(1.)The opinion recorded by the Kerala High Court in ITR No. 16 of 1997 has given rise to this appeal filed by the Chief Commissioner of Income-tax. The dispute relates to the assessment year 1985-8 At the instance of the Revenue the following question was referred under Section 256(1) of the Income-tax Act for the opinion of the High Court :
"Whether on the facts and in the circumstances of the case, the Tribuanl is right in law and fact in holding that Rs. 3,02,758/- cannot be brought to tax and in deleting the addition of Rs. 3,02,758/- sustained by CIT (Appeals) -
The High Court accepted the view of the Tribunal which partly allowed the appeal of the assessee and answered the question in favour of the assessee.
(2.)The facts in brief are : The respondent-assessee is engaged in the business of tea, spices etc. During the assessment year 1985-86 (previous year ending on 31-3-1985) the assessee 'wrote-back' in its accounts a sum of Rs. 14,65,997/- representing the provision made during earlier years (1978-1981) towards its purchase tax liability. It appears that the liability to pay purchase tax on certain goods was in dispute and, therefore, the provision was made. Further, it appears that the assessee, in support of its claim for puchase tax relief, inter alia, relied on the decision of the Kerala High Court in Neroth Oil Mills' case. The SLP filed by the Kerala State against the decision of the High Court in the said case was rejected by this Court in November, 1984. Apparently, for that reason, the assessee thought it fit to reverse the provision made earlier towards purchase tax and therefore made the entries in the books of account during the year ending on 31-3-198 The assessing officer added the sum of Rs. 14,65,997/- which represents the provision made towards purchase tax during the assessment years 1978-79, 1979-80 and 1980-81, treating the same as the income of the previous year ending on 31-3-1985. In the first appeal, the CIT (Appeals) held that there was no justification to include the sums which were already included in the course of reassessments made for the years 1979-80 and 1980-81. However, he upheld the addition of Rs. 3,02,758 pertaining to the assessment year 1978-79. The Appellate Commissioner held that the liability of the assessee finally ceased during the year 1985-86 in view of the rejection of SLP in Neroth Oil Mills' case in November 1984. Certain observations were also made as regards the includibility of the sums pertaining to assessment years 1980-81 and 1981-82 in respect of which reassessments were made. However, in this appeal, we need not go into the details thereof.
(3.)On further appeal by the assessee, the Tribunal set aside the addition of Rs. 3,02,758/- which was upheld by the Appellate Commissioner. The Tribunal did not agree with the view taken by the first Appellate Authority that there was no cessation of liability within the meaning of Section 41(1) of the Income-tax Act during the relevant year on account of dismissal of SLP in another case. The Tribunal observed that for claiming exemption from purchase tax on the ground that transaction was in the course of export, two conditions were required to be fulfilled. (1) things purchased and exported are one and the same and (2) the purchases were against firm orders for export. Neroth Oil Mills' case was concerned only with the first aspect and not the second aspect. Therefore, the Tribunal observed that the judgment in Neroth Oil Mills' case, even if it had attained finality does not put an end to the disputed issue involved in the respondent-assessee's case. The Tribunal further noticed that as late as 1993, the sales tax department was pursuing the issue relating to purchase tax liability of the assessee from the assessment year 1974-75 onwards and the cases were still pending decision before the Sales Tax Authorities. The Tribunal pointed out that the unilateral action on the part of the assessee in writing-back the amounts could not have the effect of extinguished the statutory liability. On reference, the High Court approved the view taken by the Tribunal and held that Section 41(1) cannot be invoked in the instant case. Hence, this appeal by revenue by Special leave.