Commissioner of Income Tax-V, vs. Sri S.Venkat Reddy, (PAN ALAPS4009A)

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 9TH DAY OF NOVEMBER 2020 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.501 OF 2013 BETWEEN: 1. COMMISSIONER OF INCOME TAX

C.R. BUILDING, QUEENS ROAD

BANGALORE-01. 2. DEPUTY COMMISSIONER OF INCOME TAX

CIRCLE-6(3), ROOM No.555

ADYAKAR BHAVAN

M.K. ROAD, MUMBAI-20.

... APPELLANTS (BY SRI. JEEVAN J. NEERALGI, & SRI. E.I. SANMATHI, ADVS.,) AND: M/S. SHAW WALLACE DISTILLERIES LTD., BANK OF BARODA BUILDING WALLCHAND HIRACHAND MARG BALLARD ESTATE, MUMBAI-400018. ... RESPONDENT (BY SRI. SURYANARAYANA T, ADV.) - - - THIS I.T.A. IS FILED UNDER SECTION 260-A OF I.T.ACT, 1961, ARISING OUT OF ORDER DATED 17-05-2013

2 PASSED IN ITA NO.5534/MUM/06 AND ITA NO.5655/MUM/06, FOR THE ASSESSMENT YEAR 2002-03, PRAYING TO: I. DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT. II. SET ASIDE THE APPELLATE ORDER DATED 17-05-2013 PASSED BY THE ITAT, ‘A’ BENCH, BANGALORE, AS SOUGHT FOR, IN THE RESPONDENT-ASSESSEE'S CASE, IN APPEAL PROCEEDINGS NO.ITA NO.5534/MUM/06 AND ITA NO.5655/MUM/06. THIS I.T.A. COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT Mr.Jeevan J.Neeralagi, learned counsel with Mr.E.I.Sanmathi, learned counsel for the revenue. Mr.T.Suryanarayana, learned counsel for the assessee. 2. This appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’, for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment Year 2002-03. The appeal was admitted by a Bench of this

3 Court vide order dated 21.09.2015 to consider the following substantial questions of law: 1. Whether, on the facts and circumstances of the case, the Tribunal is right in law in holding that assessee is entitled for prior period expenses aggregating to Rs.2,56,28,132/- even though the same was not claimed in original return and assessing authority has not made any addition in this regard or otherwise whether the Tribunal is right in law in not remitting back the matter back to assessing authority to consider the issue as same was not adjudicated earlier. 2. Whether, on the facts and circumstances of the case, the Tribunal is right in law in holding that assesssee is eligible for deduction of the claim of expenditure/liability to an extent of Rs.1,35,73,930/- in respect of excise transport fees even though the same was not claimed in original return and assessing authority has not made any addition in this regard or otherwise whether the Tribunal is right in law in not remitting back the matter back to assessing authority to consider the issue as same was not adjudicated earlier.

4 3. Facts giving rise to the filing of this appeal briefly stated are that the assessee is a company engaged in the business of breweries and distilleries. The assessee filed return of income for the Assessment Year 2002-03 which was processed under Section 143(3) of the Act. The Assessing Officer vide order dated 30.03.2005 disallowed the claims of the assessee in respect of merger expenses, interest on income tax, interest of delayed payment to SSI, commission paid to M/s. Mysore Sales, allocated charges, prior period expenses, debts and advances written off, bad debts, cessation of liabilities under Section 41(1) of the Act, provident fund payments and disallowance under Section 14A of the Act. The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals), who by an order dated 03.07.2006 partly allowed the appeal preferred by the assessee. The assessee as well as the revenue approached the Income Tax Appellate Tribunal by filing appeals. The Tribunal,

5 by an order dated 17.05.2013 partly allowed the appeals preferred by the revenue as well as the assessee. The claim of the assessee in respect of prior period expenses as well as deduction of claim towards expenditure / liability to the extent of Rs.1,35,73,930/- in respect of excise transport fees was allowed by the Tribunal. In the aforesaid factual background, the revenue has filed this appeal. 4. Learned counsel for the revenue submitted that the Tribunal ought to have appreciated that the claim with regard to prior period expenses to the tune Rs.2,56,28,132/- was not made in the return of income but was made before the Commissioner of Income Tax (Appeals). It is further submitted that that the assessee cannot make a fresh claim without filing the revised return of income and the Tribunal ought to have appreciated that all the expenses, irrespective of the nomenclature, were to be reconciled within the

6 accounting period and before finalization of the accounts and therefore, the Tribunal ought to have called for the remand report from the assessing authority. It is also urged that the Tribunal grossly erred in holding that the assessee is entitled to deduction of claim of expenditure / liability towards provision of expenditure / liability to the extent of Rs.1,35,73,930/- in respect of excise transport fee even though the same was not claimed in the original return. It is further submitted that the Tribunal ought to have appreciated that the aforesaid plea was taken for the first time before the Commissioner of Income Tax (Appeals) and the same was rightly rejected. It is also urged that the aforesaid amount was not incurred towards a statutory liability under Section 43B of the Act and therefore, cannot be claimed as business liability as only a provision was made by the assessee and no actual payment was debited in the books of accounts. It is further submitted that the amount payable to the Government is covered

7 under Section 43B of the Act. It is urged that in view of Rule 36(A)(3) of the Income Tax Rules, the Tribunal ought to have sent for the remand report from the Assessing Officer. In support of aforesaid submissions, reliance has been placed on the decision of the Supreme Court in 'GOETZE INDIA LTD. Vs. CIT' 284 ITR 323. 5. On the other hand, learned counsel for the assessee while inviting our attention to substantial questions of law framed by this Court submitted that the revenue has not challenged the findings recorded by the Tribunal on the ground that the same are perverse. It has only been urged that the Tribunal committed an error of law in not remitting the matter to the assessing authority. Learned counsel for the assessee has taken us through paragraphs 5.7.3 to 5.7.7 of the order passed by the Tribunal with regard to the first substantial question of law and has submitted that the Tribunal on meticulous appreciation of evidence on

8 record has recorded a finding of fact which does not suffer from any perversity. While taking us through paragraphs 5.8 to 5.8.5 of the order passed by the Tribunal, it is urged that the findings recorded on the 2nd issue is also based on meticulous appreciation of evidence on record and does not suffer from any infirmity. It is also urged that the entries made in the books of accounts are neither determinative nor conclusive and the crucial question which has to be determined is as to when the expenditure was incurred. It is also submitted that the Tribunal is the final fact finding authority and could have recorded the findings of fact on the basis of the material placed before it. It is also urged that the aforesaid material was placed before the Commissioner of Income Tax (Appeals) also who did not take note of the same and Rule 46A(3) of the Income Tax Rules has no application to the fact situation of the case as the aforesaid Rule applies to the Appellate Authority and not to the Tribunal. In support of

9 aforesaid submissions, reliance has been placed on the decision of the Supreme Court in 'TAPARIA TOOLS LTD. Vs. JOINT COMMISSIONER OF INCOME-TAX, NASIK' (2015) 55 TAXMANN.COM 361 (SC), 'BHARAT EARTH MOVERS Vs. COMMISSIONER OF INCOME-TAX' (2000) 112 TAXMAN 61 (SC) AND 'NATIONAL THERMAL POWER CO. LTD. Vs. COMMISSIONER OF INCOME-TAX' 229 ITR 383. 6. We have considered the submissions made on both sides and have perused the record. It is well settled in law that Tribunal is the final fact finding authority and this Court in exercise of powers under Section 260A of the Act can interfere with the findings of fact only when the same are shown to be perverse. (See: ‘SUDARSHAN SILKS & SAREES VS. CIT’, 300 ITR 205 SCC @ 211 and ‘MANGALORE GANESH BEEDI WORKS VS. CIT’, 378 ITR 640 (SC) @ 648]. In ‘HERO VINOTH (MINOR) VS. SESHAMMAL’,

10 (2006) 5 SCC 545 while dealing with the scope of Section 260A of the Act, it was held that this court will not interfere with findings of the court, unless the courts have ignored material evidence or acted on no evidence or have drawn wrong inferences from proved facts by applying the law erroneously or the decision is based on no evidence. The aforesaid decisions were referred to with approval in ‘VIJAY KUMAR TALWAR VS. CIT’, (2011) 196 TAXMAN 136 (SC), as well as in ‘UNION OF INDIA V. IBRAHIM UDDIN’, (2012) 8 SCC 148 and has been followed by a division bench of this court in ‘CIT VS. SOFT BRANDS (P.) LTD.,’ (2018) 406 ITR 513. 6. Before proceeding further, we may advert to Rule 46A(3) of the Income Tax Rules, 1962. From perusal of the aforesaid Rule, it is evident that the aforesaid Rule applies to the appellate authority namely Commissioner of Income Tax (Appeals) and not the

11 Income Tax Appellate Tribunal. It is not in dispute that the assessee had produced the material which it had produced before the Tribunal, even before the Commissioner of Income Tax (Appeals). However, the Commissioner of Income Tax (Appeals) failed to take note of the material produced by the assessee and did not call for the remand report. The Supreme Court, in NATIONAL THERMAL POWER, supra, while dealing with the power of the Tribunal, held that Tribunal may pass such orders as it thinks fit after giving both the parties an opportunity of being heard and there is no reason to restrict the power of the Tribunal only to decide the grounds which arise from the order of the Commissioner of Income Tax (Appeals). 7. In view of aforesaid enunciation of law, we may now advert to the order passed by the Tribunal. The Tribunal, in paragraph 5.7.1 has recorded a finding that the assessee had taken a ground before the

12 Commissioner of Income Tax (Appeals) claiming deduction of Rs.2,56,28,132/- towards prior period expenses as the same was not claimed originally on an erroneous impression that the same was not allowable under the Act. The Tribunal has further noted that a detailed submission was made before the Commissioner of Income Tax (Appeals) in the form of a paper book. However, the Commissioner of Income Tax (Appeals) has rejected the assessee's claim on the ground that the expenses did not pertain to the Assessment Year 2002- 03. The Tribunal thereupon has recorded the finding that the expenses were incurred during the relevant Assessment Year and therefore, the claim was allowable, by placing reliance on the decision of Supreme Court in 'KEDARNATH JUTE MFG. COMPANY LIMITED Vs. CIT' 82 ITR 363 (SC). The aforesaid finding is a finding of fact which is based on meticulous appreciation of evidence on record. The Tribunal, by placing reliance on the decision of the Supreme Court in BHARAT

13 EARTH MOVERS, supra, has held that a business liability should arise in the accounting year and it should be capable of estimated with reasonable certainty and if these requirements are satisfied, the liability cannot be said to be contingent one. The Tribunal thus has held that the ratio laid down by the Supreme Court in BHARAT EARTH MOVERS, supra applies to the case of the assessee in respect of his claim for disallowance of Rs.1,35,73,930/- in respect of excise transport fees. At the cost of repetition, we may state that the aforesaid findings have not been challenged as perverse by the revenue. The only ground which has been taken is that the matter ought have been remitted by the Tribunal to the Assessing Officer. Since the Commissioner of Income Tax (Appeals) has dealt with the claims of the assessee on merits, therefore, the Tribunal has rightly dealt with the claims of the assessee on merits and there is no need of remand in the fact situation of the case.

14 In view of preceding analysis, both the substantial questions of law are answered against the revenue and in favour of the assessee. In the result, the appeal fails and is hereby dismissed. Sd/- JUDGE Sd/- JUDGE RV