2025 (7) TMI 299 - AT - Income Tax

Validity of assessment order passed by the AO in light of multiple DINs and assessment order passed as barred by limitation - HELD THAT - As per Instruction 144 dated 25.10.2019 the assessment order up-to assessment year 2014-2015 was allowed to be passed in ITD/AST system and only from assessment year 2015-2016 it was directed to be passed on ITBA-Portal. Since the Assessing Officer passed assessment order on ITD/AST system and generated DIN on 31.12.2019 while migrating to ITBA-portfolio he had once again by an inadvertent error has generated a separate DIN and because of this there are 02 DIN nos for one assessment order i.e. one generated on 31.12.2019 and another was generated on 24.01.2020. Further in respect of third DIN no. it is the DIN which has been generated for intimation letter for intimating the assessment order passed by the AO to the assessee. Therefore there is no delay in order passed by the Assessing Officer as alleged by Assessee in light of subsequent two DIN nos. that the assessment order has been passed beyond due date specified i.e. 31.12.2019 and further it has been backdated by referring a handwritten DIN no. in the first page of the assessment order and thus it is devoid of merit and cannot be accepted. Therefore we reject the grounds taken by the assessee challenging the validity of the assessment order in light of multiple DIN nos. and the argument that assessment order is barred by limitation. Addition towards privilege fee special privilege fee additional privilege fee and contribution to C.M. Relief Fund - as argued AO has made additions twice i.e. one towards income and another towards remittances thereby made double additions on one income - HELD THAT - Assessee in light of sale bills issued by the appellant-corporation and subsequent realisation of proceeds into the PD account in our considered view it is only a manner and method of carrying-out the trade by the appellant- corporation according to it s requirements but on the basis of said evidences it cannot be concluded that the trade has been carried-out by the Government of Andhra Pradesh. Therefore we are the considered view that the argument of Assessee that the Government of Andhra Pradesh has carried-out the wholesale trade in the State of Andhra Pradesh and the appellant-corporation is only a Nodal Agency or as an Agent carrying-out trade for the Government of Andhra Pradesh cannot be accepted and thus rejected. Addition made towards privilege fee special privilege fee additional privilege fee and contribution to CM Relief Fund under sec.40(a)(iib) - It is a clear case of diversion of income by overriding title which is clearly evident from the fact that the appellant-corporation has been authorised to collect privilege fee special privilege fee additional privilege fee and contribution to CM Relief Fund in terms of section 4-A 4-B and 4-C of the Act and therefore the amount collected by the appellant-corporation from the holders of the license cannot be treated as Income which has been accrued for the year under consideration. Since the income has been diverted by overriding title the same cannot be treated as Income and consequently the apportionment of the said amount from the PD account cannot be treated as payment of privilege fee special privilege fee additional privilege fee and contribution to CM Relief Fund directly or indirectly from a State Government undertaking by the State Government as defined u/s 40(a)(iib) of the Act. AO and CIT(A) without appreciating the relevant facts erred in making additions towards privilege fee special privilege fee additional privilege fee and contribution to CM Relief Fund under sec.40(a)(iib) of the Income Tax Act 1961. Thus we set aside the order of the learned CIT(A) on this issue and direct the AO to delete the addition made towards privilege fee special privilege fee additional privilege fee and contribution to CM Relief Fund under sec.40(a)(iib) of the Income Tax Act 1961. Addition towards disallowance of privilege fee special privilege fee contribution to CM Relief Fund which is debited into the P L A/c and further he had also made addition towards additional privilege fee which is credited to P L A/c by the appellant-corporation - From the above it is undisputedly clear that Assessing Officer has made additions twice in respect of one receipt i.e. one at the time of receipt which has been credited to P L A/c and second at the time of payment out of appropriation to various accounts. Therefore on this account also the additions made by the Assessing officer towards additional privilege fee cannot be sustained. Thus we direct the AO to delete the addition made towards additional privilege fee. Disallowance of leave encashment and disallowance of PF superannuation gratuity and other amounts - We find that even during the course of appellate proceedings before the Tribunal since there was no documentary evidence filed by the appellant-corporation to substantiate it s claims and in absence of such documentary evidence we uphold the order of the learned CIT(A) on this issue. Interest u/s 234B and 234C be recomputed on the total income determined in accordance with Law.

Summary

The core legal questions considered by the Tribunal include:

1. Whether the assessment orders dated 31.12.2019 for the assessment years 2014-2015 and 2015-2016 are valid and not barred by limitation, despite the existence of multiple DINs and delays in generation of intimation letters.

2. Whether the additions made by the Assessing Officer and confirmed by the CIT(A) towards privilege fee, special privilege fee, additional privilege fee, and contribution to the Chief Minister's Relief Fund (CMRF) under section 40(a)(iib) of the Income Tax Act, 1961, are justified.

3. Whether the assessee-corporation's contention that the wholesale liquor trade was carried out by the State Government of Andhra Pradesh post-2012 amendment to the A.P. Regulation of Wholesale Trade Act, 1993, and that the corporation acted only as a nodal agency, is legally sustainable.

4. Whether the disallowance of leave encashment and payments towards Provident Fund (PF), Superannuation Fund (SF), Gratuity Fund (GF), and other funds, for non-payment within prescribed timelines, is justified.

5. Whether the levy of interest under sections 234B and 234C of the Income Tax Act, 1961, is correctly computed in light of the total income determined.

Issue-wise Detailed Analysis

1. Validity and Limitation of Assessment Orders

Legal framework and precedents: The validity of assessment orders is governed by the provisions of the Income Tax Act, 1961, and procedural instructions issued by the Central Board of Direct Taxes (CBDT), including Instruction No. 144 dated 25.10.2019 relating to the generation of Document Identification Numbers (DINs) for orders passed via different IT systems (AST/ITD and ITBA).

Court's interpretation and reasoning: The Tribunal examined the existence of three different DINs associated with the assessment order dated 31.12.2019: one handwritten DIN referenced in the order (generated on 24.01.2020), one auto-generated DIN on 31.12.2019 on the AST/ITD system, and another generated on ITBA portal on 24.01.2020 for intimation purposes. The Tribunal found that the multiple DINs arose due to technical and procedural glitches during the transition from the AST/ITD system to the ITBA portal. The CBDT's Instruction No. 144 mandates that only one DIN should be generated per order, but inadvertent generation of additional DINs occurred due to system integration issues.

The Tribunal noted that the assessment order was passed on 31.12.2019 as per the auto-generated DIN on AST/ITD and that the delay in intimation generation on ITBA portal was certified as a technical glitch by the Income Tax Officer (Systems). The handwritten DIN dated 24.01.2020 was an additional generation for intimation and not the date of passing the order.

Key evidence and findings: The Tribunal relied on the Instruction 144, the certificate from the Income Tax Officer (Systems), and the dates and details of DINs appearing in the assessment order and ITBA portal screenshots.

Application of law to facts: The Tribunal held that the assessment order was validly passed within the limitation period (on 31.12.2019) and that the presence of multiple DINs and delayed intimation did not invalidate the order or render it barred by limitation.

Treatment of competing arguments: The assessee's argument that the order was passed beyond limitation and backdated was rejected as the Tribunal found the evidence supported the Revenue's position of timely passing of the order.

Conclusion: The assessment orders for AY 2014-15 and 2015-16 are valid and not barred by limitation despite multiple DINs and delayed intimation.

2. Additions towards Privilege Fee, Special Privilege Fee, Additional Privilege Fee, and Contribution to CMRF under Section 40(a)(iib)

Legal framework and precedents: Section 40(a)(iib) of the Income Tax Act disallows deduction of any amount paid or payable to a State Government or its undertaking if such amount is directly or indirectly appropriated from the profits or income of the business. The A.P. Regulation of Wholesale Trade Act, 1993 (including amendments w.e.f. 2012) and the A.P. Excise Act, 1968 (with relevant amendments) govern the wholesale liquor trade in Andhra Pradesh.

Court's interpretation and reasoning: The Tribunal analyzed the statutory provisions, particularly section 4 of the A.P. Regulation of Wholesale Trade Act, 1993, which vests the exclusive privilege of wholesale liquor trade with the appellant-corporation on behalf of the Government of Andhra Pradesh. Section 4(3) permits the Government to carry on wholesale trade through its officers until the Corporation takes over.

However, the 2012 amendments inserted sections 4A, 4B, and 4C, which specify that the Government shall specify the trade margin, privilege fee, or any other levy to be collected by the Corporation from license holders, and that amounts realized under these provisions shall be treated as income of the Government and remitted accordingly.

The Tribunal held that these amendments do not revoke or restrict the exclusive privilege granted to the Corporation under section 4. The Corporation continues to have the exclusive right to carry on wholesale trade, and the Government's collection of privilege fees etc., through the Corporation is a statutory levy and not income of the Corporation.

The Tribunal rejected the assessee's contention that the wholesale trade was carried out by the Government post-amendment and that the Corporation was merely a nodal agency. It noted the absence of any amendment or official order revoking the Corporation's exclusive privilege, and that reliance on letters from Government officers or GOs could not override statutory provisions.

Key evidence and findings: The Tribunal considered statutory provisions, Government Orders (GOs), letters from senior Government officers, audited financial statements, sale invoices, and the manner of collection and appropriation of sale proceeds and fees.

The Tribunal observed that the sale proceeds and privilege fees are initially accrued to the Corporation, which then remits the specified fees to the Government as per statutory mandate. The appropriation of income to the Government is by overriding title under the statute.

Application of law to facts: The Tribunal applied the principle of diversion of income by overriding title, holding that the privilege fees and related levies collected by the Corporation and remitted to the Government are not income of the Corporation but of the Government. Hence, the amounts appropriated to the Government cannot be treated as payments to the Government under section 40(a)(iib) attracting disallowance.

Treatment of competing arguments: The Tribunal rejected the Revenue's argument that the Corporation had exclusive privilege and thus the entire income including privilege fees is the Corporation's income. It found that the amendments clearly indicate that the fees are income of the Government, and the Corporation acts as a collection agent.

The Tribunal also rejected the assessee's argument of double addition, noting that the Assessing Officer had made additions both when the amounts were credited to the Profit & Loss account and again when appropriated to the Government, which is unsustainable.

Conclusion: The additions towards privilege fee, special privilege fee, additional privilege fee, and contribution to CMRF under section 40(a)(iib) are not sustainable. The Tribunal set aside the orders of the Assessing Officer and CIT(A) on this issue and directed deletion of these additions.

3. Disallowance of Leave Encashment and Payments towards PF, SF, GF, and Other Funds

Legal framework and precedents: Disallowance of expenses not paid within prescribed timelines is governed by provisions of the Income Tax Act, and related judicial precedents require documentary evidence to substantiate claims for such expenses.

Court's interpretation and reasoning: The Tribunal noted that the Assessing Officer disallowed leave encashment and payments towards PF, SF, GF, and other funds for non-payment within the due date for filing returns and for prior period expenses not allowable under section 37.

Key evidence and findings: The assessee failed to produce documentary evidence during appellate proceedings before the Tribunal to substantiate the claims against these disallowances.

Application of law to facts: In absence of documentary proof, the Tribunal upheld the disallowances made by the Assessing Officer and confirmed by the CIT(A).

Treatment of competing arguments: The assessee's lack of evidence led to rejection of its claims.

Conclusion: The disallowances of leave encashment and payments towards PF, SF, GF, and other funds are upheld.

4. Levy of Interest under Sections 234B and 234C

Legal framework and precedents: Interest under sections 234B and 234C is consequential upon the determination of total taxable income and payment of advance tax.

Court's interpretation and reasoning: The Tribunal held that since the total income was to be recomputed in accordance with its directions on the privilege fee issue, the interest under sections 234B and 234C should also be recomputed accordingly.

Conclusion: The interest levy is consequential and requires recomputation based on the revised total income.

Significant Holdings

"The assessment order dated 31.12.2019 passed by the Assessing Officer is valid and not barred by limitation despite multiple DINs generated due to technical glitches during migration from AST/ITD system to ITBA portal."

"The amendments to the A.P. Regulation of Wholesale Trade Act, 1993 by insertion of sections 4A, 4B, and 4C w.e.f. 2012 clearly establish that the privilege fee, special privilege fee, additional privilege fee, and contribution to C.M. Relief Fund collected by the appellant-corporation from license holders are income of the Government of Andhra Pradesh and are to be remitted accordingly."

"The appellant-corporation continues to hold exclusive privilege to carry on wholesale trade and distribution of liquor under section 4 of the Act, and the Government has not revoked or restricted this privilege by any amendment or order."

"The amounts collected by the appellant-corporation towards privilege fees and remitted to the Government constitute diversion of income by overriding title and hence cannot be treated as income of the appellant-corporation nor as payments attracting disallowance under section 40(a)(iib) of the Income Tax Act."

"Additions made twice on the same income, once at the time of receipt and again at the time of payment or appropriation to the Government, cannot be sustained."

"In absence of documentary evidence, disallowances of leave encashment and payments towards PF, SF, GF, and other funds for non-payment within prescribed timelines are upheld."

"Interest under sections 234B and 234C is consequential and requires recomputation based on the revised total income."