TMI Blog1998 (1) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... 215 of the Act for the years under consideration. The CIT (Appeals), however, has directed the Assessing Officer to work out the interest component as was payable on the relevant valuation dates of each of the assessment years and allow the interest as liability subject to other provisions of the Act. 2.2 It is argued by the learned Departmental Representative that liability to pay interest arises only after the completion of assessment, when interest under section 139(8) or 215/217 is charged. The learned Departmental Representative stated that there was no liability to pay interest on the valuation date as no interest was charged on the valuation dates. The learned counsel of the assessee has filed a paper book which includes order of CIT, Central-I under section 264 of the IT Act (order dated 27-3-1996). The CIT, Central-I vide his order has waived the interest under sections 139(8) and 217 for all the years and hence the liability to pay interest under sections 139(8) 217 does not survive. 2.3 We have considered the facts of the case. The CIT (Appeals) directions are not clear. The liability to pay interest under sections 139(8) and 215/ 217 arises only on the date of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make the payment or secure the permission of the Government for the payment of this amount the liability did not cease. The CIT (Appeals) considered that the assessee's claim is justified and stated that how the payment is to be made is a different issue and does not lead to the cessation of liability. 3.2 It is argued by the learned Departmental Representative that the dispute between the assessee and the foreign supplier was not at all settled upto the valuation date and therefore the deduction is not allowable. The learned Departmental Representative referred to the decision of the Calcutta High Court in the case of CIT v. Soorajmull Nagarmull [1981] 129 ITR 169 and that of Allahabad High Court in the case of Swadeshi Cotton Mill Co. Ltd. v. CIT [1980] 125 ITR 33. The learned counsel of the assessee reiterated the same arguments which were raised before the CIT (Appeals) and relied on the order of the CIT (Appeals). 3.3 We have considered the rival submissions. Though the Assessing Officer has mentioned that due to various discrepancies in the document the goods were not taken by the assessee, there are no details of the dispute nor the CIT (Appeals) has mentioned the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tonne. The matter was taken by the assessee before the Madras High Court and as per order of the Madras High Court, the assessee was allowed to clear the goods by payment of undisputed duty by giving bank guarantee for the disputed duty. The assessee cleared the goods on 13-9-1982 after filing the necessary bank/ personal guarantee to cover the disputed duty amounting to Rs. 43,82,802. This disputed custom duty was not claimed as deduction in the return of wealth but it was claimed as deduction during the assessment proceedings. The Assessing Officer did not allow deduction of this disputed customs duty liability of Rs. 43,82,802. The assessee has been disputing the very levy of customs duty. 4.2 In first appeal the CIT (Appeals) considered that the claim for the duty was raised by the customs department and the assessee was asked to pay duty at the rate of 225 per cent instead of 45 per cent. The CIT (Appeals) relied on the decision in the case of CIT v. Associated Cement Co. Ltd. [1981] 128 ITR 626 (Bom.). The CIT (Appeals) observed that the assessee was under obligation to pay the money and the liability was certainly an ascertained liability. He therefore directed the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rate of 45 per cent, the assessee filed a Writ Petition and obtained stay in respect of order of customs authorities. Under the Income-tax Act, in view of the mercantile system of accounting followed by the assessee the liability of customs duty is an allowable deduction out of total income on accrual basis, even if the same is disputed in appeal before the appellate authorities or before the Courts, but the system of accounting followed by the assessee is not relevant insofar as deduction of debt, out of total wealth for wealth-tax purposes is concerned in view of the following decisions : (i) CWT v. Vysyaraju Badreenarayana Moorthy Raju [1985] 152 ITR 454 / 21 Taxman 5 (SC) (ii) CWT v. Maharani Yogesh Kumari [1995] 211 ITR 766 (Raj.) (iii) CWT v. K. T. Divecha [1990] 186 ITR 310 (Bom.) (iv) CWT v. Vasantlal D. Mehta [1990] 186 ITR 284 (Bom.) (v) Dipti Kumar Basu v. CWT [1976] 105 ITR 450 (Cal.) (vi) Smt. M. Ramanamma v. CWT [1986] 157 ITR 555 / 23 Taxman 197 (AP). In the case of Vysyaraju Badreenarayana Moorthy Raju (supra), it was held by the Hon'ble Supreme Court that system of accounting, mercantile, cash or hybrid is of no relevance for the purpose of determi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year of the assessee. There was nothing improper in admitting, as deductions, provisions to meet contingent liabilities if by so doing a truer balance was arrived at between the receipts of the year and the cost of earning them, or between the expenses of the year and the fruits of incurring them. This decision was followed by the Hon'ble Calcutta High Court in the case of Kesoram Industries Cotton Mills Ltd. v. CIT [1991] 191 ITR 518. Similarly, in the case of Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53, the Hon'ble Supreme Court considered the question relating to deduction of gratuity liability and of the profits and gains of business. The Hon'ble Supreme Court held that where the liability under a scheme of gratuity in respect of the accounting year is stated in the profit and loss account, in the absence of any challenged by the workmen to the correctness of the method of valuation and in the absence of a challenge that such liability cannot be estimated on any fair standard, the amount claimed according to the profit and loss account should be presumed to be genuine and allowed. The Supreme Court further held that contingent liabilities discounted and va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les tax ultimately failed. It was held by the Hon'ble Supreme Court that whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of their rights; nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter. The Hon'ble Supreme Court held that the assessee, who followed the mercantile system of accounting, was entitled to deduct from the profits and gains of its business such liability which had accrued during the period for which the profits and gains were being computed. The Supreme Court held that the liability to payment of sales tax had accrued during the year of assessment even though it had to be discharged at a future date. The assessee, was therefore, entitled to deduction of sales-tax and such liability does not cease to be a liability because the assessee had taken proceedings before higher authorities for getting it reduced or wiped out so long as the contention of the assessee did not prevail. In this case, the issue was whether the liability of sales-tax which has been disputed by the assessee has accrued and d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re that the assessee had made a provision for bonus payable to the employees in respect of the assessment years 1957-58 to 1959-60. The relevant valuation dates being July 31st, 1956, July 31st, 1957 July 31st, 1958. The amounts as set apart were calculated at three months basic earnings for the first year. For the second year the provision was at the rate of three months salary to workers drawing emoluments upto Rs. 1000 per month and 20 per cent for the rest. In the third year the provision was sufficient to meet the payment of bonus at a flat rate of 20 per cent to all the employees. The Hon'ble Bombay High Court held that the Tribunal had found that there was nothing to show that the assessee's claim was in excess of the normal amounts that were paid to the employees year after year. The mere fact that some adjudication had taken place, the nature of which was not fully disclosed would not affect the position that the amounts set apart were on the same basis on which the payments were made during the previous years. If the employer did not dispute his liability to pay bonus, the amounts so set apart represented an ascertained present liability in respect of the payment of bon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over by the court of wards on September 16, 1941. The estate was released on February 16, 1953. During the pendency of the application before the special Judge, Raja Bahadur Ram Gopal Singh passed away. Thereafter, the proceedings went on in the name of the assessee. Out of the savings of the estate the court of wards invested an amount of Rs. 6,11,324 in Government securities. The investment fetched Rs. 76,000 as interest. The total amount was realised by the assessee. The special Judge passed simple money decrees for about Rs. 30,00,000 and odd against the assessee. When some of the decree-holders wanted to proceed against the amount of Rs. 6,87,000 and odd, the assessee opposed their efforts. The special Judge held that the decree-holders could not proceed against that amount. His view was upheld by this court on March 25,1961. By this time proceedings for assessment of the Wealth-tax for the assessment years 1957-58, 1958-59 and 1959-60 were completed. The proceedings for the assessment years 1960-61 and 1961-62 were, however, pending. For the assessment years before 1960-61 the department had taken into account the decretal debts of Rs. 30,00,000 and odd and had held that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to proceed against his assets (the Government securities of Rs. 6,87,000) for the realisation of their decretal dues. It is not the case of the assessee that on the relevant valuation date the assessee was saddled with a decretal debt and the assessee was under a legal obligation to pay that amount sooner or later. Having successfully thwarted the attempts of the decree-holders to proceed against the aforesaid Government securities and the income arising therefrom the assessee cannot now be heard to say that the decretal dues are his debts which are personally payable by him. We are of the view that the Tribunal had given good reasons for its decision and the decision of the Tribunal should have been upheld by the High Court." It is clear from the decision of the Hon'ble Supreme Court that the assessee thwarted the attempts of the decree-holders to proceed against the Government securities and the income arising therefrom because the assessee opposed the efforts of decree holders, who wanted to proceed against the Government securities owned by the assessee and the assessee's objection was upheld by the High Court. The liability fixed under the decree of court is of the same natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 325 and not 225 per cent plus Rs. 325 per metric tonne. The Hon'ble High Court in case Nos. 1086 and 1087 of 1982 has on 20-2-1982 passed an interim exparte order permitting the importer to take delivery of the goods from the customs authority on payment of undisputed duty plus Rs. 325 per metric tonne and executing a bank guarantee towards 100 per cent of the disputed duty demand by the customs authority. The undisputed customs duty have been arrived at the rate of 45 per cent plus Rs. 325 per metric tonne. Under these circumstances, it is equally clear that the assessee has, by filing suits in case Nos. 1086 and 1087 of 1982 thwarted attempts of the customs authorities to proceed against the assessee for recovery of disputed customs duty. As per the copy of bank guarantee furnished by the assessee, it is seen that bank guarantee has been furnished only for disputed duty and goods have been released by paying custom duty at the rate of 45 per cent plus Rs. 325 per metric tonne. The assessee could not now claim that the disputed custom duty was debt owed which was payable by him, because the matter is pending before the Hon'ble High Court. Till the Hon'ble High Court decides t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority and no demand has been raised by the Customs Authority. Therefore, the question of liability for interest on customs duty does not arise. However, the learned counsel for the assessee argued that levy is statutory and claimed deduction for interest on customs duty on accrual basis. 6.3 We have considered the rival submissions. It is a fact that the Customs Authority has not demanded interest on customs duty which is under dispute before the Hon'ble High Court. The CIT (Appeals) directions, in this regard are very vague because till the order is passed regarding the interest on customs duty, there is no question of interest payable by the assessee. The liability for interest arises only when the order is passed by the Customs Authority regarding the payment of interest on customs duty because such order can be passed only when the customs duty is finally determined. Since the dispute about the customs duty is pending before the High Court, there is no question of liability for interest payable on customs duty. We, therefore reverse the order of the CIT (Appeals) and confirm the order of the Assessing officer. 7. Wealth-tax Act No. 226/Mad./91, is filed by the Revenue again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as levied by the Assessing Officer on the valuation date ie. 31-3-1986. Unless and until the demand for penalty has not been raised, there is no liability to pay, because imposition of penalty is discretionary and based on the facts of each case. Since, no penalty was imposed before 31st March, 1986 and no penalty was outstanding, on 31-3-1986, the CIT (Appeals) was not correct in holding that the penalty should be allowed subject to the provisions of section 2 (m)(iii)(b). When the demand for penalty has not been raised, the provisions of section 2(m)(iii)(b) are not applicable. We, therefore, reverse the order of the CIT (Appeals) and confirm the order of the Assessing Officer. This ground of appeal is also allowed in favour of the Revenue. 12.1 The next ground of appeal is that the CIT (Appeals) should not have deleted the addition of Rs. 5,00,000 to the admitted wealth. The Assessing Officer made an addition of Rs. 5 lakhs because the same was added to the total income of the assessee. The CIT (Appeals) deleted the addition on the ground that no money was available with the assessee on the valuation date. 12.2 We have heard the rival submissions. During the course of hearin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding on this issue. Since the issue is restored to the file of the Dy. CIT (Appeals) for proper consideration, he should be given adequate opportunity to the Assessing officer as well as to the assessee before deciding the issue and he must bring all relevant facts on record. This ground of-appeal is treated as allowed for statistical purposes. 18. The next ground of appeal for the assessment years 1978-79, 1979-80 and 1985-86 is that the Dy. CIT (Appeals) should not have allowed the liability of Rs. 3,61,133. This ground is covered by paragraphs 3.1 to 3.3 of this order. For the reasons mentioned in para 3.3, we restore this issue to the file of the Assessing Officer for bringing necessary details as mentioned in para 3.3 and decide the issue after giving adequate opportunity of being heard to the assessee. This ground is also allowed for statistical purposes. 19. In the result, appeals for the assessment years 1980-81, 1981-82 and 1982-83 are allowed for statistical purposes. Appeals for the assessment years 1983-84 and 1984-85 are allowed. Appeal for the assessment year 1986-87 is treated as allowed for statistical purposes. Appeals for the assessment years 1978-79, 1979- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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