Income Tax Appellate Tribunal - Kolkata
Dcit, Cc-1(3), Kolkata, Kolkata vs M/S Rungta Sons Pvt . Ltd., Kolkata on 15 March, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL "C", BENCH KOLKATA
BEFORE SHRI A.T.VARKEY, JM & DR. A.L.SAINI, AM
IT(SS)A No.42/Kol/2015
( नधा रण वष /Assessment Year:2011-2012)
DCIT, CC-1(3), Kolkata Vs. M/s Rungta Sons Pvt. Ltd.,
Aayakar Bhawan Poorva, 8A, Express Tower,
rd
3 Floor, 110-Shantipally, 42A, Shakespeare Sarani,
Kolkata-700107 Kolkata-700017
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No.: AABCR 2356 N
(अपीलाथ /Appellant) .. ( यथ / Respondent)
Revenue by : Shri G.Mallikarjuna, CIT-DR
Assessee by : Shri Subash Agarwal, Advocate
सन
ु वाई क तार ख / Date of Hearing : 03/01/2017
घोषणा क तार ख/Date of Pronouncement 15/03/2017
आदे श / O R D E R
Per Dr. Arjun Lal Saini, AM:
The captioned appeal filed by the Revenue, pertaining to the Assessment Year 2011-2012, is directed against the order passed by ld.
CIT(A)-20, Kolkata, in Appeal No.253/CC-1(3)/CIT(A)-20/13-14, dated 10- 12-2014, which in turn arises out of an order passed by the Assessing Officer (AO) Under Section 153A/153D/143(3) of the Income Tax Act 1961, (hereinafter referred to as the 'Act'), dated 07.03.2014.
2. Brief facts of the case qua the assessee are that a search & seizure operation, u/s.132 of the Act, was conducted on 06.02.2012 at the residential and business premises of the assessee group. The assessee filed its original return of income on 27.08.2011 at total income of Rs.578,59,67,710/-. However, no assessment u/s.143(3) was made. In consequence to search, the AO issued notice u/s.153A on 04.02.2013 and the assessee filed its return on 21.03.2013 at the same total income as declared in the original return. Thereafter, the AO made assessment 2 IT(SS)A No.42/15 M/s Rungta Sons Pvt. Ltd.
u/s.153A/143(3) of the Act at total income of Rs.590,83,70,920/-, wherein the AO disallowed (Expenses booked under the head 'Environment & Ecology' in assessee`s profit and loss account), on account of Net Present Value (NPV), of Rs.12,14,61,050/- on the ground that it was non-
revenue in nature, Rs.2,30,271/- by invoking Section 2(24)(x) read with section 36(1)(va), Rs.1,74,827 by invoking section 36(1) (ii) and Rs.5,37,062/- by applying section 14A, respectively.
3. Aggrieved from the order of AO, the assessee filed an appeal before the ld. CIT(A), who has partly allowed the appeal of the assessee observing the followings :-
7. I have considered the submissions of the Ld. AR and perused the material placed by him on record. I propose to first decide the legal issue raised by ground No.1 that the AO had no jurisdiction while making the search assessment u/s 153A to make additions on items of regular assessment. It is admitted that the assessee filed its original return on 27- 08-2011 but no assessment u/s 143(3) was made. I however find that the time limitation for service of the notice u/s 143 (2) had not expired on the date of the search. The AO therefore retained his original jurisdiction of regular assessment in addition to search assessment. I am of the considered view that the AO in the given facts of the case had jurisdiction on items of regular assessment as well as on those of search assessment. I find support from the decision of the Hon'ble Special Bench of the ITAT in the case of All Cargo Global Logistics Ltd in ITA No 5018 to 5022 & 5059/M/10 wherein it was held that "(a) In assessments that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/s 153A for which assessments shall be made for each of the six assessment years separately; (b) In other cases, in addition to the income that has already been assessed, the assessment u/s 153A will be made on the basis of incriminating material, which in the context of relevant provisions means - (i) books of account, other documents, found in the course of search but not produced in the course of original assessment, and (ii) undisclosed income or property discovered in the course of search". I therefore hold that the AO in the present case had jurisdiction to make additions on items of regular assessment. Ground no 1 is dismissed.
