9911796707
TMI Blog2003 (7) TMI 279X X X X Extracts X X X X X X X X Extracts X X X X ..... n on account of net refund of excise duty - It is admitted position that the assessee s bank guarantee was revoked due to order of the Collector (Appeals), Central Excise. But the Central Excise Department, did not accept this order and preferred the appeal before the CEGAT. The CEGAT vide its order pronounced on 8th May, 1990, reversed the findings of the Collector (Appeals), Central Excise. Thus, when the Collector(Appeals), Central Excise passed the order, it cannot be said that the issue has reached its finality. No absolute right, therefore, vested in the assessee to claim the refund. It is settled law that the assessee could not be penalized for wrong entries made in the books of account. The tax cannot be levied on hypothetical income. It will not be out of place to mention that subsequently the CEGAT has reversed the order of the Collector (Appeals), Central Excise on this issue. Though the CEGAT had denied the claim of the assessee, the assessee had challenged the same before the Hon ble Supreme Court, the same was still pending. During the pendency of the appeal before the Hon ble Supreme Court, the assessee thought it fit to offer the same for taxation and ultimately the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r upgradation of the technology of the existing product cannot be said to be capital expenditure. It is settled law that where an expenditure is incurred for setting up of a new factory or a new line of business, such expenditure will be capital expenditure. But where the expenditure is incurred for keeping oneself abreast of the latest technique of his business or for foreign collaboration it has to be held as revenue expenditure. We, therefore, hold that the CIT(A) has correctly appreciated the facts in deleting the addition. While upholding his findings, we dismiss the ground of appeal raised by the Revenue. In the net result, the appeal filed by the assessee is partly allowed and that of the Revenue is dismissed. - HON'BLE PHOOL SINGH, MEMBER (J) AND KESHAW PRASAD, MEMBER (A) For the Appellant : Virender Talwar For the Respondent : Rajul Awasthi ORDER: Keshaw Prasad, Member (A) 1. The cross-appeals have been directed by the assessee as well as by the Revenue against the order of CIT(A), dt. 3rd Aug., 1992, pertaining to asst. yr. 1988-89. For the sake of convenience, we will first take up the appeals directed by the assessee. 2. In ground No. 1, the assessee has challenge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the return late. The learned counsel also relied on the decision CIT vs. Dogar Tools (P) Ltd. (1998) 150 CTR (MP) 687 : (1998) 232 ITR 616 (MP), CIT vs. Kulu Valley Transport Co. (P) Ltd. (1970) 77 ITR 518 (SC) and H.M.T. Bearings Ltd. vs. CIT (1988) 73 CTR (AP) 243 : (1988) 173 ITR 597 (AP). On the other hand, learned Departmental Representative supported the order of the CIT(A). 7. We have considered the rival submissions. We find that the assessee was following calendar year as its previous year. It changed the accounting period from calendar to financial year. Thus, the relevant accounting period of the assessee was 15 months i.e.,1st Jan., 1987 to 31st March, 1988. For such change, the assessee had also applied to the AO who was pleased to approve such change. Even the IAC directed the AO to allow depreciation proportionately for 15 months. Naturally, as the accounting period was of 15 months, the audit could have been initiated only after 31st March, 1988. As the assessee found that its audit will not be completed by 31st July, 1988, it applied for extension of time upto 31st Aug., 1988, which was granted by the AO. But as the audit could not be still completed, it made an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 27th Nov., 1987. The assessee was also informed of the same. Subsequently, vide order dt. 8th May, 1990, the CEGAT reversed the order of the Collector(Appeals), Central Excise. The assessee s appeal before the Hon ble Supreme Court of India against the order of CEGAT was pending. During the year, the bank guarantee to the extent of Rs. 1,88,96,358 were released. The assessee also paid additional duty and escalation charges to the extent of Rs. 74,16,096. It credited the balance amount of Rs. 1,14,59,912 to its P L a/c after correcting the calculation mistake. However, during the course of assessment proceedings, when the assessee claimed the amount realized by way of bank guarantee was not taxable income of the assessee in the year under consideration because the order of the Collector (Appeals), Central Excise, has not been accepted by the Central Excise Department and the appeal has been preferred before CEGAT, the AO did not accept the contention of the assessee and held that the gross refund received by the assessee was Rs. 1,88,96,358 and this amount should have been credited by the assessee in its P L a/c. The AO also observed that the refund pertaining to asst. yrs. 1980- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... berty to offer the income in any year. The income has to be taxed in the correct year. In nutshell, he supported the order of the CIT(A). 12. We have considered the rival submissions. It is admitted position that the assessee s bank guarantee was revoked due to order of the Collector(Appeals), Central Excise. But the Central Excise Department, did not accept this order and preferred the appeal before the CEGAT. The CEGAT vide its order pronounced on 8th May, 1990, reversed the findings of the Collector (Appeals), Central Excise. Thus, when the Collector(Appeals), Central Excise passed the order, it cannot be said that the issue has reached its finality. No absolute right, therefore, vested in the assessee to claim the refund. It is settled law that the assessee could not be penalized for wrong entries made in the books of account. The tax cannot be levied on hypothetical income. A transaction of entry in the books of account or its treatment therein by the assessee may not always be relevant to decide whether a receipt is liable to income-tax or whether the outgoing was an allowable deduction. Our views find support from the decisions in CIT vs. India Discount Co. Ltd. (1970) 75 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the time of assessment, the AO allowed depreciation only for 12 months by observing that the Schedule X has been enacted to the IT Act which has withdrawn the provisions for allowing depreciation on pro rata basis. On appeal, the findings of the AO were upheld by the CIT(A) against which the assessee is in appeal before us. 15. It is argued by the learned counsel that when the assessee applied for change in the previous year, the AO vide his order dt. 3rd March, 1988, had allowed such change. In the said order, the AO had also, inter alia, imposed a condition that the depreciation will be allowed on pro rata basis for 15 months. The learned counsel stated that on the one hand, while allowing the change of the previous year, the AO had directed to allow depreciation on pro rata basis for 15 months, but on the other hand while framing the assessment order, he has restricted the depreciation for 12 months only. Thus, the Department cannot go back from its own order. Regarding AO s observations that the proviso to r. 5(1) of the IT Rules, 1962, providing depreciation on pro rata basis has been omitted w.e.f. 2nd April, 1987, the learned counsel stated that such Schedule was procedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed by the AO. In the year under consideration, the rate of depreciation has been enhanced to 50 per cent and, therefore, on the basis of principles of consistency, the depreciation @ 50 per cent may be allowed to it. On the other hand, learned Departmental Representative supported the order of the CIT(A). 18. We have considered the rival submissions. The depreciation @ 50 per cent in respect of moulds has been provided in the IT Rules. In the earlier years, such rate of depreciation was 40 per cent which was allowed by the AO. There does not appear to be any apparent reason for not allowing depreciation @ 50 per cent. As the depreciation @ 50 per cent has been provided in the IT Rules, we direct the AO to allow depreciation @ 50 per cent on moulds. This ground of appeals is accordingly, allowed. 19. Ground Nos. 6 and 7 relate to the disallowance out of entertainment expenses. The AO disallowed a sum of Rs. 2,73,214 on account of entertainment expenses which also comprised the sale promotion expenses. On appeal, the CIT(A) allowed the deduction of 25 per cent for employees participation. The assessee is in appeal before us requesting that a deduction of 50 per cent may be allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in sustaining the addition made by the AO. This ground of appeal is dismissed. 24. Ground No. 9 related to the disallowance under s. 43B of the Act. It was stated that the payment of CST/ST and gratuity was made within the time prescribed in proviso to s. 43B of the Act. The evidence for the same was also submitted along with the return. While relying on the decision of the Hon ble Supreme Court in the case of Allied Motors (P) Ltd. Etc. vs. CIT (1997) 139 CTR (SC) 364 : (1991) 224 ITR 677 (SC), the learned counsel stated that amendment to the provisions of s. 43B was procedural and will accordingly apply in the assessment year in question. Regarding the gratuity on superannuation, the learned counsel stated that the payment was made within the grace period allowed and hence no disallowance under s. 43B was called for. On the other hand, learned Departmental Representative supported the order of the CIT(A). 25. We have considered the rival submissions. A proviso was attached to s. 43B of the Act w.e.f. 1st April, 1989, which provided that if the payment of taxes have been made within the due date of filing the return of income, no disallowance under s. 43B was warranted. Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n sustained by the CIT(A) is not justified and the same is deleted. 32. Ground No. 16, the assessee has applied for amendment in the grounds of appeal by way of application dt.18th June, 1999. It was stated that the assessee issued the debentures to meet out the cost of a particular project. However, this project was abandoned, the question arose about the allowability of interest under s. 35(1)(iv) of the Act. It was stated that in the earlier year also, this issue was admitted by the Tribunal who restored the same back to the file of the AO. The AO adjudicated the issue and allowed relief to the assessee. It was stated that this year also, the claim may be modified and the directions may be issued to the AO to consider the claim of the assessee keeping in view the order of the Tribunal for asst. yr. 1988-89. 33. After considering the rival submissions, we accept the modification in the grounds of appeal. We, therefore, set aside this issue and restore it back to the file of the AO to consider the claim of the assessee in the light of the order of the Tribunal in asst. yr. 1988-89. This ground of appeal is allowed for statistical purposes. 34. Ground No. 17 has not been pressed, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A). 42. While learned Departmental Representative relied on the order of the AO, the learned counsel for the assessee supported the order of the CIT(A). 43. We have considered the rival submissions. It is settled law that merely because the entry of an amount has been made in the P L a/c or in the books of account was not enough in holding that an income has accrued to the assessee. The assessee has claimed refund of certain amount of Central excise on the basis of Supreme Court decision in some other cases. Thus, the assessee was not legally entitled to refund in its own case. It is settled law that it was the real income and not the hypothetical income which has to be brought to tax. Our views find support from the decision reported in CIT vs. Shoorji Vallabhdas Co. (1962) 46 ITR 144 (SC) and CIT vs. N.D. Radha Kishan Co. (1983) 140 ITR 860 (P H). The CIT(A) appreciated these facts and deleted the addition. We do not find any infirmity in his findings and while upholding the same, we dismiss the ground of appeal raised by the Revenue. 44. In ground No. (b), the Revenue has challenged the relief allowed by the CIT(A) under the head entertainment expenses . 45. We have dealt with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on interest and advancing the same without interest. Admittedly, this nexus has not been proved by the Revenue. Thus, whether the assessee had any business relationship or not with the two parties to whom the advances have been made, becomes irrelevant. The CIT(A) appreciated the facts correctly while deleting the addition. While upholding his findings, we dismiss the ground of appeal raised by the Revenue. 52. Ground No. (e) relates to the deletion of the addition of Rs. 8,692, on account of unexplained cash credits in the name of industrial training course and M/s Clean Enterprises. While deleting the addition, the CIT(A) has observed that the credits in both the names related to the earlier year and not in the year under consideration. He also observed that this was also not a case of cessation of liability so as to attract the provisions of s. 41(1) of the Act. The Revenue has challenged the above findings of the CIT(A). 53. We have considered the rival submissions. During the course of arguments before us, the Revenue has failed to prove that the amounts were credited to the books of account of the assessee in the year under consideration. These amounts were brought forward f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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