DCIT, New Delhi V. M/s. Dee Development Engineers Ltd., Faridabad

ITA 4959/DEL/2016

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 7119 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 19-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAGDISH SINGH
• Keywords: Business expenditure; Earning of tax free income; Deemed to accrue or arise in india; Rule 8D
• Section: 142(1); 14A; 37(1); 192; 48; 37

Judgement Text

1 ITA NO. 4959/DEL/2016 IN THE INCOME TAX APPELLAT E TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBE R AND MS SUCHITRA KAMBLE, JUDIC IAL MEMBER ITA NO. 4959/DEL/2016 ( A.Y 2011-12) (THROUGH VIDEO CONFEREN CING) DCIT CIRCLE-7(1), ROOM NO. 403, C. R. BUILDING, I. P. ESTATE NEW DELHI (APPELLANT) VS DEE DEVELOPMENT ENGINEERS LTD. 1255, SECTOR-14, FARIDABAD PAN: AACCD0207H (RESPONDENT) APPELLANT BY SH. JAGDISH SINGH, SR. DR RESPONDENT BY SH. VED JAIN, ADV ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER DATED 10/06/2016 PASSED BY CIT(A)- 3, NEW DELHI FOR ASSESSMENT YEAR 2011-12. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. 'LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE FACTS OF THE CASE IN DELETING THE ADDITION OF RS. 34,30,151/- MADE BY AO ON ACCOUNT O F LATE DEPOSIT OF ESIC & PF. ' 2. 'LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE FACTS OF THE CASE IN DELETING THE ADDITION OF RS. 11,75,214/- MADE BY AO ON ACCOUNT O F SALES PROMOTION & FESTIVAL EXPENSES.' 3. 'LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE FACTS OF THE CASE IN DELETING THE ADDITION OF RS. 87,82,889/- MADE BY AO ON ACCOUNT O F EXPENDITURE INCURRED ON CORPORATE SOCIAL RESPONSIBILITY.' 4. 'LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE FACTS OF THE CASE IN DELETING THE DATE OF HEARING 25.03.2021 DATE OF PRONOUNCEMENT 08.04.2021 2 ITA NO. 4959/DEL/2016 ADDITION OF RS. 16,83,921/- MADE BY AO U/S 14A OF T HE INCOME TAX ACT, 1961 READ WITH RULE 8D OF THE INCOME TAX RULES 1962.' 5. 'LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE FACTS OF THE CASE IN ADMITTING ADDITIONAL GROUND REGARDING ALLOWABILITY OF PROVISI ONS OF CARBON CREDITS.' 6. 'LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE FACTS OF THE CASE IN ALLOWING THE APPELLANT RELIEF OF RS. 2,68,40,816/- ON ACCOUN T OF PROVISIONS OF CARBON CREDITS' 3. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINES S OF MANUFACTURING AND FABRICATION OF PIPING SYSTEM AND PIPE FITTING, GENE RATION OF POWER THROUGH BIO MASS TECHNOLOGY. THE ASSESSEE COMPANY FILED RETURN OF INCOME DECLARING A LOSS OF RS. 6,66,42,802/- AND BOOK PROFIT DECLARED AT RS. 3,82,77,391/- ON 24.09.2011. THE COMPANY REVISED ITS RETURN OF INCOM E ON 25.02.2013. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES U/S 143( 2) AND 142(1) WERE ISSUED. THE ASSESSEE THROUGH AUTHORIZED REPRESENTATIVE FILE D THE DETAILS AND APPEARED FROM TIME TO TIME DURING THE ASSESSMENT PROCEEDINGS . THE ASSESSING OFFICER MADE VARIOUS DISALLOWANCES AND ADDITIONS AND ASSESS ED THE TOTAL LOSS AT RS. 5,14,26,560/-. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE APPEAL OF TH E ASSESSEE. 5. AS REGARDS TO GROUND NO. 1 RELATING TO ADDITION OF RS. 34,30,151/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF LATE DEPOSIT OF ESIC & PF, THE LD. DR SUBMITTED THAT THE CIT(A) ERRED IN DELETING THE SAI D ADDITION WITHOUT GIVING PROPER FINDINGS FURTHER, THE LD. DR RELIED UPON THE ORDER OF THE ASSESSING OFFICER. AS REGARDS TO GROUND NO. 2 RELATING TO ADD ITION OF RS. 11,75,214/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SALES P ROMOTION & FESTIVAL EXPENSES, THE LD. DR RELIED UPON THE ASSESSMENT ORD ER. AS REGARDS TO GROUND NO. 3 RELATING TO ADDITION OF RS. 87,82,889/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF EXPENDITURE INCURRED ON CORPORATE SOCIAL RESPONSIBILITY, THE LD. DR SUBMITTED THAT THE ASSESSING OFFICER HAS GIVEN A DE TAILED REASONING AS TO WHY 3 ITA NO. 4959/DEL/2016 THE SAID EXPENDITURE CANNOT BE ALLOWED TO THE ASSE SSEE. AS REGARDS TO GROUND NO. 4 RELATING TO ADDITION OF RS. 16,83,921/- MADE BY THE ASSESSING OFFICER U/S 14A OF THE INCOME TAX ACT, 1961 READ WITH RULE 8D O F THE INCOME TAX RULES, 1962, THE LD. DR SUBMITTED THAT THE ASSESSING OFFIC ER HAS RIGHTLY MADE THE SAID DISALLOWANCE. AS REGARDS GROUND NO. 5 AND 6, THE LD. DR SUBMITTED THAT THE CIT(A) ERRED IN ADMITTING THE ADDITIONAL GROUND REGARDING THE ALLOWABILITY OF PROVISIONS OF CARBON CREDITS. THE LD. DR FURTHER SU BMITTED THAT ALLOWING THE RELIEF OF RS. 2,68,40,816 ON ACCOUNT OF PROVISIONS OF CARBON CREDITS IS UNTENABLE. THE LD. DR RELIED UPON THE ASSESSMENT OR DER. 6. THE LD. AR RELIED UPON THE ASSESSMENT ORDER AND THE ORDER OF THE CIT(A). THE LD . AR SUBMITTED THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF FABRICATION OF PIPE SYSTEM AND PIP E FITTING, GENERATION OF POWER THROUGH BIO-MASS TECHNOLOGY. AS REGARDS GROU ND NO. 1 OF THE REVENUES APPEAL, THE LD. AR SUBMITTED THAT THE ASS ESSEE COMPANY HAS COLLECTED AMOUNT TOWARDS EMPLOYEES CONTRIBUTION TOW ARDS ESI & PF AND DEPOSITED TO THE GOVERNMENT ON VARIOUS DATES AS PER CHALLANS ISSUED. UNDISPUTEDLY, THE ASSESSEE HAS NOT DISPUTED THE FAC T THAT THE EMPLOYEES CONTRIBUTION TOWARDS PROVIDENT FUND AND ESI WAS FIL ED AFTER DUE DATE BUT BEFORE FILING OF THE INCOME TAX RETURN. IT IS SETT LED PRINCIPLE OF LAW THAT AMOUNT DEPOSITED BY THE ASSESSEE ON ACCOUNT OF CONT RIBUTION TOWARDS PF & ESI WOULD QUALIFY FOR DEDUCTION EVEN THOUGH PAID AFTER THE DUE DATES PRESCRIBED UNDER THE PROVIDENT FUND AND ESI ACT BUT BEFORE FIL ING OF THE INCOME TAX RETURN. THE LD AR RELIED UPON THE DECISION OF CIT VS. VINAY CEMENT LTD. (2009) 313 ITR (ST.) 1 (SC). THE LD. AR ALSO RELIE D UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF CIT VS. AIMIL L TD. (2010) 321 ITR 508 AND THE DECISION OF THE HONBLE DELHI HIGH COURT IN CAS E OF PR. CIT VS. PRO INTERACTIVE SERVICE (INDIA) PVT. LTD. ITA NO. 983/2 018 PRONOUNCED ON 10.09.2018. AS REGARDS GROUND NO. 2 OF THE REVENUE S APPEAL, THE LD. AR SUBMITTED THAT DURING THE PRESENT ASSESSMENT YEAR, THE ASSESSEE CLAIMED EXPENSES UNDER THE HEAD SALES PROMOTION AT RS.20,20 ,436/- AND DIWALI 4 ITA NO. 4959/DEL/2016 EXPENSES AT RS.8,76,320/-. THE LD. AR SUBMITTED TH AT THE ASSESSING OFFICER DISALLOWED THESE EXPENSES THESE ARE PERSONAL IN NAT URE. THE LD. AR SUBMITTED THAT THE ASSESSEE IS MAINTAINING REGULAR BOOKS OF A CCOUNTS AND THE SAME ARE BEING AUDITED. COMPLETE DETAILS OF EXPENSES WERE P RODUCED BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS NOT A T ALL POINTED OUT THAT EXPENDITURE WAS INCURRED FOR PERSONAL PURPOSE. THE LD. AR RELIED UPON THE DELHI HIGH COURT DECISION IN CASE OF DCIT VS. HARYA NA OXYGEN LTD. (1999) 76 ITD (DEL) 32 AND FRIENDS CLEARING AGENCY PVT. LTD. VS. CIT(2011) 332 ITR 269 (DEL). THE LD. AR ALSO RELIED UPON THE DECISION OF THE DELHI HIGH COURT IN CASE OF CIT VS. MONTO MOTORS LTD. AND ITA NO. 978/2011 D ATED 12/12/2011 AND CIT VS. JUBILANT FOOD WORKS PVT. LTD. , ITA NO. 310 /2014 DATED 1/8/2014. AS REGARDS GROUND NO. 3 OF THE REVENUES APPEAL, THE L D. AR SUBMITTED THAT THE EXPENDITURE OF RS. 87,82,889/- WAS INCURRED FOR COM MUNITY DEVELOPMENT AND CORPORATE SOCIAL RESPONSIBILITY (CSR). ON SPECIFIC QUERY RAISED BY THE ASSESSING OFFICER, THE ASSESSEE SUBMITTED A NOTE ON CSR EXPENDITURE THAT IT HAS INCURRED SCHOLARSHIP OF RS. 3,62,236/- ON ACCOU NT OF SCHOLARSHIP AND TUITION FEES FOR GIRL CHILD OF JUNIOR EMPLOYEES SIN CE FINANCIAL YEAR 2009-10 AND PROVIDED SCHOLARSHIP TO 48 GIRL CHILD IN FINANCIAL YEAR 2011-12. THE LD. AR FURTHER SUBMITTED THAT THE AMENDMENT IN SECTION 37( 1) OF THE ACT W.E.F. 1/4/2015 WHICH WAS ACCOMPANIED BY THE STATUTORY REQ UIREMENT WITH REGARD TO DISCHARGING THE CORPORATE SOCIAL RESPONSIBILITY IS DISABLING PROVISION WHICH PUTS AN ADDITIONAL TAX BURDEN ON THE ASSESSEE IN THE SEN SE THAT THE EXPENSES THAT THE ASSESSEE IS REQUIRED TO INCUR UNDER STATUTORY O BLIGATION IN THE COURSE OF HIS BUSINESS ARE NOT ALLOWED DEDUCTION IN THE COMPUTATI ON OF INCOME W.E.F. 1/4/2015. CSR EXPENSES INCURRED VOLUNTARILY AS ASS UMPTION OF RESPONSIBILITY IS NOT AFFECTED BY AMENDMENT IN SECTION 37(1) OF TH E ACT. THUS, THE LD. AR SUBMITTED THAT THE EXPENDITURE INCURRED IS INCIDENT AL INSTANT TO THE ASSESSEES BUSINESS AND OUGHT TO BE ALLOWED AS DEDUCTION U/S 3 7 OF THE ACT. AS REGARDS GROUND NO. 4, THE LD. AR SUBMITTED THAT DURING THE YEAR UNDER CONSTRUCTION THE ASSESSEE COMPANY HAS NOT EARNED ANY EXEMPT INCO ME. THE LD AR RELIED UPON THE DECISION IN CASE OF CHEMINVEST LTD. VS. CI T (2015) 378 ITR 33 5 ITA NO. 4959/DEL/2016 WHEREIN IT IS HELD THAT IN ABSENCE OF ANY EXEMPT IN COME, DISALLOWANCE U/S 14A WAS NOT PERMISSIBLE. AS REGARDS GROUND NO. 5 & 6 R ELATING TO ADDITIONAL GROUND BEFORE CIT(A) IN RESPECT OF CARBON CREDIT AM OUNTING TO RS. 2,68,40,816/- BEING WRONGLY RECORDED AS INCOME, THE LD. AR SUBMITTED THAT THE ASSESSEE COULD NOT GET THE CREDIT CERTIFIED FRO M THE CONCERNED