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1996 Supreme(MP) 259
A. R. TIWARI, J. :
Commissioner Of Income Tax
vs
Prestige Fabricators Pvt. Ltd.
DECIDED ON : 1 March, 1996
A Tribunal's decision based on appreciation of facts and does not disclose any infirmity or perversity is not a referable question of law.
Headnote:
INCOME TAX - Reference to High Court - Question of law - Whether Tribunal was justified in deleting the addition of Rs. 8,14,832 inspite of the fact that provisions of s. 41(1) of the IT Act are clearly applicable to the case ? - Whether Tribunal was justified in deleting the addition of Rs. 23,260 added by the Assessing Officer under provisions of s. 40A(3) of the IT Act, 1961 ?
Fact of the Case:
The assessee, following the mercantile system of accounting, claimed deductions of Rs. 8,14,832, representing a liability for penal interest and interest payable to A. P. Ayudogik Vikas Nigam, from its book profits. The AO disallowed the deductions, but the CIT(A) allowed them for computation of profit under s. 28 of the Act but not for computation of book profit under s. 115J. The Tribunal, following the Supreme Court's decision in Kedarnath Jute Mfg. Co. Ltd. vs. CIT, allowed the deductions.
Finding of the Court:
The High Court held that the Tribunal's refusal to refer the questions of law was justified. It found that the Tribunal's decision was based on appreciation of facts and did not disclose any infirmity or perversity. The High Court also noted that the assessee had shown the disputed amount in the subsequent year and offered it for tax, and that the Department had already levied tax on the same.
Issues: Whether the Tribunal was justified in deleting the addition of Rs. 8,14,832 inspite of the fact that provisions of s. 41(1) of the IT Act are clearly applicable to the case ?
Ratio Decidendi: The High Court held that the Tribunal's refusal to refer the questions of law was justified. It found that the Tribunal's decision was based on appreciation of facts and did not disclose any infirmity or perversity. The High Court also noted that the assessee had shown the disputed amount in the subsequent year and offered it for tax, and that the Department had already levied tax on the same.
Final Decision: The High Court declined the prayer and rejected the application with no order as to costs.
A. R. TIWARI, J. :
The CIT, Bhopal has filed this application under s. 256(2) of the IT Act, 1961 (for short the Act) seeking direction to the Tribunal to state the case and refer the proposed questions, as noted below, for our opinion arising out of the order dt. 12th April, 1993 passed by the Tribunal in ITA No. 1059/Ind/93 after rejection of the application submitted under s. 256(1) of the Act and registered as RA No. 79/Ind/93 on 26th April, 1994 for asst. yr. 1989-90 :
"(1) Whether, on the facts and in the circumstances of the case, Tribunal was justified in Law in deleting the addition of Rs. 8,14,832 inspite of the fact that provisions of s. 41(1) of the IT Act are clearly applicable to the case ?
(2) Whether, on the facts and in the circumstances of the case, Tribunal was justified in Law in deleting the addition of Rs. 23,260 added by the Assessing Officer under provisions of s. 40A(3) of the IT Act, 1961 ?"
2. Briefly stated, the facts of the case are that the assessee had a liability of Rs. 5,21,352-00 in respect of penal interest payable to A. P. Ayudogik Vikas Nigam for earlier years which was provided in those years. However, in the year 1989-90, the assessee wrote back the said liability on expectation that it would not be claimed by the aforesaid Nigam. There was also the liability of the interest amounting to Rs. 2,93,480-00 payable to the aforesaid Nigam which the assessee did not provide in its books of accounts. A note of the auditors showed that the liability accrued against the assessee was not provided for. The assessee claimed adjustments of these two items i.e. Rs. 5,21,352-00 and Rs. 2,93,480-00, totalling Rs. 8,14,832-00 and deducted the same from the book profits. The Assessing Officer (AO) did not approve of such deductions for computation of profit under s. 28 and under s. 115-J of the Act and negatived the assertion of the assessee. The CIT(A), on appeal, however, allowed the deductions of Rs. 8,14,832-00 for computation of profit under s. 28 of the Act but declined to allow such deductions for computation of book profit under s. 115J of the Act. The Tribunal following the decision of the Apex Court in Kedarnath Jute Mfg. Co. Ltd. vs. CIT (1971) 82 ITR 363 (SC) concluded that the assessee following mercantile system of accounting is entitled to claim any liability which so accrued and thus allowed deduction and directed that the aforesaid amount shall be reduced from the profit and loss account prepared by the assessee-company and only balance shall be taken as book profit. Aggrieved, the Department filed an application under s. 256(1) of the Act. The application was dismissed. Thereafter this application under s. 256(2) of the Act is filed.
3. We have heard Shri D. D. Vyas, learned counsel for the applicant/Department and Shri Nazir Singh, learned counsel for the non-applicant/assessee.
4. The counsel for the applicant submitted that Question No. 2 may not be taken as referable since the deletion of addition is based on proper appreciation of facts and conclusion based on appreciation of facts does not give rise to any referable question of law but forcefully submitted that Question No. 1 needs to be referred in terms of s. 41(1) of the Act.
5. The learned counsel for the non-applicant opposes the contention with regard to Question No. 1 as well and submitted that the Department did not choose to make any submission before the Tribunal on the basis of s. 41(1) of the Act. He submitted that the aforesaid amount was shown by the assessee in the subsequent year and was offered for tax. He further submitted that the tax is already levied on the aforesaid amount and as such no basis survives for the direction as claimed even otherwise.
6. We have considered the submissions.
7. We find that the Tribunal declined to state the case and refer the questions as under :
"On a consideration of the submissions advanced by the parties, we are of the opinion that the question, as framed by the Department, is misc
