1991 (11) TMI 261 - AT - Income Tax

Tribunal confirms CIT's decision to withdraw excise duty allowances, upholding add-backs.

The Tribunal upheld the decision of the CIT (Appeals) to enhance the assessment by withdrawing allowances for excise duty liabilities, confirming ... - Issues Involved:1. Disallowance of liability of excise duty of Rs. 19,59,972 and Rs. 12,32,881.2. Powers of the CIT (Appeals) to enhance the assessment.3. Merits of the liability claim.Detailed Analysis:Disallowance of Liability of Excise Duty:In the draft order of assessment, the ITO disallowed the claims for excise duty liabilities of Rs. 19,59,972 and Rs. 12,32,881, stating that the company did not accept these liabilities and challenged them in court. The Bombay High Court struck down the demand note for Rs. 19,59,972, and a stay was granted for the Rs. 12,32,881 demand, with no final decision yet. The IAC, during 144B proceedings, allowed the claims but directed the ITO to tax the refund of excise duty as per the High Court's decision in the relevant assessment year.During the appeal proceedings, the CIT (Appeals) observed that the excise authorities had only issued show-cause notices, which did not crystallize into demand notices. The CIT (Appeals) held that mere show-cause notices did not create an enforceable liability, especially since the company succeeded in court, quashing the proceedings initiated by the Central Excise authorities. Consequently, the CIT (Appeals) directed the ITO to withdraw the allowances and enhance the income by the amounts of Rs. 19,59,972 and Rs. 12,32,881.Powers of the CIT (Appeals) to Enhance the Assessment:The assessee contended that the CIT (Appeals) had no power to enhance the assessment on matters already discussed under 144B proceedings. They argued that the CIT (Appeals) powers are co-terminus with the ITO, and thus, bound by the IAC's directions. However, the Tribunal held that the CIT (Appeals) has independent powers under section 251 of the Income-tax Act, 1961, to confirm, reduce, enhance, or annul the assessment. The CIT (Appeals) is not restricted by the IAC's directions and can enhance the assessment if reasonable opportunity is given to the assessee to show cause against such enhancement.Merits of the Liability Claim:The Tribunal examined whether the liability for excise duty could be claimed as a deduction. Under section 3 of the Central Excise and Salt Act, 1944, the duty is levied on the manufacture or production of goods. Section 11A provides for recovery of duties not levied or paid. The Tribunal noted that the liability for excise duty arises in the year the goods are produced or manufactured, even if disputed. However, the liability must be enforceable and not merely provisional or contingent.In this case, the show-cause notices issued under section 11A did not crystallize into enforceable demands as they were quashed by the Bombay High Court. The Tribunal held that a statutory liability can alternatively be claimed in the year it is assessed and demanded, but in this case, no enforceable demand existed during the accounting year. The Tribunal cited various judgments, including Kedarnath Jute Mfg. Co. Ltd. and Century Enka Ltd., to support the principle that a statutory liability must be enforceable to be deductible.The Tribunal concluded that since the year in question was neither the year of production nor the year in which an enforceable demand was raised, the assessee was not entitled to the deduction. The CIT (Appeals) was justified in enhancing the assessment by withdrawing the allowances of Rs. 19,59,972 and Rs. 12,32,881.Conclusion:The Tribunal upheld the CIT (Appeals) decision to enhance the assessment by withdrawing the allowances for the excise duty liabilities, confirming the add-backs of Rs. 19,59,972 and Rs. 12,32,881. The CIT (Appeals) had the power to enhance the assessment, and the claimed liabilities were not enforceable during the accounting year.