1987 (7) TMI 155 - AT - Income Tax

Appeal To Appellate Tribunal, Advance Tax, Interest Payable By Assessee On Underestimate, Business Expenditure, Year In Which Deductible

Summary

Issues:
1. Additional ground of appeal raised by the assessee regarding exclusion of excise duty liability from the total income for the assessment year 1980-81.
2. Confirmation of levy of interest under section 216 of the Income-tax Act.
3. Allowance of deduction on account of leave salary based on actuarial valuation certificate versus actual liability.

Detailed Analysis:

1. The Appellate Tribunal ITAT DELHI-B dealt with cross-appeals by the assessee and the Department against the order of the C. I. T. (Appeals) for the assessment year 1980-81. The assessee raised an additional ground of appeal concerning the exclusion of excise duty liability from the total income for that year. This additional ground stemmed from a previous dispute resolved by the Tribunal for the assessment year 1979-80, where the excise duty liability was contested. The Tribunal's observation emphasized the need to consider the actual liability known at the time of assessment, leading to the assessee's plea for exclusion of the taxed amount from the subsequent year's income. The Tribunal admitted the additional ground, citing the principle of avoiding double taxation and ensuring substantial justice between the parties.

2. The issue of interest under section 216 of the Income-tax Act was raised in Ground No. 9. The C. I. T. (Appeals) confirmed the levy of interest amounting to Rs. 1,57,064, citing that interest could be charged even on bona fide estimates if they resulted in underestimation of advance tax payable. However, the Tribunal disagreed with this interpretation, noting that the Income-tax Officer must justify the reasons for underestimation before levying interest. The Tribunal found that the estimates made by the assessee were based on available material and not an attempt to defer tax payment. As retrospective amendments led to an increase in assessed income, the charge of interest under section 216 was deemed unjustified and subsequently deleted.

3. The dispute over the deduction on account of leave salary revolved around the method of calculation - actuarial valuation certificate versus actual liability. The assessee had a practice of making provisions for leave salary, which was claimed as a deduction. The C. I. T. (Appeals) directed the allowance of the actuarial value of the liability as a deduction, contrary to the Income-tax Officer's approach of allowing actual payments only. The Department argued that such a provision was not deductible as it did not represent a liability at the year-end. The Tribunal considered previous decisions and held that the actuarial value should not be allowed as a deduction, as the provision did not equate to a liability. The actual payment of leave salary or encashment was considered the valid deduction, aligning with the principle established in relevant case law.

This detailed analysis encapsulates the key issues addressed in the Appellate Tribunal's judgment, providing a comprehensive understanding of the legal reasoning and decisions rendered on each matter.