Delhi High Court
Commissioner Of Income-Tax vs Campa Beverages (P.) Ltd. on 4 January, 1990
Equivalent citations: [1990]33ITD1(DELHI)
ORDER
Per Krishnamurthy, President - This is a reference application, filed by the Commissioner of Income-tax, Delhi III, New Delhi stating that the following questions, said to be questions, said to be questions of law arise out of the remand order passed by the Tribunal in ITA No. 1795/Del/88 :
"(a) Whether, under the facts and in the circumstances of the case, Income-tax Appellate Tribunal was legally right in permitting assessed to set up a new case (in second appellate stage in second round of litigation) - which was contrary to assesseds case set up earlier ?
(b) If answer to question No. (a) is in the affirmative, whether Tribunal was legally right in admitting fresh evidence at this stage ?
(c) Whether, Income-tax Appellate Tribunal was justified in calling for the evidence not before lower authorities and for which there was no ground of appeal by taking resort to Rule 29 of Income-tax Appellate Tribunal Rules ?"
As in our opinion, no question of law can be said to arise out of a remand order passed by the Tribunal, which is interlocutory order, because the appeal was not finally disposed of and the Tribunal was still seized of the matter, we decline to refer these questions to the Honorable High Court for its opinion.
2. Though it is not necessary for us to refer to the facts leading to the filing of this reference application, still we would like to briefly mention the salient features.
3. The assessed in this appeal is a private limited company manufacturing the concentrate base of Campa Cola, Campa Orange and Campa Lemon. It claimed, inter alia, that it incurred a total expenditure of Rs. 62.69 lacs on advertisement. It has some intimate business connections with some other concerns like Pure Drinks (ND) Ltd., New Delhi, Pure Drinks (Cal.) Ltd., Calcutta, Pure Drinks Pvt. Ltd. Bombay, Southern Bottlers Pvt. Ltd., Madras, Punjab Beverages Pvt. Ltd., Chandigarh, Punjab, Beverages Pvt. Ltd., Amritsar and Mohan Bottling Co. P. Ltd., Ludhiana. All these companies are bottlers i. e. they by the concentrate from the assessed company, prepare the drinks, bottle them up and sell. The advertisement expenditure of Rs. 62.69 lacs was incurred partly by the bottlers. Of the above expenditure, the expenditure incurred by the assessed company was Rs. 30.77 lacs and the balance of Rs. 31.91 lacs was incurred by the bottlers. Of this the ITO disallowed Rs. 21.53 lacs being expenditure on free distribution of soft drinks incurred by the said five sister companies which was taken over by the assessed company observing that the assessed company had incurred lakhs of rupees on advertisement and that there was no evidence that the assessed company was obliged to take over the expenditure of Rs. 21.53 lacs spent on free distribution of soft drinks by its sister concerns. The Income-tax Officers view was that by this process the assessed had inflated its expenditure with a view to reduce its tax liability. On the other hand, the assesseds case was that the entire expenditure of Rs. 31.91 lacs was incurred by the bottlers and when the department allowed Rs. 10 lacs out of such expenditure, there was no justification to presume that it was only on the taking over of the balance of expenditure that the assessed company was attempting to inflate its expenditure and that the expenditure on sampling was not incurred by the assessed company on its own but to the bottlers. This controversy had come up for consideration before the Income-tax Appellate Tribunal which by its order in ITA No. 1733/1985 dated 7th August, 1986 had set aside the matter to the ITO for fresh examination by giving certain directions. Before the Tribunal, the assessed placed certain material to show that free sampling was a known method by which a consumer article was popularised and there was nothing wrong if a part of the expenditure on that score incurred by the bottling company was taken over or met by the assessed company. Since the facts were not verified by the assessing officer, the Tribunal directed those facts to be verified by pointing out that no effort was made earlier to verify those expenses with the books of the companies whose expenditure the assessed company had taken over and which take over the department had doubted. The Tribunal also pointed out that the disallowance of the expenditure by the ITO without verification of the details was based only on suspicion and doubts and on general arguments but not on facts. The Tribunal gave a particular direction that the authorities below should cross verify the expenses with the books of the other sister concerns.
4. Thereafter the IAC made a fresh assessment, purporting to be in consonance with the directions given by the Tribunal. However, he made a departure in the sense that instead of making the enquiry as directed, he called for certain particulars of which a part only could be filed and because of time constraint he drew inferences on the basis of those particulars partly in favor of the assessed and partly against it and eventually allowed a part of the claim namely Rs. 15 Lacs. Against the order of the IAC., an appeal was filed before the CIT who by then had already disposed of the appeals arising out of the assessments made for subsequent years when a view was taken that none of the expenditure incurred by the bottlers should be allowed as a deduction in the hands of the assessed company. Following that view, the Commissioner not only disallowed the claim made by the IAC by enhancing the assessment. In other words, the findings imposed by the Commissioner of Appeals in respect of this assessment year were the findings reached in the subsequent years which were not in accordance with the directions given by the Tribunal was how the appeal came before the Tribunal for a second time.
5. It was urged before the Tribunal that there was no justification for the disallowance of the entire expenditure incurred on sampling on the plea that that expenditure was first incurred by the bottlers and the plea of take over by the assessed company was only a device of tax planning, the assessed submitting relying upon the resolution passed by the assessed company whereby the expenditure on advertisement was first to be incurred by the bottlers and the assessed company was to reimburse the expenditure later on. This resolution was also relied upon before the authorities below as well as before the ITAT on the earlier occasion. The resolution was not a new resolution. While hearing the case, the Tribunal enquired as to how the contents of the resolution were conveyed to the bottlers so that the bottlers could be said to have the knowledge of the contents of the resolution, particularly the reimbursement part of it. Also arose during the course of hearing a further question as to what were the agreements entered into by the assessed company with the bottlers in relation to incurring of expenditure on sampling among other things. The learned Departmental Standing Counsel Sh. Rajendra submitted a proforma franchise purporting to be the agreement entered into at the relevant time between the assessed company and the bottlers submitting that franchise would not support the assesseds case. The learned counsel for the asses see, on the other hand, submitted a proforma agreement entered into at the relevant time between the assessed company and the bottlers. The authenticity of these agreements required to be verified. This agreement consisted of 14 pages containing the agreements and a letter written by the assessed company to the bottlers and the bottlers acceptance to the proposed arrangements. The Departmental Standing Counsel objected to the admission of the fresh evidence, relying upon the Delhi High Court decision in the case of CIT v. Anand Prasad [1981] 128 ITR 388. The Tribunal, after going through the decision of the Delhi High Court found that there was nothing in that judgment prohibiting the Tribunal to permit the assessed to raise this point, particularly when the point was only the same that was being raised this point, particularly when the point was only the same that was being raised before the authorities below and that no new point was raised except that the agreements which were not produced earlier were required to be produced before the Tribunal at its instance. Instead of acting on the evidence straightaway, the Tribunal thought that it would be proper and justified that the whole evidence should be got verified by the ITO by giving him an ample opportunity. Both the counsels before the Tribunal agreed that the matter could be remanded to the IAC (Asstt.) for finding out as to whether those documents were genuine, reliable and authenticated or got up for the purpose. It was only with a view to enable the department to express their comments on these documents, the Tribunal remanded the case to the IAC as per the agreement arrived at between the counsels at the time of hearing, directing the IAC to examine as to whether those documents were the copies of the original documents executed by the assessed company and the bottlers and whether the correspondence said to have taken place between the assessed company and the bottlers was genuine and to offer his comments thereon so, that the Tribunal could arrive at a conclusion on the matter. The Tribunal also directed the IAC to examine as to how far the debit notes sent by the various bottlers to the assessed company were genuine and reliable.
6. These are the circumstances under which the Tribunal felt compelled in the interests of justice to remand the case to get at the truth of the matter. It is, therefore, incorrect to suggest as was done during the course of hearing and also in the statement of facts filed before the Tribunal that the Tribunal had permitted the assessed to set up a new case and that the case had proceeded in the earlier stages that the assessed company had unilaterally taken over the advertisement expenses of five bottling companies. When there was a resolution passed by the assessed company it could never be unilateral. No one had cared to enquire as to how the resolution was put into effect. This is the mistake committed earlier which the Tribunal wanted to rectify now by giving the department an opportunity to, verify it. This was only an interlocutory order passed by the Tribunal as the Tribunal as the Tribunal did not finally dispose of the appeal, when a remand order was passed. This will interfere with the finding of facts, the sole function of the Tribunal U/s. 256 of the Income tax Act, a reference can lime out of a final order passed by the Tribunal and not out of the interlocutory order. This was the law settled by the Allahabad High Court as early as in 1951 in CIT v. Shamsher Jang Bahadur [1951] 20 ITR 311. There can thus be no application for reference in respect of an interlocutory order passed by the Tribunal. This view was reiterated by the Allahabad High Court in Munna Lal & Sons v. CIT [1965] 55 ITR 508 and also in Kanpur Industrial Works v. CIT [1966] 59 ITR 407.
7. The Delhi High Court in the recent case of CWT v. Smt. Illa Dalmia [1987] 168 ITR 306 held that even if the order of the Tribunal was treated as a miscellaneous order passed on a misc. application, that a question of law arising out of such an order could not be referred to the High Court because in such cases, the Tribunal did not pass a final order. This position of law, that no reference application would arise out of an interlocutory order stands settled and concluded by a judgment of the Supreme Court in the case of CIT v. MTT. AR. S. AR. Arunachalam Chettiar [1953] 23 ITR 180. Here the Supreme Court held :
"The jurisdiction given to the High Court under sub-section (2) of section 66 is conditional on an application under sub-section (1) being refused by the Appellate Tribunal. This clearly presupposes that the application under sub-section (1) was otherwise a valid application. If, therefore, an application under sub-section (1) was not well-founded in that there was no order which could properly be said to be an order sub-section (4) of section 33 then the refusal of the Appellate Tribunal to state a case on such misconceived application on the ground that no question of law arise will not authorise the High Court, on an application under sub-section (2) of section 66, to direct the Tribunal to state a case. The jurisdiction of the Tribunal and of the High Court is conditional on there being an order by the Appellate Tribunal which may be said to be one under section 33(4) and the question of law arising out of such an order."
It is thus seen that unless there is an order passed by the Appellate Tribunal which can be said to be a final order, no question of law can arise out of such an interim order passed by the Tribunal. This being the settled position of law, we cannot entertain this reference application. It is, therefore, dismissed as not maintainable.