Emkay Glass Works Vs. Income-tax Officer - Court Judgment

SooperKanoon Citationsooperkanoon.com/64431
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided OnOct-31-1990
JudgeR Rattan, M Bakhshi
Reported in(1991)36ITD141(Delhi)
AppellantEmkay Glass Works
Respondentincome-tax Officer
Excerpt:
1. this appeal filed by the assessee is directed against the order of cit(a), agra and the main dispute is relating to assessment of a sum of rs. 98,607 being the refund of central excise received by the assessee on 24th january, 1983. this amount of refund received by the assessee was in consequence of an order of the appellate collector, central excise dated 27th january, 1981. the fact of receipt of refund is not disputed. the assessee has disputed its assessability under section 41(1) of the income-tax act, 1961. before the assessing officer various contentions had been raised for the claim that the amount of refund is not assessable to tax at all. in the alternative assessee's claim has been that since a notice had been issued to the assessee for recalling the order of the appellate.....
Judgment:
1. This appeal filed by the assessee is directed against the order of CIT(A), Agra and the main dispute is relating to assessment of a sum of Rs. 98,607 being the refund of central excise received by the assessee on 24th January, 1983. This amount of refund received by the assessee was in consequence of an order of the Appellate Collector, Central Excise dated 27th January, 1981. The fact of receipt of refund is not disputed. The assessee has disputed its assessability Under Section 41(1) of the Income-tax Act, 1961. Before the Assessing Officer various contentions had been raised for the claim that the amount of refund is not assessable to tax at all. In the alternative assessee's claim has been that since a notice had been issued to the assessee for recalling the order of the Appellate Collector the amount of refund granted had not become final as on the close of the accounting year and as such the amount if at all assessable would fall in asst. year 1986-87 as the proceedings had been dropped by the Collector (Appeals) on 1st February, 1985 which is relevant to the assessment year 1986-87, accounting period of the appellant being Diwali year. For the year in appeal the accounting period ends on 4th November, 1983.

2. It was also claimed before the Assessing Officer that the amount had not been claimed and allowed as a deduction in computing the income in any year and accordingly the amount of refund could not be assessed to tax under Section 41of the Income-tax Act, 1961.

3. The Assessing Officer repelled the contentions of the assessee by holding that the amount on account of excise duty had been collected by the assessee from the customers and accordingly it constitutes trading receipt Since the amount had been paid to the Government the liability was thus allowed as a deduction in computing the income of the assessee during the relevant assessment years. The Assessing Officer held that it is not necessary for the assessee to claim the deduction or make entries in the books of accounts. According to the Assessing Officer fact remains that a deduction on account of excise duty collected from customers was allowed to the assessee in the respective assessment years.

4. The CIT(A) has recorded a finding that assessability of excise refund has not been disputed. According to the CIT(A) the dispute was relating to the year of the assessment only.

5. The learned counsel for the assessee Sh. C.S. Aggarwal contended that the finding of the CIT(A) that the taxability of the amount of refund was not in disputeis not based on facts. The contentions raised before the Assessing Officer had been reiterated before the CIT(A) and accordingly it was wrong on his part to observethat assessment of excise refund was not in dispute. Shri Aggarwal further contended that the order by means of which assessee became entitled to refund was passed by the Appellate Collector on 2nd July, 1981. This date does not fall with in the previous year relevant to the asst. year in appeal.

The learned counsel further pointed out that after the Appellate order was passed the case was referred to the Collector, Central Excise, Kanpur for review. The Government of India did not find the case fit for review as per their order communicated vide F. No.198/B/14/163/81-CXV dated 30-12-1981. The grant of refund according to the learned counsel could be on the basis of the order dated 30-12-1981 issued by the Government and accordingly its assessment could be considered in the asst. year 1982-83 and not in the year in appeal. The learned counsel further contended that on 9th May, 1983 theHon'ble Supreme Court in the case of Union of India v. Bombay Tyre InternationalLtd. AIR 1984 SC 420 held that the cost of packing was includible in the assessablevalue under the Central Excise Act. In view of this decision of the Hon'ble Supreme Court the Assistant Collector, Central Excise issued a show-cause notice dated 20thJune, 1983 demanding back the refund of Rs. 98,607 from the assessee under Section11 of the Central Excise Act, 1944. The assessee in its reply contended that the orderof the Appellate Collector, New Delhi dated 2nd July, 1981 had become final Under Section35(2) of the Central Excise Act, 1944 and the judgment of the Supreme Court issuedlater on was not applicable in assessee's case. The Assistant Collector, Central Excise, Agra vide his order dated 29-2-1984 agreed with the assessee's contentionin consequence which Assistant Collector, Central Excise dropped the proceedings for re-opening the case. Further appeal for review was also dismissed by theCollector (Appeals), New Delhi on 1-2-1985. On these facts the learned counsel vehemently argued that till 1-2-1985 the refund granted by the Central Excise Department had not become final and accordingly the remission of liability was not complete till that date. According to the learned counsel the amount of refund could be assessed, sub 'set to other conditions being satisfied, in the year in which the dispute was finally decided in favour of the assessee.

6. The learned counsel further contended that in order to attract the provisions ofSection 41 it is necessary for the revenue to establish that deduction had been claimed by the assessee and was allowed by the revenue in any year. In this case there is nothing on record to show that the amount of excise duty collected from customer shad been claimed by the assessee as a deduction and was allowed as such.

Moreover during the year in appeal the refund granted to the assessee had not become finaland the Government had sought to review the order of refund and it was only on1-2-1985 that the proceedings for re-opening of the refund case had culminated.The learned counsel accordingly pleaded that the addition of Rs. 98,067 madeby the Assessing Officer and confirmed by the CIT(A) may be deleted.

7. The learned counsel has relied upon the following authorities in support of hisarguments: 8. The learned D.R. Shri Subhash Kumar contended that assessee had conceded before the CIT(A) that the amount of refund is taxable. The only dispute with the revenue was the year of assessment. This finding recorded by the CIT(A) has not been controverted by any evidence nor as there any affidavit been filed to controvert the findings. Even otherwise the amount of excise duty collected by the assessee from customers partakes the character of trading receipts and its paymentto the Government entitles the assessee to a deduction in respect of duty paid. Unlike sales-tax excise is collected by the Government not at the time of sale but at thetime of manufacture/lifting of goods from the factory. The duty is on the dealer irrespective of the fact that the amount is collected from the customers or not. The mere book entries made by the assessee would not be of any consequence. Assessee maychoose to show the excise duty in the bills separately or may recover the amount from customers in lump sum as part of consideration for sale. Therefore, the treatment given by the assessee to a receipt or liability would not be conclusive inorder to find out as to whether a deduction was claimed and allowed in respect oftrading receipt. The learned D.R. contended that it is not disputed by the assessee that the amounts had been recovered from the customers as part of sales. That beingso, it is for the assessee to establish that no deduction in respect of this sum was claimed or allowed. Since the amount collected from the customers is a trading receipt mere keeping apart this amount in the books of account and not debiting to the profit and loss account would not be enough to show that the amount in question was not claimed and allowed as a deduction. The learned D.R. accordingly contended that the contention of the assessee that the amount of excise duty had not been allowed as a deduction is devoid of any merit.

9. Regarding the assessability of the amount, the learned D.R.contended that the amount is assessable in the year of receipt. The learned D.R. cited the decision of the Gujarat High Court in the case of CIT v. Rashmi Trading [1976] 103 ITR 312 where in it has been held that Under Section 41 of the Income-tax Act, the amount is assessable in theyear of receipt. It was accordingly urged that the appeal of the assessee may be dismissed and the order of the revenue authorities upheld.10. We have given our careful consideration to the rival contentions.

The issues involved in this case are two-fold. Firstly, it is to be determined as to whether any deduction or allowance had been made in any year in respect of excise duty of Rs. 98,607. The second question for our consideration is as to whether the amountis assessable in this year or in any other asst. year. For the sake of convenience wewould consider the issue relating to the year of assessability before the issue as to whether any allowance or deduction has been allowed in any year in the case ofassessee in respect of excise duty of Rs. 98,607.

11. We may quote relevant portion of Section 41 for the sake of ready reference : Whether an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee,and subsequently during any previous year the assessee has obtained, whether incash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remissionor cessation thereof, the amount obtained by him or the value of benefit accruingto him, shall be deemed to be profits and gains of business or profession andaccordingly chargeable to income-tax as the income of that previous year From the language of Section 41 it is evident that amount of remission is assessable in the year of receipt. Section 41 of the Income-tax Act, 1961 uses the words "obtained whether in cash or in any other manner whatsoever any amount in respect of such loss or expenditure". In the case of Rashmi Trading (supra), the Gujarat High Court held that the amount of remission or cessation of liability is assessable in the year of receipt. The facts of the case before the Gujarat High Court are that in the case of CST v. Sumatilal Popatlal & Co. [1964] 15 STC 498 it was held that no sales-tax could be levied on sale on hessian.

Assessee accordingly applied for refund of sales-tax paid during the period June 30,1957 to December 31,1959. On August 1965 the Sales-tax Officer issued a refund order of Rs. 42,459. In the matter of assessment under the provisions of Income-tax Act assessee contended that the right to refund arose on December 5,1965 when the Gujarat High Court held that the Sales-tax was not leviable on hessian and the assessee following the mercantile system of accounting the amount of refund should be included in the assessment for that year. The Appellate Tribunal agreeing with the view of the assessee held that the amount of refund would be assessable in the assessment year 1964-65 and not in the assessment year 1966-67. The Gujarat High Court, however, reversed the findings of the Tribunal and held that Under Section 41 the amount would be assessable in the year of receipt.

12. In the case before us it is not disputed that the amount has been received by the assessee during the year in appeal. Undoubtedly the order passed by the Appellate Collector on 5th July, 1981 was the basis for grant of refund, but the fact remains that the refund was granted on 24th January, 1983 which date falls in the previous year relevant to asst. year in appeal. The show-cause notice issued subsequently for re-opening the order of the Appellate Collector and for recovering the refund granted to the assessee would also not cloud the issue. The fact remains that the amount of refund granted to the assessee was never collected back nor was the refund order granted by the concerned authority cancelled by any superior authority. Since the refund had been received by the assessee during the year in appeal, any attempt for reviewing the earlier order which ultimately did not succeed would not, in our view, come in the way of assessment of the amount of refund in the year of receipt. Therefore, we hold that Under Section 41 the amount of remission or refund received by the assessee would be assessable in the year of receipt. It may be pertinent to mention that the assessee has not disclosed this amount for assessment in any year.

13. Now we shall consider the next issue as to whether deduction of allowance hadbeen allowed to the assessee in respect of refund of Rs. 98,607 in any year. Thefact that the amount of excise duty paid by the assessee has been recovered fromthe customer, has never been disputed by the assessee. We however, find fromrecords that assessee's contention has always been that the amount of excise duty hasnot been allowed as a deduction in computing the assessable income in any year.Some assessees recover the value of goods from the customers in lump sum withoutseparately specifying the amount of excise duty paid by the manufacturer. However,for the sake of convenience sometimes manufacturers indicate the excise duty paid separately in the bills issued for the sale of goods. Whatever the nomenclature forthe consideration of sale, the amount recovered from the customers par takes the character of trading receipt unless there is any understanding with the customers that the amount of any tax or duty if found not payable by the assessee wouldbe refundable to them. Excioe duty is not a duty on the customers. The duty ischargeable from the manufacturers and unlike the sales-tax the event of tax is notthe sale of goods. So whatever he manner assessee chooses to recover the sale proceeds from the customers one cannot forget that excise duty is payable by the assessee and not by the customers. Therefore, when the assessee claims that it was under an obligation to refund the excise duty collected from the customers as part of sales price the burden would be on it to establish about the existence of such an agreement.

The assessee has not placed any evidence before any authority regarding the existence of any such agreement. Therefore, we are unable to accept the contention of the assessee that the excise duty collected by it from the customers was refundable to them on the basis of any agreement between them. That being so, the amount recovered by the assessee under the head excise duty would be a trading receipt in the year of receipt.

14. Assessee has been contending before the authorities that no deduction or allowance has been made in any assessment. Unfortunately neither the assesseenor the department have placed any evidence before us in order to arrive at any conclusion in this regard. The assessee has recovered the amount from the customers. What is the treatment given by the assessee to such receipt is not evident from the records before us. Since it is necessary to find out as whether any deduction or allowance has been made whether expressly or impliedly in any year we consider it reasonable to remit this issue to the file of CIT(A) and direct him to ascertain as to whether the assessee has been granted any allowance or deduction either expressly or impliedly in any of the year in respect of the excise duty refund of Rs. 98,607. If it is found that the amount has been allowed as a deduction in any of the years then the amount of refund is assessable in the year of receipt, i.e., the year in appeals However, if allowance or deduction has not been allowed in any year either expressly or impliedly for any reason whatsoever, the refund received by the assessee would not be assessable Under Section 41 as the basic condition for attracting the provisions of Section 41 would be absent 15. since we have remitted the main issue to the file of CIT(A) we also direct himto consider the disallowances in respect of telephone expenses, car expenses, car depreciation, Rs. 7,500 fee paid to counsel and Rs. 6,127 as income from houseproperty afresh. Consequential relief, if permissible in respect of interest charged Under Section 217 may also be allowed.