2012 (9) TMI 1082 - AT - Income Tax

State Corporation Wins Special Privilege Fee Appeal, Penalty Dismissed, Stock Valuation Remitted

M/s. Tamil Nadu State Marketing Corporation Versus The Assistant Commissioner of Income Tax, Company Circle – III (1), Chennai and Vice-Versa

The tribunal ruled in favor of the state-owned corporation, allowing the special privilege fee at Rs. 57.72 per litre based on a retrospective Government ... Special privilege fee - Held that:- We hold that all these were instances where an assessee could not make even a provision during the relevant previous year due to lack of knowledge or awareness of liability even at the time of finalization of accounts and therefore forced to claim the same in the subsequent year. The dictum regarding accrual of liability referable to earlier years as held by various Hon’ble Courts cannot be applied where the circumstances are exactly to the contrary. In our view, the case law of judicial pronouncements and precedents cannot be relied upon when facts and circumstances of the case in hand lead to a different conclusion. As in the instant case, the assessee has chosen to make a provision in its P&L Account and claim the expenses in the same year itself. This in our opinion, is in consonance with the fundamentals of ‘real income’ for the purpose of taxation. Variance adopted in the method of valuation of the stock was based on the opinion as obtained from the Expert Advisory Committee of the Institute of Chartered Accountant of India - Held that:- Admittedly, the assessee’s submission is that it collects only those bottles which are left empty in front of liquor shops, which has not been controverted by the Revenue. So, there is no cost of acquisition as the same is not assessee’s property. Faced with this situation the ICAI advised it not to value the closing stock in the absence of acquisition as the principle of valuing the closing stock as market value, whichever is lower. So, the closing stock was not valued. Hence, on legality, we agree with the assessee. At the same time, we find from both Assessing Officer and CIT(Appeals)’s orders that there is neither any evidence referred qua proper verification of stock nor any findings of facts to this effect have been recorded. Faced with this situation, we remit the matter back to Assessing Officer to verify the factual position enumerated above after hearing the assessee in accordance with law. - Decided in favour of Revenue for statistical purpose. Issues Involved:1. Special Privilege Fee Rate Dispute2. Change in Valuation of Closing Stock of Empty Bottles3. Penalty Proceedings under Section 271(1)(c) of the Income Tax ActIssue No. (i): Special Privilege Fee Rate DisputeThe core issue is whether the CIT(A) erred in adopting the special privilege fee at Rs. 53.23 per litre instead of Rs. 57.72 per litre as claimed by the assessee, or Rs. 46.35 per litre as determined by the Assessing Officer (AO). The assessee, a state-owned corporation, argued that the special privilege fee should be Rs. 57.72 per litre based on a retrospective Government Order (GO) dated 20.07.2007, effective from 01.04.2006. The AO, however, considered the fee as Rs. 46.35 per litre until 25.10.2006 and Rs. 53.23 per litre thereafter. The CIT(A) upheld the AO's decision but applied a uniform rate of Rs. 53.23 per litre for the entire year.The tribunal examined the nature of the liability, concluding it was quasi-statutory, not purely statutory or contractual. The tribunal found that the GO dated 20.07.2007 was valid and had been placed before the Tamil Nadu Legislative Assembly. It ruled that the retrospective amendment justified the provision made by the assessee in its accounts. The tribunal emphasized the rule of consistency, noting that similar provisions had been allowed in previous years. Thus, the tribunal decided in favor of the assessee, allowing the special privilege fee at Rs. 57.72 per litre.Issue No. (ii): Change in Valuation of Closing Stock of Empty BottlesThe AO had added Rs. 1,51,71,695 to the assessee's income, arguing that the valuation of closing stock of empty bottles at Rs. 1.00 was inconsistent with the previous year's valuation. The CIT(A) deleted this addition, citing the assessee's reliance on an opinion from the Expert Advisory Committee of the Institute of Chartered Accountants of India (ICAI).The tribunal noted that the assessee collected empty bottles left in front of liquor shops, which had no acquisition cost. The tribunal agreed with the ICAI's advice that the closing stock should not be valued in the absence of acquisition costs. However, it found that there was no proper verification of the stock by the AO or CIT(A). Consequently, the tribunal remitted the matter back to the AO for verification and fresh assessment.Penalty Proceedings under Section 271(1)(c) of the Income Tax ActThe penalty proceedings were initiated following the AO's disallowance of the special privilege fee. The CIT(A) directed the AO to levy the minimum penalty. However, since the tribunal allowed the assessee's appeal regarding the special privilege fee, it also allowed the assessee's appeal against the penalty and dismissed the Revenue's appeal.Conclusion1. The tribunal allowed the assessee's appeal regarding the special privilege fee, setting the rate at Rs. 57.72 per litre.2. The tribunal remitted the issue of the valuation of closing stock of empty bottles back to the AO for verification.3. The tribunal allowed the assessee's appeal against the penalty and dismissed the Revenue's appeal.