Commissioner of Income Tax vs Sir Shadi Lal Enterprises Ltd.

The Income Tax Appellate Tribunal, New Delhi has referred the following three questions of law u/s 256(2) of the Income Tax Act,1961, hereinafter referred to as ''the Act'', for opinion of this Court:

(i) Whether die Hon''ble ITAT was legally justified in confirming the relief allowed by the learned Commissioner (Appeals) in respect of additions made by the assessing officer u/s 40A(5)?

(ii) Whether the Hon''ble ITAT was legally justified in confirming the reliefs allowed by the learned Commissioner (Appeals) in respect of additions made by the assessing officer u/s 43B?

(iii) Whether the Hon''ble ITAT was legally correct in confirming the directions of the learned Commissioner (Appeals) to the assessing officer not to charge interest u/s 216?

The reference relates to the assessment year 1986-87.

Briefly stated facts giving rise to the present reference are as follows:

The assessee, a limited company made following allowances to its managerial personnel:

(a) Gratuity paid to legal he r of deceased employee (Managing Director) Rs. 75,000 (b) Reimbursement of medical expenses paid to Managing Director Rs. 2,766 (c) H.R.A. Paid to Managing Director Rs. 27,000

The assessing officer was of view that the above amount was hit by provision of Section 40A(5) of the Income Tax Act read with Section 40(c). He accordingly made appropriate disallowance under the above provision.

On appeal, the assessee submitted the disallowance could not be made in view of following decisions:

(a) D.S. Mistry v. Second ITO (1989) 44 Taxman 19 (Bom.);

(b) Commissioner of Income Tax Vs. Ashoka Marketing Ltd.,

(c) CIT v. Indian Oxygen Ltd. (1978) 184 ITR 339 (Cal.).

The learned Commissioner (Appeals) following the above decisions deleted the disallowance. On further appeal, the Appellate Tribunal agreed with Commissioner (Appeals).

The assessing officer further found that following liabilities were outstanding and not paid by the assessee till the end of the previous year:

(a) Purchase Tax Rs. 7,15,038 (b) PF, GPF and administration charges Rs. 92,442 (c) Electricity Charges Rs. 10,862

The assessing officer disallowed and added back above amounts by invoking provision of Section 43B of the Income Tax Act. On further appeal, the Commissioner (Appeals) deleted the disallowance with the reasoning given in para 19 of his order which is reproduced in the order of the Tribunal. The revenue being aggrieved brought the issue in appeal before the Appellate Tribunal. The Tribunal found that certain decisions of Hon''ble Patna High Court in the case of Jamshedpur Motor Accessories Stores Vs. Union of India (UOI) and Others, and Hon''ble Orissa High Court in the cast of Commissioner of Income Tax Vs. Pyarilal Kasam Manji and Co., have held that amendment introduced by Finance Act, 1987 to Section 43B was merely of clarificatory nature and applicable with retrospective effect with effect from 1-4-1984.

The learned Commissioner (Appeals) had followed the view expressed by the Orissa, Calcutta and Patna High Courts. The Tribunal held that as there is no direct infirmity in the order of Commissioner (Appeals). The Tribunal accordingly confirmed his action.

The assessing officer had charged interest u/s 216 of the Income Tax Act as assessee had paid first two instalments of advance tax at Rs. 10,84,700 each whereas in the third instalment the assessee paid Rs. 17,45,600. The assessee had first filed statement then an estimate u/s 209A(4) for the reasons given in paras 26 to 29 of his order held that no interest u/s 216 was chargeable. The revenue being aggrieved brought the issue in appeal before the appellate Tribunal.

After hearing both the parties, the Tribunal held that in view of decision of Hon''ble Calcutta High Court in the case of Commissioner of Income Tax Vs. Indian Tube Co. Ltd. (now Tata Iron and Steel Co. Ltd.), no interest was payable by the assessee. In the light of above decision, favouring the assessee, the Tribunal in paras 5 and 6 of its order refused to interfere with the order of Commissioner (Appeals).

We have heard Shri A.N. Mahajan learned Standing Counsel for the revenue and Shri S.D. Singh, learned Counsel appearing for the respondent assessee.

So far as the first question is concerned, we find that it is to be answered in favour of the assessee and against the revenue in view of the decision of the Apex Court in the case of Commissioner of Income Tax, Bombay, etc. Vs. M/s. Mafatlal Gangabhai and Co. (P) Ltd., and also in view of the decision of this court in IT Reference No. 48 of 1977 decided today, which is inter parties, wherein similar question has been answered in favour of the assessee.

So far as the second question is concerned, we find that the amounts added back u/s 43B have been paid over by the assessee to the respective depa tments before filing of the return. In view of the decision of the Apex Court in the case of Allied Motors (P.) Ltd. Vs. Commissioner of Income Tax, Delhi, wherein the amendments made in Section 43B i.e., the proviso added by the Finance Act, 1987 with effect from 1-4-1988 has been held to be retrospective being clarificatory in nature, the question has to be answered in favour of the assessee.

So far as the third question is concerned, we find that the accounting period of the assessee is from 1-10-1984 to 30-9-1985. u/s 209A of the Act during the relevant period the assessee was required to pay the first instalment by 15-6-1985 on the basis of the income assessed for the latest previous year. The assessee had deposited the first instalment on the basis of the previous year''s income. The second instalment of advance tax fell due on 15-9-1985, it was also paid on the basis of the income of the previous year which the assessee complied. It may be mentioned here that the assessee had filed the Form No. 28 on 13-6-1985 on the basis of the previous year''s income. In the month of December the assessee filed revised estimate in Form No. 29 on 9-12-1985 and paid the advance tax accordingly on the due date i.e., 15-12-1985. The estimate filed on 15-12-1985 was further revised on 16-12-1985. On 14-3-1986, the assessee again revised its estimate and deposited the tax payable in accordance with the said estimate prior to the close of the assessment year. The interest-has been levied u/s 216 of the Act on the ground that assessee had under-estimated the income u/s 209A and Section 212 of the Act. u/s 209 A of the Act, the first two instalments were to be paid in accordance with the income of the previous year which the assessee has complied with. So far as the third instalment is concerned, the assessee has .paid advance tax according to the revised estimate and there is no violation of provision of Section 209A of the Act.

So far as the Section 212 is concerned, it is also not applicable in the present case. We, therefore, are of the considered opinion that the Tribunal has rightly deleted the levy of interest u/s 216 of the Act.

In view of the foregoing discussions, we answer all the three questions in the affirmative i.e., in favour of the assessee and against the revenue.

The parties shall bear their own cost.