M/s. SIEL Holdings Ltd., New Delhi V. JCIT, New Delhi

ITA 4013/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0005 (ITAT-DELHI)
• Duration Of Justice: 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 21-03-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 30-08-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAVI RAMACHAN DRAN
• Assessee Lawyers: BASANT KUMAR S
• Keywords: Depreciation; Business expenditure; Opportunity of being heard; Deemed to accrue or arise in india
• Section: 14A; 6

Judgement Text

ITA NO. 4013/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 4013/DEL/2010 A.Y. : 2007-08 M/S SIEL HOLDINGS LIMITED, (NOW MERGED WITH USHA INTERNATIONAL LIMITED), 19, K.G. MARG, NEW DELHI AND AND AND AND C/O M/S V.P. GUPTA & CO., ADVOCATES AND SOLICITORS, 501, ANSAL BHAVAN, 16, K.G. MARG, NEW DELHI 110 001 (PAN/GIR NO. : AAHCS4122P) VS. JOINT COMMISSIONER OF INCOME TAX, RANGE-8, NEW DELHI (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. V.P. GUPTA AND SH. BASANT KUMAR, ADVOCATES DEPARTMENT BY : SH. RAVI RAMACHANDRAN, D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 29.6.2 010 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE FIRST ISSUE RAISED READ AS UNDER:- A) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THAT THE APPELLANT WAS NOT CONDUCTING ANY BUSINESS ACTIVITY WITHOUT APPRECIATING THAT THE APP ELLANT IS A ITA NO. 4013/DEL/2010 2 COMPANY ENGAGED IN THE BUSINESS OF INVESTMENT AND FINANCING AND HAS EARNED INTEREST OF ` 2,92,01,724 /- AND DIVIDEND OF ` 70,92,085/- AND THEREFORE, EXPENSES I NCURRED FOR CARRYING THE BUSINESS WERE DULY ALLOWABLE AS BUSINESS EXPENDITURE. HE FURTHER ERRED IN IGNORING THE FACT THAT THE INTEREST INCOME WAS SHOWN IN EARLIER YEARS AS BUSIN ESS INCOME AND SAME WAS ACCEPTED BY THE DEPARTMENT. B) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE DISALLOWANCE MADE BY THE ASSESSING OF FICER IN RESPECT OF EXPENSES OF ` 22,19,434/- DEBITED TO PROFIT AND LOSS ACCOUNT WITHOUT APPRECIATING THAT EVEN IF INCO ME OF THE APPELLANT COMPANY IS CHARGEABLE TO TAX UNDER THE HEA D INCOME FROM OTHER SOURCES, EXPENSES INCURRED TO EARN THE SAME ARE ALLOWABLE UNDER SECTION 57 OF THE ACT. 3. ON THIS ISSUE THE ASSESSING OFFICER NOTED THAT DURING THE YEAR UNDER CONSIDERATION ASSESSEE DISCONTINUED THE ACTI VITY OF EARNING INCOME FROM PROFIT ON SALE OF LONG TERM TRADE INVEST MENTS WHICH IT DID IN THE PRECEDING ASSESSMENT YEAR. HE NOTED THAT AS PER THE PROFIT AND LOSS ACCOUNT FILED BY THE ASSESSEE, HE RECEIVED DIV IDEND AND INTEREST AND MISC. INCOME. AS AGAINST THEM ASSESSEE HAS C LAIMED EXPENSES RELATING TO RATES AND TAXES, MISC. EXPENSES, AUDIT FEE AND DEPRECIATION. ASSESSING OFFICER FURTHER REFERRED TO THE AUDITORS REPORT WHEREIN IT WAS MENTIONED THAT THERE WAS NO BUSINESS ACTIVITY OR TRANSACTION FOR WHICH AN INTERNAL AUDIT BECAME F EASIBLE AND THEREFORE, THE COMPANY DID NOT INTRODUCE ANY FORMAL INTERNAL AUDIT. CONSIDERING THE ABOVE ASSESSING OFFICER HELD THAT THE DIVIDEND INCOME AND INTEREST INCOME WILL BE TREATED AS INCOME FROM OT HER SOURCES. ITA NO. 4013/DEL/2010 3 FURTHER, HE ALLOWED ONLY 27,661/- AS AUDIT FEE AGAIN ST THE EXPENDITURE OF ` 22,47,095/- CLAIMED BY THE ASSESSEE. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) UPHELD THE ORDER OF THE ASSESSING OFFICER . 5. AGAINST THE ABOVE ASSESSEE IS IN APPEAL BEFORE U S. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT RECORDS. LD. COUNSEL OF THE ASSESSEE VEHEMENTLY CONTENDED THAT ASSESSEE IS AN INVESTMENT COMPANY AND THOUGH IT HAS NOT EARNED ANY PROFIT ON SALE OF LONG TERM INVESTMENT, AS IT HAS E ARNED INTEREST INCOME AND DIVIDEND INCOME WHICH CONSTITUTE THE BUSINE SS OF THE ASSESSEE. HENCE, HE PLEADED DISALLOWANCE OF EXPENDITURE IS TO TALLY UNCALLED FOR AS ASSESSEE HAD BEEN IN THIS BUSINESS FOR QUITE LONG. 6.1 LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAN D RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 7. UPON CAREFUL CONSIDERATION, WE FIND THAT THERE I S CONSIDERABLE COGENCY IN THE CONTENTION OF THE LD. COUNSEL OF THE ASSESSEE. ASSESSEE HAS RECEIVED INTEREST INCOME AND DIVIDEND INCOME, T HEY CAN BE CONSIDERED AS BUSINESS OF THE ASSESSEE. HENCE, DI SALLOWANCE OF EXPENDITURE WAS NOT AT ALL JUSTIFIED MERELY BECAUSE ASSESSEE HAS NOT EARNED ANY PROFIT ON SALE OF LONG TERM INVESTMENT AS IT DID IN PRECEDING ASSESSMENT YEAR. THE AUDITORS REPORT WH ICH THE ASSESSING OFFICER HAS REFERRED TO RELATE TO A POINT IN THE A UDITORS REPORT WHERE AUDITORS HAVE TO COMMENT UPON THE INTERNAL AUDIT SY STEM IN THE COMPANY. THE OBSERVATION OF THE AUDITORS CANNOT B E TAKEN TO MEAN THAT ASSESSEE HAS STOPPED THE BUSINESS ACTIVITY. IT ONLY RELATES TO SYSTEM OF INTERNAL AUDIT AND NOT WHETHER THE ASSESS EE IS CONTINUING ITA NO. 4013/DEL/2010 4 ANY BUSINESS OR NOT. ACCORDINGLY, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE AND DECIDE THE ISS UE IN FAVOUR OF THE ASSESSEE. 8. THE NEXT ISSUE RAISED ARE AS UNDER:- (A). THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN UPHOLDING THAT PROVISIONS OF SECTION 14A AND RULE 8 D WERE APPLICABLE IN THE CASE OF THE APPELLANT AND ALSO UP HOLDING THE QUANTIFICATION OF DISALLOWANCE MADE BY THE ASSES SING OFFICER AT ` 38,48,198/-, WITHOUT FULLY CONSIDERIN G THE LEGAL AND FACTUAL CONTENTIONS OF THE APPELLANT COMPANY AND ALSO WITHOUT APPRECIATING THAT THE COMPANY HAD ALREADY MAD E DISALLOWANCE UNDER SECTION 14A OF THE ACT OF ` 4,4 2,865/- IN THE RETURN OF INCOME AND THE ASSESSING OFFICER HAD MADE NO COMMENT TO THE EFFECT THAT ABOVE ADDITION WAS NOT REASONABLE AND SUFFICIENT. (B). THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN UPHOLDING DISALLOWANCE OF ` 34,05,,233/- MADE BY THE ASSESSING OFFICER, IN ADDITION OF ` 4,42,862/- ALRE ADY MADE BY THE COMPANY IN COMPUTATION OF TAXABLE INCOME UNDER SECTION 14A OF THE ACT WITHOUT APPRECIATING THAT A BOVE DISALLOWANCE WAS EVEN MORE THAN EXPENDITURE INCURRE D BY THE APPELLANT DURING THE YEAR AND CLAIMED AS DEDUCT IBLE IN COMPUTATION OF TAXABLE INCOME. 9. ON THIS ISSUE THE ASSESSING OFFICER NOTED THAT THE DURING THE YEAR ASSESSEE HAS SHOWN DIVIDEND INCOME OF ` 70,92,085/- BY APPLYING RULE 8D, AS PER SECTION 14A, THE ASSESSING OFFICER CAM E TO DISALLOWANCE OF ` 38,48,198/-. ITA NO. 4013/DEL/2010 5 10. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOM E TAX (APPEALS) CONFIRMED THE ASSESSING OFFICERS ACTION. 11. AGAINST THIS ORDER THE ASSESSEE IS IN APPEAL BE FORE US. 12. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT ADMITTEDLY RULE 8D IS NOT APPLICABLE IN THE CURRENT ASSESSMENT YEAR. WE FIND THAT HONBLE MUMBAI HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. CO. LTD. VS. DCIT IN ITA NO. 626 OF 2010 234 CTR 1 HAS OVERRULED THE ITAT DECISION OF DAGA CAPITA L MANAGEMENT (SUPRA) AND HELD THAT RULE 8D HAS BEEN NOTIFIED ON 24.3.2008 AND WILL BE APPLICABLE ONLY FROM ASSESSMENT YEAR 2008-09. 12.1 CONSIDERING THE ABOVE, WE REMIT THIS ISSUE TO T HE FILES OF THE ASSESSING OFFICER TO EXAMINE THE ISSUE IN LIGHT OF THE AFORESAID DECISION. NEEDLESS TO ADD THAT THE ASSESSEE SHOULD BE GIVEN ADEQUATE OPPORTUNITY OF BEING HEARD. 13. THE NEXT ISSUE RAISED IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING ADDITION OF ` 50 LACS MADE BY THE ASSESSING OFFICER IN RESPECT OF PROVISION OF CONT INGENCY OUTSTANDING IN THE BALANCE SHEET OF THE COMPANY BY APPLYING PROVIS IONS OF SECTION 41(1) OF THE ACT WITHOUT CONSIDERING THE FACTUAL AN D THE LEGAL CONTENTIONS OF THE APPELLANT COMPANY AND WITHOUT APP RECIATING THAT ITA NO. 4013/DEL/2010 6 PROVISIONS OF ABOVE SECTION ARE NOT APPLICABLE IN T HE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT COMPANY. 14. ON THIS ISSUE ASSESSING OFFICER NOTED THAT THE RE WAS A SUM OF ` 50 LACS LYING IN THE FORM OF PROVISION FOR CONTIN GENCY AMOUNT IN THE LIABILITY SIDE OF THE BALANCE SHEET. ASSESSEE EXP LAINED THAT PURSUANT TO SCHEME OF ARRANGEMENT OF SIEL LTD., APPROVED BY H IGH COURT OF DELHI, THE COMPANY HAS RECEIVED CERTAIN INVESTMENT A S ASSETS AND ALSO CERTAIN LIABILITIES. IT WAS STATED THAT THE E NTRY RELATING TO PROVISION IN CONTINGENCY OF ` 50 LACS WAS PASSED IN THE BOOKS OF ACCOUNT WHEN THE ASSETS AND LIABILITIES WERE TAKEN OVER PURSUAN T TO APPROVED SCHEME. IT WAS FURTHER STATED THAT THE PROVISION HAS NOT BEEN MADE BY DEBITING THE PROFIT AND LOSS ACCOUNT. HENCE, SE CTION 41(1) WAS NOT APPLICABLE. HOWEVER, THE ASSESSING OFFICER DID NO T AGREE WITH THESE SUBMISSION. HE HELD THAT THE SAME WAS LIABLE TO B E INCLUDED IN THE ASSESSEES INCOME, AS PER SECTION 41(1) OF THE IT AC T. 15. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT IN THE INSTANT CASE AT THE TIME OF AMALGAMATION THE ASSESSEE HAS TAKEN OVER THE LIABILITY, BUT THERE IS NO EVIDENCE THAT IT IS MADE OUT IN THE CAPITAL ACCOUNT AS CLAIMED BY THE ASS ESSEE. HENCE, HE CONFIRMED THE ASSESSING OFFICERS ACTION. 16. AGAINST THIS ORDER THE ASSESSEE IS IN APPEAL BE FORE US. ITA NO. 4013/DEL/2010 7 17. WE HAVE HEARD THE RIVAL CONTENTIONS. LD. COU NSEL OF THE ASSESSEE SUBMITTED AS UNDER:- THE ASSESSING OFFICER HAS APPLIED PROVISIONS OF SECTION 41(1) OF THE ACT TO INCLUDE AMOUNT OF ` 50 LACS IN THE TAX ABLE INCOME OF THE APPELLANT COMPANY. IT IS SUBMITTED THAT THE ASS ESSING OFFICER HAS WRONGLY APPLIED PROVISIONS OF SECTION 41(1) OF THE ACT TO THE PROVISION OF ` 50 LACS OUTSTANDING IN THE BOOKS OF ACCOUNT FOR THE REASON THAT PROVISION HAD NOT BEEN MADE BY THE APPEL LANT COMPANY BY DEBITING TO ITS PROFIT AND LOSS ACCOUNT. THEREFORE, NO ADDITION COULD BE MADE BY THE ASSESSING OFFICER IN THIS REGARD IN TERMS OF SECTION 41(1) OF THE ACT. THE ASSESSING OFFICER IN THE ORDER OF ASSESSMENT HAS ALSO OBSERVED THAT THE PROVISION MIGHT HAVE BEEN CREATED BY DEBITING TO PROFIT AND LOSS ACCOUNT BY THE ERSTWHILE COMPANY I.E. SIEL LIMITED THOUGH THE APPELLANT COMPANY HAD CLEARLY EXPL AINED TO THE ASSESSING OFFICER VIDE ITS LETTERS 23.09.2009 (PARA 3) AND 17.12.2009 (PARA 1), A COPY EACH OF WHICH IS GIVE N IN THE PAPER BOOK ON PAGES 8 TO 11 AND PAGES 69 TO 71 ;THAT PROV ISION HAD BEEN MADE WHILE RECORDING THE ENTRIES IN ITS BOOKS O F ACCOUNT PURSUANT TO SCHEME OF ARRANGEMENT, IN ORDER TO CLARI FY THE DOUBT RAISED BY THE ASSESSING OFFICER THE APPELLANT COMPA NY HAS OBTAINED A CERTIFICATE FROM ERSTWHILE SIEL LIMITED T O THE EFFECT THAT PROVISION FOR CONTINGENCY OF ` 50 LACS WAS MADE ONLY BY SIEL HOLDINGS LIMITED AT THE TIME OF RECORDING THE ENTRIE S FOR THE INVESTMENTS VESTED IN THE COMPANY PURSUANT TO THE SC HEME OF ARRANGEMENT AND NO ENTRY WAS MADE IN THE BOOKS OF A CCOUNT OF SIEL LIMITED OF THE PROVISION OF CONTINGENCY OF ` 5 0 LACS. ITA NO. 4013/DEL/2010 8 CERTIFICATE IS ENCLOSED HEREWITH. ON THE BASIS OF CERTIFICATE OF M/S SIEL LIMITED, WHICH COMPANY HAS NOW BEEN RENAMED AS MAWANA SUGARS LIMITED, DOUBT OF THE ASSESSING OFFICER STANDS CLARIFIED. IT IS, THEREFORE, SUBMITTED THAT NO AD DITION IN REGARD TO PROVISION UNDER REFERENCE CAN BE MADE U/S 41(1) OF T HE ACT. IT WAS DULY EXPLAINED TO THE ASSESSING OFFICER DU RING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE LETTERS DATED 23.9. 2009 (PARA 3) AND 17.12.2009 (PARA 1) THAT PROVISION OF ` 50 LACS WAS MADE ON ACCOUNT OF CONTINGENCY WHILE RECORDING THE ENTRIES IN THE BOOKS OF ACCOUNT PURSUANT TO SCHEME OF ARRANGEMENT. IT IS SUBMITTED THAT RECORDING OF ENTRIES PURSUANT TO SCHEME OF ARR ANGEMENT DULY APPROVED BY HONBLE HIGH COURT DO NOT GIVE RISE TO ANY INCOME. FURTHER, THE ASSESSING OFFICER IN THE ORDER OF ASSE SSMENT HAS ALSO MADE CERTAIN IRRELEVANT AND UNWARRANTED OBSER VATIONS IN THE ASSESSMENT ORDER, WHICH ARE NEITHER FACTUALLY C ORRECT NOR CAN FORM THE BASIS FOR CONSIDERING AMOUNT OF ` 50 LACS AS DEEMED INCOME OF THE APPELLANT COMPANY IN THE ASSESSMENT YEA R UNDER REFERENCE. 18. IT WOULD BE WORTHWHILE TO REFER THE PROVISIO N OF SECTION 41(1) OF THE IT ACT. 41. (1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXPENDITUR E OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINAFTER REFER RED TO AS THE FIRST- MENTIONED PERSON) AND SUBSEQUENTLY DURING ANY PREVIO US YEAR, ITA NO. 4013/DEL/2010 9 ( A ) THE FIRST-MENTIONED PERSON HAS OBTAINED, WHETHER IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF S UCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY B Y WAY OF REMISSION OR CESSATION THEREOF, THE AMOUNT OBTAINED B Y SUCH PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEME D TO BE PROFITS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHARGEABLE TO INCOME-TAX AS THE INCOME OF THAT PREVIOUS YEAR, WHETHER THE BUSINESS OR PROFESSION IN RESPECT OF WHICH THE ALLOWANCE OR DE DUCTION HAS BEEN MADE IS IN EXISTENCE IN THAT YEAR OR NOT; OR 19. FROM THE ABOVE, IT IS CLEARLY INDICATES THAT THE SECTION IS ATTRACTED ONLY IN RESPECT OF EXPENDITURE OR LIABILITY INCURRE D BY THE ASSESSEE WHERE THE ASSESSEE HAD OBTAINED ANY BENEFIT IN EAR LIER ASSESSMENT YEAR. HERE WE FIND THAT ASSESSEE HAS CATEGORICALL Y STATED THAT IT HAS NOT MADE THE PROVISION BY WAY OF DEBIT OF THE PROFIT AND LOSS ACCOUNT. LD. COUNSEL OF THE ASSESSEE ALSO PRODUCED BEFORE U S THE BALANCE SHEET AND PROFIT & LOSS ACCOUNT BY THE EARLIER PERIOD, W HEN THE ENTRIES WERE TRANSACTED. IT WAS ALSO SHOWN THAT THE SAME WAS ROUTED THROUGH BALANCE SHEET ONLY. A PERUSAL OF THE ACCOUNT FOR THE PERIOD ENDING 31.3.2003 SHOWED THAT THE SAME WAS MADE BY INCREASIN G INVESTMENT BY ` 50 LACS AND CREATING PROVISION FOR CONTINGENCY BY ` 50 LACS. THUS, IN THIS BACKGROUND THE IMPUGNED AMOUNT WAS NEVER DE BITED IN THE PROFIT AND LOSS ACCOUNT. IN SUCH SITUATION, IN OUR CONSIDERED OPINION, SECTION 41(1) IS NOT AT ALL APPLICABLE AND ACCORDIN GLY, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DECIDE THE ISSU E IN FAVOUR OF THE ASSESSEE. ITA NO. 4013/DEL/2010 10 20. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31/03/2011. SD/- SD/- [ [[ [A.D. JAIN A.D. JAIN A.D. JAIN A.D. JAIN] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 31/03/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES