COMMISSIONER OF INCOME TAX vs. I G GANDHI SILK MILLS LTD.

ITR/297/1992HC GujaratGJHC24015637199219 January 2005Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MS. JUSTICE HARSHA DEVANI7 pages
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What were the facts?

The assessee, I G Gandhi Silk Mills Ltd., is a private limited company. For the assessment year 1988-89 (accounting period ending October 31, 1987), the assessee declared a total income of Rs. 15,732/- under Section 115J of the Income Tax Act, 1961, with a net profit of Rs. 52,439/-. The Assessing Officer (AO) computed the taxable income under Section 115J at Rs. 10,46,800/- by adding back an undischarged excise duty liability of Rs. 57,52,339/-, stating it was in dispute. The CIT(Appeals) upheld the AO's action. The Income Tax Appellate Tribunal (ITAT) reversed the lower authorities' orders, holding the excise duty liability to be ascertained. The Commissioner of Income Tax (Revenue) has referred the matter to the High Court.

What did the High Court hold?

The High Court held that the Appellate Tribunal was right in law in holding that the excise duty liability was an ascertained liability. The Court noted that the Tribunal had found that the assessee had received notices from the Excise Department and a bank guarantee was demanded in respect of the amount. The Tribunal had also found that although the liability was disputed, it had accrued in the relevant accounting year and was ascertained. The Court reiterated that the Tribunal's findings of fact are to be appreciated in the context of the evidence and submissions before it. It was evident from the Tribunal's order that it was an admitted position that the assessee had received demand notices from the Excise Department, and the liability was disputed. The Court found no infirmity in the Tribunal's order and answered the referred question in the affirmative, in favour of the assessee and against the Revenue. The reference was disposed of accordingly.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the liability pertaining to excise duty in the present case was an "ascertained liability" within the meaning of that expression in clause (c) of explanation in sec. 115J(1) of the I.T. Act, 1961? Assessee's contentions: - The dispute regarding whether the liability was based on a show-cause notice or a demand notice was not raised before the Tribunal and should not be permitted at this stage. - The liability was based on a notice of demand. - Relying on *CIT v. Bharat Carbon and Ribbon Manufacturing Co. P. Ltd.*, the Tribunal rightly held the excise duty liability as ascertained and not includible for Section 115J purposes. Revenue's contentions: - A liability based on a show-cause notice is a contingent liability and not allowable for calculating book profit under Section 115J. - The Tribunal erred in treating the liability based on notices as ascertained, as it had not found the liability to be based on a notice of demand, and the liability was disputed. - Alternatively, the matter should be restored to the Tribunal for ascertaining facts as there was no clear finding.

Which sections of the Income-tax Act were involved?

Section 115J,Section 256(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No.297 of 1992

For Approval and Signature:

HON'BLE MR.JUSTICE D.A.MEHTA and HON'BLE MS.JUSTICE H.N.DEVANI ============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

2.

To be referred to the Reporter or not? : YES

3.

Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the concerned : NO

The order continues below.

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