IN INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI BEFORE SHRI JASON P. BOAZ, AM AND SHRI SANDEEP GOSAIN, JM I.T.A. No. 7118/Mum/2014 ( Assessment Year: 2010-11) Vidhya Pharma Chem P. Ltd. ACIT -4(3) Mumbai. 606 Gold Crest, 6th Floor, Business Centre, L.T. Road, Borivali (W) Vs. PAN/GIR No. AAACV 8599A (Appellant) : ( Respondent) Appellant by : Shri Dilip T. Worah Respondent by : Ms. Anu Krishna Agarwal : 10/08/2016 Date of Hearing : 23/09/2016 Date of Pronouncement O R D E R Per Sandeep Gosain, J. M.: Present Appeal has been filed by Assessee against order of Commissioner of Income Tax (Appeals)-8, Mumbai, dated 20.10.2014 for A.Y. 2010-11 on grounds of appeal mentioned hereinbelow. 1. T h e l e r n e d C om m i s s i o n e r o f p p ea l s - 8 , M um b i e r re d i n dismissing appeal and in sustaining additions made by A. 0. in respect of DEPB entitlements amounting to Rs.11,09,321/- without considering all grounds of appeal and submission of facts of case. 2 ITA No. 7118/Mum/2014 (A.Y. 2010-11) Vidhya Pharma Chem Pvt. Ltd. vs. ACIT 2. learned Commissioner Of Appeals-8 completely ignored to take in to account facts of case of CIT v/s Excel Industries L td ( S u pr em e Cou rt ) I TR -3 58 ( Pa r t- 2) - P ge 29 5 3. Without prejudice to aforesaid learned Comm. Of Appeals did not consider above case in his order in spite of submission made vide letter dated 01/05/2014. 4. appellant pleads your honors to give relief and it is prayed t h t o r d e r o f l d . C o m m i s s i o n e r O f I n c o m e T x p p e l - 8 , Mumbai be quashed and additions of Rs.11,09,321/- be deleted. 5. Appellant craves leaves to add, amend, alter or delete or any other grounds of Appeal. 2. brief facts of case are that assessee is company engaged in business of trading in pharmaceuticals, Bulk Drugs and Chemicals. return was e-filed on 15.10.2010 declaring income of Rs.1,75,90,170/-. return was processed u/s.143(1) of Income Tax Act. Thereafter, case was selected for scrutiny and notice was served upon assessee, seeking reply of assessee. Assessment order was passed by ACIT whereby sum of Rs.11,09,321/- being amount of DEPB credit was added back to total income of assessee. 3 ITA No. 7118/Mum/2014 (A.Y. 2010-11) Vidhya Pharma Chem Pvt. Ltd. vs. ACIT 3. Aggrieved by order of AO, assessee preferred appeal before CIT(A) and CIT(A) after considering case of assessee dismissed appeal of Assessee. 4. Aggrieved by order of CIT(A), assessee preferred present appeal before us on grounds mentioned hereinabove (paragraphs 1 to 4 of grounds of appeal). 5. Ground Nos. 1 to 4 are interconnected and relates to addition made by Revenue Authority under DEPB entitlements amounting to Rs.11,09,321/-, therefore, we have decided to dispose of same through present common order. 6. learned AR appearing on behalf of assessee submitted that Assessee is engaged in business of trading in pharmaceuticals, bulk drugs and chemicals and accounting income from DEPB license on cash basis. It is further argued that same system is being followed consistently by company on year to year basis. It is next submitted that assessee has followed same procedure in following year also and have already offered said amount for tax in year of receipt from sale of DEPB license. 4 ITA No. 7118/Mum/2014 (A.Y. 2010-11) Vidhya Pharma Chem Pvt. Ltd. vs. ACIT 7. Learned AR in order to strengthen his arguments submitted that reason for accounting DEPB on cash basis is that premium on DEPB fluctuates by 5% to 10% in market as per demand/supply gap. seller may get higher amount on actual sell/realization depending upon market conditions on that date. Since, assessee waits for favourable market condition and sells DEPB in market when premium are comparatively high, therefore, assessee accounts for same on actual money realization basis. 8. On other hand, learned DR relied upon order passed by Revenue Authorities. 9. We have heard counsel for both parties and also perused material on record as well as orders passed by Revenue Authorities. Learned CIT(A) has decided issue of DEPB entitlements in paragraph 2.3 of its order, same is reproduced below. 2.3 I have considered facts of case, order passed by AO and submission made by appellant. It is seen that appellant follows mercantile system of accounting. Therefore, income out of transfer DEPB by way of sale or otherwise has to be offered as income for year under mercantile system of accounting followed by appellant, which appellant has failed to do. Further, as per provisions of Section 28(iiid) of Act, sale / transfer of DEPB is taxable business receipt and as and when appellant is entitled for same. appellant's stand that same is offered for tax on cash basis in next assessment year is not acceptable as appellant follows mercantile system of 5 ITA No. 7118/Mum/2014 (A.Y. 2010-11) Vidhya Pharma Chem Pvt. Ltd. vs. ACIT accounting and, therefore, DEPB entitlement is required to credited in P & L A/c. as income for year under consideration on accrual basis, which appellant has failed to offer. Therefore, action of AO in taxing DEPB amounting to Rs.11,09,321/- for year is justified. Accordingly, ground of appeal is dismissed. 10. We have analyzed orders passed by CIT(A) and we have also considered latest judgment relied upon by learned AR of Hon ble Apex Court in case of CIT Vs. M/s. Excel Industries Ltd., reported in 358 ITR 295. operative portion of same is reproduced below. 32. Thirdly, real question concerning us is year in which assessee is required to pay tax. There is no dispute that in subsequent accounting year, assessee did make imports and did derive benefits under advance licence and duty entitlement pass book and paid tax thereon. Therefore, it is not as if Revenue has been deprived of any tax. We are told that rate of tax remained same in present assessment year as well as in subsequent assessment year. Therefore, dispute raised by Revenue is entirely academic or at best may have minor tax effect. There was, therefore, no need for 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 public coffers. 11. From facts of case, we found that assessee accounted income from sale of DEPB license on cash basis and same is followed consistently by assessee on year to year basis. We have also observed that same procedure is being followed by assessee in following years and assessee has offered said amount for tax in year of receipt from sale of DEPB license. Since facts of present case are 6 ITA No. 7118/Mum/2014 (A.Y. 2010-11) Vidhya Pharma Chem Pvt. Ltd. vs. ACIT similar to facts of case decided by Hon ble Apex Court wherein in Hon ble Supreme Court while relying upon earlier judgment of Hon ble Apex Court in case of Commissioner of Income Tax V/s. Shoorji Vallabhdas and Co., 46 ITR 144 (SC) has held as follows: Income Tax is levy on income. No doubt, Income Tax Act takes into account two points of time at which liability to tax is attract, viz., accrual of income or its receipt; but substance of matter is income. If income does not result at all, there cannot be tax, even though in book-keeping, entry is made about hypothetical income , which does not materialize. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains income of recipient, even though given up, tax may be payable. Where, however, income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though entry to that effect might, in certain circumstances, have been made in books of account. After considering principles laid down by Hon ble Supreme Court we have observed that since in present case, assessee had been following said procedure consistently and has already offered income for tax in year of receipt from sale of DEPB license. Considering facts of present case and fact that system of accounting of DEPB entitlements on cash/ realization basis has been consistently followed year after year by assessee in past also and more so since DEPB entitlements receipt during financial year 2009-10 relevant to A.Y. 2010-11 are already accounted and offered for taxation in 7 ITA No. 7118/Mum/2014 (A.Y. 2010-11) Vidhya Pharma Chem Pvt. Ltd. vs. ACIT next financial year 2010-11 relevant year 2011-12 on realization basis, therefore after taking into consideration decision of Hon ble Supreme Court in case of CIT Vs. M/s. Excel Industries Ltd., (supra), we hold that assessee is entitled for DEPB credit in year under consideration and therefore additions made by AO are hereby deleted. AO is directed to re-compute income in terms of aforementioned decision. Therefore, these grounds raised by Assessee are allowed. 12. Ground No.5 is general in nature, therefore, does not require any adjudication. 13. In result, appeal of assessee is partly allowed. Order pronounced in open court on 23rd September, 2016 Sd/- Sd/- (Jason P. Boaz) (Sandeep Gosain) Accountant Member Judicial Member Mumbai; Dated : 23.09.2016 P.K.K., Sr.P.S. Copy of Order forwarded to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT - concerned 8 ITA No. 7118/Mum/2014 (A.Y. 2010-11) Vidhya Pharma Chem Pvt. Ltd. vs. ACIT 5. DR, ITAT, Mumbai 6. Guard File BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai Vidhya Pharma Chem P. Ltd. v. ACIT -4(3) Mumbai