A.C.I.T., CIRCLE -3, SRINAGAR V. M/S KHYBER INDUSTRIES PVT . LTD, SRINAGAR

ITA 395/ASR/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3310 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 10 month(s)
• Appeal Type: Income Tax (International Taxation) Appeal
• Pronouncement Date: 20-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 01-05-2018
• Assessment Year: 2012-2013
• Appeal Filed On: 20-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K SHA RMA LD
• Assessee Lawyers: P K MISHRA LD
• Keywords: Earning of tax free income; Capital expenditure; TDS
• Section: 43B; 14A; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N.K.CHOUDHRY, JUDICIAL MEMBER ITA NO.395(ASR)/2017 ASSESSMENT YEAR:2012-13 ACIT CIRCLE-3, SRINAGAR VS. M/S KHYBER INDUSTRIES PVT. LTD. KHAYAM BUILDING NOWPORA, SRINAGAR PAN:AAACK 7457J (APPELLANT) (RESPONDENT) APPELLANT BY: SH. P.K.SHARMA (LD. DR) RESPONDENT BY: SH.P.K.MISHRA (LD. CA) DATE OF HEARING: 01.05.2018 DATE OF PRONOUNCEMENT: 21.06.2018 ORDER PER N.K.CHOUDHRY, JM: THE INSTANT APPEAL HAS BEEN PREFERRED BY THE REVENUE DEPARTMENT, ON FEELING AGGRIEVED AGAINST THE ORDER I MPUGNED HEREIN DATED 14.02.2017, PASSED BY THE LD. CIT(A)-J&K , JAMMU U/S 250(6) OF THE I.T. ACT, 1961 (HEREINAFTER CALLED A S THE ACT) FOR ASST. YEAR:2012-13. 2. THE FOLLOWING GROUNDS OF APPEAL RAISED BY THE REVEN UE DEPARTMENT. 1. WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DELETING TH E ADDITION OF RS.2,56,978/- OUT OF TOTAL OF RS.17,84, 680/- ON ACCOUNT OF EXPENSES FOUND TO BE VERIFIABLE DURIN G THE ASSESSMENT PROCEEDINGS. ITA NO.395/ASR/2017 (A.Y.2012-13) ACIT VS. M/S KHYBER INDUSTR IES PVT. LTD., SRINAGAR 2 2. WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DELETIN G THE ADDITION OF RS.33,43,327/- MADE BY THE AO ON ACCOUN T OF DEVELOPMENT OF ROAD BY TREATING THE SAME AS CAPITAL EXPENDITURE . 3. WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DELETI NG THE ADDITION OF RS.24,58,353/- MADE BY THE AO ON ACCOUN T OF DISALLOWANCE U/S 14A WHEN THE ASSESSEE HAS UTILIZED BUSINESS FUNDS FOR INVESTMENT IN SHARE WHICH IS NOT IN PROXIMITY TO THE BUSINESS OF THE ASSESSEE COMPANY A ND USED THE BUSINESS AS FUNDS TO EARN DIVIDENDS WHICH IS EXEMPT INCOME. 4. WHETHER THE LD. CIT(A) WAS RIGHT IN LAW AND FA CT IN DELETING THE ADDITION OF RS.30,56,704/- AND RS.4,98,965/- MADE BY THE AO BY TREATING THE CONTRIBUTION OF THE EMPLOYEE AS INCOME OF THE ASSES SEE IN TERMS OF PROVISION OF SECTION 36(1)(VA) READ WITH S ECTION 2(24)(X) OF THE I.T. ACT WHEN THE SAME HAS NOT BEEN SUBMITTED WITHIN THE DUE DATE OF DEPOSIT UNDER THE PF ACT AND ESI ACT. 5. WHETHER THE LEARNED CIT(A) WAS RIGHT IN LAW AND EFFECT IN DELETING THE ADDITION ON ACCOUNT OF PRIOR PERIOD EXPENSES AMOUNTING TO RS.2,24,306/- AND LEAVE ENCASHMENT OF RS.16,05,398/- WHEN THE SAME HAVE BEE N DISALLOWED AS THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND THE EXPENSES HAVE TO BE CLAIMED ON APPROVAL BASES. 3. FOR CLARITY AND CONVENIENCE, WE SHALL DEAL EACH GROU ND INDEPENDENTLY. THE FACTS OF THE CASE ARE ALREADY ON RECO RD, THEREFORE, NOT REPEATED HEREIN FOR THE SAKE OF CONVEN IENCE AND BREVITY. ITA NO.395/ASR/2017 (A.Y.2012-13) ACIT VS. M/S KHYBER INDUSTR IES PVT. LTD., SRINAGAR 3 4. GROUND NO.1, RELATES TO THE DELETION OF ADDITION O F RS.3,56,978/- OUT OF TOTAL OF RS.17,84,690/- ON ACCOUNT OF EXPENSES FOUND TO BE UNVERIFIABLE DURING THE ASSESSMENT PROCEEDINGS. THE AO HAS MADE AN AD HOC DISALLOWANCE @ 10% OF THE VARIOUS EXPENSES UNDER THE HEAD UNDER CONSIDERATI ON WHICH WAS RESTRICTED TO 8% BY THE LD. CIT(A), WHILE CON SIDERING THE UPHOLDING OF DISALLOWANCE @ 8% FOR THE ASST. YEAR : 2011-12, BY HIS PREDECESSOR. EVEN CO-ORDINATE BENCH AT AMRITSAR FO R THE ASST. YEAR: 2011-12 SUSTAINED THE SIMILAR DISALLOWANCES @ 8% AS RESTRICTED BY THE LD. CIT(A), WHICH IS NOT IN DISPUTE, HENCE, THE GROUND NO.1 STANDS DISMISSED. 4.1 GROUND NO.2 RELATES TO THE DELETION OF ADDITION OF RS.33,43,327/- MADE BY THE AO ON ACCOUNT OF DEVELOPMEN T OF ROAD BY TREATING THE SAME AS CAPITAL EXPENDITURE. THE SIMILAR ADDITION WAS ALSO DELETED BY THE LD. CIT(A) FOR THE ASST. YEAR: 2011-12 WHICH WAS FURTHER SUSTAINED BY THE CO-ORDINATE BENCH AT AMRITSAR AND THEREFORE, THE LD. CIT(A) WHILE RELY ING UPON THE ORDER PASSED BY THE PREDECESSOR FOR THE ASST. YEAR: 2011-12 AS WELL AS WHILE ANALYZING VARIOUS CASE LAWS, DELETED THE A DDITION UNDER CHALLENGE TREATING THE SAME AS REVENUE EXPENDITU RE. AS THE CO-ORDINATE BENCH HAS ALREADY UPHOLD THE SAID DISAL LOWANCE IN ITA NO.479(ASR)/2015 RELEVANT TO THE A.Y.2011-12, HENCE, THE GROUND NO.2 STANDS DISMISSED. ITA NO.395/ASR/2017 (A.Y.2012-13) ACIT VS. M/S KHYBER INDUSTR IES PVT. LTD., SRINAGAR 4 4.2 GROUND NO.3 RELATES TO THE DELETION OF ADDITION OF RS.24,58,397/- ON ACCOUNT OF DISALLOWANCE U/S 14A WHICH W AS MADE BY THE ASSESSING OFFICER IN RESPECT OF INVESTMENT OF RS.3,55,00,000/- IN SHARES HOLDING ON THE REASON THAT T HE SAME IS NOT IN A PROXIMITY TO THE BUSINESS OF THE ASSESSEE COMPA NY AND USED THE BUSINESS FUNDS ON DIVIDENDS WHICH IS EXEMPT INCOME. THE LD. CIT(A) WHILE FOLLOWING THE JUDGMENTS RENDERED BY THE DELHI HIGH COURT IN THE CASE OF CIT VS. HOLCIM IND IA PVT. LTD. AS WELL AS BY CO-ORDINATE BENCH, AMRITSAR IN THE CA SE OF CONSTRUCTION ENGINEERING VS. AO (ITA NO.477(ASR)/2013), DELETED THE SAID ADDITION. CONCLUDING PART OF THE ORDER PASSED BY THE LD. CIT(A) RELEVANT TO THE GROUND NO.3 IS REPRODUCED HEREIN BEL OW. I HAVE CONSIDERED THE ASSESSMENT ORDER AND THE SUB MISSION MADE BY THE APPELLANT STATED AS ABOVE. I HAVE ALSO CONSIDER ED THE DECISION OF THE HON'BLE ITAT, AMRITSAR GIVEN IN THE CASE, OF CO NSTRUCTION ENGINEERS VS. AO