Gujarat High Court
Lakhanpal National Ltd. vs Income-Tax Officer on 31 March, 1986
Equivalent citations: (1986)2GLR1342, [1986]162ITR240(GUJ)
JUDGMENT Kapadia, J.
1. The petitioner has filed this writ petition for a writ of mandamus or any other appropriate writ, order or direction asking the respondent to pass immediately an order refunding Rs. 74,79,006 with interest at the rate of 15% per annum from April 1, 1984, and also to pass such other and further order as the interest of justice demands in the matter.
2. The petitioner is a public limited company and is an assessee under the Income-tax act, 1961, for the last many years. The respondent is the Income-tax Officer who is having jurisdiction to asses the income of the petitioner-company. The petitioner has paid a total advance tax of Rs. 74,08,478 and the tax deducted at source was Rs. 70,519 making the total of the two sums, Rs. 74,79,006, in the accounting year being the calendar year ending on December 31, 1983. The estimated income of the petitioner-assessee for the accounting year 1983 was Rs. 1,32,52,000 in the estimate of advance tax filed in the year. The petitioner has submitted on June 26, 1984, its income-tax return (under section 139(1) of the Income-tax Act) showing loss of Rs. 75,84,532 for the assessmentyear 1984-1985, the corresponding accounting year (being the calendar year) 1983. The above position was made clear in the statement of accounts of computation of total income which is annexed as annexure A to the petition.
3. Accordingly, the petitioner addressed to the reondent a letter dated July 20, 1984. In the said leter, the above position was made clear and it was pointed out that uncome-tax to the tune of Rs. 74,006 as s stated above and requested that the total amount refundable to the petitioner-assessee cane to Rs. 74,79,006. Thus the petitioner requested the respondent to release the refund order under section 141A of the Income-tax Act. A copy of the said letter is annexed as annexure C to the petition.
4. The submission of the petitioner is that the Income-tax Officer was under on obligation to make a provisional assessment after making adjustment under sub-section(2) of section 141A of the Act, but the petitioner did not hear anything from the respondent in reply to its letter of July 20, 1984. The petitioner, therefore, approached the Inspecting Assistant Commissioner of Income-tax and, subsequently, the petitioner's chartered accountant addressed a letter dated September 17, 1984, to the Inspecting Assistant Commissioner of Income-tax, Range-I, Baroda, to the effect that it was very kind of him to agree that a draft order under section 141A of the Act will be passed by the Income-tax Officer, the respondent herein, and that the said draft order will be discussed with the petitioner's chartered accountant before finalizing the same. The petitioner-assessee waited for the draft order, but no such order was received and the matter did not move for some time.
5. The petitioner thereafter received a letter dated December 7, 1984, from the respondent herein stating, inter alia, that the petitioner had claimed the following two amounts :
Rs.
(1) Excise duty paid on closing stock of finished goods laying at various depots 29,89,439 (2) Customs duty paid as per statement 1,24,94,085 and it was pointed that no reference was available in the audited statement of account furnished along with the return and that the particulars of the customs duty, excise duty and sales tax debited to the accounts of that year and those paid during the accounting year have not been furnished along with the return and that in the absence of these particulars, he was not able to consider the petitioner's application under section 141A of the Act and that he did not think that these deductions can be considered as prima facie allowable within the meaning of section 19 of the Act to which no reference was available either in the return or in the audited statement of accounts. In the said letter, the respondent, therefore, called upon the petitioner to furnish the above-mentioned details at the earliest so that the application under section 19 can be considered. The copy of the said letter is produced as annexure E to the petition.
6. The petitioner's chartered accountant thereafter wrote a letter to the respondent on December 20, 1984. Along with the said letter, he submitted a statement showing the total customs duty actually paid as Rs. 2,78,54,262 out of which the customs duty included in the valuation of the closing stock was deducted, i.e., the amount of Rs. 1,24,94,085 was deducted and the remaining amount of Rs. 1,53,60,177 was debited to the profit and loss account. Similarly, in the statement with regard to excise duty, it was pointed out that the total excise duty that was paid was Rs. 5,25,68,931 out of which the excise duty included in the valuation of the closing stock of finished at various depots, i.e., Rs. 29,80,439, was deducted and the remaining amount of excise duty paid, namely, Rs. 4,95,88,492, was debited to the profit and loss account. Copy of the said letter is annexed asjannexure F to the petition.
7. The respondent was under an obligation to pass a provisional refund order under section 19 of the Act within six months from the date of filing of the return, but as nothing was heard from the respondent-Income-tax Officer, though the period of six months expired, the petitioner's chartered accountant called on the Income-tax Officer on May 14, 1985, and requested him to send the order under section 19 of the Act on or before June 30, 1985.
8. The respondent by his letter dated July 7, 1985 (annexure-H), stated that the order under section 19 for the provisional assessment for refund has to be made on satisfaction of two conditions : firstly, in case Income-tax Officer finds that the assessment cannot be completed within the period of six months the date of filing of the return and, secondly, if he finds that after making the adjustment as permitted under sub-clause (ii) of this section, there is a case for refund. The respondent pointed out in the said letter that the refund of Rs. 74.79 lakhs has been worked out in the return by claiming double deduction of the following two amounts :
(1) Excise duty paid on closing stock of finished Rs. goods lying at various depot 29,80,439 (2) Customs duty paid as per statement 1,24,94,085
9. According to the respondent, because of the verbal communication, no order under section 19 was passed. Further, it is pointed out in the said letter that it would be a case of double deduction in respect of the aforesaid two amounts. According to him, the excise duty of Rs. 4.87 (5.25) crores (including the said amount of Rs. 29.80 lakhs) and the customs duty of Rs. 2.78 crores (including the aforesaid amounts of Rs. 1.2 crores) as paid during the year has already been debited to the profit and loss account and the aforesaid two amounts in the closing stock are there as part of the cost element consistent with the established accounting principles. According to him, therefore, by no stretch of imagination can it be said that the customs duty and excise duty which have been paid during the year and which have been included in the closing stock has not been allowed as deduction because the entire customs and excise duty paid during the year is already debited to the profit and loss account along with the manufacturing expenses. According to him the scheme introduced to allow deduction on actual payment and not to allow double deductions.
10. After receiving the aforesaid letter, the petitioners gave a reply by letter dated July 21, 1985 (annexure I to the petition), requesting the respondent to pass the order under section 19 of the Act and also pointing out that the petitioner-company has sought the opinion of counsel that the petitioner-company was justified in claiming the customs and excise duty. In response to the said letter, the respondent wrote another letter dated August 2, 1985 (annexure 3 to petition), wherein he has pointed out that the whole of the excise duty and the import duty as paid during the accounting year under consideration will be an allowable deduction and in that very connection, he inquired as to whether the petitioner-company has paid the excise duly more than the amount of Rs. 4,87,27,724 as debited to the profit and loss account and further inquired whether the amount of deduction in the statement in the statement of income has not beenjincluded in the aforesaid statement. Similarly, in the matter of import duty, the customs duty of Rs. 1,24,94,085 sought as deduction in the statement of income is not included in the import duty as cost of raw material and debited to the profit and loss account. Further, he stated that these two amounts, namely Rs. 1,24,95,085 and Rs. 29,80,439, which are included as cost element in the closing statement as per the established method of accounting shall be automatically allowed in the subsequent assessment year as part of the opening stock. According to him, the said deduction cannot be allowed in view of the language of section 43B of the Act.
11. The respondent has filed a reply-affidavit in this petition wherein he has taken the same stand which he had taken while giving replies to petitioner-assessee, as mentioned earlier.
12. At the time of hearing, Mr. J. P. Shah, the learned advocate appearing for the petitioner, submits that any sum payable by an assessee by way of tax or duty under any law for the time being in force as allowable and as per the mercantile method of accounting, it would be allowable at the time when it becomes due and/or the assessee would be liable to pay the same and not on the actual payable of tax or duty, but as per the newly added provision of section 43B of the Act, it would he allowable only in computing the income referred to in section 28 of the previous year in which the sum is actually paid by the assessee irrespective of the previous year in which the liability to pay such tax was incurred by the assessee according to the method of accounting regularly employed. He, therefore, submits that the customs duty being paid in the year 1983 on the raw material imported during the year, though the raw material is consumed in the year 1984, the assessee would be entitled to get an allowable deduction for the assessment year 1984-85 (accounting year ending on December 31, 1983) in computing the taxable income of the petitioner-assessee.
13. Mr. S. N. Shelat, the learned advocate appearing for the respondent, submits that the words "otherwise allowable" used in section 43B of the Act would mean that it would not be allowable for the assessment year 1984-85. He submits that section 43B of the Act does not enlarge the scope of deduction. According of his submission, what is allowable under commercial principle under 43B of the Act is made an allowable deduction on the actual payment being made. He further submits that it does not permit deduction in respect of the amounts which are not allowable under commercial principles only because they are paid. He further submits that it is not expenditure pertaining to the goods sold in that year.
14. Section 43B of the Act 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) any sum payable by the assessee by way of tax or duty under any law for the time being in force, or
(b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare employees.
shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regular employed by him) only in computing the income referred to in section 28 of the previous year in whichjsuch sum is actually paid by him.
Explanation. - For the removal of doubts, it is hereby declared that where a deduction in respect of any sum referred to in clause(a) or clause(b) of this section is allowable in computing the income referred to in section 28 of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1983, or any earlier assessment year) in which the liability to pay such sum was incurred by the assessee, the assessee shall not be entitled to any deduction under this section in respect of each sum in computing the income of the previous year in which the sum is actually paid by him."
15. On a perusal of the language of section 43B, it is clear that it opens with a non-obstante clause which means that it controls the operation of other provisions of the Act and irrespective of the other provisions, section 43B will have overriding effect. Keeping in mind, if we examine the language of the section, it clearly brings out the intention of the Legislature that the deduction in respect of any tax or duty under any law would be an allowable deduction in computing the income under section 28 of that previous year in which such sum is actually paid by the assessee. The intention is made more specific by providing that it would be so irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by the assessee. This clearly makes out that even if the mercantile method accounting is employed and the liability to pay might have accrued which would give the assessee a right to obtain deduction, in view of the specific language of the section, the assessee would not be entitled to get deduction merely on accrual of the liability to pay the tax or duty, but would be so entitled to get deduction only on actual payment of tax or duty. The Legislature has also taken care by providing an Explanation that the assessee shall not be entitled to any deduction under section 43B of the Act in respect of such sum in computing the income of the previous year in which such sum is clearly paid by him in case a deduction in respect of any such sum was allowable in the previous year. It is, therefore, clear that the assessee shall not be entitled to get the benefit twice, i.e., at the time when the liability arises and also at the time when the actual payment is made. In view of the specific language of the section that deduction of the amount as mentioned in clauses(a) and (b) of section 43B would be allowed in the previous year in which such sum is paid, there is no scope for any doubt that such sum can be allowed by way of deduction while computing the income in the previous in which such sum is actually paid by the assessee.
16. There is no dispute on the point that the amount of import duty and excise duty are allowable deduction. What is dispute on behalf of the respondent is that the amount of customs and excise duty on the value of the closing stock of the petitioner-assessee should not be permitted in the assessment year 1984-85 (accounting year ending on December 31,1983), though actually paid in the year 1983, because the assessment of the closing stock of the year 1983 will be in the subsequent previous year which would be in 1984 and the relevant assessment year would be 1985-86. It is true that at the time of making the assessment for the assessment year 1985-86, the respondent will have to be careful in seeing that the petitioner does not claim further deduction for the sum for which deduction is already given. In this case, it is not the contention of the respondent that any sum payable under clause(a) of section 43B of the Act was at any time claimed by way of deduction in any previous year prior to 1983. In fact, the raw material were imported and the goods were manufacturedjin the year 1983, and they were cleared also in the year 1983. Therefore, their liability accrued in the year 1983, and they also paid the sum in the year 1983. In that view of the matter, the Explanation to section 43B of the Act is also not attracted in the present case.
17. Mr. J. P. Shah, the learned advocate appearing for the petitioner, has invited our attention to the computation of the total income for the assessment year 1985-86 which is annexed to the petition as annexure-L, wherein it has been pointed out that the amount of excise duty of Rs. 29,94,439 paid on the closing stock (in the year 1983) on finished goods laying at various depots was added to the net profit as per the profit and loss account. Similarly, the amount or Rs. 1,24,94,085 is also added. This further assures that the petitioner-assessee does not intend claiming double benefit for the same amount. The argument of Mr. S. N. Shelat that section 43B of the Act does not enlarge the scope of deduction is correct in as much as it speaks about the deduction otherwise allowable under this Act, but argument is not that the sum which is paid by way of import duty or liability to pay excise duty is not the sum given under the permissible deductions. Under the mercantile method of accounting, as stated earlier, the moment the liability is incurred, it would be an admissible deduction. What section 43B of the Act states is that irrespective of the fact that the liability is already incurred, that would be an admissible deduction only when the actual amount in that regard is paid. Therefore, it is clear that in the year 1983, when the goods including the raw material were imported and the finished goods lying at various depots were manufactured in the year 1983 (including the one under the closing stock), the liability to pay import duty and excise duty on the said goods was incurred by the petitioner-assessee. When that is so, it is also clear that the deduction of the said excise duty and import duty even on the closing stock was allowable in the accounting year 1983, but because of the specific language of section 43B of the Act which has an overriding effect, it could not have been claimed by way of deduction unless payment thereof was made and here, in this case, it is not the case of the respondent that the payment of the said duty is not made and, therefore, it is not allowable. Therefore, the submission of Mr. Shelat commercial principles are claimed as deductions merely because they are paid, cannot be accepted.
18. The last facet of Mr. Shelat's argument is that the expenditure on paying import and excise duty in respect of the closing stock does not pertain to the goods sold in the year. This argument runs counter to the mercantile method of accounting as well as to the specific language of section 43B of the Act. It is not disputed that the said goods in the closing stock were either imported or manufactured in the accounting year 1983 and as per the principles of the mercantile method of accounting, the expenditure incurred by way of import duty as well as excise duty would be a permissible deduction in the year 1983, and particularly when the payment thereof is made under section 43B of the Act. Under the circumstances, we do not find any merit in any of the contentions raised by Mr. Shelat, and for the same reasons we accept the contentions raised by Mr. J. P. Shah, appearing for the petitioner-assessee.
19. Coming to the point of making provisional assessment of the petitioner-assessee under section 19 of the Income-tax Act, it is clear that this provision is a mandatory provision inasmuch as the section provides that the Income-tax Officer shall make in a summary manner within six months from the date of the submission of the return, a provisional assessment of the sum refundable to the assessee, provided the Income-tax Officer is of the opinion that thejregular assessment of the assessee is not likely to be made within six months from the date of furnishing of the return. It is not the case of the respondent that he was of the opinion that the regular assessment of the petitioner-assessee was likely to be made within six months from the date of furnishing of the return. This clearly shows that the Income-tax Officer has failed in discharging his statutory duty. Section 19 of the Act also provides that while making such provisional assessment, the Income-tax Officer shall make adjustments to the income or loss declared in the return, inter alia, allowing any deduction, allowance or relief on the basis of the information available in such return, accounts and documents as is prima facie admissible, but is not claimed in the return, and also to disallow any deductions, allowance or relief claimed in the return which, on the basis of the information available in such return, accounts and documents is prima facie inadmissible. It appears from the correspondence between the respondent-Income-tax Officer and the petitioner-assessee that though no provisional assessment has been made, the respondent was of the opinion that the customs and excise duty on the closing stock was not admissible as deduction. What is to be considered is whether such deduction is prima facie admissible or not when in such provisional assessment the refund is granted and if it is subsequently found to have been wrongly granted as per the provisions of sub-section(4) of section 19 of the Act, whether the excess amount so refunded shall be deemed to be tax payable by the assessee and the provisions of the Act shall apply accordingly. Sub-section(5) of section 19 of the Act also gives clear protection in dealing with the matter at the time of regular assessment providing that nothing done or suffered by reason or in consequence of any provisional assessment made under this section shall prejudice the determination, on the merits, of any issue which may arise in the course of the regular assessment.
20. At this juncture, it would be appropriate to point out that at the time when the provisions of section 19 of the Act were inserted in the statute book by the Finance Act, 1968, with effect from April 1, 1968, it was explained, inter alia, in the memorandum explaining the provisions of the Finance Bill, 1968, as under [1968] 67 ITR (St.) 80 :
"In order to avoid hardship due to delay in issue of refund in cases where the completion of the regular assessment is likely to be delayed, it is proposed to make a new provision of the Income-tax Act enabling tax-payers to claim a refund of tax on a provisional assessment made on the basis of the return of income and the accounts and documents accompanying it. Any refund of tax on the basis of the provisional assessment will be deemed to have been issued in respect of the regular assessment when such assessment is completed."
21. In the case of Swadeshi Cotton Mills Co. Ltd. v. ITO [1978] 112 ITR 1038 (All), it has been held that section 141A(1) provides that where a return has been furnished under section 139 and the assessee claims that the advance tax already paid by him exceeds the tax payable on the return, the Income-tax Officer may make a provisional assessment of the tax refundable to the assessee, if in the opinion of the Income-tax Officer, the regular assessment of the assessee is likely to be delayed, and if no assessment has been made within six months, the Income-tax Officer is bound to make a provisional assessment of the tax refundable. Under the circumstances, we are of the opinion that in the case, the respondent-Income-tax Officer has failed in discharging his statutory duty in making the provisional assessment under section 19 of the Act. One of the grounds raised by the respondent is that six months' time is over. That ground cannot bejavailable to him. Otherwise, in every case, the Income-tax Officer may not pass any order within six months from the date of furnishing of the return and when a writ petition is filed it may be opposed on the ground that provisional assessment was to be made within the period of six months. That will be adding a premium on the conduct of the Income-tax Officer who does not discharge his statutory duty. Hence, that contention raised by the respondent cannot be accepted.
22. For the reasons stated above, the petition is allowed. The respondent-Income-tax Officer is directed to pass an order under section 19 of the Income-tax Act in accordance with law and the observations made hereinabove, within eight weeks from today. The petitioner-assessee will be entitled to costs of this petition.