The Commissioner Income Tax, Faridabad v. M/S Nuchem Limited Faridabad

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. ITA No.66 of 2004 Date of decision: 1.2.2011 The Commissioner Income Tax, Faridabad -----Appellant Vs. M/s Nuchem Limited Faridabad ----Respondent CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL Present:- Ms. Urvashi Dhugga, Senior Standing Counsel for the revenue. for the revenue. Adarsh Kumar Goel,J. 1.As per office report, file was not available on account of fire inthe Court premises. The file has been reconstructed on the basis of paperbook furnished by learned counsel for the appellant. 2. The revenue has preferred this appeal under section 260A ofthe Income Tax Act, 1961 against the order of Income Tax AppellateTribunal Delhi bench ‘E’ New Delhi passed in ITA No.7368/Del/92 filed bythe respondent and ITA No.7204/Del/92 filed by the appellant for theassessment year 1988-89, raising following substantial questions of law:- “Whether the Hon’ble ITAT was right in law i)in allowing the carry forward of loss on the basisof the return filed after time allowed by the AO onextension application;of the return filed after time allowed by the AO onextension application; ii)in allowing the deduction on account of net refundof excise duty;of excise duty; iii)in dismissing the appeal of the appellant againstthe deletion of Rs.30,34,414/- by the learned CIT(A) on account of excise duty refund credited toP&L account on accrual basis;the deletion of Rs.30,34,414/- by the learned CIT(A) on account of excise duty refund credited toP&L account on accrual basis; iv)in deleting the Car expenses disallowed forpersonal use by the Director;personal use by the Director; v)in dismissing the appeal filed by the appellantagainst deletion of addition on account of foreigntravel expenses.”against deletion of addition on account of foreigntravel expenses.” 3. The assessee filed its income tax return on 29.9.1988 whichwas beyond the extended time allowed upto 31.8.1988. The AssessingOfficer invoked Section 80 of the Act and disallowed carry forward and setoff of loss against the income of the subsequent years. 4. The assessee credited to its profit and loss account refund ofhigher rate of Central excise duty as it had challenged applicability of tariffentry attracting levy of higher rate by submitting that goods manufacturedby it were covered by entry attracting lower rate of excise duty. It clearedthe goods on furnishing of bank guarantee of the extra amount under interimorder of the Court. Though the assessee succeeded before the Collector, theCEGAT set aside the order in favour of the assessee against which furtherappeal was pending before the Hon’ble Supreme Court. However, in lateryear, the duty was paid under KVSS. The Assessing Officer added theamount to which the petitioner was entitled to refund on the basis of orderof Collector. 5. The Assessing officer also added refund which accrued to theassessee on the basis of judgment of the Hon’ble Supreme Court in anothercase which the assessee had credited to its P&L account. This was treated asincome under section 41(1) of the Act, rejecting the plea of the assessee thatthe refund had neither been received nor accrued and mere entry in profitand loss account could not be treated as accrual of income. 6. The Assessing Officer disallowed part of deduction towards carexpenses held to be attributable to personal use of the Director. 7. Claim of the assessee for deduction of foreign travelingexpenses was disallowed on the ground that the expenditure was capital innature. 8.The CIT(A) partly allowed the appeal of the assessee on which cross appeals were filed by the revenue and the assessee. 9.The Tribunal accepted the stand of the assessee and held as under:- i) Issue of carry forward of loss 6. The Assessing Officer disallowed part of deduction towards carexpenses held to be attributable to personal use of the Director. 7. Claim of the assessee for deduction of foreign travelingexpenses was disallowed on the ground that the expenditure was capital innature. 8.The CIT(A) partly allowed the appeal of the assessee on which cross appeals were filed by the revenue and the assessee. 9.The Tribunal accepted the stand of the assessee and held as under:- i) Issue of carry forward of loss “7. We have considered the rival submissions. We findthat the assessee was following Calendar year as itsprevious year. It changed the accounting period fromCalendar to financial year. Thus, the relevant accountingperiod of the assessee was 15 months i.e. 1.1.1987 to31.3.1988. For such change the assessee had also appliedto the AO who was to please to approve such change.Even the IAC of it directed the AO to allow depreciationproportionately for 15 months. Naturally, as theaccounting period was of 15 months the audit could havebeen initiated only after 31[st] march 1988. As the assesseefound that its audit will not be completed by 31.7.1988.It applied for extension of time upto 31.8.1988 whichwas granted by the AO. But as the audit could not be stillcompleted, it made an application for extension of timefor filing the return of income upto 30.9.1988. Therequest on Form No.6 were made accordingly. Therequest for extension of time for filing the return ofincome upto 30.9.1988, therefore, was quite reasonableand the AO was not justified to reject the same. As therewas reasonable cause in filing the return late and thereturn of income has been filed within time for which theextension of time was sought, we direct the AO to carryforward to determine loss of the year under consideration to then subsequent years. This ground of appeal isaccordingly allowed.” ii)Deduction on account of net refund “12. We have considered the rival submissions. It isadmitted position that the assessee’s bank guarantee wasrevoked due to order of the Collector (Appeals), Centralexcise. But the Central Excise Department, did notaccept this order and preferred the appeal before theCEGAT. The CEGAT vide its order pronounced on8.5.1990 reversed the findings of the Collector(Appeals), Central Excise. Thus when the Collector(Appeals), Central Excise passed the order, it cannot besaid that the assessee to claim the refund. It is settled lawthat the assessee could not be penalized for wrongentries made in the books of account. The tax cannot belevied on hypothetical income. A transaction of entry inthe books of account or its treatment therein by theassessee may not always be relevant to decide whether areceipt is liable to income tax or whether the outgoingwas allowable deduction. Our views find support fromthe decisions reported in 75 ITR 191(SC), 46 ITR 144(SC), 216 ITR 15 (Cal.), 148 ITR 760 (All.) and 131 ITR259 (Guj.). We have also noted that as the order of theCollector (Appeals), Central excise was not accepted bythe Central Excise department, it cannot be said that thecessation of liability has taken place so as to attract theprovisions of section 41(1) of the Act. It will not be outof place to mention that subsequently the CEGAT hasreverted the order of the Collector (Appeals), CentralExcise on this issue. Though the CEGAT had denied theclaim of the assessee, the assessee had challenged thesame before the Hon’ble Supreme Court, the same wasstill pending. During the pendency of the appeal beforethe Hon’ble Supreme Court, the assessee thought it fit tooffer the same for taxation and ultimately the same was also offered for taxation under KVSS. A copy of theorder issued by the Collector, Central Excise is also onrecord. Under these circumstances, we hold that as therewas no cessation of liability, the provisions of section 41(1) of the Act were not applicable. We also hold thatsustaining any addition in the year under consideration,will amount to double taxation as the same has alreadybeen taxed by the department in the assessment year1998-99. Under these circumstances, the additionsustained by the CIT(A) is not justified and the same isdeleted. This ground of appeal is allowed.” iii)Refund credited to P&L Account on hypotheticalbasis was not income. “43. We have considered the rival submissions. It issettled law that merely because the entry of an amounthas been made in the profit and loss account or in thebooks of account was not enough in holding that anincome has accrued to the assessee. The assessee hasclaimed refund of certain amount of central excise on thebasis of Supreme Court decision in some other case.Thus, the assessee was not legally entitled to refund inits own case. It is settled law that it was the real incomeand not the hypothetical income which has to be broughtto tax. Our views find support from the decisionsreported in 46 ITR 144 (SC) and 140 ITR 860 (P&H).The CIT(A) appreciated these facts and deleted theaddition. We do not find any infirmity in his findings andwhile upholding the same, we dismiss the ground ofappeal raised by the revenue.” iv)Disallowance of car expenses attributable to thepersonal use of the Director “28. Ground No.13 related to the disallowance out ofmotor car expenses. The assessee is company and therecannot be any disallowance on account of personal useof the car in the case of a company. The issue is squarelycovered in favour of the assessee by the decision of the Delhi bench of the ITAT reported in 76 ITD 32.Concurring with the same, we hold that the disallowancesustained by the CIT(A) is not justified and the same isdeleted.” v) Foreign travelling expenses could not be held to becapital expenses. “56. We have heard the rival submissions. We find thatthe assessee was already manufacturing and dealing withthe same products for which Shri Arun Brar has visitedabroad. During his visit, he explored the possibility oftechnical collaboration for manufacturing of similaritems. Any expenditure for modernization or upgradation of the technology of the existing productcannot be said to be capital expenditure. It is settled lawthat where an expenditure is incurred for setting up of anew factory or a new line of business, such expenditurewill be capital expenditure. But where the expenditure isincurred for keeping oneself abreast the latest techniqueof his business or for foreign collaboration has to be heldas revenue expenditure. Our views find support from thedecisions reported in 76 ITR 644 (AP), 157 ITR 751(Bom,), 14 ITR 335 (Bom.) and 132 ITR 401 (Gaj.). Wetherefore hold that the CIT(A) has correctly appreciatedthe facts in deleting the addition. While upholding hisfindings, we dismiss the ground of appeal raised by therevenue.” 10. We have heard learned counsel for the appellant. We proceedto deal with the questions raised by the revenue. Re: (i) 11. Learned counsel for the revenue submitted that the return of theassessee being beyond the time allowed by the Assessing Officer, carryforward of loss was not permissible in view of section 80 of the Act. Reliance has been placed on judgments of the Kerala High Court in CIT v. Smt.Gunavathy Dhasmasy, (2000) 241 ITR 168 and CIT v. Rajesh Kumar,National Spices, (2003) 259 ITR 629. 10. We have heard learned counsel for the appellant. We proceedto deal with the questions raised by the revenue. Re: (i) 11. Learned counsel for the revenue submitted that the return of theassessee being beyond the time allowed by the Assessing Officer, carryforward of loss was not permissible in view of section 80 of the Act. Reliance has been placed on judgments of the Kerala High Court in CIT v. Smt.Gunavathy Dhasmasy, (2000) 241 ITR 168 and CIT v. Rajesh Kumar,National Spices, (2003) 259 ITR 629. 12.We are unable to accept the submission. As rightly held by theTribunal, though the Assessing Officer had rejected the prayer forextension, the assessee had justification for delay on account of audit beingincomplete. The Tribunal having exercised its discretion in extending thetime beyond the date on which the return was filed, Section 80 could not beinvoked. In the judgments relied upon, the return was beyond theprescribed date which was never extended. The question is, thus, answeredagainst the revenue. Re: (ii) 13. The Tribunal has set aside the addition towards refundin view of the fact that the assessee had offered the amount for taxationunder KVSS which had been accepted by the department in subsequentassessing year. In view of this undisputed fact, the question whether thedispute raised by the assessee was still pending in Hon’ble Supreme Courtcould not be a ground to tax the amount again. Accordingly, the question isdecided against the revenue. In such circumstances, the judgment reliedupon in Polyflex (India) Private Limited v. CIT, (2002) 257 ITR 343 is notattracted as therein tax liability had not been discharged by the assesseeunder KVSS as in the present case. Re: (iii) 14. The Tribunal has found, as a fact, that claim of the assessee forrefund was based on judgment of the Hon’ble Supreme Court in some othercase and the said claim was never accepted in the year in dispute. Thecredit entry in the profit and loss account was made on hypothetical basis. This being the factual finding which is not shown to be erroneous, thedeletion by the Tribunal is not liable to be interfered with. The question isdecided against the revenue. Re: (iv) 15. In view of the finding of the Tribunal that car expensesdisallowed for personal use were not attributable to personal use, whichfinding is not shown to be perverse, the order of the Tribunal is not liable tobe interfered with. The question is decided against the revenue. Re: (v) 16. The Tribunal has found that the foreign traveling expenseswere incurred to explore possibility of technical collaboration formanufacture of products in which case the expenditure was in the nature ofrevenue expenditure and not capital expenditure as submitted on behalf ofthe revenue. The finding recorded by the Tribunal is not liable to beinterfered with. The question is decided against the revenue. 17. As a result of the above, the appeal is dismissed. (Adarsh Kumar Goel) Judge February 1, 2011‘gs’ (Ajay Kumar Mittal) Judge