PR. COMMISSIONER OF INCOME TAX 3 NAGPUR vs. BALLARPUR INDUSTRIES LTD

NON­REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL  APPEAL No.4026 OF 2019 (Arising out of S.L.P.(C) No.1153 of 2018) Pr. Commissioner of Income Tax­3, Nagpur ….Appellant(s) VERSUS Ballarpur Industries Ltd. ….Respondent(s)

J U D G M E N T Abhay Manohar Sapre, J. 1. Leave granted. 2. This  appeal is  filed  against the  final  judgment and order dated 17.07.2017  passed by the High Court of   Judicature   at   Bombay,   Bench   at   Nagpur   in   ITA 1 1 Digitally signed by ANITA MALHOTRA Date: 2019.04.22 17:18:04 IST Reason: Signature Not Verified

No.38 of 2003 whereby the High Court dismissed the appeal filed by the appellant herein and upheld the order   dated   30.06.2003   passed   by   the   Income   Tax Appellate Tribunal (for short, “the Tribunal”). 3. A   few   facts   need   mention   hereinbelow   for   the disposal of this appeal, which involves a short point. 4. The appellant is the Commissioner of Income Tax and the respondent is an assessee. 5. The respondent­assessee is a Limited Company, which is engaged in the business of manufacturing of various kinds of papers. The dispute in this appeal relates to the assessment year 1993­94. 6. The   question   arose   in   the   assessment   year   in question before the Assessing Officer (AO) as to what is the true nature of  payment of Rs.3.25 crores made by the   respondent­Company(assessee)   to   one   Mr. G.R.Hada   pursuant   to   the   compromise   arrived   at between   the   respondent­assessee­Company   and   Mr. 2 2

G.R.Hada in a civil suit filed by Mr. G.R. Hada against the respondent­Company and others. 7. According to the respondent­Company(assessee), Mr. G.R. Hada and the respondent­Company were the joint promoters of one Company called M/s Andhra Pradesh Rayons Limited in which Mr. G.R. Hada was holding 10.25% shares and the remaining shares were held   by   other   promoter   shareholders   with   different percentage. 8. Since   the   dispute   arose   amongst  the   promoter shareholders, Mr. G.R. Hada filed a civil suit against the   respondent­Company(assessee)   and   other promoter shareholders on the basis of an agreement, which   was   entered   into   amongst   the   promoter shareholders. 9. In the abovementioned suit, a compromise was arrived at between the respondent­Company(assessee) and Mr. G.R. Hada.  Pursuant to the said compromise, 3 3

the   respondent­Company(assessee)   paid   a   sum   of Rs.3.25 crores to Mr. G.R. Hada. 10. The   respondent­Company(assessee),   however, claimed   a   deduction   of   Rs.3.25   crores   in   the assessment year in question as revenue expenditure because, according to them, they had paid the said sum to Mr. G.R. Hada for running their business. 11. The AO examined the claim in the context of the terms  of the  agreement in Para 12 (a)  of his  order dated 29.03.1996 (pages 54 to 60 of the SLP paper book) and held that the claim cannot be considered as "revenue expenditure". The AO, therefore, rejected the claim. 12. The respondent­Company(assessee) felt aggrieved by   the   order   of   the   AO   and   filed   an   appeal   to   the Commissioner of Income Tax (Appeals)­I, Nagpur. The CIT (Appeals) dealt with this issue in Para 15 of his order (pages 92 to 94 of  the SLP paper book) and by his order 18.12.1998 confirmed the addition made by 4 4

the AO. In other words, the CIT (Appeals) was also of the   view   that   the   claim   made   by   the   respondent­ Company(assessee) cannot be considered as  "revenue expenditure". 13.

The   respondent­Company(assessee) felt aggrieved and filed second appeal in the Income Tax Appellate   Tribunal.   The   Tribunal   examined   the question in Paras 26 and 27 and by its order dated 30.06.2003 allowed the appeal and directed the AO to allow the deduction of Rs.3.25 crores as claimed by the respondent­Company(assessee). 14. The Commissioner of Income Tax­ Revenue felt aggrieved   and   filed   appeal   in   the   High   Court   of Judicature at Mumbai, Nagpur Bench. By impugned order, the High Court dismissed the appeal, which has given rise to filing of the present appeal by way of special leave by the Revenue in this Court. 15. So,   the   short   question,   which   arises   for consideration in this appeal, is whether the High Court 5 5

was   justified   in   dismissing   the   appeal   filed   by   the Commissioner of Income Tax. 16. Heard   Mr.   Sanjay   Jain,   learned   Additional Solicitor General for the appellant­Revenue and Ms. Vanita Bhargava, learned counsel for the respondent­ Company(assessee). 17. Having heard the learned counsel for the parties and   on   perusal   of   the   record   of   the   case,   we   are inclined to allow the appeal, set aside the impugned order as well as the order of the Tribunal and remand the case to the Tribunal to decide the appeal filed by the respondent­Company(assessee) afresh on merits in accordance with law. 18. The need to remand the case to the Tribunal has arisen for the following reasons. 19.  From the perusal of Para 26 of the order of the Tribunal,  we   find  that the  Tribunal  has  recorded  a finding, which reads as under: 6 6

"26…………The AO did not dispute the fact that the expenditure related to the business of   the   assessee.   The   CIT   (A),   however, reversed the findings of the AO and held that the   expenditure   cannot   be   considered   as business   expenditure.   A   perusal   of   the   CIT (A)'s order can only lead to a conclusion that the   CIT(A)   was   of   the   view   that   the expenditure   in   question   was   not   a   capital expenditure but of a revenue nature……….." 20. The   aforesaid   observation  of   the   Tribunal,   on what AO and CIT (Appeals) held, does not seem to be correct and rather inconsistent when we peruse the finding of the AO (concluding Para 12 (a)  & (d) of the AO’s order at page 60 of SLP   and concluding Para 15.1 of CIT (Appeals) at page 93 of the SLP). 21. In other words, we find that the Tribunal did not correctly appreciate as to what AO and CIT (Appeals) held and what was their reasoning which led to their respective conclusion. 22. Having wrongly observed about their respective reasoning and the finding, the Tribunal proceeded to examine the case and eventually reversed the order of CIT   (Appeals).   The   High   court   did   not   notice   the 7 7

aforesaid observation of the Tribunal and upheld the order of the Tribunal. 23. In such a situation like the one arising in the case and keeping in view the question involved, we are of the considered opinion that the matter deserves to be remanded to the Tribunal for deciding the appeal filed by the respondent­Company (assessee) afresh on merits because the Tribunal being the last Court of appeal on facts, its finding on the question of fact is of significance. 24. In our view, remanding the case is not likely to cause   any   prejudice   to   any   party   because   the aggrieved party will have a right of appeal to the High Court   and   then   to   this   Court   against   any   adverse order. 25. Though   the   learned   counsel   for   the   parties argued the question on merits but having taken note of the approach of the Tribunal, we consider, in the interest of both the parties, to remand the appeal to 8 8

the   Tribunal   for   its   hearing   afresh   on   merits   in accordance with law, keeping all the issues open. 26. It is for this reason, we allow the appeal, set aside the orders of the High Court and the Tribunal and remand   the   appeal   to   the   Tribunal   for   its   decision afresh on merits in accordance with law uninfluenced by   any   observations   made   in   the   impugned   order, order of the Tribunal and in this order.   Needless to observe,   the   parties   will   be   entitled   to   raise   all contentions in appeal before the Tribunal. 27. We make it clear that we have not expressed any opinion on the merits of the case having formed an opinion to remand the case to the Tribunal in the light of what we have observed supra. .………...................................J. [ABHAY MANOHAR SAPRE]

…...……..................................J. [DINESH MAHESHWARI] New Delhi; April 22, 2019 9 9

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