Commissioner of Income Tax vs Jenson and Nicholson India Ltd.

This is an appeal filed by the assessee (sic-Revenue) relating to the assessment year 1991-92 for which the accounting year ended on 31-3-1991. The appeal arises out the assessment made on 21-3-1994 u/s 143(3) of the Act. The assessee is a public limited company engaged in the business of paints. The assessee company established new units in Naihati, West Bengal and Sikandrabad, U.P. As regards the Naihati unit, the company made a claim which was refused on two grounds. The first was that the audit report in respect of the unit was filed very late by the assessee and not with the return of income. The Tribunal on such point held that it was not required in case of the company in terms of Section 80-I(7) of the Act that the audit report has to be filed along with the return and such defect also could be cured. Secondly, the Tribunal after assessing the documents placed before it held in favour of the assessee and stated that the assessee made the apportionment of expenses on different criteria whereas the assessing officer apportioned the expenses wholly on the basis of the turnover. Tor example, the assessee apportioned the salary of quality control staff, raw materials godown and finished goods godown on the basis of the percentage which the turnover of the net unit bore to the total turnover of account. The salary of the purchase department staff was apportioned, on the basis of the percentage which the raw material consumption of the new unit bore to the total raw material consumption in the paint business. The overhead expenses were apportioned by the assessee on the basis of the turnover. It was found by the Tribunal that the basis adopted by the assessee was more scientific and the assessing officer was not justified in apportioning all the expenses on the basis of the percentage of the turnover. The revenue department pointed out that a proper Profit and Loss Account was not furnished by the assessee in respect of the Naihati unit. The Tribunal, however, found that this contention was not accurate. The assessee has furnished a memorandum of Profit and Loss Account which is appearing at p. 26 of the paper book in respect of the unit. The memorandum was also supported by an audit report furnished, in the prescribed form, which was placed at page 25 of the paper book. The Tribunal also found that the assessee has elaborated its claim by letter dated 31-12-1993 furnished before the assessing officer which gave the basis of the apportionment as well as the figures concerned. The Tribunal was, therefore, of the view that the assessees claim could not be resisted. The Tribunal accordingly directed the assessing officer to allow the claim.

The matter has been referred by the department before this Court for opinion on the following questions:

(1) Whether on facts and in the circumstances of the case, the Tribunal was justified in law in holding the method of accounting adopted by the assessee as an acceptable method for the purpose of the Income Tax Act, 1961 and consequently in striking down the assessing officers action u/s 145(1) ?

(2) Whether on facts and in the circumstances of the case, the Tribunal was justified in law in holding that the duty components relatable to closing stock of finished goods constitute a deduction otherwise allowable under the Income Tax Act, 1961 for assessment year 1991-92 considering the method of accounting adopted by the assessee, so as to be considered u/s 43B ?

(3) Whether on facts and in the circumstances of the case the Tribunal was justified in law in deleting the addition of Rs. 3,72,76,034 ?

(4) Whether on the facts and in the circumstances of the case, the Tribunal was justified in law to accept the apportionment of income for the new unit computed by the assessee and thereby deleting the additions u/s 80-I for Naihati unit ?

During the course of argument, Mr. Agarwal appearing on behalf of the department has specifically submitted that it is not necessary for him to press the question Nos. 1, 2 and 3 in this appeal. He only pressed question No. 4 which has been referred by the department before us.

In view of that, it is not necessary for us to decide those question Nos. 1, 2 and 3. Since, according to Mr. Agarwal, u/s 43B if the amount has been paid actually and the benefit has to be given to the assessee, accordingly, we do not intend to give any answer in respect of question Nos. 1, 2 and 3.

In respect of question No. 4, he drew our attention to Section 80-I(7) which reads as follows:

Where the assessee is a person other than a company or a co-operative society, the deduction under Sub-section (1) from profits and gains derived from an industrial undertaking shall not be admissible unless the accounts of the industrial undertaking for the previous year relevant to the assessment year for which the deduction is claimed have been audited by an accountant, as defined in the Explanation below Sub-section (2) of Section 288, and the assessee furnishes, along with his return of income, the report of such audit in the prescribed form duly signed and verified by such accountant.

According to Mr. Agarwal, it is the duty of the assessee to file return along with the audit report and in the instant case, according to him, no such audit report was filed by the assessee at the time of filing of the return. But subsequent thereto, it has been specifically admitted that such audit report was filed. According to him, it is a mandatory provision and such action on the part of the assessee cannot cure the defects in respect of the return filed by them u/s 80-I(7).

On the contrary, it has been submitted by Dr. Pal that the Tribunal dealt with this matter and specifically stated that it was nothing but a question of fact and came to the conclusion. When the Tribunal is the final fact-finding authority and a decision of the Tribunal on the facts only can be gone into by the High Court only when it is stated that a question has been referred to it which says that the finding of the Tribunal on the facts is perverse. But in the instant case, Dr. Pal pointed out that such question has not been even referred before this Court. It is only stated that whether the Tribunal is justified in law to accept the apportionment of income for the new unit computed by the assessee. According to Dr. Pal, learned senior advocate, unless and until a finding of fact reached by the Tribunal is canvassed before the High Court, the High Court is not obliged to proceed in the matter and he relied upon a decision reported in K. RAVINDRANATHAN NAIR Vs. COMMISSIONER OF INCOME TAX, when the Supreme Court reversing the decision of the High Court came to the conclusion that there was no challenge by the revenue to the facts found by the Tribunal before the High Court. Therefore, Dr. Pal submitted that the Tribunal after analysing the documents placed before it, came to the conclusion and without challenging the said facts the department cannot reopen the same or cannot question the authority of the Tribunal to come to such conclusion. Therefore, according to Dr. Pal, the Section 80-I(7) is not a mandatory provision. The said section is directory in nature and if the audit report has not been filed along with the return it really can be cured when the assessee has duly filed the audit report subsequent to filing of such return and before the matter is taken up for hearing.

In the circumstances, in our considered opinion, the Tribunal after assessing the facts and documents placed before it came to the said conclusion and the said facts cannot be questioned at this stage by the High Court and in fact has to be treated as conclusive. Furthermore, in our opinion, if the assessee has already filed the audit report after filing of the return and before the assessment was made then we cannot take away the right of the assessee to rely on the said audit report. On the contrary, we must hold that such defect can be cured and cannot be questioned by the department. Accordingly, we hold in favour of the assessee in the matter and we do not find that there is any irregularity and/or illegality in respect of the order so passed by the Tribunal.

Hence, we dismiss the appeal answering in favour of the assessee.