S. MANSUKHLAL & CO., MUMBAI V. DCIT 14(2), MUMBAI

ITA 4793/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2419 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 17-07-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: NIKHIL TIWARI SHRI
• Keywords: Opportunity of being heard; Principle of natural justice; Earning of tax free income; Tax effect
• Section: 143(3); 80HHC; 14A

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 4793 /MUM/2014 ( / ASSESSMENT YEAR : 2010-11) M/S. S. MANSUKHLAL & CO., SRBC & ASSOCIATES LLP, CHARTERED ACCOUNTANTS, 12 TH FLOOR, THE RUBY, 29, SENAPATI BAPAT MARG, DADAR (WEST), MUMBAI 400 028. / V. THE DEPUTY COMMISSIONER OF INCOME TAX 14(2), EARNEST HOUSE, III FLOOR, NARIMAN POINT, MUMBAI 400 021. ./ PAN : AAHFS9459A ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI RAJAN VORA & SHRI NIKHIL TIWARI REVENUE BY : SHRI SANJEEV KASHYAP (D.R.) / DATE OF HEARING : 03-08-2016 / DATE OF PRONOUNCEMENT : 24-10-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE, BEING ITA NO. 4793/MUM/2014, IS DIRECTED AGAINST THE APPELLATE ORDER DATED 8 TH MAY, 2014 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 25, MUMBAI (H EREINAFTER CALLED THE CIT(A)), FOR THE ASSESSMENT YEAR 2010-11, THE APPE LLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARISING FROM THE ASSESSMENT ORDE R DATED 28 TH FEBRUARY, 2013 PASSED BY THE LEARNED ASSESSING OFFICER (HEREI NAFTER CALLED THE AO) U/S 143(3) OF THE INCOME TAX ACT,1961 (HEREINAFTER CALL ED THE ACT). ITA 4793/MUM/2014 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN THE MEMO OF APPEAL FILED WITH THE INCOME TAX APPELLATE TRIBUNAL, MUMBA I (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- BASED ON THE FACTS, CIRCUMSTANCES OF THE CASE AND IN LAW, THE APPELLANT RESPECTFULLY SUBMITS THAT THE LEARNED COMMISS IONER OF INCOME TAX (APPEALS) ['CIT(A)'] HAS: GENERAL GROUND 1. ERRED IN CONFIRMING TOTAL ADDITION OF RS. 17,87,822 /- MADE BY THE AO TO THE INCOME OF THE APPELLANT; TAXING RECEIPT FROM THE SALE OF LICENSES AMOUNTING TO RS. 8,74,936/- ON DUE BASIS 2. ERRED IN CONFIRMING THE TAXABILITY OF THE LICENSES RECEIVED DURING THE YEAR AMOUNTING TO RS.8,74,936/- DURING THE YEAR UN DER APPEAL, WITHOUT APPRECIATING THAT THE SAID RECEIPT WAS OFFERED TO TAX IN THE NEXT YEAR ON SALE OF THE LICENSE; 3. FAILED TO APPRECIATE THAT THE SAID PRACTICE IS CONSIS TENTLY FOLLOWED BY THE APPELLANT IN THE PAST AND IT HAS NEVER BEEN DISP UTED BY THE DEPARTMENT; DISALLOWANCE OF RS. 9,L2,886/- UNDER SECTION L4A RE AD WITH RULE 8D 4. ERRED IN CONFIRMING THE ADDITIONAL DISALLOWANCE O F RS. 9,12,886 UNDER SECTION 14A READ WITH RULE 8D (I.E. OVER AND A BOVE SUO-MOTE DISALLOWANCE OF RS. 3,32,482/-); 5. FAILED TO APPRECIATE THAT WHERE THE INVESTMENTS HAVE BEEN MADE FROM OWNED FUNDS AND NOT FROM BORROWED FUNDS, INTERE ST CANNOT BE DISALLOWED UNDER SECTION 14A READ WITH RULE 8D OF TH E ACT; 6. FAILED TO APPRECIATE THAT THE APPELLANT HAS SUO-MOTO D ISALLOWED RS. 3,32,482/- WHILE COMPUTING DISALLOWANCE UNDER SE CTION 14A READ WITH RULE 8D OF THE ACT (I.E. 0.5% OF AVERAGE VALUE O F INVESTMENT) AND HENCE NO FURTHER DISALLOWANCE IS REQUIRED UNDER SECT ION 14A OF THE ACT. EACH OF THE GROUND IS INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. ITA 4793/MUM/2014 3 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A FIRM ENGAGED IN THE BUSINESS OF EXPORTS. IT WAS OBSERVED BY THE A.O. FR OM PERUSAL OF THE ACCOUNTS THAT THE ASSESSEE HAS RECEIVED RS. 8,74,936/- ON SA LE OF DEPB LICENSES WHICH WAS NOT OFFERED FOR TAXATION. THE ASSESSEE WAS ASKE D TO EXPLAIN AS TO WHY THE RECEIPT OF ABOVE SALE PROCEED OF DEPB LICENSES SHOU LD NOT BE TREATED AS ITS INCOME AND BROUGHT TO TAX WHILE COMPUTING INCOME OF THE IMPUGNED ASSESSMENT YEAR. IN REPLY , THE ASSESSEE SUBMITTED THAT THE ABOVE LICENSES WERE SOLD IN SUBSEQUENT YEAR HENCE THE SAME WAS NOT OFFERED FOR TAXATION IN THIS YEAR AS PER ITS PRACTICE, BUT WAS OFFERED FOR TAXATION IN THE SUBSEQUENT YEAR. THE A.O. REJECTED THE CONTENTIONS OF THE ASSESSEE. THE A.O. OBSERVED THAT THE ASSESSEE IS A FIRM DOING BUSINESS AND IT CANNOT FOL LOW DIFFERENT ACCOUNTING SYSTEM FOR THE DIFFERENT RECEIPTS, INCOME OF THE SA ME BUSINESS. THE A.O. REFERRED TO THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF M/S TOPMAN EXPORTS V. CIT (2012) 342 ITR 49(SC) WHEREBY ACCRUA L OF INCOME ON LICENSES GRANTED IS TAXABLE IN THE YEAR THE DEPB LICENSES AC CRUED. THEREFORE , THE EXPLANATION OFFERED BY THE ASSESSEE WAS REJECTED AN D THE AO HELD THAT THE SALES PROCEED OF LICENSE OF RS. 8,74,936/- RECEIVED BY THE ASSESSEE WAS TREATED AS SUPPRESSED INCOME AND WAS ADDED TO THE T OTAL INCOME OF THE ASSESSEE BY THE AO VIDE ASSESSMENT ORDER DATED 28-0 2-2013 PASSED BY THE AO U/S. 143(3) OF THE ACT. IT WAS FURTHER OBSERVED BY THE A.O. THAT THE ASSESS EE HAS EARNED EXEMPT INCOME AND DISALLOWED OF ITS OWN RS. 3,32,482/- U/S 14A R.W.R. 8D OF THE INCOME-TAX RULES, 1962(HEREINAFTER CALLED 1962 RUL ES) . SINCE THE WORKING OF THE DISALLOWANCE UNDER RULE 8D OF 1962 RULES WAS NOT FOUND CORRECT, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE DISALLO WANCE UNDER RULE 8D OF 1962 RULES SHOULD NOT BE DONE PROPERLY AND WHY THE SAME SHOULD NOT BE DISALLOWED ACCORDINGLY. THE ASSESSEE SUBMITTED THAT THE INVESTMENT IN ITA 4793/MUM/2014 4 MUTUAL FUND, SHARES WERE MADE OUT OF PARTNERS FUND AND NO OUTSIDE BORROWINGS WERE MADE FOR THE PURCHASE OF MUTUAL FUN DS AND SHARES. THUS , THE ASSESSEE PRAYED THAT THE DISALLOWANCE WAS CORRE CTLY MADE AND THE SAME SHOULD BE ACCEPTED. THE A.O. REJECTED THE CONTENTIONS OF THE ASSESSEE A ND APPLIED PROVISIONS OF SECTION 14A(3) OF THE ACT WHEREBY IT WAS HELD THAT DISALLOWANCE UNDER RULE 8D OF 1962 RULES SHOULD BE MADE EVEN IF THE ASSESS EE CLAIMS THAT NO EXPENDITURE WAS INCURRED IN EARNING EXEMPT INCOME. THE A.O. OBSERVED THAT THE PARTNERS DEVOTE SOME TIME IN SELECTION OF PURCH ASE OF MUTUAL FUNDS OR SHARES OR IN GIVING INSTRUCTION TO SHARE BROKERS. T HE ASSESSEE'S PREMISES, OFFICES, ITS INFRASTRUCTURES WERE USED FOR INVESTME NT IN MUTUAL FUNDS AND PURCHASE OF SHARES. AS SUCH, THE ASSESSEE'S CLAIM T HAT NO EXPENDITURE WAS INCURRED FOR INVESTMENT WAS NOT CORRECT AND THE SAM E WAS REJECTED BY THE AO. THE A.O., ACCORDINGLY, WORKED OUT THE TOTAL DISALLO WABLE AMOUNT OF INTEREST AMOUNTING TO RS. 9,43,034/- U/R 8D(2)(II) OF 1962 R ULES R.W.R. SECTION 14A OF THE ACT OF 1961, WHILE THE AO DISALLOWED RS. 3,32,4 82/- TOWARDS ADMINISTRATIVE EXPENSES U/R 8D(2)(III) OF 1962 RULE S READ WITH SECTION 14A OF THE ACT AND THUS, THE TOTAL DISALLOWANCE WORKED OUT BY THE AO COMES TO RS. 12,75,516/- U/S 14A OF THE ACT READ WITH RULE 8D O F 1962 RULES, OUT OF WHICH RS. 3,32,482/- WAS DISALLOWED VOLUNTARILY BY THE ASSESSEE OF ITS OWN U/R 8D(2)(III) OF 1962 RULES AND THE BALANCE OF RS. 9,12,886/- WAS DISALLOWED BY THE AO U/R 8D(2)(II) OF 1962 RULES READ WITH SEC TION 14A OF THE ACT OF 1961, AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE VIDE ASSESSMENT ORDER DATED 28-02-2013 PASSED BY THE AO U/S 143(3) OF THE ACT. 4. AGGRIEVED BY THE ASSESSMENT ORDER DATED 28-02-20 13 PASSED BY THE A.O. U/S. 143(3) OF THE ACT, THE ASSESSEE FILED ITS FIR ST APPEAL BEFORE THE LD. CIT(A). ITA 4793/MUM/2014 5 5. BEFORE THE LD. CIT(A) , THE ASSESSEE SUBMITTED V IDE ITS STATEMENT OF FACTS THAT AS PER COPY OF ANNUAL ACCOUNTS ALONG WITH ACCO UNTING POLICIES FILED BEFORE THE REVENUE , IT WAS MENTIONED THAT THE EXPO RT INCENTIVES IN THE FORM OF DRAWBACK AND DEPB ARE ACCOUNTED WHEN RECEIVED AN D THAT OF LICENSE PREMIUM IS ACCOUNTED WHEN ENCASHED. IT WAS SUBMITTE D THAT MERE RECEIPT OF LICENSE FROM DGFT OFFICE DOES NOT MAKE THE ASSESSEE ELIGIBLE FOR TRANSFER AND AFTER RECEIPT OF THE LICENSE IT IS TO BE SUBMITTED TO CUSTOM AUTHORITIES FOR VERIFICATION AND REGISTRATION WHICH TAKES TIME AND ONCE THE LICENSE IS REGISTERED BY THE CUSTOM AUTHORITIES THEN ONLY IT I S ELIGIBLE FOR TRANSFER. THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD RECEIVED R S. 8,74,936/- ON SALE OF LICENSE. HOWEVER, DURING THE YEAR DEPB LICENSE OF RS. 8,74,936/- HAD BEEN ACCRUED AND NOT ACCOUNTED AS DUE AND WOULD BE ACC OUNTED IN THE YEAR OF SALE OF LICENSES AS PER METHOD OF ACCOUNTING FOLLOW ED CONSISTENTLY TAKING THE COST AT NIL AS PER THE JUDGMENT OF HONBLE BOMBAY H IGH COURT IN THE CASE OF CIT V. KALPATARU COLOURS AND CHEMICALS, 328 ITR 451 WHICH HAS BEEN REVERSED BY THE HONBLE SUPREME COURT IN THE CASE O F TOPMAN EXPORTS V. CIT REPORTED IN 322 ITR 49(SC) ONLY ON THE GROUND THAT THE ASSESSEE HAS OFFERED ON DUE BASIS WHEN LICENSES WERE RECEIVED AND WHEN SOLD, THE DEPARTMENT WANTED TO TAX ON GROSS BASIS I.E. THE SALE VALUE OF LICENSES WITHOUT DEDUCTING THE NOTIONAL VALUE OF COST UNDER SECTION 28(III)(D) OF THE ACT. HENCE THE HONBLE SUPREME COURT HELD THAT WHEN THE LICENSES ACCOUNTED ON 'DUE' BASIS UNDER SECTION 28(III)(B) OF THE ACT, THEN ON SALE OF LICE NSES ONLY PROFIT IS TO BE TAXED UNDER SECTION 28(III)(D) OF THE ACT. IN ASSESSEES CASE , THE ASSESSEE OFFERED GROSS VALUE OF THE SALE OF LICENSES TAKING COST AS NIL U/S 28(III)(D) OF THE ACT IN THE SUBSEQUENT YEAR, HENCE, THERE IS NO LOSS OF TAX ES TO THE REVENUE. THE LD. CIT(A) REJECTED THE CONTENTIONS OF THE ASSE SSEE AND OBSERVED THAT THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF TO PMAN EXPORTS (SUPRA) WAS GIVEN ONLY ON THE GROUND THAT IN THAT CASE THE ASSESSE HAD ALREADY OFFERED THE AMOUNT ON 'DUE' BASIS, AND THE DEPARTME NT AGAIN WANTED TO TAX ITA 4793/MUM/2014 6 THE GROSS AMOUNT INCLUDING COST ON SALE OF SUCH LIC ENSES IN SUBSEQUENT YEAR, THE HONBLE SUPREME COURT HELD THAT AS PER THE PROV ISIONS OF SECTION 28 OF THE ACT OF 1961 THAT UNDER CLAUSE (IIIB) OF THE ACT, CA SH ASSISTANCE RECEIVED OR RECEIVABLE BY ANY PERSON AGAINST EXPORTS' UNDER ANY SCHEME OF THE GOVERNMENT OF INDIA IS BY ITSELF INCOME CHARGEABLE TO INCOME TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION WH ICH MEANS THAT DEPB IS A CASH ASSISTANCE RECEIVABLE BY A PERSON AGAINST EXPO RTS UNDER THE SCHEME OF GOVERNMENT OF INDIA AND UNDER CLAUSE (IIIB) OF SECT ION 28 OF THE ACT IS CHARGEABLE TO INCOME TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION EVEN BEFORE IT IS TRANSFERRED BY THE ASS ESSEE. UNDER CLAUSE (IIID) OF SECTION 28 OF THE ACT , ANY PROFIT ON TRANSFER OF DEPB IS CHARGEABLE TO INCOME TAX UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROFESSION AS AN ITEM SEPARATE FROM CASH ASSISTANT UNDER CLAUSE (III B) OF SECTION 28 OF THE ACT. THE WORD PROFIT MEANS THE GROSS PROCEEDS OF A BUS INESS TRANSACTION LESS THE COSTS OF THE TRANSACTION. THUS, THE FACE VALUE OF D EPB WILL FALL UNDER CLAUSE (IIIB) OF SECTION 28 OF THE ACT, THE DIFFERENCE BET WEEN THE SALE VALUE AND THE FACE VALUE OF THE DEPB WILL FALL UNDER CLAUSE (IIID ) OF SECTION 28 OF THE ACT. THUS, THE ASSESSEES CONTENTION WAS REJECTED BY THE LEARNED CIT(A) AS THE HONBLE SUPREME COURT HAS NOT INDICATED THAT AFORES AID DECISION IN TOPMAN EXPORTS(SUPRA) WOULD BE APPLICABLE ONLY IN SUCH CAS ES WHERE THE ASSESSEE HAS ALREADY OFFERED THE COST OF DEPB ON DUE BASIS RATHER THE HONBLE SUPREME COURT HAS HELD THAT DEPB IS RECEIVABLE ONCE EXPORTS ARE MADE AND AN APPLICATION IS MADE BY AN EXPORTER FOR DEPB LICE NSE. THE LEARNED CIT(A) HELD THAT THE DEPB LICENSE IS CONSIDERED TO BE RECE IVABLE AS SOON AS APPLICATION IS MADE AFTER MAKING THE EXPORTS. IT WA S OBSERVED BY LEARNED CIT(A) THAT THERE IS NO STIPULATION IN THE AFORESAI D JUDGMENT OF HONBLE SUPREME COURT THAT FORMALITIES OF MAKING IT TRANSFE RABLE ALSO NEED TO BE COMPLETED SO AS TO BRING IT TO TAX. THE LEARNED CIT (A) CONFIRMED THE ASSESSMENT ORDER OF AO WHEREBY ADDITIONS MADE BY TH E AO WERE CONFIRMED BY ITA 4793/MUM/2014 7 LEARNED CIT(A) VIDE APPELLATE ORDERS DATED 08-05-20 14 PASSED BY THE LEARNED CIT(A). FURTHER, THE DISALLOWANCE U/S 14A OF THE ACT READ W ITH RULE 8D OF 1962 RULES WAS CONFIRMED BY THE LD. CIT(A). THE ASSESSEE HAD SUBMITTED BEFORE LEARNED CIT(A) THAT THE ASSESSEE HAD INVESTED RS. 4.65 CROR ES IN SHARES , MUTUAL FUNDS WHICH ARE CAPABLE OF YIELDING EXEMPT INCOME, OUT OF OWN FUNDS HELD BY THE ASSESSEE OF RS.12.75 CRORES. THE ASSESSEE ALSO TOOK A PLEA BEFORE THE LEARNED CIT(A) THAT THE AO CANNOT DISALLOW THE EXPE NSES OF RS.12,75,516/- U/S 14A OF THE ACT OF 1961 R.W.R. 8D OF 1962 RULES WITHOUT ESTABLISHING THAT A PARTICULAR EXPENDITURE WAS INCURRED FOR THE PURPOSE S OF EARNING EXEMPTED INCOME. THE ASSESSEE RELIED UPON SEVERAL JUDICIAL D ECISIONS WHICH ARE CITED IN THE LEARNED CIT(A) APPELLATE ORDERS DATED 08-05-201 4 AT PAGE 6/7 OF THE APPELLATE ORDER. THE LD. CIT(A) HELD THAT RULE 8D OF 1962 RULES WERE APPLICABLE W.E.F. ASSESSMENT YEAR 2008-09 KEEPING IN VIEW OF THE DECI SION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. L TD., (2010) 328 ITR 81 (BOM) WHEREIN IT WAS HELD THAT RULE 8D OF 1962 RULE S READ WITH SECTION 14A OF THE ACT IS NOT ARBITRARY OR UNREASONABLE BUT CAN BE APPLIED IF ASSESSEES METHOD IS NOT SATISFACTORY. THUS, THE ADDITIONS MA DE BY THE A.O. WAS CONFIRMED BY LEARNED CIT(A) VIDE APPELLATE ORDERS D ATED 08-05-2014 AS THE ASSESSEE FAILED TO CHALLENGE THE AOS FINDING THAT CERTAIN ADMINISTRATIVE EXPENSES BY USE OF PARTNERS TIME IN SELECTION OF M UTUAL FUNDS/SHARES AND ALSO USE OF ITS OFFICE INFRASTRUCTURE FOR THE SAID PURPOSES MUST HAVE BEEN CERTAINLY INCURRED . THE LEARNED CIT(A) OBSERVED TH AT THE ASSESSEE PLEA THAT IT HAS NOT USED BORROWED FUNDS FOR MAKING INVESTMENT A ND THAT THE INVESTMENTS WERE MADE OUT OF OWN CAPITAL CANNOT BE ACCEPTED AND HENCE SINCE RULE 8D OF 1962 RULES IS APPLICABLE W.E.F. ASSESSMENT YEAR 200 8-09 AS HELD BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE M ANUFACTURING COMPANY ITA 4793/MUM/2014 8 LIMITED(SUPRA), THEN AS PER APPELLATE ORDERS DATED 08-05-2014 PASSED BY LEARNED CIT(A) PROPORTIONATE DISALLOWANCE FOR INTER EST HAS TO BE MADE AS PER RULE 8D OF 1962 RULES RELYING ON DECISIONS OF HONB LE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MANUFACTURING COMPANY LIMITED (2010) 328 ITR 81(BOM.) . 6. AGGRIEVED BY THE APPELLATE ORDER DATED 08-05-201 4 PASSED BY THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 7. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFOR E THE TRIBUNAL THAT THERE IS A SALE OF DEPB LICENSE IN THE SUBSEQUENT Y EAR AND THE ASSESSEE HAS RECEIVED RS. 8,74,936/- AGAINST THE SAME AND OFFERE D FOR TAXATION IN THE SUBSEQUENT YEAR , WHILE THE DEPB LICENSE WAS RECEIV ED DURING THE YEAR. THERE IS NO LOSS TO THE REVENUE AS THE WHOLE AMOUNT HAS BEEN OFFERED FOR TAXATION ALBEIT IN THE SUBSEQUENT YEAR WHEN THE DEP B LICENSES WERE SOLD. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASS ESSEE IS AN EXPORTER AND DEPB LICENSES ACCRUED ON EXPORTS DURING THE YEAR UN DER CONSIDERATION AND THE ASSESSEE DID NOT OFFER FOR TAXATION INCOME BASE D ON ACCRUAL OF DEPB LICENSE ON THE FACE VALUE OF DEPB LICENSE IN THE IN STANT YEAR UNDER APPEAL AS THE SAME IS TAXABLE WHEN THE DEPB LICENSE IS ACCRUE D AND DUE. THE TAXABILITY WILL ARISE ONLY WHEN THE DEPB LICENSE IS ACCRUED AN D DUE AS AFTER ACCRUAL THERE ARE CERTAIN FORMALITIES TO BE PERFORMED WITH THE CUSTOM AUTHORITIES FOR VERIFICATION AND REGISTRATION AND THEN ONLY THE DEP B LICENSE BECOMES ACCRUED AND DUE. IT WAS SUBMITTED THAT THESE LICENSES WERE SOLD IN THE SUBSEQUENT YEAR WHEREIN THE INCOME WAS OFFERED FOR TAXATION IN THE SUBSEQUENT YEAR , AND THE SAME WERE NOT OFFERED FOR TAXATION IN THIS YEAR WHEN THE DEPB LICENSE WAS ACCRUED AND RECEIVED AS PER THE PRACTICE FOLLOWED B Y THE ASSESSEE. THE LD. COUNSEL SUBMITTED THAT THERE ARE CERTAIN FORMALITIE S WHICH HAVE TO BE COMPLETED WITH THE CUSTOM AUTHORITIES FOR VERIFICAT ION AND REGISTRATION WHICH TAKES TIME AND ONCE THE LICENSE IS REGISTERED BY TH E CUSTOM AUTHORITIES, THEN ITA 4793/MUM/2014 9 ONLY THE SAME CAN BE SOLD. THE LD. COUNSEL RELIED ON THE FOLLOWING CASE LAWS IN SUPPORT OF HIS CONTENTION:- 1. CIT V. EXCEL INDUSTRIES LTD., (2013) 358 ITR 295 (SC) 2. UNITES PHOSPHOROUS LTD. V. ADDL. CIT, (2014)91 C CH 91 (GUJ) 3. LIQUIDATOR POLYMERLAND INDIA PVT. LTD. V. DCIT, (2015)93 CCH 85 (DEL HC) 4. TOPMAN EXPORTS V. CIT, (2012)342 ITR 49 (SC) THE LD. COUNSEL SUBMITTED THAT THE ASSESSEE HAS RIG HTLY BROUGHT TO TAX INCOME FROM SALE OF DEPB LICENSE IN THE SUBSEQUENT YEAR WHEN THE DEPB LICENSES WERE SOLD AND SALE PROCEEDS WERE RECEIVED AND IT CANNOT BE BROUGHT TO TAX IN THIS YEAR AS IT BECAME ACCRUED AND DUE IN SUBSEQUENT YEAR. IT WAS SUBMITTED THAT DECISION OF HONBLE SUPREME COURT IN TOPMAN EXPORTS(SUPRA) WAS RENDERED IN CONTEXT OF ELIGIBILITY OF PREMIUM O N SALE OF DEPB LICENSE UNDER SECTION 80HHC OF THE ACT AND DECISION OF HON BLE SUPREME COURT IN THE CASE OF EXCEL INDUSTRIES LIMITED(SUPRA) IS DIRE CTLY APPLICABLE WHEREIN IT IS HELD BY HONBLE SUPREME COURT THAT DEPB LICENSE IS TAXABLE IN THE YEAR IN WHICH DUTY FREE IMPORTS ARE MADE. THUS, IT WAS SUBM ITTED THAT THE DEPB LICENSE IS NOT TAXABLE IN THE YEAR OF RECEIPT BUT I N THE YEAR OF UTILIZATION I.E. EITHER AGAINST IMPORT OF RAW MATERIAL OR SALE TO TH IRD PARTY AND TILL THAT POINT IT IS NOTIONAL INCOME AND NOT TAXABLE. FURTHER IT IS W AS SUBMITTED THAT HONBLE SUPREME COURT HAS HELD THAT IF THE TAX RATE REMAINS THE SAME AND THE INCOME IS BROUGHT TO TAX IN THE NEXT YEAR, THEN IT IS FRUI TLESS TO UNDERTAKE SUCH LITIGATION AS NOTHING IS GOING TO ADD TO THE PUBLIC COFFERS. WITH RESPECT TO THE DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D OF THE 1962 RULESS THE LD. COUNSEL SUBMITTED THAT THE ASSE SSEE HAS VOLUNTARILY DISALLOWED 0.5% OF AVERAGE INVESTMENTS HELD WHEREBY RS. 3,32,482/- WAS OFFERED FOR DISALLOWANCE U/S 14A OF THE ACT R.W.R. RULE 8D(2)(III) OF 1962 RULES. ITA 4793/MUM/2014 10 THE ASSESSEE HAS INVESTED ITS OWN FUNDS IN MAKING I NVESTMENTS AND AS SUCH NO DISALLOWANCE CAN BE MADE UNDER RULE 8D(2)(II) OF 1962 RULES R.W.S 14A OF THE ACT. THE ASSESSEE HAS OWN FUNDS TO THE TUNE OF RS. 12.74 CRORES AS AT 31- 03-2010 AND RS. 12.37 CRORES AS AT 31-03-2009, WHIL E THE INVESTMENT WAS ONLY RS. 4.65 CRORES AS AT 31-03-2010 AND RS. 8.65 CRORES AS AT 31-03-2009, AS ARE REFLECTED IN AUDITED FINANCIAL STATEMENTS WH ICH ARE PLACED IN PAPER BOOK. THE LD. COUNSEL RELIED ON THE DECISION OF HO NBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. HDFC BANK LTD., (2014)366 ITR 50 5 (BOM) , CIT V. RELIANCE UTILITIES & POWER LTD., (2009) 313 ITR 340 (BOM) AN D DECISION OF HONBLE BOMBAY HIGH COURT IN WRIT PETITION IN HDFC BANK LIM ITED V. DCIT (2016) 67 TAXMANN.COM 42(BOM. HC). THE LD. COUNSEL ALSO RELIE D ON THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S SILVASSA ESTATES PVT. L TD. V. ITO IN ITA NO. 7383/MUM/2012 VIDE ORDERS DATED 14 TH JUNE, 2016 AND DECISION OF THE TRIBUNAL IN THE CASE OF TICKERPLANT LIMITED V. DCIT IN ITA NO. 251/MUM/2014 VIDE ORDERS DATED 13.07.2016.IT WAS AL SO SUBMITTED THAT NO DISALLOWANCE HAS BEEN MADE U/S 14A OF THE ACT READ WITH RULE 8D OF 1962 RULES FOR THE ASSESSMENT YEAR 2008-09, 2009-10 AND 2011-12 AND THIS IS THE FIRST YEAR WHEN THE DISALLOWANCE OF INTEREST IS PRO POSED BY THE AO. 8. THE LD. D.R. ON THE OTHER HAND SUBMITTED THAT TH E LD. CIT(A) HAS RIGHTLY APPLIED THE DECISION OF HONBLE SUPREME COURT IN TH E CASE OF TOPMAN EXPORTS (SUPRA) AND BROUGHT TO TAX INCOME ON DEPB LICENSE W HEN THE SAID LICENSE WAS APPLIED FOR ON ACCRUAL BASIS WHEREIN FACE VALUE OF DEPB IS TAXABLE ON ACCRUAL BASIS ON EXPORTS MADE BY THE ASSESSEE U/S 28(IIIB) OF THE ACT WHEN THE LICENSE WAS APPLIED WITH THE GOVERNMENT AUTHORITIES, WHILE PROFIT ON SALE OF DEPB LICENSE I.E. SALE PROCEEDS LESS FACE VALUE OF DEPB LICENSE IS TAXABLE IN THE YEAR OF SALE OF DEPB LICENSE U/S 28(IIID) OF THE ACT OF 1961. IT WAS SUBMITTED THAT DECISION OF HONBLE SUPREME COURT IN THE CASE OF TO PMAN EXPORTS(SUPRA) IS APPLICABLE AND THE HONBLE SUPREME COURT WHILE PASS ING ORDERS IN EXCEL ITA 4793/MUM/2014 11 INDUSTRIES LIMITED(SUPRA) DID NOT CONSIDER ITS DECI SION IN THE CASE OF TOPMAN EXPORTS(SUPRA). THE LD. D.R. ALSO SUPPORTED THE O RDER OF THE LD. CIT(A). 9. THE LEARNED AR IN REJOINDER SUBMITTED THAT THE D EPB LICENSE IS TAXABLE WHEN IT IS ACCRUED AND DUE .IT WAS SUBMITTED THAT D ECISION OF HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS(SUPRA) WAS IN CONTEXT OF SECTION 80HHC OF THE ACT AND NOT SALE OF DEPB LICEN SE. IT WAS SUBMITTED THAT IF THE DEPB LICENSE IS MERELY ACCRUED, IT IS NOT TA XABLE. IT IS ONLY WHEN THE DEPB LICENSE IS ACCRUED AND DUE, THE TAXABILITY WIL L ARISE. IT IS SUBMITTED THAT THERE IS NO ESCAPEMENT OF INCOME AS THE ASSESSEE DI D PAID THE TAX IN NEXT YEAR WHEN DEPB LICENSE WAS SOLD AND THERE IS NO LOSS TO REVENUE AND DECISION OF HONBLE SUPREME COURT IN THE CASE OF EXCEL INDUSTRI ES LIMITED(SUPRA) IS DIRECTLY APPLICABLE. 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE CASE LAWS CITED B Y THE BOTH PARTIES. WE FIND THAT THE ASSESSEE IS AN EXPORTER AND THE ASSESSEE H AS APPLIED FOR DEPB LICENSES WHICH HAS BEEN GRANTED FOR AN AMOUNT OF RS . 8,74,936/- DURING THE IMPUGNED ASSESSMENT YEAR BUT THE FACE VALUE OF THE DEPB LICENSES GRANTED TO THE ASSESSEE AS PLACED IN PAPER BOOK PAGE 73-92 ARE TO THE TUNE OF RS.10,94,118/- WHICH NEED RECONCILIATION SO THAT CO RRECT INCOME IS BROUGHT TO TAX. THE SAID LICENSES ARE PLACED BY THE ASSESSEE I N PAPER BOOK FILED WITH THE TRIBUNAL AT PAGE 73-92 . IT IS THE SAY OF THE ASSES SEE THAT ON RECEIPT OF THE DEPB LICENSES, NO INCOME HAS ACCRUED. ALL THE FORM ALITIES HAVE TO BE COMPLETED WITH THE CUSTOM AUTHORITIES W.R.T. VERIFI CATIONS AND REGISTRATIONS AFTER RECEIPT OF DEPB LICENSE AND THEN ONLY THE INC OME WILL ACCRUE AND DUE ON THE FACE VALUE OF DEPB LICENSE U/S 28(IIIB) OF THE ACT AS CONTEMPLATED BY HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS (SUPRA). THUS, IT IS THE SAY OF THE ASSESSEE THAT THE TAXABILITY SHALL AROSE WHEN THE DEPB LICENSE IS ACCRUED AND DUE . IT IS THE SAY OF THE ASSESSEE THA T THE ONLY AFTER THE ENTIRE ITA 4793/MUM/2014 12 VERIFICATION AND REGISTRATION FORMALITIES WITH CUST OM AUTHORITIES WERE COMPLETED , THEN ONLY THE DEPB LICENSE CAN BE SAID TO ACCRUE AND DUE IN FAVOUR OF THE ASSESSEE. THE SAID DEPB LICENSES WERE STATED TO BE SOLD IN THE SUBSEQUENT YEAR WHICH HAS BEEN STATED TO BE OFFERED FOR TAXATION. THE SALE INVOICES RAISED BY THE ASSESSEE FOR SALE OF AFORE-S TATED DEPB LICENSES ARE PLACED ALONG WITH DEPB LICENSES IN PAPER BOOK/ PAGE 72-92. THE ASSESSEE HAD RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF EXCEL INDUSTRIES LTD., (2013) 358 ITR 295 (SC) WHICH IS A DECISION OF HONBLE SUPREME COURT RENDERED ON 08-10-2013 WHILE DECISION IN THE CASE OF TOPMAN EXPORTS(SUPRA) WAS RENDERED BY HONBLE SUPREME COUR T ON 08-02-2012 I.E. PRIOR TO RENDERING OF DECISION IN THE CASE OF EXCEL INDUSTRIES LTD.(SUPRA), WHEREIN THE HONBLE SUPREME COURT HELD IN EXCEL IND USTRIES LTD(SUPA) AS UNDER:- 2. THE QUESTION FOR CONSIDERATION IN ALL THESE APPEAL S IS WHETHER THE BENEFIT OF AN ENTITLEMENT TO MAKE DUTY FREE IMP ORTS OF RAW MATERIALS OBTAINED BY THE ASSESSEE THROUGH ADVANCE LICENCES AND DUTY ENTITLEMENT PASS BOOK ISSUED AGAINST EXPORT OB LIGATIONS IS INCOME IN THE YEAR IN WHICH THE EXPORTS ARE MADE OR IN THE YEAR IN WHICH THE DUTY FREE IMPORTS ARE MADE. 3. IN OUR OPINION, THE INCOME DOES NOT ACCRUE IN THE Y EAR OF EXPORT BUT IN THE YEAR IN WHICH THE IMPORTS ARE MAD E. 4. THE FACTS PERTAINING TO CIVIL APPEAL NO. 125 OF 20 13 (M/S EXCEL INDUSTRIES LIMITED FOR THE ASSESSMENT YEAR 2001-02) ARE REFERRED TO FOR CONVENIENCE. 5. THE ASSESSEE MAINTAINS ITS ACCOUNTS ON A MERCANTIL E BASIS. IN ITS RETURN (REVISED ON 31ST MARCH 2003) THE ASSESSE E CLAIMED A DEDUCTION OF RS.12,57,525/- UNDER THE HEAD ADVANCE LICENCE ITA 4793/MUM/2014 13 BENEFIT RECEIVABLE. THE ASSESSEE ALSO CLAIMED A DED UCTION IN RESPECT OF DUTY ENTITLEMENT PASS BOOK BENEFIT RECEI VABLE AMOUNTING TO RS.4,46,46,976/-. THESE BENEFITS RELATED TO ENTI TLEMENT TO IMPORT DUTY FREE RAW MATERIAL UNDER THE RELEVANT IMPORT AN D EXPORT POLICY BY WAY OF REDUCTION FROM RAW MATERIAL CONSUMPTION. ACCORDING TO THE ASSESSEE, THE AMOUNTS WERE EXCLUDED FROM ITS TO TAL INCOME SINCE THEY COULD NOT BE SAID TO HAVE ACCRUED UNTIL IMPORTS WERE MADE AND THE RAW MATERIAL CONSUMED. 6. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE RE LIED UPON A DECISION OF THE INCOME TAX APPELLATE TRIBUNAL IN JA MSHRI RANJITSINGHJI SPG. AND WVG. MILLS V. INSPECTING ASS TT. COMMISSIONER [1992] 41 ITD 142 (BOM) AND ALSO THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN ITS OWN CASE FOR THE ASSESS MENT YEARS 1995-96 TO 1997-98. 7. BY HIS ORDER DATED 24TH MARCH 2004, THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEE'S CLAIM ON THE GROUND THAT THE TAXABILITY OF SUCH BENEFITS IS COVERED BY SECTION 28(IV) OF THE I NCOME TAX ACT, 1961 (FOR SHORT 'THE ACT') WHICH PROVIDES THAT THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHER CONVERTIBLE INTO MON EY OR NOT, ARISING FROM A BUSINESS OR A PROFESSION IS INCOME. ACCORDIN G TO THE ASSESSING OFFICER, ALONG WITH AN OBLIGATION OF EXPO RT COMMITMENT, THE ASSESSEE GETS THE BENEFIT OF IMPORTING RAW MATE RIAL DUTY FREE. WHEN EXPORTS ARE MADE, THE OBLIGATION OF THE ASSESS EE IS FULFILLED AND THE RIGHT TO RECEIVE THE BENEFIT BECOMES VESTED AND ABSOLUTE, AT THE END OF THE YEAR. IN THE YEAR UNDER CONSIDERA TION, THE EXPORT OBLIGATION HAD BEEN MADE AND THE ACCOUNTING ENTRIES WERE BASED ON SUCH FULFILMENT. THE ASSESSING OFFICER DISTINGUI SHED JAMSHRI ON THE GROUND THAT IT PERTAINED TO THE ASSESSMENT YEAR 1985-86 WHEN THE EXPORT PROMOTION SCHEME WAS TOTALLY DIFFERENT A ND THE ITA 4793/MUM/2014 14 TAXABILITY OF SUCH A BENEFIT WAS EXAMINED ONLY WITH REFERENCE TO SECTION 28(IV) OF THE ACT BUT 'IN THE PRESENT CASE THE TAXABILITY OF SUCH BENEFIT IS TO BE EXAMINED FROM ALL POSSIBLE AN GLES AS IT FORMS PART OF THE PROFITS AND GAINS OF BUSINESS ACCORDING TO THE ORDINARY PRINCIPLES OF COMMERCIAL ACCOUNTING.' 8. THE ASSESSEE TOOK UP THE MATTER IN APPEAL AND BY A N ORDER DATED 15TH SEPTEMBER 2008 THE COMMISSIONER OF INCOM E TAX (APPEALS) REFERRED TO AN EARLIER APPELLATE ORDER IN THE CASE OF THE ASSESSEE RELEVANT TO THE ASSESSMENT YEARS 1999-2000 AND 2000- 01 AND FOLLOWING THE CONCLUSION ARRIVED AT IN THOSE ASSESSMENT YEARS, THE APPEAL WAS ALLOWED AND IT WAS HELD THAT THE ADVANCE LICENCE BENEFIT RECEIVABLE AMOUNTING TO RS.12,57,52 5/- AND DUTY ENTITLEMENT PASS BOOK BENEFIT OF RS.4,46,46,976/- O UGHT NOT TO BE TAXED IN THIS YEAR. RELIANCE WAS ALSO PLACED ON THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 1995- 96. 9. FEELING AGGRIEVED, THE REVENUE PREFERRED A FURTHER APPEAL BEFORE THE INCOME TAX APPELLATE TRIBUNAL (FOR SHORT 'THE I TAT) WHICH REFERRED TO THE ISSUES RAISED BY THE REVENUE AND BY ITS ORDER DATED 29TH APRIL 2011 DISMISSED THE APPEAL UPHOLDING THE VIEW TAKEN BY THE COMMISSIONER OF INCOME TAX (APPEALS). 10. THE TRIBUNAL HELD THAT THE ISSUES WERE COVERED IN FAVOUR OF THE ASSESSEE BY EARLIER ORDERS OF THE TRIBUNAL IN THE A SSESSEE'S OWN CASES. IT HAD BEEN HELD BY THE TRIBUNAL IN THE EARL IER CASES THAT INCOME DOES NOT ACCRUE UNTIL THE IMPORTS ARE MADE A ND RAW MATERIALS ARE CONSUMED BY THE ASSESSEE. AS REGARDS THE ACCOUNTING YEAR UNDER CONSIDERATION, IT WAS FOUND T HAT THERE WAS NO DISPUTE THAT IT WAS ONLY IN THE SUBSEQUENT YEAR THAT THE IMPORTS WERE MADE AND THE RAW MATERIALS CONSUMED BY THE ASS ESSEE. ITA 4793/MUM/2014 15 11. THE TRIBUNAL ALSO TOOK THE NOTE OF THE FACT IN THE ASSESSEE'S OWN CASES STARTING FROM THE ASSESSMENT YEAR 1992-93 ONWARDS THESE ISSUES HAD BEEN CONSISTENTLY DECIDED IN ITS F AVOUR. IT WAS ALSO NOTED THAT FOR SOME OF THE ASSESSMENT YEARS NA MELY 1993-94, 1996-97 AND 1997-98 APPEALS WERE FILED BY THE REVEN UE IN THE BOMBAY HIGH COURT BUT THEY WERE NOT ADMITTED. 12. UNDER THE CIRCUMSTANCES, THE TRIBUNAL AFFIRMED THE DECISION OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THE ISS UES RAISED. 13. THE REVENUE THEN PREFERRED AN APPEAL UNDER SECTION 260-A OF THE ACT IN RESPECT OF THE FOLLOWING SUBSTANTIAL QUE STION OF LAW: 'WHETHER ON FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW ITAT IS JUSTIFIED IN LAW IN HOLDING BY FOLLOWIN G ITS DECISION IN THE CASE OF JAMSHRI RANJITSINGHJI SPG. & WVG. MILLS LTD. V. INSPECTING ASSTT. COMMISSIONER [1961] 41 ITD 142 (BOM) , THAT ADVANCE LICENSE BENEFIT AND DEPB BENEFITS ARE TAXABLE IN THE YEAR IN WHICH THESE ARE ACTUALLY UTILIZED BY THE ASSESSEE AND NOT IN THE YEAR OF RECEIPTS.' 14. BY THE IMPUGNED ORDER, THE HIGH COURT DECLINED TO ADMIT THE APPEAL FILED BY THE REVENUE UNDER SECTION 260-A OF THE ACT. 15. IT WAS SUBMITTED BEFORE US BY LEARNED COUNSEL FOR THE REVENUE THAT IN VIEW OF THE PROVISIONS OF SECTION 28(IV) OF THE ACT, THE VALUE OF THE BENEFIT OBTAINED BY THE ASSESSEE IS ITS INCO ME AND IS LIABLE TO TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINES S OR PROFESSION'. WE ARE UNABLE TO ACCEPT THE CONTENTION OF LEARNED C OUNSEL FOR THE REVENUE FOR SEVERAL REASONS. 16. SECTION 28(IV) OF THE ACT READS AS FOLLOWS: ITA 4793/MUM/2014 16 '28. PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE FOLLOWING INCOME SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' ** ** (IV) THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHE R CONVERTIBLE INTO MONEY OR NOT, ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSION; ** ** ' 17. FIRST OF ALL, IT IS NOW WELL SETTLED THAT INCOME T AX CANNOT BE LEVIED ON HYPOTHETICAL INCOME. IN CIT V. SHOORJI VALLABHDAS & CO. [1962] 46 ITR 144 (SC) IT WAS HELD AS FOLLOWS: 'INCOME-TAX IS A LEVY ON INCOME. NO DOUBT, THE INCO ME-TAX ACT TAKES INTO ACCOUNT TWO POINTS OF TIME AT WHICH THE LIABILITY TO TAX IS ATTRACTED, VIZ., THE ACCRUAL OF THE INCOME OR ITS RECEIPT; BUT THE SUBSTANCE OF THE MATTER IS THE INCOME. IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TA X, EVEN THOUGH IN BOOK-KEEPING, AN ENTRY IS MADE ABOUT A 'HYPOTHETICAL INCOME', WHICH DOES NOT MATERIALISE. WHERE INCOME HAS, IN FACT, BEEN RECEIVED AND IS SUBSEQUEN TLY GIVEN UP IN SUCH CIRCUMSTANCES THAT IT REMAINS THE INCOME OF THE RECIPIENT, EVEN THOUGH GIVEN UP, THE TAX MAY BE PAY ABLE. WHERE, HOWEVER, THE INCOME CAN BE SAID NOT TO HAVE RESULTED AT ALL, THERE IS OBVIOUSLY NEITHER ACCRUAL NOR RECE IPT OF INCOME, EVEN THOUGH AN ENTRY TO THAT EFFECT MIGHT, IN CERTAIN CIRCUMSTANCES, HAVE BEEN MADE IN THE BOOKS OF ACCOU NT.' ITA 4793/MUM/2014 17 18. THE ABOVE PASSAGE WAS CITED WITH APPROVAL IN MORVI INDUSTRIES LTD. V. CIT (CENTRAL), [1971] 82 ITR 835 (SC) IN WHICH THIS COURT ALSO CONSIDERED THE DICTIONARY MEANING O F THE WORD 'ACCRUE' AND HELD THAT INCOME CAN BE SAID TO ACCRUE WHEN IT BECOMES DUE. IT WAS THEN OBSERVED THAT: '....... TH E DATE OF PAYMENT ....... DOES NOT AFFECT THE ACCRUAL OF INCOME. THE MOMENT THE INCOME ACCRUES, THE ASSESSEE GETS VESTED WITH THE RIGHT TO CLAIM THAT AMOUNT EVEN THOUGH IT MAY NOT BE IMMEDIATELY.' 19. THIS COURT FURTHER HELD, AND IN OUR OPINION MORE I MPORTANTLY, THAT INCOME ACCRUES WHEN THERE 'ARISES A CORRESPOND ING LIABILITY OF THE OTHER PARTY FROM WHOM THE INCOME BECOMES DUE TO PAY THAT AMOUNT.' 20. IT FOLLOWS FROM THESE DECISIONS THAT INCOME ACCRUE S WHEN IT BECOMES DUE BUT IT MUST ALSO BE ACCOMPANIED BY A CO RRESPONDING LIABILITY OF THE OTHER PARTY TO PAY THE AMOUNT. ONL Y THEN CAN IT BE SAID THAT FOR THE PURPOSES OF TAXABILITY THAT THE I NCOME IS NOT HYPOTHETICAL AND IT HAS REALLY ACCRUED TO THE ASSES SEE. 21. IN SO FAR AS THE PRESENT CASE IS CONCERNED, EVEN I F IT IS ASSUMED THAT THE ASSESSEE WAS ENTITLED TO THE BENEF ITS UNDER THE ADVANCE LICENCES AS WELL AS UNDER THE DUTY ENTITLEM ENT PASS BOOK, THERE WAS NO CORRESPONDING LIABILITY ON THE CUSTOMS AUTHORITIES TO PASS ON THE BENEFIT OF DUTY FREE IMPORTS TO THE ASS ESSEE UNTIL THE GOODS ARE ACTUALLY IMPORTED AND MADE AVAILABLE FOR CLEARANCE. THE BENEFITS REPRESENT, AT BEST, A HYPOTHETICAL INCOME WHICH MAY OR MAY NOT MATERIALISE AND ITS MONEY VALUE IS THEREFOR E NOT THE INCOME OF THE ASSESSEE. ITA 4793/MUM/2014 18 22. IN GODHRA ELECTRICITY CO. LTD. V. CIT, [1997] 225 ITR 746/91 TAXMAN 351 (SC) THIS COURT REITERATED THE VIEW TAKEN IN SHOORJI VALLABHDAS & CO. (SUPRA)AND MORVI INDUSTRIES LTD. ( SUPRA). 23. GODHRA ELECTRICITY IS RATHER INSTRUCTIVE. IN THAT CASE, IT WAS NOTED THAT THE HIGH COURT HELD THAT THE ASSESSEE WO ULD BE OBLIGED TO PAY TAX WHEN THE PROFIT BECAME ACTUALLY DUE AND THAT INCOME COULD NOT BE SAID TO HAVE ACCRUED WHEN IT IS BASED ON A MERE CLAIM NOT BACKED BY ANY LEGAL OR CONTRACTUAL RIGHT TO REC EIVE THE AMOUNT AT A SUBSEQUENT DATE. THE HIGH COURT HOWEVER HELD O N THE FACTS OF THE CASE THAT THE ASSESSEE HAD A LEGAL RIGHT TO REC OVER THE CONSUMPTION CHARGE IN DISPUTE AT THE ENHANCED RATE FROM THE CONSUMERS. 24. THIS COURT DID NOT ACCEPT THE VIEW TAKEN BY THE HI GH COURT ON FACTS. REFERENCE WAS MADE IN THIS CONTEXT TO CIT V. BIRLA GWALIOR (P.) LTD. [1973] 89 ITR 266 (SC) WHEREIN IT WAS HELD, AFTER REFERRING TO MORVI INDUSTRIES THAT REAL ACCRUAL OF INCOME AND NOT A HYPOTHETICAL ACCRUAL OF INCOME OUGHT TO BE TAKEN IN TO CONSIDERATION. FOR A SIMILAR CONCLUSION, REFERENCE WAS MADE TO POO NA ELECTRIC SUPPLY CO. LTD. V. CIT, [1965] 57 ITR 521 (SC) WHEREIN IT WAS HELD THAT INCOME TAX IS A TAX ON REAL INCOME. 25. FINALLY A REFERENCE WAS MADE TO STATE BANK OF TRAVA NCORE V. CIT [1986] 158 ITR 102/24 TAXMAN 337 (SC) WHEREIN THE MAJORITY VIEW WAS THAT ACCRUAL OF INCOME MUST BE REAL, TAKIN G INTO ACCOUNT THE ACTUALITY OF THE SITUATION; WHETHER THE ACCRUAL HAD TAKEN PLACE OR NOT MUST, IN APPROPRIATE CASES, BE JUDGED ON THE PRINCIPLES OF REAL INCOME THEORY. THE MAJORITY OPINION WENT ON TO SAY: 'WHAT HAS REALLY ACCRUED TO THE ASSESSEE HAS TO BE FOUND OUT AND WHAT HAS ACCRUED MUST BE CONSIDERED FROM THE PO INT OF ITA 4793/MUM/2014 19 VIEW OF REAL INCOME TAKING THE PROBABILITY OR IMPRO BABILITY OF REALISATION IN A REALISTIC MANNER AND DOVETAILING O F THESE FACTORS TOGETHER BUT ONCE THE ACCRUAL TAKES PLACE, ON THE CONDUCT OF THE PARTIES SUBSEQUENT TO THE YEAR OF CL OSING AN INCOME WHICH HAS ACCRUED CANNOT BE MADE 'NO INCOME' .' 26. THIS COURT THEN CONSIDERED THE FACTS OF THE CASE A ND CAME TO THE CONCLUSION (IN GODHRA ELECTRICITY) THAT NO REAL INCOME HAD ACCRUED TO THE ASSESSEE IN RESPECT OF THE ENHANCED CHARGES FOR A VARIETY OF REASONS. ONE OF THE REASONS SO CONSIDERE D WAS A LETTER ADDRESSED BY THE UNDER SECRETARY TO THE GOVERNMENT OF GUJARAT, TO THE ASSESSEE WHEREBY THE ASSESSEE WAS 'ADVISED' TO MAINTAIN STATUS QUO IN RESPECT OF ENHANCED CHARGES FOR AT LE AST SIX MONTHS. THIS COURT TOOK THE VIEW THAT THOUGH THE LETTER HAD NO LEGAL BINDING EFFECT BUT 'ONE HAS TO LOOK AT THINGS FROM A PRACTI CAL POINT OF VIEW.' (SEE R.B. JODHA MAL KUTHIALA V. CIT [1971] 82 ITR 570 (SC) ). THIS COURT TOOK THE VIEW THAT THE PROBABILITY OR IMPROBA BILITY OF REALISATION HAS TO BE CONSIDERED IN A REALISTIC MAN NER AND IT WAS HELD THAT THERE WAS NO REAL ACCRUAL OF INCOME TO TH E ASSESSEE IN RESPECT OF THE DISPUTED ENHANCED CHARGES FOR SUPPLY OF ELECTRICITY. THE DECISION OF THE HIGH COURT WAS, ACCORDINGLY, SE T ASIDE. 27. APPLYING THE THREE TESTS LAID DOWN BY VARIOUS DECI SIONS OF THIS COURT, NAMELY, WHETHER THE INCOME ACCRUED TO THE AS SESSEE IS REAL OR HYPOTHETICAL; WHETHER THERE IS A CORRESPONDING L IABILITY OF THE OTHER PARTY TO PASS ON THE BENEFITS OF DUTY FREE IM PORT TO THE ASSESSEE EVEN WITHOUT ANY IMPORTS HAVING BEEN MADE; AND THE PROBABILITY OR IMPROBABILITY OF REALISATION OF THE BENEFITS BY THE ASSESSEE CONSIDERED FROM A REALISTIC AND PRACTICAL POINT OF VIEW (THE ASSESSEE MAY NOT HAVE MADE IMPORTS), IT IS QUI TE CLEAR THAT IN FACT NO REAL INCOME BUT ONLY HYPOTHETICAL INCOME HA D ACCRUED TO THE ITA 4793/MUM/2014 20 ASSESSEE AND SECTION 28(IV) OF THE ACT WOULD BE INA PPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE. ESSENTIALLY, T HE ASSESSING OFFICER IS REQUIRED TO BE PRAGMATIC AND NOT PEDANTI C. 28. SECONDLY, AS NOTED BY THE TRIBUNAL, A CONSISTENT V IEW HAS BEEN TAKEN IN FAVOUR OF THE ASSESSEE ON THE QUESTIONS RA ISED, STARTING WITH THE ASSESSMENT YEAR 1992-93, THAT THE BENEFITS UNDER THE ADVANCE LICENCES OR UNDER THE DUTY ENTITLEMENT PASS BOOK DO NOT REPRESENT THE REAL INCOME OF THE ASSESSEE. CONSEQUE NTLY, THERE IS NO REASON FOR US TO TAKE A DIFFERENT VIEW UNLESS TH ERE ARE VERY CONVINCING REASONS, NONE OF WHICH HAVE BEEN POINTED OUT BY THE LEARNED COUNSEL FOR THE REVENUE. 29. IN RADHASOAMI SATSANG SAOMI BAGH V. CIT [1992] 193 ITR 321/60 TAXMAN 248 (SC) THIS COURT DID NOT THINK IT APPROPRIATE TO ALLOW THE RECONSIDERATION OF AN ISSUE FOR A SUBSEQU ENT ASSESSMENT YEAR IF THE SAME 'FUNDAMENTAL ASPECT' PERMEATES IN DIFFERENT ASSESSMENT YEARS. IN ARRIVING AT THIS CONCLUSION, T HIS COURT REFERRED TO AN INTERESTING PASSAGE FROM HOYSTEAD V. COMMISSI ONER OF TAXATION, 1926 AC 155 (PC) WHEREIN IT WAS SAID: 'PARTIES ARE NOT PERMITTED TO BEGIN FRESH LITIGATIO N BECAUSE OF NEW VIEWS THEY MAY ENTERTAIN OF THE LAW OF THE CASE , OR NEW VERSIONS WHICH THEY PRESENT AS TO WHAT SHOULD BE A PROPER APPREHENSION BY THE COURT OF THE LEGAL RESULT EITHE R OF THE CONSTRUCTION OF THE DOCUMENTS OR THE WEIGHT OF CERT AIN CIRCUMSTANCES. IF THIS WERE PERMITTED, LITIGATION W OULD HAVE NO END, EXCEPT WHEN LEGAL INGENUITY IS EXHAUSTED. I T IS A PRINCIPLE OF LAW THAT THIS CANNOT BE PERMITTED AND THERE IS ABUNDANT AUTHORITY REITERATING THAT PRINCIPLE. THIR DLY, THE SAME PRINCIPLE, NAMELY, THAT OF SETTING TO REST RIG HTS OF LITIGANTS, APPLIES TO THE CASE WHERE A POINT, FUNDA MENTAL TO ITA 4793/MUM/2014 21 THE DECISION, TAKEN OR ASSUMED BY THE PLAINTIFF AND TRAVERSABLE BY THE DEFENDANT, HAS NOT BEEN TRAVERSE D. IN THAT CASE ALSO A DEFENDANT IS BOUND BY THE JUDGMENT , ALTHOUGH IT MAY BE TRUE ENOUGH THAT SUBSEQUENT LIGH T OR INGENUITY MIGHT SUGGEST SOME TRAVERSE WHICH HAD NOT BEEN TAKEN.' 30. REFERENCE WAS ALSO MADE TO PARASHURAM POTTERY WORK S LTD. V. ITO [1977] 106 ITR 1 (SC) AND THEN IT WAS HELD: 'WE ARE AWARE OF THE FACT THAT STRICTLY SPEAKING RES JUDICATA DOES N OT APPLY TO INCOME-TAX PROCEEDINGS. AGAIN, EACH ASSESSMENT YEAR BEING A UNIT, WHAT IS DECIDED IN ONE YEAR MAY NOT APPLY IN THE FO LLOWING YEAR BUT WHERE A FUNDAMENTAL ASPECT PERMEATING THROUGH T HE DIFFERENT ASSESSMENT YEARS HAS BEEN FOUND AS A FACT ONE WAY O R THE OTHER AND PARTIES HAVE ALLOWED THAT POSITION TO BE SUSTAI NED BY NOT CHALLENGING THE ORDER, IT WOULD NOT BE AT ALL APPRO PRIATE TO ALLOW THE POSITION TO BE CHANGED IN A SUBSEQUENT YEAR. ON THE SE REASONINGS IN THE ABSENCE OF ANY MATERIAL CHANGE JUSTIFYING TH E REVENUE TO TAKE A DIFFERENT VIEW OF THE MATTER - AND IF THERE WAS NO CHANGE IT WAS IN SUPPORT OF THE ASSESSEE - WE DO NOT THINK TH E QUESTION SHOULD HAVE BEEN REOPENED AND CONTRARY TO WHAT HAD BEEN DECIDED BY THE COMMISSIONER OF INCOME TAX IN THE EA RLIER PROCEEDINGS, A DIFFERENT AND CONTRADICTORY STAND SH OULD HAVE BEEN TAKEN.' 31. IT APPEARS FROM THE RECORD THAT IN SEVERAL ASSESSM ENT YEARS, THE REVENUE ACCEPTED THE ORDER OF THE TRIBUNAL IN F AVOUR OF THE ASSESSEE AND DID NOT PURSUE THE MATTER ANY FURTHER BUT IN RESPECT OF SOME ASSESSMENT YEARS THE MATTER WAS TAKEN UP IN APPEAL BEFORE THE BOMBAY HIGH COURT BUT WITHOUT ANY SUCCES S. THAT BEING SO, THE REVENUE CANNOT BE ALLOWED TO FLIP-FLOP ON T HE ISSUE AND IT ITA 4793/MUM/2014 22 OUGHT LET THE MATTER REST RATHER THAN SPEND THE TAX PAYERS' MONEY IN PURSUING LITIGATION FOR THE SAKE OF IT. 32. THIRDLY, THE REAL QUESTION CONCERNING US IS THE YE AR IN WHICH THE ASSESSEE IS REQUIRED TO PAY TAX. THERE IS NO DI SPUTE THAT IN THE SUBSEQUENT ACCOUNTING YEAR, THE ASSESSEE DID MAKE I MPORTS AND DID DERIVE BENEFITS UNDER THE ADVANCE LICENCE AND T HE DUTY ENTITLEMENT PASS BOOK AND PAID TAX THEREON. THEREFO RE, IT IS NOT AS IF THE REVENUE HAS BEEN DEPRIVED OF ANY TAX. WE ARE TOLD THAT THE RATE OF TAX REMAINED THE SAME IN THE PRESENT ASSESS MENT YEAR AS WELL AS IN THE SUBSEQUENT ASSESSMENT YEAR. THEREFOR E, THE DISPUTE RAISED BY THE REVENUE IS ENTIRELY ACADEMIC OR AT BE ST MAY HAVE A MINOR TAX EFFECT. THERE WAS, THEREFORE, NO NEED FOR THE REVENUE TO CONTINUE WITH THIS LITIGATION WHEN IT WAS QUITE CLE AR THAT NOT ONLY WAS IT FRUITLESS (ON MERITS) BUT ALSO THAT IT MAY N OT HAVE ADDED ANYTHING MUCH TO THE PUBLIC COFFERS. 33. FOR THE AFORESAID REASONS, WE DISMISS THE CIVIL AP PEALS WITH NO ORDER AS TO COSTS, BUT WITH THE HOPE THAT THE REVEN UE IMPLEMENTS ITS LITIGATION POLICY A LITTLE MORE PRACTICALLY AND A LITTLE MORE SERIOUSLY. WE HAVE OBSERVED THAT WITH RESPECT TO THE SALE OF AFORE-STATED DEPB LICENSES, THE ENTIRE REVENUE HAS BEEN STATED TO BE OFFERED F OR TAXATION BY THE ASSESSEE VOLUNTARILY OF ITS OWN , ALBEIT IN THE SUBSEQUENT Y EAR WHEN THE DEPB LICENSES WERE SOLD. THUS, KEEPING IN VIEW OF THE PECUILAR FA CTS AND CIRCUMSTANCES OF THE CASE BEFORE US AND NOT GOING INTO LEGALITY OF T HE ISSUE INVOLVED IN THIS APPEAL WHILE SEEKING SUPPORT FROM THE PROPOSITION O F THE HONBLE SUPREME COURT IN PARA 32 IN THE CASE OF EXCEL INDUSTRIES LI MITED(SUPRA) , WE ARE OF CONSIDERED VIEW NO PREJUDICE HAS BEEN CAUSED TO THE REVENUE AS THE SAID ITA 4793/MUM/2014 23 GROSS SALE PROCEEDS ON TRANSFER OF DEPB LICENSES BY THE ASSESSEE IN ITS ENTIRETY IS STATED TO BE OFFERED FOR TAXATION IN TH E NEXT YEAR AND TAX RATE REMAINED THE SAME IN THE NEXT YEAR. HOWEVER , THES E CLAIMS AS MADE BY THE ASSESSEE NEEDS VERIFICATION BY THE AUTHORITIES BELO W AND THEREFORE, WE ARE INCLINED TO SET ASIDE AND RESTORE THIS MATTER BACK TO THE FILE OF THE A.O. TO VERIFY THAT THE TOTAL INCOME IN ITS ENTIRETY FROM SALE OF THE AFORE-STATED DEPB LICENSES IS SUBJECTED TO TAX IN THE SUBSEQUENT ASSE SSMENT YEAR AND THE REVENUE HAS GOT ALL THE DUE TAXES ON TOTAL INCOME CHARGEABLE TO TAX ALBEIT IN THE SUBSEQUENT ASSESSMENT YEAR AS IN THAT CASE REVE NUE EFFECT SHALL BE TAX NEUTRAL. THE ASSESSEE IS DIRECTED TO APPEAR BEFORE THE AO AND PRODUCE ALL NECESSARY EVIDENCES AND EXPLANATIONS IN SUPPORT OF ITS CONTENTIONS THAT NO PREJUDICE IS CAUSED TO REVENUE BY MAKING PAYMENT OF TAXES ON THE TOTAL INCOME ARISING IN ITS ENTIRETY FROM SALE OF DEPB LI CENSES IN THE SUBSEQUENT ASSESSMENT YEAR. NEEDLESS TO SAY THAT PROPER AND AD EQUATE OPPORTUNITY OF BEING HEARD SHALL BE PROVIDED BY THE AO BEFORE CONC LUDING THE NECESSARY VERIFICATION AS CONTEMPLATED BY OUR ORDERS IN ACCOR DANCE WITH PRINCIPLES OF NATURAL JUSTICE IN ACCORDANCE WITH LAW. WE ORDER AC CORDINGLY. WITH RESPECT TO THE ADDITION U/S 14A OF THE ACT REA D WITH RULE 8D OF 1962 RULES, WE HAVE OBSERVED THAT THE ASSESSEE HAS EARNE D EXEMPT INCOME AND OFFERED DISALLOWANCE TO THE TUNE OF RS. 3,32,482/- UNDER RULE 8D(2)(III) OF 1962 RULES AS ADMINISTRATIVE AND INDIRECT EXPENSES @ 0.5% OF AVERAGE INVESTMENT HELD BY THE ASSESSEE. THERE ARE SUFFICI ENT OWN FUNDS AVAILABLE WITH THE ASSESSEE FOR THE INVESTMENT AND NO BORROWE D FUNDS WERE STATED TO BE UTILIZED BY THE ASSESSEE FOR MAKING INVESTMENTS IN SHARES AND MUTUAL FUNDS CAPABLE OF EARNING TAX-FREE INCOME. THE ASSESSEE H AS ALSO FILED FINANCIAL STATEMENTS WHICH REVEAL THAT THE ASSESSEE HAS OWN F UNDS AVAILABLE IN ITS HAND WHICH ARE FAR IN EXCESS OF INVESTMENTS MADE IN THE SHARES, MUTUAL FUNDS AND OTHER SECURITIES YIELDING TAX-EXEMPT INCO ME. PERUSAL OF AUDITED FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR 2009-10 (PAGE 27-67/PAPER BOOK) ITA 4793/MUM/2014 24 WILL REVEAL THAT THE ASSESSEES OWN FUNDS ARE TO TH E TUNE OF RS.12.47 CRORES AS AT 31-03-2010 AND RS. 12.37 CRORES AS AT 31-03-2009 , WHILE INVESTMENTS CAPABLE OF YIELDING EXEMPT INCOME ARE TO THE TUNE O F RS 4.65 CRORES AS AT 31- 3-2010 AND RS. 8.65 CRORES AS AT 31-03-2009. WE AG REE WITH THE PROPOSITION AND CONTENTIONS OF THE ASSESSEE THAT PRESUMPTION WI LL APPLY UNLESS CONTRARY IS BROUGHT ON RECORD BY THE REVENUE , THAT THE ASSE SSEE HAS MADE INVESTMENT IN SHARES , MUTUAL FUNDS AND OTHER SECURITIES CAPAB LE OF YIELDING EXEMPT INCOME OUT OF ITS OWN SURPLUS FUNDS UNLESS CONTRARY IS BROUGHT ON RECORD BY THE AO KEEPING IN VIEW THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. RELIANCE UTILITIES AND POWER LTD., ( 2009)313 ITR 340(BOM. HC), HDFC BANK LIMITED V. DCIT (2014) 366 ITR 505(BOM. H C) AND HDFC BANK LIMITED V. DCIT (2016) 67 TAXMANN.COM 42(BOM. HC). IN OUR CONSIDERED VIEW, THIS ADDITION OF RS. 9,12,886/- MADE BY THE A O AND SUSTAINED BY LEARNED CIT(A) U/S 14A OF THE ACT R.W.R. 8D(2)(II) OF 1962 RULES IS NOT SUSTAINABLE IN LAW KEEPING IN VIEW FACTS AND CIRCUM STANCES OF THE CASE AND IS HEREBY ORDERED TO BE DELETED .WE ORDER ACCORDINGLY. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO. 4793/MUM/2014 FOR THE ASSESSMENT YEAR 2010-11 IS PA RTLY ALLOWED AS INDICATED ABOVE ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH OCTOBER, 2016. # $% &' 24-10-2016 ( ) SD/- SD/- (C.N. PRASAD) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS ITA 4793/MUM/2014 25 !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI E BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI