M/s. Pearl Polymers Ltd., New Delhi V. Addl.CIT, New Delhi

ITA 5155/DEL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3452 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 22-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 18-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: R K KAPOOR
• Keywords: Revised return
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F, NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER ITA NO.5155/DEL/2014 ASSESSMENT YEAR : 2010-11 PEARL POLYMERS LTD., A-97/2, OKHLA INDUSTRIAL AREA, PHASE-II, NEW DELHI. VS. ADDL.CIT, RANGE- 14, NEW DELHI. PAN : AAACP0182F (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R. K. KAPOOR, CA DEPARTMENT BY : SHRI ATIQ AHMAD, SR.DR DATE OF HEARING : 05-02-2018 DATE OF PRONOUNCEMENT : 09-02-2018 O R D E R PER R. K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 26.06.2014 OF CIT(A)- XVII, NEW DELHI RELATING TO A SSESSMENT YEAR 2010-11. 2. IN GROUNDS NO.1 TO 1.3, THE ASSESSEE HAS CHALLEN GED THE ORDER OF THE LD. CIT(A) IN SUSTAINING THE DISALLOWANCE OF RS.28,35,9 93/- MADE BY THE ASSESSING OFFICER U/S 14A R.W. RULE 8D. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE FILED ITS RETURN OF INCOME ON 12.10.2010 DECLARING NIL INCOME AND BOOK PROFIT OF RS.3,56,19,834/-. THE ASSESSEE REVISED ITS INCOME ON 07.09.2011 DECLARING TOTAL INCOME OF RS.44,51,960/- AND BOOK PROFIT OF RS.4,07,37,963/-. ONCE AGAIN THE ASSESSEE REVISED ITS RETURN SHOWING TOTAL INCOME OF RS.33,38 ,890/- AND BOOKS PROFIT OF 2 ITA NO.5155/DEL/2014 RS.4,07,37,963/-. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF PET JARS AND BOTTLES. DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED FROM TH E BALANCE SHEET OF THE ASSESSEE THAT IT HAD AN INVESTMENT OF RS.8,67,88,00 0/- IN SHARES AND MUTUAL FUNDS DURING THE FINANCIAL YEAR 2009-10 WHICH WAS R S.8,66,58,000/- DURING THE FINANCIAL YEAR 2008-09. THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF RS.2,000/- DURING THE YEAR. HE, THEREFORE, ASKED T HE ASSESSEE TO EXPLAIN AS TO WHY THE DISALLOWANCE SHOULD NOT BE MADE BY INVOKING PROVISIONS OF SECTION 14A R.W. RULE 8D. REJECTING THE VARIOUS EXPLANATIO NS GIVEN BY THE ASSESSEE AND FOLLOWING THE PROVISIONS OF SECTION 14A R.W. RULE 8 D, THE ASSESSING OFFICER COMPUTED THE DISALLOWANCE AT RS.28,35,993/- AND ADD ED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 4. IN APPEAL, THE LD. CIT(A) SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER. 5. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. LD. COUNSEL FOR THE ASSESSEE REFERRING TO THE DE CISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENT PVT. LTD . CS. CIT REPORTED IN 372 ITR 694 SUBMITTED THAT THE DISALLOWANCE, IF ANY, HAS TO BE RESTRICTED TO THE DIVIDEND INCOME ACTUALLY RECEIVED. REFERRING TO THE DECISIO N OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEM INVESTMENTS PVT. LTD. REP ORTED IN 378 ITR 33, HE 3 ITA NO.5155/DEL/2014 SUBMITTED THAT THE ORDER OF THE TRIBUNAL WHICH HAS BEEN RELIED ON BY THE LD. CIT(A) HAS BEEN REVERSED BY THE JURISDICTIONAL HIGH COURT. HE SUBMITTED THAT SINCE THE DIVIDEND INCOME ACTUALLY RECEIVED BY THE ASSESSEE IS ONLY RS.2,000/-, THEREFORE, THE DISALLOWANCE U/S 14A R.W. RULE 8D CA NNOT EXCEED THE DIVIDEND INCOME ACTUALLY RECEIVED. 7. LD. DR ON THE OTHER HAND HEAVILY RELIED ON THE O RDERS OF THE CIT(A) AND THE ASSESSING OFFICER. 8. AFTER HEARING BOTH THE SIDES, WE FIND THE ACTUAL DIVIDEND INCOME THAT HAS BEEN RECEIVED BY THE ASSESSEE DURING THE IMPUGNED A SSESSMENT YEAR IS ADMITTEDLY RS.2,000/- AS HELD BY THE ASSESSING OFFI CER IN THE BODY OF THE ASSESSMENT ORDER. THEREFORE, IN VIEW OF THE VARIOU S DECISIONS OF THE JURISDICTIONAL HIGH COURT AS WELL AS THE CO-ORDINAT E BENCHES OF THE TRIBUNAL, THE DISALLOWANCE U/S 14A R.W. RULE 8D CANNOT EXCEED THE DIVIDEND INCOME ACTUALLY RECEIVED. WE, THEREFORE, RESTRICT SUCH DI SALLOWANCE U/S 14A R.W. RULE 8D TO RS.2,000/-. THE ORDER OF THE CIT(A) IS ACCOR DINGLY MODIFIED AND THE GROUNDS RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. 9. IN THE GROUNDS NO.2 TO 2.2, THE ASSESSEE HAS CHA LLENGED THE ORDER OF THE LD. CIT(A) IN CONFIRMING THE ACTION OF THE ASSESSING OF FICER TOWARDS MAKING ADJUSTMENT TO THE BOOK PROFIT DECLARED U/S 115JB OF THE I.T. ACT IN RESPECT OF THE FOLLOWING ITEMS :- (A) PROVISION FOR GRATUITY - RS.31,97,250/- (B) DISALLOWANCE OF PROVISION FOR LEAVE ENCASHMENT - RS.10,06,187/- (C) DISALLOWANCE U/S 14A - RS.28,35,993/- 4 ITA NO.5155/DEL/2014 (D) DISALLOWANCE OF PROVISION FOR ADVANCE - RS.3 ,15,000/- 10. AFTER HEARING BOTH THE SIDES, WE FIND THE ASSES SING OFFICER DURING THE ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE C OMPANY HAD DEBITED A SUM OF RS.10,06,187/-, RS.31,97,250/- AND RS.3,15,000/- TO THE PROFIT & LOSS ACCOUNT AS ON 31.03.2010 TOWARDS PROVISION FOR LEAV E ENCASHMENT, PROVISION FOR GRATUITY AND PROVISION FOR ADVANCE RESPECTIVELY . THE FORMER TWO PROVISIONS HAD BEEN ADDED BACK BY THE ASSESSEE COMP ANY IN ITS NORMAL INCOME IN THE REVISED RETURN FILED ON 07.09.2011 AND THE L ATER PROVISION HAS BEEN OFFERED BY THE ASSESSEE FOR TAXATION. HOWEVER, TO ARRIVE A T THE FIGURE OF BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB OF THE I.T. ACT, T HE ASSESSEE HAS NOT TAKEN INTO ACCOUNT THE AFOREMENTIONED PROVISIONS. HE, THEREFO RE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE PROVISIONS FOR LEAVE ENCASHME NT, PROVISION FOR GRATUITY SHOULD NOT BE ADDED BACK IN ITS COMPUTATION U/S 115 JB OF THE I.T. ACT. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASS ESSEE AND DISTINGUISHING THE VARIOUS DECISIONS CITED BEFORE HIM, THE ASSESSING O FFICER RE-COMPUTED THE BOOK PROFIT U/S 115JB AT RS.4,80,92,393/- BY MAKING THE FOLLOWING ADDITIONS :- (A) PROVISION FOR GRATUITY - RS.31,97,250/- (B) DISALLOWANCE OF PROVISION FOR LEAVE ENCASHMENT - RS.10,06,187/- (C) DISALLOWANCE U/S 14A - RS.28,35,993/- (D) DISALLOWANCE OF PROVISION FOR ADVANCE - RS.3 ,15,000/- 11. IN APPEAL, LD. CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER. 5 ITA NO.5155/DEL/2014 12. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A), TH E ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 13. LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBM ITTED THAT IDENTICAL ISSUE HAD COME BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN RESPECT OF ENHANCEMENT OF BOOK PROFIT BY WAY OF ADDING PROVISION FOR LEAVE ENCASHMENT AND PROVISION FOR GRATUITY IN THE IMMEDIATELY PRECEDING ASSESSMEN T YEAR I.E. ASSESSMENT YEAR 2009-10. THE TRIBUNAL VIDE ITA NO. 6165/DEL/2013 O RDER DATED 18.11.2016 HAS RESTORED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH CERTAIN DIRECTION. 14. SO FAR AS ADVANCE WRITTEN OFF OF RS.3,15,000/- IS CONCERNED, HE SUBMITTED THAT THIS ISSUE ALSO MAY BE RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO ADJUDICATE THE ISSUE IN LIGHT OF THE D ECISION OF THE TRIBUNAL. 15. SO FAR AS ENHANCEMENT OF BOOK PROFITS BY THE DI SALLOWANCE U/S 14A ARE CONCERNED, HE SUBMITTED THAT THE SPECIAL BENCH OF T HE TRIBUNAL IN THE CASE OF ACIT VS. VIREET INVESTMENT (P) LTD. REPORTED IN 201 7-TIOL-923-ITAT-DELHI HAS SPECIALLY HELD THAT THE DISALLOWANCE U/S 14A CA NNOT BE CONSIDERED FOR THE PURPOSES OF DETERMINING BOOK PROFITS. HE ACCORDING LY SUBMITTED THAT THE ASSESSING OFFICER BE DIRECTED TO RE-COMPUTE THE ENH ANCEMENT, IF ANY, TO BOOK PROFITS DECLARED BY THE ASSESSEE IN THE LIGHT OF TH E DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE AND EXCLUDE FROM BOOK PROFIT TH E EXTENT OF DISALLOWANCE U/S 14A IN VIEW OF THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL (SUPRA). 16. LD. DR ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE LD. CIT(A). 6 ITA NO.5155/DEL/2014 17. AFTER HEARING BOTH THE SIDES, WE FIND THE TRIBU NAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR HAS RE STORED THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATING THE ISSUE OF ENHANCEMENT OF BOOK PROFIT IN RESPECT OF PROVISION FOR GRATUITY AND PRO VISION FOR LEAVE ENCASHMENT WITH CERTAIN DIRECTION AS PER PARA 6.4 TO 6.7 OF TH E ORDER IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F BHARAT EARTH MOVERS LTD. REPORTED IN 245 ITR 428. 18. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-O RDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE CITED (SUPRA), WE R ESTORE THE FIRST TWO ISSUES TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION OF THE ISSUE AFRESH IN THE LIGHT OF THE DECISION OF THE TRIBUNAL. SO FAR AS DISALLO WANCE OF PROVISION FOR ADVANCE WRITTEN OFF IS CONCERNED, IT IS THE SUBMISSION OF T HE LD. COUNSEL FOR THE ASSESSEE THAT THE SAME ISSUE ALSO NEEDS TO BE RESTORED TO TH E FILE OF THE ASSESSING OFFICER FOR ADJUDICATION OF THE ISSUE AFRESH IN THE LIGHT O F THE DECISION OF THE TRIBUNAL. WE, THEREFORE, RESTORE THIS ISSUE ALSO TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. SO FAR AS DISALLOWANCE U/S 14A IS CO NCERNED, IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE IS THAT IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF VIREET INVESTM ENT (P) LTD. (SUPRA) DISALLOWANCE U/S 14A CANNOT BE CONSIDERED FOR THE P URPOSE OF DETERMINING THE BOOK PROFITS. SINCE THE ISSUE OF DISALLOWANCE U/S 14A HAS ALREADY BEEN RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR RESTRICTIN G THE SAME TO RS.2,000/- ONLY 7 ITA NO.5155/DEL/2014 AND THE DECISION OF THE SPECIAL BENCH OF THE TRIBUN AL (SUPRA) WAS NOT BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER OR THE LD. CIT( A), THEREFORE, WE ALSO RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR ADJUDICATION OF THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW AFTER GIVING THE OPPORTU NITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GRO UNDS NO.2 TO 2.2 BY THE ASSESSEE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PU RPOSES. 19. GROUND NO.3 BEING GENERAL IN NATURE IS DISMISSE D. 20. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 09 TH FEBRUARY, 2018. SD/- SD/- (BEENA A. PILLAI) (R. K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 09-02-2018. SUJEET COPY OF ORDER TO: - 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT 4) THE CIT(A) 5) THE DR, I.T.A.T., NEW DELHI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, NEW DELHI