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2011 (10) TMI 492 - AT - Income TaxExcise duty paid under KVSS scheme on suppressed sales of earlier A.Ys - assessee claiming it u/s 43B - Additions to Income were made by applying G.P. rate declared by assessee on such sales - Such additions were later on deleted on technical grounds - Held that - Sec.43B puts a rider that an expenditure which is otherwise allowable under the other provisions of the Act can be allowed in the year of actual payment of such expenditure. To be a permissible deduction there must be a direct and intimate connection between the expenditure and the business. In this case assessee was doing the business of selling of tobacco products but some part of the business has been kept outside the books and therefore the expenditure incurred on the activity which is outside the books cannot be said to be directly and intimately related to such business. Moreover when an addition is made on the basis of GP then (following the Matching concept) obviously all expenses in relation to such sale receipts are deemed to have been allowed - against the assessee.
Issues Involved:
1. Condonation of delay in filing the appeal. 2. Allowability of excise duty payment as a deduction under Section 43B and Section 37(1) of the Income Tax Act. Issue-wise Detailed Analysis: 1. Condonation of Delay in Filing the Appeal: The appeal was filed late by 27 days, and a petition for condonation along with an affidavit was submitted. The Chartered Accountant cited a heavy rush for filing returns as the reason for the delay. The Tribunal found the reason sufficient and condoned the delay. 2. Allowability of Excise Duty Payment as a Deduction: The core issue was whether the excise duty payment of Rs. 6,64,72,870/- made under the Kar Vivadh Samadhan Scheme (KVSS) for the assessment years (A.Y.) 1993-94 and 1994-95 could be allowed as a deduction in the A.Y. 1999-2000. - Background and Facts: The assessee paid excise duty following show cause notices from the Central Excise Department for suppressed sales. The Income Tax Department reopened the assessments for A.Y. 1993-94 and 1994-95 based on this information. The additions were made based on gross profit rates (19% for A.Y. 1993-94 and 20% for A.Y. 1994-95) and were later deleted by the Tribunal on jurisdictional grounds. - Contentions of the Assessee: The assessee argued that the excise duty payment was for the purpose of business and should be allowed under Section 43B, which allows deductions based on actual payment irrespective of the year of liability. The assessee relied on various judicial precedents to support the claim that business expenses need not always correspond to receipts and that the expenditure was commercially expedient. - Contentions of the Revenue: The Revenue contended that since no income from the suppressed sales was offered for taxation, the corresponding excise duty payment could not be allowed as a deduction. They argued that the expenditure must be matched with corresponding revenue, which was not the case here. - Tribunal's Analysis and Findings: The Tribunal examined the provisions of Section 43B and Section 37(1). It concluded that Section 43B only allows deductions for expenses that are otherwise allowable under the Act. The Tribunal emphasized that the expenditure must be "wholly and exclusively for the purpose of business." The Tribunal referred to the Supreme Court's decision in Travancore Titanium Product Ltd. and Maddi Venkataraman & Co. (P.) Ltd., emphasizing that the expenditure must be directly and intimately connected with the business. The Tribunal noted that the assessee's business involved lawful activities, but the suppressed sales were outside the books, making the related excise duty payment not directly connected with the business. The Tribunal also observed that when additions were made based on gross profit rates, all related expenses, including excise duty, were deemed to have been allowed. Allowing the excise duty payment separately would result in a double deduction, which is impermissible. Additionally, the Tribunal applied the matching principle, stating that the revenue side must match the expenditure side. Since the suppressed sales were not offered for taxation, the excise duty payment could not be matched with any revenue, rendering the deduction claim invalid. Conclusion: The Tribunal upheld the disallowance of the excise duty payment as a deduction, confirming the order of the Commissioner of Income Tax (Appeals). The appeal was dismissed.
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