When the Tribunal itself has recorded conflicting findings of the AO and the CIT(A) and the High Court has overlooked this fact, it is a fit case for remand

PR CIT Vs Ballarpur Industries Ltd

Whether when the Tribunal itself has recorded conflicting findings of the AO and the CIT(A) and the High Court has overlooked this fact, it is a fit case for remand – YES: SC

– Case remanded: SUPREME COURT OF INDIA

Whether when the Tribunal itself has recorded conflicting findings of the AO and the CIT(A) and the High Court has overlooked this fact, it is a fit case for remand – YES: SC

The assessee, a Limited Company, is engaged in the business of manufacturing of various kinds of papers. The dispute in this appeal relates to the assessment year 1993­94. The question arose in the assessment year in question before the Assessing Officer (AO) as to what is the true nature of payment of Rs.3.25 crores made by the assessee to one Mr. G.R.Hada pursuant to the compromise arrived at between the assessee­Company and Mr. G.R.Hada in a civil suit filed by Mr. G.R. Hada against the Company and others.

According to the assessee, Mr. G.R. Hada and the Company were the joint promoters of one Company called M/s Andhra Pradesh Rayons Limited in which Mr. G.R. Hada was holding 10.25% shares and the remaining shares were held by other promoter shareholders with different percentage.

Since the dispute arose amongst the promoter shareholders, Mr. G.R. Hada filed a civil suit against the assessee and other promoter shareholders on the basis of an agreement, which was entered into amongst the promoter shareholders. In the civil suit, a compromise was arrived at between the assessee and Mr. G.R. Hada and a payment of Rs 3.25 crores was paid to Mr. G.R. Hada.

The assessee, however, claimed a deduction of Rs.3.25 crores in the assessment year in question as revenue expenditure because, according to them, they had paid the said sum to Mr. G.R. Hada for running their business. The AO held that the claim cannot be considered as “revenue expenditure” and the CIT(A) confirmed the addition but the ITAT reversed the decision. The High Court dismissed the Revenue’s appeal.

Having heard the parties, the Apex Court held that,

++ on perusal of the record of the case, we are inclined to allow the appeal, set aside the High Court order as well as the order of the Tribunal and remand the case to the Tribunal to decide the appeal filed by the assessee afresh on merits in accordance with law.

++ the need to remand the case to the Tribunal has arisen as it has recorded a finding, which reads as under:

“26…………The AO did not dispute the fact that the expenditure related to the business of the assessee. The CIT (A), however, reversed the findings of the AO and held that the expenditure cannot be considered as business expenditure. A perusal of the CIT (A)’s order can only lead to a conclusion that the CIT(A) was of the view that the expenditure in question was not a capital expenditure but of a revenue nature………..”

++ what AO and CIT (Appeals) held, does not seem to be correct and rather inconsistent when we peruse the finding of the AO and concluding Para 15.1 of CIT (Appeals);

++ we find that the Tribunal did not correctly appreciate as to what AO and CIT (Appeals) held and what was their reasoning which led to their respective conclusion;

++ having wrongly observed about their respective reasoning and the finding, the Tribunal proceeded to examine the case and eventually reversed the order of CIT (Appeals). The High court did not notice the aforesaid observation of the Tribunal and upheld the order of the Tribunal.

++ in such a situation like the one arising in the case and keeping in view the question involved, we are of the considered opinion that the matter deserves to be remanded to the Tribunal for deciding the appeal filed by the assessee afresh on merits because the Tribunal being the last Court of appeal on facts, its finding on the question of fact is of significance;

++ in our view, remanding the case is not likely to cause any prejudice to any party because the aggrieved party will have a right of appeal to the High Court and then to this Court against any adverse order;

++ we allow the appeal, set aside the orders of the High Court and the Tribunal and remand the appeal to the Tribunal for its decision afresh on merits in accordance with law uninfluenced by any observations made in the impugned order, order of the Tribunal and in this order. Needless to observe, the parties will be entitled to raise all contentions in appeal before the Tribunal.

++ we make it clear that we have not expressed any opinion on the merits of the case.

Civil Appeal No.4026 of 2019

Arising out of S.L.P.(C) No.1153 of 2018