TaxTMI 
TaxTMI 
2017 (11) TMI 1826
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....e, therefore, heard together and are being disposed off by way of this common, consolidated order. For the sake of convenience we shall be dealing with the facts in the case of ITA No.184/Chd/2010 relating to assessment year 2005-06. ITA No.184/Chd/2010: 2. Ground of appeal No.1 raised by the assessee reads as under: "1. That the Ld. CIT (A) has erred in law & facts of the case in upholding an addition of Rs. 3,67,81,729/- on account of unclaimed refunds which is highly unjustified & uncalled for." 3. Brief facts relating to the issue are that the assessee had shown an amount of Rs. 3,67,81,729/- as liability in the Balance Sheet which, during assessment proceedings, was explained as being refunds of application money, sent to unsuccessful applicants of plots, which was received back by the assessee corporation due to non-acceptance of the said refunds by the applicants. The assessee claimed that it was in the nature of its liability which had not ceased to exist, since the said refunds had neither been forfeited by the assessee corporation, nor considered as not payable. The assessee further submitted that the amount had not been waived off by the applicants/a....
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....see. The Ld.CIT(Appeals) rejected all the contentions of the assessee and upheld the addition made by holding at para 6.2 of its order as under: 6.2 On careful consideration of the above facts and arguments, it is found that the arguments of the counsel for the appellant are devoid of any merit and are rejected. The AO has rightly held that the appellant's case is not of cession of liability u/s 41(1) of the I.T.Act and therefore the decision of the Hon'ble Gujarat high Court mentioned above is not applicable. The AO has rightly held that the appellant's case is of business receipts in the ordinary course of business. The decision of the Hon'ble Supreme Court in the case of CIT vs. T.V. Sunderam lyengar is squarely applicable. The AO has rightly held that the appellant has made an attempt to refund the amount by sending the cheques to the applicant. The unclaimed cheques thus represent the business receipts of the appellant which are clearly taxable. As regards, the arguments of the counsel that the unclaimed liability account is a running account to which the unclaimed liabilities are credited and amounts refunded are debited also does not help him since t....
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....se of assessee no surplus as such remained and the entire amount was refundable. 8. The Ld. counsel for the assessee, during the course of hearing before us, on a number of occasions, was asked at bar to submit the policy of the assessee corporation with regard to forfeiture of the unclaimed refunds. Nothing was filed or submitted before us and it was reiterated that its liability to refund the application money never ceased to exist. 9. The Revenue, on the other hand, has claimed that the entire unclaimed refunds were revenue receipts of the assessee irrespective of the period of time they remained unclaimed. The Revenue has heavily relied upon the decision of the Hon'ble Apex Court in the case of T.V. Sundram Iyengar & Sons Ltd. (supra) in support of its contention. The Revenue also relied upon the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Chipsoft Technology Pvt. Ltd. 210 Taxmann.173 in support of its contention that it would be illogical for the liability to continue to exist forever while the assessee enjoys the benefit of the amount retained by it by way of liability. 10. We have heard both the parties. We are unable to completely agree ....
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.... T.V. Sundram Iyenar & Sons Ltd. (supra) will not apply to the facts of the present case. 11. The assessee's contention that its liability to refund does not cease to exist as it continues to reflect it as liability in the Balance Sheet and would be liable to refund the amount whenever claimed in future or adjust it against allotment of any plot of land, is also not acceptable. The Hon'ble Delhi High Court in case Chipsoft Technology Pvt. Ltd. (supra) had an occasion to deal with identical issue wherein it held that the view that the liability does not cease as long as it is reflected in the books and mere lapse of time does not efface the liability, is an abstract and theoretical view, far removed from reality. The Hon'ble Court held that it would be illogical to hold that a debtor should be given the benefit of his showing the amount of liability even though he could not be entitled in law to say that a claim for its recovery is time barred and continues to enjoy said amount. The relevant findings at para 9 & 10 of the order in this regard are as under: "Two aspects are to be noticed in this context. The first is that the view that liability does not cea....
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..... We also find that even before the Ld.CIT(Appeals) the assessee had contended so, claiming that the refund would become barred by limitation after a period of three years from the date of issuance of cheque of refund. The Ld. counsel for the assessee agreed that the liability subsisting beyond this period be treated as the business income of the assessee having been earned in the ordinary course of business. The Ld. counsel for assessee further requested for excluding the following amounts from the aforestated unclaimed refunds barred by limitation : a) Refunds against which cases had been filed in Courts by the applicants seeking allotment of plots instead and which were still pending for adjudication. b) Refunds which had been subsequently adjusted by way of allotment of plots. c) Refunds which had been subsequently adjusted by way of refunds claimed. The Ld. DR agreed to the same. 13. In view of the above therefore, we hold that out of the outstanding liability on account of un-claimed refund of Rs. 3,67,81,729/-, liabilities which have been outstanding for a period of more than three years, after the issuance of cheques of refund, o....
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....e indirect cost component and calculated the profit earned during the year on account of the same as under : Receipt for Indirect expenses Total Recoveries 273,39,99,927/- Relatable to indirect expenses Or for the purpose of Admn charges, interest etc. (20% of the above) 54,67,99,985/- Less Expenses already incurred in Capital Head of Industrial estates 14,91,69,810/- Less Expenses already allocated in P&L as relatable to Industrial estates 4,30,42,231/- Sub total 19,22,12,041/- Addition on account of Indirect charges received 35,45,87,944 The Assessing Officer added the same to the income of the assessee. 16. Before the Ld.CIT(Appeals) the assessee made detailed submissions reproduced at pages 8 to 12 of the CIT(Appeals)'s order. Briefly stated, the assessee challenged the addition made for the following reasons: a) That it had consistently been following this method in the past, which had been accepted by the Department also and, therefore, there was no reason to disturb the same. b) Calculation of surplus/income generated from the aforesaid activity by the AO was flawed for the followin....
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....ve heard the learned representatives of both the parties. The addition made in the present case relates to profits earned from Industrial Estate development activity, which the assessee claimed was being carried out on a no loss no profit basis, accounted for on cash basis and surplus or deficit in the receipt over expenses reflected in the Balance Sheet, while the Revenue negated this contention stating that profit was actually earned by the assessee, from the indirect cost component recovered on account of the said activity ,which was thus liable to be taxed. 20. The undisputed facts are that the assessee is following the cash basis for accounting its income from Industrial Estate development and reflecting the difference between the receipts and expenditure on this account in its Balance Sheet. The Revenue, we find, has not objected to the method of accounting, i.e. cash basis, followed by the assessee. Its only contention is that the assessee earns surplus on account of the same which should be brought to tax, thus rejecting assessee's claim that no profit or loss was derived from it. As far as this act of the Revenue is concerned, of rejecting assessee's claim of operati....
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.... need for the Revenue to continue with the same. The relevant findings of the Hon'ble Apex Court at para 32 of the order are as under: "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, herefore, 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" 21. Considering the above and in the light of certificate filed by the assessee to this effect from the statutory auditors of the company, we consider it fit to restore the issue to the Assessing Officer to verify the correctne....
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....o its primary object of financing and was, therefore, clearly business profit of the assessee. He, therefore, held the profit of Rs. 85,73,413/- to be the business profit of the assessee. 24. Before the Ld.CIT(Appeals), the assessee pleaded that it was participating in equity for the past 20 years and funds for the purpose were being supplied by the State Government by way of share capital. It was pointed out that no interest bearing funds were used for this activity. The assessee also pointed out that while purchasing the equity of any company there was a condition that such equity would not be disposed off by the assessee before the period of atleast 3 to 5 years. Thus, the assessee pointed out that intention was never to trade in shares or to do business but to make long term investment, which was to be treated as capital asset. The assessee relied upon the judgment of the Special Bench of I.T.A.T. in the case of PSIDC Vs. DCIT reported in 292 ITR 268 and on Circular No.4 dated 15.6.2007 of the CBDT, which referred to the principles on the basis of which it has to be decided whether these are capital investments or stock in trade. The Ld.CIT(Appeals) rejected the contentions ....
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.... on the basis of buy back arrangement is nothing but business income of the appellant. The case laws relied upon by the AO are squarely applicable and the case laws relied upon by the counsel do not help him as discussed by the AO in the assessment order and also for the reason that the appellant has purchased the equity shares of the units by way of equity participation with the dominant intention of extending finance to the borrowing units and hence the case laws are not applicable to the facts of the case. This ground of appeal is rejected." 25. Before us, the Ld. counsel for assessee pointed out that originally the assessee was Punjab State Industrial & Infrastructure Development Pvt. Ltd. (PSIDC) and had changed thereafter to Haryana State Infrastructure Development Corporation (HSIDC). The Ld. counsel for assessee thereafter reiterated the contention made before the lower authorities stating that the investment in shares was by way of capital investment and not stock-in-trade. The Ld. counsel for assessee pointed out to the fact that every collaboration agreement entered into by the assessee corporation with a collaborator, gave an option to the promoters to buy the shares....
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.... (a) as the case may be. Provided that failure of the Collaborator to pay for and purchase the shares within one month after exercising the option shall be construed as his consent to the Corporation offloading these shares in the market. (e) In the event the Collaborator fails to purchase the equity shares of the Corporation in the Company as provided in clause 24(b) above, the operation of clause 20 hereof will remain suspended at the option of the Corporation until the entire sum payable by the Collaborator for the purchase of the share-holdings of the Corporation in the Company is paid off in full and the Managing Director being a nominee of the Collaborator shall resign. In such an event the Corporation shall also have the option to recommend one of its nominees to be appointed as Managing Director by the Board of Directors and the said nominee of the Corporation after being so appointed, shall continue to be the Managing Director as long as the operation of clause 20 remains suspended. Immediately upon the completion of the payment by the Collaborator of the full amount payable in respect of purchase of shares, this subclause will cease to be operative....
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....or financial year 1996-97 will indicate the nature of the activities of the assessee :- "(3) Investments (a) The company's Investment, in pursuance of its objects to assist by way of equity participation for the advancement, promotion and development of industry in the state is meant to be held for long-term and as such are valued, at cost. (b) The profit/loss on sale of shares is being accounted for in the year in which the share scripts alongwith the duly executed transfer deeds are actually delivered to the transferees irrespective of the time at which the consideration for the same has been received. (c) The corporation makes dis-investment of its shareholdings joint/assisted sector projects and private sector projects as per the provisions contained in the financial collaboration agreements and buy-back undertakings respectively executed by the collaborators/Promoters with the corporation. (d) As per financial collaboration agreement the collaborators have to buy-back the shares at the end of specified period at the highest market price quoted on recognized stock exchange(s) or the book value along with the simple interest at th....
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....997-98. 103. This issue is also covered in favour of the assessee by the order of Tribunal for assessment years 1990-91 to 1992-93 (supra). The operative portion is in para 11 of the order which is hereby adopted and reproduced hereunder:- "11. We have carefully considered the rival submissions and have gone through the orders of the Assessing Officer as well as the learned Commissioner of Income-tax (Appeals). As per the industrial policy of the Punjab Government, the assessee corporation was to act as a catalyst for establishment of new industrial projects in the State of Punjab, the assessee collaborators oration was to act as a catalyst for establishment of new Industrials Project in the State of Punjab by acting as promoters/collaborators alongwith other industrial entrepreneurs. At the time of the start of the project, the assessee corporation makes investment and when the production in the projects reaches upto a certain level where after the projects become self-sufficient, it disinvests those holdings in that project by selling it to the other promoter with a view to realize funds for investments in other projects. Thus basically the investment in shares ....
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....ent cannot be said to be an obiter dictum. An obitor dictum is a Latin phrase meaning "by way" i.e. a remark in a judgment that is 'said in passing". As is evident from the above, the said were the findings of the majority view based on the facts of the case which cannot be termed as incidental or passing remark or opinion. Therefore, we reject the contention of the Revenue that the decision in the case of PSIDC cannot be applied to the facts of the present case. Moreover, it is not disputed that since inception the assessee has been claiming the profits earned from sale of shares as capital gains which has never been disturbed by the Revenue. No change in the circumstances in respect of the impugned assessment year have also been brought to our notice. Therefore, we agree with the Ld. counsel for assessee that there was no reason to disturb that position in the impugned year. The Hon'ble Apex Court in the case of Radha Soami Satsang Vs. CIT 193 ITR 321(SC) held that where fundamental aspect permeating through different assessment years has been found as a fact one way or the other and parties had allowed that position to be sustained by way of not challenging that ord....
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....ion for expenditure incurred on KMP Expressway amounting to Rs. 277.70 crores under the facts & circumstances of the case." 36. It is relevant to observe here that the issues in these grounds are similar to the issue in ground No.2 raised by the assessee in ITA No.184/Chd/2010 and the findings given in ITA No.184/Chd/2010 at para 20-21 of our order above shall apply to this case also mutatis mutandis. Ground Nos.3, 4 and 5 raised by the assessee therefore stand allowed for statistical purposes. 37. Ground No.6 raised by the assessee reads as under: "6. a) That the Ld. CIT (A) is not justified in upholding the amount of Capital Gain on sale of shares amounting to Rs. 30,36,995/- as business Income under the facts & circumstances of the case. b) That the Ld. CIT (A) is not justified in not adjudicating the ground of appeal disputing the finding of A. A. regarding expenditure in relation to investment in shares having been charged to Profit & Loss Account in the absence of any material on record under the facts & circumstances of the case." 38. It is relevant to observe here that the issue in this ground is similar to the issue in ground No.3 raised by the a....
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....at all, excluding the income by way of dividend from the purview of taxation. At the same time, we find section 115O was inserted in the Act making the companies distributing dividend to pay tax at a specified rate thereon. Thus taxation of dividend changed hands from the recipient to the payer of dividend by virtue of this amendment brought about in the Act. Dividend of all nature and colour whether sourced from the business activities of the assessee or otherwise is not taxable in the hands of the recipient but is to be taxed by the payer of dividend or in other words, the companies declaring and distributing dividend. In view of the same, therefore, we cannot agree with the contentions of the Revenue that the said dividend is to be taxed in the hands of the assessee being in the nature of business income. The reliance placed on the decision of the Hon'ble Apex Court in the case of Brook Bond India Ltd. (supra) does not apply to the present case since it related to the assessment year 1955-56 and 1956-57 when the position of law vis-à-vis taxation of dividend was governed by the Income Tax Act, 1922 which taxed dividend in the hands of the recipient. Even otherwise ....
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.... Court in the case of Abhishek industry' 286 ITR 1. 47. The Ld.CIT(A) held the investments to be for nonbusiness purpose but at the same time agreed with the assessees argument that in the case of sufficiency of own interest free funds no disallowance of interest was warranted .He therefore directed the Assessing Officer to examine the fund flow position of the assessee and make disallowance only to the extent borrowed funds were utilized for making the investment. 48. The assessee in the present ground has challenged the finding of the CIT(A) that the investments were for nonbusiness purpose. 49. No arguments were advanced during the course of hearing before us by the Ld.Counsel for the assessee. Ground No.8 therefore stands dismissed. 50. The appeal of the assessee therefore stands partly allowed. ITA No.966/Chd/2010 (A.Y. 2007-08) 51. Ground No.1 raised by the assessee reads as under: "1. That the Ld. CIT (A) has erred in law & facts of the case in upholding an addition of Rs. 2,22,66,591/- on account of unclaimed refunds which is highly unjustified & uncalled for." 52. It is relevant to observe here that the issue in this ground is similar t....
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.... the Ld. CIT (A) has erred in law & facts in not adjudicating the ground of appeal disputing the finding of A. A. regarding expenditure in relation to investment in shares having been charged to Profit & Loss Account in the absence of any material on record which is highly unjustified, & uncalled for." 58. It is relevant to observe here that the issue in this ground is similar to the issue in ground No.7 raised by the assessee in ITA No.185/Chd/2010 and the findings given in ITA No.185/Chd/2010 at para 43-44 of the order above shall apply to this case also mutatis mutandis. Ground No.4(a) & (b) raised by the assessee is allowed. 59. Ground No.5 raised by the assessee reads as under: "5. That the Ld. CIT (A) has erred in law & facts of the case in upholding that the investment of Rs. 360.87 crores is not for business purpose which is highly unjustified & uncalled for." 60. It is relevant to observe here that the issue in this ground is similar to the issue in ground No.8 raised by the assessee in ITA No.185/Chd/2010 and the findings given in ITA No.185/Chd/2010 at para 49 of the order above shall apply to thi....
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....assessee in ITA No.184/Chd/2010 and the findings given in ITA No.184/Chd/2010 at para 27-31 of our order above shall apply to this case also mutatis mutandis. Ground No.3(a) by the assessee is allowed and ground No.3(b) raised by the assessee is dismissed. 67. Ground No.4 raised by the assessee reads as under: "4. a) That the Ld. CIT (A) has erred in law & facts of the case in upholding the dividend on shares amounting to Rs. 4,33,381/- as business income which is highly unjustified & uncalled for. b) That the Ld. CIT (A) has erred in law & facts in not adjudicating the ground of appeal disputing the finding of A. A. regarding expenditure in relation to investment in shares having been charged to Profit & Loss Account in the absence of any material on record which is highly unjustified, & uncalled for." 68. It is relevant to observe here that the issue in this ground is similar to the issue in ground No.7 raised by the assessee in ITA No.185/Chd/2010 and the findings given in ITA No.185/Chd/2010 at para 43-44 of our order above shall apply to this case also mutatis mutandis. Ground No.4(a) & (b) raised by the assessee is allowed. 69. Ground No.5 raised....
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....ied & uncalled for. b) That the Ld. CIT (A) has erred in law & facts in not adjudicating the ground of appeal disputing the finding of A. A. regarding expenditure in relation to investment in shares having been charged to Profit & Loss Account in the absence of any material on record which is highly unjustified, & uncalled for." 76. It is relevant to observe here that the issue in this ground is similar to the issue in ground No.3 raised by the assessee in ITA No.184/Chd/2010 and the findings given in ITA No.184/Chd/2010 at para 27-31 of our order above shall apply to this case also mutatis mutandis. Ground No.3(a) by the assessee is allowed and ground No.3(b) raised by the assessee is dismissed. 77. Ground No.4 raised by the assessee reads as under: "4. a) That the Ld. CIT (A) has erred in law & facts of the case in upholding the dividend on shares amounting to Rs. 4,44,910/- as business income which is highly unjustified & uncalled for. b) That the Ld. CIT (A) has erred in law & facts in not adjudicating the ground of appeal disputing the finding of A. A. regarding expenditure in relation to investment in shares having been charged to Profit & Los....
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....s erred in law & facts in not adjudicating the ground of appeal disputing the finding of A. A. regarding expenditure in relation to investment in shares having been charged to Profit & Loss Account in the absence of any material on record which is highly unjustified, & uncalled for." 84. It is relevant to observe here that the issue in this ground is similar to the issue in ground No.7 raised by the assessee in ITA No.185/Chd/2010 and the findings given in ITA No.185/Chd/2010 at para 43-44 of our order above shall apply to this case also mutatis mutandis. Ground No.3(a) & (b) raised by the assessee is allowed. The appeal of the assessee is partly allowed. ITA No.729/Chd/2013(A.Y. 2011-12) 85. Ground Nos.1 raised by the assessee read as under: "1. That the Ld. CIT (A) has erred in law & facts of the case in upholding an addition of Rs. 1,58,98,296/- on account of unclaimed refunds under the facts & circumstances of the case. 86. It is relevant to observe here that the issues in these grounds are similar to the issue in ground No.1 raised by the assessee in ITA No.184/Chd/2010 and the findings given in ITA No.184/Chd/2010 at para 10-13 of our order above sh....
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....ue in this ground is similar to the issue in ground No.1 raised by the assessee in ITA No.184/Chd/2010 and the findings given in ITA No.184/Chd/2010 at para 10-13 of our order above shall apply to this case also mutatis mutandis. Ground No.1 raised by the assessee is partly allowed. 93. Ground No.2 raised by the assessee reads as under: "2. a) That the Ld. CIT (A) has erred in law & facts of the case in upholding an addition of Rs. 35.13 crores on account of income from Industrial Area Activity which is highly unjustified & uncalled for. b) That the Ld. CIT (A) has erred under the facts & circumstances of the case in not allowing expenditure incurred on KMP Expressway amounting to Rs. 25.81 crores & Delhi Metro to Faridabad amounting to Rs. 25 crores which is highly unjustified & uncalled for." 94. It is relevant to observe here that the issue in this ground is similar to the issue in ground No.2 raised by the assessee in ITA No.184/Chd/2010 and the findings given in ITA No.184/Chd/2010 at para 20-21 of our order above shall apply to this case also mutatis mutandis. Ground No.2(a) & (b) raised by the assessee is allowed for statistical purposes. 95. Gr....