Mohan Energy Corporation (P) Ltd, New Delhi V. ACIT, New Delhi

ITA 2020/DEL/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3373 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 07-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVIKANT GUPTA
• Assessee Lawyers: N K GUPTA
• Keywords: Rule of consistency; Corroborative evidences; Deemed dividend
• Section: 14A; 37(1); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT ME MBER & SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER ITA NO.2020/DEL/2015 ASSESSMENT YEAR: 2011-12 M/S MOHAN ENERGY CORPORATION P. LTD., MOHAN HOUSE, 8-9, ZAMRUDPUR COMMUNITY CENTRE, KAILASH COLONY EXTN. NEW DELHI. PAN: AAECM6956G VS ASSTT. COMMISSIONER OF INCOME-TAX, CIRCLE 5(1), NEW DELHI. ASSESSEE BY SHRI N.K. GUPTA REVENUE BY SH. RAVI KANT GUPTA, SR. DR ORDER PER K. NARASIMHA CHARY, J.M. THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDERS DATED 27.01.2015 IN APPEAL NO.305/14-15 PASSED BY THE LD. COMMISSIONER OF INCOME- TAX (APPEALS)- 6, NEW DELHI (FOR SHORT HEREINAFTER CALLED LD. CI TA). 2. ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS O F TURNKEY PROJECTS IN CONVENTIONAL AND UNCONVENTIONAL ENERGY LIKE TRANSMIS SION LINES, DISTRIBUTION NETWORKS, SUBSTATIONS, SOLAR INSTALLATIONS, BIO MAS S BASED POWER GENERATION ETC. ITS AREA OF OPERATIONS IS MAINLY IN THE AFRICAN CONT INENT IN COUNTRIES LIKE BURKINA DATE OF HEARING 14.08.2018 DATE OF PRONOUNCEMENT 23.08.2018 2 FASO, NIGERIA, TOGO, MOZAMBIQUE, COTE DIVOIRE, GAM BIA ETC. THESE PROJECTS ARE GENERALLY FINANCED UNDER LINES OF CREDIT EXTENDED BY THE GOVERNMENT OF INDIA OR INTERNATIONAL FUNDING AGENCIES LIKE WORLD BANK AND REGIONAL DEVELOPMENT BANKS. THE ASSESSEE IS NOT A MANUFACTURER. THE RAW MATERIA L AND COMPONENT PARTS ARE OBTAINED FROM THIRD PARTIES SUPPLIERS/MANUFACTURERS , EXPORTED AND THEREAFTER ERECTED/INSTALLED AT SITE BY THE ASSESSEE OR THROUGH LOCAL SUBCONTRACTORS UNDER SUPERVISION. THE TURNOVER DURING THE YEAR WAS RS.74, 51,17,114/- AND NET PROFIT DECLARED WAS RS.9,61,74,010/- GIVING A NET PROFIT R ATIO OF 12.9%. 3. THE ASSESSEE FILED THEIR RETURN OF INCOME ON 30. 09.2011 DECLARING A TOTAL INCOME OF RS.9,99,03,558/-. HOWEVER, LEARNED AO MA DE CERTAIN ADDITIONS, NAMELY, ON ACCOUNT OF SHORT PROVISIONS OF EXPORT INC ENTIVE, DISALLOWANCE ON ACCOUNT OF SECTION 14A ADDITION ON ACCOUNT OF DEEME D DIVIDEND AND DISALLOWANCE ON ACCOUNT OF ELEMENT OF PERSONAL EXPENSES AND DETE RMINED THE INCOME OF THE ASSESSEE AT RS.19,76,33,120/-. IN APPEAL, LEARNED CIT(A) SUSTAINED THE ADDITION OF RS.10,44,778/- ON ACCOUNT OF THE VALUE OF DEPB LICE NSE, DEEMED DIVIDEND AND A SUM OF RS.25,500/ OUT OF THE TELEPHONE EXPENSES FOR PERSONAL USE BY THE EMPLOYEES , RS.10,48,368/- OUT OF BUSINESS PROMOTION EXPENSES AND RS.44,000/- OUT OF LOCAL CONVEYANCE ON ESTIMATE BASIS. THOUGH T HE ASSESSEE CHALLENGED IN THIS APPEAL ALL THE THREE ADDITIONS, HOWEVER, DURING THE COURSE OF ARGUMENTS, GROUND NO.2 RELATING TO THE DEEMED DIVIDEND IS NOT PRESSED . THEREFORE, WHAT REMAINS TO BE ADJUDICATED IS THE ADDITION OF RS.10,44,778/- ON ACCOUNT OF THE VALUE OF DEPB LICENSE AND THE DISALLOWANCE OF THE PORTION OF THE TELEPHONE EXPENSES, BUSINESS PROMOTION EXPENSES AND LOCAL CONVEYANCE. 3 4. GROUND NO.1 RELATES TO THE ADDITION ON ACCOUNT O F VALUE OF DEPB LICENSE. THE ASSESSEE IS ENTITLED TO DEPB LICENSE AGAINST TH E EXPORT OF GOODS. SINCE THE ASSESSEE IS NOT A MANUFACTURER, THE ASSESSEE CANNOT MAKE USE OF THE BENEFITS OF DEPB LICENSE AND WAS SELLING TO DIFFERENT ENTITIES. ACCORDING TO THE ASSESSEE, BASING OF THEIR EARLIER EXPERIENCE, THEY VALUED THE DEPB LICENSE AT 90% AND THE CHART FILED IN THE PAPER BOOK SHOWS THAT AS A MATTE R OF FACT THE DEPB WAS SOLD AT A PRICE MUCH LOWER THAN 90% AND SOME LICENSES WERE EV EN LAPSED IN THE YEAR 2014. THE AUTHORITIES BELOW HELD THAT THE ESTIMATE OF SAL E PRICE OF DEPB AT 90% OF ITS ACTUAL VALUE WAS WITHOUT ANY JUSTIFICATION AND A PRO VISION IS MADE NOTIONALLY TO COVER FUTURE PROBABLE FORECAST OF LOSS. IT IS FURT HER RECORDED THAT SECTION 37(1) STATES THAT ONLY EXPENSES INCURRED DURING THE YEAR IS ALLOWED AS DEDUCTION AND SINCE THE PROVISIONS ARE NOT EXPENSES, THOSE ARE NO T ALLOWED AS DEDUCTION. 5. IT IS THE ARGUMENT OF THE LEARNED AR THAT HERE T HE MATTER DOES NOT RELATE TO ANY EXPENDITURE OR ANY PROVISION CREATED THERE FOR BU T IT IS ONLY THE INCOME DERIVABLE ON THE SALE OF THE DEPB. IT IS FURTHER S UBMITTED BY THE LEARNED AR THAT THE RULE OF PRUDENCE REQUIRES THAT THE PROVISION SH OULD BE MADE FOR ALL NOTIONAL LIABILITIES AND LOSSES EVEN THOUGH THE AMOUNT CANNO T BE DETERMINED WITH CERTAINTY AND REPRESENTS ONLY A BEST ESTIMATE IN THE LIGHT OF THE AVAILABLE INFORMATION AND IT IS PERMISSIBLE UNDER THE NOTIFIE D ACCOUNTING STANDARDS. HE FURTHER SUBMITS THAT THE RULE OF CONSISTENCY REFERS TO THE ASSUMPTION THAT ACCOUNTING POLICIES ARE CONSISTENT FROM ONE PARTY TO ANOTHER AND WELL RECOGNIZED BY THE NOTIFICATION NO. SO 69(E) DATED 25.1.1996 ISS UED BY THE BOARD UNDER SECTION 145 OF THE ACT. 4 6. LEARNED DR SUBMITS THAT SINCE THE ASSESSEE WAS W RITING OFF THE LOSS THAT WAS ACCRUED ON THE SALE OF DEPB OR THE LAPSE OF DEP BS AT A SUBSEQUENT POINT OF TIME, IN THE SAME MANNER, IN THE YEAR OF ACCRUAL THE ASSESSEE SHOULD HAVE DECLARED THE ACTUAL VALUE OF DEPB AS INCOME AND WHE NEVER THEIR ARISES LOSS ON EITHER SALE OR THE LAPSE, THE ASSESSEE COULD HAVE W RITTEN OFF SUCH LOSS IN THE YEAR OF SUCH SALE OR LAPSE. 7. HAVING GONE THROUGH THE RECORD AND THE CHART FUR NISHED BY THE ASSESSEE, WE FIND THAT IN RESPECT OF THE SALES THAT WERE MADE IN THE FINANCIAL YEARS 2012-13, 2013-14, 2014-15, WHEN THE DEPB WAS SOLD TO VICKY BH ALLA, JAIN INTERNATIONAL AND MEHTA EXPORT CORPORATION, THE ASSESSEE REALIZED ONL Y 83.14% TO 88.08% OF THE ACTUAL VALUE OF DEPBS NECESSITATING THEM TO WRITTEN OFF THE LOSS. SO ALSO IN THE YEAR 2014, THERE WAS LAPSE OF DEPBS. THERE IS NO DI SPUTE FROM THE REVENUE AS TO THE ACTUAL VALUE REALIZED BY THE ASSESSEE IN RESPECT OF THE DEPB ON THEIR SALE WHICH IS SOMETHING AROUND 90% OR LESS OF THEIR ACTU AL VALUE. THE STATISTICS FURNISHED BY THE ASSESSEE SUGGESTS THAT THERE IS A B ASIS FOR THE ASSESSEE TO ESTIMATE THE REALIZABLE VALUE OF THE DEPBS AS AGAIN ST THEIR ACTUAL VALUE AND INASMUCH THE DEPBS THAT FETCHED THE HIGHEST PRICE F ROM BAJAJ OVERSEAS IMPEX WAS AT 90%, WE ARE CONVINCED TO BELIEVE THAT THERE IS A SCIENTIFIC BASIS FOR THE ASSESSEE TO ESTIMATE THE PROBABLE REALIZABLE VALUE OF THE DEPB AT 90%. 8. FURTHER IN VIEW OF THE NOTIFICATION NO. SO 69(E) DATED 25.1.1996, IT IS PERMISSIBLE FOR THE ASSESSEE TO MAKE PROVISION FOR ALL KNOWN LIABILITIES AND LOSSES EVEN THOUGH THE AMOUNT CANNOT BE A CERTAINTY AND RE PRESENTS ONLY A BEST ESTIMATE IN THE LIGHT OF AVAILABLE INFORMATION AND IF THE FUNDAMENTAL ACCOUNTING ASSUMPTIONS RELATING TO GOING CONCERN CONSISTENCY AN D ACCRUAL ARE FOLLOWED IN THE 5 FINANCIAL STATEMENTS, SPECIFIC DISCLOSURE IN RESPEC T OF SUCH ASSUMPTIONS IS NOT REQUIRED AND IN THIS CONTEXT CONSISTENCY IS REFERRED TO THE ASSUMPTION THAT ACCOUNTING POLICY ARE CONSISTENT FROM ONE PERIOD TO ANOTHER. IN VIEW OF THIS, WE DO NOT FIND ANYTHING IRREGULAR IN THE ASSESSEE DECLA RING THE REALIZABLE VALUE OF THE DEPBS ON THEIR SALE AT 90% AND TO WRITE OFF THE LOS SES ARISING ON THE SALE OR LAPSE OF DEPBS IN THE SUBSEQUENT YEARS. WITH THIS VIEW OF THE MATTER, WE ARE INCLINED TO ACCEPT THE SUBMISSIONS MADE BY THE ASSESSEE AND TO D IRECT THE LEARNED AO TO DELETE THE ADDITION MADE ON THIS SCORE. 9. NOW COMING TO GROUND NO.3 WHICH RELATES TO THE A D HOC DISALLOWANCE OF THE TELEPHONE EXPENSES, TRAVELLING AND CONVEYANCE EX PENSES AND EXPORT PROMOTION EXPENSES, LEARNED AO RECORDED THAT THERE IS AN ELEMENT OF PERSONAL USE BY THE DIRECTORS AND EMPLOYEES OF THE ASSESSEE CO MPANY, THE ASSESSEE WAS NOT MAINTAINING ANY LOG BOOK FOR VEHICLES, NO DETAIL S REGARDING TELEPHONE EXPENSES WERE MAINTAINED PHONE WISE AND IN RESPECT OF TOUR AND TRAVEL, PROPER SUPPORTING EVIDENCE WAS NOT AVAILABLE TO PROVE THAT EXPENSES UNDER THAT HEAD ARE PURELY FOR THE BUSINESS PURPOSES. ON THIS, LEAR NED AO PROCEEDED TO DISALLOW 10% OF THE EXPENSES TO PREVENT THE LEAKAGES OF REVE NUE. 10. LEARNED CIT(A) GRANTED RELIEF TO THE ASSESSEE O N THIS SCORE TO SOME EXTENT TO SUSTAIN THE DISALLOWANCE OF 10% OF MOBILE EXPENS ES OF THE EMPLOYEES TO THE TUNE OF RS.27500/-, 10% OF LOCAL CONVEYANCE EXPENSES TO THE TUNE OF RS.44,000/- AND A SUM OF RS.10,48,368/- IN RESPECT OF THE EXPOR T PROMOTION EXPENSES. 11. THOUGH THE LEARNED CIT(A) HAD GIVEN SOME RELIEF TO THE ASSESSEE ON THIS STILL THERE IS NO REASON OR LOGIC BEHIND THE SUSTAINING O F THE DISALLOWANCE AS ENUMERATED ABOVE. IT IS PURELY AN AD HOC ADDITION ON ESTIMATE BASIS WITHOUT 6 REFERENCE TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE OR FINDING OUT ANY PARTICULAR DISCREPANCY THEREIN. THE ASSESSEE PRODUCED THE DETA ILS OF THE TELEPHONE EXPENSES, EXPORT PROMOTION EXPENSES BY WAY OF PAGE NO S.6 TO 9 OF THE PAPER BOOK AND NONE OF THESE EXPENSES WOULD GO TO SHOW TH E INVOLVEMENT OF THE PERSONAL EXPENSES IN THIS. IN THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION, WITHOUT POINTING OUT TO ANY PARTICULAR DISC REPANCY IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE OR WITHOUT REJECTING THE B OOKS OF ACCOUNTS, SUCH DISALLOWANCE ON ESTIMATE BASIS HAS NO LOGIC BEHIND IT AND WE FIND IT DIFFICULT TO SUSTAIN THE SAME. WE, THEREFORE, DIRECT THE LEARNE D AO TO DELETE THE SAME. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD AUGUST, 2018. SD/- SD/- (N.K. BILLAIYA) (K. NARASIM HA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 23 RD AUGUST, 2018 VJ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 7 DRAFT DICTATED ON 14.08.2018 DRAFT PLACED BEFORE AUTHOR 14.08.2018 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS KEPT FOR PRONOUNCEMENT ON DATE OF UPLOADING ORDER ON THE WEBSITE FILE SENT TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.