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Don’t indulge in fruitless litigation: SC to I-T Dept

In the case of CIT v. Excel Industries Ltd., Mafatlal Industries P. Ltd. (2013) 358 ITR 295 (SC), the Supreme Court has explained that the Assessing Officer’s duty is to take a pragmatic view rather than adopt a pedantic approach. Besides, the Supreme Court has advised the Income-tax Department not to indulge in fruitless litigation where no loss of Revenue is involved.
In its return for the assessment year 2001-02, the assessee claimed a deduction of Rs. 12,57,525 under the head advance licence benefit receivable. The assessee also claimed a deduction in respect of duty entitlement pass book benefit receivable amounting to Rs. 4,46,46,976. These benefits related to entitlement to import duty free raw material under the relevant import and export policy by way of reduction from raw material consumption.
However, the Assessing Officer did not accept the claim of the assessee but the Commissioner (Appeals) held that the advance licence benefit receivable and duty entitlement pass book benefit could not be taxed in that year and the Income-tax Appellate Tribunal upheld the view taken by the Commissioner (Appeals).
The High Court declined to admit the appeal filed by the IT Department. Then the Department filed an appeal to the Supreme Court.
Dismissing the appeals, the Supreme Court held even if it was assumed that the assessee was entitled to the benefits under the advance licences as well as under the duty entitlement pass book, there was no corresponding liability on the customs authorities to pass on the benefit of duty free imports to the assessee until the goods were actually imported and made available for clearance. The benefits represented, at best, a hypothetical income which might or might not materialize.
Applying the three tests, namely, whether the income accrued to the assessee is real or hypothetical, whether there is a corresponding liability of the other party to pass on the benefits of duty free import to the assessee even without any imports having been made, and the probability or improbability of realization of the benefits by the assessee considered from a realistic and practical point of view (the assessee might not have made imports), it was quite clear that in fact no real income but only hypothetical income had accrued to the assessee.
It was further held that in the subsequent accounting year, the assessee did make imports and did derive benefits under the advance licence and the duty entitlement pass book and paid tax thereon.
The rate of tax remained the same in the subsequent assessment year. Therefore, the Department had not been deprived of any tax.

Article referred: http://freepressjournal.in/dont-indulge-in-fruitless-litigation-sc-to-i-t-dept/

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