Income Tax Appeal No. 206 of 2003 1 IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 206 of 2003 Date of Decision: 23.11.2010 Commissioner of Income Tax-I, Ludhiana --- Appellant Versus M/s. Manav Tools (India) Pvt. Ltd. Ludhiana --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL. --- PRESENT:Mr. Rajesh Katoch, Advocate for the appellant-Revenue. None for the respondent-assessee. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-tax Act, 1961 (for short “the Act’”) has been filed by the Revenue against the order dated 2.8.2002, passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar, (in short “the Tribunal”) in ITA Nos. 1200/CHANDI/95 and 1543/CHANDI/95 relating to the assessment year 1993-94. The Revenue has claimed the following substantial question of law for determination by this Court: Income Tax Appeal No. 206 of 2003 2 “Whether the right to receive IPRS accrued on the date of export i.e. 22.3.1993, in the year relevant to the assessment year 1993-94?” The facts necessary for adjudication, as narrated in the appeal are that the assessee filed its return for the assessment year 1993-94, declaring net income at Rs. nil. The assessee claimed unabsorbed investment allowances of Rs. 50,454/- and 37,971/- for the past assessment years 1989-90 and 1990-91 respectively. The return was processed under Section 143(1) (a) of the Act. Assessment was framed, vide order dated 30.3.1994, at an income of Rs. 5,46,412/- and, while doing so, the assessing officer made the following additions: i) Addition of Rs. 2,35,554/- on account of commission paid to M/s. Uni Tools (India) Pvt. Ltd. ii) Addition of Rs. 6,47,261/- on account of IPRS on accrual basis as the assessee became entitled to receive the IPRS incentive on the date of export itself which was 22.3.1993 relating to the assessment year 1993-94 though the claim was received in the assessment year 1994-95. The Commissioner of Income Tax (Appeals), [hereinafter referred to as “CIT(A)”] in the appeal carried by the assessee, vide order dated 19.7.2005, upheld the disallowance of commission but deleted the addition of Rs. 6,47,261/- on account of IPRS observing that the assessee did not file claim to receive IPRS in the assessment year 1993-94 before the appropriate authority for obtaining such incentive and the claim having been filed and finalized in the financial year 1993-94, Income Tax Appeal No. 206 of 2003 3 the IPRS incentive accrued in the assessment year 1994-95 and not in 1993-94. The order passed by the CIT(A) was challenged by both the sides, i.e. the Revenue and the assessee, before the Tribunal, by preferring separate appeals. The appeals of both the sides were dismissed by the Tribunal vide order dated 2.8.2002. This is how the Revenue has preferred the instant appeal. We have heard learned counsel for the parties and perused the record. The Revenue has raised an issue with regard to taxability of IPRS relating to the assessment year 1993-94. Counsel for the revenue argued that the IPRS accrued on the date of export i.e. 22.3.1993, therefore, the same was exigible to income tax relating to assessment year 1993-94. We are unable to accept the aforesaid submission of the Revenue. The issue regarding accrual of income from export incentive came up for consideration before this Court in ITC NO.184 of 1994 (The Commissioner of Income Tax, Patiala Vs. M/s Sriyansh Knitters (P) Limited Ludhiana) decided on 11.10.2010 wherein it was held that no income accrues till claim of the assessee was quantified and verified. Admittedly, in the present case, the assessee had submitted the claim for IPRS and received it during the next assessment year i.e. assessment year 1994-95 and, therefore, the same could not be held to be taxable in the current assessment year. The findings recorded by the Tribunal while upholding the claim of the assessee deserve to be noticed here, which are as under:- Income Tax Appeal No. 206 of 2003 4 “We have heard both the parties and given our thoughtful consideration to the rival submissions. We have also examined the facts, evidence and material on record. From the facts discussed above, it is obvious that the assessee had exported the goods towards fag end of the accounting year under reference i.e. on 22.3.93. It is not in dispute that the assessee had made claim in the next accounting year and IPRS received in the next accounting year were duly reflected in the A.Y.1994- 95. It is also a fact that the assessee had been following the mercantile system of accounting. The question that requires to be considered is-whether the assessee becomes entitled to IPRS automatically without making such claim to the Govt. or it is subject to the finalization and approval of the Govt.? As discussed above, IPRS is allowed by the Govt. on account of price difference between the international and Indian price of raw material consumed in the manufacture of goods, which have been exported. There does not appear to be any automatic formula to determine the difference between the price prevailing in the international market and price of raw material prevailing in the country. It is also not the case that reimbursement of IPRS was being made at a fixed percentage of the exports. Thus very nature of the scheme is such which requires scrutiny and examination by the Govt. for determination of price difference. Until and unless claim is submitted to the Govt. and is scrutinized and approved by the Govt. it cannot be said that the assessee has acquired the right to receive such income. Moreover, the exports were made at the fag end of the accounting year i.e. about 8 days before the Income Tax Appeal No. 206 of 2003 5 close of the accounting year. Therefore, it does not appear that the assessee delayed submission of its claim for IPRS with an intention to defer its income to the next assessment year. Therefore, the amount which was neither quantified nor accrued or finalized by the Govt. in the A.Y. under reference could not be considered to have accrued to the assessee in the assessment year under reference. We have also referred to the two judgments relied upon by the ld. Departmental Representative for the revenue. In the case of Anglo French Textiles(supra), the issue before the High Court was-whether income by way of import entitlements for the export carried out in Pondichery accrued to the assessee in Pondichery, which was then governed by French laws or was the income accrued in India. Since the assessee was carrying its entire business in Pondichery, even the exports were made from Pondichery and amounts were received in Pondichery, it was held that import entitlements also accrued to the assessee in Pondichery. Thus, the facts of the case are totally distinguishable from the facts of the present case. As regards the judgment of Bombay High Court in the case of CIT Vs. Pink Star (supra) the issue before the High Court related to the amounts of Rs.15,47,005/- received by the assessee on the un-utilised import licence. In that case the assessee had already exported goods. As per the scheme of the Govt. the assessee had already exported goods. As per the scheme of the Govt. the assessee was entitled to cash equivalent to 8% of the un-utilised import licence. Thus in that case percentage of the amounts to be received in respect of un-utilised amount of import licence, was determined at a Income Tax Appeal No. 206 of 2003 6 fixed rate. This is not the case here. The assessee is not entitled to IPRS at a fixed percentage of the exports value of goods. It was still to be examined and determined by the Govt. Therefore, the ratio of the judgment of Bombay High Court is also not applicable to the facts of the present case. Having regard to the facts and circumstances of the case, we are of the considered opinion that the order of CIT(A) does not merit any interference. Accordingly, the same is upheld and this ground of appeal is dismissed.” No perversity or illegality could be pointed out in the aforesaid finding, which may warrant interference by this Court. Accordingly, there is no merit in the appeal and the same is dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) November 23, 2010 JUDGE *rkmalik*