Automotive Stampings and Assesmblies Ltd., Pune v. Dy.CIT,Cir-8, Pune,

ITA 1279/PUN/2007 | 2003-2004
Pronouncement Date: 28-02-2011 | Result: Partly Allowed

Appeal Details

RSA Number 127924514 RSA 2007
Assessee PAN AAACJ2116M
Bench Pune
Appeal Number ITA 1279/PUN/2007
Duration Of Justice 3 year(s) 4 month(s) 23 day(s)
Appellant Automotive Stampings and Assesmblies Ltd., Pune
Respondent Dy.CIT,Cir-8, Pune,
Appeal Type Income Tax Appeal
Pronouncement Date 28-02-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 28-02-2011
Date Of Final Hearing 13-12-2010
Next Hearing Date 13-12-2010
Assessment Year 2003-2004
Appeal Filed On 05-10-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE BEFORE SHRI I.C. SUDHIR (JM) AND SHRI G.S. PANNU (AM) ITA NO. 1 279 /PN/200 7 & 1327/PN/2008 ( ASSTT. YEAR S : 2003 - 04 & 2004 - 05 ) AUTOMOTIVE STAMPINGS AND ASSEMBLIES LIMITED G - 71/2 MIDC BHOSARI PUNE 411 026 PAN : AAACJ2116M .. APPELLANT V. DEPUTY /ASSTT. COMMISSIONER OF INCOME - TAX CIRCLE 8 PUNE . RESPONDENT APPELLANT BY : SHRI KANCHAN KAUSHAL RESPONDENT BY : SHRI KRISHNA MURARI ORDER PER I.C. SUDHIR J M IN THESE APPEALS THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORDERS ON SEVERAL GROUNDS. 2. IN BOTH THE APPEALS FOLLOWING COMMON GROUNDS HAVE BEEN RAISED : 1. ON THE FACTS OF THE CASE AND IN LAW THE LD CIT(A) III PUNE ERRED IN CONFIRMING THAT THE SURPLUS OF RS.8 53 73 017/ - IN A.Y. 2003 - 04 AND RS.3 50 44 825/ - IN A.Y. 2004 - 05 ARISING ON PRE - PAYMENT OF SALES TAX DEFERRAL LOAN WAS A REVENUE RECEIPT CHARGEABLE TO TAX AND NOT A CAPITAL RECEIPT AS CONTENDED BY THE APPELLANT COMPANY. 2. HE ERRED IN N OT APPRECIATING THAT THE AMOUNT WAIVED ON PREPAYMENT WAS PART OF THE LOAN AMOUNT AND NOT ANY SALES TAX LIABILITY. HE ERRED IN HOLDING THAT THE AFORESAID AMOUNT WAS TAXABLE U/S. 41(1) OF THE INCOME TAX ACT 1961. 3. AT THE OUTSET OF HEARING THE LD. A .R. POINTED OUT THAT THE ISSUE RAISED IN THE ABOVE GROUNDS IS NOW FULLY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SULZER INDIA LTD. V/S. JCIT ITA ITA S NO 1279 & 1327 /PN/200 8 AUTOMOTIVE STAMPINGS & ASSEMBLIES LTD. A .Y S. 2003 - 04 & 2004 - 05 PAGE OF 7 2 NO. 2944/MUM/2007 (A.Y. 2003 - 04) AND OTHERS VIDE OR DER DATED 10 TH NOVEMBER 2010 COPY SUPPLIED. 4. THE LD. D.R. DID NOT DISPUTE THE ABOVE SUBMISSION. HE HOWEVER TRIED TO JUSTIFY THE ORDERS OF THE AUTHORITIES BELOW. 5. HAVING GONE THROUGH THE ABOVE CITED DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CSE OF SULZER INDIA LTD. (SUPRA) WE AGREE WITH THE ABOVE SUBMISSION OF THE LD. A.R. THAT THE ISSUE RAISED IN THE GROUNDS IS COVERED. THE RELEVANT FACTS ARE THAT THE ASSESSEE CLAIMED A DEDUCTION OF RS.8 53 73 017/ - IN A.Y. 2003 - 04 AND RS. 3 50 44 825/ - I N A.Y. 2004 - 05 AS CAPITAL RECEIPT VIZ. GAIN ON REMISSION OF LIABILITY OF A CAPITAL NATURE CREDITED TO THE PROFIT & LOSS ACCOUNT OF THE YEAR. IN THE A.Y. 2003 - 04 T HE ASSESSEE COMPANY HAD PRE - PAID SALES TAX DEFERRAL LOAN OF RS. 12 81 53 358/ - AT THE DISC OUNTED NET PRESENT VALUE OF RS.4 27 80 341/ - . THIS RESULTED INTO A SURPLUS OF RS.8 53 73 017/ - . LIKEWISE IN THE A.Y. 2004 - 05 THE ASSESSEE COMPANY HAD PRE - PAID SALES TAX DEFERRAL LOAN OF RS. 4 91 94 806/ - AT THE DISCOUNTED NET PRESENT VALUE OF RS.1 41 49 981/ - . IT RESULTED INTO A SURPLUS OF RS.3 50 44 825/ - . THE ASSESSEE COMPANY TREATED THE GAIN ON REMISSION AS A CAPITAL RECEIPT AND DID NOT OFFER IT FOR TAXATION. THE A.O WAS OF THE VIEW THAT THE SALES TAX DEFERRAL LOAN WAS ON REVENUE ACCOUNT BECAUSE IT SUBSTITED THE SALES TAX LIABILITY. HE OBSERVED THAT AS PER THE SCHEME OF GOVERNMENT OF MAHARASHTRA THE SALES TAX LIABILITY ARISING IN THE CASE OF THE ELIGIBLE PERSONS WAS ALLOWED TO BE DEFERRED BY SOME PERIOD. THIS WAS DONE SO THAT THE COMPANIES ENJOYE D REVENUE IN THEIR HANDS AND COULD CLEAR ALL THE SALES TAX LIABILITY AFTER A SPECIFIFIED PERIOD. SUBSEQUENTLY THE GOVERNMENT ALSO CAME OUT WITH A SCHEME WHEREIN THE COMPANIES ENJOYING SURPLUS AMOUNTS COULD PREMATURELY CLEAR THE DEFERRED SALES TAX WHICH O THERWISE WOULD HAVE BEEN PAYABLE AFTER LITTLE MORE PERIOD. AS PER THIS SCHEME ALL SUCH PE RSONS WERE ALLOWED TO REPAY THE AMOUNTS PREMATURELY AT THE DISCOUNTED NET PRESENT VALUE. ACCORDING TO THE A.O BY MAKING A PREMATURE PAYMENT THE ASSESSEE GAINED ON ITA S NO 1279 & 1327 /PN/200 8 AUTOMOTIVE STAMPINGS & ASSEMBLIES LTD. A .Y S. 2003 - 04 & 2004 - 05 PAGE OF 7 3 ACCOUNT OF FUTURE SALES TAX LIABILITY WHICH IS ON REVENUE ACCOUNT. THEREFORE PREMATURE REPAYMENT OF SUCH LOAN WOULD ALSO RESULT IN A REVENUE BENEFIT. IN THE OPINION OF THE A.O HAD THE ASSESSEE NOT PAID THESE AMOUNTS DURING THE YEAR UNDER CONSIDERATI ON IT WOULD HAVE PAID MUCH HIGHER SUMS IN THE SUBSEQUENT YEARS ON REVENUE ACCOUNT. THEREFORE THE SAVING MADE ON LIABILITY OF REVENUE ACCOUNT WOULD AUTOMATICALLY RESULT INTO REVENUE BENEFIT. THE A.O ACCORDINGLY DENIED THE CLAIMED DEDUCTION AS CAPITAL RE CEIPT AND ADDED THE CLAIMED AMOUNT TO THE INCOME OF THE ASSESSEE. THE LD CIT(A) HAS UPHELD THE SAME. 6. UNDER ALMOST SIMILAR FACTS AND CIRCUMSTANCES AN IDENTICAL ISSUE WAS RAISED BEFORE THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SULZER INDIA LI MITED V/S. JCIT (SUPRA) WHEREIN AFTER DISCUSSING THE ISSUE IN DETAIL THE SAME HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. THE RELEVANT FACTS AND OBSERVATION IN THE SAID CASE OF SULZER INDIA LIMITED IS BEING REPRODUCED HEREUNDER FOR A READY REFERENCE : NOW COMING BACK TO THE CASE BEFORE US THE ASSESSEE WAS LIABLE TO PAY SALES TAX AMOUNTS COLLECTED FROM 1.11.1989 TO 31.10.1996 PAYMENTS OF WHICH WERE DEFERRED UNDER THE SCHEME AND THE AMOUNTS WERE PAYABLE AFTER TWELVE YEARS IN SIX EQUAL ANNUAL INSTALMENT S COMMENCING FROM 1.05.2003 WHICH MEANS THAT THE LIABILITY WAS PAYABLE IN FUTURE. LATER ON THE STATE GOVERNMENT CAME WITH A SCHEME BY WHICH IT WAS PROVIDED THAT IF SOME DEALER OPTS THEN THEY COULD PAY THE FUTURE LIABILITY AT A DISCOUNTED VALUE OR WHAT WE MAY CALL NET PRESENT VALUE IMMEDIATELY. THUS IN THIS SITUATION IT CANNOT BE CONSTRUED AS REMISSION OF LIABILITY; BECAUSE THE STATE GOVERNMENT HAS NOT WAIVED ANY OF THE LIABILITY AS GIVEN IN THE ILLUSTRATIONS. HAD THE STATE GOVERNMENT ACCEPTED LESSER AMOUNT AFTER TWELVE YEARS OF REDUCED SUCH INSTALMENTS THEN IT COULD HAVE BEEN A CASE OF REMISSION OR CESSATION. HOWEVER IN THE CASE BEFORE US THE STATE GOVERNMENT HAS CHOSEN TO RECEIVE THE MONEY IMMEDIATELY WHICH WAS RECEIVABLE FROM 1.05.2003 TO 1.0 5.2008. THE AMOUNT OF RS.3 37 13 393/ - WAS ACTUALLY PAID TO SICOM ON 30.12.2002. THUS THE AMOUNT WHICH WAS PAYABLE FROM 1.05.2003 TO 1.05.2008 HAS BEEN PAID ON 30.12.2002. ITA S NO 1279 & 1327 /PN/200 8 AUTOMOTIVE STAMPINGS & ASSEMBLIES LTD. A .Y S. 2003 - 04 & 2004 - 05 PAGE OF 7 4 THUS IT DOES NOT SATISFY THE CONDITION OF ACTUAL REMISSION IN PRAESENTI AS OPIN ED BY THE LEARNED AUTHORS IN THE ABOVE COMMENTARY. IT IS A SIMPLE CASE OF COLLECTING THE AMOUNT AT NET PRESENT VALUE WHICH IS DUE LATER ON AND EVEN THE FORMULA FOR COLLECTING THE NET PRESENT VALUE WAS ALSO GIVEN BY THE SICOM AND THE AMOUNTS HAVE BEEN PAID AS PER THAT FORMULA. THEREFORE SUCH PAYMENT OF NET PRESENT VALUE OF THE FUTURE LIABILITY CANNOT BE IN OUR OPINION CLASSIFY AS REMISSION OR CESSATION OF THE LIABILITY SO AS TO ATTRACT THE PROVISIONS OF SECTION 41(1)(A) OF THE INCOME TAX ACT 1961. WE ARE FULLY CONSCIOUS THAT ISSUE BEFORE US IS REGARDING STATUTORY LIABILITY AND THE ABOVE DISCUSSION AND THE PROVISIONS OF THE INDIAN CONTRACT ACT REFERRED TO BY US IN THE ABOVE PARA RELATE TO CONTRACTUAL LIABILITY. HOWEVER WE HAVE REFERRED TO THESE PR OVISIONS JUST TO UNDERSTAND THE MEANING OF THE EXPRESSION REMISSION FOR THE PURPOSE OF DECIDING THE CASE BEFORE US UNDER THE INCOME TAX ACT AND OUR DECISION IS BASED ON THE PROVISIONS OF THE INCOME TAX ACT 1961. THE SPECIAL BENCH CAME TO THE FOLLOWI NG CONCLUSION ON THE ISSUE : 109. FOR THE REASONS AS STATED ABOVE WE HOLD THAT THE DEFERRED SALES TAX LIABILITY RS.4 14 87 984/ - BEING THE DIFFERENCE BETWEEN THE PAYMENT OF NET PRESENT VALUE RS.3 37 13 393/ - AGAINST THE FUTURE LIABILITY OF RS.7 52 01 378 / - CREDITED BY THE ASSESSEE UNDER THE CAPITAL RESERVE ACCOUNT IN ITS BOOKS OF ACCOUNT IS A CAPITAL RECEIPT AND CANNOT BE TERMED AS REMISSION/CESSATION OF LIABILITY AND CONSEQUENTLY NO BENEFIT HAS ARISEN TO THE ASSESSEE IN TERMS OF SEC. 41(1)(A) OF THE INCO ME TAX ACT 1961. ACCORDINGLY THE MODIFIED QUESTION AS FRAMED IN PARA - 5 OF THIS ORDER IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 7 . RESPECTFULLY FOLLOWING THE ABOVE DECISION WE SET ASIDE THE MATTER TO THE FILE OF THE LD CIT(A) TO DECIDE THE ISSUE RAISED IN THE GROUNDS IN THE PRESENT APPEAL AFRESH FOLLOWING THE DECISION OF SPECIAL BENCH IN THIS REGARD IN THE CASE OF SULZER INDIA LIMITED (SUPRA) AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE PARTIES. THE GROUNDS ARE ACCORDINGLY A LLOWED FOR STATISTICAL PURPOSES. ITA S NO 1279 & 1327 /PN/200 8 AUTOMOTIVE STAMPINGS & ASSEMBLIES LTD. A .Y S. 2003 - 04 & 2004 - 05 PAGE OF 7 5 8 . IN THE A.Y. 2003 - 04 ONE MORE GROUND HAS BEEN RAISED AS UNDER : GROUND NO. 3. THE LD CIT(A) III PUNE ERRED IN CONFIRMING DISALLOWANCE TO THE EXTENT OF RS. 50 000/ - OUT OF COMMUNICATION EXPENSES OF RS.25 98 286/ - AS INCURRED FOR NON - BUSINESS/PERSONAL PURPOSES. HE ERRED IN NOT FOLLOWING THE DECISION OF PUNE TRIBUNAL IN THE CASE OF NASIK BREEDING & RESEARCH FARM LTD. V. DCIT (2001) 77 ITD 581 (PUNE). 9 . IN SUPPORT OF THE GROUND THE LD. A.R. SUBMITTED THAT ASSESSEE IS A LIMITED COMPANY HENCE THERE IS NO QUESTION OF MAKING DISALLOWANCE ON THE BASIS OF PERSONAL USE OF COMMUNICATION EXPENSES OR FOR NON - BUSINESS PURPOSES. THE LD. D.R. ON THE OTHER HAND PLACED RELIANCE ON THE FIRST APPELLATE ORDER IN THIS REGARD. 10 . THE RELEVANT FACTS ARE THAT THE ASSESSEE DEBITED RS.25 98 000 UNDER THE HEAD COMMUNICATION EXPENSES. THE A.O. DISALLOWED RS. 2 00 000/ - OUT OF THE SAID CLAIM ON THE BASIS THAT THE ASSESSEE FAILED TO PROVE THAT ALL THE EXPENSES HAVE BEEN INCURRED EXCLU SIVELY FOR THE BUSINESS PURPOSE. THE LD CIT(A) RESTRICTED THE DISALLOWANCE TO RS. 50 000/ - ON THE BASIS THAT IN ABSENCE OF MAINTENANCE OF ANY CALL REGISTER FOR THE TELEPHONE CALLS MADE THE PERSONAL USER THEREOF CANNOT BE TOTALLY RULED OUT. SINCE THE A SSESSEE HAS NOT IMPROVED ITS CASE BEFORE THE TRIBUNAL WE ARE NOT INCLINED TO INTERFERE WITH THE FIRST APPELLATE ORDER IN THIS REGARD. THE FIRST APPELLATE ORDER IS THUS UPHELD. THE GROUND IS ACCORDINGLY REJECTED. 11 . CONSEQUENTLY ITA NO. 1279/PN/2007 FOR THE A.Y. 2003 - 04 IS PARTLY ALLOWED. 12. IN THE A.Y. 2004 - 05 THE FIRST APPELLATE ORDER HAS BEEN ALSO QUESTIONED ON THE FOLLOWING GROUNDS : ITA S NO 1279 & 1327 /PN/200 8 AUTOMOTIVE STAMPINGS & ASSEMBLIES LTD. A .Y S. 2003 - 04 & 2004 - 05 PAGE OF 7 6 3.1 THE LEARNED CIT(A) III PUNE ERRED IN CONFIRMING THAT THE PROVISION FOR DOUBTFUL DEBTS OF RS.31 70 092/ - IS REQUIRED TO BE ADDED TO THE NET PROFIT OF THE COMPANY UNDER CLAUSE (C) OF EXPLANATION TO SECTION 115JB FOR THE PURPOSES OF COMPUTING BOOK PROFITS U/S. 115JB OF THE INCOME TAX ACT 1961. 3.2 HE ERRED IN NOT APPRECIATING THAT THE AFORESAID PROVISION IS A PROVISION FOR DIMINUTION IN VALUE OF A CURRENT ASSET VIZ. SUNDRY DEBTORS AND IS NOT A PROVISIONS MADE FOR MEETING LIABILITIES OTHER THAN ASCERTAINED LIABILITIES. 3.3. WITHOUT PREJUDICE TO ABOVE ASSUMING WITHOUT ADMITTING THAT THE ABOVE PROVISION WAS FOR MEETING A LIABILITY THEN NEVERTHELESS HE ERRED IN NOT APPRECIATING THAT PARTYWISE BREAK UP OF THE ABOVE PROVISION WAS ALREADY ON RECORD AND HENCE THE SAID PROVISION WAS NOT FOR MEETING LIABILITIES OTHER THAN ASCERTAINED LIABILITIES. 13. AT THE OUTSET OF HEARING THE LD. A.R. FAIRLY CONCEDED THAT AFTER THE AMENDMENT IN EXPLANATION - 1 (C ) TO SECTION 115 JB WITH RETROSPECTIVE EFFECT FROM 1.4.2001 THE ASSESSEE DOES NOT HAVE ANY CASE ON THE ISSUE. HE ACCORDINGLY DID NOT PRESS THE ABOVE GROUNDS. THESE GROUNDS ARE THUS REJECTED AS SUCH. 14. THE ITA NO. 1327/PN/2008 FOR THE A.Y. 2004 - 05 IS THUS PARTLY ALLOWED . 15. IN RESULT BOTH THE APPEALS ARE PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 28TH FEBRUARY 201 1 . SD/ - SD/ - ( G.S. PANNU ) ACCOUNTANT MEMBER ( I.C. SUDHIR ) JUDICIAL MEMBER PUNE DATED THE 28 TH FEBRUARY 20 1 1 US ITA S NO 1279 & 1327 /PN/200 8 AUTOMOTIVE STAMPINGS & ASSEMBLIES LTD. A .Y S. 2003 - 04 & 2004 - 05 PAGE OF 7 7 COPY OF THE ORDER IS FORWARDED TO : 1. THE A PPELLANT 2. THE RESPONDENT 3. THE CIT V PUNE 4. THE CIT(A) - I I I PUNE 5. TH E D.R. B BENCH PUNE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE