JUDGMENT
Y. R. Meena, J.
1. On an application under Section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following questions set out at page 13 of the paper book for our opinion :
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the Commissioner of Income-tax had jurisdiction to invoke the powers under Section 263 and review the Income-tax Officer’s order ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in rejecting the assessee’s claim for deduction of the excise and customs duties of Rs. 98,25,833 paid in the year of account and debited in the profit and loss account, on the ground that the crediting of the profit and loss account by the value of the closing stock, which included the aforesaid duties, did not have the effect of wiping out the debit to the profit and loss account ?”
2. The applicant-assessee is a resident company engaged in the manufacture and sale of paints. The reference relates to the assessment year 1984-85 corresponding to the previous year ended on December 31, 1983. During this year, the assessee has paid Rs. 5,85,87,181 by way of excise duty and customs duty. This amount was duly debited to the profit and loss account of this year. Out of the said amount Rs. 98,25,833 related to stock remaining unsold at the end of the year and was therefore included in the valuation of the closing stock which was credited to the profit and loss account for the year.
3. The return for the year was filed on August 31, 1984, declaring a total income of Rs. 1,33,31,370. During the course of the assessment proceedings of the assessee, on, examination of the accounts it was revealed that Rs. 5,85,87,181 was debited to the profit and loss account. Out of that Rs. 98,25,833 has been credited in the closing stock. Thereby the assesses claimed that net deduction was Rs. 4,87,61,348. Therefore, Rs. 98,25,833 has been credited. That reduced the value of closing stock and, therefore, the assessee wrote a letter dated November 4, 1986, addressed to the Inspecting Assistant Commissioner of Income-tax, with revised the computation of the total income and claiming further deduction of Rs. 98,25,833.
4. The Assessing Officer in his assessment order under Section 143(3) dated March 25, 1987, allowed the assessee’s claim on the basis of letter dated November 4, 1986.
6. On a scrutiny of the account the Commissioner of Income-tax found this mistake on the part of the Assessing Officer. He issued show-cause notice dated January 4, 1989, to the assessee why the order should not be revised withdrawing the deduction of Rs. 98,25,833 as the Assessing Officer has wrongly allowed double deduction of this amount. After hearing the assessee, the Commissioner of Income-tax has directed the Assessing Officer to enhance the total income of the assessee by Rs. 98,25,833.
7. In appeal before the Tribunal, the Tribunal has also confirmed the view taken by the Commissioner of Income-tax in an order under Section 263 of the Act.
8. Heard learned counsel for the parties. The facts are not in dispute that there was an excise duty liability in the year under consideration to the tune of Rs. 5,85,87,181 which includes Rs. 98,25,833. That liability has been discharged by making the payment of that excise duty by the assessee and that the total amount has been debited in the profit and loss account maintained by the assessee. While valuing the closing stock the amount of Rs. 98,25,833 has been credited again to the profit and loss account though that amount was part of Rs. 5,85,97,181 and as claimed by the assessee that deduction was allowed. The income shown in the return has been reduced on the basis of letter dated November 4,1986, by the Assessing Officer. Whether there is a double deduction by the credit entry of Rs. 98,25,833, the Tribunal has discussed this aspect in paras. 9 and 10 of its order. For ready reference it reads as under :
“9. We have carefully considered the rival contentions. We have perused the orders of the Commissioner of Income-tax and the assessment order. We have also called for the assessment records and scrutinised the same. The undisputed facts are that the assessee had debited its profit and loss account with an amount of Rs. 5,85,87,181 as customs and excise duties. While valuing the closing stock on hand as at the end of the accounting year the assessee has added a portion of the customs and excise duties aggregating to Rs. 98,25,833 as part of the value of the closing stock. Once the closing stock is valued at a particular figure, whether it is at cost or at the market price or on the principle of the lower of the cost or market price, the various elements that go into the valuation of the stock do not have any separate existence. It is not possible to break up the value of the closing stock and identify the different elements that go to make up the value. It cannot be stated that by adding a portion of the expenses that are debited in the profit and loss account to the value of the closing stock the deduction claimed in respect of those expenses in the profit and loss account is reduced. If this logic is extended, it would lead to some absurd situation. For example, the sale proceeds can be broken up to identify the different elements that go to make up the same. Part of the sale proceeds represents recovery of the cost of the goods themselves. Then there is the margin of profit. A portion of the expenses is also recovered. It will, therefore, be possible to contend that the cost of the goods having been credited to the profit and loss account as part of the sale proceeds, the debit to their profit and loss account towards the cost of the goods sold is wiped out and that should be made good by claiming the cost of the goods over again in a revised statement of income or in the computation of income. Just as the sale proceeds, whatever may be the elements that go to make up for the same, remain one consolidated figure which cannot be broken up to identify the different elements thereof, the figure of closing stock also cannot be broken up to identify the different elements that go to make the value. It is not in dispute that the amount of Rs. 5,85,87,181 is debited to the profit and loss account as part of the expenditure. It is not also disputed that the amount of Rs. 98,25,833 is part of the amount of Rs. 5,85,87,181. Once the amount is debited to the profit and loss account it has been charged as an expenditure for which the assessee is eligible for deduction. Thereafter, the closing stock is valued at a particular figure and that is credited to the profit and loss account. That this an entirely different exercise and though the assessee takes into account the customs and excise duties while valuing the closing stock the crediting of the profit and loss account by the value of the closing stock cannot be stated to have the effect of wiping out the corresponding debit to the profit and loss account. It is not the case of the assessee that the profit and loss account itself is debited only with a net figure, namely, Rs. 4,87,61,348. This is dear from the assessee’s letter dated February 17,1987, written to the Assessing Officer. The following sentence in the said letter at page 3 thereof is clinching :
‘If this is not done it would mean that, we would be debited full benefit of the actual payment of the duties in terms of Section 43B inasmuch as, whereas there is a debit of Rs. 5,85,87,181 in the profit and loss account, there is a credit in the profit and loss account of Rs. 98,25,833 representing part of the above duty included in the closing stock.’
10. The position that emerges is that there is a debit of Rs. 5,85,87,181 in the profit and loss account which included Rs. 98,25,833 again… statement of income filed on November 6, 1986, along with the covering letter dated November 4, 1986. the Assessing Officer by accepting the revised statement of income and by allowing the deduction of Rs. 98,25,833 has actually granted double allowance of the claim. The assessment is, therefore, clearly erroneous and prejudicial to the interests of the Revenue and the Commissioner of Income-tax certainly had jurisdiction to take remedial action under Section 263 of the Act/When the facts are not in dispute that the total excise duty liability in the year under consideration was Rs. 5,85,87,181, that liability has been discharged by actual payment of that amount and the debit entry has been made in the profit and loss account, Rs. 98,25,833 forms part of the excise duty liability that is part of Rs, 5,85,87,181. We could not understand how the liability which has been discharged by not only on the mercantile system but by actual payment, how any part of that amount can be shown as a liability by putting the credit entry of that amount for the purpose of valuing the closing stock of unsold stock. If unsold stock is there and the duty has already been paid, that duty cannot be ignored. The duty which has already been paid on the unsold stock how that can be ignored ? How that duty becomes a liability once again ? Dr. Pal could not explain this.
9. In our considered opinion, once the liability is discharged by actual payment against that liability and debited that amount in the profit and loss account that liability/expenditure stands allowed for the purpose of computing the income of the assessee.
10. While valuing the closing stock of unsold finished goods the excise duty liability which has been discharged cannot be ignored and that forms part of the closing stock on the assets side, i. e., the value of finished goods which are not sold includes the excise duty which has been paid. Therefore, even Section 43B also does not come in the way as the actual payment against the excise duty liability has been made. That excise duty liability cannot be allowed further on showing that amount of excise duty liability that will result in double deduction.
11. It is also pertinent to note that the assessee in the original return has not claimed this double deduction and only during the course of assessment by letter dated November 4, 1986, it claimed the deduction of Rs. 98,25,833 for a second time and that was allowed by the Assessing Officer.
12. When the Assessing Officer has allowed Rs. 98,25,833 a second time, that resulted in double deduction. The order of the Assessing Officer is erroneous and prejudicial to the interests of the Revenue. The Commissioner of Income-tax has rightly revised the assessment order under Section 263 and the Tribunal is fully justified in upholding the order of the Commissioner of Income-tax under Section 263.
13. In the result, we answer both the questions in the negative, that is, in favour of the Revenue and against the assessee.
