TaxTMI 
TaxTMI 
2011 (9) TMI 1065
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....of the assessee Shri J.D. Mistry has filed the orders of the Tribunal in his own case being I.T.A. No.45/PN/1995 in Assessment Year 1994-95 dated 27-9-1998, in I.T.A. No.73/PN/2000 in the assessment year 1995-96 dated 24.5.2000 and in I.T.A. No.580/PN/2000 in the assessment year 1996-97 dated 2.2.2001 wherein at page 11 para 22, page 18 para 6 and page 43 para 22 respectively of the paper book in all these assessment years, the issue of excise duty, sales tax and interest has been decided in favour of the assessee by following the decision of the Tribunal in the case of Sudarshan Chemical Industries Ltd. vs. DCIT (1997) 60 ITD 629. It was further pointed out by the learned Authorised Representative of the assessee that the decision of the Tribunal in the case of Sudarshan Chemical Industries Ltd. (supra) had been affirmed by the Hon'ble Bombay High Court in the case of CIT vs Sudarshan Chemical Industries Ltd. (245 ITR 769). The learned Departmental Representative Shri G.S.Singh also accepted the same. This being so, this part of ground of appeal of the assessee which relates to inclusion of excise duty, sales tax payable and interest in the total turnover of the assessee is de....
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....TR 660, has held to quote as under: "No distinction can be drawn between expenditure incurred on advertisement in souvenirs and other types of expenditure as the expenditure is incurred wholly and exclusively for purposes of business and no part of the expenditure can be disallowed u/s.37(1) of the Income-tax Act, 1961. This view is reinforced by Circular No.200 dated June 28, 1976, issued by the Central Board of Direct Taxes. Sub-Section (4) of Sec.37 of the Income-tax Act, 1961, is no doubt a non-obstante clause, but it is a non-obstante clause vis-a-vis sub-section (1) and sub-section (3) of Sec.37 only. If any expenditure or allowance is allowable under other sections of the Income-tax Act, 1961, the allowance cannot be withdrawn or denied to the assessee because of the prohibitory provisions in Sec.37 (4) of the Income-tax Act, 1961. Therefore, the assessee will be entitled to depreciation on the premises used as guest house." Hence, it was his argument that since the Tribunal has not considered these judgements of the Bombay High Court while deciding the issue, in the present appeal, the Bench should take these decisions into consideration and decide the ....
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....ected in the accounts, the A.O. would have to allow it in the year in which he is satisfied that in fact the amount became irrecoverable and is bad. In view of the provisions of Section 36(2) (iii) and (iv) it is imperative for the A.O. to give positive findings, whenever the claim for bad debts is made by the assessee as to which previous year, if any, the debt has become irrecoverable. If the A.O. comes to a finding that it has become irrecoverable in an earlier previous year, which is not beyond the period of 4 years immediately proceeding the previous year of the "writing off", the A.O. has to take necessary action u/s. 36(2) (iv) and rectify the assessment of the previous year wherein in his opinion the debt became irrecoverable. If on the other hand, the A.O. comes to a finding that the debt becomes bad in later previous year he shall give the deduction when he makes the assessment for such relevant previous year. In any case, the A.O. has to give a finding as to the year in which the debt has become bad or irrecoverable. 6.9 In the present case the A.O. has not carried out this imperative exercise. Prima facie it is seen that the amounts shown as bad are premature c....
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....ubmissions and perused the materials on records and the orders of the lower authorities. From page 70 of the paper book filed by the assessee it is observed that the details of bad debts was as under: Rs. in lakhs Brought forward 75.38 Bad Debts as per list 41.59 116.97 Less: provision for Bad Debts written back during the year 45.13 Carried forward 71.84 Further, from the details of Misc. expenses of Rs. 414.07 lakhs filed at page nos. 194 and 195 of the paper book it is observed that the assessee has debited Rs. 41.59 Lakhs under the head "Provision for Bad Debts" and credited Rs. 45.13 lakhs under that head and thus, credited net amount of Rs. 3.54 lakhs under this head and reduced the miscellaneous expenses by amount of this Rs. 3.54 lakhs. From the the details of Rs. 45.13 lakhs as given by the assessee in the above page, it appears that an amount of Rs. 25.25 lakhs was disallowed in the assessment of earlier years and Rs. 19.88 lakhs was allowed as deduction to the assessee in the earlier years. From the order of the assessment (page 16 and 17) we find that the A.O. has duly allowed deduction of Rs. 25.25 la....
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....od of accounting recommended by the Institute of Chartered Accounts of India in the guidance note on accounting treatment for MODVAT which has been reproduced by the A.O. in his note as Annexure 'A' of the assessment order. The A.O. found that from the full amount of excise duty of Rs. 9,18,17,000/- was actually paid in cash and for the balance of Rs. 78,89,000/- credit was taken of the MODVAT ingredient in the purchase price. The addition of Rs. 78,89,000/- has been made by the A.O. for the following reasons: (a) Purchase of raw-materials and value of closing stock should reflect the full purchase price inclusive of excise duty paid ; (b) Only the taxes which are paid in cash should be claimed as charged on profits and should be allowed as deduction; (c) MODVAT registers do not/cannot impinge with charge on profits; they are only instruments to determine cash out-go on account of excise duty and they should be used only for that purpose; (d) Income determined in consonance with (a), (b) and (c) above alone is the correct income, which is subject to charge of income tax. 12. In appeal, the CIT(A) has held that the cor....
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....e of raw materials. 100 10 1000 By sales 60 15 900 Less: Stock of raw-materials. 40 10 400 600 To excise duty 60 3 180 To G.P. 120 900 900 If however, the method suggested by the ICAI is not adopted, it is contended by the appellant's Representative that the profit and loss account would appear as under: Unit Rate Amount Unit Rate Amount To purchase of raw-materials. 100 12 1200 By sales 60 15 900 Less: Stock of raw materials. 40 12 480 720 To excise duty 60 3 180 To G.P. NIL 900 &....
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....bearing on the issue. The method of accounting represented by the ICAI deals with the entries to be passed by the assessee in his books of account and does not deal with the mode of presentation of cash flow. 17. As the benefit of MODVAT credit is allowed to be taken immediately, there is no need to carry forward the debit to the stocks to the next year. The treatment of MODVAT credit has to be compatible in both the profit and loss account and balance sheet. Hence, the conclusion of the A.O. that the figures in the register prescribed under the MODVAT are not to be considered for financial accounting is a complete contradiction not only with the mercantile system of accounting followed by the Company but also with the basis accounting principles. The A.O. has failed to note that if the amount of MODVAT credit availed is not to be claimed as excise duty payment, it will still have to be claimed as part of cost of purchase of raw materials and will be debited to the profit and loss account. In effect, therefore, there will be no impact on the taxable income for the year. 18. The amount of MODVAT credit availed is treated as part of the excise duty claimed as a deduction on acc....
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....9;ble Supreme Court in the case of Indo Nippon Chemicals Co. Ltd. (supra) and also concurring with the arguments of the learned Authorised Representative of the assessee, we uphold the order of the CIT(A) and dismiss the ground of appeal of the Revenue. 21. The third ground in this appeal relates to deleting the addition of Rs. 2,88,46,000/- on account of excise duty payable on finished goods not included in the valuation of closing stock. The brief facts of the case are that a sum of Rs. 2,88,46,000/- was debited to the profit and loss account as excise duty payable on finished goods which was not included in the value of the closing stock of such goods. It was explained that the amount was excluded from the valuation of closing inventory because excise duty on finished goods is not a direct cost of manufacturing. It was further submitted by the assessee that its claim was supported by the consolidated order of decision of the Special Bench of the Delhi Tribunal, in the case of ITO vs. Food Specialities Ltd., in I.T.A.No. 4869 (Del) of 1982 and I.T.A.No.4726/Del/1987 for the assessment year 1984-85 dated 2nd February, 1994 and Indian Communication Network (P) Ltd. vs. IAC in I.....
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....laced on the commodity i.e. the selling price. If that be so, then the levy itself cannot enter into the stage of taxation, although for the ultimate consumer both the value and the quantum of excise duty, together with other incidentals would constitute the cost of commodity. The CIT(A) further held that in Saraswati Industrial Syndicate Ltd. (supra), the Hon'ble Supreme Court observed that excise duty is really imposed on goods when they have come into existence in the manufactured form. It could more appropriately be taken into consideration in determining the net profits that in calculating the cost of manufacture. Therefore, the excise duty on such finished goods is a post manufacturing expenditure not includible in the valuation of stock-in-trade. This proposition has not been dis-approved by the Hon'ble Supreme Court in British Paints Ltd. Thus, the CIT(A) held that the assessee's method of accounting of valuation of stock-in-trade by excluding the proportionate excise duty liability is correct, particularly in view of the Hon'ble Supreme Court decision in Saraswati Industrial Syndicate Ltd. (supra). Further, the CIT(A) has also examined the proposition that ....
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.... finished goods in inventory valuation, the assessee are supported by the decision of the Hon'ble Supreme Court in the case of Saraswati Industrial Syndicate Ltd. (supra). (e) Subsequent to the introduction of Section 43B, in the Income-tax Act, the assessee are supported on their method of valuation by the decision of the Hon'ble Gujarat High Court in the case of Lakhanpal National Limited., (162 ITR 240) and two decisions of the Special Bench of the Tribunal, Delhi in the cases of Food Specialities Ltd., (supra) and Indian Communication Network Ltd. (supra). (f) In any event, if an addition is made to the closing stock in respect of a method of accounting consistently followed then in view of the ratio of the decision of the Tribunal in their own case, for the assessment year 1976-77, and the decision in CIT vs. Ahmedabad New Cotton Mills Co. Ltd., the opening stock also be correspondingly revalued. (g) No profit arises from the valuation of stock on a consistent basis. There is no change in the method of valuation of stock and the opening and closing inventories are valued on the same basis. (h) The assessee val....
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....ion of closing stock is erroneous the same cannot be accepted we do not find any force in the arguments that since the same system of valuation of closing stock is followed from long back, the same has to be accepted in the year under consideration. However, we find that the Special Bench of the Delhi Tribunal in the case of Food Specialities Ltd. (supra) was relied upon to adjudicate upon the question whether excise duty formed part of the cost of manufacture, production and was hence, includible in the figure of closing stock to the extent the goods remained unsold after having been cleared from the bonded warehouse and the Hon'ble Special Bench decided in favour of the assessee. Since, no other contrary decision was cited before us, we have no option but to follow the aforesaid decision. Hence, respectfully following the same, we decline to interfere with the order of the learned CIT(A) and thus, this ground of appeal of the Revenue is dismissed. 26. The fourth ground of appeal relates to the direction of the learned CIT(A) to tax the net interest received from the Income-tax Department. During the year under appeal, the assessee received interest of Rs. 45,90,876/- from ....
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....ntant Member on the finding in ground No.4 of the Revenue's appeal in ITA No.119/PN/1995 I have not been able to pursuade myself to agree with the finding and the conclusion arrived at by him. I, therefore, propose a separate order in respect of ground No.4 of the Revenue's appeal in ITA No.119/PN/96 relating to the assessment year 1992-93. The ground taken by the Revenue reads as under:- "4. On the facts and in the circumstances of the fase, the CIT(A) has erred in directing the A.O. to tax the net interest received from the I.T.Department relying on the decision of Delhi Tribunal in the case of R.N.Agarwal vs. I.T.O. and that of Bombay Tribunal in the case of Cynamide (India) Ltd., when in fact, the A.O. has rightly taxed the interest received by assessee of Rs. 45,90,876/- thereby rejecting the assessee's claim on the ground that the interest charged on late payment of tax by department is not a business expenditure." 2. Briefly the facts to this ground of appeal as discussed by the A.O. at page 15 of the assessment order are that during the course of examination it was found by the A.O. that the assessee has credited only the net interest received from t....
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....elied on by the learned A/R of the assessee. I find in from the assessment order that the assessee has claimed that only the net interest should be charged to tax. however, the A.O. was of the view that the payment of interest to the Income-tax Department is not a business expenditure and accordingly the interest was disallowed. before the CIT(A) the assessee has reitarated his same arguments. However, the CIT(A) has directed the A.O. to tax only the net interest. Thus, it is clear that the assessee has claimed deductions of interest under chapter IVD of the I.T. Act i.e. under the head "the profits and gains of business or profession" and not under any other chapter of the Act. I further find that the interest received from the Income-tax Department was not assessed by the A.O. as income from other sources as it is found that under the head "income from other sources" only dividend from U.T.I. and H.D.F.C. amounting to Rs. 33,16,257/- was assessed. It is not the claim of the assessee, at any stage including the Tribunal, that the interest received from the Income-tax Department be assessed under the head "income from other sources" and even otherwise no such plea or claim was a....
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....has received interest of Rs. 3,52,988/- and has paid interest of Rs. 8388/-. Before the Tribunal it was claimed, as an alternative submission, that between the two persons there can be only one account. Proceeding on that basis it was held by the Tribunal that one has to consider the net interest received by the assessee as the assessee's income from other sources and accordingly the deduction of interest of Rs. 8388/- was allowed. 9. However, I find that now the Hon'ble Supreme Court in the case of Bharat Commerce and Industries Ltd. vs. CIT (1998) 230 ITR 733 (SC) has held at page 734 (short notes) that:- "Under the Income-tax Act, the payment of such interest is inextricably connected with the assessee's tax liability. If income-tax itself is not a permissible deduction under section 37, any interest payable for default committed by the assessee in discharging his statutory obligation under the Income-tax Act, which is calculated with reference to the tax on income cannot be allowed as deduction." 10. In the case of Raj Narain Agarwal vs. CIT reported in (2002) 177 C.T.R. (Del) 90 it was held by the Hon'ble Delhi High Court that interest payable to....
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.... Tax itself and thus deduction is not allowable under section 40(a) (11) of the Income-tax Act." has thus held that:- (Para 7) " .....that the interest paid on delayed amount of the demanded income-tax is not allowable deduction as business expenditure or otherwise under the Income-tax Act, 1961." 17. The Gauhati Bench of the Tribunal, consisting of same constitution as in the present case, in the case of A.C.I.T. vs. Hazarimal Nandlal in ITA Nos. 240 and 241 (Gau) of 1999 for the assessment years 1993-94 and 1994-95 dated 31-01-2003 while considering the issue of deduction of interest on income-tax and the applicability of provisions of section 57 held that since neither the assessee has claimed the deduction of such interest u/s. 57 nor there is any provision u/s. 57 to allow such interest, therefore, deduction of such interest cannot be allowed u/s. 57 or section (111). It was further held that the assessee has not borrowed any amount from the Income-tax Department, therefore, it cannot be held that the interest paid on income-tax to the Department is liable u/s. 36(iii). It was also held that the assessee is not entitled for any deduction u/s. 37. Copy of the Tri....
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.... 4. Ground No. 1 in the asst. yr. 1993-94 is against the deletion of commission of Rs. 67,147. 5. The learned Departmental Representative submitted that it was found by the AO that the assessee has paid commission of Rs. 67,147 on the sale of tea amounting to Rs. 42,93,249 made through private brokers. The assessee has not established the justification of the payment of commission, therefore, the same was disallowed by the AO on the ground that such commission is not incidental to the assessee's business. He further submitted that the CIT(A) was not justified in holding that the same is incidental to the assessee's business and allowable as business expenditure. He therefore, submitted that the addition made by the AO should be restored. 6. On the other hand, the learned Authorised Representative of the assessee relied on the order of the CIT(A) on this account. 7. We have carefully considered the rival submissions of the parties and perused the material available on record. We find that it is not in dispute that the assessee has made sales of Rs. 42,90,249 through private brokers out of total sales of Rs. 1,03,69,359. We further find that be....
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.... that the order passed by the CIT(A) should be upheld. 11. We have carefully considered the rival submissions of the parties and perused the material available on record. We find that in Expln. 1 to s. 234B it is clearly mentioned that the assessed tax means the tax on the total income determined under sub-s. (1) of s. 143 or on regular assessment..........This amended law shall be applicable w.e.f. 1st April, 1989 until and unless it was held otherwise by the Hon'ble High Court/Supreme Court. In the absence thereof we are bound to follow the amended provisions of the Finance Act, 2001, with retrospective effect from 1st April, 1989 and accordingly the ground taken by the Revenue is allowed. 12. Ground No. 1 in the asst. yr. 1994-95 is against the deletion of interest of Rs. 49,339 on income-tax. 13. The learned Departmental Representative submitted that the assessee has claimed interest of Rs. 5,45,774 which includes interest on income-tax of Rs. 49,339. Since income-tax and the interest thereon are not deductible expenses, therefore, the AO has rightly disallowed the claim of Rs. 49,339 and added the same in the income of the assessee. He further su....
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....e his income by way of interest on the fixed deposit." Even otherwise the interest on income-tax is not allowable as expenditure as s. 36(1)(iii) says-'the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession', since under this clause the interest is allowable in respect of capital borrowed for the purpose of business. In the case before us the assessee has not borrowed any amount from the IT Department, therefore, it cannot be held that the interest paid on income-tax to the Department is allowable under s. 36(1)(iii). 16. As regards the assessee's claim that the interest on income-tax is allowable under s. 37 we find that the income should be assessed as "profits and gains of business or profession". Since in the case before us the interest income was assessed as income from other sources therefore only those deductions are allowable which are provided under s. 57 of the Act, and therefore the assessee is not entitled for any deduction under s. 37 and accordingly the plea of the assessee is rejected. 17. We further held that even otherwise it is not allowable as interest payable on non-payment of s....
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.... it is permissible on the part of the Tribunal to entertain a ground beyond those incorporated in the memorandum of appeal though the party urging the said ground had neither appealed before it nor had filed a cross-objection in the appeal filed by the other party." Respectfully following the above decisions, in the absence of any objection by the Revenue for the admission of the same and keeping in view that therefore of such arguments are available on record i.e., in the assessment order itself, therefore, we entertain the new argument taken by the learned Authorised Representative of the assessee. From the assessment order we find that there is no order of the AO to charge interest. We therefore, respectfully following the decision of the Hon'ble apex Court in the case of CIT vs. Ranchi Club Ltd. (supra), the Full Bench desision of the Hon'ble Patna High Court in the case of Smt. Tej Kumari vs. CIT (supra), the decision of the Hon'ble Delhi High Court in the case of CIT vs. Kishan Lal (HUF) (supra) and the recent decision of the Hon'ble Delhi High Court in the case of CIT vs. Inchcape India (P) Ltd. (2003) 179 CTR (Del) 212 held that the interest under s....
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....f against each other and only the net interest, if any, should be charged to tax. He accepted the contention of the assesses that between the two parties, namely, the assessee and the income tax department, there can be only one account and on this basis the interest paid and the interest received by the assesses should be set off against each other and only the net interest should be brought to tax. 3. The learned Judicial Member was unable to agree with the view taken by the learned Accountant Member. He found that the claim of the assessee was that only the net interest should be charged to tax. He however proceeded to observe that the interest was claimed as a deduction under Chapter IV-D, i.e. under the head 'Profits and gains of business" and further that the interest received by the assessee from the income tax department was not assessed under the residuary head, namely, "Income from other sources." The learned Judicial Member observed that it was not the assessee's claim that the interest received should be assessed under the head "Income from other sources" and that the basis of the assessee's claim was only that there can be only one account between the tw....
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....ot be accepted. (b) The receipt of interest is taxable but the payment of the interest is not allowable as a deduction as there is no provision in the Income Tax Act. (c) The principle of netting has to yield in any case to the statutory provisions. (d) It may be that so far as the assesses is concerned the interest is paid to and received from the income tax department. However, the income tax department does not maintain any ledger account for any assesses. The entries are made only in the demand and collection register on the basis of the orders passed by the Assessing Officer. (e) The rule of netting was held inapplicable in such cases by the Supreme Court in the case of Dr V P Gopinathan (supra). (f) Income tax payable and refunds receivable can be adjusted against each other only to the extent provided in section 245 and the assesses cannot adjust the tax due for a particular year against the refund due for another year. Thus, if the principal amount itself cannot be netted, how can the interest be netted? (g) What is relevant to the decision of the case are only the statutory provisions....
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.... proceedings nor is the ground of appeal filed by the department clear, nor is the decision of the CIT(A) on the point. 7. Mr Mistri also took me through the judgment of the Hon'ble Bombay High Court in the case of Aruna Mills Limited vs. CIT (1957) 31 ITR 153 (Bom) and explained how that decision indirectly supported his case that both the interest received and paid should be adjusted against each other and only the net, if any, should be assessed. I will refer to this decision later. According to the learned counsel for the assesses, it is not a question of claiming deduction in respect of the interest paid against the interest received, but it is a question of assessing the income that is properly to be taxed in the assessee's hands, on the principle of netting. He reiterated that where the assesses has a single account with the income tax department and receives and pays income tax refunds and taxes respectively, irrespective of the fact that they may relate to different years, the account is only one and therefore me interest received and paid should also be treated similarly with the result that they should be set off against each other. 8. In his brief reply, t....
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.... in view of the orders of the Tribunal cited by the assessee. In Ground No.4 taken before the Tribunal the department has challenged the finding of the CIT(A) by pointing out that the Assessing Officer was right in rejecting the assessee's claim on the ground that the interest charged by the department for late payment of tax was not business expenditure. The point of difference proposed by the learned Accountant Member highlights the issue whether it is the gross interest of Rs. 45,90,876/- thai should be taxed or it is only the net interest of Rs. 44,53,655/- that is to be taxed, after adjusting the interest of Rs. 1,37,225/- paid by the assesses on late payment of income tax. The point of difference proposed by the learned Judicial Member highlights the deduction aspect of the interest paid. Thus both the Members have separately highlighted both the aspects of the issue which has to be decided by me. 10. The Assessing Officer has dealt with the issue while computing the assessee's business income and therefore I proceed on the assumption that the assessee itself has shown the net interest received under the head "Business". Paragraph 9.2 of the order of the CIT(A) als....
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....h of which are against the assessee. In the case of Dr V P Gopinathan (supra), the assessee placed monies in a fixed deposit with the bank and earned interest. He took a loan from the bank on the security of the fixed deposit and paid interest on the loan. The interest received on the fixed deposit was more than the interest paid on the loan by Rs. 27,034/-. The assessee's case was that he should be taxed only on the difference of Rs. 27,034/- under the residuary head whereas the case of the revenue was that the entire interest received should be brought to tax without reducing the same by the interest paid. It was noticed by the Supreme Court that the learned counsel appearing for the assessee before the Tribunal had made it clear that the assessee's case did not rest upon the provisions of section 57(iii) of the Act, which provided for a deduction of the interest paid by the assessee for earning the interest income. In other words, it was not the contention of the assessee that he was paying interest to the bank to facilitate the earning of interest from the bank. This aspect of the matter was noticed by the Supreme Court at page 450 of the report. Thereafter the Supreme ....
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....ssessee company as a single indivisible transaction and when it is so looked, the transaction should be held to have resulted only. In the company receiving the excess of the interest received over the interest paid and only such excess would be liable to tax. It was further argued that it was not proper to sever the transaction, i.e. to tax the interest received and not to allow any credit for the amount of interest paid. Dealing with this argument, the Hon'ble Bombay High Court held that in their opinion there was no relationship whatever between the receipt interest by the assessee company and the payment of interest under the provisions relating to payment of advance tax. It was pointed out that it was difficult to understand what connection there is between the advance tax paid by the assesses by his discharging the statutory obligation and receiving the interest, and the failure of the assessee to make that statutory advance. It was held that in the first case the assesses was being paid interest for making the advance payment and in the second case he is made to pay interest for failure to pay the advance payment, According to the Hon'ble High Court, there was no con....
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....t the assessee. 16. In view of the above legal position, I am unable to give effect to the order of the Delhi Bench of the Tribunal in the case of R N Aggarwal vs. ITO (supra) and the order of the Bombay Bench of the Tribunal in the case of Cynamide (India) Ltd. vs. ITO (supra). In this case (order dated 23.05.1984). the Tribunal accepted the assessee's submission that the interest received from the income tax department and the interest paid to the Income tax department should be adjusted against each other and only the net interest received can be brought to tax as income. In the light of the judgments in Dr V P Gopinathan (supra) and Aruna Mills Limited (supra), I am unable to give effect to the orders of the Tribunal. 17. The learned counsel for the assessee was at pains to point out that the judgment of the Hon'ble Bombay High Court in Aruna Mills Limited (supra) should not be read or understood as deciding the matter against the assesses since the law at that time was that the assessee could make advance payments of the income tax and earn interest. I do not see how this could make any difference to the result. 18. In the result, I hold that the assessee is a....