The Commissioner Of Income-Tax (Central) Ludhiana v. M/S Aggarwal Steel Rolling Mills, Mandi Gobindgarh

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH I.T.R.No.38 of 1990 Date of Decision : January 08, 2010 The Commissioner of Income-Tax (Central) Ludhiana Versus M/s Aggarwal Steel Rolling Mills, Mandi Gobindgarh CORAM:HON'BLE MR. JUSTICE JASBIR SINGH HON'BLE MR. JUSTICE HEMANT GUPTA ...Appellant ...Respondent Present:Ms. Urvashi Dhugga, Standing counsel, for the appellant. Mr. Salil Bali, Advocate, for the respondent. HEMANT GUPTA, J. The Income-Tax Appellate Tribunal, Chandigarh Bench,Chandigarh, has referred under Section 256(1) of the Income Tax Act,1961 (for short 'the Act'), the following question of law for the opinion ofthis Court : “Whether on the facts and in the circumstances of the case, theAppellate Tribunal was right in law in holding that the amountof refunds received by the assessee from the Central ExciseDepartment during the accounting period ended 1.3.1978,were not includible in the assessee's taxable income for theassessment year 1978-79?” The assessee received a sum of Rs.26,782.22, an account ofrefund of excise duty during the assessment year 1978-79. Though thecheques of refunds were issued, but the show cause notices were issuedto the assessee disputing the refunds. It was the contention of the assessee that since the issue of refund has not attained finality during therelevant assessment year, therefore, such amount of refund cannot beincluded as taxable income in terms of Section 41(1) of the Act. Learned Tribunal relied upon the judgment of the Tribunal inM/s Des Raj Chiranji Lal Steel Rolling Mills (I.T.A.No.428 of 1980dated 24.2.1982) to return a finding that since the issue of refund has notattained fianlity, therefore, such refund cannot be included as part of thetaxable income during the relevant assessment year. The Revenue has relied upon the judgment of Hon'ble Supreme Court in Polyflex (India) Pvt. Ltd. Vs. Commissioner of Income-Tax(2002) 257 ITR 343, to contend that the date of receipt is relevant todetermine the inclusion of the same in taxable income even though thesame is being disputed in separate proceedings. Section 41(1) of the Act as exists during the relevant year readsas under : “In the assessment for the relevant year an allowance ordeduction has been made in respect of any loss, expenditure ortrading liability incurred by the assessee. This is the first step.Coming to the next step the assessee must have subsequently(i) obtained any amount in respect of such loss or expenditure;or (ii) obtained any benefit in respect of such trading liabilityby way of remission or cessation thereof. In case either ofthese events happen, the deeming provisions enacted in theclosing part of sub-section (1) comes into play. Accordingly,the amount obtained by the assessee or the value of benefitaccruing to him is deemed to be profits and gains of businessor profession and it becomes chargeable to income-tax as theincome of that previous year.” The Hon'ble Supreme Court held that since the assessee hasobtained the amount by way of refund in respect of business expenditureincurred by it during the earlier year, it will fall under the earlier clausenamely “obtained any amount in respect of such expenditure” rather thanthe benefit accruing to an assessee on account of cessation or remissionof trading liability. It was held to the following effect : The Hon'ble Supreme Court held that since the assessee hasobtained the amount by way of refund in respect of business expenditureincurred by it during the earlier year, it will fall under the earlier clausenamely “obtained any amount in respect of such expenditure” rather thanthe benefit accruing to an assessee on account of cessation or remissionof trading liability. It was held to the following effect : “We are inclined to think that in a case where a statutory levyin respect of goods dealt in by the assessee is discharged andsubsequently the amount paid is refunded, it is the first clausethat more appropriately applies. It will not be a case of benefitaccruing to him on account of cessation or remission of tradingliability. It will be a case which squarely falls under the earlierclause, namely “obtained any amount in respect of suchexpenditure”. In other words, where expenditure is actuallyincurred by reason of payment of duty on goods and thededuction or allowance had been given in the assessment forearlier period, the assessee is liable to disgorge that benefit asand when he obtains refund of the amount so paid. Theconsideration whether there is a possibility of the refund beingset at naught on a future date will not be a relevantconsideration. Once the assessee gets back the amount whichwas claimed and allowed as business expenditure during theearlier year, the deeming provision in Section 41(1) of the Actcomes into plan and it is not necessary that the Revenue shouldawait the verdict of higher court or Tribunal. If the court orTribunal upholds the levy at a later date, the assessee will notbe without remedy to get back the relief.” In view of the aforesaid judgment, the assessee has claimed thebenefit of expenditure on excise duty in the earlier years, but the samewas refunded during the relevant assessment year. The subsequent showcause notices does not amount to cessation or remission of trading liability, but receipt on account of expenditure incurred earlier. Therefore, in view of the aforesaid judgment, which covers theissue in the present case, it is held that the refund of excise duty receivedduring the relevant assessment year, would be taxable in that year andmere show cause notice to dispute such refund cannot be interpreted tomean that income is not taxable during the said year. The assessee shallbe entitled to claim expenditure of such excise duty, if it is found payablein pursuance of the show cause notices during the assessment year inwhich such liability is discharged. In view of the above, the reference is answered in favour of theRevenue and against the assessee. (HEMANT GUPTA)(JASBIR SINGH) JUDGE JUDGE January 08, 2010Vimal