IN ITA NO. 477(ASR)/2013 WHEREIN T HE HON'BLE TAT AMRITSAR HAS OBSERVED AS UNDER: '16. AS WE HAVE OBSERVED THAT WHETHER THERE WAS ANY EXEMPT INCOME IN THE YEAR UNDER CONSIDERATION OR NO T IS NOT COMING OUT FROM THE MATERIAL ON RECORD, THEREFO RE, IT IS APPROPRIATE TO ASCERTAIN IF THERE WAS ANY EXEMPT IN COME AT ALL AND IF THERE IS NO EXEMPT INCOME THEN FOLLOWING THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF HOLCIM INDIA PVT. LTD. NO DISALLOWANCE U/S 14A CAN BE MADE AND THEREFORE, THE ISSUE IS REMITTED BACK TO ASSESSING OFFICER TO ASCERTAIN AS TO WHETHER THERE WAS ANY EXEMPT INCOME WAS NOT IF THERE WAS NO EXEMPT INCOME THEN FOLLOWING TH E JUDICIAL PRECEDENTS CITED ABOVE NO DISALLOWANCE CAN BE MADE AND IF THERE IS EXEMPT INCOME THEN DISALLOWANC E CAN BE MADE AS PER FACTS AND CIRCUMSTANCES AND LEGAL PROVISIONS AND AFTER CONSIDERING THE CASE LAWS RELI ED UPON BY ASSESSEE.' ITA NO.395/ASR/2017 (A.Y.2012-13) ACIT VS. M/S KHYBER INDUSTR IES PVT. LTD., SRINAGAR 5 IN THE PRESENT CASE ON THE BASIS OF THE FACTS STATE D IN THE ASSESSMENT ORDER AND IN THE APPELLANT SUBMISSION IT IS FOUND T HAT THERE WAS NO EXEMPT INCOME IN THE CASE OF THE APPELLANT AND THUS , THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE OF CIT VS. HOLC IM INDIA PVT. LTD. FOLLOWED BY HON'BLE ITAT, AMRITSAR, NO DISALLOWANCE U/S.14A OF THE INCOME TAX ACT, 1961 CAN BE MADE IN THIS CASE. THE ADDITION MADE ON THIS GROUND BY THE AO IS THEREFORE, DELETED AND THE APPELLANT GETS THE RELIEF ACCORDINGLY . IN THE INSTANT CASE, THE ASSESSEE COMPANY HAD INTEREST FREE FUNDS OF RS.52,84,12,357/- AND OUT OF WHICH ONLY RS.3,55,00,000/- HAS BEEN INVESTED IN SHARE OF GROUP COM PANIES WHICH GOES TO SHOW THAT THE APPELLANT HAS NOT INVESTED I NTEREST BEARING FUNDS, HENCE ON THIS REASON ALONE, NO DISALLOW ANCE CAN BE MADE IN VIEW OF THE JUDGMENT RENDERED BY JURISDIC TIONAL HIGH COURT IN THE CASE OF CIT VS. HERO CYCLES LIMITED [2010] 3 23 ITR 518 (P&H) AS WELL AS CIT VS. LAKHANI MARKETING[2014] 49 TAXMAN 257 (P&H). CONSEQUENTLY, IN VIEW OF THE AFORE SAID REASONING THE GROUND NO.3 ALSO STANDS DISMISSED. 4.3 GROUND NO.4 RELATES TO THE DELETION OF ADDITION OF RS.30,56,704/- AND RS.4,98,965/- IN TERMS OF PROVISION OF SEC.36(1)(VA) READ WITH SEC.2(24)(X) OF THE I.T. ACT, WHEN THE SAME HAS NOT BEEN DEPOSITED WITHIN THE DUE DATE AS PRESCR IBED UNDER THE PF ACT AND THE ESI ACT. THE LD. CIT(A) WHI LE RELYING UPON THE ORDER OF LD. CIT(A) IN THE CASE OF THE APPE LLANT ITSELF FOR THE A.Y.2011-12, DELETED THE SAID ADDITION. EVEN WE REALIZED THAT JURISDICTIONAL HIGH COURT IN THE CASE OF M/S R.M. EXPORT S VS. CIT, JALANDHAR IN ITA NO.115 OF 2009 ORDER DATED 06.08.2 013 HELD THAT ITA NO.395/ASR/2017 (A.Y.2012-13) ACIT VS. M/S KHYBER INDUSTR IES PVT. LTD., SRINAGAR 6 8. IN THE PRESENT CASE, THE ASSESSEE HAD DEPOSITED THE AMOUNTS UNDER ESI AND EPF CONTRIBUTIONS PRIOR TO THE FILING OF THE RETURN UNDER SECTION 139(1) OF THE ACT. SECTION 43B OF THE ACT WAS INTERPRETED BY THIS COURT VIDE JUDGMENT DELIVERED O N 5.9.2006 IN AVERY CYCLE INDUSTRIES (P) LTDS CASE (SUPRA) AND O N 7.3.2007 DELIVERED BY THE HONBLE SUPREME COURT IN VINAY CEM ENT LTDS CASE (SUPRA). THE SAID DECISIONS WERE PRIOR IN POIN T OF TIME TO THE DECISIONS OF THE TRIBUNAL ON 5.11.2007 AND 23.11.20 07. ONCE THAT WAS SO, APPLYING THE ENUNCIATION OF LAW AS LAID DOW N BY THE HONBLE SUPREME COURT IN SAURASHTRA KUTCH SINGH GUR BACHAN 2013.09.11 15:34 I ATTEST TO THE ACCURACY AND INTEG RITY OF THIS DOCUMENT HIGH COURT CHANDIGARH STOCK EXCHANGE LTDS CASE (SUPRA), THE TRIBUNAL WAS IN ERROR IN DECLINING TO RECTIFY THE MISTAKE WHICH WAS APPARENT ON THE FACE OF THE RECOR D. IN THE SAID CASE DECIDED BY THE HONBLE PUNJAB & HARYANA HIGH COURT (SUPRA) THE ISSUE WAS RELATED TO THE DELAYE D DEPOSITS OF VARIOUS AMOUNTS OF EMPLOYEES CONTRIBUTIONS TOWARDS E SI AND EPF, WHICH HAVE BEEN DEPOSITED BEFORE THE DUE DATE O F FILING OF THE RETURN, HOWEVER, THE SAME WERE DISALLOWED BY THE ASSESSING OFFICER BY HOLDING THAT THE ASSESSEE FIRM IS IN DEFAULT F OR DEPOSITING THE AFORESAID AMOUNT BEYOND THE STIPULATED TIME PERIOD AS PRESCRIBED UNDER THE PF ACT AND ESI ACT, HOW EVER, THE LD. CIT(A) DELETED THE ADDITION WHICH WAS NOT ACCEPTED BY THE ITAT AND ITAT REVERSED THE ORDER OF LD. CIT(A) BY SUS TAINING THE ADDITION MADE BY THE ASSESSING OFFICER. THE ACTION OF THE ITAT WAS CHALLENGED BY THE ASSESSEE BY FILING MISCELLANEOUS APPLICATION WHICH YIELDED NO RESULT AND THEREAFTER TH E ASSESSEE PREFERRED THE APPEAL BEFORE THE HONBLE HIGH COURT AN D WHILE RELYING UPON THE VARIOUS JUDGMENTS IT WAS CONTENDED TH AT ANY CONTRIBUTION MADE TO THE PROVIDENT FUND BEFORE THE F ILING OF THE RETURN COULD NOT BE DISALLOWED U/S 43B(B) OF THE ACT. T HE SAID ITA NO.395/ASR/2017 (A.Y.2012-13) ACIT VS. M/S KHYBER INDUSTR IES PVT. LTD., SRINAGAR 7 CONTENTION OF THE ASSESSEE WAS ACCEPTED BY THE HONBLE HIGH COURT . JURISDICTIONAL HIGH COURT FURTHER IN THE CASE OF COMMISSIONER OF INCOME TAX VS M/S HEMLA EMBROIDERY MILL S (P) LTD {ITA NO. 16 OF 2009 DECIDED ON 27 NOVEMBER, 2012 } WHILE FOLLOWING THE CASE COMMISSIONER OF INCOME TAX V. ALOM EXTRUSIONS LTD. [2009] 319 ITR 306 (SC) DECIDED BY AP EX COURT , DEALT WITH THE SAME ISSUE AND DECIDED THAT THE ASSESSEE W AS ENTITLED TO DEDUCTION IN RESPECT OF EMPLOYER AND EMPLO YEE'S CONTRIBUTION TO ESI AND PROVIDENT FUND AS THE SAME HAD BEEN DEPOSITED PRIOR TO THE FILING OF THE RETURN UNDER SE CTION 139 (1) OF THE ACT. RELEVANT OBSERVATION IS REPRODUCED HEREIN BELOW :- 5. LEARNED COUNSEL FOR THE APPELLANT COULD NOT DIS PUTE THAT THE ISSUE RAISED HEREIN FINALLY STANDS SETTLED BY THE APEX COURT JUDGMENT IN COMMISSIONER OF INCOME TAX V. ALOM EXTRUSIONS LTD. [2009] 319 ITR 306 (SC) AND THIS COURT IN INCOME TAX APPEAL NO. 663 OF 2005 (THE COMMISSIONER OF INCOME TAX, PATIALA V. M/S RAI AGRO INDUSTRIES LTD. SANGRUR), DECIDED ON 30.11.201 0 WHEREIN IT HAS BEEN HELD THAT SECOND PROVISO TO SECTION 43B OF THE ACT OMITTED BY FINANCE ACT, 2003 WITH EFFECT FROM 1.4.2004 WAS CLARIFICATORY IN NATU RE AND WAS TO OPERATE RETROSPECTIVELY. ONCE THAT IS SO , IN THE PRESENT CASE, THE RESPONDENT-ASSESSEE WAS ENTITLED TO DEDUCTION IN RESPECT OF EMPLOYER AND EMPLOYEE'S CONTRIBUTION TO ESI AND PROVIDENT FUND A S THE SAME HAD BEEN DEPOSITED PRIOR TO THE FILING OF THE RETURN UNDER SECTION 139 (1) OF THE ACT. ITA NO.395/ASR/2017 (A.Y.2012-13) ACIT VS. M/S KHYBER INDUSTR IES PVT. LTD., SRINAGAR 8 6. IN VIEW OF THE ABOVE, THE SUBSTANTIAL QUESTIONS OF LAW ARE ANSWERED AGAINST THE REVENUE AND IN FAVOUR OF T HE ASSESSEE. CONSEQUENTLY, THE APPEALS ARE DISMISSED. EVEN ITAT BENCH AT DELHI IN THE CASE OF ACIT VS. M/S VIP UL FACILITY MANAGEMENT PVT. LTD. IN ITA NO.1020/DEL/201 2 RELEVANT TO THE ASST.YEAR:2008-09 VIDE ORDER DATED 06.09.2012 , WHILE DEALING WITH THE SAME AND IDENTICAL ISSUE HOLD THAT T HE EMPLOYEES CONTRIBUTION TOWARDS PF PAID BY THE ASSESSEE BEF ORE DUE DATE ON FILING OF RETURN U/S 139(1) OF THE ACT FO R THE ASST. YEAR UNDER CONSIDERATION IS ADMISSIBLE FOR DEDUCTION . IN VIEW OF THE DECISIONS OF THE JURISDICTIONAL HIGH C OURT AS WELL AS CO-ORDINATE BENCH OF ITAT AT DELHI, WE DO NOT HAVE ANY HESITATION TO UPHELD THE DELETION OF ADDITION QUA CO NTRIBUTION OF EMPLOYEE'S PROVIDENT FUND (PF) ON ACCOUNT OF EMPLOYEE 'S CONTRIBUTION TOWARDS PROVIDENT FUNDS AS WELL AS UNDER ESI ACT. 4.4 GROUND NO.5, RELATES TO THE DELETION OF ADDITION OF RS.22,43,06/- ON ACCOUNT OF PRIOR PERIOD EXPENSES AND RS.16,05,398/- ON ACCOUNT OF LEAVE ENCASHMENT. IT IS UNDI SPUTED FACT THAT IN ASSESSEES OWN CASE FOR THE ASST. YEAR: 2011-1 2 SIMILAR ADDITION WAS MADE BY THE AO, HOWEVER, THE SAME WAS DELETED BY THE LD. CIT(A) AND THE ACTION OF THE LD. CIT(A) WAS FURTHER SUSTAINED BY THE CO-ORDINATE BENCH IN ITA NO.479(ASR)/2015 RELEVANT TO ASST. YEAR:2011-12, HENCE, WE DO NOT FIND ANY CONTRARY MATERIAL TO INTERFERE WITH THE FINDING OF THE ITA NO.395/ASR/2017 (A.Y.2012-13) ACIT VS. M/S KHYBER INDUSTR IES PVT. LTD., SRINAGAR 9 LD. CIT(A) QUA ADDITION UNDER CONSIDERATION, HENCE, TH E GROUND NO.5 ALSO STANDS DISMISSED. 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE DEPA RTMENT STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 .06.2018. SD/- SD/- (SANJAY ARORA) (N. K. CHOUDHRY) ACCOUNTANT MEMBER JUDIC IAL MEMBER DATED:21.06.2018 /PK/ PS. COPY OF THE ORDER FORWARDED TO: (1) M/S KHYBER INDUSTRIES PVT. LTD., SRINAGAR (2) THE ASST. CIT, CIRCLE-3, SRINAGAR (3) THE CIT(A)-J&K, JAMMU (4) THE CIT CONCERNED (5) THE SR DR, I.T.A.T., AMRITSAR TRUE COPY BY ORDER