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TMI Blog2012 (7) TMI 269X X X X Extracts X X X X X X X X Extracts X X X X ..... ssues are decided as under. For the sake of record, the grounds and the additional grounds are extracted summarily as under: "1. On the facts and circumstances of the case and in law, the CIT (A) erred in upholding the action of the Dy. Commissioner of Income Tax in including in the total income, advance license benefit receivable amounting to Rs..5,46,20,751/-. 2. On the facts and circumstances of the case and in law, the CIT (A) erred in upholding the action of the Dy. Commissioner of Income Tax in not allowing the claim in respect of deduction of a sum of Rs..22,88,579/- paid to GIDC as premium on leasehold land. 3. On the facts and circumstances of the case and in law, the CIT (A) erred in rejecting the appellants' claim for deduction in respect of stamp duty paid amounting to Rs..8,07,600/- for transfer of rights in respect of lease leasehold land from Shroff Industrial Chemicals Pvt. Ltd to the appellant pursuant to the scheme of amalgamation of the said company with the appellant. 4. On the facts and circumstances of the case and in law, the CIT (A) erred in rejecting the appellants' claim for deduction in respect of a sum of Rs..42,911/- representing miscellaneous expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e till assessee utilized the advance license for import of raw material. Accordingly it claimed adjustment of the amounts accounted for in the books of account while offering the amount of earlier year which were utilized during the year. Consequent to the stand taken in assessment year 1992-93, AO did not allow assessee's claim and brought to tax the amount as adjusted in the books of account. The CIT (A) following his order in earlier year confirmed the same. 4. It was fairly admitted that this issue of taxability of advance benefit license receivable was held against assessee by the ITAT Ahmedabad Tribunal in assessee's own case for assessment years 1992-93, 1995-96, 196-97 and 1997-98. It was also further submitted that Hon'ble Gujarat High Court admitted the questions in all the appeals preferred by assessee and the matter is presently pending before the Hon'ble Gujarat High Court. Assessee placed on record the question admitted by the Hon'ble High Court which are as under: "(i) Whether, in the facts and circumstances of the case the ITAT was right in law in holding that the alleged income from Advance License Benefits Receivable ("ALBR" for short) is taxable in the year und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been specifically referred by the Special Bench of the ITAT in the case of Topman Exports Vs. Income Tax Officer 33 SOT 337 (Mum) which order was ultimately approved by the Hon'ble Supreme Court. Even though the issue therein was with reference to the DEPP since issue of accrual of DEPP, which is comparable with the present issue of advance license was considered therein, the Special Bench decision is binding because the same was approved by the Hon'ble Supreme Court. He has specifically referred to the proposition in Para 33 and 34 as under: "When DEPB income accrues 33. Before we venture to decide the accrual of income on account of DEPB, it is essential to note that both the appellants before us are following the mercantile system of accounting. Under this method of accounting, expenses become deductible when the liability to pay arises irrespective of the date of actual payment. Similarly income is recognized and becomes chargeable to tax when the right to receive such income is finally acquired by the assessee. The date of actual receipt of the income is not a decisive criteria, which event may take place before or after such accrual. As soon as the right to receive income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jab Bone Mills [1998] 232 ITR 7952 considered a case in which the assessee, following the mercantile system of accounting, accounted for cash incentives for exports on receipt basis. The Assessing Officer treated this amount as income on accrual basis. It was argued on behalf of the assessee that accrual of income would occur only when the amount was sanctioned and not when application, claiming cash incentives, was filed by the assessee on the making of the exports. The Tribunal took the view that the cash incentives accrued to the assessee on the date on which application for the claim was made to the competent authority. Approving the view of the Tribunal, the Hon'ble High Court held that the right to receive export incentive accrued to the assessee on the filing of claim. It was held that the export by itself would not give rise to income and neither the date of receipt of cash incentive was relevant. This judgment stands approved by the Hon'ble Supreme Court in the case of CIT v. Punjab Bone Mills [2001] 251 ITR 7803. In the light of this judgment and by considering the general principles of the accrual of income, it becomes explicitly clear that the assessees in question beca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been dismissed by the High Court at Bombay and, therefore, the order in the appellant's case need not be followed. As regards the allegation that the benefit is recorded in the books, it is submitted that it is well settled that the making of entries in the books of account is not determinative of the taxability of an amount. In this connection, reliance is placed on the decision of the Supreme Court in the case of CIT vs Shoorji Vallabhdas and Co (46 ITR 144) and CIT vs India Discount Co Ltd (75 ITR 191). As regards the decision of the Hon'ble SC, it is submitted that while calculating deduction under section 8OHHC, the issue for consideration before the Hon'ble SC was whether entire sale proceeds or only the profit on transfer of Duty Entitlement Passbook Benefit (DEPB) would have to be reduced. The issue as to when the income accrues as such did not arise for consideration. The Hon'ble SC while upholding the contention of the assessee observed that the benefit of the DEPB is chargeable to tax under section 28(iiib) in the year in which an application has been made for DEPB credit against the exports made by the assessee. In this connection, it is submitted that there is no q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the price of such raw material in the foreign country, (b) fluctuation in the foreign exchange rate, (c) variation in the rate of custom duty and (d) variation in the purchase price of raw material in the domestic market. There are several such factors which establish beyond doubt that ALBR benefit is contingent and it materializes only when the relevant imports are made and not earlier and therefore the same cannot be said to accrue prior to the import of raw material. It is also submitted that no benefit can be said to have arisen immediately on exports since the said license is not transferrable. Thus, it is submitted that the mere grant of the advance license does not result in a benefit to the appellant since such benefit can actually be availed of by the appellant only when the raw material is imported and consumed. Accordingly, the benefit in the form of exemption from duty accrues to the appellant only on the happening of an event in future, being the import of raw materials, which event admittedly had not taken place in the captioned assessment year. It is further submitted that unlike the Advance License Scheme, under the DEPB scheme the actual import of inputs is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xable income. Such computation provision contained in section 145 cannot enlarge or restrict the content of taxable income. It is the duty of the Assessing Officer to consider in each case as to whether the assessee has employed a regular method of accounting and whether annual profits can be properly deduced from the method so employed. The Assessing Officer should also examine whether the accounts maintained are correct and complete. Once the Assessing Officer is satisfied about the regularity of the method of accounting and about the correctness and completeness of the books of account and is also convinced that true income can be properly deduced, the Assessing Officer is bound to compute the taxable income of the assessee as per section 145(1) in accordance with the books of account maintained by the assessee. If an item of income has not accrued in law and on facts, it cannot be made taxable merely because a book keeping entry recognizing such income has been made in the books of account. The existence or absence of entry in the books of account cannot be treated as decisive or conclusive in relation to determination of the taxability of an income under the provisions of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s income accrued to the assessee in the year when the exports were made but it should be treated as having accrued only in the year when the duty-free raw material was actually imported. The assessee had maintained their accounts on accrual basis. The various accounting standards and guidelines on accrual system of accounting relied upon by the parties indicate that there are various alternative recognized methods of accounting in relation to Import Entitlement License, etc. One of the methods is that the cost of raw material imported by the assessee will be debited in the books of account on the basis of actual cost in the year when it is actually imported. In such a case no accounting entry of import entitlement license is required to be made. The assessee had chosen not to adopt this method. The other method can be that where there is reasonable certainty as to the receipt of import license and the measurability of its benefit, the difference between the price of locally purchased raw material and the dutyfree raw material at prevailing international price should be measured at the end of the year and it should be adjusted in the books by reducing the cost of locally purchased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rresponding export obligation had actually been discharged. Under the Export Promotion Scheme, the assessee was entitled to duty-free import of raw material against exports made by them. The only obligation of the assessee for earning right to import such duty-free raw material was that the specified export should be made. The assessee had accounted for the value of such benefit only in the year in which the corresponding export obligation had duly been dis-charged. It was in consonance with the matching concept implicit in accrual system of accounting. The moment the assessee had exported the goods, it acquired a legally enforceable right to get the import license for importing duty-free raw material according to the norms specified in the relevant Import/Export Policy. Such a right was a valuable right, and it became a perfect, vested and absolute right on discharge of export obligation. It had a direct nexus with the corresponding exports already executed in the year under consideration. The benefit so receivable by way of import of duty-free raw material related to the same goods which had been exported in the accounting period. Thus the revenue so accounted for in the books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by the assessee. The term 'true and fair view' connotes that the balance sheet and the profit & loss account should give the true and fair presentation of the actual state-of-affairs and the working results of the company. The directors are accountable and responsible for presenting the true and fair state-of-affairs in the balance sheet and also in respect of the profit/loss as shown in the profit & loss account. The directors are also responsible for adherence to the disclosure requirements as per Schedule VI of the Companies Act. The board of directors must had, therefore, applied their serious attention to this item of income accounted for in the books of account, as was apparent from the fact that a detailed note in the 'Notes of Accounts' had been given in this regard forming part of the Balance sheet authenticated by the board of directors. The accounts of the company had been audited by an eminent firm of Chartered Accountants, who had not in any manner qualified their audit report in respect of the aforesaid income of Rs. 8,29,87,603 accounted for in the books of account. Thus, the true and fair position of the profits as per P&L Account of the company including recognit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration. That clearly indicated that the amount of such benefit accounted for by the appellant company in its books of account was based on a realistic, systematic and appropriate method. Accordingly, the Commissioner (Appeals) had rightly held that the income by way of ALBR amounting to Rs. 8,29,87,603 duly accounted for as income in the books of account maintained by the assessee in the year under consideration on accrual basis could not be excluded from the taxable income of the year under consideration. 10. This order of the ITAT is at present subjudice before the Hon'ble Gujarat High Court since assessee's original assessment jurisdiction is with ITAT Ahmedabad and now files are transferred to Mumbai. The A.O in all earlier cases including present assessment year is A.O, Ahmedabad. This being the middle of the years and as the Revenue has consistently accepted the working of assessee, any variation in this year will result in lot of mismatch of the amounts to be brought to tax. One of the reason why the ITAT has upheld assessee's accounting principles is on the reason that at the end of the 9 year period, there is only a difference of Rs..39,14,539/- in the advance license ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or utilized. In the case of DFRC and DEPP, these are the issued for import of raw materials in manufacture of goods, without payment of basic custom duty, surcharge etc, in respect of export products covered under SION as notified by DGFT. In that scheme the exporters shall be entitled for benefit in respect of any duty paid, whether imported or indigenous use in export products as per SION scheme. Therefore, import of raw material is not important but only export is material for obtaining benefit under DEPP and DFRC. Advance license scheme license is not only non-transferrable but can only be utilized for import of raw material which may or may not happen. Therefore, there is a difference in the two schemes. However, this is an academic discussion. 11. As stated earlier, we for the sake of consistency considering repercussion on other years, have no option than to follow the Coordinate Bench decision (ITAT Ahmedabad Bench) in assessee's own case as the matter is pending before the Hon'ble Gujarat High Court for adjudication. Accordingly, we follow the Coordinate Bench decision wherein it has been held that advance license benefit receivable was taxable in the year of export. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ady. With these directions the ground is considered allowed for statistical purposes. 17. Ground No.8 pertains to deduction under section 80 and 80IA without deducting depreciation eligible under the I.T. Act. It was fairly admitted that this issue is against assessee by the orders of the ITAT in 1995-96 (Para XII(8)(B), 81 ITD 553 at page 657 and also by ITAT order 1996-97 and 1997-98. It was further submitted that the decision is also against assessee by the orders of the Hon'ble Bombay High Court in the case of Plastibends India Ltd vs. Add. CIT 185 ITR 187 (Bom). Consequently the ground is dismissed. 18. Ground No.9 pertains to interest under section 244A. It was submitted that interest under section 244A was granted for the period upto 31/3/1994 although refund order was issued on 25.4.1994, the copy of the intimation was dated 19.4.1994. It was submitted that the claim is in favour of assessee for granting of one month interest by the decision of ITAT in Jay Brothers Investment and Trading Co.(P) Ltd vs. DCIT 74 TTJ 74 (Mum). In view of the decision of the Coordinate Bench, we direct AO to grant interest for the month of April, 1994 or till the issuance of refund order, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not allow the ground. We are of the opinion that this issue requires reexamination by AO and in case assessee has furnished necessary certificates and disclaimer certificates as prescribed, these are to be examined by AO. For this, the issue in this ground is restored to the file of AO for fresh consideration according to law and facts. 22. In the additional grounds of appeal, assessee has not pressed Ground Nos. 1 and 2. 23. Ground No.3 pertains to deduction under section 80I and 80IA. It was the contention that in view of the method of accounting followed by assessee as gross expenditure relating to the eligible units is to be reduced from the profits of the eligible unit, the corresponding income included in the other income of the eligible unit are to be taken into account for debiting the profits of the eligible unit. Alternatively 10% expenses should be reduced to earn other income relying on Hero Exports Ltd 295 ITR 454. Assessee placed on record its claim of computation under section 80I and 80IA. Since these issues require examination by AO, even though the issue is of legal nature, the matter is restored to the file of AO for examination of assessee's contentions and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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