ASST.COMM OF INCOME TAX LARGE TAX PAYER UNIT, MUMBAI V. RELIANCE INDUSTRIES LTD., MUMBAI

ITA 5798/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101071 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2002-2003
• Appeal Filed On: 26-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Capital asset; Business income; Difference of opinion; Capital receipt; Change of opinion
• Section: 143(3); 115JB; 148; 12; 11

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN, AM AND AMARJIT SINGH, JM ./ I.T.A. NO . 5 7 69 /M/201 3 ( / ASSESSMENT YEA R : 2002 - 03 ) RELIANCE INDUSTRI ES LTD., 3RD FLOOR, MAKER CHAMBER - IV, 222, NARIMAN POINT, MUMBAI - 400021 / VS. ASSTT. COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT, 29 TH FLOOR, CENTER NO.1, WORLD TRADE CENTRE, CUFFE PARADE, MUMBAI - 400020 ( / APPELLANT ) .. ( / RESPONDENT ) ./ I.T.A. NO .57 98 /M/2013 ( / ASSESSMENT YEA R : 2002 - 03 ) ASSTT. COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT, 29 TH FLOOR, CENTER NO.1, WORLD TRADE CENTRE, CUFFE PARADE, MUMBAI - 400020 / V S. RELIANCE INDUSTRIES LTD., 3RD FLOOR, MAKER CHAMBER - IV, 222, NARIMAN POINT, MUMBAI - 400021 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN : AAACR 5055K / APPELLANT BY SHRI ARVIND SONDE / RSPONDENT BY SHRI JAYANT KUMAR / DATE OF HEARING : 2.9. 201 5 / DATE OF PRONOUNCEMENT: 16 . 9 . 201 5 / O R D E R PER B R BASKARAN, AM : THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 25 - 06 - 2013 PASSED BY LD CIT(A) - 24, MUMBAI AND THEY RELATE TO THE ASSESSMENT YEAR 2002 - 03. ITA NO. 5 769/ M/201 3 AND 5798 /M/2013 2 2. THE ASSESSEE IS IN APPEAL IN RESPECT OF FOLLOWING ISSUES: - (A) VALIDITY OF REOPENING OF ASSESSMENT. (B) ADDITION OF PROVISION FOR WEALTH TAX FOR COMPUTING BOOK PROFIT U/S 115JB. 3. THE REVENUE IS IN APPEAL IN RESPECT OF FOLLOWING ISSUES: - (A) ADDITION OF GAIN ARISING ON RE - PURCHASE AND EXTINGUISHMENT OF DEBENTURE BONDS. (B) ADDITION OF COMMISSION/SURCHARGE PAI D TO SUMO, IRAQ GOVERNMENT AGENCY ON THE BASIS OF VOLKER COMMITTEE REPORT. (C) ADDITION OF INLAND TRANSPORTATION FEE ON THE BASIS OF VOLKER COMMITTEE REPORT. 4. THE FACTS RELATING TO THE CASE ARE STATED IN BRIEF. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF AND TRADING IN PETROCHEMICALS, POLYESTER FIBER INTERMEDIARIES, TEXTILES, GENERATION AND DISTRIBUTION OF POWER, OPERATION OF JETTIES, INVESTMENT ACTIVITIES ETC. THE ASSESSMENT OF THE YEAR UNDER CONSIDERATION WAS COMPLETED ORIGINALLY U/S 143(3) OF THE ACT ON 28.03.2005. THEREAFTER, THE AO REOPENED THE ASSESSMENT BY ISSUING NOTICE DATED 20 - 03 - 2006 U/S 148 OF THE ACT. THE ASSESSEE ASKED FOR THE REASONS OF RE - OPENING AND THEREAFTER FILED ITS OBJECTIONS ALSO. IT IS PERTINEN T TO NOTE THAT THE ASSESSMENT HAS BEEN RE - OPENED WITHIN FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER REJECTED THE OBJECTIONS BY FOLLOWING CASE LAW: - (A) DR. AMINS PATHOLOGY LABORATORY (252 ITR 673) (B) PRAFUL CHUNILAL PATEL / VASANT CHUNILAL PATEL (236 ITR 832) (C) RAKESH AGGARWAL (225 ITR 496) THEREAFTER THE ASSESSING OFFICER COMPLETED THE ASSESSMENT BY MAKING VARIOUS ADDITIONS. IN THE APPEAL FILED BY THE ASSESSEE, THE LD CIT(A) UPHELD THE REOPENIN G OF ASSESSMENT AND GRANTED RELIEF ONLY IN RESPECT OF SOME OF THE ADDITIONS. HENCE THE ASSESSEE HAS FILED THIS APPEAL ON THE ITA NO. 5 769/ M/201 3 AND 5798 /M/2013 3 ISSUES CITED ABOVE, WHICH WERE DECIDED AGAINST IT. THE REVENUE IS CHALLENGING THE DECISION OF LD CIT(A) IN GRANTING RELIEF IN RES PECT OF THE ADDITIONS CITED ABOVE. 5. THE FIRST ISSUE IN THE APPEAL FILED BY THE ASSESSEE RELATES TO THE VALIDITY OF REOPENING OF ASSESSMENT. WE HEARD THE PARTIES AND PERUSED THE RECORD. WE NOTICE THAT THE LD CIT(A) HAS GIVEN A CLEAR FINDING THAT THE ASSESSING OFFICER HAS REOPENED THE ASSESSMENT ONLY ON THE BASIS OF MATERIAL FACTS AVAILABLE WITH HIM AND NOT ON ACCOUNT OF CHANGE OF OPINION. FURTHER, THE OBSERVATION OF THE AO THAT THE ASSESSEE DID NOT PRODUCE THE RELEVANT MATERIALS NECESSARY FOR COMPLET ION OF ASSESSMENT AT THE TIME OF COMPLETION OF ORIGINAL ASSESSMENT HAS ALSO BEEN UPHELD BY THE LD CIT(A). AT THE TIME OF HEARING BEFORE US, THE ASSESSEE COULD NOT CONTRADICT THESE OBSERVATIONS MADE BY THE LD CIT(A). HENCE, WE DO NOT FIND ANY INFIRMITY IN HIS DECISION IN CONFIRMING THE VALIDITY OF RE - OPENING OF ASSESSMENT. 6. THE NEXT ISSUE CONTESTED BY THE ASSESSEE RELATES TO THE ADDITION OF PROVISION FOR WEALTH TAX FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT U/S 115JB OF THE ACT. THE ASSESSEE DID NOT ADD THE AMOUNT RELATING TO PROVISION FOR WEALTH TAX TO THE NET PROFIT FOR COMPUTING THE AMOUNT OF BOOK PROFIT U/S 115JB OF THE ACT. BEFORE LD CIT(A), THE ASSESSEE PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS. ECHAJ FORGING PVT LTD (251 ITR 15) IN SUPPORT OF ITS CONTENTIONS. HOWEVER, THE LD CIT(A) DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE WITH THE FOLLOWING OBSERVATIONS: - IT IS SEEN FROM THE ABOVE JUDGMENT REFERRED BY THE ASSESSEE, THAT IN THIS CASE, THE WEALTH TAX WAS ALREADY PAID, BUT IN THE ASSESSEES CASE, THE WEALTH TAX WAS NOT PAID, BUT PROVISION HAS BEEN MADE. 7. WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECORD. IT IS A WELL SETTLED PROPOSITION THAT THE PROVISIONS OF SEC. 11 5JB IS A COMPLETE ITA NO. 5 769/ M/201 3 AND 5798 /M/2013 4 CODE BY ITSELF AND THE ADDITIONS PRESCRIBED THEREIN ONLY CAN BE ADDED TO THE NET PROFIT FOR COMPUTING THE BOOK PROFIT UNDER THAT SECTION. AS PER CLAUSE (A) OF EXPLANATION 1 TO SEC. 115JB, WHAT IS REQUIRED TO BE ADDED TO THE NET PROFIT IS THE AMOUNT OF INCOME TAX PAID OR PAYABLE, AND THE PROVISION THERE FOR. THIS CLAUSE PROVIDE FOR ADDITION OF ONLY INCOME TAX AND NOT WEALTH TAX. THE QUESTION AS TO WHETHER THE WEALTH TAX WAS ACTUALLY PAID OR A MERE PROVISION WAS MADE, IN OUR VIEW, IS IRRELEVANT FOR INTERPRETING THE ABOVE SAID PROVISION. THE VERY SAME ISSUE CAME FOR CONSIDERATION BEFORE THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ECHAJ FORGING PVT LTD (SUPRA) AND THE REVENUE CONCEDED BEFORE THE HONBLE HIGH COURT THAT THE WEALTH T AX COULD NOT BE ADDED TO THE NET PROFIT U/S 115J OF THE ACT. THE RELEVANT OBSERVATIONS MADE BY THE HONBLE JURISDICTIONAL HIGH COURT ARE EXTRACTED BELOW: - (I) ADDITION OF WEALTH TAX PAID BY THE ASSESSEE TO THE NET PROFIT : 6. MR. DESAI, LEARNED SENIOR C OUNSEL FOR THE DEPARTMENT, FAIRLY CONCEDES THAT THE NET PROFIT, AN SHOWN IN THE PROFIT AND LOSS ACCOUNT, WILL NOT BE INCREASED BY THE AMOUNT OF WEALTH TAX PAID BECAUSE UNDER CLAUSE (A) OF THE EXPLANATION TO SECTION 115J(1A) , WHAT IS CONTEMPLATED IS THE AMOUNT OF INCOME TAX PAID. UNDER THE SAID CLAUSE, PAYMENT OF WEALTH TAX IS NOT CONTEMPLATED. THEREFORE, THE NET PROFIT SHALL NOT BE INCREASED BY THE AMOUNT OF WEALTH TAX PAID BY THE ASSESSEE. THE EXPRESSION USED IN SEC. 115JB IS PARA MATERIA WITH THE EXPRESSION USED IN SEC. 115J OF THE ACT AND HENCE, WE ARE OF THE VIEW THAT THE ASSESSEE CAN TAKE SUPPORT OF THE ABOVE SAID DECISION. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE AND DIRECT THE AO TO DELETE THE ADDITION OF PROVISION FOR WEALTH TAX WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. ITA NO. 5 769/ M/201 3 AND 5798 /M/2013 5 8. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE REVENUE. THE FIRST ISSUE RELATES TO THE ADDITION OF GAINS ARISING ON RE - PURCHASE AND EXTINGUISHMENT OF DEBENTURES /BONDS. THE BRIEF FACTS RELATING TO THIS ISSUE ARE THAT THE ASSESSEE ISSUED FOREIGN CURRENCY BONDS IN THE YEAR 1996 & 1997 (POPULARLY CALLED AS YANKEE BONDS) CARRYING A COUPON RATE OF INTEREST RANGING BETWEEN 10% TO 11% P.A. THEY WERE HA VING A MATURITY PERIOD OF 30 TO 100 YEARS. THE INTEREST WAS PAYABLE HALF YEARLY INTERVALS AND THERE IS NO DISPUTE THAT THE ASSESSEE HAS PAID INTEREST THEREON REGULARLY AND IT HAS BEEN ALLOWED AS DEDUCTION U/S 36(1)(III) OF THE ACT. AFTER THE ATTACK ON W ORLD TRADE CENTRE LOCATED IN USA ON 11 TH SEP. 2001, THE FINANCIAL MARKETS COLLAPSED DRAMATICALLY AND THE INVESTORS OF THE DEBENTURES/BONDS STARTED SELLING THEM. HENCE, THE MARKET PRICE OF THE DEBENTURE/BONDS CAME DOWN HEAVILY AND THEY WERE QUOTED AT A VA LUE LESS THAN ITS FACE VALUE. HENCE, THE ASSESSEE HAS DECIDED TO PURCHASE THE BONDS/DEBENTURES FROM THE MARKET AND EXTINGUISH THEM. ACCORDINGLY, THE ASSESSEE PURCHASED BONDS/DEBENTURES HAVING A FACE VALUE OF US $ 12,32,60,000 AT A DISCOUNTED RATE OF US $ 80,61,100 FROM THE OPEN MARKET. THE GAIN/DISCOUNT GAINED ON BUY BACK OF THE DEBENTURES WORKED OUT RS.38.80 CRORES. THE ASSESSEE TREATED THE SAID GAIN AS CAPITAL RECEIPT. HOWEVER, THE AO HELD THAT THE SAID GAIN IS ASSESSABLE U/S 41(1) AS A PROFIT CHAR GEABLE TO TAX. THE LD CIT(A), HOWEVER, DELETED THE SAME AND HENCE THE REVENUE HAS FILED THIS APPEAL. 