HARDOLI PAPAER MILLS LTD, MUMBAI V. DCIT 9(2), MUMBAI

ITA 1908/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49465 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 04-07-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 10-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A G NAYAK
• Section: 43B; 143(3)

Judgement Text

1 ITA NO.1908/MUM/2010 ASSTT. YEAR : 2004-05. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER & SHRI R.S. PADVEKAR, JUDICIAL MEMBER. I.T.A. NO. 1908/MUM/2010. ASSESS MENT YEAR : 2004-05. HARDOLI PAPER MILLS LTD., DY. COMMISSIONER OF C-8, SAROJ APARTMENTS, VS. INCOME TAX- 9(2), OPP. HOLY SPIRIT HOSPITAL, MUMBAI. MAHAKALI CAVES ROAD, ANDHERI (EAST), MUMBAI 400 093 PAN AAACH1472N APPELLANT. RESPONDENT. APPELLANT BY : SHRI HARIDAS BHAT. RESPON DENT BY : SHRI A.G. NAYAK. O R D E R. PER P.M. JAGTAP, A.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LEARNED CIT(APPEALS)-20, MUMBAI DATED 29-01-2010 WHEREBY HE CONFIRMED THE ADDITION OF RS.1,25,24,656/- BEING THE DIFFERENCE BETWEEN B OOK VALUE OF SALES-TAX DEFERRED LIABILITY AND THE PRESENT VALUE OF THE SAID LIABILI TY AS FINALLY SETTLED BY THE ASSESSEE. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY W HICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF KRAFT PAPER. THE UNI T FOR MANUFACTURE OF KRAFT PAPER WAS SET UP BY THE ASSESSEE COMPANY AT NAGPUR WHICH WAS ELIGIBLE FOR THE BENEFITS OF PACKAGE SCHEME OF INCENTIVES, 1993 ANNOUNCED BY THE GOVERNMENT OF 2 ITA NO.1908/MUM/2010 ASSTT. YEAR : 2004-05. MAHARASHTRA. AS PER THE SAID SCHEME, THE SALES TAX LEVIED TO THE CUSTOMER AND COLLECTED BY THE ASSESSEE WAS RETAINED BY THE ASSES SEE AND THE AMOUNT SO COLLECTED WAS TO BE PAID TO GOVERNMENT OF MAHARASHTRA AFTER A PERIOD OF 10 YEARS IN 5 EQUAL INSTALMENTS WITHOUT ANY INTEREST. ACCORDINGLY SALE S TAX AMOUNTING TO RS.2,39,12,000/- WAS COLLECTED AND RETAINED BY THE ASSESSEE DURING THE PERIOD FROM 01-10-1998 TO 31-03-2004. VIDE NOTIFICATION DATED 1 6-11-2002, THE GOVERNMENT OF MAHARASHTRA ANNOUNCED THAT IF ANY DEALER AVAILING O F SALES-TAX DEFERRAL SCHEME HAS AN INTENTION TO MAKE PREPAYMENT OF THE SALES-TAX AM OUNT COLLECTED UNDER THE SAID SCHEME, HE COULD DO SO BY PAYING A DISCOUNTED AMOUN T AND IN SUCH CASE, THE BALANCE AMOUNT OF LIABILITY WOULD BE REMITTED. THIS OPTION GIVEN BY THE GOVERNMENT OF MAHARASHTRA VIDE NOTIFICATION DATED 1 6-11-2002 WAS AVAILED BY THE ASSESSEE AND A FUTURE LIABILITY ON ACCOUNT OF SALES -TAX DEFERRAL SCHEME WAS SETTLED BY IT BY PAYING ITS NET PRESENT VALUE WHICH RESULT ED IN A REMISSION OF A LIABILITY TO THE EXTENT OF RS.1,25,24,656/-. IN ITS BOOKS OF ACC OUNT, THE ASSESSEE COMPANY TREATED THE REMISSION OF LIABILITY AS CAPITAL RECEI PT AND THE SAME WAS DIRECTLY TRANSFERRED TO RESERVE IN THE BALANCE SHEET. ACCORD ING TO THE AO, THE BENEFIT DERIVED BY THE ASSESSEE BY PRE-PAYMENT OF SALES-TAX DEFERRAL LIABILITY TO THE EXTENT OF RS.1,25,24,656/- WAS IN THE NATURE OF INCENTIVE ALLOWED BY THE GOVERNMENT OF MAHARASHTRA AND SINCE THE SAID INCENTIVE WAS RECEIV ED BY THE ASSESSEE AFTER THE COMMENCEMENT OF ITS BUSINESS IN RESPECT OF TRADING RECEIPT, IT WAS IN THE NATURE OF REVENUE RECEIPT CHARGEABLE TO TAX. HE, THEREFORE, A DDED THE SAID AMOUNT TO THE TOTAL INCOME OF THE ASSESSEE IN THE ASSESSMENT COMPLETED U/S 143(3) VIDE AN ORDER DATED 25-09-2006. 3. AGAINST THE ORDER PASSED BY THE AO U/S 143(3), A N APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LEARNED CIT(APPEALS) AND AF TER CONSIDERING THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE IN THE LIGHT OF THE RELEVANT SCHEME OF THE 3 ITA NO.1908/MUM/2010 ASSTT. YEAR : 2004-05. GOVERNMENT OF MAHARASHTRA, THE LEARNED CIT(APPEALS) AGREED WITH THE STAND OF THE ASSESSEE THAT THE REMITTED AMOUNT COULD NOT BE CONS IDERED AS INCENTIVE AS HELD BY THE AO. HE, HOWEVER, FOUND THE AO TO BE RIGHT IN TR EATING THE NATURE OF REMITTED AMOUNT OF LIABILITY AS TRADING RECEIPT. THE LEARNED CIT(APPEALS) HELD THAT IT WAS A CASE OF CESSATION OR REMISSION OF A TRADING LIABIL ITY AND THE SAME, THEREFORE, WAS CHARGEABLE TO TAX AS PER THE PROVISIONS OF SECTION 41(1). ACCORDINGLY THE ADDITION OF 1,25,24,656/- MADE BY THE AO TO THE TOTAL INCOME OF THE ASSESSEE WAS CONFIRMED BY THE LEARNED CIT(APPEALS) ALTHOUGH FOR DIFFERENT REASONS. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEALS), THE ASSESSEE HAS PREFE RRED THIS APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS AGREED BY THE LEARNED REPRE SENTATIVES OF BOTH THE SIDES, THE ISSUE INVOLVED IN THE PRESENT CASE IS SQUARELY COVE RED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF SPECIAL BENCH OF ITAT IN THE CASE O F SULZER INDIA LTD. VS. JCIT REPORTED IN 42 SOT 457. A COPY OF THE ORDER PASSED BY THE SPECIAL BENCH OF ITAT IN THE SAID CASE IS PLACED ON RECORD AND A PERUSAL OF THE SAME SHOWS THAT A SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE FOR THE FOLLOWING REASONS WHICH ARE EXTRACTED FROM THE HELD PORT ION : TO INVOKE THE PROVISIONS OF S. 41(1), THE FOLLOWIN G CONDITIONS MUST BE FULFILLED : (I) IN THE ASSESSMENT OF THE ASSESSEE, AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN RESPECT OF LOSS, EXPENDITURE OR TH E TRADING LIABILITY INCURRED BY THE ASSESSEE. (II) THE ASSESSEE MUST HAVE SUBSEQ UENTLY (A) OBTAINED ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR (B ) OBTAINED ANY BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSI ON OR CESSATION THEREOF. IN CASE EITHER OF THESE EVENTS HAPPEN, THE DEEMING PRO VISION ENACTED IN CLOSING PART OF SUB-S. (1) COMES INTO PLAY. (III) THE AMOUN T OBTAINED BY THE ASSESSEE OR THE VALUE OF BENEFIT ACCRUING TO HIM IS DEEMED T O BE PROFIT AND GAINS OF THE BUSINESS OR PROFESSION AND IT BECOMES CHARGEABL E TO INCOME-TAX AS AN INCOME OF THAT PREVIOUS YEAR. FURTHER ON A PLAIN RE ADING OF S. 41(1) IT IS ALSO 4 ITA NO.1908/MUM/2010 ASSTT. YEAR : 2004-05. CLEAR THAT THE PROVISIONS CONTAINED IN S. 41(1) DO NOT MAKE ANY DISTINCTION BETWEEN ANY CONTRACTUAL TRADING LIABILITY OR ANY ST ATUTORY TRADING LIABILITY. EVEN IF ANY STATUTORY LIABILITY IS REMITTED OR CEAS ED OF, OR ANY AMOUNT, WHETHER IN CASH OR IN ANY OTHER MANNER, HAS BEEN OB TAINED IN RESPECT OF THE EXPENDITURE INCURRED BY WAY OF STATUTORY LIABILITY, THE SAME WOULD BE DEEMED TO BE PROFITS AND GAINS OF THE BUSINESS OF T HE ASSESSEE AND WOULD ACCORDINGLY BE CHARGEABLE TO INCOME-TAX AS THE INCO ME OF THAT YEAR IN WHICH SUCH BENEFIT OR AMOUNT IS OBTAINED. ON THE PLAIN READING OF PROVISIONS OF S. 38(1),(2), (3),(4) OF THE BOMBAY SALES-TAX ACT, 1959, IT PROVIDES THE MANNER AS TO H OW THE PAYMENT OF TAX, PENALTY AND INTEREST, AS PRESCRIBED, MAY BE MADE. T HE FIRST PROVISO STATES THAT THE COMMR. MAY IN RESPECT OF ANY PARTICULAR DEALER OR PERSON FOR THE REASON TO BE RECORDED IN WRITING EXTENT THE DATE OF PAYMEN T OR ALLOW HIM TO PAY SUCH AMOUNT BY INSTALMENTS WITHOUT PREJUDICE TO THE LEVY OF PENALTY, INTEREST OR BOTH. THE SECOND PROVISO PROVIDES THAT COMMR. MA Y IN RESPECT OF A DEALER TO WHOM AN ELIGIBILITY CERTIFICATE HAS BEEN GRANTED EXTEND THE DATE OF PAYMENTS OR GRANT A MORATORIUM FOR PAYMENT OF DUES OR PROVIDE INSTALMENTS SUBJECT TO SUCH CONDITIONS AS MAY BE PRESCRIBED. TH E THIRD PROVISO SAYS THAT THE STATE GOVERNMENT OR THE COMMR. MAY BY GENERAL O R SPECIAL ORDER WHERE A DEALER TO WHOM INCENTIVE BY WAY OF DEFERMENT OF S ALES-TAX OR PURCHASE TAX OR BOTH UNDER 1979 SCHEME, 1983 SCHEME OR 1988 SCH EME OR 1993 PACKAGING SCHEME OF INCENTIVE, HAVE BEEN GRANTED BY VIRTUE OF ELIGIBILITY CERTIFICATE AND WHERE A LOAN LIABILITY EQUAL TO THE AMOUNT OF ANY SUCH TAX PAYABLE BY SUCH DEALER HAS BEEN RAISED BY THE SICOM OR OTHER DESIGNATED AUTHORITIES, THEN SUCH TAX HAS BEEN DEEMED, IN THE PUBLIC INTEREST, TO HAVE BEEN PAID. THE FOURTH PROVISO PROVIDES THAT WHERE A N ENTITLEMENT CERTIFICATE HAS BEEN GRANTED TO THE ELIGIBLE UNIT FOR AVAILING OF THE INCENTIVES BY WAY OF DEFERMENT OF SALES-TAX ETC. SUCH ELIGIBLE UNIT MAY IN RESPECT OF THE PERIODS DURING WHICH THE SAID CERTIFICATE IS VALID, AT ITS OPTION, PREMATURELY PAY IN PLACE OF THE AMOUNT OF TAX DEFERRED BY IT AN AMOUNT EQUAL TO THE NPV OF THE DEFERRED TAX AS MAY BE PRESCRIBED AND ON MAKING SUC H PAYMENTS, IN THE PUBLIC INTEREST, THE DEFERRED TAX SHALL BE DEEMED T O HAVE BEEN PAID. THE PRESENT VALUE OF A FURTHER SUM IS THE SAME AND IF T HERE IS A DIFFERENCE I.E., ;POSITIVE NPV THEN THE PROJECT REPAYS ORIGINAL INVE STMENT PLUS THE REQUIRED RATE OF RETURN. IN OTHER WORDS A POSITIVE NPV MEANS A BETTER RETURN AND NEGATIVE NPV MEANS A WORSE RETURN THAN THE RETURN F ROM ZERO NPV MEANING THEREBY THE SIMILAR VALUE OF A FURTHER SUM. IN THE PRESENT CASE THE ASSESSEE 5 ITA NO.1908/MUM/2010 ASSTT. YEAR : 2004-05. HAD COLLECTED TOTAL AMOUNT OF RS.7,52,01,378 TOWARD S SALES-TAX DURING THE YEAR 1989-90 TO 2001-02. IT WAS TREATED AS A LOAN L IABILITY PAYABLE AFTER 12 YEARS IN SIX EQUAL ANNUAL INSTALMENTS AND THUS, THE ASSESSEE TREATED THE SAID LIABILITY AS UNSECURED LOAN IN ITS BOOKS OF ACCOUNT . RULE 31D OF THE BOMBAY SALES-TAX RULES, 1959 HAS BEEN PROVIDED WITH A TABL E AND THE NOTES BELOW IT FOR DETERMINATION OF NPV. ACCORDINGLY THE ASSESSEE HAS PAID AN AMOUNT OF RS.3,37,13,393 TO SICOM WHICH ACCORDING TO THE ASSE SSEE REPRESENTED THE NPV AS DETERMINED BY SICOM. THE PAYMENT WAS MADE TO SICOM ON 30 TH DEC., 2002 AS PER CERTIFICATE DT. 25 TH AUG., 2003. THE REVENUE HAS PLACED NO MATERIAL ON RECORD TO SHOW THAT THE PRESENT VALUE ( NPV) OF A FURTHER SUM IS NOT THE SAME OR IN THE PROCESS OF CALCULATION OF PR ESENT VALUE OF A FURTHER SUM THERE IS ANY CONVERSION GAIN TO THE ASSESSEE. I T IS ALSO NOT THE CASE OF THE REVENUE THAT THERE IS NO SUCH CONVERSION PROVIDED U NDER THE BOMBAY SALES TAX ACT OR THE TABLE PROVIDED FOR DETERMINATION OF NPV IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE. IN THE ABSENCE THEREOF I T IS NOT POSSIBLE TO ACCEPT THE CONTENTION OF THE DEPARTMENTAL REPRESENTATIVE THAT THERE WAS A REMISSION OR CESSATION OF THE TRADING LIABILITY. TH E ENTIRE LOAN AMOUNT WHICH WAS PAYABLE AFTER 12 YEARS IN SIX EQUAL INSTALMENTS WAS REPAID AS PER PRESENT NPV AS PRESCRIBED BY THE STATE GOVERNMENT AND NO RE FUND WAS RECEIVED BY THE ASSESSEE, THEREFORE, THE ASSESSEE DID NOT GET A NY BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY REMISSION OR CESSATION THE REOF. THE REVENUES PLEA IS THAT THE ASSESSEE HAS OBTAINE D THE BENEFIT OF DEDUCTION OF SALES-TAX LIABILITY UNDER S. 43B AS PER CBDT CIR CULAR NO. 496, DT. 25 TH SEPT., 1987. HOWEVER, IN THE SAID CIRCULAR IT HAS B EEN CLEARLY STATED VIDE PARA 5 THAT THE STATUTORY LIABILITY SHALL BE TREA TED TO HAVE BEEN DISCHARGED FOR THE PURPOSES OF S. 43B. THUS, THE BENEFIT OF D EDUCTION WAS ALLOWED FOR THE PURPOSE OF S. 43B ONLY AND NOT UNDER ANY OTHER PROVISIONS OF THE ACT. THERE IS NO DISPUTE THAT THE AO HAS ALSO APPLIED TH E AFORESAID BOARD CIRCULAR WHILE GIVING THE BENEFIT OF DEDUCTION UNDER S. 43B. THIS BEING SO THE FIRST REQUIREMENT OF S. 41(1) HAS NOT BEEN FULFILLED IN T HE FACTS OF THE PRESENT CASE. THE ASSESSEE HAS OPTED THE OFFER OF SICOM, AN IMPLE MENTING AGENCY OF THE STATE GOVERNMENT AND REPAID AN AMOUNT OF RS.3,37,13 ,393 TO SICOM WHICH ACCORDING TO THE ASSESSEE REPRESENTED THE NPV OF TH E FURTHER SUM AS DETERMINED AND PRESCRIBED BY SICOM. THE SAID PAYMEN T WAS MADE TO SICOM ON 30 TH DEC.,2002 AS PER CERTIFICATE D. 25 TH AUG., 2003 NPV IS 6 ITA NO.1908/MUM/2010 ASSTT. YEAR : 2004-05. EQUIVALENT TO FURTHER VALUE OF THE SUM. IN OTHER WO RDS, WHAT THE ASSESSEE WAS REQUIRED TO REPAY AFTER 12 YEARS IN SIX ANNUAL/EQUA L INSTALMENTS, THE SAME WAS REPAID BY THE ASSESSEE, IN THE PUBLIC INTEREST, AS NPV IS EQUIVALENT TO THE FUTURE VALUE OF THE SUM. FURTHER THERE IS NO IOTA O F EVIDENCE TO SHOW THAT THERE HAS BEEN ANY REMISSION OR CESSATION OF LIABIL ITY BY THE STATE GOVERNMENT. THUS, ONE OF THE REQUIREMENTS SPELT OUT FOR THE APPLICABILITY OF S. 41(1)(A) HAS NOT BEEN FULFILLED IN THE FACTS OF THE PRESENT CASE. 5. IN OUR OPINION, THE DECISION OF THE SPECIAL BENC H OF ITAT IN THE CASE OF SULZER INDIA LTD. (SUPRA) IS SQUARELY APPLICABLE TO THE ISSUE INVOLVED IN THE PRESENT CASE AND RESPECTFULLY FOLLOWING THE SAME, WE DELETE THE ADDITION OF RS.1,25,24,656/- MADE BY THE AO AND CONFIRMED BY TH E LEARNED CIT(APPEALS). 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. . ORDER PRONOUNCED ON THIS 15 TH DAY OF JULY, 2011. SD/- SD/- (R.S. PADVEKAR) (P.M. JAGTAP) JUDICIAL MEMBER A CCOUNTANT MEMBER MUMBAI, DATED: 15 TH JULY, 2011. WAKODE COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, H-BENCH. (TRUE COPY ) BY ORD ER ASSTT. R EGISTRAR, ITAT, MUMBAI BENCHES, MUM BAI.