PR COMMISSIONER OF INCOME TAX JAIPUR-II vs. M/S MODERN THREADS I LTD

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ITA/5/2018HC RajasthanRJHC02041796201825 April 2019Author: ALOK SHARMA,NARENDRA SINGH DHADDHA5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court reiterated its earlier conclusion from its order dated January 16, 2018, that substantial questions of law 1, 2, and 4 were not made out. Regarding the third substantial question of law, the Court accepted the assessee's submission that this issue was decided by the High Court in the case of Commissioner of Income Tax Versus Rajasthan State Ganganagar Sugar Mills Ltd. & Ors. The Court noted that in that case, it was held that the liability to excise duty arises when goods are removed from the factory/bonded warehouse, and the taxable event is manufacture/production, but the liability to pay duty is postponed until removal under Rule 9A. Consequently, unpaid excise duty on goods in stock that have not left the premises could not be added to the value of closing stock under Section 145A. The Court found that the judgment in Wallace Flour Mills Co. Ltd. Versus Collector of Central Excise, relied upon by both parties, supported the assessee's contention. Since the revenue's counsel could not offer any contrary argument, the Court held that none of the four substantial questions of law framed in the appeal were made out. The appeal was consequently dismissed.

What were the facts?

The appeal was filed by the Principal Commissioner of Income Tax, Jaipur-II against an order of the Income Tax Appellate Tribunal (ITAT). Initially, the High Court dismissed the appeal on January 16, 2018, finding no substantial questions of law. However, a review application was filed, and the Court, by order dated December 12, 2018, found an error apparent on the face of the record as the third substantial question of law had been overlooked. The appeal was consequently listed for reconsideration. The appellant's counsel conceded that substantial questions of law 1, 2, and 4 were not made out, as previously held. The focus then shifted to the third substantial question of law.

What were the issues?

1. Whether, in the facts and circumstances, the Tribunal was justified in deleting additions of Rs. 3,91,95,608/- made by the Assessing Officer on account of remission of the principal amount of loan? 2. Whether, in the facts, remission of the principal amount of loan obtained from financial institutions and banks constitutes a benefit or perquisite arising from business and falls within the ambit of Section 28(iv) of the Income Tax Act, 1961? 3. Whether, in the facts and circumstances and in law, the ITAT was justified in deleting additions of Rs. 9,90,079/- made under Section 145A on account of excise duty leviable on closing stock? 4. Whether, in the facts and circumstances and in law, the ITAT was justified in holding that employees' contribution to PF and ESI is governed by Section 43B and not by Section 36(1)(va) read with Section 2(24)(x) of the IT Act? Assessee's Contentions: Regarding the third question of law, the assessee argued that the issue of excise duty on closing stock is no longer res integra, citing the High Court's judgment in CIT vs. Rajasthan State Ganganagar Sugar Mills Ltd. & Ors. The assessee contended that the liability to excise duty arises upon removal of goods, and unpaid excise duty on goods lying in stock within the factory/bonded warehouse cannot be added to the value of closing stock under Section 145A, relying on Apex Court judgments in Wallace Flour Mills Co. Ltd. vs. Collector of Central Excise and CIT v. Dynavision Ltd. The assessee argued that these judgments support the assessee's contention. Revenue's Contentions: The revenue did not present arguments contrary to the assessee's submissions on the third substantial question of law. The revenue had initially relied on the judgment of Wallace Flour Mills Co. Ltd. v. Collector of Central Excise.

Which sections of the Income-tax Act were involved?

Section 28(iv),Section 145A,Section 43B,Section 36(1)(va),Section 2(24)(x)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 5/2018 Pr. Commissioner Of Income Tax, Jaipur-Ii, Jaipur. ----Appellant Versus M/s. Modern Threads I Ltd., A-4, Vijay Path, Tilak Nagar, Jaipur ----Respondent For Appellant(s) : Mr. Prateek Kedavat for Mr. RB Mathur For Respondent(s) : Mr. Sanjay Jhanwar HON'BLE MR. JUSTICE ALOK SHARMA HON'BLE MR. JUSTICE NARENDRA SINGH DHADDHA

Judgment 25/04/2019 The appellant has framed the following four substantial questions of law which he asserts arise in this appeal:

“1. Whether in the facts and circumstances of the case, the Tribunal was justified in deleting the additions of Rs.39195608/- made by the Assessing Officer on account of remission of Principal amount of loan?

2.

Whether in the facts of the present case remission of principal amount of loan obtained from financial institution and banks constitutes a benefit or perquisite arising from business and would fall within the ambit of section 28(iv) of the Act?

3.

Whether in the facts and circumstances of the case and in law, the ITAT was justified in deleting the additions of Rs. 990079/- made u/s 145A on account of excise duty leviable on closing stock?

4.

Whether in the facts and circumstances of the case and in law the ITAT was justified in holding that employees’ contribution to PF and ESI governed by the provision of section 43B and not by section 36(1)(va) r.w.s. 2(24)(x) of the IT Act?

(2 of 5) [ITA-5/2018]

The appeal coming up before this Court on 16.1.2018, it was dismissed with the court recording by a detailed order that the substantial question of law propagated were not made out by judgments earlier rendered by the Apex Court and High Court. A D.B. Civil Misc. Application No. 178/2018 against the judgment dated 16.1.2018 then came to be filed. The Court on the submission made noted that the judgment dated 16.1.2018 indeed did not address the third substantial question of law as agitated in the appeal and it was left unaddressed quite apparently by an oversight. Hence the Court found vide order dated 12.12.2018 that there was error apparent on the face of the record of the judgment dated 16.1.2018 warranting and justifying its review. The appeal has now consequently come up before us. Counsel for the appellant does not put to question the Division Bench’s conclusion under its judgment dated 16.1.2018 that no substantial question of law as set up under question No. 1, 2 and 4 was made out. Counsel has fairly stated that what

therefore remains is consideration of the third substantial question of law as propagated in this appeal.

(3 of 5) [ITA-5/2018] Mr. Sanjay Jhanwar appearing for the respondent- assessee on that aspect at the outset submitted that the third question of law set up by the revenue in the appeal in question is also no longer res-integra in view of the judgment of this Court in the case of Commissioner of Income Tax Versus Rajasthan State Ganganagar Sugar Mills Ltd. & Ors. (D.B. Income Tax Appeal Nos. 99, 212, 539 of 2009, 95, 655, 98 of 2011, 244, 120 of 2012, 99 of 2014 and 66 of 2015; decided on 26.5.2016) – MANU / HR / 1550 / 2016. He pointed out that the substantial question of law in the said D.B. Income Tax Appeals before the Court was: “Whether in the facts and circumstances of the case, the Tribunal was justified in law in holding that the excise duty is not leviable as the goods are not transferred and as such the same cannot be added in closing stock contrary to provisions of Section 145A of the Act? He submitted that dealing with the said substantial question of law, the Court relying on the judgment of the Apex Court in the case of Wallace Flour Mills Co. Ltd. Versus Collector of Central Excise 1989 SCC (4) page 592 held in para 39 as under: “In so far as the second question about excise duty is concerned, in our opinion, the liability to excise arises when goods are removed from the (4 of 5) [ITA-5/2018] factory / bonded warehouse. The taxable event is manufacture / production but the liability to pay the duty is postponed till the time of removal under rule 9A. In our view, under Section 145A only the tax duty, cess or fees actually paid or incurred by the assessee to bring the goods to its place of location forms part value of stock. Unpaid excise duty on goods in stock that have not left the premises / factory / bonded warehouse, could not be added to the value of closing stock. We have taken into consideration the judgments of the apex court in the case of Wallace Flour Mills Co. Ltd. Versus Collector of Central Excise (supra) and CIT V. Dynavision Ltd. to come to the aforesaid opinion. In fact, even the Revenue has relied upon the judgment of Wallace Flour Mills Co. Ltd. V. Collector of Central Excise (supra) but in our view, taking into consideration the view of the apex court that a taxable event though is manufacture but the liability to pay duty is postponed till the time of removal under rule 9A of the said Rules an admittedly, there is a finding of fact recorded by the authorities that the goods were lying in the bonded warehouse / factory, in our view, the judgment of the Wallace Flour Mills Co. Ltd. v. Collector of Central Excise (supra) supports the contention of the assessee rather than of the Revenue.” Mr. Sanjay Jhanwar submitted that in this view of the matter, the third question of law agitated by the appellant in this appeal which no doubt was accidently overlooked by the Court under its judgment dated 16.1.2018 and which entailed the review of the said judgment vide order dated 12.12.2018 has earlier been decided to the benefit of an assessee similarly placed and hence can not be made out in this appeal.

(5 of 5) [ITA-5/2018] Mr. Prateek Kedawat appearing for Mr. R.B. Mathur for the appellant has not been able to proffer any argument contrary to the submissions of Mr. Sanjay Jhanwar. Consequently, we would hold reiterating the conclusions of substantial questions of law no. 1, 2 and 4 in the court’s order dated 16.1.2018 that none of the aforesaid four substantial questions of law framed in this appeal are made out. Resultantly, this appeal is dismissed. (NARENDRA SINGH DHADDHA),J (ALOK SHARMA),J DILIP KHANDELWAL

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