KERALA STATE BEVERAGES(MANUFACTURING AND MARKETING) CORPORATION LTD. V. PRINCIPAL COMMISSIONER OF INCOME TAX

WA/80/2019

AI Insights

The case involves the Kerala State Beverages (Manufacturing and Marketing) Corporation Ltd., which appealed against an order under Section 263 of the Income Tax Act, 1961, directing the disallowance of a significant amount debited to the profit & loss account. The appeal contested the premature imposition of a condition to pay 20% of the demand before the disallowance was formally made and a demand raised. The court examined the procedural requirements under Section 263, emphasizing the need for a hearing and a formal demand post-disallowance before any recovery could be initiated.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 697366 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 23-01-2019
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: CHRISTOPHER ABRAHAM
• Assessee Lawyers: ANIL NAIR; ARYA ANIL; NILOOFER NIZAM; SREEJITH NAIR
• Keywords: Disallowance; Income Tax; Revisional powers; Sales Tax; Stay of demand; Turnover Tax
• Section: 263; 40(a)(iib)

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON WEDNESDAY,THE 23RD DAY OF JANUARY 2019 / 3RD MAGHA, 1940 WA.No. 80 of 2019 AGAINST THE ORDER/JUDGMENT IN WP(C) 41006/2018 OF HIGH COURT APPELLANT/S: KERALA STATE BEVERAGES(MANUFACTURING AND MARKETING) CORPORATION LTD., SASTHAKRIPA OFFICE COMPLEX, P.B.NO.2263, SASTHAMANGALAM, THIRUVANANTHAPURAM-695010. BY ADVS. SRI.ANIL D. NAIR SMT. ARYA ANIL SMT. NILOOFAR O. NIZAM SRI.SREEJITH R.NAIR RESPONDENT/S: 1 PRINCIPAL COMMISSIONER OF INCOME TAX 4TH FLOOR, AAYAKAR BHAVAN, KOWDIAR, THIRUVANNATHAPUFAM-695003. 2 INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH-682016. OTHER PRESENT: SRI CHRISTOPHER ABRAHAM, SC THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 23.01.2019, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: WA 80/2019 2 JUDGMENT Vinod Chandran, J. The appeal arises from the judgment of the learned Single Judge, wherein there was a condition imposed for payment of 20% of the total demand as per an order under Section 263 of the Income Tax Act, 1961 (for brevity “the Act”). The petitioner has a monopoly insofar as sale of Indian made Foreign liquor and Foreign made Foreign liquor and other spirits within the State. The assessment for the year 2014-15 was completed by the Assessing Officer. 2. The Commissioner of Income Tax invoking the powers under Section 263 passed Ext.P1 order, wherein the Assessing Officer was directed to disallow an amount of Rs.96,076.20 lakhs, debited to profit & loss account, towards surcharge on sales tax and turnover tax by invoking the provisions under Section 40(a) (iib). The learned Counsel for the appellant submits that the appeal being maintainable before the Tribunal, WA 80/2019 3 the appellant had invoked the said jurisdiction. In the meanwhile, as permitted by the Central Board of Direct Taxes, the appellant had approached the Principal Commissioner itself for a stay of the demand. However, the Principal Commissioner, relying on Ext.P7 Office Memorandum, issued an order at Ext.P6, wherein 20% of the demand was directed to be paid. 3. The appellant has a contention that the order under Section 263 specifically directed appropriate opportunity to be granted and disallowance could materialise only after that. There is a procedure contemplated of a hearing by the Assessing Officer and after the disallowance is made, there should also be a demand raised. The condition imposed is premature and not sustainable under a mere order under Section 263. It is also argued that the Office Memorandum relied on in the impugned order and produced in the Writ Petition as Ext.P7, applies only to the first appeals. 4. The appellant had acted prematurely insofar as approaching the Principal Commissioner for a stay, when there was no demand. We notice the argument of the WA 80/2019 4 learned Standing Counsel that Section 263 enables enhancement of the demand when invoking such revisional powers. Even then, as correctly pointed out by the learned Counsel for the assessee, there is a specific direction insofar as an opportunity being afforded to the assessee before the disallowance is carried out. There is also a requirement for a demand to be raised after such disallowance is carried out by the Assessing Officer. In such circumstances, we are of the opinion that there could be no condition imposed for the period in which the appeal against Section 263 order is pending before the Tribunal. We, hence, delete the direction insofar as the condition imposed for not proceeding with the recovery, especially since the stage of recovery has not yet reached. 5. However, we make it clear that if there is a demand made as a result of the consequential order, then the Revenue would be enabled to take out appropriate proceedings, subject however to any challenge made to that consequential order. We are of the opinion that by virtue of Section 263 order alone, WA 80/2019 5 there could be no recovery effected. With the above observations, the Writ Appeal is allowed. No order as to costs. Sd/- K.VINOD CHANDRAN JUDGE Sd/- ASHOK MENON dkr JUDGE "