COMMISSIONER OF INCOME TAX Vs. K E KESAVAN AND SONS
HIGH COURT OF KERALA
COMMISSIONER OF INCOME TAX
K E Kesavan And Sons
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G.SIVARAJAN, J. -
(1.) THE Tribunal, Cochin Bench, at the instance of the Department has referred the following question of law for the decision of this Court :
'Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in upholding the decision of the CIT(A) deleting the sum of Rs. 9,11,380 deemed as profit under Section 41(1) of the IT Act for the asst. yr.. 1987 -88?'
(2.) THE matter arises under the IT Act, 1961 (for short 'the Act'). The brief facts necessary for the decision of this case are as follows : The respondent -assessee is a partnership -firm carrying on business in the export of marine products. During the course of the assessment for the year 1987 -88 the relevant accounting period ended 31st Dec., 1986, the AO noted that hi the balance sheet of the firm as on 31st Dec., 1986, there was a provision of Rs. 27,01,111 towards purchase -tax liability. The AO also found that out of the total provision of Rs. 27,01,111, Rs. 17,89,732 had already been taxed in the earlier years. Regarding the balance sum of Rs. 9,11,380 the AO took the view that the same can be brought to tax under Section 41(1) of the Act. This view was taken on the basis of the decision of the Supreme Court in Sterling Food's v. State of Karnataka and Anr. (1986) 63 STC 239 (SC) which has taken the view that the raw prawns purchased and the processed prawns exported are one and the same commodity. The said decision was rendered by the Supreme Court on 21st July, 1986, i.e., during the previous year relevant to the asst. yr. 1987 -88. The AO had accordingly brought to tax the sum of Rs. 9,11,380 as deemed profit under Section 41(1) of the Act in the assessment for the year 1987 -88. In appeal by the assessee the CIT(A) -I, Kochi, allowed the appeal directing deletion of this sum of Rs. 9,11,380. This is confirmed by the Tribunal in appeal by the Department. It is against the said order of the Tribunal the question of law specified in para 1 of the judgment is referred for decision of this Court.
Though notice was served on the respondent, nobody entered appearance, Shri P.K.R. Menon, learned senior standing counsel for the Revenue, submits that the sum of Rs. 9,11,380 added by the AO as deemed income of the assessee represents the deduction of the provision of purchase -tax liability made in the earlier assessment years and that in view of the decision of the Supreme Court in Sterling Foods' case mentioned supra there is a cessation of the purchase -tax liability during the previous year relevant to the assessment year in question and consequently the said amount was rightly treated as deemed income of the assessee in the assessment for the year 1987 -88. The senior counsel further submitted that the Tribunal has wrongly cast the burden on the Revenue to establish that there is cessation of liability during the previous year relevant to the assessment year in question. The senior counsel alternatively submitted that at any rate, when the Tribunal felt that there is no material on record to show that there is cessation of the purchase -tax liability during the previous year relevant to the assessment year in question the. Tribunal should have remitted the matter to the assessing authority to enable the Department to produce the requisite evidence in that regard.
(3.) WE have considered the matter. Admittedly the sum of Rs. 9,11,380 added in the assessment for the year 1987 -88 represents provision for purchase -tax liability allowed in the earlier assessment years. The only ground on which the AO has assumed that there is cessation of liability in respect of the said amount during the previous year relevant to the assessment year is the decision of the Supreme Court in Sterling Foods' case mentioned supra rendered on 21st May, 1986, which falls within the previous year relevant to the assessment year in question. The Tribunal has rightly noted that the question regarding the purchase -tax liability is not solely dependent on the question decided by the Supreme Court in Sterling Foods' case and, therefore, unless the assessment under the Sales -tax Act is completed allowing the claim it cannot be said that there is cessation of liability to purchase -tax which is a condition precedent for invocation of Section 41(1) of the Act. Of course the Tribunal has stated in the appellate order that there was no material brought on record by the Department to show whether the sales -tax assessment had since been closed. According to us that is the relevant circumstance to show the real position with regard to the purchase -tax liability of the respondent -assessee, for, if the assessment is completed by granting exemption claimed under Section 5(3) of the Central Sales -tax Act the position would be clear that there is cessation of purchase -tax liability at least in the assessment stage. The assessee has taken the stand that the assessment for the relevant assessment year is pending before the AO. The Tribunal, in the absence of any contra material, has acted on that basis and held that the Department has not established that there is cessation of purchase -tax liability during the previous year relevant to the assessment year warranting invocation of Section 41(1) of the Act.;
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