Ita/23/2012 Of The State Farming Corporation Of Kerala Ltd v. Assistant Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON WEDNESDAY,THE 14TH DAY OF NOVEMBER 2018 / 23RDKARTHIKA, 1940 ITA.No. 23 of 2012 AGAINST THE ORDER/JUDGMENT IN ITA 262/COCH/2009 ofI.T.A.TRIBUNAL,COCHIN BENCH DATED 6.7.2011 APPELLANT/S:/APPELLANT/ASSESSEE: THE STATE FARMING CORPORATION OF KERALA LTD.,FARM HOUSE, PB NO.13, VETTITHALA P.O., ALIMUKKU, PUNALUR, KOLLAM, PIN-689696, REPRESENTED BY ITS MANAGING DIRECTOR. BY ADVS.SRI.K.ANAND (Sr.)SMT.LATHA ANAND RESPONDENT/S:/RESPONDENT/REVENUE: 1THE ASSISTANT COMMISSIONER OF INCOME TAX,CIRCLE-I, KOLLAM.CIRCLE-I, KOLLAM. 2THE COMMISSIONER OF INCOME TAX (APPEALS),OFFICE OF THE COMMISSIONER OF INCOME TAX APPEALS-IV, KOCHI.OFFICE OF THE COMMISSIONER OF INCOME TAX APPEALS-IV, KOCHI. BY ADVS. SRI.P.K.R.MENON, SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH SC FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 14.11.2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA 23/12- J U D G M E N T K.Vinod Chandran, J. The appellant-assessee is a Government ownedCompany. There were two issues raised in the appeal;one with respect to the addition made of interestreceivable from Kerala State Horticultural Corporation(Horticorp) and the other, the question of disallowanceof brought forward business loss as arrears ofdepreciation. The second question is not pressed bythe assessee, while the matter was argued. The issueis only on the question of receivable interest fromHorticorp. 2.The learned Senior Counsel appearing forthe assessee would argue that an amount of Rs.2 croreswas given to Horticorp, on instructions from theGovernment. The assessee herein as also the Horticorpare fully owned Government Companies. The assessee hasnot received a single pie towards return of principalor interest as per the agreement entered into with theHorticorp. The assessee had shown the interestreceivable at Rs.25 lakhs as on 31.03.2004, but had notshown it as on 31.03.2005 pursuant to a decision taken ITA 23/12- by the Board of Directors. 3.What assumes significance is that theassessee is following the mercantile system ofaccounting and the books produced for the purpose ofassessment is under that system. The decision takenby the Board as seen from the Notes to the Auditor'sReport forming part of the profit and loss account isas below:- “G.CHANGE IN ACCOUNTING POLICY No material change during the yearexcept as follows: a.Valuation of Umbrella spares hasbeen done at realizable value asagainst cost based on FIFO in previousyear. (Difference in change invaluation Rs.1,24,104.40) b.No interest have been providedduring the year on the principal loanof Rs.200 lakhs paid to M/s.Horticorpduring the year 1997 as againstinterest of Rs.25 lakhs provided ineach earlier years.” 4.The Board decided no material changeduring the year, except on two issues one of which isrelevant for the consideration in this appeal. TheBoard had while continuing under the mercantile system,decided to provide no interest accrued on the loan to ITA 23/12- the Horticorp. Having followed the mercantile systemof accounting, a decision of the Board not to show theinterest receivable, would not absolve the liability,since under the mercantile system, interest is deemedto have accrued in the previous year to the assessmentyear. We do not see any reason to interfere with theorder of the Income Tax Appellate Tribunal. We, hence,dismiss the appeal. No costs. Sd/- K.VINOD CHANDRAN JUDGE Sd/-ASHOK MENONJUDGE ITA 23/12- APPENDIX APPELLANT'S/S EXHIBITS: ANNEXURE ICOPY OF THE ASSESSMENT ORDER DATED 07/12/2007.ANNEXURE 1(A)COPY OF THE ORDER OF THE CIT INCOME TAX(APPEAL)-IV COCHIN, 25/02/1009 IN ITA-10/Q/CIT(A)IV/8-09. ANNEXURE 2COPY OF THE REVISED ORDER OF THE DEPUTYCOMMISSIONER INCOME TAX CIRCLE I, KOLLAM DATED 28/06/2010. the Horticorp. Having followed the mercantile systemof accounting, a decision of the Board not to show theinterest receivable, would not absolve the liability,since under the mercantile system, interest is deemedto have accrued in the previous year to the assessmentyear. We do not see any reason to interfere with theorder of the Income Tax Appellate Tribunal. We, hence,dismiss the appeal. No costs. Sd/- K.VINOD CHANDRAN JUDGE Sd/-ASHOK MENONJUDGE ITA 23/12- APPENDIX APPELLANT'S/S EXHIBITS: ANNEXURE ICOPY OF THE ASSESSMENT ORDER DATED 07/12/2007.ANNEXURE 1(A)COPY OF THE ORDER OF THE CIT INCOME TAX(APPEAL)-IV COCHIN, 25/02/1009 IN ITA-10/Q/CIT(A)IV/8-09. ANNEXURE 2COPY OF THE REVISED ORDER OF THE DEPUTYCOMMISSIONER INCOME TAX CIRCLE I, KOLLAM DATED 28/06/2010. ANNEXURE 3COPY OF THE ORDER OF ITAT DATED 06/07/11 IN ITA 262/COCH/2009.[True Copy] jg