The State Trading Corporation of India Ltd., New Delhi V. ACIT, New Delhi

ITA 2383/DEL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7277 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 20-01-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 23-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AASISH MOHANTY
• Assessee Lawyers: S M BANSAL S; KAMAL JETLY; SUDHIR GUPTA
• Keywords: Depreciation; Rule of consistency; Earning of tax free income; Speculation loss
• Section: 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : H : NEW DELHI BEFORE SHRI R.S. SYAL, AM & SMT. BEENA A. PILLAI, JM ITA NO.2383/DEL/2013 ASSESSMENT YEAR : 2009-10 THE STATE TRADING CORPORATION OF INDIA LTD., JAWAHAR VYAPAR BHAWAN, TOLSTOY MARG, NEW DELHI. PAN: AAACT0102F VS. ACIT, CIRCLE-16(1), CR BUILDING, NEW DELHI. ITA NO.2600/DEL/2013 ASSESSMENT YEAR : 2009-10 ACIT, CIRCLE-16(1), CR BUILDING, NEW DELHI VS. THE STATE TRADING CORPORATION OF INDIA LTD., JAWAHAR VYAPAR BHAWAN, TOLSTOY MARG, NEW DELHI. PAN: AAACT0102F (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI KAMAL JETLY & SHRI S.M. BANSAL, ADVOCATES AND SHRI SUDHIR GUPTA, CA DEPARTMENT BY : SHRI AASISH MOHANTY, SR. DR DATE OF HEARING : 20.01.2016 DATE OF PRONOUNCEMENT : 21.01.2016 ITA NOS.2383 & 2600/DEL/2013 2 ORDER PER R.S. SYAL, AM: THESE TWO CROSS APPEALS ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE ARISE OUT OF THE ORDER PASSED BY THE CIT( A) ON 31.12.2012 IN RELATION TO THE ASSESSMENT YEAR 2009-10. 2. FIRST GROUND OF THE ASSESSEES APPEAL IS GENERAL . IN THE ABSENCE OF ANY ARGUMENT ADVANCED IN RESPECT OF THIS GROUND, WE DIS MISS THE SAME. 3. GROUND NOS. 2 AND 3 ARE AGAINST THE CONFIRMATION OF DISALLOWANCE OF RS.2,01,85,871/- U/S 14A OF THE INCOME-TAX ACT, 196 1 (HEREINAFTER ALSO CALLED `THE ACT) OVER AND ABOVE THE SUM OF RS.23,4 3,803/- VOLUNTARILY OFFERED BY THE ASSESSEE AS DISALLOWABLE U/S 14A. 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A GOVERNMENT OF INDIA ENTERPRISE. IT EARNED EXEMPT I NCOME OF RS.2,36,66,766/- INCLUDING DIVIDEND AND TAX FREE IN COME FROM UTI BONDS. THE ASSESSEE SUO MOTU OFFERED DISALLOWANCE FOR A SUM OF RS.23,43,803/-, BEING % OF AVERAGE INVESTMENTS IN TERMS OF RULE 8D (2)(III). THE AO NOTICED THAT NO DISALLOWANCE WAS OFFERED U/S 14A IN RESPECT OF INTEREST. FIRSTLY, HE DEALT WITH THE ASSESSEES OBJECTION THA T THERE WAS NO EXPENDITURE ITA NOS.2383 & 2600/DEL/2013 3 INCURRED FOR EARNING SUCH EXEMPT INCOME BY SPECIFIC ALLY RECORDING SATISFACTION AND, THEREAFTER, COMPUTED DISALLOWANCE FOR A SUM OF RS.2,01,85,870/- AS PER RULE 8D(2)(II) WHICH WAS AD DED IN ADDITION TO THE DISALLOWANCE OFFERED BY THE ASSESSEE. THE LD. CIT(A ) SUSTAINED THE SAME AFTER TAKING INTO ACCOUNT THE JUDGMENT OF THE HONB LE DELHI HIGH COURT PASSED IN THE ASSESSEES OWN CASE FOR THE AYS 2006- 07 AND 2007-08. THE ASSESSEE IS AGGRIEVED AGAINST THE SUSTENANCE OF THI S DISALLOWANCE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOTICED THAT THE AO HAS SPECIFICALLY RECORDED SATISFACTION FOR DISALLOWANCE U/S 14A IN PARAS 4.4 TO 4.7. THIS INDICATES THAT THE PRE-REQUISITE CONDITION FOR MAKING DISALLOWANCE U/S 14A, BEING THE RECORDING OF SATISFACTION BY THE AO, IS FULLY SATIS FIED. NOW COMES THE QUESTION OF DISALLOWANCE OF INTEREST IN TERMS OF RU LE 8D(2)(II). THE LD. AR CONTENDED THAT THE INVESTMENT WAS FINANCED OUT OF T HE ASSESSEES OWN CAPITAL AND, HENCE, NO DISALLOWANCE ON ACCOUNT OF I NTEREST CAN BE MADE. HE SUBMITTED THAT SUCH INVESTMENTS WERE CONTINUING FRO M EARLIER YEARS EXCEPT FOR A FRESH INVESTMENT OF RS.10 LAC MADE DURING THE YEAR. WE FIND THAT THIS ISSUE HAS TRAVELLED TO THE HONBLE DELHI HIGH COURT IN ASSESSEES OWN CASE ITA NOS.2383 & 2600/DEL/2013 4 FOR THE AYS 2006-07 AND 2007-08. VIDE ITS JUDGMENT DATED 17.8.2012, A COPY OF WHICH IS PLACED AT PAGES 128 ONWARDS OF THE PAPER BOOK, THE HONBLE HIGH COURT HAS REJECTED THE ASSESSEES CONT ENTION THAT THE JUDGMENT IN THE CASE OF MAXOPP INVEST LTD. V. CIT (2011) 203 TAXMAN 364 (DE LHI) WAS NOT APPLICABLE AND FURTHER THERE WAS MATERIAL O N RECORD TO SHOW THAT IT HAD SUFFICIENT FUNDS TO DEPLOY FOR THE PURPOSE OF S UCH INVESTMENT. THE ASSESSEES ARGUMENT THAT THE RULE OF CONSISTENCY BE FOLLOWED BECAUSE IN EARLIER YEARS THE CLAIM FOR INTEREST WAS NOT DISALL OWED ALSO CAME TO BE REPELLED BY THE HONBLE HIGH COURT. RELEVANT DISCUS SION HAS BEEN MADE BY THEIR LORDSHIPS IN PARAS 4 AND 5 OF THE JUDGMENT. AFTER TURNING DOWN THE ASSESSEES CONTENTIONS, THE HONBLE DELHI HIGH COUR T REMITTED THE MATTER TO THE AO FOR DETERMINING THE EXTENT OF LIABILITY U/S 14A IN TERMS OF THE JUDGMENT IN THE CASE OF MAXOPP INVESTMENT. AS THE FACTS AND CIRCUMSTANCES FOR THE INSTANT YEAR ARE MUTATIS MUTANDIS SIMILAR TO THOSE OF THE EARLIER YEARS WHICH HAVE BEEN DEALT WITH BY THE HONBLE HIGH COURT IN THE AFORESTATED ORDER, RESPECTFULLY FOLLOWING THE P RECEDENT, WE ALSO SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF THE AO FOR REACHING A FRESH DECISION IN THIS REGARD IN CONFORMITY WITH RATIO OF THE JUDGMENT OF THE ITA NOS.2383 & 2600/DEL/2013 5 HONBLE HIGH COURT RENDERED IN THE CASE OF THE ASSE SSEE FOR EARLIER YEARS. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A RE ASONABLE OPPORTUNITY OF HEARING IN SUCH FRESH PROCEEDINGS. THESE TWO GROUND S ARE, THEREFORE, ALLOWED FOR STATISTICAL PURPOSES. 6. GROUND NO.4 IS AGAINST THE CONFIRMATION OF ADDIT ION OF EXPENSES CLAIMED TOWARDS PROVISION FOR EARNED LEAVE/HALF PAY LEAVE BY INVOKING THE PROVISIONS OF SECTION 43B(F) OF THE ACT. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE PRECEDING YEAR. THE TRIBUNAL WAS PLEASED TO REMIT THE MATTER TO THE FIL E OF AO FOR DECIDING THIS ISSUE AFRESH AS PER LAW. A COPY OF SUCH ORDER HAS BEEN PLACED ON RECORD. RESPECTFULLY FOLLOWING THE PRECEDENT, WE ALSO SET A SIDE THE IMPUGNED ORDER AND SEND THE MATTER BACK TO THE FILE OF AO FOR A FR ESH DECISION AS PER LAW, AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HE ARD TO THE ASSESSEE. 8. THE LAST EFFECTIVE GROUND RAISED BY THE ASSESSEE TOWARDS INTEREST U/S 234B IS CONSEQUENTIAL AND, ACCORDINGLY, DISPOSED OF . ITA NOS.2383 & 2600/DEL/2013 6 9. FIRST GROUND OF THE REVENUES APPEAL IS AGAINST DELETION OF ADDITION OF RS.1,20,43,111/- MADE BY THE AO BY TREATING FOREIGN EXCHANGE FLUCTUATION LOSS ON ACCOUNT OF PREMIUM ON FORWARD CONTRACTS AS SPECULATIVE LOSS. THE ASSESSEE CLAIMED DEDUCTION OF RS.1,20,43,111/- TOWA RDS PREMIUM PAID ON FORWARD CONTRACTS. ON BEING CALLED UPON TO JUSTIFY THE DEDUCTION, THE ASSESSEE SUBMITTED THAT THESE WERE HEDGING TRANSACT ION AND NO SPECULATIVE TRANSACTION WAS INVOLVED. NOT SATISFIED, THE AO MA DE ADDITION OF RS.1.20 CRORE AND ODD, WHICH CAME TO BE DELETED IN THE FIRS T APPEAL. 10. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE LD. CIT(A) HAS RECORDED A CATEGORICAL FINDING THAT THE TRANSACTION OF PREMIUM FOR FORWARD CONTRACT RELATED TO HEDGING OF FOREIGN EXCHANGE AND WAS SETTLED BY ACTU AL DELIVERY AND NOT BY WAY OF MAKING PAYMENT FOR DIFFERENCE. THIS FINDING HAS NOT BEEN CONTROVERTED BY THE LD. DR. IT IS FURTHER OBSERVED THAT SIMILAR ISSUE WAS DECIDED BY THE LD. CIT(A) IN THE ASSESSEES FAVOUR FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR AND THE DEPARTMENT HAS AC CEPTED SUCH DECISION WITHOUT FILING ANY FURTHER APPEAL BEFORE THE TRIBUN AL. UNDER THESE ITA NOS.2383 & 2600/DEL/2013 7 CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THA T THE IMPUGNED ORDER NEEDS TO BE UPHELD ON THIS SCORE. 11. THE SECOND GROUND IS AGAINST THE DELETION OF AD DITION OF RS.83,74,393/- MADE BY THE AO ON ACCOUNT OF REPAIR AND MAINTENANCE EXPENSES IN RESPECT OF LET OUT HOUSE PROPERTY. THE AO OBSERVED THAT THE DEDUCTION WAS CLAIMED BY THE ASSESSEE ON ACCOUNT OF REPAIRS AND MAINTENANCE, ADMINISTRATIVE EXPENSES AND VARIOUS OT HER EXPENSES RELATING TO PROPERTIES GIVEN ON RENT. HE RECORDED IN THE AS SESSMENT ORDER THAT THE ASSESSEE FAILED TO GIVE DETAILS OF SUCH EXPENSES IN CURRED IN RELATION TO LET OUT PROPERTIES. THEREAFTER, HE PROPORTIONATELY MADE DISALLOWANCE FOR A SUM OF RS.83,74,393/-. THIS DISALLOWANCE CAME TO BE KN OCKED OUT IN THE FIRST APPEAL BY OBSERVING THAT THE MAINTENANCE CHARGES RE COVERED BY THE ASSESSEE WERE CREDITED TO THE PROFIT & LOSS ACCOUNT AND SUCH MAINTENANCE INCOME WAS MORE THAN THE EXPENSES DISALLOWED. 12. AFTER GOING THROUGH THE IMPUGNED ORDER AND THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED THAT THE ASSESSEE MADE RECOV ERIES TOWARDS COMMON MAINTENANCE AND REPAIRS FROM ITS TENANTS AMOUNTING TO RS.1,04,63,138/-. AS AGAINST THAT, THE AO HAS COMPUTED AND MADE PROPO RTIONATE DISALLOWANCE ITA NOS.2383 & 2600/DEL/2013 8 OF RS.83,74,393/- TOWARDS EXPENSES RELATING TO PROP ERTIES LET OUT. SINCE RECOVERIES IN THIS REGARD ACCOUNTED FOR BY THE ASSE SSEE AS INCOME IN ITS BOOKS OF ACCOUNT ARE MORE THAN THE AMOUNT OF DISALL OWANCE COMPUTED BY THE AO, WE APPROVE THE VIEW TAKEN BY THE LD. CIT(A) ON THIS ISSUE. THIS GROUND IS NOT ALLOWED. 13. THE LAST GROUND IS AGAINST THE DELETION OF ADDI TION OF RS.34,29,164/- BEING DEPRECIATION ON LET OUT BUILDING. THE AO NOTI CED THAT THE ASSESSEE CLAIMED DEPRECIATION ON BLOCK OF BUILDING WHICH ALS O INCLUDED BUILDING LET OUT. SINCE NO DEPRECIATION IS PERMISSIBLE IN RESPE CT OF BUILDING LET OUT FROM WHICH RENTAL INCOME IS EARNED IN TERMS OF CHAPTER I V-C, THE AO MADE DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS.34,29, 164/-. THE LD. CIT(A) DELETED THIS DISALLOWANCE. 14. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, IT IS FOUND THAT PARTS OF BUILD ING LET OUT DO NOT CONSTITUTE A SEPARATE BLOCK OF ASSETS. THIS PORTION FORMS PAR T OF SINGLE BLOCK OF BUILDING ON WHICH THE ASSESSEE HAS BEEN CONSISTENTL Y CLAIMING DEPRECIATION AB INITIO . AFTER FALLING IN THE ELIGIBLE BLOCK OF BUILDING, IF A PART OF BUILDING IS LATER ON LET OUT, WHICH CANNOT BE SEGREGATED FR OM THE BLOCK, THEN THERE ITA NOS.2383 & 2600/DEL/2013 9 CAN BE NO DISALLOWANCE OF PART DEPRECIATION RELATIN G TO THE BUILDING GIVEN ON RENT. SIMILAR VIEW TAKEN BY THE LD. CIT(A) IN T HE ASSESSEES OWN CASE FOR THE AY 2008-09 HAS BEEN ACCEPTED BY THE REVENUE AND NO FURTHER APPEAL HAS BEEN FILED. WE, THEREFORE, UPHOLD THE I MPUGNED ORDER ON THIS ISSUE. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES AND THAT OF THE REVENUE IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 21.01.201 6. SD/- SD/- [BEENA A. PILLAI] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 21 ST JANUARY, 2016. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.