Whiteline Chemicals vs Income Tax Officer

Akil Abdul Hamid Kureshi, J.—The assessee is in appeal against the judgment of the ITAT, Dated 16.11.2011. While issuing notice on 03.12.2012, we have made following observations,

Prima facie, we are of the opinion that the Tribunal''s previous order dated 30.8.2005 had made certain conclusive observations with respect to the nature of transaction and had desired that the CIT(Appeals) should examine whether the sales tax was actually deposited with the Government authorities and thereafter to decide the appeal bearing in mind such observations.

For the purpose of this Tax Appeal and for final disposal thereof, we frame the following substantial question of law,

Whether, the Income Tax Appellate Tribunal was right in law in upholding the addition of Rs. 18,83,613/- u/s 69C of the Income Tax Act, 1961, the Tribunal had set out parameters for CIT Appeals to examine the question on the basis of certain observations?

The revenue had questioned the order of CIT(Appeals), dated 11.10.2004, before the Tribunal in which the CIT(Appeals) had deleted the addition of Rs. 18,83,000/- (rounded off) u/s 69C of the Act. Before the Tribunal the assessee contended that the transaction with M/s. Swami Chemicals, totalling to Rs. 18,83,613/- was only a paper transaction and there was no real sell of the goods. The payments were received from Swami Chemicals and after deducting three per cent as Sales Tax, balance amount was returned to Swamy Chemicals. In this context, the Tribunal observed that the CIT(Appeals) had not properly appreciated the issue. If, the assessee had retained three per cent towards Sales Tax and deposited it with the Government, no addition would be warranted. However, in the event, if, the said three per cent remained with the assessee to that extent, the same would form the part of the income of the assessee. On such basis, the Tribunal remanded the proceedings before the CIT(Appeals) "to decide the matter afresh, in accordance with law, keeping in view the above observations and after affording the reasonable opportunity of hearing to both the sides."

In the remand proceedings, the CIT(Appeals) decided the entire issue in favour of the Revenue. Instead of confining its inquiry with respect to three per cent of Sales Tax, he examined the very nature of the transaction between the assessee and the Swamy Chemicals. He was of the opinion that the payments were made from Swamy Chemicals by cheque, but, the same were returned by the assessee through cash payments. On such basis, he justified the addition made by the Assessing Officer.

This time around, the assessee approached the Tribunal against the order passed by the CIT(Appeals) after remand and primarily contended that the CIT(Appeals) travelled beyond the scope of the remand proceedings. The Tribunal, however, did not upheld such contention and vide impugned order confirmed the addition also.

We have heard learned Counsel for the parties. Shri. M.J. Shah, repeated his contentions, which he had made on 03.12.2012, when we had issued the notice for final disposal.

Learned Counsel, Mr. Manav Mehta, for the department, on the other hand, contended that the Tribunal had merely remanded the issue for fresh consideration by the CIT(Appeals) and there were no directions in such order in what manner, after remanding the matter, the issue should be reconsidered. In short, his contention was that the Tribunal left the full discretion to the CIT(Appeals). He drew our attention to the impugned order passed by the Tribunal in which the tribunal has expressed the similar sentiments.

To our mind, however, the issue is quite simple and clear. In the first round, the Revenue had approached the Tribunal complaining about the order of CIT(Appeals) deleting the entire addition of Rs. 18,83,000/- made by the Assessing Officer. The Tribunal remanded the proceedings back to the Commissioner of Appeals on the ground that if the assessee had retained three per cent of the Sales Tax out of the payment made by the Swamy Chemicals, but, no tax is deposited with the Government, surely, the same would become the income of the assessee. The Tribunal also observed that if such Sales Tax was deposited with the Government, there would be no question of taxing the assessee. On such basis, the proceedings were remanded for fresh consideration by the CIT(Appeals).

To our mind, the Tribunal did not permit the full-fledged fresh inquiry by the CIT(Appeals) in such remand proceedings. This is clear from the following facts;

(1) The Tribunal''s conclusion to the effect that the question of taxing three per cent would arise only after verifying, whether the Sales Tax was retained by the assessee or deposited with the Government, if it was already deposited with the Government, then, the question of taxing the same would not arise,

(2) The tribunal permitted the CIT(Appeals) to reconsider the issue in light of the above observations. Thus, this sets out the parameters, within which the CIT(Appeals) had to reconsider the question,

(3) If the Tribunal was of the opinion that irrespective of whether the question of retention or otherwise by the assessee of the three per cent element of the Sales Tax, the entire amount of Rs. 18,83,000/- was liable to be taxed in the hands of the assessee u/s 69 of the Act, there was no purpose for the Tribunal to remand the issue before the CIT Appeals for verifying any Sales Tax was deposited with the Government or not. In other words, the Tribunal could have duly allowed the respondent''s appeal in its entirety. Mere fact that in the impugned order, the Tribunal interpreted its previous order as open and is not hedged by any limitation would not be sufficient to debar the assessee from arguing the contrary. Once, the Tribunal passed an order, it has become functus officio and such order can only by legal terms interpreted, but, not varied. Therefore, whatever the observations of the Tribunal in the impugned order, the same would have only a persuasive value for us and cannot bind the parties qua the Tribunal''s real intention in remanding the proceedings in the first round of litigation. We have, therefore, interpreted such order in the background of the facts of the case and the observations made by the Tribunal, while ordering the remand.

In the result, we are of the opinion that it was not open for the CIT(Appeals) to examine the entire nature of the payment of Rs. 18,83,000/-, to consider, whether, the same can be considered as taxable in the hands of the assessee. It was only for the CIT(Appeals) to examine that any part of the three per cent of the Sales Tax element was or was not deposited by the assessee with the Government and to decide the assessee''s tax liability to pay tax. In the result, the appeal is allowed and the question is answered in favour of the assessee and against the respondent. The impugned judgment of the tribunal is reversed to the extent above.