BHARAT PETROLEUM CORPORATION LTD, MUMBAI V. JCIT (OSD) 2(1), MUMBAI

ITA 4585/MUM/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62316 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 1995-1996
• Appeal Filed On: 07-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAVIN VARMA
• Assessee Lawyers: J D J MISTRI
• Keywords: Business income
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B , MUMBAI BEFORE SHRI G.E. VEERABHADRAPPA, HON'BLE PRESIDENT AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO.4585 /MUM/2011 ASSESSMENT YEAR: 1995-1996 M/S BHARAT PETROLEUM CORPORATION LIMITED, TAXATION SECTION 4 & 5 CURRIMBHOY RD. BALLARD ESTATE-MUMBAI-400 001. PAN NO.AAACB2902M JCIT (OSD), 2(1), AAYAKAR BHAWAN, MUMBAI. APPELLANT VS. RESPONDENT APPELLANT BY : MR. J.D.J.MISTRI RESPONDENT BY : MR. PRAVIN VARMA DATE OF HEARING : 12 TH APRIL 2012 DATE OF PRONOUNCEMENT : 11 TH MAY 2012 O R D E R PER AMIT SHUKLA (J.M.) : THE PRESENT APPEAL IS ARISING OUT OF THE ORDER DATED 31-3-2011, PASSED BY CIT(A)-4, MUMBAI FOR THE QUANTUM OF ASSESSMENT DETERMINED IN TERMS OF ORDER UNDER SECTION 143(3) READ WITH SECTION 254 & 263 FOR THE ASSESSMENT YEAR 1995-1996 ON THE FOLLOWING GROUNDS OF APPEAL :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIR MING THE ORDER THE LEARNED AO EXCLUDING INTEREST INCOME OF RS.23,85,69,288 AND RENTAL INCOME OF RS.17,81,32,057 FROM PROFI TS AND GAINS OF BUSINESS OR PROFESSION AND ADDING THE SAME TO INCOME FROM OTHER SOURCES WHILE COMPUTING THE TOTAL INCOME OF THE APPELLANT. ITA NO : 4585/MUM/2011 2 M/S BHARAT PETROLEUM CORP. LTD. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE APPELLANT SUBMITS THAT THE INTEREST INCOME OF RS23,85,69,288 AND RENTAL INCOME OF RS.17,81,32,057 ARE INTRINSICALLY CONNECTED WITH THE BUSINESS OF THE COMPANY AND HENCE ARE TAXABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION AND THE LEARNED CIT (A) ERRED IN NOT HOLDING SO. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE APPELLANT SUBMITS THAT SINCE THE INTEREST INCOME OF RS.23,85,69,288 AND RENTAL INCOME OF RS.17,81,32,057 ARE TAXABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION THE APPELLANT IS ELIGIBLE FOR DEDUCTION U/S 801 AND 80IA OF THE INCOME TAX ACT, 1 961 ON THE SAID AMOUNTS AND THE LEARNED CIT(A) ERRED IN NOT ALLOWING THE SAME . 2. THE ASSESSEE CORPORATION IS A PUBLIC SECTOR UNIT ENGAGED IN THE BUSINESS OF REFINING CRUDE OIL, MARKETING PETROLEUM PRODUCTS AND TRANSPORTATION OF PETROLEUM PRODUCTS TO VARIOUS PARTS OF THE COUNTRY. 3. THE FACTS RELEVANT FOR ADJUDICATI ON OF THE SOLITARY ISSUE ARE THAT RETURN OF INCOME WAS FILED ON 29-11-1995 DECLARING INCOME OF ` . 3,50,68,19,680/-, WHICH WAS DULY PR OCESSED UNDER SECTION 143(I)(A). THEREAFTER THE RETURN WAS SUBJECT TO SCRUTINY AND ORDER UNDER SECTION 143(3) WAS PASSED VIDE ORDER DATED 9-1-1998 AT AN INCOME OF ` . 376,76,60,470/-. IN THE SAID ASSESSMENT, THE CLAIM OF DEDUCTION UNDER SECTION 80(I) & 80(IA) WAS ALLO WED IN THE FOLLOWING MANNER :- 80(I) - ` . 94,67,,474/- 80(IA) - ` . 3,58,44,320/- ITA NO : 4585/MUM/2011 3 M/S BHARAT PETROLEUM CORP. LTD. THEREAFTER UNDER REVISIONARY JURISDICTION UNDER SECTION 263, CIT PARTLY SET ASIDE THE ASSESSMENT TO THE FILE OF AO VIDE ORDER DATED 13-3-2000 WITH A DIRECTION TO REFRAME THE ASSESSMENT AFTER DISALLOWING THE FOLLOWING EXPENSES :- (I) EXPENSES INCURRED IN CONNECTION WITH BONUS SHARES FOR INCREASING AUTHORIZED CAPITAL. TOTAL EXPENDITURE WAS RS.55,00,600/- CONSISTED OF RS.10,00,000/- ON STAMP DUTY, RS.45,00,000/- PAID TO REGISTRAR ON BONUS ALONG WITH FEES OF RS.600/-. THESE EXPENSES WERE TREATED AS CAPITAL. (II) TO EXCLUDE THE INTEREST INCOME OF RS.3,19,80,820/- AND RENTAL INCOME OF RS.21,28,190/- FROM PROFITS AND GAINS OF BUSINESS FOR THE PURPOSE OF DEDUCTION U/S80I AND 80IA OF THE INCOME TAX ACT, AS THESE RECEIPTS ARE NOT DIRECTLY DERIVED FROM THE BUSINESS OF THE ASSESSEE COMPANY. 4. AGGRIEVED BY THE SAID DIRECTION AND ORDER PASSED UNDER SECTION 263, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE ITAT VIDE ORDER DATED 8-4-2004, WHEREBY THE ITAT MO DIFIED THE DIRECTION THAT THE CIT SHOULD NOT HAVE ISSUED SPECIFIC DIRE CTION BUT INSTEAD, OUGHT TO HAVE DIRECTED THE AO TO CONSIDER THE DISPUTE AFRESH AFTER GIVING AN OPPORTUNITY OF HEARING TO THE ASSESSEE TO REPRESENT ITS CASE. ACCORDINGLY THE MATTER WAS SET ASIDE TO THE FILE OF THE AO TO FRAME THE ASSESSMENT AFRESH AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE. IN PURSUANCE TO THE ITATS ORDER, THE ASSESSING OFFICER INITIATED THE PROCEEDINGS BY ISSUING NOTICES TO THE ASSESSEE. ITA NO : 4585/MUM/2011 4 M/S BHARAT PETROLEUM CORP. LTD. 5. FROM THE PERUSAL OF THE ASSESSMENT ORDER, IT IS BORNE OUT THAT IN RESPONSE TO VARIOUS NOTICES AND LETTER WRITTEN BY THE AO, THE ASSESSEE DID NOT FILE ANY REPLY OR REPRESENTED ITS CASE BEFORE THE AO. LEFT WITH NO CHOICE, THE ASSESSING OFFICER COMPLETED THE ASSESSMENT VIDE ORDER DATED 21-3-2006 AT AN INCOME OF `. 3,77,04,82,370/- AFTER DISALLOWING THE DEDUCTION UNDER SECTION 80(IA) AND RENTAL INCOME OF `. 21,21,190/-. BESIDES THIS, ADDITION ON ACCOUNT OF CAPITAL EXPENSES OF `. 55,00,600/- WAS ALSO MADE BY THE ASSESSING OFFICER. 6. IN THE FIRST APPEAL, THE ASSESSEE S UBMITTED DETAILS OF INTEREST OF INCOME AND RENTAL INCOME AS UNDER (AS HAS BEEN GIVEN IN PAGE 6 OF THE APPELLATE ORDER) :- (A) PARTICULARS INTEREST INCOME (RS) INTEREST RECEIVED FROM OIL COORDINATION COMMITTEE FOR DELAYED PAYMENTS 12,34,97.530 INTEREST RECEIVED ON INTER CORPORATE DEPOSITS 3,19,97,530 INTEREST ON LOANS TO STAFF 6,74,79,735 BANK INTEREST 1,55,08,499 INTEREST FROM INDUSTRIAL CUSTOMERS 1,02,604 23,85,69,188 ITA NO : 4585/MUM/2011 5 M/S BHARAT PETROLEUM CORP. LTD. (B) PARTICULARS INTEREST INCOME (RS) LICENSE FEES FROM SERV ICE STATIONS 17,39,46,929 RENTALS EARNED ON LETTING OUT BUILDINGS, EQUIPMENTS AND OTHER FACILITIES 21,28,190 STAFF QUARTER RECOVERIES 18,99,057 RECOVERIES TOWARDS GUESTHOUSE CHARGES 1,57,881 17,81,32,057 7 . WITH REGARD TO EACH AND EVERY ITEM, APPEARING IN THE AFORESAID TABLE, THE ASSESSEE GAVE DETAIL SUBMISSIONS BEFORE THE CIT(A), WHICH HAVE BEEN INCORPORATED FROM PAGE 6 TO 9 OF THE APPELLATE ORDER. HOWEVER, THE CIT(A) DID NOT AGREE WITH THE CONTENTIONS AND EXPLANATION OF THE ASSESSEE AND CO NFIRMED THE DISALLOWANCE AFTER OBSERVING AND HOLDING AS UNDER :- 3.4 DECISIONS : I DO NOT AGREE WITH THE SUBMISSIONS OF THE AUTHORIZED REPRESENTATIVE, I AGREE WITH THE FINDING SOT HE A.O. THAT INTEREST INCOME HAS NO NEXUS WITH THE ELIGIBLE UNITS OF THE ASSESSEE WHICH ARE ELIGIBLE FOR DEDUCTION U/S.80I AND 80IA. THE CASE LAWS CITED BY THE APPELLANT ARE DISTINGUISHABLE ON FACTS. THE INTEREST RECEIVED FROM OCC IS NOT THE INCOME DERIVED FROM ELIGIBLE UNITS OF THE ASSESSEE. BUT, THE SAME IS ON ACCOUNT OF GOVERNMENT OF INDIA POLICY AND HENCE CANNOT BE ALLOWED AS DERIVED FROM BUSINESS ACTIVITY OF THE ELIGIBLE UNIT. SIMILARLY, THE INTEREST INCOME OR INTER CORPORATE DEPOSIT AND INTEREST ON STAFF LOAN HAS NO CONNECTION WITH THE ELIGIBLE UNITS. SAME IS THE CASE OF RECOVERIES ON ACCOUNT OF STAFF QUARTERS AND RECOVERIES TOWARDS GUESTHOUSE CHARGES. I DO NOT AGREE WITH THE SUBMISSIONS OF THE ITA NO : 4585/MUM/2011 6 M/S BHARAT PETROLEUM CORP. LTD. AUTHORISED REPRESENTATIVE THAT LICENSE FEES FROM SERVICE STATIONS ARE INCOME DERIVED FROM INDUSTR IAL UNDERTAKING OF THE ELIGIBLE UNITS. HENCE, THE A.O. IS JUSTIFIED IN DISALLOWING THE CLAIM OF DEDUCTION U/S. 80I & 80IA. THE CASE LAWS CITED BY THE APPELLANT IN CIT VS. GOVINDA CHOUDHURY & SONS (203 ITR 881) ARE DISTINGUISHABLE ON FACTS AS IN T HAT CASE THERE WAS NO QUESTION OF ANY DEDUCTION U/S.80I AND 80IA. THE DISALLOWANCE IS UPHELD AND THE APPEAL ON THIS GROUND IS DISMISSED. 8. LEARNED SENIOR COUNSEL APPEARING ON BEHALF OF THE ASSESSEE DREW OUR ATTENTION TO COMPUTATION OF INCOME AND NOTES OF ACCOUNT FILED ALONG WITH THE RETURN OF INCOME GIVING DETAILS OF DEDUCTIONS UNDER CHAPTER VI, SPECIFICALLY, DEDUCTION UNDER SECTION 80(I) AND 80(IA), WHEREIN AT ANNEXURE-I, PRODUCT WISE DETAILS HAVE BEEN PROVIDED. HE ALSO POINTED OUT AT THE NOTE APPEARING IN ANNEXURE-H & ANNEXURE-I, WHICH READS AS UNDER :- ANNEXURE-H NOTE : THE AMOUNT OF DEDUCTION UNDER SECTION 80I HAS BEEN WORKED AS UNDER : (COST OF THE PROJECT X BUSINESS PR OFITS X 25%) DIVIDED BY OPENING GROSS BLOCK OF T HE CORPORATION. FOR PROJECT COMMENCED DURING 1990-1991 DEDUCTION U/S 80I IS COMPUTED @ 30% AND ELIGIBLE FOR DEDUCTION FOR 10 ASSESSMENT YEARS. (NOTE AS APPEARING IN ANNEXURE-H) ANNEXURE-I NOTE : THE AMOUNT OF DEDUCTION UNDER SECTION 80IA HAS BEEN WORKED AS UNDER : (COST OF THE PROJECT X BUSINESS PR OFITS X 30%) DIVIDED BY OPENING GROSS BLOCK OF T HE CORPORATION.) (NOTE AS APPEARING IN ANNEXURE-I) 8.1 IN HIS EXTENSIVE ARGUMENTS, HE VEHEMENTLY RELIED UPON THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 1992-1993, WHEREIN THE ITA NO : 4585/MUM/2011 7 M/S BHARAT PETROLEUM CORP. LTD. FORMULA FOR COMPUTATION UNDER SECTION 80HH AND 80IA HAVE BEEN GIVEN BY THE ASSESSING OFFICER ON T HE BASIS OF WHICH DEDUCTIONS WERE ALLOWED. THE SAID FORMULA GIVEN AT INTERNAL PAGE 8 OF THE SAID ASSESSMENT ORDER FOR THE SAME OF READY REFERENCE IS REPRODUCED HEREIN BELOW :- I HAVE CAREFULLY CONSIDERED T HE SUBMISSIONS MADE BY THE ASSESSEE, BUT I AM UNABLE TO ACC EPT THEM. THE DEDUCTION U/S. 80-I IS WORKED OUT BY ADOPTING THE SAME FORMULA AS IN THE CASE OF DEDUCTION U/S.80HH BUT BY REDUCING DEDUCTION U/S.80HH FROM THE PROFITS. THIS STAND IS IN CONSON ANCE OF THE DEPARTMENTAL STAND ON THIS POINT. DEDUCTIONS ARE RECOMPUTED AS UNDER :- U/S. 80HH : COST OF THE PROJECT X BUSINESS PROFITS GROSS BLOCK OF THE CORPORATION HIS MAIN THRUST OF ARGUMENT WAS THAT ONCE A FORMULA HAS BEEN DEVISED BY THE DEPARTMENT AND ACCEPTED BY THE ASSESSEE, AS WELL AS BY THE DEPARTMENT IN THE EARLIER YEARS, DIVERSION FROM THE SAME STAND CANNOT BE MADE. WHILE REFERRING TO THE HISTORY OF ACCEPTANCE OF SUCH A FORMULA, HE REFERRED TO A STATEMENT GIVEN AT PAGE 30 OF THE PAPER BOOK WHEREIN INTEREST INCOME AND RENTAL INCOME HAS BEEN DULY CONSIDERED WHILE COMPUTING DEDUCTION UNDER SECTION 80I/80IA, BASED ON SUCH FORMULA, RIGHT FROM ASSESSMENT YEAR 1990-1991 TO THE ASSESSMENT YEAR 2001-2002. ON MERITS ALSO HE SUBMITTED THAT THE INTEREST COMPONENTS ARE NOT INTEREST PER SE RECEIVED FROM FDRS OR BANK BUT MAJOR AMOUNT OF INTEREST RELATED TO BUSINESS ONLY. LIKEWISE RECEIPTS FROM RENTAL ITA NO : 4585/MUM/2011 8 M/S BHARAT PETROLEUM CORP. LTD. INCOME OUT OF WHICH LICENCE FEE FR OM SERVICE STATIONS IS THE MAJOR COMPONENT HE CONTENDED THAT IT DIRE CTLY RELATED TO THE BUSINESS INCOME OF THE ASSESSEE. 9. PER CONTRA , LEARNED CIT DR SUBMITTED THAT ALL THESE ISSUES AND FACTS HAVE NOT BEEN PLACED BEFORE THE ASSESSING OFFICER WHEN THE MATTER WAS SET ASIDE BY THE ITAT BEFORE THE ASSESSING OFFICER TO CONSIDER THE ISSUE AFRESH AFTER GIVING OPPORTUNITY TO THE ASSESSEE AND THE ASSESSEE DID NOT AVAIL OF ANY OPPORTUNITY OF PRESENTING ITS CASE BEFORE THE ASSESSING OFFICER. HENCE, ALL THOSE ARGUMENTS AND FACTS NEED TO BE EXAMINED BY THE ASSESSING OFFICER. 10 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS MADE BY THE LEARNED SENIOR COUNSEL AND LEARNED CIT DR AS WELL ALSO GONE THROUGH THE IMPUGNED ORDERS AND MATERIAL ON RECORD. IN THE IMPUGNED CASE, THE ORIGINAL ASSESSMENT ORDER WAS PASSED UNDER SECTION 143(3), WHEREIN COMPUTATION OF DEDUCTION UNDER SECTION 80I & 80IA WAS ALLOWED TAKING INTO CONSIDERATION THE INTEREST AND THE RENTAL INCOME. SUCH AN ASSE SSMENT WAS SUBJECT TO REVISION UNDER SECTION 263, WHEREBY THE CIT DIRECTED THE ASSESSING OFFICER TO EXCLUDE THE ENTIRE INTEREST AND RENTAL INCOME FROM THE PROFIT AND GAINS FOR THE PURPOSE OF DEDUCTION UNDER SECTION 80I AND 80IA. IN APPEAL BEFORE THE ITAT, SUCH A DIRECTION WAS ITA NO : 4585/MUM/2011 9 M/S BHARAT PETROLEUM CORP. LTD. MODIFIED TO THE EXTENT THAT THE ASSESSING OFFICER WILL DECIDE THE ISSUE AFRESH LOOKING TO THE MERI TS AND EXPLANATION OFFERED BY THE ASSESSEE AND SET ASIDE THE MATTER BEFORE THE ASSESSING OFFICER WITH A DIRECTION THAT HE WILL GIVE PROPER OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS CASE. 11 . FROM THE PERUSAL OF THE ASSE SSMENT ORDER, IT IS SEEN THAT AFTER VARIOUS OPPORTUNITIES GIVEN BY THE ASSESSING OFFICER, THE ASSESSEE DID NOT PRESENT ITS CASE BEFORE THE ASSESSING OFFICER. EVEN THOUGH THERE SEEMS TO BE A SUBSTANTIAL MERIT IN THE ARGUMENTS ADVANCED BY THE LEARNED SENIOR COUNSEL SPECIFICALLY THAT THE DEDUCTION UNDER SECTI ON 80I AND 80IA HAVE BEEN ALLOWED ON THE BASIS OF FORMULA DEVIS ED BY THE DEPARTMENT, WHICH HAS BEEN REPRODUCED ABOVE, NOT ONLY IN THE EARLIER YEARS BUT ALSO IN THE SUBSEQUENT YEARS. HOWEVER, THESE FACTS HAVE NOT BEEN VERIFIED BY THE ASSESSING OFFICER AS HE HAS NOT GIVEN ANY FINDING AS TO WHY THIS FORMULA WILL NOT BE APPLICABLE IN THIS YEAR. ON MERITS ALSO, THE COMPONENTS OF VARIOUS INTEREST INCOME AND RENTAL INCOME AS POINTED OUT BY THE LD. SENIOR COUNSEL, IT IS SEEN THAT THE ASSESSING OFFICER HAS NOT EX AMINED THESE RECEIPTS WHETHER THEY FORM PART OF THE BUSINESS TRANSACTIONS OF THE ASSESSEE OR NOT. SINCE ALL THESE FACTS HAVE NOT BEEN BROUGHT TO THE NOTICE BEFORE THE ASSESSING OFFICER, EVEN THOUGH THERE WAS A SPECIFIC DIRECTION BY THE ITAT, WE THEREFORE, RESTORE THE ENTIRE MATTER TO THE FILE OF ITA NO : 4585/MUM/2011 M/S BHARAT PETROLEUM CORP. LTD. 10 THE ASSESSING OFFICER, WHO WILL CONSIDER THE CONTENTIONS AND EXPLANATION OF THE ASSE SSEE SPECIFICALLY THE DETAILS OF ASSESSMENT COMPLETED BASED ON FORMULA RIGHT FROM THE ASSESSMENT YEAR 1990-1991 TO THE ASSESSMENT Y EAR 2001-2002 AS HAS BEEN GIVEN AT PAGE 30 OF THE PAPER BOOK AND ALSO EXPLANATION REGARDING VARIOUS COMPONENTS OF INTEREST AND RENTAL INCOME. NEEDLESS TO SAY THAT THE ASSESSING OFFICE R WILL PROVIDE DUE AND EFFECTIVE OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS CASE. THE ASSESSEE WILL ALSO FULLY COOPERATE WITH THE ASSESS ING OFFICER FOR EVERY DETAILS AS ARE REQUIRED FOR DECIDING THE ISSUE OF DEDUCTION UNDER SECTION 80(I) AND 80 (IA) . 12. ACCORDINGLY, THE APPEAL OF THE ASSE SSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 11 TH DAY OF MAY, 2012. SD/- SD/- ( G.E. VEERABHADRAPPA ) ( AMIT SHUKLA ) PRESIDENT JUDICIAL MEMBER MUMBAI, DT: 11 TH MAY, 2012 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, B - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI PKM