Income Tax Appellate Tribunal - Hyderabad
Deccan Cements Ltd. vs Deputy Cit on 28 February, 2002
Equivalent citations: (2002)76TTJ(HYD)691
Order Rakesh Kumar Gupta, A.M. Present appeal filed by the assessee is against the order of the Commissioner (Appeals), Hyderabad, dated 30-9-1996.
2. Though appeal preferred by the assessee before learned Commissioner (Appeals) was against prima facie adjustments made under section 143(1)(a), but learned Commissioner (Appeals) has erroneously mentioned the section under which order appealed against was passed as section 143(3). When this error was pointed out to learned Departmental Representative, he admitted that in fact, appeal emanates from the intimation under section 143(1)(a) and not from the order under section 143(3).
3. Assessee which is a limited company filed its return on 25-11-1994, declaring 'nil' income. Prima facie adjustment was made vide intimation under section 143(1)(a), dated 8-2-1995, which inter alia, included Rs. 1,09,098 on account of guest-house expenses and Rs. 40,271 under section 40A(9). Appeal was preferred by the assessee before learned Commissioner (Appeals), who upheld the prima facie adjustment. Aggrieved against the order of learned Commissioner (Appeals), assessee has filed the present appeal but did not contest the disallowance of Rs. 40,271 made under section 40A(9) seriously and, therefore, this disallowance having been made as per law in the intimation is confirmed. Therefore, the sole issue which survives for our consideration is as to whether assessing officer was justified in making disallowance of Rs. 1,09,098, being 50 per cent of guest-house expenses and that too, by way of prima facie adjustment under section 143(1)(a).
4. Assessee incurred guest-house expenses for Rs. 2,18,196, 50 per cent of which was disallowed by the assessee itself, in the computation. Balance 50 per cent was not disallowed by the assessee suo motu in its computation by giving a note in the computation and relying upon the order of the Tribunal in assessee's own case, in assessment years 1984-85 and 1985-86. Even after the existence of the note in the computation, prima facie adjustment of the balance expense of guest-house was made by the assessing officer. When contested in appeal, learned Commissioner (Appeals), quoted the observations of the Tribunal, given in the assessee's own case in assessment years 1984-85 and 1985-86. Yet, learned Commissioner (Appeals) chose to differ from the decision of the Tribunal and further recorded that the order of the Tribunal, relied upon by the assessee, ran counter to the provisions of the Income Tax Act, 1961.
5. On the date of hearing, learned counsel for the assessee submitted that prima facie adjustment could not be made under section 143(1)(a), more particularly, when the decision of the Tribunal in assessee's own case rendered in earlier years was available and a detailed note to that effect was given in the computation.
6. On other hand, learned Departmental Representative, supported the order passed by learned Commissioner (Appeals) and relied upon the plain language of section 37(4) of the Act. It was argued by learned Departmental Representative that guest-house expenses cannot be allowed under any circumstances and assessing officer was justified in making disallowance by way of prima facie adjustment. He further submitted that under the Income Tax Act, principle of res judicata does not apply and, therefore, the decision of the Tribunal for assessment years 1984-85 and 1985-86 would not apply to the year under appeal.
7. We have heard rival submissions and have gone through the adjustment made and the order of the learned Commissioner (Appeals) carefully. It is by now settled law, that only errors apparent on the face of the record deducible on the basis of return and its accompanying documents alone, can be corrected by way of prima facie adjustment in the proceedings under section 143(1)(a). The assessing officer is not permitted under this guise of making adjustment to adjudicate upon any debatable issue. This view has been taken by Hon'ble Madhya Pradesh High Court, in the case of Kamal Textiles v. ITO (1989) 189 ITR 339 (MP). The expression 'prima facie' means, on the face of it, which refers to the items on which there can be no two opinions. If the matter is an arguable one or debatable, then it cannot be made subject-matter of proceedings under section 143(1)(a), This view was held by Honble Rajasthan High Court, in the case of J.K.S. Employees Welfare Fund v. ITO (1993) 199 ITR 765 (Raj) 769. Reliance for this proposition is further. placed on the decision of the Hon'ble Calcutta High Court, in the case of Modern Fibotex India Ltd. v. Dy. CIT (1995) 212 ITR 496 (Cal) 508. Therefore, assessing officer, in the present case could not have made adjustment to guest-house expenses, if it is held that such issue was debatable or controversial.
8. On the basis of the order passed by learned Commissioner (Appeals), it strongly appears that the nature of guest-house expenses claimed by the assessee in the year under appeal was identical with the nature of these expenses covered by the order of the Tribunal for assessment years 1984-85 and 1985-86. As per the quotation reproduced by learned Commissioner (Appeals), from the order of the Tribunal for assessment years 1984-85 and 1985-86, it is clear that guest-house of the assessee was situated in some remote place where the persons who officially visited the factory, like auditors, bankers, executives and employees stayed there and expenditure was incurred in that connection. In the background of this fact, Tribunal allowed 50 per cent of the expenditure in assessment years 1984-85 and 1985.86. Therefore in the background of the decision of the Tribunal, it was justified on the part of the assessee to claim 50 per cent of the guest-house expenditure, as business expenditure and that too by giving a note in the computation to that effect. Therefore, to disallow that 50 per cent of the expenditure, which was backed by the decision of the Tribunal in assessee's own case in earlier years was highly unjustified and a serious blow to the doctrine and concept of judicial consistency. The very existence of the decision of the Tribunal involving this very expenditure given in assessee's own case, in earlier years, was enough to take out the impugned disallowance from the sweep of the provisions of section 143(1)(a). Moreover, we cannot ignore the decisions of the Hon'ble Calcutta High Court, in the case of CIT Parshva Properties Ltd. (1987) 164 ITR 673 (Cal), CIT v. Orient Paper Mills Ltd. (1988) 171 ITR 181 (Cal), CIT v. Hindustan Alluminium Corporation Ltd. (1989) 176 ITR 206 (Cal), CIT v. Modi Industries Ltd. (1990) 184 ITR 318 (Del), which allowed the guest-house expenses in certain circumstances, which are akin and identical with those of the assessee. The existence of such decisions given by Hon'ble High Courts is ample testimony of the fact that at least such issue, on which disallowance was made by learned assessing officer was not amenable to be the subject-matter of prima facie adjustment, as arguments could be put forth for or against the disallowance, thus making it debatable. Therefore, we do not have any hesitation in holding that the impugned adjustment made by assessing officer and confirmed by learned Commissioner (Appeals) was unjustified and is, therefore, struck down.
9. Before we part, we would like to deal about certain uncharitable observations made by learned first appellate authority, regarding the order of the Tribunal. There can be no gainsaying that the function of a court is to interpret the law. To read the law ignoring the judicial pronouncements is bound to lead to miscarriage of justice. This is what has been done precisely by the learned Commissioner (Appeals) in the instant case. Tribunal's order given in earlier years, in assessee's own case dealing with identical issue, was found "running counter to the provisions of the Act" by the learned Commissioner (Appeals). We are afraid that such approach of lower judicial authority can at all be appreciated. Intemperate observations of learned Commissioner (Appeals) smack of high degree of arrogance and scant regard to the rule of law. It was nothing but an act of judicial impropriety. There is heirarchy in the judicial system and the decision of a higher judicial authority deserves not only respect but also unequivocal compliance and adherence by lower judicial authorities. This is essential for the administration of justice. Judicial consistency is an important hallmark of an efficient judicial system. If lower judicial authority tends to undermine and disregard the decision rendered by the higher judicial authority, there will be chaos and pandamonium in the administration of justice. Hon'ble Supreme Court in the case of Khalid Automobiles v. Union of India (1985) 4 SCC (Suppl) 653 have held that an order of the Tribunal is binding on the assessing officer and the first appellate authority and their failure to follow the same may constitute contempt of the Tribunal's order. Similar view was held by Hon'ble Madras High Court in the case of Sree Rajendra Mills Ltd. v. Joint CTO (1971) 28 STC 483 (Mad). Failure to follow the order of the appellate authority on the ground that the order is not acceptable, amounts to indiscipline of the worst sort, unless the operation of the order of the superior forum is stayed and/or suspended, as was held by Honble Supreme Court, in the case of Union of India v. Kamakshi Finance Corpn. Ltd. AIR 1992 SCC 711. Reference is also invited to the following decisions.- Kumar Plywood Palace v. Collector of Customs (1994) 71 ELT 295, Siemens India Ltd. v. K. Subramanian (1983) 143 ITR 120 (Bom), Govindram Seksaria Charity Trust v. ITO (1987) 168 ITR 387 (MP).
10. Therefore, action of learned Commissioner (Appeals) in not following Tribunals order, given in assessee's own case in earlier years, and that too, without distinguishing the facts and terming it as running counter to the law, was an outrageous act and an act contemptuous in nature, which deserves outright condemnation and reprimand by us. We thus condemn and reprimand.
11. In the result, assessee's appeal is allowed with above observations.