Income Tax Appellate Tribunal - Mumbai
Jsw Steel (Salav ) Ltd, Mumbai vs Dcit Cen Cir 22, Mumbai on 8 February, 2017
आयकर अपीलीय अिधकरण, अिधकरण मुंबई "जी खंडपीठ Income-tax Appellate Tribunal -"G"Bench Mumbai सव ी राजे ,लेखा सद य एवं अमरजीत सह, याियक सद य Before S/Sh.Rajendra,Accountant Member and Amarjit Singh,Judicial Member आयकर अपील सं./I.T.A./69/Mum/2015,िनधा िनधा रण वष /Assessment Year: 2010-11 आयकर अपील सं./I.T.A./70/Mum/2015,िनधा िनधा रण वष /Assessment Year: 2011-12 M/s. JSW Steel (Salav) Limited DCIT, Central Circle-22 (Formerly known as M/s. Welspun Maxsteel Ltd.) R.No.465, 4th Floor, Aayakar Bhavan Welspun House, 7th Floor Kamala City, Senapati Bapat Marg Vs. Mumbai-400 020.
Lower Parel, Mumbai-400 013.
PAN:AACCV 7689 R
(अपीलाथ /Appellant) ( यथ / Respondent)
िनधा रण वष /Assessment Year: 2011-12
आयकर अपील सं./I.T.A./394/Mum/2015,िनधा
DCIT, Central Circle-22 M/s. JSW Steel (Salav) Limited
Vs.
Mumbai-400 020. Mumbai-400 013.
(अपीलाथ /Appellant) ( यथ / Respondent)
राज
व क ओर से / Revenue by: Ms. Vidisha Kalra-CIT-DR
अपीलाथ क ओर से /Assessee by: Shri Mitesh Shah -AR
सुनवाई क तारीख / Date of Hearing: 14.12.2016
घोषणा क तारीख / Date of Pronouncement: 08/02/2017
आयकर अिधिनयम,1961
अिधिनयम क धारा 254(1)केके अ
तग त आदे श
Order u/s.254(1)of the Income-tax Act,1961(Act)
लेखा सद य,
सद य राजे
के अनुसार/
ार PER Rajendra A.M.-
Challenging the order,dated 07/10/2014,of the CIT(A)-39,Mumbai the Assessing Officer (AO)and the assessee have filed cross appeals for the AY.2011-12.The assessee has also filed appeal for the AY.2010-11.As most of the issues in these appeals are common,so,we are adjudicating them by passing a single order.
ITA/69/Mum/2015,AY. 2010-11: Brief background-
2.An action u/s. 132 of the Act was carried out on 13/10/2010 at the business/residential premises of persons of Well Spun group of and certain documents and loose papers were seized.In response to the notice u/s.153 C,the assessee filed its return of income on 09/09/ 2011,showing total income of Rs.11.75 crores that included additional income of Rs.32 Crores disclosed and returned by the assessee on account of sale of scrap.The AO completed the assessment u/s.143(3) r.w.s.153C making certian additions/disallowances.
2.1.First effective ground is about disallowance made u/s.14A of the Act.During the assessment proceedings,the AO found that the assessee was in receipt of exempt income by way of dividend of Rs.7.97 lakhs,that it had made investment in shares to the tune of Rs.2.99 crores,that no disallowance u/s.14A was made.He directed the assessee to file submission in that regard.The assessee submitted that it had made investment out of its own funds and 69/15,70/15-JSW&394/15-Welspun accruals.However,the AO did not agree with the assessee and referring to the judgment of Godrej & Boyce Manufacturing Company Ltd.(328 ITR 81)held that the assessee had not established that entire investment had been made out of its own funds,that the interest relating to investment had to be disallowed. Applying the provisions of Rule 8D of the Rules,he made a disallowance of Rs. 21.80 lakhs.
2.2.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority(FAA).Before him,it relied upon the case of Reliance Utility and Power Ltd.(313 ITR 340)and made submissions.
After considering the available material,the FAA held that the assessee had received tax-free dividend income of Rs.7.97lakhs,that it had claimed that no expenditure was incurred for earning the exempt income,that it had made investment of Rs. 2.99 crores in shares and had submitted that investment was made for strategic purposes that it had not established satisfactorily that entire investment had been made out of internal accruals alone,that no details were filed to prove that it had sufficient funds.He further observed that the AO had made disallowance of Rs.2.84 lakhs only,that disallowance was to be made of Rs.21.80 lakhs.Accordingly,he enhanced the disallowance by Rs.18.95 lakhs. 2.3.During the course of hearing before us,the Authorised Representative (AR) argued that the assessee had purchased shares of NMDC from whom it was purchasing raw material, that this was the only investment made during the year, that the assessee had sufficient own funds to make investment.Alternatively,it was argued that reasonable disallowance should be made keeping in consideration the exempt income earned by the assessee.The Departmental Representative (DR)supported the order of the FAA.
2.4.We have heard the rival submissions and perused the material available on record. We find that the assessee had an exempt income to the tune of Rs.7.97 lakhs,that the AO made disallowance of Rs.2.84 lakhs, invoking the provisions of section 14 A r.w.r. 8D of the Rules, that the FAA enhanced disallowance to Rs.21.80 lakhs,that both the authorities held that there was no proof that the assessee had sufficient own funds to make investments in shares during the year under consideration. We have gone through the balance sheet of the assessee as on 31.3.2010.We find that the reserve and surplus along with the capital of the assessee for the year (Rs.286 crores approx.) is far more than the investments made(Rs.2.99 crores). Nothing has been brought on record to prove that the shares purchased by the assessee for the year under appeal was not a strategic investment.We find that the AO/FAA has not mentioned anything about the expenditure incurred by the assessee for earning exempt income.In our 2 69/15,70/15-JSW&394/15-Welspun opinion if the assessee does not claim any expenditure for earning exempt income no dis - allowance can be made invoking the provisions of section 14A r.w.r.8D of the Rules. Considering the above,first Ground of appeal is decided in favour of the assessee.
3.Second effective ground of appeal is about confirming the addition of Rs. 84.65 lakhs under the head sundry balances written off.During the assessment proceedings, the AO found that the assessee had debited its P&L a/c.by sundry balances written off of Rs. 84,65,755/-. He directed the assessee to file complete details in that regard and to prove how the various conditions stipulated in section 36(1)(vii) r.w.s.36(2)were fulfilled.After considering the submission of the assessee,the AO held that the assessee had neither submitted the details required not furnished any proof to show that the amount in question had been offered for tax in the earlier years.Invoking the provisions of section 36(1) (vii)of the Act,he made a disallowance of Rs.84.65 lakhs.
3.1.During the appellate proceedings before the FAA, the assessee stated that it had written off grant receivable from ASIDE (Rs. 71.78 lakhs) and Service Tax (Rs. 12.87 Lakhs),that it had acquired a sponge iron unit as a going concern on 22/05/2009, that in the past it was granted Central assistance Ltd Rs. 203.80 lakhs by Maharashtra Maritime Board, that the earlier entity had shown the grant is its income in the profit and loss account, that out of the total grant Rs. 253.09 lakhs was received,that the balance Central assistance was not received and that therefore same was written off as irrecoverable item during the year under consideration, that service tax on VAT was disputed by the client of the assessee and was not paid by it, the assessee wrote it off.The assessee submitted copies of letters of Maharashtra Maritime Board wherein it was mentioned that and amount of Rs.253.09 lakhs was released to the erstwhile company towards Central assistance scheme.The additional evidences produced by the assessee,were admitted under rule 46A of the Rules by the FAA and were forwarded to the AO.
After considering the remand report of the AO and the rejoinder and the submissions of the assessee,the FAA held that the disputed amount was taken over from the books of earlier entity, that the assessee had taken over the business of that entity under a slump sale,that slump sale constituted transfer within the meaning of section 2 (47) of the Act, that in the case of such sale the identity of the assessee would completely change,that the purchaser could not be allowed to correlate any debt taken over to any income offered to tax earlier by the seller, that the provisions of section 36(2) related the condition to be fulfilled by the assessee itself and not by any other person,that the assessee had taken over the assets and 3 69/15,70/15-JSW&394/15-Welspun liabilities at fair market value in contrast to written down value in the books of accounts of the seller company, that the conditions of section 36 were not satisfied.Finally,he upheld the disallowance made by the AO. With regard to the alternate argument,he observed that it would tantamount to writing off and asset taken over under slump sale,that it would be a capital loss.
3.2.During the course of hearing before us, the AR stated that the assessee had purchased a going concern during the year alongwith assets and liabilities of that entity, that the balances were not recoverable, that the assessee wrote off the balances during the year under appeal. The DR argued that the income and expenses for the earlier years was considered by the seller of the erstwhile entity, that only net worth was calculated for slump sale purposes, that assessee was not entitled to claim the written off balances for the claim for the year under consideration .
3.3.We have heard the rival submissions and perused the material available on record.We find that the assessee had acquired M/s.Vikram Ispat (VI)from M/s. Grasim Industries during the year under consideration as a going concern,that VI was granted Central assistance by Maharashtra Maritime Board,that out of the total grant of Rs.380 lakhs the board released assistance of Rs. 253.09 lakhs only,that the assessee wrote off the balance amount, that the FAA held that under scheme of slump sale the assessee was not entitled to claim the assets/ liabilities of the erstwhile entity, that the loss was capital in nature,that the assessee had written off grant receivable from ASIDE (Rs.71.78 lakhs), service tax on VAT (Rs.12.87 lakhs),that there is no doubt about writing off of both the items during the year under appeal in the books of account. In our opinion,there is no bar on making a claim about the sums written off in a slump sale transaction.The assessee had taken over the assets as well as the liabilities of VI. In the remand report proceedings,the assessee had submitted the evidences proving that the erstwhile entity had offered the income under the head other income. It is found that grant receivable from ASIB of Rs.71.78 lakhs was credited in the P&L A/c. for the period ended 22.5.2009.Thus, the amount written off during the year under consideration was already offered for taxation.The FAA was not justified in rejecting the claim made by the assessee.
3.3.a.As far as VAT on service charges portion on natural gas is concerned it is found that the clients had disputed levy of services and finally did not pay such tax.The loss claimed by the assessee was directly linked with business activity and, therefore,was a business loss. The writing off of the amount is not in dispute.So, even if it could not be allowed u/s.36 the same is allowable u/s.28 of the Act.Therefore, we allow Ground No.2.
469/15,70/15-JSW&394/15-Welspun
4.Next ground of appeal deals with confirming the addition of Rs.9.37 crores under the head insurance claim written off.During the assessment proceedings,the AO found that the AO found that the assessee had debited its profit and loss account by insurance claim written off of Rs. 9.37 crores.He directed it to file necessary details in that regard.After considering the same,he held that the write-offs were not related to any income offered to tax in earlier years,that same were on account of insurance claim for barges,that barges were capital asset of the company, that the loss on that account had to be considered as a capital loss. Finally,he disallowed the claim made by the assessee.
4.1.Before the FAA,during the appellate proceedings, the assessee contended that VI had lost insurance claim of Rs. 9.37 crores with new India Assurance Company Ltd. consequent upon an accident that took place on 24/06/2007, that VI had shown STCG at Rs. 2.09 crores and Rs.3.61 crores in the AY.s 2008-09 and 2009-10 in accordance with the provisions of section 50,that the insurance company repudiated the claim on 25/05/2012,that all the conditions of section 36 were satisfied, that the debt arose in the ordinary course of business carried on by the assessee and had been taken into account in computing assessable income in the past.The FAA ordered for remand report from the AO in that regard. After considering submissions of the assessee and remand report, he held that because of slump sale identity of the purchaser i.e. the assessee had changed, that it could not be allowed to correlate any debts taken over to any income offered to tax earlier by the seller entity,that the conditions stipulated in section 36 were not satisfied, that the amount in question could not be allowed as a business loss as held in the earlier paragraph of the order,that it was a capital loss. 4.2.Before us, the AR contended that while filing return of income for AY 2008-09 and 2009- 10 it had shown STCG of Rs.2.09 crores and Rs.3.61crores in accordance with the provisions of section 50 with regard to claim of insurance made by it, the insurer i.e. The New India Assurance Co.Ltd. repudiated the claim made by the assessee. The DR relied upon the order of the FAA.
4.3.We have heard the rival submissions. We find that the claim had arisen after the slump sale took place,that the erstwhile company had claimed loss with the insurance company, that the claim was rejected, that the assessee discarded the assets for the year ended on 31.03.2008 and 31.03.2009. In the light of these developments the assessee wrote off the insurance claim of Rs.9.37 crores. We have gone through the insurance claim lodged by the assessee and we find that all the conditions for allowing bad debts stand fulfilled i.e. offering the income in 5 69/15,70/15-JSW&394/15-Welspun earlier year and writing off the amount in the books of account. Therefore, reversing the order of the FAA, we decide Ground No.3 in favour of the assessee.
5.Remaining two grounds,deal with levy of interest/penalty.Ground 4 is consequential and ground five is premature.So fourth ground is allowed for statistical purposes and fight ground is dismissed.
ITA/70/Mum/2015-AY.2011-12:
6.First effective ground of appeal,raised by the assessee,is about confirming the addition of Rs.13.18 lakhs made by the AO u/s.14 A r.w.r. 8D of the Rules.
6.1.While deciding the identical ground for the earlier year (at paragraph number 2.4), we have held that no disallowance can be made if the assessee has not claimed any expenditure against the exempt income.Respectfully,following the above, we decide the first ground in favour of the assessee,as facts for the AY.s.are identical.
7.Next ground is about confirming the addition made by the AO to the book profit of the assessee by way of adding back disallowance made u/s.14A and enhancing the book profit. 7.1.As the ground is directly related with disallowance made u/s.14A,so,following our order for Ground No.1 we hold that FAA was not justified in enhancing the book profit u/s. 15JB of the Act with regard to 14A disallowance.Second ground stands allowed.
8.Next two grounds,deal with levy of interest and penalties u/s.271.Both the issues are consequential/premature.So,third ground is allowed for statistical purposes and last ground is dismiseed.
ITA/394/Mum/2015-AY.2011-12:
9.The solitary ground of appeal,raised by the AO, is about deleting the addition of some of Rs. 5 Crores made on account of bogus expenditure.During the assessment proceedings, the AO found that the assessee had debited expenses,amounting to Rs.5 crores,under the head land development in the name of M/s.Maginot Trading Company Ltd.He observed that Balakrishna Goenka(BG),in his statement on oath,recorded during the search and seizure proceedings,had admitted that the expenditure claimed by the assessee was not genuine.Vide his notice,dated 18.10.2012,the AO asked the assessee to explain as to whether the income admitted by it during the search proceedings had been offered to tax. It was also directed to produce the supporting documents in that regard.He further asked the assessee to explain as 6 69/15,70/15-JSW&394/15-Welspun to why the depreciation claimed, if any, should not be disallowed in case the expenditure was capitalised.The assessee was also directed to specify the end use of the funds raised by Maginot Trading Co.Pvt.Ltd.In its response, dt.3.12.2012,the assessee stated that disputed payments had been debited under the head 'land development charge'in the books of account, that no depreciation had been claimed or would be claimed, that unpaid tax would be paid in due course of time.
9.1.After considering the submission of the assessee,the AO held that bogus expenses were recorded in the books of account,that same could not form part of cost of land,that bogus expenses could not be allowed as deduction under any head of income in any of the assessment years.So,he treated the expenditure of Rs.5 crores as unexplained expenditure and added it to the total income of the assessee.
9.2.During the appellate proceedings before the FAA,the assessee made elaborate submissio- ns in that regard.A remand report was called from the AO.After considering available material,the FAA held that BG had admitted the accommodation entries and offered it for taxation,that during appellate proceedings it was claimed that the statement of BG were recorded under confused state of mind, that there was no evidence of genuine delivery of material,that statement of BG constituted substantive evidence to treat the payment made by the assessee as an accommodation entry.However,the FAA held that the addition of unaccounted cash should not be considered in the hands of the assessee company, that it should be assessed in the hands of BG.Finally, the FAA deleted the addition. 9.3.During the course of hearing before us, the DR referred to the statement of BG recorded on the date of search and contended that statement recorded u/s.132(4) was not retracted,that the FAA had not understood the statement in the right perspective, that the surrender was made in the hands of two corporate entities and not in the individual hands of the BG, that by surrendering the impugned amount the assessee had prevented the department from making further investigation in that regard. He referred to page-7 of the PB wherein details of land development account were available and stated that the assessee had procuered accommoda - tion bills and that it had surrendered the disputed amount when cornered by the officers of the department.The AR supported the order of the FAA.
9.4.We have heard the submissions and perused the material before us. Before proceeding further we would like to refer to question and answer No.14 of the statements recorded on 14.10.2010:
"Q.14: Now I am showing you page no.46 and 61 of annexure A-1. Sn enquiry was conducted at the address in the memo, however, no such party was found to be existing at either of the 7 69/15,70/15-JSW&394/15-Welspun addresses given in the memo. Please furnish the address of this party and explain the transactions with them.
Ans: The payments made to M/s. Maginot Trading Co.Pvt. Ltd., amounting to total of Rs.5.Crores, in the current financial year, made on account of supply of muram at the Raigad site of M/s. Welspun Maxsteel Ltd., is nothing but an accommodation entry arranged by one of the broker for generation of cash by debiting bogus expenses. I confirm that we have taken an accommodation entry to generate cash for expenditure. I have also taken a similar entry in the accounts of M/s. Welspun Syntex Ltd., for an amount of Rs.2 Cr. in the current financial year.I take this opportunity to surrender this amount of Rs.7 Cr.(Rs.5 Cr. In the hands of M/s. Welspun Maxsteel Ltd., & Rs.2 Cr. In the hands of M/s.Welspun Syntex Ltd.) as my unaccounted income generated by debiting bogus expenses and offer this amount as my taxable income, over & above my regular income, for the current financial year."
It is further found that in its letter dt.3.12.2012 the assessee made following submissions before the AO:
"In answer of question no.14 Mr. B.K. Goenka has stated that Rs.5 Crores is an accommodation entry in the hands of M/s.Welspun Max Steel and Rs.2 Crores in the hands of M/s. Welspun Syntex Ltd., It may please be noted that the above referred two payments have been debited as 'Land Development charges' in the books of accounts of the respective companies.
We confirm that no depreciation has been claimed so far and no depreciation will be claimed by any of the above companies on the above mentioned amounts.
The balance tax, if any, will be paid by M/s. Welspun Max Steel in due course of time."
If we go through the above statement of BG and the letter of the assessee dt.3.12.2012, it becomes clear that the BG had made the disclosure of Rs.5 crores in the capacity of MD of the company and that the assessee had promised to pay outstanding taxes.The land develop - ment A/c. clearly proves that accommodation entries were obtained for assessee company . Therefore, in our opinion the FAA was not justified in reversing the order of the AO.In our opinion, the AO had rightly made the disallowance of the impugned sum in the hands of the assessee.Confirming the order of the AO we decide effective Ground of appeal in his favour .
As a result appeals filed by assessee stand partly allowed and appeal of the AO is allowed. फलतः िनधा रती ारा दािखल क गई अपील अंशतः मंजूर क जाती ह और िनधा रती अिधकारी क अपील मंजूर क जाती है.
Order pronounced in the open court on 08th February, 2017.
आदेश क घोषणा खुले यायालय म दनांक 08 फरवरी, 2017 को क गई ।
(अमरजीत सह / Amarjit Singh ) (राजे
/ Rajendra)
Sd/- Sd/-
याियक सद
य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
मुंबई Mumbai; दनांकDated :08.02.2017.
Jv.Sr.PS.
आदेश क ितिलिप अ ेिषत/Copy of the Order forwarded to :
1.Appellant /अपीलाथ$ 2. Respondent /%&यथ$
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69/15,70/15-JSW&394/15-Welspun
3.The concerned CIT(A)/संब) अपीलीय आयकर आयु*, 4.The concerned CIT /संब) आयकर आयु*
5.DR "B " Bench, ITAT, Mumbai /िवभागीय %ितिनिध, खंडपीठ,आ.अ. याया.मुंबई
6.Guard File/गाड फाईल स&यािपत %ित //True Copy// आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपीलीय अिधकरण, मुंबई /ITAT, Mumbai.
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