The Commissioner Of Income Tax, Karnal v. Market Committee, Ladwa

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. I.T.A. No.138 of 2010 (O&M) Date of decision: 7.7.2010 The Commissioner of Income Tax, Karnal Vs. Market Committee, Ladwa. -----Appellant. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:-Mr. Yogesh Putney, Sr. Standing Counselfor the revenue. --- ADARSH KUMAR GOEL, J. C.M. No.14974-CII of 2010: C.M. is allowed. Amended questions of law are taken on record. I.T.A. No.138 of 2010: 1. This appeal has been preferred by the revenue underSection 260A of the Income Tax Act, 1961 (for short, “the Act”)against the order of Income Tax Appellate Tribunal, ChandigarhBench “A” Chandigarh dated 28.5.2009 in I.T.A. No.470/Chd/2009 for the assessment year 2006-07. C.M. No.14974-CII of2010 has been filed, proposing following amended questions oflaw:- (i)Whether on the facts and in the circumstancesof the case, the Income Tax Appellate Tribunalis justified in allowing depreciation on capitalassets, when capital expenditure relating toacquisition of such assets had already beenallowed as “application of income” for thepurpose of allowing exemption under Section 11of the Income Tax Act, 1961 and as such furtherallowing of depreciation on these capital assetswill amount to double deduction for the sameexpenditure.of the case, the Income Tax Appellate Tribunalis justified in allowing depreciation on capitalassets, when capital expenditure relating toacquisition of such assets had already beenallowed as “application of income” for thepurpose of allowing exemption under Section 11of the Income Tax Act, 1961 and as such furtherallowing of depreciation on these capital assetswill amount to double deduction for the sameexpenditure. (ii)Whether allowing of depreciation on the capitalassets by the Income Tax Appellate Tribunal isjustified in the light of the Hon’ble Apex CourtDecision in the case of Escorts India Ltd. (199ITR 43), wherein it has been held that in theabsence of clear statutory indication to thecontrary, the statute should not be read as topermit an assessee two deductions on the sameexpenditure ? (iii)Whether on the facts and in the circumstancesof the case, the Income Tax Appellate Tribunalis justified in deleting the addition, made onaccount of unexplained payment to HaryanaState Agricultural Marketing Board (in shortHSAMB) for capital works, on the grounds thatthe assessee Market Committee was required topay 30% of its income to the Board, whereasthe addition had not been made on the issue ofadmissibility of expenditure but for the reasonsthat the assessee had failed to prove that theamount was actually spent. (iv)Whether on the facts and in the circumstancesof the case, the order of the Income TaxAppellate Tribunal is perverse in as much as ithas deleted the addition, made on account ofinterest accrued on advance made by theassessee to the Haryana State Electricity Boardby accepting the contention of the assessee thatit was maintaining cash system of accountingand no interest income was received during theyear, ignoring the fact that, as it is clear from theaudit report and final account, the assessee hadfollowed mixed system of accounting and notcash system.of the case, the order of the Income TaxAppellate Tribunal is perverse in as much as ithas deleted the addition, made on account ofinterest accrued on advance made by theassessee to the Haryana State Electricity Boardby accepting the contention of the assessee thatit was maintaining cash system of accountingand no interest income was received during theyear, ignoring the fact that, as it is clear from theaudit report and final account, the assessee hadfollowed mixed system of accounting and notcash system. (v)Whether the order of the Income Tax AppellateTribunal is perverse in deleting the addition,made on account of interest income accrued onadvance made to Haryana State ElectricityBoard, relying on the communication dated20.1.2003 of the Haryana Government thatprincipal amount of FDRs of Market Committeeswith HSEB be returned to the concerned MarketCommittees, but ignoring the remaining part ofthe communication which says that the matterregarding interest on these deposits will beconsidered after repayment of principal, whichmeans that right of interest on theadvance/deposit made by the assessee withHSEB did not stand waived and as such thesame had accrued to the assessee during theyear ?Tribunal is perverse in deleting the addition,made on account of interest income accrued onadvance made to Haryana State ElectricityBoard, relying on the communication dated20.1.2003 of the Haryana Government thatprincipal amount of FDRs of Market Committeeswith HSEB be returned to the concerned MarketCommittees, but ignoring the remaining part ofthe communication which says that the matterregarding interest on these deposits will beconsidered after repayment of principal, whichmeans that right of interest on theadvance/deposit made by the assessee withHSEB did not stand waived and as such thesame had accrued to the assessee during theyear ? 2. The assessee is a statutory body constituted underthe provisions of the Punjab Agricultural Marketing Produce Act,1961 to regulate the marketing of agricultural produce and isregistered under Section 12AA as charitable trust. The AssessingOfficer made addition on account of accrued interest on advancemade to the Electricity Board. The stand of the assessee wasthat it was following cash system of accounting and till the interestincome was received, the said amount could not be added. Thiswas not accepted by the Assessing Officer and the CIT(A). Theassessee approached the Tribunal who upheld plea of theassessee. It was held:- “5. We have considered the rival submissions andalso perused the orders of the lower authorities. Theincome tax is charged on the total income of theassessee in terms of sections 4 & 5 of the Act. Theincome so computable is as per method of accountingprovided for section 145 of the Act. In this case, theclaim of the assessee is that it is following cashsystem of accounting, we find such averment of theassessee is not without any basis. The assessingofficer has also so noted in the cause title of theassessment order itself. In relation to the interestincome in question, the assessment contends that nosuch income has been received and therefore, noamount was offered for taxation on this count. On theother hand, the assessing officer has added theincome by way of interest on deposit with HSEB onaccrual basis. The reason advanced is that theassessee is not following the pure cash system ofaccounting but is following a mixed system ofalso perused the orders of the lower authorities. Theincome tax is charged on the total income of theassessee in terms of sections 4 & 5 of the Act. Theincome so computable is as per method of accountingprovided for section 145 of the Act. In this case, theclaim of the assessee is that it is following cashsystem of accounting, we find such averment of theassessee is not without any basis. The assessingofficer has also so noted in the cause title of theassessment order itself. In relation to the interestincome in question, the assessment contends that nosuch income has been received and therefore, noamount was offered for taxation on this count. On theother hand, the assessing officer has added theincome by way of interest on deposit with HSEB onaccrual basis. The reason advanced is that theassessee is not following the pure cash system ofaccounting but is following a mixed system of accounting. In our view, there is no case made out bythe assessing officer as to how the mixed system ofaccounting affects the position stated by theassessee. Even if it is accepted that the assessee isfollowing the mixed system of accounting, there is noreason as to why the income from the deposits inquestion is liable to be assessed on accrual basis.However, even if we accept the plea of the assessingofficer on the system of accounting, yet the assesseehas placed on record material to show that no interestincome has actually accrued to it. Thecommunication from the Government of Haryana,which has also been referred to by the CIT(A) in para10 of his order, clearly points out that payment ofinterest to the assessee is not decided by thegovernment. Thus, to say that any income by way ofinterest has accrued to the assessee is factuallywrong. Therefore, firstly, having regard to the cashsystem of accounting, canvassed by the assessee, noincome on this account has been received in this yearand therefore, it was not liable to be assessed.Alternatively, even on accrual basis, as our aforesaiddiscussion shows, no interest has actually accrued tothe assessee and, therefore, no addition is warranted.Thus, on this issue also, the assessee succeeds.” 3. We have heard learned counsel for the revenue. 4. Learned counsel for the revenue fairly states thatquestions (i) to (iii) are covered against the revenue by orderpassed by this Court dated 5.7.2010 in I.T.A. No.151 of 2010Commissioner of Income Tax v. Market Committee, Narwana. Accordingly, the said questions cannot be held to besubstantial questions of law. 5. As regards questions (iv) and (v), findings of theTribunal clearly show that the assessee was following cashsystem of accounting. Even the order of assessment records thatcash system of accounting was followed by the assessee. Insuch a situation, only on the basis of accrual of interest income,addition could not be made to the income of the assessee. Thefindings of the Tribunal are, thus, not erroneous in any manner.Questions (iv) and (v) cannot be held to be substantial questionsof law. The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE July 07, 2010ashwani ( AJAY KUMAR MITTAL ) JUDGE