ASIAN PAINTS LTD,MUMBAI vs. DCIT LTU, MUMBAI

3. Before we proceed to adjudicate the specific Ground raised, a brief background is as follows. The captioned assessee had filed its return of income for assessment year 2006-07 on 29/11/2006 declaring an income of Rs.339,80,61,968/-, which was subject to a scrutiny assessment. Such assessment was completed under section 143(3) r.w.s. 144C of the Act. in conformity with the directions of the Dispute Resolution Pannel (DRP) whereby the total income was assessed at Rs.352,52,79,045/-. The said assessment was carried in appeal before the Tribunal, which vide its order dated 29/10/2013 remanded some of the issues back to the DRP for adjudication afresh on merits. As a consequence of such direction, the DRP has passed the impugned order dated 20/03/2015 on the basis of which the 3 & 780/Mum/2014 (Assessment Year 2009-10) Assessing Officer has finalized an assessment dated 06/04/2015 under section 143(3) r.w.s. 254 and 144C(13) of the Act, whereby the total income has been assessed at Rs.343,33,07,550/-. Not being satisfied with the order of the Assessing Officer, assessee is in appeal before us.

4 & 780/Mum/2014 (Assessment Year 2009-10) credited such amount to the P&L account, but at the time of filing of income- tax return, assessee reduced it from its taxable income on the ground that the same shall be offered for tax in the year of actual finalization of claim of refund by the statutory authorities.

4.1 The income tax authorities on the other hand, have rejected the plea of the assessee for reduction of taxable income by the aforesaid amount of Rs.2,07,80,623/- on the ground that once credit for the refund has already been taken by the assessee and reflected in the P&L account, the same cannot be reduced in the computation of total income. Against such stand of the lower authorities, assessee is in appeal before us.

4.2 Before us, the Ld. Representative for the assessee pointed out chronology of events in this context, which are appearing in the tabulation reproduced in the order of the DRP at page – 9, whereby it is pointed out that it is only in the financial year 2013-14 that assessee had received a refund of Rs.18,76,561/- and, therefore, the same was liable to be offered for tax in assessment year 2014-15. It was sought to be pointed out that the issue relating to the assessee’s claim for refund of entry tax had not achieved finality in the assessment year under consideration and, therefore, unilateral act of the assessee by crediting the impugned amount in its P&L account would not result in accrual of income for the purposes of taxation. It is sought to be pointed out that the entries in the books of account are not determinative of the nature of the transaction and in the present case the impugned income credited by way of entry tax refundable is merely a hypothetical income since the concerned statutory authority has not held the assessee entitled for the refund. Even in the context of section 41(1) of the Act invoked by the lower authorities, the Ld. Representative for the assessee pointed out that unilateral

5 & 780/Mum/2014 (Assessment Year 2009-10) act of the assessee in crediting such amount to the P&L account cannot be construed as a remission or cessation of liability so as to be taxed under section 41(1) of the Act.

4.3 On the other hand, Ld. Departmental Representative has defended the action of the lower authorities by pointing out that it is the assessee who had credited the impugned sum in the P&L account and that even the Auditors have not qualified the Annual Accounts to say that such sum is not in the nature of income.

4.4 We have carefully considered the rival submissions. The factual matrix in the instant case has already been noted by us in the earlier paras and the only issue arising for our consideration is as to whether the amount of Rs.2,07,80,623/- lying credited in the P&L account is liable to be assessed as income or not. It is a well settled proposition, which does not need much elaboration, that the levy of income tax is on real income. Whether the income is taxed on accrual basis or on a receipt basis, the substance of the matter is the income which is to be taxed. In fact, if in a given case, it can be shown that there does not arise any income at all, such an event would be outside the purview of taxation. In other words, what is of importance is to see, whether in a given case what is being brought to the tax is real income or not. The Hon'ble Supreme Court has emphasized on taxing of real income in various judgments viz. in the case of CIT vs. Shoorji Vallabhdas & Co, 46 ITR 144(SC) and in the case of Godhra Electricity Co. Ltd. vs. CIT, 225 ITR 746(SC). Therefore, even if, entry of income is made in the books of account maintained by the assessee , yet if it does not result in any income at all, the same cannot be taxed as it would amount to taxing a hypothetical income. The Hon'ble Supreme Court in the case of Godhra Electricity Company Ltd. (supra) has held

6 & 780/Mum/2014 (Assessment Year 2009-10) that in such a situation it would amount to taxing an income which does not materialize, and is only a hypothetical income. Keeping the aforesaid principles in mind, we may now evaluate the facts in the present case.

4.5 In the instant case, it is not in dispute that in the preceding assessment year of 2005-06 assessee paid an entry tax of Rs.2,07,80,623/- though under protest and in the income tax assessment the said amount was claimed as deduction and allowed. In the assessment year under consideration assessee wrote back the said amount by crediting it in the P&L account on the ground that assessee is eligible for the refund as it would not be liable for levy of entry tax. This crediting of amount in the P&L account is based on assessee’s own perception and was not based on any order of the relevant statutory authorities. In fact, at the time of hearing, Ld. Representative for the assessee had contended that though in the financial year 2013-14 as a consequence of the order of Appellate Deputy Commissioner of the Commercial Tax Department of Government of Andhra Pradesh, assessee has received a refund of Rs. 18,76,561/- which was offered for tax in assessment year 2014-15, but the dispute is still pending for adjudication by the Sales tax Tribunal of Andhra Pradesh. A copy of appeal filed by the assessee to Sales Tax Appellate Tribunal, Andhra Pradesh has been furnished before us and it has been asserted that such appeal has yet not been determined. Be that as it may, in so far as the instant assessment year is concerned, there is no material to show that the claim of the assessee for refund of the entry tax was based on any statutory order. It is clearly a unilateral perception of the assessee and is a mere claim which has not been accepted by the relevant statutory authorities in the instant year. Therefore, under these circumstances, the crediting of amount in the P&L account itself would not be conclusive to say that the 7 & 780/Mum/2014 (Assessment Year 2009-10) corresponding income has accrued to the assessee, so as to be liable for taxation. Therefore, in our view, the action of the assessee by reducing its taxable income by a sum of Rs.18,76,561/- in its computation of income for the purposes of income tax return in the instant assessment year is quite justified. At the time of hearing, the Ld. Representative for the assessee had relied upon the judgment of the Hon’ble Punjab & Haryana High Court in the case of CIT v. Nuchem Ltd.,55 DTR 14 (PH), wherein in somewhat similar circumstances, the claim of the assessee has been upheld. In the case before the Hon’ble Punjab & Haryana High Court, assessee sought claim for refund of excise duty based on judgment of the Hon'ble Supreme Court in some other case and such amount was credited in the P&L account. The Hon’ble High Court upheld the decision of the Tribunal, which had deleted the said addition from the final assessment on the ground that assessee was not legally entitled to refund in its own case and taxing of such an income would amount to taxing of a hypothetical income. It was noted that assessee’s claim for refund of excise duty was never accepted and hence it could not be said that any income had accrued to the assessee. In our view, the ratio of the judgment of the Hon’ble Punjab & Haryana High Court is clearly attracted in the instant fact-situation also and we find no reason to uphold the stand of the Revenue. Before us, the Ld. CIT-DR has emphasized on the suo-moto action of the assessee in crediting the said sum in the P&L account. In our view, the said argument is bereft of any merit since what is required to be taxed is a real income not hypothetical income and merely because the same has been entered in the books of account.

4.6 In this view of the matter, we hereby allow the claim of the assessee.

8 & 780/Mum/2014 (Assessment Year 2009-10) 4.7 Before parting, we may also refer to an alternative plea of the assessee for reduction of the addition on account of amounts, which is otherwise been offered for tax in other assessment years. This aspect of the matter is rendered academic once we have held that the entire amount of Rs.2,07,80,623/- is not liable to be taxed in the instant year.

4.8 As a consequence of our aforesaid discussion, we hereby direct that the lower authorities have erred in invoking the provisions of section 40(1) of the Act to include a sum of Rs.2,07,80,623/- in the total income. We hold so. Thus, assessee succeeds on Grounds of appeal No.1.

6.1 The discussion in the order of the DRP reveals that the said claim of the assessee has not been entertained on the ground that in the original proceedings, such a claim was not raised and that the DRP was passing the impugned order only in terms of the matters remanded by the Tribunal vide its order dated 29/10/2013. Therefore, as per the DRP the said was a fresh plea, which was beyond its jurisdiction.

6.2 Before us, Ld. Representative for the assessee pointed out that though in the original proceedings such an issue was not raised but the factum of the assessee having earned such royalty income from its overseas subsidiary based

9 & 780/Mum/2014 (Assessment Year 2009-10) in Egypt is very much a part of record. In this context, our attention was also invited to page 294 of the Paper Book, wherein in the course of submissions to the Transfer Pricing Officer in the original assessment proceedings, the fact of the assessee earning royalty income from overseas subsidiary has been brought out. The Ld. Representative for the assessee pointed out that even in the order of the Transfer Pricing Officer dated 30/10/2009 passed under section 92CA(3) of the Act, the receipt of income by way of royalty has been noted as an international transaction. It was, therefore, contended that the plea of the assessee for the income being exempt in terms of Article -13 of the India-Egypt Double Taxation Avoidance Agreement, is a claim where the relevant facts are on record and it can be adjudicated appropriately. The Ld. Representative for the assessee relied upon the decision of the Hon’ble Kerala High Court in the case of 367 ITR 551 (Ker) to point out that even in a case where the matter was originally remanded back to decide on merits, the Hon’ble High Court held that the Tribunal could have considered additional Ground pertaining to the point of jurisdiction even in such remand proceedings. It was therefore, contended that since the aforesaid issue involves a point of law and the necessary facts being on record, the DRP ought to have admitted the claim for adjudication. In so far as the merits of the claim is concerned, the Ld. Representative for the assessee pointed out that in assessment year 2012-13 the Assessing Officer has himself accepted the claim of the assessee in an assessment finalized under section 143(3) r.w.s. 144C of the Act dated 25/4/2016, a copy of such order has been placed in the Paper Book at pages 368 to 371. The Ld. Representative for the assessee also referred to the order of the Tribunal for assessment year 2008-09 dated 20/11/2015 vide ITA No.7253/Mum/2012 & Others, wherein the said claim 6.3 On the other hand, Ld. Departmental Representative merely reiterated the stand of the DRP that such a claim was not a part of the matter remanded by the Tribunal and, therefore, DRP could not have admitted such a claim for adjudication.

6.4 We have carefully considered the rival submissions. Incidentally, the claim of the assessee seeking exclusion of Rs.1.42 crores with respect to the royalty earnings from its overseas subsidiary was neither made in the return of income and nor in the original assessment proceedings which had since travelled to the Tribunal; and, the matter was remanded back to the DRP by the Tribunal on certain points vide its order dated 29/10/2013(supra). The DRP found itself bound by the scope of the directions given by the Tribunal and, therefore, it did not entertain the aforesaid fresh claim. In our considered opinion, the DRP misdirected itself in not entertaining the aforesaid claim of the assessee for adjudication because there was no fetters put by the Tribunal on the DRP to the effect that the DRP was to hear no points other than those remanded by the Tribunal. The powers of the authorities to admit Additional Grounds of appeal involving fresh claims can be exercised under given circumstances. One such instance is of a claim which involves a point of law with necessary facts being on record. In such a situation, even if, the claim has not been made at an earlier stage, income-tax authorities are entitled to admit such a claim, an aspect which clearly emerges from the ratio of the judgments of the Hon'ble Supreme Court in the cases of National Thermal Power Company Ltd., 229 ITR 283(SC) and Jute Corporation of India vs. CIT, 187 ITR 688(SC). In any case, a fresh claim can be admitted by the Tribunal, which 11 & 780/Mum/2014 (Assessment Year 2009-10) we do so. As a consequence, we deem it fit and proper to admit the claim of the assessee and restore it to the file of the Assessing Officer for adjudication on merits. Needless to say, the Assessing Officer shall allow the assessee a reasonable opportunity of being heard and thereafter pass an order afresh on the aforesaid limited aspect as per law. Thus, for statistical purposes assessee succeeds on this aspect also.

Order pronounced in the open court on 11/01/2017