VIDHYA PHARMA CHEM P.LTD,MUMBAI vs. CIT (A) -8, MUMBAI

आदेश / O R D E R Per Sandeep Gosain, J. M.: The Present Appeal has been filed by the Assessee against the order of Commissioner of Income Tax (Appeals)-8, Mumbai, dated 20.10.2014 for A.Y. 2010-11 on the grounds of appeal mentioned hereinbelow.

(A.Y. 2010-11) Vidhya Pharma Chem Pvt. Ltd. vs. ACIT 2. The learned Commissioner Of Appeals-8 completely ignored to take in to account facts of the case of CIT v/s Excel Industries Ltd (Supreme Court) ITR-358 (Part-2) - Page 295 3. Without prejudice to aforesaid the learned Comm. Of Appeals did not consider above case in his order in spite of submission made vide letter dated 01/05/2014.

4. The appellant pleads your honors to give relief and it is prayed that order of ld. Commissioner Of Income Tax Appeal-8, Mumbai be quashed and additions of Rs.11,09,321/- be deleted.

(A.Y. 2010-11) Vidhya Pharma Chem Pvt. Ltd. vs. ACIT 3. Aggrieved by the order of the AO, assessee preferred an appeal before CIT(A) and the CIT(A) after considering the case of the assessee dismissed the appeal of the Assessee.

5. Ground Nos. 1 to 4 are interconnected and relates to addition made by Revenue Authority under DEPB entitlements amounting to Rs.11,09,321/-, therefore, we have decided to dispose of the same through the present common order.

(A.Y. 2010-11) Vidhya Pharma Chem Pvt. Ltd. vs. ACIT 7. Learned AR in order to strengthen his arguments submitted that the reason for accounting DEPB on cash basis is that premium on DEPB fluctuates by 5% to 10% in the market as per demand/supply gap. The seller may get higher amount on actual sell/realization depending upon market conditions on that date. Since, the assessee waits for a favourable market condition and sells DEPB in the market when premium are comparatively high, therefore, assessee accounts for the same on actual money realization basis.

“2.3 I have considered the facts of the case, order passed by the AO and the submission made by the appellant. It is seen that the appellant follows the mercantile system of accounting. Therefore, the income out of transfer DEPB by way of sale or otherwise has to be offered as income for the year under the mercantile system of accounting followed by the appellant, which the appellant has failed to do. Further, as per the provisions of Section 28(iiid) of the Act, the sale / transfer of DEPB is a taxable business receipt and as and when the appellant is entitled for the same. The appellant's stand that the same is offered for tax on cash basis in next assessment year is not acceptable as the appellant follows mercantile system of (A.Y. 2010-11) Vidhya Pharma Chem Pvt. Ltd. vs. ACIT accounting and, therefore, DEPB entitlement is required to the credited in the P & L A/c. as income for the year under consideration on accrual basis, which the appellant has failed to offer. Therefore, the action of the AO in taxing the DEPB amounting to Rs.11,09,321/- for the year is justified. Accordingly, the ground of appeal is dismissed.”

10. We have analyzed the orders passed by CIT(A) and we have also considered the latest judgment relied upon by learned AR of Hon’ble Apex Court in the case of CIT Vs. M/s. Excel Industries Ltd., reported in 358 ITR 295. The operative portion of the same is reproduced below.

“32. Thirdly, the real question concerning us is the year in which the assessee is required to pay tax. There is no dispute that in the subsequent accounting year, the assessee did make imports and did derive benefits under the advance licence and the duty entitlement pass book and paid tax thereon. Therefore, it is not as if the Revenue has been deprived of any tax. We are told that the rate of tax remained the same in the present assessment year as well as in the subsequent assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers.”

Shoorji Vallabhdas and Co., 46 ITR 144 (SC) has held as follows:

“Income Tax is a levy on income. No doubt, the Income Tax Act takes into account two points of time at which the liability to tax is attract, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in book-keeping, an entry is made about a ‘hypothetical income’, which does not materialize. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account.”

After considering the principles laid down by Hon’ble Supreme Court we have observed that since in the present case, the assessee had been following the said procedure consistently and has already offered the income for tax in the year of receipt from the sale of DEPB license.

Considering the facts of the present case and the fact that system of accounting of DEPB entitlements on cash/ realization basis has been consistently followed year after year by the assessee in past also and more so since the DEPB entitlements receipt during financial year 2009-10 relevant to A.Y. 2010-11 are already accounted and offered for taxation in (A.Y. 2010-11) Vidhya Pharma Chem Pvt. Ltd. vs. ACIT the next financial year 2010-11 relevant year 2011-12 on realization basis, therefore after taking into consideration the decision of Hon’ble Supreme Court in the case of CIT Vs. M/s. Excel Industries Ltd., (supra), we hold that the assessee is entitled for DEPB credit in the year under consideration and therefore the additions made by the AO are hereby deleted. The AO is directed to re-compute the income in the terms of aforementioned decision. Therefore, these grounds raised by the Assessee are allowed.