DCIT, Cir-1(1), Kolkata, Kolkata V. M/s AI Champdany Industries Ltd., Kolkata

ITA 172/KOL/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6945 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 02-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ROBIN CHOUDHUR Y
• Keywords: Capital asset; Depreciation; Capital receipt; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B, BENC H KOLKATA BEFORE SHRI A.T. VARKEY, JM & DR. A.L.SAINI, AM ./ ITA NO.172/KOL/2017 ( / ASSESSMENT YEAR : 2011-12 DCIT, CIRCLE-1(1), KOLKATA AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, 7 TH FLOOR, KOLKATA-700069 VS. M/S AI CHAMPDANY INDUSTRIES LTD., 25, PRINCEP STREET, KOLKATA-700072. ./ ./PAN/GIR NO. : AACCCA 4860 D ( /ASSESSEE ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI ROBIN CHOUDHURY, ADDL. CIT SR. DR /REVENUE BY : SHRI SUBASH AGARWAL, ADVOCATE / DATE OF HEARING : 11/12/2018 /DATE OF PRONOUNCEMENT : 01/03/2019 / O R D E R PER DR.ARJUN LAL SAINI, AM: THE CAPTIONED APPEAL FILED BY THE REVENUE, PERTAIN ING TO ASSESSMENT YEAR 2011-12, IS DIRECTED AGAINST AN ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-1, KOLKATA (IN SHORT THE LD. C IT(A)] IN APPEAL NO. 182/CIT(A)-1/WD-1(4)/2014-15 DATED 29.11.2016, WHIC H IN TURN ARISES OUT OF AN ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER UN DER SECTION143(3) OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT) DATED 31.0 3.2014. 2. THE GRIEVANCE RAISED BY THE REVENUE ARE AS FOLLO WS: I) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOU NT OF HOLDING THE STATE ITA NO.172/KOL/2017 M/S AI CHAMPDANY INDUSTRIES LTD. A.Y.2011-12 2 CAPITAL INVESTMENT SUBSIDY AS CAPITAL, ON THE FACT THAT THE ASSESSEE FAILED TO DECIMATE AND / APPORTION THE AMOUNT(S) OF SUBSID Y FROM THE COST / BLOCK OF ASSETS AND CHARGE DEPRECIATION ACCORDINGLY. II) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING DISALLOWANCES MADE IN ACCO RDANCE WITH THE PROVISIONS OF SECTION 14A OF IT ACT READ WITH RULE 8D OF IT RULES, 1962. III) THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER AND/OR MODIFY, SUBSTITUTE ALL OR ANY OF THE GROUNDS OF APPEAL, DURING THE COU RSE OF HEARING. 3. GROUND NO.1 RAISED BY THE REVENUE RELATES TO ADD ITION MADE ON ACCOUNT OF STATE CAPITAL INVESTMENT SUBSIDY AS REVENUE IN NATU RE. 4. THE FACTS OF THE CASE WHICH CAN BE STATED QUITE SHORTLY ARE AS FOLLOWS. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER N OTED THAT THE ASSESSEE IN ITS AUDITED STATEMENT OF ACCOUNTS IN THE YEAR ENDED ON 31.03.2011, HAD SHOWN FRESH RECEIPTS RECEIVED DURING THE YEAR IN CAPITAL RESER VE TO THE TUNE OF RS.1,22,54,000/-.THE ASSESSEE WAS ASKED TO EXPLAIN THE RECEIPT OF RS.1,22,54,000/-. IN RESPONSE, THE ASSESSEE SUBMITT ED BEFORE THE ASSESSING OFFICER THAT IT HAD BEEN SANCTIONED STATE CAPITAL I NVESTMENT SUBSIDY UNDER WBIS-2004 VIDE WBIDCS LETTER DATED 27.05.2011 F OR EXPANSION OF ITS PROJECT LOCATED AT JAGTADAL, 24 PGS. (N) OF RS.1,22,54,000/ - AND THE SAME WAS ACCOUNTED UNDER THE HEAD CAPITAL RESERVE FOR THE YEAR ENDED ON 31.03.2011. THE ASSESSEE SUBMITTED THAT A SUBSIDY RECEIPT, WILL BE A CAPITA L RECEIPT, ONLY IF SUCH RECEIPT IS RECEIVED FOR SETTING UP OF A NEW UNIT OR EXPANSION OF EXISTING UNIT AND THE SAME HAS BEEN UTILIZED FOR SUCH PURPOSE. IN OTHER WORDS, IF THE ASSESSEE HAS ACQUIRED FRESH FIXED ASSETS, AGAINST THE SAID SUBSIDY, THEN ONLY THE SAME CAN BE ACCOUNTED FOR AS A CAPITAL RECEIPT OTHERWISE THE SAME IS TO BE TREATED AS A REVENUE RECEIPT OF THE ASSESSEE. HOWEVER, THE ASSESSING OFFICER NOT ED THAT SINCE THE ASSESSEE HAD NOT ACQUIRED ANY ASSETS AND ALSO HAD NOT ADDED BACK ANY DEPRECIATION ON SUCH ASSETS, IF ANY, AGAINST THE SUBSIDY OF RS. 1,22,54, 000/- CLAIMED BY ASSESSEE AS CAPITAL RECEIPTS UNDER WBIS`2004. IN RESPONSE, THE ASSESSEE AGAIN SUBMITTED BEFORE THE ASSESSING OFFICER VIDE SUBMISSION DATED 11.03.2014 AND FURNISHED ITA NO.172/KOL/2017 M/S AI CHAMPDANY INDUSTRIES LTD. A.Y.2011-12 3 WBIDC LETTER DATED 27.05.2011 EXPLAINING THE PURPOS E OF INCENTIVE TO CARRY OUT OF EXPANSION OF THE PROJECT AND NOT FOR RUNNING ITS BUSINESS MORE PROFITABLY AND HENCE SUBSIDY OF RS. 1,22,54,000/- SHOULD BE A CAP ITAL RECEIPT OF THE ASSESSEE. THE ASSESSEE ALSO SUBMITTED A LIST OF CAPITAL ITEMS WHICH WAS ACQUIRED BY THE ASSESSEE AGAINST THIS SUBSIDY UP TO THE YEAR ENDED ON 31.03.2008. HOWEVER, THE ASSESSING OFFICER REJECTED THE CONTENTION OF THE AS SESSEE AND TREATED THE SAID SUBSIDY AS REVENUE RECEIPT AND ADDED RS. 1,22,54, 000/- TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED BY THE STAND SO TAKEN BY THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS TREATED THE SUBSIDY AS CAPITAL IN NATURE AND DELETED THE ADDITION. 6. AGGRIEVED THE ORDER OF THE LD. CIT(A), THE REVEN UE IS IN APPEAL BEFORE US. THE LD. DR FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND TAKEN BY THE AO, WHICH WE HAVE ALREADY NOTED IN OUR EARLIER PARA AND IS NO T BEING REPEATED FOR THE SAKE OF BREVITY. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER PASSED BY THE LD. CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. FIRST OF ALL, WE ARE OF THE VIEW THAT IT IS RELEVAN T TO GO THROUGH THE SANCTIONED LETTER OF THE SAID SUBSIDY OF WEST BENGAL INDUSTRIA L DEVELOPMENT CORPORATION LTD (WBIDC), WHICH READS AS FOLLOWS: INC-2004/(98)/I/GENCS/694 MAY 27, 2011 AI CHAMPDANY INDUSTRIES LTD. 25, PRINCEP STREET, KOLKATA 700 072. SUB: I) SANCTION OF STATE CAPITAL INVESTMENT SUBSI DY UNDER WBIS, 2004 II) FIXING UP THE LIMIT FOR ALL SUBSIDIES ITA NO.172/KOL/2017 M/S AI CHAMPDANY INDUSTRIES LTD. A.Y.2011-12 4 DEAR SIRS, WITH REFERENCE TO YOUR APPLICATION FOR STATE CAPITA L INVESTMENT SUBSIDY (SCIS) UNDER WBIS2004 FOR YOUR EXPANSION PROJECT LOCATED AT JAG ATDAL PO JAGATDAL, PS: JAGATDAL IN THE DISTRICT OF 24 PGS (N) COVERED UNDER ELIGIBI LITY CERTIFICATE NO. INC-2004/EC- 185(B) DATED 23.07.2007, WE WOULD LIKE TO INFORM YO U THAT THIS CORPORATION HAS ADMITTED RS. 122.54 LAKH (RUPEES ONE CRORE TWENTY T WO LAKH & FIFTY FOUR THOUSAND) ONLY FOR DISBURSEMENT TOWARDS THE SAID STATE CAPITA L INVESTMENT SUBSIDY (SCIS) ON THE FOLLOWING TERMS & CONDITIONS: A. SCIS WILL BE DISBURSED AS AND WHEN THE FUNDS ARE MA DE AVAILABLE TO WBIDC BY THE STATE GOVERNMENT, AND ALSO AS PER ELIGIBILITY C ERTIFICATE NO. INC-2004/EC- 185(B) DATED 23.07.2007. THE MAXIMUM LIMIT OF ALL S UBSIDIES WILL BE RS.1633.86 LAKH ENTITLEMENTS OF BENEFITS WILL BE AS PER CLAUSE 20(E) OF THE SCHEME; B. THE COMPANY HAS TO SUBMIT RELEVANT CERTIFICATES FRO M CONCERNED AUTHORITIES VIZ. COMMISSIONER, COMMERCIAL TAXES, COMMISSIONER, AND T HE DIRECTOR OF ELECTRICITY DUTY, WEST BENGAL CERTIFYING THAT THE U NIT HAS NOT DEFAULTED IN THE MATTER OF PAYMENT OF DUES UNDER THE ACTS STATED IN THE ELIGIBILITY CERTIFICATE BEFORE RELEASE OF INCENTIVES; C. THE COMPANY SHALL NOT IN ANY WAY DISPOSE OF ANY OR PART OF THE ASSET ALREADY CREATED; D. THE COMPANY SHALL INSURE THE PLANT & MACHINERY AGAI NST ANY LOSS OR DAMAGE AND REGULARLY PAY PREMIUM THEREOF; E. THE COMPANY SHALL NOT CHANGE LOCATION AND ALSO SHAL L NOT TRANSFER ANY OF THE ASSETS TO OTHER UNITS; F. IF WBIDC DECIDES THAT THE COMPANY IS ENTITLED TO A LESSER AMOUNT, THEN THE ADMITTED AMOUNT SHALL BE REDUCED OR THE EXCESS AMOU NT, IF DISBURSED, SHALL BE REFUNDED WITHIN 15 DAYS FROM THE DATE OF WBIDCS IN TIMATION; G. THE COMPANY SHALL PAY THE PROCESSING FEE ON THE SAN CTIONED AMOUNT AND OTHER INCIDENTAL EXPENSES EXPENSES AS THE CASE MAY AT THE TIME OF DISBURSEMENT OF THE SUBSIDY; H. AT THE TIME OF DISBURSEMENT OF THE SUBSIDE, OVERDUE AMOUNT TO WBIDC, IF ANY, WILL BE ADJUSTED; YOUR ACCEPTANCE OF THE ABOVE TERMS AND CONDITIONS S HOULD BE COMMUNICATED TO US WITHIN 15DAYS FROM THE DATE OF RECEIPT OF THIS LETTER. YOURS FAITHFULLY R. MUTSUDDI. EXECUTIVE DIRECTOR ITA NO.172/KOL/2017 M/S AI CHAMPDANY INDUSTRIES LTD. A.Y.2011-12 5 WE NOTE THAT SANCTIONED LETTER OF THE SAID SUBSIDY OF WEST BENGAL INDUSTRIAL DEVELOPMENT CORPORATION LTD (WBIDC), CLEARLY SPEAKS THAT THE WBIDC CORPORATION HAS ADMITTED RS.122.54 LAKH (RUPEES ONE CRORE TWENTY TWO LAKH & FIFTY FOUR THOUSAND) ONLY FOR DISBURSEMENT TOWARDS THE SAID STATE CAPITA L INVESTMENT SUBSIDY (SCIS). THEREFORE, FROM THE SCHEME OF THE SUBSIDY, IT IS ABUNDANTLY CLEAR THAT THE SAID SUBSIDY IS TOWARDS S TATE CAPITAL INVESTMENT, HENCE THIS SUBSIDY IS CAPITAL IN THE NATURE. 8. WE NOTE THAT THE ACCOUNTING TREATMENT OF A SUBS IDY, WHETHER IT IS A CAPITAL SUBSIDY OR REVENUE SUBSIDY IS TO BE DECIDED BASED O N THE SANCTIONED LETTER OF THE SUBSIDY. THE ABOVE MENTIONEDSANCTIONED LETTER DICTA TES ABOUT THE TREATMENT OF THE SUBSIDY UNDER CONSIDERATION. AFTER GOING THROUGH TH E ABOVE SANCTIONED LETTER OF THE WBIDC, WE NOTE THAT POINT NO. C) AND D), (WHICH IS GIVEN BELOW FOR READY REFERENCE), TALK ABOUT THE FIXED ASSETS: C.THE COMPANY SHALL NOT IN ANY WAY DISPOSE OF ANY OR PART OF THE ASSET ALREADY CREATED; D.THE COMPANY SHALL INSURE THE PLANT & MACHINERY AG AINST ANY LOSS OR DAMAGE AND REGULARLY PAY PREMIUM THEREOF; AS PER THE DIRECTION GIVEN BY THE WEST BENGAL GOVER NMENT THROUGH ABOVE SANCTIONED LETTER, THE COMPANY SHALL INSURE THE PLA NT & MACHINERY AGAINST ANY LOSS OR DAMAGE AND REGULARLY PAY PREMIUM THEREOF AN D THE SUBSIDY IS TOWARDS EXPANSION OF THE ASSESSEES PROJECT. WE NOTE THAT DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE SUBMITTED THE LIST OF ASS ETS ACQUIRED / PURCHASED AGAINST THE SCHEME OF WBIDC WHICH WERE ACQUIRED UP TO 31.03 .2008.THE ASSESSEE HAS FURNISHED BEFORE AO THE SCHEDULE OF THE FIXED ASSET VALUED AT AGGREGATEAT RS.11.61 CRORES INCLUDING HACKING/DRAWING MACHINE F INISHER, BLEACHING PLANT ETC. THE NATURE OF THE SUBSIDY RECEIPT IS TO BE DETERMIN ED WITH RESPECT TO THE PURPOSE FOR WHICH THE SUBSIDY WAS GRANTED. IT IS NOTED THAT THE SUBSIDY WAS GRANTED FOR THE PURPOSE OF ACQUISITION OF CAPITAL ASSETS HENCE IT I S A CAPITAL SUBSIDY.FOR THAT WE RELY ON THE JUDGMENT OF HONBLE SUPREME COURT IN TH E CASE OF CIT VS. PONNI ITA NO.172/KOL/2017 M/S AI CHAMPDANY INDUSTRIES LTD. A.Y.2011-12 6 SUGAR & CHEMICALS LTD. 306 ITR 392 (SC). THEREFORE, LD. CIT(A) HAS RIGHTLY TREATED THE SAID SUBSIDY AS CAPITAL IN NATURE ANDDE LETED THE ADDITION TO THE TUNE OF RS. 1,22,54,000/-. THAT BEING SO, WE DECLINED TO IN TERFERE IN THE ORDER PASSED BY THE LD. CIT(A), HIS ORDER ON THE ISSUE IS HEREBY UP HELD THE GROUNDS RAISED BY THE REVENUE IS DISMISSED. 9. THE NEXT GROUND RAISED BY THE REVENUE RELATES TO DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D OF IT RULES, 1962. 10. THE BRIEF FACTS QUA THE ISSUE ARE THAT DURING T HE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD MADE THE INVESTMENT IN SHARES AND SECURITIES AND RECEIVED THE DIVIDEND. THE ASSESSEES UO MOTO DISALLOWED 1% OF THE DIVIDEND RECEIPT,TO THE TUNE OF RS.1,801/-. HOWEVER , THE ASSESSING OFFICER NOTED THAT ASSESSEE HAS NOT COMPUTED THE DISALLOWANCE AS PER PROVISIONS OF 14A OF THE ACT, READ WITH RULE 8D OF THE RULES.THEREFORE, THE AO DID THE COMPUTATION OF DISALLOWANCE BY APPLYING RULE 8D(2) (II)TO THE TUNE OF 19,83,203/- AND ALSO DID COMPUTATION UNDER RULE 8D(2)(III) TO THE TUNE OF RS . 4,60,108/-. THUS, THE TOTAL DISALLOWANCE COMPUTED BY THE ASSESSING OFFICER WAS TO THE TUNE OF RS. 24,43,311/- (RS. 19,83,203/- + RS. 4,60,108/-). SIN CE THE ASSESSEE HAS SUO MOTO DISALLOWED THE AMOUNT OF RS. 1,801/- THEREFORE THE NET DISALLOWANCE COMPUTED BY THE ASSESSING OFFICER WAS TO THE TUNE OF RS. 24,41, 510/- (RS. 24,43,311 - RS. 1,801). 11. AGGRIEVED BY THE ADDITIONMADE BY THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS DELETED THE ADDITION MADE BY THE ASSESSING OFFICER PARTLY. AGGRIEVED BY THE ORD ER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. ITA NO.172/KOL/2017 M/S AI CHAMPDANY INDUSTRIES LTD. A.Y.2011-12 7 12. WE HAVE HEAD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. WE NOTE THAT THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE BALANCE SHEET OF THE ASSESSEE COMPANY AS ON 31.03.2011( PAP ER BOOK PAGE NO. 3), WHERIN WE FIND THE SHARE CAPITAL AND RESERVE AND SURPLUS I S TO THE TUNE OF RS. 109 CRORES WHEREAS INVESTMENT MADE BY THE ASSESSEE IS TO THE T UNE OF RS. 8.9 CRORE THEREFORE WE NOTE THAT THE FREE RESERVE AND CAPITAL OF THE AS SESSEE COMPANY IS MORE THAN THE INVESTMENT MADE BY THE ASSESSEE COMPANY, THEREFORE THE GENERAL PRESUMPTION IS THAT THE ASSESSEE HAS MADE INVESTMENT OUT OF THE IN TEREST FREE FUNDS, HENCE RELYING ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD. VS. DCIT 366 ITR 505, NO DISALLOWANCE SHOULD BE MAD E U/S 14A ON ACCOUNT OF INTEREST PAID ON BORROWINGS. SINCE THE ASSESSEE HAS OWN FUNDS WHICH EXCEED THE INVESTMENT MADE IN SHARES AND SECURITIES. 13. SO FAR THE DISALLOWANCE UNDER RULE 8D(2)(III) IS CONCERNED, WE NOTE THAT THERE IS NO INFIRMITY IN THE ORDER OF THE LD. CIT(A). THE LD. CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO COMPUTE THE DISALLOWANCE ONLY TAKING INTO ACCOUNT THOSE INVESTMENTS WHICH YIELDED THE DIVIDEND INCOME. HOWE VER, THE LD. DR FOR THE REVENUE SUBMITTED BEFORE US THAT THE ASSESSEE HAS N OT ESTABLISHED THAT THE INVESTMENTS WERE MADE OUT OF THE OWN CAPITAL AND FR EE RESERVES THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER SHOULD B E SUSTAINED. WE NOTE THAT THE LD. COUNSEL FOR THE ASSESSEE EXPLAINED THE BENC H THAT THE INVESTMENTS WERE PURCHASED BY THE ASSESSEE COMPANY PRIOR TO TAKING L ONG TERM LOAN THEREFORE THE INVESTMENT MADE BY THE ASSESSEE COMPANY IS ONLY OUT OF THE SHARE CAPITAL AND FREE RESERVE AVAILABLE WITH THE ASSESSEE COMPANY. WE NOT E THAT THE CO-ORDINATE BENCH OF ITAT, KOLKATA IN I.T.A. NO. 1331/KOL/2013 ORDER DATED 19.06.2013 IN THE CASE OF REI AGRO LTD, HELD THAT IN ORDER TO MAKE THE DIS ALLOWANCE U/S 14A READ WITH RULE 8D(2)(III), ONLY DIVIDEND BEARING SECURITIES S HOULD BE INCLUDED. THE LD. CIT(A) HAD ALREADY DIRECTED THE ASSESSING OFFICER C ONSIDERING THE JUDGMENT OF THE COORDINATE BENCH IN THE CASE OF REI AGRO LTD (S UPRA), THEREFORE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A). THAT BEING SO, WE DECLINE TO ITA NO.172/KOL/2017 M/S AI CHAMPDANY INDUSTRIES LTD. A.Y.2011-12 8 INTERFERE IN THE ORDER PASSED BY THE LD. CIT(A), HI S ORDER ON THE ISSUE IS HEREBY UPHELD AND THE GROUNDS OF APPEAL RAISED BY THE REVE NUE IS DISMISSED. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 01/ 03/ 2019. SD/- (A.T. VARKEY) SD/- (DR. A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA ; DATED 01 / 03/2019 SB , SR.PS. / COPY OF THE ORDER FORWARDED TO : ASSISTANT REGISTRAR I.T.A.T., KOLKATA BENCHES, KOLKATA 1. / THE ASSESSEE- DCIT, CIRCLE-1(1), KOLKATA 2. / THE RESPONDENT.- M/S AI CHAMPDANY INDUSTRIES LTD. 3. $ ( ) / THE CIT(A), :KOLKATA. 4. $ / CIT 5. % & , , / DR, ITAT, KOLKATA 6. & '( / GUARD FILE. //TRUE COPY// BY ORDER