Hoganas India Pvt. Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 404/PUN/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 7175 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 9 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 07-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Question of law; Capital receipt
• Section: 43B; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, PUN E , ! ' # , $% &' #' , ' # '( BEFORE SHRI ANIL CHATURVEDI, AM AND SHRI VIKAS AWAS THY, JM '%. / ITA NO. 404/PUN/2015 * +* / ASSESSMENT YEAR : 2010-11 HOGANAS INDIA PVT. LTD., GANGA COMMERCE, 4, NORTH MAIN ROAD, KOREGAON PARK, PUNE-411001 PAN : AAACH5156K ....... / APPELLANT /VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 11, PUNE / RESPONDENT ASSESSEE BY : SHRI NIKHIL PATHAK REVENUE BY : SHRI NARESH KUMAR / DATE OF HEARING : 30-01-2017 / DATE OF PRONOUNCEMENT : 01-02-2017 , / ORDER PER VIKAS AWASTHY, JM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ASSE SSMENT ORDER DATED 30-01-2015 PASSED U/S. 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE AC T) FOR THE ASSESSMENT YEAR 2010-11. 2 ITA NO. 404/PUN/2015, A.Y. 2010-11 THE ONLY ISSUE RAISED BY THE ASSESSEE IN APPEAL IS AGAINS T THE ADDITION OF ` 1,66,76,021/- ON ACCOUNT OF PROFIT ON PRE-PAYMENT OF DEFERRED SALES TAX LOAN LIABILITY WHICH WAS CLAIMED BY THE ASS ESSEE AS CAPITAL RECEIPT. THE ASSESSING OFFICER REJECTED THE CLAIM OF ASSESSE E AND MADE ADDITION ON THE PREMISE THAT WAIVER OF SALES TAX LIABILIT Y TANTAMOUNTS TO CESSATION OF LIABILITY AND HENCE, TAXABLE U/S . 41(1) OF THE ACT. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE: THE ASSESSEE IS ENGAGED IN MANUFACTURING, DISTRIBUTION AND SALE OF IRON AND FERROUS POWDERS. THE ASSESSING OFFICER VIDE DRAFT ASSESSM ENT ORDER DATED 11-03-2014 INTER ALIA MADE ADDITION OF ` 1,66,76,021/- U/S. 41(1) OF THE ACT ON ACCOUNT OF CESSATION OF SALES TAX LIABILITY. AGGRIEVED BY THE DRAFT ASSESSMENT ORDER, THE ASSESSEE FILED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL (DRP). THE DR P REJECTED THE CONTENTIONS OF THE ASSESSEE WITH RESPECT TO ADDITION MADE U/S. 41(1) OF THE ACT. THE ASSESSING OFFICER, THEREAFTER, VIDE IMPUG NED ASSESSMENT ORDER MADE ADDITION OF ` 1,66,76,021/- U/S. 41(1) OF THE ACT IN THE INCOME RETURNED BY THE ASSESSEE. 3. SHRI NIKHIL PATHAK APPEARING ON BEHALF OF THE ASSESSEE S UBMITTED THAT THE STATE GOVERNMENT HAD GRANTED INCENTIVE TO TH E ASSESSEE IN THE FORM OF DEFERMENT OF SALES TAX LIABILITY COLLECTED DURING THE YE AR. THE ASSESSEE WAS ALLOWED TO COLLECT THE SALES TAX BUT AS AN INCENTIVE ACTUAL DEPOSIT OF SALES TAX TO THE STATE EX-CHEQUER WAS ALLOWED TO DEFER. SUBSEQUENTLY, THE STATE GOVERNMENT ANNOUNCED SCHEME WHEREBY THE FUTURE LIABILITY OF PAYMENT OF DEFERRED AMOUNT OF SALES TAX WA S ALLOWED 3 ITA NO. 404/PUN/2015, A.Y. 2010-11 TO BE PREPAY AT A DISCOUNT PRICE CALCULATED AT NET PRE SENT VALUE. THE DIFFERENCE BETWEEN THE TOTAL SALES TAX LIABILITY AND THE NET PRESENT VALUE PAID WAS ` 1,66,76,021/- WHICH WAS CLAIMED BY ASSESSEE AS CAPITAL RECEIPT NOT CHARGEABLE TO TAX. THE LD. AR SUBMITTED THAT THE ISSUE IN HAND IS SQUARELY COVERED BY THE DECISION OF SPECIAL BENC H OF THE TRIBUNAL IN THE CASE OF SULZER INDIA LTD. VS. JOINT CIT REPO RTED AS 6 ITR (TRIB) 604 (MUMBAI)(SB) WHICH HAS BEEN UPHELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. S ULZER INDIA LTD. REPORTED AS 369 ITR 717 (BOM). THE LD. AR FURTHER S UBMITTED THAT THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ASSTT. COMM ISSIONER OF INCOME TAX VS. POONA SHIMS PVT. LTD. IN ITA NO. 1722/PN/2 012 FOR THE ASSESSMENT YEAR 2004-05 DECIDED ON 16-09-2013 BY FOLLO WING THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SULZE R INDIA LTD. VS. JOINT CIT (SUPRA) HAS DISMISSED THE APPEAL OF THE D EPARTMENT. THE LD. AR POINTED THAT DURING THE PROCEEDINGS BEFORE THE DRP THE ASSESSEE HAD PLACED RELIANCE ON THE DECISION OF SPECIAL BEN CH OF THE TRIBUNAL IN THE CASE OF SULZER INDIA LTD. VS. JOINT CIT (SUPR A). HOWEVER, THE DRP WITHOUT CONSIDERING THE SAME UPHELD THE ADDITION. 4. ON THE OTHER HAND SHRI NARESH KUMAR REPRESENTING T HE DEPARTMENT FAIRLY ADMITTED THAT THE ISSUE RAISED IN THE P RESENT APPEAL BY THE ASSESSEE IS COVERED BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. S ULZER INDIA LTD. (SUPRA). 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESEN TATIVES OF RIVAL SIDES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIE S BELOW. THE ONLY ISSUE IN APPEAL IS WHETHER THE DIFFERENCE BETWEEN TH E ACTUAL SALES 4 ITA NO. 404/PUN/2015, A.Y. 2010-11 TAX LIABILITY AND THE LIABILITY DISCHARGED BY THE ASSESSEE IN TERMS OF SCHEME FLOATED BY THE STATE GOVERNMENT IS CAPITAL RECEIP T OR REVENUE RECEIPT? 6. WE FIND THAT THIS ISSUE HAS BEEN DEALT WITH BY THE SPE CIAL BENCH OF THE TRIBUNAL IN THE CASE OF SULZER INDIA LTD. VS. JOINT C IT (SUPRA). IN THE SAID CASE THE ASSESSEE FOR ASSESSMENT YEAR 2003-0 4 CREDITED AN AMOUNT OF ` 4,14,87,985/- TO THE CAPITAL RESERVE CONTENDING THAT THE AMOUNT IS REMISSION OF LOAN LIABILITY UNDER THE DEFERRED SCHEM E. THE ASSESSEE MADE PREMATURE PAYMENT OF DEFERRED SALES TAX AT THE NET PRESENT VALUE OF ` 3,37,13,393/- AGAINST THE TOTAL LIABILITY OF ` 7,52,01,378/-. THE ASSESSING OFFICER MADE ADDITION OF ` 4,14,87,985/- BEING REMISSION OF LOAN LIABILITY FOR PREMATURE PAYMENT OF THE AMOUNT AT NET PRESENT VALUE BY INVOKING SECTION 41(1) OF THE ACT . THE COMMISSIONER OF INCOME TAX (APPEALS) UPHELD THE SAME. THE MATTER TRAVELLED TO THE TRIBUNAL. THE QUESTION BEFORE SPECIAL BENCH WAS : 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE SUM OF RS.4,14,87,985 BEING THE DIFFERENCE BETW EEN THE PAYMENT OF THE NET PRESENT VALUE OF RS.3,37,13,393 AGAINST THE FUTURE LIABILITY OF RS.7,52,01,378 HAS RIGHTLY BEEN CHARGED TO TAX UNDE R SECTION 41(1) OF THE INCOME-TAX ACT, 1961 ?' THE SPECIAL BENCH HELD, THAT THE DEFERRED SALES TAX LIABILITY OF ` 4,14,87,985/- BEING THE DIFFERENCE BETWEEN THE PAYMENT OF THE NET PRESENT VALUE OF ` 3,37,13,393/- AGAINST THE FUTURE LIABILITY OF ` 7,52,01,378/- CREDITED BY THE ASSESSEE UNDER THE CAPITAL R ESERVE ACCOUNT IN ITS BOOKS OF ACCOUNT IS A CAPITAL RECEIPT A ND CANNOT BE TERMED AS REMISSION/CESSATION OF LIABILITY AND CONSEQUENTLY, NO BENEFIT HAS ARISEN TO THE ASSESSEE IN TERMS OF SECTION 41(1)(A) OF T HE INCOME-TAX ACT. 5 ITA NO. 404/PUN/2015, A.Y. 2010-11 THE DEPARTMENT CARRIED THE MATTER IN APPEAL BEFORE THE HONBLE HIGH COURT. THE SUBSTANTIAL QUESTION OF LAW FOR ADJUDICATIO N BEFORE THE HONBLE HIGH COURT WAS : '(A) WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE TRIBUNAL IS JUSTIFIED IN NOT UPHOLD ING THE FINDING OF THE INCOME-TAX AUTHORITIES BELOW THAT THE DEFERRED SALE S TAX LIABILITY IS CHARGEABLE TO TAX AS BUSINESS INCOME OF THE ASSESSE E UNDER SECTION 41(1) ON REMISSION THEREOF AND INSTEAD TREATING THE SAME AS EXEMPT FROM TAX AS CAPITAL RECEIPT BEING REMISSION OF LOAN LIABILIT Y? (B) WHETHER, IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE TRIBUNAL IS JUSTIFIED IN DELETING THE A DDITION ON ACCOUNT OF REMISSION/CESSATION OF SALES TAX LIABILITY RELYING ON THE CENTRAL BOARD OF DIRECT TAXES CIRCULAR NO. 496, DATED SEPTEMBER 25, 1987, AND CIRCULAR NO. 674, DATED DECEMBER 29, 1993, WHICH ARE NOT APP LICABLE TO THE INSTANT ISSUE?' THE HONBLE HIGH COURT CONCURRING WITH THE VIEW OF SPECIA L BENCH ANSWERED THE QUESTION IN FAVOUR OF THE ASSESSEE. THE RELEVANT EXTRACT OF THE JUDGMENT OF HONBLE HIGH COURT READS AS UNDER : 40. IT IS NOT POSSIBLE TO AGREE WITH MR. GUPTA. BE CAUSE THE PREMATURE PAYMENT OF SALES TAX ALREADY COLLECTED BUT ITS REMI TTANCE TO THE GOVERNMENT, AS MR. GUPTA ENVISAGES, IS NOT COVERED BY THIS PROVISION ELSE THE SUB-SECTIONS AND PARTICULARLY SECTION 43B( 1) WOULD HAVE BEEN WORDED ACCORDINGLY. THEREFORE, SECTION 43B HAS NO A PPLICATION. IN SO FAR AS THE APPLICABILITY OF SECTION 41(1)(A), THERE ALS O THE APPLICABILITY IS TO BE CONSIDERED IN THE LIGHT OF THE LIABILITY. IT IS A L OSS, EXPENDITURE OR TRADING LIABILITY. IN THIS CASE, THE SCHEME UNDER WHICH THE SALES TAX LIABILITY WAS DEFERRED ENABLES THE ASSESSEE TO REMIT THE SALES TA X COLLECTED FROM THE CUSTOMERS OR CONSUMERS TO THE GOVERNMENT NOT IMMEDIA TELY BUT AS AGREED AFTER 7 TO 12 YEARS. IF THE AMOUNT IS NOT TO BE IMMEDIATELY PAID TO THE GOVERNMENT UPON COLLECTION BUT CAN BE REMITTED LATER ON IN TERMS OF THE SCHEME, THEN WE ARE OF THE OPINION THAT THE EXE RCISE UNDERTAKEN BY THE GOVERNMENT OF MAHARASHTRA IN TERMS OF THE AMEND MENT MADE TO THE BOMBAY SALES TAX ACT AND NOTED ABOVE, MAY RELIEVE T HE ASSESSEE OF HIS OBLIGATION BUT THAT IS NOT BY WAY OF OBTAINING REMI SSION. THE WORTH OF THE AMOUNT WHICH HAS TO BE REMITTED AFTER 7 TO 12 YEARS HAS BEEN 6 ITA NO. 404/PUN/2015, A.Y. 2010-11 DETERMINED PREMATURELY. THAT HAS BEEN DONE BY FINDI NG OUT ITS NET PRESENT VALUE. IF THAT IS THE VALUE OF THE MONEY TH AT THE STATE GOVERNMENT WOULD BE ENTITLED TO RECEIVE AFTER THE END OF 7 TO 12 YEARS, THEN WE DO NOT SEE HOW INGREDIENTS OF SUB-SECTION (1) OF SECTION 4 1 CAN BE SAID TO BE FULFILLED. THE OBLIGATION TO REMIT TO THE GOVERNMEN T THE SALES TAX AMOUNT ALREADY RECOVERED AND COLLECTED FROM THE CUSTOMERS IS IN NO WAY WIPED OUT OR DILUTED. THE OBLIGATION REMAINS. ALL THAT HA S HAPPENED IS AN OPTION IS GIVEN TO THE ASSESSEE TO APPROACH THE SICOM AND REQUEST IT TO CONSIDER THE APPLICATION OF THE ASSESSEE OF PREMATURE PAYMEN T AND DISCHARGE OF THE LIABILITY BY FINDING OUT ITS NET PRESENT VALUE. IF THAT WAS A PERMISSIBLE EXERCISE AND IN TERMS OF THE SETTLED LAW, THEN, WE DO NOT SEE HOW THE ASSESSEE CAN BE SAID TO HAVE BEEN BENEFITED AND AS CLAIMED BY THE REVENUE. THE ARGUMENT OF MR. GUPTA IS NOT THAT THE ASSESSEE HAVING PAID RS. 3.37 CRORES HAS OBTAINED FOR HIMSELF ANYTH ING IN TERMS OF SECTION 41(1) BUT THE ASSESSEE IS DEEMED TO HAVE RECEIVED T HE SUM OF RS. 4.14 CRORES, WHICH IS THE DIFFERENCE BETWEEN THE ORIGINA L AMOUNT TO BE REMITTED WITH THE PAYMENT MADE. MR. GUPTA TERMS THIS AS DEEM ED PAYMENT AND BY THE STATE TO THE ASSESSEE. WE ARE UNABLE TO AGRE E WITH HIM. THE TRIBUNAL HAS FOUND THAT THE FIRST REQUIREMENT OF SE CTION 41(1) IS THAT THE ALLOWANCE OR DEDUCTION IS MADE IN RESPECT OF THE LO SS, EXPENDITURE OR A TRADING LIABILITY INCURRED BY THE ASSESSEE AND THE OTHER REQUIREMENT IS THE ASSESSEE HAS SUBSEQUENTLY OBTAINED ANY AMOUNT I N RESPECT OF SUCH LOSS AND EXPENDITURE OR OBTAINED A BENEFIT IN RESPE CT OF SUCH TRADING LIABILITY BY WAY OF A REMISSION OR CESSATION THEREO F. AS RIGHTLY NOTED BY THE TRIBUNAL, THE SALES TAX COLLECTED BY THE ASSESS EE DURING THE RELEVANT YEAR AMOUNTING TO RS. 7,52,01,378 WAS TREATED BY TH E STATE GOVERNMENT AS LOAN LIABILITY PAYABLE AFTER 12 YEARS IN 6 ANNUA L/EQUAL INSTALLMENTS. SUBSEQUENTLY AND PURSUANT TO THE AMENDMENT MADE TO THE FOURTH PROVISO TO SECTION 38 OF THE BOMBAY SALES TAX ACT, 1959, TH E ASSESSEE ACCEPTED THE OFFER OF THE SICOM, THE IMPLEMENTING AGENCY OF THE STATE GOVERNMENT, PAID AN AMOUNT OF RS.3,37,13,393 TO THE SICOM, WHICH, ACCORDING TO THE ASSESSEE, REPRESENTED THE NET PRES ENT VALUE OF THE FUTURE SUM AS DETERMINED AND PRESCRIBED BY THE SICOM. IN O THER WORDS, WHAT THE ASSESSEE WAS REQUIRED TO PAY AFTER 12 YEARS IN 6 EQUAL INSTALLMENTS WAS PAID BY THE ASSESSEE PREMATURELY IN TERMS OF TH E NET PRESENT VALUE OF THE SAME. THAT THE STATE MAY HAVE RECEIVED A HIG HER SUM AFTER THE PERIOD OF 12 YEARS AND IN INSTALLMENTS. HOWEVER, TH E STATUTORY ARRANGEMENT AND, VIDE SECTION 38, FOURTH PROVISO DO ES NOT AMOUNT TO REMISSION OR CESSATION OF THE ASSESSEE'S LIABILITY ASSUMING THE SAME TO BE A TRADING ONE. RATHER THAT OBTAINS A PAYMENT TO T HE STATE PREMATURELY 7 ITA NO. 404/PUN/2015, A.Y. 2010-11 AND IN TERMS OF THE CORRECT VALUE OF THE DEBT DUE T O IT. THERE IS NO EVIDENCE TO SHOW THAT THERE HAS BEEN ANY REMISSION OR CESSATION OF THE LIABILITY BY THE STATE GOVERNMENT. WE AGREE WITH TH E TRIBUNAL THAT ONE OF THE REQUIREMENTS OF SECTION 41(1)(A) HAS NOT BEEN F ULFILLED IN THE FACTS OF THE PRESENT CASE. 7. THUS, IN VIEW OF DECISION OF HONBLE JURISDICTIONAL HIGH COUR T WE HOLD THAT ` 1,66,76,021/- IS CAPITAL RECEIPT AND IS NOT TAXABLE U/S. 41 (1) OF THE ACT. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 01 ST DAY OF FEBRUARY, 2017. SD/- SD/- ( / ANIL CHATURVEDI) ( ! / VIKAS AWASTHY) ' ! / ACCOUNTANT MEMBER # ! / JUDICIAL MEMBER ' / PUNE; $% / DATED : 01 ST FEBRUARY, 2017 RK , - ./& 0&+ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE DISPUTE RESOLUTION PANEL, PUNE 4. THE DIRECTOR OF INCOME TAX (TP), PUNE 5. &' () , * () , + +, , ' / DR, ITAT, B BENCH, PUNE. 6. '-. /0 / GUARD FILE. // // TRUE COPY// *'1 / BY ORDER, 2 %3 / ASSISTANT REGISTRAR, * () , ' / ITAT, PUNE