DEPUTY COMMISSIONER OF INCOME TAX, Jaipur V. RAJASTHAN CO-OPERATIVE DAIRY FEDERATION LTD., Jaipur

ITA 976/JPR/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6360 (ITAT-JAIPUR)
• Duration Of Justice: 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 11-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROLEE AGARWAL
• Assessee Lawyers: P C PARWAL CA DHK
• Keywords: Deemed to accrue or arise in india; Capital receipt; Revenue expenditure

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,O JH HKKXPUN] YS[KK LNL; LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, AM VK;DJ VIHY LA-@ ITA NO. 976/JP/2017 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR: 2004-05 THE DCIT CIRCLE -6 JAIPUR CUKE VS. M/S. RAJASTHAN COOPERATIVE DAIRY FEDERATION LTD. SARAS SANKUL JLN MARG, JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AAAAR 0278 A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY:SMT. ROLEE AGARWAL, CIT - DR FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY: SHRI P.C. PARWAL, CA LQUOKBZ DH RKJH[K@ DATE OF HEARING : 18/07/2018 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 25 /07/2018 VKNS'K@ ORDER PER BHAGCHAND, AM THE APPEAL FILED BY THE REVENUE EMANATES FROM T HE ORDER OF THE LD. CIT(A), BIKANER DATED 30-08-2017 FOR THE ASSE SSMENT YEAR 2004-05 RAISING THEREIN FOLLOWING GROUND OF APPEAL. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE AD DITION OF RS. 4,74,77,000/- MADE U/S 41(1) OF THE I.T. ACT, 1961 ON ACCOUNT OF REMISSION/ CESSION OF LIABILITY8 IN THE NATURE OF G UARANTEE COMMISSION MORE SO WHEN THE ASSESSEE HAD ALREADY CLAIMED THE A MOUNT AS REVENUE EXPENDITURE IN RELEVANT YEARS. ITA NO.976/JP/2017 DCIT, CIRCLE-6, JAIPUR VS M/S. RAJASTHAN DAIRY COOPERATIVE FEDERATION LTD. ITA NO. 297/JP/2017 2 2.1 APROPOS SOLITARY GROUND OF THE REVENUE, THE FAC TS AS EMERGES FROM THE ORDER OF THE LD. CIT(A) ARE AS UNDER:- THE APPELLANT HAS CHALLENGED ACTION OF THE AO IN TREATING THE CONVERSION OF OUTSTANDING LIABILITY IN RESPECT OF GUARANTEE COMMISSION OF RS.4,74,77,000/- INTO A CAPITAL GRANT FROM THE GOVERNMENT OF RAJASTH AN AS CESSATION OF LIABILITY AND THEREBY MAKING ADDITI ON OF RS.4,74,77,000/- BY TREATING THE SAME AS INCOME OF THE ASSESSEE U/S 41(1)(A) OF THE ACT. THE FACT OF THE C ASE IS THAT THE ASSESSEE IS A CO-OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF PROCESSING AND MARKETING OF MILK AN D MILK PRODUCTS. IT HAD TAKEN LOANS FROM NDDB FOR WHI CH GOVT. OF RAJASTHAN (GOR) HAD STOOD AS A GUARANTOR. IN LIEU OF THIS, THE ASSESSEE HAD TO PAY GUARANTEE COMMISSION OF RS.25 LAKHS PER YEAR TO GOR. THIS GUARANTEE COMMISSION WAS CLAIMED AS EXPENDITURE FOR MANY YEARS AND PROVISION WAS MADE UPTO AY 2003-04. THE ASSESSEE HAD A LIABILITY OF 4.97 CRORE IN THE F ORM OF GUARANTEE COMMISSION PAYABLE TO GOVERNMENT OF RAJASTHAN. IN THE YEAR UNDER CONSIDERATION ASSESSEE HAD PAID RS.22,22,910/- TO GOVERNMENT OF RAJASTHAN AND FOR THE REMAINING LIABILITY OF RS.4,74,77,000/-, GOVERN MENT OF RAJASTHAN HAS ISSUED A LETTER ALLOWING THE ASSES SEE TO TREAT THE SAME AS CAPITAL GRANT THEREBY DISCHARGING THE ASSESSEE FROM THE LIABILITY TO MAKE PAYMENT OF THE SAME. THE AO FURTHER OBSERVED THAT, CONVERSION OF GUARANTEE COMMISSION LIABILITY INTO CAPITAL GRANT I S CESSATION OF LIABILITY AND THEREFORE THE AMOUNT SO CONVERTED IS TO BE CONSTRUED AS DEEMED INCOME FROM BUSINESS TAXABLE U/S 41(1)(A) OF THE ACT. DURING THE COURSE OF APPEAL HEARING THE A/R FOR THE APPELLANT SUBMITTED THAT THE AO HAS NOT PROPERLY UNDERSTOOD THE NATURE OF TRANSACTIONS. IT IS NOT TH E CASE OF CESSATION/ REMISSION OF LIABILITY BUT IT IS A CASE OF ASSESSEE BEING DISCHARGED OF HIS LIABILITY AND CONSEQUENTLY THE ITA NO.976/JP/2017 DCIT, CIRCLE-6, JAIPUR VS M/S. RAJASTHAN DAIRY COOPERATIVE FEDERATION LTD. ITA NO. 297/JP/2017 3 AMOUNT PAYABLE IS TREATED BY THE GOVERNMENT AS CAPI TAL GRANT. THUS TWO TRANSACTIONS ARE INVOLVED, FIRSTLY THE ASSESSEE HAS PAID THE LIABILITY TO THE GOVERNMENT A ND SECOND THE GOVERNMENT HAS GIVEN CAPITAL GRANT TO TH E ASSESSEE FOR THAT AMOUNT. THE LETTER DATED 29.04.20 04 ISSUED BY THE GOVERNMENT TO THE ASSESSEE IN THIS RE GARD IS PRODUCED BY THE AO ON PAGE 8 OF ASSESSMENT ORDER. T HE APPELLANT CONTENDED THAT IN VIEW OF THE AFORESAID, SECTION 41(1)(A) IS NOT APPLICABLE IN THE FACTS OF THE PRES ENT CASE AND ADDITION MADE BY AO BE DELETED. THE ASSESSING OFFICER OBSERVED THAT IN THE LETTER ISSUED BY GOVERNMENT NOTHING IS MENTIONED THAT IF T HE ASSESSEE FAILS TO USE THIS AMOUNT FOR SPECIFIC PURP OSE THEN WHAT SHALL BE THE CONSEQUENT RESULT. EVEN IF THE AS SESSEE HAS TO PAY BACK THIS AMOUNT, IF NOT USED FOR SPECIF IC PURPOSE STILL SECTION 41(1)(A) WOULD BE APPLICABLE. THE APPELLANT CONTENDED THAT THIS VIEW OF THE AO IS TOT ALLY INCORRECT AND AGAINST THE PROVISIONS OF LAW. THE CA PITAL GRANT CAN'T BE USED FOR DISTRIBUTION OF DIVIDENDS O R FOR REVENUE EXPENDITURE. THE GRANT IS THUS THE CAPITAL RECEIPT AND THEREFORE IT CANNOT BE BROUGHT TO TAX. SECTION 41(1)(A) IS THUS NOT APPLICABLE. THE LD. AR, THEREFORE, PLEA DED THAT THE ADDITION MADE BY AO MAY BE DIRECTED TO BE DELETED. I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSION MADE. I FIND THAT THE DY. SECRETARY TO T HE GOVERNMENT VIDE ITS LETTER DATED 26-04-2004 AS REPRODUCED AT PAGE 8 OF THE ASSESSMENT ORDER HAS COMMUNICATED TO THE ASSESSEE THAT THE GUARANTEE COMMISSION OF RS.4,74,77,000/- PAYABLE TO THE GOVERNMENT BE TREATED AS CAPITAL GRANT TO BE USED F OR REHABILITATION/CAPITAL REQUIREMENT OF THE ASSESSEE AND CAN'T BE USED FOR ANY FURTHER DISTRIBUTION OF DIVID END OR REVENUE EXPENDITURE. FROM THIS LETTER IT IS EVIDENT THAT GOVERNMENT HAS NOT WAIVED THE AMOUNT OF COMMISSION PAYABLE TO IT BY THE ASSESSEE BUT HAS PERMITTED THE ASSESSEE THAT THE SAME AMOUNT BE USED BY IT FOR ITS CAPITAL ITA NO.976/JP/2017 DCIT, CIRCLE-6, JAIPUR VS M/S. RAJASTHAN DAIRY COOPERATIVE FEDERATION LTD. ITA NO. 297/JP/2017 4 REQUIREMENT. THUS IT IS NOT A CASE OF REMISSION/CES SATION OF THE LIABILITY AS ENVISAGED U/S 41(1) OF THE ACT. IN FACT THESE ARE TWO TRANSACTION. ONE IS DISCHARGE OF THE LIABIL ITY OF THE PAYMENT OF COMMISSION BY THE ASSESSEE TO THE GOVERN MENT AND SECOND IS THE RECEIPT OF CAPITAL GRANT BY THE A SSESSEE FROM THE GOVERNMENT. THEREFORE, THE AO WAS NOT CORR ECT IN HOLDING THAT THERE IS A REMISSION/CESSATION OF T HE PAYMENT OF GUARANTEE COMMISSION TO THE GOVERNMENT. HENCE THE ADDITION MADE BY THE AO IS DELETED. THE APPELLANT SUCCEEDS ON THIS GROUND. 2.2 DURING THE COURSE OF HEARING, THE LD. DR SUPPOR TED THE ORDER OF THE AO AND FURTHER SUBMITTED THAT THE LD. CIT(A) HAS ER RED IN DELETING THE ADDITION OF RS. 4,74,77,000/- MADE U/S 41(1) OF THE ACT ON ACCOUNT OF REMISSION/ CESSION OF LIABILITY IN THE NATURE OF GU ARANTEE COMMISSION AS THE ASSESSEE HAD ALREADY CLAIMED THE AMOUNT AS REVE NUE EXPENDITURE IN RELEVANT YEARS. 2.3 ON THE OTHER HAND, THE LD.AR SUPPORTED THE ORDE R OF THE LD. CIT(A) AND RELIED ON THE DECISION OF HON'BLE ALLAHABAD HIG H COURT IN THE CASE OF CIT VS INDO WIDECOM INTERNATIONAL LTD. (IT APPEAL N O. 715 OF 2012 DATED 7-12-2017), 161 DTR 345 (ALL.) THE HELD PORTI ON OF THE ISSUE IN THE ORDER IS AS UNDER:- THEN INSTEAD OF RECEIVING FULL VALUE OF GOODS SOLD BY IT TO M/S WIDECOM GROUP INC., THE ASSESSEE PASSED ENTRIES IN ITS BOOKS OF ACCOUNT AND THUS RECOVERED ITS MONEY FROM THE SAID PURCHASER TH ROUGH TRANSFER OF THE SHARE APPLICATION MONEY RS. ONE CRORE TO ITS GENERAL ACCO UNT EVIDENCED BY PROPER ENTRIES RECORDED IN ITS BOOKS OF ACCOUNT. IT THUS A DJUSTED THE CREDIT ENTRY ARISING ON ACCOUNT DEPOSIT OF RS. ONE CRORE BY M/S WIDECOM GROUP INC. ITA NO.976/JP/2017 DCIT, CIRCLE-6, JAIPUR VS M/S. RAJASTHAN DAIRY COOPERATIVE FEDERATION LTD. ITA NO. 297/JP/2017 5 AGAINST SHARE APPLICATION AGAINST THE PRICE OF GOOD S SOLD BY IT TO M/S WIDECOM GROUP INC. THUS, LOOKED AT FROM THE ASSESSEE'S PERS PECTIVE, IT IS A CASE OF DISCHARGE OF LIABILITY AND NOT CESSATION OR REMISSI ON OF LIABILITY. THE FACT THAT THE ASSESSEE DID NOT SHOW THE AMOUNT IN ITS PROFIT AND LOSS ACCOUNT MAY ITSELF NOT INVITE APPLICABILITY OF SECTION 41 OF THE ACT. TREATMENT GIVEN IN ACCOUNTING ENTRIES DOES NOT GIVE RISE TO TAXABLE EVENT. TO INV OKE SECTION 41 OF THE ACT, THE INITIAL BURDEN WAS ON THE REVENUE TO ESTABLISH CESS ATION OR REMISSION OF LIABILITY OF RS. ONE CRORE. THAT BURDEN WAS NOT DIS CHARGED. IN AS MUCH AS IT HAD BEEN FOUND BY THE CIT (APPEALS) AND THE TRIBUNA L THAT THE AMOUNT OF RS. ONE CRORE RECEIVED BY THE ASSESSEE FROM M/S WIDECOM GROUP INC. HAD BEEN ADJUSTED AGAINST THE SALE PRICE PAYABLE TO THE ASSE SSEE BY THAT ENTITY, THERE DID NOT SURVIVE ANY SCOPE TO INVOKE SECTION 41 OF THE A CT IN FAVOUR OF THE REVENUE. THUS QUESTION NO. 1 AS RAISED IN THE MEMO OF APPEAL IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 2.4 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE AO DURING THE ASSESSMENT P ROCEEDING MADE THE ADDITION OF RS. 4,74,77,000/- U/S 41(1)(A) OF THE A CT HOLDING AS UNDER: ANOTHER CONTENTION OF THE ASSESSEE THAT THE TRANS ACTION OF PAYMENT OF GUARANTEE COMMISSION HAS TAKEN PLACE AND IT IS PAID BY WAY OF BOOK ADJUSTMENT. THIS CONTENTION IS BASELESS BECAUSE FROM THE LETTER OF GOR IT IS VERY CLEAR THAT THE GUARANTEE C OMMISSION WAS NOT PAID BUT IT IS CONVERTED INTO CAPITAL GRANT/ RECEIP T. HAD THE ASSESSEE FURNISHED THE LETTER WHICH WERE REFERRED IN THAT LE TTER OF GOR, THIS CONDITION WOULD HAVE BEEN MORE CLEAR. IN VIEW OF THE ABOVE THE AMOUNT OF RS. 4,74,77,000/ - IS TREATED AS INCOME OF THE ASSESSEE U/S 41(1)(A) OF THE I.T. ACT, 1961. IN FIRST APPEAL, THE LD. CIT(A) HAS DELETED THE ADD ITION MADE BY AO BY HOLDING AS UNDER:- .THUS IT IS NOT A CASE OF REMISSION/CESSATION OF THE LIABILITY AS ENVISAGED U/S 41(1) OF THE ACT. IN FAC T THESE ARE TWO TRANSACTION. ONE IS DISCHARGE OF THE LIABILITY OF T HE PAYMENT OF COMMISSION BY THE ASSESSEE TO THE GOVERNMENT AND SE COND IS THE RECEIPT OF CAPITAL GRANT BY THE ASSESSEE FROM THE G OVERNMENT. THEREFORE, THE AO WAS NOT CORRECT IN HOLDING THAT T HERE IS A ITA NO.976/JP/2017 DCIT, CIRCLE-6, JAIPUR VS M/S. RAJASTHAN DAIRY COOPERATIVE FEDERATION LTD. ITA NO. 297/JP/2017 6 REMISSION/CESSATION OF THE PAYMENT OF GUARANTEE COM MISSION TO THE GOVERNMENT. HENCE THE ADDITION MADE BY THE AO IS DE LETED AFTER HEARING BOTH THE SIDES ON THIS ISSUE, WE FIN D THAT THE REVENUE WAS NOT ABLE TO CONTROVERT THE FINDINGS AS RECORDED BY THE LD. CIT(A) IN HIS ORDER. THEREFORE, WE FIND NO REASON TO INTERFERE WI TH THE ORDER OF THE LD. CIT(A) AND THE SAME STANDS UPHELD. THUS THE APPEAL OF THE REVENUE IS DISMISSED. 3.0 IN THE RESULT, THE APPEAL OF THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 -07-2018 . SD/- SD/- FOT; IKY JKO HKKXPUN (VIJAY PAL RAO) ( BHAGCHAND) U;KF;D LNL; / JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 25 /07/ 2018 *MISHRA VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- THE DCIT, CIRCLE-6, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- M/S. RAJASTHAN COOPERATIVE DAIRY FEDERATION LTD. JAIPUR 3. VK;DJ VK;QDRVIHY@ CIT(A). 4. VK;DJ VK;QDR@ CIT, 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO.976 /JP/2017) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR