1993 (6) TMI 116 - AT - Income Tax

Summary

Issues Involved:

1. Reopening of assessment for AY 1982-83.
2. Taxability of capital gains on the transfer of land.
3. Depreciation on bottles and shells.
4. Deduction of commission to wholesalers.
5. Addition for suppression of sales.
6. Taxability of capital gains for AY 1985-86.
7. Disallowance of unpaid sales tax under Section 43B.
8. Disallowance under vehicle maintenance.
9. Deduction of gratuity.
10. Depreciation on bottles and shells for AY 1985-86.

Issue-wise Detailed Analysis:

1. Reopening of Assessment for AY 1982-83:

The primary issue was whether the reopening of the assessment for AY 1982-83 was valid. The appellant-company had disclosed all primary facts, including the details of other liabilities and the nature of the receipts, which were advances against an agreement to sell land. The Tribunal found that the assessee had made full and true disclosure of all material facts necessary for the assessment. The reopening was based on the belief that income had escaped assessment due to the transfer of beneficial ownership of land. However, the Tribunal concluded that the details provided by the assessee were sufficient for the Assessing Officer to form an opinion. Thus, the reassessment proceedings were quashed.

2. Taxability of Capital Gains on the Transfer of Land:

The Tribunal examined whether the agreements entered into by the appellant-company with developers resulted in a transfer of land, attracting capital gains tax. The agreements allowed the developers to construct residential flats on the land owned by the appellant-company, but no registered document of transfer was executed. The Tribunal held that mere handing over possession did not constitute a transfer as per Section 2(47) of the IT Act. The Tribunal relied on previous decisions, which stated that collaboration agreements did not confer any ownership rights to the developers. Consequently, there was no transfer of land, and no capital gains tax was applicable.

3. Depreciation on Bottles and Shells:

The Tribunal upheld the CIT(A)'s decision to allow 100% depreciation on bottles and shells, treating them as plant. This issue had been consistently decided in favor of the assessee in previous years, and the Tribunal saw no reason to deviate from this position.

4. Deduction of Commission to Wholesalers:

The Tribunal upheld the CIT(A)'s finding that the commission paid to wholesalers was in the nature of a bulk discount based on the quantity lifted, and not sales promotion expenditure. Therefore, the deduction was correctly allowed.

5. Addition for Suppression of Sales:

The Assessing Officer had made an addition for suppression of sales based on the difference between the number of bottles and crown corks. The CIT(A) deleted the addition, finding no evidence of unrecorded purchases or sales. The Tribunal upheld this decision, agreeing that the addition was based on mere conjecture.

6. Taxability of Capital Gains for AY 1985-86:

The assessee had offered Rs. 3.12 crores as capital gains in AY 1985-86, which was now being contested. The Tribunal quashed the inclusion of this amount, holding that there was no transfer of land as defined under Section 2(47) of the IT Act. The Tribunal relied on the Delhi High Court's decision in CIT vs. Bharat General Re-insurance Co. Ltd., which stated that income could not be taxed merely because the assessee had shown it as income if it was not actually taxable.

7. Disallowance of Unpaid Sales Tax under Section 43B:

The assessee challenged the disallowance of unpaid sales tax by invoking the principle that in cases of conflicting High Court decisions, the view favorable to the assessee should be adopted. The Tribunal followed the decisions of the Andhra Pradesh, Orissa, and Calcutta High Courts and deleted the disallowance.

8. Disallowance under Vehicle Maintenance:

The Tribunal did not interfere with the disallowance of Rs. 75,000 under vehicle maintenance, considering it a matter of estimation.

9. Deduction of Gratuity:

The Tribunal directed the Assessing Officer to verify and allow the deduction of the actual amount of gratuity deposited with LIC under the Group Gratuity Scheme, which was Rs. 2,11,711.

10. Depreciation on Bottles and Shells for AY 1985-86:

The Tribunal upheld the CIT(A)'s decision to allow 100% depreciation on bottles and shells, treating them as plant, consistent with the decision for AY 1982-83.

Conclusion:

The appeals by the assessee for AY 1982-83 were allowed, and for AY 1985-86 were partly allowed. The Department's appeals were partly allowed. The Tribunal's decisions were consistent with previous rulings and legal principles, ensuring that the assessments were based on full and true disclosure of material facts.