D.C.I.T Cir - 11,kolkata, Kolkata V. M/s Ambuja Cement Eastern Ltd, Kolkata

ITA 2109/KOL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4241 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 17-10-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 12-07-2013
• Court: TRIBUNAL
• Department Lawyers: R S BISWAS CIT LD
• Assessee Lawyers: SOUMEN ADAK FCA LD
• Keywords: Capital receipt
• Section: 142(1); 14A

Judgement Text

ITA NO. 2109/KOL/2013 M/S. AMBUJA CEMENT EASTERN LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A B ENCH, KOLKATA BEFORE : SHRI M.BALAGANESH, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBE R I.T.A. NO. 2109/KOL/2013 ASSESSMENT YEAR: 2005-06 DCIT, CIR-11, KOLKATA P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069. APPELLANT -VS- M/S. AMBUJA CEMENT EASTERN LTD SURABHI, 4 TH & 5 TH FLOOR, 8/1/2 LOUDON STREET, KOLKATA-700 017 PAN:AAECA 0887E RESPONDENT APPEARANCES BY: SHRI R.S. BISWAS, CIT, LD.DR FOR THE REVENUE SHRI SOUMEN ADAK, FCA, LD.AR FOR THE ASSESSEE DATE OF HEARING : 17-10- 2016 DATE OF PRONOUNCEMENT : 1 6-11-2016 SHRI. S.S.VISWANETHRA RAVI, JM: THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DT: 20-03-2013 PASSED BY THE COMMISSIONER OF INCOME TAX-(APPEALS),XII, KO LKATA FOR THE ASSESSMENT YEAR 2005-06. ITA NO. 2109/KOL/2013 M/S. AMBUJA CEMENT EASTERN LTD 2 2. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLL OWING GROUNDS OF APPEAL: 1.THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE LD. CIT(A) ERRED IN ALLOWING ASSESSEE'S APPEAL BY HOLDING THAT REMISSION OF SALES TAX AS CAPITAL RECEIPT WITHOUT APPRECIATING THE FINDINGS OF THE A.O. WHO TREATED THAT REMISION OF SALE TAX TO THE TUNE OF RS.49 ,34,57,796/- IS A REVENUE RECEIPT. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE L D. CIT(A) ERRED IN ALLOWING ASSESSEE'S APPEAL ON THE BASIS OF THE DECISI ON OF HON'BLE ITAT IN ASSESSEE'S OWN CASE FOR THE A.Y.2001-02 & 200 2-03 BY SUPERSIDING THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. CHINDWARA FUELS (245 ITR 9) WHICH SP EAKS THAT SALES TAX SUBSIDY RECEIVED AFTER PRODUCTION CANNOT BE TREAT ED AS CAPITAL RECEIPT. 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD.CIT(A) WAS JUSTIFIED IN RESTRICTING THE DISALLOWANCE U/S 14 A OF THE I.T. ACT, 1961 TO 1% OF THE DIVIDEND INCOME, INSTEAD OF APPLYING THE PROVISION OF RULE 8D OF I.T. RULES, 1962. 3. THE ASSESSE IS A COMPANY AND DEALING IN THE BUSI NESS OF MANUFACTURING AND SELLING OF CLINKER AND CEMENT I.E OF PORTLAND POZZOLONA CEMENT (PPC) AND SELLS THE PRODUCT UNDER THE KNOWN BRAND NAME 'AMBUJA CEMENT'. THE ASSESSEE HAS TWO MANUFACTURING UNITS A T BHATAPARA IN CHATTISGARH IS A CLINKERISATION-CUM-CEMENT GRINDING UNIT AND THE OTHER UNIT IS AT SANKRAIL IN WEST BENGAL WHICH IS A GRINDING U NIT. THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING A TOTAL INCOME OF RS.3,9 4,880/- AND UNDER SCRUTINY NOTICES U/SECS 143(2) AND 142(1) OF THE A CT WERE ISSUED. 4. DURING THE SCRUTINY ASSESSMENT PROCEEDINGS, THE AO FOUND THE ASSESSEE COLLECTED SALES TAX TO AN EXTENT OF RS.49, 34,57,796/- AND CLAIMED THAT IT IS ELIGIBLE FOR REMISSION OF SUCH SALES TAX AND DECLARED THE SAME AS CAPITAL RECEIPT IN SUPPORT OF WHICH FILED A DETAILE D NOTE THROUGH ITS WRITTEN ITA NO. 2109/KOL/2013 M/S. AMBUJA CEMENT EASTERN LTD 3 SUBMISSIONS AND ALSO SUBMITTED THE ORDER OF KOLKAT A TRIBUNAL WHICH DECIDED THE SAME ISSUE IN IT'S OWN CASE FOR A.Y. 2001-02 AN D 2002-03 IN ITS FAVOUR. 5. ACCORDING TO AO THE ISSUE HAS BEEN DECIDED AS A REVENUE RECEIPT U/S.143(3) OF THE ACT FOR AYS 2001-02, 2002-03, 20 03-04 AND 2004-05 AND ALSO OBSERVED THAT AN APPEAL U/S.260A HAS BEEN SUGG ESTED TO THE HONBLE HIGH COURT OF CALCUTTA AGAINST THE ORDER OF THE TRI BUNAL AND HELD THE AMOUNT OF RS. 49,34,57,796/- IS AS A REVENUE RECEIPT. 6. THE ASSESSEE QUESTIONED THE ORDER OF AO BEFORE T HE CIT-A. CONSIDERING THE CONTENTIONS OF THE ASSESSEE THE CIT -A ALLOWED THE CLAIM OF THE ASSESSEE, THE RELEVANT PORTION OF WHICH IS REPR ODUCED HEREIN BELOW: APPEAL ON GROUND NO. 2[A) TO 2[F) ARE AGAINST THE T REATMENT REMISSION OF SALES EX AS CAPITAL RECEIPT TO THE TUNE OF. DURING T HE APPELLATE PROCEEDING THE A.R. HAS SUBMITTED THAT THIS ISSUE IS SQUARELY COVER ED IN APPELLANT'S FAVOUR IN ITS OWN CASE FOR A.Y. 2001-02 AND 2002-03 VIDE HON'BL E KOLKATA ITAT'S DECISION IN ITA NO. 2475 AND 2476/KOL OF 2005 DT. 05-0 5-2006. I HAVE CONSIDERED THE FINDING OF THE A.O. AND CASE LAWS QUOT ED IN THE ASSESSMENT ORDER. I HAVE ALSO CONSIDERED THE WRITTEN SUBMISSION FILED BY THE A.R. ALONG WITH CASE LAWS CITED. I FIND THAT THE HON'BLE KOLKATA TRIBUNAL HAS CONSIDERED AND DISCUSSED ALL THE CASE LAWS AND GIVEN ITS FINDI NG IN ASSESSEE'S FAVOUR ON THIS ISSUE. ACCORDINGLY, ASSESSEE'S APPEAL ON GROUND NO. 2[A) TO 2[F] ARE ALLOWED. 7. THE REVENUE BEFORE US BY RAISING AFOREMENTIONED GROUND NOS 1 AND 2 INVOLVING THE ADDITION MADE TREATING THE AMOUNT COL LECTED ON ACCOUNT OF SALES TAX AS REVENUE RECEIPT. THE LD. DR RELIED ON THE OR DER OF AO. THE LD.AR SUBMITS THAT THE ISSUE COVERED BY THE ORDER OF KOLK ATA TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2001-02 AND 2002-03 AND REFERRED TO PARA 2.7 AND 2.8 IN PAGE PAGE-131 OF PAPER BOOK AND SUPPORTED THE ORDER OF C IT-A. ITA NO. 2109/KOL/2013 M/S. AMBUJA CEMENT EASTERN LTD 4 8. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL EVIDENCE ON RECORD. WE FIND THAT THE ASSESSEE DEDUCTING SALES TAX FROM THE TAXABLE INCOME AND TREATING THE SAME AS CAPITAL RECEIPT IN EARLIER ASS ESSMENT YEARS IN VIEW OF THE WEST BENGAL INCENTIVE SCHEME, 1999. WE FIND FRO M THE ORDER OF TRIBUNAL AS REFERRED BY THE LD.AR PLACED AT PAGE 131 OF PAPE R BOOK THAT IT HELD THAT THE SUBSIDY AMOUNTS ARE NON-TAXABLE AND ARE TO BE T REATED AS CAPITAL RECEIPT BY RELYING ON ORDER OF SPECIAL BENCH OF BOMBAY TRIB UNAL. THE RELEVANT PORTION OF WHICH IS REPRODUCED HEREIN BELOW: 2.7 WE FIND THAT THE LEARNED CIT(A) HAS ALSO IMPLIED LY ADMITTED IN HIS APPELLATE ORDER FOR A.Y 2001-02 THAT THE ASSESSEES PRESENT CASE COMES WITHIN THE AMBIT OF THE DECISION IN THE CASE OF RELIAN CE INDUSTRIES LTD (SUPRA). HE, HOWEVER, CHALLENGES THE CORRECTNESS OF T HE DECISION OF THE ITAT, SPECIAL BENCH, MUMBAI IN THAT CASE. WE ARE RATHER S URPRISED TO READ PARAGRAPH 14 OF HIS APPELLATE ORDER UNDER, WHICH STAR TS AS FOLLOWS:- WITH ALL DUE RESPECT, I AM UNABLE TO SUBSCRIBE TO THE VIEWS T AKEN AND THE CONCLUSION DRAWN BY THE HONBLE SPECIAL BENCH, MUMBAI. THE L EARNED CIT(A) NOT ONLY ADJUDGED UPON THE DECISION OF THE ITAT, SPECIAL BEN CH IN THE ABOVE MANNER, BUT HE ALSO, THEREAFTER, GAVE HIS FINAL DE CISION ON THE ISSUE AND FRAMED HIS ORDER IN TOTAL DEFIANCE OF AND GROSSLY DIS HONOURING THE ABOVE MENTIONED ORDER OF ITAT, SPECIAL BENCH, MUMBAI. WE ARE OF THE CONSIDERED OPINION THAT THE TENDENCY OF THIS SORT OF CHALLENGIN G AND DISHONOURING THE ORDERS ON HIGHER JUDICIAL FORUM BY THE OFFICERS OF THE DEPARTMENT, IS HIGHLY REPREHENSIBLE AND DESERVES TO BE CURBED DOWN. WE C ONDEMN THE ATTITUDE DISPLAYED BY THE LEARNED CIT(A) IN THIS REGARD. 2.8 FINALLY, WE HOLD THAT THE SUBSIDY AMOUNTS, FOR BOT H THE YEARS UNDER CONSIDERATION, ARE TO BE TREATED AS CAPITAL RECEIPTS AND HENCE, NON-TAXABLE. WE DIRECT THE AO TO TAKE ACTIONS ACCORDINGLY. 9. IN VIEW OF THE ORDER DT. 05-05-2006 OF TRIBUNAL SUPRA IN ASSESSEES OWN CASE FOR A.YS. 2001-02 AND 2002-03 IN ITA NOS. 2475 AND 2476/KOL /2005 AND IN THE FACTS AND CIRCUMSTANCES OF THE CAS E, WE HOLD THAT THE ASSESSEE IS ELIGIBLE FOR CLAIMING THE SALES TAX COL LECTED IN THIS APPEAL AS CAPITAL RECEIPT, ACCORDINGLY, THE GROUND NOS. 1 AND 2 INVOLVING SUCH ADDITION ARE HEREBY DISMISSED. ITA NO. 2109/KOL/2013 M/S. AMBUJA CEMENT EASTERN LTD 5 10. GROUND NO-3 IS RELATING TO DISALLOWANCE TO AN E XTENT RS. 10,15,610/- AS MADE U/S 14A OF THE ACT. DURING THE YEAR UNDER C ONSIDERATION, THE ASSESSEE EARNED DIVIDEND INCOME OF RS. 1,41,68,275 /- AND THE ENTIRE AMOUNT WAS CLAIMED AS EXEMPT IN TERMS OF THE PROVI SIONS OF SECTION 10(35) OF THE ACT. IN EXPLANATION, THE ASSESSEE SUBMITTED THAT THE ENTIRE DIVIDEND INCOME HAS BEEN MADE OUT OF INVESTMENTS OUT OF ACCR UALS IN EARLIER YEARS AND NO DIRECT EXPENSES HAVE BEEN INCURRED FOR EARNI NG SUCH DIVIDEND INCOME AND SUBMITTED NO DISALLOWANCE U/S 14A IS MAINTAINAB LE. THE AO DISALLOWED PROPORTIONATE MANAGEMENT EXPENSES COMPRISING OF EMP LOYEE'S REMUNERATION, MISCELLANEOUS EXPENSES AND DIRECTOR'S FEES AMOUNTING TO RS. 10,15,610/- U/S 14A OF THE ACT. 11. THE ASSESSEE QUESTIONED THE ORDER OF AO BEFORE THE CIT-A IN RESPECT OF DISALLOWANCE AS MADE UNDER SECTION 14A OF THE AC T. CONSIDERING THE CONTENTIONS OF THE ASSESSEE THE CIT-A RESTRICTED TH E DISALLOWANCE THE CLAIM OF THE ASSESSEE TO 1%, THE RELEVANT PORTION OF WHIC H IS REPRODUCED HEREIN BELOW: 7. APPEAL ON GROUND NO. 4(A) AND 4(B) ARE AGAINST TH E DISALLOWANCE OF RS.10,15,610/- U/S. 14A READ WITH RULE 80. THE A.R. IN HIS WRITTEN SUBMISSION FILED AS POINTED OUT THAT NO EXPENDITURE SHOULD BE AL LOWED ON THIS GROUND BECAUSE THE ASSESSEE HAS NOT INCURRED ANY EXPENDITUR E TO EARN EXEMPTED INCOME. I HAVE CONSIDERED THE FINDING OF THE AO AND TH E WRITTEN SUBMISSION FILED BY THE A.R. I THINK THE JURISDICTIONAL TRIBUN AL IN ITS THIRD MEMBER DECISION IN THE CASE OF M/S. PHILIPS CARBON BLACK LTD HAS HELD THAT 1% OF THE TOTAL EXEMPTED INCOME SHOULD BE TAKEN AS EXPENDITURE INCU RRED FOR EARNING THE EXEMPTED INCOME. ACCORDINGLY, A.O ADDITION IS RESTRI CTED TO 1% OF RS.1,41,68,275/- I.E RS.1,41,680/-, THUS, ASSESSEE S APPEAL ON GROUND NO. 4(A) AND 4(B) ARE PARTLY ALLOWED. 12. HAVING NOT SATISFIED WITH ORDER OF CIT-A, THE R EVENUE IS BEFORE US AND THE LD.DR RELIED ON THE ORDER OF AO. THE LD.AR ITA NO. 2109/KOL/2013 M/S. AMBUJA CEMENT EASTERN LTD 6 REITERATED THE SUBMISSIONS AS MADE BEFORE THE AO AN D CIT-A AND SUPPORTED THE ORDER OF CIT-A. 13. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIA L EVIDENCE ON RECORD. AS RIGHTLY POINTED BY THE LD.AR THE PROVISI ON OF RULE 8D CAME INTO FORCE FROM 01-04-2007 RELEVANT TO A.Y 200 7-08 AND THE IMPUGNED ORDER WAS PASSED INVOLVING THE RETURN OF I NCOME FILED FOR THE A.Y.2005-06 AND, THEREFORE, THE APPLICABILITY O F THE PROVISIONS OF RULE 8D THEREWITH, IN OUR OPINION, DOES NOT APPL Y TO THE YEAR UNDER CONSIDERATION. BUT, HOWEVER, WE FIND THAT THE ORDER OF CIT-A IS JUSTIFIED IN RESPECT OF RESTRICTING THE DISALLOW ANCE AT 1%, AS HE HAS RIGHTLY TAKEN INTO CONSIDERATION THE OBSERVATIO NS OF THE THIRD MEMBER DECISION OF KOLKATA TRIBUNAL IN THE CASE OF M/S. PHILIPS CARBON BLACK LTD HELD THAT 1% OF THE TOTAL EXEMPTED INCOME SHOULD BE TAKEN AS EXPENDITURE INCURRED FOR EARNING THE EXEMPTED INCOM E. WE ALSO TAKE SUPPORT FROM THE HONBLE JURISDICTIONAL HIGH COURT OF CALCUTTA IN THE CASE OF CIT VS M/S R.R.SEN & BROTHERS IN GA NO. 3019/12 IN ITAT NO.243/2012 UPHELD THE DECISION OF THE KOLKAT A TRIBUNAL IN COMPUTING THE EXPENDITURE AT 1% OF DIVIDEND INCOME. THE RELEVANT PORTION OF WHICH IS REPRODUCED HEREIN BELOW: THE COURT:- THE ASSESSEE DID NOT SHOW ANY EXPENDITU RE INCURRED BY HIM FOR THE PURPOSE OF EARNING THE MONE Y WHICH IS EXEMPTED UNDER THE INCOME TAX. THE TRIBUNAL HAS COM PUTED EXPENDITURE AT 1 PER CENT OF SUCH DIVIDEND INCOME W HICH, ACCORDING TO THEM, IS THE THUMB RULE APPLIED CONSIS TENTLY. WE FIND NO REASON TO INTERFERE. 14. IN THE LIGHT OF PRINCIPLE LAID DOWN BY THE HON BLE JURISDICTIONAL HIGH COURT OF CALCUTTA AND IN VIEW OF THE DISCUSSIO N HEREIN ABOVE, ITA NO. 2109/KOL/2013 M/S. AMBUJA CEMENT EASTERN LTD 7 WE ARE OF THE VIEW THE ORDER OF CIT-A DOES NOT REQU IRE OUR INTERFERENCE AND IT IS JUSTIFIED, ACCORDINGLY, THE GROUND NO-3 RAISED BY THE REVENUE FAILS AND IT IS DISMISSED. 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH NOVEMBER, 2016 SD/- SD/- M.BALAGANESH S.S. VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER COPIES TO : **PP/SPS (1) APPELLANT/DEPARTMENT: (2) RESPONDENT/ASSESSEE: (3)COMMISSIONER OF INCOME-TAX (APPEALS) (4) COMMISSIONER OF INCOME TAX, KOLKATA (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL KOLKATA