Income Tax Appellate Tribunal - Kolkata
M/S. Titagarh Wagon Ltd., Kolkata vs Dcit, Ltu-2, Kolkata, Kolkata on 9 April, 2024
आयकर अपीलीय अधिकरण
कोलकाता 'सी' पीठ, कोलकाता में
IN THE INCOME TAX APPELLATE TRIBUNAL
KOLKATA 'C' BENCH, KOLKATA
श्री अधिकेश बिर्जी, न्याधयक सदस्य
एवं
श्री धिरीश अग्रवाल, लेखा सदस्य
के समक्ष
Before
SRI ANIKESH BANERJEE, JUDICIAL MEMBER
&
SRI GIRISH AGRAWAL, ACCOUNTANT MEMBER
I.T.A. Nos.: 1064 & 1065/KOL/2018
Assessment Years: 2011-12 & 2012-13
DCIT, LTU-2, Kolkata...............................................................Appellant
Vs.
M/s. Titagarh Wagon Ltd......................................................Respondent
[PAN: AABCT 1377 P]
C.O. Nos.: 14 & 15/KOL/2021
Arising Out of I.T.A. Nos.: 1064 & 1065/KOL/2018
Assessment Years: 2011-12 & 2012-13
M/s. Titagarh Wagon Ltd.........................................................Appellant
[PAN: AABCT 1377 P]
Vs.
DCIT, LTU-2, Kolkata............................................................Respondent
Appearances:
Department represented by: Sh. Rakesh Kumar Das, CIT D/R.
Assessee represented by: Sh. Siddharth Jhajharia, FCA.
Date of concluding the hearing : February 26th, 2024
Date of pronouncing the order : April 9th, 2024
ORDER
Per Bench:
The instant appeals of the Revenue and the Cross Objections of the assessee were filed against separate orders of the Commissioner of Income- tax (Appeals)-22, Kolkata [in brevity ld. 'CIT(A)'] dated 18.06.2015 passed u/s 250 of the Income Tax Act, 1961 (in brevity the 'Act') for assessment years I.T.A. Nos.: 1064 & 1065/KOL/2018 C.O. Nos.: 14 & 15/KOL/2021 AYs: 2011-12 & 2012-13 M/s. Titagarh Wagon Ltd.
2011-12 & 2012-13. The impugned order was emanated from the orders of the DCIT, LTU-2, Kolkata (in brevity the 'AO') passed u/s 144C(4) read with Section 143(3) of the Act dated 18.05.2015 & 10.03.2016 respectively.
2. All the appeals are in the same nature of fact and have a common issue. So, all the appeals are taken together, heard together and disposed off together. For the brevity, the ITA No. 1064/KOL/2018 filed by the Revenue and CO No. 14/KOL/2021 filed by the assessee are taken as lead cases.
3. The Revenue in ITA No. 1064/KOL/2018 has taken the following grounds of appeal:
"1. The Ld. CIT (A)-22, Kolkata has erred in law and on facts by deleting an addition of Rs 78,05,000/- made by Assessing Officer u/s 14A of Income Tax Act, 1961 read with Rule 8D of Income Tax Rules, 1962.
2. The Ld. CIT (A)-22, Kolkata has erred in law and on facts by deleting an addition of Rs.78,05,000/- made by Assessing Officer u/s 14A of Income Tax Act, 1961 read with Rule 8D of Income Tax Rules, 1962 while the assessee has investment of Rs.7441.24 Lakhs out of which investment amounting to Rs.2524.96 Lakhs during the years in shares with interest liability of Rs 425.97 Lakhs on loan of Rs.60473.98 Lakhs.
3. The Ld. CIT (A)-22, Kolkata has erred in law and on facts by deleting an addition of Rs.78.05 Lakhs made by Assessing Officer u/s 14A of Income Tax Act, 1961 read with Rule 8D of Income Tax Rules, 1962 while assessee has not made any disallowance on earning of dividend exempted income.
4. The Ld. CIT (A)-22, Kolkata has erred in law and on facts by deleting an addition of Rs. 124 23 Lakhs made against claim of debts and irrecoverable bad debts written off.
5. The Ld. CIT (A)-22, Kolkata has erred in law and on facts by deleting an addition of Rs. 124.23 Lakhs made against claim of debts and irrecoverable bad debts written off by observing that he has considered the remand report of Assessing Officer while this issue was neither referred for remand report nor the Assessing Officer sent any remand report
6. The Ld. CIT (A)-22, Kolkata has erred in law and on facts by deleting an addition of Rs. 124.23 Lakhs made against claim of debts and irrecoverable bad debts written off without submitting any details to the Assessing Officer and without calling any remand report from the Assessing Officer on this issue as is apparent from his letter F. No. CIT (A)-22/Kol/Titagarh Wagons Ltd./17-18/608 dated 18 12.2017.Page 2 of 25
I.T.A. Nos.: 1064 & 1065/KOL/2018 C.O. Nos.: 14 & 15/KOL/2021 AYs: 2011-12 & 2012-13 M/s. Titagarh Wagon Ltd.
7. The Ld. CIT (A)-22, Kolkata has erred in law and on facts by deleting an addition of Rs.57,28,743/- on account of interest payment on delayed payment of custom duty; Rs.32,53,378/- as interest to Bank and Rs. 15,11,793/- as interest to ECB for buyer's credit.
8. The Ld. CIT (A)-22, Kolkata has erred in law and on facts by deleting an addition of Rs.57,28,743/- on account of interest payment on delayed payment of custom duty; Rs.32,53,378/- as interest to Bank and Rs. 15,11,793/- as interest to ECB for buyer's credit without producing any details of Challan or evidence of actual payment during the year.
9. The Ld. CIT (A)-22, Kolkata has erred in law and on facts by deleting an addition of Rs.57,28,743/ on account of interest payment on delayed payment of custom duty; Rs.32,53,378/- as interest to Bank and Rs.15,11,793/- as interest to ECB for buyer's credit as the provisions of section 43B(d) are applicable on the payments.
10. The Ld. CIT (A)-22, Kolkata has erred in law and on facts by deleting additions account of provisions made under section 115JB of the IT Act, 1961 Rs.4,14,20,327/- on the following provisions :-a. Provision for liquidated damage - Rs. 1,42,23,000/-
b. Provision for gratuity - Rs 27 12,713/-
c Provision for leave encashment - Rs.36.93.870/-
d Provision for warranty claim - Rs 1,29,85,744/-
e. Disallowance u/s. 14A - Rs 78,05,000/-
11. The Ld. CIT (AI-22, Kolkata has erred in law and on facts in deleting the adjustment made by the Assessing Officer based on the arm's length interest rate computed by the Assessing Officer/Transfer Pricing Officer.
12. The Ld. CIT (A)-22, Kolkata has erred in law and on facts in not determining the arm's length rate of interest in accordance with Section 92A of the Income Tax Act, 1961 read with Rule 10B & 10C of the Income Tax Rules, 1962.
13. The Ld. CIT (A)-22, Kolkata has erred to undertake adequate comparability analysis and reliable and accurate adjustments to account for difference between international transaction and comparable uncontrolled transaction as envisaged under transfer pricing provisions.
14. The Ld. CIT (A)-22, Kolkata has erred to undertake the interest rate at LIBOR + 200 + 250 basic points that was only on basis of presumption and not specific facts pertaining to the instant case Page 3 of 25 I.T.A. Nos.: 1064 & 1065/KOL/2018 C.O. Nos.: 14 & 15/KOL/2021 AYs: 2011-12 & 2012-13 M/s. Titagarh Wagon Ltd.
15. That the appellant craves for leave to add, delete and/or modify any of the grounds of appeal before or at the time of hearing."
3.1. The assessee in CO No. 14/KOL/2021 has taken the following grounds of appeal:
"1. For that in view of the facts and in the circumstances the Ld. AO was wholly unjustified in adding Rs. 76,36,948/- as alleged undisclosed income of the appellant without pointing out any specific sum and the addition having been made merely on assumption, the addition so made is bad in law and is liable to be deleted and the Ld. CIT(A) erred in not considering the same and in view of the facts and in the circumstances it may be held accordingly.
2. Without prejudice to Ground No. 1 above, the Ld. CIT(A) failed to appreciate the fact that the AO had made such addition without conducting any verification / enquiry from the payer of the alleged amount so involved [i.e. Rs. 76,36,948/- being difference of Rs. 2,59,23,26,251/- and Rs. 2,58,46,89,303/-] and as such the entire addition is in violation of principle of natural justice and accordingly the same was liable to be deleted and hence it may be held accordingly.
3. Without prejudice to Grounds No. 1 & 2 above, the Ld.AO was wholly unjustified in considering the differential amount (Rs. 2,59,23,26,251/- - Rs. 2,58,46,89,303/-) of Rs. 76,36,948/- for the purpose of addition without considering the fact that the appellant has claimed TDS of Rs.6,67,03,567/- and hence the proportionate amount should have been reduced to derive the aforesaid amount of Rs. 76,36,948/- and hence it may be held accordingly.
4. Without prejudice to the aforesaid, the AO has granted credit for TDS at Rs. 6,67,03,567/- only as against the amount as per 26AS at Rs. 6,72,58,255/- and as such the AO's action in such regard is contrary to the basis on which the addition has been made and hence it may be held accordingly.
5. Without prejudice to Grounds No. 1 to 4 above, the Ld. AO may kindly be directed to allow credit for TDS at Rs. 6,72,58,255/- and in view of the facts and in the circumstances it may be held accordingly.
6. For that in view of the facts and in the circumstances, the Assessing Officer/Ld. CIT(A) was wholly unjustified in adding Rs. 1,29,85,744/- on account of Provision for warranty and Ld. CIT(A) was wholly unjustified in not adjudicating the additional Ground so raised before him during the appellate proceedings and in the facts and in the circumstances it may be held accordingly.Page 4 of 25
I.T.A. Nos.: 1064 & 1065/KOL/2018 C.O. Nos.: 14 & 15/KOL/2021 AYs: 2011-12 & 2012-13 M/s. Titagarh Wagon Ltd.
7. For that in view of the facts and circumstances of the case, the Assessing Officer / CIT(A) ought to have allowed deduction of Education Cess amounting to Rs. 1,17,60,812/- in terms of law laid down by the Hon'ble Rajasthan High Court in Chambal Fertilizers and Chemicals Ltd. [ITA No. 52/Raj/2018 ruling dt. 31.7.2018] and further Hon'ble Kolkata Tribunal in case of ITC Ltd. [ ITA No. 685/Kol/2014 ruling dt. 27.11.2018] and in the facts and circumstances, it may be held accordingly.
8. For that your appellant craves the right to put additional grounds and/or to alter/amend/modify the present grounds at the time of hearing."
4. The brief fact of the case is that the assessee is a manufacturer of Railway wagons and portable bridges and have two units at Titagarh and Hindmotor in West Bengal. The assessee company manufactures cranes, earth moving equipment, steel castings etc. at Hindmotor. On examination during the assessment proceeding the ld. AO disallowed u/s 14A of the Act amounting to Rs. 78.05 Lakh, provision for doubtful advances amounting to Rs. 344.45 Lakh, provision for liquidated damage amounting to Rs. 142.23 Lakh, undisclosed TDS amounting to Rs. 76,36,948/-, debts and irrecoverable balances written off which was added back amounting to Rs. 124.23 Lakh, interest on tax, custom duty, ECB, LC etc. amounting to Rs. 182.50 Lakh and adjustment in transfer pricing for downward adjustment amounting to Rs. 1,88,11,087/-. Aggrieved assessee filed an appeal before ld. CIT(A). The ld. CIT(A) considering the submission of the assessee called for remand report and after that the appeal was partly allowed. Being aggrieved on the appeal order both the Revenue and the assessee filed appeal before us.
ITA No. 1064/KOL/2018Ground nos. 1, 2 & 3:
5. Ld. AO had added back u/s 14A of the Act considering Rule 8D(2)(ii) of the Income Tax Rules, 1962 amounting to Rs. 47.16 Lakh and Rule 8D(2)(iii) of the Rules amounting to Rs. 30.89 Lakh. So, total addition was confirmed total of Rs. 78.05 Lakh. The ld. D/R in argument relied on the order of the ld.
AO.
Page 5 of 25I.T.A. Nos.: 1064 & 1065/KOL/2018 C.O. Nos.: 14 & 15/KOL/2021 AYs: 2011-12 & 2012-13 M/s. Titagarh Wagon Ltd.
The ld. A/R further argued and submitted a written submission which are kept in the record. Ld. A/R has drawn our attention in appeal order page 32 which is reproduced as below:
"1. Grounds No. 5 & 6 raised by the appellant is in respect of allowance of Rs.78,06,068/- u/s 14A read with Rule 8D. In such respect, the appellant has challenged the quantum of the disallowance as well as it has contended that satisfaction has not been recorded by the Ld. AO as to the correctness of the books of account so required by the Statute. The appellant has also contended that the AO is wholly incorrect in invoking the Rule 8D(2)(ii) specially in the background of the fact that the loans taken were for specific purpose of the business and no disallowance in such respect should have been made.
2. I have carefully considered the appellant's submission as well as the AO's order in such respect and as regards the "satisfaction" I do not find any relevance in the manner since the Ld. AO has invoked the provision of sec. 14A read with Rule 8D only when he did not find the expenses corresponding the exempt income earned by the appellant and hence the appellant's contention in such respect cannot be accepted. Even otherwise there is no requirement in the Statute as to specific recording of satisfaction by the Ld. AO and also the correctness of the books of account. Had the Ld. AO not been satisfied he would not have recalculated / recomputed the disallowance. The appellant's contention towards the rejection of the books of account which cannot be the intention of the Statute and the Statute is only limited to the correctness of the calculation in such respect which the AO has done after having not been satisfied and as such the contention of the AO as to "satisfaction" cannot be accepted. As regards the quantum of the disallowance and invocation of Rule 8D(2)(ii), I find that the Hon'ble Calcutta High Court has already considered the issue and after having considered it had held that the loans which are for specific purposes cannot be considered for the computation of disallowance under Rule 8D(2)(ii) and further the appellant has also demonstrated that it has the sufficient Share Capital and Surplus to make an investment out of the same and the Ld. AO has also not pointed out specifically interest bearing fund having been utilized for the purpose of investment. I find substance in the appellant's argument and following the judgment of the Jurisdictional High Court in REI Agro (supra). The disallowance so made is deleted. Hence this ground of the appellant is allowed."
6. The ld. A/R further argued that the assessee has sufficient corpus fund and share capital and entire amount was invested from there and the interest part cannot be the tax in relation to Rule 8D(2) of the Rules. A calculation was submitted in paperbook which is reproduced as below:
Page 6 of 25I.T.A. Nos.: 1064 & 1065/KOL/2018 C.O. Nos.: 14 & 15/KOL/2021 AYs: 2011-12 & 2012-13 M/s. Titagarh Wagon Ltd.
(in Rs.) Pgs. of paper
book
Share Capital 3089.91 lacs 305
Reserves 50189.26 lacs
53279.17 lacs
Profit of the year 12261.15 lacs 306
Investment 7770.00 lacs 311
Loan : Secured loan 7137.00 lacs 309
Sales-tax def. 565.00 lacs
7702.00 lacs
Interest - on term loan 71.81 lacs 315
- on other loans 171.67 lacs
Others 182.50 lacs
425.98 lacs
7. ld. A/R in argument fully relied on the order of the ITAT, Kolkata Bench in the case of REI Agro Limited vs. DCIT [144 ITD 141]. The order of the ITAT was duly confirmed by the Hon'ble Calcutta High Court. The relevant part of the order of Coordinate Bench is duly reproduced as below:
"7.1 In any case, the working of the disallowance under sub-part (ii) of sub- clause (2) of rule 8D as made by the AO also suffers from a substantial error in so far as in the said rule in regard to the numerator B, the words used are the average value of the investment, income from which does not form or shall not form part of the total income as appearing in the balance-sheet as on the first day and in the last day of the previous year. Here the AO has taken into consideration the investment of Rs.103 crores made this year, which has not earned any dividend or exempt income. It is only the average of the value of the investment from which the income has been earned which is not falling within the part of the total income that is to be considered. This is why the question of satisfaction is provided in section 14A and rule 8D(1), that relates to the accounts of the assessee. Thus, it is not the total investment at the beginning of the year and at the end of the year, which is to be considered but it is the average of the value of investments which has given rise to the income which does not form part of the total income which is to be considered. A question may arise as to why the term "average of the value of investment" is then used. The term average of the value of investment would be to take care of cases where there is the issue of dividend striping. In any case, as we have already held that the assessee has not incurred any expenditure by way of interest during the previous year, which is not directly attributable to any particular income, the findings of the ld. CIT(A) on the issue stand confirmed and consequently the appeal filed by the Revenue stands dismissed.
Page 7 of 25I.T.A. Nos.: 1064 & 1065/KOL/2018 C.O. Nos.: 14 & 15/KOL/2021 AYs: 2011-12 & 2012-13 M/s. Titagarh Wagon Ltd.
8. In respect of provisions of rule 8D(2)(iii), which is the subject-matter of the appeal in the assessee's hand, a perusal of the said provision shows that what is disallowable under rule 8D(2)(iii) is the amount equal to ½ percentage of the average value of investment the income from which does not or shall not form part of the total income. Thus, under sub-clause (iii), what is disallowed is ½ percentage of the numerator B in rule 8D(2)(ii). Again this is to be calculated in the same line as mentioned earlier in respect of Numerator B in rule 8D(2)(ii) of the Act.
8.1 Thus, not all investments become the subject-matter of consideration when computing disallowance under section 14A read with rule 8D. The disallowance under section 14A read with rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income. Under the circumstances, the computation of the disallowance under section 14A read with rule 8D(2)(iii), which is issue in the assessee's appeal, is restored to the file of the AO for re-computation in line with the direction given above. No disallowance under section 14A read with rule 8D(2)(i) and (ii) can be made in this case.
9. In the result, the appeal filed by the Revenue stands dismissed and the appeal filed by the assessee stands partly allowed for statistical purposes."
8. In case of addition under Rule 8D(2)(iii) of the Rules the ld. A/R fully relied on the order of the Hon'ble Delhi High Court in the case of Joint Investments (P.) Ltd. vs. Commissioner of Income-tax, [2015] 59 taxmann.com 295 (Delhi). The relevant paragraph is duly inserted as below:
"9. In the present case, the AO has not firstly disclosed why the appellant/assessee's claim for attributing Rs. 2,97,440 as a disallowance under s. 14A had to be rejected. Taikisha Engg. India Ltd. (supra) says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee's claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO-an aspect which is completely unnoticed by the CIT(A) and the Tribunal. The third, and in the opinion of this Court, important anomaly which we cannot be unmindful is that whereas the entire tax- exempt income is Rs. 48,90,000, the disallowance ultimately directed works out to nearly 110 per cent of that sum, i.e., Rs. 52,56,197. By no stretch of imagination can s. 14A or r. 8D be interpreted so as to mean that the entire tax-exempt income is to be disallowed. The window for disallowance is indicated in s. 14A and is only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax-exempt income". This Page 8 of 25 I.T.A. Nos.: 1064 & 1065/KOL/2018 C.O. Nos.: 14 & 15/KOL/2021 AYs: 2011-12 & 2012-13 M/s. Titagarh Wagon Ltd.
proportion or portion of the tax-exempt income surely cannot swallow the entire amount as has happened in this case.
10. For the above reasons, the impugned order of the Tribunal is set aside. The question of law is answered in favour of the assessee. Consequently, order of the AO is set aside. The initiation of penalty proceedings also is set aside. The matter is remitted to the AO for fresh consideration in accordance with the above directions. The appeal is partly allowed."
9. The ld. A/R further argued that only the dividend part of the assessee should be added. So, the assessee relied on the order of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. vs. Commissioner of Income Tax, New Delhi, [2018] 91 taxmann.com 154 (SC). The relevant paragraphs are reproduced as below:
"39. In those cases, where shares are held as stock-in-trade, the main purpose is to trade in those shares and earn profits therefrom. However, we are not concerned with those profits which would naturally be treated as 'income' under the head 'profits and gains from business and profession'. What happens is that, in the process, when the shares are held as 'stock- in-trade', certain dividend is also earned, though incidentally, which is also an income. However, by virtue of Section 10 (34) of the Act, this dividend income is not to be included in the total income and is exempt from tax. This triggers the applicability of Section 14A of the Act which is based on the theory of apportionment of expenditure between taxable and non-taxable income as held in Walfort Share & Stock Brokers (P.) Ltd. case. Therefore, to that extent, depending upon the facts of each case, the expenditure incurred in acquiring those shares will have to be apportioned.
40. We note from the facts in the State Bank of Patiala cases that the AO, while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that section 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT(A) disallowed the entire deduction of expenditure. That view of the CIT(A) was clearly untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court. It is to be kept in mind that in those cases where shares are held as 'stock-in-trade', it becomes a business activity of the assessee to deal in those shares as a business proposition. Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately Page 9 of 25 I.T.A. Nos.: 1064 & 1065/KOL/2018 C.O. Nos.: 14 & 15/KOL/2021 AYs: 2011-12 & 2012-13 M/s. Titagarh Wagon Ltd.
trade those shares by selling them to earn profits. The situation here is, therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the share price goes up in order to earn profits. In the result, the appeals filed by the Revenue challenging the judgment of the Punjab and Haryana High Court in State Bank of Patiala also fail, though law in this respect has been clarified hereinabove."
10. We heard the rival submissions and considered the documents available in the record. The assessee has loan in purpose for secured loan and sale tax deferment and also the term loan. The interest is incurred on term loan and on other loans. The term loan has a specific guidance payment for the specific purpose and therefore, cannot be taken into account for the purpose of disallowance. The investment made by the assessee has sufficient share capital and reserve which is amounting to Rs. 53,279.17 Lakh. Further Rule 8D(2)(ii) of the Rules will not be applicable on relying on the order of the ITAT, Kolkata Bench in the case of REI Agro (supra) and the disallowance under Rule 8D(2)(iii) of the Rules is fully relied on the Joint Investments (P.) Ltd. (supra). We respectfully consider the order of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. (supra). We are not interfering in the appeal order related deletion of amount of Rs. 78,05,000/- which was added back U/s 14A of the Act. We direct the ld. AO to restrict the addition only on the dividend income which is exempted. In our considered view, the addition is restricted for income of dividend amounting only.
Accordingly, ground nos. 1, 2 & 3 of revenue are partly allowed.
Ground nos. 4, 5 & 6:
11. The ld. D/R in argument mentioned that the addition was made related to write off debt and advance amounting to Rs. 124.22 Lakh. The assessee Page 10 of 25 I.T.A. Nos.: 1064 & 1065/KOL/2018 C.O. Nos.: 14 & 15/KOL/2021 AYs: 2011-12 & 2012-13 M/s. Titagarh Wagon Ltd.
was unable to explain the issue before the ld. AO. So, ld. D/R fully relied on the order of the ld. AO.
12. The ld. A/R vehemently argued and placed that the assessee has completed the remand proceeding before ld. CIT(A) during the time of appeal hearing. So, the entire details were duly submitted, and clarification was made. Accordingly, the ld. CIT(A) has passed the order. The relevant part of the appeal order in page 43 is duly inserted as below:
"1. Ground No. 12 is in respect of disallowance of Rs. 1,24,23,000/- on account of debts and irrecoverable balances written off. The appellant had submitted relevant documents and the same was remanded. I have considered the AO's remand report in the matter as well and after having considered the same I find the issue before me is mainly pertaining to advances which were given by the appellant in the ordinary course of business for various supplies, however, the same could not be recovered by the appellant and hence the appellant had written off the impugned sum.
2. The same is squarely allowable as business loss u/s 28(i). Similarly, some amount pertains to debts pertaining to sales made in earlier year and the same is allowable u/s 36(2) read with 36(l)(viii). Hence, this ground of the appellant is allowed."
13. The ld. A/R respectfully relied on the order of the Hon'ble Supreme Court in the case of T.R.F. Ltd. vs. Commissioner of Income-tax, [2010] 190 Taxman 391 (SC) which is reproduced as below:
"4. This position in law is well-settled. After 1-4-1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account of the customer. In the case of companies, the provision is deducted from sundry debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted to the Assessing Officer for de novo consideration of the above-mentioned aspect only and that too only to the extent of the write off."
14. We heard the rival submission and considered the documents available in the record. In our considered view the assessee has write off the debt and Page 11 of 25 I.T.A. Nos.: 1064 & 1065/KOL/2018 C.O. Nos.: 14 & 15/KOL/2021 AYs: 2011-12 & 2012-13 M/s. Titagarh Wagon Ltd.
advance u/s 37 of the Act and entire details were duly submitted before ld. CIT(A) who has completed the remand during the appeal. But in remand the ld. AO has not made any adverse comment against the assessee. The observation of the ld. AO in assessment order page no. 9 is duly inserted as below:
"Further before claiming an amount as bad debt, it should be shown that it is an acknowledged debt. Unless there is an admitted debt or acknowledged debt, it cannot be allowed as a bad debt when it is written off. Therefore, the bad debt presupposes the existence of a bad debt and relationship of a debtor and a creditor. It is settled that the assessee has not too established by filing demonstrative or infallible proof that the debt had become bad in the previous year but existence of the debt must be there and genuineness of bad debt has to be proved by the assessee.
The assessee has not filed any detail or copy of any correspondence or document to show as to who were the parties involve and what was the amounts in question as payable to the assessee. It is quite probable that they might have made some deductions from the payments made to the assessee in the earlier years, in such a situation the deductions in the earlier years was loss for the earlier years and should have been claimed in the earlier years. There is no justification to claim the prepaid losses in the current year.
In view of the above, it is held that the claim of written off of Rs. 124.23 lakhs on account of debts and irrecoverable balances written off has not been proved by filing factual details and by furnishing explanation as to how write off in each case fulfils the condition of sec. 36(1)(vii) read with sec. 36(2). Further it is also held that the above said deduction made in the earlier years are prepaid expenses. Hence the amount of Rs. 124.23 lakhs has been disallowed as bad and irrecoverable balances and added back to the total income of the assessee.
[ Disallowance: Rs 124.23 lakh]"
15. So, the conditions of Section 36(1)(vii) read with Section 36(2) of the Act is not completed due to the non-filing of the documents before the ld. AO. But the documentations and evidence are filed in the appeal stage which is covered by the remand report U/R 46A. The assessee has submitted the details in APB page 234 Annexure-L about the details of the write off bad debts and advances. The ld. DR has not made any objection about the Page 12 of 25 I.T.A. Nos.: 1064 & 1065/KOL/2018 C.O. Nos.: 14 & 15/KOL/2021 AYs: 2011-12 & 2012-13 M/s. Titagarh Wagon Ltd.
submission of the assessee and is not able to submit any contrary judgment before the bench against the assessee.
16. In our considered view, we are not interfering in the order of ld. CIT(A). So, the relief granted by ld. CIT(A) is upheld.
Accordingly, ground nos. 4, 5 & 6 of the revenue are dismissed.
Ground nos. 7, 8 & 9:
17. The Revenue has taken these grounds related to disallowance of interest during the assessment proceedings. The ld. AO has taken the interest as penal interest. So, the entire amount was disallowed. Out of the total interest only Rs. 89,82,121/- interest to Customs Department and Rs. 15,11,798/- interest to ECB was duly challenged by the Revenue as because the ld. CIT(A) has granted relief to the assessee. But in case of other interest which was rejected by ld. CIT(A) was not challenged by the assessee before the Bench.
18. Ld. D/R vehemently argued and fully relied on the assessment order.
19. The ld. A/R drawn our attention in page no. 44 of the appeal order which is reproduced as below:
"1. Ground No. 13 is in respect of disallowance of Rs.1,82,50,000/- on account of Interest on Tax, Custom Duty, ECB, etc. The Ld. AO has disallowed such sum on the ground that proper explanation were not filed in the assessment proceedings. The matter was remanded and the Ld. AO in the remand report has contended that the relevant details / documents as well were not furnished in this forum. I have considered the appellant's submission as well as the Ld. AO's contention of the remand report and I find that the disallowance of Rs. 1,82,50,000/-, the appellant has itself not pressed for Rs.67,49,564/- on the ground that the same pertained to income tax interest and which is not allowable. As regards interest paid on Custom Duty of Rs.89,82,121/-, the appellant had placed the relevant documents in such respect which also forms part of the paper book which was also forwarded to Ld. AO for remand.
2. However, I find that the Ld. AO has overlooked the matter, and not considered the same. Having considered such document, I find the interest paid on Custom Duty of Rs. 89,82.121/- is fully allowable. As regards, the Page 13 of 25 I.T.A. Nos.: 1064 & 1065/KOL/2018 C.O. Nos.: 14 & 15/KOL/2021 AYs: 2011-12 & 2012-13 M/s. Titagarh Wagon Ltd.
sum of Rs. 15,11,793/-, in my considered view, I find that the same pertains to ECB and the same is not covered u/s 43B and the said sum having gone through the approval of Reserve Bank of India the same is also allowable.
3. As regards the balance sum of Rs.8,10,582/-, Rs.1,31,690/- & Rs. 64,484/-, no evidence have been placed and hence in such respect the Ld. AO's action stands affirmed. Hence, this ground of the appellant is partly allowed."
20. The ld. A/R further relied on the order of Hon'ble Supreme Court in the case of Lachmandas Mathuradas vs. Commissioner of Income-tax, [2002] 122 Taxman 828 (SC). The relevant paragraph is reproduced as below:
"3. While granting special leave to appeal, the appeal has been confined to question Nos. 1 and 2 only. The High Court has proceeded on the basis that the interest on arrears of sales tax is penal in nature and has rejected the contention of the assessee that it is compensatory in nature. In taking the said view the High Court has placed reliance on its Full Bench's decision in Saraya Sugar Mills (P.) Ltd. v. CIT [1979] 116 ITR 387 (All.) The learned counsel appearing for the appellant-assessee states that the said judgment of the Full Bench has been reversed by the larger Bench of the High Court in Triveni Engg. Works Ltd. v. CIT [1983] 144 ITR 732 (All.) (FB), wherein it has been held that interest on arrears of tax is compensatory in nature and not penal. This question has also been considered by this Court in Civil Appeal No. 830 of 1979 titled Saraya Sugar Mills (P.) Ltd. v. CIT decided on 29-2-1996. In that view of the matter, the appeal is allowed and question Nos. 1 and 2 are answered in favour of the assessee and against the revenue. No order as to costs."
21. We heard the rival submission and considered the documents available in the record. The Revenue is concerned of the two interest payments related to Customs department and interest to ECB. The interest payment is related to compensatory in nature. We respectfully relied on the order of Lachmandas Mathuradas (supra). The ld. DR is unable to submit any contrary judgment against the submission of the ld. AR. In our considered view, we are not interfering in the order of ld. CIT(A). So, the interest payment by the assessee is allowable expenses.
Accordingly, ground nos. 7, 8 & 9 of the revenue are dismissed.
Ground no. 10:
Page 14 of 25I.T.A. Nos.: 1064 & 1065/KOL/2018 C.O. Nos.: 14 & 15/KOL/2021 AYs: 2011-12 & 2012-13 M/s. Titagarh Wagon Ltd.
22. The ld. D/R argued and pressed that the issue is related to adjustment during computing the book profit u/s 115JB of the Act. In this issue ld. AO has adjusted the provisions and the disallowance u/s 14A of the Act. The ld. CIT(A) has considered and allowed in favour of the assessee and appeal of the assessee is partly allowed. The ld. D/R fully relied on the assessment order.
23. The ld. A/R vehemently argued and drawn our attention in appeal order at page no. 46 which is reproduced as below:
"1. Grounds No. 14 & 15 is in respect of computation of book profit u/s 115JB and in respect of the same Ld.AO has made the following adjustments of following items.
i) Provisions for doubtful advances ... Rs. 3,44,45,000/-
ii) Provisions for liquidated damage ... Rs. 1,42,23,000/-
iii) Provisions for gratuity ...Rs. 27,12,713/-
iv) Provisions for leave encashment ... Rs. 36,93,870/-
v) Provisions for warranty claim ...Rs. 1,29,85,744/-
vi) Provisions for diminishing in value of investment ... Rs. 3,29,03,110/-
vii) Disallowance u/s 14A ... Rs. 78,05,000/-
2. As regards Item No. (ii) in respect of Provisions for liquidated damage, Item No. (Hi) Provisions for gratuity, Item No. (iv) Provisions for leave encashment & Item No. (v) Provisions for warranty claim, the same cannot be considered as contingent in any manner and in respect of which several Courts of the country had held that the said sums are not contingent and hence the said sums Pertaining to Item Nos. (ii) to (v) were wrongly added by the Ld. AO in the computation of book profit u/s 115JB and as such action of Ld. AO cannot be upheld and the AO is directed to allow the same accordingly.
3. As regards Item No. (i) in respect of Provisions for doubtful advances & Item No. (vi) in respect of Provisions for diminishing in value of investment the Statue clearly provides that "such sums causing diminishment in value of asset cannot be allowed for the purpose of book profit" and hence the same is considered accordingly and Ld. AO's action to such extent stands approved.
4. As regards disallowance u/s 14A, I find that the Ld.AO has invoked the provision under Rule 8D which has no application in the computation of Page 15 of 25 I.T.A. Nos.: 1064 & 1065/KOL/2018 C.O. Nos.: 14 & 15/KOL/2021 AYs: 2011-12 & 2012-13 M/s. Titagarh Wagon Ltd.
income. The issue has been considered and adjudicated by Hon'ble Bombay High Court in Bengal Finance Ltd. and Delhi Special Bench- in Vireet Investment Ltd. Hence following the same the disallowance u/s 14A r.w. Rule 8D is deleted. However, the Ld. AO is free to consider the sum actually incurred in earning exempt income in the computation of book profit u/s 115JB. Hence this aspect of appellant's ground is partly allowed."
24. The ld. A/R also relied on the order of ITAT, Kolkata Bench in the case of JCIT, (OSD), Circle-4, Kolkata vs. Kanco Enterprises Ltd, [2016] 65 taxmann.com 289 (Kolkata - Trib.). The relevant paragraph is reproduced as below:
"14. As far as ground no. 4 raised by the revenue is concerned, the provision of gratuity was made by the assessee in the books of account on the basis of the report of actuarial valuation and it cannot be said that liability of the assessee on account of gratuity was unascertained liability. Therefore, the said sum cannot be added to the book profits as per clause (c) of Explanation 1 to section 115JB of the Act. Ground nos. 3 and 4 raised by the revenue are therefore dismissed."
25. This issue is no longer res integra and is squarely covered by the decision of ITAT, Kolkata Bench in the case of DCIT Vs. Birla Corporations in ITA No. 1964/Kol/2019 dated 16.01.2024. The relevant extract in this respect is reproduced as under:
"28. Ground No.13- Vide Ground No.13, the revenue has agitated the action of the CIT(A) in deleting the upward adjustment made to book profit on account of disallowance of expenditure computed u/s 14A of the Act r.w.r. 8D of the Income Tax Rules.
29. The ld. counsel for the assessee, in this respect, has relied upon the decision of the Tribunal in the assessee's own case dated 07.02.2023 passed in ITA Nos. 2142 & 2143/Kol/2018 in relation to Assessment Years 2013-14 & 2014-15, wherein, the identical ground raised by the department has been dismissed by the Tribunal relying upon the earlier decision of the Tribunal in the own case of the assessee. The relevant part of the order of the Tribunal dated 07.02.2023 (supra) is reproduced as under:
"Revenue's common Ground no. 9 for AY 2013-14 & 2014-15 relating to the upward adjustment made to book profit for disallowance computed u/s 14A r.w. Rule 8D of the Rules:
16. We have heard rival contentions and perused the records placed before us. We find that this Tribunal in assessee's own case for AY 2011-12 & Page 16 of 25 I.T.A. Nos.: 1064 & 1065/KOL/2018 C.O. Nos.: 14 & 15/KOL/2021 AYs: 2011-12 & 2012-13 M/s. Titagarh Wagon Ltd.
201213 dealt with this issue and decided in assessee's favour observing as follows:
"17. The eighth common ground of the Department's appeal is against the deletion of upward adjustment made to book profit on account of the disallowance computed under section 14A read with rule 8D. The assessee had disallowed a sum of Rs. 6,40,792/- in the computation of its book profit in terms of clause (f) of Explanation 1 to section 115JB of the Act on account of expenditure relatable to exempt dividend income. Whilst working out the disallowance under section 14A of the Act read with rule 8D of the Rules under the normal computation provisions, ld. CIT(A) made a further disallowance of Rs. 5,71,31,208/-. The same disallowance of Rs. 5,71,31,208/- was made in the computation of book profit under section 115JB of the Act. On appeal, ld. CIT(A) held that the provisions of section 14A and rule 8D cannot be applied in the computation of book profit under section 115JB of the Act. He placed reliance on the judgment of the Hon'ble Calcutta High Court in CIT v. Jayshree Tea and Industries Limited in ITAT 47 of 2014 and G.A. 1501 of 2014 decided on November 19, 2014.
17.1. It is submitted that this question is decided in favour of the assessee by the judgment of the Hon'ble Calcutta High Court in Jayshree Tea's case (supra) (page 152 of the Compilation of Case Laws). Question No. 2 in Jayshree Tea's case is relevant in this behalf. The material extracts from the said judgment are as below:
QUESTION 2 in Jayshree Tea's case "2. Whether on the facts and in the circumstances of the case the Ld. Tribunal has erred in law in upholding the order of CIT (Appeals) that disallowance under Section 14A of the I.T. Act, 1961, amounting to Rs.2,20,15,787/- is not to be considered for book profit for calculation of book profit under Section 115JB of the I.T. Act, 1961?"
DECISION OF THE HON'BLE COURT "We admit the question no.2 for adjudication in this appeal. By consent of the parties, the appeal is treated as ready for hearing and taken up as such.
We find computation of the amount of expenditure relatable to exempted income of the assessee must be made since the assessee has not claimed such expenditure to be Nil. Such computation must be made by applying clause (f) of Explanation 1 under section 115JB of the Act. We remand the matter for such computation to be made by the learned Tribunal.
We accept the submission of Mr. Khaitan, learned Senior Advocate that the provision of section 115JB in the matter of computation is a complete code in itself and resort need not and cannot be made to section 14A of the Act."Page 17 of 25
I.T.A. Nos.: 1064 & 1065/KOL/2018 C.O. Nos.: 14 & 15/KOL/2021 AYs: 2011-12 & 2012-13 M/s. Titagarh Wagon Ltd.
(emphasis added) 17.2. The same view was taken by the Hon'ble Karnataka High Court in CIT v. Gokal Das Images Private Limited, (2020) 429 ITR 526 (Karn) -paragraph 10 at page 533 of the Reports (Page 156 at page 163 of the Compilation of the Case Laws). Relevant portion of the decision of the Karnataka High Court in Gokaldas Images' case (supra) is extracted hereinbelow:
"10. The Commissioner of Income-tax (Appeals) has held that as per section 115JB of the Act, the assessee being a company is liable to tax on book profits in accordance with the aforesaid provision and there is no exemption granted to the non-dividend company in this regard. However, the tribunal by placing reliance on decision of the Supreme Court in Apollo Tyres v. CIT [2002] 122 Taxman 562/255 ITR 273 has held that Assessing Officer while determining book profits under section 115JB of the Act cannot tamper with the profits as per profit and loss account prepared in accordance with the Companies Act except in the manner provided in Explanation 1 to section 115JB of the Act. Thus, it has been held that the additions made by the Assessing Officer while determining the book profits under section 115JB of the Act cannot be sustained. Any disallowance computed under section 14A of the Act pertain to computation of income under normal provisions of the Act and cannot be read into the provisions of section 115JB of the Act pertaining to computation of book profits by levy of Minimum Alternate Tax (MAT) and there is no express provision in clause (f) of Explanation 1 to section 115JB of the Act to that extent. For the aforementioned reasons, the third substantial question of law is answered against the revenue and in favour of the assessee."
(emphasis added) 17.3. Respectfully following the judgments/decisions referred herein above, we fail to find any infirmity in the finding of ld. CIT(A) in deleting upward adjustment made to book profit for disallowance computed u/s 14A r.w. Rule 8D of the Rules. Thus, common ground no. 8 raised by the Revenue for AY 2011-12 & AY 2012-13 are dismissed."
16.1. Respectfully following the judgments/decisions referred herein above, we fail to find any infirmity in the finding of ld. CIT(A) in deleting upward adjustment made to book profit for disallowance computed u/s 14A r.w. Rule 8D of the Rules. Thus, common ground no. 9 raised by the Revenue for AY 2013-14 & 2014-15 are dismissed."
30. However, the ld. DR, in this respect, has made the following submissions:
"2. As regards the issue of inclusion of the disallowance u/s 14A for the purpose of computation of book profit u/s115JB, reliance is placed on the decision of Hon'ble ITAT, Kolkata bench in A.C.I.T. Vs M/s. Ridhi Portfolio Page 18 of 25 I.T.A. Nos.: 1064 & 1065/KOL/2018 C.O. Nos.: 14 & 15/KOL/2021 AYs: 2011-12 & 2012-13 M/s. Titagarh Wagon Ltd.
(P) Ltd, vide order dated 16.02.2018 in IT (SS) Nos. 106 to 109/Kol/2016. It was held as under:
In the case of CIT vs Jayshree Tea Industries Ltd. (ITAT No. 47 of 2014 dated 19.11.20 14), Hon'ble Kolkata High Court has also expressed a similar view by holding that the provision of section 115JB in the matter of computation is a complete code in itself and resort need not and cannot be made to section 14A of the Act. Hon'ble Kolkata High Court has further held that the computation of the amount of expenditure relatable to exempt income of the assessee must be made independently by applying clause (f) of Explanation (1) under section 115JB of the Act where the assessee has not claimed such expenditure to be nil. Respectfully following the said decision of the Hon'ble Jurisdictional High Court in the case of Jayshree Tea Industries Ltd. (supra), we set aside the impugned orders of the Ld. CIT(A) on this issue and restore the matter to the file of the A.O. for computing the amount of expenditure relatable to the exempted income of the assessee independently for all the four years under consideration by applying clause (f) of Explanation (1) under section 115JB of the Act without resorting to section 14A or Rule 8D."
(Emphasis provided)
31. We have considered the rival submissions and gone through the record. The ld. DR has placed reliance on Explanation 1 Clause (f) to section 115JB of the Act, which reads as under:
"Explanation [1] - For the purposes of this section, "book profit" means the [profit] as shown in the [statement of profit and loss] for the relevant previous year prepared under sub-section (2), as increased by -
(f) the amount or amount of expenditure relatable to income to which [section 10 (other than the provisions contained in clause (3*) thereof) or [***] section 11 or section 12 apply; or]"
32. The ld. counsel for the assessee, in this respect, has submitted that the provisions of section 115JB are complete code in itself and therefore, the Assessing Officer cannot tinker with the book profits. However, we do not find force in the aforesaid contention of the ld. counsel for the assessee in this respect. It is to be pointed out that as per Explanation 1(f), the book profit means the profit shown in the statement of profit and loss account as increased by the amount of expenditure relatable to the exempt income. The said amount of expenditure has already been ordered to be determined as per our observations made above while adjudicating the issue relating to the disallowance u/s 14A vide Ground No.10 of the revenue's appeal. It has to be further noted that section 115JB in itself does not prescribe any procedure to calculate the expenditure relatable to exempt income earned by the assessee. The said provision has been separately and specifically placed in the Act u/s 14A of the Act. Therefore, the book profits of the assessee are liable to be increased by the expenditure as calculated u/s Page 19 of 25 I.T.A. Nos.: 1064 & 1065/KOL/2018 C.O. Nos.: 14 & 15/KOL/2021 AYs: 2011-12 & 2012-13 M/s. Titagarh Wagon Ltd.
14A of the Act as provided under Explanation 1 to Clause (f) of section 115JB of the Act. In view of this, it is directed that the book profits will be increased u/s 115JB of the Act by the disallowance calculated as per our directions given while adjudicating Ground No.10 of the revenue's appeal. This ground of the revenue's appeal is hereby allowed."
26. Considering the facts of this case and the decision above and by placing reliance on the decision of Hon'ble jurisdictional High Court of Calcutta in Jayshree Tea & Industries Limited in ITAT 47 of 2014 and G.A 1501 of 2014 decided on November 19, 2014, we hold that the provisions of Section 115JB Clause (f) to Explanation (1) applies for the purpose of computing book profit. We, thus set aside the finding of ld. CIT(A) in this respect. Accordingly, the disallowance as computed by the AO in terms of the directions noted above is liable to be taken into account.
Accordingly, ground no. 10 of the Revenue is allowed.
Ground nos. 11 to 14:
27. This issue is related to the adjustment made by the Transfer Pricing Officer (in short ld. 'TPO') amounting to Rs. 1,88,11,087/-. The ld. DR argued. The Revenue has fully relied on the order of the Revenue authorities.
28. The ld. A/R vehemently argued and submitted a written submission which is reproduced as below:
"The loan advanced was to a new company which did not have any financial viability at the time of incorporation and there was no certainty of recovery of principal and hence the TPO derived cost of the fund to the appellant by a formula wherein the "cost of funds" to the appellant was derived at 16.95% on which risk premium of 300 bps over the cost of the funds so derived. Thus AO/TPO considered the ALP interest @ 16.95% over interest @ 7.16% charged by 'A'.
Interest rate charged has to be based on LIBOR or EUROIBOR, which was prevailing around 2% and as such interest charged by appellant is appropriate. The TPO computed "cost of funds" being the alleged ALP @ 16.95% upon which 300 bps was added and thus the alleged ALP (Arm's length price) of interest was determined at @19.95% as against the interest charged by the appellant at @7.16% and thus the TPO computed the quantum of upward adjustment for A.Y 2011-12 as follows: -Page 20 of 25
I.T.A. Nos.: 1064 & 1065/KOL/2018 C.O. Nos.: 14 & 15/KOL/2021 AYs: 2011-12 & 2012-13 M/s. Titagarh Wagon Ltd.
ALP of interest ... Rs. 2,93,88,087/-
Less: Interest charged ... Rs. 1,05,77,000/-
Upward adjustment of interest ... Rs. 1,88,11,087/-
The appellant's contention in such respect is as follows: -
A. Comparable interest rate has to be LIBOR only.
i) The appellant had provided such loan to the AE in Euro currency.
ii) The borrowing / lending undertaken in international market. The interest should be charged on the basis of LIBOR/ EUROIBOR which is considered to the real cost of interest funding. In terms of rule 10B, comparables of foreign currency loans has to be compared with loan provided in comparable conditions prevailing in markets in which the parties to the transaction operate and comparable contractual term i.e. foreign currency loan provided in the international market.
iii) Rule 10B(2)(b) of Income-tax Rules, 1962 states that transaction should be seen in the backdrop of the market condition in geographical location and prevalent Rules and Regulations. Loans in international market and price based on LIBOR / EUROIBOR and since LIBOR / EUROIBOR represents the uncontrolled transaction in international market taking into account the foreign exchange risk undertaken by the borrower / lender."
29. We heard the rival submission and considered the documents available in the record. The TPO during assessment made the upward adjustment of interest amount to Rs. 1,88,11,087/-. The ld. TPO derived cost of the fund to the appellant by a formula wherein the "cost of funds" to the appellant was derived at 16.95% on which risk premium of 300 bps over the cost of the funds so derived. Thus ld. TPO considered the ALP interest @ 16.95% over interest @ 7.16% charged by assessee. The borrowing / lending undertaken in international market. The interest should be charged on the basis of LIBOR/ EUROIBOR which is considered to the real cost of interest funding. In terms of rule 10B, comparable of foreign currency loans has to be compared with loan provided in comparable conditions prevailing in markets in which the parties to the transaction operate and comparable contractual term i.e. foreign currency loan provided in the international market. During assessment the comparable U/R 10B(2)(b) are not considered. In our considered view, we set aside the order of AO/TPO and directed the AO/TPO Page 21 of 25 I.T.A. Nos.: 1064 & 1065/KOL/2018 C.O. Nos.: 14 & 15/KOL/2021 AYs: 2011-12 & 2012-13 M/s. Titagarh Wagon Ltd.
to recompute the rate of interest on loan fund after considering the comparable. Needless to say, the assessee should get reasonable opportunity in set aside proceeding.
Accordingly, ground no. 11 to 14 of the revenue is allowed for statistical purpose.
CO No. 14/KOL/202130. Related to this cross objection the assessee filed for difference in turnover. The assessee declared the turnover in the profit and loss account on which the TDS was deducted. The turnover and TDS are posted in the 26AS. There is difference between declared turnover and turnover posted in 26AS. The ld. AO ascertained the entire difference amounting to Rs. 76,36,948/- and the same amount is added back to the total income of the assessee. The aggrieved assessee filed an appeal before ld. CIT(A). But ld. CIT(A) upheld the entire addition made by the ld. AO.
31. The ld. A/R in argument placed that there is a huge turnover for the assessee and the ld. AO was not able to differentiate which was the exact difference amount related to posted in 26AS. The ld. A/R placed that the addition is without any verification by the ld. AO. So, the addition of difference of turnover in relation to be posted in 26AS is bad in law. The assessee relied on the order of Dr Swati Mahesh Vinchurkar vs. DCIT (2021) 191 ITD 434 (Surat) (Trib.).
"5. We have considered the rival submissions of the parties and have gone through the orders of the lower authorities carefully. There is no dispute that the assessee is resident of Surat. The assessee is qualified Doctor being Pediatric (Child Specialist). While filing her return of income the assessee has shown income from profession and other sources. During the process by CPC, the additions were made in the hand of assessee on the basis of TDS shown in Form-26AS. We find that in response to the notice of CPC, the assessee denied of having such income and that her response was ignored. Before ld. CIT(A) the assessee again specifically contended that she has not earned such income, nor any work was performed by her. We find that despite specific contention of the assessee, the ld CIT(A) instead of verifying the facts confirmed the additions by taking view that it seems that CPC had Page 22 of 25 I.T.A. Nos.: 1064 & 1065/KOL/2018 C.O. Nos.: 14 & 15/KOL/2021 AYs: 2011-12 & 2012-13 M/s. Titagarh Wagon Ltd.
considered the appellant explanation before making disallowance and that there is prima facie evidence. We find that both the authorities below acted in a mechanical way. There is no consideration of the contentions raised by the assessee that she has not worked or earned any income from such deductor. In our view once the assessee denied that she has not earned such income as reflected in her Form-26AS, the onus shift on the revenue authorities to prove such income of the assessee. The addition is based solely on the basis of TDS shown in Form-26AS, ignoring the submissions of the assessee. The ld. AR for the assessee vehemently argued before us that the deductor if more than 1000 KM away from the place of practice of assessee. Considering the peculiar facts of the present case, we find merit in the submissions of the ld AR for the assessee that the assessee had entered into any such transactions and the lower authorities have not made any verification or effort to verify such transactions and there is certain mistake of entering the wrong PAN, which belongs to the assessee and the addition made in the income is uncalled for.
6. We further find that the coordinate bench of Tribunal in Ravindra Pratap Thareja (supra) held that merely because a payment was reflected in Form- 26AS and was shown to have been made to the assessee, it could not be brought to tax as it could not be established that the assessee was actual beneficiary of said payments and the additions was liable to be deleted. Considering the above said factual and legal discussions, and keeping in view of the peculiar facts of the case, no purpose would serve to restore the matter back to the file of assessing officer or to Income-tax Officer (TDS), as prayed by ld Sr.DR for the revenue. In the result, the grounds of appeal raised by the assessee are allowed.
7. In the result, appeal of the assessee is allowed."
32. The ld. D/R vehemently argued and placed that the difference of the amount is unreconciled amount and ld. AO was unable to reconcile the amount related to books of accounts. So, the ld. D/R prayed that the addition shou relied on both the appeal and assessment order.
33. We heard the rival submission and considered the documents available in the record. The ld. A/R placed that the ld. AO without any verification added back the difference of turnover mentioned in profit and loss account and posted in 26AS. In our considered view, we direct ld. AO to verify further and to point out the exact lacunae of the assessee related to difference of amount. The assessee should be diligent and cooperative with the ld. AO to find out the difference of turnover. Accordingly, we remit back the matter to Page 23 of 25 I.T.A. Nos.: 1064 & 1065/KOL/2018 C.O. Nos.: 14 & 15/KOL/2021 AYs: 2011-12 & 2012-13 M/s. Titagarh Wagon Ltd.
the file of the ld. AO and adjudicate the issue de-novo considering the submission of the assessee.
34. In the result, CO No. 14/KOL/2021 is allowed for statistical purposes.
35. The assessee has not pressed any other issue during the cross objection. So, all the matters remained untouched.
36. The bench has noticed that the issues raised by the assessee in the above appeals are equally similar on set of facts and grounds. Therefore, it is not imperative to repeat the facts and various grounds raised by the assessee. Hence, the bench feels that the decision taken by us in ITA No. 1064/Kol/2018 & CO 14/Kol/2021 for the Assessment Year 2011-12 & 2012-13 shall apply mutatis mutandis in the ITA No. 1065/Kol/2018 & CO 15/Kol/2021 respectively and followed accordingly.
37. In the result, appeal of the revenue ITA No. 1064 & 1065/ Kol/2018 and CO 14 & 15/Kol/2021 of assessee allowed for statistical purpose Order pronounced on 09.04.2024 in accordance with Rule 34(4) of the Income tax (Appellate Tribunal) Rules, 1963.
Sd/- Sd/-
[Girish Agrawal] [Anikesh Banerjee]
Accountant Member Judicial Member
Dated: 09.04.2024
Bidhan (P.S.)
Page 24 of 25
I.T.A. Nos.: 1064 & 1065/KOL/2018
C.O. Nos.: 14 & 15/KOL/2021
AYs: 2011-12 & 2012-13
M/s. Titagarh Wagon Ltd.
Copy of the order forwarded to:
1. DCIT, LTU-2, Kolkata.
2. M/s. Titagarh Wagon Ltd., 756, Anandapur, E.M. Bypass, Kolkata- 700 107.
3. CIT(A)-22, Kolkata.
4. CIT-
5. CIT(DR), Kolkata Benches, Kolkata.
//True copy // By order Assistant Registrar ITAT, Kolkata Benches Kolkata Page 25 of 25