SUPREME COURT OF INDIA
Berger Paints India Ltd.
Vs.
Commissioner of Income Tax, Calcutta
C.A.Nos.1081-1083 of 2004
(K.G.Balakrishnan and B.N.Srikrishna JJ.)
17.02.2004
JUDGMENT
B.N.Srikrishna, J.
1. Leave granted.
2. The assessee is a company engaged in the manufacture and sale of paints,
varnishes and other allied products. During the previous year ending on 31st
December, 1983 pertaining to the assessment year 1984-85, the petitioner in its
returns had disclosed a sum of Rs. 1,33,31,370/- as income. During this period,
the appellant-assessee had incurred expenditure on account of customs and
excise duty aggregating to Rs. 5,85,87,181/-, which was duly debited to the Profit
and Loss Account of the petitioner for the relevant previous year and was also
fully paid during the relevant previous year. In addition thereto, the
petitioner had also credited to the Profit and Loss account of the relevant
previous year an amount of Rs. 98,25,833/- relatable to the customs and excise
duty on the closing stock of inventory by including the said sum in the
valuation of such closing stock. During the assessment proceedings for the
assessment year 1984-85, the appellant-assessee claimed that under Section 43B
of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') that
it was entitled to deduction of the entire sum of Rs. 5,85,87,181/- being the
duties actually paid during the relevant previous year.
3. On similar basis, the appellant-assessee had claimed a deduction of an
amount of Rs. 1,22,54,261/- being the actual customs and excise duty included
in the value of the closing stock for the previous year pertaining to the
assessment year 1986-87 and offered for tax a sum of Rs. 98,25,833/- being
customs and excise duty included in the value of the opening stock. Similarly,
for the assessment year 1986-87, the petitioner claimed a deduction of Rs.
24,28,428 (Rs. 1,22,54,261 - Rs. 98,25,833)-. The assessee claimed a deduction
of Rs. 77,81,739 (Rs. 2,00,36,000 - Rs. 1,22,54,261) on similar basis for the
assessment year 1987-88.
4. In the assessment proceedings of the assessment year 1984-85, the Inspecting
Assistant Commissioner of Income Tax allowed the appellant-assessee's claim
that it was entitled to deduct the entire sum of Rs. 5,85,87,181/- being the
duties actually paid during the relevant year previous to the assessment year
1984-85. The Commissioner of Income Tax initiated proceedings under Section 263
of the Act on the ground that the Assessing Officer had wrongly allowed the
claim for deduction of an amount of Rs. 98,25,833/- towards customs and excise
duty paid during the previous year but credited to the Profit and Loss Account
in closing stock of goods under the provisions of Section 43B. The assessee
relied upon the judgment of the Gujarat High Court in Lakhanpal National Ltd.
vs. ITO, 1986 Indlaw GUJ 30 (Guj). (hereinafter referred to as
"Lakhanpal National Ltd.'s case') in support of its claim. The Commissioner
of Income Tax took the view of the Gujarat High Court's decision was
distinguishable on facts and, therefore, made on order under Section 263 of the
Act disallowing the claim of the assessee. On appeal to the Tribunal, the
Tribunal held that the Gujarat High Court's judgment in Lakhanpal National
Ltd.'s case was distinguishable and confirmed the order of the Commissioner of
Income Tax. On an application made under Section 256(1) of the Act at the
instance of the appellant-assessee, the Tribunal inter alia referred the
following question of law for the opinion of the High Court:-
"Whether, on the facts and in the circumstances of the case, the Tribunal
was right in law in rejecting, the assessee's claim for deduction of the excise
and customs duties of Rs. 98,25,833/- paid in the year of account and debited
in the Profit & Loss Account, on the ground that the crediting of the
Profit & Loss Account by the value of the closing stock, which included the
aforesaid duties, did not have the effect of wiping out the debit of the Profit
& Loss Account?"
5. The High Court by its judgment dated 24th September 2001 in ITR No. 213 of 1993 answered the question referred in favour of the Revenue and against the assessee.
6. For the assessment year 1986-87, the Tribunal upheld the claim of the
assessee and allowed a deduction amounting to Rs. 77,81,948/- claimed under
Section 43B of the Act being Central Excise and Customs duty, which had been
included in the value of the closing stock. At the instance of the Revenue, the
following question of law was referred to the High Court for the assessment
year 1986-87:-
'Whether, on the facts and in the circumstances of the case and under
Explanation 2 to section 43B coming into force with effect from 1.4.84, the
Tribunal was justified in law in directing to allow the amount of Rs.
77,81,948/-u/s. 43B of the I.T. Act, being Central Excise and Customs duty
which had been included in the value of closing stock?"
7. For the assessment year 1987-88, the Tribunal allowed a similar claim and a reference came to be made to the High Court in the following terms:-
"Whether, on the facts and in the circumstances of the case, the Tribunal
is justified in law in directing the I.T.O. to allow the sum of Rs. 24,28,428/-
being Central Excise and Customs duty under Section 43B of the Act on the
ground that the said amount has been included in the value of closing
stock?"
8. The High Court by its judgment dated 6th February, 2002 disposed off both the reference. The questions referred in both the reference were answered in favour of the Revenue and against the assessee. An application made for certificate to appeal to this court under Section 261 of the Act was rejected by the Calcutta High Court by observing "we are unable ourselves to burden an already over burdened Hon'ble Supreme Court". Being aggrieved, the assessee impugned both judgments of the Calcutta High Court pertaining to the three assessment years, by these appeals.
9. There is no doubt that the judgment of the Gujarat High Court in Lakhanpal
National Ltd.'s case is completely in favour of the assessee as it accepts the
contention of the assessee in toto. It is not in dispute that the decision in
Lakhanpal National Ltd.'s case was not challenged by the department before this
court and thus has been accepted by the department. The interpretation placed on
Section 43B in Lakhanpal National Ltd.'s case was directly followed by the
judgment of the Bombay High Court in CIT vs. Bharat Petroleum Corporation
Ltd.1 and by the Madras High Court in Chemicals and Plastics
India Ltd. vs. CIT2. These two judgments also appear to have
been accepted by the Revenue and have not been challenged before this Court at
all. This fact asserted before us by the petitioner-assessee has not been
disputed in the counter affidavit of the Department.
10. In addition to these three High Court judgments, it appears that, noticing
the conflicting views taken by the Tribunals, a Special Bench of the Income Tax
Appellate Tribunal was constituted to resolve the issue. In Indian Communication
Network Pvt. Ltd. vs. IAC3 the Special Bench of the Tribunal
considered all the conflicting judgments and the judgment in Lakhanpal National
Ltd.'s case (supra) as also its own order in the case of the appellant-assessee
reported in Berger Paints India Ltd. vs. CIT4. After noticing
all the conflicting views, and the attempt made by the Tribunal in Hindustan
Computers Ltd. vs. ITO5 to distinguish the observations made in
Lakhanpal National Ltd.'s case, the Special Bench of the Tribunal made the
following observations at 1994 (206) ITR 96 at p.114:-
"We would like to make it absolutely clear that the removal of the amount
in question from the figure of closing stock is not tantamount to a 'tinkering'
of the closing stock but allowing to the assessee the effective deduction to
which it is entitled under Section 43B. We would also like to emphasise that in
the subsequent assessment year, the assessee's opening stock would stand
reduced by a corresponding figure since it cannot avail of a 'double
deduction'.
11. It was further observed by the Special Bench at p.114 that:-
"Before we part with this ground, we cannot help feeling that the
litigation between the parties could have been avoided since it was quite
immaterial, whether full deduction was allowed in one year or partly in one
year and partly in the next, since the assessee is a company and rate of tax is
uniform. The gain to one and the loss to the other is illusory since what is
deferred in one year, would have to be discharged in the next. In that sense,
nobody has won and nobody has lost."
11. It is specifically asserted in the written submissions of the appellant-assessee that this decision of the Special Bench of the Income Tax Appellate Tribunal in Indian Communication Network Pvt. Ltd.'s case (supra) has also not been challenged. This fact is also not disputed by the Revenue.
12. In view of the judgments of this Court in Union of India vs. Kaumudini Narayan
Dalal, (SC): CIT vs. Narendra Doshi, 55 (SC) and CIT vs. Shivsagar
Estate, 5(SC), the principle established is that if the Revenue has not
challenged the correctness of the law laid down by the High Court and has
accepted it in the case of one assessee, then it is not open to the Revenue to
challenge its correctness in the case of other assessees, without just cause.
13. The judgment of the Gujarat High Court in Lakhanpal National Ltd.'s case
was relied upon and followed by the Bombay High Court in CIT vs. Bharat
Petroleum Corporation Ltd. (supra) as well as by the Madras High Court in
Chemicals and Plastics India Ltd. vs. CIT (supra). The Special Bench of the
Tribunal also relied upon the judgment of the Gujarat High Court in Lakhanpal
National Ltd.'s case. The Revenue has attempted to distinguish the judgment of
the Gujarat High Court on the facile ground that the judgment of the Gujarat
High Court was one rendered in connection with a provisional assessment High
Court was one rendered in connection with a provisional assessment under
Section 141A and not in a regular assessment. In our view, this distinction is
hardly acceptable. In any event, a reading of the Gujarat High Court's judgment
shows that the judgment is not based merely on the adjustments permissible
under Section 141A, as is contended by the Revenue, but that the judgment
proceeds on an analysis of Section 43B and makes a finding that the entire
amount of excise duty / customs duly paid by the assessee in a particular
according year was an allowable deduction in respect of that year irrespective
of the amount of excise duty / customs duty which was included in the valuation
of the assessee's closing stock at the end of the according year. After coming
to this conclusion, the Gujarat High Court then proceeded to consider the
impact of Section 141A and granted appropriate relief thereunder. It is not
possible for us to accept the contention of the Revenue that the judgment of
the Gujarat High Court in Lakhanpal National Ltd.'s case is distinguishable on
the ground put forward.
14. The decision in Lakhanpal National Ltd.'s case which clearly laid down the
interpretation of Section 43B was followed by the judgments of the Madras High
Court and Bombay High Court and was again followed by the decision of Special
Bench of the Income Tax Appellate Tribunal, none of which have been challenged.
In these circumstances, the principle laid down in Union of India vs. Kaumudini
Narayan Dalal (supra), CIT vs. Narendra Doshi (supra) and CIT vs. Shivsagar Estate
(supra) clearly applies. We see no 'just cause' as would justify departure from
the principle. Hence, in our view, the Revenue could not have been allowed to
challenge the principle laid down in Lakhanpal National Ltd.'s case, which was
followed by the Inspecting Assistant Commissioner in the case of the assessee
in the three assessment years in question. We are, therefore, the view that the
Commissioner, the Income Tax Appellate Tribunal and the Calcutta High Court
erred in permitting the Revenue to raise a contention contrary to what was laid
down by the Gujarat High Court in Lakhanpal National Ltd's. case. This decision
has been subsequently followed by the decisions of the Bombay High Court in CIT
vs. Bharat Petroleum Corporation Ltd. (supra) and the Madras High Court in
Chemicals and Plastics India Ltd. vs. CIT (supra) as well as the decision of
the Special Bench in Indian Communication Network Pvt. Ltd. vs. IAC (supra),
which have all remained unchallenged.
15. Hence, the following order:-
Assessment Year 1984 -85
16. We set aside the judgment of the Calcutta High Court in ITR No.213 of 1993
and answer the question referred against the Revenue and in favour of the
assessee.
Assessment Year 1986-87
17. We set aside the judgment of the Calcutta High Court in ITR No. 122 of 1995
and answer the question referred in favour of the assessee and against the
Revenue.
Assessment Year 1987-88
18. We set aside the judgment of the Calcutta High Court in ITR No. 137 of 1995
and answer the question referred in favour of the assessee and against the
Revenue.
19. In view of the fact that other High Courts had taken a particular view, if the Calcutta High Court desired to depart from the uniform view taken by them, in fairness to the assessee, a certificate to appeal under Section 261 of the Act ought to have been granted.
20. The appeal is accordingly allowed with no orders as to costs.
12001 Indlaw MUM 7 (Bom)
22002 Indlaw MAD 431 (Mad)
31994 (206) ITR 96 (SB-AT)
4(1993) 44 ITD 573 (ITAT Cal.)
5(1987) 21 ITD 524 (ITAT, Del.)