Income Tax Appellate Tribunal - Indore
The Acit, 1(1), Bhopal vs M/S. Sanwaria Agro Oils Limited, Bhopal on 3 May, 2017
ACIT vs.M/s Sanwaria Agro
आयकर अपील य अ धकरण, इ दौर यायपीठ, इ दौर
IN THE INCOME TAX APPELLATE TRIBUNAL,
INDORE BENCH, INDORE
BEFORE SHRI C.M. GARG, JUDICIAL MEMBER
AND SHRI O.P. MEENA, ACCOUNTANT MEMBER
I.T.A. No. 706/Ind/2013
Assessment Year 2006-07
Asstt. Commissioner of Income Tax
1(1), Bhopal :: अपीलाथ /Appellant
Vs
M/s Sanwaria Agro Oils Ltd.
Bhopal
PAN - AACCS-1449N :: यथ /Respondent
राज व क ओर से/Revenue by Shri Mohd. Javed - DR
!नधा#$रती क ओर से/Assessee by Shri Anil Khabya
सन
ु वाई क तार ख 27.3.2017
Date of hearing
उ*घोषणा क तार ख 3.5.2017
Date of pronouncement
आदे श /O R D E R
PER SHRI C.M. GARG, JM
This appeals has been filed by the revenue against the order of the learned CIT(A)-I, Bhopal, dated 17.9.2013 in First Appeal No. CIT(A)-I/BPL/IT-09/12-13 for the assessment year 2006-07 on the following grounds :-
1
ACIT vs.M/s Sanwaria Agro "On the facts and in the circumstances of the case, the CIT(Appeal) has erred in -
1. deleting the addition of Rs.10,00,000/- made by the A.O. on account of Warehouse payment.
2. deleting the addition ofRs.91,27,782/- made by the A.O. on account of deferred revenue expenses for Mandideep Unit.
3. deleting the addition ofRs.13,99,400/- against the addition of Rs.14,11,319/- made by the A.O. by applying provisions of sec.14A of the Act.
4. deletion the disallowance of Rs.2,22,182/- out of disallowance made by the A.O. amounting to Rs.2,97,395/- u/s 43B"
2. Ground no. 1 Apropos ground no. 1 the learned DR supporting the action of the Assessing Officer submitted that the Assessing Officer was right in making disallowance of warehouse expenses treating the same as deferred revenue expenses for Mandideep unit. The learned DR further submitted that the learned CIT(A) granted relief to the 2 ACIT vs.M/s Sanwaria Agro assessee without any basis. Therefore, the same may be set aside by restoring the order of the Assessing Officer.
3. Replying to the above, the assessee's representative (AR) drew our attention towards para 4.4. of the impugned first appellate order and submitted that the learned CIT(A) granted relief to the assessee by following the order of the Tribunal dated 29.4.2011 passed in the assessee's appeal ITA No.80/Ind/2010 and CO No.3/Ind/2010 wherein the issue was discussed at length and thereafter the deletion of disallowance of Rs. 10 lacs was upheld, dismissing the ground of the revenue. The learned AR further submitted that prevalent rate at the relevant time for wheat and paddy was Rs. 3/- per bag per month and in case of Tuar and Soyabean it was Rs. 50/- per bag per month. Therefore the warehousing rates, which are decided by the State Government, cannot be held as excessive payment and hence the learned CIT(A) was right in deleting the addition by following the order of the Tribunal (supra).
4. On careful consideration of the above submissions and the order of the Tribunal for the assessment year 2006-07 dated 29.4.2011 (supra), we observe that the Tribunal dismissed the 3 ACIT vs.M/s Sanwaria Agro appeal of the revenue on the issue, upholding the of the learned CIT(A) with the following observations :-
"8. Now we shall deal with ITA No. 80/Ind/2010 where the first ground pertains to deleting the addition of Rs. 10 lacs out of the total addition of Rs. 15 lacs made on account of warehousing charges in view of provisions of section 40A(2)(b) of the Act. The ld. CIT DR defended the assessment order whereas the ld.Counsel for the assessee supported the impugned order.
9. We have considered the rival submissions of ld.representatives of both sides and perused the material available on record. Brief facts are that the assessee company is engaged in the business of manufacturing and trading in commodities. The assessee declared income of Rs.2,00,91,510/- in the return filed on 26.11.2006. The Assessing Officer noted that the assessee claimed payment of Rs.31,12,825/- towards warehouse to an associate concern M/s Shreenath Warehousing Corporation which is a unit of M/s Natthuram Shrinarayan Agrawal. The stand of the revenue is that the claim of such expenses is excessive, therefore, the Assessing Officer disallowed Rs. 15 lacs u/s 40A(2) treating the same as excessive and unreasonable. On appeal, considering the difference between the prevailing market rate and the claim of the assessee, the learned Commissioner of Income Tax (Appeals) considered Rs. 5 lacs as excessive and the disallowance was made accordingly and deleted the disallowance of Rs.10 lacs which is under challenge before us. The prevailing rate at the relevant time for wheat and paddy was Rs. 3/- per bag, per month and in the case of Tuwar and Soyabean it was Rs. 50/- per bag per month, therefore, since the warehousing rates are fixed and decided by the Government, therefore, the excessive payment was even denied by the learned Commissioner of Income Tax (Appeals), therefore, we find no infirmity in the same, consequently, this ground of the revenue is dismissed." 4
ACIT vs.M/s Sanwaria Agro
5. First of all, we may point out that the appeal in hand is also pertaining to the assessment year 2006-07 which arose from the assessment order dated 14.3.2012 passed u/s 147 read with section 143(3) of the Income Tax Act, 1961 (in short 'the Act') and ITA No. 80/Ind/2010 and CO No. 3/Ind/2010 were also pertaining to the assessment year 2006-07 which arose from the assessment order dated 16.12.2008 passed under section 143(3) of the Act and there is no substantial change in the facts and circumstnaces of the case. Before us, the learned AR fairly accepted that the cross objection of the assessee bearing no. 51/Ind/2015 arising out of ITA No. 706/Ind/2013 was dismissed by the Tribunal vide order dated 10.3.2016 as the same was not pressed by the assessee.
6. From the relevant operative part para 4.4 of the first appellate order it is clear that the Commissioner of Income Tax (Appeals) followed the order of the ITAT dated 29.4.2011 (supra) and the learned DR on specific query by the Bench could not controvert the fact that there is no change in the facts and legal position from the date of Tribunal order (supra) till date thus we are inclined to note that the Commissioner of Income Tax (Appeals) is quite correct and 5 ACIT vs.M/s Sanwaria Agro justified in following the order of the Tribunal and in deleting the addition made by the Assessing Officer on account of warehouse payments.
7. Apropos ground no. 2 the learned DR submitted that the Commissioner of Income Tax (Appeals) has erred in deleting the addition made by the Assessing Officer on account of deferred revenue expenditure for Mandideep unit. On the other hand, the learned counsel for the assessee supported the order of the Commissioner of Income Tax (Appeals) with the submission that the the Assessing Officer in the reassessment proceedings again disallowed the deferred revenue expenses which were disallowed in the original assessment order. The learned counsel for the assessee submitted that since the Commissioner of Income Tax (Appeals) has deleted the said addition in the first appeal, the Assessing Officer has no jurisdiction to make the addition again in the reassessment proceedings. In this way, the learned counsel for the assessee prayed to maintain the order of the Commissioner of Income Tax (Appeals).
8. We have carefully considered the arguments of the parties in the wake of the facts brought to our notice. We find that the 6 ACIT vs.M/s Sanwaria Agro coordinate Bench of the Tribunal in the case of the assessee in ITA Nos. 129/Ind/2007, 156 & 157/Inbd/2010, etc. vide its order dated 29th April, 2011 in the assessee's own case has deleted the similar addition by observing as under :-
"10. The next ground pertains to deleting the addition of Rs.91,27,782/- made on account of deferred revenue expenses for Mandideep unit. The stand of the learned CIT DR is that the trial run expenses were wrongly claimed as there was no electricity connection whereas the ld. Counsel for the assessee contended that the trial and run was made on the basis of diesel/generator and necessary evidence was claimed to have been filed before the department.
11. We have considered the rival submissions of ld. representatives of both sides and perused the material available on record. Brief facts are that the assessee company acquired an old sick unit M/s United Soya Product, Mandideep, purchased vide a tripartite agreement with the seller and financial institution. As per the assessee, the acquired unit was made operational and the trial run production started in the month of April, 2005. It was further claimed that during initial period loss was suffered due to various reasons especially when the plant and machinery was not stabilized. The assessee claimed loss of Rs.1,18,02,476/- by claiming the same as deferred revenue expenditure in its books and claimed it as a business loss whereas the stand of the revenue is that the expenditure was incurred for trial run, therefore, the same is not allowable. However, we are of the view that since it was not disputed that the trial run production started from 1.4.2005 to 30.11.2005, it has to be allowed. The Mandideep unit was claimed to be fully functional from 1.4.2005, consequently, the expenses are revenue expenditure. The commencement of business is not the pre-condition and it is enough if the 7 ACIT vs.M/s Sanwaria Agro assessee establishes that the unit was set up and the trial run production is started from a particular date. The commercial production at full swing is normally at a later date. Simply because the assessee incurred huge losses at the initial stage, it cannot be said that the assessee has not set up its business. The learned Commissioner of Income Tax (Appeals) has already considered the details of expenses like purchase of raw material, manufacturing expenses, fuel expenses/other expenses. It is also noted that the general manager from Govt. industries centre issued production certificate dated 27.5.2005 with specific mentioning that the production started from 21.4.2005 even mentioning the annual capacity and nature of product. No contrary evidence was furnished by the department, therefore, in view of the decisions relied upon in the impugned order, we find no infirmity in the impugned order, therefore, the same is confirmed. Accordingly, this ground of the revenue is dismissed."
Following the above order of the coordinate Bench of the Tribunal, we confirm the order of the Commissioner of Income Tax (Appeals). Accordingly, ground no. 2 of the revenue is dismissed.
9. Ground no. 3 of the revenue's appeal relates to deletion of addition by the Commissioner of Income Tax (Appeals) of Rs.13,99,400/- against the addition of Rs.14,11,319/- made by the Assessing Officer by applying the provisions of section 14A of the Act.
10. Briefly stated, the facts of the case are that the Assessing Officer noted from the accounts and the audit report that during 8 ACIT vs.M/s Sanwaria Agro the course of assessment proceedings for the assessment year 2006-07 the assessee had invested in shares worth Rs.4.38 crores as against rs. 3.77 crores in the preceding year. Hence, there is increase in investments by rs. 61 lacs. He further noted thatg the assessee during the financial year relevant to the assessment year 2006-07 had shown secured loan of Rs. 47.24 crores and unsecured loan of Rs. 8.65 crores as against Rs.25.44 crores of secured loan and Rs. 3.38 crores of unsecured loans last year. Thus, fresh borrowings had increased by rs. 27.07 crores. The assessee had debited interest expenditure ofRs. 1,64,21,621/-. The Assessing Officer also noted that the assessee had claimed exempt income of Rs. 1,20,67,843/-. Besides this exempt income, the assessee has also shown business income from other sources. The Assessing Officer was of the view that as per the provisions of section 14A of the Act, no deduction shall be made in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. The Assessing Officer also noted that the assessee had not deducted any expenses relating to exempt income and claimed the gross dividend income as exempt. To support its stand, the assessee submitted before the 9 ACIT vs.M/s Sanwaria Agro Assessing Officer that no expenditure was incurred relating to exempt income. However, the Assessing Officer did not accept the same. The Assessing Officer observed that the following expenditure of Rs.7,36,738/- was directly related to dividend income which did not form part of total income :-
Listing fees Rs.66,190/-
Membership fees Rs.50,300/-
Exchange Fluctuation Rs.5,23,422/-
Share Accounting charges Rs.53,87/-
Loss on MF investments Rs.42,954/-
Total Rs.7,36,738/-
He, therefore, allowed expenses of Rs.7,36,738/- being expenditure incurred directly in relation to dividend income. So far as interest expenditure of Rs.1,64,21,621/- is concerned, before the Assessing Officer, the assessee had given the details as under :-
a. Interest to banks - Rs.1,50,74,551/-
b. Interest to others - Rs. 13,47,070/-
Total interest paid - Rs.1,64,21,621/-
The Assessing Officer was of the view that the assessee has incurred the interest expenditure of Rs.1,64,21,621.- to earn 10 ACIT vs.M/s Sanwaria Agro taxable as well as exempted income. He, therefore, worked out the quantum of expenditure in view of the method prescribed under Rule 8D of Income Tax Rules, 1962 :-
Rs.1,64,21,621 X Rs.2,38,38,903 Rs.59,07,58,421 = Rs.662,662/-
The Assessing Officer also estimated the other administrative expenses at an amount equal to one-half per cent of the average of the value of investment at Rs.11,919/- for earning exempted income.
11. On the basis of the above, the Assessing Officer made disallowance aggregating to Rs.14,11,319/- (Rs.7,36,738 + Rs.6,62,662 + Rs.11,919/-) and added the same to the total income of the assessee.
12. Being aggrieved with the above addition made by the Assessing Officer, the assessee preferred first appellate before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals), after considering the issue at length, So far as direct expenses of Rs. 7,36,738/- are concerned, the Commissioner of Income Tax (Appeals) observed that since the said 11 ACIT vs.M/s Sanwaria Agro expenses were not incurred in relation to dividend income, the Assessing Officer was not justified in making the disallowance thereof. The Commissioner of Income Tax (Appeals), therefore, deleted the same. As regards the disallowance of proportionate interest of Rs. 6,62,662/- relating to exempted income, the Commissioner of Income Tax (Appeals) observed that since no expenditure on interest was incurred relating to mutual funds from which the assessee had earned dividend income, no disallowance even on proportionate basis can be made out of interest expenses incurred for the purposes of business. He, therefore, deleted the same. The Commissioner of Income Tax (Appeals), therefore, granted relief of Rs.13,99,400/- (Rs.7,36,738/-+Rs.6,62,662/-) in total.
13. Being aggrieved with the order of the Commissioner of Income Tax (Appeals) granting relief of Rs. 13,99,400/-, the revenue is in appeal before us.
14. We have heard arguments of both the sides and carefully perused the relevant material placed on record of the Tribunal. We find that the coordinate Bench of the Tribunal had an occasion to consider the identical issue in the case of Kamal Kumar Jagdish 12 ACIT vs.M/s Sanwaria Agro Prasad Lath vs. JCIT; ITA No. 264/Ind/2016 and vide order dated 21.6.2016, the Tribunal has decided the issue as under :-
"2. The sum and substance of the grounds of appeal is that the learned CIT(A) was not justified in upholding the addition of Rs.9,75,979/- u/s 14A of the Act.
3. Briefly stated, the facts of the case are that the assessee himself made a disallowance of Rs. 28,339/- and the dividend received was Rs.3,30,419/-. However, the total investments were of Rs.3,66,77,904/-. During the course of assessment proceedings, the assessee revised its disallowance from Rs. 28,339/- to Rs. 55,839/- being ½% of the investment made during the year. However, rule 8D provides for a disallowance at ½% of the average investment during the year besides a disallowance of interest computed in the manner provided in rule 8D. The Assessing Officer made the disallowance accordingly.
4. Being aggrieved with the disallowance made by the Assessing Officer, the assessee approached the learned 13 ACIT vs.M/s Sanwaria Agro CIT(A) but in vain. Now the assessee is before the Tribunal.
5. I have heard both the sides. The learned counsel for the assessee submitted that the learned CIT(A) has grossly erred in confirming the illegal action of the Assessing Officer without showing any reasons therefor. The learned counsel for the assessee relied upon the judgment of the Bombay High Court in the case of CIT vs. HDFC Bank; in ITA No. 330/2012 wherein it has been held that if the assessee's own fund and other interest bearing funds were more than the investment in the tax free securities, it would be presumed that the investment made would be out of interest free funds. Further reliance was made to the judgment of various Tribunals in the case of Rainy Investment Pvt. Ltd. vs. ACIT; ITA No. 5491/Mum/2011 and the CIT vs. Trade Apartment in ITA No. 1277/Kol/2011, Morgan Stanley India Securities vs. ACIT; ITA No. 5072/Mum/2015 as also the decision in the case of ITO vs. Karnawati Petrochemicals Pvt. Ltd.; ITA No. 14 ACIT vs.M/s Sanwaria Agro 2228/Ahd/2012 wherein it has been held that netting of interest receipts and payments have to be considered. Moreover, the learned counsel for the assessee submitted that on the same issue, the Hon'ble Delhi High Court in the case of Joint Investments Pvt. Ltd. vs. CIT; 372 ITR 694 (Delhi) held that "Thus, Section 14A(2) of the Act and Rule 8D(1) in unison and affirmatively record that the computation or disallowance made by the assessee or claim that no expenditure was incurred to earn exempt income must be examined with reference to the accounts, and only and when the explanation/claim of the assessee is not satisfactory, computation under sub Rule (2) to Rule 8D of the Rules is to be made." Therefore, go on to sub Rule (2) to Rule 8D of the Rules until and unless the Assessing Officer has first recorded the satisfaction, which is mandated by sub Section (2) to Section 14A of the Act and sub Rule (1) to Rule 8D of the Rules.
15
ACIT vs.M/s Sanwaria Agro
6. On the other hand, the learned DR relied upon the orders of the authorities below as also CBDT Circular No. 5/2014 dated 11.2.2014.
7. I have considered the submissions of both the sides. Hon'ble High Court of Delhi in the case of Joint Investment Pvt. Ltd. (supra) has held as under :-
"9. In the present case, the AO has not firstly disclosed why the appellant/assessee's claim for attributing Rs.2,97,440/-as a disallowance under Section 14A had to be rejected. Taikisha says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee's claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO -an aspect which is completely unnoticed by the CIT (A) and the ITAT. The third, and in the opinion of this court, important anomaly which we cannot be unmindful is that whereas the entire tax exempt income is Rs.48,90,000/-, the disallowance ultimately directed works out to nearly 110% of that sum, i.e., Rs.52,56,197/-. By no stretch of imagination can Section 14A or Rule 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A, and is only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax exempt income". This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case.
10. For the above reasons, the impugned order of the ITAT is set aside. The question of law is answered in favour of the assessee. Consequently, order of the AO is set aside. The 16 ACIT vs.M/s Sanwaria Agro initiation of penalty proceedings also is set aside. The matter is remitted to the AO for fresh consideration in accordance with the above directions. The appeal is partly allowed."
I, therefore, set aside the orders of the authorities below with the direction to the Assessing Officer to consider the above High Court judgments cited above and decide the issue in view thereof. I order accordingly."
11. Following the above order of the Tribunal, we set aside the orders of the authorities below and restore this issue to the file of the Assessing Officer with the direction to decide the issue in the light of the directions given in the above order of the Tribunal (supra).
12. Ground no. 4 relates to deletion by the Commissioner of Income Tax (Appeals) of the disallowance of Rs. 2,22,182/- out of disallowance made by the Assessing Officer amounting to Rs.2,97,395/- u/s 43B of the Act.
13. Briefly stated the facts of the case are that the Assessing Officer noted from the audit report that the bonus of Rs. 2,97,395/- was claimed by the assessee in the year, under consideration, which was not paid on or before the due date. The Assessing Officer 17 ACIT vs.M/s Sanwaria Agro observed that this amount is governed by the provisions of section 43B of the Act and the same could be allowed as a deduction only if the payment is made on or before the due date of furnishing of the return of income. Since the assessee did not pay the same within the stipulated period, the Assessing Officer disallowed the same and added to the total income of the assessee.
14. On appeal, the Commissioner of Income Tax (Appeals) required the assessee to produce evidence regarding payment of bonus shown as payable as on 31.3.2006 in the tax audit report amounting to Rs.2,97,395/-. In response, the assessee furnished copy of ledger account of the subsequent financial year from which the Commissioner of Income Tax (Appeals) noticed that the assessee made the payment of Rs. 2,22,182/- only in the subsequent assessment year before the due date of filing of the return i.e. 30.11.2006 for the assessment year 2006-07. In this way, the assessee did not pay the balance amount of Rs.75,213/- (Rs.2,97,395 - Rs.2,22,182/-) of bonus payable on or before the due date of filing of the return u/s 139(1) of the assessment year 2006-
07. He, therefore, disallowed the amount of Rs. 75,213/- u/s 43B 18 ACIT vs.M/s Sanwaria Agro of the Act and the disallowance to the extent of Rs.2,22,182/- was deleted.
15. Against deletion of addition of Rs. 2,22,182/- by the Commissioner of Income Tax (Appeals), the revenue is in appeal before the Tribunal.
16. Before us, the learned DR relied upon the order of the Assessing Officer whereas the learned counsel for the assessee relied upon the order of the Commissioner of Income Tax (Appeals).
17. After carefully considering the issue in the light of the submissions of the parties and the material available on record of the Tribunal, we are of the view that from the copy of the ledger account of the subsequent financial year undisputedly the assessee has made payment of bonus of Rs.2,22,182/- only in the subsequent assessment year before the due date of filing of the return i.e. 30.11.2006 for the assessment year 2006-07. On being asked by the Bench, the learned counsel for the assessee fairly accepted that the assessee has not paid the balance amount of Rs. 75,213/- on bonus payable on or before the due date of filing of the return of income for the assessment year 2006-07 and, hence, the 19 ACIT vs.M/s Sanwaria Agro Commissioner of Income Tax (Appeals) confirmed the disallowance to this extent. In view of the above facts, we are unable to see any ambiguity, perversity or any other valid reason to interfere with the conclusion of the Commissioner of Income Tax (Appeals) as the assessee is following mercantile system of accounting and the amount of bonus which has been paid prior to filing of its return during the next financial year prior to filing of return then the amount so paid has to be allowed. Accordingly, ground no. 4 of the revenue is dismissed.
18. In the result, the appeal of the revenue is partly allowed for statistical purposes The order has been pronounced in open Court on 3.5.2017.
Sd/- sd/-
लेखा सद य या!यक सद य
(O.P.Meena) (C.M. Garg)
Accountant Member Judicial Member
3.5. 2017.
Dn/
20
ACIT vs.M/s Sanwaria Agro
21