R.K.ABICHANDANI,J. - (1.) THE Tribunal, Ahmedabad Bench "B"has referred to us the following questions under S. 256(1) of the IT Act, 1961 : 1. By the assessee : "1. Whether, on the facts and in the circumstances of the case, the Tribunal's finding that the deduction of expenditure has been clearly granted to the assessee in the earlier years is without evidence and/or perverse ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that S. 41(1) covered the case and that Rs. 5,00,000 was a benefit to the assessee taxable as income under that section ?''
(2.) BY the Commissioner : "3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that sum of Rs. 1,06,879 was not liable to tax under S. 41(1) of the Act ? After hearing learned counsel for the parties, with a view to focus the real controversy involved, question No. 2 is split into question Nos. 2A and 2B as under: (2A) Whether, on the facts and circumstances of the case, Tribunal was right in holding that S. 41 (1) covered the case ? (2B) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that Rs. 5,00,000 was taxable as income in the hands of the assessee ?" The relevant assessment year is 1976 77. The assessee is a limited company carrying on business of manufacture and selling electrical domestic grinding machines. Under r. 9 of the Central Excise Act, 1944, the company had been collecting excise duty from the customers in respect of the grinding machines sold. As a manufacturer, the assessee was required to pay excise duty under S. 3 of the Central Excises and Salt Act, 1944 and it was recovered by it from the customers. The amount paid as excise duty was accounted for in a separate account called "Central Excise Duty Account". The assessee did not treat the amounts recovered from the customers as trading receipt by including it in the sale price and thereby in the P&L aacount. It appears that in connection of levy of central excise for the years 1971 72 onwards the assessee had approached the Gujarat High Court by filing Special Civil Application No. 1465 of 1974, challenging the levy of excise duty on the ground that electric grinders were not subjected to such duty. It also appears that at the hearing of this petition, the Excise Department conceded that domestic grinders such as manufactured by the assessee were not liable to duty and agreed to refund the duty already collected. The assessee, thus, during the year of account, received a sum of Rs. 6,06,879 by way of refund of excess duty. The amount represented refunds of excise duty paid over the years 1971 to 1975 by the assessee. The ITO in an order approved under S. 144B by the IAC, brought to tax the above amount under S. 41(1) of the IT Act. According to the ITO, the amount was recovered from the customers as part of the price of grinders sold to them and the excise duty paid had already been allowed as a deduction to the assessee. Since the assessee had already got the benefit of deduction and the allowed amounts were refunded, the entire amount of Rs. 6,06,879 was held to be taxable under S. 41(1) by the ITO. The assessee had contended that the said amount of excise duty belonged to various customers to whom it was repayable and some of them had collected the amount by way of adjustment against service charges due to the company and some had filed suits for recovery, which were compromised by the assessee accepting the liability. The assessee's case was that the entire amount refunded belonged to the customers, who had been apprised of the position regarding the amounts kept in deposit in their behalf, which they may either collect in cash or adjust against future sales services and, therefore, there was no taxable income under S. 41(1) of the Act. The ITO, however, held that the assessee had no intention of refunding these amounts to the customers, bringing to tax the sum of Rs. 6,06,879 as aforesaid.
(3.) THE CIT(A) before whom the order of the ITO was challenged, found that the important fact that the excise duty was not claimed and allowed as a trading liability in the P&L account of the earlier year which was relevant for the application of S. 41(1) had been completely ignored by the ITO and the IAC. According to the CIT(A), the conclusion of the IAC that excise duty was claimed as a deduction in the past and was allowed, was not correct in view of the fact that the duty was never debited to P&L account nor the collection entered as sale price. The CIT(A), therefore, allowed the claim of the assessee, deleting the addition of Rs. 6,06,879 holding that the sum was not taxable.;