8. The Ld AR has argued that the AO was not justified in disallowing the NPV of Rs.12,14,61,050/- on the ground that the same was non-3 IT(SS)A No.42/15
M/s Rungta Sons Pvt. Ltd.
revenue in nature. I have considered the arguments of the Ld AR and the relevant judicial decisions. The issue that requires adjudication is whether or not the payment of NPV made by the assessee to carry on its mining activities on forest land is allowable as revenue expenditure. I note that the NPV was paid by the assessee as per the directions of the Apex Court and as per the guidelines issued by the Ministry of Environment & Forest. The Apex Court held that every mining agency using and converting forest land to non-forest purpose had to pay a fee in the form of NPV for continuing carrying on of the business. I therefore find merit in the argument that the NPV was statutory obligation of the assessee and non-payment of NPV could lead to the stoppage of the business. The Apex Court has in the case of Bikaner Gypsums Ltd supra held that "where the assessee has an existing right to carry on a business, any expenditure made by it during course of business for the purpose of removal of any restriction or obstruction or disability would be on revenue account, provided the expenditure does not acquire any capital asset. Payments made for removal of restriction, obstruction or disability may result in acquiring benefits to the business but that by itself would not acquire any capital asset". The facts of the case clearly suggest that the assessee was compelled to make the payment of NPA to facilitate to continue its mining business and therefore the decision of the Apex Court in the case of Bikaner Gypsums Limited (supra) was squarely applicable in the present case. The Hon'ble Karnataka Bench of the ITAT has expressed similar view in the case of National Aluminium Co Ltd vs DCIT 101 TTJ (CTK) 948 wherein it was held that when a payment is made as per the specific direction of the government of lndia, it would be in the business interest of the assessee to abide by such directions and accordingly the payment being a statutory requirement has to be considered wholly and exclusively for the purposes of the business and has got direct connection with the business activity of the assessee. The case of the assessee is duly supported by the decision of the Hon'ble Ahmedabad Bench of the ITAT in the case of JCIT vs Dewerson Industries Limited 2005 TIOL 236 (AHD) wherein it was held that payment of similar nature to the Ministry of Environment & Forest of the Government of Gujarat was allowable as business expenditure. The Hon'ble Mumbai Bench of the ITAT has in, the case of IDBI vs DCIT 91 ITD 34 held that expenditure by assessee in accordance with statutory guidelines is allowable business expenditure. In the case of CIT vs Rungta Mines (P) Ltd 205 ITR 335, the jurisdictional High Court has held that where a trader by compulsion of statutory obligation has to incur an expenditure as a compelling requisite for carrying on his trade, the expenditure resulting in a capital asset in the hands of a third party, is to be taken as revenue expenditure because no asset arises to the trader by reason of such expenditure. It was further held that where law imposes on the assessee an obligation to incur expenses for being permitted to pursue its trading activity, the expenditure would be an outgoing from the profits of the trade. I also note that by making the payment of NPV, no tangible asset came into existence. And further, the said payment was not 4 IT(SS)A No.42/15 M/s Rungta Sons Pvt. Ltd.
voluntary as it was a pre-condition to enable the assessee to carry on its mining activities. Also, as the payment of NPV being statutory requirement had to be paid by the assessee to continue to carry on its mining activities, I am of the considered view that such payment is wholly and exclusively for the purposes of carrying on the business. The incurring of such expenses should therefore be considered as having direct nexus with the business activities of the assessee. The assessee by making payment of NPV got no fresh right to mining but the said payment was made to overcome restriction or obstruction or disability that had arisen in continuing of the mining business. I am of the opinion that merely because it was one-time payment, it could not be considered as capital in nature. The Apex Court has in the case of Empire Jute Company Ltd vs CIT 124 ITR 1 held that if the advantage consisted of merely facilitating assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, then the expenditure would be on revenue account even though the advantage may be endured for an indefinite future. The Hon'ble Special Bench of the ITAT, Kolkata has taken similar view in the case of Peerless Securities Limited vs JCIT 93 TTJ 325 (SB). Above all, I find that the issue is squarely covered by the decisions of the jurisdictional ITAT in the case of feegrade & Co (P) Ltd in. ITA No. 934/Kol/2009 and also in assessee's own case for the assessment year 2006-07 in ITA No. 933/Kol/2009. The AO has himself conceded in the impugned order that the jurisdictional ITAT had in the assessment year 2006-07 decided the issue in favour of the assessee. In view of the above, it is to be held that the expenditure of Rs.12,14,61,050/- incurred by the assessee as NPV is revenue in nature which is allowable as business expenditure u/s 37(1). The addition of Rs.12,14,61,050/- is deleted. Ground no 3 is allowed.
9. The Ld AR has contended that the disallowance of Rs.2,30,271/- on account of employees' contribution towards PF by invoking section 2(24)(x) read with section 36(1)(va) was not justified even on the merits of the case. I have considered the submissions of the assessee and also perused the material placed on record. There is no dispute that employees' contribution towards PF was deposited before the due date for the filing of the return. The contentions of the assessee in this regard are duly supported by the tax audit report and copy of challans that was placed on record in course of the appellate proceedings. I find merit in the contention of the ld AR that the issue is covered in favour of the assessee by the judgment of the jurisdictional High Court in the case of CIT vs M/ s Vijay Shree Ltd (ITAT No 245 of 2011 GA No 2607 of 2011 wherein it was held that :
"The only issue involved in this appeal is as to whether the deletion of the addition by the Assessing Officer on account of Employees' Contribution to ESI and PF by invoking the provision of Section 36(1)(va) read with Section 2 (24) (x) of the Act was correct or not. It appears that the Tribunal below, in view of the decision of the 5 IT(SS)A No.42/15 M/s Rungta Sons Pvt. Ltd.
Supreme Court in the case of Commissioner of Income Tax vs Alom Extrusion Ltd, reported in 2009 Vol 390 ITR 306, held that the deletion was justified. Being dissatisfied, the Revenue has come up with the present appeal. After hearing Mr Sinha, Ld advocate, appearing on behalf of the appellant and after going through the decision of the Supreme Court in the case of Commissioner of Income Tax vs Alom Extrusion Ltd, we find that the Supreme Court in the aforesaid case has held that the amendment to the second provision the Sec 43B of the Income Tax Act, as introduced by Finance Act, 2003 was curative nature and is required to be applied retrospectively with effect from 1st April, 1988. Such being the position, the deletion of the amount paid by the Employees' Contribution beyond due date was deductible by invoking the aforesaid amended provisions of Section 43B of the Act". I therefore hold in view of the decision of the jurisdictional High Court that the disallowance of Rs.2,30,271/- on account of employees' contribution towards PF is not sustainable as the same was deposited before the due date for the filing of the return. In view of the above, the addition of Rs.2,30,271/- is deleted. Ground no 4 is allowed.
4. Not being satisfied with the order of ld. CIT(A), the Revenue is in appeal before us and has taken the following grounds of appeal :-
(1) In the facts and circumstances of the case, Ld. CIT(A) is erred in treating the NPV as revenue expense whereas its true nature is capital expenditure.
(2) In the facts and circumstances and law point of the case, the order of the CIT(A) is erroneous because it relied on the sec.
43B(b) of the Act whereas, the present issue is involved with Sec. 36(1) (va) read with 2(24) (x) of the Act.
(3) In the facts and circumstances and law point of the case, Ld. ClT(A) is erred in depending on the case law Vijay Shree Ltd., which is best on another case law Alom Extrusions Ltd., whereas, the issue involved in Alom Extrusions Ltd. is quite different from the present issue.
(4) The appellant crave leave to make any addition, alteration, modification etc. of ground or grounds before or in course of appellate proceedings.
5. The first ground raised by the Revenue is whether or not the payment of NPV made by the assessee to carry on its mining activities on forest land is allowable as revenue expenditure.
5.1 Ld DR for the Revenue has vehemently submitted before us that the payment of NPV made by the assessee to carry on its mining activities on forest 6 IT(SS)A No.42/15 M/s Rungta Sons Pvt. Ltd.
land is capital expenditure because it gives long term benefit to the assessee. In addition to this, the Ld. DR for the revenue has also primarily relied on the findings of the AO which we have already noted in our earlier para and is not being repeated for the sake of brevity.
5.2 On the other hand, the ld AR for the assessee has submitted before us that by making the payment of NPV, no tangible asset came into existence.
And further, the said payment was not voluntary as it was a pre-condition to enable the assessee to carry on its mining activities. Also, as the payment of NPV being statutory requirement had to be paid by the assessee to continue to carry on its mining activities, therefore such payment is wholly and exclusively for the purposes of carrying on the business. The incurring of such expenses should therefore be considered as having direct nexus with the business activities of the assessee. The assessee by making payment of NPV got no fresh right to mining but the said payment was made to overcome restriction or obstruction or disability that had arisen in continuing of the mining business.
Merely because it was one-time payment, it could not be considered as capital in nature. Besides, the said issue is covered by assessee`s own case in ITA No.933/Kol/2009 wherein the Tribunal treated the said expenditure as revenue in nature.
5.3 Having heard the rival submissions, perused the material on record, we are of the view that there is merit in the submissions of ld. AR for the assessee, as the proposition canvassed by ld. AR for the assessee are supported by the facts narrated by him above. The Ld. AR for the assessee has rightly pointed out that the assessee by making payment of 7 IT(SS)A No.42/15 M/s Rungta Sons Pvt. Ltd.
NPV got no fresh right to mining but the said payment was made to overcome restriction or obstruction or disability that had arisen in continuing of the mining business. Merely because it was one-time payment, it could not be considered as capital in nature. Besides, the said issue is covered by assessee`s own case in ITA No.933/Kol/2009 wherein the Tribunal treated the said expenditure as revenue in nature.
Therefore, we hold that ld. CIT(Appeals) has rightly held that the above expenditure of Rs.12,14,61,050/- paid by the assessee as NPV to enable the assessee to carry on its mining business is revenue in nature, which is allowable as business expenditure under section 37(1) of the Act. Therefore, we uphold the order of ld. CIT(Appeals) by rejecting Ground No. 1 of the appeal taken by the Revenue.
5.4 In the result, the appeal filed by the Revenue on ground No.1, is dismissed.
6. Ground No. 2 and 3 raised by the Revenue relate to addition on account of delayed payment of employee`s contribution to PF of Rs. 2,30,271/-. As per Revenue, the ld CIT (A) erred in relying on the provisions of section 43B (b) of the I.T.Act, whereas the present issue is involved with Section 36(1) (va) read with 2 (24) (x) of the I.T. Act.
6.1 Ld AR for the assessee has submitted before us that as per Tax audit report column No.16(b) Annexure-B, which clarified that employees` contribution to PF Rs.2,30,271/- for January 2011 was paid on 23.02.2011, that is, next Month. Therefore, the assessee did not commit and default in depositing the PF contribution even as per section 36(1) (va) r.w.s 2(24) (x) of the I.T.Act. In addition to this, the ld AR also relied on the following Judgment:
8 IT(SS)A No.42/15M/s Rungta Sons Pvt. Ltd.
ITAT No.245 of 2011, GA No.2607 of 2011, in case of CIT Vs. M/s Vijay Shree Limited :-
"The only issue involved in this appeal is as to whether the deletion of the addition by the Assessing Officer on account of Employees' Contribution to ESI and PF by invoking the provision of Section 36(1)(va) read with Section 2(24)(x) of the Act was correct or not.
It appears that the Tribunal below, in view of the decision of the Supreme Court in the case of Commissioner of Income Tax vs. Alom Extrusion Ltd., reported in 2009 Vol.319 ITR 306, held that the deletion was justified.
Being dissatisfied, the Revenue has come up with the present appeal.
After hearing Mr. Sinha, learned advocate, appearing on behalf of the appellant and after going through the decision of the Supreme Court in the case of Commissioner of Income Tax vs. Alom Extrusion Ltd., we find that the Supreme Court in the aforesaid case has held that the amendment to the second proviso to the Sec 43(B) of the Income Tax Act, as introduced by Finance Act, 2003, was curative in nature and is required to be applied retrospectively with effect from 1st April, 1988.
Such being the position, the deletion of the amount paid by the Employees' Contribution beyond due date was deductible by invoking the aforesaid amended provisions of Section 43(B) of the Act.
We, therefore, find that no substantial question of law is involved in this appeal and consequently, we dismiss this appeal."
6.2. On the other hand, Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.
6.3. Having heard the rival submissions, perused the material on record, we are of the view that there is merit in the submissions of ld. AR for the assessee, as the proposition canvassed by ld. AR for the assessee are supported by the facts narrated by him above. Ld. AR for the assessee has rightly pointed out that as per Tax audit report column No.16(b) Annexure-B, which clarified that employees` contribution to PF 9 IT(SS)A No.42/15 M/s Rungta Sons Pvt. Ltd.
Rs.2,30,271/- for January 2011 was paid on 23.02.2011, that is, next Month. Therefore, the assessee did not commit and default in depositing the PF contribution even as per section 36(1) (va) r.w.s 2(24) (x) of the I.T.Act. Considering the factual position, we do not find any infirmity in the order passed by the ld CIT(A). Therefore, we confirm the order passed by ld.CIT(A).
6.4. In the result, appeal filed by the Revenue, on ground No. 2 and 3, is dismissed.
Order pronounced in the open court on this 15/03/2017.
Sd/- Sd/-
(A.T.VARKEY) (DR. A.L.SAINI)
या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
कोलकाता /Kolkata; दनांक Dated 15/03/2017
काश $म&ा/Prakash Mishra,0न.स/ PS
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant-DCIT, CC-1(3), Kolkata
2. यथ / The Respondent.- M/s Rungta Sons Pvt. Ltd.
3. आयकर आयु1त(अपील) / The CIT(A), Kolkata.
4. आयकर आय1 ु त / CIT ु ार/ BY ORDER, आदे शानस
5. 2वभागीय 0त0न5ध, आयकर अपील य अ5धकरण, कोलकाता / DR, ITAT, Kolkata
6. गाड8 फाईल / Guard file.
उप/सहायक पंजीकार स या2पत 0त //True Copy// (Asstt. Registrar) आयकर अपील%य अ&धकरण, कोलकाता / ITAT, कोलकाता