TMI Blog2016 (11) TMI 1389X X X X Extracts X X X X X X X X Extracts X X X X ..... e’ OR ‘income from other sources’ - Held that:- It is clear that so far as the income relating to interest on bank deposits, interest from New Mangalore Port Trust, interest and discount charges received from customers, interest on contractors’ advances and interest on housing loans given to employees is concerned, it has been held to be taxable as ‘business incomes’. Our attention has also been drawn to the Statement of Facts filed before CIT(A), which also enumerates the detail of interest income which was considered by the Assessing Officer to be taxed as ‘income from other sources’. It is clear that neither in the details of such interest income and nor in the reliefs allowed by CIT(A) there is any reference to interest received from Oil Coordination Committee and, therefore, the plea of assessee that the aforesaid Ground of appeal raised by Revenue is misconceived is emerging from record.- Decided against revenue. Disallowance of payment made to MRPL Education Trust and MRPL Janaseva Trust - Held that:- No doubt, the two trusts have been set-up by the assessee-company, but the impugned payments are not for ‘setting-up’ or for ‘formation’ of or as ‘contribution’ to the trust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, thus interest for such a default was not chargeable. Under these circumstances, we hereby affirm the ultimate decision of CIT(A) in deleting the levy of interest u/s 234B & 234C of the Act, albeit on a different ground. Provision of Customs duty created by the assessee as on 31.3.2004 - whether is a liability which has arisen so as to fall within the expression “a deduction otherwise allowable under this Act” in Sec. 43B? - Held that:- It is reasonable to conclude that the liability represented by the Provision being Customs duty payable on import of raw material arises during the previous year relevant to the assessment year under consideration as assessee brought the requisite goods into India from a place outside India. Therefore, under these circumstances, CIT(A) erred in taking the view that Sec. 43B of the Act is not applicable in the case of assessee on an erroneous ground that the liability of Customs duty did not arise in the instant year. Stand of Revenue is misconceived because fulfilment of export obligations by the assessee reduces the Customs duty liability of the assessee. In fact, if no export of finished goods was made by the assessee as required, then a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36,741/- being payment to MRPL Education Trust and MRPL Janaseva Trust without appreciating the fact that such deduction is not allowable u/s 40A(9) of the Act. 4. On the facts and in the circumstances of the case and in law, the Ld. CITA erred in allowing higher depreciation consequent to deletion of the depreciation for A.Y 2001-02 which is disputed by the department. 5. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the Assessing Officer be restored. 3. In brief, the relevant facts are that the assessee before us is a company incorporated under the provisions of Companies Act, 1956 and is, inter-alia, engaged in the business of refining of crude oil, selling of petroleum products and captive generation distribution of electric power. For the assessment year under consideration, it filed a return of income wherein a loss of ₹ 60,29,17,798/- was computed under the normal provisions of the Act while the tax was paid on book profit of ₹ 31,61,94,360/- determined in terms of Sec. 115JB of the Act. The return of income so filed by the assessee was subject to a scrutiny assessment whereby the total income under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Ground of appeal no. 1 relates to an addition of ₹ 255.685 crores made by Assessing Officer by invoking provisions of Sec. 41(1) of the Act. 5. In this context, the brief facts are that the assessee company was granted incentive by the Government of Karnataka whereby assessee company availed sales tax deferment repayable in a period of 11 years in respect of Phase-I of its refinery and 14 years in respect of Phase-II of its refinery. Accordingly, the sales tax deferment loan outstanding as on 29th February, 2004 was ₹ 517.113 crores. The Government of Karnataka vide its Notification Nos. FD345CSL 2003(1) and FD345CSL 2003(2) both dated 31.03.2004, allowed the pre-payment of the sale tax deferment loan as on 29.02.2004 at the Net Present-Value (i.e. NPV) before the expiry of the deferred period of 11 years or 14 years for Phase-l and Phase- II respectively. In accordance with the above Notifications, the assessee company paid the deferred Sales tax loan at the NPV of ₹ 261.445 crores against the outstanding amount as on 29.02.2004 of ₹ 517.113 crores, thereby resulting in a surplus of ₹ 255.685 crores, which was credited to the Profit Loss a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was, therefore, contended that the impugned matter has been correctly decided by the CIT(A) inasmuch as the incentives granted by the Government of Karnataka by way of sales tax deferment to the assessee company are pari materia to those considered by the Hon'ble Bombay High Court in the case of Sulzer India Ltd. (supra). 8. The ld. DR has not contested the aforesaid factual matrix brought out by the learned representative for the respondent-assessee. So, however, it was argued that the sales tax collected forms a part of the trading receipt as held by the Hon'ble Supreme Court in the case of Chowringhee Sales Bureau P. Ltd. v. CIT [1973] 87 ITR 42 (SC), and therefore any cessation or remission in payment of such liability would invite the provisions of Section 41(1) of the Act. 9. We have carefully considered the rival submissions and find that the conclusion drawn by the CIT(A) on this aspect is fully covered by the judgment of the Hon'ble Bombay High Court in the case of Sulzer India Ltd. (supra). The point argued by the Id. DR, based on the judgment of the Hon'ble Supreme court in the case of Chowringhee Sales Bureau P. Ltd. (supra), is untenable inasmuch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 10 of the Statement of Facts filed before CIT(A), which also enumerates the detail of interest income of ₹ 7,35,65,982/-, which was considered by the Assessing Officer to be taxed as income from other sources . It is clear that neither in the details of such interest income and nor in the reliefs allowed by CIT(A) there is any reference to interest received from Oil Coordination Committee and, therefore, the plea of assessee that the aforesaid Ground of appeal raised by Revenue is misconceived is emerging from record. The aforesaid factual matrix has also not been controverted by the ld. DR appearing for the Revenue. Be that as it may, we dismiss the Ground of appeal no. 2 raised by the Revenue as being misconceived. 12. Insofar as Ground of appeal no. 3 is concerned, the same relates to disallowance of ₹ 40,36,741/- made by Assessing Officer representing payment made to MRPL Education Trust and MRPL Janaseva Trust. Although in this Ground of appeal, the amount stated is ₹ 40,36,741/-, but in effect the disallowance is to the extent of only ₹ 31,72,704/-, as is evident from the orders of the authorities below. 13. In this context, the brief facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctible u/s 37(1) of the Act. At the time of hearing, the learned representative for the assessee had also relied upon the judgment of Hon'ble Bombay High Court in the case of Bharat Petroleum Corporation Ltd, 252 ITR 43 (Bom), which also clearly supports the proposition that such like expenses which are incurred not for setting-up or for formation of or as contribution to any trust, etc. are not covered within the scope of Sec. 40A(9) of the Act. Therefore, under these circumstances, we hereby affirm the ultimate conclusion of CIT(A) in deleting the addition. As a consequence, Revenue fails in its Ground of appeal no. 3 also. 17. Insofar as Ground of appeal no. 4 is concerned, the same relates to the direction of CIT(A) contained in para 6 of his order whereby he has directed the Assessing Officer to allow depreciation based on the opening WDV of assets, calculated without reducing the depreciation thrust upon the appellant in Assessment Year 2001-02. 18. In this context, the relevant facts are that in the course of assessment proceedings, the Assessing Officer recalculated the depreciation allowable to assessee by reworking the WDV of assets. In the earlier Assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding that interest u/s 234B 234C of the Act is not chargeable where the tax liability has been determined in terms of the book profits calculated u/s 115JB of the Act. It is notable that the CIT(A) has relied upon the judgment of Hon'ble Karnataka High Court in the case of Kwality Biscuits Ltd., 243 ITR 519 (Kar) and the judgment of Hon'ble Madras High Court in the case of Revathi Equipment (ITA No. 49 of 2007) in deleting the levy of interest u/s 234B 234C of the Act. 22. On this aspect, the only plea of the ld. DR is that the charging of interest u/s 234B 234C of the Act is mandatory in nature and reliance was placed on the judgment of the Hon'ble Supreme Court in the case of Rolta India Ltd., 330 ITR 470 (SC) to say that interest u/s 234B 234C of the Act is chargeable even where the tax liability is determined in terms of Sec. 115JB of the Act. 23. On the other hand, the plea of respondent-assessee is in support of the ultimate decision of CIT(A) in holding that no interest u/s 234B 234C of the Act is chargeable in the present case. The conclusion of CIT(A) is sought to be defended on the ground that during the relevant period under consideration it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is leviable even with respect to the liability determined on the MAT, so however, the said decision is of a later date, i.e., 7.11.2011. The judgment of the Hon'ble Supreme Court in the case of Rolta India Ltd (supra) being a subsequent decision would not discredit a bona fide reason entertained by the assessee in not depositing advance tax on MAT in view of the then prevailing judgment of the Hon'ble Karnataka High Court. Therefore, under these circumstances, we find no reason to uphold the plea of the Revenue for levy of interest u/s 234B 234C of the Act in the present case. During the relevant assessment under consideration, the available legal position, manifested by the judgment of the Hon'ble Karnataka High Court in the case of Kwality Biscuits Ltd. (supra), reflected that no advance tax was payable with respect to MAT liability. The plea of Revenue before us that charging of u/s 234B 234C of the Act is mandatory, in our view, is not germane to decide the impugned controversy inasmuch as the levy can be said to be mandatory only if its payment is attracted per se as per the prevailing legal position. As we have seen in the present case, during the relevant as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive and is hereby rejected. 27. Now, we may take up the merits of the disallowance of ₹ 40,41,81,896/- made by the Assessing Officer, which is sought to be challenged by the assessee on various limbs. In order to appreciate the controversy, the following background of the dispute is relevant. The appellant-company procures a portion of its raw material (i.e. crude oil) through imports. A significant portion of the imports is against the Advance licences obtained for import of raw material for manufacture of products meant for exports. The Customs duty on the import of crude oil is provided on all imports and Provision to the extent of ₹ 40,75,50,184/- was outstanding as on 31.3.2004 towards Customs duty on crude oil imported against Advance licences pending completion of export obligations. Subsequently, upto 30.9.2004 assessee fulfilled export obligations with respect to Customs duty amounting to ₹ 40,41,81,896/-. The assessee-company adjusted the said amount of ₹ 40,41,81,896/- against the Provision for Customs duty outstanding on 31.3.2004 and claimed it as a deduction u/s 43B of the Act. The Assessing Officer has disagreed with the assessee on the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is in support of the orders of authorities below. 30. Pertinently, the entire controversy revolves around the provisions of Sec. 43B of the Act. Sec. 43B of the Act was inserted by the Finance Act, 1983 w.e.f. 1.4.1984 and prescribes for certain deductions to be allowed only on actual payment while computing the income chargeable to tax under the head Profit and gains of business or profession . Shorn of other details, insofar as it is necessary to appreciate the controversy in question, the salient features of Sec. 43B of the Act are as follows. Broadly speaking, Sec. 43B of the Act provides that deduction for any sums payable by the assessee by way of tax or duty, cess or fee or any other sum prescribed shall, irrespective of the previous year in which the liability to pay such sum was incurred, be allowed only in computing the income of that previous year in which the said sum is actually paid. It is a non-obstante clause prescribing that notwithstanding anything contained in any other provisions of this Act, a deduction otherwise allowable under the Act in respect of the sums prescribed therein shall be allowed only in computing the income from profit and gains of busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce account is shown as a liability outstanding in the Balance-sheet and subsequently, on fulfilment of the export obligation, the Customs duty Advance licence account is debited and Export licence benefit received account is credited and is offered as income. In the context of the instant fact-situation, it may be appreciated that assessee had created a Provision of ₹ 40,75,50,184/- in the year under consideration, being Customs duty payable on import of raw material and the same was debited to the Profit Loss Account. Subsequently, by 30.9.2004, assessee fulfilled its export obligations to the extent of ₹ 40,41,81,896/- and adjusted the same against liability, which was offered as income in the next year. Considering the fulfilment of export obligations to the extent of ₹ 40,41,81,896/- as a payment/discharge of liability of the Provision of Customs duty as on 31.3.2004, in terms of the first proviso to Sec. 43B of the Act, assessee claimed a deduction. 32. The first question to be decided is as to whether the Provision of Customs duty of ₹ 40,75,50,184/- created by the assessee as on 31.3.2004 is a liability which has arisen so as to fall within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under an import licence belonging to the category of Advance licence, the competent authorities can permit clearance of such material without payment of duty leviable thereon. Sub-section (2) provides the conditions for grant of permission for clearance of goods without payment of duty. It is noteworthy that in terms of Sec. 12 of the Customs Act, 1962 the charge of Customs duty gets crystallised with the import of goods into India, which in the present case implies that the charge of Customs duty gets crystallised when assessee brings into India its raw material, i.e., crude oil from a place outside India. The competent authorities under the Customs Act, 1962 are empowered in terms of the specific provisions of Sec. 143A of the Customs Act, 1962 to permit clearance of such goods under Advance licence without payment of Customs duty leviable thereon, subject to certain conditions. Thus, the clearance obtained by the assessee of its imported raw material without payment of Customs duty leviable after complying with the conditions, as imposed by the competent authorities, does not imply that the charge of Customs duty does not arise. Rather, the charge of Customs duty gets crysta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayable on import of raw material arises during the previous year relevant to the assessment year under consideration as assessee brought the requisite goods into India from a place outside India. Therefore, under these circumstances, CIT(A) erred in taking the view that Sec. 43B of the Act is not applicable in the case of assessee on an erroneous ground that the liability of Customs duty did not arise in the instant year. 35. The first proviso to Sec. 43B of the Act prescribes that the disallowance u/s 43B of the Act would not apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under Subsection (1) of Sec. 139 of the Act in respect of the previous year in which the liability to pay such sum was incurred. On the strength of such proviso, the claim of assessee was that upto 30.9.2004, it has fulfilled export obligations amounting to ₹ 40,41,81,896/- out of the total Provision for Customs duty outstanding as on 31.3.2004 and, therefore, claimed it as a deduction u/s 43B of the Act. The stand of the Assessing Officer was that the provisions of Sec. 43B of the Act envisaged dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer was unnecessary in the present case. In this context, it has been pointed out that assessee has claimed deduction of the liability for payment of Customs duty in the year of import, as reflected by the debit to the Profit Loss Account of the Provision of Customs duty and has correspondingly offered for assessment, the credits made in the subsequent year by way of fulfilment of export obligations in order to comply with the terms of the Advance licence scheme. It was, therefore, pointed out that if one examines the position over a period of 2 to 3 years, the debits for Customs duty payable in the year of import would be equal to the credits made in the Profit Loss Account in the subsequent years on the making of exports as per the Advance licence scheme. In fact, it was pointed out that the credits in the Profit Loss Account in the next years have been offered for assessment and have been assessed and, therefore, disallowance of Customs duty in the year of making import was unjustified and would result in double addition. At this stage, it has also been pointed out that the liability for payment of Customs duty, claimed as debit to the Profit Loss Account, is ne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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