Commissioner of Income Tax vs Sarabhai Chemical P. Ltd.

K.A. Puj, J.—At the instance of the Revenue, the following question of law is referred by the Income Tax Appellate Tribunal for our opinion for the assessment years 1981-82 and 1982-83 :

"Whether, on the facts and in the circumstances of the case, the deletion of Rs. 4,726 and Rs. 3,544 being interest on deferred sale consideration was justified ?"

While framing the assessment order for the assessment year 1981-82, the Income Tax Officer has brought to tax an amount of Rs. 4,726 being the interest on deferred sale consideration charged at the rate of 11 per cent. per annum. The Income Tax Officer has observed in his assessment order that there was a clear distinction between the facts as prevalent in the assessment years 1979-80 and 1980-81 and in the present assessment year, i.e., 1981-82, in so far as even as per the modified agreement interest was payable with effect from July 1, 1979. The Income Tax Officer has also observed that interest was chargeable for the reasons mentioned in the assessment orders for the assessment years 1979-80 and 1980-81 and further interest was also taxable even on the basis of contractual obligation. The Income Tax Officer has also adopted the same reasoning for charging interest of Rs. 3,546 on unpaid purchase price even for the assessment year 1982-83.

Being aggrieved by this order, the assessee had preferred two separate appeals for the assessment years 1981-82 and 1982-83 before the Commissioner of Income Tax (Appeals), Baroda, who confirmed the said addition in both the years while relying upon his orders for earlier years, i.e., the assessment years 1979-80 and 1980-81, in the assessee''s own case.

Being aggrieved and dissatisfied with the said orders, the assessee had preferred second appeals before the Income Tax Appellate Tribunal in respect of both the years. While allowing the appeal of the assessee on this point, the Tribunal has held as under :

"3. The first point in the appeal preferred by the assessee pertains to the addition of Rs. 14,726 being interest on deferred sale consideration. At the outset, learned counsel for the assessee placed before us a copy of the order of the Tribunal in the assessee''s own case for the assessment years 1979-80 and 1980-81 (I. T. A. Nos. 1137 and 1138/Ahd of 1984, dated February 15, 1985) and pointed out that the decision of the Tribunal on a similar point which came up for its consideration for those years was in favour of the assessee. He, therefore, urged that Rs. 4,726 should be deleted from the total income of the assessee. In this connection, he also pointed out that the Commissioner (Appeals) relied on his appellate orders for the immediately preceding two years. The learned representative for the Department, on the other hand, relied on the orders of the Income Tax authorities.

We have considered the rival submissions of the parties as well as perused the aforesaid order of the Tribunal, to which one of us was a party. Following our said order, we would delete Rs. 4,726 from the total income of the assessee."

Similarly, while allowing the appeal of the assessee for the assessment year 1982-83, the Tribunal has observed as under :

"8. The next point pertains to the deletion of the addition of interest of Rs. 3,544 on deferred sales consideration. This issue too had come up for our consideration for the assessment year 1981-82 in the appeal preferred by the assessee. Following our order in the assessee''s own case for the assessment years 1979-80 and 1981-82 (I. T. A. Nos. 1137 and 1138/Ahd of 1984, dated February 15, 1985), we had deleted the addition confirmed by the Commissioner (Appeals) in respect of the assessment year 1981-82. Since in the instant case, following our order dated February 15, 1985, the Commissioner (Appeals) has deleted Rs. 3,544, we have no hesitation in upholding the same."

It is rather strange and shocking to observe that while disposing of the appeals for the assessment years 1981-82 and 1982-83, the Tribunal has merely relied on the order passed in the case of the assessee for the assessment years 1979-80 and 1980-81. The interest income was deleted by the Tribunal for the assessment year 1980-81 only on the ground that as per the revised agreement dated June 30, 1978, the interest on unpaid purchase price was to accrue on and with effect from July 1, 1979, instead of July 1, 1978. Even as per this revised agreement, the interest is chargeable on accrued basis after July 1, 1979, and the Income Tax Officer, has rightly observed in his assessment order for 1981-82. This material aspect of the above ratio was totally lost sight of by the Tribunal while allowing the appeals of the assessee for the assessment years 1981-82 and 1982-83. The Tribunal has, therefore, grievously erred in deleting the interest charged by the Income Tax Officer on accrual basis even as per the modified agreement for the assessment years 1981-82 and 1982-83. We are, therefore, of the opinion that the Tribunal has committed an error in deleting the interest of Rs. 4,726 and Rs. 3,544 being interest on deferred sale consideration and that the Tribunal was not justified in deleting the same.

We, therefore, answer this question in the negative i.e., in favour of the Revenue and against the assessee.

The reference is accordingly disposed of with no order as to costs.