Income Tax Deduction Available On Excise Duty Claim As It Does Not Amount To Double Deduction: Bombay High Court

The Bombay High Court has held that excise duty paid and included in the closing stock has to be claimed separately as a deduction; otherwise, the appellant would not be claiming the entire excise duty paid in the year of its payment.

The bench of Justice K. R. Shriram and Justice Neela Gokhale has observed that Section 43B, which came to be introduced from Assessment Year 1984–1985 onwards, provides that the excise duty would be deductible only on a payment basis in the year in which it is actually paid.

The appellant/assessee has appealed against the order of the Income Tax Appellate Tribunal (ITAT). The ITAT has held that the appellant was not entitled to the deduction representing the excise duty claimed under Section 43B of the Income Tax Act, 1961, as it would amount to a double deduction.

The ITAT in its order came to a factual finding that the Assessing Officer by allowing deduction of Rs. 980.74 lakhs has allowed Rs. 60,99,426 as part of Rs. 2,08,08,346 and therefore, if that amount of Rs. 60,99,426 was again allowed in the assessment, it would amount to double deduction, which is not permissible. The Tribunal also relied upon a judgement of the Calcutta High Court in the case of CIT v. Burger Paints (India) Ltd., to come to the conclusion that the assessee was not entitled to the deduction of Rs. 60,99,426 representing the 'Excise Duty Claim' under Section 43B of the Income Tax Act, 1961. The judgment of the Calcutta High Court has been reversed by the Apex Court in Burger Paints (India) Ltd. v. CIT in favour of assessee.

The issue raised was whether the finding of the Tribunal that the AO has allowed Rs. 60,99,426/- as part of Rs. 2,08,08,346/- towards the excise duty paid.

The assessee contended that the assessee was correct in submitting that the excise duty in the case of unsold stocks held by them at the end of the previous year is not treated as expenses in the accounts but has been separately claimed and allowed in the income tax assessments. The excise duty amounting to Rs. 2,08,08,346 was transferred to the pre-paid account and added to the closing stock of finished products. If the opening balance of Rs. 1,47,08,920 is reduced, that would leave a sum of Rs. 60,99,426 in the pre-paid account.

The court noted that the assessee was correct in submitting that the excise duty in case of unsold stocks held by them at the end of previous year is not treated as expenses in the accounts, but has been separately claimed and allowed in the income tax assessments.

The court found that while computing the total income for Assessment Year 1986-1987, assessee had claimed a deduction of excise duty amounting to Rs. 2,08,08,346/- actually paid in the year 1985 and included in closing stock less excise duty paid and included in closing stock of 1984 already claimed, amounting to Rs. 1,47,08,920/-.

The court has held that the Tribunal was not correct in coming to the conclusion that this amount of Rs. 60,99,426 would amount to a double deduction.

Counsel For Appellant: Subhash S. Shetty

Counsel For Respondent: Suresh Kumar

Case Title: M/s. Johnson and Johnson Ltd. Versus The Deputy Commissioner of Income Tax

Case No.: Income Tax Appeal (It) No. 148 Of 2003 With Income Tax Appeal (It) No. 103 Of 2003

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