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TMI Blog2015 (6) TMI 180X X X X Extracts X X X X X X X X Extracts X X X X ..... t this conclusion, this Court relies upon its ruling in Rattan Chand Kapoor (1984 (2) TMI 60 - DELHI High Court)affirmed by this Court in Shri Ram Pistons & Rings Ltd [2008 (5) TMI 631 - DELHI HIGH COURT]. Thus the sum of ₹ 4,94,09,120/- paid by the assessee towards additional excise duty on behalf of the contract manufacturers constitutes deductible expenditure under Section 37(1) of the Act - Decided in favour of the assessee - ITA No. 686/2014 - - - Dated:- 25-3-2015 - S. Ravindra Bhat And R. K. Gauba, JJ. For the Petitioner : Shri M S Syali, Sr. Advocate with Sh. Mayank Nagi, Sh. Harkunal Singh and Ms. Bhawna Bakshi, Advs. For the Respondent : Ms Suruchii Aggarwal, Sr Standing Counsel ORDER Mr. Justice S. Ravindra Bhat (Open Court) Issue notice.With consent of learned counsel, the appeal was heard finally today. 1. The present appeal is filed by the assessee under Section 260-A of the Income Tax Act, 1961 ( the Act ), against an order dated 14.03.2014 passed by Income Tax Appellate Tribunal ( ITAT ) in ITA No. 1977/De1/2011 for Assessment Year (AY) 2007-08. The ITAT upheld the findings of the lower authorities and held that the sum of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uty demand. 6. On 10.11.2006, the CESC passed an order raising an additional excise demand, including interest, amounting to ₹ 4,94,09,120/- on Dart and ITL as additional excise duty on the goods manufactured by them for the assessee. The said additional excise duty liability was borne by the assessee as it was in respect of liability that arose on contract goods manufactured for the assessee; and arose only on account of variance in notional value of moulds provided free of cost by Tupperware to be used in manufacturing process. 7. The assessee filed its return of income for AY 2007-08 on 24.09.2008, wherein the liability incurred by the assessee herein towards additional excise duty was claimed as revenue expenditure. As per the assessee, the additional excise duty levied on its contract manufacturers, i.e. Dart and ITL was on the goods manufactured for the assessee and due to notional re-valuation of the moulds, which the assessee was contractually bound to provide free of cost. Thus, it formed part of the purchase price adjustment. In other words, the purchase price for the assessee was increased by the amount of additional excise duty. Accordingly, the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the expenditure cannot be claimed in the year under consideration. (c) The assessee's contention that the expenditure incurred was for commercial expediency and to safeguard the long term interest of the assessee was unsubstantiated. Aggrieved by the aforesaid decision, the assessee has preferred this appeal. Submissions on behalf of the Parties: 10. Mr. Mayank Nagi, learned counsel for the assessee submits that the ITAT erred in disallowing the expenditure incurred by the assessee herein in lieu of additional excise duty levied on the contract manufacturers, as the only element that can be factored in while adjudicating upon the allowability of expenditure under Section 37(1) of the Act is whether the same was incurred wholly and exclusively for the purpose of business. It is not a pre-condition that the expenditure must be incurred out of necessity. He further submits that there is no dispute that liability of additional excise duty levied upon Dart India and ITL by the CESC was discharged by the assessee herein in order to enable its business to function smoothly without any disruption as the contract manufacturers were not financially equipped to bear the levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... voices raised for period subsequent to passing of the order of CESC. 14. Finally, learned counsel submits that the ITAT erred in holding that the expenditure incurred by the assessee cannot be allowed in the AY under consideration since the same pertains to payment of excise duty pertaining to earlier years. It failed to consider that the said additional liability has crystallized only during AY 2007-08 on account of order of the CESC, during the year under consideration. The assessee could not have anticipated the additional demand of excise duty in the past, as this is the first time wherein such quantification was made by the excise authorities pursuant to the order of CESC. Learned counsel submits that a liability is to be claimed only in the year when it crystallizes and not before. Reliance is placed on ACIT v. Rattan Chand Kapoor, 149 ITR 1 (Del), which was subsequently followed in CIT v. National Cereal Products Ltd., 165 Taxman 180 (Del) and in CIT v. Shri Ram Pistons Rings Ltd., (2008) 220 CTR 404 (Del). 15. On the other hand, learned counsel for the revenue defends the order of the ITAT and submits that the payment of excise duty cannot be claimed as expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contract manufacturers or the assessee itself. We hold this in light of the settled proposition discussed above, i.e. expenditure incurred voluntarily and without any necessity is also deductible under Section 37(1) of the Act, so long as it is incurred 'wholly and exclusively' for the purposes of business. 19. Further, the facts on record sufficiently establish that the payment was made by the assessee in the interests of commercial expendiency. The moulds for manufacturing the goods marketed by the assessee were provided to the contract manufacturers by the assessee itself, as the said moulds were patented and not available in the market. Excise duty was levied on the notional cost of these moulds. The rent for these moulds was also paid by the assessee to the overseas entities, and not by the contract manufacturers. The contract manufacturers were carrying out the manufacturing activity for the assessee and it was in the assessee's business interests that all tax liabilities of the manufacturers were duly satisfied. The ITAT could not have doubted the business efficacy of the assessee's decision to pay the excise duty in the absence of any reasons on record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This sum of ₹ 4,94,09,120/-, the additional excise duty, was the differential amount which became payable only upon the passing of the said order and thus, became crystallized in the subject assessment year. Therefore, even though the excise duty was for manufacturing activity that occurred earlier, the liability to pay such additional duty did not exist in the previous years and as a result, could not have been claimed by the assessee as expenditure in the concerned previous years. In arriving at this conclusion, this Court relies upon its ruling in Rattan Chand Kapoor (supra). In Rattan Chand Kapoor (supra), the issue was whether sales tax liability for the periods 1953-54 to 1958-59 could be claimed as deductible expenses in assessment year 1964-65, when the demand was made in 1964. The Court answered the question in the affirmative and noted as follows: But, what happens if the liability is not determined till much later? In the present case, the demand was raised in February, 1964, but related to the period 1953-54 to 1958-59. Obviously, the assessed could not claim the deduction on the basis that it arose at a much earlier date. Perforce, the claim could only be r ..... 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