The Supreme Court has set aside a judgment that upheld the addition of unpaid excise duty to a sugar manufacturer’s taxable income. A Bench of Justice S.V.N. Bhatti and Justice N.V. Anjaria held that an amount not claimed as an expense cannot be disallowed without examining how it was accounted for and whether it affected taxable income.
Background
The dispute concerned the assessment year 2005–06. Lakshmi Sugar Mills had disclosed an outstanding excise duty amount of ₹69,91,983 on its closing stock. The Assessing Officer added this amount to the company’s taxable income under Sections 43B and 145A of the Income Tax Act, 1961.
The company argued that it followed the exclusive method of accounting and had not claimed the disputed amount as an expense in its profit and loss account. It also maintained that the relevant sugar stock remained in its bonded warehouse and had not been cleared for removal.
The Commissioner of Income Tax (Appeals) deleted the addition, and the Income Tax Appellate Tribunal upheld that decision. However, the High Court reversed those findings, prompting the company to approach the Supreme Court.
The Supreme Court examined whether the High Court’s conclusion that the goods had been removed was supported by the record. It found that the authorities had recorded that the disputed stock remained in the company’s bonded warehouse.
The Court observed:
“The findings of the CIT (Appeals), the Tribunal, and the AO are not to that effect. On the contrary, in the AO's Remand Report, the CIT (Appeals) and the Tribunal found that the stock on which no excise duty was paid or treated as payable remained in the Assessee's bonded warehouse.”
The Bench also examined the application of Section 43B, which governs deductions for specified expenses, including statutory liabilities, subject to prescribed payment conditions. It noted that the company had neither paid the disputed amount nor claimed it as an expense in its accounts.
The judgment further stated:
“Disallowing an amount not treated as an allowance by the Assessee is impermissible under the Act, 1961.”
The Court found that the Assessing Officer had failed to establish how the disputed entry had been claimed as an allowance or how it reduced the company’s taxable income. It also considered the Bombay High Court’s decision in ITA No. 4297 of 2009 relevant to the dispute.
The Supreme Court held that the addition could not be sustained on the basis adopted by the Assessing Officer.
It set aside the High Court’s judgment and allowed the civil appeal filed by Lakshmi Sugar Mills. Pending applications, if any, were also disposed of.
Case Details
Case Title: M/s. Lakshmi Sugar Mills Co. Ltd. v. Commissioner of Income Tax, Delhi-II
Case Number: Civil Appeal No. 8932 of 2013
Judges: Justice S.V.N. Bhatti and Justice N.V. Anjaria
Decision Date: October 27, 2026
