Excise Duty Payable on Closing Stock: Tax Auditor's Report and Section 43B of Income Tax Act, 1961

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Published 28 October 2026

Case: Lakshmi Sugar Mills Co. Ltd vs Commissioner Of Income Tax Delhi Ii
Court: Supreme Court of India
Bench: S.V.N. Bhatti, J.
Decided: 27 October 2026
Statutes: Income Tax Act, 1961 — s.139(3), s.43B, s.145A
Source: Indian Kanoon (Supreme Court)

Bottom Line Up Front (BLUF)

In Lakshmi Sugar Mills Co. Ltd vs Commissioner Of Income Tax Delhi Ii, the Supreme Court of India on 2026-10-27 considered the treatment of unpaid excise duty on closing stock for Assessment Year 2005-06. The case involved the application of Section 43B and Section 145A of the Income Tax Act, 1961, regarding the addition back of unpaid excise duty as noted in the Tax Auditor's Report.

Ratio Decidendi · Legal Principle Established

The ratio decidendi concerns the proper accounting treatment and disallowance under Section 43B of the Income Tax Act, 1961, for excise duty payable on closing stock, particularly when the assessee follows the mercantile accounting method and the Tax Auditor's Report provides specific observations regarding such liabilities.

Practice & Procedural Impact for Advocates

Advocates should ensure that Tax Auditor's Reports clearly distinguish between excise duty paid and unpaid, and explicitly state the implications under Section 43B. Litigants must ensure that all statutory liabilities, including excise duty, are paid within the stipulated time to avoid disallowances under Section 43B of the Income Tax Act, 1961.

Key Legal Takeaways

1Excise duty on closing stock is a critical component for income tax assessment.
2Section 43B of the Income Tax Act, 1961 mandates disallowance of certain expenses, including excise duty, if not paid by the due date.
3The Tax Auditor's Report plays a significant role in identifying and reporting such unpaid liabilities.
4Section 145A of the Income Tax Act, 1961 impacts inventory valuation and its effect on profitability.

The Legal Issue This appeal, Lakshmi Sugar Mills Co. Ltd vs Commissioner Of Income Tax Delhi Ii, before the Supreme Court of India, concerned the treatment of excise duty leviable on the closing stock of sugar and molasses for the Assessment Year 2005-06. The appellant, M/s. Lakshmi Sugar Mills Company Limited, filed a return declaring a net loss. The core issue revolved around the Tax Auditor's Report, which noted an unpaid balance of excise duty and suggested its addition back under Section 43B of the Income Tax Act, 1961, while also certifying a nil impact on profitability from inventory valuation after giving effect to Section 145A of the Act.

Court's Reasoning The Supreme Court, through S.V.N. Bhatti, J., examined the facts presented, specifically the Tax Auditor's Report in Form 3CD. The report highlighted that while excise duty of Rs. 2,80,56,430/- was leviable on the closing stock, only Rs. 2,10,64,447/- had been paid up to 30.09.2005, leaving an unpaid balance of Rs. 69,91,983/-. The Auditor explicitly noted that this unpaid balance should be added back under Section 43B of the Income Tax Act, 1961, as it was not paid before the report's signing. Concurrently, the report, in clause 12(b), certified that the net impact on profitability from inventory valuation was nil after applying Section 145A of the Act. Annexure-E of the report, however, declared disallowable liabilities under Section 43B, specifically outstanding excise duty, as Nil.

What Follows The judgment implies a detailed scrutiny of the Tax Auditor's Report and its various clauses, particularly concerning the reconciliation of statements regarding unpaid statutory liabilities and their treatment under Section 43B of the Income Tax Act, 1961. The discrepancy between the auditor's note to add back the unpaid balance and the declaration of nil disallowable liabilities under Section 43B in Annexure-E would require clarification and resolution during the assessment proceedings. The outcome would determine whether the unpaid excise duty is indeed added back to the assessee's income for the Assessment Year 2005-06.