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2016 (12) TMI 674 - GAUHATI HIGH COURT

2016 (12) TMI 674 - GAUHATI HIGH COURT - TMI - Deduction towards the Central Excise on the basis of provision made - matter was under dispute - Held that:- The extent of liability of central excise duty payable by the assessee for the assessment year 2009-10, will flow from the final verdict on the legality of the curtailment notification No.17/2008-Central Excise dated 27.03.2008 and although the notification was quashed in the HERBO FOUNDATION PVT. LTD. And Others Versus UNION OF INDIA [2009 ( .....

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ility, even though the assessee may dispute the departmental claim but when the litigation is not yet finalized, it cannot be said with authority that the provision made will never be categorized as expenditure for the concerned assessment year. - That apart, if the Supreme Court finally declares that the curtailment notification of 27.03.2008 is legally unsustainable, the revenue will not suffer any prejudice since the department can bring the provisional amount to tax, under Section 41(1) .....

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rd Dr. Ashok Saraf, the learned Senior Counsel for the appellant (assessee). Also heard Mr. S. Sarma, the learned Standing Counsel, Income Tax Department for the respondent. 2. This appeal is under Section 260-A of the Income Tax, 1961 (hereinafter referred to as the I.T. Act ) where the assessee challenges the order dated 13.11.2013 (Annexure-VI) in the ITA No.356/Gau/2013, whereby the learned Income Tax Appellate Tribunal, Guwahati Bench held against the assessee, on their claim to deduction, .....

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assessment year in question? 4. The appellant was previously known as Kamakhya Cosmetics & Pharmaceuticals Pvt. Ltd. and the unit was setup in Guwahati s Bamunimaidam Industrial area, in pursuant to the new industrial policy resolution of the Central Government, notified on 24.12.1997. Under the Notification NO.32/99-CE and 33/99-CE, both dated 08.07.1999, the new industries setup in the designated tax free zones, were granted various tax exemption and concession, for a period of 10 years f .....

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percentage of excise exemption benefit was thus reduced to 56% for the assessee, as compared to 100%, prior to the curtailment notification of 27.03.2008. 6. The aggrieved units including the appellant challenged the curtailment of benefits and the assessee s WP(C) NO.1707/2008 was allowed by the learned Single Judge and the impugned notification of 27.03.2008 was quashed and the Court held that the assessee is entitled to 100% excise duty exemption, as per the original notification dated 08.09 .....

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ies or in other words, the judgment of the learned Single Judge was rendered inoperative, during the pendency of the Appeal. 8. However in similar litigations emanating from the Gujrat High Court, the Supreme Court on 13.01.2012 in the SLP(C) Nos.28194 - 28201/2010 passed a different type of interim order on the following terms:- We have heard learned counsel for the parties on the question of stay of the impugned judgment. Having done so, we direct that operation of the impugned judgment shall .....

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ed in the Gujarat cases. 10. The assessee filed their return of income for the assessment year 2009-2010 on 22.09.2009 showing total income of ₹ 1,09,79,095/- and also made provision for central excise duty, to the tune of ₹ 3,43,18,499/-. However the Assessing Authority on 15.11.2011 issued show-cause-notice as to why, the provision for the central excise duty, should not be disallowed for the assessment year 2009-2010. In their reply, the assessee submitted that since the litigatio .....

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ioner of Income Tax (Appeals), Guwahati. However the Appeal was rejected on 10.04.2013 (Annexure-V). Then the matter was taken to the Appellate Tribunal but the Tribunal under its impugned verdict of 13.11.2013 (Annexure-VI), declared that the assessee is disentitled to claim deduction in respect of provision for central Excise duty and thus the order of assessment was affirmed. 12. It is important to note here that the company claimed refund of Basic Excise Duty paid from PLA, in terms of the n .....

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g refund of basic excise duty from PLA, in terms of the govt. notification No.32/1999, but because of the curtailment notification of 27.03.2008, the refundable amount was reduced to 56% of the total duty payable, w.e.f. 01.04.2008. Thus resulting in lower refund of ₹ 3,43,18,499/- for the assessment year under consideration. The assessee had made provision in their accounts, to take care of the excise tax liability in the event the departmental challenge is upheld by the higher Court. Thi .....

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quashed the curtailment notification of 27.03.2008 and hence contended that, the statutory liability can be claimed in the year, in which dispute arises. However, the assessing authority considered the provision made by the assessee as contingent liability and opined that putting aside money which may become expenditure on the happening of an event, is not expenditure as the liability to pay tax will arise only when, the litigation is finally decided. It was further held that only such expenditu .....

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those decisions in this Appeal. 15.1 Dr. Ashok Saraf, the learned Sr. counsel submits that when the assessee follows the mercantile system of accounting, they are entitled to make provision for their tax liability in the books even if, such liability may be determined at a future date and as the obligation of tax liability is not finally decided and the matter is pending in the Supreme Court, the provision made for payment of excise duty, must be deducted for the concerned assessment year. 15.2 .....

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become expenditure at a future date and therefore, he contends that the disallowance of the provisional arrangement in the accounts, was perfectly justified in the present case. 16.2 The revenue lawyer relies on Commissioner of Income Tax Vs. Ideal Sheet Metal Stampings & Pressing (P) Ltd. reported in (2007) 290 ITR 295 (Guj) to contend that deduction can be allowed under the Income Tax law only for tax already paid and not for un-finalised tax liability. 17. The submission made by the rival .....

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ssee maintaining accounts on the mercantile system, was fully justified in claiming deduction of the tax amount, for which it became liable under the law during the relevant accounting year and the situation is no different even when the issue of tax liability is litigated, in the higher forum. 19. The Andhra Pradesh High Court in Commissioner of Income-Tax Vs. Investigation and Security Service (India) P. Ltd. reported in (1990) 182 ITR 358 was examining the business expenditure claim in the ac .....

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urt in Abad Fisheries Vs. Commissioner of Income- Tax reported in (1995) 213 ITR 694, held that the provision, made towards purchase tax liability the payability of which is disputed, is deductible for the relevant assessment year as the Court considered the provision made for payment of duty to be an act of prudent business habit. Thus the assessee s claim to deduction for the provisional amount in the accounts was found to be entertainable, in the following words:- ………&hel .....

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duction of such liability. But if the assessee had a genuine ground, or reasonable basis, for apprehending that the liability may be cast on it, having regard to the view adopted by the concerned Sales Tax Department, or having regard to the case of the assessee himself or other similar assessees or otherwise, the claim cannot be rejected merely because it is disputed. It could not then be said that the assessee had acted unreasonably or fancifully on misplaced apprehensions in making the provis .....

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on of Income-Tax Vs. J.K. Synthetics Ltd. reported in (1983) 143 ITR 771 also declared that even when the assessee is resisting the claim of the Excise Authorities, it is not debarred from claiming deduction on account of excise duty liability, as it follows the mercantile system of accounting and it was held that such assessee can legitimately claim deduction in respect of its tax liability even if such liability have not been quantified finally and the liability is being disputed in a court of .....

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ction 43B of the IT Act was under consideration, where the assessee collected the excise duty but had not paid the same to the govt. treasury. Thus the recovery of excise duty was considered to be trade receipts in the hands of the assessee, but since the amount was not paid to the Government Treasury, the unpaid amount was found to be disallowable to deduction, under Section 43B by the Court. But the Gujarat case in our considered opinion is distinguishable in as much as, the decision there was .....

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