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TMI Blog2012 (8) TMI 203X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly stated that “...the statutory liability shall be treated to have been discharged for the purposes of Section 43 B”(emphasis supplied). Thus, the benefit of deduction was allowed for the purpose of section 43 B only and not under any other provisions of the Act. There is no dispute that the Assessing Officer has also applied the aforesaid Board Circular while giving the benefit of deduction u/s. 43 B, thus it is settled law that the circulars are binding on the department - as the first requirement of section 41(1) has not been fulfilled in the facts of the present case deferred sales tax liability will not be chargeable to tax as business income of the assessee - no mistake in the order of the Tribunal under the provisions of section 254(2). As the assessee itself has used the expression ‘remission’ of the loan liability. However, the position in law is well settled that making of an entry or absence of an entry cannot determine rights and liabilities of parties - no material to show that the finding given by the Tribunal are contrary to the settled position of law - in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (DR) for his submissions and has accordingly not dealt with the objections. Surprisingly, in the order, the Hon'ble Special Bench has stated that instead of the original Question of Law, the following Question should be considered by the Special Bench; "Whether on the facts and in the circumstances of the case and in law, the sum of ₹ 4,14,87,985/- being the difference between the payment of net present value of ₹ 3,37,13,393/- against the future value of ₹ 3,37,13,393/- against the future liability of ₹ 7,52,O1,378/- has rightly been charged to tax under Section 41(1) of the Income Tax Act, 1961?" 2.3 The action of the Special Bench of considering a totally new Question is not as per law since it was constituted and mandated to hear and decide, the Question referred to it by the Hon'ble President. The Special Bench is a creation of the President and its powers are limited to deciding the Question referred to it by the Hon'ble President. The Special Bench cannot usurp the power of framing and deciding the Question, which power is only with the President u/s.255(3) of the Income Tax Act, 1961. A look at the changed Question also shows that the entire f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT (DR) are considered, it will be clear that the finding of the Hon'ble Special Bench is not correct. 4. In para 76 of the order, the Hon'ble Special Bench has stated as under; "... the assessee had collected total amount of ₹ 7,52,01,378/- towards sales tax during the year 1989-90 to 2001-02. It was treated as a loan liability payable after 12 years in six annual / equal installments and thus, the assessee treated the said liability as unsecured loans in its books of account." The above statement of the Hon'ble Special Bench is factually incorrect since it is an admitted position of the assessee that it had applied for conversion of deferred sales tax liability into interest-free loan liability only in the year 2002. If the application for conversion itself was made in the year 2002, the question of treating the amount as loan liability in the books by the assessee does not arise. The Hon'ble Bench has also not considered the arguments of the learned CIT(DR) on this issue. 5. In para 77 of the order, the Hon'ble Special Bench has held as under; "The revenue has placed no material on record to show that the present value (NPV) of a future sum is not the same or in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sales tax collected by the assessee during the years 1989-1990 to 2002-2002 amounting to ₹ 7,52,01,378/- was treated by the State Government as a loan liability payable after 12 years in six annual / equal installments." It is respectfully submitted that this finding of the Hon'ble Special Bench is incorrect one in view of the admitted position of the assessee that it was only the assessee company who had itself converted its trading liability into a loan liability. In the facts and circumstances of the case, it is not the State Government which has treated the Sales Tax collected by the assessee amounting to ₹ 7,52,01,378/- or any other sum as a loan liability as there is no documentary evidence to that effect on record. Further, if the State Government had treated the Sales Tax collected as a loan liability, what was the necessity of the assessee for making an application of treating the deferred sales tax liability into loan in the year 2002. 8. It is respectfully submitted that the discussion in para 108 of the order relates to the provision of Section 63 of the Indian Contracts Act, which was never a subject matter of discussion before the Hon'ble Tribunal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th proviso to Section 38 itself proves that the prepayment was of deferred sales tax liability and not of any loan liability. The issue was discussed in detail in the course of the hearing. However, the Special Bench has failed to consider the arguments and submissions on record. They have also not given any reason as to why the submissions are not worth even considering. All evidences on record unequivocally show that the assessee had never converted its deferred sales tax liability into a loan liability. It also prepaid only its deferred sales tax liability and accepted the prepayment of only the deferred sales tax liability and not loan liability. The Hon'ble Special Bench also failed to take notice of the Certificate issued by the Sales Tax authorities, which is on record, and was discussed in detail in the course of the arguments, which unequivocally evidences the fact that what was prepaid was deferred sales tax liability and not loan liability. However, the Hon'ble Bench has erroneously applied the 'deeming' provision as regards the assessee's unilateral act of treating its trading liability into a loan liability whereas there is no such 'deeming' provision in law. The Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Special Bench has completely ignored the submission and not considered it. The NPV of the assets of the State Government is not the same as the present liability of the assessee, which is elementary economics. 12. The Hon'ble Special Bench has incorporated the submissions made by the CIT (DR) in its order. However, perusal of the order makes it clear that his submissions have been totally omitted to be considered by the Bench. Non-consideration of the arguments of the CIT (DR) makes the order liable to be rectified u/s.254(2) of the Income Tax Act, 1961. In view of these submissions, it is respectfully submitted that the Hon'ble ITAT's order dated 10.11.2010 requires to be reconsidered. PRAYER - In view of the aforesaid facts, it is humbly prayed that the Hon'ble ITAT may recall its order dated 10.11.2010 in assessee's Appeal being ITA No.2944/Mum/2007 & Revenue's Appeal being ITA No.2871/Mum/2007 for A.Y 2003-04 and rectify the same after taking into account the aforementioned facts." 3. At the time of hearing the ld. D.R. while reiterating the same plea stated in the Misc. Application further submits that the Hon'ble President, ITAT had constituted the Special Bench to he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F) (2007) 104 ITD 1 (Delhi [SB]and in Dy. Commissioner of Income Tax vs. Oman International Bank SAOG (2006) 100 ITD 285 (Mum)[SB]) to contend that the opinion of the Third Member is equivalent to the decision of the Special Bench having a same force of binding nature. He further submits that in the case of Dynavision Ltd. vs. ITAT (2008) 171 Taxman 486(Mad.), it has been held that the Third Member must confine himself to order of reference; he has no right to go beyond the scope of reference in a matter of difference of opinion between Members of Bench and has no right to enlarge, restrict, modify and/or formulate any question of law on his own on difference of opinion referred to by Members of Tribunal. In the light of the above decisions, the ld. D.R. submits that the Special Bench has committed a mistake in framing a question on its own, therefore, the order passed by the Special Bench of ITAT be rectified. 4. With regard to other issues raised in the Misc. Application (supra), the ld. D.R. submits that the objections have been elaborately discussed in the Misc. Application filed by the Revenue and the same be rectified in accordance with the provisions of section 254(2) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act, 1961." He further submits that the above question framed by the Special Bench of the Tribunal is almost the same as re-drafted by the ld. Sr. Counsel for the assessee except the working of the sum of ₹ 4,14,87,985/- being the difference between the payment of net present value against the future liability. He further submits that the question drafted by the Special Bench of the Tribunal in which the Hon'ble President of the Tribunal was also a party does not require fresh reference to the President of the Tribunal. He further submits that since the question drafted by the Special Bench of the Tribunal is within the four corners of the original question having the applicability or non-applicability of the same provision of section 41(1) of the Act, therefore, the plea of the Department that question framed by the Special Bench of the Tribunal without giving any opportunity to the parties must be rejected and for this proposition the reliance was also placed on the decision of the Special Bench of the Tribunal in National Thermal Power vs. Inspecting Assistant Commissioner (1988) 24 ITD 1 (Del) [SB] wherein it has been held that the entire appeal is open before the Sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le constituting the Special Bench u/s 255(3) of the Act, (ii) that the Special Bench of the Tribunal has not considered certain arguments of the ld. D.R. while adjudicating the issue in paras 75,76,77,104,105 and 107 etc., and (iii) that the Special Bench of the Tribunal without giving any opportunity of being heard has considered the provisions of section 63 of the Indian Contract Act. 9. As regards the framing of question by the Special Bench of the Tribunal, we find that the Division Bench while hearing the appeal observed that there are divergence of opinion expressed by two Benches of the Tribunal on the similar issue, therefore, the Division Bench has considered it necessary to refer to the Hon'ble President, ITAT to constitute Special Bench to resolve the issue by deciding the following question:- "Whether in the facts and circumstances of the case, the remission of deferred sales tax liability is chargeable to tax as business income of the assessee u/s 41(1) being remission of trading liability or the same is exempt from tax as capital receipt being remission of loan liability." 10. The Hon'ble President, ITAT after considering the proposal of the Division Bench of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion framed by the Special Bench of the Tribunal (supra) , therefore, the prime objection raised by the Revenue that, surprisingly, the question has been framed by the Special Bench of the Tribunal is contrary to the facts of the present case. 13. In National Thermal Power Co. Ltd. vs. CIT (1998) 229 ITR 383 (SC)it has been observed and held as under (Page 386 placitum C & D) :- "The Tribunal has framed as many as five questions while making a reference to us. Since the Tribunal has not examined the additional grounds raised by the assessee on the merits, we do not propose to answer the questions relating to the merits of those contentions. We reframe the question which arises for our consideration in order to bring out the point which requires determination more clearly. It is as follows : "Where on the facts found by the authorities below a question of law arises (though not raised before the authorities) which bears on the tax liability of the assessee, whether the Tribunal has jurisdiction to examine the same ?" 14. In Steel Authority of India Ltd. vs. CIT (2012) 206 Taxman 574 (Del) it has been observed and held as under (Page 582 para 11) :- "Since the substantial quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n" and he has to agree with one view or the other. This "restraint" is not there in the hearings before the Special Bench or the Division Bench where the Tribunal after hearing the parties can express its opinion taking into account the facts of the case as also the legal position thereto." 17. Applying the ratio of the above decisions to the issue involved in the present case we find that the issue before the Special Bench was as to whether the remission of deferred sales tax liability is chargeable to tax as business income of the assessee u/s 41(1) of the Act or the same is exempt for tax as capital receipt being remission of loan liability. Since in the original question there was no mention of the amount in dispute as pointed out by the ld. Sr. Counsel of the assessee in the question drafted by him and to avoid further controversy in the matter and to understand the issue or the range of controversy as a whole, the Special Bench of the Tribunal, in which the Hon'ble President, ITAT was also a party and also keeping in view that in the reference it has been mentioned by the Hon'ble President, ITAT that "to hear the appeal and proposed question", has deemed it appropriate to el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence of opinion referred to by the Members of the Tribunal. In the instant case, the Judicial Member and the Accountant Member had the difference of opinion and formulated the questions. [Para 9]" 20. In the case before us, such issue is not involved and as such, the decision relied on by the ld. D.R. is distinguishable and not applicable to the facts of the present case. 21. In this view of the matter the Revenue's objections mentioned in paras 2, 2.1, 2.2, 2.3, 2.4, 2.5 and 2.6 of the Misc. Application (supra) are outside the scope of provisions of section 254(2) of the Act and hence the same are, therefore, rejected. 22. As regard the objection of the Revenue in para 3 of the Misc. Application (supra) that in para 75 of the Tribunal order, the Special Bench has not considered the arguments of the ld. D.R., we find that first line of para 75 of the order starts with the submission of the ld. D.R. and for ready reference para 75 of the order is reproduced as under: "According to Business Dictionary.com, submitted by the ld. DR, the definition of NPV reads as under :- "Difference between the present value (PV) of the future cash flows from an investment and the amount of inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had collected total amount of ₹ 7,52,01,378/- towards sales tax during the year 1989-90 to 2001-02. It was treated as a loan liability payable after 12 years in six annual/equal instalments and thus, the assessee treated the said liability as unsecured loans in its books of account." "105. The other requirement of section 41(1) is that the assessee must have subsequently (i) obtained any amount in respect of such loss and expenditure or (ii) obtained any benefit in respect of such trading liabilities by way of remission or cessation thereof. In the case before us we find that the sales tax collected by the assessee during the years 1989-1990 to 2001-2002 amounting to ₹ 7,52,01,378/- was treated by the State Government as a loan liability payable after 12 years in six annual/ equal instalments. Subsequently pursuant to the amendment made in the fourth proviso to section 38(4) of the BST Act, 1959 which provides that where an Entitlement Certificate has been granted to the eligible unit for availing of the incentives by way of deferment of sales tax etc. such eligible unit may in respect of the periods during which the said certificate is valid, at its option, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Value (NPV) of deferred taxes under the package scheme of incentives which is as under : "Provided also that, notwithstanding anything to the contrary contained in the Act or in the rules or in any of the Package Scheme of Incentives or in the Power Generation Promotion, Promotion Policy, 1998, the Eligible unit to whom an Entitlement Certificate has been granted for availing of the incentives by way of deferment of sales tax, purchase tax, additional tax, turnover tax or surcharge, as the case may be, may, in respect of any of the periods during which the said certificate is valid, as its option, prematurely pay in place of the amount of tax deferred by it an amount, equal to the net present value of the deferred tax as may be prescribed, and on making such payments, in the public interest, the deferred tax shall be deemed to have been paid." The State Govt. has by notification No.STR-12.02/CR-102/taxation-1 dated 16.11.2002, introduced Rule 31D in the Bombay Sales Tax Rules, 1959 (BST Rules) laying down the procedure for determination of such NPV. The procedure for determination of NPV of the amount of deferred taxes having been published, the Deferral Units may exercise the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication (supra) that once the Tribunal has held the benefit of deduction has been allowed u/s 43-B of the Act, the finding of the Tribunal in para 104 of the order that first requirement of section 41(1) has not been fulfilled in the facts of the present case, is contrary which constitutes mistake apparent from record, we find that the Tribunal in para 104 after considering the provisions of section 43-B, CBDT Circular No. 496 dated 25-9-1987 and the decisions of the Hon'ble Apex Court has held that the first requirement of section 41(1) has not been fulfilled in the facts of the present case vide finding recorded in para 104 of the Tribunal order as under:- "Having regard to the aforesaid law laid down by the Hon'ble Supreme Court and High Courts, we find that to invoke the provisions of section 41(1) of the Act, the first requirement is as to whether in the assessment of the assessee, an allowance or deduction has been made in respect of loss, expenditure or the trading liability incurred by the assessee. In the case of the present assessee the revenue's plea is that the assessee has obtained the benefit of deduction of sales tax liability u/s. 43 B of the Act as per CBDT Cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein it has been observed and held as under:- "………..While allowing the appeal, the tribunal also referred to another decision of ITAT, Mumbai, 'F' Bench, in the case of Macintosh Finance Estates Ltd. Vs. ACIT. Reliance and reference to reasons stated in Macintosh (supra) cannot be regarded as a mistake apparent from the record. It is not unusual or WPC 3744/2011 Page 2 of 3 abnormal for Judges or adjudicators to refer and rely upon judgments/decisions after making their own research." 31. Thus, we are of the view that there is no mistake in the order of the Tribunal and, hence, the plea taken by the Revenue is rejected. 32. As regards the objection of the Revenue in para 9 of the Misc. Application (supra) that the assessee itself has used the expression 'remission', and despite thereof, the Tribunal has held that there is no iota of evidence to show that there has been any remission or cessation of liability by the State Government, we find that the Tribunal in para 107 of its order has observed and held as under:- "The ld. DR has put great emphasis on the notes to the accounts which have been reproduced by us in para-43 appearing at page-43 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Southern Technologies Limited vs. Jt. CIT (2010) 320 ITR 577 (SC) we find that the Tribunal in para 42 of its order has duly noted the above decision relied on by the ld. D.R. In the said decision the constitutional validity of the provisions of section 43-D and 36(1)(viia) of the Act was challenged before the Hon'ble Supreme Court. It has been held by Their Lordships that the provisions are found to be constitutionally valid in that they do not offend Article 19 of the Constitution of India. There is no quarrel on the principle of law laid down by the Hon'ble Apex Court. However, the facts and the issue involved in the present case are entirely different, therefore, the decision relied on by the ld. D.R. is distinguishable and not applicable to the facts of the present case. 36. In Lachman Dass Bhatia Hingwala (P.) Ltd. (supra) relied on by the ld. D.R., it has been held (page 243-244 of (2011) 330 ITR 243 (Delhi) [FB]: "……….The decision of the Supreme Court in Honda Siel Power Products Ltd. v. CIT [2007] 295 ITR 466is an authority for the proposition that the Tribunal in certain circumstances can recall its own order and section 254(2) of the Act do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould follow the discovery of such mistakes is to recall the order and decide the case afresh or to decide that issue after affording an opportunity to the parties concerned and pass a fresh order in the light of finding on such issue. The order under section 254(2) of the Income-tax Act, 1961, is not confined to arithmetical or clerical mistakes, nor only to correct substantive mistakes but also procedural mistakes." 39. In CIT vs. Ramesh Electric and Trading Co. (1993) 203 ITR 497 (Bom) relied on by the ld. sr. Counsel for the assessee it has been held as under (page 497 placitum E) :- "Under section 254(2) of the Income-tax Act, 1961, the Appellate Tribunal may, "with a view to rectifying any mistake apparent from the record", amend any order passed by it under sub-section (1) within the time prescribed therein. It is an accepted position that the Appellate Tribunal does not have any power to review its own orders under the provisions of the Act. The only power which the Tribunal possesses is to rectify any mistake in its own order which is apparent from the record. This is merely a power of amending its order. The power of rectification under section 254(2) can be ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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