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2024 (11) TMI 97 - HC - Income Tax


Issues:
Assessment of excise duty refund as income under Section 2(24)(xviii) of the Income Tax Act, 1961.
Interpretation of mercantile system of accounting for taxation purposes.
Exemption from excise duty and its classification as income under the Act.

Analysis:
1. The appeal challenged the order of the Income Tax Appellate Tribunal regarding the assessment year 2016-17, where the appellant's appeal was dismissed, and the respondent's appeal was allowed.
2. The appellant-department contended that the excise duty refund claimed by the assessee as a capital receipt should be considered as income under the amended Section 2(24)(xviii) of the Income Tax Act, 1961.
3. The assessee explained that the excise refund was not actually received but booked for accounting purposes, leading to a discrepancy in the department's view.
4. The department held that the assessee provided inaccurate particulars of income, initiating penalty proceedings.
5. The Commissioner of Income Tax (Appeals) partially allowed the appeal, directing the deletion of a portion of the addition while treating the remaining amount as income based on relevant notifications and amendments.
6. Both parties appealed to the Income Tax Appellate Tribunal, resulting in the dismissal of the department's appeal and the allowance of the assessee's appeal.
7. The High Court considered the arguments of both parties and reviewed the appeal file.
8. The Court acknowledged the use of the mercantile system of accounting by the assessee, where profits are recorded when earned, not necessarily realized, for tax assessment purposes.
9. It emphasized that only real income can be taxed, not hypothetical income, and that tax liability should be based on actual earnings, not just accounting entries.
10. The appellant argued that the amended Section 2(24)(xviii) considers certain receipts as income, regardless of exemptions.
11. Definitions of "exemption" and "subsidy" were discussed, highlighting the distinction between exemption from excise duty and subsidies.
12. The Court agreed with the Tribunal that excise duty exemption does not qualify as income under Section 2(24)(xviii) and is a capital receipt not taxable under the Act.
13. Consequently, the appeal was dismissed, affirming the Tribunal's decision regarding the classification of excise duty refund and the application of the mercantile system of accounting for taxation purposes.

 

 

 

 

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