1987 (3) TMI 147 - AT - Income Tax

Additional Demand Assessment Year Business Expenditure Central Excise Excise Duty Expenditure Incurred Raw Material

Summary

Issues:
1. Allowability of Central Excise liability for two assessment years.
2. Treatment of legal and consultancy charges.
3. Treatment of deposit received for supply of plastic moulds.
4. Deduction claim for deferred revenue expenditure.

Issue 1 - Allowability of Central Excise liability:
The case involved appeals by the revenue against the orders of CIT (Appeals) regarding the allowability of Central Excise liability for two assessment years. The assessee claimed the liability based on an order by the Collector of Central Excise, but the Income-tax Officer rejected the claim stating it arose after the relevant account year. However, CIT(A) allowed the claim following precedents and held that the quantified amount is deductible even if the order is passed during assessment proceedings. The tribunal noted the chronological events related to the excise duty classification and held that the additional duty levied was not allowable for the assessment years in question, vacating the CIT(A)'s orders.

Issue 2 - Treatment of legal and consultancy charges:
The Income Tax Officer disallowed legal and consultancy charges related to the valuation of property, considering them as capital expenditure. However, CIT(A) accepted the assessee's contention that the expenditure was for business expansion and not of enduring nature. The tribunal referred to various court decisions and held that the expenditure making basic alterations in the profit-earning structure constitutes capital expenditure. Following the Supreme Court and Calcutta High Court decisions, the tribunal vacated the CIT(A)'s order and restored the disallowance by the ITO.

Issue 3 - Treatment of deposit received for supply of plastic moulds:
The case involved an amount received as a deposit for the supply of plastic moulds, which the Income Tax Officer treated as part of the assessee's income for the relevant year. The tribunal noted that the creditor had not claimed the amount after several years, but since the assessee did not treat the amount as its own, the tribunal confirmed the CIT(A)'s order on this point.

Issue 4 - Deduction claim for deferred revenue expenditure:
The assessee claimed deduction for deferred revenue expenditure brought forward from the previous assessment year. The Income Tax Officer noted that the expenditure was not of the current year, and CIT(A) held that only expenditure related to the relevant accounting year was allowable. However, the tribunal disagreed with CIT(A)'s reasoning and restored the addition of the expenditure, as the consumption of raw material in a particular year cannot be considered deferred expenditure of the subsequent year.

In conclusion, the tribunal partly allowed the revenue's appeal for one assessment year and vacated the CIT(A)'s orders on various points, restoring the Income Tax Officer's decisions in those instances.