Punjab-Haryana High Court
Commissioner Of Income Tax vs Punjab State Civil Supplies Corpn. Ltd. on 15 February, 2005
Equivalent citations: (2005)197CTR(P&H)273, [2006]280ITR148(P&H)
Author: N.K. Sud
Bench: N.K. Sud, Satish Kumar Mittal
JUDGMENT N.K. Sud, J.
1. In pursuance to the directions of this Court, the Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short the Tribunal), has referred the following question of law arising out of its order dt. 30th April, 1984, relating to asst. yr. 1975-76 :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the addition of Rs. 12,43,913 which was made by disallowing a reimbursable expenditure of the like amount, incurred by the assessee on behalf of its principal, the Government of India, even though the said expenditure was not the assessee's liability ?"
2. Assessee-company is a wholesale nominee for the distribution of levy sugar and other foodgrains on behalf of the Government at the notified rates under the scheme introduced by the Government. Under this scheme, the company was required to take delivery of levy sugar from the mill owners and despatch the same to the depot-holders. The sugar was to be purchased by the company from designated factories at notified ex-factory price plus excise duty. The assessee was required to despatch the sugar to the retailers at the fixed price. The notified prices were different for different factories and cost of transportation also differed from various point of distribution. It was also envisaged under the scheme that any deficit will be made good by the Government of India through the Food Corporation of India and at the same time the excess realisations were also to be transferred to the Government of India through the Food Corporation of India. According to the assessing authority, the sum and substance of the scheme was that in case there was a loss, the Government of India was to give subsidy/reimbursement and in case there was excessive realisation, the excess was to be paid to the Central Government. In accordance with the above scheme, the assessee used to prepare a periodical statement of subsidies to be claimed from the Food Corporation of India and the Food Corporation of India used to make payment in accordance with the statements submitted by the assessee. During the accounting period relevant to the assessment year under consideration, various sugar mills challenged the reasonableness of the notified prices and the assessee had to pay an additional sum of Rs. 12,43,912.80. The additional amount paid to the sugar mills was debited by the assessee to its trading account. At the same time, the assessee lodged a claim for excess payment of Rs. 12,43,912.80 with the Food Corporation of India in response to which it was informed vide letter dt. 31st Aug., 1976, that the matter was under consideration.
3. The assessing authority inferred from the above facts that the assessee was not required to bear any loss on account of business of distribution of sugar. The loss, if any, was to be borne by the Government of India. He further observed that an equal amount was due to the assessee from the Government of India and, therefore, there was no liability to be borne by the assessee in this behalf.
4. Accordingly, the assessing authority made the addition of Rs. 12,43,912.80 to the returned income of the assessee. This action of the AO was upheld in appeal by the CIT(A). On further appeal, the Tribunal allowed the claim of the assessee in the following terms :
"We have given careful consideration to the rival submissions. We find apparent contradiction in the stand taken by the assessing authority. On the one hand, the assessing authority is of the Central Government and all losses are to be borne by the Central Government through the Food Corporation of India and all excessive realisations are similarly to be paid to the Central Government through Food Corporation of India. That being the position, it is in material whether the excess price of Rs. 12,43,913 is to be debited to the trading account or not. Even though the amount was disputed by the sugar mills with the Government, the assessee was unaffected by this dispute as whatever the additional purchase price was chargeable from the assessee, it was reimbursable by the Government of India. We have, therefore, to consider whether the additional subsidy of Rs. 12,43,913 is includible in the income of the assessee or not taking into consideration the method of accounting following by it. We have already pointed out that this is the first year of assessment in the case of the assessee. It is, therefore, open to it to follow any method of accounting. The assessing authority has not mentioned in the assessment order about the method of accounting adopted by the assessee. As pointed out earlier, the learned counsel for the assessee submitted before us that method of accounting followed by the assessee is hybrid i.e., partly on accrual basis and partly on cash basis. We find that subsidy receivable from the Central Government whether on account of original notification or on account of subsequent notification revising price or as a result of the order of the High Court is being accounted for on receipt basis consistently for all subsequent years. This has not been controverted on behalf of the Revenue. There is no finding also by the Revenue that from this method followed by the assessee, true profits cannot be deduced. That being the position, we hold that since the assessee is following hybrid method of accounting, it is open to the assessee to account for the subsidy on receipt basis. On the basis of method of accounting followed by the assessee, we hold that the learned CIT(A) was not justified in sustaining the addition. We delete it. Ground Nos. 4 and 5 relate to ground 3 and, therefore, are not considered separately."
5. From the above, it is clear that the Tribunal has recorded a categorical finding of fact that the assessee was following hybrid method of accounting consistently in respect of those transactions. The excess price was being debited to the trading account on the basis of payment. Similarly, the subsidy was also being accounted for on actual receipt basis.
6. Counsel for the applicant has not been able to controvert the factual position as noticed above. It has not been shown to us that in subsequent years, the method followed by the assessee has not been accepted by the Revenue.
7. In this view of the matter, we are satisfied that the view taken by the Tribunal is reasonable and does not require any interference. Accordingly, we answer the question in the affirmative i.e., against the Revenue and in favour of the assessee. No costs.