2001 PLP 2301 (PTD)

Learned counsel appearing for the assessee, Shri R.N. Bajoria submits that whether the assessee has made provision or not in his books of account, but if the deduction is allowable under the provisions of the Act, that should be allowed. He further submits that whether the demand notice is received during the accounting year or not, that is also not material. The assessee is liable to pay the excise, duty as soon as he manufactures the goods. He further submits, though the Bombay High Court has held that the assessee is not liable to pay the customs duty in question but the matter is` still pending before the Supreme Court. Therefore, the issue is yet to be settled, whether the assessee is liable to pay the customs duty or not. Therefore, it cannot be said that the liability has ceased and he supported the decision of the Tribunal. The facts are not in dispute that on import of polyamide chips, the customs department has imposed the duty amounting to Rs.40,66,

158. That was challenged and the Bombay High Court held that the assessee is not liable to pay duty on such import. Now the appeal is pending before the Supreme Court. Even notice of demand has been received after the close of accounting year. No provision is made in the books of account of the assessee, but on this basis can it be said that the liability to pay the customs duty does not accrue? In Kedaranth Jute Manufacturing Co. Ltd. v. CIT (1971) 82 ITR 363, the apex Court has considered, inter alia, whether in case no entry is made in the books of account of the assessee or the assessee has not debited the liability in the books of account, on that ground, the deduction of the liability can be denied on account of the fact that the assessee has not debited in its account the liability so claimed. The apex Court has considered this aspect and observed as under (page 367): "The main contention of the learned Solicitor‑General is that the assessee failed to debit the liability in its books of account and, therefore, it was debarred from claiming the same as deduction either under section 10(1) or under section 10(2)(xv) of the Act. We are wholly unable to appreciate the suggestion that if an assessee under some misapprehension or mistake fails to make an entry in the books of account and although, under the law, a deduction must be allowed by the Income‑tax Officer, the assessee will lose the right of claiming or will be debarred from being allowed that deduction. Whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view which the assessee might take of his rights or can the existence or absence of entries in the books of account be decisive or conclusive in the matter. The assessee who was maintaining accounts on the mercantile system was fully justified in claiming deduction of the sum of Rs.1,49,776 being the amount of sales tax which it was liable under the law to pay during the relevant accounting year." Therefore, whether the deduction should be allowed or not, that depends on the fact whether the assessee is entitled for a particular deduction, if the deduction is allowable under the provisions of the Act and not on the basis of entry in the books of account. The next issue to be considered is when excise duty liability accrued whether it accrued on receipt of demand notice or when the goods are manufactured? In CIT v. Century Enka Ltd. (1981) 130 ITR 267 (Cal.), their Lordships have considered whether though there was no demand notice served on the assessee in the accounting year the assessee can claim liability accrued on the basis of production, when he is following the mercantile system of accounting. At page 271, their Lordships observed as under: "In fiscal statutes the mischief of taxation is on the happening or occurrence of the taxable event. Different taxes provide for different kinds of taxable events. The sales tax is a tax on sale. Sale of goods attracts' the duty, provided the sale is dutiable and the assessee comes within the purview of the Act. Similarly, under the Central Excises and Salt Act, 1944, the duty is attracted on the production or the manufacture of the goods unlike the sale of goods. In income‑tax, similarly, it is attracted on the income of the year, not on the receipt of money on a particular occasion as such." Their Lordships further held at page 277 as under: "In view of the aforesaid position in law, in our opinion, therefore, having regard to the facts and circumstances of the case and having regard to the provisions of the Act, we are of the opinion that the Tribunal was right in allowing the provision for excise duty of Rs.15,26,000 and Rs.17,00,000 as deduction for the assessment years 1971‑72 and 1972‑73 respectively. In the premises, question No.1 is answered in the affirmative and in favour of the assessee." The accrual of liability thus, does not depend on the demand notice. The excise duty liability accrues the moment the assessee manufactures the goods. Notice is a second stage when the liability is quantified and the facts are not in dispute the manufacturing of goods in question was in the accounting year relevant to this assessment year. The next issue is in a case where the assessee disputes the liability when it should be allowed. In cases where the assessee disputes the liability, even the Court has decided at some stage the issue in favour of the assessee, but if the matter is pending in appeal thereof it cannot be said that there is a cessation of liability. If the matter is pending in appeal and yet to be settled, the amount cannot be taxed under section 41(1) of the Act. In J. K. Synthetics Ltd. v. ITO (1976) 105 ITR 864, at page 881, the Allahabad High Court has observed as under: "A cessation of liability for the purposes of section 41(1) of the Act would mean irrevocable cessation so that there is no possibility of the liability being revived in future. If there is such a possibility then the cessation is not complete and section 41(1) is not attracted. The decision of the Delhi High Court is under appeal and there is a likelihood of its being reversed. It cannot, therefore, be said that on the date when the learned single Judge of the Delhi High Court delivered his judgment the liability ceased. Indeed, there might be a further appeal to the Supreme Court. ‑In these circumstances the Income‑tax Officer was not competent to invoke the provisions of section 41(1) of the Income‑tax Act, because the decision of the learned single Judge of the Delhi High Court had lost its finality as a result of the appeal against it. A decision liable to appeal may be final until the appeal is not preferred but once an appeal is filed the decision loses its character of finality and becomes sub judice, i.e., a matter under judicial enquiry. The appeal destroys the finality of the decision." If any appeal is preferred against a particular decision in favour of the assessee the decision loses its character of finality and becomes sub judice. The appeal destroys the finality of the decision this decision of the Allahabad High Court has been affirmed by the apex Court in Union of India v. J.K. Synthetics Ltd. (1993) 199 ITR

14. Their Lordships held that the liability to tax under section 41 of the Act will depend on the outcome of the appeal before this Court (Supreme Court). When the suit is not finally settled that amount cannot be taxed under section 41(1) of the Act. The admitted facts are that the assessee has imported the goods in the accounting year. The matter whether the assessee is liable to pay the customs duty or not, is still pending before the apex Court and yet to be decided. Thus, the issue has not been finally settled whether the assessee is liable to pay the customs duty in question or not. Therefore, it cannot be said finally that assessee is not liable to pay the customs duty in question till the Supreme Court decides the issue in favour of the assessee. When the import was in the accounting year relevant to the assessment year, the liability of customs duty accrued in the accounting year relevant to this assessment year. Accordingly, we answer the question in the affirmative, i.e, in favour of the assessee and against the Revenue. The matter is disposed of accordingly. RANJAN KUMAR MAJUMDAR, J.‑‑‑

I agree. M.B.A./263/FC ????????????????????????????????????????????????????????????????????????????????? Reference answered.