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I. T. A. No. 9/KB of 1978‑79, decided on 8th November, 1978.

‑‑ S. 10 (2‑A)‑Trading liability‑‑Amount of excise duty levied on goods I manufactured by assessee for sale remaining unpaid for a period of three years on expiry of previous year in which it was allowed‑Held, rightly added under S. 10 (2‑A) in year under appeal‑Assesses if made to pay such trading liability in any subsequent year, would be entitled to claim its deduction from profits and gains of relevant year.

Sirajul Haque for Appellant.

S. M. Sibtain, D. R. for Respondent.

This appeal concerns the assess ment year 1973‑74, the relevant accounting year easing 30th September, 1972, and the solo question arises thus.

2. The asses6ec, a private limited Company maintains its account on mercantile system of accounting in the assessment year ]968‑69 It claimed deduction of Rs. 12,09,022. In respect of accrued liability for Excise Duty, which was said to have been levied on sapacity basis. This liability, however remained unpaid, and therefore, the L.‑T. O. added it to the income of the assessee under section 10 (2‑A) of the Income‑tax Act, while framing the assessment for the charge year 1973‑74. The assessee preferred an appeal against the assessment for the char go year 1973‑74, assailing, inter alia, the inclusion of the aforesaid sum of Rs. 12,09,022, in its income. Its case before the first appellate authority was that the unpaid liability in respect of Excise Duty did not fall within the mischief of section 10 (2‑A) of the Act. The learned Appellate Assistant Commissioner, however, did not agree with the appellant's contention and uphold the order of the Assessing Officer in this behalf.

3. Mr. Sirajul Haque, the learned counsel for the appellant reiterated the same contentions before us which were made before the first appellate authority, namely, that the Excise duty is a tax and not the trading expense. Ho maintained that the trading liability is one which relates to the trading i. e. the buying and selling of goods or services. Since neither the buying of good or services was involved herein, the liability in question did not fall within the purview of trading liability, It was, according to him, a statutory liability and could not legally be doomed to be a trading liability. He emphasised that levy of Excise Duty on capacity basis was illegal and the appellant had challenged its validity by adopting requisite legal proceedings in the High Court. The assessee had also obtained a stay order by the High Court against the Excise & Taxation authorities and order of the Stay was even upheld by the Supreme Court. He, however, did not dispute the fact that if it was held to be a trading liability then it could be normally added in the year under appeal. In the alternative, he strongly urged that it was open to the I. -T. O. to have added this amount in any year commencing after the expiry of three years referred to in clause (iii) of section 10 (2‑A) of the Act. But its addition in the year under appeal, notwithstanding the fact that the recovery of Excise duty was stayed by the High Court, amounted to an improper exercise of discretion vested in the I.‑T. O.

4. We have given due consideration the submission made at the bar and we are firmly of the view that there is no substance on the contentions of the appellant's counsel. The Excise Duty was levied on the goods manu factured and produced by the appellant for sale. It was thus an integral and indispensable part of trading activities. The goods manufactured by the assesses could not be removed from the factory for purposes of sale without tile levy of Excise Duty. It has been admitted by the appellant's counsel before us that the Excise Duty was duly‑credited in the appellant's books of accounts and debited to sate account in the year 1968‑69. The counsel's alternative argument that there was a discretion vested is the I. T. O. to have either added or not to have added the amount in question in this year seems to be well‑founded. But we do not however, find any good reason to Interfere with the discretion exercised by the I.‑T. O. since we do not find any element or arbitrariness in it. We are clear in our mind that the amount in question was a trading liability and having remained unpaid for a period of three years of the expiry of the previous years in which it was awed it was rightly added under section 10(2‑A) of the Act in the year under appeal. If, however, the assessee is made to pay the said trading liability or any portion thereof in any subsequent year it would, in terms of the first proviso attached to section 10(2‑A) of the Act, be entitled to claim its deduction from the profits and gains of this year.

5. In the result, the appeal fails and is hereby dismissed.

Appeal dismissed.

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