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TMI Blog2017 (11) TMI 1826X X X X Extracts X X X X X X X X Extracts X X X X ..... disposed off by way of this common, consolidated order. For the sake of convenience we shall be dealing with the facts in the case of ITA No.184/Chd/2010 relating to assessment year 2005-06. ITA No.184/Chd/2010: 2. Ground of appeal No.1 raised by the assessee reads as under: "1. That the Ld. CIT (A) has erred in law & facts of the case in upholding an addition of Rs. 3,67,81,729/- on account of unclaimed refunds which is highly unjustified & uncalled for." 3. Brief facts relating to the issue are that the assessee had shown an amount of Rs. 3,67,81,729/- as liability in the Balance Sheet which, during assessment proceedings, was explained as being refunds of application money, sent to unsuccessful applicants of plots, which was received back by the assessee corporation due to non-acceptance of the said refunds by the applicants. The assessee claimed that it was in the nature of its liability which had not ceased to exist, since the said refunds had neither been forfeited by the assessee corporation, nor considered as not payable. The assessee further submitted that the amount had not been waived off by the applicants/allottees also, but they were in fact disputing the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee and upheld the addition made by holding at para 6.2 of its order as under: 6.2 On careful consideration of the above facts and arguments, it is found that the arguments of the counsel for the appellant are devoid of any merit and are rejected. The AO has rightly held that the appellant's case is not of cession of liability u/s 41(1) of the I.T.Act and therefore the decision of the Hon'ble Gujarat high Court mentioned above is not applicable. The AO has rightly held that the appellant's case is of business receipts in the ordinary course of business. The decision of the Hon'ble Supreme Court in the case of CIT vs. T.V. Sunderam lyengar is squarely applicable. The AO has rightly held that the appellant has made an attempt to refund the amount by sending the cheques to the applicant. The unclaimed cheques thus represent the business receipts of the appellant which are clearly taxable. As regards, the arguments of the counsel that the unclaimed liability account is a running account to which the unclaimed liabilities are credited and amounts refunded are debited also does not help him since the appellant can claim the amounts refunded out of this acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for the assessee, during the course of hearing before us, on a number of occasions, was asked at bar to submit the policy of the assessee corporation with regard to forfeiture of the unclaimed refunds. Nothing was filed or submitted before us and it was reiterated that its liability to refund the application money never ceased to exist. 9. The Revenue, on the other hand, has claimed that the entire unclaimed refunds were revenue receipts of the assessee irrespective of the period of time they remained unclaimed. The Revenue has heavily relied upon the decision of the Hon'ble Apex Court in the case of T.V. Sundram Iyengar & Sons Ltd. (supra) in support of its contention. The Revenue also relied upon the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Chipsoft Technology Pvt. Ltd. 210 Taxmann.173 in support of its contention that it would be illogical for the liability to continue to exist forever while the assessee enjoys the benefit of the amount retained by it by way of liability. 10. We have heard both the parties. We are unable to completely agree with the contentions of either of the parties. The Revenue's contention of the refunds becoming the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee's contention that its liability to refund does not cease to exist as it continues to reflect it as liability in the Balance Sheet and would be liable to refund the amount whenever claimed in future or adjust it against allotment of any plot of land, is also not acceptable. The Hon'ble Delhi High Court in case Chipsoft Technology Pvt. Ltd. (supra) had an occasion to deal with identical issue wherein it held that the view that the liability does not cease as long as it is reflected in the books and mere lapse of time does not efface the liability, is an abstract and theoretical view, far removed from reality. The Hon'ble Court held that it would be illogical to hold that a debtor should be given the benefit of his showing the amount of liability even though he could not be entitled in law to say that a claim for its recovery is time barred and continues to enjoy said amount. The relevant findings at para 9 & 10 of the order in this regard are as under: "Two aspects are to be noticed in this context. The first is that the view that liability does not cease as long as it is reflected in the books, and that mere lapse of the time given to the creditor or the wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come barred by limitation after a period of three years from the date of issuance of cheque of refund. The Ld. counsel for the assessee agreed that the liability subsisting beyond this period be treated as the business income of the assessee having been earned in the ordinary course of business. The Ld. counsel for assessee further requested for excluding the following amounts from the aforestated unclaimed refunds barred by limitation : a) Refunds against which cases had been filed in Courts by the applicants seeking allotment of plots instead and which were still pending for adjudication. b) Refunds which had been subsequently adjusted by way of allotment of plots. c) Refunds which had been subsequently adjusted by way of refunds claimed. The Ld. DR agreed to the same. 13. In view of the above therefore, we hold that out of the outstanding liability on account of un-claimed refund of Rs. 3,67,81,729/-, liabilities which have been outstanding for a period of more than three years, after the issuance of cheques of refund, only be treated as the income of the assessee subject to adjustment being made out of them on account of the following: a) The refunds agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Relatable to indirect expenses Or for the purpose of Admn charges, interest etc. (20% of the above) 54,67,99,985/- Less Expenses already incurred in Capital Head of Industrial estates 14,91,69,810/- Less Expenses already allocated in P&L as relatable to Industrial estates 4,30,42,231/- Sub total 19,22,12,041/- Addition on account of Indirect charges received 35,45,87,944 The Assessing Officer added the same to the income of the assessee. 16. Before the Ld.CIT(Appeals) the assessee made detailed submissions reproduced at pages 8 to 12 of the CIT(Appeals)'s order. Briefly stated, the assessee challenged the addition made for the following reasons: a) That it had consistently been following this method in the past, which had been accepted by the Department also and, therefore, there was no reason to disturb the same. b) Calculation of surplus/income generated from the aforesaid activity by the AO was flawed for the following reasons: i) The Assessing Officer had only taken into consideration the indirect expenses incurred at head office and not considered the field office expenses for reducing from the charges collected on account of indirect expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deficit in the receipt over expenses reflected in the Balance Sheet, while the Revenue negated this contention stating that profit was actually earned by the assessee, from the indirect cost component recovered on account of the said activity ,which was thus liable to be taxed. 20. The undisputed facts are that the assessee is following the cash basis for accounting its income from Industrial Estate development and reflecting the difference between the receipts and expenditure on this account in its Balance Sheet. The Revenue, we find, has not objected to the method of accounting, i.e. cash basis, followed by the assessee. Its only contention is that the assessee earns surplus on account of the same which should be brought to tax, thus rejecting assessee's claim that no profit or loss was derived from it. As far as this act of the Revenue is concerned, of rejecting assessee's claim of operating on a no profit no loss basis, we find no infirmity in the same, for the reason that as rightly pointed out by the CIT(Appeals), the assessee has not substantiated its claim of operating on no profit no loss basis, either before the lower authorities or even before us. No basis for this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counting year, the assessee did make imports and did derive benefits under the advance licence and the duty entitlement pass book and paid tax thereon. Therefore, it is not as if the Revenue has been deprived of any tax. We are told that the rate of tax remained the same in the present assessment year as well as in the subsequent assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, herefore, no need for the Revenue to continue with this litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers" 21. Considering the above and in the light of certificate filed by the assessee to this effect from the statutory auditors of the company, we consider it fit to restore the issue to the Assessing Officer to verify the correctness of the claim made in the certificate that the income for the impugned year had been reflected in assessment year 201415 and further to verify that the same had been included in the taxable income of the assessee for the impugned year and due taxes paid thereon, and thereafter decide the issue i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose were being supplied by the State Government by way of share capital. It was pointed out that no interest bearing funds were used for this activity. The assessee also pointed out that while purchasing the equity of any company there was a condition that such equity would not be disposed off by the assessee before the period of atleast 3 to 5 years. Thus, the assessee pointed out that intention was never to trade in shares or to do business but to make long term investment, which was to be treated as capital asset. The assessee relied upon the judgment of the Special Bench of I.T.A.T. in the case of PSIDC Vs. DCIT reported in 292 ITR 268 and on Circular No.4 dated 15.6.2007 of the CBDT, which referred to the principles on the basis of which it has to be decided whether these are capital investments or stock in trade. The Ld.CIT(Appeals) rejected the contentions of the assessee holding that the dominant intention of the assessee was to finance the units and had minimum percentage of return on the same and, therefore, income earned was in the nature of business income of the assessee. The relevant findings of the Ld.CIT(Appeals) at para 8.2 of his order are as under: "8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y shares of the units by way of equity participation with the dominant intention of extending finance to the borrowing units and hence the case laws are not applicable to the facts of the case. This ground of appeal is rejected." 25. Before us, the Ld. counsel for assessee pointed out that originally the assessee was Punjab State Industrial & Infrastructure Development Pvt. Ltd. (PSIDC) and had changed thereafter to Haryana State Infrastructure Development Corporation (HSIDC). The Ld. counsel for assessee thereafter reiterated the contention made before the lower authorities stating that the investment in shares was by way of capital investment and not stock-in-trade. The Ld. counsel for assessee pointed out to the fact that every collaboration agreement entered into by the assessee corporation with a collaborator, gave an option to the promoters to buy the shares at market value or cost plus 20% whichever was higher and if the promoters did not buy it the assessee corporation could sell it in the market also. The Ld. counsel for assessee drew our attention to the relevant clauses in one of the collaboration agreement as under: "BUY-BACK ARRANGEMENT :- 24. (a) At any time a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) above, the operation of clause 20 hereof will remain suspended at the option of the Corporation until the entire sum payable by the Collaborator for the purchase of the share-holdings of the Corporation in the Company is paid off in full and the Managing Director being a nominee of the Collaborator shall resign. In such an event the Corporation shall also have the option to recommend one of its nominees to be appointed as Managing Director by the Board of Directors and the said nominee of the Corporation after being so appointed, shall continue to be the Managing Director as long as the operation of clause 20 remains suspended. Immediately upon the completion of the payment by the Collaborator of the full amount payable in respect of purchase of shares, this subclause will cease to be operative and the Management of the Company will be carried on as before by the Managing Director who will be appointed on the recommendations of the Collaborator in terms of clause 20 hereof." (f) The Corporation shall, in the event the Collaborator fails to purchase the equity shares of the Corporation in the Company as provided in clause 24(b) or to pay for them as provided in subcl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being accounted for in the year in which the share scripts alongwith the duly executed transfer deeds are actually delivered to the transferees irrespective of the time at which the consideration for the same has been received. (c) The corporation makes dis-investment of its shareholdings joint/assisted sector projects and private sector projects as per the provisions contained in the financial collaboration agreements and buy-back undertakings respectively executed by the collaborators/Promoters with the corporation. (d) As per financial collaboration agreement the collaborators have to buy-back the shares at the end of specified period at the highest market price quoted on recognized stock exchange(s) or the book value along with the simple interest at the lending rate at which the financial institution/banks have provided long-term finance to the company, whichever is higher. However, the terms of standard Financial Collaboration Agreement have been amended w.e.f. 18-10-1996 which provide for buy-back of the Corporation's investments at Highest price quoted on the Stock Exchanges 3 months prior to the date of option or with interest at the rate of which the Corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unjab Government, the assessee corporation was to act as a catalyst for establishment of new industrial projects in the State of Punjab, the assessee collaborators oration was to act as a catalyst for establishment of new Industrials Project in the State of Punjab by acting as promoters/collaborators alongwith other industrial entrepreneurs. At the time of the start of the project, the assessee corporation makes investment and when the production in the projects reaches upto a certain level where after the projects become self-sufficient, it disinvests those holdings in that project by selling it to the other promoter with a view to realize funds for investments in other projects. Thus basically the investment in shares of companies which were jointly promoted by the assessee alongwith other industrial undertakings is in the nature of an investment and any profit/gain earned by the assessee on the realization of such an investment is liable to tax under the head 'Capital gains' and this position has all along been accepted even by the departmental authorities upto the assessment year 1989-90. Accordingly we hold that the profit and gain realized by the assessee on account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is not disputed that since inception the assessee has been claiming the profits earned from sale of shares as capital gains which has never been disturbed by the Revenue. No change in the circumstances in respect of the impugned assessment year have also been brought to our notice. Therefore, we agree with the Ld. counsel for assessee that there was no reason to disturb that position in the impugned year. The Hon'ble Apex Court in the case of Radha Soami Satsang Vs. CIT 193 ITR 321(SC) held that where fundamental aspect permeating through different assessment years has been found as a fact one way or the other and parties had allowed that position to be sustained by way of not challenging that order, then it would not at all be appropriate to permit that position to be challenged in subsequent year. 30. In view of the same, we hold that the profits earned by the assessee from sale of shares be treated as capital gain and addition made by treating the same as income from business of the assessee be deleted. Ground of appeal No.3(a) raised by the assessee therefore stands allowed. 31. Ground No.3(b) raised by the assessee relates to the issue of allowance of expenditure a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee reads as under: "6. a) That the Ld. CIT (A) is not justified in upholding the amount of Capital Gain on sale of shares amounting to Rs. 30,36,995/- as business Income under the facts & circumstances of the case. b) That the Ld. CIT (A) is not justified in not adjudicating the ground of appeal disputing the finding of A. A. regarding expenditure in relation to investment in shares having been charged to Profit & Loss Account in the absence of any material on record under the facts & circumstances of the case." 38. It is relevant to observe here that the issue in this ground is similar to the issue in ground No.3 raised by the assessee in ITA No.184/Chd/2010 and the findings given in ITA No.184/Chd/2010 at para 27-31 of our order above, shall apply to this case also mutatis mutandis. Ground No.6(a) raised by the assessee stands allowed and ground No.6(b) raised by the assessee is dismissed. 39. Ground of appeal No.7 raised by the assessee reads as under: "7. a) That the Ld. CIT(A) is not justified in upholding dividend on shares amounting to Rs. 2,97,432/- as business income under the facts & circumstances of the case. b) That the Ld. CIT (A) is not justified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her words, the companies declaring and distributing dividend. In view of the same, therefore, we cannot agree with the contentions of the Revenue that the said dividend is to be taxed in the hands of the assessee being in the nature of business income. The reliance placed on the decision of the Hon'ble Apex Court in the case of Brook Bond India Ltd. (supra) does not apply to the present case since it related to the assessment year 1955-56 and 1956-57 when the position of law vis-à-vis taxation of dividend was governed by the Income Tax Act, 1922 which taxed dividend in the hands of the recipient. Even otherwise we have already held that the income earned from sale of shares be treated as capital gains, holding the activity of the assessee as investment and not trading in shares, therefore, the dividend income earned from the shares cannot be said to be from business activity of the assessee. However since the dividend income is exempt from tax, the provisions of section 14A disallowing expenses incurred for earning the same, are attracted.For the limited purpose of applying the provisions of section 14A ,the issue is restored back to the file of the AO,with a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere for nonbusiness purpose. 49. No arguments were advanced during the course of hearing before us by the Ld.Counsel for the assessee. Ground No.8 therefore stands dismissed. 50. The appeal of the assessee therefore stands partly allowed. ITA No.966/Chd/2010 (A.Y. 2007-08) 51. Ground No.1 raised by the assessee reads as under: "1. That the Ld. CIT (A) has erred in law & facts of the case in upholding an addition of Rs. 2,22,66,591/- on account of unclaimed refunds which is highly unjustified & uncalled for." 52. It is relevant to observe here that the issue in this ground is similar to the issue in ground No.1 raised by the assessee in ITA No.184/Chd/2010 and the findings given in ITA No.184/Chd/2010 at para 10-13 of the order above shall apply to this case also mutatis mutandis. Ground No.1 raised by the assessee stands partly allowed. 53. Ground No.2 raised by the assessee reads as under: "2. a) That the Ld. CIT (A) has erred in law & facts of the case in upholding an addition of Rs. 118.79 crores on account of income from Industrial Area Activity which is highly unjustified & uncalled for. b) That the Ld. CIT (A) has erred under the facts & circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed. 59. Ground No.5 raised by the assessee reads as under: "5. That the Ld. CIT (A) has erred in law & facts of the case in upholding that the investment of Rs. 360.87 crores is not for business purpose which is highly unjustified & uncalled for." 60. It is relevant to observe here that the issue in this ground is similar to the issue in ground No.8 raised by the assessee in ITA No.185/Chd/2010 and the findings given in ITA No.185/Chd/2010 at para 49 of the order above shall apply to this case also mutatis mutandis. Ground No.5 raised by the assessee is therefore dismissed The appeal of the assessee is partly allowed. ITA No.827/Chd/2011(A.Y. 2008-09) 61. Ground No.1 raised by the assessee reads as under: "1. That the Ld. CIT (A) has erred in law & facts of the case in upholding an addition of Rs. 2,63,53,622/- on account of unclaimed refunds which is highly unjustified & uncalled for." 62. It is relevant to observe here that the issue in this ground is similar to the issue in ground No.1 raised by the assessee in ITA No.184/Chd/2010 and the findings given in ITA No.184/Chd/2010 at para 10-13 of our order abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having been charged to Profit & Loss Account in the absence of any material on record which is highly unjustified, & uncalled for." 68. It is relevant to observe here that the issue in this ground is similar to the issue in ground No.7 raised by the assessee in ITA No.185/Chd/2010 and the findings given in ITA No.185/Chd/2010 at para 43-44 of our order above shall apply to this case also mutatis mutandis. Ground No.4(a) & (b) raised by the assessee is allowed. 69. Ground No.5 raised by the assessee reads as under "5. That the Ld. CIT (A) has erred in law & facts of the case in upholding that the investment of Rs. 22.22 crores is not for business purpose which is highly unjustified & uncalled for." 70. It is relevant to observe here that the issue in this ground is similar to the issue in ground No.8 raised by the assessee in ITA No.185/Chd/2010 and the findings given in ITA No.185/Chd/2010 at para 49 of the order above shall apply to this case also mutatis mutandis. Ground No.5 raised by the assessee is dismissed. The appeal of the assessee is partly allowed. ITA No.98/Chd/2013(A.Y. 2009-10) 71. Ground No.1 raised by the assessee reads as under: "1. Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee reads as under: "4. a) That the Ld. CIT (A) has erred in law & facts of the case in upholding the dividend on shares amounting to Rs. 4,44,910/- as business income which is highly unjustified & uncalled for. b) That the Ld. CIT (A) has erred in law & facts in not adjudicating the ground of appeal disputing the finding of A. A. regarding expenditure in relation to investment in shares having been charged to Profit & Loss Account in the absence of any material on record which is highly unjustified, & uncalled for." 78. It is relevant to observe here that the issue in this ground is similar to the issue in ground No.7 raised by the assessee in ITA No.185/Chd/2010 and the findings given in ITA No.185/Chd/2010 at para 43-44 of our order above shall apply to this case also mutatis mutandis. Ground No.4(a) & (b) raised by the assessee is allowed. The appeal of the assessee is partly allowed. ITA No.728/Chd/2013(A.Y. 2010-11) 79. Ground No.1 raised by the assessee reads as under: "1. That the Ld. CIT (A) has erred in law & facts of the case in upholding an addition of Rs. 17,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw & facts of the case in upholding an addition of Rs. 1,58,98,296/- on account of unclaimed refunds under the facts & circumstances of the case. 86. It is relevant to observe here that the issues in these grounds are similar to the issue in ground No.1 raised by the assessee in ITA No.184/Chd/2010 and the findings given in ITA No.184/Chd/2010 at para 10-13 of our order above shall apply to this case also mutatis mutandis. Ground Nos.1 raised by the assessee are partly allowed. 87. Ground Nos.2 (a) & (b) raised by the assessee read as under: "2. a) That the Ld. CIT (A) has erred in law & facts of the case in upholding an addition of Rs. 136.42 crores on account of income from Industrial Area Activity which is highly unjustified & uncalled for. b) That the Ld. CIT (A) has erred under the facts & circumstances of the case in not allowing expenditure incurred on KMP Expressway amounting to Rs. 16.87 crores & Delhi Metro to Gurgaon amounting to Rs. 70 lacs which is highly unjustified & uncalled for." 88. It is relevant to observe here that the issues in these grounds are similar to the issue in ground No.2 raised by the assessee in ITA No.184/Chd/2010 and the findings given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the issue in this ground is similar to the issue in ground No.2 raised by the assessee in ITA No.184/Chd/2010 and the findings given in ITA No.184/Chd/2010 at para 20-21 of our order above shall apply to this case also mutatis mutandis. Ground No.2(a) & (b) raised by the assessee is allowed for statistical purposes. 95. Ground No.3 raised by the assessee reads as under: "3. a) That the Ld. CIT (A) has erred in law & facts of the case in upholding the dividend on shares amounting to Rs. 32,25,160/- as Business Income which is highly unjustified & uncalled for. b) That the Ld. CIT (A) has erred in law & facts in not adjudicating the ground of appeal disputing the finding of A. A. regarding expenditure in relation to investment in shares having been charged to Profit & Loss Account in the absence of any material on record which is highly unjustified, & uncalled for." 96. It is relevant to observe here that the issue in this ground is similar to the issue in ground No.3 raised by the assessee in ITA No.185/Chd/2010 and the findings given in ITA No.185/Chd/2010 at para 43-44 of our order above shall apply to this case also mutatis mutandis. Ground No.3(a) raised by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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