M/s. Shell MRPL Aviation Fuels and Services Ltd, Bengaluru V. Assistant Commissioner of Income Tax, Circle-6(1)(1), Bengaluru

ITA 2624/BANG/2018

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 6564 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 06-09-2021
• Assessment Year: 2012-2013
• Appeal Filed On: 19-09-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Earning of tax free income; Source of fund; Additional evidence; Reasonable cause; Set aside
• Section: 271(1)(c); 14A; 274

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B. R. BASKARAN , ACCOUNTANT MEMBER IT A NO. 2 624 /BANG/20 1 8 ASSESSMENT Y EAR : 20 1 2 - 1 3 M/S. SHELL MRPL AVIATION FUELS AND SERVICES PVT. LTD., #102, PRESTIGE SIGMA VITTAL MALLYA ROAD, BENGALURU 560 001. P AN : A A ACI 5639 L VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -6(1)(1), BENGALURU 560 095. APPELLANT RESPONDENT APPELLANT BY : SHRI. K. R. VASUDEVAN , A DVOCATE RESPO NDENT BY : SHRI. SANKAR GANESH , SR. DR (ITAT), BENGALURU DATE OF HEARING : 0 6 . 0 9 . 202 1 DATE OF PRONOUNCEMENT : 08 . 0 9 .202 1 O R D E R PER N. V. VASUDEVAN, VICE PRESIDENT: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 08.03.2018 OF CIT(A)-6, BENGALURU, RELATING TO ASSESSMENT YEAR 2012-13. 2. THERE IS A DELAY OF 68 DAYS IN FILING THE APPEAL BY THE ASSESSEE. THE REASONS FOR THE DELAY HAVE BEEN EXPLAINED IN AN AFFIDAVIT DATED 07.03.2019 FILED BY THE DIRECTOR OF THE ASSESSEE. IT HAS BEEN STATED THEREIN THAT AT THE TIME OF DUE DATE FOR FILING THE APPEAL AGAINST THE ORDER OF THE CIT(A), THE TAX EXECUTIVE EMPLOYED BY THE ASSESSEE WHO HAS BEEN MANAGING THE REPRESENTATION BEFORE THE LOWER AUTHORITY LEFT THE SERVICES AND WAS SERVING NOTICE PERIOD. IN THE COURSE OF TRANSITION, SOME OF THE TAX FILES WERE MISPLACED AND ONE SUCH FILE CONTAINED THE IMPUGNED ORDER OF THE CIT(A). THE EARLIER TAX EXECUTIVE DID NOT INFORM THE SENIOR PERSONNEL OF THE ITA NO.2624/BANG/2018 PAGE 2 OF 8 ASSESSEE ABOUT THE IMPUGNED ORDER OF THE CIT(A). IT WAS ONLY WHEN A NOTICE UNDER SECTION 274 OF THE INCOME TAX ACT, 1961 (ACT) WAS RECEIVED BY THE ASSESSEE FOR IMPOSING PENALTY UNDER SECTION 271(1)(C) OF THE ACT THAT THE ASSESSEE REALISED THAT THE APPEAL HAD NOT BEEN FILED AGAINST THE IMPUGNED ORDER. THEREAFTER NECESSARY APPROVALS WERE TAKEN AND THE APPEAL WAS FILED. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DEALY IN FILING THE APPEAL IS NOT DELIBERATE OR INTENTIONAL BUT FOR BONAFIDE AND REASONABLE CAUSE. LEARNED COUNSEL FOR THE ASSESSEE IN THIS REGARD RELIED ON JUDICIAL PRONOUNCEMENT IN THE CASE OF COLLECTOR, LAND ACQUISITION VS. KATIJI AND OTHERS 1987 AIR 1353 1987 (SC) AND DECISION OF ITAT BENGALURU BENCH IN THE CASE OF FLOWSERVE INDIA CONTROLS PVT. LTD., VS. DCIT (2018) 96 TAXMANN.COM 432 (BANG. TRIB). 4. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE AND THE SUBMISSION OF THE LEARNED DR WHO OPPOSED THE PRAYER FOR CONDONATION OF DELAY. IN OUR VIEW, THE REASONS GIVEN FOR THE DELAY IN FILING THE APPEAL SHOWS THAT THERE WAS NO WILFUL ACT ON THE PART OF THE ASSESSEE AND THE ASSESSEE IS NOT GUILTY OF NEGLIGENCE. WE THEREFORE CONDONE THE DELAY IN FILING THE APPEAL BY THE ASSESSEE. 5. AS FAR AS THE MERITS OF THE APPEAL FILED BY THE ASSESSEE ARE CONCERNED, THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS WITH REGARD TO CORRECTNESS OF THE DISALLOWANCE OF A SUM OF RS.18,11,700/- MADE BY THE AO AND CONFIRMED BY THE CIT(A) BEING A DISALLOWANCE UNDER SECTION 14A OF THE ACT R.W.R. 8D OF THE INCOME TAX RULES, 1962 (RULES). ITA NO.2624/BANG/2018 PAGE 3 OF 8 6. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF TRADING IN AVIATION TURBINE FUEL (AFT). THE ASSESSEE IS A JOINT VENTURE BETWEEN MANGALORE REFINERY AND PETRO CHEMICALS LTD., AND SHELL GAS BV. THE AO NOTICED THAT THE ASSESSEE EARNED DIVIDEND INCOME ON INVESTMENTS. THE AO ALSO NOTICED THAT THE ASSESSEE HAD INCURRED A SUM OF RS.22,40,000/- AS OTHER FINANCE EXPENSE. THE AO THEREFORE PROPOSED TO INVOKE THE PROVISIONS OF SECTION 14A OF THE ACT AND MAKE A DISALLOWANCE OF INTEREST AND OTHER EXPENSES AS PER THE PROVISIONS OF SECTION 14A OF THE ACT R.W.R. 8D OF THE RULES. 7. IN REPLY, THE ASSESSEE SUBMITTED THAT IT SUPPLIES AFT TO CUSTOMERS LIKE AIR INDIA, JET AIRWAYS, ETC., IN SELECTED DOMESTIC AIRPORTS. THE ASSESSEE ALSO ACTS AS CONTRACTING COMPANY FOR DOMESTIC CARRIER LIKE AIR INDIA FOR MEETING FUEL REQUIREMENTS OUTSIDE INDIA. THE ASSESSEE POINTED OUT THAT NO INTEREST EXPENDITURE WAS INCURRED TO EARN DIVIDEND INCOME. THE ASSESSEE SUBMITTED THAT DIVIDEND WAS EARNED FROM UTI OUT OF SURPLUS FUNDS OF THE ASSESSEE AND NOT OUT OF ANY BORROWED FUNDS. THE INVESTMENT IN MUTUAL FUND WAS ONLY FOR A VERY SHORT PERIOD. THE INVESTMENTS ARE AGAIN LIQUIDATED AS AND WHEN THE DUE DATE FOR DISCHARGE OF LIABILITY ARISES LIKE PAYMENT OF JET FUEL, TRANSPORTATION, TAXATION, SALARY AND WAGES AND GENERAL ADMINISTRATION EXPENSES ETC. THE ASSESSEE SUBMITTED THAT IT RECEIVES PAYMENTS FROM CUSTOMERS ON A DAILY BASIS. HOWEVER, THERE ARE FIXED AGREED MONTHLY DATES FOR ALL PAYMENTS FOR PURCHASE OF ATF, COMMISSION, TRANSPORTATION CHARGES, SALARY ETC. SINCE THE DAILY RECEIPTS LIES IDLE, SUCH SURPLUS FUNDS ARE INVESTED TEMPORARILY IN UTI. MOREOVER, THE ASSESSEE KNOWS THE MONTHLY DUE DATES FOR DISCHARGE OF ALL MAJOR LIABILITIES, THE ASSESSEE HAS ADOPTED THE POLICY OF INVESTING ALL ITA NO.2624/BANG/2018 PAGE 4 OF 8 RECEIPTS FROM THE CUSTOMERS TO BE ONLY WITHDRAWN ON THE NEXT DUE DATE SCHEDULED FOR PAYMENT. THE ASSESSEE SUBMITTED THAT SUCH PAYMENTS FROM THE CUSTOMERS FLUCTUATES DAILY AND THE ASSESSEE IS NOT IN A POSITION TO PREDICT SUCH RECEIPTS. THE COMPANY WOULD ALSO LIKE TO SUBMIT BEFORE YOUR GOOD SELF THAT SUCH RECEIPTS AND SHORT TERM INVESTMENT CANNOT BE AN ALTERNATIVE SOURCE OF FINANCE FOR PERMANENT WORKING LOAN CAPITAL REQUIREMENT OF THE ASSESSEE. THE ASSESSEE SUBMITTED THAT NO BORROWINGS WERE MADE FOR THE PURPOSE OF INVESTMENT AND THAT NO INTEREST EXPENSE HAS BEEN CHARGED TO THE PROFIT AND LOSS ACCOUNT ON ACCOUNT OF SUCH BORROWINGS. BORROWINGS WERE MADE ONLY TO MEET THE SHORT TERM CASH DEFICIT ON THE DUE DATE FOR DISCHARGE OF LIABILITIES. 8. THE AO DID NOT MAKE ANY REFERENCE WHATSOEVER TO THE AFORESAID PLEA OF THE ASSESSEE AND PROCEEDED TO APPLY THE PROVISIONS OF SECTION 14A OF THE ACT R.W.R. 8D OF THE RULES AND DETERMINED THE DISALLOWANCE UNDER SECTION 14A AT A SUM OF RS.18,11,700/- IN THE FOLLOWING MANNER: AS PER CLAUSE (1) EXPENDITURE INCURRED DIRECTLY TOWARDS EARNING TAX EXEMPT INCOME -NIL AS PER CLAUSE(II) A) AMOUNT OF INTEREST EXPENDITURE WHICH IS NOT DIRECTLY RELATED TO ANY PARTICULAR INCOME/RECEIPT = RS.22,40,000/- B) AVERAGE VALUE OF INVESTMENT (58,77,50,000)/2 =29,38,75,000/- A) AVERAGE VALUE OF TOTAL ASSETS (172, 99,60,000+211,59,70,000)/2 =3845930000/2=192,29,65,000 INTEREST NOT ATTRIBUTABLE TO ANY PARTICULAR INCOME/ RECEIPT= A*B/C 2240000*293875000/1922965000=3,42,325/- AS PER CLAUSE (III) ITA NO.2624/BANG/2018 PAGE 5 OF 8 0.5% OF AVERAGE VALUE OF INVESTMENT =0.5% OF (58,77,50,000)/2 = 0.5% OF 29,38,75,000/-. =14,69,375/- AGGREGATE OF CLAUSE (II) AND CLAUSE(III)= RS.18,11,700/- THE AGGREGATE DISALLOWANCE WOULD BE RS. 18,11,700/- WHICH IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. (ADDITION:18,11,700/-) 9. BEFORE THE CIT(A), THE ASSESSEE REITERATED SUBMISSIONS AS WERE MADE BEFORE THE AO. THE CIT(A) UPHELD THE ORDER OF THE AO BY OBSERVING IN PARA 8 OF THE IMPUGNED ORDER THAT THE ASSESSEE HAS NOT BROUGHT OUT A COGENT EVIDENCE AS TO HOW THE FACTS OF THE CASE WARRANT NO DISALLOWANCE AND TO DEMONSTRATE THAT THE FACTS OF THE ASSESSEE ARE SIMILAR TO THE FACTS OF THOSE CASES WHICH WERE RELIED UPON BY THE ASSESSEE BEFORE THE CIT(A). 10. AGGRIEVED BY THE ORDER OF CIT(A), ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. LEARNED COUNSEL FOR THE ASSESSEE FILED AN APPLICATION FOR ADMITTING THE FOLLOWING DOCUMENTS AS ADDITIONAL EVIDENCE: S NO CONTENTS PAGE NO 1 SUMMARY SHEET 001-008 2 UTI MUTUAL FUND STATEMENT FOR FY 2011-12 009-050 3 CORPORATION BANK STATEMENT FOR FY 2011-12 051-203 4 KOTAK MAHINDRA BANK STATEMENT FOR FY 2011-12 204-249 5 STATE BANK OF INDIA BANK STATEMENT FOR FY 2011 - 12 250-266 11. IN THE APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCE, IT HAS BEEN SUBMITTED THAT IN A LETTER DATED 25.02.2016 FILED BEFORE THE AO, A SPECIFIC STAND WAS TAKEN REGARDING THE SOURCE OF FUNDS OUT OF WHICH INVESTMENTS ITA NO.2624/BANG/2018 PAGE 6 OF 8 YIELDED TAX FREE INCOME WERE MADE. EVEN IN THE PROCEEDINGS BEFORE CIT(A), SIMILAR SUBMISSIONS WERE MADE BUT THE CIT(A) DECIDED THE ISSUE WITHOUT CALLING FOR ANY DOCUMENTARY EVIDENCE TO SHOW THAT INVESTMENTS WERE MADE OUT OF SURPLUS FUNDS. IN THESE CIRCUMSTANCES, THE ASSESSEE HAS FILED AFORESAID APPLICATION OR ADMISSION OF ADDITIONAL EVIDENCE. 12. WE HAVE CONSIDERED THE APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCE AND ARE OF THE VIEW THAT THE SAME IS REQUIRED FOR ADJUDICATION OF THE ISSUE IN THE APPEAL. WE, THEREFORE, ADMIT THE ADDITIONAL EVIDENCE. 13. AS FAR AS CORRECTNESS OF THE ADDITION MADE UNDER SECTION 14A OF THE ACT IS CONCERNED, WE FIND THAT THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011-12 IN ITA NO.790/BANG/2018 ORDER DATED 16.11.2018 ADMITTED ADDITIONAL EVIDENCE AND REMANDED THE ISSUE OF DISALLOWANCE UNDER SECTION 14A OF THE ACT TO BE CONSIDERED AFRESH BY THE AO. IN THE PRESENT ASSESSMENT YEAR, WE FIND THAT THE ASSESSEE HAS TAKEN A SPECIFIC PLEA BEFORE THE AO THAT THE INVESTMENTS WERE MADE OUT OF SURPLUS BUSINESS FUNDS AND NOT OUT OF ANY BORROWED FUNDS. THIS SUBMISSION HAS NOT BEEN REFERRED TO EITHER BY THE AO OR BY THE CIT(A). WE ARE OF THE VIEW THAT IN THE LIGHT OF ADDITIONAL EVIDENCE NOW FILED BEFORE US, THE ISSUE REQUIRES FRESH CONSIDERATION BY THE AO AND WE ACCORDINGLY SET ASIDE THE ORDER OF THE AO AND REMAND THE ISSUE TO THE AO FOR CONSIDERATION AFRESH. THE ABOVE DIRECTIONS WILL HOLD GOOD FOR DISALLOWANCE UNDER SECTION1 4A OF THE ACT R.W.R. 8D(2)(I) OF THE RULES. 14. AS FAR AS DISALLOWANCE UNDER SECTION 14A OF THE ACT R.W.R. 8D(2)(III) IS CONCERNED, WE FIND THAT THE OTHER EXPENSES DEBITED IN THE PROFT AND LOSS ACCOUNT IS AS FOLLOWS: ITA NO.2624/BANG/2018 PAGE 7 OF 8 2011-12 2010-11 (RUPEES IN MILLION) (RUPEES IN MILLION) A. DIRECT EXPENSES COMMISSION B. SELLING, ADMINISTRATION AND OTHER EXPENSES PROFESSIONAL CHARGES RENT REPAIRS & MAINTENANCE - PLANT & MACHINERY GENERAL REPAIRS AND MAINTENANCE AUDITORS' REMUNERATION AUDIT FEES TAXATION AND OTHER MATTERS CERTIFICATION REIMBURSEMENTS RATES AND TAXES INSURANCE TRAVELLING AND CONVEYANCE EXPENSES TELEPHONE EXPENSES MISCELLANEOUS EXPENSES 11.48 11.48 3.54 4.18 0.77 3.34 0.33 0.53 0.01 0.14 0.51 9.06 5.35 0.61 5.45 4.47 4.47 5.52 2.72 1.36 7.36 0.22 0.11 - 0.17 0.53 6.00 4.99 1.07 3.41 15. NEITHER THE ASSESSEE NOR THE AO HAVE MADE ANY ATTEMPTS TO IDENTIFY WHICH ARE THE EXPENSES THAT CAN BE SAID TO BE ATTRIBUTABLE TO THE EARNING OF THE SAID INCOME. WE THEREFORE SET ASIDE THE SAID DISALLOWANCE ALSO TO THE AO FOR FRESH CONSIDERATION WITH DIRECTIONS TO THE ASSESSEE TO SUBSTANTIATE ITS CASE THAT NONE OF THE OTHER EXPENSES CAN BE ATTRIBUTED TO THE EARNING OF THE EXEMPT INCOME. WE ACCORDINGLY ALLOW THE APPEAL OF THE ASSESSEE FOR STATISTICAL PURPOSE. ITA NO.2624/BANG/2018 PAGE 8 OF 8 16. IN THE RESULT, APPEAL BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE. SD/- SD/- ( B. R. BASKARAN ) (N. V. VASUDEVAN) ACCOUNTANT MEMBER VICE PRE SIDENT BANGALORE, DATED : 08.09.2021. /NS/* COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.