AUTHORITY DURING THE ASSESSMENT PROCEEDINGS AND ACCORDINGLY T HE MANAGEMENT CREATED A PROVISIONS OF RS. 2,68,40,816/- AT THE YEAR-END WHI CH INCREASED THE NET PROFIT AND CLOSING STOCK BY THE SAID AMOUNT. CERTIFICATIO N REPORT DATED 31/12/2012 AND CALCULATION OF CARBON CREDITS AND PROVISIONS WE RE PLACED BEFORE THE CIT(A) AND CIT (A) AFTER TAKING INTO CONSIDERATIONS ALL TH E ASPECT HAS RIGHTLY DELETED THIS ADDITION. IN-FACT, THE ASSESSING OFFICER, IN H IS REMAND REPORT OBSERVED THAT NO TAXABLE AMOUNT HAS BEEN TAKEN PLACE AND PROVISIO NS HAS BEEN WRITTEN OFF IN SUBSEQUENT YEARS I.E. ASSESSMENT YEAR 2012-13. THE LD. AR FURTHER RELIED UPON THE DECISION AS FOLLOWS:- 1. PR. CIT VS. DODSON LINDBLOM HYDRO POWER PVT. ITA NO . 1820 OF 2016 DATED 27.02.2019 BOMBAY HIGH COURT. 2. CIT VS. SHREE CEMENT LTD. D. B. ITA NO. 85/2014 DAT ED 22.08.2017 RAJASTHAN HIGH COURT 3. PRINCIPAL CIT VS. KALPATARU POWER TRANSMISSION LTD. TAX APEPAL NO. 141/2017 DATED 2.3.2017 (GUJRAT HIGH COURT) 4. PR. CIT VS. L. H. SUGAR FACTORY PVT. LTD. [2017] 39 2 ITR 568 DATED 1/08/2016 ALLAHABAD HIGH COURT 5. IT VS. SUBHASH KABINI POWER CORPORATION LTD. [2016] 385 ITR 592 DATED 29.03.2016 KARNATAKA HIGH COURT. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL T HE RELEVANT MATERIAL AVAILABLE ON RECORD. AS REGARDS GROUND NO. 1, TH E ASSESSEE COMPANY HAS NOT DEPOSITED THE EMPLOYEES CONTRIBUTION WITHIN THE DU E DATE WHICH IS PRESCRIBED UNDER THE SAID STATUTE I.E. PROVIDENT FUND AND ESIC . THIS ISSUE IS DEALT BY THE HONBLE DELHI HIGH COURT IN CASE OF CIT VS. M/S BHA RAT HOTELS LTD. 410 ITR 6 ITA NO. 4959/DEL/2016 417 WHEREIN THE ISSUE IS DECIDED IN FAVOUR OF THE R EVENUE, WITHOUT CONSIDERING THE DECISION OF THE HONBLE DELHI HIGH COURT IN CAS E OF CIT VS. AIMIL LTD. (2010) 321 ITR 508 (DEL.). BUT THE LD. AR RELIED UP ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF PR. CIT VS. PRO INTERACTIVE SERVICE (INDIA) PVT. LTD. ITA NO. 983/2018 PRONOUNCED ON 10.09.2018 WHEREIN THE HONBLE HIGH COURT DECIDED THE ISSUE IN FAVOUR OF THE ASSES SEE RELYING UPON THE JUDGMENT OF AIMIL LTD. (SUPRA). THE HONBLE DELHI H IGH COURT HELD THAT THE LEGISLATIVE INTENT WAS/IS TO ENSURE THAT THE AMOUNT PAID IS ALLOWED AS EXPENDITURE ONLY WHEN PAYMENT IS ACTUALLY MADE. WE DO NOT THINK THAT THE LEGISLATIVE INTENT AND OBJECTIVE IS TO TREAT BELATE D PAYMENT OF EMPLOYEES PROVIDENT FUND (EPD) AND EMPLOYEES STATE INSURANCE SCHEME (ESI) AS DEEMED INCOME OF THE EMPLOYER UNDER SECTION 2(24)(X) OF TH E ACT. IT IS SETTLED LAW THAT WHEN TWO JUDGMENTS ARE AVAILABLE GIVING DIFFERENT V IEWS THEN THE JUDGMENT WHICH IS IN FAVOUR OF THE ASSESSEE SHALL APPLY AS H ELD IN CASE OF VEGETABLE PRODUCTS LTD. 82 ITR 192 BY THE HONBLE SUPREME COU RT. HENCE, IN LIGHT OF THE LATEST DECISION IN CASE OF PRO INTERACTIVE SERVICE (INDIA) PVT. LTD., THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE. HENCE, GROUND NO . 1 IS DISMISSED. 8. AS REGARDS GROUND NO. 2, THE ASSESSING OFFICER D ID NOT JUSTIFY THE REASONING THAT THE SALES PROMOTION EXPENSES AND DIW ALI EXPENSES WERE EXPENSES RELATED TO THE PERSONAL IN NATURE AND NOT THAT OF BUSINESS EXPENSES. THE ASSESSEE HAS GIVEN DETAILS AS TO HOW THESE EXPE NSES ARE RELATED TO THE BUSINESS EXPENSES. THE CIT(A) HAS GIVEN A DETAILED FINDING TO THAT EFFECT. THERE IS NO NEED TO INTERFERE WITH THE FINDINGS OF THE CIT(A). HENCE, GROUND NO. 2 IS DISMISSED. 9. AS REGARDS GROUND NO. 3, IN CASE OF NATIONAL SEE DS CORPORATION LTD. VS. ADDITIONAL CIT (ITA NO. 6794/DEL/2014) DATED 4/4/20 18 ITAT DELHI, IT HAS BEEN CATEGORICALLY HELD THAT THE EXPLANATION (2) OF SECTION 37(1) WAS INSERTED W.E.F. 1 ST APRIL 2015 AND CANNOT BE CONSTRUED AS TO ASSESSEE S DISADVANTAGE IN 7 ITA NO. 4959/DEL/2016 RESPECT OF THE PERIOD PRIOR TO THIS AMENDMENT AND T HUS, SUPPORTS THE CASE OF THE ASSESSEE. HENCE, GROUND NO. 3 IS DISMISSED. 10. AS REGARDS GROUND NO. 4, IT IS CLEAR FINDING IN ASSESSMENT ORDER AS WELL AS BY THE CIT(A) THAT THERE IS NO EXEMPT INCOME EAR NED BY THE ASSESSEE DURING THE YEAR. HENCE, THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF CHEMINVEST LTD. (SUPRA) WILL BE APPLICABLE. HENCE, GROUND NO. 4 IS DISMISSED. 11. AS REGARDS GROUND NO. 5 & 6 RELATING TO PROVISI ON FOR CARBON CREDITS, IT IS PERTINENT TO NOTE THAT THE ASSESSEE ADMITTED THAT T HE PROVISION OF CARBON CREDITS WAS INADVERTENTLY INCLUDED IN THE TAXABLE I NCOME OF THE ASSESSEE, THOUGH THE SAME IS NOT TAXABLE UNDER THE ACT. BESID ES THIS NO SALE OF CARBON CREDITS TOOK PLACE DURING THE YEAR UNDER CONSIDERAT ION. THE ASSESSEE SUBMITTED THE BASIS FOR CREATION OF SAID PROVISION BY SUBMITT ING THE CALCULATION OF PROVISION, BASIS FOR THE SAME AND A CERTIFICATION R EPORT AND THESE DOCUMENTS WERE VERIFIED BY THE ASSESSING OFFICER. IN REMAND R EPORT DATED 11.09.2015, THE ASSESSING OFFICER OBSERVED THAT THE PROVISION OF CA RBON CREDITS OF RS. 2,68,40,816/- HAS BEEN WRITTEN OFF IN THE SUBSEQUEN T YEAR I.E. A.Y. 2012-13 WHICH WAS DISALLOWED BY THE ASSESSING OFFICER IN TH E ASSESSMENT ORDER FOR THE SAID YEAR. THE ASSESSING OFFICER HAS ALSO FURTHER O BSERVED THAT NO TAXABLE EVENT HAS OCCURRED OR ACCRUED TO THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAS ALSO GIVEN A PROPER REASONING AS TO WH Y THE EVIDENCES WERE NOT BEFORE THE ASSESSING OFFICER AT THE TIME OF ASSESSM ENT PROCEEDINGS. THE CIT(A) HAS RIGHTLY ACCEPTED THOSE EVIDENCES AND HAS TAKEN COGNIZANCE OF THE REMAND REPORT FILED BY THE ASSESSING OFFICER WHEREIN IT IS OBSERVED THAT NO TAXABLE AMOUNT HAS INCURRED IN THE PRESENT ASSESSMENT YEAR AND PROVISIONS HAS BEEN WRITTEN OFF IN SUBSEQUENT YEARS. THEREFORE, THERE IS NO NEED TO INTERFERE WITH THE FINDING OF THE CIT(A). HENCE, GROUND NO. 5 & 6 ARE DISMISSED. 8 ITA NO. 4959/DEL/2016 12. IN RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 08 TH DAY OF APRIL, 2021. SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL M EMBER DATED: 08/04/2021 R. NAHEED COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI