Appeal details
Counselvise Citation
183421114 RSA 2013
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 5 month(s) 11 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
08-06-2015
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
B
Next Hearing Date
13-05-2015
Assessment Year
2007-2008
Appeal Filed On
27-12-2013
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER A ND SHRI JASON P.BOAZ, ACCOUNTANT MEMBER ITA NO S . 1 834 & 1835 / BANG/20 13 (ASSESSMENT YEAR S : 2007 - 08 & 20 09 - 10 ) THE MYSORE SUGAR CO. LTD., MY SUGAR BUILDING, J.C.ROAD, BANGALORE - 560002. APPELLANT PAN: AABCT0474B VS. DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE 12(4), BANGALORE. RESPONDENT APPELLANT BY: SHRI SACHIN MEHTA, CA. RESPONDENT BY: SHRI NAMBIRAJAN PILLAI, JCIT (DR). DATE OF HEARING : 1 3 /05/2015 DATE OF PRONOUNCEMENT: 08 /0 6 /2015 O R D E R PER SMT.P.MADHAVI DEVI, JM: THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE CIT(A) - III, BANGALORE, DATED 27/09/2013 FOR THE ASSESSMENT Y EARS 2007 - 08 AND 2009 - 10. IN BOTH THE APPEALS, THE COMMON GROUND OF APPEAL IS AGAINST THE ORDER OF THE CIT(A) IN CONFIRMING THE ADDITION OF THE GUARANTEE COMMISSION MADE BY THE ASSESSING OFFICER (AO) HOLDING IT TO BE ONLY A PROVISION AND NOT AN ASCERTAIN ED LIABILITY. ITA NO S . 1834 & 1835 /BANG/20 1 3 THE MYSORE SUGAR CO. LTD., PAGE 2 OF 5 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE - COMPANY , WHICH IS IN THE BUSINESS OF MANUFACTURING OF SUGAR AND DISTILLERY PRODUCTS, FILED ITS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR S . DURING THE ASSESSMENT PROCEEDING S U/S 143(3) OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT] FOR THE ASSESSMENT YEAR 2007 - 08, THE AO OBSERVED THAT THE ASSESSEE HAD DEBITED A SUM OF RS.71,60,160/ - TOWARDS GUARANTEE COMMISSION. ON VERIFICATION OF RECORDS, THE A O ASCERTAINED THAT PAYMENT OF GUARANTEE COMMISSION WAS NOT MA DE BY THE ASSESSEE - COMPANY BUT H AS DEBITED THE SAME TO THE PROFIT AND LOSS ACCOUNT ON ACCRUAL BASIS. THE AO HELD THAT THE SAID DEBIT WAS ONLY PROVISIONAL IN NATURE . FURTHER , ON EXAMINATION OF B OOKS OF ACCOUNT, THE AO OBSERVED THAT THE PROVISION OF RS.71,60,160/ - HAS NOT BEEN ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE - COMPANY AND OFFERED TO TAX. OBSERVING THAT THE INCOME - TAX ACT DOES NOT RECOGNIZE ANY LIABILITY ON PROVISIONAL BASIS, HE TREAT ED THE ENTIRE PROVISION INCLUDING THE OPENING BALANCE OF RS.2,04,73,370/ - AS OF 1 ST APRIL 2006 AND THE PROVISION CREATED DURING THE YEAR OF RS.71,60,160/ - TOTALING TO RS.2,76,33,530/ - AS NOT ALLOWABLE AND BROUGHT IT TO TAX. SIMILARLY, FOR ASSESSMENT YEAR 2009 - 10, THE AO DISALLOWED THE PROVISION MADE FOR THE RELEVANT ASSESSMENT YEAR. 3. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL S BEFORE THE CIT(A) FOR BOTH THE ASSESSMENT YEARS AND THE CIT(A) CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS IN APPEAL BEFORE US. ITA NO S . 1834 & 1835 /BANG/20 1 3 THE MYSORE SUGAR CO. LTD., PAGE 3 OF 5 4. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A GOVERNMENT OF KARNATAKA UNDERTAKING AND VIDE GOVERNMENT ORDER DATED 10/01/2000, THE STATE GOVERNMENT HAD GIVEN GOVERNMENT GUARANTEE OF RS.57,26,00,000/ - FOR A LOAN OBTAINED BY THE ASSESSEE FROM HUDCO FOR MEETING ITS CAPITAL EXPENDITURE ON THE COMPANY S CO - GENERATION PLANT. HE SUBMITTED THAT FOR THIS PURPOSE, THE ASSESSEE WAS REQUIRED TO PAY GUARANTEE COMMISSION TO THE STATE GOVERNMENT AND SINCE THE LIABILITY HAD ACC RUED FROM YEAR TO YEAR, THE ASSESSEE HAD DEBITED THE SAME IN ITS PROFITS AND LOSS ACCOUNT THOUGH THE COMMISSION WAS NOT PAID . HE SUBMITTED THAT VIDE GOVERNMENT ORDER DATED 31/12/2012, THE GOVERNMENT OF KARNATAKA HAD WAIVED PAYMENT OF THE GUARANTEE COMMISS ION AND HAD CAPITALIZED THE SAME AS INVESTMENT. COPY OF THE SAID GOVERNMENT ORDER IS ALSO FILED BEFORE US. LEARNED COUNSEL FOR THE ASSESSEE , THUS SUBMITTED THAT THE GUARANTEE COMMISSION, BEING AN ACCRUED LIABILITY, WAS REQUIRED TO BE DEBITED TO THE PROFI T AND LOSS ACCOUNT , BUT THE AO HAS TREATED IT AS A PROVISIONAL LIABILITY AND HAS BROUGHT IT TO TAX. HE FURTHER SUBMITTED THAT EVEN IF THE SAID AMOUNT IS TO BE BROUGHT TO TAX SINCE IT WAS NOT PAID, THE AO COULD HAVE DISALLOWED ONLY THE PROVISION MADE DURIN G THE YEAR AND NOT THE ENTIRE AMOUNT OF RS.2,76,33,530/ - INCLUDING THE OPENING BALANCE . THUS, ACCORDING TO HIM, THE ADDITION CONFIRMED B Y THE CIT(A) IS TO BE SET ASIDE FOR BOTH THE ASSESSMENT YEARS. ITA NO S . 1834 & 1835 /BANG/20 1 3 THE MYSORE SUGAR CO. LTD., PAGE 4 OF 5 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE UNDISPUTED FACT IS THAT THE ASSESSEE, THOUGH HAS DEBITED THE GUARANTEE COMMISSION TO ITS PROFIT AND LOSS ACCOUNT, HAS NEVER PAID THE SAME TO THE GOVERNMENT AND THEREFORE OUGHT TO HA VE BEEN ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE - COMPANY AND OFFERED TO TAX. HE SUBMITTED THAT THE FURTHER FACT THAT THE GOVERNMENT OF KARNATAKA HAS CAPITALIZED THE GUARANTEE COMMISSION TOWARDS INVESTMENT ALSO PROVES THE FACT THAT THERE WAS NO SUCH LIABILITY OF THE ASSESSEE AND THEREFORE THE ORDERS OF THE AUTHORITIES BELOW ARE TO BE CONFIRMED. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND HAS T O ACCOUNT FOR THE LIABILITY ACCRUED DURING THE RELEVANT FINANCIAL YEAR. WE FIND THAT THE ASSESSEE WAS LIABLE TO PAY GUARANTEE COMMISSION TO THE GOVERNMENT OF KARNATAKA FOR THE GUARANTEE FURNISHED BY IT TOWARDS LOAN OBTAINED BY THE ASSESSEE FROM HUDCO. TH EREFORE, THE SAID LIABILITY HA S ACCRUED TO THE ASSESSEE AND IF THE SAME HAS NOT BEEN PAID, IT REMAINS A LIABILITY OF THE ASSESSEE AND IT CANNOT BE TREATED AS A PROVISIONAL LIABILITY . I T IS CERTAINLY AN ASCERTAINED LIABILITY BEING 1% OF THE LOAN OBTAINED BY THE ASSESSEE . THEREFORE, DISALLOWANCE OF THE SAME COULD NOT HAVE BEEN MADE. HOWEVER, WE FIND THAT THE ASSESSEE HAS NOT PAID THE SAID ITA NO S . 1834 & 1835 /BANG/20 1 3 THE MYSORE SUGAR CO. LTD., PAGE 5 OF 5 GUARANTEE COMMISSION EVEN IN THE SUBSEQUENT YEARS AND VIDE ORDER DATED 31/12/2012 , THE GUARANTEE COMMISSION HAS BEEN CAP ITALIZED BY THE GOVERNMENT OF KARNATAKA AND THEREFORE IT IS NOT ALLOWABLE AS EXPENDITURE . HOWEVER, THE ENTIRE AMOUNT INCLUDING THE OPENING BALANCE CANNOT BE BROUGHT TO TAX DURING THE ASSESSMENT YEAR 2007 - 08 . ONLY THE L IABILITY CLAIMED BY THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR CAN BE DISALLOWED BY THE AO. AO IS ACCORDINGLY DIRECTED TO RESTRICT THE DISALLOWANCE TO THE CLAIM OF GUARANTEE COMMISSION FOR THE RELEVANT ASSESSMENT YEARS. IN VIEW OF THE SAME, THE APPEALS OF THE ASSESSEE ARE PARTLY ALLO WED . P PRO N OUNCED IN THE OPEN COURT ON 8 TH JUNE, 201 5 . S D/ - SD/ - (JASON P BOAZ ) ( SMT. P.MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER EKSRINIVASULU COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALOR E. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE T RIBUNAL BANGALORE
