2012 (3) TMI 319 - HC - Income Tax

High Court rules excise duty refund as assessable income under Income Tax Act; distinguishes trading liability from loss/expenditure.

The High Court ruled in favor of the Revenue, holding that the excise duty refund received by the respondent-assessee was assessable under Section 41(1) ... Deemed income u/s 41(1) - refund of excise duty - The ground given by the tribunal for deleting the said addition is that the Excise Department had appealed against the judgment passed by the learned single Judge of this Court pursuant to which refund of Rs.42,05,173/- was granted - Held that: the furnishing of bank guarantee itself when payment has been received, will not make any difference as the language of Section 41(1) is clear that the amount should have been received either in cash or in any other manner - Decided against the assessee Issues:Interpretation of Section 41(1) of the Income Tax Act, 1961 regarding the assessability of excise duty refund received by the respondent-assessee.Analysis:The High Court addressed the issue of whether the excise duty refund received by the respondent-assessee was assessable under Section 41(1) of the Income Tax Act, 1961. The case pertained to the assessment year 1987-88 of Bharatpur Nutritional Products Limited. The respondent had received a refund of Rs.42,05,173 from the Excise Department, which the Assessing Officer included in the taxable income. However, the CIT(Appeals) and the Income Tax Appellate Tribunal (ITAT) deleted this addition. The ITAT based its decision on the fact that the matter was still subjudice before the appellate forum when the addition was made, citing a decision by the Allahabad High Court affirmed by the Supreme Court. The High Court noted that the final outcome of the Excise Department's appeal was unknown and proceeded based on the tribunal's findings.The Court analyzed Section 41(1) of the Act, emphasizing the two-step process outlined by the Supreme Court in a previous case. The first step involves examining whether the assessee claimed a deduction in a previous year, while the second step assesses whether the assessee received any amount or benefit in respect of the loss or expenditure during the relevant period. The Court highlighted the distinction between loss/expenditure and trading liability in the Section, stating that the expressions 'remission or cessation' apply only to trading liability. It compared the present case to a previous case with similar facts, where the dispute was pending before the appellate forum while the excise duty had been refunded.The Court disagreed with the respondent's reliance on a Supreme Court judgment, distinguishing the case and emphasizing that the cessation or remission of liability is crucial for trading liability but not for loss/expenditure. It clarified that in cases where no actual payment was made, the remission or cessation of liability is relevant. The Court ultimately ruled in favor of the Revenue, stating that the cessation or remission of liability is irrelevant for cases where the amount has been received. The Court also noted that the possibility of the assessee claiming the excise duty as expenditure in the year of repayment was not under consideration in the present appeal.In conclusion, the High Court answered the question of law in the negative, in favor of the Revenue and against the assessee, disposing of the appeal without costs.