DCIT, Circle-1(1)(1), Ahmedabad V. Adani Enterprises Ltd., Ahmedabad

ITA 120/AHD/2020

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 0747 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 30-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: BIREN SHAH
• Keywords: Transfer pricing; Wrong claim; Bad and doubtful debts; Revised return; Rule 8D
• Section: 271(1)(c); 143(3); 14A; 144C

Judgement Text

आयकर य कर , हमदाबाद याय ‘ड ’ हमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD BEFORE SHRI P.M. JAGTAP, VICE-PRESIDENT AND SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER ITA No. 120/Ahd/2020 Assessment Year : 2009-10 DCIT, Circle 1(1)(1), Ahmedabad Vs M/s. Adani Enterprises Ltd., Adani House, Nr. Mithakhali Six Roads, Navrangpura, Ahmedabad - 380009 PAN : AABCA 2804 L ा / (Appellant) य / (Respondent) Revenue by : Shri Mohd. Usman, CIT-DR Assessee by : Shri Vartik Choksi, AR & Shri Biren Shah, AR /Date of Hearing : 11/05/2022 /Date of Pronouncement: 31/05/2022 आदेश / O R D E R PER P.M. JAGTAP, VICE-PRESIDENT : This appeal is preferred by the Revenue against the order of learned Commissioner of Income-Tax (Appeals)-1, Ahmedabad (“CIT(A)” in short) dated 27.11.2019 whereby he cancelled the penalty of Rs.7,56,18,332/- imposed by the Assessing Officer under Section 271(1)(c) of the Income-tax Act, 1961 (“the Act” in short). 2. The assessee, in the present case, is a company which filed its return of income for the year under consideration originally on 24.09.2009 declaring a total income of Rs.132,22,21,015/-. Thereafter, a revised return was filed by the assessee on 29.03.2011 declaring a total income of Rs.133,78,83,656/-. In the assessment completed under Section 143(3) r.w.s. 144C of the Act vide an order dated 15.05.2013, the total income of the assessee-company was determined by the Assessing Officer at ITA No. 120/Ahd/2020 DCIT Vs.Adani Enterprises Ltd AY : 2009-10 2 Rs.161,59,58,333/- after making various additions/disallowances. Penalty proceedings under Section 271(1)(c) of the Act were also initiated by the Assessing Officer in respect of certain additions/disallowances made in the assessment. Meanwhile, an appeal was filed by the assessee in quantum proceedings against the order passed by the Assessing Officer under Section 143(3) r.w.s. 144C of the Act challenging the various additions / disallowances made by the Assessing Officer and while disposing of the said appeal vide an order dated 08.10.2014, the leaned CIT(A) allowed part relief to the assessee thereby sustaining/confirming certain additions/disallowances made by the Assessing Officer. After the disposal of the quantum appeal by the learned CIT(A), a fresh notice under Section 274 r.w.s. 271(1)(c) was issued by the Assessing Officer on 15.02.2016; in response to which, a detailed written submission was filed by the assessee vide letter dated 11.03.2016 offering its explanation in respect of each and every addition/disallowance sustained/confirmed by the learned CIT(A) in order to support and substantiate its case that there was no concealment of particulars of its income on the part of the assessee nor the furnishing of inaccurate particulars of such income warranting levy of penalty under Section 271(1)(c) of the Act. The Assessing Officer did not find the explanation offered by the assessee to be acceptable and proceeded to impose penalty of Rs.7,56,18,332/- under Section 271(1)(c) of the Act being 100% of the tax sought to be evaded by the assessee in respect of the following 5 additions / disallowances :- “(1) Transfer Pricing adjustment: The Transfer pricing officer-1 made an addition of Rs.4,51,82,460/- on international transactions of the assessee vide his order dated 23.03.2011. Accordingly, the amount of upward adjustment quantified by the TPO-1 of Rs.4,51,82,460/- was added. Penalty proceedings u/s 271(1)(c) of the Act for concealment of income were also initiated on this issue. Penalty proceedings u/s. 271(1)(c) of the Act were also initiated on this issue. The Ld. CIT(A) has ITA No. 120/Ahd/2020 DCIT Vs.Adani Enterprises Ltd AY : 2009-10 3 confirmed the addition to the extent of Rs.3,05,70,000/ out of the total addition made on this issue. (2) Prior Period Expenditure : The A.O. noticed that the assessee has not disallowed any prior period expenses. However, the total prior period expenditure debited in the books for the year was Rs.32,63,473/-. In this regard, the assessee was asked to explain why the same should not be disallowed and added to the total income as this expenditure does not relate to the current year. In response, the assessee filed reply which was duly considered by the A.O. and after detailed discussion in the assessment order added the same to the total income of the assessee. Penalty proceedings u/s. 271(1)(c) of the Act were also initiated on this issue. The Ld. CIT(A) also confirmed the addition made by the A.O. on this issue. (3) Disallowance of Business Loss claimed as Bad debts : During the course of assessment proceedings, the A.O. noticed that the assessee debited Rs. 41.30 crores to P & L A/c. Under the head "Bad debts written off but only Rs. 35.00 crores was added back in computation. In this regard, the assessee was asked to explain why the same should not be disallowed and added to the total income. In response, the assessee filed its reply which was duly considered by the A.O. and after detailed discussion in the assessment order, the A.O. held that for the claim of Bad debts at Rs. 1,38,45,181/- in the name of STC, J P Agrawal and other cases mentioned in the Assessment Order, the provisions of section 36(2) of the Act have not been complied with and hence the same was disallowed and added back to the total income. Penalty proceedings u/s, 271(1)(c) of the Act were also initiated on this issue. The Ld. CIT(A) confirmed Rs. 5,02,181/- out of the total addition made by the A.O. on this issue. (4) Forex Derivative - M2M losses : During the course of assessment proceedings, the A.O. noticed from the notes to accounts that the assessee charged a loss of Rs. 82,02,615/- to P & L A/c. of Marked to Marked loss on option premium. Details were called for which were submitted by the assessee. The A.O. carefully considered the same however, found not to be acceptable. Accordingly, after detailed discussion in the assessment order added the same to the total income of the assessee. Penalty proceedings u/s. 271(1)(c) of the Act were also Initiated on this issue. The Ld. CIT(A) also confirmed the addition made by the A.O. on this issue. ITA No. 120/Ahd/2020 DCIT Vs.Adani Enterprises Ltd AY : 2009-10 4 (5) Disallowance u/s. 14A : During the course of assessment proceedings, on perusal of computation of income, the A.O. observed that the assessee has shown dividend income and other exempt income. However, the assessee has disallowed only Rs.1,56,62,640/- u/s. 14A in the computation of income. The assessee was requested to explain the same. In response, the assessee filed its reply which was duly considered by the A.O. and after detailed discussion in the assessment order, Rs. 17,99,34,022/- was added u/s. 14A r.w. Rule 8D. Penalty proceedings u/s. 271(1)(c) of the Act were also initiated on this issue. The Ld. CIT(A) also confirmed the addition made by the A.O. on this issue. From the above facts, it is clear that the assessee had furnished concealment of income in respect of above issues. Had the assessee's case not been selected for scrutiny, the assessee would have been benefited by filling concealment of income. Had the Revenue not detected the concealment of income of the assessee, the assessee would have enjoyed the fruits of filing concealment of income and would have caused loss to the revenue. Therefore, the penalty initiated by the A.O. on these issues is liable to be levied.” 3. The penalty of Rs.7,56,18,332/- imposed by the Assessing Officer under Section 271(1)(c) of the Act was challenged by the assessee in an appeal before the learned CIT(A). Meanwhile, the appeals filed by the assessee as well as by the Department in the quantum proceedings against the order of learned CIT(A) dated 08.10.2014 came to be disposed of by the Tribunal allowing substantial relief to the assessee in respect of various additions made by the Assessing Officer to the total income of the assessee and after taking the same into consideration as well as the submissions made on behalf of the assessee before him during the course of appellate proceedings, the learned CIT(A) cancelled the penalty of Rs.7,56,18,332/- imposed by the Assessing Officer for the following reasons given in paragraph Nos. 3.4 to 3.11 to his impugned order:- “3.4. The appellant has contended that AO has levied penalty on the basis of addition confirmed by CIT(A) in the quantum order however Hon'ble ITAT in the quantum appeal filed by assessee as well as department has deleted the addition on TP adjustment, disallowance of prior period expenses ITA No. 120/Ahd/2020 DCIT Vs.Adani Enterprises Ltd AY : 2009-10 5 and disallowance of mark-to-market losses, hence penalty should not be levied. As regard to disallowance under Section 14A, appellant has stated that Hon'ble ITAT has given substantial relief and even on balance additions, penalty cannot be levied considering the decision of Hon'ble Supreme Court in the case of Gruh Finance Limited, 100 taxmann.com 103. So far as levy of penalty on disallowance of business loss of Rs.5,02,181/- appellant has contended that though above addition was confirmed by Hon'ble ITAT, penalty cannot be levied as such claim is not a false claim and a very meager amount is sustained in comparison with aggregate write off of Rs.37.95 crores. The ARs of the appellant have also relied upon the decision of Hon'ble Supreme Court in me case of PCIT V/s Reliance Petroproducts Pvt. Limited, 322 1TR 158. 3.6. On perusal of relevant material on record along with the decision of Hon'ble Ahmedabad ITAT in appellant's own case, as referred supra, it is found that AO has made TP adjustment for Rs.4,51,82,460 which was reduced to Rs.3,05,70,000 by CIT (Appeals). Both appellant and Department have filed appeals against such order and relevant discussion is made by Hon'ble ITAT at para - 45 to 53 of the order wherein after relying upon the decision of Micro Ink Limited 157 ITD 132 has deleted entire addition. As addition made by AO in assessment order is now deleted by Hon'ble Ahmedabad ITAT, consequential levy of penalty on such addition is not justified. 3.7. Similarly, Hon'ble Ahmedabad ITAT has discussed the issue of disallowance of prior period expenses of Rs.32,63,470/- at para - 54 and 55 and 76 and 77 wherein Assessee's appeal is allowed entirely and Departmental appeal was dismissed. As addition made by AO in assessment order is now deleted by Hon'ble Ahmedabad ITAT, consequential levy of penalty on such addition is not justified. 3.8. It is also found that AO has made addition of mark-to-market loss for Rs.82,02,615 and this addition is also deleted by Hon'ble Ahmedabad ITAT at para 63 to 65 of the Order. As addition made by AO in assessment order is now deleted by Hon'ble Ahmedabad ITAT, consequential levy of penalty on such addition is not justified. 3.9. So far as disallowance of business loss of Rs.5,02,181, it is found that AO has made addition of Rs.1,38,45,181 out of total write off of bad debt for Rs.37.95 crores. In the first appeal, CIT (Appeals)-VI has given relief of Rs.1,33,43,000 and confirmed write off of advances to suppliers for Rs.5,02,181. This addition is sustained by Hon'ble Ahmedabad ITAT at para 61 and 62 of the Order. In this case it is found that very meagre amount of claim of bad debt was confirmed by appellate authority in comparison with aggregate bad debt and turnover reflected in Audited Annual Accounts. The ITA No. 120/Ahd/2020 DCIT Vs.Adani Enterprises Ltd AY : 2009-10 6 claim made by appellant was not found to be false claim, but explanation of appellant was not accepted. Considering the decision of Hon'ble Supreme Court in the case of CIT V/s Reliance Petroproducts Pvt. Limited 322 ITR 158 supra, wherein the Court has held that "A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars." 3.10. So far as levy of penalty on disallowance under Section 14A for Rs.17,99,34,022 (Rs.1,56,62,640 + 5,38,47,568 + 11,04,23,824), it is found that Hon'ble Ahmedabad ITAT at para - 78 to 80 of its order has dismissed the Departmental grounds relating to disallowance of interest expenditure of Rs.11,04,23,824 under Rule 8D(2)(ii). So far as disallowance of Rs.1,56,62,640, CIT (Appeals) - VI vide his order dated 8th October, 2014 in para 6.3 has deleted such disallowance. So far as disallowance of administrative expenses of Rs.5,38,47,568, it is found that CIT (Appeals) - VI at para 6.5 of his order has already directed the AO to reduce the suo moto disallowance of Rs.1,56,62,640. The Hon'ble ITAT in its consolidated order passed for A.Y. 2008-09 to 2010-11, at para - 4 has directed the AO to restrict the disallowance of administrative expenditure to the extent of investments which have resulted into tax-free income. On the basis of this observation, AR of the appellant has submitted computation of administrative expenses at para 6.2 of its written submission and contended that disallowance so computed will be less than suo moto disallowance. Considering these facts it is found that disallowance under Section 14A is a legal disallowance. The various Courts have interpreted the method of disallowance under Section 14A in different manner and mere non- acceptance of legal claim does mean that appellant has furnished inaccurate particulars of income. The Hon'ble Supreme Court in the case of Gruh Finance Limited 100 taxrnonn.com 104 has dismissed the SLP filed by Department and held as under: "Section 14A, read with section 271(1)(c) of the Income-tax Act, 1961 - Expenditure incurred in relation to income not includible in total income (Penalty) - Tribunal deleted penalty under section 271(1)(c) in respect of disallowance made under section 14A because there was no evidence in respect of furnishing inaccurate particulars of income - High Court upheld order passed by Tribunal -Whether, on facts, SLP filed against decision of High Court was to be dismissed - Held, yes [Para 3] [In favour of assessee]" 3.11. The ratio of decision of Hon'ble Supreme Court in the case of CIT V/s Reliance Petroproducts Pvt. Limited, 322 ITR 158 supra is squarely applicable to present case. On these facts, penalty under Section 271 (1)(c) of the Act levied on disallowance under Section 14A is deleted. ITA No. 120/Ahd/2020 DCIT Vs.Adani Enterprises Ltd AY : 2009-10 7 In the result, the entire levy of penalty under Section 271(1)(c) of the Act for Rs.7,56,18,332/- is deleted.” 4. Aggrieved by the order of the learned CIT(A), the Revenue has preferred this appeal before the Tribunal. 5. We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that penalty under Section 271(1)(c) of the Act was imposed by the Assessing Officer in respect of the following additions made by him and confirmed/sustained by the learned CIT(A):- i) Transfer Pricing Adjustment - Rs. 3,05,70,000 ii) Disallowance of Prior Period Expenditure - Rs. 32,63,473 iii) Disallowance of Business Loss claimed as Bad Debts - Rs. 5,02,181 iv) Disallowance of M2M losses – Forex Derivative - Rs. 82,02,615 v) Disallowance under Section 14A of the Act - Rs.17,99,34,022 6. As submitted on behalf of the assessee before the learned CIT(A) as well as before the Tribunal, all the above 5 additions were disputed by the assessee in the appeal filed before the Tribunal in the quantum proceedings and vide its common order dated 12.02.2019, passed for AYs 2008-09, 2009- 10 and 2010-11 in ITA No. 1840/Ahd/2012 and others, the Tribunal deleted the following three additions entirely:- i) Transfer Pricing Adjustment - Rs. 3,05,70,000 ii) Disallowance of Prior Period Expenditure - Rs. 32,63,473 iii) Disallowance of M2M losses – Forex Derivative - Rs. 82,02,615 Consequently, the very foundation of penalty imposed by the Assessing Officer under Section 271(1)(c) of the Act in respect of these three additions did not survive and the said penalty to that extent was liable to be cancelled as rightly held by the learned CIT(A) in his impugned order. ITA No. 120/Ahd/2020 DCIT Vs.Adani Enterprises Ltd AY : 2009-10 8 7. Insofar as the issue relating to the disallowance of business loss claimed as bad debts is concerned, it is observed that such disallowance made originally at Rs.1,38,45,181/- by the Assessing Officer was sustained by the Tribunal only to the extent of Rs.5,02,181/- and while sustaining this very meager amount of disallowance, the claim made by the assessee was not found to be false and it was only that the explanation of the assessee was not found acceptable. As held by the Hon’ble Supreme Court in the case of CIT vs. Reliance Petroproducts P. Ltd. (2010) 322 ITR 158 (SC), a mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars of his income attracting the penal provision of Section 271(1)(c) of the Act. Moreover, as held by Hon’ble Gujarat High Court in the case of Director of Income-Tax Vs. Skanska Cementation International Ltd. (Tax Appeal No.2132 of 2010), when substantial additions on merits have been deleted, nothing survives in favour of Revenue for levy of penalty under Section 271(1)(c) of the Act. Keeping in view the ratio of these decisions of Hon’ble Apex Court and Hon’ble jurisdictional High Court, we find no infirmity in the impugned order of the learned CIT(A) cancelling the penalty imposed by the Assessing Officer in respect of disallowance of business loss claimed as bad debts which is partly sustained in the quantum proceedings. 8. Insofar as the disallowance under Section 14A of the Act is concerned, it is observed that the said disallowance made originally by the Assessing Officer at Rs.17,99,34,022/- was related to the interest to the extent of Rs.11,04,23,814/- as worked out under Rule 8D(2)(ii). The Tribunal deleted entirely the disallowance on account of interest made as per Rule 8D(2)(ii) and also deleted a further disallowance of Rs.1,56,62,640/- made under Rule 8D(2)(i). As regards the balance disallowance of Rs.5,38,47,568/- made under Section 14A as per Rule 8D(2)(iii) on account ITA No. 120/Ahd/2020 DCIT Vs.Adani Enterprises Ltd AY : 2009-10 9 of common administrative expenses, the Tribunal directed the Assessing Officer to re-compute the said disallowance by taking into consideration only those investments which had actually yielded exempt income to the assessee in the year under consideration. As submitted by the learned Counsel for the assessee at the time of hearing before us and not disputed by the learned DR, the disallowance under Section 14A r.w. Rule 8D(2)(iii), as recomputed as per the direction of the Tribunal, would be less than the suo moto disallowance already offered by the assessee and thus there would be no question of imposing any penalty in respect of disallowance under Section 14A as finally sustained by the Tribunal. Moreover, as held by the Hon’ble Supreme Court in the case of Gruh Finance Limited, reported in 100 taxmann.com 104, penalty under Section 271(1)(c) of the Act is not justified in respect of disallowance made under Section 14A of the Act. We, therefore, find no justifiable reason to interfere with the impugned order of the learned CIT(A) cancelling the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Act, even in respect of addition made by way of disallowance under Section 14A of the Act. The impugned order passed by the learned CIT(A) cancelling the penalty of Rs.7,56,18,332/- imposed by the Assessing Officer under Section 271(1)(c) entirely is accordingly upheld and this appeal of the Revenue is dismissed. 9. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open Court on 31 st May, 2022 at Ahmedabad. Sd/- Sd/- (SIDDHARTHA NAUTIYAL) (P.M. JAGTAP) JUDICIAL MEMBER VICE-PRESIDENT Ahmedabad, Dated 31/05/2022 *Bt ITA No. 120/Ahd/2020 DCIT Vs.Adani Enterprises Ltd AY : 2009-10 10 /Copy of the Order forwarded to : 1. ! / The Appellant 2. "# ! / The Respondent. 3. $%$&' # # ( / Concerned CIT 4. # # ( ) (/ The CIT(A)- 5. + , # &' , # # &' /DR,ITAT, Ahmedabad, 6. , ./ 0 /Guard file. / BY ORDER, TRUE COPY ह # $ज (Asstt. Registrar) # # &' ITAT, Ahmedabad 1. Date of dictation- ...23.05.2022- .... 2. Date on which the typed draft is placed before the Dictating Member ......24.05.2022...... Other member ...30.05.2022............... 3. Date on which the approved draft comes to the Sr.P.S./P.S. - ...30.05.2022............... 4. Date on which the fair order is placed before the Dictating Member for Pronouncement .31.05.2022.. 5. Date on which the file goes to the Bench Clerk...31.05.2022......... 6. Date on which the file goes to the Head Clerk.................................. 7. The date on which the file goes to the Assistant Registrar for signature on the order..................... 8. Date of Despatch of the Order..................