Law: Income Tax Act, 1922

Section:

Income-tax----Business expenditure---Excise duty---Show-cause notices served on assessee but no demand raised ---Assessee not admitting liability and showing cause refuting allegations made in show-cause notices---Cause shown by assessee accepted by Excise Authorities and proceedings dropped---Liability on account of excise duty was a contingent liability---Not an allowable deduction. The assessee-company, which manufactured ingots, billets and castings was liable to pay excise duty on the manufacture of its products. For the assessment year 1980-81, the relevant previous year being the calendar year 1979, the excise authorities felt that the excise duty paid by the assessee had not been correctly calculated and accordingly show-cause notices were issued asking the assessee to show cause why demand should not be made for payment of a sum of Rs.90,22,783. The assessee did not admit any liability and no adjudication was made during the relevant previous year nor was any demand raised against the assessee. The adjudication was made much later in December, 1982, when the cause shown by the assessee was accepted and the proceedings initiated by the show-cause notices were dropped. However, the assessee made a provision in a sum of Rs.90,22,800 in its accounts for the accounting year 1979 itself on the basis of the show-cause notices and claimed deduction in respect thereof in the computation of its income. The Income-tax Officer allowed deduction. of a sum of Rs.66,80,096 and rejected me claim for the balance amount of Rs.23,42,687 on the ground that the show-cause notices in respect of the said amount had been received by the assessee after the end of the accounting year. On appeal, the Commissioner (Appeals) found that the assessee had merely been served with show-cause notices asking it to explain why certain demand should not be raised, that under rule 10 of the Central Excise Rules the notices to question only resulted in the initiation of proceedings for raising additional demand, that no liability had accrued by the issue of the show-cause notices, that the cause shown by the assessee was later accepted and the proceedings initiated pursuant thereto were…

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