ACIT, CHANDIGARH vs. M/S PUNJAB STATE CIVIL SUPPLY CORP. LTD., CHANDIGARH

Per Sanjay Garg, Judicial Member:

The present appeal has been preferred by the Revenue against the order of the Commissioner of Income Tax (Appeals), Chandigarh [hereinafter referred to as CIT(A)]-2, Chandigarh dated 15.11.2016.

iv) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing appeal of the assessee without appreciating the facts of the case.

v) On the facts and circumstances of the case and in law, the Ld. C1T(A) has erred in deleting the disallowance of Rs. 17,47,28,740/- made for non-making of provision of

interest on outstanding amount of Rs. 39,30,00,000/-- receivable from State Govt.

vi) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of Rs.52,60,76,680/- made for non-making of provision of interest on outstanding amount of Rs. 3,97,94,00,000/- receivable from FCI.

vii.) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of Rs.6,76,49,000/- on account of prior period expenses which the assessee had claimed that the same had been set off against prior period income when the assessee has been following mercantile system of accounting without appreciating how the prior period income was accounted for in the particular assessment year under mercantile system of accounting and without verifying as to whether the said expenses were set-off against the income derived during the relevant assessment year only.

v) It is prayed that the order of Ld. CIT(A) be set aside and that of the Assessing officer may be restored.

attention to ground Nos. 2 & 3 [numbered as (v) and (vi)] and has stated

that the issue involved therein is relating to the interest disallowance on

notional basis on the amount receivable by the assessee from State

Government as well as from FCI. The Assessing officer noticed that the

assessee was following mercantile system of accounting and that the

interest paid by the assessee has been accounted for on mercantile basis

and, therefore, assessee was supposed to charge / make provision of

interest on the amount recoverable from the state government & FCI. The

Ld. Counsel has submitted that the issue is squarely covered by the

decision of the Tribunal in earlier assessment years. He invited out

attention to para 6.1 of the impugned order and stated that Ld. CIT(A) has

followed the decision of the Tribunal dated 20.9.2013 passed in ITA Nos

208 & 209/Chd./2013.

Assessing officer.

wherein, the Tribunal while deleting the identical additions in earlier years

has further relied upon the decision of the Tribunal for assessment year

2007-08 in ITA No. 1183/Chd.2011. We have also perused the order of the

Tribunal dated 11.5.2012 in ITA No.1183/Chd/2011 (supra) wherein the

Tribunal while deleting the addition in para 8, 9 & 10 has observed as

under:

“8. After hearing the Ld. representatives of both the parties, we find that both the issues raised vide ground Nos.1 & 2 of the appeal are covered in favour of the assessee and against the Revenue by the decision of this Bench of the Tribunal dated 30.6.2010 passed in assessee’s case in ITA No. 875/Chd/2009 relating to assessment year 2006-07. In that year, a sum of Rs. 1,71,20,58,413/- was outstanding from the Punjab Government whereas Rs. 6,25,87,18,142/- was recoverable from FCI. The Assessing Officer disallowed notional interest amounting to Rs. 11,98,43,089/- and Rs. 43,53,42,284/- on account of said interest-free outstandings / recoverables from Punjab Govt. and FCI respectively. On appeal, the CIT(A) opined that the amounts recoverable were trade debits and therefore, the action of the Assessing Officer was set aside and the additions made were deleted.

“22. We have considered the rival submissions carefully. The assessee before us is a Co- operative Society, which is an agency of the State Government for procurement of wheat and paddy. It also undertakes such activities for FCI. In the course of carrying on of such activities, it incurred amounts which were recoverable from the State Government and FCI. Quite clearly, such recoveries are on account of trading activities carried out by the assessee. Therefore, the amount outstanding for recovery at the end of the year on account of such activities cannot be equated to interest-free advances so as to require the same to be decided in terms of Section 36(1)(iii) of the Act. In this regard, the CIT(Appeals) has categorically held that the Punjab Government and FCI are trade debtors and incomes thereof have been offered for taxation in the earlier assessment years. In the face of such a fact situation, we find no justification for the Assessing Officer to make any disallowance out of interest expenditure claimed by the assessee on account of impugned debits. Hence, in this background, we hereby affirm the order of the CIT(Appeals). Thus, Ground Nos. 3 & 4 raised are dismissed.”

decision of the Tribunal, hence, respectfully following the same, the issue

raised vide ground Nos. 2 & 3 is decided against the Revenue.

No. (vii) reveals that the same is relating to prior period expense. The Ld.

Counsel for the assessee has stated that issue has been squarely covered

by the decision of the Tribunal in the case of Winsome Yarns Ltd ITA

No.541/P./2009-10 dated 15.11.2010. The Ld. CIT(A) while deciding this

issue has followed the order of the Tribunal in aforesaid case. We find that

Ld. CIT(A) while deciding the issue in favour of the assessee has observed

as under:-

“8.3.1 The additional evidence filed by the assessee are admitted in the interest of natural justice. The remand report of A.O was given to the appellant for making submission. The submission of the appellant, remand report and the assessment order have been carefully considered. The appellant has placed reliance on the decision of Hon'ble ITAT, Chandigarh Bench in the case of Winsome Yarns Ltd. appeal No. 541/P/09-10 date of order 15.11.2010. Appellant filed copy of the order which has been perused by me. The similar issue was considered and decided by Hon'ble Tribunal Chandigarh Bench in the above order as under:-

“11. I have carefully considered rival contentions and material on record. I find that the Assessing Officer disallowed prior period expenses amounting to Rs. 10,70,480/- as the same were set off against prior period income of Rs. 10,70,480/- simply stating that following mercantile system of accounting, the assessee should have claimed expenses in the relevant Assessment Year. In my view, the Assessing Officer failed to given reason why prior period income could not be set off against the expenses, while on the other hand the Assessing Officer has not only given enough reason but has relied on various judicial decisions wherein prior period income was allowed to be set off against prior period expenses.

The pertinent observation of the decision of Delhi Bench of the Tribunal in the case of Modi Industries Ltd. in ITA No. 2245/Del/2007 is extracted below:- "7. We have considered the rival submissions and perused the material on record and gone through the orders of the authorities below. We find that as per the details furnished by the assessee on page 19 of the paper book, in the present year, the assessee has claimed deduction on account of prior period expenses of Rs, 15.38 lacs and at the same time, the assessee has offered previous year income to the extent of Rs. 18.78 lakhs. This shows that income offered on account of previous year is more than the claim of the assessee relating to previous year expenses, if the previous year expenses are not allowable in the present year then on the same logic, previous year income is also not assessable in the present year and both of them should be considered in the relevant year. Since, the Assessing Officer has already assessed previous year income in the present year, we find no reason to disallow the claim of the assessee regarding previous year expenses since these expenses are lesser than such incomes, but the same time, this has to be seen as to whether such previous year expenses are otherwise allowable or not because we have noted that some of the expenses are on account of penalty and some of the expenses are infrastructure expenses which may not be found otherwise allowable. We, therefore, set aside the order of the Commissioner of Income Tax (appeals) on the issue and restore this matter back to the file of the Assessing Officer for fresh decision. The Assessing Officer should examine the nature of these expenses and the same should be allowed if it is found that these expenses are otherwise allowable. This ground of the assessee is allowed for statistical purpose.” (emphasis Supplied) 12 In view of the above decision, the addition on this ground is deleted, allowing assessee's appeal." 8.3.2 The facts in the case of the assessee are identical to the facts in the case of the decision referred above. During the year the assessing officer has assessed the prior period income of Rs. 974.74 lacs and, therefore, the prior period expenses of Rs.

676.49 are also allowable by respectfully following the decision of Hon'ble ITAT, Chandigarh Bench in the case of M/s Winsome Yarns Ltd. as these expenses are normal business expenses which are otherwise allowable. Therefore, A.O is directed to allow prior period expenses of Rs. 676.49 lacs against the prior period income of Rs. 974.74 lacs. Ground of appeal No. 4 is allowed.” 7. The perusal of the above order reveals that Ld. CIT(A) while

deciding this issue has followed the decision of the Tribunal. The Ld. DR

could not point out any distinguishing facts to justify our interference in

the above order of the CIT(A). This issue is also accordingly decided

against the Revenue.

general in nature and do not require any adjudication.

of the Revenue and the same is accordingly dismissed.

Order pronounced in the Open Court on 22.03.2018.

Sd/- Sd/- (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 22.03.2018 Rkk Copy to: 1. The Appellant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR