SHREE DIGVIJAY CEMENT CO LTD vs. COMMISSIONER OF INCOME TAX

ITR/225/1995HC GujaratGJHC24022548199525 August 2006Author: HONOURABLE MR. JUSTICE M.R. SHAH,HONOURABLE MR. JUSTICE R.S.GARG21 pages
AI SummaryDismissed

What were the facts?

The assessee, Shree Digvijay Cement Co. Ltd., filed a return of income for Assessment Year 1992-93 declaring 'Nil' income. The Assessing Officer processed this under Section 143(1)(a) of the Income Tax Act, 1961, making adjustments including a disallowance of Rs. 7,38,11,883/- on account of interest on outstanding sales tax, treating it as part of sales tax under Section 43B. The assessee applied for rectification under Section 154, arguing the adjustments were beyond the scope of Section 143(1)(a). While an adjustment for earlier years' expenses was deleted, the disallowance of interest on sales tax was upheld. The assessee appealed to the CIT(A) and then to the ITAT, with the latter referring a question of law to the High Court.

What did the High Court hold?

The High Court held that the Tribunal was justified in law. The Court reasoned that the Supreme Court's decision in Mahalaxmi Sugar Mills Company was in force and clearly held that interest on arrears of cess (which includes sales tax) is part of the cess and therefore Section 43B is applicable. Consequently, such interest is not deductible unless actually paid. The Court found that this made the issue non-debatable. The fact that the Assessing Officer made a mistake in the preceding year by allowing a deduction did not make the issue debatable. The Assessing Officer was justified in not repeating a mistake and was correct in disallowing the deduction by invoking Section 143(1)(a), treating the interest as prima facie inadmissible. The question was answered against the assessee and in favour of the Revenue. No specific operative directions were given as the matter was a reference for opinion.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that an amount of Rs. 7,38,11,883/- on account of interest on the outstanding sales-tax amount is part of sales-tax and can be disallowed in the course of making 'prima facie' adjustments under section 143(1)(a) of the Act in view of section 43B of the Income-tax Act, 1961? Assessee's contentions: The adjustment of Rs. 7,38,11,883/- was beyond the scope of Section 143(1)(a) as it was not a 'prima facie' adjustment. The issue of whether interest on outstanding tax is part of sales tax for disallowance under Section 43B was debatable, especially given that in the preceding year, the Assessing Officer initially adjusted this amount but later deleted it upon a Section 154 application. Reliance was placed on the fact that the Assessing Officer's action in the preceding year made the issue debatable. Revenue's contentions: In view of the Supreme Court decision in Mahalaxmi Sugar Mills Company Vs. CIT, Delhi, the issue was not debatable, thus falling within Section 143(1)(a). The amount of Rs. 7,38,11,883/- was correctly added to the assessee's income as interest on arrears of sales-tax.

Which sections of the Income-tax Act were involved?

Section 143(1)(a),Section 43B,Section 154,Section 256(1)

AI-generated summary — verify with the full judgment below

ITR/225/1995 1/21 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 225 of 1995 For Approval and Signature: HONOURABLE MR.JUSTICE R.S.GARG

HONOURABLE MR.JUSTICE M.R. SHAH ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================================= SHREE DIGVIJAY CEMENT CO LTD - Applicant(s) Versus COMMISSIONER OF INCOME TAX - Respondent(s) ========================================================= Appearance : MR RK PATEL for Applicant(s) : 1, MRS. MONA BHATT for Respondent(s) : 1, ========================================================= CORAM :  HONOURABLE MR.JUSTICE R.S.GARG and HONOURABLE MR.JUSTICE M.R. SHAH Date : /08/2006 C.A.V. (Per : HONOURABLE MR.JUSTICE M.R. SHAH)

ITR/225/1995 2/21 JUDGMENT The   Income   T

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