The DCITGNR Circle, Gandhinagar V. Gujarat State Seeds Corporation, Gandhinagar

ITA 2596/AHD/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8192 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 22-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 01-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Assessee Lawyers: M J SHAH
• Keywords: Retrospective amendment
• Section: 143(3); 37

Judgement Text

ITA NO. 2596/AHD/2013 DCIT VS. GUJARAT STATE SEEDS CORPN LTD ASSESSMENT YEAR: 2010-11 PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND MAHAVIR PRASAD JM] ITA NO. 2596/AHD/2013 ASSESSMENT YEAR: 2010-11 ASST. COMMISSIONER OF INCOME-TAX .............A PPELLANT CIRCLE-12, AHMEDABAD VS. GUJARAT STATE SEEDS CORPORATION .................RESPONDENT BIJ BHAVAN, SECTOR-10A, GANDHINAGAR APPEARANCES BY: VK SINGH FOR THE APPELLANT MJ SHAH FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 10.08.2017 DATE OF PRONOUNCING THE ORDER : 27.10.2017 O R D E R PER PRAMOD KUMAR AM: 1. BY WAY OF THIS APPEAL, THE ASSESSING OFFICER HAS CHALLENGED CORRECTNESS OF THE ORDER DATED 16.08.2013 PASSED BY THE LEARNED CI T(A), GANDHINAGAR, AHMEDABAD, IN THE MATTER OF ASSESSMENT UNDER SECTIO N 143(3) OF THE INCOME-TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2010-11. 2. IN GROUND NO. 1, THE DEPARTMENT HAS RAISED FOLLO WING GRIEVANCE:- THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FA CTS IN DELETING THE ADDITION MADE ON ACCOUNT OF REVOLVING FUND OF RS.40 ,00,000/- 3. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THE AB OVE GRIEVANCE IS COVERED, IN FAVOUR OF THE ASSESSEE, BY THE DECISION DATED 29.06 .2015 OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 200 8-09 AND 2009-10 WHEREIN THE TRIBUNAL HAS, INTER ALIA, OBSERVED AS FOLLOWS:- ITA NO. 2596/AHD/2013 DCIT VS. GUJARAT STATE SEEDS CORPN LTD ASSESSMENT YEAR: 2010-11 PAGE 2 OF 5 5.3 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND GO ING THROUGH THE MATERIAL ON RECORD WE FIND THAT THE ISSUE BEFORE US IS TREATMEN T OF REVOLVING FUNDS RECEIVED FROM GOVERNMENT OF GUJARAT. THE PURPOSE OF THE FUNDS IS TO AUGMENT THE TRADING ACTIVITY OF THE ASSESSEE MEANING THEREB Y IF IT WAS A CASE OF NON RETURNABLE GRANT OR SUBSIDY IT WOULD HAVE BEEN A RE VENUE RECEIPT. THE ASSESSING OFFICER FAILED TO APPRECIATE THAT THE FUN D IS RETURNABLE ON DEMAND. THE NATURE OF THIS FUND IS THAT OF A LOAN WITHOUT I NTEREST. A LOAN CAN NEVER PARTAKE THE FORM OF INCOME. THE AMOUNT GIVEN WAS NE ITHER RETURNABLE AND NOR A LIABILITY. IT IS UTILIZED FOR THE PURPOSE IT IS G IVEN. SO, THIS CANNOT BE HELD TO BE OF THE NATURE OF INCOME. IN THIS BACKGROUND, THE AD DITION MADE BY THE ASSESSING OFFICER WAS RIGHTLY DELETED BY THE CIT(A) . SAME IS UPHELD. THIS TAKE CARE OF THIS ISSUE IN BOTH YEARS I.E. ASST. YE ARS 2008-09 & ASST. YEAR 2009-10. 4. WE SEE NO REASON TO TAKE ANY OTHER VIEW OF THE M ATTER THAN THE VIEW SO TAKEN BY THE CO-ORDINATE BENCH. RESPECTFULLY FOLLOWING TH E SAME, WE APPROVE THE ORDER OF THE CIT(A) IN THIS REGARD AND DECLINE TO INTERFERE IN THE MATTER. 5. GROUND NO. 1 IS THUS DISMISSED. 