ACIT, New Delhi V. M/s. Oil Industry Development Board, New Delhi

ITA 3568/DEL/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4811 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-08-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 13-06-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 13-06-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHEFALI SWAROOP
• Assessee Lawyers: NEHA SAPRA
• Keywords: Opportunity of being heard; Earning of tax free income; Additional evidence; Royalty expenses
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) BEFORE HONBLE PRESIDENT, SHRI G.D. AGRAWAL AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.3568/DEL./2014 (ASSESSMENT YEAR : 2009-10) ACIT, CIRCLE 31 (1), VS. M/S. OIL INDUSTRY DEVELOP MENT BOARD, NEW DELHI. 301, WORLD TRADE CENTRE, BABAR ROAD, NEW DELHI. (PAN : AAAJO0032A) ITA NO.4221/DEL./2014 (ASSESSMENT YEAR : 2010-11) M/S. OIL INDUSTRY DEVELOPMENT BOARD, VS. ACIT, CIRC LE 31 (1), 301, WORLD TRADE CENTRE, BABAR ROAD, NEW DELHI. NEW DELHI. (PAN : AAAJO0032A) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI M. P. RASTOGI, ADVOCATE AND MS. NEHA SAPRA, CA REVENUE BY : MS. SHEFALI SWAROOP, CIT DR DATE OF HEARING : 07.08.2017 DATE OF ORDER : 21.08.2017 O R D E R PER BENCH : ITA NO.3568/DEL./2014 ITA NO.4221/DEL./2014 2 SINCE COMMON QUESTIONS OF FACTS AND LAW HAVE BEEN R AISED IN THE AFORESAID APPEALS FILED BY THE REVENUE AND A SSESSEE, THE SAME ARE BEING DISPOSED OFF BY WAY OF CONSOLIDATED ORDER TO AVOID REPETITION OF DISCUSSION. 2. APPELLANT, ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE 31 (1), NEW DELHI (HEREINAFTER REFERRED TO AS THE REV ENUE), BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 27.03.2014 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)- XXVI, NEW DELHI, FOR THE ASSESSMENT YEAR 2009-10 ON THE GROUNDS INTER ALIA THAT :- (I) THE CIT(A) HAS ERRED IN ADMITTING ADDITIONAL EVIDENCE IN THE FORM OF LETTER OF DGH DATED 27.03.2009 UNDER RULE 46A WITHOUT PROVIDING OPPORTUNITY TO THE AO. (II) THE CIT(A) HAS ERRED IN DELETING DISALLOWANCE OF RS.43,25,00,000/- MADE BY THE AO ON ACCOUNT OF ROYALTY PAYABLE TO STATE GOVT. BEING UNASCERTAINED LIABILITY AS THE SAME WERE DEBITED ON ESTIMATE BASIS. 3. APPELLANT, M/S. OIL INDUSTRY DEVELOPMENT BOARD (HEREINAFTER REFERRED TO AS THE ASSESSEE BOARD), BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORD ER DATED 27.03.2014 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)- ITA NO.3568/DEL./2014 ITA NO.4221/DEL./2014 3 XXVI, NEW DELHI, FOR THE ASSESSMENT YEAR 2010-11 ON THE GROUNDS INTER ALIA THAT :- ( 1) THAT LD CIT (A) HAS ERRED BOTH ON FACTS AND IN LAW IN FRAMING THE ASSESSMENT AT AN INCOME OF RS.575,47,06,740/- AGAINST THE RETURNED INCOME OF RS.501,76,40,280/- (2) THAT LD. CIT (A) HAS ERRED IN HOLDING THAT THE SUM OF RS.66,11,00,000/- IS A CONTINGENT LIABILITY BY GIVING COMPLETE DISREGARD TO THE FACT THAT THIS IS AN ASCERTAINED AND DETERMINED LIABILITY BECAUSE THE PROVISION HAS BEEN MADE ON THE BASIS OF THE FACTS A ND FIGURES SUBMITTED BY DGH AND HENCE NOT A VAGUE CLAIM BEING PUT UP BY THE APPELLANT BOARD. FURTHER THE LETTER DT.17-05-2010, THE CONTENTIOUS ISSUE FOR UPHOLDING DISALLOWANCE HAS BEEN GROSSLY MISUNDERSTOOD IGNORING THE MAIN CONTENTS WHICH INTER ALIA IS DIRECTIVE IN NATURE BY DGH FOR ENABLI NG RECOGNITION OF EXPENSES PAYABLE FOR HALF YEAR ENDED 30-09-2009 RS.38.73 CRORE AND ANOTHER HALF YEAR ENDED 31-3-2010 FOR RS 27.38 CRORE (3) THAT LD. CIT (A) HAS COMPLETELY OVERLOOKED THE SUBMISSIONS OF THE APPELLANT BOARD SO AS TO HOL D ON TO THE VIEW THAT AMOUNT OF RS.66,11,00,000/- IS A CONTINGENT LIABILITY HENCE REQUEST IS PLACED THROUG H THIS APPEAL TO SUBMIT FURTHER DOCUMENTS U/R 46A TO SUPPORT JUSTIFICATION OF DEBIT OF EXPENSES BEING MA DE IN THE NORMAL COURSE OF BUSINESS RESPECTING APPLICABLE ACCOUNTING STANDARDS. (4) THAT LD. CIT (A) HAS COMPLETELY OVERLOOKED THAT THE INHERENT CHARACTER OF CONTINGENT LIABILITY IS SOME DEMANDS 1 CLAIMS WHICH 'MAYOR MAY NOT HAPPEN AND NOT SOME ACTS DUTIFULLY PROVIDED THUS TO CATEGORIZE THE ROYALTY PAYABLE TO ARUNACHAL PRADESH AND GUJARAT GOVERNMENT IN THE AMBIT OF CONTINGENT LIABILITY AS THEY ARE BOUND TO HAPPEN BECAUSE SUCH ITA NO.3568/DEL./2014 ITA NO.4221/DEL./2014 4 DISCRETION OF PROVIDING ROYALTY EXPENSES IS MONITOR ED AND DEVISED BY THE MANAGEMENT AT EVERY STEP ON REGULATORS DIRECTIVES. (5) THAT LD. CIT (A) HAS ERRED IN UPHOLDING DISALLOWANCE OF RS.1,62,49,000/- U/S SEE 14A AS PROVISIONS OF SEE 14A HAVE NO APPLICATION IN THE INSTANT CASE SINCE THE APPELLANT HAD NO EXEMPTED INCOME IN THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION. (6) THAT LD. CIT (A) HAS FAILED TO OBSERVE THAT AS THE APPELLANT BOARD OWNED FUNDS HAVE BEEN UTILIZED TO ACQUIRE INVESTMENT IN SECURITIES THUS THERE IS N O DIRECT / INDIRECT COST IN ACQUIRING INVESTMENTS HEN CE PROVISIONS OF SECTION 14A HAS ANY APPLICATION. (7) THAT LD. CIT (A) HAS NO MERITS IN FINDING THAT EXPENDITURE OF RS.5,94,00,000/- ON SCHEMES AND PROJECTS IS OF CAPITAL NATURE AS NEITHER APPELLANT BOARD HAS CREATED ANY ASSET NOR ANY ENDURING BENEFI T OR WEALTH ACCRETION HAS BEEN DERIVED BY THE APPELLA NT BOARD RATHER SUCH GRANTS, SOPS, BOUNTIES ARE FOREGONE FOREVER THUS PERMANENT OUTFLOW ONCE EXPENDED BY THE APPELLANT BOARD. (8) THAT LD. CIT(A) HAS ERRED IN UPHOLDING DISALLOWANCE OF RS.5,94,00,000/- U/S 36(1) (XII) , REQUEST IS HEREBY PLACED THROUGH THIS APPEAL TO SUBMIT FURTHER DOCUMENTS U/R 46A TO SUPPORT JUSTIFICATION OF DEBIT OF EXPENSES BEING MADE IN TH E NORMAL COURSE OF BUSINESS RESPECTING APPLICABLE ACCOUNTING STANDARDS. (9) THAT THE APPELLANT CRAVES TO ALTER, AMEND, ADD, DELETE OR MODIFY ANY OF THE GROUNDS OF APPEAL AT TH E TIME OF HEARING. ITA NO.3568/DEL./2014 ITA NO.4221/DEL./2014 5 4. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : ASSESSEE BOARD IS ENGAGED IN EXTENDING FINANCIAL ASSISTANCE FOR THE DEVELOPMENT OF OIL IND USTRY. ASSESSEE BOARD HAD BEEN CLAIMING ROYALTY PAYMENT ON THE BASI S OF ACTUAL PAYMENT I.E. CASH BASIS TILL 2007-08. BUT, FROM AY 2008-09, ASSESSEE BOARD HAS CHANGED ITS ACCOUNTING SYSTEM FO R SAME RECEIPT AND EXPENDITURE FROM CASH TO ACCRUAL METHOD OF ACCO UNTING AND THEREBY CLAIMED ROYALTY PAYMENT ON ACCRUAL BASIS ON THE BASIS OF QUANTIFICATION AS PER THE EXISTING GUIDELINES OF OF FICE OF DIRECTORATE GENERAL OF HYDROCARBON (DGH). 5. IN THE APPEAL FILED BY THE REVENUE FOR AY 2009-1 0, THE FIRST ISSUE RAISED BY THE REVENUE BY WAY OF FILING THE PR ESENT APPEAL IS ADMITTING ADDITIONAL EVIDENCE BY THE LD. CIT (A) IN THE SHAPE OF LETTER OF DGH DATED 27.03.2009 UNDER RULE 46A WITHO UT PROVIDING OPPORTUNITY OF BEING HEARD TO THE AO AND SECOND ISS UE RAISED IN THE AFORESAID APPEAL FOR AY 2009-10 IS DISALLOWANCE OF RS.43,25,00,000/- MADE BY THE AO ON ACCOUNT OF ROYA LTY PAYABLE TO THE STATE GOVERNMENT BEING UNASCERTAINED LIABILI TY AS THE SAME WERE DEBITED ON ESTIMATE BASIS. 6. THE ISSUE RAISED BY THE ASSESSEE IN ITS APPEAL B EARING ITA NO.4221/DEL/2014 FOR AY 2010-11 INTER ALIA THAT AO DISALLOWED A ITA NO.3568/DEL./2014 ITA NO.4221/DEL./2014 6 SUM OF RS.66,11,00,000/- AN AMOUNT ASSESSEE BOARD D EBITED IN INCOME & EXPENDITURE ACCOUNT ON ACCOUNT OF ROYALTIE S PAYABLE TO THE STATE GOVERNMENT ON THE GROUND THAT THE PROVISI ON MADE REGARDING ROYALTY PAYMENT ON ACCRUAL BASIS IN THE A SSESSEE BOARDS ACCOUNT IS IN THE NATURE OF CONTINGENT LIABILITY AS THE QUANTIFICATION WAS DONE AFTER CLOSURE OF FINANCIAL YEAR BY DGH. L D. CIT (A) CONFIRMED THE DECISION OF AO BY RECORDING SIMILAR R EASONS BY HOLDING THAT NO CONTINGENT EXPENDITURE ARE ALLOWABL E EVEN U/S 36(1)(XII) OF THE ACT. 6.1 SECOND ISSUE RAISED BY THE ASSESSEE BOARD BY FI LING AFORESAID APPEAL IS DISALLOWANCE OF RS.1,62,49,000/ - U/S 14A BY THE AO ON THE GROUND THAT IN CASE OF THE ASSESSEE, SECT ION 14A IS NOT ATTRACTED AS THE ASSESSEE HAD NO EXEMPT INCOME IN T HE YEAR UNDER ASSESSMENT. CIT (A) AFFIRMED THE DECISION OF DISAL LOWANCE MADE BY THE AO ON SIMILAR GROUNDS. NEXT ISSUE RAISED BY THE ASSESSEE IS DISALLOWANCE OF AMOUNT OF RS.5,94,00,000/- ON THE G ROUND THAT THE ASSESSEE HAS FAILED TO DEMONSTRATE THAT IT FULFILLE D ALL TERMS AND CONDITIONS FOR ALLOWABILITY OF SUCH EXPENDITURE U/S 36(1)(XII) OF THE ACT AND THEREBY AFFIRMED THE DECISION AS TO DISALLO WABILITY MADE BY THE AO. ITA NO.3568/DEL./2014 ITA NO.4221/DEL./2014 7 7. FEELING AGGRIEVED, THE REVENUE IN AY 2009-10 AND ASSESSEE IN AY 2010-11 HAVE COME UP BEFORE THE TRIBUNAL BY W AY OF CHALLENGING THE IMPUGNED ORDER PASSED BY LD. CIT. 8. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. GROUNDS NO.1 & 2 OF ITA NO.3568/DEL/2014 FOR AY 2009-10 FILED BY THE REVENUE GROUNDS NO.2, 3 & 4 OF ITA NO.4221/DEL/2014 FOR AY 2010-11 FILED BY THE ASSESSEE 9. SO FAR AS APPEAL BEARING ITA NO.3568/DEL/2014 FI LED BY THE REVENUE IS CONCERNED, CIT (A) DELETED THE DISALLOWA NCE OF RS.43,25,00,000/- MADE BY THE AO ON ACCOUNT OF ROYA LTY PAYMENT MADE TO THE STATE GOVERNMENT AS UNASCERTAINED LIABI LITY IS CONCERNED, THE SAID DISALLOWANCE HAS BEEN DELETED B Y THE LD. CIT (A) ON THE BASIS OF LETTER DATED 23.03.2009 WRITTEN BY DGH WHO IS RESPONSIBLE FOR ASCERTAINING OF SUCH ROYALTY PAYMEN T TO THE GOVERNMENT OF ARUNACHAL PRADESH AND LETTER DATED 27 .03.2009 OF DGH FOR MAKING PAYMENT OF ROYALTY TO STATE OF GUJAR AT AND PASSED A REASONED ORDER. ITA NO.3568/DEL./2014 ITA NO.4221/DEL./2014 8 10. MOREOVER, WHEN THE AO HAS NOT DISPUTED THE GENU INENESS OF THESE EXPENSES AND HAS ALSO NOT TAKEN CARE OF THE F ACT THAT THE EXERCISE OF ALLOWING THESE EXPENSES IS REVENUE NEUT RAL, THE ADDITION THEREOF ON ACCOUNT OF DISALLOWANCE OF RS.43,25,00,0 00/- IS NOT SUSTAINABLE IN THE EYES OF LAW. IN THESE CIRCUMSTA NCES, WE FIND IT NECESSARY TO RESTORE THE CASE BACK TO THE AO TO ALL OW THE EXPENSES INCURRED BY THE ASSESSEE BOARD ON ACCOUNT OF PAYMEN T OF ROYALTY TO THE STATE OF ARUNACHAL PRADESH AND STATE OF GUJA RAT DEBITED IN ITS PROFIT & LOSS ACCOUNT AFTER DUE VERIFICATION OF THE LETTER RELIED UPON BY THE ASSESSEE BOARD AS WELL AS LD. CIT (A). CONS EQUENTLY, GROUNDS NO.1 & 2 OF ITA NO.3568/DEL/2014 FILED BY T HE REVENUE FOR AY 2009-10 AND CONSEQUENTLY, GROUNDS NO.2, 3 & 4 OF ITA NO.4221/DEL/2014 FILED BY THE ASSESSEE FOR AY 2010- 11 ARE SET ASIDE TO THE AO. GROUND NO.1 OF ITA NO.4221/DEL/2014 FOR AY 2010-11 FILED BY THE ASSESSEE 11. GROUND NO.1 OF ITA NO.4221/DEL/2014 FILED BY TH E ASSESSEE FOR AY 2010-11 IS GENERAL IN NATURE AND DOES NOT RE QUIRE ANY ADJUDICATION. ITA NO.3568/DEL./2014 ITA NO.4221/DEL./2014 9 GROUNDS NO.5 & 6 OF ITA NO.4221/DEL/2014 FOR AY 2010-11 FILED BY THE ASSESSEE 12. THE AO DISALLOWED AN AMOUNT OF RS.1,62,49,000/- U/S 14A BY REJECTING THE CONTENTIONS RAISED BY THE ASSESSEE THAT NO EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE TO EARN THE EXEM PT INCOME DURING THE YEAR UNDER ASSESSMENT. CIT (A) OBSERVED THAT IT CANNOT BE RULED OUT THAT THERE IS A PROXIMATE RELAT IONSHIP BETWEEN OFFICE ESTABLISHMENT EXPENDITURE AND INTEREST EXPEN DITURE TO THE INVESTMENT RESULTING INCOME NOT CHARGEABLE TO TAX. LD. CIT (A) RELIED UPON ORDER PASSED BY THE TRIBUNAL IN CASE OF CHEMINVEST LIMITED VS. ITO 124 TTJ 577 (DEL.)(SB) BY HOLDING THAT, IF AN EXPENDITURE IS INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, IT HAS TO SUFFER DISALLOWANCE IRRESPECTIVE OF THE FACT WHETHER ANY INCOME IS EARNED OR NOT. HOWEVER, THIS DECISION HAS BEEN OVERRULED BY THE HONBLE DELHI HI GH COURT IN CHEMINVEST LTD. VS. CIT - (2015) 378 ITR 33 (DELHI) . SO, IN THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT W HEN THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DURING TH E YEAR UNDER ASSESSMENT, NO DISALLOWANCE IS PERMISSIBLE U/S 14A OF THE ACT. SO, IN THESE CIRCUMSTANCES, THIS ISSUE IS ALSO SET ASID E TO THE AO TO ITA NO.3568/DEL./2014 ITA NO.4221/DEL./2014 10 DECIDE ACCORDINGLY IN VIEW OF THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN CASE TITLED AS CHEMINVEST LIMITED (SUPRA) IN FAVOUR OF THE ASSESSEE. GROUNDS NO.7 & 8 OF ITA NO.4221/DEL/2014 FOR AY 2010-11 FILED BY THE ASSESSEE 13. AO DISALLOWED EXPENDITURE OF RS.5,94,00,000/- O N THE GROUND THAT THE ASSESSEE BOARD HAS FAILED TO DEMONS TRATE THAT IT FULFILLED ALL TERMS AND CONDITIONS OF ALLOWABILITY OF SUCH EXPENDITURE U/S 36(1)(XII). CIT (A) CONFIRMED THE DISALLOWANCE MADE BY THE AO FOR THE SOLE REASON THAT ASSESSEE H AS TO ESTABLISH THAT THE EXPENDITURE CLAIMED ARE IN THE NATURE OF R EVENUE EXPENDITURE AND INCURRED WHOLLY AND EXCLUSIVELY FOR THE AIMS AND OBJECTS OF THE ASSESSEE BOARD. 14. THE LD. AR FOR THE ASSESSEE ADDRESSED SHORT ARG UMENT THAT WHEN THE ASSESSEE HAS CREATED NO ASSETS NOR ANY END URING BENEFIT ACCRUED TO IT RATHER THE EXPENDITURE INCURRED ARE I N THE FORM OF GRANTS, SOPS, BOUNTIES, THE SAME ARE REVENUE EXPEND ITURE. WHEN THE ASSESSEE BOARD HAS PLACED ON RECORD DOCUMENTS U NDER RULE 46A TO PROVE THE JUSTIFICATION OF THE EXPENSES MADE IN NORMAL COURSE OF BUSINESS, THE DISALLOWANCE IS NOT SUSTAIN ABLE. WE ARE OF THE CONSIDERED VIEW THAT WHEN THE ASSESSEE HAS BROU GHT ON RECORD ITA NO.3568/DEL./2014 ITA NO.4221/DEL./2014 11 DOCUMENTATION TO PROVE THE JUSTIFICATION OF DEBIT O F EXPENSES DISALLOWED BY THE AO AS WELL AS BY CIT (A), THE AO IS REQUIRED TO EXAMINE AND VERIFY THESE DOCUMENTS BEFORE DECIDING THE ISSUE IN CONTROVERSY. SO, WE REMAND THIS ISSUE ALSO TO AO T O DECIDE AFTER ENTERTAINING THE DOCUMENTS RELIED UPON BY THE ASSES SEE BOARD UNDER RULE 46A OF THE RULES AFTER PROVIDING AN OPPO RTUNITY OF BEING HEARD TO THE ASSESSEE. CONSEQUENTLY, GROUNDS NO.7 & 8 ARE ALLOWED FOR STATISTICAL PURPOSES. 12. RESULTANTLY, BOTH THE APPEALS FILED BY THE REVE NUE AND ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 21 ST DAY OF AUGUST, 2017. SD/- SD/- (G.D. AGRAWAL) (KULDIP SINGH) PRESIDENT JUDICIAL MEMBER DATED THE 21 ST DAY OF AUGUST, 2017 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XXVI, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.