TaxTMI 
TaxTMI 
2012 (9) TMI 1082
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....e CIT(Appeals)'s order in accepting the Assessee's appeal partly qua 'special privilege fees'. The Revenue has also challenged CIT(A)'s order in deleting addition re-change in valuation of closing stock of bottles, which was made by the Assessing Officer. 3. As it appears from the respective grounds raised in the appeals, we frame the following issues for our adjudication :- i) Whether CIT(Appeals) has erred in adopting the expenditure towards 'special privilege fees' at a uniform rate of Rs. 53.23 per litre of IMFL instead of Rs. 57.72 per litre as claimed by the Assessee and that taken by Assessing Officer as Rs. 46.35 per litre as pleaded by both the parties before us in their respective appeals. If so, whether the CIT(Appeals)'s order to this effect is liable to be confirmed or modified per respective stand adopted by both parties (common ground in both appeals) ? ii) Whether the order of CIT(Appeals) in deleting addition made by Assessing Officer in respect of change in valuation of closing stock of empty bottles is liable to be upheld or not (the second substantive ground in Revenue's appeal)? ISSUE No.(i) : 4. Brief facts relevant to the first issue are....
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.... (a) to (o) x x x x x x x x x x x x (2-A). A rule or notification under this Act may be made or issued so as to have retrospective effect on and from a date not earlier than, - (i) The 1st September 1973, in so far a it relates to toddy; and (ii) The 1st September 1974, in so far as it relates to any liquor other than toddy; (iii) The 1st May 1981, in so far as it relates to the matters dealt with in sections 17-B, 17-C, 17-D, 17-E, 18-B and 18-C : a. Provided that a notification issued under sub section (1) of section 16 may have retrospective effect from a date not earlier than 1st November 1972: Provided further that the retrospective operation of any rule made or notification issued under this Act shall not render any person guilty of any offence in regard to the contravention of such rule or the breach of any of the conditions subject to which the exemption is notified in such notification when such contravention or breach occurred before the date on which the rule or notification is published, as the case may be. 3. All rules under this Act shall, as soon as possible after they are made, be placed on the table of the Legislative Assembly shall be subje....
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.... assessee, with retrospective effect. As per the paper book available before us, in Asst. Year 1987-88, the assessee had shown vend fee etc. payable to the State under the head 'outstanding expenses'. The A.O. in the said assessment proceedings invoked sec.43B of the "Act" and disallowed the assessee's claim in the shape of provision made qua the said expenditure. It appears that the said case came before the co-ordinate bench of ITAT, Madras which was decided on 31.12.1991 (reported as ITD Vol.42 Page 349 Tamil Nadu State Marketing Corporation v. DCIT), wherein whilst deciding issue of applicability of sec.43B of the Act vis-àvis the vend fee sought to be charged by the State under the Prohibition Act and Rules framed thereunder (supra), it had been observed herein below:- "27. We may now notice sections 17B, 17C and 17D of the Prohibition Act. Section 17B authorises the State Government, or subject to their control, the Collector, to issue, subject to conditions as may be prescribed, license to any person or any institution, whether under the management of Government or not, for manufacture of liquor for human consumption, or for the import, export or transport of liq....
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....rice or consideration charged by the State Government for parting with, in favour of the assessee-corporation, its exclusive rights and privilege of supply by wholesale Indian-made Foreign Spirits for the whole of the State of Tamil Nadu. 29. As we see it, the said Vend Fee and Addl. Vend Fee are nothing but the price or consideration charged by the State Government, in its capacity as a trader, for parting with one of its valuable rights and privileges, namely the right and privilege of supplying, by whole sale, Indian-made Foreign Liquor throughout the State of Tamil Nadu. Such fees are directly relatable to the executive power of the State to carry on any trade (Art. 298) a power which the State Government had exercised in the process of making laws under Entry 8 of the State List. This being the essence of the matter, irrespective of the mode and mechanics of collection of the fees, irrespective of the quantum of the fees levied, and irrespective also of the fact that the provisions relating to the levy are contained in the Prohibition Act and the Rules made thereunder, the fees in question cannot be regard either as fees, within the meaning of Entry 66 of the State List, or....
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....itizens to carry on trade or to do business in liquor. First, there is the police power of the State to enforce public morality to prohibit trades in noxious or dangerous goods. Second, there is power of the State to enforce an absolute prohibition of manufacture or sale of intoxicating liquor. Article 47 states that the State shall endeavour to bring about prohibition of the consumption except for medicinal purposes of intoxicating drinks and of drugs which are injurious to health. Third, the history of excise law shows that the State has the exclusive right or privilege of manufacture or sale of liquor." (emphasis supplied). In the case of Har Shankar (supra) the legal position was stated thus: "There is no fundamental right to do trade or business in intoxicants. The State, under its regulatory powers, has the right to prohibit absolutely every form of activity in relation to intoxicants - its manufacture, storage, export, import, sale and possession. In all their manifestations, these rights are vested in the State and indeed without such vesting there can be no effective regulation of various forms of activities in relation to intoxicants..." ** ** ** ** "Since ....
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....ghts and privilege relating to intoxicating liquors. 32. The question then arises for consideration is whether the provisions of section 43B of the Income-tax Act, 1961, with or without the 1988 amendment, would be applicable to this case. In our considered opinion, the provisions of the said sections are not at all applicable to the case before us. It is self-evident that, as it stood prior to the 1988 amendment, the section governed taxes and duties properly so-called. The case before us is not one of tax or duties. The said section is, therefore, not applicable. 33. Even if we were to go on the basis that, the 1988 amendment is declaratory in nature and retroactive in operation, the case of the Department will not improve, because the case before us, as we have seen earlier, is not one of fee strictu sensu, nor is it one of cess. We, therefore, hold that there is no question of invoking the provisions of section 43B of the Act. 34. In view of the foregoing, therefore, we hold that the lower authorities were not justified in coming to the conclusion that the levy in question partook the characteristics of a tax, and in applying the provisions of section 43B of the Act. W....
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....bsp; Dated : 25.10.2006 1. G.O.(Ms) No.65, Prohibition and Excise (VIII) Department, dated 27.10.2005. 2. From the Managing Director, Tamil Nadu State Marketing Corporation Limited, letter 1184/N2/2006, dated 20.10.2006. -------- ORDER : The following notification will be published in the next issue of the Tamil Nadu Government Gazette :- NOTIFICATION In exercise of the powers conferred by sections 17-D and 54 of the Tamil Nadu Prohibition Act, 1937 (Tamil Nadu Act X of 1937), the Governor of Tamil Nadu hereby makes the following amendment to the Tamil Nadu Indian Made Foreign Spirit (supply by wholesale) Rules, 1983. 2. The amendment hereby made shall be deemed to have come into force on the 1st April 2005. AMENDMENT In the said Rules, in rule 15, in sub-rule (3), for the expression "46.35" against item (i), the expression "53.23" shall be substituted. S.K. PRABAKAR SECRETARY TO GOVERNMENT" ....
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....unt as expenditure.. 9. The Assessing Officer in assessment order dated 14.12.2009 did not agree to assessee's contention and observed that the GO dated 20.7.2007 was not in operation as on 31.3.2007 (on the closing day of previous year) being notified thereafter i.e. on 20.7.2007 and only GO dated 25.10.2006 had been in operation as on 31.3.2007. Per Assessing Officer, by way of G.O. dated 20.07.2007, a method was adopted by the assessee to reduce net profit for the purpose of computation of income. Since the Assessee had been following mercantile system of accounting, Assessing Officer observed that the Assessee's claim was unacceptable as the GO could not be given effect retrospectively as the 'fees' had been enhanced after the end of financial year. The Assessing Officer, therefore, treated the provision made based on the subsequent GO dated 20.7.2007 which was subsequent to the end of previous year as "colorable exercise of power" to avoid the payment of tax. Accordingly, as per GO dated 25.10.2006 (supra) prevailing during the previous year relevant to Asst. Year, the Assessing Officer considered special privilege fee as Rs. 46.35 for the period 1.4.2006 to 25.10.2006 and Rs....
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....ciple that under above system of accounting, the liability which has attained finality goes back to the year of accrual which in the instant case is A.Y. 2007-08 (time period from 1.4.2006 to 31/3/2007). To buttress the plea, case law of Hon'ble Apex Court reported as 82 ITR 363 (Kedernath Jute Manufacturing Co. v. CIT), 218 ITR 164 (CIT v. Kalinga Tubes) and Hon'ble Jurisdictional High Court 245 ITR 221 has also been cited. 12. Next submission made by the A.R. is that as has been past practice of the assessee, the liability in hand has been continuously arrived at beyond the previous years and no such action was initiated by the department as the same was allowed to be claimed having been arisen well before the finalization of the account. In this regard, our attention has been diverted to assessee's 1st paper book page 20 which is herein below: SPECIAL PRIVILAGE FEE - RATES Asst. Year Financial Year G.O. No. date IMFS BEER Rate Arrear claimed as expenditure in the A.Y. Passed order u/s. 2001-02 2000-01 128 P& E VIII Dept. dated 16.07.01 15.95 to 17.18 5.24 01.04.2000 (to 31.03.01) 2001-2002 143(3) 2002-03 2001-02 193 P& E VIII Dept. dated 06.09.02....
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....ds ground. The case law cited in support is India Cements 98 ITR 69 Madras HC; KSN Bhatt's case 145 ITR 1 SC; CIT v. United Bank of India - 115 CTR 35. The gist of the assessee's submissions before us is that the liability in question came into being by retrospective legislative amendment; therefore, it would relate back to the year of accrual which is allowable as a deduction. 14. In addition to this, assessee's alternative submission is if the assessee's plea of liability is not accepted in the year of accrual is AY 2007-08, the same be allowed as deduction in the year of issuance of GO dt. 20.7.2007 ie AY 2008-09. 15. Opposing assessee's pleas raised hereinabove, the DR has also chosen to reiterate the very factual back ground of the case ie. assessee's status, scheme and scope of Prohibition Act and Rules framed thereunder and raised a contention that AO in the instant case had already allowed deduction (supra) to the assessee qua 'fee' as on 31.3.2007. Further, the DR has laid stress on the nature of impugned liability ie. whether it is statutory or contractual. In this regard, he has accused the assessee of adopting mutually contradictory pleas. His submission is that the ....
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.... forcefully submitted that the GO had come on 20.7.2007. Till then, there was no reasonable belief or indication of any hike; that too, with retrospective effect. So, the Revenue's argument is that at the best, the liability arose in accounting year 2007-08 ie. year when demand was made giving rise to its enforceability only when the notification came into operation. The case law cited in support is :- a) Narender Kumar v. Union of India - AIR 1960 SC 430 b) CIT v. KS Mohammed - 116 CTR 356 Kerala HC c) CIT v. Orient Supply Syndicate - 134 ITR 12 (Calcutta HC) d) CIT v. Padmavati Raju Cotton Mills - 203 ITR 375 (Calcutta HC) e) CIT v. Revati Equipment Ltd. 298 ITR 67 (Madras HC) f) CIT v. Jute & Stores Ltd. - 200 ITR 411 g) CIT v. Prabhavati D Mehta - 240 ITR 447 (Bombay HC) h) Lakhanpal National Ltd. V. ITO - 24 ITD 214 ITAT Ahd. j) KJ Francis v. SCIT - 236 ITR 308 (SC) k) CIT v. West Chusick Coal Co. - 129 ITR 62 - Calcutta HC l) Avery India Ltd v. CIT - 199 ITR 745 Cal HC m) Canara Bank v. ITO - 121 ITD 1 - ITAT Nagpur n) CIT v. Estate of Late Mahbook Khan - 152 ITR 353 - Madras HC 19. The next argument of DR is that Accounting standard - 4 in the Acco....
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....iterated various submissions raised and distinguished the case law relied upon by Revenue. He has also supplied copy of necessary correspondence dated 2.11.2007 by the Under Secretary of the Tamil Nadu State Legislative Assembly informing the Excise Department that the GO dated 20.7.2007 had been tabled before the House and prayed for acceptance of the appeal. 24. We have heard submissions of both parties at length and also perused the relevant findings, contents of paper book referred and the case law cited. Both learned representatives have also led their lively arguments in detail so as to assist us to the best of their abilities. A perusal of the record makes it clear that the assessee is admittedly a company owned and controlled by the State of Tamilnadu. Under the scheme of the Constitution of India, a 'State' govt. is empowered to levy excise on liquor by way of necessary legislation. It is for this purpose that the 'Prohibition Act' and 'rules' framed there under regulate the excise on liquor business throughout the state. For better management of the liquor sales in the State, the Tamilnadu Govt. has conferred exclusive privilege of supplying whole sale 'Indian Made Forei....
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....e issue was of vend fees and additional vend fees, but at the same time, we are unable to loose sight of the fact that the mechanism adopted by the State Govt. was the same in levying the fee ie. notification under Prohibition Act and Rules. The difference between the two instances as we found is that in that case; unlike the instant appeal, the issue therein was regarding the nature of liability ie. whether statutory or contractual. In any case, regardless of the difference between the two cases, still we can safely conclude that the decision of the ld. Co-ordinate bench still throws light in the applicability of Prohibition Act and Rules and also defines the nature of various fees etc. paid by the assessee to the Tamil Nadu Govt. imposed by "Prohibition" Act & Rules. 27. So far as the nature of liability in the instant case is concerned, in our considered opinion, the special privilege fees is not a 'statutory liability'. Because even the ld. Co-ordinate bench had held that the liability under the 'Prohibition' Act is not covered by sec.43B of the Act. Taking cue from the same, we also follow the said decision and hold that fees and levies imposed by the 'Prohibition Act' and Ru....
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....adu Govt. under 'Prohibition' Act and Rules vide GO dated 20.7.2007. That too w.e.f. 01.4.2006 leading to hike of special privilege fee from Rs. 53.25 per litre to Rs. 57.72 per litre. However, when its accounts were being finalized, the GO dated 20.7.2007 had come into being w.e.f. 01.4.2006 (supra). Hence, by no stretch of imagination could we say that the assessee ought to have ignored the same and proceeded with the final return on the basis of unrevised rates. As we find from the language incorporated in GO dated 20.7.2007 (supra) and also highlighted by the ld. A.R., the word 'substituted' 'implies that for all intents and purposes, the earlier special privilege fees rate no more exists. To put it in other words, it stood effaced. There can be no dispute between the parties that this liability is not allowable as a provision for the previous year ended on 31.3.2007, it had to be allowable qua the year ended on 31.3.2008 when actual payment was effective. This, at the best is only an explanation and being a recurring phenomenon, there would not be any revenue loss. In our considered opinion, having allowed the assessee to follow this very methodology for very many ....
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....stimated assessee's closing stock as per the following formula: Closing stock as on 31.3.06 x Sale of A.Y 2007-08/Sale of A.Y. 2006 -07 = Rs. 1,51,71,695 Thereafter, the Assessing Officer added the above amount in the assessee's total income. 35. In appeal, we find that the CIT(A) has deleted the above said addition made by the Assessing Officer by holding that the assessee's 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. Therefore, the Revenue is aggrieved. 36. Reiterating the submissions raised in the grounds, the DR has vehemently argued that the assessee could not resorted to change the methodology adopted for valuation of its closing stock in different assessment years as stated above. In support of the argument, the DR has also placed reliance on the case law Chainrup Sampatram vs. CIT 24 ITR 481 (SC), CIT v. Bengal Jute Mills Co. Ltd. 107 ITR 34 (Cal), CIT v. Doom Dooma India Ltd. 200 ITR 496 (Guj.), CiT v. Mahavir Alluminium Ltd. 297 ITR 77 (Del.), decision of Privy council in CIT v. Ahmedabad New Cotton Mills Co. Ltd. AIR 1930 P 56....
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.... 07/Mds/2012 and 258/Mds/2012: Assessment Year 2007-08 40. These two cross appeals have been preferred by the assessee and the Revenue respectively against the order of the CIT(A) III, dated 25.11.2011 in ITA No. 889/2010-11A.III for the assessment year 2007-08 in proceedings under section 271(1)(c) of the Income Tax Act [ in short "Act"]. 41. Brief narration of the facts, qua the instant appeals is that whilst finalizing the assessment under section 143(3) of the "Act", the Assessing Officer had disallowed assessee's claim qua 'special privilege fee' vide assessment order dated 14.12.2009 (supra). As discussed herein above, the CIT(A), through order dated 23.04.2010 had partly accepted the assessee's appeal. Since in the assessment order, the Assessing Officer had issued notice to the assessee for initiating penalty proceedings under section 271(1)(c) of the "Act", therefore, after the CIT(A)'s order, the penalty proceedings commenced. Thereafter, the Assessing Officer rejected the assessee's explanation and came to the conclusion that it had furnished inaccurate particulars and also claimed wrong deduction of expenses after closing of the year with reference to the payments ma....