DCIT (LTU), New Delhi V. M/s. Rasandik Engineering Industries India Ltd., New Delhi

ITA 1526/DEL/2013

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 9663 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2009-2010
• Appeal Filed On: 14-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Keywords: Earning of tax free income; Bad and doubtful debts
• Section: 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI F BEN CH, NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND MS. SUCHITRA KAMBLE, JUDICIAL M EMBER ITA NO. 1158/DEL/2013 [A.Y 2009-10] M/S RASANDIK ENGINEERING INDUSTRIES I. LTD VS. THE A.C.I.T C 4 & 5, FIRST FLOOR, C BLOCK LARGE TAXPAYER UN IT COMMERCIAL COMPLEX, PASCHIMI MARG NEW DELHI VASANT VIHAR, NEW DELHI PAN: AAACR 3381 A ITA NO. 1526/DEL/2013 [A.Y 2009-10] THE A.C.I.T VS M/S RASANDIK ENGINEERING INDUSTRIES I. LTD LARGE TAXPAYER UNIT C 4 & 5, FIRST FLOOR, C BLO CK NEW DELHI COMMERCIAL COMPLEX, PASCHIMI MARG VASANT VIHAR, NEW DELHI PAN: AAACR 3381 A (APPLICANT) ( RESPONDENT) ASSESSEE BY : SHRI SANJAY AG ARWAL, CA DEPARTMENT BY : SHRI SURENDER PAL, SR. DR DATE OF HEARING : 19.09.2019 DATE OF PRONOUNCEMENT : 20.09.2019 2 ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, THE ABOVE TWO CAPTIONED CROSS APPEALS BY THE ASSESS EE AND REVENUE ARE PREFERRED AGAINST THE ORDER OF THE COMM ISSIONER OF INCOME TAX [APPEALS] - LTU NEW DELHI DATED 10.10.2012 PERT AINING TO ASSESSMENT YEAR 2009-10. SINCE BOTH THESE APPEALS WERE HEARD TOGETHER, THESE ARE BEING DISPOSED OF BY THIS COMMO N ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA NO. 1158/DEL/2013 [ASSESSEES APPEAL] 2. THE SOLITARY GRIEVANCE OF THE ASSESSEE IS THAT T HE LD. CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF RS. 18,43,122/- U/ S 14A OF THE INCOME TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT ]. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN MANUFACTURING OF SHEET METAL COMPONENTS, FUEL TANK, TOOLS & DYES AND IS ALSO ENGAGED IN JOB WORK. FOR THE YEA R UNDER CONSIDERATION, THE ASSESSEE FILED ITS RETURN OF INC OME ON 29.09.2009 3 RETURNING A LOSS OF RS. 4.45 CRORES. RETURN WAS RE VISED ON 20.10.2010 DECLARING LOSS OF RS. 4.45 CRORES. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND STATUTORY NOTICES WERE ISSUED AND SE RVED UPON THE ASSESSEE. 4. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEED INGS, AND ON EXAMINATION OF THE RECORD, THE ASSESSING OFFICER NO TICED THAT THE ASSESSEE HAS INVESTED IN ASSETS WHICH WILL RESULT I N TAX EXEMPT INCOME. THE ASSESSING OFFICER WAS OF THE FIRM BELIEF THAT P ROVISIONS OF SECTION 14A R.W.R 8D OF THE INCOME TAX RULES CLEARLY APPLY. THE ASSESSEE WAS ASKED TO EXPLAIN WHY DISALLOWANCE SHOULD NOT BE MAD E U/S 14A R.W.R 8D. 5. IN ITS REPLY, THE ASSESSEE STRONGLY CONTENDED TH AT THE SAID PROVISIONS ARE NOT APPLICABLE AS THERE WAS NO DIVID END INCOME EARNED DURING THE YEAR UNDER CONSIDERATION. 6. THIS REPLY OF THE ASSESSEE DID NOT FIND ANY FAV OUR WITH THE ASSESSING OFFICER WHO PROCEEDED TO COMPUTE THE DISA LLOWANCE BY INVOKING PROVISIONS OF SECTION 14A R.W.R 8D AND MAD E AN ADDITION OF RS. 18,43,122/-. 4 7. THE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A ) BUT WITHOUT ANY SUCCESS. 8. BEFORE US, THE LD. AR ONCE AGAIN STATED THAT SIN CE THERE WAS NO EXEMPT INCOME EARNED DURING THE YEAR UNDER CONSIDER ATION, NO DISALLOWANCE SHOULD BE MADE U/S 14A OF THE ACT. 9. ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTED THE FINDINGS OF THE ASSESSING OFFICER AND IN SUPPORT OF HIS CONTENT ION, STRONG RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE SUPREME C OURT IN THE CASE OF MAXOPP INVESTMENT LTD VERSUS CIT (2018) 91 TAXMAN.C OM 154. 10. WE HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE O RDERS OF THE AUTHORITIES BELOW. THE UNDISPUTED FACT IS THAT DUR ING THE YEAR UNDER CONSIDERATION, THERE IS NO EXEMPT INCOME EARNED BY THE ASSESSEE. WE FIND THAT SIMILAR ISSUE AROSE IN THE CASE OF M/S CH EMINVEST LTD 121 ITD 318 WHICH WAS AFFIRMED BY THE HON'BLE HIGH COURT OF DELHI. SAME VIEW IS TAKEN BY THE HON'BLE GUJARAT HIGH COURT IN THE C ASE OF CORRTECH ENERGY (P) LTD 372 ITR 97 WHEREIN IT HAS BEEN HELD THAT THERE CANN OT BE ANY DISALLOWANCE U/S 14A OF THE ACT WHERE THERE IS NO EXEMPT INCOME EARNED DURING THE YEAR UNDER CONSIDERATION. 5 11. IN ANOTHER CASE, THE HON'BLE HIGH COURT OF MADR AS IN THE CASE OF CIT VS. CHETTINAD LOGISTICS 80 TAXMANN.COM 221 ALSO HAD THE OCCASION TO CONSIDER A VERY SIMILAR ISSUE AND WHILE ADJUDICA TING THE ISSUE IN FAVOUR OF THE ASSESSEE, THE HON'BLE HIGH COURT ALSO CONSIDERED CIRCULAR NO. 5/2014 ISSUED BY THE CBDT DATED 11.2.2014 TO TH E EFFECT THAT SECTION 14A WAS INTENDED TO COVER EVEN THOSE SITUAT IONS WHETHER THERE IS A POSSIBILITY OF EXEMPT INCOME BEING EARNED IN F UTURE. THE OBSERVATIONS OF THE HON'BLE HIGH COURT READ AS UNDE R 9. WE ARE UNABLE TO SUBSCRIBE TO THE AFORESAID VIEW . THE PROVISIONS OF SECTION 14A WERE INSERTED AS A RESPON SE TO THE JUDGMENTS OF THE SUPREME COURT IN COMMISSIONER OF I NCOME TAX V. MAHARASHTRA SUGAR MILLS LIMITED [1971] 82 ITR 452 AND RAJASTHAN STATE WARE HOUSING CORPORATION V. COMMISSIONER OF INCOME-TAX [2002] 242 ITR 450 IN TERMS OF WHICH, EXPENDITURE INCURRED BY AN ASSESSEE CARRYING ON A COMPOSITE BUSINESS GIVING RISE TO BOTH TAXABLE AS W ELL AS NON- TAXABLE INCOME, WAS ALLOWABLE IN ENTIRETY WITHOUT APPORTIONMENT. IT WAS THUS THAT S.14A WAS INSERTED PROVIDING THAT NO DEDUCTION SHALL BE ALLOWABLE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO THE EARNING OF INCOME EXEMP T FROM TAXATION. AS OBSERVED BY THE SUPREME COURT IN THE J UDGMENT IN THE CASE OF COMMISSIONER OF INCOME-TAX V. WALFOR T SHARE AND STOCK BROKERS (P) LTD. [2010] 326 ITR 1 6 '.... THE MANDATE OF S.14A IS CLEAR. IT DESIRES TO CURB THE PRACTICE TO CLAIM DEDUCTION OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME AGAINST TAXABLE INCOME AND AT THE SAM E TIME AVAIL OF THE TAX INCENTIVE BY WAY OF AN EXEMPTION O F EXEMPT INCOME WITHOUT MAKING ANY APPORTIONMENT OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME.' 10. THE PROVISION THIS IS CLEARLY RELATABLE TO THE EARNING OF ACTUAL INCOME AND NOT NOTIONAL OR ANTICIPATED INCOM E. THE SUBMISSION OF THE DEPARTMENT TO THE EFFECT THAT S.1 4A WOULD BE ATTRACTED EVEN TO EXEMPT INCOME 'INCLUDABLE' IN TOTAL INCOME WOULD ENTAIL THE ASSESSMENT OF NOTIONAL INCO ME, ASSUMED TO BE EXEMPT IN THE FUTURE, IN THE PRESENT ASSESSMENT YEAR. THE COMPUTATION OF TOTAL INCOME IN TERMS OF S.5 OF THE ACT IS ON REAL INCOME AND THERE IS NO SA NCTION IN LAW FOR THE ASSESSMENT OF ADMITTEDLY NOTIONAL INCOME, P ARTICULARLY IN THE CONTEXT OF EFFECTING A DISALLOWANCE IN CONNE CTION THEREWITH. 11. THE COMPUTATION OF DISALLOWANCE IN TERMS OF RUL E 8D IS BY WAY OF A DETERMINATION INVOLVING DIRECT AS WELL AS INDIRECT ATTRIBUTION. THUS, ACCEPTING THE SUBMISSION OF THE REVENUE WOULD RESULT IN THE IMPOSITION OF AN ARTIFICIAL MET HOD OF COMPUTATION ON NOTIONAL AND ASSUMED INCOME. WE BELI EVE THIS WOULD BE CARRYING THE ARTIFICE TOO FAR. (EMPHASIS I S OURS)' 7 12. CONSIDERING THE FACTS OF THE CASE IN TOTALITY I N THE LIGHT OF JUDICIAL DECISIONS, WE ARE OF CONSIDERED OPINION THAT THE DE CISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MAXOPP INVESTM ENT LTD [SUPRA] WAS DELIVERED ON DIFFERENT SET OF FACTS AND THE DEC ISIONS CONSIDERED HEREINABOVE ARE DIRECTLY ON THE DISPUTE. THEREFORE , RESPECTFULLY FOLLOWING THE SAME, THE ASSESSING OFFICER IS DIRECT ED TO DELETE THE IMPUGNED ADDITION. 13. AS A RESULT, THE APPEAL FILED BY THE ASSESSEE I S ALLOWED. ITA NO. 1526/DEL/2013 [REVENUES APPEAL] 14. THE SOLITARY GRIEVANCE RAISED BY THE REVENUE IS THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 1,70,6 2,698/- MADE ON ACCOUNT OF DISALLOWANCE OF PROVISION OF DOUBTFUL DE BTS. 15. WHILE SCRUTINISING THE RETURN OF INCOME, THE AS SESSING OFFICER NOTICED THAT IN THE AUDITED PROFIT AND LOSS ACCOUNT , A SUM OF RS. 1,76,62,698/- HAS BEEN DEBITED AS MANUFACTURING AN D OTHER EXPENSES. ON PERUSAL OF THE DETAILS, THE ASSESSING OFFICER FO UND THAT THESE EXPENSES INCLUDED AS SUM OF RS. 1,70,62,698/- BEING PROVISION FOR BAD 8 AND DOUBTFUL DEBTS. THE ASSESSING OFFICER FURTHER NOTICED THAT WHILE COMPUTING ITS TOTAL INCOME FOR THE YEAR UNDER CONSI DERATION, THE ASSESSEE HAS NOT ADDED BACK THE ABOVE AMOUNT AS A D ISALLOWABLE ITEM. ACCORDINGLY, THE ASSESSEE WAS ASKED TO JUSTIFY ITS STAND. 16. IN ITS REPLY, THE ASSESSEE EXPLAINED THAT THE P ROVISION FOR DOUBTFUL DEBTS IS, IN FACT, THE AMOUNT OF BAD DEBTS WRITTEN OFF. IT WAS EXPLAINED THAT THIS AMOUNT WAS INCLUDED IN THE SALE PRICE AS PRICE INCREASE TO VARIOUS PARTIES AND THE SAME WAS TAXED AS INCOME IN THE RESPECTIVE YEARS. SINCE IT WAS NOT RECOVERED, THE SAME WAS WRITTEN OFF. A NOTE ON BAD DOUBTS WRITTEN OFF WAS ALSO FUR NISHED TO THE ASSESSING OFFICER. 17. CLAIM OF THE ASSESSEE WAS DISMISSED BY THE ASSE SSING OFFICER. THE ASSESSING OFFICER WAS OF THE OPINION THAT THE A MOUNT OF RS. 1.70 CRORES HAS BEEN SHOWN AS PROVISION FOR BAD AND DOUB TFUL DEBTS IN THE AUDITED ACCOUNTS OF THE COMPANY WHICH RAISED GRAVE DOUBTS ABOUT THE CORRECTNESS OF THE CLAIM. REFERRING TO THE PROVISIO NS OF SECTION 36(1)(VII) OF THE ACT, THE ASSESSING OFFICER WAS OF THE FIRM BELIEF THAT SUCH PROVISIONS CANNOT BE ALLOWED AS BAD DEBT AND, ACCORDINGLY, MADE ADDITION OF RS. 1,70,62,698/-. 9 18. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) AND REITERATED ITS CLAIM. 19. AFTER CONSIDERING THE FACTS AND DETAILED SUBMIS SIONS THE CIT(A) OBSERVED THAT THE ASSESSEE HAS DULY DISCLOSED THE I NCOME IN RESPECT OF PROVISIONAL PRICE INCREASE WHICH WAS SHOWN AS SEPAR ATE SUB ITEM UNDER THE HEAD SALES. THE LD. CIT(A) FURTHER OBSERVING THAT THE NOMENCLATURE GIVEN BY THE ASSESSEE AS PROVISIONS FO R BAD AND DOUBTFUL DEBTS IS MINOR HUMAN ERROR WHICH CANNOT UNDO THE V ERY NATURE OF TRANSACTION AND HENCE ANY DECISION PASSED MERELY TH EREON IS NOT SUSTAINABLE, DELETED THE ADDITION MADE BY THE ASSES SING OFFICER. 20. BEFORE US, THE LD. DR STRONGLY SUPPORTED THE FINDINGS OF THE ASSESSING OFFICER. 21. PER CONTRA, LD. AR REITERATED WHAT HAS BEEN STA TED BEFORE THE LOWER AUTHORITIES. THE LD. COUNSEL FOR THE ASSESSE E ALSO DREW OUR ATTENTION TO THE RELEVANT DOCUMENTARY EVIDENCES BRO UGHT ON RECORD IN THE FORM OF PAPER BOOK. 10 22. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW. IT IS TRUE THAT WHILE WRITING OF F, THE ASSESSEE HAS NAMED IT PROVISION FOR BAD AND DOUBTFUL DEBTS. IT IS EQUALLY TRUE THAT SALES HAVE BEEN INCREASED BY - PRICE INCREASE PRO VISIONAL. RS. 25,65,838/- WAS PROVISIONAL PRICE INCREASE IN F.Y. 2005-06, RS. 1,42,24,736/- IS PRICE INCREASE IN F.Y. 2006-07 AND RS. 2,72,124/- WAS PRICE INCREASE IN F.Y. 2008-09. THESE CAN BE SEEN FROM EXHIBIT 48, 53 AND 86 TO 90 OF THE PAPER BOOK. TOTAL OF RS. 1,70, 62,698/- IS CHARGED TO THE PROFIT AND LOSS ACCOUNT BY SHOWING THE SAME UNDER THE HEAD MANUFACTURING AND OTHER EXPENSES, WHICH IS AT PAG E 103 OF THE PAPER BOOK. 23. CONSIDERING THESE FACTS IN TOTALITY, WE ARE OF THE CONSIDERED VIEW THAT THE DEBTS HAVE BEEN ACTUALLY WRITTEN OFF FROM THE BOOKS AND THE SAME AMOUNT HAS BEEN SHOW AS PRICE INCREASE IN SALE S OF EARLIER A.YS AS MENTIONED ELSEWHERE. SINCE THE ASSESSEE HAS FULFIL LED ALL MANDATORY CONDITIONS OF CLAIMING THE WRITTEN OFF AS BAD DEBTS , A WRONG NOMENCLATURE SHOULD NOT BE THE BASIS FOR MAKING DIS ALLOWANCE. WE, THEREFORE, DECLINE TO INTERFERE WITH THE FINDINGS O F THE LD. CIT(A). GROUND RAISED BY THE REVENUE STANDS DISMISSED. 11 24. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN I TA NO. 1158/DEL/2013 IS ALLOWED AND THAT OF THE REVENUE IN ITA NO. 1526/DEL/2013 IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 20.07 .2019. SD/- SD/- [ SUCHITRA KAMBLE ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 20 TH SEPTEMBER, 2019 VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI 12 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P S/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER