ACIT, New Delhi V. M/s. Indian Farmer Fertilizer Co- Operative, New Delhi

ITA 2320/DEL/2012

• Counselvise Citation: 232020114 RSA 2012
• Duration Of Justice: 2 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 21-08-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 16-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: GUNJAN PRASHAD
• Keywords: Business expenditure; Opportunity of being heard; Diversion of income; Earning of tax free income; Question of law
• Section: 43B; 14A; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SH. J.S.REDDY, ACCOUNTANT MEMBER I.T.A .NO. - 2238 /DEL/201 2 (ASSESSMENT YEAR - 2 007 - 08 ) INDIAN FARMERS FERTILIZER COOPERATION LTD., IFFCO SADAN, C - I, DISTRICT CENTRE, SAKET PLACE, NEW DELHI PAN - AAAAI0050M (APPELLANT) VS ACIT, CIRCLE - 23(1), ROOM NO. - 190, C.R. BUILDING, NEW DELHI (RESPONDENT) I.T.A .NO. - 2320 /DEL/201 2 (ASSESSMENT YEAR - 2 007 - 08 ) ACIT, CIRCLE - 23(1), ROOM NO. - 190, C.R. BUILDING, NEW DELHI (APPELLANT) VS INDIAN FARMERS FERTILIZER COOPERATION LTD., IFFCO SADAN, C - I, DISTRICT CENTRE, SAKET PLACE, NEW DELHI PAN - AAAAI0050M (RESPONDENT) APPELLANT BY SH. TARANDEEP SINGH, CA RESPONDENT BY SH. GUNJAN PRASHAD, CIT DR ORDER PER DIVA SINGH, JM TH ESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER DATED 31 . 0 1 .201 2 OF THE CIT(A) - X X III, NEW DELHI PERTAINING TO 200 7 - 0 8 ASSESSMENT YEAR . THE ASSESSEE IN THE PRESENT PROCEEDINGS RAISED THE FOLLOWING GROUNDS: - 1. THAT THE ORDER DATED 31.01.2012 PASSED U/S 250 OF THE INCOME TAX ACT BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), NEW DELHI (HERE - IN - AFTER REFERRED TO AS 'CIT (A)' IS BAD IN LAW AND WRONG ON FACTS. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) 2 I.T.A .NO S . - 2238 & 2320 /DEL/201 2 ERRED IN IGNORING THE DECISION OF HON'BLE IT AT IN ASSESSEE'S OWN CASE ON IDENTICAL ISSUE FOR EARLIER YEARS. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) HAS GROSSLY ERRED IN UPHOLDING THE DISALLOWANCE OF RS. 21,43,45,000/ - MADE BY THE ASSESSING OFFICER U/S 14A OF TH E INCOME TAX ACT, 1961 BY WRONGLY APPLYING RULE 80 OF THE I. T. RULES, 1962. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) HAS ERRED IN LAW BY WRONGLY OBSERVING THAT IN VIEW OF THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE RULE 80 IS APPLICABLE FROM FY 2006 - 07 ONWARDS. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) HAS ERRED IN LAW BY HOLDING THAT APPLICATION OF RULE 80 PER SE AMOUNTS TO ADOPTION OF REASONABLE BASIS F OR COMPUTING DISALLOWANCE (PRE - RULE 80 PERIOD) CONTEMPLATED UNDER SUB SECTION (1) OF SECTION 14 OF THE INCOME - TAX ACT, 1961 IGNORING THE FACT THAT RULE 80 IS APPLICABLE ONLY FROM AY 2008 - 09. 6. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT (A) ERRED IN UPHOLDING THE DISALLOWANCES MADE BY AO UNDER SECTION 14A WITHOUT REFUTING THE ASSESSEE'S SUBMISSIONS THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING THE EXEMPTED INCOME. 7. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) FAILED TO APPRECIATE THAT A FINDING IN RESPECT OF INCURRING OF ACTUAL EXPENDITURE FOR EARNING THE EXEMPT INCOME IS A PRE CONDITION FOR COMPUTING DISALLOWANCE UNDER SECTION 14A (1) AND NO DISALLOWANCE CAN BE MADE ON THE BASIS OF NOTIONAL EXPENDITURE . 8. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) HAS IGNORED THE FACT THAT THERE IS NO FINDING BY THE A.O. AGAINST THE SUBMISSIONS MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING EXEMPTED INCOME, HENC E DISALLOWANCE UNDER SECTION 14A CANNOT BE MADE. 9. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, WHETHER A MECHANICAL ALLEGATION IN RESPECT OF NON SATISFACTION WITHOUT EXAMINING THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE AND THE NATURE OF EXPENDITURE INCURRED, EMPOWERS THE ASSESSING OFFICER TO INVOKE THE PROVISIONS OF SECTION 14A OF THE INCOME - TAX ACT, 1961. 10. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) HAS ERRED IN LAW BY IGNORING THE FACT THAT THERE IS NO NEXUS BETWEEN EARNING OF EXEMPTED INCOME AND INCURRING OF EXPENDITURE FOR EARNING SUCH INCOME, THEREBY WRONGLY UPHOLDING THE DISALLOWANCE OF RS. 21,43,45,000/ - AGAINST THE EXEMPTED INCOME OF RS. 10,11,91,381/ - . 11. THAT WITHOUT PREJUDICE TO THE ABOVE GROUNDS THE LEARNED CIT (A) HAS ERRED IN LAW BY IGNORING THE FACT THAT AGAINST EXEMPTED INCOME OF RS. 10,11,91,381/ - THE DISALLOWANCE U /S 14A(1) CA NNOT BE MORE THAN RS. 10,11,91,381/ - . 12. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED ASSESSING OFFICER AS WELL AS THE CIT (A) FAILED TO APPRECIATE THAT INCURRING INTEREST EXPENDITURE FOR EARNING TAXABLE INCOME PER SE DOES NOT CREATE ANY FICTION WARRANTING DISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX ACT, 3 I.T.A .NO S . - 2238 & 2320 /DEL/201 2 1961. 13. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) FAILED TO APPRECIATE THAT DISALLOWANCE UNDER SECTION 14A READ WITH RULE 80 CAN BE INVOKED ONLY IN RESPECT OF INCOME EXEMPT UNDER THE PROVISIONS OF THE INCOME TAX ACT, 1961, AND NO DISALLOWANCE U/S 14A CAN BE MADE IN RESPECT OF INCOME EXEMPT UNDER THE PROVISIONS OF DT AA. 14. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEAR NED CIT (A) AND THE ASSESSING OFFICER AS WELL ERRED IN LAW BY CONSIDERING THE INVESTMENT MADE IN OVERSEAS ENTITIES AS INVESTMENT FROM WHICH INCOME IS EXEMPT DISREGARDING THE FACT THAT INCOME FROM THESE INVESTMENTS ARE INCLUDED IN THE TOTAL INCOME AND TAX DUE ON SUCH INCOME HAS BEEN DULY PAID AND RELIEF HAS BEEN CLAIMED UNDER THE PROVISIONS OF DT AA WITH OMAN. 15. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) ALSO ERRED IN DECIDING THE ISSUE WITHOUT ADJUDICATING ON GROUND NO. 6 O F ASSESSEE'S APPEAL. 16. THAT THE APPELLANT CRAVES LEAVE TO RESERVE TO ITSELF THE RIGHT TO ADD, ALTER AND/OR VARY ANY GROUND(S) AT OR BEFORE THE TIME OF HEARING. 2. THE LD. AR INVITING ATTENTION TO THE GROUNDS RAISED IN ASSESSEE S APPEAL SUBMITTED THAT THE GROUND WHICH HE WOULD BE RELYING UPON IS GROUND NO - 3 AND THE OTHER GROUNDS MAY BE TREATED AS ARGUMENTS IN SUPPORT OF THE SAID GROUND. IN THE FACTS OF THE PRESENT CASE IT WAS A COMMON STAND OF THE PARTIES THAT THE ISSUE HAS TO GO BACK TO THE AO AS HIS SATISFACTION IN TERMS OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF MAXOPP INVESTMENT. VS CIT [2012] 347 ITR 272 (DEL) HAS NOT BEEN RECORDED. THE LD. AR SUBMITTED THAT IN THE CIRCUMSTANCES, GROUND NOS. - 13 & 14 RAISED WOUL D BECOME INFRUCTUOUS. 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ISSUE IT IS SEEN HAS BEEN DISCUSSED BY THE AO IN PAGE 11 - 15 OF HIS ORDER AND THE CIT(A) RELYING UPON THE PAST HISTORY OF THE ASSESSEE CONSIDER ED THE SAME IN PARA 7 TO PARA 7.3 OF HIS ORDER. A PERUSAL OF THE SAME SHOWS THAT THE BENEFIT OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF MAXOPP INVESTMENT WAS NOT AVAILABLE TO THE AO . IN VIEW OF THE SAME, CONSIDERING THE REQUEST OF TH E PARTIES ON RECORD WE DEEM IT APPROPRIATE TO RESTORE THE ISSUE BACK TO THE FILE OF THE AO WITH THE DIRECTION TO PASS A SPEAKING ORDER CONSIDERING THE MANDATE OF THE HON BLE HIGH COURT IN MAXOPP INVESTMENT . NEEDLESS TO SAY 4 I.T.A .NO S . - 2238 & 2320 /DEL/201 2 THAT BEFORE PASSING OF THE ORDE R HE SHALL GIVE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. THE DECISION IT IS SEEN IS FORTIFIED BY THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF ASSESSEE ITSELF WHEREIN THEIR LORDSHIPS CLARIFIED THEIR EARLIER ORDER DATED 02.02.2012 IN ITA NO.1293/DEL/2011 VIDE THEIR ORDER DATED 17.04.2012 BY STATING THAT THE NECESSARY WORKING AND COMPUTATION OF THE DE DUCTION U/S 14A OF THE INCOME TAX ACT, 1961 AND THE APPEAL EFFECT HAS TO BE GIVEN/UNDERTAKEN BY THE AO FOLLOWING MAXOPP INVESTMENT LTD. V S CIT IN ITA NO - 687/2009. ACCORDINGLY THE AO IN VIEW OF THE ABOVE DIRECTION SHALL PASS A SPEAKING ORDER IN ACCORDANCE WITH LAW AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD . 4. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 5. IN THE DEPARTMENT S APPEAL S , THE REVENUE HAS RAISED THE FOLLOWING GROUNDS HAVE BEEN RAISED: - (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY AO ON ACCOUNT OF DISALLOWANCE OF EXPE NDITURE OF RS.1,75,25,541/ - TOWARDS CONTRIBUTION TO COOPERATIVE EDUCATION FUND. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY AO ON ACCOUNT OF DISALLOWANCE OF RS.6,00,000/ - ON ACCOUNT OF PRIOR PERIOD E XPENSES. (III) THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF HEARING OF THE APPEAL. 6 . QUA THE FIRST ISSUE AGITATED BY THE REVENUE IT IS SEEN THE FACTS ARE FOUND DISCUSSED AT PAGES 2 - 12 IN PARAS 4 - 9 IN THE ASSESSMENT ORDER. A PERUSAL OF THE SAME SHOWS THAT THE ISSUE IS NOT ARISING FOR THE FIRST TIME IN THE PRESENT ASSESSMENT YEAR. IT IS SEEN THAT THE ASSESSEE OVER THE YEARS HAS BEEN CLAIMING DEDUCTION OF RS.1,75,25,541/ - ON ACCOUNT OF CONTRIBUTI ON MADE TO THE COOPERATIVE EDUCATION FUND ON PAYMENT BASIS. AS PER THE PUBLISHED AUDITED BALANCE SHEET & P/L ACCOUNT, THE NET PROFIT IN ACCORDANCE TO MULTI - STATE COOPERATIVE SOCIETIES ACT, 2002 HAS BEEN SHOWN AT RS.174.57 CRORES. IN THE 5 I.T.A .NO S . - 2238 & 2320 /DEL/201 2 P&L APPROPRIATION ACCOUNT, THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.1.75 CRORE ON ACCOUNT OF CONTRIBUTION PAYABLE TO CO - OPERATIVE EDUCATION FUND. 6.1 . CONSIDERING THE EXPLANATION OF THE ASSESSEE THE AO WAS OF THE VIEW THA T THE CLAIM OF THE ASSESSEE COULD NOT BE ALLOWED AS IT WAS NOT WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS. HE FURTHER HELD THAT IT WAS AN APPLICATION OF INCOME AND REJECTED THE ASSESSEE S CONTENTION THAT IT WAS ALLOWABLE U/S 43B ON THE BASIS OF PAYMENT WHICH IS APPLICABLE ONLY TO DEDUCTIB LE EXPENDITURE. THE AO FURTHER HELD THAT IT IS NEITHER CESS NOR TAX AND RELYING ON CIT VS JODHPUR CO - OP. MARKETING SOCIETY [2004] 275 ITR 372 (RAJ.) DISALLOWED THE SAME U/S 37(1). 7 . THE CIT(A) RELYING UPON THE ORDERS OF THE ITAT FOR 2005 - 06 & 2006 - 07 ASSESSMENT YEARS DATED 31.05.2011 FOLLOWING THE SAME DELETED THE ADDITION MADE. 8. AGGRIEVED BY THIS , THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. THE LD. CIT DR PLACES RELIANCE UPON THE ASSESSMENT ORDER. 9. THE AR OF THE ASSESSEE RELYING UP ON THE SUBMISSIONS ADVANCED B EFORE THE CIT(A) AND THE FINDING RECORDED THEREIN. INVITED ATTENTION TO THE CO PY OF THE ORDER OF THE ITAT PLACED AT PAGES 25 - 34. 9.1 . IT WA S FURTHER SUBMITTED THAT THE SAID ORDER OF THE ITAT HAS BEEN CONFIRMED BY THE JURIS DICTIONAL HIGH COURT. FOR THE SAID PURPOSE SPECIFIC ATTENTION WAS INVITED TO PAPER BOOK PAGE NO - 35 - 56A WHEREIN ITA NO - 1293/11, THE LORDSHIPS HELD AS UNDER: - THE SECOND ASPECT RAISED BY THE REVENUE RELATES TO PAYMENT OF 1% OF THE NET PROFITS TO THE COOP ERATIVE EDUCATION FUND MAINTAINED BY THE NATIONAL COOPERATIVE UNION OF INDIA. THE SAID OBLIGATION IS A STATUTORY OBLIGATION UNDER RULES 25 OF THE MULTI STATE COOPERATIVE RULES, 2002. A SIMILAR ISSUE WAS RAISED IN ITA NO.274/2003 AND OTHER CONNECTED MATTE RS, WHICH WERE DECIDED ON 14.12.2004. THE CONTENTION OF THE REVENUE WAS DISMISSED. WE MAY NOTE THAT IN THE PRESENT CASE, PAYMENTS HAVE BEEN MADE AND THE QUESTION OF APPLICABILITY OF SECTION 43B IS NOT AN ISSUE. ON THE SECOND ASPECT, WE ARE NOT INCLINED TO ADMIT THE PRESENT APPEAL AS NO SUBSTANTIAL QUESTION OF LAW ARISES. 6 I.T.A .NO S . - 2238 & 2320 /DEL/201 2 10 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS SEEN THAT THE ITAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR H AS HAD AN OCCASION TO D ISCUSS THE ISSUE AT LENGTH. FOR READY - REFERENCE, WE EXTRACT RELEVANT PORTION FROM TH E SAID ORDER WHOSE COPY IS PLACED AT PAGES 29 - 3 0 AS UNDER: - 10. WE HAVE HEARD BOTH THE PARTIES. THERE IS NO DISPUTE THAT IN EARLIER YEARS IDENTICAL CLAIM OF THE ASSESSEE HAS BEEN ALLOWED. FOR ASSESSMENT YEARS 1991 - 92 AND 92 - 93, THE ISSUE OF ALLOWABILITY OF CONTRIBUTION TO COOP. EDUCATION FUND, TRAVELLED UP TO HON'BLE D ELHI HIGH COURT. HON'BLE DELHI HIGH COURT IN THEIR ORDER DATED 14.12.04 HELD AS UNDER: 'ACCORDING TO THE ASSESSEE, THIS CONTRIBUTION IS NOT A CESS, TAX, DUTY OR FEE AND THEREFORE, SECTION 43B WOULD NOT BE APPLICABLE. HOWEVER, BEFORE THE TRIBUNAL, THE QUES TION HAS NOT BEEN SPECIFICALLY RAISED BY THE REVENUE OR BY THE ASSESSEE. IT WAS SUBMITTED THAT IN TERMS OF SECTION 37, THE AMOUNT OF CONTRIBUTION TO THE SAID FUND IS AN ALLOWABLE DEDUCTION. THE ISSUE IS THAT IF SECTION 43B IS APPLICABLE THEN IT WILL BE ALL OWED ON ACTUAL PAYMENT BASIS ONLY. IF NOT, THEN IT MAY BE ALLOWED ON ACCRUAL BASIS. THE KEY QUESTION IS WHETHER THE CONTRIBUTION TO THE SAID FUND IS A 'TAX, DUTY, CESS OR FEE'. THIS ASPECT HAS NOT BEEN EXAMINED BY THE TRIBUNAL AND, THEREFORE, IT WOULD BE A PPROPRIATE TO REMIT THE MATTER TO THE TRIBUNAL TO DISPOSE OF THE SAME IN ACCORDANCE WITH LAW AND TO RETURN A FINDING AS TO WHETHER SECTION 43B WOULD BE APPLICABLE OR NOT. ' 11. AS PER THE DIRECTION OF HON'BLE DELHI HIGH COURT, THE MATTER WAS SET ASIDE TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THE NATURE OF CONTRIBUTION TO COOP. EDUCATION FUND WHETHER IT WAS IN NATURE OF TAX, DUTY CESS OR FEE. IF THE PAYMENT TO COOP. EDUCATION FUND WAS FOUND TO BE IN NATURE OF TAX, DUTY CESS OR FEE, THE PROVISIONS OF SECTION 43B OF THE ACT WILL BE APPLICABLE. IF, ON THE OTHER HAND, IT WAS FOUND THAT THE NATURE OF PAYMENT WAS NOT A TAX, DUTY, CESS OR FEES, THE SAME WILL BE ALLOWABLE A S DEDUCTION U/ S 37 OF THE ACT. THE AO VIDE HIS ORDER DATED 24.12.09 FOR ASSESSMENT YEAR 2004 - 05 HAS ALLOWED THE CLAIM OF THE ASSESSEE IN VIEW OF DIRECTION CONTAINED IN ITAT ORDER DATED 16.1.2009. 12. IN THE INSTANT CASE FOR THE FIRST TIME, THE REVENUE HAS TAKEN PLEA THAT CONTRIBUTION TO COOP. EDUCATION FUND IS APPROPRIATION OF INCOME AND NOT EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE ASSESSEE HAD MADE PROVISION OF 1 % OF ITS NET PROFITS UNDER RULE 25 OF MULTI STATE COOP. SOCIETY RULES , 2002, TO BE CREDITED AS CONTRIBUTION TO COOP. EDUCATION FUND WHICH IS MAINTAINED BY NATIONAL COOP. UNION OF INDIA LTD., NEW DELHI. IT IS STATUTORY REQUIREMENT TO CONTRIBUTE 1 % OF ITS NET 7 I.T.A .NO S . - 2238 & 2320 /DEL/201 2 PROFITS TO COOP. EDUCATION FUND. THE AMOUNT OF 1 % OF NET PROFIT I S, THEREFORE, NOT IN CONTROL OF THE ASSESSEE. THE FUNDS HAVE BEEN VESTED IN THIRD PARTY OUTSIDE CORPUS OF ASSESSEE ITSELF. THEREFORE, THE AMOUNT CONTRIBUTED TO COOP. EDUCATION FUND IS DIVERSION OF PROFITS AT SOURCE WHICH IS ELIGIBLE FOR DEDUCTION U/S 37 OF THE ACT. THE DECISIONS RELIED UPON BY THE REVENUES ARE DISTINGUISHABLE ON FACTS AS IN THOSE CASES THERE WAS NO DIVERSION OF INCOME. THE AMOUNT CLAIMED AS DIVERSION OF INCOME REMAINED WITH THE ASSESSEE AND FORMED' PART OF THE CORPUS OF THE ASSESSEE. 13. HOWEVER, AS MENTIONED ABOVE, THE CLAIM OF ASSESSEE HAS BEEN ALLOWED BY THE AO FOR LAST SEVERAL YEARS. HON'BLE SUPREME COURT IN THE CASE RADHASOAMI SATSANG, 193 I.T.R. 321 HAS HELD THAT PRINCIPLE OF RES JUDICATA DOES NOT APPLY TO INCOME TAX PROCEEDINGS. AGA IN, EACH ASSESSMENT YEAR BEING AN INDEPENDENT UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FOLLOWING YEAR, BUT WHERE FUNDAMENTAL ASPECT PERMEATING THROUGH THE DIFFERENT ASSESSMENT YEAR HAS BEEN FOUND AS A FACT ONE WAY OR OTHER AND PARTIES HAVE A LLOWED, THAT POSITION TO BE SUSTAINED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE APPROPRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. IN THE CASE BEFORE US, THE AO HAD ALLOWED THE CLAIM OF THE ASSESSEE FOR LAST SEVERAL YEARS. FOR ASSESS MENT YEAR 2006 - 07 IS THE FIST YEAR WHERE REVENUE HAS DISALLOWED THE AMOUNT ON THE GROUND THAT IT IS APPROPRIATION OF INCOME AND NOT BUSINESS EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. SINCE THE AO HAS ALLOWED DEDUCTION IN RESPECT OF COOP. EDUCATION FUND IN EARLIER YEARS, RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE SUPREME COURT IN THE CASE RADHASOAMI SATSANG(SUPRA), IT IS HELD THAT REVENUE IS NOT PERMITTED TO TAKE A DIFFERENT STAND IN THE YEAR UNDER CONSIDERATION. ACCOR DINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) DELETING THE ADDITION. 14. IN THE RESULT, THE GROUNDS RAISED IN THIS APPEAL BY THE REVENUE ARE DISMISSED. 1 1. IT IS ALSO SEEN FR O M A COPY OF THE JUDGEMENT OF THE HON BLE HIGH COURT IN THE CASE OF THE ASSESSEE THAT THE SAID FINDING HAS BEEN CONFIRMED. NO ARGUMENT EITHER ON FACT OR LAW TO SUGGEST A CONTRARY FINDING HAS BEEN ADVANCED BY THE REVENUE. IN VIEW OF THE ABOVE FOLLOWING THE PRECEDEN T THE DEPARTMENTAL GROUND IS DISMISSED. 12 . THE FACTS RELATABLE TO THE SECOND ISSUE AGITATED BY THE REVENUE ARE FOUND DISCUSSED AT PAGE 12 OF THE ASSESSMENT ORDER. A PERUSAL WHICH WOULD SHOW THAT THE AO REQUIRED THE ASSESSEE T O EXPLAIN THE ALLOWABILITY OF ITS CLAIM OF PRIOR PERIOD EXPENSES AMOUNTING TO RS.3,33,53,083/ - . THE AO EXCEPT FOR THE AMOUNT 8 I.T.A .NO S . - 2238 & 2320 /DEL/201 2 OF RS.6,00,000/ - ACCEPTED THE EXPLANATION OF THE ASSESSEE AND MADE THE ADDITION. THE CIT(A) CONSIDERING THE EXPLANATION DELETED THE ADDITION. 13 . AGGRIEVED BY THIS THE REVENUE IS IN APPEAL BEF ORE THE TRIBUNAL. 14. LD. CIT DR RELIES UPON THE ASSESSMENT ORDER. THE LD. AR REITERATE D AT LENGTH THE SUBMISSIONS ADVANCED BEFORE THE AUTHORITIES . IT WAS HIS ARGUMENT THAT THE FINDING THAT THE AMOUNT CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION HAS N OT BEEN ASSAILED BY THE REVENUE. IT WAS ALSO EMPHASIZED BY HIM THAT EVEN INCOME PERTAINING TO THE EARLIER PERIOD WHICH WAS CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION WAS OFFER ED TO TAX WHICH HAS BEEN ACCEPTED. RELYING UPON THE DECISION OF THE JURI SDICTIONAL HIGH COURT IN THE CASE OF RAM PISTONS AND RINGS LTD. [2008] 220 CTR 404 , I T WAS H I S SUBMISSION THAT MERELY BECAUSE EXPENSE RELATES TO A TRANSACTION OF AN EARLIER YEAR, IT DOES NOT BECOME A LIABILITY PAYABLE IN THE YEAR UNLESS IT CAN BE SAID THAT T HE LIABILITY WAS DETERMINED AND CRYSTALLIZED IN THE YEAR IN QUESTION. IT WAS HIS SUBMISSION THAT THE COURTS HAVE HELD THAT WHEN THERE WAS NO CHANGE IN THE RATE OF TAX BETWEEN THE TWO YEARS, IT IS IMMATERIAL WHETHER THE DEDUCTION IS ALLOWED IN ONE YEAR OR THE OTHER. RELIANCE WAS FURTHER PLACED UPON SAURASTRA CEMENT AND CHEMICAL INDUSTRIES LTD. 213 ITR 523 (GUJ.) WHICH DECISIONS HAD INFACT BEEN CONSIDERED AND FOLLOWED BY THE JURISDICTIONAL HIGH COURT. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ON A CAREFUL CONSIDERATION OF THE SAME IN THE FACTS AS THEY STAND WE FIND NO GOOD REASON TO INTERFERE WITH THE FINDING ARRIVED AT BY THE CIT(A) WHICH IS FOUND SUPPORTED BY THE JUDGEME NT OF THE DELHI HIGH COURT IN THE CASE OF CIT VS RAM PISTONS AND RINGS LTD. (CITED SUPRA) WHEREIN THEIR LORDSHIPS HAVE RELIED UPON SAURASTRA CEMENT AND CHEMICALS INDUSTRIES LTD. (CITED SUPRA) AND THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS NAGRI MILLS CO. LTD. [1958] 33 ITR 681(BOM.). THE FINDING UNDER CHALLENGE READ AS UNDER: - 9 I.T.A .NO S . - 2238 & 2320 /DEL/201 2 6. GROUND OF APPEAL NO.4 PERTAINS TO DISALLOWANCE OF PRIOR PERIOD EXPENSES OF RS.6,00,000/ - . THE ASSESSING OFFICER DISALLOWED EXPENDITURE OF RS.6,00,000/ - INCURRED FOR CONSUMPTION OF RAW MATERIAL IN THE F.Y.2005 - 06 ON THE GROUNDS THAT THERE WAS NO EVIDENCE ON RECORD THAT THE LIABILITIES ON THIS ACCOUNT MATERIALIZED OR CRYSTALLIZED DURING THE CURRENT YEAR. THE APPELLANT HAS EXPLAINED THAT THE EXPENDITURE PERTAINED TO THE RAW MATERIAL WHICH WAS DETERMINED TO BE UNDER PROCESS OF MANUFACTURE AT THE END OF THE YEAR, BUT WHICH AMOUNT HAS CRYSTALLIZED DURING THE RELEVANT YEAR. IT IS ALSO POINTED OUT THAT INCOME OF RS. 5.89 CRORES WHICH PERTAINED TO THE EARLIER PERIOD, BUT MATERIALIZED/CRYSTALLIZED DURING THE CURRENT YEAR, HAS BEEN OFFERED TO TAX AND ACCEPTED BY THE ASSESSING OFFICER. THE APPELLANT HAS RELIED ON THE JUDGEMENT OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. SHRI RAM PISTONS AND RINGS LTD. [2008] 220 CTR 404, I N WHICH THE COURT HAS HELD THAT MERELY BECAUSE AN EXPENSE RELATES TO A TRANSACTION OF AN EARLIER YEAR, IT DOES NOT BECOME A LIABILITY PAYABLE IN THE EARLIER YEAR UNLESS IT CAN BE SAID THAT THE LIABILITY WAS DETERMINED AND CRYSTALLIZED IN THE YEAR IN QUEST ION. IF SUCH LIABILITY HAS BEEN ACTUALLY CLAIMED AND PAID IN THE LATER PREVIOUS YEARS, IT CANNOT BE DISALLOWED AS DEDUCTION MERELY ON THE BASIS THAT THE ACCOUNTS ARE MAINTAINED ON MERCANTILE BASIS. THE HON'BLE COURT ALSO OPINED THAT WHEN THERE WAS NO CHANG E IN THE RATE OF TAX BETWEEN THE TWO YEARS, IT IS IMMATERIAL WHETHER THE DEDUCTION IS ALLOWED IN ONE YEAR OR THE OTHER. IN THE PRESENT CASE, THE LIABILITY OF PRIOR PERIOD EXPENSES FOR CONSUMPTION OF RAW MATERIAL HAS BEEN STATED TO HAVE ARISEN IN THE EARLIE R YEAR, BUT GOT CRYSTALLIZED ON A LATER DATE. THE EXPENDITURE AND THE LIABILITY HAVE BEEN CERTIFIED BY THE TAX AUDITORS, AND THERE APPEARS TO BE NO DISPUTE THAT THE APPELLANT HAD 'ACTUALLY INCURRED THE EXPENDITURE. WITH DUE RELIANCE ON THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT, IT IS HELD THAT THE APPELLANT IS ENTITLED TO THE DEDUCTION OF PRIOR PERIOD EXPENSES OF RS. 6,00,000/ - , AS THE SAME HAVE MATERIALIZED IN THE YEAR UNDER CONSIDERATION. HENCE, THE APPELLANT SUCCEEDS AT GROUND OF APPEAL NO. 4. 15 .1. ON A CAREFUL CONSIDERATION OF THE ABOVE CONSIDERING THE POSITION OF LAW ON THE ISSUE AND BEING SATISFIED BY THE REASONS AND FINDINGS RECORDED THEREIN ON THE FACTS AS THE STAND WHICH HA VE NOT BEEN ASSAILED, THE DEPARTMENTAL GROUND IS DISMISSED . 15 .2. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED. 10 I.T.A .NO S . - 2238 & 2320 /DEL/201 2 16 . IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL OF THE REVENUE IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 2 4 T H OF SEPTEMBER 2 014. S D / - S D / - ( J.S.REDDY ) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 2 4 /0 9 /2014 *AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI