RASHTRIYA CHEMICALS & FERTILIZERS LIMITED, MUMBAI V. COMMISSIONER OF INCOME TAX - LARGE TAX PAYER UNIT, MUMBAI

ITA 3428/MUM/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4864 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 21-05-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AWUNGSHI GIMSON
• Assessee Lawyers: K K VED
• Section: 271(1)(c); 37(1); 263; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI SANDEEP GOSAIN , JM ITA NO. 3428 /MUM/ 2018 (ASSESSMENT YEAR: 2013 - 14 ) RASHTRIYA CHEMICALS & FERTILIZERS LTD. PRIYADARSHINI, EASTERN EXPRESS HIGHWAY, SION, MUMBAI - 400 022 VS. CIT LARGE TAX PAYER UNIT, CENTRE - 1, WORLD TRADE CENTRE, CUFFE PARADE, MUMBAI - 400 005 PAN/GIR NO. ( APPELLANT ) : ( RESPONDENT ) APPELLANT BY : SHRI K. K. VED RESPONDENT BY : SHRI AWUNGSHI GIMSON DATE OF HEARING : 04.12.2018 DATE OF PRONOUNCEMENT : 08.02 .2019 O R D E R PER SHAMIM YAHYA, A. M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX ( LARGE TAX PAYER UNIT ) , MUMBAI (LD.CIT( LTU ) FOR SHORT) DATED 19.03.2018 U/S. 263 OF THE INCOME TAX ACT, 1961 AND PERTAINS TO THE ASSESSMENT YEAR (A.Y.) 2013 - 14. 2. THE GROUNDS OF APPEAL READ AS UNDER: 1 : 0 RE: VALIDITY OF ORDER U/S. 263: 1 : 1 THE COMMISSIONER OF INCOME - TAX HAS ERRED IN PASSING AN ORDER U/S. 263 OF THE INCOME - TAX ACT, 1961. 1 : 2 THE COMMISSIONER OF INCOME - TAX FAILED TO APPRECIATE THAT THE CONDITIONS PRECEDENT TO PASSING AN ORDER UNDER THE SAID SECTION WERE NOT SATISFIED AND HENCE THE ORDER U/S. 263 OF THE INCOME - TAX ACT, 1961 IS ULTRA VIRES AND VOID. 1 : 3 THE COMMISSIONER OF INCOME - TAX HAS ERRED IN HOLDING THAT THE ASSESSMENT ORDER DATED 19 FEBRUARY 2016 PASSED BY THE ASSESSING OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE AND HENCE ERRED IN PASSING AN ORDER U/S. 263 OF THE INCOME - TAX ACT IN RESPECT OF THE SAME. 1 : 4 THE APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT THE ASSESSMENT FRAMED BY THE ASSESSING OFFICER WAS AFTER DUE CONSIDERATION OF THE FACTS AND THE LAW BY THE ASSESSING OFFICER AND HENCE THE 2 ITA NO.3428/MUM/2018 SETTING ASIDE OF THE SAME BY THE COMMISSIONER OF INCOME - TAX U/S. 263 OF THE INCOME - TAX ACT, 1961 IS ERRONEOUS, IN EXCESS OF JURISDICTION AND BAD IN LAW. 1 : 5 THE APPELLANT SUBMITS THAT THE IMPUGNED ORDER U/S. 263 O F THE COMMISSIONER OF INCOME - TAX BE STRUCK DOWN. WITHOUT PREJUDICE TO THE AFORESAID: 2 : 0 RE: DEDUCIBILITY OF RS. 9.05 CRORES BEING EXPENDITURE ON CORPORATE SOCIAL RESPONSIBILITY RCSR'1: 2 : 1 THE COMMISSIONER OF INCOME - TAX HAS ERRED IN DIRECTING THE AS SESSING OFFICER TO INCREASE THE TOTAL INCOME BY AN AMOUNT OF RS. 9.05 CRORES BEING EXPENDITURE INCURRED ON CSR. 2 : 2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT THE EXPENDITURE INCURRED OUGHT TO BE ALLOWED AS A DEDUCTION IN TERMS OF SECTION 37(1) OF THE INCOME - TAX ACT, 1961 AND THE STAND TAKEN BY THE COMMISSIONER OF INCOME - TAX IN THIS REGARD IS MISCONCEIVED, ERRONEOUS AND NOT IN ACCORDANCE WITH LAW. 3 ; 0 RE: ADDITION OF RS. 2.5 2 CRORES BEING LOSSES / DAMAGES AND OTHER WRITE OFFS UNDER THE HEAD 'MISCELLANEOUS EXPENSES': 3 : 1 THE COMMISSIONER OF INCOME - TAX HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO INCREASE THE TOTAL INCOME BY AN AMOUNT OF RS. 2.52 CRORES BEING LOSSES / DAM AGES AND OTHER WRITE - OFFS. 3 : 2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT THE LOSSES / DAMAGES WRITTEN OFF OUGHT TO BE ALLOWED AS A DEDUCTION AND THE STAND TAKEN BY THE COMMISSION ER OF INCOME - TAX IN THIS REGARD IS MISCONCEIVED, ERRONEOUS AND NOT IN ACCORDANCE WITH LAW. 3. BRIEF FACTS OF THE CASE ARE THAT IN THIS CASE THE LD. CIT OBSERVED AS UNDER: AS PER NOTE 51 TO ACCOUNTS THE ASS E SSEE COMPANY AS PER DEPARTMENT OF FERTI LIZERS NOTIFICATION DT. 3RD MAY, 2013 HAD MADE REDUCTION IN SALES OF RS. 19 . 64 CRORE ON ESTIMATE BASIS ON STOCK HELD BY DEAL E RS /RETAILERS EXPECTED TO BE SOLD AT REDUCED MRP TO FARMERS. SINCE THE REDUCTION IN SALES WAS ON ESTIMATE BASIS AND NOT ON ACTUAL BASIS THE REDUCTION SHOULD B E DISALLOWED OMISSION HAS RESULTED IN UNDER ASSESSMENT OF INCOME OF RS . 19.64 C R ORE AND S H ORT LEVY OF TAX OF RS . 6 . 37 CRORE. 4 . AS PER SECTION 37 OF INCOME - TAX ACT EXPENDITURE RELATING TO CORPORATE SOCIAL RESPONSIBILITY REFERRED TO IN SECTION 135 OF COMPANIES ACT, 2013 NOT BE DEEMED TO BE AN EXPENDITURE INCURRED BY THE ASSESSES FOR THE PURPOSE OF THE BUSINESS OR PROFESSION . FURTHER 3 ITA NO.3428/MUM/2018 CLARIFICATION HAS BEEN INSERTED AS EXPLANATION 2 AFTER RENUMBERED EXPLANATION TO SUB SECTION (1) OF SECTION 3 7 BY THE FINANCE (NO 2) ACT 2014. WE F 01 .0 4.2014. 5. I N THIS CASE, THE ASSESSES HAD DEBITED IN PROFIT AND LOSS ACCOUNT UNDER THE HEAD 'MISCELLAN EOUS EXPENSE' EXPENDITURE OF RS.905 CRORE ON CORPORATE SOCIAL RESPONSIBILITY AND SAME SHALL NOT BE DE EMED TO BE AN EXPENDITURE INCURRED FOR THE BUSINESS . OMISSION TO DISALLOW T H E SAID EXPENDITURE HAS RESULTED IN UNDER ASSESSMENT OF INCOME OF RS.9 . 05 CRO RE AND SHORT LEVY OF TAX OF RS. 2.94 CRORE. 6. I T WAS A LSO NOTICED THAT THE ASSESSEE HAS DEBITED IN PROFIT AND LOSS ACCOUNT UNDE R THE HEAD 'MISCELLANEOUS EXPENSE' EXPENDITURE O F RS .2.2 3 CRORE ON LOSSES/DAMAGES AND OTHER WRITTEN OFF AND AS PE R NOTE 50 TO ACCOU NTS IT IS NOTICED THAT ON 9TH AUG 2012, A FIRE OCCURRED IN STORES DEPARTMENT WHERE ITEMS OF STORES, SPARES, OFFICE APPLIANCES, FURNITURE AND FIXTURES WERE DAMAGED/DESTROYED . THE S AID LO SS HAD BEEN APPROPRIATELY ACCOUNTED IN ACCOUNTS AND INSURANCE CLAIM OF RS. 3 CRORE HAD BEEN RECEIVED. OUT OF THE AMOUNT RECEIVED RS . 0 . 48 C R ORE HAD BEEN ADJUSTED AGAINST THE LOSSES AND BALANCE AMOUNT OF RS 2.52 CRORE HAD BEEN ACCOUNTED AS INCOME RECEIVED IN ADVANCE TO BE SPENT FOR ENSUING YEAR. 7. AS THE ASSESSEE COMPANY HAD ACCOUNTED THE LOSSES IN THE ACCOUNTS AND HAS RECEIVED INSURANCE CLAIM OF RS . 3 CRORE AND HENCE BALANCE AMOUNT OF RS.2 . 52 CRORE SHOULD HAVE BEEN ACCOUNTED AS INCOME FOR THE RELEVANT ASSESSMENT YEAR. OMISSION TO TREAT AS INCOME HAS RESULTED IN U NDER ASSESSMEN T OF INCOME OF RS. 2.52 CRO RE AND SHORT LEVY OF TAX OF RS.81.76 LAKHS . 4 ITA NO.3428/MUM/2018 8. HAVING REACHED THE PRIMA FACIE SATISFACTION THAT THE ORDER PASSED BY THE A.O, IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE THE NOTICE U/S. 263 DATED 09,01 20 18 WAS ISSUED TO THE ASSESSEE . 9. CONSIDERING THE ASSESSEES RESPONSE, HE DROPPED THE FIRST ISSUE OF RED UCT ION IN SALE. AS REGARDS THE ISSUE OF CORPORATE SOCIAL RESPONSIBILITY (CSR) HE NOTED THE ASSESSEES RESPONSE AS UNDER: AT THE OUTSET, IT MAY BE NOTED THAT IN TERMS OF THE NOTIFICATION S.O. 582(E) DATED 27 TH FEBRUARY, 2014, THE MINISTRY OF CORPORATE AFFAIRS HAD NOTIFIED 01 APRIL 2014 TO BE THE DATE AS ON WHICH THE PROVISIONS OF SECTION 13 5 OF THE COMPANIES ACT, 2 013 WILL COME INTO FOR CE. EVEN OTHER WISE EX PLANAT I ON 2 TO S ECTION 37 O1 THE INCOME - TAX INCOME TAX ACT, 1961 VI S - A - VIS DISALLOWANCE OF AMOUNT SPENT ON CSR WHICH WAS INSERTED BY VIDE THE FINANCE (NO 2 ) ACT, 2014, W.E.F. 01 APRIL, 2015 STATES THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE ON CSR ACTIVITIES INFERRED TO IN SECTION 135 OF THE COMPANIES ACT. 2013 WOULD NOT TO BE ALLOWED AS DEDUCTION APPLICABLE FROM ASSESSMENT YEAR 2015 - 16 ONWARDS AND HENCE WILL NOT BE APPLICABLE FOR THE YEAR UNDER CONSIDERATION - REFER CLAUSE 13 OL THE FINANCE (NO. 2) BILL. 2014 IN THIS CONNECTION, SINCE THE YEAR UNDER CONSIDERATION IS ASSESSMENT YEAR 2013 - 14, THE QUESTION OF DISALLOWING THE CSR EXPENSES IN TERMS OF THE AFORESAID PROVISIONS DOES NOT ARISE AND THE ASSESSEE COMPANY WAS NOT MANDATORILY REQUIRED TO MAKE A CONTRIBUTION TOWARDS CSR . ATTENTION IS ALSO DRAWN TO THE DECISION OF THE RAIPUR BENCH OF INCOME - TAX APPELLATE TRIBUNAL IN THE CASE OF ACIT V/S. JINDAL POWER LTD (2016) 70 TAXMANN.COM 389 WHEREIN IT HAS BEEN HELD THA T EXPLANATION 2 LO SECTION 37(1) COMES IN TO EFFECT FROM 01 APRIL 2 015. ACCORDINGLY, THE SAID EXPENDITURE OUGHT TO BE ALLOWED AS A DEDUCTION IN TERMS OF SECTION 37(1) OF THE INCOME TAX ACT. 1961 IN COMPUTING THE TOTAL INCOME AS IT IS EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE COMPANY 10. HE WAS NOT SATISFIED . HE DECIDED AS UNDER: I HAVE CAREFULLY CONSIDERED THE ISSUE AND FIND THAT IT IS NOWHERE SPECIFICALLY STATED THAT IT WILL NOT BE EFFECTIVE RETROSPECTIVELY NEI THER IS THERE ANY JUDGEMENT SPECIFICALLY ON THIS ISSUE HOLDING IT 'NOT RETROSPECTIVE'. THEREFORE, AO I S DIRECTED TO DISALLOW THE SAID EXPENDITURE. THE AO IS DIRECTED TO GIVE EFFECT TO THE ABOVE MENTIONED ORDER AND ISSUE DEMAND NOTICE HE IS ALSO REQUIRED TO INITIATE PENALTY U/S 271(1)(C) / FOR FURNISHI NG INACCURATE PARTICULARS OF INCOM E BY THE ASSESSEE. 5 ITA NO.3428/MUM/2018 11. UPON HEARING BOTH THE COUNSEL AND PERUSING THE RECORD, WE FIND THAT IT HAS BEEN HELD BY THE ITAT IN JINDAL POWER LTD. (SUPRA) THAT EXPLANATION 2 TO SECTION 37(1) COMES INTO EFFECT FROM 01.04.2015. THE LD. DEPARTMENTAL REPRESENTATIVE (LD. DR FOR SHORT) HAS REFERRED TO THE DECISION OF ITAT HYDERABAD BENCH SAID TO BE A CONTRARY DECISION. W E FIND THAT IT IS SETTLED LAW THAT IF TWO VIEWS ARE POSSIBLE, ONE IN FAVOUR OF THE ASSESSEE SHOULD BE A DOPTED . IN THESE CIRCUMSTANCES, THE LD. C IT(A)S DIRECTIONS TO DISALLOW THE SAME IS NOT SUSTAINABLE. EVEN OTHERWISE IT CAN BE HELD THAT THERE COULD BE TWO VIEW S ON TH IS ISSUE AND IF THE A. O. HAS ADOPTED ONE VIEW, WHICH ADMITTEDLY IS A PLAUSIBLE ONE, THE LD. CIT(A) IS NOT VESTED WITH JURISDICTION U/S. 263 QUA THIS ISSUE. THIS PROPOSITION GETS SUPPORT FROM THE HON'BLE APEX COURT DECISION IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS. CIT [200 0] 243 ITR 83 (SC) . HENCE, WE QUASH THE DIRECTION GIVEN BY THE LD. CIT(A) IN THIS ISSUE. 12. AS REGARDS THE ISSUE LOSS/DAMAGES AND OTHER WRITE OFF, HE NOTED THE ASSESSEES RESPONSE AS UNDER: DURING THE RELEVANT PREVIOUS YEAR I E ON 09 AUGUST 2012. THERE WAS A FIRE IN THE ASSESSEE COMPANY'S - STORES DEPARTMENT AT TROMBAY UNIT. DUE TO THE SAID FIRE THERE WAS A LOSS / DAMAGE TO THE COMPANY'S ASSETS IN THE SAID STORES DEPARTMENT. BASED ON ITS APPRAISAL OF THE LOSS I DAMAGE THE ASSESSEE COMPANY HAD I NITIALLY L ODGED A CLAIM FOR RS. 1265 CRORES WHICH WAS SUBSEQUENTLY REVISED BY THE INSURANCE COMPANY TO RS. 10 . 92 CRORES WHICH INCLUDED REP LACEMENT COST AND COST O F REPAIRS TO CERTAIN ITEMS WITH US INSURANCE COMPANY - RELIANCE GENERAL INSURANCE COMPANY LIMITED. THE ASSESSEE COMPANY S CLAIM WAS FINALLY ACCEPTED BY THE SAID INSU RER AT RS . 10 . 18 CRORES AND THE CLAIM DISBURSED OVER A PERIOD OF THREE YEARS DURING THE YEAR UNDER CONSIDERATION, THE INSURER GRANTED AN AD - HOC CLAUNOF RS .3, 00 , 00 , 000/ - WHICH WAS PAID BY THE INSURANCE COMPANY TO THE ASSESSEE COMPANY AS AN ADVANCE SETTLEM ENT TOWARDS THE CLAIM OUT OF RS.3. 00 CRORES, IN ACCORDANCE WITH REVENUES MATCHING COSTS, A PROPORTIONATE AMOUNT OF CLAIM SETTLED (RS 0 48 CRORE) WAS TAKEN TO PROFIT & LOSS ACCOUNT AND THE BALA NCE AMOUNT OF RS .2. 52 CRORES WAS REPORTED AS CLAIM AMOUNT RECEIVED IN ADVANCE 12. HOWEVER, HE WAS NOT SATISFIED. HE DECIDED AS UNDER: THE COMPANY HAD RECEIVED THE INSURANCE CLAIM AMOUNT OF RS.3 CRORE IN THE RELEVANT ASSESSMENT YEAR, HENCE, IT SHOULD HAV E BEEN ACCOUNTED AS INCOME FOR THE RELEVANT 6 ITA NO.3428/MUM/2018 ASSESSMENT YEAR. THEREFORE, THE GROUND IS DECIDED AGAINST THE ASSESSEE THE A O IS DIRECTED ACCORDINGLY 13. AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 14. WE HAVE HEARD BOTH THE C OUNSEL AND PE RUSED THE RECORDS. WE FIND THAT THERE IS NO COGENT BASIS FOR THE ACCOUNTING DONE BY THE ASSESSEE. THE ASSESSEE HAS RECEIVED THE SUM OF RS.3 CRORES TOWARDS INSURANCE CLAIM. THE LOSS ON ACCOUNT OF FIRE LOSS HAS ALREADY BEEN BOOKED BY THE ASSESSEE. THERE IS NO CASE THAT FURTHER LOSS IS TO BE BOOKED. HENCE, THIS TREATMENT OF PART OF THE IN SURANCE CLAIM AS ADVANCE IS NOT AT ALL CORRECT. TH US, THE A.O. IS TOTALLY WRONG I N ACCEPTING THIS POSTPONEMENT O F INCOME . AS A MATTER OF FACT BEFORE PARTING, WE MAY ADD THAT THE ENTIRE INSURANCE CLAIM RE CEIVABLE NEEDED TO BE A CCOUNTED FOR ON ACCRUAL BASIS. IN THE RESULT, WE UPHOLD THE ORDER OF THE LD. CIT ON THIS ISSUE. 15. IN THE RESULT, THIS APPEAL BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 0 8 . 0 2 . 2 0 1 9 S D / - S D / - ( SANDEEP GOSAIN ) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 0 8 . 0 2 . 2 0 1 9 ROSHANI , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT - CONCERNED 5. DR, ITAT, MUMBAI 6. GUARD FILE BY ORDER, (DY./ASSTT. REGISTRAR) ITAT, MUMBAI