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2017 (12) TMI 590 - HC - Income TaxAllowable deduction under Section 43B - Disallowance of the amount deposited by the Appellant in its Central Excise Personal Ledger Account (PLA) before 31st March 2000, i.e. the end of the relevant accounting year - Held that - The Court is of the view that the above decision of this Court in the Assessee s own case for AYs 1995-96 and 1996-97 2012 (12) TMI 671 - DELHI HIGH COURT covers the issue in favour of the Assessee - For the purpose of claiming benefit of deduction of the sum paid against the liability of tax, duty, cess, fee, etc., the year of payment is relevant and is only to be taken into account. The year in which the assessee incurred the liability to pay such tax, duty, etc., has no relevance and cannot be linked with the matter of giving benefit of deduction under Section 43B Disallowance represented MODVAT credit of excise duty that remained unutilized by 31st March 1999, i.e., the end of the relevant accounting year - Held that - It was explained by the Bombay High Court in Cartini India Limited v. Assistant Commissioner of Income Tax 2007 (2) TMI 192 - BOMBAY High Court that as per the new provision of Section 145A of the Income-tax Act, 1961, the unutilized MODVAT credit had to be included in the closing stock of raw material and work in progress, whereas the excise duty paid on unsold finished goods had to be included in the inventory of finished goods. However, Section 145A of the Act is prospective and does not apply to the AY in question. The Court is not inclined to permit the Assessee to raise the alternative plea for more than one reason. In the first place, it is a plea taken for the first time in these proceedings. It appears to be an afterthought. Secondly, the ITAT has already accepted another alternate plea made before it by the Assessee by allowing deduction in respect of the unutilized MODVAT credit of the earlier AY, the Court is not inclined to disagree with the reasoning and conclusion of the ITAT. The assessee cannot be allowed to go back and forth on the above plea. There has to be consistency. Thirdly, balance sheet of the Assessee for AY 1999-00 shows that the turnover for the year was over ₹ 8,000 crores. The corresponding sum claimed as deduction representing the unutilized MODVAT credit is not very significant in comparison. - Decided against the Assessee. Disallowance in respect of Sales Tax Recoverable account, under Section 43B - Held that - In view of the ITA s finding on question (ii) which has been affirmed by this Court above, the finding of the ITAT on question (iii) to the effect that no deduction can be allowed in terms of Section 43 B of the amount standing to the credit of the Sales-tax Recoverable A/c is also hereby upheld. Incidentally, here again the ITAT accepted the Assessee s alternate plea, in para 37 of the impugned order, that the amount representing advance payment of sales-tax in preceding year should be allowed deduction in the year under consideration since the same has been adjusted against the liability incurred on sales in this year. The ITAT s direction that the AO should allow the alternate claim after verification if such claim had not been allowed in the preceding year is affirmed. Consumption of raw materials by the Assessee - Held that - The Court answers Questions (iv) to (viii) in the affirmative, i.e. in favour of the Assessee and against the Revenue, by holding that (a) the ITAT erred in remanding the question concerning consumption of raw materials and inputs to the AO for fresh determination; (b) the direction given by the ITAT is directly contrary to and irreconcilable with the evidence and material on record; (c) the ITAT disregarded the PWHC report which is already on record; (d) the ITAT erred in rejecting the Assessee s books of accounts. Nature of software expenditure - revenue expenditure allowance - Held that - The Revenue has been unable to dispute that the assessee in fact did not claim the expenditure in any of the earlier AYs. Thus the above expenditure is in the nature of a revenue expenditure and not a capital one. See Binani Cement v. CIT (2015 (3) TMI 849 - CALCUTTA HIGH COURT)
Issues Involved:
1. Disallowance of excise duty deposit under Section 43B. 2. Disallowance of unutilized MODVAT credit under Section 43B. 3. Disallowance of sales tax recoverable under Section 43B. 4. Remand of the issue of excessive consumption of raw materials and inputs. 5. Rejection of the Assessee’s books of accounts. 6. Treatment of software expenditure as revenue expenditure. Detailed Analysis: Issue 1: Disallowance of Excise Duty Deposit under Section 43B The Assessee deposited ?3,27,83,128 in its Central Excise Personal Ledger Account (PLA) before 31st March 2000. The Assessee claimed this amount as a deduction under Section 43B of the Income Tax Act, 1961, arguing that it represented excise duty liability already incurred. The Assessing Officer (AO) disallowed the deduction, stating it was not debited to the profit and loss account. The ITAT upheld the AO’s decision, asserting that advance payment of excise duty without incurring liability is not allowable under Section 43B. The High Court, referencing the Assessee’s own case for AYs 1995-96 and 1996-97, ruled in favor of the Assessee, stating that the amount in the PLA should be considered as payment of excise duty under Section 43B. Therefore, Question (i) was answered in the affirmative, in favor of the Assessee. Issue 2: Disallowance of Unutilized MODVAT Credit under Section 43B The Assessee had unutilized MODVAT credit of ?69,93,00,428 as of 31st March 1999, which was shown as a current asset in the balance sheet. The Assessee argued that this amount should be allowed as a deduction under Section 43B. The ITAT disallowed the deduction, stating that the MODVAT credit could only be claimed when utilized for payment of excise duty. The High Court upheld the ITAT’s decision, referencing the decision in Oswal Agro Mills Limited and stating that the primary liability to pay excise duty is on the manufacturers of raw materials, and for the Assessee, it is a contractual liability. Therefore, Question (ii) was answered in the negative, in favor of the Revenue. Issue 3: Disallowance of Sales Tax Recoverable under Section 43B The Assessee paid sales tax on the purchase of raw materials and components, debiting the sales tax paid to a separate account titled 'Sales-tax Recoverable A/c'. The ITAT disallowed the deduction under Section 43B, stating that the treatment of advance payment of sales tax is similar to the treatment of MODVAT credit. The High Court upheld the ITAT’s decision, stating that no deduction can be allowed in terms of Section 43B for the amount standing to the credit of the 'Sales-tax Recoverable A/c'. Therefore, Question (iii) was answered in the negative, in favor of the Revenue. Issue 4: Remand of the Issue of Excessive Consumption of Raw Materials and Inputs The AO added ?643.34 crores to the Assessee’s taxable income as 'excessive consumption' of raw materials and components. The ITAT remanded the matter to the AO for fresh determination. The Assessee argued that the ITAT disregarded the PwC Report, which provided a detailed evaluation of raw materials consumption. The High Court found that the ITAT erred in remanding the matter, as the PwC Report had already provided a correct determination of raw materials consumption. Therefore, Questions (iv) to (viii) were answered in the affirmative, in favor of the Assessee. Issue 5: Rejection of the Assessee’s Books of Accounts The ITAT rejected the Assessee’s books of accounts, stating that the Assessee did not maintain a proper stock register. The High Court found that the mere non-maintenance of a stock register cannot form the basis of rejection of the Assessee’s books of accounts, especially when physical verification of the stock was undertaken and reflected in the balance sheet. Therefore, Questions (iv) to (viii) were answered in the affirmative, in favor of the Assessee. Issue 6: Treatment of Software Expenditure as Revenue Expenditure The Assessee incurred ?1,39,91,022 on application software and claimed it as revenue expenditure. The ITAT disallowed the expenditure, stating it had not been incurred in the year in question. The High Court found that the expenditure was not claimed in any earlier years and was rightly claimed in the AY 1999-00. The High Court referenced several decisions supporting the treatment of such expenditure as revenue expenditure. Therefore, Question (ix) was answered in the affirmative, in favor of the Assessee. Summary of Conclusions: (a) Question (i) is answered in the affirmative, in favor of the Assessee. (b) Question (ii) is answered in the negative, in favor of the Revenue. (c) Question (iii) is answered in the negative, in favor of the Revenue. (d) Questions (iv) to (viii) are answered in the affirmative, in favor of the Assessee. (e) Question (ix) is answered in the affirmative, in favor of the Assessee.
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