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Income Tax Appellate Tribunal, RANCHI BENCH, RANCHI
Before: SHRI GEORGE MATHAN, JM & SHRI RATNESH NANDAN SAHAY, AM
(निि ारण वर्ा / Assessment Year :2014-2015) M/s Jharkhand State Forest Vs. DCIT, Circle-1, Ranchi Development Corporation Ltd. H/O BMS Electricals, Near Hinoo Bridge, Hinoo, Ranchi, Jharkhand-834002 स्थायी लेखा सं./PAN No. : AABCJ 1402 H (अपीलार्थी /Appellant) (प्रत्यर्थी / Respondent) .. निर्ाारिती की ओर से /Assessee by : Shri J.P.Sharma, Advocate राजस्व की ओर से /Revenue by : Shri Rajib Jain, CIT-DR सुनवाई की तारीख / Date of Hearing : 08/10/2025 घोषणा की तारीख/Date of Pronouncement : 08/10/2025 आदेश / O R D E R Per Bench : has been filed by the revenue and ITA No.221/Ran/2018 is an appeal filed by the assessee against the order CO No.04/Ran/19 passed by the ld. CIT(A), Ranchi, dated 20.03.2018 for the assessment year 2014-2015. The assessee has also filed cross objection being CO No.04/Ran/2019 in revenue’s appeal being ITA No.200/Ran/2018. 2. First, we shall decide the appeal of the assessee in ITA No.221/Ran/2028, wherein following grounds have been raised :- In the matter of M/s Jharkhand State Forest Development Corporation Ltd.. H.N.-455/A, Ashok Nagar, Road No.-5, Ranchi-834002 Appeal before Hon'ble Income Tax Appellate Tribunal, Ranchi Bench, Ranchi Assessment Year: 2014-15 Appeal against the order passed u/s 250 by the C.I.T. (Appeals), Ranchi Grounds of Appeal:
1. For that Ld. C.I.T.(A) was not justified for not allowing "Expenses on repair of printer" for Rs.10,305/-. The expense was incidental to business and must be deleted.
2. For that the amount of collection of revenue which was to be transferred to State Government was not ascertained in quantum earlier. As a matter of fact in this F.Y. 2013-14 quantum was ascertained and a liability was created under the head "Prior Period Expenses". Thus disallowance of the same as expenses was illegal since the quantum payable to the State Government was not revenue expenditure in its nature.
3. For that addition of Rs.8,68,244/- claimed under the head "Prior Period Expenses" was ascertained during the year as payable to State Government out of revenue collected as such addition made is unjustified and illegal.
4. For that Ld. C.I.T.(A) was not justified for not allowing "Donation and Contribution" for Rs.15,000/-. The expense was incidental to business and must be deleted.
5. For that Ld. C.I.T.(A) was not justified to confirming the addition of interest amount of Rs.14,28,300/- u/s 56 under the head "Building Construction Fund" on the ground that this interest income was not credited in Profit and Loss account. The Ld. C.I.T.(A) totally overlooked the fact that same amount was debited in "Short term Deposit account" and also credited directly in to "Building Construction fund", which net impact will be zero. As this income was generated for earmarked fund as such the addition has no legs to stand and fit to be deleted.
6. For that Ld. C.I.T.(A) was not justified for not considering the mistake of double showing of interest income of Rs.7,05,25,624/-, which impact excess payment of taxes of Rs.1,06,95,610/-. The mistake was apparent on record and must be deleted.
For that interest u/s.234A and 234B is to be charged on returned income and not on assessed income following the decision of Hon’ble Jharkhand High Court. 8. For that other grounds in details will be argued at the time of hearing. 3. Ld.AR has also filed his written submissions on the issues as follows:- M/s Jharkhand State Forest Development Corporation Ltd. (PAN "AABCJ1402H"), H/o NEAR GATE NO.5, ASHOK NAGAR Ranchi- 834002. 1. Regarding disallowability of prior period expenses, donation of contribution, expenses on vehicle & hard disc, expenses on repair of printer As per assessment order u/s 143(3): Motor vehicle Expenses amounting to Rs.74642 had been incurred in respect of vehicle JH01AV5344 but the said vehicle did not appear in the books of account. On verification of accounts, it was found that there was a purchase of Rs.4900. But on physical verification hard disk was not found with the branch. During the verification it was found that an expense of Rs. 10305 was booked under the head repair and maintenance of printer. No such printer was found in the branch. Donation and contribution do not fulfill the criteria described in sec 30 to 37 of IT Act. Prior period expenses violate the matching principle of accounting. Hence, it was an addition made to the income. Serial No. Particulars Amount (in Rs.) 1 Expense in respect of vehicle JHO1AV- 74642 5344 2 Purchase of hard disk 4900 3 Expense on repair of printer 10305 4 Prior Period Expense 868244 5 Donation and contribution 15000 Total amount 973091 As per assessment order u/s 250: Expenses on vehicle JH01AV5344 for Rs.74,642.00 was incurred for the said purpose. It was stated that the said vehicle is not shown in CO No.04/Ran/19 books of Hazaribagh division but shown in the consolidated books of head office. Information was duly intimated to learned DCIT. Expense on hard disk for Rs.4,900 was not allowable since no such asset was found also appeared to be erroneous but when the bill of purchase was available it has to be presumed that the item was purchased. Hard disk is inserted in computer system and are no such items which would be available on the shelf. Hence, it is considered as revenue expenditure and therefore allowed as an expense. Ground of appeal
is partly allowed of Rs.79,542. Serial No. Particulars Amount (in Rs.)
1. Expense in respect of vehicle JHO1AV- 74642 5344
2. Purchase of hard disk 4900 Total amount 79542 Ground of appeal: The prior period expenses of Rs.868244 was dismissed. The prior period expenses mentioned in the order is for Rs.8,68,244 refers to: Serial No. Particulars Amount (in Rs.)
1. Gratuity Payment 8,52,331 In the Income-tax Act, after section 43A, the following section shall be inserted with effect from the 1st day of April, 1984, namely:-"43B. Certain deductions to be only on actual payment. Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under this Act in respect of (a) any sum payable by the assessee by way of tax or duty under any law for the time being in force, or (b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of employees, shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him Gratuity payments to employees are covered under Section 43B. The gratuity expense is only allowed as a deduction when it is actually paid to the employees or deposited in a gratuity fund. The amounts mentioned above were not identified in the previous year FY 2012-2013. The same were determined and paid in the FY 2013-2014. Hence it should be allowed as an expense in the AY 2014-15.
CO No.04/Ran/19 2. Regarding disallowance of Interest on building fund para (II) of Order As per assessment order u/s 143(3): The interest income transferred directly to Building Construction Fund should have been recognized as "income from other sources" u/s 56. As per assessment order u/s 250: Interest earned from parking the funds as being assessable to tax as a revenue receipt. Where the assessee is to be brought in to the net of taxation, it is for the revenue to prove that the receipt constitute income chargeable to tax. Once such burden is discharged, it is for the assessee to prove that such receipt is exempt from taxation. Therefore, in view of the above discussions, it is held that the 'interest income' is 'income from Other Sources and is therefore added back to the total income of the assessee and is added back as income. Ground of appeal:
Earmarked amount of 2. Crore was given by forest department for construction of building and interest accrued has to be earmarked for building construction only. "Accrued income refers to the income that a business or a person has generated through their regular activities but has not yet been collected or billed. It is shown as an asset on the balance sheet and follows the accrual accounting method that aligns revenues and expenses to the time when they happened." Diversion of Income is the process of diverting income before it is earned by the assessee. Such amount shall be excluded from the Total Income of the assessee as the income is diverted to someone else before being earned by the assessee. In case of diversion of Income there is an over- riding title of any other person on such income. So, the income before being earned by the assessee reaches such person and hence not chargeable to tax in hands of the assessee. The amount of Rs.2 crores was sanctioned from Department of Forest, Govt. of Jharkhand vide letter no. 4 budget-13/2010 dated 31.03.2011 in the FY 2010-2011. The interest earned on investments, made out of building fund, should not be considered as income of the organization as it is diversion of income and to be excluded from total income as Department of forest has an over- riding title on such income. The corporation is liable to return the unused fund along with the earned interest on total fund.
CO No.04/Ran/19 Interest will be taxable in the hands of the corporation if only, the Forest department waive its legal right over the fund and interest. Instances have occurred in other state undertakings, where Corporations were asked to return the fund along with the interest accrued on it, leading to double taxation.
Regarding undisclosed income u/s 69: local sales of firewood not routed through books As per assessment order u/s 143(3): During the course of audit, it was found that local sales of firewood amounted to Rs.1,17,385, but the same has not been entered in the books. The income is under reported to that extent. There appears a certain case of impropriety The assessee could not produce any adequate basis for the above claim. Consequently, the claim of assessee is held to be without adequate ground and is therefore, disallowed and added back to the total income of the assessee. As per assessment order u/s 250: The sales of local firewood of Rs.1,17,385 pointed out by Ld. DCIT from observation of audit report and above observation has been complied with and properly recorded in books of accounts and same was intimated to the auditor and some information was communicated to Ld. DCIT during the course of scrutiny. Further it was found on scrutiny assessment that the local sales of firewood of Rs.1,17,385 was shown as receipt under 'Divisional Manager Minor Forest Produce Project Dhalbhum Division, Jamshedpur as under 'Local sale Firewood Chakradharpur'. Since the amount has already been considered as a receipt, addition of this amount will be double addition. Hence it was held allowable by CIT. Ground of appeal:
The amount regarding the local sales of firewood of Rs.1,17,385 was shown as receipt under 'Divisional Manager Minor Forest Produce Project Dhalbhum Division, Jamshedpur' as under 'Local sale Firewood Chakradharpur'. Since the amount has already been considered as a receipt, addition of this amount will be double addition. Hence, it was already held allowable by CIT.
4. Regarding addition of Royalty of 9 crore As per assessment order u/s 143(3): The observations are summarized as below: (i) Royalty is not an admissible expense from AY 2014-15 u/s 4o(a)(iib)
CO No.04/Ran/19 (ii) In AY 2013-14, the assessee was not allowed to deduct royalty of Rs 9 Cr. since the same had been paid after due date of filing ITR. (iii) Under ordinary circumstances, this 'royalty' would have been allowable in the 'year of payment u/s 43B. Hence the dilemma & a paradox, since a new amended s. 40(a)(iib) also becomes operational from the AY 2014-15, in which assessee seeks to deduct 'royalty' pertaining to AY 2013-14 and paid in 2014-15. (iv) The extinguishment of 'royalty' cannot be allowed in AY 2014-15 in light of s.40 (a)(iib) (v) Since the above cannot be allowed, a paradox emerges- the vital infirmity & in the books of a/c of the assessee w.r.t double entry system of book keeping (vi) The assets must always equal liability. Concomitantly, there is a deficit by corresponding amount of Rs 9 Cr on the asset side of the B/S. (vii) The same is added back to the total income of the assessee u/s 69 In view of the discussions above, the reduction in liability in the Balance Sheet of the assessee is held as inadmissible. That assets must always equal liability, creates a paradox. There is a concomitant deficit by corresponding amount of Rs 9 Cr on the asset side of the B/S, due to the inherent infirmity in the books of the assessee. The same is thereby, added back to the total income of the assessee as undisclosed asset u/s 69. As per assessment order u/s 250: There is an outstanding liability of Rs.13,35,52,240 for payment of royalty to State Govt. under the head "long term liabilities" which was reduced to Rs.4,35,52,240 due to payment of Rs.9,00,00,000. The appellant was asked to produce documentary evidence for the payment u/s 43B. The royalty amount of Rs.9,00,00,000 was paid vide cheque no. 559880 dated 21.11.2013 of Rs.8,00,00,000 and cheque no.559881 dated 21.11.2013. Also, there was no finding that the same was paid out of undisclosed income and the double entry accounting system was satisfied. Hence it was held allowable by CIT. Ground of appeal: The royalty amount of Rs.9,00,00,000 was paid vide cheque no. 559880 dated 21.11.2013 of Rs.8,00,00,000 and cheque no.559881 dated 21.11.2013 of Rs.1,00,00,000. The documentary evidence of payment of royalty was presented of Rs.9 crores. Also, there was no CO No.04/Ran/19 finding that the same was paid out of undisclosed income and the double entry accounting system was satisfied. Hence it was held allowable by CIT. A.Y. OPENING ROYALTY PAID CLOSING CHARGED IN P&L 2012-13 9,35,51,600 10,00,00,000 6,00,00,000 13,35,52,240 2013-14 13,35,52,240 9,00,00,000 9,00,00,000 13,35,52,240 2014-15 13,35,52,240 - 9,00,00,000 4,35,52,240 5. Interest income As per assessment order u/s 143(3): We have submitted the request but the same was not entertained in the assessment order. As per assessment order u/s 250: The appellant had not filed any revised return for this claim. The Hon'ble SC in the case of Goetze (India) Ltd. v CIT (2006) 284 IT 323 has held that the appellant -assessee could make a claim for deduction other than by filing a revised return. Accordingly, the ground of appeal is dismissed. Ground of appeal: While filing income tax return for the assessment year 2014-15 we have declared income from Bank interest of Rs.5,11,36,989 twice, under the head income from business and profession and under the head income from other sources resulting in additional tax. We are not claiming any deduction. We are just claiming to rectify the mistake happened inadvertently which is clearly apparent in record. Following are the supporting documents made for your reference:
1. Documents for prior period expense (gratuity) 2. Building fund sanction document 3. Royalty payment challan 4. Financial Statements for the A.Y. 2014-2015 5. Audit Report for the A.Y. 2014-2015 6. Copy of 26AS for A.Y.2014-15 for payment made
4. It was the submission of the ld. AR that the first issue is in regard to prior period expenses and donation expenses of vehicle and hard disk and expenses of printer which has been disallowed by the AO and confirmed by the ld.CIT(A). It was the submission that the AO had held that vehicle CO No.04/Ran/19 was not shown in the books of accounts of the branch but had shown the books of account of the head office. It was the submission that in respect of hard disk, it was found that the same was not available for physical verification. It was the submission that the expenses booked in respect of repairs and maintenance of the printer was also questioned, insofar as the said printer was not found in the branch. The donations and the contributions were also disallowed on the ground that they did not relate to the business of the assessee. It was further submitted that prior period expenses was disallowed by applying matching principle of accounting. Ld. AR on behalf of the assessee submitted that all the details were available and the expenses have been incurred and the same were liable to be allowed.
In reply, ld. CIT-DR submitted that when the items itself were not there for claiming expenditure itself would not be allowed.
We have considered the rival submissions. As it is noticed that the AO has categorically given a finding that the hard disk and the printer was not there, vehicle was not recorded in the books of the branch and donations and contributions did not relate to the business of the assessee and in respect of prior peri8od expenses, there is no proof of the matching principle of accounting. We find that the assessee has not produced any evidence to substantiate its claim. It must be mentioned here that the ld CIT(A) has accepted the claim of the expenses in respect of the vehicle to the extent of Rs.79,542/-, insofar as the said vehicle was found in the books CO No.04/Ran/19 of head office. Consequently, the disallowance of Rs.79,542/- is not the issue in appeal before us.
In regard to the other issues, as the assessee has not been able to substantiate its claim, we are of the view that the order of the ld. CIT(A) on this issue is on right footing and does not call for any interference.
Coming to the next issue regarding the interest on the building fund, it was fairly agreed by both the sides that this issue is squarely covered by the decision of the coordinate bench of the Tribunal in assessee’s own case for A.Y.2013-2014 in ITA No.33/Ran/2018 of even date. Respectfully following the findings of the coordinate bench of the Tribunal in assessee’s own case for A.Y.2013-2014, referred to supra, the AO is directed to allow the said expenditure in the year of payment of the same. Consequently, this ground is partly allowed.
Coming to the issue of local sale of firewood, not routed through the books. We find that the ld. CIT(A) has already allowed this claim of the assessee holding that since the amount has already been considered as a receipt, therefore, the addition of the amount would lead to double addition. Accordingly, we uphold the findings of the ld. CIT(A) in this regard.
Coming to the issue of interest income, it was submitted by the ld. AR that by mistake when filing the return the assessee had treated the interest income twice. It was the submission that the AO did not accept the claim on the ground that the revised return had not been filed. Ld.AR drew our attention to page 64 of the paper book, which was the computation of taxable income which reads as follows :-
It was the submission that interest income of Rs.5,11,36,989/- had been included in the net profit computation and also under the head income from other sources. It was the submission that he had no objection if the AO may be directed to verify the same and if it is found that the same is a double addition, the same may be deleted.
In reply, ld. CIT-DR vehemently opposed the said prayer.
CO No.04/Ran/19 13. We have considered the rival submissions. It is an admitted fact that the assessed income can not go below the returned income. However, it is also an admitted fact that it is the true income which to be assessed in the hands of the assessee. If the assessee is able to prove the mistake then admittedly the income is liable to be assessed even it is to be go below the returned income. This being so, in view of the principle laid down by the Hon’ble Supreme Court in the case of Goetze (India) Ltd. v. CIT [2006] 157 Taxman 1/284 ITR 323 (SC), we restore this issue to the file of ld. AO for verification as to whether the interest income of Rs.5,11,36,989/- has already been offered in the computation of net profit as per the profit and loss account. If the assessee has shown the amount as part of the profit as per the profit and loss account then obviously it is an error, insofar as the assessee has offered the said income twice. The AO shall exclude the said amount from the profit and loss account, insofar as the interest income is liable to be assessed only under the head income from other sources. With this direction, this issue is restored to the file of ld.AO for verification and readjudication afresh after granting the assessee adequate opportunity of being heard. This issue is partly allowed for statistical purposes.
Now, coming to the appeal of the revenue in ITA No.200/Ran/2018 and the Cross Objection of the assessee being CO No.04/Ran/2019, it was fairly agreed by both the sides that the issue involved is squarely covered by the decision of coordinate bench of the Tribunal in respect of royalty while deciding revenue’s appeal for A.Y.2013-2014 passed in ITA No.33/Ran/2018 and cross objection of the assessee being CO CO No.04/Ran/19 No.03/Ran/2019, on even date. As it is noticed that the coordinate bench of the Tribunal in revenue’s appeal for A.Y.2013-2014 has already upheld the order of the ld. CIT(A) on this issue, therefore, on the identical finding, the present appeal of the revenue being ITA No.200/Ran/2018 and the Cross Objection No.04/Ran/2019 filed by the assessee stand dismissed. 15. In the result, appeal of the assessee in along with cross objection of the assessee in CO No.04/Ran/2019 both are dismissed. Order dictated and pronounced in the open court on 08/10/2025.