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TMI Blog1987 (9) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... amed u/s 143(3) /144B of the Act on 24-5-1983 and 2-3-1984, the ITO had disallowed Rs. 15,20,127 and Rs. 23,75,928 respectively out of the claim made by the assessee. 4. Subsequently, on going through the records of the assessee, the Commissioner of Income-tax was of the view that deduction on account of excise duty allowed by the ITO was incorrect. She, therefore, initiated the proceedings u/s 263 of the Act, and called upon the assessee to show cause as to why the orders of the ITO should not be set aside or modified in this regard. 5. Vide its letters dated 29-3-1985, 29-5-1985 and 31-7-1985, the assessee resisted the action of the Commissioner of Income-tax on the grounds that (a) since it had filed appeals before the Commissioner (Appeals) against the orders of the ITO wherein, one of the issues involved pertain to the excise duty, no action u/s. 263 of the Act, could be taken, (b) since at the time of assessment proceedings it had disclosed full facts in respect of the excise duty liability before the ITO and the ITO after considering the assessee's stand as well as printed accounts allowed deduction of the excise duty which included Rs. 14,23,873 in the first year and of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived for payment of Excise duty of Rs. 44,02,120 for the period from 1-10-1975 to 31-1-1978 on wholesalers' price i.e. ex-factory price (without deducting post-manufacturing expenses) and also including differential value between wholesalers' price and ex-factory price. 7. Provision is made in books of account for differential excise duty payable on ex-factory price less actual excise duty paid after deducting certain post-manufacturing expenses from ex-factory price. 8. Excise department has made provisional assessment. Copy of excise duty payable as per provisional assessment is already filed. 9. Similar provision of excise 4 duty payable of Rs. 39,13,435 for assessment year 1981-82, disallowed by the Income-tax Officer has been allowed by CIT (Appeals), Baroda. " In the said letter, the assessee had also relied on a number of reported cases and culled out the following principles : "1. When books of account are maintained on mercantile system of accounting, excise duty/sales tax liability should be claimed in the year of accrual. 2. In the case of excise duty, it accrues on production/manufacture of goods, though quantification may take place at a later date. 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim of the assessee. The order of the CIT (A) for the subsequent year is dated 30-3-1985 while action for the present asst. years u/s. 262 was initiated on 20-3-1985 by issue of show cause notice. Therefore, finding of CIT (A) in the subsequent year cannot be made a base for the presiding of the present year. Moreover, against the order of CIT (A) for the subsequent asst. year, the Department has already preferred an appeal before the Tribunal. Regarding the contention that the order of the ITO was with the approval of the IAC u/s. 144B thus it was not order of the ITO but the order of the IAC, the IAC, u/s. 144B (as stood at the relevant time) was empowered to issue directions and the directions of the IAC used to merge with the assessment order of the ITO. Therefore the directions themselves do not constitute any order and the order always remained that of the Income-tax Officer. So the CIT has jurisdiction to revise the order passed by the ITO with the directions of IAC. On facts, it is seen that for the period 1-10-1975 to January, 1978 the Excise Department took view that the Excise duty was payable, not only on the post manufacturing expenses but also on the wholesellers' m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year of account. In this context, reference can be made to discussion on page No. 1176 of Sampath Iyengar's commentry Vol. II, Discussion in Chaturvedi and Pithisaria Vol. II on page No. 1339 is also noteworthy, which reads as under : Page No. 1176 of Sampath Iyengar : '... Thus, it has been held that there can be no liability, either notional or legal unless and until a demand has been made by the appropriate authority, and that a demand in the exercise of a lawful authority imposes a legal liability upon the assessee and it is only at that point of time that he is called upon to incur the expenditure in question ...' Page No. 1339 of Chaturvedi and Pithisaria Vol. II : '... However, in respect of unadmitted liability for excise duty, an assessee incurs as enforceable legal liability on and from the date on which he receives the Collector's demand for payment (Pope The King Match Factory v. CIT [1963] 50 ITR 495 (Mad.). Also see, T. M. Abdul Rahim Sahib Co. v. CIT [1963] 50 ITR 508 (Mad.) ...' Similar view was taken by the ITAT, Allahabad Bench in the case of Laxmi Co. v. ITO 20 TTJ 239. In view of above mentioned discussion the liability of excise duty to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee argued that since the said notice did not spell out what was in the mind of the Commissioner of Income-tax, the same was bad in law. According to the learned counsel for the assessee, the said notice was vague and not intelligible. He further stated that before an action u/s. 263 of the Act could be initiated, there should be material on record to show that the assessment framed by the ITO was prima facie erroneous and also prejudicial to the interest of the revenue. Since in the instant case allowance of deduction of excise duty liability by the ITO was backed by various reported decisions of the Hon'ble Supreme Court and Hon'ble High Courts, the learned counsel for the assessee went on to urge that the assessments framed by the ITO were quite in order and should not have been disturbed by the Commissioner of Income-Tax by taking action u/s. 263 of the Act. He also emphasised the fact that for the A. Y. 1979-80, the ITO had determined the total income of the assessee at Nil and the total income of the assessee remained Nil even after giving effect to the order of the Commissioner of Income-tax under appeal. In other words, according to the learned counsel for the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue following directions : "It is hereby accordingly ordered that you, your servants and your agents, be and are hereby restrained from acting in pursuance of or in implementation of the impugned order dated 16-4-1980 and 21-4-1980 passed by the Assistant Collector of Central Excise, Division II, Baroda, at Annexure J (colly) to the petition and for impugned demand notice dated 24th June, 1980 issued by the Superintendent Central Excise A. R. IV, Baroda Dn. II at Annexure L to the petition pending admission of the aforesaid Special Civil Application by this Court on condition that the petitioner executes bond in form No. B-13 in respect of future clearances. 15. In view of the aforesaid decision, the assessee made provisions in its books for the years under consideration and had explained the same in Schedule 15 containing " notes on accounts " at item 4(a) in the first year and item 15(e) in the second year under consideration. Since after appreciating the assessee's case in proper perspective the ITO/IAC had allowed deduction of the provision for excise duty liability of Rs. 14,23,873 in the first year and of Rs. 22,25,485 in the second year under appeal, the Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43(3) /144B of the Act. According to the learned representative for the department, the provision of section 263 of the Act are procedural in nature and therefore, there is no merit in the stand taken on behalf of the assessee that just because the assessment were framed u/s. 143(3) /144b of the Act, the Commissioner of the Income-tax could not exercise her revisionary power contained in section 263 of the Act. He further submitted that just because the total income of the assessee in the assessment year 1979-80 remained Nil both prior and subsequent to giving effect to the order of Commissioner of Income-tax under appeal, it cannot be presumed that the order passed by the ITO was not erroneous and not prejudicial to the interest of the revenue. In this connection, he highlighted the fact that certain adjustment and carry forward of amounts/deficiencies had been varied after giving effect to the order of the Commissioner of Income-tax under appeal. In other words, he wanted to impress upon the Tribunal that in order to decide whether the action taken by the Commissioner of Income-tax u/s. 263 of the Act, was proper or not, one has to see the overall effect of the assessments framed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second year under consideration. He, therefore, urged that the Tribunal should uphold the order of the Commissioner of Income-tax under appeal. 18. We have carefully considered the rival submissions of the parties, the material brought on record to which our attention was drawn and perused various reported decisions cited at the Bar and are of the view that there is considerable force in the submissions made on behalf of the assessee regarding the merits of deductibility of the two amounts involved in the present appeals. In view of our this conclusion, it is not necessary to discuss at length regarding the legality of initiating the proceedings u/s. 263 of the Act. Suffice it to state that after the amendment in section 263 of the Act, with effect from 1-10-1984, the Commissioner of Income-tax would be empowered to assume jurisdiction under that section even in a case where the assessment is framed u/s. 143(3) /144B of the Act, irrespective of the fact as to when the assessment order was passed. Further, since there is no prescribed condition to assume revisional jurisdiction u/s. 263 of the Act, unlike section 147 of the Act. The only thing required is that an opportunity of be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the fact that it follows mercantile system of accounting. Again, the assessee would not be entitled to invoke the provisions of section 43 B of the Act, as the same has been brought on the statute with effect from 1-4-1984 by the Finance Act, 1983. On the other hand, if the writ petition is decided in favour of the assessee, the revenue would be in a position of tax the two amounts involved in the present appeals u/s. 41(1) of the Act, in the year in which the decision of the Hon'ble High Court is pronounced. Further we are of the view that the reported decisions relied on behalf of the revenue in this regard have no bearing to the point involved in the present appeals. If at all they have to be considered then, in our opinion, they would support the stand taken on behalf of the assessee in as much as in those cases sales tax collected by the assessees were brought to tax on accrual basis while in the instant case the assessee is claiming deduction of certain excise duty liability on accrual basis while in the instant cases the assessee is claiming deduction of certain excise duty liability on accrual basis. Further, it is pertinent to note that the assessee had claimed deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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