Dy. Commissioner of Income Tax-6, Kanpur V. M/s. Super House Leather Ltd., Kanpur

ITA 58/LKW/2012

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9137 (ITAT-LUCKNOW)
• Duration Of Justice: 2 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 11-12-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 09-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K C MEENA
• Assessee Lawyers: P K KAPOOR
• Keywords: Business income; Charitable institution; Principle of natural justice; Bad and doubtful debts
• Section: 143(3); 80HHC; 14A; 80IB; 80G; 12

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NOS.58 & 126/LKW/2012 ASSESSMENT YEARS:2005 - 06 & 2006 - 07 JT.C.I.T. (OSD)/DCIT - 6, KANPUR. VS. M/S SUPER HOUSE LEATHER LTD., 150 FT. ROAD, JAJMAU, KANPUR. PAN:AABCS9328K (APPELLANT) (RESPONDENT) C.O. NO.15/LKW/2012 (IN ITA NOS.58 & 126/LKW/2012 ASSESSMENT YEARS:2005 - 06 & 2006 - 07 M/S SUPER HOUSE LEATHER LTD., 150 FT. ROAD, JAJMAU, KANPUR. PAN:AABCS9328K VS. JT.C.I.T. (OSD)/DCIT - 6, KANPUR. (OBJECTOR) (RESPONDENT) ITA NOS.99 & 100/LKW/2012 ASSESSMENT YEARS:2006 - 07 & 2007 - 08 M/S SUPER HOUSE LEATHER LTD., 150 FT. ROAD, JAJMAU, KANPUR. PAN:AABCS9328K VS. JT.C.I.T. (OSD)/DCIT - 6, KANPUR. (APPELLANT) (RESPONDENT) REVENUE BY SHRI K. C. MEENA, D.R. RESPONDENT BY SHRI P. K. KAPOOR, C.A. DATE OF HEARING 11/12/2014 DATE OF PRONOUNCEMENT 0 6 /02/2015 2 O R D E R PER A. K. GARODIA, A.M. THERE IS ONE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2005 - 06 AND CROSS OBJECTION IS FILED BY THE ASSESSEE FOR THIS ASSESSMENT YEAR AND THESE ARE DIRECTED AGAINST THE ORDER OF LEARNED CIT(A) - I, KANPUR DATED 27/10/2011. IN ADDITION TO THIS, THERE ARE CRO SS APPEALS OF THE ASSESSEE AND REVENUE FOR ASSESSMENT YEAR 2006 - 07, WHICH ARE DIRECTED AGAINST THE ORDER OF SAME CIT(A) DATED 07/12/2011. THERE IS ONE MORE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2007 - 08, WHICH IS DIRECTED AGAINST THE ORDER OF CIT(A) - I , KANPUR DATED 29/12/2011. A LL THESE APPEALS AND CROSS OBJECTION WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE TAKE UP THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2005 - 06 I.E. I.T.A. NO. 58 /LKW/201 2 . 3. GROUND NO. 1 OF THIS APPEAL READS AS UNDER: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN GIVING RELIEF OF RS.24,57,522/ - ON ACCOUNT OF BAD DEBTS AS THE ASSESSEE COMPANY WAS NOT ABLE TO EXPLAIN AND GIVE EVIDENCE HOW THE DEBTS IN RESPECT OF EXPORT SALES WERE DECLARED AS BAD DEBTS AND WHETHER ANY STEPS WERE TAKEN TO REALIZE THE SAME. THE ASSESSEE ALSO COULD NOT FURNISH ANY EVIDENCE IN THE SHAPE OF CERTIFICATE OF RBI OR ANY OTHER BANKING ORGANIZATION CERTIFYING THAT THE AMOUNT AS CLAIMED BY THE ASSESSEE HAD ACTUALLY BEEN WRITTEN OFF AND CLAIMED AS IRRECOVERABLE. THE ASSESSEE HAS NOT FURNISHED THE DETAILS OF SURRENDER OF CASH INCENTIVE AND DUTY DRAW BACK RECEIVED AGAINST CORRESPONDING EXPORT SALES. 3 4. LEARNED D. R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LEARNED A. R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). HE ALSO PLACED RELIANCE ON THE JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT RENDERED IN THE CASE OF CIT VS. KINGS EXPORTS [2009] 318 ITR 100 ( P&H). RELIANCE WAS ALSO PLACED ON A TRIBUNAL DECISION RENDERED IN THE CASE OF DCIT VS. NIHAL ENTERPRISES IN I.T.A. NO.532/LKW/2010 DATED 29/12/2010. HE ALSO SUBMITTED THAT THE COPY OF THIS TRIBUNAL DECISION IS ON PAGES 128 TO 140 OF THE PAPER BOOK AND OU R ATTENTION WAS DRAWN TO PARA 9 OF THIS TRIBUNAL ORDER. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD , GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND THE JUDGMENTS CITED BY LEARNED A.R. OF THE ASSESSEE. WE FI ND THAT THE DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER IN RESPECT OF WRITE OFF OF BAD DEBTS ON THE BASIS THAT THE ASSESSEE COULD NOT ESTABLISH THAT THE DEBTS HAVE BECOME BAD. THIS DISALLOWANCE WAS DELETED BY CIT(A) AND THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE ON THE BASIS THAT THE LAW OF BAD DEBTS IS VERY CLEAR THAT NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEBIT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF S UCH DEBT OR PART THEREOF IS WRITTEN OFF OR DURING AN EARLIER YEAR . IT CAN BE CLAIM AS BAD DEBT U/S 36(1)(VII) OF THE ACT IN THE YEAR OF WRITE OFF . ON THIS BASIS HE ALLOWED RELIEF TO THE ASSESSEE OF RS.24,57,522/ - OUT OF TOTAL AMOUNT OF RS.26,85,930/ - DISALLOWED BY THE ASSESSING OFFICER. FOR THE REMAINING AMOUNT OF RS.2,28,508/ - , THE MATTER WAS RESTORED BY CIT(A) TO THE FILE OF THE ASSESSING OFFIC ER TO VERIFY THE CLAIM OF THE ASSESSEE THAT THE ADVANCES WERE MADE FOR PURCHASE OF RAW MATERIAL AND NOT FOR CAPITAL GOODS. HE DIRECTED THE ASSESSING OFFICER THAT IF THE ASSESSEE IS ABLE TO ESTABLISH THAT THE ADVANCES WRITTEN OFF WERE ON ACCOUNT OF PURCHAS E OF RAW MATERIAL, THE SAME SHOULD BE ALLOWED BUT IF IT IS 4 ON ACCOUNT OF CAPITAL GOODS, IT SHOULD NOT BE ALLOWED. NOW IN THE APPEAL, THE REVENUE HAS RAISED THE ISSUE REGARDING THE RELIEF ALLOWED. CONSIDERING THE FACTS OF THE PRESENT CASE, WE ARE OF THE C ONSIDERED OPINION THAT THE DISALLOWANCE OF BAD DEBTS IS TO BE ALLOWED IN THE PRESENT YEAR BECAUSE IT IS NOT IN DISPUTE THAT DEBITS WERE WRITTEN OFF IN THE PRESENT YEAR. REGARDING THE OBJECTION OF THE ASSESSING OFFICER THAT THESE BAD DEBTS ARE IN RESPECT OF EXPORT SALES, WE ARE OF THE CONSIDERED OPINION THAT IN CONSEQUENCE TO THE CLAIM OF THE ASSESSEE REGARDING WRITE OFF OF BAD DEBTS IN RESPECT OF EXPORT SALES, IT HAS TO BE SEEN AS TO WHETHER SUCH SALE WAS CONSIDERED FOR THE PURPOSE OF ALLOWING DEDUCTION U/S 80HHC IN THE YEAR OF SALE. NORMALLY EXPORT SALES ARE REDUCED BY THE AMOUNT OF SALE, WHICH WAS NOT REALIZED WITHIN THE PRESCRIBED PERIOD. STILL WE FEEL THAT IN THE INTEREST OF JUSTICE, THE ASSESSING OFFICER SHOULD LOOK INTO THIS ASPECT AND EXAMINE THE DETAILS OF THE YEAR OF SALE FOR WHICH DEBTS WERE CREATED AND NOW WRITTEN OFF. THE ASSESSEE SHOULD FURNISH THESE DETAILS BEFORE THE ASSESSING OFFICER AND ASSESSING OFFICER SHOULD THEREAFTER ALLOW DEDUCTION TO THE ASSESSEE IN THE PRESENT YEAR IN RESPECT OF WRITE OFF OF BAD DEBTS BUT CONSEQUENTLY , HE SHOULD EXAMINE THE ASSESSMENT OF THE CONCERNED YEAR IN WHICH THE SALE TOOK PLACE AND FOR THAT YEAR , THE ASSESSEE SHOULD ESTABLISH THAT THESE UNREALIZED SALES WERE NOT INCLUDED IN THE EXPORT SALES FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC. IF THE ASSESSEE IS ABLE TO ESTABLISH THIS THEN THERE WILL BE NO IMPACT IN THAT YEAR BUT IF IT IS FOUND THAT DEDUCTION U/S 80HHC WAS ALLOWED IN THE YEAR OF SALE WITHOUT EXCLUDING THE UNREALIZED SALES, WHICH WERE WRITTEN O FF NOW, IN THAT SITUATION , THE DEDUCTION U/S 80HHC IN THE YEAR OF SALE SHOULD BE RECOMPUTED AFTER EXCLUDING UNREALIZED SALES FROM EXPORT SALES IN THAT YEAR. WITH THESE OBSERVATIONS, WE RESTORE THIS MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRES H DECISION IN THE LIGHT OF ABOVE DISCUSSION. THIS GROUND OF REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 5 6. GROUND NO. 2 IS AS UNDER: 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.9,38,132/ - MADE U/S 14A WITHOUT APPREC IATING THE FACT THAT THE SUBSTANTIVE LAW U/S 14A WAS ALREADY IN EXISTENCE RETROSPECTIVELY AND SUB - RULE (2) & (3) OF RULE 8D ARE CLARIFICATORY IN NATURE AND WERE MERELY INTRODUCED TO CLARIFY THE MODE OF CALCULATION OF EXPENSES INCURRED IN RELATION TO EXEMPT ED INCOME. 7. LEARNED D. R. OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER WHEREAS LEARNED A. R. OF THE ASSESSEE SUPPORTED THE ORDER OF LEARNED CIT(A). WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT IT IS NOTED BY THE ASSESSING OFFICER IN THE A SSESSMENT ORDER THAT AS PER THE BALANCE SHEET OF THE ASSESSEE COMPANY, IN THE PRESENT YEAR, THE ASSESSEE HAD MADE INVESTMENT OF RS.361.50 LAC (EXCLUDING INVESTMENT IN FOREIGN SUBSIDIARIES). IT IS ALSO NOTED BY THE ASSESSING OFFICER THAT IN THE PRECEDING Y EAR ALSO , THERE WAS SAME AMOUNT OF INVESTMENT. THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.1,80,752/ - AS PER RULE 8D OF I.T. RULES, 1962. WHEN THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A), IT WAS HELD BY CIT(A) THAT AS PER THE JUDGMENT O F HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT [2010] 234 CTR (BOM) 1, RULE 8D IS NOT APPLICABLE IN THE PRESENT YEAR BECAUSE SAME IS APPLICABLE FROM ASSESSMENT YEAR 2008 - 09. HE HAS ALSO REFERRED TO A JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT RENDERED IN THE CASE OF CIT VS. HERO CYCLES LTD. [2010] 323 ITR 518 (P&H) AND IN THE CASE OF CIT VS. WINSOME TEXTILE INDUSTRIES LTD. [2009] 319 ITR 204 (P&H) AND FOLLOWING THESE JUDGMENTS, IT WAS HELD BY HIM THAT SINCE N O NEXUS/PROXIMITY BETWEEN THE BORROWED FUNDS AND INVESTMENT MADE HAS BEEN DEMONSTRATED BY THE ASSESSING OFFICER, NO DISALLOWANCE IS CALLED FOR OUT OF INTEREST EXPENDITURE. HE HAS ALSO REFERRED TO THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE C ASE OF CIT VS. RELIANCE 6 UTILITIES & POWER LTD. 313 ITR 340 (MUM) IN WHICH IT WAS HELD THAT IF INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS, IT HAS TO BE HELD THAT BORROWED FUNDS WERE NOT USED FOR MAKING INVESTMENT. ON THIS BASIS, HE DELETED THE ENTIRE DISALLOWANCE MADE BY THE ASSES SING OFFICER U/S 14A OF THE ACT. 8. THIS IS BY NOW SETTLED POSITION OF LAW THAT RULE 8D IS NOT APPLICABLE IN THE PRESENT YEAR BECAUSE THE SAME IS APPLICABLE FROM ASSESSMENT YEAR 2008 - 09. THEREFORE, THE ASSESSMENT ORDER ON THIS ISSUE IS NOT SUSTAIABLE BECAUSE ON THIS ISSUE, THE ASSESSMENT ORDER IS AS PER RULE 8D. 9. NOW WE EXAMINE THE APPLICABILITY OF VARIOUS JUDGMENTS FOLLOWED BY LEARNED CIT(A) TO DELETE THIS DISALLOWANCE. 9.1 THE FIRST JUDGMENT FOLLOWED BY LEAR NED CIT(A) IS THE JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT RENDERED IN THE CASE OF HERO CYCLES LTD. (SUPRA). IN THIS CASE, HON'BLE PUNJAB & HARYANA HIGH COURT HAS FOLLOWED ITS EARLIER JUDGMENT IN THE CASE OF WINSOME TEXTILE INDUSTRIES LTD. (SUPRA). WE, THEREFORE, EXAMINE THE APPLICABILITY OF THAT JUDGMENT FIRST. IN THAT CASE, THE FACTS WERE THAT THE INVESTMENTS IN SHARES WERE MADE IN ASSESSMENT YEAR 94 - 95 USING ITS OWN FUNDS A ND THE ASSESSMENT YEAR INVOLVED WAS 2004 - 05. IN THE LIGHT OF THIS FINDI NG THAT THE INVESTMENT WAS MADE IN ASSESSMENT YEAR 94 - 95 OUT OF OWN FUNDS, IT WAS HELD THAT NO DISALLOWANCE IS CALLED FOR OUT OF INTEREST EXPENDITURE. IN THAT CASE, THERE WAS NO DISPUTE REGARDING DISALLOWANCE U/S 14A IN RESPECT OF ADMINISTRATIVE EXPENSES A ND SINCE INTEREST EXPENDITURE WAS NOT DISALLOWABLE BECAUSE OF THIS SPECIFIC FINDING THAT INVESTMENT IN SHARE WAS MADE OUT OF OWN FUNDS, WE ARE OF THE CONSIDERED OPINION THAT THIS JUDGMENT IS APPLICABLE ONLY IN THOSE CASES WHERE NO DISALLOWANCE IS MADE OUT OF ADMINISTRATIVE EXPENSES AND INVESTMENT IS 7 ESTABLISHED TO BE OUT OF OWN FUNDS. IN THE PRESENT CASE, T HE DISALLOWANCE WAS MADE FOR ADMINISTRATIVE EXPENSES ALSO AND THIS IS NOT THE CLAIM THAT THE INVESTMENT WAS MADE OUT OF OWN FUNDS BY WAY OF ESTABLISHING NEXUS OF SUCH INVESTMENT WITH OWN FUNDS. HENCE, IN OUR CONSIDERED OPINION, THIS JUDGMENT IS NOT APPLICABLE IN THE PRESENT CASE. 9.2 NOW WE CONSIDER THE APPLICABILITY OF THE SECOND JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF HERO CYCLES LTD. (SUPRA). IN THAT CASE , A CLEAR FINDING WAS GIVEN BY THE TRIBUNAL THAT ENTIRE INVESTMENT HAS BEEN MADE OUT OF DIVIDEND PROCEEDS , SALE PROCEEDS, DEBENTURE REDEMPTION ETC. ON THE BASIS OF THIS FINDING OF THE TRIBUNAL, IT WAS HELD BY HON'BLE PUNJ AB & HARYANA HIGH COURT THAT IT IS CLEAR THAT THE EXPENDITURE ON INTEREST WAS SET OFF AGAINST THE INCOME FROM INTEREST AND THE INVESTMENT IN THE SHARE AND MUTUAL FUNDS WERE OUT OF THE DIVIDEND PROCEEDS. IT WAS HELD THAT IN VIEW OF THIS FINDING OF FACT, DISALLOWANCE U/S 14A WAS NOT SUSTAINABLE. THEREFORE, THIS JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IS NOT APPLICABLE IN THE PRESENT CASE BECAUSE IN THE PRESENT CASE, IT COULD NOT BE ESTABLISHED BY THE ASSESSEE THAT INVESTMENT IN SHARES WAS OUT OF O WN FUNDS AND INTEREST EXPENDITURE WAS SET OFF AGAINST ANY INTEREST INCOME. IN FACT , THERE IS NO INTEREST INCOME IN THE PRESENT CASE AS PER PROFIT & LOSS ACCOUNT APPEARING ON PAGE NO. 7 OF THE PAPER BOOK. 9.3 NOW WE EXAMINE THE APPLICABILITY OF THE JUDGME NT ON HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. 313 ITR 340 (MUM). REGARDING THIS JUDGMENT, WE FIND THAT THIS JUDGMENT IS NOT IN CONTEXT OF SECTION 14A OF THE ACT BECAUSE IN THAT CASE , THE DISALLOWANCE WAS M ADE BY THE ASSESSING OFFICER U/S 36(1)(III) AND THEREFORE, IN OUR CONSIDERED OPINION, THIS JUDGMENT IS NOT RELEVANT IN THE PRESENT CASE WHERE DISALLOWANCE IS MADE U/S 14A OF THE ACT. 8 10. AS PER ABOVE DISCUSSION, WE HAVE SEEN THAT NONE OF THE JUDGMENTS, FO LLOWED BY LEARNED CIT(A) IS APPLICABLE BUT STILL IT HAS TO BE HELD THAT RULE 8D IS NOT APPLICABLE IN THE PRESENT YEAR AND THEREFORE, AS PER THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT, REASONABLE DISALLOWANCE HAS TO BE MADE. AS PER THE BALANCE SHEET OF THE ASSESSEE COMPANY, AVAILABLE ON PAGE NO. 6 OF THE PAPER BOOK, WE FIND THAT INVESTMENT IS TO THE TUNE OF RS.505.99 LACS WHEREAS CAPITAL AND RESERVE WERE TO THE TUNE OF RS.8,001.21 LACS. AS ON 31/03/2004, CASH AND BANK BALANCE WERE TO THE TUNE OF RS.793.45 L ACS, WHICH IS MORE THAN THE TOTAL INVESTMENT OF RS.505.99 LAC AS ON 31/03/2005. HENCE, IT CANNOT BE SAID THAT ENTIRE OWN FUNDS AVAILABLE AS ON 01/04/2004 WAS LYING INVESTED IN SOME OTHER ASSETS AND THEREFORE NOT AVAILABLE FOR MAKING INVESTMENT . T HEREFORE, IN THE FACTS OF THE PRESENT CASE, IT HAS TO BE ACCEPTED THAT OWN FUNDS WERE AVAILABLE FOR MAKING INVESTMENT EVEN AT THE BEGINNING OF THE PRESENT YEAR, ALTHOUGH THE ENTIRE INVESTMENT WAS MADE PRIOR TO THE PRESENT YEAR. CONSIDERING THESE FACTS, WE ARE OF T HE CONSIDERED OPINION THAT NO DISALLOWANCE IS CALLED FOR U/S 14A OF THE ACT OUT OF INTEREST EXPENDITURE. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS OF RS.7,57,380/ - OUT OF INTEREST EXPENDITURE AND RS.1,80,752/ - IN RESPECT OF ADMINISTRATIVE EXPENDIT URE. AS PER ABOVE DISCUSSION, THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS.7,57,380/ - DOES NOT SURVIVE. IN RESPECT OF DISALLOWANCE OUT OF ADMINISTRATIVE EXPENSES, WE FEEL THAT THE DISALLOWANCE WAS WORKED OUT BY THE ASSESSING OFFICER UNDER RULE 8D TO TH E EXTENT OF 0.5% OF THE AVERAGE INVESTMENTS. AS PER THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. (SUPRA), REASONABLE DISALLOWANCE CAN BE MADE BEFORE INSERTION OF RULE 8D AND IN OUR CONSIDERED OPINION, D ISALLOWANCE OF RS.50,000/ - IS REASONABLE IN THE FACTS OF THE PRESENT CASE. 9 WE, THEREFORE, UPHOLD THE DISALLOWANCE U/S 14A TO THE EXTENT OF RS.50,000/ - AND BALANCE DISALLOWANCE IS DELETED. THIS GROUND IS PARTLY ALLOWED. 11. IN THE RESULT, THE APPEAL OF T HE REVENUE IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. 12. NOW WE TAKE UP THE CROSS OBJECTION OF THE ASSESSEE I.E. C.O.NO.15/LKW/2012 FOR ASSESSMENT YEAR 2005 - 06. IN THE CROSS OBJECTION, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. BECAUSE TH E 'RETURN' FILED BY THE ASSESSEE/RESPONDENT ON 31.10.2005 HAVING NOT BEEN TAKEN UP FOR SCRUTINY, AS PER THE PROVISIONS CONTAINED IN CLAUSE (II) OF SUB - SECTION (2) OF SECTION 143, THE ASSESSEE STOOD ASSESSED ON 30.09.2006 AND THE ASSESSING OFFICER HAD LOST JURISDICTION TO MAKE ASSESSMENT UNDER SECTION 143(3) SO AS TO VARY THE INCOME SHOWN IN THE 'RETURN', BY MAKING VARIOUS ADDITIONS/DISALLOWANCES [AS STOOD COMPRISED IN THE ASSESSMENT ORDER DATED 31.12.2008, CAPTIONED AS ORDER 'U/S.143(3) OF INCOME TAX ACT 19 61']. 2. BECAUSE FOR THE REASON THAT THE ASSESSING OFFICER DID NOT HAVE THE AUTHORITY TO MAKE THE ABOVE REFERRED ASSESSMENT ORDER, VARIOUS DISALLOWANCES / SHORT ALLOWANCES AS MADE BY THE ASSESSING OFFICER [AND SUSTAINED ALSO BY THE LD.CIT (APPEALS) - I, KAN PUR] IN TERMS OF THE APPELLATE ORDER DATED 27.10.2011, AS PER PARTICULARS GIVEN BELOW: - SI . NO . PARTICULARS OF DISALLOWANCE / SHORT ALLOWANCE AS SUSTAINED BY THE LD. CIT(APPEALS) AMOUNT (RS.) (I) VEHICLE RUNNING EXPENSES 5,12,925 (II) SHORT ALLOWANCE OF DEDUCTION UNDER SECTION 80IB, BY EXCLUDING DUTY DRAW BACK AMOUNTING TO RS.49,01,555 FROM THE COMPUTATION OF ELIGIBLE PROFIT FOR DEDUCTION UNDER SECTION 80IB 14,84,185 10 ARE WHOLLY VITIATED. 3. BECAUSE OTHERWISE ALSO, THE ASSESSEE/ RESPONDENT BEING A CORPORATE ENTITY, NO DISALLOWANCE OUT OF VEHICLE RUNNING EXPENSES COULD HAVE BEEN MADE ON THE GROUND OF 'PERSONAL USER' AND DISALLOWANCE OF RS.5,12,925/ - AS MADE/SUSTAINED BY THE 'AUTHORITIES' BELOW IS WHOLLY ERRONEOUS. 4. BECAUSE AS FAR AS THE ASSESSEE/RESPONDENT IS CONCERNED, EXPENSES CLAIMED UNDER THE HEAD 'VEHICLE RUNNING EXPENSES', HAD BEEN INCURRED, LAID OUT AND EXPENDED WHOLLY AND EXCLUSIVELY FOR ITS BUSINESS AND NO PART OF THE SAME COULD HAVE BEEN DISALLOWED. 5. BECAUSE SIMILA RLY, EXCLUSION OF RS.49,01,555/ - REPRESENTING THE 'DUTY DRAW BACK' RECEIVED DURING THE YEAR, COULD NOT HAVE BEEN EXCLUDED FROM THE COMPUTATION OF ELIGIBLE PROFIT FOR THE PURPOSES OF RELIEF UNDER SECTION 80IB RESULTING INTO SHORT ALLOWANCE OF RS.14,84,185/ - IS ERRONEOUS. 6. BECAUSE, ON THE PECULIAR FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, THE DECISION OF HON'BLE APEX COURT IN THE CASE OF LIBERTY INDIA VS. CIT REPORTED IN (2009) 317 ITR 218 (SC), WAS NOT APPLICABLE. 7. BECAUSE IN ANY CASE AND WHOLLY WIT HOUT PREJUDICE TO GROUNDS NO.5 & 6 ABOVE, IT IS STATED THAT WHOLE OF THE DUTY DRAW BACK AMOUNTING TO RS.49,01,555/ - COULD NOT HAVE BEEN EXCLUDED FROM THE COMPUTATION OF 'ELIGIBLE PROFIT' AS THE SAME SHOULD HAVE BEEN ADJUSTED BY A FAIR ESTIMATE OF EXPENSES ATTRIBUTABLE TO THE EARNING OF SUCH DUTY DRAW BACK. 13. REGARDING GROUND NO. 1 & 2, LEARNED A.R. OF THE ASSESSEE MADE GENERAL SUBMISSIONS BUT COULD NOT ESTABLISH THAT NOTICE U/S 143(2) WAS NOT SERVED ON THE ASSESSEE WITHIN THE PRESCRIBED TIME. WE FIND THAT PRIOR TO 01/04/2008, THE TIME AVAILABLE FOR SERVING NOTICE U/S 143(2) WAS 12 MONTHS 11 FROM THE END OF THE MONTH IN WHICH RETURN IS FURNISHED. IN THE PRESENT CASE, RETURN WAS FILED ON 31/10/2005 AND THEREFORE, TIME WAS AVAILABLE UPTO 30 TH SEPTEMBER, 200 6 FOR SERVING NOTICE U/S 143(2). AS PER THE ASSESSMENT ORDER, SUCH NOTICE U/S 143(2) WAS ISSUED ON 13/09/2006 AND THE SAME WAS DULY SERVED ON THE ASSESSEE. CONSIDERING THESE FACTS, WE DO NOT FIND ANY MERIT IN GROUND NO. 1 & 2 OF THE ASSESSEE AND THEREFOR E, THE SAME ARE REJECTED. 14. REGARDING GROUND NO. 3 & 4, LEARNED A.R. OF THE ASSESSEE PLACED RELIANCE ON A JUDGMENT OF HON'BLE GUJARAT HIGH COURT RENDERED IN THE CASE OF SAYAJI IRON AND ENGG. CO. VS. CIT [2002] 253 ITR 749 (GUJ). 15. LEARNED D .R. OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND FORCE IN THE SUBMISSIONS OF LEARNED A.R. OF THE ASSESSEE THAT AS PER THIS JUDGMENT OF HON'BLE GUJARAT HIGH COURT, NO DISALLOWANCE IS CALLED FOR IN THE CASE OF A COMPANY ON THE BASIS THAT THERE WAS PERSONAL USER OF VEHICLES. IT WAS HELD BY HON'BLE GUJARAT HIGH COURT THAT EVEN IF THERE IS PERSONAL USE OF VEHICLES BY THE DIRECTORS OF THE COMPANY THEN THE VALUE THEREOF CAN BE ADDED IN THE PERQUISITES OF THE CONCERNED DIRECTOR BUT NO DISALLOWANCE CAN BE MADE IN THE HANDS OF THE COMPANY. RESPECTFULLY FOLLOWING THIS JUDGMENT OF HON'BLE GUJARAT HIGH COURT, WE HOLD THAT IN THE PRESENT CASE ALSO, NO DISALLOWANCE IS JUSTIFIED ON THE BASIS OF PERSONAL USER O F VEHICLE BY THE DIRECTOR. THIS GROUND IS DECIDED IN FAVOUR OF THE ASSESSEE. GROUND NO. 3 & 4 OF THE CROSS OBJECTION ARE ALLOWED. 17. REGARDING GROUND NO. 5 , 6 & 7, IT WAS FAIRLY CONCEDED BY LEARNED A.R. OF THE ASSESSEE THAT THIS ISSUE IS NOW SQUARELY C OVERED AGAINST THE ASSESSEE 12 BY THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF LIBERTY INDIA VS. CIT [2009] 317 ITR 218 (SC). HE HOWEVER, SUBMITTED THAT ANOTHER JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF B. DESRAJ VS. CIT [2008] 301 ITR 439 (SC) WAS NOT BROUGHT TO THE NOTICE OF HON'BLE APEX COURT IN THE CASE OF LIBERTY INDIA (SUPRA) AND THEREFORE, INSTEAD OF FOLLOWING THE LATER JUDGMENT OF HON'BLE APEX COURT IN THE CASE OF LIBERTY INDIA, THE JUDGMENT OF HON'BLE APEX COURT IN THE CASE OF B. DESHRAJ (SUPRA) SHOULD BE FOLLOWED. BUT WE DO NOT FIND ANY MERIT IN THIS SUBMISSION OF LEARNED A.R. OF THE ASSESSEE BECAUSE IT CANNOT BE SAID THAT WHILE DELIVERING THE JUDGMENT IN THE CASE OF LIBERTY INDIA (SUPRA), HON'BLE APEX COURT WAS NOT AWARE OF ITS OWN JUDGMENT IN THE CASE OF B. DESHRAJ AND HENCE, WE DO NOT FIND ANY MERIT IN THESE T HREE GROUNDS OF THE ASSESSEE. ACCORDINGLY GROUND NO. 5, 6 & 7 ARE REJECTED. 18. IN THE RESULT, THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. 19. NOW WE TAKE UP THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2006 - 07 I.E. I.T.A. NO.99/LKW/2012. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. BECAUSE THE 'RETURN' FILED BY THE ASSESSEE/RESPONDENT ON 28.11.2006 HAVING NOT BEEN TAKEN UP F OR SCRUTINY, AS PER THE PROVISIONS CONTAINED IN CLAUSE (II) OF SUB - SECTION (2) OF SECTION 143, THE APPELLANT STOOD ASSESSED ON 30.09.2007 AND THE ASSESSING OFFICER HAD LOST JURISDICTION TO MAKE ASSESSMENT UNDER SECTION 143(3) SO AS TO VARY THE INCOME SHOWN IN THE SAID 'RETURN', BY MAKING VARIOUS DISALLOWANCE / SHORT ALLOWANCE AS STOOD COMPRISED IN THE ASSESSMENT ORDER DATED 16.11.2009, CAPTIONED AS ORDER 'U/S.!43(3) OF INCOME TAX ACT 1961'. 2. BECAUSE THE AUTHORITIES BELOW HAVE ERRED IN LAW AND ON FACTS IN HOLDING THAT THE SUM OF RS.99,64,828/ - REPRESENTING THE 'DUTY DRAW BACK' RECEIVED BY THE 13 APPELLANT, COULD NOT BE HELD TO BE THE 'INCOME DERIVED FROM BUSINESS', QUALIFYING FOR DEDUCTION UNDER S ECTION 80IB, WHICH RESULTED INTO SHORT ALLOWANCE OF DEDUCTION UNDER SECTION 80IB, BY A SUM OF RS.14,50,803/ - . 3. BECAUSE ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, THE DECISION OF HON'BLE APEX COURT IN THE CASE OF LIBERTY INDIA VS. COMMISSIONER OF INC OME - TAX REPORTED IN (2009) 317 ITR 218 (SC), WAS NOT APPLICABLE IN THE INSTANT CASE AND RELIANCE OF THE SAID DECISION BY THE FIRST APPELLATE AUTHORITY, IS WHOLLY MISPLACED. 4. BECAUSE WITHOUT CAUSING IN ANY MANNER ANY PREJUDICE TO THE FOREGOING GROUNDS, I T IS CONTENDED THAT WHOLE OF THE RECEIPTS UNDER THE HEAD 'DUTY DRAW BACK', COULD NOT HAVE BEEN EXCLUDED FROM THE COMPUTATION OF INCOME ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB AND DUE ADJUSTMENT WAS LIABLE TO BE MADE ON ACCOUNT OF EXPENSES ATTRIBUTABLE TO SUCH RECEIPTS. 5. BECAUSE SHORT ALLOWANCE OF DEDUCTION UNDER SECTION 80G WAS NOT CALLED FOR EITHER ON FACTS OR IN LAW. 6. BECAUSE THE ORDER APPEALED AGAINST IS CONTRARY TO THE FACTS, LAW AND PRINCIPLES OF NATURAL JUSTICE. 20. IT WAS FAIRLY AGREED BY B OTH THE SIDES THAT THE ISSUES RAISED BY THE ASSESSEE IN THIS APPEAL ARE SIMILAR TO THE ISSUES RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION FOR ASSESSMENT YEAR 2005 - 06 AND THEREFORE, THE SAME CAN BE DECIDED ON SIMILAR LINE. WE FIND THAT WHILE DECIDING THE CROSS OBJECTION OF THE ASSESSEE, WE HAVE DECIDED THE ISSUE AGAINST THE ASSESSEE REGARDING THE VALIDITY OF THE ASSESSMENT PROCEEDINGS AND DEDUCTION U/S 80IB RAISED BY THE ASSESSEE IN THE PRESENT YEAR AS PER GROUND NO. 1 TO 4. ACCORDINGLY, THESE ISSUES ARE DECIDED AGAINST THE ASSESSEE AND GROUND NO. 1 TO 4 ARE REJECTED. 21. AS PER GROUND NO. 5, THE ISSUE IS REGARDING SHORT DEDUCTION ALLOWE D BY THE ASSESSING OFFICER U/S 80G OF THE ACT. WE FIND THAT THIS ISSUE WAS RAISED 14 BY THE ASSESSEE BEFORE CIT(A) AS PER GROUND NO. 8 BUT THERE IS NO DECISION OF CIT(A) IN RESPECT OF THIS GROUND. BEFORE US ALSO, NO ARGUMENT WAS MADE BY LEARNED A.R. OF THE ASSESSEE WITH REGARD TO THIS ISSUE. AS PER THE ASSESSMENT ORDER, WE FIND THAT IT IS NOTED BY THE ASSESSING OFFICER THAT REGARDING THE CLAIM OF RS.15 LAC RELATED TO SHYAM BEHARI MISHRA MEMORIAL CHARITABLE TRUST, NO DETAILS HAVE BEEN FILED BY THE ASSESSEE AND THEREFORE, THE ASSESSING OFFICER HAS NOT ALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80G IN RESPECT OF THIS AMOUNT OF RS.15 LAC. NEITHER BEFORE CIT(A) NOR BEFORE US, ANY DETAIL HAS BEEN FURNISHED BY THE ASSESSEE AND THEREFORE, ON THIS ISSUE, W E DO NOT FIND ANY MERIT IN THE GROUNDS RAISED BY THE ASSESSEE. ACCORDINGLY, GROUND NO. 5 IS REJECTED. 22. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS DISMISSED. 23. NOW WE TAKE UP THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2006 - 07 I.E. I.T.A. N O.126/LKW/2012. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.8,41,996/ - MADE U/S 14A WITHOUT APPRECIATING THE FACT AND THE CASE OF DCIT V. S.G. INVESTMENT & INDUSTRIES LTD. (2004) 89 ITD 44 (KOL.), WHEREIN IT WAS OBSERVED THAT: - 'IT IS TRUE THAT THE DIVIDEND INCOME ARISING FROM SHARES HELD AS STOCK - IN - TRADE IS BUSINESS INCOME IN THE SENSE THAT THE DIVIDEND IS REALIZED FROM THE TRADING ASSET, BUT AT THE SAME TIME, IT HAS TO BE BORNE IN MIND THAT PART OF THE BUSINESS INCOME IN THE NATURE OF DIVIDEND IS NOT INCLUDIBLE IN THE TOTAL INCOME BY VIRTUE OF THE SAME BEING EXEMPTED UNDER SECTION 10(33) OF THE ACT, AND AS SUCH IT IS NOT UNDERSTOOD AS TO WHY THE INTEREST INCURRED TO THE EXTENT IT IS CAPABLE OF BEING REGARDED AS EXPENDITURE IN RELATION TO PART OF THE BUSINESS INCOME IN THE NATURE OF DIVIDEND 15 SHOULD NOT BE ADJUSTED AGAINST EXEMPTED DIVIDEND INCOME.' 2. THAT THE ORDER OF THE LD. CIT (A) - I, KANPUR BEING ERRONEOUS IN LAW AND ON FACTS DESERVES TO BE VACATED AND THE ORDER OF THE AO BE RESTORED. 24. REGARDING THIS ISSUE ALSO, BOTH THE SIDES AGREED THAT THIS ISSUE IS IDENTICAL TO THE ISSUE RAISED BY THE REVENUE IN ITS APPEAL FOR ASSESSMENT YEAR 2005 - 06 AS PER GROUND NO. 2. IN ASSESSMENT YEAR 2005 - 06, WE HAVE HELD THAT NO DISALLOWANC E IS CALLED FOR OUT OF INTEREST EXPENDITURE BECAUSE THE ASSESSEE WAS HAVING SUFFICIENT OWN FUNDS AS ON 31/03/2005. IN THE PRESENT YEAR ALSO, WE FIND THAT THE BALANCE SHEET OF THE ASSESSEE IS AVAILABLE ON PAGE NO. 1 OF THE PAPER BOOK AND AS PER THE SAME, INVESTMENTS IN THE PRESENT YEAR HAS GONE DOWN TO RS.455.59 LAC AS AGAINST INVESTMENT OF RS.505.99 LAC AS ON 31/03/2005 WHEREAS THE NET OWN FUNDS IN THE PRESENT YEAR HAS GONE UPTO RS.8,717.85 LAC AS AGAINST RS.8,001.20 LAC AS ON 31/03/2005. CONSIDERING THE SE FACTS, WE ARE OF THE CONSIDERED OPINION THAT IN THE PRESENT YEAR ALSO, NO DISALLOWANCE IS CALLED FOR U/S 14A OUT OF INTEREST EXPENDITURE. IN THE PRESENT YEAR, THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF RS.6,78,789/ - OUT OF INTEREST EXPENDITURE AS PER RULE 8D AND DISALLOWANCE OF RS.1,63,207/ - WAS MADE U/S 14A IN RESPECT OF ADMINISTRATIVE EXPENSES TO THE EXTENT OF 0.5% OF AVERAGE INVESTMENT. SINCE RULE 8D IS NOT APPLICABLE, WE FEEL THAT IN THE FACTS OF THE PRESENT CASE, THE DISALLOWANCE OF RS.5 0,000/ - IN RESPECT OF ADMINISTRATIVE EXPENSES WILL SERVE THE INTEREST OF JUSTICE. WE CONFIRM THE DISALLOWANCE U/S 14A TO THE EXTENT OF RS.50,000/ - AND DELETE THE BALANCE DISALLOWANCE . THIS ISSUE IS PARTLY ALLOWED. 25. IN THE RESULT, THE APPEAL OF THE RE VENUE STANDS PARTLY ALLOWED. 16 26. NOW WE TAKE UP THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2007 - 08 I.E. I.T.A. NO.100/LKW/2012. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. BECAUSE THE 'RETURN' FILED BY THE ASSESSEE/RESPONDEN T ON 31.10.2007 HAVING NOT BEEN TAKEN UP FOR SCRUTINY, AS PER THE PROVISIONS CONTAINED IN CLAUSE (II) OF SUB - SECTION (2) OF SECTION 143, THE APPELLANT STOOD ASSESSED ON 30.09.2009 AND THE ASSESSING OFFICER HAD LOST JURISDICTION TO MAKE ASSESSMENT UNDER SEC TION 143(3), SO AS TO VARY THE INCOME SHOWN IN THE 'RETURN', BY MAKING VARIOUS ADDITIONS/DISALLOWANCES/SHORT ALLOWANCES AS STOOD COMPRISED IN THE ASSESSMENT ORDER DATED 31.12.2010, CAPTIONED AS ORDER 'U/S.143(3)/144C OF THE INCOME TAX ACT 1961'. WITHOUT P REJUDICE TO THE AFORESAID 2. BECAUSE THE AUTHORITIES BELOW HAVE ERRED IN LAW AND ON FACTS IN HOLDING THAT THE SUM OF RS.1,42,94,042/ - REPRESENTING THE 'DUTY DRAW BACK' RECEIVED BY THE APPELLANT, COULD NOT BE HELD TO BE THE INCOME DERIVED FROM BUSINESS, QU ALIFYING FOR DEDUCTION UNDER SECTION 80IB, WHICH RESULTED INTO SHORT ALLOWANCE OF DEDUCTION UNDER SECTION 80IB, BY A SUM OF RS.58,65,510/ - . 3. BECAUSE ON THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, THE DECISION OF HON'BLE APEX COURT IN THE CASE OF L IBERTY INDIA VS. COMMISSIONER OF INCOME - TAX REPORTED IN (2009) 317 ITR 218 (SC), WAS NOT APPLICABLE IN THE INSTANT CASE AND RELIANCE ON THE SAID DECISION BY THE ID. FIRST APPELLATE AUTHORITY/ IS WHOLLY MISPLACED. 4. BECAUSE WITHOUT CAUSING IN ANY MANNER ANY PREJUDICE TO THE FOREGOING GROUNDS NO.2 & 3, IT IS CONTENDED THAT WHOLE OF THE RECEIPTS UNDER THE HEAD 'DUTY DRAW BACK', COULD NOT HAVE BEEN EXCLUDED FROM THE COMPUTATION OF INCOME ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB, AND DUE ADJUSTMENT WAS LIABL E TO BE MADE ON ACCOUNT OF EXPENSES ATTRIBUTABLE TO SUCH RECEIPTS. 17 5. BECAUSE THE ORDER APPEALED AGAINST IS CONTRARY TO THE FACTS, LAW AND PRINCIPLES OF NATURAL JUSTICE. 27. IT WAS FAIRLY AGREED BY BOTH THE SIDES THAT THE ISSUE S ARE IDENTICAL TO THE ISSUE S RAISED BY THE ASSESSEE IN ASSESSMENT YEAR 2006 - 07 AND SAME CAN BE DECIDED ON SIMILAR LINE. IN THAT YEAR , BOTH THE ISSUES WERE DECIDED BY US AGAINST THE ASSESSEE IN LINE WITH OUR DECISION IN THE CROSS OBJECTION OF THE ASSESSEE. AC CORDINGLY, BOTH THE ISSUES ARE DECIDED AGAINST THE ASSESSEE. 28. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS DISMISSED. 29. IN THE COMBINED RESULT, THE APPEAL OF THE REVENUE IN BOTH THE YEARS AND CROSS OBJECTION OF THE ASSESSEE FOR ASSESSMENT YEAR 2005 - 06 ARE PARTLY ALLOWED AND REMAINING TWO APPEALS OF THE ASSESSEE ARE DISMISSED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 0 6 /0 2 /2015 *C.L.SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR