Decided on March 18,1994



B.L. Chhibber, Accountant Member - (1.) THE following grounds have been raised in the appeal filed by the revenue: 1. On the facts and in the circumstances of the case and law, the learned CIT(A), Surat has erred, while deleting the additions of Rs. 26,31,243, in observing that the ITO's action for making addition of Rs. 26,31,243 under Section 43B of the Income-tax Act is found to be not proper, as the addition was not at all made under Section 43B of the Act.
(2.) On the facts and in the circumstances of the case and in law, the learned CIT (Appeals) ought to have upheld the order of the ITO. It is, therefore, prayed that the order of the CIT (Appeals) be set aside and that of the ITO be restored. 2. The assessee is a partnership firm deriving income from business of dyeing and printing of cloth on job work basis. During the year under appeal, the assessee-firm collected Excise Duty amounting to Rs. 26,31,243 and credited the same under an account called "Majoori Excise Account". The learned ITO held that the collection of Excise Duty was in the nature of trading receipts and accordingly assessed the same in the hands of the assessee under Section 41(1) of the Income-tax Act, 1961 observing as under : On scrutiny of the balance sheet, it is found that the assessee has shown as reserves and surplus of Majoori Excise of Rs. 26,31,243 and the assessee was asked that why this should be treated as business income under Section 43B of the Act. The assessee has also given a written submission in reply. However, after careful consideration, it is observed that it is taxable in the hands of the assessee under Section 41(1) of the Income-tax Act, 1961, as the same pertains to his trading receipts. Every year the assessee has taken the amount of excise duty received from the customers as trading receipt and has been shown in the Profit & Loss Account. Thus, the same is treated as trading receipts and the said amount of Rs. 26,31,243 is added to the total income of the assessee. 3. The assessee preferred an appeal before the CIT(A) and during the course of hearing before the CIT(A) detailed written submissions were filed which have been reproduced by the CIT (Appeals) verbatim in his order. The crux of the arguments was that the amount of Rs. 26,31,243 was neither taxable under Section 41(1) or Section 43B of the Act, though the ITO had made addition specifically under Section 41(1) and not at all even mentioned Section 43B in his order. The CIT(A) held that the provisions of Section 41(1) were not applicable and hence he deleted the impugned addition of Rs. 26,31,243 observing as under: In view of the facts and circumstances of the case narrated above and also the decisions of various judiciaries on the same point, particularly in the case of CIT v. Hindustan Housing & Land Development Trust Limited 161 ITR 524 and Supreme Court decision in the case of J.K. Synthetics Ltd. reported in 105 ITR (SC) I am of the opinion that Section 41(1) of the Act is not applicable to the facts of the appeal before me.
(3.) THE above findings of the CIT(A) have been accepted by the revenue. But the CIT(A) went ahead and though the ITO had not at all invoked the provisions of Section 43B, he held that the provisions of Section 43B were also not applicable observing as follows: As far as Section 43B is concerned, it can only be applied when the assessee claims any Government liability is payable and thereby reduces the profit of the relevant year, but does not make actual payment to the Government for one or the other reason. In the instant case, excise collected on behalf of Excise Department is not claimed by the appellant as expenditure. It is simply collected and credited to Excise Collection Account. THE same has to be paid when it become payable in the eyes of law. Merely because excise is disputed and not paid it cannot be treated as 'income' of the appellant. In the present case, the appellant is certainly not the owner of cloth received by it for the purpose of processing. Thus, excise duty collected by it is in a fiduciary capacity or as a trustee. It is to be paid over to the Government of India, through Central Excise Department or in case of success in Supreme Court, it is to be refunded to the customers. Excise duty on majoori receipts (job works) have been paid over to the Central Excise Department. In the peculiar facts and circumstances of the case, I hold that the provisions of Section 43B are also not applicable in the present case. THE ITO's action for making addition of Rs. 26,31,243 under Section 41(1)/43B is found to be not proper in the present case and hence it is deleted. It is the above finding of the CIT(A) which the Revenue has challenged in the grounds of appeal reproduced supra.;

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