2018 (3) TMI 944 - AT - Income Tax

Excise Duty Refund Taxed in 2013-14: Tribunal Upholds Assessee's Appeal

The Tribunal allowed the appeal of the assessee, setting aside the PCIT's order under Section 263 and holding that the excise duty refund should be taxed ... Revision u/s 263 - addition u/s 41 - Held that:- As per order of the Dy. Commissioner, Customs, the assessee is not entitled for refund, hence, the refund received in pursuance of the order of the CESTAT even if be treated as income u/s 41(1) still the net income would be zero since the liability lies to the assessee with the consumer welfare fund subsisted till the Hon’ble Supreme court settled the issue [2002 (9) TMI 4 - SUPREME Court]. Hence, the assessee requires to transfer this amount to consumer welfare fund but not to the income account of the assessee. Therefore, receipt held by the assessee is in fiduciary capacity till such time the issue is finally settled at the level of Hon’ble Supreme Court and he cannot be held to be owner of the asset. Therefore, we hold that in view of the peculiar circumstances exist in the assessee’s case by virtue of the order for the Dy. Commissioner of Customs and Central Excise with regard to the entitlement of the Central Excise refund the same is crystalised in the year of final settlement by Hon’ble Supreme Court, accordingly we hold that the assessee has rightly offered the central excise refund as income for the assessment year 2013-14 and the order of the Commissioner of Income Tax is unsustainable. Accordingly, we set aside the order of the Principal Commissioner of Income Tax passed u/s 263 of the act and allow the appeal of the assessee. Issues Involved:1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act.2. Taxability of Central Excise Duty refund under Section 41(1) of the Income Tax Act.3. Revenue neutrality and double taxation concerns.4. Year of taxability of the Central Excise Duty refund.5. Validity of the consequential order passed by the Assessing Officer (AO) after revision under Section 263.Issue-wise Detailed Analysis:1. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act:The PCIT took up the case for revision under Section 263, arguing that the AO did not examine the taxability of the Central Excise Duty refund during the assessment proceedings. The assessee contested this, claiming that the AO had considered all relevant information. However, the PCIT held that there was no evidence that the AO had applied his mind to the issue, thus justifying the revision under Section 263.2. Taxability of Central Excise Duty refund under Section 41(1) of the Income Tax Act:The PCIT relied on the Supreme Court decision in Polyflex (I) Limited Vs. CIT to argue that the excise duty refund should be taxed under Section 41(1) in the year it was received. The assessee contended that the refund was disputed and should be taxed only when the matter was finally settled by the Supreme Court, which occurred in the assessment year 2013-14.3. Revenue neutrality and double taxation concerns:The assessee argued that taxing the refund in the assessment year 2011-12 would result in double taxation, as the same amount was already offered for tax in the assessment year 2013-14. The assessee cited several judicial decisions, including CIT Vs. Triveni Engineering Industries Ltd., CIT Vs. Aditya Builders, and CIT Vs. Excel Industries, to support the argument that the issue was revenue-neutral and should not result in double taxation.4. Year of taxability of the Central Excise Duty refund:The Tribunal considered the facts and circumstances, noting that the dispute over the refund was not settled until the Supreme Court's decision in 2012. The Tribunal held that the assessee became the absolute owner of the refund only after the Supreme Court's decision, making it appropriate to tax the refund in the assessment year 2013-14, not 2011-12.5. Validity of the consequential order passed by the Assessing Officer (AO) after revision under Section 263:The AO passed a consequential order adding the excise duty refund to the income for the assessment year 2011-12, following the PCIT's revision order. However, since the Tribunal set aside the PCIT's order under Section 263, the consequential order by the AO was rendered infructuous.Conclusion:The Tribunal allowed the appeal of the assessee, setting aside the PCIT's order under Section 263 and holding that the excise duty refund should be taxed in the assessment year 2013-14. Consequently, the appeal filed by the revenue was dismissed as infructuous. The Tribunal emphasized that the refund became taxable only after the Supreme Court's final decision, aligning with the principle of revenue neutrality and avoiding double taxation.