The Asst. CIT, Guntur V. Sri Grandhi subba rao, Guntur

ITA 239/VIZ/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8709 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 26-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P S MURTHY
• Keywords: Maximum Marginal Rate; Question of law; Tax effect
• Section: 143(3); 142(1); 263

Judgement Text

ITA NO.223/VIZAG/2015 & ITA NO.239/VIZAG/2017 GRANDHI VENKATA SATYA LAKSHMI KANTHA RAO, L/R OF GRANDHI SUBBA RAO, GUNTUR 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . .. . . . . . ' , % BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./I.T.A.NO.223/VIZAG/2015 ( / ASSESSMENT YEAR: 2011-12) GRANDHI VENKATA SATYA LAKSHMI KANTHA RAO L/R OF GRANDHI SUBBA RAO GUNTUR ADDL. CIT, RANGE - 1 GUNTUR [PAN NO. ACKPG6041R ] ( ' / APPELLANT) ( ()' / RESPONDENT) ./I.T.A.NO.239/VIZAG/2017 ( / ASSESSMENT YEAR: 2011-12) ACIT, CIRCLE - 1(1), GUNTUR GRANDHI VENKATA SATYA LAKSHMI KANTHA RAO L/R OF GRANDHI SUBBA RAO GUNTUR ( ' / APPELLANT) ( ()' / RESPONDENT) / APPELLANT BY : SHRI G.V.N. HARI, AR / RESPONDENT BY : SHRI P.S. MURTHY, DR / DATE OF HEARING : 23.02.2018 / DATE OF PRONOUNCEMENT : 1 6.03.2018 ITA NO.223/VIZAG/2015 & ITA NO.239/VIZAG/2017 GRANDHI VENKATA SATYA LAKSHMI KANTHA RAO, L/R OF GRANDHI SUBBA RAO, GUNTUR 2 / O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST ORDER OF THE PRINCIPAL COMMISSIONER OF INCOME TAX (PCIT), GUNTUR DATED 27.3.2015 FOR THE ASSESSMENT YEAR 2011-12 AND THE APPEAL FIL ED BY THE REVENUE IS AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1 {CIT(A)}, GUNTUR VIDE ITA NO.80/15-16/CIT(A-1)/GNT DATED 31.1.2017. ITA NO.223/VIZAG/2015: 2. THE ASSESSEE FILED RETURN OF INCOME DECLARING TO TAL INCOME OF ` 9,07,99,872/-. THE RETURN WAS PROCESSED U/S 143(1) AND THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLE TED U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'TH E ACT') ON TOTAL INCOME OF ` 9,16,30,590/-. IN THE ASSESSMENT, THE A.O. MADE T HE DISALLOWANCE RELATING TO THE CONTRIBUTION OF GROUP GRATUITY FUND TO THE LIC OF INDIA AND COMPLETED THE ASSESSMENT. SUBSEQU ENTLY, THE PRINCIPAL CIT HAS TAKEN UP THE CASE FOR REVISION U/S 263 OF T HE ACT AND FOUND THAT THE ASSESSEE HAD RECEIVED A SUM OF ` 32,00,06,767/- CONSISTING OF EXCISE DUTY OF ` 27,82,86,041/- AND INTEREST THEREON OF ` 4,23,14,726/- AS EXCISE DUTY REFUND DURING THE YEAR UNDER CONSIDE RATION BUT THE ITA NO.223/VIZAG/2015 & ITA NO.239/VIZAG/2017 GRANDHI VENKATA SATYA LAKSHMI KANTHA RAO, L/R OF GRANDHI SUBBA RAO, GUNTUR 3 ASSESSEE HAS NOT ADMITTED THE SAME TO TAX. THEREFO RE, THE LD. PCIT HELD THAT THE ASSESSMENT MADE U/S 143(3) OF THE ACT IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND ACCO RDINGLY ISSUED THE NOTICE U/S 263 OF THE ACT CALLING FOR THE EXPLANATI ON OF THE ASSESSEE. DURING THE REVISION PROCEEDINGS, THE ASSESSEE CONTE STED THE SHOW CAUSE NOTICE BOTH ON JURISDICTION AS WELL AS ON MERITS. THE LD.AR SUBMITTED BEFORE THE PCIT WITH REGARD TO JURISDICTION THAT TH E AO HAS EXAMINED THE ISSUE DURING THE ASSESSMENT PROCEEDINGS AND ALLOWED THE DEDUCTION, HENCE THERE IS NO CASE FOR REVISION U/S 263 OF I.T. ACT. THE PCIT CONSIDERED THE ARGUMENT OF THE ASSESSEE, VERIFIED T HE RECORDS AND HELD THAT WHILE COMPLETING THE ASSESSMENT, THE A.O. HAS NOT EVEN ASKED ANY QUESTION OR RAISED ANY CLARIFICATION DURING THE ASS ESSMENT PROCEEDINGS WITH REGARD TO TAXABILITY OF THE CENTRAL EXCISE REF UND AND THE ASSESSEE ALSO DID NOT BRING THE ISSUE BEFORE THE A.O. IN TH E ABSENCE OF ANY POSITIVE INDICATION OR MATERIAL EVIDENCE ON RECORD, IT IS ONLY ASSUMPTION OF THE ASSESSEE THAT THE A.O. DID EXAMINE THE ISSUE AND APPLIED HIS MIND. ACCORDINGLY, REJECTED THE GROUND OF OBJECTIO N RAISED BY THE ASSESSEE ON JURISDICTION ISSUE HOLDING THAT THERE W AS NO APPLICATION OF MIND. ITA NO.223/VIZAG/2015 & ITA NO.239/VIZAG/2017 GRANDHI VENKATA SATYA LAKSHMI KANTHA RAO, L/R OF GRANDHI SUBBA RAO, GUNTUR 4 ON MERITS, THE ASSESSEE ARGUED THAT MERE R ECEIPT OF REFUND FROM CENTRAL EXCISE DEPARTMENT DOES NOT MEAN THAT THE LI ABILITY HAS CEIZED TO EXIST AND CAN BE BROUGHT TO TAX U/S 41(1) OF THE AC T . IN THE ASSESSEES CASE THE ENTITLEMENT OF RECEIPT IS IN DISPUTE, HENC E THE REFUND IS TAXABLE OR NOT CAN BE DECIDED ONLY IN THE YEAR IN W HICH THE MATTER IS FINALLY SETTLED BY HONBLE SUPREME COURT AND ACCORD INGLY OFFERED TO TAX IN THE ASSESSMENT YEAR 2013-14. THE LD. PCIT PLACING RELIANCE ON THE HONBLE SUPR EME COURT DECISION IN THE CASE OF POLYFLEX (I) LIMITED VS. CI T (2002) 257 ITR 343 HELD THAT THE EXCISE DUTY REFUND PURSUANT TO THE DE CISION OF CEGAT SHALL BE SUBJECT TO TAX U/S 41(1) OF THE ACT AND POSSIBIL ITY OF REFUND BEING SET AT NAUGHT ON THE FUTURE DATE WILL NOT BE RELEVANT C ONSIDERATION. ACCORDINGLY, HELD THAT THE CENTRAL EXCISE DUTY REFU ND RECEIVED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION IS TAXABLE RECEIPT FOR THE ASSESSMENT YEAR 2011-12 AND DIRECTED THE A.O. TO PA SS THE CONSEQUENTIAL ORDER ADDING THE CENTRAL EXCISE DUTY REFUND TO THE INCOME. 3. AGGRIEVED BY THE ORDER OF THE PCIT, THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBUNAL. DURING THE APPEAL HEARING, L D. A.R. BROUGHT THE VARIOUS FACTS TO OUR NOTICE LEADING TO EXCISE DUTY REFUND TO THE ASSESSEE AS UNDER: ITA NO.223/VIZAG/2015 & ITA NO.239/VIZAG/2017 GRANDHI VENKATA SATYA LAKSHMI KANTHA RAO, L/R OF GRANDHI SUBBA RAO, GUNTUR 5 I. THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINE SS OF PREPARATION AND SALE OF BETEL NUT. INITIALLY, THE ASSESSEE CLASSIFIED ON 15.9.1995 THE PRODUCT UNDER TARIFF HEADING 2107 BETEL NUT POWDER KNOWN AS SUPARI AND PAID CENTRAL EXCISE DUT Y AT APPLICABLE RATE. LATER, ON 17.9.1997, THE ASSESSEE FILED A DECLARATION FOR CLASSIFICATION OF THE PRODUCT UNDER TARIFF HEADING 0801. THE ASST. COMMISSIONER OF INCOME TAX, CENTRA L EXCISE VIDE HIS ORDER DATED 14.10.1988 REJECTED THE CONTENTION OF THE ASSESSEE AND HELD THAT THE PRODUCT IS RIGHTLY CLASSIFIED UND ER TARIFF HEADING 2107. II. ASSESSEE WENT ON APPEAL BEFORE THE COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE AND THE LD. COMMISSIONER VIDE ORDER DATED 6.5.2004 SET ASIDE THE ORDER PASSED BY THE ASST. CO MMISSIONER AND HELD THAT THE ASSESSEE IS ENTITLED FOR CONSEQUE NTIAL RELIEF. THE ASSESSEE PAID EXCISE DUTY UNDER PROTEST FROM 25.7.1 997 TO 10.5.2004 AND STOPPED PAYMENT OF DUTY W.E.F. 11.5.2 004. III. THE HONBLE CESTAT VIDE ORDER DATED 12.4.2005 RESTO RED THE ORDER OF THE ASST. COMMISSIONER AND THIS ORDER WAS UPHELD BY THE HONBLE A.P. HIGH COURT VIDE ORDER DATED 15.9.2005. HOWEVER, VIDE ORDER DATED 19.3.2007, THE HONBLE SUPREME COU RT REVERSED ITA NO.223/VIZAG/2015 & ITA NO.239/VIZAG/2017 GRANDHI VENKATA SATYA LAKSHMI KANTHA RAO, L/R OF GRANDHI SUBBA RAO, GUNTUR 6 THE ORDER OF THE HONBLE HIGH COURT AND CESTAT AND UPHELD THE ORDER OF THE COMMISSIONER, CUSTOMS AND CENTRAL EXCI SE. THE REVIEW PETITION FILED BY THE REVENUE WAS ALSO DISMI SSED ON 19.3.2009. IV. VIDE APPLICATION DATED 7.5.2008, THE ASSESSEE REQUE STED FOR REFUND OF EXCISE DUTY PAID UNDER PROTEST. THE ASSESSEE RE QUESTED FOR REFUND OF ` 32,03,97,583/- CONSISTING OF ` 27, 83,24,027/- TOWARDS DUTY PAID BY CASH AND ` 4,46,35,804/- TOWARDS DUTY PAID THROUGH MODVAT CREDIT. V. THE DY. COMMISSIONER OF CUSTOMS, CENTRAL EXCISE VID E HIS ORDER DATED 29.4.2010 HELD THAT THE ASSESSEE IS OTHERWISE ELIGIBLE FOR REFUND BUT THEY ARE NOT ENTITLED FOR REFUND SINCE T HE ASSESSEE HAS NOT PASSED ON THE DUTY BURDEN TO THE TAX PAYERS, TH EREFORE, HE ORDERED THAT THE AMOUNT SHALL BE CREDITED TO CONSUM ER WELFARE FUND ESTABLISHED U/S 12C OF THE CENTRAL EXCISE ACT, 1944. VI. VIDE ORDER DATED 6.8.2010, THE COMMISSIONER HELD TH AT THE ASSESSEE IS ENTITLED FOR REFUND OF ` 27,82,86,041/- BEING PAID THROUGH PLA. THIS ORDER WAS UPHELD BY CESTAT VIDE ORDER DATED 7.2.2011 AND THEY HAVE ORDERED FOR THE INTEREST AS WELL. IN PURSUANCE OF THE ORDER OF THE CESTAT, THE ASSESSEE RECEIVED THE ITA NO.223/VIZAG/2015 & ITA NO.239/VIZAG/2017 GRANDHI VENKATA SATYA LAKSHMI KANTHA RAO, L/R OF GRANDHI SUBBA RAO, GUNTUR 7 REFUND DURING THE FINANCIAL YEAR 2010-11 RELEVANT T O THE ASSESSMENT YEAR 2011-12 AND SUM OF ` 32,06,00,767/- BEING THE REFUND OF THE DUTY AMOUNTING TO ` 27,82,86,041/- AND INTEREST THEREON. VII. THE ASSESSEE KEPT THIS AMOUNT AS A LIABILITY IN THE BOOKS OF ACCOUNT AS THE DISPUTE REGARDING WHETHER THE ASSESS EE IS ENTITLED FOR REFUND OR NOT HAS NOT ATTAINED FINALITY IN AS M UCH AS THE REVENUE PREFERRED FURTHER APPEAL TO THE HONBLE HI GH COURT OF A.P. VIII. THE ORDER OF THE CESTAT WAS UPHELD BY THE HONBLE H IGH COURT VIDE ORDER DATED 11.8.2011 AND THE SLP FILED BY THE REVENUE STOOD DISMISSED BY THE HONBLE SUPREME COURT ON 27.2.2012 . IX. AFTER COMMUNICATION OF THE ORDER OF THE HONBLE SUP REME COURT IN APRIL, 2012, THE ASSESSEE TRANSFERRED IN TO THE PRO FIT AND LOSS ACCOUNT, THE AMOUNT SHOWN INITIALLY AS LIABILITY IN THE BOOKS OF ACCOUNTS. 4. THE LD. A.R. DURING THE APPEAL HEARING ARGUED TH AT THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011-12 ON 30.9.2011 ADMITTING TOTAL INCOME OF ` 9,07,99,870/- AND THE TOTAL TAX INCLUDING INTEREST PAID BY THE ASSESSEE WAS ` 2,83,34,307/-. IN THE FINANCIAL ITA NO.223/VIZAG/2015 & ITA NO.239/VIZAG/2017 GRANDHI VENKATA SATYA LAKSHMI KANTHA RAO, L/R OF GRANDHI SUBBA RAO, GUNTUR 8 STATEMENT FORMING PART OF THE RETURN OF INCOME, THE ASSESSEE HAD DISCLOSED AN AMOUNT OF ` 32,06,00,767/- RECEIVED AS PAYABLE TO CBEC AND THE ASSESSEE HAD ENCLOSED THE COPY IN PAPER BOO K PAGE NO.6 IN THE BALANCE SHEET. 5. THE CASE OF THE ASSESSEE WAS TAKEN UP FOR SCRUTI NY AND DURING THE ASSESSMENT PROCEEDINGS, THE A.O. ISSUED NOTICE U/S 142(1) OF THE ACT ON 19.7.2013 AND THEN THE A.O. ASKED THE COMPLETE DETA ILS WITH REGARD TO LIABILITIES IN THE BALANCE SHEET. THE ASSESSMENT W AS DULY COMPLETED AFTER EXAMINATION OF THE INFORMATION FILED BY THE A SSESSEE. HENCE, THE ASSESSEE ARGUED THAT SINCE THE INFORMATION WAS DISC LOSED IN THE RETURN OF INCOME IN THE BALANCE SHEET AND THE A.O. HAS COM PLETED ASSESSMENT AFTER VERIFICATION OF THE BOOKS OF ACCOUNTS AND COM PLETE INFORMATION FILED BY THE ASSESSEE, THE A.O. HAS CONSIDERED THE ISSUE, HENCE, THERE IS NO ERROR COMMITTED BY THE A.O. FOR REVISING THE PROCEE DINGS U/S 143(3) OF THE ACT. 6. THE ASSESSEE HAD ALREADY ADMITTED THE SAID RECEI PT FOR THE ASSESSMENT YEAR 2013-14 IMMEDIATELY AFTER CRYSTALIS ATION OF THE LIABILITY. WHEN THE CASE WAS PICKED UP FOR REVISION U/S 263 OF THE ACT, THE ASSESSEE HAD ALREADY ADMITTED THE INCOME FOR THE AS SESSMENT YEAR 2013-14 AND PAID THE TAXES. THEREFORE, THERE IS NO TAX EFFECT AND THE ITA NO.223/VIZAG/2015 & ITA NO.239/VIZAG/2017 GRANDHI VENKATA SATYA LAKSHMI KANTHA RAO, L/R OF GRANDHI SUBBA RAO, GUNTUR 9 INCIDENCE IS TAX NEUTRAL, HENCE, ARGUED THAT ASSESS ING OFFICER WAS JUSTIFIED IN ACCEPTING THE CONTENTION OF THE ASSESS EE THAT THE AMOUNT RECEIVED DURING THE FINANCIAL YEAR 2010-11 WAS IN T HE NATURE OF LIABILITY AND THE SAME ASSUMED THE CHARACTER OF INCOME ONLY I N THE YEAR 2012-13 RELEVANT TO THE A.Y. 2013-14. THE LD. A.R. FURTHER SUBMITTED THAT THE LD PR INCIPAL COMMISSIONER OF INCOME TAX IS NOT CORRECT IN PLACING RELIANCE IN TH E CASE OF POLYFLEX (I) LTD. (SUPRA) OF HONBLE SUPREME COURT. THE ISSUE I N THE POLYFLEX (I) LTD. IS ONLY WHETHER THE EXCISE DUTY REFUND WAS ASSESSAB LE TO TAX U/S 41(1) OF THE ACT. IN THE ASSESSEES CASE, THE ISSUE IS N OT LIMITED TO THE RECEIPT OF CENTRAL EXCISE DUTY REFUND BUT IT IS ATTACHED WI TH THE ENTITLEMENT OF REFUND. THE ASST. COMMISSIONER HAS PASSED AN ORDER IN THE CASE OF ASSESSEE STATING THAT THE REFUND SHOULD GO TO THE C ONSUMER WELFARE FUND. THOUGH THE REFUND WAS ISSUED IN 2010-11, THE ISSUE WITH REGARD TO THE ENTITLEMENT OF REFUND WHETHER IT SHOULD GO TO C ONSUMER WELFARE FUND OR TO THE ASSESSEE WAS IN DISPUTE TILL SUCH TIME, THE MATTER WAS FINALLY SETTLED BY HONBLE SUPREME COURT. IN THE CASE OF P OLYFLEX (I) LTD. (SUPRA), THE ISSUE WITH REGARD TO THE CREDITING OF THE CENTRAL EXCISE DUTY REFUND TO CONSUMER WELFARE FUND IS NOT INVOLVED. H ENCE, ARGUED THAT THE FACTS OF THE HONBLE SUPREME COURT ARE NOT APPL ICABLE TO THE ITA NO.223/VIZAG/2015 & ITA NO.239/VIZAG/2017 GRANDHI VENKATA SATYA LAKSHMI KANTHA RAO, L/R OF GRANDHI SUBBA RAO, GUNTUR 10 ASSESSEES CASE. FURTHER, THE LD. A.R. SUBMITTED TH AT THE ASSESSEE HAD ALREADY ADMITTED THE INCOME DURING THE FINANCIAL YE AR 2012-13, RELEVANT TO THE ASSESSMENT YEAR 2013-14. BY TAKING UP THE C ASE FOR REVISION U/S 263 OF THE ACT, THE PCIT HAS DIRECTED THE A.O. TO T AX THE CENTRAL EXCISE REFUND BUT NO DIRECTION WAS GIVEN FOR THE ASSESSMEN T YEAR 2013-14 IN WHICH THE ASSESSEE HAD ALREADY ADMITTED THE INCOME, WHICH AMOUNTS TO DOUBLE TAXATION OF THE SAME AMOUNT TWICE, ONCE IN T HE ASSESSMENT YEAR 2011-12 AND SECOND TIME IN THE ASSESSMENT YEAR 2013 -14. THE REVISION SOUGHT TO BE MADE BY THE COMMISSIONER OF INCOME TAX IS REVENUE NEUTRAL. THE INCOME OF THE ASSESSEE BOTH FOR 201 1-12 AND 2013-14 IS LIABLE TO BE TAXED AT THE MAXIMUM MARGINAL RATE AND AS SUCH TAX LIABILITY IN RESPECT OF REFUND OF EXCISE DUTY IS MARGINAL W HETHER IT IS ASSESSMENT FOR THE ASSESSMENT YEAR 2011-12 OR 2013-14. THE AS SESSEE ALSO RELIED ON THE DECISIONS OF CIT VS. TRIVENI ENGINEERING IND USTRIES LTD. 336 ITR 374, CIT VS. ADITYA BUILDERS 378 ITR 75 (BOM) AND C IT VS. EXCEL INDUSTRIES (2013) 358 ITR 285 (SC). 7. ON THE OTHER HAND, THE LD. D.R. RELIED ON THE OR DERS OF THE COMMISSIONER OF INCOME TAX PASSED U/S 263 OF THE AC T AND ARGUED THAT THE COMMISSIONER OF INCOME TAX HAS RIGHTLY DIRECTED THE A.O. TO TAX THE CENTRAL EXCISE REFUND AND THERE IS NO MISTAKE IN TH E ORDER OF THE ITA NO.223/VIZAG/2015 & ITA NO.239/VIZAG/2017 GRANDHI VENKATA SATYA LAKSHMI KANTHA RAO, L/R OF GRANDHI SUBBA RAO, GUNTUR 11 COMMISSIONER OF INCOME TAX, ACCORDINGLY, REQUESTED TO UPHOLD THE ORDER OF THE LD. PCIT. 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. IN THIS CASE, THE ASSESSEE HAD RECEIVED THE REFUND OF ` 32,06,00,767/- DURING THE FINANCIAL YEAR 2010-11 RELEVANT TO THE ASSESSME NT YEAR 2011-12 IN PURSUANCE OF THE ORDER OF CESTAT. THE ASST. COMMIS SIONER OF CENTRAL EXCISE PASSED THE ORDER ON 29.4.2010 HOLDING THAT T HE ASSESSEE IS OTHERWISE ELIGIBLE FOR REFUND BUT THE ASSESSEE IS N OT ENTITLED TO THE REFUND SINCE THE ASSESSEE HAS NOT PASSED ON THE DUT Y BURDEN TO THE TAX PAYERS. THEREFORE, THE DY. COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE HAS ORDERED THAT THE AMOUNT SHOULD BE CREDITED TO T HE CONSUMER WELFARE FUND ESTABLISHED U/S 12C OF THE CENTRAL EXC ISE, 1944,HENCE, THE DISPUTE IS NOT SETTLED WITH THE ORDER OF THE CESTAT AND THE SAME IS ATTACHED WITH THE LIABILITY TO PAY THE SAME TO CONS UMER WELFARE FUND. SINCE THE REVENUE HAS PREFERRED THE APPEAL BEFORE T HE HONBLE HIGH COURT OF ANDHRA PRADESH AND SUBSEQUENTLY AGITATED T HE MATTER BEFORE THE HONBLE SUPREME COURT THE DISPUTE WITH REGARD T O THE ENTITLEMENT OF REFUND REMAINED UNSETTLED AND CONTINUED TILL THE MA TTER WAS SETTLED BY HONBLE SUPREME COURT IN APRIL, 2012 RELEVANT TO TH E ASSESSMENT YEAR ITA NO.223/VIZAG/2015 & ITA NO.239/VIZAG/2017 GRANDHI VENKATA SATYA LAKSHMI KANTHA RAO, L/R OF GRANDHI SUBBA RAO, GUNTUR 12 2013-14. THE ASSESSEE HAS TRANSFERRED THE CENTRAL EXCISE DUTY IMMEDIATELY TO THE INCOME ACCOUNT ON RECEIPT OF THE HONBLE SUPREME COURT ORDER AND PAID THE TAXES. THUS, FACTS OF THE ASSESSEES CASE ARE DIFFERENT FROM THE DECISION OF HONBLE SUPREME COUR T IN THE CASE OF POLYFLEX (I) PVT. LTD. (SUPRA) RELIED UPON BY THE L D. PCIT. IN THE ASSESSEES CASE, THE ISSUE WITH REGARD TO THE ENTIT LEMENT OF REFUND WAS SET AT REST BY HONBLE SUPREME COURT BY AN ORDER IN FEB12 WHICH WAS RECEIVED BY THE ASSESSEE IN APRIL, 2012 AND IMMEDIA TELY ON RECEIPT OF ORDER OF THE SUPREME COURT, THE LD. A.R. STATED THA T THE ASSESSEE HAS REVERSED THE LIABILITY SHOWN UNDER THE HEAD CBEC TO THE INCOME ACCOUNT AND ACCORDINGLY OFFERED TO TAX. IN THE FACTS AND C IRCUMSTANCES UNLESS HONBLE SUPREME COURT SETTLES THE ISSUE, THE ASSESS EE CANNOT BECOME THE ABSOLUTE OWNER TO OFFER THE SAME AS INCOME. TH E INCOME ACCRUES TO THE ASSESSEE WHEN IT IS AVAILABLE TO THE ASSESSEE U NCONDITIONALLY WITHOUT ANY FURTHER LIABILITY ATTACHED WITH THE SAME. TILL SUCH TIME ISSUE IS SETTLED BY THE HONBLE SUPREME COURT, IT IS NOT CLE AR WHETHER THE ASSESSEE IS ENTITLED FOR REFUND OR THE ASSESSEE HAS TO PASS ON THE BENEFIT TO THE CONSUMER WELFARE FUND. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE BECOMES ABSOLUTE OWNER OF THE RECEIPT OF CENTRAL EXCISE DUTY REFUND ONLY AFTER RENDERING THE JUDGEMENT BY THE HONBLE SUPREME COURT. HONBLE BOMBAY HIGH COURT W ITH REGARD TO THE ITA NO.223/VIZAG/2015 & ITA NO.239/VIZAG/2017 GRANDHI VENKATA SATYA LAKSHMI KANTHA RAO, L/R OF GRANDHI SUBBA RAO, GUNTUR 13 YEAR OF ALLOWABILITY OF EXPENDITURE IN THE CASE OF TRIVENI INDUSTRIES ENGINEERING LIMITED (2011) 336 ITR 374 (BOM) RELIED UPON BY THE ASSESSEE HELD AS UNDER: '11. AFTER CONSIDERING THE SUBMISSIONS OF THE COUNSEL ON THE EITHER SIDE, IN THE GIVEN FACTS, WE ARE PRIMA FADE OF THE VIEW T HAT ARGUMENTS OF THE LEARNED COUNSEL FOR THE ASSESSEE TO PREVAIL. THE LE ARNED COUNSEL FOR THE REVENUE MAY BE CORRECT IN STATING THE PROPOSITION O F LAW, GENERALLY. NO DOUBT, UNLESS THE EXPENDITURE IS ACTUALLY INCURRED OR IT ACCRUED IN THE RELEVANT YEAR, IT WOULD NOT BE ALLOWED AS DEDUCTION . SUCH A LIABILITY HAS TO BE IN PRAESENTI. HOWEVER, AT THE SAME TIME, IN T HE GIVEN SCENARIO WHERE IN RELATION TO THE PROJECT WORKS UNDERTAKEN B Y THE ASSESSEE, COMPLETED CONTRACT METHOD OF ACCOUNTING IS FOLLOWED , WHICH IS CONSISTENT WITH THE ACCOUNTING STANDARDS AND THESE ACCOUNTING STANDARDS ALSO LAY DOWN THE NORMS INDICATING THE PARTICULAR POINT OF T IME WHEN THE PROVISIONS FOR ALL KNOWN LIABILITIES AND LOSSES HAS TO BE MADE, THE MAKING OF SUCH A PROVISION BY THE ASSESSEE APPEARS TO BE J USTIFIED MORE SO WHEN THE ASSESSEE HAD RECOGNIZED GAIN AS WELL ON SUCH PR OJECT DURING THIS YEAR ITSELF. THIS APPEARS TO BE IN CONSONANCE WITH PRINCIPLE OF MATCHING COST AND REVENUE AS WELL. HOWEVER, IN THE PROJECTED SCENARIO OF THIS CASE, AFTER TAKING STOCK OF THE ENTIRE SITUATION, W E ARE OF THE OPINION THAT IT IS NOT NECESSARY TO CONCLUSIVELY ANSWER THE AFOR ESAID QUESTIONS FORMULATED. IT IS BECAUSE OF THE REASON THAT WE FIN D THAT THE ENTIRE EXERCISE IS REVENUE NEUTRAL. IT MAY BE POINTED OUT THAT IT IS A MATTER OF RECORD THAT AGAINST THE PROVISION OF RS. 139 LAKHS, THE ASSESSEE HAD TO ACTUALLY INCUR EXPENDITURE OF RS. 218.03 LAKHS, I.E ., MORE THAN THE PROVISION MADE. IT IS UNDISPUTED THAT THE EXPENDITU RE INCURRED BY THE ASSESSEE ON THE PROJECT IS ADMISSIBLE DEDUCTION. TH E ONLY DISPUTE THAT THE REVENUE SEEKS TO RAISE IS REGARDING THE YEAR OF ALLOWABILITY OF EXPENDITURE. CONSIDERING THAT THE ASSESSEE IS A COM PANY ASSESSED AT UNIFORM RATE OF TAX, THE ENTIRE EXERCISE OF SEEKING TO DISTURB THE YEAR OF ALLOWABILITY OF EXPENDITURE IS, IN ANY CASE, REVENU E NEUTRAL. 12. WE ARE REMINDED OF THE CLASSIC OBSERVATIONS MAD E BY JUSTICE TENDOLKER IN THE CASE OF THE CIT VS. VS. NAGRI MILL S CO. LTD. (1958) 33 ITR 681 (BORN), WHICH READS AS UNDER: 'WE HAVE OFTEN WONDERED WHY THE IT AUTHORITIES, IN A MATTER SUCH AS THIS WHERE THE DEDUCTION IS OBVIOUSLY A PERMISSIBLE DEDUCTION UNDER THE IT ACT, RAISE DISPUTES AS TO THE YEAR IN WHICH THE DEDUCTION SHOULD BE ALLOWED. THE QUESTION AS TO THE YEAR IN WHICH A DED UCTION IS ALLOWABLE MAY BE MATERIAL WHEN THE RATE OF TAX CHARGEABLE ON THE ASSESSEE IN TWO DIFFERENT YEARS IS DIFFERENT; BUT IN THE CASE OF IN COME OF A COMPANY, TAX IS ATTRACTED AT A UNIFORM RATE, AND WHETHER THE DED UCTION IN RESPECT OF ITA NO.223/VIZAG/2015 & ITA NO.239/VIZAG/2017 GRANDHI VENKATA SATYA LAKSHMI KANTHA RAO, L/R OF GRANDHI SUBBA RAO, GUNTUR 14 BONUS WAS GRANTED IN THE ASST. YR. 1952-53 OR IN TH E ASESSMENT YEAR CORRESPONDING TO THE ACCOUNTING YEAR 1952, THAT IS IN THE ASST. YR. 1953- 54, SHOULD BE A MATTER OF NO CONSEQUENCE TO THE DEP ARTMENT; AND ONE SHOULD HAVE THOUGHT THAT THE DEPARTMENT WOULD NOT F RITTER AWAY ITS ENERGIES IN FIGHTING MATTERS OF THIS KIND. BUT, OBV IOUSLY, JUDGING FROM THE REFERENCES THAT COME UP TO US EVERY NOW AND THEN, T HE DEPARTMENT APPEARS TO DELIGHT IN RAISING POINTS OF THIS CHARAC TER WHICH DO NOT AFFECT THE TAXABILITY OF THE ASSESSEE OR THE TAX THAT THE DEPARTMENT IS LIKELY TO COLLECT FROM HIM WHETHER IN ONE YEAR OR THE OTHER.' 13. THE AFORESAID OBSERVATIONS OF THE BOMBAY HIGH C OURT WERE REITERATED BY THIS COURT IN THE CASE OF CIT VS. SHR I RAM PISTONS & RINGS LTD. (2008) 220 CTR (DEL) 404, AS UNDER: 'FINALLY, WE MAY ONLY MENTION WHAT HAS BEEN ARTICUL ATED BY THE BOMBAY HIGH COURT IN CIT VS. NAGRI MILLS CO. LTD. (1958) 3 3 ITR 681 (BORN) AS FOLLOWS :.............. IN THE REFERENCE THAT IS BEFORE US THERE IS NO DOUB T THAT THE ASSESSEE HAD INCURRED AN EXPENDITURE. THE ONLY DISPUTE IS RE GARDING THE DATE ON WHICH THE LIABILITY HAD CRYSTALLIZED. IT APPEARS THA T THERE WAS NO CHANGE IN THE RATE OF TAX FOR THE ASST. YR. 1983-84 WITH W HICH WE ARE CONCERNED. THE QUESTION, THEREFORE, IS ONLY WITH REGARD TO THE YEAR OF DEDUCTION AND IT IS A PITY THAT ALL OF US HAVE TO EXPAND SO MUCH TIME AND ENERGY ONLY TO DETERMINE THE YEAR OF TAXABILITY OF THE AMOUNT.' 14. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT I NSOFAR AS PRESENT APPEAL IS CONCERNED, SUBSTANTIAL QUESTIONS OF LAW T HAT NEED TO BE ANSWERED DO NOT ARISE. WE, THEREFORE, DISMISS THIS APPEAL ON THIS GROUND ALONE.' 9. SIMILARLY, HONBLE BOMBAY HIGH COURT IN THE CASE OF ADITYA BUILDERS (2015) 378 ITR 75 WITH REGARD TO THE DISPU TE THE YEAR OF PERMISSIBLE DEDUCTIONS HELD AS UNDER: 9. SO FAR AS THE ALTERNATIVE SUBMISSION MADE BY MR . MALHOTRA VIZ, THE LINK VIEW PROJECT SHOULD HAVE ALSO BEEN BROUGHT TO TAX UNDER THE PROJECT COMPLETION METHOD IS CONCERNED, THE SAME DOES NOT A RISE FOR OUR CONSIDERATION AS COMMISSIONER IN HIS ORDER DATED 27 MARCH 2012 HAS SPECIFICALLY DIRECTED ADOPTION OF PERCENTAGE COMPLE TION METHOD OF ACCOUNTING TO SUBJECT THE INCOME ARISING ON LINK CO RNER PROJECT TO TAX. IN ANY VIEW OF THE MATTER, THE PROFITS ON LINK CORN ER PROJECT HAS BEEN OFFERED TO TAX AND ACCEPTED IN THE SUBSEQUENT ASSES SMENT YEAR I.E. A. Y. 2008-09. IN FACT, THIS COURT IN CIT VS. NAGRI MILLS CO. LTD. (1958) 33 ITR ITA NO.223/VIZAG/2015 & ITA NO.239/VIZAG/2017 GRANDHI VENKATA SATYA LAKSHMI KANTHA RAO, L/R OF GRANDHI SUBBA RAO, GUNTUR 15 681 (BORN), HAS OBSERVED AS UNDER: 'WE HAVE OFTEN WONDERED WHY THE IT AUTHORITIES, IN A MATTER SUCH AS THIS WHERE THE DEDUCTION IS OBVIOUSLY A PERMISSIBLE DEDUCTION UNDER THE IT ACT, RAISE DISPUTES AS TO THE YEAR IN WHICH THE DEDUCTION SHOULD BE ALLOWED. THE QUESTION AS TO THE YEAR IN WHICH A DED UCTION IS ALLOWABLE MAY BE MATERIAL WHEN THE RATE OF TAX CHARGEABLE ON THE ASSESSEE IN TWO DIFFERENT YEARS IS DIFFERENT; BUT IN THE CASE OF IN COME OF A COMPANY, TAX IS ATTRACTED AT A UNIFORM RATE, AND WHETHER THE DED UCTION IN RESPECT OF BONUS WAS GRANTED IN THE ASST. YR. 1952-53 OR IN TH E ASSESSMENT YEAR CORRESPONDING TO THE ACCOUNTING YEAR 1952, THAT IS IN THE ASST. YR. 1953- 54, SHOULD BE A MATTER OF NO CONSEQUENCE TO THE DEP ARTMENT; AND ONE SHOULD HAVE THOUGHT THAT THE DEPARTMENT WOULD NOT F RITTER AWAY ITS ENERGIES IN FIGHTING MATTERS OF THIS KIND. BUT, OBV IOUSLY, JUDGING FROM THE REFERENCES THAT COME UP TO US EVERY NOW AND THEN, T HE DEPARTMENT APPEARS TO DELIGHT IN RAISING POINTS OF THIS CHARAC TER WHICH DO NOT AFFECT THE TAXABILITY OF THE ASSESSEE OR THE TAX THAT THE DEPARTMENT IS LIKELY TO COLLECT FROM HIM WHETHER IN ONE YEAR OR THE OTHER.' 10. ACCORDINGLY, THE QUESTIONS RAISED FOR OUR CONSI DERATION DO NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. 10. HONBLE SUPREME COURT IN THE CASE OF CIT VS. EX CEL INDUSTRIES LTD. (2013) 358 ITR 295 (SC) HELD THAT WHEN THE RAT E OF TAX REMAINED THE SAME IN THE PRESENT ASSESSMENT YEAR AS WELL AS THE SUBSEQUENT ASSESSMENT YEAR, THE REVENUE HAS NOT BEE N DEPRIVED OF ANY TAX. FOR THE SAKE OF CONVENIENCE, WE EXTRACT R ELEVANT PARAGRAPH OF THE HONBLE SUPREME COURT WHICH READS AS UNDER: 32. THIRDLY, THE REAL QUESTION CONCERNING US IS THE YEAR IN WHICH THE ASSESSEE IS REQUIRED TO PAY TAX. THERE IS NO DISPUT E THAT IN THE SUBSEQUENT ACCOUNTING YEAR, THE ASSESSEE DID MAKE I MPORTS AND DID DERIVE BENEFITS UNDER THE ADVANCE LICENCE AND THE D UTY ENTITLEMENT PASS BOOK AND PAID TAX THEREON. THEREFORE, IT IS NOT AS IF THE REVENUE HAS BEEN DEPRIVED OF ANY TAX. WE ARE TOLD THAT THE RATE OF TAX REMAINED THE SAME IN THE PRESENT ASSESSMENT YEAR AS WELL AS IN T HE SUBSEQUENT ASSESSMENT YEAR. THEREFORE, THE DISPUTE RAISED BY T HE REVENUE IS ENTIRELY ACADEMIC OR AT BEST MAY HAVE A MINOR TAX E FFECT. THERE WAS, THEREFORE, NO NEED FOR THE REVENUE TO CONTINUE WITH THIS LITIGATION WHEN IT WAS QUITE CLEAR THAT NOT ONLY WAS IT FRUITLESS ( ON MERITS) BUT ALSO THAT IT MAY NOT HAVE ADDED ANYTHING MUCH TO THE PUBLIC COFF ERS. ITA NO.223/VIZAG/2015 & ITA NO.239/VIZAG/2017 GRANDHI VENKATA SATYA LAKSHMI KANTHA RAO, L/R OF GRANDHI SUBBA RAO, GUNTUR 16 11. FURTHER, AS PER ORDER OF THE DY. COMMISSIONER, CUSTOMS, THE ASSESSEE IS NOT ENTITLED FOR REFUND, HENCE, THE REF UND RECEIVED IN PURSUANCE OF THE ORDER OF THE CESTAT EVEN IF BE TR EATED AS INCOME U/S 41(1) OF THE ACT, STILL THE NET INCOME WOULD BE ZERO SINCE THE LIABILITY LIES TO THE ASSESSEE WITH THE CONSUMER WE LFARE FUND SUBSISTED TILL THE HONBLE SUPREME COURT SETTLED TH E ISSUE. HENCE, THE ASSESSEE REQUIRES TO TRANSFER THIS AMOUNT TO CO NSUMER WELFARE FUND BUT NOT TO THE INCOME ACCOUNT OF THE ASSESSEE. THEREFORE, RECEIPT HELD BY THE ASSESSEE IS IN FIDUCIARY CAPACI TY TILL SUCH TIME THE ISSUE IS FINALLY SETTLED AT THE LEVEL OF HONBLE SU PREME COURT AND HE CANNOT BE HELD TO BE OWNER OF THE ASSET. THEREFORE, WE HOLD THAT IN VIEW OF THE PEC ULIAR CIRCUMSTANCES EXIST IN THE ASSESSEES CASE BY VIRTUE OF THE ORDER FO THE DY. COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE WITH REG ARD TO THE ENTITLEMENT OF THE CENTRAL EXCISE REFUND THE SAME I S CRYSTALISED IN THE YEAR OF FINAL SETTLEMENT BY HONBLE SUPREME COU RT, ACCORDINGLY WE HOLD THAT THE ASSESSEE HAS RIGHTLY OFFERED THE C ENTRAL EXCISE REFUND AS INCOME FOR THE ASSESSMENT YEAR 2013-14 AN D THE ORDER OF THE COMMISSIONER OF INCOME TAX IS UNSUSTAINABLE. A CCORDINGLY, WE ITA NO.223/VIZAG/2015 & ITA NO.239/VIZAG/2017 GRANDHI VENKATA SATYA LAKSHMI KANTHA RAO, L/R OF GRANDHI SUBBA RAO, GUNTUR 17 SET ASIDE THE ORDER OF THE PRINCIPAL COMMISSIONER O F INCOME TAX PASSED U/S 263 OF THE ACT AND ALLOW THE APPEAL OF T HE ASSESSEE. ITA NO.239/VIZAG/2017: 12. THE ASSESSEE FILED RETURN OF INCOME IN THIS CAS E FOR THE ASSESSMENT YEAR 2011-12 ON 30.9.2011 AND THE ASSESS MENT WAS COMPLETED U/S 143(3) OF THE ACT BY AN ORDER DATED 5 .3.2014 ON TOTAL INCOME OF ` 9,16,30,599/-. THE PRINCIPAL COMMISSIONER OF INCO ME TAX HAS TAKEN UP THE CASE FOR REVISION U/S 263 OF THE A CT AND OBSERVED THAT THE ASSESSEE HAD RECEIVED SUM OF ` 32,06,00,767/- AS CENTRAL EXCISE DUTY REFUND BUT NOT OFFERED THE SAME AS INCOME IN T HE YEAR 2011-12. HENCE, THE PRINCIPAL COMMISSIONER OF INCOME TAX HAS TAKEN UP THE CASE FOR REVISION U/S 263 OF THE ACT AND DIRECTED T HE A.O. TO ASSESS THE RECEIPT OF ` 32,06,00,767/- FOR THE ASSESSMENT YEAR 2011-12 AND TO PASS THE CONSEQUENTIAL ORDER. ACCORDINGLY, THE A.O . PASSED THE CONSEQUENTIAL ORDER DATED 22.6.2015 ON TOTAL INCOME OF ` 41,22,31,357/-. IN THE REASSESSMENT, THE A.O. MADE THE ADDITION OF ` 32,06,00,767/- RELATING TO CENTRAL EXCISE DUTY REFU ND. 13. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSE E FILED APPEAL BEFORE THE CIT(A) AND THE LD. CIT(A) ALLOWED THE AP PEAL OF THE ASSESSEE. ITA NO.223/VIZAG/2015 & ITA NO.239/VIZAG/2017 GRANDHI VENKATA SATYA LAKSHMI KANTHA RAO, L/R OF GRANDHI SUBBA RAO, GUNTUR 18 14. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE IS IN APPEAL BEFORE THIS TRIBUNAL CHALLENGING THE RELIEF ALLOWED BY THE LD. CIT(A). WE HAVE ADJUDICATED THE ASSESSEES APPEAL IN RESPEC T OF THE ORDER PASSED U/S 263 OF THE ACT AND ALLOWED THE APPEAL OF THE ASSESSEE. HENCE, THE APPEAL FILED BY THE REVENUE HAS BECOME I NFRUCTUOUS AND THE SAME IS DISMISSED. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 16 TH MAR18. SD/- SD/- ( . ) ( . .. . . . . . ' ) (V. DURGA RAO) (D.S. SUNDER SINGH) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 16.03.2018 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT GRANDHI VENKATA SATYA LAKSHMI KA NTHA RAO, L/R OF GRANDHI SUBBA RAO, D.NO.25-8-53/2, SAMPATH NAGAR, GUNTUR-523 002. 2. / THE RESPONDENT THE ADDL. CIT, RANGE-1, GUNTUR 3. + / THE PRINCIPAL CIT, GUNTUR 4. + ( ) / THE CIT (A), GUNTUR 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM