Excise Duty Exemption Not Taxable Under Income Tax Act: Jammu & Kashmir And Ladakh HC [Read Order]

The Jammu & Kashmir And Ladakh High Court has held that excise duty exemption is not taxable under Income Tax Act, 1961 as it amounts to capital receipt. The court  held that whether an amount is to be considered as income or not is to be determined on the basis of the Income Tax Law and not on the basis of the entries made in the books of accounts.

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Gravita Metal Inc, the respondent assessee filed the return of income for the assessment year 2016-17 declaring income of rupees nil after setting off brought forward losses. During the assessment proceedings it was noticed by the appellant/department that the assessee had claimed excise duty refund as capital receipt and had claimed exemption under Section 10 of the Income Tax Act, 1961.

The appellant-department was of the view that as per amendment in finance I.T. Act, 2015 and as per the amended section 2(24) (xviii) of the I.T. Act, 1961, any assistance in the form of subsidy, grant etc. provided by the government or any authority is to be conceded as income.

Therefore, the department viewed that since the excise duty refund also falls in this category as on 11.12.2018, as such the assessee was asked to explain and show cause, as to why, the excise duty refund of Rs.5,15,25,900 taken as capital receipt and claimed as exemption under section 10, may not be conceded as revenue receipt and taxed accordingly. The assessee submitted that the firm did not receive any excise refund and just for accounting purposes and quantification before the Supreme Court, the notional amount was booked.

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The department being not satisfied with the reply of assessee held that the assessee had furnished inaccurate particulars of income by claiming Rs.5,15,25,900 as capital receipt corresponding to the excise duty refund instead of revenue receipt as per amended section 2(24)(xviii) of the Income Tax Act. The penalty proceedings were also initiated against the assessee for furnishing inaccurate particulars of income.

The Commissioner of Income Tax (Appeals) while partly allowing the appeal of the assessee and held that the amount of Rs.3,29,76,575 cannot be taxed as income for the year 2016-17 on the ground that the Excise Department was under no obligation to pay balance 64% of the excise duty collected by the assessee. Thus, it was directed to the Assessing Officer to delete the addition.

However, the addition of balance amount of Rs.1,85,49,324/-, which is 36% of the net excise duty, was treated as income of the assessee in view of Notification No.19 of 2008 and amended Section 2(24)(xviii) of the Income Tax Act.

The Income Tax Appellate Tribunal ( ITAT)  dismissed the appeal filed by the appellant-department for the assessment year 2016-17, whereas the appeal filed by the assessee-respondent came to be allowed. The court held that income tax cannot be levied on hypothetical income and only real income can be taxed. Therefore, recording of entries in the books of accounts is not conclusive to determine the income under the provisions of law.

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The division bench of Chief Justice Tashi Rabstan and Justice M.A. Chowdhary has observed that the exemption from excise duty does not fall in the definition of income as envisaged under Section 2(24)(xviii) of the Income Tax Act and the amount is not an income but a capital receipt not taxable under the provisions of the Income Tax Act.

While upholding the Tribunal’s decision, the court  held that whether an amount is to be considered as income or not is to be determined on the basis of the Income Tax Law and not on the basis of the entries made in the books of accounts. No tax can be charged on an amount which is not actually earned.

To Read the full text of the Order CLICK HERE

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