High Court Of Punjab & Haryana
CIT vs. Des Raj Chiranji Lal Steel Rolling Mills
Section 41(1)
Asst. Year 1978-79
N.K. Sud & Adarsh Kumar Goel, JJ.
IT Ref. No. 133 of 1989
3rd August, 2004
Counsel Appeared
Dr. N.L. Sharda, for the Appellant : Akshay Bhan, for the Respondent
JUDGMENT
N.K. Sud, J. :
At the instance of the Revenue, the Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short “the Tribunal”), has referred the following question of law arising out of its order dt. 24th Feb., 1982 for asst. yr. 1978-79, for the opinion of this Court :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the refund of Rs. 2,14,131 was not taxable in the hands of the assessee for asst. yr. 1978-79 under s. 41(1) of the IT Act, 1961 ?”
2. The relevant facts are that during the accounting period 1st April, 1977 to 31st March, 1978, being the previous year for asst. yr. 1978-79, the assessee received two sums of Rs. 1,89,571.73 and Rs. 24,559.53 (total Rs. 2,14,131) by way of refund of Central excise duty paid by the assessee earlier and allowed as expenditure in determining its income for the earlier years. The said refund was granted by the Asstt. Collector, Central Excise, Patiala, on 7th May, 1977 which date, admittedly, fell within the accounting period relevant to asst. yr. 1978-79. However, on 23rd Nov., 1977, the same Asstt. Collector issued a show-cause notice to the assessee stating as under :
“……. The post-audit of the subject claim has revealed that the evidence produced by you does not conclusively prove that the products relating to the abovementioned refund were manufactured out of duty paid steel ingots, out or broken (but not rolled) in any shape resembling the shape of any of the products referred to in sub-item (i) of item No. 26AA of the Central Excise Tariff, thereby attracting Notification No. 206 of 1963, dt. 30th Nov., 1963, as amended.” The Asstt. Collector required the assessee to produce the necessary evidence to establish that the excise duty in question was not leviable on the assessee and indicated his intention that if the assessee did not have any sufficient evidence in support of its claim for refund, the refund already sanctioned would be liable to be recovered under r. 10 of the Central Excise Rules, 1944. The AO, however, treated the amount of refund of Rs. 2,14,131 as income under s. 41(1) of the IT Act, 1961 (for short “the Act”). Aggrieved by this action, the assessee preferred an appeal before the CIT(A), Chandigarh, who vide his order dt. 13th May, 1980 upheld the action of the AO. On further appeal, the Tribunal examined the provisions of s. 41(1) of the Act and observed that the liability in respect of excise duty had not finally ceased. The relevant findings of the Tribunal are contained in para 8 of the order, as under :
“8. When above are the uncontroverted facts we look to s. 41(1) which reads as under :
“41(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee, and subsequently during any previous year the assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by him or the value of benefit accruing to him, shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not”.
From perusal of above section, it is apparent that it applies only if : (i) an allowance or deduction has been made in computation of profits and gains of business or profession in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee; and (ii) subsequently during any previous year the assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such trading liability by way of remission or cessation thereof. When we apply the above limbs to the instant case, we find there is no dispute about the first part of it. But when we take into consideration the last twelve words, viz., “in respect of such trading liability by way of remission or cessation thereof”, we find that it no more remained a case of cessation of such trading liability the moment the show-cause notice was served on the assessee. If, for a moment, we ignore s. 41(1) and go to allowability of an expenditure in respect of which a demand rightly or wrongly was created by the Central excise, it would have been a clear case for admissibility of such expenditure though the assessee may have come forward with a dispute in respect of the same. On the same principle, we are afraid we do not find that trade liability regarding payment of excise duty resulted into a cessation. Though the assessee got a refund but was immediately followed by a show-cause notice in consequence of the audit.”
5. The facts are not in dispute. It is evident that in view of the show-cause notice issued by the Asstt. Collector dt. 23rd Nov., 1977, the issue of refund to the assessee itself was in dispute and, therefore, it could not be said that there was a final cessation of liability which is a necessary prerequisite for invoking the provisions under s. 41(1) of the Act. This view finds support from the law laid down by the apex Court in Chief CIT vs. Kesaria Tea Co. Ltd. (2002) 173 CTR (SC) 394 : (2002) 254 ITR 434 (SC). Accordingly, we answer the question in the affirmative, i.e., against the Revenue and in favour of the assessee.
[Citation : 273 ITR 273]
