted in respect of goods that had not been sold and continued to form part of the closing stock. According to the Revenue, the deduction could not be claimed merely because the duty had been paid when the corresponding goods remained unsold.

Respondent’s Arguments

The assessee submitted that Section 43B specifically allows deduction of statutory liabilities on actual payment basis. Since the excise duty had been actually paid during the relevant previous year, the deduction was allowable irrespective of whether the goods were sold or remained part of the closing stock. The provision focuses on actual payment and not on the sale of goods.

Court Order and Findings

The Delhi High Court upheld the order of the Income Tax Appellate Tribunal and dismissed the appeal filed by the Revenue.

The Court observed that the only issue involved was whether payment of excise duty on goods manufactured but not sold, though included in the closing stock, could be allowed as a deduction under Section 43B.

The Court held that Section 43B clearly provides that deduction of excise duty shall be allowed in the previous year in which the amount is actually paid. The provision has no reference to the sale of goods and is concerned only with the actual payment of excise duty.

Accordingly, once the excise duty had been paid, the deduction was allowable under Section 43B even if the goods remained unsold and were included in the closing stock. The Court found no substantial question of law arising for consideration and dismissed the Revenue's appeal.

Important Clarification

The judgment clarifies that:

  • Deduction under Section 43B is governed by actual payment of the statutory liability.
  • Sale of goods is not a prerequisite for claiming deduction of excise duty under Section 43B.
  • Excise duty paid on goods forming part of closing stock remains deductible if the payment has actually been made during the relevant previous year.
  • The provision focuses on payment and not on the accounting treatment or sale status of the goods.

Sections Involved

  • Section 43B of the Income Tax Act, 1961
  • Provisions relating to deduction of statutory liabilities on actual payment basis

Link to Download the Order-https://delhihighcourt.nic.in/app/case_number_pdf/2006:DHC:24558-DB/MBL07092006ITA10482005_162240.pdf

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