Gujarat Chemical Port Terminal Co.Ltd., Baroda V. The ACIT.,Circle-1(1), Baroda

ITA 3075/AHD/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0871 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 21-06-2016
• Assessment Year: 2002-2003
• Appeal Filed On: 07-12-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VEEBHA BHALLA
• Assessee Lawyers: BHAVIN J MARFATIA
• Keywords: Cost of acquisition; Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD .., , !' BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER 1. ./ I.T.A. NO.3075/AHD/2011 2. ./ I.T.A. NO.3076/AHD/2011 ( / ASSESSMENT YEARS : 2002-03 & 2003-04 RESPECTIVELY) 1&2. GUJARAT CHEMICAL PORT TERMINAL CO.LTD., 2 ND FLOOR, GUNJAN TOWER OFF ALEMBIC, GORWA ROAD BARODA-23 / VS. 1 & 2. THE ACIT CIRCLE-1(1) BARODA-07 $ ./ ./ PAN/GIR NO. : AAACG 6861 A ( $' / APPELLANT ) .. ( ()$' / RESPONDENT ) $'* / APPELLANT BY : SHRI BHAVIN J. MARFATIA, CA ()$'+* / RESPONDENT BY : SMT. VEEBHA BHALLA, CIT-DR ,+ / DATE OF HEARING 21/06/2016 -./+ / DATE OF PRONOUNCEMENT 19/07/2016 / O R D E R PER SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER : BOTH THESE APPEALS BY THE ASSESSEE ARE DIRECTED A GAINST THE SEPARATE ORDERS OF THE LD.COMMISSIONER OF INCOME TA X(APPEALS)-I, BARODA DATED 16/09/2011 & 19/09/2011 FOR THE AS SESSMENT YEARS (AYS) 2002-03 & 2003-04 RESPECTIVELY. ITA NOS.3075 & 3076/AHD/2011 GUJARAT CHEMICAL PORT TERMINAL CO. LTD. VS. ACIT ASST.YEARS 2002-03 & 2003-04 - 2 - 2. WE FIRST TAKE UP ITA NO.3075/AHD/2011 FOR AY 200 2-03. 2.1. THE RELEVANT FACTS AS CULLED OUT FROM THE MATE RIALS ON RECORD ARE AS UNDER:- 2.2. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUSINESS OF PROVIDING VARIOUS PORT RELATED SERVICES FOR IMPORT AND EXPORT OF BULK LIQUID CARGOS. ASSESSEE FILED ITS RETURN OF INCOM E FOR AY 2002-03 ON 29/10/2002 DECLARING NET LOSS OF RS.1,81,37,93,860/ -. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER ASSESSMENT WAS FRAMED U/S. 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO A S 'THE ACT') VIDE ORDER DATED 31/01/2005 AND THE TOTAL LOSS WA S DETERMINED AT RS.1,78,99,90,122/-. AGGRIEVED BY THE ORDER OF TH E ASSESSING OFFICER (AO), ASSESSEE CARRIED THE MATTER BEFORE THE LD.CIT (A), WHO VIDE ORDER DATED 16/09/2011 (IN APPEAL NO.CAB-I/50/05-06) GR ANTED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE LD .CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED FOLLOWING GR OUNDS:- 1. THE LEARNED CIT(A) HAS ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN TREATING AN AMOUNT OF RS.1, 75,032/- BEING RIGHT TO USE LAND AND RS.17,33,458/-, BEING P LANTATION AND HORTICULTURAL EXPENSES AS CAPITAL EXPENDITURE. 2. THE LEARNED CIT(A) HAS ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN NOT ALLOWING AMORTIZATION O F LEASE CHARGES OF RS.21,42,722/-. ITA NOS.3075 & 3076/AHD/2011 GUJARAT CHEMICAL PORT TERMINAL CO. LTD. VS. ACIT ASST.YEARS 2002-03 & 2003-04 - 3 - 3. FIRST GROUND IS WITH RESPECT TO DISALLOWANCE OF EXPENSES RELATING TO RIGHT TO USE OF LAND AND PLANTATION AND HORTICULTUR AL EXPENSES. 3.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS AN D ON PERUSING THE DETAILS FURNISHED BY THE ASSESSEE, AO NOTICED THAT ASSESSEE HAS CLAIMED EXPENDITURE FOR RIGHT OF USE OF LAND OF RS.1,74,032 /- AND RS.17,33,458/- TOWARDS PLANTATION AND HORTICULTURAL EXPENSES. AO ALSO NOTED THAT THE AFORESAID EXPENSES WERE TREATED BY ASSESSEE IN ITS BOOKS OF ACCOUNTS AS DEFERRED REVENUE EXPENSES. ASSESSEE WAS THEREFORE ASKED TO SHOW-CAUSE AS TO WHY THE EXPENSES NOT BE ADDED TO THE TOTAL IN COME TO WHICH ASSESSEE INTER-ALIA SUBMITTED THAT IT DID NOT HAVE ANY OWNERSHIP RIGHT OVER THE LAND AND THE AMOUNT PAID WAS RIGHT TO USE AND THE RIGHTS EXPIRED AT THE END OF PREDEFINED PERIOD. WITH RESPECT TO HO RTICULTURAL AND PLANTATION EXPENSES, IT WAS SUBMITTED THAT THE EXPE NSES WERE INCURRED ON ACCOUNT OF BEAUTIFICATION OF SITE AND AS PER POLLUT ION POLICY OF THE GOVERNMENT. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO AS HE WAS OF THE VIEW THAT THE PAYMENT FO R RIGHT TO USE OF LAND WAS PROVIDING ENDURING BENEFIT AND THE EXPENSES TOW ARDS PLANTATION AND HORTICULTURAL EXPENSES WERE IN THE NATURE OF DEVELO PMENT OF LAND AND THEREFORE WERE CAPITAL IN NATURE AND THEREFORE NOT ALLOWABLE. HE ACCORDINGLY DISALLOWED THE AFORESAID EXPENSES. AGG RIEVED BY THE ORDER OF THE ASSESSING OFFICER (AO), ASSESSEE CARRIED THE MATTER BEFORE THE LD.CIT(A), WHO VIDE ORDER DATED 16/09/2011 (IN APPE AL NO.CAB- ITA NOS.3075 & 3076/AHD/2011 GUJARAT CHEMICAL PORT TERMINAL CO. LTD. VS. ACIT ASST.YEARS 2002-03 & 2003-04 - 4 - I/50/05-06) UPHELD THE ORDER OF AO AND DISMISSED T HE GROUND OF ASSESSEE BY OBSERVING AS UNDER:- 2.2. I HAVE CONSIDERED FACTS OF THE CASE AND APPEL LANTS SUBMISSIONS. THE LAND IN QUESTION WAS IN POSSESSION OF APPELLANT FOR A PERIOD OF 99 YEARS UNDER LEASE FROM GIDC. ON BEING ASKED, APPEL LANT HAS NOT BEEN ABLE TO FILE DOCUMENTS TO SUPPORT ITS CONTENTION TH AT AMOUNT OF RS.1,74,032/- WAS SPENT TOWARDS COMPULSORY FORESTAT ION REQUIRED BY FOREST DEPARTMENT AND AMOUNT OF RS.17,33,458/- WAS SPENT ON BEAUTIFICATION OF SITE AS PER POLLUTION POLICY OF T HE GOVERNMENT. BE THAT AS MAY BE, BOTH THE EXPENSES IN QUESTION WERE ADMIT TEDLY FOR IMPROVEMENT OF LAND RESULTING IN BENEFIT LASTING OV ER A NUMBER OF YEARS, I.E. AN ENDURING BENEFIT. EXPENDITURE IN QUESTION WAS THEREFORE, RIGHTLY DISALLOWED BY THE ASSESSING OFFICER AS CAPITAL EXPE NDITURE. GROUND NO.1 OF APPEAL IS DISMISSED. 3.2. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. 4. BEFORE US, LD.AR REITERATED THE SUBMISSIONS MAD E BEFORE AO AND LD.CIT(A). DURING THE COURSE OF HEARING, A SPECIFI C QUERY WAS PUT TO LD.AR AND HE WAS ASKED AS TO WHETHER THE EXPENSES H AVE BEEN INCURRED IN THE IMPUGNED YEAR TO WHICH LD.AR SUBMITTED THAT THE EXPENSES HAVE NOT BEEN INCURRED DURING THE YEAR BUT HAVE BEEN INCURRE D IN EARLIER YEARS AND THE AMORTIZED PORTION OF EXPENSES ARE CLAIMED. HE THUS SUBMITTED THAT THE EXPENSES BE ALLOWED TO THE ASSESSEE. LD.CIT-DR , ON THE OTHER HAND, SUPPORTED THE ORDERS OF AO AND LD.CIT(A). ITA NOS.3075 & 3076/AHD/2011 GUJARAT CHEMICAL PORT TERMINAL CO. LTD. VS. ACIT ASST.YEARS 2002-03 & 2003-04 - 5 - 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO TH E DISALLOWANCE OF EXPENSES TOWARDS RIGHT TO USE OF LAND AND EXPENSES FOR PLANTATION AND HORTICULTURE. BEFORE US, LD.AR HAS SUBMITTED THAT THE EXPENSES HAVE NOT BEEN INCURRED DURING THE YEAR, BUT HAVE BEEN INCURR ED IN EARLIER YEARS AND THE AMORTISED PORTION OF EXPENSES HAS BEEN CLAIMED. BEFORE US, LD.AR HAS NOT PLACED ANY ORDER IN SUPPORT OF ITS CLAIM THAT THOUGH THE EXPENSES HAVE NOT BEEN INCURRED DURING THE YEAR BUT SINCE TH E AMOUNT HAS BEEN AMORTIZED, THE EXPENDITURE IS ALLOWABLE. FURTHER, LD.AR ALSO COULD NOT CONTROVERT THE FINDINGS OF AO AND LD.CIT(A). IN V IEW OF THE AFORESAID FACTS, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF LD.CIT(A) AND THUS THIS GROUND OF ASSESSEE IS DISMISSED. 6. SECOND GROUND IS WITH RESPECT TO DISALLOWANCE OF AMORTIZATION OF LEASE CHARGES. 6.1.AO NOTICED THAT ASSESSEE HAS CLAIMED AMORTIZATI ON OF LEASE-HOLD LAND EXPENSES OF RS.21,42,722/-, ON THE LAND WHICH WAS T AKEN ON LEASE FOR 99 YEARS AND THE TOTAL AMOUNT CAPITALIZED TO THE VALUE OF LAND ON ACCOUNT OF PURCHASE COST, LAND DEVELOPMENT CHARGES AND OTHER E XPENSES, WAS TO THE EXTENT OF RS.21,21,29,444/-. THE ASSESSEE WAS ASKE D TO SHOW-CAUSE AS TO WHY THE EXPENDITURE NOT BE TREATED AS CAPITAL EXPEN DITURE TO WHICH ASSESSEE INTER-ALIA SUBMITTED THAT SINCE THE ASSESSEE HAD ACQUIRED THE LAND ITA NOS.3075 & 3076/AHD/2011 GUJARAT CHEMICAL PORT TERMINAL CO. LTD. VS. ACIT ASST.YEARS 2002-03 & 2003-04 - 6 - FOR A PERIOD OF 99 YEARS AND AS IT DOES NOT HAVE OW NERSHIP RIGHT OF THE LAND AND AFTER THE COMPLETION OF LEASE PERIOD IT HA S TO VACATE THE LAND AND THEREFORE THE PAYMENT IN RESPECT OF LEASE-HOLD EXPE NSE WAS TREATED AS ADVANCE PAYMENT OF RENT AND THEREFORE SHOULD BE ALL OWED AS REVENUE EXPENDITURE. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO AS HE WAS OF THE VIEW THAT THE ASSESSEE H AD ACQUIRED THE RIGHT OF POSSESSION AND ENJOYMENT OF LAND OF 99 YEARS AND THE PAYMENT FOR RIGHT TO USE WAS PROVIDING ENDURING BENEFIT TO THE ASSESSEE AND THEREFORE THE EXPENSES WAS CAPITAL IN NATURE. HE ACCORDINGLY DISALLOWED THE CLAIM OF ASSESSEE. AGGRIEVED BY THE ORDER OF AO, ASSESSE E CARRIED THE MATTER BEFORE THE LD.CIT(A) WHO UPHELD THE ORDER OF AO AND DECIDED THE ISSUE AGAINST THE ASSESSEE BY OBSERVING AS UNDER:- 3.2. I HAVE CONSIDERED THE SUBMISSIONS. APPELLA NT'S SUBMISSION IS THAT BY WAY OF LEASE IN QUESTION, IT DID NOT ACQUIR E OWNERSHIP RIGHT ON THE LAND SINCE AFTER COMPLETION OF LEASE PERIOD, CO MPANY HAD TO VACATE THE LAND AND PAYMENT MADE TOWARDS RENT IS TO BE TRE ATED AS REVENUE EXPENDITURE. APPELLANT'S SUBMISSION THAT THE PAYMEN T IN QUESTION WAS TOWARDS RENT IS NOT BORNE OUT BY THE LEASE DEED. TH ERE IS NOTHING IN THE LEASE DEED TO INDICATE THAT THE PAYMENT MADE TOWARD S PURCHASE OF LAND WAS IN THE NATURE OF RENT. IN THE LEASE DEED, THIS PAYMENT IS TERMED AS COST OF LAND/PRICE OF LAND. THE RENT PAYABLE IS SEP ARATELY MENTIONED IN THE LEASE DEED. MOREOVER, THIS AMOUNT WAS NON REFUN DABLE, WHICH ALSO SHOWS THAT IT COULD NOT BE RENT. THE MATTER IS COVE RED BY DECISION OF ITAT, MUMBAI (SPECIAL BENCH) IN THE CASE OF MUKUND LTD. (2007) 106 1TD 231. ON SIMILAR FACTS, ITAT'S SPECIAL BENCH HEL D IN THIS CASE THAT THE CONSIDERATION PAID FOR OBTAINING LEASEHOLD RIGH T FROM MIDC IN ITS FAVOUR FOR A PERIOD OF 99 YEARS WAS CAPITAL IN NATU RE. IT WAS HELD THAT THE BENEFIT CONFERRED ON THE ASSESSEE BY WAY OF L EASEHOLD RIGHTS FOR 99 ITA NOS.3075 & 3076/AHD/2011 GUJARAT CHEMICAL PORT TERMINAL CO. LTD. VS. ACIT ASST.YEARS 2002-03 & 2003-04 - 7 - YEARS AGAINST LUMP SUM PAYMENT OF RS.2.04 CRORE WAS OF ENDURING NATURE AND THERE WAS NO MATERIAL ON RECORD TO SUGGE ST THAT THIS AMOUNT WAS PAID BY WAY OF ADVANCE RENT NOR WAS THERE ANY P ROVISION FOR ITS ADJUSTMENT TOWARDS RENT OR FOR ITS REPAYMENT TO THE ASSESSEE. ALSO, THERE WAS NO MATERIAL ON RECORD TO SHOW THAT ASSESSEE HAD MADE ADVANCE PAYMENT OF RENT FOR FUTURE YEARS TO SECURE ANY REDU CTION IN THE RENT PAYABLE FOR FUTURE YEARS OR FOR ANY OTHER BUSINESS CONSIDERATION. IN THE CASE OF UNITED PHOSPHORUS LTD. (2001) 73 TTJ (AHD) 404, ITAT AHMEDABAD HELD THAT THERE WAS NO MATERIAL OR EVIDEN CE ON RECORD OR NO STIPULATION IN ANY OF THE CLAUSES OF THE ALLOTMENT LETTER ISSUED BY GIDC, AGREEMENT OF LICENSE OR STANDARD LEASE AGREEMENT, W HICH MIGHT IN ANY MANNER INDICATE THAT THE AMOUNT OF PREMIUM PAID FOR ACQUIRING LEASEHOLD RIGHTS FOR A PERIOD OF 99 YEARS REPRESENT ED PAYMENT OF ADVANCE RENT. ON OTHER HAND, DOCUMENTS AMPLY AND CL EARLY DEMONSTRATED THAT SUCH PAYMENT WAS TOWARDS PURCHASE PRICE FOR ACQUIRING AFORESAID LEASEHOLD RIGHTS FOR A PERIOD O F 99 YEARS. THE TOKEN RENT FOR LAND WAS SEPARATELY PAYABLE BY THE LESSEE TO THE LESSOR IN ACCORDANCE WITH AGREEMENT EXECUTED WITH GIDC AND TH E PAYMENT IN QUESTION THEREFORE, CLEARLY REPRESENTED COST OF CAP ITAL ASSET VIZ. LONG TERM LEASE ACQUIRED BY THE ASSESSEE, WHICH COULD NO T BE ALLOWED AS REVENUE EXPENDITURE. THE DECISION RELIED UPON BY TH E APPELLANT IN THE CASE OF SUN PHARMACEUTICAL LTD. IS ON DIFFERENT FAC TS, WHERE THE QUESTION BEFORE THE HON'BLE HIGH COURT WAS REGARDING ALLOWAN CE OF LEASE RENT PAID. IN APPELLANT'S CASE, THE CLAIM IS IN RESPECT OF AMOUNT PAID TOWARDS PURCHASE OF LAND AND NOT TOWARDS LEASE RENT. THIS D ECISION IS THEREFORE, NOT APPLICABLE. FOLLOWING THE ABOVE MENTIONED DECIS IONS IN THE CASES OF MUKUND LTD./UNITED PHOSPHORUS LTD., DISALLOWANCE OF RS. 21,42,722/- IS UPHELD. 6.1. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. 6.2. BEFORE US, LD.AR REITERATED THE SUBMISSIONS MA DE BEFORE THE AO AND THE LD.CIT(A). HE FURTHER SUBMITTED THAT THE E XPENSES HAVE NOT BEEN INCURRED DURING THE YEAR AND WERE INCURRED IN THE P AST AND ONLY THE ITA NOS.3075 & 3076/AHD/2011 GUJARAT CHEMICAL PORT TERMINAL CO. LTD. VS. ACIT ASST.YEARS 2002-03 & 2003-04 - 8 - AMORTIZED PORTION OF EXPENSES WAS CLAIMED AS DEDUCT ION. HE THEREFORE SUBMITTED THAT THE ASSESSEE BE ALLOWED DEDUCTION. LD.CIT-DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF AO AND LD.CIT(A ). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD.CIT(A) WHILE UPHOLDING THE ORDE R OF AO HAS NOTED THAT THE LEASE-DEED NOWHERE INDICATED THAT THE PAYM ENT MADE WAS IN THE NATURE OF RENT AND, ON THE CONTRARY, THE PAYMENT WA S TERMED AS COST OF LAND AND FURTHER THE AMOUNT WAS NON-REFUNDABLE. HE HAS FURTHER GIVEN A FINDING THAT THE CLAIM OF THE ASSESSEE WAS IN RESPE CT OF AMOUNT PAID TOWARDS PURCHASE OF LAND AND NOT TOWARDS LEASE-RENT . BEFORE US, LD.AR HAS NOT PLACED ANY MATERIAL ON RECORD TO CONTROVERT THE FINDINGS OF LD.CIT(A). FURTHER, THE EXPENSES HAVE NOT BEEN INC URRED DURING THE YEAR BUT WERE INCURRED IN PAST. IN VIEW OF THE AFORESAI D FACTS, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF LD.CIT(A) AND THUS THIS GROUND OF ASSESSEE IS DISMISSED. 8. IN THE RESULT, ASSESSEES APPEAL IN ITA NO.3075/ AHD/2011 FOR AY 2002-03 IS DISMISSED. 9. NOW WE TAKE UP THE ASSESSEES APPEAL IN ITA NO.3 076/AHD/2011 FOR AY 2003-04. GROUNDS RAISED BY THE ASSESSEE REA D AS UNDER:- 1. THE LEARNED CIT(A) HAS ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN NOT ALLOWING AMORTIZATION OF LE ASE CHARGES OF RS.21,42,722/-. ITA NOS.3075 & 3076/AHD/2011 GUJARAT CHEMICAL PORT TERMINAL CO. LTD. VS. ACIT ASST.YEARS 2002-03 & 2003-04 - 9 - 2. THE LEARNED CIT(A) HAS ERRED IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN CONSIDERING AMOUNT OF RS.46,31, 47,609/- AS APPELLANTS INCOME. 9.1. WITH RESPECT TO GROUND NO.1, BOTH THE PARTIES HAVE SUBMITTED THAT GROUND NO.1 RAISED IN THE PRESENT APPEAL IS IDENTIC AL TO GROUND NO.2 OF ASSESSEES APPEAL IN ITA NO.3075/AHD/2011 FOR AY 20 02-03(SUPRA) AND THE SUBMISSIONS MADE BY THEM WHILE ARGUING THE CASE FOR AY 2002-03 WOULD BE APPLICABLE TO THE PRESENT GROUND OF APPEAL . 10. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IN VIEW OF THE SUBMISSIONS OF BOTH THE PARTIES THAT THE FACTS AND CIRCUMSTANCES RAISED IN THE PRESENT GROUND BEING ID ENTICAL TO THAT OF GROUND NO.2 RAISED IN ASSESSEES APPEAL FOR AY 2002 -03(SUPRA), WE THEREFORE FOR THE REASONS WHILE DECIDING GROUND NO. 2 OF ASSESSEES APPEAL FOR AY 2002-03(SUPRA) HEREINABOVE AND FOR SIMILAR R EASONS, DISMISS THIS PRESENT GROUND OF ASSESSEES APPEAL. 11. GROUND NO.2 IS WITH RESPECT TO ADDITION OF RS. 41,31,47,609/-. 11.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAS NOT RECOGNIZED RS.46,31,47,609/- INCOM E IN RESPECT OF CHARGES FOR SHORTFALL IN QUANTITIES FOR NON-USAGE B Y THE PROMOTERS UNDER THE TAKE OR PAY AGREEMENT. THE ASSESSEE WAS THER EFORE ASKED TO SHOW- ITA NOS.3075 & 3076/AHD/2011 GUJARAT CHEMICAL PORT TERMINAL CO. LTD. VS. ACIT ASST.YEARS 2002-03 & 2003-04 - 10 - CAUSE AS TO WHY THE AMOUNT NOT BE CONSIDERED AS IN COME TO WHICH ASSESSEE INTER-ALIA SUBMITTED THAT ASSESSEE HAD ENTERED INTO AGREEMENT WITH OTHER PSUS WHEREIN THOSE PSUS HAD AGREED TO DI SCHARGE AND EVACUATE MINIMUM ACTUAL AGGREGATE QUANTITIES OF ITS PRODUCTS THROUGH THE FACILITIES OF THE ASSESSEE AND IF THOSE PSUS FAILED TO DISCHARGE AND EVACUATE THE MATERIAL TO THE EXTENT STATED IN THE A GREEMENT, THEN IT WAS REQUIRED TO MAKE PAYMENT TOWARDS THE SHORTFALL OF T HE QUANTITIES DISCHARGED. IT WAS SUBMITTED THAT THE PSUS HAD OBJ ECTED TO SHORTFALL PAYMENT CHARGES AND HAD ALSO REFUSED TO MAKE THE PA YMENTS AND THOSE PSUS HAD ALSO INSISTED ON CANCELLING THE AGREEMENT. IN VIEW OF THE UNCERTAINTY IN REALIZING THE AMOUNT FROM PSUS, IT W AS SUBMITTED THAT THE AMOUNT COULD NOT BE RECOGNIZED AS REVENUE. THE SUB MISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE AO AS HE W AS OF THE VIEW THAT THE CHARGES FOR MINIMUM QUANTITY WAS PROVIDED IN TH E AGREEMENT AND SINCE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF A CCOUNTING, ASSESSEE SHOULD HAVE ACCOUNTED THE INCOME ON ACCOUNT OF THE SHORTFALL IN THE MINIMUM GUARANTEED AMOUNT AND MORE SO WHEN THE AGRE EMENT WAS IN FORCE. AO FURTHER NOTED THAT IN AY 2002-03 ASSESSE E ITSELF HAD CONSIDERED SUCH SHORTFALL AS ITS INCOME. HE THEREF ORE, CONSIDERED RS.46,31,47,609/- AS INCOME ACCRUED TO THE ASSESSEE AND MADE ITS ADDITION. AGGRIEVED BY THE ORDER OF AO, ASSESSEE C ARRIED THE MATTER BEFORE THE LD.CIT(A), WHO DISMISSED THE GROUND OF T HE ASSESSEE BY HOLDING AS UNDER:- ITA NOS.3075 & 3076/AHD/2011 GUJARAT CHEMICAL PORT TERMINAL CO. LTD. VS. ACIT ASST.YEARS 2002-03 & 2003-04 - 11 - 3.2. I HAVE CONSIDERED FACTS OF THE CASE AND APPEL LANT'S SUBMISSIONS. THE AGREEMENT CANCELLING AGREEMENT DATED 12.9.2000 WAS SIGNED ON 30.9.2005 ONLY. AS FAR AS F.Y.2002-03 IS CONCERNED, AGREEMENT DATED 12.9.2000 WAS IN FORCE AND INCOME HAD THUS ACCRUED TO THE APPELLANT IN RESPECT OF MINIMUM GUARANTEED QUANTITIES. APPELLANT ITSELF ACCOUNTED FOR SUCH INCOME IN A.Y.2001-02 AND 2002-03. APPELLA NT HAS NOT POINTED OUT HOW SITUATION WAS DIFFERENT IN A.Y.2003-04 VIZ- A VIZ EARLIER YEARS. APPELLANT'S CONTENTION THAT THE PSUS OBJECTED DURIN G THE YEAR IN QUESTION TO THE CLAUSE REGARDING RECOVERY IN RESPEC T OF MINIMUM GUARANTEED QUANTITY IS FIRSTLY NOT SUPPORTED WITH A NY EVIDENCE. SECONDLY, EVEN IF THERE WAS SOME OBJECTION. BY THE PSUS, THAT ALONE WAS NOT SUFFICIENT REASON TO NOT ACCOUNT FO R INCOME IN RESPECT OF MINIMUM GUARANTEED QUANTITIES ACCRUING AS PER CONTR ACT BETWEEN APPELLANT AND PSUS CONCERNED. ADDITION OF RS.46,31, 47,609/- IS CONFIRMED. AS FAR AS ALTERNATE PLEA TO ALLOW DEDUCT ION FOR THE SAID SUM AS BAD DEBTS/BUSINESS LOSS IN THE YEAR OF ITS WAIVE R IS CONCERNED, APPELLANT IS TO MAKE THE CLAIM BEFORE-THE ASSESSING OFFICER IN THE CONCERNED YEAR FOR DECIDING IT AS PER LAW. 11.2. AGGRIEVED BY THE ORDER OF LD.CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. 12. BEFORE US, LD.AR REITERATED THE SUBMISSIONS MAD E BEFORE THE AO & LD.CIT(A). HE FURTHER SUBMITTED THAT SINCE THE INC OME DID NOT ACCRUE TO THE ASSESSEE AND THOUGH THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THE AMOUNT COULD NOT BE CONSIDERED AS I TS INCOME. HE FURTHER SUBMITTED THAT THOUGH THE ASSESSEE HAD ACCOUNTED FO R INCOME FOR AY 2002-03, BUT THE SAME COULD NOT BE REALIZED BY THE ASSESSEE AND THEREFORE IN SUBSEQUENT YEAR, I.E. AY 2006-07 THE AMOUNT WAS CLAIMED AS BAD DEBTS. HE SUBMITTED THAT THE ASSESSEE BEING PUBLIC SECTOR UNDERTAKING AND IN VIEW OF THE HUGE CARRIED FORWARD LOSSES NO B ENEFIT WOULD HAVE ITA NOS.3075 & 3076/AHD/2011 GUJARAT CHEMICAL PORT TERMINAL CO. LTD. VS. ACIT ASST.YEARS 2002-03 & 2003-04 - 12 - BEEN RECEIVED BY THE ASSESSEE BY NOT ACCOUNTING FOR THE INCOME. HE FURTHER SUBMITTED THAT UNLESS THE RIGHT TO RECEIVE IS ESTABLISHED, THE AMOUNT CANNOT BE CONSIDERED AS INCOME. LD.CIT-DR, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AO AND LD.CIT(A). 13. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE IN THE PRESENT CASE IS ABOUT NON-CONSIDER ATION OF THE SHORTFALL IN THE MINIMUM QUANTITY AMOUNT AS INCOME OF THE ASSESS EE. IT IS ASSESSEES SUBMISSION THAT THE AMOUNT WAS DISPUTED BY THE PSUS AND THE AGREEMENT WAS ALSO CANCELLED IN THE SUBSEQUENT YEARS AND THER EFORE THE INCOME DID NOT ACCRUE TO THE ASSESSEE. BEFORE US, LD.AR HAS AL SO SUBMITTED THAT SIMILAR AMOUNT WAS CONSIDERED AS INCOME OF THE ASSE SSEE FOR AY 2002-03 BUT ON ACCOUNT OF NON-RECEIPT, THE ASSESSEE HAS CLA IMED THE AMOUNT OF BAD DEBTS IN SUBSEQUENT YEARS WHICH INDICATES THAT THE AMOUNT WAS NOT RECEIVABLE BY THE ASSESSEE. THE AFORESAID SUBMISSI ONS OF THE LD.AR HAS NOT BEEN CONTROVERTED BY REVENUE. IT IS A FACT THA T ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, BUT INCOME CAN BE SAID TO ACCRUE ONLY WHEN IT BECOMES DUE AND MUST BE ACCOMPANIED BY CORR ESPONDING LIABILITY OF THE OTHER PARTY TO PAY THE AMOUNT AND ONLY THEN IT CAN BE SAID THAT FOR THE PURPOSE OF INCOME-TAX THAT THE INCOME HAS ACCRUED TO THE ASSESSEE AND FOR THIS PROPOSITION, WE RELY ON THE D ECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS. EXCEL INDUSTRIES LTD. REPORTED IN ITA NOS.3075 & 3076/AHD/2011 GUJARAT CHEMICAL PORT TERMINAL CO. LTD. VS. ACIT ASST.YEARS 2002-03 & 2003-04 - 13 - (2013) 358 ITR 295 (SC). BEFORE US, REVENUE HAS NO T PLACED ANY MATERIAL ON RECORD TO DEMONSTRATE THAT AGAINST THE AMOUNT WHICH IS DUE IS ASSESSEES HAND THERE IS A CORRESPONDING LIABILITY OF THE PAYER, TO PAY THE AMOUNT TO THE ASSESSEE. IN VIEW OF THE AFORESAID F ACTS AND IN THE ABSENCE OF ANY CONTRARY BINDING DECISION IN FAVOUR OF THE R EVENUE, WE ARE OF THE VIEW THAT NO INCOME CAN BE SAID TO HAVE ACCRUED TO THE ASSESSEE AND THEREFORE THE AMOUNT OF SHORTFALL IN THE MINIMUM GU ARANTEED QUANTITY AMOUNT CANNOT BE BROUGHT TO TAX. THUS THIS GROUND ASSESSEES APPEAL IS ALLOWED. 14. IN THE RESULT, ASSESSEES APPEAL IN ITA NO.3076 /AHD/2011 FOR AY 2003-04 IS PARTLY ALLOWED. 15. IN THE COMBINED RESULT, ASSESSEES APPEAL FOR A Y 2002-03 IS DISMISSED, WHEREAS ASSESSEES APPEAL FOR AY 2003-04 IS PARTLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 19 /0 7 /2016 SD/- SD/- .. () () ( R.P. TOLANI ) ( ANIL CHATURVEDI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 19/ 07 /2016 3..,.../ T.C. NAIR, SR. PS ITA NOS.3075 & 3076/AHD/2011 GUJARAT CHEMICAL PORT TERMINAL CO. LTD. VS. ACIT ASST.YEARS 2002-03 & 2003-04 - 14 - !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. $' / THE APPELLANT 2. ()$' / THE RESPONDENT. 3. 456 7 / CONCERNED CIT 4. 7 ( ) / THE CIT(A)-I, BARODA 5. 89:(56 , 56/ , 4 / DR, ITAT, AHMEDABAD 6. :<=, / GUARD FILE. / BY ORDER, )8( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 21.6.16 (DICTATION-PAD 23- PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 7/7/16 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.19.7.16 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK . 19.7.16 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER