2016 (5) TMI 1326 - HC - Income Tax

Privilege fee - whether is in the nature of revenue expenditure and deductible expenditure under Section 37(1)? - Held that - Taking into consideration all the facts and in particular the provisions of the Excise Act, in our view, the Tribunal was correct in holding the said expenditure of privilege fee as allowable expenditure and thus the said question is answered in favour of the assessee and against the Revenue. Excise duty addition to closing stock - applicably of provisions of section 145A - Held that - The liability to excise arises when goods are removed from the factory/bonded warehouse. The taxable event is manufacture/ production but the liability to pay the duty is postponed till the time of removal under Rule 9A. In our view, under Section 145A only the tax duty, cess or fees actually paid or incurred by the assessee to bring the goods to its place of location forms part value of stock. Unpaid excise duty on goods in stock that have not left the premises/factory/bonded warehouse, could not be added to the value of closing stock. We have taken into consideration the judgments of the Apex Court in the case of Wallace Flour Mills Co. Ltd. Vs. Collector of Central Excise (1979 (9) TMI 70 - SUPREME Court ) and CIT Vs. Dynavision Ltd. 2012 (9) TMI 265 - SUPREME COURT to come to the aforesaid opinion. In fact, even the Revenue has relied upon the judgment of Wallace Flour Mills Co. Ltd. Vs. Collector of Central Excise (supra) but in our view, taking into consideration the view of the Apex Court that a taxable event though is manufacture but the liability to pay duty is postponed till the time of removal under Rule 9A of the said Rules and admittedly, there is a finding of fact recorded by the authorities that the goods were lying in the bonded warehouse/factory and had not come out of the bonded warehouse/factory, in our view, the judgment of Wallace Flour Mills Co. Ltd. Vs. Collector of Central Excise (supra) supports the contention of the assessee rather than of the Revenue. - Decided in favour of the assessee Addition on account of depositing the PF/ESI payment beyond the prescribed time - Held that - The issue is squarely covered by the judgment of this Court in the case of Commissioner of Income Tax Vs. M/s. State Bank of Bikaner Jaipur and Commissioner of Income Tax Vs. Jaipur Vidyut Vitaran Nigam Ltd. (2014 (5) TMI 222 - RAJASTHAN HIGH COURT ) and CIT Vs. Udaipur Dugdh Utpadak Sahkari Sangth Ltd.(2014 (8) TMI 677 - RAJASTHAN HIGH COURT ) wherein, this Court, after taking into consideration the judgments of the Apex Court, has come to the conclusion that if PF/EPF/CPF/GPF etc., if paid after due date under the respective Act but before filing of the return of income under Section 139(1) of the IT Act, the same cannot be disallowed. - Decided in favour of the assessee.

Issues Involved:

1. Justifiability of Tribunal's decision on excise duty and its inclusion in closing stock under Section 145A of the Income Tax Act.
2. Tribunal's decision on disallowing privilege fee as a business expenditure.
3. Tribunal's decision on deleting additions related to privilege fees as capital expenditure.
4. Tribunal's decision on deleting additions related to delayed PF/ESI payments.

Issue-wise Detailed Analysis:

1. Excise Duty Inclusion in Closing Stock:

The first substantial question was whether the Tribunal was justified in law in holding that excise duty is not leviable as the goods are not transferred and thus cannot be added in closing stock contrary to Section 145A of the Income Tax Act. The court noted that the excise duty was neither actually paid nor accrued on the value of the closing stock and became payable only when the goods were taken out of the warehouse and sold. Since the stock was available in the bonded warehouse, the excise duty was not payable nor accrued, and thus not includable. The Tribunal upheld the deletion of the excise duty component under Section 145A, deciding in favor of the assessee.

2. Disallowance of Privilege Fee as Business Expenditure:

The second substantial question was whether the Tribunal was justified in deleting the additions made by disallowing the privilege fee paid by the assessee to the Excise Commissioner, Government of Rajasthan. The court observed that the privilege fee was paid at the beginning of the financial year and could not be considered an appropriation of profits. The fee was a business expenditure under Section 37(1) of the Income Tax Act, as it was paid for carrying on business and did not bring into existence any asset of enduring benefit. The Tribunal's decision to allow the privilege fee as a deductible expenditure was upheld.

3. Privilege Fee as Capital Expenditure:

In the appeals concerning Rajasthan State Beverages Corporation Ltd., the substantial questions involved whether the privilege fees were capital in nature. The court held that the privilege fees were annual outgoings for the right to manufacture and sell liquor, thus being revenue expenditures. The fees were integral to the profit-earning process and did not result in acquiring any asset of enduring benefit. The Tribunal's decision to treat these as revenue expenditures was upheld.

4. Delayed PF/ESI Payments:

The additional question in DB Income Tax Appeal No.120/2012 was whether the Tribunal was justified in deleting the addition made on account of depositing PF/ESI payments beyond the prescribed time. The court referenced its earlier judgments, concluding that if the payments were made before the due date of filing the return of income under Section 139(1) of the Income Tax Act, they could not be disallowed. Thus, the Tribunal's decision to delete these additions was upheld.

Conclusion:

The court dismissed all the appeals filed by the appellant-Revenue, upholding the Tribunal's decisions on all issues. The privilege fees were considered revenue expenditures, the excise duty was not includable in the closing stock, and delayed PF/ESI payments made before the due date of filing returns were allowable. The judgment provided a comprehensive analysis of the legal provisions and precedents, affirming the Tribunal's findings in favor of the assessee.

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