1994 (1) TMI 113 - AT - Income Tax

Accounting Year, Additional Depreciation, Appellate Assistant Commissioner, Appellate Authority, Assessing Officer, Business Expenditure, Excise Duty, Investment Allowance, Mercantile System, Previous Year, Revenue Expenditure

Summary

Issues Involved:
1. Disallowance of claim of excise duty provision.
2. Disallowance of claim of investment allowance on certain expenditures.
3. Refusal to admit additional ground for allowance of additional depreciation on machinery.

Issue-Wise Detailed Analysis:

1. Disallowance of Claim of Excise Duty Provision:

The first grievance concerns the disallowance of an excise duty provision amounting to Rs. 5,51,130, which was claimed based on a show-cause notice dated 8th February 1980 issued by the Superintendent of Central Excise, Ahmedabad. The assessee argued that the liability accrued upon receiving the show-cause notice and, following the mercantile system of accounting, made a provision for this liability in their accounts. However, the Assistant Collector of Central Excise later withdrew and cancelled the show-cause notice on 31st August 1982. The Assessing Officer and the Appellate Commissioner (AC) disallowed the claim, stating that there was no accrued or ascertained liability during the relevant previous year.

The assessee contended that the liability accrued during the previous year relevant to the assessment year 1981-82 and should be allowed as a deduction. The assessee's counsel cited several case laws to support this position, arguing that subsequent events should not affect the assessment of the previous year's taxable income.

The Departmental Representative argued that subsequent events, such as the cancellation of the show-cause notice, should be considered, and the liability was not ascertained or accrued. The Tribunal agreed with the Departmental Representative, holding that subsequent events impacting the right to relief must be considered. The Tribunal cited the Supreme Court's judgment in Rabindra Kumar v. State of West Bengal, which supports considering subsequent events that have a fundamental impact on the right to relief. Consequently, the Tribunal upheld the disallowance of the excise duty provision.

2. Disallowance of Claim of Investment Allowance on Certain Expenditures:

The second grievance involved the disallowance of investment allowance on five items of expenditure totaling Rs. 24,640. The Assessing Officer did not grant investment allowance on these items, and the AC directed the Assessing Officer to grant investment allowance only for the pump set (Rs. 5,500) and flame motors (Rs. 4,740). The remaining items, aggregating Rs. 13,880, were considered revenue expenditure by the AC, but no direction was given to allow them as such.

The Tribunal agreed with the AC's conclusion that the assessee was not entitled to investment allowance on the remaining items but directed the Assessing Officer to allow the sum of Rs. 13,880 as revenue expenditure, as concluded by the AC.

3. Refusal to Admit Additional Ground for Allowance of Additional Depreciation on Machinery:

The third grievance concerned the AC's refusal to admit an additional ground for the claim of additional depreciation on machinery purchased during the year. The assessee did not claim this depreciation in the return or raise it in the memo of appeal before the AC. The AC rejected the additional ground, stating that it was not part of the original dispute and had not been processed by the Assessing Officer.

The Tribunal upheld the AC's decision, agreeing that the additional ground was a new issue not previously claimed or processed. The Tribunal cited several case laws, including CIT v. Karamchand Premchand (P.) Ltd., to support this position.

Conclusion:

The appeal was partly allowed. The Tribunal upheld the disallowance of the excise duty provision and the refusal to admit the additional ground for additional depreciation. However, it directed the Assessing Officer to allow the sum of Rs. 13,880 as revenue expenditure.