2016 (11) TMI 716 - HC - Income Tax

Liability on account of customs duty - unascertained liability - ITAT deleted addition - Held that - Clause as existing in the subject Assessment Year has not at all been considered by the Tribunal in the impugned order while allowing the Respondent-Assessee s appeal for the Assessment Year 1986-87. The distinction in facts has been ignored by Tribunal while passing the impugned order. Secondly, in the present facts, the Respondent-Assessee filed a suit against its sellers M/s. Vinay Industries in the Civil Court at Ludhiana, apparently disputing its liability to pay the additional Customs Duty of ₹ 91.54 lakhs. Thus, the amount payable, has not been crystallized during the subject Assessment Year according to the Revenue. This fact was absent in the proceedings leading to the order dated 17th July, 1989 passed in respect of Assessment Year 1985-86. The aforesaid distinction was also missed sight of by the Tribunal while passing the impugned order dated 13th December, 2007. Thus the appeal of the Respondent-Assessee is restored to the Tribunal for final disposal.

Summary

Issues:
1. Appeal challenging the order of the Income Tax Appellate Tribunal for Assessment Year 1986-87.
2. Significant question of law regarding the addition of a disputed liability as contingent liability.
3. Comparison of facts between Assessment Year 1985-86 and Assessment Year 1986-87.

Analysis:
1. The judgment concerns an appeal under Section 260A of the Income Tax Act, 1961, challenging the order passed by the Income Tax Appellate Tribunal for Assessment Year 1986-87. The substantial question of law raised was whether the Tribunal was correct in allowing the appeal of the assessee by directing the deletion of an addition of ?91.54 lakhs, disallowed by the Assessing Officer on the grounds of being a contingent liability.

2. The facts revolve around an agreement for the purchase of Synthetic Waste, where an increase in customs duty led to a disputed liability of ?91.54 lakhs. The assessee filed a civil suit disputing this liability, claiming a deduction based on a Mercantile System of Accounting. However, the Assessing Officer disallowed the amount as it was contingent due to the ongoing dispute in the civil court. The Tribunal allowed the appeal, following its previous order for Assessment Year 1985-86.

3. The key differences between the two assessment years were highlighted. Firstly, the clauses of the agreements in question were different, affecting the liability allocation between the parties. Secondly, in the subject Assessment Year 1986-87, the liability had not been crystallized due to the ongoing civil suit, unlike in the previous year. The Tribunal overlooked these distinctions, leading to an incorrect application of the law.

4. The High Court quashed and set aside the Tribunal's order, emphasizing the importance of considering the different fact situations between the two assessment years. The appeal was restored to the Tribunal for reevaluation, with instructions to account for the specific circumstances of Assessment Year 1986-87. The Court refrained from answering the substantial question of law until the Tribunal reconsiders the appeal in light of the updated factual scenario.

5. In conclusion, the appeal was allowed, with no order as to costs, and the Tribunal was directed to expedite the decision-making process considering the distinct facts of Assessment Year 1986-87. All contentions were kept open for further consideration.