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TMI Blog2017 (6) TMI 1321X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 287265/- as it would be revenue neutral if considered as sales return, in as much as the closing stock would have been enhanced by corresponding sum. (iv) On the facts and circumstances of the case the Ld.CIT(A) ought to have upheld the order of the Assessing Officer. It is therefore prayed that the order of the learned CIT(Appeals) may be set aside and that of the A.O be restored to the above extent. 2. In this case return of income declaring income of Rs. 3,05,793/- was filled on 04/10/2010. Subsequently, the case was selected under scrutiny by issuing notice u/s.143(2) on 25/08/2011. During the course of assessment proceedings the Assessing Officer observed that the total income of the assessee as per profit and loss account was Rs. 13,28,58,85,097/- whereas total expenditure was Rs. 12,61,42,08,822/- resulting into surplus of Rs. 67,16,76,275/- which was shown as surplus payable to Government of Gujarat as expenditure. 3. The Assessing Officer observed that surplus payable to Government of Gujarat for Rs. 67,16,76,275/- claimed as expenditure cannot be allowed as deduction to the assessee. The Assessing Officer further observed that the assessee has received com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied out by it on behalf of GoG. G.R. No. CSC-1083-4089-D dated 28th March 1985, states as under: "Since the obligation of Government to provide at reasonable prices, food grains and edible oil through fair price shops was being discharged for some time past now through the agency of the Gujarat State Civil Supplies Corporation Limited., Government was considering the basis on which this work should be entrusted to the corporation keeping in view the proposal made by the said corporation. In the circumstances explained above, Government is pleased to decide that the public distribution system operations in respect of foodgrains and edible oils, transferred to the Gujarat State Civil Supplies Corporation Limited should be carried out by the said corporation from the date of its inception for and on behalf of the Government and the resultant profit / loss arising in the transaction of the said items will be on government account. The Government is also pleased to allow handling commission at %% rate on the total turnover on the aforesaid items on Government account effected by the Corporation for first two years and at the rate of %% for the subsequent 3 years against considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom aforesaid GR along with the facts discussed herein above: (i) Public distribution system operations in respect of foodgrains and edible oils, transferred to the Gujarat State Civil Supplies Corporation Limited should be carried out by the said corporation from the date of its inception for and on behalf of the Government (ii) The Government will allow handling commission on the turnover carried out by appellant on behalf of GOG. (iii) The appellant is carrying out and function PDS as agent of GOG. (iv) The resultant Profit or loss arising out of such activity will be on government account. (v) The appellant would retain net surplus fund i.e. after deducting the aforesaid commission payable to Gujarat State Civil Supplies Corporation Limited on account of Government transactions covered under PDS and surplus fund will be treated as analogues to loan and appellant would pay interest to GOG on funds retained by it. It is further observed from aforesaid GRs that appellant is carrying out and function PDS on behalf of GOG and resultant profit/loss from such transaction is on government account hence observation of AO at page no 5 of the order that it is nowhere sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deficit in such activity, it is not born by appellant but has been recovered from GOG. Thus, surplus generated during the year nder consideration from PDS activity for Rs. 67.16 crore cannot be held taxable as income in hands of appellant. During the course of assessment proceedings, appellant has also submitted a columnar profit and loss account presenting activities carried out on behalf of GOG and those carried out on its own behalf separately which is also reproduced by AO at page 7 of the order. The sales in respect of activities carried out on behalf of the GOG and the subsidy received in respect of the said sales is credited to the GOG section of the columnar profit & loss account whereas purchases and other direct expenses in respect of GOG activities are debited to the GOG section of the columnar profit & loss account and whatever surplus is computed from such activity is transferred to GOG and claimed as expenditure and thus appellant has correctly shown NIL income from its first activity as discussed herein above. The commission income earned for activity carried out on behalf of GOG and income earned from appellant's own activity has been correctly shown as incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fault with the logic adopted by the Tribunal. We find that no substantial question of law is arising." The Hon'ble Gujarat High court in the case of Gujarat Power Corporation Limited (1996) 25 taxmann.com 14 (Guj.) has further held as under: "Section 4, read with section 2(24), of the Income-tax Act, 1961 - Income - Chargeable as 05 -Assessment year 1992-93 - State Government had sanctioned certain amount towards its equity share capital contribution in assessee-company - Shares could not be allotted in favour of State Government immediately - Assessee deposited same in banksin short-term deposits which earned some interest - Such amount of interest was agreed over to be paid to State Government - Whether amount which remained with assessee was held in trust for and on behalf of State Government and, therefore, interest accrued must also belong to State Government and would not be treated as income in hands of assessee - Held, yes [In favour of assessee]" In view of aforesaid discussion and on holistic consideration entire * facts and respect fully following the decision of Hon'ble Jurisdictional I.T.A.T., and High court in appellant's own case, it is observed ..... 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