Income Tax Appellate Tribunal - Lucknow
Asstt. Commissioner Of Income Tax, ... vs M/S L.H Sugar Factory Pvt. Ltd.,, ... on 18 January, 2019
I.T.A. No.416/Lkw/2013
I.T.A. No.752/Lkw/2016 1
I.T.A. No.772/Lkw/2016
Assessment Year:2011-12
IN THE INCOME TAX APPELLATE TRIBUNAL
LUCKNOW BENCH 'B', LUCKNOW
BEFORE SHRI A. D. JAIN, VICE PRESIDENT AND
SHRI T. S. KAPOOR, ACCOUNTANT MEMBER
I.T.A. No.416/Lkw/2013
Assessment Year:2007-08
A.C.I.T., Vs. M/s L. H. Sugar Factory Pvt. Ltd.,
Range-2, Civil Lines,
Bareilly. Pilibhit.
PAN:AAACL 4597 L
(Appellant) (Respondent)
I.T.A. No.752/Lkw/2016
Assessment Year:2012-13
M/s L. H. Sugar Factory Pvt. Vs. Jt. C.I.T.,
Ltd., Civil Lines, Range-II,
Pilibhit. Bareilly.
PAN:AAACL 4597 L
(Appellant) (Respondent)
I.T.A. No.772/Lkw/2016
Assessment Year:2012-13
Dy..C.I.T., Vs. M/s L. H. Sugar Factory Pvt. Ltd.,
Circle-2, Civil Lines,
Bareilly. Pilibhit.
PAN:AAACL 4597 L
(Appellant) (Respondent)
Revenue by Shri A. K. Bar, CIT, (DR)
Assessee by Shri Akshay Kumar Gupta, C.A.
Date of hearing 10/01/2019
Date of pronouncement 18/01/2019
I.T.A. No.416/Lkw/2013
I.T.A. No.752/Lkw/2016 2
I.T.A. No.772/Lkw/2016
Assessment Year:2011-12
ORDER
PER T. S. KAPOOR, A.M.
These are three appeals filed by the Revenue for assessment year 2007-08 and by the assessee and by Revenue for assessment year 2012- 2013. These appeals involve similar issues which were heard together therefore, for the sake of convenience, a common and consolidated order is being passed.
2. Appeal in I.T.A. No.416 relating to assessment year 2007-08 was earlier disposed of by Hon'ble Tribunal vide order dated 16/09/2015. The Hon'ble Tribunal had reversed the findings of learned CIT(A) with respect to ground No. 2 & 5 of the appeal of the Revenue and therefore, the assessee had approached Hon'ble High Court and Hon'ble High Court vide order dated 16/08/2018 had remitted the issues back to Tribunal for reconsideration with the following findings:
"The Income Tax Appeal no.334 of 2016 has been filed by the assessee under section 260A of the Income Tax Act, 1961 against an order passed by the tribunal dated 16.9.2015 for the assessment year 2007-08. The following questions of law sought are being sought to be answered:
"(i) Whether on the facts and circumstances of the case ITAT was justified in affirming the action of the A.O. in estimating the suppressed production and sale of bagasse at Rs.81,24,700 (1,62,494x50) ignoring the fact that the assessee has maintained complete records of bagasse as per Excise records on day to day basis and the same has not been rejected by A.O.?
(ii) Whether the ITAT was justified in affirming the addition made by A.O. on account of sugarcane loss of I.T.A. No.416/Lkw/2013 I.T.A. No.752/Lkw/2016 3 I.T.A. No.772/Lkw/2016 Assessment Year:2011-12 Rs.8,80,500/- when the revenue has accepted such losses in previous years?"
The Assessing Officer has sought to make an addition towards the bagasse upon examining and comparing the production of bagasse in another sugar factory.
The C.I.T. in appeal while examining the material on record, came to the conclusion that the Assessing Officer had failed to take into account the factors affecting the recovery of bagasse while making the assessment. The recovery of bagasse would necessarily depend upon the quality of sugarcane, at the start of the season and at the maturity of cane, for reasons that the recovery from the sugarcane also fluctuates from the start to the end. By the end of the season, the sugarcane begins to dry, recoveries of both sugar and bagasse are naturally affected.
C.I.T. has also taken into consideration the fact that one the recovery of one factory could not be compared with another and on the other hand, the C.I.T. has also noted that the Assessing Officer had not brought any record to show and justify the addition but simply on the basis of another sugar factory, had made the addition.
C.I.T. also records that there was nothing found by the A.O. to suggest that the assessee has sold bagasse outside his books of accounts.
The tribunal without going into the reasoning adopted by the C.I.T. had acquiesced with the Assessing Officer. However upon examining the material on record, we do find that the addition has been made simply on account of recoveries made by another sugar factory. The assessee on the other hand states that it did produce the material before the Assessing officer to show what recoveries had been made and that everything was duly recorded in the books of account. The matter requires reconsideration.
We send the matter back to the tribunal for reconsideration of these facts and the material which is already on record. The matter on remand shall be decided in accordance with law."
I.T.A. No.416/Lkw/2013 I.T.A. No.752/Lkw/2016 4 I.T.A. No.772/Lkw/2016 Assessment Year:2011-12 Therefore, in view of Hon'ble High Court order the parties are before us.
3. Learned D. R., at the outset, relied on the order of the Tribunal dated 16/09/2015 and submitted that Hon'ble Tribunal, after considering the entire facts, had reversed the order of learned CIT(A) and in this respect our attention was invited to the relevant part of the Hon'ble Tribunal order. Learned D. R. invited our specific attention to para 22 of the order and submitted that Hon'ble Tribunal had arrived at the correct conclusion.
4. Learned A. R., on the other hand, submitted that ground No. 2 raised by the Revenue related to the relief given by learned CIT(A) on account of loss/shortage of sugarcane which the Assessing Officer had made on account of conjectures and surmises. Explaining the facts of the case, Learned A. R. submitted that assessee is a sugar mill which is engaged in producing sugar and allied products from sugarcane. It was submitted that the storage of sugarcane generally results into shortage in its weight due to loss of moisture and some loss in transit between centres of purchase and factory and therefore, the assessee had reduced such loss from the quantitative detail but since the purchase value of sugarcane remained same therefore, no reduction was made in the purchase price from sugarcane. It was submitted that during the year under consideration 17,044 quintal of sugarcane was claimed by the assessee as having lost in transit and due to loss of moisture and the Assessing Officer allowed only 10,000 quintals as shortage and made addition of Rs.8,80,500/- representing the purchase value of 7,044 quintals. Learned A. R. submitted that there was no rational available to the Assessing Officer by which he disallowed a part of shortage which is a natural process in the sugar mill industry. It was submitted that during earlier assessment year also similar loss had occurred and Assessing Officer had not made any addition in this I.T.A. No.416/Lkw/2013 I.T.A. No.752/Lkw/2016 5 I.T.A. No.772/Lkw/2016 Assessment Year:2011-12 respect. Learned A. R. in this respect invited our attention to the copy of balance sheet placed at pages 107 to 123 of the paper book. Our specific attention was invited to page No. 116 of the paper book where the quantitative and valuwsie detail of purchases of sugarcane was placed. Learned A. R. also placed before us copy of assessment order for assessment year 2007-08 wherein no such disallowance was made despite of the fact that during that year also similar loss in quantitative terms was claimed by the assessee.
4.1 Coming to ground No. 5 of Revenue's appeal Learned A. R. submitted that Assessing Officer had made an addition of Rs.81,24,700/- by increasing the production of baggasse @34% of sugarcane as against 32.47% actual production achieved by the assessee. Learned A. R. submitted that Assessing Officer while making out the addition on the basis of production of baggasse @34% had relied on the record of Kisan Sahkari Chini Mill which had disclosed the production of baggasse @34.22% during the period under consideration. Learned A. R. submitted that the production of baggasse depends upon various factors such as yield of sugar etc. and it cannot be compared with another assessee specifically in view of the fact that the assessee was maintaining complete records which were maintainable under the excise rules. It was further submitted that the assessee was maintaining stock registers of baggasse which was datewise wherein the quantitative production on daily basis was being recorded and in this respect our attention was invited to pages 124 to 128 of the paper book where copy of baggasse register for the assessment year under consideration was placed. Learned A. R. submitted that no defect was pointed out by the Assessing Officer in the quantitative records of the baggasse. It was further submitted that monthly reports relating to production of sugar baggasse and molasses etc. produced by the assessee are subjected to excise authorities I.T.A. No.416/Lkw/2013 I.T.A. No.752/Lkw/2016 6 I.T.A. No.772/Lkw/2016 Assessment Year:2011-12 and a copy is also submitted to National Sugar Institute, Kanpur and Directorate of Sugar & Vanaspati. Our attention was invited to copy of such reports placed at pages 133 to 156 of the paper book. In view of these records which the assessee has been maintaining on the basis of actual production, Learned A. R. argued that the hypothetical production assumed by the Assessing Officer was not justified specifically in view of the fact that no deficiency was found in the books of account including quantitative registers. It was further submitted that in view of the fact that assessee had been submitting monthly reports to excise authorities and other Government bodies, the records maintained by it could not have been rejected and therefore, learned CIT(A) has rightly allowed relief to the assessee. It was also submitted that Hon'ble High Court had also observed that the records of another assessee cannot be compared in a case where the assessee was maintaining records. Therefore, in view of the above, it was prayed that order of learned CIT(A) be upheld.
4.2 Arguing appeal in I.T.A. No.752 and 772, Learned A. R. submitted that these appeals relate to assessment year 2012-13 wherein the Assessing Officer had calculated the production of baggasse @36% against the production declared by the assessee @32.93%. Learned A. R. submitted that the Assessing Officer had made the addition by recording general remarks that generally the production of baggasse by other company is shown at 36%. It was submitted that learned CIT(A) has restricted the disallowance by calculating the production of baggasse at 34%. Learned A. R. submitted that assessee during this year had declared the production of baggasse at 32.93% whereas the learned CIT(A) had restricted this disallowance to 34% and that is why the assessee is also in appeal vide ground No. 3 of the appeal. Learned A. R. argued that Revenue's appeal in I.T.A. No.416/Lkw/2013 I.T.A. No.752/Lkw/2016 7 I.T.A. No.772/Lkw/2016 Assessment Year:2011-12 I.T.A. No.772 and ground No. 3 of assessee's appeal can be decided as per the conclusion in I.T.A. No.416 for which he has already argued.
4.3 Coming to ground No. 1 of assessee's appeal, Learned A. R. submitted that Assessing Officer had made ad hoc disallowance of Rs.3,34,776/- out of misc expenses without appreciating that all the expenses were incurred after due authorization by senior officer and without considering the orders of the Tribunal in earlier years. Learned A. R. invited our attention to the order of Hon'ble Tribunal in the case of the assessee itself wherein the Hon'ble Tribunal had upheld the order of learned CIT(A) confirming the disallowance of Rs.1,00,000/- only. Therefore, it was argued that the same order of the Tribunal for assessment year 2007-08 can be followed for restricting the disallowance of Rs.1,00,000/-.
4.4 Coming to ground No. 2, which relates to disallowance of Rs.8,24,448/- out of repair and maintenance expenses, Learned A. R. submitted that similar addition out of repair & maintenance was also made during assessment year 2007-08 and Hon'ble Tribunal during assessment year 2007-08 has again upheld the order of learned CIT(A) wherein the learned CIT(A) had restricted the addition to Rs.1,00,000/-.
4.5 Coming to ground No. 4 regarding claim of additional depreciation u/s 32(1)(iia) of the Act, Learned A. R. submitted that assessee was entitled to additional depreciation as during earlier year the assessee was allowed only 50% of additional depreciation and balance 50% was to be allowed by Assessing Officer during the present year and which the Assessing Officer had not taken into consideration while calculating the taxable profits of the assessee. Learned A. R. submitted that before learned CIT(A) this ground was taken but the learned CIT(A) dismissed the ground by holding that no I.T.A. No.416/Lkw/2013 I.T.A. No.752/Lkw/2016 8 I.T.A. No.772/Lkw/2016 Assessment Year:2011-12 such disallowance was made by the Assessing Officer. In this respect Learned A. R. submitted that the claim of additional depreciation was to be allowed by Assessing Officer on the basis of records available with him and it was not a disallowance which the Assessing Officer had made rather it was a claim which the Assessing Officer was bound to allow in view of the fact that assessee was eligible for additional depreciation. Therefore, it was prayed that the Assessing Officer may be directed to allow appropriate relief on account of additional depreciation as per records.
4.6 Coming to last ground of appeal i.e. ground No. 5, Learned A. R. submitted that the Assessing Officer has made disallowance u/s 14A of the Act. It was submitted that initially the learned CIT(A) had not passed order on this grievance. However, the same was adjudicated by learned CIT(A) by passing an order u/s 154 wherein he has rejected the claim of assessee that no disallowance was warranted. Learned A. R. in this respect invited our attention to the order of Assessing Officer wherein vide para 4 he has made an addition u/s 14A of the Act. Learned A. R. submitted that during the course of assessment proceedings the assessee, vide letter dated 20/03/2015, copy of which is available at pages 12 & 13 of the paper book, had explained the fact that no disallowance can be made u/s 14A. It was submitted that the assessee had submitted to Assessing Officer that it had made the investment of surplus fund only and that too through mutual funds whenever there was surplus funds as it was not advisable on the part of the assessee to keep idle funds. Learned A. R. further submitted that Assessing Officer was appraised of the fact that the loans taken from bank carried a higher rate of interest as compared to income from mutual funds therefore, the assessee did not invest the borrowed funds as it was not advantageous to the assessee. Learned A. R. submitted that assessee at its own had made appropriate disallowance however, the Assessing Officer, I.T.A. No.416/Lkw/2013 I.T.A. No.752/Lkw/2016 9 I.T.A. No.772/Lkw/2016 Assessment Year:2011-12 without considering out submissions and without making any satisfaction as to why our calculation of disallowance was wrong, made the addition which is now as per law as held by Hon'ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT wherein Hon'ble Supreme Court was pleased to hold that before application of provisions of section 14A the Assessing Officer has to make a satisfaction as to why the claim of the assessee was not correct. Our attention was invited to para 41 of order of Hon'ble Supreme Court which is reproduced as under:
"41) Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the AO."
4.7 Learned D. R., on the other hand, relied on the order of assessment. So far as regards the appeal of Revenue with respect to appeal filed by assessee, relied on the orders of Assessing Officer as well as that of learned CIT(A) order. As regards the issue of additional depreciation, Learned D. R. stated that assessee had not claimed additional depreciation and moreover the issue of additional depreciation was not coming out of assessment order and therefore, learned CIT(A) had rightly rejected the same.
5. We have heard the rival parties and have gone through the material placed on record. First we take up the appeal of the Revenue for assessment year 2007-08. This appeal in I.T.A. No.416 was earlier adjudicated by Hon'ble Tribunal vide order dated 16/09/2015 and Hon'ble I.T.A. No.416/Lkw/2013 I.T.A. No.752/Lkw/2016 10 I.T.A. No.772/Lkw/2016 Assessment Year:2011-12 Tribunal had reversed the findings of learned CIT(A) on two issues; namely addition against shortage of sugarcane and addition against baggasse. Hon'ble Allahabad High Court, on an appeal filed by the assessee, has remitted back the issues to Hon'ble Tribunal for reconsideration. As regards the issue of addition against shortage of sugarcane, we find that assessee had purchased 1,06,04,229 quintals of sugarcane during the year under consideration for a total consideration of Rs.1,45,17,30,636/-. Out of this the assessee reduced from the quantitative figures 17,044 quintals which it claimed to have lost due to dryage. The Assessing Officer allowed 10,000 quintals of sugarcane as dryage and made addition of 7,044 quintals sugarcane by calculating the average purchase price of sugarcane. The case of the Assessing Officer was that assessee should have reduced equivalent amount from the value also which, in our humble opinion, is not correct as whatever the purchase amount an assessee pays for X quantity of a commodity does not change with the loss of some quantity due to dryage or due to loss in transit etc. The loss claimed by assessee does not affect the purchase price of the sugarcane which admittedly it had incurred and is in accordance with the books of account and balance sheet of the assessee as is apparent from page 116 of the paper book where the figures of raw material consumed for the present year and preceding year are placed. We further find that during earlier year also the assessee had claimed 7,507 quintals of sugarcane loss due to dryage and for which the Assessing Officer had not made any addition. We further find that learned CIT(A) had allowed relief to the assessee by holding that there was no evidence in possession of the Assessing Officer as to how such quantity of 7,044 quintal was actually sold by the assessee outside the books of account. The learned CIT(A) has further held that books of account were duly audited u/s 44AB and no defect was pointed out by the auditor and books of account I.T.A. No.416/Lkw/2013 I.T.A. No.752/Lkw/2016 11 I.T.A. No.772/Lkw/2016 Assessment Year:2011-12 were not rejected by the Assessing Officer. We further find that learned CIT(A), in his order at page 6, had noted the submissions of the assessee that similar additions were made by the Assessing Officer during assessment year 1994-95 and learned CIT(A) had allowed relief to the assessee and there was no appeal by the Revenue. Considering the facts and circumstances of the case and considering the nature of industry, we do not find any infirmity in the order of learned CIT(A) and therefore, dismiss ground No. 2 of the Revenue's appeal.
6. Now coming to ground No. 5 of the Revenue's appeal, we find that the Assessing Officer had made this addition by holding as under:
"6. During the course of assessment proceedings, it is observed that the assessee has not disclosed the production of bagasse in quantitative details, therefore, vide this office notice u/s 143(2) and 142(1) dated 01.10.2009 and thereafter on 30.11.2009 the assessee was required to furnish the quantitative details of bagasse. In response of above query the assessee furnished production of bagasse of 34,37,149 quintals of which percentage disclosed is 32.47%. In this regard, through a show cause notice the assessee was further required to explain about the production of bagasse which is a byproduct of the sugarcane disclosed time to time by the other sugar factories like Kisan Sehkari Chini Mills, Powayan (Distt. Shahjahnpur) where the disclosed production of bagasse is @36 to 37% of sugar cane consumed. This fact has been disclosed by the Chief Engineer of the above factory before the Hon'ble ITAT, Lucknow. Considering the percentage disclosed by Kisan Sehkari Chini Mills, Powayan, the production disclosed by the assessee appears to be very low. Therefore, the other cases i.e. the assessment records of Kisan Sehkari Chini Mill, Majhola were examined and it was found that the factory has disclosed production of bagasse @ 34.22 % during the period under consideration, which is an adjourning sugar mill to the assessee's sugar mill under consideration. Therefore, considering the facts and circumstances of the case as well as similar area of the sugarcane, same District and same climate, I.T.A. No.416/Lkw/2013 I.T.A. No.752/Lkw/2016 12 I.T.A. No.772/Lkw/2016 Assessment Year:2011-12 the production of bagasse is determined at 34 % in the case of the assessee for the period under consideration.
The computation of the production and thereafter value of shortage is computed as under:-
Sugar Cane consumed 1,05,87,185 qtl.
Rate of production of Bagasse as
discussed above 34 %
Amount of Bagasse 35,99,642 Quintals
Less : Disclosed by the assessee 34,37,149 Quintals
Balance 1,62,494 Quintals
As regards, the sale rate of suppressed bagasse the assessee has disclosed the rate of Rs.42.26 per Qtl. However, in the open market the sale rate of bagasse is more than Rs.50 per Qtl. during the period under consideration. Therefore, the rate of suppressed bagasse is determined at Rs.50 per Qtl. and the same is applied. Hence, the amount of Rs.81,24,700/-(1,62,494 x 50) is worked out as the value of suppressed bagasse. Under these circumstance, the assessee has concealed an amount of Rs.81,24,700/- by suppressing the yield of bagasse. Therefore, the amount of Rs.81,24,700/- is treated as income of the assessee from undisclosed sources and added back to the income of the assessee for the period under consideration."
6.1 From the above findings of the Assessing Officer, we find that Assessing Officer has made this addition on the basis of percentage of baggasse production disclosed by another assessee of the area namely Kisan Sahkari Chini Mills. The Assessing Officer has not discussed any deficiency in the books of account of the assessee including in the quantitative detail which were submitted before him. The Assessing Officer himself noted in the assessment order that in response to query the assessee furnished production of baggasse therefore, there is no dispute that the quantitative registers were not maintained and were not produced before the Assessing Officer. Before us also learned counsel has filed copy of baggasse register, which is placed at pages 124 to 128 of the paper book I.T.A. No.416/Lkw/2013 I.T.A. No.752/Lkw/2016 13 I.T.A. No.772/Lkw/2016 Assessment Year:2011-12 where the datewise production along with opening and closing stock of baggasse is placed. As per this register the total production of baggasse was 34,37,149.45 quintals which matches with the quantity of production noted by the Assessing Officer in his assessment order at page No. 6. The Assessing Officer has not pointed out any defect in the maintenance of such quantitative records and has made addition on mere surmises and conjectures ignoring various relevant factors and ignoring the fact that increase in production of one by-product will lead to decrease in production of another bye-product or the main product as the quantity of total sugarcane crushed during the year will be equivalent to total of main products and its by-products. If the Assessing Officer was to increase the production of baggasse from the declared results automatically, the production of other products will have to become lower. We also find before learned CIT(A) it was submitted that the recovery of sugar in case of assessee's mill was higher by 1% to 2% than other sugar mills compared by the Assessing Officer and therefore, the quantity of baggasse generated by the assessee will be lower than that of those mills compared by the Assessing Officer. We further find that none of the factor affecting the recovery of baggasse has been looked into by the Assessing Officer. The production of baggasse depends upon quality of sugarcane, maturity of cane, crop, weather conditions etc. and this cannot be compared with other sugar mills as these factors differ from one mill to other. We further find that the Assessing Officer has not brought on record to justify the addition of baggasse and there is no evidence in the findings of the Assessing Officer that the said quantity was actually sold by the assessee outside the books of accounts. We further find that the assessee has been filing regular monthly reports in respect of manufacturing of main product i.e. sugar and other by- products including baggasse. The copies of such reports are placed at I.T.A. No.416/Lkw/2013 I.T.A. No.752/Lkw/2016 14 I.T.A. No.772/Lkw/2016 Assessment Year:2011-12 pages 129 to 155 of the paper book. Nothing wrong was found out by the Assessing Officer in these reports also therefore, the addition made by the Assessing Officer was not based upon any facts and therefore, learned CIT(A) has rightly deleted the same. We do not find any infirmity in the order of learned CIT(A). In view of the above, ground No. 5 of the Revenue's appeal is also dismissed.
7. Now coming to appeal for assessment year 2012-13. First we take up the appeal filed by the Revenue in I.T.A. No.772. In this appeal the Revenue has taken only one ground of appeal which is against the action of learned CIT(A) by which he has decreased the production of baggasse from 36% to 34%. The assessee, during the present year, had declared the production of baggasse @32.93% of total sugarcane crushed which was increased to 36% by the Assessing Officer and which has been reduced to 34% by learned CIT(A). There is no basis before the Assessing Officer to make the addition simply by rejecting the production declared by the assessee. In this year even the Assessing Officer did not compare the production of the assessee with any other unit and straightaway made the addition. The learned CIT(A) has also not discussed anything on the facts. The learned CIT(A) has reduced the percentage of 36% to 34% relying on the Tribunal order in assessment year 2007-08 wherein the Tribunal, vide order dated 16/09/2015, had upheld the addition at 34%. However, we find that the said order of the Tribunal has been challenged before Hon'ble High Court and Hon'ble High Court has remitted the same and we have passed the fresh order which is part of this order and wherein we have upheld the production of baggasse on the basis of actual production declared by it. In the present year also the assessee has maintained complete stock records of baggasse, a copy of which is placed in paper book pages 89 to 100. Similarly the production report of sugar along with other by-products I.T.A. No.416/Lkw/2013 I.T.A. No.752/Lkw/2016 15 I.T.A. No.772/Lkw/2016 Assessment Year:2011-12 including baggasse is placed in paper book pages 101 to 109. In view of the above facts and circumstances and following our decision in assessment year 2007-08, we uphold the production declared by assessee and therefore, the appeal filed by the Revenue has no force and the same is dismissed.
8. Now coming to appeal in I.T.A. No.752 in which the assessee has taken the following grounds of appeal:
"1. The learned Commissioner of Income Tax (Appeal) has erred in law and on facts in confirming the estimated and ad hoc disallowance of Rs.3,34,776/- out of miscellaneous expenses without appreciating that all the expenses are incurred after duly authorization by senior officers and the vouchers are maintained for all the expenses and without considering the orders of Hon'ble IT AT in earlier years.
2. The learned Commissioner of Income Tax (Appeal) has erred in law and on facts in confirming the estimated and adhoc disallowance of Rs.8,24,448/- out of repairs and maintenance expenses for building and machineries without appreciating that all the expenses are incurred after duly authorization by senior officers and the vouchers are maintained for all the expenses and without considering the orders of Hon'ble ITAT in earlier years.
3. The learned Commissioner of Income Tax (Appeal) has erred in law and on facts in confirming the yield of bagasse at 34% instead of actual yield of 32.93% without appreciating that complete accounts and records are maintained and verified and accepted by the learned Assessing Officer and also ignoring the facts that the production of bagasse is not comparable with other sugar mills because of various factors affecting yield of bagasse.
4. The learned Commissioner of Income Tax (Appeal) has erred in law and on facts in adjudicating the claim of additional depreciation for Rs.1,27,22,241/- under section-32(1)(iia) of the Income Tax Act, 1961.
I.T.A. No.416/Lkw/2013 I.T.A. No.752/Lkw/2016 16 I.T.A. No.772/Lkw/2016 Assessment Year:2011-12
5. The learned Commissioner of Income Tax (Appeal) has erred in law and on facts in disallowance of Rs.21,64,562/- under section 14A of the Income Tax Act, 1961 as per ground no. 3(d)."
9. Ground No. 3 of assessee's appeal is similar to the only ground of appeal taken by the Revenue which has already been adjudicated by us in favour of the assessee and we have held that the production of baggasse declared by the assessee has to be accepted as the assessee was maintaining complete records and the addition was not based upon any deficiency in the quantitative records. Therefore, ground No. 3 of the appeal is allowed.
10. Coming to ground No. 1 & 2, we find that similar addition was adjudicated by Hon'ble Tribunal vide order dated 16/09/2015 and in place of ad hoc addition of Rs.3,34,776/- and Rs.8,24,448/-, the Hon'ble Tribunal had restricted the addition to Rs.1,00,000/- each. The relevant findings of Hon'ble Tribunal are reproduced below:
"11. Apropos grounds No.3 and 4 relate to the sustenance of addition of Rs.1 lakh each against disallowance under the head "miscellaneous expenses" of Rs.3,11,522/- and disallowance under the head "repair and maintenance" of Rs6,78,700/-. In this regard, it is noticed that the Assessing Officer has made disallowance under the head "miscellaneous expenses" of Rs.3,11,522/- which is 2% of the total claim of Rs.1,55,76,116/- having noticed that the assessee has not kept and maintained vouchers against the expenses claimed under the head "miscellaneous expenses".
12. Similar is the position with regard to the disallowance against "repair and maintenance", for which the Assessing Officer has disallowed 1% of the total claim of Rs.6,78,70,009/- resulting into an addition of Rs.6,78,700/- for the same reason that the assessee has not maintained vouchers against I.T.A. No.416/Lkw/2013 I.T.A. No.752/Lkw/2016 17 I.T.A. No.772/Lkw/2016 Assessment Year:2011-12 expenses claimed under the head "repair and maintenance" of building and machinery.
13. Against the disallowance, assessee preferred an appeal before the ld. CIT(A) and the ld. CIT(A) has restricted the same to Rs.1 lakh each under both the heads having noted that the additions were made on ad hoc basis.
14. Aggrieved, the Revenue has preferred an appeal before the Tribunal. On this issue, the assessee has also filed cross objection against sustenance of addition of Rs.1 lakh each under both the heads.
15. The ld. counsel for the assessee, in this regard, has submitted that the addition was made on ad hoc basis without pointing out any specific defect in the maintenance of account. Whereas the ld. D.R. has contended that the Assessing Officer has specifically noted in his order that all expenses are not verifiable, as the assessee has not maintained bills and vouchers.
16. Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that the Assessing Officer has specifically mentioned in his order that the expenses, which were claimed under both heads, are not supported by bills and vouchers, therefore, are not open for verification, but the ld. CIT(A) has deleted the same after reducing the addition to Rs.1 lakh each under both the heads. It is also noticed from the record that the Assessing Officer has not pointed out any specific defect in the maintenance of accounts. He made general observation, but the assessee has not placed any evidence on record to justify that all expenses claimed by the assessee are duly vouched and open for verification. Under these circumstances, we are of the view that some addition is required to be sustained and accordingly we find no infirmity in the order of the ld. CIT(A) who has restricted the addition to Rs.1 lakh each. Accordingly, we confirm the order of the ld. CIT(A) in this regard."
I.T.A. No.416/Lkw/2013 I.T.A. No.752/Lkw/2016 18 I.T.A. No.772/Lkw/2016 Assessment Year:2011-12 Therefore, following the above order of the Tribunal, we also uphold the addition to the extent of Rs.1,00,000/- under both categories of disallowance. Accordingly, ground No. 1 & 2 of the appeal are partly allowed.
11. Now coming to ground No. 4 which is with respect to claim of additional depreciation. We find that learned CIT(A) has rejected this ground as he held that the disallowance was not coming out of assessment order. However, we find that issue of allowance of additional depreciation is purely an arithmetical issue as the additional depreciation was granted to the assessee in earlier year but it was limited to the extent of 10% instead of 20%. The Assessing Officer, while finalizing the computation of income of the assessee, was required to calculate the correct and true income of the assessee specifically the calculation of depreciation and additional depreciation which has to be allowed only on the basis of WDV or addition to the fixed assets. The assessee, during assessment proceedings before learned CIT(A), had made elaborate submissions which has been noted by learned CIT(A) at pages 10 onwards in his order. The assessee, in his submissions, had argued that additional depreciation was an incentive for a new plant & machinery and it has to be allowed once and not from year to year as it was not in formal wear and tear and was different from normal depreciation. The undisputed fact is that the assessee was eligible for additional depreciation in earlier assessment year wherein instead of 20% claim, it was allowed 10% and the only request of the assessee is to direct the Assessing Officer to allow the balance 10% of additional depreciation. In this respect we find that Assessing Officer has got the complete records regarding WDV and addition to fixed assets on which assessee was eligible for additional depreciation. We further find that in assessment year 2007- 08, 2008-09, 2009-10, 2010-11 and 2011-12 the issue of allowing balance I.T.A. No.416/Lkw/2013 I.T.A. No.752/Lkw/2016 19 I.T.A. No.772/Lkw/2016 Assessment Year:2011-12 10% additional depreciation arose and learned CIT(A) had directed the Assessing Officer to allow the same in accordance with law. The relevant extract of learned CIT(A)'s order for the above years are placed at pages 15 to 35 of the paper book. Therefore, we remit this issue back to the file of Assessing Officer who should allow the balance claim of 10% of additional depreciation which has to be calculated on the basis of facts and figures regarding the WDV and additions. This ground of appeal is allowed for statistical purposes.
12. Now coming to the last ground of appeal which is with respect to disallowance u/s 14A of the Act. We find that Assessing Officer has made the disallowance by holding as under:
"4. During the course of assessment proceedings, it was observed that the assessee has some investment income from which being dividend, is exempt from Income Tax. Thus Section 14A of the Income Tax Act, 1961 is applicable to the assessee. Accordingly proportionate interest and one-half percent of average value of investment made by the assessee in such assets is chargeable to tax. The assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt at Rs.12,46,72,399/-. On applying formula as given in sub-rule (2)(ii) to Rule 8D in the Income Tax Rules, 1962 an amount of Rs.18,11,637/- is added to the income of the assessee. Further an amount equal to one-half per cent of the average value of investment at Rs.7,05,85,062/- (excluding the value of keyman insurance shown under the head investment), amounting to Rs.3,52,925/- is added back to the income of the assessee.
Penalty u/s 271(1)(c) for furnishing inaccurate particulars is initiated separately."
The above findings of Assessing Officer clearly demonstrate that Assessing Officer has made the disallowance by mechanically following the formula given in Rule 8D. The assessee during the assessment proceedings had I.T.A. No.416/Lkw/2013 I.T.A. No.752/Lkw/2016 20 I.T.A. No.772/Lkw/2016 Assessment Year:2011-12 submitted vide letter dated 20/03/2015 and explained that during the year under consideration it had received dividend from Mutual Funds amounting to Rs.40,81,717/- on which no expenditure was incurred. The assessee, vide the same submissions, had also submitted that the assessee used to invest in Mutual Funds only when there was balance available in CC limit. For the sake of completeness, the submissions of the assessee are reproduced below:
"During the year company had received dividend from various Mutual Funds amounting to Rs. 40,81,717/- on which no expenditure was incurred and therefore, we had not claimed any expenditure on the amount of dividend. It may be clarified that it is not the policy of our company to invest the funds in Mutual Funds unless and until we have credit balance in our cash credit account with our banker state bank of India. Most of the times we draw the funds in our Cash Credit Account against hypothecation of sugar stocks and molasses stocks. We take the advances from our bankers and the funds are utilized for the payment of cane price, stores material, salary & wages and sugarcane transport etc. However, we have to invest the funds in Mutual Funds on the following 2 conditions:-
1. To oblige our banker State Bank of India to meet their targets.
2. To invest in Mutual Funds when there is no outstanding (debit balance) in our Cash Credit Account so that some earnings be made. It may be mentioned here that whenever there was need of funds in the Company for business work the funds from Mutual Funds were withdrawn.
Accordingly, we had invested Rs.10.00 lacs in Mutual Fund on 28th June, 2011 for 90 days as per request of State Bank of India to meet their target. The cost of the funds as per provisions of Section 14A read with Rule 8D(2)(i) comes to Rs.35,411/- as per KAnnexure-2 and on thes investment we have earned dividend of Rs.16,205/-(copy of Bank Statement is enclosed as Annexure-3). However, the other income of dividend was earned by us on the investment of surplus fund I.T.A. No.416/Lkw/2013 I.T.A. No.752/Lkw/2016 21 I.T.A. No.772/Lkw/2016 Assessment Year:2011-12 when there were no drawings in our Cash Credit Account and instead there was credit balance in our bank accounts and therefore, we had invested the same with Mutual Fund because you may kindly appreciate that we take the advances from our bankers @ 13.83% average while the rate of return on Mutual Fund is only 6.57%. So it would not had been a wise decision to take the advances from the banks @ 13.83% and to employ the same only on a return of 6.57% Therefore, it is clear that we had invested the funds when we had the surplus funds when we had the surplus funds and on this we had not incurred any cost of interest. Therefore Section 14A read with Rule 8D does not apply to balance dividend income of Rs.40,65,512/-. Similar view has been held in the case of Director of Income Tax (International Taxation)-II Vs BNP Panibas SA by High Court of Bombay (2013) 214 Taxman 548 (Bombay). The copy of the order is enclosed as Annexure-4.
As already stated by us that on the investment with Mutual Funds on which we had earned dividend of Rs.16,205/- the amount of Rs,.35,411/- was incurred by us as cost of interest. Therefore a sum of Rs.16205/- may be added in our income."
The Assessing Officer, without considering the submissions of the assessee and without holding that these submissions of the assessee are not correct, made disallowance by mechanically following the provisions of Rule 8D of the IT Rules.
12.1 Hon'ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT in Civil Appeal Nos. 104 to 109 of 2015, vide para 41 has held that no disallowance u/s 14A can be made without recording satisfaction by Assessing Officer that the calculations made by the Assessing Officer are wrong. The relevant findings of Hon'ble Supreme Court are reproduced below:
41) Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before I.T.A. No.416/Lkw/2013 I.T.A. No.752/Lkw/2016 22 I.T.A. No.772/Lkw/2016 Assessment Year:2011-12 applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the AO.
12.2 We find that no such satisfaction has been made by the Assessing Officer as noted by us in the findings of the Assessing Officer, therefore, no disallowance was warranted u/s 14A of the Act. In view of the above ground No. 5 is also allowed.
13. In the result, the appeals of the Revenue are dismissed whereas the appeal of the assessee is partly allowed and partly allowed for statistical purposes.
(Order pronounced in the open court on 18/01/2019) Sd/. Sd/.
( A. D. JAIN ) ( T. S. KAPOOR )
Vice President Accountant Member
Dated:18/01/2019
*Singh
Copy of the order forwarded to :
1. The Appellant
2. The Respondent.
3. Concerned CIT
4. The CIT(A)
5. D.R., I.T.A.T., Lucknow
Assistant Registrar