TMI Blog2008 (1) TMI 468X X X X Extracts X X X X X X X X Extracts X X X X ..... case and also in view of the Supreme Court judgment in Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC) and the Allahabad High C9urt judgment in CIT vs. Brijmohan Das Laxman Das (1979) 11 CTR (All) 243 : (1979) 117 ITR 121 (All) (both being binding on the lower authorities), the learned CIT(A) ought to have allowed the appellant deduction of Rs. 82,65,936 in the present case. 3.1 Because the learned CIT(A) erred in facts and in law in confirming the addition of Rs. 51,000 to the appellant's income for the present year being notional interest on the figure of Rs. 5,08,919 representing an advance made to M/s Chetake Construction on 4th Oct., 1989, and outstanding for more than 10 years. by wrongly applying the ratio of the Allahabad High Court decision in the case of H.R. Sugar Factory. 3.2 Because in confirming the addition of Rs. 51.000 as notional interest on presumptions in the present case. the learned CIT(A) was not all justified in upholding the action of the learned AO that 'it is only to be presumed that the appellant has merely diverted its funds by way of this advance and since the appellant is meanwhile paying interest on its own borrowing, the correspondi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Because on the facts and in the circumstances of the present case the learned CIT(A) was not at all justified in upholding the action of the AO of not allowing deduction of Rs. 2,54,53,425 and Rs. 17,72,671 while computing the book profit under s. 115JA of the IT Act, 1961. 6.4 Because the learned CIT(A) has erred on the facts and in law in not directing the AO to allow full credit of the carry forward of losses and depreciation in the present case, while computing the income and book profit under s. 115JA of the IT Act, 1961. 7. Because the learned CIT(A) has erred on facts and in law in not directing the AO to allow to the appellants proper credit for tax deducted at source and interest under s. 244A thereon in the present year. 8. Because the learned CIT(A) erred on facts and in law upholding the action of AO in withdrawing interest of Rs. 17,435 under s. 244A of the IT Act, 1961 in the present case. 9. Because the order appealed against is contrary to facts, law and principles of natural justice and fair play. 10. Any other grounds that may be taken at the time of hearing." 2. The assessee is engaged in the manufacture and sale of rectified spirit and various organ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated this sum as receivable by the assessee and hence treated it as his income for the current year. He accordingly, made the addition of Rs. 2,54,53,425 in the total income of the assessee. 6. The learned CIT(A) confirmed the order of the AO by observing as under: "2.7 I have carefully considered the reply given by the appellant and perused the assessment order. The appellant has written back purchase tax liability of Rs. 2,54,53,425 in its books of account following the judgment of the Supreme Court in the case of another company. The appellant has stated that this liability is a statutory liability and provisions of s. 41(1) are not applicable. 2.8 The legislature has inserted an Expln. 1 by the Finance (No. 2) Act, 1996 w.e.f. 1st April, 1997 below sub-s. (1) of s. 41 of IT Act, which reads as under: Explanation 1: For the purposes of this sub-section, the expression 'loss or expenditure or some benefit in respect of any such trading liability by way of remission or cessation thereof' shall include the remission or cessation of any successor in business under cl. (b) of that sub-section by way of writing off such liability in his accounts. 2.9 The appellant has writte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) because that Explanation covers a different situation. In the present case, the Authorised Representative submitted that the State Government has not remitted or cessed any liability of purchase tax paid or payable by the assessee. Further according to him it is only the real income that has to be taxed. Merely by passing book entry income cannot arise or accrue to the assessee. The book entries were made merely in the hope of getting refund from the State Government in respect of the amount of purchase tax already paid by it. Since, there is no accrual of any real income to the assessee, mere passing book entry will not result to any income to the assessee. The learned Authorised Representative relied on the decision of the Hon'ble Orissa (sic-Delhi) High Court in CIT vs. Orissa Cement Ltd. (2002) 173 CTR (Del) 317 : (2002) 254 ITR 24 (Del) and on Polyflex (India) (P) Ltd. vs. CIT (2002) 177 CTR (SC) 93 : (2002) 257 ITR 343 (SC), National Handloom Development Corpn. Ltd. vs. Dy. CIT (2004) 188 CTR (All) 195 : (2004) 266 ITR 647 (All), Godhra Electricity Co. Ltd. vs. CIT (1997) 139 CTR (SC) 564 : (1997) 225 ITR 746 (SC) and UCO Bank vs. CIT (1999) 154 CTR (SC) 88 : (1999) 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure in an earlier year would be taxable as income only when the assessee gets a refund. Since in the present case 'the assessee had not got any refund the question of holding it taxable under s. 41(1) does not arise. Further, for taxing a sum under s. 41(1) it has to be shown that it is a two way transaction, i.e., there has to be an overt act on the part of other party either by giving refund to the assessee in respect of sum paid to it as a trading liability which is allowed as deduction, or where such sum is not paid by the assessee and is merely a credit entry by debiting the P L a/c then other party in whose favour such credit entries are made by the assessee in its books should have ceased the liability fully or partly in favour of the assessee. Remission of liability arises when the creditor voluntarily gives up the claim. The cessation of such liability arises only when it ceases to exist in the eyes of law for all intent and purposes. Reliance is placed on Liquidator, Mysore Agencies (P) Ltd. vs. CIT 1978 CTR (Kar) 0284 : (1978) 114 ITR 853 (Kar). 11. In the present case, we notice that it is only a unilateral act of the assessee by writing credit entries in its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent assessee had neither obtained any amount either in cash or in other manner, in respect of such purchase tax. Therefore, the first limb of s. 41(1)(a) i.e. point (ii)(a) above would not be applicable. The second limb, i.e., point (ii)(b) above will also not be applicable because as held above there is neither remission or cessation by the State Government in favour of the assessee either this year or in the subsequent year. 14. In this regard learned CIT(A) has invoked Expln. 1 to this sub-section. The rule of Explanation to a statutory provision has been explained by the Hon'ble Orissa (sic-Delhi) High Court in CIT vs. Orissa Cement Ltd., wherein it has been held as under: "The object of an Explanation to a statutory provision is- (a) to explain the meaning and intendment of the Act itself, (b) whether there is any obscurity or vagueness in the main enactment, to clarify the same as to make it consistent with the dominant object which it seems to subserve, (c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful, (d) an Explanation cannot in any way interfere with or change the enactment or any part ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility within the meaning of the Explanation to s. 41(1). Thus, Expln. 1 cannot help the case of the Revenue when the assessee has made the payment to the other party (in this case State Government). 16. We also find considerable force in the argument of the Authorised Representative that mere passing of book entries does not generate income to the assessee. In this regard we refer to the decision of the Hon'ble Allahabad High Court in National Handloom Development Corpn. Ltd. where after following two decisions of the Hon'ble Supreme Court it held as under: "It is well-settled that income cannot be generated, actual or accrued, by mere entries in the accounts of the assessee. Further, income cannot be said to be generated merely because the assessee has not written off the amount of interest, which was not forthcoming. The decision in the State Bank of Travancore vs. CIT (1986) 50 CTR (SC) 290 : (1986) 158 ITR 102 (SC), which has been relied upon by the Tribunal has not been followed and has not been treated to be the correct enunciation of law in the judgments of the Supreme Court in the cases of Godhra Electricity Co. Ltd. vs. CIT (1997) 139 CTR (SC) 564 ; (1997) 225 ITR 746 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome is generated in favour of the assessee by passing book entries in respect of above sum, we hold that that sum is not chargeable to tax. In this regard we may refer to the decision of the Hon'ble Allahabad High Court in Somaiya Organics Ltd. vs. State of UP Ors. (including the assessee), wherein it was held that the assessee is not entitled to refund on the amount which was deposited or paid in pursuant to different interim orders of the Court even though it had quashed the order of the Excise Commr. We refer to the following papers from this judgment which is dt. 1st Feb., 2004 given in Writ Petn. No. 2046 of 1992: "So, it is held that the petitioner is not entitled to the refund of the amount, which it has deposited or paid after 1979, pursuant to different interim orders of this Court as it has not been able to prove that it has not passed on the incidence of the purchase tax to the buyers or consumers. In view of our conclusion on point No. 1, the order dt. 7th May, 1992 of the Excise Commr. is quashed, but the relief for refund of the amounts so deposited since 1979, is refused. The rest of the reliefs have become infructuous after Government order dt. 11th Oct., 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20. Having heard both the parties, we find that the AO observed that assessee had not explained nature of advance and therefore it would be in the interest of justice that the matter may be restored back to the file of the AO to examine the nature of this transaction. In case the transaction was for business purposes and not diversion of funds, then no addition is called for. This ground is allowed for statistical purposes." Since the facts and circumstances of the case are the same following the decision of the Tribunal in the asst. yr. 1997-98, we restore the matter to the file of the AO to take a decision consistent with the asst. yr. 1997-98. 23. Ground No. 4 is covered by the aforesaid order of the Tribunal vide para 25 thereof. In that year, the Tribunal has followed the decision given in the assessee's case in the asst. yr. 1996-97. For the sake of convenience, we reproduce paras 24 and 25 as under: "24. Having heard both the parties, we find that the Tribunal apropos this issue in ITA No. 497/Luck/2004 vide paras 19 to 21 of its order dt. 29th Dec., 2006 observed as under: '19. The assessee had taken a loan of Rs. 50 lakhs from M/s New Look Developers (P) Ltd. wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )-II, Lucknow. He, accordingly, confirmed the addition observing that the assessee had filed details of deposit of Rs. 50 lakhs from Ms. Neelkanth Developers (P) Ltd. after remand report of the AO and this evidence had not been filed during the assessment proceedings, therefore. the same could not be accepted at the stage of appellate proceedings. He, accordingly, confirmed the addition of Rs. 50 lakhs on account of deposits in the name of M/s New Look Developers (P) Ltd. 20. The learned counsel submitted that confirmation letter was filed before the AO only the name of party had wrongly been written. He referred to pp. 8 to 18 of the paper book wherein the submissions made before the Jt. CIT, Special Range 1, dt. 9th March, 1999 are contained and referred to p. 12 wherein it was pointed out that the sum of Rs. 50 lakhs was received through cheque No. 415708 from M/s Neelkanth Developers (P) Ltd., but the name of M/s New Look Developers (P) Ltd. had wrongly been mentioned. The learned counsel referred to p. 27 of the paper book wherein the confirmation letter from M/s New Look Developers is contained. He referred to p. 1 of the paper book wherein the copy of confirmation letter o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which, in his opinion, was in the nature of provision only. He further observed that items such as cost of silver coins of Rs. 47,462; sweet distribution of Rs. 29,615 and Pooja expenses of Rs. 46,866 were debited in these expenses which could not be vouched as incurred, for business purposes. He, therefore, made a disallowance of Rs. 1.20 lakhs on estimate basis out of Rs. 36.33 lakhs. The learned CIT(A) observed that assessee had filed details of staff welfare expenses but no comments had been given on the disallowance out of staff welfare expenses including sweet distribution, presentation of gifts, etc. He further observed that the AO did not mention that these expenses had not been incurred for business purposes and only ground for disallowance was that vouchers were not produced. He accordingly restricted disallowance to Rs. 65,000 and allowed a relief of Rs. 55,000." As a result, this year also we restrict the disallowance to Rs. 65,000 as in our view the facts and circumstances of the case are similar. This ground of the assessee is partly allowed. 26. Ground No. 6 relates to the computation of book profit. The assessee had originally treated the sum of Rs. 2,54,53,425 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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