ACIT, New Delhi V. M/s. Oil Industry Development Board, New Delhi

ITA 3567/DEL/2014

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 1769 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2008-2009
• Appeal Filed On: 13-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C GARG; SUSHEEL KUMAR GUPTA CAS
• Assessee Lawyers: PRAMITA B BISWAS CITA
• Keywords: Royalty expenses; Condonation of delay

Judgement Text

1 ITA NOS. 4425 & 3567/DEL/2014 IN THE INCOME TAX APPELLAT E TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT M EMBER AND MS SUCHITRA KAMBLE, JUDIC IAL MEMBER ITA NO. 4425/DEL/2014 ( A .Y 2008-09) (THROUGH VIDEO CONFEREN CING) OIL INDUSTRY DEVELOPMENT BOARD 301, WORLD TRADE CENTRE, BABAR ROAD NEW DELHI AAAJO0032A (APPELLANT) VS DCIT CIRCLE-31(1) NEW DELHI (RESPONDENT) ITA NO. 3567/DEL/2014 ( A .Y 2008-09) ACIT CIRCLE-31(1) NEW DELHI (APPELLANT) VS OIL INDUSTRY DEVELOPMENT BOARD 301, WORLD TRADE CENTRE, BABAR ROAD, NEW DELHI AAAJO0032A (RESPONDENT) APPELLANT BY SH. D. C. GARG & SH. SUSHEEL KUMAR GUPTA, CAS RESPONDENT BY SH. PRAMITA. B. BISWAS, CIT(A) DR ORDER PER SUCHITRA KAMBLE, JM THESE TWO APPEALS ARE FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER DATED 27/03/2014 PASSED BY THE CIT(A)-XXVI, N EW DELHI FOR ASSESSMENT YEAR 2008-09. DATE OF HEARING 12.10.2020 DATE OF PRONOUNCEMENT 09.12.2020 2 ITA NOS. 4425 & 3567/DEL/2014 2. THE GROUNDS OF APPEAL ARE AS UNDER:- ITA NO. 4425/DEL/2014 (ASSESSEES APPEAL) (1) THAT LD CIT (A) HAS ERRED BOTH ON FACTS AND IN LAW IN FRAMING THE ASSESSMENT AT AN INCOME OF RS 575,37,61,042/- AGAIN ST THE RETURNED INCOME OF RS. 531,47,22,540/-. (2) THAT THE LD CIT (A) HAS ERRED IN MAKING ADDITION OF RS. 13,28,38,502/- LYING WITH DGH AS THE FUND LYING WITH DGH IN CUSTOD Y COULD NOT HAVE BEEN BROUGHT TO TAX IN THE YEAR UNDER APPEAL SINCE THE A PPELLANT BOARD IS CONSISTENTLY FOLLOWING CASH SYSTEM OF ACCOUNTING FO R RECOGNIZING SUCH INCOME & IT WAS NEVER REMITTED BY DGH TO THE APPELLANT IN THE YEAR UNDER APPEAL. CONSISTENCY HAS TO BE FOLLOWED BY THE TAX DEPARTMEN T UNLESS THERE IS CHANGE IN THE FACTS OF THE CASE . (3) IT IS CONTENTED THAT THE ACCOUNTING ENTRIES AND ME THOD OF TREATMENT IN THE ACCOUNTS COULD ONLY BE A GUIDING FACTOR AND IT IS N OT DETERMINING AND CONCLUSIVE EVIDENCE AS TO HOW THE INCOME HAS TO BE COMPUTED FOR THE PURPOSE OF INCOME TAX. (4) IT IS CONTENTED THAT ADDITION OF RS 13,28,38,502/- ON ACCOUNT OF SALE OF DATA BY DGH AND TREATING THE SAME AS INCOME IN THE CURRENT YEAR UNDER APPEAL IS WRONG AND BAD IN LAW. ITA NO. 3567/DEL/2014 (REVENUES APPEAL) (I) THE CIT(A) HAS ERRED IN DELETING DISALLOWANCE OF RS . 30,62,00,000/- MADE BY THE A.O ON ACCOUNT OF ROYALTY PAYABLE TO STATE G OVERNMENT BEING PRIOR PERIOD EXPENSE. 3. THERE IS A DELAY OF 62 DAYS IN FILING THE PRESEN T APPEAL OF THE ASSESSEE BEING ITA NO.4425/DEL/2014. THE ASSESSEE FILED APPL ICATION FOR CONDONATION OF DELAY ALONG WITH THE AFFIDAVIT THEREBY EXPLAINING T HE REASON FOR DELAY. THE LD. DR DID NOT OBJECT TO THE SAME. IT IS OBSERVED THAT THE REASON EXPLAINED FOR DELAY IS GENUINE. HENCE, DELAY IN FILING THE PRESENT APPE AL BY THE ASSESSEE IS CONDONED. 3 ITA NOS. 4425 & 3567/DEL/2014 4. FIRSTLY WE ARE TAKING UP THE APPEAL FILED BY THE ASSESSEE. THE ASSESSEE IS A STATUTORY BODY CONSTITUTED BY AN ACT OF PARLIAMEN T, IS ENGAGED IN PROVIDING FINANCIAL ASSISTANCE FOR THE DEVELOPMENT OF OIL IND USTRY. THE ASSESSEE HAS BEEN NOTIFIED AS AN ELIGIBLE INSTITUTION FOR THE PURPOSE OF CLAIMING DEDUCTION UNDER SECTION 36(1)(XII) OF THE INCOME TAX ACT, 1961 FOR AND FROM A.Y. 2008-09 AND ACCORDINGLY ANY EXPENDITURE (OTHER THAN CAPITAL EXP ENDITURE) IF IT IS SPENT FOR THE PURPOSE OF THE OBJECT FOR WHICH IT WAS ESTABLIS HED HAS TO BE ALLOWED. THE ASSESSEE, IN THE PAST, HAD BEEN CLAIMING THE ROYALT Y PAYMENT ON THE BASIS OF ACTUAL PAYMENT I.E. CASH BASIS TILL ASSESSMENT YEAR 2007-08. HOWEVER, FROM THE ASSESSMENT YEAR 2008-09, THE METHOD OF ACCOUNTI NG IN PURSUANCE OF C & AG DIRECTIONS WAS CHANGED FOR SOME RECEIPTS AND EXP ENDITURE FROM CASH TO ACCRUAL METHOD OF ACCOUNTING. CONSEQUENTIALLY, THE ASSESSEE CLAIMED ROYALTY PAYMENT ON ACCRUAL BASIS ON THE BASIS OF THE QUANTI FICATION AS PER THE EXISTING GUIDELINES OF THE OFFICE OF THE DIRECTORY GENERAL O F HYDROCARBON (DGH). THE ASSESSING OFFICER MADE DISALLOWANCE OF RS. 30,62,00 ,000/- AS REGARDS TO EXPENDITURE ON ROYALTY AS PRIOR PERIOD EXPENSES. TH E ASSESSING OFFICER ALSO ADDED RS. 13,28,38,502 ON ACCOUNT OF AMOUNT LYING I N THE CUSTODY OF DGH NOT ACCOUNTED FOR BY THE OIDB. 5. BEING AGGRIEVED BY THE ASSESSMENT ORDER THE ASSE SSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 6. THE LD. AR SUBMITTED THAT THERE IS ONLY ONE ISS UE IN THIS APPEAL THAT INCOME OF RS. 13.28 CRORES ACCRUED BUT NOT RECEIVED HAS NOT BEEN ACCOUNTED FOR BY THE ASSESSEE. THIS SYSTEM OF ACCOUNTING IS B EING FOLLOWED CONSISTENTLY AND THE REVENUE HAS BEEN ACCEPTED FROM THE VERY BEG INNING AND NO INCONSISTENCY WAS FOUND. THE LD. AR FURTHER SUBMIT TED THAT THE SAME INCOME HAS BEEN ACCOUNTED FOR IN THE VERY NEXT YEAR I.E. I N A.Y. 2009-10 AND THE ASSESSEE PAID TAX ACCORDINGLY. THE LD. AR SUBMITTED THAT TAXABILITY OF THAT INCOME IN THE NEXT YEAR HAS NEITHER BEEN DISPUTED B Y THE ASSESSING OFFICER NOR 4 ITA NOS. 4425 & 3567/DEL/2014 BY THE CIT(A). THE LD. AR SUBMITTED THE LETTER OF D GH, LEDGER, BANK STATEMENT AND C&AG REPORT DURING THE ASSESSMENT PROCEEDINGS. THE LD. AR SUBMITTED THAT WHEN SYSTEM OF ACCOUNTING IS BEING FOLLOWED CO NSISTENTLY, AND TAX RATES IN BOTH THE YEARS I.E. A.Y. 2008-09 AND AY 2009-10 ARE SAME, THERE IS NO LOSS TO REVENUE, HENCE ADDITION MAY KINDLY BE DELETED. OTHE RWISE, THERE WILL BE DOUBLE TAXATION ON THE SAME INCOME I.E. FIRST IN THE YEAR UNDER CONSIDERATION AND SECOND IN THE NEXT YEAR I.E. A.Y. 2009-10 WHEN THE ASSESSEE HAS ACCOUNTED FOR THIS INCOME. THE LD. AR RELIED UPON THE DECISION OF THE TRIBUNAL IN THE CASE OF ACIT VS. NBCC LTD. [APPEAL NO. 5870-DEL-2010] ON SI MILAR ISSUE HELD THAT AS THE TAX RATES WERE THE SAME IN BOTH THE YEARS, DEPA RTMENT SHOULD NOT FRITTER AWAY ITS ENERGIES IN RAISING QUESTIONS AS TO THE YE AR OF DEDUCTIBILITY/TAXABILITY. THE LD. AR ALSO RELIED UPON THE HONBLE JURISDICTIO NAL HIGH COURTS DECISION IN CASE OF CIT VS. SHRI RAM PISTONS & RINGS LTD [220 C TR 404] WHEREIN IT IS HELD THAT WHEN THERE WAS NO CHANGE IN THE RATE OF TAX FO R THE PARTICULAR ASSESSMENT YEAR, THE QUESTION, THEREFORE, IS ONLY WITH REGARD TO THE YEAR OF DEDUCTION AND IT IS NOT NECESSARY TO DETERMINE THE YEAR OF TAXABILIT Y OF THE AMOUNT. 7. THE LD. DR SUBMITTED THAT THE ASSESSEE HAS CHANG ED THE ACCOUNTING SYSTEM WITHOUT ANY PROPER CAUSE OR REASON IN THE PR ESENT ASSESSMENT YEAR. AND THUS, THE ASSESSING OFFICER HAS RIGHTLY MADE AD DITION IN RESPECT OF FUNDS LYING WITH DGH. THE LD. DR RELIED UPON THE ASSESSME NT ORDER AND THE ORDER OF THE CIT(A). 8. AS REGARDS TO THE REVENUES APPEAL, THE LD. DR S UBMITTED THAT THE TAX STATUTE CATEGORICALLY PROHIBITS THE ALLOW ABILITY O F PRIOR PERIOD EXPENSES UNLESS IT IS PROVED THAT THE EXPENSES AND THE LIABILITY TH EREOF IS CRYSTALLIZED DURING THE RELEVANT YEAR UNDER CONSIDERATION. THE LD. DR SUBM ITTED THAT THE ASSESSEE BOARD FAILED TO ESTABLISH THE FACT THAT THE LIABILI TY WAS CRYSTALLIZED DURING THE RELEVANT YEAR UNDER CONSIDERATION AND THUS, SUCH PR IOR PERIOD EXPENSES ARE NOT ALLOWABLE INCOME TAX ACT. THEREFORE THE LD. DR RELI ED UPON THE ASSESSMENT ORDER. 5 ITA NOS. 4425 & 3567/DEL/2014 9. THE LD. AR SUBMITTED THAT THE ISSUE OF ALLOWABIL ITY OF PRIOR PERIOD EXPENSES IN THE CURRENT YEAR IS CHALLENGED BY THE R EVENUE. THE CIT (A) VERY ELABORATELY DISCUSSED THE ISSUE IN HIS ORDER IN PAR A 5 TO 5.2 OF THE APPEAL ORDER. THE LD. AR RELIED UPON THE DECISION OF THE TRIBUNAL IN NBCC LTD CASE AND JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT I N SHRI RAM PISTONS CASE AS STATED ABOVE, ALONG WITH ALL THE CASES CITED BY THE CIT(A) IN HIS ORDER I.E. WOODWARD GOVERNOR INDIA PVT. LTD. [312 ITR 254(SC)] , REALEST BUILDERS & SERVICES LTD. [170 TAXMANN 218 (SC)] AND SAS HOTELS & ENTERPRISES LTD.(APPEAL NO. 1030 OF 2010) (MADRAS HIGH COURT). HENCE THE CIT(A) CORRECTLY DELETED THE DISALLOWANCE OF EXPENSES AMOUNTING TO R S. 30.62 CRORES MADE BY THE ASSESSING OFFICER. CONSIDERING THE SAME ANALOGY AS RELIED BY THE CIT(A) WHILE DELETING THE DISALLOWANCE OF RS. 30.62 CRORES , THE ADDITION MADE ON ACCOUNT OF INCOME AMOUNTING TO RS. 13.28 CRORES, WH ICH HAS ALREADY BEEN ACCOUNTED FOR IN THE NEXT YEAR, AND THUS PRAYED FOR DELETION OF THE ADDITION. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FIRSTLY WE TAKE UP ASSESSEES APPEAL. IT IS PERTINENT TO NOTE THAT THE ASSESSEE HAS FOLLOWED THE SAME METHOD OF ACCOUNTING WHICH IS RECEIPT BASIS FOR TAKING REMITTANCE ON DGH AS AN INCOME. THE CHANGE I N ACCOUNT IN POLICY IN REFERENCE TO CAGS OBSERVATION/REPORT WAS BASICALLY TO STRENGTHEN THE FUND MANAGEMENT OF THE ASSESSEE BOARD. THE ASSESSEE ACC OUNTED FOR RS. 4657 LACS AS AN INCOME FROM THE SALE OF DATA FROM DGH. FROM T HE PERUSAL OF THE RECORDS IT CAN BE SEEN THAT FROM ACCOUNTING PURPOSES IT IS TAKEN AS OUTSTANDING ON 31 ST MARCH, 2008 AND A SUM OF RS. 13.28 CRORES WAS REALI ZED IN THE NEXT ASSESSMENT YEAR AND HAS BEEN ACCOUNTED FOR AS INCOM E. THIS FACT WAS NO WHERE DENIED BY THE REVENUE. THUS, THE CIT(A) HAS T OTALLY IGNORED THIS ASPECT AND SIMPLY ON THE BASIS OF CHANGE OF ACCOUNTING POL ICY WHICH IS ALSO CHANGED ACCORDING TO THE CAG REPORT WHICH IS MANDATORY FOR THE ASSESSEE BOARD TO FOLLOW, CONFIRMED THE ADDITION. THE SAME IS NOT JUS TIFIED AS THE ACCOUNTING POLICY PRINCIPLES WERE THOROUGHLY FOLLOWED BY THE A SSESSEE BOARD AND THE INCOME WAS REPORTED FOR A.Y. 2009-10 WHICH IS NEXT ASSESSMENT YEAR. THERE IS 6 ITA NOS. 4425 & 3567/DEL/2014 NO REVENUE LOSS AS WELL. THEREFORE, THE ASSESSING O FFICER AS WELL AS THE CIT(A) WAS NOT CORRECT IN MAKING ADDITION. THUS, APPEAL OF THE ASSESSEE BEING ITA NO. 4425/DEL/2014 IS ALLOWED. 11. NOW, WE COME TO THE APPEAL FILED BY THE REVENUE . THE CIT(A) HAS GIVEN A CATEGORICAL FINDING THAT THE ROYALTY PAYABLE TO ARU NACHAL UPTO DECEMBER 2008, THE ASSESSEE HAS DEBITED SUCH EXPENSES ON THE MERCA NTILE BASIS AND SINCE THESE LIABILITIES OF PAYMENT OF ROYALTIES HAVE BEEN PROVIDED IN THE RELEVANT YEAR IN PURSUANCE OF THE DGH LETTERS DATED 23.03.2009 AN D 27.03.2009 HAVING DETAILED WORKING . ONCE THE ROYALTY EXPENSES OF RS. 43.25 CRORES HAVE BEEN CRYSTALLIZED IN THE RELEVANT ASSESSMENT YEAR, THESE ARE NOT THE CONTINGENT LIABILITY WHEN THE GENUINENESS OF THE SAME IS NOT Q UESTIONED BY THE REVENUE AUTHORITIES. HENCE, THERE IS NO NEED TO INTERFERE T HE FINDINGS OF THE CIT(A). THE APPEAL FILED BY THE REVENUE BEING ITA NO. 3567/DEL/ 2014 IS DISMISSED. 12. IN RESULT, APPEAL OF THE ASSESSEE IS ALLOWED A ND APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 09 TH DAY OF DECEMBER, 2020 . SD/- SD/- (ANIL CHATURVEDI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL M EMBER DATED: 09/12/2020 R. NAHEED 7 ITA NOS. 4425 & 3567/DEL/2014 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI