2004 (11) TMI 274 - AT - Income Tax

Issues Involved:
1. Deletion of addition of Rs. 1,25,08,000.
2. Deletion of addition of Rs. 2,38,733 as Duty Draw Back receivable.
3. Deletion of addition of Rs. 6,67,180 on account of Insurance claim receivable.
4. Claim for advertisement expenditure at Rs. 1,06,84,762.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 1,25,08,000:
The primary issue concerns the deletion of an addition of Rs. 1,25,08,000. The assessee had credited its profit and loss account with Rs. 45,08,000 as Export Incentive (Advance Licence) and Rs. 80,00,000 as expected premium on sale of special import licence entitlements. However, these amounts were reduced in the computation of total income for income-tax purposes. The Assessing Officer, referencing the decision in Dhansiram Agarwalla v. CIT, added the sum to the income of the assessee. The CIT(A) overturned this action, leading to the Revenue's appeal.

The Tribunal considered whether accounting entries are conclusive evidence of income accrual. Citing CIT v. Shoorji Vallabhdas & Co., it was held that income tax is a levy on real income, not hypothetical income. The Tribunal also referenced Kedarnath Jute Mfg. Co. Ltd. v. CIT, which stated that entitlement to deductions depends on the law, not on the entries in the books. The Tribunal found that the income from material import entitlements accrues only when the entitlements are transferred or sold, not when they are merely held. Consequently, the CIT(A)'s order was upheld, and the ground was not allowed.

2. Deletion of Addition of Rs. 2,38,733 as Duty Draw Back Receivable:
The second issue pertains to the deletion of an addition of Rs. 2,38,733 as Duty Draw Back receivable. The assessee exported rice and became entitled to duty drawback, which was credited in the profit and loss account but claimed not taxable as the claim was filed after the financial year. The Assessing Officer taxed this amount, but the CIT(A) reversed this decision, relying on CIT v. Punjab Bone Mills.

The Tribunal noted that the duty drawback claim was filed and approved in the succeeding year, and under the mercantile system, income accrues when a legal right is acquired. The Tribunal referenced the jurisdictional High Court decision in Punjab Bone Mills, affirmed by the Supreme Court, which held that the right to receive cash incentive accrues when the claim is filed. Thus, the CIT(A)'s decision was upheld, and the ground was not allowed.

3. Deletion of Addition of Rs. 6,67,180 on Account of Insurance Claim Receivable:
The third issue involves the deletion of an addition of Rs. 6,67,180 on account of an insurance claim receivable. The assessee credited claims filed with the Insurance Company but not admitted. The Assessing Officer added this amount, but the CIT(A) deleted it.

The Tribunal found that two claims related to previous financial years and were not admitted by the Insurance Company, thus not taxable in the current year. For the claim of Rs. 5 lakhs, the loss occurred in the relevant year, and the right to claim compensation arose then. The Tribunal held that the CIT(A) was not justified in deleting the addition of Rs. 5 lakhs but rightly deleted the other amount of Rs. 1,67,180. Therefore, the ground was partly allowed.

4. Claim for Advertisement Expenditure at Rs. 1,06,84,762:
The last issue concerns the claim for advertisement expenditure of Rs. 1,06,84,762. The assessee spent Rs. 1,60,27,142 on advertisement but treated 2/3rd as deferred revenue expenditure in the books, claiming the entire amount for deduction in computing total income. The Assessing Officer disallowed Rs. 1.06 crores not debited to the profit and loss account, but the CIT(A) overturned this decision.

The Tribunal noted that the expenditure was genuine and deductible irrespective of its treatment in the accounts. The CIT(A) considered the decision in Mohan Meakin Breweries Ltd. v. CIT, holding advertisement expenditure deductible. The Tribunal upheld the CIT(A)'s action, finding no reason to disallow the expenditure. Thus, the ground was not allowed.

Conclusion:
In conclusion, the Tribunal upheld the CIT(A)'s decisions on all issues except for the partial allowance of the insurance claim receivable. The appeal was partly allowed.

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