WELSPUN POWER & STEEL LTD, MUMBAI V. DCIT 7(3), MUMBAI

ITA 2287/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56283 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 15-12-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 23-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MITESH SHAH; F V IRANI
• Assessee Lawyers: A K NAYAK
• Keywords: Opportunity of being heard; Tax effect; Capital receipt; Revised return
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, G, MUMBAI BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 2287/MUM/2010 (ASSESSMENT YEAR : 2006-07) M/S WELSPUN POWER & STEEL LIMITED, TRADE WORLD, B-WING, 9 TH FLOOR, KAMALA MILLS COMPOUND, LOWER PAREL (W), MUMBAI-400013. PAN: AAACW5308G DY. COMMISSIONER OF INCOME TAX 7(3), AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020. APPELLANT V/S RESPONDENT ITA NO.3524/MUM/2010 (ASSESSMENT YEAR : 2006-07) DY. COMMISSIONER OF INCOME TAX 7(3), AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020 M/S WELSPUN POWER & STEEL LIMITED, TRADE WORLD, B-WING, 9 TH FLOOR, KAMALA MILLS COMPOUND, LOWER PAREL (W), MUMBAI-400013. PAN: AAACW5308G APPELLANT V/S RESPONDENT DATE OF HEARING : 15.12.2011 DATE OF PRONOUNCEMENT : 28.12.2011 REVENUE BY : SHRI F.V.IRANI & MITESH SHAH ASSESSEE BY : SHRI A.K.NAYAK ITA NO. 2287/MUM/2010 ITA NO.3524/MUM/2010 (ASSESSMENT YEAR : 2006-07 ) 2 O R D E R PER VIJAY PAL RAO (JM) THESE CROSS-APPEALS ARE DIRECTED AGAINST THE ORDER DATED 9.1.2010 OF THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2006-07. ITA NO. 2287/MUM/2010 (BY ASSESSEE APPEAL) 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN THIS APPEAL: THE GROUND OR GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO ONE ANOTHER. 1.A) ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.25,21,81O/- MADE BY THE AO TO THE INCOME OF THE APPELLANT BY WAY OF DISALLOWING PRIOR PERIOD EXPENSES. B) THE LD. CIT(A) FAILED TO APPRECIATE THAT THESE EXPENSES HAVE BEEN CRYSTALLIZED DURING THE PREVIOUS YEAR AND AS SUCH DEDUCTION FOR THE SAME IS ALLOWABLE. C) THE LID. CIT(A) ERRED IN NOT DISPOSING OFF THE GROUND NO.5 RAISED DISPUTING LEVY OF INTEREST U/S.2348, 234C AND 234D OF THE INCOME TAX ACT, 1961. THE APPELLANT DENIES ITS LIABILITY FOR SUCH INTEREST. 3 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO DISALLOWED A SUM OF RS.25,21,810/- BY OBSERVI NG THAT THE SAID EXPENDITURE HAS BEEN SHOWN BY THE ITA NO. 2287/MUM/2010 ITA NO.3524/MUM/2010 (ASSESSMENT YEAR : 2006-07 ) 3 ASSESSEE IN THE TAX AUDIT REPORT AS PRIOR YEAR EXPE NSES. THE ASSESSEE HAS CHALLENGED THE ACTION OF THE AO BEFORE THE LD. CIT(A) AND MAINLY CONTENDED THAT ALL THESE EXPENSES WERE ARISEN AND CRYSTALLIZED DURING THE PREVIOUS YEAR AS THE BILLS PERTAINS TO THE EARLIER YEARS BUT RECEIVED DURING THE YEAR UNDER CONSIDERATION. IT WAS FURTHER SUBMITTED BEFORE THE LD. CIT(A) THAT TH E ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND THERE IS NO DISPUTE REGARDING THE GENUINENESS OF LIABILITY OR QUANTUM OF EXPENSES, THEREFORE, THESE EXPENSES CANNOT BE DISALLOWED. T HE