The Jammu & Kashmir And Ladakh High Court has held that excise duty exemption is a capital receipt and not taxable under Income Tax Act.
The bench of Chief Justice Tashi Rabstan and Justice M.A. Chowdhary has observed that the exemption from excise duty does not fall in the definition of income as envisaged under Section 2(24)(xviii) of the Income Tax Act and the amount is not an income but a capital receipt not taxable under the provisions of the Income Tax Act.
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Background
The assessee/respondent filed the return of income for the assessment year 2016-17 declaring income of rupees nil after setting off brought forward losses.
However, during the assessment proceedings it was noticed by the appellant/department that the assessee had claimed excise duty refund as capital receipt and had claimed exemption under Section 10 of the Income Tax Act, 1961.
The appellant-department was of the view that in view of amendment in finance I.T. Act, 2015 and as per the amended section 2(24) (xviii) of the I.T. Act, 1961, any assistance in the form of subsidy, grant etc. provided by the government or any authority is to be conceded as income.
Therefore, the appellant-department was of the view that since the excise duty refund also falls in this category as on 11.12.2018, as such the assessee was asked to explain and show cause, as to why, the excise duty refund of Rs.5,15,25,900 taken as capital receipt and claimed as exemption under section 10, may not be conceded as revenue receipt and taxed accordingly.
In response to the show cause notice the assessee submitted that the firm did not receive any excise refund and just for accounting purposes and quantification before the Supreme Court, the notional amount was booked.
The department being not satisfied with the reply of assessee held that the assessee had furnished inaccurate particulars of income by claiming Rs.5,15,25,900 as capital receipt corresponding to the excise duty refund instead of revenue receipt as per amended section 2(24)(xviii) of the Income Tax Act. The penalty proceedings were also initiated against the assessee for furnishing inaccurate particulars of income.
The assessee filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) while partly allowing the appeal held that the amount of Rs.3,29,76,575 cannot be taxed as income for the year 2016-17 on the ground that the Excise Department was under no obligation to pay balance 64% of the excise duty collected by the assessee. Thus, it was directed to the Assessing Officer to delete the addition.
However, the addition of balance amount of Rs.1,85,49,324/-, which is 36% of the net excise duty, was treated as income of the assessee in view of Notification No.19 of 2008 and amended Section 2(24)(xviii) of the Income Tax Act.
The Income Tax Appellate Tribunal vide common order dated 15.06.2023 dismissed the appeal filed by the appellant-department for the assessment year 2016-17, whereas the appeal filed by the assessee-respondent came to be allowed.
Conclusion
The court held that income tax cannot be levied on hypothetical income and only real income can be taxed. Therefore, recording of entries in the books of accounts is not conclusive to determine the income under the provisions of law.
The court while upholding the Tribunal’s decision held that whether an amount is to be considered as income or not is to be determined on the basis of the Income Tax Law and not on the basis of the entries made in the books of accounts. No tax can be charged on an amount which is not actually earned.
The court held that the Tribunal was right, in deleting the addition of Rs.3,29,76,575/- as hypothetical income which has not actually accrued, which was otherwise 64% of the excise duty recognized by the assessee in its books of accounts.
The court dismissed the appeal of the department.
Case Details
Case Title: PCIT Versus M/S Gravita Metal Inc.
Case No.: ITA No.1/2024
Date: 31.10.2024
Counsel For Petitioner: Suraj Singh Wazir
Counsel For Respondent: Sr. Advocate Pranav Kohli with Saquib Mehmood
