Lloyd Insulation (India) Ltd., New Delhi V. Addl, CIT, New Delhi

ITA 3066/DEL/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5513 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 25-03-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 16-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SULEKHA VERMA
• Keywords: Depreciation; Earning of tax free income; Question of law
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D, NEW DELHI BEFORE SH. R. S. SYAL, AM AND SMT. DIVA SINGH, JM ITA NO. 3066/DEL/2013 : ASS TT. YEAR : 2009-10 LLOYD INSULATIONS (INDIA) LTD., M-13, PUNJHOUSE PREMISES, CONNAUGHT PLACE, NEW DELHI VS ADDL. COMMISSIONER OF INCOME TAX, RANGE-4, NEW DELHI (APPELLANT) (RESPONDENT) ITA NO. 3641/DEL/2013 : A SSTT. YEAR : 2009-10 DCIT, CIRCLE-4(1), NEW DELHI VS LLOYD INSULATIONS (INDIA) LTD., M-13, PUNJHOUSE PREMISES, CONNAUGHT PLACE, NEW DELHI (APPELLANT) (RESPONDENT) PAN NO. AAACL0486E ASSESSEE BY : S/SHRI K. V. S. R KRISHNA REVENUE BY : MS SU LEKHA VERMA DATE OF HEARING : 25.3.2014 DATE OF PRONOUNCEMENT : 26.3.2014 ORDER PER R. S. SYAL , AM: THESE TWO CROSS APPEALS ONE BY THE ASSESSEE AND O THER BY THE REVENUE - ARISE OUT OF THE ORDER PASSED BY THE CIT( A) ON 22.3.2013 IN RELATION TO THE ASSESSMENT YEAR 2009-10. ITA NO. 3066/DEL/2013 & 3641/DEL/2013 LLOYD INSULAT ION (INDIA) LTD. 2 2. REVISED GROUNDS FILED BY THE REVENUE HAVE BEEN T AKEN ON RECORD. 3. FIRST GROUND TAKEN BY THE REVENUE IS AGAINST THE DELETION OF ADDITION OF RS. 10,75,37,079/- MADE BY THE ASSESSIN G OFFICER ON ACCOUNT OF DIFFERENCE BETWEEN THE INCOME APPEARING IN THE T DS CERTIFICATES AND INCOME OFFERED FOR TAXATION. BRIEFLY STATED THE FA CTS OF THIS GROUND AS RECORDED IN PARA 3 OF THE ASSESSMENT ORDER ARE THAT THE ASSESSEE EARNED INCOME FROM CONTRACT SALES AND THE PRODUCT SALES. I N RESPECT OF CONTRACT SALES, THE ASSESSEE CLAIMED THAT THERE WAS ADVANCE RECEIPT OF RS. 10.75 CRORE, WHICH WAS CONSIDERED AS LIABILITY IN ITS BAL ANCE SHEET. ON BEING CALLED UPON TO RECONCILE THE CLAIM AS PER TDS CERTI FICATES WITH THE RELATED INCOME IN THE PROFIT AND LOSS ACCOUNT, THE ASSESSEE STATED THAT THE CONTRACT SALES SHOWN IN THE P & L ACCOUNT WERE MORE THAN THE AMOUNT CREDITED AS PER TDS CERTIFICATES. AS REGARDS THE AD VANCE OF RS. 10.75 CRORE REFLECTED AS LIABILITY IN THE BALANCE SHEET, THE ASSESSEE STATED THAT IT WOULD BE ADJUSTED UPON THE COMPLETION OF JOBS IN TH E SUBSEQUENT YEAR. THE A.O NOTED THAT THE ASSESSEE HAD SUBMITTED DETAI L OF LARGE NUMBER OF TDS CERTIFICATES BUT THERE WAS NO RECONCILIATION. H E OPINED THAT THERE WAS POSSIBILITY OF CERTAIN INCOME NOT BEING CONSIDE RED BY THE ASSESSEE WHILE COMPUTING THE INCOME. FOLLOWING THE VIEW TAKE N BY HIM FOR THE ASSESSMENT YEAR 2008-09, THE ASSESSING OFFICER MADE ADDITION OF RS. 10.75 CRORES. THE LD. CIT(A) DELETED THIS ADDITION. ITA NO. 3066/DEL/2013 & 3641/DEL/2013 LLOYD INSULAT ION (INDIA) LTD. 3 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED THAT THE ASSESSI NG OFFICER BASED THIS ADDITION ON THE SIMILAR VIEW TAKEN BY HIM FOR THE I MMEDIATELY PRECEDING YEAR 2008-09. THE CROSS APPEALS FOR THE ASSESSMENT YEAR 2008-09 CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ITA NO. 2400/DEL/2011 ETC. A COPY OF THE TRIBUNAL ORDER DATED 9.8.2012 HAS BEE N PLACED ON RECORD. RELEVANT DISCUSSION ON SIMILAR ISSUE IS CONTAINED O N PAGE 2 PARA 4 OF SUCH ORDER. IT CAN BE SEEN THAT THE OBSERVATIONS O F THE A.O FOR MAKING ADDITION OF RS. 29.08 CRORE AS REPRODUCED BY THE TR IBUNAL IN ITS ORDER ARE MUTATIS MUTANDIS SIMILAR TO THOSE FOR THE CURRENT YEAR. THE TRIBUNA L, AFTER CONSIDERING THE ARGUMENTS AT LENGTH, ORDERED FOR THE DELETION OF THE ADDITION. THE REVENUE CHALLENGED THE SAID TRIBUNAL ORDER BEFORE THE HONBLE DELHI HIGH COURT. VIDE JUDGMENT DATED 12.9. 2013, THE HONBLE DELHI HIGH COURT DISMISSED THE REVENUES APPEAL BY HOLDING THAT NO SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATIO N FROM THE ORDER OF THE TRIBUNAL ON THIS ISSUE. A COPY OF THE JUDGMENT IS AVAILABLE ON PAGE 110 OF THE PAPER BOOK. IT CAN BE SEEN FROM THE RECORD THAT THE AMOUNT OF RS.29.08 CRORE WHICH WAS SHOWN AS LIABILITY AS AT T HE END OF THE PRECEDING YEAR HAS BEEN ACCOUNTED FOR AS INCOME FOR THE CURRENT YEAR. SIMILAR POSITION WAS STATED BEFORE THE AUTHORITIES BELOW QUA THE CURRENT ADDITION OF RS.10.75 CRORE. SUCH CONTENTION HAS NOT BEEN REFUTED BY THE AO. IT, THEREFORE, BECOMES PATENT THAT THE ADDITIO N MADE FOR THE INSTANT ITA NO. 3066/DEL/2013 & 3641/DEL/2013 LLOYD INSULAT ION (INDIA) LTD. 4 YEAR, SIMILAR TO THE ONE MADE FOR THE PRECEDING YEA R WHICH CAME TO BE FINALLY DELETED BY THE HONBLE HIGH COURT, CANNOT S URVIVE. 5. THE LD. DEPARTMENTAL REPRESENTATIVE CONTENDED TH AT THE ASSESSEE FAILED TO FURNISH RECONCILIATION BETWEEN THE INCOME OFFERED AND CREDIT FOR TDS CERTIFICATES OBTAINED AND HENCE THE MATTER SHOU LD BE RESTORED TO THE FILE OF ASSESSING OFFICER. WE ARE NOT CONVINCED WIT H THIS SUBMISSION FOR THE OBVIOUS REASON THAT IF A PARTICULAR AMOUNT AS P ER TDS CERTIFICATE HAS BEEN AVAILED AGAINST WHICH NO CORRESPONDING INCOME IS SHOWN, THEN THE COURSE OPEN TO THE REVENUE IS TO DENY THE BENEFIT O F SUCH TDS CREDIT TO THE ASSESSEE AND NOT TO MAKE ADDITION FOR ANY INCOM E. AS NO SPECIFIC INSTANCE HAS BEEN POINTED OUT BY THE A.O THAT A PAR TICULAR TDS CREDIT WAS CLAIMED BY THE ASSESSEE AGAINST WHICH NO CORRES PONDING INCOME WAS SHOWN, WE CANNOT ACCEPT THE GENERAL SUBMISSION MADE ON BEHALF OF THE REVENUE. APART FROM THAT, THE GROUND RAISED B EFORE US IS AGAINST THE DELETION OF ADDITION AND NOT FOR DENYING THE BENEFI T OF ANY TDS CERTIFICATE. THIS GROUND IS THEREFORE, NOT ALLOWED . 6. SECOND GROUND OF THE DEPARTMENTAL APPEAL IS AGAI NST THE DELETION OF ADDITION OF RS. 92,37,687/- MADE BY THE AO ON AC COUNT OF NON- INCLUSION OF EXCISE DUTY IN THE CLOSING STOCK OF RA W MATERIAL IN CONTRAVENTION TO THE PROVISIONS OF SEC. 145A. FILTE RING OUT UNNECESSARY DETAILS, IT IS OBSERVED THAT SIMILAR DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER U/S 145A ON ACCOUNT OF NON-INCLUS ION OF EXCISE DUTY ITA NO. 3066/DEL/2013 & 3641/DEL/2013 LLOYD INSULAT ION (INDIA) LTD. 5 PERTAINING TO THE CLOSING STOCK OF RAW MATERIAL FOR THE IMMEDIATELY PRECEDING YEAR. WHEN THE MATTER FINALLY CAME UP BEF ORE THE TRIBUNAL, THE ISSUE WAS RESTORED FOR A FRESH DECISION IN THE LIGH T OF THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS MAHAVIR ALUMINUM LTD. (2008) 297 ITR 77 (DELHI) . A COPY OF SUCH ORDER PASSED BY THE TRIBUNAL IS AVAILABLE IN THE PAPER BOOK. NO DISTINGUISHING F EATURES FOR THE CURRENT YEAR HAVE BEEN POINTED OUT BY THE LD. DR. RESPECTFU LLY FOLLOWING THE PRECEDENT, WE SET ASIDE THE IMPUGNED ORDER ON THIS SCORE AND REMIT THE MATTER TO THE FILE OF A.O FOR DECIDING THIS ISSUE A FRESH IN ACCORDANCE WITH THE AFORE NOTED JUDGMENT OF THE HONBLE DELHI HIGH COURT IN MAHAVIR ALUMINUM LTD. (SUPRA) . 7. THE LAST EFFECTIVE GROUND IN THE REVENUES APPEA L IS AGAINST THE DELETION OF DISALLOWANCE OF RS. 1,57,152/- MADE ON ACCOUNT OF EXCESS CLAIM OF DEPRECIATION ON SCANNERS AND CD-WRITERS @ 60% AS COMPUTER PERIPHERALS. THE ASSESSEE CLAIMED DEPRECIATION @ 60 % ON SCANNERS AND CD-WRITERS ETC. BY CONSIDERING THEM AS PART OF COMP UTERS. THE ASSESSING OFFICER RESTRICTED THE ENTITLEMENT TO 15% ON SUCH ITEMS BY EXCLUDING THEM FROM THE AMBIT OF COMPUTERS. THIS LED TO THE DISALLOWANCE OF RS. 1,57,152/-. THE LD. CIT(A) DEL ETED SUCH ADDITION. 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THIS ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE SPECIAL BENCH ORDER OF THE TRIBUNAL IN DCIT VS ITA NO. 3066/DEL/2013 & 3641/DEL/2013 LLOYD INSULAT ION (INDIA) LTD. 6 DATACRAFT INDIA LTD. (2010) 133 TTJ (MUM) (SB) 377. NO CONTRARY THE PRECEDENT HAS BEEN BROUGHT TO OUR NOTICE BY THE LD. DR. WE, THEREFORE, UPHOLD THE IMPUGNED ORDER ON THIS ISSUE. 9. THE ONLY ISSUE RAISED BY THE ASSESSEE THROUGH VA RIOUS GROUNDS IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF RS. 19, 40,796/- MADE BY THE ASSESSING OFFICER U/S 14A R.W RULE 8D. BRIEFLY STA TED THE FACTS OF THE CASE ARE THAT THE ASSESSEE MADE INVESTMENT OF R S. 14.61 CRORE IN SECURITIES FETCHING INCOME NOT CHARGEABLE TO TAX. T HE ASSESSEE EARNED DIVIDEND INCOME OF RS. 4,444/- DURING THE YEAR, WH ICH WAS CLAIMED AS EXEMPT. IN VIEW OF THE FACT THAT THE ASSESSEE DID N OT OFFER ANY DISALLOWANCE U/S 14A, THE ASSESSING OFFICER, AFTER GIVING DUE NOTICE TO THE ASSESSEE AND RECORDING PROPER REASONS, MADE DIS ALLOWANCE AT RS. 19,40,796/- AS PER RULE 8D. NO RELIEF WAS ALLOWED IN THE FIRST APPEAL. THE ASSESSEE IS AGGRIEVED AGAINST THE SUSTENANCE OF SUCH DISALLOWANCE. 10. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD, WE OBSERVE THAT THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2009-10. AS PER THE JUDGMENT OF TH E HONBLE JURISDICTIONAL HIGH COURT IN MAXOPP INVESTMENT LTD. VS CIT (2012) 347 ITR 272 (DELHI) , THE DISALLOWANCE U/S 14A IS REQUIRED TO BE MADE A S PER RULE 8D FROM ASSESSMENT YEAR 2009-10. AS SUCH, THE CONTENTION URGED ON BEHALF OF THE ASSESSEE THAT THE DISALLOWANCE BE MADE ON SOME REASONABLE BASIS AND NOT AS PER RULE 8D IS DEVOID O F MERITS. THE FURTHER ITA NO. 3066/DEL/2013 & 3641/DEL/2013 LLOYD INSULAT ION (INDIA) LTD. 7 CONTENTION OF THE LD. AR THAT THE EXEMPT INCOME WA S A MEAGER SUM AND HENCE SUCH A SUBSTANTIAL DISALLOWANCE U/S 14A WAS N OT CALLED FOR, ALSO DOES NOT STAND IN THE LIGHT OF THE SPECIAL BENCH OR DER IN CHEMINVEST LTD. VS INCOME-TAX OFFICER (2009) 121 ITD 318(DELHI) (SB ) . IN THIS ORDER, THE SPECIAL BENCH HAS HELD THAT DISALLOWANCE OF EXPENSE S U/S 14A IS WARRANTED EVEN IF THE EXEMPT INCOME IS NIL. THIS CO NTENTION IS ALSO REPELLED. 11. NOW WE COME TO THE COMPUTATION OF DISALLOWA NCE MADE BY THE A.O AS PER RULE 8D, WHICH IS IN TWO COMPONENTS. THE FIRST COMPONENT OF SUCH DISALLOWANCE IS INTEREST EXPENDITURE AMOUNT ING TO RS. 13,10,295/-. THE LD. AR SUBMITTED THAT INTEREST FRE E FUNDS WITH THE ASSESSEE FAR EXCEEDED THE AMOUNT OF INVESTMENT IN T HE SECURITIES FETCHING EXEMPT INCOME. IT IS AXIOMATIC THAT DISALLOWANCE U/ S 14A IS CALLED FOR ONLY IN RESPECT OF THE EXPENSES WHICH ARE CLAIMED A S DEDUCTION. IF THERE IS NO DEDUCTION OF EXPENDITURE RELATABLE TO THE EXE MPT INCOME, THERE CAN BE NO QUESTION OF COMPUTING DISALLOWANCE U/S 14A IN A MECHANICAL MANNER. IT IS TRITE THAT IF AN ASSESSEE HAS INTERE ST FREE FUNDS AS WELL AS INTEREST BEARING FUNDS AT ITS DISPOSAL THEN THE PRE SUMPTION WOULD BE THAT THE INVESTMENT WERE MADE FROM INTEREST FREE FUNDS. THE HONBLE BOMBAY HIGH COURT IN CIT VS RELIANCE REALITIES AND POWER LTD. (2009) 313 ITR 340 (BOM) HAS HELD TO THIS EXTENT. SIMILAR VIEW HAS BEEN TAK EN BY THIRD MEMBER OF THE TRIBUNAL IN VISEN INDUSTRIES LTD. VS ADDITIONAL ITA NO. 3066/DEL/2013 & 3641/DEL/2013 LLOYD INSULAT ION (INDIA) LTD. 8 CIT (2012) 136 ITD 309 (BOM) (TM) . THE NATURAL COROLLARY WHICH, THEREFORE, FOLLOWS IS THAT IF THE INTEREST FREE FU NDS AVAILABLE AT THE ASSESSEES DISPOSAL ARE MORE THAN THE INVESTMENTS M ADE WHICH GIVE EXEMPT INCOME THEN THE PRESUMPTION WOULD BE THAT SU CH INVESTMENTS WERE FINANCED OUT OF THE INTEREST FREE FUNDS AVAILA BLE AT THE ASSESSEES DISPOSAL. ONCE THIS IS THE CASE, THERE CAN BE NO QU ESTION OF ATTRIBUTING INTEREST CLAIMED IN THE PROFIT AND LOSS ACCOUNT TO SUCH INVESTMENTS. IF THERE IS NO INTEREST ATTRIBUTABLE TO THE INVESTMENT S BEARING EXEMPT INCOME, THERE CAN BE NO QUESTION OF ANY DISALLOWANC E OF INTEREST U/S 14A. THE HONBLE GUJARAT HIGH COURT IN CIT VS SUZLON ENERGY LTD. (2013) 354 ITR 630 (GUJ.) HAS HELD TO THIS EXTENT BY LAYING DOWN THAT NO DISALLOWANCE OF INTEREST U/S 14A CAN BE MADE IF OWN CAPITAL IS MORE THAN THE INVESTMENT FETCHING EXEMPT INCOME. SINCE, NECESSARY DETAILS IN THIS REGARD ARE NOT PROPERLY FORTHCOMING, WE DEEM I T APPROPRIATE TO SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE AND REMIT TH IS MATTER TO THE FILE OF A.O FOR COMPUTING DISALLOWANCE OF INTEREST, IF ANY, AS PER RULE 8D IN THE LIGHT OF THE ABOVE DISCUSSION. 12. THE SECOND SEGMENT OF DISALLOWANCE AMOUNTI NG TO RS. 6,30,501/- AT % OF AVERAGE INVESTMENT, BEING IN CONFORMITY W ITH RULE 8D APPLICABLE FOR THE CURRENT YEAR, IS UPHELD. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AND THAT OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPO SES. ITA NO. 3066/DEL/2013 & 3641/DEL/2013 LLOYD INSULAT ION (INDIA) LTD. 9 ORDER PRONOUNCED IN THE OPEN COURT ON 26/03/2014. SD/- SD/- (DIVA SINGH) (R. S . SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBE R DATED: 26/03/2014 *SUBODH* COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(APPEALS) 5.DR: ITAT ASSISTANT REGISTRAR DATE INITIAL 1. DRAFT DICTATED ON 25.03.2014 PS 2. DRAFT PLACED BEFORE AUTHOR 25.03.2014 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 25.3.2014 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. *