Supreme Court sets aside unpaid excise duty addition to sugar mill's taxable income
The Supreme Court held that an income tax officer could not add Rs 69.92 lakh of unpaid excise duty to a sugar mill's income when the company had never claimed it as an expense.
Key points
- The Supreme Court on 27 October 2026 allowed Lakshmi Sugar Mills Co. Ltd.'s appeal and set aside a High Court order in favour of the income tax department.
- The dispute was over Rs 69.92 lakh of unpaid excise duty on closing stock, added to the company's income for assessment year 2005-06.
- The court held that the tax law does not allow disallowing an amount the taxpayer never claimed as a deduction in its accounts.
The Supreme Court on 27 October 2026 ruled in favour of Lakshmi Sugar Mills Co. Ltd. in an income tax dispute over Rs 69.92 lakh of unpaid excise duty. The court set aside a High Court order that had allowed the income tax department to add this amount to the company's taxable income for assessment year 2005-06.
What Happened
The company makes sugar and, as a by-product, molasses. Its tax auditor's report showed Rs 69.92 lakh of excise duty still unpaid on closing stock. In 2007 the assessing officer added this amount to the company's income under Section 43B read with Section 145A of the Income Tax Act, 1961. Section 43B allows certain statutory dues to be deducted only when they are actually paid.
The company argued that it had never charged this duty to its profit and loss account, so it had claimed no deduction. It also said the stock was still in a bonded warehouse, and under excise law duty becomes payable only when goods are removed. The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal agreed and deleted the addition. The High Court reversed them on the basis that the goods had been removed.
The Supreme Court held that this premise was contrary to the record: the lower authorities had found that the stock remained in the bonded warehouse. It held that disallowing an amount the taxpayer never claimed as an allowance is impermissible under the Act, and that the department had failed to show where the company claimed it in its books. The court allowed the appeal.
What It Means
The ruling confirms that a remark in a tax audit report alone is not enough to add an amount to income. The department must show how the entry was claimed in the accounts and how it reduced taxable income.
The court also restated how Section 43B works. A statutory due paid after 31 March but before the return due date can still be claimed for that financial year. If it is not paid by then, it cannot be claimed as an expense. The court marked the judgment as non-reportable.
Source: Supreme Court judgment
Sources & Citations
- Supreme Court judgment — Supreme Court of India