2018 (2) TMI 1456 - AT - Income Tax

Applicability of section 33AB(7) against the assessee - deemed income of the assessee - utilizing the withdrawals from NABARD deposit accounts 0 assessee s main business activity is cultivation of tea manufacturing of tea from leaves procured from own garden as well as from bought leaves and also trading of tea - Held that - A provision for deduction exemption or relief should be construed reasonably and in favour of the assessee. Though equity and taxation are often strangers attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice then such construction should be preferred to the literal construction. It is only elementary that a statutory provision is to be interpreted ut res magis valeat quam pereat i.e to make it workable rather than redundant. Applying this legal maxim it would be just and fair to hold that the assessee having utilized the amounts withdrawn from NABARD deposit for its intended purposes within the time specified under the respective scheme should not be fastened with tax liability on deemed income basis merely because it had not utilized the entire amounts withdrawn before 31.3.2012 (i.e within that previous year). In case if the assessee is taxed on deemed income basis in this year for non-utilisation of withdrawals within that previous year then the assessee would never get any deduction in subsequent years also for this utilization. This would in effect result in withdrawal of deduction in part earlier granted to the assessee at the time of making deposit with NABARD. The provisions of section 33AB (7) of the Act uses the expression being utilised . It is not in dispute that the assessee had placed orders for acquisition of various machineries that are required for setting up of new units to be engaged in growing and manufacturing of tea i.e acquisition for machineries for specified purposes. It is not in dispute that the assessee had paid substantial portion of the proforma invoice value as advance before 31.3.2012 and had included the same in the utilization statement before 31.3.2012 which clearly indicates its intention of utilizing the withdrawals from NABARD deposit accounts. Hence the spirit of the section had been satisfied by the assessee. In view of the reliance placed on the CBDT Circular No. 495 dated 22.9.87 explaining the scope and effect of section 32AB(6) of the Act which is pari materia with section 33AB(7) of the Act and in view of the judicial precedents relied upon hereinabove for interpretation of statutes we hold that the action of the revenue in bringing to tax the deemed income in terms of section 33AB(7) of the Act deserves to be deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Applicability of section 33AB(7) of the Income Tax Act, 1961 against the assessee.
2. Interpretation of the term "utilized" within the context of section 33AB(7).

Issue-wise Detailed Analysis:

1. Applicability of Section 33AB(7):
The primary issue in this appeal is whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in upholding the applicability of section 33AB(7) of the Income Tax Act, 1961 against the assessee. The assessee's main business involves the cultivation, manufacturing, and trading of tea. For the Assessment Year 2012-13, the assessee electronically filed a return declaring an income of ?5,96,64,870/-. The Assessing Officer (AO) noted from the Tax Audit Report that there was an unutilized amount of ?15,71,331/- from withdrawals made from the NABARD deposit account, which was not utilized before 31.3.2012 for its intended purpose. Consequently, the AO added this amount as deemed income under section 33AB(7).

2. Interpretation of the Term "Utilized":
The assessee argued that the withdrawn amount of ?2,78,73,174/- was utilized within the financial year by placing orders and making substantial payments towards the procurement of various machineries. The assessee contended that the term "utilized" should be interpreted liberally, considering the utilization process had started before 31.3.2012. The CIT(A) upheld the AO's decision, leading to the appeal.

Detailed Analysis:

Utilization of Withdrawn Amounts:
The assessee had withdrawn ?2,78,73,174/- from NABARD during the previous year ended 31.3.2012 and utilized ?2,63,01,843/- before 31.3.2012 for procuring machinery and other assets. The remaining unutilized portion of ?15,71,331/- was utilized before the due date for filing the return of income under section 139(1). The assessee argued that the utilization was in accordance with the Tea Development Scheme, 2007, and that the provisions of section 33AB(7) should be interpreted liberally.

Legal Precedents and Interpretation:
The tribunal referred to similar provisions under section 32AB(6) and the CBDT Circular No. 495 dated 22.9.1987, which clarified that amounts withdrawn and utilized within the period specified in the scheme should not be added to the assessee’s income. The tribunal emphasized that incentive provisions should be construed liberally, as held by the Hon’ble Supreme Court in Bajaj Tempo Ltd vs CIT and CIT vs Gwalior Rayon Silk Manufacturing Co. Ltd. The tribunal also noted that the entire utilization was made in accordance with the Tea Development Scheme, 2007, and there was no diversion of funds for non-business purposes.

Conclusion:
The tribunal concluded that the assessee had fulfilled the spirit of section 33AB(7) by utilizing the withdrawn amounts for intended purposes, albeit with a slight delay. The tribunal held that the action of the revenue in bringing the deemed income to tax under section 33AB(7) was not justified. The tribunal allowed the appeal, emphasizing that a provision for deduction, exemption, or relief should be construed reasonably and in favor of the assessee.

Final Order:
The appeal of the assessee was allowed, and the tribunal ordered the deletion of the deemed income brought to tax under section 33AB(7).

Order Pronounced:
The order was pronounced in the court on 19.02.2018.