GODAVARI SUAGAR MILLS LTD, MUMBAI v. ACIT CIR 2(1), MUMBAI

ITA 728/MUM/2011 | 2005-2006
Pronouncement Date: 09-04-2014 | Result: Allowed

Appeal Details

RSA Number 72819914 RSA 2011
Assessee PAN AAACT5004A
Bench Mumbai
Appeal Number ITA 728/MUM/2011
Duration Of Justice 3 year(s) 2 month(s) 15 day(s)
Appellant GODAVARI SUAGAR MILLS LTD, MUMBAI
Respondent ACIT CIR 2(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-04-2014
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted G
Tribunal Order Date 09-04-2014
Date Of Final Hearing 02-04-2014
Next Hearing Date 02-04-2014
Assessment Year 2005-2006
Appeal Filed On 25-01-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'G' BENCH MUMBAI BEFORE SHRI VIJAY PAL RAO JUDICIAL MEMBER AND SHRI N.K. BILLAIYA ACCOUNTANT MEMBER ITA NO. 728/MUM/2011 (ASSESSMENT YEAR: 2005-06) THE GODAVARI SUGAR MILLS LTD. 45-47 SOMAIYA BHAVAN M.G. ROAD FORT MUMBAI-400 001. VS. THE ASSTT. COMMISSIONER OF INCOME TAX RANGE-2(1) MUMBAI. (APPELLANT) (RESPONDENT) PERMANENT ACCOUNT NO. : AAACT 5004 A ASSE SSEE BY : SHRI NISHIT GANDHI REVENUE BY : SHRI KISHORE DHULE - DR DATE OF HEARING : 02/04/2014 DATE OF PRONOUNCEMENT : 09/04/2014 O R D E R PER VIJAY PAL RAO JUDICIAL MEMBER: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 23/09/2010 OF CIT(A) ARISING FROM ORDER PASSED UNDE R SECTION 154 OF THE INCOME TAX ACT FOR THE ASSESSMENT YEAR 2005-06. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS :- 1. THE LD. CIT(A) ERRED N NOT DECIDING GROUND NO.1 . YOUR APPELLANT SUBMIT THAT ORDER U/S. 154 IS PASSED WITH OUT GIVING ANY OPPORTUNITY TO THE APPELLANT AND HENCE THE SAME IS OUGHT TO BE QUASHED. 2. THE LD. CIIT(A) ERRED IN CONFIRMING THE ADDITION ON ACCOUNT OF LEAVE ENCASHMENT IN ADJUSTING ADHOC BOOK PROFIT. ITA NO.728//M/11 AY:05-06 2 YOUR APPELLANTS SUBMIT THAT THE SAME OUGHT TO BE AL LOWED AS CLAIMED BY YOUR APPELLANTS. 3. THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF SUBSIDY AMOUNT OF RS.2 25 00 000/-. THE LD. CIT(A) FAILED TO APPRECIATE THAT THIS AMOUNT IS NOT REQUIRED TO BE C REDITED IN PROFIT AND LOSS ACCOUNT AND EVEN AO HAS REDUCED THE SAID AMOUNT OF RS.2 25 00 000/- FROM THE COST OF FIXED A SSETS. HENCE THE QUESTION OF CREDITING THE SAME TO PROFIT AND LOSS ACCOUNT ADDING THE SAME BACK IN COMPUTING THE BOOK PROFIT IS NOT AT ALL REQUIRED TO BE DONE AND THE SAID ADDITIO N THEREFORE BE DELETED. 4. THE LD. CIT(A) ERRED IN CONFIRMING THE LEVY OF I NTEREST U/S. 234B. YOUR APPELLANTS SUBMIT THAT THE SAME OUG HT NOT TO HAVE BEEN CHARGED. 5. THE LD. CIT(A) ERRED IN CONFIRMING THE LEVY OF I NTEREST U/S.234C. YOUR APPELLANTS SUBMIT THAT THE SAME OUGH T NOT TO HAVE BEEN CHARGED. 2. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3 ) VIDE ORDER DATED 31.3.2007. SUBSEQUENTLY THE ASSESSEE MADE APP LICATION UNDER SECTION 154 OF THE INCOME TAX ACT FOR RECTIFICATION OF CERTAIN ERRORS. THE AO REJECTED THE REQUEST OF THE ASSESSEE TO RECTIFY THE ERRORS AS POINTED OUT IN THE APPLICATION UNDER SECTION 154. HOWEVER WHILE PASSING THE ORDER DATED 03/04/2008 THE AO MADE ADJUSTMENT IN CO MPUTING BOOK PROFIT UNDER SECTION 115JB WITH REGARD TO THE PROVI SIONS FOR UNPAID LEAVE ENCASHMENT PROVISIONS FOR UNPAID BONUS AND SUBSIDY AMOUNT OF RS.2.25 CRORES RECEIVED FROM USAID AND KRDEL CREDIT ED TO CAPITAL RESERVE. THE ASSESSEE CHALLENGED THE ACTION OF AO BEFORE CIT(A) BUT COULD NOT SUCCEED EXCEPT IN RESPECT OF UNPAID BONUS . 3. BEFORE US THE LD. AR OF THE ASSESSEE HAS SUBMITT ED THAT THE AO HAS ENHANCED THE ASSESSMENT BY PASSING THE ORDER UNDER SECTION 154 ITA NO.728//M/11 AY:05-06 3 WITHOUT ISSUING A MANDATORY NOTICE AS REQUIRED UNDE R SECTION 154 (3). HE HAS FURTHER CONTENDED THAT THE NOTICE TO THE ASSESS EE OF ITS INTENTION TO ENHANCE THE ASSESSMENT OR REDUCE REFUND OR OTHERWIS E INCREASING LIABILITY IS SINE QUA NON AND IN THE ABSENCE OF SUCH NOTICE THE ORDER PASSED BY THE AO UNDER SECTION 154 WHEREBY THE ASSE SSMENT IS ENHANCED IS INVALID WITHOUT THE JURISDICTION. IN SU PPORT OF HIS CONTENTION HE HAS RELIED UPON THE FOLLOWING DECISIONS :- 1) N. CHOCKALINGAM & M. MEYYAPPAN VS. CIT (48 ITR 34)( SC) 2) CIT VS. PANKAJ GUPTA (1991) 188 ITR 184 (ALLD.) 3) MINTRI TEA CO. (P) LTD. VS. CIT (2009) 319 ITR 264 (CAL.) 4. HE SUBMITTED THAT ANY ORDER OF RECTIFICATION PA SSED WHICH HAS THE EFFECT OF ENHANCING LIABILITY OF THE ASSESS EE WITHOUT COMPLYING WITH THE REQUIREMENT OF NOTICE AS PER SUB SECTION(3 ) IS INVALID IN LAW. THE SECOND LEG OF ARGUMENT OF THE LD. AR IS THAT THE AD DITION/ADJUSTMENT MADE BY THE AO IN THE PROCEEDINGS UNDER SECTION 154 ARE OTHERWISE HIGHLY DEBATABLE ISSUE AND CANNOT BE ADJUDICATED UN DER SECTION 154. HE HAS POINTED OUT THAT WHILE PASSING ASSESSMENT UNDER SECTION 143(3) THE AO HAS DULY EXAMINED AND ADJUDICATED THE ISSUE OF S UBSIDY AND HELD THAT SUBSIDY RECEIVED BY ASSESSEE IS CAPITAL RECEIP T AND ACCORDINGLY REDUCED THE SAME FROM THE COST OF ASSET FOR THE PUR POSE OF DEPRECIATION WHEREAS WHILE PASSING THE ORDER UNDER SECTION 154 T HE AO HAS ADDED THE SUBSIDY AMOUNT TO THE INCOME FOR THE PURPOSE OF BOO K PROFIT UNDER SECTION 115JB HE HAS FURTHER SUBMITTED THAT THE PRO VISIONS OF LEAVE ENCASHMENT ARE AS PER THE ACCOUNTING STANDARD AND N O DEFECT WAS POINTED OUT BY THE AO. IN THE NORMAL COMPUTATION TH E ASSESSEE ITSELF HAS DISALLOWED THIS AMOUNT UNDER SECTION 43B AS IT WAS NOT PAID DURING THE YEAR. HOWEVER THE PROVISION IS ASCERTAINED LIABILIT Y BASED ON SCIENTIFIC METHOD AND ACCOUNTING STANDARD. HE HAS REFERRED TO AUDIT REPORT AND ITA NO.728//M/11 AY:05-06 4 SUBMITTED THAT THE PROVISION FOR LEAVE ENCASHMENT P AYABLE ON RETIREMENT HAS BEEN MADE ACCORDING TO ACCOUNTING STANDARD-15 W HICH HAS BEEN MADE MANDATORY FROM 1 ST APRIL 1995. THEREFORE NO ADJUSTMENT CAN BE MADE IN RESPECT OF THE PROVISION OF LEAVE ENCASHMEN T. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS (245 ITR 428) AND SUBMITTED THAT THE HON'BLE SUPREME COURT HAS HELD THAT THE PROVISION M ADE BY THE ASSESSEE COMPANY FOR ASCERTAINED LIABILITY INCURRED BY IT UN DER LEAVE ENCASHMENT SCHEME IS PROPORTIONATE TO ENTITLEMENT EARNED BY EM PLOYEES OF THE COMPANY INCLUSIVE OF OFFICERS AND STAFF WAS ENTIT LED TO DEDUCTION OUT OF THE GROSS RECEIPTS OF ACCOUNTING YEAR DURING WHICH PROVISION IS MADE FOR THE LIABILITY. IT WAS FURTHER HELD THAT THE LIABILI TY WAS NOT A CONTINGENT LIABILITY. ONCE THE LIABILITY FOR LEAVE ENCASHMENT IS HELD AS NOT CONTINGENT LIABILITY THE SAME CANNOT BE DISALLOWED FOR THE PUR POSE OF COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB. HE HAS ALSO RELIED UPON THE FOLLOWING DECISIONS (1) 351 ITR 314 (GUJ.) DCIT VS. ENOX LEISURE LTD. ( 2) 338 ITR 94 (BOM.) CIT VS. ADBUDH TRADING CO. LTD. AND SUBMITTED THAT THE SUBSIDY UNDER THE SCHEME IS INCENTIVE OFFERED FOR RECOUPING OR COVER CAPITAL INVESTMENT OR OUTGO ALREADY MADE BY THE ASSESSEE . THEREFORE NO ADJUSTMENT CAN BE MADE ON ACCOUNT OF SUBSIDY. THUS THE LD. AR HAS SUBMITTED THAT THESE ISSUES CANNOT BE DECIDED UNDER SECTION 154 AS BEYOND THE CATEGORY OF MISTAKE APPARENT ON RECORD. 5. ON THE OTHER HAND THE LD. DR HAS SUBMITTED THAT DURING THE PROCEEDINGS BEFORE THE LD. CIT(A) REMAND ORDER WAS PASSED AND ASSESSEE WAS GIVEN SUFFICIENT OPPORTUNITY AND HENCE THE GRIE VANCE OF THE ASSESSEE HAS BEEN REDRESSED BY GIVING THE OPPORTUNITY DURING REMAND PROCEEDINGS. THE LD. DR HAS REFERRED TO CLAUSE (I) EXPLANATION 1 TO SUB SECTION 115JB AND SUBMITTED THE AMOUNT/AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE FOR ASSET HAS TO BE ADDED BACK ITA NO.728//M/11 AY:05-06 5 WHILE COMPUTING BOOK PROFIT. SINCE THE SUBSIDY IS O NLY RECOUPMENT OF CAPITAL EXPENDITURE THEREFORE THIS FALLS UNDER CLA USE (I) OF EXPLANATION 1. AS REGARDS THE PROVISION OF LEAVE ENCASHMENT THE LD . DR HAS SUBMITTED THAT THIS BEING THE CONTINGENT LIABILITY HAS TO BE ADDED BACK AS PER CLAUSE(I) OF EXPLANATION 1. HE HAS STRONGLY RELIED UPON THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY PERUSED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET WE N OTE THAT THE ADDITIONS/ADJUSTMENTS MADE BY THE AO WHILE COMPUTIN G BOOK PROFIT UNDER SECTION 115JB IN THE PROCEEDINGS UNDER SECTIO N 154 ARE NOT IN THE NATURE OF THE MISTAKES APPARENT ON RECORD WHICH CAN BE RECTIFIED UNDER SECTION 154 OF THE INCOME TAX ACT. THE ISSUE IS NO LONGER RES INTEGRA AND THE JURISDICTION OF THE AO UNDER SECTION 154 IS VER Y LIMITED AND CAN BE EXERCISED ONLY TO RECTIFY SUCH MISTAKE WHICH ARE WI DE APPARENT MANIFEST AND PATENT AND NOT SOMETHING WHICH CAN INVOLVE SERI OUS CIRCUMSTANCE OF DISPUTES OF FACTS OR LAW AND CAN BE ESTABLISHED BY LONG DRAWN PROCESS OF REASONING ON THE POINT TO BE RECTIFIED. A PATENT MI STAKE AS WELL AS EVIDENT ERROR WHICH DOES NOT REQUIRE ELABORATE DISCUSSION O R ARGUMENT TO ESTABLISH CAN BE SAID TO BE AN ERROR APPARENT ON F ACE OF RECORD AND CAN BE RECTIFIED UNDER SECTION 154. SECTION 154 DOES NO T CONFER JURISDICTION TO AO TO REVIEW ITS ORDER. IT IS MANIFEST FROM THE REC ORD THAT WHILE PASSING ASSESSMENT ORDER UNDER SECTION 143(3) THE AO DISCU SSED AND ADJUDICATED THE ISSUE OF SUBSIDY RECEIVED BY THE AS SESSEE. THE AO HELD IN THE ASSESSMENT ORDER THAT THE RECEIPT IS CAPITAL IN NATURE. HOWEVER IT WAS REDUCED FROM THE COST OF THE ASSESSEE FOR THE P URPOSE OF DEDUCTION OF DEPRECIATION. ONCE THE AO HAS ADJUDICATED THE ISSUE IN THE ASSESSMENT UNDER SECTION 143(3) AND TAKEN A PARTICULAR VIEW TH EN IT IS BEYOND THE JURISDICTION AND SCOPE OF SECTION 154 TO RE-ADJUDIC ATE AND REVIEW THE EARLIER DECISION ON THE SAME ISSUE. FURTHER IN THE REMAND PROCEEDINGS ITA NO.728//M/11 AY:05-06 6 THE AO HAS ACCEPTED THE CLAIM OF UNPAID BONUS AND A CCORDINGLY DELETED THE SAID ADDITION/ADJUSTMENT MADE IN COMPUTATION OF BOOK PROFIT. AS REGARDS THE PROVISION FOR LEAVE ENCASHMENT THERE AR E DECISIONS OF THE HON'BLE SUPREME COURT AS WELL AS HON'BLE HIGH COURT WHEREIN IT HAS BEEN HELD THAT IT IS AN ASCERTAINED LIABILITY INCUR RED BY THE ASSESSEE THOUGH TO BE PAID AT A LATER STAGE. THEREFORE IN V IEW OF THE DECISION ON THE POINT THIS IS HIGHLY DEBATABLE WHICH CANNOT BE ADJUDICATED UNDER SECTION 154. ACCORDINGLY WE FIND THAT THE AO HAS TR AVELLED BEYOND HIS JURISDICTION WHILE PASSING THE ORDER UNDER SECTION 154 AND ENHANCING THE TAX LIABILITY OF THE ASSESSEE BY MAKING CERTAIN ADD ITIONS ON HIGHLY DEBATABLE ISSUES. 6.1 APART FROM THE ABSENCE OF APPARENT MISTAKE AO HAS ALSO FAILED TO COMPLY WITH MANDATORY CONDITION OF NOTICE AS PER SU B SECTION (3) OF SECTION 154 WHICH READS AS UNDER :- (3) AN AMENDMENT WHICH HAS THE EFFECT OF ENHANCIN G AN ASSESSMENT OR REDUCING A REFUND OR OTHERWISE INCREA SING THE LIABILITY OF THE ASSESSEE SHALL NOT BE MADE UNDER THIS SECTION UNLESS THE AUTHORITY CONCERNED HAS GIVEN NOTICE TO THE ASSESSEE OF ITS INTENTION SO TO DO AND HAS ALLOWED THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. 7. WE DO AGREE WITH THE CONTENTION OF THE ASSESSEE THAT THE REQUIREMENT OF NOTICE IS SINE-QUA-NON IN THE CASE WHERE AO PROPOSES/INTENDS TO ENHANCE THE TAX LIABILITY OF TH E ASSESSEE BY MAKING RECTIFICATION U/S. 154. IN THE ABSENCE OF MANDATORY NOTICE AS STIPULATED UNDER SUB SECTION (3) THE ORDER PASSED U/S. 154 WHE REBY THE ASSESSMENT HAS BEEN ENHANCED AND TAX LIABILITY OF THE ASSESSEE HAS BEEN INCREASED IS NOT SUSTAINABLE AND VOID AB INITIO . ITA NO.728//M/11 AY:05-06 7 7.1 IN VIEW OF THE ABOVE DISCUSSION WE QUASH THE OR DER U/S. 154 BEING INVALID FOR WANT OF MANDATORY NOTICE AS WELL AS JUR ISDICTION TO ADJUDICATE THE HIGHLY DEBATABLE ISSUE AND TO REVIEW THE ISSUE ALREADY DECIDED IN THE ASSESSMENT U/S. 143(3). SINCE THE ORDER U/S. 154 HA S BEEN QUASHED THEREFORE OTHER ISSUE RAISED BY THE ASSESSEE ON ME RITS BECOMES INFRUCTUOUS. 8. APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 09 TH APRIL 2014. SD/- SD/- (N.K. BILLAIYA) ACCOUNTANT MEMBER (VIJAY PAL RAO ) JUDICIAL MEMBER MUMBAI DATED: 09/04/2014 JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT CONCERNED MUMBAI THE CIT(A) CONCERNED MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR ITAT MUMBAI.