Commissioner of Income Tax vs J.K. Synthetics Ltd.

B.N. Kirpal, J.—The Commissioner u/s 256(2) of the income tax Act, 1961 (''the Act'') has asked for a direction to be issued to the Tribunal to refer the following questions of law to this Court:

Whether, the Tribunal was correct in law and on facts in holding that on merits the ITO had no justification, whatsoever, to make the addition of Rs. 22,34,900 as withdrawals of relief u/s 84 of the income tax Act, 1961?

Whether, the Tribunal was correct in law and on facts in holding that the ITO, while remaking the assessment, had no jurisdiction to sit over the judgment on an issue which stood concluded by the order of the Tribunal in respect of original assessment?

Whether, the Tribunal was correct in law and on facts in holding that the ITO and the IAC acting u/s 144B did not make out any reasonable case for holding that the relief u/s 84 was not due to the assessee, when in fact the Tribunal have not at all considered the directions issued by the IAC u/s 144A on the basis of which claim u/s 84 was withdrawn by the ITO?

Whether, the Tribunal was correct in law and on facts in holding that the disallowance of 100 per cent of depreciation on machinery installed at the premises of JKCM, Kanpur, had been appropriately restricted to 50 per cent by the Commissioner (Appeals) ?

Whether, the Tribunal was correct in law and on facts in holding that the cops were never intended to be 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 ITO on account of cops security deposit account?

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

Whether, the 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 Tribunal for assessment years 1971-72, 1972-73 and 1975-76 and the assessee has not objected to the ITO''s finding that it had not maintained the machinery repairs consumption account?

Question Nos. 1 to 3 pertain to the same point, namely, allowance of Rs. 22,34,900 u/s 84 of the Act. Contention of the learned counsel for the petitioner is that the ITO 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, which limited the allowance to Rs. 22,34,900. The assessment was then reopened by issuing a notice u/s 147 of the Act and in those reassessment proceedings, culminating in the present petition, the ITO 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 following the decision of the Calcutta High Court in the case of Commissioner of Income Tax Vs. Dunlop Rubber Co. (I) Ltd., 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 ITO 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 allowability of this amount is concluded by the aforesaid decision of the Calcutta High Court in Dunlop Rubber Co. (I) Ltd.''s case (supra) .

The question as to whether Rs. 22,34,900 should be deleted or not was never an issue before the Tribunal. This allowance had been granted by the ITO and was not in challenge before the appellate authorities. The dispute before the appellate authority was whether the assessee was entitled to a sum larger than this or not. The principle of merger and the finality to the order would apply only in those cases where relief could have been granted by the appellate authorities or an issue decided by them which was sought to be reopened u/s 148 of the Act. As the ITO had allowed the relief of Rs. 22,34,900, the department could not go in appeal against that amount before the Commissioner or before the 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 correction could have been made by initiating proceedings by issuing notice u/s 148.

We, however, find that question Nos. 1 to 3 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. (I) Ltd.''s case (supra) . Merely because separate books of account have not been kept cannot be a ground for disallowing relief u/s 84 as long as the ITO can determine the extent of the capital employed. It may be that if composite accounts are maintained, it may not be possible for the ITO 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 assessee to be granted the relief. In the present case, what the ITO has done is to deny the relief altogether merely because composite account books were being maintained. This was unjustified. The answer to all three question Nos. 1 and 3 being self-evident, the question of directing the Tribunal to refer question No. 2 would also not arise because that will be academic in nature.

As regards question No. 4 is concerned, by a separate order passed in C1T v. J.K. Synthetics Ltd. [1989] 79 CTR (Delhi) 193 we have held that the said question is not to be referred in respect of another year. Following our earlier order we do not direct the reference of the same.

Similarly, following our order in IT Case No. 107 of 1987, no reference is being directed with regard to question No. 6.

As regards question No. 7 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 ITO could have come to the conclusion that there was some material available with the assessee at the end of the accounting year. This being so, the question, as framed, does not arise.

That leaves us with question No. 5. In our judgments in J.K. Synthetics Ltd''s case (supra) 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 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 ITO on account of cops security deposit account?

There will be no orders as to costs.