The Deputy Commissioner of Income Tax, Hyderabad v. M/s VST Distrubution Storage and Leasing Co.,Ltd, Hyderabad

ITA 133/HYD/2010 | 2003-2004
Pronouncement Date: 28-09-2011 | Result: Dismissed

Appeal Details

RSA Number 13322514 RSA 2010
Assessee PAN AAACV6801H
Bench Hyderabad
Appeal Number ITA 133/HYD/2010
Duration Of Justice 1 year(s) 8 month(s)
Appellant The Deputy Commissioner of Income Tax, Hyderabad
Respondent M/s VST Distrubution Storage and Leasing Co.,Ltd, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 28-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 28-09-2011
Date Of Final Hearing 30-05-2011
Next Hearing Date 30-05-2011
Assessment Year 2003-2004
Appeal Filed On 28-01-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH HYDERABAD BEFORE SMT. ASHA VIJAYARAGHAVAN JUDICIAL MEMBER AN D SHRI AKBER BASHA ACCOUNTANT MEMBER ITA NO. 133/HYD/2010 (ASSESSMENT YEAR 2003-04) THE DCIT CIRCLE-3(3) HYDERABAD VS M/S. VST DISTRIBUTION STORAGE & LEASING CO. LTD. HYDERABAD PAN: AAACV6801H APPELLANT RESPONDENT APPELLANT BY: SHRI D.D. GOYAL RESPONDENT BY: SHRI T.S. AJAI DATE OF HEARING: 21.09.2011 DATE OF PRONOUNCEMENT: 28.09.2011 ORDER PER ASHA VIJAYARAGHAVAN J.M. THIS APPEAL BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-IV HYDERA BAD DATED 30.11.2009 FOR THE ASSESSMENT YEAR 2003-04. 2. FACTS OF THE CASE ARE THE RETURN OF INCOME FILED BY THE ASSESSEE WAS PROCESSED U/S. 143(1) OF THE INCOME-TA X ACT 1961 INITIALLY ON 29.1.2004. LATER ON ORDER U/S. 143(3) OF THE ACT WAS PASSED ON 21.2.2006. IT WAS OBSERVED BY THE ASSESS ING OFFICER THAT FROM SCHEDULE G PERTAINING TO LOANS AND ADVANC ES FORMING PART OF THE BALANCE SHEET AS ON 31.3.2003 THE ASS ESSEE-COMPANY HAD ACCOUNTED FOR 'CLAIMS RECEIVABLE' AT RS. 4 50 6 8 439 THERE BEING AN INCREASE OF RS. 1 15 69 404 AGAINST THE LA ST YEAR. IT WAS POINTED OUT THAT THE SAME HAS NOT BEEN OFFERED TO T AX IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2003-04 A ND ACCORDINGLY PROCEEDINGS U/S. 147 WERE INITIATED AND ASSESSMENT WAS FINALISED DETERMINING TOTAL INCOME AT RS. 1 39 17 348. AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). I.T.A. NO. 133/HYD/2010 M/S. VST DISTRIBUTION STORAGE & LEASING CO. LTD. ======================= 2 3. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE ASS ESSEE HAD VIDE LETTER DATED 4.11.2008 HAD POINTED OUT TO THE ASSESSING OFFICER THAT 'CLAIMS RECEIVABLE' REFER TO THE 'CURRENT ACCO UNT' MAINTAINED BETWEEN VST DISTRIBUTION STORAGE AND LEASING COMPAN Y LTD. (VSL) AND VST INDUSTRIES LTD. (VST) AND THE BALANCE OF RS. 4 50 68 439 REFLECTED THE AMOUNT RECEIVABLE BY THE VSL FROM VST. 4. IT WAS SUBMITTED BEFORE THE CIT(A) THAT ANY MOVE MENT IN SUCH BALANCES WOULD BE THE OUTCOME OF VARIOUS TRANS ACTIONS UNDERTAKEN BY THESE COMPANIES DURING THE YEAR. IT WAS EXPLAINED THAT DURING THE YEAR UNDER REVIEW VST WAS MANUFACT URING CIGARETTES AND SELLING TO ITS WHOLLY OWNED SUBSIDIA RIES INCLUDING VSL. VSL IN TURN SELLS TO ITS CUSTOMERS LOCATED IN VARIOUS PARTS OF THE COUNTRY. TO FACILITATE SMOOTHER CASH FLOW OPER ATION VSL HAD ADVISED ITS CUSTOMERS TO REMIT SALE PROCEEDS DIRECT LY TO VST'S BANK ACCOUNT IN HYDERABAD. THOUGH THIS PROCESS VSL PAYS DIRECTLY TO VST FOR ALL ITS PURCHASES. AS DIRECT REMITTANCES R ECEIVED BY VST ALSO INCLUDE VSL'S PROFIT COMPONENT RECEIVED BY VST IT IS TRANSFERRED FROM TRADING ACCOUNT TO CURRENT ACCOUNT TO REFLECT BOTH ACTIVITIES SEPARATELY. VST PAYS BACK SUCH AMOUNT BASED ON VSL'S REQUIREMENT TIME TO TIME THROUGH THE CURRENT ACCOU NT MAINTAINED BETWEEN THE PARTIES. THE ASSESSEE FURTHER EXPLAINE D THAT THAT IT COULD BE SEEN FROM THE TRADING A/C THAT TRANSACTION S RELATING TO PURCHASES AND REMITTANCES RECEIVED HAD BEEN RECORDE D AND THE BALANCE OF RS. 10 36 53 059 DUE TO VST TOWARDS PURC HASES WAS REFLECTED IN SUNDRY CREDITORS. IN THE 'CURRENT ACC OUNT' ALL AMOUNTS PAYABLE BY THE VST TO VSL ARE RECORDED AS 'CLAIMS R ECEIVABLE' IN THE BALANCE SHEET BUT THESE DO NOT HAVE ANY INCOME ELEMENT TO BE ACCOUNTED FOR BY THE VSL. IT WAS SUBMITTED THAT TH IS WAS A CURRENT ACCOUNT AND THE BALANCE KEEP GOING UP OR DOWN DEPE NDING UPON THE DUES PAID BY VST. THE ASSESSEE SUBMITTED THAT FOR THE ASSESSMENT YEAR 2003-04 IT HAD REDUCED TO RS. 3 40 45 827. THE I.T.A. NO. 133/HYD/2010 M/S. VST DISTRIBUTION STORAGE & LEASING CO. LTD. ======================= 3 ASSESSEE SUBMITTED THAT IT TO PAY RS. 10 36 53 059 TO VST ON ONE HAND AND TO RECEIVE RS. 4 50 68 439 FROM THEM REIT ERATING THAT THE BALANCE HAD NO INCOME ELEMENT THAT WAS NOT ACCOUNTE D FOR AND OFFERED TO TAX. 5. IT WAS FURTHER SUBMITTED BEFORE THE CIT(A VIDE F URTHER WRITTEN SUBMISSIONS THAT THE LEDGER ACCOUNT 'CLEARING W C O VSTL' SHOWN IN THE BALANCE SHEET AS 'CLAIMS RECEIVABLE' UNDER S CHEDULE VI LOANS AND ADVANCES REPRESENTS THE TRANSACTIONS BET WEEN THE ASSESSEE COMPANY AND THE PARENT M/S. VST INDUSTRIE S LTD. THE ENTRIES REGARDING PURCHASES FROM VST AND SUBSEQUENT MONIES PAID TO THEM ARE ROUTED THROUGH THE ABOVE SAID ACCOUNT. THE ASSESSEE SUBMITTED THAT THE ABOVE SAID ACCOUNT IS A BALANCE SHEET ITEM ONLY AND IT WAS ONLY AS A MATTER OF EASY EXPLANATION THA T THE BALANCE IN THIS ACCOUNT H AD BEEN DISCLOSED AS 'CLAIMS RECEIVA BLE' UNDER SCHEDULE VI LOANS AND ADVANCES. THEREFORE THE O UTSTANDING AS ON ANY DATE REPRESENTS ONLY THE AMOUNT RECEIVABLE O R PAYABLE TO THE PARENT COMPANY AND DOES NOT REPRESENT ANY INCOM E. THE ASSESSEE CLARIFIED THAT THE NOMENCLATURE USED IN TH E BALANCE SHEET 'CLAIMS RECEIVABLE' MAY GIVE AN IMPRESSION THAT THE SAME IS A 'REVENUE ACCOUNT'. HOWEVER FACTUALLY THE SAME ONL Y REPRESENTS THE TRANSACTIONS WITH THE PARENT COMPANY AND MONIES RECEIVABLE OR PAYABLE TO THEM. THEREFORE IT IS PURELY AN ADVANC ES ACCOUNT. 6. IN ORDER TO SUPPORT THE SAID CONTENTION THE ASS ESSEE SUBMITTED EXTRACT OF THE LEDGER ACCOUNT 'CLEARING W CO VSTL' ALONG WITH SAMPLE JOURNAL ENTRIES. A SUMMARY OF THE ABOV E ACCOUNT WAS ALSO FURNISHED. IN VIEW OF THE SAID SUMMARY IT WAS SUBMITTED THAT PURCHASES OF CIGARETTES FROM VST COLLECTION FROM D EALERS FUND TRANSFERS FROM AND TO VST LUXURY TAX PAID BY VST O N BEHALF OF THE ASSESSEE AND EXPENSES PAID BY VST ON BEHALF OF THE ASSESSEE HAVE BEEN RECORDED THEREIN. THE ASSESSEE ALSO EXPL AINED THE TRANSACTIONS WITH RESPECT TO CERTAIN SPECIFIC DOCUM ENTS SUCH AS I.T.A. NO. 133/HYD/2010 M/S. VST DISTRIBUTION STORAGE & LEASING CO. LTD. ======================= 4 DOCUMENT NO. 100004703 FOR THE PURCHASE OF CIGARETT ES OF RS. 5 28 35 553.15 FROM VST. IT WAS SUBMITTED THAT THE CIGARETTES PURCHASES FROM VST ARE SOLD BY THE ASSESSEE TO VARI OUS DEALERS AND NECESSARY SALES ENTRIES ARE MADE IN THE BOOKS O F ACCOUNT WHICH DO NOT IMPACT THE VST ACCOUNT OR THE 'CLEARIN G W CO VSTL' ACCOUNT. SIMILARLY IT WAS SUBMITTED THAT DOCUMENT NO. 14000000494 REPRESENTED COLLECTION OF RS. 2 20 000 FROM BALARAMJI & SONS AS FOR THE PURPOSE OF EASY AND SPEEDY COLLE CTION FROM DEALERS DEALERS REMIT MONEY DIRECTLY TO VST. ON S UCH PAYMENT CREDIT TO THE DEALER ACCOUNT WAS GIVEN AND SINCE VS T RECEIVED THE MONEY THEIR ACCOUNT IS DEBITED. IN OTHER WORDS PA ID TO VST TOWARDS SUPPLY OF GOODS. AFTER ADJUSTING THE MONEY PAYABLE BY THE ASSESSEE TOWARDS PURCHASES VST PAYS FUNDS TO THE A SSESSEE AS SHOWN BY DOCUMENT NO. 100000003 FOR RS. 1 23 00 513 .33 WHEREBY THE BANK HAS BEEN DEBITED TO REFLECT MONEY RECEIVED IN THEIR ACCOUNT AND CORRESPONDING CREDIT IS GIVEN TO VST. IN THE SAME WAY DOCUMENT NO. 1000000593 FOR RS. 1 11 83 42 7 REPRESENTS LUXURY TAX PAID BY VST ON BEHALF OF THE ASSESSEE- COMPANY AND ACCORDINGLY ACCOUNTED IN THE ASSESSEE'S BOOKS IN THE SAID ACCOUNT. LIKEWISE DOCUMENT NO. 100004678 REC ORDS THE EXPENSES BEING SECONDMENT CHARGES FOR RS. 52 16 79 1 PAID BY VST ON BEHALF OF THE ASSESSEE. LIKEWISE VARIOUS E XPENSES SUCH AS ADVERTISEMENT INSURANCE ETC. PAID BY VST ON BE HALF OF THE ASSESSEE ARE REFLECTED IN THE SAID ACCOUNT. 7. IT WAS FURTHER SUBMITTED THAT BASED ON THE ABOVE TRANSACTIONS ENTERED INTO WITH VST AT THE YEAR END RS. 4 50 68 438.71 WAS DUE FROM VST AND REFLECTED AS 'C LAIMS RECEIVABLE' UNDER SCHEDULE VI LOANS AND ADVANCES IN THE BALANCE SHEET. THIS WAS ALSO SHOWN UNDER THE HEAD RELATED PARTY TRANSACTIONS DISCLOSED IN THE NOTES TO THE ACCOUNTS FORMING PART OF THE BALANCE SHEET. SIMILARLY ALL SUCH TRANSACTION S ARE ALSO REFLECTED BY VST IN THEIR BOOKS AND THE BALANCE OUT STANDING AS AT I.T.A. NO. 133/HYD/2010 M/S. VST DISTRIBUTION STORAGE & LEASING CO. LTD. ======================= 5 THE END OF THE YEAR IS SHOWN AS PART OF SUNDRY CRED ITORS AND DISCLOSED UNDER THE RELATED PARTY TRANSACTIONS IN T HE NOTES TO ACCOUNTS. COPIES OF THE RELEVANT PAGES WERE ENCLOS ED. 8. IT WAS SUBMITTED THAT THE CORRESPONDING PURCHASE S HAVE DULY BEEN ROUTED THROUGH PROFIT AND LOSS A/C AND THEREFO RE INCREASE/ DECREASE IN THE ACCOUNT 'CLAIMS RECEIVABLE' DOES NO T REFLECT ANY PROFIT OR LOSS. GIVING THE MOVEMENT OF CLAIMS OF R ECEIVABLE ACCOUNT FOR THE YEARS 2002-03 TO 2006-07 IT WAS SUBMITTED THAT THE DIFFERENCE IN CLAIMS RECEIVABLE ACCOUNT ARE BOTH PO SITIVE AND NEGATIVE IN THE RELEVANT YEARS. IN THE YEARS WHERE IN THERE IS A DECREASE NO CLAIM FOR DEDUCTION WAS MADE NOR ANY D EDUCTION WAS ALLOWED IN THE SCRUTINY ASSESSMENTS. THEREFORE IN THE YEARS IN WHICH THE DIFFERENCE IS POSITIVE THE SAME COULD NOT BE TREATED AS INCOME AND ADDED IN THE ASSESSMENT. THE ASSESSEE R EITERATED THAT THE ADDITION MADE IN THE ASSESSMENT IS NOT BAS ED ON THE PROPER APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 9. A COPY OF THE SUBMISSIONS FILED BEFORE THE CIT(A ) BY THE ASSESSEE WAS FORWARDED TO THE ASSESSING OFFICER VID E LETTER DATED 24.11.2009. THE CIT(A) OBSERVED THAT THE ASSESSIN G OFFICER EXAMINED THE AGREEMENT BETWEEN THE TWO REGARDING TH E MANNER IN WHICH THE REMITTANCES OF SALE PROCEEDS WAS TO BE MA DE BY THE DEALERS. THE CIT(A) FURTHER STATED IN HIS ORDER T HAT ON FURTHER EXAMINATION OF THE BOOKS OF ACCOUNT THE ASSESSING OFFICER HAS FOUND THAT THE SALE CONSIDERATIONS IN RESPECT OF GO ODS PURCHASED BY THE ASSESSEE FROM VST IND. LTD. ARE NOT BEING REAL ISED DIRECTLY BY THEM BUT ARE BEING REMITTED BY THE DEALERS DIRECTLY TO M/S. VST IND. LTD. THE 'CLAIMS RECEIVABLE' ACCOUNT REPRESENTS TH E CURRENT ACCOUNT BEING MAINTAINED BETWEEN THE ASSESSEE AND M /S. VST INDUSTRIES TO ACCOUNT FOR SUCH TRANSACTIONS BESIDES THE OTHER PAYMENTS/EXPENSES INCURRED BY M/S. VST INDUSTRIES L TD. ON BEHALF OF THE ASSESSEE. THE CIT(A) HELD THAT THE SAME IS THEREFORE IN THE I.T.A. NO. 133/HYD/2010 M/S. VST DISTRIBUTION STORAGE & LEASING CO. LTD. ======================= 6 NATURE OF A CURRENT ACCOUNT ONLY AND CONSTITUTES A BALANCE SHEET ITEM. IT IS FOR THIS REASON THAT THE BALANCE IN TH E SAID ACCOUNT IS NEGATIVE IN SOME YEARS WHILE IT IS POSITIVE IN THE OTHERS. 10. THEREFORE THE CIT(A) FURTHER HELD THAT THE INC REASE IN THE BALANCE OF THE SAID ACCOUNT OF RS. 1 15 69 404 CANN OT BE CONSIDERED AS THE INCOME OF THE ASSESSEE DURING THE YEAR AND DELETED THE ADDITION OF RS. 1 15 69 404. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US. 11. THE LEARNED COUNSEL FOR THE REVENUE SHRI D.D. G OYAL RELIED ON THE ORDER OF THE ASSESSING OFFICER AND THE LEARN ED COUNSEL FOR THE ASSESSEE SHRI T.S. AJAI REFERRED TO THE ORDER O F THE CIT(A) AND RELIED ON THE SAME . 12. WE HAVE HEARD BOTH THE PARTIES. WE FIND FROM T HE BOOKS OF ACCOUNT PRODUCED BY THE ASSESSEE THAT THE SALE CONS IDERATION FOR SALES MADE TO DEALERS WAS BEING REMITTED BY THEM DI RECTLY TO M/S. VST INDUSTRIES LTD. AND THE 'CLAIMS RECEIVABLE' ACC OUNT WAS THEREFORE ONLY A BALANCE SHEET ITEM AND DID NOT RE PRESENT ANY FURTHER REVENUE AND THEREFORE THE INCREASE IN THE BALANCE OF THE SAID ACCOUNT OF RS. 1 15 69 404 CANNOT BE CONSIDERE D AS INCOME OF THE ASSESSEE. THEREFORE WE UPHOLD THE ORDER THE C IT(A) AND THE SAME IS CONFIRMED. THE GROUNDS RAISED BY THE REVEN UE ARE DISMISSED. 13. IN THE RESULT THE APPEAL OF THE REVENUE IS DI SMISSED. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH SEPTEMBER 2011. SD/- (AKBER BASHA) ACCOUNTANT MEMBER SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER HYDERABAD DATED THE 28 TH SEPTEMBER 2011 TPRAO I.T.A. NO. 133/HYD/2010 M/S. VST DISTRIBUTION STORAGE & LEASING CO. LTD. ======================= 7 COPY FORWARDED TO: 1. ASST. COMMISSIONER OF I.T. CIRCLE 3(3) 7 TH FLOOR I.T. TOWERS A.C. GUARDS HYDERABAD-500 004. 2. M/S. VST DISTRIBUTION STORAGE AND LEASING CO. LT D. 1-7- 1063/1065 AZMABAD HYDERABAD. 3. THE CIT(A)-IV HYDERABAD 4. THE CIT-III HYDERABAD 5. DR B-BENCH ITAT HYDERABAD.