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TMI Blog1989 (3) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... kage of bottles at 5 per cent of the consumption shown in respect of bottles of 750 ml. (mililitres) size was adopted for allowance. One of the factors considered by him was the position in assessment for assessment year 1980-81 where such claim was restricted to 5 per cent with the approval of Inspecting Assistant Commissioner under section 144B. In respect of the simliar claim for bottles of other sizes, he adopted the rate of 10 per cent as against higher percentage of breakage claimed by the assessee. 2.2 The CIT (Appeals), however, approached the issue on the basis of percentage of breakage taking the aggregate quantity of bottles of various sizes. Giving a finding that in the absence of proper records for the deficiency recorded on periodic inspection he estimated percentage of 11 per cent to be reasonable and applied the same to the aggregate claim made by the assessee and thereby gave partial relief, sustaining disallowance of Rs. 81,606 as against Rs. 5,19,443 disallowed by the Assessing Officer. 2.3 At the time of hearing before us the representative of the revenue took a strong exception to the manner in which the Commissioner (Appeals) ignored the basis adopted by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appears that the authorities below have not seen the above remarks given by the statutory auditors in respect of the accounts/claim. None of the representatives, before us, brought to our notice this important aspect noted by the statutory auditors and what was the position when the verification was complete. On a query from the Bench in respect of the similar claim for the earlier year it was submitted that for assessment year 1980-81 the matter was pending before the CIT (Appeals). In respect of the subsequent years also the matters are pending before the first appellate authority. Further from reports, we find that the assessee is obliged to maintain cost accounting records according to the provisions of section 209 of the Companies Act and the same are also maintained as stated in Note 12 of the auditors' report. In the cost accounting records, if maintained properly, obviously periodical data in respect of the breakage of the bottles must have been considered while preparing the cost accounting data from time to time. In view of foregoing discussion, in our opinion, the matter requires reconsideration by the CIT (Appeals). We, therefore, restore this issue to his file with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed by the assessee-company in 1979 as also in 1980 waiving right of interest voluntarily. The resolutions were brought to our notice. In the year under consideration the firm did not credit interest to the account of the assessee-partner and, therefore, the conduct of the partner reflected that no interest accrued to the assessee. For this proposition reliance was placed on in the case of CIT v. D'Costa Bros. [1963] 49 ITR 1 (Bom.) and in the case of CIT v. Motor Credit Co. (P.) Ltd. [1981] 127 ITR 572 (Mad.). Further reliance was also placed on in the case of CIT v. S.P. Jain [1987] 167 ITR 161 (SC). On mention from the Bench for reference to the case of State Bank of Travancore v. CIT [1986] 158 ITR 102 (SC), it was submitted that observations at page 104 as stated in the head-notes (majority view) favoured the assessee because while considering the real income theory the factum in respect of surrendering of right was required to be considered and if it was so the theory of real income would be applicable. Besides in the case of Narang Bros. Co. Ltd. [IT Appeal Nos. 5417 to 5419 (Delhi) of 1984] on similar facts the Tribunal had deleted such addition for assessment years 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as financiers advanced certain moneys to persons plying buses. The routes of plying buses were taken over by the State Transport Corporation and, therefore, the debtors defaulted in making payments and consequently the buses were seized. The assessee-company was advised that there was no prospect of recovery of even the principal amount and, therefore, the carry forward of the interest in the accounts was not a advisable. The Tribunal held that the assessee could not have expected to get any interest income on the outstandings and it would be only unrealistic to take credit for the interest. This decision was upheld by the Madras High Court holding that such credit was highly illusory. The facts under consideration before us are different, apart from the fact that now Supreme Court decision is available subsequent to the Madras High Court decision which was referred to earlier in the case of State Bank of Travancore. In the case before us there is positive finding given by the assessing officer that the debtor firm started manufacturing activities in 1981. Moreover, if we look at the constitution of the partnership firm as given on page 22 of the published copy of the audited acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Tribunal there was an agreement between the parties. As we have discussed earlier, on the facts now found in respect of this year we find ourselves unable to come to the conclusion that there was any such agreement. If it is really the case that by conduct of the parties it was to be inferred that there was an agreement or variation in the agreement in respect of the clause for payment of interest, then how is it that in the report dated 27th November, 1982 the auditors of the partnership firm had qualified the report (page 15 of Paper Book A) by stating that the interest on partners' current accounts for the period ending on 30-11-1980 had not been provided. This distinguishes the case of Tribunal relied upon. Such auditor's report has to be obtained as per the clause 6 of the partnership deed where it is stated that the accounts will be got duly audited and certified as correct and shall be binding on all the partners unless the mistake therein is pointed out by any of the partners within three months. Such qualification by the firm's Chartered Accountants reflect the correct position. Moreover, it clearly negates any other inference to be drawn from the conduct of the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e percentage. According to paragraph 814 the duty is payable if the wastage on account of actual loss in transit by leakage, evaporation or other unavoidable cause, of spirit transported or exported exceeds the permissible limit. The details in respect of such wastage had been filed during the course of assessment. 6.2 The CIT (Appeals) found that actually demand was raised on9-10-1984. Therefore, the liability was not incurred during the accounting year. 6.3 At the time of hearing it was submitted on behalf of assessee that the Allahabad High Court vide order dated11th October, 1979had quashed the levy of duty as was being claimed. But the excise department had preferred an appeal before the Supreme Court, and stay against the order was also prayed for. The same was pending even on the date of hearing of appeal before us. But then it was submitted that there did exist liability since the same was not extinguished finally. The liability was required to be deducted on the basis of decision in the case of Kedernath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC). Pressing into service the ratio of decision in the case of CIT v. Hindustan Housing Land Development Trust Ltd. [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting that the assessee is held to be liable under the statute, can be said to have come into existence. In this context, the decision of the Delhi High Court in the case of Rattan Chand Kapoor is of immense guidance. In that case demand for sales tax liability was raised in February 1964 but related to the period 1958-59 and earlier. The claim could be raised after the liability had been determined and the Income-tax assessments for earlier years would have been over long ago. The assessee was denying the liability to sales tax and, therefore, no entries were passed in the books. The returns of income could be revised for the relevant periods if the assessments were not over. But if the assessments are over there is no occasion to file revised returns. In such a situation it was open to the assessee to claim the deduction on the basis of accrual of liability or on the basis of demand raised by the sales tax authorities. Therefore, the deduction was allowable in assessment year 1964-65. Referring to the ratio laid down in the case of Kedarnath Jute Mfg. Co. Ltd. it was stated that the ratio is limited to those cases in which the demand of sales tax is raised before the assessment ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld state as follows. The decision in the case of Hindustan Housing Land Development Trust Ltd. is not directly on the issue under consideration, because in that case the controversy was with regard to tax ability of income while the issue before us is that of allowing a deduction on the basis of clear accrual of liability. Still, however, if at all the ratio is sought to be applied to the controversy before us, yet on a careful consideration we find that the ratio would support the case of the revenue. This is so because that is no right to receive any amount by the Excise Department and, therefore, no liability is created against the assessee. Coming to the case of J.K. Synthetics Ltd. the facts are distinguishable mainly because in that case, (i) a provision was made in the books of account ; which is probably on the basis of the demand raised ; (ii) excise authorities were still raising demands ; (iii) duty was sought to be levied under the amended provisions of the Central Excise Act. In the case before us apart from the facts being different the learned Senior Departmental Representative did touch upon the crux of the matter by stating that Excise department could not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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