1982 (9) TMI 112 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of refund of excise duty under Section 41(1) of the Income Tax Act, 1961.
2. Applicability of interest under Section 215 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Taxability of Refund of Excise Duty:

The central issue in this appeal was whether the sums aggregating to Rs. 2,36,782 received by the assessee as a refund of excise duty were taxable under Section 41(1) of the Income Tax Act, 1961. The assessee, a registered firm using a mercantile system of accounting, had paid this amount under protest and later received refunds after contesting the payments with the Excise Authorities. The refunds were received as follows:

- Rs. 37,079.02 on 7th May 1977.
- Rs. 74,852.89 on 9th May 1977.
- Rs. 1,24,850.31 on 2nd July 1977.

However, the refunds were immediately contested by the Excise Authorities through show-cause notices, questioning the legitimacy of the refunds and proposing their withdrawal. The show-cause notices were issued on 13th October 1977 and 23rd November 1977.

The Income Tax Officer (ITO) added the refunded amounts to the assessee's income for the assessment year 1978-79, treating them as income under Section 41(1). This decision was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)], relying on the judgment of the Allahabad High Court in CIT vs. Taj Gas Service (1980) 122 ITR 1034 (All).

The assessee argued that the refunds could not be considered as income since they were under dispute and not final. The Tribunal agreed with the assessee, stating that the refunds were not final and complete, and thus, Section 41(1) did not apply. The Tribunal noted that the issuance of refunds was immediately challenged and the amounts were still under dispute, indicating no cessation or remission of liability.

2. Applicability of Interest under Section 215:

The assessee also contested the interest charged under Section 215, which pertains to interest on shortfall in payment of advance tax. The Tribunal concluded that since the additions made by the ITO were deleted, the interest under Section 215 would not be consequentially applicable.

Conclusion:

The Tribunal allowed the appeal, deleting the addition of Rs. 2,36,782 from the assessee's income and ruling that interest under Section 215 was not leviable. The Tribunal found that the refunds were still under dispute and had not resulted in a final cessation or remission of liability, thus not taxable under Section 41(1). The Tribunal's decision was also supported by the precedent set in the case of Des Raj Chiranji Lal Steel Rolling Mills and the judgment of the Punjab and Haryana High Court in CIT vs. Punjab Oil Mills (1976) 102 ITR 332 (P&H).