The ACIT,GNR Circle, Gandhinagar V. Gujarat State Civil Supplies Corporation, Gandhinagar

ITA 1672/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5669 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 06-07-2010
• Assessment Year: 2000-2001
• Appeal Filed On: 14-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B BEFORE SHRI MUKUL SHRAWAT, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING : 06/07/2010 DRAFTED ON: 06/07/2010 ITA NO.1672/AHD/2008 ASSESSMENT YEAR : 2000-01 ASST.CIT GANDHINAGAR CIRCLE GANDHINAGAR VS. M/S.GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. GANDHINAGAR NEW SACHIVALAYA GANDHINAGAR PAN/GIR NO. : AAACT 5736 F (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI K. MADHUSUDAN, SR. D.R. RESPONDENT BY: SHRI SANJAY R.SHAH A N D CO NO.125/AHD/2008 (ARISING OUT OF ITA 1672/AHD/2008) THE GUJARAT STATE CIVIL SUPPLIES VS. THE ASS TT.CIT CORPORATION, GANDHIANGAR GN R CIRCLE, GANDHINAGAR (CROSS OBJECTOR) .. (RESPONDENT) O R D E R PER SHRI MUKUL SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL OF THE REVENUE ARISING FROM THE ORDER OF THE ORDER OF LEARNED CIT(APPEALS)-GANDHINAGAR DATED 15/ 02/2008 AND THE SUBSTANTIVE GROUND READS AS FOLLOWS: (1) THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND O N FACTS OF THE CASE IN DELETING THE ADDITION AT RS.3,92,90,103 DIS ALLOWED BY THE A.O. ON ACCOUNT OF INTEREST PAID TO THE GOVERNMENT OF GU JARAT. ITA NO.1672/AHD/2008(BY REVENUE) AND CO NO.125/AHD/2008 (BY ASSESSEE) ASST.YEAR - 2000-01 - 2 - 2. ON PERUSAL OF THE ORDERS OF THE AUTHORITIES BELO W AS WELL AS ON HEARING THE RIVAL SIDES, IT WAS NOTICED THAT THE IS SUE AS RAISED HEREINABOVE PERTAINED TO THE DISALLOWANCE OF INTEREST PAID TO T HE GOVERNMENT OF GUJARAT HAD CROPPED UP IN THE PAST AND APPEARS TO B E RECURRING ISSUE DEALT WITH BY THE AUTHORITIES BELOW IN ASSESSMENT YEARS 1 998-99, 1999-2000 & 20002-03. THE YEAR UNDER APPEAL, THEREFORE, IS AN IN BETWEEN ASSESSMENT YEAR. 3. THE RESPONDENT-ASSESSEE IS PROCURING AND DISTRIB UTING FOOD-GRAINS, EDIBLE OIL, ETC. THE OBSERVATION OF THE ASSESSING O FFICER IN RESPECT OF DISALLOWANCE OF INTEREST WAS AS UNDER:- 4. IT IS OBSERVED THAT THE ASSESSEE COMPANY HAS MA INTAINED SEPARATE ACCOUNTS OF GOVERNMENT OF GUJARAT IN RESPE CT OF THE AMOUNT PAYABLE AND IN RESPECT OF THE AMOUNT RECOVER ABLE. IN SCHEDULE-C OF THE BALANCE SHEET, THE ASSESSEE HAS S HOWN A SUM OF RS.68,93,13,018/- AS UNSECURED LOANS PAYABLE TO THE GOVERNMENT OF GUJARAT ON WHICH INTEREST HAS BEEN CLAIMED AS AN EXPENDITURE. IN SCHEDULE-F OF THE BALANCE-SHEET, A SUM OF RS.49, 41,77,018/- IS SHOWN AS LOANS AND ADVANCES RECOVERABLE FORM THE GO VERNMENT OF GUJARAT IN CASH OR IN KIND FOR THE VALUE TO BE RECE IVED. IT IS OBSERVED THAT NO INTEREST HAS BEEN CHARGED ON THIS AMOUNT. IT IF ALSO OBSERVED THAT THE ASSESSEE HAS DEBITED EXPENDI TURE ON ACCOUNT OF INTEREST PAYABLE AT RS.13,81,93,323/-. 5. THE ASSESSEE IN ITS WRITTEN EXPLANATION HAS CONTEND ED THAT OUT OF A SUM OF RS.13,81,93,323/-, A SUM OF RS.3,92,90, 103/- ONLY IS PAYABLE AS INTEREST TO THE GOVERNMENT OF GUJARAT, A ND REST OF THE AMOUNT TO OTHERS. IT HAS ALSO FURNISHED THE B REAK UP OF THE INTEREST EXPENSES IN SUPPORT OF ITS CONTENTIONS. THE ASSESSEE HAS ALSO FURNISHED A COPY OF RESOLUTION DATED 06/07 /1991 IN SUPPORT OF ITS CONTENTION THAT IT IS LIABLE TO PAY INTEREST TO THE GOVERNMENT OF GUJARAT. FURTHER, THE ASSESSEE HAS G IVEN ITA NO.1672/AHD/2008(BY REVENUE) AND CO NO.125/AHD/2008 (BY ASSESSEE) ASST.YEAR - 2000-01 - 3 - DETAILS OF THE AMOUNT DUE FROM THE GOVERNMENT OF GU JARAT WHICH IS SHOWN AT RS.25,23,78,122/-. IT IS ALSO C LAIMED THAT OUT OF RS.68,93,13,018/-, INTEREST IS NOT PAYABLE O N A SUM OF RS.46,36,32,844/-. 6. THE CONTENTION OF THE ASSESSEE HAS BEEN CONSIDERED CAREFULLY. THE ASSESSEES CONTENTION IS THAT THERE IS NO AGREE MENT ENTERED INTO BETWEEN THE GOVERNMENT OF GUJARAT AND THE ASSE SSEE FOR CHARGING INTEREST ON DEBIT BALANCES. ACCORDING TO THE ASSESSEE, IT HAS PAID INTEREST ON A SUM OF RS.30,98,63,096/- AS SHOWN AT A-1 OF SCHEDULE-C OF THE BALANCE SHEET AND NOT ON T HE ENTIRE AMOUNT SHOWN AT RS.68,93,13,018/-. FURTHER, THE EX PLANATION SUBMITTED BY THE ASSESSEE THAT OUT OF THE INTEREST OF RS.13,81,93,323/-, ONLY A SUM OF RS.3,92,90,103/- H AS BEEN PAID TO THE GOVERNMENT OF GUJARAT HAS BEEN VERIFIED AND THE SAME IS FOUND TO BE CORRECT. REGARDING THE ASSESSE ES CONTENTION THAT THE AMOUNT RECOVERABLE FROM THE GOV ERNMENT OF GUJARAT IS ONLY RS.25,23,78,122/- AND NOT RS.49, 41,77,018/- AS SHOWN IN THE SCHEDULE-F OF THE BALANCE-SHEET, IS NOT FOUND TO BE CORRECT AND THE ASSESSEES EXPLANATION IS NOT SUPPORTED BY ANY EVIDENCE. 7. IN VIEW OF THE ABOVE DISCUSSIONS, IT IS CLEAR THAT THE AMOUNT RECEIVABLE FROM THE GOVERNMENT OF GUJARAT, I.E. RS.49,41,77,018/-, IS GREATER THAN THE INTEREST BEA RING AMOUNT PAYABLE TO THE GOVERNMENT OF GUJARAT CLAIMED BY THE ASSESSEE TO BE AT RS.30,98,83,096/-. THEREFORE, THE ENTIRE AMOUNT OF INTEREST PAID TO THE GOVERNMENT OF GUJARAT AT RS.3, 92,90,103/- IS NOT ALLOWABLE, THEREFORE, THE SAME IS ADDED TO T HE INCOME OF THE ASSESSEE. 3.1. THE SAID ADDITION WAS CHALLENGED BEFORE THE FI RST APPELLATE AUTHORITY WHO HAS DECIDED IN FAVOUR OF THE ASSESSEE ON THE GROUND THAT FOR ASSESSMENT YEARS 2002-03, 2003-04, 2004-05, 2005-0 6 1998-1999 & 1999-2000 ON IDENTICAL LINES THE ADDITIONS WAS DEL ETED. HENCE, THE ITA NO.1672/AHD/2008(BY REVENUE) AND CO NO.125/AHD/2008 (BY ASSESSEE) ASST.YEAR - 2000-01 - 4 - AMOUNT BEING A NOTIONAL ADDITION TO BE DELETED FOR THE YEAR UNDER CONSIDERATION. 4. NOW BEFORE US, FEW ORDERS OF THE TRIBUNAL HAVE A LSO BEEN PLACED ON RECORD AS LISTED BELOW:- SR.NO(S). ITA NO(S). ASSESSMENT YEAR(S) ITAT BENCH ORDER DATED 1. 1219/AHD/2006 2002-03 A 03/03/2009 2. 2104/AHD/2006 & 2105/AHD/2006 1998-99 & 2003-04 B 03/04/2009 3. 2838/AHD/2007 & 2839/AHD/2007 (CO NOS.246 & 247/AHD/2007) 1999-2000 & 2004-05 B 01/05/2009 4. 194/AHD/2008 & CO NO.64/AHD/2008 2005-06 B 04/06/2010 FOR THE SAKE OF READY REFERENCE, THE RELEVANT PORTI ON (FOR ASSESSMENT YEAR 2005-06); REPRODUCED BELOW:- 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS ABOUT DISALLOWANCE OF INTEREST PAYABLE TO GOVERNMENT OF GUJARAT (GOG) ON THE GROUND THAT ON ONE HAND THE ASSESSEE HAS PAID INTEREST TO THE GOG ON THE UNSECURED LOAN OBTAINED BY IT BUT IT HAS NOT C HARGED ANY INTEREST ON THE LOANS AND ADVANCES OUTSTANDING AGAI NST THE GOG. THE ASSESSEE COMPANY IS A STATE GOVERNMENT UNDERTA KING I.E. OF GOVERNMENT OF GUJARAT. ITS MAIN ACTIVITIES ARE A DMINISTRATION OF PUBLIC DISTRIBUTION SYSTEM THROUGH WHICH IT DISTRI BUTES FOOD- GRAINS, SUGAR, WHEAT, AS PER POLICIES AND DIRECTION S OF THE STATE GOVERNMENT AND FOR WHICH IT RECEIVES SUBSIDY FROM I T. IT ENSURES ITA NO.1672/AHD/2008(BY REVENUE) AND CO NO.125/AHD/2008 (BY ASSESSEE) ASST.YEAR - 2000-01 - 5 - QUALITIES OF PROCUREMENT, STORAGE AND DISTRIBUTION OF FOOD GRAINS AND EDIBLE OILS. 3. DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTICE D FROM THE EXAMINATION OF BALANCE SHEET THAT THERE WERE UNSECU RED LOANS OF RS.80,78 CRORES OUTSTANDING ON WHICH INTEREST OF R S.4,06 CRORES WAS CLAIMED AS EXPENDITURE. ON THE OTHER HAND, ADV ANCES OUTSTANDING WERE OF RS.21.21 CRORES. IT WAS CLAIMED THAT ASSESSEE IS NOT ENTITLED TO INTEREST FROM THE STAT E GOVERNMENT ON THE AMOUNT OF SUBSIDY RECEIVABLE FROM GOG. FURT HER IT WAS SUBMITTED THAT ASSESSEE HAD SUBSTANTIAL FUNDS OF ST ATE GOVERNMENT TO THE EXTENT OF RS.103.80 CRORES ON WHI CH NO INTEREST IS BEING PAID AND IT HAD ALSO TRADING CRE DITORS TO THE EXTENT OF RS.53 CRORES ON WHICH NO INTEREST IS PAID . THE AO, HOWEVER, DID NOT AGREE AND HELD THAT CHARGING OF IN TEREST ON OUTSTANDING ADVANCES IS NOT A MATTER OF CUSTOM BUT IT IS A MATTER OF CONTRACT . AS PER THE DETAILS GIVEN IN THE ASSES SMENT ORDER THE AO WORKED OUT THAT ASSESSEE OUGHT TO HAVE CHARGED A SUM OF RS.4,06,29,867/- AS INTEREST ON THE FUNDS ADVANCED BY IT TO THE STATE GOVERNMENT. 4. THE LD. CIT(A) DELETED THE ADDITION FOLLOWING HI S ORDER FOR ASST. YEAR 2004-05. 5. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. THE LD. AR SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF ASSESSEE BY THE ORDER OF TRIBUNAL IN ITA NO.1219/AHD/2006 FOR ASST. YEAR 2002-03 WHEREIN AS PER PARA 6 OF THE ORDER THE TRIBUNAL HAS HELD AS UNDER :- 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE R EASON FOR DISALLOWANCE IS THAT THE ASSESSEE IS PAYING INTERES T TO GOVERNMENT BUT IS NOT RECOVERING INTEREST IN RESPE CT OF SUBSIDY RECEIVABLE FROM THE GOVERNMENT. WE FIND THAT AS PE R THE RESOLUTION SETTING UP THE ASSESSEE CORPORATION AS STATE GOVERNMENT UNDERTAKING IT WAS RESOLVED THAT THE NET SURPLUS FUNDS ON ACCOUNT OF GOVERNMENT TRANSACTION COVERED UNDER PDS WILL BE TREATED AS ANALOGOUS TO LOAN TO THE AS SESSEE CORPORATION AND IT WILL PAY INTEREST TO THE GOVERN MENT. THE INTEREST PAYABLE AS PER RESOLUTION WAS 14% PER ANN UM. THE ASSESSEE IS NOT TO RECOVER ANY INTEREST FROM THE ST ATE GOVERNMENT BUT BECAUSE OF THE ACTIVITIES THE ASSESS EE IS ITA NO.1672/AHD/2008(BY REVENUE) AND CO NO.125/AHD/2008 (BY ASSESSEE) ASST.YEAR - 2000-01 - 6 - ENTITLED TO SUBSIDY FROM THE STATE GOVERNMENT. THE SUBSIDY WAS WORKED OUT TAKING INTO ACCOUNT THE INTEREST COMPONE NT ALSO. THIS INTEREST COMPONENT IS WORKED OUT AS INDICATED ABOVE ON WHICH NO DISPUTE IS RAISED BY THE REVENUE. THE JUST IFICATION FOR INCLUDING INTEREST COMPONENT IS FILED IN THE PAPER BOOK PLACED BEFORE US. THEREFORE, IT IS INCORRECT TO HOLD THAT ON ONE HAND THE ASSESSEE PAYS BUT DOES NOT CHARGE INTEREST. THE INT EREST COMPONENT IS ALREADY INCLUDED WHILE WORKING OUT THE SALE PRICE, PART OF WHICH IS RECOVERABLE FROM THE STATE GOVERNM ENT BY WAY OF SUBSIDY. THERE IS NO RIGHT ACCRUING TO THE ASSES SEE TO CHARGE INTEREST SEPARATELY FROM THE STATE GOVERNMENT. WHIL E CONSIDERING THE DEDUCTION OF INTEREST PAYABLE UNDER SECTION 36(1)(III) WHAT IS TO BE EXAMINED IS WHETHER THE CA PITAL IS BORROWED FOR THE PURPOSE OF BUSINESS OR NOT. IN THI S REGARD, THERE IS NO DISPUTE. THEREFORE, THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING THE CLAIM OF INTEREST PAYABLE BY THE ASSES SEE TO THE STATE GOVERNMENT. ACCORDINGLY GROUND NO.1 FAILS. HE POINTED OUT THAT THIS DECISION HAS BEEN FOLLOWED BY THE TRIBUNAL IN ASST. YEAR 2003-04 AND 2004-05 ALSO VI DE THEIR ORDERS IN ITA NO.2105/AHD/2006 AND 2839/AHD/2007. T HE SAME VIEW HAS ALSO BEEN FOLLOWED FOR ASST. YEARS 1998-9 9 & 1999- 2000. 6. IN VIEW OF THE DECISION OF THE TRIBUNAL INTEREST WOULD BE DISALLOWED ONLY WHEN IT IS HELD THAT PAYMENT IS NOT FOR BUSINESS PURPOSES. FURTHER NO RIGHT ACCRUED TO THE ASSESSEE TO CHARGE INTEREST SEPARATELY FROM THE STATE GOVERNMENT. RESP ECTFULLY FOLLOWING THE ABOVE ORDERS, WE CONFIRM THE ORDER OF LD. CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. 7. THE LD. AR HAS WITHDRAWN THE CROSS OBJECTION AND HENCE THE SAME IS DISMISSED AS WITHDRAWN. 5. SINCE CONSISTENTLY A VIEW IN FAVOUR OF THE ASSES SEE HAS BEEN TAKEN IN THE PAST, THEREFORE, WE FIND NO REASON TO TAKE A NY OTHER VIEW OR TO DEVIATE FROM THE JUDGMENT PRONOUNCED BY THE RESPECT ED CO-ORDINATE BENCHES IN ASSESSEES OWN CASE, THEREFORE, FOLLOWIN G THOSE DECISIONS, FOR THIS YEAR AS WELL WE HEREBY DISMISS THE GROUND OF T HE REVENUE. ITA NO.1672/AHD/2008(BY REVENUE) AND CO NO.125/AHD/2008 (BY ASSESSEE) ASST.YEAR - 2000-01 - 7 - ASSESSEES CO NO.125/AHD/2008 (ARISING OUT OF ITA NO.1672/AHD/2008 ) 6. IN RESPECT OF THE CROSS OBJECTION, THE SAME HAS SIMPLY BEEN FILED IN SUPPORT OF THE VIEW TAKEN BY THE LEARNED CIT(APPEAL S) WITH A REQUEST TO UPHOLD THE SAME. HOWEVER, THE PROCEEDINGS U/S.14 7 OF THE I.T. ACT, 1961 HAVE ALSO BEEN CHALLENGED. BUT THE FACT IS THA T NOW BEFORE US LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE H AS EXPRESSED NOT TO PRESS THE SAME IF THE PAST HISTORY IS GOING TO BE F OLLOWED WHILE DISPOSING OFF THE REVENUES GROUND. 7. IN VIEW OF ABOVE, WE FIND NO FORCE IN THE CRO SS OBJECTION AND HEREBY DISMISSED BEING NOT PRESSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE AS WELL AS CROSS OBJECTION FILED BY THE ASSESSEE BOTH ARE DISMISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 09/ 07/ 2010. SD/- SD/- ( N.S. SAINI ) ( MUKUL SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 09 / 07 /2010 T.C. NAIR, SR. PS ITA NO.1672/AHD/2008(BY REVENUE) AND CO NO.125/AHD/2008 (BY ASSESSEE) ASST.YEAR - 2000-01 - 8 - COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-GANDHINAGAR, AHMEDABAD 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD