Income Tax Appellate Tribunal - Amritsar
Assistant Commissioner Of Income Tax vs K.C. Vanaspati Ita on 23 February, 1998
Equivalent citations: (1999)63TTJ(ASR)220
ORDER
PHOOL SINGH, JM:
As these five appeals of the Revenue were in respect of K.C. Vanaspati, Jammu, involving asst. yrs. 1986-87 to 1989-90 and 1991-92, all were listed for hearing on 10th Feb., 1998 for which necessary -1 notice's were sent to the assessee through registered post. It may be noted that notice stood served personally as evident from the acknowledgment slip which is on record but the assessee or its representative has failed to turn up to contest the appeals of the Revenue and we were constrained to proceed under r 24 of the IT (AT) Rules, 1963 and in that process, we have heard the learned Departmental Representative who has placed reliance on the order of the AO.
2. The first effective ground of ITA Nos. 608 & 609/Asr/1990 relates to additions made by the AO on account of provisions for payments of sales-tax in both the asst. yrs. 1986-87 and 1987-88 by the assessee and those additions were deleted by the CIT(A).
3. The facts relevant for the asst. yr. 1986-87 are that the assessee claimed a provision of Rs. 55,71,620 on account of liability payable to the selling agents.
The AO treated this as contingent liability and for that he initially relied upon the report of the auditors, who have mentioned that said liability was contingent one. He also took into consideration the assessment orders of assessee for the asst. yrs. 1984-85 and 1985-86 in which similar claim of the assessee was not allowed. He reproduced some portions from the assessment order of the asst. yr. 1985-86 in which his predecessor had noted that assessee was following mercantile system of accounting and in that process, only those liabilities, which were ascertained and crystallised in the said year, can be allowed while the liability claimed by the assessee was not crystallised nor ascertained as the assessee entered into an agreement with BX Agencies and Hardayal Bansilal and agreement was so vague that it will not be making clear the amount of liability to be paid to those distributors. Taking help from these two facts, the AO disallowed the claim of the assessee for Rs. 55,71,620.
4. In the asst. yr. 1987-88 the claim of Rs. 60,75,557 was also disallowed on the same facts and the assessee came in appeal for both the assessment years. It was contended before the CIT(A) through written submissions that the assessee had entered into agreement with Hardayal Bansilal BX Agencies, the assessee's selling agents that amount of sales-tax shall be reimbursed to them. These selling agents were liable to pay sales-tax @ 8.4 per cent in view of SRO No. 448 dt, 22nd Oct., 1982 issued by the J&K Govt. on the sale of Vanaspati and thus the amount claimed by the assessee was the amount of liability, which was to be paid by the assessee to the selling agents but no payment was made as those selling agents got the stay order from the Hon'ble J&K High Court vide order dt. 6th Dec., 1982, staying the implementation of the said SRO No. 448 of 1982, dt. 22nd Oct., 1982, till further orders. However, the other plea of the assessee was that the AO was not justified treating the liability as contingent one. The submissions of the assessee was that liability for sales-tax is a statutory liability and as soon as sale is effected the liability accrues the very moment irrespective of the fact whether the assessee accepts the liabilities or disputes the same. Reliance was placed on the decision of the Honble Supreme Court in the case of Kedar 1\Tath Jute Mtg. Co. vs. CIT (1971) 82 ITR 363 (SC) and CIT vs. Poonam Chand Trilok Chand (1976) 105 ITR 618 (AD) and that of CIT vs. George Motors (1987) 59 CTR (Ker) 249 : (1986) 161 ITR 444 (Ker), and other cases in which it has been laid down that under mercantile system of accounting, the assessee can claim deduction in respect of business liability even before it is quantified or even though such liability is being disputed. The other plea of the assessee was that mere stay granted by the Hon'ble High Court will not result in extinguishment of the liability but that was only postponement of the date of payment and as such the liability can be claimed as expenses because it stands accrued. Reliance was also placed on the decision of the Tribunal, Bombay Benches in the case of Prem Hotels ITD. vs. IAC (1987) 61 CTR (Trib)(Bom.) 79 and other cases of Central Wines vs. ITO (1986) 15 ITD 332 (Hyd), CIT vs. Investigation & Security Service India (P) ITD. (1990) 48 Taxman 8 (AP) and some other cases reproduced in the same order of the CIT(A). The other plea was that statutory liability accrued from year to year even though at a later date, the Hon'ble Supreme Court accepted the writ of the assessee holding that the same was not leviable at all as laid down in the case of CIT vs. Tata Chemicals (1986) 52 CTR (Bom.) 293 : (1986) 162 ITR 556 (Bom.). On the basis of these facts, it was pleaded by the assessee that liability had accrued against the selling agents the moment they effected the sales and that liability was not extinguished by the writ petition or stay order of the Hon'ble High Court. The learned CIT(A) considered all the facts and it found force in the grounds. He concluded that the appellant was following mercantile system of accounts and entries are posted in the books of accounts on the date of transaction, that is why the date on which the rights accrued or liabilities are incurred. In the case in hand, the liability accrues the moment the sales were effected and taxable in the year in which sales transactions took place. He referred to different case laws on this point. He also referred to the agreement cl. (7) in which assessee and selling agents agreed that assessee will reimburse the dealers the amount of sales-tax as per mutually settled terms and on the basis of that the learned CIT(A) concluded that liability arises the moment sale is effected and that cannot be treated as contingent liability. He further observed that the SRC No. 448 of 1982 was held as valid piece of legislation by the J&K High Court vide order dt. 25th Nov., 1982 in the case of other writ petitions filed by some other persons and even writ petitions of assessee's selling agents also dismissed on 6th Oct., 1989 and liability thus stands crystallised. Accordingly, he decided the issue in favour of the assessee and addition of Rs. 55,71,620 made in this account was deleted and on that basis, the addition of Rs. 60,75,557 was also deleted in the asst. yr. 1987-88 and the Revenue is in appeal.
5. We have considered all the submissions. The first point to be noted is that if the liability claimed by the assessee is contingent one then such liability cannot be allowed and we are fortified by the ratio of the apex Court in the case of Indian Molasses Co. (P) ITD. vs. CIT (1959) 37 ITR 66 (SQ) and particularly in the case of Shree Sajjan Mills ITD. vs. CIT (1985) 49 CTR (SC) 193 : (1985) 156 ITR 585 (SC). The assessee claimed the provisions for liability to be paid to selling agents on account of reimbursement of sales-tax in both the assessment years and this claim of the assessee was disallowed by the AO treating the said liability as contingent one. For this, the AO had placed reliance on the audit report in which auditors have treated this liability as contingent one. There is not a single word from the side of the assessee to meet this observation of the AO. In the same way, the AO had relied upon the orders of the AO for the asst. yrs. 1984-85 and 1985-86, which stood confirmed by the CIT(A) and the assessee did not bring anything on record as to what happened to those claims of the assessee for the asst. yrs. 1984-85 and 1985-86 in the Tribunal as the assessee failed to turn up on the date of hearing. Accordingly these two facts remain unnecessary from the side of the assessee.
6. Apart from it, so far as tenure of the order of the CIT(A) is concerned, it appears that he has decided the issue as the claim is of selling agents because in whole of the order, the learned CIT(A) discussed the nature of the liability and concluded that liability was statutory one as the same was in respect of sales-tax and the moment the sale is effected, the liability accrues. These may be correct, so far as the liability to pay sales-tax by the selling agents is concerned, as it is the selling agents of the assessee, who were supposed to pay the amount of sales-tax under SRO No. 448 of 1982.: Undisputedly, the assessee entered into the agreement with its selling agent to reimburse the amount of sales-tax to be paid by them to the J&K Government The agreement is an important piece of document and the assessee failed to bring that document on record Apart from it, we find a short discussion on this point in the order of the CIT(A) at p. 7 where he mentioned that the assessee entered into agreement with dealers whereby the assessee was required to reimburse the dealers the amount of sales-tax as per mutually settled terms. What were the mutually settled terms have also not come on record from the side of the assessee nor the CIT(A) discussed the same as to what actually was settled in between the assessee and its selling agents. Accordingly, Lton- availability of agreement and absence of mutually settled terms under which the assessee agreed to reimburse the amount of sales-tax to its selling agents makes everything vague and thus liability becomes to be contingent one. Secondly, the amount of liability has not been crystallised and ascertained. No doubt the assessee can claim such amount of liability on estimate basis but on what terms the estimate is to be made is also an important aspect to be proved by the assessee, which assessee failed before us. Accordingly, we are of the opinion-that the assessee failed to make out a case to repel the conclusion of the AO that the claim of the assessee was based on contingent liability, which was not allowable and rightly disallowed by the A0..' The CIT(A) has not appreciated the issue in correct perspective, whose order we reverse and confirm the order of the CIT(A) for both the assessment years. Ground succeeds.
7. Grounds Nos. 5 and 6 of 1TA No. 609 (Asr)/1990 and all the grounds of ITA No. 610/Asr/1990, 408/Asr/1991 and ground Nos. 1 and 2 in ITA No. 27/Asr/ 1993 relate to undisclosed income.
8. During the asst. yrs. 1987-88, the AO noted that the assessee has shown agricultural income of Rs. 2,00,350. It was also noted by the AO that the assessee had purchased Hazuri Bagh orchards measuring 32 acres. According to the AO, the agricultural income was excessive and he called upon the assessee to show cause as to why nothing has been shown as expenses incurred on insecticides, pesticides, labour involving in watering the plants, for packing the fruits in the cases etc. The assessee submitted that the orchards was purchased when the fruits crop was ripe and no amount was spent on the maintenance, etc. This contention of the assessee was prima facie not found tenable and the AO-considered the agricultural income from the orchards at Rs. 1.50 lakhs as against Rs. 2,00,350. The assessee came in appeal alld it was pleaded that the AO has not brought out anything on record by which the account version of the assessee can be rejected and no justification for rejecting the book results and to make the addition. The CIT(A) did not find much substance in the same as he was of the opinion that certain expenditure must have been borne by the assessee and accordingly he reduced the addition by Rs. 25,350 and retained Rs. 25,000 as income from undisclosed sources. The Revenue is in appeal against the relief of Rs. 25,300 given to the assessee. In the asst. yrs. 1988-89, the assessee had shown income of Rs. 6,46,910. The AO noted that this income was shown for 19 months but was excessive and necessary explanation of the assessee was called. After considering the same, he was of the opinion that the agricultural income of Rs. 5 lakhs was probable one and he treated the remaining amount of Rs. 1,46,910 as income from undisclosed sources of the assessee, which has since been restricted to Rs. 50,000 and relief of Rs. 96,910 was given. Next year addition was of Rs. 50,730 out of which the CIT(A) gave relief of Rs. 20,730 and in the asst. yr. 1991-92, this relief was Rs. 29,636. The Revenue is in appeal.
9. We have considered the assessment order as well as the order of the learned CIT(A) for all these years. Admittedly, the assessee purchased 36 acres of Hazuri Bagh orchards and in a portion of which vegetables were sown. The assessee had shown the following income for the assessment years :
Asst. yr.
Income shown (Rs.) 1987-88 2,00,350 1988-89 6,46,910 (for 19 months) 1989-90 3,50,727 1991-92 3,29,636 The AO after considering all the facts did not accept the contention of the assessee and made the necessary reduction, which had, later on, reduced by the CIT(A). The reasons given by the AO in all the assessment years were convincing one for making the additions in the hands of the assessee from undisclosed sources and the CIT(A) in all the years reduced the same without any substance. Accordingly, we allow all the grounds of the Revenue and confirm the orders of the AO for all these assessment years and reverse the orders of the CIT(A) on this point.
10. Now we are left with two grounds of ITA No. 27/Asr/1993 for the asst. yr. 1991-92. In this year, the assessment of assessee was completed at a loss of Rs. 95,700 and the AO distributed the said loss to all the partners according to their shares. The assessee came in appeal before the CIT(A) and it was contended that loss on account of unabsorbed depreciation should have been allowed to be carried forward in the hands of the assessee-firm itself. The CIT(A) allowed this ground of the assessee and directed the AO to allow the benefit of carry forward of unabsorbed depreciation to the assessee-firm. The Revenue is in appeal and the reliance is placed on the decision of the Hon'ble Supreme Court in the case of Garden Silk Weating Factory vs. CIT (1991) 94 CTR (SC) 136 : (1991) 189 1TR 512 (S0 in which it has been laid down by their Lordships that excessive depreciation should be adjusted in the assessment of the registered firm. against its other business income and against its income in other heads and in case depreciation remains unabsorbed, then it has to be apportioned to the partners and share of each will be adjusted against the business and other income of each of the partners. Lastly, it has been laid down that if full effect cannot be given to the depreciation allowance of the firm by the process referred to above then only unadjusted amount of depreciation will be allowed to carry forward in the case of the registered firm for adjustment in the succeeding assessment years This decision of the Hon'ble Supreme Court is making the findings of the CIT(A) erroneous and we accordingly confirm the order of the AO which is in conformity with the decision of the Hon'ble Supreme Court as the amount of unabsorbed depreciation could not be adjusted against the income of the assessee from other heads and then rightly apportioned to the partners. This ground succeeds.
11. The last ground is in respect of addition of Rs. 20,000 made by the AO on account of notional interest charged on the advance of Rs. 2 lakhs made to Kulwant Singh. This issue arose when the AO noted that the assessee had shown a debit balance of Rs. 2 lakhs in the name of Kulwant Singh. The assessee submitted that this amount was advance paid for the purchase of Deep Film at Delhi by the firm to Kulwant Singh and deal could not succeed, that is why no question of charging interest and that plea was upheld by the CIT(A) who deleted this interest of Rs. 20,000 charged by the AO. We have considered all the facts and are of the opinion that the CIT(A) has rightly deleted the addition as no basis for making the addition in the hands of the assessee. This ground fails.
12. The result is that all the appeals of the Revenue are partly allowed.