1987 (4) TMI 101 - AT - Income Tax

Summary

Issues Involved:
1. Whether the refund of Rs. 32,80,110 received by the assessee as excise duty should be considered as income for the assessment year 1983-84 under Section 41(1) of the Income Tax Act.
2. Whether the liability of the assessee towards excise duty had finally ceased, warranting the application of Section 41(1).
3. The relevance and applicability of Section 43B in this context.

Issue-wise Detailed Analysis:

1. Refund of Rs. 32,80,110 as Income under Section 41(1):
The primary issue in this appeal is whether the refund of Rs. 32,80,110 received by the assessee from the Excise Department should be treated as income for the assessment year 1983-84 under Section 41(1) of the Income Tax Act. The appellant contended that since the matter concerning the levy of excise duty was still in dispute, the refund could not be reckoned as income for the year. The amount was reflected as an outstanding liability in the Balance Sheet, pending the final outcome of the litigation.

2. Final Cessation of Liability:
The facts leading to the refund involve a series of legal proceedings, including an order by the Collector of Central Excise, an appeal to the Central Board of Excise and Customs, and subsequent review by the Government of India. The appellant had filed a writ petition in the High Court of Judicature at Bombay, which resulted in the refund being issued conditionally upon furnishing a bank guarantee. The appellant argued that there was no final cessation of liability as the matter was still pending before the Delhi High Court, and the Supreme Court had confirmed the Tribunal's decision in a related case, indicating a potential liability for enhanced excise duty. The Tribunal noted that the liability to pay excise duty at an enhanced rate had not crystallized, and the refund was conditional, supported by a bank guarantee.

3. Applicability of Section 43B:
The department's representative, Shri Thomas, argued that the assessee had received and utilized the money in its business. However, the Tribunal found the reference to Section 43B misplaced as it was inserted by the Finance Act, 1983, effective from 1-4-1984, and the assessment year in question was 1983-84.

Conclusion:
The Tribunal concluded that the refund received by the assessee could not be considered as income under Section 41(1) for the assessment year 1983-84. The liability for the excise duty had not ceased, and the refund was conditional upon the outcome of ongoing litigation. The Tribunal reversed the order of the CIT (Appeals) and allowed the appeal of the assessee, noting that the amount received was shown as a liability in the Balance Sheet and that the assessee had committed to offering the amount for taxation upon final settlement of the litigation.