Income Tax Appellate Tribunal - Ahmedabad
Polymer And Allied Chemicals vs Assistant Commissioner Of Income-Tax on 17 January, 1994
Equivalent citations: [1995]52ITD260(AHD)
ORDER
Abdul Razack, Judicial Member
1. Assesses has three grievances in this appeal filed against the order of the Appellate Commissioner (AC) for assessment year 1981-82. The grievances are as under :
(i) Disallowance of claim of excise duty provision amounting to Rs. 5,51,130 claimed on the basis of show-cause notice dated 8th February, 1980 issued by the Supdt. Central Excise, Ahmedabad;
(ii) Disallowance of claim of investment allowance in respect of four items of expenditure aggregating to Rs. 13,880 mentioned in the ground No. 2(i) or alternatively to allow the said expenditure as revenue expenditure;
(iii) Refusal by the AC for admitting the additional ground for allowance of additional depreciation on the machinery purchased during the accounting year.
2. We shall deal each of the grievance in serial order. The facts culled out in respect of the first grievance are as under:
2.1 The Supdt. of Central Excise Duty issued a show-cause notice dated 8th February, 1980 (received by the assessee on 12th February, 1980) proposing to levy excise duty to the tune of Rs. 5,51,130. The assessee -company on the basis of this show-cause notice made a provision towards excise duty liability and reduced its profit by debiting it to the P & L account as it followed mercantile system of accounting. In the said show-cause notice, the Supdt. of Excise Duty demanded a reply and explanation before a formal adjudicating order is passed. The assessee submitted its explanation and reply on the strength of which the show-cause notice was withdrawn and cancelled as per order of the Asstt. Collector of Central Excise, Ahmedabad dated 31st August, 1982. When the assessment was processed, the Assessing Officer took note of the order dated 31st August, 1982 of the Asstt. Collector, Central Excise and he did not allow the claim of excise duty liability so made by the assessee in its account on the strength of the show-cause notice dated 8th February, 1980. Not being satisfied with this disallowance, the matter was carried before the first appellate authority under Section 246 of the Act. The first appellate authority, namely, the AC agreed with the Assessing Officer and upheld the disallowance so made. He also was of the opinion that since the Asstt. Collector of Central Excise has passed an order on 31st August, 1982 withdrawing the show-cause notice dated 8th February, 1980 issued by the Supdt. of Central Excise, there was no accrued or ascertained excise duty liability upon the assessee during the previous year relevant to the year under appeal. The assessee is not happy with this decision of the AC and now the matter rests before us for adjudication of this dispute.
3. The assessee's counsel Shri S.N. Soparkar submitted that on 8th February, 1980 on the basis of show-cause notice the liability accrued and fell upon the assessee and since the assessee is following mercantile system of accounting, a provision towards excise duty was made in the accounts and claimed as deduction/allowance from its profit. The lower authorities, according to Shri S.N. Soparkar, erred to take into consideration the subsequent order dated 31st August, 1982 of the Asstt. Collector of Central Excise whereby he withdrew and cancelled the show-cause notice dated 8th February, 1980 upon representation made by the assessee-company. According to the assessee's counsel, under the provisions of the IT Act, an assessee has to be assessed in respect of its net taxable income which is arrived at after the deduction and claim of the permissible expenditure in accordance with law and the Revenue authorities are precluded from taking into account subsequent events or evidence which come into existence after the close or lapse of the previous year. Since the liability fell upon the assessee and accrued during the previous year relevant to the year under appeal on the basis of the show-cause notice dated 8th February, 1980, the assessee was fully entitled to claim the same as and by way of deduction in arriving at the taxable profit. When an assessee has incurred a liability in accordance with law, then it amounts to payment in terms of the provisions of Section 43(2) of the Act. The facts of the case, according to assessee's representative, clearly warrant deduction/allowance of the excise duty provision of Rs. 5,51,130 on the basis of the show-cause notice and both the lower authorities erred in giving such relief to the assessee. To support the case, the assessee's counsel relied upon the following case laws, the details of which are as under :
(i) CIT v. Century Enka Ltd. [1981] 130 ITR 267 (Cal.)
(ii) ITO v. Sylvania Laxman Ltd. [1984] Tax. 74(6)-124 (Delhi)(Trib.)
(iii) CIT v. Tata Chemicals Ltd. [1986] 162 ITR 556 (Bom.)
(iv) Shrikant Textiles v. CIT [1971] 81 ITR 222 (Bom.)
(v) Devi Das Madho Prasad v. CIT [1967] 63 ITR 356 (All.)
(vi) Instrumentation Engineers (P.) Ltd. v. ITO [1990] 32 ITD 406 (Hyd.) and order passed by 'C' Bench of this Tribunal in the case of Maneklal Harilal Mills Ltd. v. ITO [IT Appeal Nos. 2888 and 2615 (Ahd.)/1984, dated 29-12-1986] relating to assessment year 1983-84 was relied wherein it has been held that on the basis of show-cause notice a liability accrues to an assessee and the same is allowable as deduction in computing the taxable profits. The assessee's counsel has also filed a copy of the order of Ahmedabad Bench 'C' of this Tribunal being R.A. Nos. 206 and 207 (Ahd.) of 1987 arising out of IT Appeal Nos. 2615 and 2888 (Ahd.) of 1984 in the case of CIT v. Maneklal Harilal Mills Ltd., Ahmedabad wherein the reference application filed by the CIT was rejected under Section 256(1) of the Act. The assessee's counsel also submitted that the assessee-company suo motu on the strength of the order dated 31st August, 1982 of the Asstt. Collector of Central Excise added back the said sum of Rs. 5,51,130 in the assessment year 1984-85, the previous year being 30th June, 1983. On this basis, the assessee's counsel made out a case that since the said amount of excise duty was written back in its account for the year ending 30th June, 1983 relevant to the assessment year 1984-85, the excise duty liability on the strength of the show-cause notice dated 8th February, 1980 deserves to be allowed for the assessment year 1982-83, which is the year under appeal. In the end, it was strongly urged by the assessee's counsel that the order of the AC impugned in the present appeal be reversed in respect of this grievance.
4. The Departmental Representative Shri M.S. Rai relied upon the elaborate reasons given by the Appellate Commissioner in the impugned order. It was further submitted by Shri Rai that the Revenue authorities including this Tribunal is competent to consider and take into account the subsequent events or evidence which could establish that the claim made by the assessee was not in accordance with law or that the liability or expenditure claimed by the assessee was not at all ascertained or accrued liability or expenditure and, therefore, justified in negativing the claim made by the assessee-company. It is incorrect to say, submitted Shri Rai further, that the Assessing Officer and the appellate authorities including this Tribunal should not look into the subsequent events or evidence and should only be guided by the situation which prevailed during the previous year. The Departmental Representative repelled the arguments made by the assessee's counsel and submitted that the case laws relied upon by him are distinguishable and cannot help the assessee's case. The assessee cannot get relief in this appeal for the simple reason that the assessee has written back the sum of Rs. 5,51,130 in the subsequent previous year on the basis of subsequent order dated 31st August, 1982 of the Asstt. Collector of Central Excise and the assessee is not entitled to the allowance of the claim of Rs. 5,51,130 being excise duty provision created on the strength of show-cause notice dated 8th February, 1980 which never existed when the assessment was being completed. According to the Departmental Representative, appeal of the assessee-company has to be dismissed.
5. We have given our anxious consideration to the arguments advanced before us by both the representatives in the light of the material on record and the case laws cited before us. In our view, the assessee is not entitled to the deduction of the sum of Rs. 5,51,130 being excise duty provision created on the basis of the show-cause notice dated 8th February, 1980. The case laws relied upon by the assessee's counsel also, in our view, do not come to the rescue of the assessee as in none of those cases the present facts of the case existed. We, therefore, do not wish to discuss the facts of those cases in detail. The same are, therefore, clearly distinguishable. In those cases, relied upon by the assessee's counsel, it has consistently been held that on the strength of the show-cause notice the assessee is entitled to claim deduction, but in none of those cases the show-cause notices issued were withdrawn and cancelled by a subsequent order of the Excise authority upon representation made by the assessee in those cases as in this case. In all those cases, the demand raised by the excise authority was disputed by way of writ petitions or by way of further proceedings under the excise Laws. But this pertinent fact of cancelling and withdrawing the demand proposed to be raised pursuant to show-cause notice were wholly absent and did not exist. We are confronted with an issue in this appeal where the assessee claims on accrual basis excise duty liability on the basis of show-cause notice issued in the previous year relevant to the year under appeal and which show-cause notice stood cancelled and rescinded later after the close of the previous year particularly, when the assessment was being finalised by the Assessing Officer. Now the question is whether the Assessing Officer or the appellate authorities including this Tribunal while deciding this controversy is entitled to look into and consider the said subsequent evidence or event, namely, the order dated 31st August, 1982 of the Asstt. Collector of Central Excise whereby the excise duty demand/ liability ceased to exist which got created and fell upon the assessee pursuant to a show-cause notice dated 8th February, 1980. In our considered opinion, the Assessing Officer as well as the appellate authorities including this Tribunal are entitled to do so. We are unable to concur with the submissions of the assessee's counsel that the Revenue authorities are to compute the taxable income on the basis of events which existed during the previous year and any subsequent event or evidence coming into existence after the close of the previous year is to be shut and not looked into and considered. It is by now a well settled law by the judgment of the Hon'ble Supreme Court in the case of Rabindra Kumar v. State of West Bengal MR 1975 SC 1409 that events or circumstances coming into existence after commencement of the proceedings which have impact on the right to relief must be considered and judged. It will not be out of place to reproduce below the observations of their Lordships of the Supreme Court in the said case which appear in para 4 at page 1410 of the said reports :
We feel the submissions devoid of substance. First about the jurisdiction and propriety vis-a-vis circumstances which come into being subsequent to the commencement of the proceedings. It is basic to our processual jurisprudence that the right to relief must be judged to exist as on the date of suitor institutes the legal proceeding. Equally clear is the principle that procedure is the handmaid and not the mistress of the judicial process. If a fact, arising after the lis has come to Court and has a fundamental impact on the right to relief or the manner of moulding it, is brought diligently to the notice of the Tribunal, it cannot blink at it or be blind to events which stultify or render inept the decretal remedy. Equity justifies bending the rules of procedure, where no specific provision or fair play is violated, with a view to promote substantial justice subject, of course, to the absence of other disentitling factors or just circumstances. Nor can we contemplate any limitation on this power to take note of updated facts to confine it to the trial Court. If the litigation pends, the power exists, absent other special circumstances repelling resort to that course in law or justice. Rulings on this point are legion, even as situations for applications of this equitable rule are myriad. We affirm the proposition that for making the right or remedy claimed by the party just and meaningful as also legally and factually in accord with the current realities, the Court can, and in many cases must, take cautious cognizance of events and developments subsequent to the institution of the proceeding provided the rules of fairness to both sides are scrupulously obeyed.
The Kerala High Court in the case of CAIT v. Amalgamated Tea Estates Co. Ltd. [1970] 77 ITR 455 have held that the Tribunal has jurisdiction to admit additional evidence regarding subsequent events. This was laid down by the Kerala High Court on the strength of the authoritative decision of the Supreme Court in the case of Anglo-American Direct Tea Trading Co. Ltd. v. CIT[1968] 69 ITR 667. We, therefore, have no hesitation to hold that the Assessing Officer as well as the appellate authorities including this Tribunal have jurisdiction to admit and consider any subsequent event or circumstance or any additional evidence regarding any subsequent event or circumstance which has a bearing on an issue or controversy involved before any authority or Tribunal or in order to mould or adjust any relief or claim sought for by any party to a proceeding. We are also not impressed by the argument of the assessee's counsel that since the assessee-company has written back the said sum of Rs. 5,51,130 in the previous year ending 30th June, 1983 relevant for the assessment year 1984-85 it can lay its claim for deduction of excise duty liability provided in its accounts on the basis of show-cause notice dated 8th February, 1980, because the show-cause notice dated 8th February, 1980 on the basis of which the assessee made a provision ceased to exist and was inoperative later on by virtue of order dated 31st August, 1982 of the Asstt. Collector of Central Excise who cancelled and withdrew the show-cause notice dated 8th February, 1980. We, therefore, uphold the impugned order of the AC agreeing with the Assessing Officer disallowing the claim of Rs. 5,51,130 being provision for excise duty liability.
6. This brings us to the next grievance which is regarding a disallowance of investment allowance claimed in respect of five items of expenditure. The assessee incurred a sum of Rs. 24,640, the details of which are as under :
Rs.
1. Providing technical skill 5,000
2. Labour charges 1,900
3. Pump set 5,500
4. Plastic 6,830 5. M.S. Tank repairing 150
6. Flame Motors 5 H.P. 4,740
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24,640
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7. The Assessing Officer did not grant investment allowance on the above-mentioned items of expenditure and on first appeal, the AC directed the Assessing Officer to grant investment allowance in respect of pump set (Rs. 5,500) and flame motors (Rs. 4,740). In respect of the remaining items of expenditure aggregating to Rs. 13,880, the AC was of the opinion that the same was revenue expenditure but did not direct the Assessing Officer to allow the same as revenue expenditure. The assessee has made out a grievance that the AC having held the total expenditure of Rs. 13,880 on different heads was revenue expenditure, no direction was given to the Assessing Officer to allow the same as revenue expenditure.
8. We have heard the arguments advanced by both the sides in respect of the second grievance of the assessee. In our view, the AC was right in coming to the conclusion that the assessee is not entitled to investment allowance in respect of four items of expenditure aggregating to Rs. 13,880. However, since the AC has concluded that the same constituted revenue expenditure, he ought to have given a direction to the Assessing Officer to allow the same as revenue expenditure as brought out by the assessee in this appeal. We, therefore, direct the Assessing Officer to allow the sum of Rs. 13,880 as revenue expenditure.
9. The third grievance is that the AC ought to have entertained the additional ground in respect of claim of the assessee for additional depreciation on machinery purchased during the year. The assessee did not claim additional depreciation in respect of machinery nor any ground was raised in the memo of appeal before the AC. Subsequently, an additional ground was raised before the first appellate authority for the claim of additional depreciation on machinery purchased. The AC was not satisfied with the reasons for not taking the ground in the memo of appeal and was further of the opinion that since no claim was made by the assessee before the Assessing Officer nor the same was examined and processed by the Assessing Officer, the same did not form the subject-matter of appeal. He, therefore, did not admit the additional ground. This is the grievance of the assessee.
9.1 The assessee's counsel submitted that the AC ought to have entertained the additional ground and ought to have directed the Assessing Officer to grant additional depreciation or, alternatively, he should have remanded the matter to the file of the Assessing Officer for examining the claim and to allow the additional depreciation as is available to the assessee in accordance with law. The Departmental Representative, on the other hand, supported the order of the AC and further submitted that since no claim was made by the assessee nor any particulars were furnished in respect of the machinery for which the assessee wanted additional depreciation and since the Assessing Officer has not applied his mind nor processed the claim, the issue was outside the scope of the appeal and the AC rightly dismissed the additional ground.
9.2 In our view no interference is called for as the issue of additional depreciation was not subject-matter of appeal. We have gone through the reasons given by the AC for rejecting the additional ground and are in full agreement with him as it was not an additional ground in respect of the dispute but it was wholly a new issue which was brought out before the AC and which was not processed by the Assessing Officer. The assessee cannot be said to be aggrieved for such non-grant of additional depreciation which was not at all claimed by the assessee in the return nor the claim was made during the course of finalisation of assessment proceedings. Such being the case, the AC's order in this regard has to be upheld, which we do so. In taking this view, we are fortified by the below given decisions :
(i) CIT v. Karamchand Premchand (P.) Ltd. [1969] 74 ITR 254 (Guj.)
(ii) CIT v. Steel Cast Corporation [1977] 107 ITR 683 (Guj.)
(iii) CIT v. Cellulose Products of India Ltd. [1985] 151 ITR 499 (Guj.)(FB)
(iv) CIT v. Late Begum Noor Banu Alladin [1993] 204 ITR 166 (AP)(FB) [agreeing with the view taken by Hon'ble Gujarat High Court in cases at Sr. Nos. 1 to 3 above]
10. The appeal is partly allowed.