ACIT, Circle-16(2), Hyd, Hyderabad V. Mishra Dhatu Nigam Ltd., Hyd, Hyderabad

ITA 471/HYD/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91768 (ITAT-HYDERABAD)
• Duration Of Justice: 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 24-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAMAKRISHNA BANDI
• Assessee Lawyers: B SATYANARAYANA MURTHY
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 471/HYD/2015 ASSESSMENT YEAR: 2011-12 ASST. COMMISSIONER OF INCOME- TAX, CIRCLE 16(2), HYDERABAD. VS. M/S MISHRA DHATU NIGAM LTD., HYDERABAD PAN AABCM6345A (APPELLANT) (RESPONDENT) REVENUE BY : SHRI RAMAKRISHNA BANDI ASSESSEE BY : SHRI B. SATYANARAYANA MURTHY DATE OF HEARING : 09-07-2015 DATE OF PRONOUNCEMENT : 15-07-2015 O R D E R PER SAKTIJIT DEY, J.M.: THIS APPEAL BY DEPARTMENT IS DIRECTED AGAINST THE ORDER DATED 09/01/2015 OF LD. CIT(A) 4, HYDERABAD FOR THE AY 2011-12. 2. IN THE GROUNDS RAISED, DEPARTMENT HAS RAISED TWO ISSUES. THE FIRST ISSUE AS RAISED IN GROUND NOS. 2 & 3 IS IN RE LATION TO THE DECISION OF LD. CIT(A) IN DELETING ADDITION OF AN AMOUNT OF RS. 1,12,35,202 MADE BY AO ALLEGING SHORT / INCORRECT ACCOUNTING O F STOCK. 3. BRIEFLY THE FACTS RELATING TO THIS ISSUE ARE, AS SESSEE A GOVT. OF INDIA UNDERTAKING IS ENGAGED IN THE BUSINESS OF MAN UFACTURE OF SUPER ALLOYS AND SPECIAL METALS. FOR THE AY UNDER CONSIDE RATION, IT HAS FILED ITS RETURN OF INCOME ON 29/09/2011 DECLARING TOTAL INCOME OF RS. 75,41,16,213. DURING THE ASSESSMENT PROCEEDING, AO NOTICED THAT ASSESSEE HAS SET UP METAL BANK FOR PROCURING STRATE GIC RAW MATERIALS 2 ITA NO. 471 /HYD/2015 MISHRA DHATU NIGAM LTD. AND STORING IT FOR UTILIZATION IN PRODUCTION OF SUP ER ALLOYS AGAINST SPECIFIC SALE ORDERS PLACED BY VIKRAM SARABHAI SPAC E CENTRE (VSSC), DMRL, HYDERABAD AND HAL, BANGALORE. AO OBSERVED THA T ASSESSEE IS RECEIVING ADVANCES FROM CONCERNED PARTIES, BUT, IT IS NOT SHOWING THE MATERIAL AS STOCK-IN-TRADE BY STATING THAT STOC K DOES NOT BELONG TO THEM. AO NOT BEING CONVINCED WITH THE EXPLANATION O F ASSESSEE HELD THAT AS ASSESSEE IS UTILIZING THE ADVANCE AMOUNT AN D BRINGING STOCK/MATERIAL INTO BUSINESS PREMISES WITHOUT SHOWI NG IT AS STOCK-IN- TRADE, THE SAME HAS TO BE TREATED AS DEEMED PURCHAS ES. ACCORDINGLY, QUANTIFYING THE VALUE OF MATERIAL HELD ON BEHALF OF CUSTOMERS AT RS. 1,12,35,202, AO ADDED THE SAME TO INCOME OF ASSESSE E. BEING AGGRIEVED OF THE ADDITION SO MADE, ASSESSEE PREFERR ED APPEAL BEFORE LD. CIT(A). LD. CIT(A) ON CONSIDERATION OF THE FAC T THAT SIMILAR ADDITION MADE IN RELATION TO STOCK HELD IN METAL BA NK FOR AY 2009-10 WAS DELETED BY ITAT IN ASSESSEES OWN CASE, FOLLOWE D THE SAME AND DELETED THE ADDITION. BEING AGGRIEVED, DEPARTMENT I S IN APPEAL BEFORE US. 4. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI ALS ON RECORD. AT THE OUTSET, LD. COUNSELS APPEARING FOR BOTH THE PARTIES AGREED BEFORE US THAT THE ISSUE IN DISPUTE IS SQUARELY COV ERED BY THE DECISION OF ITAT, HYDERABAD IN ASSESSEES OWN CASE FOR AY 20 09-10. ON PERUSAL OF THE ORDER DATED 24/05/2013 IN ITA NO. 21 2-214/HYD/2013, WE FIND THAT WHILE CONSIDERING IDENTICAL NATURE OF DISPUTE, THE BENCH HELD AS UNDER: 10. ON PERUSING THE FACTS PLACED ON RECORD AND THE RIVAL CONTENTIONS, WE ARE UNABLE TO AGREE WITH THE ACTION OF THE ASSESS ING OFFICER AND THE CIT(A). THE MOU BETWEEN THE ASSESSEE AND THE VSSC, A GOVERNMENT ORGANIZATION, WAS EXAMINED AND THERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT ASSESSEE IS MAINTAINING A METAL BANK FOR PROCURING STRATEGIC RAW-MATERIAL AND USING THEM AS AND WHEN THERE WAS ORDER FROM VSSC FOR ITS SUPPLY. IT IS ALSO ON REC ORD THAT THE VSSC IS PROVIDING FUNDS AND ASSESSEE ONLY PROCURES THEM O N BEHALF OF THE VSSC AND KEEPS SUFFICIENT STOCK IN ITS GODOWN. JU ST BECAUSE THE STOCK WAS PROCURED BY THE ASSESSEE, IT DOES NOT ME AN THAT IT HAS OWNERSHIP ON THE STOCK, WHICH PERTAINED TO VSSC. W E ARE SURPRISED 3 ITA NO. 471 /HYD/2015 MISHRA DHATU NIGAM LTD. ABOUT THE ORDER OF THE CIT(A) ALSO. WHILE ACCEPTI NG THAT THE ASSESSEE IS MAINTAINING THE STOCK OF MATERIAL ON BEHALF OF OTHERS AND ONLY CHARGING FIXED AMOUNT FOR THIS SERVICE, AND AS SUC H, APPARENTLY, THERE IS NO NEED TO ADMIT THE SAME IN THEIR BOOKS AS STO CK IN TRADE, HE CONFIRMED THE SAME HOLDING THAT THE ASSESSEE DID N OT SPECIFY HOW THE BALANCE FIGURES ARE SHOWN IN THE BOOKS OF VSSC AN D WHAT IS THE EFFECT OF THIS CONFIRMATION. THIS REASONING GIVEN BY THE CIT(A) CANNOT BE ACCEPTED BECAUSE VSSC HAS CERTIFIED THE STOCK UNDER CONSIDERATION BELONGS TO IT AND IN NO WAY THE OWNE RSHIP OF THE STOCK PERTAINS TO THE ASSESSEE. JUST BECAUSE THE STOCK IS KEPT WITH THE ASSESSEE THE SAME CANNOT BE TREATED AS THE STOCK OF THE ASSESSEE, AS IT BELONGS TO A THIRD PARTY, VIZ. VSSC IN THIS CASE. WE AGREE WITH THE ASSESSEES CONTENTIONS ON THIS ISSUE AND DIRECT TH E ASSESSING OFFICER TO DELETE THE SAID ADDITION. 11. BEFORE PARTING, WE WOULD LIKE TO STATE THAT A SSESSEE IS A PUBLIC SECTOR UNDERTAKING AND VSSC ALSO IS A GOVERNMENT ORGANIZATION INVOLVED IN SPACE RESEARCH. BOTH THE ORGANISATION S ARE GOVERNED BY C&AG AUDIT AND THE CONTENTIONS RAISED BY THE ASS ESSING OFFICER CANNOT BE ACCEPTED IN THE LIGHT OF THE FACT THAT STATUTORY C & AG AUDIT APPROVES THE ACCOUNTS AND HAS NOT RAISED ANY OBJECTIONS EITHER WITH ACCOUNTING PRINCIPLES OR MAINTAINING STOCK OF VSSC. KEEPING THIS ASPECT IN MIND, WE ARE CONVINCED THA T THE ADDITIONS MADE BY THE ASSESSING OFFICER ON BOTH THE ISSUES, DO NOT STAND THE TEST OF SCRUTINY. HOWEVER, SINCE THE CONTENTIONS RAISED BEFORE US ON THE FIRST ISSUE REQUIRE EXAMINATION BY AO WE HAVE CONSIDERED IT FIT TO GET IT EXAMINED. 4.1 SINCE THE FACTS AND ISSUES INVOLVED IN THE PRES ENT APPEAL ARE MATERIALLY SAME, WE DO NOT FIND ANY INFIRMITY IN TH E ORDER OF LD. CIT(A) BY DELETING THE ADDITION MADE BY AO FOLLOWING THE O BSERVATIONS OF THE COORDINATE BENCH. GROUNDS RAISED ARE, THEREFORE, DI SMISSED. 5. THE ONLY OTHER ISSUE AS RAISED IN GROUND NO. 4 IS AGAINST DECISION OF LD. CIT(A) IN DELETING THE ADDITION OF AN AMOUNT OF RS. 4,92,319 MADE BY AO U/S 14A OF THE ACT. 6. BRIEFLY THE FACTS ARE, DURING THE ASSESSMENT PRO CEEDING, AO ON EXAMINATION OF BALANCE SHEET OF ASSESSEE FOUND THAT ASSESSEE DURING THE RELEVANT PY HAS INVESTED AN AMOUNT OF RS. 2,10, 11,000, INCOME FROM WHICH IS EXEMPT FROM TAXATION. HE, THEREFORE, CALLED UPON ASSESSEE TO EXPLAIN WHY EXPENDITURE INCURRED FOR EA RNING SUCH EXEMPT INCOME SHOULD NOT BE DISALLOWED U/S 14A READ WITH RULE 8D OF 4 ITA NO. 471 /HYD/2015 MISHRA DHATU NIGAM LTD. THE IT RULES. IN RESPONSE TO THE QUERY RAISED BY AO , ASSESSEE SUBMITTED THAT SINCE DURING THE PY ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME BY WAY OF DIVIDEND, NO DISALLOWANCE O F INTEREST EXPENDITURE U/S 14A CAN BE MADE. AO, HOWEVER, RELYI NG UPON A DECISION OF ITAT, DELHI BENCH IN CASE OF CHEMINVEST LTD. VS. ITO [2009] 121 ITD 0318 REJECTED ASSESSEES CLAIM AND P ROCEEDED TO DISALLOW AN AMOUNT OF RS. 4,92,319 U/S 14A READ WIT H RULE 8D(2). BEING AGGRIEVED OF SUCH DISALLOWANCE, ASSESSEE CHAL LENGED THE SAME BEFORE LD. CIT(A). 7. IN COURSE OF HEARING OF APPEAL BEFORE LD. CIT(A) , REITERATING WHAT WAS STATED BEFORE AO, ASSESSEE SUBMITTED, DURI NG THE RELEVANT PY, ASSESSEE HAVING NOT EARNED ANY EXEMPT INCOME BY WAY OF DIVIDEND, PROVISIONS OF SECTION 14A WILL NOT APPLY. IN SUPPORT OF SUCH CONTENTION, ASSESSEE RELIED UPON A NUMBER OF DECISI ONS OF DIFFERENT HIGH COURTS. LD. CIT(A) FOUND THAT AS ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME DURING THE RELEVANT PY, PRINCIPLES LAID DOWN IN THE DECISIONS CITED BY ASSESSEE CLEARLY APPLIES, WHEREI N, IT IS HELD THAT UNLESS ASSESSEE EARNS EXEMPT INCOME IN A PARTICULAR AY, NO DISALLOWANCE U/S 14A CAN BE MADE. ACCORDINGLY, HE D ELETED THE ADDITION OF RS. 4,92,319. 8. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE MATERIALS ON RECORD. THOUGH, LD. DR RELYING UPO N THE DECISION OF ITAT DELHI SPECIAL BENCH IN CASE OF CHEMINVEST LTD. VS. ITO (SUPRA), ATTEMPTED TO JUSTIFY THE DISALLOWANCE MADE U/S 14A, HOWEVER, ON CAREFUL ANALYSIS OF THE DECISIONS CITED BY ASSESSEE INCLUDING THE DECISION OF THE HONBLE P&H HIGH COURT IN CASE OF C IT VS. M/S LAKHANI MARKETING INC. IN ITA NO. 970 OF 2008 DATED 02/04/2014, WE FIND THAT THE PRINCIPLE LAID DOWN BY DIFFERENT HIG H COURTS ARE TO THE EFFECT THAT UNLESS ASSESSEE HAS EARNED EXEMPT INCOM E IN A PARTICULAR FY, PROVISIONS OF SECTION 14A WILL NOT APPLY. IN VI EW OF THE AFORESAID, WE DO NOT FIND ANY MERIT IN THE GROUND RAISED BY TH E DEPARTMENT. 5 ITA NO. 471 /HYD/2015 MISHRA DHATU NIGAM LTD. ACCORDINGLY, WE DISMISS THE SAME BY UPHOLDING THE O RDER OF LD. CIT(A) ON THIS ISSUE. 9. IN THE RESULT, DEPARTMENTS APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 15 TH JULY, 2015. SD/- SD/- (P.M. JAGTAP) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 15 TH JULY, 2015 KV COPY TO:- 1) ACIT, CIRCLE 16(2), ROOM NO. 617, 6 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2 M/S MISHRA DHATU NIGAM LTD., CORPORATE OFFICE, P.O., KANCHAN BAGH, HYDERABAD 3 CIT(A) 4, HYDERABAD 4) CIT-IV, HYDERABAD 4) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON SR.P.S. 2. DRAFT PLACED BEFORE AUTHOR SR.P.S 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER VP 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S. 6. KEPT FOR PRONOUNCEMENT ON SR.P S. 7. FILE SENT TO THE BENCH CLERK SR.P.S. 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER