C.I.T. PAT. vs. M/S PUNJAB STATE INDS. DEV.

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ITR/8/1995HC Punjab & HaryanaPHHC01032628199504 November 2009Bench: MR. JUSTICE ADARSH KUMAR GOEL,MR. JUSTICE GURDEV SINGH5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court answered all three questions against the revenue and in favour of the assessee. Regarding the first two issues concerning the waiver of interest and interest remitted/reversed entries, the Court noted that the CIT(A) had followed earlier orders in favour of the assessee, and the revenue had neither produced these orders nor demonstrated that they were interfered with. To maintain consistency, the questions were answered against the revenue. For the third issue concerning the deduction under Section 36(1)(viii), the Tribunal's finding, as quoted in the judgment, was that the assessee was approved by the Central Government and was entitled to a higher deduction than the reserve created. The CIT(A) had directed the AO to provide an opportunity for the assessee to create further reserve. The revenue's counsel could not show that the earlier order followed had not attained finality or that there was an error in the view that the reserve could be allowed to the extent stipulated. Therefore, this question was also answered against the revenue. The reference was disposed of accordingly.

What were the facts?

This case involves a reference of three questions of law by the Income Tax Appellate Tribunal (ITAT) to the High Court of Punjab and Haryana, arising from its order dated January 18, 1994, concerning assessment year 1985-86. The assessee is the Punjab State Industrial Development Corporation, a public sector undertaking. The Assessing Officer (AO) made additions concerning the waiver of interest in favour of sister concerns and interest remitted with reversed entries amounting to Rs. 24,48,161/-. The AO also disputed the assessee's claim for deduction under Section 36(1)(viii) of the Income Tax Act, 1961, regarding the creation of reserves. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the additions, and the ITAT upheld the CIT(A)'s order. The revenue is the Commissioner of Income Tax, Patiala.

What were the issues?

The High Court was asked to decide three questions of law: 1. Whether the ITAT was right in upholding the CIT(A)'s deletion of additions made by the AO on account of waiver of interest in the case of M/s Punjab Tenneries Limited, Punjab Scooters Limited, M/s Punjab Spinning and Weaving Mills, Bhatinda (Shri OP Mittal), Punjab Maize Products, and Punjab Government. 2. Whether the ITAT was right in upholding the CIT(A)'s deletion of additions made by the AO on account of interest remitted and entries reversed by the assessee, amounting to Rs. 24,48,161/- 3. Whether the ITAT was right in upholding the CIT(A)'s direction to the AO to allow the assessee an opportunity to create further reserve to meet the admissible deduction under Section 36(1)(viii) of the Income Tax Act. Assessee's Contentions: The judgment does not explicitly record the assessee's arguments. However, it implies the assessee argued that waiver of interest in the year in question should allow for deduction, and that it was entitled to a higher deduction under Section 36(1)(viii) for which further reserve could be created. Revenue's Contentions: The revenue argued that interest liability had not crystallized in the year under consideration, hence no deduction could be claimed. For the first two issues, the revenue contended that income had already been taxed under the mercantile system for the period to which the waiver related. For the third issue, the revenue's counsel stated she was unable to obtain information from the department.

Which sections of the Income-tax Act were involved?

Section 36(1)(viii)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. ITR No. 8 of 1995 (O&M) Date of decision:4.11.2009 The Commissioner of Income Tax, Patiala

-----Petitioner Vs. The Punjab State Industrial development Corporation Chandigarh ----Respondent CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOEL HON'BLE MR.JUSTICE GURDEV SINGH Present: Ms. Urvashi Dhugga, Advocate for the revenue. Adarsh Kumar Goel,J. 1. Following questions of law have been referred for opinion of this Court by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh arising out of its order dated 18.1.1994 in ITA No.717/Chandi/1988, relating to assessment year 1985-86 :- “1. Whether on the facts and in the circumstances of the case, the ITAT was

ITR No.8 of 1995 (O&M) right in law in upholding the order of the CIT (A) deleting the addition made by the AO on account of waiver of interest in the case of M/s Punjab Tenneries Limited, Punjab Scooters Limited and M/s Punjab Spinning and Weaving Mills, Bhatinda (Shri OP Mittal) Punjab Maize Products and Punjab Government? 2. Whether on facts and in the circumstances of the case, the ITAT was right in law in upholding the order of the CIT(A) deleting the addition made by the AO on account of interest remitted and entries reversed by the assessee amounting to Rs.24,48,161/-? 3. Whether on facts and in the circumstances of the case, the ITAT was right in law in upholding the order of the CIT(A) directing the AO to allow opportunity to the assessee for creating further reserve which falls short of admissible deduction under section 36(1) (viii) of the IT Act?” 2. The assessee is a Public Sector Undertaking and raised certain issues for the assessment year in question. The Assessing Officer rejected the view point of the assessee on the issue of claim of deduction for waiver of 2

ITR No.8 of 1995 (O&M) interest in favour of sister concerns. The Assessing officer also made additions on account of interest remitted of which entries were reversed by the assessee. Third issue relates to giving of opportunity for creating further reserve to the extent permissible under section 36(1)(viii) of the Act. 3. The Assessing Officer held that interest liability had not crystalised in the year under consideration and, therefore, the assessee could not claim deduction. The CIT (A) following the order of the Tribunal for the assessment year 1977-78 in the case of the assessee and also his own decision for some of the assessment years, granted relief to the assessee. The Tribunal upheld the order of the CIT(A) on the basis of its earlier orders. 4. We have heard learned counsel for the revenue. Re: (i) & (ii) 5. The Assessing Officer disallowed the waiver of interest on the ground that for the period to which waiver related, income had already been taxed, as mercantile system of accountancy had been employed. The CIT (A) followed the earlier orders which have not been annexed 3

ITR No.8 of 1995 (O&M) with the paper book. It appears that the basis for the decision of CIT(A) is that since interest was waived in the year in question, the assessee could claim deduction. Since the revenue has neither filed the orders for the earlier assessment years, which have been followed nor it has been shown that the said orders have been interfered with, the questions have to be answered against the revenue and in favour of the assessee to maintain consistency. Re: (iii)

6.

In respect of this question, the finding of the Tribunal is as under:- “17. The last effective ground is against the direction of the learned CIT(A) not to restrict the allowance under section 36(1) (viii) upto the reserve created. The assessee is admittedly approved by the central Government for purposes of section 36(1) (viii) of the act. During the year under consideration, the assessee corporation claimed deduction under the said section. The assessee created reserve on the basis of book profits. The assessee corporation was, however, entitled to a higher deduction under section 36(1)

(viii) for which the reserve already created was not sufficient. The learned CIT(A) therefore directed the assessing officer to afford an opportunity to the assessee to create further reserve. It was further observed by him that a similar issue had been 4

ITR No.8 of 1995 (O&M) decided in favour of the assessee in the appeal for assessment year 1983-84.” 7. Learned counsel for the revenue has not shown that the order for the earlier assessment year which has been followed, has not attained finality nor any error has been shown in the view that reserve to the extent stipulated under section 36(1)(viii) could be duly allowed to the assessee. Learned counsel states that she tried to seek information from the department but has not been able to get. 8. Accordingly, this question is also answered against the revenue and in favour of the assessee. 9. The reference is disposed of accordingly. (Adarsh Kumar Goel) Judge November 4, 2009 (Gurdev Singh) ‘gs’ Judge 5

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