High Court Of Calcutta
CIT vs. Berger Paints (India) Ltd.
Sections 32AB, 37(1), 80HHC(4), 145, 145A
Asst. Year 1988-89
Ajoy Nath Ray & Maharaj Sinha, JJ.
IT Ref. No. 46 of 1993
13th February, 2002
Counsel Appeared
Mr. Agarwalla, for the Revenue : Dr. Pal, for the Assessee
JUDGMENT
BY THE COURT :
This is a tax reference which the Revenue got referred by the Tribunal through the intervention of the High Court. Three questions have been referred to us, all for the asst. yr. 1988-89 and those three questions are as follows :
“1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in allowing a sum of Rs. 8,29,723 as revenue expenditure ? Whether, the Tribunal was justified in law in allowing the claim of Rs. 36.77 lacs under s. 32AB and Rs. 1,28,960 under s. 80HHC of the IT Act, 1961 ?
Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition of Rs. 35.11 lacs made to the value of closing stock and whether the findings leading to conclusion are otherwise unreasonable and perverse ?”
2. So far as the first question is concerned, the facts found by the Tribunal are that in regard to two new brand products of the assessee, viz., New Luxor and Rangoli, the assessee incurred advertisement expenditure for the accounting previous year in question for the aggregate sum of Rs. 8,29,723. This expenditure, needless to say, did not constitute the entirety of the advertisement expense of the assessee for the year in question, but it is only with regard to this amount that the disputes have arisen before us. The assessee had admittedly not treated this sum as revenue expenditure in its books of accounts consistently. However, in the assessment proceedings the assessee took the firm stand that this advertisement expenses was wholly of a revenue nature and that they were not bound by the treatment given to these expenses in their own accounts even by their own accountants.
3. Having considered the two Supreme Court cases of Kedar Nath Jute Mfg. Co. Ltd. vs. CIT and CIT vs. India Discount Co. Ltd. we are of the opinion that the first question has to be answered in favour of the assessee. The above two cases are reported respectively at (1971) 82 ITR 363 (SC) : TC 16R.668 and (1970) 75 ITR 191 (SC) : TC 38R.603. The relevant passages are at pp 367 and 195 respectively.
4. It is now settled law that if according to the Revenue laws the assessee is entitled to treat a sum as a revenue expenditure, then that legal right of the assessee is not self-estopped by the treatment given by the assessee to it in its own books of accounts. It is also the settled law that an advertisement expense of the nature in question here cannot compulsorily be made to be treated by the assessee as a long-term capital expenditure. On the other hand advertisement expenses are normally to be treated as revenue expenditure since the memory of the purchasing
market is short and advertisement is needed from year to year and cannot be made once for all in any single particular year.
5. As regards the second question we have to point out that it is really two questions in one. The first part of the second question deals with s. 32AB and is concerned with allowance of the assessee’s claim of Rs. 36.77 lac under it. Under the said section, as per sub-s. (1)(ii), a sum equal to 20 per cent of the profits of the assessee’s business can be claimed “as computed in the accounts of the assessee audited in accordance with sub-s. (5).” The said sub-s. (5) reads as follows : “The deduction under sub-s. (1) shall not be admissible unless the accounts of the business or profession of the assessee for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant as defined in the Explanation below subs. (2) of s. 288 and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant : Provided that in a case where the assessee is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this sub-section if such assessee gets the accounts of such business or profession audited under such law and furnishes the report of the audit as required under such other law and a further report in the form prescribed under this sub-section.”
In the instant case the auditing of the assessee’s claim and accounts is not in dispute, but the assessee did not file on the same date as his return of income the report of such audit in the prescribed form as required above.
Rule 5AB of the IT Rules prescribes that the auditor must support the assessee’s claim in the Form 3AA as given in the said Rules.
The case of the Revenue is that since this form from the auditor was tendered by the assessee at a date much later than the filing of the return, the assessee lost its right of claiming the benefit.
Dr. Pal referred to several cases, although; not all were permitted to be cited by him before us. Of the cases he cited, we make mention of the case of CIT vs. Hardeodas Agarwalla Trust (1992) 198 ITR 511 (Cal) : TC 23R.1476, a Division Bench judgment of our High Court.
The Court was there concerned with the auditor’s certificate necessary for claiming of benefits by a trust. The language employed in another part of the IT Act (see ss. 11 and 12) also states like in sub-s. (5) above that the assessee must furnish the auditor’s report along with his return.
The Court held that notwithstanding the apparently mandatory words of such requirement, the requirement is in actuality a directory requirement only. The purpose of the statute is to verify the unimpeachable authenticity of a particular accounting position; that purpose is sufficiently served if the auditor’s report is available at the time of assessment. The purpose would not be served but would be defeated if even in the case of genuine assessees their claims were thrown out because the auditor’s report was simply not available at the time the last date of the filing of the return had arrived.
