The DCIT, Circle-4(1)(1), Ahmedabad V. Sintex Industries Ltd., Ahmedabad

ITA 1477/AHD/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 6022 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-03-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2015-2016
• Appeal Filed On: 25-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJAI PRATAP SINGH
• Keywords: Depreciation; Earning of tax free income; Cost of acquisition; Rule 8D; Set aside
• Section: 143(3); 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH (Conducted Through Virtual Court) Before: Ms. Annapurna Gupta, Accountant Member And Shri Mahavir Prasad, Judicial Member DCIT, Circle-4(1)(1), Ahmedabad (Appellant) Vs Sintex Industries Ltd. 7 th Floor, Abhijit-1, Mithakhali Six Road, Ellisbridge, Ahmedabad-380006 PAN No: AADCS0858E (Respondent) Appellant by : Shri Ajai Pratap Singh, CIT/D.R. Respondent by : Ms. Amrin Pathan, A.R. Date of hearing : 21-03-2022 Date of pronouncement : 25-03-2022 आदेश/ORDER PER : ANNAPURNA GUPTA, ACCOUNTANT MEMBER:- The present appeals have been filed by the Revenue against the order passed by the Commissioner of Income Tax (Appeals)-8, Ahmedabad, (in short referred to as CIT(A)), dated 17-07-2019, u/s. 250(6) of the Income Tax Act, 1961(hereinafter referred to as the “Act”) pertaining to Assessment Years (A.Ys) 2015-16 & 2016-17. 2. At the outset itself, it was stated that the issues arising in both the appeals are identical, therefore both the appeals were taken up together for hearing. We shall be dealing with the appeal of the Revenue relating to assessment year 2015-16 in ITA ITA Nos. 1477 & 1478/Ahd/2019 Assessment Yeasr 2015-16 & 16-17 I.T.A No. 1477 & 1478/Ahd/2019 A.Y. 2015-16 & 16-17 Page No DCIT vs. Sintex Industries Ltd. 2 No. 1477/Ahd/2019 and our decision rendered therein will apply pari passu to other appeal of the revenue for assessment year 2016-17 in ITA No. 1478/Ahd/2019. 3. In ITA No. 1477/Ahd/2019 for A.Y. 2015-16. 4. Ground no. 1 raised by the revenue reads as under: 1) Whether the Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 33,40,84,101/- made u/s 14A of the Income Tax Act, 1961 and restricting the same to the extent of exempt income earned by the assessee. 5. As is evident from the above ground, the issues relates to disallowance of expenses incurred for the purposes of earning exempt income, which had been restricted by the Ld. CIT(A) in the present case to the extent of exempt income earned. The facts relating to the case being that the assessee had earned dividend income of Rs. 33,220/- which was claimed as exempt u/s. 10(34) of the Act. The assessee had suo moto disallowed a sum of Rs. 775/- on account of expenses pertaining to this exempt income. The A.O. however was not satisfied with the suo moto disallowance who in turn computed the disallowance as per formula provided in Rule 8D of the Income Tax Rules, 1962, which amounted to Rs. 33,40,84,101/-. 6. The assessee carried the matter in appeal before the ld. CIT(A) wherein it was argued that the disallowance made by the A.O. was unwarranted for the reason that the assessee had sufficient interest free funds which far exceeded the investment made which earned the exempt income and further it was also argued that in any case, the disallowance could not have exceeded the exempt income. This argument of the assessee found favour with the ld. CIT(A) who in turn restricted the disallowance u/s. 14A of the Act to the extent of exempt income earned amounting to Rs. 33,220/-,following various decisions of the Hon’ble High Courts in this regard. It is I.T.A No. 1477 & 1478/Ahd/2019 A.Y. 2015-16 & 16-17 Page No DCIT vs. Sintex Industries Ltd. 3 against this order of the Ld. CIT(A) that the Revenue has come up before us raising the above ground: 1) Whether the Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 33,40,84,101/- made u/s 14A of the Income Tax Act, 1961 and restricting the same to the extent of exempt income earned by the assessee. 2) Whether the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 33,40,84,101/- u/s 14A made by the AO to the book profit of the assessee u/s 115JB of the Income Tax Act, 1961. 3) Whether the Ld. CIT(A) has erred in law and facts in deleting the disallowance of Forex Gain of Rs. 1,08,61,686/-. 7. We have gone through the findings of the Ld. CIT(A) at Para 6.3 of the order which is as under: 6.3 Further, reliance is placed on the following judgments: (i) Decision of Hon'ble High Court of Haryana in case of Principal Commissioner of Income Tax v/s. State Bank of Patiala dated 14/11/2017 (IT APPEAL NO. 359 OF 2017) Section 14A, read with section 263, of the Income-tax Act, 1961 -Expenditure incurred in relation to income not includible in total income (Computation of) - Assessment year 2010-11 - In course of assessment, Assessing Officer made addition on account of apportionment of expenses against exempted income under section 14A - Commissioner passed a revtsional order directing Assessing Officer to enhance amount of addition under section 14A - Tribunal set aside revisional order as well as consequent assessment order passed by Assessing Officer enhancing addition made under section 14A -High Court upheld order of Tribunal holding that amount of disallowance under section 14A could be restricted to amount of exempt income only and not a higher figure - Whether on facts, SLP filed against decision of High Court was to be dismissed - Held, yes [Para 1][ln favour of assessee] . The SLP filed by Revenue against the said decision is dismissed by Supreme Court on 08/11/2018 [20181 99 taxmann.com 286 (SC). (ii) Decision of Hon'ble IT AT Ahmedabad in case of Paras Harish Shah C/o.v. ITO, Ward- 5(2)(3), Ahmedabad [ITA No. 2727/Ahd/2016] dated 15.02.2018: "I find that neither the AO has mentioned exact amount of dividend _ income or exempt income earned by the assessee in the assessment order nor Id. CIT(A). According to the assessee details available at page no.28 of the paper book indicate the dividend income of Rs.13,870/-. However, it is not discernible from the record whether these details were given to the AO or not, and whether the AO has verified this or not. Considering this aspect, I deem it appropriate to set aside the issue to the file of AO with direction that I.T.A No. 1477 & 1478/Ahd/2019 A.Y. 2015-16 & 16-17 Page No DCIT vs. Sintex Industries Ltd. 4 the Id.AO shall verify quantum of dividend income/exempt income and restrict the disallowance out of interest expenditure equivalent to the exempt income/dividend income." (iii) Decision of Hon'ble ITAT Ahmedabad in case ofChudgarRanchodlalJethalal vs. theDCIT(OSD), Range-1, and l.T.A. No. 245/AHD/2013 dated27-03-2015 "13. Considering the totality of, the facts and in view of the fact that the provisions of Rule 8D are applicable for the year under consideration and in the light of the aforesaid decision of Delhi High Court cited hereinabove and in view of the fact that the disallowance worked out by A.O u/s. 14A is more than .the exempt income and considering the alternate submission of Id. A.R. to make a reasonable disallowance u/s. 14A as deemed fit, we are of the view that disallowance of Rs. 5,0007- if made in the present case will meet the ends of justice. We thus direct accordingly. . 14. In the result, the appeal of Assessee is partly allowed." (iv)Decision of Delhi High Court in the case of Joint Investments Pvt Ltd. v/s. Commissioner of Income Tax (ITA 117/2015), dated 25th February, 2015: "The third, and in the opinion of this court, important anomaly which we cannot be unmindful is that whereas the entire tax exempt income is Rs.48,90,000/-, the disallowance ultimately directed works out to nearly 110% of that sum, i.e., 52,56,197/-. By no stretch of imagination can Section 14A or Rule 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A, and is only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax exempt income". This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case" As the ratio of the above judgment is applicable to the case at hand the disallowance made by the AO u/s.14A is restricted to the exempt income i.e. Rs.33,220/-.The related grounds of appeal are partly allowed. 8. On going through the above, we find that while restricting the disallowance of expenses u/s. 14A of the Act to the extent of exempt income earned,the Ld.CIT(A) followed the decision of the Hon’ble Gujarat High Court in the case of Corrtech Energy Pvt. Ltd. (2014) 223 Taxmann.com 130 and also that of the Hon’ble High Court of Madras in the case of CIT vs. Chhetinad Logistics Pvt. Ltd. (2017) 80 Taxmann.com 221 which decision he noted was upheld by the Hon’ble Supreme Court on merits. The SLP filed by the revenue against the said judgment being dismissed, both on the ground of delay as well as on merits in the order of the Hon’ble Supreme Court reported in (2018) 25 Taxmann.com 215. 9. The Ld. CIT(A) further relied on the decision of the Hon’ble High Court of Punjab and Haryana in I.T.A No. 1477 & 1478/Ahd/2019 A.Y. 2015-16 & 16-17 Page No DCIT vs. Sintex Industries Ltd. 5 the case of PCIT vs. State Bank of Patiala (supra), Noting that the SLP filed by the revenue against the said decision was dismissed by the Hon’ble Apex Court on 08.11.2018 (2018) 99 Taxmann.com 286. 9. Clearly therefore the proposition of law applied by the Ld. CIT(A) while restricting the disallowance of expenses u/s. 14A to the extent of exempt income earned stands affirmed and is based on the proposition of law laid down by the Hon’ble Apex Court as noted above by the Ld. CIT(A). 10. Ld. D.R. was unable to distinguish the present case either in law or on facts from the decisions relied upon by the Ld.CIT(A). 11. In view of the above, we see no reason to interfere in the order of the Ld. CIT(A) restricting the disallowance of expenses u/s. 14A to the extent of exempt income earned amounting to Rs. 33,220/-following the proposition of law laid down in this regard by various Hon’ble High Courts and SLP filed by the revenue against which was dismissed by the Hon’ble Apex Court in one of the cases, as noted above, on merits also. 11.1. Ground no. 1 is therefore dismissed. 12. Ground no. 2 reads as under: 2) Whether the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 33,40,84,101/- u/s 14A made by the AO to the book profit of the assessee u/s 115JB of the Income Tax Act, 1961. 13. The revenue in the above ground has challenged order of the Ld. CIT(A) in deleting the adjustment made to book profits of the assessee on account of the disallowance of expenses made u/s. 14A of the Act, for the purposes of Minimum I.T.A No. 1477 & 1478/Ahd/2019 A.Y. 2015-16 & 16-17 Page No DCIT vs. Sintex Industries Ltd. 6 Alternate Tax (MAT) to be paid by the assessee on the book profit as per section 115JB of the Act. 14. The facts are that the A.O. after working out the disallowance of expenses u./s. 14A of the Act amounting to Rs. 33,40,84,101/- as per Rule 8D of the Income Tax Rules, 1962, had added the same to the book profit of the assesse also as per Section 115JB of the Act. The Ld. CIT(A) deleted the addition following the decision of the ITAT Ahmedabad Bench in the case of Torrent Cables Ltd. vs. ACIT In ITA No. 3178/Ahd/2011 dated 02.01.2017. The relevant findings of the Ld. CIT(A) at para 7.1 of the order is as under: 7. Ground No.15 relates to grievance of appellant on addition of disallowance u/s.14A amounting to Rs.33,40,84,101/- to the book profits calculated under the provisions of section 115JB of the Act. 7.1 In the assessment order AO computed disallowance u/s.14A r.w.r. 8D amounting to Rs. 33,40,84,101/- and added the same to the book profits u/s.115JB. no discussion on this issue has been made in the assessment order. In the course of appellate proceedings appellant made the following submission: 1) Addition u/s 14A added to book profit under section 115JB of the Act We would like to submit before your kind goodself that learned AO has made addition amounting to Rs. 33,40,84,101/- as per provisions of rule 8D of IT Rules 1962 read with provisions of section 14A of IT Act. Learned AO has made same amount of addition to book profit as per provisions of section 115JB of the IT Act without any discussion to assessment order passed u/s 143(3) of the IT Act. In this connection, we would like to submit before your kind goodself that disallowance u/s 14A of the IT Act cannot be made to the book profit us/ 115JB of the IT Act. In this regard, we placed reliance on following judgements - 1. CITvs. Alembic Limited (Gujarat HC) (Tax Appeal No. 1249 of 2014 2. Adani Agro Pvt Ltd Vs. ACIT AJimedabad (ITAT) (tTA No. 182/Ahd/2012) 3. Torrent Cables Ltd. Vs. ACITAhmedabad (ITAT) (ITA No. 3178/Ahd/2011) 4. ACIT vs. Vireet Inv Pvt 165ITD 27 (Spl Bench) Your kind goodself has considered the abo^e submission for the Assessment Year -2013- 14 & 2014-15 and directed to learned AO to give relief accordingly and copies of CIT(A) orders passed by your kind goodself are attached herewith vide Annexure No. 09A & 9B respectively. In view of above submission and judgment of jurisdiction Hon’ble Might Court of Gujarat and Hon’ble ITAT Ahmedabad and decision in our own case by your kind goodself, we I.T.A No. 1477 & 1478/Ahd/2019 A.Y. 2015-16 & 16-17 Page No DCIT vs. Sintex Industries Ltd. 7 hereby request your kind goodself to please consider the above submission and delete impugned addition us/ 14A made to book profit u/s 115JB of lT Act." 7.2 I find that the issue is squarely covered by the judgment of Hon'ble Ahmedabad ITAT in the case of Torrent Cable Ltd v/s ACIT vide ITA no: 3178/Ahd/2011 dated 02/01/2017 wherein it has been held : "6 We have carefully considered the rival submission on the issue involved. The assessee has relied upon the Judgment of Hon'ble Gujarat High Court in the case of Alembic Ltd. (supra). The relevant operative para of the order of the Hon'ble Gujarat High Court is reproduced hereunder- 8, Taking into consideration the evidence on the record and considering the decision of this court in the case of Commissioner of Income Tax-1 vs. Gujarat State Fertilizers & chemicals Ltd. (supra), we are of the opinion that the issue Nos. (Hi) and (iv) required to be answered in the favour of the assessee and against the revenue. In that view of the matter, we answer questions (iii) and (iv) referred to us in favour of the assessee and against the revenue. The appeal of the revenue is dismissed. 7. Seen on the anvil of the aforesaid decision of the Hon'ble Gujarat High Court squarely on the issue, we find merit contention on behalf of the assessee and direct the Ld. Assessing Officer to delete the adjustment made on the account of estimated disallowance determined under section 14A r.w. Rule 8D of the I.T. Rules, 1962 while computing book profit under section 115JB of the Act." Respectfully, following the judgment of jurisdictional! ITAT it is held that disallowance u/s. 14A cannot be added in the book profits u/s.115JB. Hence, the additions made by AO to the book profits u/s.115JB towards 15. Before us ld. Counsel for the assessee pointed out that the issue was covered in favour of the assessee by the decision of Special Bench of ITAT in the case of ACIT vs. Vireet Investment Pvt. Ltd. reported in 165 ITD 27. 16. Ld. D.R. was unable to controvert the above contention of the ld. Counsel for the assessee before us nor was able to bring to our notice any subsequent judgment of Hon’ble High Court or Hon’ble Supreme Court to the contrary. 17. We have heard both the parties and have also gone through the order of the Ld. CIT(A). As rightly pointed out by the ld. Counsel for the assesse, the Special Bench of the ITAT in the case of Vireet Investment (supra) has categorically held that for I.T.A No. 1477 & 1478/Ahd/2019 A.Y. 2015-16 & 16-17 Page No DCIT vs. Sintex Industries Ltd. 8 the purposes of calculating book profits u/s. 115JB of the Act, no adjustment of expenses disallowed u/s. 14A of the Act is warranted. 18. Since no contrary judgment has been brought to our notice by the Ld. D.R., we have no hesitation in upholding the order of the ld. CIT(A), deleting the adjustment made to the book profit of the assesee u/s. 115JB of the act on account of expenses disallowed u/s. 14A of the act amounting to Rs. 33,40,84,101/-. 19. Ground no. 2 is dismissed. 20. Ground no. 3 reads as under: 3) Whether the Ld. CIT(A) has erred in law and facts in deleting the disallowance of Forex Gain of Rs. 1,08,61,686/- 21. The above ground relates to addition made to the income of the assessee on account of gains earned on foreign exchange fluctuation amounting to Rs. 1,08,61,686/- which was deleted by the ld. CIT(A). 22. The facts of the case are that the A.O. had disallowed a sum of Rs. 1,08,61,686/- being gain on account of foreign exchange fluctuation on the last day of the year on the outstanding foreign currency loan (FCCB) which was utilized for investment in subsidiary. The assessee had outstanding FCCB loan of Rs. 151.14 crores as at the end of the year i.e. on 31.03.2015 and following Accounting Standard -11 the liability was recomputed on the basis of prevailing exchange rate which resulted into a gain as above. This was not offered to tax for the reason that the gain was only notional and as per the provisions of Section 43A only the actual gain or loss was to be considered and to be adjusted from the cost of acquisition of the asset for the purposes of Section 48. The assessee also contended that it had been following this system I.T.A No. 1477 & 1478/Ahd/2019 A.Y. 2015-16 & 16-17 Page No DCIT vs. Sintex Industries Ltd. 9 consistently and had not claimed a loss of identical nature in the preceding assessment year amounting to Rs. 16,05,91,157/-. 23. The ld. CIT(A) noted that the ITAT in assessment year 2009-10 and 2010-11 had dismissed the department’s appeal on this ground while the CIT(A) in assessment year 2011-12 and 2014-15 had allowed the assessee’s appeal on this ground. Accordingly noting the facts to be identical the ld. CIT(A) deleted the addition made by the A.O. The relevant findings of the Ld. CIT(A) at para 8.1 of the order is as under: 8.1 The appellant obtained FCCB loan and invested the same in the shares of its subsidiary namely Sintex Holdings B.V. Netherlands.! find that this is recurring issue in the case of the appellant. In the earlier year i.e A.Y.2009-10 & 2010-11 Ho'ble ITAT Ahmedabad in order in ITA No.851/Ahd/2011 & ITA No.1548/Ahd/2012 order dated 18.03.2016 dismissed the departmental appeal on this ground. Further CIT(A) in appeal pertaining to A.Y. 2011-12 and A.Y. 2014-15 allowed the appellant's appeal on this issue. Relevant part of the order of Hon'ble ITAT on this issue is reproduced as below: " 51 .we have considered rival contentions and gone through the record carefully. In the case of ACIT vs. Elecon Engineering (supra), the Hon'ble Supreme Court has considered the scope of section 43A and observed that where the assessee has acquired asset outside India for the purpose of his business, and that asset was acquired by borrowed funds, the amount by which the liability stood increased or reduced on account of foreign exchange rate during the previous year, they be added to or deducted from the actual cost of the asset as defined in section 43(1) of the Income Tax Act. The observation of the Hon'ble Supreme Court has been noticed by the Ld. CIT(A) while taking note of assessee's submissions on page no.49 of the impugned order . the observation of the Hon'ble Supreme Court reads as under: 9. Section 43A: before its substitution by a new section 43A vide Finance Act, 2002, was inserted by Finance Act, 1967 with effect from 1-4-1967, after the devaluation of the rupee on 6-6-1966. It applied where as a result of change in the ra!e of exchange there was an increase or reduction in the liability of the assessee in terms of the Indian rupee to pay the price of any asset payable in foreign exchange or to repay moneys borrowed in foreign currency specifically for the purpose of acquiring an asset. The section has no application unless an asset was acquired and the liability existed, before the change in the rate of exchange. When the assessee buys an asset at a price, its liability to pay the same arises simultaneously. This liability can increase on account of fluctuation in the rate of exchange. An assessee who becomes the owner of an asset (machinery) and starts using the same, it becomes entitled to depreciation allowance. To work out the amount of depreciation, one has to look to the cost of the asset in respect of which I.T.A No. 1477 & 1478/Ahd/2019 A.Y. 2015-16 & 16-17 Page No DCIT vs. Sintex Industries Ltd. 10 depreciation is claimed. Section 43A was introduced to mitigate hardships which were likely to be caused as a result of fluctuation in the rate of exchange. Section 43A lays down, firstly, that the increase or decrease in liability should be taken into account to modify the figure of actual cost and, secondly, such adjustment should be made in the year in which the increase or decrease in liability arises on account of fluctuation in the rate of exchange. It is for this reason that though section 43A begins with a non obstante clause, it makes section 43(1) its integral part. This is because section 43A requires the cost to be recomputed in terms of section 43A for the purposes of depreciation [Sections 32 and 43(1)]. A perusal of section 43A makes it clear that insofar as the depreciation is concerned, it has to be allowed on the actual cost of the asset,, less depreciation that was actually allowed in respect of earlier years. However, where the cost of the asset subsequently increased on account of devaluation, the written down value of the asset has to be taken on the basis of the increased cost minus the depreciation earlier allowed on the basis of the old cost. One more aspect needs to be highlighted. Under section 43A, as it stood at the relevant time, it was inter alia provided that where an assessee had acquired an asset from a country outside India for the purposes of his business, and in consequence of a change in the rate of exchange at any time after such acquisition, there is an increase or reduction in the liability of the assessee as expressed in Indian currency for making payment towards the whole or part of the cost of the asset or for repayment of the whole or part of the moneys borrowed by hirrrfgr the purpose of acquiring the asset, the amount by which the liability stood increased or reduced during the previous year shall be added to or deducted from the actual cost of the asset as defined in sectJon 43(1). 52. The issue in dispute before us squarely covered by the above preposition. In view of the above decision, we do not find any merit in this ground of appeal. It is rejected. " Facts of the case remain same and hence following the decision of Hon'ble ITAT in the appellant's own case, the addition made by the AO on this account amounting to Rs.1, 08,61 ,686/- is deleted. Appeal on this ground is allowed. 24. We have gone through the order of the ld. CIT(A) and have noted that the Ld. CIT(A) deleted the addition finding that in identical set of facts in the case of assessee itself, the ITAT had in earlier years i.e A.Y 2009-10 & 2010-11 held that no addition on account of notional gain or loss on account of foreign exchange fluctuation was warranted as per the provisions of Section 43A of the Act. 25. The Ld. D.R. has not pointed out any distinguishing facts before us nor has distinguished the order of the Ld. CIT(A) on law. I.T.A No. 1477 & 1478/Ahd/2019 A.Y. 2015-16 & 16-17 Page No DCIT vs. Sintex Industries Ltd. 11 26. In view of the above, we see no reason to interfere in the order of the Ld. CIT(A) deleting the addition made on account of foreign exchange fluctuation, amounting to Rs. 1,08,61,686//- . 27. Ground no. 3 is dismissed. 28. Appeal of the Revenue is dismissed 29. In effect both the appeals of the Revenue are dismissed. Order pronounced in the open court on 25 -03-2022 Sd/- Sd/- (MAHAVIR PRASAD) (ANNAPURNA GUPTA) JUDICIAL MEMBER True Copy ACCOUNTANT MEMBER Ahmedabad : Dated 25/03/2022 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद