ACIT, Chandigarh V. M/s Punjab State Civil Supply Corp. Ltd., Chandigarh

ITA 223/CHANDI/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5153 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 01-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: SSH MUNISH KHULLER; J S JAIDKA
• Keywords: Principle of natural justice; Additional evidence; Notional interest

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER & MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO. 223/CHD/2017 ASSESSMENT YEAR: 2012-13 THE ACIT, CIRCLE 4(1), VS. M/S PUNJAB STATE CIVIL SUPPLY CHANDIGARH CORP LTD., SCO 36-40, SECTOR 34-A, CHANDIGARH PAN NO. AACCP 0651P (APPELLANT) (RESPONDENT) APPELLANT BY : SH. MANJIT SINGH, SR DR RESPONDENT BY : S/SH. MUNISH KHULLER & J.S. JAIDKA , ADV. DATE OF HEARING : 13.02.2018 DATE OF PRONOUNCEMENT : 22.03.2018 ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVENU E AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S), CHANDIGARH [HEREINAFTER REFERRED TO AS CIT(A)]-2, CHANDIGARH D ATED 15.11.2016. 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL:- IV) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING APPEAL OF THE ASSESSEE WITHOUT APPRECIATING THE FACTS OF THE CASE . V) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. C1T(A) HAS ERRED IN DELETING THE DISALLOWANCE O F RS. 17,47,28,740/- MADE FOR NON-MAKING OF PROVISION OF 2 INTEREST ON OUTSTANDING AMOUNT OF RS. 39,30,00,000/ -- RECEIVABLE FROM STATE GOVT. VI) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.52,60,76,680/- MADE FOR NON-MAKING OF PROV ISION OF INTEREST ON OUTSTANDING AMOUNT OF RS. 3,97 ,94,00,000/- RECEIVABLE FROM FCI. VII.) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.6,76,49,000/- ON ACCOUNT OF PRIOR PERIOD EXPENSE S WHICH THE ASSESSEE HAD CLAIMED THAT THE SAME HAD BEEN SET OFF AGAINST PRIOR PERIOD INCOME WHEN THE ASSESSEE HAS B EEN FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING WITHOUT APPRECIATING HOW THE PRIOR PERIOD INCOME WAS ACCOUN TED FOR IN THE PARTICULAR ASSESSMENT YEAR UNDER MERCANTILE SYSTEM OF ACCOUNTING AND WITHOUT VERIFYING AS TO WHETHER THE SAID EXPENSES WERE SET-OFF AGAINST THE INCOME DERIVED DU RING THE RELEVANT ASSESSMENT YEAR ONLY. V) IT IS PRAYED THAT THE ORDER OF LD. CIT(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. 2. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO GROUND NOS. 2 & 3 [NUMBERED AS (V) AND (VI)] AND HAS STATED THAT THE ISSUE INVOLVED THEREIN IS RELATING TO THE INTEREST DISALLOWANCE ON NOTIONAL BASIS ON THE AMOUNT RECEIVABLE BY THE ASSE SSEE FROM STATE GOVERNMENT AS WELL AS FROM FCI. THE ASSESSING OFFIC ER NOTICED THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING AND THAT THE INTEREST PAID BY THE ASSESSEE HAS BEEN ACCOUNTED FO R ON MERCANTILE BASIS AND, THEREFORE, ASSESSEE WAS SUPPOSED TO CHARGE / M AKE PROVISION OF INTEREST ON THE AMOUNT RECOVERABLE FROM THE STATE G OVERNMENT & FCI. THE LD. COUNSEL HAS SUBMITTED THAT THE ISSUE IS SQUAREL Y COVERED BY THE DECISION OF THE TRIBUNAL IN EARLIER ASSESSMENT YEAR S. HE INVITED OUT ATTENTION TO PARA 6.1 OF THE IMPUGNED ORDER AND STA TED THAT LD. CIT(A) HAS 3 FOLLOWED THE DECISION OF THE TRIBUNAL DATED 20.9.20 13 PASSED IN ITA NOS 208 & 209/CHD./2013. 3. THE LD. DR, ON THE OTHER HAND, HAS RELIED ON THE FINDINGS OF THE ASSESSING OFFICER. 4. WE HAVE GONE THROUGH THE ORDER OF THE TRIBUNAL D ATED 20.9.2013 WHEREIN, THE TRIBUNAL WHILE DELETING THE IDENTICAL ADDITIONS IN EARLIER YEARS HAS FURTHER RELIED UPON THE DECISION OF THE TRIBUNA L FOR ASSESSMENT YEAR 2007-08 IN ITA NO. 1183/CHD.2011. WE HAVE ALSO PERU SED THE ORDER OF THE TRIBUNAL DATED 11.5.2012 IN ITA NO.1183/CHD/2011 (S UPRA) WHEREIN THE TRIBUNAL WHILE DELETING THE ADDITION IN PARA 8, 9 & 10 HAS OBSERVED AS UNDER: 8. AFTER HEARING THE LD. REPRESENTATIVES OF BOTH T HE PARTIES, WE FIND THAT BOTH THE ISSUES RAISED VIDE GROUND NOS .1 & 2 OF THE APPEAL ARE COVERED IN FAVOUR OF THE ASSESSEE AN D AGAINST THE REVENUE BY THE DECISION OF THIS BENCH OF THE TR IBUNAL DATED 30.6.2010 PASSED IN ASSESSEES CASE IN ITA NO . 875/CHD/2009 RELATING TO ASSESSMENT YEAR 2006-07. IN THAT YEAR, A SUM OF RS. 1,71,20,58,413/- WAS OUTSTANDING FROM THE PUNJAB GOVERNMENT WHEREAS RS. 6,25,87,18,142/- WAS RECOVERABLE FROM FCI. THE ASSESSING OFFICER DISALL OWED NOTIONAL INTEREST AMOUNTING TO RS. 11,98,43,089/- A ND RS. 43,53,42,284/- ON ACCOUNT OF SAID INTEREST-FREE OUT STANDINGS / RECOVERABLES FROM PUNJAB GOVT. AND FCI RESPECTIVELY . ON APPEAL, THE CIT(A) OPINED THAT THE AMOUNTS RECOVERA BLE WERE TRADE DEBITS AND THEREFORE, THE ACTION OF THE ASSES SING OFFICER WAS SET ASIDE AND THE ADDITIONS MADE WERE DELETED. 9. IN SECOND APPEAL, THE TRIBUNAL UPHELD THE ORDER OF CIT(A) ON BOTH THE ISSUES OBSERVING AS UNDER:- 4 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFULLY. THE ASSESSEE BEFORE US IS A CO- OPERATIVE SOCIETY, WHICH IS AN AGENCY OF THE STATE GOVERNMENT FOR PROCUREMENT OF WHEAT AND PADDY. IT ALSO UNDERTAKES SUCH ACTIVITIES FOR FCI. IN THE COURSE OF CARRYING ON OF SUCH ACTIVITIES, IT INCURRED AMOUNTS WHICH WERE RECOVERABLE FROM THE STATE GOVERNMENT AND FCI. QUITE CLEARLY, SUCH RECOVERIES ARE ON ACCOUNT OF TRADING ACTIVITIES CARRIED OUT BY THE ASSESSEE. THEREFORE, THE AMOUNT OUTSTANDING FOR RECOVERY AT THE END OF THE YEAR ON ACCOUNT OF SUCH ACTIVITIES CANNOT BE EQUATED TO INTEREST-FREE ADVANCES SO AS TO REQUIRE THE SAME TO BE DECIDED IN TERMS OF SECTION 36(1)(III) OF THE ACT. IN THIS REGARD, THE CIT(APPEALS) HAS CATEGORICALLY HELD THAT THE PUNJAB GOVERNMENT AND FCI ARE TRADE DEBTORS AND INCOMES THEREOF HAVE BEEN OFFERED FOR TAXATION IN THE EARLIER ASSESSMENT YEARS. IN THE FACE OF SUCH A FACT SITUATION, WE FIND NO JUSTIFICATION FOR THE ASSESSING OFFICER TO MAKE ANY DISALLOWANCE OUT OF INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE ON ACCOUNT OF IMPUGNED DEBITS. HENCE, IN THIS BACKGROUND, WE HEREBY AFFIRM THE ORDER OF THE CIT(APPEALS). THUS, GROUND NOS. 3 & 4 RAISED ARE DISMISSED. 10. THE FACTS OF THE PRESENT CASE ARE SIMILAR TO T HAT OF ASSESSMENT YEAR 2006-07. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL PASSED IN ASSESSEES CASE FOR ASSESSMENT YEAR 2006-07 ((SUPRA), WE DO NOT FIND AN Y MERIT IN THE APPEAL PREFERRED BY THE REVENUE. ACCORDINGLY, WE DISMISS THE SAME. 5 5. WE FIND THAT THE FACTS AND ISSUE ARE SQUARELY CO VERED WITH THE ABOVE DECISION OF THE TRIBUNAL, HENCE, RESPECTFULLY FOLLO WING THE SAME, THE ISSUE RAISED VIDE GROUND NOS. 2 & 3 IS DECIDED AGAINST TH E REVENUE. 6. GROUND NO. 4 - A PERUSAL OF THE GROUND NO.4 (NUM BERED AS GROUND NO. (VII) REVEALS THAT THE SAME IS RELATING TO PRIO R PERIOD EXPENSE. THE LD. COUNSEL FOR THE ASSESSEE HAS STATED THAT ISSUE HAS BEEN SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN THE CASE OF WINS OME YARNS LTD ITA NO.541/P./2009-10 DATED 15.11.2010. THE LD. CIT(A) WHILE DECIDING THIS ISSUE HAS FOLLOWED THE ORDER OF THE TRIBUNAL IN AFO RESAID CASE. WE FIND THAT LD. CIT(A) WHILE DECIDING THE ISSUE IN FAVOUR OF T HE ASSESSEE HAS OBSERVED AS UNDER:- 8.3.1 THE ADDITIONAL EVIDENCE FILED BY THE ASSESS EE ARE ADMITTED IN THE INTEREST OF NATURAL JUSTICE. THE RE MAND REPORT OF A.O WAS GIVEN TO THE APPELLANT FOR MAKING SUBMISSIO N. THE SUBMISSION OF THE APPELLANT, REMAND REPORT AND THE ASSESSMENT ORDER HAVE BEEN CAREFULLY CONSIDERED. THE APPELLANT HAS PLACED RELIANCE ON THE DECISION OF HON'BLE ITAT, CHANDIGAR H BENCH IN THE CASE OF WINSOME YARNS LTD. APPEAL NO. 541/P/09- 10 DATE OF ORDER 15.11.2010. APPELLANT FILED COPY OF THE ORDER WHICH HAS BEEN PERUSED BY ME. THE SIMILAR ISSUE WAS CONSIDERE D AND DECIDED BY HON'BLE TRIBUNAL CHANDIGARH BENCH IN THE ABOVE ORDER AS UNDER:- 11. I HAVE CAREFULLY CONSIDERED RIVAL CONTENTIONS AND MATERIAL ON RECORD. I FIND THAT THE ASSESSING OFFIC ER DISALLOWED PRIOR PERIOD EXPENSES AMOUNTING TO RS. 10,70,480/- AS THE SAME WERE SET OFF AGAINST PRIOR PERIOD INCOME OF RS. 10,70,480/- SIMPLY STATING THAT FOLLO WING MERCANTILE SYSTEM OF ACCOUNTING, THE ASSESSEE SHOUL D HAVE CLAIMED EXPENSES IN THE RELEVANT ASSESSMENT YEAR. I N MY VIEW, THE ASSESSING OFFICER FAILED TO GIVEN REASON WHY PRIOR PERIOD INCOME COULD NOT BE SET OFF AGAINST TH E EXPENSES, WHILE ON THE OTHER HAND THE ASSESSING OFF ICER HAS NOT ONLY GIVEN ENOUGH REASON BUT HAS RELIED ON VARIOUS JUDICIAL DECISIONS WHEREIN PRIOR PERIOD INC OME WAS ALLOWED TO BE SET OFF AGAINST PRIOR PERIOD EXPE NSES. 6 THE PERTINENT OBSERVATION OF THE DECISION OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF MODI INDUSTRIES LTD. IN ITA NO. 2245/DEL/2007 IS EXTRACTED BELOW :- '7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT AS PER THE DETAILS FURNISHED BY THE ASSESSEE ON PAGE 19 OF THE PAPER BOOK, IN THE PRESENT YEAR, THE ASSESSEE HAS CLAIMED DEDUCTION ON ACCOUNT OF PRIOR PERIOD EXPENSES OF RS, 15.38 LACS AND AT THE SAME TIME, TH E ASSESSEE HAS OFFERED PREVIOUS YEAR INCOME TO THE EXTENT OF RS. 18.78 LAKHS. THIS SHOWS THAT INCOME OFFERED ON ACCOUNT OF PREVIOUS YEAR IS MORE THAN TH E CLAIM OF THE ASSESSEE RELATING TO PREVIOUS YEAR EXPENSES, IF THE PREVIOUS YEAR EXPENSES ARE NOT ALLOWABLE IN THE PRESENT YEAR THEN ON THE SAME LOGI C, PREVIOUS YEAR INCOME IS ALSO NOT ASSESSABLE IN THE PRESENT YEAR AND BOTH OF THEM SHOULD BE CONSIDERED IN THE RELEVANT YEAR. SINCE, THE ASSESSING OFFICER HAS ALREADY ASSESSED PREVIOUS YEAR INCOME IN THE PRESEN T YEAR, WE FIND NO REASON TO DISALLOW THE CLAIM OF TH E ASSESSEE REGARDING PREVIOUS YEAR EXPENSES SINCE THESE EXPENSES ARE LESSER THAN SUCH INCOMES, BUT TH E SAME TIME, THIS HAS TO BE SEEN AS TO WHETHER SUCH PREVIOUS YEAR EXPENSES ARE OTHERWISE ALLOWABLE OR NOT BECAUSE WE HAVE NOTED THAT SOME OF THE EXPENSES ARE ON ACCOUNT OF PENALTY AND SOME OF THE EXPENSES ARE INFRASTRUCTURE EXPENSES WHICH MAY NOT BE FOUND OTHERWISE ALLOWABLE. WE, THEREFORE, SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THE ISSUE AND RESTORE THIS MATTER BACK TO THE FI LE OF THE ASSESSING OFFICER FOR FRESH DECISION. THE ASSESSING OFFICER SHOULD EXAMINE THE NATURE OF THES E EXPENSES AND THE SAME SHOULD BE ALLOWED IF IT IS FOUND THAT THESE EXPENSES ARE OTHERWISE ALLOWABLE. THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTI CAL PURPOSE. (EMPHASIS SUPPLIED) 12 IN VIEW OF THE ABOVE DECISION, THE ADDITION ON THIS GROUND IS DELETED, ALLOWING ASSESSEE'S APPEAL .' 8.3.2 THE FACTS IN THE CASE OF THE ASSESSEE ARE I DENTICAL TO THE FACTS IN THE CASE OF THE DECISION REFERRED ABOVE. D URING THE YEAR THE ASSESSING OFFICER HAS ASSESSED THE PRIOR PERIOD INCOME OF RS. 974.74 LACS AND, THEREFORE, THE PRIOR PERIOD EX PENSES OF RS. 7 676.49 ARE ALSO ALLOWABLE BY RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE ITAT, CHANDIGARH BENCH IN THE CASE OF M/ S WINSOME YARNS LTD. AS THESE EXPENSES ARE NORMAL BUS INESS EXPENSES WHICH ARE OTHERWISE ALLOWABLE. THEREFORE, A.O IS DIRECTED TO ALLOW PRIOR PERIOD EXPENSES OF RS. 676. 49 LACS AGAINST THE PRIOR PERIOD INCOME OF RS. 974.74 LACS. GROUND OF APPEAL NO. 4 IS ALLOWED. 7. THE PERUSAL OF THE ABOVE ORDER REVEALS THAT LD. CIT(A) WHILE DECIDING THIS ISSUE HAS FOLLOWED THE DECISION OF TH E TRIBUNAL. THE LD. DR COULD NOT POINT OUT ANY DISTINGUISHING FACTS TO JUS TIFY OUR INTERFERENCE IN THE ABOVE ORDER OF THE CIT(A). THIS ISSUE IS ALSO A CCORDINGLY DECIDED AGAINST THE REVENUE. 8. GROUND NOS. 1, 5 & 6 [NUMBERED AS (IV), (V) & (V I) RESPECTIVELY] ARE GENERAL IN NATURE AND DO NOT REQUIRE ANY ADJUDICATI ON. 9. IN VIEW OF OUR FINDINGS GIVEN ABOVE, THERE IS NO MERIT IN THE APPEAL OF THE REVENUE AND THE SAME IS ACCORDINGLY DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 22.03.2018. SD/- SD/- (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 22.03.2018 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR