The DCITGNR Circle, Gandhinagar V. Gujarat State Civil Supplies Corporation Ltd., Gandhinagar

ITA 334/AHD/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5768 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 17-04-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 03-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R I PATEL
• Keywords: Question of law; Corroborative evidences
• Section: 143(3); 12

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL , A BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV , JUDICIAL MEMBER AND SHRI AMARJIT SINGH , ACCOUNTANT MEMBER ./ ITA.NO. 334 / AHD /201 4 WITH C.O.186/AHD/2014 / ASSTT. YEAR: 2010 - 2011 DCIT, GNR CIRCLE, GHANDHINAGAR VS . GUJARAT STATE CIVIL SUPPLIES CORPORATION LTD. SECTOR - 10A, CH ROAD, NR.NEW SACHIVALAYA, GHANDHINAGAR PAN NO.AAACT5736F (APPLICANT) (RESPONENT) REVENUE BY : SHRI R.I. PATEL, CIT .DR ASSESSEE BY : SHRI SANJAY R. SHAH , AR / DATE OF HEARING : 17 / 04 / 201 7 / DATE OF PRONOUNCEMENT: 01 / 0 6 /201 7 / O R D E R PER AMARJIT SINGH, ACCOUNTANT MEMBER : PRESENT APPEAL IS DIRECTED AT THE INSTANCE OF THE REVENUE AGAINST THE ORDER OF THE L D.CIT(A) AHMEDABAD DATED 18.11.2013 PASSED FOR THE ASSTT.YEAR 2010 - 11 . ASSESEE HAS ALSO FILED CROSS OBJECTION IN APPEAL OF THE REVENUE. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. (I) THE LEARNED CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.671676274/ - TO TOTAL INCOME BY HOLDING THAT IT IS SURPLUS OUT OF ACTIVITIES CARRIED FOR AND ON BEHALF OF GOVERNMENT OF GUJARAT. . (II) THE LEARNED CIT(APPE ALS) HAS ERRED IN LAW AND ON FACTS AND DID NOT APPRECIATE THAT THE ASSESSEE IS A SEPARATE LEGAL ENTITY AND PROFIT ACCOUNTING TO IT ARE TAXABLE. (III) THE LEANED CIT(APPEALS) HAS ERRED IN LAW AND SON FACTS IN NOT UPHOLDING THE DISALLOWANCE OF RS.287265/ - AS IT WOULD BE REVENUE NEUTRAL IF CONSIDERED AS SALES RETURN, IN AS MUCH AS THE CLOSING STOCK WOULD HAVE BEEN ENHANCED BY CORRESPONDING SUM. ITA NO. 334 /AHD/201 4 WITH CO.186/AHD/2014 ASSTT. YEAR2010 - 11 2 (IV) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD.CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. IT IS THEREFORE PRAYED THAT THE ORDER OF THE LEARNED CIT(APPEALS) MAY BE SET ASIDE AND THAT OF THE A.O BE RESTORED TO THE ABOVE EXTENT. 2. IN THIS CASE RETURN O F INCOME DECLARING INCOME OF RS.3 , 05 , 793/ - WAS FILLED ON 04/10/2010. SUBSEQUENTLY, THE CASE WAS SELECTED UNDER SCRUTINY BY ISSUING NOTICE U/S.143(2) ON 25/08/2011. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT THE TOTAL INCOME OF THE ASSESSEE AS PER PROFIT AND LOSS ACCOUNT WAS RS.13,28,58,85,097/ - WHEREAS TOTAL EXPEN DITURE WAS RS.12,61,42,08,822/ - RESULTING INTO SURPLUS OF RS.67,16,76,275/ - WHICH WAS SHOWN AS SURPLUS PAYABLE TO GOVERNMENT OF GUJARAT AS EXPENDITURE. 3. THE ASSESSING OFFICER OBSERVED THAT SURPLUS PAYABLE TO GOVERNMENT OF GUJARAT FOR RS.67,16,76,275/ - C LAIMED AS EXPENDITURE CANNOT BE ALLOWED AS DEDUCTION TO THE ASSESSEE. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE HAS RECEIVED COMMISSION OF RS.51,17,74,460/ - FROM GOVERNMENT AND AFTER ADJUSTING SUCH COMMISSION AGAINST SURPLUS OF RS.67,16,76,2 74/ - THERE REMAINS NET SURPLUS OF RS.5,99 ,01,814/ - AND IF ALL THE SURPLUS TO GOVERNMENT WAS TO BE DEBITED TO PROFIT AND LOSS ACCOUNT IT WAS TO BE DEBITED OF RS.15,99,01,084/ - AND NOT RS.67,16,76,274/ - 4. AGGRIEVED AGAINST THE DECISION OF ASSESSING OFFICER THE ASSESSEE FILED N APPEAL BEFORE LD.CIT(A). THE LD.CIT(A) ALLOWED THE APPEAL OF ASSESEE BY OBSERVING AS UNDER: 5.4 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER, SUBMISSION FILED BY APPELLANT AND REMAND REPORT SUBMITTED BY ASSESSING OFFICER. THE UNDI SPUTED FACTS OF THE PRESENT CASE AS OBSERVED BY ASSESSING OFFICER AT PARA 3 OF THE ASSESSMENT ORDER ARE THAT APPELLANT COMPANY WAS SET UP BY GOVERNMENT OF GUJARAT (GOG) UNDER THE COMPANIES ACT 1956 VIDE ITS ITA NO. 334 /AHD/201 4 WITH CO.186/AHD/2014 ASSTT. YEAR2010 - 11 3 IOVERNMENT RESOLUTION (GR) AND HAS BEEN SET UP FO R SMOOTHENING THE PUBLIC DISTRIBUTION SYSTEM(PDS) LIKE DISTRIBUTION OF GOODS GRAINS, EDIBLE OILS ETC AMONG THE POOR PEOPLE. ON CAREFUL CONSIDERATION OF DETAILS SUBMITTED BY APPELLANT AND FROM ASSESSMENT ORDER, IT IS OBSERVED THAT APPELLANT IS MAINLY CARRYI NG OUT TWO TYPES OF ACTIVITIES I.E. ONE ACTIVITY BEING APPELLANT MANAGES THE PDS AND VARIOUS PUBLIC WELFARE SCHEMES ON BEHALF OF THE GOG AND AS PER THE INSTRUCTIONS OF THE GOG WITH THE MOTIVE OF PROVIDING SOCIAL AND ECONOMIC WELFARE AND SECOND ACTIVITY BEI NG OPERATING PETROL PUMPS, GAS AGENCIES, DEPARTMENTAL STORES, ETC. WHICH ARE CARRIED OUT BY THE APPELLANT ON ITS OWN BEHALF. THE GOG IS ALSO PROVIDING HANDLING COMMISSION TO THE APPELLANT AS PERCENTAGE OF TURNOVER ACHIEVED BY IT FOR FIRST TYPE OF ACTIVITY AND SUCH COMMISSION IS CONSIDERED AS PART OF INCOME BY APPELLANT AS PART OF SECOND ACTIVITY. AS PER DETAILS SUBMITTED BY APPELLANT AND ACCEPTED BY ASSESSING OFFICER DURING ASSESSMENT PROCEEDINGS, APPELLANT HAS SHOWN SURPLUS OF RS.67,16,76,275/ - FROM FIRST TYPE OF ACTIVITY AND AS SUCH ACTIVITY WAS CARRIED OUT ON BEHALF OF GOVERNMENT, APPELLANT HAS TRANSFERRED SUCH SURPLUS TO GOG AND CLAIMED AS EXPENDITURE IN PROFIT &. LOSS ACCOUNT WHICH HAS BEEN DISALLOWED BY ASSESSING OFFICER ON THE GROUND THAT PROFIT/SURPL US IS EARNED BY APPELLANT AND NOT GOVERNMENT HENCE SAME IS REQUIRED TO BE TAXED IN HANDS OF APPELLANT. 5.5 DURING THE COURSE OF APPELLATE PROCEEDINGS, APPELLANT HAS SUBMITTED COPIES OF VARIOUS GR EXPLAINING VARIOUS PDS CARRIED OUT BY IT ON BEHALF OF GOG. G .R. NO. CSC - 1083 - 4089 - D DATED 28TH MARCH 1985, STATES AS UNDER: 'SINCE THE OBLIGATION OF GOVERNMENT TO PROVIDE AT REASONABLE PRICES, FOOD GRAINS AND EDIBLE OIL THROUGH FAIR PRICE SHOPS WAS BEING DISCHARGED FOR SOME TIME PAST NOW THROUGH THE AGENCY OF THE GUJARAT STATE CIVIL SUPPLIES CORPORATION LIMITED., GOVERNMENT WAS CONSIDERING THE BASIS ON WHICH THIS WORK SHOULD BE ENTRUSTED TO THE CORPORATION KEEPING IN VIEW THE PROPOSAL MADE BY THE SAID CORPORATION. IN THE CIRCUMSTANCES EXPLAINED ABOVE, GOVERNMENT IS PLEASED TO DECIDE THAT THE PUBLIC DISTRIBUTION SYSTEM OPERATIONS IN RESPECT OF FOODGRAINS AND EDIBLE OILS, TRANSFERRED TO THE GUJARAT STATE CIVIL SUPPLIES CORPORATION LIMITED SHOULD BE CARRIED OUT BY THE SAID CORPORATION FROM THE DATE OF ITS INCEPTION FOR AND ON BEHALF OF THE GOVERNMENT AND THE RESULTANT PROFIT / LOSS ARISING IN THE TRANSACTION OF THE SAID ITEMS WILL BE ON GOVERNMENT ACCOUNT. THE GOVERNMENT IS ALSO PLEASED TO ALLOW HANDLING COMMISSION AT %% RATE ON THE TOTAL TURNOVER ON THE AFORESAID ITEMS ON GOVERNMENT ACCOUNT EFFECTED BY THE CORPORATION FOR FIRST TWO YEARS AND AT THE RATE OF %% FOR THE SUBSEQUENT 3 YEARS AGAINST CONSIDERATION OF SERVICES RENDERED BY THE SAID CORPORATION IN THIS RESPECT. GOVERNMENT IS ALSO PLEASED TO ALLOW THE SAID CORPORA TION TO RETAIN THE NET SURPLUS FUNDS ON ACCOUNT OF GOVERNMENT TRANSACTIONS COVERED UNDER PUBLIC DISTRIBUTION OPERATION, AND THESE SURPLUS FUND WILL BE TREATED AS ANALOGOUS TO LOAN AND THE GUJARAT STATE CIVIL SUPPLIES CORPORATION WILL PAY TO THE GOVERNMENT ON FUNDS SO RETAINED 12 %% INTEREST PER ANNUM. DETAILED TERM OF THIS LOAN ARRANGEMENT WOULD BE SEPARATELY ISSUED.' FURTHER, G.R. DATED 06/07/1991 STATES AS UNDER: 'GOVERNMENT VIDE G.R. OF EVEN NO. DATED. 28.03.1985 READ AT (I) ABOVE HAD DECIDED THAT THE PU BLIC DISTRIBUTION SYSTEM OPERATION IN RESPECT OF FOOD - GRAINS AND ELIGIBLE OILS TRANSFERRED TO THE GUJARAT STATE CIVIL SUPPLIES CORPORATION LIMITED SHOULD BE CARRIED OUT BY SAID CORPORATION FROM DATE OF ITS INCORPORATION, FOR AND ON BEHALF OF THE STATE GOVE RNMENT AND THE RESULTANT PROFIT/LOSS ARISING IN THE TRANSACTION OF THE SAID ITEMS WILL BE ON GOVERNMENT ACCOUNT..... ... 2. GOVERNMENT IS FURTHER PLEASED TO CLARIFY THAT ALL DIRECT EXPENSES SUCH AS FREIGHT, GUNNY BAGS, LABOUR CHARGES, TRANSPORT CHARGES, PACKING EXPENSES, GUARANTEE CHARGES, COMMISSION ON SALES RELATING TO PROCUREMENT OF FOOD GRAINS AND EDIBLE OILS CARRIED OUT ON GOVERNMENT ACCOUNT SHALL BE DEBITED TO GOVERNMENT ACCOUNT SUBJECT TO GENERAL SUPERVISION AND INSTRUCTIONS OF THE ITA NO. 334 /AHD/201 4 WITH CO.186/AHD/2014 ASSTT. YEAR2010 - 11 4 GOVERNMENT ISSUE D FROM TIME TO TIME. AS REGARDS INTEREST CHARGES ON BORROWED FUNDS INCLUDING THE SURPLUS IN GOVERNMENT ACCOUNT AND OTHER FINANCING CHARGES INCURRED BY THE GUJARAT STATE CIVIL SUPPLIES CORPORATION LIMITED FOR CARRYING OUT BUSINESS ON GOVERNMENT ACCOUNT AND ITS OWN ACCOUNT... MAY BE APPORTIONED BETWEEN TWO OPERATIONS ON THE BASIS OF ANNUAL AVERAGE INVENTOR/ HELD DURING THE YEAR.' 3. GOVERNMENT IS ALSO PLEASED TO ALLOW THE SAID CORPORATION TO RETAIN TO THE CREDIT OF GUJARAT GOVERNMENT ACCOUNT THE NET SURPLUS FUNDS I.E. AFTER DEDUCTING THE AFORESAID COMMISSION PAYABLE TO GUJARAT STATE CIVIL SUPPLIES CORPORATION LIMITED ON ACCOUNT OF GOVERNMENT TRANSACTIONS COVERED UNDER THE PUBLIC DISTRIBUTION SYSTEM OPERATIONS AND DIRECT THAT THESE SURPLUS FUNDS WILL BE TREATE D AS ANALOGUES TO LOAN AND THE SAID CORPORATION SHALL PAY TO THE GOVERNMENT ON FUNDS SO RETAINED INTEREST AT THE RATE OF14% PER ANNUM, ON SURPLUS GENERATED FROM 1 ST APRIL 1990 TILL FURTHER ORDERS.' IT IS CRYSTAL CLEAR FROM AFORESAID GR ALONG WITH THE FACTS DISCUSSED HEREIN ABOVE: (I) PUBLIC DISTRIBUTION SYSTEM OPERATIONS IN RESPECT OF FOODGRAINS AND EDIBLE OILS, TRANSFERRED TO THE GUJARAT STATE CIVIL SUPPLIES CORPORATION LIMITED SHOULD BE CARRIED OUT BY THE SAID CORPORATION FROM THE DATE OF ITS INCEPTION FOR AND ON BEHALF OF THE GOVERNMENT (II) THE GOVERNMENT WILL ALLOW HANDLING COMMISSION ON THE TURNOVER CARRIED OUT BY APPELLANT ON BEHALF OF GOG. (III) THE APPELLANT IS CARRYING OUT AND FUNCTION PDS AS AGENT OF GOG. (IV) THE RES ULTANT PROFIT OR LOSS ARISING OUT OF SUCH ACTIVITY WILL BE ON GOVERNMENT ACCOUNT. (V) THE APPELLANT WOULD RETAIN NET SURPLUS FUND I.E. AFTER DEDUCTING THE AFORESAID COMMISSION PAYABLE TO GUJARAT STATE CIVIL SUPPLIES CORPORATION LIMITED ON ACCOUNT OF GOVERN MENT TRANSACTIONS COVERED UNDER PDS AND SURPLUS FUND WILL BE TREATED AS ANALOGUES TO LOAN AND APPELLANT WOULD PAY INTEREST TO GOG ON FUNDS RETAINED BY IT. IT IS FURTHER OBSERVED FROM AFORESAID GRS THAT APPELLANT IS CARRYING OUT AND FUNCTION PDS ON BEHALF O F GOG AND RESULTANT PROFIT/LOSS FROM SUCH TRANSACTION IS ON GOVERNMENT ACCOUNT HENCE OBSERVATION OF AO AT PAGE NO 5 OF THE ORDER THAT IT IS NOWHERE STATED IN GR THAT PROFIT/SURPLUS FROM THE ACTIVITY IS THE INCOME OF GOVERNMENT IS FALLACIOUS. THE AO HAS REF ERRED ONLY PART PARAGRAPH OF GR (PARA 3 OF GR DATED 1991) AND CAME TO CONCLUSION THAT PROFIT/SURPLUS IS LOAN BY GOG TO ASSESSEE. THESE PROVE BEYOND DOUBT THAT AO HAS PASSED THE PRESENT ORDER VERY HURRIEDLY AND WITHOUT APPRECIATING PROPER PERSPECTIVE OF TRA NSACTIONS AND ACTIVITIES CARRIED BY APPELLANT. ON CAREFUL CONSIDERATION OF VARIOUS ACTIVITIES CARRIED OUT BY APPELLANT ALONG WITH MODUS OPERANDI AS DISCUSSED HEREIN ABOVE, IT IS O BSERVED THAT APPELLANT ESTIMATES THE PROCUREMENT AND DISTRIBUTION COST INCLUDING TRANSPORTATION AND LOGISTICS COSTS) AND PROVIDES SUCH ESTIMATES TO THE GOG AND DIFFERENCE BETWEEN THE DISTRIBUTION PRICE UNDER THE SCHEMES MENTIONED ABOVE AND THE AGGREGATE OF PURCHASE PRICE AND ESTIMATED PROCUREMENT & DISTRIBUTION COST (PROVIDED BY THE APPELLANT) IS REIMBURSED TO THE APPELLANT AS SUBSIDY BY THE GOG. THE SUBSIDY REIMBURSED BY THE GOG IS CREDITED TO SEGMENT RELATED TO GOG ACTIVITIES OF THE PROFIT & LOSS ACCOUNT MAINTAINED BY APPELLANT. IN CASE THE PAYMENT OF SUBSIDY BY THE GOG IS H IGHER THAN THE DIFFERENCE BETWEEN SALES REALIZATION AND PURCHASE PRICE AND PROCUREMENT OF DISTRIBUTION COST THERE IS SURPLUS AND SURPLUS IS NOT PROFIT OF THE GOG AS ITA NO. 334 /AHD/201 4 WITH CO.186/AHD/2014 ASSTT. YEAR2010 - 11 5 OBSERVED BY THE AO BUT IT IS EXCESS SUBSIDY RECEIVED BY THE APPELLANT ON THE DISTRIBUTION O F VARIOUS ITEMS UNDER THE PDS. EVEN FOR CARRYING OUT SUCH ACTIVITY, APPELLANT HAS EARNED COMMISSION INCOME OF RS.51.17 CRORE FROM GOG AND OFFERED TO TAX IN PROFIT & LOSS ACCOUNT. THUS, WHATEVER SURPLUS/LOSS IS EARNED BY APPELLANT FOR ACTIVITY CARRIED OUT O N BEHALF OF GOG IS BELONGING TO GOI AND APPELLANT IS RETAINING SUCH PROFIT ON BEHALF OF GOG AND SUCH PROFIT/LOSS CANNOT BE TAXED AS INCOME OF APPELLANT AS IT IS CARRYING OUT SUCH ACTIVITY AS AGENT OF GOG AND FOR RETAINING SUCH INCOME, APPELLANT IS PAYING I NTEREST TO GOG WHICH IS ALSO NOT DISPUTED BY AO. HAD IT BEEN THE INCOME OF THE APPELLANT, IT' WOULD NEVER TRANSFER SUCH AMOUNT TO GOVERNMENT ACCOUNT AS LOAN PAYABLE AND WOULD PAY HUGE INTEREST. NO PERSON WOULD PAY INTEREST ON INCOME EARNED BY IT AND BELONG ING TO IT BUT ASSESSEE IS PAYING INTEREST TO GOG AS IT IS SURPLUS EARNED FROM ACTIVITY CARRIED OUT ON BEHALF OF GOG AND AS SUCH FUNDS ARE NOT PAID IMMEDIATELY TO GOG, IT IS PAYING INTEREST. IT IS OBSERVED FROM THE RECORDS THAT WHENEVER THERE IS DEFICIT IN SUCH ACTIVITY, IT IS NOT BORN BY APPELLANT BUT HAS BEEN RECOVERED FROM GOG. THUS, SURPLUS GENERATED DURING THE YEAR NDER CONSIDERATION FROM PDS ACTIVITY FOR RS.67.16 CRORE CANNOT BE HELD TAXABLE AS INCOME IN HANDS OF APPELLANT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, APPELLANT HAS ALSO SUBMITTED A COLUMNAR PROFIT AND LOSS ACCOUNT PRESENTING ACTIVITIES CARRIED O UT ON BEHALF OF GOG AND THOSE CARRIED OUT ON ITS OWN BEHALF SEPARATELY WHICH IS ALSO REPRODUCED BY AO AT PAGE 7 OF THE ORDER. THE SALES I N RESPECT OF ACTIVITIES CARRIED OUT ON BEHALF OF THE GOG AND THE SUBSIDY RECEIVED IN RESPECT OF THE SAID SALES IS CREDITED TO THE GOG SECTION OF THE COLUMNAR PROFIT & LOSS ACCOUNT WHEREAS PURCHASES AND OTHER DIRECT EXPENSES IN RESPECT OF GOG ACTIVITIES ARE DEBITED TO THE GOG SECTION OF THE COLUMNAR PROFIT & LOSS ACCOUNT AND WHATEVER SURPLUS IS COMPUTED FROM SUCH ACTIVITY IS TRANSFERRED TO GOG AND CLAIMED AS EXPENDITURE AND THUS APPELLANT HAS CORRECTLY SHOWN NIL INCOME FROM ITS FIRST ACTIVITY AS DISCUSSED HE REIN ABOVE. THE COMMISSION INCOME EARNED FOR ACTIVITY CARRIED OUT ON BEHALF OF GOG AND INCOME EARNED FROM APPELLANT'S OWN ACTIVITY HAS BEEN CORRECTLY SHOWN AS INCOME OF APPELLANT AND OFFERED SUCH INCOME FOR TAX IN RETURN OF INCOME. 5.6 APART FROM ABOVE, I T IS OBSERVED THAT APPELLANT IS CONSISTENTLY FOLLOWING AFORESAID PRACTICE OF ACCOUNTING ITS INCOME SINCE LONG AND SUCH METHOD OF ACCOUNTING HAS BEEN ACCEPTED BY ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDERS U/S 143(3) OF THE ACT FOR A.Y. 2005 - 06 TO 2009 - 2010 HENCE AO WAS NOT JUSTIFIED IN REJECTING AND MAKING ADDITION IN CURRENT YEAR WHEN FACTS OF PRESENT ASSESSMENT YEARS ARE IDENTICAL WITH THE FACTS OF EARLIER ASSESSMENT YEAR. 5.7 FURTHER, IN A.Y. 2002 - 2003, APPELLANT HAD DISTRIBUTED CEMENT AT THE BEHEST OF THE STATE GOVERNMENT AT THE PRICES DETERMINED BY THE STATE GOVERNMENT AND SIMILAR ADDITION MADE IN CASE OF APPELLANT. WHILE DECIDING THE ISSUE, THE HON'BLE AHMEDABAD I.T.A.T. VIDE ITS ORDER DATED J N I.T.A. NO.L219/AHD/2006 HAS HELD AS UNDER : 'WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. UNDER THE SCHEME OF THE ACT WHAT IS TAXABLE ' S THE INCOME ACCRUING TO THE ASSESSEE AND NOT ALL RECEIPTS. THEREFORE, UNLESS THE NATURE OF RECEIPT DEMONSTRATED THAT IT WAS IN THE NCTURE OF INCOME ACCRUING TO THE ITA NO. 334 /AHD/201 4 WITH CO.186/AHD/2014 ASSTT. YEAR2010 - 11 6 ASSESSEE, THE SAME IS NOT LIABLE TO TAX. IN THE PRESENT CASE, THE ASSESSEE WAS FUNCTIONING AT THE BEHEST OF THE STATE GOVERNMENT. DUE TO THE EARTHQUAKE IN GUJARAT, THE CEMENT WAS REQUIRED TO BE DISTRIBUTED AT A PRE - DETERMINED PRICE. EARLIER THE PRICE WAS DETERMINED AT RS. 101 WHICH WAS LATER REVISED TO RS. 100 PER BAG. HOWEVER, WHAT WAS RECEIVABLE BY THE ASSESSEE AS ITS INCOME IS ONLY HANDLING CHARGES OFRS. 2 PER BAG WHICH HAVE ALREADY BEEN A CCOUNTED FOR AS INCOME. THE EXCESS REALIZATION IS NOT BELONGING TO THE ASSESSEE. THE SAME IS REFUNDABLE EITHER TO THE STATE GOVERNMENT OR TO VARIOUS NGOS TO WHOM CEMENT WAS SUPPLIED. SINCE THE ASSESSEE DOES NOT HAVE ANY RIGHT OVER SUCH AMOUNT COLLECTED, TH E SAME IS NOT LIABLE TO BE INCLUDED AS INCOME OF THE ASSESSEE. ACCORDINGLY, THE LEARNED CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION. GROUND NO.2 FAILS.' FURTHER AFORESAID DECISION WAS ALSO CONFIRMED BY HON'BLE GUJARAT HIGH COURT VIDE ITS ORDER DATED 15/ 3/2011 WHEREIN IT WAS HELD AS UNDER: 'WE ARE BROADLY IN AGREEMENT WITH THE LOGIC ADOPTED BY THE TRIBUNAL. IT CANNOT BE STATED THAT THE MARGIN OF EXCESS PRICE OF CEMENT BAGS WAS INCOME OF THE ASSESSEE AND IT IS NOT IN DISPUTE THAT TH$ ASSESSEE WAS NOT IN T HE BUSINESS OF BUYING AND SELLING CEMENT. WE FIND NO FAULT WITH THE LOGIC ADOPTED BY THE TRIBUNAL. WE FIND THAT NO SUBSTANTIAL QUESTION OF LAW IS ARISING.' THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF GUJARAT POWER CORPORATION LIMITED (1996) 25 TAXMANN.COM 14 (GUJ.) HAS FURTHER HELD AS UNDER: 'SECTION 4, READ WITH SECTION 2(24), OF THE INCOME - TAX ACT, 1961 - INCOME CHARGEABLE AS 05 - ASSESSMENT YEAR 1992 - 93 - STATE GOVERNMENT HAD SANCTIONED CERTAIN AMOUNT TOWARDS ITS EQUITY SHARE CAPITAL CONTRIBUTION IN ASSESSEE - COMPANY - SHARES COULD NOT BE ALLOTTED IN FAVOUR OF STATE GOVERNMENT IMMEDIATELY - ASSESSEE DEPOSITED SAME IN BANKSIN SHORT - TERM DEPOSITS WHICH EARNED SOME I NTEREST - SUCH AMOUNT OF INTEREST WAS AGREED OVER TO BE PAID TO STATE GOVERNMENT - WHETHER AMOUNT WHICH REMAINED WITH ASSESSEE WAS HELD IN TRUST FOR AND ON BEHALF OF STATE GOVERNMENT AND, THEREFORE, INTEREST ACCRUED MUST ALSO BELONG TO STATE GOVERNMENT AND WOULD NOT BE TREATED AS INCOME IN HANDS OF ASSESSEE - HELD, YES [IN FAVOUR OF ASSESSEE]' IN VIEW OF AFORESAID DISCUSSION AND ON HOLISTIC CONSIDERATION ENTIRE FACTS AND RESPECT FULLY FOLLOWING THE DECISION OF HON'BLE JURISDICTIONAL I.T.A.T., AND HIGH CO URT IN APPELLANT'S OWN CASE, IT IS OBSERVED THAT SURPLUS OF RS.67,16,76,274/ - EARNED FROM FUNCTIONING OF PDS ON BEHALF OF GOG CANNOT BE TAXED AS INCOME IN THE HANDS OF APPELLANT AS SUCH SURPLUS IS EXCESS SUBSIDY RECEIVED BY THE APPELLANT ON THE DISTRIBUTIO N OF VARIOUS ITEMS UNDER THE PDS WHICH IS BELONGING TO GOVERNMENT AND PAYABLE TO G OG ALONG WITH INTEREST AFTER REDUCING COMMISSION EARNED BY APPELLANT. C ONSIDERING THE SAME, ADDITION MADE BY ASSESSING OFFICER FOR RS.67,16,76,274/ - IS DELETED. AS THE MAIN ISSUE HAS BEEN DECIDED IN FAVOUR OF APPELLANT, ALTERNATE CLAIM MADE BY APPELLANT AT GROUND NO. 3 HAS BECOME INFRUCTUOUS AND THIS DOES NOT REQUIRE ANY FURTHER ADJUDI CATION. 5 . WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED THE MATERIAL AS PER RECORD. WE HAVE NOTICED THAT THE ASSESSEE COMPANY WAS SET UP BY THE GOVERNMENT OF GUJARAT UNDER THE COMPANIES ACT, 1956. THE ASSESSEE COMPANY MANAGE THE PUBLIC DISTRIBUTION SYSTEM AND OTHER PUBLIC WELFARE SCHEME ON BEHALF OF THE ITA NO. 334 /AHD/201 4 WITH CO.186/AHD/2014 ASSTT. YEAR2010 - 11 7 GOVERNMENT OF GUJARAT. THE GOVERNMENT OF GUJARAT HAS BEEN PROVIDING HANDLING COMMISSION AS PE R THE GOVERNMENT OF GUJARAT (GR) GOVERNMENT RESOLUTION .W E OBSERVED THAT THE SURPLUS WHICH WAS EARNED B Y THE ASSESSEE FOR THE ACTIVITIES CARRIED OUT ON BEHALF OF THE GOVERNMENT OF GUJARAT BELONG ED TO THE GOVERNMENT AND PAYABLE TO THE GOVERNMENT ALONG WITH INTEREST AFTER DEDUCTING OF COMMISSION EARNED BY THE ASSESSEE. WE FURTHER OBSERVED THAT THE COMMISSION INCOME EARNED BY THE ASSESSEE ON THE ACTIVITIES CARRIED ON BEHALF OF THE GOVERNMENT AND OTHER INCOME FROM ITS OWN ACTIVITIES ARE TAXABLE IN THE HAND OF THE ASSESSEE. 5.1 WE HAVE FURTHER NOTICED THAT IN THE EARLIER ASSESSMENT YEAR THE ASSESSING OFFICER HAS ACCEPTED THE SIMILAR ACCOUNTING PRACTICES FOLLOWED IN THE CASE OF THE ASSESSEE. WE CONSIDERED THAT SURPLUS EARNED ON BEHALF OF THE GOVERNMENT FOR CARRYING OUT FUNCTION OF PUBLIC DISTRIBUTION SYSTEM AS AGENT OF GOVERNMENT IS NOT TAXABLE IN THE HAND OF THE ASSESSEE. 5.2 WE HAVE ALSO PERUSED THE DETAIL FACTS AND FINDINGS ELABORATED IN THE ORDER OF THE LD.CIT(A) AND CONSIDERED THAT THE LD.CIT(A) IS JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER BY STATING THAT SURPLUS EARNED FROM FUNCTION ING OF PDS ON BEHALF OF GOVERNMENT CANNOT BE TAXED IN THE HAND OF THE ASSESSEE. IN VIEW OF THE ABOVE STATED FACTS AND FINDINGS WE UPHOLD THE ORDER OF THE LD.CIT(A). CROSS OBJECTION FILED BY THE ASSESSEE IN APPEAL OF THE REVENUE ITANO .186/AHD/2014 6 . APROPOS TO GROUND NO.1 AND 2 OF THE CROSS OBJECTION FILLED BY THE ASSESSEE HAS BECOME INFRASTRUTUS AS THE GROUND APPEAL OF THE REVENUE ON THE IDENTICAL ISSUES HAS BEEN DISMISSED. GROUND NO.3 OF THE ASSESSEE ITA NO. 334 /AHD/201 4 WITH CO.186/AHD/2014 ASSTT. YEAR2010 - 11 8 7 . APROPOS TO GROUND NO.3 THE CLAIM OF THE ASSES SEE REGARDING DEDUCTION OF RS.3,86.171/ - NOT FOUND TO BE JUSTIFIED AS THE ASSESSEE FAILED TO SUBSTANTIATE WITH RELEVANT SUPPORTING EVIDENCE THAT THE SAID AMOUNT WAS OFFERED TO TAX IN THE EARLIER YEARS. WE HAVE ALSO GONE THROUGH THE PAPER BOOK FILED BY TH E ASSESSEE AND NOTICED THAT HAND - WRITTEN ENTRY AS PER PAGE NO.126 WAS NOT SUFFICIENT TO PROVE THAT SUCH AMOU N T WAS OFFERED TO TAX IN THE EARLIER YEAR, THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE DECISION OF THE LD.CIT(A) ON THIS ISSUE. 8 . IN THE RESULT THE APPEAL OF DEPARTMENT AND THE CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 01 ST JUNE , 2017 AT AHMEDABAD. SD/ - SD/ - ( RAJPAL YADAV ) JUDICIAL MEMBER ( AMARJIT SINGH ) ACCOUNTANT MEMBER AHMEDABAD; DATED 01 / 06 /2017 MANISH / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) 5. , / DR, ITAT, 6. / GUARD FILE . / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD