THE COMMISSIONER OF INCOME TAXAHMEDABAD - IV vs. SHYAMPRAKASH SPINING MILLS LTD

O/TAXAP/1184/2007 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1184 of 2007

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ============================================================ ==== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ THE COMMISSIONER OF INCOME TAXAHMEDABAD - IV....Appellant(s) Versus SHYAMPRAKASH SPINING MILLS LTD....Opponent(s) ================================================================ Appearance: MR NITIN K MEHTA, ADVOCATE for the Appellant(s) No. 1 MR RK PATEL, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER

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O/TAXAP/1184/2007 JUDGMENT Date : 24/12/2014

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. Being aggrieved and dissatisfied with the impugned order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench ‘B’ (hereinafter referred to as ‘the Tribunal’) dated 25.01.2007 in ITA No. 583/Ahd/2003 for the Assessment Year 1994-95, the revenue has preferred the present Tax Appeal. 1.1 This court, while admitting this appeal, has formulated the following substantial question of law for consideration: “Whether the Appellate Tribunal was right in law and on facts in confirming the order passed by the CIT(A) deleting the addition of Rs. 12,26,746/- made u/s. 43B on account of deferred electricity duty?” 2. The Assessing Officer disallowed deferred electricity duty u/s 43B of the Income Tax Act, 1961 (the Act) while passing the assessment order on the ground that electricity duty is covered u/s. 43B of the Act and hence the same is allowable only on actual payment basis. On appeal, the CIT (Appeals) allowed the same and deleted the disallowance. 3. On appeal before the Tribunal by the revenue, by impugned order, Tribunal dismissing the appeal, upheld the order passed by CIT(A). 4. Being aggrieved and dissatisfied with the impugned order passed by the Tribunal, the revenue has preferred the present Page 2 of 6

O/TAXAP/1184/2007 JUDGMENT Tax Appeal for consideration of the aforesaid substantial question of law. 5. Mr. Nitin Mehta, learned advocate appearing for the revenue submitted that the assessee company was granted benefit of deferment of electricity duty vide notification dated 31.03.1991 issued by Government of Gujarat. He submitted that as per this the liability of the assessee company was converted into a loan. He submitted that the benefit of deferment scheme is allowable only for Sales Tax in view of Circular No. 496 dated 25.09.1997 issued by CBDT and as no circular has been issued with reference to electricity duty, deferred electricity duty claimed as expenses was rightly disallowed u/s. 43B of the Act. In support of his submissions, Mr. Mehta has relied upon the decision of this Court in the case of Commissioner of Income-Tax vs. Gujarat Urja Vikas Nigam Ltd reported in [2010] 322 ITR 539 (Guj) wherein it is held that the provisions of section 43B of the Income Tax Act are applicable to the electricity duty payable to the Government. 6. Mr. R.K. Patel, learned advocate appearing for the respondent – assessee supported the impugned order and submitted that the same having been passed in accordance with law does not call for any interference by this Court. He has drawn the attention of this court to the findings of fact arrived at by the Tribunal and also the decision of this Court in the case of Commissioner of Income-Tax vs. Shree Talal Taluka Sahakari Khand Udyog Mandali Ltd reported in [2003] 259 ITR 21 wherein it is held that the assessee was entitled to relief and benefit given under section Page 3 of 6

O/TAXAP/1184/2007 JUDGMENT 43B for unpaid sales tax liability as the CBDT vide circular dated 25.09.1987 has made it clear that if sales tax due to Government is converted as a loan which may be repaid by assessee subsequently by installments the department shall see that sales tax due as actually paid for all purposes is available to assessee. 7. We have heard learned counsel for the parties and have perused the record of the case. The assessee company as the assessee had acquired a sick industrial undertaking form M/s. New Standar Engg. Co. Ltd and as a component of the rehabilitation plant, the State Government had granted deferment of payment of electricity duty by the assessee company. The Tribunal in para 10 of the the impugned order has observed as under: “10. After carefully considering the rival submissions, we are of the view that no interference is called for in the order of the CIT(A). The CIT(A) has correctly decided that the disallowance did not fall within the purview of sec. 43B. This is an admitted fact that Gujarat Government had issued a notification with a view to arbitrate the adverse effect caused to industrial unit under deferment scheme due to operation of sec. 43B of the Act. A scheme for interest free loans in lieu of tax or duty to industrial unit was introduced by Government under GR No. ING- 1087-143-1 dated 21-3-88. The Government passed resolution under GR No. TEX-1090-880-7 dated 21- 7-93 and in accordance with that resolution, Government has granted deferment on GEB up to 31-12-95. The Government of Gujart has granted concession for a period of 5 years from 1-1-91 to 31-12-95 and on that basis the amount get converted into unsecured loan being a State Government loan. In view of this fact, we do not Page 4 of 6

O/TAXAP/1184/2007 JUDGMENT find any illegality or infirmity in the order of the CIT(A). We accordingly confirm the order of the CIT(A). Thus, Ground No. 1 stands dismissed.” 7.1 The CIT(A) while directing the disallowance to be deleted has observed in para 2.3 as under: “2.3 I have carefully considered the observation of the A.O as well as the submission made by the counsel of the appellant and I am of the view that the disallowance made by the A.O. in respect of deferred electricity amounting to Rs. 12,26,746/- is not justified, because the Gujarat Government had issued a notification with a view to aberiate the adverse effect caused to industrial unit under deferment scheme due to operation of sec. 43B and this concession to the company was grant by the Govt. of Gujarat for a period of 5 years from 1.1.92 to 31.3.95. A perusal of assessment order for assessment year 1997-98 reveals that no addition in respect of deferred electricity duty has been made by the A.O. In view of the above facts, I hold that the disallowance made in this respect cannot be sustained and the same is directed to be deleted.” 7.2 We are in complete agreement with the concurrent findings arrived at by the Tribunal and CIT(A) and do not see any reason for interference. It is true that the State Government has issued the notification with a view to alleviate the adverse effect caused to industrial units under Deferment Scheme due to operation of Section 43B of the Act. The very object of the scheme is to give a subsidy to such units failing which the very scheme shall be frustrated. Therefore, considering the decisions cited by the learned advocates for both the sides and considering the materials on record, we are of the view that the authorities below have rightly concluded that the disallowance cannot be sustained Page 5 of 6

O/TAXAP/1184/2007 JUDGMENT and the same is rightly deleted. 8. In the premises aforesaid, we answer the question raised in the present appeal in the affirmative i.e. in favour of assessee and against the revenue. We hold that the Tribunal was right in law in confirming the order passed by the CIT(A) deleting the addition of Rs. 12,26,746/- made u/s. 43B on account of deferred electricity duty. Appeal stands dismissed accordingly. (K.S.JHAVERI, J.) (K.J.THAKER, J) divya Page 6 of 6