Kerala State Beverages M&M) Corpn Ltd, Trivandrum V. The ACIT, Cir-1(1), Trivandrum

ITA 537/COCH/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4151 (ITAT-COCHIN)
• Duration Of Justice: 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 07-03-2019
• Assessment Year: 2015-2016
• Appeal Filed On: 26-11-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A.S.BINDHU
• Assessee Lawyers: K.S. MADHU
• Keywords: Principle of natural justice; Wrong claim; Prejudicial to interest; Revised return; Set aside
• Section: 263; 10; 143(3); 201; 13

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFOR E S/ SHRI CHANDRA POOJARI , AM & GEORGE GEORGE K., J M I .T . A. NO S . 536 & 537 / C OCH/ 201 8 ASSESSMENT YEAR S : 2 0 14 - 15 & 2015 - 16 KERALA STATE BEVERAGES, (M&M) C ORPORATION LTD., SASTHAMANGALAM, TRIVANDRUM - 695 010. [PAN: AAACK 9431G] VS. THE ASSISTANT COMMISSIONER OF INCOME - TAX, CIRCLE - 1(1), TRIVANDRUM (ASSESSEE - APPEL LANT) (REVENUE - RESPONDENT) S.P. NO. 40/COCH/2018 (ARSG. OUT OF I .T.A. NO. 5 37/COCH/2018) ASSESSMENT YEARS : 2014 - 15 & 2015 - 16 KERALA STATE BEVERAGES, (M&M) CORPORATION LTD., SASTHAMANGALAM, TRIVANDRUM - 695 010. [PA N:AAACK 9431G] VS. THE ASSISTANT COMMISSIONER OF INCOME - TAX, CIRCLE - 1(1), TRIVANDRUM (ASSESSEE - APPELLANT) (REVENUE - RESPONDENT) A SSESSEE BY SHRI K.S. MADHU, FCA REVENUE BY SMT. A.S. BINDHU, SR. DR D ATE OF HEARING 0 7 / 0 3 / 201 9 DATE OF PRON OUNCEMENT 12 / 0 3 /201 9 O R D E R PER CHANDRA POOJARI, AM: TH E APPEAL FILED BY THE ASSESSEE IN ITA NO. 536/COCH/2018 IS DIRECTED AGAINST THE ORDER PASSED BY THE PR. C IT, TRIVANDRUM U/S. 263 OF THE I.T. ACT DATED 25/09/2018 AND PERTAIN TO THE A SSESSMENT YEAR 2014 - 15. THE OTHER APPEAL FILED BY I.T.A. NO S . 536 & 537/ COCH/ 201 8 & S.P. NOS. 41&40/COCH /2018 2 THE ASSESSEE IN ITA NO. 537/COCH/2018 IS DIRECTED AGAINST THE ORDER OF THE CIT(A), KOTTAYAM DATED 05/11/2018 AND PERTAIN TO THE ASSESSMENT YEAR 2015 - 16. THE ASSESSEE HAS ALSO FILED STAY PETITION IN S.P. NOS. 4 0/ C OCH/2018. 2. FIRST WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE IN ITA NO. 536/COCH/2018 WHICH IS DIRECTED AGAINST THE ORDER OF THE CIT PASSED U/S. 263 OF THE ACT. THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2014 - 1 5 ON 29.11.2014 DECLARING A TOTAL INCOME OF RS. 1,82,70,79,970/. A REVISED RETURN WAS FILED ON 31.03.2016 DECLARING TOTAL INCOME OF RS. 6,01,81,50,270/ - AND TH E ASSESSMENT U/S 143(3) WAS COMPLETED ON 14.12.2016 BY DETERMINING TOTAL INCOME AT RS. 6,01,84,16,899/ - . 2.1 HOWEVER, ON SUBSEQUENT EXAMINATION OF THE RECORDS, THE CIT NOTICED THAT AN AMOUNT OF RS. 96076.20 LAKH WAS DEBITED IN THE PROFIT & LOSS A/C TO WARDS SURCHARGE ON SALES TAX AND TURN OVER TAX. THE SURCHARGE WAS PAID AS PER SECTION 3(1) OF THE KERALA SURCHARGE ON TAXES ACT, 1957 (ACT 11 OF 1957). BUT, ACCORDING TO THE CIT, THIS WAS NOT DISALLOWED BY THE ASSESSING OFFICER U/S 40(A)(IIB) OF THE INCOME TAX ACT 1961. THEREFORE , THE CIT HELD THAT THE ORDER PASSED U/S 143(3) DATED 14 .12.2 016 WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 2.2 THE CIT REFERRED TO S ECTION 40(A)( II B) OF THE INCOME TAX ACT WHICH STIPULATES THAT ' THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTI NG THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION , ANY AMOUNT I.T.A. NO S . 536 & 537/ COCH/ 201 8 & S.P. NOS. 41&40/COCH /2018 3 (A) PAID BY WAY OF ROYALTY, LICENCE FEE, SERVICE FEE, PRIVILEGE FEE, SERVICE CHARGE, OR ANY OTHER FEE OR CHARGE, BY W HATEVER NAME CALLED, WHICH IS LEVIED EXCLUSIVELY ON: OR (B) WHICH IS APPROPRIATED, DIRECTLY OR INDIRECTLY FROM, A STATE GOVERNMENT UNDERTAKING INCLUDES (I ) A CORPORATION ESTABLISHED BY OR UNDER ANY ACT OF THE STATE GOVERNMENT: (II) A COMPANY IN WHICH MORE THAN FIFTY PER CENT OF THE PAID - UP EQUITY SHARE CAPITAL IS HELD BY THE STATE GOVERNMENT; (III) A COMPANY IN WHICH MORE THAN FIFTY PERCENT OF THE PAID - UP EQUITY SHARE CAPITAL IS HELD BY THE ENTITY REFERRED TO IN CLAUSE (I) OR CLAUSE (II) (WHETHER SINGLY OR TAKEN TOGETHER); (IV) A COMPANY OR CORPORATION IN WHICH THE STATE GOVERNMENT HAS THE RIGHT TO APPOINT THE MAJORITY OF THE DIRECTORS OR TO CONTROL THE MANAGEMENT OR POLICY DECISIONS, DIRECTLY OR INDIRECTLY, INCLUDING BY VIRTUE OF ITS SHAREHOLDING AGREEMENTS OR VOTING AGREEMENTS OR IN ANY OTHER MANNER; (V) AN AUTHORITY, A BOARD OR AN INSTITUTION OF A BODY ESTABLISHED OR CONSTITUTED BY OR UNDER ANY ACT OF THE STATE GOVERNMENT OR OWNED OR CONTROLLED BY THE STATE GOVERNMENT'. FURTHER, ACCORDING TO THE CIT, TH E SUR CHARGE ON SAL ES T AX U/S 3(1) OF THE KERALA SURCHARGE ON TAXES ACT, 1957 (ACT 11 OF 1957) BEING AN EXCLUSIVE LEVY ON THE ASSESSEE WHICH IS A STATE GOVERNMENT UNDERTAKING BY THE STATE GOVERNMENT IS TO BE DISALLOWED U/S 40(A)(IIB) OF THE INCOME TAX ACT 1 961. SIN CE THE ASSESSING OFFICER HAD NOT MADE THE DISALLOWANCE U/S 40(A)(IIB) OF THE INCOME TAX ACT 1961 . T HEREFORE, THE CIT INVOKED THE PROVISIONS OF SECTION 263 OF THE ACT PROPOSING REVISION OF THE ASSESSMENT ORDER U/S 143(3) DATED 26.12.2016 . THEIR CONT ENTIONS AGAINST THE PROPOSED REVISION. I.T.A. NO S . 536 & 537/ COCH/ 201 8 & S.P. NOS. 41&40/COCH /2018 4 2.3 THE LD. AR CONTENDED THAT THERE IS NO ERROR IN ASSESSMENT ORDER SINCE SURCHARGE ON SALES TAX AND TURNOVER TAX ARE NOT LEVIES CHARGED EXCLUSIVELY ON THE ASSESSEE AND IS APPLICABLE TO ALL GENERAL TRADING ORGANIS ATIONS. ACCORDING TO THE LD. AR TURNOVER TAX IS APPLICABLE TO BARS , BEER AND WINE PARLOURS, CLUBS HAVING BARS, PERSONS IMPORTING INTOXICATING DRUGS SUCH AS DRUG MANUFACTURING UNITS AND DISTILLERIES IN KERALA. THE LD. AR ALSO CONTENDED THAT S URCHARGE ON S AL ES T AX AND T URNOVER T AX IS APPLICABLE TO THE ABOVE INSTITUTIONS AS WELL AS TO SEVERAL OTHER TRADING AND MANUFACTURING CONCERNS IN KERALA. 2.4 THE CIT REFERRED TO SUB SECTION I OF SECTION 3 OF 'THE KERALA SURCHARGE ON TAXES ACT, 1957 (ACT 11 OF 1957)' W HICH STATES THAT ' THE TAX PAYABLE UNDER SUB SECTION 1 OF SECTION 5 OF THE KERALA GENERAL SALES TAX ACT, 1963, BY A DEALER IN FOREIGN LIQUOR SHALL BE INCREASED BY A SURCHARGE AT THE RATE OF 10%. ALSO SUB SECTION 2 OF SECTIONS STATES THAT, NO DEALER REFERRED TO IN SUB SECTION (1) SHALL BE ENTITLED TO COLLECT THE SURCHARGE PAYABLE FROM HIS PURCHASER. ACCORDING TO THE CIT, T HESE PROVISIONS OF LAW CLEARLY STATES THAT ANY DEALER IN FOREIGN LIQUOR IS BOUND TO REMIT SURCHARGE AND CANNOT DO THE BUSINESS WITHOUT REM ITTANCE OF SURCHARGE'. IN THIS CASE, THE ASSESSEE WAS ENTRUSTED WITH THE MONOPOLY PURCHASE AND SALE OF INDIAN MADE FOREIGN LIQUOR (IMFL) / BEER IN THE STATE OF KERALA AND HENCE, S URCHARGE PAID ON THE S ALES T AX AS PER THE PROVISIONS OF SECTION 3(1) OF 'THE KERALA SURCHARGE ON TAXES ACT, 1957 (ACT 11 OF 1957)' IS AN EXCLUSIVE LEVY. THEREFORE, THE CIT HELD THAT SURCHARGE ON S ALES T AX SHOULD HAVE BEEN DISALLOWED U/S 40(A)(IIB) OF THE ACT. 2.5 THE CIT RELIED ON THE FOLLOWING JUDICIAL DECISIONS : I.T.A. NO S . 536 & 537/ COCH/ 201 8 & S.P. NOS. 41&40/COCH /2018 5 1. CIT VS. JA WAHAR BHATTACHARJEE (2012) 341 ITR 434 (GAU.) (FB) WHEREIN IT WAS STATED THE ASSESSM ENT MADE ON A. WRONG ASSUMPTION OF FACTS OR B. ON INCORRECT APPLICATION OF LAW OR C. WITHOUT DUE APPLICATION OF MIND OR D. WITHOUT FOLLOWING THE PRINCIPLES OF NATURAL JUSTICE WOULD BE 'ERRONEOUS' 2. CIT VS. EMERY STONE MANUFACTURING CO.(1995) 213 ITR 843 (RAJ) WHEREIN IT WAS STATED THAT F AILURE TO APPLY THE CORRECT PROVISION OF LAW AS MAY BE APPLICABLE IN GIVEN FACTS OF THE CASE WILL BE RESULTING IN AN ERRONEOUS ORDER . 3 . TOYOTO MOTOR CORPORATION ( 306 ITR 49 ) WHEREIN IT HAD GIVEN A FINDING THAT 'THE ORDER PASSED BY THE ASSESSING OFFICER SHOULD BE A SELF - CONTAINED ORDER GIVING THE RELEVANT FACTS AND REASONS FOR COMING TO THE CONCLUSION BASED ON THO SE FACTS AND LAW.' 2.5 AFTER CONSIDERING ALL ASPECTS, THE CIT FOUND THAT THE ASSESSMENT WAS COMPLETED WITHOUT DUE VERIFICATION AND APPLICATION OF MIND IN THE MANNER IT OUGHT TO BE, RESULTING IN AN ORDER ERRONEOUS AND PREJUDICIAL TO INTERESTS OF REVENUE. 3. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. THE LD. AR SUB MITTED THAT THE ASSESSEE IS A STATE GOVERNMENT UNDERTAKING ENGAGED IN THE WHOLESALE AND RETAIL TRADING IN IMFL AND BEER. THE LD. AR SUBMITTED THAT ASSESSEE WAS BOUND TO PAY SURCHARGE ON THE SALES TAX, AS PER THE PROVISIONS OF 'THE KERALA SURCHARGE ON TAXES ACT, 1957' (ACT 11 OF 1957). SECTION 2 OF THE ABOVE SAID ACT STATES THAT 'THE A GRICULTURAL INCOME TAX' PAYABLE BY ANY PERSON ['OTHER THAN A COMPANY'] ASESSED TO SUCH TAX UNDER THE [' THE KERALA AGRICULTURAL INCOME TAX ACT, 1991'] SHALL BE INCREASED BY A SURCHARGE AT THE RATE OF [TEN PER CENTUM] OF THE TAX PAYABLE EACH YEAR, AND THE PROVISIONS OF THE ['THE KERALA AGRICULTURAL INCOME TAX ACT, 1991'] I.T.A. NO S . 536 & 537/ COCH/ 201 8 & S.P. NOS. 41&40/COCH /2018 6 SHALL APPLY IN RELATION TO THE SAID SU RCHARGE AS THEY APPLY IN RELATION TO THE ['AGRICULTURAL INCOME TAX '] PAYABLE UNDER THE SAID ACT . IT WAS SUBMITTED THAT T HE SUB SECTION 1 OF SECTION 3 OF THE SAID ACT STATES THAT 'THE TAX PAYABLE UNDER SUBSECTION 1 OF SECTION 5 OF THE KERALA GENERAL SALES TAX ACT, 1963, BY A DEALER IN FOREIGN LIQUOR SHALL BE INCREASED BY A SURCHARGE AT THE RATE OF TEN PERCENT AND THE PROVISIONS OF THE KERALA GENERAL SALES TAX ACT, 1963 SHALL APPLY IN RELATION TO THE SAID SURCHARGE AS THEY APPLY IN RELATION TO THE TAX PAYAB LE UNDER THE SAID ACT'. AS THE SURCHARGE ON TAXES IS AS PER THE ABOVE ACT IS APPLICABLE TO AGRICULTURE INCOME TAX ALSO, THE SURCHARGE ON SALES TAX REMITTED BY THE ASSESSEE IS NOT AN EXCLUSIVE LEVY ON THE ASSESSEE AS REQUIRED BY THE PROVISIONS OF THE SECT ION 40{A)(IIB) OF THE INCOME TAX ACT, 1961. 3. 1 THE LD. AR SUBMITTED THAT THE ASSESSEE WAS ALSO BOUND TO PAY TURNOVER TAX AS PER THE PROVISIONS OF SECTION 5(2 ) OF THE KERALA GENERAL SALES TAX ACT, 1963 WHICH IS REPRODUCED BELOW. 'SUB SECTION(2) (I) NOTW ITHSTANDING ANYTHING CONTAINED IN SUB - SECTION (1), EVERY DEALER IN FOREIGN LIQUOR, AS SPECIFIED HEREUNDER, SHALL PAY TURNOVER TAX ON THE TURNOVER OF FOREIGN LIQUOR AT ALL POINTS OF SALE IN THE STATE, AFTER MAKING SUCH DEDUCTIONS AS MAY BE PRESCRIBED , NAME LY: - (A) BY A BAR ATTACHED HOTEL, AT THE RATE OF TEN PER CENT ; AND (B) BY OTHERS AT THE RATE OF FIVE PER CENT, ON THE TURNOVER AT ALL POINTS OF SALE.' 3.2 IT WAS SUBMITTED THAT TURNOVER TAX IS PAYABLE BY BARS, BEER AND WINE PARLORS, CLUBS HAVING BAR S, PERSONS IMPORTING INTOXICATING DRUGS SUCH AS DRUG MANUFACTURING UNITS AND DISTILLERIES IN KERALA. IN THIS REGARD WE WISH TO SUBMIT THAT SECTION 40(A)(IIB) CLEARLY STATES THAT IT IS APPLICABLE ONLY AMOUNTS WHICH ARE LEVIED I.T.A. NO S . 536 & 537/ COCH/ 201 8 & S.P. NOS. 41&40/COCH /2018 7 EXCLUSIVELY ON A GOVERNMENT UND ERTAKING. IN THIS CASE IT WAS SUBMITTED THAT SURCHARGE ON SALES TAX AND TURNOVER TAX ARE NOT LEVIES CHARGED EXCLUSIVELY TO THE APPELLANT AND IS APPLICABLE TO OTHER ENTITIES ALSO AS EXPLAINED ABOVE AND WHICH IS EVIDENT FROM THE PROVISIONS OF THE RESPECTIVE SECTIONS OF THE APPLICABLE ACTS OF THE STATE GOVERNMENT. HENCE , IT WAS SUBMITTED THAT I T NEVER C AME WITHIN THE AMBIT OF THE PROVISIONS OF SECTION 40(A)(IIB) TO DISALLOW THE EXPENSES CLAIMED UNDER THE HEAD SURCHARGE ON SALES TAX. 3.3 ACCORDING TO THE LD. AR, T HE ABOVE LEVIES ARE PAID AS PER THE PROVISIONS OF RESPECTIVE STATUTORY PROVISION CONTAINED IN THE RESPECTIVE STATUES WHICH WERE IN FORCE EVEN BEFORE THE FORMATION OF THE ASSESSEE CORPORATION AND NOT BY ANY ORDER OF THE GOVERNMENT. IT WAS SUBMITTED T HAT NO NE OF THE PAYMENTS PROPOSED TO BE DISALLOWED BY THE REVISION AS PER THE PROPOSAL U / S . 263 OF THE INCOME TAX ACT, WAS MADE BASED ON ANY GOVERNMENT ORDER. ALL THE ABOVE LEVIES WERE BEING PAID BY PRIVATE LICENSEES EARLIER BEFORE THE FORMATION OF THE ASS ESSEE C ORPORATION AND NONE OF THESE LEVIES ARE NEWLY INTRODUCED ONE SO AS TO APPROPRIATE OR VEST THE SURPLUS OF THE APPELLANT WITH THE STATE GOVERNMENT. IT WAS SUBMITTED THAT TH E INTENT OF LEGISLATION IS NOT TO BRING TO TAX LEVIES WHICH ARE INTENDED TO AP PROPRIATE OR THE VEST SURPLUSES WITH THE STATE GOVERNMENT. A S THE LEVIES PROPOSED TO BE DISALLOWED AND IN CHALLENGE UNDER THIS APPEAL WERE IN EXISTENCE EVEN BEFORE THE FORMATION OF THE ASSESSEE C ORPORATION, IT CAN NOT BE STATED THAT THESE LEVIES WERE INTEN DED TO VEST SURPLUSES WITH STATE GOVERNMENT. HENCE IT WAS SUBMITTED THAT CONSIDERING THE INTENT OF LEGISLATION ALSO, ALL THE ABOVE LEVIES DOES NOT COME UNDER THE PURVIEW OF I.T.A. NO S . 536 & 537/ COCH/ 201 8 & S.P. NOS. 41&40/COCH /2018 8 SECTION 40(A)(IIB) AND HENCE ARE ALLOWABLE AS EXPENDITURE. IN VIEW OF THE ABOVE F ACTS, IT WAS SUBMITTED THAT THE ORDER PASSED BY THE PR. CIT U/S. 263 OF THE ACT MAY BE SET ASIDE. 4. THE LD. DR RELIED ON THE ORDER OF THE CIT. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. SECTION 263 OF THE INCOME - TAX ACT SEEKS TO REMOVE THE PREJUDICE CAUSED TO THE REVENUE BY THE ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. IT EMPOWERS THE COMMISSIONER TO INITIATE SUO MOTO PROCEEDINGS EITHER WHERE THE ASSESSING OFFICER TAKES A WRONG DECISION WITHOUT CONSIDERING THE MATERIALS AVAILABLE ON RECORD OR HE TAKES A DECISION WITHOUT MAKING AN ENQUIRY INTO THE MATTERS, WHERE SUCH INQUIRY WAS PRIMA FACIE WARRANTED. THE COMMISSIONER IS WELL WITHIN HIS POWERS TO TREAT AN ORDER AS ERRONEOUS ON THE GROUND THAT THE ASSESSING OFFICER SHOULD H AVE MADE FURTHER INQUIRIES BEFORE ACCEPTING THE WRONG CLAIMS MADE BY THE ASSESSEE. THE ASSESSING OFFICER CANNOT REMAIN PASSIVE IN THE FACE OF A CLAIM, WHICH CALLS FOR FURTHER ENQUIRY TO KNOW THE GENUINENESS OF IT. IN OTHER WORDS, HE MUST CARRY OUT INVESTI GATION WHERE THE FACTS OF THE CASE SO REQUIRE AND ALSO DECIDE THE MATTER JUDICIOUSLY ON THE BASIS OF MATERIALS COLLECTED BY HIM AS ALSO THOSE PRODUCED BY THE ASSESSEE BEFORE HIM. THE ASSESSING OFFICER WAS STATUTORILY REQUIRED TO MAKE THE ASSESSMENT UNDER SECTION 143(3) AFTER SCRUTINY AND NOT IN A SUMMARY MANNER AS CONTEMPLATED BY SUB - SECTION (1) OF SECTION 143. THE ASSESSING OFFICER IS THEREFORE, REQUIRED TO ACT FAIRLY WHILE ACCEPTING OR REJECTING THE CLAIM OF THE ASSESSEE IN CASES OF SCRUTINY I.T.A. NO S . 536 & 537/ COCH/ 201 8 & S.P. NOS. 41&40/COCH /2018 9 ASSESSMENTS . THE ASSESSING OFFICER SHOULD PROTECT THE INTERESTS OF THE REVENUE AND TO SEE THAT NO ONE DODGED THE REVENUE AND ESCAPED WITHOUT PAYING THE LEGITIMATE TAX. THE ASSESSING OFFICER IS NOT EXPECTED TO PUT BLINKERS ON HIS EYES AND MECHANICALLY ACCEPT WHAT THE ASSESSEE CLAIMS BEFORE HIM. IT IS HIS DUTY TO ASCERTAIN THE TRUTH OF THE FACTS STATED AND THE GENUINENESS OF THE CLAIMS MADE IN THE RETURN. THE ORDER PASSED BY THE ASSESSING OFFICER BECOMES ERRONEOUS WHEN AN ENQUIRY HAS NOT BEEN MADE BEFORE ACCEPTING THE GENUINENESS OF THE CLAIM WHICH RESULTED IN LOSS OF REVENUE. 5.1 IN THE PRESENT CASE, THE ASSESSING OFFICER HAD NOT MADE THE DISALLOWANCE U/S. 40(A)(IIB) OF THE ACT . WITHOUT ENQUIRING, THE ASSESSING OFFICER ACCEPTED THE ASSESSEES CLAIM. THE FA ILURE ON THE PART OF THE ASSESSING OFFICER TO MAKE NECESSARY ENQUIRY RENDERED THE ASSESSMENT ORDER ERRONEOUS WHICH ALSO RESULTED IN LOSS TO THE REVENUE. THE CIT HAD OBSERVED IN HIS ORDER THAT THE SURCHARGE ON SALES TAX AND TURN OVER TAX WAS NOT DISALLOWED BY THE A SSESSING OFFICER U/S. 40(A)(IIB) OF THE ACT. HENCE, THE ORDER OF THE CIT CANNOT BE HELD AS ERRONEOUS. THE CITS APPROACH WAS CORRECT. THEREFORE, THE CIT EXERCISED HIS POWER CONFERRED U/S. 263 OF THE ACT IN SETTING ASIDE THE ASSESSMENT . IN OUR OPINION, THE ASSESSING OFFICER HAS NOT CONSIDERED THE ISSUE RELATING TO THE APPLICATION OF SECTION 40(A)(IIB) OF THE ACT AND HE HAD ACCEPTED THE CLAIM WITHOUT APPLYING HIS MIND. HENCE, THE ORDER OF THE ASSESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IN OUR OPINION, THE CIT IS JUSTIFIED IN INVOKING THE I.T.A. NO S . 536 & 537/ COCH/ 201 8 & S.P. NOS. 41&40/COCH /2018 10 PROVISIONS OF SECTION 263 OF THE ACT. ACCORDINGLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 5.2 THE ASSESSEE HAS ALSO RAISED ADDITIONAL GROUNDS WHICH READ AS FOLLOWS: (A) DISALLOWANCE OF GALLONAGE FEE RS 54 , 83,87 ,000 / - IT HAD BEEN SUBMITTED BY THE APPELLANT IN THE ARGUMENT NOTES ALREADY SUBMITTED ON 06.02.2019 THAT THE GALLONAGE FEE IS PAYABLE BY DISTILLERIES ON RECTIFIED SPRIT AS PER RULE 14 OF KERA LA RECTIFIED SPIRIT RULES 1972,(RULES MADE UNDER THE ABKARI ACT) ALSO, IN ADDITION TO THE APPELLANT. IT IS FURTHER SUBMITTED THAT IN ADDITION TO DISTILLERIES MENTIONED ABOVE, GALLONAGE FEE IS PAYABLE BY PERSONS SPECIFIED IN RULE IX OF COCHIN MASS WINES RUL E1117 WHICH IS REPRODUCED BELOW: 'IX EXCISE DUTY AND GALLONAGE FEE: MASS WINE SHALL BE CHARGED AN EXCISE DUTY AND GALLONAGE FEE AT RS 1 & 25 NAYE PAISE RESPECTIVELY PER BULK LITER MANUFACTURED AND TAKEN INTO STOCK.' WE ATTACH HEREWITH THREE CHALLANS EVIDE NCING THE PAYMENT OF GALLONAGE FEE BY PRODUCERS OF MASS WINE (ANNEXURE 1, PAGE 3 - 5). WE ALSO ATTACH COPIES OF THE RELEVANT PAGES OF FOLLOWING RULES UNDER ABKARI ACT FOR EASY REFERENCE. 1. FOREIGN LIQUOR RULES 1953 (ANNEXURE 2, PAGE 6) 2. THE KERALA RECT IFIED SPIRIT RULES 1972 (ANNEXURE 3, PAGE 7) 3. COCHIN MASS WINE RULES 1117 (ANNEXURE 4, PAGE 8) IT IS ALSO SUBMITTED THAT THE HON. KARNATAKA HIGH COURT HAS HELD THAT 'IF A BUSINESSMAN OR A PROFESSIONAL HAS INCURRED EXPENSES BY WAY DISCHARGE OF A STATUTO RY OBLIGATION TO GET A LICENSE TO DO BUSINESS OR TO GET A LICENSE TO UNDERTAKE PROFESSION, SUCH EXPENDITURE CAN BE TERMED AS AN EXPENDITURE ON ACCOUNT OF NECESSITY OF BUSINESS OR PROFESSION.' (2017) 395 ITR 444(KAR). A. COPY OF THE JUDGEMENT IS ATTACHED (A NNEXURE 5, PAGE 9 - 22). IN VIEW OF THE ABOVE DECISION, IT IS SUBMITTED THAT GALLONAGE FEE PAID IS NOT AN APPROPRIATION OF INCOME . HENCE IT IS SUBMITTED THAT GALLONAGE FEE IS NOT AN AMOUNT LEVIED ON THE ASSESSE BY THE STATE GOVERNMENT AND HENCE CANNOT BE DI SALLOWED UNDER SECTION 40(A)(IIB). FOR THE REASONS STATED ABOVE AND THE SUBMISSIONS MADE IN OUR ARGUMENT NOTES SUBMITTED ON 06.02.2019, THIS HONORABLE INCOME TAX TRIBUNAL MAY KINDLY BE PLEASED TO ALLOW THE APPEAL AND DELETE THE ADDITIONS MADE BY THE LEARN ED ASSESSING OFFICER. I.T.A. NO S . 536 & 537/ COCH/ 201 8 & S.P. NOS. 41&40/COCH /2018 11 SINCE WE HAVE DISPOSED OF THE APPEAL OF THE ASSESSEE, THE ADDITIONAL GROUNDS ARE OF NO CONSEQUENCE AND HENCE, THEY ARE DISMISSED. THE APPEAL OF THE ASSESSEE IN ITA NO. 536/COCH/2018 IS DISMISSED. 6. COMING TO APPEAL OF THE ASSE SSEE IN ITA NO.537/COCH/2018, THE FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR AY 2015 - 16 ON 29/09/2015 DECLARING TOTAL INCOME OF RS.220,71,67,890/ - . THE ASSESSMENT U/S. 143(3) OF THE ACT WAS COMPLETED ON 28/12/2017 BY DISALLOWI NG THE FOLLOWING EXPENSES U/S. 40(A)(IIB) OF THE ACT. S. NO. ITEM AMOUNT (RS.) 1 GALLONAGE FEE 54,83,87,000 2 LICENSE FEE 5,75,00,000 3 SHOP RENTAL (KIST) 199,71,00,000 4 SURCHARGE ON SALES TAX 551,61,01,115 7. THE FIRST GROUND IS WITH REG ARD TO DISALLOWANCE OF GALLONAGE FEE EXPENSES U/S. 40(A)(IIB) OF THE ACT. THE LD. AR CONTENDED THAT GALLONAGE FEE AND LICENSE FEE PAID BY THE ASSESSEE WAS NOT EXCLUSIVE IN NATURE. 7.1 THE LD. DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES. I.T.A. NO S . 536 & 537/ COCH/ 201 8 & S.P. NOS. 41&40/COCH /2018 12 7.2 WE H AVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. THE CLAUSE EXCLUSIVELY CANNOT BE ASSESSED WITH RESPECT TO THE NOMENCLATURE OF THE PAYMENT MADE BUT THE SAME HAS TO BE DETERMINED WITH RESPECT TO MODE AND METHOD OF LEVY OF CHARGE. THE GALLONAGE FE E IS PAID BY THE ASSESSEE AS PER THE FOREIGN LIQUOR RULES, 1953 UNDER RULE 15A. THE GALLONAGE FEE REFERRED UNDER RULE 15A IS WITH REGARD TO FEE TO BE PAID FOR FL - 9 LICENSEE. THE FL - 9 LICENSE IS EXCLUSIVELY GRANTED TO THE ASSESSEE. THEREFORE, THE GALLONAG E FEE PAID BY THE ASSESSEE IS COVERED BY THE PROVISIONS OF SECTION 40(A)(IIB) OF THE ACT. THE FACT THAT A FEE IN THE NAME OF GALLONAGE FEE IS ALSO LEVIED UNDER CLAUSE 14 OF KERALA RECTIFIED SPIRIT RULES, 1972 IS NOT RELEVANT FOR THE PURPOSE OF EXAMINING T HE APPLICABILITY OF PROVISIONS OF SECTION 40(A)(IIB) OF THE ACT FOR THE FEE PAID UNDER FOREIGN LIQUOUR RULES, 1953.. THEREFORE IN VIEW OF THE ABOVE REASONS, THE DISALLOWANCE OF GALLONGAGE FEE OF RS.54,83,87,000/ - U/S. 40(A)(IIB) OF THE ACT IS UPHELD. THI S GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 7.3 THE NEXT GROUND IS WITH REGARD TO DISALLOWANCE OF LICENSE FEE AND SHOP RENTA L U/S. 40(A)(IIB) OF THE ACT. THE LD. AR SUBMITTED THAT THE PROVISIONS OF SECTION 40(A)(IIB) OF THE ACT ARE NOT APPLICABLE TO LICENSE FEE AND SHOP RENT PAID BY THE ASSESSEE. 7.4 THE LD. DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES. I.T.A. NO S . 536 & 537/ COCH/ 201 8 & S.P. NOS. 41&40/COCH /2018 13 7.5 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. ADMITTEDLY, THE ASSESSEE IS EXCLUSIVE LICENSEE FOR FL - 9 SHOP AND FL - 1 SHO P FOR THE RELEVANT PREVIOUS YEAR. IT IS ALSO A FACT THAT THESE LICENSES ARE ISSUED ON A YEAR - TO - YEAR BASIS. THE ASSESSEE IS PAYING LICENSE FEE AND SHOP RENT IN RESPECT OF EXCLUSIVE LICENSES GRANTED BY WAY OF FL - 1 AND FL - 9 LICENSE BY THE STATE GOVERNMENT. THEREFORE, IN THE ABSENCE OF ANY DISPUTE ON FACT ABOUT THE EXCLUSIVE NATURE OF LICENSE FEE AND SHOP RENTAL, THE DISALLOWANCE OF RS.205,46,00,000/ - MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A) IS UPHELD. 7.6 FURTHER, THE WEBSITE OF THE ST ATE EXCISE DEPARTMENT OF KERALA GIVES DETAILS OF LICENSES GRANTED AS UNDER: '2. ISSUE OF LICENCE FOR SALE OF LIQUOR, DRUGS ETC THE LICENSES ARE ISSUED FOR A PERIOD OF ONE FINANCIAL YEAR, IE. 1ST APRIL TO 31ST MARCH. AT THE END OF THE YEAR, SHOPS ARE AGA IN PUT UP FOR SALE OR THE EXISTING LICENCES ARE RENEWED AS PER THE ABKARI POLICY OF THE GOVERNMENT. AN IMPORTANT LICENCE GRANTED BY THE DEPARTMENT FOR SALE OF FOREIGN LIQUOR IS FL 3 LICENCE, WIDELY KNOWN AS BAR LICENCE. BAR LICENCE ARE GRANTED TO HOTELS H AVING FACILITIES, WHICH ARE RATED AS THREE STAR OR ABOVE WITH PRIOR SANCTION OF THE GOVERNMENT. WHOLESALE BUSINESS INDIAN MADE FOREIGN LIQUOR (FL - 9 LICENCE) IN THE STATE IS THE MONOPOLY OF KERALA STATE BEVERAGES CORPORATION, WHICH IS A STATE GOVERNMENT UN DERTAKING. FOREIGN LIQUOR RETAIL OUTLETS ALSO (FL1 SHOPS) ARE EXCLUSIVELY EARMARKED FOR THE STATE PUBLIC SECTOR UNITS, KERALA STATE BEVERAGES CORPORATION AND CONSUMER FEDERATION. THESE LICENSES TOO ARE ISSUED ON A YEAR - TO - YEAR BASIS.' [EMPHASIS SUPPLIED] I.T.A. NO S . 536 & 537/ COCH/ 201 8 & S.P. NOS. 41&40/COCH /2018 14 7.7 THUS IT IS EVIDENT FROM THE ABOVE THAT FL - 1 SHOP LICENSE IS EARMARKED FOR THE ASSESSEE AND CONSUMER FEDERATION, ANOTHER STATE PUBLIC SECTOR UNIT. THEREFORE, THE ARGUMENT THAT THE SHOP RENTAL PAYABLE FOR FL - 1 LICENSE IS NOT AN EXCLUSIVE FEE , DOES NO T HOLD GOOD ALSO. THE PROVISIONS OF SECTION 40(A)(IIB) OF THE ACT ARE AS UNDER: '(LIB) ANY AMOUNT (A) PAID BY WAY OF ROYALTY, LICENCE FEE, SERVICE FEE, PRIVILEGE FEE, SERVICE CHARGE OR ANY OTHER FEE OR CHARGE, BY WHATEVER NAME CALLED, WHICH IS LEVIED E XCLUSIVELY ON; OR (B) WHICH IS APPROPRIATED, DIRECTLY OR INDIRECTLY, FROM, A STATE GOVERNMENT UNDERTAKING BY THE STATE GOVERNMENT.' 7.8 FROM THE ABOVE, IT IS EVIDENT THAT THE LANGUAGE USED BY LEGISLATURE USED THE SENTENCE IS 'ANY FEE OR CHARGE WHICH IS LEVIED EXCLUSIVELY ON A STATE GOVERNMENT UNDERTAKING BY THE STATE GOVERNMENT' BUT NOT THE SENTENCE 'ANY FEE OR CHARGE WHICH IS LEVIED EXCLUSIVELY ON THE ASSESSEE BY THE STATE GOVERNMENT'. THEREFORE, ANY FEE OR CHARGE WHICH IS EXCLUSIVELY LEVIED ONLY ON ST ATE GOVERNMENT UNDERTAKINGS BY THE STATE GOVERNMENT IS COVERED BY THE PROVISIONS OF SECTION 40(A)(IIB) OF THE ACT. HENCE, EVEN CONSIDERING HYPOTHETICALLY THAT SHOP RENTAL WAS PAYABLE BY ANOTHER STATE GOVERNMENT UNDERTAKING ALSO, THE NATURE OF THE PAYMENT REMAINS 'EXCLUSIVE' FOR THE PURPOSE OF SECTION 40(A)(IIA) OF THE ACT . 7. 9 IN VIEW OF THE ABOVE DISCUSSION , WE HOLD T HAT THERE IS NO MERIT IN THE GROUNDS RAISED BY THE ASSESSEE ON THE ISSUE OF DISALLOWANCE OF LICENSE FEE AND SHOP RENTAL I.T.A. NO S . 536 & 537/ COCH/ 201 8 & S.P. NOS. 41&40/COCH /2018 15 AND THEREFORE, THE SAME ARE DISMISSED. THE APPEAL OF THE ASSESSEE IN ITA NO.537/COCH/2018 IS DISMISSED. 8. SINCE WE HAVE DISMISSED THE APPEALS OF THE ASSESSEE, THE STAY PETITION FILED BY THE ASSESSEE IN S.P. NO. 40 /COCH/2018 HA S BECOME INFRUCTUOUS AND THE SAME IS DI SMISSED AS INFRUCTUOUS. 9. IN THE RESULT, BOTH THE APPEAL S FILED BY THE ASSESSE A S WELL AS THE STAY PETITION FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH MARCH , 2019 SD/ - SD/ - (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT ME MBER PLACE: KOCHI DATED: 12 TH MARCH , 2019 GJ COPY TO: 1 . KERALA STATE BEVERAGES, (M&M) CORPORATION LTD., SASTHAMANGALAM, TRIVANDRUM - 695 010. 2. THE ASSISTANT COMMISSIONER OF INCOME - TAX, CIRCLE - 1(1), TRIVANDRUM. 3 . THE COMMISSIONER OF INCOME - TA X (AP P EALS) , KOTTAYAM. 4. THE PR. COMMISSIONER OF INCOME - TAX, KOTTAYAM. 5 . THE PR. COMMISSIONER OF INCOME - TAX, TRIVANDRUM. 6 . D. R., I.T.A.T., COCHIN BENCH, COCHIN. 7 . GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COCHIN I.T.A. NO S . 536 & 537/ COCH/ 201 8 & S.P. NOS. 41&40/COCH /2018 16