Income Tax Appellate Tribunal - Kolkata
Dcit, Circle - 10(2), Kolkata , Kolkata vs M/S. V2 Retail Ltd., New Delhi on 28 June, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL "D", BENCH KOLKATA BEFORE SHRI S.S.GODARA, JM &DR. A.L.SAINI, AM आयकरअपीलसं./ITA No.1794/Kol/2018 ( नधारणवष / Assessment Year:2012-13) DCIT, Circle-10(2), Kolkata Vs. M/s V2 Retail Ltd.
Plot no. 08, Pocket no. 02, Block-A, Rangpuri extension, Mahipalpur, New Delhi-110037.
थायीले खासं . /जीआइआरसं . /PAN/GIR No.: AABCV 5632 P (Assessee) .. (Revenue) Assesseeby : Shri Shankar Halder, JCIT, Sr. DR Respondent by :Shri Nirav Seth, FCA सुनवाईक तार ख/ Date of Hearing : 16/04/2019 घोषणाक तार ख/Date of Pronouncement : 28/06/2019 आदे श / O R D E R Per Dr. A. L. Saini:
The captioned appeal filed by the Revenue, pertaining to assessment year 2012-13, is directed against the order passed by the Commissioner of Income Tax (Appeal)-4, Kolkata, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (in short the 'Act') dated 16/03/2015.
2. Grounds of appeal raised by the Revenue are as follows:
1. That on the facts and circumstances of the case the ld. CIT(A) erred in whether the ld. CIT(A) was correct in deleting the addition of Rs.
97,75,000/- on account of credit to capital reserve by holding that profit arising on account of forfeiture of shares is capital receipt in nature?
M/s V2 Retail Ltd.
ITA No.1794/Kol/2018Assessment Year:2012-13
2. That on the facts and circumstances of the case the ld. CIT(A) erred in allowing the interest on unsecured loan of Rs.27,34,728/- when the assessee was given ample opportunity during assessment proceedings to prove the genuineness of loan creditors but it failed?
3. That on the facts and circumstances of the case the ld. CIT(A) erred in deleting the disallowances u/s 14A of I.T. Act, 1961 on ground that there is no exempt income contrary to CBDT Circular No.5/2014 dated 11/02/2014?
4. That on the facts and circumstances of the case the ld. CIT(A) erred in deleting the disallowance made u/s 36(1)(va) of the I.T. Act, 1961 on account of the assessee's failure to deposit Employees Contribution towards statutory ESI and PF within the due date as prescribed?
5. That the appellant craves to add, delete or modify any of the grounds of appeal before or at the time of hearing.
3. Ground No. 1 raised by the Revenue relates to addition of Rs. 97,75,000/- on account of credit to capital reserve by holding that profit arising on account of forfeiture of shares is capital receipt in nature.
4. Brief facts qua the issue are that during the F.Y. under consideration, it has been observed by AO that the Balance Sheet under the head Reserve & Surplus, an amount of' Rs.3,29,01,250/- has been credited by the assessee-company towards 'capital reserve'. However, in the F.Y. 2011-12, relevant to the A.Y. 2012-13,it was noted that the assessee-company has not added the amount increased on account of capital reserve either in the normal computation or under Book Profit u/s. 115JB of the I.T. Act, 1961. On being asked, the assessee-company has submitted that the same issue had been raised in the immediately preceding year wherein the basis of accounting for capital reserve amounting to Rs.605,23,24,263/- (earlier year) was on account of, restructuring of business of the assessee-company by way of slump sale of its wholesale and retail business to TPG Wholesale Pvt. Ltd. and Airplaza Retail Holdings Pvt. Ltd. respectively. The assessee-company has also, during the preceding F.Y. 2010-11, had voluntarily added the surplus on sale of business in the computation of income under normal provision only. But, the amount of such surplus was also added to the book profit M/s V2 Retail Ltd.
ITA No.1794/Kol/2018Assessment Year:2012-13 u/s. 115JBof the Act by the AO while passing the order. During the year in question, the assessee-company has given the break-up of capital reserve which is worked out as under :-
(I) On account of forfeiture at shares : Rs, 97,75,000/-
(II) Differential amtrece on account of sale of business, slump sale: Rs,2,31.26,250/-
Total:Rs.3.29,01.250/-
The assessee-company submitted before the AO that out of the differential amount of Rs.2,31,26,250/-, the assessee-company has to repay, Rs. 2,57,26,012/- in the subsequent year, i.e., F.Y. 2013-14 and it was debitedto capital reserve in the said year. The assessee has also submitted that in view of the aforesaid reason, the assessee-company has not offered Rs.2,31,26,250/-as taxable income for the year. Furthermore, as to the issue of forfeiture of shares, it has been submitted by the assessee-company that the company came out with preferential allotment of 39,10,000 convertible share warrants to its promoters during F.Y. 2009-10 at an issue price of Rs 60/- calculated under SEBI (DIP) Guidelines, 2000 on preferential basis duly approved by shareholders and Board of Directors of the company. These warrants of Rs.10/- each were issued on 30.10.2009 (against which Rs. 2.50 per warrant had been received ) and were convertible into equity shares on or before 18 months from the date of issue. The promoters failed to pay balance amount of share warrants and consequently the amount which was paid by them (Rs. 97,75,000/-) was forfeited on April, 2012. After going through the reply of the assessee, the AO noted that assessee has not submitted any evidence in support of his version. The amount of Rs. 97,75,000/- added to the capital reserve on account forfeiture of shares is income of the assessee company and should have passed through profit and loss account. Similarly, the AO noted that the differential amount received on account of sale of business slump sale amounting to Rs. 2,31,26,250/- is income of the assessee and should have passed through Profit and Loss account. As such, the amount of Rs. 3,29,01,250/- (Rs. 2,31,26,250 +Rs. 97,75,000) in total, was considered by AO as income of the assessee-company during the year.
M/s V2 Retail Ltd.
ITA No.1794/Kol/2018Assessment Year:2012-13
5. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the addition made by AO observing the following:
" Regarding Rs. 2,31,26,250/- credited to Capital Reserve account, it is seen that the said sum has been contemplated by the appellant company as differential amount received on business sale. To elaborate it, the AR submitted the audited accounts of FY 2010-11 (AY 2011-12) wherein the transaction of sale of business took place. References were made to the 'Schedule No.3 - Reserves & Surplus' and 'Schedule No.20 - Notes on Accounts' of the said accounts wherein the entire nature of the Business Restructuring transaction was explained. Also, the AR submitted the copy of audited accounts of FY 2013-14 (AY 2014-15) wherein the Capital Reserve account was debited for Rs. 2,57,26,012/-. It was also submitted that credit to Capital Reserve account represent differential receipts, pursuant to business, restructuring arrangement done by the appellant company in FY 2010- 11( A.Y 2011-12). Further, this debit, of Rs. 2,57,26,012/- in subsequent year i.e., FY 2013-14 (AY 2014-15) also represent similar nature of transaction and debited to Capital Reserve. It was submitted that in AY 2014-15, the amount debited to CapitalReserve of Rs. 2,57,26,012/- was not claimed in computation of income.
On perusal of observations of the AO and submission of the AR, it is seen that there is no dispute to the fact that the appellant company underwent a major restructuring in FY 2010-11 (AY 2011-12) whereby the appellant company credited, Rs. 605.23 Crores to its capital reserve account in the said year. The note referred to in Schedule No.20 read with Auditor's Comments in Page No.109 of Paper Book / filed by the AR of the assessee, clearly establishes this fact. The said year, the Company bifurcated, its assets and liabilities as on appointed date betweenthe acquiring/transferee companies as per master restructuring agreement and the difference between assets and liabilities so transferred was shown as Capital reserve.
Pursuant to this major business restructuring and as contemplated by the appellant company, settlement of a number of parties accounts were carried out and some differential payments were either made or received in subsequent yearsi.e., in AY 2012-13 and AY 2014-15. Accordingly, following the treatment of the appellant company done in FY 2010-11 (AY 2011-12), such sums were credited / debited to Capital Reserve account and not treated as business receipts or business payments. The computation of income for AY 2014-15 wherein a sum of Rs. 2,57,26,012/- was paid by the appellant company also show that the said amount was not claimed as a deduction / expense by theappellantcompany. I have gone through the assessment order for assessment year for assessment year 2014-15, wherein Rs. 2,31,26,250/- which has been debited to Capital Reserve has not been claimed. At the assessment hearing stage, the appellant company has submitted that the nature of debit to capital reserve of Rs. 2,57,26,012/- in F.Y. 2013-14 is similar to the nature of credit to Capital Reserve of Rs. 2,31,26,250/- in the instant assessment year and uniformity should be there for allowance / disallowance of the same. Now for the sake of argument, even if it is presumed that same treatment should have been given two assessment years for same nature of item, but as far as present appeal is concerned, the amount of Rs. 2,31,26,250/- credited to Capital Reserve cannot be treated as Capital receipt and hence the M/s V2 Retail Ltd.ITA No.1794/Kol/2018
Assessment Year:2012-13 addition of this account is sustained. Regarding treatment in A.Y. 2014-15, since the said appeal is not before me, hence I am not giving any directions with respect to its treatment in A.Y. 2014-15.
In view of above, I am of the opinion that the A.O. has correctly treated Rs. 2,31,26,250/- as revenue receipt and added it back to the total income. Hence, the Assessing Officer is directed to delete the addition of Rs. 97,75,000/- credited to the Capital Reserve and I upheld the addition of Rs. 2,31,26,250/- credited to Capital reserve. As such this grounds of appeal is partly allowed in favour of appellant."
6. We note that Ld. A.R. relied on the decision of the ld CIT(A). The Ld. DR could not bring to our notice any case laws to controvert the findings of the ld. CIT(A). In the aforesaid facts and circumstances of the case, we hold that CIT(A) was justified in deleting the addition of Rs.97,75,000/-.That being so, we decline to interfere with the order of Id. C.I T.(A) deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.
7. Ground No. 2 raised by the Revenue relates to interest on unsecured loan of Rs. 27,34,728/- disallowed by Assessing Officer.
8. Brief facts qua the issue are that this ground consists of two parts. One with respect to interest on Unsecured loan of Rs. 27,34,728/- and other being interest on TDS and sales Tax of Rs. 5,40,581/-.
With respect to First part with respect to interest on unsecured loan of Rs. 27,34,728/-, the submission of the appellant during the course of appellate proceedings is reproduced below:
"In this connection, it is submitted that disallowed amount of Rs. 32,75,309/- represents Interest no unsecured loans of Rs. 27,34,728/- and interest on other TDS & Sales Tax of Rs. 5,40,581/- respectively as per details below:
Sl. No. Particulars Amount(Rs.)
1 Interest on unsecured loans-
a. Frazer Goods & 5,34,248
Supply Pvt. Ltd.
b. Kothari Projects Pvt. 82,232
Ltd.
c. Kothari Retail Pvt. 18,49,060
Ltd.
d. Usha Metal Cleaner 2,69,179
M/s V2 Retail Ltd.
ITA No.1794/Kol/2018
Assessment Year:2012-13
Pvt. Ltd.
Total(A) 27,34,728
2 Interest on other TDS and 5,40,581
Sales Tax (B)
Total (A+B) 32,75,309
It is evident from the Tax Audit Report for the instant year that the Company has taken unsecured loan / repaid the same infer-alia from / to the above parties. (Refer Page No. of Paper Book). It can be seen that unsecured loans were taken from the above mentioned partiesand interest was paid thereon. As evident from the Tax Audit Report, unsecured loans taken from Frazer Goods & Supply Pvt. Ltd, Kothari Projects Pvt. Ltd. and Usha Metal Cleaner Pvt. Ltd. were squared up during instant year and Unsecured Loan taken from Kothari Retail Pvt. Ltd. was not squared off and carried forward to subsequent year (Refer Page No. of Paper Book).
The Ld. Assessing Officer, has disallowed such Interest on Unsecured loans and Interest on TDS & Sales Tax; as the same was not corroborated with any documentary evidence. In this connection; it is submitted that break-up of Interest on Unsecured loans as shown above was already provided at the assessment hearing stage (Refer Page No... of Paper Book). Further the Ld. Assessing Officer has not issued any show-cause notice before drawing any adverse inference regarding disallowance of Rs. 32,75,309/-."
9. Having gone through the reply of the assessee, the ld CIT(A) held as follows:
"From the above, it is clear that the only issue that the AO had and which was the basis of addition made by the AO with respect to Interest on Unsecured Loan was that no supporting was given by the appellant company with respect to payments made against Unsecured Loans taken by the appellant company. The Assessing Officer has not given any adverse inference with respect to the genuineness of this transaction or any other findings.
With respect to this, the AR of the assessee has submitted that the said transaction was duly reported in Annexure - G of Tax Audit Report filed by the assessee during the course of assessment proceedings. The said annexure clearly shows the amount of loan taken by the assessee during the instant year, maximum amount outstanding and whether this amount was squared up during the year or not. Apart from this, it also gives information about the name of the lending company, its address and PAN Number:
M/s V2 Retail Ltd.ITA No.1794/Kol/2018
Assessment Year:2012-13 The aforesaid details contained in Annexure-G of Tax Audit Report for the instant year (as mentioned above) are quite sufficient to corroborate the transaction done by the appellant company with the aforesaid loan creditors. As these details were available before the Assessing Officer at the stage of assessment hearing and he has not given any adverse finding or drawn any adverse inference with respect to the genuineness of these transactions, I am of the opinion that the AO has sufficient material / documentary evidence available to corroborate the transaction of interest on unsecured loan paid by the appellant company. If the A.O. wanted to make disallowance he should have given the assessee a show cause or would have asked the assessee to establish the identity, capacity and genuiness of the loan creditor and if the AO would have found the loan to be suspicious then the corresponding interest could have been disallowed.AO not having done this the disallowance can't be sustained.
With respect to Second Part with respect to Interest on TDS and Sales Tax of Rs. 5,40,581/-, the submission of the appellant during the course of "appellate proceedings is reproduced below:
"In connection with Interest on TDS and Sales Tax amounting to Rs.5,40,581/-, it is submitted that the same are allowable under section 37 of the Act, since the same are not penal in nature. It has been held by Hon'ble ITAT, Kolkata in the case of DCIT, Circle-3(1) V/s.-M/s. NarayaniIspat Pvt Ltd (ITA No. 2127/Kol/2014), that the delay in payment of service tax and TDS is compensatory in nature. The. relevant extracts of the same are re-produced hereunder:
"The interest ITA No.2127/Kol/2014 A. Y. 2010-11 DCIT ,Cir-3(1) Kol. Vs. M/s NarauaniIspat Pvt. Ltd. Page 5 for the delay in making the payment of service tax & TDS is compensatory in nature. As such the interest on delayed payment is not in the nature of penalty in the instant case on hand.
The issue of delay in thepayment of service tax is directly covered by the judgment of Hon'ble Apex Court in the case of Lachmandas Mathura Vs. CIT reported in 254 ITR 799 in favour of assessee. The relevant extract of the judgment is reproduced below :
"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.
M/s V2 Retail Ltd.ITA No.1794/Kol/2018
Assessment Year:2012-13 CIT decided on 29-2- 1996. In that view of the matter, the appeal is allowed and question Nos. 1 and 2 we answered in favour of the assessee and against the revenue."
10. In view of the above judgment, there remains no doubt that the interest expense on the delayed payment of service tax is allowable deduction. On the basis of above submissions, it is submitted that the Ld. Assessing Officer has erred in making disallowance of interest paid of Rs. 32,75,309/- (Rs. 27,34,728/- being. Interest on Unsecured Loans and Rs. 5,40,581/- being interest on Others - TDS and Sales Tax). Hence, ld CIT(A) has rightly deleted the addition of Rs.27,34,728/- ( interest on unsecured loan ) and Rs.5,40,581/-( interest on TDS and sales Tax).
"I have carefully gone through the submissions, details and documents and the judgments relied upon. I am of the view that the A.O. has erred in making disallowance of Rs. 27,34,728/- on account of Interest paid.
Hence, the A.O. is directed to delete the disallowance made for the payment of interest on unsecured loan of Rs. 27,34,728/- and interest on TDS and Sales tax of Rs. 5,40,581/-. As such this grounds of appeal is allowed in favour of appellant."
That being so, we decline to interfere with the order of Id. C.I T.(A) deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.
11. Ground No. 3 raised by the Revenue relates to disallowance u/s 14A read with Rule 8D of the Income Tax Rules.
12.We have head both the parties and perused the material available on record. We note that issue involved in ground No. 3 raised by the Revenue is no longer re- integra.The said issue of the Revenue is squarely covered by the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Holcim India Pvt. Ltd. in ITA No.486/2014 wherein it was held that in the absence of any tax free income, the corresponding expenditure could not be worked out for making disallowance u/s. 14A of the Income Tax Act, 1961.The Hon'ble Delhi High Court in the case of Chemnivest vs. Commissioner of Income Tax-Vl, ITA 749/2014 order M/s V2 Retail Ltd.
ITA No.1794/Kol/2018Assessment Year:2012-13 dated,02.09.2015 held that section 14A will not apply if no exempt income is received during the relevant previous year. Therefore, in view of above, the disallowance made u/s 14A of the Act r.w.r. 8D is not sustainable. That being so, we decline to interfere in the order passed by the ld. CIT(A), his order on this issue is hereby upheld and the ground raised by the Revenue is dismissed.
13. Ground No. 4 raised by the Revenue relates to disallowance made u/s 36(1)(va) of the Act on account of the assessee's failure to deposit employees' contribution towards statutory ESI and PF within the due date.
14. We have head both the parties and perused the material available on record. We note that issue involved in ground No. 4 raised by the Revenue is no longer re- integra. If the assessee pays PF and ESI contribution within the time of filing return of income under section 139(1) of the Act, it would be sufficient compliance and no disallowance is attracted. The ld CIT(A) has rightly deleted the addition observing the following:
"In the instant case, the Learned Assessing Officer has failed to appreciate the submission made by the assessee company during the course of assessment hearing. Assubmitted during assessment hearing, though certain payments representing Employees contribution towards PF and ESIC was not made within the due dates prescribed under Employees Provident Fund &..Miscellaneous Provisions Act, 1952 and Employees State Insurance Act, 1948 respectively beyond the dates, prescribed by relevant statutes, however all such payments were duly made within the due date of filing of income tax return i.e., within 28.09.2012. It is further submitted that if such contribution are paid after the due date prescribed by relevant, statutes but before the due date of filing the return, the same is allowable as held in following judgments:
Kolkata I.T.A.T. in assessee's own case (order passed on 19.01.2012) held that if the payment is made within the due date of filling of return of income u/ s 139(1) of the Act then addition u/ s 36(1)(va) read with sec 2(24)(x) of the Act should be deleted in full.
Kolkata I. T.A. T. in REI Agro Limited (order passed on 14/05/2013) following the decision of Hon'ble jurisdictional High Court in the case of M/s Vijay Shree Limited vide ITAT No-:245 of 2011 in GA No.2607 of 2011 dated 7th September, 2011 allow the claim of assessee in deleting the addition as made by AO in addition u/s 36(1)(va) read with sec 2(24)(x) of the Act.
Bombay High Court in Commissioner of Income-tax- 4, Mumbai v. Hindustan Organics Chemicals Ltd reported in (2014) 48 taxmann.com 421 (Bombay)has held that where assessee company made payment of employees contribution M/s V2 Retail Ltd.ITA No.1794/Kol/2018
Assessment Year:2012-13 towards provident fund, assessee's claim could not be disallowed on account of delayed payment in view of amendment to section 43B.
Bombay High Court in the case of Commissioner of Income-tax, (Central), Pune v Ghatge Patil Transports Ltd reported in [2015] 53taxmann.com 141 (Bombay) has held that the decision of the Supreme Court in Alom Extrusions Ltd. ([2009) 319 ITR 306;185 Taxmann. 416 ) applies to employees' contribution as well as employer's contribution. Thus addition cannot be made addition u/s 36(1)(va) read with sec 2(24)(x) of the Act if the payment is made within the due date of filling of return of income u/s 139(1) of the Act.
Delhi High Court in Commissioner of Income-tax Vs. AIMIL Ltd. reported in (2010) 188 Taxman 265 (Delhi), has held that "If the employees contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as in the ESI Act. Therefore, the Act permits the employer to make the deposit with some delay, subject to the aforesaid consequences. Insofar as the Income-tax Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filed"
Hence, the Ld. Assessing Officer has erred in. disallowing Rs. 6,62,695/- under section 36(1)(va) of the Income Tax Act, 1961, being payments on account ofEmployees State Insurance & Provident Fund, though all such payments were made before due date of filing of return.
I have perused the AOs observations and submission of the assessee. I find that the appellant has made payment of Rs. 6,62,695/ - before the due date of filing of return u/s 139(1) of the Act as per the materials on record and the issue is, squarely covered by the decisionof Hon'ble jurisdictional ITAT in assessee's own case i.e., in the case of DCIT, Circle 10, Kolkata Vs. V2 Retail Limited in" ITA 1705/Kol/2010.
Similar, view has been held in the case of-
• Kolkata I.T.A.T. in REIAgro Limited following the decision of Hon'ble jurisdictional High Court in the case of M/s. Vijay Shree Limited vide ITAT No.245 of 2011 in GA No.2607 of 2011 dated 7thSeptember, 2011.
• Bombay High Court in the case of Commissioner of Income-tax, (Central), Pune v.Ghatge Patil Transports Ltd reported 41 [2015] 53 taxmann.com 141 (Bombay) has held that the decision of the Supreme Court in Alom Extrusions Ltd. [2009] 319 ITR 306/185 Taxman 416).
• Delhi High Court in Commissioner of Income-tax Vs. AIMIL Ltd. reported in [2010] 188 Taxman 265 (Delhi).
Following the aforesaid judgments, I direct the Assessing Officer to delete the addition of Rs. 6,62,695/ -.
15. We do not find any infirmity in the order passed by the ld CIT(A).That being so, we decline to interfere in the order passed by the ld. CIT(A), his order on this issue is hereby upheld and the ground raised by the Revenue is dismissed.
M/s V2 Retail Ltd.
ITA No.1794/Kol/2018Assessment Year:2012-13
16. In the result, appeal of the Revenue is dismissed.
Order pronounced in the Court on 28.06.2019
Sd/- Sd/-
(S.S.GODARA) (A.L.SAINI)
या यकसद य / JUDICIAL MEMBER लेखासद य / ACCOUNTANT MEMBER
दनांक/ Date: 28/06/2019
(SB, Sr.PS)
Copy of the order forwarded to:
1. DCIT, Circle-10(2), Kolkata
2. M/s V2 Retail Ltd.
3. C.I.T(A)- 4. C.I.T.- Kolkata.
5. CIT(DR), Kolkata Benches, Kolkata.
6. Guard File.
True copy
By Order
Assistant Registrar
ITAT, Kolkata Benches