DCIT, New Delhi V. M/s. SRF Ltd., Gurgaon

ITA 3849/DEL/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3290 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 25-05-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 17-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Capital receipt
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SH.G.D.AGRAWAL, HONBLE PRESIDENT AND SH.K.N.CHARY, JUDICIAL MEMBER ITA NO. 3849/DEL/2013 (ASSESSMENT YEAR: 2008 -09) ITA NO. 3437/DEL/2013 (ASSESSMENT YEAR: 2008 -09) ORDER PER K.N.CHARY, JUDICIAL MEMBER AGGRIEVED BY THE ORDER DATED 26.03.2013 IN APPEAL N O.444/11-12 PASSING BY THE LD. COMMISSIONER OF INCOME TAX (APPE AL) [IN SHORT CIT(A)]-XII, NEW DELHI FOR THE AY 2008-09, THE REVENUE AND THE A SSESSEE FILED THESE TWO APPEALS. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ORGANIZED INTO DIFFERENT BUSINESSES LIKE INDUSTRIAL SYNTHETICS BUS INESS-MANUFACTURE OF NYLON DCIT, CIRCLE-9(1), ROOM NO.163, C.R. BUILDING, NEW DELHI. VS SRF LTD., BLOCK-C, SECTOR-45, GURGAON. PAN-AAACS0206P (APPELLANT) (RESPONDENT) SRF LTD., UNITECH CREST, GREENWOOD CITY, BLOCK-C, SECTOR-45, GURGAON-122003. PAN-AAACS0206P VS JCIT (OSD), CIRCLE-9(1), NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY SH.S.S.RANA, CIT DR RESPONDENT BY SH. PRADEEP DINODIA, CA & SH. R.K.KAPOOR, CA DATE OF HEARING 12 . 1 0.2017 DATE OF PRONOUNCEMENT 15 . 1 1 .2017 ITA NO. 3849 & 3437/DEL/2013 TYRE CORD FABRIC; INDUSTRIAL FABRIC BUSINESS-MANUFA CTURE OF BELTING FABRICS; CHEMICAL BUSINESS-PRODUCTION OF FLUROCHEMICALS AND CHLOREMETHANES; AND PACKAGING FILM BUSINESS-MANUFACTURE OF PACKAGING FI LMS. FOR AY 2006-07, THE ASSESSEE FILED RETURN OF INCOME ON 30.11.2006 DECLA RING TOTAL INCOME OF RS.1,27,93,49,010/- AND DURING SCRUTINY PROCEEDINGS U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT ACT), THE AO FOUND THAT W ITH A TOTAL INVESTMENT OF RS.14,752.96 LACS. THE ASSESSEE EARNED A DIVIDEND INCOME OF RS.2,57,75,960/- WHICH IS EXEMPTED FROM TAX. THE AO RECORDED THAT N O EXPENDITURE PERTAINING TO THE EARNING OF THE EXEMPT INCOME HAS BEEN ALLOCA TED BY THE ASSESSEE AS SUCH WHILE CALCULATING THE EXEMPT INCOME BY FOLLOWI NG RULE 8D OF THE INCOME TAX RULES, 1962 (IN SHORT RULES), THE AO MADE AN ADDITION OF RS.1,11,31,085/-. ASSESSEE CARRIED THE MATTER IN A PPEAL BEFORE THE LD. CIT(A) CHALLENGING THE ADDITION MADE U/S 14A OF THE ACT. IN APPEAL, BY WAY OF ADDITIONAL GROUND, THE ASSESSEE ALSO PREFERRED CLAI M TO THE TUNE OF RS.2,67,71,10,198/- IN RESPECT OF THE RECEIPT FROM TRANSFER OF CERTIFIED EMISSION REDUCTION (IN SHORT CER) AS CAPITAL RECE IPT. IT IS ARGUED BEFORE THE LD.CIT(A) THAT THE AO RECORDED THAT NO EXPENDITURE FOR EARNING THE EXEMPT INCOME WAS ALLOCATED BY THE ASSESSEE BUT, AS A MATT ER OF FACT, THE ASSESSEE HIMSELF OFFERED RS.1,29,776/- AS THE EXPENDITURE IN CURRED FOR EARNING THE EXEMPT INCOME BUT THE AO WITHOUT CONSIDERING THE SA ME AND RECORDING FACTUALLY INCORRECT STATEMENT PROCEEDED TO APPLYING THE FORMULA UNDER RULE 8D. HE SUBMITS THAT IN VIEW OF THE DECISIONS REPORTED I N CIT VS HERO MANAGEMENT SERVICE LTD. [2014] 360 ITR 68, CIT VS TAIKISHA ENG INEERING INDIA LTD. [2015] 370 ITR 338 AND CIT VS I.P.SUPPORT SERVICES IDNIA (P.) LTD. [ITA NO .283/2014 DATED 24.09.2015], RECORDING OF SATISFACTION ON THE INCORRECT OF THE AMOUNT DISALLOWED ITA NO. 3849 & 3437/DEL/2013 HAVING REGARD TO THE BOOKS OF ACCOUNTS OF THE ASSES SEE IS A SINE QUA NON FOR INVOCATION OF PROVISION U/S 14A R.W. RULE 8D OF THE RULES. LD.CIT(A) ON CONSIDERATION OF THE MATTER FOUND THAT OUT OF THE T OTAL INTEREST EXPENDITURE OF RS.691.43 LACS DEBITED BY THE ASSESSEE AND RS.495.6 8 LACS RELATED TO THE LATE PAYMENT OF SUPPLIERS AND THE BALANCE OF RS.195.75 A LONG AS TO BE RECKONED FOR THE PURPOSE OF RULE 8D(2)(II) OF THE RULES. ON THI S PREMISE, LD.CIT(A) RESTRICTED THE DISALLOWANCE TO RS.21.76 LACS AND DIRECTED THE AO TO GIVE CREDIT FOR RS.12,97,727/- STATED TO HAVE BEEN DISALLOWED BY TH E ASSESSEE HIMSELF. REVENUE IS CHALLENGING THE REDUCING THE DISALLOWANC E U/S 14-A OF THE ACT, WHEREAS THE ASSESSEE IS CHALLENGING THE SUSTAINING OF ADDITION IN EXCESS OF WHAT WAS OFFERED BY THEM U/S 14-A OF THE ACT AND AL SO THE NON CONSIDERATION OF THEIR CLAIM IN RESPECT OF CERS. 3. IN SO FAR AS THE PLEA OF THE ASSESSEE THAT THEY HAV E VOLUNTARILY OFFERED A SUM OF RS.12,97,726/- TOWARDS THE EXPENSES INCURRED IN RELATION TO EARNING OF DIVIDEND INCOME IS CONCERNED, SUCH A PLEA WAS TAKEN BY THE ASSESSEE BEFORE LD.CIT(A) AND THE LD.CIT(A) TOOK NOTE OF THE SAME. HOWEVER, BEFORE US THE ASSESSEE HAD TAKEN A PLEA THAT FOR WANT OF RECORD O F REASONS AS TO THE DISSATISFACTION OF THE AO IN RESPECT OF THE EXPENDI TURE INCURRED BY THE ASSESSEE, HAVING REGARD TO THE BOOKS OF ACCOUNTS OF THE ASSES SEE, THE ADDITION IS BAD. LD. COUNSEL SUBMITS THAT THE VERY FACT THAT THOUGH THE ASSESSEE HAD OFFERED 12.97 LACS, AO FAILED TO NOTICE THE SAME BUT DIRECTLY JUM PED TO THE APPLICATION OF RULE 8D OF THE RULES TO THE CASE OF THE ASSESSEE. IT IS SHOWS THE NON-APPLICATION OF MIND ON THE PART OF THE AO AND VITIATES THE PROCEED INGS. HE PLACED RELIANCE ON CIT VS HERO MANAGEMENT SERVICE LTD. (SUPRA). LD. DR PLACED RELIANCE ON INDIABULLS FINANCIAL SERVICES LTD. VS DCIT [2016] 7 6 TAXMANN.COM 268 (DELHI) & ITA NO. 3849 & 3437/DEL/2013 VIPIN MALIK VS ACIT 45 ITR 589 (ITAT, DEL) AND SUBMITTED THAT MERELY BECAUSE THE AO DID NOT RECORD HIS DISSATISFACTION ABOUT THE ASSESSEES CALCULATION, THE CONCLUSIONS CANNOT BE REJECTED. HOWEVER, ON A READ ING OF THE JUDGEMENT IN INDIABULLS FINANCIAL SERVICES LTD. VS DCIT (SUPRA) , WE FIND THAT IN THAT CASE, BUT FOR RECORDING THE DISSATISFACTION, THE AO FOLLOWED THE PROCEDURE AS REQUIRED U/S 14A OF THE ACT AND THE IMPORTANT STEPS INDICATED BY HIM IN THE ORDER SHOWS THAT ALL THE ELEMENTS WERE PRESENT IN HIS MIND, AS SUCH MERELY BECAUSE HE DID NOT EXPRESSLY RECORD HIS DISSATISFACTION WOULD NOT PER SE JUSTIFY ANY CONCLUSION THAT HE WAS NOT SATISFIED OR DID NOT RECORD COGENT REASONS FOR HIS DISSATISFACTION TO REJECT THE AOS CONCLUSION. BUT UNFORTUNATELY T HERE IS NOTHING ON RECORD IN THE CASE ON HAND TO INDICATE THAT THE AO HAD EXAMIN ED THE ISSUE WITH REFERENCE TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE INASMUCH AS HE FAILED TO NOTICE THAT IN FACT A SUM OF RS.12.97 LACS WAS OFFE RED BY THE ASSESSEE WHILE FILING THE RETURN OF INCOME ITSELF. ON FACTS, WE F IND THAT THE DECISION IN INDIABULLS FINANCIAL SERVICES LTD. VS DCIT (SUPRA) IS NOT APPLICABLE TO THIS CASE. 4. LD. CIT(A) HAD EXAMINED ALL THE BOOKS OF ACCOUNT S FOUND THAT OUT OF RS.691.43 LACS OF INTEREST EXPENSES ONLY A SUM OF R S.195.75 LACS ALLOW FOR EARNING THE TAXABLE INCOME INASMUCH AS THE REMAININ G RS.495.68 LACS PERTAINS TO THE LATE PAYMENTS OF SUPPLIERS AND ON THIS SCORE , LD.CIT(A) RE-COMPUTED THE INTEREST COMPONENT UNDER 8D(2)(II) OF THE RULES AT RS.2.96 LACS. UNDER RULE 8(2)(III), LD.CIT(A) HAD TAKEN AN AVERAGE INVESTME NT FOR EARNING EXEMPT INCOME OF RS.37.6042 LACS WHEREAS ACCORDING TO THE LD.AR, THE AVERAGE VALUE OF THE INVESTMENT IS ERRONEOUSLY CALCULATED BY TAKING INTO CONSIDERATION RS.245.45 LACS IN THE BONDS OF UTI WHICH ARE NOT TAX FREE INV ESTMENT. ITA NO. 3849 & 3437/DEL/2013 5. BE THAT AS IT MAY, ON THE QUESTION OF NON-RECORD ING OF REASONS, WE FIND THAT THE AO FAILED TO COMPLY WITH THE REQUIREMENTS OF RECORDING OF SATISFACTION WITH REFERENCE TO THE BOOKS OF ACCOUNTS OF THE ASSE SSEE, AND ON THAT GROUND ANY ADDITION MADE IN VIOLATION OF THE STATUTORY REQ UIREMENT CANNOT SURVIVE. IN THIS MATTER, THE ASSESSEE VOLUNTARILY OFFERED RS.12 ,97,726/- TOWARDS THE EXPENSES INCURRED IN RELATION TO EARNING DIVIDEND I NCOME WHICH WAS ENHANCED BY THE LD.CIT(A) TO RS.21.76 LACS. WE, THEREFORE, DELETE THE ENHANCED AMOUNT IN EXCESS OF RS.12,97,726/- AND RESTRICT THE DISAL LOWANCE U/S 14A R.W. RULE 8D OF THE RULES TO SUCH SUM AS OFFERED BY THE ASSES SEE. 6. BEFORE LD.CIT(A), THE ASSESSEE ARGUED THAT IN VI EW OF THE DECISION REPORTED IN MY HOME POWER LTD. VS DCIT [2012] 27 TAXMANN.COM 27 15 1 TTJ 616 AND CONFIRMED BY THE HONBLE ANDHRA PRADESH HIGH COURT IN CIT VS MY HOME POWER LTD. [2014] 365 ITR 82, AN AMOUNT OF RS.267.71 CRORES ON ACCOUNT OF CER WAS A CAPITAL RECEIPT AND CAUSE OF ACTION HA D ARISEN TO ASSESSEE TO CLAIM THE SAME ON THE DECLARATION OF LAW BY THE HON BLE HIGH COURT. IT WAS ARGUED THAT THE TAX AUTHORITIES DO NOT GET ANY JURI SDICTION TO BRING TO TAX ANY AMOUNT OFFERED BY THE ASSESSEE UNDER A MISTAKEN IMP RESSION OR NOT BEING PROPERLY INSTRUCTED. THE ASSESSEE SUBMITS THAT THEI R BALANCE SHEET AND P&L A/C AS ON 31.03.2008 REFLECTS THE SAME. FOR THESE REASONS, THE ASSESSEE CLAIMED THAT THE AMOUNT ON ACCOUNT OF CERS TRANSFER RED WAS NOT A REVENUE RECEIPT BUT A CAPITAL RECEIPT AND CANNOT BE BROUGHT TO TAX. LD.CIT(A) DISMISSED THIS GROUND ON THE GROUND THAT THE ASSESSEE HAD CAL CULATED THE TAXABLE INCOME CONSIDERING THE RECEIPT FROM TRANSFER OF CERS AS RE VENUE RECEIPT, AND THEY NEVER RISED ANY DISPUTE DURING THE ASSESSMENT PROCE EDINGS AS SUCH THE SAME WAS LIABLE TO BE DISMISSED. ITA NO. 3849 & 3437/DEL/2013 7. PER CONTRA, LD. DR SUBMITTED THAT AN ADDITIONAL GROUND FOR CLAIMING DEDUCTION U/S 80IA OF THE ACT, CANNOT BE ALLOWED BY THE TRIBUNAL WHEN NO CLAIM WAS BEFORE THE ORIGINAL AUTHORITY, AND THOUGH NO CLAIM WAS MADE BEFORE THE AUTHORITIES BELOW, THE PLEA OF NON-TAXABILITY S HALL BE PRESUMED TO HAVE BEEN CONSIDERED. HE FURTHER SUBMITTED THAT THE INCOME O N SALE OF CERS WOULD FALL WITHIN THE DEFINITION OF INCOME U/S 2(24)(VD) OF TH E ACT AND THUS CHARGEABLE TO TAX AND WHERE THE ASSESSEE ENGAGED IN BUSINESS OF P OWER GENERATION, RECEIVED CARBON CREDIT FOR GENERATING POWER THROUGH NON-CONV ENTIONAL SOURCE INVOLVING NON-EMISSION OF CARBON, THE ASSESSEE WAS NOT ENTITL ED TO DEDUCTION U/S 80IA OF THE ACT IN RESPECT OF THE SAID INCOME. FOR THIS PU RPOSE, HE PLACED RELIANCE ON ULTRATECH CEMENT LTD. VS ACIT [2017-TIOL-785-HC-MUM -IT]; ACIT VS GURJARGRAVURES (P.) LTD. [1978] 111 ITR 1 (SC); APO LLO TYRES LTD. VS CIT 47 TAXMANN.COM 416, 31 ITR(T) 477; AND S.P SPINNING MILLS (P.) LTD. VS ACIT [2017] 81 TAXMANN.COM 34 (CHENNAI-TRIB.). 8. ON THIS ASPECT OF SALE OF CER, WE AGREE WITH THE LD. AR THAT IN VIEW OF THEIR PLEA THAT BECAUSE OF THE DECISION IN MY HOME LTD. (SUPRA) CAUSE OF ACTION HAD ARISEN TO THEM, LD.CIT(A) SHOULD NOT HAVE REFUS ED TO ADJUDICATE THE ADDITIONAL GROUNDS ON MERITS. IN VIEW OF THE SETTL ED PRINCIPLE OF LAW IN JUTE CORPORATION OF INDIA [1991] 187 ITR 688 , THIS GROUND REQUIRES ADJUDICATION. IT IS SUBMITTED ON BEHALF OF THE ASSESSEE THAT FOR FINANC IAL YEAR ENDING 31.03.2008, THE ASSESSEE TRANSFERRED 34,50,000 CERS TO FOREIGN COMPANIES FOR RS.2,67,71,10,198/- AND THIS IS REFLECTED IN THE BA LANCE SHEET AND P&L ACCOUNT. HOWEVER, THE QUESTION WHETHER THE CASE OF THE ASSESSEE IS COVERED BY THE DECISION IN MY HOME (SUPRA) AND THE CONSEQUENTI AL RELIEF TO WHICH THE ASSESSEE IS ENTITLED TO, REQUIRES VERIFICATION AT T HE END OF THE AO. WE, THEREFORE, ITA NO. 3849 & 3437/DEL/2013 FIND IT A FIT CASE TO SET ASIDE THIS GROUND TO THE AO TO CONSIDER THE CASE OF THE ASSESSEE WHETHER IT IS COVERED BY THE DECISION IN MY HOME LTD. (SUPRA). WE THEREFORE, RESTORE THIS ISSUE TO THE FILE OF AO FOR CONSIDERING AFRESH IN THE LIGHT OF THE ABOVE DECISION, BY GIVING AN OPPORTUNITY TO THE ASSESSEE. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED, AND THE APPEAL OF THE ASSESSEE IS ALLOWED IN PART FOR STATISTICAL PUR POSE. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 15 TH NOVEMBER, 2017. SD/- SD/- (G.D.AGRAWAL) (K.N.CHARY) PRESIDENT JUDICIAL MEMBER *AMIT KUMAR* DATE:- 15.11.2017 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT AS SISTANT REGISTRAR ITAT NEW DELHI