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2019 (10) TMI 392

..... pto the stage of first appellate authority - HELD THAT:- At the time of passing the assessment order dated 27.12.2008 it was rather certain that the claim of refund made by the assessee was denied by the Customs Authorities including the first appellate authority and consequently it cannot be said that income has accrued or arise to the assessee during the year under consideration or till the assessment order was passed. The entries and treatment in the books of account is not a conclusive basis for holding the income arises and liable to tax. AO is under duty and obligation to assess the actual and correct income as per provisions of the Act while acting as a quasi judicial authority and not to take advantage of any mistake or the entries made in the books of account. CIT (A) has confirmed the addition by citing the 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 a .....

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..... 377; 48,32,83,229/-, part of which to the extent of ₹ 24.69 crores was paid during the financial year 2013-14 and the balance amount was paid for the year under consideration. The duty paid by the assessee under CVD was part of the purchase cost of imported mobile handsets and was also allowed for the assessment year 2014-15. However, after the payment of the remaining part of the CVD during the year under consideration the assessee claimed refund of the entire CVD in view of the Hon ble Supreme Court judgment in case of M/s. SRF Limited vs. Commissioner of Customs, Chennai (2015-TIOL-74-SC-CUS) dated 26th March, 2015, by filing the application under section 27(1)(a) and 27(1)(b) of the Customs Act 1962. The assessee consequently added back the entire amount of ₹ 48,32,83,229/- while computing the 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 .....

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..... Service Tax which was also dismissed vide order dated 25th July, 2018. He has referred to these orders passed by the Customs Authorities as well as the Appellate Authority and submitted that the claim of refund was denied by the Customs Department and also declined by the Appellate Authority and thereby it is not an accrued or ascertained income in the hands of the assessee for the year under consideration. Thus the ld. A/R has submitted that until and unless the refund is granted to the assessee the said amount cannot be held as Income accrued or arises for the year under consideration. He has contended that only when the refund is finally granted and received by the assessee, it will be an income chargeable to tax in the said assessment year. Thus the ld. A/R has submitted that when the claim of the assessee 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 t .....

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..... g that the entitlement of deduction 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 that matter. The Hon ble Supreme Court has held that the liability accrued over the accounting period because of demand notice issued by the Excise Department, the obligation under the law to pay the excise duty arose at that stage. Raising the dispute by the assessee by filing the Writ Petition for quashing or deduction of the said liability would not be a ground for holding that the liability to pay the excise duty as per demand notice was not incurred. Thus the ld. A/R has contended that the mere claim of the assessee for refund of Countervailing Duty based on 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 co .....

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..... at page 10 of the impugned order of ld. CIT (A) are as under :- Particulars Rajasthan Gujarat Indore Raipur Total 1-Apr-2015 to 31-Mar-2016 Purchase 6,031,844,231.36 105,189,926.99 99,453,477.56 - 6,236,487,635.91 Custom Duty paid 711,428,260.00 - 711,428,260.00 Custom Duty Refundable -486,131,816.00 -486,131,816,00 Purchase against C form 651,757,082.61 - 651,757,082.61 Purchase Import 4,949,894,564.14 - 4,949,894,564.14 Purchase VAT 14.50% 425,000.00 - 425,000.00 Purchase VAT @ 8% 204,471,140.61 - 204,471,140.61 Purchase against 2% CST - 105,189,926.99 - 105,189,926.99 Discount in Received Purchase -207,236.85 -207,236,85 Entry Tax - 28,458,209.00 - 28,458,209.00 Purchase against C Form - 40,911,298.93 - 40,911,298.93 Purchase Vat @ 14% - 30,125,831.36 - 30,125,831.36 Purchase VAT paid - 165,375.12 - 165,375.12 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 & .....

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..... the Department and also rejected by the first appellate authority. In the computation of income to neutralize the effect of enhancing the income by the said amount of ₹ 48,32,83,229/- the assessee has again deducted the same and consequently the income offered to tax by the assessee was without any impact of said enhancement of income in the books of account on account of refundable duty. The AO has denied the said deduction to the assessee and treated the claim of refund of duty as income of the assessee for the year under consideration. The AO has referred to the provisions of section 41(1) of the Act and held that it is deemed to be the income for the year under consideration. The provisions of section 41(1) are applicable only when the assessee has claimed the deduction in the year or in the preceding 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) .....

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..... w, the assessee was bound to pay the same till the order directing the assessee to pay the same was set aside or modified. In Kedarnath Jute Mfg. Co. Ltd.'s case (supra), this Court negatived a similar contention by holding thus : ". . . It is not possible to comprehend how the liability would cease to be one because the assessee had taken proceedings before higher authorities for getting it reduced or wiped out so long as the contention of the assessee did not prevail with regard to the quantum of liability, etc. . . ." (p. 366) 4. Further, in that case, the Court has approved the decision of the Madras High Court in the case of Pope The King Match Factory v. CIT [1963] 50 ITR 495 where it was held that the assessee had incurred an enforceable legal liability on and from the date on which he received 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 .....

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..... f Item 17(2). The obligation under the law to pay the excise duty arose at that stage. Raising of the dispute by the assessee by filing writ petition for quashing 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. Thus the Hon ble Supreme Court has reiterated its view as held in case of Kedarnath Jute Mfg. Co. Ltd. (supra) that the expenditure which is deductible for income-tax purposes is one which is towards a liability which is actually existing at the time and liability accrued during the accounting period because of the demand notice issued by the Excise Department. The obligation under the law to pay excise duty arose at that stage. Raising a dispute by the assessee by filing the writ petition for quashing 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 .....

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..... x, even though in book-keeping, an entry is made about a 'hypothetical income', which does not materialise. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account." 18. The above passage was cited with approval in Morvi Industries Ltd. v. CIT (Central), [1971] 82 ITR 835 (SC) in which this Court also considered the dictionary meaning of the word "accrue" and held that income can be said to accrue when it becomes due. It was then observed 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 .....

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..... e or not must, in appropriate cases, be judged on the principles of real income theory. The majority opinion went on to say: 'What has really accrued to the assessee has to be found out and what has accrued must be considered from the point of view of real income taking the probability or improbability of realisation in a realistic manner and dovetailing of these factors together but once the accrual takes place, on the conduct of the parties subsequent to the year of closing an income which has accrued cannot be made "no income".' 26. This Court then considered the facts of the case and came to the conclusion (in Godhra Electricity) that no real income had accrued to the assessee in respect of the enhanced charges for a variety of reasons. One of the reasons so considered was a letter addressed 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. .....

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..... it was rather certain that the claim of refund made by the assessee was denied by the Customs Authorities including the first appellate authority and consequently it cannot be said that income has accrued or arise to the assessee during the year under consideration or till the assessment order was passed. The entries and treatment in the books of account is not a conclusive basis for holding the income arises and liable to tax. The AO is under duty and obligation to assess the actual and correct income as per provisions of the Act while acting as a quasi judicial authority and not to take advantage of any mistake or the entries made in the books of account. The ld. CIT (A) has confirmed the addition by citing the provisions of section 41(1) which in our view not applicable in this case as discussed in earlier part of this order. Accordingly, in view of the above facts and circumstances of the case as well as the binding precedents as cited above, 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 .....

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