Bombay High Court
The Commissioner Of Income Tax-12 ... vs M/S.Monika India on 16 April, 2016
Bench: M.S. Sanklecha
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 1105 OF 2008
The Commissioner of Income Tax-12 .. Appellant.
v/s.
M/s. Monika India .. Respondent.
Mr. P.C. Chhotaray, for the Appellant.
Mr. S. P. Goyal, Partner of Respondent, present-in-person.
ig CORAM: M.S.SANKLECHA, &
A.K.MENON, JJ.
RESERVED ON : 1st APRIL, 2016.
PRONOUNCED ON :16th APRIL, 2016.
JUDGMENT ( Per M. S.Sanklecha,J.):-
This Appeal under Section 260-A of the Income Tax Act, 1961
(the Act), challenges the order dated 13 th December, 2007 passed by the
Income Tax Appellate Tribunal (the Tribunal)for the Assessment Year
1986-87.
2 This appeal was admitted on 12th January, 2009 on the
following substantial question of law:-
" Whether on the facts and in the circumstance of the case,
the Tribunal is right in law in allowing the appeal of the
assessee by directing to delete the addition of Rs.91.54 lac
disallowed by the Assessing Officer on the ground that the
liability was not ascertained and is in the nature of contingent
liability?".
At that time, the Court directed that this Appeal should be heard
along with Income Tax Reference No.320 of 1998.
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3 We have on 1st April, 2016 heard both - Income Tax
Reference bearing No.320 of 1998 and the present appeal. The question
of law posed for our opinion in the Income Tax Reference No. 320 of
1998 reads as under:-
" Whether on the facts and in the circumstances of the case,
the Tribunal was right in law in setting aside the order of the
Commissioner of Income Tax and restoring that of the Income
Tax Officer allowing the liability on account of customs duty at
Rs.1,78,83,846/-?".
4 We find that the impugned order of the Tribunal has allowed
the Respondent-Assessee's appeal by following the order dated 17 th July,
1989 passed by it in respect of Assessment Year 1985-86. In the
meantime, pending the final disposal of the appeal for Assessment Year
1986-87, the Tribunal, at the instance of the Revenue sought our opinion
in Income Tax Reference No.320 of 1998 in respect of Assessment Year
1985-86 (Tribunal Order dated 17 th July, 1989) on the question as re-
produced herein above in para 3.
5 Briefly, the facts are as under:-
(a) The Respondent-Assessee had on 2nd April, 1984 entered into
agreement for purchase of 250 metric tonnes of Synthetic Waste
from one M/s. Vinay Industries. In terms of the above agreement
dated 2nd April, 1984, M/s. Vinay Industries were to import the
Synthetic Waste from Taiwan and sell it to the Respondent-Assessee
at cost + Rs.1/- per kg. The costs were to include all expenses
incurred by the seller from import and handing it over to the
Respondent-Assessee i.e. inclusive of Customs Duty, Octroi charges,
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Bank charges etc. M/s. Vinay Industries, consequent to the
agreement imported the Synthetic Waste. At the time of import,
there was an increase in duties of customs on Synthetic Waste. M/s.
Vinay Industries challenged the increase in the duties of customs
in the Apex Court. This increase resulted on further amount of
Rs. 91.54 lakhs being payable as Custom Duties. However, M/s.
Vinay Industries issued an invoice for an amount of Rs.91.54 lakhs
(Addl. Customs duty liability) to the Respondent- Assessee.
(b) It appears that M/s. Vinay Industries, thereafter, withdrew its
challenge to the increase in the levy of Customs Duty filed before
the Supreme Court. This led the Respondent-Assessee to file a Civil
Suit in the Ludhiana Civil Court, disputing its liability to pay the
additional Customs Duty of Rs.91.54 lakhs to M/s. Vinay Industries.
Nevertheless, the Respondent-Assessee claiming to follow a
Mercantile System of Accounting, debited an amount of Rs.91.54
lakhs as its expenditure towards purchase of Synthetic Waste from
M/s. Vinay Industries and sought a deduction.
(c) However, in view of the suit filed by the Respondent-Assessee
against M/s. Vinay Industries before the Ludhiana Civil Court, the
Assessing Officer during the Assessment Proceedings took a view
that the amount of Rs.91.54 lakhs cannot be allowed as an
expenditure as the same was contingent in nature being the subject
of dispute before the Ludhiana Civil Court. On first appeal also, the
Commissioner of Income Tax (Appeals) [CIT(A)] upheld the view of
the Assessing Officer and confirmed the addition done by the
Assessing Officer.
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(d) On further appeal, the Tribunal allowed the appeal by following its
order dated 17th July, 1989 for Assessment Year 1985-86.
(e) Being aggrieved, the Revenue is in appeal before us.
6 We find that there are two vital differences in facts between
those existing in Assessment Year 1985-86 and that existing in the subject
Assessment Year 1986-87.
7 Firstly, the clauses of the agreements which is a subject
matter of dispute in both the Assessment Years are different.
(a) For the Assessment Year 1985-86 which led to ITR 320 of 1998, the
clause of the agreement between the Respondent-Assessee and its
sellers reads as under:-
" To avoid any misunderstanding and confusion at some
later date, it is hereby stipulated that although the present
state, C.V.D. which comes to Rs.36/- per kg. is Auxiliary duty,
not applicable in terms of Court Orders on the consignments
being imported by the seller which the seller, in turn, has
agreed to supply to the buyer, but in case at some later stage,
any such liability occurs and any duty is required to be paid,
the same too, will be the exclusive liability of the Buyer as the
same will be nothing but a part of the cost and for this purpose,
the buyer has undertaken to stand guarantee in any manner
acceptable to the customs or the Bank to the effect that in case
any such duty becomes payable at any stage, the same will be
the exclusive liability of the buyer and not that of the seller by
virtue of this Agreement."
(b) While the clause of the agreement between the Respondent-
Assessee and its seller i.e. M/s. Vinay Industries which arises
for consideration in the subject Assessment Year reads
as under:-
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" Whereas, as a result of negotiations, the buyer has
agreed to pay to the seller a net profit calculated @ Rs.1/-
per kg. On the supply of the said Synthetic Waste. All the
expenses will be taken into consideration such as custom
duties, freight octroi, cartage, bank charges, interest,
demurrage charges and clearance charges, which
computing the cost except the court expenses with regards
to CVD and Customs duties which are demanded in excess
by the custom department."
The aforesaid clause as existing in the subject Assessment
Year has not at all been considered by the Tribunal in the impugned order
while allowing the Respondent-Assessee's appeal for the Assessment Year
1986-87. The distinction in facts has been ignored by Tribunal while
passing the impugned order.
8 Secondly, in the present facts, the Respondent-Assessee filed
a suit against its sellers M/s. Vinay Industries in the Civil Court at
Ludhiana, apparently disputing its liability to pay the additional Customs
Duty of Rs.91.54 lakhs. Thus, the amount payable, has not been
crystallized during the subject Assessment Year according to the Revenue.
This fact was absent in the proceedings leading to the order dated 17 th
July, 1989 passed in respect of Assessment Year 1985-86. The aforesaid
distinction was also missed sight of by the Tribunal while passing the
impugned order dated 13th December, 2007.
9 The aforesaid distinction in facts as brought in paragraphs 7
and 8 above were completely overlooked. The Tribunal passed the
impugned order dated 13th December, 2007 holding itself bound by its
order dated 17th July, 1989 passed in respect of Respondent-Assessee for
the Assessment Year 1985-86.
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10 We find that the Tribunal in passing the impugned order has
not considered the different fact-situation in the Assessment Year 1986-87
from that existing in Assessment Year 1985-86. This difference is in the
clauses of the agreements as well as the fact of the Respondent-Assessee
disputing its liability to pay the Customs duty of Rs.91.54 lakhs to M/s.
Vinay Industries by filing a Civil Suit in the Court of Ludhiana. This
dispute between the seller and the Respondent-Assessee existing in the
Assessment Year 1986-87 is totally absent during the Assessment Year
1985-86.
In the above view, the impugned order of the Tribunal dated
13th December, 2007 is quashed and set aside. The appeal of the
Respondent-Assessee is restored to the Tribunal for final disposal. This
after taking into account, different factual situation in the subject
Assessment Year to that existing in the Assessment Year 1985-86.
Therefore, at this stage, we do not answer the substantial question of law
as it could appropriately arise only after the Tribunal has dealt with the
appeal before it in the context of the fact situation as existing for the
subject Assessment Year. However, we request the Tribunal to decide the
appeal as expeditiously as possible as it relates to Assessment Year 1986-
87. All contentions kept open.
12 Accordingly, Appeal allowed in the above terms. No order as
to costs.
(A.K.MENON,J.) (M.S.SANKLECHA,J.)
S.R.JOSHI
