TMI Blog1999 (11) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... e dispute arose in regard to the calculation of the excise duty on the basis of the weight of the yarn before it was sized. The Excise Department was of the opinion that excise duty was payable on the basis of the weight after sizing. Though in its accounts for the assessment year 1981-82, the assessee had claimed deduction on account of excise duty liability of a sum calculated on the basis of the weight of unsized yarn, in its return submitted to the Income-tax Officer for the said assessment year, in the computation of income, a sum of Rs. 88,41,112 was claimed as deduction on account of excise duty liability. However, at the time of assessment, the authorised representative of the assessee submitted a copy of the writ petition filed by the assessee before this court being Writ Petition No. 455 of 1980, and a copy of the judgment of this court therein. According to the judgment and order of this court dated July 14, 1980, the excise duty liability of the assessee had been determined at Rs. 29,66,499. In view of the above statement and the decision of this court, the Incometax Officer modified the claim for deduction on account of excise duty liability made by the assessee in its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... point of time thereafter. The assessee challenged the legality and correctness of the above show-cause notices by filing the writ petition before this court, which was allowed by the judgment and order dated July 14, 1980, and the impugned show-cause notices, which were marked collectively exhibit E in the writ petition, were quashed. Learned counsel for the Revenue submitted that in the above factual matrix, the decision of the Supreme Court in Kedarnath Jute Manufacturing Co. Ltd.'s case [1971] 82 ITR 363, has no application to the present case. Learned counsel further submitted that both the Commissioner of Income-tax (Appeals) and the Tribunal committed a manifest error of law in applying the decision of the Supreme Court in Kedarnath Jute Manufacturing Co. Ltd.'s case [1971] 82 ITR 363, to the present case without noticing the fact that the said decision was applicable only where liability had accrued against an assessee which was disputed by him. It was submitted that the ratio of the above decision of the Supreme Court is where a demand of tax or duty is served on an assessee maintaining mercantile system of accounting in the accounting year, the amount so demanded would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion were show-cause notices and not demand notices. It was contended that the decision of this court in the writ petition of the assessee could not be looked into by us in this reference for deciding the controversy as it did not form part of the statement of the case. In the alternative, it was contended that this reference has become academic because on the basis of the above decision of this court the amount which was allowed as a deduction in the year under consideration as liability has been treated as assessee's income under section 41(1) of the Act in the assessment year 1983-84 on cessation of liability on quashing of the show-cause notices by this court. He placed a copy of the assessment order for the assessment year 1983-84 before us in support of the above contention. As we were not satisfied with any of the above two contentions, we pointed out to learned counsel that as there was no accrual of liability in the year under consideration, the allowance of deduction was not correct in law and in our opinion the Tribunal committed a manifest error of law in applying the decision of the Supreme Court in Kedarnath Jute Manufacturing Co. Ltd.'s case [1971] 82 ITR 363, and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 971] 82 ITR 363. The Commissioner of Incometax (Appeals), without noticing the fact that in the instant case there was no demand, but merely show-cause notices, applied the above decision of the Supreme Court and allowed the claim of the assessee. The Tribunal also dismissed the appeal of the Revenue on the erroneous assumption that the decision of the Supreme Court in Kedarnath Jute Manufacturing Co. Ltd.'s case [1971] 82 ITR 363, was applicable, without noticing the fact that there was no demand at all against the assessee in the year under consideration and that the show-cause notices which were issued were also quashed by this court. We called for the original records of Writ Petition No. 455 of 1980. The decision of this court clearly goes to show that what the petitioners had challenged in the writ petition were show-cause notices issued by respondent No. 4, the Superintendent of Central Excise, which were collectively marked exhibit E. We have also perused the notices annexed to the writ petition (exhibit E) which are show-cause-cum-demand notices. It is clear that the notices challenged by the assessee were merely show-cause notices and they were not demand notices, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal hearing. If no cause is shown against the action proposed to be taken within 30 days of the receipt of this notice or they do not appear in person before the adjudicating officer when the case is posted for hearing the case will be decided ex-parte. Sd/ (D. A. Kamble), Superintendent, Central Excise, Range XV, Bombay Division 'F'. No. C. Ex. 13A/MGM/80/231 Bombay, the 23rd February, 1980. Copy submitted to : A. G. C. E. Bombay, Division 'F', for information." The notice dated February 22, 1980, which is also a show-cause-cum-demand notice is in identical terms except the particulars. It is these showcause notices, which were challenged by the assessee and set aside and quashed by this court, Learned counsel for the assessee, Mr. javeri, could. not dispute the fact that the notices received by the assessee were mere show-cause notices and not demand notices and that if that fact is taken into account, the decisions of this court in Standard Mills Co. Ltd.'s case [1998] 229 ITR 366 and Indian Smelting and Refining Co. Ltd.'s case [1998] 230 ITR 194, would be applicable and the assessee would not be entitled to deduction on account of the amounts mentioned in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case, in Standard Mills Co. Ltd.'s case [1998] 229 ITR 366 (Bom), also, no demand was raised against the assessee of any amount. What was served on the assessee by the Collector was merely a show-cause notice. The assessee did not admit any liability and showed cause refuting the allegations made in the show-cause notice. It was held that there was no liability actually existing against the assessee in the year of account. It was merely a contingent liability, which might or might not arise. That being so, it was held that the amount in question did not constitute expenditure for the purpose of income-tax. This decision was followed in Indian Smelting and Refining Co. Ltd.'s case [1998] 230 ITR 194 (Bom). The ratio of the above decision squarely applies to the facts of the present case. In this case also there was no actual liability in praesenti. No demand was raised against the assessee. The assessee was served merely with two show-cause notices. The assessee did not admit any liability and challenged the show-cause notices before this court. Admittedly, the showcause notices were quashed by this court. It is clear from these uncontroverted facts that the liability clai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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