KERALA STATE BEVERAGES(MANUFACTURING AND MARKETING) CORPORATION LTD. vs. PRINCIPAL COMMISSIONER OF INCOME TAX

The Commissioner of Income Tax invoking the powers under Section 263 passed Ext.P1 order, wherein the Assessing Officer was directed to disallow an amount of Rs.96,076.20 lakhs, debited to profit & loss account, towards surcharge on sales tax and turnover tax by invoking the provisions under Section 40(a) (iib). The learned Counsel for the appellant submits that the appeal being maintainable before the Tribunal, the appellant had invoked the said jurisdiction. In the meanwhile, as permitted by the Central Board of Direct Taxes, the appellant had approached the Principal Commissioner itself for a stay of the demand. However, the Principal Commissioner, relying on Ext.P7 Office Memorandum, issued an order at Ext.P6, wherein 20% of the demand was directed to be paid.

The appellant has a contention that the order under Section 263 specifically directed appropriate opportunity to be granted and disallowance could materialise only after that. There is a procedure contemplated of a hearing by the Assessing Officer and after the disallowance is made, there should also be a demand raised. The condition imposed is premature and not sustainable under a mere order under Section 263. It is also argued that the Office Memorandum relied on in the impugned order and produced in the Writ Petition as Ext.P7, applies only to the first appeals.

The appellant had acted prematurely insofar as approaching the Principal Commissioner for a stay, when there was no demand. We notice the argument of the learned Standing Counsel that Section 263 enables enhancement of the demand when invoking such revisional powers. Even then, as correctly pointed out by the learned Counsel for the assessee, there is a specific direction insofar as an opportunity being afforded to the assessee before the disallowance is carried out. There is also a requirement for a demand to be raised after such disallowance is carried out by the Assessing Officer. In such circumstances, we are of the opinion that there could be no condition imposed for the period in which the appeal against Section 263 order is pending before the Tribunal. We, hence, delete the direction insofar as the condition imposed for not proceeding with the recovery, especially since the stage of recovery has not yet reached.

However, we make it clear that if there is a demand made as a result of the consequential order, then the Revenue would be enabled to take out appropriate proceedings, subject however to any challenge made to that consequential order. We are of the opinion that by virtue of Section 263 order alone, there could be no recovery effected. With the above observations, the Writ Appeal is allowed. No order as to costs. K.VINOD CHANDRAN JUDGE ASHOK MENON dkr JUDGE