2005 (6) TMI 232 - AT - Income Tax

Intimation u/s 143(1)(a) - Deduction of export duty - Prima Facie Adjustment - Provision of interest on extra levy sugar price - prior period expenses - disclosed sale/deletion of plant and machinery - Excise duty on export of liquor outside the State of Uttar Pradesh. HELD THAT - On consideration of the matter we agree with the Ld. CIT(A). The assessee did not claim deduction of corresponding expenditure and therefore provisions of section 43B as such did not apply. The Ld. Assessing Officer appears to have made the adjustments because these amounts represented unpaid collections of the assessee during the year. This cannot be called as prima facie adjustment. According to the assessee similar liability claimed had been allowed as deduction in the assessment year 1985-86 by the Ld. CIT(A). In this view of the matter we agree in respect of this amount also that the same is not in the nature of prima facie adjustment. Lastly the assessee claimed deduction of a sum being prior period expenses. The Assessing Officer made the adjustment for the reasons only that the assessee was following mercantile system of accounting. In the order u/s 154 the Assessing Officer stated that before regular assessment it was not possible to verify whether or not these expenses had been claimed in the earlier years as well. Thus from the observations of the Assessing Officer himself in the order u/s 154 it is clear that the expenditure was made without taking into consideration all the facts of the case. Such adjustment cannot be called prima facie adjustment. In the result we are satisfied that the CIT(A) rightly deleted the adjustments made by the Assessing Officer u/s 143(1)(a) as not being in the nature of prima facie adjustments. Hence Revenue s appeal is dismissed. Assessment order u/s143(3) - disclosed sale/deletion of plant and machinery - In our view the Ld. CIT(A) rightly held that the stand taken by the Ld. Assessing Officer was self-contradictory in as much as after having assessed the sum u/s 68 the Assessing Officer had once again assessed short-term capital gain. However for that reason alone the CIT(A) could not resort to deleting the higher addition. As the first appellate authority vested with obligations to make inquiries and arrive at true facts in accordance with the provisions of section 250(4) the Ld. CIT (A) could not rely upon any mistake committed by the Assessing Officer. We see no merit in the contention of the Ld. CIT(A) that as the amounts had been alleged by the assessee as the sale proceeds of fixed assets the Assessing Officer was precluded from applying the provisions of section 68 of the Act. For arriving at that view it was first necessary to come to the conclusion that there was indeed sale of plant and machinery to M/s. A.S. Engineering Works as alleged by the assessee. The Ld. CIT(A) has not addressed himself to that issue at all. We therefore consider it necessary to restore this issue to the file of the Ld. CIT(A) for decision afresh in the light of the observations made by us in this order. Let it be clearly understood that for this purpose the CIT(A) would consider on merits as to which one of the two additions should be retained. He should arrive at specific findings of fact as to whether or not the assessee sold plant and machinery to M/s. A.S. Engineering Works Khatoli as claimed by the assessee. Excise duty on export of liquor outside the State of Uttar Pradesh - The assessee claimed deduction of these amounts as liability accrued on account of Notification issued by Government of Uttar Pradesh levying duty on export of liquor from the State of Uttar Pradesh to other States and Union Territories in India. The assessee challenged legality and validity of imposition of such export duty before the Hon ble Allahabad High Court. The matter was carried to the Tribunal and ITAT by its order in ITA allowed the deduction as claimed by the assessee. Relying upon the aforesaid order of the Tribunal in the case of the assessee in relation to assessment year 1984-85 the Assessing Officer has held that the assessee is entitled to deduction under the provisions of section 43B in the year in which the amount was actually paid. Hence according to the Assessing Officer the deduction claimed by the assessee for assessment year 1995-96 was allowable in the computation of income of assessment year 1996-97 only. We find that in this case the assessee had furnished bank guarantee. From the facts given in para 4 of the Tribunal order for assessment year 1984-85 we find that the amount had gone out of the coffer of the assessee when it furnished the bank guarantee. On that basis the deduction was claimed for assessment year 1984-85. The assessee s contention was turned down by the Tribunal on the basis that payment to the bank for furnishing bank guarantee was not payment within the meaning of section 43B of the Act. That being so the date of payment has to be considered to be 17th July 1995 falling in assessment year 1996-97. The Ld. CIT(A) erred in applying first proviso to section 43B because the liability does not pertain to assessment year 1995-96 but assessment year 1984-85. We therefore hold that the assessee can claim deduction of these amounts only in assessment year 1996-97 and not in assessment year 1995-96. Accordingly we allow Revenue s appeal on this ground. In the result while Revenue s appeal in ITA in relation to intimation u/s 143(1)(a) is dismissed the Revenue s appeal in ITA in relation to assessment order u/s 143(3) is partly allowed.