8. We are of the opinion that the words “shall not be admissible” occurring in sub-s. (5) of s. 32AB are also directory and not mandatory in nature. No doubt, if the auditor’s report is not available at all, a claim for deduction cannot be made by the assessee but for achievement of this it is not necessary to interpret the above phrase as mandatory with regard to the part of the existence of the auditor’s report and only directory with regard to the part containing the time of furnishing of the report. The existence of the auditor’s report is already mandatory under cl. (1)(ii) of s. 32AB. Thus, the interpretation of the said phrase occurring in sub-s. (5), as a directory one does not do away with the compulsory requirement of producing the auditor’s report for assessment and deduction.
9. Mr. Agarwalla relied on a judgment of the Himachal Pradesh High Court in the case of CIT vs. Himachal Pradesh State Forest Corporation Ltd. (1998) 150 CTR (HP) 271 : (1998) 231 ITR 556 (HP) : TC S9.1085. That case dealt with s. 139 of the IT Act. That is the section for the filing of the return itself. The Dy. CIT had ordered in that case that the assessee’s return was invalid. This was done because a proper and correct manufacturing account, trading account, P&L a/c and balance sheet were not filed by the assessee even after giving of sufficient opportunity to it. In our opinion, that case cannot help the Revenue in this matter. Moreover, in considering the language of s. 139 and specially the part of it appearing in sub-s. (9) and the Explanation thereto, the following points emerge as relevant and important. In the Explanation to sub-s. (9), unless the conditions specified therein are fulfilled, the return of income is to be regarded as “defective”. In sub-s. (9) itself, when the defect is not rectified by the assessee even after giving of time, the assessee’s return shall be treated as “invalid” and it will be as if the assessee had filed no return at all.
We find, therefore, that even in the case of the return itself, the documents and papers which should accompany it, do not cause its utter and complete failure from the very inception, even if those are not annexed with the return. A chance is always given to the assessee to put the matter right before assessment. In our opinion we should not interpret sub-s. (5) of s. 32AB in a manner even more stringent than the requirement of the filing of the return itself. Furthermore in the body of s. 139, sub-s. (1), the return of income an assessee has to “furnish”; the same word “furnish” is used in sub-s. (5) of s. 32AB. But, in Explanation (b) of sub-s. (9) of s. 139 a requirement for a non-defective return is that the return is “accompanied by” a statement showing the computation of the tax. We note that in sub-s. (5) the same words “accompanied by” are not used but only the words “along with” are used. We are of the opinion that the phrase “accompanied by” is more strongly indicative of a requirement of filing on the same day as the return itself than the words “along with”. On this ground also we would opine in favour of the assessee.
12. The second part of the second question deals with the entitlement under s. 80HHC; in fact only sub-s. (4) of that section need be considered by us. The said sub-section is set out below : “The deduction under s. (1) shall not be admissible unless the assessee furnishes in the prescribed form along with the return of income, the report of an accountant, as defined in the Explanation below sub-s. (2) of s. 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this section.”
The language employed here is similar to the language of sub-s. (5) of s. 32AB. The word “shall” is used here also; and the same phrase, i.e., furnishing along with the return of income, is also employed here. We do not see any particular reason to take a different view in regard to this subsection than the view we have already taken in regard to sub-s. (5) of s. 32AB. We note that the compulsory requirement of producing the accountant’s report at all, as per r. 18BBA and Form 10CCAC of the IT Rules and forms appended thereto is sufficiently preserved by the Explanation below sub-s. (2) of s. 288. This report of the accountant has to come as per the said section and the said explanation. Our interpretation merely permits the assessee to produce the said report even after the date of the filing of the return has passed; it does not wholly do away with the requirement of filing the report altogether. The assessee having produced the necessary reports at the necessary time, the second question and both parts of it again get answered in favour of the assessee.
13. As regards the third question, Mr. Agarwalla tried to argue before us that this question should be answered in favour of the Revenue because of the provisions of s. 145A. Faced with the situation that the said section has been introduced only in 1999 to have effect from the year 2001, Mr. Agarwalla argued that the section is declaratory of the law and did not introduce any new provision. With due respect we are wholly unable to agree. It rarely happens that a provision of the IT Act is declaratory of the law. This Act is one of the most categoric branches of law and its changes are mostly to be gathered from the express words employed to further the current fiscal policy of the Government. This new argument of Mr. Aggarwalla was not advanced before the Tribunal also.
14. The Tribunal opined that in regard to the valuation of the (input) stock of the assessee, the assessee could not be compelled to add Rs. 35.11 lakh which represent the Modvat excise credit.
15. In regard to this question we need say no more, than refer to the case of Collector of Central Excise vs. Dai Ichi Karkaria a decision of the Supreme Court of India reported at (1999) 156 CTR (SC) 172 : 1999 (112) ELT 353 (SC). The Court gave in para. 24 of its judgment a model wherein it clearly opined that as to the input stock the businessman assessee was clearly justified in taking the view that if Rs. 100 is the purchase price of the raw material and Rs. 10 is the excise element than Rs. 90 is the valuation. This is because the ten rupees the businessman will get a credit at the end. In our case the sum of Rs. 35.11 lakh referred to in question 3 is the ten rupees referred to by the Supreme Court in para. 24 above. Thus, the third question also goes in favour of the assessee. As such all the questions are answered in the affirmative and in favour of the assessee.
[Citation : 254 ITR 503]
