TMI Blog2013 (11) TMI 922X X X X Extracts X X X X X X X X Extracts X X X X ..... ue also takes care of the fact as pointed out by the learned Counsel for the assessee, that the jeeps were procured for the Excise Department were not to be used by the assessee independently had shown the ownership in their books of account and claimed deprecation on it which the learned Counsel for the assessee agreed that the depreciation cannot be allowed to it as the same were put to use by the Excise Department and not the assessee. The depreciation therefore was not to be claimed by the assessee as having not fulfilled the twin conditions being “ownership” and “put to use by the assessee”. Privilege fees therefore becomes integral part and parcel of expenditures to be allowed to the assessee insofar as it is linked to the sale which sale figures are on the basis of license granted by the Excise Department who are in full control in the State and therefore is directly linked to the turnover of the assessee which volume increases the license fees including the payment of privilege fees which remain intact at the threshold. CIT(A) merely followed the earlier decision when the Assessment Year 2003-04 on the actual fact finding he only considered it to be allowed and the lice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant is a Corporation, fully owned by the Government of Orissa within the meaning of section 619 of the Indian Companies Act, 1956, incorporated on 06.11.2000. It has statutory monopoly distribution of Indian made Foreign Liquor (in short IMFL) and Country Liquor consequent upon and to carry out the purpose of section 20-A of the Bihar Orissa Excise Act, 1915 as introduced by Bihar and Orissa Excise (Orissa Amendment Act) 2000. The said Section 20-A is quoted below: Section 20-A - Notwithstanding anything contained in this Act, the right to carry on wholesale trade and distribution of Foreign Liquor and Country Liquor in the State shall, on and from such date as the State Government may, by notification, appoint, solely vest in the state government and subject to such rules as may be made in this behalf, an agency of the state government as may be specified in the said notification or a Corporation established, or incorporated under the Companies Act, 1956 and wholly owned and controlled by the state government for the purpose, shall have the exclusive right and privilege of importing, exporting and carrying on the wholesale trade and distribution of Foreign Liquor an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Orissa State Beverage Corporation Limited shall have the exclusive right and privilege, of carrying on the wholesale trade and distribution of Country Spirit (C.S.) in the State on behalf of the State Government for the whole of the State of Orissa, and no other person shall be entitled to any privilege or licence for supplying the same in wholesale, or distributing the same in any part of the State. By order of the Governor Sd/- Commissioner-cum-Secretary to Government. (Published in Orissa Gazette Ext. No.808, dt. 4.5.2001 as SRO 217/20001). 22. Grant of exclusive privilege of manufacture and sale of country liquor or intoxicating drugs The [State Government]1 may grant to any person on such conditions and for such period as it may think fit, the exclusive privilege:- (a) of manufacturing, or supplying wholesale, or (b) of manufacturing and supplying wholesale or (c) of selling, wholesale or retail, or (d) of manufacturing or supplying wholesale and selling retail, or (e) of manufacturing and supplying wholesale and selling retail, and country liquor or intoxicating drug within any specified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the state Government have also power under article 162 of the Constitution of India on the executive powers of the state to make policy. It is well settled principle of law that where the authority making an order has powers conferred upon it by the statue to make an order made by it and an order is made without indicating the provision under which it is made, the order would be deemed to have been made under the provision enabling the making of it and as if the policy decided certain facts to carry on the entire affairs which is described in the Umbrella terms in the Excise Act. The aforesaid policy came in to force in different years with amendments and sample copies of the Excise Policies for the financial years 2002-03, 2006-07 and 2007-08 of the Govt. of Orissa are enclosed herewith marked as Enclosure-1 Series. On other issues, the learned Counsel for the assessee submitted A: Assessment Year-2001-02, ITA NO-58/CTK/2008 That the return of income for the assessment year 2001-02 was filed on 18.10.2001 and the same was processed u/s.143 (1) without any adjustment on 28.02.2003. The copy of the acknowledgement of return, audited accounts and intimation u/s143 (1) ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the same and paid the tax for all the years the copy of the audited accounts for the relevant assessment year is enclosed herewith marked as Enlosure-3. The copy of the assessment order which is now under appeal before the Ld. CIT (A) in I T appeal No-0256/08-09 is also enclosed herewith marked as Enclosure-4. The assessment for the relevant year under appeal was reopened u/s 147 of the Act with an allegation of under statement of cash discount as it appears from the impugned assessment orders. However the notice is silent about the said facts. The notice u/s148 was issued on 06.04.2005 by Sri K.K. Nath, Asst. Commissioner of Income Tax, Circle-2(1), Bhubaneswar, the Ld. AO Copy of the same is also enclosed herewith marked as Enclosure-5, soon after receipts of such notice the Appellant filed a petition on 13.04.2005 