DCIT, Panchkula V. M/s Haryana Agro Industries Corpn. Ltd., Panchkula

ITA 613/CHANDI/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80877 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 year(s) 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 19-05-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 01-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MANJIT SINGH
• Keywords: Depreciation; Proportionate interest; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 613/CHD/2011 ASSESSMENT YEAR: 2008-09 DCIT, VS. HARYANA AGRO INDUSTRIES CORPN LTD. CIRCLE SECTOR - 4 PANCHKULA PANCHKULA PAN NO. AAACH4686C & ITA NO. 663/CHD/2011 ASSESSMENT YEAR: 2008-09 HARYANA AGRO INDUSTRIES CORPN LTD VS. DCIT SECTOR- 4 CIRCLE PANCHKULA PANCHKULA PAN NO. AAACH4686C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MAHAVIR SINGH RESPONDENT BY : SHRI MANJIT SINGH DATE OF HEARING : 20/08/2014 DATE OF PRONOUNCEMENT : 10.09.2014 ORDER PER T.R.SOOD, A.M. THESE CROSS APPEALS BY THE REVENUE AND ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 28.03.2011 OF CIT(APPEALS), PANCHKU LA. FIRST, WE SHALL DEAL WITH THE APPEAL OF THE REVENUE IN ITA NO. 613/CHD/2 011. 2 ITA NO. 613/CHD/2011 2. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOW ING EFFECTIVE GROUND:- 1. WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DELETING AN ADDITION OF RS. 73,36,650/- DESPITE THE FACT THAT A S THE SECURITY AGAINST THESE INVESTMENT IN QUESTION IS NO T TANGIBLE THE QUANTUM OF RECOVERABLE AMOUNT IS NOT ASCERTAINABLE AN SO ITS IMPACT ON THE ACCOUNTS OF T HE COMPANY CANNOT BE MENTIONED. 3. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT ASSE SSEE HAD MADE INVESTMENT IN EQUITY SHARES OF VARIOUS COMPANIES AMOUNTING TO RS. 6,11,38,100/-. IT WAS FURTHER NOTICED THAT THESE EQUITY SHARES WERE TO BE BOUGHT BACK BY THE RESPECTIVE COMPANIES AS PER THE AGREEMENT AND THEY WERE ALREADY OVER DUE FOR SUCH BUYING BACK. THE ASSESSEE COMPANY HAD RECEIVE D A SUM OF RS. 55 LAKHS AND THE BALANCE OF AMOUNT WAS OVER DUE. IT WAS FURT HER NOTICED THAT ARBITRATION HAS ALREADY BEEN MADE IN FAVOUR OF THE ASSESSEE COMPANY. THE ASSESSING OFFICER FURTHER NOTICED THAT AS PER PAGE 4 OF THE COLLABORATION AGREEMENT, BORROWER WERE OBLIGED TO BUY BACK THE EQ UITY HOLDINGS OF THE CORPORATION AT PRE-DETERMINED RATES WHICH WAS FIXED INCLUDING ELEMENT OF INTEREST AT THE TIME OF GIVING OF LOAN. THEREFORE, ACCORDING TO ASSESSING OFFICER THESE TRANSACTIONS WERE OF FINANCING THROU GH EQUITY PARTICIPATION AND BASIC INTENTION OF THE ASSESSEE WAS TO EARN INTERE ST OF SUCH LOANS. FURTHER, THE PROFIT ON SUCH BUY BACK TRANSACTION WAS NOT CAP ITAL GAIN. THE ASSESSING OFFICER OBSERVED THAT RIGHT FROM BEGINNING THE INTE NTION OF THE ASSESSEE WAS NOT TO HOLD THE SHARES BUT TO EARN INTEREST. IT WA S ALSO NOTICED THAT ASSESSEE 3 HAD CLAIMED INTEREST PAYMENT OF RS. 8,66,53,863/-. FURTHER, AS PER AGREEMENT THE ASSESSEE IN THE ABSENCE OF BUY BACK BY BORROWE R COULD HAVE SOLD THE SHARES IN THE MARKET AND RECOVERED THE INVESTMENT INCLUDING THE INTEREST. SINCE ASSESSEE HAS NOT TAKEN ANY SUCH STEPS, THEREF ORE, PROPORTIONATE INTEREST WAS NOT TO BE ALLOWED IN VIEW OF THE DECISION OF TH E HON'BLE E PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRI ES 286 ITR 1. VARIOUS EXPLANATIONS WERE GIVEN BUT THE SAME WERE NOT ACCEP TED AND FINALLY PROPORTIONATE INTEREST AMOUNTING TO RS. 73,36,560/- WAS ALLOWED. 4. ON APPEAL, VARIOUS CONTENTIONS WERE MADE WHICH H AVE NOT BEEN REPRODUCED BY THE LD. CIT(A) AT PARA 4.1. THE LD. CIT(A) FOLLOWING THE DECISION OF EARLIER YEARS FOR ASSESSMENT YEARS 2006 -07 AND 2007-08 DELETED THE ADDITION. 5. BEFORE US, LD. DR SUPPORTED THE ORDER OF ASSESSI NG OFFICER. 6. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE SUBMITTED THAT APPEAL OF THE REVENUE FOR EARLIER YEARS IN THIS REG ARD HAS BEEN DISMISSED, THEREFORE, MATTER IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. HE FURNISHED A COPY OF THE ORDER OF THE TRIBUNAL. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT IDENTICAL ISSUE WAS RAISED BY THE REVENUE IN ASSESSMENT YEARS 2006- 07 AND 2007-08, THROUGH GROUND NO. 4 IN ITA NOS. 530 & 531/CHD/2011. THIS ISSUE WAS ADJUDICATED BY THE TRIBUNAL IN PARA 19, WHICH IS AS UNDER;- 19. THE DISALLOWANCE OF INTEREST WAS MADE BY THE ASSESSING OFFICER IN VIEW OF THE INVESTMENT BY THE 4 ASSESSEE COMPANY IN EQUITY OF DIFFERENT CONCERNS TO TALING RS.611.38 LACS. THE SAID INVESTMENTS WERE MADE BY THE ASSESSEE IN ITS ROLE OF NODAL AGENCY OF GOVERNMENT OF HARYANA TO PROMOTE THE AGRICULTURE SECTOR BASED INDUSTRY. THE INVESTMENT WAS MADE IN SUCH CONCERNS WHICH WERE NOT LISTED COMPANIES. THE ASSESSEE HAD ENTERED INTO BUY BACK AGREEMENTS WITH THE SAID CONC ERNS, AS PER WHICH THE INVESTMENTS WERE OVER DUE FOR RECO VERY. THE CASE OF THE ASSESSEE WAS THAT THE AMOUNT IN QUE STION COULD NOT BE RECOVERED DESPITE ARBITRATION AWARDS B EING AWARDED IN FAVOUR OF THE ASSESSEE. OUT OF TOTAL INVESTMENT IN 18 CASES, ARBITRATION AWARD IN 17 CAS ES HAD BEEN RECEIVED AND EXECUTION PROCEEDINGS HAD BEEN INITIATED IN ALL THE CASES; DESPITE ABOVE THE ASSES SEE WAS UNABLE TO RECOVER ANY PART OF INVESTMENT. FURTHER CONTENTION OF THE ASSESSEE WAS THAT AS ALL THE MATT ERS WERE SUB-JUDICE AND NO APPRECIATION OR DEPRECIATION COULD BE REFLECTED IN TERMS OF FINANCIAL COLLABORAT ION AGREEMENT WITH THE SAID CONCERNS. FURTHER THE FIND ING OF THE CIT (APPEALS) WAS THAT THE EQUITY PARTICIPATION IN THE SAID CONCERNS WAS NOT OUT OF BORROWINGS BY THE ASSE SSEE AND THE LEARNED D.R. FOR THE REVENUE HAS FAILED TO CONTROVERT THE ABOVE SAID FINDING OF THE CIT (APPEA LS). FURTHER FINDING OF THE CIT (APPEALS) WAS THAT NO LO ANS WERE RAISED FOR THE PURPOSES OF MAKING THE AFORESAI D INVESTMENT AND THE LOANS, IF ANY RAISED, WERE FOR T HE PURPOSE OF CREATION OF FIXED ASSET. THE LEARNED D. R. FOR THE REVENUE HAS FAILED TO BRING ON RECORD ANY FINDI NG TO THE CONTRARY. IN THE TOTALITY OF FACTS AND CIRCUM STANCES OF THE CASE, WE ARE IN CONFORMITY WITH THE ORDER OF THE CIT (APPEALS) THAT WHERE THE RECOVERY OF THE PRINCI PAL AMOUNT ITSELF WAS IN DOUBT AND THE INVESTMENT WAS M ADE IN COMPANIES, WHICH WERE NOT SISTER CONCERNS OF THE ASSESSEE AND NONE OF THE INVESTMENT MADE BY THE ASS ESSEE 5 WERE HELD TO BE NON-BUSINESS ADVANCES, NO DISALLOWA NCE IS WARRANTED U/S 36(1)(III) OF BY RELYING UPON THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COUR T IN ABHISEK INDUSTRIES (SUPRA). WE UPHOLD THE ORDER OF THE CIT (APPEALS) THAT THE EQUITY PARTICIPATION MADE BY THE ASSESSEE IN 18 CASES BY WAY OF ASSISTED SECTOR AGRE EMENT WERE NOT IN THE NATURE OF FINANCING BUT WAS WITH TH E PURPOSES OF PROMOTION OF AGRO BASED INDUSTRY IN THE STATE OF HARYANA BY WAY OF EQUITY PARTICIPATION. THE SAI D INVESTMENT COULD NOT BE TREATED AS INTEREST FREE AD VANCES MADE FOR NON-BUSINESS PURPOSES. UPHOLDING THE ORDE R OF THE CIT (APPEALS) WE DISMISS THE GROUND NO.4 RAISED BY THE REVENUE. 8. FOLLOWING THE ABOVE, WE DECIDE THIS ISSUE AGAINS T THE REVENUE. 9. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ITA NO. 663/CHD/2011 10. IN THIS APPEAL THE ASSESSEE HAS FILED AMENDED G ROUNDS OF APPEAL WHICH READS AS UNDER:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE THE LEARNED CIT(A) PANCHKULA HAS ERRED IN LAW AND FACTS IN UPHOLDING THE ADDITION OF RS. 1,98,65,686/ -ON ACCOUNT OF PROVISION FOR WRITING OFF BOOK ENTRY OF RECOVERABLE FROM EMPLOYEES AGAINST SHORTAGES AND NO T A REAL INCOME SHOWN DURING THE YEAR AS PER THE MERCAN TILE ACCOUNTING POLICY OF THE APPELLANT. 2. THAT THE ORDER OF THE LEARNED CIT(A) PANCHKULA BE S ET ASIDE AND RESTORED TO THE FILE OF THE LEARNED ASSES SING OFFICER TO RECONSIDER AFRESH THE BOOK ENTRY OF RS. 1,98,65,686/- OF RECOVERABLE FROM EMPLOYEES AGAINST 6 SHORTAGES AS INCOME NOT RECEIVED AND TAX ONLY IF IT IS A REAL INCOME OF THE APPELLANT AND HAS ACTUALLY BEEN RECEIVED. 11. AFTER HEARING BOTH THE PARTIES WE FIND THAT DUR ING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT AS P ER SCHEDULE 14, ASSESSEE HAD CLAIMED PROVISIONS FOR BAD AND DOUBTFUL DEBT AT RS. 1,98,65,686/-. ON AN INQUIRY, IT WAS SUBMITTED AS UNDER;- AS REGARDS PROVISION OF BAD AND DOUBTFUL DEBTORS AT RS. 1,98,65,686/- IT IS SUBMITTED THAT IT IS NOTIONAL E NTRY AS INCOME HAS BEEN SHOWN IN SCHEDULE 9 AS OTHER INCOME AND DEBITED TO PROFIT AND LOSS ACCOUNT IN SCHEDULE 14 O F THE SHORTAGES IN WHEAT STOCK FOUND FROM THE EMPLOYEES W HICH WILL BE SHOWN AS INCOME IN THE YEAR OF RECOVERY AS PER ACCOUNTING POLICY OF THE ASSESSEE AND AS DISCLOSED IN THE NOTES ON ACCOUNTS NO. 14 PAGE 50 OF THE ANNUAL REPO RT PARA (VIII). 12. THE ASSESSING OFFICER DID NOT FIND FORCE IN THE SE SUBMISSIONS BECAUSE ACCORDING TO HIM PROVISION FOR BAD AND DOUBTFUL DEB T COULD NOT BE ALLOWED IN TERMS OF SECTION 36 (1)(VII) AND ACCORDINGLY DISALL OWED THE AMOUNT OF RS. 1,98,65,686/-. 13. ON APPEAL, THE FOLLOWING SUBMISSIONS WERE MADE BEFORE LD. CIT(A):-. AS REGARDS PROVISION OF BAD AND DOUBTFUL DEBTORS AT RS. 1,98,65,686/- IT IS SUBMITTED THAT IT IS NOTIONAL ENTRY AS INCOME HAS BEEN SHOWN IN SCHEDULE 9 AS OTHER INCOME AND DEBITED TO PROFIT AND LOSS ACCOUNT IN SCHEDULE 14 F OR THE SHORTAGES IN WHEAT STOCK FOUND FROM THE EMPLOYEES W HICH WILL BE SHOWN AS INCOME IN THE YEAR OF RECOVERY AS PER 7 ACCOUNTING POLICY OF THE ASSESSEE AND AS DISCLOSED IN THE NOTES ON ACCOUNTS NO.14 PAGE 50 OF THE ANNUAL REPOR T PARA (VIII). I) AS PER NOTE NO. 14 (PAGE 50 OF ANNUAL REPORT) OF ACCOUNTING POLICIES AND NOTES FORMING PART OF THE A CCOUNTS FOR THE FINANCIAL YEAR ENDING 31.03.2008, AN AMOUNT OF RS. 198.66 LACS STANDS RECOVERABLE FROM THE EMPLOYEES / EX- EMPLOYEES DUE TO SHORTAGES / LESS GAIN FOUND IN THE WHEAT STOCK AND THE SAME WAS TREATED AS INCOME DURING THE YEAR 2007-08 AND THE SAME HAS ALSO BEEN PROVIDED FOR AND CHARGED TO PROFIT. II) THAT IT IS AN ACCOUNTING POLICY OF THE ASSESSEE BEING REGULARLY FOLLOWED AND IT IS A NOTIONAL INCOME AS U NLESS THE INVESTIGATION ARE MADE, COMPLETED, CHARGES PROVED T HROUGH VARIOUS JUDICIAL PROCESSES AND THEREAFTER RECOVERIE S MADE IT IS THE CASE OF SHORTAGES IN THE STOCKS AND NOT T HE INCOME OF THE ASSESSEE. IT TAKES YEARS TOGETHER TO COMPLET E THE INVESTIGATION, CHARGES PROVED THROUGH VARIOUS JUDIC IAL PROCESSES AND RESPONSIBILITIES FIXED FOR THE FINAL CHARGES AND THEREAFTER ONLY THE ASSESSEE WILL HAVE THE ACTU AL INCOME TILL THEN IT IS A NOTIONAL INCOME DISCLOSED AS PER ACCOUNTING POLICY WHICH MAY NOT BE TAXED AT THIS ST AGE AS THE ASSESSEE HAS DISCLOSED THE TRUE FACTS OF THE CA SE. FURTHER THE ASSESSEE HAS DISCLOSED THE INCOME DURIN G THE YEAR IN SCHEDULE 9 PAGE 33 OF THE ANNUAL REPORT AND CLAIMED AS EXPENDITURE IN SCHEDULE 14 PAGE 38 THOUG H AS PROVISION OF BAD & DOUBTFUL DEBTORS & ADVANCE UNDER THE FEAR THAT THE EMPLOYEES OF THE ASSESSEE MAY NOT CLA IM IN THE JUDICIARY THAT EITHER THE ASSESSEE HAS NOT DISCLOSE D THE SAID LOSS OR HAS ALREADY WRITTEN OFF THE AMOUNT AS BAD D EBT HENCE THE EMPLOYEES ARE NOT RESPONSIBLE FOR THE SAM E. 8 14. THE LD. CIT(A) DID NOT FIND FORCE IN THESE SUBM ISSIONS AND OBSERVED THAT CLAIM OF THE ASSESSEE FOR PROVISION FOR BAD AN D DOUBTFUL DEBTS IS NOT AS PER THE LAW AND THEREFORE, NOT ADMISSIBLE BECAUSE S ECTION 36(1)(VII) CLEARLY PROVIDES THAT PROVISION IS NOT LIABLE TO BE DEDUCTE D. 15. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITT ED THAT SOME STOCK WAS FOUND SHORT AND EMPLOYEES WERE HELD RESPONSIBLE FOR SUCH SHORTAGE AND, THEREFORE, IT WAS DECIDED TO RECOVER THE AMOUNTS FR OM EMPLOYEES AND A PROVISION FOR THIS INCOME WAS MADE ACCORDINGLY. IN THIS REGARD HE REFERRED TO PAGE 33 OF THE ANNUAL REPORT OF THE COMPANY. SINCE THE AMOUNT COULD NO BE RECOVERED AND THEREFORE, CORRESPONDING PROVISION FO R BAD AND DOUBTFUL DEBTS WAS ALSO MADE WHICH IS SHOWN IN SCHEDULE 14 OF THE ANNUAL REPORT. HE ALSO INVITED OUR ATTENTION TO NOTES OF ACCOUNTS AND REFE REED TO NOTE NO. 14 OF ANNUAL REPORT. THE NOTE VERY CLEARLY SHOWS THAT RE COVERY COULD BE AFFECTED ONLY AFTER INVESTIGATION. HOWEVER, ON A QUERY BY TH E BENCH FOR THE OUTCOME OF THE INVESTIGATION, HE COULD NOT GIVE ANY SPECIFI C REPLY AND SIMPLY STATED THAT IN CERTAIN CASES CRIMINAL COMPLAINTS HAVE BEEN FILED. HE FURTHER SUBMITTED THAT BASICALLY IT IS A CASE OF NOTIONAL I NCOME AND IT IS NOT A CASE OF REAL INCOME WHICH ACCRUED TO THE ASSESSEE. SUCH NOT IONAL INCOME ACCORDING TO HIM COULD NOT BE TAXED AND IN THIS REGARD HE RELIE D ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. MESSRS . SHOORJI VALLABHDAS AND CO. 46 ITR 144 (SC) AND CIT VS. EXCEL INDUSTRI ES LTD 358 ITR 295 (SC) . 9 16. ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTE D THE ORDER OF ASSESSING OFFICER AND CIT(A). HE FURTHER SUBMITTED THAT ONCE IT WAS FOUND THAT SHORTAGE IS OCCURRED DUE TO STAFF AND ASSESSEE COULD HAVE EASILY RECOVERED MONEY FROM THE STAFF. IN ANY CASE, THE P ROVISION IS DOUBTFUL DEBT IS NOT LAIBLE AS PER SECTION 36(1)9VII). 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND FI ND THAT A SUM OF RS. 1,98,65,686/- HAS BEEN SHOWN AS RECOVERABLE FROM SO ME EMPLOYEES AGAINST SHORTAGES AND CLUBBED WITH OTHER INCOME AS PER SCHE DULE 9 OF THE ANNUAL REPORT. THIS SCHEDULE WAS AVAILABLE AT PAGE NO. 33 OF THE PAPER BOOK. IN THIS REGARD, THE ASSESSEE COMPANY HAS ALSO GIVEN A NOTE NO.14 IN THE NOTES TO THE ACCOUNTS WHICH IS AVAILABLE AT PAGE 50 OF THE ANNUA L REPORT WHICH READS AS UNDER:- 14. AN AMOUNT OF RS. 198.66 LACS STANDS RECOVERABL E FROM THE EMPLOYEES / EX-EMPLOYEES DUE TO SHORTAGES / LESS GAIN FOUND IN THE WHEAT STOCK AND THE SAME WAS TREATED AS INCOME DURING THE YEAR 2007-08 AND THE SAME HAS ALSO BEEN PROVIDED FOR AN CHARGED TO PROFI T & LOSS ACCOUNT DURING THE YEAR 2007-08. THE SAME SHAL L BE TREATED AS INCOME OF THAT YEAR IN WHICH RECOVERI ES ARE EFFECTED AFTER INVESTIGATION OF THE MATTER. 18. FROM THE ABOVE IT BECOMES CLEAR THAT THERE WERE CERTAIN SHORTAGES AND PART OF WHICH WAS HELD TO BE RECOVERABLE FROM EMPLO YEES / EX-EMPLOYEES. IT WAS STATED BEFORE US THAT ENQUIRIES HAVE ALREADY BE EN STARTED AGAINST THE EMPLOYEES AND SOME CASES CHARGE SHEETS HAVE BEEN FI LED. NO OTHER INFORMATION WAS GIVEN BEFORE THE LOWER AUTHORITI ES OR EVEN BEFORE US. FROM THESE FACTS THE ONLY CONCLUSION WHICH CAN BE REACHE D IS THAT CERTAIN 10 EMPLOYEES HAVE MISAPPROPRIATED CERTAIN STOCKS FOR T HEIR PERSONAL BENEFITS AND AFTER SOME ENQUIRY THE RESPONSIBILITY WAS FIXED AND INCOME WAS RECOGNIZED. THEREFORE, IT CANNOT BE SAID THAT IT IS ONLY A NOTI ONAL INCOME. IF NO RESPONSIBILITY WAS FIXED THEN HOW ACTION HAS BEEN T AKEN AGAINST SUCH EMPLOYEES AND IF NO ENQUIRY WAS CONDUCTED THEN THEE WAS NO NEED TO RECOGNIZE THE INCOME AT ALL. THE ASSESSEE COULD HAV E SIMPLY SHOWN THE STOCK AS STOCK SHORTAGES OR EMBEZZLED STOCK, AND THEN PER HAPS THIS ITEM COULD HAVE BEEN ALLOWED AS EXPENSE. ONCE THE AMOUNT HAVE BEEN SHOWN AS INCOME AND ENQUIRIES HAVE ALSO BEEN STARTED AGAINST THE EMPLOY EES THEN THE SAID INCOME CANNOT BE MADE TO DISAPPEAR BY CREATING A PROVISION FOR DOUBTFUL DEBTS. THE EMPLOYEE AS SUCH DOES NOT OWE THE AMOUNT TO THE COR PORATION AS DEBT FOR WHICH A PROVISION HAS BEEN CREATED RATHER THE EMPLO YEE OWES THIS AMOUNT TO THE CORPORATION BECAUSE THEY HAVE AS PER VERSION OF THE CORPORATION MIS- APPROPRIATED THE STOCKS. 19. THE LD. COUNSEL OF THE ASSESSEE HAS REFERRED TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. MESERS SHOORJI VALLABHDAS AND CO. 46 ITR 145 (SC). IN THAT CASE THE ASSESSEE FIRM WAS THE MANAGING AGENT OF TWO SHIPPING COMPANIES AND UNDER THE MANAGING AG ENCY AGREEMENT IT WAS ENTITLED TO RECEIVE AS COMMISSION 10 PER CENT. OF T HE FREIGHT CHARGED. BETWEEN APRIL I, 1947, AND DECEMBER 31, 1947, AN AM OUNT OF RS. 1,71,885/- FROM ONE COMPANY AND RS. 2,56,815/- FROM ANOTHER CO MPANY BECAME DUE TO THE ASSESSEE AS COMMISSION AT THE RATE OF 10 PER CE NT. AND IN THE BOOKS OF ACCOUNT OF THE ASSESSEE THESE AMOUNTS WERE CREDITED TO ITSELF AND DEBITED TO THE MANAGED COMPANIES. IN NOVEMBER, 1947, THE ASSES SEE DESIRED TO HAVE THE MANAGING AGENCY TRANSFERRED TO TWO PRIVATE COMPANIE S AND IN THIS CONNECTION 11 AGREED IN DECEMBER, 1947, TO ACCEPT 2 PER CENT. AS COMMISSION, AND GAVE UP 75 PERCENT. OF ITS EARNINGS. THE DEPARTMENT SOUGHT TO ASSESS THE AMOUNTS OF RS. 1,36,903 AND RS. 2,00,625 BEING THE 75 PER CENT . WHICH THE ASSESSEE HAD GIVEN UP, ON THE GROUND THAT COMMISSION AT 10 PER C ENT. HAD ALREADY ACCRUED TO THE ASSESSEE IN THE YEAR OF ACCOUNT AND THE AGRE EMENT IN DECEMBER, 1947, AFTER THE CLOSE OF PREVIOUS YEAR TO GIVE UP A PORTI ON OF THAT INCOME COULD NOT SAVE THAT POTION FROM LIABILITY TO INCOME-TAX. ON THE ABOVE FACTS, IT WAS HELD AS UNDER:- THAT THE SUBSEQUENT AGREEMENT HAD ALTERED THE RATE OF COMMISSION IN SUCH A WAY AS TO MAKE THE INCOME WHIC H REALLY ACCRUED TO THE ASSESSEE DIFFERENT FROM WHAT HAD BEE N ENTERED IN THE BOOKS OF ACCOUNT. THIS WAS NOT A CASE OF A G IFT BY THE ASSESSEE TO THE MANAGED COMPANIES OF A PORTION OF I NCOME WHICH HAD ALREADY ACCRUED, BUT AN AGREEMENT TO RECE IVE A LESSER REMUNERATION THAN WHAT HAD BEEN AGREED UPON. THE ASSESSEE HAD IN FACT RECEIVED ONLY THE LESSER AMOUN T IN SPITE OF THE ENTRIES IN THE ACCOUNT BOOKS, AND THIS LESSER A MOUNT ALONE WAS TAXABLE. INCOME-TAX IS A LEVY ON INCOME. THOUGH THE INCOME-T AX ACT TAKES INTO ACCOUNT TWO POINTS OF TIME AT WHICH THE LIABILITY TO TAX IS ATTRACTED, VIZ., THE ACCRUAL OF THE INCOME O R ITS RECEIPT, YET THE SUBSTANCE OF THE MATTER IS THE INCOME. IF I NCOME DOES NOT RESULT AT ALL, THERER CANNOT BE A TAX, EVEN THO UGH IN BOOK- KEEPING, AN ENTRY IS MADE ABOUT A HYPOTHETICAL INC OME, WHICH DOES NOT MATERIALIZE. WHERE INCOME HAS, IN FA CT, BEEN RECEIVED AND IS SUBSEQUENTLY GIVEN UP IN SUCH CIRCU MSTANCES THAT IT REMAINS THE INCOME OF THE RECIPIENT, EVEN T HOUGH GIVEN UP, THE TAX MAY BE PAYABLE. WHERE, HOWEVER, THE INC OME CAN BE SAID NOT TO HAVE RESULTED AT ALL, THERE IS OBVIO USLY NEITHER ACCRUAL NOR RECEIPT OF INCOME, EVEN THOUGH AN ENTRY TO THAT 12 EFFECT MIGHT, IN CERTAIN CIRCUMSTANCES, HAVE BEEN M ADE IN THE BOOKS OF ACCOUNT. 20. FROM THE ABOVE IT BECOMES CLEAR THAT AFTER THE MANAGING AGENT FIRM GOT INCORPORATED AND A SEPARATE AGREEMENT WAS ENTERED B Y WHICH IT WAS AGREED THAT THE NEW COMPANY WOULD CLAIM COMMISSION ONLY @ 2 %, THEREFORE, THE BALANCE OF 2 % COMMISSION WAS ONLY RECOVERABLE AND I.E. WHY IT WAS HELD TO BE A CASE OF NOTIONAL INCOME. THERE IS NO SUCH AGR EEMENT WITH THE EMPLOYEES AND WHATEVER STOCKS HAVE BEEN MISAPPROPRIATED WOULD BE RECOVERED FROM SUCH EMPLOYEES. THE ASSESSEE CAN CLAIM THIS LOSS IF ULTIMATELY NO RECOVERY IS MADE FROM THE EMPLOYEES. SIMILARLY, IN OTHER CASE RELIED ON BY THE LD. COUNSEL OF THE ASSESSEE IN CIT VS. EXCEL INDUSTRI ES LTD 358 ITR 295 (SC). IN THIS CASE THE ASSESSEE MAINTAINED ITS ACCOUNTS O N THE MERCANTILE BASIS. IN ITS RETURN FOR THE ASSESSMENT YEAR 2001-02, THE ASS ESSEE CLAIMED A DEDUCTION OF RS. 12,57,525 UNDER THE HEAD ADVANCE LICENSE BEN EFIT RECEIVABLE. THE ASSESSEE ALSO CLAIMED A DEDUCTION IN RESPECT OF DUT Y ENTITLEMENT PASS BOOK BENEFIT RECEIVABLE AMOUNTING TO RS. 4,46,46,976. TH ESE BENEFITS RELATED TO ENTITLEMENT TO IMPORT DUTY FREE RAW MATERIAL UNDER THE RELEVANT IMPORT AND EXPORT POLICY BY WAY OF REDUCTION FROM RAW MATERIAL CONSUMPTION. ACCORDING TO THE ASSESSEE, THE AMOUNTS WERE EXCLUDED FROM ITS TOTAL INCOME SINCE THEY COULD NOT BE SAID TO HAVE ACCRUED UNTIL IMPORTS WER E MADE AND THE RAW MATERIALS CONSUMED. THE ASSESSING OFFICER DID NOT A CCEPT THE ASSESSEES CLAIM BUT THE COMMISSIONER (APPEALS) HELD THAT THE ADVANCE LICENSE BENEFIT RECEIVABLE AND DUTY ENTITLEMENT PASS BOOK BENEFIT C OULD NOT TO BE TAXED IN THIS YEAR AND THE APPELLATE TRIBUNAL UPHELD THE VIE W TAKEN BY THE COMMISSIONER (APPEALS) TAKING NOTE OF THE FACT IN T HE ASSESSEES OWN CASES 13 STARTING FROM THE ASSESSMENT YEAR 1992-93 ONWARDS T HESE ISSUES HAD BEEN CONSISTENTLY DECIDED IN ITS FAVOUR AND FOR THE ASSE SSMENT YEARS 1993-94, 1996-98 APPEALS FILED BY THE DEPARTMENT IN THE HIGH COURT WERE NOT ADMITTED. THE HIGH COURT DECLINED TO ADMIT THE APPE AL FILED BY THE DEPARTMENT. 21. ON APPEAL TO THE SUPREME COURT, IT WAS HELD AS UNDER:- DISMISSING THE APPEALS, (I) THAT EVEN IF IT WAS A SSUMED THAT THE ASSESSEE WAS ENTITLED TO THE BENEFITS UNDE R 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 ASSESSEE UNTIL THE GOODS WERE ACTUAL LY IMPORTED AND MADE AVAILABLE FOR CLEARANCE. THE BENE FITS REPRESENTED, AT BEST, A HYPOTHETICAL INCOME WHICH M IGHT OR MIGHT NOT MATERIALIZE AND THEIR MONEY VALUE WAS, THEREFORE, NOT THE INCOME OF THE ASSESSEE. APPLYING THE THREE TESTS, NAMELY, WHETHER THE INCOME ACCRUED TO THE ASSESSEE IS REAL OR HYPOTHETICAL, WHETHER THERE IS A CORRESPONDING LIABILITY OF THE OTHER PARTY TO PASS ON THE BENEFITS OF DUTY FREE IMPORT TO THE ASSESSEE EVEN W ITHOUT ANY IMPORTS HAVING BEEN MADE, AND THE PROBABILITY O R IMPROBABILITY OF REALIZATION OF THE BENEFITS BY THE ASSESSEE CONSIDERED FROM A REALISTIC AND PRACTICAL POINT OF VIEW (THE ASSESSEE MIGHT NOT HAVE MADE IMPORTS), IT WAS QUITE CLEAR THAT IN FACT NO REAL INCOME BUT ONL Y HYPOTHETICAL INCOME HAD ACCRUED TO THE ASSESSEE AND SECTION 28(IV) OF THE INCOME-TAX ACT, 1961, WOULD B E INAPPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 14 22. IN THAT CASE ALSO THE INCOME NEVER ACCRUED TO T HE ASSESSEE FROM THE DUTY ENTITLEMENT PASS BOOK DEPB) WHICH WOULD HAVE A LLOWED THE ASSESSEE TO IMPORT DUTY FREE RAW MATERIAL. THIS VIEW WAS TAK EN BECAUSE DURING THE YEAR THE ASSESSEE HAS NOT IMPORTED THE RAW MATERIAL AND NO BENEFIT HAS ARISEN TO THE ASSESSEE. THEREFORE, CLEARLY THESE FACTS ARE DISTINGUISHABLE FROM THE FACTS BEFORE US WHERE SHORTAGES HAVE BEEN DETERMINE D AND ACTION HAS BEEN INITIATED AGAINST THE EMPLOYEES. THEREFORE, IN OUR VIEW THE LD. CIT(A) HAS CORRECTLY CONFIRMED THE ADDITION AND ACCORDINGLY WE CONFIRM HIS ORDER. 23. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10.09.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMER DATED : 10 TH SEPT, 2014 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR