TMI Blog2009 (3) TMI 239X X X X Extracts X X X X X X X X Extracts X X X X ..... ontingent liability. The Assessing Officer was of the opinion that since the excess bill raised by M/s. MFL was not accepted by the assessee, the amount was a contingent liability. 2.2 Upon assessee's appeal, the learned Commissioner of Income-tax (Appeals) noted that there are correspondences which clearly reflected the ongoing dispute between the assessee and M/s. MFL. However, he was of the opinion that it is not a contingent liability. The learned Commissioner of Income-tax (Appeals) in this regard placed reliance upon Hon'ble Apex Court decision in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363. Against this order, revenue is in appeal before us. 2.3 The revenue's contention is that the aforesaid Hon'ble Apex Court decision is not applicable in this case. It has been further argued that, having regard to the Hon'ble Allahabad High Court decision in the case of CIT v. Raj Motors [2006] 284 ITR 489 and in the case of CIT v. Oriental Motor Car Co. (P.) Ltd. [1980] 124 ITR 74 (All.) that a contractual liability accrues when it is finally settled, the learned Commissioner of Income-tax (Appeals) ought to have upheld the action of the Assessing Officer. The le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had held that- "A contractual liability accrues when it is finally settled." 2.9 In the case of Oriental Motor Car Co. (P.) Ltd., Hon'ble Allahabad High Court hid held that, "It is settled that the mere fact that an assessee keeps his accounts on mercantile basis does not give him a handle to debit liability of every kind whatsoever. The liability that can be debited is only that which is certain, and which arises in present." From the above case laws, it is clear that treatment by the assessee in the books of account is not determinative of the nature of a transaction and contractual liability arises only upon settlement, if there is a dispute in this regard. 2.10 It will be relevant to refer here the factual aspects of the case as emanating from para 4.2-2 of the learned Commissioner of Income-tax (Appeals)'s order as under:- "The assessee has been purchasing carbon dioxide from M/s. MFL from 1972 on the basis of agreements entered into with them from time to time. The last of such agreement executed was on 30-12-1993 which was valid for a period of ten years effective from 1-1-1994. Clauses 8 and 9 of the said agreement provided for the purchase price payable by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance. However, M/s. MFL started raising invoices on the basis of flow meters installed by the assessee from 10-10-2001. 2.12 From the above, it is evident that the contract is between two commercial entities. As per the contractual agreement, M/s. MFL was to raise invoices based on the quantities on which excise duty would be paid by the assessee on behalf of M/s. MFL in the event of such meters not functioning or for any other reason. It is also an admitted fact that acting on this aspect of the agreement for more than 27 years, the bills were raised accordingly. Now, suddenly M/s. MFL on its own started raising invoices on the basis of flow meters from 10-10-2001. This, the assessee did not accept. Admittedly, for over 27 years it was accepted by M/s. MFL that the flow meters were not to be the basis for raising the invoices. Hence, the sudden change of opinion by M/s. MFL is apparently not acceptable by the assessee. In such a situation, there is a prima facie breach of contract and a dispute in this regard has arisen between the assessee and M/s. MFL. As emanating from case laws aforesaid, in case the dispute arises in the case of a contractual liability, the liability arises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ext it ought to have been referred as section 80-IA(5)] treating the eligible business as the only business of an assessee. Further, the Commissioner of Income-tax (Appeals) failed to appreciate the provisions of section 80-IB(13), by which, the provision of section 80-IA(5) is applicable as such in the context of section 80-IB also. It was further contended that, having regard to the clear wording in sub-section (13) of section 80-IB that, 'the provisions contained in sub-section (5) and sub-sections (7) to (12) of section 80-IA shall, so far as may be, apply to the eligible business under this section', the Commissioner of Income-tax (Appeals) ought to have appreciated that what has to be done under section 80-IA(5) has to be done in the context of section 80-IB also and held that the eligible deduction under section 80-IB for the instant assessment year has to be worked out after setting off the loss of the Goa Unit for the earlier assessment year 2001-02. 3.4 We have heard both the counsels and perused the relevant records. We find that Assessing Officer has not considered the provisions of law referred by revenue as above. Learned Commissioner of Income-tax (Appeals) has err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . since the alleged loss of Rs. 18,06,402 is claimed to have been fully set off against other business income of the assessment year 2001-02, I am unable to understand as to how the Assessing Officer proceeded to set off the said loss against this year's profit of the appellant's Goa Unit. Since the earlier years' records are not available before the undersigned, I accordingly direct the Assessing Officer, to carry out the necessary verification with regard to the appellant's claim. If the loss of Rs. 18,06,402 is found to have been fully set off in the assessment year 2001-02, the Assessing Officer, would have no other option but to allow the appellant's claim under section 80-IB in full. In the event of appellant's claim being found to be correct after necessary verification, the appellant would thus be entitled to the full claim of Rs. 69,54,945. The ground of the appellant in this regard is thus treated as allowed." 5.3 Against such order of ld. CIT(A), Department has come in appeal and raised following grounds of appeal: "3.1 The learned CIT(A) erred in holding that if the loss of Rs. 13,06,402 relating to the Goa Unit is found to have been fully set off in the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deeming fiction has to be strictly construed and cannot be extended beyond its legitimate field, but what is the legitimate field? When you are bidden to assume a state of affairs you cannot boggle your mind and assume the putative state of affairs as not real. Therefore, though losses were set off against other sources income, they are to be assumed as not set off in absence of existence of another source and for computing the profit and gains for the purposes of determination of the quantum of deduction one has to once again notionally bring back already set off losses, etc. and set off the same against the profits and gains in a year in the deduction is claimed. Deduction under section 80-IA: Section 80-IA(5) of the Act seeks to regard the eligible unit as a separate source of income so as to separately determine the carry forward and set off of losses in the hands of that unit. The only harmonious construction of section 80-IA(5), consistent with the object in allowing deduction only to profits and gains of the eligible business would be that - (a) the deduction under that section would be computed with reference to profits of the eligible unit, unaffected by losses suffer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction under section 80-IB for the assessment year under consideration has to be computed after setting of the loss of the Goa Unit for the earlier assessment year 2001-02, that is what the Assessing Officer has held, as such, while accepting the appeal of the revenue, on this point, order of the ld. CIT(A), which is not in conformity with the provisions of law, is reversed and that of the Assessing Officer is restored. REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT Since there is difference of opinion between the Members constituting the Bench on one of the two issues involved in this appeal, the following question is formulated and referred for nominating Third Member: (1) Whether in view of the facts and circumstances, the issue relatable to computation of deduction under section 80-IB, the order of the ld. CIT(A) could be reversed and that of the Assessing Officer could be restored or matter can be set aside and remitted back to the file of the Assessing Officer for reconsideration. THIRD MEMBER ORDER Per M.K. Chaturvedi, Vice-President (As a Third Member).-This appeal came before me as Third Member to express my opinion on the following question:- "Whether i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible deduction under section 80-IB for the assessment year under consideration has to be computed after setting off of the loss of the Goa Unit for the earlier assessment year 2001-02, whereas the learned Accountant Member has held that the Commissioner (Appeals) ought to have appreciated that what has to be done under section 80-IA(5) has to be done in the context of section 80-IB also. The eligible deduction under section 80-IB has to be worked out after setting off the loss of the Goa Unit for the assessment year 2001-02. As the Commissioner (Appeals) has not appreciated this provision of law he remitted this issue to the file of the Assessing Officer to consider the same de novo in accordance with law. 7. It has been well said declared Lord Coke: 'INTEREST REPUBLICA UT SIT FINIS LITUM: It concerns the State that law suits be not protracted, otherwise great oppression might be done under the colour and pretence of law. No doubt it is well within the power of the Tribunal to set aside the order of the Commissioner (Appeals) for fresh adjudication in accordance with the provisions of law. Such order can be made when the Tribunal, after considering the evidence and material o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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