Commissioner of Income Tax vs Punjab State Industrial Development Corporation

Adarsh Kumar Goel, J.—The following questions of law have been referred for opinion of this Court by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh arising out of its order dated January 18, 1994, in I. T. A. No. 717/Chandi/1988, relating to the assessment year 1985-86:

Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in upholding the order of the Commissioner of Income Tax (Appeals) deleting the addition made by the Assessing Officer on account of waiver of interest in the case of M/s. Punjab Tanneries Limited, Punjab Scooters Limited and M/s. Punjab Spinning and Weaving Mills, Bhatinda (Shri O. P. Mittal) Punjab Maize Products and Punjab Government ?

Whether on facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in upholding the order of the Commissioner of Income Tax (Appeals) deleting the addition made by the Assessing Officer on account of interest remitted and entries reversed by the assessee amounting to Rs. 24,48,161 ?

Whether on facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in upholding the order of the Commissioner of Income Tax (Appeals) directing the Assessing Officer to allow opportunity to the assessee for creating further reserve which falls short of admissible deduction u/s 36(1)(viii) of the Income Tax Act ?

The assessee is a public sector undertaking and raised certain issues for the assessment year in question. The Assessing Officer rejected the view point of the assessee on the issue of claim of deduction for waiver of interest in favour of sister concerns. The Assessing Officer also made additions on account of interest remitted of which entries were reversed by the assessee. The third issue relates to giving of opportunity for creating further reserve to the extent permissible u/s 36(1) (viii) of the Act.

The Assessing Officer held that interest liability had not crystallised in the year under consideration and, therefore, the assessee could not claim deduction. The Commissioner of Income Tax (Appeals) following the order of the Tribunal for the assessment year 1977-78 in the case of the assessee and also his own decision for some of the assessment years, granted relief to the assessee. The Tribunal upheld the order of the Commissioner of Income Tax (Appeals) on the basis of its earlier orders.

We have heard learned Counsel for the Revenue.

Re : (i) and (ii)

The Assessing Officer disallowed the waiver of interest on the ground that for the period to which waiver related, income had already been taxed, as mercantile system of accountancy had been employed. The Commissioner of Income Tax (Appeals) followed the earlier orders which have not been annexed with the paper book. It appears that the basis for the decision of the Commissioner of Income Tax (Appeals) is that since interest was waived in the year in question, the assessee could claim deduction. Since the Revenue has neither filed the orders for the earlier assessment years, which have been followed nor has it been shown that the said orders have been interfered with, the questions have to be answered against the Revenue and in favour of the assessee to maintain consistency.

Re : (iii)

In respect of this question, the finding of the Tribunal is as under:

The last effective ground is against the direction of the learned Commissioner of Income Tax (Appeals) not to restrict the allowance u/s 36(1)(viii) up to the reserve created. The assessee is admittedly approved by the Central Government for purposes of Section 36(1)(viii) of the Act. During the year under consideration, the assessee corporation claimed deduction under the said section. The assessee created reserve on the basis of book profits. The assessee corporation was, however, entitled to a higher deduction u/s 36(1)(viii) for which the reserve already created was not sufficient. The learned Commissioner of Income Tax (Appeals) therefore directed the Assessing Officer to afford an opportunity to the assessee to create further reserve. It was further observed by him that a similar issue had been decided in favour of the assessee in the appeal for the assessment year 1983-84.

Learned Counsel for the Revenue has not shown that the order for the earlier assessment year which has been followed, has not attained finality nor any error has been shown in the view that reserve to the extent stipulated u/s 36(1) (viii) could be duly allowed to the assessee. Learned Counsel states that she tried to seek information from the Department but has not been able to get.

Accordingly, this question is also answered against the Revenue and in favour of the assessee.

The reference is disposed of accordingly.