Authority: Supreme Court of India, Civil Appellate Jurisdiction

Order Date: 27 October 2026

Case Overview

  • Parties: Appellant – M/s. Lakshmi Sugar Mills Co. Ltd.; Respondent – Commissioner of Income Tax, Delhi‑II.
  • Assessment Year: 2005‑06 (Financial Year 2004‑05). The appellant filed its return on 28‑Oct‑2005 declaring a net loss of Rs 28,36,167.
  • Excise Duty Details: Tax auditor’s Form 3CD (Annexure‑A) showed excise duty liability on closing stock of sugar and molasses of Rs 2,80,56,430, of which Rs 2,10,64,447 had been paid by 30‑Sep‑2005, leaving an unpaid balance of Rs 69,91,983.
  • Section 43B/145A Issue: The auditor noted the unpaid balance should be added back under Section 43B as it was not paid before filing the return. The appellant argued that under the Central Excise Act, 1944, liability crystallises only upon removal of goods from the factory or bonded warehouse; the stock remained in bonded godowns, so no duty was payable.
  • Assessing Officer (AO) Action: AO issued notices under Sections 143(2) and 142(1). On 20‑Nov‑2007 the AO issued an order under Section 143(3) adding Rs 69,91,983 to income, treating the unpaid excise duty as disallowable under Section 43B read with Section 145A.
  • Subsequent Appeals:
  • CIT (Appeals) Order dated 27‑May‑2010 deleted the addition, holding no profit impact under Section 145A and that the amount was not claimed in the Profit & Loss Account.
  • Revenue appealed (Appeal No. 3445/Del/2010) before the ITAT, Delhi Bench. The ITAT dismissed the revenue’s appeal on 06‑May‑2011, confirming the CIT (Appeals) findings and relying on Gujarat High Court’s decision that excise duty liability arises only upon removal of goods.
  • Revenue’s Further Appeal: Revenue invoked Section 260A, framing the substantial question: Whether the ITAT erred in deleting the addition of Rs 69,91,983 made by the AO under Section 43B read with Section 145A?
  • High Court Judgment (Impugned Order): The High Court held the goods were admittedly removed, making the duty payable, and set aside the CIT (Appeals) and ITAT orders, reinstating the addition of Rs 69,91,983 to taxable income.
  • Supreme Court Reasoning:
  • Section 145A contains a non‑obstante clause, directing inclusion of any tax, duty, cess or fee actually paid for valuation purposes only.
  • Section 43B governs deduction of liabilities incurred but unpaid; it does not compel addition for valuation.
  • Citing Orient Paper Mills Ltd. v. Union of India, the Court affirmed that excise duty becomes payable only when goods are removed from the factory or bonded warehouse.
  • In the present case, the goods remained in the bonded warehouse; therefore, the duty was not payable, and the unpaid amount could not be added to the closing stock valuation.
  • The High Court’s factual finding that the goods were removed was contrary to the record and thus illegal.
  • Result: The Supreme Court set aside the impugned High Court order, allowed the civil appeal, and confirmed that the unpaid excise duty of Rs 69,91,983 cannot be added to the value of closing stock or to taxable income.

Final Outcome

  • The addition of Rs 69,91,983 under Section 43B/145A is reversed.
  • Lakshmi Sugar Mills’ taxable income for AY 2005‑06 remains as originally assessed (net loss of Rs 28,36,167).
  • The revenue’s appeal under Section 260A is dismissed.

Topics: Taxation, Excise Duty, Supreme Court Judgment