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TMI Blog2015 (12) TMI 1680X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment for that year is completed. The events having a bearing on the income of an Assessee have to be accounted for in the year in which the events occur. Thus, the effect of cessation of liability by virtue of the decision of the Supreme Court in India Cement (1989 (10) TMI 53 - SUPREME Court ) would have to be assessed in AY 1990-91. As AO is required to assess the income of the Assessee based on the accounting system followed as well as the provisions of the Act. The question whether a deduction is to be allowed is not contingent on whether the Assessee can reopen its books or withdraw its claim; it has to be allowed on the basis whether such deduction is admissible or not. Thus, the question whether a deduction was admissible on account of the liability to pay cess or cess charge would have to be determined on the basis whether such a liability had accrued at the material time.Thus, whether the Assessee could withdraw its claim by filing a revised return is wholly extraneous to the issue whether the deduction claimed by the Assessee was admissible under the provisions of the Act. - Decided against revenue Admissibility of Investment Allowance under Section 32A - Held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als preferred by the Assessee as well as the Revenue against an order dated 14th January, 1994 passed by the Commissioner of Income Tax (Appeals) [hereafter CIT(A) ]. The said order dated 14th January, 1994 passed by CIT(A) disposed of the appeal preferred by the Assessee against the assessment order dated 26th March, 1991 in respect of the assessment year (AY) 1988-89. 2. The present appeal was admitted on 28th November, 2005 and the following question of law was framed:- Whether on the facts of the case borne on the record, the Appellate Tribunal was right in law in holding that the liability accrued against the assessee-appellant company during the relevant previous year ended on 31.3.1988 in respect of cess and cess surcharge levied on it an amount of ₹ 238.25 lakhs (approx.) under the Madras Panchayats Act, 1958, in respect of certain minerals raised by it as raw materials for its industrial unit had ceased to exist during the relevant previous year? 3. Thereafter, on 23rd November, 2015, the Court also framed the following question of law for consideration:- Whether the Appellant Assessee is entitled to investment allowance under Section 32A(1) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Minerals (Regulation and Development) Act, 1957 in respect of the mining/quarrying of minerals (limestone, magnesite etc.). Aggrieved by the same, the Assessee as well as other persons who were similarly situated challenged the levy of cess and cess surcharge on royalty before the Madras High Court on the ground that the same was beyond the legislative competence of the State Legislature. They canvassed that the explanation to Section 115 of the Madras Panchayats Act, 1958 contravened the provisions of Section 9 of the Mines and Minerals (Regulation and Development) Act, 1957. The Madras High Court repelled the said challenge and held that the cess levied under Section 115 of the Madras Panchayats Act, 1958 was in the nature of tax on land and, thus, within the legislative competence of the State Legislature. Aggrieved by the decision of the Madras High Court, the Assessee as well as other persons approached the Supreme Court by filing special leave petitions and writ petitions. These petitions were allowed by a Constitution Bench of the Supreme Court in India Cement Ltd. v. State of Tamil Nadu: (1991) 188 ITR 690 (SC). The Supreme Court held that the impugned legislation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee s contention that Section 43B of the Act was only applicable in respect of liabilities relating to a tax and the same did not cover cess and cess surcharge was not accepted. 5.5 Aggrieved by the decision of the AO, the Assessee preferred an appeal before the CIT(A). The CIT(A) also rejected the Assessee s claim and held that in cases where the liability claimed is not reflected in the books of accounts but only in the computation of income, then the nature of the liability would have to be considered only at the time of passing the assessment order. The CIT(A) held that since the levy of cess and cess surcharge had been held to be unconstitutional, no liability as claimed by the Assessee was in existence at the time of making the assessment. Consequently, no deduction on that account was permissible. 5.6 Aggrieved by the decision of the CIT(A), the Assessee preferred an appeal before the ITAT. The Assessee, inter alia, contended that the decision of the Supreme Court in India Cement (supra) would not affect the liability accrued during the relevant previous year as the Supreme Court had struck down the levy of cess and cess surcharge prospectively . The ITAT did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in its computation of income and, therefore, could have withdrawn the same immediately on the Supreme Court striking down the aforesaid levy. He contended that the AO, in any event, could not make an assessment allowing the deduction on account of a liability that had already been negated by the Supreme Court. 7.1 Mr Sahni further submitted that by virtue of Section 43B of the Act, a deduction in respect of a liability on account of tax would be admissible only in the year in which the tax is so paid. He submitted that the expression tax was wide enough to include cess or any other statutory duty. He pointed out that clause (a) of Section 43B of the Act was substituted by the Finance Act, 1988 and the clause as substituted expressly included tax, duty, cess or fee . He submitted that this statutory amendment was clarificatory in nature and, thus, notwithstanding the said amendment a deduction on account of liability to pay cess or cess surcharge would be admissible only in the year in which the cess or cess surcharge was paid. Reasoning and Conclusion 8. Having heard the rival contentions, we may, at the outset, point out that the scope of controversy in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and cess surcharge was payable by the Assessee in terms of the levy imposed under the Madras Panchayats Act, 1958. At the material time this was an ascertained liability. The fact that the levy had been quashed by the Supreme Court subsequently cannot possibly lead to the conclusion that the same was non-existent as on 31st March, 1988. The decision of the Supreme Court in India Cement (supra) was rendered on 25th October, 1989 and the impost of cess and cess surcharge stood invalidated and the liability to pay the same was extinguished. However, the income of the Assessee for the previous year ended on 31st March, 1988 would have to be assessed on the basis of income and expenses that had accrued in that period. As pointed out earlier, the liability on account of cess and cess surcharge as claimed by the Assessee had accrued. The fact that it was extinguished by virtue of a judgment delivered in a subsequent period would have to be accounted for in the financial year 1989-90, that is, the previous year in which the judgment in India Cement (supra) was delivered. 10. The AO has held that had the assessments been completed before the decision of the Supreme Court, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds:- We are wholly unable to appreciate the suggestion that if an assessee under some misapprehension or mistake fails to make an entry in the books of account and although under the law, a deduction must be allowed by the Income Tax Officer, the assessee will lose the right of claiming or will be debarred from being allowed that deduction. 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 might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter. The assessee who was maintaining accounts on the mercantile system was fully justified in claiming deduction of the sum of ₹ 1,49,776/- being the amount of sales tax which it was liable under the law to pay during the relevant accounting year. It may be added that the liability remained intact even after the assessee had taken appeals to higher authorities or Courts which failed. The appeal is consequently allowed and the judgment of the High Court is set aside. The question which was referred is answered in favour of the assessee and against the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch, 1987 sent by the representative of M/s KHD Humboldt, Switzerland who were entrusted with the work of erection of modernization project that included the coal mill and auxiliaries in question. The relevant extract of the said letter reads as under:- The VRM, IBAU Silo, Kiln, Cooler, etc. are ready in all respects. Also the entire coal mill plant has been installed and is ready, except one coal dust bin and coal ESP. With one fine coal bin and without the coal mill ESP, the plant could be started without any problem, as we have got provision to take the coal mill gases to precalcinator by passing the ESP. We, however, understand that the Computer Software for Sequencing, interlocking, etc. are not ready. It is not advisable to run the coal mill without such interlocking. 15.4 The AO referred to various decisions in CIT v. Saraspur Mills Ltd.: (1959) 36 ITR 580 (Bom.), CIT v. Indian Turpentine and Rosin Co.: (1970) 75 ITR 533 (All.), CIT v. Sri Rama Vilas Service (Pvt.) Ltd.: (1960) 38 ITR 25 (Mad.) and CIT v. Saurashtra Wire-Healds Manufacturing Co. P. Ltd.: (1968) 67 ITR 524 (Guj.) for interpretation of the word installed and he concluded that the word ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recalcinator directly as indicated in the letter of M/s KHD Humboldt. He further contended that the coal dustbin was only to collect the coal dust and was also not an essential part of the coal mill plant and, therefore, the Assessee s claim for investment allowance could not be denied. 17. Mr Sahni, learned Senior Standing Counsel for the Revenue, argued that the Assessee had not claimed any depreciation in respect of the machineries in question for the AY 1987-88. He contended that if the machines had been installed and were ready to use, the Assessee would be entitled to claim depreciation for the year ended 31st March, 1987 and the fact that no such depreciation was claimed indicated that the machineries in question had not been installed prior to 31st March, 1987. He further contested the claim of the Assessee that the plant and machinery were ready for use as on 26th March, 1987. He pointed out that the letter of M/s KHD Humboldt, Switzerland, which was relied upon by the Assessee, also indicated that a part of the plant and machinery was yet to be installed. He further contended that a careful reading of the said letter would indicate that M/s Humboldt, Switzerland had ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lead to the conclusion that it was not an integral part of the plant. d) That coal mill ESP, which is for controlling pollution, had admittedly not been installed. Although it has been contended that the same was not a part of the coal mill plant, the authorities below found it difficult to accept that the pollution control device of a substantial value (Rs.45,62,536/-) was not an essential part of the plant. e) The AO s finding that the precalcinator was also acquired after 31st March, 1987 is not disputed. Therefore, the contention that the gases could be diverted directly to the precalcinator in absence of coal ESP is also of no assistance to the Assessee. f) No test report, acceptance report, or any other material was produced by the Assessee, which would indicate that a trial run of the coal mill plant had been conducted or that the plant was operational. There was no material to indicate that the Assessee had accepted the installation of the plant in question. g) The AO had noted that major machineries costing ₹ 2,11,24,780/- forming a part of the plant - Coal Mill ESP costing ₹ 45,62,536/-; Coal Mill Auxiliaries costing ₹ 1,05,18 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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