9. WE HEARD THE PARTIES ON THIS ISSUE. THE AO HAS INVOKED THE PROVISIONS OF SEC. 41(1) IN ORDER TO BRING THE GAINS ARISING ON REPURCHASE AND EXTINGUISH MENT OF DEBENTURES/BONDS. THE PROVISIONS OF SEC. 41(1) READS AS UNDER: - 41(1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINAFTER REFERRE D AS THE FIRST MENTIONED PERSON) AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR, -- ITA NO. 5 769/ M/201 3 AND 5798 /M/2013 6 ( A ) THE FIRST MENTIONED PERSON HAS OBTAINED, WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAINED BY SUCH PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEMED TO BE PROFIS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME TAX AS THE INCOME O F THAT PREVIOUS YEAR, WHETHER THE BUSINESS OR PROFESSION IN RESPECT OF WHICH THE ALLOWANCE OR DEDUCTION HAS BEEN MADE IS IN EXISTENCE IN THAT YEAR OR NOT; OR. A CAREFUL PERUSAL OF THE ABOVE SAID PROVISIONS WOULD SHOW THAT THE FIRST AND FOREMOST COND ITION FOR INVOKING THE PROVISIONS OF SEC. 41(1) IS THAT AN ALLOWANCE OR DEDUCTION OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE SHOULD HAVE BEEN MADE IN THE ASSESSMENT FOR ANY YEAR. CONVERSELY, IF DEDUCTION OF LOSS, EXPENDITURE OR TRA DING LIABILITY INCURRED BY THE ASSESSEE WAS NOT MADE IN THE ASSESSMENT FOR ANY YEAR, THE PROVISIONS OF SEC. 41(1) SHALL NOT APPLY. IN RESPECT OF LIABILITY INCURRED BY THE ASSESSEE, THESE PROVISIONS SHALL APPLY ONLY IN RESPECT OF TRADING LIABILITY. 10. IN THIS CASE, THE ASSESSEE HAD RAISED FUNDS BY ISSUING BONDS/DEBENTURES, I.E., THE ASSESSEE HAS RECEIVED THE MONEY AND HENCE THE SAME WOULD NOT FALL IN THE CATEGORY OF LOSS OR EXPENDITURE, SINCE BOTH THE TERMS CONNOTE OUTFLOW OF MONEY. HENCE THE RECEIP T OF MONEY BY THE ASSESSEE WOULD FALL IN THE CATEGORY OF LIABILITY. UNDER ACCOUNTING PRINCIPLES, THE LIABILITY IS DIVIDED INTO TWO CATEGORIES, VIZ., CAPITAL LIABILITY AND TRADING LIABILITY. WHILE NO DEDUCTION IS ALLOWED IN RESPECT OF CAPITAL LIAB ILITY, THE DEDUCTION OF CORRESPONDING EXPENDITURE IS ALLOWED IN RESPECT OF A TRADING LIABILITY. AS NOTED EARLIER THE PROVISIONS OF SEC. 41(1) TALKS ABOUT TRADING LIABILITY ONLY, I.E., IN RESPECT OF CAPITAL LIABILITY, THE SAID PROVISIONS SHALL NOT APPLY. IN RESPECT OF TRADING LIABILITY INCURRED, THE ASSESSEE SHALL GET DEDUCTION OF CORRESPONDING AMOUNT. FOR EXAMPLE, IF THE ITA NO. 5 769/ M/201 3 AND 5798 /M/2013 7 ASSESSEE PURCHASES GOODS ON CREDIT, THE ASSESSEE SHALL AVAIL DEDUCTION OF PURCHASE VALUE OF GOODS WHILE COMPUTING THE INCOME AND THE CO RRESPONDING AMOUNT PAYABLE SHALL BE SHOWN AS A TRADING LIABILITY IN THE BALANCE SHEET. 11. HENCE, IF THE ASSESSEE GETS SOME BENEFIT IN RESPECT OF THE TRADING LIABILITY INCURRED BY WAY OF REMISSION OR CESSATION THEREOF AND IF THE TRADING LIABILITY HAS BEEN ALLOWED AS DEDUCTION, THEN THE SAID BENEFIT IS LIABLE TO BE TAXED AS INCOME U/S 41(1) OF THE ACT. IF THE CORRESPONDING EXPENDITURE RELATING TO TRADING LIABILITY INCURRED BY THE ASSESSEE WAS NOT ALLOWED AS DEDUCTION, THEN ALSO THE PROVISIONS OF SEC. 4 1(1) SHALL NOT APPLY. 12. WHEN THE FUNDS ARE RAISED BY ISSUING BONDS/DEBENTURES, THERE WOULD BE NO CORRESPONDING EXPENDITURE THAT COULD BE ALLOWED AS DEDUCTION. HENCE THE LIABILITY INCURRED BY THE ASSESSEE BY RAISING FUNDS THROUGH BONDS/DEBENTURES CA NNOT BE TERMED AS TRADING LIABILITY. THERE SHOULD NOT BE ANY DISPUTE THAT THE FUNDS SO BORROWED IS CALLED AS CAPITAL BORROWED AND FURTHER IT WOULD BE A CAPITAL LIABILITY. AS STATED EARLIER, THE PROVISIONS OF SEC. 41(1) TALKS ABOUT TRADING LIABILIT Y ONLY AND HENCE THE CAPITAL LIABILITY SHALL NOT COME UNDER THE PURVIEW OF SEC. 41(1) OF THE ACT. 13. THE IMPUGNED GAIN AROSE TO THE ASSESSEE, SINCE THE ASSESSEE COULD PURCHASE ITS OWN DEBENTURES AT LESS THAN ITS FACE VALUE. TO MAKE IT SIMPLE, THE ASS ESSEE ISSUED DEBENTURES HAVING A FACE VALUE OF SAY RS.100/ - WITH INTEREST RATE OF 10% TO 11%. DUE TO ADVERSE MARKET CONDITIONS, THE SAID DEBENTURE WAS AVAILABLE IN THE MARKET AT A DISCOUNTED RATE OF SAY RS.70/ - . IF THE DEBENTURES ARE TO BE REDEEMED AT TH E MATURITY PERIOD, THE ASSESSEE WOULD HAVE TO PAY RS.100/ - . IF THEY ARE PURCHASED FROM THE MARKET, IT WAS ENOUGH IF RS.70/ - WAS PAID. HENCE THE ASSESSEE, AS A PRUDENT ITA NO. 5 769/ M/201 3 AND 5798 /M/2013 8 BUSINESSMAN, CHOSE TO PURCHASE THE DEBENTURES AT RS.70/ - AND EXTINGUISH THEM. IN THIS PROCESS THE ASSESSEE MADE A GAIN OF RS.30/ - PER DEBENTURE. THE QUESTION IS WHETHER THE PROVISIONS OF SEC. 41(1) SHALL APPLY TO THE GAIN OF RS.30/ - MADE BY THE ASSESSEE ON REPURCHASE AND EXTINGUISHMENT OF ITS OWN DEBENTURES. WE HAVE NOTICED THE PRINCIPLE S/CONDITIONS GOVERNING THE PROVISIONS OF SEC. 41(1) OF THE ACT. THE FOREMOST CONDITION IS THAT THE ASSESSEE SHOULD HAVE BEEN ALLOWED DEDUCTION IN RESPECT OF THE GAIN REALIZED BY THE ASSESSEE. IN THIS CASE, THIS CONDITION WAS NOT SATISFIED AND HENCE THE RE IS NO QUESTION OF INVOKING THE PROVISIONS OF SEC. 41(1) OF THE ACT. 14. THE ASSESSING OFFICER HAS PLACED RELIANCE ON THE DECISIONS RENDERED BY HONBLE SUPREME COURT IN THE CASE OF CIT VS. KARAMCHAND THAPER & OTHERS (222 ITR 112) AND T.V. SUNDARAM IYE NGAR & SONS (222 ITR 344) IN SUPPORT OF HIS VIEW. WE NOTICE THAT THESE TWO DECISIONS HAVE NOT BEEN RENDERED IN THE CONTEXT OF PROVISIONS OF SEC. 41(1) OF THE ACT. IN THESE CASES, THE ASSESSEES THEREIN RECEIVED SOME MONEY, WHICH WAS IN THE NATURE OF CAPI TAL RECEIPT INITIALLY, BUT LATER CONVERTED INTO TRADING RECEIPT. IT IS A WELL SETTLED PROPOSITION OF LAW THAT THE TRADING RECEIPTS ARE EXIGIBLE TO TAX AND THE CAPITAL RECEIPTS ARE NOT TAXABLE UNDER THE ACT, UNLESS SPECIFICALLY PROVIDED FOR. THE SUPREME C OURT, IN THE ABOVE SAID TWO CASES, LAID DOWN THE RATIO AS TO WHEN THE NATURE OF CAPITAL RECEIPT WOULD CHANGE INTO TRADING RECEIPT. 15. THE FACTS AVAILABLE IN THE CASE OF KARAMCHAND THAPER & OTHERS (SUPRA) ARE THAT THE ASSESSEE THEREIN ACTED AS DEL - CRE DERE AGENT OF COLLIERY COMPANIES AND ALSO AS AGENT OF THE PURCHASERS OF COAL. THE COLLIERIES SUPPLIED COAL DIRECTLY TO THE PURCHASERS THROUGH RAILWAY WAGONS. THE PURCHASERS ARE REQUIRED TO PAY FREIGHT CHARGES FOR FULL WAGON, EVEN IF THE WAGONS ARE NOT FI LLED WITH ITS FULL CAPACITY. AS PER THE AGREEMENT BETWEEN ITA NO. 5 769/ M/201 3 AND 5798 /M/2013 9 THE PARTIES, THE COLLIERIES ARE REQUIRED TO REIMBURSE THE EXCESS FREIGHT TO THE PURCHASERS. IN THIS CASE, THE ASSESSEE CLAIMED THE EXCESS FREIGHT FROM THE COLLIERIES ON ITS OWN, EVEN IF THE PURCHA SERS DID NOT MAKE THE SAID CLAIM. IN TURN, THE ASSESSEE PAID THE SAME TO THE PURCHASERS, WHENEVER THEY LODGED THE CLAIM WITH THE ASSESSEE. AFTER MEETING THE CLAIMS, THERE WAS ALWAYS A SIZEABLE BALANCE LEFT WITH THE ASSESSEE, WHICH WAS TRANSFERRED BY IT T O THE PROFIT AND LOSS ACCOUNT UNDER THE HEAD MISCELLANEOUS RECEIPTS. THE ASSESSEE CLAIMED THAT IT HAD HELD THE AMOUNT RECEIVED FROM COLLIERIES IN TRUST FOR AND BEHALF OF PURCHASERS AND HENCE IT WAS NOT PART OF ITS TRADING RECEIPTS. THE HONBLE SUPREME COURT NOTICED THAT THE ASSESSEE HAD LODGED CLAIM WITH THE COLLIERIES WITHOUT THERE BEING ANY INSTRUCTION FROM THE PURCHASERS AND PAID THE SAME TO THE PURCHASERS ONLY WHEN A CLAIM IS RECEIVED FROM THEM. THE HONBLE APEX COURT HELD . THE ASSESSEE HAS COL LECTED MONEY ON ACCOUNT OF UNDER CHARGES (FREIGHT CHARGES) NOT ON THE BASIS OF ANY DEMAND MADE BY THE PURCHASERS, BUT AS A MATTER OF ROUTINE IRRESPECTIVE OF ANY DEMAND BY THE CONSIGNEES (PURCHASERS). IF AND WHEN ANY PURCHASER MADE DEMAND FOR PAYMENT, SOME PAYMENTS WERE MADE. THE SURPLUS BALANCE WAS TAKEN TO THE PROFIT AND LOSS ACCOUNT. IT MUST BE PRESUMED THAT MONEY TAKEN TO THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE WOULD BE ITS TRADING RECEIPTS. NO FACT HAD BEEN BROUGHT ON RECORD TO THE CONTRARY. TH E AMOUNT WAS NOT KEPT IN A SUSPENSE ACCOUNT OR SHOWN AS A LIABILITY THE INFERENCE SHOULD BE THAT THE ASSESSEE ACTED IN ACCORDANCE WITH THE LAW AND NOT CONTRARY TO LAW. THE ASSESSEE COLLECTED THE AMOUNTS OF UNDER CHARGES IN ADVANCE EVEN BEFORE ANY CLAIM WAS LODGED. HE REALIZED THE AMOUNTS FROM THE COLLIERY COMPANY NOT BECAUSE ANY DEMAND WAS MADE AGAINST HIM, BUT POSSIBLY, IN ORDER TO PROTECT HIMSELF FROM THE EVENTUALITY OF ANY DEMAND BEING MADE AGAINST HIM AS THE DEL CREDERE AGENT OF THE SELLER .. IN TH E INSTANT CASE, MONEY IN QUESTION AROSE FROM TRADING OPERATIONS. THE SURPLUS HAD ARISEN OUT OF TRADING TRANSACTIONS AND TAKEN TO PROFIT AND LOSS ACCOUNT. IT HAD A DEFINITE QUALITY OF TRADING RECEIPT . ITA NO. 5 769/ M/201 3 AND 5798 /M/2013 10 IT CAN BE NOTICED THAT THE DISPUTE IN THE CASE OF K ARAMCHAND THAPAR & OTHERS (SUPRA) WAS ABOUT THE NATURE OF RECEIPT, I.E., WHETHER IT WAS CAPITAL RECEIPT OR TRADING RECEIPT. 16. IN THE CASE OF T.V. SUNDARAM IYENGAR & SONS (SUPRA) ALSO, THE QUESTION BEFORE THE HONBLE SUPREME COURT WAS ABOUT THE NATURE OF RECEIPTS ONLY. THE SAID ASSESSEE COLLECTED CERTAIN DEPOSITS FROM ITS CUSTOMERS IN THE COURSE OF CARRYING ON HIS BUSINESS, WHICH WERE ORIGINALLY TREATED AS CAPITAL RECEIPTS. SINCE THEY WERE NOT CLAIMED BY SOME OF THE CUSTOMERS, IT TRANSFERRED THE SAME TO ITS PROFIT AND LOSS ACCOUNT. THE FOLLOWING PRINCIPLE WAS DISCUSSED BY HONBLE SUPREME COURT IN THIS CASE: - IF AN AMOUNT IS RECEIVED IN THE COURSE OF TRADING TRANSACTION , EVEN THOUGH IT IS NOT TAXABLE IN THE YEAR OF RECEIPT AS BEING OF REVENUE CHARACT ER, THE AMOUNT CHANGES ITS CHARACTER WHEN THE AMOUNT BECOMES THE ASSESSEES OWN MONEY BECAUSE OF LIMITATION OR BY ANY OTHER STATUTORY OR CONTRACTUAL RIGHT. WHEN SUCH A THING HAPPENS, COMMON SENSE DEMANDS THE AMOUNT SHOULD BE TREATED AS INCOME OF THE ASSES SEE. THE HONBLE SUPREME COURT NOTICED THAT THE ASSESSEE HAD TAKEN DEPOSITS IN THE NORMAL COURSE OF TRADE. THE SAID AMOUNTS WERE NOT RETAINED TILL THE FULFILLMENT OF CONTRACT, BUT THEY WERE DEPLETED BY ADJUSTMENTS MADE FROM TO TIME. UNDER THESE SET OF F ACTS, THE HONBLE SUPREME COURT HELD THAT THE UNCLAIMED SURPLUS RETAINED BY THE ASSESSEE WOULD BE ITS TRADE RECEIPTS. THE HONBLE APEX COURT FURTHER HELD THAT: - .. THE ASSESSEE ITSELF TREATED THE AMOUNT AS ITS TRADE RECEIPT . IF A COMMONSENSE VIEW OF THE MATTER WAS TAKEN, THE ASSESSEE, BECAUSE OF THE TRADING OPERATION, HAD BECOME RICHER BY THE AMOUNT WHICH IT TRANSFERRED TO ITS PROFIT AND LOSS ACCOUNT. THE MONEY HAD ARISEN OUT OF ORDINARY TRADING TRANSACTIONS. ALTHOUGH THE AMOUNT RECEIVED ORIGINALLY WAS NOT OF INCOME NATURE, THE AMOUNTS REMAINED WITH THE ASSESSEE FOR A LONG PERIOD UNCLAIMED BY THE TRADE PARTIES. BY LAPSE OF TIME, THE CLAIM OF THE DEPOSIT BECAME TIME BARRED AND THE AMOUNT ATTAINED A TOTALLY DIFFERENT QUALITY. IT BECAME DEFINITE TRADE SUR PLUS. ITA NO. 5 769/ M/201 3 AND 5798 /M/2013 11 IN THE ABOVE SAID CASE ALSO, THE DISPUTE WAS ABOUT THE NATURE OF RECEIPT. THE QUESTION OF APPLICABILITY OF PROVISIONS OF SEC. 41(1) WAS NOT BEFORE HONBLE SUPREME COURT IN THE ABOVE SAID TWO CASES. 17. A CAREFUL PERUSAL OF BOTH THE DECISIONS W OULD SHOW THAT THE DISPUTE WAS ABOUT THE NATURE OF RECEIPT AND THE IMPUGNED AMOUNTS RECEIVED BY THE ASSESSEES WERE TREATED AS REVENUE RECEIPTS, SINCE THEY HAVE BEEN RECEIVED DURING THE COURSE OF TRADING OPERATIONS. IN THE INSTANT CASE, THERE SHOULD NOT AN Y DISPUTE THAT THE ASSESSEE RECEIVED FUNDS THROUGH ISSUING DEBENTURES/BONDS AND THEY CANNOT BE CONSIDERED TO HAVE BEEN RECEIVED DURING THE COURSE OF TRADING OPERATIONS. IN ANY CASE, THE DISPUTE IN THE INSTANT CASE WAS ABOUT THE APPLICABILITY OF PROVISIONS OF SEC. 41(1) OF THE ACT. HENCE BOTH THE DECISIONS RELIED UPON BY THE AO ARE NOT APPLICABLE TO THE FACTS OF PRESENT CASE AND ACCORDINGLY, IN OUR VIEW, THE AO COULD NOT HAVE PLACED RELIANCE ON THESE DECISIONS. 18. ON THE CONTRARY, THE ASSESSEE HAS P LACED RELIANCE ON THE DECISION RENDERED BY HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF MAHINDRA AND MAHINDRA LTD VS. CIT (261 ITR 501). THE FACT AVAILABLE IN THIS CASE WAS THAT THE ASSESSEE PURCHASED TOOLS (DIES) FROM A COMPANY NAMED KJC. SUB SEQUENTLY, THE KJC GAVE LOAN TO THE ASSESSEE TO PURCHASE THE TOOLS (DIES) AND THE SAID LOAN AGREEMENT WAS APPROVED BY RBI. LATER, THE COMPANY KJC WAS TAKEN OVER BY ANOTHER COMPANY NAMED AMC AND THE PRINCIPAL AMOUNT OF LOAN WAS WAIVED BY AMC AS A PART OF TAKEOVER ARRANGEMENT WITH KJC TO WHICH THE ASSESSEE WAS NOT A PARTY. THE WAIVER OF THE PRINCIPAL AMOUNT WAS UNEXPECTED. IN THE CIRCUMSTANCES, IT WAS HELD THAT SUCH WAIVER WOULD NOT CONSTITUTE BUSINESS INCOME. THE HONBLE BOMBAY HIGH COURT FURTHER HELD THAT THE PROVISIONS OF SEC. 41(1) WERE NOT APPLICABLE WITH THE FOLLOWING REASONING: - ITA NO. 5 769/ M/201 3 AND 5798 /M/2013 12 SO FAR AS APPLICABILITY OF SECTION 41(1) IS CONCERNED, ONE OF THE REQUIREMENTS IS THAT THE ASSESSEE SHOULD HAVE OBTAINED A DEDUCTION IN THE ASSESSMENT FOR ANY YEAR IN RES PECT OF LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE. IN THE INSTANT CASE, THE ASSESSEE HAD NOT OBTAINED SUCH ALLOWANCE OR DEDUCTION IN RESPECT OF EXPENDITURE OR TRADING LIABILITY IN THE EARLIER YEARS. IT WAS NOT DISPUTED THAT THE ASSE SSEE HAD PAID INTEREST AT 6 PER CENT OVER A PERIOD OF 10 YEARS TO KJC. IN RESPECT OF THAT INTEREST, THE ASSESSEE NEVER GOT DEDUCTION UNDER SECTION 36(1)(III) OR SECTION 37. FURTHER, TOOLINGS CONSTITUTED CAPITAL ASSET AND NOT STOCK IN TRADE. THEREFORE, S ECTION 41(1) WAS NOT APPLICABLE. SECONDLY, ASSUMING FOR THE SAKE OF ARGUMENT THAT THE ASSESSEE HAD GOT DEDUCTION ON ALLOWANCE, EVEN THEN SECTION 41(1) WAS NOT APPLICABLE BECAUSE SUCH DEDUCTION WAS NOT IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY. THE LD CIT(A), AFTER CONSIDERING THE DECISION OF MAHINDRA & MAHINDRA (SUPRA) HELD AS UNDER: - IN THIS CASE, AS MENTIONED ABOVE, THE FACTS ARE THAT, THE ASSESSEE MAHINDRA AND MAHINDRA LTD HAD GOT LOAN WAIVER FROM AMERICAN MOTOR CORPORATION. THE ASSESSEE HAD SHOWN THE WAIVER OF AMOUNT OF RS.57,75,064/ - AS CESSATION OF LIABILITY. THE ASSESSEE PRIOR TO THE WAIVER OF LOAN WAS PAYING 6% INTEREST ANNUALLY TO THE LENDER. HOWEVER, THE ASSESSEE COMPANY DID NOT CLAIM THIS INTEREST EXPENDITURE DURING THE CURRENCY OF LOAN U/S 36(1)(III). THE HONBLE HIGH COURT, FURTHER HELD THAT, EVEN ASSUMING THIS INTEREST WAS CLAIMED AS DEDUCTION, THE PROVISIONS OF SECTION 41(1) WERE NOT APPLICABLE TO THE ASSESSEE, AS SUCH, THE DEDUCTION WAS NOT IN RESPECT OF LOSS, EXPENDITURE OR TRADING LIABILITY, THUS, THE HONBLE HIGH COURT HELD THAT THE WAIVER OF LOAN DOES NOT AMOUNT TO CESSATION OF TRADING LIABILITY WITHIN THE MEANING OF SECTION 41(1) OF I.T ACT, 1961. AS POINTED OUT BY THE ASSESSEES AR, THE FACTS OF THE ASSESSEE I.E., RELI ANCE INDUSTRIES LTD ARE IDENTICAL TO THE FACTS OF THE CASE OF MAHINDRA AND MAHINDRA (SUPRA). I HAVE ALSO CAREFULLY EXAMAINED THE FACTS OF THE ASSESSEE AND MAHINDRA AND MAHINDRAS CASE AND FOUND THAT THE ARS SUBMISSION IS CORRECT. THE LD CIT(A) HAS OBSE RVED THAT THE FACTS OF THE PRESENT CASE AND M/S MAHINDRA AND MAHINDRA ARE IDENTICAL. IN OUR VIEW, THE FACTS ARE NOT IDENTICAL, BUT THE RATIO OF THE SAID DECISION SHALL SQUARELY APPLY TO THE ITA NO. 5 769/ M/201 3 AND 5798 /M/2013 13 ASSESSEE HEREIN, SINCE IN THE INSTANT CASE ALSO THE AMOUNTS RAISE D THROUGH DEBENTURES CANNOT BE TREATED AS TRADING LIABILITY FOR THE ASSESSEE. 19. THE ASSESSEE HAS ALSO PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. INDUSTRIAL CREDIT AND DEVELOPMENT SYNDICATE LTD (IN S HORT ICDS). THE HONBLE KARNATAKA HIGH COURT EXPLAINED THE NATURE OF DEBENTURES AS UNDER: - A DEBENTURE IS A CERTIFICATE OF LOAN OR BOND EVIDENCING THE FACT THAT THE COMPANY IS LIABLE TO PAY A SPECIFIC AMOUNT WITH INTEREST AND ALTHOUGH THE MONEY RAISED BY THE DEBENTURES BECOMES A PART OF THE COMPANYS CAPITAL STRUCTURE, IT DOES NOT BECOME A SHARE CAPITAL. A DEBENTURE IMPORTS AN OBLIGATION OR A CONVENANT TO PAY. DISCHARGING THE LIABILITY TO THE DEBENTURE HOLDER WHO HAS SOLD HIS DEBENTURES IN EFFECT AMOU NTS TO REPAYMENT OF THE LOAN. THE ASSESSEE, ICDS, ISSUED DEBENTURES IN THE YEAR 1973 AT A FACE VALUE OF RS.10/ - EACH AT PAR. THE DEBENTURES WERE REDEEMABLE DURING THE ACCOUNTING YEARS CORRESPONDING TO THE ASSESSMENT YEARS 1984 - 85, 1985 - 86 AND 1986 - 87 AT THE RATE OF 30%, 30% AND 40% RESPECTIVELY. DURING THE PERIOD OF REDEMPTION, THE ASSESSEE COMPANY PURCHASED SOME OF THESE DEBENTURES THROUGH A NOMINEE AT A PRICE LESS THAN THE FACE VALUE THEREOF AND CREDITED THE DIFFERENCE BETWEEN THE FACE VALUE AND THE C OST THEREOF IN ITS BOOKS AS SURPLUS ARISING ON REDEMPTION OF DEBENTURES. ALTHOUGH IT CREDITED THESE SUMS IN ALL THE THREE YEARS TO THE PROFIT AND LOSS ACCOUNT, IT CLAIMED DEDUCTION OF THE SUMS ON THE GROUND THAT THEY DID NOT FORM PART OF ITS INCOME. THE HONBLE KARNATAKA HIGH COURT HELD AS UNDER: - IN THE INSTANT CASE, ADMITTEDLY THE ASSESSEE HAD ISSUED DEBENTURES WHICH ARE REDEEMABLE AFTER A PERIOD OF TEN YEARS AT THE FACE VALUE THEREOF. THOUGH THE DEBENTURE HOLDERS SOLD THE DEBENTURES BEFORE THE STIPU LATED PERIOD AT A DISCOUNTED PRICE TO THE NOMINEE OF THE ASSESSEE, THE CONSIDERATION PAID TO THOSE DEBENTURE HOLDERS WAS PAID BY THE ASSESSEE AS REFLECTED IN THE BOOKS OF ACCOUNT BY A LOAN ADVANCED TO THE NOMINEE. THEREAFTER, ON THE DUE DATES THE ASSESSEE HAS REDEEMED THOSE DEBENTURES FOR THE PURPOSE OF ACCOUNTING, THE ENTIRE LIABILITY WAS SHOWN AS A LIABILITY AT THE PRICE ITA NO. 5 769/ M/201 3 AND 5798 /M/2013 14 PAID BY THE NOMINEE OF THE ASSESSEE. IN THE BALANCE SHEET, THE ENTIRE AMOUNT DUE UNDER THE DEBENTURES WAS SHOWN AS LIABILITY. AFTER RE DEMPTION, THE DIFFERENCE IN THE AMOUNT WAS TRANSFERRED TO THE PROFIT AND LOSS ACCOUNT AND IT WAS SHOWN AS SURPLUS. IT IS OBVIOUSLY ON THE GROUND THAT AFTER REDEMPTION SO MUCH LIABILITY IS SAVED BY THE ASSESSEE AND ACTUALLY THE SAME HAS TO BE SHOWN AS SURPL US THOUGH THERE IS NO REAL INCOME OR PROFIT DERIVED. NOTWITHSTANDING THE NOMENCLATURE ADOPTED IN THE BALANCE SHEET TO DEPICT THAT AMOUNT AND THE PLACE WHERE IT IS SHOWN IN REALITY THE ASSESSEE DID NOT RECEIVE THE SAID AMOUNT AS INCOME. THE ASSESSEE WAS ONLY ABLE TO DISCHARGE ITS LIABILITY AT A LESSER AMOUNT AS AGAINST THE FACE VALUE OF THE DEBENTURES. IT IS WELL RECOGNIZED THAT IN REVENUE CASES REGARD MUST BE HAD TO THE SUBSTANCE OF THE TRANSACTION RATHER THAN TO ITS MERE FORM. IT IS WHOLLY UNREAL AND ARTIFICIAL TO SEPARATE THE BUSINESS FROM ITS OWNER AND TREAT THEM AS IF THEY WERE SEPARATE ENTITIES TRADING WITH EACH OTHER AND THEN BY MEANS OF A FICTIONAL SALE INTRODUCE A FICTIONAL PROFIT WHICH IN TRUTH AND IN FACT DID NOT EXIST. CUT AWAY THE FICTIONS AND YOU REACH THE POSITION THAT THE MAN IS SUPPOSED TO BE SELLING TO HIMSELF AND THEREBY MAKING A PROFIT OUT OF HIMSELF WHICH ON THE FACE OF IT IS NOT ONLY ABSURD BUT AGAINST ALL CANONS OF MERCANTILE AND INCOME TAX LAW. MERELY BECAUSE THE AFORESAID AMOUNT WAS SHOWN AS A SURPLUS AMOUNT IN THE PROFIT AND LOSS ACCOUNT, WHEN THE ASSESSEE DID NOT ACTUALLY RECEIVE ANY INCOME, WE ARE UNABLE TO ACCEDE TO THE SUBMISSION OF SRI SESHACHALA THAT IT CONSTITUTES INCOME UNDER SECTION 2(24) OF THE ACT. HAVING REGARD TO T HE REALITY OF THE SITUATION, AS THE ASSESSEE HAS NOT DERIVED ANY INCOME, HE IS ENTITLED NOT TO TREAT IT AS AN INCOME. THEREFORE, THE TRIBUNAL WAS FULLY JUSTIFIED IN ITS CONCLUSION THAT THE SAID SURPLUS AMOUNT REFLECTED IN THE BALANCE SHEET (SIC. PROFIT AN D LOSS ACCOUNT) CANNOT BE TREATED AS INCOME OF THE ASSESSEE. WE DO NOT FIND ANY ERROR IN THE SAID CONCLUSION REACHED BY THE TRIBUNAL. IN OUR VIEW, THE FACTS PREVAILING IN THE ABOVE SAID CASE ARE ALMOST IDENTICAL AND THE RATIO OF THE DECISION RENDERED BY HONBLE KARNATAKA HIGH COURT IS FULLY APPLICABLE TO THE INSTANT CASE. 20. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS RIGHT IN LAW IN HOLDING THAT THE PROVISIONS OF SECTION 41(1) CANNOT BE APPLIED AS THE AMOUNT OF SURPLUS IS NOT ON ACCOUNT OF TRADING ITA NO. 5 769/ M/201 3 AND 5798 /M/2013 15 LIABILITY AND ACCORDINGLY HE WAS JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER. FURTHER, AS PER THE RATIO LAID DOWN IN THE CASE OF ICDS (SUPRA) BY HONBLE KARNATAKA HIGH COURT, THE GAIN REALIZED BY T HE ASSESSEE ON RE - PURCHASE AND EXTINGUISHMENT OF DEBENTURES CANNOT BE CONSIDERED AS INCOME U/S 2(24) OF THE ACT. 21. THE NEXT ISSUE RELATES TO THE DISALLOWANCE OF COMMISSION/SURCHARGES PAID TO SUMO, IRAQ GOVERNMENT AGENCY AND THE TRANSPORTATION CHARGES PAID. THE ASSESSING OFFICER DISALLOWED THE ABOVE SAID CLAIM MADE BY THE ASSESSEE, BUT THE LD CIT(A) ALLOWED THE CLAIM BY FOLLOWING HIS PREDECESSORS DECISION RENDERED IN THE ASSESSEES OWN CASE FOR AY 2001 - 02. THE REVENUE IS CONTESTING THE SAID DECISION OF LD CIT(A). 22. IT WAS BROUGHT TO OUR NOTICE THAT THE DISALLOWANCE OF IDENTICAL CLAIM MADE IN AY 2001 - 02 WAS CONSIDERED BY THE CO - ORDINATE BENCH OF TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.1347/MU/2011 AND THE TRIBUNAL, VIDE ITS ORDER DATED 24.4. 2015, HAS UPHELD THE RELIEF GRANTED BY LD CIT(A). THE RELEVANT DISCUSSIONS MADE BY THE CO - ORDINATE BENCH OF TRIBUNAL AND THE DECISION TAKEN BY IT ARE EXTRACTED BELOW, FOR THE SAKE OF CONVENIENCE: - 23. THE FACTS RELATING TO THE ABOVE SAID ISSUE ARE SET OUT IN BRIEF. CONSEQUENT TO THE INVASION OF IRAQ INTO KUWAIT, UN SECURITY COUNCIL IMPOSED ECONOMIC SANCTIONS ON IRAQ GOVERNMENT. HOWEVER, ON HUMANITARIAN GROUNDS, A SCHEME CALLED OIL FOR FOOD PROGRAMME (OFFP) WAS INTRODUCED, WHEREBY THE IRAQ WAS PE RMITTED TO EXPORT OIL AND USE THE PROCEEDS THEREOF TO BUY BASIC GOODS FROM OTHER COUNTRIES. THE IRAQ GOVERNMENT ORDERED ITS MINISTRY TO COLLECT SURCHARGE ON THE SALE PRICE OF THE OIL. THE IRAQI STATE OIL MARKETING ORGANISATION (SOMO) RAN A HIGHLY ORGAN IZED SYSTEM TO COLLECT OIL SURCHARGES AND MAINTAINED AN EXTENSIVE DATA BASE TO KEEP TRACK OF THE PAYMENTS. THIS COLLECTION APPEARS TO HAVE BEEN VIEWED BY UN AS IRREGULAR. HENCE THE UN SECURITY GENERAL APPOINTED AN INDEPENDENT ENQUIRY COMMITTEE (CALLED VO LCKER COMMITTEE) TO INVESTIGATE THE ADMINISTRATION AND MANAGEMENT OF OIL FOR FOOD PROGRAMME. THE VOLCKAR COMMITTEE REPORT OBSERVED THAT THE IRAQI ITA NO. 5 769/ M/201 3 AND 5798 /M/2013 16 OFFICIAL AWARDED THE CONTRACT TO VARIOUS COMPANIES TO FAVOUR THEM BY MAKING ILLICIT PAYMENT OF SURCHARGE. ACCORDING TO THE AO, THE NAME OF THE ASSESSEE HEREIN, VIZ., M/S RELIANCE PETROLEUM LTD FIGURED AS ONE OF THE BENEFICIARIES IN VOLCKER COMMITTEE REPORT. IT WAS STATED THAT 19 MILLION BARRELS OF OIL WAS ALLOTTED, OF WHICH 15.7 MILLION BARRELS WERE LIFTED BY ALCON PETROLEUM LTD, A LIECHTENSTEIN BASED ENERGY TRADING COMPANY. ACCORDINGLY, THE AO TOOK THE VIEW THAT THE ASSESSEE WOULD HAVE PAID COMMISSION/SURCHARGE DURING THE YEAR UNDER CONSIDERATION AND ESTIMATED THE SAME AT RS.8,89,36,380/ - . ACCORDINGLY HE AD DED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 24. THE LD CIT(A), HOWEVER, DELETED THE SAME WITH THE FOLLOWING OBSERVATIONS: - 3 . 6 . I H AVE CONS I DERED THE FACTS OF THE CASE , ORDER OF THE A O AND THE SUBM I SS I O N S MADE BY THE APPE LL ANT AND I DO NOT F I N D ENOUGH REASONS OR JUSTIF I CATION FO R THE ADD I T I O N MADE BY THE A O . WHEREAS THE MENT I ON AS A NON - CONTRACTUAL BENEFICIARY IN THE VO L CKER COMMITTEE REPO R T IS THE ONLY REASON FOR THE ADDITION , FOLLOWING IMPORTANT ASPECTS RELATED TO THE ISSUE IN QUESTION SUPPO RTS APPE L LANT'S CASE : - ( I) . THE OBSE R VATION IN VOLCKER COMM I TTEE REPORT IS THE ONLY MATER I AL OR EVIDENCE FOR MAK I NG THE ADD I TION I N THE ASSESSMENT ORDER TO THE EFFECT THAT ASSESSEE I S A NON - CONTRACTUAL BENEFICIARY AND PA I D PART OF THE PURCHASE CONS I DER ATION AS SURCHARGE TO IRAQ I GOVERNMENT IN V I OLATION OF UN RESOLUTION . THERE IS NO OTHER MATERIAL / EVIDENCE / REASON MENTIO N ED BY THE AO FOR ADD I TION . SUCH GENERAL OBSERVATION BY AN OUTS I DE AGENCY , HOW MUCH RESPEC T ABLE I T MAY BE , CANNOT IN ITSELF BE SO L E REAS O N FOR DISAL L OWANCE / ADD I TION TO THE INCOME UNDER IND I AN LAW . (II) . THE VOLCKER COMM I TTEE REPORT ALSO DOES NOT REFER TO ANY SPECIFIC EVIDENCE AGA I NST T H E APPELLAN T AND STATES THAT THE COMM I SS I ON / SURCHARGE HAS BEEN PA I D BY A L CON TO THE CRED I T OF IRAQ I GOVERNMENT AND REFERRED THE APPELLANT AS NON - CONTRACTUA L BENEFIC I ARY AS IT HAD RECEIVED THE SUPPLY OF GOODS FROM ALCON. THERE IS NO EV I DENCE ON ' RECORD WHICH IS REFERRED IN VO L CKER COMMITTEE REPORT TO SUGGEST THAT THE APPELLANT HAS PA I D THE PURCHASE PRICE I NC L USIVE OF A PART OF IT AS ONWA R DS PAYMENT OF I LLICIT COMM I SSION / SURCHA R GE TO IRAQI GOVERNMENT . ITA NO. 5 769/ M/201 3 AND 5798 /M/2013 17 THE AO HAS ALSO NOT BROUGHT ON RECO R D ANY EVIDENCE OR MATER I AL IN SUPPORT OF THE ALLEGED PAYME NT O F ILLI C I T COMM I SS I O N FORMIN G P A R T O F THE PURCHASE PR I CE . EV EN TH E VO L CKE R COMM I TTEE HAS NO T R EFERRED THE APPELLANT AS PAYER OF ILLICIT COMMISSION . (III ) . ASSESSE E PUR CHASED . LRAQ I CRUDE O I L FROM ALCON PETROLEUM LTD. (A L CON), LE IC H T E NSTEIN COMPA NY BASED I N EUROPE , A UN APPROVED COMPANY FOR DEALING IN C R UDE IN ' OIL AND FOOD - PROGRAMME . THE CONTRACT WAS SIGNED WITH ALCON (AND NOT WITH IRAQ I GOVERNMENT) FOR SUPPLY OF CRUDE AT AN AGREED PRICE PER BARREL AT THE PREVAI LI NG INTERNATIONAL MARKET RATE. THERE WAS NO PURCHASE FROM IRAQI GOVERNMENT OR ANY IRAQ GOVERNMENT AG ENCY AND THE CONTRACT SIGNED BETWEEN ALCON AND ASSESSEE CATEGORICALLY STATES THAT ALCON HAS NOT PAID ANY SURCHARGE TO GOVERNMENT OR THEIR AGENCY FOR PROCURING THE CRUDE . (IV) THE P R I CE PAID BY ASSESSEE TO ALCON IS THE CONSOLIDATED PR I CE FOR THE GOODS PU RCH ASED AND CANNOT BE SPLIT FOR PART OF IT AS REPRESENTING SURCHARGED ALLEGED TO HAVE BEEN PAID BY ALCON TO IRAQ I GOVERNMEN T . FOR ASSESSEE , I T IS THE COST OF GOODS FOR COMPUT I NG TAXABLE INCOME . (V) THERE IS NO PRIVACY OF CONTRACT BETWEEN ASSESSEE AND IRAQI GOVER N M ENT OR ANY EVIDENCE D I RECT OR INDIRECT CONFIRMING PAYMENT OF SURCHARGE BY ASSESS E E TO IRAQI GOVERNMENT . EVEN I F I T I S ACCEPTED THAT ALCON PAID ANY SURCHARGE GOVERNME N T , IT CANNOT IN ANY V I EW OF THE MATTER BE SAID THAT A PART OF PAYMENT MADE BY ASSESSEE TO ALCON CONST I TUTES SURCHARGE PA I D BY ASSESSEE TO GOVERNMENT 3 .7. IN V I EW OF THE ABOVE , I HOLD THAT THE ADD I T I ON MADE BY THE AO I S NO T IN ACCORDANCE W I TH THE PROV I SIONS OF LAW AND I T I S CANCE LL ED . THE GROUND OF APPE AL IS ALLOWED . 25. THE LD A.R SUBMITTED THAT IDENTICAL DISALLOWANCES MADE IN THE FOLLOWING CASES HAVE BEEN DELETED BY THE TRIBUNAL: - (A) AIR PAC EXPORTS VS. ACIT (ITA NO.2981 - 2983/M/12 DATED 11.6.14) (B) TIL LTD VS. ACIT (16 SOT 33)(KOL) (C) DCIT VS. RAJRANI EXPORTS (P) LTD (22 TAXMANN.COM)(KOL). ITA NO. 5 769/ M/201 3 AND 5798 /M/2013 18 26. THE FACTS PREVAILING IN THE INSTANT CASE SHOW THAT THE ASSESSEE HAS NOT MADE ANY PAYMENT DIRECTLY TO IRAQI GOVERNMENT. IT HAS PAID PURCHASE PRICE TO ITS SUPPLIER M/S ALCON PETROLEUM LTD. THE LD CIT(A) HAS GIVEN A CATEGORICAL FINDING THAT THERE IS NO EVIDENCE OR MATERIAL TO SUPPORT THE ALLEGED PAYMENT OF ILLICIT COMMISSION/SURCHARGE OVER AND ABOVE THE PURCHASE PRICE BY THE ASSESSEE TO THE IRAQ GOVERNMENT. FURTHER, AS PER THE CONTRACT SIGNED BETWEEN THE ASSE SSEE AND M/S ALCON PETROLEUM LTD, M/S ALCON HAS ALSO NOT PAID ANY SURCHARGE TO IRAQI GOVERNMENT OR THEIR AGENCY FOR PROCURING THE CRUDE OIL. HENCE, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN DELETING THIS ADDITION BY HOLDING THAT THERE IS NO M ATERIAL TO SUPPORT THIS ADDITION. CONSISTENT WITH THE VIEW TAKEN BY THE CO - ORDINATE BENCH OF TRIBUNAL IN THE ASSESSEES OWN CASE FOR AY 2001 - 02, WE UPHOLD THE ORDER OF LD CIT(A) IN DELETING THE DISALLOWANCE OF COMMISSION/SURCHARGES PAID TO SUMO AND ALS O THE TRANSPORTATION CHARGES MADE BY THE AO ON THE BASIS OF VOLKAR COMMITTEE REPORT. 23. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. [[ ORDER PRONOUNCED ON THIS 16TH DAY OF SEP T, 2015. SD SD (AMARJIT SINGH ) ( B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 16TH SEP , 2015 . . . ./ SRL , SR. PS ITA NO. 5 769/ M/201 3 AND 5798 /M/2013 19 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT C ONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY ORDER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI