DCIT, Faridabad V. M/s. Lakhani India Ltd., Faridabad

ITA 1454/DEL/2016

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3604 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2020
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 17-03-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A, NEW DELHI BEFORE SHRI H. S. SIDHU, JUDICIAL MEMBER AND SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER ITA NO.1454/DEL/2016 ASSESSMENT YEAR: 2011-12 DCIT CIRCLE-I, BLOCK-B, NEW CGO COMPLEX FARIDABAD VS LAKHANI INDIA LTD. PLOT NO.131, SECTOR-24, FARIDABAD PAN NO.AAACL3113G (APPELLANT) (RESPONDENT) APPELLANT BY MS. RAKHI VIMAL, SR DR RESPONDENT BY NONE DATE OF HEARING: 05/03/2020 DATE OF PRONOUNCEMENT: 05/03/2020 ORDER PER N. K. BILLAIYA, AM: THIS APPEAL BY THE REVENUE IS PREFERRED AGAINST THE ORDER OF THE CIT(A), FARIDABAD DATED 11.02.2016 PERTAINING T O A.Y.2011-12. 2. THE SUBSTANTIVE GRIEVANCE OF THE REVENUE READ :- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) WAS RIGHT IN LAW IN DELETING THE DISALLOWANCE OF RS . 1,31,66,791/- WHICH WAS MADE BY THE AO AS PER PROVISIONS OF SECTION 14A(3) OF TH E I.T. ACT BY APPLYING RULE 2 8D(2)(II) & 8D(2)(III) I.T. RULES BEING EXPENDITURE RELATABLE TO INCOME NOT INCLUDABLE IN TOTAL INCOME. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, LD. CIT(A) WAS RIGHT IN LAW IN DELETING THE DISALLOWANCE OF RS .27,82,055/- WHICH WAS MADE BY THE AO AS PER PROVISIONS OF SECTION 36(L)(III) O F THE I.T. ACT BEING INTEREST FOR THE PERIOD FROM THE DATE OF PAYMENT TO THE DATE OF ASSETS PUT TO USE IS TO BE CAPITALIZED. 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, LD. CIT(A) WAS RIGHT IN LAW IN DELETING THE DISALLOWANCE OF RS .2,16,56,114/- OUT OF TOTAL DISALLOWANCE OF RS.9,49,96,740/-WHICH WAS MADE BY T HE AO ON THE ACCOUNT OF DIFFERENCE IN GROSS PROFIT. 4. THE APPELLANT CRAVES FOR THE PERMISSION TO ADD, DELETE OR AMEND THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF APPEAL. 3. NONE APPEARED ON BEHALF OF THE ASSESSEE INSPITE NOTICE WE, THEREFORE, DECIDED TO PROCEEDE EXPARTE. 4. GROUND NO.1 RELATES TO THE DISALLOWANCE OF RS.13 166791/- MADE U/S. 14A R.W RULE 8D. 5. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEED INGS THE AO NOTICED THAT THE ASSESSEE HAS MADE INVESTMENTS T O THE TUNE OF RS.16.75 CRORES. THE AO WAS OF THE FIRM BELIEF THA T DISALLOWANCES U/S.14A R.W RULE 8D IS IMPERATIVE IN SUCH CIRCUMSTA NCE. INVOKING THE PROVISION OF SECTION 14A R.W. RULE 8D. THE AO COMPUTED THE DISALLOWANCE AT RS.1,31,66,791/-. 6. ASSESSEE AGITATED THE DISALLOWANCE BEFORE THE CI T(A) CLAIMING THAT THERE IS NO EXEMPT INCOME. AFTER CON SIDERING THIS FACT THE CIT(A) DELETED THE DISALLOWANCE. 7. BEFORE US THE DR SUPPORTED THE FINDINGS OF THE A O. THERE IS NO DISPUTE THAT THE ASSESSEE DID NOT EARN ANY EXEMP T INCOME 3 DURING THE YEAR UNDER CONSIDERATION. THIS ISSUE IS NOW SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE R EVENUE BY THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LIMITED IN ITA NO. 749/2014 ORDER DATED 02.09.2015 AND ALSO BY THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN T HE CASE OF CORTECH ENERGY PRIVATE LIMITED 372 ITR 97. RESPECTF ULLY FOLLOWING THE DECISION OF THE HONBLE HIGH COURTS (SUPRA) WE DECLINE TO INTERFERE WITH THE FINDINGS OF THE CIT(A). GROUND N O.1 IS ACCORDINGLY DISMISSED. 8. GROUND NO.2 RELATES TO THE DELETION OF THE DISAL LOWANCE OF RS.2782055/-. 9. WHILE SCRUTINIZING THE BALANCE SHEET THE AO NOTI CED THAT THE ASSESSEE HAS SHOWN ADVANCE OF RS.23183794/- TO M/S. D. K. BUILDCOM PRIVATE LIMITED. THE ASSESSEE EXPLAINED T HAT THE SAID ADVANCE WAS GIVEN FOR THE CONSTRUCTION OF A BUILDIN G WHICH HAS BEEN COMPLETED AND PUT TO USE IN EARLIER FINANCIAL YEARS. THE AO WAS OF THE OPINION THAT THE AMOUNT OF RS.23183794/- HAS BEEN GIVEN AS ADVANCE OUT OF INTEREST BEARING FUNDS AND THE ASSESSEE HAS NOT ESTABLISHED WITH ANY DOCUMENTARY EVIDENCE T HAT THE BUILDING ALLEGEDLY CONSTRUCTED BY THE SAID PARTY HA S BEEN ACTUAL PUT TO USE IN EARLIER YEARS. THE AO PROCEEDED BY C OMPUTING PROPORTIONATE DISALLOWANCE OF INTEREST @ 12% AND MA DE ADDITION OF RS.2782055/-. 10. BEFORE US THE DR POINTED OUT THAT THE CIT(A) WH ILE DELETING THE DISALLOWANCE HAS ERRONEOUSLY GIVEN A COMPLETELY IRRELEVANT FINDING. 4 11. WE FIND FORCE IN THE CONTENTION OF THE LD. DR W HILE DELETING THE ADDITION THE CIT(A) HELD AS UNDER :- THE ISSUE HAS ALREADY BEEN ADJUDICATED BY ME IN THE CASE OF THE APPELLANT IN APPEAL NO 69/2013-14 FOR ASSESSMENT YEAR 2010-11 AN D THE RELEVANT PART OF THE SAME IS REPRODUCED BELOW : I HAVE CONSIDERED THE FACTS OF THE CASE TOGETHER W ITH THE SUBMISSIONS OF THE APPELLANT AND VARIOUS JUDICIAL PRONOUNCEMENTS RELIE D UPON BY HIM IN SUPPORT OF HIS CONTENTION. THE AO HAD MADE AN ADDITION OF RS.4,66,918/- ON ACCOUNT OF PROVISION FOR EARNED LEAVE ON THE GROUND THAT TH ESE PROVISIONS ARE CONTINGENT IN NATURE AND ARE NOT IN NATURE OF ASCER TAINED LIABILITIES. THE APPELLANT, ON THE OTHER HAND, HAS GIVEN HIS ARGUMEN TS AS WELL AS VARIOUS JUDICIAL PRONOUNCEMENTS IN RELATION TO DISALLOWANCE OF PROVISION FOR EARNED LEAVE. I HAVE PERUSED THE JUDGEMENT OF CALCUTTA HIG H COURT IN CASE OF EXIDE INDUSTRIES LTD (2007) 292 ITR 470. THE DEPARTMENT H AS FILED THE SLP IN THIS CASE AND THE SAME HAS BEEN ADMITTED WITH THE FOLLOW ING REMARKS: 'WE FURTHER MAKE IT CLEAR THAT THE ASSESSEE WOULD D URING THE PENDENCY OF CIVIL APPEAL, PAY TAX AS OF SECTION 438(F) IS ON THE STAT UE BOOK BUT AT THE SAME TIME IT WOULD BE ENTITLED TO MAKE A CLAIM IN ITS RETURNS .' IT IS CLEAR FROM THE SUPREME COURT DECISION THAT TH E ASSESSEE HAS TO PAY TAX TILL FINAL DISPOSAL; THEREFORE THIS GROUND OF APPEAL IS REJECTED. ACCORDINGLY, GROUND NO.3 IS THUS DISMISSED.' THUS, THE FACTS BEING ABSOLUTELY IDENTICAL IN THIS APPEAL, GROUND NO. 4 OF THE APPELLANT IS ALLOWED. 12. IT CAN BE SEEN FROM THE AFOREMENTIONED FINDING OF THE CIT(A), THE FINDING IS TOTALLY IRRELEVANT TO THE ISSUE AGIT ATED BEFORE THE CIT(A). THEREFORE, IN THE INTEREST OF JUSTICE AND F AIR PLAY WE RESTORE THIS ISSUE TO THE FILES OF THE CIT(A) WITH A DIRECT ION THAT THE CIT(A) SHALL DECIDE THIS ISSUE IN TRUE PERSPECTIVE OF THE UNDERLYING FACTS IN THE ISSUE AFTER GIVING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 13. GROUND NO.2 IS TREATED AS ALLOWED FOR STATISTIC AL PURPOSE. 14. GROUND NO.3 RELATE TO THE DELETION OF THE DISAL LOWANCE OF RS.21656114/- OUT OF TOTAL DISALLOWANCE OF RS.94996 740/-. 5 15. FACTS ON RECORD SHOW THAT THE ADDITIONS MADE BY THE AO COMPRISE OF TWO COMPONENTS. THE FIRST RELATES TO T HE DIFFERENTIAL RATE TAKEN IN THE VALUATION OF ETHYLENE VINYL ACET ATE (EVA) AMOUNTING TO RS.13656114/- AND THE SECOND COMPONENT RELATED TO THE LUMPSUM DISALLOWANCE OF RS.80 LACS OUT OF WA GES. 16. WHEN THE MATTER WAS AGITATED BEFORE THE CIT(A), THE CIT(A) DELETED BOTH THE ADDITIONS BY HOLDING AS UNDER :- 28. IN PARA 7.3, THE AO HAS MADE AN ADDITION OF RS. 1,36,56,114/- ON ACCOUNT OF DIFFERENTIAL IN THE RAW MATERIAL COST OF ETHYLENE V INYL ACETATE (EVA). THE APPELLANT IN ITS SUBMISSIONS HAS CLEARLY EXPLAINED THE DIFFERENCE IN THE COST OF ETHYLENE VINYL ACETATE (EVA) IN THE CASE OF THE APP ELLANT AS WELL AS IN THE CASE OF LAKHANI RUBBER UDYOG PVT. LTD. IT IS SEEN THAT THE SISTER CONCERN OF THE APPELLANT I.E, LAKHANI RUBBER UDYOG PVT. LTD. IS ENGAGED IN M ANUFACTURING OF HAWAI CHHAPAL AND THE APPELLANT COMPANY IS ENGAGED IN MAN UFACTURING OF SHOES. IT IS THE CONTENTION OF THE APPELLANT THAT THERE ARE VARI OUS QUALITIES OF ETHYLENE VINYL ACETATE (EVA) AND RESULTANTLY THE QUALITY OF ETHYLE NE VINYL ACETATE (EVA) FOR SHOES IS OF BETTER QUALITY, AS COMPARED TO THE QUAL ITY USED IN ETHYLENE VINYL ACETATE (EVA) FOR CHAPPALS. PERUSAL OF THE ASSESSME NT ORDER REVEALS THAT THE VARIOUS BILLS FOR JUSTIFYING THE RATES OF ETHYLENE VINYL ACETATE (EVA) IN THE TWO CONCERNS WERE PRODUCED BEFORE THE AO DURING THE COU RSE OF ASSESSMENT PROCEEDINGS. THE SAME HAVE ALSO BEEN EXAMINED BY TH E AO AS EVIDENT FROM THE ASSESSMENT ORDER. HOWEVER, THE AO WHILE REJECTING T HE CONTENTION OF THE APPELLANT HAS NOT PROVIDED ANY COGENT REASONS FOR T HE SAME. THUS KEEPING OF THESE FACTS AND PERSPECTIVE, I FIND MERITS IN THE A RGUMENTS OF THE APPELLANT AND THUS THIS PARTICULAR ADDITION I/'' MADE BY THE AO I S DELETED. 29 IN PARA 7.4 OF THE ASSESSMENT ORDER, THE AO HAS MADE AN AD-HOC DISALLOWANCE OF RS.80,00,000/- FROM THE WAGE EXPENSES. PERUSAL O F THE ASSESSMENT ORDER REVEALS THAT THE AO HAS OBSERVED THAT THE PERSONAL EXPENSES HAVE IN FACT DECREASED VIS-A-VIS THE SALES AS COMPARED TO THE EA RLIER YEARS. FROM THE SUBMISSIONS OF THE APPELLANT, IT IS SEEN THAT FROM FINANCIAL YEAR 2009-10 TO 2010- 6 11, THE PERSONAL EXPENSES WERE 12.63% OF THE SALES AND IN THE YEAR UNDER CONSIDERATION THE SAME ARE FOR RS.10.96%. THE PERSO NAL EXPENSES OF THE APPELLANT HAVE BEEN ACCEPTED BY THE DEPARTMENT IN THE EARLIER YEARS @12.63% AND WHEN THE SAME ARE @ 10.96% IN THE CURRENT YEAR, AD-HOC D ISALLOWANCE HAS BEEN MADE. IN VIEW OF THESE FACTS, I FIND NO REASONS TO JUSTIF Y THE AD-HOC ADDITION OF RS.80 LACS MADE BY THE AO AND THUS THIS ADDITION MADE BY THE A O IS DELETED. 17. BEFORE US THE DR STRONGLY SUPPORTED THE FINDING S OF THE AO. IT IS THE SAY OF THE DR THAT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSEE NEITHER FILED ANY DETAILS NOR ANY BILLS/ V OUCHERS IN SUPPORT OF ITS CLAIM. THE DR FURTHER STATED THAT T HE CIT(A) HAS HELD THAT THE DETAILS WERE FURNISHED BEFORE THE AO AND THE AO HAS NOT GIVEN ANY COGENT REASON FOR REJECTING THE CONTE NTION OF THE ASSESSEE, ACCORDING TO THE DR THIS IS NOT IN LINE W ITH THE FACTS OF THE CASE AS THE ASSESSEE NEVER PRODUCED ANY DETAILS . 18. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW. THE AO WHILE DISCUSSING THE GP RATE OF THE ASSESSEE MADE ADDITIONS ON ACCOUNT OF DIFFERENCES IN EVA AND LUMP SUM ADDITIONS OF WAGES AND ESTIMATED THE GP ADDITION. IN OUR CONSIDERED OPINION ONCE THE AO HAS ESTIMATED THE GP ADDITION AT RS.3,26,11,396/- WHICH WAS SUSTAINED BY THE CIT(A) ALL THE RELATED EXPENSES ARE DEEM TO BE ALLOWED AND, THEREF ORE, THERE SHOULD NOT BE ANY FURTHER ADDITION IN TRADING ACCOU NT. THEREFORE, MODIFYING THE FINDINGS OF THE CIT(A) WE DIRECT THE AO TO DELETE THE ADDITION ON ACCOUNT OF EVA AND WAGES. MODIFYING TH E FINDINGS OF THE CIT(A) GROUND NO.3 IS DISMISSED. 19. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED IN PART FOR STATISTICAL PURPOSE. 7 ORDER PRONOUNCED IN THE OPEN COURT ON 05.03.2020. SD/- SD/- (H. S. SIDHU) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNT ANT MEMBER *NEHA* DATE:- 05.03.2020 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGI STRAR ITAT NEW DELHI DATE OF DICTATION 05.03.2020 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 05.03.2020 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 05.03.2020 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS 05.03.2020 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 05.03.2020 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/ PS 05.03.2020 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 05.03.2020 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 05.0 3.2020 DATE ON WHICH FILE GOES TO THE HEAD CLERK. THE DATE ON WHICH FILE GOES TO THE ASSISTANT REGIST RAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER