The Commissioner of Income Tax, Karnal v. ADARSH KUMAR GOEL, J

Judgment

1. This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (for short, “the Act”) against the order of Income Tax Appellate Tribunal, Chandigarh Bench “A” Chandigarh dated 28.5.2009 in I.T.A. No.470/Chd/ 2009 for the assessment year 2006-07. C.M. No.14974-CII of 2010 has been filed, proposing following amended questions of law:- I.T.A. No.138 of 2010 2 (i) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is justified in allowing depreciation on capital assets, when capital expenditure relating to acquisition of such assets had already been allowed as “application of income” for the purpose of allowing exemption under Section 11 of the Income Tax Act, 1961 and as such further allowing of depreciation on these capital assets will amount to double deduction for the same expenditure.

(ii) Whether allowing of depreciation on the capital assets by the Income Tax Appellate Tribunal is justified in the light of the Hon’ble Apex Court Decision in the case of Escorts India Ltd. (199 ITR 43), wherein it has been held that in the absence of clear statutory indication to the contrary, the statute should not be read as to permit an assessee two deductions on the same expenditure ? (iii) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal is justified in deleting the addition, made on account of unexplained payment to Haryana State Agricultural Marketing Board (in short HSAMB) for capital works, on the grounds that the assessee Market Committee was required to pay 30% of its income to the Board, whereas the addition had not been made on the issue of admissibility of expenditure but for the reasons that the assessee had failed to prove that the amount was actually spent.

I.T.A. No.138 of 2010 3 (iv) Whether on the facts and in the circumstances of the case, the order of the Income Tax Appellate Tribunal is perverse in as much as it has deleted the addition, made on account of interest accrued on advance made by the assessee to the Haryana State Electricity Board

by accepting the contention of the assessee that it was maintaining cash system of accounting and no interest income was received during the year, ignoring the fact that, as it is clear from the audit report and final account, the assessee had followed mixed system of accounting and not cash system. (v) Whether the order of the Income Tax Appellate Tribunal is perverse in deleting the addition, made on account of interest income accrued on advance made to Haryana State Electricity Board, relying on the communication dated

20.1.2003 of the Haryana Government that principal amount of FDRs of Market Committees with HSEB be returned to the concerned Market Committees, but ignoring the remaining part of the communication which says that the matter regarding interest on these deposits will be considered after repayment of principal, which interest advance/deposit made by the assessee with HSEB did not stand waived and as such the same had accrued to the assessee during the year ? I.T.A. No.138 of 2010 4

2. The assessee is a statutory body constituted under the provisions of the Punjab Agricultural Marketing Produce Act, 1961 to regulate the marketing of agricultural produce and is registered under Section 12AA as charitable trust. The Assessing Officer made addition on account of accrued interest on advance made to the Electricity Board. The stand of the assessee was that it was following cash system of accounting and till the interest income was received, the said amount could not be added. This was not accepted by the Assessing Officer and the CIT(A). The assessee approached the Tribunal who upheld plea of the assessee. It was held:- “5. We have considered the rival submissions and also perused the orders of the lower authorities. The income tax is charged on the total income of the assessee in terms of sections 4 & 5 of the Act. The income so computable is as per method of accounting provided for section 145 of the Act. In this case, the claim of the assessee is that it is following cash system of accounting, we find such averment of the assessee is not without any basis. The assessing officer has also so noted in the cause title of the assessment order itself. In relation to the interest income in question, the assessment contends that no such income has been received and therefore, no amount was offered for taxation on this count. On the other hand, the assessing officer has added the income by way of interest on deposit with HSEB on accrual basis. The reason advanced is that the assessee is not following the pure cash system of accounting but is following a mixed system of I.T.A. No.138 of 2010 5 accounting. In our view, there is no case made out by the assessing officer as to how the mixed system of accounting affects the position stated by the assessee. Even if it is accepted that the assessee is following the mixed system of accounting, there is no reason as to why the income from the deposits in question is liable to be assessed on accrual basis. However, even if we accept the plea of the assessing officer on the system of accounting, yet the assessee has placed on record material to show that no interest income has actually accrued to it. The communication from the Government of Haryana, which has also been referred to by the CIT(A) in para 10 of his order, clearly points out that payment of interest to the assessee is not decided by the government. Thus, to say that any income by way of interest has accrued to the assessee is factually wrong. Therefore, firstly, having regard to the cash system of accounting, canvassed by the assessee, no income on this account has been received in this year and therefore, it was not liable to be assessed. Alternatively, even on accrual basis, as our aforesaid discussion shows, no interest has actually accrued to the assessee and, therefore, no addition is warranted. Thus, on this issue also, the assessee succeeds.”

4. We have heard learned counsel for the revenue. Learned counsel for the revenue fairly states that questions (i) to (iii) are covered against the revenue by order passed by this Court dated 5.7.2010 in I.T.A. No.151 of 2010 Commissioner of Income Tax v. Market Committee, I.T.A. No.138 of 2010 6 Narwana. Accordingly, the said questions cannot be held to be substantial questions of law.

5. As regards questions (iv) and (v), findings of the Tribunal clearly show that the assessee was following cash system of accounting. Even the order of assessment records that cash system of accounting was followed by the assessee. In such a situation, only on the basis of accrual of interest income, addition could not be made to the income of the assessee. The findings of the Tribunal are, thus, not erroneous in any manner. Questions (iv) and (v) cannot be held to be substantial questions of law. The appeal is dismissed. (ADARSH KUMAR GOEL) JUDGE July 07, 2010 ashwani ( AJAY KUMAR MITTAL ) JUDGE