Appeal details
Counselvise Citation
[2013] 120 COUNSELVISE.COM (IT) 4307 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 4 month(s) 4 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
20-06-2013
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
B
Assessment Year
2006-2007
Appeal Filed On
15-02-2012
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER , AND SHRI R.K.PANDA, ACCOUNTANT MEMBER. ITA.NO.313 & 314/PN/2012 (ASSTT. YEAR : 2005-06 & 2006-07) ASK CHEMICALS FOUNDRY SOLUTION INDIA PVT. LTD., (FORMERLY KNOWN AS AJAY METACHEM PVT. LTD.) 72-76, NEAR BHARAT FORGE, MUNDHWA, PUNE 411036. .. APPELLANT VS. ACIT, CIRCLE-1(1), PUNE. .. RESPONDENT ASSESSEE BY : SHRI KISHOR PHADKE DEPARTMENT BY : SHRI K.K.OJHA DATE OF HEARING : 06.06.2013 DATE OF PRONOUNCEMENT : 20.06.2013 ORDER PER SHAILENDRA KUMAR YADAV, JM : BOTH THESE APPEALS PERTAIN TO SAME ASSESSEE ON SIM ILAR ISSUE. SO THEY ARE BEING DECIDED BY A COMMON ORDER. 2. IN A.Y. 2005-06, THE ISSUE IS WITH REGARD TO ADD ITION OF AN AMOUNT OF RS.20,70,000/- BEING EXPENSES INCURRED FO R AVAILING SALES TAX DEFERRAL BENEFIT BY THE ASSESSEE COMPANY, MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A). THE LD. AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THE CIT(A) WAS WR ONG IN FACTS AND LAW IN CONFIRMING THE ADDITION OF RS.20,70,000/ - FOR A.Y. 2005-06 BEING EXPENSES INCURRED FOR AVAILING SALES TAX DEFERRAL BENEFIT BY THE ASSESSEE COMPANY. THE ONLY ISSUE IN BOTH THE YEARS RELATES TO PURCHASE OF SALES TAX DEFERRAL BENEFITS PACKAGE SCHEME AVAILABLE TO SAKAL PAPER LTD. FROM GOVERNMENT OF MA HARASHTRA FOR ESTABLISHING WIND POWER MILL. THIS BENEFIT OF COLL ECTING SALES TAX 2 AND THEN RETAINING IT FOR 10 YEARS WITHOUT ANY COST AND TO REPAY IT IN NEXT 5 YEARS STARTING FROM 11 TH YEAR IN EQUAL INSTALMENTS WAS FIRST MADE AVAILABLE BY THE GOVERNMENT OF MAHARASHTRA TO THE PERSONS WHO ESTABLISHED AND PRODUCED ELECTRICITY FROM RENEW ABLE SOURCES, I.E., WIND POWER AT A SPECIFIED LOCATION IN ADDITIO N TO CAPITAL SUBSIDY GRANTED. THIS SCHEME WAS SUBSEQUENTLY MODIFIED AND SALES TAX DEFERRAL BENEFIT WAS MADE TRANSFERABLE ON REPRESENT ATION MADE BEFORE THE GOVERNMENT THAT THIS BENEFIT COULD NOT B E AVAILED BY MANY SUCH PERSONS WHO ARE NOT ENGAGED IN THE BUSINE SS WHERE SALES TAX IS COLLECTED ON BEHALF OF THE GOVERNMENT. THE ASSESSEE THEREAFTER PURCHASED THIS BENEFIT FROM SAKAL PAPER LTD., WHICH IS SISTER CONCERN OF THE ASSESSEE. THE ASSESSING OFFI CER HAS ACCEPTED THE TRANSACTION TO BE TRUE AND AT ARMS LENGTH AND, THEREFORE, THIS IS NOT IN DISPUTE AT ALL. FOR AVAILING THIS BENEFIT , AN AGREEMENT WAS ENTERED INTO BY THE ASSESSEE WITH SAKAL PAPER WHICH CONTAIN VARIOUS TERMS AND CONDITIONS FOR FULFILMENT OF REQU IREMENT OF SCHEME AND ONLY ISSUE WHICH IS RELEVANT FOR ADJUDIC ATION AT HAND IS RELATING TO ALLOWABILITY OF PAYMENT OF RS.23,00,000 /- WHICH WAS PAID BY THE ASSESSEE FOR BENEFIT OF FUND OF RS.40,0 0,000/- TO BE RECEIVED IN A.Y. 2005-06. THIS PAYMENT MADE TO SAK AL PAPER LTD. WAS NOT REFUNDABLE. THEREFORE, IT WAS HELD BY THE ASSESSING OFFICER THAT THIS AMOUNT IS REVENUE EXPENDITURE FOR THE PUR POSE OF BUSINESS. THEREFORE, THIS ASPECT WAS ALSO NOT IN D ISPUTE AND IN VIEW OF THE SAME, HOLDING THE SAME AS REVENUE EXPENDITUR E IS NOT DISPUTED BEFORE US. THE ASSESSING OFFICER AFTER AN ALYSING THE TRANSACTION, HAS CONCLUDED THAT AMOUNT OF RS.40,00, 000/- AVAILED IN THIS YEAR WAS LIKE A LOAN WITHOUT ANY INTEREST F OR 10 TO 15 YEARS. THE COST OF RS.23,00,000/- PAID BY THE ASSESSEE FOR AVAILING THIS FACILITY FROM ITS SISTER CONCERN WAS HELD TO BE FOR THIS FACILITY WHICH IS TO BE AVAILED FOR 10 TO 15 YEARS AND, THEREFORE, IT WAS HELD THAT AMOUNT COULD NOT BE ALLOWED IN FULL IN FIRST YEAR O NLY AS THIS WILL GIVE DISTORTED PICTURE OF THE PROFIT. AS THE BENE FIT WAS HELD TO BE CONTINUING FOR ENTIRE PERIOD OF 10 YEARS FULLY AND THEN ON DIMINISHING IN REMAINING 5 YEARS, THE LIABILITY SO INCURRED WAS DECIDED TO BE SPREAD OVER 10 YEARS THEN BENEFIT WAS TO BE AVAILED 3 FULLY. FOR THIS THE ASSESSING OFFICER WENT FOR MAT CHING CONCEPT APPROVED BY THE HON'BLE SUPREME COURT IN THE CASE O F CALCUTTA CO. LTD. VS. CIT (1959) 37 ITR 1 (SC), AND M.P. FINANCI AL CORPORATION. THE ASSESSING OFFICER STATED THAT ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING AND, THEREFORE, PROFIT EARNED AND CREDITED IN PROFIT & LOSS ACCOUNT CONSTITUTE THE BASIS OF COMPU TATION OF INCOME AND COST INCURRED FOR EARNING THE PROFIT HAS TO BE DEBITED IN THIS SYSTEM OF ACCOUNTING ON ACCRUAL BASIS. IN THIS CON CEPT BOTH THE RECEIPT AND EXPENSES HAVE TO BE MATCHING WITH EACH OTHER. THUS, THE CIT(A) CONCLUDED THAT PAYMENT OF RS.20,00,000/- MADE WAS FOR AVAILING FACILITY ON INTEREST FREE FUNDS FOR 10 YEA RS FULLY AND 5 YEARS PRACTICALLY. THEREFORE, THE CLAIM OF ASSESSEE THAT PAYMENT OF RS.23,00,000/- TO SAKAL PAPER LTD., IS FOR AVAILING BENEFIT OF RS.46,00,000/- FOR ENTITLEMENT OF SALES TAX DEFERME NT ON DEFERMENT BASIS IN THE FIRST YEAR ITSELF WAS NOT FOUND CORREC T BY THE CIT(A). IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS PAID THE BENEF IT WHICH IT WAS TO AVAIL FOR 10 YEARS AND IN REMAINING 5 YEARS PARTLY. THE ASSESSING OFFICER APPORTIONED THE EXPENDITURE WHICH WAS DEFIN ITELY FOR AVAILING INTEREST FREE MONEY AS DEFERRED SALES TAX BENEFIT F OR COMPLETE 10 YEARS EQUALLY. HE FOLLOWED THE AFORESAID PRINCIPLE OF MATCHING EXPENDITURE WITH INCOME WHICH WAS ATTRIBUTABLE TO T HE PREVIOUS YEAR AND IN THE PROCESS HAS BROUGHT TO TAX THE REAL INCOME OF ASSESSEE IN DIFFERENT ASSESSMENT YEARS. ACCORDINGL Y, THE ORDER OF THE ASSESSING OFFICER WAS UPHELD. SAME HAS BEEN OP POSED BEFORE US. 3. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS. 20,70,000/- FOR A.Y. 2005-06 BEING THE EXPENSES INCURRED FOR AVAILI NG SALES TAX DEFERRAL BENEFIT BY ASSESSEE COMPANY. THE ASSESS EE HAS RAISED VARIOUS CONTENTIONS AGAINST THE ORDER OF THE CIT(A) ON THE ISSUE. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE REL IED ON THE ORDER OF THE AUTHORITIES BELOW. 4 4. AFTER GOING THROUGH THE ABOVE SUBMISSIONS AND MA TERIAL ON RECORD, WE FIND THAT THE ISSUE BEFORE US IS FOR ALL OWING DEDUCTION BEING EXPENSES INCURRED FOR AVAILING SALES TAX DEFE RRAL BENEFITS BY THE ASSESSEE COMPANY. WE FIND THAT PRECISELY THE I SSUE BEFORE US WITH REGARDS TO SPREAD OVER REVENUE EXPENDITURE. ORDINARILY REVENUE EXPENDITURE WHICH IS INCURRED WHOLLY AND EX CLUSIVELY FOR THE PURPOSE OF BUSINESS MUST BE ALLOWED IN ITS ENTI RETY IN THE YEAR IN WHICH IT IS INCURRED. IT CANNOT BE SPREAD OVER A NUMBER OF YEARS EVEN IF ASSESSEE HAS WRITTEN IT OFF IN HIS BOOKS OV ER A PERIOD OF YEARS. HOWEVER, THE FACTS MAY JUSTIFY AN ASSESSEE WHO HAS INCURRED EXPENDITURE IN PARTICULAR YEAR TO SPREAD AND CLAIM IT OVER A PERIOD OF ENSUING YEARS. IN FACT, ALLOWING THE ENTIRE EXP ENDITURE IN ONE YEAR MIGHT GIVE A VERY DISTORTED PICTURE OF PROFIT OF A PARTICULAR YEAR. THUS, IN THE CASE OF HINDUSTAN ALUMINIUM CORPORATIO N LTD. VS. CIT (1983) 144 ITR 474 (CAL.), THE HON'BLE CALCUTTA HIG H COURT HELD THE CLAIM OF ASSESSEE TO SPREAD OUT A LUMPSUM PAYMENT T O SECURE TECHNICAL ASSISTANCE AND TRAINING OVER A NUMBER OF YEARS AND ALLOWED A PROPORTIONATE DEDUCTION IN ACCOUNTING YEA R IN QUESTION. SIMILARLY ISSUE OF DEBENTURES AT DISCOUNT IS ANOTHE R SUCH INSTANCE WHERE ALTHOUGH THE ASSESSEE HAS INCURRED LIABILITY TO PAY THE DISCOUNT IN THE YEAR OF ISSUE OF DEBENTURES, PAYMEN T IS TO SECURE A BENEFIT OVER A NUMBER OF YEARS. THERE IS A CONTINU ING BENEFIT OF ASSESSEE COMPANY OVER ENTIRE PERIOD. THE LIABILITY SHOULD THEREFORE BE SPREAD OVER PERIOD OF DEBENTURES. SUCH A VIEW I S ALSO IN CONFORMITY WITH THE INITIAL PRACTICE OF SHOWING DIS COUNT ON DEBENTURES ACCOUNTS WHICH IS WRITTEN OFF OVER A PER IOD OF DEBENTURES AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION (1997) 225 ITR 802 (SC) AGREEING WITH THE REASONING AND CONCLUSION IN M.P. FINANCIAL CORPORATION VS. CIT (1987) 165 ITR 765 (MP), WHICH IS ALSO CASE RELATING TO DISCOUNT ON BONDS. IN VIEW OF ABOVE LE GAL DISCUSSION, WE ARE NOT INCLINED TO INTERFERE IN THE FINDING OF CIT (A) FOR CONFIRMING THE ADDITION OF RS.20,70,000/- FOR A.Y. 2005-06 BEI NG EXPENSES INCURRED ON AVAILING SALES TAX DEFERRAL BENEFIT BY THE ASSESSEE COMPANY. SAME IS UPHELD. 5 SIMILAR ISSUE AROSE IN A.Y. 2006-07. FACTS BEING SIMILAR, SO FOLLOWING SAME REASONING, THE ORDER OF THE CIT(A) O N THE ISSUE IS UPHELD. 5. AS A RESULT, BOTH THE APPEALS FILED BY THE ASSES SEE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 20 TH DAY OF JUNE, 2013. SD/- SD/- ( R.K.PANDA ) ( SHAILENDRA KUMAR YAD AV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED THE 20 TH JUNE, 2013 ANKAM COPY OF THE ORDER IS FORWARDED TO: 1. THE ASSESSEE 2. THE ACIT, CIRCLE-1(1), PUNE. 3. THE CIT(A)-I, PUNE. 4. THE CIT-I, PUNE. 5. THE DR B BENCH, PUNE. 6. GUARD FILE. BY ORDER SR. PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE.
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