DCIT, CIR-5, KOLKATA, Kolkata V. M/s HSIL Ltd., Kolkata

ITA 589/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9248 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2017
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 02-04-2014
• Court: TRIBUNAL
• Department Lawyers: R S BISWAS CIT LD
• Assessee Lawyers: P K SANGHAI FCA LD
• Keywords: Assessment record
• Section: 43B; 143(3); 11

Judgement Text

I TA NO. 589/KOL/14 M/S. HSIL LTD [ HINDUSTAN SANITARY WARE & INDUSTRIES LTD] 1 IN THE INCOME TAX APPELLATE TRIBUNAL,ABENCH, KOLKATA BEFORE: SHRI J. SUDHARKAR REDDY, ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO. 589/KOL/2014 A.Y: 2003-04 DEPUTY COMMISSIONER OF VS. M/S. H S I L LIMITED INCOME-TAX,CIRCLE-5 [ FORMERLY KNOWN AS KOLKATA HINDUSTAN SANITARY WARE & INDUSTRIES LTD] PAN: AAACH 7564H (APPELLANT) (RESPONDENT) APPEARANCES BY : SHRI R.S BISWAS, CIT, LD. DR FOR THE REVENUE SHRI P.K. SANGHAI, FCA, LD.AR FOR THE ASSESSEE DATE OF HEARING : 08-02-2017 DATE OF PRONOUNCEMENT : 28-02-2017 O R D E R SHRI S.S. VISWANETHRA RAVI, JM : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 17-01-2014 OF THE COMMISSIONER OF INCOME TAX (APPEALS), VI, KOLKATA FOR THE ASSESSMENT YEAR 2003 -04. 2. THE ONLY ISSUED IS TO BE DECIDED AS TO WHETHER T HE CIT-A JUSTIFIED IN ALLOWING THE SALES TAX LIABILITY AS DE DUCTION IN THE FACTS AND CIRCUMSTANCES OF THE CASE. I TA NO. 589/KOL/14 M/S. HSIL LTD [ HINDUSTAN SANITARY WARE & INDUSTRIES LTD] 2 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A COMPANY AND ENGAGED IN THE MANUFACTURING OF SANITAR Y WARE & GLASS WARE. THE AO COMPUTED THE BOOK PROFIT U/S. 11 5JB OF THE ACT AT RS. 8,69,37,787/- AND TO THAT EFFECT AN ORDE R U/S. 143(3) OF THE ACT WAS PASSED ON 31-3-2006. THEREAFTER, THE ASSESSMENT WAS REOPENED U/S. 147/143(3) ON 30-11-20 09 AS ON THE PERUSAL OF THE ASSESSMENT RECORDS, THE AO FOUND THAT THE ASSESSEE HAS TREATED THE PAYMENT OF SALES TAX AS PA ID THOUGH THE SAME WAS DEFERRED FOR CERTAIN PERIOD. THE AO WA S OF THE VIEW THAT AS THE ASSESSEE DID NOT PRODUCE ANY ORDER FROM THE CONCERNED STATE GOVERNMENT IN SUPPORT OF ITS CLAIM THAT THE DEFERRED SALES TAX LIABILITY IS TO BE TREATED AS PA ID, HE DISALLOWED AN AMOUNT OF RS.3,31,06,521/- U/S. 43B O F THE ACT AND ADDED THE SAME TO THE TOTAL INCOME OF ASSESSEE. 4. THE ASSESSEE CHALLENGED THE SAME BEFORE THE CIT- A AND CONTENDED BEFORE HIM THAT THE GOVT. OF ANDHRA PRADE SH APPROVED A POLICY UNDER TARGET 200 THE NEW INDUSTRI AL POLICY FOR DEFERMENT OF SALES TAX. IN SUPPORT OF WHICH THE ASS ESSEE FILED ELIGIBILITY CERTIFICATE ISSUED BY THE STATE AUTHORI TY, COPY OF THE AGREEMENT BETWEEN THE ASSESSEE AND THE STATE GOVT., SCHEDULE OF DEFERMENT, COPIES OF ASSESSMENT ORDERS TO SHOW T HE ADJUSTMENT OF SALES TAX LIABILITY AS LOAN GRANTED B Y THE RESPECTIVE STATE GOVT. 5. THE CIT-A TAKING INTO CONSIDERATION THE EARLIER ORDER OF HIS PREDECESSOR FOR THE AY 2004-05 AND THE ABOVE SUBMIS SIONS OF THE ASSESSEE DELETED THE IMPUGNED ADDITION OF RS. 3,31,06,521/- AS MADE BY THE AO. I TA NO. 589/KOL/14 M/S. HSIL LTD [ HINDUSTAN SANITARY WARE & INDUSTRIES LTD] 3 6. BEFORE US THE LD.DR HAS RELIED ON THE ORDER OF T HE AO. 7. IN REPLY, THE LD.AR OF THE ASSESSEE SUBMITS THAT THE CO- ORDINATE BENCH, ITAT, KOLKATA HAS DECIDED THE SIMIL AR ISSUE IN FAVOUR OF ASSESSEE IN ASSESSEES OWN CASE IN ITA NO . 189/KOL/2011 FOR THE AY 2004-05 VIDE ORDER DATED 0 4-03-2016 AND PLACED ON RECORD THE COPY OF THE SAID ORDER AT PAGE NOS 1 TO 11 IN PAPER BOOK AND BESIDES, THE ASSESSEE ALSO PLACED ON RECORD THE CBDTS CIRCULAR NO-496 DATED 25-09-1987 AND CIRCULAR NO-674 DATED 29-12-1993 AND ARGUED THAT TH E ASSESSEE IS ENTITLED TO CLAIM DEDUCTION AS PER THE CIRCULAR WHEREIN THE CBDT CLARIFIED THE SALES TAX LIABILITY CONVERTED IN TO LOANS ARE ELIGIBLE FOR DEDUCTION AND PLACED RELIANCE ON ORDER OF THE CO- ORDINATE BENCH IN THE CASE SUPRA. 8. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIA L AVAILABLE ON RECORD. WE FIND THAT THE GOVT. OF ANDH RA PRADESH FORMULATED A SCHEME PURSUANT TO A NEW INDUSTRIAL PO LICY, WHEREIN IT GRANTED DEFERMENT OF PAYMENT OF SALES TA X AND TREATED THE SAME AS PAID ON A CONDITION THAT IDENTI CAL AMOUNT IS TREATED AS LOAN ADVANCED BY THE GOVERNMENT TO THE A SSESSEE, WHICH IS REPAYABLE TO THE GOVERNMENT BY THE ASSESS EE AFTER COMPLETION OF CERTAIN PERIOD. WE FURTHER FIND THAT, AS RIGHTLY POINTED OUT BY THE LD.AR OF THE ASSESSEE BEFORE US, THE ISSUE IN HAND IS SQUARELY COVERED BY THE ORDER OF THE CO-ORD INATE BENCH IN THE ASSESSEES OWN CASE. THE RELEVANT FINDING AT PARA NO-11 IS REPRODUCED HEREIN BELOW FOR BETTER UNDERSTANDING . I TA NO. 589/KOL/14 M/S. HSIL LTD [ HINDUSTAN SANITARY WARE & INDUSTRIES LTD] 4 11. GROUND NO.3 REGARDING DISALLOWANCE UNDER SECTI ON 43B OF THE ACT, THE AO FOUND RS.4,33,11,893/- AS SALES TAX LIABILIT Y IN TAX AUDIT REPORT UNDER SALES TAX' DEFERRAL SCHEME REMAINED UNPAID WH ICH WAS CONVERTED INTO UNSECURED LOAN. AO WAS OF THE VIEW, THAT FOR N ON-SUBMISSION OF ANY GOVERNMENT ORDER IN CONVERTING THE UNPAID SALES TAX INTO UNSECURED LOAN, THEREBY; AO DISALLOWED ENTIRE LIABI LITY UNDER SALES TAX TO THE EXTENT ABOVE. BEFORE THE CIT(A), IT WAS CONT ENDED BY THE ASSESSEE THAT IT IS ENTITLED TO CLAIM DEDUCTION AS PER THE CIRCULAR NO. 496 DATED 29.09.1987 ISSUED BY THE CBDT AND FURTHER CLARIFIED THAT THE SALES TAX LIABILITY' CONVERTED INTO LOANS ELIGIBLE TO BE DEDUCTED VIDE CIRCULARNO.674 DT. 29.12.1993 OF THE CBDT, BASING O N WHICH THE CIT(A) ALLOWED THE SAID LIABILITY AS A DEDUCTION. 12. BEFORE THIS TRIBUNAL, THE ID. DR RELIED ON THE ORDERS OF THE AO AND THE ID. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDE R OF THE CIT(A). 13. HEARD BOTH REPRESENTATIVES AND PERUSED THE RECO RD. WE FIND THAT THE ASSESSEE COLLECTED SALES TAX OF RS.4~33,11,893/ - AND WAS NOT PAID BY THE ASSESSEE TO THE GOVERNMENT ACCOUNT, BUT, HOW EVER ON THE POLICY OF THE RESPECTIVE GOVERNMENT SAME WAS CONVERTED INT O A LOAN BY THE STATE SALES TAX DEPARTMENT UNDER A SCHEME CALLED 'S ALES TAX DEFERMENT' SCHEME. ACCORDING TO ASSESSEE THAT IT ENTERED INTO AN AGREEMENT WITH THE GOVERNMENT OF ANDHRA PRADESH, ACCORDING TO WHIC H SALES TAX PAYABLE BY THE ASSESSEE SHALL BE TREATED AS PAID ON THE CONDITION THAT AN IDENTICAL AMOUNT WOULD BE TREATED AS LOAN EXTEND ED TO THE ASSESSEE PAYABLE TO THE GOVERNMENT AFTER FOURTEEN YEARS. ON AVAILABILITY SUCH THE ASSESSEE ENTERED INTO TWO AGREEMENTS WITH THE S ALES TAX DEPARTMENT VIDE AGREEMENTS DT:19-01-2000 AND 30-01- 2001. THE A.O DID NOT FIND MERIT .IN CONTENTION OF THE ASSESSEE. HE WAS IN THE IMPRESSION THAT AS PER SECTION 43B OF THE ACT THAT THE ASSESSEE COULD BE ALLOWED DEDUCTION FOR SALES TAX ONLY IF IT ACTUA LLY PAYS TO THE SALES TAX DEPARTMENT OF SUCH GOVERNMENT. ACCORDINGLY THE AO. DISALLOWED RS.4,33,11,893/- U/S. 43B OF THE ACT ON THE GROUND THAT THE ASSESSEE FAILED TO SUBMIT ANY EVIDENCE FOR PAYMENT OF SUCH S ALES TAX LIABILITY DUE TO THE GOVERNMENT. WE FIND THAT THERE ARE TWO A GREEMENTS BETWEEN THE ASSESSEE AND THE SALES TAX DEPARTMENT R EPRESENTING GOVT. OF ANDHRA PRADESH. ONE SUCH AGREEMENT DT: 19-01-200 0 IS FOR CERAMIC DIVISION-II LOCATED AT BIBINAGAR, NALGONDA DIST., A NDHRA PRADESH AND THE OTHER BEING THE AGREEMENT DT:3 0-0 1-200 1 IS F OR GLASS' 'DIVISION LOCATED AT KUKATPALLY, RANGA REDDY DIST, ANDHRA PRA DESH, IT IS SEEN, BOTH THE AGREEMENTS THE DEFERRED SALES TAX POLICY O F THE STATE GOVERNMENT AND IT IS REPRODUCED AS BELOW FOR BETTER APPRECIATION: 'WHEREAS, THE GOVERNMENT HAVE DIRECTED IN G O. MS N O. 7108, I&C(IP) DEPARTMENT DATED 20.05. 1996 THAT DEFERRAL OF SALES TAX WILL BE GIVEN-FOR NEW INDUSTRIES AS WELL AS EXI STING INDUSTRIES WHILE UNDERTAKING EXPANSION OF UNITS, FO R A PERIOD OF 14 YEARS AND THE TOTAL AMOUNT THUS' GIVEN DEFERRAL SHALL NOT EXCEED 135% OF TOTAL INVESTMENT MADE ON FIXED-ASSET S IN SUCH INDUSTRIES OR IN SUCH UNITS UNDER EXPANSION OR THE AMOUNT SPECIFIED IN THE ELIGIBILITY CERTIFICATE ISSUED BY THE COMMISSIONER OF INDUSTRIES, GOVERNMENT OF ANDHRA PR ADESH WHICHEVER IS LOWER. AND WHEREAS, GOVERNMENT HAS FURTHER DIRECTED IN G. O. MS NO. 187 INDUSTRIES & COMMERCE (IP) DEPARTMENT DATED 21. 11.95 THAT THE AMOUNT OF SALES TAX DEFERRED SHALL BE TREA TED AS DEEMED TO HAVE. BEEN PAID' ON CONDITION THAT AN IDE NTICAL AMOUNT IN TREATED AS GOVERNMENT LOAN EXTENDED TO TH E ASSESSEE, WHICH SHALL BE PAYABLE TO THE GOVERNMENT BY THE ASSESSEE AFTER THE COMPLETION OF THE PERIOD OF DEFE RRAL DECEMBER, 2013 TO CORRESPONDING .MONTH DECEMBER, 20 26 WITHOUT ANY INTEREST ALONG WITH THE SALES TAX PAYAB LE FOR THE CURRENT YEAR.' I TA NO. 589/KOL/14 M/S. HSIL LTD [ HINDUSTAN SANITARY WARE & INDUSTRIES LTD] 5 THIS ABOVE STATEMENT ABOUT DEFERRAL POLICY SHOWS TH AT THE GOVERNMENT OF ANDHRA PRADESH HAD A POLICY OF DEFERM ENT OF SALES TAX LIABILITY BY CONVERTING IT INTO LOAN PAYA BLE AT A LATER DATE. IT IS OBSERVED FROM THE ABOVE, THAT IN THE TWO AGRE EMENTS, THAT THERE HAS BEEN AN AGREEMENT BETWEEN THE ASSESSEE AND THE SALES TAX DEPARTMENT REPRESENTING STATE OF ANDHRA PRADESH THA T THE AMOUNT OF SALES TAX DUES IS DEFERRED WHICH SHALL BE TREATED A S PAID ON CONDITION THAT AN IDENTICAL AMOUNT IS TREATED AS GOVERNMENT L OAN ADVANCED TO THE ASSESSEE, WHICH SHALL BE PAYABLE TO THE GOVERNM ENT BY THE ASSESSEE AFTER THE COMPLETION OF THE CERTAIN AS MEN TIONED THEREIN PERIOD. THEREFORE, IN PURSUANCE OF WHICH THE CBDT H AS ISSUED CIRCULAR NOS. 496 AND 674 REFERRED TO ABOVE CLARIFYING THAT SUCH SALES TAX WHICH IS NOT PAID, IS DEEMED AS PAID AND WHICH IS CONVERT ED INTO A LOAN CAN BE ALLOWED AS A DEDUCTION IN THE YEAR IN WHICH IT I S CONVERTED INTO A LOAN. THEREFORE, THE ORDER OF CIT -A IN ALLOWING AS A DEDUCTION OF DEFERRED SALES TAX OF RS.4,33,11,893/- U/S. 43B OF THE ACT IS CONFIRMED AND THE GROUND RAISED BY THE REVENUE IS DISMISSED. 9. IN VIEW OF THE SAME, WE DO NOT FIND ANY REASON T O INTERFERE WITH THE IMPUGNED ORDER OF THE CIT(A) IN ALLOWING T HE CLAIM OF THE ASSESSEE. THEREFORE, THE SAME IS HEREBY UPHELD. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DI SMISSED. 10. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISS ED. ORDER PRONOUNCED IN OPEN COURT ON 28-02-2017 SD/- SD/- J. SUDHAKAR REDDY S.S. VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 28 -02-2017 I TA NO. 589/KOL/14 M/S. HSIL LTD [ HINDUSTAN SANITARY WARE & INDUSTRIES LTD] 6 *PP/SPS: COPY OF THE ORDER FORWARDED TO: 1 . THE APPELLANT/REVENUE: THE DCIT, CIR-5, P-7 CHOWRI NGHEE SQUARE, KOLKATA-69. 2 THE RESPONDENT/ASSESSEE: M/S. HSIL LIMITED ( FORMERLY KNOWN AS HINDUSTAN SANITARY WARE & INDUSTR IES LTD) 2 RED CROSS PLACE, KOLKTA-1. 3 4. THE CIT(A) THE CIT 5 . DR, KOLKATA BENCH 6 . GUARD FILE . BY ORDER, ASSTT. REGISTRAR