Income Tax Appellate Tribunal - Mumbai
Ciba Specialty Chemicals (India) Ltd. vs Cit -9 on 25 October, 2005
Equivalent citations: [2006]7SOT510(MUM)
ORDER
Dr. O.K. Narayanan, A.M. This appeal is filed by the assessee. The relevant assessment year is 2001-02. The appeal is directed against the Revision order passed by the Commissioner of Income-tax-9 at Mumbai on 7-12-2004.
2. The assessee-company was earlier a division of M/s. Hindustan Ciba Geigy Limited. The division had its works at Goa-There was a labour dispute between the assessee and its workmen on a charter of demands. When the labour dispute was going on, the said division of M/s. Hindustan Ciba Geigy Limited, was separated from the said company as an independent unit. The demerger scheme was approved by the Bombay High Court by its order dated 25-7-1997 pursuant to which the erstwhile division of M/s. Hindustan Ciba Geigy Limited has been converted to the assessee-company as a separate legal entity. As the company has become a separate legal entity severed from M/s. Hindustan Ciba Geigy Limited, the liability of labour dispute was inherited by the assessee-company. As the labour dispute was persisting for so many years, assessee-company was making provisions for the liability towards additional wages from year to year. Even though such annual provisions for wages liability were made by the assessee- company in its books of account, such provisions were not claimed as deductions in working out the taxable income of the assessee -company for those assessment years. Assessee- company carried forward those provisions from year after year in its balance sheet in the form of liabilities. Later on the dispute was referred to the Labour Tribunal of Goa for adjudication. While the matter was so pending before the Labour Tribunal, a settlement was arrived at by the workmen and the assessee-company on the basis of which the assessee- company accepted the monetary demands of the workmen to a certain extent and paid off the additional wages on the basis of the settlement agreed upon between them. The settlement was later placed before the Labour Tribunal and the case was adjudicated by the Tribunal on the basis of the said settlement. In effect, the settlement was judicially approved by the Tribunal.
3. In the above scenario, the assessee-company had claimed a deduction of Rs. 3,61,57,568 as payment of salary and wages made on the basis of the agreement, by way of deduction. In the course of assessment proceedings, details were called for by the assessing authority and he allowed the claim of the assessee except for a certain period on the ground that the liability for the said periods did not crystallize during the previous year relevant to the assessment year under appeal. The assessee took up the matter of such disallowance made by the assessing authority in the normal channel of appeal before the Commissioner (Appeals). When the disallowances made by the assessing authority was thus subjudice before the Commissioner (Appeals), the Commissioner of Income-tax called for the records of the assessment in the case of the assessee-company and examined them. On the basis of the examination made by him, he came to a conclusion that the assessing authority has erroneously allowed as deduction an amount of Rs. 37,58,063 claimed by the assessee towards payments of wages. The said amount related to two periods, for the period from 1-1-1994 to 31-3-1996 and the period from 1-4-2000 to 30-8-2000, the amounts being Rs. 30,41,226 and Rs. 7,16,837 respectively. The assessee had given extensive reply to the notice of the Commissioner of Income-tax stating that the payments were made on the basis of the settlement agreed upon between the assessee-company and its workmen and it was only a discharge of contractual liability and the liability was crystallized during the relevant previous year and, therefore, the assessing officer has rightly allowed the said amount by way of deduction. But this position was not accepted by the Commissioner of Income-tax. He held that the reference made before the Labour Tribunal was pending during the relevant previous year and no finality could be attributed to the liability of the assessee-company before the conclusion of the proceedings before the Labour Tribunal and therefore, the claim made by the assessee-company was premature for the reason that the corresponding liability did not crystallize during the previous year relevant to the assessment year under appeal. Accordingly, the Commissioner of Income-tax held that the assessing authority was not correct in allowing deduction of Rs. 37,58,063 towards payment of wages. He accordingly set aside the order of the assessing authority on this point and sent back the file to the assessing authority with a direction to pass necessary order in accordance with law, after considering and verifying the facts highlighted by the Commissioner.
4. The present appeal is against the above Revision Order.
5. We heard Shri P.J. Pardiwalla, the learned counsel appearing for the assessee. The learned counsel submitted that the labour dispute was finally settled during the previous year relevant to the assessment year under appeal and as such, the assessee-company was legally bound to pay off the agreed wages to its workmen and as such the liability to pay such wages should be treated as having been crystallized during the very same previous year and in the light of the above position, the assessing officer has rightly allowed the deduction claimed by the assessee-company. The learned counsel submitted that the only ground relied on by the Commissioner to revise the order is that the settlement agreed to by the assessee-company before the outcome of the Award of the Labour Tribunal was not binding and therefore, the liability could not be treated as crystallized during the relevant previous year. The learned counsel submitted that this proposition made by the Commissioner of Income-tax is highly erroneous both in law as well as in fact. He submitted that there is no error in the order of the assessing officer or any prejudice to the revenue and therefore, in the light of the decision of the Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC), the Commissioner of Income-tax has erred in revising the assessment order under section 263 of the Income Tax Act, 1961.
6. The learned counsel invited our attention to the various correspondences made between the assessee-company and the assessing officer in the course of assessment proceedings to establish that the question of payment of wages was meticulously examined by the assessing authority and he had applied his mind on the issue before allowing the deduction. The learned counsel has invited our attention to various pages of the paper book in which the copies of the correspondences are available along with various details of the computations and wages liability furnished by the assessee-company before the assessing authority. He, therefore, submitted that this issue was considered in the assessment order in a very effective manner and there cannot be any allegation of non-application of mind as far as this issue is concerned.
7. Shri Rajendra, the learned Commissioner of Income Tax appearing for the revenue supported the order of the Commissioner (Appeals) in a very forcible manner relying on the decision of the Pune Bench of the Tribunal in the case of Ambika Agro-Suppliers v. ITO (2005) 95 ITD 326 (Pune) wherein it was held that acceptance of explanations offered by the assessee without any enquiry renders the assessment order erroneous as well as prejudicial to the interest of the revenue and as such in the present case the Commissioner has rightly revised the assessment order under section 263. The learned Commissioner further relied on the decision of the Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT(2000) 243 ITR 83 (SC) wherein the court has held that non-application of mind by the assessing authority on a particular issue renders the assessment order susceptible to revision available to the Commissioner under section 263 of the Income Tax Act, 1961.
8. The learned Commissioner contended that there are a number of correspondences between the assessee-company and the assessing officer and the assessee- company has given details regarding the computation of wages paid to its workmen. He stated that such furnishing alone did not amount to application of mind of the assessing authority. The assessing authority has discussed the issue of wages only to the extent where the wages were disallowed by him. He has not examined anything regarding the wages allowed by him. Therefore, the assessment order suffers from the infirmity of non-application of mind and, therefore, it is to be seen that the assessment order was revised by the Commissioner of Income-tax on sound ground.
9. We heard both sides in detail. There is no dispute regarding the facts of the case. A labour dispute was simmering in the Goa Unit of the assessee-company since long in the past; the settlement of which took a number of years. In anticipation of the likely liability, the assessee-company has been providing for the payment of wages on a year to year basis. Later on the matter was referred to the Labour Tribunal. When the matter was pending before the Labour Tribunal, the parties arrived at an agreement and the dispute was resolved. The agreement was filed before the Labour Tribunal which was approved by the Tribunal and endorsed by way of its award. Therefore, but for the technicality of the chronology of the events, the ultimate fact is that the assessee-company was liable to make payments of the settlement wages to its workmen.
10. As such the liability was ultimately crystallized during the relevant assessment year under appeal. The quantum of liability was also ascertained during the same previous year. The payment was also made during the year. Therefore, in all these circumstances, it has to be seen that the assessee -company was under a contractual obligation to make the agreed payments to its workmen during the impugned previous year. It is to be further seen that these amounts were not claimed by way of deduction in any of the earlier assessment years. The only thing is that the payments were made to the workmen before the formal pronouncement of the Compromise Award of the Labour Tribunal. It is only a technicality. We find that the on going dispute was finally settled during the relevant previous year and assessee was bound to make the payments to the workmen during the said previous year. Therefore, on merit of the case, there is no force in the argument of the Commissioner that the payments made by the assessee-company for two different fractions of the period were premature and the liability therein was not crystallized during the relevant previous year.
11. Regarding the application of mind of the assessing authority on this issue, we find that there cannot be a case against the assessing authority. The entire payments claimed by the assessee-company were not allowed by the assessing authority as a deduction. He himself has disallowed a portion of the claim. Disallowance could be made only after examining each and every item of the payments. The assessing officer could not have disallowed a portion of the claim made by the assessee on a pick and choose basis. The assessing officer has allowed certain part of the claim made by the assessee and has disallowed the remaining part of the claim made by the assessee. It testifies that the assessing authority has examined each set of payments made by the assessee-company and allowed wherever he held that such payments were in accordance with law and disallowed wherever he found that the payments were not in accordance with law. Therefore, the application of mind is writ large on the face of the assessment order itself. Therefore, in the facts and circumstances of the case, we find that the order of the Commissioner under section 263 is not maintainable. The point brought out by the Commissioner is only an opinion different from that of the assessing authority which is not a sound reason to invoke the provisions of section 263.
12. Therefore, we annul the revision order passed by the Commissioner in this case. The appeal filed by the assessee is allowed.
13. In result, the appeal of the assessee is allowed.