CHETNA ZARDA COMPANY, MUMBAI V. DCIT CC 24 & 26, MUMBAI

ITA 874/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55809 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 03-10-2011
• Assessment Year: 1999-2000
• Appeal Filed On: 09-02-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D EVI SINGH
• Assessee Lawyers: S C TIWARI
• Keywords: Reopening of assessment; Capital expenditure
• Section: 43B; 32; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI C BENCH BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER & SHRI VIJAY PAL RAO, JUDICIAL MEMBER I.T.A.NO.874/MUM/2009 A.Y 1999-2000 CHETNA ZARDA COMPANY,/1/213, NAVJIVAN SOCIETY, LAMINGTON ROAD, MUMBAI 400 008. PAN: AAAFC 0896 Q VS. DY. COMMISSIONER OF I.T., CC 24 & 26, MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.C.TIWARI. RESPONDENT BY : SHRI DEVI SINGH CIT DR DATE OF HEARING: 03-10-2011 DATE OF PRONOUNCEMENT: O R D E R PER T.R.SOOD, AM: IN THIS APPEAL, ASSESSEE HAS RAISED THE FOLLOWING G ROUND: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX APPEALS, CENTRAL CIRCLE IV, HEREINAFTER REFERRED TO AS THE LD. CIT(A) HAS ERRED IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.6,64,72,870/- IN RESPECT OF EXCISE DUTY PAID BY THE APPELLANT. THE SAID EXPENSES IN RESPECT OF PAYM ENT OF EXCISE DUTY MAY PLEASE BE ALLOWED. 2. THE APPEAL HAS BEEN FILED LATE BY 27 DAYS AND A CONDONATION PETITION ALONG WITH AN AFFIDAVIT HAS BEEN FILED. TH E LD. COUNSEL OF THE ASSESSEE REFERRED TO THE AFFIDAVIT OF SHRI BHAVIN P ARIKH, CHARTERED ACCOUNTANT, IN WHICH IT IS STATED THAT APPEAL PAPER S HAD BEEN RECEIVED BY HIM BUT BECAUSE OF THE HEAVY RUSH FOR FILING OF RETURN, HE LOST SIGHT OF THE APPEAL WHICH WAS FILED LATE. THE LD. COUNSEL SUBMITTED THAT DELAY IS BECAUSE OF THE CHARTERED ACCOUNTANT AND, T HEREFORE, SAME SHOULD BE CONDONED. 3. ON THE OTHER HAND, LD. DR LEFT IT TO THE DISCRET ION OF THE BENCH. ITA NO.874 OF 2009 2 4. AFTER CONSIDERING THE SUBMISSIONS, WE FIND THAT ASSESSEE HAD SUFFICIENT REASON FOR FILING THE APPEAL LATE AND, T HEREFORE, THE DELAY IS CONDONED. 5. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE PAID E XCISE DUTY AMOUNTING TO RS.6,64,72,870/- UNDER KAR VIVADH SAMA DHAN SCHEME (KVSS), PURSUANT TO THE SHOW CAUSE NOTICES ISSUED B Y THE CENTRAL EXCISE DEPARTMENT FOR ALLEGED SUPPRESSION OF SALES IN A.YRS. 1993-94 & 1994-95. THESE SHOW CAUSE NOTICES WERE ISSUED AFTER A SEARCH ACTION BY THE EXCISE DEPARTMENT IN WHICH SOME SUPPRESSED S ALES WERE DISCOVERED BY THEM. THE FACT OF SUPPRESSED SALES WA S INFORMED TO THE INCOME TAX AUTHORITIES ALSO AND ACCORDINGLY ASSESSM ENTS OF THE ASSESSEE WERE REOPENED. IT WAS NOTICED THAT ASSESSE E HAS NOT OFFERED SUCH SUPPRESSED SALES WHICH HAVE BEEN SUPPRESSED AS PER EXCISE DEPTT., AMOUNTING TO RS.5.36 CRORES AND RS.16.62 CR ORES IN A.YRS. 1993-94 & 1994-95, RESPECTIVELY. HOWEVER, ADDITIONS WERE MADE ONLY AT RS.1,01,92,569/- BEING GROSS PROFIT @ 19% DECLAR ED BY THE ASSESSEE FOR A.Y. 1993-94 AND RS.3,32,34,424/- BEING GP @ 20 % DECLARED BY THE ASSESSEE IN A.Y. 1994-95. THESE ORDERS WERE CHA LLENGED BEFORE THE CIT(A) WHO HELD REOPENING OF THE ASSESSMENTS AS NUL L AND VOID IN BOTH THE YEARS. THE MATTER WAS TAKEN UP BEFORE THE TRIBU NAL BY THE REVENUE AND THE TRIBUNAL REVERSED THE ORDERS OF THE CIT(A) IN BOTH THESE YEARS AND RESTORED THE MATTER TO THE FILE OF THE CIT(A) TO BE DECIDED ON MERITS. 6. IN THE SECOND ROUND, ADDITION OF RS.1,01,92,569/ - FOR A.Y. 1993- 94 AND RS.3,32,24,424/- FOR A.Y. 1994-95 WAS CONFIR MED BY THE LD. CIT(A) IN FRESH ORDER. THIS MATTER WAS AGAIN TAKEN TO THE TRIBUNAL THIS ITA NO.874 OF 2009 3 TIME BY THE ASSESSEE AND THE TRIBUNAL DELETED THE A DDITIONS ON THE GROUND THAT THE ASSESSING OFFICER WHO HAD MADE ASSE SSMENT HAD NO JURISDICTION TO PASS SUCH ORDERS. 7. IN A.Y. 1999-2000 I.E. THE YEAR BEFORE US WHEN T HE ISSUE REGARDING THE CLAIM FOR PAYMENT OF EXCISE DUTY AMOU NTING TO RS.6,64,72,870/- FOR A.YRS. 1993-94 & 1994-95 CAME UP BEFORE THE AO, HE DISALLOWED THE SAME BECAUSE THE ADDITIONS ON ACC OUNT OF SUPPRESSED SALES HAD ALREADY BEEN DELETED BY THE OR DERS OF THE CIT(A). 8. AGGRIEVED BY THIS ORDER ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) AND IT WAS MAINLY CONTENDED THAT EXCISE DUTY WAS PAID IN PURSUANCE OF THE KVSS SCHEME ANNOUNCED BY THE GOVER NMENT AND THE CLAIM WAS ALLOWABLE U/S.43B. IT WAS ALSO POINTED OU T THAT SINCE ORDERS OF CIT(A) HAVE ALREADY BEEN SET ASIDE BY THE TRIBUN AL, THEREFORE, ORDERS OF THE AO WERE NO LONGER VALID. THE LD. CIT( A) DECIDED THE ISSUE VIDE PARAS 8 TO 11 WHICH ARE AS UNDER: 8. THE APPEAL RELATES TO THE APPELLANTS CLAIM THA T THE EXCISE DUTY OF RS.66472870, PAID BY IT FOR THE ASSESSMENT YEARS 1993-94 AND 1994- 95, RELATED TO SUPPRESSED SALES, AS FOUND BY THE CE NTRAL EXCISE DEPARTMENT, BE ALLOWED AS A DEDUCTION. SUBSEQUENT T O THE INSTITUTION OF THIS APPEAL, PURSUANT TO THE ORDER DATED 14.8.2006, OF THE HON.ITAT, MUMBAI, THE MATTER RELATED TO THE TAXATION OF INCOM E FROM SATES SUPPRESSED BY THE APPELLANT HAS BEEN ADJUDICATED BY ME, FOR THE ASSESSMENT YEARS 1993-94 AND 1994-95, VIDE MY ORDER NO. CIT(A)/C- IV!)T-62912006-07 DATED 01.08.2007 AND ORDER NO.CIT (A)IC-IVIIT- 63012006-07 DATED 01.08.2007 RESPECTIVELY. IT MAYBE MENTIONED HERE THAT THE APPELLANTS ORDERS FOR THE SAID YEARS VIZ. AY 1993-94 AND 1994-95, WERE READJUDICATED BY ME, ON THE DIRECTION OF THE HON. ITAT, THAT THE APPELLANTS CASE RELATED TO TAXATION OF IN COME FROM SUPPRESSED SALES BE DECIDED UPON MERIT. 9. UPON A DETAILED CONSIDERATION OF THE SUBMISSION S PUT FORWARD BY THE APPELLANTS AR, AND THE FACTS ON RECORD, MY FINDINGS AS STATED IN PARA 22 TO 24 OF MY SAID ORDERS, WERE AS UNDER: 22 THE REOPENING OF ASSESSMENT IN THIS CASE HAS TA KEN PLACE, BECAUSE OF THE DETECTION OF A HUGE AMOUNT OF SUPPRE SSION OF SALES AND EXCISE DUTY EVASION BY THE APPELLANT, DUR ING A SEARCH ITA NO.874 OF 2009 4 AND SEIZURE ACTION, CONDUCTED BY THE EXCISE DUTY DE PARTMENT, AT THE BUSINESS PREMISES OF THE APPELLANT. A HUGE AMOU NT OF INDEPENDENT THIRD PARTY EVIDENCE TOO HAS BEEN FOUND , WHICH INDICATES SUCH EVASION. IT IS A CASE WHERE THE ASSE SSEE HAS NOT RECORDED A LARGE AMOUNT OF ITS REVENUE TRANSACTIONS IN ITS BOOKS OF ACCOUNTS AND HAS ALSO NOT RETURNED IT TO TAXATIO N. HIS VERY ACT OF SUPPRESSION OF SALES, DRAWS OUT SEVERE ADVERSE I NFERENCE ABOUT HIS CONDUCT AND THE VERACITY OF HIS RETURNS O F INCOME AND RECORDS PRODUCED BEFORE THE INCOME TAX DEPARTMENT. THE APPELLANT HAS EVIDENTLY NOT FILED HIS TRUE RETURN O F INCOME, NOR DID HE PRODUCE HIS TRUE RECORDS DURING THE COURSE O F THE INCOME TAX ASSESSMENT PROCEEDINGS. THE SEARCH ACTION BY TH E EXCISE DEPARTMENT UNEARTHED A HUGE GAP BETWEEN THE ACTUAL FIGURES AND THE RETURNED FIGURES OF INCOME. 23. SINCE THE APPELLANT HAD CONCEALED THESE FIGURES FROM THE REVENUE AUTHORITIES, THE AO WAS OBVIOUSLY NOT AWARE OF THE TRUE POSITION IN RESPECT OF THE APPELLANTS SALES AND IN COME. THE REOPENING OF ASSESSMENT HAS TAKEN PLACE BECAUSE IN CRIMINATING INFORMATION WAS RECEIVED BY THE INCOME TAX DEPARTME NT, FROM THE EXCISE DEPARTMENT. IN OTHER WORDS, THE INCOME T AX DEPARTMENT RECEIVED INCRIMINATING INFORMATION, ABOU T THE APPELLANTS SALES AND INCOME, WHICH HE SOUGHT TO CO NCEAL AND EVADE, FROM A THIRD INDEPENDENT SOURCE AND NOT BECA USE THE APPELLANT CHOSE TO COME CLEAN. THE APPELLANT HAS FU RTHER CHOSEN TO NOT ACCEPT THE CONCEALMENT OF INCOME AND THUS HA S NOT PROVIDED WITH ALL THE FACTS AND INFORMATION TO THE AO. THE APPELLANT HAS ALSO NOT FURNISHED ANY EXPLANATIONS T O THE AQ, IN THE REASSESSMENT PROCEEDING IN RESPECT OF THESE DOC UMENTS FOUND TO HAVE BEEN CONCEALED. NEITHER WERE ANY DETA ILS, APART FROM THOSE GIVEN TO THE AO, FILED BEFORE ME. 24 THE APPELLANT BY HIS VERY CONDUCT HAS NOT JUST C ONCEALED BUT HAS THWARTED THE TRUTH, LEAVING NO OPTION FOR THE A O, BUT TO FRAME THE ASSESSMENT ON THE BASIS OF FACTS UNEARTHE D BY .THE EXCISE DEPARTMENT. IT T NOT OUT OF PLACE TO POINT H ERE THAT THE SHOW CAUSE NOTICE ISSUED BY THE EXCISE DEPARTMENT W AS FOUNDED ON THOUSANDS OF INCRIMINATING DOCUMENTS FOU ND BY THE SAID DEPARTMENT DURING THE COURSE OF THE SEARCH ACT ION, IN THE CASE OF THE APPELLANT 10. BASED ON MY AFORESAID FINDINGS, I ADJUDICATED A S UNDER: FOR THE A.YRS. 1993-94 & 1994-95 1993-94 SUBJECT TO THESE OBSERVATIONS, I UPHOLD THE ACTIO N OF THE AC IN PLACING RELIANCE ON THE CENTRAL EXCISE DEPARTMEN TS FINDING OF EVASION OF SALES TO THE TUNE OF RS. 53645105. TH E AOS ESTIMATION OF APPELLANTS INCOME FROM SUCH SALES EQ UAL TO THE GP RATE DECLARED BY THE APPELLANT HIMSELF, WORKS OU T TO RS. 10192569. AFTER ALLOWING SET OFF OF LOSSES OF RS.42 7672, THE TAXABLE INCOME IS RIGHTLY COMPUTED AT RS.9764807. FOR THE AY1994-95 SUBJECT TO THESE OBSERVATIONS, I UPHOLD THE ACTION OF THE AO IN PLACING RELIANCE ON THE CENTRAL EXCISE DEPARTMENTS FINDING OF ITA NO.874 OF 2009 5 EVASION OF SALES TO THE TUNE OF RS. 166122120. THE AOS ESTIMATION OF APPELLANTS INCOME FROM SUCH SALES EQ UAL TO THE GP RATE DECLARED BY THE APPELLANT HIMSELF AT 20% WO RKS OUT TO RS. 33224424. AFTER ALLOWING SET OFF OF LOSSES OF R S.2O3716, THE TAXABLE INCOME IS RIGHTLY COMPUTED AT RS. 33020 708. 11. IT IS PERTINENT TO POINT OUT THAT FOR THE ASSES SMENT YEARS 1993-94 AND 1994-95, TO WHICH THE APPELLANTS CLAIM OF EXCI SE DUTY PAYMENT OF RS.66472870 RELATES, BY VIRTUE OF MY IMPUGNED ORDER S, WHAT AS BEEN SUBJECTED TO TAX IS NOT THE GROSS INCOME FROM SUPPR ESSED SALES, BUT THE NET INCOME THEREIN, - AS REPRESENTED BY THE GROSS P ROFIT. IN OTHER WORDS, WHILE SUBJECTING THE INCOME FROM SUPPRESSED SALES T O TAX, ALL EXPENSES THERE AGAINST, INCLUDING EXCISE DUTY HAVE ALREADY B EEN ALLOWED AS A DEDUCTION, IN THE PROCESS OF TAXING THE NET INCOME (REPRESENTED BY THE GP) AND NOT THE TOTAL GROSS INCOME (AS REPRESENTED BY THE GROSS SUPPRESSED SALES). PERMITTING THE APPELLANT TO CLAI M THE EXCISE DUTY AS A DEDUCTION NOW, WOULD AMOUNT TO A DOUBLE DEDUCTION I N RESPECT OF THE SAME EXPENDITURE WHICH-IS NOT PERMISSIBLE. THE APPE LLANTS CLAIM FOR EXCISE DUTY PAYMENT OF RS.66472870 AS A DEDUCTION, IS THEREFORE REJECTED, IN. VIEW OF MY AFORESAID DISCUSSION. 9. BEFORE US, LD. COUNSEL OF THE ASSESSEE NARRATED THE FACTS AND SUBMITTED THAT ANY EXPENDITURE WHICH HAS BEEN INCUR RED FOR THE PURPOSE OF BUSINESS IS ALLOWABLE. IT WAS CONTENDED THAT THE EXPRESSION FOR THE PURPOSE OF BUSINESS IN SEC.37(1) IS WIDER IN SCOPE THAN THE EXPRESSION FOR THE PURPOSE OF EARNING PROFITS AND RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. MALAYALAM PLANTATION LTD. [53 ITR 140]. IT WAS FURT HER ARGUED THAT IT WAS NOT NECESSARY THAT FOR CLAIMING EXPENDITURE THE RE HAS TO BE A PRESENCE OF RECEIPT ALSO. IN THIS REGARD, HE RELIED ON THE FOLLOWING DECISIONS: A) HUGHESV. BANKOFNEWZEALAND GITRG36,644(HL) B) TRAVANCORE RUBBER & TEA CO. LTD. V. C. AG. IT., 41 ITR 751(SC) C) C. AG.IT V. CALVARY MOUNT ESTATES PR. LTD. 41 ITR 7 55 (SC) D) SREE MEENAKSHI MILLS LTD. V. CIT 63 ITR 207 (SC); E) ANGLO PERSIAN OIL CO. (INDIA) LTD. V. CIT 1 ITR 12 9 (CAL) F) TATA SONS LTD. V. CIT 18 ITR 460 (BORN) G) T.S.PL.P.CHIDAMBARAM CHETTIAR V. CIT 39 ITR 320 (MA D) H) OUCHTERLONY VALLEY (1938) LTD.V. GOVERNMENT OF MADR AS 44 ITR 770 (MAD) I) M.S.M.M.MEYYAPPA CHETTIAR V. CIT 44 ITR 775 (MAD) J) P.V.MOHAMED GHOUSE V. CIT 49 ITR 127 (MAD) K) MYSORE SPINNING AND MANUFACTURING CO. LTD. V. CIT 6 1 1TR 572 (BORN) L) M N RAMASWAMYIYER V. CIT 71 ITR 218 (KER); ITA NO.874 OF 2009 6 M) ORISSA CEMENT LTD. V. CIT 73 ITR 14 (DEL) N) PLANTATION CORPORATION OF KERALA V. CIT 733(KER) HE FURTHER SUBMITTED THAT WHETHER EXPENDITURE IS CO MMERCIAL EXPEDIENT OR NOT HAS TO BE JUDGED BY A BUSINESS PER SON AND THE ONLY CONDITION WAS THAT THE SAME SHOULD HAVE BEEN INCURR ED FOR THE PURPOSE OF BUSINESS AND IN THIS REGARD HE RELIED ON THE FOL LOWING DECISIONS: I. SASSOON J DAVID & CO. P. LTD. V. CIT 118 ITR 261 (S C) II. CIT V. RAMAN & RAMAN LTD. 71 ITR 345 (MAD) III. CIT V. VIJAYLAXMI MILLS LTD. 94 ITR 173 (MAD) IV. BRALCO METAL INDUSTRIES P. LTD. 206 ITR 477 (BORN) HE ALSO ARGUED THAT EACH ASSESSMENT YEAR IS A SELF CONTAINED AND THE RECEIPTS AND EXPENDITURE PERTAINING TO ONE ASSESSME NT YEAR CANNOT BE TAKEN INTO CONSIDERATION IN ANY OTHER ASSESSMENT YE AR. FURTHER IT WAS NOT NECESSARY TO SHOW THE NECESSITY OF THE EXPENDIT URE. IN THIS REGARD HE RELIED ON THE FOLLOWING DECISIONS: A) KIKABHAI PREMCHAND V. CIT 24 ITR 506 (SC) B) CALCUTTA COMPANY LTD. V. CIT 37 ITR 1 (SC) C) CIT V. A GAJAPATHY NAIDU 53 ITR 114 (SC) 10. ON THE OTHER HAND, LD. DR HAS FILED WRITTEN SUB MISSIONS IN WHICH FACTS HAVE BEEN GIVEN IN DETAIL. IT HAS BEEN POINTED OUT IN THESE SUBMISSIONS THAT SINCE NO INCOME HAS BEEN OFFERED A GAINST WHICH EXCISE DUTY HAS BEEN CLAIMED, THEREFORE, SUCH EXPEN DITURE WAS NOT AVAILABLE ON THE BASIS THAT THERE IS NO CORRESPONDI NG MATCHING REVENUE. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS IN THE LIGHT OF THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE CLAIM HAS BEEN MADE BY THE ASSESSEE FOR PAYMENT OF EXCISE DUTY AMOUNTING T O RS.6,64,72,870/-. AS NOTED WHILE DISCUSSING THE FAC TS, THIS EXCISE DUTY PERTAINED TO SUPPRESSED SALES OF A.YRS. 1993-94 AND 1994-95 ITA NO.874 OF 2009 7 AMOUNTING TO RS.5.36 CRORES AND RS.16.62 CRORES RES PECTIVELY. THEREFORE, OBVIOUSLY, THE EXPENDITURE RELATES TO A. YRS. 1993-94 AND 1994-95 BUT HAS BEEN CLAIMED IN THIS YEAR ON THE BA SIS OF PAYMENT. THIS MEANS THE CLAIM HAS BEEN MADE BECAUSE OF SEC.4 3B. SECTION 43B READS AS UNDER: 43B. NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PRO VISION OF THIS ACT, A DEDUCTION OTHERWISE ALLOWABLE UNDER THIS ACT IN RESPECT OF A) XXXXX B) XXXXX C) XXXXX D) XXXXX E) XXXXX F) XXXXX SHALL BE ALLOWED (IRRESPECTIVE OF THE PREVIOUS YEAR IN WHICH THE LIABILITY TO PAY SUCH SUM WAS INCURRED BY THE ASSESSEE ACCORD ING TO THE METHOD OF ACCOUNTING REGULARLY EMPLOYED BY HIM) ONLY IN CO MPUTING THE INCOME REFERRED TO IN SECTION 28 OF THAT PREVIOUS Y EAR IN WHICH SUCH SUM IS ACTUALLY PAID BY HIM : A PLAIN READING OF THE ABOVE SECTION MAKES IT CLEAR THAT THE ABOVE PROVISION STARTS WITH THE NON OBSTANTE CLAUSE. HOWE VER, AT THE SAME TIME THE ABOVE PROVISION IS NOT FOR ALLOWANCE OF AN Y EXTRA CLAIM, AND RATHER HAS ONLY PUT A RIDER ON ALLOWABILITY OF AN E XPENDITURE WHICH IS OTHERWISE ALLOWABLE UNDER THIS ACT. THAT MEANS AN EXPENDITURE WHICH IS IN THE NATURE OF EXPENDITURE PROVIDED IN SEC.43B WHICH IS OTHERWISE ALLOWABLE UNDER ANY PROVISIONS OF THE ACT, WOULD NO T BE ALLOWED IF SUCH EXPENDITURE HAS NOT BEEN PAID DURING THAT YEAR. IN OTHER WORDS, THE ALLOWABILITY OF AN EXPENDITURE MENTIONED IN SEC.43B HAS BEEN FURTHER CURTAILED AND THE EXPENDITURE MENTIONED IN THIS PRO VISION HAS BEEN MADE TO BE ALLOWABLE ONLY WHEN THE PAYMENT HAS BEEN MADE. THIS CLEARLY MEANS THAT THE ALLOWABILITY OF AN EXPENDITU RE MENTIONED IN SEC.43B HAS TO BE FIRST TESTED UNDER OTHER PROVISIO NS OF THE ACT AND IF ITA NO.874 OF 2009 8 SUCH EXPENDITURE IS ALLOWABLE UNDER OTHER PROVISION S, THEN BECAUSE OF THIS PROVISION IT HAS TO BE FURTHER SEEN WHETHER PA YMENT HAS ACTUALLY BEEN MADE AND ONLY THEN SUCH EXPENDITURE CAN BE ALL OWED. THEREFORE, SEC.43B PUTS A RIDER THAT AN EXPENDITURE WHICH IS O THERWISE ALLOWABLE UNDER THE OTHER PROVISIONS OF THE ACT CAN BE ALLOWE D ONLY IN THE YEAR WHEN ACTUAL PAYMENT OF SUCH EXPENDITURE HAS BEEN MA DE AS MENTIONED IN SEC.43B AND SUCH EXPENDITURE WOULD BE ALLOWED IN THE YEAR OF PAYMENT. NOW, IN THE CASE BEFORE US THOUGH PAYMENT OF EXCISE DUTY HAS BEEN MADE IN THIS YEAR, BUT IT HAS TO BE S EEN WHETHER SUCH EXPENDITURE IS ALLOWABLE UNDER THE OTHER PROVISIONS OF THE ACT. THE PAYMENT OF EXCISE DUTY WOULD OBVIOUSLY FALL U/S.SEC .37(1) WHICH READS AS UNDER: 37. (1) ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 30 TO 36 [***] AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE), LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSI NESS 51 OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. A PLAIN READING OF THE ABOVE CLEARLY SHOWS THAT THE RE ARE SIX ELEMENTS INVOLVED FOR ALLOWABILITY OF EXPENDITURE WHICH ARE AS UNDER: 1. ANY EXPENDITURE. 2. EXPENDITURE SHOULD NOT BE IN THE NATURE PRESCRIBED UNDER SECTIONS 32 TO 36. 3. EXPENDITURE SHOULD NOT BE OF CAPITAL NATURE 4. EXPENDITURE MUST HAVE BEEN LAID OUT OR EXPENDED 5. EXPENDITURE SHOULD NOT BE OF PERSONAL NATURE. 6. EXPENDITURE MUST BE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. WE ARE OF THE OPINION THAT SINCE IT IS NOBODYS CAS E THAT EXPENDITURE WAS IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONA L EXPENDITURE, THEREFORE, THE ONLY OTHER FOUR ELEMENTS HAVE TO BE EXAMINED. THE FIRST ELEMENT IS ANY EXPENDITURE AND THE AMOUNT PAID TOWA RDS EXCISE DUTY ITA NO.874 OF 2009 9 UNDER KVSS WOULD DEFINITELY BE COVERED BY THIS DEFI NITION. THE SECOND ELEMENT THAT IT SHOULD NOT BE IN THE NATURE OF EXPE NDITURE PRESCRIBED UNDER SECTIONS 32 TO 36 IS ALSO NOT APPLICABLE BECA USE THE PAYMENT OF EXCISE DUTY IS NOT COVERED BY SECTIONS 32 TO 36 AND , THEREFORE, REQUIRES TO BE CONSIDERED ONLY UNDER THIS SECTION I.E. SEC.3 7. WE HAVE ALREADY OBSERVED THAT THIRD AND FOURTH ELEMENTS ARE NOT APP LICABLE. THE FIFTH ELEMENT IS THAT IT MUST HAVE BEEN LAID OUT IN THE S ENSE THAT SUCH EXPENDITURE MUST HAVE BEEN INCURRED AND IN THE CASE BEFORE US SINCE EXCISE DUTY HAS ALREADY BEEN PAID IN THIS YEAR, THE REFORE, IT CAN BE SAID THAT EXPENDITURE HAS BEEN INCURRED. NOW THE ONLY EL EMENT WHICH IS PERHAPS THE MOST IMPORTANT, WHICH IS REQUIRED TO BE EXAMINED WHETHER THE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE O F BUSINESS AND PROFESSION I.E. WHETHER EXPENDITURE INCURRED BY WAY OF PAYMENT OF EXCISE DUTY UNDER KVSS IS FOR THE PURPOSE OF BUSINE SS OR PROFESSION OR NOT.. SO THE ANSWER TO THE QUESTION BEFORE US WHETH ER EXPENDITURE INCURRED BY WAY OF PAYMENT OF EXCISE DUTY UNDER KVS S IS COVERED BY THE SIXTH ELEMENT THAT IS WHETHER THE SAME IS WHOLL Y AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS AND PROFESSION . 12. LET US FIRST DEAL WITH THE ARGUMENTS OF THE LD. COUNSEL OF THE ASSESSEE. THERE IS NO QUARREL WITH THE FIRST ARGUME NT THAT THE EXPRESSION FOR THE PURPOSE OF BUSINESS IS MUCH WI DER THAN THE EXPRESSION FOR THE PURPOSE OF EARNING THE PROFITS . IT WAS FURTHER ARGUED THAT IT IS NOT NECESSARY THAT FOR CLAIMING E XPENDITURE THERE HAS TO BE PRESENCE OF RECEIPT. A LARGE NUMBER OF CITATI ONS WERE GIVEN FOR THIS PROPOSITION WHICH, WE ARE OF THE OPINION, THAT SAME DO NOT REQUIRE DETAILED DISCUSSION BECAUSE THERE CAN BE A SITUATIO N WHERE EXPENDITURE ITA NO.874 OF 2009 10 MAY HAVE TO BE ALLOWED EVEN WHEN THERE IS NO RECEIP T. FOR EXAMPLE, IN A NEWLY STARTED BUSINESS, THE BUSINESS ORGANISATION MAY SPEND MONIES ON ADMINISTRATIVE OVER-HEADS AND FURTHER ON ADVERTI SEMENTS AND MAY NOT RECEIVE ANY SALE PROCEEDS, STILL THE EXPENDITU RE INCURRED DEPENDING ON CIRCUMSTANCES, MAY HAVE TO BE ALLOWED. IT IS SET TLED THAT WHETHER A PARTICULAR EXPENDITURE IS COMMERCIALLY EXPEDIENT HA S TO BE DECIDED BY A BUSINESS PERSON AND NOT BY THE TAX AUTHORITIES. I T IS ALSO SETTLED THAT IT IS NOT NECESSARY TO SHOW THE NECESSITY OF THE EX PENDITURE. HOWEVER, FOR MAKING A CLAIM THE EXPENDITURE MUST MEET THE CR ITERIA THAT IT HAS BEEN INCURRED FOR THE PURPOSE OF THE BUSINESS. FOR MEETING THIS TEST, WE ARE OF THE VIEW, THAT TO SHOW THAT THE EXPENDITU RE HAS BEEN INCURRED EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, I T MUST BE SHOWN THAT SUCH EXPENDITURE WAS INCIDENTAL TO THE BUSINESS OF THE ASSESSEE AND THAT TOO IN THE CAPACITY OF A BUSINESSMAN. IN FACT, WHAT IS INCIDENTAL TO THE BUSINESS WAS CONSIDERED BY THE HON'BLE SUPREME COURT IN THE CASE OF TRAVANCORE TITANIUM PRODUCT LTD. VS. CIT [60 ITR 277]. THE HEAD NOTE OF THE DECISION READS AS UNDER: IN DETERMINING WHETHER AN AMOUNT EXPENDED BY THE A SSESSEE IS DEDUCTIBLE UNDER SECTION 1O(2)(XV) OF THE INDIAN INCOME-TAX ACT, THE NATURE OF THE EXPENDITURE OR OUTGOING MUST BE ADJUDGED IN THE LIGHT OF ACCEPTED COMMERCIAL PRACTI CE AND TRADING PRINCIPLES. THE EXPENDITURE MUST BE INCIDEN TAL TO THE BUSINESS AND MUST BE NECESSITATED OR JUSTIFIED BY C OMMERCIAL EXPEDIENCY. II MUST BE DIRECTLY AND INTIMATELY CONN ECTED WITH THE BUSINESS AND MUST BE LAID OUT BY THE TAXPAYER I N HIS CHARACTER AS A TRADER. TO BE A PERMISSIBLE DEDUCTIO N, THERE MUST BE A DIRECT AND INTIMATE CONNECTION BETWEEN THE EXP ENDITURE AND THE BUSINESS, I.E., BETWEEN THE EXPENDITURE AND THE CHARACTER OF THE ASSESSEE AS A TRADER, AND NOT AS O WNER OF ASSETS, EVEN IF THEY ARE ASSETS OF THE BUSINESS. THUS, THE EXPENDITURE HAS TO BE DIRECTLY AND INTIMA TELY CONNECTED WITH THE BUSINESS. IN THE CASE BEFORE US, ASSESSEE WAS D OING THE BUSINESS ITA NO.874 OF 2009 11 OF SELLING OF TOBACCO PRODUCTS BUT SOME PART OF THE BUSINESS HAS BEEN KEPT OUTSIDE THE BOOKS AND, THEREFORE, THE EXPENDIT URE INCURRED ON THE ACTIVITY WHICH IS OUTSIDE THE BOOKS CANNOT BE SAID TO BE DIRECTLY AND INTIMATELY RELATED TO SUCH BUSINESS. IN FACT, THIS ISSUE HAS BEEN FURTHER DISCUSSED BY THE HON'BLE SUPREME COURT IN THE CASE OF MADDI VENKATARAMAN AND CO. (P) LTD. VS. CIT [229 ITR 534] . IN THIS CASE THE ASSESSEE WAS IN THE BUSINESS OF EXPORTING TOBACCO. IN THE YEAR 1968 THE ASSESSEE HAD ACCUMULATED 329.2 TONS OF SUB STAN DARD QUALITY OF TOBACCO WHICH IT COULD NOT EXPORT OVER THE LAST THR EE YEARS. SINCE THE ACCUMULATED STOCK WAS OF SUB-STANDARD QUALITY WHICH COULD NOT BE SOLD AT THE FLOOR PRICE FIXED BY THE GOVERNMENT OF INDIA FOR SUCH TOBACCO, IN THE ABSENCE OF AN ALTERNATIVE THE ASSESSEE SOLD SUC H TOBACCO AT A DISCOUNT OF 20% TO A SINGAPORE PARTY. ON PAPER FULL PRICE WAS PAID BY SUCH SINGAPORE PARTY BUT IN REALITY 20% OF THE PRIC E PAID BY THE SINGAPORE PARTY WAS REMITTED BACK TO HIM THROUGH ON E S. THE ASSESSEE PAID A SUM OF RS.2,88,000/- TO S WHO REM ITTED THE EQUIVALENT AMOUNT TO SINGAPORE PARTY. THIS EXPENDIT URE WAS CLAIMED BY THE ASSESSEE WHICH WAS NOT ALLOWED BY THE ITO. W HEN THE ISSUE TRAVELLED TO THE HON'BLE APEX COURT IT WAS OBSERVED THAT WHERE THE ENTIRE BUSINESS OF THE ASSESSEE WAS ILLEGAL AND THE INCOME OF SUCH ILLEGAL BUSINESS WAS SOUGHT TO BE TAXED, THEN EXPEN DITURE INCURRED IN ILLEGAL ACTIVITIES WOULD ALSO HAVE TO BE ALLOWED. B UT IF THE BUSINESS WAS OTHERWISE LAWFUL AND ASSESSEE RESORTS TO UNLAWFUL M EANS TO INCREASE HIS PROFITS OR REDUCE HIS LOSS, THEN THE EXPENDITUR E INCURRED ON SUCH UNLAWFUL ACTIVITY CANNOT BE ALLOWED. IN THE CASE BE FORE US THOUGH ASSESSEE WAS CARRYING ON LAW FULL BUSINESS OF MANUF ACTURING AND SELLING ITA NO.874 OF 2009 12 OF TOBACCO BUT SOME OF THE SALES HAVE BEEN KEPT OUT SIDE THE BOOKS BY UNLAWFUL MEANS I.E. BY NOT PAYING THE EXCISE DUTY, THEN SUCH EXPENDITURE I.E. PAYMENT OF EXCISE DUTY CANNOT BE A LLOWED. 13. WE FURTHER FIND THAT IN ANY CASE THE FACT OF SU PPRESSION OF SALES CAME TO THE NOTICE OF INCOME TAX AUTHORITIES. THE O NLY ADDITION MADE BY THE AO WAS ONLY IN RESPECT OF GP. IN FACT AGAINS T THE ADDITION OF RS.1,01,92569 BEING GP @ 19% ON THE SUPPRESSED SALE S OF RS.5.36 CRORES AS DECLARED BY THE ASSESSEE WAS MADE IN A.Y. 1993-94. SIMILARLY, IN A.Y. 1994-95 AN ADDITION OF RS.3,32,3 4,424/- BEING GP @ 20% ON THE SUPPRESSED SALES OF RS.16.62 CRORES WAS MADE. THOUGH THESE ADDITIONS HAVE BEEN DELETED FINALLY BY THE TR IBUNAL ON TECHNICAL ISSUE BUT WE ARE NOT CONCERNED WITH THAT. THE POINT TO BE REMEMBERED IS THAT IN THE FIRST PLACE WHEN AN ADDITION IS MADE ON THE BASIS OF GP, THEN OBVIOUSLY ALL EXPENSES IN RELATION TO SUCH SAL E RECEIPTS ARE DEEMED TO HAVE BEEN ALLOWED. THEREFORE, IN THIS CAS E ALSO WHEN AN ADDITION IS MADE ONLY AT RS.1,01,92,569/- AGAINST T HE SUPPRESSED SALES OF RS.5.36 CRORES IN A.Y 1993-94 AND RS.3,32,34,424 /- AGAINST THE SUPPRESSED SALES OF RS.16.62 CRORES IN A.Y 1994-95, THEN ALL EXPENSES INCLUDING EXPENDITURE ON EXCISE DUTY HAS TO BE TREA TED AS DEEMED TO HAVE BEEN ALLOWED BY IMPLICATION AND THERE IS NO JU STIFICATION FOR CLAIMING PAYMENT OF EXCISE DUTY SEPARATELY IN LATER YEAR. IN THIS VIEW OF THIS ALSO THE EXPENDITURE ON PAYMENT OF EXCISE DUTY CANNOT BE ALLOWED. 14. LASTLY, WE WOULD LIKE TO EXAMINE THE ISSUE FROM ANOTHER ANGLE, I.E. THE CONCEPT OF KNOWN AS MATCHING PRINCIPLE. TH E MATCHING PRINCIPLE IS A WELL KNOWN ACCOUNTING CONCEPT. ACCORDING TO TH IS CONCEPT THE REVENUE SIDE HAS TO BE MATCHED WITH THE EXPENDITURE SIDE; THAT MEANS ITA NO.874 OF 2009 13 THE EXPENDITURE WHICH HAS BEEN DIRECTLY RELATED TO PARTICULAR RECEIPTS IS ALLOWABLE BECAUSE REVENUE SIDE IS MATCHED WITH THE EXPENDITURE FOR ASCERTAINING THE COST OF SUCH REVENUE. CONSIDERING THIS PRINCIPLE ALSO THE EXPENDITURE INCURRED ON PAYMENT OF EXCISE DUTY IS NOT MATCHED BY THE REVENUE BECAUSE SALES AGAINST WHICH EXCISE DUTY WAS PAID HAVE BEEN SUPPRESSED AND NOT OFFERED FOR TAXATION. IN FA CT, AO HAS, AS OBSERVED EARLIER, ADDED ONLY THE GP AGAINST SUCH SU PPRESSED SALES. THE SALES WHICH WERE SUPPRESSED WERE NEITHER OFFERE D FOR TAX BY THE ASSESSEE, NOR WAS ANY ADDITION MADE BY THE AO BECAU SE ADDITION MADE BY THE AO IS ONLY FOR RS.1,01,92,569/- IN A.Y 1993-94 @ 19% OF GP AGAINST THE SUPPRESSED SALES OF RS.5.35 CRORES A ND RS.3,32,34,434/- AGAINST THE SUPPRESSED SALES OF RS .16.62 CRORES IN A.Y 1994-95 @ 20% OF GP. THIS CLEARLY SHOWS THAT THE ON LY ADDITION MADE IS FOR GROSS PROFIT DECLARED BY THE ASSESSEE. THERE FORE, THE EXCISE DUTY HAS TO BE TREATED AS DEEMED TO HAVE BEEN ALLOWED AS ADDITIONS HAVE BEEN MADE ONLY FOR THE GROSS PROFIT. IN OTHER WORDS , THE CLAIM FOR EXCISE DUTY OF RS.6,64,72,870/- IS NOT MATCHED BY T HE REVENUE AND CANNOT BE CONSIDERED AS COST OF THE REVENUE AND, TH EREFORE, SAME IS NOT ALLOWABLE. OUR THIS VIEW IS SUPPORTED BY THE DE CISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF TAPARIA TOOLS LTD. VS. CIT [126 TAXMAN 544] WHEREIN THE MATCHING CONCEPT WAS APPLIE D FOLLOWING THE EARLIER CELEBRATED DECISION OF HON'BLE SUPREME COUR T IN THE CASE OF CALCUTTA CO. LTD. VS. CIT [37 ITR 1]. 15. IN VIEW OF THE ABOVE DETAILED DISCUSSION, WE AR E OF THE VIEW, THAT THE EXPENDITURE INCURRED ON PAYMENT OF EXCISE DUTY ON SUPPRESSED SALES WHICH HAVE NEVER BEEN ADDED BY THE DEPARTMENT TO THE INCOME ITA NO.874 OF 2009 14 OF THE ASSESSEE HAS BEEN RIGHTLY DISALLOWED. ACCORD INGLY, WE CONFIRM THE ORDER OF THE LD. CIT(A). 16. IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 28/10/2011. SD/- SD/- (VIJAY PAL RAO) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 28/10/2011. P/-*