6. IN GROUND NO. 2, THE GRIEVANCE RAISED BY THE DEP ARTMENT IS AS FOLLOWS:- THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FA CTS IN DELETING THE ADDITION MADE ON ACCOUNT VALUE OF SEEDS OF RS.1,43, 85,925/- 7. LEARNED REPRESENTATIVES FAIRLY AGREE THAT THIS I SSUE IS ALSO COVERED, IN FAVOUR OF THE ASSESSEE, BY THE DECISION DATED 29.06.2015 O F THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2007-0 8 AND 2009-10 WHEREIN THE TRIBUNAL HAS, INTER ALIA, OBSERVED AS FOLLOWS:- 3.3. AFTER GOING THROUGH THE MATERIAL ON RECORD, W E FIND THAT ASSESSING OFFICER HAS ADDED RS.1,61,88,935/- I.E. 50% OF JANGAD STO CK OF RS.3,23,77,870/- HE OBSERVED THAT THE ASSESSEE HAS NEITHER SHOWN SEEDS OF RS.3,23,77,870/- AS PURCHASES NOR HAS INCLUDED IN ITS CLOSING STOCK. TH E STAND OF THE ASSESSEE HAS BEEN THAT GOODS ARE RECEIVED ON APPROVAL BASIS. TILL THE GOODS ARE CERTIFIED TO BE OF RELIABLE QUALITY, THE SAME REMAI NS PROPERTY OF FARMERS AND ARE KEPT IN THE GODOWN OF ASSESSEE. ONLY AFTER CERT IFICATION OF THE SEEDS BY THE CONCERNED CERTIFYING AGENCIES, THE ABOVE SEEDS ARE TAKEN INTO PURCHASE ACCOUNT OF ASSESSEE. ONLY THEN THAT WOULD FORM CLOS ING STOCK AT THE END OF THE YEAR. THE ASSESSING OFFICER HAS FURTHER OBSERVED TH AT ASSESSEE WAS MAKING ADHOC PAYMENT OF 50% OF THE STOCK TO THE FARMERS AS ADVANCES ON RECEIPT OF GOODS ON APPROVAL WHILE AS PER THE BALANCE SHEET, T HE ASSESSEE HAS NOT SHOWN SUCH ADVANCES ON THE ASSET SIDE OF THE BALANC E SHEET. THE ASSESSEE GAVE DETAILED BIFURCATION IN THIS REGARD AND HAD ST ATED THAT IT IS EVIDENT FROM THE ANNUAL ACCOUNTS OF THE ASSESSEE. AS PER SCHEDUL E J OF LOANS AND ADVANCES, ADVANCES RECOVERABLE IN CASH OR KIND ARE SHOWN AT ITA NO. 2596/AHD/2013 DCIT VS. GUJARAT STATE SEEDS CORPN LTD ASSESSMENT YEAR: 2010-11 PAGE 3 OF 5 RS.3,18,56,035/- IN BALANCE SHEET. THE GROUPING OF SCH. J SHOWS ADVANCES TO PRODUCERS (FARMERS AGAINST JANGAD PURCHASES) AT RS.56,64,882/- WHICH IS SUPPORTED BY THE DETAILED STATEMENT OF PART PAYMENT MADE OF JANGAD STOCK FARMER-WISE. THE ASSESSEE FULLY EXPLAINED ITS STAN D AS TAKEN IN ITS ACCOUNT. THE ASSESSEE HAS BEEN FOLLOWING THIS SYSTEM OF ACCO UNTING IN A CONSISTENT MANNER. SAME HAS BEEN ACCEPTED BY THE DEPARTMENT AS EVIDENT FROM THE ORDERS PASSED U/S 143(3) OF THE ACT IN THE EARLIER YEARS. THE BOOKS OF THE ASSESSEE ARE AUDITED BY TAX AUDITORS, GOVERNMENT AU DITORS AND STATUTORY AUDITORS. THE ASSESSEES RELIANCE ON PROVISIONS OF SECTION 24 OF THE SALE OF GOODS ACT AND ACCOUNTING STANDARDS IN THIS REGARD W AS FOUND APPROPRIATE. KEEPING IN VIEW OF OUR DISCUSSION, WE FIND THAT CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.1,61,88,935/-. NO INTERFERENCE I S CALLED FOR IN THE WELL REASONED ORDER OF CIT(A). ACCORDINGLY SAME IS UPHEL D. 8. RESPECTFULLY FOLLOWING THE VIEWS SO EXPRESSED BY THE CO-ORDINATE BENCH, WE APPROVE THE CONCLUSIONS SO ARRIVED AT BY THE LEARNE D CIT(A) IN THIS REGARD AND DECLINE TO INTERFERE IN THE MATTER. 9. GROUND NO. 2 IS THUS DISMISSED. 10. THE GRIEVANCE RAISED BY THE REVENUE IN GROUND N O.3 IS AS FOLLOWS:- THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FA CTS IN DELETING THE DISALLOWANCE MADE FROM SALARY ARREARS OF RS.2,48,03 ,028/-, IGNORING THE FACT THAT SUCH ARREARS PERTAIN TO PERIOD FROM 01.01.2006 ONWARDS AND THAT THE ACTUAL PAYMENT IS ALSO MADE IN SUBSEQUENT YEARS. 11. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS ARE LIKE THIS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS CLAIMED RS.3,11,02,010/- AS PROVISION OF SALARY. WHEN ASKE D TO JUSTIFY THE CLAIM SO MADE, ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THA T, AS PER THE DIRECTION OF THE GOVERNMENT OF GUJARAT, THE ARREARS WERE TO BE PAID TO THE EMPLOYEES IN FIVE INSTALMENTS STARTING FROM FY 2009-10; HOWEVER, ASSE SSING OFFICER NOTICED THAT ASSESSEE HAS MADE ACTUAL PAYMENT OF RS.62,98,982/- BEING THE FIRST INSTALMENT IN FY 2009-10 AND CLAIMED THE EXCESS AMOUNT OF RS.2,48 ,03,028/-. THEREFORE, THE ASSESSING OFFICER DISALLOWED THE EXCESS AMOUNT SO C LAIMED AS THE SAME WAS NOT PERTAINED TO THE YEAR UNDER CONSIDERATION. 12. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER , THE ASSESSEE WENT IN APPEAL BEFORE THE LD. CIT(A), WHO DELETED THE ADDITION BY FOLLOWING OBSERVATIONS:- 4.3 I HAVE GONE THROUGH THE ASSESSMENT ORDER, FACT S OF THE CASE, SUBMISSIONS MADE AND THE CASE LAWS RELIED UPON. TH E AO DISALLOWED AND MADE AN ADDITION OF EXCESS AMOUNT OF RS.2,48,03,028 /- HOLDING IT NOT ITA NO. 2596/AHD/2013 DCIT VS. GUJARAT STATE SEEDS CORPN LTD ASSESSMENT YEAR: 2010-11 PAGE 4 OF 5 PERTAINING TO THE YEAR UNDER CONSIDERATION EXCEPT 1 /5TH ACTUAL PAYMENT OF RS.62,98,982/- AS PER THE DIRECTIONS OF GOVERNMENT OF GUJARAT. IT IS PERUSED THAT THE PROVISION OF SALARY OF RS.3.11 CRORE IS CL AIMED BASED ON THE DIRECTIONS AS PER THE GUIDELINES 'APPROVAL LETTER DATED 01/12/ 2009' ISSUED BY THE GOVERNMENT OF GUJARAT. THE AO HAS NOT DISPUTED THE ACCRUAL OF LIABILITY FOR PAYMENT OF ARREARS OF SALARY AS WORKED OUT BY THE 6 TH PAY COMMISSION AND APPROVED BY THE GOVERNMENT OF GUJARAT. THE APPELLAN T IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. THE LIABILITY OF P AYMENT OF ARREARS OF SALARY CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION AS IS EVIDENT FROM THE GOVERNMENT RESOLUTION, APPROVAL LETTER ETC., ISSUED BY THE GOV ERNMENT OF GUJARAT. IN THE MERCANTILE SYSTEM OF ACCOUNTING - IF EXPENDITURE RE LATING TO EARLIER YEARS IS CLAIMED FOR THE LIABILITY ARISING IN RELEVANT PREVI OUS YEAR, EXPENDITURE IS DEDUCTIBLE U/S. 37 OF INCOME TAX, 1961, AS DECIDED BY HON'BLE GUJARAT HIGH COURT IN THE CASE OF SAURASHTRA CEMENT & CHEMICALS INDUSTRIES VS. C.I.T. (GUJARAT) 213 ITR 523. THE HON'BLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS VS. CIT 248 ITR 429 HAS HELD THAT IF A BUSINESS LIABILITY HAS DEFINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUC TION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AN D DISCHARGED AT A FUTURE DATE. WHAT SHOULD BE CERTAIN IS THE INCURRING OF TH E LIABILITY. IT SHOULD ALSO BE CAPABLE OF BEING ESTIMATED WITH REASONABLE CERTAINT Y THOUGH THE ACTUAL QUANTIFICATION MAY NOT BE POSSIBLE. IF THESE REQUIR EMENTS ARE THE LIABILITY IS NOT A -CONTINGENT ONE. THE LIABILITY IS- IN PRESENT THO UGH IT WILL BE DISCHARGED AT A FURTHER DATE. IT DOES NOT MAKE ANY DIFFERENCE IF TH E FUTURE DATE ON WHICH THE LIABILITY SHALL HAVE TO BE DISCHARGED IS NOT CERTAI N. SIMILAR IS THE VIEW OF THE HON'BLE SUPREME COURT IN THE CASE OF METAL BOARD CO . OF INDIA LTD VS THEIR WORKMEN (1969) 73 ITR 53(SC). THE HON'BLE GUJARAT H IGH COURT IN THE CASE OF SAURASHTRA CEMENT & CHEMICALS INDUSTRIES VS CIT REPORTED AT 213 ITR 523 HAS HELD THAT IF EXPENDITURE RELATING TO EARLIER YE ARS IS CLAIMED FOR THE LIABILITY ARISING IN THE RELEVANT PREVIOUS YEAR, EXPENDITURE IS DEDUCTIBLE U/S, 37 OF THE IT ACT. FOLLOWING THE ABOVE JUDICIAL PRONOUNCEMENTS, SINCE THE LIABILITY HAS BEEN CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATI ON, I DIRECT THE AO TO DELETE THE ADDITION OF RS. 2,48,03,028. THIS GROUND OF APP EAL IS ALLOWED. 13. THE REVENUE IS AGGRIEVED BY THE DELETION OF ADD ITION OF RS.2,48,03,028/- AND IS NOW IN APPEAL BEFORE US. 14. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF APPLIC ABLE LEGAL POSITION. 15. WE FIND THAT THERE IS NO DISPUTE THAT THE LIABI LITY TO PAY THESE SALARY ARREARS EXISTED AS AT THE RELEVANT POINT OF TIME, EVEN THOU GH IT WAS TO BE DISCHARGED LATER, AS A RESULT OF A POLICY DECISION OF THE GOVERNMENT. T HE FACT THAT IT PERTAINED TO AN EARLIER PERIOD IS OF NO CONSEQUENCE, SO FAR AS DEDU CTION IS CONCERNED, SINCE IT COULD NOT HAVE BEEN VISUALIZED EARLIER. THE REVISION OF SALARIES, IN THE PRESENT SITUATION, IS WITH RETROSPECTIVE EFFECT AND THEREFORE IT COULD NO T HAVE BEEN VISUALIZED EARLIER. AS ITA NO. 2596/AHD/2013 DCIT VS. GUJARAT STATE SEEDS CORPN LTD ASSESSMENT YEAR: 2010-11 PAGE 5 OF 5 THE LIABILITY IS A REAL LIABILITY, CAN BE REASONABL Y QUANTIFIED AND HAS NOT BEEN CLAIMED AS DEDUCTION EARLIER, THE ASSESSEE WAS JUSTIFIED IN ITS CLAIM FOR DEDUCTION. THE MERE FACT THAT IT WAS TO BE DISCHARGED LATER DOES NOT CO ME IN THE WAY OF DEDUCTIBILITY OF SUCH LIABILITY. AS THE ACCOUNTING PRINCIPLE OF CON SERVATISM, WHICH HAS THE APPROVAL OF HONBLE COURTS ABOVE FROM TIME TO TIME, REQUIRES, A LL EXPENSES ARE TO BE ACCOUNTED AS SOON AS THERE CAN BE REASONABLY QUANTIFIED AND A NTICIPATED. IN VIEW OF THESE DISCUSSIONS, WE APPROVE THE WELL REASONED RELIEF GR ANTED BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 16. GROUND NO.3 IS THUS DISMISSED. 17. IN THE RESULT, THE APPEAL IS DISMISSED. PRONOUN CED IN THE OPEN COURT TODAY ON THE 27 TH DAY OF OCTOBER, 2017. SD/- SD/- MAHAVIR PRASAD PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD, THE 27 TH DAY OF OCTOBER, 2017 **BT COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD 1. DATE OF TAKING DICTATION: ... .26.10.2017.....- ..PREPARED AS PER TWO PAGE MANUSC RIPT OF HONBLE AM WHICH IS ATTACHED WITH THIS CASE FILE ......................... 2. DATE OF TYPING & DRAFT ORDER PLACED BEFORE THE D ICTATING MEMBER: ........26.10.2017............... ... 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR . P.S./P.S.: .....27.10.2017.................... ....... 4. DT. ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT: .... 27.10.2017........... 5. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: ..... 30.10.2017...................... 6. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: ..... 7. THE DT. ON WHICH THE FILE GOES TO THE ASTT. REGISTR AR FOR SIGNATURE ON THE ORDER: .................. ....... 8. DATE OF DESPATCH OF THE ORDER: ................. ........