ZYG PHARMA P.LTD, MUMBAI v. DCIT 7(3), MUMBAI

ITA 3225/MUM/2010 | 2006-2007
Pronouncement Date: 03-07-2013 | Result: Allowed

Appeal Details

RSA Number 322519914 RSA 2010
Assessee PAN EMEOF2005O
Bench Mumbai
Appeal Number ITA 3225/MUM/2010
Duration Of Justice 3 year(s) 2 month(s) 10 day(s)
Appellant ZYG PHARMA P.LTD, MUMBAI
Respondent DCIT 7(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 03-07-2013
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted G
Tribunal Order Date 03-07-2013
Date Of Final Hearing 19-06-2013
Next Hearing Date 19-06-2013
Assessment Year 2006-2007
Appeal Filed On 23-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G MUMBAI BEFORE SHRI H L KARWA PRESIDENT & SHRI N K BILLAIYA ACCOUNTANT MEMBER ITA NO.3225/MUM/2010 : ASST. YEAR 2006-07 M/S. ZYG PHARMA PVT. LTD. 405-408 NAVBHARAT ESTATES B WING ZAKARIA BUNDER ROAD SEWRI (W) MUMBAI- 400 015 VS. DCIT CIR. 7(3) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AJAY THAKORE RESPONDENT BY : SHRI PAVAN VED DATE OF HEARING : 20.06.2013 DATE OF PRONOUNCEMENT : 03.07.2013 O R D E R PER N.K.BILLAIYA (AM) : THE ASSESSEE HAS PREFERRED THIS APPEAL AGAINST THE ORDER OF THE CIT(A) -13 MUMBAI DATED 05.01.2010. THE ASSESSEE HAS RAISED T WO SUBSTANTIVE GROUNDS OF APPEAL. 2. GROUND NO.1. WITH ITS SUB GROUND RELATES TO THE TAXABILITY OF RS.49 81 640/- BEING THE AMOUNT WAIVED BY THE SALE TAX DEPARTMENT. FACTS AT THE STAGE OF ASSESSMENT SHOW THAT THE ASSESSEE IS IN THE LINE OF MANUFACTURING OF CREAMS OINTMENTS AND LOTIONS. FOR THE YEAR UNDER CONSIDER ATION THE RETURN WAS FILED ON 24.11.2006 DECLARING TOTAL INCOME AT RS.2 17 82 605 /- THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY STATUTORY NOTIC ES WERE ISSUED AND SERVED UPON THE ASSESSEE. DURING THE COURSE OF SCRUTINY ASSESS MENT THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS ADDED A SUM OF RS.49 81 640/- CREDITED TO THE CAPITAL RESERVE ACCOUNT REPRESENTING THE ADJUSTMENT IN THE SALES TAX DEFERMENT LOAN FROM 2 ITA NO.3225/MUM/2010 AY:2006-07 GOVERNMENT OF MADHYA PRADESH ON PREPAYMENT OF LOAN INSTALLMENTS FALLING DUE IN THE FINANCIAL YEARS 2007-08 AND 2008-09. IT WAS EXPLAI NED THAT THE ASSESSEE HAD AVAILED OF SALES TAX DEFERMENT LOAN OF MADHYA PRADESH GOVER NMENT IN ACCORDANCE WITH THE SCHEME OF 2005 OF MADHYA PRADESH GOVERNMENT. IT WAS FURTHER EXPLAINED THAT THE SALES TAX WAS CONVERTED INTO NEW LOAN LIABILITY AND THEREFORE ON THE REDUCTION OF IT IT CANNOT BE SUBJECTED TO TAX EITHER U/S. 28(IV) OR SECTION 41(1) OF THE ACT. THE ASSESSING OFFICER DISREGARDED THE SUBMISSIONS MADE BY THE ASSESSEE. THE ASSESSING OFFICER WAS OF THE FIRM BELIEF THAT THE ASSESSEE HA D PAID PORTION OF THE SALES TAX LIABILITY IN ADVANCE AND IT GOT BENEFIT OF WAIVER O F PORTION OF THE AMOUNT AND ONLY THEREAFTER THE BALANCE AMOUNT WAS CONVERTED INTO LO AN. THEREFORE THE AMOUNT WAIVED BY THE SALES TAX DEPARTMENT IS BEFORE IT ITS CONVERTED INTO LOAN UNDER THE SCHEME OF MADHYA PRADESH GOVERNMENT. THEREFORE IT IS NOT THE CASE OF WAIVER OF THE LOAN BUT WAIVER OF SALES TAX LIABILITY AND HEN CE IT IS TAXABLE UNDER THE HEAD BUSINESS INCOME OF THE ASSESSEE. THE ASSESSEE CA RRIED THIS MATTER BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. THE CIT(A) OBSERVE D THAT SINCE THE ASSESSEE HAD COLLECTED SALES TAX FROM THE PARTIES ON BEHALF OF T HE GOVERNMENT AND NOT DEPOSITED IT WITH THE GOVERNMENT AS PER THE SCHEME FORMULATED B Y THE MADHYA PRADESH GOVERNMENT THE SAME WAS TREATED AS DEFERRED LOAN TO THE ASSESSEE AND SUBSEQUENTLY PARTLY WAIVED ON PREPAYMENT WHICH HAS RESULTED INTO GAIN OF RS.49 81 640/-. THE CIT(A) WAS CONVINCED THAT THIS AMOUNT IS A TRADING RECEIPT/BUSINESS INCOME AND CONFIRMED THE FINDINGS OF THE ASSESSING OFFICER. THE ASSESSEE IS AGGRIEVED BY THIS FINDING OF THE CIT(A) AND IS BEFORE US. 3. THE COUNSEL FOR THE ASSESSEE STRONGLY SUBMITTED THAT THE REVENUE AUTHORITIES HAVE FAILED TO APPRECIATE THE FACTS IN THEIR RIGHT PERSPECTIVE. IT IS THE SAY OF THE COUNSEL THAT THE ASSESSING OFFICER HIMSELF HAS ADMI TTED IN THE ASSESSMENT ORDER THAT THE SALES TAX LIABILITY WAS CONVERTED INTO LOAN AS PER THE STATE GOVERNMENT SCHEME. THE COUNSEL FURTHER ARGUED THAT AS PER THE BOARD CI RCULAR DATED 29.12.1993 SUCH SALES TAX LIABILITY WAS ALLOWED AS DEDUCTION IN THE EARLIER YEARS. THE COUNSEL FURTHER SUBMITTED THAT THIS ISSUE IS CLEARLY COVERED BY THE DECISION OF THE SPECIAL BENCH OF 3 ITA NO.3225/MUM/2010 AY:2006-07 THE TRIBUNAL IN THE CASE OF SULZER INDIA LTD. 19 IT R (TRIB) 268 (MUM). THE DR STRONGLY SUPPORTED THE FINDINGS OF THE ASSESSING OF FICER AND RELIED UPON THE DECISION OF JURISDICTIONAL HIGH COURT OF BOMBAY IN THE CASE OF HINDUSTAN FOODS LTD 328 ITR 392. THE DR ALSO SUBMITTED THAT THE SPECIAL BENCH CASE REFERRED BY THE COUNSEL RELATES TO THE SCHEME OF MAHARASHTRA GOVERNMENT WHE REAS IN THE INSTANT CASE THE SCHEME OF MADHYA PRADESH GOVERNMENT IS UNDER CONSID ERATION. WE DIRECTED THE COUNSEL TO SUBMIT A COMPARATIVE CHART OF BOTH THE S CHEMES. A PERUSAL OF THE COMPARATIVE CHART SHOW THAT THE SCHEME OF MADHYA PR ADESH GOVERNMENT IS IN PARIMATERIA SAME WITH THE SCHEME OF MAHARASHTRA GOV ERNMENT. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL EVIDENCES BROUGHT ON R ECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS AVAILED THE DEFERRAL SCHEME OF THE MADHYA PRADESH GOVERNMENT WHICH WAS INTRODUCED IN THE YEAR 2005. BY AVAILING THE BENEFITS OF THE SAID SCHEME THE LOAN AMOUNT IN THE FIRST SCHEME WAS DISCHARGED AT ITS PRESENT VALUE AND THE BALANCE IN THE LOAN ACCOUNT WAS TRANSFERRED TO THE CAPITAL RESERVE. THUS THE ASSESSEE HAD PAID A PORTION OF SALES TAX LIABILITY IN ADVANCE AND GOT THE BENEFIT OF WAIVER OF A PORTION OF THE AMOUNT WHICH WAS NOTHIN G BUT THE WAIVER OF THE LOAN. WE FIND FORCE IN THE CONTENTION OF THE LEARNED COUN SEL THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SULZER INDIA LTD. (SUPRA). THE TRIBUNAL HAS HELD AS UNDER : THE ASSESSEE WAS LIABLE TO PAY SALES TAX AMOUNTS C OLLECTED FROM 1-11- 1989 TO 31-10-1996 PAYMENTS OF WHICH WERE DEFERRED UNDER THE SCHEME AND THE AMOUNTS WERE PAYABLE AFTER TWELVE Y EARS IN SIX EQUAL ANNUAL INSTALMENTS COMMENCING FROM 1-5-2003 WHICH MEANT THAT THE LIABILITY WAS PAYABLE IN FUTURE. LATER ON THE STA TE GOVERNMENT CAME OUT WITH A SCHEME BY WHICH IT WAS PROVIDED THAT IF SOME DEALERS OPTED THEN THEY COULD PAY THE FUTURE LIABILITY AT A DISCO UNTED VALUE OR WHAT ONE MAY CALL NET PRESENT VALUE IMMEDIATELY. THUS IN THIS SITUATION IT COULD NOT BE CONSTRUED AS REMISSION OF LIABILITY B ECAUSE THE STATE GOVERNMENT HAD NOT WAIVED OF ANY OF THE LIABILITY A S GIVEN IN THE ILLUSTRATIONS. HAD THE STATE GOVERNMENT ACCEPTED L ESSER AMOUNT AFTER TWELVE YEARS OR REDUCED SUCH INSTALMENTS THEN IT C OULD HAVE BEEN A CASE OF REMISSION OR CESSATION. HOWEVER IN THE IN STANT CASE THE STATE GOVERNMENT HAD CHOSEN TO RECEIVE THE MONEY IMMEDIAT ELY WHICH WAS 4 ITA NO.3225/MUM/2010 AY:2006-07 RECEIVABLE FROM 1-5-2003 TO 1-5-2008. THE AMOUNT O F RS.337.13 LAKHS WAS ACTUALLY PAID TO SICOM ON 30-10-2002. THUS IT DID NOT SATISFY THE CONDITION OF ACTUAL REMISSION IN PRAESENTI. IT WAS A SIMPLE CASE OF COLLECTING THE AMOUNT AT NET PRESENT VALUE WHICH WA S DUE LATER ON AND EVEN THE FORMULA FOR COLLECTING THE NET PRESENT VAL UE WAS ALSO GIVEN BY THE SICOM AND THE AMOUNTS HAD BEEN PAID AS PER THAT FORMULA. THEREFORE SUCH PAYMENT OF NET PRESENT VALUE OF A F UTURE LIABILITY COULD NOT BE CLASSIFIED AS REMISSION OR CESSATION OF THE LIABILITY SO AS TO ATTRACT THE PROVISIONS OF SECTION 41(1)(A) [PARA 108] CONSIDERING FACTS IN TOTALITY IN THE LIGHT OF THE AFORESAID DECISION OF THE TRIBUNAL SPECIAL BENCH WHICH HAS BEEN RIGHTLY FOLL OWED BY THE CIT(A) WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FIN DINGS OF THE CIT(A). FOR THE REASONS STATED ABOVE IT WAS TO BE HELD THA T THE DEFERRED SALES TAX LIABILITY BEING THE DIFFERENCE BETWEEN THE PAYM ENT OF NET PRESENT VALUE AGAINST THE FUTURE LIABILITY CREDITED BY THE ASSESSEE UNDER THE CAPITAL RESERVE ACCOUNT IN ITS BOOKS OF ACCOUNT WAS A CAPITAL RECEIPT AND COULD NOT BE TERMED AS REMISSION/CESSATION OF LIABI LITY AND CONSEQUENTLY NO BENEFIT WOULD ARISE TO THE ASSESSE E IN TERMS OF SECTION 41(1)(A) [PARA 109] THE APPEAL FILED BY THE REVENUE IS ACCORDINGLY DIS MISSED. ON IDENTICAL FACTS WE HAVE (THE SAME COMBINATION) D ECIDED A SIMILAR ISSUE IN THE CASE OF M/S. GODREJ & BOYCE MFG. CO. LTD. IN IT A NO. 6867/MUM/2011 FOR AY 2005-06 IN WHICH WE HAVE FOLLOWED THE AFORESAID DE CISION OF THE TRIBUNAL IN THE CASE OF SULZER INDIA LTD. FACTS AND ISSUES BEING IDENTI CAL RESPECTFULLY FOLLOWING THE DECISION OF THE SPECIAL BENCH AND OUR OWN DECISION [SUPRA] WE HAVE NO HESITATION IN REVERSING THE FINDINGS OF THE CIT(A) AND ACCORDINGL Y GROUND NO.1 WITH ITS SUB GROUNDS ARE ALLOWED. 5. BEFORE PARTING THE DR HAS RELIED UPON THE DECIS ION OF JURISDICTIONAL HIGH COURT OF BOMBAY IN THE CASE OF HINDUSTAN FOODS LTD 328 ITR 392. HOWEVER WE FIND THAT IN THAT CASE THE ASSESSEE COMPANY UNILATERALLY TRANSFERRED THE UNCLAIMED AMOUNT OF THE DEBENTURE REDEMPTIONS TO ITS GENERAL RESERVE WITHOUT COMPLYING WITH THE MANDATORY CONDITIONS OF SEC.205C OF THE COMPANY ACT 1956 WHEREIN IT IS PROVIDED THAT SUCH UNCLAIMED AMOUNT HAS TO BE TRANS FERRED TO INVESTOR EDUCATION 5 ITA NO.3225/MUM/2010 AY:2006-07 AND PROTECTION FUND. THUS THE FACTS ARE CLEARLY D ISTINGUISHABLE AND THE RELIANCE ON THE AFORESAID JUDGMENT IS MISPLACED. 6. GROUND NO.2 RELATES TO THE DISALLOWANCE ON ACCOU NT OF DELAY IN REMITTANCE OF EMPLOYEES CONTRIBUTION TO PROVIDENT FUND AMOUNTING TO RS.1 41 324/-. WHILE SCRUTINIZING THE RETURN OF INCOME THE ASSESSING OF FICER NOTICED THAT THE ASSESSEE HAS DEPOSITED THE EMPLOYEES CONTRIBUTION TO PROVIDENT F UND BEYOND THE 15 TH DAY OF NEXT MONTH AND THEREBY VIOLATED THE PROVISIONS OF SECTIO N 2(24)(X) R.W.S. 36(1)(VA) AND ADDED THE AMOUNT OF RS.1 41 324/- TO THE INCOME OF THE ASSESSEE. WHEN THE MATTER WAS AGITATED BEFORE THE CIT(A) THE CIT(A) DECLINED TO INTERFERE WITH THE FINDINGS OF THE ASSESSING OFFICER. 7. BEFORE US THE COUNSEL FOR THE ASSESSEE STRONGLY SUBMITTED THAT THE PAYMENTS HAVE BEEN MADE WITHIN THE GRACE PERIOD OF FIVE DAYS WHICH IS PERMISSIBLE UNDER THE PROVIDENT FUND ACT. THE COUNSEL DREW OUT ATTENTION TO THE CHART WHICH IS PART OF FORM 3CD. A PERUSAL OF THE ASSESSMENT ORDER SHOWS T HAT THE ASSESSING OFFICER HIMSELF HAD ADMITTED THAT THE ASSESSEE HAD DEPOSITE D THE EMPLOYEES CONTRIBUTION TO PROVIDENT FUND ACCOUNT WITHIN THE GRACE PERIOD. AS THE AMOUNT HAS BEEN DEPOSITED WITHIN THE PERMISSIBLE GRACE PERIOD WE DO NOT FIND ANY REASON FOR THE DISALLOWANCE OF RS.1 41 324/-. WE ACCORDINGLY DIRECT THE ASSESS ING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE TO THE TUNE OF RS.1 41 324/-. GROUND NO. 2 IS ACCORDINGLY ALLOWED. 8. IN THE RESULT THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD JULY 2013. SD/- SD/- (H L KARWA) (N.K.BILLAIYA) PRESIDENT ACCOUNTANT MEMBER MUMBAI DT : 3 RD JULY 2013 SA 6 ITA NO.3225/MUM/2010 AY:2006-07 COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE C.I.T MUMBAI 4. THE CIT (A)-13 MUMBAI 5. THE DR G- BENCH ITAT MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI