M/s Oil Industries Development Board, New Delhi V. ACIT, New Delhi

ITA 5592/DEL/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0952 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Appeal Filed On: 28-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHEFALI SWROOP
• Assessee Lawyers: SHUSHEEL KUMAR GUPTA
• Keywords: Opportunity of being heard; Rule of consistency; Revenue expenditure; Capital expenditure
• Section: 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER & SHRI O.P.KANT, ACCOUNTANT MEMBER ITA NO.-5592/DEL/2016 ( ASSESSMENT YEAR: 2012-13) OIL INDUSTRIES DEVELOPMENT BOARD 301, WORLD TRADE CENTRE BABAR ROAD NEW DELHI PAN : AAAJO0032A VS ACIT CIRCLE-52(1) C.R.BUILDING NEW DELHI ASSESSEE BY SH. SHUSHEEL KUMAR GUPTA, CA REVENUE BY M/S. SHEFALI SWROOP, CIT (DR) ORDER PER SUDHANSHU SRIVASTAVA, J.M. THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST OR DER DATED 02.05.2016 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-18, NEW DELHI FOR ASSESSMENT YEAR 2012-13 . 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN AUTONOMOUS INSTITUTION UNDER THE MINISTRY OF PETROL EUM, OIL & NATURAL GAS AND HAS BEEN CONSTITUTED BY AN ACT OF T HE PARLIAMENT NAMELY OIL INDUSTRIES (DEVELOPMENT) ACT, 1974 AND I S ENGAGED IN DATE OF HEARING 30.08.2018 DATE OF PRONOUNCEMENT 27.11.2018 2 ITA N O. 5592/DEL/2016 PROVIDING FINANCIAL ASSISTANCE FOR THE DEVELOPMENT OF OIL INDUSTRY. THE CAPITAL FUND OF THE ASSESSEE HAS BEEN CONTRIBUT ED BY THE GOVERNMENT OF INDIA OUT OF THE CESS LEVIED ON CRUDE OIL FROM TIME TO TIME. THE RETURN OF INCOME WAS FILED FOR THE CAP TIONED YEAR DECLARING AN INCOME OF RS. 468,01,50,851/-. THE CAS E WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED AT AN INCOME OF RS. 5,25,72,54,851/- AFTER MAKING THE FOLLOWING DIS ALLOWANCES (1) DISALLOWANCE U/S 14A OF THE ACT RS. 4,65,04, 000/- (2) DISALLOWANCE OF CAPITAL EXPENDITURE U/S 36(1)(X II) RS. 23,46,00,000/- (3) DISALLOWANCE OF CONTINGENT LIABILITY U/S 37(1) RS. 29,60,00,000/- 2.1 THE DISALLOWANCE U/S 36(1)(XII) AMOUNTING TO RS . 23,46,00,000/- WAS MADE ON ACCOUNT OF EXPENDITURE I NCURRED ON VARIOUS SCHEMES AND PROJECTS WHICH WERE SPONSORED B Y GOVT. OF INDIA. THE AO WAS OF THE OPINION THAT THIS EXPENDIT URE ON VARIOUS SCHEMES AND PROJECTS WERE OUTSIDE THE AIMS AND OBJE CTIVES OF THE ASSESSEE BOARD AND WERE ALSO CAPITAL IN NATURE AND, THEREFORE, THE SAME WAS NOT ALLOWABLE AS A DEDUCTION. 2.2 AS REGARDS DISALLOWANCE OF RS. 29,60,00,000/- O N ACCOUNT OF CONTINGENT LIABILITY, THE CLAIM OF EXPENDITURE WAS MADE BY THE ASSESSEE ON THE BASIS OF PROVISION MADE. THE AO NOT ED THAT THE 3 ITA N O. 5592/DEL/2016 SAME WAS NOT A CRYSTALLIZED LIABILITY AND, THEREFOR E, THE SAME WAS NOT ALLOWABLE AS A DEDUCTION. 2.3 AGGRIEVED, THE ASSESSEE APPROACHED THE LD. CIT (APPEALS) WHO UPHELD BOTH THE DISALLOWANCES. NOW, THE ASSESSE E HAS APPROACHED THE ITAT AND HAS CHALLENGED THE ORDER OF THE LD. CIT (APPEALS) IN UPHOLDING THE TWO DISALLOWANCES. 3.0 THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THA T THE ASSESSEE HAS BEEN NOTIFIED AS AN ELIGIBLE INSTITUTI ON FOR THE PURPOSE OF CLAIMING DEDUCTION U/S 36(1)(XII) OF THE ACT. IT WAS FURTHER SUBMITTED THAT ON IDENTICAL FACTS, IN ASSES SEES OWN CASE, THE ITAT DELHI BENCH IN ASSESSMENT YEAR 2009-10 HAD HELD THAT THE BENEFIT U/S 36(1)(XII) WAS AVAILABLE TO THE ASS ESSEE AND HAD ALLOWED THE ASSESSEES CLAIM. 3.1 SIMILARLY WITH RESPECT TO OTHER ISSUE IT WAS SU BMITTED THAT THE ASSESSEE BOARD IS VESTED WITH THE OBLIGATION FO R PAYMENT OF ROYALTY TO THE RESPECTIVE STATE GOVERNMENTS WHEREIN THE OIL WELLS ARE LOCATED. IT WAS FURTHER SUBMITTED THAT THE AMOU NT PAYABLE ON ACCOUNT OF ROYALTY IS DETERMINED BY THE GOVERNMENT WITH REGARD TO THE RATE, QUANTITY OF CRUDE OIL ETC. AND FURTHER TH AT THE ASSESSEE BOARD HAD NO DOMAIN OR CONTROL ON THIS ISSUE AND IT IS THE MINISTRY OF PETROLEUM AND NATURAL GAS WHICH ADVISES THE ASSESSEE BOARD ABOUT THE PAYMENT OF ROYALTY TO THE RESPECTIV E STATE 4 ITA N O. 5592/DEL/2016 GOVERNMENTS. IT WAS SUBMITTED THAT THIS ISSUE WAS A LSO DECIDED IN FAVOUR OF THE ASSESSEE BY THE ITAT DELHI BENCH IN A SSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10. 4. IN RESPONSE THE LD. CIT DR PLACED RELIANCE ON TH E CONCURRENT FINDINGS OF BOTH THE LOWER AUTHORITIES AND REFERRED TO THE RELEVANT PARAGRAPHS OF THE IMPUGNED ORDER WHILE VEHEMENTLY A RGUING THAT THE DISALLOWANCES HAD BEEN RIGHTLY MADE. 5.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD. AS FAR AS THE FIR ST ISSUE IN APPEAL I.E. THE DISALLOWANCE OF RS. 23,46,00,000/- PERTAIN ING TO DISALLOWANCE U/S 36(1)(XII) IS CONCERNED, IT IS SEE N THAT IN ASSESSEES APPEAL FOR ASSESSMENT YEAR 2010-11 IN IT A NO. 4221/DEL/2014 THIS ISSUE WAS RESTORED TO THE FILE O F THE AO VIDE ORDER DATED 21.08.2017 WITH THE FOLLOWING OBSERVATI ONS AND DIRECTIONS :- 13. AO DISALLOWED EXPENDITURE OF RS.5,94,00,000/- ON THE GROUND THAT THE ASSESSEE BOARD HAS FAILED TO DEMONSTRATE THA T IT FULFILLED ALL TERMS AND CONDITIONS OF ALLOWABILITY OF SUCH EXP ENDITURE U/S 36(L)(XII). CIT (A) CONFIRMED THE DISALLOWANCE MADE BY THE AO FOR THE SOLE REASON THAT ASSESSEE HAS TO ESTABLISH THAT THE EXPENDITURE CLAIMED ARE IN THE NATURE OF REVENUE EXPENDITURE AN D INCURRED WHOLLY AND EXCLUSIVELY FOR THE AIMS AND OBJECTS OF T HE ASSESSEE BOARD. 5 ITA N O. 5592/DEL/2016 14. THE ID. AR FOR THE ASSESSEE ADDRESSED SHORT AR GUMENT THAT WHEN THE ASSESSEE HAS CREATED NO ASSETS NOR ANY END URING BENEFIT ACCRUED TO IT RATHER THE EXPENDITURE INCURRED ARE I N THE FORM OF GRANTS, SOPS, BOUNTIES, THE SAME ARE REVENUE EXPENDI TURE. WHEN THE ASSESSEE BOARD HAS PLACED ON RECORD DOCUMENTS UNDER RULE 46A TO PROVE THE JUSTIFICATION OF THE EXPENSES MADE IN NOR MAL COURSE OF BUSINESS, THE DISALLOWANCE IS NOT SUSTAINABLE. WE AR E OF THE CONSIDERED VIEW THAT WHEN THE ASSESSEE HAS BROUGHT ON RECORD DOCUMENTATION TO PROVE THE JUSTIFICATION OF DEBIT OF EXPENSES DISALLOWED BY THE AO AS WELL AS BY CIT (A), THE AO I S REQUIRED TO EXAMINE AND VERIFY THESE DOCUMENTS BEFORE DECIDING THE ISSUE IN CONTROVERSY. SO, WE REMAND THIS ISSUE ALSO TO AO TO D ECIDE AFTER ENTERTAINING THE DOCUMENTS RELIED UPON BY THE ASSESS EE BOARD UNDER RULE 46A OF THE RULES AFTER PROVIDING AN OPPO RTUNITY OF BEING HEARD TO THE ASSESSEE. CONSEQUENTLY, GROUNDS NO.7 & 8 ARE ALLOWED FOR STATISTICAL PURPOSES. 5.1 ON IDENTICAL FACTS AND RESPECTFULLY FOLLOWING T HE DECISION OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR AS SESSMENT YEAR 2010-11, AS AFORESAID, WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE AND VERIFY THE ASSESSE ES CLAIM AFTER DULY CONSIDERING THE DOCUMENTS WHICH THE ASSESSEE B OARD MAY SUBMIT BEFORE THE ASSESSING OFFICER IN SUPPORT OF I TS CLAIM AND AFTER PROVIDING PROPER OPPORTUNITY OF BEING HEARD T O THE ASSESSEE. 6 ITA N O. 5592/DEL/2016 ACCORDINGLY GROUND NOS. 2, 3 AND 4 STAND ALLOWED FO R STATISTICAL PURPOSES. 5.2 COMING TO THE SECOND ISSUE BEFORE US I.E. THE D ISALLOWANCE OF RS. 29,60,00,000/- ON ACCOUNT OF ROYALTY PAYABLE, I T IS SEEN THAT THE ASSESSEE BOARD HAD BEEN CLAIMING ROYALTY PAYMEN T ON CASH BASIS TILL ASSESSMENT YEAR 2007-08 BUT FROM ASSESSM ENT YEAR 2008-09 THE ASSESSEE BOARD CHANGE ITS ACCOUNTING SY STEM AND THEREAFTER STARTED CLAIMING ROYALTY PAYMENT ON ACCR UAL BASIS ON THE BASIS OF QUANTIFICATION AS PER THE EXISTING GUI DELINES OF OFFICE OF THE DIRECTORATE GENERAL OF HYDROCARBON (DGH). THE A SSESSING OFFICER DISALLOWED AN AMOUNT OF RS. 29,60,00,000/- WHICH WAS DEBITED BY THE ASSESSEE BOARD IN THE INCOME AND EXP ENDITURE ACCOUNT ON ACCOUNT OF ROYALTY PAYMENT TO THE STATE GOVERNMENTS ON THE GROUND THAT THE SAME WAS IN THE NATURE OF CO NTINGENT LIABILITY AS THE QUANTIFICATION WAS DONE AFTER THE CLOSE OF THE FINANCIAL YEAR BY THE DGH. THE LD. CIT (APPEALS) AL SO UPHELD THIS DISALLOWANCE. AN IDENTICAL ISSUE HAD ARISEN BEFORE IN ASSESSEES OWN CASE BEFORE THE ITAT IN ASSESSMENT YEAR 2009-10 ALSO AND THE ITAT IN ITA NO. 3568/DEL/2014, VIDE ORDER DATED 21. 08.2017, HAD RESTORED THE ISSUE TO THE FILE OF THE AO BY MAKING THE FOLLOWING OBSERVATIONS: 7 ITA N O. 5592/DEL/2016 10. MOREOVER, WHEN THE AO HAS NOT DISPUTED THE GENUINENESS OF THESE EXPENSES AND HAS ALSO NOT TAKEN CARE OF THE FACT THAT THE EXERCISE OF ALLOWING THESE EXPENSES I S REVENUE NEUTRAL, THE ADDITION THEREOF ON ACCOUNT OF DISALLOWANCE OF RS.43,25,00,000/- IS NOT SUSTAINABLE IN THE EYES OF LAW. IN THESE CIRCUMSTANCES, WE FIND IT NECESSARY TO RESTORE THE C ASE BACK TO THE AO TO ALLOW THE EXPENSES INCURRED BY THE ASSESSEE BO ARD ON ACCOUNT OF PAYMENT OF ROYALTY TO THE STATE OF ARUNACH AL PRADESH AND SLATE OF GUJARAT DEBITED IN ITS PROFIT & LOSS ACCOU NT AFTER DUE VERIFICATION OF THE LETTER RELIED UPON BY THE ASSESSE E BOARD AS WELL AS ID. CIT (A). CONSEQUENTLY, GROUNDS NO.L & 2 OF I TA NO.3568/DEL/2014 FILED BY THE REVENUE FOR AY 2009-1 0 AND CONSEQUENTLY, GROUNDS NO.2, 3 & 4 OF ITA NO.4221/DE L/2014 FILED BY THE ASSESSEE FOR AY 2010-11 ARE SET ASIDE TO THE AO. 5.3 IN THE PRESENT APPEAL ALSO NEITHER THE AO NOR T HE LD. CIT (APPEALS) HAS DISPUTED THE GENUINENESS OF THESE EXP ENSES. THEREFORE, IT WILL BE IN FITNESS OF THINGS THAT FOL LOWING THE PRINCIPLE OF CONSISTENCY, THIS ISSUE IS RESTORED IN THIS YEAR ALSO TO THE FILE OF THE AO TO ALLOW THE CLAIM OF THE ASSESSEE ON ACCOUN T OF PAYMENT OF ROYALTY AFTER DULY VERIFYING THE DOCUMENTS ON WHICH THE ASSESSEE MAY SEEK TO RELY IN THIS REGARD AND AFTER GIVING PR OPER OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS CASE. IT IS ORDERED ACCORDINGLY. ACCORDINGLY, GROUND NOS. 5 AND 6 STAND ALLOWED FOR STATISTICAL PURPOSES. 8 ITA N O. 5592/DEL/2016 6. IN THE FINAL RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27.11.2018 SD/- SD/- (O.P.KANT) (SUDHA NSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMB ER DATED: 27.11.2018 *BR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION 26.11.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 26.11.2018 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 26.11.2018 DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS 27.11.2018 DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 27.11.2018 DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS 30.11.2018 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 30.11.2018 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 9 ITA N O. 5592/DEL/2016 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER