Commissioner of Income Tax vs D.M. Bricks Industries

N.K. Kapoor, J.—Income Tax Cases Nos. 137, 142 and 143 of 1992, CIT v. D.M. Bricks Industries, raise identical questions of law and so the same are being decided by a common order. The relevant facts are being taken from Income Tax Case No. 142 of 1992 (assessment year 1986-87).

This petition is u/s 256(1) of the Income Tax Act, 1961, seeking a direction to the Tribunal, Amritsar Bench, Amritsar, to draw up a statement of the case and to refer the following questions of law :

"1. Whether, on the facts and in the circumstances of the case, the learned Tribunal was right in law in directing the Assessing Officer to treat the receipt of Rs. 8,34,650 from the Government Departments as ''advance'' when the Government Departments cannot pay any advance without physical receipt of goods purchased and payments were held to have been made against sale bills not recorded by the assessee in books of account maintained by the firm ?

Whether, on the facts and in the circumstances of the case, the learned Tribunal was justified in not treating the receipt of Rs. 8,34,650 as sales when the said receipt is supported by the sale bills of ascertained and specified goods ?

Whether, on the facts and in the circumstances of the case, the learned Tribunal was justified in law in referring the case back to the Assessing Officer for verifying as to when the sales were effected when there was sufficient material on record to prove that the sales have duly been made as per bills and were not recorded by the assessee ?

Whether, on the facts and in the circumstances of the case, the learned Tribunal is right in law in directing the Assessing Officer on the basis of mere verbal claim of the assessee that the sales were made and accounted for in the subsequent assessment year when this issue has only been considered and rejected by the first appellate authority ?"

All these questions arise out of the order dated September 18, 1990, passed in Income Tax Appeal No. 1196/(ASR) of 1989. The Income Tax Officer scrutinised the return filed by the assessee and reached the conclusion that the amounts of advances shown in the balance-sheet in the name of Government agencies cannot be accepted as these Government agencies cannot make payment in advance as per treasury Rules and so made an addition of Rs. 1,25,198, i.e., 15 per cent. in the income of gross profit rate of advance shown in the Government agencies of Rs. 8,34,650, vide order dated March 30, 1988. The Commissioner of Income Tax (Appeals) too declined to exclude the advances shown to have been made by the Government agencies on the ground that the same is contrary to the treasury rules and it is nothing but a device to suppress the sale of bricks otherwise made which finds no reflection in the accounts maintained by the assessee and so dismissed the appeal. Before the Tribunal, once again, it was stressed that the conclusion arrived at by the authorities below is not based on facts, but on surmises and conjectures. It was urged that the assessee is maintaining a regular system of accounting and the advance amount received from the Government agencies and duly shown in the balance-sheet, has been erroneously taken to be on account of sales, which, according to the Revenue Department, are not reflected in the accounts made by the assessee. The assessee, thus, contended that without any material on record, the Income Tax Officer added income calculated at the rate of 15 per cent. of Rs. 8,34,650 ; assuming that bricks worth this much amount were in fact sold during the assessment year under scrutiny, merely for the reason that treasury rules do not provide for advance payment by any of the Government agencies is by itself no ground to hold that such amount was received by the assessee for having sold bricks of this value either to the Government agencies or to somebody else and this device has been employed so as to suppress the profits/income. The Tribunal, after hearing learned counsel for the parties and on perusing the record and also relying upon the decision of the Tribunal in Shadi Lal Puri''s case, came to the conclusion that the payments received by the assessee by way of advance were not sales and so the profits thereon or in connection with the sales could not be assessed in the hands of the assessee. However, to consider as to whether the entire advance received by the assessee had been accounted for in sales for the year under consideration as well as in the subsequent years, the Tribunal remitted the matter to the assessing authority with a direction that it should treat the advances received by the assessee as advances and not sales and verify as to when the sales were actually effected in terms of these advances and then proceed in accordance with law.

With a view to seek reference of the question of law as noticed in the earlier part of the judgment, the Commissioner of Income Tax filed petition u/s 256(1) of the Income Tax Act, 1961, before the Tribunal. The Tribunal came to the conclusion that no referable question of law arises out of the order of the Tribunal and so declined the request made. Dealing with questions Nos. 1 and 2, it was held that the Tribunal has nowhere held that specific receipt should be treated as advances. Similarly, the Tribunal found no merit in question No. 3 as it was held that the Tribunal is competent to pass any order in appeal as it deems fit and proper which includes the power to refer the case back. As regards question No. 4, it was held that the same is wholly misconceived as no verbal claim was made by the assesses. In fact, as per detailed information supplied by the assessee with regard to the sale that finds mention at pages Nos. 1 to 45 of the paper book, the assessing authority was directed to verify the same.

The first submission of learned counsel for the petitioner is that the Tribunal has erred in law in remanding the case to the assessing authority for a fresh decision, which on the facts of the present case is wholly unjustified. Elaborating, counsel urged that the Income Tax Officer after carefully examining the ledger account, nikasi and sale registers and other documentary evidence, came to the conclusion that so called advance shown in the balance-sheet is only a device implied by the assessee to suppress the sales otherwise made, but not reflected in his books of account. Since the Tribunal has not adverted to the material relied upon by the Income Tax Officer, the order remanding the case cannot be termed as legal. Even if it be taken that the Tribunal has authority to remit the matter back to the assessing authority for a fresh decision, yet in view of the direction stipulated therein which leaves no scope to, the assessing authority to redetermine the matter and hold that these receipts in the balance-sheet cannot be termed as advance. He further argued that the limited order of remand as in the present case, in fact, prevents the assessing authority to re-evaluate the matter and thus the question of law needs to be examined by this court.

Mr. S.K. Sud, learned counsel for the respondent-assessee, in support of the order of the Tribunal has urged that the direction given by the Tribunal is perfect and legal in the facts and circumstances of the case. According to learned counsel, none of the questions as framed by the petitioner arises out of the order of the Tribunal, nor can the same be termed questions of law and thus referable to this court. According to counsel, the direction given by the Tribunal is quite clear, i.e., the advance received by the assessee should be treated as advance and not sales and the Assessing Officer is to verify when the sales, if any, were actually effected in respect of these advances.

We have heard learned counsel for the parties and perused the order of the Income Tax Officer, the appellate order of the Commissioner of Income Tax and the order passed by the Tribunal in appeal u/s 256(1) of the Income Tax Act. Here the controversy revolves round the conclusion of the Tribunal which reads as under :

" We have heard the rival submissions and perused the. facts on record. We have also gone through the detailed order passed by the Tribunal in Shadi Lal Puri''s case. Respectfully following the aforesaid order, we hold that payments received by the assessee by way of advances were not sales. No profit thereon or in connection with the same could be assessed in the hands of the assessee. Learned counsel for the assessee tried to argue that the entire advances received by the assessee had been accounted for in sales in the year under consideration as well as in the subsequent years. We would, however, consider that this matter must go back to the Assessing Officer with the direction that he shall treat the advances received by the assessee as advances and not sales and verify as to when the sales were actually effected in respect of these advances and then proceed in accordance with law."

According to learned counsel for the petitioner, the advances received by the assessee have been taken as advances and not sales and now the onus has been placed upon the assessing authority to see when the sale, if any, has actually been effected in respect of these advances during the year under assessment and it is, thereafter, that the same is to be taken into consideration to determine the profit/income of the assessee. Since it is the case of the assessee that the Government agencies had given these advances and in fact, no sales had been effected, the burden to prove these assertions ought to have been placed upon the assessee. On a careful perusal of the relevant portion of the order reproduced above, we find this submission devoid of any substance, The assessee in clear terms has made assertions that these advances were received by him from the Government agencies towards the sales to be made later on. Since the alleged advances are from the Government agencies such amount must have been received by the assessee in the form of cheques or bank drafts, which in turn must be bearing the date of issue, etc. To calculate such advances to be proceeds of some sale transactions which do not find recorded in the ledger books maintained by the assessee, would appear to be wholly unjustified. It is precisely for this reason that the Tribunal has taken these amounts as advances, but all the same thought it appropriate to refer back to the assessing authority to examine it afresh as to when any sales had actually been effected in respect of these advances during the assessment year under scrutiny. This precise objection as per questions Nos. 1 and 2 otherwise also stands clarified as given in paragraph 3.1 of the order of the Tribunal u/s 256(1) of the Income Tax Act, which reads as under :

"3.1. Questions Nos. 1 and 2 as proposed by the Revenue do not arise out of the order of the Tribunal, as the Tribunal has nowhere held that specific receipts should be treated as advances. A plain reading of paragraph 8 of the Tribunal''s order shows that the Assessing Officer has been directed that in accordance with the principle laid down in the case of Shadi Lal Puri in Income Tax Appeal No. 1003/(ASR) of 1988 dated August 1, 1990, the receipts in respect of which sales have been effected subsequently should be treated as advances."

We also find no merit in the submission of learned counsel for the petitioner that the scope of the enquiry rather has been restricted. The assessing authority has been directed to verify as to when the sales were effected, if any. In case, the same is during the assessment year under scrutiny, such sale proceeds are to be included to arrive at profit/income of the assessee and normally, such an amount is to be deducted from the amount shown as advance in the balance-sheet. All these matters are yet to be examined by the assessing authority on the basis of evidence which may come to its notice. Such like matters are ordinarily questions of fact and not questions of law. The two judgments cited by learned counsel for the petitioner, i.e., McDowell and Co. Ltd. Vs. Commercial Tax Officer, and CIT v. British Paints India Ltd. : [1991]188ITR44(SC) , have, in fact, no applicability to the facts of the present case. Thus, no useful purpose would be served by dilating upon the ratio of the aforesaid judgments. Accordingly, we are of the view that no referable question of law arises out of the order of the Tribunal, dated September 18, 1990, and the petitions are consequently, dismissed with no order as to costs.