Hindustan Gum & Chemicals Ltd., Kolkata V. DCIT, Circle - 12, Kolkata, Kolkata

ITA 1798/KOL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1314 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 03-05-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 17-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARINDAM BHATTACHARJEE
• Assessee Lawyers: J P KHAITAN; SANJAY BHAUMIK
• Keywords: Depreciation; Business expenditure; Additional depreciation; Earning of tax free income
• Section: 14A; 10B; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA C BENCH, KOLKATA [BEFORE SRI N.V. VASUDEVAN, JUDICIAL MEMBER & SRI J . SUDHAKAR REDDY ACCOUNTANT MEMBER] I.T.A. NO. 1798/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 2161/KOL/2014 ASSESSMENT YEAR: 2009-10 HINDUSTAN GUM & CHEMICAL LTD.... ... APPELLANT BIRLA BUILDING 4 TH FLOOR 9/1, R. N. MUKHERJEE ROAD KOLKATA - 700001 [PAN : AAACH 7214 E] THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-12, K OLKATA.. RESPONDENT AAYAKAR BHAWAN 7 TH FLOOR P-7, CHOWRINGHEE SQUARE KOLKATA 700 069 APPEARANCES BY: SHRI J.P. KHAITAN & SHRI SANJAY BHAUMIK, AR, APPEAR ED ON BEHALF OF THE ASSESSEE. SHRI ARINDAM BHATTACHARJEE, ADDL. CIT, DR, APPEARIN G ON BEHALF OF THE REVENUE. DATE OF CONCLUDING THE HEARING : SEPTEMBER 1 4, 2017 DATE OF PRONOUNCING THE ORDER : OCTOBER 25, 2017 O R D E R PER J. SUDHAKAR REDDY :- THESE ARE CROSS-APPEALS FILED FOR THE ASSESSMENT Y EAR 2009-10, BY THE ASSESSEE AND THE REVENUE, DIRECTED AGAINST THE ORDE R OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XII, KOLKATA (LD. CIT(A)), P ASSED U/S 250 OF THE INCOME TAX ACT (THE ACT), ORDER DT. 11/07/2014. 2. FIRST WE TAKE UP THE ASSESSEES APPEAL IN ITA NO. 1798/KOL/2014 FOR THE ASSESSMENT YEAR 2009-10. THE GROUNDS OF APPEAL FOR THE SAME READ AS UNDER:- 2 HINDUSTAN GUM & CHEMICAL LTD I.T.A. NO. 1798/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 2161/KOL/2014 ASSESSMENT YEAR: 2009-10 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT (APPEALS) ERRED IN NOT DELETING THE DIS ALLOWANCE OF RS.5,61.305/- TREATED BY LEARNED DCIT AS EXPENSES A TTRIBUTABLE TO EARNING DIVIDEND INCOME AND DID NOT HOLD THAT NO EX PENSES HAVE BEEN INCURRED TO EARN THE SAID INCOME. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT (APPEALS) ERRED IN NOT HOLDING THAT PROVISION F OR LEAVE ENCASHMENT OF RS.17,63,884/- IS NEITHER STATUTORY L IABILITY NOR CONTINGENT LIABILITY AND THEREFORE NOT TO BE CONSID ERED FOR THE PURPOSE OF COMPUTING DISALLOWANCE U/S.43B(F) OF THE I.T. ACT, 1961. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT (APPEALS) ERRED IN NOT HOLDING THAT PEN ALTY OF RS.24,000/- IS NOT PAID FOR VIOLATION OF ANY LAW AN D THEREFORE THE SAME IS ALLOWABLE AS BUSINESS EXPENDITURE. THAT THE APPELLANT CRAVES LEAVE TO. ADD TO. ALTER AMEND AND/OR WITHDRAW ALL OR ANY OF THE ABOVE GROUNDS AT OR BEFO RE THE HEARING OF THE APPEAL. 3. WE HAVE HEARD THE LD. SENIOR COUNSEL SHRI J.P. KH AITAN, ON BEHALF OF THE ASSESSEE AND SHRI ARINDAM BHATTACHARJEE, ON BEHALF O F THE REVENUE. ON CAREFUL CONSIDERATION OF THE PAPERS ON RECORD, CASE LAWS CI TED AND ORDERS OF THE AUTHORITIES BELOW, WE HOLD AS FOLLOWS:- 4. GROUND NO. 1 OF THE ASSESSEES APPEAL IS ON THE DISALLOWANCE MADE U/S 14A OF THE ACT. 4.1. THE LD. COUNSEL FOR THE ASSESSEE, SUBMITS THAT THE TRIBUNAL IN THE ASSESSEES OWN CASE, IN THE EARLIER ASSESSMENT YEAR , IN ITA NO. 462/KOL/2014, 3 HINDUSTAN GUM & CHEMICAL LTD I.T.A. NO. 1798/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 2161/KOL/2014 ASSESSMENT YEAR: 2009-10 ASSESSMENT YEAR 2008-09, ORDER DT. 08/03/2017, HAD CONSIDERED THE ISSUE AND HELD THAT NO DISALLOWANCE WAS CALLED FOR UNDER RULE 8D2(II) OF THE INCOME TAX RULES, 1962 (THE RULES), FOR THE REASON THAT THE ASSESSEE HAD SUFFICIENT INTEREST FROM OWN FUNDS TO MAKE THE INVESTMENTS AND THAT THE ASSESSEE HAS MADE STRATEGIC INVESTMENTS AND UNDER THOSE CIRCUMSTANCES , NO DISALLOWANCE CAN BE MADE UNDER RULE 8D2(II) OF THE RULES. 4.1.1. THE ASSESSEES SUBMISSION IS THAT ONLY DIVID END BEARING INVESTMENTS SHOULD BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF WOR KING OUT DISALLOWANCE UNDER RULE 8D2(II) OF THE RULES. 4.2. ON CONSIDERATION OF THESE SUBMISSIONS, WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE SHOULD BE RESTORED TO THE FILE OF TH E ASSESSING OFFICER WITH A DIRECTION THAT THE DISALLOWANCE UNDER RULE 8D2(II) OF THE RULES, SHOULD BE DETERMINED BY APPLYING THE FOLLOWING PROPOSITIONS O F LAW:- THE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD. V. DCIT (2014) 366 ITR 505(BOM HC), HELD AS FOLLOWS:- INCOMEEXPENDITURE INCURRED IN RELATION TO INCOME N OT INCLUDIBLE IN TOTAL INCOMEEXEMPT INCOMEASSESSEE MADE INVESTMENT IN TA X FREE SECURITIES AO DISALLOWED PROPORTIONATE DISALLOWANCE U/S 14ATR IBUNAL DELETED DISALLOWANCE HOLDING THAT INVESTMENT IN TAX FREE SE CURITIES/INVESTMENTS WAS MADE BY ASSESSEES OWN FUNDSHELD, FINDING OF FACT WAS GIVEN BY TRIBUNAL THAT ASSESSEE'S OWN FUNDS AND OTHER NON-INTEREST BE ARING FUNDS WERE MORE THAN INVESTMENT IN THE TAXFREE SECURITIESSAID FAC TUAL POSITION WAS NOT DISPUTEDTHUS ASSESSEE'S CAPITAL, PROFIT RESERVES, SURPLUS AND CURRENT 4 HINDUSTAN GUM & CHEMICAL LTD I.T.A. NO. 1798/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 2161/KOL/2014 ASSESSMENT YEAR: 2009-10 ACCOUNT DEPOSITS WERE HIGHER THAN THE INVESTMENT IN TAX-FREE SECURITIESIT WOULD HAVE TO BE PRESUMED THAT INVESTMENT MADE BY T HE ASSESSEE WOULD BE OUT OF THE INTEREST-FREE FUNDS AVAILABLE WITH ASSES SEETRIBUNAL WAS JUSTIFIED IN DELETING ADDITION MADE BY AOREVENUES APPEAL DISMISSED 5. THIS BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE EARLIER ASSESSMENT YEARS, IN ITA NO. 4622/KOL/2014, A.Y. 20 08-09, ORDER DT. 08/03/2017 HAS TAKEN A SIMILAR VIEW. THE ASSESSING OFFICER IS DIRECTED TO APPLY THIS PROPOSITION OF LAW AS LAID DOWN IN THE ABOVE D ECISION TO THE FACTS OF THIS CASE AND DETERMINE THE DISALLOWANCE UNDER RULE 8D2( II) OF THE RULES. THE CLAIM OF THE ASSESSEE THAT IT HAS MADE STRATEGIC INVESTME NTS AND THAT THESE INVESTMENTS SHOULD NOT BE CONSIDERED WHILE COMPUTIN G DISALLOWANCE UNDER RULE 8D2(II) OF THE RULES, HAS ALSO TO BE ADJUDICTE D BY THE ASSESSING OFFICER. 6. THE HONBLE SPECIAL BENCH OF THE ITAT IN THE CASE OF ACIT VS. VIREET INVESTMENT PVT LTD. HELD THAT ONLY THOSE INVESTMENTS ARE TO BE CONSIDE RED FOR COMPUTING THE AVERAGE VALUE OF INVESTMENT WHICH YIE LDED EXEMPT INCOME DURING THE YEAR. 6.1. THE ASSESSING OFFICER IS DIRECTED TO APPLY THI S PROPOSITION OF LAW AND WORK OUT THE DISALLOWANCE, IF ANY, UNDER RULE 8D2(I I) OF THE ACT. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTI CAL PURPOSES. 7. GROUND NO. 2 IS ON THE DISALLOWANCE OF THE PROV ISIONS FOR LEAVE ENCASHMENT. 5 HINDUSTAN GUM & CHEMICAL LTD I.T.A. NO. 1798/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 2161/KOL/2014 ASSESSMENT YEAR: 2009-10 7.1. WE FIND THAT THE KOLKATA A BENCH OF THE TRIB UNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007-08, WHILE ADJUDIC ATING THE SAME ISSUE REMITTED THE ISSUE TO THE FILE OF THE ASSESSING OFF ICER TO DECIDE THE SAME TAKING INTO CONSIDERATION THE OUTCOME OF THE CASE IN SLP CIVIL 22889/2008 OF THE FILE OF THE HONBLE SUPREME COURT. 8. RESPECTFULLY FOLLOWING THE SAME, WE SET ASIDE TH IS ISSUE TO THE FILE OF THE ASSESSING OFFICER, FOR FRESH ADJUDICATION IN ACCORD ANCE WITH LAW. 9. GROUND NO. 3 IS ON THE LEVY OF PENALTY OF RS.24, 000/-. 9.1. THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.24,000/-, ON THE GROUND THAT IT IS HIT BY EXPLANATION 1 TO SECTION 37 OF THE ACT. THE ASSESSEE SUBMITS THAT THIS AMOUNT WAS NOT PAID FOR VIOLATION OF ANY LAW BUT WAS JUST A PENALTY ORDERED BY THE CHIEF JUDICIAL MAGISTRATE FO R A FINGER INJURY CAUSED TO THE WORKER IN THE ASSESSEES PLANT AT BHIWANI. 10. THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS THIS GROUND DUE TO THE SMALLNESS OF THE AMOUNT. HENCE THIS GROUND OF THE A SSESSEE IS DISMISSED AS NOT PRESSED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED IN PART. 12. NOW WE TAKE UP THE REVENUES APPEAL ITA NO. 1798/KOL/2014 FOR THE ASSESSMENT YEAR 2009-10. THE GROUNDS OF APPEAL FOR THE SAME READ AS UNDER:- 6 HINDUSTAN GUM & CHEMICAL LTD I.T.A. NO. 1798/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 2161/KOL/2014 ASSESSMENT YEAR: 2009-10 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 10 ,57,671/ - MADE U/ S. 10B BY THE A.O. ON ACCOUNT OF OTHER INCO ME.' 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 16,17,999 /- AGAINST THE CLAIM OF ADDL. DEPRECIATION BY THE ASSESSEE.' 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 2,12,48,372/ - MADE UNDER THE HEAD CURRENT LIABILITIES WITHOUT CONSIDERING TH E CBDT INSTRUCTION NO. 03/2011.' 11. THE LD. CIT(A), HAS DEALT WITH THIS ISSUE AT PA GE 11, PARA 4.2.1. OF HIS ORDER, WHEREIN HE HAS HELD AS FOLLOWS:- IT IS NOTED THAT, THIS ISSUE HAS BEEN DECIDED BY T HE HON'BLE TRIBUNAL IN THE APPELLANT'S FAVOUR BY VIDE ORDER DA TED DECEMBER 28, 2007 PASSED IN ITA NOS. 150 AND 277 (KOL) OF 20 07 FOR THE ASSESSMENT YEAR 2003-04- AND IN ITA NOS. 567 AND 58 0/KOL/2009 FOR THE ASSESSMENT YEAR 2004-05. THE HON'BLE TRIBUN AL CONSIDERED THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT V IN STERLING FOODS (1999) 2371TR 579(SC)) AND NOTED THAT THE SAME WAS RENDERED WITH REFERENCE TO SECTION 80H H, WHEREAS THE PROVISIONS OF SECTION 10B WERE MATERIAL DIFFERE NT. IT IS ALSO SEEN THAT THE SIMILAR ISSUE HAS COME UP FOR CONSIDE RATION WHILE ADJUDICATING THE APPELLANTS APPEAL FOR AY 2007-08 AND AY 2008- 09 AND THE ISSUE WAS DECIDED IN FAVOUR OF THE APPEL LANT IN APPEAL NO.428/XII/R-12/10-11 DATED 12.03.2013 & APPEAL NO. 7 HINDUSTAN GUM & CHEMICAL LTD I.T.A. NO. 1798/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 2161/KOL/2014 ASSESSMENT YEAR: 2009-10 475/XII/12/08-09 DATED 13.01.2014 FOLLOWING THE ABO VE MENTIONED ORDERS OF THE JURISDICTIONAL ITAT, KOLKAT A. IN THE LIGHT OF THE ABOVE DISCUSSION & FINDINGS, A FTER PERUSING THE FACTS OF THE CASE AND RESPECTFULLY FOL LOWING THE DECISION OF THE HONBLE JURISDICTIONAL TRIBUNAL IN THE CASE OF THE APPELLANT AND THE APPELLATE ORDERS FOR A Y 2007-08 & A Y 2008- 09, THE ADDITION MADE BY THE AO IS DIRECTED TO BE D ELETED. HENCE, THIS GROUND OF APPEAL IS ALLOWED. 12. WE FIND THAT THE TRIBUNAL IN THE ASSESSEES OWN CASE ON THE VERY SAME ISSUE FOR THE ASSESSMENT YEAR 2004-05 UP TO ASSESSM ENT YEAR 2008-09, HAS ADJUDICATED THE ISSUE IN FAVOUR OF THE ASSESSEE. IT WAS HELD THAT RENT REALIZED FROM STAFF, INSURANCE CLAIM REALIZED IN RESPECT OF DAMAGE OF GOODS, EXCESS LIABILITY FROM SUNDRY CREDITORS WRITTEN BACK, FOR R EVENUE EXPENSES AND MISCELLANEOUS INCOMES AND RECEIPTS INCLUDING DUTY D RAW BACK HAVE TO BE TREATED AS INCOME FROM BUSINESS AND HAVE TO BE CONS IDERED WHILE CALCULATING DEDUCTION U/S 10B OF THE ACT. THE HONBLE CALCUTTA HIGH COURT IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-04 IN ITA NO. 666/2008, JUDGEMENT DT. 30 TH JUNE, 2016, HAS UPHELD THIS ORDER OF THE TRIBUNAL. 13. RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS THIS GROUND OF THE REVENUE. 14. GROUND NO. 2 IS AGAINST THE DIRECTION OF THE LD . CIT(A) TO ALLOW THE ADDITIONAL DEPRECIATION. THE CLAIM FOR ADDITIONAL D EPRECIATION. 8 HINDUSTAN GUM & CHEMICAL LTD I.T.A. NO. 1798/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 2161/KOL/2014 ASSESSMENT YEAR: 2009-10 14.1. THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESS EE BY THE DECISION OF THE KOLKATA A BENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007-08 & 2008-09. THE LD. CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOWING THIS ORDER OF THE JURISDICTIONAL TRIBU NAL. 15. WE FIND NO INFIRMITY IN THE SAME. IN THE RESULT , WE UPHOLD THE FINDING OF THE LD. CIT(A) AT PARA 4.2.2., OF HIS ORDER. IN THE RESULT, THIS GROUND OF THE REVENUE IS DISMISSED. 16. GROUND NO. 3 IS ON THE ISSUE OF PROVISION FOR M ARKET TO MARKET LOSSES. 16.1. THE ASSESSEE HAS ACCOUNTED FOR THE LOSSES THA T AROSE DUE TO EXCHANGE RATE FLUCTUATIONS. THE LOSSES AS ON 31 ST MARCH, 2009 WAS COMPUTED AND CLAIMED. THE ASSESSING OFFICER DISALLOWED THE SAME ON THE GROUND THAT THIS IS A NOTIONAL LOSS THE KOLKATA B BENCH OF THE TRIBUNAL, FOR THE ASSE SSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09, HAD ADJUDICATED THE ISSUE IN FAVOUR OF THE ASSESSEE. 16.2. THE TRIBUNAL HELD AS FOLLOWS:- P.T.O. 9 HINDUSTAN GUM & CHEMICAL LTD I.T.A. NO. 1798/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 2161/KOL/2014 ASSESSMENT YEAR: 2009-10 10 HINDUSTAN GUM & CHEMICAL LTD I.T.A. NO. 1798/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 2161/KOL/2014 ASSESSMENT YEAR: 2009-10 17. THE LD. CIT(A) HAS APPLIED THIS DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE AND GRANTED RELIEF. WE FIND NO INFIRMITY I N THE SAME AND DISMISS THIS GROUND OF THE REVENUE. 18. TO SUM UP, ASSESSEES APPEAL IN ITA NO. 1798/KOL/2014 FOR THE ASSESSMENT YEAR 2009-10, IS ALLOWED FOR STATISTICAL PURPOSES AND REVENUES APPEAL IN ITA NO. 1798/KOL/2014 FOR THE ASSESSMENT YEAR 2009-10, IS DISMISSED. KOLKATA, THE 25 TH DAY OF OCTOBER, 2017. SD/- SD/- [N.V. VASUDEVAN] [ J. SUDHAKAR REDDY ] JUDICIAL MEMBER ACCOUNTANT MEMB ER DATED : 25.10.2017 {SC SPS} 11 HINDUSTAN GUM & CHEMICAL LTD I.T.A. NO. 1798/KOL/2014 ASSESSMENT YEAR: 2009-10 & I.T.A. NO. 2161/KOL/2014 ASSESSMENT YEAR: 2009-10 COPY OF THE ORDER FORWARDED TO: 1. HINDUSTAN GUM & CHEMICAL LTD BIRLA BUILDING 4 TH FLOOR 9/1, R. N. MUKHERJEE ROAD KOLKATA - 700001 2. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-12, KOLKATA AAYAKAR BHAWAN 7 TH FLOOR P-7, CHOWRINGHEE SQUARE KOLKATA 700 069 3. CIT(A)- 4. CIT- , 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVATE SECRETARY HEAD OF OFFICE/ D.D.O. ITAT, KOLKATA BENCHES