The DCITGNR Circle, Gandhinagar V. Gujarat Informatics Ltd., Gandhinagar

ITA 187/AHD/2010

• Counselvise Citation: 18720514 RSA 2010
• Duration Of Justice: 2 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-09-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 20-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A TIRKEY
• Section: 37(1)

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , . ! ' ,#$ # % BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A. NO.187/AHD/2010 ( ! ' ! ' ! ' ! ' / / / / ASSESSMENT YEAR : 2006-07) THE DY.CIT GANDHINAGAR CIRCLE GANDHINAGAR ! ! ! ! / VS. GUJARAT INFORMATICS LTD. BLOCK NO-1, 8 TH FLOOR UDHYOG BHAVAN SECTOR NO.11 GANDHINAGAR ( #$ ./)* ./ PAN/GIR NO. : AABCG 5863 B ( (+ / // / APPELLANT ) .. ( ,-(+ / RESPONDENT ) AND CO NO.71/AHD/2010 A.Y. 2006-07 (ARISING OUT OF ITA NO.187/AHD/2010 A.Y. 2006-07 ) GUJARAT INFORMATICS LTD. VS. DY.COMM.OF I NCOME TAX GANDHINAGAR AHMEDABAD (CROSS OBJECTOR) .. (R ESPONDENT) REVENUE BY : SHRI A.TIRKEY, SR.D.R. ASSESSEE BY : SHRI S.N.SOPARKAR, SR.ADV. WITH SHRI ANIL R.SHAH !. / 0$ / / / / DATE OF HEARING : 19/09/2012 1 ' / 0$ / DATE OF PRONOUNCEMENT : 9.11.12 #2 / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AND ASSESSE E HAS FILED CROSS OBJECTION BOTH ARISING FROM THE ORDER OF LD.CIT(A)- GANDHINAGAR DATED ITA NO.187/AHD /2010 (REVENUE) & CO NO.71/AHD/2010 (BY ASSESSEE) DY.CIT VS. GUJARAT INFORMATICS LTD. ASST.YEAR 2006-07 - 2 - 16.10.2009. THE ONLY ISSUE AS PER THE GROUND OF AP PEAL RAISED BY THE REVENUE IS WHETHER THE CIT(A) WAS JUSTIFIED IN ALLO WING THE EXPENDITURE AMOUNTING TO RS.1,87,61,273/- U/S.36(1)(III) AND U/ S.37(1) OF IT ACT. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) OF IT ACT 1961 DATED 26.12.2008 W ERE THAT THE ASSESSEE-COMPANY WAS INCORPORATED AS A GOVERNMENT C OMPANY. THE COMPANY IS STATED TO BE A NODAL AGENCY FOR DEVELOPM ENT OF INFORMATION TECHNOLOGY INDUSTRY IN GUJARAT STATE. IT WAS NOTE D BY THE AO THAT AS PER P&L ACCOUNT, A SUM OF RS.1,87,61,273/- WAS DEBI TED. A PROVISION FOR INTEREST @ 6% WAS MADE BY THE ASSESSEE. AS PER AO, THE SAID PROVISION @ 6% WAS IN THE NATURE OF INTEREST ON THE UNSPENT AMOUNT WHICH WAS RECEIVED AS GRANTS/ADVANCES FROM DEPARTME NT OF SCIENCE & TECHNOLOGY. THE AO WAS OF THE OPINION THAT THE SA ID PROVISION WAS NOT ALLOWABLE AS DEDUCTION. VIDE PARA-4.4 THE AO HAS HELD AS UNDER:- 4.4. IT MAY BE POINTED OUT THAT THE ASSESSEE HAS C HARGED THE INTEREST ON UNUTILIZED GRANTS RECEIVED FROM THE DEP ARTMENT OF SCIENCE AND TECHNOLOGY AND OTHER DEPARTMENTS, WHICH BY ANY STRETCH OF IMAGINATION CANNOT BE CLASSIFIED AS A BO RROWED CAPITAL FOR THE PURPOSE OF ITS BUSINESS OR PROFESSION. OF COURSE THE DEPARTMENT OF SCIENCE AND TECHNOLOGY HAS SANCTIONED VARIOUS AMOUNTS OF GRANTS TO THE ASSESSEE FOR SPECIFIED PU RPOSES OF ITS BUSINESS WHICH THE ASSESSEE OUGHT TO HAVE UTILIZED. SINCE THE ASSESSEE HAS FAILED TO UTILIZE THE ENTIRE GRANT SAN CTIONED TO IT, THE SANCTIONING AUTHORITY HAS ORDERED TO PAY SIMPLE INT EREST @ 6% ON UNSPENT AMOUNT LYING WITH IT, AND THE SAME CANNOT B E REGARDED AS AN EXPENDITURE MADE FOR THE PURPOSE OF BUSINESS OR PROFESSION. ITA NO.187/AHD /2010 (REVENUE) & CO NO.71/AHD/2010 (BY ASSESSEE) DY.CIT VS. GUJARAT INFORMATICS LTD. ASST.YEAR 2006-07 - 3 - FURTHER MORE, IT IS WORTHWHILE TO MENTION THAT THE GRANTS SECTIONED TO IT CANNOT BE REGARDED AS BORROWED CAPITAL, AS T HERE NO ELEMENT OF REFUND OR REPAYMENT I.E. THE ASSESSEE IS NOT UND ER OBLIGATION TO REPAY THE AMOUNT GRANTED TO THE SANCTIONING AUTHORI TY. IN ABSENCE OF OBLIGATION TO REFUND AMOUNT GRANTED TO IT, INTER EST ON SUCH CAPITAL IS NOT DEDUCTIBLE U/S.36(1)(III) OF THE ACT AS LAID DOWN BY HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF PEPSU ROAD TRANSPORT CORPORATION VS. CIT [1981] 130 ITR 18. THEREFORE, CONTENTION OF THE ASSESSEE THAT THE EXPENDITURE ALL OWABLE U/S.36(1)(III)/37(1) HAS NOT MERIT, THEREFORE, THE SAME IS REJECTED. 2.1. BEING AGGRIEVED THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 3. BEFORE LD.CIT(A), THE ASSESSEE HAS SUBMITTED AS FOLLOWS:- '1.1 THE APPELLANT IS INCORPORATED AS GOVERNMENT COMPANY ON 19- 02-1999 UNDER THE COMPANIES' ACT, 1956. IT IS A NOD AL AGENCY FOR DEVELOPMENT OF INFORMATION TECHNOLOGY INDUSTRY IN T HE GUJARAT STATE. IT IS THROUGH THE APPELLANT THAT GUJARAT GOV ERNMENT IS IMPLEMENTING ITS I.T. POLICIES AND DEVELOPMENT OF I NFORMATION TECHNOLOGY IN THE STATE. THE APPELLANT IS ALSO CARR YING OUT THE -WORK OF E-GOVERNANCE IN THE STATE OF GUJARAT ON BEHALF O F GOVT. OF GUJARAT. THE APPELLANT ALSO PROVIDES CONSULTATION S ERVICES TO VARIOUS GOVERNMENT DEPARTMENTS, BOARDS AND CORPORATIONS IN HARDWARE PROCUREMENTS AND SOFTWARE DEVELOPMENTS ETC. 1.2 FOR THE PURPOSE OF IMPLEMENTING THE ABOVE GOVT. INITIATIVES, THE VARIOUS DEPARTMENTS OF GOVT. OF GUJARAT ARE GIV ING GRANTS TO THE APPELLANT. IF ANY AMOUNT REMAINS UNSPENT OUT OF SUC H GRANT, THE GOVT. OF GUJARAT VIDE ITS G.R. DATED 14-03-2006 ORDERED T HAT SUCH UNSPENT AMOUNT -WILL BEAR INTEREST AT THE RATE OF 6% PER AN NUM WITH EFFECT FROM 1-04-2005 (PAGE NO. 15) TO BE PAID BY THE APPE LLANT. ITA NO.187/AHD /2010 (REVENUE) & CO NO.71/AHD/2010 (BY ASSESSEE) DY.CIT VS. GUJARAT INFORMATICS LTD. ASST.YEAR 2006-07 - 4 - 1.3 SINCE THE ENTIRE BUSINESS OF THE APPELLANT IS A T THE INSTANCE AND ON BEHALF OF GOVT. OF GUJARAT, THE APPELLANT IS BOUND BY THE GOVT. RESOLUTIONS RELATING TO THE SANCTION OF GRANT, PURP OSE AND MODE OF ITS UTILISATION AND ALSO AS A COROLLARY FOR THE PAYMENT OF INTEREST ON UNSPENT AMOUNT OF GRANT SANCTIONED BY GOVT. OF GUJA RAT. 1.4 AS A RESULT OF G.R DATED 14-3-2006, THE AP PELLANT PROVIDED A SUM OF RS.1,87,61,273/- AS INTEREST @ 6% ON THE UNS PENT AMOUNT OF GRANT PROVIDED BY GOVT. OF GUJARAT A DETAILED CALCU LATION OF WHICH IS PROVIDED AT PAGE 5 R.W. PAGES 11 TO 12. THE APPELLA NT CLAIMED SUCH AMOUNT-AS DEDUCTIBLE U/S 36(L)(III) OR U/S 37(1) OF THE ACT. 1.5 AS AGAINST THE PAYMENT OF SUCH INTEREST ON U NUTILIZED PORTION OF GRANT, THE APPELLANT HAS BEEN PARKING ITS SURPLUS F UNDS ARISING OUT OF UNSPENT AMOUNT OF GRANT A WELL AS ITS OPERATIONS IN INTER CORPORATE DEPOSITS WITH GUJARAT STATE FINANCIAL SERVICES LTD (GSFS) AT INTEREST VARYING FROM 4% TO 6.75% (PAGE NO.38). THE APPELLAN T DURING THE YEAR EARNED AN INTEREST OF RS.2,82,60,028/- OUT OF SUCH INTER CORPORATE DEPOSITS WHICH IS OFFERED AS INCOME. (PAG E NO. 13, POINT NO.8) 3.1 BEFORE LD.CIT(A), THE CASE LAWS CITED WERE AS F OLLOWS:- I. SHRI VENKATA SATYANARAYAN RICE MILL CONTRACTORS LTD. VS. CIT. (S.C.) 223 ITR 101 II. KRISHNA SAHAKARI SAKHAR KARKHANA LTD. VS. CIT (BOMBAY HIGH COURT) 229ITR 577 III. CIT VS. SWAT JILLA KAMDAR SAHAKARI SANGH L TD. GUJARAT HIGH COURT) 200 ITR 157 IV. MEHSANA DIST. CO-OP. MILK PRODUCERS' UNION LTD. VS. CIT (GUJARAT HIGH COURT) 203 ITR 601 V. CIT VS. PANDAVPURA SAHAKARA SAKKARE KARKHA NE LTD, (KARNATAKA) 201 ITR 56 VI. CIT VS. CHERAN TRANSPORT CORPORATION LTD. (MADR AS) 219 ITR 203 ITA NO.187/AHD /2010 (REVENUE) & CO NO.71/AHD/2010 (BY ASSESSEE) DY.CIT VS. GUJARAT INFORMATICS LTD. ASST.YEAR 2006-07 - 5 - 4. HAVING CONSIDERED THE CASE LAWS AND THE ARGUMENT S OF THE ASSESSEE, LD.CIT(A) HAS HELD THAT THE PAYMENT OF IN TEREST WAS A CONTRACTUAL AS ALSO AN ASCERTAINABLE LIABILITY, THE REFORE THE PROVISION OF INTEREST MADE WAS AN ALLOWABLE EXPENDITURE U/S.37(1 ) OF I.T.ACT. IT IS WORTH TO PLACE ON RECORD THAT VIDE PARA 2.3.3 ON PA GE-9 OF THE ORDER OF THE LD.CIT(A), IT WAS CLEARLY MENTIONED THAT THE PROVIS IONS OF SECTION 36(1)(III) WERE NOT APPLICABLE BECAUSE NO BORROWING S HAD BEEN UNDERTAKEN BY THE ASSESSEE. 5. FROM THE SIDE OF THE REVENUE, LD.SR.DR MR.A.TIRK EY APPEARED AND VEHEMENTLY PLACED RELIANCE ON AN ORDER OF HONB LE P&H HIGH COURT PRONOUNCED IN THE CASE OF PEPSU ROAD TRANSPORT CORP ORATION VS. CIT, PATIALA REPORTED AT 130 ITR 18 (P&H). HE HAS ARG UED THAT THE UNUTILIZED GRANT WAS NOT A BORROWED CAPITAL FOR THE PURPOSE OF BUSINESS OF PROFESSION OF THE ASSESSEE. THE ASSESSEE HAD FAILE D TO UTILIZE THE ENTIRE GRANT SANCTIONED AND THERE WAS NO OBLIGATION TO REF UND THE AMOUNT SO GRANTED. THEREFORE, THE AMOUNT IN QUESTION WAS NOT A BORROWED AMOUNT, HENCE NOT DEDUCTIBLE U/S.36(1)(III) OF THE ACT. EVEN U/S.37(1), THE ASSESSEE SHOULD NOT BE ALLOWED EXPENDITURE BECAUSE ADMITTEDLY THE AMOUNT IN QUESTION WAS NOT UTILIZED WHOLLY AND EXCL USIVELY FOR THE PURPOSE OF BUSINESS. 6. FROM THE SIDE OF THE RESPONDENT-ASSESSEE, LD.AR MR.S.N.SOPARKAR AND MR.ANIL R.SHAH APPEARED AND PLACED ON THE ORDER OF THE CIT(A). ITA NO.187/AHD /2010 (REVENUE) & CO NO.71/AHD/2010 (BY ASSESSEE) DY.CIT VS. GUJARAT INFORMATICS LTD. ASST.YEAR 2006-07 - 6 - 7. WE HAVE HEARD BOTH THE SIDES. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELOW IN THE LIGHT OF VOLUMINOUS COMPIL ATION FILED AND CASE LAWS CITED. THE ADMITTED FACTUAL POSITION IS THAT THE ASSESSEE-COMPANY IS A GOVERNMENT UNDERTAKING INCORPORATED FOR THE IMPLE MENTATION OF IT POLICIES IN THE STATE OF GUJARAT AND TO PROVIDE CON SULTATION SERVICES TO VARIOUS GOVERNMENT DEPARTMENTS TOWARDS SOFTWARE DEV ELOPMENT. CERTAIN GRANTS WERE GIVEN TO THE ASSESSEE. THERE WAS A CLAUSE AS PER CERTAIN GOVERNMENT REGULATIONS THAT IF AN AMOUNT RE MAINS UNSPENT OUT OF THE GRANT, THEN THE UNSPENT AMOUNT SHALL BEAR INTER EST @ 6% PER ANNUM. IN THE LIGHT OF THE SAID INSTRUCTIONS, THE ASSESSEE HAS MADE THE PROVISION IN ITS BOOKS OF ACCOUNT. IN THIS REGARD, FEW G.RS ARE PLACED ON RECORD. HOWEVER, THE MAIN QUESTION BEFORE US IS THAT THE AC TION OF THE ASSESSEE OF PROVIDING 6% INTEREST ON THE UNSPENT AMOUNT OF GRAN T IS ALLOWABLE WHETHER U/S.36(1)(III) OF IT ACT OR U/S.37(1) OF IT ACT. WE ARE OF THE VIEW THAT SINCE THE AMOUNT IN QUESTION WAS NOT IN T HE NATURE OF BORROWINGS OR LOANS, THEREFORE THE PROVISIONS OF SE CTION 36(1)(III) DO NOT APPLY ON THESE FACTS. WE ARE IN AGREEMENT WITH LD. CIT(A) THAT THIS PLEA OF THE ASSESSEE IS NOT ACCEPTABLE. ONCE WE HAVE HE LD SO AND THAT THIS VIEW HAS ALREADY BEEN EXPRESSED BY LD.CIT(A), THERE FORE THE OBJECTION OF THE REVENUE DEPARTMENT THAT THE LD.CIT(A) WAS NOT J USTIFIED IN ALLOWING THE EXPENDITURE U/S.36(1)(III) IS UNWARRANTED. BE CAUSE OF THIS REASON, WE HEREBY ALSO HOLD THAT THE CASE LAWS CITED BY LD.DR OF PEPSU ROAD TRANSPORTATION (SUPRA) DO NOT APPLY ON THE PRESENT FACTS OF THIS APPEAL ITA NO.187/AHD /2010 (REVENUE) & CO NO.71/AHD/2010 (BY ASSESSEE) DY.CIT VS. GUJARAT INFORMATICS LTD. ASST.YEAR 2006-07 - 7 - BECAUSE OF THE REASON THAT THE HONBLE P&H HIGH COU RT IN THAT CITED DECISION HAS SETTLED THE ISSUE WHICH REVOLVE AROUND THE PROVISIONS OF SECTION 36(1)(III) OF IT ACT. NOW THE QUESTION LE FT BEFORE US IS THAT WHETHER THE PROVISIONS SO MADE BY THE ASSESSEE IS E LIGIBLE FOR DEDUCTION U/S.37(1) OF IT ACT. IN THIS CONNECTION, FEW DECIS IONS WERE CITED BEFORE LD.CIT(A) AND CONSIDERING ALL THOSE DECISIONS AS CI TED SUPRA, WE ARE OF THE CONSIDERED VIEW THAT ON ONE HAND THE ASSESSEE H AS EARNED INTEREST INCOME ON INVESTMENT OF THE SURPLUS FUND AND ON THE OTHER HAND MADE THE PROVISIONS OF INTEREST, HENCE SUCH A CLAIM DOES FAL L UNDER THE PROVISIONS OF SECTION 37(1) OF IT ACT. WE HAVE BEEN INFORMED THAT THE UNSPENT SURPLUS FUNDS HAVE BEEN INVESTED AS PER THE GUIDELI NES AND THEREUPON INTEREST WAS EARNED BY THE ASSESSEE. ON THE OTHER HAND, THE ASSESSEE HAS TO PAY INTEREST THAT TOO AS PER THE DIRECTIONS OF T HE GOVERNMENT, HENCE THE PROVISIONS MADE BY THE ASSESSEE IS, THEREFORE, MEAN T FOR THE PURPOSE OF THE BUSINESS, HENCE QUALIFY FOR CLAIM U/S.37(1) OF THE IT ACT. IN THE RESULT, THE VIEW TAKEN BY THE LD.CIT(A) IS HEREBY C ONFIRMED AND THIS GROUND OF THE REVENUE IS DISMISSED. 8. THE CROSS OBJECTION OF THE ASSESSEE IS ONLY IN S UPPORT OF THE VIEW TAKEN BY THE LD.CIT(A) AND NO SPECIFIC LEGAL OBJECT ION HAS BEEN RAISED OR ANY LEGAL GROUND IS MENTIONED, THEREFORE THE CROSS OBJECTION IS AS GOOD AS REDUNDANT, HENCE DISMISSED. ITA NO.187/AHD /2010 (REVENUE) & CO NO.71/AHD/2010 (BY ASSESSEE) DY.CIT VS. GUJARAT INFORMATICS LTD. ASST.YEAR 2006-07 - 8 - 9. IN THE RESULT, REVENUES APPEAL AND ASSESSEES C ROSS OBJECTION BOTH ARE DISMISSED. SD/- SD/- ( . ! ' ) ( ) #$ ( A. MOHAN ALANKAMONY ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIA L MEMBER AHMEDABAD; DATED 09 / 11 /2012 30..!, .!../ T.C. NAIR, SR. PS #2 / ,4 5#4' #2 / ,4 5#4' #2 / ,4 5#4' #2 / ,4 5#4'/ COPY OF THE ORDER FORWARDED TO : 1. (+ / THE APPELLANT 2. ,-(+ / THE RESPONDENT 3. 6 / CONCERNED CIT 4. 6() / THE CIT(A)-GANDHINAGAR 5. 49: ,! , , / DR, ITAT, AHMEDABAD 6. :; <. / GUARD FILE. #2! #2! #2! #2! / BY ORDER, -4 , //TRUE COPY// = == =/ // / ) ) ) ) ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DIRECT DICTATION ON COMPUTER ON 6.11.12 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 8.11.12 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S09.11.12 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 09.11.12 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER