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IN THE HIGH COURT OF ALLAHABAD
N. D. Ojha and A. N. Dikshita, JJ.
COMMISSIONER OF INCOME-TAX - Appellant
Versus
J.K.SYNTHETICS LIMITED - Respondents
Income-tax Appeal 242 Of 1983
Decided On : 02/08/1985
INCOME TAX - Reference under Section 256(2) - Questions of law - Tribunal's order reversing the addition made by the Income-tax Officer and the Appellate Assistant Commissioner on account of excessive wastage claimed by the assessee in the process of manufacture of nylon yarn - Whether the Tribunal was justified in reversing the findings of the authorities below without meeting the reasons recorded by them in support of their findings - Held, yes - Questions of law arising out of the order of the Tribunal - Reference directed.
Fact of the Case:
The assessee, M/s. J. K. Synthetics Ltd., claimed a deduction for legal expenses and interest in respect of two loans obtained from the Government of Rajasthan for setting up acrylic and cement plants. The Income-tax Officer disallowed the claim, and the Appellate Assistant Commissioner affirmed the order. However, the Tribunal allowed the claim, relying on the decisions of the Allahabad High Court and the Supreme Court in Prem Spinning and Weaving Mills Company Ltd. v. CIT and India Cements Ltd. v. CIT, respectively.
Finding of the Court:
The court held that the questions relating to the addition made by the Income-tax Officer and the Appellate Assistant Commissioner on account of excessive wastage claimed by the assessee in the process of manufacture of nylon yarn were questions of law arising out of the order of the Tribunal and a case was made out for requiring the Tribunal to refer these questions to the court for its opinion.
Issues: 1. Whether the Tribunal was justified in holding that no defects in accounts have been pointed out by the Revenue which could warrant an addition to the trading results when the Tribunal specifically declined to hold that the accounts of the assessee have been maintained impeachably and there are absolutely no defects which warrant their rejection? 2. Whether the finding of the Tribunal that the discrepancies and variations pointed out by the Revenue in stocks, wastage, etc. (some of which have been noted by the Tribunal in para. 23 of its order), are in reality no discrepancies and that the accounts are not defective or unreliable on that account, is justified? 3. Whether the finding of the Tribunal that the assessee has clarified and reconciled the variations and discrepancies pointed out by the Revenue in the different figures of stock, wastage, etc. , furnished by the assessee at different stages of the case, is based on relevant evidence? 4. Whether the Tribunal was justified in holding that no material has been placed before it by the Revenue to show that the accounts of the assessee were liable to be rejected on account of defects therein? 5. Whether the Tribual was justified in basing its conclusions vis-a-vis the reasonableness of wastage on the testimony of the letter dated March 21, 1975, from BASF obtained by the assessee from the said company (who have business relationship with the assessee) specifically for the purpose of supporting its case before the income-tax authorities particularly in the light of the earlier certificate dated February 21, 1971, issued by the said company which materially differed with the subsequent letter dated March 21, 1975, in the matter of reasonable percentage of waste in the production of nylon yarn? 6. Whether the Tribunal was justified in basing its conclusion with regard to the reasonableness of the question of wastage on the said letter dated March 21, 1975, which was not placed by the assessee before the lower authorities without giving an opportunity to the Income-tax Officer to test the conclusions and statements made in the said letter by leading any evidence in rebuttal? 7. Whether the finding of the Tribunal that the wastage in the year under consideration was not excessive is based on relevant evidence and is not vitiated in any manner being based on surmises, conjectures, presumptions or on consideration of material partly relevant and partly irrelevant? 8. Whether the Tribunal was justified in permitting the assessee to make out an entirely new case before it based on invisible wastage which contention was never raised by the assessee either before the Income-tax Officer or the appellate Assistant Commissioner or even in the grounds of appeal before the Tribunal, without the Income-tax Officer being given an opportunity to examine the various aspects arising out of this new case made out by the assessee before the Tribunal? 9. Whether there was evidence before the tribunal to hold that the assessees factory was subjected to close central excise scrutiny as its products are excisable particularly when the excise registers produced before it by the assessee only showed that after the close of the month (normally in the first week of succeeding month)the excise officials made a routine check of the figures furnished by the assessee in the excise statements filed with the totals in the excise registers from which these statements were admittedly compiled by the assessee? 10. Whether the Tribunal was justified in holding that no case was made out by the Revenue for rejecting the accounts and making an addition of Rs. 64,92,710 in the trading account on account of excessive wastage?
Ratio Decidendi: The court held that the Tribunal was required to give reasons for reversing the findings of the authorities below, and that the Tribunal's order lacked in this behalf. The court also held that the Tribunal had erred in relying on a letter from BASF dated March 21, 1975, which was not placed before the lower authorities, without giving an opportunity to the Income-tax Officer to test the conclusions and statements made in the said letter by leading any evidence in rebuttal.
Final Decision: The court directed the Tribunal to draw up a statement of case and refer the questions of law to the court for its opinion.
( 1 ) THE Commissioner of Income-tax, Central (Delhi-II), New Delhi, has made this application under Section 256 (2) of the Income-tax Act, 1961 (hereinafter referred to as " the Act"), with a prayer that the Income-tax Appellate Tribunal, Delhi Bench " A ", Delhi, may be required to refer 24 questions of law to this court for its opinion. The assessee-opposite party in the instant case is M/s. J. K. Synthetics Ltd. , Kamla Tower, Kanpur, and the assessment year involved is 1971-72.
( 2 ) HAVING heard counsel for the parties, we are of the opinion that questions Nos. 14 to 20, 23 and 24 are not questions of law arising out of the order of the Tribunal and are concluded by the findings of fact recorded by the Tribunal. Questions Nos. 21 and 22 arise out of a claim made by the assessee in regard to the legal expenses and interest in respect of two loans obtained by the assessee from the Government of Rajasthan. These loans were raised by the assessee for setting up acrylic and cement plants. The claim of the assessee was disallowed by the Income-tax officer and his order was affirmed in appeal by the Appellate Assistant Commissioner, however, the Tribunal allowed the claim of the assessee relying on a decision of a Division bench of this court in Prem Spinning and Weaving Mills Company Ltd. v. CIT [1975] 98 ITR 20. A perusal of the judgment in the said case indicates that this judgment was rendered on the basis of the law laid down by the Supreme Court in India Cements Ltd. v. CIT [1966] 60 ITR 52. The question which arose for consideration in the aforesaid two decisions was similar to what has been raised in the instant case as to whether the expenses incurred in respect of obtaining loans were to be treated as capital expenditure or revenue expenditure allowable as a deduction. In the case of Prem Spinning and Weaving Mills Co. Ltd. [1975] 98 ITR 20 (All), it was held that the said amount of expenditure was allowable as a deduction. The same view was taken by the Supreme Court in the case of India Cements Ltd. [1966] 60 ITR 52 also. In this case, the supreme Court further pointed out that the act of borrowing money was incidental to the carrying on of business, the loan obtained was not an asset or an advantage of enduring nature, the expenditure was made for securing the use of money for a certain period and it was irrelevant to consider the object with which the loan was obtained. The Tribunal not only allowed the claim of the assessee in regard to the expenses aforesaid on the basis of the two decisions referred to above but also dismissed the application of the Commissioner of Income-tax for referring these two questions to this court under Section 256 (1) of the Act holding that in view of the two decisions aforesaid, these questions were only of academic value. We do not find any cogent reason to take a different view.
( 3 ) AT this place, we may point out that counsel for the Commissioner of Income-tax placed reliance on the decision of the Supreme Court in Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167. That is, however, clearly distinguishable inasmuch as that was not a case where amounts may have been borrowed by a running concern in connection with its business but was a case of loan being taken for acquisition and installation of plant and machinery. Reliance was placed by counsel for the Commissioner of Income-tax on certain other decisions also. We, however, do not consider it necessary to refer to them in detail because those were not cases of expenditure for obtaining loans by a running concern in connection with its business.
( 4 ) QUESTIONS Nos. 4, 6 and 10 raise in one form or the other the same disputes which are already covered by questions Nos. 1, 2, 3, 5, 7, 8, 9, 11, 12 and 13. As such, we do not consider it necessary to require the Tribunal to refer to this court questions Nos. 4, 6 and 10 also.
( 5 ) AS regards questions Nos. 1, 2, 3, 5, 7, 8, 9, 11, 12 and 13, it may be pointed out t
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