Commissioner of Income Tax vs Simbhaoli Industries P. Ltd.

We have heard learned Counsel for both sides.

In this Income Tax application u/s 256(2) of the Act, the Department wants the following question to be called, as according to the Department it is a question of law and it arises out of the Tribunal''s order, dated October 28, 1994.

Whether, in view of the facts and circumstances of the case, the hon''ble Income Tax Appellate Tribunal was legally justified in confirming the order of the learned Commissioner of Income Tax (Appeals) who quashed the assessment proceedings observing that there was no income escaping assessment being no remission or cessation of liability due to the pending litigation ?

By the order dated April 10, 1995, the Tribunal has rejected the application u/s 256(1) holding that the decision of the Tribunal dated October 28, 1994, is based on findings of fact and it does not give rise to any referable question of law.

The facts relevant for the decision are, that the assessment was originally completed on a loss of Rs. 3,26,761. In appeal the loss was enhanced to Rs. 3,32,921. Along with the original return, the assessee had filed a copy of the printed report and annual accounts for the year ending March 31, 1978. The said report contained a note No. 17 under the head "contingent liabilities and notes". The said note is reproduced below:

Sundry creditors includes Rs. 10,71,825.52 being amount of refund received from the Excise Commissioner, U.P., Allahabad, against export duty paid on the export of rectified spirit outside U.P. As there may be claims against the aforesaid refund, the amount has not been appropriated by the company.

The assessment was sought to be reopened u/s 147(a). The said provision, as it stood at that time, permitted reopening of assessment, where income has escaped assessment on account of omission or failure on part of the assessee to disclose "fully and truly" all material facts necessary for assessment.

Learned Counsel for the Income Tax Department has relied upon the decision of the Supreme Court of India in the case of M/s. Phool Chand Bajrang Lal and another Vs. Income Tax Officer and another, in support of his suggested interpretation of the words ''full and true'' disclosure as used in Section 147(a).

We have examined the decision, the said Section 147(a) and the record. In our opinion, "full and true" disclosure of material facts would not include that material, which is to be used for testing the veracity of the particulars mentioned in the return. All such facts would be expected to be elicited by the Assessing Officer during the course of the assessment. The disclosure required only refers to those material facts, which if not disclosed, would not allow the Assessing Officer to make the necessary inquiries.

In the present case, the amount of Rs. 10,71,825.52 paise was disclosed as being the amount of refund received from the U. P. Excise Department, on account of the refund of export duty paid by the assessee on the export of rectified spirit outside Uttar Pradesh.

Then a further disclosure has been made by the assessee, regarding the reason why this refunded amount was being kept under contingent liabilities and not being appropriated towards income or trading receipts. The reason as disclosed in the said note No. 17 was that there may be claims against the aforesaid refund.

Thus, by the disclosure the Income Tax Officer was made aware of (i) the amount received by the assessee, as also (ii) the reason why it was not being appropriated towards trading receipts or income.

It is obvious that this export duty, which has been charged by the assessee from the customers to whom rectified spirit was exported could validly be claimed back by the said customers after the refund because export duty had been held to be not chargeable on export of rectified spirit by a decision of the Allahabad High Court.

Learned Counsel for the Income Tax Department submitted that the assessee should have disclosed the names of the customers. We are of the opinion that there is no such requirement of disclosure of the names on these customers, as these names are not by themselves material particulars. Eliciting these names could only be for the purpose of verifying the correctness of the averments of the petitioner in note No. 17.

In the rejection order of the Tribunal dated April 10, 1995, the Tribunal refers to the observation of the Assessing Officer that the assessee company "could not collect any such duties from the customers and if so collected, it formed part of its trading receipts". Along with this observation the order refers to a further observation that "the assessee had failed to bring these material facts to the notice of the Assessing Officer at the time of original assessment". This observation is wholly fallacious. At the rime when the export duty was collected from the customers, the decision of the Allahabad High Court declaring such duty as not payable was nr. in existence. Therefore, it cannot be said in retrospect now, that the asessee company could not have collected the duty from the customer According to the law as it stood at the time when the duty was collected from customers, it could legally be collected.

Further, "if the duty had collected it would form part of the assessee''s trading receipts" is also a fallacious observation, because the customers could legally ask back for the duty wrongly collected from them.

Learned Counsel for the Income Tax Department has further invited our attention to certain observations in the assessment order referring to a litigation between the assessee and one Ganga Nagar Sugar Mills Ltd. The suit No. 50/80 was decided by the Civil Judge, Ghaziabad by order dated March 19, 1983, and the matter was said to be pending in the High Court by way of appeal. It has been submitted from the side of the Department before us, that the details of the suit had not been disclosed.

We do not see how the suit is material at all, inasmuch as the matter is still sub judice. The only facts material are : (i) that certain amounts have been refunded to the assessee against the export duty paid by the assessee, (ii) that there are customers, who may ask for refund of the export duty charged from them by the assessee as a consequence of the refund. Both these materials particulars have been disclosed.

In these circumstance, we are of the opinion that no question of law arises from the order of the Tribunal.

The application is rejected.