COMMISSIONER OF INCOME TAX Vs. SAPTHAGIRI ENTERPRISES

JUDGEMENT

(1.) The revenue has preferred this appeal challenging the order passed by the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal') wherein it has held that the amount received by the assessee was wrapped with the litigation and the assessee had not become the absolute owner of the sum received and he was not liable to pay tax for the assessment year 1993- 94.

(2.) The assessee-Firm is engaged in the business of manufacturing rectified spirit and related alcoholic products. For the assessment year 1993-94, the return was filed on 29-07-1994 declaring the total income of Rs.38,63,020/-. The assessment was completed under Section 143(3) of the Income Tax Act ('the Act' for short) on 27-02-1996 adopting the total income of Rs.39,81,250/-. Addition was made under Section 40A(3). While completing the assessment for the year 1997-98, the Assessing Officer found that the assessee has received enhanced price for rectified spirit supplied by it to various arrack bottling units on behalf of the Government of Karnataka. The same was shown as outstanding liability in the balance sheet filed along with the return of income for the assessment year 1993- 94 and was continued to be shown as liability even during the assessment year 1997-98. The Assessing Officer held that since the assessee has not made a full and true disclosure of its receipt of a sum of Rs.2,06,33,600/- in the assessment year 1993-94 and since the assessee has already received the said sum being the price difference on material supplied by it, to that extent, the income chargeable to tax for the assessment year 1993-94 has escaped assessment. The proceedings under Section 147 of the Act was initiated and reassessment was completed on 20-02-2002. In the said reassessment, the Assessing Officer brought to tax the said sum of RS.2,06,33,600/- as revenue receipt. It was held as not contingent. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals).

(3.) The Appellate Authority held that the assessee had declared the receipt of the said sum in its balance sheet showing it under the head sundry creditors. This is full and true disclosure and therefore, it cannot be treated as income escaped assessment. Further, it held that the assessee received the amount subject to the result of the public interest litigation filed before the Karnataka High Court. The receipt was contingent in nature subject to the outcome of the High Court order. Subsequently, the Government itself has withdrawn its order to pay additional sale price. Therefore, the said income cannot be said to have accrued to the assessee and therefore, ordered for deletion. Aggrieved by the said order, the revenue preferred an appeal before the Tribunal.