Decided on December 16,1994



V.K. Sinha, Accountant Member - (1.) THIS is an appeal filed by the assessee.
(2.) At the outset, the ld. counsel for the assessee submitted before us that ground Nos. 1 & 2 relating to disallowance of sales-tax and labour welfare fund under Section 43B of the Act were not being pressed. They are accordingly rejected. The main dispute is contained in ground Nos. 3 to 6 and relate to an addition of Rs. 47, 83,916 on account of refund of Central Excise Duty. The original assessment was completed under Section 143(3) on 27-2-1989 on total loss of Rs. 12,76,550. Thereafter, the CIT passed an order under Section 263 of the Act on 18-3-1991 setting aside the assessment, inter alia, for the reason that unpaid statutory liabilities of Rs. 50,16,888 had not been included in the total income and, therefore, the assessment was erroneous and prejudicial to the interest of revenue. The section of the Act under which the amount should have been added was riot mentioned either in the order under Section 263 or in the show-cause notice sent earlier. Thereafter a fresh assessment order was passed in July 1991 making an addition of Rs. 47,83,916 on account of Central Excise Duty refund received by the assessee during the year.
(3.) THE Assessing Officer observed in the fresh assessment order that according to auditor's report the assessee was following mercantile system of accounting except for certain items. THE auditors noted that the company was following cash basis in respect of "these claims, refunds and duty draw backs etc." THE assessee had received a refund claim of Rs. 47,83,916.45 on the basis of an order of the Customs, Excise & Gold (Control) Appellate Tribunal, New Delhi, butthe Assistant Collector of C.E.,Jamshedpur had preferred an appeal before the Supreme Court against the order. Hence the amount had not credited to the Profit and Loss Account. It was submitted before the Assessing Officer that the assessee had to pay back this amount to various customers and a list was also filed. It was submitted that after the order of the Supreme Court, the assessee may be required to refund the amount. THE Assessing Officer observed that the assessee was following a system of accounting in which net amount of sales were credited to the profit and loss account. This practice was followed consistently. He took a view that the assessee had been allowed the effect of these dues in the earlier assessment years. Further as a debit has been consistently allowed to the assessee in earlier previous years, the receipt of Excise Duty refund was taxable in this year. He also observed that as and when the assessee made any payment to any party he has to be allowed to get the credit for such payments. With these remarks he added the sum of Rs. 47,83,916 to the assessee's income. 4A. THE assessee's submissions before the CIT(A) have been reproduced in his order and are extracted below : This represents the amount refunded during the accounting period 1st April, 1985 to 30th September, 1986 in terms of order No. 158-B/84 dated 14-2-1984 and order No. 161/84-B of the Customs Excise & Gold (Control) Appellate Tribunal, New Delhi and Hon'ble High Court of Judicature at Patna Ranchi Bench, Ranchi (Photocopy of these orders enclosed as per Annexure-C I, II, III). THE Central Excise Department has preferred an appeal against the above orders before the Hon'ble Supreme Court and the decision of the Court is still awaited. In the event of the decision going against the company the entire amount is liable to be refunded to the Central Excise Department immediately. On the other hand, if the decision goes in favour of the company the entire amount is to be refunded to individual customers (list of such customers enclosed as per Annexure-D). THE D.G.S. & D., New Delhi vide their letter No. CDN-2/18(20)/II/82, Patna Vol. II, dated 11-4-1986, CDN-2/18(20)/II/82, Patna dated 25-7-1986, CDN-2/18(2)/II/82, Patna dated 25-7-1986 and CDN-2/18(20)/II/82, Patna dated 30-9-1987 have already demanded the respective amounts of excise duty released from them in the disputed case and the company has requested them vide letter No. CE/DGSD/86/1246 dated 25-4-1986 to wait until final disposition of the case by the Hon'ble Supreme Court. In view of the above position we submit that the disputed amount refunded to the company amounting to Rs. 43,83,916 is an existing liability of the company and the ld. Assessing Officer has erred by including it as a part of taxable income of the company. We request your honour to consider this point in the light of the decisions of Hon'ble High Court of Allahabad in the case of Rameshwar Pd. Kishan Gopal v. ITO [1983] 12 Taxman 281 (All.) and Hon'ble High Court of Kerala in the case of K.V. Moosa Koya & Co. v. ITO. THE Hon'ble High Courts have ruled in view of the Government appeal to Supreme Court, assessee's liability to pay excise duty had not been finally extinguished and, therefore, Section 41(1) was not applicable. It will be applicable only in the year of liability finally extinguishing.;

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