TaxTMI 
TaxTMI 
2011 (10) TMI 492
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....bmitted that delay is because of the Chartered Accountant and, therefore, same should be condoned. 3. On the other hand, Ld. DR left it to the discretion of the Bench. 4. After considering the submissions, we find that assessee had sufficient reason for filing the appeal late and, therefore, the delay is condoned. 5. Brief facts of the case are that assessee paid excise duty amounting to Rs. 6,64,72,870/- under Kar Vivadh Samadhan Scheme (KVSS), pursuant to the show cause notices issued by the Central Excise Department for alleged suppression of sales in A.Yrs. 1993-94 & 1994-95. These show cause notices were issued after a search action by the Excise Department in which some suppressed sales were discovered by them. The fact of suppressed sales was informed to the Income Tax authorities also and accordingly assessments of the assessee were reopened. It was noticed that assessee has not offered such suppressed sales which have been suppressed as per Excise Deptt., amounting to Rs. 5.36 crores and Rs. 16.62 crores in A.Yrs. 1993-94 & 1994-95, respectively. However, additions were made only at Rs. 1,01,92,569/- being gross profit @ 19% declared by the assessee for A.Y. 1993-94 and....
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....on of income from suppressed sales be decided upon merit. 9. Upon a detailed consideration of the submissions put forward by the appellant's AR, and the facts on record, my findings as stated in paras 22 to 24 of my said orders, were as under: "22 The reopening of assessment in this case has taken place, because of the detection of a huge amount of suppression of sales and excise duty evasion by the appellant, during a search and seizure action, conducted by the excise duty department, at the business premises of the appellant. A huge amount of independent third party evidence too has been found, which indicates such evasion. It is a case where the assessee has not recorded a large amount of its revenue transactions in its books of account and has also not returned it to taxation. His very act of suppression of sales, draws out severe adverse inference about his conduct and the veracity of his returns of income and records produced before the income tax department. The appellant has evidently not filed his true return of income, nor did he produce his true records during the course of the income tax assessment proceedings. The search action by the excise department unearthed a hu....
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....he taxable income is rightly computed at Rs. 3,30,20,708." 11. It is pertinent to point out that for the assessment years 1993-94 and 1994-95, to which the appellant's claim of excise duty payment of Rs. 6,64,72,870 relates, by virtue of my impugned orders, what has been subjected to tax is not the gross income from suppressed sales, but the net income therein, - as represented by the gross profit. In other words, while subjecting the income from suppressed sales to tax, all expenses thereagainst, including excise duty have already been allowed as a deduction, in the process of taxing the net income (represented by the GP) and not the total gross income (as represented by the gross suppressed sales). Permitting the appellant to claim the excise duty as a deduction now, would amount to a double deduction in respect of the same expenditure which is not permissible. The appellant's claim for excise duty payment of Rs. 6,64,72,870 as a deduction, is therefore rejected, in view of my aforesaid discussion." 9. Before us, Ld. Counsel of the assessee narrated the facts and submitted that any expenditure which has been incurred for the purpose of business is allowable. It was contended th....
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.... 114 (SC). 10. On the other hand, Ld. DR has filed written submissions in which facts have been given in detail. It has been pointed out in these submissions that since no income has been offered against which excise duty has been claimed, therefore, such expenditure was not available on the basis that there is no corresponding matching revenue. 11. We have considered the rival submissions in the light of the relevant material on record. We find that the claim has been made by the assessee for payment of excise duty amounting to Rs. 6,64,72,870/-. As noted while discussing the facts, this excise duty pertained to suppressed sales of A.Yrs. 1993-94 and 1994-95 amounting to Rs. 5.36 crores and Rs. 16.62 crores respectively. Therefore, obviously, the expenditure relates to A.Yrs. 1993-94 and 1994-95 but has been claimed in this year on the basis of payment. This means the claim has been made because of sec.43B. Section 43B reads as under: 43B. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of- (a) to (f) ** ** ....
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....y shows that there are six elements involved for allowability of expenditure which are as under: 1. Any expenditure. 2. Expenditure should not be in the nature prescribed under sections 32 to 36. 3. Expenditure should not be of capital nature 4. Expenditure must have been laid out or expended 5. Expenditure should not be of personal nature. 6. Expenditure must be wholly and exclusively for the purpose of business. We are of the opinion that since it is nobody's case that expenditure was in the nature of capital expenditure or personal expenditure, therefore, the only other four elements have to be examined. The first element is any expenditure and the amount paid towards excise duty under KVSS would definitely be covered by this definition. The second element that it should not be in the nature of expenditure prescribed under sections 32 to 36 is also not applicable because the payment of excise duty is not covered by sections 32 to 36 and, therefore, requires to be considered only under this section i.e. sec.37. We have already observed that third and fourth elements are not applicable. The fifth element is that it must have been laid out in the sense that such expenditure ....
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.... decision reads as under: "In determining whether an amount expended by the assessee is deductible under section 10(2)(xv) of the Indian Income-tax Act, the nature of the expenditure or outgoing must be adjudged in the light of accepted commercial practice and trading principles. The expenditure must be incidental to the business and must be necessitated or justified by commercial expediency. It must be directly and intimately connected with the business and must be laid out by the taxpayer in his character as a trader. To be a permissible deduction, there must be a direct and intimate connection between the expenditure and the business, i.e., between the expenditure and the character of the assessee as a trader, and not as owner of assets, even if they are assets of the business." Thus, the expenditure has to be directly and intimately connected with the business. In the case before us, assessee was doing the business of selling of tobacco products but some part of the business has been kept outside the books and, therefore, the expenditure incurred on the activity which is outside the books cannot be said to be directly and intimately related to such business. In fact, this iss....
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....all expenses in relation to such sale receipts are deemed to have been allowed. Therefore, in this case also when an addition is made only at Rs. 1,01,92,569/- against the suppressed sales of Rs. 5.36 crores in A.Y 1993-94 and Rs. 3,32,34,424/- against the suppressed sales of Rs. 16.62 crores in A.Y 1994-95, then all expenses including expenditure on excise duty has to be treated as deemed to have been allowed by implication and there is no justification for claiming payment of excise duty separately in later year. In this view of this also the expenditure on payment of excise duty cannot be allowed. 14. Lastly, we would like to examine the issue from another angle, i.e. the concept is known as matching principle. The matching principle is a well-known accounting concept. According to this concept the revenue side has to be matched with the expenditure side; that means the expenditure which has been directly related to particular receipts is allowable because revenue side is matched with the expenditure for ascertaining the cost of such revenue. Considering this principle also the expenditure incurred on payment of excise duty is not matched by the revenue because sales against wh....