1995 (7) TMI 102 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 26,04,372 under Section 41(1) of the Income Tax Act.
2. Disallowance of Rs. 46,941 under Section 43B regarding sales tax liability.
3. Addition of Rs. 3,82,387 related to interest disallowance.

Detailed Analysis:

1. Addition of Rs. 26,04,372 under Section 41(1) of the Income Tax Act:

Facts:
- The assessee exported wool in 1973-74 and paid export duty under protest amounting to Rs. 26,04,372.
- The duty was refunded in 1974, but the Customs Department issued demand notices in 1975 to repay the refund.
- The Gujarat High Court quashed these notices in 1975.
- The Customs Department's appeal to the Supreme Court was dismissed in 1991.
- The Collector of Customs issued a show-cause notice under Section 130 in 1976, which was dropped in 1985.

Assessment:
- The Assessing Officer (AO) added Rs. 26,04,372 to the assessee's income for AY 1986-87, considering the liability ceased when proceedings under Section 130 were dropped in 1985.
- The CIT(A) initially confirmed this addition but later deleted it under Section 154, citing a mistake apparent on record.

Arguments:
- The assessee argued that the liability did not cease in AY 1986-87 due to the pending Supreme Court case.
- The Revenue contended that the liability ceased when proceedings under Section 130 were dropped in 1985.

Judgment:
- The Tribunal quashed the CIT(A)'s order under Section 154, reinstating the original addition.
- It was held that the liability ceased to exist in AY 1986-87 when proceedings under Section 130 were dropped.
- The Tribunal cited the Gujarat High Court's decision in CIT v. Bharat Iron & Steel Industries, supporting the view that the liability ceased when the review proceedings were dropped.

2. Disallowance of Rs. 46,941 under Section 43B regarding sales tax liability:

Facts:
- The CIT(A) directed the AO to verify payments of the last quarter's sales tax liability and recompute the disallowance under Section 43B.

Arguments:
- The assessee contended that if the payments were made before the due date for filing the return, no disallowance should be made.

Judgment:
- The Tribunal directed the AO to decide the issue afresh, following the Gujarat High Court's decision in CIT v. Chandulal Venichand, ensuring that payments made before the due date are not disallowed.

3. Addition of Rs. 3,82,387 related to interest disallowance:

Facts:
- The AO disallowed interest expenditure, claiming that the assessee had advanced interest-free loans to firms where directors or their relatives were interested.

Arguments:
- The CIT(A) set aside the issue, directing the AO to examine all facts and decide afresh.

Judgment:
- The Tribunal upheld the CIT(A)'s decision to restore the issue to the AO for a fresh decision, finding no justification to interfere with the CIT(A)'s order.

Conclusion:
- The Revenue's appeal against the CIT(A)'s order under Section 154 was allowed.
- The assessee's appeal against the original appellate order was partly allowed.
- The Revenue's appeal against the original order of the CIT(A) was dismissed.