The Commissioner Of Income Tax-Iiiaayakar Bhawan, Civil Lines,Nagpur v. M/S. Plasti Surge Industries Pvt. Ltd.,Sidhartha Bhavan, Morshi Road,Amravati

IN THE HIGH COURT OF JUDICATURE AT BOMBAYNAGPUR BENCH, NAGPUR. INCOME TAX APPEAL No. 16/2013. The Commissioner of Income Tax-IIIAayakar Bhawan, Civil Lines,Nagpur. ....APPELLANT. VERSUS M/s. Plasti Surge Industries Pvt. Ltd.,Sidhartha Bhavan, Morshi Road,Amravati. ....RESPONDENT. ----------------------------------- Mr. Anand Parchure, Advocate for Appellant.Mr. L.S. Dewani, Advocate for Respondent. ------------------------------------ CORAM: B.P. DHARMADHIKARI AND Z.A. HAQ, JJ.Date of Reserving the order:11.02.2014.Date of Pronouncement :27.02.2014. ORAL ORDER. (Per B.P. Dharmadhikari, J) Parties have filed their written notes of argument on 05.02.2014 and 10.02.2014. On 11.02.2014, the matter was placed before this Court and it was closed for order. 2.This Court issued notice of present appeal filed under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as “the 1961 Act” for short), to the respondent assessee on 19.07.2013. The matter was then placed before this Court on 11.09.2013, 11.10.2013, 24.10.2013 and 28.11.2013. On 17.12.2013, this Court has passed a reasoned order and noted that only facet covered by paragraph no.6 of the judgment dated 19.10.2012 of the I.T.A.T. Nagpur may be required to be looked into as substantial question of law. In respect of other questions attempted to be raised in the memo of appeal, and argued, this Court observed that the I.T.A.T. accordingly followed its earlier pronouncement on those aspects in case of very same assessee and the appeal against earlier view of I.T.A.T. was not entertained by this Court. We have then noted that challenge to Special Bench judgment of the Tribunal at Mumbai in case of Sulzer IndiaLimited .vrs. J.C.I.T. (2010) 47 DTR 329 (Mum) (SB), was pending before the Principal Seat of this Court. Learned Counsel for the assessee wanted this Court to hear the appeal for admission on said question i.e. about the application of provisions of Section 41(1) of the 1961 Act. Thus, after this order, we placed the appeal for further consideration on 17.01.2014, when it was adjourned to 28.01.2014. On that day, again Revenue sought adjournment, but the learned Counsel for the assessee requested the Court to hear the matter. In this situation, we directed the parties to file written notes of arguments. 3.Perusal of the written notes of argument filed by the appellant – Revenue shows that it is filed in ignorance of the order dated 17.12.2013 and, therefore, does not restrict itself to the provisions of Section 41[1] of the 1961 Act. With the result, first 6 paragraphs of the said written notes of argument are irrelevant, as there is no prayer for review. It is to be noted that this has been pointed out to the appellant by the respondent vide its written notes of arguments dated 10.02.2014, and inspite of this, on 11.02.2014 no arguments were advanced to counter the position emerging after order dated 17.12.2013 or to further the submissions of revenue under Section 41[1] of the 1961 Act. 4.Last paragraph of written notes of arguments filed by the revenue i.e. paragraph no.7, in part, only deals with the said facet. It is urged in the opening line therein that “The difference of sales tax calculated to the tune of Rs.46,87,000/- and sale tax paid of Rs. 20.23 lacs be treated as capital receipt and therefore, the Assessing Officer was right in treating the difference of Rs.26,33,330/- as a revenue receipt under Section 41[1].” Two sentences thereafter, pendency of appeal before the Principal seat of this Court against the above mentioned Special Bench judgment of I.T.A.T. is pointed out. It is then stated that the question of law under Section 41[1] deserves to be considered and this Court can record its independent finding in view of failure on the part of the assessee to demonstrate the trading liability incurred, as also the same having been incurred by way of remission and cessation, thereof. and therefore, the Assessing Officer was right in treating the difference of Rs.26,33,330/- as a revenue receipt under Section 41[1].” Two sentences thereafter, pendency of appeal before the Principal seat of this Court against the above mentioned Special Bench judgment of I.T.A.T. is pointed out. It is then stated that the question of law under Section 41[1] deserves to be considered and this Court can record its independent finding in view of failure on the part of the assessee to demonstrate the trading liability incurred, as also the same having been incurred by way of remission and cessation, thereof. 5.Along with this written notes of arguments, 4 judgments are filed by the revenue. First one is (2012) 20 taxmann.com 516 (Gau)Commissioner of Income Tax .vrs. I.Tech Electronics, where deductions under Section 80-IC are considered. Second judgment under Section 80-IB is of Punjab and Haryana High Court reported at (2009) 178 TAXMAN 22(Pun & Har) Commissioner of Income Tax, Faridabad .vrs. MaheshChandra Sharma. Third judgment is on Section 80-HHC delivered by the Hon'ble Apex Court and reported at (2012) 18 taxmann.com 137 (SC)ACG Associated Capsules (P) Ltd. .vrs. Commissioner of Income Tax,Central-IV Mumbai. The last judgment is on the provisions of Section 80-IB and is delivered by the Hon'ble Apex Court, it is reported at (2009) 183TAXMAN 349 (SC) Liberty India .vrs. Commissioner of Income Tax. Bare perusal of these judgments show that none of them deals with Section 41(1) of the 1961 Act. 6.Written notes of arguments filed by the respondent assessee mention order of this Court dated 17.12.2013, decision of Special Bench of I.T.A.T. Mumbai in Sulzer India Limited (supra), and then scope of hearing being restricted to Section 41(1) of the 1961 Act. The assessee has submitted that it actually paid sales tax in previous year, relevant to assessment year 2005-06 at Net Present Value (NPV) in terms of provisions of Section 38(4) of the Bombay Sales Tax Act, 1959. Discharge of liability at net present value of future liability is argued to be not tantamounting to a remission or cessation of trading liability. Attention has been invited to paragraph nos. 104 to 108 of the judgment of Special Bench in case of Sulzer India Limited (supra). It is pointed out that the I.T.A.T. Nagpur in present matter while passing the impugned order has observed that there is no remission or cessation of trading liability, and therefore, the provisions of Section 41(1) of the 1961 Act are not applicable. Effort is made to demonstrate how the facts looked into by the Special Bench of the Tribunal at Mumbai and by I.T.A.T. in the impugned order are identical. The said judgment is also relied upon by the assessee. at Mumbai and by I.T.A.T. in the impugned order are identical. The said judgment is also relied upon by the assessee. 7.Special Bench in case of Sulzer India Limited (supra), has looked into the provisions of Section 41(1) and the C.B.D.T. Circular No.674 dated 29.12.1993. It has also noted ingredients of Section 41. It found that the assessee must have incurred a trading liability and there should have been a deduction in respect of the same. Lastly the assessee must have subsequently i.e. thereafter obtained any benefit in respect of that trading liability by way of remission or cessation thereof. In paragraph no.35, it has mentioned circular dated 29.12.1993 issued by the C.B.D.T. In paragraph no.63, it has reproduced relevant part of Section 41 and again in paragraph no.70 it points out the ingredients. In paragraph no.77 it has looked into the amendment made under Sub-section (4) of Section 34 of the Bombay Sales Tax Act. It has then concluded that the revenue placed no material on record to show that the net present value of future sum is not the same as claimed by the assessee or in the process of calculation of present value of future sum, there is any conversion gain to the assessee. Special Bench also noted that the revenue did not urge that there is no such conversion provided under the Bombay Sales Tax Act or then table provided for determination of NPV, is not applicable to the case of the assessee. Hence, contention of revenue that there was remission or cessation of trading liability, was not accepted. We find that situation is not different before us. Reliance by assessee on paragraph nos. 104 to 108 of the said judgment, therefore, cannot be said to be misconceived. 8.In present matter, order of CIT (Appeals) dated 25.02.2010 is in favour of the department. That order shows that for assessment year 2005-06, assessment under Section 143(3) was completed on 30.03.2006. Thereafter there were proceedings under Section 263 which were disposed of on 25.03.2008. Further assessment under Section 143(3) read with Section 263 was then completed on 31.07.2008. An amount of Rs.26,33,330/- came to be added to returned income of the assessee on the ground that discharge of liability in NPV terms resulted in revenue gain of such an amount to it. In paragraph no.9, the CIT Appeals has made reference to Section 41[1] of the 1961 Act. It takes note of the fact that assessee is having Industrial Unit which gets benefit of incentives under package scheme of incentives of State of Maharashtra and Sales Tax exemption was available under deferred scheme. Sales Tax calculated by the assessee gets converted into loan and was repayable after specific period under the Scheme of Government of Maharashtra. Government of Maharashtra later on introduced a scheme of incentives to liquidate loan by making remission payment at reduced value to settle it. The appellant in terms of the aforesaid scheme repaid the entire amount which was payable in future in one lump-sum at NPV. NPV of that amount payable in future resulted in reducing that liability by an amount of Rs.26,63,330/-. In paragraph no.9.2 the CIT Appeals has then looked into C.B.D.T. Circular No.674 dated 29.12.1993 to note that sales tax liability converted into loan which has been allowed as a deduction in the assessment for the previous year in which such conversion has been permitted by the respective Government orders. Option given to the tax payer to discharge loan liability in NPV terms is also then looked into to note that the tax payer derives the benefit of remission because of early payment. Then it proceeds to consider whether such benefit amounted to capital receipt or then a revenue receipt. In paragraph no.9.3, it notes that the entire transaction arose in the field of revenue only and not in the field of capital. It observed that the liability crystallized on account of deferment of sales tax only and have no other reason, and therefore, it is a trading liability in respect of which deduction has been claimed in the Profit and Loss account and has been allowed in the earlier year. Thus impact of concept of “NPV” is lost by C.I.T. 9.I.T.A.T. in its judgment in paragraph no.6 onwards has considered this very view in the light of language of Section 41(1) and the Special Bench judgment of the Tribunal in case of Sulzer Pvt. Ltd. (supra). I.T.A.T. has taken note of the Special Bench view that saving on account of prepayment of sales tax deferral loan is capital receipt and not exigible to tax under Section 41[1] of the 1961 Act, and hence, held that the issue is covered by the said Special Bench. It also found that the factual position was also not in dispute. It therefore, followed said Special Bench judgment and deleted addition of Rs. 26,63,330/- made by the A.O. and maintained by the C.I.T. Appeals. 10.N.P.V. of deferred sales tax liability is determined by looking to the payments to be made in future and most probably the payments already made may not have been looked into. We have already noted the findings of Special Bench of the Tribunal and efforts made by the revenue before it in paragraph no.77 of Special Bench judgment. 11.In present facts, we find that the conclusions drawn by the Special Bench also apply to present facts with full vigor. The appellant Revenue has not attempted to urge anything to persuade this Court to take a different view, either on facts or on law. 12.In this situation, we find that no substantial question of law arises for our determination in this Appeal. Appeal is, therefore, dismissed. No costs. JUDGE JUDGE Rgd.