Commissioner of Income Tax vs Electric Construction and Equipment Co. Ltd. (No. 2)

Mrs. Leila Seth, J.—The Commissioner of Income Tax has moved this application u/s 256(2) of the Income Tax Act, 1961, for the issue of a direction to the Income Tax Appellate Tribunal to state a case and to refer the following two questions of law for the opinion of this court :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in confirming the order of the Commissioner of Income Tax (Appeals) and deleting the addition of Rs. 2,98,837 on account of commission paid ?

Whether. On the facts and in the circumstances of the case, the Tribunal is right in law in upholding the order of the Commissioner of Income Tax (Appeals) thereby confirming the deletion of Rs. 15,35,411 ?"

The relevant assessment year is 1978-79. The assessed claimed deduction of Rs. 5,90,469 as commission paid to various parties. The Income Tax Officer, by his order dated September 1, 1983, disallowed a sum of Rs. 2,98,837 as it held, inter alia, that there was no proof of any services having been rendered by these parties.

The assessed appealed. The Commissioner of Income Tax (Appeals), by his order dated March 23, 1984, deleted the disallowance observing that the very aspects raised by the Income Tax Officer as also the production of voluminous correspondence had been discussed by his predecessor and the Income Tax Appellate Tribunal who had deleted the disallowance for the earlier years.

On appeal by the Revenue, the Income Tax Appellate Tribunal, in its order dated June 24, 1986, noticed that the Commissioner of Income Tax (Appeals) had relied on the order of the Commissioner of Income Tax (Appeals) and of the Income Tax Appellate Tribunal for the preceding assessment year in the case of the same assessed. It observed that there was no "contra material". Consequently, it dismissed the appeal of the Revenue as the stand was the same as for the earlier years.

The Revenue then moved an application u/s 256(1) of the Act. The Tribunal rejected the application for the reasons given in its order dated October 22, 1984, in R.A. No. 1151-Delhi of 1984 and R.A. No. 1153-Delhi of 1984 pertaining to the assessment years 1976-77 and 1977-78 involving the same question, wherein it had held that it was a finding of fact.

We had occasion to deal with these matters. By our order dated March 14, 1989, in Income Tax Case No. 96 of 1985 for the assessment year 1976-77, we have held that the conclusions arrived at by the Tribunal upholding the findings of the Commissioner of Income Tax (Appeals) are clearly findings of fact based on correspondence and material on record, and have consequently rejected the application u/s 256(2) of the Act.

In Income Tax Case No. 97 of 1985, we dealt with the same matter for the assessment year 1977-78. By our order dated April 10, 1089, we did not call for a reference of the question for the reasons given in our order dated March 14, 1989.

Since the matter in issue is the same, following our earlier orders, we are of the view that there is no question of law and consequently decline to call for a reference on question No. 1.

With regard to question No. 2, the Income Tax Officer did not accept the Explanation of the assessed regarding a change in the method of valuation of the closing stock. The assessed was originally valuing the company''s finished goods at some units at cost or at realisation value. For the assessment year 1978-79, it adopted a uniform and rational system in all its units and followed the method of valuation of closing stock "at cost or market rate, whichever is lower".

The assessed appealed to the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals), after hearing the matter at length, came to the conclusion that there was nothing wrong "in rationalizing an international and incoherent system where different units were following different methods". No mala fides could possibly be attached to a case of having an uniform rate structure. It further observed that the changes made by the assessed "were justified on the grounds of sound commercial and accountancy principles and the assessed has proved its bona fides by following the same system in all subsequent years."

The Revenue appealed to the Tribunal. The Tribunal relied on the reasoning of the Commissioner of Income Tax (Appeals) which it set out in detail in its order and upheld the deletion of Rs. 15,35,411.

The Revenue then filed an application u/s 256(1) of the Act. The application was rejected noticing that the reasoning of the Commissioner of Income Tax (Appeals) was on a proper appreciation of the facts and law, and that this could not be said to give rise to any question of law.

It would appear to us that the finding of the Tribunal based on the reasoning of the Commissioner of Income Tax (Appeals) with regard to the change in the system and method of valuation of the closing stock, is a finding of fact. Consequently, no question of law arises and we are not inclined to require the Tribunal to refer question No. 2 also.

The application is accordingly dismissed. However, in the facts and circumstances of the case, we make no order as to costs.