ACIT-7(2)(1), MUMBAI V. MAHINDRA HINODAY INDUSTRIES LTD., MUMBAI

ITA 3072/MUM/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0152 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 11-04-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 27-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Principle of natural justice; Capital receipt; Revised return
• Section: 143(3); 115JB; 139(5); 54; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH C, MU MBAI BEFORE SH. P.K. BANSAL VICE PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 3072/MUM/2016 (ASSESSMENT YEAR- 2007-0 8) ACIT-7(2)(1), ROOM NO.573, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 VS. M/S MAHINDRA CIE AUTOMOTIVE LTD. (M/S. MAHINDRA HINODAY INDUSTRIES LTD. MERGED WITH M/S MAHINDRA CIE AUTOMOTIVE LTD.), 1 ST FLOOR, MAHINDRA TOWERS, P.K KURNE CHOWK, WORLI, MUMBAI-400018 PAN: AAACD9841M (APPELLANT) (RESPONDENT) REVENUE REPRESENTED BY : SHRI RAJAT MITTAL (DR) ASSESSEE REPRESENTED BY : SHRI PRASAD BAPAT (AR) DATE OF HEARING : 10.08.2017 DATE OF ORDER : 29.08.2017 ORDER UNDER SECTION 254(1) OF INCOME-TAX ACT PER PAWAN SINGH JUDICIAL MEMBER ; 1. THIS APPEAL BY REVENUE UNDER SECTION 253 OF INCOME- TAX ACT (ACT) IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF I NCOME-TAX (APPEALS)- 13 (THE LD. CIT(A), MUMBAI DATED 22.06.2016 FOR ASS ESSMENT YEAR (AY) 2007-08. THE REVENUE HAS RAISED THE FOLLOWING GROUN DS OF APPEAL: 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 479.18 LAKHS MADE BY THE AO ON ACCOUNT OF DIFFERENCE BETWEEN SALES TAX LIABILITY A ND AMOUNT PAID ON PREPAYMENT OF DEFERRED SALES LIABILITY RELYING ON T HE DECISION OF IN THE CASE OF CIT V PRUTHVI BROKERS AND SHAREHOLDERS PVT. LTD (SU PRA) WITHOUT APPRECIATING THAT THE SAID CLAIM OF THE ASSESSEE CO ULD BE ENTERTAINED ONLY BY WAY OF FILING A REVISED RETURN AS PER PROVISIONS OF SECTION 139(5) OF THE ACT.' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 479.18 LAKHS MADE BY THE AO ON ACCOUNT OF DIFFERENCE BETWEEN SALES TAX LIABILITY A ND AMOUNT PAID ON ITA NO.3072/M/2016 - M/S MAHINDRA CIE AUTOMOTIVE LTD. 2 PREPAYMENT OF DEFERRED SALES LIABILITY AS CAPITAL R ECEIPT AND NOT TRADING RECEIPT WITHOUT APPRECIATING THAT THE AMOUNT RECEIVED ON RE MISSION ON SALES TAX LIABILITY WAS LIABLE TO BE TAXED UNDER SECTION 41(1 ) AND SECTION 28(IV).' 2. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE FILED RET URN OF INCOME FOR RELEVANT AY ON 25.10.2007 DECLARING TOTAL INCOME AT RS. NIL. AFTER CLAIMING SET OFF OF UNOBSERVED DEPRECIATION. THE ASSESSEE WAS COMPLE TED U/S 143(3) ON 28.12.2010 AND THE INCOME OF ASSESSEE WAS ASSESSED AT RS. 7,61,04,945/- U/S 115JB OF THE ACT. THE ORDER WAS RECTIFIED U/S 1 54 ON 30.05.2011 AND INCOME WAS REVISED TO RS. 7,64,43,810/-. ON APPEAL BEFORE THE LD. CIT(A), PARTIAL RELIEF WAS GRANTED TO THE ASSESSEE. THE ASS ESSEE FILED FURTHER APPEAL BEFORE TRIBUNAL AND RAISED ADDITIONAL GROUND OF APP EAL FOR CLAIMING DEFERRED SALE TAX LIABILITY AS CAPITAL RECEIPT. THE TRIBUNAL RESTORED BACK THE GROUND OF SALE TAX LIABILITY TO THE FILE OF AO, VIDE ORDER DATED 04.03.2013. THE APPEAL WAS RESTORED BACK AS THE ASS ESSEE RAISED ADDITION GROUND BEFORE THE TRIBUNAL ON THE BASIS OF ORDER OF SPECIAL BENCH IN CASE OF SULZER INDIA LTD. VS. JCIT IN ITA NO. 2944/MUM/2007 DATED 10.11.2009. IN THE RESTORATION PROCEEDING, THE AO NOT ACCEPTED THE ADDITIONAL GROUND FOR TREATING THE SALE TAX LIABILITY AS A CAPITAL RE CEIPT HOLDING THAT THE SALE TAX COLLECTED AND PAYABLE WAS NOT CLAIMED IN THE ORIGIN AL RETURN AND THE RECEIPT OUGHT TO HAVE BEEN ROUTED THROUGH P&L A/C. IF THE S ALES TAX AMOUNT PAYABLE IS WAIVED BY THE SALES TAX DEPARTMENT, THE SAME SHALL BE INCOME U/S 41(1) OF THE ACT. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE FILED ITA NO.3072/M/2016 - M/S MAHINDRA CIE AUTOMOTIVE LTD. 3 APPEAL BEFORE THE LD. CIT(A) AND SUCCEEDED THEREIN. THUS, FURTHER AGGRIEVED BY THE ORDER OF LD. CIT(A), THE REVENUE H AS FILED THE PRESENT APPEAL BEFORE US. 3. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIVE ( DR) FOR THE REVENUE AND LD. AUTHORIZED REPRESENTATIVE (AR) OF THE ASSES SEE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD. DR FOR THE RE VENUE ARGUED THAT THE LIABILITY WAS NEVER ROUTED THROUGH P&L A/C AND THUS , THE DECISION OF SALES TAX LIABILITY IS REVENUE RECEIPT AND LIABLE TO BE T AXED. THE PAYMENT OF SALES TAX LIABILITY WERE NEVER ROUTED THROUGH P&L A/C, IF THE CONTENTION OF THE ASSESSEE IS ACCEPTED THAT THE LIABILITY DID NOT ROU TED THROUGH P&L A/C, IT WOULD LEAD TO A SATISFACTION FOR REPEATING THE PROV ISIONS OF THE ACT. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE ARGUED THAT THE ASSESSEE MADE A CLAIM ON THE BASIS OF SPECIAL BENCH DECISION IN SUL ZER INDIA LTD. DATED 10.11.2010 THAT DEFERRED SALES TAX LIABILITY CREDIT ED BY ASSESSEE UNDER THE CAPITAL RESERVE IN ITS BOOKS OF ACCOUNT AS A CAPITA L RECEIPT. THE DECISION OF SPECIAL BENCH WAS CONFIRMED BY THE HONBLE JURISDIC TIONAL HIGH COURT IN ITA NO. 450 OF 2013 TITLED AS CIT VS. SULZER INDIA LTD. DATED 05.12.2014. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF LD. CIT(A), THE LD. CIT(A) PA SSED THE FOLLOWING ORDER: 6. DECISION - I HAVE CAREFULLY CONSIDERED THE AO'S ORDER AS WE LL AS AR'S SUBMISSIONS. THE FACTUAL MATRIX OF THIS CASE IS AS FOLLOWS. THE GOM ITA NO.3072/M/2016 - M/S MAHINDRA CIE AUTOMOTIVE LTD. 4 HAD ISSUED TO THE APPELLANT AN ENTITLEMENT CERTIFIC ATE DATED 14TH FEBRUARY 2003 UNDER ITS PACKAGE SCHEME OF INCENTIVE S, 1993. UNDER THIS SCHEME, THE APPELLANT WAS ALLOWED TO DEFER ITS SALES TAX LIABILITY FOR A PERIOD OF FIVE YEARS, ON THE CONDITION THAT THE T OTAL AMOUNT OF SUCH DEFERRED SALES TAX LIABILITY WAS TO BE PAID AFTER T HE PERIOD OF DEFERMENT IN FIVE EQUAL ANNUAL INSTALMENTS. THE GOM HAD THERE AFTER BROUGHT OUT ANOTHER SCHEME IN TERMS OF WHICH IT OFFERED THE PAY MENT OPTION OF EARLY REPAYMENT OF SUCH DEFERRED LIABILITY BY PAYIN G THE NET VALUE OF THAT LIABILITY ON THE DATE OF THE PAYMENT. ACCORDIN GLY, HAVING OPTED FOR AN EARLY REPAYMENT THE APPELLANT HAD PREPAID SUCH D EFERRED SALES TAX LIABILITY AT ITS THEN NET VALUE OF RS.1.73 CRORE AS OPPOSED TO THE ACTUAL DEFERRED SALES TAX LIABILITY OF RS. 6.52 CRORES. TH E SAID PREPAYMENT WAS APPROVED BY THE GOM BY WAY OF SPECIFIC SCHEME AS A MEASURE OF REVENUE MOBILIZATION. THE DIFFERENCE BETWEEN THE PR EPAID SALES TAX LIABILITY AT ITS THEN NET VALUE AND THE ACTUAL TOTA L DEFERRED SALES TAX LIABILITY WAS RS. 4.79 CRORES, WHICH WAS CREDITED B Y THE APPELLANT TO ITS P&L A/C AS A SEPARATE LINE ITEM. THE SAID AMOUNT OF RS. 4.79 CRORES WAS ALSO OFFERED TO TAX IN ITS RETURN OF INCOME FOR AY 2007-08, IN VIEW OF ITS CREDIT APPEARING IN THE P&L A/C. THE DECISIO N OF THE SPECIAL BENCH OF THE HON'BLE TRIBUNAL IN THE CASE OF SULZER INDIA LIMITED (SUPRA) WAS PRONOUNCED ON 10TH NOVEMBER 2010. THE A PPELLANT HAD THEN APPROACHED THE AO WITH A CLAIM OF RS. 4.79 CRO RES ON THIS COUNT WHICH WAS REJECTED BY THE AO. THE AO'S ACTION WAS L ATER AFFIRMED BY THE CIT(A) BUT WAS THEN REVERSED BY THE HONBLE TRI BUNAL. 6.1 AT THIS STAGE IT WOULD BE INSTRUCTIVE TO SEE TH E SPECIFIC DIRECTION GIVEN BY THE HON'BLE TRIBUNAL WHILE SETTING ASIDE T HIS ISSUE TO THE FILE OF THE AO. THE OBSERVATIONS CONTAINED IN PARAGRAPH NO. 5 OF PAGE NO. 3O'OF THE ORDER OF THE HON'BLE TRIBUNAL ARE AS FOLL OWS. '5. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTE NTIONS HAVE CAREFULLY BEEN CONSIDERED. IN THE AFOREMENTIONED DE CISION IN THE CASE OF CIT V. PRUTHVI BROKERS AND SHAREHOLDERS PRIVATE LIMITED (SUPRA), THE HON'BLE JURISDICTIONAL HIGH COURT HAS CLEARLY H ELD THAT THE DECISION IN THE CASE OF GOETZE (INDIA) LIMITED (SUP RA) WAS RENDERED ON THE POWER OF THE ASSESSING AUTHORITY AND THE SAI D DECISION DOES NOT IMPINGE ON THE POWER OF THE TRIBUNAL UNDER SECT ION 254. THEREFORE, CONSIDERING THE RULES OF NATURAL JUSTICE , ACCORDING TO WHICH ONLY LAWFUL REVENUE CAN BE COLLECTED FROM ANY TAXPAYER, WE CONSIDER IT JUST AND PROPER TO RESTORE THE ISSUE AT HAND TO THE FILE OF THE AO WITH A DIRECTION TO CONSIDER THE CLAIM OF TH E ASSESSEE ON MERITS AND AS PER LAW AFTER GIVING THE ASSESSEE A R EASONABLE OPPORTUNITY OF HEARING. WE DIRECT ACCORDINGLY.' ITA NO.3072/M/2016 - M/S MAHINDRA CIE AUTOMOTIVE LTD. 5 FROM A PLAIN READING OF THE ABOVE, IT WOULD BE CLEA R THAT HAVING MADE REFERENCE TO THE DECISION OF GOETZE INDIA LIMITED V . CIT (SUPRA), AND HAVING STATED THAT THE SAID DECISION DID NOT IMPING E ON ITS POWERS UNDER SECTION 254, THE HON'BLE TRIBUNAL HAD EFFECTIVELY E XAMINED AND ADMITTED THE CLAIM OF THE APPELLANT. THE RESTORATIO N OF THE SAME TO THE FILE OF THE AO WAS ONLY FOR THE PURPOSE OF CONSIDER ATION OF THE SAME ON MERITS AND AFTER GRANT OF REASONABLE OPPORTUNITY. I N OTHER WORDS, THE AO'S RELIANCE ON THE RATIO OF THE DECISION IN THE C ASE OF GOETZE INDIA LIMITED V. CIT (SUPRA) EVEN AT THIS STAGE IS MISPLA CED. IF THE SAID RELIANCE WERE TO BE VALIDATED AT THIS STAGE, IT WOU LD RESULT IN AN ENDLESS CYCLE OF APPEALS TO THE HON'BLE TRIBUNAL AND RESTOR ATION OF THE SAME TO THE AO WITH NO RESULTS. IN THESE CIRCUMSTANCES, IT IS CLEAR THAT THE AO HAS BEEN ENTRUSTED ONLY WITH THE EXAMINATION OF THE CLAIM ON MERITS, ITS ADMISSIBILITY HAVING ALREADY BE DECIDED BY THE HON' BLE TRIBUNAL. 6.2 AT THIS JUNCTURE IT WOULD BE INSTRUCTIVE TO SEE THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. SUL ZER INDIA LIMITED (ITA NO. 450 OF 2013, DATED 5TH DECEMBER.2014), A C OPY OF WHICH HAD BEEN PLACED ON THE APPELLATE RECORD. THE SAID DECIS ION HAD EFFECTIVELY APPROVED THE DECISION OF THE SPECIAL BENCH OF HON'B LE TRIBUNAL IN THE CASE OF THE SAME ASSESSEE WHEN IT HAD HELD THAT THE DIFFERENTIAL AMOUNT ON PRE-PAYMENT OF THE DEFERRED SALES TAX LIABILITY WOULD BE A CAPITAL RECEIPT AND WOULD NOT ATTRACT THE PROVISIONS OF EIT HER SECTION 41(1) OR SECTION 28(IV) OF THE ACT. THE HON'BLE HIGH COURT H AD OBSERVED AS FOLLOWS AT PARAGRAPH NO. 12 ON PAGE NOS. 15 AND 16 OF ITS ORDER. '12. IN THE INSTANT CASE, AS PER THE SCHEME HE WAS ALLOWED TO RETAIN THE SALES TAX AS DETERMINED BY THE COMPETENT AUTHOR ITY AND PAY THE SAME 15 YEARS THEREAFTER. THE TAX COLLECTED WAS DEE MED TO HAVE BEEN PAID AND THEREFORE, THE TAX SO COLLECTED CANNOT BE CONSTRUED AS INCOME IN THE HANDS OF THE ASSESSEE. THE TAX SO RET AINED BY THE ASSESSEE IS IN THE NATURE OF A LOAN GIVEN BY THE GO VERNMENT AS AN INCENTIVE FOR SETTING UP THE INDUSTRIAL UNIT IN A R URAL AREA. THE SAID LOAN HAD TO BE REPAID AFTER 15 YEARS. AGAIN IT IS A N INCENTIVE. HOWEVER, BY A SUBSEQUENT SCHEME, A PROVISION WAS MA DE FOR PREMATURE PAYMENT. WHEN THE ASSESSEE HAD THE BENEFI T OF MAKING THE PAYMENT AFTER 15 YEARS, IF HE IS MAKING A PREMATURE PAYMENT, THE SAID AMOUNT EQUAL TO THE NET PRESENT VALUE OF THE D EFERRED TAX WAS DETERMINED AT RS. 4,25,79,684/- AND ON SUCH PAYMENT THE ENTIRE LIABILITY TO PAY TAX 1 LOAN STOOD DISCHARGED. AGAIN IT IS NOT A BENEFIT CONFERRED ON AN ASSESSEE. THEREFORE, SECTION 41 (1) OF THE ACT IS NOT ATTRACTED TO THE FACTS OF THIS CASE. HENCE THE TRIB UNAL WAS JUSTIFIED IN ITA NO.3072/M/2016 - M/S MAHINDRA CIE AUTOMOTIVE LTD. 6 HOLDING THAT THERE IS NO LIABILITY TO PAY TAX. UNDE R THESE CIRCUMSTANCES, WE DO NOT SEE ANY ERROR COMMITTED BY THE TRIBUNAL IN PASSING THE IMPUGNED ORDER. THE SUBSTANTIAL QUESTIO N OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE.' [EMPHASIS ADDED] RESPECTFULLY FOLLOWING THE AFORE-EXTRACTED DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT, THE ENTIRE CLAIM OF THE APPELLANT AMOUNTING TO RS. 4.79 CRORES BEING THE DIFFERENCE BETWEEN THE DEFERRED SALES TAX LIABILITY AND THE AMOUNT ACTUALLY PAID ON PRE-PAYME NT OF THE SAID DEFERRED SALES TAX LIABILITY IS TO BE TREATED AS A CAPITAL RECEIPT AND ACCORDINGLY NOT CHARGED TO TAX. THE AO IS SO DIRECT ED. 5. WE HAVE SEEN THAT THE ORDER OF LD. CIT(A) IS BASED ON THE DECISION OF JURISDICTIONAL HIGH COURT AND THE DECISION OF TRIBU NAL IN CIT VS. SULZER INDIA LTD (SUPRA). THE LEARNED DR HAS NOT BROUGHT A NY CONTRARY DECISION TO OUR NOTICE. IN OUR VIEW, THE ORDER OF LD CIT(A) DOE S NOT REQUIRE ANY INTERFERENCE, WHICH WE AFFIRMED. HENCE, THE GROUNDS OF APPEAL RAISED BY REVENUE HAVE NO SUBSTANCE AND THE SAME ARE DISMISSE D. 6. IN THE RESULT, APPEAL FILED BY REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH DAY OF AUGUST 2017. SD/- SD /- (P.K. BANSAL) (PAWAN SINGH) VICE-PRESIDENT JUDICIAL MEMBER MUMBAI; DATED 29/8/2017 S.K.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT.REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/