1989 (4) TMI 123 - AT - Income Tax

Assessment Year, Business Loss, Deduction In Respect, Excise Duty, Fixed Deposit, High Court, Sales Tax Authorities, Trading Liability, Writ Petition

Summary

Issues Involved:
1. Taxability of interest income on fixed deposits.
2. Deductibility of sales-tax liability.
3. Taxability of refund of excise duty.
4. Deductibility of central excise duty on packing material.
5. Waiver of interest under Section 215.
6. Disallowance under Section 80VV.
7. Taxability of unclaimed interest on bearer debentures.
8. Calculation of disallowance under Section 40A(5).

Issue-wise Detailed Analysis:

1. Taxability of Interest Income on Fixed Deposits:
The primary issue was the timing of when interest income on fixed deposits should be deemed earned for tax purposes. The Revenue argued for a de diem en diem (day-to-day) accrual basis, while the assessee contended that interest should be taxable upon maturity. The Tribunal followed its earlier decisions and held that interest income should be recognized when the fixed deposits mature. Consequently, Rs. 32,221 was excluded from the interest income for the year under consideration, and Rs. 1,73,022 was included on a substantive basis.

2. Deductibility of Sales-Tax Liability:
The assessee had been providing for sales-tax liability in its accounts and claiming it as an expenditure, while the Revenue had been disallowing it. The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 8,66,636, following the precedent set in earlier years and the Supreme Court's ruling in Kedar Nath Jute Mfg. Co. Ltd. v. CIT. The Tribunal found no reason to deviate from its earlier decisions.

3. Taxability of Refund of Excise Duty:
The assessee received a refund of Rs. 24,06,528 in January 1981 for excise duty paid earlier. The Tribunal had previously held that such refunds were received in a fiduciary capacity and not taxable under Sections 41(1) or 28(4). However, for the year under consideration, the Tribunal re-examined the issue and concluded that the refund was taxable under Section 41(1) for the assessment year 1982-83. The Tribunal set aside the CIT(A)'s order and restored the addition made by the ITO.

4. Deductibility of Central Excise Duty on Packing Material:
The assessee claimed deductions for excise duty on packing material used for skimmed milk powder and pasteurized butter. The Tribunal upheld the CIT(A)'s decision to allow the deduction of Rs. 1,98,988, even though the demand notice was received after the accounting year. However, the Tribunal restored the issue of Rs. 1,56,077 to the assessing officer for verification and determination.

5. Waiver of Interest under Section 215:
The CIT(A) directed the ITO to dispose of the assessee's application for waiver of interest under Rule 40 before raising any demand for interest. The Tribunal found no fault in this direction, emphasizing that the ITO should not keep the application pending indefinitely while pursuing the demand.

6. Disallowance under Section 80VV:
The Tribunal partially accepted the assessee's contention, reducing the disallowance from Rs. 90,953 to Rs. 33,414. The Tribunal agreed that certain expenses, such as retainership fees and legal consultation fees, were not disallowable under Section 80VV.

7. Taxability of Unclaimed Interest on Bearer Debentures:
The Tribunal upheld the addition of Rs. 63,773 as taxable income under Section 41(1). The Tribunal reasoned that the liability had ceased with the close of the relevant accounting year, and the assessee's own conduct in writing back the amount to the profit and loss account indicated that it treated the liability as extinguished.

8. Calculation of Disallowance under Section 40A(5):
The Tribunal directed that 1/4th of the expenditure on the car provided to the Managing Director be treated as related to personal use, following the precedent set in the previous year. The disallowable portion was to be recalculated accordingly.