2012 (6) TMI 412 - HC - Income Tax

Trading receipt - refundable contingency deposit representing sales tax collected in respect of disputed transactions during pendency of appeal before court - Ay 91-92 - Held that - Irrespective of the labelling, the deposit either as contingency deposit or security deposit, the fact remains that the assessee had collected sales tax towards disputed items and retained part of the amount with it. There are no materials forthcoming from the asseesee to show that the said contingency deposit was never dealt with by the assessee as part of the trading receipt. We confirm the order of the Tribunal in treating the same as Trading receipt - Decided in favor of Revenue Deduction of same for computing total income - assessee contended that amount is refunded to parties - Held that - On perusal of materials placed it is seen that those amounts relate to the AY 1995-96, hence while treating the receipt as a trading receipt in respect of the AYs under consideration, we hold that on the assessee producing the proof before the AO as regards the refund of the said amount to the parties, it is open to the assessee to make such a claim for deduction of the amount so refunded. Prior period expenses - Held that - It was not the case that the assessee received the bills after the end of the PY but the assessee omitted to claim the expenditure in the relevant AY which means the liability towards the expenses crystalised in the earlier previous years only. Hence it cannot be allowed in this year, as each AY is an independent and separate assessable unit - Decided in favor of Revenue

Summary

Issues:
1. Treatment of refundable contingency deposit as a trading receipt for income tax assessment.
2. Claim for deduction of a specific amount in computing income for the assessment year.
3. Confirmation of levy of interest under section 234B of the Income Tax Act.

Issue 1 - Treatment of Refundable Contingency Deposit:

The assessee, a company engaged in manufacturing, contended that a refundable contingency deposit of Rs.36,03,604 was not a trading receipt but represented sales tax collected for disputed transactions. The assessing authority considered the amount part of the trading receipt, following a Supreme Court decision. The Commissioner of Income Tax (Appeals) and Tribunal upheld this view, emphasizing that the manner of treatment in accounts does not alter the nature of the receipt. The Tribunal noted the collection of 10% tax but remittance of only 4% to the government, indicating the amount's inclusion in the trading receipt. The High Court found no evidence that the deposit was not part of the trading receipt, ultimately confirming the Tribunal's decision.

Issue 2 - Claim for Deduction of Specific Amount:

The appellant claimed a deduction of Rs.59,113 as expenses for the assessment year. However, the Assessing Authority, Commissioner of Income Tax (Appeals), and Tribunal rejected this claim. They noted the absence of evidence supporting the expenses being related to the current assessment year, as the bills were not provided, and the liability crystallized in earlier years. The High Court upheld this decision, as the appellant failed to dispute the findings or provide additional evidence.

Issue 3 - Confirmation of Levy of Interest:

Given the rejection of the first two substantial questions, the third issue regarding the levy of interest under Section 234B was also dismissed as consequential and mandatory. The High Court affirmed the Tribunal's decision on this matter.

In conclusion, the High Court dismissed the tax case appeal, upholding the treatment of the refundable contingency deposit as part of the trading receipt, rejecting the claim for deduction of specific expenses, and confirming the levy of interest under Section 234B.