Income Tax Appellate Tribunal - Kolkata
Joint Commissioner Of Income-Tax vs Binani Zinc Ltd. on 15 March, 2002
Equivalent citations: [2003]84ITD691(KOL)
ORDER
Pramod Kumar, Accountant Member
1. In this appeal, directed against CIT(A)'s order dated 18th August, 1999 for the assessment year 1992-93 solitary grievance of the revenue is as follows :-
On the facts and in the circumstances of the case, the learned CIT(A) has erred in deleting the addition of Rs. 58,80,502 made by the A.O. under Section 154 (of the Income Tax Act, 1961) holding it to be a nonexistent liability due to reduction of customs duty which was allowed by the A.O. in the original assessment.
2. In order to properly appreciate the legal controversy requiring our adjudication, it is necessary to take a careful look at the undisputed facts of this case as also the developments leading to this litigation before us. During the previous year relevant to the immediately preceding assessment year i.e. assessment year 1991-92, the assessce company incurred a liability to pay custom duty of Rs. 5,77,05,178 but till the due date of filing relevant income-tax return under Section 139(1) of the Income Tax Act (hereinafter referred to as 'the Act'), the assessee paid only Rs. 5,17,94,551. The difference between these two amounts i.e. Rs. 59,10,627 represented the customs duty remaining unpaid and liable to be disallowed under seel ion 43B of the Act. Accordingly, this amount of Rs. 59,10,627 was offered for disallowance in computation of assessable income filed by the assessee alongwith the income-tax return itself, under Section 43B. On the basis of these details filed by the assessee, the Assessing Officer inter alia disallowed the aforesaid amount of Rs. 59,10,627. On 25th July, 1991, i.e. on a date falling in the next previous year which is relevant to the assessment year in appeal before us, there was a reduction in custom duty rates and, therefore, the assessee decided to write back an amount of Rs. 58,80,502 out of the aforesaid outstanding custom duty liability of Rs. 59,10,627. This amount was accordingly written back as 'provision for custom duty, on imported zinc concentrate, no longer required'. It is not in dispute that the amount so written back was included in Rs. 92.52 lakhs shown as 'Other Income' in the profit and loss account of the assessee for the relevant previous year. While the aforesaid amount of Rs. 58,80,502 was admittedly credited to the profit and loss account, in computation of assessable income, the assessee deducted this amount from the profit as per profit and loss account by observing as follows :
(g) provision for custom duty on imported zinc concentrat no longer required; this amount was included in taxable turnover under Section 43B in asst. year 1991-92 (Y.E. 31-3-1991) Rs. 58,80,502 The Assessing Officer accepted the above claim, in the course of assessment proceedings under Section 143(3) of the Act and made the following observation in the assessment order dated 29-12-1994 :-
Less: Provision written back disallowed under section 43B in the earlier assessment year Rs. 58,80,502 (from the Profit as per Profit and loss account)
3. It is this adjustment of Rs. 58,80,502, from the profit as per profit and loss account, which is subject matter of dispute before us and allowance of which, according to the revenue, is a mistake apparent from the records.
4. After more than two years of the assessment order under Section 143(3) having been passed, the successor Assessing Officer, vide order dated 4th February, 1997 under Section 154 of the Act, withdrew the aforesaid deduction. The Assessing Officer observed that the change in the custom duty rate, as a result of which provision was no longer required, was brought about with effect from 25th July, 1991. He further observed that "As the allowance of deduction of Rs. 58,80,507 has wrongly been given to the assessee in the assessment year 1992-93 on account of the fact that the liability did not even exist in the assessment year 1991-92, notice was issued to the assessee for rectifying this mistake." After referring to the reduction in customs duty w.e.f. 25th July, 1991 once again, the Assessing Officer concluded by observing as follows :
... the allowance given for deduction of the difference in the assessment year 1992-93 was wrong as the amount was actually not even paid in assessment year 1991-92 nor it can be in the assessment year 1992-93. In view of the above, the submission made by...is not acceptable and after having carefully considered the issue and the allowances having a reason due to mistake apparent from records the same is rectified as below :-
Assessed income under Section 154 dated 31-3-1995 Rs. 5,72,66,207 Add: Custom Duty written back Rs. 58,80,502
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Revised total income Rs. 6,31,46,709
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Aggrieved, assessce carried the matter in appeal before the learned Commissioner (Appeals) who cancelled the above addition by observing as follows : Submissions are considered. Assessment records-examined. The Supreme Court in CIT v. Hero Cycles (P.) Ltd. 228 ITR 464 laid down that in order to rectify under Section 154, mistake must be glaring and obvious and the question should not be debatable. The same view finds support from the decision of the Allahabad High Court in CIT v. Modi Industries, cancelling order under Section 154 requiring interest under Section 214, as reported in 235 ITR 464. In view of the foregoing, the order of rectification was not proper and addition of custom duty is hereby deleted.
5. Revenue, being aggrieved by the aforesaid order of the learned Commissioner (Appeals), is in appeal before us.
6. Shri R.N. Saha, Departmental Representative, appeared for the revenue and Shri R.N. Bajoria, Senior Advocate, along with Shri V.K. Beswal, FCA, appeared for the assessee. Learned representatives have been conscientiously heard, orders of the authorities below, as indeed assessee's detailed paper-book, carefully perused and applicable legal position duly deliberated upon.
7. We deem it fit and proper to address ourselves to the fundamental question as to whether there is any mistake at all, leave alone mistake apparent from the records within meanings of Section 154 of the Act, in Assessing Officer's not bringing the aforesaid amount of Rs. 58,80,502 to tax in the assessment order under Section 143(3) for the assessment year 1992-93. Both the parties have been heard on this core issue.
8. The case of the revenue is that the aforesaid amount of Rs. 58,80,502 is taxable under Section 41(1) as it represents a cessation of custom duty liability. It has been contended that the assessee's claim for custom duty liability of Rs. 5,77,05,178, for the previous year relevant to assessment year 1991-92, admittedly included the aforesaid amount and the entire amount was duly debited to the profit and loss account in that previous year. It has then submitted that since the cessation of liability took place in the current previous year, as a result of which the provision was written back, the aforesaid amount representing cessation of liability with respect to the custom duty is taxable in the assessment year 1992-93, under Section 41(1) of the Act. It is contended that the assessee itself has taken the cessation of custom duty liability in its income and, therefore, there was no valid reason for excluding the same from taxable income. According to learned DR, Assessing Officer was not at all justified in allowing deduction of Rs. 58,80,502 while computing the assessable income. It was submitted that such a deduction was not allowable under any provisions of the Act. Reliance was placed on the order under Section 154 passed by the Assessing Officer. We were thus urged to vacate the order of the CIT(A) and restore that of the Assessing Officer. Learned counsel for the assessee, on the other hand, has submitted that the question of taxability under Section 41(1) arises inter alia when an allowance or deduction has been made in the assessment for any earlier year in respect of expenditure incurred by the assessee liability in respect of which has ceased. It is then pointed out that though the assessee had debited the entire custom duty liability incurred in the immediately preceding year, out of such amount deduction was not available to the extent of Rs. 59,10,627 because of the provisions of Section 43B of the Act. In support of these factual statements, our attention was invited to the assessee's computation of assessable income for the assessment year 1991-92, to the disclosures made in lax audit report for that year and to the assessment order under Section 143(3) passed for the same year. It has been emphasized that the liability written back is out of this outstanding amount which, by the virtue of Section 43 B of the Act, was never allowed as a deduction anyway. Learned counsel has submitted that when the custom duty liability was not allowed as a deduction in the immediately preceding year in which it was debited to the profit and loss account, cessation of liability in respect of the same cannot be brought to tax in the present year. It is thus submitted that the Assessing Officer was justified in excluding the amount of Rs. 58,80,502, on account of provision for custom duty liability no longer required, from the profit exigible to tax. It was explained that the aforesaid amount, though credited to profit and loss account, did not constitute taxable income at all. Our attention was invited to the assessee's computation of assessable income for the present assessment year, observations in the assessment order under Section 143(3) of the Act for the same and to the contents of the annual accounts of the company. On the strength of these submissions, it is submitted that there is no mistake in the assessment order, much less a mistake apparent from record. We are thus urged to support the conclusions arrived at by the first appellate authority and to decline to interfere in the matter.
9. It may be useful to reproduce Section 41(1) of the Act which provides as follows :
Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,-
(a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or
(b) (not being reproduced as the same is not relevant for our purposes.)
10. The above legal provision makes it clear that where a person has obtained, in any manner whatsoever, any amount, in respect of inter alia an expenditure, by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of the business, provided such an expenditure has been allowed as a deduction in any year. It is a sine qua non, for bringing a remission or cessation of liability to tax under Section 41(1), that "an allowance or deduction has been made in the assessment for any year" for loss, expenditure or trading liability in respect of which such remission or cessation has been made. A fortiorari, if an expenditure, for whatever-reasons, has not been allowed as a deduction in any previous year and the liability in respect of such expenditure ceases in the current previous year, such a cessation of liability, in our considered view, cannot be brought to tax in the current previous year. We are further of the considered view that the reason of such an expenditure not being allowed as a deduction is not material. Clearly, Section 41(1) seeks to reverse the undue benefit of deduction given to the assessee in respect of a liability which eventually turns out to be non-existent but when no such benefit of deduction is anyway made available to the assessee, there cannot be any question of reversal of such a non-existent or undue benefit of deduction. We are, therefore, of the considered view that deduction in respect of disputed amount of Rs. 58,80,502 never having been allowed by the Assessing Officer, cessation of liability of this amount cannot result in any tax liability in the hands of the assessee. The Assessing Officer was therefore justified, while computing the taxable income of the assessee, in deducting the aforesaid amount from the profit as per profit and loss account of the assessee as this amount, having been written back in the books of account in the current previous year, was included in the profit arrived at in the profit and loss account for the current previous year. In our opinion, revenue's stand before us is fallacious since, by reducing the taxable profits by the aforesaid amount of Rs. 58,80,502, no deduction has de facto been allowed but only an amount which was credited to the profit and loss account, but is not in the nature of income liable to tax, has been excluded. As a matter of fact, strictly speaking it is not a 'deduction' within normal connotations of this expression in taxation parlance, but merely an 'adjustment', to use more appropriate expression, from the reported profit as per profit and loss account drawn by the assessee-company under Schedule VI to the Companies Act. It is fairly well settled that profit so arrived at in profit and loss account of the company is not exactly the same as taxable profits or even revenue profits. Therefore, an amount being reflected in the assessee company's profit and loss account, per se does not lead to income-tax liability unless such an amount is found to be in the nature of income liable to tax. Accordingly, in our considered view, order dated 4-2-1997 passed by the Assessing Officer, under Section 154 of the Act, was indeed devoid of any merits. We, therefore, support the conclusions arrived at by the CIT(A) and decline to interfere in the matter.
11. In the result, revenue's appeal is dismissed.