SUHAS CHANDRA SEN, J. - (1.) THE Tribunal has referred the following question of law under s. 256(1) of the IT Act, 1961 to this Court : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that recovery of excise duty of Rs. 17,61,161 made by the Central Excise authorities is allowable as a deduction under s. 37 of the IT Act, in computing the income of the assessee for the asst. yr. 1973-74?"
(2.) IN this proceeding the assessment year involved is 1973-74 for which the corresponding year of account is the year ended on 31st Dec., 1972. The facts found by the Tribunal as narrated in the Statement of Case are as under : "The assessee-company claimed deduction of a total amount of Rs. 17,61,161 representing Central Excise duty payable by the company on manufacturing of tea in respect of the following calendar years : The aforesaid duty was debited by the assessee-company in the respective calendar years for which the accounts were drawn up and the claim of the assessee for deduction thereof was allowed by the ITO in the respective assessment years. The assessee had not made payments of the said amounts itself in the Government Treasury but had handed over the sums in question to the Garden Bankers (know as Kayas) for payment. The job of the Kayas was to collect tax from various tea companies on account of Central Excies, etc., and to make deposit of the amounts so collected in the Treasury, i.e., the State Bank of India, Tezpur. The said Kayas represented to the assessee- company that the amount in question had been paid by them and alleged receipts issued by the State Bank of India for the said payments were also filed by them with the aforesaid company. Subsequently the Central Excise authorities informed the assessee-company in 1972 that the Central Excise duty as aforesaid aggregating to Rs. 17,61,161 had not been deposited by them in the Government Treasury and that, therefore, the said amount must be deposited forthwith. As the company resisted the aforesaid claim of the Central Excise authorities, they issued a certificate to the Collector for realisation of the sum of Rs. 17,61,161. The Collector also distrained plant and machinery, stock of tea of the assessee-company as well as future production of tea. The company thereupon felt compelled to make the payment. Simultaneously the assessee filed both criminal and civil cases against the Kayas and further lodged a claim with the insurance company. The criminal and civil suits filed by the assessee as also the claim preferred with the insurance company were still pending decision. The assessee claimed before the ITO that the amount of Rs. 17,61,161 paid by it to the Central Excise authorities be allowed as a deduction of business loss incurred by the assessee-company during the calendar year 1972 relevant for the asst. yr. 1973-74. The ITO rejected the assessee's claim. On appeal the CIT(A) allowed the assessee's claim and directed the ITO to allow deduction of the entire amount of Rs. 17,61,161 in recomputing the income of the assessee-company for the asst. yr. 1973-74."
(3.) ON further appeal, the Tribunal held that "so far as the assessee-company is concerned there was not only a liability incurred in regard to the said sums but there was also physical outgoing of cash corresponding to the said liability. The said outflow of cash, however, did not reach the correct destination and it is not clear as to where the entire amount evaporated. Finding is yet to be reached by the competent Court as to whether the amount was defalcated by the Kayas or whether the bank officials concerned had defalcated the money after deposit thereof in the bank or whether there was collusion between the Kayas and the bank officials. The claim made by the assessee-company during the year under consideration does not pertain to the loss of cash in manner indicated above. What is being claimed by the assessee-company is the second payment of Rs. 17,61,161, which it was forced to pay to the Central Excise authorities on account of attachment of its machinery, tea stock, etc., during the accounting year under consideration. But for such payment its business would have come to standstill. The payment in question was, therefore, made in order to remove the obstacle from the smooth running of the business. Such a payment is, in our opinion, directly relatable to the carrying on of the assessee's business and is, 1968 ......... Rs. 1,08,500 1969 ......... Rs. 7,34,911 1970 ......... Rs. 6,09,150 1971 ......... Rs. 2,56,600 1972 ......... Rs. 52,000 . . Rs. 17,61,161 therefore, an allowable expenditure in terms of s. 37 of the IT Act, 1961. If and when there would be any recovery from the bank officials from the Kayas or from the Central Excise authority with regard to the alleged earlier payments, if any, the ITO would be entitled to bring the said amount of recovery to tax in terms of sub-s. (1) of the s. 41 because the said amount would be on account of liability which had already been debited in the books of account of the assessee and which was not enforceable by the Customs authorities on account of double payment thereof. The learned CIT (A) has already made the above position clear and in our opinion that observation of the CIT(A) is in accordance with law. The claim of the assessee in the circumstances was rightly allowed by him. The order of the CIT(A) being in accordance with law is hereby confirmed.";