TMI Blog2011 (10) TMI 492X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 - - - Dated:- 28-10-2011 - SHRI T.R. SOOD, AND SHRI VIJAY PAL RAO, JJ. Represented By: Shri S.C. Tiwari for the Appellant. Shri Devi Singh for the Respondent. ORDER Shri T.R. Sood, - In this appeal, assessee has raised the following ground: "On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax Appeals, Central Circle IV, hereinafter referred to as the ld. CIT(A) has erred in law in confirming the disallowance of Rs. 6,64,72,870/- in respect of Excise Duty paid by the Appellant. The said Expenses in respect of Payment of Excise duty may please be allowed." 2. The appeal has been filed late by 27 days and a condonation petition along with an affidavit has been filed. The Ld. Counsel of the assessee referred to the affidavit of Shri Bhavin Parikh, Chartered Accountant, in which it is stated that appeal papers had been received by him but because of the heavy rush for filing of return, he lost sight of the appeal which was filed late. The Ld. Counsel submitted that delay is because of the Chartered Accountant and, therefore, same should be condoned. 3. On the other hand, Ld. DR left it to the discretion of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders of CIT(A) have already been set aside by the Tribunal, therefore, orders of the AO were no longer valid. The ld. CIT(A) decided the issue vide paras 8 to 11 which are as under: "8. The appeal relates to the appellant's claim that the excise duty of Rs. 6,64,72,870, paid by it for the assessment years 1993-94 and 1994-95, related to suppressed sales, as found by the Central Excise Department, be allowed as a deduction. Subsequent to the institution of this appeal, pursuant to the order dated 14.8.2006, of the Hon'ble ITAT, Mumbai, the matter related to the taxation of income from sales suppressed by the appellant has been adjudicated by me, for the assessment years 1993-94 and 1994-95, vide my order No. CIT(A)/C-IV)T-6291 2006-07, dated 01.08.2007 and order No.CIT(A)IC-IVIIT-6301 2006-07, dated 01.08.2007 respectively. It maybe mentioned here that the appellant's orders for the said years viz. AYs 1993-94 and 1994-95, were readjudicated by me, on the direction of the Hon'ble ITAT, that the appellant's case related to taxation of income from suppressed sales be decided upon merit. 9. Upon a detailed consideration of the submissions put forward by the appellant's AR, and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incriminating documents found by the said department during the course of the search action, in the case of the appellant " 10. Based on my aforesaid findings, I adjudicated as under: For the A.Yrs. 1993-94 1994-95 " Subject to these observations, I uphold the action of the AC in placing reliance on the Central Excise Department's finding of evasion of sales to the tune of Rs. 5,36,45,105. The AO's estimation of appellant's income from such sales equal to the GP rate declared by the appellant himself, works out to Rs. 1,01,92,569. After allowing set off of losses of Rs. 4,27,672, the taxable income is rightly computed at Rs. 9764807." For the AY 1994-95 "Subject to these observations, I uphold the action of the AO in placing reliance on the Central Excise Department's finding of evasion of sales to the tune of Rs. 16,61,22,120. The AO's estimation of appellant's income from such sales equal to the GP rate declared by the appellant himself at 20% works out to Rs. 3,32,24,424. After allowing set off of losses of Rs. 203716, the taxable income is rightly computed at Rs. 3,30,20,708." 11. It is pertinent to point out that for the assessment years 1993-94 and 1994-95, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 14 (Delhi); (n) Plantation Corporation of Kerala v. CIT (sic). He further submitted that whether expenditure is commercial expedient or not has to be judged by a business person and the only condition was that the same should have been incurred for the purpose of business and in this regard he relied on the following decisions: i. Sassoon J David Co. (P.) Ltd. v. CIT [1979] 118 ITR 261 (SC). ii. CIT v. Raman Raman Ltd. [1969] 71 ITR 345 (Mad.). iii. CIT v. Vijaylakshmi Mills Ltd. [1974] 94 ITR 173 (Mad.). iv. Bralco Metal Industries (P.) Ltd. v. CIT [1994] 206 ITR 477 (Bom.). He also argued that each assessment year is a self-contained and the receipts and expenditure pertaining to one assessment year cannot be taken into consideration in any other assessment year. Further it was not necessary to show the necessity of the expenditure. In this regard he relied on the following decisions: (a) Sir Kikabhai Premchand v. CIT [1953] 24 ITR 506 (SC). (b) Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1 (SC). (c) CIT v. A. Gajapathy Naidu [1964] 53 ITR 114 (SC). 10. On the other hand, Ld. DR has filed written submissions in which facts have been given in detail. It h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be allowed. Therefore, sec.43B puts a rider that an expenditure which is otherwise allowable under the other provisions of the Act can be allowed only in the year when actual payment of such expenditure has been made as mentioned in sec.43B and such expenditure would be allowed in the year of payment. Now, in the case before us though payment of excise duty has been made in this year, but it has to be seen whether such expenditure is allowable under the other provisions of the Act. The payment of excise duty would obviously fall u/s. Sec.37(1) which reads as under: 37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 [***] and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". A plain reading of the above clearly shows that there are six elements involved for allowability of expenditure which are as under: 1. Any expenditure. 2. Expenditure should not be in the nature prescribed under sections 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nisation may spend monies on administrative overheads and further on advertisements and may not receive any sale proceeds, still the expenditure incurred depending on circumstances, may have to be allowed. It is settled that whether a particular expenditure is commercially expedient has to be decided by a business person and not by the tax authorities. It is also settled that it is not necessary to show the necessity of the expenditure. However, for making a claim the expenditure must meet the criteria that it has been incurred for the purpose of the business. For meeting this test, we are of the view, that to show that the expenditure has been incurred exclusively for the purpose of business, it must be shown that such expenditure was incidental to the business of the assessee and that too in the capacity of a businessman. In fact, what is incidental to the business was considered by the Hon'ble Supreme Court in the case of Travancore Titanium Product Ltd. v. CIT [1966] 60 ITR 277. The headnote of the decision reads as under: "In determining whether an amount expended by the assessee is deductible under section 10(2)(xv) of the Indian Income-tax Act, the nature of the expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ul activity cannot be allowed. In the case before us though assessee was carrying on lawful business of manufacturing and selling of tobacco but some of the sales have been kept outside the books by unlawful means i.e. by not paying the excise duty, then such expenditure i.e. payment of excise duty cannot be allowed. 13. We further find that in any case the fact of suppression of sales came to the notice of Income tax authorities. The only addition made by the AO was only in respect of GP. In fact against the addition of Rs. 1,01,92,569 being GP @ 19% on the suppressed sales of Rs. 5.36 crores as declared by the assessee was made in A.Y. 1993-94. Similarly, in A.Y. 1994-95 an addition of Rs. 3,32,34,424/- being GP @ 20% on the suppressed sales of Rs. 16.62 crores was made. Though these additions have been deleted finally by the Tribunal on technical issue but we are not concerned with that. The point to be remembered is that in the first place when an addition is made on the basis of GP, then obviously all expenses in relation to such sale receipts are deemed to have been allowed. Therefore, in this case also when an addition is made only at Rs. 1,01,92,569/- against the suppress ..... X X X X Extracts X X X X X X X X Extracts X X X X
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