ADDL CIT RG 6(1), MUMBAI V. BALKIRSHNA INDUSTRIES LTD, MUMBAI

ITA 4008/MUM/2010

• Counselvise Citation: 400819914 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 04-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 17-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Assessee Lawyers: DI LIP J THAKKAR
• Keywords: Capital receipt

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI BEFORE SHRI P.M. JAGTAP (A.M.) AND SHRI R.S. PADVEK AR (J.M.) ITA NO.4008/MUM/2010 ASSESSMENT YEAR : 2005-2006 ADDL. C.I.T. 6(1) R.NO.506, 5 TH FLR., AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. VS. BALKRISHNA INDUSTRIES LTD. 418, CREATIVE INDL. ESTATE, SITARAM MILL COMPOUND, 72, N.M. JOSHI MARG, MUMBAI 400 011. PAN : AAACB3333J (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI V.V. SHASTRI (AR) RESPONDENT BY : SHRI RAJESH P. SHAH & DILIP J. THAKKAR. DATE OF HEARING : 04.08.2011 DATE OF PRONOUNCEMENT : O R D E R PER P.M. JAGTAP, A.M. THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF THE LEARNED CIT (A)-XIV, MUMBAI DATED 26.02.2010 AND IN THE SOLITARY GROUND RAISED THEREIN, REVENUE HAS CHALLENGED THE ACTION O F THE LD CIT(A) IN DELETING THE ADDITION OF RS.5,65,55,817/- MADE BY THE AO ON ACCOUNT OF CESSATION OF DEFERRED SALES TAX LIABILITY. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF TYRES ETC. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 28.10.2005 D ECLARING THE TOTAL INCOME OF RS.63,52,92,180/-. IN THE PROFIT & LOSS A/C. F ILED ALONG WITH THE SAID RETURN, THE SUM OF RS.5.65 CRORES WAS CREDITED BY T HE ASSESSEE AS EXTRA ORDINARY INCOME. IN THE COMPUTATION OF TOTAL INCOM E, THE SAID AMOUNT HOWEVER WAS NOT OFFERED TO TAX BY THE ASSESSEE. D URING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS CALLED UPO N BY THE AO TO EXPLAIN ITA NO.4008/MUM/2010 ASSESSMENT YEAR : 2005-2006 2 THE NATURE OF SAID INCOME AS WELL AS THE BASIS FOR NOT OFFERING TO SAME FOR TAX. IN REPLY, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE COMPANY THAT OUTSTANDING LIABILITY ON ACCOUNT OF DEFERRED SALES TAX AMOUNTING TO RS.11.81 CRORES WAS SETTLED FULLY BY MAKING PAYMENT OF RS.6. 16 CRORES IN THE YEAR UNDER CONSIDERATION AS PER THE PREPAYMENT OPTION GI VEN BY THE GOVERNMENT OF MAHARASHTRA. IT WAS CONTENDED THAT DEFERRED SA LES TAX LIABILITY TO THE EXTENT OF RS.5.65 CRORES THUS WAS WAIVED AFTER THE PREPAYMENT OF RS.6.16 CRORES MADE BY THE ASSESSEE AND THE SAME WAS CREDIT ED IN THE P & L A/C. AS EXTRA ORDINARY INCOME. IT WAS FURTHER CONTENDED TH AT THE SAID AMOUNT BEING OF CAPITAL NATURE WAS NOT CHARGEABLE TO TAX. THIS STAND OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE AO. ACCORDING TO HIM, THERE WAS A CESSATION OF LIABILITY TO THE EXTENT OF RS.5.65 CRORES AND THE S AME WAS TREATED BY HIM AS INCOME CHARGEABLE TO TAX IN THE HANDS OF THE ASSESS EE U/S.41(1) FOR THE FOLLOWING REASONS AS SUMMARIZED ON PAGE 21 OF THE A SSESSMENT ORDER PASSED