TMI Blog2019 (3) TMI 1772X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 263 - Decided against assessee. Disallowance of gallonage fee expenses u/s. 40(a)(iib) - HELD THAT:- The clause exclusively cannot be assessed with respect to the nomenclature of the payment made but the same has to be determined with respect to mode and method of levy of charge. The gallonage fee is paid by the assessee as per the Foreign Liquor Rules, 1953 under Rule 15A. The gallonage fee referred under Rule 15A is with regard to fee to be paid for FL-9 licensee. The FL-9 license is exclusively granted to the assessee. Therefore, the gallonage fee paid by the assessee is covered by the provisions of section 40(a)(iib) - The fact that a fee in the name of gallonage fee is also levied under clause 14 of Kerala Rectified Spirit Rules, 1972 is not relevant for the purpose of examining the applicability of provisions of section 40(a)(iib) of the Act for the fee paid under Foreign Liquour Rules, 1953.. Therefore in view of the above reasons, the disallowance of gallongage fee of ₹ 54,83,87,000/- u/s. 40(a)(iib) of the Act is upheld. This ground of appeal of the assessee is dismissed. Disallowance of license fee and shop rental u/s. 40(a)(iib) - AR submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Profit Loss a/c towards Surcharge on Sales Tax and Turn over Tax. The surcharge was paid as per section 3(1) of the Kerala Surcharge on Taxes Act, 1957 (Act 11 of 1957). But, according to the CIT, this was not disallowed by the Assessing Officer u/s 40(a)(iib) of the Income tax Act 1961. Therefore, the CIT held that the order passed u/s 143(3) dated 14.12.2016 was erroneous and prejudicial to the interest of the Revenue. 2.2 The CIT referred to section 40(a)(iib) of the Income tax Act which stipulates that the following amounts shall not be deducted in computing the income chargeable under the head 'Profits and gains of business or profession , any amount (A) paid by way of royalty, licence fee, service fee, privilege fee, service charge, or any other fee or charge, by whatever name called, which is levied exclusively on: or (B) which is appropriated, directly or indirectly from, a State Government undertaking includes (i) a corporation established by or under any Act of the State Government: (ii) a company in which more than fifty per cent of the paid-up equity share capital is held by the State Government; (iii) a company in which more than fifty percent of the paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s without remittance of surcharge . In this case, the assessee was entrusted with the monopoly purchase and sale of Indian Made Foreign Liquor (IMFL) / Beer in the state of Kerala and hence, surcharge paid on the sales tax as per the provisions of Section 3(1) of 'the Kerala Surcharge on Taxes Act, 1957 (Act 11 of 1957)' is an exclusive levy. Therefore, the CIT held that surcharge on sales tax should have been disallowed u/s 40(a)(iib) of the Act. 2.5 The CIT relied on the following judicial decisions: 1. CIT vs. Jawahar Bhattacharjee (2012) 341 ITR 434 (Gau.) (FB) wherein it was stated the assessment made on A. wrong assumption of facts or B. on incorrect application of law or C. without due application of mind or D. without following the principles of natural justice would be 'erroneous' 2. CIT Vs. Emery Stone Manufacturing Co.(1995) 213 ITR 843 (Raj) wherein it was stated that failure to apply the correct provision of law as may be applicable in given facts of the case will be resulting in an erroneous order. 3. Toyoto Motor Corporation (306 ITR 49) wherein it had given a finding that The order passed by the Assessing Officer should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , namely:- (a) by a bar attached hotel, at the rate of ten per cent ; and (b) by others at the rate of five per cent, on the turnover at all points of sale. 3.2 It was submitted that Turnover Tax is payable by bars, beer and Wine parlors, clubs having bars, persons importing intoxicating drugs such as drug manufacturing units and distilleries in Kerala. In this regard we wish to submit that section 40(a)(iib) clearly states that it is applicable only amounts which are levied exclusively on a Government undertaking. In this case it was submitted that Surcharge on Sales Tax and Turnover Tax are not levies charged exclusively to the appellant and is applicable to other entities also as explained above and which is evident from the provisions of the respective sections of the applicable Acts of the State Government. Hence, it was submitted that it never came within the ambit of the provisions of Section 40(a)(iib) to disallow the expenses claimed under the head Surcharge on Sales Tax. 3.3 According to the Ld. AR, the above levies are paid as per the provisions of respective statutory provision contained in the respective statues which were in force even before the formatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter scrutiny and not in a summary manner as contemplated by Sub-section (1) of Section 143. The Assessing Officer is therefore, required to act fairly while accepting or rejecting the claim of the assessee in cases of scrutiny assessments. The Assessing Officer should protect the interests of the revenue and to see that no one dodged the revenue and escaped without paying the legitimate tax. The Assessing Officer is not expected to put blinkers on his eyes and mechanically accept what the assessee claims before him. It is his duty to ascertain the truth of the facts stated and the genuineness of the claims made in the return. The order passed by the Assessing Officer becomes erroneous when an enquiry has not been made before accepting the genuineness of the claim which resulted in loss of revenue. 5.1 In the present case, the Assessing Officer had not made the disallowance u/s. 40(a)(iib) of the Act. Without enquiring, the Assessing Officer accepted the assessee s claim. The failure on the part of the Assessing Officer to make necessary enquiry rendered the assessment order erroneous which also resulted in loss to the revenue. The CIT had observed in his order that the surcharge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of the above decision, it is submitted that Gallonage Fee paid is not an appropriation of income. Hence it is submitted that Gallonage Fee is not an amount levied on the assesse by the State Government and hence cannot be disallowed under section 40(a)(iib). For the reasons stated above and the submissions made in our argument notes submitted on 06.02.2019, this Honorable Income Tax Tribunal may kindly be pleased to allow the appeal and delete the additions made by the learned Assessing officer. Since we have disposed of the appeal of the assessee, the additional grounds are of no consequence and hence, they are dismissed. The appeal of the assessee in ITA No. 536/Coch/2018 is dismissed. 6. Coming to appeal of the assessee in ITA No.537/Coch/2018, the facts of the case are that the assessee filed its return of income for AY 2015-16 on 29/09/2015 declaring total income of ₹ 220,71,67,890/-. The assessment u/s. 143(3) of the Act was completed on 28/12/2017 by disallowing the following expenses u/s. 40(a)(iib) of the Act. S. No. Item Amount (Rs.) 1 Gallonage fee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sence of any dispute on fact about the exclusive nature of license fee and shop rental, the disallowance of ₹ 205,46,00,000/- made by the Assessing Officer and confirmed by the CIT(A) is upheld. 7.6 Further, the website of the State Excise Department of Kerala gives details of licenses granted as under: 2. Issue of Licence for Sale of Liquor, Drugs etc The licenses are issued for a period of one financial year, ie. 1st April to 31st March. At the end of the year, shops are again put up for sale or the existing Licences are renewed as per the Abkari policy of the Government. An important licence granted by the department for sale of foreign liquor is FL 3 licence, widely known as Bar licence. Bar licence are granted to hotels having facilities, which are rated as three star or above with prior sanction of the Government. Wholesale business Indian Made Foreign Liquor (FL-9 licence) in the State is the monopoly of Kerala State Beverages Corporation, which is a State Government undertaking. Foreign Liquor retail outlets also (FL1 shops) are exclusively earmarked for the State Public Sector Units, Kerala State Beverages Corporation and Consumer Federation. These li ..... X X X X Extracts X X X X X X X X Extracts X X X X
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