Commissioner Of Income-Tax vs J.K. Synthetics Ltd. (No. 1)
1989 Latest Caselaw 177 Del

JUDGMENT

B.N. Kirpal, J.

1. The Commissioner of Income-tax, under section 256(2) of the Income-tax Act, has asked for a direction to be issued to the Tribunal to refer the following questions of law to this court :

(i) Whether the Income-tax Appellate Tribunal was correct in law and on facts in holding that, on merits, the Income-tax Officer had no justification whatsoever to make the addition of Rs. 22,34,900 as withdrawal of relief under section 84 ?

(ii) Whether the Income-tax Appellate Tribunal was correct in law and on facts in holding that the Income-tax Officer, while remaking the assessment, had no jurisdiction to sit in judgment over an issue which stood concluded by the order of the Income-tax Appellate Tribunal in respect of the original assessment ?

(iii) Whether the Income-tax Appellate Tribunal was correct in law and on facts in holding that the Income-tax Officer and the Inspecting Assistant Commissioner, acting under section 144B, did not make out any reasonable case for holding that the relief under under section 84 was not due to the assessed, when, in fact, the Income-tax Appellate Tribunal have not at all considered the directions issued by the Inspecting Assistant Commissioner under section 144A on the basis of which the claim under section 84 was withdrawn by the Income-tax Officer ?

(iv) Whether the Income-tax Appellate. Tribunal was correct in law and on facts in holding that the disallowance of 100% depreciation on machinery installed at the premises of JKCM, Kanpur, had been appropriately restricted to 50% by the Commissioner of Income-tax (Appeals) ?

(v) Whether the Income-tax Appellate Tribunal was correct in law and on facts in holding that the cops were never intended to be a part of sale proceeds inasmuch as cops do not form a part of the trading receipts and thereby deleting the addition of Rs. 4,12,000 made by the Income-tax Officer on account of cops security deposit account ?

(vi) Whether the Income-tax Appellate Tribunal was correct in law and on facts in deleting the addition of Rs. 54,000 made by the Income-tax Officer on account of closing stock of cops on the basis of Commissioner of Income-tax (Appeals) order for assessment year 1975-76, when in fact no such addition was made in assessment year 1975-76 ?

(vii) Whether the Income-tax Appellate Tribunal was correct in law and on facts in deleting the disallowance of Rs. 2,15,000 which had been made on account of estimated closing stock in the account of purchases for machinery repairs when, on similar facts, such disallowances have been confirmed by the Income-tax Appellate Tribunal for assessment years 1971-72, 1972-73 and 1975-76 and the assessed has not objected to the Income-tax Officer's finding that it had not maintained the machinery repairs consumption account ?

2. Questions Nos. (i) to (iii) pertain to the same point, namely, allowance of Rs. 22,34,900 under section 84. The contention of learned counsel for the petitioner is that the Income-tax Officer has held that as separate accounts were not being maintained, therefore, it could not be found out as to how much allowance was admissible and the relief was rightly withdrawn. It may here be noted that originally when the assessment had taken place, the claim of the respondent was for Rs. 23,50,000, but what was allowed was Rs. 22,34,900. That question went up in appeal to the Tribunal who limited the allowance to Rs. 22,34,900. The assessment was then reopened by issuing a notice under section 147 and in those reassessment proceedings, culminating in the present petition, the Income-tax Officer sought to withdraw this allowance of Rs. 22,34,900 as, according to him, common accounts were being maintained and it was not possible to decipher or calculate the amount of relief which could be granted. In appeal, the Commissioner of Income-tax, following the decision of the Calcutta High Court in the case of CIT v. Dunlop Rubber Co. (I.) Ltd. [1977] 107 ITR 182, came to the conclusion that composite books of account could be kept and the relief determined if other conditions specified by section 84 had been complied with. When the Department went in appeal, the Tribunal upheld the conclusion of the Commissioner and also held that the original order of the Income-tax Officer had merged with the order of the Tribunal and, therefore, this question could not be reagitated in section 148 proceedings. While we are unable to agree with the Tribunal that the principle of merger would be applicable to the present case, we, however, find that the question about the allow ability of this amount is concluded by the aforesaid decision of the Calcutta High Court in Dunlop Rubber Co. (I.) Ltd. [1977] 107 ITR 182. The question whether Rs. 22,34,900 should be deleted or not was never an issue before the Tribunal. This allowance had been granted by the Income-tax Officer and was not in challenge before the appellate authorities. The dispute before the appellate authority was whether the assessed was entitled to a sum larger than this or not. The principle of merger and the finality of the order would apply only in those cases where relief could have been granted by the appellate authorities on an issue decided by them which was sought to be re-opened under section 148 of the Act. As the Income-tax Officer had allowed the relief of Rs. 22,34,900, the Department could not go in appeal against that amount before the Commissioner of Income-tax or before the Income-tax Appellate Tribunal and, therefore, this question was not a subject-matter of dispute before the Tribunal. This being so, if the allowance of Rs. 22,34,900 had been wrongly made, then a correction could have been made by initiating proceedings and by issuing notice under section 148 of the Act.

3. We, however, find that question Nos. (i), (ii), and (iii) which deal with the merits of the case are pure questions of fact or in any event concluded by the judgment of the Calcutta High Court in Dunlop Rubber Co's case [1977] 107 ITR 182. Merely because separate books of account have not been kept cannot be a ground for disallowing relief under section 84 as long as the Income-tax Officer can determine the extent of the capital employed. It may be that if composite accounts are maintained, it may not be possible for the Income-tax Officer to correctly determine the amount of the fresh capital employed, but in that case the dispute, if any will only be with regard to the quantum of the relief to be granted. There would be no dispute about the eligibility of the assessed to be granted the relief. In the present case, what the Income-tax Officer has done is to deny the relief altogether merely because composite account books were being maintained. This was unjustified. The answer to all the three questions Nos. (i) and (iii) being self-evident, the question of directing the Tribunal to refer question No. (ii) would also not arise because that will be only academic in nature.

4. As far as question No. (iv) is concerned, by a separate order passed in Income-tax Case No. 136 of 1985 (J. K. Synthetics Co. Ltd. (No. 1) case [1990] 181 ITR 505), we have that the said question is not to be referred in respect of another year. Following our earlier order, we do not direct reference of the same.

5. Similarly, following our order in Income-tax Case No. 107 of 1987, (J. K. Synthetics Ltd. (No. 2) case [1990] 181 ITR 537) no reference is being directed with regard to question No. (vi).

6. As far as question No. (vii) is concerned, we are of the opinion that the said question is a pure question of fact and no question of law arises. The Tribunal has found as a fact that there was no basis on which the Income-tax Officer could have come to the conclusion that there was some material available with the assessed at the end of the accounting year. This being so, the question, as framed, does not arise.

7. That leaves us only with question No. (v). In our judgments in Income-tax Case No. 136 of 1985 (J. K. Synthetics Ltd. (No. 1) case [1990] 181 ITR 505 and 107 of 1987 (J. K. Synthetics Ltd (No. 2) case [1990] 181 ITR 537), we have directed the Tribunal to refer an identical question. Following the said decisions, we direct the Tribunal to state the case and refer the following question of law to this court :

"Whether the Income-tax Appellate Tribunal was correct in law and on facts in holding that the cops were never intended to be a part of sale proceeds inasmuch as cops do not form a part of the trading receipts and thereby deleting the addition of Rs. 4,12,000 made by the Income-tax Officer on account of cops security deposit account ? "

8. There will be no order as to costs.