Income Tax Appellate Tribunal - Kolkata
Income-Tax Officer vs Bihariji Mills Ltd. on 11 November, 1987
Equivalent citations: [1988]25ITD61(KOL)
ORDER
S.N. Rotho, Accountant Member
1. This appeal has been filed by the Department against the order dated 5-9-1986 of the CIT(A) relating to the assessment year 1983-84.
2. The assessee is a limited company deriving income from business in running a flour mill. The only dispute in this appeal relates to the assessee's claim for Rs. 1,70,595 as deduction while computing the assessee's business income. The assessee-company was a licensee of the Food Corporation of India. It is obliged to purchase wheat at the price fixed by the Government under the Wheat Roller Flour Mills (Licensing and Control) Order, 1957 which was made under Section 3 of the Essential Commodities Act. The purchase price of wheat was originally fixed at Rs. 155 per quintal. By a letter dated 27-7-1982, the purchase price of wheat was increased from Rs. 155 to Rs. 185 per quintal with effect from 1-8-1982. In pursuance of the said upward revision of the purchase price of wheat the assessee was asked to pay the price difference of Rs. 30 per quintal on the stock purchased from 1-8-1982. If the assessee did not pay the price difference, then no further quota of wheat was to be released to the assessee. The assessee did not pay the price difference but moved the Patna High Court and got a stay order. The judgment of the Hon'ble High Court was delivered on 4-5-1984 in favour of the assessee on the ground that the enhancement of price was not justified. The Hon'ble High Court quashed the order of the Government asking the assessee to pay the price difference. The matter was taken to the Supreme Court who by their decision dated 29-1-1987 upheld the order of the High Court and decided the matter in favour of the assessee. It will be seen that the price difference was demanded from the assessee by letter dated 27-7-1982 with effect from 1-8-1982 which date falls within the previous year relevant to the assessment year 1983-84 which is now under consideration. The decision of the Supreme Court is dated 29-1-1987 which date falls within the previous year relevant to the assessment year 1988-89. The assessee claimed the price difference to be deducted from the income of the assessment year 1983-84 on the ground that the liability to pay the same arose when the Government demanded the same notwithstanding the fact that the assessee was agitating the matter before the High Court and had not yet admitted its liability. The ITO did not agree on the ground that the liability had not yet crystallised because the assessee had not agreed to the said liability as at the end of the previous year relevant to the assessment year 1983-84. The ITO completed the assessment rejecting the claim of the assessee.
3. The assessee appealed to the CIT(A) and contended that its claim should have been allowed. The CIT(A) agreed with the assessee that the liability to pay the price difference arose when the amount was demanded by the Food Corporation of India under the direction of the Government. Hence, he directed the ITO to deduct the sum of Its. 1,70,595.
4. Shri M. Pal, the learned representative for the department, urged before us that the CIT(A) erred in his decision. He stated that the Calcutta High Court has decided a similar issue in the case of Shalimar Chemical Works (P.) Ltd. v. CIT [1987] 167 ITR 13, holding that the deduction could be allowed only when the matter is finally decided. On the other hand, Shri S. Raman, the learned representative for the assessee, urged before us that the liability arose as soon as the demand was raised on the assessee notwithstanding the pending litigation initiated by the assessee.
5. We have considered the contentions of both the parties as well as the facts on record. We find that the decision in the case of Shalimar Chemical Works (P.) Ltd. (supra) rested upon the earlier decision of the Calcutta High Court in the case of CIT v. Orient Supply Syndicate [1982] 134 ITR 12. In the case of Orient Supply Syndicate (supra), there was no demand for the amount sought to be deducted during the relevant previous year and so the High Court held that the demand became real and enforceable only in the year in which the assessee was called upon to make the statutory contribution and not in the earlier year to which the contribution related. Similarly, in the case of Shalimar Chemical Works (P.) Ltd. (supra), the deduction related to an earlier year. Yet, the authorities concerned never demanded this amount from the assessee in the earlier year. When the litigation became final, then the assessee was called upon to pay the amount in a subsequent year on the basis of such settled litigation. Hence, it was held that the amount became real and enforceable not in the year to which it was related but in the year when the amount was demanded from the assessee. There is another point which is apparent from the decision in the case of Shalimar Chemical Works (P.) Ltd. (supra). While referring to the decision in the case of Addl. CIT v. Rattan Chand Kapoor [1984J 149 ITR 1 (Delhi), it was noticed that the assessee could not have submitted a revised return in respect of an earlier year and the assessee could have claimed deduction of the liability only in the later year or never. That is why in the judgment in the case of Shalimar Chemical Works (P.) Ltd. (supra), it has been observed that the principle in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC) would not apply strictly and that the Court was not inclined to take a view different from the one taken in the case of Orient Supply Syndicate (supra). The judgment accepted the contention of the assessee that the principle in the case of Kedarnath Jute Mfg. Co. Ltd. (supra) was not inflexible and in the special facts and circumstances of Shalimar Chemical Works (P.) Ltd.'s case (supra) an exception could be made. Leave to appeal to the Supreme Court was given because certain other High Courts have taken a different view regarding the strict applicability of the principle laid down in the case of Kedarnath Jute Mfg. Co. Ltd. (supra). In the instant case before us, we find that the facts are distinguishable. Certain features which distinguish the facts of Shalimar Chemical Works (P.) Ltd.'s case (supra) are not present in this case. The assessee has claimed the amount in the assessment of the earlier year on the basis of a demand made by the concerned authority. These two facts were clearly absent in the case of Shalimar Chemical Works (P.) Ltd. (supra). Hence, we are unable to bring the facts of the present case within the ratio of Shalimar Chemical Works (P.) Ltd.'s case (supra) and so we apply the principle laid down by the Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. (supra) because the liability under consideration is a statutory liability and so the amount was rightly claimed as a deduction in the assessment year in which the statutory liability was demanded from the assessee. For the above reasons, we come to the conclusion that the sum of Rs. 1,70,595 is admissible as a deduction while computing the business income of the assessment year 1983-84. Hence, we do not see any reason to interfere.
6. In the result, the appeal is dismissed.