Appeal Details
Counselvise Citation
[2011] 140 COUNSELVISE.COM (IT) 52571 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 3 month(s) 12 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
19-08-2011
Appeal Filed By
Department
Order Result
Allowed
Bench Allotted
A
Next Hearing Date
18-04-2011
Assessment Year
2005-2006
Appeal Filed On
07-05-2010
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A : NEW DELHI BEFORE SHRI G.E.VEERABHADRAPPA, VICE PRESIDENT AND SHRI RAJPAL YADAV, JUDICIAL MEMBER ITA NO.1927/DEL/2010 ASSESSMENT YEAR : 2005-06 MARUTI SUZUKI INDIA LTD., PLOT NO.1, NELSON MANDELA ROAD, VASANT KUNJ, NEW DELHI-110070 VS. ASSTT.COMMISSIONER OF INCOME TAX, RANGE-6, C.R. BUILDING, NEW DELHI. ITA NO.2188/DEL/2010 ASSESSMENT YEAR : 2005-06 DY.COMMISSIONER OF INCOME TAX, CIRCLE 6(1), NEW DELHI. (APPELLANT) VS. MARUTI SUZUKI INDIA LTD., NEW DELHI. (RESPONDENT) APPELLANT BY : SH.AJAY VOHRA, NEERAJ JAIN,ROHIT JAIN MS SHIKHA SHARMA RESPONDENT BY : SH. SANJAY PURI, CIT DR ORDER PER G.E.VEERABHADRAPPA, VP : THESE CROSS APPEALS ARISE OUT OF THE ORDER DATED 19.2.2010 OF THE CIT(A), NEW DELHI FOR ASSTT. YEAR 2005-06. ITA NO.1927 & 2188/DEL/201O 2 2. SEVERAL GROUNDS ARE RAISED IN THESE APPEALS AND THE ASSESSEE HA S FILED A TABLE EXPLAINING IN BRIEF THE ISSUED INVOLVED IN BOTH THE ASSE SSEES APPEAL AS WELL AS DEPARTMENTAL APPEAL. IT IS STATED THAT MOST OF THE ISSUE S ARE COVERED BY EARLIER YEARS ORDERS, AS INDICATED IN THE TABLE. 3. WE HAVE HEARD THE PARTIES ON THE BASIS OF THE SUBMISSIONS FILED A ND PROCEED TO DISPOSE OF THESE APPEALS ACCORDINGLY. 4. WE PROCEED TO TAKE THE ASSESSEES APPEAL. THE FIRST ISSUE THERE IN RELATES TO DISALLOWANCE OF CLAIM OF `23,67,21,074 BY APPLYING PROVI SIONS OF SECTION 43B OF THE INCOME TAX ACT, 1961 IN RESPECT OF THE CUSTOM DUTY PAID ON IMPORT OF COMPONENTS WHICH WERE USED FOR EXPORT BY THE END OF THE YE AR. THE ASSESSING OFFICER DISALLOWED THE CLAIM BY HOLDING THAT THE ASSESSEE IS ENTITLED TO DUTY DRAWBACK ON ACCRUAL BASIS AND THIS AMOUNT WILL BE REVENUE NEUTRAL, THEREFORE, NO DEDUCTION TO THE ASSESSEE IS ALLOWABLE. ON THE OTHER HAND, THE CLAIM OF THE ASSESSEE IS THAT THE AMOUNT OF SUCH DUTY DR AW BACK ITA NO.1927 & 2188/DEL/201O 3 CANNOT BE SAID TO HAVE AUTOMATICALLY ACCRUED UNTIL SUCH CLAIM IS ACCEPTED BY DUTY DRAWBACK DIRECTORATE. TILL THE SAME IS ACCEPTED, IT REM AINS A MERE CLAIM. THE AUTHORITIES HAVE THE RIGHT TO ACCEPT THE CLAIM OR REJECT THE CLAIM. RELIANCE WAS PLACED ON THE PROVISIONS OF SECTION 75A OF THE CUSTOMS ACT, 1962 R /W CUSTOMS AND CENTRAL EXCISE DUTIES DRAWBACK RULES, 1995. THE PR OCEDURE MENTIONED IN THE AFORESAID PROVISION WERE EXPLAINED WHICH REQUIRE SUBMISSION OF INFORMATION AND DOCUMENTS FOR DETERMINATION OF THE AMOUNT OR RATE OF DRAWBACK, VERIFYING THE CORRECTNESS OR OTHERWISE OF ANY CLAIM FOR DRAW BACK. IT IS ONLY AFTER SUBMISSION OF THE CLAIM ALONG WITH COMPLETE ENCLOSURES AND NECESSARY VERIFICATION BY THE AUTHORIZED OFFICER, THE PAYMENT OF DRAWBACK IS MADE TO THE CREDIT OF THE ASSESSEES BANK ACCOUNT. THUS, IT IS ONLY WHEN AN AMOUNT IS FOUND TO HAVE ACCRUED, PAYMENT IS SIMULTANEOUSLY MADE. IT WAS CLAIMED BEFORE THE COMMISSIONER THAT THE ISSUE IS NOW FULLY COVERE D IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE ITAT IN THE ASSESSEES OWN CASE FOR THE AY 1999-00 AND 2001-02 AND BY THE ORDER OF THE CIT(A) FOR THE ASSE SSMENT YEAR 2002-03. ITA NO.1927 & 2188/DEL/201O 4 5. THE COMMISSIONER, HOWEVER, PREFERRED TO FOLLOW THE VIEW OF HI S PREDECESSOR FOR THE AY 2004-05. IT IS EXPLAINED BEFORE US BY THE L D. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING AN EXCLUSIVE METHOD OF ACCOUNTING IN RESPECT OF CUSTOM DUTY PAID ON IMPORT OF COMPONENTS FOR EXPORT PURPOSES. ACCORDINGLY, DUTIES PAID ON PURCHASES ARE NOT INCLUDED IN THE COST OF PURCHASES AND THE VALUE OF CLOSING STOCK IN T HE PROFIT & LOSS ACCOUNT. ADDITION OF THE DUTY, BOTH IN THE PURCHASES AS W ELL AS THE CLOSING STOCK AS PER THE REQUIREMENT OF SECTION 145A OF THE ACT IS TAX NEUTRAL INASMUCH AS THE SAME AMOUNT IS BOTH DEBITED AS WELL AS CREDITED TO THE PROFIT & LOSS ACCOUNT. HOWEVER, TO GIVE EFFECT TO THE PROVISION S OF SECTION 43B WHICH MANDATES THAT DUTIES PAID BY THE ASSESSEE ARE ALLOWABLE ONLY ON PAYMENT BASIS, CUSTOM DUTY PAID BY THE ASSESSEE ON IMPORT OF COMPONENTS FOR EXPORT PURPOSES, WHETHER OR NOT EXPORT AGAINST THE SAME HAD ACTU ALLY TAKEN PLACE DURING THE RELEVANT YEAR IS CLAIMED AS DEDUCTION IN THE RETURN OF INCOME. THEREFORE, THE ASSESSEE IS IN APPEAL BEFORE US. ITA NO.1927 & 2188/DEL/201O 5 6. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RECORDS. L D. COUNSEL FOR THE ASSESSEE HEAVILY RELIED UPON THE DECISION OF THE IT AT FOR THE ASSTT. YEAR 1999-00 IN ITA NO. 993/DEL/2007 SPECIALLY THE DISCUSSION IN PARA 50-56 WHICH ARE PLACED IN PAGES 1014 TO 1023 OF THE PAPER BOOK . IT IS ALSO COVERED IN FAVOUR OF THE ASSESSEE, ACCORDING TO THE LD. COUNSEL, BY TH E ORDER OF THE TRIBUNAL FOR ASSTT. YEAR 2001-02 IN ITA NO. 300/DEL/ 2006 AND 204/DEL/2006 WHEREIN IDENTICAL ISSUE HAS BEEN DISPOSED OF IN FA VOUR OF THE ASSESSEE BY FOLLOWING THE DETAILED DISCUSSION IN ASSTT. YEAR 1999-00. 7. LD. DR, ON THE OTHER HAND, STRONGLY SUPPORTED THE ORDER OF THE AO AND THE ORDER OF THE LD. CIT(A). 8. WE HAVE CAREFULLY GONE THROUGH THE DISCUSSION CONTINUING FROM PAR A 50 TO 56 FOR THE ASSTT. YEAR 1999-2000 AND ALSO PARA 14 IN THE ORDER OF THE ITAT FOR ASSTT. YEAR 2001-02 WHERE IDENTICAL ISSUES ARE DEALT WITH AND DECIDED IN FAVOUR OF THE ASSESSEE. THE FACTS OF THE CASE BEING THE SAME, IN TH E LIGHT OF THIS DISCUSSION, THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO.1927 & 2188/DEL/201O 6 9. THE SECOND GROUND IN THE ASSESSEES APPEAL RELATES TO DISALLOWANCE OF ` 71,63,89,449 REPRESENTING THE AMOUNT OF EXCISE DUTY PAID ON PURCH ASED INPUTS WHICH IS INCLUDED IN RG 23A BY APPLYING PROVISIONS OF SECTION 43B OF THE ACT ON THE GROUND THAT THE SAME DID NOT AMOUNT TO PAYMENT OF DUTY. ACCORDING TO THE AO, RG 23A IS MODVAT BALANCE REGISTER AND DOES NOT REPRESENT EXPENDITURE MADE BY THE ASSESSEE AND THEREFORE HE DECLIN ED TO GIVE ANY DEDUCTION IN RESPECT THEREOF. ACCORDING TO HIM, THE SAME WOULD BE ALLOWED AS AN EXPENDITURE IN THE YEAR IN WHICH IT IS UTILI ZED. ACCORDING TO THE ASSESSEE, THE SAID AMOUNT REPRESENTED DUTY PAYMENT AND IS ALLOWABL E U/S 43B OF THE ACT. THE ASSESSEES COUNSEL FAIRLY ADMITTED THAT THIS ISSU E IS COVERED BY THE ORDER OF THE SPECIAL BENCH IN THE CASE OF DCIT VS GLAXO SM ITHKLINE CONSUMER HEALTH CARE LTD. IN 107 ITD 343 AND IN THE ASSESSE ES OWN CASE IN ASSTT. YEAR 2001-02, THE SAID ISSUE IS DECIDED AGAINST THE ASSESSEE . THE OPERATIVE PORTION OF THE ORDER FOR THE ASSTT. YEAR 2001-02 IS AS U NDER:- IN REGARD TO GROUND NO.2 WHICH WAS AGAINST THE EXCISE DUTY ON INPUTS, IT WAS FAIRLY AGREED BY BOTH THE SIDES THAT THE ISSUE WAS SQUARELY COVERED AGAINST THE ASSESSEE BY THE ITA NO.1927 & 2188/DEL/201O 7 DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF GLAXO SMITHKLINE CONSUMER HEALTH CARE LTD. REFERRED TO SUPRA WHEREIN IT HAS BEEN HELD THAT THE UNUTILIZED MODVAT CREDIT IS NOT AN ALLOWABLE DEDUCTION SINCE SUCH CREDIT DOES NOT AMOUNT TO PAYMENT OF DUTY. RESPECTFULLY FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF GLAXO SMITHKLINE CONSUMER HEALTH CARE LTD., GROUND NO.2 OF THE REVENUES APPEAL STANDS ALLOWED. 10. IN THE LIGHT OF THE ABOVE DISCUSSION, FOLLOWING THE ABOVE V IEW, THE CLAIM OF THE ASSESSEE IS DECLINED BY CONFIRMING THE ORDER OF THE CIT(A) ON THIS ISSUE. 11. THE THIRD GROUND IN THE ASSESSEES APPEAL RELATES TO DISALLOWAN CE OF AN EXPENDITURE OF `9,27,70,000/- BY HOLDING THE SAME TO BE THE EX PENDITURE INCURRED FOR EARNING EXEMPT INCOME. THE DEPARTMENT APPLIED THE PROVISIONS OF RULE 8D TO DETERMINE THE DISALLOWANCE. THE PARTIES WHO APPEAR ED BEFORE US FAIRLY AGREED THAT IN ALL SUCH MATTERS, THE TRIBUNAL IS R ESTORING THE ISSUE TO THE FILE OF THE AO WITH THE DIRECTION TO WORK OUT THE DISALLOWA NCE U/S 14A IN THE LIGHT OF THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF GODR EJ & BOYCE MFG. CO. LTD. 328 ITR 81. IT WAS ALSO CLAIMED BY THE ASSE SSEE THAT RULE 8D OF THE INCOME TAX RULES IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION ITA NO.1927 & 2188/DEL/201O 8 AND NO PART OF INTEREST AND/OR ADMINISTRATIVE EXPENDITURE WAS I NCURRED IN RELATION TO EXEMPT INCOME. HOWEVER, HE POINTED OUT THAT IN T HE ASSTT. YEAR 2001-02, THE MATTER HAS ALREADY BEEN RESTORED TO THE FILE OF THE AO FOR READJUDICATION, WHILE IN ASSTT. YEAR 1999-00 AND AY 2000-0 1, THE TRIBUNAL WAS PLEASED TO DELETE THE ADDITION. 12. WE HAVE HEARD BOTH THE SIDES AND CAREFULLY GONE THROUGH THE ORDERS FOR THE ASSTT. YEAR 1999-00 AND 2001-02 WHERE IDENTICAL ISSU E IS DISCUSSED BY THE TRIBUNAL. IN THE AY 1999-00 AND 2000-01 ALTHOUGH THE TRIBUNAL DELETED THE ADDITION, IN THE AY 2001-02, THE TRIBUNAL RESTORED THE ISSUE TO THE FILE FOR THE AO FOR READJUDICATION IN LINE WITH THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. 312 ITR (AT) 1(MUMBAI). IT WAS POINTED OUT TO US THAT THE ASSESSEE HAS NOT ACCEPT ED THIS DECISION OF THE ITAT AND HAS FILED AN APPEAL BEFORE THE DELHI HI GH COURT U/S 260A OF THE IT ACT. IT WAS STATED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE DECISION OF THE SPECIAL BENCH IN THE CASE OF DAGA CAPITAL MANAGEMEN T PVT. LTD. NOW STANDS REVERSED BY THE DECISION OF THE HONBLE BOMBAY HIGH COU RT ITA NO.1927 & 2188/DEL/201O 9 (CITED SUPRA) AND THE DISALLOWANCE FRAMED THEREIN WAS DIRECTED TO BE DELETED IN THE ABSENCE OF ANY POSITIVE FINDING BY THE ASSESSING OFFICER OF INCURRI NG OF ANY EXPENSE BY THE ASSESSEE. SINCE THE MATTER IS ALREADY BEFORE THE DELHI HIGH COURT, INVOLVING THE SAME IDENTICAL ISSUE, WE THINK IT FIT TO RESTORE THE MATTER BACK TO THE FILE OF THE AO WITH THE DIRECTION TO DECIDE TH E ISSUE AFRESH IN THE LIGHT OF THE BINDING DECISION OF THE JURISDICTIONAL HIGH COURT . IT MAY BE POINTED OUT TO US THAT THE HONBLE DELHI HIGH COURT HAS ALREA DY HEARD THE MATTER AND IS LIKELY TO RENDER THE DECISION SOON HEREAFTER. TH E AO IS THEREFORE DIRECTED TO FINALLY DISPOSE OF THE MATTER IN THE LIGHT OF THE DECISION THAT MAY BECOME AVAILABLE TO HIM ON THE SAME ISSUE. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED TO BE PARTL Y ALLOWED. 14. THE FIRST GROUND IN THE REVENUES APPEAL RELATES TO THE DISALLOWANCE OF ` 25,73,919 COMPRISING OF PLA BALANCES OF R&D CESS ON VEHICLES OF ` 24,57,035/- AND PLA BALANCE OF EXCISE DUTY ON SPARE PARTS TO THE EXTENT OF ` 1,16,884/-. ACCORDING TO THE AO, PLA BALANCES ARE NOTHING BUT A DVANCE ITA NO.1927 & 2188/DEL/201O 10 PAYMENTS MADE TOWARDS GOODS WHICH ARE YET TO BE MANUFACTURED OR CLEARE D FROM THE FACTORY. ACCORDING TO HIM, THESE ARE ADVANCE PAYMENTS MADE TOWARDS GOODS, WHICH ARE MANUFACTURED/CLEARED FROM THE FACTORY. IT IS CLAIMED THAT THE AMOUNT REPRESENTING PLA BALANCES SHOULD BE ALLOW ED AS DEDUCTION IN THE LIGHT OF THE HONBLE SUPREME COURT DECISION IN T HE CASE OF BERGER PAINTS INDIA LTD. VS CIT 266 ITR 99 (SC); INDIAN CO MMUNICATION NETWORK PVT. LTD. VS IAC 48 TTJ 604 (DEL); ITO VS FOOD SPECIALT IES 48 TTJ 621 (SPECIAL BENCH, DEL), HONDA SIEL POWER PRODUCTS LTD. VS DCIT 77 IT D 123 (DEL) AND A RECENT DECISION IN THE CASE OF DCIT V GLAXO SMITHKLINE CONSUMER HEALTHCARE LTD. 107 ITD 343 (SB)(CHD). THE LD. CIT(A) HAVIN G FOUND THAT THE ITAT IN THE ASSESSEES OWN CASE FOR AY 1990-00 AND 2000-01 AND 2001-02 AS ALSO FOR THE AY 2002-03 AND 2004-05, ACCEPTED THE CONTENTION OF THE ASSESSEE. THE REVENUE IS AGGRIEVED. 15. WE HAVE HEARD BOTH THE PARTIES AND FIND THAT THE ISSUE IS CONCLUDED IN FAVOUR OF THE ASSESSEE: (A) BY THE ORDER OF THE ITAT FOR AY 1999-00 VIDE DISCUSSIONS IN PARA 28, (B) BY THE ITAT ORDER FOR AY 2000-01 VIDE DISCUSSION ITA NO.1927 & 2188/DEL/201O 11 IN PARAS 4 AND 5 AND; (C) BY THE ITAT ORDER FOR AY 1994-95, 1 995-96 AND 1996-97 AT PARA 8. 16. THE LD. CIT(A), IN THE IMPUGNED ORDER, AS WE MAY SEE, HAS ONLY FOLLOWED THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE ON IDENTICAL ISSUE. WE THEREFORE DO NOT FIND ANY INFIRMITY IN THE ORDER. WE MAY POIN T OUT THAT THE DECISION OF THE ITAT SPECIAL BENCH OF CHANDIGARH IN THE CASE OF D CIT VS GLAXO SMITHKLINE CONSUMER HEALTH CARE LTD. REPORTED IN 107 ITD 343(SB) IS DIRECTLY ON THE ISSUE OF BALANCES IN PLA AND IS ALLOWABLE DEDUCTION U/S 43B OF THE ACT AND, THEREFORE, IN THE LIGHT OF THESE, WE DECLINE TO INTERFER E. 17. THE NEXT ISSUE IN THE REVENUES APPEAL RELATES TO THE CUSTOMS DUTY ON IMPORT OF COMPONENTS FOR EXPORT PURPOSES FOR WHICH EXPORT HAS NOT BEEN MADE BY THE END OF THE YEAR. THE AO DISALLOWED THE CLAIM HOLDI NG THAT THE SAME IS REVENUE NEUTRAL SINCE THIS AMOUNT SHOULD BE REFLECTED IN THE CLOSING STOCK AND PURCHASE AS PROVIDED IN SECTION 145 OF THE ACT AND SINCE THE EXPENSES ARE NOT OTHERWISE ALLOWABLE AS ENVISAGED UNDER SECTION 4 3B OF THE ACT, NO DEDUCTION IS ALLOWABLE IN RESPECT THEREOF. THE SUBMISSION OF T HE ITA NO.1927 & 2188/DEL/201O 12 ASSESSEE HAS BEEN THAT EVEN IF AFORESAID AMOUNT HAS TO BE ADDED TO T HE PURCHASE ACCOUNT AND CLOSING STOCK BY VIRTUE OF SECTION 145A, THE SAID AMOUNT WILL BE SEPARATELY DEDUCTIBLE IN THE COMPUTATION OF TAXABLE INCOME UNDER SECTION 43B OF THE ACT. FOR THIS, RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BERGER PAINTS, 266 ITR 99 AS ALSO THE DECISION OF THE TRIBUNAL IN THE CASE OF SONA STEERING SYSTEMS LTD. VS DCIT IN ITA NOS. 103/DEL AND 948/DEL OF 1996. APART FROM THIS, RE LIANCE WAS ALSO PLACED ON THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR AY 1999-00 AND 2000-01. THE LD. CIT(A) WAS OF THE VIEW THAT THE ITAT HAS ALREADY DECIDED THE ISSUE IN ASSESSEES FAVOUR FOR AY 1999-00 BY FOLL OWING THE PRINCIPLE LAID DOWN IN BERGER PAINTS CITED SUPRA AND THE CIT(A) FOR AY 2001- 02, 2002-03 AND 2004-05 HAS ACCEPTED SIMILAR CONTENTIONS. THE REVENUE IS AGGRIEVED. 18. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RECORDS. T HE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING THE EXCLUSIVE METHOD OF ACCOUNTIN G IN RESPECT OF CUSTOM DUTY PAID ON IMPORT OF COMPONENTS FOR EXPORT PURPOSES. ITA NO.1927 & 2188/DEL/201O 13 ACCORDINGLY, DUTIES PAID ON PURCHASES ARE NOT INCLUDED IN THE COST OF PURCHASES AND THE VALUE OF CLOSING STOCK IN THE PROFIT AND LOSS ACCOUNT. HOWEVER, BY ITSELF IT IS TAX NEUTRAL BUT IN VIEW OF THE PROVI SIONS OF SECTION 43B, THE SAID SUM IN QUESTION IS DEDUCTIBLE AS THE SAME IS PAID BY THE ASSE SSEE ON THE BASIS OF ACTUAL PAYMENT ALTHOUGH THE REQUIRED EXPORT HAVE N OT BEEN MADE DURING THE RELEVANT YEAR. IN OUR VIEW, THIS ISSUE IS A GAIN CONCLUDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BERGER PAINTS 266 ITR 99(SC) WHEREIN IT WAS OBSERVED BY T HE HONBLE SUPREME COURT THAT BY MERELY DEBITING THE DUTIES TO THE P&L ACCOUNT AS PART OF THE VALUE OF THE CLOSING STOCK, IT COULD NOT BE SAID THAT THE SAM E HAVE BEEN ALLOWED AS DEDUCTION AND WOULD BE SEPARATELY ALLOWABLE U/S 43B OF THE ACT. LD. CIT(A) HAS RIGHTLY FOLLOWED THE PRINCIPLE LAID DOWN THER EIN AS EXPLAINED BY THE TRIBUNAL IN AY 1999-00 AND 2000-01. I N THE LIGHT OF THE BINDING PRECEDENTS, LD. CIT(A), IN OUR VIEW, HAS RIGHTLY DECIDED TH E ISSUE IN DISPUTE AND WE, THEREFORE, AFFIRM HIS ORDER. ITA NO.1927 & 2188/DEL/201O 14 19. THE NEXT DISPUTE RELATES TO THE DISALLOWANCE OF CUSTOMS DUTY PA ID WHICH IS REQUIRED TO BE ADJUSTED AGAINST EXCISE DUTY PAYABLE ON FIN ISHED PRODUCTS TO THE EXTENT OF ` 11,24,51,254 AND CUSTOMS DUTY PAID ON GOODS IN TRANSIT/UNDER INSPECTION TO THE EXTENT OF ` 6,06,69,407/-. THE AO DISALLOWED THE CLAIM FOR CUSTOMS DUTY (CVD) PAID TO BE ADJUSTED AGAINS T EXCISE DUTY PAYABLE ON FINISHED PRODUCTS, ON THE GROUND THAT PROVISIONS OF SECTION 145A REQUIRE THAT EXCISE DUTY COMPONENT IS REQUIRED TO BE LOADED IN PURCHASE, SALE, OPENING STOCK AND CLOSING STOCK AND ACCORDING TO HIM, THE ULTIMATE IMPACT WILL BE REVENUE NEUTRAL. THE AO DISALLOWED THE CLAIM FOR CUSTOM DUTY ON GOODS IN TRANSIT/UNDER INSPECTION ON THE GROUND THAT DUT Y PAID IS NOT TAX DEDUCTIBLE AS GOODS IN TRANSIT ARE NOT EXPENDITURE FOR THE YEAR AND ARE NOT ROUTED THROUGH P&L ACCOUNT. IT WAS THE CONTENTION OF THE ASSESSEE THAT THIS AMOUNT HAS BEEN PAID BY THE ASSESSEE COMPANY IN TH E RELEVANT PREVIOUS YEAR ON IMPORT OF COMPONENTS AND RAW MATERIAL WHICH WERE IN TRANSIT ON THE LAST DATE OF THE FINANCIAL YEAR. SUCH CREDI T OF CVD PAID ON INPUT CAN BE UTILIZED FOR PAYMENT OF EXCISE DUTY ON FINAL PRODUCTS. THAT SUCH ITA NO.1927 & 2188/DEL/201O 15 BALANCE REPRESENTS ACTUAL CUSTOM DUTY PAID AND IS THEREFORE ENTITL ED FOR DEDUCTION U/S 43B OF THE ACT. RELIANCE WAS PLACED ON THE DECISION OF T HE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS C.L. GUPTA 259 IT R 513 AND THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF BERGER PAINTS INDIA LTD. 266 ITR 99. RELIANCE WAS FURTHER PLACED ON THE DECISION OF T HE ITAT IN THE ASSESSEES OWN CASE FOR AY 1999-00 AND 2000-01. THE CIT(A) FOLLOW ING THESE DECISIONS HAS ACCEPTED THE ASSESSEES CLAIM. THE REVENUE IS AGGRIEVE D. 20. WE HAVE HEARD BOTH SIDES AND ARE UNABLE TO FIND ANY GROUND T O INTERFERE. AS ALREADY STATED, AN IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE THE ITAT FOR AY 1999-00 AND 2000-01. THE TRIBUNAL IN PARA 44 AND 45 IN AFORESAID YEARS HAS ACCEPTED THE CLAIM OF THE ASSESSEE. IN THE L IGHT OF DISCUSSIONS THEREIN, WE CONFIRM THE FINDINGS OF THE CIT(A) ON THIS ISSUE . 21. THE NEXT DISPUTE IN THE REVENUES APPEAL RELATES TO CUSTOM S DUTY ON INVENTORY HELD IN CLOSING STOCK TO THE EXTENT OF `23,68,09,186/ -. ACCORDING TO THE AO, THE ASSESSEE HAS ALREADY DEBITED THE SAID SUM TO THE PROFIT & LOSS ACCOUNT AND CORRESPONDINGLY INCLUDED IN CLOSING STOCK AND THE ASSESSEE IS N OT ITA NO.1927 & 2188/DEL/201O 16 ENTITLED FOR ANY FURTHER DEDUCTION. HOWEVER, THE CLAIM OF TH E ASSESSEE IS THAT ALTHOUGH THE AMOUNT STOOD DEBITED TO THE PROFIT AND LOSS ACCOUNT AND WAS INCLUDED IN THE CLOSING STOCK, THE SAID AMOUNT WOULD STILL BE SEPARAT ELY DEDUCTIBLE UNDER SECTION 43B IN THE LIGHT OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BERGER PAINTS (CITED SUPRA). ACCORDING TO HIM, I DENTICAL CLAIMS HAVE BEEN ACCEPTED BY THE TRIBUNAL IN THE AYS 1999-00 AND 2000-01 AND 2001-02. IN THE LIGHT OF THOSE ORDERS OF ITAT ON IDENTICAL I SSUE, THE CIT(A) ACCEPTED ALL THESE CONTENTIONS AND REVENUE IS AGGRIEVED. 22. WE HAVE HEARD BOTH THE SIDES AND CAREFULLY GONE THROUGH THE ORDERS REFERRED TO INCLUDING THE DISCUSSION IN THE IMPUGNED ORDERS. WE H AVE ALSO CAREFULLY GONE THROUGH THE REASONING GIVEN BY THE AO IN MAKING T HE DISALLOWANCE. WE DO NOT THINK THAT THE CONTENTION OF THE REV ENUE DESERVES ACCEPTANCE IN THE LIGHT OF THE AUTHORITATIVE PRONOUNCEMENT BY T HE SUPREME COURT IN THE CASE OF BERGER PAINTS (CITED SUPRA). WE ACCORDINGLY DE CLINE TO INTERFERE AND CONFIRM THE FINDING OF THE CIT(A) ON THIS GROUND. ITA NO.1927 & 2188/DEL/201O 17 23. THE NEXT DISPUTE IN THE REVENUES APPEAL RELATES TO THE EXCISE DUTY PAID UNDER PROTEST TO THE EXTENT OF `32,29,311. THE AO DISALLOWED T HE CLAIM ON THE GROUND THAT THE ASSESSEE WAS CONTESTING THESE LIABILITIES AND THERE WAS NO FINALITY REGARDING THE LIABILITY AND MOREOVER, THESE WERE NOT DEBITED TO THE P&L ACCOUNT. THE ASSESSEE CLAIMED THAT THESE PAYMENTS WERE STA TUTORY DUES IN THE YEAR UNDER CONSIDERATION AS DECLARED BY THE EXCISE DEPARTM ENT. THE LIABILITY HAS CRYSTALLIZED AND PAID IN THE SAME YEAR. IF THE COMPANY GETS RELIEF FROM THE EXCISE AUTHORITIES, THE REFUNDS RECEIVED WILL BE ACCRUE D AS INCOME AND THE SAME ARE OFFERED FOR TAXATION. IT WAS ALSO STATED THAT SIMILAR CLAIMS HAVE BEEN ALLOWED FOR DEDUCTION U/S 43B ON THE BASIS OF PAYMENT BY THE ITAT IN AY 1999-00, 2000-01 AND 2001-02. THE CIT(A) ACCEPTED T HESE CONTENTIONS IN THE LIGHT OF THE ORDERS OF THE TRIBUNAL IN THE YEAR STATED ABOVE AND THE ORDERS OF HIS OWN PREDECESSOR ON THE IDENTICAL ISSUE FOR AY 2002-03. THE REVENUE IS AGGRIEVED. 24. WE HAVE HEARD BOTH SIDES AND ARE UNABLE TO INTERFERE AS LD. CIT(A) HAS ONLY FOLLOWED THE BINDING PRECEDENTS ON THE ISSUE. THE AMOUNTS IN QU ESTION ITA NO.1927 & 2188/DEL/201O 18 ALTHOUGH PAID UNDER PROTEST ARE STILL DEDUCTIBLE ON THE BASIS OF ACTU AL PAYMENT BY APPLYING THE PROVISIONS OF SECTION 43B. SIMILAR CONTENT IONS HAVE BEEN ACCEPTED BY THE TRIBUNAL FOR AYS 1999-00, 2001-01 AND 200 1-02. IN THE LIGHT OF THESE ORDERS, WE DECLINE TO INTERFERE. 25. THE NEXT GROUND IN THE REVENUES APPEAL RELATES TO ACCEPTA NCE BY THE CIT(A) OF THE ALTERNATIVE CLAIM FOR WITHDRAWAL OF ADD BACK OF ` 58,32,85,322 OFFERED DURING THE YEAR UNDER CONSIDERATION ON ACCOU NT OF DUTIES AND OTHER STATUTORY LIABILITIES DEBITED TO PROFIT & LOSS ACCOUNT BU T CLAIMED AS DEDUCTION IN PRECEDING YEARS ON PAYMENT BASIS U/S 43B OF THE ACT. 26. LD. COUNSEL FOR THE ASSESSEE STATED THAT THIS ISSUE HAS NOT BEEN DISCUSSED BY THE AO IN HIS ASSESSMENT ORDER AND ARGUED THAT THE ASSES SEE HAS OFFERED AN AMOUNT OF `120,47,62,835/- IN ITS RETURN OF IN COME ON ACCOUNT OF DUTIES AND OTHER STATUTORY LIABILITIES DEBITED TO PROFIT & LOSS ACCOU NT RECEIVED FROM GOVERNMENT AUTHORITIES BUT CLAIMED AS DEDUCTION IN PR ECEDING YEARS ON PAYMENT BASIS U/S 43B. THESE AMOUNTS WERE OFFERED TO TAX IN THE RETURN OF INCOME AS THE SAME WAS CLAIMED ON PAYMENT BASIS U/S 43B IN THE ITA NO.1927 & 2188/DEL/201O 19 PRECEDING YEARS. HOWEVER, OUT OF THE SAID TOTAL AMOUNT OF ` 120 ,47,62,835/- AN AMOUNT OF `58,32,85,322/- THOUGH CLAIMED ON PAYMENT BASIS IN PRECEDING YEARS WERE NOT ALLOWED AS A DEDUCTION BY THE AO. THE BREAK-UP OF THIS AMOUNT GIVEN BY THE ASSESSEE WAS AS UNDER:- ITEM NO. ITEM PARTICULARS AMOUNT (RS.) AMOUNTS CLAIMED IN AY WHETHER ALLOWED OR DISALLOWED 1. EXCISE DUTY ON INPUTS BALANCE IN RG23A PART-II 30,38,75,667 2004-05 DISALLOWED IN THE ORDER OF ASSESSMENT; DISALLOWANCE CONFIRMED BY CIT(A) & ITAT 2. SALES TAX (FIRST POINT) 69,655 2004-05 DISALLOWED IN THE ORDER OF ASSESSMENT; DISALLOWANCE CONFIRMED BY CIT(A) & ITAT 3. CUSTOM DUTY PAID ON IMPORT OF COMPONENTS FOR EXPORT PURPOSES FOR WHICH EXPORT HAS BEEN MADE 2,62,20,000 _____________ 25,31,20,000 2003-04 2004-05 AMOUNT ADDED TO INCOME OF ASSESSEE BY AO HOLDING THAT THE AMOUNT OF DUTY DRAWBACK ACCRUES TO THE APPELLANT AUTOMATICALLY WHEN THE EXPORT IS MADE. GRAND TOTAL 58,32,85,322 ITA NO.1927 & 2188/DEL/201O 20 27. IT WAS STATED THAT BY NOT ALLOWING WITHDRAWAL OF ADD BACK HA S RESULTED IN THE CLAIM NOT BEING ALLOWED IN ANY YEAR AND THAT IF THE ASSESSEES CLAIM UNDER SECTION 43B DEDUCTION ARE ALLOWED IN THE EARLIER ASSESSMENT YEAR, THEN THE SAID AMOUNT OF `58,32,85,322/- WOULD CERTAINLY BE LIABLE TO BE ADDED TO THE ASSESSABLE INCOME OF THE PRESENT YEAR. IT WAS ALSO CLAIMED THA T IDENTICAL CLAIMS HAVE BEEN ALLOWED IN THE ASSESSEES OWN CASE BY ITAT IN TH E EARLIER ASSESSMENT YEARS 2001-02 AND 2002-03. THE LD. CIT(A) HAS DISP OSED OF THIS ISSUE IN THE FOLLOWING MANNER:- I HAVE CONSIDERED THE MATTER. I HAVE GONE THOUGH THE ORDER OF THE TRIBUNAL FOR AY 2004-05. RESPECTFULLY FOLLOWING THE DECISIONS OF THE TRIBUNAL AND MY LEARNED PREDECESSOR, THIS GROUND OF APPEAL IS ALLOWED. THE AO IS DIRECTED TO ALLOW THE ALTERNATIVE CLAIM MADE BY THE APPELLANT AFTER VERIFICATION OF RELEVANT FACTS. HE IS ALSO DIRECTED TO WITHDRAW THE RELIEF ALLOWED TO THE ASSESSEE BY ACCEPTING THIS ALTERNATIVE CLAIM IF DEDUCTION CLAIMED BY IT FOR THE SAME AMOUNT IS HELD TO BE ALLOWABLE UNDER SECTION 43B IN THE EARLIER ASSESSMENT YEAR. ITA NO.1927 & 2188/DEL/201O 21 28. THE REVENUE IS AGGRIEVED AND THE GROUND TAKEN BY THE REV ENUE IS THAT THE LD. CIT(A) SHOULD NOT HAVE ENTERTAINED THIS GROUND BY APPRECI ATING THE FACT THAT ASSESSEE HAS NOT FILED ANY REVISED RETURN BY CLAIMING DUTY DRAWBACK. THE GROUNDS OF APPEAL ARE REITERATED BY THE LD. DR AND THE LD. C OUNSEL FOR THE ASSESSEE STRONGLY SUPPORTED THE FINDINGS OF THE CIT(A) IN THE LIGHT OF TH E ORDER OF THE TRIBUNAL REFERRED TO IN THE ORDER OF THE CIT(A). 29. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND GONE THROUGH THE RECORDS. THE MATTER, AS COULD BE SEEN IN THE OPERATIVE PART OF TH E ORDER OF CIT(A), HAS BEEN SENT BACK TO THE AO FOR VERIFICATION OF ALL THE R ELEVANT FACTS AND IN PRINCIPLE, THE CIT(A) HAS FOLLOWED THE ORDER OF THE ITAT IN THIS REGARD. WE DO NOT AGREE THAT THE CIT(A) WENT IN ERROR EITHER IN EN TERTAINING THIS GROUND OR IN DEALING WITH SUCH GROUND BY SETTING ASIDE THE SAME T O THE ASSESSING OFFICER FOR VERIFICATION OF THE RECORD AND CLAIMS IN THIS RE GARD. WE ALSO DO NOT APPROVE THE CONTENTION OF THE REVENUE THAT SUCH ALTER NATIVE CLAIM OF THE ASSESSEE SHOULD NOT BE ACCEPTED IN THE ABSENCE OF THE REVISED RETU RN FILED IN THIS REGARD. IT HAS BY NOW BEEN ACCEPTED THAT ALL CLAIMS OF THE ITA NO.1927 & 2188/DEL/201O 22 ASSESSEE WHICH LEAD IN THE DETERMINATION OF PROPER INCOME OF TAXAT ION REQUIRE TO BE ADDRESSED BY THE AO IN ACCORDANCE WITH LAW. IN A MATTER OF THE TYPE THAT WE HAVE DEALT WITH HEREIN, IT IS NECESSARY TO HAVE A LOOK INTO THE RECORD FOR FAIR DETERMINATION OF THE LAX LIABILITIES. THE CIT(A) HAS RIGHTLY SET ASIDE THE MATTER FOR VERIFICATION OF THE RECORD OF ASSESSMENT AND HE HAS ALSO DIR ECTED TO WITHDRAW THE RELIEF ALLOWED TO THE ASSESSEE BY ACCEPTING THIS ALTE RNATIVE CLAIM, IF DEDUCTION CLAIMED BY IT FOR THE SAME AMOUNT IS HELD TO BE ALLOWAB LE U/S 43B IN THE EARLIER ASSESSMENT YEAR. IN SUM AND SUBSTANCE, TH E ORDER OF THE CIT(A) IS FAIR AND REASONABLE AND IS BASED ON THE ORDERS OF THE ITAT IN THIS REGARD IN THE EARLIER YEARS AS REFERRED TO IN OUR ORDER IN TH E EARLIER PARAGRAPHS. 30. THE NEXT DISPUTE IN THE REVENUES APPEAL RELATES TO THE ASSESEES CLAIM FOR DEDUCTION U/S 43B OF THE IT ACT AMOUNTING TO `47,31,50,000 REPRESENTING THE RG23A BALANCE AT THE END OF THE AY 2004-05 AND BEING TH E OPENING BALANCE IN THE CURRENT ASSESSMENT YEAR. THE ASSESSEE SUBMITTED T HAT DURING AY 2005-06 WHICH IS THE YEAR UNDER CONSIDERATION, IT HAD CLAI MED DEDUCTION U/S 43B OF THE ACT AMOUNTING TO ` 71,63,89,449 REPRESENTING BALANCE OF ITA NO.1927 & 2188/DEL/201O 23 RG23A AS AT THE END OF THE FINANCIAL YEAR 2004-05. LIKEW ISE, IN THE IMMEDIATELY PRECEDING AY 2004-05, A DEDUCTION OF `47,31,50,00 0 WAS CLAIMED U/S 43B OF THE IT ACT REPRESENTING BALANCE OF RG23A AS ON THE E ND OF FINANCIAL YEAR 2003-04. THE ASSESSEES CLAIMS ARE BASED ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS GLAXO SM ITHKLINE CONSUMER HEALTH CARE LTD. 107 ITD 343(SB) WHEREIN IT HAS CLAIMED THAT RG23A BALANCE IS ALLOWABLE IN THE YEAR WHEN ADJUSTMENT IS M ADE TOWARDS THE EXCISE DUTY LIABILITY. THUS, THE ASSESSEE HAS MADE AN ADJUSTM ENT OF `47,31,50,000 AGAINST THE EXCISE DUTY PAYABLE ON MANUFACTURED GOODS IN THE YEAR UNDER CONSIDERATION. THE ASSESSEE BEFORE THE CIT(A) STATED TH AT IDENTICAL CLAIMS HAVE BEEN ALLOWED BY THE ITAT IN THE ASSESSEES OWN CASE FOR AY 1999- 00. THE LD. CIT(A) ACCEPTED THE ASSESSEES ALTERNATE CLAIM ON T HE STRENGTH OF THE DECISION OF THE ITAT FOR AY 1999-00. AT THE SAME TIME, HE DIRECTED THE AO TO WITHDRAW THE RELIEF ALLOWED TO THE ASSESSEE BY ACCEPTING TH IS ALTERNATIVE CLAIM, IF DEDUCTION CLAIMED BY FOR THE SAME AMOUNT IS HELD TO BE ALL OWABLE U/S 43B IN THE EARLIER ASSESSMENT YEAR. ITA NO.1927 & 2188/DEL/201O 24 31. AFTER HEARING BOTH SIDES AND GOING THROUGH THE RECORDS WE FIND THA T THE LD. CIT(A) HAS PROPERLY APPRECIATED THE FACTS OF THE CASE AND CLAI MS OF THE ASSESSEE IN THE LIGHT OF THE ORDER OF THE ITAT IN THE EARLIE R YEAR AND HAS GIVEN APPROPRIATE DIRECTION TO AVOID DOUBLE CLAIMS IN THIS REGARD. WE HAVE NO REASON TO INTERFERE AS THE SAME IS BASED ON THE DECISION OF THE ITAT IN THE EARLIER YEARS. WE THEREFORE CONFIRM HIS ACTION. 32. THE NEXT DISPUTE IN THE REVENUES APPEAL RELATES TO AN ADDITION OF ` 4,65,02,993 MADE BY THE AO ON ACCOUNT OF ALLEGED EXCESS CONSUMPTION OF RAW MATERIALS AND COMPONENTS. DURING THE YEAR UNDER CONSIDERATION , THE ASSESSEE SUBMITTED BEFORE THE EXCISE AUTHORITIES THAT THE STOCK OF SOM E ITEMS OR RAW MATERIALS AND COMPONENTS AS ON 31.3.2005 WHICH WERE FOU ND ON PHYSICAL VERIFICATION WAS LESS THAN THE STOCK AS PER THE STOCK RECOR DS BY `4.65 CRORES. IT WAS ALSO SUBMITTED TO THE EXCISE AUTHORITIES THAT THE PHYSICAL STOCK OF SOME ITEMS WAS ACTUALLY MORE THAN THE STOCK AS PER STOCK REGISTE R BY `3.99 CRORES. ON THE BASIS OF THIS SUBMISSION OF ASSESSEE, THE EXCISE AUTHORITI ES ISSUED A SHOW CAUSE NOTICE HOLDING THAT THE ASSESSEE HAS CLEARED/REMOVED ITA NO.1927 & 2188/DEL/201O 25 INPUTS VALUED AT `4,65,02,993/- IN CONTRAVENTION OF VARIOUS R ULES OF THE CENVAT CREDIT RULES AND THE CENTRAL EXCISE RULES, 2002. BASED ON T HE SAID SHOW CAUSE NOTICE OF EXCISE AUTHORITIES, THE AO HELD THAT THERE IS AN EXCESS CONSUMPTION CLAIMED BY THE ASSESSEE TO THE TUNE OF `4,65,02,993 A ND TO THAT EXTENT, ADDITION WAS MADE. IT WAS CLAIMED BEFORE THE CIT(A) TH AT THE ADDITION IS BASED ON SIMPLE SHOW CAUSE NOTICE AND THE ASSESSEE IS MAINTAINING S TOCK REGISTER ON A COMPUTERIZED SYSTEM. NO DISCREPANCY HAS BEEN FOUND IN RESPECT OF SAID STOCK REGISTER. EXPLAINING THE ACCOUNTING OF CONSUMPTION, IT IS STATED THAT THE AMOUNT OF CONSUMPTION DEBITED TO PROFIT AND LOSS ACCOUNT I S DERIVED BY ADDING TO THE OPENING STOCK, THE PURCHASES MADE AND REDUCING THEREFROM THE CLOSING STOCK AS PER PHYSICAL INVENTORY. ALL THE THREE FIGURES I.E. OPENING STOCK, PURCHASES MADE BY THE ASSESSEE AND THE CLOSING STOCK ARE NOT DISPUTED BY THE AO AND THEREFORE, THE AMOUNT OF CONSUMPTION DEBITED TO PROFIT AND LOSS ACCOUNT SHOULD HAVE BEEN ACCEPTED BY THE AO. THERE I S NO ALLEGATION BY THE AO THAT THE ALLEGED EXCESS CONSUMPTION OF RAW MAT ERIAL OR COMPONENTS WAS CLANDESTINELY REMOVED FROM THE FACTORY OR HAD BEEN USED ITA NO.1927 & 2188/DEL/201O 26 FOR PRODUCTION AND SALE OF FINISHED GOODS OUTSIDE THE BOOKS OF ACCOUNTS. IT IS NOT THE CASE OF THE AO THAT THERE IS ANY SUPPRESSION OF SALES. TH E ADDITION MADE WAS CLAIMED TO BE MISCONCEIVED AND UNTENABLE. IN ANY CASE, TH E NEGATIVE VARIANCE WAS ONLY 0.6% OF THE TOTAL CONSUMPTION DEBITED TO THE PROFIT AND LOSS ACCOUNT WHICH IS WELL WITHIN THE TOLERABLE LIMI TS AS LAID DOWN BY CESTAT. IT WAS STATED THAT THE HONBLE CUSTOMS, EXCISE AN D SERVICE TAX APPELLATE TRIBUNAL (CESTAT) IN THE ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2000-01 HELD THAT NO EXCISE DEMAND CAN BE RAISED AS THE SHORTAGE S WERE IN THE TOLERABLE LIMITS. FOLLOWING THAT ORDER OF THE CESTAT FOR A Y 2000-01, AN IDENTICAL ADDITION MADE BY THE AO IN THE AY 2000-01, HAS BEEN DELETED BY THE TRIBUNAL. IDENTICAL ADDITIONS SUBSEQUENTLY HAVE BEEN DELETED BY ITAT FOR AY 2001-02 AND 2004-05 ON THE SAME REASONING AND BY THE CI T(A) FOR AY 2002-03. LD. CIT(A) AFTER GOING THROUGH THIS HISTORICAL PERSPECTIVE ON THE ISSUE, FINDS FORCE IN THE ARGUMENT OF THE ASSESSEE IN THE LIGHT OF T HE TRIBUNAL ORDER FOR AY 2004-05 AND THE ALLEGED CONSUMPTION OF RAW MATERIAL IS 0.06% ONLY WHEREAS THE EXCISE TRIBUNAL IN THE AY 2000-01 HAS ACCE PTED SUCH ITA NO.1927 & 2188/DEL/201O 27 TOLERANCE LIMIT AT 0.24%. THE CIT(A) ACCEPTED THE CONTENTION S OF THE ASSESSEE AND DELETED THE ADDITION MADE. 33. WE HAVE HEARD BOTH THE SIDES. LD. DR HEAVILY RELIED UPO N THE DISCUSSIONS IN THE ORDER OF THE AO AND JUSTIFIED THE ADDITION WHEREAS L D. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HAS FILED THE COPIES OF T HE ORDER OF THE TRIBUNAL FOR AY 2000-01 AND 2004-05 WHERE THE IDEN TICAL ADDITIONS HAVE BEEN DELETED. 34. WE HAVE GONE THROUGH ALL THESE ORDERS WHICH ARE IN THE PA PER BOOK AND DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN DELE TING THE ADDITION. THE NEGATIVE VARIANCE IS ONLY 0.06% OF THE TOTAL CON SUMPTION OF RAW MATERIAL AND COMPONENTS WHICH IS WELL WITHIN THE TOLERABLE LI MITS AS LAID DOWN BY CESTAT AND IN THAT CASE CESTAT HELD THAT NO EXCISE DEMAND CAN BE RAISED AS THE SHORTAGES WERE IN THE TOLERABLE LIMITS. THE TRIBUN AL APPRECIATED THE ORDER OF THE CESTAT AND DELETED THE IDENTICAL ADDITION. THE ORDE R OF THE CIT(A), IN OUR VIEW, DOES NOT REQUIRE ANY INTERFERENCE. THE SAME IS UPHELD. THE ADDITION, IN OUR VIEW, IS MISCONCEIVED AND WITHOUT HAVING REGARD TO THE ITA NO.1927 & 2188/DEL/201O 28 PRACTICAL REALITIES OF THE BUSINESS AND THE MAGNITUDE OF THE TURN OVER OF THE ASSESSEE. 35. THE NEXT DISPUTE IN THE REVENUES APPEAL RELATES TO THE DISALLOWANCE MADE BY THE AO U/S 35DDA OF THE ACT AMOUNTING TO ` 3 8,63,64,348/-. 36. THE FACTS ARE THAT THE ASSESSEE COMPANY HAD OFFERED TWO VOLUNTA RY RETIREMENT SCHEMES TO ITS EMPLOYEES. THE SCHEME WAS OFFERED IN THE PREVIOUS YEAR 2001-02 WHEREIN THE TOTAL PAYMENT MADE TO EMPLOYEE S WAS ` 73,60,47,559/-. THE SECOND SCHEME WAS OFFERED IN THE FINANCIA L YEAR 2003-04 WHEREIN THE TOTAL PAYMENT MADE TO THE EMPLOYEES WAS ` 119,5 7,74,181/-. THE ASSESSEE COMPANY CLAIMED DEDUCTION FOR THESE VRS PAYMENTS U/S 35DDA OF THE ACT. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEES CLAI M OF PAYMENT OF ` 38,63,64,348/- WORKS OUT AS FOLLOWS:- ITA NO.1927 & 2188/DEL/201O 29 37. THE AO DISALLOWED THE AFORESAID CLAIM FOR THE AY 2004-05 ON THE BASIS OF HIS OWN STAND TAKEN IN THE EARLIER ASSESSMENT YEARS WHERE IN HE HELD THE SAME TO BE VIOLATIVE OF PROVISIONS OF SECTION 35DDA OF THE ACT. THE LD. CIT(A), HOWEVER, WAS OF THE VIEW THAT THE PAYMENTS UNDER THE VRS SCHEME ARE ALLOWABLE AS DEDUCTION. FOR THIS PURPOSE, HE RELIED UPON THE ORDER OF THE ITAT FOR AY 2004-05. THE REVENUE IS AGGRIEVED. 38. WE HAVE HEARD BOTH THE SIDES AND ARE UNABLE TO FIND ANY IN FIRMITY IN THE ORDER OF THE CIT(A). THE PROVISIONS OF SECTION 35DDA ARE SPECIFIC PROVISIONS FOR AMORTIZATION OF EXPENDITURE INCURRED UNDER VOLUNTA RY RETIREMENT SCHEME. THE PROVISIONS AS CONSTRUED BY THE TRIBUNAL I N THE AY 2004-05 ARE CLEAR AND THE PAYMENTS MADE BY THE ASSESSEE ARE CLEARLY COVERED UNDER THE AFORESAID PROVISIONS. WHEN ONCE THE PAYMENT IS TO BE PR OCESSED UNDER THESE PROVISIONS, THE SAME PAYMENTS CANNOT BE CONSIDERED AND AL LOWED U/S 37(1) OF THE ACT. THE RELIANCE OF AO ON RULE 2BA FOR DISALL OWING THE ASSESSEES CLAIM U/S 35DDA WAS CLEARLY MISPLACED. THOSE RULES ARE RELEVANT AND CONTAIN GUIDELINES FOR THE PURPOSES OF SECTION 10(10C) AND THE SAME ARE ITA NO.1927 & 2188/DEL/201O 30 NOT RELEVANT WHILE PROCESSING THE CLAIM FOR DEDUCTION U/S 35DDA OF THE ACT. THE ASSESSEES GROUND IN THE LIGHT OF THESE DISCUSSIONS WAS ACCEPTED. THE ISSUE AND FACTS OF THE YEAR UNDER CONSIDERATION REMAINING THE SAME , WE FOLLOW OUR OWN EARLIER ORDER AND CONFIRM THE ORDER OF THE CIT(A). 39. THE NEXT DISPUTE RELATES TO THE DISALLOWANCE OF EXPENDITURE INCURRED BY THE ASSESSEE ON CLUB MEMBERSHIP FEE TO THE EXTENT OF ` 15, 95,844. THE ASSESSEE HAS INCURRED THESE EXPENDITURE ON SUBSCRIPTION TO CLUBS PROVIDED T O VARIOUS EMPLOYEES AND DIRECTORS. THE EXPENDITURE IS CLAIMED TO HA VE BEEN INCURRED FOR BUSINESS PURPOSES ON GROUNDS OF COMMERCIAL EXPEDIENCY. ACCORDING TO THE ASSESSEE, THERE WERE CONTRACTUAL OBLIGATIONS INCURRE D ON ACCEPTED BUSINESS PRACTICES PREVAILING IN THE BUSINESS. IT WAS CLAIMED T HAT THERE IS NO ELEMENT OF ANY PERSONAL BENEFIT BEING GRANTED EIT HER TO THE DIRECTOR OR ASSESSEE. THESE AMOUNTS WERE INCURRED OUT OF BUSINESS NECESS ITY. IDENTICAL CLAIMS HAVE BEEN ACCEPTED BY THE TRIBUNAL IN THE ASSE SSEES OWN CASE FOR AY 2001-02, BY RELYING UPON THE FOLLOWING JUDGEMENTS:- OTIS ELEVATORS CO. (INDIA) LTD. VS CIT 195 ITR 682 (BOM) ITA NO.1927 & 2188/DEL/201O 31 AMERICAN EXPRESS INTERNATIONAL BANKING CORPORATION V CIT 258 ITR 601 (BOM) CIT VS SUNDHARAM INDUSTRIES LTD. 240 ITR 335 (MAD) DCIT V MAX INDIA LTD (2007) 112 TTJ (ASR.) 726 40. AFTER HEARING BOTH THE PARTIES AND GOING THROUGH THE RECORDS, W E HAVE NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) WHO HAS JUST FOLLOWED THE TRIBUNAL ORDER AND THE BINDING DECISION OF THE DELHI HIGH C OURT IN RESPECT OF THE ISSUE IN QUESTION. THE ORDER OF THE CIT(A) ON THIS ISSUE IS THEREFORE CONFIRMED BY HOLDING THAT THE EXPENDITURE IN QUESTION WAS INCURRE D FOR BUSINESS PURPOSES OF THE ASSESSEE AND WARRANTED BY BUSINESS NECESSITIES AND EXIGENCIES, SUCH EXPENSES CANNOT BE SUBJECT TO ANY ARBITRARY DISALLOWA NCE. 41. THE LAST DISPUTE IN THE REVENUES APPEAL RELATES TO THE SALES TAX SUBSIDY OF ` 16,04,07,733/- RECEIVED BY THE ASSESSEE COMPANY DURING THE Y EAR UNDER CONSIDERATION. ACCORDING TO THE ASSESSEE, THE SAID RECEIPT REPRESENTED TO BE CAPITAL IN NATURE AND THEREFORE SHOULD BE EXCLUDED FROM THE TAXABL E INCOME. AT THIS STAGE, IT MAY BE MENTIONED THAT THE ASSESSEE HAS INCLUDED THE TAX ITA NO.1927 & 2188/DEL/201O 32 CONCESSION IN THE GROSS TOTAL INCOME OF ` 1347,51,71,142/-. ACCORDI NG TO THE LD. COUNSEL FOR THE ASSESSEE, THE SAME WAS ERRONEOUSLY OFFERED AS INCOME IN THE RETURN OF INCOME FILED FOR THE RELEVANT ASSESSMENT YEAR. T HAT THE CLAIM OF THE ASSESSEE WAS BASED ON A SUBSEQUENT DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS PONNI SUGARS AND CHEMICALS LTD. (2006) 306 ITR 392. THE ASSESSEE, IN THIS CONNECTION, HAS SUBMITTED A LETTER DAT ED 1.12.2008 BEFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS STATING THAT T HE AFORESAID RECEIPT, BEING IN THE NATURE OF CAPITAL RECEIPT, MAY BE REDUCED FROM THE TOTAL INCOME. THE AO, HOWEVER, DID NOT ADJUDICATE THE SAID CLAIM IN THE FORM OF A DISCUSSION IN THE ASSESSMENT ORDER. FEELING AGGRIEVED, THE ASSESSEE CARRIED THE ISSUE BEFORE THE CIT(A) WHO HELD THAT THE AO SHOULD H AVE ADJUDICATED UPON THE CLAIM OF THE ASSESSEE THAT WAS MADE DURING THE COURSE OF ASSESSMENT PROCEEDINGS. MORE SO, WHEN THE ASSESSEE DID NOT HAVE THE BENEFIT OF THE DECISION OF THE APEX COURT IN THE CASE OF CIT VS PON NI SUGARS & CHEMICALS LTD.(SUPRA) AT THE TIME OF FILING OF RETURN. FURTH ER, ON MERIT, THE CIT(A) HELD THE ISSUE IN FAVOUR OF THE ASSESSEE, AS ACCORDING TO HIM, THE ITA NO.1927 & 2188/DEL/201O 33 ASSESSEES CASE IS FULLY COVERED BY THE DECISION OF THE APEX COURT IN THE CASE OF PONNI SUGARS (SUPRA). FOR THIS, THE FOLLOWING FACTS WERE NOTED BY T HE LD. CIT(A):- 20.6 THE FACTS ARE THAT SECTION 25A OF THE HARYANA GENERAL SALES TAX LTD., 1973 (ANNEXURE -1) EMPOWERS THE STATE GOVERNMENT TO GRANT SALES TAX CONCESSION AND, ALSO CONVERT SALES TAX CONCESSION INTO CAPITAL SUBSIDY. IN PURSUANCE TO THE ABOVE, RULE 28C OF HARYANA GENERAL SALES TAX RULES 1975 (ANNEXURE-2) PROVIDED FOR CONCESSION OF TAX PAYABLE UNDER THE ACT TO AN ELIGIBLE INDUSTRIAL UNIT. ELIGIBLE UNIT HAS BEEN DEFINED IN CLAUSE (C) OF RULE 28C(3) OF HARYANA GENERAL SALES TAX RULES 1975. RULE 28C THEREFORE, PROVIDES FOR SALES TAX CONCESSION TO A NEW INDUSTRIAL UNIT OR UNIT UNDERTAKING EXPANSION OR DIVERSIFICATION SUBJECT TO FULFILLMENT OF OTHER CONDITIONS. EXPANSION TOO HAS BEEN DEFINED IN CLAUSE (F) OF RULE 28C(3) OF HARYANA GENERAL SALES TAX RULES 1975. THE OBJECTIVE OF GRANT OF THE SUBSIDY BY WAY OF SALES TAX CONCESSION UNDER RULE 28C OF THE HARYANA SALES TAX RULES IS TO GIVE ASSISTANCE TO THE ASSESSEE FOR ESTABLISHMENT OF A NEW INDUSTRIAL UNIT OR FOR SUBSTANTIAL EXPANSION OF AN EXISTING INDUSTRIAL UNIT. THE OBJECT OF THE GRANT OF SAID SUBSIDY IS ALSO MADE CLEAR BY INDUSTRIAL POLICY 1999 ISSUED BY DEPARTMENT OF INDUSTRIES, GOVERNMENT OF HARYANA WHICH SPECIFICALLY STATE THAT ONE OF THE OBJECTIVES OF SAID POLICY, PURSUANT TO WHICH THE SAID CONCESSION/SUBSIDY GRANTED IS ATTRACTING NEW INVESTMENT AND GROWTH OF EXISTING INDUSTRIES. ITA NO.1927 & 2188/DEL/201O 34 20.7 SINCE THE APPELLANT HAD UNDERTAKEN EXPANSION IN TERMS OF THE ABOVE RULE 28C, THE HIGH POWERED COMMITTEE IN A MEETING ON 14.06.2001 GRANTED SALES TAX CONCESSION TO IT, WHEREBY IT WAS TO PAY 50% OF THE SALES TAX COLLECTED ON SALE OF FINISHED PRODUCTS FROM EXPANDED UNIT AND RETAIN 50% BUT MAXIMUM BENEFIT PERMISSIBLE WAS `564.35 CRORES. IN PURSUANCE TO THE ABOVE, THE APPELLANT WAS ALSO ISSUED ENTITLEMENT CERTIFICATE DATED 01.08.2001 (ENCLOSED AT ANNEXURE-5 OF THE WRITTEN SUBMISSION ON THIS GROUND BY THE LD. ARS) UNDER RULE 28C OF HARYANA GENERAL SALES TAX RULES, 1975 TO AVAIL SALES TAX CONCESSION TO THE EXTENT OF ` 564.35 CRORES DURING THE PERIOD 01.08.2001 TO 31.07.2015. FOR THE INSTANT ASSESSMENT YEAR, THE COMPANY ACCORDINGLY RETAINED ` 16,04,07,773/- OUT OF THE SALES TAX COLLECTED ON SALE OF FINISHED PRODUCTS FROM EXPANDED UNIT AND, BUT DECLARED THE SAME ERRONEOUSLY AS INCOME UNDER THE HEAD SALES TAX BENEFIT AS SEEN FROM SCHEDULE 16 (OTHER INCOME) TO THE PROFIT AND LOSS ACCOUNT PREPARED FOR THE FINANCIAL YEAR 2004-2005 RELEVANT TO THE INSTANT ASSESSMENT YEAR. IN THE CASE OF CIT VS PONNI SUGARS AND CHEMICALS LTD. 306 ITR 392 (2008)/ 174 TAXMAN 87 (SC), THE HONBLE SUPREME COURT HAS SAID PRESCRIBED THE TEST FOR THE PURPOSE OF DETERMINING WHETHER THE SUBSIDY IS IN THE NATURE OF A CAPITAL RECEIPT. IT HAS BEEN STATED IN THE HEADNOTE THAT:- THE CHARACTER OF THE RECEIPT OF A SUBSIDY IN THE HANDS OF THE ASSESSEE UNDER A SCHEME HAS TO BE DETERMINED WITH RESPECT TO THE PURPOSE FOR WHICH THE SUBSIDY IS GRANTED. IN OTHER WORDS, ONE HAS TO APPLY THE PURPOSE TEST. THE ITA NO.1927 & 2188/DEL/201O 35 POINT OF TIME AT WHICH THE SUBSIDY IS PAID IS NOT RELEVANT. THE SOURCE IS IMMATERIAL. IF THE OBJECT OF THE SUBSIDY IS TO ENABLE THE ASSESSEE TO RUN THE BUSINESS MORE PROFITABLY THEN THE RECEIPT IS ON REVENUE ACCOUNT. ON THE OTHER HAND, IF THE OBJECT OF THE ASSISTANCE UNDER THE SUBSIDY SCHEME IS TO ENABLE THE ASSESSEE TO SET UP A NEW UNIT OR TO EXPAND AN EXISTING UNIT, THEN THE RECEIPT OF THE SUBSIDY WOULD BE ON CAPITAL ACCOUNT. 20.8 EXAMINING THE FACTS OF THE APPELLANTS CASE IN THE LIGHT OF THE ABOVE RATIO, I FIND THAT THE APPELLANTS CASE IS SQUARELY COVERED BY THE RATIO OF THE HONBLE APEX COURTS JUDGEMENT. THE AO IS DIRECTED TO ALLOW THE CLAIM IN LIGHT OF THIS JUDGEMENT. 42. LD. DR STRONGLY SUPPORTED THE DEPARTMENTAL STAND. THE ASSESSEE HAD NOT FILED ANY REVISED RETURN AND THE AO HAS GONE BY THE RETURN OF INCOME AS FILED BY THE ASSESSEE. THE AMOUNTS IN QUESTION ARE PART OF THE RE VENUE RECEIPT AS ACCEPTED BY THE ASSESSEE IN THE PROFIT & LOSS ACCOUNT. THE SUBSIDY WAS GRANTED IN RESPECT OF THE SALES TAX COLLECTED BY THE ASSESSEE AND WAS A PART OF A TRADING RECEIPT AND THE REIMBURSEMENT THEREOF, ACCORDING TO THE LD. DR, CONSTITUTE THE REVENUE INCOME CHARGEABLE TO TAX IN THE L IGHT OF THE ITA NO.1927 & 2188/DEL/201O 36 DECISION IN THE CASE OF SAHNEY STEEL AND PRESS WORKS LTD. AND OTH ERS VS CIT 228 ITR 253. 43. LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, DREW OUR ATTE NTION TO THE PREAMBLE TO THE INDUSTRIAL POLICY WHICH IS PLACED AT PAGE N O. 2577 ISSUED BY THE GOVERNMENT OF HARYANA. IT WAS STATED THAT THE SAID POL ICY WAS AIMED AT CONSOLIDATING THE PAST PROGRESS IN THE INDUSTRIAL POLICY STATEME NT OF 1992 WHICH FOCUSED ON PROVIDING INCENTIVES FOR ATTRACTING INVESTMENT IN T HE INDUSTRIAL SECTOR. THE OBJECTIVE OF THE INDUSTRIAL POLICY 1999 WAS STATED TO BE:- A) TO ATTRACT NEW INVESTMENTS AND GROWTH OF EXISTING INDUSTRY; B) GENERATION OF EMPLOYMENT IN INDUSTRIAL AND ALLIED SECTOR BY 20% IN THE NEXT FIVE YEARS. TO ACHIEVE THE AFORESAID OBJECTIVES, THE STATE GOVERNMENT IN T HE INDUSTRIAL POLICY PROPOSED TO INTER ALIA RATIONALIZE THE PACKAGE OF INCENTIVES, MAKING IT MORE EFFECTIVE AND MEANINGFUL FOR SPEEDY DEVELOPMENT OF THE STATE. 44. TO MONITOR THE IMPLEMENTATION OF THE POLICY, AN EMPOWERED COMMITTEE WAS CONSTITUTED UNDER THE CHAIRMANSHIP OF THE CHIEF SECRETARY TO ITA NO.1927 & 2188/DEL/201O 37 SUGGEST POLICY INITIATIVES AND FOR COORDINATING WITH VARIOUS DEPARTMEN TS OF THE GOVERNMENT TO ACHIEVE THE OBJECTIVES SET FORTH IN THE POLICY. I T WAS STATED THAT A CUSTOMIZED PACKAGE OF INCENTIVES AND CONCESSIONS WILL BE PROVIDED FOR PRESTIGIOUS PROJECTS HAVING AN INVESTMENT OF ` 30 CRORES AND ABOVE, WHICH WILL BE DECIDED BY A HIGH POWERED COMMITTEE. THE RELEVANT PROVISIONS FOR GRANTING THE SUBSIDY, AS CONTEMPLATED IN THE INDUSTRIAL POLICY, 19 99 ARE STATED TO BE AS UNDER:- (A) ATTRACTING NEW INVESTMENT AND GROWTH OF EXISTING INDUSTRIES; (B) GENERATION OF EMPLOYMENT IN INDUSTRIAL AND ALLIED SECTOR BY 20 PER CENT. 45. LD. COUNSEL, BASED ON THE INDUSTRIAL POLICY 1999 OF THE GOVE RNMENT OF HARYANA, ARGUED THAT TAXATION OF SUBSIDY, BY WHATEVER NAME CA LLED, IS DETERMINED BY THE PURPOSE FOR WHICH THE SUBSIDY IS GRANTED AND NOT T HE FORM/MODE/MANNER IN WHICH THE SUBSIDY IS RECEIVED/DISBURSED. 46. LD. COUNSEL FOR THE ASSESSEE STRONGLY RELIED UPON THE DECISION OF TH E HONBLE SUPREME COURT IN THE CASE OF PONNI SUGARS WHEREIN THE IR LORDSHIPS HAVE AGAIN REITERATED THAT THE PURPOSE FOR WHICH THE SUBSIDY IS GIVEN IS ONLY ITA NO.1927 & 2188/DEL/201O 38 RELEVANT FOR DETERMINING ITS NATURE. THE PURPOSE OF SUBSIDY IN T HE LIGHT OF THE ABOVE SUBMISSION WAS TO PROMOTE INDUSTRIAL DEVELOPMENT IN THE STATE BY PROMOTING ESTABLISHMENT OF A NEW INDUSTRIAL UNIT OR FOR SUBSTANTIAL EXPANSION OF AN EXISTING INDUSTRIAL UNIT. FURTHER RELIANCE WAS PLACED ON THE CLARIFICATION DATED 18.10.2001 ISSUED BY THE LT. DIRECTOR (LEGAL)-1, THE P ROHIBITION, EXCISE AND TAXATION COMMISSIONER, HARYANA WHICH PUTS THE MATTER BEYO ND ANY DOUBT THAT THE SUBSIDY GRANTED WAS IN THE NATURE OF CAPITAL SUBSIDY. OUR ATTENTION WAS INVITED TO THE DECISION OF THE BOMBAY HIGH COURT DECI SION IN THE CASE OF DCIT VS RELIANCE INDUSTRIES LTD. 2010-TIOL-228-HC -MUM AND THE DECISION OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V SIYA RAM GARG (HUF) 237 CTR 321 WHEREIN IDENTICAL ISSUES ARE DECIDED IN FAVOU R OF THE ASSESSEE. 47. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND GONE THROUGH THE RECORD INCLUDING THE SCHEME UNDER WHICH THE IMPUGNED SUBSIDY W AS RECEIVED BY THE ASSESSEE. THE CIT(A) WAS RIGHT IN HAVING COME T O THE CONCLUSION THAT WHEN THE ASSESSEE SIGNED A LETTER DATED 1.12.200 8 BEFORE THE ITA NO.1927 & 2188/DEL/201O 39 AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS WHEREIN IT WAS CLAIMED THAT THE DISPUTED RECEIPT BE EXCLUDED FROM THE TOTAL INCOME, WAS REQUIRED TO BE ADJUDICATED BY THE AO. MERELY BECAUSE THE ASSESSEE WRONGLY INCLUDED TH E INCOME IN THE RETURN OF INCOME, IT CANNOT BY ITSELF TAX THAT INCOME IN THAT YEAR EVEN THOUGH LEGALLY SUCH INCOME DID NOT PERTAIN TO THAT YEAR. THIS WAS HELD BY DELHI HIGH COURT IN THE CASE OF CIT VS BHARAT GENERAL REI NSURANCE CO. LTD. (1971) 81 ITR 303. AGAIN, THE DELHI TRIBUNAL IN THE CASE OF ACIT VS TECHNOFAB ENGG., RELYING UPON THE CBDT CIRCULAR NO. 14 DATED 11.4.1955 , HAS EXPRESSED THE VIEW THAT OFFICERS OF THE DEPARTMENT MUST NOT TAKE ADVANTAGE OF IGNORANCE OF AN ASSESSEE AS TO HIS RIGHTS. IT IS ONE OF THEIR DUTIE S TO ASSIST A TAXPAYER IN EVERY REASONABLE WAY, PARTICULARLY IN THE MAT TER OF CLAIMING AND SECURING RELIEFS AND IN THIS REGARD THE OFFICERS SHOULD TAKE THE I NITIATIVE IN GUIDING A TAXPAYER WHERE PROCEEDINGS OR OTHER PARTICULARS BEFORE THEM INDICATE THAT SOME REFUND/RELIEF IS DUE TO HIM. THE AO SHOULD HA VE THEREFORE ADJUDICATED UPON THE CLAIM OF THE ASSESSEE THAT WAS MADE DURING THE ASSESSMENT PROCEEDINGS, NOTWITHSTANDING THE FACT THAT THERE WAS NO REV ISED ITA NO.1927 & 2188/DEL/201O 40 RETURN FORTHCOMING FROM THE ASSESSEE. IN FACT, WHEN THE CLAIM OF T HE ASSESSEE WAS BASED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF PONNI SUGARS, THE AO SHOULD HAVE DISCUSSED THE ISSUE AND DECIDED. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE C IT(A) INSOFAR AS HE PROCEEDED TO DEAL WITH THE SAME AND MADE THESE OBSERVATIONS. NOW, COM ING TO THE MERITS OF THE MATTER, THE ASSESSEE HAS UNDERTAKEN AN EXPANSION IN TERMS OF RULE 28C OF GENERAL SALES TAX RULES 1975. THE OBJ ECTIVE OF THE GRANT OF SUBSIDY BY WAY OF SALES TAX CONCESSION WAS TO GIVE ASSISTANCE TO THE ASSESSEE FOR ESTABLISHING A NEW INDUSTRIAL UNIT OR FOR SUBSTANTIAL EXPA NSION OF AN EXISTING INDUSTRIAL UNIT. THE OBJECTIVE OF THE GRANT OF TH E SAID SUBSIDY WAS AGAIN MADE CLEAR BY THE INDUSTRIAL POLICY 1999 ISSUED BY THE DE PARTMENT OF INDUSTRIES, GOVT. OF HARYANA SPECIFICALLY STATING THAT ONE OF THE OBJECTIVES OF THE POLICY IS TO ATTRACT NEW INVESTMENT AND GROWTH OF THE EXISTI NG INDUSTRIES. THE HIGH POWERED COMMITTEE AT ITS MEETING ON 14.6.2001 GRANT ED SALES TAX CONCESSION TO IT WHEREBY THE ASSESSEE WAS REQUIRED TO PAY 50% OF THE TAX COLLECTED AND RETAIN 50% BUT THE MAXIMUM BENEFIT PERMISSIBLE ON ACCOUNT OF ITA NO.1927 & 2188/DEL/201O 41 FIRST EXPANSION I.E. RS.564.35 CRORE WOULD REMAIN THE CEILING. IN PURSUANCE THEREOF, THE ASSESSEE WAS ALSO ISSUED ENTITLEMENT CERTIFICATE UN DER RULE 28C OF THE HARYANA GENERAL SALES TAX RULES, 1975 TO AVAIL THE SALES TAX CONCESSION TO THE EXTENT OF ` 564.35 CRORES DURING THE PERIOD 1 .8.2001 TO 31.7.2015. THE SUPREME COURT IN THE CASE OF PUNNI SUGARS & CHEMICALS LTD. HAS LAID DOWN THE FOLLOWING PRINCIPLE AFTER ELABORATELY DISCUSSING IM PORTANCE OF THE JUDGEMENT OF THE SUPREME COURT IN THE CASE OF SAHNEY ST EEL AND PRESS WORKS LTD. AND OTHERS VS CIT 228 ITR 253 WHEREIN THEIR LORDSH IPS HAVE AGAIN STRESSED THE IMPORTANCE OF THE PURPOSE TEST. THEIR LORDSHIPS OF THE SUPR EME COURT AGAIN ANALYSED THE CASE OF THE HOUSE OF LORDS IN THE CASE OF SE AHAM HARBOUR DOCK CO. VS CROOK (1931) 16 TC 333:- IN THE DECISION OF THE HOUSE OF LORDS IN THE CASE OF SEAHAM HARBOUR DOCK CO. VS CROOK (1931) 16 TC 333, THE HARBOUR DOCK CO. HAD APPLIED FOR GRANTS FROM THE UNEMPLOYMENT GRANTS COMMITTEE FROM FUNDS APPROPRIATED BY PARLIAMENT. THE SAID GRANTS WERE PAID AS THE WORK PROGRESSED THE PAYMENTS WERE MADE SEVERAL TIMES FOR SOME YEARS. THE DOCK CO. HAD UNDERTAKEN THE WORK OF EXTENSION OF ITS DOCKS. THE EXTENDED DOCK WAS FOR RELIEVING THE UNEMPLOYMENT. THE MAIN PURPOSE WAS RELIEF FROM ITA NO.1927 & 2188/DEL/201O 42 UNEMPLOYMENT. THEREFORE, THE HOUSE OF LORDS HELD THAT THE FINANCIAL ASSISTANCE GIVEN TO THE COMPANY FOR DOCK EXTENSION CANNOT BE REGARDED AS A TRADE RECEIPT. IT WAS FOUND BY THE HOUSE OF LORDS THAT THE ASSISTANCE HAD NOTHING TO DO WITH THE TRADING OF THE COMPANY BECAUSE THE WORK UNDERTAKEN WAS DOCK EXTENSION. ACCORDING TO THE HOUSE OF LORDS, THE ASSISTANCE IN THE FORM OF A GRANT WAS MADE BY THE GOVERNMENT WITH THE OBJECT THAT BY ITS USE MEN MIGHT BE KEPT IN EMPLOYMENT AND, THEREFORE, ITS RECEIPT WAS CAPITAL IN NATURE. THE IMPORTANCE OF THE JUDGEMENT LIES IN THE FACT THAT THE COMPANY HAD APPLIED FOR FINANCIAL ASSISTANCE FROM TIME TO TIME AS THE WORK PROGRESSED AND THE PAYMENTS WERE EQUIVALENT TO HALF THE INTEREST FOR TWO YEARS ON APPROVED EXPENDITURE MET OUT OF LOANS. EVEN THOUGH THE PAYMENT WAS EQUIVALENT TO HALF THE INTEREST AMOUNT PAYABLE ON THE LOAN (INTEREST SUBSIDY) STILL THE HOUSE OF LORDS HELD THAT MONEY RECEIVED BY THE COMPANY WAS NOT IN THE COURSE OF TRADE BUT WAS OF CAPITAL NATURE. THE JUDGEMENT OF THE HOUSE OF LORDS SHOWS THAT THE SOURCE OF PAYMENT OR THE FORM IN WHICH THE SUBSIDY IS PAID OR THE MECHANISM THROUGH WHICH IT IS PAID IS IMMATERIAL AND THAT WHAT IS RELEVANT IS THE PURPOSE FOR PAYMENT OF ASSISTANCE. ORDINARILY, SUCH PAYMENTS WOULD HAVE BEEN ON REVENUE ACCOUNT BUT SINCE THE PURPOSE OF THE PAYMENT WAS TO CURTAIL/BLITERATE UNEMPLOYMENT AND SINCE THE PURPOSE WAS DOCK EXTENSION, THE HOUSE OF LORDS HELD THAT THE PAYMENT MADE WAS OF CAPITAL NATURE. ONE MORE ASPECT NEEDS TO BE MENTIONED. IN SAHNEY STEEL AND PRESS WORKS LTD., THIS COURT FOUND THAT THE ASSESSEE WAS FREE TO USE THE MONEY IN ITS BUSINESS ENTIRELY ITA NO.1927 & 2188/DEL/201O 43 AS IT LIKED. IT WAS NOT OBLIGED TO SPEND THE MONEY FOR A PARTICULAR PURPOSE. IN THE CASE OF SEAHAM HARBOUR DOCK CO., THE ASSESSEE WAS OBLIGED TO SPEND THE MONEY FOR EXTENSION OF ITS DOCKS. THIS ASPECT IS VERY IMPORTANT. IN THE PRESENT CASE ALSO, RECEIPT OF THE SUBSIDY WAS CAPITAL IN NATURE AS THE ASSESSEE WAS OBLIGED TO UTILIZE THE SUBSIDY ONLY FOR REPAYMENT OF TERM LOANS UNDERTAKEN BY THE ASSESSEE FOR SETTING UP NEW UNITS/EXPANSION OF EXISTING BUSINESS. APPLYING THE AFORESAID TEST LAID DOWN BY THE SUPREME COURT TO THE FA CTS OF THE CASE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A ) WHO CORRECTLY CAME TO THE CONCLUSION THAT THE SUBSIDY IN QUESTION VIEWED FROM THE ANGLE OF THE PROVISIONS OF SECTION 25A OF THE HARYANA GENERAL SALES TAX ACT, 1973 READ WITH INDUSTRIAL POLICY 1999 OF THE GOVERNMENT OF HARYAN A, THE SUBSIDY RECEIPT IN QUESTION ARE PART OF CAPITAL RECEIPT GIVEN BY THE STAT E GOVERNMENT FOR THE PURPOSE OF MEETING THE OBJECTIVES OF INDUSTRIAL POLICY 1999, VIZ. TO ATTRACT NEW INVESTMENT AND TO ENSURE GROWTH OF EXISTING INDUSTRI ES SO THAT THEY CAN GENERATE EMPLOYMENT IN INDUSTRIAL AND ALLIED SECTOR BY 20%. THE ENTIRE PACKAGE OF INCENTIVES SHOULD BE READ AS FOCUSING ON PROVIDING ITA NO.1927 & 2188/DEL/201O 44 INCENTIVES FOR INVESTMENT OF INDUSTRIAL SECTOR TO ACHIEVE EFFECTIVE , MEANINGFUL AND SPEEDY DEVELOPMENT OF THE STATE. THEREFORE, THE ASSESSEES RET ENTION OF RS. 16.04 CRORE OUT OF THE SALES TAX COLLECTED ON SALE OF FINISHED PRODU CTS FROM EXPANDED UNIT IS PART OF CAPITAL RECEIPT UNDER THE SUBSIDY SCHEME OF T HE GOVT. OF HARYANA. IN THE LIGHT OF PRINCIPLE LAID DOWN BY THE APEX COUR T IN THE CASE OF PONNI SUGARS AS ALSO THE DECISION OF THE RELIANCE INDUSTRIES OF T HE BOMBAY HIGH COURT CITED SUPRA, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A). 48. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLO WED AND THE APPEAL OF THE REVENUE IS ALLOWED. ITA NO.1927 & 2188/DEL/201O 45 DECISION PRONOUNCED IN THE OPEN COURT ON 19 AUGUST, 2011. SD/- SD/- (RAJPAL YADAV) (G.E.VEERABHADRAPPA) JUDICIAL MEMBER VICE PRESIDENT DATED : 19.08.2011. GS COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR ITA NO.1927 & 2188/DEL/201O 46
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