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2019 (10) TMI 392

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..... provisions of section 41(1) which in our view not applicable in this case as discussed in earlier part of this order. Accordingly, we hold that the addition made by the AO on account of claim of refund of Countervailing Duty without appreciating the fact that the said claim was already rejected and the chances of refund are very bleak is not justified, therefore, the addition made by the AO and confirmed by the ld. CIT (A) is deleted. - Decided in favour of assessee. - ITA No. 742/JP/2019 - Dated:- 3-10-2019 - Shri Vijay Pal Rao, JM And Shri Vikram Singh Yadav, AM For the Assessee : Shri Ved Jain (CA) For the Revenue : Shri Varinder Mehta (CIT) ORDER PER VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 15.05.2019 of ld. CIT (Appeals)-2, Jaipur for the assessment year 2016-17. The assessee has raised the following grounds of appeal :- 1. That on the law and in the facts and in the circumstances of the case the learned lower authorities grossly erred in making an addition of ₹ 48,61,31,816/- to the total income of the assessee representing highly disputed refund claim of the assessee appellant filed with the customs authorities on account of e .....

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..... net profit and shown the amount in the Balance Sheet as recoverable. Since the amount was paid to the Customs Department as per the Countervailing Duty levied on the goods, the assessee then reduced the said amount while computing the income and declared the income in the return of income after claiming the said amount of ₹ 48,32,83,229/-. The AO disallowed and made the addition of the said amount to the income of the assessee on the ground that the assessee itself has claimed the said amount as refundable from Customs Department and, therefore, this was treated as income in the hands of the assessee. The AO also referred to the provisions of section 41(1) and held that a benefit to the extent of ₹ 48.32 crores accrued to the assessee and shall be deemed to be profits and gains of business or profession and consequently chargeable to income tax as income of the previous year in which the benefit is accrued. The assessee challenged the action of the AO before the ld. CIT (A) but could not succeed. 3. Before the Tribunal, the ld. A/R of the assessee has referred to the purchase account wherein State-wise purchase details are given. He has submitted that the dispute is reg .....

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..... e is denied and it is not certain whether assessee will receive the refund then such a contingent claim cannot be treated as Income until and unless it is finally granted. The ld. A/R has referred to the trading account at page 7 of paper book and submitted that the purchases shown in the trading account are after reduction of said amount of ₹ 48,32,83,229/- as well as the other amount of ₹ 28,48,587/-, the refund of which was granted by the Customs Department vide order dated 31.03.2017. Therefore, the assessee has increased its profit by the amount of ₹ 48,32,83,229/- only on the basis of the claim of refund made to the department but the said claim was denied and rejected upto the stage of first appellate authority and, therefore, the assessee in the computation of income reduced the said amount. Keeping in view the provisions of section 37(1) read with section 43B of the IT Act, the payment of Countervailing Duty is an allowable expenditure. Even otherwise, the treatment of the amount in the books of account as well as the entries in the books of account is not a determinative factor for assessing the total income. The AO is otherwise duty bound to compute the .....

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..... the ground that the assessee is eligible for exemption would not be a ground for holding that the assessee has not incurred the liability and expenditure or the said amount becomes the income of the assessee. He has also relied upon the decision of Delhi Bench of the Tribunal in case of Maruti Suzuki India Ltd. vs. Addl.CIT (2015)(9) TMI 20-ITAT Delhi). The ld. A/R has thus contended that no income has accrued to the assessee due to claim of refund of Countervailing Duty in as much as such claim is dependent upon the necessary permission and grant of refund. Therefore, there would be no income in the hands of the assessee merely on the basis of refund claimed by the assessee more so when the said claim was denied by the Customs Department as well as Appellate Authority. He has referred to the decision of Hon ble Supreme Court in case of CIT vs. Excel Industries Ltd. and Another, 358 ITR 295 (SC) and submitted that the income cannot be assessed to tax on hypothetical basis but only when the income is accrued or assessee gets the right to receive the income, the same is assessable to tax. 4. On the other hand, the ld. D/R has submitted that the assessee itself has computed the net pr .....

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..... 5.12 Consignment Transfer Inward F Form 159,086,280.08 - 66,708,332.12 - 225,794,612.20 Entry Tax - 810,440.00 810,440.00 Grant Total 6,190,930,511.44 105,189,926.99 166,161,809.68 810,440.00 6,463,092,688.11 Thus it is clear that for the year under consideration the assessee paid total Customs Duty on the purchases made by the Office/Division of the assessee in Rajasthan of ₹ 71,14,28,260/-. The assessee has reduced a sum of ₹ 48,61,31,816/- from the purchases on account of Customs Duty refundable because the assessee already claimed the refund of said amount from the Customs Department on the basis of judgment of Hon ble Supreme Court in case of M/s. SRF Limited vs. Commissioner of Customs, Chennai dated 26th March, 2015. Thus it is clear that this amount as reduced from the purchases by the assessee includes the Countervailing Duty paid by the assessee of ₹ 24,69,98,215/- during the period from 01.10.2014 to 25.03.2015 and, therefore, this reduction has an effect of enhancing the income in the books of account of the assessee of the said amount which includes the payment of Countervailing Duty made in the preceding year as well as during the year under consider .....

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..... ng year and subsequently the said liability is ceased to exist. In the case in hand, the assessee had already discharged the liability by making the payment. Therefore, the question of cessation of liability does not arise and consequently even if the amount is subsequently refunded to the assessee, the same cannot be deemed to be the income of the assessee under section 41(1) but it will be a real income for the year in which the refund is granted and hence the said amount will be the income of the assessee as per the provisions of section 28. Without entering into the controversy of applicability of either section 41(1) or section 28, since the amount in question was only a claim by the assessee for refund from the Customs Department but was not acceded to by the Department, therefore, it remains merely a claim which does not vest any right to the assessee to receive the said amount until and unless the refund is granted and consequently it would not constitute the income accrued or arise to the assessee. The AO has given much emphasis on the fact that the assessee itself has treated the same as income in view of the decision of Hon ble Supreme Court and, therefore, it becomes th .....

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..... eived the Collector's demand for payment and that his endeavour to get out of that liability by preferring appeals could not in any way detract from or retard the efficacy or the liability which had been imposed upon by the competent excise authority. 5. The learned counsel for the appellant further submitted that in the books of account the respondent had not debited the said amount and no entries were made acknowledging the said liability. In our view, this contention also does not require much consideration as similar contention was negatived by this Court in Kedarnath Jute Mfg. Co. Ltd.'s case (supra) by holding thus : ". . . Whether the assessee is entitled to a particular deduction or not will depend on the provisions of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter. The assessee who was maintaining accounts on the mercantile system was fully justified in claiming deduction of the sum of ₹ 1,49,776 being the amount of sales tax which it was liable under the law to pay during the relevant accounting year. . . .&qu .....

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..... or deduction of the said liability would not be a ground for holding that liability to pay the excise duty as per the demand notice was not incurred. In the case in hand, though the assessee has claimed refund of Countervailing Duty but the said claim itself would not be a ground for treating the same as the liability was not incurred and particularly when the assessee already paid the same. Further, in the case of the assessee the claim of refund was already rejected by the department as well as the appellate authority. Therefore, when the payment of Countervailing Duty is not in dispute then the same is otherwise an allowable deduction and cannot be added to the income of the assessee merely because the assessee has claimed a refund. The assessee has produced all the factual details before the authorities below. Even the ld. CIT (A) has reproduced the details of the purchase account as well as the details of the payment made by the assessee and refund claimed from the Customs Department which were finally rejected. The said order of rejection as well as appellate orders were also produced by the assessee which are crucial facts leading to the conclusion and inference that the cla .....

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..... erved that: "....... the date of payment ....... does not affect the accrual of income. The moment the income accrues, the assessee gets vested with the right to claim that amount even though it may not be immediately." 19. This Court further held, and in our opinion more importantly, that income accrues when there "arises a corresponding liability of the other party from whom the income becomes due to pay that amount." 20. It follows from these decisions that income accrues when it becomes due but it must also be accompanied by a corresponding liability of the other party to pay the amount. Only then can it be said that for the purposes of taxability that the income is not hypothetical and it has really accrued to the assessee. 21. In so far as the present case is concerned, even if it is assumed that the assessee was entitled to the benefits under the advance licences as well as under the duty entitlement pass book, there was no corresponding liability on the customs authorities to pass on the benefit of duty free imports to the assessee until the goods are actually imported and made available for clearance. The benefits represent, at best, a hypothetical inco .....

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..... sed by the Under Secretary to the Government of Gujarat, to the assessee whereby the assessee was "advised" to maintain status quo in respect of enhanced charges for at least six months. This Court took the view that though the letter had no legal binding effect but "one has to look at things from a practical point of view." (See R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 (SC)). This Court took the view that the probability or improbability of realisation has to be considered in a realistic manner and it was held that there was no real accrual of income to the assessee in respect of the disputed enhanced charges for supply of electricity. The decision of the High Court was, accordingly, set aside. 27. Applying the three tests laid down by various decisions of this Court, namely, whether the income accrued to the assessee is real or hypothetical; whether there is a corresponding liability of the other party to pass on the benefits of duty free import to the assessee even without any imports having been made; and the probability or improbability of realisation of the benefits by the assessee considered from a realistic and practical point of view (the assess .....

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