Deputy Commissioner of Income-tax, V. Shri Ashok Narayan Bhosale, Pune

ITA 94/PUN/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0301 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 19-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUMITRA BANERJI
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , . . , # BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM . / ITA NO.94/PUN/2015 % % / ASSESSMENT YEAR : 2010-11 D CIT, C IRCLE - 8 , PUNE . / APPELLANT V/S SHRI ASHOK NARAYAN BHOSALE, PROP. M/S. ULTRA ENGINEERS, PCNTDA, SEC-10, PLOT NO.59 & 68, BHOSARI, PUNE 411 026 PAN : AASPB3588Q . /RESPONDENT / APPELLANT BY : MS. SUMITRA BANERJI / RESPONDENT BY : SHRI VIJAY D. KENDHE / ORDER PER R.K.PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE O RDER DATED 28-10-2014 OF THE CIT(A)-V, PUNE RELATING TO ASSES SMENT YEAR 2010-11. 2. ALTHOUGH A NUMBER OF GROUNDS HAVE BEEN RAISED BY TH E REVENUE IN THE GROUNDS OF APPEAL, HOWEVER THEY ALL RELATE TO THE O RDER OF CIT(A) IN DELETING THE ADDITION OF RS.57,46,657/- MADE BY THE ASSES SING OFFICER U/S.41(1) OF THE I.T. ACT ON ACCOUNT OF VAT REFUND RECEIVED. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A N INDIVIDUAL AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND JOB W ORKS OF / DATE OF HEARING :20.12.2016 / DATE OF PRONOUNCEMENT:23.12.2016 2 ITA NO.94/PUN/2015 PRESS TOOLS, JIGS FIXTURES, WINDMILL PARTS, LABOUR JOB AND TRA DING IN SHARES. HE FILED HIS RETURN OF INCOME ON 14-10-2010 DECLA RING TOTAL INCOME OF RS.4,89,66,430/-. DURING THE COURSE OF ASSESSME NT PROCEEDINGS THE ASSESSING OFFICER OBSERVED FROM THE DETAILS FURNISHED BY THE ASSESSEE THAT ASSESSEE HAS RECEIVED AN AMOUNT OF RS.57,46,657/- ON ACCOUNT OF VAT REFUND WHICH HAS NOT BEE N CREDITED TO THE PROFIT AND LOSS ACCOUNT. HE, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE SAME WAS NOT TAXABLE AS BENEFIT BY WAY OF REMISSION OF LIABILITY WITHIN THE MEANING OF SECTION 41(1) OF THE I .T. ACT. IT WAS EXPLAINED BY THE ASSESSEE THAT THE AMOUNT REFUN DED IS DUE TO EXCESS PAYMENT OF VAT ON PURCHASES. THE ASSESSEE FURTH ER SUBMITTED THAT IT IS MAINTAINING BOOKS OF ACCOUNT ON NET TAX METHOD . THE TAXES COLLECTED ARE CREDITED TO DUTIES AND TAXES GROUP UNDER VARIOUS ACCOUNTS AND THE AMOUNT PAID THROUGH PURCHASE BILLS ELIGI BLE FOR SET OFF ARE DEBITED TO THIS GROUP. IT WAS SUBMITTED THAT SA LES TAX REFUND IS NOT OF THE NATURE OF RECEIPT AS SPECIFIED WITHIN THE PROVISIO NS OF SECTION 28(II)(A) TO 28(IV). FURTHER REFUND RECEIVED IS NOT FINALLY DETERM INED BUT A TENTATIVE AMOUNT RELEASED ON THE BASIS OF BANK GUARAN TEE SUBMITTED BY THE ASSESSEE. FURTHER SIMILAR ADDITION MADE BY THE AS SESSING OFFICER WAS DELETED BY THE CIT(A) IN THE PRECEDING ASSESSME NT YEAR. IT WAS ACCORDINGLY SUBMITTED THAT THE VAT TAX REFUND OF RS .57.46 LAKHS IS NOT TAXABLE AS REMISSION OF LIABILITY U/S.41 OR U/S.28(II)(A) TO 2 8(IV) OF THE I.T. ACT. 4. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. ACCORDING TO HIM, THE BENEFIT OBTAINED BY THE ASSESSEE IN RESPECT OF SUCH TRADING LIABILIT Y BY WAY OF REMISSION OR CESSATION CAN BE JUDGED FROM THE FACT THAT THE ASSESSEE WAS FREE TO USE THE MONEY IN ITS BUSINESS AS IT LIKED AND WAS NOT 3 ITA NO.94/PUN/2015 OBLIGED TO SPEND THE MONEY FOR A PARTICULAR PURPOSE. RE LYING ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SAHN EY STEELS AND PRESS WORKS LTD. VS. CIT REPORTED IN 228 ITR 253 A ND VARIOUS OTHER DECISIONS THE ASSESSING OFFICER MADE ADDITION OF RS.57,4 6,657/- TO THE TOTAL INCOME OF THE ASSESSEE BEING VAT REFUND RECEIVED. 5. IN APPEAL THE LD.CIT(A), FOLLOWING HIS ORDER FOR A.Y. 2009-10 WHICH HAS BEEN UPHELD BY THE TRIBUNAL IN ASSESSEES OWN CASE, DELETED THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF REFUND OF VAT. 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 7. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBM ITTED THAT IDENTICAL ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR O F THE ASSESSEE FOR A.Y. 2009-10 AND THE APPEAL FILED BY THE REVENUE HAS BEEN DISMISSED. THEREFORE, THIS BEING A COVERED MATTER THE GRO UNDS RAISED BY THE REVENUE SHOULD BE DISMISSED. 8. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAN D WHILE SUPPORTING THE ORDER OF THE ASSESSING OFFICER FAIRLY CONCE DED THAT THE ISSUE HAS BEEN DECIDED BY THE TRIBUNAL AGAINST THE REVE NUE. HOWEVER, THE REVENUE HAS NOT ACCEPTED THE DECISION OF THE TRIBUNA L AND HAS FILED AN APPEAL BEFORE THE HONBLE HIGH COURT WHICH IS PENDING. THEREFORE, TO KEEP THE MATTER ALIVE, THE REVENUE HAS FILED THIS APPEAL. 9. WE HAVE HEARD THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE PAP ER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIO US DECISIONS CITED BY BOTH THE SIDES. WE FIND IDENTICAL ISSUE HAD COME UP BEFORE 4 ITA NO.94/PUN/2015 THE TRIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY PR ECEDING ASSESSMENT YEAR. THE TRIBUNAL VIDE ITA NO.404/PN/2013 A ND ITA NO.717/PN/2013 FOR A.Y. 2009-10 ORDER DATED 26-06-2014 HAS DECIDED THE ISSUE AND UPHELD THE ORDER OF THE CIT(A) IN D ELETING THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF VAT RE FUND BY OBSERVING AS UNDER : 23. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. SECTION 41(1) OF THE ACT HAS BEEN INVOKED BY THE ASSESSING OFFICER IN THE PRESENT CASE TO INCLUDE AN AMOUNT OF VAT REFUND AS INCOME IN THE HAN DS OF THE ASSESSEE. THE ASSESSEE HAS RESISTED THE APPLICABILITY OF SECTION 41(1 ) OF THE ACT ON THE GROUND THAT SECTION 41(1) COVERS A SITUATION WHERE ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR I N RESPECT OF A LOSS EXPENDITURE OR A TRADING LIABILITY INCURRED BY T HE ASSESSEE; AND, FOR WHICH SUBSEQUENTLY ASSESSEE OBTAINS A BENEFIT IN CASH OR OT HERWISE BY WAY OF REMISSION OR CESSATION OF SUCH LIABILITY. THE PHRASE OLOGY OF SECTION 41(1) OF THE ACT LENDS IT TO AN INTERPRETATION THAT IT SEEKS TO TAX AN AMOUNT, WHICH HAS BEEN ALLOWED DEDUCTION IN THE ASSESSMENT FOR A NY PAST YEAR OR IN THE YEAR IN WHICH ASSESSEE GETS A REFUND. THE CASE O F THE ASSESSEE, AND WHICH HAS BEEN UPHELD BY THE CIT(A), IS TO THE EFFECT THAT THE IMPUGNED REFUND OF VAT AMOUNTING TO RS.69,68,516/- WAS NOT CL AIMED AS AN EXPENDITURE OR DEDUCTION EITHER IN THE PAST OR THE C URRENT ASSESSMENT YEAR AND THEREFORE IT CANNOT BE BROUGHT INTO TAX NET BY APPLYING SECTION 41(1) OF THE ACT. THE AFORESAID FACTUAL ASSERTION OF THE AS SESSEE HAS BEEN APPRECIATED BY THE CIT(A) IN THE FOLLOWING MANNER : - 17. THUS, FROM READING OF SEC.41(1), IT IS CLEAR T HAT FIRST CRITERIA TO BE MADE WHILE APPLYING SEC. 41(1) THAT AN ALLOWANCE OR DEDUCTION MUST HAVE BEEN MADE IN THE ASSESSMENT YEAR FOR ANY YEAR IN RESPECT OF THE AMOUNT WHICH IS SOUGHT TO BE TREATED AS INCO ME U/S. 41(1) OF THE INCOME-TAX ACT. IN THIS CASE, FROM THE REPLY F ILED BY THE APPELLANT, IT IS SEEN THAT VAT IS NEITHER DEBITED NOR CREDITED IN THE PROFIT & LOSS A/C. THE APPELLANT HAS SUBMITTED THAT A SEPARATE A CCOUNT IS MAINTAINED FOR VAT AND THE SAME IS NOT CLAIMED AS E XPENDITURE WHEN PAYMENT IS MADE AND ACCORDINGLY THE SAME WILL NOT F ALL UNDER THE HEAD INCOME, WHEN REFUND IS CLAIMED. . . 18. THEREFORE, SINCE THE AMOUNT OF VAT IS NEITHER B EING CLAIMED OR ALLOWED AS DEDUCTION IN ANY EARLIER ASSESSMENT, THERE IS NO QUESTION OF TAXING THE SAME U/S. 41(1) OF INCOME-TA X ACT. IN FACT, IT IS THE APPELLANT'S OWN MONEY WHICH IS PAID WHILE MA KING PURCHASES, PAID AS VAT WHICH IS REFUNDED AFTER SETT ING OFF OF VAT AS PER PROVISIONS OF MAHARASHTRA VALUE ADDED TAX 20 02. THE ASSESSING OFFICER HAS RELIED UPON THE DECISION OF H ON'BLE SUPREME COURT IN THE CASE OF CIT VS. THIRUMALAI SWAMY NAIDU AND SONS 230 (ITR) 534. HOWEVER, IT IS SEEN THAT THE FACTS ARE D ISTINGUISHABLE IN THE SENSE THAT IN THAT CASE SALES TAX DEDUCTION WAS CLAIMED AND ALLOWED AND THEREFORE, IT WAS HELD THAT WHEN THE AM OUNT IS 5 ITA NO.94/PUN/2015 REFUNDED THE SAME IS TAXABLE U/S. 41(1) OF INCOME-T AX ACT. THE ASSESSING OFFICER HAS ALSO RELIED UPON HON'BLE KARN ATAKA HIGH COURT'S DECISION IN THE CASE OF MYSORE THERMO ELECT RIC (P) LTD. VS. CIT 221 ITR 504. IN THAT CASE IT IS SEEN THAT THE S ALES TAX PAYMENT WAS DISPUTED AND THEREFORE IT WAS NOT CLAIMED IN TH E PROFIT & LOSS A/C AND WHEN THE ASSESSEE WON IN APPEAL THE SAME WA S REFUNDED. THE HON'BLE KARNATAKA HIGH COURT HELD THAT THE SAME IS TAXABLE U/S. 41(1) OF INCOME-TAX ACT AS NON CLAIM OF THE SA ME IN PROFIT & LOSS A/C HAS NOTHING TO DO WITH THE ALLOWABILITY OF THE AMOUNT. SINCE SALES TAX PAYMENT WAS ALLOWABLE IN THE PROFIT & LOSS A/C THE SAME WAS REQUIRED TO BE TAXED U/S. 41(1) OF INCOME- TAX ACT. IN THIS CASE THE FACTS ARE DIFFERENT IN THE SENSE THAT THE ISSUE HAS BEEN DECIDED ON THE BASIS OF ALLOWABILITY AND NOT ON ACC OUNT OF PRINCIPLES OF ACCOUNTING. THE HON'BLE SUPREME COURT IN THE CASE OF POLYFLEX (LNDIA)(P) LTD. VS. CIT 257 ITR 343 HAS HE LD THAT SEC. 41(1) APPLIES IF IN THE ASSESSMENT FOR THE RELEVANT YEAR AN ALLOWANCE OF DEDUCTION HAS BEEN MADE IN RESPECT OF ANY LOSS EXPENDITURE OR TRADING LIABILITY INCURRED BY THE AS SESSEE. SINCE, IN THIS CASE THERE WAS NO ALLOWANCE OF ANY EXPENDITURE THE QUESTION OF APPLICABILITY OF SEC. 41(1), DOES NOT ARISE. TH EREFORE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS HELD THA T THE ASSESSING OFFICER WAS NOT JUSTIFIED IN TREATING THE AMOUNT OF RS.69,68,516/- U/S. 41(1) OF THE INCOME-TAX ACT. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION. THE GROUND IS THUS ALLOWED. 24. THE AFORESAID FINDINGS OF THE CIT(A), IN OUR VIEW , ARE FAIR AND APT, DO NOT REQUIRE ANY INTERFERENCE FROM OUR SIDE. THE R ELIANCE PLACED BY THE ASSESSING OFFICER ON THE JUDGEMENT OF THE HONBLE KARNA TAKA HIGH COURT IN THE CASE OF MYSORE THERMO ELECTRIC (P) LTD. (SUPRA) HA S ALSO BEEN FOUND BY THE CIT(A) TO BE MISPLACED ON ACCOUNT OF DISTINCTION IN FACTS. IN-FACT, THE CIT(A) HAS RELIED UPON THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF POLYFLEX (INDIA) (P) LTD. VS. CIT (2002) 257 ITR 343 (SC) TO EMPHASIZE THAT SECTION 41(1) OF THE ACT WOULD APPLY O NLY IF IN THE ASSESSMENT FOR RELEVANT YEAR AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN RESPECT OF ANY LOSS, EXPENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE. SINCE IN THE PRESENT CASE, IN THE ASSESSMENT FOR ANY YEAR NO ALLOWANCE OR DEDUCTION OF ANY EXPENDITURE IN RESPECT OF THE IMPUGNED VAT AMOUNT HAS BEEN ALLOWED, FOLLOWING THE RATIO OF THE AFORESAID JUDGEMENT OF THE HONBLE SUPREME COURT THE APPLICAB ILITY OF SECTION 41(1) OF THE ACT IS NOT JUSTIFIED. THUS HAVING REGARD TO TH E FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND NO REASON TO DISTRACT FROM THE ORDER OF THE CIT(A) ON THIS ASPECT AND ACCORDINGLY, THE REVENU E FAILS IN ITS APPEAL. 10. SINCE THE FACTS OF THE INSTANT CASE ARE IDENTICAL TO TH E FACTS OF THE CASE DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE WHIC H HAS BEEN FOLLOWED BY THE CIT(A) WHILE DELETING THE ADDITION MADE BY THE ASSESSING OFFICER, THEREFORE, IN ABSENCE OF ANY CONTRARY MAT ERIAL BROUGHT TO OUR NOTICE AGAINST THE ORDER OF THE TRIBUNAL, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) ON THIS ISSUE. MERELY BE CAUSE THE 6 ITA NO.94/PUN/2015 REVENUE HAS FILED AN APPEAL AGAINST THE ORDER OF THE TRIBU NAL, THE SAME IN OUR OPINION CANNOT BE A GROUND TO TAKE A CONTRARY V IEW THAN THE VIEW TAKEN BY THE TRIBUNAL. IN THIS VIEW OF THE MATTER WE UPHOLD THE ORDER OF THE CIT(A) AND THE GROUNDS RAISED BY THE REVEN UE ARE DISMISSED. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED ORDER PRONOUNCED IN THE OPEN COURT ON 23-12-2016. SD/- SD/- (SUSHMA CHOWLA) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE; ' DATED : 23 RD DECEMBER, 2016. ' (*+ ,+/ COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A)-V, PUNE 4. THE CIT-V, PUNE 5. $ ''( , ( , / DR, ITAT, A PUNE; 6. + / GUARD FILE. / BY ORDER, // $ ' //TRUE COPY // Y // -. ' ( / SR. PRIVATE SECRETARY ( , / ITAT, PUNE