COMMISSIONER OF INCOME TAX vs. KASHIRAM TEXTILE MILLS PVT. LTD.

ITR/39/1995HC GujaratGJHC24022364199525 January 2006Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MS. JUSTICE HARSHA DEVANI13 pages
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What were the facts?

The Income Tax Appellate Tribunal (ITAT) Ahmedabad Bench 'C' referred two questions for each of two references under Section 256(2) of the Income Tax Act, 1961, concerning Assessment Year 1977-78. The assessee, Kashiram Textile Mills Pvt. Ltd., a private limited company, deals in bleaching, dyeing, printing, and processing of grey cloth, using colours and chemicals as raw materials. The Assessing Officer added Rs. 6,40,960/- for alleged fictitious purchases of colours and chemicals. The Commissioner (Appeals) upheld an addition of Rs. 1,25,000/-. The Revenue appealed against the relief granted, and the assessee appealed against the confirmed addition. The ITAT initially passed an order on 20/8/1987, allowing the Revenue's appeal and dismissing the assessee's. The assessee filed a Miscellaneous Application (MA) No. 78/Ahd/1987, which led to the ITAT recalling its earlier order on 2/12/1987. Subsequently, the ITAT passed a consolidated order on 26/2/1988, dismissing the Revenue's appeal and partly allowing the assessee's appeal. This latter order is under challenge.

What did the High Court hold?

The High Court answered Question No. 1 in the affirmative, in favour of the assessee. The Tribunal's decision to delete the addition was based on its appreciation of evidence, specifically noting that the Revenue did not dispute the closing stock details. This led the Tribunal to conclude that the existence of raw materials purchased could not be doubted, and therefore, the purchases themselves were also valid. The Tribunal found no material to suggest additional purchases under different invoices or that the purchase price was inflated or that any part of the payment was returned to the assessee. The Court found that the impugned order was solely based on an appreciation of evidence and findings of fact, and thus, no other view was warranted. Regarding Question No. 2, the Court held that the order recalling the earlier order was passed on 2/12/1987 in a Miscellaneous Application, while the impugned order under challenge was dated 26/2/1988, passed in the appeals. Since the Revenue had not challenged the order dated 2/12/1987, Question No. 2 did not arise out of the impugned order dated 26/2/1988 and was left unanswered. The reference was disposed of accordingly.

What were the issues?

1. Whether the appellate Tribunal is right in law in deleting the addition of Rs. 7,65,960/- (for RA No. 352/Ahd/1988) or Rs. 6,40,960/- (for RA No. 353/Ahd/1988) on account of fictitious purchases of colours and chemicals, turning on the appreciation of evidence and facts related to purchases and closing stock. 2. Whether the appellate Tribunal is right in law in recalling its earlier order on the same facts, turning on the powers of the Tribunal to review its own orders under Section 254(2) of the Income Tax Act, 1961. Assessee's Contention: The assessee argued that the Tribunal's final order dated 26/2/1988 was based on a proper appreciation of evidence, particularly regarding the closing stock details which supported the genuineness of the purchases. The Tribunal also found no material to suggest inflated purchase prices or kickbacks. Revenue's Contention: The Revenue contended that the Tribunal's order recalling its earlier order dated 20/8/1987 amounted to a review, which is not statutorily permissible unless under Section 254(2). They cited CIT vs. Hindustan Zinc Ltd., CIT vs. Shervani Sugar Syndicate Ltd., and Salem Co-operative Central Bank Ltd. The Revenue also argued that the first order, allowing their appeal, should be treated as the subsisting order, implying the subsequent recall and re-adjudication was invalid. They further argued that the order of recall was part of the rectification proceedings and merged with the final order.

Which sections of the Income-tax Act were involved?

Section 256(2),Section 254(2)

AI-generated summary — verify with the full judgment below

ITR/39/1995 1/13 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 39 of 1995 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA HONOURABLE MS.JUSTICE H.N.DEVANI ­ =================================================== 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 ? =================================================== COMMISSIONER OF INCOME TAX - Applicant(s) Versus KASHIRAM TEXTILE MILLS PVT. LTD. - Respondent(s) Appearance : MR BB NAIK for Applicant(s) : 1, MR MANISH J SHAH for Respondent(s) : 1, ================================================= CORAM :  HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MS.JUSTICE H.N.DEVANI

ITR/39/1995 2/13 JUDGMENT Date : 25/01/2006 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA) 1 The Income Tax Appellate Tribunal, Ahmedabad Bench 'C' has referre

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