NON­REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL  APPEAL No.4026 OF 2019 (Arising out of S.L.P.(C) No.1153 of 2018)

Pr. Commissioner of Income Tax­3, Nagpur ….Appellant(s)

VERSUS

Ballarpur Industries Ltd.       ….Respondent(s)

                 J U D G M E N T

Abhay Manohar Sapre, J.  

1. Leave granted.

2. This  appeal is filed  against the final judgment

and order dated 17.07.2017  passed by the High Court

of Judicature at Bombay, Bench at Nagpur in ITA

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No.38 of 2003 whereby the High Court dismissed the

appeal filed by  the appellant  herein and upheld  the

order dated 30.06.2003 passed by the Income Tax

Appellate Tribunal (for short, “the Tribunal”).  

3. A few facts need  mention hereinbelow for the

disposal of this appeal, which involves a short point.

4. The appellant is the Commissioner of Income Tax

and the respondent is an assessee.

5. The respondent­assessee is a Limited Company,

which is engaged in the business of manufacturing of

various  kinds  of  papers.  The dispute in this  appeal

relates to the assessment year 1993­94.

6. 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 respondent­Company(assessee) to one Mr.

G.R.Hada pursuant to the compromise arrived at

between the respondent­assessee­Company and  Mr.

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G.R.Hada in a civil suit filed by Mr. G.R. Hada against

the respondent­Company and others.

7.  According to the respondent­Company(assessee),

Mr. G.R. Hada and the respondent­Company 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.  

8. Since the  dispute arose amongst the  promoter

shareholders, Mr. G.R. Hada filed a civil suit against

the respondent­Company(assessee) and other

promoter shareholders on the basis of an agreement,

which was entered into amongst the promoter

shareholders.

9. In the abovementioned suit, a compromise was

arrived at between the respondent­Company(assessee)

and Mr. G.R. Hada.  Pursuant to the said compromise,

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the respondent­Company(assessee) paid a sum of

Rs.3.25 crores to Mr. G.R. Hada.  

10. The respondent­Company(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.  

11. The AO examined the claim in the context of the

terms  of the  agreement in  Para  12 (a) of  his order

dated 29.03.1996  (pages 54 to 60 of the SLP paper

book) and held that the claim cannot be considered as

"revenue expenditure". The AO, therefore, rejected the

claim.

12. The respondent­Company(assessee) felt aggrieved

by the order of the  AO  and filed an  appeal to the

Commissioner of Income Tax (Appeals)­I, Nagpur. The

CIT (Appeals) dealt with this issue in Para 15 of his

order (pages 92 to 94 of  the SLP paper book) and by

his order 18.12.1998 confirmed the addition made by

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the AO. In other words, the CIT (Appeals) was also of

the view that the claim  made by the respondent­

Company(assessee) cannot be considered as  "revenue

expenditure".

13. The respondent­Company(assessee) felt

aggrieved and filed second appeal in the Income Tax

Appellate Tribunal. The Tribunal examined the

question in Paras 26 and 27 and by its order dated

30.06.2003 allowed the appeal and directed the AO to

allow the deduction of  Rs.3.25 crores as claimed by

the respondent­Company(assessee).

14. The Commissioner  of Income Tax­ Revenue  felt

aggrieved and filed appeal in the High Court of

Judicature at Mumbai,  Nagpur Bench. By impugned

order, the High Court dismissed the appeal, which has

given rise to filing  of the  present  appeal  by  way  of

special leave by the Revenue in this Court.

15. So, the short question, which arises for

consideration in this appeal, is whether the High Court

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was justified in dismissing the appeal filed by the

Commissioner of Income Tax.

16. Heard Mr. Sanjay Jain, learned Additional

Solicitor  General for the  appellant­Revenue  and Ms.

Vanita Bhargava, learned counsel for the respondent­

Company(assessee).

17. Having heard the learned counsel for the parties

and on perusal of the record of the case, we are

inclined to allow the appeal, set aside the impugned

order as well as the order of the Tribunal and remand

the case to the Tribunal to decide the appeal filed by

the respondent­Company(assessee) afresh on merits in

accordance with law.

18. The need to remand the case to the Tribunal has

arisen for the following reasons.

19.  From the perusal of Para 26 of the order of the

Tribunal,  we find that the  Tribunal  has recorded  a

finding, which reads as under:

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  "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……….."

20. The  aforesaid observation  of the  Tribunal, on

what AO and CIT (Appeals) held, does not seem to be

correct  and rather inconsistent when we peruse  the

finding of the AO (concluding Para 12 (a)  & (d) of the

AO’s order at page 60 of  SLP   and concluding Para

15.1 of CIT (Appeals) at page 93 of the SLP).  

21. In other words, 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.  

22. 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

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aforesaid observation of the Tribunal and upheld the

order of the Tribunal.

23. 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 respondent­Company (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.  

24. 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.

25. Though the learned counsel for the parties

argued the question on merits but having taken note

of the approach of the Tribunal, we consider,  in the

interest of both the parties, to remand the appeal to

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the Tribunal for its hearing afresh on merits in

accordance with law, keeping all the issues open.  

26. It is for this reason, 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.

27. We make it clear that we have not expressed any

opinion on the merits of the case having  formed an

opinion to remand the case to the Tribunal in the light

of what we have observed supra.

                                    .………...................................J.                                    [ABHAY MANOHAR SAPRE]                                       

    …...……..................................J.              [DINESH MAHESHWARI]

New Delhi; April 22, 2019

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