Revenue v. Income Tax Appellate Tribunal

We have heard Mr GK Joshi, Senior Advocate assisted by Mr S Sarm 2. a, Advocate for the Revenue and Dr. AK Saraf, Senior Advocate assisted by Ms N H awelia, Advocate for the respondent. The facts in bare essentials indispensable for the present pursu 3. it disclose that the respondent is an assessee under the Act as a company engage d in the business of growing, manufacturing and selling of tea. It submitted its return for the assessment years 1996-97, 1997-98 and 1998-99 showing, amongst o thers, expenditure of Rs. 1,02,75,000/-, Rs. 1,30,41,600/- and Rs. 1,17,80,000/- as payments made by it to M/s Gladioli Estates (P) Limited, Kolkata (for short , hereinafter referred to as ’GEPL’) for supply of organic manure for the aforem entioned assessment years. The Assessing Officer, however, added these amounts t o the income of the assessee and finalized the assessments under Section 143 of the Act.

#4. Being aggrieved, the respondent-assessee preferred appeals befor e the Commissioner of Income Tax (Appeals), Guwahati [for short, hereinafter ref erred to as ’the CIT (Appeals)] which while disposing of the same held that the expenditure of the aforestated amounts towards the cost of organic manure and ap plication charges paid to M/s GEPL could not be disallowed. The Revenue being di ssatisfied, preferred the aforementioned appeals before the Income Tax Appellate Tribunal, Gauhati Bench, Guwahati (for short, hereinafter referred to as ’the T ribunal’) which by the orders impugned in the present appeals sustained the dete rmination made by the CIT (Appeals) and remitted the matter to the Assessing Off icer with a direction to re-examine the issue on the basis of the orders passed by the Income Tax Appellate Tribunal, Kolkata involving identical transactions c oncerning M/s GEPL and Bishnauth Tea Company, an associate unit of the responden t-assessee relating the assessment years 1995-96 and 1996-97. The learned Tribun al directed that if on verification of the appellate orders the Assessing Office r found that it (Income Tax Appellate Tribunal, Kolkata) had accepted the genuin eness of the transactions between M/s GEPL and other companies belonging to the Williamson Magor Group, then he would complete the assessment according to the f indings recorded in the appellate orders. The Assessing Officer was also require d to reframe the assessment expeditiously after affording opportunity to the ass essee of submitting the relevant orders of the Income Tax Appellate Tribunal, Ko lkata. Being aggrieved, the Revenue is in appeal.

#5. g substantial question of law was framed: After hearing the learned counsel for the parties, the followin Whether on the facts and in the circumstances of the case, the Tribunal was just ified and correct in law in directing the Assessing Officer to confine the asses sment to the findings recorded by the Calcutta Bench of the Tribunal in the case of Gladioli Estates (P) Limited and Bisnauth Tea Company Limited while remittin g the issue relating to the cost of organic manure claimed at Rs. 1,02,75,000.00 /Rs. 1,17,80,000.00/ Rs. 1,30,41,000.00 to the Assessing Officer and is not the said decision perverse ?

#6. Though initially another question of law was framed, in view of the judicial interpretation provided in connection therewith, the same was answe red in favour of the Revenue in terms of the rendering of the Apex Court in Comm issioner of Income Tax -vs- Williamson Magor Financial Services & Ors., (2008) 2 SCC 202. It is essential to record at this stage that the factual narration has been limited to the extent essential and having a bearing on the question of la w required to be answered. The pleaded facts have, thus, been consciously trimme d to suit this purpose.

#7. Mr Joshi has assiduously urged that as the doctrine of res judic ata, having regard to the singular features of assessment to ascertain the taxab le income yearwise is inapplicable to the exercises prescribed by the Act, the l earned Tribunal fell in gross error in directing the Assessing Officer to confin e the scrutiny with regard to the allowance/disallowance of the payments made by the respondent-assessee to M/s GEPL for supply of organic manure on the basis o f the orders rendered by the Income Tax Appellate Tribunal, Kolkata in connectio n with the transactions between it (M/s GEPL) and Bishnauth Tea Company Limited and, thus, the question of law framed ought to be answered in favour of the Reve nue. The learned senior counsel clarified that the Revenue does not entertain an y demur against the direction of the learned Tribunal to the Assessing Officer t o re-examine the issue, but would insist that he be left free to decide the same in accordance with law without being shackled by the determinations made by the learned Income Tax Appellate Tribunal, Kolkata in transactions different from t hose involving the respondent-assessee. According to Mr Joshi, the facts and cir cumstances of the case demonstrated an obvious tax avoiding device of the respon dent-assessee, which in the interest of public revenue, ought not to be encourag ed and, thus, interference with the impugned directions of the learned Tribunal is warranted. He sought to draw sustenance for his contentions from the decision s of the Apex Court in Income Tax Officer, Award, Sitapur -vs- Murlidhar Bhagwan Das, 52 ITR 335 and in McDowell & Co. Ltd. -vs- Commercial Tax Officer, 154 ITR 148. Dr. Saraf, in reply, while contending that no substantial questi 8. on of law is involved in the present appeals, apprised this Court that meanwhile re-assessment for the assessment years in question has already been completed b y the Assessing Officer in conformity with the impugned directions of the learne d Tribunal allowing the claim of the respondent-assessee qua the payments made t o M/s GEPL for supply of organic manure and, thus, the appeals have been rendere d infructuous thereby. While admitting that the doctrine of res judicata per se is unavailable in tax jurisprudence, the learned senior counsel emphasised that this proposition, however, did not signify that the decisions rendered on identi cal fact situations involving common questions of law would be bereft of any pre cedential value to guide future adjudications. Referring to the text of the orde rs of the learned Tribunal, Dr. Saraf sought to highlight the inconsistent appro ach of the Revenue vis-à-vis the transactions involved and insisted that in the interest of finality of assessment, the appeals, in the attendant facts and circ umstances, ought to be dismissed in limine. He apprised this Court as well that the Revenue’s move to reopen the assessments of the respondent-assessee on simil ar grounds for the assessment years 1991-92 to 1994-95 had been interfered with by this Court by rejecting its imputation of the respondent-assessee’s income es caping assessment on account of failure to disclose material facts pertaining to its transactions with M/s GEPL, a determination sustained by the Hon’ble Apex C ourt. According to Dr. Saraf, the factual premise did not in any manner evience any attempt on the part of the respondent-assessee to withhold its actual income and, thus, the plea of fraudulent device to camouflage the same and defraud the Revenue is wholly unfounded. The learned senior counsel relied on the following decisions of the Apex Court as well of this Court in support of his contentions : i) M/s Radhasoami Satsang, Saomi Bagh, Agra -vs- Commissioner of Income Tax, (19 92) 1 SCC 659 ii) Bharat Sanchar Nigam Litd & Anr. -vs- Union of India & Ors., (2006) 3 SCC 1 iii)Union of India & Anr. -vs- Azadi Bachao Andolan & Anr. (2004) 10 SCC 1 iv) Eveready Industries India Ltd. -vs- Joint Commissioner of Income Tax (Assess ment), 243 ITR 540 v) Joint Commissioner of Income Tax (Assessment) & Ors. -vs- George Williamson ( Assam) Ltd., 258 ITR 126

#9. We have extended our anxious consideration to the pleaded facts and the arguments advanced. As would be apparent from the Assessment Order dated 25.9.99 (as in ITA 2/2011) under Section 143(3) of the Act qua the aspect under scrutiny, on receipt of the letter dated 20.1.99 of the respondent-assessee cla iming payment of Rs. 1,02,75,000/- to M/s GEPL during the financial year 1995-96 (corresponding to the assessment year 1996-97) and the supporting invoices, vou chers, challans etc., the Assessing Officer issued summons under Section 131 of the Act to M/s GEPL, Kolkata to furnish the particulars regarding supply of orga nic manure to it (respondent-assessee). In reply, M/s GEPL in writing informed t he Assessing Officer that the supply and application of the organic manure to th e different Tea Estates of the respondent-assessee had been carried out during t he relevant period by its sub-contractors. Acting on the addresses furnished by it, the Assessing Officer, thereafter caused summons under Section 131 of the Ac t to be served on six sub-contractors and their statements on oath were recorded . These sub-contractors in their statements having categorically denied of execu ting any sub-contract work under M/s GEPL pertaining to supply and application o f organic manure to any of the Tea Estates of the respondent-assessee during the financial year 1995-96, the Assessing Officer on the basis thereof required it (respondent-assessee) to show cause as to why the entire amount of Rs. 1,02,75,0 00/- would not be added to its total income for the assessment year 1996-97. Tho ugh the respondent-assessee responded to the notice reiterating its stand, the A ssessing Officer rejected the same and branded the entire transaction to be a co lourable device to defraud the Revenue and disallowed its claim towards cost of the organic manure and application charges amounting to the aforementioned sum.

#10. The CIT (Appeals) on an analysis of the factual matrix observed that there was no dispute that the money was paid by the respondent-assessee to M/s GEPL for supply of organic manure as well as the services rendered in connec tion with the application thereof in its Tea Estates and, thus, concluded agains t want of genuineness of the payments claimed to have been made by it (responden t-assessee). It was recorded that the factum of this payment by the respondent-a ssessee to M/s GEPL was not disputed and that in absence of proved fraud, its (r espondent-assessee) claim of expenditure of Rs. 1,02,75,000/- could not be disal lowed.

#11. The learned Tribunal while broadly endorsing the above conclusio n of the CIT (Appeals) was of the further view that the statements of the sub-co ntractors recorded in absence of the respondent-assessee as well as M/s GEPL cou ld not have been relied upon without affording them an opportunity of cross exam ining these persons, more particularly, when their testimony had been acted upon to draw adverse inference against the respondent-assessee. The learned Tribunal further noticed from the materials on record that in the income tax returns fil ed by the same sub-contractors the income received by them against rendering of services to M/s GEPL had been offered for tax for the assessment year 1996-97. I t recorded as well that M/s GEPL had been regularly supplying organic manure to the gardens of the respondent-assessee in the earlier years also. That based on the same information and grounds, the respondent-assessee’s assessment for the a ssessment year 1991-92 to 1994-95 were re-opened under Section 147 of the Act a nd that this Court had rejected the Revenue’s allegation that its income had esc aped assessment on account of failure to disclose material facts relating to its (assessee) transaction with M/s GEPL was noted. The learned Tribunal further no ticed that in the assessment of M/s GEPL for the assessment year 1995-96 the pay ments made by this company to its sub-contractors had been disallowed on the bas is of their statements denying services for application of manure to the gardens by Williamson Magor Group of companies. That ’B’ Bench of the Income Tax Appell ate Tribunal, Calcutta by its order dated 15.5.2002 in ITA 493/C/99 had upheld t he order of the CIT (Appeals) deleting such disallowance on the ground that the transactions between the sub-contractors and M/s GEPL were not bogus and that th e sub-contractors had later retracted their statements against supply and applic ation of organic manure was taken note of. The learned Tribunal also brought on record that on the same set of facts disallowance had been made in the assessmen ts of Bishnauth Tea Company Ltd., an associate of the respondent-assesse in the assessment years 1995-96 and 1996-97 involving supply of organic manure by M/s G EPL to its gardens in the State of Assam. That the disallowance had been on the same ground i.e. denial of the sub-contractors of M/s GEPL of having supplied th e organic manure was noted. It also took into account the order dated 1.7.2004 o f the ’C’ Bench of the Income Tax Appellate Tribunal, Kolkata in ITA 1054 and 10 39(Cal)99 for the assessment years 1995-96 and 1996-97 preferred by the Revenue against the order of the CIT(Appeals) deleting such disallowance.

#12. The learned Tribunal thus concluded that on identical facts its coordinate Benches at Kolkata had recorded concurrent findings that the transact ions between M/s GEPL and its sub-contractors and M/s GEPL and Williamson Magor Group of companies were genuine and that the cost of supply and application of m anure was allowable business expenditure. It was recorded in particular that M/s GEPL had effected supply of organic manure to the respondent-assessee and Bishn auth Tea Company through the same set of contractors and in an identical manner. It was in this background that the learned Tribunal directed the Assessing Offi cer to take note of the appellate orders of the two Benches of the Income Tax Ap pellate Tribunal, Kolkata on the issue while re-framing the assessment. The textual facts witnessing the progression of events as involv ed in ITA Nos. 3/2012 and 4/2012 are identical.

#13. That the appeal preferred by the Revenue against the order dated 1.7.2004 passed by the Income Tax Appellate Tribunal, C-Bench, Kolkata in ITA N o. 1054 and 1039 (Cal) of 1999 was not admitted by the Hon’ble Calcutta High Cou rt being bereft of any substantial question of law is a matter of record. Having regard to the overwhelming identicalness on the decisive aspects of the transac tions involved and the clarity, consistency and finality of the conclusions reco rded by the learned Tribunal with reference, amongst others, to the decisions of the Income Tax Appellate Tribunal, B & C Benches, Kolkata, we are of unhesitant opinion that the directions contained in the impugned judgment and order for gu iding the Assessing Officer to conduct the assessment afresh cannot be faulted w ith. Bearing in mind the transacting parties, the commodity and executing agenci es involved, the assessment years, the materials acted upon and the logical dedu ctions available on a dialectical assessment of the overall factual conspectus, the assailment of the Revenue in the instant appeals lacks persuasion. Though it has been reiterated in Bharat Sanchar Nigam Ltd. (supr 14. a) that res judicata does not apply in matters pertaining to tax for different a ssessment years, their Lordships underlined as well that the courts will general ly adopt an earlier pronouncement of law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. Their Lordship s clarified that the reason why the courts have held parties to the opinion expr essed in a decision in one assessment year to the same opinion in a subsequent y ear is not because of any principle of res judicata but because of the theory of precedent or the precedential value of the earlier pronouncement. It was held f urther that where the facts and the law in a subsequent assessment year are the same, no authority whether quasi-judicial or judicial can generally be permitted to take a different view.

#15. As noticed hereinabove, the transactions involved have in no unc ertain terms been held to be genuine sans any semblance of fraud. Moreover, admi ttedly, assessments have been made afresh for the assessment years involved and the orders to that effect demonstrate that the claim of the respondent-assessee of payment towards supply of organic manure and application thereof to its Tea E states by M/s GEPL has been accepted. In this view of the matter, the subtle nua nces of tax avoidance and tax evasion as dwelt upon in the authorities cited at the Bar, in our view, does not call for any dilation in the present adjudicative pursuit.

#16. costs. In the wake of the above, the appeals fail and are dismissed. No