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2015 (12) TMI 1680 - HC - Income TaxAdmissibility of claim for deduction on account of Cess and Cess Surcharge - cessation of liability - whether the deduction claimed by the Assessee is liable to be denied on the ground that the Assessee had not recorded the liability in question in its books but had claimed the same in the computation of income filed along with the return - Held that - AO has erroneously held that had the assessments been completed before the decision of the Supreme Court, the Assessee could not have revised the return and his action for applying the provisions of Section 41(1) in AY 1990-91 would have been justified . It is at once seen that following such principle would introduce arbitrariness in determining the income chargeable to tax in a particular year as it would be contingent on the date of making the assessment. The income of a relevant year has to be determined on the basis of the accounting principles and in accordance with the provisions of the Act. The computation of income chargeable to tax in a given assessment year is not dependent on the date on which the assessment for that year is completed. The events having a bearing on the income of an Assessee have to be accounted for in the year in which the events occur. Thus, the effect of cessation of liability by virtue of the decision of the Supreme Court in India Cement (1989 (10) TMI 53 - SUPREME Court ) would have to be assessed in AY 1990-91. As AO is required to assess the income of the Assessee based on the accounting system followed as well as the provisions of the Act. The question whether a deduction is to be allowed is not contingent on whether the Assessee can reopen its books or withdraw its claim; it has to be allowed on the basis whether such deduction is admissible or not. Thus, the question whether a deduction was admissible on account of the liability to pay cess or cess charge would have to be determined on the basis whether such a liability had accrued at the material time.Thus, whether the Assessee could withdraw its claim by filing a revised return is wholly extraneous to the issue whether the deduction claimed by the Assessee was admissible under the provisions of the Act. - Decided against revenue Admissibility of Investment Allowance under Section 32A - Held that - Admittedly, the plant and machinery in question had not been commissioned prior to 31st March, 1987 and was, in fact, commissioned on 14th August, 1987 along with other units of the plant. That even according to the Assessee, the coal mill plant was kept idle for want of software. This also indicates that notwithstanding the submissions made that such software was not essential, the Assessee also felt necessary to keep its plant idle for want of such software.Admittedly, the coal dustbin was an integral part of the plant which had not been installed. The fact that the coal mill could be operated without the coal bin does not lead to the conclusion that it was not an integral part of the plant. The AO s finding that the precalcinator was also acquired after 31st March, 1987 is not disputed. Therefore, the contention that the gases could be diverted directly to the precalcinator in absence of coal ESP is also of no assistance to the Assessee. No test report, acceptance report, or any other material was produced by the Assessee, which would indicate that a trial run of the coal mill plant had been conducted or that the plant was operational. There was no material to indicate that the Assessee had accepted the installation of the plant in question. The AO had noted that major machineries costing ₹ 2,11,24,780/- forming a part of the plant - Coal Mill ESP costing ₹ 45,62,536/-; Coal Mill & Auxiliaries costing ₹ 1,05,18,706/-; Pre-heating and Precalcinators costing ₹ 15,14,707/-; and Clinkering Including coal fixing costing ₹ 45,23,831/- were acquired after 31st March 1987. Thus we are unable to hold that the concurrent findings of the AO, CIT(A) and the ITAT are not supported by reason. Accordingly, the second question is answered in favour of the Revenue and against the Assessee.
Issues Involved:
1. Admissibility of claim for deduction of Rs. 2,38,24,673/- on account of 'Cess' and 'Cess Surcharge'. 2. Admissibility of Investment Allowance of Rs. 67,17,352/- under Section 32A of the Income Tax Act. Issue-Wise Detailed Analysis: 1. Admissibility of claim for deduction of Rs. 2,38,24,673/- on account of 'Cess' and 'Cess Surcharge': Facts: - The Assessee claimed a deduction of Rs. 2,38,24,673/- for the AY 1988-89 on account of 'cess' and 'cess surcharge' under the Madras Panchayats Act, 1958. - The liability was challenged in the Madras High Court and later in the Supreme Court, which eventually quashed the levy on 25th October 1989. - The Assessee had not debited the cess and cess surcharge in its profit and loss account but claimed it in the computation of income. Assessment Officer (AO) Decision: - The AO rejected the claim, stating the liability had not accrued due to the Supreme Court's stay and final decision. - The AO also invoked Section 43B(a) of the Act, which disallows deductions for unpaid taxes. CIT(A) Decision: - The CIT(A) upheld the AO's decision, emphasizing that the liability was not reflected in the books and was non-existent at the time of assessment due to the Supreme Court's decision. ITAT Decision: - The ITAT concurred with the AO and CIT(A) but held that Section 43B was not applicable to 'cess' and 'cess surcharge' for AY 1988-89. Court's Reasoning and Conclusion: - The Court noted that the applicability of Section 43B was settled in favor of the Assessee by a previous decision (M/s Dalmia Cements). - The Court held that the liability accrued during the financial year ending 31st March 1988 and should be assessed accordingly, despite the Supreme Court's subsequent decision. - The Court rejected the argument that the Assessee could withdraw its claim based on the Supreme Court's decision, emphasizing that income and expenses are recognized on an accrual basis in the mercantile system of accounting. - The Court concluded that the deduction was admissible as the liability had accrued during the relevant period. Conclusion: - The first question was answered in favor of the Assessee and against the Revenue. 2. Admissibility of Investment Allowance of Rs. 67,17,352/- under Section 32A of the Act: Facts: - The Assessee claimed an investment allowance for plant and machinery installed before 31st March 1987 but commissioned on 14th August 1987. - The Assessee provided a letter from M/s KHD Humboldt, Switzerland, certifying the installation of the coal mill and auxiliaries. Assessment Officer (AO) Decision: - The AO rejected the claim, stating that the plant and machinery were not ready for use before 31st March 1987. - The AO referred to various judicial decisions to interpret the term 'installed' as being ready for use. CIT(A) Decision: - The CIT(A) upheld the AO's decision, agreeing that the machinery was not installed before 31st March 1987. ITAT Decision: - The ITAT concurred with the AO and CIT(A), finding no reason to interfere with their conclusions. Court's Reasoning and Conclusion: - The Court noted that both parties agreed on the interpretation of 'installed' as being ready for use. - The Court found that the plant and machinery were not commissioned before 31st March 1987 and were kept idle for want of software and other components. - The Court held that the concurrent findings of the AO, CIT(A), and ITAT were supported by reason and evidence. - The Court concluded that the investment allowance was not admissible as the plant and machinery were not installed before the specified date. Conclusion: - The second question was answered in favor of the Revenue and against the Assessee. Final Judgment: - The appeal was partly allowed, with each party bearing its own costs.
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