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TMI Blog2016 (11) TMI 1389X X X X Extracts X X X X X X X X Extracts X X X X ..... 4-05, which in turn has arisen from the order dated 30.10.2006 passed by the Assessing Officer, Mumbai under section 143(3) of the Income Tax Act, 1961 (in short 'the Act'). 2. In this appeal, Revenue has raised the following Grounds of appeal :- "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of ₹ 255.685 crores being the discount given by Karnataka Government as loan payable by the assessee from the sales tax collected by it ignoring the decision of Apex Court on similar issue in the case of CIT Vs. T.V. Sundaram Iyangar & Sons (222 ITR 344). 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in treating the interest received from Oil Coordination Committee as business income as against income from other sources held by the Assessing Officer. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in treating the disallowance of ₹ 40,36,741/- being payment to MRPL Education Trust and MRPL Janaseva Trust without appreciating the fact that such deduction is not allowable u/s 40A(9) of the Act. 4. On the facts and in the circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms duty paid by way of utilization of the Advance License upon fulfillment of export obligation till the due date for filing the return of income. 3. In any event, Hon'ble CIT(A) erred in not allowing a sum of ₹ 40,41,81,196/- which has been offered and assessed as a part of the total income of the subsequent year i.e. A.Y. 2005-06. Hon'ble CIT(A) failed to appreciate that the disallowance of ₹ 40,41,81,196/- in A.Y. 2004-05 i.e. the assessment year under consideration would amount to double-taxation. 4. Further, if the disallowance of provision for customs duty amounting to ₹ 173,35,28,049/- in A.Y. 2003-04 is upheld, then an amount of ₹ 75,99,01,495/- which already forms part of the total income of the current year i.e. A.Y. 2004-05 by way of reversal out of the said provision on the completion of export obligations should not be charged to tax, else it would amount to double taxation." 4. First, we shall take up the appeal of Revenue wherein the Ground of appeal no. 1 relates to an addition of ₹ 255.685 crores made by Assessing Officer by invoking provisions of Sec. 41(1) of the Act. 5. In this context, the brief facts are that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that on such-like surplus, the provisions of Section 41(1) of the Act were inapplicable. Against such a decision of the Id. CIT(A), the Revenue is in appeal before us. 7. At the time of hearing, the Id. Representative for the respondent assessee pointed out that an identical controversy has been adjudicated by the Hon'ble Bombay High Court in the case of CIT vs. Sulzer India Ltd. (369 ITR 71) in favour of the assesee. In particular, it was also pointed out that in the bunch of cases adjudicated by the Hon'ble High Court, the decision relied upon by the CIT(A) in the case of Associated Capsules (P.) Ltd. (supra) was also decided by the Hon'ble High Court. The Hon'ble High Court, considering the scheme of the Government of Maharashtra with respect to the premature repayment of deferred sales tax loan, had upheld the contention that the surplus arising on such repayment was not an amount falling for consideration in terms of section 41(1) of the Act. It was, therefore, contended that the impugned matter has been correctly decided by the CIT(A) inasmuch as the incentives granted by the Government of Karnataka by way of sales tax deferment to the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal raised by the Revenue is misconceived as it does not arise from the orders of authorities below. In order to appreciate the aforesaid plea, we may refer to the following fact-position. As per the discussion in para 5 of the assessment order, it transpires that the interest income of ₹ 7,35,70,000/- earned by the assessee was taxed by the Assessing Officer under the head 'income from other sources' as against the stand of assessee that the said income is a part of 'business income'. The assessee carried the aforesaid dispute before the CIT(A) who in para 4 of the order has allowed part relief. It is clear that so far as the income relating to interest on bank deposits, interest from New Mangalore Port Trust, interest and discount charges received from customers, interest on contractors' advances and interest on housing loans given to employees is concerned, it has been held to be taxable as 'business incomes'. Our attention has also been drawn to page 10 of the Statement of Facts filed before CIT(A), which also enumerates the detail of interest income of ₹ 7,35,65,982/-, which was considered by the Assessing Officer to be taxed as 'income from other sources'. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... below reveal that the payments of ₹ 12,43,906/- and ₹ 19,28,798/- to MRPL Education Trust and MRPL Janaseva Trust respectively have been made in order to make good the periodic deficit caused to such entities on account of expenses incurred by them in running school and hospital respectively. No doubt, the two trusts have been set-up by the assessee-company, but the impugned payments are not for 'setting-up' or for 'formation' of or as 'contribution' to the trusts so as to fall within the mischief of Sec. 40A(9) of the Act. The phraseology of Sec. 40A(9) of the Act itself clearly suggests that only sums paid by the assessee as employer towards 'setting-up' or 'formation' of or as 'contribution' to any trust, fund, society, etc. is to be disallowed whereas the expenses in question are not of the nature covered by Sec. 40A(9) of the Act and are instead incurred by assessee wholly and exclusively for the welfare of its employees and same is deductible u/s 37(1) of the Act. At the time of hearing, the learned representative for the assessee had also relied upon the judgment of Hon'ble Bombay High Court in the case of Bharat Petroleum Corporation Ltd, 252 ITR 43 (Bom), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) on this aspect is upheld and Revenue fails. 20. Apart from the aforesaid Grounds raised by the Revenue in the Memo of Appeal, it has also raised additional Grounds of appeal, which read as under :- "2. The Revenue had filed appeal for to A.Y 2004-05 vide appeal No. ITA 6835/M/08. Following additional ground of appeal is authorized by the CIT-3, Mumbai vide Authorisation Memo No. J-3/IT-217/2008-09 dated 30-11-2009. 1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that interest u/s 234B & 234C cannot be charged when income is taxable u/s 115JB of the Act. 2. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the Assessing Officer be restored. 3. The appellant craves to amend or alter any ground or add a new ground which may be necessary." 21. In terms of the aforesaid Grounds, what is sought to be challenged is the decision of CIT(A) in holding that interest u/s 234B & 234C of the Act is not chargeable where the tax liability has been determined in terms of the 'book profits' calculated u/s 115JB of the Act. It is notable that the CIT(A) has relied upon the judgment of Hon'ble Karnata ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15.6.2003, 15.9.2003, 15.12.2003 and 15.3.2004. In the assessment order passed u/s 143(3) dated 30.10.2006, Assessing Officer charged interest u/s 234B & 234C of the Act with respect to the tax liability u/s 115JB of the Act. At the time of the relevant dates for payment of advance tax, judgment of the Hon'ble Karnataka High Court dated 30.11.1999 in the case of Kwality Biscuits Ltd. (supra) was prevailing, according to which interest u/s 234B & 234C of the Act was not chargeable with respect to tax liability determined under MAT. Under these circumstances, it is quite clear that at the relevant point of time assessee had a justifiable and plausible reason to believe that no advance tax was payable by it, being a corporate entity, with respect to the liability u/s 115JB of the Act. No doubt, the judgment of Hon'ble Supreme Court in the case of Rolta India Ltd. (supra) prescribes that interest u/s 234B & 234C of the Act is leviable even with respect to the liability determined on the MAT, so however, the said decision is of a later date, i.e., 7.11.2011. The judgment of the Hon'ble Supreme Court in the case of Rolta India Ltd (supra) being a subsequent decision would no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .5.2013 have been consolidated and the Memorandum of Revised/Consolidated and Additional cross objections have been filed so as to have a better clarity on the dispute. It has also been pointed out that no new plea has been raised in the subsequent Memorandum of cross objections and, therefore, the revision in the Memorandum of cross objections cannot be considered as a delay in filing of the cross objection. In our considered opinion, in the original Memorandum of cross objection filed by the assessee, the challenge was with respect to the disallowance of ₹ 40,41,81,196/- being provision on account of Customs duty. Even in the Revised and Additional cross objections, the challenge remains the same although different facets of the dispute have been brought out. Therefore, the stand of the ld. DR to assail the filing of Revised/Consolidated and Additional cross objections, as being delayed, is based on a wrong perspective and is hereby rejected. 27. Now, we may take up the merits of the disallowance of ₹ 40,41,81,896/- made by the Assessing Officer, which is sought to be challenged by the assessee on various limbs. In order to appreciate the controversy, the following b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t correct in holding that the liability for payment of Customs duty of ₹ 40,41,81,196/- did not arise during the year. According to the assessee, the Assessing Officer was correct in deducing that the provisions of Sec. 43B of the Act was applicable thereby implying liability arose in the year under consideration, but erred to the extent of holding that fulfilment of export obligations by 30.9.2004 did not amount to payment of Customs duty within the meaning of Sec. 43B of the Act. Further, it has been pointed out that having regard to the manner in which assessee has treated the amount relating to the Customs duty in its books of account, the entire exercise is unnecessary and is tax neutral over the years. The learned representative has in detail argued on the aforesaid propositions, which we shall elucidate further in the subsequent paras. 29. On the contrary, the stand of the ld. DR appearing for the Revenue is in support of the orders of authorities below. 30. Pertinently, the entire controversy revolves around the provisions of Sec. 43B of the Act. Sec. 43B of the Act was inserted by the Finance Act, 1983 w.e.f. 1.4.1984 and prescribes for certain deductions to be all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... import of raw material for manufacture of products meant for export. As on 31.3.2004, assessee-company has made a Provision of Customs duty of ₹ 40,75,50,184/- on crude oil imported against Advance licence pending completion of export obligations. Upto 30.9.2004, assessee has fulfilled the export obligations corresponding to the Customs duty liability of ₹ 40,41,81,896/-. In its computation of income, assessee adjusted the aforesaid amount of ₹ 40,41,81,896/- against the Provision for Customs duty as on 31.3.2004 and claimed it as deduction u/s 43B of the Act. We may also briefly touch upon the accounting treatment accorded by the assessee to such transactions. At the time of import of raw material, assessee creates a 'Provision of Customs duty' on such imports by debiting 'Customs duty on raw material' account and crediting 'Customs duty - Advance licence' account. The 'Customs duty Advance licence' account is shown as a liability outstanding in the Balance-sheet and subsequently, on fulfilment of the export obligation, the 'Customs duty Advance licence' account is debited and 'Export licence benefit received' account is credited and is offered as income. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said Advance Licence, or within such extended period not exceeding six months as the Assistant Commissioner of Customs or Deputy Commissioner of Customs may, on sufficient cause being shown, allow, or for any other sufficient reason, the importer shall, notwithstanding anything contained in section 28, be liable to pay the amount of duty not so adjusted together with simple interest thereon at the rate of twelve per cent per annum from the date the said permission for clearance is given to the date of payment. (3) While permitting clearance under sub-section (1), the [Assistant Commissioner of Customs or Deputy Commissioner of Customs] may require the importer to execute a bond with such surety or security as he thinks fit for complying with the conditions specified in sub-section (2)." 33. Sub-section (1) of Sec. 143A of Customs Act, 1962 prescribes that where any material is imported under an import licence belonging to the category of Advance licence, the competent authorities can permit clearance of such material "without payment of duty" leviable thereon. Sub-section (2) provides the conditions for grant of permission for clearance of goods without payment of duty. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee together with interest. In fact, the learned representative pointed out that one of the conditions contained in Sec. 143A(2) of the Customs Act, 1962 prescribing paying of duty with interest if assessee was to default in meeting with export obligations itself would demonstrate that the liability for payment of Customs duty arises during the year of the clearance of goods. At the time of hearing, reliance has also been placed on the decision of the Ahmedabad Bench of the Tribunal in the case of Pratibha Syntex Ltd. v. Jt. Commissioner of Income-tax, 81 ITD 118 where it has been observed under somewhat similar circumstances that the Customs duty liability is not to be regarded as a contingent liability. 34. Therefore, in view of the aforesaid discussion, it is reasonable to conclude that the liability represented by the Provision of ₹ 40,75,50,184/- being Customs duty payable on import of raw material arises during the previous year relevant to the assessment year under consideration as assessee brought the requisite goods into India from a place outside India. Therefore, under these circumstances, CIT(A) erred in taking the view that Sec. 43B of the Act is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year of payment. The moot question is could the legislature have intended that an assessee who does not comply with the mandated export obligations would be able to avail the provisions of Sec. 43B of the Act, but not a performing assessee who complies with and discharges his obligation to make the mandated export? Be that as it may, in our view, the fulfilment of export obligations has resulted in reduction of a liability which is otherwise allowable under this Act and, therefore, in terms of the first proviso to Sec. 43B of the Act the amount of ₹ 40,41,81,896/- is deductible in the instant assessment year, and the stand of the Assessing Officer in this context is legally misplaced. 38. Apart from the aforesaid, assessee had also made a plea that the accounting treatment accorded by the assessee was tax neutral and, therefore, the entire exercise undertaken by the Assessing Officer was unnecessary in the present case. In this context, it has been pointed out that assessee has claimed deduction of the liability for payment of Customs duty in the year of import, as reflected by the debit to the Profit & Loss Account of the Provision of Customs duty and has correspondingl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer to delete the addition of ₹ 40,41,81,896/-. 41. Before parting, we may put on record that a plea has been raised on behalf of the assessee that in any event, the provisions of Sec. 43B of the Act were not attracted in the present case because Sec. 43B of the Act would apply in a case where it was contemplated that the Customs duty would be paid ultimately only in monetary terms and thus, would not apply where the liability was expected to be discharged by making an export and not in monetary terms. The aforesaid aspect of the matter is not being addressed and is kept open because the aforesaid plea is founded on the basis that fulfilling of export obligations in the present case is not equivalent to the payment of Customs duty for the purposes of Sec. 43B of the Act, which was a view taken by the Assessing Officer. Ostensibly, we have not accepted the aforesaid view of the Assessing Officer and necessary relief has been allowed in the earlier part of this order, therefore, the plea of the assessee is not being addressed and is kept open. 42. In the result, the Cross objection filed by the assessee is allowed, as above. 43. Resultantly, appeal of the Revenue is di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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