TaxTMI 
TaxTMI 
2019 (10) TMI 392
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....ng the orders passed by the ld. Customs authorities on the refund application of the assessee appellant. 1.1 That on the law and in the facts and in the circumstances of the case the learned lower authorities grossly erred in not considering the facts that at one end, the Customs department has declined the Custom Duty refund application of the assessee and at the same time the income-tax department seeks to levy income-tax on the said Customs Duty refundable as income of the assessee appellant which is against the proposition of settled law that disputed refundable amount is not liable to be taxed until the amount is actually received by the assessee. 2. The appellant craves leave to add, alter, modify or amend any ground on or before the date of hearing. The only issue arises in this appeal of the assessee is regarding customs duty paid towards Countervailing Duty (CVD) subsequently claimed by the assessee refund from the Customs Department but the said claim was declined even upto the stage of first appellate authority and thereby the assessee claimed said CVD paid as allowable expenditure which was denied by the AO as well as ld. CIT (A). 2 The brief fac....
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....-16. He has referred to the details and submitted that an amount of Rs. 24,69,98,215/- was paid towards Countervailing Duty in respect of the import made from 01.10.2014 to 25.03.2015. The another amount of Rs. 23,62,85,014/- was paid during the period from 01.04.2015 to 17.07.2015. Thus both the payments on account of Countervailing Duty are part of purchase cost of the respective year and the payment made during the financial year 2014-15 was allowed under section 43B. However, for the year under consideration since the Hon'ble Supreme Court in case of M/s. SRF Ltd vs. Commissioner of Customs, Chennai (supra) has held that the assessee is entitled for exemption from payment of CVD in terms of Notification/2002 and, therefore, the assessee applied for refund of the said amount vide two applications dated 26.09.2015 and 27.09.2015 respectively. Consequently the assessee reduced the entire amount of Customs Duty refundable from the purchase cost as reflected in the purchase account and thereby added the said amount to the income of the assessee while arriving at the Net Profit. The claim of refund was denied by the Customs Department first vide order dated 26.02.2016 passed by th....
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....certain deductions are permissible in the year of payment irrespective of incurring of liability in any previous year as per the method of accounting regularly employed by the assessee. Therefore, the deduction is allowable only in the year of payment. The department has not disputed that the assessee has already paid the Countervailing Duty and, therefore, as per the provisions of section 43B it is an allowable deduction being the tax or duty paid by the assessee. He has relied upon the decision of Hon'ble Allahabad High Court in case of CIT vs. Shimboli Industries Pvt. Ltd., 365 ITR 173 (All.) and submitted that the Hon'ble High Court has held that the provision for duty as well as interest is allowable under section 43B only on the basis of actual payment and it is irrelevant that the assessee has followed the mercantile system of accounting. The provision of section 43B has over-riding effect of the other provisions and thereby the mercantile system of accounting becomes irrelevant so far as the claim falling in the ambit of section 43B. He has also relied upon the judgment of the Hon'ble Supreme Court in case of CIT vs. Bharat Carbon and Ribbon Manufacturing Co. Pvt. Ltd. 239 ....
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....rtified as income of the assessee. Therefore, the AO has rightly added the same to the total income of the assessee as there was no change in the facts or basis when the assessee has treated the said amount as income in the books of account and then claimed as deduction while computing the income offered to tax. He has relied upon the orders of the authorities below. 5. We have considered the rival submissions as well as the relevant material on record. The controversy is only regarding the payment of Customs Duty towards Countervailing Duty on the mobiles imported by the assessee which was subsequently claimed as refundable from Customs Department. The assessee paid a sum of Rs. 24,69,98,215/- on account of Countervailing Duty for the period from 01.10.2014 to 25.03.2015 and a sum of Rs. 23,62,85,014/- during the period 01.04.2015 to 17.07.2015. The total of these two payments comes to Rs. 48,32,83,229/- which is the subject matter of dispute in this appeal, as the other Customs Duty paid by the assessee are not subject matter of controversy. However, for sake of completeness, the purchase account of the assessee as part of the record as well as reproduced in the order of the l....
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.... of the said amount which includes the payment of Countervailing Duty made in the preceding year as well as during the year under consideration. It is pertinent to mention that out of this Rs. 48,61,31,816/- reduced on account of refundable Customs Duty, a sum of Rs. 28,48,587/- was refunded by the Customs Department vide order dated 31.03.2017 and consequently the claim of the assessee for refund of Customs Duty remained only to the extent of Rs. 48,32,83,229/- which is the subject matter of dispute between the assessee and Income Tax Department as well as with the Customs Department. There is no dispute that the Customs Duty paid towards Countervailing Duty is an allowable claim under section 37 read with section 43B as the amount was already paid and was also allowed so far as it pertains to the assessment year 2015-16. Since the assessee has reduced the said amount which includes an amount of Rs. 24.69 crores paid during the financial year 2014-15 as well as Rs. 23.62 crores paid during the financial year 2015-16, therefore, the net effect of this reduction was to enhance the income of the assessee by a sum of Rs. 48,32,83,229/-. The claim of refund was rejected by the Assistan....
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.... treated the same as income in view of the decision of Hon'ble Supreme Court and, therefore, it becomes the income of the assessee for the year under consideration. However, it is settled proposition of law that mere entries in the books of account are not decisive or conclusive to hold that a particular sum is eligible for deduction or income is accrued to the assessee. The Hon'ble Supreme Court in case of CIT vs. M/s. Bharat Carbon and Ribbon Manufacturing Co. Pvt. Ltd. 239 ITR 505 (SC) has observed in para 3 to 6 as under :- "3. In the present case, the liability to pay excise duty had arisen on 21-4-1980 when the Excise Department issued demand notice asking the assessee to pay the basic excise duty and special excise duty for the said years on the basis of trade notice issued in October 1979. The assessee admittedly was following the mercantile system of accounting and, therefore, he claimed deduction for the said amount for the assessment year 1981-82. Prior to that assessment year, there was no demand as, for the excise duty, the carbon paper manufactured by the assessee was classified under tariff Item 68. It is true that he has objected to the said demand and has ....
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....f the sum of Rs. 1,49,776 being the amount of sales tax which it was liable under the law to pay during the relevant accounting year. . . ." (P. 367) 6. The learned counsel for the appellant, however, relied upon the decision of this Court in the case of Indian Molasses Co. (P.) Ltd. v. CIT [1959] 37 ITR 66 for contending that the expenditure would be deductible for the income-tax purpose which is towards a liability existing at the time, but putting aside the money which may become expenditure on the happening of a event is not expenditure. He submitted that the liability of the assessee in the present case was only contingent and not actual liability in praesenti. It is not necessary to discuss in detail the said decision because in that case itself the Court has observed : ". . . Thus, in finding out what profits there be, the normal accountancy practice may be to allow as expense any sum in respect of liabilities which have accrued over the accounting period and to deduct such sums from profits. . . ." (p. 76) The Court after discussing various contentions finally held : ". . . Expenditure which is deductible for income-tax purposes is one wh....
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....he said order of rejection as well as appellate orders were also produced by the assessee which are crucial facts leading to the conclusion and inference that the claim of refund does not give any right to the assessee to receive the amount until and unless the refund is granted by the Department or the claim of the assessee is allowed by the higher courts but the AO and CIT (A) ignored these facts while adding the amount to the income of the assessee. Thus as on that date when the assessee filed its return of income as well as the assessment was completed by the AO, the said claim of refund stand rejected and consequently it cannot be treated as Income of the assessee on account of non-existing liability. The Hon'ble Supreme Court in case of CIT vs. M/s. Excel Industries Ltd. and Another (supra) has again considered this issue in para 16 to 27 as under :- "16. Section 28(iv) of the Act reads as follows:- '28. Profits and gains of business or profession.- The following income shall be chargeable to income-tax under the head "Profits and gains of business or profession"- ** &....
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....mportantly, that income accrues when there "arises a corresponding liability of the other party from whom the income becomes due to pay that amount." 20. It follows from these decisions that income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee. 21. In so far as the present case is concerned, even if it is assumed that the assessee was entitled to the benefits under the advance licences as well as under the duty entitlement pass book, there was no corresponding liability on the customs authorities to pass on the benefit of duty free imports to the assessee until the goods are actually imported and made available for clearance. The benefits represent, at best, a hypothetical income which may or may not materialise and its money value is therefore not the income of the assessee. 22. In Godhra Electricity Co. Ltd. v. CIT, [1997] 225 ITR 746/91 Taxman 351 (SC) this Court reiterated the view taken in Shoorji Vallabhdas & Co. (supra)and Morvi Ind....
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....hough the letter had no legal binding effect but "one has to look at things from a practical point of view." (See R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 (SC)). This Court took the view that the probability or improbability of realisation has to be considered in a realistic manner and it was held that there was no real accrual of income to the assessee in respect of the disputed enhanced charges for supply of electricity. The decision of the High Court was, accordingly, set aside. 27. Applying the three tests laid down by various decisions of this Court, namely, whether the income accrued to the assessee is real or hypothetical; whether there is a corresponding liability of the other party to pass on the benefits of duty free import to the assessee even without any imports having been made; and the probability or improbability of realisation of the benefits by the assessee considered from a realistic and practical point of view (the assessee may not have made imports), it is quite clear that in fact no real income but only hypothetical income had accrued to the assessee and Section 28(iv) of the Act would be inapplicable to the facts and circumstances of the case.....