Income Tax Appellate Tribunal - Delhi
Indian Sugar Exim Corporation Ltd., New ... vs Assessee on 18 February, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI 'C' BENCH
BEFORE SHRI R.P. TOLANI, JM & SHRI A.N. PAHUJA, AM
ITA No.1822/Del/2011
Assessment Year:2007-08
Indian Sugar Exim Corpn., V/s. Addl. CIT,
Limited, C Block, Range-11,
2 n d Floor, Ansal Plaza, C.R. Building,
August Kranti Marg, New Delhi
New Delhi
(AAACI 1163 M)
ITA No.2215/Del/2011
Assessment Year:2007-08
D.C.I.T., V/s. Indian Sugar Exim Corpn.
Circle 11(1), Ltd., C Block, 2 n d
Room No.312, Floor, Ansal Plaza, August
C.R. Building, N.D. Kranti Marg,
New Delhi.
(Appellant) (Respondent)
Assessee by S/Shri Ashwani Taneja, Kunal
Nagpal and Sumit Jain, ARs
Revenue by Shri R.I.S. Gill, CIT - DR
Date of hearing 05-01-2012
Date of pronouncement 13-01-2012
ORDER
A.N.Pahuja:- These cross appeals filed on 15.04.2011 by the assessee and on 04.05.2011 by the Revenue against an order dated 18.02.2011 of the ld. CIT(A)- XXX, New Delhi for the AY 2007-08 , raise the following grounds:-
I.T.A. No.1822/D/2011[Assessee] 1A) That the learned CIT(A) erred, both on facts and in law in sustaining a disallowance u/s 14A of the Income-tax Act of ``10,00,000/-.
2 ITA nos.1822&2215/Del./2011 1B) The learned CIT(A) has grossly erred in holding that the appellant has himself admitted that expenditure of ``3.36 lacs has been incurred towards earning of exempt income.
2. That the learned CIT(A) has erred in sustaining disallowance of ``4827 towards interest on late payment of TDS without appreciating that it an allowable expenditure.
3. a) That the learned CIT(A) has grossly erred both on facts and in law in holding that interest on income tax refund of ``12,27,94,011/- is taxable in the hands of the assessee on receipt basis. The CIT(A) completely ignored the fact that interest on income tax refund has not attained finality as department has appealed to higher forums and as such the interest on income tax refund is not taxable in the hands of the assessee.
b) Without prejudice to the aforesaid, the learned CIT(A) has erred in not holding that in case the interest on income tax refund is reversed in future, then the interest on income tax already taxed by the department in the instant year shall be reduced from the income of the assessee in A.Y. 2007-08 within 4 years of receipt of such order (reversed by higher forum) on moving an application u/s 154 of the Income-tax Act,
4. That the learned CIT(A) failed to appreciate that interest u/s 234D of the Income-tax Act of ``12,23,806/- levied by the AO for 10 months (March 2009 to December 2009) is not leviable at all as the refund u/s 143(1) for assessment year 2007-08 was not released even upto the date of issue of assessment order u/s 143(3) of the Income-tax Act dated 30.12.2009.
5. The appellant craves leave to add, amend, alter any grounds of appeal. "
3 ITA nos.1822&2215/Del./2011 I.T.A. No. No.2215/D/2011[Revenue]
1) On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of ``26,58,308/- on account of disallowing depreciation.
2) On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of ``15,21,592/- on account of disallowance of foreign traveling expenditure.
3) On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of ``11,26,848/- on account of u/s 43B of the Income-tax Act on account of contribution to assessee's provident fund trust treating it to be unrecognized.
4) On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of ``4,72,66,000/- on account of 14A of the Income-tax Act with rule 8D of I.T. Rule.
5) On the facts and circumstances of the case and in law, the CIT(A) has erred in deleting the addition of ``2,35,00,178/- on account of value of closing stock of sugar declared by the assessee.
6) The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing."
2. Adverting first to ground no.1 in the appeal of the Revenue , facts, in brief, as per relevant orders are that return declaring income of ```32,62,97,076/-filed on 28.10.2007 by the assessee, engaged in the business of export and import of sugar, after being processed u/s 143(1) of the Income-tax Act, 1961 (hereinafter referred to as the Act) was selected for scrutiny with the service of a notice u/s 143(2) of the Act on 16th September, 2008. During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that the conveyance deed in respect of leasehold office building and car parking at Ansal Plaza was yet to be executed. Accordingly, the assessee being not the owner of the 4 ITA nos.1822&2215/Del./2011 building, relying upon his findings in the preceding year, the A.O. disallowed the claim for depreciation of ``26,58,308/-.
3. On appeal, the learned CIT(A) following the order of his predecessor in the preceding years allowed the claim of the assessee in the following terms:-
"4.2 I have gone through the submissions of the appellant and the paper book. In view of judgment of the Apex Court in the case of Mysore Minerals reported in 239 ITR 775, and also earlier years order of CIT(A)-XIII, the appellant's contention is accepted the depreciation on building of ``26,58,308/- is hereby allowed."
4. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR supported the order of the AO while the ld. AR on behalf of the assessee relied upon the decision dated 15.11.2011 in the assessee's own case in ITA nos.5943 & 5960/Del./2010 for the AY 2005-06.
5. We have heard both the parties and gone through the facts of the case and as also the aforesaid decision dated 15.11.2011 in ITA nos.5943 & 5960/Del./2010 for the AY 2005-06 wherein while adjudicating an identical issue, the ITAT concluded as under:-
"8. In the case of hearing of this appeal, it was pointed out by the ld. Counsel for the assessee that ld. CIT (A)'s order passed in A.Y. 2004-05 has been upheld by the Income Tax Appellate Tribunal, Delhi Bench 'C' vide order dated 29.04.2011 by holding and observing as under: -
"35. We have heard both the parties. There is no dispute about the fact that assessee had purchased the property in the financial year 1999-2000 and was occupied by the assessee. The assessee had been paying house tax in its own name. The Assessing Officer had disallowed the claim of the assessee on the ground that the conveyance deed was not registered in the name of the assessee. Hon'ble Supreme Court however, in the case of Mysore Minerals vs. CIT 239 ITR 775 has held that sec. 32 of the Income Tax Act, 1961 allows deduction by way of depreciation on building etc. 5 ITA nos.1822&2215/Del./2011 owned by the assessee and used for the purpose of business or profession. The terms "owner", "ownership", "owned" are generic and relative terms. They have a wide and also a narrow connotation. The meaning would depend on the context in which the terms are used. The decision in the case of CIT vs. Podar Cement P. Ltd. 226 ITR 625 (SC) has to be taken as a trendsetter in the concept of ownership. Assistance from the law laid down therein can be taken for finding out the meaning of the term "owned" is occurring in sec. 32(1) of the Income Tax Act. The term "owned" is occurring in sec. 32(1) of Income Tax Act, must be assigned a wider meaning. Anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded there from and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the building though a formal deed of title may not have been executed and registered as contemplated by the Transfer of Property Act, the Registration Act, etc. In view of the decision of Hon'ble Supreme Court for the purpose of sec. 32(1), the assessee is owner of the property and is entitled for depreciation. Merely because the property has not been registered in the name of the assessee, disallowance of depreciation cannot be made. The decision in the case of Tamil Nadu Civil Supplies Corporation Ltd. (supra) is not applicable to the facts of the case before us as in that case the assessee had not acquired dominion on the property. But in the present case, the assessee is in possession of property; has been paying taxes in his own name; and has used the property for the purposes of business. Hence, the facts are distinguishable. Therefore, ld. CIT(A) was justified in deleting the disallowance made on account of depreciation on building."
9. Respectfully following the Tribunal's order passed in AY 2004-05,we do not find any reason to interfere with the order of ld. CIT(A) in allowing depreciation on office building. Thus ground no.2 raised by the revenue is rejected.
5.1 The aforesaid decision was followed by the ITAT in their decision dated 29.12.2011 in ITA nos.130& 923/Del./2011for the AY 2006-07.In the light of view taken by the ITAT in their aforesaid decisions for the AYs 2004-05 to 2006-07 on identical facts and circumstances, we do not find any reason to 6 ITA nos.1822&2215/Del./2011 interfere with the findings of the ld. CIT(A) in allowing the claim of depreciation. Therefore, ground no.1 in the appeal of the Revenue is dismissed.
6. Ground no.2 in the appeal of the Revenue relates to disallowance of ``15,21,592/- towards foreign travel expenditure. During the course of assessment proceedings, the AO noticed that the assessee claimed foreign travel expenses of ``15,21,592/- in respect of its employees for attending meeting of Global Alliance for sugar trade & Reform and Liberalization. Following his decision in the AY 2002-03, the AO disallowed the claim for these foreign travel expenses.
7. On appeal, the learned CIT(A),following the decisions of his predecessors in the assessee's own case for the AYs. 2001-02 to 2006-07 and decision of the ITAT for the AY 2003-04 deleted the disallowance in the following terms:-
"5,2 The counsel has submitted that the company's business is export/import of sugar. It is important for the assessee company's directors to attend international conferences and even highlighted specific provisions in the MOA/AOA of the assessee company. Global Alliance for sugar trade reform and liberalization is an alliance of some of the major sugar producing developing countries and represent half of the world sugar production. The Assessing Officer has not brought anything on record as to why the attending of such international conferences is not a business purpose for the assessee.
Keeping in view the above discussion and also in view of the order of the Hon'ble Tribunal and CIT(A) XIII orders in assessee's own case in earlier years, the disallowance of ``15,21,592/- is deleted."
8. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR supported the order of the AO while the ld. AR on behalf of the assessee relied upon the decision dated 15.11.2011 in the assessee's own case in ITA nos.5943 & 5960/Del./2010 for the AY 2005-06.
7 ITA nos.1822&2215/Del./2011
9. We have heard both the parties and gone through the facts of the case and as also the aforesaid decision dated 15.11.2011 in ITA nos.5943 & 5960/Del./2010 for the AY 2005-06 wherein while adjudicating an identical issue, the ITAT concluded as under:-
"13. We have heard both the parties and perused the material on record.
14. From the AO's order, it is clear that the AO has disallowed the traveling expenses to attend the conferences for the reasons given by him in A.Y. 2002- 03, 2003-04 & 2004-05. The identical additions were deleted by the ld. CIT(A) in earlier years against which department did not file any appeal before the Tribunal except filing an appeal before the Tribunal in the A.Y. 2003-04. The ld. CIT(A)'s order passed in A.Y. 2003-04 has been upheld by the Tribunal by observing that the disallowances made in earlier years were deleted by the appellate authority and which have not been reversed by any higher forum and the relief granted to the assessee has been accepted by the department keeping the issue no more open.
15. We have perused the common order for A.Y. 2003-04 of the Tribunal dated 19.03.2010, where the Tribunal has affirmed the decision of ld. CIT(A) in deleting the disallowance on account of foreign traveling expenses incurred for attending meeting of Global Alliance for Sugar Trade Reform & Liberalization. Respectfully following the Tribunal's order passed in A.Y. 2003-04, the order of ld. CIT(A) in the present A.Y. on this issue is upheld."
9.1 The aforesaid decision was followed by the ITAT in their decision dated 29.12.2011 in ITA nos.130& 923/Del./2011for the AY 2006-07.In the light of view taken by the ITAT in their aforesaid decisions for the AYs 2003-04, 2005- 06 & 2006-07 on identical facts and circumstances, we do not find any reason to interfere with the findings of the ld. CIT(A) in allowing the claim for deduction of foreign travel expenses. Therefore, ground no.2 in the appeal of the Revenue is dismissed.
8 ITA nos.1822&2215/Del./2011
10. Ground no.3 in the appeal of the Revenue relates to disallowance of ```11,26,848/- on account of contribution towards provident fund. The AO noticed during the course of assessment proceedings that the provident fund of the assessee company namely 'Indian Sugar General Industry Export Import Corporation Ltd. Delhi Provident Fund' did not invest the funds as per prescribed Income-tax Rules. Accordingly, while relying on his findings in the AY 2003-04, the AO disallowed the claim for deduction in terms of provisions of sec. 43B of the Act.
11. On appeal, the learned CIT(A) allowed the claim of the assessee following the decision of the ITAT in the assessee's own case for assessment year 2003-04 and order of his predecessor for the assessment years 2005-06 and 2006-07, in the following terms:-
"6.3 On similar issue, my predecessor has allowed the appeal for assessment year 2005-06 as well as assessment year 2006-07. In view of the submissions of the appellant and following the order of ITAT in appellant's own case for assessment year 2003-04 and also my predecessor's order in assessment year 2005-06 as well as assessment year 2006-07, referred to above, I hold that the assessee has contributed to recognized provident fund trust and hence the contributions made to such recognized provident fund trust are allowable under the provisions of the Income-tax Act. Accordingly the disallowance of ```11,26,848/- is being deleted."
12. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT(A).The ld. DR supported the order of the AO while the ld. AR on behalf of the assessee relied upon the decision dated 15.11.2011 in the assessee's own case in ITA nos.5943 & 5960/Del./2010 for the AY 2005-06.
13. We have heard both the parties and gone through the facts of the case and as also the aforesaid decision dated 15.11.2011 in ITA nos.5943 & 5960/Del./2010 for the AY 2005-06 wherein while adjudicating an identical issue, the ITAT concluded as under:-
9 ITA nos.1822&2215/Del./2011 "20. The identical issue has been decided in favour of the assessee in A.Y. 2003-04 by the Tribunal by observing and holding as under: -
7. "We have heard the parties and considered the material available on record. Sec. 36(1)(iv) provides as under:
"(iv) any sum paid by the assessee as an employer by way of contribution towards a recognized provident fund or an approved superannuation fund, subject to such limits as may be prescribed for the purpose of recognizing the provident fund or approving the superannuation fund, as the case may be; and subject to such conditions as the Board may think fit to specify in cases where the contributions are not in the nature of annual contributions of fixed on some definite basis by reference to the income chargeable under the head "Salaries" or to the contributions or to the number of members of the fund."
Reading the aforesaid section it is clear that to claim deduction by way of contribution to a recognized provident fund, it has to be demonstrated that the contribution is towards a recognized provident fund. The phrase "Recognized Provident Fund" is defined in sec. 2(38) of the Act. As per the definition it means a provident fund, which has been and continues to be recognized by the Chief Commissioner or Commissioner in accordance with rules contained in Part A of the Fourth Schedule, and includes a provident fund established under a scheme framed under the Employees' Provident Funds Act, 1952. Since as per the letter issued by CIT, Delhi-III dated 28.05.1976 the provident fund is considered as fund to which Provident Fund Act, 1925/1952 applies, it amounts to a "Recognized provident fund" within the meaning of sec. 2(38) of the Act and hence in terms of sec. 36(1)(iv) the contribution to "recognized provident fund" is allowable as such. Since there is no dispute that the amount was paid within the due dates prescribed, the disallowance is to be deleted. We, therefore, delete the disallowance of Rs. 15,22,234/-."
10 ITA nos.1822&2215/Del./2011
21. Respectfully following the aforesaid Tribunal's order passed in A.Y. 2003-04, we are inclined to uphold the order of ld. CIT(A) in deleting the addition on account of contribution to Provident Fund Account.
13.1 The aforesaid decision was followed by the ITAT in their decision dated 29.12.2011 in ITA nos.130& 923/Del./2011for the AY 2006-07.In the light of view taken by the ITAT in their aforesaid decisions for the AYs 2003- 04, 2005-06 & 2006-07 on identical facts and circumstances, we do not find any reason to interfere with the findings of the ld. CIT(A) in allowing the claim for deduction of contribution towards Provident Fund. Therefore, ground no.3 in the appeal of the Revenue is dismissed.
14.. Ground No.4 in the appeal of the Revenue and ground nos.1A and 1B in the appeal of the assessee relate to disallowance u/s 14A of the Act. During the course of assessment proceedings, the AO noticed that the assessee earned dividend income from interest free bonds of ```3,64,16,291/-, claimed exempt u/s 10 of the Act. To a query by the AO, regarding working of disallowance u/s 14A of the Act read with Rule 8D of I.T. Rules, 1962,the assessee replied that huge surplus and interest free funds available on its disposal, were more than the investments made by the assessee. Though the assessee contended that Rule 8D of I.T. Rule, 1962 was not applicable in the year under consideration, the AO did not accept the contentions of the assessee and computed disallowance of ```4,72,66,600/- in terms of Rule 8D of I.T. Rules, 1962, following the decision of Special Bench of the ITAT in the case of ITO vs. Daga Capital Management Pvt. Ltd. (2009) 312ITR AT 1.
15. On appeal, the learned CIT(A) reduced the disallowance to ```10 lacs in the following terms:-
"7.2 I have gone through the submissions of the assessee and order of Tribunal in assessee's case in AY 2001-02 and orders of AY 2005-06 and A Y 2006-07 by my predecessors. As regards the issue that whether interest expenditure is attributable to earning of the exempt income, it is seen that an amount of Rs.4,82,06,272/-
11 ITA nos.1822&2215/Del./2011 has been debited to the Income & Expenditure a/c. The AR has filed the ledger a/cs, bank debit advice and other supporting evidences.
7.3 The AR filed sanction letters of loan from Maharashtra State Cooperative Bank, Standard Chartered Bank, ICICI Bank, interest ledger a/c along with photocopies of all the vouchers being bank debit advices. As per the sanction letter of the bank itself, it is clearly mentioned that the assessee has been provided packing credit facility and not cash credit or overdraft facility. Further, the assessee has also filed confirmation certificate from ICICI Bank, confirming that there is no cash credit I overdraft facility and interest in relation to export packing credit limits were enjoyed by the assesssee. Moreover, it is important to mention that the packing credit loan can only be liquidated from export proceeds. Even in A Y 2001-02, the CIT(A) in appeal no 266/03-04 had after considering the facts of the case wherein only packing credit facilities were availed by the assessee , had deleted disallowance of interest. This order was confirmed by the Hon'ble ITAT in appeal no 1566/Del/2004 and 1042/Del/2005 as observed in para 8.1 of the Order: -
"We are unable to agree with this argument of the learned DR for the reason that the whole of the interest was paid in relation to packing credit limit for which additional evidence was filed before the CIT(Appeals), and which was rightly admitted by him. He decided the matter after hearing the matter. His finding could not in any way be displaced by the learned DR before us. Therefore, it is held that no part of interest expenditure could be disallowed u/s 14A"
Further, in A Y 2005-06 as well AY 2006-07, my predecessor has held on similar facts after detailed discussions has held that no interest can be attributed towards investment activity of the assessee.
Since in this year also the facts are identical and the bank interest is only towards packing credit facilities for export of sugar, relying upon the Order of hon'ble Tribunal for A Y 2001-02 and as per detailed discussions in order of CIT(A) XIII in A Y 2005-06 and A Y 2006-07, I hereby hold that no proportionate disallowance of interest is to be made from the bank interest debited to income & expenditure of Rs.4,82,06,272/-.
Further on going through the Balance Sheet of the appellant it is observed that the Opening General Fund (Reserves) of the appellant as on 31/3/2006 is Rs.231.59 Crores and Closing 12 ITA nos.1822&2215/Del./2011 General Fund as on 31/3/2007 is Rs.271.31 Crores. The Investments of the assessee as at 31/3/2006 is Rs.209.50 Crores and 31/3/2007 is Rs.249.17 Crores respectively. Further during the year, the assessee has earned cash profits during the year.
In Reliance Utilities & Power Ltd. 313 ITR 340 (Born) (supra), the High Court has held that "if there be interest free funds available to an assessee sufficient to meet its investments and that at the same time the assessee had raised a loan it can be presumed that the investment were from the interest free funds available"
From the above discussions of the balance sheet of the appellant it is observed that the ratio of the decision of Reliance Utilities is applicable and therefore on this aspect also, there is no question of attribution of "interest expenditure" for earning of tax exempt income u/s 14A in appellant's case.
7.4 The other issues to be considered is whether or not provisions of section 14A of the Act can be applied to disallow part of administrative expenditure on a reasonably estimated basis in absence of the assessing officer pointing out any specific I particular expense or drawing any direct nexus between the expense incurred and earning of the dividend income. It is also to be decided as to whether a reasonable estimate u/s 14A of the IT Act, after the decision of Bombay High Court in M/s Godrej & Boyce Vs CIT (328 ITR 81) (Born) wherein it has been held that the Rule 8D which has been inserted w.e.f. 24.03.08, is not retrospective in operation. (This decision has overruled ITAT decision in Daga Capital Management P. Ltd. (supra) on the issue of retrospective application of Rule 8D.
7.5 The Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd., has been held as under:
"Even in the absence of sub sections (2) and (3) of Section 14A and of Rule 8D, the Assessing Officer was not precluded from making apportionment. Such an apportionment would have to be made in order to give effect to the substantive provisions of sub section (1) of Section 14A which provide that no deduction would be allowed in respect of expenditure incurred in relation to income which does not form part of the total income under the Act. Consequently, dehors the provisions of Sections (2) and (3) of Section 14A and Rule 8D, the Assessing Officer was entitled to determine by the application of a reasonable method what quantum of the expenditure incurred by the assessee would have to be disallowed on the ground that it was incurred in relation to the earning of income which does not form part of the total income under the Act. Undoubtedly in determining what
13 ITA nos.1822&2215/Del./2011 would constitute a reasonable method for effecting the disallowance, the Assessing Officer would have to give due regard to all the facts and circumstances of the case. The change which is brought about by the insertion of sub sections (2) and (3) into Section 14A by the Finance Act of 2006 with effect from 1 April 2007 is that in a situation where the Assessing Officer is not satisfied with the correctness of the claim of the assessee in regard to the expenditure incurred by it in relation to the nontaxable income, the Assessing Officer would have to follow the method which is prescribed by the rules. The rules were notified to come into force on 24 March 2008. It is a trite principle of law that the law which would apply to an assessment year is the law prevailing on the first day of April. Consequently, Rule 8D which has been notified on 24 March 2008 would apply with effect from Assessment Year 2008-09(Para 67) Even prior to Assessment Year 2008-09, when Rule 8D was not applicable, the Assessing Officer has to enforce the provisions of sub section (1) of Section 14A. For that purpose, the Assessing Officer is duty bound to determine the expenditure, which has been incurred in relation to income, which does not form part of the total income under the Act. The Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing (ft reasonable opportunity to the assessee to place all germane material on the record;
The Assessing Officer shall determine as to whether the assessee has incurred any expenditure (direct or indirect) in relation to dividend income / income from mutual funds which does not form part of the total income as contemplated under Section 14A. The Assessing Officer can adopt a reasonable basis for effecting the apportionment (Para 74).
Thus Bombay High Court in case of Godrej Boyce (Supra) has observed that for making disallowance under section 14A there needs to be a reasonable and proximate nexus between the expenditure and the exempt income and that the AO is not precluded from making apportionment in a case where the assessee does not maintain separate accounts.
It would be relevant to consider the details of the various expenses incurred under the head Administrative Expenses to determine whether was any proximate nexus between the expenditure incurred and the exempt income.
On a perusal of the details of administrative expenses and functions performed by the personnel, I find that the administrative expenses would mostly relate to the carrying on of the normal and primary business activities of the appellant. However, even the 14 ITA nos.1822&2215/Del./2011 appellant has admitted vide submission dated 2.12.2010 to the fact of part of such expenses having been incurred to earning of exempt income In fact the appellant has also provided it's own working of such expenses related to Head office at Ansal Plaza, Delhi only, as investment in tax exempt instruments are taken only at Head Office and not at appellant's office at Mumbai or Port Offices at Chennai, Kolkata or Kandala which can be attributed to earning of exempt income. The contention of the appellant that expenses at the Port offices cannot be proximately related to their investment decisions at Head Office is reasonable and therefore acceptable. Accordingly only such of the administrative expense which are made at Head Office and which can be reasonably co related to earning of exempt income are considered for disallowance.
The assessee has submitted the calculation of disallowance u/s 14A as per Annexure A annexed to this order.
As per the assessee's own calculation the disallowance works out to be Rs.3.36 lacs. In the past, the CIT(A) XIII has made a disallowance of Rs.6.49 lacs and Rs.8.32 lacs in A Y 2005-06 and A Y 2006-07 respectively. However, a disallowance of Rs.10 lacs in the instant year seems to be reasonable considering the level of administrative expenditure of the assessee. Thus a disallowance u/s 14A of Rs.10,00,000 is confirmed and balance disallowance of Rs.4,62,66,600/- is hereby deleted."
16. The Revenue is now in appeal before us against the deletion of disallowance while the assessee is in appeal against the upholding of disallowance to the extent of ``10lacs.The learned DR while inviting our attention to the findings of learned CIT(A) contended that the ld. CIT(A) was not justified in reducing the disallowance. On the other hand, learned AR on behalf of the assessee reiterated their submissions before the learned CIT(A) while referring to decision dated 15.11.2011 of the ITAT for the AY 2005-06.
17. We have heard both the parties and gone through the facts of the case. We find that while adjudicating a similar issue, the ITAT upheld the findings of ld. CIT(A) in the AY 2005-06 in their order dated 15.11.2011 ,in the following terms:-
15 ITA nos.1822&2215/Del./2011 "28. We have heard both the parties and perused the material on record. On perusal of AO's order, we find that the AO has worked out the proportionate expenses incurred for earning the exempted income at Rs. 6,45,404/-. However, he disallowed the sum of Rs.10 lakh in the light of the disallowance sustained by ld. CIT(A) in A.Y. 2002-03.
However, in the present assessment year, the ld. CIT(A) has worked out the disallowance, by allocating the various expenses to exempt income, at Rs. 6,49,336/- which is more than the working of Rs. 6,45,404/- worked out by the AO. The AO's action in disallowing the expenses to the extent of Rs. 10 lakh on estimate is found to be without any basis. The ld. CIT(A) has sustained the addition of Rs. 6,49,336/- after giving his working. In the course of hearing of this appeal, the ld. counsel for the assessee has not been able to point out any irregularity or defect in working given by the ld. CIT(A). It is not in dispute that the assessee has incurred various expenses for earning exempt income. The expenditure incurred by the assessee in earning exempt income has been worked out by the ld. CIT(A) at Rs. 6,49,336/- on a reasonable basis. We, therefore, find no reason to interfere with the order of ld. CIT(A) in sustaining the disallowance to the extent of Rs. 6,49,336/-. Thus, this ground raised by both revenue as well as by assessee is rejected. "
17.1. The aforesaid decision was followed by the ITAT in their decision dated 29.12.2011 in ITA nos.130& 923/Del./2011for the AY 2006-07.As in the AY 2006-07,In the year under consideration, as regards disallowance out of interest, the ld. CIT(A) concluded that interest has been paid to factories towards advance taken by the assessee for import of sugar. Therefore, the ld. CIT(A) accepted the contention of the assessee that interest paid to factories is not to be considered for proportionate disallowance u/s 14A of the Act. As regards bank interest , the ld. CIT(A) on perusal of sanction letters of loan from Maharashtra State Cooperative Bank, Standard Chartered Bank, ICICI Bank, ledger a/c along with photocopies of all the vouchers ,bank debit advices etc. found that the assessee had been provided packing credit facility and not cash credit or overdraft facility while the packing credit loan can be liquidated only from export proceeds. Even in assessment year 2001-02, the CIT(A) in appeal no.266/03-04, after considering the facts of the case found that only packing credit facilities were availed by the assessee and deleted the disallowance of 16 ITA nos.1822&2215/Del./2011 interest. This order was confirmed by the Hon'ble ITAT in appeal No.1566/D/04 and 1042/D/05.. In the light of these undisputed findings of the ld. CIT(A),especially when the ld. DR did not place any material before us so as to enable us to take a different view in the matter, we are not inclined to interfere with the findings of the ld. CIT(A) that no disallowance out of interest can be made in terms of provisions of sec. 14A of the Act and that Rule 8D is not applicable in the year under consideration in view of aforesaid decision of Hon'ble Bombay High Court.
17.2 As regards disallowance out of various expenses to the extent of 10 lacs, we do not find any infirmity in the approach of the learned CIT(A) in upholding the disallowance to that extent especially when the assessee admitted in his submissions dated 2.12.2010 before the ld. CIT(A) to the fact of part of such expenses have been incurred for earning exempt income and accordingly, provided its own working of such expenses relating to Head office at Ansal Plaza, Delhi There is no material before us to take a different view in the matter. In the course of hearing of this appeal, the ld. AR on behalf of the assessee did not point out any irregularity or defect in working given by the ld. CIT(A). It is not in dispute that the assessee has incurred various expenses for earning exempt income. The expenditure incurred by the assessee in earning exempt income has been worked out by the ld. CIT(A) at ``10 lacs on a reasonable basis. We, therefore, find no reason to interfere with the order of ld. CIT(A) in sustaining the disallowance to the extent of ```10 lacs 17.3 In view of the foregoing, ground nos.1A & 1B in the appeal of the assessee and ground no.4 in the appeal of the Revenue are dismissed.
18. Ground no.5 in the appeal of the Revenue relates to addition of ```2,35,00,178/- on account of valuation of closing stock of sugar. During the 17 ITA nos.1822&2215/Del./2011 course of assessment proceedings, the AO noticed that the assessee valued closing stock of sugar at ``16,33,05,857/- as against cost of ``18,68,06,035/-. To a query by the AO seeking to add the difference, the assessee submitted year wise position of stock as as under:
A.Y. Qty Rate[In``]]] Method Amount[In``]]] Amount at Difference cost[In``]]] [In``]]] 2005- 864 white 10690 cost 9192960 9192960 -06
10100 raw 15139 cost 152908950 152908950 - Total Nil 2006- 11 raw 17000 cost 187000 187000 - 07 7758white 18200 cost 141195600 141195600 - 5712White 18870 cost 107785440 107785440 - 12293white 19980 cost 245614140 245614140 - Total Nil 2007- 2707 12857 Realisation 34073009 52854175 18781166 08 60 11103 Realisation 666212 1195500 529288 9812 11103 Realisation 128566636 132756360 4189724 Total 23500178
18.1 However, the AO did not accept the submissions of the assessee on the ground that the Revenue was in appeal before the Hon'ble High Court in the preceding years.
19. On appeal, the learned CIT(A) allowed the claim of the assessee in the following terms:-
"8. This ground relates to addition of ```2,35,00,178/- to the value of closing stock of sugar declared by the assessee.
The Assessing Officer held that the assessee is following the method of valuation of stock of sugar on the basis of cost or market price whichever is lower. In A Y 1993-94, the method of valuation of closing stock adopted was rejected and the closing stock was valued at cost price. Therefore, if the value 18 ITA nos.1822&2215/Del./2011 is adopted on cost price, there is under valuation, which is required to be added to the income of the assessee to the extent of `.2,35,00,178/-.
During the appellate proceedings it has brought to my notice that this issue was an issue before the hon'ble ITAT Delhi in the appellant's own case and for the reasons recorded in the order for AY 1993-94, the appellant's arguments and method of valuation of closing stock of sugar at lower of cost or market price was accepted. It was also submitted that in the preceding previous years also my predecessor having considered the decision of ITA T Delhi has deleted such addition and accordingly it is submitted that the addition made in the year under consideration should also be deleted. The appellant has also made elaborate submission on this issue which is not repeated since in the instant case there is no dispute as to the fact that the appellant has been following the method of valuing closing stock at lower of cost or market value consistently and more so the method so adopted is the recognized method of valuation of stock prescribed by the Institute of Chartered Accountants of India as per AS (Accounting Standard) - 2. Respectfully following the decision of the IT AT Delhi in the appellant's own case in A Y 1993-94, 1995-96, 1996-97, 1997-98, A Y 2001-02, AY 2003-04 as well as my predecessors in AY 2002-03/AY 2003-04/AY 2004-05/2005-06/2006-07, addition made in this regard of Rs.2,35,00,178 in the current year as well is deleted."
20. The Revenue is now in appeal before us against the aforesaid findings of learned CIT(A).The ld. DR supported the findings of AO while the learned AR on behalf of the assessee relied upon the decision dated 19.03.2010 in the assessee's own case for assessment year 2003-04 in I.T.A. No.4159 & 4361/D/06 of the ITAT.
21. We have heard both the parties and gone through the facts of the case as also the aforesaid decision of the ITAT. While adjudicating an identical issue, a co-ordinate Bench in order dated 19.03.2010 for the AY 2003-04, following the decision of the ITAT for the assessment year 1993-94 in ITA no.4362/Del./1996, deleted the addition in the following terms:-
19 ITA nos.1822&2215/Del./2011 "15. The Assessing Officer held that the assessee is following method of valuation of stock on the basis of cost or market price whichever is lower. In assessment year 1993-94 the method of valuation of closing stock adopted was rejected and the closing stock was valued at cost price. Therefore, if the value is adopted on cost price, there is under valuation, which is required to be added to the income of the assessee. The learned CIT(A) held that for assessment year 1993-94 though the addition was confirmed by the Commissioner (Appeals), the same was deleted by ITAT Delhi in I.T.A. No.4362/D/96 and the method of valuation adopted by the assessee was accepted. Following the said order in subsequent years i.e. 1995-96, 1996-97, 1997-98 and 1998-99 the issue is decided in favour of the assessee and therefore, for this year also the valuation being as per the recognized method, the addition is to be deleted."
21.1 In the light of aforesaid view taken by the ITAT, especially when the ld.
CIT(A) followed the decision of the ITAT for the AYs 1993-94,1995-96 to 1998- 99, 2001-02 & 2003-04 while deleting a similar addition and the Revenue having not placed before us any contrary decision nor any other material so as to enable us to take a different view in the matter, we are not inclined to interfere with the findings of the ld. CIT(A). Therefore, ground no.5 in the appeal of the Revenue is dismissed.
22.. Ground no.2 in the appeal of the assessee relating disallowance of `4,827/- towards interest on late payment of TDS, was not pressed before us. Accordingly, this ground is dismissed.
23.. Ground no.3 in the appeal of the assessee relates to taxation of interest on Income Tax refund of ``12,27,94,011/-. Though the assessee in the original return offered interest on Income Tax refund to tax, in the revised return filed on 16th March, 2009, the assessee reduced the aforesaid interest of ``12,27,94,011/- on the ground that the receipt was inchoate. However, the AO did not accept the submissions of the assessee on the ground that appeals in the preceding year were pending in higher forums..
20 ITA nos.1822&2215/Del./2011
24. On appeal, the learned CIT(A) upheld the findings of the AO, rejecting the contentions of the assessee while concluding that interest on income tax refund is taxable as and when received by the assessee..
25. The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). The ld. AR on behalf of the assessee merely relied upon the decision dated 19.03.2010 of the ITAT in I.T.A. nos.4159 and 4361/D/2006 for the assessment year 2003-04. On the other hand, the ld. DR supported the findings of the ld. CIT(A) relied on the impugned order.
26. We have heard both the parties and gone through the facts of the case as also the aforesaid decision of the ITAT. As is apparent from the findings in the assessment order, interest of ``12,27,94,011/- relates to the refund granted for the following assessment years:
1993-94-``11,22,86,451/-
1995-96-``18,23,526/-
1999-2000-``81,19,789/-
2003-04-``5,64,245/-
26.1 Neither the ld. AR nor the ld. DR threw any light in respect of the method of accounting regularly followed by the assessee in relation to such receipts nor informed the status of proceedings in further appeal, as a result of which aforesaid amount of interest on refund is received by the assessee. We find that appeal by the Revenue in the AY 2003-04 has already been disposed by the Hon'ble High Court vide order dated 15.2.2011.While adjudicating an identical issue, the ITAT vide their order dated 19.03.2010 in the AY 2003-04 directed the AO to consider the revised computation filed during the course of assessment proceedings as the claim can be made by filing revised return and compute the income as per law . The observations and findings of the ITAT read as under:
21 ITA nos.1822&2215/Del./2011 "11. We have heard the parties. The assessee filed revised computation to exclude interest on refund, which was originally granted by taking the loss on export as 'Nil'. However, later on as per the decision of Hon'ble Supreme Court in the case of Ipca Laboratory Ltd. Vs. Dy. CIT, 266 ITR 521, the assessee may not be allowed deduction u/s 80HHC and hence refund received will have to be refunded back and so also the interest paid along with the refund. Therefore, interest cannot be said to have been paid and since the issue /is pending before the High Court, though refund is received such refund is not due to the assessee and hence interest on such refund does not accrue to the assessee. Therefore, the Assessing Officer was required to examine whether the refund granted to the assessee has been due to it and is not subject matter of further litigation. Hon'ble Delhi High Court in the case of CIT Vs. Jai Paraboloics Pvt. Ltd., 306 ITR 42, held that there is no prohibition on the powers of the Tribunal to entertain an addition ground which according to the Tribunal arose in the matter and for the just decision of the case. We, therefore, direct the Assessing Officer to consider the revised computation filed during the assessment proceedings and compute the income as per law."
27. We find that the Special Bench, Mumbai in the case of Avada Trading Co. (P.) Ltd. (In I. T. A. No. 508 (Mum) of 2001--unreported), held that interest accrues in the year in which interest on refund is received by the assessee. Following the said judgment, a co-ordinate Bench in their decision in Zuari Industries Ltd. vs, ACIT ,298 ITR (AT) 97 decided the issue against the assessee. In view of the foregoing, especially when there is not even a whisper regarding method of accounting regularly followed by the assessee in accounting interest on refund granted by the Department, either in the impugned order or before us nor the ld. CIT(A) had any occasion to consider the aforesaid decisions, we consider it fair and appropriate to vacate the findings of the ld. CIT(A) and restore the matter to his file with the directions to re-examine in the issue in accordance with law in the light of our aforesaid observations, after allowing sufficient opportunity to the assessee and thereafter pass appropriate orders ,considering the status of proceedings in further appeals for the AYs 1993-94,1995-96,1999-2000 & 2003-04 . With these observations ground nos.3(a) in the appeal of the assessee is disposed of while alternate ground no.
22 ITA nos.1822&2215/Del./2011 3(b) does not survive for our adjudication at this stage nor the ld. AR made any submissions before us on this alternate ground.
28. Ground no. 4 in the appeal relates to levy of interest u/s 234D of the Act.. The AO while completing the assessment levied interest of `12,23,806/- u/s 234D of the Act. On appeal, the ld. CIT(A) held that levy of such interest is consequential in nature. The ld. AR on behalf of the assessee contended that even while mentioning that the Revenue have not released the fund in terms of order dated 7.2.2009 u/s 143(1) of the Act, the d. CIT(A) did not adjudicate the issue. To a query by the Bench, the ld. AR submitted that subsequently after about 4 months refund was granted by the AO. On the other hand, the ld. DR supported the order of the Assessing Officer.
29. We have heard both the parties and gone through the facts of the case. We find that the learned CIT(A) did not pass a speaking order on the issue and merely observed that levy of interest u/s 234D is only consequential in nature. Since subsequently refund has been granted to the assessee, we restore the matter back to the file of the ld. CIT(A) with the directions to pass a speaking order on the issue in accordance with law after allowing sufficient opportunity to the assessee. Accordingly, ground no.4 is disposed of.
30. No additional ground having been raised before us in terms of residuary ground no.5 in the appeal of the assessee and ground no.6 in the appeal of the Revenue, therefore, both these grounds are dismissed.
31. No other submission or argument was made before us.
23 ITA nos.1822&2215/Del./2011
32. In result, appeal of the Revenue is dismissed while that of the assessee is partly allowed but for statistical purposes.
Order pronounced in open Court
Sd/- Sd/-
(R.P. Tolani) (A.N. Pahuja)
(Judicial Member) (Accountant Member)
NS
Copy of the Order forwarded to:-
1. D.C.I.T., Circle-11 (1), Room No.312, C.R. Building, New Delhi.
2. Indian Sugar Exim Corpn., Limited, C Block, 2 n d Floor, Ansal Plaza, August Kranti Marg, New Delhi
3. CIT(A)-XXX, New Delhi.
4. CIT concerned.
5. DR, ITAT,'C' Bench, New Delhi
6. Guard File.
BY ORDER, Deputy/Asstt.Registrar ITAT, Delhi