Summary

Issues Involved:
1. Deletion of adjustments under section 143(1)(a).
2. Addition under section 68 of the Act.
3. Deduction of excise duty under section 43B.
4. Disallowance of provision of interest on extra levy sugar price.
5. Disallowance under section 40A(3).
6. Addition of penalties under section 37(1).

Issue-wise Detailed Analysis:

1. Deletion of Adjustments under Section 143(1)(a):

The Revenue's appeal against the deletion of adjustments made under section 143(1)(a) was dismissed. The adjustments included Rs. 33,58,722/- for export duty, Rs. 2,38,883/- for provision of interest on extra levy sugar price, Rs. 67,840/- for prior period expenses, and Rs. 1,55,094/- for unpaid collections. The CIT(A) held that these were contentious issues and not prima facie adjustments, thus could not be made under section 143(1)(a). The Tribunal agreed with this finding, affirming that such adjustments were not permissible within the limited scope of section 143(1)(a).

2. Addition under Section 68 of the Act:

The first ground in the appeal under section 143(3) related to an addition of Rs. 20 lakhs made by the Assessing Officer under section 68. The assessee had disclosed the sale of plant and machinery, but the buyer, M/s. A.S. Engineering Works, could not be located. The CIT(A) deleted the addition, arguing that the amount was part of the disclosed sale consideration. However, the Tribunal found the CIT(A)'s decision lacking a positive finding of fact and restored the issue for fresh consideration, directing the CIT(A) to determine whether the sale to M/s. A.S. Engineering Works was genuine and which of the two additions (Rs. 20 lakhs or Rs. 11,00,562/-) should be retained.

3. Deduction of Excise Duty under Section 43B:

The second ground pertained to the deletion of an addition of Rs. 33,58,722/- related to excise duty on liquor export. The CIT(A) applied the first proviso to section 43B, allowing the deduction as the payment was made before filing the return. The Tribunal, however, held that the liability pertained to earlier years (1984-85) and the deduction was allowable in the year of actual payment (1996-97). Thus, the Tribunal allowed the Revenue's appeal on this ground, reversing the CIT(A)'s decision.

4. Disallowance of Provision of Interest on Extra Levy Sugar Price:

The third ground involved the deletion of an addition of Rs. 2,38,883/- for provision of interest on extra levy sugar price. The CIT(A) allowed the deduction based on a prior decision for the assessment year 1985-86, which was not contested by the Revenue. The Tribunal upheld this decision, citing the principle of consistency, despite the fact that the liability was ultimately not imposed on the assessee.

5. Disallowance under Section 40A(3):

The fourth ground addressed the disallowance of Rs. 44,923/- under section 40A(3). The CIT(A) allowed the deduction for payments made to employees, citing exceptional circumstances as per CBDT Circular No. 220. The Tribunal agreed, noting the assessee's factory location and lack of a local bank account justified the cash payments, thus rejecting the Revenue's appeal on this ground.

6. Addition of Penalties under Section 37(1):

The fifth ground related to the deletion of additions of Rs. 48,114/- and Rs. 60,000/- made by the Assessing Officer as penalties. The CIT(A) found these amounts were not penalties but represented excise duty and liquidated damages, respectively. The Tribunal upheld this finding, noting no infraction of law was established, and the payments were made in the ordinary course of business.

Conclusion:

In summary, the Tribunal dismissed the Revenue's appeal regarding adjustments under section 143(1)(a) and upheld the CIT(A)'s decisions on disallowance under section 40A(3) and penalties under section 37(1). However, it restored the issue of addition under section 68 for fresh consideration and reversed the CIT(A)'s decision on the deduction of excise duty under section 43B, allowing the Revenue's appeal on these grounds.