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TMI Blog2002 (4) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... ales tax refund which was credited by the assessee-firm itself in his profit and loss account and declared it as the part of its income under section 41(1) of the Act?" So far as question No. 1 is concerned, we notice that this court has considered the same issue in I. T. Appeal No. 1 of 2002 and I. T. Appeal No. 3 of 2002-CIT v. Bhawan va Path Nirman (Bohra) and Co. (No. 1) [2002] 258 ITR 431 (Raj), which had arisen out of the same order passed by the Tribunal as is under challenge in this case, relating to the assessment years 1994-95 and 1996-97, respectively, and decided today by a separate order. The court found no merit in the contention raised by the Revenue for any interference in the conclusion reached by the Tribunal in estimating taxable income by applying the net profit rate subject to appropriation towards depreciation and interest. Following the decisions in the said two appeals, question No. 1 must be held in favour of the assessee and against the Revenue that in the present facts and circumstances of the case, the Income-tax Appellate Tribunal was justified in allowing deduction on account of interest payable to third parties while determining the income on estima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity to that extent. When such amount is received by such assessee by way of refund or otherwise then on receipt of such amount by way of refund from the person or from any other sources to whom such payment has been made, the assessee is not allowed to retain the benefit which he has earlier obtained by reducing his tax liability on earlier occasion. However, where no deduction for any expenses incurred by the assessee on an earlier occasion has been claimed or claimed but has not been allowed by the Assessing Officer in determining the income chargeable to tax under the Income-tax Act, then merely by making entries in books no benefit of reducing tax liability by reducing the taxable income is obtained by the assessee, nor on refund of such amount in a later assessment year, any question of subjecting it to tax can arise under section 41(1)(a). Section 41(1)(a) provides that refund of any allowance or deduction made in the assessment of any earlier year is liable to be subjected to tax in the year of refund or recovery. For the present purpose, the relevant part of section 41 (1)(a) of the Act may be reproduced hereunder: "41. Profits chargeable to tax.-(1) Where an allowance or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of account. In the present case, the question relates to refund of sales tax received from the Sales Tax Department, which was in earlier years found to be paid by him as the same was deducted at source. It is contended by the Revenue before us that since the net profit rate has been applied in the case of assessee by rejecting his books of account, it is inherent in determination of net profit rate that all allowable expenses as are admissible under the provisions of the Act have been taken into consideration and allowed by the Assessing Officer and, therefore, it must be deemed that when the assessee had paid in any earlier year, the amount of sales tax, which has been deducted at source, the same was allowed and as the same has been refunded in the previous year in consideration, it has to be taxable under section 41(1)(a). The contention in substance is that in the assessment of income arrived by estimating the net profits on the basis of estimated net profit rate, it must be assumed that all allowable expenses under section 43B on account of any liability discharged by the assessee towards the sales tax was duly considered and allowed and therefore, when the same is refu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an earlier occasion in relation to this liability, the assessee-company in its return of income for the assessment year 1950-51 had disclosed an income of Rs. 14,555, which was arrived at after debiting the profit and loss account by Rs. 71,949 towards the annual bonus payable to its employees. Thus, the liability has been claimed on the basis of the entries made in the books of account of earlier assessment years and adjusted in the books of account before annual income returned and not on the basis of actual payment. The trading result disclosed by the assessee was not accepted and income was assessed on estimate basis. In computing the net taxable income for the assessment year 1957-58, the Revenue has included the remission of Rs. 54,479 as a balance amount, which has ceased to be liability payable by way of bonus during the previous year relevant to the assessment year 1957-58 by invoking the provisions of section 10(2A) of the Indian Income-tax Act, 1922, which in material aspect conforms to the provisions of section 41(1) of the Income-tax Act of 1961. The Tribunal has given a finding that in the manner the estimate has been made, it would appear that the book position h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applying the net profit rate. The very foundation for invoking section 41(1)(a) of the Act by identifying the year, in which the deduction on account of payment of sales tax has earlier been considered and allowed in the assessment of the income for such year is not laid. In the absence of any such material, it is not possible to bring the refund of sales tax amount received by the assessee during the previous year relevant to the assessment year in question to tax, merely on the inferences to be drawn by the method of estimating income applied in the previous years. The principle enunciated by the Supreme Court in Tirunelveli's case [1970] 78 ITR 55 has been applied by the Madhya Pradesh High Court in Naubatram Nandram v. CIT [1972] 86 ITR 805 and Allahabad High Court in Bhagwat Prasad and Co. v. CIT [1975] 99 ITR 111 by declining to invoke section 41(1)(a) of the Act in the cases where assessments of earlier years have been made on the estimate basis without reference to grant of any allowance or deduction of any expenses with reference to any particular assessment year claimed by the assessee. The Madhya Pradesh High Court opined in Naubatram Nandram's case [1972] 86 ITR 80 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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