U/S.143(3)- SECTION 41(1) OF THE I.T. ACT IS REGARDING TAXABIL ITY OF A LIABILITY THAT CEASED TO EXIST. FOR A LIABILITY TO BE TAXABL E UNDER THIS SECTION THE FOLLOWING CONDITIONS ARE TO BE FULFILLE D.: I) IT MUST BE TRADING LIABILITY II) IN ALLOWANCE OR DEDUCTION FOR THIS TRADING LIABILIT Y MUST HAVE BEEN ALLOWED IN ASSESSMENT FOR ANY ASSESSMENT YEAR PRECEDING THE PREVIOUS YEAR UNDER CONSIDERATIO N. III) THE LIABILITY MUST CEASE TO EXIST BY WAY OF REMISSI ON OR CESSATION THEREOF AND THE BENEFIT OF SUCH CESSATION MUST ACCRUE TO THE ASSESEE IN THE RELEVANT PREVIOUS YEAR . AS SEEN ABOVE IN THIS ORDER, SALES TAX COLLECTED BY THE ASSESSEE IS A TRADING RECEIPT AS PER JUDGEMENT OF SUPREME CO URT IN CHOWRANGHEE SALES BUREAU LTD. CASE. FURTHER THE SALE TAX COLLECTED BUT DEFERRED IN PAYM ENT HAS NEITHER BEEN OFFERED BY THE ASESSEE FOR TAXATION NO R IT HAS BEEN ADDED IN ASSESSMENT FOLLOWING CBDT CIRCULARS AND TH EREFORE DEDUCTION FOR THE SAME HAS BEEN ALLOWED IN COMPUTAT ION OF INCOME IN RESPECTIVE ASSESSMENT YEAR. LASTLY, BY PAYMENT OF NET PRESENT VALUE OF THE SALE S TAX SO DEFERRED THE LIABILITY FOR THE BALANCE HAS CEASED T O EXIST IN THE RESPECTIVE PREVIOUS YEAR. 3. AGAINST THE ORDER PASSED BY THE AO U/S.143(3) AN APPEAL WAS FILED BY THE ASSESSEE BEFORE THE LD CIT(A) DISPUTING THEREIN INTER-ALIA THE ADDITION OF RS.5,65,55,817/- MADE BY THE AO ON ACCOUNT OF CESSA TION OF DEFERRED SALES ITA NO.4008/MUM/2010 ASSESSMENT YEAR : 2005-2006 3 TAX LIABILITY U/S.41(1) AND AFTER CONSIDERING THE S UBMISSIONS MADE ON BEHALF OF THE ASSESSEE IN THE LIGHT OF MATERIAL AVAILABLE ON RECORD, THE LD CIT(A) DELETED THE SAID ADDITION MADE BY THE AO FOR THE FO LLOWING REASONS GIVEN IN PARA 13 OF HIS IMPUGNED ORDER: 13. I HAVE GONE THROUGH THE ABOVE SUBMISSIONS VERY CAREFULLY AND PERUSED THE ORDER OF THE AO. THE AO HAS MADE ADDITION OF RS.5,65,55,817/- BY TREATING THE CESSAT ION OF SALES TAX LIABILITY AS THE REVENUE IN NATURE. IN THIS R EGARD THE APPELLANT SUBMITTED THAT THE SALE TAX DEPARTMENT HA D COME OUT WITH THE REPAYMENT OF DIFFERENTIAL TAX PAYMENT AND DECIDED TO WAIVE THE AMOUNT AS PER THE NET PRESENT VALUE. THE AO TREATED, AS THE ASSESSEE COMPANY ON THE LINE OF CH OWRANGEE SALES BUREAUS CASE WHO HAD APPROPRIATED THE SALES TAX COLLECTED AND NOT PAID TO THE GOVERNMENT. BUT THE APPELLANT COMPANY HAD COMPLIED WITH ALL THE GUIDELINES MENTIO NED IN THE SCHEME. THE SAID SCHEME WAS BY WAY OF INCENTIVE TO INTENSIFY AND ACCELERATE THE PROCESS OF DISPERSAL ON INDUSTRI ES FROM THE DEVELOPED AREAS AND FOR DEVELOPMENT OF THE UNDER DE VELOPED REGIONS OF THE STATE. THE SAID SCHEME WAS COMPLETE LY FOCUSED ON THE LOCATION OF THE INDUSTRY AND THE AMOUNT OF F IXED CAPITAL INVESTMENT. IT WAS MEANT FOR INDUSTRIAL DEVELOPME NT OF THE BACKWARD DISTRICTS. THE QUANTUM OF SALES TAX INCE NTIVES HAD DIRECT NEXUS WITH THE INVESTMENT IN FIXED CAPITAL A SSETS. HENCE, THE MONEY RECEIVED UNDER THE SAID SCHEME IS FOR CAPITAL PURPOSES. IN THE CASE OF DY.CIT VS. RELIANCE INDUSTRIES LTD. 88 ITD 273 (MUM) THE MUMBAI SPECIAL BENCH OF ITAT HAS HELD THA T THE SAME CONSTITUTED CAPITAL RECEIPT. FURTHER, ON PREMATURE PAYMENT OR WAIVER OF PART AM OUNT OF LOAN LIABILITY, SINCE NO DEDUCTION WAS CLAIMED IN E ARLIER YEARS, SECTION 41(1) OF THE ACT IS NOT APPLICABLE AS THE I NGREDIENTS OF THAT SECTION ARE NOT FULFILLED AT ALL. SIMILARLY I N THE CASE OF MAHINDRA & MAHINDRA LTD. 261 ITR 501 (BOM) HIGH COU RT HAS HELD THAT THE WAIVER OF PRINCIPAL AMOUNT OF LOAN WA S NOT ASSESSABLE U/S.41(1). IN VIEW OF THE ABOVE FACTS, I FIND MERIT IN THE SU BMISSION OF THE APPELLANT THAT THE RECEIPT DUE TO CESSATION OF SALES TAX LIABILITY IS IN THE FORM OF INCENTIVES AND THE SAME IS CAPITAL IN NATURE. RESPECTFULLY FOLLOWING THE ORDER OF THE H ONBLE ITAT, SPECIAL BENCH, MUMBAI IN THE CASE CITED SUPRA, I DI RECT THE AO TO TREAT THE RECEIPT AS CAPITAL IN NATURE AND DELET E THE ADDITION. THIS GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE A PPELLANT. AGGRIEVED BY THE ORDER OF THE LD CIT(A) GIVING RELI EF TO THE ASSESSEE AS ABOVE, THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TR IBUNAL. ITA NO.4008/MUM/2010 ASSESSMENT YEAR : 2005-2006 4 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS AGREED BY THE LD REPRESENTATIVE OF BOTH THE SIDES, THE ISSUE INVOLVED IN PRESENT APPEAL IS SQUA RELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISIO N OF THE SPECIAL BENCH OF THE ITAT IN THE CASE OF SULZER INDIA LTD. VS. JT.CI T (2010) 42 SOT 457 (MUM) (SB) WHEREIN IT IS HELD THAT THE DEFERRED SALES TAX LIABILITY BEING THE DIFFERENCE BETWEEN THE PAYMENT OF NET PRESENT VALUE AGAINST FUTURE LIABILITY CREDITED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT IS A CAPITAL RECEIPT. IT IS ALSO HELD THAT THE SETTLEMENT OF SUCH FUTURE LIABIL ITY BY PAYMENT OF ITS NET PRESENT VALUE AMOUNTS TO COLLECTION OF AMOUNT OF FU TURE LIABILITY AT ITS NET PRESENT VALUE AND SUCH PAYMENT OF NET PRESENT VALUE OF FUTURE LIABILITY CANNOT BE REGARDED AS REMISSION OR CESSATION OF THE LIABILITY SO AS TO ATTRACT PROVISION OF SECTION 41(1). AS THE ISSUE INVOLVED IN THE PRESENT CASE AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE ADMI TTEDLY SIMILAR TO THE CASE OF SULZER INDIA LTD. (SUPRA) WE RESPECTFULLY FOLLOW TH E DECISION OF SPECIAL BENCH RENDERED IN THE SAID CASE AND UPHOLD THE IMPUGNED O RDER OF THE LD CIT(A) DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF CESSATION OF DEFERRED SALES TAX LIABILITY U/S.41(1) OF THE ACT. 4. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED ON THIS 12 TH DAY OF AUGUST, 2011. SD/- (R.S. PADVEKAR) (JUDICIAL MEMBER) SD/- (P.M. JAGTAP) (ACCOUNTANT MEMBER) MUMBAI, DATED 12.08.2011 JANHAVI COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- , MUMBAI 4. COMMISSIONER OF INCOME TAX, CITY- , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH , MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI