HARDOLI PAPER MILLS LTD, MUMBAI V. ITO 8(2)(2), MUMBAI

ITA 6817/MUM/2010

• Counselvise Citation: 681719914 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2006-2007
• Appeal Filed On: 28-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI SR
• Keywords: Depreciation; Capital receipt; Unabsorbed depreciation
• Section: 43B

Judgement Text

ITA NO.6817 OF 2010 HARDOLI PAPER MILLS LTD MUMBAI PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL 'H' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 6817/MUM/2010 (ASSESSMENT YEAR: 2006-07) HARDOLI PAPER MILLS LTD INCOME TAX OFFICER C-8 SAROJ APARTMENTS, OPP:HOLI 8(2)(2) SPIRIT HOSPITAL, MAHAKALI CAVES MUMBAI ROAD,ANDHERI(E)MUMBAI 400093 VS. PAN AAACH 1472 N APPELLANT RESPONDENT APPELLANT BY: SHRI HARIDAS BHAT RESPONDENT BY: SHRI V.V. SHASTRI (SR.AR) DATE OF HEARING: 08/12/2011 DATE OF PRONOUNCEMENT: 21/12/2011 O R D E R PER B. RAMAKOTAIAH, A.M. THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER S OF THE CIT (A)-17 MUMBAI DATED 19/07/2010. THE MAIN ISSUE FOR ADJUDICATION IS WHETHER THE DISCOUNT RECEIVED BY THE ASSESSEE WH EN REMITTING THE NET PRESENT VALUE PAID BY THE ASSESSEE IN LIEU OF D EFERRED TAX UNDER THE BOMBAY SALES TAX ACT, 1959 IS REVENUE RECEIPT O R CAPITAL RECEIPT. 2. BRIEFLY STATED THE ASSESSEE IS ENGAGED IN THE BUSI NESS OF MANUFACTURING KRAFT PAPER AND HAS VALID PACKAGE SCH EME OF INCENTIVE 1993 ANNOUNCED BY THE GOVT. OF MAHARASHTR A BY WHICH THE SALES TAX LEVIED TO THE CUSTOMERS AND COLLECTED BY THE ASSESSEE WAS RETAINED AND TO BE PAID FOR THE PERIOD OF 10 YE ARS IN 5 EQUAL INSTALLMENTS WITHOUT ANY INTEREST. THE ASSESSEE ACC ORDINGLY COLLECTED AN AMOUNT OF ` .2.39 CRORES FROM THE PERIOD 1.10.1998 TO 31.3.2004. CONSEQUENT TO THE INSERTION OF RULE 31D UNDER THE SALES TAX RULES, THE ASSESSEES WERE PERMITTED TO PAY NET PRESENT VALUE AS PER THE SCHEME PROVIDED AND AVAIL THE BENEFIT INSTE AD OF WAITING FOR ITA NO.6817 OF 2010 HARDOLI PAPER MILLS LTD MUMBAI PAGE 2 OF 6 PAYMENT OF DEFERRED TAX FOR A PERIOD PROVIDED ORIGI NALLY. ACCORDINGLY ASSESSEE REMITTED AN AMOUNT IN THE EARLIER YEAR REL EVANT FOR THE ASSESSMENT YEAR 2040-05 TO AN EXTENT OF ` 1.25 CRORES AND DERIVED THE BENEFIT TO THE EXTENT OF ` 1.25 CRORES. IN THIS YEAR THE ASSESSEE AVAILED THE SAME SCHEME AND AN AMOUNT OF ` 4,08,962/- WAS AVAILED AS AN AMOUNT OF REMISSION UNDER THE SCHEME. THIS A MOUNT WAS TREATED AS REVENUE RECEIPT BY THE ASSESSING OFFICER , FOLLOWING HIS ORDER IN ASSESSMENT YEAR 2004-05 IN WHICH THIS SCHE ME AND THE NATURE OF RECEIPTS WERE ELABORATELY DISCUSSED. THE CIT (A) CONFIRMED THE ADDITION. 3. AT THE OUTSET BOTH THE PARTIES HAVE SUBMITTED THAT THE ISSUE IS COVERED BY ITAT ORDER IN ASSESSEES OWN CASE IN THE ASSESSMENT YEAR 2004-05 IN ITA NO.1908/MUM/2010 DATED 15/07/20 11. 4. WE HAVE CONSIDERED THE ISSUE. THE HON'BLE ITAT IN T HE ABOVE REFERRED ORDER HAS CONSIDERED THE SCHEME OF REMISSI ON OF LIABILITY AND FOLLOWING THE SPECIAL BENCH DECISION OF INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF SULZER INDIA LTD VS. JCIT 42 SOT 457 HELD THE ISSUE IN FAVOUR OF THE ASSESSEE IN THAT YEAR. T HE ORDER OF THE ITAT VIDE PARA 4 IS AS UNDER: 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS AG REED BY THE LEARNED REPRESENTATIVES OF BOTH THE SIDES, T HE ISSUE INVOLVED IN THE PRESENT CASE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF SPECIAL BENCH OF ITAT IN THE CASE OF SULZER INDIA LTD. VS. JCIT REPORTED IN 42 SOT 457. A COPY OF THE ORDER PASSED BY THE SPECIAL BENCH OF ITAT IN THE SAID CASE IS PLACED ON RECORD AND A PERUSAL OF THE SAME SHOWS THAT A SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE F OR THE FOLLOWING REASONS WHICH ARE EXTRACTED FROM THE H ELD PORTION : TO INVOKE THE PROVISIONS OF S. 41(1), THE FOLLOWIN G CONDITIONS MUST BE FULFILLED : (I) IN THE ASSESSMEN T OF THE ASSESSEE, AN ALLOWANCE OR DEDUCTION HAS BEEN MADE I N RESPECT OF LOSS, EXPENDITURE OR THE TRADING LIABILI TY INCURRED BY THE ASSESSEE. (II) THE ASSESSEE MUST HA VE SUBSEQUENTLY (A) OBTAINED ANY AMOUNT IN RESPECT OF SUCH ITA NO.6817 OF 2010 HARDOLI PAPER MILLS LTD MUMBAI PAGE 3 OF 6 LOSS OR EXPENDITURE OR (B) OBTAINED ANY BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CE SSATION THEREOF. IN CASE EITHER OF THESE EVENTS HAPPEN, THE DEEMING PROVISION ENACTED IN CLOSING PART OF SUB-S. (1) COM ES INTO PLAY. (III) THE AMOUNT OBTAINED BY THE ASSESSEE OR THE VALUE OF BENEFIT ACCRUING TO HIM IS DEEMED TO BE PR OFIT AND GAINS OF THE BUSINESS OR PROFESSION AND IT BECOMES CHARGEABLE TO INCOME-TAX AS AN INCOME OF THAT PREVI OUS YEAR. FURTHER ON A PLAIN READING OF S. 41(1) IT IS ALSO CLEAR THAT THE PROVISIONS CONTAINED IN S. 41(1) DO NOT MA KE ANY DISTINCTION BETWEEN ANY CONTRACTUAL TRADING LIABILI TY OR ANY STATUTORY TRADING LIABILITY. EVEN IF ANY STATUT ORY LIABILITY IS REMITTED OR CEASED OF, OR ANY AMOUNT, WHETHER IN CASH OR IN ANY OTHER MANNER, HAS BEEN OBTAINED I N RESPECT OF THE EXPENDITURE INCURRED BY WAY OF STATU TORY LIABILITY, THE SAME WOULD BE DEEMED TO BE PROFITS A ND GAINS OF THE BUSINESS OF THE ASSESSEE AND WOULD ACCORDINGLY BE CHARGEABLE TO INCOME-TAX AS THE INCO ME OF THAT YEAR IN WHICH SUCH BENEFIT OR AMOUNT IS OBTAIN ED. ON THE PLAIN READING OF PROVISIONS OF S. 38(1),(2), (3),(4) OF THE BOMBAY SALES-TAX ACT, 1959, IT PROVIDES THE MAN NER AS TO HOW THE PAYMENT OF TAX, PENALTY AND INTEREST, AS PRESCRIBED, MAY BE MADE. THE FIRST PROVISO STATES T HAT THE COMMR. MAY IN RESPECT OF ANY PARTICULAR DEALER OR P ERSON FOR THE REASON TO BE RECORDED IN WRITING EXTENT THE DATE OF PAYMENT OR ALLOW HIM TO PAY SUCH AMOUNT BY INSTALLM ENTS WITHOUT PREJUDICE TO THE LEVY OF PENALTY, INTEREST OR BOTH. THE SECOND PROVISO PROVIDES THAT COMMR. MAY IN RESP ECT OF A DEALER TO WHOM AN ELIGIBILITY CERTIFICATE HAS BEEN GRANTED EXTEND THE DATE OF PAYMENTS OR GRANT A MORATORIUM FOR PAYMENT OF DUES OR PROVIDE INSTALLME NTS SUBJECT TO SUCH CONDITIONS AS MAY BE PRESCRIBED. TH E THIRD PROVISO SAYS THAT THE STATE GOVERNMENT OR THE COMMR . MAY BY GENERAL OR SPECIAL ORDER WHERE A DEALER TO W HOM INCENTIVE BY WAY OF DEFERMENT OF SALES-TAX OR PURCH ASE TAX OR BOTH UNDER 1979 SCHEME, 1983 SCHEME OR 1988 SCHEME OR 1993 PACKAGING SCHEME OF INCENTIVE, HAVE BEEN GRANTED BY VIRTUE OF ELIGIBILITY CERTIFICATE AND WH ERE A LOAN LIABILITY EQUAL TO THE AMOUNT OF ANY SUCH TAX PAYABLE BY SUCH DEALER HAS BEEN RAISED BY THE SICOM OR OTHE R DESIGNATED AUTHORITIES, THEN SUCH TAX HAS BEEN DEEM ED, IN THE PUBLIC INTEREST, TO HAVE BEEN PAID. THE FOURTH PROVISO PROVIDES THAT WHERE AN ENTITLEMENT CERTIFICATE HAS BEEN ITA NO.6817 OF 2010 HARDOLI PAPER MILLS LTD MUMBAI PAGE 4 OF 6 GRANTED TO THE ELIGIBLE UNIT FOR AVAILING OF THE IN CENTIVES BY WAY OF DEFERMENT OF SALES-TAX ETC. SUCH ELIGIBLE UNIT MAY IN RESPECT OF THE PERIODS DURING WHICH THE SAID CERTIFICATE IS VALID, AT ITS OPTION, PREMATURELY PA Y IN PLACE OF THE AMOUNT OF TAX DEFERRED BY IT AN AMOUNT EQUAL TO THE NPV OF THE DEFERRED TAX AS MAY BE PRESCRIBED AND ON MAKING SUCH PAYMENTS, IN THE PUBLIC INTEREST, THE D EFERRED TAX SHALL BE DEEMED TO HAVE BEEN PAID. THE PRESENT VALUE OF A FURTHER SUM IS THE SAME AND IF THERE IS A DIFF ERENCE I.E.,; POSITIVE NPV THEN THE PROJECT REPAYS ORIGINA L INVESTMENT PLUS THE REQUIRED RATE OF RETURN. IN OTH ER WORDS A POSITIVE NPV MEANS A BETTER RETURN AND NEGATIVE N PV MEANS A WORSE RETURN THAN THE RETURN FROM ZERO NPV MEANING THEREBY THE SIMILAR VALUE OF A FURTHER SUM. IN THE PRESENT CASE THE ASSESSEE HAD COLLECTED TOTAL AMOUN T OF RS.7,52,01,378 TOWARDS SALES-TAX DURING THE YEAR 19 89-90 TO 2001-02. IT WAS TREATED AS A LOAN LIABILITY PAYA BLE AFTER 12 YEARS IN SIX EQUAL ANNUAL INSTALLMENTS AND THUS, THE ASSESSEE TREATED THE SAID LIABILITY AS UNSECURED LO AN IN ITS BOOKS OF ACCOUNT. RULE 31D OF THE BOMBAY SALES-TAX RULES, 1959 HAS BEEN PROVIDED WITH A TABLE AND THE NOTES BELOW IT FOR DETERMINATION OF NPV. ACCORDINGLY THE ASSESSEE HAS PAID AN AMOUNT OF RS.3,37,13,393 TO SI COM WHICH ACCORDING TO THE ASSESSEE REPRESENTED THE NPV AS DETERMINED BY SICOM. THE PAYMENT WAS MADE TO SICOM ON 30 TH DEC., 2002 AS PER CERTIFICATE DT. 25 TH AUG., 2003. THE REVENUE HAS PLACED NO MATERIAL ON RECORD TO SHO W THAT THE PRESENT VALUE (NPV) OF A FURTHER SUM IS NO T THE SAME OR IN THE PROCESS OF CALCULATION OF PRESENT VA LUE OF A FURTHER SUM THERE IS ANY CONVERSION GAIN TO THE ASS ESSEE. IT IS ALSO NOT THE CASE OF THE REVENUE THAT THERE I S NO SUCH CONVERSION PROVIDED UNDER THE BOMBAY SALES TAX ACT OR THE TABLE PROVIDED FOR DETERMINATION OF NPV IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE. IN THE ABSE NCE THEREOF IT IS NOT POSSIBLE TO ACCEPT THE CONTENTION OF THE DEPARTMENTAL REPRESENTATIVE THAT THERE WAS A REMISS ION OR CESSATION OF THE TRADING LIABILITY. THE ENTIRE L OAN AMOUNT WHICH WAS PAYABLE AFTER 12 YEARS IN SIX EQUA L INSTALLMENTS WAS REPAID AS PER PRESENT NPV AS PRESC RIBED BY THE STATE GOVERNMENT AND NO REFUND WAS RECEIVED BY THE ASSESSEE, THEREFORE, THE ASSESSEE DID NOT GET A NY BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY REMISSION OR CESSATION THEREOF. ITA NO.6817 OF 2010 HARDOLI PAPER MILLS LTD MUMBAI PAGE 5 OF 6 THE REVENUES PLEA IS THAT THE ASSESSEE HAS OBTAINE D THE BENEFIT OF DEDUCTION OF SALES-TAX LIABILITY UNDER S . 43B AS PER CBDT CIRCULAR NO. 496, DT. 25 TH SEPT., 1987. HOWEVER, IN THE SAID CIRCULAR IT HAS BEEN CLEARLY S TATED VIDE PARA 5 THAT THE STATUTORY LIABILITY SHALL B E TREATED TO HAVE BEEN DISCHARGED FOR THE PURPOSES OF S. 43B . THUS, THE BENEFIT OF DEDUCTION WAS ALLOWED FOR THE PURPOSE OF S. 43B ONLY AND NOT UNDER ANY OTHER PROVISIONS O F THE ACT. THERE IS NO DISPUTE THAT THE AO HAS ALSO APPLI ED THE AFORESAID BOARD CIRCULAR WHILE GIVING THE BENEFIT O F DEDUCTION UNDER S. 43B. THIS BEING SO THE FIRST REQUIREMENT OF S. 41(1) HAS NOT BEEN FULFILLED IN T HE FACTS OF THE PRESENT CASE. THE ASSESSEE HAS OPTED THE OFFER OF SICOM, AN IMPLEMENTING AGENCY OF THE STATE GOVERNMENT AND REP AID AN AMOUNT OF RS.3,37,13,393 TO SICOM WHICH ACCORDIN G TO THE ASSESSEE REPRESENTED THE NPV OF THE FURTHER SUM AS DETERMINED AND PRESCRIBED BY SICOM. THE SAID PAYMEN T WAS MADE TO SICOM ON 30 TH DEC.,2002 AS PER CERTIFICATE D. 25 TH AUG., 2003 NPV IS EQUIVALENT TO FURTHER VALUE OF THE SUM. IN OTHER WORDS, WHAT THE ASSESSEE WAS REQU IRED TO REPAY AFTER 12 YEARS IN SIX ANNUAL/EQUAL INSTALL MENTS, THE SAME WAS REPAID BY THE ASSESSEE, IN THE PUBLIC INTEREST, AS NPV IS EQUIVALENT TO THE FUTURE VALUE OF THE SUM. FURTHER THERE IS NO IOTA OF EVIDENCE TO SHOW T HAT THERE HAS BEEN ANY REMISSION OR CESSATION OF LIABIL ITY BY THE STATE GOVERNMENT. THUS, ONE OF THE REQUIREMENTS SPELT OUT FOR THE APPLICABILITY OF S. 41(1)(A) HAS NOT BE EN FULFILLED IN THE FACTS OF THE PRESENT CASE . 5. SINCE THE FACTS ARE SIMILAR IN THIS ASSESSMENT YEAR , DECISION OF THE SPECIAL BENCH OF THE ITAT IS SQUARELY APPLICABL E TO THE ISSUE INVOLVED IN THE PRESENT CASE AND RESPECTFULLY FOLLO WING THE COORDINATED BENCH DECISION, WE DIRECT THE ASSESSING OFFICER TO TREAT THE AMOUNT AS CAPITAL RECEIPT AND DELETE THE SAME F ROM THE COMPUTATION OF INCOME. ACCORDINGLY THE GROUND NO.1 IS ALLOWED. 6. GROUND NO.2 PERTAINS TO THE ISSUE OF NOT ALLOWING B ROUGHT FORWARD LOSSES/ DEPRECIATION. AS SEEN FROM THE RECO RD THE ASSESSEE HAD CLAIMED CERTAIN CARRY FORWARD UN-ABSORBED DEPRE CIATION TO AN ITA NO.6817 OF 2010 HARDOLI PAPER MILLS LTD MUMBAI PAGE 6 OF 6 EXTENT OF ` 44,82,704/-. IN ASSESSMENT YEAR 2004-05 THE ASSESSI NG OFFICER BROUGHT TO TAX AN AMOUNT OF ` 1.25 CRORES THEREBY THE UNABSORBED DEPRECIATION ETC., WERE SET OFF IN THAT YEAR. AS THERE IS NO AMOUNT TO BE CARRIED FORWARD, THE ASSESSEE WAS N OT GIVEN ANY BENEFIT OF SET OFF IN THIS ASSESSMENT YEAR. THE CIT (A) ALSO DID NOT ALLOW THE CLAIM AS THERE WAS NO AMOUNT OF DEPRECIAT ION TO BE SET OFF. IT WAS FAIRLY SUBMITTED THAT THIS ISSUE IS CONSEQUE NTIAL IN NATURE. THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE RE CORD AND IN VIEW OF THE ORDERS IN EARLIER YEARS, IF THERE WAS ANY UN ABSORBED LOSS/DEPRECIATION ALLOWED TO BE CARRIED FORWARD, TH E SAME IS DIRECTED TO BE SET OFF AS PER THE PROVISIONS OF THE ACT. WIT H THESE DIRECTIONS, THE GROUND IS CONSIDERED AS ALLOWED. 7. IN THE RESULT THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST DECEMBER, 2011. SD/- SD/- (D.MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBER VNODAN/SPS MUMBAI, DATED 21 ST DECEMBER, 2011. COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, H BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI