ASSISTANT COMMISSIONER OF INCOME-TAX vs. PRIMA PRIVATE LTD., PUNE

आदेश / ORDER

PER D. KARUNAKARA RAO, AM :

These are two appeals filed by the Revenue against the order of CIT(A)-6, Pune commonly dated 30.06.2016 for the assessment years 2007-08 & 2008- 09.

2 ITA Nos.2161 & 2162 /PUN/2016 A.Ys.2007-08 & 2008-09

ITA No.2161/PUN/2016 A.Y. 2007-08

“1. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in holding that discount of Rs.87,16,195/- received on pre-payment of liability under the ‘ Sales Tax Deferral Scheme’, as not a remission or cession of liability u/s.41(2)? 2. The appellant craves leave to add, amend or alter any of the above grounds of appeal.”

Identical grounds are raised by the Revenue for the assessment year

2008-09 too.

business of plastic moulding products etc. The Assessee filed return of income

on 13.11.2007 declaring total income at Rs.3,21,03,243/-. During assessment

proceedings u/s.143(3) of the Income Tax Act, 1961, the Assessing Officer

determined the total income of assessee at Rs.6,12,42,590/-. During the

scrutiny, Assessing Officer noted that on the prepaid of sales tax liability

under sales tax deferral scheme, Assessee got the benefit of Rs.87,16,195/-.

Assessing Officer added the same as income of the assessee. Backgrounds

facts of this issue include that the assessee credited an amount to the capital

reserve on the basis of difference between the deferred sale tax liability

amount and the amount actually prepaid to the Government of Maharashtra

based on Net Present Value (NPV) under repayment scheme pertaining to

deferred sale tax liability treating the same as revenue receipts. On this

information, the reassessment proceedings were initiated by issuing notice

u/s.148 r.w.s. 147 in the case of the assessee for A.Y.2007-08. At the end of

the reassessment proceedings u/s.143(3) r.w.s 147 of the Act, Assessing

Officer assessed total income of assessee at Rs.4,02,98,220/- and made the

said addition of Rs.87,16,195/-.

3 ITA Nos.2161 & 2162 /PUN/2016 A.Ys.2007-08 & 2008-09

CIT(A). The CIT(A) allowed the appeal of the assessee on the issue relating to

addition made u/s.41(1) of the Act as per discussion given in Para 4 and its

sub-paras of the appellate order.

Tribunal by raising grounds as extracted above.

on the order of Assessing Officer. Ld. DR also submitted that the discount

received by the assessee on pre-payment of liability under the ‘Sales Tax

Deferral Scheme, is not a remission or cessation of liability u/s.41(1) of the

Act.

of Para 4.3 of the order of CIT(A) and submitted that CIT(A) has rightly allowed

the appeal of the assessee by relying on the ratio laid down in the case of CIT

Vs. Sulzer India Ltd. (2014) 369 ITR 0717 (Bom.). The CIT(A) also relied on the

decision of Pune Bench of the Tribunal in the case of Aurangabad Electricals

Ltd., ITA No.388/PN/2012 and 1269/PN/2010 dated 30.05.2012 for

A.Y.2005-06.

amount credited to the capital reserve and found that the similar issue has

been decided by the Hon'ble Jurisdictional High Court in the case of CIT Vs.

Sulzer India Ltd.(supra.) and the held portion of the said judgment reads as

under :

“Held, dismissing the appeals, that the premature payment of sales tax already collected but its remittance to the Government later was not covered by section 43B(1). The applicability of section 41(1)(a) was to be considered in the light of

4 ITA Nos.2161 & 2162 /PUN/2016 A.Ys.2007-08 & 2008-09

the liability. It is a loss, expenditure or trading liability. The scheme under which the sales tax liability was deferred enables the assessee to remit the sales tax collected from the customers or consumers to the Government not immediately but as agreed after 7 to 12 years. If the amount was not to be immediately paid to the Government upon collected but can be remitted later on in terms of the scheme, then the exercise undertaken by the Government of Maharashtra in terms of the amendment made to the Bombay Sales Tax Act, 1959, relieved the assessee of this obligation but that was not by way of obtaining remission. The worth of the amount which had to be remitted after 7 to 12 years has been determined prematurely. That had been done by finding out its net present value. If that was the value of the money that the State Government would be entitled to receive after the end of 7 to 12 years then the ingredients of sub section (1) of section 41 could not be said to be fulfilled. The obligation to remit to the Government the sales tax amount already recovered and collected from the customers was in no way wiped out or diluted. The obligation remains. Al that had happened was an option was given to the assessee to approach the SICOM which is the nodal authority, and request it to consider the application of the assessee of premature payment and discharge of the liability by finding out its net present value. If that was a permissible exercise and in terms of the settled law, then the assessee could not be said to have been benefited. The first requirement of section 41(1) is that the allowance or deduction is made in respect of the loss, expenditure or a treating liability incurred by the assessee and the other requirement is the assessee has subsequently obtained any amount in respect of such loss and expenditure or obtained any amount in respect of such loss and expenditure or obtained a benefit in respect of such trading liability by way of a remission or cessation thereof. The Sales tax collected by the assessee during the relevant year amounting to Rs.7,52,01,378/- was treated by the State Government as a loan liability payable after 12 years in 6 annual/equal installments. Subsequently and pursuant to the amendment made to the fourth proviso to section 38 of the 1959 Act, the assessee accepted the offer of the SICOM paid an amount of Rs.3,37,13,393 to the SICOM, which represented the net present value of the future sum as determined and prescribed of 12 years and in installments. However, the statutory arrangement and by section 38, fourth proviso did not amount to remission or cessation of the assessee’s liability assuming the liability to be a trading one. Rather that obtains a payment to the State prematurely and in terms of the correct value of the debt due to it. There was no evidence to show that there had been any remission or cessation of the liability by the State Government.

ii) That the Government resolution dated May 4, 1983, evolved a pack age of incentives to disperse the industries from Bombay-Thane –Pune belt and to attract them to underdeveloped and developing areas of the State of Maharashtra. This package evolved several measures to achieve this object. Then, there is a new package scheme of incentives, 1988. Both schemes have clauses and paragraphs containing sales tax deferral incentives. To carry this object further and also to achieve the purpose of early remittance of deferred sales tax collected by the units availing of the schemes, the statutory option was incorporated in section 38 by substituting the fourth proviso to sub section (4) of section 38 of the 1959 Act. That is informed by the Trade Circular dated December, 12, 2002, issued by the Commissioner of Sales Tax, Maharashtra. A combined reading of the schemes and this circular reveals the legislative intent. In such circumstances, a proper understanding of all this by the Tribunal could not be termed as perverse.”

A perusal of the above decision, we find the same is relevant for the

facts of the present appeal. We also find that the CIT(A), following the above

ratio, decided the issue raised in appeal as per discussion given in para 4.3,

5 ITA Nos.2161 & 2162 /PUN/2016 A.Ys.2007-08 & 2008-09

4.4 and 4.5 of the order of CIT(A). For the sake of completeness, the same are

extracted as under:

“4.3 The appellant relied on the decision of the Bombay High Court in the case of CIT Vs. Sulzer India Ld. (2014) 369 ITR 0717 ( Bom) in which it has been held that the difference between the sales tax liability and the net present value of the liability is not liable to be treated as remission/cessation of a liability and held it as a capital receipt. The Bombay High Court thus confirmed the decision of Spl. Bench in Sulzer India Ltd. reported in 42 SOT 457 ( Mum) (SB). 4.4 The appellant also relied on the ITAT Pune Bench decision in the case of Aurangabad Electricals Ltd. in appeal order No. ITA No.388/PUN/2012 and 1269/PUN/2010 dated 30.05.2012, for A.Y.2005-06. 4.5. I have considered carefully the facts of the case and submissions of the appellant on the issue. As the issue has been decided in favour of the appellant by the jurisdictional High Court and the jurisdictional ITAT, the addition made by the AO is deleted.”

From the above, it is a settled legal proposition that the difference

between the sales tax liability and the net present value of the liability is not

liable to be treated as remission/cessation of a liability. Therefore, considering

the above settled position of the law, we are of the opinion that the order of

CIT(A) is fair and reasonable and it does not call for any interference.

Accordingly, ground raised by the Revenue is dismissed.

dismissed.

ITA No.2162/PUN/2016 A.Y. 2008-09

13.09.2008 declaring total income at Rs.3,06,36,920/-. During assessment

proceedings u/s.143(3) of the Act the Assessing Officer determined the total

income of assessee at Rs.4,19,30,573/-. At the end of the reassessment

proceedings u/s.143(3) r.w.s 147 of the Act, Assessing Officer assessed total

income of assessee at Rs.3,90,43,240/- and made addition of Rs.53,44,987/-.

6 ITA Nos.2161 & 2162 /PUN/2016 A.Ys.2007-08 & 2008-09

Order pronounced on 2nd day of November, 2018.

Sd/- Sd/- (सुषमा चावला / Sushma Chowla ) (डी.क�णाकरा राव/D. Karunakara Rao) �या�यक सद�य /JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे / Pune; �दनांक / Dated : 2nd November, 2018. SB आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to :

अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(Appeals)-6, Pune. 4. The Pr. CIT-5, Pune. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “ए” ब�च, 5. पुणे / DR, ITAT, “A” Bench, Pune. गाड� फ़ाइल / Guard File. 6.

// True Copy // आदेशानुसार / BY ORDER,

�नजी स�चव /Private Secretary आयकर अपील�य अ�धकरण, पुणे / ITAT, Pune.