ACIT, Najibabad V. M/s. Dhampur Sugar Mills Ltd., Bijnor

ITA 4100/DEL/2010

• Counselvise Citation: 410020114 RSA 2010
• Duration Of Justice: 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 03-08-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 06-09-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRATIMA KAUSHIK
• Assessee Lawyers: RAJESH JHALANI; M P MEHROTRA
• Keywords: Gift; Opportunity of being heard; Earning of tax free income
• Section: 37; 143(3); 142(1); 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `B: NEW DELHI BEFORE SHRI C.L.SETHI, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER I.T. A. NO.4100/DEL/2010 ASSESSMENT YEAR : 2007-08 ASSTT. COMMISSIONER INCOME-TAX, M/S. DHAMPUR SUGAR MILLS LTD., CIRCLE, NAJIBABAD. VS. DHAMPUR, DISTT. BIJNOR . PAN: AABCT2827N I.T. A. NO.3950/DEL/2010 ASSESSMENT YEAR : 2007-08 M/S. DHAMPUR SUGAR MILLS LTD., ADDL. COMMISSIONER I NCOME-TAX, DHAMPUR, DISTT. BIJNOR (U.P.) VS. MORADABAD. PAN: AABCT2827N (APPELLANTS) (RESPONDEN TS) DEPARTMENT BY: SMT. PRATIMA KAUSHIK, SR. DR. RESPONDENT BY: SHRI M.P.MEHROTRA, CA & SHRI RAJESH JHALANI, AR. O R D E R PER C.L. SETHI, JUDICIAL MEMBER: BOTH THE REVENUE AND THE ASSESSEE ARE IN APPEAL AGA INST THE ORDER DATED 25.05.2010 PASSED BY THE LEARNED COMMISSIONER OF IN COME-TAX (APPEALS) IN THE MATTER OF AN ASSESSMENT MADE BY THE ASSESSING O FFICER U/S 143(3) OF THE INCOME-TAX ACT, 1961 (THE ACT) FOR THE ASSESSMENT Y EAR 2007-08. 2 ITA NO.4100/DEL/2010: 2. WE SHALL FIRST TAKE THE APPEAL FILED BY THE REVE NUE. 3. THE FIRST GROUND RAISED BY THE REVENUE REGARDING THE ADDITION OF RS.40,83,234/- MADE BY THE AO BUT DELETED BY THE LE ARNED CIT(A), IS AS UNDER:- UNDER THE CIRCUMSTANCES OF THE CASE WHETHER THE CI T(A), BAREILLY IS JUSTIFIED ON FACTS AND IN LAW IN DELETI NG THE ADDITION OF RS.40,83,234/- ON ACCOUNT OF GIFTS GIVEN BY THE COMPANY ON THE OCCASION OF FESTIVALS TO THE WELL WISHERS OF TH E COMPANY, WHEREAS DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE ASSESSEE COULD NOT JUSTIFY ITS CLAIM. ALSO, IN VIE W OF RULE 46A OF IT RULES, 1962, WHETHER THE CIT(A), BAREILLY IS JUS TIFIED IN LAW IN ENTERTAINING THE DETAILS FURNISHED BEFORE HIM WH ICH WERE NOT FURNISHED BEFORE THE A.O. AND IN GIVING THE RELIEF TO THE ASSESSEE WITHOUT GIVING ANY OPPORTUNITY TO THE A.O. 4. THE ASSESSEE IS A MANUFACTURER OF CRYSTAL SUGAR, CHEMICALS AND POWER ETC. THE ASSESSEE FILED ITS RETURN OF INCOME SHOWI NG TOTAL INCOME AT RS. NIL. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 1 43(2) AS WELL AS U/S 142(1) WAS ISSUED AND SERVED UPON THE ASSESSEE. TH E ASSESSEES AUTHORIZED REPRESENTATIVE APPEARED BEFORE THE AO FROM TIME TO TIME AND FURNISHED THE RELEVANT DETAILS. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS FOUND BY THE AO THAT THE ASSESSEE HAD CLAIMED THE DEDUCTION OF RS.4 0,83,234/- ON ACCOUNT OF VARIOUS GIFTS GIVEN ON THE OCCASION OF FESTIVALS TO THE WELL-WISHERS OF THE COMPANY. THE ASSESSEE CONTENDED THAT THESE GIFTS W ERE CUSTOMARY GIFTS IN 3 THE COURSE OF CARRYING ON ASSESSEES BUSINESS ACTIV ITY, GIVEN ON THE OCCASION OF FESTIVALS. UNIT-WISE DETAILS OF THE GIFTS WERE GIVEN AS UNDER:- DHAMPUR UNIT RS.28,19,637/- MANSURPUR UNIT RS. 6,48,272/- RAJPURA UNIT RS. 1,86,760/- ASMOLI UNIT RS. 3,73,446/- CHEMICAL UNIT RS. 55,119/- TOTAL AMOUNT RS.40,83,234/- 6. IT WAS STATED BY THE AO THAT ANY EXPENDITURE CLA IMED BY THE ASSESSEE AS DEDUCTION SHOULD BE WHOLLY AND EXCLUSIVELY INCUR RED FOR THE PURPOSE OF BUSINESS FOR ALLOWING DEDUCTION UNDER SEC. 37(1) OF THE ACT. THE AO FURTHER STATED THAT THE ASSESSEE HAS NOT FURNISHED ANY DOCU MENTARY EVIDENCE TO SUBSTANTIATE ITS CLAIM TOWARDS GIFT EXPENSES AND HA S ALSO FAILED TO ESTABLISH THE BUSINESS NEED FOR SPENDING SUCH AN AMOUNT. THE ASSESSEE HAS ALSO NOT FURNISHED DETAILS OF THE GIFTS AND THE PERSONS TO W HOM THE GIFTS WERE GIVEN AND THEIR CONNECTION WITH THE ASSESSEES BUSINESS. THE AO, THEREFORE, DISALLOWED THE ASSESSEES CLAIM OF DEDUCTION OF RS. 40,83,234/- AND ADDED THE SAME TO THE ASSESSEES TOTAL INCOME. 7. ON AN APPEAL, THE LEARNED CIT(A) DELETED THE ADD ITION AFTER FOLLOWING THE DECISION OF ITAT, DELHI BENCH IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1997-98. THE CIT(A) ALSO OBSERVED THAT THIS ISSUE WAS ALSO INVOLVED IN THE ASSESSMENT YEAR 1997-98 AND 20 05-06 IN THE CASE OF GROUP COMPANY NAMELY M/S. DHAMPUR SUGAR (KASHIPUR) LTD. THE CIT (A), 4 BAREILLY DELETED THE ADDITION IN ASSESSMENT YEAR 20 05-06 IN THE CASE OF M/S. DHAMPUR SUGAR (KASHIPUR) LTD., WHICH ADDITION WAS M ADE ON ACCOUNT OF FREE SUGAR DISTRIBUTION TO THE EMPLOYEES AFTER FOLL OWING THE DECISION OF ITAT, DELHI BENCH IN THE ASSESSMENT YEAR 1997-98. THE LEARNED CIT(A) ALSO OBSERVED THAT ITAT, LUCKNOW BENCH DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN THE ASSESSMENT YEAR 2005-06. HE THEREF ORE, DELETED THE ADDITION AFTER TAKING INTO ACCOUNT THE FACTS OF THE CASE, CO NTENTS OF THE ORDERS OF THE AO AND SUBMISSIONS OF THE ASSESSEE AND AFTER TAKING A VIEW THAT THE FACTS IN THE YEAR UNDER CONSIDERATION ARE SIMILAR TO THE FAC TS INVOLVED IN ASSESSMENT YEAR 1997-98 AND 2005-06 IN THE CASE OF DHAMPUR SUG AR (KASHIPUR) LTD. HE, THEREFORE, FOLLOWED THE AFORESAID DECISIONS OF ITAT BENCHES AND DELETED THE ADDITION. 8. WE HAVE HEARD BOTH THE PARTIES AND HAVE GONE THR OUGH THE ORDERS OF THE AUTHORITIES BELOW. 9. THE LEARNED COUNSEL FOR THE ASSESSEE HAS PRODUCE D BEFORE US A COPY OF DECISION DATED 03.08.2000 OF ITAT, DELHI IN THE ASS ESSEES OWN CASE FOR THE ASSESSMENT YEAR 1998-99 DEALING WITH THE ISSUE OF F REE DISTRIBUTION OF SUGAR. WE HAVE GONE THROUGH THIS DECISION AND FIND THAT IN THIS CASE ONLY THE SUM OF RS.57,947/- WAS DISALLOWED BY THE AO ON ACCO UNT OF FREE DISTRIBUTION OF SUGAR IN DHAMPUR UNIT AND OF RS.8,718/- IN THE C ASE OF MANSURPUR SUGAR 5 UNIT. IN THE CASE OF DHAMPUR SUGAR (KASHIPUR) LTD. , THE ISSUE WAS ONLY WITH REGARD TO THE CLAIM OF DEDUCTION ON ACCOUNT OF FREE SUGAR DISTRIBUTION TO THE EMPLOYEES AS SO OBSERVED BY THE LEARNED CIT(A) IN H IS ORDER ITSELF. ON PERUSAL OF THE DETAILS OF EXPENSES OF RS.40,83,234/ -, WE FIND THAT SUM OF RS.9,97,600/- WAS INCURRED ON ACCOUNT OF FREE SUGAR DISTRIBUTION IN VARIOUS UNITS AND SUM OF RS.30,85,634/- ON ACCOUNT OF GIFT ON THE OCCASION OF DIWALI TO VARIOUS ASSOCIATES/STAFF. THE DETAILS OF VARIOU S GIFTS HAVE BEEN PLACED BY THE ASSESSEE IN THE PAPER BOOK. ON PERUSAL OF THES E DETAILS OF EXPENSES ON GIFTS, WE FIND THAT VARIOUS GIFTS HAVE BEEN GIVEN T O VARIOUS PERSONS INCLUDING WELL-WISHERS OF THE COMPANY. THE GIFTS HAD ALSO BEE N GIVEN GO SOME SCHOOLS, AUDITORS AND MOSTLY TO WELL-WISHERS. ALL THESE DETAILS HAVE NOT BEEN EXAMINED BY THE LEARNED CIT(A) BEFORE DELETING THE ADDITION. THE CASES RELIED UPON BY THE LEARNED CIT(A) WERE RELATED TO T HE CLAIM OF DEDUCTION ON ACCOUNT OF FREE SUGAR DISTRIBUTION TO EMPLOYEES AND NOT IN RESPECT OF VARIOUS GIFT EXPENSES GIVEN TO VARIOUS PERSONS SO-CALLED WE LL-WISHERS. THEREFORE, DELETING THE WHOLE OF THE ADDITION ON ACCOUNT OF GI FT EXPENSES BY RELYING ON THE EARLIER DECISION IS NOT JUSTIFIED UNLESS AND UN TIL ALL THESE EXPENSES ARE PROPERLY EXAMINED AND UNLESS IT IS FOUND THAT THESE EXPENSES WERE INCURRED BY THE ASSESSEE FOR BUSINESS EXIGENCIES. THE ASSES SEE HAS NOT BEEN ABLE TO EXPLAIN BEFORE US THAT HOW VARIOUS SUBSTANTIAL GIFT S GIVEN TO SO-CALLED WELL- 6 WISHERS OF THE COMPANY IS CONNECTED AND RELATED TO THE ASSESSEES BUSINESS ACTIVITY AND HOW THESE CAN BE CONSIDERED TO HAVE BE EN GIVEN FOR BUSINESS EXIGENCY. DETAILS OF AMOUNT OF EXPENSES WERE FURNI SHED BEFORE THE LEARNED CIT(A) AND GENERAL STATEMENT WAS MADE THAT MOST OF THE EXPENDITURE WAS INCURRED AROUND OCTOBER AND NOVEMBER, WHICH WAS FES TIVE SEASON AND SUCH EXPENSES ARE CUSTOMARY IN THE TRADE AND BUSINESS IN OUR COUNTRY. THESE FACTS NEED TO BE EXAMINED WITH REFERENCE TO PROVISIONS CO NTAINED IN SEC. 37 OF THE ACT. THE CIT(A) SHOULD HAVE PUT ALL THESE DETAILS TO THE AO FOR HIS COMMENT WHICH HAS NOT BEEN DONE BY THE CIT(A). IN THE LIGHT OF THESE FACTS AND AFTER HEARING BOTH THE PARTIES, AND UNDERSTANDI NG WAS GIVEN AT THE TIME OF HEARING OF THE APPEAL ITSELF TO THE LEARNED REPR ESENTATIVES OF BOTH THE PARTIES THAT THE MATTER NEEDS FURTHER EXAMINATION A ND VERIFICATION SO THAT THE MATTER CAN BE DECIDED IN ITS RIGHT AND CORRECT PERS PECTIVE HAVING REGARD TO THE PROVISIONS CONTAINED IN SEC. 37(1) OF THE ACT. WE, THEREFORE, RESTORE THIS MATTER BACK TO THE FILE OF THE AO FOR HIS FRESH ADJ UDICATION AFTER GIVING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE AS SESSEE SHALL BE AT LIBERTY TO PRODUCE AND FURNISH ALL THE DETAILS AND EVIDENCES B EFORE THE AO IN SUPPORT OF ASSESSEES CLAIM OF DEDUCTION OF RS.40,83,234/- ON ACCOUNT OF VARIOUS GIFTS GIVEN TO VARIOUS PERSONS AND ON ACCOUNT OF FREE SUG AR DISTRIBUTION. THE 7 MATTER SHALL REMAIN VIDE OPEN BEFORE THE AO FOR HIS ADJUDICATION AS PER LAW. WE ORDER ACCORDINGLY. 10. GROUND NO.2 IS DIRECTED AGAINST THE CIT(A)S OR DER IN DELETING THE ADDITION OF RS.7,42,913/- MADE BY THE AO ON ACCOUNT OF DIFFERENCE OF INTEREST PAYABLE BY THE ASSESSEE TO BANKS AND FINANCIAL INST ITUTIONS ON LOANS AND INTEREST RECEIVED ON ADVANCES TO THE SISTER CONCERN /GROUP CONCERN/SUBSIDIARIES AT A LOWER RATE. 11. IN THE ASSESSMENT THE AO MADE THE ADDITION OF R S.7,42,913/- BEING THE DIFFERENCE OF AMOUNT OF INTEREST PAID TO BANK AND F INANCIAL INSTITUTION ON BORROWED MONEY AND THE INTEREST RECEIVED FROM SISTE R CONCERNS ETC. 12. ON AN APPEAL, THE LEARNED CIT(A) DELETED THE AD DITION AFTER CONSIDERING THE ASSESSEES EXPLANATION AND ORDER OF THE TRIBUNAL PASSED IN EARLIER YEARS ON THE SIMILAR ISSUE. 13. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. 14. IN THE STATEMENT OF FACTS NARRATED BY THE CIT, IT HAS BEEN STATED BY THE CIT THAT THE LEARNED CIT(A) HAS RELIED UPON THE ORD ERS PASSED IN EARLIER YEARS BY THE LEARNED CIT(A) AND ALSO BY TRIBUNAL, N EW DELHI VIDE ORDER DATED 31.10.2007 IN ASSESSMENT YEAR 2002-03. IT HA S BEEN STATED BY THE COMMISSIONER OF INCOME-TAX THAT SINCE THE MATTER IS SUBJUDICE BEFORE THE 8 HONBLE HIGH COURT IN ASSESSEES OWN CASE IN ASSESS MENT YEARS 1992-93, 1993-94 AND 1994-95, HE RECOMMENDED THE APPEAL TO B E FILED BEFORE THIS TRIBUNAL. FROM THIS STATEMENT, IT IS THUS CLEAR TH AT IDENTICAL ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL A ND THE MATTER IS NOW PENDING BEFORE THE HONBLE HIGH COURT FOR FURTHER A DJUDICATION. 15. IN THE ASSESSMENT YEAR 2002-03, THE TRIBUNAL UP HELD THE ORDER OF THE CIT(A) IN DELETING THE IDENTICAL ADDITION BY OBSERV ING THAT THE TRIBUNAL IN THE ASSESSEES OWN CASE IN THE ASSESSMENT YEAR 2001 -02 VIDE ORDER DATED 31.08.2007 HAS UPHELD THE ORDER OF THE CIT(A) IN DE LETING THE ADDITION BY OBSERVING THAT THE FUNDS WERE ADVANCED BY THE ASSES SEE TO ITS VARIOUS SUGAR UNITS, WHICH WAS ONE OF THE OBJECTS OF THE ASSESSEE S BUSINESS, AND THEREFORE, EVEN IF INTEREST-FREE ADVANCES WERE GIVEN TO THE SU BSIDIARY AND THE ASSOCIATED CONCERNS, INTEREST CANNOT BE DISALLOWED EVEN IF THE SAME IS NOT GIVEN OUT OF INTEREST-FREE FUND AVAILABLE WITH THE ASSESSEE. 16. HOWEVER, THE EARLIER ORDER PASSED BY THE TRIBUN AL HAS NOT BEEN STAYED BY THE HONBLE HIGH COURT. THEREFORE, RESPECTFULLY FOLLOWING THE TRIBUNALS ORDER PASSED IN EARLIER YEAR, WE DO NOT FIND ANY IN FIRMITY IN THE ORDER OF THE LEARNED CIT(A) IN DELETING THE ADDITION ON ACCOUNT OF DIFFERENCE IN THE AMOUNT OF INTEREST PAID TO BANK AND AMOUNT OF INTER EST RECEIVED FROM RELATED PARTIES. 9 ITA NO.3950/DEL/2010: 17. NOW WE SHALL COME TO THE APPEAL FILED BY THE AS SESSEE. 18. THE ONLY GROUND RAISED BY THE ASSESSEE IS WITH REGARD TO THE DISALLOWANCE OF RS.33,50,000/- BEING INTEREST OF RS .26,52,000/- AND OTHER EXPENSES OF RS.6,98,000/- DISALLOWED U/S 14A OF THE ACT READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962. 19. IN THIS CASE, SUM OF RS.33,50,000/- WAS DISALLO WED BY THE AO U/S 14A OF THE ACT BY APPLYING FORMULA PROVIDED UNDER RULE 8D OF THE INCOME-TAX RULES. 20. ON AN APPEAL, THE LEARNED CIT(A) AFTER CONSIDER ING THE AOS ORDER, SUBMISSIONS OF THE ASSESSEE AND THE POSITION OF LAW , HAD TAKEN A VIEW THAT THE ASSESSEE DID NOT SATISFY THE CONDITIONS OF SUB- RULE (1)(A) OF RULE 8D. HENCE, THE ASSESSEE IS IN APPEAL BEFORE US. 21. WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSED THE MATERIAL ON RECORD. THE ASSESSMENT YEAR INVOLVED IN THE PRESEN T CASE IS THE ASSESSMENT YEAR 2007-08. IT HAS BEEN HELD BY THE HONBLE BOMB AY HIGH COURT IN THE CASE OF GODREJ BOYCE MANUFACTURING CO. LTD. VS. DCI T (2010) 328 ITR 81, THAT RULE 8D IS APPLICABLE ONLY FROM THE ASSESSMENT YEAR 2008-09. THEREFORE THE DISALLOWANCE OF EXPENSES U/S 14A BY A PPLYING RULE 8D IN THE PRESENT ASSESSMENT YEAR 2007-08 IS NOT JUSTIFIED. HOWEVER, THE AO MAY 10 DISALLOW SUCH EXPENSES, WHICH HAVE BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT AS SO OBSERVED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE MANUFACTURING CO. LTD. (SUPRA). THE AO SHOULD ADOPT A REASONABLE BASIS TO IDENTIFY THE EXPENSES IN RELATION TO EARNING OF EXEMPT INCOME BE FORE DISALLOWING THE SAME UNDER SEC. 14A OF THE ACT. WE, THEREFORE, RES TORE THIS MATTER BACK TO THE FILE OF THE AO FOR HIS FRESH ADJUDICATION AND F OR IDENTIFYING THE EXPENSES, WHICH HAVE ACTUALLY BEEN INCURRED BY THE ASSESSEE I N RELATION TO EARNING OF EXEMPT INCOME. THE DISALLOWANCE U/S 14A BY APPLYIN G RULE 8D IN THE PRESENT ASSESSMENT YEAR IS NOT WARRANTED. THE ASSE SSEE SHALL BE AT LIBERTY TO PRODUCE AND FURNISH SUCH DETAILS AND EVIDENCES BEFO RE THE AO TO SUPPORT ITS CLAIM THAT NO SUCH DISALLOWANCE U/S 14A IS CALLED F OR. WE ORDER ACCORDINGLY. 22. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED AND THAT OF THE ASSESSEE IS ALLOWED FOR A STATISTICAL PURPOS E. 23. THIS DECISION IS PRONOUNCED IN THE OPEN COURT O N 12 TH AUGUST, 2011. SD/- SD/- (B.C. MEENA) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 12 TH AUGUST, 2011. 11 ITA NOS.4100 & 3950/DEL/2010 COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR, ITAT.