Income Tax Appellate Tribunal - Mumbai
Hardoli Paper Mills Ltd, Mumbai vs Assessee on 29 October, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH 'H' BENCH
BEFORE SHRI I.P.BANSAL (JUDICIAL MEMBER) AND
SHRI B. RAJENDRA (ACCOUNTANT MEMBER)
ITA No.8473/Mum/2010
Assessment Year: 2005-06
M/s. Hardoli Paper Mills ltd., DCIT, Ward 8(2),
C-8, Saroj Apartments, Opp Holy Spirit 2nd floor, Aayakar Bhavan, M.K. Road,
Hospital, Mahakali Caves Road, Mumbai.
Andheri(E), Mumbai-93. Vs.
PA No.AAACH 1472 N
(Appellant) (Respondent)
Appellant by : Shr Haridas Bhat
Respondent by: Shri V. Krishnamoorthy
Date of hearing: 29.10.2012
Date of pronouncement: 31.10.2012
ORDER
Per I.P.Bansal, JM:
This is appeal filed by assessee. It is directed against order dated 27.8.2010 of ld CIT(A)-17, Mumbai for assessment year 2005-06.
2. Grounds raised by assessee read as under:
Ground No.1:
"1. On the facts and circumstances of the case, CIT(A) 17, Mumbai, has erred in confirming the addition of Rs. 79,85,712/- being the difference between the present value and the book value of Deferred Sales Tax Liability as incentive or discount.
2. The learned CIT(A) erred in not appreciating the fact that:
a) The said payment of present value of Deferred liability is as per Scheme of Govt. of Maharashtra and does not qualify as remission of liability.
b) The amount merely represents the difference between the present value and future liability which do not have any characteristic of income.2 ITA No.8473/Mum/2010
Assessment Year: 2005-06
c) There is no receipt of Incentive or discount by the Assessee. Even if the difference is considered as incentive it is a capital receipt and not revenue receipt.
d) The assessee has never claimed any deduction of such liability as expenses, and hence the remission of such liability is a capital receipt.
e) There is no income earned on this transaction and it has no relation with the business activity of the assessee.
3. The appellant, therefore, prays that the addition of Rs. 79,85,712/- being the difference between the present value and the book value of Deferred Sales Tax Liability as incentive or discount may please be deleted.
GROUND II Without prejudice to Ground No I
1. On the facts and circumstances of the case, CIT(A) 17, Mumbai, has erred in not allowing deduction U/s8OlB of the Act on the business income of the Eligible undertaking.
2. The learned CIT(A) erred in not appreciating the fact that:
a) The deduction is eligible on the business income of the Eligible unit.
b) The Assessee did not claim 801B in the return of income and returns and Tax Audit Report did not show the deduction since returned income was nil, and the income of the eligible unit became positive due to additions made during the Assessment.
c) The assessee's claim cannot be termed as fresh claim under the circumstances..
3. The appellant therefore prays that the deduction U/s8OIB may please be allowed in the event of the ground I being rejected and Business income of the eligible undertaking becoming positive."
3. It was submitted by ld A.R. that Ground No.I is covered in favour of assessee by the earlier decisions of the Tribunal in assessee's own case for assessment years 2004- 05 and 2006-07. It was further submitted that in view of allowability of first ground, other grounds have become infructuous and if Ground No.I was considered to be allowed in favour of assessee, then other grounds will not be pressed by the assessee. To contend that the issue is covered in favour of assessee, reference was made to the order dated 15.7.2011 in I.T.A. No.1908/Mum/2010 for assessment year 2004-05 and order dated 21.12.2011 in I.T.A. No.6817/Mum/2010 for assessment year 2006-07, copies of both the orders are placed on record and copies of the same are also given to 3 ITA No.8473/Mum/2010 Assessment Year: 2005-06 ld D.R. For the sake of convenience and to understand the facts as well as decision of the Tribunal in respect of assessment year 2004-05, the order is reproduced as under:
"This appeal filed by the assessee is directed against the order of learned CIT(Appeals)- 20, Mumbai dated 29-01-2010 whereby he confirmed the addition of Rs.1,25,24,656/- being the difference between book value of sales-tax deferred liability and the present value of the said liability as finally settled by the assessee.
2. The assessee in the present case is a company which is engaged in the business of manufacturing of kraft paper. The unit for manufacture of kraft paper was set up by the assessee company at Nagpur which was eligible for the benefits of Package Scheme of Incentives, 1993 announced by the Government of Maharashtra. As per the said scheme, the sales tax levied to the customer and collected by the assessee was retained by the assessee and the amount so collected was to be paid to Government of Maharashtra after a period of 10 years in 5 equal instalments without any interest. Accordingly sales tax amounting to Rs.2,39,12,000/- was collected and retained by the assessee during the period from 01-10-1998 to 31-03-2004. Vide notification dated 16-11-2002, the Government of Maharashtra announced that if any dealer availing of sales-tax deferral scheme has an intention to make prepayment of the sales-tax amount collected under the said scheme, he could do so by paying a discounted amount and in such case, the balance amount of liability would be remitted. This option given by the Government of Maharashtra vide notification dated 16-11-2002 was availed by the assessee and a future liability on account of sales-tax deferral scheme was settled by it by paying its net present value which resulted in a remission of a liability to the extent of Rs.1,25,24,656/- . In its books of account, the assessee company treated the remission of liability as capital receipt and the same was directly transferred to reserve in the balance sheet. According to the AO, the benefit derived by the assessee by pre-payment of sales-tax deferral liability to the extent of Rs.1,25,24,656/- was in the nature of incentive allowed by the Government of Maharashtra and since the said incentive was received by the assessee after the commencement of its business in respect of trading receipt, it was in the nature of revenue receipt chargeable to tax. He, therefore, added the said amount to the total income of the assessee in the assessment completed u/s 143(3) vide an order dated 25-09-2006.
3. Against the order passed by the AO u/s 143(3), an appeal was preferred by the assessee before the learned CIT(Appeals) and after considering the submissions made on behalf of the assessee in the light of the relevant scheme of the Government of Maharashtra, the learned CIT(Appeals) agreed with the stand of the assessee that the remitted amount could not be considered as incentive as held by the AO. He, however, found the AO to be right in treating the nature of remitted amount of liability as trading receipt. The learned CIT(Appeals) held that it was a case of cessation or remission of a trading liability and the same, therefore, was chargeable to tax as per the provisions of section 41(1). Accordingly the addition of 1,25,24,656/- made by the AO to the total income of the assessee was confirmed by the learned CIT(Appeals) although for different reasons. Aggrieved by the order of the learned CIT(Appeals), the assessee has preferred this appeal before the Tribunal.
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 4 ITA No.8473/Mum/2010 Assessment Year: 2005-06 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 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 instalments 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 instalments 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 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 instalments 5 ITA No.8473/Mum/2010 Assessment Year: 2005-06 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 instalments 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.
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 instalments, 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. In our opinion, the decision of the Special Bench of ITAT in the case of Sulzer India Ltd. (supra) is squarely applicable to the issue involved in the present case and respectfully following the same, we delete the addition of Rs.1,25,24,656/- made by the AO and confirmed by the learned CIT(Appeals).
6. In the result, the appeal of the assessee is allowed."
4. For assessment year 2006-07, the Tribunal has followed the aforementioned decision of the Tribunal. In this view of the situation, after hearing both parties and 6 ITA No.8473/Mum/2010 Assessment Year: 2005-06 respectfully following the aforementioned order of the Tribunal in assessee's own case for assessment years 2004-05 and 2006-07, we allow Ground No.I filed by the assessee.
5. It has already been mentioned that Ground No.II is alternative ground and it was not pressed by the assessee during the course of hearing and, therefore, same is dismissed having become infructuous.
6. In the result, appeal filed by assessee is partly allowed.
Pronounced in the open court on 31st October, 2012
Sd/- Sd/-
(RAJENDRA) (I.P.BANSAL)
Accountant Member Judicial Member
Mumbai, Dated 31st October, 2012
Parida
Copy to:
1. The appellant
2. The respondent
3. Commissioner of Income Tax (Appeals),17, Mumbai
4. Commissioner of Income Tax, 8 , Mumbai
5. Departmental Representative, Bench 'H' Mumbai
//TRUE COPY// BY ORDER
ASSTT. REGISTRAR, ITAT, MUMBAI