asking for communication regarding approval from higher authority and recorded reason for such reopening, the copy enclosed marked as Enclosure-6, but there is no reply. The assessment order was passed by the successor assessing officer Sri Sambit Mishra u/s 147 on 22.12.2006 in which the Ld. AO again added back the differential amount of cash discount amountin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terials is invalid. Re-assessment on the ground of wrong claim is also invalid, if failure to disclose not alleged. In the present case the Appellant has disclosed all primary materials available before the assessing officer for making assessment in a regular manner. But after processing the return u/s143 (1) the Ld. AO did not complete the assessment in regular manner but completed the assessment by borrowing the satisfaction of the predecessor officer without communicating the recorded reasons to the Appellant. The Appellant is placing it s reliance on the following judgments: (i) Allana Cold Storage Vs. ITO (2006) 287 ITR 1 (Bom) (ii) Berger paints India Ltd. Vs. ACIT Ors. (2004) 266 ITR 462(Cal) (iii) Gujarat Flaorochemicals ltd. Vs.DCIT (2008) 15 DTR (Guj) 1 (iv) Nandlal Tejmal Kothari Vs. Inspecting ACIT (1998) 230 ITR 943 (SC). Assessment Year-2002 -03, ITA NO-14/CTK/2007 (i) The original Assessment was completed u/s.143 (3) of the I.T. Act, wherein the Ld. Assessing Officer did not appreciate and understand the privilege fees paid to the State Government by the Appellant basing on the Excise Policies of the Government and has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue of the import permit on payment of the import fee as consideration for parting with the State s exclusive privilege to import the liquor. It is purely a contractual dealing between the state and the importer and, therefore, no question of violation of Article 301 can arise. The State Government is competent and entitled to impose excise duty or counter veiling duty besides there is no bar on the state to charge any other fees on account of consideration for the privilege provided to the licensee to trade in liquor which privilege he did not otherwise have. Therefore the licensee is liable to comply with the other condition imposed by the state Government from time to time. The privilege fees is neither a duty nor a counter veiling duty but it is part of the consideration money i.e. the price of privilege given to the licensees for dealing in liquor. Therefore it is a revenue consideration paid to the State Government which has been held by the Hon ble Apex Court in the case of State of Punjab vs.- Devans Modern Breweries Ltd. (2004) 11 SCC 26 . Further the issue relating to privilege fee whether is a capital expenditure or revenue expenditure, has been decided by a parallel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a partisan manner. The addition is completely based on presumption, arising out of mere imagination, which is absolutely baseless and illogical. It is well settled that an assessment is certainly not a leap in the dark . The A.O is not entitled to make a guess without any evidence. Please see, CIT v. Maharajadhiraja Kameshwar Singh of Darbhanga, (1933) 1 ITR 94 (PC), it is also settled that assessment based on presumption is unsustainable in law, please see, Banshidhar OnKarmall v. CIT, (1953) 23 ITR 353 (Orissa). C: CASH DISCOUNT:- That previously cash discount has been determined on an average estimated basis from the suppliers for prompt payments made by them and the Appellant Corporation has duly reflected the same in its books of accounts and paid the tax accordingly. The method prescribed in the agreement with the suppliers could not be strictly followed due to complex nature of calculations and voluminous data involved in it. Then an agency was engaged by the Appellant Corporation to prepare a soft ware for computation of exact amount of cash discount receivable by the appellant basing on the date of sale. Then it was revealed that in some cases the corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of reopening of assessment, double addition of cash discount which has already been added for the respective previous years from 2001-02 to 2004-05, unverified liabilities and donation. Assessment Year-2003-04 ITA NO-15/CTK/2007 That the Assessment was completed by the Addl. C.I.T., Range-2, Bhubaneswar, on 14.02.2006 u/s.143 (3) /147 wherein the last date of hearing was on the same date i.e. 14.02.2006. The Ld. Assessing Officer has added Rs.5.00 Crores to the income of Appellant on account of privileges fees paid to the Government. The Ld. Assessing has also added the differential amount of cash discount at Rs.25, 53,829.00. Lastly depreciation claimed by the Appellant on Commander Jeeps employed by the Excise Department for enforcement works has also been added amounting to Rs.3,59,244.00. A new issues regarding disallowance of depreciation starts from the assessment year 2004-05 to 2008-09.On this issues the Appellant submits that: D: DEPRECIATION: The Ld. Assessing Authority has disallowed the depreciation for the Assessment year 2003-04 on five Commander Jeeps purchased by the Appellant and used by the State Excise Department, Orissa for enforcement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the performance of the contract and the money will be forfeited if the depositor failed to perform (Black s Law Dictionary 7th Edition, 1999). The principle applicable incase of security deposit is that if the amount received has nothing to do it the transaction as such or is not a part of price but only received for due performance of contract or a service, then it is not considered as a trading receipt but is akin to money borrow. The point of time at which the character of transaction is to be determined is at the time when the money is paid or received and not how it is dealt with subsequently. [Please see Badrinarayan Balakishan Vs.- C.I.T., 57 ITR, 752 (AP)]. It is also settled that where the Appellant Company had forfeited security deposits made by its supplier/deale3r under a contract made with them the forfeited amount were includable in its income. [Please see Atlas Cycle Industries Vs.- C.I.T., 133 I.T.R., 231 (P H)]. It is respectfully submitted that security deposit is not a part of price or transaction therefore not a trading receipt until it is being liquidated / forfeited or written back. If somebody will violate any terms and conditions of the contract that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P) Ltd. (2008)166 Taxman 48 (Delhi). Under this circumstance the said addition may be deleted. 5. The learned CIT-DR submitted that for the Assessment Year 2001-02, the cash discount which had not accrued was considered for deletion on the claim of the assessee in the Assessment Year 2005-06 therefore, the learned CIT(A) has rightly held that the reassessment proceedings were valid which now cannot be challenged by the learned Counsel for the assessee as of now as the assessee does not deny that the mercantile system of accounting does not acknowledge cash discount to be made available were claimed in Assessment Year 2005-06 but returned in the P L account in the impugned Assessment Year. Insofar as the security deposits is concerned being the monopoly of the assessee the amount received as deposit could not be on account of capital as there was no specific mention there about in the agreements. The enhancement by the learned CIT(A) was on the basis of facts and circumstances which may kindly be considered. With respect to the charging of interest u/s.234D as the learned Counsel for the assessee pointed out that the same is made applicable from the Assessment Year 2003-04 may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned Assessment Year over and above the fact that the assessee is maintaining its account under mercantile system of accounting basis. She also submitted that the Assessing Officer had wrongly applied the provisions of Sections 115-O and 115-B of the I.T.Act and imposed additional tax as was based on the earlier intimation dt.31.3.2008 which was rectified by the Assessing Officer u/s.154 vide his order dt.30.11.2009. This ground has not been pressed by the learned Counsel for the assessee as of now insofar as the learned CIT(A) has not adjudicated the issue at all. 5.4. For the remaining issues in Assessment Year 2007-08 the learned CIT-DR supported the order of the learned CIT(A) for her part of submissions insofar as the service tax payable amounting to Rs.54,69,462 has only to be allowed to the assessee in the year when it has been paid under the provisions of Section 43B. 5.5. For the Assessment Year 2008-09, as regards the depreciation disallowed and security deposits as income and privilege fees disallowed as capital expenditure as have been brought to tax by the authorities below she fully supported the orders of the authorities below insofar as the unverified b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for production of IMFL, governed by the State Excise Department and levies when the privilege fees paid by it to the Excise Department was considered for claiming of allowable expenditure as the assessee company was granted exclusive privilege for wholesale trade of IMFL in the State of Orissa and under the provisions of the Orissa Excise Duty Act it was the competent authority to deal with it because as the Excise Department had the prerogative to levy privilege fees when the license fees was on the basis of specific licenses granted by the Excise Department for its sales. In other words, it was a controlled item for the purpose of decentralization and the procurement was from outside the State of Orissa was to be considered for sale in Orissa under the sharp eye of Excise Department not because Orissa Sate Beverages Corporation Ltd (the assessee) without having suffered production cost was the wholesale distributor only. This Excise Duty therefore is a privilege of the Excise Department as the Central Excise alone will jeopardize the sale of liquor of the same brand elsewhere causing undue illicit trade from outside the State of Orissa. Incidentally, this issue also takes care ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of identifying the amounts as and when the claim has been made by the assessee in its return of income. The Assessing Officer is to verify the cash discounts for the respective AYs to be allowed is the year to which it pertains to. We direct accordingly. 6.3. With respect to the donation amounting to Rs.5 lakhs, the learned Counsel for the assessee has agreed to the proposition for it not entitled for claiming it as deduction from the business as the donation has been made to a non-business entity. The same is dismissed. 6.4. With respect to prior period expenses and Sundry Creditors we are inclined to hold that the authorities below required more details to establish that the nature of prior period expenses crystallized in the impugned Assessment Year only and not because they were against the principles of mercantile system of accounting. In the interest of justice, we deem it fit to restore the issue to the file of the Assessing Officer who will verify the nature of expenses claimed whether could be allowed in the impugned Assessment Year insofar as the expenses accrued but were not due cannot be disallowed only because such payments are made in the respective yea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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