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TMI Blog2019 (3) TMI 1772X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment Year 2014-15 on 29.11.2014 declaring a total income of Rs. 1,82,70,79,970/. A revised return was filed on 31.03.2016 declaring total income of Rs. 6,01,81,50,270/- and the assessment u/s 143(3) was completed on 14.12.2016 by determining total income at Rs. 6,01,84,16,899/-. 2.1 However, on subsequent examination of the records, the CIT noticed that an amount of Rs. 96076.20 lakh was debited in the Profit & Loss a/c towards Surcharge on Sales Tax and Turn over Tax. The surcharge was paid as per section 3(1) of the Kerala Surcharge on Taxes Act, 1957 (Act 11 of 1957). But, according to the CIT, this was not disallowed by the Assessing Officer u/s 40(a)(iib) of the Income tax Act 1961. Therefore, the CIT held that the order passed u/s 143(3) dated 14.12.2016 was erroneous and prejudicial to the interest of the Revenue. 2.2 The CIT referred to section 40(a)(iib) of the Income tax Act which stipulates that " the following amounts shall not be deducted in computing the income chargeable under the head 'Profits and gains of business or profession', any amount (A) paid by way of royalty, licence fee, service fee, privilege fee, service charge, or any other fee or charge, by wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1963, by a dealer in foreign liquor shall be increased by a surcharge at the rate of 10%. Also sub section 2 of Sections states that, no dealer referred to in sub section (1) shall be entitled to collect the surcharge payable from his purchaser. According to the CIT, these provisions of law clearly states that any dealer in foreign liquor is bound to remit surcharge and cannot do the business without remittance of surcharge". In this case, the assessee was entrusted with the monopoly purchase and sale of Indian Made Foreign Liquor (IMFL) / Beer in the state of Kerala and hence, surcharge paid on the sales tax as per the provisions of Section 3(1) of 'the Kerala Surcharge on Taxes Act, 1957 (Act 11 of 1957)' is an exclusive levy. Therefore, the CIT held that surcharge on sales tax should have been disallowed u/s 40(a)(iib) of the Act. 2.5 The CIT relied on the following judicial decisions: 1. CIT vs. Jawahar Bhattacharjee (2012) 341 ITR 434 (Gau.) (FB) wherein it was stated the assessment made on A. wrong assumption of facts or B. on incorrect application of law or C. without due application of mind or D. without following the principles of natural justice w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the provisions of Section 5(2) of The Kerala General Sales Tax Act, 1963 which is reproduced below. "Sub section(2) (i) Notwithstanding anything contained in sub-section (1), every dealer in Foreign Liquor, as specified hereunder, shall pay Turnover Tax on the turnover of foreign liquor at all points of sale in the State, after making such deductions as may be prescribed , namely:- (a) by a bar attached hotel, at the rate of ten per cent ; and (b) by others at the rate of five per cent, on the turnover at all points of sale." 3.2 It was submitted that Turnover Tax is payable by bars, beer and Wine parlors, clubs having bars, persons importing intoxicating drugs such as drug manufacturing units and distilleries in Kerala. In this regard we wish to submit that section 40(a)(iib) clearly states that it is applicable only amounts which are levied exclusively on a Government undertaking. In this case it was submitted that Surcharge on Sales Tax and Turnover Tax are not levies charged exclusively to the appellant and is applicable to other entities also as explained above and which is evident from the provisions of the respective sections of the applicable Acts of the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch calls for further enquiry to know the genuineness of it. In other words, he must carry out investigation where the facts of the case so require and also decide the matter judiciously on the basis of materials collected by him as also those produced by the assessee before him. The Assessing Officer was statutorily required to make the assessment under Section 143(3) after scrutiny and not in a summary manner as contemplated by Sub-section (1) of Section 143. The Assessing Officer is therefore, required to act fairly while accepting or rejecting the claim of the assessee in cases of scrutiny assessments. The Assessing Officer should protect the interests of the revenue and to see that no one dodged the revenue and escaped without paying the legitimate tax. The Assessing Officer is not expected to put blinkers on his eyes and mechanically accept what the assessee claims before him. It is his duty to ascertain the truth of the facts stated and the genuineness of the claims made in the return. The order passed by the Assessing Officer becomes erroneous when an enquiry has not been made before accepting the genuineness of the claim which resulted in loss of revenue. 5.1 In the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssman or a professional has incurred expenses by way discharge of a statutory obligation to get a license to do business or to get a license to undertake profession, such expenditure can be termed as an expenditure on account of necessity of business or profession." (2017) 395 ITR 444(Kar). A. Copy of the judgement is attached (Annexure 5, Page 9-22). In view of the above decision, it is submitted that Gallonage Fee paid is not an appropriation of income. Hence it is submitted that Gallonage Fee is not an amount levied on the assesse by the State Government and hence cannot be disallowed under section 40(a)(iib). For the reasons stated above and the submissions made in our argument notes submitted on 06.02.2019, this Honorable Income Tax Tribunal may kindly be pleased to allow the appeal and delete the additions made by the learned Assessing officer. " Since we have disposed of the appeal of the assessee, the additional grounds are of no consequence and hence, they are dismissed. The appeal of the assessee in ITA No. 536/Coch/2018 is dismissed. 6. Coming to appeal of the assessee in ITA No.537/Coch/2018, the facts of the case are that the assessee filed its return of income f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by way of FL-1 and FL-9 license by the State Government. Therefore, in the absence of any dispute on fact about the exclusive nature of license fee and shop rental, the disallowance of Rs. 205,46,00,000/- made by the Assessing Officer and confirmed by the CIT(A) is upheld. 7.6 Further, the website of the State Excise Department of Kerala gives details of licenses granted as under: "2. Issue of Licence for Sale of Liquor, Drugs etc The licenses are issued for a period of one financial year, ie. 1st April to 31st March. At the end of the year, shops are again put up for sale or the existing Licences are renewed as per the Abkari policy of the Government. An important licence granted by the department for sale of foreign liquor is FL 3 licence, widely known as Bar licence. Bar licence are granted to hotels having facilities, which are rated as three star or above with prior sanction of the Government. Wholesale business Indian Made Foreign Liquor (FL-9 licence) in the State is the monopoly of Kerala State Beverages Corporation, which is a State Government undertaking. Foreign Liquor retail outlets also (FL1 shops) are exclusively earmarked for the State Public Sector Units ..... X X X X Extracts X X X X X X X X Extracts X X X X
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