Commissioner Of Income Tax-I,Ludhiana v. M/S. Manav Tools (India) Pvt. Ltd.ludhiana

IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 206 of 2003Date of Decision: 23.11.2010 Commissioner of Income Tax-I,Ludhiana --- Appellant Versus M/s. Manav Tools (India) Pvt. Ltd.Ludhiana --- Respondent CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL. --- PRESENT:Mr. Rajesh Katoch, Advocate for the appellant-Revenue. None for the respondent-assessee. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-tax Act, 1961(for short “the Act’”) has been filed by the Revenue against the orderdated 2.8.2002, passed by the Income Tax Appellate Tribunal, AmritsarBench, Amritsar, (in short “the Tribunal”) in ITA Nos. 1200/CHANDI/95and 1543/CHANDI/95 relating to the assessment year 1993-94. The Revenue has claimed the following substantial questionof law for determination by this Court: “Whether the right to receive IPRS accrued on the date ofexport i.e. 22.3.1993, in the year relevant to the assessmentyear 1993-94?” The facts necessary for adjudication, as narrated in theappeal are that the assessee filed its return for the assessment year1993-94, declaring net income at Rs. nil. The assessee claimedunabsorbed investment allowances of Rs. 50,454/- and 37,971/- for thepast assessment years 1989-90 and 1990-91 respectively. The returnwas processed under Section 143(1) (a) of the Act. Assessment wasframed, vide order dated 30.3.1994, at an income of Rs. 5,46,412/- and,while doing so, the assessing officer made the following additions: i)Addition of Rs. 2,35,554/- on account of commissionpaid to M/s. Uni Tools (India) Pvt. Ltd.paid to M/s. Uni Tools (India) Pvt. Ltd. ii)Addition of Rs. 6,47,261/- on account of IPRS onaccrual basis as the assessee became entitled toreceive the IPRS incentive on the date of export itselfwhich was 22.3.1993 relating to the assessment year1993-94 though the claim was received in theassessment year 1994-95.accrual basis as the assessee became entitled toreceive the IPRS incentive on the date of export itselfwhich was 22.3.1993 relating to the assessment year1993-94 though the claim was received in theassessment year 1994-95. The Commissioner of Income Tax (Appeals), [hereinafterreferred to as “CIT(A)”] in the appeal carried by the assessee, vide orderdated 19.7.2005, upheld the disallowance of commission but deleted theaddition of Rs. 6,47,261/- on account of IPRS observing that theassessee did not file claim to receive IPRS in the assessment year1993-94 before the appropriate authority for obtaining such incentive andthe claim having been filed and finalized in the financial year 1993-94, the IPRS incentive accrued in the assessment year 1994-95 and not in1993-94. The order passed by the CIT(A) was challenged by both thesides, i.e. the Revenue and the assessee, before the Tribunal, bypreferring separate appeals. The appeals of both the sides weredismissed by the Tribunal vide order dated 2.8.2002. This is how theRevenue has preferred the instant appeal. We have heard learned counsel for the parties and perusedthe record. The Revenue has raised an issue with regard to taxability ofIPRS relating to the assessment year 1993-94. Counsel for the revenueargued that the IPRS accrued on the date of export i.e. 22.3.1993,therefore, the same was exigible to income tax relating to assessment year1993-94. the IPRS incentive accrued in the assessment year 1994-95 and not in1993-94. The order passed by the CIT(A) was challenged by both thesides, i.e. the Revenue and the assessee, before the Tribunal, bypreferring separate appeals. The appeals of both the sides weredismissed by the Tribunal vide order dated 2.8.2002. This is how theRevenue has preferred the instant appeal. We have heard learned counsel for the parties and perusedthe record. The Revenue has raised an issue with regard to taxability ofIPRS relating to the assessment year 1993-94. Counsel for the revenueargued that the IPRS accrued on the date of export i.e. 22.3.1993,therefore, the same was exigible to income tax relating to assessment year1993-94. We are unable to accept the aforesaid submission of theRevenue. The issue regarding accrual of income from export incentivecame up for consideration before this Court in ITC NO.184 of 1994 (TheCommissioner of Income Tax, Patiala Vs. M/s Sriyansh Knitters (P)Limited Ludhiana) decided on 11.10.2010 wherein it was held that noincome accrues till claim of the assessee was quantified and verified.Admittedly, in the present case, the assessee had submitted the claimfor IPRS and received it during the next assessment year i.e.assessment year 1994-95 and, therefore, the same could not be held tobe taxable in the current assessment year. The findings recorded by theTribunal while upholding the claim of the assessee deserve to be noticedhere, which are as under:- “We have heard both the parties and given our thoughtfulconsideration to the rival submissions. We have also examinedthe facts, evidence and material on record. From the factsdiscussed above, it is obvious that the assessee had exportedthe goods towards fag end of the accounting year underreference i.e. on 22.3.93. It is not in dispute that the assesseehad made claim in the next accounting year and IPRS receivedin the next accounting year were duly reflected in the A.Y.1994-95. It is also a fact that the assessee had been following themercantile system of accounting. The question that requires tobe considered is-whether the assessee becomes entitled toIPRS automatically without making such claim to the Govt. or itis subject to the finalization and approval of the Govt.? Asdiscussed above, IPRS is allowed by the Govt. on account ofprice difference between the international and Indian price ofraw material consumed in the manufacture of goods, whichhave been exported. There does not appear to be anyautomatic formula to determine the difference between theprice prevailing in the international market and price of rawmaterial prevailing in the country. It is also not the case thatreimbursement of IPRS was being made at a fixed percentageof the exports. Thus very nature of the scheme is such whichrequires scrutiny and examination by the Govt. fordetermination of price difference. Until and unless claim issubmitted to the Govt. and is scrutinized and approved by theGovt. it cannot be said that the assessee has acquired the rightto receive such income. Moreover, the exports were made atthe fag end of the accounting year i.e. about 8 days before the close of the accounting year. Therefore, it does not appear thatthe assessee delayed submission of its claim for IPRS with anintention to defer its income to the next assessment year.Therefore, the amount which was neither quantified noraccrued or finalized by the Govt. in the A.Y. under referencecould not be considered to have accrued to the assessee in theassessment year under reference. We have also referred to thetwo judgments relied upon by the ld. DepartmentalRepresentative for the revenue. In the case of Anglo FrenchTextiles(supra), the issue before the High Court was-whetherincome by way of import entitlements for the export carried outin Pondichery accrued to the assessee in Pondichery, whichwas then governed by French laws or was the income accruedin India. Since the assessee was carrying its entire business inPondichery, even the exports were made from Pondichery andamounts were received in Pondichery, it was held that importentitlements also accrued to the assessee in Pondichery. Thus,the facts of the case are totally distinguishable from the facts ofthe present case. As regards the judgment of Bombay HighCourt in the case of CIT Vs. Pink Star (supra) the issue beforethe High Court related to the amounts of Rs.15,47,005/-received by the assessee on the un-utilised import licence. Inthat case the assessee had already exported goods. As per thescheme of the Govt. the assessee had already exported goods.As per the scheme of the Govt. the assessee was entitled tocash equivalent to 8% of the un-utilised import licence. Thus inthat case percentage of the amounts to be received in respectof un-utilised amount of import licence, was determined at a fixed rate. This is not the case here. The assessee is notentitled to IPRS at a fixed percentage of the exports value ofgoods. It was still to be examined and determined by the Govt.Therefore, the ratio of the judgment of Bombay High Court isalso not applicable to the facts of the present case. Havingregard to the facts and circumstances of the case, we are of theconsidered opinion that the order of CIT(A) does not merit anyinterference. Accordingly, the same is upheld and this ground ofappeal is dismissed.” No perversity or illegality could be pointed out in the aforesaidfinding, which may warrant interference by this Court. Accordingly, there isno merit in the appeal and the same is dismissed. (AJAY KUMAR MITTAL)JUDGE November 23, 2010*rkmalik* (ADARSH KUMAR GOEL) JUDGE