Income Tax Appellate Tribunal - Delhi
Indian Sugar Exim Corporatio. Ltd, vs Assessee on 30 August, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL,
DELHI,
DELHI, BENCH ' C ',, NEW DELHI
BEFORE SHRI C. L. SETHI, JUDICIAL MEMBER
AND SHRI K. D. RANJAN, ACCOUNTANT MEMBER
ITA No. 4787 /Del/2005 and 262/Del/2008
(Assessment Year 2002-03 and 2004-05 respectively)
Indian Sugar Exim Corporation Ltd., Vs. DCIT, Circle 11(1),
C-Block, 2nd Floor, Ansal Plaza, New Delhi.
August Kranti Marg,
New Delhi- 110 049
ITA No. 407/Del/2006 and 79/Del/2008
(Assessment Year 2002-03 and 2004-05 respectively)
ACIT, Circle 11(1), Vs. M/s. Indian Sugar Exim
New Delhi. Corpn. Ltd., C- Block,
Ansal Plaza, August Kranti
Marg, New Delhi.
(Appellant) (Respondent)
PAN AAACI1163M
Appellant by: Shri Ashwani Taneja, Adv.
Shri Sumit Jain, FCA
Respondent by: Smt Shyama S Bansia, CIT (D.R.)
ORDER
PER K. D. RANJAN, AM:
1. These cross appeals by the assessee and the Revenue for the Assessment Year 2002-03 & 2004-05 arise out of the separate orders of Ld. CIT(A) V, New Delhi. These appeals were heard together and for the sake of convenience, are disposed of by this common order.
2. In Assessment Year 2002-03 when the assessee's appeal came up for hearing in I.T.A.No. 4787/del/2005, Ld. A.R. for the assessee did not press grounds No. 4, 5, 6 & 7. Therefore, these grounds of appeal are dismissed as not pressed.
2I.T.A.No. 4787/Del/05,262/Del/08 I.T.A.No. 407/Del/06 & 79/Del/08
3. The next issue for consideration which is common in assessee's appeal as well as Revenue's appeal in I.T.A. No. 407/Del/2006 for Assessment Year 2002-03 relates to the addition made u/s 14A on proportionate basis. The facts of the case stated in brief are that the Assessing Officer in the course of assessment found that the assessee had earned income of ` 7,71,04,752/- as dividend on mutual funds and ` 39,07,189/- as interest on tax free bonds. The Assessing Officer required the assessee to explain as to why apportionment of expense should not be made. In response to the query raised, it was submitted by the assessee that it had large amount of reserve at it disposal and the Interest expenditure was mainly towards packing credit for export. The Assessing Officer in view of the reply submitted, observed that the assessee had failed to establish and furnish any evidence that no expenditure was incurred for earning dividend income and tax free interest. Certain expenses like salaries, employees welfare expenses, traveling, rent etc. were common expenses with regard to earning of dividend and interest free income and for regular business activities in relation to export/import of sugar. The Assessing Officer by invoking the provisions of Section 14A, disallowed ` 28,16,011/- out of interest paid and ` 80,18,703/- out of administrative expenses.
4. On appeal, it was submitted by the assessee that there was no evidence on record in support of addition made by the Assessing Officer. There was no evidence on record that the borrowed funds had been invested for the purchase of mutual funds. It was further submitted that the assessee had borrowed money as a part of packing credits facility from the bank which could be utilized for export of stock of sugar. Copy of sanction letter along with certificate from bank that interest was paid toward packing credit for export was placed on record. In view of these fact, it was 3 I.T.A.No. 4787/Del/05,262/Del/08 I.T.A.No. 407/Del/06 & 79/Del/08 submitted that Assessing Officer was not justified to disallow interest u/s 36(1)(iii) of the Act.
5. As regards administrative expenses, it was submitted that the Assessing Officer had included professional charges, provision for bad debts, trading loss, arbitration award and the provision for loss could not be considered for the purpose of disallowance of expenditure u/s 14A of the Act. These expenses did not have any relationship with the earning of exempt income and were only related to sugar business. It was also submitted that some other expenditure incurred by the assessee also did not relate to exempt income and, therefore, proportionate disallowance could not be made.
6. Ld. CIT(A) after considering the reply of the assessee observed that the assessee company had paid interest only to the two banks i.e. Syndicate Bank & Maharashtra State Cooperative Bank from which the packing credit facility was taken by the assessee. The investments have been made by the assessee out of surplus funds generated and not out of the loans taken by the assessee on which interest has been paid. Therefore, no disallowance could be made out of interest paid by the assessee.
7. As regards the proportionate disallowance of expenditure, out of administrative expenses, Ld. CIT(A) found that the contention of assessee was partly correct. He observed that the professional charges, provision for bad debts, arbitration award expenses and provision for loss etc. totaling to ` 8,60,60,651/- did not have any link with the earning of exempt income. The expenditure was related to the business of sugar only. As regards the other expenditure, the Ld. CIT(A) observed that majority of expenditure was in relation to earning of income form business and therefore, disallowance of proportionate basis was not correct. Ld. CIT(A), 4 I.T.A.No. 4787/Del/05,262/Del/08 I.T.A.No. 407/Del/06 & 79/Del/08 however, observed that it could not be accepted that no expenditure both direct and indirect, was incurred for earning of exempt income of ` 7,71,04,752/- as dividend and interest from tax free bonds of ` 39,07,189/-. However, taking into totality of the facts and circumstances, he upheld the addition of ` 10 lacs.
8. Aggrieved by the order of CIT(A), the Revenue is in appeal against the deletion of addition of ` 28,16,011/- in respect of interest of ` 70,18,703/- on account of administrative expenses totaling to ` 98,34,814/-. On the other hand, assessee is in appeal against the confirmation of addition of ` 10 lacs, on account of administrative expenses.
9. Before us, Ld. CIT (D.R.) submitted that in Assessment Year 2002-03, Ld. CIT(A) has deleted the addition in respect of disallowance made against the interest payment. In Assessment Year 2004-05, Ld. CIT(A) had upheld the disallowance on the ground that the borrowed funds were put into common pool for earning and investment activities. In view of these facts, Ld. CIT (D.R.) submitted that interest paid in Assessment Year 202-03 is also to be considered in the light of decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. Vs DCIT as reported in 194 Taxman 203. She further submitted that the issue relating to disallowance of administrative expenses is to be decided as per the decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. (supra). She, therefore, submitted that the issue may be set aside to the Assessing Officer.
10. On the other hand, Ld. A.R. for the assessee submitted that the assessee had reserve and surplus funds and therefore, no disallowance could be made out of interest paid by the assessee on the funds borrowed for the purpose of packing credit. As regards the disallowance of administrative expenses relating to exempt 5 I.T.A.No. 4787/Del/05,262/Del/08 I.T.A.No. 407/Del/06 & 79/Del/08 income, he conceded that the issue had to be decided in the light of the decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Pvt. Ltd. (supra) and also any other decision available at that point of time. He further submitted that the Assessing Officer may be directed to provide necessary opportunity to the assessee to explain its claim.
11. We have heard both the parties and gone through the material available on record. We have gone through the balance sheet for the Assessment Year 2004-05 placed in the Paper Book, which was referred to by the Ld. A.R. for the assessee while arguing his case. In Assessment Year 2004-05, Ld. CIT(A) has recorded a finding of facts that borrowed funds as well as funds of the assessee were put into common pool from where investment activities were also made. It is also a fact that the facts of the case for Assessment Year 2002-03 are identical to Assessment Year 2004-
05. Since the borrowed funds as well as own funds in the case of assessee formed part of common pool, in our considered opinion, the matter has to be examined as to whether as on the date when investment was made the assessee was having sufficient funds for making such investments. The provisions of Section 14A will be attracted only if the interest bearing funds were invested in assets income therefrom was exempt. Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. (supra) has held that the provisions of Rule 8D which have been notified w.e.f. 24.03.2008 shall apply w.e.f. Assessment Year 2008-09. The Hon'ble court has also held that even prior to Assessment Year 2008-09, when Rule 8D was not applicable, the Assessing Officer had to enforce the provisions of Section 14A(1). For that purpose, the Assessing Officer was duty bound to determine the expenditure which has been incurred in relation to income which did not form part of total income under the Act. The Assessing Officer must adopt a reasonable basis and method consistent with all the 6 I.T.A.No. 4787/Del/05,262/Del/08 I.T.A.No. 407/Del/06 & 79/Del/08 relevant facts and in these circumstances after providing reasonable opportunity to the assessee to place all germane material on record. Since the Assessing Officer as well as CIT(A) have not carried out any exercise in the light of Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. (supra), we feel it proper to set aside the matter relating to both the disallowances to the file of the Assessing Officer with the direction to examine the claim of the assessee in the light of decision of Hon'ble Bombay High Court referred to above. Needless to say the Assessing Officer shall provide necessary opportunity to the assessee to place all material on record in support of its claim. We order accordingly.
12. The next issue for consideration in the assessee's appeal for Assessment Year 2002-03 relates to deleting of interest u/s 234D of the Act. The Assessing Officer while completing the assessment u/s 143(3), charged interest u/s 234D amounting to ` 9,18,915/-. Ld. CIT(A) however, deleted the addition on the ground that the provisions of Section 234D were applicable w.e.f. 01.06.2003.
13. Before us, Ld. A.R. for the assessee submitted that the issue is covered in favour of the assessee by the decision of Hon'ble Delhi High Court in the case of DIT Vs M/s. Jacob Civil Incorporated. The Hon'ble Delhi High Court in the order dated 30.08.2010 has held that the provisions of Section 234D would not be applicable prior to Assessment Year 2004-05. Ld. A.R. for the assessee has also submitted that in the assessee's own case Hon'ble Delhi High Court has deleted the interest charged u/s 234D in respect of Assessment Year 2003-04. On the other hand, Ld .CIT DR supported the order of the Assessing Officer.
14. We have heard both the parties. The provisions of Section 234D were inserted w.e.f. 01.6.2003 authorizing the Assessing Officer to charge interest at specified rates in the cases where any 7 I.T.A.No. 4787/Del/05,262/Del/08 I.T.A.No. 407/Del/06 & 79/Del/08 refund was granted to the assessee u/s 143(1) and no refund was due on regular assessment; or where amount of refund u/s 143(1) exceeded the amount refundable on regular assessment. ITAT (Special Bench) in the case of I.T.O. Co. ward 11 (1) New Delhi Vs. Ekta Promoters Pvt. Ltd. 113 ITD 719 (Del.) (S.B.) has held that provisions of Section 234D will be applicable for Assessment Year 2004-05 irrespective of the fact that provisions of Section 234D of the Act were inserted w.e.f. 01.06.2003. Hon'ble Delhi High Court in the case of DIT Vs Jacob Civil Incorporated (supra) has also held that the provisions of Section 234D will be applicable for Assessment Year 2004-05. In view of the decision of Hon'ble Delhi High Court in the case of Jacobs Civil Incorporated (supra) it is held that Ld. CIT(A) was justified in deleting the addition.
15. In the result, appeal filed by the assessee for the Assessment Year 2002-03 is partly allowed for statistical purposes.
16. The next issue for consideration in the Revenue's appeal for the Assessment Year 2002-03 relates to deleting of addition of ` 17,20,980/- made by the Assessing Officer on account of valuation of closing stock. The assessee valued closing stock at market cost. The Assessing Officer had valued the closing stock on the basis of cost price which resulted an addition of ` 17,20,980/-. On appeal, Ld. CIT(A) deleted the addition relying on the decision of ITAT for Assessment Year 1993-94.
17. We have heard both the parties and gone through the material available on record. During the course of hearing Ld. A.R. for the assessee filed copy of order of ITAT for the Assessment Year 2001-02 in I.T.A. No. 1042/Del/2005 dated 05.12.2008 wherein the addition made on account of valuation of closing stock was deleted.
8I.T.A.No. 4787/Del/05,262/Del/08 I.T.A.No. 407/Del/06 & 79/Del/08
18. We have gone through the order of ITAT carefully. It is noted that ITAT had decided the issue in favour of the assessee. The assessee valued the closing stock on cost price or market price whichever was lower. This method of valuation of closing stock was followed by the assessee in 1995-96 and had been accepted by the Tribunal in earlier order. Since the facts of the case are identical to the facts of earlier years and since the assessee is following the method of valuation consistently on cost price or market price whichever is lower, Ld. CIT(A) was justified in deleting the addition. Accordingly, we do not find any infirmity in the order passed by Ld. CIT(A) deleting the addition.
19. The last issue for consideration in the Revenue's appeal for Assessment Year 2002-03 relates to directing the Assessing Officer to compute deduction u/s 80HHC after considering the sale proceeds of DEPB license. The Revenue's ground of appeal is reproduced as under:
"On the facts and circumstances of the case and in law, the CIT(A) has erred in allowing the claim of the assessee and directing the Assessing Officer to recompute the deduction u/s 80HHC after taking into consideration the sale proceeds of DEPB licenses whereas the CBDT has observed in its circular F.No.153/93/2004 TPL dated 8.9.2004 that proviso to section 80HHC(3) of the Income tax Act, 1961 does not cover profit on sale of DEPB credits and such profit are therefore, not eligible for deduction u/s 80HHC."
20. The facts of the case stated in brief are that the Assessing Officer while computing deduction u/s 80HHC observed that Section 80HHC provides for deduction from total income in respect of profits derived from the export of goods and merchandise which were realized in convertible foreign exchange and not in respect of incidental income arising the through Government scheme. The Assessing Officer therefore, held that the profits on sale of DEPB were not eligible for deduction u/s 80HHC. The Assessing Officer 9 I.T.A.No. 4787/Del/05,262/Del/08 I.T.A.No. 407/Del/06 & 79/Del/08 accordingly disallowed the claim of the assessee u/s 80HHC in respect of DEPB receipts.
21. On appeal, Ld. CIT(A) after considering the submissions made by the assesses and relevant provisions of the Act held that assessee was entitled for deduction in respect of profits on DEPB receipts.
22. We have hard both the parties and gone through the material available on record. We find that this issue is covered by the decision of Hon'ble Bombay High Court in the case of CIT Vs Kalpataru Colour & Chemicals Vs CIT 328 ITR 451. In this case, Hon'ble Bombay High Court has held that the amount received on transfer of DEPB credit including the face value of the DEPB credit would constitute profits of business under Section 28(iiid) of the Act and, therefore, the entire amount of DEPB received has to be excluded under clause (baa) of Explanation to Section 80-HHC of the Act. Hon'ble High Court while arriving at this decision observed that when section 28(iiid) specifically deals with profits realized on transfer of DEPB credit, it would be impermissible as a matter of first principle to bifurcate the face value of the DEPB and the amount received in excess of face value of DEPB. Since the issue is now covered by the decision of Bombay High Court in the case of CIT Vs Kalpataru Colours & Chemicals (supra) we set aside the issue to the file of the Assessing Officer to decide the issue in the light of the decision of Hon'ble Bombay High Court in the case of Kalpataru Colors & Chemicals (supra).
23. In the result, the appeal filed by the Revenue is partly allowed for statistical purposes.
24. Now, we take up the appeals for the Assessment Year 2004-
05. The 1st issue for consideration in assessee's appeal relates to 10 I.T.A.No. 4787/Del/05,262/Del/08 I.T.A.No. 407/Del/06 & 79/Del/08 sustenance of disallowance of deduction u/s 80HHC of ` 3,65,84,950/- on account of sale of DEPB/DFRC. In Assessment Year 2002-03, we have set aside the matter to the file of the Assessing Officer with the direction to decide the issue in the light of the decision of Hon'ble Bombay High Court in the case of Kalpataru Colour & Chemicals 328 ITR 451. Since the issue in Assessment Year 2004-05 is identical to issue in Assessment Year 2002-03, we restore this issue to the file of the Assessing Officer with the similar directions.
25. The next issue for consideration relates to sustenance of disallowance u/s 14A of the Act in respect of interest on packing credit and partly sustenance of disallowance u/s 14A towards administrative expenses. The relevant grounds of appeal are reproduced as under:
"2) The Ld. CIT(A) has erred both on facts and in law in sustaining disallowance u/s 14A towards bank interest on packing credit for exports of ` 1,09,15,964/-.
3) The Ld. CIT(A) has erred both on facts and in law in partly sustaining disallowance u/s 14A of Income tax Act, 1961 towards administrative expenditure."
26. Since we have set aside both these issues to the file of the Assessing Officer to be decided in the light of decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. (supra), we set aside this issue for the Assessment Year 2004-05 also to the file of the Assessing Officer with the similar directions.
27. The last issue for consideration in assessee's appeal relates to confirmation of disallowance in respect of payments made to PF consisting of employees' contribution and recovery of PF loans and interest from employees. During the course of hearing, Ld. A.R. for the assessee submitted that this issue is covered by the decision of ITAT in assessee's own case for the Assessment Year 2003-04 in 11 I.T.A.No. 4787/Del/05,262/Del/08 I.T.A.No. 407/Del/06 & 79/Del/08 I.T.A. No. 4159/Del/2004 dated 19.03.2010. It has been further submitted that the decision of ITAT on this issue has been upheld by the Hon'ble Delhi High Court. In view of these facts, it has been submitted that since the issue is covered by the decision of ITAT, the issue has to be decided in favour of the assessee. On the other hand Ld. CIT (D.R.) supported the order of CIT(A).
28. We have hard both the parties and gone through the material available on record. ITAT in order dated 19.03.2010 has deleted the similar addition made by the Assessing Officer by observing as under:
"7. We have heard both the parties and considered the material available on record. Section 36(1)(iv) provides as under:
"(iv) any sum paid by the assessee as an employer by way of contribution towards a recognized provident fund or an approved superannuation fund, subject to such limits as may be prescribed for the purpose of recognizing the provident fund of approving the superannuation fund, as the case may be; and subject to such conditions as the Board may think fit to specify in cases where the contributions are not in the nature of annual contributions of fixed on some definite basis by reference to the income chargeable under the head "Salaries" or to the contributions or to the number of members of the fund".
Reading the aforesaid section it is clear that to claim deduction by way of contribution to a recognized provident fund, it has to be demonstrated that the contribution is towards a recognized provident fund. The phrase "Recognized Provident Fund" is defined in Section 2(38) of the Act. As per the definition it means a provident fund, which has been and continues to be recognized by the Chief Commissioner or Commissioner in accordance with rules contained in Part A of the Fourth Schedule, and includes a provident fund established under a scheme framed under the 12 I.T.A.No. 4787/Del/05,262/Del/08 I.T.A.No. 407/Del/06 & 79/Del/08 Employees' Provident Funds Act, 1952. Since as per the letter issued by CIT, Delhi-III dated 28.5.1976, the provident fund is considered as fund to which Provident Fund Act, 1925/1952 applies, it amounts to a "Recognized Provident Fund" within the meaning of Section 2(38) of the Act and hence in terms of section 36(1)(iv) the contribution to "recognized provident fund" is allowable as such. Since there is no dispute that the amount was paid within the due dates prescribed, the disallowance is to be deleted. We, therefore, delete the disallowance of ` 15,22,234/."
29. Since the issue is squarely covered by the decision of ITAT and Ld. CIT (D.R.) could not point out any difference in the facts, respectfully following the decision of ITAT which has been upheld by the Hon'ble Delhi High Court we decide the issue in favour of the assessee. The Assessing Officer is directed to delete the addition.
30. In the result, appeal filed by the assessee is partly allowed for statistical purposes.
31. Now, we take up the Revenue's Appeal for the Assessment Year 2004-05.
32. The 1st issue for consideration in Revenue's appeal for the Assessment Year 2004-05 relates to deletion of disallowance of depreciation on building amounting to ` 36,36,911/-. The Assessing Officer noted that conveyance deed in respect of office building and car parking at Ansal Plaza was not executed in favour of the assessee company. Since the conveyance deed was not executed, the Assessing Officer disallowed depreciation on the ground that building was not owned by the assessee.
13I.T.A.No. 4787/Del/05,262/Del/08 I.T.A.No. 407/Del/06 & 79/Del/08
33. On appeal, it was submitted that assessee had purchased the premises during the financial year 1999-2000 and paid the entire consideration. The building was occupied by the assessee company. The assessee was paying house tax in its name. These facts clearly indicated the ownership of the assessee on the property and, therefore, the assessee was entitled for depreciation. Ld. CIT(A) relying on the decision of Hon'ble Supreme Court in the case of Mysore Minerals reported in 239 ITR 775 held that for the purposes of Section 32(1), the ownership vested in the assessee. Therefore, the claim of the assessee for depreciation could not be denied merely on the ground that no conveyance was made in favour of the assessee.
34. Before us, Ld. CIT (D.R.) relied on the decision of Hon'ble Supreme Court in the case of Tamil Nadu Civil Supply Corporation Ltd. Vs CIT 249 ITR 214. It has been submitted by her that since the conveyance deed was not made in favour of the assessee, the assessee was not entitled for depreciation.
35. We have heard both the parties. There is no dispute about the fact that assessee had purchased the property in the financial year 1999-2000 and was occupied by the assessee. The assessee had been paying house tax in its own name. The Assessing Officer had disallowed the claim of the assessee on the ground that the conveyance deed was not registered in the name of the assessee. Hon'ble Supreme Court however in the case of Mysore Minerals Vs CIT 239 ITR 775 has held that Section 32 of the Income tax Act, 1961 allows deduction by way of depreciation on building etc. owned by the assessee and used for the purpose of business or profession. The terms "owner", "ownership", "owned" are generic and relative terms. They have a wide and also a narrow connotation. The meaning would depend on the context in which the terms are used. The decision in the case of CIT Vs Podar 14 I.T.A.No. 4787/Del/05,262/Del/08 I.T.A.No. 407/Del/06 & 79/Del/08 Cement Pvt. Ltd. 226 ITR 625 (S.C.) has to be taken as a trend- setter in the concept of ownership. Assistance from the law laid down therein can be taken for finding out the meaning of the term "owned" as occurring in section 32(1) of the Income tax Act. The term "owned" is occurring in Section 32(1) of Income tax Act, must be assigned a wider meaning. Anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded there from and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the building though a formal deed of title may not have been executed and registered as contemplated by the Transfer of Property Act, the Registration Act, etc. In view of the decision of Hon'ble Supreme Court for the purpose of section 32(1), the assessee is owner of the property and is entitled for depreciation. Merely because the property has not been registered in the name of the assessee, disallowance of deprecation cannot be made. The decision in the case of Tamil Nadu Civil Supplies Corporation Ltd. (supra) is not applicable to the facts of the case before us as in that case the assessee had not acquired dominion on the property. But in the present case, the assessee is in possession of property; has been paying taxes in his own name; and has used the property for the purposes of business. Hence the facts are distinguishable. Therefore, Ld. CIT(A) was justified in deleting the disallowance made on account of depreciation on building.
36. The next issue for consideration in Revenue's appeal relates to deletion of addition of ` 51,48,629/- on account of valuation of closing stock. The facts of the case for the Assessment Year 2004- 05 are identical to the facts of the case for the year 2002-03. In Assessment Year 2002-03, we have deleted the similar addition made on account of valuation of closing stock. Respectfully following the precedent, it is held that Ld. CIT(A) was justified in deleting the addition made on account of valuation of closing stock.
15I.T.A.No. 4787/Del/05,262/Del/08 I.T.A.No. 407/Del/06 & 79/Del/08
37. To sum up, both the appeals of the assessee and Revenue's appeal for the Assessment Year 2002-03 are partly allowed for statistical purposes. Revenue's appeal for Assessment Year 2004- 05 is dismissed.
38. Pronounced in the open court on 29th Apr., 2011 Sd./- Sd./-
(C. L. SETHI) (K. D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated:29th Apr., 2011 Sp. Copy forwarded to 1. Appellant 2. Respondent 3. CIT True copy: By order 4. CIT(A) 5. DR Dy. Registrar, ITAT, New Delhi