2009 (1) TMI 82 - HC - Income Tax

ITAT deleting the additions in respect of Sales Tax refund - Tribunal has not decided whether on merits such addition was justified or not- ITAT was not justified in concluding that since question of refund is subjudice the income received by the assessee towards the refund could not have been added in the total income findings of the ITAT that Sales Tax refund should not be assessed as income till the litigation reaches finality is contrary to the provisions of S. 43 B - matter remitted

Summary

Issues:
1. Whether the ITAT was justified in law in deleting the additions in respect of Sales Tax refund?
2. Whether the findings of the ITAT regarding Sales Tax refund and the provisions of Section 43 B of the IT Act 1961 are contradictory?
3. Whether the ITAT and CIT(A) erred in holding that the amount in question cannot be added to the total income until the litigation reaches finality?

Issue 1:
The case involved an appeal against an order passed by the Income Tax Appellate Tribunal (ITAT) regarding the addition of sales tax refund to the income of the assessee for the assessment year 1989-90. The CIT(A) allowed the appeal, stating that the sales tax refund should not be added as the issue was subjudice. The ITAT upheld this decision, leading to the current appeal. The High Court held that the ITAT erred in deciding that the refund amount cannot be considered until the litigation reaches finality. The Court cited a Supreme Court case to support the view that once an order for refund is passed, it should be treated as income received by the assessee. The Court set aside the ITAT's decision and directed a fresh consideration of the matter.

Issue 2:
The appellant argued that the ITAT and CIT(A) erred in holding that the refund amount cannot be added until the matter reaches finality. The Court disagreed with this view, stating that once an order for refund is passed, it should be treated as income. The Court highlighted that the matter may take years to reach finality, and unless there is an interim order, the decision should be implemented. The Court emphasized that the ITAT and CIT(A) committed an error of law in their conclusions and set aside their findings.

Issue 3:
The respondent contended that the ITAT did not consider the merits of the case regarding the addition of the refund amount to the income. The Court acknowledged this and remitted the matter back to the ITAT to decide on the merits of the addition. The Court clarified that it had not examined the merits and left the question open for the ITAT to consider after hearing both sides. The Court directed the ITAT to decide the appeal afresh within two months from the date of the Court's order.

This judgment clarifies the treatment of refund amounts in income tax assessments and emphasizes that once an order for refund is passed, it should be considered as income received by the assessee, even if the matter is subjudice. The Court's decision highlights the importance of implementing orders unless stayed by a higher authority and directs a fresh consideration of the case by the ITAT.