Section 43B: Unclaimed Excise Duty Not Disallowable, Says SC

Unpaid Excise Duty on Uncleared Sugar Stock Cannot Be Disallowed Under Section 43B When Never Claimed: Supreme Court

Published: 27 October 2026 · NyayVidhan

The Supreme Court allowed Lakshmi Sugar Mills' appeal and set aside a High Court judgment upholding the addition of Rs 69,91,983 of unpaid excise duty on closing stock for Assessment Year 2005-06 under Sections 43B and 145A of the Income Tax Act. The High Court assumed the goods had been removed, but the stock lay in a bonded warehouse, and the company never claimed the duty as an expense (paras 10, 14-16).

Key holdings

The High Court's premise that the sugar stock had been removed was contrary to the record and the findings below, so its judgment could not stand (para 14).

Section 43B allows statutory dues as expenses only when paid; payment after 31 March but before the return date counts for that year, and unpaid dues cannot be claimed (para 14).

Disallowing an amount the assessee never treated as an allowance is impermissible; the Revenue must show where and how it was claimed in the books (para 14).

The Bombay High Court judgment in ITA No. 4297 of 2009 on Sections 43B and 145A was held to be on all fours (para 15).

Judgment digest by NyayVidhan: a summary of the court's judgment, not its text. The judgment itself is the authoritative version.

Brief Facts

Lakshmi Sugar Mills makes crystal sugar and molasses (para 1). Its tax auditor put the excise duty leviable on closing stock for Assessment Year 2005-06 at Rs 2,80,56,430, of which Rs 2,10,64,447 was paid by 30.09.2005, and remarked that the unpaid Rs 69,91,983 should be added back under Section 43B, while certifying a Nil net impact under Section 145A (para 2). The company said it never debited the duty and the stock lay in bonded godowns (para 3). The Assessing Officer added the sum on 20.11.2007 (para 4). The CIT (Appeals) deleted it and the Tribunal agreed, but the High Court allowed the Revenue's Section 260A appeal (paras 5-8).

Court's Findings

The Court first asked whether the High Court's premise was supported by the record (para 14). The High Court had held that the goods were admittedly removed, so duty was payable (paras 8, 14). The Assessing Officer, the CIT (Appeals) and the Tribunal had recorded no such finding; the stock on which duty was unpaid remained in the company's bonded warehouse. The very basis of the High Court's decision was therefore contrary to the record (para 14). The Assessing Officer had also committed a serious error of fact. The company had not routed the entry through its profit and loss account, and Section 43B allows a statutory due as an expense only when paid, including a payment after 31 March but before the return date. The sum was neither paid nor treated as payable in the accounts; apart from the auditor's remark, no basis existed to disallow it. Disallowing an amount the assessee never treated as an allowance is impermissible, and the Revenue had not shown where it was claimed (para 14). The Bombay High Court's judgment in ITA No. 4297 of 2009, on Sections 43B and 145A, was on all fours (paras 11.2, 15).

Legal Principle

A disallowance under Section 43B of the Income Tax Act, 1961 needs an allowance the assessee actually claimed. Excise duty on stock lying in a bonded warehouse, neither paid nor debited nor treated as payable in the accounts, cannot be added to closing stock and taxable income on a tax auditor's remark alone (para 14).

NyayVidhan's view · Practice note

Why It Matters

This non-reportable ruling ties a Section 43B disallowance to what the assessee claimed. Where excise duty on warehoused stock was never debited to the profit and loss account, an assessing officer cannot add it to closing stock on a tax auditor's remark alone, and must show from the accounts and return how the entry reduced taxable income (para 14). Assessees using the exclusive method should keep the auditor's Section 145A and 43B figures and the stock's warehouse position on record (paras 2, 5). The Court did not separately construe Section 145A; it found the Bombay High Court judgment on all fours (para 15). See also Orissa Rural Housing, a Supreme Court ruling on fresh claims in income tax proceedings.

Editorial comment by the NyayVidhan Editorial Desk. It is not part of the Court's judgment and is not legal advice.

Precedents Relied Upon

CIT-III v. Loknete Balasaheb Desai S.S.K. Ltd. (2011) 339 ITR 288
Relied Upon Discussed at ¶ 11.2, 15
Bombay High Court judgment of 22.06.2011 in ITA No. 4297 of 2009, which considers the interplay between Sections 43B and 145A; the Court found it on all fours with the facts and circumstances of this case.
ACIT v. Narmada Chematur Petrochemicals Ltd. (2010) 327 ITR 369
Referred To Discussed at ¶ 6
Gujarat High Court decision that liability to excise duty arises only on removal of goods from the factory premises or a bonded warehouse; recorded as the basis on which the Tribunal confirmed the deletion of the addition.
Orient Paper Mills Ltd. v. Union of India AIR 1967 SC 1564
Referred To Discussed at ¶ 8
Recorded as relied on by the High Court for reading Sections 3 and 4 of the Central Excise Act, 1944 together, so that removal of goods makes the duty leviable; the High Court judgment resting on removal of the goods was set aside.