M/s. Balrampur Chini Mills Ltd., Kolkata V. ACIT, Central Circle - XIX, Kolkata, Kolkata

ITA 2182/KOL/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9273 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2011
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 22-04-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 31-12-2009
• Court: TRIBUNAL
• Department Lawyers: SUMAT SINHA
• Assessee Lawyers: S K TULSIYAN
• Keywords: Earning of tax free income; Retrospective amendment; Additional evidence; Right to appeal; Condonation of delay; Rule 8D; Set aside
• Section: 143(3); 234B; 14A; 115JB; 143(1); 263; 10

Judgement Text

1 , A , , IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH- A , KO LKATA [ . . . . . .. . , ,, , . .. . ! ! ! !. .. . , , , , '# ] BEFORE SHRI B.R.MITTAL, JUDICIAL MEMBER & SRI C.D. RAO, ACCOUNTANT MEMBER $ $ $ $ / ITA NO. 2182 (KOL) OF 2009 %& '( / ASSESSMENT YEAR 2006-07 BALRAMPUR CHINI MILLS LTD., KOLKATA. (PAN-AAACB9373Q) ASST.COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-XIX, KOLKATA . (+, / APPELLANT ) - % - - VERSUS - (/0+,/ RESPONDENT ) $ $ $ $ / ITA NO. 328 (KOL) OF 2010 %& '( / ASSESSMENT YEAR 2006-07 ASST.COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-XIX, KOLKATA . BALRAMPUR CHINI MILLS LTD., KOLKATA. (PAN-AAACB9373Q) (+, / APPELLANT ) - % - - VERSUS - (/0+,/ RESPONDENT ) C.O. NO. 30 (KOL) OF 2010 [ IN ITA NO. 328 (KOL)/2010 ] %& '( / ASSESSMENT YEAR 2006-07 BALRAMPUR CHINI MILLS LTD., KOLKATA. (PAN-AAACB9373Q) ASST.COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-XIX, KOLKATA . (CROSS-OBJECTOR) - % - - VERSUS - (RESPONDENT ) ASSESSEE BY : SRI S.K.TULSIYAN DEPARTM ENT BY : SRI SUMAT SINHA '1 / ORDER ( . . . . . .. . ), (B.R.MITTAL), JUDICIAL MEMBER : THESE CROSS APPEALS ARE FILED BY THE ASSESSEE AND THE DEPARTMENT AGAINST ORDER OF LD. C.I.T.(A) DATED 11/5/2009 ON THE FOLLOWING GROU NDS :- ASSESSEES APPEAL (ITA NO.2182/K/09) 2 1. THAT, THE LD. CIT(A) ERRED IN ENHANCING THE ASS ESSEES INCOME BY A SUM OF RS.79,62,878 BY WAY OF DISALLOWANCE OF EXPENSES ALL EGEDLY ATTRIBUTABLE TO ITS EXEMPT DIVIDEND INCOME OF RS.26,65,049. 1(A). THAT, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD. CIT(A) ERRED IN ASSUMING JURISDICTION IN THE MATTER OF DISALLOWA NCE OF EXPENSES ATTRIBUTABLE TO THE ASSESSEES EXEMPT DIVIDEND INCOME AS THE ISS UE WAS NOT AT ALL CONSIDERED BY THE LD. A.O. AT THE ASSESSMENT STAGE. 1(B). THAT, SINCE RULE-8D WAS INSERTED BY A NOTIFIC ATION DT.24.3.08 WITHOUT GIVING ANY RETROSPECTIVE EFFECT, THE SAME IS NOT APPLICABL E IN ASSTT. YEAR 2006-07 IN VIEW OF THE PROVISIONS OF SEC.295(4) OF THE I.T. AC T. 1(C). THAT, SINCE IN SEC.14A(1) OF THE LT. ACT THE WORD USED IS INCUR WITH REFERENCE TO THE EXPENDITURE IN RELATION TO THE EXE MPT INCOME, THE LD. CIT(A) ERRED IN DISALLOWING INDIRECT EXPENSES INSTEAD OF ONLY DIRECT EXPENSES, IF ANY, TOWARDS EARNING THE EXEMPT DIVIDEND INCOME. 2. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN ENHANCING THE ASSESSEES INCOME FOR A.Y. 2006-07 BY A SUM OF RS.1,12,08,623 BY WAY REDUCING ITS CLAIM OF DEDUCTION ULS.801A OF THE I.T. ACT. 2(A). THAT, THE LD. CIT(A) ERRED IN HOLDING THAT TH E U.P. GOVERNMENT DUTY ON ELECTRICITY @ 9 PAISE PER UNIT HAS TO BE EXCLUDED F ROM THE AVERAGE LANDED COST OF ELECTRICITY AS COMPUTED BY THE ASSESSEE. 3. THAT, THE LD. CIT(A) ERRED IN DIRECTING THE LD . A.O. TO CHARGE INTEREST U/S.234A OF THE I.T. ACT AS THERE WAS NO DELAY IN FILING THE ORIGINAL RETURN OF THE ASSESSEE FOR A.Y. 2006-07. 4. THAT, THE LD.CIT(A) ERRED IN DIRECTING THE LD. A.O. TO CHARGE INTEREST U/S.234B OF THE I.T. ACT. REVENUES APPEAL (ITA NO.328/K/10) 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT (A) HAS ERRED IN LAW IN DISALLOWING THE CLAIM FOR DEDUCTION U/S.8OIA OF THE ACT TO EXTENT OF RS.1,12,08,623 AND THEREBY ENHANCING THE ASSESSMENT TO THIS EXTENT WHEREAS IN THE ENHANCEMENT NOTICES DATED 01.0908 AND 15.09.08 HE HAD PROPOSED TO ENHANCE THE ASSESSMENT BY OF RS.53.78 CRORES IN RES PECT OF THIS CLAIM. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT (A) HAS ERRED IN LAW IN ALLOWING DEDUCTION U/S.801B ON THE GROUND TH AT PENALTY OF RS.30,000/- IN RESPECT OF NAN-STICKING OF HOLOGRAMS ON COUNTY LIQU OR BOTTLES PERTAINED TO EARLIER YEAR AND NOT TO THE CURRENT YEAR WITHOUT GI VING A SPECIFIC FINDING AS TO WHICH PARTICULAR YEAR THIS PERTAINED. 3 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE CIT (A) HAS ERRED IN LAW IN NOT DEALING WITH ALL THE ISSUES RAISED IN TH E ENHANCEMENT NOTICES IN THE APPEAL ORDER. 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT (A) HAS ERRED IN LAW IN PASSING THE APPEAL ORDER WITHOUT OBTAINING T HE REMAND REPORT CALLED FOR IN RELATION TO NOTICES OF ENHANCEMENT DATED 15T AND 1 5TH SEPTEMBER, 2008. 5. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE CIT (A) HAS ERRED IN LAW IN ADMITTING ADDITIONAL EVIDENCES WITHOUT ALLOW ING AN OPPORTUNITY TO THE DEPARTMENT TO EXAMINE THE SAME. 6. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND THE PROVISIONS OF LAW THE ORDER OF THE LD. CIT (A) OUGHT TO BE SET ASIDE AND THE MATTER RELATING TO DEDUCTION U/S.8OLA BE RESTORED TO THE FILE OF THE A .O. I CIT(A) WITH A DIRECTION TO EXAMINE THE ENHANCEMENT OF THE CLAIM IN ACCORDAN CE WITH THE NEW PROVISIONS OF SEC. 80A (6) OF THE ACT. 2. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION WIT H AN APPLICATION FOR CONDONATION OF DELAY OF TWO DAYS ON THE FOLLOWING GROUNDS :- 1) THAT THE DY. COMMISSIONER OF INCOME TAX, CENTR AL CIRCLE XX HAS WRONGLY FILED APPEAL AGAINST THE ORDER AT THE COMMISSIONER OF INC OME TAX (APPEAL), CENTRAL- II, KOLKATA DATED 11.05.2009 AS THE CIT(A) HAS DISM ISSED THE APPEAL FILED BY THE ASSESSEE WITH ENHANCEMENT. 2) THAT THE ORDER OF THE CIT(A) ENHANCING INCOME B Y REDUCING THE CLAIM UNDER SECTION 80-IA BY RS.1,12,08,623/- CANNOT BE A SUBJE CT MATTER OF APPEAL IN THE GROUNDS OF THE DEPARTMENT AS THE IMPUGNED ENHANCEME NT OF INCOME WAS OVER AND ABOVE THE ASSESSED INCOME BY THE ASSESSING OFFI CER. 3) THAT THE INCOME TAX APPELLATE TRIBUNAL HAVING N O POWER OF ENHANCING ASSESSEES INCOME IN VIEW OF SUPREME COURT JUDGMENT IN THE CAS ES OF HUKUMCHAND MILLS LTD. VS. CIT REPORTED IN 63 ITR 232 AND MCORP GLOBA L PVT. LTD. VS. CIT REPORTED IN 309 ITR 434, THE APPEAL FILED AGAINST T HE ENHANCEMENT BY THE CIT(A) BY THE DEPARTMENT IS MIS-CONCEIVED. 4) THAT THE ENHANCEMENT NOTICES SERVED BY THE CIT (A) BEING SUBJECT MATER OF WRIT (WP NO.1637 OF 2008) AND THE CIT(A) FLAYING PASSED THE ORDER ON THE LIBERTY GRANTED BY THE HONBLE CALCUTTA HIGH COURT AND THE ORDER IN QUESTION HAVING BEEN RELEASED BY THE ORDER OF THE HIGH COURT GIVING LIBERTY ONLY TO THE PETITIONER TO FILE THE APPEAL, THE DEPARTMENT HAVING NOT BEEN SO GRANTED LIBERTY TO APPEAL, THE APPEAL FILED BY THE DEPARTMENT IS MISCONCEIVED. 5) THAT IN ANY CASE THE ISSUES RAISED BY THE C1T(A ) IN THE ENHANCEMENT NOTICES HAVING BEEN CONSIDERED BY HIM WHILE PASSING HIS ORD ER, NO FURTHER APPEAL LIES AGAINST THE ORDER. 4 6) THAT THE CIT(A) HAVING CLEARLY GIVEN A FINDING IN HIS ORDER THAT PENALTY OF RS.30,000/- ON COUNTRY LIQUOR BOTTLES PERTAINED TO EARLIER YEAR, THERE IS NO CASE FOR AN APPEAL ON THE ISSUE. 3. THE RELEVANT FACTS GIVING RISE TO THESE CROSS A PPEALS AND CROSS OBJECTION ARE THAT THE ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN MANUFACTURING AND SELLING OF SUGAR, INDUSTRIAL ALCOHOL, BIO-COMPOST FERTILIZER AND GENE RATION OF POWER IN THE FORM OF STEAM AND ELECTRICITY. THAT THE ASSESSEE HAS SEVERAL FAC TORIES FOR MANUFACTURING PURPOSES, POWER UNDERTAKINGS FOR THE PURPOSE OF GENERATING PO WER, DISTILLERY FOR PRODUCTION OF RECTIFIED SPRITS AND CHEMICAL DIVISION FOR PRODUCTI ON OF INDUSTRIAL ALCOHOL. 4. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, TH E ASSESSEE FILED RETURN DECLARING TOTAL INCOME OF RS.62,96,56,002/- AND ADJUSTED BOOK PROFIT OF RS.234,88,26,950/- AS PER PROVISIONS OF SEC. 115JB OF THE ACT. THE RETURN WA S PROCESSED U/S. 143(1) AT THE RETURNED FIGURE AND A REFUND OF RS.11,50,54,940/- W AS ISSUED TO THE ASSESSEE. THEREAFTER THE CASE WAS TAKEN UP FOR COMPULSORY SCRUTINY. THE A.O. COMPLETED THE ASSESSMENT U/S. 143(3) OF THE ACT VIDE ORDER DATED 20/11/2007. IT IS RELEVANT TO STATE THAT THE A.O. STATED THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S. 80 -IA OF THE ACT AMOUNTING TO RS. 92,02,62,828/- OUT OF PROFITS & GAINS DERIVED FROM 13 POWER GENERATION UNDERTAKINGS LOCATED AT VARIOUS PLACES OF U.P. AND ALSO STATED T HAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S. 80-IB OF THE ACT AMOUNTING TO RS.7,7 1,49,709/- OUT OF PROFITS & GAINS DERIVED FROM TWO INDUSTRIAL UNDERTAKINGS I.E. NEW D ISTILLERY AT BALRAMPUR AND CHEMICAL DIVISION AT BABHNAN, BOTH IN U.P.. IT IS ALSO RELE VANT TO STATE THAT THE ASSESSEE CLAIMED DIVIDEND EXEMPTION U/S. 10(33)/10(34) OF THE ACT AM OUNTING TO RS.26,65,049/-. IT IS ALSO RELEVANT TO STATE THAT THE A.O. ADDED DEFERRED TAX OF RS.5,95,08,126/- WHILE COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. BEING AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD. C.I.T.(A) DISPUTING THE ADDITION OF DEFERRED TAX WHILE COMPUTING BOOK PROFIT, AS STATED ABOVE. 5. THE ASSESSEE AT THE TIME OF HEARING OF THE APPE AL BEFORE THE LD. C.I.T.(A) SOUGHT VIDE LETTER DATED 22/8/2008 FOR PERMISSION TO WITHD RAW THE APPEAL ON THE GROUND THAT BY FINANCE ACT, 2008 THE PROVISIONS OF SEC. 115JB(2) W AS AMENDED WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL, 2001 IN TERMS OF WHICH THE AMOUNT OF DEFERR ED TAX WAS REQUIRED TO BE ADDED BACK TO THE NET PROFIT FOR THE PURPOSE OF COMPUTING THE BOOK PROFIT. THE LD. 5 C.I.T.(A) INSTEAD OF PERMITTING THE ASSESSEE TO WIT HDRAW THE APPEAL REQUIRED THE ASSESSEE VIDE TWO LETTERS DATED 1/9/2008 AND 15/9/2008 ISSUE D TO IT TO EXPLAIN WHY ITS TOTAL INCOME SHOULD NOT BE ENHANCED. THE ASSESSEE FILED A WRIT PETITION BEING W.P. NO.1637 OF 2008 BEFORE THE HONBLE HIGH COURT AT CALCUTTA A GAINST THE PROPOSED ENHANCEMENT OF ITS INCOME BY LD. C.I.T.(A). THE HONBLE HIGH COUR T VIDE AN INTERIM ORDER DATED 14/1/2009 DIRECTED AS FOLLOWS :- DURING THE PENDENCY OF THE WRIT PETITION, THE COMMI SSIONER OF INCOME TAX (CENTRAL)(APPEALS)-II KOLKATA IS AT LIBERTY TO PROC EED WITH THE APPEAL FOR THE ASSTT. YEAR 2006-07 AND IS AT LIBERTY TO PASS THE O RDER, BUT THE SAID ORDER SHALL NOT BE COMMUNICATED AND SHALL NOT BE GIVEN EFFECT T O WITHOUT THE LEAVE OF THIS COURT. 6. IT IS RELEVANT TO STATE THAT VIDE TWO LETTERS D ATED 1/9/2008 AND 15/9/2008 PROPOSING TO ENHANCE THE INCOME OF THE ASSESSEE, TH E LD. C.I.T.(A) STATED AS UNDER :- (A) TO DISALLOW EXPENSES IN TERMS OF SEC. 14A OF THE ACT READ WITH RULE 8D OF I.T. RULES IN RESPECT OF EXEMPTED DIVIDEND INCOME. (B) DEDUCTIONS ALLOWED TO THE ASSESSEE UNDER S ECS. 80-IA & 80-IB SHOULD BE REDUCED WITH CONSEQUENT ENHANCEMENT OF ITS INCOME. 7. THEREAFTER THE LD. C.I.T.(A) DISPOSED OF THE AP PEAL BY MAKING THE FOLLOWING DISALLOWANCES/ADDITIONS :- (I) TO DISALLOW EXPENSES OF RS.79,62,878/- IN RESPECT OF THE DIVIDEND INCOME OF RS.26,65,049/- IN VIEW OF SEC. 14A READ WITH RULE 8 D OF I.T. RULES. (II) ENHANCED ASSESSEES INCOME BY A SUM OF RS. 1,12,08,623/- BY REDUCING CLAIM OF DEDUCTION U/S. 80-IA OF THE ACT. HOWEVER, LD. C.I.T.