2014 (4) TMI 243 - HC - Income Tax

Scope of the income to be assessed Accrual of income - Excise credit - Whether the Tribunal is right in holding that excise credit received by the assessee-company and credited in the profit and loss account does not form part of the income to be assessed Held that - The Tribunal was of the view that the right to receive the credit rebate accrued only when there is liability under the Excise Act - Unless the liability under the Excise Act accrues on the production of specified goods in which inputs are used and other relevant conditions are fulfilled by the assessee the benefit by way of credit does not accrue to the assessee - the credit of pro forma rebate taken into account is illusory and no real income had accrued - This was a finding of fact which has not been challenged by the Revenue in the sense that the finding is perverse nor is the finding of the Tribunal was demonstrated by Mr. Dutta, learned advocate for the appellant to be erroneous either in fact or in law. If the assessee had in fact received the money, it would have been a receipt in the nature of revenue but the fact is that the assessee did not receive any money - That is the finding of the Tribunal - The receipt shown in the profit and loss account is an illusory receipt - The assessee had communicated its reasons as to why it resorted to make to such an illusory entry which include that the company had sustained losses and in order to impress the bankers and to please the shareholders the aforesaid entry was passed into the profit and loss account - The Tribunal on facts was satisfied with the explanation - The question raised is a pure question of fact - When the Tribunal was satisfied that the entry did not represent any real income or any real receipt of money, there is no question of the same being taxable Decided against Revenue.

Summary

Issues:
1. Taxability of excise credit in profit and loss account.

Analysis:

The High Court of Calcutta heard an appeal challenging a judgment where the Tribunal allowed the appeal of the assessee regarding the taxability of excise credit. The Tribunal held that the right to receive credit for excise accrued only when there was a liability under the Excise Act, and the credit did not form part of the income until the liability accrued. The Tribunal considered the scheme regarding credit for excise and found that the credit entry was contingent on the liability and operated in the field of deductions rather than income. The Tribunal's decision was based on earlier orders and held in favor of the assessee in both assessment years. The Revenue appealed this decision, questioning whether the excise credit formed part of the assessable income.

The Tribunal reasoned that the credit entry for excise was not taxable as it was contingent on the accrual of liability under the Excise Act. The Tribunal found that the credit entry was illusory and did not result in any real income for the assessee. The Tribunal referred to various legal precedents to support its decision, emphasizing that a mere accounting entry cannot be considered income unless actual income has been generated. The Tribunal highlighted that the credit entry was made for window-dressing purposes and did not represent real income. The Tribunal's finding that the credit entry was illusory and not taxable was not challenged by the Revenue as being perverse or erroneous.

The Court considered the arguments presented by the Revenue, citing legal precedents related to subsidies and revenue receipts. The Revenue contended that the excise credit should be treated as a revenue receipt, but the Court disagreed. The Court upheld the Tribunal's finding that the credit entry was illusory and did not result in any actual income or receipt of money for the assessee. The Court noted that the entry was made to impress bankers and shareholders due to sustained losses by the company. The Court concluded that since the entry did not represent real income, it was not taxable. The Court disposed of the appeal in favor of the assessee, affirming that the excise credit was not part of the assessable income.