LD. CIT(A) DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE. 4. BEFORE US, THE LD.AR OF THE ASSESSEE HAS REFERRE D THE DETAILS OF THE BILLS AND SUBMITTED THAT ALL THE SE BILLS WERE RAISED IN THE MONTH OF MARCH 2005, HOWEVER, TH E ASSESSEE BOOKED THESE BILLS IN THE NEST YEAR IN WHI CH THE ASSESSEE HAS RECEIVED THE SAME. THE ASSESSEE I S FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND THEREFORE WHEN THE ASSESSEE IS CONSISTENTLY FOLLOWI NG THE MERCANTILE SYSTEM OF ACCOUNTING WHICH HAS BEEN ACCEPTED BY THE AO, THEN NO DISALLOWANCE IS JUSTIF IED FOR THE YEAR UNDER CONSIDERATION. HE HAS FURTHER ITA NO. 2287/MUM/2010 ITA NO.3524/MUM/2010 (ASSESSMENT YEAR : 2006-07 ) 4 SUBMITTED THAT EVEN OTHERWISE, THE ASSESSEE WAS TAX ED ON BOOK PROFIT, THEREFORE, THERE WOULD BE NO REVENU E EFFECT. HE HAS FURTHER SUBMITTED THAT EVEN FOR THE EARLIER YEARS, THE AO HAS ASSESSED ON BOOK PROFIT A ND IF THE EXPENSES WERE TAKEN IN ACCOUNT FOR THE EARLIER YEARS THERE WOULD NO TAX EFFECT. THUS, THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT WHEN THE CONSISTENT METHOD OF ACCOUNTING IS FOLLOWED BY THE ASSESSEE A ND ACCEPTED BY THE REVENUE, THE SAME CANNOT BE DISTURB ED FOR THIS YEAR. 5. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT WHEN THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTE M OF ACCOUNTING THEN THE EXPENDITURES SHOULD HAVE BEEN CLAIMED ONLY FOR THE YEAR IN WHICH THE BILLS WERE RAISED AND EXPENSES WERE INCURRED AND NOT IN THE YEAR UNDE R CONSIDERATION. HE HAS RELIED UPON THE ORDERS OF T HE LOWER AUTHORITIES. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIO NS AND PERUSED THE RELEVANT RECORD. THE MAIN CONTENTIO N OF THE ASSESSEE IS THAT THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING THE EXPENDITURE IS BOOKED AND RECOGNIZED ONLY WHEN THE BILLS ARE RECE IVED ITA NO. 2287/MUM/2010 ITA NO.3524/MUM/2010 (ASSESSMENT YEAR : 2006-07 ) 5 AND CRYSTALLIZED. SINCE MAJORITY OF THE BILLS AS G IVEN IN THE DETAILS OF EXPENDITURE ARE RAISED IN THE MONTH OF MARCH 2005, THEREFORE, THERE MAY BE POSSIBILITY AT LEAST FOR THE BILLS WHICH WERE RAISED IN THE MONTH OF MAR CH 2005 RECEIVED BY THE ASSESSEE AND RECOGNIZED ONLY I N THE NEXT FINANCIAL YEAR. HOWEVER, WHEN NOTHING HAS BEEN PRODUCED BEFORE US TO SHOW THAT THE ASSESSEE I S FOLLOWING CONSISTENTLY THIS PRACTICE. HOWEVER, THE AO HAS NOT DISCUSSED ANYTHING WHILE ADDRESSING THIS I SSUE OF DISALLOWANCE OF PRIOR PERIOD EXPENSES. THE LD. CIT(A) HAS ALSO NOT DISCUSSED ANY THING AND DECIDED THE ISSUE SUMMARILY AS UNDER : FACTS OF THE CASE HAVE BEEN CONSIDERED: THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THERE IS ALLEGEDLY NO DISPUTE REGARDING THE LIABILITY/QUANTUM OF EXPENSES VS-A-VS PARTIES. AS SUCH TO SAY THAT EXPENSES CRYSTALLIZED DURING TH E YEAR IS WRONG. THE ASSESSEE COULD HAVE FLIED A REVISED RETURN OF THE YEAR TO WHICH THEY PERTAINED. SINCE THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING-THE PRIOR PERIOD EXPENSES CANNOT BE ALLOWED. THE GROUND OF APPEAL OF THE ASSESSEE IS THEREFORE DISMISSED. ITA NO. 2287/MUM/2010 ITA NO.3524/MUM/2010 (ASSESSMENT YEAR : 2006-07 ) 6 7. THUS IN THE ABSENCE OF ANY RELEVANT MATERIAL ON RECORD, IT IS NOT POSSIBLE FOR US TO ADJUDICATED U PON THE ISSUE SPECIFICALLY ON THE POINT OF WHETHER THE ASSE SSEE IS FOLLOWING THE PRACTICE OF RECOGNIZING THE EXPEN DITURE ONLY ON RECEIPT OF BILLS AND NOT ON THE ISSUE DATE AND THAT TOO CONSISTENTLY. ACCORDINGLY, THIS ISSUE IS R EMITTED TO THE RECORD OF THE AO FOR APPROPRIATE VERIFICAT ION AND EXAMINATION OF ALL THE RELEVANT FACTS AND RECO RD AND THEN DECIDE THE ISSUE AS PER LAW AFTER PROVIDIN G REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. GROUND NO.1 TAKEN BY THE ASSESSEE IS THEREFORE, ALLOWED FOR STATISTICAL PURPOSES. 8. GROUND NO 2 IS REGARDING CHARGING OF INTEREST U /S 23B, 234C AND 234D. 9. WE HAVE HEARD BOTH THE PARTIES. WE FIND THAT T HE ISSUE OF CHARGING OF INTEREST UNDER SECTIONS 234B I S MANDATORY AND CONSEQUENTIAL IN NATURE. ACCORDINGLY, WE DIRECT THE AO TO CALCULATE THE INTEREST AS PER LAW . 10. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FO R STATISTICAL PURPOSES. ITA NO. 2287/MUM/2010 ITA NO.3524/MUM/2010 (ASSESSMENT YEAR : 2006-07 ) 7 ITA NO.3524/MUM/2010(REVENUES APPEAL) 11. THE REVENUE HAS RAISED ONLY EFFECTIVE GROUND AS UNDER : 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE CIT (A) WAS JUSTIFIED IN LAW IN TREATING T HE INCENTIVES IN THE NATURE OF SALES TAX AND EXCISE DUTY GRANTED BY THE GUJARAT GOVERNMENT AS CAPITAL RECEIPTS BY RELYING ON THE DECISION OF THE ITAT, SPECIAL BENCH, MUMBAI WHEN THIS DECISION HAS NOT BEEN ACCEPTED BY THE DEPARTMENT? 12. THE ASSESSEE HAS RECEIVED INCENTIVE OF RS.19,23,83,694/- GRANTED BY THE GOVERNMENTS. THES E RECEIPTS WERE IN THE NATURE OF SALES TAX SUBSIDY GR ANTED BY THE GUJARAT GOVERNMENT AND EXCISE INCENTIVES GRANTED BY THE CENTRAL GOVERNMENT AS PER THE SCHEME S COMMENCED BY THE RESPECTIVE GOVERNMENTS. IN SUPPOR T OF ITS CLAIM, THE ASSESSEE RELIED UPON THE DECISIO N OF THE SPECIAL BENCH OF THIS TRIBUNAL IN DY. CIT V/S RELIANCE INDUSTRIES LTD. (2004) 82 TTJ (MUMBAI)(SB) 765 : (2004) 88 ITD 273 (MUMBAI)(SB). THE AO OBSERVED THAT SINCE THE DEPARTMENT HAS CHALLENGED THE ORDER OF THE SPECIAL BENCH OF THIS TRIBUNAL I N THE CASE OF DY. CIT V/S RELIANCE INDUSTRIES LTD. (SUPR A) ITA NO. 2287/MUM/2010 ITA NO.3524/MUM/2010 (ASSESSMENT YEAR : 2006-07 ) 8 BEFORE THE HONBLE HIGH COURT, THE MATTER IS SUB- JUDICE. 13. ON APPEAL, THE LD. CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE TREATING THE SAID RECEIPTS AS CAPITAL IN N ATURE BY FOLLOWING THE DECISION OF THE SPECIAL BENCH OF H IS TRIBUNAL IN DY. CIT V/S RELIANCE INDUSTRIES LTD. (S UPRA). 14. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS AND PERUSED THE RELEVANT RECORD. THE AO DISALLOWE D THE CLAIM OF THE ASSESSEE BECAUSE THE REVENUE DID N OT ACCEPT THE DECISION OF THE SPECIAL BENCH OF THIS TR IBUNAL AND CHALLENGED BEFORE THE JURISDICTIONAL HIGH COUR T. SUBSEQUENTLY, THE JURISDICTIONAL HIGH COURT DISMISS ED THE APPEAL OF THE REVENUE BY ITS ORDER DATED 15.4.2009. THE REVENUE AUTHORITIES CARRIED THE MAT TER TO THE HONBLE SUPREME COURT AND RECENTLY HONBLE SUPREME COURT VIDE DECISION DATED 9.9.2011 HAS SET ASIDE THE DECISION OF THE JURISDICTIONAL HIGH COUR T IN THE CASE OF RELIANCE INDUSTRIES AND REMITTED THE MATTER TO THE HONBLE HIGH COURT TO DECIDE THE IS SUE IN QUESTION AS FORMULATED BY THE HONBLE SUPREME ITA NO. 2287/MUM/2010 ITA NO.3524/MUM/2010 (ASSESSMENT YEAR : 2006-07 ) 9 COURT. THE RELEVANT PART OF THE DECISION OF THE HO NBLE SUPREME COURT IS REPRODUCED AS UNDER : LEAVE GRANTED. - HAVING HEARD LEARNED COUNSEL ON BOTH SIDES, WE ARE OF THE VIEW THAT THE HIGH COURT OUGHT NOT TO HAVE DISMISSED THE APPEAL WITHOUT CONSIDERING THE FOLLOWING QUESTIONS, WHICH, ACCORDING TO US, DID ARISE FOR CONSIDERATION. THEY ARE FORMULATED AS UNDER: (A) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE HONBLE TRIBUNAL WAS RIGHT IN HOLDING THAT ESTIMATED EXPENDITURE FOR EARNING DIVIDEND INCOME CANNOT BE SUBJECT TO DISALLOWANCE WHILE COMPUTING BOOK PROFITS AS WELL AS UNDER THE NORMAL PROVISIONS OF THE INCOME TAX ACT? B) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE HONBLE TRIBUNAL WAS RIGHT IN HOLDING THAT SALES TAX INCENTIVE IS A CAPITAL RECEIPT? ACCORDINGLY, THE CIVIL APPEAL IS ALLOWED, IMPUGNED ORDER IS SET ASIDE AND THE MATTER IS REMITTED TO TH E HIGH COURT TO DECIDE THE QUESTIONS, FORMULATED ABOVE, IN ACCORDANCE WITH LAW. NEW DELHI SEPTEMBER 09.2011. SINCE THE ORDER OF THE SPECIAL BENCH OF THIS TRIBU NAL IS ALREADY MERGED WITH THE ORDER OF THE HONBLE HIGH COURT WHICH HAS BEEN SET ASIDE BY THE HONBLE SUPRE ME ITA NO. 2287/MUM/2010 ITA NO.3524/MUM/2010 (ASSESSMENT YEAR : 2006-07 ) 10 COURT FOR RECONSIDERATION AND DECIDE THE QUESTION A S FORMULATED, THEREFORE, THE ISSUE CANNOT BE DECIDED SIMPLY BY FOLLOWING THE ORDER OF THE SPECIAL BENC H OF THIS TRIBUNAL. IT IS PERTINENT TO NOTE THAT NEITH ER THE AO NOR THE CIT(A) HAS DISCUSSED THIS ISSUE OR ANALYZED THE SCHEME OF INCENTIVES GRANTED BY THE RESPECTIVE GOVERNMENTS. EVEN BEFORE US, THE SAID SCHEME UNDER WHICH THE INCENTIVES WERE RECEIVED BY THE ASSESSEE HAVE NOT BEEN FILED. THEREFORE, THE IS SUE HAS TO BE ADJUDICATED AFTER CONSIDERING THE RESPECT IVE SCHEMES OF GUJARAT GOVERNMENT AND CENTRAL GOVERNMENT IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF SAHNEY STEEL AND PRESS WORKS LTD. (228 ITR 253) (SC). ACCORDINGLY, IN THE INTEREST OF JUSTICE, WE SET ASIDE THE ORDER OF TH E REVENUE AUTHORITIES AND REMAND THE ISSUE TO THE FIL E OF THE AO FOR FRESH ADJUDICATION AFTER CONSIDERING A ND ANALYZING THE SCHEMES OF THE RESPECTIVE GOVERNMENTS AND AS PER LAW AFTER PROVIDING REASONABLE OPPORTUN ITY OF BEING HEARD TO THE ASSESSEE. GROUNDS TAKEN BY TH E REVENUE IS THEREFORE, ALLOWED FOR STATISTICAL PURPO SES. ITA NO. 2287/MUM/2010 ITA NO.3524/MUM/2010 (ASSESSMENT YEAR : 2006-07 ) 11 15. IN SUM AND SUBSTANCE, THE APPEAL OF THE ASSESSE E IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 28TH DEC.201 1. SD SD ( T.R.SOOD ) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 28TH DECEMBER, 2011 SRL: COPY TO: 1. APPELLANT 2. RESPONDENT 3. CWT CONCERNED 4. CWT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILE. BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI