Holding

The Revenue cannot revisit the Gujarat High Court’s interpretation of Section 43B accepted in other cases, and the Supreme Court set aside the Calcutta High Court judgments, allowing the deductions.

Summary

Berger Paints India Ltd. claimed deductions under Section 43B of the Income Tax Act for customs and excise duties actually paid and for duties included in the valuation of its closing stock for the assessment years 1984-85, 1986-87 and 1987-88. While the Assessing Officer allowed the deduction for 1984-85, the Commissioner disallowed it under Section 263, and the Calcutta High Court upheld the disallowance for all three years. The company relied on the Gujarat High Court’s decision in Lakhanpal National Ltd. which had been accepted by the Revenue in other cases, but the Revenue attempted to distinguish that judgment. The Supreme Court held that once the Revenue has accepted a High Court interpretation in one case, it cannot later challenge the same interpretation in other cases without a just cause, and therefore set aside the Calcutta High Court judgments. It also ruled that a certificate of appeal under Section 261 should have been granted because the High Court departed from the uniform view of other High Courts. The appeal was allowed and the deductions were upheld for all three assessment years.

Issues considered

Whether the deduction of customs and excise duty paid and duty included in closing stock is permissible under Section 43B of the Income Tax Act.
Whether the Revenue can challenge a High Court interpretation of Section 43B that it had previously accepted in other cases without just cause.
Whether a certificate of appeal under Section 261 of the Income Tax Act should be granted when a High Court departs from the uniform view of other High Courts.

Legislation cited

Income Tax Act, 1961s. 141A, s. 256(1), s. 261, s. 263, s. 438, s. 43B

Subjects

Income TaxSection 43Bcustoms duty deductionclosing stock valuationRevenue challengeHigh Court precedentcertificate of appealSection 261assessment yearSection 263

Judgment

A BERGER PAINTS INDIA LTD.
v.
-
COMMISSIONER OF INCOME TAX, CALCUTTA

FEBRUARY 17, 2004

B [K.G. BALAKRISHNAN AND B.N. SRIKRISHNA, JJ.]

Income Tax Act, 1961:

Section 43 B-Deduction allowed to assessee-Interpretation of- ..:w·
c Pr[nciple laid down by Gujarat High Court in Lakhanpal National Ltd's
I

case followed in judgments of Madras High Court and Bombay High Court
and in the decision of Special Bench of the Income Tax Appellate Tribunal,
none of which was challenged-Held, if the Revenue has not challenged the
correctness of the law laid down by the High Court and has accepted it in
D case of one assessee, then it is not open to the Revenue to challenge its
correctness in the case of other assessees, without just cause-It cannot be
said that judgment of Gujarat High Court was distinguishable as being one
rendered in connection with a provisional assessment under Section 141-A
and not in a regular assessment.

E Section 261-Certificate to appeal-High Court departing from the
uniform view taken by other High Courts-Held, in view of this, a certificate -~-

to appeal ought to have been granted-Practice and Procedure. .....
During assessment proceedings for the assessment year 1984-85,
assessee claimed that under Section 43 B of the Income Tax Act, 1961, it
F was entitled to deduction of the entire amount actually paid on account.
of customs and excise duty during the relevant previous year. On similar
basis, assessee claimed a deduction of the actual amount of customs and
excise duty included in the value of the closing stock for the previous year
pertaining to the assessment years 1986-87 and 1987-88 and offered for
G tax the amount of customs and excise duty included in the value of the
opening stock.

H
The Inspecting Assistant Commissioner of Income Tax allowed the
assessee's claim in the proceedings for the assessment year 1984-85. The
Commissioner of Income Tax initiated proceedings under Section 263 of
-
502 \
BERGER PAINTS INDIA LTD. v. C.I.T. 503

the Act on the ground that the Assessing Officer had wrongly allowed the A
claim for deduction of the amount towards customs and excise duty paid
during the previous year but credited to the Profit and Loss Account in
closing stock of goods under the provisions of Section 43B. The assessee
relied upon the judgment of the Gujarat High Court in Lak.hanpal National
Ltd. 's case in support of its claim. The Commissioner of Income Tax took
the view that the Gujarat High Court's decision was distinguishable on B
facts and therefore, made an order under Section 263 of the Act
disallowing the claim of the assessee. The Tribunal confirmed the order
of the Commissioner of Income Tax. On an application made under
Section 256(1) of the Act at the instance of the assessee, the Tribunal
referred a question of law for the opinion of the High Court as to whether C
the Tribunal was right in law in rejecting the assessee's claim for
deduction. The High Court answered the reference in favour of the
Revenue and against the assessee.

For the assessment years 1986-87 and 1987-88, the Tribunal upheld
the claim of the assessee and allowed deduction claimed under Section 43 D
B of the Act, as Central Excise and Customs duty, which had been included
in the value of the closing stock. At the instance of the Revenue, two
references were made to the High Court as to whether the Tribunal was
justified in allowing the deduction as aforesaid. The High Court answered
both the references in favour of the Revenue and against the assessee. E
Hence, the present appeals.

Allowing the appeals, the Court

HELD: 1.1. It is an established principle that ifthe Revenue has not
challenged the correctness of the law laid down by the High Court and F
has accepted it in the case of one assessee, then it is not open to the Revenue
to challenge its correctness in the case of other assessees, without just
cause. (508-G-H]

Union of India v. Kammudini Narayan Dalal, 249 ITR 219 SC; CIT v.
Narendra Doshi, 254 ITR 606 SC and CIT v. Shivsagar Estate, 257 ITR 59 G
SC relied on.

1.2. The decision in Lakhanpai National Ltd. 's case which clearly laid
down the interpretation of Section 43 B was followed by the judgments of
the Madras High Court and Bombay High Court and was again followed
by the decision of Special Bench of the Income Tax Appellate Tribunal, H
504 SUPREME COURT REPORTS [2004] 2 S.C.R.

A none of which have been challenged. There is no just cause as would justify
departure from the established principle. The Revenue could not have been
allowed to challenge the principle laid down in Lakhanpal National Ltd. 's
case which was followed by the Inspecting Assistant Commissioner in the
case of the assessee in the three assessment years in question. The
B Commissioner, the Income Tax Appellate Tribunal and the Calcutta High
Court erred in permitting the Revenue to raise a contention contrary to
what was laid down by the Gujarat High Court in Lakhanpal National Ltd. 's
case. Thus, the question referred for the assessment years 1984-85, 1986-
87 and 1987-88 are answered in favour of the assessee and against the
Revenue. (509-E-G; 510-B-D]
c Lakharipal National Ltd. 's v. ITO, (1986) 162 ITR 240 Guj approved.

CIT v. Bharat Petroleum Corporation Ltd, (2001) 252 ITR 43 Born,
Chemicals and Plastics India Ltd. v. CIT, (2003) 260 ITR 193 Mad and Indian
Communication Network Pvt. Ltd. v. !AC, (1994) 206 ITR 96 SB-AT, referred
D to.

Berger Paints India Ltd. v. CIT, (1993) 44 ITD 573 (IT AT, Cal.) ~nd
Hindustan Computers Ltd. v. ITO, (1987) 21 ITD 524 (ITAT, Del), cited.

1.3. The Revenue has attempted to distinguish the judgment of the
E Gujarat High Court in Lakhanpal National Ltd. 's case on the facile ground
that the judgment of the Gujarat High Court was one rendered in
connection with a provisional assessment under Section 141 A and not in
a regular assessment. This distinction is han1;y acceptable. A reading of
the Gujarat High Court's judgment shows it is not based merely on the
. adjustments permissible under Section 141 A, but proceeds on an analysis
F of Section 43 B and makes a finding that the entire amount of excise duty/ ........
)
customs duty paid by the assessee in a particular accounting year was an
allowable deduction in respect of that year irrespective of the amount of
excise duty/customs duty which was included in the valuation of the
assessee's closing stock at the end of the accounting year. (509-B-D]
G 2. In view of the fact that other High Courts had taken a particular
view, if the Calcutta High Court desired to depart from the uniform view
taken by them, in fairness to the assessee, a certificate to appeal under
Section 261 of the Act ought to have been granted. [510-E]

H CIVIL APPELLATE JURISDICTION: Civil Appeal Nos., 1081-1083
- of 2004.
BERGER PAINTS INDIA LTD. v. C.I.T. [SRIKRISHNA . .I.] 505

A
From the Judgment and Order dated 6.2.2002 of the Calcutta High
Court in I.T.R. Nos. 137, 122/95 A.S.C.I., No.1/2002 in l.T.R. No. 213 of
1993.

S. Ganesh, S. Sukumaran, Ms. Divya Nair and K. Rajeev for the B
Appellant.

Ranbir Chandra and B.V. Balaram Das for the Respondents.

- The Judgment of the Court was delivered by

SRIKRISHNA, J. Leave granted.
c
The assessee is a company engaged in the manufacture and sale of
paints, varnishes and other allied products. During the previous year ending
on 31st December 1983 pertaining to the assessment year 1984-85, the
petitioner in its returns had disclosed·a sum of Rs. l,33,31,370 as income. D
During this period, the appellant-assessee had incurred expenditure on account
of customs and excise duty aggregating to Rs.5,85,87, 181 which was duly
debited to the Profit and Loss Account of the petitioner for the relevant
previous year and was also fully paid during the relevant previous year. In
addition there to the petitioner had also credited to the Profit and Loss Account E
of the relevant previous year an amount of Rs. 98,25,833 relatable to the
customs and excise duty on the closing stock of inventory by including the
said sum in the valuation of such closing stock. During the assessment
proceedings for the assessment year 1984-85, the appellant-assessee claimed
that under Section 438 of the Income Tax Act, 1961 (hereinafter referred to
as 'the Act') that it was entitled to deduction of the entire sum of Rs. F
5,85,87, 181/ being the duties actually paid during the relevant previous year.

On similar basis, the appellant-assessee had claimed a deduction of an
amount of Rs. 1,22,54,261 being the actual customs and excise duty included
in the value of the closing stock for the previous year pertaining to the
assessment year 1986-87 and offered for tax a sum of Rs. 98,25,833 being G
customs and excise duty including in the value of the opening stock. Similarly,
for the assessment year 1986-87, the petitioner claimed a deduction of Rs.

- 24,28,428 {Rs. 1,22,54,261 - Rs. 98,25,833}. The assessee claimed a deduction
of Rs. 77,81,739 Rs. 2,00,36,000 - Rs. 1,22,54,261} on similar basis for the
assessment year 1987-88.
H
A
506 SUPREME COURT REPORTS (2004] 2 S.C.R.

In the assessment proceedings of the assessment year 1984-85, the
--
Inspecting Assistant Commissioner of Income Tax allowed the appellant-
assessee's claim that it was entitled to deduct the entire sum of Rs. 5,85,87, 181
being the duties actually paid during the relevant year previous to the
assessment year 1984-85. The Commissioner of Income Tax initiated
B proceedings under Section 263 of the Act on the ground that the Assessing
Officer had wrongly allowed the claim for deduction of an amount of
Rs.98,25,833 towards customs and excise duty paid during the previous year
but credited to the Profit and Loss Account in closing stock of goods under
the provisions of Section 438. The assessee relied upon the judgment of the
Gujarat High Court in Lakhanpal National Ltd. v. ITO, [1986] 162 ITR 240 ·
C (Guj.) [hereinafter referred to as "Lakhanpal National Ltd. 's case"] in support
of its claim. The Commissioner of Income Tax took the view that the Gujarat
High Court's decision was distinguishable on facts and, therefore, made an
order under Section 263 of the Act disallowing the claim of the assessee. On
appeal to the Tribunal the Tribunal held that the Gujarat High Court's judgment
D in Lakhanpal National Ltd's case ~as distinguishable and confirmed the
order of the Commissioner cif Income Tax. On an application made under
Section 256(1) of the Act at the instance of the appellant-assessee, the Tribunal
inter alia referred the following question of law for the opinion of the High
Court:-

"Whether, on the facts and in circumstances of the case, the Tribunal
E was right in law in rejecting the assessee's claim for deduction of the
excise and customs duties of Rs. 98,25,833 paid in the year of account
and debited in the Profit & Loss Account, on the ground the crediting
of the Profit & Loss Account by the value of the closing stock, which
included the aforesaid duties, did not have the effect of wiping out
F the debit to the Profit & Loss Account?

The High Court by its judgment dated 24th September, 2001 in ITR
No. 213 of 1'993 answered the question referred in favour of the Revenue and '
against the assessee.

G For the assessment year 1986-87, the Tribunal upheld the claim of the
assessee and allowed a deduction amounting to Rs. 77,81,948 claimed under
Section 43B of the Act being Central Excise and Customs duty, which had
been included in the value of the closing stock. At the instance of the Revenue,
the following question of law was referred to the High Court for the assessment
H year I 986-87:-
BERGER PAINTS INDIA LTD. v. C.l.T. [SRIKRISHNA, .I.] 507
._._
"Whether, on the facts and in the circumstances of the case and under A
Explanation 2 to section 43B coming into force with effect from
l.4.84, the Tribunal was justified in directing to allow the amount of
Rs. 77,81,948 u/s. 43B of the I.T. Act, being Central Excise and
Customs duty which had been included in the value of closing stock.?"

For the assessment year 1987-88, the Tribunal allowed a similar claim B
and a reference came to be made to the High Court in the following terms:-

"Whether, on the facts and in the circumstances of the case, the
Tribunal is justified in law in directing the I.T.O. to allow the sum of
Rs. 24,28,428 being Central Excise and Customs duty under Section
43B of the Act on the ground that the said amount has been included c
in the value of closing stock.?"

The High Court by its judgment dated 6th February, 2002 disposed off
both the references. The questions referred in both the references were
answered in favour of the Revenue and against the assessee. An application
made for certificate to appeal to this court under Section 261 of the Act was
D
rejected by the Calcutta High Court by observing "we are unable ourselves
to burden an already over burdened Hon 'ble Supreme Court". Being
aggrieved, the assessee impugns both judgments of the Calcutta High Court
pertaining to the three assessment years, by these appeals.
E
There is no doubt that the judgment of the Gujarat High Court in
Lakhanpal National Ltd. 's case is completely in favour of the assessee as it
accepts the contention of the assessee in toto. It is not in dispute that the
decision in Lakhanpal National Ltd. 's case was not challenged by the
department before this court and thus has been accepted by the department.
The interpretation placed on Section 43B in Lakhanpal National Ltd. 's case F
was directly followed by the judgment of the Bombay High Court in CIT v.
Bharat Petroleum Corporation Ltd., [2001] 252 ITR 43 (Born.) and by the
Madras High Court in Chemicals and Plastics India Ltd. v. CIT, [2003] 260
ITR 193 (Mad.). These two judgments also appear to have been accepted by
the Revenue and have not been challenged before this court at all. This fact
G
asserted before us by the petitioner-assessee had not been disputed in the
'\.
counter affidavit of the Department.

- In addition to these three High Court judgments, it appears that, noticing
the conflicting views taken by the Tribunals, a Special Bench of the Income
Tax Appellate Tribunal was constituted to resolve the issue. In Indian H
508 SUPREME COURT REPORTS (2004] 2 S.C.R.

A Communication Network Pvt. Ltd. v. IA C, [ 1994] 206 ITR 96 (SB-AT), the
Special Bench of the Tribunal considered all the conflicting judgments and
judgment in Lakhanpal National Ltd. 's case (supra) as also its own order in
the case of the appellant-assessee reported in Berger Paints India Ltd. v. CIT,
[1993] 44 ITO 573 (ITAT, Cal.). Afternoticing all the conflicting views, and
the attempt made by the Tribunal in Hindustan Computers Ltd. v. ITO, [1987]
B 21 ITO 524 (ITAT, Del.), to distinguish the observations made in Lakhanpal
National Ltd. 's case, the Special Bench of the Tribunal made the following
observations at 206 ITR 96 at p. 114:-

"We would like to make it absolutely clear that the removal of the
amount in question from the figure of closing stock is not tantamount
c to a 'tinkering' of the closing stock but allowing to the assessee the
effective deduction to which it is entitled under Section 43B. We
would also like to emphasise that in the subsequent assessment year,
the assessee's opening stock would stand reduced by a corresponding
figure since it cannot avail of a "double deduction."
D
It was further observed by the Special Bench at p.114 that:-

"Before we part with this ground, we cannot help feeling that tl\e
litigation between the parties could have been avoided since it was
quite immaterial, whether full deduction was allowed in one year or
E partly in one year and partly in the next, since the assessee is a
company and rate of the tax is uniform. The gain to one and the loss
to the other is illusory since what is deferred in one year, would have
to be discharged in the next. ln that sense, nobody has won and
nobody has lost."

F It is specially asserted in the written submissions of the appellant-
assessee that this decision of the Special Bench of the Income Tax Appellate
Tribunal in Indian Communication Network Pvt. Ltd's. case (supra) has also
not been challenged. This fact is also not disputed by the Revenue.

In view of the judgments of this Court in Union of India v. Kammudini
G Narayan Dalal, 249 ITR 219 (SC); CIT v. Narendra Doshi, 254 ITR 606
(SC) and CIT v. Shivsagar Estate, 257 ITR 59 (SC), the principle established

H
is that if the Revenue has not challenged the correctness of the law laid down
by the High Court and has accepted it in the case of one assessee, then it is
not open to the Revenue to challenge its correctness in the case of other
assessees, without just cause.
-
- BERGER PAINTS INDIA LTD. v. C.l.T. [SRIKRISHNA . .I.] 509

The judgment of the Gujarat High Court in lakhanpal National ltd. 's A
case was relied upon and followed by the Bombay High Court in CIT v.
Bharat Petroleum Corporation ltd. (supra) as well as by the Madras High
Court in Chemicals and Plastics India ltd. v. CIT (supra). The Special Bench
~
-t
of the Tribunal also relied upon the judgment of the Gujarat High Court in
lakhanpal National ltd. 's case. The Revenue has attempted to distinguish B

- the judgment of the Gujarat High Court on the facile ground that the judgment
of the Gujarat High Court was one rendered in connection with a provisional
assessment under Section 141 A and not in a regular assessment. In our view,
this distinction is hardly acceptable. In any event a reading of the Guj:i.rat
High Court's judgment shows that the judgment is not based merely on the
adjustments permissible under Section 141 A, as is contended by the Revenue, C
but that the judgment proceeds on an analysis of Section 438 and makes a
finding that the entire amount of excise duty/customs duty paid by the assessee
in a particular accounting year was an allowable deduction in respect of that
year irrespective of the amount of excise duty/customs duty which was
included in the valuation of the assessee's closing stock at the end of the
accounting year. After coming to this conclusion, the Gujarat 1-iigh Court D
then proceeded to consider the impact of Section 141 A and granted appropriate
relief thereunder. It is not possible for us to accept the contention of the
Revenue that the judgment of the Gujarat High Court in Lakhanpal National·
Ltd. 's case is distinguishable on the ground put forward. '

The decision in Lakhanpal National Ltd. 's case which clearly laid down
E
the interpretation of Section 438 was followed by the judgments of the
Madras High Court and Bombay High Court and was again followed by the
decision of Special Bench of the Income Tax Appellant Tribunal, none of
which have been challenged. In these circumstances, the principle laid down
in Union of India v. Kammudini Narayan Dalal, (supra), CIT v. Narendra F
Doshi (supra) and CITv. Shivsagar Estate (supra) clearly applies. We see no
'just cause' as would justify departure from the principle. Hence in our view,
the Revenue could not have been allowed to challenge the principle laid
down in Lakhanpal National Ltd. 's case, which was followed by the Inspecting
Assistant Commissioner in the case of the assessee in the three assessment
years in question. We are, therefore, of the view that the Commissioner, the G
Income Tax Appellate Tribunal and the Calcutta High Court erred in permitting

- the Revenue to raise a contention contrary to what was laid down by the
Gujarat High Court in Lakhanpal National Ltd. 's case. This decision has
been subsequently followed by the decisions of the Bombay High Court in
CIT v. Bharat Petroleum Corporation Ltd. (supra) and the Madras High H
510 SUPREME COURT REPORTS [2004] 2 S.C.R.

A Court in Chemicals and Plastics India Ltd. v. CIT (supra) as well as the
decision of the Special Bench in Indian Communication Network Pvt. ltd. v.
!AC (supra), which have all remained unchallenged.

Hence, the following Order:-

B Assessment Year 1984-85
We set aside the judgment of the Calcutta High Court in ITR No. 213 ---
of l 993 and answer the question referred against the Revenue and in favour
of the assessee.

C Assessment Year 1986-87

We set aside the judgment of the Calcutta High Court in ITR No. 122
of 1995 and answer the question referred in favour of the assessee and against
the Revenue.

D Assessment Year 1987-88
We set aside the judgment of the Calcutta High Court in ITR No. 137
of 1995 and answer the question referred in favour of the assessee and against
the Revenue.

E In view of the fact that other High Courts had taken a particular view,
if the Calcutta High Court desired to depart from the uniform view taken by
them, in fairness to the assessee, a certificate to appeal under Section 261 of
the Act ought to have been granted.

Appeal is accordingly allowed with no orders as to costs.
F
M.P. Appeal allowed.

-