Tribunal being last Court of appeal on facts, its finding on question of fact is of significance, thus, where Tribunal did not correctly appreciate as to what Assessing Officer and Commissioner (Appeals) held and what was their reasoning which led to their respective conclusion, matter was to be remanded back for adjudication afresh

  • Vide Decision of Supreme Court Of India in Principal Commissioner of Income-tax v.Ballarpur Industries Ltd.

Facts of the case:

  1. The assessee is a Limited Company, which is engaged in the business of manufacturing of various kinds of papers. Case relates to AY 1993-94.
  2. According to the assessee, Mr. G.R. Hada and the assessee were the joint promoters of one Company called M/s Andhra Pradesh Rayons Limited.
  3. Since a dispute arose amongst the promoter shareholders, Mr. G.R. Hada filed a civil suit against the assessee and other promoter shareholders on the basis of an agreement, which was entered into amongst the promoter shareholders.
  4. In the abovementioned suit, a compromise was arrived at between the assessee and Mr. G.R. Hada. Pursuant to the said compromise, the assessee paid a sum of Rs.3.25 crores to Mr. G.R. Hada.
  5. The assessee claimed a deduction of Rs.3.25 crores as revenue expenditure because, according to them, they had paid the said sum to Mr. G.R. Hada for running their business.
  6. The AO examined the claim and held that the claim cannot be considered as “revenue expenditure”.
  7. The assessee felt aggrieved by the order of the AO and filed an appeal to the CIT – Appeals. The CIT – Appeals also confirmed the addition made by the AO.
  8. The assessee filed a second appeal in the Income Tax Appellate Tribunal. The Tribunal allowed the appeal and directed the AO to allow the deduction of Rs.3.25 crores as claimed by the assessee.
  9. Aggreived by the order of Tribunal, Revenue filed an appeal in the High Court of Mumbai. By impugned order, the High Court dismissed the appeal.
  10.  Revenue further appealed to the  Supreme Court.

Judgement:

The Honorable Supreme Court set aside the impugned order as well as the order of the Tribunal and remanded the case to the Tribunal.The need to remand the case to the Tribunal has arisen for the following reasons.

  • From the perusal of the order of the Tribunal, it was found that the Tribunal has recorded a finding, which reads as under:-

“The AO did not dispute the fact that the expenditure related to the business of the assessee. The CIT (A), however, reversed the findings of the AO and held that the expenditure cannot be considered as business expenditure. A perusal of the CIT (A)’s order can only lead to a conclusion that the CIT(A) was of the view that the expenditure in question was not a capital expenditure but of a revenue nature………..”

  • The aforesaid observation of the Tribunal, on what AO and CIT – Appeals held, does not seem to be correct and rather inconsistent when we peruse the finding of the AO. We find that the Tribunal did not correctly appreciate as to what AO and CIT – Appeals held.
  • The High court did not notice the aforesaid observation of the Tribunal and upheld the order of the Tribunal.

Keeping in view the question involved,the matter deserves to be remanded to the Tribunal for deciding the appeal filed by the assessee afresh on merits because the Tribunal being the last Court of appeal on facts, its finding on the question of fact is of significance.

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