Income Tax Appellate Tribunal - Ahmedabad
Acit.,Anand Circle,, Anand vs National Dairy Development Board, ... on 7 November, 2016
N THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD '' B " BENCH - AHMEDABAD
Before Shri Rajpal Yadav, JM, & Shri Manish Borad, AM.
ITA No.1041/Ahd/2012
Asst. Year: 2008-09
National Dairy Dev. Board, Vs. Addl.CIT, Anand Circle,
Anand. Anand.
Appellant Respondent
PAN AABCN2029C
AND
ITA No.1225/Ahd/2012
Asst. Year 2008-09
ACIT, Andnd Circle, Anand Vs. National Dairy Dev. Board,
Anand
Appellant by Shri Sanjay R. Shah, AR
Respondent by Shri Kishan Vyas, CIT, DR
Date of hearing: 26/9/2016
Date of pronouncement: 07/11/2016
ORDER
PER Manish Borad, Accountant Member.
These cross appeals for Asst. Year 2008-09 are directed against the order of ld. CIT(A) IV, Baroda, dated 19.03.2012 vide appeal no.CAB/IV-A-237/2010-11 arising out of the order u/s 143(3) of the IT Act, 1961 (in short the Act) framed on 22.12.2010 by ACIT, Anand Circle, Anand.
2. Briefly stated facts are that assessee is a statutory body constituted under the National Dairy Development Board Act, 1987 and assessed as company under the Income-tax Act. Return of income was e-filed on 26.09.2008 declaring total income at ITA No. 1041 & 1225/Ahd/2012 2 Asst. Year 2008-09 Rs.28,05,34,053/- which was subsequently revised on 17/08/2009 declaring total income at Rs.27,76,70,807/-. The case was selected for scrutiny assessment and notice u/s 143(2) followed by notice u/s 142(1) of the Act were duly served and necessary details were called for and furnished from time to time during the course of assessment proceedings. Various additions were made by ld. Assessing Officer following consistent view of his predecessor in the previous years and most of the issues have travelled upto the Tribunal in the previous years and are settled either in favour of assessee or in favour of Revenue. Assessment was completed at an assessed income of Rs.69,98,64,710/-.
3. In appeal before first appellate authority assessee succeeded partly. Now both assessee and Revenue are in appeal before the Tribunal.
4. First we take up assessee's appeal in ITA No.1041/Ahd/2012 wherein ground no.1 reads as under :-
1. The order passed by the learned Commissioner of Income Tax (Appeals) is erroneous and contrary to the provisions of law and facts and therefore requires to be suitably modified. It is submitted that it be so done now.
5. This ground is of general nature, which needs no adjudication.
6. Ground no.2 reads as under :-
2. The learned Commissioner of Income Tax (Appeals) has erred in disallowing the appellant's claim for deduction u/s. 36(l)(viii) of Rs.
3,56,37,425/- following ITAT's order for A.Y. 2003-04. It is submitted that appellant has satisfied necessary conditions and learned Commissioner of ITA No. 1041 & 1225/Ahd/2012 3 Asst. Year 2008-09 Income Tax (Appeals) ought to have allowed the deduction as claimed. It is submitted that it be so held now.
7. Ld. AR submitted that the assessee is notified as PFI on 23.2.2004 u/s 4A of Companies Act. Assessee is providing loans to co-operatives federationsl/unions (enaged in procuring milk and manufacturing milk products like cheese, butter, etc.) which are repayable over a period from 7 to 20 years. Milk Production recognized as industry by CCBDT in notification no.SO 627(E) dated 4/8/99. Dairy activity is covered in "industry" as per clause 27 of First Schedule of IRDA Act. All loanee co-operatives were not engaged only in milk production but were mainly in manufacture of milk products. Proviso to section is not applicable to assessee being body corporate not having "paid up share capital" or in absence of share capital the same to be treated as zero.
8. On the other hand, ld. DR submitted that the issue raised in this ground is squarely covered against the assessee by the order of the Tribunal vide ITA No.454/Ahd/2006 for Asst. Year 2003-04 which has been followed by the Tribunal in ITA Nos.3200 & 3201/Ahd/2010 for Asst. Years 2004-05 & 2007-08 and others.
9. We have heard the rival contentions and perused the record. Through this ground assessee has challenged the action of ld. CIT(A) confirming disallowance claimed u/s 36(l)(viii) for Rs. 3,56,37,425/-. We observe that the issue in this ground stands decided by the Co- ordinate Bench in ITA No.454/Ahd/2006 pronounced on 21.04.2011 ITA No. 1041 & 1225/Ahd/2012 4 Asst. Year 2008-09 in assessee's own case for Asst. Year 2003-04. We observe that Co- ordinate Bench has adjudicated the issue by deciding as below :-
51. We have heard the parties and considered the rival submissions. As regards status of Public Financial Institution as the assessee applied on 10-07-2002, i.e., within a year under consideration and though the notification granting the status of public financial institution was granted to it on 23-02-2004 it would relate back to the date of application in view of the decision of Marshall Sons & Co. Vs. ITO 88 Company cases 528. The time taken by the Department of Company Law Affairs was beyond its control. In any case it is only a procedural delay and ministerial work and therefore, the date of application should be taken as the effective date for granting status of Public Financial Institution. On this issue we do not agree with the C1T(A). we however find that; other conditions of section 36(1)(viii) are not complied with by the assessee. The milk produced by the assessee is not amounting to manufacture and therefore the assessee was not engaged in providing long term finance for industrial and agricultural development or development of industrial facility and again it had no capital which is necessary to compute the aggregate of the amount to be carried to special reserve account as twice the amount of the paid up share capital and of the General reserve. The assessee failed to comply with these other conditions and therefore it would not be entitled the deduction.
10. We further observe that the decision of the Co-ordinate Bench for Asst. Year 2003-04 has been followed by the Tribunal for Asst. Year 2004-05 and 2007-08 in ITA Nos. 3200 & 3201/Ahd/2010. Respectfully following the decision of Co-ordinate Bench, we are of the view that the issue now stands decided against the assessee and therefore, we find no reason to interfere with the order of ld. CIT(A). We uphold the same. Accordingly, this ground of assessee is dismissed.
11. Ground no.3 reads as under :-
3. The learned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of grant of Rs. 89,75,600/- given to various Unions and federations as deductible expenditure u/s. 36(l)(xii) of the Income Tax Act. It is submitted that the amount represents an expenditure incurred by the appellant for the purpose of objects of the appellant and thereby fulfills all conditions of section 36(1)(xii) of the Income Tax Act and ITA No. 1041 & 1225/Ahd/2012 5 Asst. Year 2008-09 accordingly it is entitled to deduction u/s. 36(1)(xii). It is submitted that it be so held now.
3.1.The learned Commissioner of Income Tax (Appeals) has erred in not appreciating the details filed during assessment proceedings which are in line with direction of Hon'ble ITAT while setting aside the order for fresh verification in A.Y. 2003-04. It is submitted that in the facts learned CIT(A) ought to have allowed on the facts rather than confirming the disallowance relying on ITAT and CIT(A)'s order for earlier years.
3.2.In any event the same is allowable u/s. 37/28 of the Income T'ax Act and therefore, the same ought to have been allowed as deduction. It be so held now.
12. Ld. AR submitted that the assessee incurred expenses to carry out the objects of NDDB Act, 1987. Grants were given out of own funds and not out of any grants received from Central Government. Untill all the conditions are fulfilled, grants re shown as "advance" and debited to P & L account only after achievement of targets. Amount claimed is irretrievably gone-expenditure already incurred by the recipient and there exists no possibility of its conversion into loan. In Asst. Year 2003-04 the Tribunal in their recalled order held the grant as an expenditure allowable u/s 36(1)(viii) and send back to Assessing Officer for verification of -
(i) as to whether non-refundable grants given are from grants received or not
(ii) non-refundable grants sanctioned, are claimed as deduction only when funds are already utilized/fund utilization report (FUR) are received.
It was already established before Assessing Officer (which is not controverted by Assessing Officer) that (i) grants is from income generated & (ii) the amount is booked as expenses only on furnishing ITA No. 1041 & 1225/Ahd/2012 6 Asst. Year 2008-09 of FUR & therefore there is no need to send the matter back to Assessing Officer for the year.
13. Ld. AR further submitted that similar facts for Asst. Year 2004- 05 and 2007-08 came for adjudication before the Tribunal, Ahmedabad and the issue has been restored back to the file of Assessing Officer for re-adjudication.
14. Ld. DR could not controvert the submissions of ld. AR and had no objection if the issue is restored back to the file of Assessing Officer.
15. We have heard the rival contentions and perused the record placed before us. The issue raised in this ground is against the action of ld. CIT(A) sustaining the disallowance of Rs.89,75,600/- being grant given to various unions and federations, claimed as expenditure u/s 36(1)(viii) of the Act. Further appreciating the contention of ld. AR that the issue has been adjudicated by the Co-ordinate Bench in the past relating to appeals for Asst. Year 2004-05 and 2007-08, we find that in ITA No.3200 & 3201/Ahd/2010 & others following issue came up before the Co-ordinate Bench wherein the matter was restored back to the Assessing Officer for re-adjudication observing as under:-
15. The ground no.4 of the assessee is as under:
"4. The Id.CIT(A) has erred in confirming the disallowance oj grant of Rs. 78,88,592/- given to various cooperative societies and other organizations as deductible expenditure u/s.36(l)(xii) of the IT Act. It is submitted that the amount represents an expenditure incurred by the appellant for the purpose of objects of the appellant and thereby fulfills all conditions of ITA No. 1041 & 1225/Ahd/2012 7 Asst. Year 2008-09 section 36(J)(xii) of the IT Act and accordingly it is entitled to deduction it's. 56(1 )(xiij. It is submitted that it be so held now "-
16. It was submitted by the learned AR of the assessee that in A.Y.2003-2004, the Tribunal had recalled the earlier order, and it was held that the grant is allowable as an expenditure under section 36(l)(xii) of the Act, and the matter was sent back to the AO for verification (j) whether the alleged non-refundable grants are given from grants received or not, and (ii) non-refundable grants sanctioned, are claimed as only when fund are already utilised/ fund utilisation report are received. He also submitted that under similar facts, in A.Y.2004-05, 2005-2006 and 2006- 2007, the Tribunal has restored back the matter to the file of the AO for readjudication. Accordingly, in the present year also, we set aside the order of the CIT(A) on this issue, and restore this matter back to the file of the AO for fresh decision with similar directions, as has been given by the Tribunal for A.Y.2004-05. 2005-2006 and 2006-2007. This ground of the appeal is allowed for statistical purpose.
16. Respectfully following the decision of the Co-ordinate Bench, we restore the matter back to the file of Assessing Officer for readjudication and set aside the order of ld. CIT(A) on the issue. Needless to mention that proper opportunity of being heard will be given to the assessee. This ground is allowed for statistical purposes.
17. Ground no.4 reads as under :-
4. The learned Commissioner of Income Tax (Appeals) has erred in confirming the granting of depreciation on Rail Milk Tankers @ 15%, considering the same as plant and machinery. The appellant has given the Rail Milk Tanker on hire and has accordingly claimed depreciation at 30% as per entry in Appendix I at part (Ill)(3)(c) to the Income Tax Rules 1962.
It is submitted that it be so held now.
4.1 The appellant is engaged in the business of leasing and had given the Rail Milk Tanker on hire and is accordingly entitled to higher depreciation as per the said entry of Appendix 1 to Income Tax Rules. It be so held now.
18. At the outset ld. AR requested for not pressing this ground and therefore, the same is dismissed as not pressed.
ITA No. 1041 & 1225/Ahd/2012 8Asst. Year 2008-09
19. Ground no.5 reads as under :-
5. The learned Commissioner of Income Tax (Appeals) has erred in confirming the disallowance Rs. 2,63,75,906/- by applying section 14A. In the facts and circumstances of the case it is submitted that no disallowance under section 14A is required to be made. It is submitted that it be so held now.
5.1.The learned Commissioner of Income Tax (Appeals) has erred in not appreciating the fact that section 14A is not applicable to the appellant as the investments in securities yielding tax free income were made from own funds of the appellant and no expenses are incurred in relation to earn the exempt income.
5.2.The learned Commissioner of Income Tax (Appeals) has erred in law in confirming the application of Rule 8D, where the AO has not brought on record his dissatisfaction in respect of the appellant's claim of expenditure incurred for earning tax free income.
5.3.Alternatively, the disallowance should be restricted to Rs. 30,000/- which may be considered to be attributable to earn exempt income. It is submitted that it be so held now.
20. Ld. AR submitted that the assessee claimed Rs.16,74,53,612/- as exempt income being dividend income from IDMC & IIL (subsidiary companies) and interest income from tax free bonds. Submissions to Assessing Officer dated 01/11/2010 that investment in securities from which exempt income has been received were made from own funds and no other expenses were incurred for earning exempt income. No nexus proved by Assessing Officer to establish that borrowed funds are used for tax free investment. Reliance is placed on -
i. CIT vs. UTI Bank Ltd. 32 taxmann.com 370 (Guj) ii. CIT vs. Gujarat Narmada Valley Fertilizers Co. Ltd. 42 taxmann.com 270 (Guj) ITA No. 1041 & 1225/Ahd/2012 9 Asst. Year 2008-09 iii. CIT vs. Reliance Utilities & Power Ltd. 313 ITR 340 (Bom) followed in Mumbai ITAT decision in the case of HDFC Bank (61 taxmann.com 361) iv. CIT vs. Hero Cycles Ltd.323 ITR 518 (Puj & Har) Interest is paid to banks for overdraft taken for short periods to meet the temporary business expenditure requirement. Without prejudice if at all any expenses could be said to have been incurred for exempt income, it could be expenses of administrative nature of Rs.30,000/- as calculated by assessee.
21. Ld. DR on the other hand supported the orders of lower authorities.
22. We have heard the rival contentions and perused the material placed before us. The issue raised by assessee is against the order of ld. CIT(A) confirming disallowance u/s 14A of the Act at Rs.2,63,75,906/- . We observe that ld. CIT(A) has confirmed the disallowance merely following the decision of his predecessor relating to appeal for Asst. Year 2007-08 by observing as follows :-
10.5 The reason for making disallowance of Rs. 2,63,75,906/- u/s 14A as mentioned by the A.O in the assessment order and the above submission of the appellant have been considered. In this regard it is mentioned that earlier also the A.O had made disallowance of an amount of Rs. 2,91,91,4817- by applying Section 14A in the case of appellant for A.Y 2007-08. In appeal, the Ld. CIT(A)-IV, Baroda i.e. my predecessor has decided this issue against the assessee and in favour of the department. The observation of the Id. CIT(A) in this regard is reproduced here under for reference :
"6. Next ground of appeal is regarding disallowance of Rs.2,91,91,481/- by applying section 14A. Appellant had claimed exemption in respect of interest income of Rs. 14,77,45,77I/- and dividend from IDMC and IIL of Rs.1,62,87,732/-. Appellant's submission was that investments on which exempt income was earned were not out of interest bearing funds. Assessing Officer accepted appellant's contention ITA No. 1041 & 1225/Ahd/2012 10 Asst. Year 2008-09 that major part of the interest, i.e. Rs.13,63,85,79s/- paid to Government of India was not relatable to exempt .income and apportioned only the balance interest of Rs.22,26.837/- paid to banks u/s. 14A as per Rule 3D. Assessing Officer also allocated administrative and managerial expenses of Rs.2,88,21,521/- as per rule 8D besides interest of Rs.3,69,960/- hereby making total disallowance of Rs.2,9191,481/-.
6.1. In appeal, attention was drawn to submissions dated 26,8.2009 to the Assessing Officer that investments in securities from which exempt income was received, were made from own funds. Regarding administrative expenses, it was contended by the appellant that if at all, such expenses would be Rs.44,000/- only, being salary of person receiving and depositing the cheques. Appellant referred to Mumbai High Court decision in the case of Godrej & Boyce Manufacturing Co. Ltd. holding that Rule 8D is applicable only with effect from A. Y. 2008-09.
6.2. I have considered appellant's submissions. The Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd., Mumbai vs. DCIT in ITA 626/10 and WP 758 of 2010, after considering ITAT, Mumbai's Special Bench's decision in the case of Daga Capital Management Put. Ltd. held that Rule 8D would apply w.e.f. A.Y. 2008-09. However, 'the Court also held that even prior to A.Y.2008-09, when Rule 8D was not applicable, Assessing Officer has to enforce the provisions of sub-section 1 of section 14A and for that purpose, Assessing Officer is duty bound to determine expenditure incurred in relation to income not forming part of total income under the Act. The Court has directed to adopt a reasonable basis or method consistent with all the relevant facts and circumstances after providing reasonable opportunity to the assesses to place all germane material on record. Thus, while Rule 8D is not applicable to the assessment year in question, expenditure in relation to exempt income is still to be determined in a reasonable manner.
6.2.1. So far as determination of reasonable expenditure in respect of exempt income in a reasonable manner is concerned, the matter has been examined at length in appellant's case in A.Y. 2004-05 in my order No. No.CAB/IV-A-148/09-10 dated 30.09.2010, wherein after examining nature of investments by the appellant in its subsidiary companies and the expenses incurred for making investments in shares of subsidiary companies as well as bonds from which interest was earned, it was held that expenses @ 0.5% of the average value of investments would be a reasonable estimate of administrative and managerial expenses incurred in relation to earning of exempt income. Following this decision, administrative and managerial expenses to be disallowed vc/s.!4A in A.Y.2007-08 are estimated at Rs.2,88,21,521/-. Further, as held in A.Y.2004-05, it is held that interest paid to banks, which is for. general purpose cannot be said to be not attributable to earning of exempt income from investments in shares/bonds and it would be reasonable to apportion the same in ratio of average value of investments and average valtie of total assets. The same works out to Rs.3,69,960/-. Disallotvdnce of Rs.2,91,91,481/- is directed to be made U/S.14A.ITA No. 1041 & 1225/Ahd/2012 11
Asst. Year 2008-09 10.6 I agree with the above decision of the then ld. CIT(A) -IV,. Baroda and following his decision on the issue, I hold that the AO is correct in making disallowance of expenditure of Rs.2,63,23,840/- in view of working as per rule 8D details of which are given in the assessment order. I, therefore, confirm the disallowance of expenditure of Rs.2,6323,940/- as made by the AO as per rule 8D. thus the grounds of appeal no.6,6.1, 6.2 & 6.3 of the appellant are hereby dismissed.
23. It is pertinent to note that amendment in Rule 8D of IT Rules came into effect from Asst. Year 2008-09. Further we find that the case of the assessee has to be examined in the light of the fact that the assessee is a statutory body constituted under the National Dairy Development Board Act, 1987 and under the Income tax Act is assessed as Company in view of the provisions of section 2(17) read with clause (ia) of section 2(26). The assessee has no authorized or issued or paid up share capital. Hence the assessee is a peculiar case where though is a company it has no share holders. National Dairy Development Board (hereafter NDDB) has been constituted with-the objective of supporting of the Diary Cooperatives across the country by replicating the Amul Model.
NDDB was not a taxable entity till A.Y. 2002-03 in view of the special provisions of Section 44 of the NDDB Act, 1987. However, vide section 162 of the Finance Act, 2002, section 44 of the NDDB Act was omitted w.e.f. 1.4.2003 and hence NDDB became a taxable entity from A.Y. 2003-04 onwards.
It derives income from business of promoting, financing, constructing, sponsoring, researching, facilitating training, collecting data and such other initiatives for the development of dairy and other agriculture based and allied industries through cooperative initiatives.
ITA No. 1041 & 1225/Ahd/2012 12Asst. Year 2008-09 The major activities of NDDB are as under:
(i) Promotion and development of dairies and other agricultural waste industries in public sector.
(ii) Facilitating research, imparting technical know-how.
(iii) Training
(iv) To provide financial assistance by way of loans, grants to co-operative unions/federations and subsidiaries of NDDR for fulfilling the objective i.e. economic development of rural masses and improving their quality of life through cooperative efforts.
(v) Consultancy and Managerial services
(vi) Marketing support
(vii) Collection and compilation of data and statistics
(viii) Giving assets on lease The reason for observing the above facts that the assessee was not the taxable entity upto Asst. Year 2002-03 and certainly had investments in shares and tax-free bonds as on 1/4/2002.
24 Disallowance u/s 14A in the case of assessee can be bifurcated into three portions :-
i) Suo motu disallowance of Rs.30,000/- made by assessee towards expenditure incurred for earning exempt income which is not in dispute by both the parties and is not forming part of the disallowance made by Assessing Officer.
ii) Disallowance of Rs.10,59,435/- on account of interest expenditure being apportioned towards utilization of funds for earning exempt income.
iii) 0.5% on average investments at Rs.2,53,16,471/-ITA No. 1041 & 1225/Ahd/2012 13
Asst. Year 2008-09
25. We will deal with disallowance mentioned above in points (ii) &
(iii). As far as disallowance of interest expenditure at Rs.10,59,435/- it is worthwhile to take a look towards the tax free funds on account of reserve and surplus held by the assessee vis-à-vis the investments made fetching exempt income. Given below are the details showing own funds as against investments for above six years :-
Financ Free Dep Provision for Provision Total Own Investment ial Reserves fund bad& for Funds made in this Year & (non doubtful diminution year on Surplus cash debts (non in value of which exp) cash exp) investmen income t (non considered cash exp) exempt in A.Y. 2008- 09
02-03 18302.01 1110.28 12120.00 61.21 31593.50 1980.00 03-04 19587.83 1104.59 11450.00 25.10 32167.52 1291.40 04-05 20102.1.6 1113.35 10860.00 25.10 32100.61 200.50 05-06 20534.98 1222.66 10157.37 25.10 31931.11 450.00 06-07 20921.92 1334.85 9957.53 0.10 32214.40 0.00 07-08 21347.73 1179.21 9464.58 0.10 31991.62 19.99 ITA No. 1041 & 1225/Ahd/2012 14 Asst. Year 2008-09
26. Further the interest expenditure incurred by the assessee during the year comprises interest paid to Government of India at Rs.10.94 crores and interest paid to banks at Rs.71.40 lacs. Taking both the facts together and also in view of various judicial pronouncements referred and relied by the assessee we find that assessee was having sufficient interest free funds and in order to cover the investments made which were approximately 40% of the total reserve and surplus held by the assessee at the close of the year and further Revenue has been unable to prove any nexus of flow of interest bearable funds to investments we find no reason to sustain the disallowance of Rs.10,59,435/- u/s 14A of the Act emanating out of interest expenditure incurred by the assessee.
27. As far as disallowance of Rs.2,53,16,471/- being 0.5% of average investments of Rs.506.33 crores we observe that assessee was not taxable entity till Asst. Year 2002-03 in view of the provisions of section 44 of the NDDB Act. Most of the investments are either being carried forward from the previous years and others being mainly investments into Government securities i.e. including NABARD, IRFC, PFC and various banks. We further observe that assessee has been made suo motu disallowance of Rs.30,000/- with specific working of expenditure in relation to exempt income provided at page 51 and 52 of the paper book. However, one clear change in between the year under appeal i.e. Asst. year 2008-09 and the previous years is the amendment enacted w.e.f. Asst. Year 2008-09 under Rule 8D of the IT Rules. Further assessee has also provided a list of companies in which investments has earned exempt dividend ITA No. 1041 & 1225/Ahd/2012 15 Asst. Year 2008-09 income. We observe that there is no much reshuffling of the investment made by the assessee and they have been invested for as long term investments which do not require regular monitoring by the concerned persons. This fact gets further support with the audited balance sheet that total investments of Rs.907.23 crores at the end of the year pertains to long term investments only which too has brought forward investments in subsidiary companies at Rs.287.39 crores and remaining investments are term deposits in bank exceeding one year Rs.273.03 crores and debenture/bonds in the government companies, financial institution and banks at Rs.344,72 crores and miscellaneous other investments.
28. However, taking overall view in the given facts and circumstances mainly the assessee being a non taxable entity before Asst. year 2002-03 majority of investments are into Gvoernment bonds, source of funds in the investments are through Government grants for co-ordinating the activities of NDDB mainly for promoting development of dairies, specific research, training etc. and also the fact that Revenue has been unable to prove any expenditure directly incurred for earning exempt income, we intend to make an ad hoc disallowance of Rs.10 lacs taking it as a special case as against Rs.2,53,16,471/- worked out by applying 0.5% on the average investments on Rs.50.33 crores. Accordingly, out of the total disallowance of Rs.2,63,25,906/- we sustain the disallowance to the extent of Rs.10 lacs.
ITA No. 1041 & 1225/Ahd/2012 16Asst. Year 2008-09
29. Ground no.6 reads as under :-
6. The learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of prior period expenditure of Rs. 5,02,942/-.
6.1.In an}' event Commissioner of Income Tax (Appeals) ought to have given direction to allow the expenses in the respective years.
30. Ld. AR submitted that during the year total prior period expenses were of Rs.3316039/- out of which Rs.2353987/- has been disallowed in the return of income and fairly accepted that the correct amount of disallowance is of Rs.2553155/-. Ld. AR also submitted that an amount of Rs.303794/- was also written off as prior period expenses being old balance written off pertaining to financial year 1997-98.
31. On the other hand, ld. DR supported the orders of lower authorities.
32. We have heard the rival contentions and perused the record. Assessee is aggrieved with the order of ld. CIT(A) sustaining disallowance of prior period expenses of Rs.502942/-. From going through the submissions of ld. AR we find that ld. AR has conceded for the disallowance of Rs.199148/- being difference of the correct amount of disallowance calculated by assessee at Rs.25,53,135/- as against Rs.23,53,987/- being disallowed in the computation of income. To this extent a disallowance of Rs.199148/- is sustained.
33. As far as remaining disallowance of Rs.303794/- is concerned on referring to page no.62 to 65 of the Paper Book we observe that ITA No. 1041 & 1225/Ahd/2012 17 Asst. Year 2008-09 the genesis of the expenditure of Rs.303740/- travels back to F.Y. 1997-98 where the impugned payment was released under Soyaseed project with the condition that in case the expenditure was not admitted by the Government of India at a later date the same will have to be borne by the assessee from own sources. Further this brought forward balance appeared in the books of assessee has been transferred to prior period expenditure account through the proper office note. Looking to the genuineness of the expenditure incurred we find no reason to sustain the disallowance of Rs. 303740/- and allow as a prior period expenditure for old balance written off. Accordingly, this ground of assessee is partly allowed.
34. Ground nos.7,8,9 & 12 read as under -
7. The learned Commissioner of Income Tax (Appeals) has erred in not admitting the additional grounds with regard to taxing the interest on project fund as income of the appellant & disallowance of contribution to Employee's recreation trust u/s 40A(9). It is submitted that in the facts and circumstances of the case the Commissioner of Income Tax (Appeals) ought to have admitted the same.
7.1.Without prejudice to above, the appellant submit that CIT(A) has erred in not admitting the additional ground though decided on merit against the appellant.
8. The learned Commissioner of Income Tax (Appeals) erred in taxing interest earned on a project fund, amounting to Rs 1,99,25,225/- as income of the appellant. It is submitted that in the facts and circumstances of the case, the appellant is acting as a nodal agency and income is diverted at source and does not belong to the appellant.
8.1.Without prejudice to above, if the interest is considered as income of the assessee, direction be given to allow the expenditure in the same year in which they are incurred as deduction. It be so done now.
ITA No. 1041 & 1225/Ahd/2012 18Asst. Year 2008-09
9. The learned Commissioner of Income Tax (Appeals) has erred in not deleting disallowance of Rs. 3,28,745/- being contribution made to Employees' Recreation Trust by invoking provisions of section 40A(9) of the Act. It is submitted that in the facts and circumstances of the case, section 40A (9) is not applicable and no disallowance was required to be made.
12.In view of order of Hon'blc IT AT in appellant's case for Assessment Year 2004-05 & 2005-06, the AO may be directed to allow depreciation on the closing Written Down Value of the Block of assets for the immediately preceding year as may be finally determined in earlier year.
35. At the outset ld. AR submitted that the above ground nos.7, 8, & 9 have been adjudicated by the Tribunal in their appellate order for Asst. Year 2007-08 vide ITA Nos.3200 & 3201/Ahd/2010 and others and raised no objection if the consistent view is taken for this year also.
36. Ld. DR duly supported the orders of lower authorities and has no objection if the decision for Asst. Year 2007-08 of the Tribunal is followed.
37. We have heard the rival contentions and perused the material on record. Ground no.7 relates to non-admission of additional ground. Ground no.8 relates to interest income of North Kerala Dairy project funds considered as taxable income and ground no.9 relates to disallowance of Rs.328745/- being contribution made to employees recreation trust. Ground no.12 requests for following the Tribunal's order directing the Assessing Officer to allow depreciation on the closing written down value of the block of assets for the immediately preceding year.
ITA No. 1041 & 1225/Ahd/2012 19Asst. Year 2008-09
38. We observe that similar issues referred in the above 4 founds came up before the Co-ordinate Bench relating to Asst. Year 2004-05 and 2007-08 in ITA Nos.3200 & 3201/Ahd/2010 and others. Relevant portion of the grounds raised by the assessee and the decision rendered by the Tribunal are reproduced below :-
25. Some additional grounds are also raised by the assessee, and the same are admitted. These additional grounds are as under:
"1. The Learned Assessing Officer & learned C'IT(A) have erred in not granting depreciation on the closing Written flown Value of the Block of assets for the A.Y. 2006-07.
2. The learned Assessing Officer & learned CIT(A) has erred in taxing interest earned on a project fund, amounting to Rs.1,47,61,537/- as income of the appellant. It is submitted that in the facts and circumstances of the case, the appellant is acting as a nodal agency and income is diverted at source and does not belong to the appellant.
2.1 Without prejudice to above, if the interest is considered its income of the assessee, direction be given to allow the expenditure in the same year in which they are incurred its deduction. It be so done now.
3. The learned Assessing Officer & learned CIT(A) has erred in not deleting disallowance of Rs.3,30,404/- being contribution made to Employees' Recreation mist by invoking provisions of section 40A(9) of the I.T. Act. It is submitted that in the facts and circumstances of the case, section 40A(9) is not applicable and no disallowance as required to be made."
26. Regarding additional ground no.1, it was submitted that this issue is consequential to Tribunal decision in A.Y.2003-2004 to 2005-2006. He submitted that the AO should be directed to take closing WDV of the assets in the preceding year, as the opening of WDV in the present year. The learned DR of the Revenue supported the orders of the authorities below.
ITA No. 1041 & 1225/Ahd/2012 20Asst. Year 2008-09
27. We have considered rival submissions. We are of the considered opinion that this is settled position of law that the closing WDV of the preceding year has to be adopted as opening WDV of the present year to work out the depreciation allowable to the assessee. The AO is directed accordingly. He should pass necessary orders in the light of the above discussion after providing reasonable hearing to the assessee.
28. Regarding ground no.2, it is fairly conceded by the learned AR of the assessee that this issue was decided by the Tribunal against the assessee in A.Y.2003-2004 and subsequent years. Accordingly, in the present year also, this ground is rejected.
29. For the ground no.3 also, it was fairly conceded by the learned AR of the assessee that the issue was decided against the assessee by the Tribunal for A.Y.2003-2004 and subsequent year. Accordingly, this ground is also rejected.
30. In the result the appeal of the assessee is partly allowed for statistical purposes.
39. Respectfully following the decision of the Co-ordinate Bench, we adjudicate ground nos.7, 8, 9 & 12 as follows.Ground no.7 additional grounds are admitted.
40. Ground no.8- consistently following the decision of the Co- ordinate Bench for Asst.year 2004-05 and subsequent years, we are of the view that interest income of North Kerala Dairy Project at Rs.19925225/- is to be considered as taxable income.
41. Ground no.9- following the decision of the Co-ordinate Bench for Asst. Year 2004-05 and subsequent years disallowance of Rs.328745/- is sustained.
ITA No. 1041 & 1225/Ahd/2012 21Asst. Year 2008-09
42. Ground no.12 -respectfully following the decision of Co-ordinate Bench for Asst. Year 2007-08 we are of the considered opinion that this is settled position of law that the closing WDV of the preceding year has to be adopted as opening WDV of the present year and we direct the Assessing Officer to pass necessary order in the light of above discussion after providing reasonable opportunity of being heard to the assessee.
43. In the result, ground no.7 is allowed. Ground nos. 8 & 9 are dismissed and ground no.12 is allowed for statistical purposes.
44. Ground no.10 reads as under :-
10. In the facts & circumstances of the case, interest u/s 234B & 234 C of the Act ought not to have charged on increase in total income resulting from retrospective amendment to section 43(6) of the Act.
45. Ld. AR at the outset submitted that in view of the order of the Hon. Tribunal for Asst. Year 2007-08, Assessing Officer to be directed to allow depreciation on the closing WDV of the block of assets of immediate preceding year.
46. On the other hand, ld. DR supported the orders of lower authorities.
47. We have heard the rival contentions and perused the material on record. Assessee is aggrieved on the charging of interest u/s 234B/234C of the Act on the increase in total income resulting from retrospective amendment in section which was beyond assessee's ITA No. 1041 & 1225/Ahd/2012 22 Asst. Year 2008-09 control. We find that there was a retrospective amendment u/s 43(6) of the Act w.e.f. 1.4.2003 inserted by Finance Act 2008 due to which there was increase in tax liability of the assessee which was beyond the control of assessee. We observe that Hon. Calcutta High Court in the case of Emami Ltd. vs. CIT (2011) 12 taxmann.com 64 (Cal) has elaborately dealt similar issue and has held as follows :-
A plain reading of sections 234B and 234C makes it abundantly clear that these provisions are mandatory in nature and there is no scope of waiving of the said provisions. [Para 8] However, in order to attract the provisions contained in sections 234B and 234C, it must be established that the assessee had the liability to pay advance tax as provided in sections 207 and 208 within the time prescribed under section 211.
A mere reading of sections 207, 208 and 211 leaves no doubt that the advance tax is an amount payable in advance during any financial year in accordance with the provisions of the Act in respect of the total income of the assessee which would be chargeable to tax for the assessment year immediately following that financial year. Thus, in order to hold an assessee liable for payment of advance tax, the liability to pay such tax must exist on the last date of payment of advance tax as provided under the Act or at least on the last date of the financial year preceding the assessment year in question. If such liability arises subsequently when the last date of payment of advance tax or even the last date of the Financial Year preceding the assessment year is over, it is inappropriate to suggest that still the assessee had the liability to pay 'advance tax' within the meaning of the Act. [Para 9] In the instant case, the last date of the relevant financial year was 31-3-2001 and on that day, admittedly, the assessee had no liability to pay any amount of advance tax in accordance with the law then prevailing in the country. Consequently, the assessee paid no advance tax and submitted its regular return on 31-10-2001 within the time fixed by law wherein it declared Us total income and the book pro/it both as nil. However, consequent to the amendment of the provisions contained in section 115JB by virtue of the Finance Act, 2002 which was published in the official gazette on 11-5- 2002 giving retrospective effect to the amendment from 1-4-2001, the assessee first voluntarily paid a sum of Rs. 1,55,62,511 on account of the tax payable on book profit as provided in amended provision of section 115 JB and then filed its revised return 31-3-2003 declaring its business income as nil but the book profit under section 115JB as Rs. 20,63,65,711. The Assessing Officer accepted such return of income but imposed interest under sections 234B and 234C. [Para 10] ITA No. 1041 & 1225/Ahd/2012 23 Asst. Year 2008-09 The amended provision of section 115JB having come into force with effect from 1-4- 2001, the assessee could not be held defaulter of payment of advance tax. On the last date of the financial year preceding l he relevant assessment year, as the book profit of the assessee in accordance with the then provision of law was nil, one could not conceive of any 'advance tax' which in essence was payable within the last day of the financial year preceding the relevant assessment year as provided in sections 207 and 208 or within the dates indicated in section 211 which inevitably fell within the last date of financial year preceding the relevant assessment year. Consequently, the assessee could not be branded as a defaulter in payment of advance tax as mentioned above. [Para 11]
48. Similar view was taken by Hon. Uttaranchal High Court in the case of CIT vs. Sedco Forex International Drilling Co. Ltd. (2004) 134 taxman 109 (Uttaranchal) by observing as under :-
14. The last question, referred to us for our opinion is as follows :
Question : Whether, the Tribunal was justified in deleting interest levied on the assessee under section 234B ?
Answer; In view of the facts and circumstances of this case our answer is in the affirmative, i.e., in favour of the assessee and against the Department.
Reasons
15. Although we agree with the conclusions of the Tribunal, we prefer to give our own reasons in support of our conclusion that on the facts and circumstances of this case, levy of interest under section 234B on the assessee is not justified. Firstly, the decisions of the Tribunal on the interpretation of the contracts regarding on period and off period salary were conflicting. Ultimately, the Legislature has stepped in to clarify the position by the Finance Act, 1999. In this connection, it is important to note that section 234B imposes interest, which is compensatory in nature and not as a penalty - Union Home Products Ltd. v. Union of India [1995] 215 ITR 758. 7661 (Kar). Secondly, although section 191 of the Act is not overridden by sections 192, 208 and 209{1)(a)(d) of the Act, the scheme of sections 208 and 209 of the Act indicates that in order to compute advance tax the assessee has to, inter alia, estimate his current income and calculate the tax on such income by applying the rates in force. That under section 209(1 }(d) the income-tax calculated is to be reduced by the amount of tax which would be deductible at source or collectible at source, which in this case has not been done by the employer company according to the law availing for which the assessee cannot be faulted. As stated above at the relevant time there were conflicting decisions of the Tribunal. A bona fide dispute was pending. The assessee had to estimate his current income- The words used under section 209(1 )(a) make the assessee estimate his current income and since a bona fide dispute was pending, imposition of interest under section 234B was not ITA No. 1041 & 1225/Ahd/2012 24 Asst. Year 2008-09 justified without hearing and without reasons. Accordingly, we answer this question in the affirmative, i.e., in favour of the assessee and against the Department.
49. Respectfully following the judgments of Hon. Calcutta High Court and that of Uttaranchal High Court as referred above, we find that interest u/s 234B/234C would not have been charged on the assessee on the increase in total income resulting from retrospective amendment to section 43(6) of the Act. Accordingly, this ground of assessee is allowed.
50. Ground no.11 reads as under :-
11. The learned Commissioner of Income Tax (Appeals) erred in not directing Assessing Officer-to grant credit for TDS, even though the appellant had filed indemnity bond as per Assessing officer's requirement
51. Ld. AR submitted that assessee claimed TDS of Rs.3,42,45,870/- in revised return of income. Subsequently, it further claimed credit of Rs.7,22,870/- as certificates were received later. Assessing Officer granted TDS of Rs.3,11,98,949 as against Rs.3,42,45,870/- thus granting short credit of Rs.30,46,921/-. He also did not grant TDS of Rs.7,22,870/- claimed separately. Assessee has filed rectification application dated 11/06/2010 to grant credit of balanceTDS. Assessee has also submitted vide its letter dated 27/10/2010 with necessary details along with indemnity bond on request of Assessing Officer. Assessing Officer may be directed to grant credit of TDS.
52. On the other hand ld. DR supported the orders of lower authorities.
ITA No. 1041 & 1225/Ahd/2012 25Asst. Year 2008-09
53. We have heard rival contentions and perused the record. Through this ground assessee is aggrieved with the action of ld. CIT(A) not directing the Assessing Officer to grant for TDS. We observe that when this issue came up before ld. CIT(A) no concrete finding was given by him as can be seen from his observation which reads as follows :-
15. The ground of appeal no. 12 of the appellant is that the AO has erred in not granting credit for TDS, even though, as per AO's the appellant had filed indemnity bond. In this regard, the appellant has not filed any details with regard to claim of amount of TDS and the person who had deducted the tax at source etc. and on what basis such claim of TDS has been rejected by the AO. It is also not known whether the AO had not granted credit for TDS while processing the return of income u/s 143(1} or while completing the assessment u/s 143(3) of the IT Act. On perusal of assessment order in the case of appellant for the above year which is under consideration it is seen that issue regarding non granting of credit for TDS has not been discussed anywhere in such assessment order. In my opinion the issue with regard to non granting of credit of TDS is arising from the intimation u/s 143(1) and not from the order u/s 143(3) of the Act and therefore above ground of appeal no.12 cannot be entertained at this place and therefore, such ground of appeal of the appellant is hereby dismissed.
54. We further observe that assessee has been granted short TDS on 2 accounts -
(1) Through less credit of Rs.3046921/- being the difference between TDS claimed by assessee at Rs.34245870/- and as against TDS granted by Assessing Officer at Rs.31198949/-.
(2) Ld. Assessing Officer not accepting the claim of additional TDS of Rs.722870/- as the certificates were received at a later date.
ITA No. 1041 & 1225/Ahd/2012 26Asst. Year 2008-09 In the given circumstances we find it to be justified for remitting back the issue of TDS credit claimed by assessee at Rs.34245870/- and further claim of Rs.722870/- to the file of Assessing Officer. It is further directed that due cognizance to be given to the necessary details including indemnity bond filed by the assessee. Further assessee has also to place on record necessary details to prove that the income on which TDS of Rs.722870/- is additionally claimed finds proper place in the total revenue shown in the audited financial statement. If the assessee is able to prove that the income on which TDS of Rs.722870/- has been deducted has been offered to tax then ld. Assessing Officer to allow the claim. Needless to mention assessee should be given proper opportunity of being heard.
55. Now we take up Revenue's appeal in ITA No.1225/Ahd/2012 wherein following grounds have been raised :-
1(i) On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in deleting the addition of Rs. 34,93,06,747/- u/s 41(1) of the Act being*the provision written back without appreciating the fact that the entire entity was exempt from tax up to A.Y. 2002-03, therefore, claiming the deduction by way of excess provision written back of earlier years, amounts to double deduction, which is not permissible as per provisions of the Act.
l(ii). The Id. CIT(A) failed to appreciate the fact that the write back of the provision can only be claimed as a deduction if it is proved by the assessee that the provision made in the earlier year was disallowed and subjected to tax. In the instant case, the assessee has not placed any evidence to prove that the provision made in the earlier years was subjected to tax or added in the computation of total income. Therefore, the reversal of the provision during the year definitely resulted into income and accordingly rightly added in the total income of the assessee by the A.0.ITA No. 1041 & 1225/Ahd/2012 27
Asst. Year 2008-09
56. At the outset ld. AR submitted that this ground of Revenue is squarely covered in favour of assessee by the decision of the Tribunal in assessee's own case for asst. year 2007-08. Ld. AR further submitted that the Tribunal in asst. year 2007-08 held that since no deduction has been allowed to the assessee in the year of making the provision, and it cannot be allowed because provision is not allowable u/s 36(1)(iii), write back of such provision cannot give rise to an income under section 41(1) of the Act. This decision has been upheld by Hon. Jurisdictional High Court in assessee's own case in CIT vs. NDDB in Tax Appeal No. 195 of 2014 vide judgment dated 6th May, 2014 and no further appeal has been preferred by the Department.
57. On the other hand, ld. DR supported the order of Assessing Officer.
58. We have heard the rival contentions and perused the record. Ld. Assessing Officer while framing assessment order assessed the provisions written back at Rs.34.93 crores approx. as income u/s 41(1) of the Act taking a view that reversal of provision during the year definitely resulted into income. We further observe that assessee during the course of assessment proceedings submitted that the impugned amount of Rs.34.93 crores approx. represented write back of excess provision for doubtful debts created in the earlier years as per norms of R.B.I and original provisions were made in the years when NDDB was not liable to income-tax as per section 64 of the NDDB Act and, therefore, the said amount cannot be brought ITA No. 1041 & 1225/Ahd/2012 28 Asst. Year 2008-09 under tax. Ld. AR further submitted that no deduction has been granted to it in the assessment year in which provisions were made and therefore the provisions written back during the year cannot be brought to tax. We further observe that ld. CIT(A) deleted the impugned disallowance of Rs.34.93 crores by following the order of his predecessor for Asst.Year 2007-08 by observing as follows :-
6.7 The reasons for making the disallowance of ? 34,93,06,747/- being excess provision of earlier years written back as mentioned by the A.O in the assessment order as well as entire above submission of the appellant have been considered. In the case of appellant the A.O had treated the excess provision written back as taxable in the A.Y 2007-08 (regular) and in A,Y 2004-05 (re-opened) and the appellant preferred appeal before the CIT(A)-IV, Baroda. The Ld. CIT(A)-IV, Baroda (i.e my predecessor) has deleted the addition which was made by the A.O on same/ similar grounds for these two assessment years and relevant portion of order no. CAB/IV-A-148.09-10 dtd. 18.1.2010 for A Y 2007- 08 of the then Ld. CIT(A) is reproduced here under for reference: ; .
"3.2 I have carefully considered facts of the case and appellant's submissions. Assessing Officer has not specified, under which particular section of the Income-tax Act, the provision written back is taxed by him, even though reference appears to be section 41(1) only in view of AO's finding in para 8.7 of assessment order that "write back of the provision can only be claimed as a deduction, if it is proved by the assessee that the provision made in earlier year was disallowed and subjected to tax". The principle used by the. Assessing Officer is of section 41 (1) only. For applying section 41(1), there must be an actual allowance made of. some expenditure or trading liability in the assessment of the assessee in earlier year. The question of allowance of any expense or trading liability is with reference to "Assessment" only so far as application of section 41 (1) is concerned. Without there being allowance or deduction of expense or trading liability in an "assessment ", section 41 (1) has no application. Courts have held that section 41(1) has no application, 'even in those cases where income in the assessment was determined as percentage of turnover/ sales and the expenditure in question was not actually allowed as deduction. It was held in the case of Naubatram Nandram vs. CIT (1972) 86 ZTR 805 (MP) that section 10(2A) of 1922 Act [same us section 41 (1) oj'1961 Act] is applicable only where a deduction or allowance is actually allowed to 'the assessee ITA No. 1041 & 1225/Ahd/2012 29 Asst. Year 2008-09 in earlier year and not to a case where merely income is estimated as a percentage of estimated sales value. In the case of Tirunelveli Motor Bus Services Pvt. Ltd. vs. CIT (1970) 78 ITK 255, the Supreme Court held the view of Tribunal that no expense could be said to have been allowed in an assessment made by estimating appellant's income. Prior to AY. 2003-04, appellant was not a taxable entity as per the NDDB Act. Provision for bad debts/contingencies were made from A.Y. 1990-91 onwards. Upto A.Y. 2002-03, no assessment of the appellant took place and it cannot be said that the provision for contingencies were allowed as deduction in the 'assessments' of appellant upto A.Y. 2002-03. Assessing Officer has referred to Explanation 6 to section 43(6), i.e. the concept of deemed allowance. However, there is no such similar mechanism provided in section 41 (1) by the law makers. Concept of deemed allowance of an item of expenditure cannot be applied in section 41 (1) in the absence of such provision. Moreover, appellant was not even a taxable entity upto A.Y. 2002-03 and no assessment took place till then. Without 'assessment' in these years, section 41(1) cannot be invoked. Whether provision for contingencies or bad debts was allowed as deduction in assessments of appellant for A.Y. 2003-04 to A.Y. 2007- 08 is also required to be seen for applying section 41 (1). Provision for bad debts is an allowable deduction u/s 36(1)(viia) for 'public financial institutions'. Appellant was declared as a 'public financial institution' u/s 4A of Companies Act by the Ministry of Finance through Notification dated 23.2.2004. Hon'ble ITAT Ahmedabad in appellant's case for AY. 2003-04 held that the said Notification related back to date of application, i.e. 10.7.2002. The TTAT held appellant to be a 'Public Financial Institution' w.e.f. AY. 2003-04. It is however, not the Assessing officer's case that appellant claimed or was allowed deduction u/s 36(1)(viia) in A.Yrs. 2003-04 to 2007-08. On being asked, appellant certified that in A.Y. 2003-04 to A.Y. 2007-08) no further such provision for bad debts was made or charged to the profit or loss account. Appellant also certified that no deduction u/s 36(1)(viia) was claimed or allowed in assessments ofAYrs. 2003-04 to 2007-08. If no deduction for provision for bad debts or contingencies was actually allowed in any assessment of appellant till AY. 2007-08, section 41(1) cannot be applied in respect of provisions for doubtful debts/contingencies written back in A.Y. 2007-08. Assessing Officer has not assigned any other reason nor invoked any other section of Income tax Act to tax the provision of contingencies! doubtful debts written back. In view of this, addition oj"Rs. 24,15',/74,441 /' - cannot be sustained and the same is deleted, subject to re-verification by the ITA No. 1041 & 1225/Ahd/2012 30 Asst. Year 2008-09 Assessing Officer that no deduction towards provision for contingencies/ bad debts was allowed u/s 36(1)(viia) or otherwise in assessments for A.Y. 2003-04 to AY. 2007-08. If anj amount of such provision is found as allowed u/s 36(1)(viia) or otherwise in the assessments for A.Y. 2003-04 to 2007-08; to that extent, the provision written back is to be taxed u/ s 41 (1)."
6.8 Since the Ld. CIT(A) has deleted the addition (i.e. the disallowance of claim of deduction of excess provision written back) in view of the reasons as mentioned by him in his above appellate order for A.Y 2007-08 and respectfully following such decision I hold that the amount of t 34,93,06,7477- being excess provision of earlier year written back as disallowed by the A.O for the year under consideration is also not correct and, therefore, I delete the same. Thus the second around of appeal of the appellant is allowed.
59. We further observe that similar issue came up before the Tribunal in asst. year 2007-08 in ITA No.3200 & 32001/Ahd/2010 and the decision taken by the Tribunal is reproduced below :-
32. The ground no.l is as under:
"J(i). On (he facts and in the circumstances of the case and in la\v, the learned CIT(A) erred in deleting the addition of Rs.24,15,74.441/--u/s 41(1) of the Act being the provision written back without appreciating the fact that the entire entity was exempt horn tax up to A. Y. 2002-03, therefore, claiming the deduction by way of excess provision written back of earlier years, amounts to double deduction, which is not permissible as per provisions of the Act.
l(ii). The Id.CIT(A) failed to appreciate the fact that the write hack of the provision can only be claimed as a deduction if it is proved by the assesses that the provision made in the earlier year was disallowed and subjected to tax. In the instant case, the assessee has not placed any evidence to prove that die provision made in the earlier years was subjected to tax or added in the computation of total income. Therefore, the reversal of the provision during the year definitely resulted into income and accordingly rightly added in the total income of the assessee by the A.O, "
33. The learned DR supported the assessment order, whereas, the learned AR of the assessee supported the order of the learned CIT(A). He also submitted that the provisions were made in the year when the assessee was not liable to tax. He also submitted that when provisions were made they were not allowable as deduction in ITA No. 1041 & 1225/Ahd/2012 31 Asst. Year 2008-09 the assessment, since the assessee was not taxable, and therefore, the same cannot be taxed as income under section 41(1) of the Act in the present year. He also submitted that, otherwise also, in view of provisions of section 36(l)(vii) provision would not have been allowed as deductions in the year when they were made.
34. We have considered rival submissions. We find that the addition made by the AO is not sustainable for two reasons. The first reason is that when provision was made, the assessee was not liable to tax, hence, if the provision is reversed in the year of making the provision, it is not resulting into any tax liability, because the assessee was not taxable in that year, and therefore, reversal of such a liability cannot give rise to tax in the year of reversal, when it is not giving any benefit to the assessee, in the year of making the provision. The second reason is that even if it is held that income has to be assessed in the year of making the provision, then this deduction on account of provision under section 36(l)(vii) is not allowable deduction in that year, because under this section, actual write off is allowable and not the provision. This is a pre- requirement of section 41(1) that where the allowance or deduction has been made in the assessment for any year, in respect of loss, expenditure or trade liability incurred by the assessee, and the same is subsequently ceased or has been remitted, men there is income under section 41(1) of the Act. Since in the present case, no deduction has been allowed to the assessee, in the year of making the provision, and it cannot be allowed because provision is not allowable under section 36(l)(vii)s write back of such provision cannot give rise to an income under section 41(1) of the Act. We therefore decline to interfere in the order of the learned CIT(A) on this issue. This ground is rejected.
60. The above decision of the Co-ordinate Bench was upheld by Hon. Jurisdictional High Court in Tax Appeal No. Tax Appeal No. 195 of 2014 vide judgment dated 6th May, 2014 wherein Hon. High Court has observed as under :-
Facts are not seriously in dispute. Respondent-NDDB was enjoying exemption from payment of income tax till A..Y 2002-03. During the previous year relevant to A.Y 2007-08, the assessee wrote back certain provisions made in the earlier years. These provisions were made during the period when NDDB was enjoying the tax exemption. It is also not the case of the Revenue that the assessee made any allowances against any expenditure or trading liability. In background of such facts, we need to examine the view of the Tribunal.
Section 41 of the Act pertains to profits chargeable to tax. Sub-section (1) of Section 41 provides that where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee and subsequently during any previous year, situation referred to in clauses (a) or (b) of sub-section (1) arises resulting in the remission of the liability, the same would be deemed to be a profit or gain of the business or profession of the assessee and would accordingly be chargeable to income-tax as the ITA No. 1041 & 1225/Ahd/2012 32 Asst. Year 2008-09 income of that previous year. For application of such Section 41 (1) of the Act, therefore, what is primarily required is that there is allowance or deduction made by the assessee in respect of loss, expenditure or trading liability incurred by the assessee. In the present case, as held by the CIT [A] as well as the Tribunal, what the assessee did was only make a provision for a possible expenditure or liability. It was thus neither an allowance nor deduction, in any case, not for any loss, expenditure or trading liability incurred by the assessee. In that view of the matter, the Tribunal correctly held that Section 41 (1) of the Act would not apply.
Further, we have noticed that CIT (A) has permitted the Assessing Officer to re-verify whether any deduction towards such provision was allowed in the assessment years 2003-04 to 2007-08. He further provided that if any amount of such provision is found allowed, for the said years to that extent, the provision on written back is to be taxed under Section 41 (1) of the Act. This has also been confirmed by the Tribunal. This is one more ground to convince us not to interfere.
61. Respectfully following the judgment of Hon. Jurisdictional High Court and in the given facts and circumstances we find no reason to interfere with the order of ld. CIT(A) deleting the addition of Rs. 34,93,06,747/- made u/s 41(1) of the Act towards provisions written back. We uphold the same. Accordingly, this ground of Revenue is dismissed.
62. Ground no.2 reads as under :-
2. On the facts and in the circumstances of the case and in law, the learned CIT(Appeals) erred in deleting addition of Rs. 8,62,604/- u/s 41(1) of the Act being prior period income generated on account of write off of the liabilities which were unclaimed by the parties without considering the fact that writing off such amount reduced the liability of the assessee and resulted into income of the assessee.
63. Ld. DR supported the order of Assessing Officer.
64. On the other hand ld. AR submitted that the balance written off of Rs.8,62,604/- (Rs.26261 & Rs.83634) pertains to parties prior to Asst. Year 1998 & 1990-91 respectively when the assessee was not taxable entity and it cannot be said that the amounts were allowed as ITA No. 1041 & 1225/Ahd/2012 33 Asst. Year 2008-09 expenditure or as trading liability. There is no dispute to the fact that the parties have not claimed such amount.
65. Ld. AR further submitted that similar issue came up before the Tribunal and has been decided in favour of assessee.
66. We have heard rival contentions and perused the record. Through this ground Revenue is aggrieved with the order of ld. CIT(A) deleting the addition of Rs.8,62,604/- made u/s 41(1) of the Act being prior period income. The impugned amount consists of Rs.26,261/- relating to Year 1998 and Rs.8,36,343/- pertained to Asst. Year 1990-91. It is not disputed that the amount of Rs.8,26,604/- has not been claimed by the parties. The important point to be noted herein is that the assessee was not taxable entity upto Asst. Year 2002-03 and the impugned amount falls in the years before the date from which assessee becomes a taxable entity. We observe that ld. CIT(A) has deleted the impugned disallowance by observing as follows :-
12.3 The reasons for making the addition of Rs. 8,62,604/- as mentioned by the AO in the assessment order as well as the above submission of the appellant have been considered.
The appellant during the course of assessment proceedings explained before the AO that amount of Rs. 26,261/- and Rs. 8,36,343/- are regarding the parties balance prior to 1998 and 1990-1991 and which were not claimed by the respective parties and accordingly written off. Since this two amounts total of which comes to Rs.8,62,6047- are regarding the parties balance prior to 1998 and 1990-1991, when the appellant was not taxable entity and since there was no assessment made in the case of appellant for these years and hence, it cannot be said that this amount of Rs.8,62,604/- were allowed either as ITA No. 1041 & 1225/Ahd/2012 34 Asst. Year 2008-09 expenditure or as trading liability. In view of this the two amounts pertaining to the period prior to FY 2002-03 in the case of appellant cannot be taxed for the year under consideration on the ground that the concerned parties (i.e. creditors) have not claimed such amounts. Considering this fact I delete this addition of Rs.8,62,604/- as made by the AO . Thus the ground of appeal of the appellant related to this issue is allowed.
67. Further we observe that Co-ordinate Bench adjudicated the issue in assessee's appeal for Asst. Year 2007-08 with similar ground and decided the same by observing as follows :-
37. We have considered rival submissions. We find that the amount in question is, write back of excess provision for sales tax made in A.Y.1995-96. This is an admitted position of law that in A.Y.1995-96, the provisions of section 43B were applicable, and therefore, no deduction was allowable in respect of any provision of sales-tax unless the same was paid. It is not the case of the AO that the payment was made against such provision. The second reason for which the addition is not justified is that, when the provision was made for A.Y.1995-96, the assessee was not liable to tax, and hence, no benefit had accrued to the assessee, on account of making such provision in that year, and therefore, no income can arise on write back of such provision. We, therefore, decline to interfere in the order of the CIT(A) on this issue also. This ground of the Revenue is also rejected.
68. Respectfully following the decision of Co-ordinate Bench adjudicating similar issue for Asst. Year 2007-08 we find that no disallowance of Rs.8,62,604/- is called for u/s 41(1) of the Act, this year also. We find no reason to interfere with the other of ld. CIT(A). We uphold the same. This ground of Revenue is dismissed.
ITA No. 1041 & 1225/Ahd/2012 35Asst. Year 2008-09
69. Ground nos.3 & 4 are of general nature, which need no adjudication.
70. In the result, assessee's appeal is partly allowed for statistical purposes and the appeal of Revenue is dismissed.
Order pronounced in the open Court on 7th November, 2016 Sd/- sd/-
(Rajpal Yadav) (Manish Borad)
Judicial Member Accountant Member
Dated 7/11/2016
Mahata/-
Copy of the order forwarded to:
1. The Appellant
2. The Respondent
3. The CIT concerned
4. The CIT(A) concerned
5. The DR, ITAT, Ahmedabad
6. Guard File
BY ORDER
Asst. Registrar, ITAT, Ahmedabad
1. Date of dictation: 3/11/2016
2. Date on which the typed draft is placed before the Dictating Member: 7/11/2016 other Member:
3. Date on which approved draft comes to the Sr. P. S./P.S.:
4. Date on which the fair order is placed before the Dictating Member for pronouncement: __________
5. Date on which the fair order comes back to the Sr. P.S./P.S.:
6. Date on which the file goes to the Bench Clerk: 7/11/16
7. Date on which the file goes to the Head Clerk:
8. The date on which the file goes to the Assistant Registrar for signature on the order:
9. Date of Despatch of the Order: