Income Tax Appellate Tribunal - Ahmedabad
The Dcit, Circle 1, Ahmedabad vs M/S. Adani Infrastructure & Developers ... on 6 September, 2018
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ 'A' अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH, AHMEDABAD BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER & SMT. MADHUMITA ROY, JUDICIAL MEMBER आयकर अपील सं./I.T.A. Nos. 1623/Ahd/2013 & 2895/Ahd/2014 ( नधा रण वष / Assessment Years : 2009-10 & 2010-11) DCIT, बनाम/ M/s. Adani Circle-1/Circle-1(1)(1), Vs. Infrastructure & Ahmedabad-380015 Developers Pvt. Ltd., Adani House, Nr.
Mithakhali Six Roads,
Navrangpura, Ahmedabad
- 380009
(अपीलाथ /Appellant) .. ( यथ / Respondent)
&
CO No. 190/Ahd/2013
(in ITA No. 1623/Ahd/2013)
( नधा रण वष / Assessment Year: 2009-10)
M/s. Adani Infrastructure बनाम/ DCIT,
& Developers Pvt. Ltd., Vs. Circle-1, Ahmedabad-
Adani House, Nr. 380015
Mithakhali Six Roads,
Navrangpura, Ahmedabad -
380009
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAFCA9521J (अपीलाथ /Appellant) .. ( यथ / Respondent) अपीलाथ ओर से /Appellant by : Shri Saurabh Singh, Sr. D.R. यथ क ओर से / Shri Vartik Choksi, A.R. Respondent by :
सन ु वाई क तार ख / Date of 19/06/2018 Hearing घोषणा क तार ख /Date of 06/09/2018 Pronouncement I T A N o . 1 6 2 3 / Ah d / 1 2 & 2 O r s . [ Ad a n i I n f r a s t r u c t u r e & D e v e l o p e r s P v t . L t d . ] A. Y . 2 0 0 9 - 1 0 & 2 0 1 0 - 1 1 - 2 -
आदे श/O R D E R PER PRADIP KUMAR KEDIA - AM:
The appeal and cross objection for AY 2009-10 has been filed b y the Revenue and assessee against the order of the CIT(A)-VI, Ahmedabad ('CIT(A)' in short), dated 26.03.2013 arising in the assessment order dated 30.12.2011 passed by the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act). The Revenue has also filed appeal for AY 2010-11 against the order of the CIT(A)-VI, Ahmedabad dated 13.08.2014 arising in the assessment order dated 30.03.2013 passed by the AO under s.143(3) of the Act.
As some of issues are stated to be common, all the appeals as captioned have been heard together for adjudication thereof.
2. We shall first take up the appeal of the Revenue and Cross Objection of the assessee thereon concerning AY 2009-10 for adjudication purposes.
ITA No. 1623/Ahd/2013-AY 2009-10-Revenue's appeal3. The grounds of appeal raised by the Revenue in the captioned appeal concerning AY 2009-10 reads as under:-
"1. The CIT(A) has erred in law and on facts in deleting the disallowance made on account that the assessee followed exclusive method for accounting CENVAT as against inclusive method mandated u/s 145A of the Act.
2. The CIT(A) has erred in law and on facts in deleting the interest disallowed u/s14A as per method prescribed under Rule 8D(2)."
4. Ground No.1 relates to addition under s.145A of the Act on account of adjustment of closing stock of the assessee by duty and taxes etc. in the form of CENVAT.
5. When the matter was called for hearing, the learned AR for the assessee submitted that the assessee consistently follows exclusive I T A N o . 1 6 2 3 / Ah d / 1 2 & 2 O r s . [ Ad a n i I n f r a s t r u c t u r e & D e v e l o p e r s P v t . L t d . ] A. Y . 2 0 0 9 - 1 0 & 2 0 1 0 - 1 1 - 3 -
method of accounting. In this process, the duties and taxes in purchase as well as in sales and closing stocks are excluded and kept in the separate account. Thus, owing to exclusive method of accounting, the action of the assessee is revenue neutral and does not warrant adjustment towards unutilized CENVAT credit of Rs.49,16,866/- to the closing stock. For this proposition, the learned AR relied upon the decision of the Hon'ble Supreme Court in the case of Indo Nippon Chemicals Co. Ltd. [2003] 261 ITR 275 (SC), CIT vs. Bell Granito Ceremica Ltd. (Guj.) Tax Appeal No.436-437 of 2011 judgment dated 13.06.2011. The learned AR thereafter submitted that the issue is no longer res integra and covered by plethora of decisions of the co-ordinate bench on the issue.
6. Learned DR however relied upon the order of the AO.
7. We have carefully considered the rival submissions on the issue towards applicability of Section 145A of the Act as well as perused the orders of the lower authorities. While it is the case of the AO that the element of excise duty / CENVAT etc. would represent part of the closing stock of the assessee in terms of Section 145A of the Act, it is the case of the assessee, on the other hand, that Section 145A of the Act has no application to the facts of the case. It is further case of the assessee that it follows exclusive method of accounting for valuation of inventory and therefore, entire exercise would be tax neutral. We notice that Section 145A falls under the Chapter XIV - procedure for assessment. It essentially deals with method of accounting and is in the nature of machinery provision. Section 145A inter alia provides that inventory of goods shall be valued in accordance with method of accounting regularly employed by the assessee. We observe that the CIT(A) has examined the issue on facts and binding judicial precedents and concluded the issue in favour of the assessee. In the absence of any impact on the profitability of the assessee per se due to I T A N o . 1 6 2 3 / Ah d / 1 2 & 2 O r s . [ Ad a n i I n f r a s t r u c t u r e & D e v e l o p e r s P v t . L t d . ] A. Y . 2 0 0 9 - 1 0 & 2 0 1 0 - 1 1 - 4 -
exclusive method of accounting followed, we do not see any error in the conclusion drawn by the CIT(A). In parity with the judicial precedents in Narmada Chematur Petrochemicals Ltd. (2010) 327 ITR 369 (Guj.) and General Motors India (P.) Ltd. v. Deput y Commissioner of Income-tax [2013] 37 taxmann.com 403 (Ahmedabad), we decline to interfere with the conclusion drawn by the CIT(A) on the issue.
8. In the result, Ground No.1 of the Revenue's appeal is dismissed.
9. Ground No.2 concerns disallowance of interest under s.14A of the Act.
10. In the course of scrutiny proceedings, the AO inter alia noticed that the assessee has earned dividend income to the tune of Rs.30,42,833/- which is exempt from tax. The AO accordingl y invoked the provisions of Section 14A of the Act and computed disallowance of expenditure attributable to such exempt income b y resorting to formula provided in the Rule 8D of the Income Tax Rules, 1962. The disallowance under Rule 8D also included disallowance of interest amounting to Rs.28,38,647/- in terms of Rule 8D(2)(ii) of the IT Rules which is subject matter of controversy.
11. In first appeal, the CIT(A) granted relief to the assessee against the aforesaid action of proportionate disallowance of interest of the AO and deleted such disallowance.
12. Aggrieved, the Revenue preferred appeal before the Tribunal.
13. We have carefully considered the rival submissions on the issue. We notice the plea on behalf of the assessee on gross outgo of interest is Rs.126.49 Crores whereas the assessee has also earned interest income simultaneously of a bigger sum of Rs.130.02 Crores. Thus, I T A N o . 1 6 2 3 / Ah d / 1 2 & 2 O r s . [ Ad a n i I n f r a s t r u c t u r e & D e v e l o p e r s P v t . L t d . ] A. Y . 2 0 0 9 - 1 0 & 2 0 1 0 - 1 1 - 5 -
essentially, there is excess of interest earned over interest expenditure. It is the contention on behalf of the assessee that in view of these facts it cannot be said that the assessee has claimed an y expenditure on interest per se. It is thus the case of the assessee that netting of interest income and outgo is required to be done while invoking Rule 8D (2)(ii) of the IT Rules in the light of the decision of the Hon'ble Gujarat High Court in the case of Pr.CIT vs. Nirma Credit & Capital (P.) Ltd.[2017 85 taxmann.com 72 (Gujarat). In view of the decision of the Hon'ble Gujarat High Court holding that interest earned by the assessee is required to be factored for the purpose of ascertaining the amount of expenditure incurred by the assessee by way of interest, we find merit in the plea of the assessee that Rule 8D(2)(ii) shall have no application in the given facts where the interest income earned outweigh the interest expenditure. In consonance with the decision of the Hon'ble Gujarat High Court, we decline to interfere with the conclusion drawn by the CIT(A) on the issue in favour of the assessee.
14. In the result, Ground No.2 of the Revenue's appeal is dismissed.
15. In the result, appeal of Revenue in ITA No.1623/Ahd/2013 for AY 2009-10 is dismissed.
Assessee's Cross Objection No. 190/Ahd/2013-AY 2009-10
16. The grounds of appeal raised by the assessee in the captioned cross objection concerning AY 2009-10 reads as under:-
"1. On the facts and in the circumstances of the case, the learned CIT(A) erred in sustaining the disallowance to the extent of Rs.165,150 u/s. 14A of the I.T. Act.
2. On the facts and in the circumstances of the case, the learned CIT(A) erred in sustaining the disallowance of Rs.1,23,000 made by the Assessing Officer u/s.40(a)(ia) of the I.T. Act under the assumption that the aforesaid amount represented expenditure on payment of rent."
I T A N o . 1 6 2 3 / Ah d / 1 2 & 2 O r s . [ Ad a n i I n f r a s t r u c t u r e & D e v e l o p e r s P v t . L t d . ] A. Y . 2 0 0 9 - 1 0 & 2 0 1 0 - 1 1 - 6 -
17. Learned AR for the assessee fairly submitted in the course of the proceedings that he does not seek to press the aforesaid Cross Objection filed by the assessee.
18. In the result, assessee's cross objection in CO No.190/Ahd/2013 concerning AY 2009-10 is dismissed as not pressed.
ITA No. 2895/Ahd/2014-AY 2010-11-Revenue's appeal19. The grounds of appeal raised by the Revenue in the captioned appeal concerning AY 2010-11 reads as under:-
"(1) The CIT(A) has erred in law and on facts in deleting the disallowance of Rs.31,46,467/- made on account of un-utilized CENVAT credit by holding that the same as revenue neutral when the Act specifically requires the assessee to include the taxes etc. u/s.145A.
(2) On the facts and circumstances of the case and in law, the CIT(A) ought to have upheld the addition made since the assessee had contravened the provisions of section 145A by following exclusive method of accounting instead of inclusive method mandated u/s.145A.
(3) The CIT(A) has erred in law and on facts in deleting the interest of Rs.2,37,61,930/- disallowed u/s 14A as per method prescribed under Rule 8D(2).
(4) That the CIT(A) has erred in law and on facts in deleting the addition of Rs.2,37,61,830/- to the Book Profit u/s 115JB despite the fact that disallowance u/s 14A is to be added to the Book Profit as per Clause (f) to Explanation 1 to section 115JB(1) of the Act."
20. Ground No.1 & 2 concern adjustment of taxes for the purpose of valuation of inventory under s.145A of the Act. The facts in issue are identical to the facts concerning AY 2009-10. The assessee follows exclusive method of accounting and thus, the action of the assessee in not making adjustments towards taxes etc. at the time of valuation of inventory is revenue neutral. In parity with the view taken in AY 2009-10 as per para nos. 7 & 8 of this order, we find no infirmity in the conclusion drawn by the CIT(A) in favour of the assessee. We thus decline to interfere.
I T A N o . 1 6 2 3 / Ah d / 1 2 & 2 O r s . [ Ad a n i I n f r a s t r u c t u r e & D e v e l o p e r s P v t . L t d . ] A. Y . 2 0 0 9 - 1 0 & 2 0 1 0 - 1 1 - 7 -
21. In the result, Ground Nos. 1 & 2 of the Revenue's appeal are dismissed.
22. Ground No.3 concerns disallowance of interest under s.14A as computed under Rule 8D(2)(ii) of the IT Rules. The assessee has earned dividend income of Rs.4,86,440/- which is tax free. As per the statement of facts as well as submissions before the CIT(A) (in para no. 3.4 page no.24 of the order of the CIT(A)), the assessee has asserted that as against the interest expenditure of Rs.67.97 Crores considered for making disallowance, the assessee has earned taxable interest income of Rs.68.71 Crore. It is thus the case of the assessee that the assessee has not incurred any interest expenditure effectivel y which calls for disallowance under Rule 8D(2)(ii) of the IT Rules. The assessee has also contended before the CIT(A) that the interest free funds available at the disposal of the assessee far exceeds the corresponding investments giving rise to the tax free income. The CIT(A) has followed the conclusion rendered in AY 2009-10. Consistent with our view taken in AY 2009-10 on similar facts, we find no infirmity in the conclusion drawn by the CIT(A) granting relief to the assessee on this count. We thus decline to interfere.
23. In the result, Ground No.3 of the Revenue's appeal is thus dismissed.
24. Ground No.4 concerns adjustments in the book profit computed under s.115JB of the Act following the disallowance under s.14A of the Act.
25. The AO has increased book profit computed under s.115JB of the Act to the extent of Rs.2,37,61,930/- being disallowance made I T A N o . 1 6 2 3 / Ah d / 1 2 & 2 O r s . [ Ad a n i I n f r a s t r u c t u r e & D e v e l o p e r s P v t . L t d . ] A. Y . 2 0 0 9 - 1 0 & 2 0 1 0 - 1 1 - 8 -
under s.14A of the Act computed for the purposes of normal provisions of the Act.
26. The CIT(A) in first appeal however did not agree with the adjustments so made by the AO. We find that identical issue came up for consideration before the co-ordinate bench in case of Arvind Ltd. vs. DCIT ITA No.1816/Ahd/2011 order dated 08.03.2018 cited on behalf of the assessee. The relevant operative part of the aforesaid decision of the co-ordinate bench is reproduced hereunder:
"5. We have careful ly considered the rival submissions and per used the orders of the authorities below and also several judicial precedents cited. In the present case, we are concerned with the limited controversy as to whether, for the purposes of computation of 'book profit' under s.115JB, the AO is entitled to increase 'book profit' by the equivalent amount of disallowances as found attributable to exempt income under normal provisions or not. While it is the case of the assessee that in view of long line of judicial precedents, such adjustment in 'book profit' is not permissible, it is the case of revenue that i n view of codified law in this regard, the 'book profit' under 115JB has been rightly increased by the revenue.
6. We notice that issue is evolved and developed by certain judicial precedents. We find at the first instance t hat the identical issue came up for consideration bef ore the Hon'ble Gujarat High Court in the case of Alembic Ltd. (supra) where the substantial question of law on the point as to whether adjustment made on account of disallowance under s.14A of the can be si milarly made for the purposes of computation of 'book profit' under s.115JB of the Act was answered against the Revenue and i n favour of the assessee. We also take note of decision of the Special Bench rendered in ACIT vs. Vireet Investment Pvt.Ltd. & Anr . 165 ITD 27 (Delhi )[ SB] where it was held that the AO was not entitled to tinker with book profits contemplated under s.115JB towards disallowance made under s.14A of the Act. We similarly find that judgement of Hon'ble Bombay High Court in CIT vs. Bengal Finance and Investments Pvt.Ltd. in ITA No.337 of 2013 order dated 10/02/2015 also complements the issue. Thus, seen on the anvil of the judicial fiat available squarely on the issue, we are disposed to assign merits to the contentions on behalf of the assessee. At this juncture, we pause to note the concern of revenue seeking to plead pos sible redundancy of clause(f ) to Explanation to s.115JB in the event of disagreement with the action of AO. We are alive to such concerns. However, as noted, we are governed by the superior wisdom available in this regard. Hence, remedy to revenue, if any, perhaps lies elsewhere. Accordingly, respectfully following the decisions governing t he field, we direct the AO to delete the adj ustments made on account of es timated disallowance determined under s .14A of the Act while computing ' book profit' under u/s.115JB of the Act. I T A N o . 1 6 2 3 / Ah d / 1 2 & 2 O r s . [ Ad a n i I n f r a s t r u c t u r e & D e v e l o p e r s P v t . L t d . ] A. Y . 2 0 0 9 - 1 0 & 2 0 1 0 - 1 1 - 9 -
7. In the result, appeal of the assessee is allowed. By the same token, the appeal of the Revenue integrated to same point requires to be decided in negative and agains t the Revenue."
27. In the light of the aforesaid decision of the co-ordinate bench relied upon by the assessee, we do not see any error in the conclusion drawn by the CIT(A).
28. In the result, Ground No.4 of the Revenue's appeal is dismissed.
29. In the result, appeal of the Revenue concerning AY 2010-11 is dismissed.
30. In the combined result, respective appeals of the Revenue and cross objection of the assessee are dismissed.
This Order pronounced in Open Court on 06/09/2018
Sd/- Sd/-
(MADHUMITA ROY) (PRADIP KUMAR KEDIA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad: Dated 06/09/2018
True Copy
S. K. SINHA
आदे श क त!ल"प अ#े"षत / Copy of Order Forwarded to:-
1. राज व / Revenue
2. आवेदक / Assessee
3. संबं*धत आयकर आयु,त / Concerned CIT
4. आयकर आयु,त- अपील / CIT (A)
5. 0वभागीय 3त3न*ध, आयकर अपील य अ*धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड9 फाइल / Guard file.
By order/आदे श से, उप/सहायक पंजीकार आयकर अपील य अ*धकरण, अहमदाबाद ।