Income Tax Appellate Tribunal - Jaipur
Genus Innovation Ltd., Jaipur vs Department Of Income Tax on 22 June, 2016
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI T.R.MEENA, AM & SHRI LALIET KUMAR, JM
vk;dj vihy la-@ITA No. 231/JP/2015
fu/kZkj.k o"kZ@Assessment Year : 2011-12.
Deputy Commissioner of cuke M/s Genus Innovation Ltd.,
Income Tax, Vs. Ganpati Enclave, B-9, Ajmer
Circle-2, Jaipur. Road, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AACCG 4460 D
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 165/JP/2015
fu/kZkj.k o"kZ@Assessment Year : 2011-12
M/s Genus Innovation Ltd., cuke Additional Commissioner of
Ganpati Enclave, B-9, Vs. Income Tax,
Ajmer Road, Jaipur. Range-2, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AACCG 4460 D
vihykFkhZ@Appellant izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by : Shri S.K. Jain
fu/kZkfjrh dh vksj ls@ Assessee by : Shri Manish Agarwal (CA)
lquokbZ dh rkjh[k@ Date of Hearing : 03/05/2016.
mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 22/06/2016.
vkns'k@ ORDER
PER T.R. MEENA, A.M.
These are cross appeals one by the revenue and the another by the assessee arise against the order dated 19/12/2014 passed by the ld 2 ITA No. 231 & 165/JP/2015 DCIT Vs M/s Genus Innovation Ltd., CIT(A)-I, Jaipur for A.Y. 2011-12. The effective grounds of both the appeals are as under:-
Grounds of revenue's appeal:-
"1. (i) "Whether on the facts and in the circumstances of the case and in law the Id. CIT (A) has erred in deleting addition of Rs. 31,952/- made for depositing the employees contribution to PF and ESI beyond the prescribed time limit provided in the respective Acts." "
(ii) "Whether on the facts and in the circumstances of the case and in law the Id. CIT(A) has erred in holding that employees contribution under PF and ESI are governed by the provisions of section 43B and not by section 36(1)(va) read with section 2(24) (x) of the Act."
2. Whether on the facts and in the circumstances of the case and in law the Id. CIT (A) has erred in deleting the disallowance of Rs. 2,64,320/- made by the AO under the provisions of section 14A r.w. rule 8D of the I T. Rules, 1962."
3. (i) Whether on the facts and in the circumstances of the case and in law the Id. CIT (A) has erred in deleting addition of Rs. 37,05,685/- made on account of foreign exchange gain.
(ii) Whether on the facts and in the circumstances of the case and in law the Id. CIT(A) has erred in not following the decisions of Hon'ble Supreme Court in the case of CIT Vs. Woodward Governor India Ltd., (312 ITR 254) where it was held that the loss/gain on 3 ITA No. 231 & 165/JP/2015 DCIT Vs M/s Genus Innovation Ltd., account of foreign exchange fluctuation on restatement of the liability on the balance sheet date is required to be taken into account in computation of income.
Ground of assessee's appeal:-
1. On the facts and circumstances Ld. CIT(A) has grossly erred in sustaining the addition made by ld. AO of Rs.
90,51,858/- u/s 43B arbitrarily, thus addition sustained deserves to be deleted in toto.
1.1 That the Ld. CIT(A) has further erred in ignoring the fact that deduction u/s 43B is allowed (irrespective of previous in which the liability to pay such sum was incurred by the assessee) in year in which payment is made, in case of the assessee payment of VAT was made during the year, thus the disallowance of Rs.90,51,858/- made by the Ld. CIT(A) deserves to be deleted.
1.2 That the Ld. CIT(A) has further erred in ignoring the binding judgment of Hon'ble Supreme Court delivered in the case of Allied Motors P Ltd. v. CIT reported in 139 CTR Page 364 and Hon'ble Calcutta High Court delivered in the case of Paharpur Cooling Towers Ltd. v. CIT reported in 244 CTR 502, thus the consequent addition deserves to be deleted."
2. The assessee is engaged in manufacturing and job work of electronic energy meters, inverters, meter boxes, HUPS, modem, solar panel and parts of meters. Return for A.Y. 2011-12 was filed on 28/09/2011 at Rs. 94,17,980/-. The case was scrutinized U/s 143(3) of the Income Tax Act (in short the Act) on 30/03/2014. 4
ITA No. 231 & 165/JP/2015 DCIT Vs M/s Genus Innovation Ltd., Now first we take revenue's appeal:
3. Ground No. 1 of the revenue's appeal is against allowing the appeal by the ld CIT(A) by deleting addition of Rs. 31,952/- made for depositing the employees contribution to PF and ESI beyond the prescribed time limit. The ld Assessing Officer observed that as per audit report, the assessee has received employees contribution on account of ESI & PF, which has not been deposited before due date amounting to Rs. 31,952/-. After giving show cause notice, the ld Assessing Officer observed that the liability of this expenditure is governed by provisions of Section 36(1)(va) read with Section 2(24)(x) of the Act. This amount received from the employee is income U/s 2(24)(x) of the Act whereas the deduction on payment basis is allowed on the basis of paid before due date. The due date under PF and ESI Act were 15th and 21st of next month respectively. The assessee failed to deposit this amount before due date after relying the decision of Hon'ble ITAT, Kolkata in the case of Ashika Stock Broking Ltd. 139 TTJ 192 and Hon'ble Gujarat High Court decision in the case of CIT Vs Gujarat State Road Transport Corporation dated 26/12/2013. Therefore, he made addition of Rs. 31,952/-. 3.1 The ld CIT(A) allowed the appeal on this ground by observing that by following the decision of Hon'ble Supreme Court in the case of CIT Vs 5 ITA No. 231 & 165/JP/2015 DCIT Vs M/s Genus Innovation Ltd., Vinay Cements 213 CTR 268 and Hon'ble Jurisdictional High Court decision in the case of CIT Vs. SBBJ 363 ITR 70 (Raj). Deduction only on actual payment with regard to provident fund and ESI contributions made before filing return is allowable U/s 36(1)(va) r.w.s. 43B of the Act. Accordingly, he deleted the addition.
3.1 Now the revenue is in appeal before us. The ld DR has vehemently supported the order of the Assessing Officer and relied on the case laws referred by the ld Assessing Officer in his assessment order. At the outset, the ld AR of the assessee has reiterated the arguments made before the ld CIT(A) and argued that as the amount has paid before due date of filing of return and case laws referred by the ld CIT(A) is squarely applicable. Accordingly, he prayed to uphold the order of the ld CIT(A). 3.2 We have heard the rival contentions of both the parties and perused the material available on the record. It is undisputed fact that the assessee had paid both the amounts before due date of return. The Hon'ble Jurisdictional High Court decision in the case of CIT Vs SBBJ (supra) is squarely applicable, therefore, we uphold the order of the ld. CIT(A). This ground of revenue's appeal is dismissed.
4. Ground No. 2 of the revenue's appeal is against deleting the disallowance of Rs. 2,64,320/- U/s 14A of the Act read with Rule 8D of 6 ITA No. 231 & 165/JP/2015 DCIT Vs M/s Genus Innovation Ltd., the Income Tax Rules, 1962 (in short the Rules). The ld Assessing Officer observed that the assessee had dividend income of Rs. 4,90,595/- on investment of Rs. 92,76,649/-. He gave reasonable opportunity of being heard for disallowance U/s 14A of the Act. The assessee replied vide letter dated 14/3/2014, which has been reproduced by the Assessing Officer on page 4 of the assessment order. After considering the assessee's reply, the ld Assessing Officer held that the assessee had not maintained separate books of account or bank account for investment in shares and movement of fund for day to day business of the assessee. The assessee has paid interest during the year under consideration at Rs. 28,26,009/-. After considering Section 14A and various decisions on this issue, he applied Rule 8D of the Rules and Clause (ii) and (iii) of Section 14A of the Act and disallowance under this Section had been calculated at Rs. 2,64,320/- and made the addition.
4.1 The ld CIT(A) allowed the appeal on this ground by observing that Section 14A could only be triggered if the appellant had earned tax free income against any expenses incurred. The assessee has got enough interest free fund for making investment and also earned exempt income of Rs. 4,90,495/-. Therefore, he deleted the addition made by the Assessing Officer.
7
ITA No. 231 & 165/JP/2015 DCIT Vs M/s Genus Innovation Ltd., 4.2 Now the revenue is in appeal before us. The ld DR has vehemently supported the order of the Assessing Officer. At the outset, the ld AR of the assessee has reiterated the arguments made before the ld CIT(A). It is further submitted that the assessee had invested in equity share at Rs. 33.59 lacs of its group company M/s Genus Power Infrastructure Ltd. and Rs. 2.09 lacs in the share of bank of Baroda prior to F.Y. 2005-06 and for making such investments, for this assessee company has utilized its own interest free funds available in the shape of share capital of Rs. 3.14 crores. Thus there was no question of interest bearing funds were involved in such investment. He has drawn our attention on investment made from A.Y. 2000-01 to 2003-04. It is evident that majority of investments were made from the source of assessee not from the borrowed fund,s no expenditure was incurred by it in relation to the said dividend income and the interest claimed by it pertained to earning of the taxable income. Therefore no disallowance was possible U/s 14A read with Rules 80D of the Rules. The ld Assessing Officer also failed to record the satisfaction before invoking the provisions of Section 14A that the interest bearing funds were utilized for making investments. He has further relied on the decision of Hon'ble Punjab & Haryana High Court in the case of CIT Vs./ Hero Cycles Ltd. 323 ITR 518 and various other 8 ITA No. 231 & 165/JP/2015 DCIT Vs M/s Genus Innovation Ltd., cases of the Hon'ble High Courts as well as the Tribunal and prayed to confirm the order of the ld CIT(A).
4.3 We have heard the rival contentions of both the parties and perused the material available on the record. It is undisputed fact that the investments in shares were made up to F.Y. 2005-06. During the year, no investment has been made by the assessee. The assessee had share capital of Rs. 3.14 crores and reserve and surplus of Rs. 4.57 crores. It is further found that investments made in subsidiary company not in the share of any other unrelated party. Therefore, the primary object of the investment was holding and controlling stake in the group concern and not earning any income out of investment. The ld Assessing Officer had not established any nexus between borrowed fund with investments made in shares on which dividend earned. The case laws relied by the ld. AR are squarely applicable, therefore, we uphold the order of the ld CIT(A). Ground No. 2 of the revenue's appeal is dismissed.
5. Ground No. 3 of the revenue's appeal is against deleting the addition of Rs. 37,05,685/- made on account of foreign exchange gain. The ld Assessing Officer observed that on examination of the point No. 5 9 ITA No. 231 & 165/JP/2015 DCIT Vs M/s Genus Innovation Ltd., of schedule 'Q', notes of assessee to the final account, it is noticed that the Auditor has put following note:
"5. The company has not recognized the Exchange Fluctuation gain (Net) amounting to Rs. 3705685/- lacs on unrealized export receivable and unpaid import payable, which is contrary to the accounting policy of the company on foreign currency transaction and Accounting Standard-11 (The Effects or changes in foreign exchange rates). This has been done in view of high volatily in foreign exchange rates and contingency related to the rates of foreign currency on realization of assets."
Similar note has also been given at point No. 4(f) of auditor's report as under:-
"(f) The company has not recognized the Exchange Fluctuation Gain (Net) amounting to Rs. 37.06 lacs on unrealized old export receivable/import payable. (Refer Note No. 5 of Notes of Account). Due to above, the profits of the company and net current asset of the company are understated to that extent."
The ld Assessing Officer gave reasonable opportunity of being heard on foreign exchange gain which has not been disclosed on the income of Rs. 37,05,685/-. The assessee replied vide letter dated 14/3/2013 which has been reproduced by the Assessing Officer on page No. 12 and 13 of the assessment order. After considering the assessee's reply, it has been 10 ITA No. 231 & 165/JP/2015 DCIT Vs M/s Genus Innovation Ltd., held by the Assessing Officer that the assessee had followed mercantile system of accounting, therefore, the foreign exchange gain or loss has to be accounted at the end of the relevant financial year. If the assessee would not receive these payments, he can claim this amount as bad debt but till 31/3/2011, this debt has not been written off. Accordingly, he made addition of Rs.37,05,685/-.
5.1 The ld CIT(A) had deleted the addition made by the Assessing Officer by observing that the notional income on account of foreign exchange gain cannot be treated as income because it is a hypothetical income, which was never received by the assessee. 5.2 Now the revenue is in appeal before us. The ld DR has vehemently supported the order of the ld Assessing Officer. At the outset, the ld AR of the assessee has reiterated the arguments made before the ld CIT(A). It is submitted that in F.Y. 2007-08 and 2008-09, the assessee company had exported goods to Brazil out of certain bills remained unpaid till 31/3/2011 due to the fact that the goods were not accepted by the customer being was of sub-standard quality. Further since the recovery of original amount is doubtful, exchange difference on the closing value of debtors was also not recognized. The assessee requested to the banker for granting permission for writing off the said amounts in the 11 ITA No. 231 & 165/JP/2015 DCIT Vs M/s Genus Innovation Ltd., books of accounts and the necessary permission in respect of few bills was received and submitted before the ld Assessing Officer during the course of assessment proceedings. The ld AR has drawn our attention on page No. 15-17 of the paper book. Finally this amount had been written off in A.Y. 2014-15 in the books of account. The ld Assessing Officer made addition on the basis of remarks made by the Auditor in audit report but this amount was receivable and also not received, therefore, the ld Assessing Officer has to assessee the assessee's income on real income not on the basis of notional income. The Auditor of the assessee company had made this remark as per A.S.-11 issued by the Institute of Chartered Accountant of India. He further relied on the following case laws:-
(i) Shorj Vallabh Das & Co. 46 ITR 144 (SC)
(ii) Godhra Electricity Co. Ltd. Vs CIT 225 ITR 746 (SC).
(iii) CIT Vs VTC Leasing & Finance Ltd. 39 TW 211.
(iv) Brahmaputra Capital & Financial Services Ltd. Vs. ITO 119 ITD 266 (Delhi).
5.3 We have heard the rival contentions of both the parties and perused the material available on the record. It is undisputed fact that the debtors was in dispute since F.Y. 2007-08 and 2008-09, there was a remark by the Auditor on account of foreign exchange gain in the audit report and clarified that amounting to Rs. 37,05,685/- had not been 12 ITA No. 231 & 165/JP/2015 DCIT Vs M/s Genus Innovation Ltd., credited in the account of the assessee. The assessee has explained the reasons that it has not received this income. There is a dispute with the Brazilian party on account of quality of goods. The original bill amount was in dispute, therefore he has not shown this increase in foreign exchange gain. It was notional as per Hon'ble Delhi High Court decision in the case of Brahmaputra Capital & Financial Services Ltd. Vs. ITO (supra). The interest income on sticky loans, which has calculated on the basis of hypothetical income not real income of the finance company. In this case also, the ld Assessing Officer has calculated this foreign exchange gain on notional basis, which was not real. The other case laws referred by the assessee are also squarely applicable on real income theory. Accordingly, we uphold the order of the ld CIT(A) and the revenue's appeal on this ground is dismissed.
Now we take assessee's appeal.
6. The sole ground of the assessee's appeal is against confirming the addition of Rs. 90,51,858/- U/s 43B of the Act. The ld Assessing Officer observed that the assessee had claimed deduction of Rs. 1,0436,084/- in the computation U/s 43B on account of payments made pertaining to earlier year. On verification of details, it is found that the assessee had claimed advance VAT payment of Rs. 90,51,858/-. As per Assessing 13 ITA No. 231 & 165/JP/2015 DCIT Vs M/s Genus Innovation Ltd., Officer, it is not allowable U/s 43B, therefore, he gave reasonable opportunity of being heard to the assessee, which was availed by the assessee vide letter dated 14/3/2014. It is submitted before the Assessing Officer that this expense is allowable on the basis of payments made during the year under consideration U/s 43B of the Act. The ld Assessing Officer considered Section 43B of the Act which has been reproduced on page No. 11 of the assessment order. After considering the assessee's reply, the ld Assessing Officer held that this amount is not allowable U/s 43B, which has been confirmed by the ld CIT(A) by observing that the assessee had claimed advance VAT payment by relying on the Hon'ble Supreme Court decision in the case of Allied Motors (P) Ltd. Vs CIT (1997) 224 ITR 667 and Hon'ble Calcutta High Court in the case of Paharpur Cooling Towers Ltd. Vs CIT 244 CTR 502 irrespective of the fact that liability of paying such amount was incurred or not in the previous year relevant to assessment year under appeal. He further analysed Section 43B of the Act and held that during the year, this tax was not due but paid in advance. Thus, this advance tax is not covered within the meaning of definition of 'any sum payable'. This view has been supported by the decision of Hon'ble ITAT Hyderabad Bench in the case of DCIT Vs CWC Wines Pvt. Ltd. 268 ITR 23 (AT). The case laws 14 ITA No. 231 & 165/JP/2015 DCIT Vs M/s Genus Innovation Ltd., relied upon by the assessee was with reference to excise duty payment where it has been incurred in the previous year whereas in the present case, no such liability was incurred in previous year. 6.1 Now the assessee is in appeal before us. The ld AR of the assessee has submitted that the assessee paid advance VAT of Rs. 90,51,858/- and claimed deduction on the basis of payment basis U/s 43B of the Act in computation of income. He has drawn our attention on page No. 7 of the paper book irrespective of the fact that liability of paying such amount was incurred or not in the previous year relevant to assessment year under appeal. He has further drawn our attention on Section 53 and argued that advance VAT payment is allowable. He further relied on the decisions in the cases of Allied Motors (P) Ltd. Vs CIT and Paharpur Cooling Towers Ltd. Vs CIT (supra). He further made reference to the Hon'ble Delhi High Court decision in the case of CIT Vs. Samtel Colour Ltd. (2009) 184 Taxman 120 and Hon'ble ITAT (SB) Chandigarh in the case of DCIT Vs Glaxo Smithkline Consumer Healthcare Ltd. and prayed to allow the appeal.
6.2 At the outset, the ld DR has vehemently supported the order of the ld CIT(A).
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ITA No. 231 & 165/JP/2015 DCIT Vs M/s Genus Innovation Ltd., 6.3 We have heard the rival contentions of both the parties and perused the material available on the record. There is no dispute about the fact of the amount payments made and deduction claimed in computation of income at the time of filing of return but it is also undisputed fact that this is advance payment of VAT. The case laws relied upon by the assessee are not squarely applicable as the Hon'ble Supreme Court has analysed the object of Section 43B and held that statutory liability is to be allowed on payment basis. The liability for which was incurred in the previous year will be allowed as deduction and the liability should be related to previous year. Wherein sales tax liability of last quarter could not be paid before closing date of the every year, therefore, this incentive was given U/s 43B of the Act by the Legislature. This issue has been considered by the Coordinate Bench of Hyderabad in the case of DCIT Vs CWC Wines Pvt. Ltd. (supra) and held that advance payment is not deductible. Section 43 may not be understood as authorizing payment which have not become due but all the sum paid in advance. In the case of CIT Vs. Samtel Colour Ltd. (supra) the issue was before the Hon'ble Delhi High Court regarding custom duty and the decision of Coordinate Bench of ITAT, Chandigarh in the case of DCIT Vs Glaxo Smithkline Consumer Healthcare Ltd.(supra) the issue was excise 16 ITA No. 231 & 165/JP/2015 DCIT Vs M/s Genus Innovation Ltd., duty and MODVAT credit. Therefore, we are of the considered view that the ld CIT(A) had rightly disallowed the deduction claimed U/s 43B of the Act for advance payment of VAT at Rs. 90,51,858/-. Accordingly, we confirm the order of the ld CIT(A).
7. In the result, appeal of the revenue as well as assessee's appeal are dismissed.
Order pronounced in the open court on 22/06/2016 Sd/- Sd/-
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(Laliet Kumar) (T.R. Meena)
U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
Tk;iqj@Jaipur
fnukad@Dated:- 22nd June, 2016
Ranjan*
vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- The DCIT/Addl.CIT, Circle/Range-2, Jaipur.
2. izR;FkhZ@ The Respondent- M/s Genus Innovation Ltd., Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr¼vihy½@The CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No.231 &165/JP/2015) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar