Income Tax Appellate Tribunal - Delhi
Jt. Commissioner Of Income-Tax, ... vs Swarup Vegetable Products Industries ... on 30 June, 2005
Equivalent citations: (2005)98TTJ(DELHI)420
ORDER
S.C. Tiwari, Accountant Member
1. These two Appeals have been filed by the Revenue on 12th May, 2000 against the orders of the Ld. CIT(A), Muzaffaraagar dated 29th February, 2000 in the case of the assessee in relation to assessment order Under Section 143(3) as well as order Under Section 154/143(1)(a) for assessment year 1995-96.
2. We shall take up the Revenue's appeal in relation to intimation Under Section 143 (1)(a) first. Facts of the case leading to that appeal briefly are that the assessee filed return of loss declaring loss at Rs. 48,74,233/-. The Ld. AO made an order Under Section 143(1)(a) on 12th September, 1996 wherein various adjustments were made aggregating to Rs. 81,22,524/-. Hence instead of loss as declared by the assessee the assessment was completed at an income of Rs. 32,48,299/-. Thereafter, the assessee filed an application Under Section 154 and the Ld. AO passed the order Under Section 154 on 23rd December, 1997 whereby the adjustments made were reduced to Rs. 38,20,539/-. Still aggrieved, the assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) deleted all the adjustments retained by the Ld. AO as per his order Under Section 154. Aggrieved, the Revenue is in appeal before us.
3. The first ground in this appeal is directed against deletion of the adjustment of Rs. 33,58,722/-. Facts of the case in this respect are that the assessee claimed deduction of export duty amounting to Rs. 33,58,722/- on the ground that the assessee's appeal before the Hon'ble Supreme Court had been dismissed on 28th March, 1995. The Ld. AO held the view that even if the judgement of Hon'ble Supreme Court had been delivered on 28th March, 1995 the liability of the assessee had accrued in the year to which it originally pertained to. The assessee was following the mercantile system of accounting. In fact, the assessee had made a provision of Rs. 44,07,8151- in this respect in the earlier years. According to the assessee, the Government of Utter Prudish had enacted bank! guarantee of Rs. 77,66,537/- and, therefore, the balance amount of Rs. 33,58[722/- was required to be allowed to the assessee against its income for assessment year 1995-96. The ld. AO held that so far as assessment year 1995-96 was concerned it was neither the year of accrual nor the year of payment. On assessee's appeal, the Ld. CIT(A) held the view that it was a contentious issue and, therefore, adjustment of Rs. 33,58,722/- could not be called as prima facie adjustment. In other words, such adjustment could not be made under the provisions of Section 143(1)(a). On consideration of the matter, we find ourselves in agreement with this finding of the Ld. CIT(A).
4. The ground of appeal No. 2, 3 and 4 relate to the Ld. CIT(A) deleting the adjustment of Rs. 2,38,883/-, Rs. 67,840/- and Rs. 1,55,094/- on the same ground that the adjustments were not permissible within the limited scope of Section 143(1)(a). Facts of the case in relation to other adjustments briefly are that in relation to deductions claimed by the assessee in respect of Provident Fund, ESI, UP Trade Tax, etc. the Ld. AO found that during the year the assessee had carried forward additional sum of Rs. 1,55,094/- in the balance sheet. He added the same purportedly acting Under Section 43-B on the ground that the amounts had actually not been paid. On consideration of the matter, we agree with the Ld. CIT(A). The assessee did not claim deduction of corresponding expenditure and, therefore, provisions of Section 43B as such, did not apply. The Ld. AO appears to have made the adjustments because these amounts represented unpaid collections of the assessee during the year. This cannot be called as prima facie adjustment.
5. The third amount of Rs. 2,38,883/- relates to the provision of interest on extra levy sugar price. According to the AO, the deduction claimed was in relation to contingent liability only and, therefore, could not be allowed as deduction. According to the assessee similar liability claimed had been allowed as deduction in the assessment year 1985-86 by the Ld. CIT(A). In this view of the matter we agree in respect of this amount also that the same is not in the nature of prima facie adjustment.
6. Lastly, the assessee claimed deduction of a sum of Rs. 67,840/- being prior period expenses. The AO made the adjustment for the reasons only that the assessee was following mercantile system of accounting. In the order Under Section 154 the AO stated that before regular assessment it was not possible to verify whether or not these expenses had been claimed in the earlier years as well. Thus, from the observations of the AO himself in the order Under Section 154, it is clear that the expenditure was made without taking into consideration all the facts of the case. Such adjustment cannot be called prima facie adjustment.
7. In the result, we are satisfied that the CIT(A) rightly deleted the adjustments made by the AO Under Section 143(1)(a) as not being in the nature of prima facie adjustments. Hence, Revenue's appeal in ITA No. 2360/Del/2000 is dismissed.
8. We now turn to Revenue's appeal in relation to the assessment order Under Section 143(3). The first ground relates to the addition of Rs. 20 lakhs made by the AO under the provisions of Section 68 of the Act. The facts of the case leading to this ground of appeal briefly are that during the course of assessment proceedings the Ld. AO noted that in Schedule IX the assessee had disclosed sale/deletion of plant and machinery of the value of Rs. 15 lakhs only. However, in the chart annexed to return of income as per the provisions of IT Act, the assessee disclosed sale/deletion in plant and machinery account to the extent of Rs. 35 lakhs. During the course of assessment proceedings the assessee submitted that the written down value of the boiler sold for Rs. 20 lakhs was only Rs. 42,350/- in accordance with depreciation allowed to the assessee under IT Act. The Ld. AO, therefore, directed the assessee to produce M/s A.S. Engineering Works, Khatoli the alleged buyer of the boiler in question for the sum of Rs. 20 lakhs. The inspector in his report stated that there was no such concern at the given address. The Ld. AO gave further opportunity to the assessee to produce M/s A.S. Engineering Works. The assessee in its letter dated 3rd March, 1998 stated that present whereabouts of the buyer were not known. The payment received by the assessee was through cheques. On further inquiries the AO found that in the account of A.S. Engineering Works with Canara Bank, the only entries were in relation to the dealings with the assessee company. No other transactions had been made in that bank account. In these circumstances, the Ld. AO held that the so-called receipt of Rs. 20 lakhs by way of sale of machinery to M/s A.S. Engineering Works remained unexplained. He, therefore, added the sum of Rs. 20 lakhs under the provisions of Section 68 of the Act. On assessee's appeal, the Ld. CIT(A) held that the sum of Rs. 20 lakhs could not be considered as unexplained cash credit because the same represented part of sale consideration of Rs. 35 lakhs disclosed by the assessee. The Ld. AO had himself considered the sum of Rs. 35 lakhs as sale consideration for the purpose of computation of short-term capital gain. The Ld. CIT(A), therefore, deleted the addition of Rs. 20 lakhs.
9. During the course of hearing before us, the Ld. DR argued that in the explanation given by the assessee as reproduced by the Ld. AO in para 7, there was no explanation in relation to the sum of Rs. 15 lakhs, He further argued that from the bank account of M/s A.S. Engineering Works it was quite clear that account had been operated for the purposes of the assessee only. There were no other entries in that account except the dealings with the assessee, During the period relevant to assessment year 1995-96 the assessee had received payment of Rs. 20 lakhs oily. The sum of Rs. 15 lakhs had been received in the earlier assessment year for which proceedings Under Section 148 had been initiated. The Ld. DR argued that the Ld. CIT(A) was required to do finding of fact and he could not delete the addition because the AO had assessed short-term capital gain as disclosed by the assessee. As far as payments received by cheque, the same did not establish that the transactions were genuine. The Ld. DR relied upon the judgements reported in 120 taxman 539 (Kerl), (Cal) in that respect.
10. The Ld. AR of the assessee argued that the Ld. AO had no justification to make an assessment of the sum of Rs. 20 lakhs in spite of the fact that the sum of Rs. 20 lakhs had already been offered for assessment as income by the assessee. The Ld. AO had himself noted in the assessment order that the value of block of assets in relation to plant and machinery as on 1.4.94 was Rs. 23,08,404/-. During the year there was an addition of Rs. 91,034/-. The entire value of Rs. 23,99,438/- was wiped out on account of the sale proceedings of Rs. 35 lakhs. The AO had assessed the balance amount of Rs. 11,00,562/- as short-term capital gain. The ld. AR of the assessee strongly relied upon the judgement of the Hon'ble Bombay High Court in the case of CIT v. Surat Cotton Mills Ltd. 202 ITR 932 (Bom) that the same income cannot be assessed under two different heads.
11. We have carefully considered the rival submissions. In our view the Ld. CIT(A) rightly held that the stand taken by the Ld. AO was self-contradictory in as much as after having assessed the sum of Rs. 35 lakhs Under Section 68 the AO had once again assessed short term capital gain of Rs. 11,00,562/-. However, for that reason alone, the CIT(A) could not resort to deleting the higher addition of Rs. 35 lakhs. As the! first appellate authority vested with obligations to make inquiries and arrive at true facts in accordance with the provisions of Section 250(4), the Ld. CIT(A) could not rely upon any mistake committed by the AO.
12. In the case of CIT v. Kanpur Coal Syndicate 53 ITR 225 (SC), the Hon'ble Supreme Court have held that the first appellate authority can do what the AO could do and can also direct the latter to do what the latter had failed to do. In the case of Jute Corporation India Ltd. 187 ITR 688 (SC) and in the case of CIT v. Nirbheram Dalu Ram 224 ITR 610 (SC) the Hon'ble Supreme Court have held that the powers of the first appellate authority over an assessment are all pervasive and they are not confined to the matters considered by the AO. In the case of K. Mohammed and Co. v. ITO 17 ITR 108 (Ker) the Hon'ble Kerala High Court have held that where an inquiry is called for, the first appellate authority is not only empowered to, but is also obliged to allow a further inquiry so as to find out the true state of affairs. In the case of Kapur Chand Shrimal v. CIT 131 ITR 451(SC), the Hon'ble Supreme Court have held that the appellate authority has jurisdiction as well as duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred. The same view has been taken by Hon'ble Calcutta High Court in the case of Sewduttray Rambullav and Son v. CIT 204 ITR 580 (Cal). In the case of Smt. Prabhavathi S. Shah v. CIT 231 ITR 1 (Bom) Hon'ble Bombay High court also have held the view that the CIT(A) is duty bound to carry out an inquiry. In the case of CIT v. Dalmia Cement Bharat Ltd. 36 Taxman 353 (Del), the Hon'ble Delhi High Court have held that the CIT(A)'s order without a positive finding on material available cannot be maintained.
13. In view of the position enunciated by the judgement of the Apex Court, Hon'ble Delhi High Court and various other High Courts in India, the legal position is quite clear that while deciding a ground of appeal taken by an assessee it is incumbent upon the CIT(A) to give a positive finding of fact. He cannot decide an appeal on the basis of the negative finding that the AO has not inquired into the matter fully or that he has not properly arrived at the finding of fact. The CIT(A) has to decide the matter, on merits on the basis of material already available on record and if for that purpose it is necessary to make further inquiry, the CIT(A) has only two options i.e., either to make further inquiries himself or to have such inquiry as he thinks fit made by the AO. The expression "may" appearing in Section 250(4) is required to be interpreted as "shall". The powers conferred upon the CIT(A) Under Section 250(4) are not merely decorative or cosmetic. They cast upon the CIT(A) an obligation and duty to carry out such further inquiry as is necessary to arrive at a decision on merits on the facts of the case. In the instant case before us the CIT(A) has deleted the addition of the higher amount of Rs. 35 lakhs for the short reason that the AO had made an assessment of Rs. 11,00,562/- also. It was incumbent upon him to arrive at a positive finding as to which of these two additions to the declared income were really called for. We see no merit in the contention of the Ld. CIT(A) that as the amounts had been alleged by the assessee as the sale proceeds of fixed assets, the AO was precluded from applying the provisions of Section 68 of the Act. For arriving at that view it was first necessary to come to the conclusion that there was indeed sale of plant and machinery to M/s A.S. Engineering Works as alleged by the assessee. The Ld. CIT(A) has not addressed himself to that issue at all. We, therefore, consider it necessary to restore this issue to the file of the Ld. CIT(A) for decision afresh in the light of the observations made by us in this order. Let it be clearly understood that for this purpose the CIT(A) would consider on merits as to which one of the two additions i.e., Rs. 20 lakhs or Rs. 11,00,562A should be retained. He should arrive at specific findings of fact as to whether or not the assessee sold plant and machinery to M/s A.S. Engineering Works, Khatoli as claimed by the assessee.
14. Ground of appeal No. 2 is directed against the deletion of the addition of Rs. 33,58,722/- made by the AO in relation to excise duty on export of liquor outside the State of Uttar Pradesh. The assessee claimed deduction of this amount on the ground that the assessee's appeal before the Hon'ble Supreme Court of India had been dismissed on 28th March, 1995. The AO, however, found that the bank guarantee of Rs. 77,66,537/- was encashed by the UP Government on 17th July, 1995. The Ld. AO found from the assessment order for assessment year 1984-85 and 1985-86 that the assessee had debited as expenditure Rs. 21,76,200/- and Rs. 11,12,396/- even though the amounts in question had not been paid by the assessee. The assessee claimed deduction of these amounts as liability accrued on account of Notification issued by Government of Uttar Pradesh levying duty on export of liquor from the State of Uttar Pradesh to other States and Union Territories in India. The assessee challenged legality and validity of imposition of such export duty before the Hon'ble Allahabad High Court. The matter was carried to the Tribunal and IT AT by its order in ITA No. 622/Del/1991 allowed the deduction as claimed by the assessee. Relying upon the aforesaid order of the Tribunal in the case of the assessee in relation to assessment year 1984-85 the AO has held that the assessee is entitled to deduction under the provisions of Section 43-B in the year in which the amount was actually paid. Hence, according to the AO, the deduction of Rs. 33,58,772/- claimed by the assessee for assessment year 1995-96 was allowable in the computation of income for assessment year 1996-97 only.
15. On assessee's appeal the Ld. CIT(A) applied the first proviso to Section 43-B. The actual payment had in any case been made before the period available to the assessee for filing of return of income as per the provisions of Section 139(1) of the Act. During the course of hearing before us, the Ld. DR argued that the liability pertained to the distant past. As far as assessment year 1995-96 was concerned it was neither the year of accrual of liability nor the year of payment. The Ld. CIT(A), therefore, erred in applying the provisions of first proviso to Section 43-B of the Act.
16. We have carefully considered the rival submissions. The issue first arose in the case of the assessee for assessment year 1984-85 and 1985-86. In relation to assessment year 1984-85 IT AT Delhi Bench 'B' as per its order dated 27th October, 1995 in ITA No. 662/Del/1991 held as under:-
"4.1 Shri Malice then contended in the alternative that deduction of the disputed amount be directed to be allowed in the year in which it was actually paid. Even the DR had no objection to this submission. We, therefore, direct that the deduction of amount under reference be allowed in the year in which it was actually paid."
17. We find that in, this case the assessee had furnished bank guarantee. From the facts given in para 4 of the Tribunal Order for assessment year 1984-85 we find that the amount had gone out of the coffer of the assessee when it furnished the bank guarantee. On that basis the deduction was claimed for assessment year l984-85. The assessee's contention was turned down by the Tribunal on the basis that payment to the bank for furnishing bank guarantee was not payment within the meaning of Section 43-B of the Act. That being so, the date of payment has to be considered to be 17th My, 1995 falling in assessment year 1996-97. The Ld. CIT(A) erred in applying first proviso to Section 43-B because the liability does not pertain to assessment year 1995-96, but assessment year 1984-85. We, therefore, hold that the assessee can claim deduction of these amounts only in assessment year 1996-97 and not in assessment year 1995-96. Accordingly, we allow Revenue's appeal on this ground.
18. Ground of appeal No. 3 is directed against deletion of the addition of Rs. 2,38,883/- made by the AO by way of disallowance of provision of interest on extra levy sugar price claimed by the assessee. The AO found that extra levy sugar had been released to the assessee in the year 1979-80. The Hon'ble Allahabad High Court allowed the assessee to realize the excess levy price with the condition that the assessee would be liable to repay it with interest if the assessee's claim was not allowed in the Writ Petition. On these facts the Ld. AO held that deduction of Rs. 2,38,883/- claimed by the assessee was a contingent liability. In any case the AO found the matter has been finally decided upon in favour of the assessee. On assessee's appeal the Ld. CIT(A) held that the matter was covered by the order of the CIT(A) dated 7th November, 1991 in relation to assessment year 1985-86. Following the same he allowed the assessee deduction of the sum of Rs. 2,38,883/-
19. During the course of hearing before us, the Ld. DR argued that in view of the fact that the matter has finally been decided in favour of the assessee, there was no requirement to allow the deduction as claimed by the assessee. He also emphasized that the liability was contingent as far as assessment year before us is concerned.
20. The Ld. AR of the assessee argued that the CIT(A) had decided the issue in favour of the assessee for assessment year 1985-86. For that year the Department had not filed any appeal. However, the dispute came to the Tribunal in the case of the assessee for assessment year 1988-89 and IT AT Delhi Bench 'G' Delhi as per its order dated 30th January, 2003 decided the issue in favour of the assessee.
21. We have carefully considered the rival submissions. It is true that the fact of the matter is that ultimately no liability to pay interest has been fastened on the assessee. At the same time the principle of consistency demand that we do not disturb the view taken in the case of the assessee in the earlier assessment years. We, therefore, reject this ground of appeal taken by the Revenue.
22. The ground, of appeal No. 4 is directed against disallowance of Rs. 44,923/- made Under Section 40A(3) of the Act. During the course of assessment proceedings the Ld. AO made the disallowance of Rs. 64,923/- under the provisions of Section 40A(3) as per details given at page 9 of the assessment order. On assessee's appeal the CIT(A) allowed deduction in relation to 3 items that pertained to the payments made to the employees. The Ld. DR pointed out that disallowance of Rs. 12,250/- in relation to payment made to M.P. Verma was not deleted by the CIT(A) and there is error in the ground of appeal to that extent. The Ld. DR, however, argued that the assessee's case was not covered by Circular No. 220 dated 13th May, 1977. It was not the case of the assessee that the employees had refused to accept cash payment. On consideration of the matter we find that the assessee had issued thousands of cheques. However, in respect of very few payments the assessee thought it fit to make cash payments at the factory located at village Mansurpur where the assessee had not maintained any bank account. In our opinion, that constituted exceptional circumstance mentioned in CBDT Circular No. 220 dated 13th May, 1977. We, therefore, reject this ground of appeal taken by the Revenue.
23. Ground of appeal No. 5 is directed against deletion of the addition of Rs. 48,114/- and Rs. 60,000/- made by the AO. The AO made these additions on the ground that these were penalty imposed on the assessee for violation of statutory obligations and, therefore, these amounts did not qualify to be allowed as deduction Under Section 37(1) of the Act. On assessee's appeal the CIT(A) found that the sum of Rs. 60,000/- represented excise duty charged by the UP State Excise Department based on excess loss of spirit in the course of production of liquor estimated by them. The sum of Rs. 48,114/- represented the liquidated damages paid by the assessee to Army Canteen at Jabalpur on account of short supply made by the assessee. The ld. CIT(A) held that none of these amounts could be treated as infraction of law and he allowed deduction of the same.
24. During the course of hearing before us, the Ld. DR argued that there was no proper discussion in the impugned order. Hence, deduction was not correctly allowed. The Ld. Counsel for the assessee argued that UP State Excise Department had a formula to work out consumption of spirit in the course of production. On that basis they had worked out excess loss without there being! any specific material evidence that the assessee had illegally dealt with such spirit. In respect of damages paid to Army Canteen the assessee argued that it was compensatory payment as the assessee could not fulfill its supply commitment to the canteen. On consideration of the matter we find that in none of these two cases any infraction of law on the part of the assessee has been established. The amounts have been paid by the assessee in the ordinary course of its business on account of commercial expediency. We, therefore, do not see any reason to interfere in the impugned order in this respect. Accordingly, this ground of appeal is rejected.
25. In the result, while Revenue's appeal in ITA No. 2360/Del/2000 in relation to intimation Under Section 143(1)(a) is dismissed the Revenue's appeal in ITA No. 2358/Del/2000 in relation to assessment order Under Section 143(3) is partly allowed.