1989 (3) TMI 164 - AT - Income Tax

A Firm, A Partner, Assessment Year, Business Loss, Deduction In Respect, Higher Rate, Interest On Advance, Interest Payable

Issues Involved:
1. Deletion of the addition of Rs. 4,37,837 on account of excess breakage/damaged bottles.
2. Addition of Rs. 2,09,093 as deemed interest receivable from a partnership firm.
3. Disallowance of Rs. 2,39,567 being export excise and duty storage wastage under the U.P. Excise Act, 1910.

Detailed Analysis:

1. Deletion of the Addition on Account of Excess Breakage/Damaged Bottles

Background:
The revenue contested the deletion of Rs. 4,37,837 out of a total addition of Rs. 5,19,443 made by the Assessing Officer (AO) for excess breakage/damaged bottles. The assessee appealed against the partial relief, sustaining the balance.

Assessing Officer's Findings:
The AO found the breakage claim to be highly excessive and allowed only 5% breakage for 750 ml bottles and 10% for other sizes, based on historical data and approvals.

CIT (Appeals) Findings:
The CIT (Appeals) estimated an 11% breakage rate for all bottle sizes combined, giving partial relief and sustaining a disallowance of Rs. 81,606.

Tribunal's Observations:
The Tribunal noted that the CIT (Appeals) ignored the AO's detailed basis for the deficiencies. The Tribunal found that proper records and audited accounts were not adequately considered. The statutory auditors had noted incomplete physical verification and unserviceable items. The Tribunal restored the issue to the CIT (Appeals) for reconsideration, emphasizing the need for proper records and comparison with earlier assessment years.

2. Addition of Rs. 2,09,093 as Deemed Interest Receivable from a Partnership Firm

Background:
The assessee, a partner in M/s. Narang Breweries, did not charge interest on advances, despite an agreement for 12% interest. The AO added Rs. 2,31,182 as deemed interest, which the CIT (Appeals) partially sustained at Rs. 2,09,093.

Assessee's Contentions:
The assessee argued that resolutions passed in 1979 and 1980 waived the right to interest, and no interest accrued. They cited various case laws to support their position.

Department's Argument:
The Department argued that the agreement was in writing, and no written evidence supported the cessation of interest liability.

Tribunal's Observations:
The Tribunal declined to interfere, noting that the partnership firm's auditors indicated interest liability. The Tribunal found no evidence of an agreement to waive interest and highlighted that the assessee's resolutions were unilateral. The Tribunal referenced the Supreme Court's decision in State Bank of Travancore, which did not support the assessee's case. The Tribunal upheld the addition, noting the absence of a written agreement and the partnership firm's continued liability.

3. Disallowance of Rs. 2,39,567 Being Export Excise and Duty Storage Wastage Under U.P. Excise Act, 1910

Background:
The AO disallowed the claim for export excise and duty storage wastage due to the lack of evidence of demand raised by excise authorities. The CIT (Appeals) found that the demand was raised after the accounting year.

Assessee's Argument:
The assessee argued that the liability was statutory and should be allowed based on the Supreme Court's decision in Kedernath Jute Mfg. Co. Ltd. They cited various case laws to support their claim.

Department's Argument:
The Department relied on the Delhi High Court's decision in Rattan Chand Kapoor, which limited the scope of the Kedernath Jute Mfg. Co. Ltd. decision.

Tribunal's Observations:
The Tribunal found that the liability had not crystallized and noted that the Allahabad High Court had quashed the levy. The Tribunal held that no statutory liability existed unless confirmed by an appropriate order. The Tribunal referenced Section 43B of the Income Tax Act, emphasizing that deductions are allowable on payment. The Tribunal concluded that the liability was contingent and upheld the disallowance.

Conclusion:
The Tribunal restored the issue of breakage/damaged bottles to the CIT (Appeals) for reconsideration, upheld the addition of deemed interest receivable, and confirmed the disallowance of export excise and duty storage wastage.

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