COMMISSIONER OF INCOME TAX CENTRAL Vs. RAJ MOTORS

JUDGEMENT

(1.) At the instance of the Revenue, the Income Tax Appellate Tribunal, Allahabad has referred the following question under section 256 (1) of the Income-tax Act (hereinafter referred to as "the Act") relating to the assessment year 1982-83 for opinion to this Court: "Whether in law and in circumstances of the case, the Hon'ble Income-tax Appellate Tribunal was justified in allowing assessee's claim of Rs. 2,76,419/- representing Case price difference, holding that the liability accrued and arose during the accounting period relevant to the assessment year under consideration as a result of final agreement dated 20.9.1981?"

(2.) The brief facts of the case are as follows.

(3.) The assessee-opposite party (hereinafter referred to as the "assessee") deals in sales of motorcars and their spare parts as a dealer of M/S Premier Automobiles Ltd. During the course of assessment proceedings for the assessment year 1982-83, it was noticed that the assessee had debited a sum of Rs. 2,76,419/- in profit and loss account under the head 'Car price Difference paid to M/S Premier Automobiles Ltd.' and accordingly claimed it as deduction during the year under consideration from its total income. The amount of Rs. 2,76,419/- represented difference in the selling price of the car by M/S Premier Automobiles Ltd. as fixed by the notification of the Government in September 1969 and the price refixed on the judgment of the Hon'ble Supreme Court of India in November 1971. Consequent upon the increase in prices by the Government, the Principals had asked the assessee to make further payment on the purchases made earlier. The prices fixed by the Government vide their Notification dated 21.9.1969 was found to be unremunerative and, therefore, M/S Premier Automobiles Ltd. challenged the notification issued by the Government of India before the Hon'ble Supreme Court by filing a Writ Petition. The Judgment of the Hon'ble Supreme Court was delivered on 24.11.1971 and consequently the price was enhanced on the basis of this decision. The principals thereafter demanded the difference from the dealers. Since the assessee did not recover this amount from the customers, it denied the liability and created a dispute with the principals i.e. M/S Premier Automobiles Ltd. as according to them the liability was restricted to the recovery that could be affected from the customers. Later correspondence between the assessee and the principals started with the letter issued by the principals dated 30.11.1971, immediately after the Supreme Court's judgment was delivered. As per demand notice dated 30.11.1971, the principals had raised additional demand of Rs. 3,39,571/- being the difference between the prices charged and the revised prices consequent to the Hon'ble Supreme Court's order. Correspondence between the assessee and the principals revealed that there was contractual liability to pay the difference to the principals in case the prices were revised upward by the Supreme Court, which is evident from the letter datedl8.2.1972 issued by the principal. After a long correspondence between the assessee and the principals, the liability in question was finally settled at Rs. 3,00,000/-, as per agreement dated 20.9.1981. The amount in question after adjustment of the amount of Rs. 23,580/-which was collected from the customers, worked out to RS. 2,76,419/- as payable by the assessee. The assessee made this payment during the year under consideration and accordingly claimed it as deduction from its income on the ground that they had denied the liability which had arisen during the period September, 1969 to 1971 and had accepted it in September, 1981, which accrued only after the receipt of the letter dated 20.9.1981. The Assessing Officer declined to accept this contention of the assessee and accordingly rejected the assessee's claim of Rs. 2,76,419/- mainly on the ground that the recovery had been made from the customers from October, 1970 onwards, which is evident from the facts that out of Rs. 3 lacs, a claim of Rs. 2,76,419/- only was made after adjustment of an amount of Rs. 23,580/- recovered from the customers in the earlier years. The Assessing Officer had held that the liability in question did not relate to the assessment year under consideration, but it relates to the period 1969 to 1971, therefore, the liability accrued in the year 1971 when the claim of Rs. 3,39,571/-was made vide demand notice dated 30.11.1971 just after the judgment of the Hon'ble Supreme Court which was delivered.