1988 (11) TMI 23 - HC - Income Tax

Court rules security deposit forfeited by Excise Dept not deductible as expenditure for 1969-70 assessment year.

The High Court ruled against the assessee, holding that the security deposit forfeited by the Excise Department could not be claimed as permissible ... Amount Deposited As Security, Business Expenditure Issues:1. Claim of security deposit as permissible expenditure in income computation for assessment year 1969-70.Analysis:The case involved the assessee, a wholesale and retail vend licensee, who had deposited Rs. 1,20,300 as security with the State Government for liquor sales. The Excise Department forfeited this security amount. The assessee claimed this amount as permissible expenditure during assessment proceedings for the year 1969-70. The Income-tax Officer rejected the claim, citing a High Court judgment quashing the forfeiture order. The Appellate Assistant Commissioner upheld the decision, but the Tribunal allowed the appeal, considering the security amount as expenditure incurred during the relevant year.The Tribunal's reasoning for allowing the expenditure was that the security amount remained unrefunded to the assessee by the end of the financial year 1968-69, and an excise authority's letter confirmed the adjustment of the security against license fee arrears. However, the High Court observed that the refund of the security amount was the assessee's entitlement once the adjustment was deleted. The delay in refund did not justify claiming it as permissible expenditure. The High Court emphasized that until there was a final order of forfeiture, the assessee could not claim deduction as permissible expenditure.Furthermore, the High Court highlighted that if the assessee succeeded in the Supreme Court, the State Government would have to refund the security amount. In such a scenario, the amount could not be considered permissible expenditure. Conversely, if the State Government succeeded in the Supreme Court and the amount was adjusted against other dues, the assessee could claim it as permissible expenditure for the relevant assessment year. Ultimately, the High Court held that the Tribunal erred in allowing the security amount as permissible expenditure, ruling in favor of the Revenue and against the assessee, with each party bearing its own costs.