The Income tax Ward-4, Gandhinagar V. Gujarat State Civil Supplies Corporation, Gandhinagar

ITA 194/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6108 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 01-06-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 11-01-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 244A

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND D.C.AGRAWAL, A M INCOME-TAX OFFICER, WARD-4, GANDHINAGAR. V/S . THE GUJARAT STATE CIVIL SUPPLIES CORPN. LTD., SECTOR-10A, NR. NEW SACHIVALAYA, DIST. GANDHINAGAR. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI ANIL KUMAR, CIT DR RESPONDENT BY:- SHRI SANJAY R. SHAH, AR O R D E R PER D. C. AGRAWAL, ACCOUNTANT MEMBER . THE APPEAL HAS BEEN FILED BY THE REVENUE AND THE C .O. BY THE ASSESSEE. THE REVENUE HAS RAISED THE FOLLOWING GROU ND:- (1) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION ON ACCOUNT OF INTEREST RECEIVABLE FROM THE GOVERNMENT OF GUJARAT AMOUNTING TO RS.4,06,29,867/-. WHEREAS THE ASSESSEE HAS RAISED THE FOLLOWING CROSS OBJECTIONS :- 1. IN RESPECT OF GROUND NO. L IN THE APPEAL F ILED BY THE DEPARTMENT, WITHOUT PREJUDICE TO THE FACT THAT INTE REST EXPENSES PAID TO GOVERNMENT OF GUJARAT IS RIGHTLY HELD ALLOW ABLE BY THE LEARNED C1T (APPEALS), IF IT IS HELD THAT THE LEARN ED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELET ING THE DISALLOWANCE ON ACCOUNT OF INTEREST PAYABLE TO GOVE RNMENT OF ITA NO.194/AHD/2008 ALONG WITH C.O.NO.64/AHD/2008 ASST. YEAR :2005-06 2 GUJARAT FOR A SUM OF RS,4,06,29,S67/- THEN COGNIZAN CE BE TAKEN OF THE FACT THAT APPELLANT HAS CHARGED AND RECOVERE D INTEREST OF RS.7,97,22,376/- ON THE VARIOUS CONSUMER SCHEMES OF WHEAT, RICE, FOOD-GRAINS SOLD DURING THE YEAR AND ALSO THA T PART OF SALE PRICE IN THE FORM OF SUBSIDY FROM GOVERNMENT ALSO I NCLUDES INTEREST CHARGED. UNDER THE CIRCUMSTANCES, IN ANY C ASE DISALLOWANCE IN SUCH CASE IF AT ALL IS REQUIRED LO BE MADE, THEN ONLY DIFFERENCE OF INTEREST PAID AND INTEREST CHARG ED; IF ANY, BE DISALLOWED AND SINCE INTEREST RECOVERED IS MORE THA N INTEREST PAID NOTHING SHOULD HAVE BEEN DISALLOWED FROM INTER EST PAID, IT IS SUBMITTED THAT IT BE SO HELD NOW. 2. THE LEARNED ASSESSING OFFICER HAS ERRED IN CHARGING INTEREST U/S.234B OF THE IT. ACT, THE LEARNED CIT (APPEALS) ERRED IN TREATING THE SAME AS CONSEQUENTIAL. YOUR APPELLANT SUBMITS THAT IN THE FACTS AND CIRCUMSTANCES, THE PROVISIONS OF C HARGING INTEREST U/S,234B ARE NOT APPLICABLE. IT IS SUBMITT ED THAT IT BE SO HELD NOW AND IHE INTEREST CHARGED U/S,234B BE DIREC TED TO BE DELETED ALTOGETHER. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPE ALS) FAILED TO ADJUDICATE ON THE GROUND NO.4 BEFORE HIM FOR WITHDR AWAL OF INTEREST U/S 244A OF THE I T ACT. YOUR APPELLANT SU BMITS THAT DIRECTION BE GIVEN TO THE ASSESSING OFFICER LO GRAN T [HE INTEREST U/S 244A OF THE I T ACT. IT IS SUBMITTED THAT IT BE SO HELD NOW. 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 CHARGED ANY INTEREST ON THE LOANS AND ADVANCES OUTSTANDING AGAINST THE GOG. THE ASSESSEE COMPANY IS A STATE GOVERNMENT UNDERTAKING I.E. OF GOVERNMENT OF GUJARA T. ITS MAIN ACTIVITIES ARE ADMINISTRATION OF PUBLIC DISTRIBUTIO N SYSTEM THROUGH WHICH IT DISTRIBUTES FOOD-GRAINS, SUGAR, WHEAT, AS PER PO LICIES AND DIRECTIONS OF THE STATE GOVERNMENT AND FOR WHICH IT RECEIVES SUBS IDY FROM IT. IT ENSURES QUALITIES OF PROCUREMENT, STORAGE AND DISTRIBUTION OF FOOD GRAINS AND EDIBLE OILS. 3 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 RS.4,06 CRO RES WAS CLAIMED AS EXPENDITURE. ON THE OTHER HAND, ADVANCES OUTSTANDIN G WERE OF RS.21.21 CRORES. IT WAS CLAIMED THAT ASSESSEE IS NOT ENTITLE D TO INTEREST FROM THE STATE GOVERNMENT ON THE AMOUNT OF SUBSIDY RECEIVABL E FROM GOG. FURTHER IT WAS SUBMITTED THAT ASSESSEE HAD SUBSTANT IAL FUNDS OF STATE GOVERNMENT TO THE EXTENT OF RS.103.80 CRORES ON WHI CH NO INTEREST IS BEING PAID AND IT HAD ALSO TRADING CREDITORS TO THE EXTENT OF RS.53 CRORES ON WHICH NO INTEREST IS PAID. THE AO, HOWEVER, DID NOT AGREE AND HELD THAT CHARGING OF INTEREST ON OUTSTANDING ADVANCES I S NOT A MATTER OF CUSTOM BUT IT IS A MATTER OF CONTRACT . AS PER THE DETAILS GIVEN IN THE ASSESSMENT ORDER THE AO WORKED OUT THAT ASSESSEE OU GHT 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 COVE RED IN FAVOUR OF ASSESSEE BY THE ORDER OF TRIBUNAL IN ITA NO.1219/AH D/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 RESPECT OF SUBSIDY RECEI VABLE FROM THE GOVERNMENT. WE FIND THAT AS PER THE RESOLUTION SETT ING UP THE ASSESSEE CORPORATION AS STATE GOVERNMENT UNDERTAKING IT WAS RESOLVED THAT THE NET 4 SURPLUS FUNDS ON ACCOUNT OF GOVERNMENT TRANSACTION COVERED UNDER PDS WILL BE TREATED AS ANALOGOUS TO LOAN TO THE ASSESSE E CORPORATION AND IT WILL PAY INTEREST TO THE GOVERNMENT. THE INTEREST P AYABLE AS PER RESOLUTION WAS 14% PER ANNUM. THE ASSESSEE IS NOT T O RECOVER ANY INTEREST FROM THE STATE GOVERNMENT BUT BECAUSE OF T HE ACTIVITIES THE ASSESSEE IS ENTITLED TO SUBSIDY FROM THE STATE GOVE RNMENT. THE SUBSIDY WAS WORKED OUT TAKING INTO ACCOUNT THE INTEREST COM PONENT ALSO. THIS INTEREST COMPONENT IS WORKED OUT AS INDICATED ABOVE ON WHICH NO DISPUTE IS RAISED BY THE REVENUE. THE JUSTIFICATION FOR INC LUDING INTEREST COMPONENT IS FILED IN THE PAPER BOOK PLACED BEFORE US. THEREFORE, IT IS INCORRECT TO HOLD THAT ON ONE HAND THE ASSESSEE PAY S BUT DOES NOT CHARGE INTEREST. THE INTEREST COMPONENT IS ALREADY INCLUDE D WHILE WORKING OUT THE SALE PRICE, PART OF WHICH IS RECOVERABLE FROM T HE STATE GOVERNMENT BY WAY OF SUBSIDY. THERE IS NO RIGHT ACCRUING TO THE A SSESSEE TO CHARGE INTEREST SEPARATELY FROM THE STATE GOVERNMENT. WHIL E CONSIDERING THE DEDUCTION OF INTEREST PAYABLE UNDER SECTION 36(1)(I II) WHAT IS TO BE EXAMINED IS WHETHER THE CAPITAL IS BORROWED FOR THE PURPOSE OF BUSINESS OR NOT. IN THIS REGARD, THERE IS NO DISPUTE. THEREF ORE, THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING THE CLAIM OF INTEREST PAYABLE BY THE ASSESSEE 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 VIDE THEIR ORDE RS IN ITA NO.2105/AHD/2006 AND 2839/AHD/2007. THE SAME VIEW H AS ALSO BEEN FOLLOWED FOR ASST. YEARS 1998-99 & 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. RESPECTFULLY FOLLOWING THE AB OVE ORDERS, WE CONFIRM THE ORDER OF LD. CIT(A) AND DISMISS THE APP EAL FILED BY THE REVENUE. 7. THE LD. AR HAS WITHDRAWN THE CROSS OBJECTION AND HENCE THE SAME IS DISMISSED AS WITHDRAWN. 5 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE A ND THE CROSS OBJECTION OF ASSESSEE BOTH ARE DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 04/06/2010 SD/- SD/- (BHAVNESH SAINI) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED :04/06/2010 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD