Commissioner of Income-tax-6 vs Grasim Industries Ltd.

This is a Revenue''s Appeal, challenging the order passed by the Income Tax Appellate Tribunal, Mumbai dated 11th March 2011. The Assessment Year is 2005-06. This Appeal is one more instance as to how the Revenue proceeds in invoking section 263 of the Income Tax Act 1961 although the view taken by the Assessing Officer is a possible view of the matter. This is one more attempt when resort to section 263 of the Act is found to be unsupportable and now an attempt is made before the higher Court to show that the view taken by the Assessing Officer and which was a possible one, raises substantial question of law and hence Appeal under section 260A of the Act is maintainable.

We are constrained to make the above observations in the light of the peculiar facts of the case. The Assessee before us is a Company incorporated and registered under the Indian Companies Act 1956. It availed of benefit of Sales Tax Deferment Scheme 1989 of the Government of Rajasthan. The Scheme provided for deferred payment of 50% of Sales Tax liability under the Rajasthan Sales Tax Act upto a maximum period of 11 years. As on 31st January 2005, the Assessee availed deferred Sales Tax loan of Rs. 106.47 crores under the Scheme. The Government of Rajasthan gave option to the units availing benefit under the Scheme to pre-pay the loan liability even before the stipulated repayment date. Accepting this offer of the Government of Rajasthan, the Assessee opted to pay loan liability of Rs. 106.47 crores. During the relevant previous year to the assessment in question, the Assessee paid an amount of Rs. 72.12 crores to the State Government in discharge of total liability of Rs. 106.47 crores resulting extinguishing of loan liability of Rs. 34.35 crores being the excess of loan liability over the amount paid. The surplus arising on prepayment of loan amounting to Rs. 34.35 crores was credited to the Profit and Loss Account. The Assessing Officer while completing the assessment allowed this claim.

The Commissioner of Income Tax found that such exercise of the Assessing Officer and his order in that behalf is erroneous and prejudicial to the interest of the Revenue. The Commissioner of Income Tax therefore invoked section 263 of the Income Tax Act 1961. A notice was issued and in response to the same, the Assessee submitted a written reply on 27th March 2008. The Commissioner observed that the surplus arising out of prepayment of sales tax loan and credit to the profit and loss account constitutes either a capital or revenue receipt. That amount is collected from the customers, according to the Commissioner. He therefore held that both conditions enabling him to invoke this provision viz. Sections 262 and 263 of the Act are satisfied and he passed the order impugned by the Assessing Officer before the Tribunal.

The Assessee submitted before the Tribunal that the view taken by the Assessing officer could not have been questioned and in the manner done by the Commissioner. The Assessee was essentially aggrieved by invocation of section 263 of the Income Tax Act by the Commissioner. The Assessee submitted that the Commissioner''s order be quashed. To support the argument that the view taken by the Assessing Officer is a possible one, the Assessee relied before the Tribunal on an order passed by the special Bench in the case of Sulzer India Ltd v. Jt. CIT [2010] 42 SOT 457. In such circumstances, the Assessee contended that section 263 of the Act could not have been invoked. The Assessee highlighted the legal position emerging from the two decisions of the Hon''ble Supreme Court in the case of MALABAR INDUSTRIAL CO. LTD. Vs. COMMISSIONER OF INCOME TAX, and Commissioner of Income Tax Vs. Max India Ltd., .

The Revenue, being aggrieved, has brought this matter in Appeal before us.

Mr. Ahuja, learned counsel appearing on behalf of the Appellant, submits that the Tribunal could not have set aside the order of the Commissioner as the pre-conditions in section 263 enabling the Commissioner to exercise the power thereunder are satisfied. Further, the view taken by the Tribunal in the case of Sulzer India Ltd. (supra) is under challenge before this Court and Appeals are admitted on substantial questions of law mainly the ambit and scope of section 43B of the Income Tax Act 1961.

Mr. Ahuja submits that the Appeal therefore be admitted on merits viz. on the ambit and scope of section 41(1) of the Income Tax Act.

We have perused the order passed by the Tribunal with the assistance of Mr. Ahuja and Mr. Jasani, learned counsel appearing for the Respondent. We are of the opinion that a faint attempt was made before the Tribunal by the Revenue to urge that apart from the mattes falling within the legal provision viz. Section 263 of the Act, even on merits, the Tribunal''s Full Bench has not decided the issue in proper perspective.

Therefore, the argument before us by Mr. Ahuja that the finding of the Tribunal on applicability of section 263 of the Income Tax Act 1961 may be sustained but the Appeal still deserves admission on applicability of section 41(1) of the Act, we are unable to agree with Mr. Ahuja. If the Tribunal''s order is perused, the Tribunal merely emphasized on the Commissioner that he could not have invoked section 263 of the Income Tax Act in the given facts and circumstances but the Tribunal emphasized the fact that despite the authoritative pronouncement in the case of Malabar Industrial Co. Ltd (supra) the Commissioner has proceeded to exercise his powers under section 263 of the Income Tax Act to set aside a possible view of the matter. It is not that the Tribunal was emphasizing anything on the merits of the claim or that the view taken in Sulzer''s India Ltd.''s case (supra) was the one applicable in its entirety on merits. What the Tribunal was emphasizing is when the Assessing Officer has taken a possible view, then section 263 of the Act could not have been invoked and that is how the Tribunal proceeded to set aside the order impugned in the Assessee''s Appeal. No attempt was made to show that the Assessing Officer''s view was not a possible one. Even otherwise, there was enough material in law to indicate that the legal position is otherwise. In such circumstances, we would not permit Mr. Ahuja to argue before us that the present Appeal should be admitted on questions which were not subject matter of the Tribunal''s order. We would not therefore make any observation with regard to the correctness of the view taken by the Tribunal in the Full Bench decision in Sulzer India Ltd. (supra). We agree that the Tribunal could not have invoked section 263 of the Act and the remedy of the Revenue if any, in law lies elsewhere. The order passed by the Assessing Officer has to be restored only on this count. It is only to emphasize and repeatedly that section 263 of the Income Tax Act could not have been invoked, that the Tribunal held that the view taken by the Assessing Officer is a possible view. How it is a possible view has been further emphasized with reference to the order passed by the Full Bench in Sulzer India Ltd.''s case (supra). Keeping all the contentions on legal aspects open for being urged at an appropriate stage and in appropriate proceedings, we dismiss this Appeal. It does not raise any substantial question of law. No order as to costs.