ACIT, Circle-11(1), V. Indian Sugar Exim Corp. Ltd.,

ITA 407/DEL/2006

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4100 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 10-09-2014
• Assessment Year: 2002-2003
• Appeal Filed On: 03-02-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SHYAMA S BANSIA
• Keywords: Depreciation; Earning of tax free income; Bad and doubtful debts
• Section: 80HHC; 14A; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI DELHI DELHI DELHI, BENCH , BENCH , BENCH , BENCH C CC C , , , , NEW DELHI NEW DELHI NEW DELHI NEW DELHI BEFORE SHRI C. L. SETHI, JUDICIAL MEMBER AND SHRI K. D. RANJAN, ACCOUNTANT MEMBER ITA NO. 4787 /DEL/2005 AND 262/DEL/2008 (ASSESSMENT YEAR 2002-03 AND 2004-05 RESPECTIVELY) INDIAN SUGAR EXIM CORPORATION LTD., VS. DCIT, CIRC LE 11(1), C-BLOCK, 2 ND FLOOR, ANSAL PLAZA, NEW DELHI. AUGUST KRANTI MARG, NEW DELHI- 110 049 ITA NO. 407/DEL/2006 AND 79/DEL/2008 (ASSESSMENT YEAR 2002-03 AND 2004-05 RESPECTIVELY) ACIT, CIRCLE 11(1), VS. M/S. INDIAN SUGAR EXIM NEW DELHI. CORPN. LTD., C- BLOCK, ANSAL PLAZA, AUGUST KRANTI MARG, NEW DELHI. (APPELLANT) (RESPONDENT) PAN AAACI1163M APPELLANT BY: SHRI ASHWANI TANEJA, ADV. SHRI SUMIT JAIN, FCA RESPONDENT BY: SMT SHYAMA S BANSIA, CIT (D.R.) ORDER ORDER ORDER ORDER PER K. D. RANJAN, AM: PER K. D. RANJAN, AM: PER K. D. RANJAN, AM: PER K. D. RANJAN, AM: 1. THESE CROSS APPEALS BY THE ASSESSEE AND THE REVE NUE FOR THE ASSESSMENT YEAR 2002-03 & 2004-05 ARISE OUT OF THE SEPARATE ORDERS OF LD. CIT(A) V, NEW DELHI. THESE APPEALS W ERE HEARD TOGETHER AND FOR THE SAKE OF CONVENIENCE, ARE DISPO SED OF BY THIS COMMON ORDER. 2. IN ASSESSMENT YEAR 2002-03 WHEN THE ASSESSEES A PPEAL CAME UP FOR HEARING IN I.T.A.NO. 4787/DEL/2005, LD. A.R. FOR THE ASSESSEE DID NOT PRESS GROUNDS NO. 4, 5, 6 & 7. TH EREFORE, THESE GROUNDS OF APPEAL ARE DISMISSED AS NOT PRESSED. I.T.A.NO. 4787/DEL/05,262/DEL/08 I.T.A.NO. 407/DEL/06 & 79/DEL/08 2 3. THE NEXT ISSUE FOR CONSIDERATION WHICH IS COMMON IN ASSESSEES APPEAL AS WELL AS REVENUES APPEAL IN I. T.A. NO. 407/DEL/2006 FOR ASSESSMENT YEAR 2002-03 RELATES TO THE ADDITION MADE U/S 14A ON PROPORTIONATE BASIS. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSING OFFICER IN THE COUR SE OF ASSESSMENT FOUND THAT THE ASSESSEE HAD EARNED INCOME OF ` 7,71 ,04,752/- AS DIVIDEND ON MUTUAL FUNDS AND ` 39,07,189/- AS INTER EST ON TAX FREE BONDS. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY APPORTIONMENT OF EXPENSE SHOULD NOT BE MADE. I N RESPONSE TO THE QUERY RAISED, IT WAS SUBMITTED BY THE ASSESSEE THAT IT HAD LARGE AMOUNT OF RESERVE AT IT DISPOSAL AND THE INTEREST E XPENDITURE WAS MAINLY TOWARDS PACKING CREDIT FOR EXPORT. THE ASSE SSING OFFICER IN VIEW OF THE REPLY SUBMITTED, OBSERVED THAT THE ASSE SSEE HAD FAILED TO ESTABLISH AND FURNISH ANY EVIDENCE THAT NO EXPEN DITURE WAS INCURRED FOR EARNING DIVIDEND INCOME AND TAX FREE I NTEREST. CERTAIN EXPENSES LIKE SALARIES, EMPLOYEES WELFARE EXPENSES, TRAVELING, RENT ETC. WERE COMMON EXPENSES WITH REGARD TO EARNING OF DIVIDEND AND INTEREST FREE INCOME AND FOR REGULAR BUSINESS ACTIV ITIES IN RELATION TO EXPORT/IMPORT OF SUGAR. THE ASSESSING OFFICER BY I NVOKING THE PROVISIONS OF SECTION 14A, DISALLOWED ` 28,16,011/- OUT OF INTEREST PAID AND ` 80,18,703/- OUT OF ADMINISTRATIVE EXPENS ES. 4. ON APPEAL, IT WAS SUBMITTED BY THE ASSESSEE THAT THERE WAS NO EVIDENCE ON RECORD IN SUPPORT OF ADDITION MADE B Y THE ASSESSING OFFICER. THERE WAS NO EVIDENCE ON RECORD THAT THE BORROWED FUNDS HAD BEEN INVESTED FOR THE PURCHASE OF MUTUAL FUNDS. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAD BORROWED MONEY AS A PART OF PACKING CREDITS FACILITY FROM THE BANK WHICH COULD BE UTILIZED FOR EXPORT OF STOCK OF SUGAR. COPY OF SANCTION LETTER ALONG WITH CERTIFICATE FROM BANK THAT INTEREST WAS PAID TOWARD PACKING CREDIT FOR EXPORT WAS PLACED ON RECORD. IN VIEW OF THESE FACT, IT WAS I.T.A.NO. 4787/DEL/05,262/DEL/08 I.T.A.NO. 407/DEL/06 & 79/DEL/08 3 SUBMITTED THAT ASSESSING OFFICER WAS NOT JUSTIFIED TO DISALLOW INTEREST U/S 36(1)(III) OF THE ACT. 5. AS REGARDS ADMINISTRATIVE EXPENSES, IT WAS SUBMI TTED THAT THE ASSESSING OFFICER HAD INCLUDED PROFESSIONAL CHARGES , PROVISION FOR BAD DEBTS, TRADING LOSS, ARBITRATION AWARD AND THE PROVISION FOR LOSS COULD NOT BE CONSIDERED FOR THE PURPOSE OF DISALLOW ANCE OF EXPENDITURE U/S 14A OF THE ACT. THESE EXPENSES DID NOT HAVE ANY RELATIONSHIP WITH THE EARNING OF EXEMPT INCOME AND WERE ONLY RELATED TO SUGAR BUSINESS. IT WAS ALSO SUBMITTED T HAT SOME OTHER EXPENDITURE INCURRED BY THE ASSESSEE ALSO DID NOT R ELATE TO EXEMPT INCOME AND, THEREFORE, PROPORTIONATE DISALLOWANCE C OULD NOT BE MADE. 6. LD. CIT(A) AFTER CONSIDERING THE REPLY OF THE AS SESSEE OBSERVED THAT THE ASSESSEE COMPANY HAD PAID INTEREST ONLY TO THE TWO BANKS I.E. SYNDICATE BANK & MAHARASHTRA STATE COOPERATIVE BANK FROM WHICH THE PACKING CREDIT FACILITY WAS TAKEN BY THE ASSESSEE. THE INVESTMENTS HAVE BEEN MADE BY THE ASSESSEE OUT OF S URPLUS FUNDS GENERATED AND NOT OUT OF THE LOANS TAKEN BY THE ASS ESSEE ON WHICH INTEREST HAS BEEN PAID. THEREFORE, NO DISALLOWANCE COULD BE MADE OUT OF INTEREST PAID BY THE ASSESSEE. 7. AS REGARDS THE PROPORTIONATE DISALLOWANCE OF EXP ENDITURE, OUT OF ADMINISTRATIVE EXPENSES, LD. CIT(A) FOUND THAT T HE CONTENTION OF ASSESSEE WAS PARTLY CORRECT. HE OBSERVED THAT THE PROFESSIONAL CHARGES, PROVISION FOR BAD DEBTS, ARBITRATION AWARD EXPENSES AND PROVISION FOR LOSS ETC. TOTALING TO ` 8,60,60,651/- DID NOT HAVE ANY LINK WITH THE EARNING OF EXEMPT INCOME. THE EXPEND ITURE WAS RELATED TO THE BUSINESS OF SUGAR ONLY. AS REGARDS THE OTHER EXPENDITURE, THE LD. CIT(A) OBSERVED THAT MAJORITY OF EXPENDITURE WAS IN RELATION TO EARNING OF INCOME FORM BUSINESS AND THEREFORE, DISALLOWANCE OF PROPORTIONATE BASIS WAS NOT CORRECT . LD. CIT(A), I.T.A.NO. 4787/DEL/05,262/DEL/08 I.T.A.NO. 407/DEL/06 & 79/DEL/08 4 HOWEVER, OBSERVED THAT IT COULD NOT BE ACCEPTED THA T NO EXPENDITURE BOTH DIRECT AND INDIRECT, WAS INCURRED FOR EARNING OF EXEMPT INCOME OF ` 7,71,04,752/- AS DIVIDEND AND IN TEREST FROM TAX FREE BONDS OF ` 39,07,189/-. HOWEVER, TAKING INTO TOTALITY OF THE FACTS AND CIRCUMSTANCES, HE UPHELD THE ADDITION OF ` 10 LACS. 8. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL AGAINST THE DELETION OF ADDITION OF ` 28,16,011/- I N RESPECT OF INTEREST OF ` 70,18,703/- ON ACCOUNT OF ADMINISTRAT IVE EXPENSES TOTALING TO ` 98,34,814/-. ON THE OTHER HAND, ASSE SSEE IS IN APPEAL AGAINST THE CONFIRMATION OF ADDITION OF ` 10 LACS, ON ACCOUNT OF ADMINISTRATIVE EXPENSES. 9. BEFORE US, LD. CIT (D.R.) SUBMITTED THAT IN ASSE SSMENT YEAR 2002-03, LD. CIT(A) HAS DELETED THE ADDITION IN RES PECT OF DISALLOWANCE MADE AGAINST THE INTEREST PAYMENT. IN ASSESSMENT YEAR 2004-05, LD. CIT(A) HAD UPHELD THE DISALLOWANC E ON THE GROUND THAT THE BORROWED FUNDS WERE PUT INTO COMMON POOL F OR EARNING AND INVESTMENT ACTIVITIES. IN VIEW OF THESE FACTS, L D. CIT (D.R.) SUBMITTED THAT INTEREST PAID IN ASSESSMENT YEAR 202 -03 IS ALSO TO BE CONSIDERED IN THE LIGHT OF DECISION OF HON'BLE BOMB AY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. V S DCIT AS REPORTED IN 194 TAXMAN 203. SHE FURTHER SUBMITTED THAT THE ISSUE RELATING TO DISALLOWANCE OF ADMINISTRATIVE EXPENSES IS TO BE DECIDED AS PER THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA). SHE , THEREFORE, SUBMITTED THAT THE ISSUE MAY BE SET ASIDE TO THE AS SESSING OFFICER. 10. ON THE OTHER HAND, LD. A.R. FOR THE ASSESSEE SU BMITTED THAT THE ASSESSEE HAD RESERVE AND SURPLUS FUNDS AND THER EFORE, NO DISALLOWANCE COULD BE MADE OUT OF INTEREST PAID BY THE ASSESSEE ON THE FUNDS BORROWED FOR THE PURPOSE OF PACKING CREDI T. AS REGARDS THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES RELATIN G TO EXEMPT I.T.A.NO. 4787/DEL/05,262/DEL/08 I.T.A.NO. 407/DEL/06 & 79/DEL/08 5 INCOME, HE CONCEDED THAT THE ISSUE HAD TO BE DECIDE D IN THE LIGHT OF THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CA SE OF GODREJ & BOYCE MANUFACTURING CO. PVT. LTD. (SUPRA) AND ALSO ANY OTHER DECISION AVAILABLE AT THAT POINT OF TIME. HE FURTH ER SUBMITTED THAT THE ASSESSING OFFICER MAY BE DIRECTED TO PROVIDE NE CESSARY OPPORTUNITY TO THE ASSESSEE TO EXPLAIN ITS CLAIM. 11. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE HAVE GONE THROUGH THE BALANCE SHEET FOR THE ASSESSMENT YEAR 2004-05 PLACED IN THE PAPER BOOK, WHICH WAS REFERRED TO BY THE LD. A.R. FOR THE ASSES SEE WHILE ARGUING HIS CASE. IN ASSESSMENT YEAR 2004-05, LD. CIT(A) H AS RECORDED A FINDING OF FACTS THAT BORROWED FUNDS AS WELL AS FUN DS OF THE ASSESSEE WERE PUT INTO COMMON POOL FROM WHERE INVESTMENT ACT IVITIES WERE ALSO MADE. IT IS ALSO A FACT THAT THE FACTS OF TH E CASE FOR ASSESSMENT YEAR 2002-03 ARE IDENTICAL TO ASSESSMENT YEAR 2004- 05. SINCE THE BORROWED FUNDS AS WELL AS OWN FUNDS IN THE CASE OF ASSESSEE FORMED PART OF COMMON POOL, IN OUR CONSIDE RED OPINION, THE MATTER HAS TO BE EXAMINED AS TO WHETHER AS ON T HE DATE WHEN INVESTMENT WAS MADE THE ASSESSEE WAS HAVING SUFFICI ENT FUNDS FOR MAKING SUCH INVESTMENTS. THE PROVISIONS OF SECTIO N 14A WILL BE ATTRACTED ONLY IF THE INTEREST BEARING FUNDS WERE I NVESTED IN ASSETS INCOME THEREFROM WAS EXEMPT. HONBLE BOMBAY HIGH C OURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPR A) HAS HELD THAT THE PROVISIONS OF RULE 8D WHICH HAVE BEEN NOTIFIED W.E.F. 24.03.2008 SHALL APPLY W.E.F. ASSESSMENT YEAR 2008- 09. THE HONBLE COURT HAS ALSO HELD THAT EVEN PRIOR TO ASSE SSMENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE ASSES SING OFFICER HAD TO ENFORCE THE PROVISIONS OF SECTION 14A(1). F OR THAT PURPOSE, THE ASSESSING OFFICER WAS DUTY BOUND TO DETERMINE T HE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DID NOT FORM PART OF TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS AND METHOD CONSISTENT WITH ALL THE I.T.A.NO. 4787/DEL/05,262/DEL/08 I.T.A.NO. 407/DEL/06 & 79/DEL/08 6 RELEVANT FACTS AND IN THESE CIRCUMSTANCES AFTER PRO VIDING REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MA TERIAL ON RECORD. SINCE THE ASSESSING OFFICER AS WELL AS CIT(A) HAVE NOT CARRIED OUT ANY EXERCISE IN THE LIGHT OF HON'BLE BOMBAY HIGH CO URT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA), W E FEEL IT PROPER TO SET ASIDE THE MATTER RELATING TO BOTH THE DISALL OWANCES TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAM INE THE CLAIM OF THE ASSESSEE IN THE LIGHT OF DECISION OF HON'BLE BO MBAY HIGH COURT REFERRED TO ABOVE. NEEDLESS TO SAY THE ASSESSING OF FICER SHALL PROVIDE NECESSARY OPPORTUNITY TO THE ASSESSEE TO PL ACE ALL MATERIAL ON RECORD IN SUPPORT OF ITS CLAIM. WE ORDER ACCORD INGLY. 12. THE NEXT ISSUE FOR CONSIDERATION IN THE ASSESSE ES APPEAL FOR ASSESSMENT YEAR 2002-03 RELATES TO DELETING OF INTE REST U/S 234D OF THE ACT. THE ASSESSING OFFICER WHILE COMPLETING TH E ASSESSMENT U/S 143(3), CHARGED INTEREST U/S 234D AMOUNTING TO ` 9, 18,915/-. LD. CIT(A) HOWEVER, DELETED THE ADDITION ON THE GROUND THAT THE PROVISIONS OF SECTION 234D WERE APPLICABLE W.E.F. 0 1.06.2003. 13. BEFORE US, LD. A.R. FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION O F HON'BLE DELHI HIGH COURT IN THE CASE OF DIT VS M/S. JACOB CIVIL I NCORPORATED. THE HON'BLE DELHI HIGH COURT IN THE ORDER DATED 30.08.2 010 HAS HELD THAT THE PROVISIONS OF SECTION 234D WOULD NOT BE AP PLICABLE PRIOR TO ASSESSMENT YEAR 2004-05. LD. A.R. FOR THE ASSESSEE HAS ALSO SUBMITTED THAT IN THE ASSESSEES OWN CASE HON'BLE D ELHI HIGH COURT HAS DELETED THE INTEREST CHARGED U/S 234D IN RESPEC T OF ASSESSMENT YEAR 2003-04. ON THE OTHER HAND, LD .CIT DR SUPPOR TED THE ORDER OF THE ASSESSING OFFICER. 14. WE HAVE HEARD BOTH THE PARTIES. THE PROVISIONS OF SECTION 234D WERE INSERTED W.E.F. 01.6.2003 AUTHORIZING THE ASSESSING OFFICER TO CHARGE INTEREST AT SPECIFIED RATES IN TH E CASES WHERE ANY I.T.A.NO. 4787/DEL/05,262/DEL/08 I.T.A.NO. 407/DEL/06 & 79/DEL/08 7 REFUND WAS GRANTED TO THE ASSESSEE U/S 143(1) AND N O REFUND WAS DUE ON REGULAR ASSESSMENT; OR WHERE AMOUNT OF REFUN D U/S 143(1) EXCEEDED THE AMOUNT REFUNDABLE ON REGULAR ASSESSMEN T. ITAT (SPECIAL BENCH) IN THE CASE OF I.T.O. CO. WARD 11 ( 1) NEW DELHI VS. EKTA PROMOTERS PVT. LTD. 113 ITD 719 (DEL.) (S.B.) HAS HELD THAT PROVISIONS OF SECTION 234D WILL BE APPLICABLE FOR A SSESSMENT YEAR 2004-05 IRRESPECTIVE OF THE FACT THAT PROVISIONS OF SECTION 234D OF THE ACT WERE INSERTED W.E.F. 01.06.2003. HON'BLE D ELHI HIGH COURT IN THE CASE OF DIT VS JACOB CIVIL INCORPORATED (SUPRA) HAS ALSO HELD THAT THE PROVISIONS OF SECTION 234D WILL BE APPLICABLE F OR ASSESSMENT YEAR 2004-05. IN VIEW OF THE DECISION OF HON'BLE D ELHI HIGH COURT IN THE CASE OF JACOBS CIVIL INCORPORATED (SUPRA) IT IS HELD THAT LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION. 15. IN THE RESULT, APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2002-03 IS PARTLY ALLOWED FOR STATISTICAL PURP OSES. 16. THE NEXT ISSUE FOR CONSIDERATION IN THE REVENUE S APPEAL FOR THE ASSESSMENT YEAR 2002-03 RELATES TO DELETING OF ADDITION OF ` 17,20,980/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF VALUATION OF CLOSING STOCK. THE ASSESSEE VALUED CLOSING STOC K AT MARKET COST. THE ASSESSING OFFICER HAD VALUED THE CLOSING STOCK ON THE BASIS OF COST PRICE WHICH RESULTED AN ADDITION OF ` 17,20,98 0/-. ON APPEAL, LD. CIT(A) DELETED THE ADDITION RELYING ON THE DECI SION OF ITAT FOR ASSESSMENT YEAR 1993-94. 17. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. DURING THE COURSE OF HEARING LD. A.R. FOR THE ASSESSEE FILED COPY OF ORDER OF ITAT FOR TH E ASSESSMENT YEAR 2001-02 IN I.T.A. NO. 1042/DEL/2005 DATED 05.12.200 8 WHEREIN THE ADDITION MADE ON ACCOUNT OF VALUATION OF CLOSING ST OCK WAS DELETED. I.T.A.NO. 4787/DEL/05,262/DEL/08 I.T.A.NO. 407/DEL/06 & 79/DEL/08 8 18. WE HAVE GONE THROUGH THE ORDER OF ITAT CAREFULL Y. IT IS NOTED THAT ITAT HAD DECIDED THE ISSUE IN FAVOUR OF THE AS SESSEE. THE ASSESSEE VALUED THE CLOSING STOCK ON COST PRICE OR MARKET PRICE WHICHEVER WAS LOWER. THIS METHOD OF VALUATION OF C LOSING STOCK WAS FOLLOWED BY THE ASSESSEE IN 1995-96 AND HAD BEEN AC CEPTED BY THE TRIBUNAL IN EARLIER ORDER. SINCE THE FACTS OF THE CASE ARE IDENTICAL TO THE FACTS OF EARLIER YEARS AND SINCE THE ASSESSEE I S FOLLOWING THE METHOD OF VALUATION CONSISTENTLY ON COST PRICE OR M ARKET PRICE WHICHEVER IS LOWER, LD. CIT(A) WAS JUSTIFIED IN DEL ETING THE ADDITION. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE OR DER PASSED BY LD. CIT(A) DELETING THE ADDITION. 19. THE LAST ISSUE FOR CONSIDERATION IN THE REVENUES A PPEAL FOR ASSESSMENT YEAR 2002-03 RELATES TO DIRECTING THE AS SESSING OFFICER TO COMPUTE DEDUCTION U/S 80HHC AFTER CONSIDERING TH E SALE PROCEEDS OF DEPB LICENSE. THE REVENUES GROUND OF APPEAL IS REPRODUCED AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN ALLOWING THE CLAIM OF THE ASSES SEE AND DIRECTING THE ASSESSING OFFICER TO RECOMPUTE THE DE DUCTION U/S 80HHC AFTER TAKING INTO CONSIDERATION THE SALE PROC EEDS OF DEPB LICENSES WHEREAS THE CBDT HAS OBSERVED IN ITS CIRCULAR F.NO.153/93/2004 TPL DATED 8.9.2004 THAT PROVISO TO SECTION 80HHC(3) OF THE INCOME TAX ACT, 1961 DOES NOT COVER PROFIT ON SALE OF DEPB CREDITS AND SUCH PROFIT ARE THEREFORE, NOT ELIGIBLE FOR DEDUCTION U/S 80HHC. 20. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSING OFFICER WHILE COMPUTING DEDUCTION U/S 80HHC OBSERVE D THAT SECTION 80HHC PROVIDES FOR DEDUCTION FROM TOTAL INCOME IN R ESPECT OF PROFITS DERIVED FROM THE EXPORT OF GOODS AND MERCHANDISE WH ICH WERE REALIZED IN CONVERTIBLE FOREIGN EXCHANGE AND NOT IN RESPECT OF INCIDENTAL INCOME ARISING THE THROUGH GOVERNMENT SC HEME. THE ASSESSING OFFICER THEREFORE, HELD THAT THE PROFITS ON SALE OF DEPB WERE NOT ELIGIBLE FOR DEDUCTION U/S 80HHC. THE ASS ESSING OFFICER I.T.A.NO. 4787/DEL/05,262/DEL/08 I.T.A.NO. 407/DEL/06 & 79/DEL/08 9 ACCORDINGLY DISALLOWED THE CLAIM OF THE ASSESSEE U/ S 80HHC IN RESPECT OF DEPB RECEIPTS. 21. ON APPEAL, LD. CIT(A) AFTER CONSIDERING THE SUB MISSIONS MADE BY THE ASSESSES AND RELEVANT PROVISIONS OF THE ACT HELD THAT ASSESSEE WAS ENTITLED FOR DEDUCTION IN RESPECT OF P ROFITS ON DEPB RECEIPTS. 22. WE HAVE HARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THIS ISSUE IS CO VERED BY THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE O F CIT VS KALPATARU COLOUR & CHEMICALS VS CIT 328 ITR 451. I N THIS CASE, HON'BLE BOMBAY HIGH COURT HAS HELD THAT THE AMOUNT RECEIVED ON TRANSFER OF DEPB CREDIT INCLUDING THE FACE VALUE OF THE DEPB CREDIT WOULD CONSTITUTE PROFITS OF BUSINESS UNDER SECTION 28(IIID) OF THE ACT AND, THEREFORE, THE ENTIRE AMOUNT OF DEPB RECEIVED HAS TO BE EXCLUDED UNDER CLAUSE (BAA) OF EXPLANATION TO SECTI ON 80-HHC OF THE ACT. HON'BLE HIGH COURT WHILE ARRIVING AT THIS DEC ISION OBSERVED THAT WHEN SECTION 28(IIID) SPECIFICALLY DEALS WITH PROFI TS REALIZED ON TRANSFER OF DEPB CREDIT, IT WOULD BE IMPERMISSIBLE AS A MATTER OF FIRST PRINCIPLE TO BIFURCATE THE FACE VALUE OF THE DEPB A ND THE AMOUNT RECEIVED IN EXCESS OF FACE VALUE OF DEPB. SINCE TH E ISSUE IS NOW COVERED BY THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS KALPATARU COLOURS & CHEMICALS (SUPRA) WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE I N THE LIGHT OF THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE O F KALPATARU COLORS & CHEMICALS (SUPRA). 23. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 24. NOW, WE TAKE UP THE APPEALS FOR THE ASSESSMENT YEAR 2004- 05. THE 1 ST ISSUE FOR CONSIDERATION IN ASSESSEES APPEAL RELAT ES TO I.T.A.NO. 4787/DEL/05,262/DEL/08 I.T.A.NO. 407/DEL/06 & 79/DEL/08 10 SUSTENANCE OF DISALLOWANCE OF DEDUCTION U/S 80HHC O F ` 3,65,84,950/- ON ACCOUNT OF SALE OF DEPB/DFRC. IN ASSESSMENT YEAR 2002-03, WE HAVE SET ASIDE THE MATTER TO THE FILE O F THE ASSESSING OFFICER WITH THE DIRECTION TO DECIDE THE ISSUE IN T HE LIGHT OF THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE O F KALPATARU COLOUR & CHEMICALS 328 ITR 451. SINCE THE ISSUE IN ASSESSMENT YEAR 2004-05 IS IDENTICAL TO ISSUE IN ASSESSMENT YE AR 2002-03, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFF ICER WITH THE SIMILAR DIRECTIONS. 25. THE NEXT ISSUE FOR CONSIDERATION RELATES TO SUS TENANCE OF DISALLOWANCE U/S 14A OF THE ACT IN RESPECT OF INTER EST ON PACKING CREDIT AND PARTLY SUSTENANCE OF DISALLOWANCE U/S 14 A TOWARDS ADMINISTRATIVE EXPENSES. THE RELEVANT GROUNDS OF A PPEAL ARE REPRODUCED AS UNDER: 2) THE LD. CIT(A) HAS ERRED BOTH ON FACTS AND IN L AW IN SUSTAINING DISALLOWANCE U/S 14A TOWARDS BANK INTERE ST ON PACKING CREDIT FOR EXPORTS OF ` 1,09,15,964/-. 3) THE LD. CIT(A) HAS ERRED BOTH ON FACTS AND IN LA W IN PARTLY SUSTAINING DISALLOWANCE U/S 14A OF INCOME TA X ACT, 1961 TOWARDS ADMINISTRATIVE EXPENDITURE. 26. SINCE WE HAVE SET ASIDE BOTH THESE ISSUES TO TH E FILE OF THE ASSESSING OFFICER TO BE DECIDED IN THE LIGHT OF DEC ISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MAN UFACTURING CO. (SUPRA), WE SET ASIDE THIS ISSUE FOR THE ASSESSMENT YEAR 2004-05 ALSO TO THE FILE OF THE ASSESSING OFFICER WITH THE SIMILAR DIRECTIONS. 27. THE LAST ISSUE FOR CONSIDERATION IN ASSESSEES APPEAL RELATES TO CONFIRMATION OF DISALLOWANCE IN RESPECT OF PAYMENTS MADE TO PF CONSISTING OF EMPLOYEES' CONTRIBUTION AND RECOVERY OF PF LOANS AND INTEREST FROM EMPLOYEES. DURING THE COURSE OF HEAR ING, LD. A.R. FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS COVERED B Y THE DECISION OF ITAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2003-04 IN I.T.A.NO. 4787/DEL/05,262/DEL/08 I.T.A.NO. 407/DEL/06 & 79/DEL/08 11 I.T.A. NO. 4159/DEL/2004 DATED 19.03.2010. IT HAS BEEN FURTHER SUBMITTED THAT THE DECISION OF ITAT ON THIS ISSUE H AS BEEN UPHELD BY THE HON'BLE DELHI HIGH COURT. IN VIEW OF THESE FAC TS, IT HAS BEEN SUBMITTED THAT SINCE THE ISSUE IS COVERED BY THE DE CISION OF ITAT, THE ISSUE HAS TO BE DECIDED IN FAVOUR OF THE ASSESS EE. ON THE OTHER HAND LD. CIT (D.R.) SUPPORTED THE ORDER OF CIT(A). 28. WE HAVE HARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. ITAT IN ORDER DATED 19.03.201 0 HAS DELETED THE SIMILAR ADDITION MADE BY THE ASSESSING OFFICER BY O BSERVING AS UNDER: 7. WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED T HE MATERIAL AVAILABLE ON RECORD. SECTION 36(1)(IV) PR OVIDES AS UNDER: (IV) ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER B Y WAY OF CONTRIBUTION TOWARDS A RECOGNIZED PROVIDENT FUND OR AN APPROVED SUPERANNUATION FUND, SUBJECT TO SUCH LIMIT S AS MAY BE PRESCRIBED FOR THE PURPOSE OF RECOGNIZING THE PR OVIDENT FUND OF APPROVING THE SUPERANNUATION FUND, AS THE C ASE MAY BE; AND SUBJECT TO SUCH CONDITIONS AS THE BOARD MAY THINK FIT TO SPECIFY IN CASES WHERE THE CONTRIBUTIONS ARE NOT IN THE NATURE OF ANNUAL CONTRIBUTIONS OF FIXED ON SOME DEF INITE BASIS BY REFERENCE TO THE INCOME CHARGEABLE UNDER THE HEA D SALARIES OR TO THE CONTRIBUTIONS OR TO THE NUMBER OF MEMBERS OF THE FUND. READING THE AFORESAID SECTION IT IS CLEAR THAT TO C LAIM DEDUCTION BY WAY OF CONTRIBUTION TO A RECOGNIZED PR OVIDENT FUND, IT HAS TO BE DEMONSTRATED THAT THE CONTRIBUTI ON IS TOWARDS A RECOGNIZED PROVIDENT FUND. THE PHRASE RECOGNIZED PROVIDENT FUND IS DEFINED IN SECTION 2 (38) OF THE ACT. AS PER THE DEFINITION IT MEANS A PROVIDENT FU ND, WHICH HAS BEEN AND CONTINUES TO BE RECOGNIZED BY THE CHIE F COMMISSIONER OR COMMISSIONER IN ACCORDANCE WITH RUL ES CONTAINED IN PART A OF THE FOURTH SCHEDULE, AND INC LUDES A PROVIDENT FUND ESTABLISHED UNDER A SCHEME FRAMED UN DER THE I.T.A.NO. 4787/DEL/05,262/DEL/08 I.T.A.NO. 407/DEL/06 & 79/DEL/08 12 EMPLOYEES PROVIDENT FUNDS ACT, 1952. SINCE AS PER THE LETTER ISSUED BY CIT, DELHI-III DATED 28.5.1976, THE PROVI DENT FUND IS CONSIDERED AS FUND TO WHICH PROVIDENT FUND ACT, 192 5/1952 APPLIES, IT AMOUNTS TO A RECOGNIZED PROVIDENT FUND WITHIN THE MEANING OF SECTION 2(38) OF THE ACT AND HENCE I N TERMS OF SECTION 36(1)(IV) THE CONTRIBUTION TO RECOGNIZED P ROVIDENT FUND IS ALLOWABLE AS SUCH. SINCE THERE IS NO DISP UTE THAT THE AMOUNT WAS PAID WITHIN THE DUE DATES PRESCRIBED, TH E DISALLOWANCE IS TO BE DELETED. WE, THEREFORE, DELE TE THE DISALLOWANCE OF ` 15,22,234/. 29. SINCE THE ISSUE IS SQUARELY COVERED BY THE DE CISION OF ITAT AND LD. CIT (D.R.) COULD NOT POINT OUT ANY DIFFERENCE I N THE FACTS, RESPECTFULLY FOLLOWING THE DECISION OF ITAT WHICH H AS BEEN UPHELD BY THE HON'BLE DELHI HIGH COURT WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. THE ASSESSING OFFICER IS DIRECTED TO DEL ETE THE ADDITION. 30. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 31. NOW, WE TAKE UP THE REVENUES APPEAL FOR THE AS SESSMENT YEAR 2004-05. 32. THE 1 ST ISSUE FOR CONSIDERATION IN REVENUES APPEAL FOR TH E ASSESSMENT YEAR 2004-05 RELATES TO DELETION OF DISA LLOWANCE OF DEPRECIATION ON BUILDING AMOUNTING TO ` 36,36,911/- . THE ASSESSING OFFICER NOTED THAT CONVEYANCE DEED IN RESPECT OF OF FICE BUILDING AND CAR PARKING AT ANSAL PLAZA WAS NOT EXECUTED IN FAVO UR OF THE ASSESSEE COMPANY. SINCE THE CONVEYANCE DEED WAS NO T EXECUTED, THE ASSESSING OFFICER DISALLOWED DEPRECIATION ON TH E GROUND THAT BUILDING WAS NOT OWNED BY THE ASSESSEE. I.T.A.NO. 4787/DEL/05,262/DEL/08 I.T.A.NO. 407/DEL/06 & 79/DEL/08 13 33. ON APPEAL, IT WAS SUBMITTED THAT ASSESSEE HAD P URCHASED THE PREMISES DURING THE FINANCIAL YEAR 1999-2000 AND PA ID THE ENTIRE CONSIDERATION. THE BUILDING WAS OCCUPIED BY THE AS SESSEE COMPANY. THE ASSESSEE WAS PAYING HOUSE TAX IN ITS NAME. THESE FACTS CLEARLY INDICATED THE OWNERSHIP OF THE ASSESS EE ON THE PROPERTY AND, THEREFORE, THE ASSESSEE WAS ENTITLED FOR DEPRECIATION. LD. CIT(A) RELYING ON THE DECISION OF HON'BLE SUPRE ME COURT IN THE CASE OF MYSORE MINERALS REPORTED IN 239 ITR 775 HEL D THAT FOR THE PURPOSES OF SECTION 32(1), THE OWNERSHIP VESTED IN THE ASSESSEE. THEREFORE, THE CLAIM OF THE ASSESSEE FOR DEPRECIATI ON COULD NOT BE DENIED MERELY ON THE GROUND THAT NO CONVEYANCE WAS MADE IN FAVOUR OF THE ASSESSEE. 34. BEFORE US, LD. CIT (D.R.) RELIED ON THE DECISIO N OF HON'BLE SUPREME COURT IN THE CASE OF TAMIL NADU CIVIL SUPPL Y CORPORATION LTD. VS CIT 249 ITR 214. IT HAS BEEN SUBMITTED BY HER THAT SINCE THE CONVEYANCE DEED WAS NOT MADE IN FAVOUR OF THE ASSES SEE, THE ASSESSEE WAS NOT ENTITLED FOR DEPRECIATION. 35. WE HAVE HEARD BOTH THE PARTIES. THERE IS NO D ISPUTE ABOUT THE FACT THAT ASSESSEE HAD PURCHASED THE PROPERTY I N THE FINANCIAL YEAR 1999-2000 AND WAS OCCUPIED BY THE ASSESSEE. T HE ASSESSEE HAD BEEN PAYING HOUSE TAX IN ITS OWN NAME. THE ASS ESSING OFFICER HAD DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GRO UND THAT THE CONVEYANCE DEED WAS NOT REGISTERED IN THE NAME OF T HE ASSESSEE. HON'BLE SUPREME COURT HOWEVER IN THE CASE OF MYSORE MINERALS VS CIT 239 ITR 775 HAS HELD THAT SECTION 32 OF THE INC OME TAX ACT, 1961 ALLOWS DEDUCTION BY WAY OF DEPRECIATION ON BUI LDING ETC. OWNED BY THE ASSESSEE AND USED FOR THE PURPOSE OF B USINESS OR PROFESSION. THE TERMS OWNER, OWNERSHIP, OWNED ARE GENERIC AND RELATIVE TERMS. THEY HAVE A WIDE AND ALSO A NA RROW CONNOTATION. THE MEANING WOULD DEPEND ON THE CONTE XT IN WHICH THE TERMS ARE USED. THE DECISION IN THE CASE OF CI T VS PODAR I.T.A.NO. 4787/DEL/05,262/DEL/08 I.T.A.NO. 407/DEL/06 & 79/DEL/08 14 CEMENT PVT. LTD. 226 ITR 625 (S.C.) HAS TO BE TAKEN AS A TREND- SETTER IN THE CONCEPT OF OWNERSHIP. ASSISTANCE FRO M THE LAW LAID DOWN THEREIN CAN BE TAKEN FOR FINDING OUT THE MEANI NG OF THE TERM OWNED AS OCCURRING IN SECTION 32(1) OF THE INCOME TAX ACT. THE TERM OWNED IS OCCURRING IN SECTION 32(1) OF INCOM E TAX ACT, MUST BE ASSIGNED A WIDER MEANING. ANYONE IN POSSESSION OF PROPERTY IN HIS OWN TITLE EXERCISING SUCH DOMINION OVER THE PRO PERTY AS WOULD ENABLE OTHERS BEING EXCLUDED THERE FROM AND HAVING THE RIGHT TO USE AND OCCUPY THE PROPERTY AND/OR TO ENJOY ITS USUFRUC T IN HIS OWN RIGHT WOULD BE THE OWNER OF THE BUILDING THOUGH A FORMAL DEED OF TITLE MAY NOT HAVE BEEN EXECUTED AND REGISTERED AS CONTEM PLATED BY THE TRANSFER OF PROPERTY ACT, THE REGISTRATION ACT, ETC . IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT FOR THE PURPOSE O F SECTION 32(1), THE ASSESSEE IS OWNER OF THE PROPERTY AND IS ENTITL ED FOR DEPRECIATION. MERELY BECAUSE THE PROPERTY HAS NOT BEEN REGISTERED IN THE NAME OF THE ASSESSEE, DISALLOWANCE OF DEPREC ATION CANNOT BE MADE. THE DECISION IN THE CASE OF TAMIL NADU CIVIL SUPPLIES CORPORATION LTD. (SUPRA) IS NOT APPLICABLE TO THE F ACTS OF THE CASE BEFORE US AS IN THAT CASE THE ASSESSEE HAD NOT ACQU IRED DOMINION ON THE PROPERTY. BUT IN THE PRESENT CASE, THE ASSESSE E IS IN POSSESSION OF PROPERTY; HAS BEEN PAYING TAXES IN HIS OWN NAME; AND HAS USED THE PROPERTY FOR THE PURPOSES OF BUSINESS. HENCE T HE FACTS ARE DISTINGUISHABLE. THEREFORE, LD. CIT(A) WAS JUSTIFI ED IN DELETING THE DISALLOWANCE MADE ON ACCOUNT OF DEPRECIATION ON BUI LDING. 36. THE NEXT ISSUE FOR CONSIDERATION IN REVENUES A PPEAL RELATES TO DELETION OF ADDITION OF ` 51,48,629/- ON ACCOUNT OF VALUATION OF CLOSING STOCK. THE FACTS OF THE CASE FOR THE ASSES SMENT YEAR 2004- 05 ARE IDENTICAL TO THE FACTS OF THE CASE FOR THE Y EAR 2002-03. IN ASSESSMENT YEAR 2002-03, WE HAVE DELETED THE SIMILA R ADDITION MADE ON ACCOUNT OF VALUATION OF CLOSING STOCK. RES PECTFULLY FOLLOWING THE PRECEDENT, IT IS HELD THAT LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION MADE ON ACCOUNT OF VALUATION OF CLOSING STOCK. I.T.A.NO. 4787/DEL/05,262/DEL/08 I.T.A.NO. 407/DEL/06 & 79/DEL/08 15 37. TO SUM UP, BOTH THE APPEALS OF THE ASSESSEE A ND REVENUES APPEAL FOR THE ASSESSMENT YEAR 2002-03 ARE PARTLY A LLOWED FOR STATISTICAL PURPOSES. REVENUES APPEAL FOR ASSESSM ENT YEAR 2004- 05 IS DISMISSED. 38. PRONOUNCED IN THE OPEN COURT ON 29 TH APR., 2011 SD./- SD./- (C. L. SETHI) (K. D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:29 TH APR., 2011 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR, ITAT, NEW DELHI