1992 (11) TMI 125 - AT - Income Tax

Summary

Issues Involved:
1. Deduction of Excise Duty and Customs Duty u/s 43B.
2. Jurisdiction of CIT u/s 263.
3. Applicability of Gujarat High Court decision in Lakhanpal National Ltd. v. ITO.

Summary:

1. Deduction of Excise Duty and Customs Duty u/s 43B:
The assessee, a public limited company engaged in the manufacture and sale of paints, filed a revised computation of its total income for the assessment year 1984-85, claiming a deduction of Rs. 98,25,833 for excise and customs duties paid but not charged in the profit and loss account. The assessee argued that the effective debit of customs and excise duties to the profit and loss account stood reduced by this amount due to its inclusion in the value of the closing stock. The ITO allowed this deduction based on the provisions of section 43B and the Gujarat High Court decision in Lakhanpal National Ltd. v. ITO [1986] 162 ITR 240.

2. Jurisdiction of CIT u/s 263:
The CIT issued a notice u/s 263, considering the allowance of Rs. 98,25,833 as erroneous and prejudicial to the interests of the Revenue. The CIT argued that the decision of the Gujarat High Court was distinguishable and that the allowance of the amount was not correct. The CIT enhanced the total income by Rs. 98,25,833 and directed the ITO to issue a demand notice and challan. The assessee contended that the order of the CIT was without jurisdiction, as the ITO had followed the only decision directly on the point.

3. Applicability of Gujarat High Court decision in Lakhanpal National Ltd. v. ITO:
The Tribunal distinguished the facts of the present case from the Gujarat High Court decision. In Lakhanpal National Ltd., the proportionate excise and customs duty credited as part of the value of the closing stock was not debited to the profit and loss account. In contrast, in the present case, the amount of Rs. 5,85,87,181 was debited to the profit and loss account, which included Rs. 98,25,833. The Tribunal held that the assessment was erroneous and prejudicial to the interests of the revenue, as the ITO had granted double allowance of the claim. The Tribunal upheld the order of the CIT and dismissed the appeal, stating that the reference to section 43B was not apposite and that the amount had already been debited to the profit and loss account, thereby obtaining a deduction.

Conclusion:
The Tribunal concluded that the CIT had jurisdiction to take remedial action u/s 263, and the assessment was erroneous and prejudicial to the interests of the revenue. The appeal was dismissed, and the order of the CIT was upheld.