ITR/39/1995 1/13 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 39 of 1995 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA Sd/- HONOURABLE MS.JUSTICE H.N.DEVANI Sd/- =================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? =================================================== COMMISSIONER OF INCOME TAX - Applicant(s) Versus KASHIRAM TEXTILE MILLS PVT. LTD. - Respondent(s) Appearance : MR BB NAIK for Applicant(s) : 1, MR MANISH J SHAH for Respondent(s) : 1, ================================================= CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MS.JUSTICE H.N.DEVANI ITR/39/1995 2/13 JUDGMENT Date : 25/01/2006 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA) 1 The Income Tax Appellate Tribunal, Ahmedabad Bench 'C' has referred the following two questions for each of the references under Section 256(2) of the Income Tax Act,1961. “R.A.No.352/Ahd/1988 : (1)Whether, the appellate Tribunal is right in law in deleting the addition of Rs.7,65,960/- on account of fictitious purchases of colour and chemicals ? (2)Whether, the appellate Tribunal is right in law in recalling the earlier order on the same facts ? R.A.No.353/Ahd/1988 : (1)Whether, the appellate Tribunal is right in law in deleting the addition of Rs.6,40,960/- on account of fictitious purchases of colours and chemicals ? (2)Whether, the Appellate Tribunal is right in ITR/39/1995 3/13 JUDGMENT law in recalling its earlier order on the same facts?” Both these references arise out of the appeal of the assessee and appeal of the Revenue respectively. 2 The Assessment Year is 1977-78 and the relevant accounting period is commencing from 1/7/1975 and ending on 30/6/1976. The assessee, a Private Limited Company, is carrying on business of bleaching, dyeing, printing and processing of grey cloth purchased from the market, and for this purpose utilised colours and chemicals as raw materials which are procured from the market. The case of the Assessing Officer was that the purchases shown by the assessee of colours and chemicals were fictitious and hence an addition of Rs.6,40,960/- came to be made. 3 The assessee carried the matter in appeal and succeeded partly. The Commissioner (Appeals) ITR/39/1995 4/13 JUDGMENT upheld the addition to the extent of Rs.1,25,000/- while granting relief for the balance amount. Against the order of Commissioner (Appeals) Revenue preferred an appeal challenging the relief granted by Commissioner (Appeals), and the assessee preferred appeal challenging partial confirmation of the addition. 4 The Tribunal after hearing both the appeals together passed a consolidated order on 20/8/1987 whereunder the appeal of revenue was allowed and that of the assessee was dismissed on this count. The assessee thereupon preferred a Misc. Application bearing No.78/Ahd/1987 inviting attention of the Tribunal to certain errors committed by the Tribunal. As the said Misc. Application and the order thereon were not forming part of the Paper Book, the learned Counsel for the applicant-revenue was directed to produce the same so as to complete the record and enable the Court to appreciate the ITR/39/1995 5/13 JUDGMENT contentions of the parties. With the consent of the learned Counsel appearing for the respective parties Misc. Application filed by the assessee before the Tribunal, extract of the original order dated 20/8/1987, order dated 2/12/1987 made on Misc. Application and order dated 3/12/1989 rejecting the reference application have been taken on record. 5 To complete the sequence of events it requires to be noted that while passing the order on 2/12/1987 in M.A.No.78/Ahd/1987 the Tribunal recalled its order dated 20/8/1987. Thereafter, Tribunal heard the appeals and passed a consolidated order dated 26/2/1988 dismissing the appeal of the Revenue and partly allowing the appeal of the assessee. It is this order which is under challenge. 6 Heard Mr.B.B.Naik, learned Standing Counsel for the applicant. In relation to question No.2 ITR/39/1995 6/13 JUDGMENT in each of the references the contention was that in light of ratio of Apex Court decision in case of Commissioner of Income Tax Vs. Hindustan Zinc Ltd (2000)243 ITR 867, the order of Tribunal amounted to review and unless such powers are statutorily available to an authority it would not be open to undertake such an exercise. He, therefore, submitted that the entire order was without jurisdiction. The only powers that Tribunal has are in terms of Section 254(2) of the Act. He also pressed into service the decision in the case of C.I.T. Vs. Shervani Sugar Syndicate Ltd.(1993)200 ITR 745 and in the case of Salem Co-operative Central Bank Ltd.(1993) 201 ITR 697, with a special reference to the observation at page nos. 700 & 701 of the reports. In sum and substance, the submission was that the so called order of rectification was not an order of rectification but was an order of review which was not permissible. ITR/39/1995 7/13 JUDGMENT 7 When it was pointed out to the Counsel that the said order viz. Order dated 2/12/1987 had attained finality and was not under challenge, he submitted that it was open to the applicant to agitate the said issue because the impugned order dated 26/2/1988 would be part and parcel of the rectification proceedings. In other words, order dated 2/12/1987 was merely an interim order and had merged in the present order. 8 In relation to question No.1 in both the references it was submitted that the Tribunal had committed an error in appreciating the evidence. That the first order in point of time whereby the appeal of Revenue had been allowed and the assessee's appeal dismissed on this ground ought to be treated to be the only subsisting order. 9 In so far as question No.1 is concerned the Tribunal has taken note of the fact that Revenue has not disputed the details of the ITR/39/1995 8/13 JUDGMENT closing stock. Therefore, the Tribunal has found, that in the facts and circumstances of the case, the existence of the raw materials purchased cannot be doubted, and if that is the situation, there could be no case for disputing the purchases. The Tribunal has further recorded that there was no material on record to conclude that in addition to the alleged fictitious purchases there were also some other purchases for the same material under different invoices which could be reflected in the closing stock. It is further recorded by the Tribunal that to the contrary, from the details submitted, even if such a doubt existed regarding existence of some purchases over and above the alleged fictitious purchases, the doubt on this aspect was also removed. For this purpose the Tribunal has by way of illustration analyzed the account of one of the items, appearing as Annexure '6' in the Paper Book filed before the Tribunal and come to the irresistible conclusion that ITR/39/1995 9/13 JUDGMENT quantity remaining in the closing stock is only out of the purchases effected by the assessee. It is in light of the aforesaid findings that the Tribunal has held that no addition was warranted on account of alleged fictitious purchases. 10 Similarly, in relation to the rate of purchases, the Tribunal has recorded that in absence of any material to show that the purchase price shown in the invoices was inflated it was not possible to sustain the addition on the said ground. The Tribunal has further recorded that there was no evidence to show that a part of the amount paid to the suppliers had come back to the assessee and therefore also there was no case for any addition in respect of such purchases. It has further been found by the Tribunal that purchases as such are deductible while computing profits and hence even if some higher purchase price had been paid that would be no ground for making or ITR/39/1995 10/13 JUDGMENT sustaining any addition, in absence of any evidence to show what was the prevailing market price. 11 Thus, on reading the impugned order of Tribunal as a whole it is apparent that it is solely based on an appreciation of evidence and records finding of fact in light of the evidence which was led before the Tribunal. In the circumstances, there is no reason to take any other view of the matter. Question No.1 in each of the references therefore requires to be answered in the affirmative i.e. in favour of the assessee and against the revenue. 12 The position in law is well settled. Merely because the High Court has called for a reference under Section 256 (2) of the Act it is not necessary for the High Court to decide an issue or a question which does not arise out of the impugned order of Tribunal. As the facts reveal the order dated 26/2/1988 does not record any finding of recalling the earlier order. That ITR/39/1995 11/13 JUDGMENT order is made in M.A.No.78/Ahd/987 on 2/12/1987. In fact the order dated 26/2/1988 records in paragraph No.1 thus : “In these appeals earlier the order was passed on 20/8/1987 but the same was recalled for the reasons recorded in our order dated 2/12/1987 in M.A.No.78/Ahd/1987 filed by the assessee. The appeals were again heard on 13th January,1988”. 13 The record thus reveals that Tribunal made three orders : First order dated 20/8/1987 in the appeals filed by the assessee and the Revenue; Second order dated 2/12/1987 in Misc. Application filed by the assessee; and Third order dated 26/2/1988 again in the departmental appeal and the assessee's appeal. Therefore, if Revenue was aggrieved it was by the order dated 2/12/1987 made in Misc. Application No.78/Ahd/87, because that was the order whereby the Tribunal had recalled its earlier order dated ITR/39/1995 12/13 JUDGMENT 20/8/1987.The effect is : First order dated 20.8.1987 did not survive as vide Second order dated 2.12.1987 the order dated 20.8.1987 had been recalled and the appeals restored to file. Thus, the only order by which the appeals came to be disposed of is the Third order dated 26.2.1988. 14 In light of the aforesaid facts it is not possible to accept the contention that the said order dated 2/12/1987 is part and parcel of order dated 26/2/1988, as both the orders have been made in separate proceedings i.e. in Misc. Application and in appeals. Revenue having not challenged the said order viz. Order dated 2/12/1987 question No.2 in each of the references does not arise out of Tribunal's impugned order dated 26/2/1988 and accordingly question No.2 is left unanswered. As the said question has not been answered by this Court it is not necessary to deal with the contentions raised on behalf of ITR/39/1995 13/13 JUDGMENT the applicant on merits of the said controversy. 15 The reference stands disposed of accordingly i.e. question No.1 is answered as aforesaid and question No.2 in each of the references is left unanswered in light of the facts and circumstances of the case. 16 The reference stands disposed of accordingly. There shall be no order as to costs. Sd/- Sd/- (D.A.MEHTA,J) (H.N.DEVANI,J) m.m.bhatt