Bombay H.C : Whether on facts and in the circumstances of the case, the Tribunal was justified in law in deleting the additions in respect of sales-tax refund to the extent of Rs. 9,00,813 ?

High Court Of Bombay

CIT vs. Beirsdorf (India) Ltd. & Anr.

Section 5, 28(i), 41(1)

Asst. Year 1989-90

AT GOA P.B. Majmudar & N.A. Britto, JJ.

Tax Appeal No. 34 of 2002

6th January, 2009

Counsel Appeared :

S.R. Rivonkar, for the Appellant : Shivanand Singbal, for the Respondent No. 1

JUDGMENT

P.B. MAJMUDAR, J. :

This appeal is directed against the order dt. 19th Oct., 2001 passed by the Income-tax Appellate Tribunal (Tribunal), Panaji Bench, in ITA No. 904/Pnj/1992 in connection with the asst. yr. 198990. By the impugned order, the Tribunal dismissed the appeal filed by the appellant and confirmed the order passed by the Commissioner of Income-tax (Appeals) [CIT(A)]. This appeal is admitted on the following substantial questions of law :

“(A) Whether on facts and in the circumstances of the case, the Tribunal was justified in law in deleting the additions in respect of sales-tax refund to the extent of Rs. 9,00,813 ?

(B) Whether the findings of the Tribunal that sales-tax refund should not be assessed as income till the litigation reaches finality is contrary to the provisions of s. 43B of the IT Act, 1961, since now deduction is based on actual payment basis and even if the Hon’ble Supreme Court gives decision against the assessee, the deduction would be admissible on actual payment basis ?”

The respondent-assessee-company is carrying on business of plaster of paris and the said company filed its return on 29th Dec., 1989, declaring its income at Rs. 41,12,150. Subsequently, notices were issued under s. 142(1)/143(2) to the assessee. The AO, thereafter, by his order dt. 31st Jan., 1992 made certain additions towards the income/expenditure and the AO added certain amounts which the assessee had received by way of sales-tax refund.

Being aggrieved by the said order of the AO, the respondent-company preferred an appeal before the CIT(A). The CIT(A) allowed the appeal. The CIT(A) came to the conclusion that since the refund of sales-tax amount is challenged, the said refund amount cannot be added as the said issue has not become final, especially when the Sales-tax Department had gone in appeal before the Supreme Court. The CIT(A), however, found that the sales- tax refund is to be considered as income of the respondent-company. The addition made towards the sales-tax refund in the particular assessment year was deleted, particularly, on the ground that the matter was sub judice. The aforesaid order was challenged by the appellant—Department by way of an appeal before the Tribunal. The Tribunal, after considering the decision given by it in another case, held that since the litigation has not reached finality, the sales-tax refund should not be assessed as income till the litigation reaches finality. By holding so, the Tribunal dismissed the appeal, which decision is impugned in this appeal.

The learned counsel Shri Rivonkar for the appellant submitted that both the Tribunal as well as CIT(A) have committed substantial error of law in holding that till the matter reaches finality in connection with the refund of amount, the amount in question, cannot be added in the total income of the assessee. In this behalf, the learned counsel for the appellant has relied upon a decision of the Supreme Court in the case of Polyflex (India) (P) Ltd. vs. CIT (2002) 177 CTR (SC) 93 : (2002) 257 ITR 343 (SC). It is also submitted that subsequently the refund order has already been passed in favour of the respondent-company. It is submitted that it is not necessary for the authority to wait for adding income in question till the decision reaches finality.

Learned counsel for the respondent Shri Singbal, on the other hand, submitted that the sales-tax being indirect tax, the amount, in question, was required to be remitted back to the concerned dealers. It is further submitted that the decision of the Supreme Court in the aforesaid case is not applicable to the facts of the present case, as the Supreme Court in that case was dealing with the provisions of s. 41 of the IT Act. The learned counsel further submitted that even, otherwise, on merits also the refund amount should not have been taken into account while considering the income of the assessee for the relevant assessment year.

We have heard both the learned advocates, in detail, and we have also gone through the orders of the Tribunal as well as of the CIT(A) and that of the AO. The first question which requires consideration is as to whether the Tribunal was justified in holding that since the question of refund is sub judice and has not reached finality, the refund amount cannot be taken into consideration while computing the total income of the assessee for the relevant assessment year ? In this connection, the observations made by the apex Court in Polyflex (India) (P) Ltd. (supra) are required to be considered. So far as the aforesaid case is concerned, the same was in connection with the excise duty refund. In the aforesaid case, excise duty was refunded to the assessee pursuant to the decision of the CEGAT. The same is not a relevant factor as the case would fall under the clause depending upon any action in respect of such expenditure. While considering the said question, the Supreme Court has observed thus : “We are inclined to think that in a case where a statutory levy in respect of goods dealt in by the assessee is discharged and subsequently the amount paid is refunded, it is the first clause that more appropriately applies. It will not be a case of benefit accruing to him on account of cessation or remission of trading liability. It will be a case which squarely falls under the earlier clause, namely, ‘obtained any amount in respect of such expenditure’. In other words, where expenditure is actually incurred by reason of payment of duty on goods and the deduction or allowance had been given in the assessment for earlier period, the assessee is liable to disgorge that benefit as and when he obtains refund of the amount so paid. The consideration whether there is a possibility of the refund being set at naught on a future date will not be a relevant consideration. Once the assessee gets back the amount which was claimed and allowed as business expenditure during the earlier year, the deeming provision in s. 41(1) of the Act comes into play and it is not necessary that the Revenue should await the verdict of higher Court or Tribunal. If the Court or Tribunal upholds the levy at a later date, the assessee will not be without remedy to get back the relief.”

In view of what is stated hereinabove, it is clear that it was necessary for the Tribunal not to consider the said question on merits, on the ground that the matter is sub judice by way of an appeal. It is not necessary for the authority or the Tribunal to wait for the decision in appeal in such cases, as ultimately, even if such an appeal preferred by the assessee is allowed by the appellate authority, the assessee will not be without any remedy by way of getting an appropriate relief. In view of the same, the Tribunal has committed an error of law in deciding the issue in question on the ground that the question of refund is sub judice and till it reaches finality, the said issue cannot be decided. We, therefore, do not agree with the view taken by the Tribunal that unless the issue about refund is finally determined, the income received by the assessee cannot be considered in the total income of the assessee. Once an order is already passed in favour of the assessee for refund of the amount, we see no reason why the same should not have been treated as income received by the assessee for the relevant assessment year. The proceedings before the higher forum sometime may take years and unless there is an interim order in any manner by the appellate or higher forum, order passed by the concerned authority has to be given effect. Both the Tribunal as well as the CIT(A) have committed an error of law in coming to the conclusion that unless the question about refund gets finality, the amount in question, cannot be treated as income received by the assessee. The aforesaid finding given by both the Tribunal as well as the CIT(A), therefore, deserves to be set aside. We, however, make it clear that in a given case if the order of refund or payment of any nature passed by an authority is stayed by the higher authority, then such an income cannot be taken into account while calculating the total income. It may be stated here that ultimately, the Supreme Court remanded the matter back, set aside the refund order passed by the High Court on the ground that the assessee should approach the statutory authority and on the basis of the same, the respondent-assessee approached the STO and thereafter, the STO has now passed a final order of refund in favour of the respondent. The said question, in any case, has now reached finality. Considering the aforesaid aspect of the matter, the order of the Tribunal is required to be set aside.

7. At this stage, the learned counsel for the respondent submitted that the Tribunal has not considered the merits of the case, as according to the respondent, the amount could not have been added in the income of the assessee. It is true that the Tribunal, in a cryptic manner, rejected the appeal of the Department stating that the question of refund is sub judice and it has not achieved finality. The Tribunal has not decided whether on merits such addition was justified or not. Since on merits, the issue has not been examined, we are inclined to remit the matter to the Tribunal to decide the question on merits as to whether such addition is justified or not. It is clarified that we have not examined on merits as to such addition was justified or not and that question is kept open for consideration of the Tribunal and the Tribunal may decide the same after hearing both sides. The impugned order is set aside to the extent that the Tribunal was not justified in coming to the conclusion that since question of refund is sub judice, the income received by the assessee towards the refund could not have been added in the total income of the assessee for the relevant assessment year. We, accordingly, direct the Tribunal to decide the matter afresh, in the light of what is stated hereinabove and decide the appeal de novo on its own merits, after giving opportunity of hearing to both sides. We once again say that on the merits of the issue, we have not expressed our opinion and left to be decided by the Tribunal. The Tribunal shall decide the appeal within a period of two months from the date of receipt of writ of this Court.

[Citation : 324 ITR 106]