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TMI Blog1981 (1) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration. Under a notification issued by the Ministry of Finance in exercise of the powers under sub-r (1) of r. (8) of the Central Excise Rules, 1944, certain rebates at graded rates were available to the factories producing sugar for the period 1st Dec., 1973 to 30th Sept., 1974 in respect of the production which is in excess by a specified percentage over and above the corresponding production during the corresponding months mentioned for the preceding year. On the basis of this notification, the assessee claimed the rebate of Rs. 21,46,400 as per its records of production for the accounting year, which in assessee's case was year ending 30th June, This amount was taken credit in the profit and loss account, since at that time the assessee had no doubt that it was eligible for this relief. In fact, this was also approved by the Inspector in-charge of Assessment group and signed by one Shri Satya Pal Singh, Chief Accounts Officer, Central Excise Department, Madras on 31st Dec., 1974. The assessee, according to this certificate was eligible for this amount of Rs. 21,46,400 in respect of production for this year and another amount of Rs. 5,95,884 with which we are now not concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s order to the Appl. Collector of Central Excise questioning both the jurisdiction to refuse the earlier rebate as well as the merits. The Appl. Collector of Customs and Central Excise, Madras confirmed the order of the Asstt. Collector (date of order is not noted in the copy). The assessee filed a Writ Petition to the High Court of Madras, though it was open to the assessee to have filed a Revision Petition to the Central Board of Customs and Central Excise, because it appears that the Board had meanwhile treated the earlier clarification as erroneous and considered itself not bound by that clarification. Similar Writs were filed by nine other Sugar Mills and all the Writ Petitions came to be heard by a Single Judge of the Madras High Court and a judgment in favour of the Sugar Mills was delivered on 28th Sept., 1979. In this judgment the High Court had followed a decision of the Andhra Pradesh High Court and another judgment of the Madras High Court itself on a similar notification. The High Court also observed that the Government was bound by its earlier clarification. The Writ Petitions were allowed. However, the matter has been taken by the Central Excise authorities in Writ A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit and loss account. The assessee was entitled to revise the return of income in case there had been a mistake in such return. It is entitled to do so at any time before the assessment. It filed a letter on 24th Feb., 1978 claiming that this amount of Rs. 21,46,400 should be deducted from taxable income. There were also other adjustments claimed. At the time of assessment, there was clearly the orders of the authorities withdrawing the rebate. He claimed that it is open to the assessee to take the ld. CIT (Appeals) had allowed himself to be misled by facts, which are not relevant. He claimed that the Central Excise authorities themselves have taken the view that the rebate was not admissible to the assessee. They are ordinarily to be treated as better judges of matters relating to Central Excise. As for the observation of the first appellate authority that the assessee can claim this amount in a later year in case it does not succeed in getting the rebate, he claimed that it will be putting the car before the horse. If a certain rebate is not available to the assessee, the best course is not to take credit for the same. Knowing that the rebate was erroneously taken credit, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 363 (SC), a decision relied upon by the ld, Deptl. Rep. himself for his case, laid down that the question whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee may take of his rights; nor can the existence or absence of entries in his books of accounts be decisive or conclusive in the matter. We have therefore, to consider the issue without giving undue weight to the fact that it was once included in the profit and loss account. It is true that the assessee Bona fide believed that it was entitled to the rebate. In fact, that was the view of the Central Excise authorities themselves and such view had the support of a clarification issued by the Government. All the same, the authorities later took the view that the clarification was not justified in law and that the rebate was wrongly allowed. In fact, the rebate was withdrawn by a formal order. At the time of making the assessment, the position was that the assessee was not entitled to the rebate in law. That was the binding order of a competent authority under Central Excise law. The fact that the assessee had a right of appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability had even been quantified and a demand had been created in the sum of Rs. 1,49,776 by means of the notice dt. 21st Nov., 1957, during the pendency of the assessment proceedings before the ITO and before the finalisation of the assessment. It is not possible to comprehend how the liability would cease to be one because the assessee had taken proceedings before higher authorities for getting it reduced or wiped out so long as the contention of the assessee did not prevail with regard to the quantum of liability, etc. An assessee who follows the mercantile system of accounting is entitled to deduct from the profits and gains of the business such liability which had accrued during the period for which the profits and gains were being computed. It can again not be disputed that the liability to payment of sales-tax had accrued during the year of assessment even though it had to be discharged at a future date. In Pope The King Match Factory vs. CIT (1963) 50 ITR 495 (Mad) a demand for excise duty was served on the assessee and though he was objecting to it and seeking to get the order of the Collector of Excise reversed, he debited that amount in his accounts on the last day of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e found that even these expenses are not admissible. The first appellate authority found that the provision of refreshments and tea to persons who have business dealings with the company could not get hit under s. 37(2) and that such expenses are admissible even as held by the Tribunal on an identical question in the same case for asst. yr. 1974-75 in ITA Nos. 1498 & 1598 (Mad) 1978-79 dt. Jan., 1980 following the decision of the Madras High Court in Karappuswamy Nadar's case (1979) 120 ITR 140 (Mad). Following the said decision, we have to dismiss the departmental appeal on this point. 8. The second question relates to the allowance for provision for gratuity to the extent of Rs. 7,25,662, though the grounds of appeal mentions the disputed amount as Rs. 8,46,400 which was the total provision for the year. The claim was disallowed on the ground that the gratuity provision had not been approved by the prescribed authority. It was also found that the incremental liability relating to the year was only Rs. 1,20,738 and not Rs. 8,46,400. The ITO allowed the incremental liability and disallowed Rs. 7,26,662 though he would not have been justified even allowing the incremental liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision which imposed the conditions. The purpose of the provision is also not in any way defeated by a later formation of the gratuity fund. All that is required by statute in respect of the creation of the approved gratuity fund is that it should be created and that the application for the approval of the fund should have been made before first day of Jan., 1976. It stands to reason when we consider that the provision is retrospective. We are of the view that the provisions specifically permit the creation of the gratuity fund even after the passage of the Finance Act as long as the fund is created and an application is made before 1st Jan., 1976. Any other view would make nonsense of these provisions. As for the second objection that only incremental liability should be allowed, this objection is also equally invalid. The statute provides for allowance of gratuity either on provision or payment basis. There is no third condition as now sought to be made out, justifying allowance only of provision for incremental liability. The incremental liability only would have been ordinarily admissible, if there were no special provisions relating to contribution to gratuity fund. Such a sp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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