TaxTMI 
TaxTMI 
1991 (6) TMI 108
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....of Rs. 6,12,517 claimed as Excise Duty on storage and transit wastage was filed before the AO. It was urged before the AO by the assessee that this being a statutory liability under the U.P. Excise Act, 1910, the same was allowable as business expenditure. The AO observed that this levy of excise duty was in respect of the excess wastage of liquor during storage and transit from distillery to various bonded warehouses. Since the duty was in respect of shortage in excess of the prescribed limit under Excise Rules, according to the AO the same was a penal nature and, therefore, it was not allowable as held by him in the earlier years. 3. Before the CIT(A), it was urged that the excise duty on storage and transit wastage was levied on the assessee under the U.P. Excise Act. This duty is levied under s. 28(1)(c) of that Act. This was, however, held to be not chargeable by the Allahabad High Court, except for transit wastage and liquor transported in bottles. For the assessment year under appeal, the liability, according to the assessee, on transit wastage on bottles duty was Rs. 63,930 and the balance duty was disputed. The Excise authorities had filed a Special Petition against the o....
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....fresh facts. In this connection, he has given a detailed note which is made a part of this order as Annexure 'A'. On the basis of this note, he urged that the claim of the assessee was allowable. 5. The ld. Sr. Deptl. Representative, on the other hand, contended that the issue was squarely covered against the assessee by the order of the Tribunal dt.29th March, 1989in ITA Nos. 4310/and 4039/85 for the asst. yr. 1981-82 in the case of the assessee itself. He, further, urged that since Allahabad High Court had struck down the levy, there was no liability and, therefore, the same was not allowable. He, therefore, supported the order of the CIT(A). 6. We have carefully considered the rival submissions. The Tribunal for the asst. yr. 1981-82 in the case of the assessee itself has rejected the claim. Even a Misc. Application subsequently filed by the assessee, was rejected by the Tribunal covering the point now made out by the assessee. We have considered the detailed note filed on behalf of the assessee. We are unable to accept the proposition for review of the earlier order of the Tribunal. Respectfully following the said order and the subsequent order in the Misc. Petition, we find ....
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.... following the above order of the Tribunal we are of the opinion that the expenditure which is not allowable under s. 80VV has to be considered under s. 37(1) as not having been incurred in connection with income-tax proceedings before the income-tax authorities, but any other matters like company law matters, consultancy, etc. In view of this position, we are unable to sustain the order of the CIT(A) disallowing deduction of Rs. 13,200. The ITO is directed to allow the same under s. 37(1) of the Act. 11. The third ground of appeal is that the learned CIT(A) has erred in sustaining the disallowance under s. 40A(3) of the Act, of Rs.. 64,484 out of the total disallowance made by the learned IAC at Rs. 95,883. The AO disallowed payments of expenditure in cash in sums exceeding Rs. 2,500 aggregating to Rs. 95,883 in violation of the provisions of s. 40A(3) of the Act. These payments were to as many as 15 parties. According to the assessee, these payments were made in cash in sums exceeding Rs. 2,500 in exceptional circumstances as provided in r. 6DD(j) of the IT Rules, 1962. The AO did not accept the same and made disallowance of Rs. 95,883. The CIT(A) accepted the contention of the ....
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....the vouchers, cash receipt and copy of the accounts of the party were filed before the AO and the CIT(A). It was, therefore, urged that the identity of the seller was not doubted. The party was assessed to income-tax under PAN 34-300- CN-0142 by the ITO,Central Circle,Bombay. So far as the payments to M/s K.S. Wood Industries, Faizabad is concerned, it is stated that these were made for purchase of wooden boxes. Photocopies of the vouchers, cash receipts and copy of account and confirmation certificates were filed before the lower authorities. The ld. Sr. Deptl. Representative, on the other hand, submitted that there were no exceptional circumstances due to which the assessee could not make the payments by crossed cheques or drafts. 13. The learned counsel of the assessee also submitted that the payment was made in cash on the party's insistence as the assessee was in urgent need of material. According to the assessee, this payment was covered by para 4 of the CBDT's Circular No. 243, dt.18th April, 1969, reported in 108 ITR (St) 8. 14. In our opinion, the assessee deserves to succeed, so far as these two payments are concerned. The payment to M/s Audh Sugar Mills is covered unde....
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....iya Jai." Taking into consideration that both the parties were at Faizabad, where they maintained the respective bank accounts, it could not be accepted in the absence of the evidence that exceptional circumstances existed which compelled the assessee to make the payment in cash. 18. The ld. D.R., on the other hand, has supported the order of the CIT(A). 19. In our opinion, there is no merit in the contention put forth on behalf of the assessee. The CIT(A) has recorded a finding that there was no evidence brought on record by the assessee to show that the cheque earlier issued bounced. Nothing has been brought before us also on this account. Both the parties were maintaining bank account at the same station. There is no evidence available on record that the other party insisted on payment in cash. We, therefore, do not find any merit in this contention. 20. Regarding 3rd item (S. No. 9 of the CIT(A)'s order) the CIT(A) held that the payment was made for the purpose of electric wire. It was stated that this payment was made in respect of the purchases in the earlier year and, therefore, it was not covered under s. 40A(3). According to the assessee, the Revenue has not doubted th....
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....se flowers are collected by villagers of small means. The parties sell in cash because they in turn have to pay to the villagers in cash from whom the flowers are collected. Further, these flowers were purchased as and when required and, hence, considering the urgency and business necessity, the assessee was forced to pay in cash. It was, therefore, urged that it was because of the business necessity and the circumstances of the case that the payment had to be made in cash. The ld. D.R., on the other hand, has supported the order of the CIT(A). 24. In our opinion, looking to the nature of the purchases of flowers, which is for preparing country liquor, which is the business of the assessee, the payment has to be made to the villagers, it constituted an exceptional circumstance. The disallowance is, accordingly, deleted. 25. Regarding Item No. 6 (S. No. 13 of the CIT(A)'s order), i.e., payment made to Raja Ram, Faizabad the same submissions were made as in the case of Item No. 5 in the case of Keswani Trading Co. The CIT(A) confirmed the disallowance for the same reasons as in the case of M/s Keswani Trading Co. In view of our conclusion deleting the addition in the case of Keswan....
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....isallowed by the CIT(A) because it was a regular party. The party maintained bank account and other payments were made by cheque on the same date. According to the learned counsel for the assessee, the payment was covered by para 4(b) of the Board's circular referred to earlier, i.e., because the payment by cheque /draft was not practicable and it would have caused genuine difficulty to the assessee having regard to the nature of business and the necessity for expeditious settlement thereof. The ld. D.R., on the other hand, supported the order of the CIT(A). 32. In our opinion, the claim has rightly been rejected by the CIT(A). It is not understood as and when the assessee made payments on the same day of part amount by cheque, why this small payment could also not be made through cheque. In our opinion, there were no exceptional circumstances which prevented the assessee from making the payment through crossed cheque/draft. The disallowance is accordingly sustained. 33. The fourth ground of appeal is that the learned CIT(A) has erred in sustaining the disallowance of bad debts/business loss aggregating to Rs. 2,11,265. This consists of the following items: 1. Loss of molasses ....
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....) 86 : (1984) 147 ITR 114 (All). 35. The ld. D.R., on the other hand, has supported the order of the CIT(A). 36. The other loss claimed is of Rs. 62,866. The CIT(A) did not allow the claim of debts having become bad on account of evidence. The learned counsel for the assessee claimed that these were business losses and, therefore, are admissible as deduction in view of the judgment of the Hon'ble Madhya Pradesh High Court reported as (1988) TLR 1048 and of the Bombay High Court reported as Jethabhai Hirji and Jethabhai Ramdas vs. CIT 1978 CTR (Bom) 415 : (1979) 120 ITR 792 (Bom). The ld. D.R., on the other hand, submitted that no evidence was brought on record by the assessee to show that any efforts were made to recover the same and they had really become bad. In such circumstances, he supported the order of the CIT(A). 37. We have given our careful consideration to the rival submissions. So far as the loss on a/c of leakage of molasses of the value of Rs. 1,48,399 is concerned, we are of the opinion that the same is allowable for the asst. yr. 1982-83 under appeal. The CIT(A) did not allow the claim, as, according to him, the intimation was received in March, 1982 which falls ....
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....es is a result of various factors, particularly the circumstances involved and the nature of the assessee's business. According to the learned counsel for the assessee, the empty bottles purchased are both new and old. The bottles are packed in gunny bags and transported through trucks by road/rail and due to mishandling, there occurs breakage on the way. Then after the receipt of the bottles at the godown, they are unpacked, washed, labels are removed and are sent for labelling and filling, etc. Since the entire operation was done manually, the breakage was bound to occur. It was, therefore, urged that the wastage should have been worked out on bottles actually handled and not on the bottles consumed. It was also submitted before the CIT(A) that, in the earlier years, the Revenue authorities had considered the yard-stick through the number of bottles only and not actually consumed. If the breakage was calculated as compared to the number of bottles handled, it was stated, the percentage worked out to 12.1 per cent. It was further stated that a complete record was available and, therefore, no part of the disallowance could be made. It was also stated that similar breakage has been ....
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....the reasonableness of the same had to be seen in respect of the assessee's own history as compared to the earlier years. It was also observed that no factors were pointed out which led to the excessive breakage in the asst. yr. 1982-83 as compared to the one declared in the asst. yr. 1980-81. The CIT(A), therefore, restricted the reasonable breakage to 11 per cent as against 12.17 per cent claimed by the assessee. Thus, breakage at this percentage worked out to 10,33,047 bottles as against the breakage claimed at 11,88,716 bottles. The breakage to the extent of 1,55,069 bottles was considered as excessive and disallowed. The same was valued by the CIT(A) at Rs. 1.43 per bottle, as valued by the AO. The CIT(A), therefore, sustained the addition to the extent of Rs. 2,21,749 thereby deleting the addition of Rs. 9,14,299. Both the assessee as well as the Revenue are aggrieved against the above order of the CIT(A). The assessee is aggrieved against the sustenance of the addition of Rs. 2,21,749 while the Revenue is aggrieved against the deletion of the addition of Rs. 9,14,290. 41. The ld. D.R. contended that, for the asst. yr. 1981-82, the Tribunal vide its order dt. 29th March, 1989....
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..... The learned counsel for the assessee pointed out that if an enquiry had been made from the assessee at that stage; the position would have been clarified. He submitted that Note 3 relates to the finished goods and raw material and stores and spares. As regards the finished goods and raw materials, there was no dispute that physical verification was complete and there was no stock discrepancy. Regarding the stores and spares, it is stated that these were shown at Rs. 14,48,850.97 at cost and reflected a balance sheet item shown under the head Current Assets (Schedule 7). It was, therefore, urged that it was not part of the closing stock and as such it did not figure in the trading account at all. Therefore, the pendency of physical verification of such stocks carried no relevance to the broader issue of computation of net income or to the narrow issue of the reasonableness of the bottles breakage claimed as the Revenue did. He further clarified that the cost of empty bottles purchased is debited to the assets account, viz., stores and spares account. Bottles issued to the factory for consumption are credited to the stores and spares account and debited to the profit and loss accou....
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....nable. He supported the order of the Assessing Officer. 45. We have given our careful consideration to the rival submissions. The assessee has given a detailed note on the observations of the Tribunal with reference to the audit note in its order for the asst. yr. 1981-82, which we have referred to earlier. The learned counsel for the assessee has given explanation, which we have referred to in the earlier part of the order. On going through the records placed before us on behalf of the assessee which were also before the CIT(A), we are of the opinion that certain errors have crept in the order of the Tribunal for the asst. yr. 1981-82. This happened because the Tribunal made certain references to certain audit notes and made certain observations in a passing manner, without enquiring from the assessee the true import of those notes. Since the position has now been clarified, we are of the opinion that those notes do not have much bearing on the issue and the CIT(A) has also taken a similar view on fresh proceedings for the asst. yr. 1981-82. The question for consideration before us is, whether the breakage of 5 per cent allowed by the AO is to be considered reasonable, or 11 per ....
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....e disallowance of a sum of Rs. 11,28,000 in excise duty relatable to prior years provided for and written off in the relevant accounting year. The assessee claimed a deduction of Rs. 6,12,517 for storage transit waste duty in excess of the limits prescribed by the excise laws. The learned counsel for the assessee conceded that the issue was decided against the assessee by the Tribunal for the asst. yr. 1981-82, but contended that the decision of the Tribunal needed review in view of the detailed arguments given against the Ground No. 1 of the appeal. He, therefore, urged that the claim of the assessee should be allowed. The ld. D.R., on the other hand, has contended that the issue is squarely covered against the assessee by the order of the Tribunal for the asst. yr. 1981-82 in ITA Nos. 4310/85 and 4039/85 dt.29th March, 1989, a copy of which has been placed in the paper book. 48. We have already rejected the claim of the assessee in Ground No. 1. The issue is squarely covered against the assessee by the above order of the Tribunal for the asst. yr. 1981-82. We do not find any case for review. This ground of appeal is, therefore, rejected. 49. The 7th ground of appeal is that the....
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....1978-79 in ITA No. 3146/82, it was found that the contention of the assessee was not accepted by the Tribunal on the ground that the assessee was following mercantile system of accounting, the amount payable or receivable had to be taken on accrual and due basis. It was, therefore, held that the interest was due to and receivable by the appellant company from M/s Narang Breweries and as such it was includible in the total income of the assessee company. Another plea taken before the CIT(A) was that since the assessee was a partner in the firm, the share of the partner in the income or loss of the firm had to be computed under sub-s. (1) of s. 67 and as such, the only amount which was earned from the firm was to be taxed, was also rejected. The CIT(A) further observed that the Tribunal nowhere discussed the resolution passed by the assessee-company. The issue was decided on the ground that, as per clause of the partnership deed, the partner was entitled to interest at the rate of 12 per cent on the amounts advanced by it. The Tribunal also considered the fact that the assessee did not deny that interest was due from M/s Narang Breweries. Tribunal, therefore, held that part of the am....
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....but reiteration of the resolution passed on 22nd Oct., 1980. He, therefore, urged that, in the ratio of the order of the Tribunal in the case of Saraswati Marketing Co. Ltd. the claim of the assessee was allowable. He also placed reliance on the judgment of the Hon'ble Supreme Court in the case of CIT vs. Birla Gwalior Ltd. 1973 CTR (SC) 349 : (1973) 89 ITR 266 (SC) which was followed as being directly on point by the Punjab and Haryana High Court in Shiv Prakash Janak Raj & Co. vs. CIT 1978 CTR (P&H) 102 : (1978) 112 ITR 872 (P&H). As no date had been fixed under cl. 3 of the Partnership Deed of the borrower firm for the payment of interest and the assessee company here having given up the right to interest before the debtor firm made up its accounts for this year, no interest income could be said to have accrued to the assessee even on mercantile basis on month to month basis. He, therefore, urged that on facts, the assessee's case rests on a stronger footing than the case of Birla Gwalior Ltd., as the resolution was passed after the end of the accounting year, in that case, while it was before the commencement of the previous year in this case of the assessee which is duly noted....
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....dence for the conduct of the parties by way of resolution and relevant entries in their books of account established such a change in the terms of agreement relating to interest payment. According to the learned counsel for the assessee, this position was made clear by s. 11 of the Indian Partnership Act, 1932, but unfortunately this could not be brought to the notice of the Tribunal for the asst. yr. 1981-82. He further stated that certainly there was no law compelling any taxpayer from giving up the right to income before it accrues or even after it accrues. Further, the auditors of the firm had mentioned in their report that the interest on the partners' accounts for the year ending30th Nov., 1980had not been provided. This, according to him, was perfectly a correct statement of facts made by the auditors. They raised no queries with the borrower firm as to why there was no provision for the liability. They also do not say that a provision should have been made. According to him, therefore, this observation of the auditor did not have any probative value and the Tribunal unfortunately did not put this observation of the auditors to the assessee's representative in the course of ....
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....30th Nov., 1981, relevant to the asst. yr. 1982-83, the cumulative losses have been shown at Rs. 2,31,40,074. As on30th April, 1986, the cumulative losses have swelled up to Rs. 3,52,14,029. From the above state of affairs, it is apparent that the financial position of M/s Narang Breweries is very precarious. In such circumstances, the assessee company was obliged to resolve that no interest be charged from them as the concern was not in a position to pay the same. The CIT(A) has upheld the payment upto31st May, 1981on the basis of this resolution and deleted the same for the subsequent period. Her approach to our mind is not correct. It is settled law that profits accrue for the purpose of income-tax at the end of the accounting period. During the couse of the year, the assessee company passed the resolution not to charge interest on the debit balance of the firm, i.e. M/s Narang Breweries. In the ratio of the judgment of the Hon'ble Supreme Court in the case of Birla Gwalior Ltd., the CIT(A) was not justified in bifurcating the waiver upto May and thereafter. The assessee waived its right to claim the interest before it accrued on31st Dec., 1981being the last day of the accountin....
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....he ratios of these judgments are squarely applicable to the case of the assessee and these cases not having been brought to the notice of the Tribunal in the earlier years, we have no hesitation in making a departure from the earlier order of the Tribunal for the asst. yr. 1981-82. In view of the detailed discussions and also the submissions of the learned counsel for the assessee, we are unable to sustain the addition of interest upto31st May, 1981. Consequently we also hold that the CIT(A) was justified in deleting the interest for remaining period from 1st June onwards. We, therefore, find merit in the ground of appeal by the assessee and the ground of the Revenue deserves to be rejected. 55. 8th and 9th Grounds of appeal by the assessee read as under: "8. That the learned CIT(A) has erred in fact and law in not allowing deduction of a sum of Rs. 13,04,307 being obscuration duty a statutory liability under the U.P. Excise Act. 9. That without prejudice to ground No. 8 above, the learned CIT(A) has erred in fact and law in holding that the sum of Rs. 6,21,225 is includible in the appellant's income and not deductible therefrom in respect of the amount of obscuration duty, coll....
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....He also relied on their Lordships observation in the case of Deepchand Shyam Sunder vs. CIT (1980) 17 CTR (All) 75:(1980) 125 ITR 724 (All). As regards the collection made by the appellant from the buyers, it is stated by the IAC(A) that, as held in the case of Deccan Hides, 142 ITR 175 the excess sales-tax collected constitutes a trading receipt and is an income liable to tax. This is also stated to be as a law laid down by their lordships of Supreme Court in Chowringhee Sales Bureau vs. CIT 1973 CTR (SC) 44:(1973) 87 ITR 542 (SC). It is, thus, submitted that obscuration duty could not have been allowed as a liability in the asst. yr. 1982-83. 15.2 The AR, on the other hand, submitted that complete records of the duty leviable are being maintained by the assessee and the authorities. The matter being sub judice, and as the claim is being processed by the excise authorities, the claim is clearly admissible. The reliance is placed on their Lordships decision rendered in 105 ITR 864. Further it is submitted that as no real income has been earned or accrued to the extent of obscuration duty collected, the same would not be includible in the assessee's income. Then obscuration duty co....
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....und the amount to the party. Therefore, the ratio laid down in that case is not applicable to the appellant's case. Further, as the amount stood collected, the theory of real income does not come in picture at all. As stated earlier, the amount collected constituted a trading receipt and, as such, no deduction could be allowed in the asst. yr. 1982-83. The deduction could only be allowed in the year when it stood repaid to the parties. In view of the matter, the claim of the appellant is not allowable. 57. The assessee collected obscuration duty from its customers aggregating to Rs. 13,04,307 under the U.P. Excise Act. It appears that the assessee had challenged the levy of duty in the Allahabad High Court. The Hon'ble High Court decided the issue in favour of the assessee and no duty was held to be chargeable from the assessee. The Govt. of U.P. has not accepted the decision of the Allahabad High Court and has moved a Special Leave Petition before the Hon'ble Supreme Court which was stated to have been already admitted by the Supreme Court. In spite of the order of the Allahabad High Court, the assessee has been collecting the duty. We were given to understand that the duty so co....
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....laim was similar to the one as claimed in ground No. 1 which already stands rejected by the Tribunal. He, therefore, submitted that all his arguments in ground No. 1 should be adopted in these grounds also. He also contended that the alternative claim for deduction of Rs. 6,21,225 also could not be allowed in view of the reasons given by the CIT(A). 59. The learned counsel for the assessee, on the other hand, stated that, so far as the alternative claim is concerned, the Tribunal has not considered the same for the asst. yr. 1981-82 and, therefore, the same should be considered and decided on merits. 60. We have given our careful consideration to the rival submissions. In our opinion, the nature of the claim is not better than the claim of duty on storage and transit waste referred to in ground No. 1. For the detailed reasons given against ground No. 1 and also relying upon the Tribunal's judgment for the asst. yr. 1981-82 specifically disallowing similar ground, the claim for the assessment year under appeal is also disallowed. We do not find any merit in this ground of appeal, of course, subject to our further consideration regarding the alternative claim with reference to the ....
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.... consideration. We do not, therefore, find any merit in these two grounds of appeal. Undoubtedly, the Assessing Officer will recalculate the interest under s. 139(8) and s. 217 after giving effect to our order. 62. Ground Nos. 12, 13 & 14 are general in nature and, therefore, they call for no specific consideration. 63. This finishes up the appeal by the assessee. We shall now take up the appeal by the Revenue, being ITA No. 286/87. 64. In the Revenue's appeal, there are three grounds. The second and third grounds of appeal are regarding the breakage of empty bottles and deemed interest on debit balances of Narang Breweries. These two grounds have already been considered and disposed of while considering the cross-grounds in the assessee's appeal in the earlier part of this order. No separate consideration of these grounds of appeal is called for. 65. The only ground remaining in the Revenue's appeal is that the learned CIT(A) has erred in allowing deduction for interest paid to Grindlays Bank. This issue is covered against the Revenue by the order of the Tribunal for the asst. yr. 1981-82 vide para 4.1. The submissions of the parties are the same. No new facts have been brough....
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....order is received by the assessee from the Excise Department. The Rules do not say and cannot say that the liability under the U.P. Excise Act will be fastened upon the assessee only after the Inspector obtained an explanation and the explanation was considered and rejected by the higher authorities. The only rules relevant are 492 and 814. Rule 813 is not at all relevant as it concerns duty on excess wastage in storage in the distillery. No such loss has been claimed by the assessee at any time. Unfortunately the CIT(A) has wrongly proceeded on the basis of only this rule (R-813) to dismiss the assessee's claim for the asst. yr. 1982-83. A copy of the Notification containing the amended rr. 492 and 814 which are the only two relevant rules here are enclosed herewith. This notification was already before the CIT(A) for the asst. yr. 1981-82 vide para 9 of his order. (v) The following points were unfortunately either not emphasised or were not taken note of by the Bench for asst. yr. 1981-82. (i) Under s. 77 of the U.P. Excise Act, 1910 Rules have the force of Act itself. Thus, the liability is attracted the moment wastage exceeds the prescribed limits. (ii) Subsequent proceeding....
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....eed not be any provision made or entry made in the books if assessee is following the mercantile system. The claim can be made after the return is filed but before the assessment is complete. (ii) The fact of excise authorities still raising demands is of no significance where the method of accounting has already been mercantile. (iii) The "amendment" referred to issued w.e.f.29th Feb., 1979where the assessment years concerned were 1964-65 to 1972-73, i.e., the amendment has no significance. (iv) Lastly though the decision cited is (1983) 33 CTR (All) 221:(1983) 143 ITR 771 (All) the Tribunal confined itself to discussing the facts of J.K. Synthetics Ltd. vs. O.S. Bajpai, ITO 105 (1976) ITR 864 (All). The facts of 143 ITR 771 do not show the "difference" mentioned by the Tribunal in para 6.6 supra. In any case so far as this year is concerned, unlike in 1981-82, a specific provision for the liability has been made in the books. (vii) In its order for 1981-82 the Tribunal gave weight to the point made by the DR that since no demand was raised by Excise Deptt. for wastage duty, in view of the Allahabad High Court's decision, no deduction was allowed. The fact of there being no de....
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....High Court had struck down the excise duty on excess wastage in the assessee's case here. (Unfortunately, the Tribunal overlooked the fact that an SLP has been filed by the Excise Deptt. before the Supreme Court and has been admitted and, hence, the matter is still sub judice). The assessee itself in its accounts had treated the liability as a contingent liability was another reason given by the Tribunal. But the assessee's claim is based on 82 ITR 363. Hence, in law it is entitled to the deduction regardless of what view it took. Secondly as regards this year there is a specific provision in books for this liability. (xii) The Tribunal had referred to Expln. 1 to s. 43B introduced w.e.f.1st April, 1984. All that this Explanation says is, if a claim is allowed on accrual basis for asst. yr. 1983-84 or any earlier year, the claim will not be allowed again in any subsequent year on payment basis. Secondly, the Tribunal appears to have read the Explanation to mean that the assessee in the instant case would be allowed a deduction in the year of the payment, even if it is assumed that the liability had accrued for 1981-82 and no deduction was allowed for that year. The Explanation doe....