PHOENIX CONVERYOR BELT INDIA PRIVATE LIMITED (FORMERLY KNOWN AS PHOENIX YULE LIMITED ),KOLKATA vs. ACIT CIR - 11,KOLKATA., KOLKATA

Phoenix Conveyor Belt India Private Limited…………………………………………………..……..Appellant (Formerly known as Phoenix Yule Limited) Ideal Plaza, 4th Floor 11/1, Sarat Bose Road Kolkata – 700020 [PAN : AABCP 5595] Additional Commissioner of Income Tax, Circle - 11……………………………………..Respondent Additional Commissioner of Income Tax, Circle - 11 Kolkata Appearances by: Shri J.P. Khaitan, AR, appeared on behalf of the assessee. Shri P.B. Pramanik, Additional, CIT, Sr. DR, appearing on behalf of the Revenue. Date of concluding the hearing : August 07, 2017 Date of pronouncing the order : October 18, 2017 O R D E R Per J. Sudhakar Reddy :-

This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals)-XXIV, (hereinafter the ‘ld. CIT(A)’), passed u/s 250 of the , dt. 19/10/2012, for the Assessment Year 2003-04, on the following grounds:- “1. That on the facts and in the circumstances of the case and in law, the learned CIT (Appeals) erred in concurring with action of Assessing Officer in not allowing deduction of Rs.56,71,610/- on account of sales tax refundable.

Assessment Year: 2003-04 Phoenix Conveyor Belt India Private Limited 2. That on the facts and in the circumstances of the case, the learned CIT(Appeals) erred in allowing deduction of entire donation claimed by the appellant under section 80G of the Act. 3. That the appellant craves leave to add to and/or amend, alter, modify or rescind any of the grounds hereinabove before or at the time of hearing of the appeal.”

In the computation of income for the assessment year 2003-04, from the profit as per profit and loss account of Rs.4,90,41,579/-, the assessee sought to deduct the said sum of Rs.51,71,610/- on account of pending refund claim. However, by mistake, instead of Rs.5171,610/-, the amount was typed as Rs.56,71,610/- (computation at page 59 of the Paper Book). In course of the assessment proceedings, the assessee clarified the mistake by its letter date November 23, 2005 to the Assessing Officer vide paragraph 7 (page 56 and 57 of the Paper Book).

2. The Assessing Officer at page 2 of his order discussed and disallowed the sum of Rs.5,00,000/-. However, he started his Assessment Year: 2003-04 Phoenix Conveyor Belt India Private Limited computation not with the income as per the assessee's computation (which was Rs.3,88,72,979/-) but with the profit as per profit and loss account of Rs.4,90,41,579/- (Page 4 of the assessment order). If the Assessing Officer had started with the assessee's figure of Rs.3,88,72,979/-, addition of Rs.5,00,000/- would have been in order. However, the Assessing Officer added the said sum of Rs.5,00,000/- to the profit as per profit and loss account.

4. The subsequent facts are that during the previous year relevant to the assessment year 2007-08, the assessee received an order passed by the sales tax authority denying remission in respect of, inter alia, the said sum of Rs.51,71,610/-. As such, the assessee debited the said amount to its profit and loss account for the said previous year. Without prejudice to its claim that the said amount of Rs.51,71,610/- was required to be excluded from income for the assessment year 2003-04, the assessee claimed deduction of the said amount for the assessment year 2007-08. The Assessing Officer by his order under section 143(3) dated December 23, 2010 Assessment Year: 2003-04 Phoenix Conveyor Belt India Private Limited for the assessment year 2007-08 declined to allow the deduction noting that the assessee had claimed deduction for the assessment year 2003-04 and its appeal in that regard was pending before the Commissioner of Income Tax (Appeals) (paragraph 3 of the assessment order). On further appeal, the Commissioner of Income Tax (Appeals) by his order dated October 17, 2014 allowed the deduction, observing that it would be a case of double disallowance if the amount was also disallowed in the assessment year 2007-08 (paragraph5 .1.3 of the order at page 11). Copies of the said order dated December 23, 2010 and October 17, 2014 for the assessment year 2007-08 are annexed hereto and collectively marked "A". 5.1 It would be apparent from the aforesaid that the sum ofRs.56,71,610/- comprises of two amounts viz. Rs.51,71,610/- on account of sales tax refund claim and Rs.5,00,000/- on account of typographical error in the assessee's computation of Income. 5.2 In so far as Rs.5,00,000/- is concerned, the assessee is clearly entitled to deletion of the addition made in the assessment. This is because the mistake with regard to the amount was in the assessee's computation where the amount sought to be deducted was wrongly typed as Rs.56,71,610/-. The Assessing Officer having started his computation with the profit as per profit and loss account, there was no occasion to add to it the sum of Rs.5,00,000/- on account of the mistake in the assessee's computation. 5.3 In so far as sum of Rs.51,71,610/- is concerned, the assessee is also entitled to deduction of the said amount for the assessment Assessment Year: 2003-04 Phoenix Conveyor Belt India Private Limited year 2003-04. During the previous year ended March 31, 2003 all that had happened was that the assessee had made a refund claim. Clearly, the claim had not been verified or allowed and in fact was rejected in a subsequent year. Even under the mercantile system, a claim for refund in respect of a tax incentive does not give rise to any income till it is quantified and verified. This was the precise question before the Hon'ble Punjab & Haryana High Court in CIT v Sriyansh Knitters (P) Ltd., (2011) 336 ITR 235 (P&H). Question No.1 for consideration of the Hon'ble High Court in the said case was as follows:- "(i) Whether on the facts and in the circumstances of the case, the ITAT was justified in law in holding that the duty draw back accrues in the year in which rate is fixed by the competent authority, after verification of the claim of the assessee to be in order and the amount is quantified and not in the year of export even if the assessee keeps its account on mercantile basis? The Hon'ble High Court was pleased to observe as follows in respect of the said question:- “As regards question (i), view taken by the Tribunal cannot be held to be erroneous. The Tribunal, after examining the scheme for export incentive, found that before quantification based on verification, no income could be held to have accrued to the assessee. There is nothing to dispute this factual aspect. In such a situation, the Tribunal rightly held that no income accrued till claim of the assessee was quantified and verified. We, thus, do not find it necessary to Assessment Year: 2003-04 Phoenix Conveyor Belt India Private Limited give direction to the Tribunal to refer the said question for opinion of this Court."

5.4 In CIT v Thirumalaiswamy Naidu & Sons (supra), refund had actually been received and it was held by the Hon'ble Supreme Court that it was taxable as a revenue receipt in terms of section 41(1) of the Income Tax Act, 1961. In the instant case, there was merely a refund claim which was also subsequently rejected. The said judgment of the Hon'ble Supreme Court has no application in the facts and circumstances of the instant case. 5.5 In the event the Hon'ble Tribunal is pleased to accept the assessee's claim for deduction of the said sum of Rs.51,71,610/- for the assessment year 2003-04, a direction may kindly be given to disallow the deduction allowed by the Commissioner of Income Tax (Appeals) for the assessment year 2007-08.

3. The ld. CIT(A), rejected the claim of the assessee by holding as follows:- “3.3 I have carefully considered the observation of the Assessing Officer in the assessment order and also gone through the submission of the Ld. A/R. During the year, the appellant has credited the sales tax refund of Rs.51,71,610/- and reduced the sum of Rs.56,71,610/- from the total income in the computation of income on account of sales tax refund. While determining the total income, the A.O. has added back the difference of Rs.5,00,000/- to its total income and did not allow the claim for deduction of Rs.51,71,610/- on account of sales tax refund. In the case of CIT Vs. Thirurnalaiswamy Naidu & Sons [1998] 230 ITR 534(SC), the Hon'ble Supreme Court has held that the sales tax refund is a receipt on revenue account and has to be assessed as such. In the present case, the appellant company has credited the sales tax refund of Rs.51,71,610/- in its P&L A/c during the F.Y. 2002-03 on accrual basis. The appellant company is consistently following the mercantile system of accounting. As discussed above in para 3.2.1, the auditors have observed that the sales tax refund of Rs.51,71,610/- has already accrued to the appellant company in respect to the Sales Tax remission granted in its case. In view of it, I hold that the A.O. has correctly assessed the sales tax refund of Rs.51,71,610/- on accrual basis during A.Y. 2003-04 and the Assessment Year: 2003-04 Phoenix Conveyor Belt India Private Limited appellant company is not eligible for the reduction of Rs.51,71,610/- on account of sales tax refund from its total income as it is following mercantile system of accounting. This ground of appeal is dismissed.