CA’s certificate in place of original tax challan not sufficient to prove that payment was deposited

Siel Ltd Vs DCIT (ITAT Delhi)- The issue raised is that Ld. Commissioner of Income Tax (Appeals) erred in upholding the dis allowance of Rs.  18,49,950/- being amount claimed by the assessee u/s 43B of the IT Act. The assessee was asked to establish the facts from the records and from the bank accounts, but the same was never produced. Assessee contended before the Ld. Commissioner of Income Tax (Appeals) that certificate of CA is sufficient for allowing such deduction. When the factual evidence was again called for, it was stated that the details were related to 10 years old bank record and the same is not readily available. Ld. Commissioner of Income Tax (Appeals) noted that assessee has failed to establish the evidence of such payments before the Assessing Officer at the assessment stage and also before him. hence, he sustained the dis allowance of Rs.  18,49,950/-.

In this regard, ld. counsel of the assessee has placed reliance upon CBDT Circular No. 601 dated 4.6.1991 reported in 190 ITR 4 (St.). This reference was made by the ld. counsel of the assessee in support of the claim that for the purpose of section 43B in case there is difficulty in enclosing necessary challan etc. evidencing payment, a Certificate from a CA, as defined in the Explanation to section 288 of the Act would be sufficient.  However, we note that in this Circular in para 8 thereof it has clearly mentioned that the same will be sufficient for the purpose of making prima facie adjustments under section 143(1)(a). Further evidence can be called for in cases selected for scrutiny & 143(3) assessment. Admittedly, we are not concerned with adjustment u/s 143(1)(a). Hence, this Circular does not support the case of the assessee. Hence, we are of the considered opinion that assessee has failed to submit the necessary evidence in this regard.

Furthermore, in this regard the ld. counsel of the assessee has also placed reliance upon the decision of the Hon’ble Jurisdictional High Court in the case of ACIT vs. Jay Engineering Works Ltd. 114 ITR 289. In this case it was held that “where the original books of the assessee had been destroyed in a fire it was held that the Appellate Tribunal, in allowing a deduction, could rely upon other material mainly consisting of the auditor’s reports from which it could be inferred that the deductions were properly supported by the relevant entries in the accounts books.

Other issue in Appeal-

Whether payment of excise duty on behalf of a going concern of which the assessee has undertaken the liabilities is revenue expense. – NO

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH “E” NEW DELHI

 M/s Siel Limited, Vs. Dy. Commissioner of Income Tax,

I.T.A. No. 3367/Del/2002, A.Y.: 1998- 99

 M/s Mawana Sugars Limited ((Formerly known as Siel Limited,), Vs. Dy. Commissioner of Income Tax,

ITA NO. 4518/DEL/2009, A.Y. 1998-99

ORDER

These appeals by the assessee are directed against the order of the Ld. Commissioner of Income Tax (Appeals) for assessment year 1998-99. Since the appeals were heard together and they are being consolidated and disposed of by this common order for the sake of convenience.

ITA NO.  4518

2. The issue raised is that Ld. Commissioner of Income Tax (Appeals) erred in upholding the dis allowance of Rs.  18,49,950/- being amount claimed by the assessee u/s 43B of the IT Act.

3. In this case Assessing Officer had made a total addition on this issue of  Rs. 1,18,49,950/- forming part of claim of Rs.  2,22,34,324/- u/s 43B vide his order dated 25.1.2001.

4. The Ld. Commissioner of Income Tax (Appeals) in her order has sustained the addition of Rs.  1,00,000,000/- but she was silent regarding the balance amount of 18,49,950/-. The matter traveled to the ITAT and the ITAT vide its order dated 28.10.2003 restored the matter to the files of the Ld. Commissioner of Income Tax (Appeals) only relating to Rs.  18,49,950/-. Accordingly, the issue was considered by the Ld. Commissioner of Income Tax (Appeals) in the impugned order.   Ld.  Commissioner of Income Tax (Appeals) held that whether this amount of    Rs.  18,49,950/- is allowable expenditure or not is essentially a question of fact. The decision regarding this has to be arrived at from the material which is available on record or from such document as asked for. Ld. Commissioner of Income Tax (Appeals) further noted that before him the assessee has produced only the evidence which is zerox copy certified issued by the CA. The assessee was asked to establish the facts from the records and from the bank accounts, but the same was never produced. Assessee contended before the Ld. Commissioner of Income Tax (Appeals) that certificate of CA is sufficient for allowing such deduction. When the factual evidence was again called for, it was stated that the details were related to 10 years old bank record and the same is not readily available. Ld. Commissioner of Income Tax (Appeals) noted that assessee has failed to establish the evidence of such payments before the Assessing Officer at the assessment stage and also before him. hence, he sustained the dis allowance of Rs.  18,49,950/-.

5.  Against this order the assessee is in appeal before us.

6. We have heard the rival contentions and perused the records. We find that Ld. Commissioner of Income Tax (Appeals) has stated that assessee has failed to produce necessary documents and stated that the details were 10 years old. The assessee has only submitted a certificate from CA to support his case. In this regard, ld. counsel of the assessee has placed reliance upon CBDT Circular No. 601 dated 4.6.1991 reported in 190 ITR 4 (St.). This reference was made by the ld. counsel of the assessee in support of the claim that for the purpose of section 43B in case there is difficulty in enclosing necessary challan etc. evidencing payment, a Certificate from a CA, as defined in the Explanation to section 288 of the Act would be sufficient.

6.1 However, we note that in this Circular in para 8 thereof it has clearly mentioned that the same will be sufficient for the purpose of making prima facie adjustments under section 143(1)(a). Further evidence can be called for in cases selected for scrutiny & 143(3) assessment. Admittedly, we are not concerned with adjustment u/s 143(1)(a). Hence, this Circular does not support the case of the assessee. Hence, we are of the considered opinion that assessee has failed to submit the necessary evidence in this regard.

6.2 Furthermore, in this regard the ld. counsel of the assessee has also placed reliance upon the decision of the Hon’ble Jurisdictional High Court in the case of ACIT vs. Jay Engineering Works Ltd. 114 ITR 289.

In this case it was held that “where the original books of the assessee had been destroyed in a fire it was held that the Appellate Tribunal, in allowing a deduction, could rely upon other material mainly consisting of the auditor’s reports from which it could be inferred that the deductions were properly supported by the relevant entries in the accounts books.”

In this background, the Hon’ble High Court did not interfere in the order of the tribunal. In our considered opinion, this case law is not at all applicable in the present case. It is not the case that books of account and other material were lost in fire. Here assessee has simply stated that the evidence called for in this regard is 10 years old. Hence, the same was not available. In this background, we do not find any  infirmity or illegality in the order of the Ld. Commissioner of Income Tax (Appeals) and accordingly, we uphold the same.

7. In the result, the appeal filed by the assessee is dismissed.

ITA NO. 3367

8. In this case the appeal was earlier heard by the tribunal and necessary order was passed on 28.10.2003. Thereafter, misc. application was filed before the tribunal in MA no. 500IDelI2007. In the misc. application, it was pleaded that the ground relating to deduction of 1 crore in respect of Excise Duty paid has been omitted to be considered. The tribunal in misc. application has accepted that tribunal had omitted to consider the deduction of 1 crore which was raised in ground no. 2. It was noted that the tribunal had given a finding only in respect of ground no. 2.1 which is also deduction under section 43B. Accordingly, the order was partially recalled to decide the ground no. 2 raised in the appeal. The said ground no. 2 reads as under:–

“That the Ld. Commissioner of Income Tax (Appeals) erred in not accepting the deduction u/s 43B in respect of sum of 1 crore paid by way of Excise Duty during the previous year relevant to assessment year under consideration, which was disallowed by the Assessing Officer.”

9. In this regard, upon a perusal of note 5(3) to notes on accounts it was observed that assessee company has given Indemnity on account of Siel Corporation Ltd. which is known as Tecumseh Product India Ltd. (TPIL) which was formerly a unit of assessee company and presently renamed as Techmseh Products India Ltd. was transferred to another company as going concern as on 1.4.96 and, on such transfer the assesessee had shown capital gain/loss during the assessment year 1997-98. The Assessing Officer observed that a sum of Rs.  1 crore paid by way of excise duty pertaining to the pending cases relating prior to 31st March, 1997, was a liability on account of capital assets which stands transferred. According to the Assessing Officer this expenditure was on capital account and cannot be allowed as revenue account. Before the Ld. Commissioner of Income Tax (Appeals) it was submitted that the amount of Rs. 1 crore was part of the total excise duty paid on Rs.  1,04,87,404/-. Moreover, this amount was not debited to the P&L account and therefore, while computing the total income the question of adding it back does not arise, notwithstanding whatever may be the finding about the nature of this payment. Considering the above Ld. Commissioner of Income Tax (Appeals) referred to the relevant provision of section 43B and noted that the payment of Rs. 1 crore has been made to the TPIL for depositing the same with the excise authorities. Ld. Commissioner of Income Tax (Appeals) further held that he has perused the records and assessment order of the company and he found that the payment is indeed of capital nature because whenever change in hand of business takes place, it is transferred with all its assets as well as liabilities. The outstanding payment of excise duty was a liability of the company know as TPIL and, therefore, it should form a part of the capital loss/gain of the company to which it has been transferred, hence the order of the Assessing Officer on these issues as above is upheld. It was further observed that in any case the observation of the Assessing Officer that it is of capital nature, it is also to be seen, that the liability is not of the assessee but of the earlier company TPIL. Therefore, it cannot be allowed in the hands of the assessee. Further the contention of the assessee that it has not been debited to P&L account cannot be accepted because ultimately it has been deducted in the calculation on income.

10. Against the above order the assessee is in appeal before us.

11. We have heard the rival contentions in light of the material produced and precedent relied upon. The said note 5(e) referred above reads as under:-

“Indemnity given by the Company to a party to whom investment in 1,00,00,00/- equity shares of 10 each fully paid up of Siel Compressors Limited, presently renamed as Tecemseh Products India Limited (TPIL) has been disposed off for any loss, damage, claim, action, suit etc. arising from various representations! breach of representations including for contingent liabilities existing as at March 31, 1997 or prior to March, 31, 1997, which Siel Compressors Limited may eventually be liable to pay. The company has provided a bank guarantee for an amount of 12600.00 lacs. The company has received a claim for Rs. 311.11 lacs towards excise duty demand pertaining to pending cases relating prior to March 31, 1997 from TPIL. Against this claim, the company has reimbursed 100 lacs to TPIL for depositing with excise authorities and has included the same under the head ‘Advance recoverable in cash or in kind or for value to be received in ‘Schedule’ as TPIL has preferred an appeal in the Supreme Court against the said excise order.”

12. From the above it is evident that the impugned liability of Rs.  1 crore was on account of capital asset which stands transferred and therefore, it has been rightly held by the authorities below that 1 crore paid for TPIL statutory liabilities does not represent the business expenditure of the assessee company. Moreover, it is also rightly held that it is in the nature of the capital expenditure as it has its origin in relation to a capital assets which is no longer an asset of the business and, therefore, not an allowable deduction while computing the taxable income.

13. Accordingly, in the background of the aforesaid discussion, we do not find any infirmity in the order of the Ld. Commissioner of Income Tax (Appeals) holding that a sum of Rs.  1 crore was not allowable, as it was in the nature of capital account. This was so because business had already changed hands and when the business changes hand the assets as well as liabilities are transferred. Therefore, outstanding payment of excise duty was liability of the company known as TPIL, and, therefore, it should form a part of the capital loss/gain of the company to which it has been transferred. Accordingly, we uphold the orders of the authorities below and decide the issue in favor of the Revenue.

14. In the result, both the appeals filed by the assessee stand dismissed.

Order pronounced in the open court on 20/5/2011.