The Supreme Court of India has set aside a tax addition of ₹69,91,983 against Lakshmi Sugar Mills Company Limited in a dispute concerning unpaid excise duty on closing stock of sugar and molasses. In M/s. Lakshmi Sugar Mills Co. Ltd. v. Commissioner of Income Tax, Delhi-II, Civil Appeal No. 8932 of 2013, the Court examined the applicability of Sections 43B and 145A of the Income Tax Act, 1961.

The dispute arose during the assessment for the financial year 2004–05, corresponding to Assessment Year 2005–06. The company's tax audit report recorded total excise duty of approximately ₹2.80 crore on closing stock, of which ₹2.10 crore had been paid, leaving ₹69.91 lakh unpaid. The Assessing Officer added the outstanding amount to the company's taxable income under Sections 43B and 145A.

The company challenged the addition, arguing that it had not claimed the disputed excise duty as an expense in its profit and loss account. It also maintained that the relevant stock remained in a bonded warehouse. The Commissioner of Income Tax (Appeals) deleted the addition, and the Income Tax Appellate Tribunal upheld that decision. However, the Delhi High Court reversed those findings, prompting the company to appeal to the Supreme Court.

A Bench comprising Justice S.V.N. Bhatti and Justice N.V. Anjaria found that the High Court's conclusion that the goods had been removed was contrary to the factual record. The lower authorities had found that the relevant stock remained in the company's bonded warehouse.

The Supreme Court further observed that the disputed amount had not been routed through the company's profit and loss account or claimed as a deduction. The Revenue had also failed to demonstrate how the amount had reduced the company's taxable income. The Court held that an amount not treated as an allowance by the taxpayer could not be disallowed under the Act merely on that basis.

Allowing the appeal on 27 October 2026, the Supreme Court set aside the High Court's judgment and restored the relief granted by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal.

Legal significance: The ruling underscores that tax disallowances must be supported by the taxpayer's actual accounting treatment and their effect on taxable income. Section 43B cannot be used to disallow an expense that was never claimed, while the application of Section 145A must be assessed in light of the relevant facts and inventory accounting.