THE COMMISSIONER OF INCOME TAX,COCHIN vs. THE FERTILIZERS AND CHEMICALS TRAVANCORE
What did the High Court hold?
On the first issue, the High Court found itself unable to discern the specific expenditure claimed by the assessee and the timing of its disbursement. Therefore, it held that the Assessing Officer would have to consider the matter on facts, guided by the decision in Commissioner of Income Tax v. Swadeshi Cotton & Flour Mills Private Ltd. Consequently, ITA No. 147 of 2010 was allowed for the limited purpose of remand. On the second issue, concerning the disallowance of provision for obsolescence of stocks, the High Court noted that the Tribunal relied on the assessee's own case from an earlier assessment year where the issue had become final. The Court also observed that this question was not raised by the Department in the assessee's case for the previous assessment year. Therefore, the High Court refused to answer this question and rejected ITA No. 121 of 2010. The judgment also noted that issues related to Section 14A and Section 80HHC under Minimum Alternative Tax (MAT) were covered in favour of the assessee by Supreme Court decisions in Commissioner of Income Tax v. Essar Teleholding and Commissioner of Income Tax v. Bhari Information Tech. Sys. (P) Ltd., respectively.
What were the facts?
The appeals before the High Court of Kerala were filed by the Commissioner of Income Tax (appellant) against the order of the Income Tax Appellate Tribunal (Tribunal) for the assessment year 2002-2003. The Tribunal had rejected the Department's appeal and allowed the assessee's appeal, The Fertilizers and Chemicals Travancore Ltd. The Department's appeals concerned the allowance of prior period expenses amounting to Rs. 60.75 lakhs and claims for deductions for periods prior to the relevant previous year, made in assessment year 2002-2003. The Tribunal had remanded the issue of foreseeable loss of contract for reconsideration by the Assessing Officer. The High Court considered two appeals, ITA No. 147 of 2010 and ITA No. 121 of 2010.
What were the issues?
1. Whether the High Court should allow the appeal for the limited purpose of remanding the issue of prior period expenses to the Assessing Officer for fresh consideration based on the decision in Commissioner of Income Tax v. Swadeshi Cotton & Flour Mills Private Ltd. (1964 (LIII) ITR 134)? Assessee's Contention: Not explicitly recorded for this specific issue, but the Tribunal allowed the assessee's appeal and rejected the Department's appeal. Revenue's Contention: Relied on Commissioner of Income Tax v. Swadeshi Cotton & Flour Mills Private Ltd. to argue against the allowance of prior period expenses. 2. Whether the disallowance of provision for obsolescence of stocks amounting to Rs. 86,35,000/- could be deleted, considering the Tribunal relied on the assessee's own case for an earlier assessment year (1992-1993)? Assessee's Contention: The issue had become final in the assessee's case for an earlier assessment year, and the Department had not raised it then. Revenue's Contention: Not explicitly recorded, but the appeal was against the deletion of the disallowance by the Tribunal.
Which sections of the Income-tax Act were involved?
Section 260A,Section 10(2)(x),Section 14A,Section 80HHC,Section 115JB
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
JUDGMENT K. Vinod Chandran, J. Both the appeals are from the order of the Tribunal for the year 2002-2003. Both the assessee and Department filed appeals before the Tribunal.
The appeal of the Department was rejected and that of the assessee was allowed. Hence the Department filed two appeals before us under Section 260A of the Income Tax Act, 1961 [for brevity, the Act]. The questions raised are with respect to allowance of prior period expenses amounting to Rs.60.75 lakhs and the claim of deductions for periods prior to the previous year relevant to the assessment year 2002- 2003, which claim was made in the assessment year 2002-2003. On the question of foreseeable loss of contract, the Tribunal remanded the matter for consideration by the Assessing Officer.
The learned Standing Counsel Government of India [Taxes] would rely on Commissioner of Income Tax v. Swadeshi Cotton & Flour Mills Private Ltd.
[1964 (LIII) ITR 134]. The issue raised in the appeals were with respect to the claim made by the assessee Company under Section 10(2)(x) of the Indian Income Tax Act, 1922 in the year 1949 of the bonus payable to the employees in the year 1947. The payment of bonus coming to Rs.1,08,325/- for the calender year 1947 was in terms of an award made in 03.01.1949. The Department raised two contentions before the Hon'ble Supreme Court, one of them was that, since the assessee is following the mercantile system of accounting, the year to which the liability is properly attributable is the calender year 1947, and not 1949. In the alternative, the Department also had a contention that the accounts of the year 1947 could be re-opened as per the prevalent practice that is obtained in England. The Hon'ble Supreme Court specifically rejected the contention of the Department that there could be a re-opening of the accounts prior to the previous year. On the question of expenditure, the contention of the assessee was allowed in the following manner:
“On the facts of this case, it is clear that it was only in 1949 that the claim to profit bonus was settled by an award of the Industrial tribunal. Therefore, the only year the liability can be properly attributed to is 1949, and hence we are of the opinion that the High Court was right in answering the question in favour of the assessee.”
We are unable to discern as to what was the expenditure, which was claimed by the assessee and the time when actually the amounts were disbursed, whether it be in the previous year or not.
In such circumstances, we are of the opinion that the Assessing Officer would have to consider the same on facts, based on the decision in Swadeshi [supra]. I.T.A. No.147 of 2010 is allowed for the limited purpose of the remand.
I.T.A. No.121 of 2010 is against the rejection of the Department appeal. On the question of Section 14A of the Act, the issue is covered against the Revenue in Commissioner of Income Tax v. Essar Teleholding [2018 (401) ITR 445 (SC)]. The other question is on whether the deduction under Section 80 HHC can be granted even under 115JB Minimum Alternative Tax [MAT]. The said issue is also covered in favour of the assessee and against the Revenue by a decision of the Hon'ble Supreme Court in Commissioner of Income Tax v. Bhari Information Tech. Sys. (P) Ltd. [(2012) 340 ITR 593 (SC)], which upheld the decision of a Special Bench of the Tribunal in the case of Deputy CIT v. Syncome Formulations (I) Ltd. [(2007) 292 ITR AT 144 (Mum) (SB)].
The further question raised is as to whether the disallowance of provision of obsolescence of stocks amounting to Rs.86,35,000/- could be deleted or not. The Tribunal relied on the assessees' own case of the earlier assessment year 1992-1993 in ITR 203/Coch/1996. The assessee submits that the issue has become final. In such circumstances, we refuse to answer the question, which was never raised in the case of the assessee in the previous assessment year also, by the Department.
We hence reject I.T.A. No.121 of 2010. Parties to suffer their respective costs. K.VINOD CHANDRAN JUDGE ASHOK MENON sp/03/10/18 JUDGE
Appendix — schedule of exhibits
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