M/s Srini Pharmaceuticals Ltd., Hyderabad V. ACIT, Hyderabad

ITA 26/HYD/2006

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 5833 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 02-03-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 09-01-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Assessee Lawyers: S RAMA RAO
• Keywords: Revenue expenditure
• Section: 143(3); 147; 28; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI AKBER BASHA, ACCOUNTANT MEMBER ITA NO.26/HYD/06 : ASST. YEAR 2002-03 M/S SRINI PHARMACEUTICALS LIMITED, JUBILEE HILLS, HYDERABAD. (PAN: AACCS8456P) (ASSESSEE ) VS ASST. COMMISSIONER OF INCOME- TAX, CIR-3(2), HYDERABAD. (RESPONDENT) APPELLANT BY : SRI S. RAMA RAO RESPONDENT BY : SMT. NIVEDITA BISWAS O R D E R PER AKBER BASHA, ACCOUNTANT MEMBER THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST ORDER PASSED BY THE CIT (A)-IV, HYDERABAD DATED 25-11- 2005 FOR THE ASSESSMENT YEAR 2002-03. 2. GROUNDS RAISED BY THE ASSESSEE IN THIS APPEAL READ AS FO LLOWS:- I) THE ORDER OF THE LEARNED CIT (A) IS ERRONEOUS BOTH ON FACTS AND IN LAW. II) THE LEARNED CIT (A) ERRED IN HOLDING THAT THE A MOUNT OF RS.92,72,947 IS AN INCOME WITHIN THE MEANING OF SEC. 28 OF 2 THE IT ACT WITHOUT CONSIDERING THE FACT THAT THE SAID A MOUNT IS ONLY A REIMBURSEMENT OF THE DUTY PAID ON INPUTS AND THAT SUCH DUTY WHEN PAID WAS NOT DEBITED TO THE PROFIT & LO SS A/C. III) THE LEARNED CIT(A) ERRED IN HOLDING THAT THE SA ID AMOUNT OF RS.92,72,947 IS TAXABLE U/S 41(1) OF THE ACT, WITHOUT PROPERLY CONSIDERING VARIOUS EXPLANATIONS SUBMITTED IN T HIS REGARD.' 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS CARRY ING ON THE BUSINESS OF MANUFACTURING AND SALE OF BULK DRUGS. THE CO MPANY IS PREDOMINANTLY AN EXPORT ORIENTED COMPANY AND SUBSTANT IAL PART OF ITS TURNOVER COMPRISES OF EXPORTS AND FOR THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSMENT WAS COMPLETED UNDER SECTION 143( 3) READ WITH SECTION 147 ASSESSING THE TOTAL INCOME AT RS.2,02,20,4 50 AGAINST THE RETURNED INCOME OF RS.1,64,27,720. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS TAXING OF CENTRAL EXCISE REBATE OF RS.92,72,94 7 U/S 41(1) READ WITH SECTION 28(III)(B) AND 28(III)(C) OF THE ACT BEFOR E THE CIT(A). 4. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT (A). ON APPEAL, THE CIT (A ) AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE ELABORATELY HELD BY UPHOLDING THE FINDINGS OF THE ASSESSING OFFICER THAT THE ASSESSEE HAS PA ID CENTRAL EXCISE DUTY BY CREDITING MODVAT ACCOUNT OR BY PAYING CASH, THEREBY SATISFYING ITS LIABILITY UNDER THE CENTRAL EXCISE ACT. A FTER SATISFYING THE FORMALITIES, THE ASSESSEE STAKES A CLAIM FOR A REBATE WITH THE CENTRAL EXCISE DEPARTMENT TO THE EXTENT OF DUTY PAID BY THE A SSESSEE ON THE EXPORT OF THE FINISHED PRODUCTS AND THE CENTRAL EXCISE DE PARTMENT AFTER 3 DUE VERIFICATION ALLOWED THE REBATE AND THIS REBATE I S CALLED AS CASH REBATE. IN OTHER WORDS, THE ASSESSEE GETS BACK AN AMOUNT WHICH IT HAS PAID IN THE DISCHARGE OF ITS OBLIGATION UNDER THE CENTR AL EXCISE RULES AND NO FURTHER LIABILITY IS ATTACHED TO THE CASH REBATE SO G RANTED. THEREFORE THE ASSESSEE DOES NOT TAKE IT AS AMOUNT DUE TO THE CENTRA L EXCISE DEPARTMENT OR AS THE AMOUNT AVAILABLE WITH THE ASSESSE E FOR THE DISCHARGE OF ANY FUTURE LIABILITY UNDER CENTRAL EXCISE ACT. IN VIEW OF THIS, THE CIT (A) DID NOT FIND ANY MERIT IN THE CONT ENTION OF THE ASSESSEE AND DISMISSED THE APPEAL OF THE ASSESSEE. IT WAS HELD BY H IM WITH REGARD TO OTHER GROUNDS I.E. THE CASH, REBATE OR INCENT IVE OF RS.92,72,947 COULD NOT BE STATED TO HAVE BEEN TAXED AT THE FIRST STAGE BECAUSE THIS IS PURELY A CASH INCENTIVE AND THE EXCISE DUTIE S WHICH THE ASSESSEE REFERS TO AS TAXED IN THE FIRST STAGE IS LINKED W ITH THE FUTURE EXCISE LIABILITY WHICH THE ASSESSEE CAN AVAIL OF UNDER MOD VAT CREDIT FACILITY. IN OTHER WORDS, THE CASH INCENTIVE/REBATE OF RS.92,72,947 IS NOT TIED UP WITH ANY EXCISE DUTY LIABILITY O0CCURING AT A F UTURE DATE AND THEREFORE, ITS TAX LIABILITY COULD NOT BE LINKED WITH THE PURCHASES AT THE FIRST STAGE AS CONTENDED BY THE ASSESSEE AND HENCE HE UPHELD THE ACTION OF THE ASSESSING OFFICER IN TAXING THE CASH INCENTIVE AND DISMISSED THE GROUNDS RAISED BY THE ASSESSEE. 5. AGGRIEVED BY THE ORDER OF THE CIT (A), THE ASSESSEE IS IN APPEAL BEFORE US. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT(A) IS NOT JUSTIFIED IN HOLDING THAT THE AMOUNT OF RS.92,72,947 IS AN INCOME WITHIN THE MEANING OF SECTION 28 OF THE I T ACT AND WITHOUT CONSIDERING THE FACT THAT THE SAID AMOUNT IS ONLY A REIM BURSEMENT OF THE DUTY PAID ON INPUTS AND THAT SUCH DUTY WHEN PAID WAS N OT DEBITED TO THE PROFIT & LOSS A/C AND HE FURTHER ERRED IN HOLDING THAT THE SAID AMOUNT IS 4 TAXABLE U/S 41(1) OF THE ACT WITHOUT CONSIDERING VARIO US EXPLANATIONS SUBMITTED IN THIS REGARD BEFORE HIM. IT IS SUBMITTED TH AT ON SIMILAR ISSUE OF TAXING OF CENTRAL EXCISE REBATE AS INCOME, THE CIT(A) FOR THE SUBSEQUENT ASSESSMENT YEAR 2003-04 HELD AS FOLLOWS:- ' INCORPORATION OF THE EXCISE DUTY ACCOUNTS WITH THE P & L ACCOUNT BOTH AT THE CREDIT AS WELL AS THE DEBIT SIDES IS TH E CORRECT METHOD OF ACCOUNTANCY PRINCIPLE. THE ASSESSING OFFICER IS THE REFORE DIRECTED TO ADOPT THE PROFIT AS PER THE REVISED P & L ACCOUNT A FTER VERIFYING THE SAME WITH THE BOOKS OF ACCOUNTS AND IF REQUIRED THE SAME MAY BE GOT DULY AUDITED BY A CHARTERED ACCOUNTANT. THIS G ROUND IS ALLOWED TO THE ASSESSEE SUBJECT TO MERGING OF EXCISE DUTY A CCOUNTS WITH THE P & L ACCOUNT AND AFTER DUE VERIFICATION BY THE ASS ESSING OFFICER.' IT IS FURTHER SUBMITTED THAT EVEN THOUGH REVENUE PREF ERRED AN APPEAL BEFORE THE ITAT FOR THE AFORESAID ASSESSMENT YEAR ON THE OTHER ISSUES, THE ISSUE OF TAXING OF CENTRAL EXCISE REBATE WAS NOT TAKE N UP IN THE APPEAL BEFORE THE ITAT. IN SUPPORT OF THE SAME, THE L EARNED COUNSEL FOR THE ASSESSEE SUBMITTED A COPY OF THE ORDER IN ITA NO.42/HY D/2007 DATED 3RD APRIL, 2008. AGAIN FOR THE ASSESSMENT YEAR 2 005-06, THE ASSESSING OFFICER IN THE SCRUTINY ASSESSMENTS PASSED U/S 143(3) OF THE INCOME-TAX ACT NOT BROUGHT TO TAX THE SIMILAR REBATE GRANTED BY THE CENTRAL EXCISE DEPARTMENT. IT IS ALSO SUBMITTED THAT T HE AMOUNT OF EXCISE DUTY ON RAW MATERIAL NOT DEBITED TO P & L ACCOU NT EVEN THE ASSESSING OFFICER DID NOT DISPUTE THIS FACT. IT IS ALSO NOT T HE CASE OF THE ASSESSING OFFICER THAT THE EXCISE DUTY ON PURCHASES DOES NOT R EPRESENT THE REVENUE EXPENDITURE AND THE SAID EXPENDITURE IS N OT ALLOWABLE. IN THE REMAND REPORT, THE ASSESSING OFFICER HIMSELF AGREED THAT THE EXCISE DUTY ON RAW MATERIAL PURCHASED IS ALLOWABLE REVENUE EX PENDITURE AND NOT DEBITED TO P & L ACCOUNT. THE PRE CONDITION FOR TR EATING ANY REMISSION OR REFUND OR REIMBURSEMENT AS INCOME IS THAT TH E EXPENDITURE WHEN INCURRED SHOULD HAVE BEEN ALLOWED AS A DEDUCTION. IF IT IS NOT 5 ALLOWED THE SAME, THE SAME CANNOT BE BROUGHT TO TAX. IT IS FURTHER SUBMITTED THAT THE PROVISIONS OF SEC. 41(1) CLEARLY MENTI ON THAT IF THE REIMBURSEMENT IS IN THE LATER PREVIOUS YEAR, THE PROV ISIONS OF SEC. 41(1) WOULD APPLY. IF IT IS THE SAME ASSESSMENT YEAR, THE SAID PROVISION DOES NOT APPLY AND THEREFORE, THE OBSERVATION OF THE ASSESSIN G OFFICER IS NOT IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME-TAX ACT. THE ASSESSING OFFICER MENTIONED THAT EVEN IF THE EXCISE DUTY PAYMENT S ARE ROUTED THROUGH PROFIT AND LOSS ACCOUNT IT WOULD NOT HAVE ANY I MPACT ON THE NET PROFIT. THIS OBSERVATION IS TRUE AS LONG AS THE RECEIPT I S ALSO ROUTED THROUGH THE PROFIT AND LOSS ACCOUNT AND NOT TAXED SEPARA TELY AND THE ASSESSEE SUBMITS THAT IF THE RECEIPT WERE TO BE TAXED THE PAYMENT HAS TO BE ALLOWED AS EXPENDITURE. IN THE CASE OF THE ASSE SSEE, IT REQUESTS THAT THE RECEIPT ALONE CANNOT BE BROUGHT TO TAX WITHO UT ALLOWING EXPENDITURE INCURRED BY IT AND IF THE RECEIPT AND PAY MENT ARE TAKEN TO THE PROFIT AND LOSS ACCOUNT OR IF BOTH ARE CONSIDERED AT THE TIME OF COMPUTATION OF TOTAL INCOME IT WOULD MAKE A DIFFERENCE IN AS MUCH AS THERE WOULD BE NO ADDITION THAT CAN BE MADE AS THE T OTAL AMOUNT RECEIVED OF RS.1,05,37,492 IS LESS THAN THE AGGREGATE OF THE AMOUNT PAID DURING THE YEAR ON RAW MATERIAL OF RS.99,94,509 AND ON CAPITAL GOODS OF RS.23,89,647 AND THE OPENING BALANCE OF RS.5,4 2,517 (RS.4,59,608 AND RS.82,909) IF THE AMOUNT OF THE OPEN ING BALANCE AND THE PAYMENT MADE DURING THE YEAR ARE DEBITED TO THE PROFIT AND LOSS ACCOUNT AND THE RECEIPT OF RS.1,05,37,492 IS CREDITED TO THE PROFIT AND LOSS ACCOUNT, IT WOULD MAKE NO DIFFERENCE. THEREFORE, T HE ASSESSEE SUBMITS THAT THE ASSESSING OFFICER'S OBSERVATION THAT IT W OULD NOT MAKE A DIFFERENCE EVEN IF THE AMOUNTS ARE ROUTED THROUGH PRO FIT AND LOSS ACCOUNT IS NOT FACTUALLY CORRECT. SINCE THE CORRECTNESS OF THE FIGURES RELATING TO THE NET CENTRAL EXCISE REBATE NOT BEFORE THE LOWER AUTHORITIES, 6 A DIRECTION CAN BE GIVEN TO VERIFY THE CORRECTNESS OF THE FIGURES AS CLAIMED BY THE ASSESSEE. 6. ON THE OTHER HAND, THE LEARNED DR BY SUPPORTING THE ORDERS OF THE AUTHORITIES BELOW SUBMITTED THAT THE CIT (A) IS RIGH T IN TAXING THE ENTIRE AMOUNT OF RS.92,72,947 UNDER SECTION 41(1) OF THE ACT. HE FURTHER SUBMITTED THAT THE VERY TREATMENT OF CENTRAL EXCISE RU LES OF THE EXCISE REBATE IN ITS RULE PROVES THAT REBATE IS AN EXPORT INCE NTIVE SIMILAR TO THE DUTY DRAWBACK UNDER THE INCOME-TAX ACT AND WHEREAS THE DUTY DRAWBACK ARE TAXABLE UNDER SECTION 28(III) (C) OF THE A CT SINCE EXCISE REBATE IS AKIN TO DUTY DRAWBACK AND THE SAME IS COVERED UNDER SECTION 28(III) (B) OF THE ACT. HENCE THE LOWER AUTHORITIES AR E IN RIGHT IN BRINGING THE CENTRAL EXCISE REBATE TO TAX. IN THIS CONNECTION, SHE RELIED ON FOLLOWING DECISIONS:- I) MYSORE THERMO ELECTRIC (P) LTD., VS. CIT, KARNATAKA -221 ITR 504 (KAR): (1996) 134 CTR (KAR) 373: (1996) 89 TAXMAN 558. II) (2007) 291 ITR 434 (ALL) III) (2006) 280 ITR 165 (ALL) 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE RIVAL PART IES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE SUBSE QUENT YEAR 2002- 03, THE CIT(A) NOTICED THAT AFTER PURSUING THE REVISED P & L A/C SUBMITTED BY THE ASSESSEE FOR THE YEAR ENDING 31-3-2003, WHEREIN THE PROFIT WAS ARRIVED AT RS.1,54,62,606 AGAINST THE PRO FIT SHOWN IN THE ORIGINAL P & L ACCOUNT WHICH IS RS.1,46,71,009 AND THER E IS AN INCREASE IN PROFIT AS PER THE REVISED P & L ACCOUNT BY AN AMOUN T OF RS.7,91,597 ON ACCOUNT OF MERGING THE EXCISE DUTY ACCOUNT WHICH WAS KEP T 7 SEPARATELY, WITH THE P & L ACCOUNT. HE HELD THAT INCORPO RATION OF THE EXCISE DUTY ACCOUNTS WITH THE P & L ACCOUNT BOTH AT THE CR EDIT AS WELL AS THE DEBIT SIDES OF THE PROFIT & LOSS ACCOUNT IS THE CORRECT METHOD OF ACCOUNTING AS PER THE STANDARD ACCOUNTANCY PRINCIPLE. HE D IRECTED THE ASSESSING OFFICER TO ADOPT THE PROFIT AS PER THE REVISED P & L ACCOUNT AFTER VERIFYING THE SAME WITH THE BOOKS OF ACCOUNTS AND IF REQUIRED THE SAME MAY BE GOT DULY AUDITED BY A CHARTERED ACCOUNTANT AND THIS GROUND WAS ALLOWED BY THE CIT (A) SUBJECT TO MERGING O F EXCISE DUTY ACCOUNTS WITH THE P & L ACCOUNT AND AFTER DUE VERIFICATIO N BY THE ASSESSING OFFICER. THOUGH THE DEPARTMENT FILED AN APPEAL BEFORE THE ITAT, THIS ISSUE OF TAXABILITY OF CENTRAL EXCISE REBATE W AS NOT TAKEN UP. WE FIND FROM THE RECORDS THAT FOR ASSESSMENT YEAR 2005-0 6 ALSO, NO SUCH KIND OF ADDITION WAS MADE BY THE ASSESSING OFFICER IN HIS ORDER PASSED U/S 143(3) OF THE ACT. IN SO FAR AS SECTION 41(1) OF THE ACT IS CONCERNED, THE PROVISIONS OF THIS SECTION ARE NOT APPLICABL E AS THE EXCISE DUTY PAYMENT CLAIMED PERTAINS TO THE SAME PREVIOUS YEA R IN WHICH THE EXCISE REBATES ARE TAXABLE. BY MERGING THE EXCISE DUTY A CCOUNT, WHICH IS KEPT SEPARATELY, WITH THE P & L ACCOUNT THERE WILL BE AN INCREASE IN PROFIT DUE TO SUCH MERGER. THE ASSESSEE SHOULD NOT HAVE ANY GRIE VANCE SINCE THE EXCISE DUTY PAID ON RAW MATERIAL ARE ALLOWED AS A DEDUCTION BECAUSE OF SUCH MERGER. THEREFORE, IN VIEW OF MERGING CENTRAL EXCISE ACCOUNT WITH P & L ACCOUNT, THE CASE LAW RELIED BY THE LEARNED DR ARE NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE. THE CIT (A ) RIGHTLY HELD IN THE SUBSEQUENT YEAR THAT THE INCORPORATION OF THE EXCISE DUT Y ACCOUNTS WITH THE P & L ACCOUNT BOTH AT THE CREDIT AS WELL AS THE DEBI T SIDES IS THE CORRECT METHOD OF ACCOUNTING. WE AGREE WITH THE SAME AN D DIRECT THE ASSESSING OFFICER TO VERIFY THE REVISED P & L A/C PREPARED AFTER MERGING THE CENTRAL EXCISE DUTY ACCOUNT WITH THE P & L A/C., AND ADOPT THE 8 RESULTANT PROFIT AS PER THE REVISED PROFIT AND LOSS ACCOUN T FOR THE PURPOSE OF COMPUTATION OF TAX AFTER VERIFYING THE SAME WITH THE BOOKS OF ACCOUNT. THEREFORE, THIS GROUND OF THE ASSESSEE IS ALLOWED SUBJECT TO VERIFICATION OF EXCISE DUTY ACCOUNTS WITH THE P & L ACCOU NT BY THE ASSESSING OFFICER. 8. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS ALLOWED AS INDICATED ABOVE. ORDER WAS PRONOUNCED IN THE COURT ON 26-3-2010 SD/- (N.R.S. GANESAN) SD/- (AKBER BASHA) JUDICIAL MEMBER ACCOUNTANT MEMBER. DT/- 26TH MARCH, 2010. COPY FORWARDED TO: 1. SRI S. RAMA RAO, ADVOCATE, 103, INDIRADEVI NILAYAM, STREET NO.7, HIMAYATNAGAR, HYDERABAD. 2. ACIT, CIR-3(2), HYDERAVAD. 3. CIT(A) IV, HYDERABAD. 4. CIT, AP, HYDERAVAD 5. DR, ITAT, HYDERABAD. JMR*