(A) AGREED WITH THE ASSESSEES S UBMISSION THAT PROFIT FROM GENERATION OF POWER BY ABOUT RS.53.78 CRORES, AS PR OPOSED IN THE ENHANCEMENT LETTERS DATED 1/9/2008 & 15/9/2008, SHOULD NOT BE REDUCED C ONSIDERING THAT AVERAGE SELLING RATE AS PER ELECTRICITY BILL RECEIVED BY ASSESSEE FROM S EB/UPPCL SHOULD BE TREATED AS ITS MARKET VALUE. 8. IN VIEW OF THE AFORESAID ORDER OF LD. C.I.T.(A) , THE ASSESSEE AS WELL AS DEPARTMENT HAVE FILED THESE APPEALS BEFORE US.AS MENTIONED HER EINABOVE, THE ASSESSEE HAS ALSO FILED 6 CROSS OBJECTION ALONG WITH CONDONATION OF DELAY OF TWO DAYS IN THE APPEAL FILED BY THE DEPARTMENT. 9. AT THE TIME OF HEARING, THE LD. A/R SUBMITTED T HAT APPEAL FILED BY THE DEPARTMENT IS NOT MAINTAINABLE AS THE HONBLE HIGH COURT VIDE ITS ORDER DATED 4/12/2009 PERMITTED THE LD. C.I.T.(A) TO ISSUE THE COPY OF THE ORDER AN D THE HONBLE HIGH COURT PERMITTED TO FILE AN APPEAL BEFORE THE TRIBUNAL ONLY TO THE ASSE SSEE AND NO SUCH PERMISSION WAS GRANTED TO THE DEPARTMENT. THE LD. A/R FURTHER SUB MITTED THAT THE DEPARTMENT HAS FILED THIS APPEAL ONLY AGAINST THE ISSUES FOR WHICH THE L D. C.I.T.(A) MADE ENQUIRIES BY ISSUING LETTERS DATED 1/9/2008 AND 15/9/2008 WHEN HE PROPOS ED TO MAKE AN ENHANCEMENT BY REDUCING CLAIM OF EXEMPTION U/S. 80-IA OF THE ACT, BUT AFTER ENQUIRY HE DID NOT REDUCE THE EXEMPTION GRANTED TO THE ASSESSEE AND, THEREFOR E, THE DEPARTMENT HAS FILED THIS APPEAL DISPUTING THE ORDER OF LD. C.I.T.(A) NOT TO ENHANCE THE INCOME AS PROPOSED BY HIM IN THE AFORESAID TWO LETTERS. THE LD. A/R SUBM ITTED THAT THE LD. C.I.T.(A) HAS NOT ALLOWED ANY RELIEF TO THE ASSESSEE FROM THE INCOME ASSESSED BY THE A.O. AND, THEREFORE, THE DEPARTMENT SHOULD NOT HAVE ANY GRIEVANCE. THE LD. A/R SUBMITTED THAT THE ONLY GRIEVANCE OF THE DEPARTMENT IS AGAINST THE ORDER OF LD. C.I.T.(A) THAT HE SHOULD HAVE ENHANCED THE ASSESSEES INCOME IN ADDITION TO WHAT HAD ALREADY BEEN ENHANCED BY HIM. THE LD. A/R SUBMITTED THAT THE APPEAL OF THE DEPART MENT SHOULD BE DISMISSED AS NO RELIEF HAS BEEN GRANTED BY THE LD. C.I.T.(A) TO THE ASSESS EE. THE LD. A/R FURTHER SUBMITTED THAT IF THE ABOVE CONTENTION OF THE ASSESSEE IS ACCEPTED , THE CROSS OBJECTION FILED BY THE ASSESSEE IS NOT REQUIRED TO BE CONSIDERED. 10. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRES ENTATIVE SUBMITTED THAT THE LD. C.I.T.(A) SHOULD HAVE ENHANCED THE INCOME OF THE AS SESSEE AS PROPOSED BY HIM IN THE LETTERS DATED 1/9/2008 AND 15/9/2008. HE SUBMITTED THAT THE A.O. HAD NOT CONSIDERED THAT THE ASSESSEE WAS NOT ENTITLED FOR THE DEDUCTIO NS U/S. 80-IA AND 80-IB OF THE ACT AS CLAIMED BY IT. HE SUBMITTED THAT THE GROUNDS OF AP PEAL TAKEN BY THE DEPARTMENT SHOULD BE ADJUDICATED ON MERITS. 11. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE LEARNED REPRESENTATIVES OF THE PARTIES AND THE ORDER OF LD. C.I.T.(A). IT I S RELEVANT TO STATE THAT THE ASSESSEE HAS ALSO FILED A WRITTEN SUBMISSION DATED 30/11/2010, A COPY OF WHICH WAS ALSO DELIVERED TO 7 THE LD. DEPARTMENTAL REPRESENTATIVE. WE HAVE CONSI DERED THE SAID WRITTEN SUBMISSION. 12. AS MENTIONED HEREINABOVE THAT THE ASSESSEE FIL ED APPEAL AGAINST ASSESSMENT ORDER DATED 20/11/2007 AGAINST THE ADDITION OF DEFERRED T AX MADE BY THE A.O. WHILE COMPUTING BOOK PROFIT IN TERMS OF SEC. 115JB OF THE ACT. HOWEVER, AT THE TIME OF HEARING OF THE APPEAL, THE ASSESSEE FILED A LETTER DATED 22/8/2008 SEEKING PERMISSION TO WITHDRAW THE APPEAL IN VIEW OF THE FACT THAT SEC. 1 15JB WAS AMENDED BY THE FINANCE ACT, 2008 WITH RETROSPECTIVE EFFECT FROM 1 ST APRIL, 2001 TO THE EFFECT THAT THE AMOUNT OF DEFERRED TAX OR THE PROVISION THEREOF HAS TO BE ADD ED BACK TO THE NET PROFIT FOR THE PURPOSE OF COMPUTING THE BOOK PROFIT. WE OBSERVE T HAT LD. C.I.T.(A) ISSUED LETTER DATED 1/9/2008 FOLLOWED BY A SECOND LETTER DATED 15/9/200 8 TO THE ASSESSEE STATING THAT THERE WAS A SCOPE FOR ENHANCEMENT OF ASSESSED INCOME. WE OBSERVE THAT THE LD. C.I.T.(A) AFTER MAKING AN ENQUIRY AND CONSIDERING THE SUBMISS IONS OF THE ASSESSEE HAS STATED THAT ONLY A SUM OF RS.1,12,08,623/- ON ACCOUNT OF U.P. G OVERNMENT DUTY ON ELECTRICITY @ 9 PAISE PER UNIT STANDS DISALLOWED FROM AVERAGE LANDE D COST OF ELECTRICITY AND, ACCORDINGLY, REDUCED ASSESSEES CLAIM WHILE COMPUTI NG THE DEDUCTION U/S. 80-IA OF THE ACT. WE FURTHER OBSERVE THAT THE LD. C.I.T.(A) ALSO MADE AN ENHANCEMENT OF INCOME OF THE ASSESSEE BY RS.79,62,878/- U/S. 14A OF THE ACT READ WITH RULE 8D OF I.T. RULES IN RESPECT OF EXEMPTED DIVIDEND INCOME OF RS.26,65,049 /- BY FOLLOWING THE DECISION OF SPECIAL BENCH, I.T.A.T., MUMBAI IN THE CASE OF ITO VS. DAGA CAPITAL MANAGEMENT LTD. [312 ITR 1 (AT)]. IT IS ALSO RELEVANT TO STATE THA T THE LD. C.I.T.(A) IN THE AFORESAID TWO LETTERS PROPOSING TO ENHANCE INCOME OF THE ASSESSEE ALSO REFERRED THAT A SUM OF RS.30,000/- WAS TO BE REDUCED WHILE CLAIMING DEDUCT ION U/S. 80-IB OF THE ACT AS THIS WAS THE AMOUNT OF PENALTY PAID BY THE ASSESSEE. BU T WHILE PASSING THE APPELLATE ORDER, THE LD. C.I.T.(A) DID NOT DISALLOW CLAIM OF DEDUCTI ON U/S. 80-IB OF THE ACT IN RESPECT OF THE AFORESAID AMOUNT OF RS.30,000/-. 13. WE OBSERVE THAT GRIEVANCE OF THE DEPARTMENT IS THAT THE LD. C.I.T.(A) SHOULD HAVE ENHANCED THE INCOME OF THE ASSESSEE WHICH HE PROPOS ED VIDE LETTERS DATED 1/9/2008 AND 15/9/2008. HOWEVER, THE LD. C.I.T.(A) MADE ENQUIRI ES AND WAS SATISFIED THAT THE ORDER PASSED BY THE A.O. IN RESPECT OF GRANTING DEDUCTION UNDER SEC. 80-IA OF THE ACT TO THE ASSESSEE WAS TO BE REDUCED ONLY BY RS. 1,12,08,6 23/-, AFTER OBSERVING THAT MARKET VALUE 8 OF ANY SELF-GENERATED GOODS OR SERVICES WHEN TRANSF ERRED TO ANY OTHER BUSINESS CARRIED ON BY THE ASSESSEE IS THE PRICE THAT SUCH GOODS OR SERVICES WOULD ORDINARILY FETCH IN THE OPEN MARKET. WE ARE OF THE CONSIDERED VIEW THAT T HE CONTENTION OF LD. A/R HAS MERIT THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THA T APPEAL FILED BY THE DEPARTMENT FOR NOT ENHANCING THE INCOME OF THE ASSESSEE AS PROPOSED BY LD. C.I.T.(A) IS NOT SUSTAINABLE. THE LD. C.I.T.(A) HAS NOT GIVEN RELIEF TO THE ASSES SEE FROM THE INCOME ASSESSED BY THE A.O. WE ARE OF THE CONSIDERED VIEW THAT NO GRIEVAN CE IS CAUSED TO THE DEPARTMENT WHEN AN ENQUIRY IS MADE BY THE LD. C.I.T.(A) SUO MOTO AN D AFTER MAKING AN ENQUIRY HE IS SATISFIED THAT NO FURTHER ADDITION IS TO BE MADE AN D IN THAT VIEW OF THE MATTER THE INTEREST OF THE DEPARTMENT IS NOT PREJUDICIALLY AFFECTED AS THE LD. C.I.T.(A) HAS NOT GRANTED RELIEF TO THE ASSESSEE OUT OF THE ASSESSED INCOME. IF THE DEPARTMENT FEELS THAT ANY INCOME LIABLE TO TAX HAS ESCAPED ASSESSMENT, THERE ARE OTH ER PROVISIONS UNDER THE INCOME-TAX ACT TO TAKE CARE OF SUCH ESCAPED INCOME LIABLE TO T AX. IN VIEW OF THE ABOVE, WE ACCEPT THE CONTENTION OF THE LD. A/R AND HOLD THAT THE APP EAL FILED BY THE DEPARTMENT, ON THE GROUNDS AS STATED HEREINABOVE, IS NOT MAINTAINABLE AND THE SAME IS DISMISSED. 14. IN VIEW OF THE ABOVE AND CONSIDERING THE SUBMI SSIONS OF THE LD. A/R THAT IF THE DEPARTMENTAL APPEAL IS DISMISSED, THE CROSS OBJECTI ON FILED BY THE ASSESSEE IS NOT REQUIRED TO BE ADJUDICATED, WE DISMISS THE CROSS OB JECTION FILED BY THE ASSESSEE. 15. WE NOW TAKE UP THE APPEAL FILED BY THE ASSESSE E BEING ITA NO.2182/KOL/2009. IN RESPECT OF GROUND NO.1 OF THE APPEAL DISPUTING T HE DISALLOWANCE OF EXPENSES OF RS. 79,62,878/- ATTRIBUTABLE TO EXEMPTED DIVIDEND INCOM E OF RS.26,65,049/- AS PER SEC. 14A READ WITH RULE 8D OF I.T. RULES, WE OBSERVE THAT TH E A.O. HAS ALLOWED THE DEDUCTION OF DEDUCTION U/S. 10(33)/10(34) OF THE ACT WHILE COMPU TING TAXABLE INCOME/BOOK PROFIT OF THE ASSESSEE. THE A.O. HAS NOT CONSIDERED ANY EXPEN SES ATTRIBUTABLE TO THE SAID EXEMPTED DIVIDEND INCOME. THE LD. C.I.T.(A) HAS HE LD THAT RULE 8D OF I.T. RULES INTRODUCED ON 24 TH MARCH, 2008 IS APPLICABLE AND RELIED UPON THE DECI SION OF SPECIAL BENCH, I.T.A.T., MUMBAI IN THE CASE OF ITO VS. DAGA CAPITAL MANAGEMENT LTD. (SUPRA). 16. AT THE TIME OF HEARING, THE LD. A/R SUBMITTED THAT LD. C.I.T.(A) ENHANCED THE ASSESSEES INCOME BY DISCOVERING A NEW SOURCE OF IN COME NOT FOUND BY THE A.O. IN THE ORDER APPEAL AGAINST. THE LD. A/R RELIED ON THE DE CISIONS OF HONBLE APEX COURT IN THE 9 CASES OF CIT VS. SHAPOORJI PALLANJI MISTRY [44 ITR 891 (SC)] AND CIT VS. RAI BAHADUR HARDUTROY MOTILAL CHAMARIA [66 ITR 443 (SC)]. HE S UBMITTED THAT THOUGH THE HONBLE APEX COURT IN THE CASE OF CIT VS. NIRBHERAM DALURAM [224 I.T.R. 610 (SC)] HAD TAKEN A CONTRARY VIEW STATING THAT THE FIRST APPELLATE AU THORITY HAD WIDE POWERS, BUT THE HONBLE DELHI HIGH COURT (FULL BENCH) IN THE CASE O F CIT VS. SARDARILAL & CO. [251 ITR 864 (DEL)] AFTER CONSIDERING THE AFORESAID DECISION S OF HONBLE APEX COURT HELD THAT THE VIEW EXPRESSED BY THE APEX COURT IN THE CASES OF SH APOORJI PALANJI MISTRY (SUPRA) AND RAI BAHADUR FARDUTROY MOTILAL CHAMARIA (SUPRA) STIL L HOLDS GOOD. THE LD. A/R SUBMITTED THAT THE A.O. HAD NOT MADE ANY ENQUIRY RE GARDING EXPENSES ATTRIBUTABLE TO THE EXEMPT INCOME NOR HE MADE ANY DISALLOWANCE AND IN T HAT CIRCUMSTANCE THE LD. C.I.T.(A) HAD NO JURISDICTION TO MAKE AN ENHANCEMENT BY DISAL LOWING EXPENSES BY APPLYING THE PROVISIONS OF SEC. 14A READ WITH RULE 8D OF THE I.T . RULES. HE SUBMITTED THAT THE SAID SUM OF RS.79,62,878/- AS ADDED BY THE LD. C.I.T.(A) SHOULD BE DELETED. WITHOUT PREJUDICE TO ABOVE, LD. A/R FURTHER SUBMITTED THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT [43 D TR 447/328 ITR 81] HAS HELD THAT RULE 8D IS PROSPECTIVE IN NATURE AND IS APPLIC ABLE FROM ASSESSMENT YEAR 2008-09. HE SUBMITTED THAT THE A.O. IS REQUIRED TO DETERMINE THE EXPENSES PRIOR TO ASSESSMENT YEAR 2008-09 IN RELATION TO EXEMPTED DIVIDEND INCOM E AND FOR THAT PURPOSE HE COULD ADOPT A REASONABLE BASIS FOR COMPUTATION OF SUCH DI SALLOWANCE. THE LD. A/R SUBMITTED THAT TO MAKE ANY DISALLOWANCE U/S. 14A OF THE ACT, IT REQUIRES FINDING OF INCURRING OF EXPENDITURE AND PLACED RELIANCE ON THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. HERO CYCLES LTD. [323 ITR 518 (P&H)]. THE LD. A/R FURTHER SUBMITTED THAT A REASONABLE DISALLOWANCE OF EXPENSES ATTRIBUTABLE TO EXEMPT INCOME COULD BE MADE AND IT COULD BE @ 1% OF SUCH I NCOME AND IN THIS CONNECTION HE PLACED RELIANCE ON THE DECISIONS OF I.T.A.T., KOLKA TA IN THE CASE OF CIVIL ENGINEERS ENTERPRISES (P) LTD. VS. DCIT DATED 19/8/2010 IN IT A NO. 859 (KOL)/2010 AND IN THE CASE OF ITO VS. B.P.S. SECURITIES PVT. LTD. DATED 1 9/8/2010 IN ITA NO. 123 (KOL)/2010. 17. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTA TIVE SUPPORTED THE ACTION OF THE LD. C.I.T.(A). HE SUBMITTED THAT THE DISALLOWANCE OF EXPENSES U/S. 14A IS CONNECTED WITH EXEMPTED DIVIDEND INCOME FOR WHICH THE A.O. AL LOWED DEDUCTION U/S. 10(33)/ 10 10(34) OF THE ACT. HE FURTHER SUBMITTED THAT TO MA KE DISALLOWANCE U/S. 14A IN RESPECT OF EXEMPTED INCOME IS NOT A NEW SOURCE FOR WHICH DI SALLOWANCE HAS BEEN MADE. 18. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE LEARNED REPRESENTATIVES OF THE PARTIES AND THE ORDERS OF THE AUTHORITIES BELOW . WE HAVE ALSO CONSIDERED THE CASES (CITED SUPRA) BY THE LD. A/R IN SUPPORT OF HIS SUBM ISSION. WE ARE OF THE CONSIDERED VIEW THAT THE DECISIONS OF THE HONBLE APEX COURT RELIED UPON BY LD. A/R IN THE CASES OF SHAPOORJI PALANJI MISTRY (SUPRA) AND RAI BAHADUR HA RDUTROY MOTILAL CHAMARIA (SUPRA) ARE NOT APPLICABLE TO THE FACTS OF THE CASE BEFORE US AS IN THE PRESENT CASE THERE IS NO DISPUTE TO THE FACT THAT THE DIVIDEND INCOME IS EXE MPTED FROM TAX AND CONSEQUENTLY THE EXPENSES, IF ANY ATTRIBUTABLE THERETO, ARE TO BE DI SALLOWED AS PER SEC. 14A OF THE ACT. WE AGREE WITH THE LD. A/R THAT RULE 8D OF I.T. RULE S AS APPLIED BY LD. C.I.T.(A) FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, I.E. ASSESSMEN T YEAR 2006-07, IS NOT APPLICABLE IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT I N THE CASE OF GODREJ & BOYCE MFG. CO. LTD. (SUPRA) HOLDING THAT RULE 8D IS PROSP ECTIVE IN NATURE AND APPLICABLE FROM ASSESSMENT YEAR 2008-09. HOWEVER, TO MAKE DISALLOW ANCE WHILE CONSIDERING THE EXEMPTED INCOME IS NOT DISCOVERY OF NEW SOURCE OF I NCOME BY RELYING ON THE DOCUMENTS NOT BEFORE THE AO BUT IT IS A CASE OF RELYING ONLY ON THE FACTS DISCLOSED IN THE RETURN FILED BY THE ASSESSEE. IN THE CASE OF SHAPOORJI PALANJI M ISTRY (SUPRA), THE HONBLE APEX COURT HELD THAT THE APPELLATE AUTHORITY HAS NO POWER TO E NHANCE THE ASSESSMENT BY DISCOVERING A NEW SOURCE OF INCOME NOT MENTIONED IN THE RETURN OF INCOME OR CONSIDERED BY THE ITO. IT IS NOT THE CASE OF THE ASSESSEE THAT THE L D. C.I.T.(A) HAS TRAVELLED OUTSIDE RECORD WHILE CONSIDERING THE DEDUCTION ALLOWABLE U/S. 10(3 3)/10(34) OF THE ACT. WHEN THERE IS AN ADMITTED FACT THAT THE DIVIDEND INCOME IS EXEMPT ED, IT IS A COROLLARY THAT THE SAID DIVIDEND INCOME IS TO BE EXEMPTED AS PER PROVISIONS OF THE ACT AND, THEREFORE, THE EXPENSES ATTRIBUTABLE TO THE DIVIDEND INCOME ARE TO BE DISALLOWED U/S. 14A OF THE ACT. FOR THE SAME REASON MENTIONED HEREINABOVE, THE DECI SION OF HONBLE APEX COURT IN THE CASE OF RAI BAHADUR HARDUTROY MOTILAL CHAMARIA (SUP RA) IS OF NO ASSISTANCE TO THE ASSESSEE. IN THE SAID DECISION THE HONBLE APEX CO URT HELD THAT IF A NEW SOURCE IS TO BE CONSIDERED, THEN THE FIRST APPELLATE AUTHORITY SHOU LD REMAND THE MATTER TO ASSESS FRESH SOURCE OF INCOME, FAILING WHICH ASSESSEE IS DEPRIVE D OF A FINDING BY TWO TRIBUNALS AND 11 ONE RIGHT OF APPEAL. WE MAY STATE THAT AS PER EXIST ING PROVISIONS OF I.T. ACT, THE LD. C.I.T.(A) HAS NO POWER TO REMAND THE MATTER TO THE A.O. BUT HE IS TO ADJUDICATE THE SAME AFTER GIVING OPPORTUNITIES OF HEARING TO THE PARTIE S. WE ARE OF THE CONSIDERED VIEW THAT THE DECISION OF HONBLE APEX COURT IN THE CASE OF NIRBHERAM DALURAM (SUPRA) APPLIES TO THE CASE OF THE ASSESSEE. IN THE SAID CASE THE A.O. INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE A SUM OF RS.2,45,000/- REFERABLE TO OSTENS IBLE TRANSACTIONS IN HUNDI LOANS. WHILE CONSIDERING THE APPEAL FILED BY THE ASSESSEE AGAINST THE SAID ASSESSMENT ORDER, THE APPELLATE ASSISTANT COMMISSIONER NOT ONLY SUSTAINED THE SAID ADDITION OF RS.2,45,000/- BUT ALSO TOOK NOTICE OF TEN OTHER ITEMS OF OSTENSIB LE HUNDI LOANS AMOUNTING TO RS. 2,30,000/- AND DIRECTED THAT THE TOTAL INCOME BE EN HANCED BY SUCH SUM OF RS.2,30,000/-. IN THAT CONTEXT, THE HONBLE APEX COURT HELD THAT T HE APPELLATE ASSISTANT COMMISSIONER HAD NOT EXCEEDED HIS JURISDICTION IN MAKING AN ADDI TION OF RS.2,30,000/- ON THE BASIS OF OTHER TEN ITEMS OF HUNDIS WHICH HAD NOT BEEN EXPLAI NED BY THE ASSESSEE. IT WAS HELD THAT THE SCOPE OF HIS POWER IS CONTERMINOUS WITH THAT OF THE I.T.O. AND HE COULD DO WHAT THE I.T.O. COULD DO OR HE HAD FAILED TO DO. IN THE CAS E OF SARDARILAL & CO. (SUPRA) OF HONBLE DELHI HIGH COURT, WE OBSERVE THAT THE FIRST APPELLATE AUTHORITY HAD NOT CONFINED TO THE MATTER WHICH HAD BEEN CONSIDERED BY THE I.T. O. BUT CONDUCTED ENQUIRIES IN RELATION TO NEW SOURCE OF INCOME IN THE TAXABILITY OF INCOME WHICH HAD NOT BEEN CONSIDERED BY THE A.O. IN THAT CONTEXT, THE HONBLE HIGH COURT HELD THAT THE JURISDICTION TO DEAL WITH THE SAID NEW SOURCE OF INCOME IN APPRO PRIATE CASES COULD BE DEALT WITH U/S. 147/148 OF THE ACT AND U/S. 263 OF THE ACT, IF REQU ISITE CONDITIONS ARE FULFILLED. THEREFORE, WE HOLD THAT THE LD. C.I.T.(A) WHILE CON SIDERING TO MAKE DISALLOWANCE OF EXPENSES IN RESPECT OF EXEMPTED DIVIDEND INCOME HAS NOT DISCOVERED THE NEW SOURCE OF TAXABLE INCOME OF THE ASSESSEE. HENCE THE SAID CONT ENTION OF THE LD. A/R IS NOT ACCEPTED. 19. NOW COMING TO THE QUESTION OF DISALLOWANCE TO BE MADE U/S. 14A OF THE ACT, WE AGREE WITH THE LD. A/R THAT NO FACTS HAVE BEEN BROU GHT ON RECORD ATTRIBUTING THE EXPENSES TO EXEMPTED DIVIDEND INCOME OF RS.26,65,049/-. HOW EVER, IT IS A FACT THAT SOME EXPENSES MUST HAVE BEEN INCURRED BY THE ASSESSEE WH ILE EARNING EXEMPTED DIVIDEND INCOME OF RS.26,65,049/-. AS MENTIONED HEREINABOVE , THE A.O. WHILE ALLOWING EXEMPTION OF DIVIDEND INCOME FROM TAX, HE HAS NOT C ONSIDERED THE DISALLOWANCE 12 REQUIRED TO BE MADE IN VIEW OF SEC. 14A OF THE ACT. THERE IS NO DISPUTE TO THE FACT THAT THE LD. C.I.T.(A) HAS MADE DISALLOWANCE BY APPLYING RULE 8D OF THE RULES BY FOLLOWING THE DECISION OF I.T.A.T., SPECIAL BENCH, BOMBAY IN THE CASE OF DAGA CAPITAL MANAGEMENT LTD. (SUPRA). THE SAID I.T.A.T. DECISIO N HAS ALREADY BEEN OVERRULED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. CO. LTD. (SUPRA), WHEREIN IT HAS BEEN HELD THAT RULE 8D OF THE RULES IS PROSPECTIVE IN NATURE AND IS APPLICABLE FROM ASSESSMENT YEAR 2008-09. THE CASE BEFORE US IS UNDISPUTEDLY RELATES TO ASSESSMENT YEAR 2006-07 AND, THEREFORE, RULE 8D OF THE RULES IS NOT APPLICABLE TO THE ASSESSMENT YEAR UNDER CONSIDERATION. IN VIEW OF TH E ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THIS ISSUE BE RESTORED TO THE A.O. TO RE- EXAMINE AND CONSIDER THE DISALLOWANCE TO BE MADE IN RESPECT OF THE EXEMPTED DIVIDEND INCO ME SHOWN BY THE ASSESSEE IN VIEW OF SEC. 14A OF THE ACT AFTER GIVING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE AND CONSIDERING SUCH DETAILS AS MAY BE FILED BEFORE HIM . HENCE, GROUND NO.1 OF THE APPEAL TAKEN BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PU RPOSES BY RESTORING THE ISSUE TO THE A.O. 20. IN RESPECT OF GROUND NO.2 OF THE ASSESSEES AP PEAL CHALLENGING ENHANCEMENT OF INCOME BY RS.1,12,08,623/- BY WAY OF REDUCING ITS C LAIM OF DEDUCTION U/S. 80-IA OF THE ACT ON THE GROUND THAT ELECTRICITY DUTY @ 9 PAISE P ER UNIT IS TO BE EXCLUDED FROM THE AVERAGE LANDED COST OF ELECTRICITY AS COMPUTED BY T HE ASSESSEE, THE LD. A/R FAIRLY CONCEDED THAT THE SAID ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF I.T.A.T., KOLKATA BENCH IN THE CASE OF GRAPHITE INDIA LTD. VS . DCIT DATED 06/12/2007, A COPY OF WHICH IS PLACED ON PAGES 31 TO 53 OF THE PAPER BOOK . IN VIEW OF THE ABOVE, GROUND NO.2 OF THE APPEAL TAKEN BY THE ASSESSEE IS REJECTED. 21. GROUNDS NO. 3 & 4 OF THE ASSESSEES APPEAL IN RESPECT OF CHARGING OF INTEREST UNDER SECS. 234A AND 234B OF THE ACT ARE CONSEQUENT IAL AND NO SPECIFIC ADJUDICATION IS CALLED FOR. 22. IN THE RESULT, APPEAL OF THE DEPARTMENT BEING ITA NO. 328 (KOL)/2010 AND CROSS OBJECTION OF THE ASSESSEE BEING C.O. NO. 30 (KOL)/2 010 ARE DISMISSED AND WHEREAS 13 APPEAL OF THE ASSESSEE BEING ITA NO.2182 (KOL)/2009 IS ALLOWED IN PART FOR STATISTICAL PURPOSES. 2 '1 #3' 4 3% 5 26 THIS ORDER IS PRONOUNCED IN THE OPEN COURT ON 11.03 .2011 SD/- SD/- ( . .. . ! ! ! !. .. . ) '# ( . . . . . .. . ) (C.D.RAO) , ACCOUNTANT MEMBER (B.R.MITTAL) , JUDICIAL MEMBER ( (( (!# !# !# !#) )) ) DATE: 11- 03-2011 '1 7 /8 9'8':- COPY OF THE ORDER FORWARDED TO: 1. +, / THE APPELLANT : BALRAMPUR CHINI MILLS LTD., 234/3A, A.J.C. BOSE RD., FMC FORTUNA , KOLKATA-700 020 2 /0+, / THE RESPONDENT : ACIT, CENTRAL CIRCLE-XIX, KOLKATA. 3. 1% () : THE CIT(A), CENTRAL-II, KOLKATA. 4. 1%/ THE CIT, KOL- 5 >5 /% / DR, ITAT, KOLKATA BENCHES, KOLKATA 6 GUARD FILE . 08 // TRUE COPY, '1%3/ BY ORDER, (DKP) ? @ / DY./ASSTT. REGISTRAR .