VIDHYA PHARMA CHEM P.LTD, MUMBAI V. CIT (A) -8, MUMBAI

ITA 7118/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2715 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2010-2011
• Appeal Filed On: 27-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DILIP T WORAH
• Keywords: Business income; Tax effect

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUM BAI BEFORE SHRI JASON P. BOAZ, AM AND SHRI SANDEEP GOSA IN, JM ./ I.T.A. NO. 7118/MUM/2014 ( / ASSESSMENT YEAR: 2010-11) VIDHYA PHARMA CHEM P. LTD. 606 GOLD CREST, 6 TH FLOOR, BUSINESS CENTRE, L.T. ROAD, BORIVALI (W) / VS. ACIT -4(3) MUMBAI. ./ ./PAN/GIR NO. AAACV 8599A ( /APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI DILIP T. WORAH / RESPONDENT BY : MS. ANU KRISHNA AGARWAL / DATE OF HEARING : 10/08/2016 !'# / DATE OF PRONOUNCEMENT : 23/09/2016 $% / O R D E R PER SANDEEP GOSAIN, J. M.: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-8, MUMBAI, DATED 20.10.2014 FOR A.Y. 2010-11 ON THE GROUNDS OF APPEAL MENTIONED HEREINBELOW. 1. THE LEARNED COMMISSIONER OF APPEALS-8, MUMBAI ERRED IN DISMISSING THE APPEAL AND IN SUSTAINING THE ADDI TIONS MADE BY A. 0. IN RESPECT OF DEPB ENTITLEMENTS AMOUN TING TO RS.11,09,321/- WITHOUT CONSIDERING ALL THE GROUNDS OF APPEAL AND SUBMISSION OF FACTS OF THE CASE. 2 ITA NO. 7118/MUM/2014 (A.Y. 2010-11) VIDHYA PHARMA CHEM PVT. LTD. VS. ACIT 2. THE LEARNED COMMISSIONER OF APPEALS-8 COMPLETELY IG NORED TO TAKE IN TO ACCOUNT FACTS OF THE CASE OF CIT V/S EXCEL INDUSTRIES LTD (SUPREME COURT) ITR-358 (PART-2) - P AGE 295 3. WITHOUT PREJUDICE TO AFORESAID THE LEARNED COMM. OF APPEALS DID NOT CONSIDER ABOVE CASE IN HIS ORDER IN SPITE OF SUBMISSION MADE VIDE LETTER DATED 01/05/2014. 4. THE APPELLANT PLEADS YOUR HONORS TO GIVE RELIEF AND IT IS PRAYED THAT ORDER OF LD. COMMISSIONER OF INCOME TAX APPEAL-8, MUMBAI BE QUASHED AND ADDITIONS OF RS.11, 09,321/- BE DELETED. 5. THE APPELLANT CRAVES LEAVES TO ADD, AMEND, ALTER OR DELETE OR ANY OTHER GROUNDS OF APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY ENGAGED IN THE BUSINESS OF TRADING IN PHARMACEUTICA LS, BULK DRUGS AND CHEMICALS. A RETURN WAS E-FILED ON 15.10.2010 DECLA RING AN INCOME OF RS.1,75,90,170/-. THE RETURN WAS PROCESSED U/S.143( 1) OF THE INCOME TAX ACT. THEREAFTER, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE WAS SERVED UPON THE ASSESSEE, SEEKING REPLY OF THE ASSESSEE. A SSESSMENT ORDER WAS PASSED BY ACIT WHEREBY A SUM OF RS.11,09,321/- BEIN G THE AMOUNT OF DEPB CREDIT WAS ADDED BACK TO THE TOTAL INCOME OF T HE ASSESSEE. 3 ITA NO. 7118/MUM/2014 (A.Y. 2010-11) VIDHYA PHARMA CHEM PVT. LTD. VS. ACIT 3. AGGRIEVED BY THE ORDER OF THE AO, ASSESSEE PREFE RRED AN APPEAL BEFORE CIT(A) AND THE CIT(A) AFTER CONSIDERING THE CASE OF THE ASSESSEE DISMISSED THE APPEAL OF THE ASSESSEE. 4. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE P REFERRED THE PRESENT APPEAL BEFORE US ON THE GROUNDS MENTIONED HEREINABO VE (PARAGRAPHS 1 TO 4 OF GROUNDS OF APPEAL). 5. GROUND NOS. 1 TO 4 ARE INTERCONNECTED AND RELATE S TO ADDITION MADE BY REVENUE AUTHORITY UNDER DEPB ENTITLEMENTS AMOUNT ING TO RS.11,09,321/-, THEREFORE, WE HAVE DECIDED TO DISPO SE OF THE SAME THROUGH THE PRESENT COMMON ORDER. 6. THE LEARNED AR APPEARING ON BEHALF OF THE ASSESS EE SUBMITTED THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN P HARMACEUTICALS, BULK DRUGS AND CHEMICALS AND ACCOUNTING THE INCOME FROM DEPB LICENSE ON CASH BASIS. IT IS FURTHER ARGUED THAT THE SAME SYST EM IS BEING FOLLOWED CONSISTENTLY BY THE COMPANY ON YEAR TO YEAR BASIS. IT IS NEXT SUBMITTED THAT THE ASSESSEE HAS FOLLOWED THE SAME PROCEDURE IN THE FOLLOWING YEAR ALSO AND HAVE ALREADY OFFERED THE SAID AMOUNT FOR TAX IN THE YEAR OF RECEIPT FROM SALE OF DEPB LICENSE. 4 ITA NO. 7118/MUM/2014 (A.Y. 2010-11) VIDHYA PHARMA CHEM PVT. LTD. VS. ACIT 7. LEARNED AR IN ORDER TO STRENGTHEN HIS ARGUMENTS SUBMITTED THAT THE REASON FOR ACCOUNTING DEPB ON CASH BASIS IS THAT PR EMIUM ON DEPB FLUCTUATES BY 5% TO 10% IN THE MARKET AS PER DEMAND /SUPPLY GAP. THE SELLER MAY GET HIGHER AMOUNT ON ACTUAL SELL/REALIZA TION DEPENDING UPON MARKET CONDITIONS ON THAT DATE. SINCE, THE ASSESSEE WAITS FOR A FAVOURABLE MARKET CONDITION AND SELLS DEPB IN THE MARKET WHEN PREMIUM ARE COMPARATIVELY HIGH, THEREFORE, ASSESSEE ACCOUNTS FO R THE SAME ON ACTUAL MONEY REALIZATION BASIS. 8. ON THE OTHER HAND, LEARNED DR RELIED UPON THE OR DER PASSED BY THE REVENUE AUTHORITIES. 9. WE HAVE HEARD THE COUNSEL FOR BOTH THE PARTIES A ND ALSO PERUSED THE MATERIAL ON RECORD AS WELL AS THE ORDERS PASSED BY THE REVENUE AUTHORITIES. LEARNED CIT(A) HAS DECIDED THE ISSUE O F DEPB ENTITLEMENTS IN PARAGRAPH 2.3 OF ITS ORDER, THE SAME IS REPRODUC ED BELOW. 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ORDER PASSED BY THE AO AND THE SUBMISSION MADE BY THE APPELLANT. IT IS SEEN THAT T HE APPELLANT FOLLOWS THE MERCANTILE SYSTEM OF ACCOUNTING. THEREFORE, THE INCOME OUT OF TRA NSFER DEPB BY WAY OF SALE OR OTHERWISE HAS TO BE OFFERED AS INCOME FOR THE YEAR UNDE R THE MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY THE APPELLANT, WHICH THE APPE LLANT HAS FAILED TO DO. FURTHER, AS PER THE PROVISIONS OF SECTION 28(II ID) OF THE ACT, THE SALE / TRANSFER OF DEPB IS A TAXABLE BUSINESS RECEIPT AND AS AND WHEN THE APPEL LANT IS ENTITLED FOR THE SAME. THE APPELLANT'S STAND THAT THE SAME IS OFFERED F OR TAX ON CASH BASIS IN NEXT ASSESSMENT YEAR IS NOT ACCEPTABLE AS THE APPELLANT FOLLOWS MERCANTILE SYSTEM OF 5 ITA NO. 7118/MUM/2014 (A.Y. 2010-11) VIDHYA PHARMA CHEM PVT. LTD. VS. ACIT ACCOUNTING AND, THEREFORE, DEPB ENTITLEMENT IS REQUIRED TO TH E CREDITED IN THE P & L A/C. AS INCOME FOR THE YEAR UNDER CONSIDERATION ON ACCRUAL BASIS, WHICH THE APPELLANT HAS FAILED TO OFFER. THEREFORE, THE ACTION OF THE AO IN TAXING THE DEP B AMOUNTING TO RS.11,09,321/- FOR THE YEAR IS JUSTIFIED. ACCORDINGLY, THE GR OUND OF APPEAL IS DISMISSED. 10. WE HAVE ANALYZED THE ORDERS PASSED BY CIT(A) AN D WE HAVE ALSO CONSIDERED THE LATEST JUDGMENT RELIED UPON BY LEARN ED AR OF HONBLE APEX COURT IN THE CASE OF CIT VS. M/S. EXCEL INDUST RIES LTD., REPORTED IN 358 ITR 295. THE OPERATIVE PORTION OF THE SAME IS R EPRODUCED BELOW. 32. THIRDLY, THE REAL QUESTION CONCERNING US IS TH E YEAR IN WHICH THE ASSESSEE IS REQUIRED TO PAY TAX. THERE IS NO DISPUT E THAT IN THE SUBSEQUENT ACCOUNTING YEAR, THE ASSESSEE DID MAKE I MPORTS AND DID DERIVE BENEFITS UNDER THE ADVANCE LICENCE AND THE D UTY ENTITLEMENT PASS BOOK AND PAID TAX THEREON. THEREFORE, IT IS NO T AS IF THE REVENUE HAS BEEN DEPRIVED OF ANY TAX. WE ARE TOLD THAT THE RATE OF TAX REMAINED THE SAME IN THE PRESENT ASSESSMENT YEAR AS WELL AS IN THE SUBSEQUENT ASSESSMENT YEAR. THEREFORE, THE DISPUTE RAISED BY THE REVENUE IS ENTIRELY ACADEMIC OR AT BEST MAY HAVE A MINOR TAX EFFECT. THERE WAS, THEREFORE, NO NEED FOR THE REVENUE TO CO NTINUE WITH THIS LITIGATION WHEN IT WAS QUITE CLEAR THAT NOT ONLY WA S IT FRUITLESS (ON MERITS) BUT ALSO THAT IT MAY NOT HAVE ADDED ANYTHIN G MUCH TO THE PUBLIC COFFERS . 11. FROM THE FACTS OF THE CASE, WE FOUND THAT THE A SSESSEE ACCOUNTED THE INCOME FROM SALE OF DEPB LICENSE ON CASH BASIS AND THE SAME IS FOLLOWED CONSISTENTLY BY THE ASSESSEE ON YEAR TO YEAR BASIS. WE HAVE ALSO OBSERVED THAT THE SAME PROCEDURE IS BEING FOLLOWED BY THE AS SESSEE IN THE FOLLOWING YEARS AND THE ASSESSEE HAS OFFERED THE SAID AMOUNT FOR TAX IN THE YEAR OF RECEIPT FROM SALE OF DEPB LICENSE. SINCE THE FACTS OF THE PRESENT CASE ARE 6 ITA NO. 7118/MUM/2014 (A.Y. 2010-11) VIDHYA PHARMA CHEM PVT. LTD. VS. ACIT SIMILAR TO THE FACTS OF THE CASE DECIDED BY HONBLE APEX COURT WHEREIN IN THE HONBLE SUPREME COURT WHILE RELYING UPON THE EA RLIER JUDGMENT OF HONBLE APEX COURT IN THE CASE OF COMMISSIONER OF I NCOME TAX V/S. SHOORJI VALLABHDAS AND CO., 46 ITR 144 (SC) HAS HEL D AS FOLLOWS: INCOME TAX IS A LEVY ON INCOME. NO DOUBT, THE INCO ME TAX ACT TAKES INTO ACCOUNT TWO POINTS OF TIME AT WHICH THE LIABILITY TO TAX IS ATTRACT, VIZ., THE ACCRUAL OF THE INCOME OR ITS REC EIPT; BUT THE SUBSTANCE OF THE MATTER IS THE INCOME. IF INCOME DOES NOT RES ULT AT ALL, THERE CANNOT BE A TAX, EVEN THOUGH IN BOOK-KEEPING, AN EN TRY IS MADE ABOUT A HYPOTHETICAL INCOME, WHICH DOES NOT MATERIALIZE . WHERE INCOME HAS, IN FACT, BEEN RECEIVED AND IS SUBSEQUENTLY GIV EN UP IN SUCH CIRCUMSTANCES THAT IT REMAINS THE INCOME OF THE REC IPIENT, EVEN THOUGH GIVEN UP, THE TAX MAY BE PAYABLE. WHERE, HOW EVER, THE INCOME CAN BE SAID NOT TO HAVE RESULTED AT ALL, THERE IS O BVIOUSLY NEITHER ACCRUAL NOR RECEIPT OF INCOME, EVEN THOUGH AN ENTRY TO THAT EFFECT MIGHT, IN CERTAIN CIRCUMSTANCES, HAVE BEEN MADE IN THE BOOKS OF ACCOUNT. AFTER CONSIDERING THE PRINCIPLES LAID DOWN BY HON BLE SUPREME COURT WE HAVE OBSERVED THAT SINCE IN THE PRESENT CA SE, THE ASSESSEE HAD BEEN FOLLOWING THE SAID PROCEDURE CONSISTENTLY AND HAS ALREADY OFFERED THE INCOME FOR TAX IN THE YEAR OF RECEIPT FROM THE SALE OF DEPB LICENSE. CONSIDERING THE FACTS OF THE PRESENT CASE AND THE F ACT THAT SYSTEM OF ACCOUNTING OF DEPB ENTITLEMENTS ON CASH/ REALIZATIO N BASIS HAS BEEN CONSISTENTLY FOLLOWED YEAR AFTER YEAR BY THE ASSESS EE IN PAST ALSO AND MORE SO SINCE THE DEPB ENTITLEMENTS RECEIPT DURING FINAN CIAL YEAR 2009-10 RELEVANT TO A.Y. 2010-11 ARE ALREADY ACCOUNTED AND OFFERED FOR TAXATION IN 7 ITA NO. 7118/MUM/2014 (A.Y. 2010-11) VIDHYA PHARMA CHEM PVT. LTD. VS. ACIT THE NEXT FINANCIAL YEAR 2010-11 RELEVANT YEAR 2011- 12 ON REALIZATION BASIS, THEREFORE AFTER TAKING INTO CONSIDERATION THE DECIS ION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. M/S. EXCEL INDUSTRIES LTD., (SUPRA), WE HOLD THAT THE ASSESSEE IS ENTITLED FOR DEPB CREDIT IN TH E YEAR UNDER CONSIDERATION AND THEREFORE THE ADDITIONS MADE BY T HE AO ARE HEREBY DELETED. THE AO IS DIRECTED TO RE-COMPUTE THE INCOM E IN THE TERMS OF AFOREMENTIONED DECISION. THEREFORE, THESE GROUNDS R AISED BY THE ASSESSEE ARE ALLOWED. 12. GROUND NO.5 IS GENERAL IN NATURE, THEREFORE, DO ES NOT REQUIRE ANY ADJUDICATION. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD SEPTEMBER, 2016 SD/- SD/- (JASON P. BOAZ) (SANDEEP GOSAIN) $ / ACCOUNTANT MEMBER &' $ / JUDICIAL MEMBER ( ) MUMBAI; *$ DATED : 23.09.2016 P.K.K., SR.P.S. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT - CONCERNED 8 ITA NO. 7118/MUM/2014 (A.Y. 2010-11) VIDHYA PHARMA CHEM PVT. LTD. VS. ACIT 5. ./0 ''12 , 12# , ( ) / DR, ITAT, MUMBAI 6. 045 6 / GUARD FILE / BY ORDER, / !'# (DY./ASSTT. REGISTRAR) #$ %, ( ) / ITAT, MUMBAI