Shree Renuka Sugars Ltd., Belgaum V. Commissioner of Income Tax, Belgaum

ITA 183/PAN/2014

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9482 (ITAT-PANAJI)
• Duration Of Justice: 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 15-12-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 26-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NISHANT K
• Keywords: Revision of order; Business expenditure; Principle of natural justice; Bad and doubtful debts; Assessment record; Revised return; Revenue expenditure; Capital expenditure
• Section: 143(3); 115JB; 263; 37

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE SHRI P. K. BABNSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NO. 183 /PNJ/2014 (ASST. YEAR : 200 9 - 1 0 ) M/S. SHREE RENUKA SUGARS LTD., 105, HAVELOCK ROAD, CAMP, BELGAUM VS. CIT, BELGAUM PAN NO. AADCS 1728 B (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SATISH MEHTA - CA DEPARTMENT BY : SHRI NISHANT K . - D.R. DATE OF HEARING : 15 / 12 /2014 . DATE OF PRONOUNCEMENT : 1 1 / 0 3 /201 5 . O R D E R PER D.T. GARASIA , J .M THIS IS AN APPEAL BY THE ASSESS EE AGAINST THE ORDER OF LD. CIT , BELGAUM DATED 2 6 /0 3 /201 4 FOR THE A.Y. 2009 - 10 . 2. THE FOLLOWING GROUNDS ARE RAISED BY THE ASSESSEE : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX, BELGAUM ERRED, IN DISALLOWING OPERATING L EASE RENT PAID TO RAIBAG SAHAKARL SAKHAR KARKHANE OF RS. 15 CRORES FOR THE PERIOD 1.102008 TO 31.3.2009, ON THE GR OUNDS THAT, THE SAME WAS NOT CHARGED TO PROFIT AND LOSS ACCOUNT, WITHOUT 2 APPRECIATING THE FACT THAT, THERE WAS A MISTAKE IN CLAIMING THE SAME IN BOOKS OF ACCOUNTS AND IN ORIGINAL RETURN AND ON REALIZING THE SAME IT WAS RIGHTLY CLAIMED IN REV I SED RETURN OF INCOME AS THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE WAS MERCANTILE SYSTEM, SO AS TO ARRIVE AT THE INCOME OF THE ASSESS E E UNDER INCOME TAX ACT. THE EXPENDITURE INCURRED WAS IN THE COURSE OF BUSINESS TO WHICH THE CIT DOES NOT HAVE ANY OBJECTION. 2 . THE CIT ALSO ERRED IN NOT ACCEPTING THE FACT THAT, THERE IS A MISTAKE IN NOT DEBITI N G THE BOOKS STATING THAT, IT IS NOT OPEN TO ASSESSEE TO SHOW DIFFERENT ACCOUNTS TO DIFFERENT GOVERNMENT DEPARTMENTS THE ASSESSEE COMPANY SHOWING THE PAYMENT AS A DEPOSIT MA Y HAVE WANTED TO P L EASE IT SHAREHO L DERS, HOWEVER WHEN IT CAME TO PAYING TAXES IT HAS ADOPTED A DIFFERENT METHODOLY SO AS TO REDUCE TAX LIABILITY THE QUESTION OF PLEASING SHAREHOLDERS BY SHOWING THE RENT PAYMENT AS A DEPOSIT IS NOT TRUE, BECAUSE UNDER CO MPANIES ACT THE ASSESSEE HAS BEEN ADOPT I NG 3O TH SEPT. AS I TS ACCOUNTING YEAR ENDING AND IN FACT, THE ASSESSEE HAD ALSO WRITTEN OFF THE OPERATING LEASE RENT IN THE BOOKS OF ACCOUNTS ON 1.09.2009 AS PE R ACCOUNTING STANDARD 19 OF ICAI I.E. BEFORE ACCOUNTING Y EAR END 30 - 09 - 2009, AS HAS ALSO BEEN ACCEPTED BY CIT IN HER ORDER. IT HAD ALSO MADE TH E NECESSARY DISCLOSURES N ITS ANNUAL REPORT IN THIS CONTEXT. THE CIT ALSO ERRED T O APPR ECIATE THE FACT THAT OPERATING LEASE DEED DATED 16. 10.2008 WAS EXECUTED WITH THE L ESSOR TH R OUGH GOVT. OF KARNATAKA, IT WAS THUS NOT AN AFTERTHOUGHT. 3. THE CIT ALSO ERRED IN STATING THAT, OUT OF PAYMENT OF RS. 30 CRORES AN AMOUNT OF RS. 5 CRORES IS TOWARDS SECURITY DEPOSIT, WHICH IS NOT LEASE RENT ARID NOT AN EXPENSE WHICH IS REVENUE IN N ATURE , HENCE FOR THIS REASON AL SO SAME IS NOT ALLOWABLE . THE FACT HOWEVER REMAINS THAT, WHETHER A PART OF ADVANCE PAID IS TO BE ADJUSTED AGAINST L EASE R ENT OR RET UR NED AS SECURITY DEPOSIT, IT DOES NOT III ANY CASE REDUCE THE LIABILITY OF THE ASSESSES TO PAY THE LEASE RENT OF RS. 15 CRORES FOR THE PERIOD 1.10.2008 TO 31.3.2009. IN THIS CONTEXT CIT ALSO ERRED IN NOT REFERRING TO PARA 2 OF PAGE 2 AND PARA 3 ON PAGE 3 OF THE LEASE DEED WHICH REFERS TO 3 LEASE RENT OF RS. 126 CRORES IS PAYABLE FOR PERIOD OF 30 YEARS AND YEARL Y TEASE PAYABLE. 4. THE CIT ALSO ERRED IN CITING CALCUTTA HIGH COURT DECISION AS SUPREME COURT JUDGEMENT IN THE CASE OF CIT VS UCO BANK 20 0 ITR 68 (CAL), WHICH HAS IN FACT BEEN REVERSED BY SUPREME COURT IN (1999) 240 ITR 355 (SC) UCO BANK VS CIT7 WHICH STATES THAT, EVEN THOUGH THE EXPENDITURE IS NOT CLAIMED IN BOOKS OF ACCOUNTS, STILL TO ARRIVE AT REAL INCOME OF THE ASSESSEE NECESSARY DEDUCT IONS SHOULD BE ALLOWED FROM THE BOOK PRO F ITS OF THE ASSESSEE. FURTHER, IT IS PRAYED THAT, THE APPELLANT MAY KINDLY BE PERMITTED TO ADD, AMEND, ALTER /VARY AND/OR WITHDRAW ANY OR ALL THE ABOVE GROUNDS OF APPEAL IN THE INTEREST OF EQUITY AND JUSTICE. IN VIEW OF ABOVE GROUNDS OF APPEAL, IT IS PRAYED THAT, THE IMPUGNED ORDER OF CIT DISALLOWING RIGHTFUL CL AIM O F OPERATING LEASE RENT PAID OF R S. 15 CRORES JUST BECAUSE SAME IS NOT CHARGED TO PROFIT AND LOSS ACCOUNT, BE QUASHED IN THE EYES OF FAIR AND NATURAL JUSTICE. 3. SHORT FACTS OF THE CASE ARE THAT IN THIS CASE ASSESSMENT ORDER PASSED BY THE ACIT, CIRCLE - 2, BELGAUM U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE 'ACT', FOR SHORT) FOR THE A.Y. 2009 - 10 ON 27/12/2011. A NOTICE U/S. 263 OF THE ACT WAS ISSUED ON 21/03/2004 . LEARNED COMMISSIONER HAS VERIFIED THE ASSESSMENT RECORD AND FOUND THAT THE ASSESSING OFFICER HAS ALLOWED A SUM OF RS. 15 CRORE WHICH HAS BEEN REDUCED ON ACCOUNT OF LEASE RENT TO SSK RAIBAG UNIT . AS PER REVISED COM PUTATION, IT IS NOT CHARGED TO P & L ACCOUNT. THE ASSESSING OFFICER FAILED TO EXAMINE THE ADMISSIBILITY OF THE SAID DEDUCTION MADE IN ITS REVISED COMPUTATION DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE LEARNED COMMISSIONER WAS OF THE VIEW 4 THAT THE ORDER PASSED BY THE ASSESSING OFFICER WAS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF REVENUE . THE ASSESSEE WAS GIVEN A SHOW - CAUSE NOTICE , IN TURN HE REPLIED AS UNDER: - 2. REGARDING CLAIMING DEDUCTION ON ACCOUNT OF LEASE RENT PAYABLE TO RAIBAG SSK FIR THE PERIOD 1702008 TO 31.3 .2009 OF RS. 75 CRATES, THE FACTS ARE AS FOL LOWS : I) THE ASSESSEE LINT1 ENTERED INTO OPERATING LEAST OF30 YEARS WIT/I RAIBAG SSK , THROUGH GOVT. OF KARNATAKA . THE GOVT. IN ORDER TO MINIMIZE THE LIABILITIES OF THE C ANE GROWERS, EMPLOYEES, FINANCIAL INSTITUTIONS AND THE GOVT. AND IN ORDER TO PROMOTE THE ECONOMIC ACITIVITY AND REGIONAL DEVELOPMENT HAD RECOMMENDED FOR THE OPERATING LEASE, WHICH TRHOUGH TENDER PROCESS WAS GIVEN TO THE ASSESSEE AND LEASE AGREEMENT DATED 1 6/10/2008 WAS SIGNED FOR TOTAL CONSIDERATION OF RS. 126 CRORES. COPY OF THE LEASE AGREEMENT IS ENCLOSED HEREWITH VIDE ANNEXURE 1 AS EMPLOYEES / CANE GRO W ER / FINANCIAL INSTITUTIONS DUES WERE TO BE PAID IMMEDIATELY FOLLOWING LEASE TERMS WERE AGREED BETWEEN THE ASSESSEE AND RAIBAG SSK UNDER GOVT. OF KARNATAKA INSTRUCTIONS. AS PER CLAUSE 21(1) OF THE LEASE AGREEMENT : LEASE PAYABLE FOR CRUSHING SEASON (CRUSHING SEASON IS BETWEEN 1 ST OCT. TO 30 TH SEPT.) YEARLY LEASE RENTALS ( IN LACS) 2008 - 09 RS. 3000.00 = 3000.00 2009 - 10 RS. 2800.00 = 2800.00 2010 - 11 TO 20 3 1 - 3 2 RS. 1.00 = 22.00 2032 - 33 TO 2035 - 36 RS. 1300.00 = 5200.00 2036 - 37 RS. 1200.00 = 1200.00 2037 - 38 RS. 378.00 = 378.00 ----------- TOTAL LEASE FOR 30 YEARS = 12600.00 ----------- III) SUM OF RS. 30 CRORES WAS PAID ON 15 .1 0 . 2008 AND RS. 28 CRORES ON 2182009 BY DEBITING DEPOSIT RAIB AG SSK. ENCLOSED PLEASE FIND HEREWITH EXTRACT OF RELEVANT ENTRY AS APPEARING IN HOOKS OF TH E ASSESSEE VIDE ANNEXURE TI AND RELEVANT DETAI L S OF AUDITED FINANCIAL STATEMENTS REFLECTING THE DEPOSIT WITH RAIBAG 55K OF RS. 30 CRC. VIDE ANNEXURE IIA . 5 IV) AS PER CLAUSE NO, 33 & 59 OF THE LEASE AGREEMENT SAUL OF RS. 30 CRS. AND RS. 28 CRS WILL NOT BE PAID TO THE ASSESSEE EVEN IN CASE THE LEASE, DUE TO ANY UNFORESEEN CIRCUMSTANCES IS NOT CON TI NUED. KINDLY A/SO NOTE THAT TDS WAS NOT D DARTED ON PAYMENT OF RS.30 C RS IN HEN OF NO DEDUCTION CERTI FICATE ISSUED BY ITO TDS WARD BELCAUM VIDE HIS LETTER DID. 19. 3.2009. COPY OF THE SA ME IS ENCLOSED HE R EWITH WOE ANNEXURE I II . V) ORIGINAL RE TURN OF I NCOME WAS FILED 29.9.2009 V IDE E FILED ACKNOWLEDG MENT NO. 94656520290909 , HOWEVER BY OVERSIGHT TENSE RENT FOR THE PERIOD CRUSHING PERIOD 7.10 . 2008 TO 3 1.3.2009 OF RS. 1 5 CRS. WAS NOT CLAIMED BY CHARGING THE SA M E TO PROFIT AND LOSS ACCOUN T FOR YEAR ENDING 31.3.2009. VI) ON REALIZING THIS MISTAKE REVISED RETURN OF INCOME WAS FILED CLAIMING THE DEDUCTION OF ELIGIBLE LEASE RENT OF RS. 15 CRS . (FOR PERIOD 7.10.2008 TO 31.3.2009) AS THE SA M E WAS LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AS REQUIRED U/S. 37 OF THE INCOME TAX ACT 1961 ENCLOSED PLEASE FIND HEREWITH S TATEMEN T OF INCOME OF ORIGINAL RETURN OF INCOME AND REVISED RETURN OF INCO M E VIDE ANNEX U RE IV. VII) FURTHER BEING A LISTED COMPANY , B OOKS OF ACCOUNTS COULD NOT BE AMENDED ONCE ACCOUNTS HAD BEEN APPROVED IN AGM. VIII) THE EFFECT OF THE SAME WAS HOWEVER GIVEN IN HOOKS OF ACC OUNTS DURING ASSESSMENT YEAR 201 0 - 11 I.E . DURING THE ACCOUNTING PERIOD 1. 4.2009 TO 3 1 .3.2010 AS PER ACCOUNTING STANDARD 1 9 FOR OPERATING LEASE CLAUSE NO. 23 BY RECOGNIZING THE EXPENSE ON STRAIGHT LINE BASIS OVER THE LEASE TERM OF 30 YEARS, WHICH IS ALSO REQUIRED TO BE COMPLIED WITH AS PER SEC. 115JB . ENCLOSED PLEASE FIND HEREWITH RELEVANT EXTR ACT OF THE ACCOUNTING STANDARD 1 9 VI DE ANNEXURE V. IX) COPY OF POWER OF ATTORNEY IS ALSO ENCLOSED HEREWITH VIDE ANNEX UIRE VI. IN LIEU OF ABOVE EXPLANATION AS THE LEASE RENT IS AN ADMISSIBLE DEDUCTION FOR THE P REVIOUS YEAR ENDING 31.3.2009, THE SAME IS NOT PREJUDICIAL IN THE INTEREST OF THE REVENUE AND HENCE SA ME IS RIGHTLY ALLOWED BY THE ASSESSING OFFICER DURING THE SC RU TINY ASSESSMENT PROCEEDINGS. H OPE ABOVE STATED INFORMATION AND EXPLANATION REQUIRED BY YOU R KIND SELF WILL HELP YOU TO COMPLETE THE PROCEEDINGS INITIATED BY YOUR KIND SELF. HOWEVER ANY OTHER INFORMATION REQUIRED BY YOU WILL DULY BE COMPLIED WITH. 6 WITH WARM REGARDS AND SEASONS GREETINGS. THA NKING YOU IN ANTICIPATION 4 . AFTER CONSIDERING THE REPLY , THE COMMISSIONER HELD THAT THE ASSESSEE HAS ENTERED INTO AN OPERATING LEASE FOR 30 YEARS WITH RAIBAG SSK THROUGH THE GOVT. OF KARNATAKA. THE GOVT. IN ORDER TO MINIMIZE THE LIABILITIES OF THE CANE GROWERS, EMPLOYEES, FINANCIAL INSTITUTIONS IN ORDER TO PROMOTE THE ECONOMIC ACTIVITY AND REGIONAL DEVELOPMENT HA D RECOMMENDED FOR THE OPERATING LEASE, WHICH THROUGH TENDER PROCESS WAS GIVEN TO THE ASSESSEE AND LEASE AGREEMENT DATED 16.10 . 2008 WAS SIGNED FOR A TOTAL LEASE CONSIDERATION OF RS. 126 CRORES. T HE LEASE AGREEMENT PROVIDES FOR PAYMENT OF YEARLY LEASE RENTALS PAYABLE FOR CRUSHING SEASONS. THE ASSESSEE HAS PAID RS. 30 CRORES ON 15.10 . 2008 AS DOWN PAYMENT BEFORE THE DATE OF EXECUTION OF LEASE AGREEMENT ON 16 . 10 . 2008. T HIS PAYMENT APPEARS AS A DEPOS IT WITH RAIBAG SSK IN THE BALANCE SHEET . O N 01.09.2009, THE ASSESSEE DEBITED AN AMOUNT OF RS.4,20 CRORES AS LEASE RENT FOR THE CRUSHING PERIOD 2008 - 09 TO THE P&L A/C. THIS AMOUNT WAS CALCULATED AT LESSOR AMOUNT OF RS.420 CR ORE AS PER ACCOUNTING STANDARD 19 WHICH RECOGNIZES THE EXPENSE ON STRA I GHT LINE BASIS OVER THE LEASE TERM OF 30 YEARS. THE ASSESSEE PREPARES ITS ACCOUNTS UNDER THE COMPANIES ACT AND CLAIMED RS. 15 CRORES RENT PAYABLE IN THE COMPUTATION OF INCOME FILED WITH THE REVISED RETURN F OR A . Y. 2009 - 10. THE ASSESSING OFFICER HAS ALLOWED THIS CLAIM WITHOUT 7 VERIFYING THE ADMISSIBILITY OF THI S RENT. THE COMMISSIONER WAS OF THE VIEW THAT THE CLAIM OF EXPENSES WITHOUT DEBITING THE P&L ACCOUNT IS THE MATTER OF I NTEGRITY OF ACCOUNTS PRODUCED BEFORE THE I . T. AUTHORITIES . HE WAS OF THE VIEW THAT THE ASSESSEES CLAIM OF DEDUCTION OF RS. 15 CRORE ON ACCOUNT OF LEASE RENT CANNOT BE ALLOWED AND HE DIRECTED THE ASSESSING OFFICER TO DISALLOW THE SUM OF RS. 15 CRORE WHILE GIVING EFFECT TO THIS ORDER. THE COMMISSIONER HAS ALSO VERIFIED LEASE CONSIDERATION OF RS. 126 CRORES INCLUDES A SECURITY DEPOSIT OF RS. 5 CRORES. SECURITY DEPOSIT IS NOT A LEASE RENT AND IS NOT AN EXPENSE WHICH IS REVENUE IN NATURE. THEREFORE SECURITY DEPOSIT OF RS. 5 CRORES IS NOT ALLOWABLE. THE COMMISSIONER HELD THAT THE ORDER OF ASSESSING OFFICER WAS TO BE ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF REVENUE. THEREFORE HE DISALLOWED RS. 15 CRORES OF LEASE RENT . HE ALSO HELD THAT RS. 5 CRORES OF SECURITY DEPOSIT IS NOT REVENUE EXPENDITURE. THE ASSESSEE IS IN APPEAL. 5 . THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAD ENTERED INTO LEASE AGREEMENT OF 30 YEARS WITH RAIBAG, SSK THROUGH GOVERNMENT OF KARNATAKA . LEARNED AR SUBMITTED THAT RAIBAG, SSK WAS RUNNING INTO LOSS , THEREFORE THE GOVERNMENT IN ORDER TO MINIMIZE THE LIABILITIES OF THE CANE GROWERS, EMPLOYEES, FINANCIAL INSTITUTIONS AND TO PROMOTE ECONOMIC ACTIVITY AND REGIONAL DEVELOPMENT , HAD RECOMMENDED FO R 8 LEASE WHICH WAS GIVEN TO THE ASSESSEE AND LEASE AGREEMENT DATED 16/10/2008 WAS SIGNED FOR TOTAL CONSIDERATION OF RS. 126 CRORES . THE ASSESSEE PREPARED THE ACCOUNTS UNDER THE COMPANIES ACT FOR THE ACCOUNTING PERIOD 1 ST OCT. 2008 TO 30 TH SEP. 2009 . FOR P URPOSES OF INCOME TAX ACT, THE ASSESSEE HAS FILED ITS ACCOUNTS FOR THE ACCOUNTING PERIOD FROM 1 ST APRIL, 2008 TO 31 ST MARCH, 2009 . THE ASSESSEE IN HIS REVISED COMPUTATION OF INCOME FOR A.Y. 2009 - 10, HE CLAIMED RS. 15 CRORES AS RENT PAYABLE , BUT COULD NOT DEBIT IN P & L A/C BY OVERSIGHT , THEREFORE IT WAS CLAIMED IN REVISED RETURN. LEARNED AR SUBMITTED A SSESSEE HAS MAINTAINED BOTH THE ACCOUNTS IN THE COMPANIES ACT AND TH E RS. 15 CRORES RENT HAS ALREADY BEEN CLAIMED, THEREFORE THE ASSESSING OFFICER HAS VERIF IED THIS CLAIM AND ALLOWED IT. THEREFORE ACTION OF ASSESSING OFFICER IS JUSTIFIED AND THE COMMISSIONERS ORDER IS NOT JUSTIFIED. MOREOVER, IN SUPPORT OF THIS, LEARNED AR HAS FILED WRITTEN SUBMISSION WHICH READS AS UNDER: - 1. THE ASSESSMENT OF INCOME AND ALLOWABILITY OF EXPENDITURE S DEPENDENT ON THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE AND NOT DEPENDENT ON THE ENTRIES MADE IN THE BOOKS OF ACCOUNTS. THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS FAR GREATER AN D COVERS A L ARGER AREA THAN MERE ENTRIES MADE IN THE BOOKS OF ACCOUNT. IF ENTRIES ARE NOT MADE IN THE BOOKS - OF ACCOUNTS OR WRONG ENTRIES ARE MADE IN THE BOOKS OF ACCOUNTS OR INADEQUATE AMOUNTS ARE PROVIDED IN THE BOOKS OF ACCOUNTS IT WOULD NOT AFFECT THE TAXABILITY OR DEDUCTIBILITY. REAL INCOME OF THE ASSESSEE HAS TO BE DECIDED FOR TAXABILITY UNDER INCOME TAX ACT. 2. THE SUPREME COURT IN FOLLOWING LAND MARK J UDGEMENTS HAVE DECIDED SIMILAR MATTERS IN FAVOUR OF THE ASSESSEE, RELEVANT EXTRACT OF THE JUDGEMEN TS ARE AS FOLLOWS: 9 I) IN (1971) 82 ITR 363 (SC ) KEDARNATH JUTE MFG. CO. LTD. VS. CIT , SUPREME COURT WHILE ALLOWING THE APPEAL OF THE ASSESSEE HAS STATED AS FOLLOWS : THE MAIN CONTENTION OF THE LEARNED SOLICITOR - GENERAL IS THAT THE ASSESSEE FAILED TO DEB IT THE LIABILITY IN ITS BOOKS OF ACCOUNTS AND, THEREFORE, IT WAS DEBARRED FROM CLAIMING THE SAME AS DEDUCTION EITHER UNDER SECTION 10(1) OR UNDER SECTION 10(2)(XV) OF THE ACT. WE ARE WHOLLY UNABLE TO APPRECIATE THE SUGGESTION THAT, IF AN ASSESSEE UNDER SOM E MISAPPREHENSION OR MISTAKE FAILS TO MAKE AN ENTRY IN THE BOOKS OF ACCOUNT AND &THOUGH, UNDER THE LAW, A DEDUCTION MUST BE ALLOWED BY THE INCOME - TAX OFFICER, THE ASSESSEE WILL ROSE THE RIGHT OF CLAIMING OR WILL BE DEBARRED FROM BEING ALLOWED THAT DEDUCTIO N. WHETHER THE ASSESSEE IS ENTITLED TO A PARTICULAR DEDUCTION OR NOT WILL DEPEND ON THE PROVISION OF LAW RELATING THERETO AND NOT ON THE VIEW WHICH THE ASSESSEE MIGHT TAKE OF HIS RIGHTS NOR CAN THE EXISTENCE OR ABSENCE OF ENTRIES IN THE BOOKS OF ACCOUNT BE DECISIVE OR CONCLUSIVE IN THE MATTER II) IN (1962) 46 ITR 144 (SC) COMMISSIONER OF INCOME TAX VS SHOORJI VALLABHDAS & CO. THE SUPREME COURT WHILE DISMISSING THE APPEAL OF THE REVENUE HAS EVEN GONE TO THE EXTENT OF STATING AS FOLLOWS: - THE REASON IS P LAIN. INCOME - TAX IS A LEVY ON INCOME. NO DOUBT, THE INCOME - TAX ACT TAKES INTO ACCOUNT TWO POINTS OF TIME AT WHICH THE LIABILITY TO TAX S ATTRACTED, VIZ., THE ACCRUAL OF THE INCOME OR ITS RECEIPT; BUT THE SUBSTANCE OF THE MATTER IS THE INCOME. IF INCOME DOE S NOT RESULT AT ALL, THERE CANNOT BE A TAX, EVEN THOUGH IN BOOK - KEEPING, AN ENTRY IS MADE ABOUT A HYPOTHETICAL INCOME, WHICH DOES NOT MATERIALISE. A MERE BOOK - KEEPING ENTRY CANNOT BE INCOME, UNLESS INCOME HAS ACTUALLY RESULTED 3. TH E CIT CITED THAT, THE PRINCIPLES LAID DOWN BY THE SUPREME COURT IN THE CASE OF CIT VS UCO BANK 200 ITR 68 (CAL), WHEREIN THE COURT HAS HELD THAT, IF THE ASSESSES FOLLOWS A PARTICULAR METHOD OF STOCK VALUATION FOR CONSISTENTLY YEAR AFTER YEAR AND DRAWS HIS T RADING ACCOUNTS ON THE BASIS, THERE CAN BE NO DOUBT THAT ITS TAXABLE INCOME WILL HAVE TO BE COMPUTED ACCORDINGLY. HOWEVER THE CASE WHICH CIT HAS REFERRED TO IS NOT SUPREME COURT BUT HIGH COURT JUDGEMENT WHICH HAS BEEN REVERSED BY SUPREME COURT IN (1999) 24 0 ITR 355 (SC) PASSING THE ORDER IN FAVOUR OF THE ASSESSEE. 10 IN WAS DECIDED BY THE SUPREME COURT THAT, WHERE, EVEN THOUGH ASSESSEE HAD NOT VALUED THE STOCK OF SHARES IN ITS BOOKS OF ACCOUNTS IN ACCORDANCE WITH THE METHOD COST OR MARKET PRICE WHICHEVER IS LOWER , HOWEVER BASED ON METHOD OF ACCOUNTING REGULARLY EMPLOYED BY ASSESSES, NOTIONAL LOSS IN THE INVESTMENT, BY WORKING OUT A DIFFERENCE BETWEEN THE BOOK VALUE OF SHARES AS SHOWN IN THE FINAL ACCOUNTS AND THEIR MARKET PRICE AS ON THE L AST DATE OF THE ACC OUNTS HAD TO BE ALLOWED. THE SAME WAS ALLOWED TO BE DEDUCTED FROM THE BOOK PROFITS OF THE ASSESSEE. THIS CLEARLY GOES TO SHOW THAT, EVEN THOUGH THE EXPENDITURE IS NOT CLAI M ED IN BOOKS OF ACCOUNTS, STILL TO ARRIVE AT REAL INCOME OF THE ASSESSEE NECESSARY DE DUCTIONS SHOU L D BE ALLOWED FROM THE BOOK PROFITS OF THE ASSESSEE . 4. THE CIT (A) ALSO ERRED TO APPRECIATE THE PROVISIONS OF SEC. 37 WHICH STATES AS FOLLOWS ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTIONS 3 TO [***3 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE), LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. IN THIS PRESENT CASE LEASE RENT OF RS. 15 CRORES IS CLEARLY A REVENUE EXPENDITURE AID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, WHICH EVEN THE CIT HAS NOT REFUTED. THIS IS QUITE DISTINCT FROM CERTAIN SECTIONS OF THE I NCOME TAX ACT, WHICH VERY SPECIFICALLY ALLOW EXPENSES ONLY IF THEY ARE WRITTEN OFF IN BOOKS OF ACCOUNTS EG: SEC. 36 (1) (VII) ALLOWS BAD DEBTS ONLY IF SAME ARE WRITTEN OFF IN BOOKS OF ACCOUNTS. THI S IN LIEU OF ABOVE STATED SUPREME COURT JUDGEMENTS AND PROV ISIONS OF THE ACT IT IS PRAYED THAT, AS IT HAS CLEARLY ERRED IN NOT ALLOWING GENUINE BUSINESS EXPENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCISIVEIY FOR THE PURPOSES OF THE BUSINESS, HENCE ORDER PASSED BY HER U/S 263 BE QUASHED AND THE ORDER OF ACTT CIRCLE 2, B EL GAUM U/S. 143(3) BE RESTORED. 6 . ON THE OTHER HAND , LEARNED DR RELIED UPON THE ORDER OF REVENUE AUTHORITIES. 7 . WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PARTIES . LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT IT IS UNDISPUTED 11 FACT THAT THE ASSESSEE HAS ENTERED INTO AN OPERATING LEASE FOR 30 YEARS WITH RAIBAG SSK THROUGH GOVERNMENT OF KARNATAKA . THE ASSESSEE HAS LEASED THE SUGAR MILL IN CONSIDERATION OF RS. 126 CRORES. THE ASSESSEE HAS PAID RS. 30 CRORES ON 15/01/2008 AS DOWN PAYMENT BEFORE DATE OF EXECUTION OF LEASE AGREEMENT ON 16/10/2008 . ON MAKING THIS PAYMENT , ASSESSEE HAS DEBITED THIS AMOUNT TO RAIBAG SSK S ACCOUNT AND IT APPEARS AS A DEPOSIT WITH RAIBAG SSKS ACCOUNT IN THE BALANCE SHEET . THE ASSESSEE HAS PREPARED ITS ACCOUNT FOR COMPANIES ACT FOR THE PURPOSE OF INCOME - TAX AND HE HAS FILED THE ACCOUNTS FROM 01/04/2008 TO 31/03/2009 . THE ASSESSEE HAS CLAIMED RS. 15 CRORES, THE RENT PAYABLE FOR THE PERIOD FROM 01/10/2008 TO 31/03/2009. T HE ASSESSING OFFICER WITHOUT VERIFYING THE TERMS OF LEASE AGREEMENT, SIMPLY ALLOWED THE RENT PAYMENTS OF RS. 15 CRORES IN THE YEAR UNDER CONSIDERATION. THE COMMISSIONER HAS DISALLOWED THE SAME BY EXERCISING HIS POWERS CONFERRED U/S. 263 OF THE ACT. WE H AVE GONE THROUGH THE COPY OF LEASE DEED , LEDGER ACCOUNT OF DEPOSIT WITH RAIBAG SSK ACCOUNT AND RELEVANT FINAL STATEMENT & SCHEDULE . WE FIND THAT THE ASSESSEE HAS SHOWN THIS RENT IN COMPANIES BOOKS OF ACCOUNTS WHICH ARE MAINTAINED AS PER COMPANIES ACT. THE ASSESSEE HAS MAINTAINED THE BOOKS OF ACCOUNTS FOR INCOME - TAX ALSO. WE HAVE GONE THROUGH THE ORDER OF THE ASSESSING OFFICER AS WELL AS THE ORDER OF COMMISSIONER. WE FIND THAT ASSESSING OFFICER HAS NOT VERIFIED WHETHE R THE LEASE 12 AGREEMENT IS GENUINE OR NOT AND ALSO NOT VERIFIED WHETHER THE ASSESSEE HAS PAID RS. 30 CRORES BEFORE ENTERING INTO THE LEASE AGREEMENT . T HE COMMISS I ONER HAS HELD THAT THE ACCOUNTS OF THE ASSESSEE ARE NOT RELIABLE , THEREFORE , HE DISALLOWED THE RENT PAYMENT OF RS. 15 CRORES AND HELD THAT RS. 5 CRORES OF SECURITY DEPOSIT IS CAPITAL EXPENDITURE. WE FIND FROM THE ORDER OF COMMISSIONER THAT THE COMMISSIONER HAS SIMPLY NOT RELIED UPON THE ACCOUNTS SUBMITTED BY THE ASSESSEE, BUT IN OUR OPINION , THE ACTION OF COMMISSIONER IS NOT JUSTIFIED. WE FIND TH A T IT IS THE DUTY OF ASSESSING OFFICER TO VERIFY THE GENUINENESS OF THE AGREEMENT . IF THE ASSESSING OFFICER IS FOUND LEASE AGREEMENT IS GENUINE , THEN WHAT ARE THE EXPENSES WHICH ARE CAPITAL IN NATURE AND WHAT ARE THE EXPENSES WHICH ARE REVENUE IN NATURE HAS TO EXAMINED IN DETAIL. THE ASSESSING OFFICER IS BEING A QUASI JUDICIAL AUTHORITY HAD THREE FUNCTIONS FIRSTLY TO COLLECT THE MATERIAL & INFORMATION, SECONDLY TO PROCESS THE MATERIAL & INFORMATION, THIRDLY TO ADJUDICATE ON CONSIDERATION OF SUCH MATERIAL & INFORMATION. IN THIS CASE, THE ASSESSING OFFICER HAS COLLECTED THE MATERIAL, BUT FAILED TO EXAMINE THE GENUINENESS OF THE AGREEMENT AS STATED ABOVE . THEREFORE , THIS IS A FIT CASE FO R LACK OF ENQUIR Y. WE FIND SUPPORT FROM THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL COMPANY LTD. VS. CIT (243 ITR 83) WHEREIN IT WAS HELD BY THE SUPREME COURT THAT WHERE THE ASSESSING OFFICER HAS NOT MADE ENQUIRY, THE COMMISSIONER IS JUSTIFIED 13 IN RESTORING THE MATTER TO THE ASSESSING OFFICER FOR FURTHER VERIFICATION. WE FIND THAT IN THIS CASE, THE ASSESSING OFFICER HAS NOT MADE ANY ENQUIRY, THEREFORE FOLLOWING THE DICTUM , WE RESTORE THIS ISSUE TO THE FILE OF ASSESSING OFFICER TO DECIDE AFRESH AS STATED ABOVE. WE THEREFORE MODIFY THE ORDER OF COMMISSIONER AND RESTORE THIS MATTER TO THE FILE OF ASSESSING OFFICER TO EXAMIN E THE GENUINENESS OF THE LEASE AGREEMENT AND MODE OF PAYMENT WHETHER THIS EXPENDITURE IS REVENUE OR CAPITAL IN NATURE AS PER LAW AFTER GIVING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. 8 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED AS INDICATED ABOVE . ( ORDER PRONOUNCED IN THE COURT ON 1 1 T H MARCH , 201 5 ). S D / - S D / - (P.K. BANSAL) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 1 1 T H MARCH , 201 5 . VR/ - COPY TO: 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE LD. CIT 4 . THE CIT(A) 5 . THE D.R 6 . GUARD FILE. BY ORDER ASSISTANT REGISTRAR I.T.A.T., PANAJI .