TMI Blog1986 (3) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... income-tax authorities or a Tribunal or a Court. Secondly the prohibition contained in section 80VV was with reference to 'per proceeding' and not with reference to 'all proceedings'. If the amount paid per proceeding is Rs. 5,000 or less, that should be allowed and the amount paid must not be aggregated so as to apply the ceiling of Rs. 5,000 mentioned therein. The Commissioner (Appeals) accepted the first proposition but disallowed the latter and on this basis reduced the disallowance to Rs. 1,19,388. Now the contention before us is as per Shri Unni the language of section 80VV must be so interpreted as to advance the purpose of legislation and not to defeat it, that Legislature never desired that genuine expenditure incurred for the purpose of business should be disallowed although certain limits were prescribed under the Act and that those limits provided for under section 80VV must be construed in the practical sense. So construed, he argued that whenever a complication in income-tax matters arise either before an ITO or before a first appellate authority or a second appellate authority or a High Court different persons would be engaged and different amounts of fees might have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aggregate of Rs. 5,000. If, therefore, an assessee incurs any expenditure in the previous year before any income-tax authority or the Tribunal or any Court relating to the determination of any liability under this Act by way of tax, penalty or interest, no deduction in any case shall be allowed in excess of the aggregate of Rs. 5,000. This wording of the section does neither suggest nor permit nor bear the interpretation sought to be placed upon it, namely, that the aggregate must be confined to the per proceeding or all proceedings before each authority referred to therein. This interpretation would be rewriting the section and not interpretation of the section. He, therefore, suggested that the Commissioner (Appeals)'s interpretation must be accepted as the correct and proper one. Section 80VV, which is contested, was inserted by the Taxation Laws (Amendment) Act, 1975 with effect from 1-4-1976 and is in the following terms (even though they underwent a change with which we are not concerned in this appeal): "80VV. In computing the total income of an assessee, there shall be allowed by way of deduction any expenditure incurred by him in the previous year in respect of any proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regate of Rs. 5,000 referred to in section 80VV refers to total expenditure incurred by an assessee in a previous year which are the implicit outer limits build into the section whatever may be the number of proceedings that might take place in a previous year. The Legislature's intent appears to be to limit the expenditure to be allowed under this head taking the previous year as a unit or a proceeding as a unit. If a proceeding as a unit is taken, supposing there are ten proceedings in a previous year before an ITO or an appellate authority or a Court, the total amount allowable in the aggregate would be Rs. 5,000. That kind of interpretation in our considered view would defeat the very purpose of the legislation. The Legislature wanted to put a limit on the allowance of this expenditure and that was the reason why section 80VV was enacted. There is also some history behind the enactment of this section. Before the section came on the statute book except under the authority of the Supreme Court no allowance for expenditure incurred for appellate proceedings for settling tax matters was being allowed as an expenditure incurred as for the purpose of business. After the advent of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t relate to the accounting year or arise. In further appeal the Commissioner (Appeals) confirmed the disallowance. The further facts that are necessary to appreciate this controversy are : The assessee-company received a demand notice from the excise authorities sometime in 1967 under which the authorities demanded a sum of Rs. 66,34,138 relating to the period from 1-7-1967 to 30-6-1968. For the assessment year 1967-68 the demand worked out to Rs. 30,54,054 which was duly provided for in the accounts. It was also allowed as a deduction in that year. The balance amount of Rs. 35,80,084 was provided for in the profit and loss appropriation account for the year ending 30-6-1969. Since the provision was made in the appropriation account, naturally no deduction could have been claimed in the profit and loss account. Subsequently, this demand was reduced by the Central Excise authorities by Rs. 10,40,695 which was duly taken credit by the assessee in the profit and loss appropriation account. This happened in the assessment year 1972-73. The assessee-company simultaneously contested the levy of excise duty on polymer chips by filing a writ petition in the Punjab and Haryana High Court. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the judgment of the Judge and it was that decision that prompted the assessee by providing the necessary legal information to write to the Central Excise authorities about the existence of the demand. What he wanted to convey is the Allahabad High Court in this judgment clarified that even though a single Judge of a High Court cancels a demand holding it to be ultra vires and if a letters patent appeal has been preferred and is pending, that appeal destroys the finality of the decision of the single Judge which amounted to continuing the liability. The High Court also pointed out in that judgment that apart from the fact that an appeal was filed against the decision of the single Judge, the excise department was still raising demands against the company for the excise duty in spite of the decision, which meant according to Shri Unni that if demand was raised by the excise department even after the decision of the High Court was given, the demand continues to subsist and in this case the letter written by the Central Excise Superintendent had the effect of reviving the demand and since the revival had taken place in the accounting year under appeal, it must be held to be a liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e judgment was filed and as there was a possibility of an appeal to the Supreme Court later and as the excise department was still raising demands, it could not be said that there was a cessation of liability so as to attract the provisions of section 41(1). The High Court said that in those circumstances the liability did not cease to exist. When it came to the question of disallowance of current liability, the High Court found that the demand for current liability was raised on different notifications and held that since the assessee was following mercantile system of accounting, it can legitimately claim deduction in respect of a business liability even if such liability was not quantified or paid or that such liability was being disputed. Following the decision of the Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 the High Court held that the assessee was entitled to claim deduction for the current liability for which provision was made in the accounts. But the position here is not the same as obtaining for that year before the High Court. Here the question is whether the liability that related to the assessment year 1967-68 ceased to exist w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7-68 or 1968-69, as the case may be, but certainly not to the year under appeal. Nor can this liability be said to be a current liability as in the case before the Allahabad High Court referred to above so as to apply the decision of the Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. to say that the liability attached to the transactions of the year and under the mercantile system of accounting that liability could be said to be the liability of the year under appeal. We are, therefore, of the considered view that the assessee is not entitled to claim the benefit of the deduction of this sum and the view of the Commissioner (Appeals) cannot be said to be incorrect. 13. [This para is not reproduced here as it involves minor issue.] 14. In the next ground No. 11 the levy of interest under section 216 of the Act Rs. 6,76,500 was contested. The relevant facts are : the ITO issued a demand notice under section 210 of the Act on 5-6-1975 demanding a tax of Rs. 660.68 lakhs. On 11-6-1975 the assessee filed an estimate estimating the tax liability at Rs. 223.50 lakhs and paid the first and second instalments in accordance with that estimate. On 15-12-1975 the assessee filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is not open to the Commissioner (Appeals) to imagine the existence of some internal record and then say that that was not produced. The learned departmental representative opposed these contentions. But in our view the learned counsel's points are valid and full of substance. The assessee submitted the basis for the estimate of advance tax, which was quoted in extenso by the Commissioner (Appeals) in his order. That chart showed the actual production up to May 1975, the estimated production during the next part of the year and the actuals of production. This chart shows that the assessee did make an effort to arrive at the income for the purpose of advance tax on a rational basis. One would expect that the Commissioner (Appeals) being the first appellate authority would go into these figures to find out whether they are correct, false or made up to cover up the deficiency. This was not done at all. On the other hand, the Commissioner (Appeals) says that the assessee must have maintained some internal record without showing that one was maintained and since that internal record was not produced before him, he would not believe these figures. This in our opinion is not rational. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant in the case of manufacture of cement. This ground was raised by way of additional ground. This was not raised either before the ITO or the Commissioner (Appeals). There was some debate before us as to whether this ground could be admitted. In our opinion since the allowance of depreciation on cement machinery was already there before the ITO and what was being urged before us was only the enlargement of the claim, we see no reason why it should not be admitted. We also find that for the assessment year 1975-76 a similar point was raised before the Tribunal and it was admitted by it and the matter was sent back to the ITO for adjudication. The point urged before us on behalf of the assessee was that the machinery used in cement division come in contract with corrosive chemicals and, therefore, the rate of depreciation should be higher than 10 per cent allowed by the ITO. It is precisely to examine this point, the Tribunal for the assessment year 1975-76 sent the matter back to the ITO. Since we found force in the point raised by the assessee by way of additional ground, we admit the additional ground and send the case back to the ITO to examine this issue in the light of the obs ..... 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