Income Tax Appellate Tribunal - Mumbai
Hardoli Paper Mills Ltd, Mumbai vs Assessee on 8 December, 2011
ITA No.6817 of 2010
Hardoli Paper Mills Ltd Mumbai
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
ORDER
Per B. Ramakotaiah, A.M.
This is an appeal by the assessee against the orders of the CIT (A)-17 Mumbai dated 19/07/2010. The main issue for adjudication is whether the discount received by the assessee when remitting the net present value paid by the assessee in lieu of deferred tax under the Bombay Sales Tax Act, 1959 is revenue receipt or capital receipt.
2. Briefly stated the assessee is engaged in the business of manufacturing Kraft paper and has valid package scheme of incentive 1993 announced by the Govt. of Maharashtra 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 years in 5 equal installments without any interest. The assessee accordingly 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 instead of waiting for Page 1 of 6 ITA No.6817 of 2010 Hardoli Paper Mills Ltd Mumbai payment of deferred tax for a period provided originally. Accordingly assessee remitted an amount in the earlier year relevant 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 amount was treated as revenue receipt by the Assessing Officer, following his order in assessment year 2004-05 in which this scheme 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 assessee's own case in the assessment year 2004-05 in ITA No.1908/Mum/2010 dated 15/07/2011.
4. We have considered the issue. The Hon'ble ITAT in the above referred order has considered the scheme of remission 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. The order of the ITAT vide Para 4 is as under:
"4. We have heard the arguments of both the sides and also perused the relevant material on record. As agreed by the learned representatives of both the sides, the 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 for the following reasons which are extracted from the 'held' portion :
"To invoke the provisions of s. 41(1), the following conditions must be fulfilled : (i) In the assessment of the assessee, an allowance or deduction has been made in respect of loss, expenditure or the trading liability incurred by the assessee. (ii) The assessee must have subsequently (a) obtained any amount in respect of such Page 2 of 6 ITA No.6817 of 2010 Hardoli Paper Mills Ltd Mumbai loss or expenditure or (b) obtained any benefit in respect of such trading liability by way of remission or cessation thereof. In case either of these events happen, the deeming provision enacted in closing part of sub-s. (1) comes into play. (iii) The amount obtained by the assessee or the value of benefit accruing to him is deemed to be profit and gains of the business or profession and it becomes chargeable to income-tax as an income of that previous year. Further on a plain reading of s. 41(1) it is also clear that the provisions contained in s. 41(1) do not make any distinction between any contractual trading liability or any statutory trading liability. Even if any statutory liability is remitted or ceased of, or any amount, whether in cash or in any other manner, has been obtained in respect of the expenditure incurred by way of statutory liability, the same would be deemed to be profits and gains of the business of the assessee and would accordingly be chargeable to income-tax as the income of that year in which such benefit or amount is obtained.
On the plain reading of provisions of s. 38(1),(2),(3),(4) of the Bombay Sales-tax Act, 1959, it provides the manner as to how the payment of tax, penalty and interest, as prescribed, may be made. The first proviso states that the Commr. May in respect of any particular dealer or person for the reason to be recorded in writing extent the date of payment or allow him to pay such amount by installments without prejudice to the levy of penalty, interest or both. The second proviso provides that Commr. May in respect 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 installments subject to such conditions as may be prescribed. The third proviso says that the State Government or the Commr. May by general or special order where a dealer to whom incentive by way of deferment of sales-tax or purchase 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 where a loan liability equal to the amount of any such tax payable by such dealer has been raised by the SICOM or other designated authorities, then such tax has been deemed, in the public interest, to have been paid. The fourth proviso provides that where an entitlement certificate has been Page 3 of 6 ITA No.6817 of 2010 Hardoli Paper Mills Ltd Mumbai granted to the eligible unit for availing of the incentives 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 pay 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 deferred tax shall be deemed to have been paid. The present value of a further sum is the same and if there is a difference i.e.,; positive NPV then the project repays original investment plus the required rate of return. In other words a positive NPV means a better return and negative NPV 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 amount of Rs.7,52,01,378 towards sales-tax during the year 1989-90 to 2001-02. It was treated as a loan liability payable after 12 years in six equal annual installments and thus, the assessee treated the said liability as unsecured loan 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 SICOM which according to the assessee represented the NPV as determined by SICOM. The payment was made to SICOM on 30th Dec., 2002 as per certificate dt. 25th Aug., 2003. The Revenue has placed no material on record to show that the present value (NPV) of a further sum is not the same or in the process of calculation of present value of a further sum there is any conversion gain to the assessee. It is also not the case of the Revenue that there is 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 absence thereof it is not possible to accept the contention of the Departmental Representative that there was a remission or cessation of the trading liability. The entire loan amount which was payable after 12 years in six equal installments was repaid as per present NPV as prescribed by the State Government and no refund was received by the assessee, therefore, the assessee did not get any benefit in respect of such trading liability by way remission or cessation thereof.Page 4 of 6 ITA No.6817 of 2010
Hardoli Paper Mills Ltd Mumbai The Revenue's plea is that the assessee has obtained the benefit of deduction of sales-tax liability under s. 43B as per CBDT Circular No. 496, dt. 25th Sept., 1987. However, in the said circular it has been clearly stated vide Para 5 that "...the statutory liability shall be 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 of the Act. There is no dispute that the AO has also applied the aforesaid Board circular while giving the benefit of deduction under s. 43B. This being so the first requirement of s. 41(1) has not been fulfilled in the facts of the present case.
The assessee has opted the offer of SICOM, an implementing agency of the State Government and repaid an amount of Rs.3,37,13,393 to SICOM which according to the assessee represented the NPV of the further sum as determined and prescribed by SICOM. The said payment was made to SICOM on 30th Dec.,2002 as per certificate d. 25th Aug., 2003 NPV is equivalent to further value of the sum. In other words, what the assessee was required to repay after 12 years in six annual/equal installments, 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 that there has been any remission or cessation of liability by the State Government. Thus, one of the requirements spelt out for the applicability of s. 41(1)(a) has not been 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 applicable to the issue involved in the present case and respectfully following the Coordinated Bench decision, we direct the Assessing Officer to treat the amount as capital receipt and delete the same from the computation of income. Accordingly the ground No.1 is allowed.
6. Ground No.2 pertains to the issue of not allowing brought forward losses/ depreciation. As seen from the record the assessee had claimed certain carry forward un-absorbed depreciation to an Page 5 of 6 ITA No.6817 of 2010 Hardoli Paper Mills Ltd Mumbai extent of `44,82,704/-. In assessment year 2004-05 the Assessing 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 not 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 depreciation to be set off. It was fairly submitted that this issue is consequential in nature. The Assessing Officer is directed to examine the record and in view of the orders in earlier years, if there was any unabsorbed loss/depreciation allowed to be carried forward, the same is directed to be set off as per the provisions of the Act. With these directions, the ground is considered as allowed.
7. In the result the appeal is allowed.
Order pronounced in the open court on 21st December, 2011.
Sd/- Sd/-
(D.Manmohan) (B. Ramakotaiah)
Vice President Accountant Member
Vnodan/sps
Mumbai, dated 21st 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
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