Decided on December 15,1994



G. Santhanam, Accountant Member - (1.) THE assessee is a limited company and the assessment year is 1983-84. During the accounting year 1981-82, the company had received Rs. 30,02,977.50 as excise duty refund. THE background of this refund is that the excise department treated electronic stencil scanner as dutiable falling Tariff Item 33D of the Excise Manual. It protested that the classification was not correct and the electronic stencil scanner was not excisable. In the appeal, the Appellate Collector of Central Excise agreed with the companies contention and passed order in favour of the company. However, this order was revised by the Government of India and the Excise Department again demanded the payment of excise duty. As there could be no clearance of manufactured items from the factory without the payment of excise duty, the company had no option but to deposit the duty amount with the concerned authorities under protest. As and when the payment was made under protest, the same was debited to an account called 'Excise Duty Advance Account'. THE amount collected from the customers were credited to the said account. THE balance amount remaining in this account was carried to the balance-sheet as "Advances recoverable in cash or in kind or for the value to be received". On a Writ petition filed by the Company in the High Court of Karnataka for determining the correct classification, the learned Single Judge decided the appeal in favour of the company and held that the electronic stencil scanner is not excisable. THE department being not satisfied filed a Writ appeal, the Division Bench of the Karnataka High Court confirmed this order of the Single Judge. Pursuant to the decision of the Division Bench, the company gave an undertaking to the Excise Department that it would refund the excise duty collected to the customers as far as practicable. After obtaining this undertaking from the assessee, the excise department refunded the amount of duty paid under protest. Thus refund was not credited to the profit and loss account. As the amounts originally paid were not initially debited to the profit and loss account. In the circumstances, the company in Part III of its return of income claimed that "Refund of Excise Duty amounting to Rs. 30,02,978 is not exigible to Income-tax as the same has been obtained on giving an undertaking to the Assistant Collector of Central Excise that the company will pass on the benefit to the customers without prejudiced to the assessee's contractual obligations and the statutory requirements".
(2.) It was contended before the Assessing Officer that the company had not taken the amount of excise duty refund received to the credit of profit and loss account but had kept it in a contingency account accepting the liability to pay to the parties from whom the collection has been made and relied on the decision of the Tribunal, Jaipur Bench in the case of Wolkem (P.) Ltd. v. ITO. It was also contended that as the excise duty amount when paid was not debited to the profit and loss account, but was carried in a separate account and shown only in the balance-sheet, the refund of the same could not be brought to tax under Section 41(1) of the Income-tax Act, 1961. These contentions were not acceptable to the Assessing Officer. He found that even after three years of receiving the refund, the company had not made any earnest effort to refund the same even in a solitary instance. He held that the refund of excise duty is a trading receipt and therefore it was assessable under Section 41(1) of the Income-tax Act, 1961. To the argument of the assessee that it had not claimed any deduction for the excise duty paid under protest in the preceding years and therefore the refund of the same cannot come within the mischief of Section 41(1), the learned Assessing Officer held that even though the assessee had not claimed for deduction of the excise duty paid under protest in the preceding years, in its accounts, it should be deemed to have been claimed in the ratio of the decision of the Gujarat High Court in the case of Motilal Ambaidas v. CIT [1977] 108 ITR 136. In this view of the matter he made an addition of Rs. 30,02,977 among others, to the total income of the assessee. The assessee carried the matter in appeal and reiterated the same arguments before the CIT(A) and relied on the judgment of the Hon'ble Andhra Pradesh High Court in CIT v. Devatha Chandraiah & Sons [1985] 154 ITR 893. Further reliance was placed in the judgment of the Madhya Pradesh High Court in the case of CIT v. Deora Pu Canbeon Mfg. Co. (P.) Ltd. [1985] 156 ITR 831. The CIT (Appeals) on going through these judgments held that in the case of Devatha Chandraiah & Sons (supra) their Lordships have clearly held that as and when the sales-tax was refunded to its principal, it could not be included in its income. In Madhya Pradesh case the finding of the Tribunal was that the amount of refund belonged to Madhya Pradesh Electricity Board, who did not give up their claim against the assessee and thus it was on this fact the decision was referred. Thus distinguishing the facts of the case in the cases relied on by the assessee and the facts of the assessee's own case, the first appellate authority upheld the order of the Assessing Officer observing that the Assessing Officer had clearly stated in his order that the amount would be allowed as a deduction when the assessee produces evidence for having disbursed the refund to the original customers from whom it had collected the excise duty and paid the same to the Excise Department. Thus, he dismissed the claim of the assessee. The assessee is in further appeal.
(3.) SRI Sarangan, the learned counsel for the assessee after tracing the genesis of the dispute and after reiterating the contentions made before the CIT (Appeals) placed reliance on the following decisions : (a) CIT v. Nathuabhai Desabhai [1981] 130 ITR 238 (MP); (b) Devatha Chandraiah & Sons' case (supra); (c) Deora Pu Canbeon Mfg. Co. (P.) Ltd.'s case (supra); (d) CIT v. Bharat Iron & Steel Industries [1993] 199 ITR 67 (Guj.)(FB). SRI Abraham, the learned Senior Departmental Representative, relied on the decision of the Kerala High Court in the case of CIT v. Marikar (Motors) Ltd. [1981] 129 ITR 1. He then submitted that the Division Bench of the Karnataka High Court did not impose any condition on the assessee to give any sort of undertaking to the Excise Department binding itself to refund the amount received from the excise department to the customers from whom excise duty was originally collected. The undertaking which the assessee gave to the excise department should be considered only a voluntary undertaking though it might be at the instance of the excise department. The assessee was not legally obliged to give any such undertaking before the refund was received. The assessee has not adduced evidence to show that there was any such condition for the refund to be made. Even assuming that the assessee had to give such undertaking on the instance of the Excise Department, it has not carried out its undertaking by refunding the amount to the customers even after the lapse of three years. What is worse is that the assessee has not taken any serious effort to refund the amount to the customers from whom it collected the duty. This allegation of the Assessing Officer remains un-controverted even at this stage of the proceedings. The CIT (Appeals) has distinguished the facts of the cases relied on by the assessee and in the light of the decision of the jurisdictional High Court, cited supra, no interference is called for with the order of the CIT (Appeals).;

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