JOINT COMMISSIONER OF INCOME TAX vs. SHRI DINESH MILLS LTD.

Facts

The assessee, Shri Dinesh Mills Ltd., received an excise duty refund of Rs. 1,97,154/- in 1982. Following a High Court order directing the assessee to provide interest on this refund until the case was finalized, the assessee made a provision of Rs. 2,63,658/- in its books. The Assessing Officer disallowed this provision under Section 43B of the Income Tax Act, 1961, stating it was not paid and was a contingent liability. The Commissioner of Income Tax (Appeals) deleted this addition. The Income Tax Appellate Tribunal (ITAT) dismissed the revenue's appeal, confirming the CIT(A)'s order. The revenue then filed this Tax Appeal before the High Court of Gujarat. The Assessment Year in question is 1993-94.

Held

The High Court held that the question raised in the present appeal should be answered in favour of the assessee. The Court referred to its own earlier decision dated 07.11.2014 in Income Tax Reference No. 2 of 2005, concerning the same assessee and an identical issue. In that prior decision, the Court had relied on the Apex Court's ruling in CIT v. Dinesh Mills Ltd. (2008) 302 ITR 164 (Guj), which held that interest could not be treated as a statutory liability when the principal amount itself was a decretal amount and did not possess the characteristic of duty under the Central Excise and Salt Act, 1944. Consequently, the disallowance made by the Assessing Officer was not justified. The High Court confirmed the impugned order of the Tribunal and dismissed the Tax Appeal.

Key Issues

1. Whether the CIT(A) and ITAT were correct in deleting the disallowance of Rs. 2,63,658/- in respect of provision for interest payment on Excise Duty Refund, holding that it does not fall within the purview of Section 43B of the IT Act, 1961? Assessee's Contention: The judgment does not explicitly record the assessee's arguments. However, the deletion of the disallowance by the CIT(A) and confirmation by the ITAT suggest the assessee argued that the provision for interest was not a statutory liability covered by Section 43B. Revenue's Contention: The revenue contended that the provision for interest payment on excise duty refund should be disallowed under Section 43B as the amount had not actually been paid and was a contingent liability.