BHASKAR BHATTACHARYA,J. - (1.) THIS appeal under S. 260A of the IT Act is at the instance of an assessee and is directed against an order dt. 28th Oct., 2003 passed by the Tribunal, "B" Bench, Calcutta, in income-tax appeal bearing ITA Nos. 973 and 1103/Kol/2001 for the asst. yr. 1996-97.
(2.) THE facts giving rise to filing of this appeal may be summed up thus : (A) The appellant is a public limited company within the meaning of the Companies Act, 1956 and is assessed to tax. The appellant filed a return on 29th Nov., 1996 disclosing a taxable income of Rs. 56,35,160 for the asst. yr. 1996-97. (B) The IT Department commenced a search against the assessee on 3rd Sept., 1997 and the same was concluded on 31st Oct., 1997. (C) During the previous year relevant to the asst. yr. 1996-97, the appellant imported aluminium ingots/rods worth Rs. 8,22,42,335 from two Swiss companies. Imports worth Rs. 3,25,47,651 were made from M/s Gerald Metals, Switzerland and worth Rs. 4,96,94,684 from Euromin S.A., Geneva. Those imported goods were sold to an Indian company, M/s J.J.H. Industry Ltd. (D) Upon payment to the Swiss suppliers, their respective accounts were debited and upon a sale to M/s J.J.H. Industries Ltd., the account of M/s J.J.H. Industries Ltd. was debited with corresponding credit to the revenue account. The account of the Swiss suppliers to which debits had been made upon payment for the imported goods should have been closed by transferring the same to the purchase account but in fact the accounts of Swiss suppliers were closed by transfer to the account of M/s J.J.H. Industries Ltd. under the head "Advances". The result was that in respect of the sale of the imported materials to M/s J.J.H. Industries Ltd., the income stood accounted for but there was no debit to the purchase account by way of expenditure and instead, the account of M/s J.J.H. Industries Ltd. stood debited twice, once at the time of sale and again upon the closure of the Swiss suppliers accounts. In other words, no expenditure on account of purchase of the imported materials was charged in the accounts with (while) the income upon sale thereof was duly reflected in the accounts. (E) Upon discovery of the said mistake, the appellant passed a rectification entry in the accounts for the year subsequent to the previous year ending on 30th Sept., 1997. In the said subsequent year the appellant did not claim any deduction in respect of the said amount of Rs. 8,22,42,335. (F) In September 1994, the appellant purchased a factory shed and land at Silvassa in the Union Territory of Dadra and Nagar Haveli at a cost of Rs. 1,10,09,000 for expansion of its manufacturing activities. The appellant duly obtained the consent of the pollution control authorities for carrying on the manufacturing activity at Silvassa and also applied for and obtained registration with the Central Excise authorities for the manufacturing activity at Silvassa. Registration under the sales-tax laws was also obtained in respect of the business at Silvassa. (G) The trial production was carried out at Silvassa with the help of tools and dye from the appellant's Calcutta factory and thereafter the appellant decided to expand the factory shed at Silvassa and consequently, during the previous year ending on 31st March, 1996 a sum of Rs. 1,11,40,100 was spent on further construction. (H) However, because of financial problems, the commercial production could not be commenced at Silvassa and in order to tide over the financial difficulties, in March 1996, the appellant started (sold) the factory shed at Silvassa for Rs. 4,78,91,114 resulting in a profit of Rs. 2,57,42,014. Since the factory shed at Silvassa formed part of the block of assets along with the appellant's other factory sheds under the provisions of S. 50 of the Act, the consideration received upon transfer of the Silvassa factory shed was required to be reduced from the value of the block of assets and depreciation was to be allowed under s. 32 of the Act on the value of the block of assets so reduced. In other words, the profit made on the sale of the Silvassa factory shed was not separately liable for capital gains tax but the sale proceeds thereof were to be reduced from the block of assets resulting in a lower claim for depreciation. In the original return filed for the asst. yr. 1996-97, though the appellant excluded the profit on the sale of the factory, the depreciation claim was not consequently reduced. (I) Upon discovery of the aforesaid mistakes, on 6th Nov., 1997, the appellant filed a revised return declaring a business loss of Rs. 5,93,30,254. In the said revised return, the depreciation claim was reduced from Rs. 1,70,47,101 made in the original return to Rs. 1,16,67,392 and the sum of Rs. 8,22,42,335 which was not debited to the purchase account was reduced from the taxable income. (J) In course of the assessment proceedings, the appellant, inter alia, submitted before the AO all the material documents in order to show that the sum of Rs. 8,22,42,335 was not debited to the purchase account and as a result, the appellant's income had been overstated by the said amount in the original return. The appellant also submitted to the AO the relevant and material documents in respect of the Silvassa factory shed. (K) The AO sought to have an enquiry conducted at the factory shed in course of the assessment proceedings long after the same was sold and on the basis thereof concluded that the same was never put to use. AO held that S. 50 of the Act was not applicable and since no depreciation had been allowed on the Silvassa factory shed, short-term capital gain had to be computed upon sale thereof. (L) The AO accordingly treated the profit of Rs. 2,57,42,014 as short-term capital gain. In respect of the appellant's claim for deduction of purchases of Rs. 8,22,42,335, the AO did not dispute the facts stated by the appellant but disallowed the claim on the ground that the mistake was not bona fide or inadvertent but deliberate. The AO also disallowed provident fund contributions of Rs. 6,93,436 on the ground that the same were not paid within the due date. (M) Another addition made to the assessment was on account of alleged unexplained expenditure of Rs. 100.38 lakhs in respect of aluminium ingots transferred to J.J.H. Industry Ltd. Going by the tax audit report, the AO concluded that consumption of aluminium ingots had been shown only at 178.98 MT whereas the quantity transferred to J.J.H. Industry Ltd. was 301.446 MT. The value of the difference of 122.457 MT was worked out by the AO at Rs. 100.38 lakhs and treated as unexplained expenditure on purchases not accounted for in the books of account. (N) Being aggrieved by the aforesaid decision of the AO, the appellant preferred an appeal before the CIT (A) and filed written submissions and all relevant and material documents and the CIT(A) disposed of the appeal with the following observations : (i) The CIT(A) accepted the position that the account of M/s J.J.H. Industry Ltd. was debited with the cost of raw materials purchased from the Swiss suppliers which she treated as a deliberate act. However, the claim was disallowed on the ground that the wrong entry should have been noticed much earlier and according to the director's report to the shareholders, the appellant had earned a profit but if the purchases were debited the accounts should reflect a completely different picture than what was sought to be portrayed in the director's report. (ii) In respect of the delayed provident fund contributions, the CIT(A) held that the appellant was entitled to deduction in respect of contributions to the extent of Rs. 3,55,156 which were paid within the previous year though after the due date. (iii) In respect of the treatment of the profit of Rs. 2,57,42,014 upon sale of the Silvassa factory shed, the CIT(A) held that the appellant had not shown that the Silvassa factory shed was acquired for the purpose of making commercial production and was used to make trial production. She accordingly approved the action of the AO. (iv) In respect of the addition of Rs. 100.38 lakhs on account of alleged unexplained expenditure, the CIT (A) held that the entire 301.446 MT of aluminum ingots valued at Rs. 247 lakhs represented unaccounted for purchases and not the sum of Rs. 100.38 lakhs worked out by the AO. She, however, held that even if any addition was made on account of unexplained expenditure, the identical amount would have to be allowed as deduction as expenditure incurred for the purpose of the business and as such, there would be no effect in the taxable income. (O) Against the said order of the CIT(A), both the appellant and the Revenue preferred appeals before the Tribunal and by the order dt. 28th Oct., 2003 the Tribunal disposed of the appeal with the following findings : (i) In respect of the claim of deduction of Rs. 8,22,42,335, the Tribunal held that the mistake could not be established and the matter could not be restored to the AO to enable the appellant to explain the occurrence of the mistake resulting in understatement of profits and held that the entry was a fictitious one designed to reduce the legitimate tax liability and an afterthought one. (ii) In respect of the assessment of profit of Rs. 2,57,42,014 upon sale of the Silvassa factory shed, the Tribunal upheld the order of the CIT(A). (iii) With regard to the provident fund contributions, the Tribunal proceeded on the basis that the issue was concluded against the appellant by the judgment of this Court and the claim of the Department as regards unexplained expenditure, the Tribunal directed the AO to work out the actual unexplained expenditure as worked out by the CIT(A) and superimpose the same on the working made by the AO and to reconcile the same after giving the appellant an opportunity of being heard. Being dissatisfied, the appellant has come up with the present appeal.
(3.) AT the time of admission of the present appeal, a Division Bench of this Court formulated the following substantial questions of law for determination : "(i) Whether the Tribunal was justified in law in not allowing deduction of Rs. 8,22,42,335 in respect of purchases of imported raw materials not debited as an expenditure in the accounts and its purported findings that the wrong entry in the accounts was not established or that it was a fictitious entry or afterthought designed to reduce the tax liability/understate the profit and upholding the disallowance are arbitrary, unreasonable and perverse ? (ii) Whether on a true and proper interpretation of the provisions of ss. 2(11), 32(1), 43(6) and 50 of the IT Act, 1961 the sale proceeds of the Silvassa factory shed were required to be reduced from the block of assets and no short-term capital gains could be computed in respect of the said transfer and the purported findings of the Tribunal that the Silvassa factory shed was not put to use and upholding the assessment of the profits of Rs. 2,57,42,014 as short-term capital gains are arbitrary, unreasonable and perverse ? (iii) Whether on a true and proper interpretation of the provisions of S. 43B of the IT Act, 1961 as amended, the Tribunal was justified in law in holding that the appellant was not entitled to deduction in respect of the provident fund contributions of Rs. 3,55,156 made during the previous year ended 31st March, 1996 ? (iv)(a) Whether the Tribunal was justified in law in remanding the issue relating to alleged unexplained expenditure to the AO and its purported findings in that behalf are arbitrary, unreasonable and perverse ? (b) Whether and in any event, the Tribunal was justified in law in not deciding the appellant's contention that any addition on account of alleged unexplained expenditure was revenue neutral since the identical amount would have to be simultaneously allowed as business expenditure ?" ;