ACIT, Chandigarh V. M/s Punjab State Civil Supplies Corporation, Chandigarh

ITA 708/CHANDI/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68482 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 12-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMARVEER SINGH
• Assessee Lawyers: MUNISH KHULLAR
• Keywords: Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R. SOOD, A.M AND MS. SUSHMA CHOWLA, JM ITA NO. 708 & 709/CHD/2013 ASSESSMENT YEAR : 2008-09 & 2009-10 A.C.I.T. C-4(1) VS. M/S PUNJAB STATE CIVIL SUPPLI ES CHANDIGARH CORPORATION, SCO 36-40 SECTOR 34A, CHANDIGARH AACCP 0651P (APPELLANT) (RESPONDENT) APPELLANT BY SHRI AMAR VEER SINGH RESPONDENT BY: SHRI MUNISH KHULLAR DATE OF HEARING 5.9.2013 DATE OF PRONOUNCEMENT 20.9.2013 O R D E R PER T.R.SOOD, A.M THESE APPEALS ARE DIRECTED AGAINST THE ORDER DATED 25.3.2013 OF THE LD. CIT(A), CHANDIGARH. THESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 708/CHD/2013 2 IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOWI NG GROUNDS: 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND LAW, THE LD. CIT(A) HAS ERRED IN DELETING ADDITION OF RS. 4,61 CRORES MADE FOR NON-MAKING OF PROVISION OF INTEREST FOR THE YEAR ON LOSSES INCURRED BY THE CORPORATION TO THE T UNE OF RS. 44.75 CRORES ON THE BASIS OF DIRECTORS REPORT. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW, THE LD. CIT(A) HAS ERRED IN DELETING ADDITION OF RS. 12.13 CRORES MADE FOR NON-MAKING OF PROVISION OF INTEREST ON OUTSTANDING AMOUNT OF RS. 117.81 CRORES RECEIVABLE FROM M/S FOOD CORPORATION OF INDIA. 2 3. GROUNDS NO. 1 & 2 - AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTI CED THAT THERE WAS AN OUTSTANDING AMOUNT OF RS. 39.30 CRORES WHICH WAS DUE TO BE RECEIVED FROM THE STATE GOVERNMENT ON WHICH NO INTEREST WAS CHARGED. IT WAS FURTHER NOTICED THAT THE ASSESSEE WAS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING A ND INTEREST PAID BY THE ASSESSEE, HAS BEEN ACCOUNTED FOR ON MER CANTILE BASIS, THEREFORE, ACCORDINGLY TO THE ASSESSING OF FICER INTEREST TO THE EXTENT OF RS. 4.61 CRORES ON THIS AMOUNT WA S NOT ALLOWABLE. 4 SIMILARLY A SUM OF RS. 12.13 CRORES OF INTEREST W AS FURTHER DISALLOWED ON AN AMOUNT OF RS. 117.81 CRORES OUTSTA NDING FROM FCI. 5 ON APPEAL THE LD. CIT(A) DELETED THE ADDITION ON THE BASIS OF ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2007- 08 IN ITA NO. 1183/CHD/2011. 6 BEFORE US, THE LD. DR FOR THE REVENUE STRONGLY SU PPORTED THE ORDER OF ASSESSING OFFICER. 7 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED AGAINS T THE REVENUE BY THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2007-08. 8 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND T HAT IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE TH E TRIBUNAL IN ASSESSMENT YEAR 2007-08 IN ITA NO. 1183/CHD/2011 AN D THE SAME WAS DECIDED VIDE PARA 8 & 9 WHICH READ AS UNDE R: 3 8 AFTER HEARING THE LD. REPRESENTATIVES OF BOTH TH E PARTIES, WE FIND THAT BOTH THE ISSUES RAISED VIDE GROUND NOS . 1 & 2 OF THE APPEAL ARE COVERED IN FAVOUR OF THE ASSESSEE AN D AGAINST THE REVENUE BY THE DECISION OF THIS BENCH OF EH TRI BUNAL DATED 30.6.2010 PASSED IN ASSESSEES CASE IN ITA NO . 875/CHD/2009 RELATING TO ASSESSMENT YEAR 2006-07. IN THAT YEAR, A SUM OF RS. 1,71,20,58,413/- WAS OUTSTANDING FROM THE PUNJAB GOVERNMENT WHEREAS RS. 6,25,87,18,142/- WAS RECOVERABLE FROM FCI. THE ASSESSING OFFICER DISALL OWED NOTIONAL INTEREST AMOUNTING TO RS. 11,98,43,089/- A ND RS. 43,53,42,284/- ON ACCOUNT OF SAID INTEREST FREE OU TSTANDINGS / RECOVEABLES FROM PUNJAB GOVERNMENT AND FCI RESPECTI VELY. ON APPEAL, THE LD. CIT(A) OPINED THAT THE AMOUNTS RECOVERABLE WERE TRADE DEBITS AND THEREFORE, THE A CTION OF THE ASSESSING OFFICER WAS SET ASIDE AND THE ADDITIONS M ADE WERE DELETED. 9 IN SECOND APPEAL, THE TRIBUNAL UPHELD THE ORDER O F THE LD. CIT(A) ON BOTH THE ISSUES OBSERVING A S UNDER: WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFULLY. THE ASSESSEE BEFORE US IS A CO-OPERATIVE SOCIETY, WHICH IS AN AGENCY OF THE STATE GOVERNMENT FOR PROCUREMENT O F WHEAT AND PADDY. IT ALSO UNDERTAKES SUCH ACTIVITIES FOR FCI. IN THE COURSE OF CARRYING ON OF SUCH ACTIVITIE S, IT INCURRED AMOUNTS WHICH WERE RECOVERABLE FROM THE ST ATE GOVERNMENT AND FCI. QUITE CLEARLY, SUCH RECOVERIES ARE ON ACCOUNT OF TRADING ACTIVITIES CARRIED OUT BY THE ASSESSEE. THEREFORE, THE AMOUNT OUTSTANDING FOR RECOVERY AT THE END OF THE YEAR ON ACCOUNT OF SUCH ACTIVITIES CANNOT BE EQUATED TO INTEREST-FREE ADVAN CES SO AS TO REQUIRE THE SAME TO BE DE4CIDED IN TERMS O F SECTION 36(1)(III) OF THE ACT. IN THIS REGARD, THE CIT(APPEALS)HAS CATEGORICALLY HELD THAT THE PUNJAB GOVERNMENT AND FCI ARE TRADE DEBTORS AND INCOMES THEREOF HAVE BEEN OFFERED FOR TAXATION IN THE EARLI ER ASSESSMENT YEARS. IN THE FACE OF SUCH A FACT SITUAT ION, WE FIND NO JUSTIFICATION FOR THE ASSESSING OFFICER TO MAKE ANY DISALLOWANCE OUT OF INTEREST EXPENDITURE CLAIME D BY THE ASSESSEE ON ACCOUNT OF IMPUGNED DEBITS. HENCE, IN THIS BACKGROUND, WE HEREBY AFFIRM THE ORDER OF THE CIT(APPEALS). THUS, GROUND NOS. 3 & 4 RAISED ARE DISMISSED. FACTS IN THE PRESENT CASE ARE IDENTICAL, THEREFORE, FOLLOWING THE ABOVE WE DECIDE THESE ISSUES AGAINST THE REVENU E. ITA NO. 709/CHD/2013 9 IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOWI NG GROUNDS: 1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND LAW, THE LD. CIT(A) HAS ERRED IN DELETING ADDITION OF RS. 5,65 CRORES MADE FOR NON-MAKING OF PROVISION OF INTEREST FOR THE 4 YEAR ON LOSSES INCURRED BY THE CORPORATION TO THE T UNE OF RS. 54.88 CRORES ON THE BASIS OF DIRECTORS REPORT. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW, THE LD. CIT(A) HAS ERRED IN DELETING ADDITION OF RS. 26.56 CRORES MADE FOR NON-MAKING OF PROVISION OF INTEREST ON OUTSTANDING AMOUNT OF RS. 257.87 CRORES RECEIVABLE FROM M/S FOOD CORPORATION OF INDIA. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW, THE LD. CIT(A) HAS ERRED IN DELETING ADDITION OF RS. 25 LAKHS ON ACCOUNT OF UNREALIZABLE RENT UNDER RULE 4 READ WITH EXPLANATION TO SECTION 23(1) OF THE ACT. 10 GROUNDS NO. 1 & 2 - THE ISSUES IN THESE GROUNDS ARE IDENTICAL TO THE ISSUES RAISED IN GROUNDS NO. 1 & 2 FOR ASSESSMENT YEAR 2008-09 IN ITA NO. 708/CHD/2013 WHI CH WE HAVE ADJUDICATED IN PARA NO. 8 ABOVE. FOLLOWING TH E SAME WE DECIDE THESE GROUNDS AGAINST THE REVENUE. 11 GROUND NO. 3 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT N O PROVISION OF RENT AMOUNTING TO RS. 11.79 LAKHS OF B UILDING GIVEN TO FOOD & CIVIL SUPPLIES DEPARTMENT WAS MADE. IN R ESPONSE TO THE QUERY IN THIS RESPECT THE ASSESSEE GAVE FOLLOWI NG REPLY VIDE LETTER DATED 8.11.2011 AS UNDER: THAT THE BUILDING IN QUESTION IS WITH FOOD, CIVIL SUPPLIES & CONSUMER AFFAIRS DEPARTMENT, PUNJAB SINCE LONG FOR WHICH NO RATE OF RENT HAS SINCE BEEN FIXED DESPITE GREAT PER SUASION AT THE LEVEL OF MANAGEMENT. THUS NO PROVISION IN THIS REGARD HAS BEEN MADE. AS AND WHEN ANY AMOUNT OF RENT IS R EALIZED FROM THE STATE GOVERNMENT THE SAME WOULD BE TREATED AS INCOME ON RECEIPT BASIS. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED AS ACCORDING TO HIM ANNUAL VALUE OF THE PROPERTY WAS CHARGEABLE TO INCOME- TAX IRRESPECTIVE OF THE FACT THAT RENT HAS BEEN REC EIVED IN THE YEAR OR NOT. ACCORDING TO HIM ANNUAL VALUE WAS OF RS. 8,25,300/- WAS CHARGEABLE AFTER GIVING DEDUCTION OF 30%. 5 12 ON APPEAL ADDITION WAS DELETED BY THE LD. CIT(A) ON THE BASIS OF ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2004-05 IN ITA NO. 561/CHD/2007. 13 BEFORE US, THE LD. DR FOR THE REVENUE SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 14 ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE SUBMITTED THAT THE ISSUE IS COVERED AGAINST THE REV ENUE BY THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2004-05 I N ITA NO. 561/CHD/2007. 15 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT IDENTICAL ISSUE CAME UP FOR CONSIDERATION OF THE TR IBUNAL IN ASSESSMENT YEAR 2004-05 WHICH HAS BEEN DECIDED BY T HE TRIBUNAL VIDE PARA 5 & 6 WHICH READ AS UNDER: 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. SECTION 22 OF THE ACT PROVIDES FOR TAXATION OF ANNUAL VALUE OF THE PROPERTY OWNED BY THE ASSESSEE. THE DETERMINATION OF ANNUAL VALUE IS IN TERMS OF SECTION 23 OF THE ACT. IN TERMS OF SUB-SEC TION (1) CLAUSE (A), THE ANNUAL VALUE IS DEEMED TO BE THE SUM FOR W HICH THE PROPERTY CAN BE REASONABLY EXPECTED TO BE LET FROM YEAR TO YEAR. IN CLAUSE (B) THE ANNUAL VALUE IS TO THE RENT RECEIVED OR RECEIVABLE IN EXCESS OF THE SUM REFERRED TO IN CLAUSE (A) IN CASE WHERE THE PROPERTY IS LET OUT. CLAUSE (C) REFERS TO A SITUATI ON WHERE THE PROPERTY IS LET OUT AND IS VACANT EITHER FOR THE WH OLE OR PART OF THE PERIOD UNDER CONSIDERATION. FOR THE PRESENT PURPOSE IT IS SUFFICIENT FOR US TO NOTE THAT PROPERTY IN QUESTION HAS BEEN L ET OUT. THUS IT IS CLAUSE (B) OF SUB-SECTION (1) SECTION 24 WHICH IS R ELEVANT. ACCORDING TO IT THE ANNUAL VALUE IS TO BE DETERMINE D AT THE RENT RECEIVED OR4 RECEIVABLE BY THE ASSESSEE IF THE SAME IS IN EXCESS OF THE SUMS REFERRED TO IN CLAUSE (A) THEREOF. 6. WE HAVE PERUSED THE ORDER OF THE ASSESSING OFFIC ER AND FIND THAT A SUM OF RS. 7 LACS HAS BEEN CREATED AS RENT O F THE PROPERTY WHICH HAS NOT BEEN RECEIVED. THERE IS NO FINDING TH AT THE SAID AMOUNT IS LOWER THAN THE AMOUNT FOR WHICH THE PROPE RTY IS EXPECTED TO BE LET OUT. BE THAT AS IT MAY, WE PROCEED ON THE BASIS THAT THE ANNUAL VALUE IS TAKEN AS THE ACTUAL RENT RECEIVABLE BY THE ASSESSEE. IT IS ALSO NOT IN DISPUTE THAT THE AMOUNT HAS NOT BEEN ACTUALLY RECEIVED BY THE ASSESSEE, THE PROVISIONS O F SECTION 25AA READ AS UNDER: 25AA. WHERE THE ASSESSEE CANNOT REALIZE RENT FROM A PROPERTY LET TO A TENANT AND SUBSEQUENTLY THE ASSES SEE HAS REALIZED ANY AMOUNT IN RESPECT OF SUCH RENT, TH E 6 AMOUNT SO REALIZED SHALL BE DEEMED TO BE INCOME CHARGEABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND ACCORDINGLY CHARGED TO INCOME-TAX AS THE INCOME OF THAT PREVIOUS YEAR IN WHICH SUCH RENT IS REALIZED WHETHER OR NOT THE ASSESSEE IS THE OWNER O F THAT PROPERTY IN THAT PREVIOUS YEAR. WHICH CLEARLY OPERATE IN THE PRESENT CASE. A PERUSA L OF THE AFORESAID SECTION PROVIDES COMPLETE ANSWER TO THE O BJECTION OF THE ASSESSING OFFICER. IN TERMS OF THE SAID SECTION THE IMPUGNED AMOUNT CANNOT BE BROUGHT TO TAX IN THE INSTANT YEAR . IN THE RESULT, WE HEREBY SET ASIDE THE ORDER OF THE CIT(APPEALS) A ND DIRECT ASSESSING OFFICER TO DELETE THE ADDITION IN QUESTIO N. FOLLOWING THE ABOVE, WE DECIDE THE ISSUE AGAINST TH E REVENUE. 16 IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20.9.2013 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 20.9.2013 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR