Income Tax Appellate Tribunal - Delhi
Bharat Commerce And Industries Ltd. vs Income-Tax Officer on 17 July, 1987
Equivalent citations: [1988]24ITD1A(DELHI)
ORDER
K.C. Srivastava, Accountant Member
1. These are cross-appeals, one by the assessee and the other by the Department against the order of the C.I.T. (Appeals) for the assessment year 1980-81. As some of the grounds are overlapping and arguments have been advanced in both the appeals by the two parties, we proceed to dispose of these appeals by this common order. We take up the appeal by the assessee first.
2. The assessee has raised as many as 11 grounds in its appeal. Besides this at the time of hearing the assessee has placed before us an additional ground of appeal, which reads as follows :
That following the order of IT AT for assessment year 1979-80 dated 27-3-1987 (para 46) on the facts and circumstances of the case and in law a sum of Rs. 7,34,433 representing excise duty liability deleted by the Collector, Central Excise, in the year of appeal and offered by the appellant for tax should be excluded from the total income of the appellant.
The facts which made this additional ground necessary are as follows:
3. The Assistant Collector of Central Excise, Ratlam had passed an order on 14-12-1978 which was within the previous year relevant to the assessment year 1979-80, raising a demand of Rs. 7,81,945 against the assessee. The company disputed this demand and on appeal the Collector held that the demand prior to the period ending 31-3-1973 aggregating to Rs. 7,34,433 was time barred. This appeal was decided on 9-10-1979. Thus while in the assessment year 1979-80 the assessee claimed a deduction of Rs. 7,34,433 on the basis of the demand raised by the excise authorities, the assessee showed this amount in its profit in the assessment year 1980-81. The claim of the assessee in the assessment year 1979-80 had been allowed by the C.I.T. (Appeals) but the Tribunal reversed his order and held that the amount was not allowable. While passing the appellate order the Tribunal observed as under :
46. We have given careful consideration to the facts and the rival submission. It is true that the dispute in question is purely academic in view of the amount in question having been offered for taxation for assessment year 1980-81 and the same having been included for the assessment in that year, but inasmuch as the issue stands raised before us, we have to determine it. It has been held by their Lordships of the Hon'ble Supreme Court in the case of K.S.N. Bhat 145 I.T.R. 1, that the liability of tax as ultimately found, ought to be taken into account. If it was not known at the time of making the assessment, the appellate authority should take into account if the actual liability is known by the time the appeal comes up for hearing. In the present case, the Income-tax Officer himself know the ultimate liability of the assessee for excise duty. If the real liability was not known, one could go by the demand notice of the Assistant Collector of Customs. But when the dispute has been resolved finally and the amount of real liability of the assessee is known to the Income-tax Officer at the time of making the assessment, there is no point in not taking into account the real liability and going by an inflated figure. The ITO was, in our opinion, justified in disallowing the excise provision in this regard. It will, of course, be open to the assessee to raise the plea, as and when the appeal for assessment year 1980-81 comes up for hearing that the amount which has been offered for assessment in 1980-81 should be excluded from the total income in that year, because the Tribunal has sustained the addition of the said amount in the immediately preceding assessment year.
In view of the above observation of the Tribunal, this additional ground has been raised before us and it is submitted that the amount having been taxed in the hands of the assessee for the assessment year 1979-80, it should be excluded from the assessment year 1980-81 where it had been shown by the assessee-company itself. It is pleaded before us that this ground has arisen as a result of the order of the Tribunal which had been passed for the assessment year 1979-80 on 27-3-1987.
4. The Departmental Representative though accepting the plea of the assessee on merits, opposed the admission of the additional ground and it was submitted that this ground does not arise out of the order of the C.I.T. (Appeals).
5. Having considered the facts of the case, and having considered the observations of the Tribunal in the immediately preceding year, we are of the view that the additional ground raised by the assessee should be admitted as there was justifiable reason for not raising that ground before the C.I.T. (Appeals) as the Tribunal's order was not available at that time. The Tribunal itself had suggested that though they were disallowing the amount in the assessment year 1979-80, the assessee could raise the question of its exclusion of this income for the assessment year 1980-81. In these circumstances, it is a fit case where the additional ground should be admitted. It was held by the Punjab and Haryana High Court in the case of Atlas Cycle Industries Ltd. v. CIT [1982] 133 ITR 231 that the power of the Tribunal in appeal to allow an additional plea and consequently for additional evidence being taken has been given to do substantial justice between the parties. It was further held that the Tribunal has to allow or disallow the additional piece as additional evidence after applying its judicial mind. In this case the question was about the allowance of an expenditure in one year or the other. In that case also the Appellate Assistant Commissioner while disallowing the claim in one year had made certain observations for its allowance in the other year. The High Court held that this order of the Appellate Assistant Commissioner was relevant as evidence and could be looked into by the Tribunal. It was further observed by the Court that merely because the plea was not taken by the assessee before the Appellate Assistant Commissioner, it could not be a ground to refuse the application. As the Tribunal had not admitted the additional ground it was directed to admit it. While doing so the High Court considered the decision of the Supreme Court in the case of Addl. CIT v. Gurjargravures (P.) Ltd. [1978] 111 ITR 1.
6. Having regard to the legal principles laid down by the courts, the additional ground has to be admitted. The non-admission of this ground could result in double taxation of the same amount in two different years. The assessee had shown this income in this assessment year as it had claimed it as a deduction in the assessment year 1979-80. Both the aspects were interrelated. When the claim of the assessee was rejected for the assessment year 1979-80 it was but proper to accept the plea of the assessee that the amount should not be again brought to tax in the assessment year 1980-81. It was stated before us that in case this plea of the assessee was accepted, there would be no further litigation for the allowance of the claim in the earlier year. We, therefore, admit the additional ground and allow the claim of the assessee.
7 to 12. {These paras are not reproduced here as they involve minor issues.}
13. Ground No. 9 is directed against the confirmation of levy of interest under Section 216 of the Income-tax Act amounting to Rs. 1,57,064. The learned C.I.T. (Appeals) has considered this issue in paragraph 14.1 of his order. It had been pleaded before the C.I.T. (Appeals) that the estimates made by the assessee from time to time were bona fide estimates based on the materials available to the assessee and, therefore, interest under Section 216 had wrongly been charged. The C.I.T. (Appeals) referred to the language of Section 216 and according to him for the purpose of charging interest under Section 216 it was not necessary to show that there was any intention to underestimate the income for the purpose of payment of advance tax. According to him, the term "underestimate" could not be equated with an untrue estimate. According to the learned C.I.T. (Appeals) even in case of a bona fide estimate interest can be charged if as a matter of fact it was found that having regard to the finally assessed income the estimate was below the advance tax actually payable. According to the C.I.T. (Appeals), the Income-tax Officer was not bound to investigate into the reasons of underestimate and in such cases interest should be charged when it is found that there was actually an underestimate.
14. The learned counsel for the assessee submitted that the observations of the learned Commissioner were not correct. In this connection, he referred to the decision of the Gujarat High Court in CIT v. Nagri Mills Ltd. [1986] 29 Taxman 446. It was submitted that on this issue even the Board has accepted the position that the order imposing interest under Section 216 should be a speaking order. He referred to the letter of the Board in F. No. 400/58-ITCC dated 29-2-1980. According to this letter, the Income-tax Officer must come to an appropriate conclusion about the reasons of underestimate. It was also stated in this letter that after giving a finding that there was a wrongful deferment of payment of advance tax the Income-tax Officer can levy interest under Section 216. It was also stated that the Income-tax Officer should discuss the conclusions in the assessment order so that an appellate authority can judge whether the Income-tax Officer's finding was justified on the facts of the case. It was, therefore, contended that the C.I.T. (Appeals) wrongly understood the provisions of law. A reference was also made to the order of the Tribunal in the immediately preceding year where after considering the facts it was held that the Income-tax Officer must apply his mind regarding the levy of interest under Section 216. The Tribunal has given a finding that where the estimates were prepared with due care and after ascertaining the probable income of the assessee at particular time, interest could not be levied.
15. Having considered the submissions, we find force in the contention of the assessee and we hold that the C.I.T. (Appeals) was not correct in interpreting the requirements of Section 216. The Board itself has accepted the position that the order under Section 216 should be a speaking order and it is not an automatic action on the part of the Income-tax Officer. Coming to the facts of the case, we find that the assessee had returned an income of Rs. 3,75,98,640. The estimate for December 1979 was higher than this. As far as the estimates of June 1979 and September 1979 are concerned, they are no doubt below this amount but we have seen that they are based on the available material at the appropriate time and there is nothing to show that it was a low estimate by the assessee to defer the payment of advance tax. The increase in the assessed income was due to several retrospective amendments as a result of which certain claims were disallowed making substantial difference. The law itself allows a margin of about 25% as what is filed by the assessee is only an estimate. We, therefore, hold that the charge of interest under Section 216 was not justified. It is, therefore, deleted.
16 to 19. [These paras are not reproduced here as they involve minor issues.}
20. The next ground is that the C.L.T. (Appeals) was not justified in holding that deduction on account of leave salary should be allowed on the basis of actuarial valuation certificate as against the actual liability allowed by the Income-tax Officer. The assessee-company used to allow to its employees privilege leave of 30 days in a year. Under the rules privilege leave could be accumulated up to a period of 90 days and beyond that such leave would lapse. Privilege leave was negotiable at the time of discontinuance of service. Prom 1976 the company further allowed its employees to encase accumulated privilege leave up to 30 days subject to a maximum of 50% of the accumulated leave at the time of proceeding on privilege leave. It was open to the management to deny the benefit of encashment of privilege leave for any reason.
21. In the year 1974-75 the assessee started the practice of making a provision for the leave salary. The assessee used to claim this provision as deduction. Whenever an employee took any privilege leave and leave salary became payable to him the payment was debited to the provisions account and not to the salary account. In the assessment year 1975-76 the claim for such provision was allowed by the Tribunal and the matter is before the High Court. However, in the assessment year 1979-80 the Tribunal noted that the Calcutta High Court had considered similar issue in the case of CIT v. Bharat General & Textile Industries Ltd. [1986] 157 ITR 158, where similar provisions have been made and it was held that such provision was not deductible. Following that decision the Tribunal held that the provision itself could not be allowed as a deduction. The Income-tax Officer had found that actual payment of leave salary or encashment of leave salary had to be allowed and, he, therefore, disallowed only the difference between the provision made and the actual payment of leave salary and encashment of leave salary. Following the orders of the Tribunal in the earlier years, the C.I.T. (Appeals), however, held that the actuarial value of the liability was to be allowed as a deduction. He, therefore, directed that the actuarial value of this liability be ascertained and the same should be allowed as a deduction. For this reliance was placed on the decision of the Supreme Court in the case of Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53.
22. According to the Department, such a provision was not allowable as a deduction as it was not a liability of the assessee at the end of the year. Reliance was placed on the order of the Tribunal in the immediately preceding year and the decision of the Calcutta High Court in the case of Bharat General & Textile Industries Ltd. (supra).
23. The learned counsel, on the other hand, submitted that there was no actuarial value of the liability in this case as what was being provided was an actual liability though the payment was to be made on the happening of certain events in future.
24. Having considered the facts of the case, we are of the view that the decision of the Calcutta High Court in the case of Bharat General & Textile Industries Ltd. (supra) is exactly on this issue and the rules and the system of accounting was the same as in the present case. There might be some details where they have been slightly at variance but the basic rules were the same and similar provisions had been made in that case. The High Court had held that it was merely a contingent liability and provision of such liability was not deductible. The High Court has also held that the decision of the Supreme Court in the case of Metal Box Co. of India Ltd. (supra) cannot have any application to this case. The High Court also held that there could not be any actuarial valuation regarding the liability of the payment of the wages. The rate of leave salary will depend on the salary a person draws at the time when he goes on leave and not when the leave accumulated. If an employee is entitled to leave salary otherwise he could get encashment at the time of termination or retirement of such person. The High Court had further relied on the observations made in earlier judgments in the cases of CIF v. Rajkumar Mills Ltd. [1971] 80 ITR 244 (Bom.) and Chhaganlal Textile Mills (P.) Ltd. v. CIT [1966] 62 ITR 274 (MP). As the decision of the Calcutta High Court is directly on the issue before us, and this judgment has been followed by the Tribunal in the immediately preceding year, we hold that the Income-tax Officer had rightly disallowed the provision as such and had restricted the claim of the assessee to the extent of actual payment of leave salary or encashment of leave salary.
25. The learned counsel for the assessee submitted that this was a case of method of accounting being followed by the assessee and the assessee chose to follow the system of making a provision and making payment through that provision for the leave salary. He submitted that the issue could be decided only in the first year when this system started to be followed by the assessee. In that year the Tribunal had allowed the provision. It was, therefore, submitted that the assessee was bound to follow the same method of accounting for providing for the leave salary and encashment of leave salary. He, therefore, contended that the accounting system having been accepted in the past, that there could be no departure from that in the later years. We, however, are of the view that the accounting system has no relevance for deciding whether the deduction could be allowed or not. If basically the deduction is not allowable, the following or not following a particular accounting system would be immaterial. We, therefore, set aside the order of the C.I.T. (Appeals) and restore the order of the Income-tax Officer on this issue.
26 to 32. [These paras are not reproduced here as they involve minor issues.]