Calcutta High Court
Nicco Corporation Ltd. vs Commissioner Of Income-Tax And Ors. on 18 May, 2001
Equivalent citations: [2001]251ITR791(CAL)
Author: Kalyan Jyoti Sengupta
Bench: Kalyan Jyoti Sengupta
JUDGMENT Kalyan Jyoti Sengupta, J.
1. By this writ petition, the petitioner challenged the order dated December 9/15, 1993, passed by the Commissioner of Income-tax, Central-I, Calcutta, being respondent No. 1, whereby and whereunder the revision application of the petitioner-assessee under Section 264 of the Income-tax Act, 1961, for allowing deduction of excise duty demanded for payment for manufacturing "hot rolled rods" during the previous years relating to the assessment years 1971-72 to 1975-76 has been rejected.
2. The short facts of this case are that the petitioner at all material times was and is a manufacturer of amongst other "hot rolled rods". By Notification No. 74/70-CE, dated March 26, 1970, the Central excise authorities decided that the aforesaid product is excisable. So a show-cause notice was issued against the petitioner dated January 14, 1972, but the petitioner did not accept the contention and version of the excise authorities. The petitioner replied to the show cause which was ultimately heard by the Assistant Collector of Central Excise and held that the "hot rolled rods" were excisable to Central excise duty with effect from March 26, 1970, by order dated August 28, 1972. All the Central excise authorities right up to the Central Board did not accept the petitioner's contention. So a writ petition was filed by the petitioner in this court being C. R. No. 8372(W) of 1978. On this writ petition an interim order was passed staying the operation of all the orders of the excise authorities till the disposal of the rule. Meanwhile, two notices to show cause dated December 9, 1976, and August 24, 1978, were issued to the petitioner by the Superintendent of Central Excise demanding payment of Central excise duty amounting to Rs. 3,11,62,220.72 and Rs. 1,05,20,682.63 on the said "hot rolled rods" for the period from March 26, 1970, to September 30, 1976, and October 1, 1976, to July 31, 1978, respectively.
3. The aforesaid dispute of excisability being the subject-matter of the writ petition was once attempted to be settled by the petitioner in view of the judgment of the Supreme Court rendered in the case of Indian Aluminium Cables Ltd. v. Union of India. The petitioner had also paid a sum of Rs. 13,13,660 towards the differential duty. However, the matter could not be settled. Ultimately, the petitioner filed a second writ petition after withdrawal of the earlier one and the said second writ petition is still pending. Therefore, it appears, the petitioner disputed the claim of the aforesaid excise duty but did not make any provision in its books of account. So the petitioner made an application claiming deduction of the aforesaid entire amount of Rs. 3,11,62,220.72 for the period from March 26, 1970, to September 30, 1976, corresponding to the assessment years 1971-72, 1972-73, 1973-74, 1974-75, 1975-76, 1976-77 and 1977-78. However, the Income-tax Officer in his assessment order dated January 28, 1981, rejected the claim of the petitioner for deduction in its entirety.
4. An appeal was preferred before the Commissioner of Income-tax (Appeals) and it was held by him that the entire amount demanded was not a liability of the previous year relevant to the assessment year 1977-78 and could not be allowed in the said assessment year. It was, however, held by the Commissioner of Income-tax (Appeals) that the petitioner was entitled to deduction of the excise duty liability in respect of the goods manufactured by it during the previous year referable to the assessment year 1977-78. However, the prayer for deduction of the balance amount demanded by the second show-cause notice dated August 24, 1978, was not allowed.
5. The Revenue preferred an appeal against the aforesaid order of the Commissioner of Income-tax (Appeals) so also the petitioner filed cross-objections before the Tribunal. The Tribunal held that the Commissioner was right in deciding as above and dismissed the appeal of the Revenue.
6. In view of the dismissal of the appeal of the Revenue the petitioner did not press its cross-objections. The Revenue challenged the same applying for a reference under Section 256 of the Income-tax Act to this court. This court on this reference following the judgment rendered in CIT v. Century Enka Ltd. , held against the Revenue, so the order of the Commissioner of Income-tax (Appeals) was upheld.
7. Following the above decision, the Commissioner of Income-tax (Appeals) decided the appeals relating to the subsequent assessment years 1979-80 and 1980-81. In a similar manner, the petitioner was granted relief by the Commissioner of Income-tax (Appeals) and the Tribunal for the assessment year 1976-77. The judgment of this court as well as the Tribunal has reached its finality right up to the Supreme Court in view of dismissal of the special leave petition. As the petitioner was not granted relief for deduction of the excise duty on the above goods manufactured during the previous years in relation to the assessment years 1971-72 to 1975-76 in April/May, 1984, it filed five several applications for revision under Section 264 of the said Act before the Commissioner of Income-tax. It was contended in the applications for revision while explaining the delay that the right to apply for revision accrued only on March 15, 1984, when the Commissioner of Income-tax (Appeals) decided finally that the petitioner is entitled to get deduction for the previous year referable to the assessment year 1977-78. As such following the earlier decision of the High Court and the Tribunal which had reached its finality in view of dismissal of the special leave petition preferred by the Revenue, the petitioner is entitled to deduction. However, the revising authority, viz., the Commissioner of Income-tax, rejected the said applications under Section 264 holding in substance that-
(i) there was inordinate delay in filing the applications ;
(ii) though the petitioner had been granted deduction for the assessment year 1977-78 in respect of the disputed statutory liability, not provided for in the accounts and not paid, having regard to the mercantile system of accounting followed by it and such deduction had been upheld by the Division Bench of this court, the judgment of the Division Bench could not be followed since a special leave petition was proposed to be filed against it after obtaining the certified copy ;
(iii) deduction of the disputed statutory liability not provided for in the accounts and not paid could not be allowed.
8. Mr. Bajoria, learned senior advocate appearing for the assessee, contends that rejection on the ground of inordinate delay by the revising authority is erroneous on the face of it as the petitioner could not possibly make this application till the Commissioner of Income-tax (Appeals) decided this point on March 15, 1984.
9. He further contends that Section 264 of the Income-tax Act empowers the Commissioner of Income-tax to revise an order of assessment for the benefit of the assessee. He should not have dismissed the application on the ground of delay as the assessee was prevented by sufficient cause as stated above. When there exists sufficient cause for the delay the revising authority should not have decided against the petitioner on the question of late filing of the application. In support of his submission he has relied on the following decisions :
(i) Maganti Ramachandra Rao and Co. v. CIT ;
(ii) Saurashtra Cement and Chemical Industries Ltd. v. CIT ;
(iii) Delhi Cloth and General Mills Co. Ltd. v. CIT ; and
(iv) Saurashtra Cement and Chemical Industries Ltd. v. CIT .
10. Mr. Bajoria contends on the merits of the case that when this identical point has been decided in favour of the petitioner in relation to the goods manufactured during the previous year corresponding to the assessment years 1976-77 and 1977-78 by this court it was incumbent upon the revising authority to follow the binding precedent. The revising authority is obviously wrong in law on the face of the order by not following the binding precedent on the plea that the Department was contemplating to file special leave petition. He contends that the judicial discipline required the Commissioner to follow without any hesitation the said binding judgments. In support of his contention, he has relied on a decision of the Supreme Court in Union of India v. Kamlakshi Finance Corporation Ltd., .
11. Moreover, when the special leave petition which was ultimately filed and dismissed by the Supreme Court there is no embargo to pass appropriate orders in this matter. The law is well settled in this matter that where an assessee follows the mercantile system of accounting a deduction in respect of a statutory liability is to be allowed on accrual basis, irrespective of whether a provision has been made for the same in the accounts and the assessee has disputed and not paid the same. In support of his submission, he has relied on two decisions rendered in Kedarnath Jute Manufacturing Co. Ltd. v. CIT and CIT v. Century Enka Ltd. .
12. He contends that the petitioner admittedly maintains the mercantile system of accounting and it has been accepted by the Assessing Officer in the orders passed in a number of assessment years.
13. Mr. Som, learned lawyer appearing on behalf of the respondent, contends that the order passed by respondent No. 1 is perfectly justified under the law. He in his discretion has refused to condone the delay. Therefore, it is not open for the writ court to substitute its own discretion. Moreover, the claim of the petitioner for deduction in relation to the previous years corresponding to the assessment years 1971-72 to 1975-76 cannot be allowed in view of the fact that the petitioner did not press the cross-objections against the order of the Income-tax Officer, before the Commissioner of Income-tax (Appeals). Therefore, the present application for revision is also barred under the law. In support of his submission, he has relied on a decision rendered in the case of Hindustan Aeronautics Ltd. v. CIT .
14. Lastly, he submits that no relief should be granted on this writ petition.
15. After hearing the respective contentions in this case it has fallen for consideration before this court whether the revising authority was justified in rejecting the application of the petitioner on the ground of delay and further not accepting the decisions of this court and the Tribunal on the same identical point of law which was held in favour of the petitioner-assessee on the question of allowing deduction of the statutory liability in relation to the previous years relevant to the assessment years 1976-77 and 1977-78.
16. The first question is whether the petitioner is guilty of causing delay in making the application in this case as it has been held by the revising authority. Mr. Som is right in contending that in the matter of discretion the writ court cannot substitute its own discretion in a matter and a question of this nature. However, it is also settled law that the discretion has to be exercised lawfully and following settled judicial principles. In a given case if the judicial or quasi-judicial authority ignores to advert to the explanation for delay or to decide the same then it is failure of exercise of jurisdiction. The proviso to Sub-section (3) of Section 264 of the Income-tax Act provides as follows :
"Provided that the Commissioner may, if he is satisfied that the assessee was prevented by sufficient cause from making the application within that period, admit an application made after the expiry of that period".
17. In this case though the revising authority has decided this application on the merits as well one of the reasons for rejection of the application is also delay so it is necessary whether this decision on the ground of delay is in proper and lawful exercise of his jurisdiction or not.
18. Upon a perusal of the impugned order I do not find that the revising authority has made any attempt to find out whether the petitioner was prevented by sufficient cause from making the application within the prescribed period. A particular fact and/or set of facts may or may not be a sufficient cause and for that matter assessment and evaluation of sufficiency of the cause may vary from one person to another and such evaluation cannot be judicially reviewed by any court unless of course there is a binding authority and/or precedent on the question of sufficient cause on a given particular fact. If no attempt is made to find whether any sufficient cause has been made out or not, it would be a case of failure to exercise jurisdiction. It is settled law that the question of failure to exercise jurisdiction is amenable to judicial review. So, while enquiring into this aspect I find that the petitioner should have made the revision application against the order of the Assessing Officer quite some time back but it could not do so in view of the facts mentioned in the applications of the petitioner. It is stated in the petitions that the petitioner could not make the application in view of the fact that on an earlier occasion the petitioner preferred appeal covering all the previous years in relation to the assessment years from 1971-72 to 1977-78. Ultimately, the Commissioner of Income-tax (Appeals) decided on March 15, 1984, that the petitioner was entitled to deduction only in relation to the assessment year 1977-78 and the question in relation to the assessment years prior thereto could not be decided as the same do not relate to the previous years in relation to the assessment year of 1977-78. So, the petitioner bona fide proceeded with another proceedings. Immediately thereafter the petitioner filed the application.
19. Now, the question remains whether the aforesaid fact of initiation of unsuccessful proceeding by the petitioner constitutes sufficient cause for which the petitioner is deemed to have been prevented or not. Mr. Bajoria is right in saying that this fact constitutes sufficient cause as the petitioner had no occasion nor any scope to take out this application on an earlier occasion until the appellate authority decided the matter. In a case cited by Mr. Bajoria rendered in Maganti Ramachandra Rao and Co. v. CIT , it has been held that (head note): "It is incumbent on the Commissioner under Section 33A(2) of the Indian Income-tax Act, 1922, when an application for condonation of delay is made, to consider whether a sufficient cause has been made out by the petitioner for condonation of delay". It has been observed in the decision further that (head-note) : "Where a litigant in his own manner has been diligently or bona fide agitating for the recognition of a claim and the ultimate adverse result therein makes it necessary or forces him to seek another remedy in the courts; the technical delay, if any, was more often than not ignored or condoned by courts".
20. In the Division Bench decision of the Gujarat High Court rendered in the case of Saurashtra Cement and Chemical Industries Ltd. v. CIT [1978] 115 ITR 27, it has been held that delay should be condoned in a case where the litigant has proceeded with a proceeding bona fide unsuccessfully and the time taken for unsuccessful completion of this proceeding should be excluded. In the judgment of a learned single judge of the Delhi High Court in Delhi Cloth and General Mills Co. Ltd. v. CIT , it has been held on the same lines. In another case of Saurashtra Cement and Chemical industries Ltd. v. CIT , the Division Bench of the Gujarat High Court has also been held on the same lines.
21. Under the provision of Section 14 of the Limitation Act in a civil proceeding the time taken for unsuccessful proceeding with a particular civil litigation is always excluded and ignored so much so the litigant can approach before the appropriate forum for appropriate remedy. Therefore, I hold in this case the Commissioner first of all ought to have looked into the aforesaid position of the law before holding that the petitioner has caused inordinate delay in taking out this application. I hold that there exists sufficient cause by which the petitioner was prevented from taking out this application for revision as the petitioner proceeded bona fide with the appeal previously before the Commissioner (Appeals) till March 15, 1984, and thereafter before the Tribunal when the cross-objection was withdrawn.
22. On the merits it appears that the Commissioner has misdirected himself by not following the decision rendered by this court and since being affirmed by the Supreme Court on dismissal of the special leave petition on the same point of law and fact, but in relation to the different assessment years. Since on an earlier occasion the Commissioner of Income-tax (Appeals) has held in relation to the previous years referable to the assessment years of 1977-78 and 1978-79, the petitioner is entitled to get deduction of the excise duty which, however, having not been paid and disputed and has not made provision in the accounting system which has been upheld by this court as well as, by necessary implication, by the Supreme Court. So the decision on this point is binding precedent upon the revising authority. In the case of Union of India v. Kamlakshi Finance Corporation Ltd., , the Supreme Court held amongst other as follows (page 712):
"The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not 'acceptable' to the Department--in itself an objectionable phrase--and is the subject-matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws."
23. In this case I find that the Commissioner has ignored simply on the ground that since the special leave petition was contemplated to be filed against the judgment of this court on the same principle of law, therefore, it was not a binding precedent. Such an approach of the revising authority is a blatant breach of judicial discipline as it has been observed by the Supreme Court in the aforesaid judgment. Besides factually the special leave petition ultimately filed by the Department was dismissed.
24. Under those circumstances, the rejection of the application on the reasoning by the revising authority is not sustainable, as such the impugned order of the revising authority is liable to be and is hereby set aside. I hold, therefore, the petitioner is entitled to get deduction of the excise duty of the "hot rolled rods" manufactured during the previous years referable to the assessment years 1971-72 to 1975-76. However, in the event the petitioner succeeds in the pending writ petition filed challenging the decision of the excise authority then this benefit will not be applicable.
25. Thus, the application succeeds.