ACIT, New Delhi V. M/s. Kumaon Mandal Vikas Nigam Ltd., Haryana

ITA 5820/DEL/2015

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5460 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2011-2012
• Appeal Filed On: 26-10-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Rule of consistency; Earning of tax free income; Revised return
• Section: 43B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES D : DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA.NO.5820/DEL./2015 ASSESSMENT YEAR 2011-2012 THE ACIT, CIRCLE-3, INCOME TAX OFFICE, PILGRIM LODGE COMPOUND, MALLITAL. NAINITAL 263 001. VS M/S. KUMAON MANDAL VIKAS NIGAM LTD., OAK PARK, MALLITAL. NAINITAL 263 001. PAN AABCK4290L (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI AMIT JAIN, SR. D.R. FOR ASSESSEE : -NONE- DATE OF HEARING : 01.05.2018 DATE OF PRONOUNCEMENT : 02.05.2018 ORDER PER BHAVNESH SAINI, J.M. THIS APPEAL BY REVENUE HAS BEEN DIRECTED AGAINST THE ORDER OF THE LD. CIT(A), HALDWANI, DATED 24 TH AUGUST, 2015, FOR THE A.Y. 2011-2012. 2. WE HAVE HEARD THE LD. D.R. AND PERUSED THE ORDE RS OF AUTHORITIES BELOW. HOWEVER, NONE APPEARED ON BEH ALF OF THE 2 ITA.NO.5820/DEL./2015 M/S. KUMAON MANDAL VIKAS NIGAM LTD., NAINITAL. ASSESSEE DESPITE NOTIFYING THE DATE OF HEARING THRO UGH REGISTERED POST. 3. THE REVENUE HAS TAKEN 04 GROUNDS. GROUND NO.1 I S READS AS UNDER : 1. LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF TH E CASE IN REJECTING THE NET PROFIT TAKEN INTO ACCOUNT AS PER THE RETURN FILED BY THE ASSESSEE WITHOUT APPRECIATING T HE FACTS THAT FINDINGS GIVEN BY HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. VS. CIT 284 ITR 323 (SC) WHERE THE HO'BLE COURT HELD THAT THERE IS NO PROVIS IONS UNDER THE INCOME TAX ACT TO MAKE AMENDMENT IN THE RETURN OF INCOME. 4. THE ASSESSEE CHALLENGED THE ACTION OF THE A.O. BEFORE THE LD. CIT(A) IN DISREGARDING THE LOSS WORKED-OUT BY SPECIAL AUDITOR (APPOINTED BY INCOME TAX DEPARTMENT) AND AS SESSING AT THE RETURNED POSITIVE INCOME FOLLOWING THE DECIS ION OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. VS. CIT 284 ITR 323 (SC). THE ASSESSEE SUBMITTED BEFORE LD. CIT(A) THAT SINCE A.Y. 2004-2005, ASSESSEES ACCOUNTS ARE REGUL ARLY BEING AUDITED BY THE SPECIAL AUDITOR APPOINTED BY THE REV ENUE 3 ITA.NO.5820/DEL./2015 M/S. KUMAON MANDAL VIKAS NIGAM LTD., NAINITAL. DEPARTMENT. FROM THE A.YS. 2004-2005 TO 2008-2009, THE ASSESSMENT ORDERS HAVE BEEN FRAMED AS PER THE PROFI T AND LOSS DERIVED BY THE SPECIAL AUDITOR IRRESPECTIVE OF PROF IT/LOSS DISCLOSED BY THE ASSESSEE IN ITS RETURN OF INCOME. IN THE INSTANT CASE, THE REVENUE, WITHOUT NARRATING ANY PLAUSIBLE REASON OR WITHOUT REJECTING THE SPECIAL AUDIT REPORT, SUMMARI LY CHOOSE THE TENTATIVE PROFIT AS DISCLOSED BY THE ASSESSEE IN TH E RETURN OF INCOME AND TREATED IT AS ACTUAL REAL INCOME AND ACC ORDINGLY TAXED THE WHOLE TENTATIVE INCOME. THE TENTATIVE INC OME IS NOT A REAL INCOME AND NOT EARNED BY THE ASSESSEE. THEREFO RE, THE ADDITION CANNOT BE MADE. THE ACTION OF THE A.O. IS NOT IN ACCORDANCE WITH THE SPECIAL AUDITORS REPORT AND IS ALSO AGAINST THE PRINCIPLE OF CONSISTENCY BECAUSE THE DEPARTMENT CANNOT TAKE DIFFERENT YARDSTICKS TO TAX THE ASSESSEE. THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. VS. CIT (SUPRA), IS NOT APPLICABLE TO THIS CASE IN WHICH IT WAS HELD THAT BEFORE THE A.O, ASSESSEE COULD NOT MAKE A CLAIM OF DEDUCTION OTHERWISE THAN BY FILING A REVISED RETURN. IN THE CASE OF THE ASSESSEE, IT IS NOT ABOUT THE ALLOWABILITY OF ANY D EDUCTION AT THE 4 ITA.NO.5820/DEL./2015 M/S. KUMAON MANDAL VIKAS NIGAM LTD., NAINITAL. TIME OF ASSESSMENT PROCEEDINGS, WHICH IT FAILED TO CLAIM AT THE TIME OF FILING THE ITR, BUT TO TREAT THE ACTUAL/REA L PROFIT/LOSS EARNED BY THE ASSESSEE AS DERIVED BY THE SPECIAL AU DITOR APPOINTED BY THE REVENUE DEPARTMENT AS IT IS TAXABL E PROFIT/LOSS FOR THE YEAR UNDER CONSIDERATION. THE H ONBLE SUPREME COURT IN THIS CASE HELD THAT THE ISSUE IN T HIS CASE IS LIMITED TO THE POWERS OF THE ASSESSING AUTHORITY AN D DOES NOT IMPINGE ON THE POWER OF THE ITAT UNDER SECTION 254 OF THE I.T. ACT. THE ASSESSEE RELIED UPON THE ORDER OF HONBLE MUMBAI HIGH COURT IN THE CASE OF PRUTHVI BROKERS & SHAREHOLDERS PVT. LTD., (2012) 23 TAXMANN.COM 23 (BOM.). IN THIS CASE, ASSE SSEE HAD CLAIMED DEDUCTION UNDER SECTION 43B IN RESPECT OF P AYMENT OF SEBI FEES OF RS.10 LAKHS RELEVANT TO A.Y. 2005-2006 . THUS, ADMITTEDLY FOR THE RELEVANT A.Y. 2004-2005, THE ASS ESSEE WAS NOT ENTITLED TO DEDUCTION IN RESPECT OF THE SAID PA YMENT. THE ASSESSEE IN THE COURSE OF PROCEEDINGS BEFORE A.O. S TATED THAT CLAIM WAS MADE THROUGH INADVERTENCE. THE RESPONDENT HOWEVER, MADE A CLAIM OF RS.40 LAKHS UNDER SECTION 43B ALSO BEING PAYMENT OF SEBI FEES MADE ON 09 TH MAY, 2003 I.E., IN 5 ITA.NO.5820/DEL./2015 M/S. KUMAON MANDAL VIKAS NIGAM LTD., NAINITAL. ASSESSMENT YEAR IN QUESTION 2004-2005. THE A.O. REJ ECTED THE CLAIM ON THE GROUND THAT HE HAD NO AUTHORITY TO ALL OW ANY RELIEF OR DEDUCTION WHICH HAD NOT BEEN CLAIMED IN THE RETU RN. THE LD. CIT(A) ALLOWED THE CLAIM OF ASSESSEE AND THE TRIBUN AL DISMISSED THE DEPARTMENTAL APPEAL. THE HONBLE HIGH COURT DEC IDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE ASSESSEE RELIE D UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF NA TIONAL THERMAL POWER COMPANY LTD., VS. CIT (1998) 229 ITR 383 (SC). THE LD. CIT(A) CONSIDERING THE MATERIAL ON RECORD, DIRECTED THE A.O. TO ACCEPT THE FIGURE OF LOSS WORKED-OUT BY THE SPECIAL AUDITOR. THE FINDINGS OF THE LD. CIT(A) IN PARA 4.1 OF THE ORDER ARE REPRODUCED AS UNDER : 4.1 THE FACTS ON THIS ISSUE, THE FINDINGS OF ID. AO AND THE AVERMENTS OF ID. AR HAVE BEEN CAREFULLY PERUSED . RIGHT AT THE OUTSET, IT NEEDS TO BE MENTIONED THAT THE CA SE OF GOETZE INDIA LTD. (SUPRA) DOES NOT APPLY HERE BECAU SE THERE IS NO CLAIM OF DEDUCTION MADE OTHERWISE THROUGH A R EVISED RETURN (AS HAPPENED IN THAT CASE). SECONDLY, THE AP PELLANT 6 ITA.NO.5820/DEL./2015 M/S. KUMAON MANDAL VIKAS NIGAM LTD., NAINITAL. WAS TOTALLY IN THE DARK ABOUT HIS EXACT INCOME (OR LOSS) SINCE THEY HAVE BEEN FILING A TENTATIVE PROFIT AND LOSS ACCOUNT FOR THE PAST SEVERAL YEARS AND EXCLUSIVELY DEPENDING ON THE SPECIAL AUDITORS REPORT TO ARRIVE AT SOME SPECIFIED FIGURE OF PROFIT OR LOSS. THIS FACT AND C IRCUMSTANCE WOULD PREVENT THE APPELLANT FROM FILING ANY REVISED RETURN EVEN IF HE WANTED TO. THUS ON THE BASIS OF THESE TW O GROUNDS THE CASE OF GOETZE INDIA LTD. (SUPRA) IS NO T APPLICABLE IN THE PRESENT APPEAL. ALSO THIS PRACTIC E IS SEEN TO HAVE BEEN FOLLOWED FOR PAST SEVERAL YEARS. HOWEVER, WHAT IS WORTHY OF CONCERN I S THAT ALL ALONG, FOR PAST SEVERAL YEARS, THE LD. AO HAS BEEN ADOPTING THE FIGURE OF PROFIT WORKED OUT BY THE SPECIAL AUDI TOR TO COMPUTE THE TAXABLE INCOME OF THIS APPELLANT, BUT W HEN THAT FIGURE IS A LOSS (AS IN THIS YEAR) THEN THE ID . AO SEEKS THE PROTECTION OF GOETZE INDIA LTD CASE (SUPRA) TO DENY A LEGITIMATE CLAIM OF THIS ASSESSEE. IT IS SETTLED LA W THAT THERE IS A DUTY CAST ON REVENUE AUTHORITIES TO WORK OUT T HE 7 ITA.NO.5820/DEL./2015 M/S. KUMAON MANDAL VIKAS NIGAM LTD., NAINITAL. CORRECT TAXABLE INCOME OF AN ASSESSEE. HERE THE BAS IS FOR DOING THAT HAS BEEN THE SPECIAL AUDITORS REPORT FO R THE PAST SEVERAL YEARS AND THUS AS A MATTER OF FAIR PLAY AND CONSISTENCY OF APPROACH, THE ID. AO SHOULD HAVE ADO PTED THE BASE FIGURE OF LOSS (IN THE PRESENT CASE) TO WO RK OUT THE TAXABLE INCOME, IF ANY. THE CASE LAWS RELIED UPON B Y THE ID. AR ALSO HAVE PERSUASIVE VALUE IN DECIDING THAT THE BASE FIGURE TO BE ADOPTED FOR COMPUTING INCOME IS THE FI GURE OF LOSS WORKED OUT BY THE SPECIAL AUDITOR. THE ID. AO IS DIRECTED ACCORDINGLY. 5. AFTER CONSIDERING THE SUBMISSIONS OF THE LD. D. R. WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF T HE REVENUE. THE LD. D.R. RELIED UPON THE DECISION OF HONBLE SU PREME COURT IN THE CASE OF GOETZE (INDIA) LTD. VS. CIT (SUPRA) AND SUBMITTED THAT ASSESSEE HAS FILED RETURN OF INCOME AT RS.1.03 CRORES. THEREFORE, LOSS SHOULD NOT HAVE BEEN ACCEPTED BY TH E LD. CIT(A). THE ASSESSEE IS A GOVERNMENT COMPANY. THE ACCOUNTS OF THE ASSESSEE SHALL HAVE TO BE AUDITED BY THE STATUTORY AUDITOR 8 ITA.NO.5820/DEL./2015 M/S. KUMAON MANDAL VIKAS NIGAM LTD., NAINITAL. APPOINTED BY C & AG OF INDIA. THERE IS A DELAY IN G ETTING THE ACCOUNTS AUDITED DUE TO APPOINTMENT OF THE STATUTOR Y AUDITOR. ULTIMATELY, SPECIAL AUDIT IS ALSO DONE IN THE MATTE R. THE ASSESSEE FURNISHED THE RETURN OF INCOME ONLY ON THE BASIS OF TENTATIVE P & L A/C. THE ASSESSEE PRODUCED BOOKS OF ACCOUNT BEFORE A.O. BUT ACCORDING TO A.O. PROPER BOOKS OF A CCOUNT HAVE NOT BEEN MAINTAINED. THESE FACTS CLEARLY SHOW THAT ASSESSEE HAS TO RELY UPON TENTATIVE P & L A/C AND ULTIMATELY, SP ECIAL AUDITOR FILED THE REPORT DETERMINING THE LOSS IN THIS CASE. THE ASSESSEE, THUS, WOULD BE PREVENTED FROM FILING REVISED RETURN . IN PAST ALSO, THE A.O. ADOPTED THE FIGURES OF PROFIT WORKED-OUT B Y THE SPECIAL AUDITOR TO COMPUTE THE TAXABLE INCOME OF THE ASSESS EE. HOWEVER, IN THE ASSESSMENT YEAR UNDER APPEAL, WHEN SPECIAL AUDITOR DETERMINED THE INCOME OF ASSESSEE AT LOSS, A.O. DIFFERED WITH IT AND TAKEN TENTATIVE FIGURE OF PROFIT SHOWN IN THE RETURN OF INCOME. THE A.O, THEREFORE, CANNOT TAKE DIFFEREN T VIEW IN ASSESSMENT YEAR UNDER APPEAL. IT IS THE DUTY OF THE REVENUE AUTHORITIES TO WORK-OUT CORRECT TAXABLE INCOME OF T HE ASSESSEE. THE SPECIAL AUDITOR WAS APPOINTED BY THE A.O. AND A S SUCH, ITS 9 ITA.NO.5820/DEL./2015 M/S. KUMAON MANDAL VIKAS NIGAM LTD., NAINITAL. REPORT IS BINDING ON THE A.O. THEREFORE, THE A.O. S HOULD HAVE ADOPTED THE BASE FIGURE OF LOSS TO WORK-OUT THE TAX ABLE INCOME OF ASSESSEE. THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF GOETZE (INDIA) LTD. VS. CIT (SUPRA) IS, THE REFORE, DISTINGUISHABLE ON FACTS. FURTHER, THE HONBLE DELH I HIGH COURT IN THE CASE OF CIT VS. JAI PARABOLIC SPRINGS LTD., (2008) 306 ITR 42 (DEL.) CONSIDERING THE DECISION OF HONBLE SUPRE ME COURT IN THE CASE OF NATIONAL THERMAL POWER COMPANY LTD., VS . CIT (SUPRA) AND GOETZE (INDIA) LTD. VS. CIT (SUPRA), HE LD THERE IS NO PROHIBITION ON THE POWER OF THE TRIBUNAL TO ENTERTA IN ADDITIONAL GROUND, WHICH, ACCORDING TO THE TRIBUNAL ARISE IN T HE MATTER FOR THE JUST DECISION OF THE CASE. THE LD. CIT(A) BEING AN APPELLATE AUTHORITY HAS CORRECTLY CAME TO THE CONCLUSION THAT LOSS DETERMINED BY THE SPECIAL AUDITOR APPOINTED BY THE DEPARTMENT SHALL HAVE TO BE ACCEPTED BY THE A.O. AS AGAINST TE NTATIVE FIGURE GIVEN BY THE ASSESSEE. NO INFIRMITY HAVE BEEN POINT ED OUT IN THE ORDER OF THE LD. CIT(A). GROUND NO.1 OF APPEAL OF T HE DEPARTMENT IS ACCORDINGLY DISMISSED. 10 ITA.NO.5820/DEL./2015 M/S. KUMAON MANDAL VIKAS NIGAM LTD., NAINITAL. 6. GROUND NO.2 READS AS UNDER : 2. LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION MADE ON ACCOUNT OF DISALLOWAN CE OF THE PAYMENT U/S 40A(IA) WITHOUT APPRECIATING THE FACTS THAT THE AUDIT REPORT MENTIONS WHETHER THE ASSESSEE HAS DEDUCTED TAX AT SOURCE AND PAID THE AMOUNT SO DEDUCTED TO THE CREDIT OF THE CENTER GOVERNMENT IN ACCORDANCE OF THE PROVISIONS OF CHAPTER XVIIB ? IF NOT GIVE DETAILS OF DEFAULTS COMMITTED. 7. THE A.O. ADDED RS.31,23,729/- UNDER SECTION 40(A)(IA) OF THE ACT ON THE GROUND THAT TAX WAS NOT DEDUCTED AT SOURCE BEFORE THE CLOSE OF THE RELEVANT FINANCIAL Y EAR. THE FACTS STATED BY THE A.O. HAVE NOT BEEN DOUBTED INASMUCH A S NO TDS WAS DONE ON THE IMPUGNED TRANSACTIONS. HOWEVER, THE ASSESSEE HAS CONTENDED THAT TAX WAS DEDUCTED AND DEPOSITED I N THE GOVERNMENT ACCOUNT BEFORE THE DUE DATE OF FILING OF THE RETURN. THE ASSESSEE CLAIMED THAT THERE IS AN AMENDMENT TO SECTION 40(A)(IA) OF THE I.T. ACT AND IN CASE, THE TAX IS P AID IN SUCCEEDING YEAR ALSO, THE DEDUCTION IS ALLOWABLE. THE LD. CIT( A) HELD THAT 11 ITA.NO.5820/DEL./2015 M/S. KUMAON MANDAL VIKAS NIGAM LTD., NAINITAL. AFTER AMENDMENT IN THE ABOVE SECTION W.E.F. 01.04.2 010, IT IS CLEAR THAT THERE CAN BE NO PUNITIVE ACTION ON THE A SSESSEE UNDER SECTION 40(A)(IA) OF THE I.T. ACT. THIS ADDITION WA S ACCORDINGLY DELETED. 8. AFTER HEARING THE LD. D.R, WE ARE OF THE VIEW T HAT THE MATTER REQUIRES RECONSIDERATION AT THE LEVEL OF THE LD. CIT(A). THE SPECIAL AUDITOR HAS MENTIONED IN THE REPORT WHETHER ASSESSEE HAS DEDUCTED TAX AT SOURCE AND PAID THE AM OUNT SO DEDUCTED TO THE CREDIT OF THE CENTRAL GOVERNMENT AS PER LAW ? IF NOT, GIVE DETAILS OF DEFAULT COMMITTED. AS PER ANNEXURES, THE ASSESSEE HAD MADE PAYMENTS OF RS.12,41,447, RS.15,2 8,146, AND RS.3,54,036/- WITHOUT DEDUCTING THE TAX ON IT. THE A.O. ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE FOR EXPLAN ATION. THE ASSESSEE EXPLAINED THAT DUE TAXES WERE DEPOSITED UN DER THE ASSESSEES TAN AND ACCORDINGLY, FORM 16A WAS ISSUED TO THE CONTRACTOR. THE A.O. NOTED THAT ASSESSEE THOUGH, AC CEPTED THAT THERE WAS A DEFAULT IN DEDUCTING THE TAX AT SOURCE ON THE PAYMENT OF RS.12,41,447/-, BUT CONTESTED THAT TAX D EDUCTED ON 12 ITA.NO.5820/DEL./2015 M/S. KUMAON MANDAL VIKAS NIGAM LTD., NAINITAL. THE REMAINING AMOUNT WERE DEPOSITED WITHIN DUE DATE OF FILING OF THE RETURN. THE A.O. HOWEVER, DISALLOWED THE ENT IRE AMOUNT. THESE FACTS CLEARLY SHOW THAT BEFORE A.O. THE ASSES SEE ACCEPTED THAT THERE WAS A DEFAULT IN TDS ON THE PAYMENT OF RS.12,41,447/- AND FOR THE REST OF THE AMOUNT, ASSE SSEE SUBMITTED THAT TAX WAS DEPOSITED WITHIN THE DUE DAT E OF FILING OF THE RETURN. HOWEVER, NO DETAILS HAVE BEEN MENTIONED IN THE ASSESSMENT ORDER. SIMILARLY, BEFORE THE LD. CIT(A) NO SUCH DETAILS HAVE BEEN MENTIONED IN THE WRITTEN SUBMISSI ONS OR IN THE FINDINGS OF THE LD. CIT(A). THE ORDER OF THE LD . CIT(A) IS NOT A SPEAKING ONE AND DID NOT DISCUSS ANYTHING ON MERI T. THE LD. CIT(A) MERELY DELETED THE ADDITION BECAUSE OF THE A MENDMENT IN SECTION 40(A)(IA) OF THE I.T. ACT WITHOUT CONSID ERING THE ISSUE ON MERIT AND EVEN WITHOUT CONSIDERING THE FINDINGS OF THE A.O. THAT ASSESSEE ADMITTED THAT THERE WAS A DEFAULT FOR TDS ON THE PAYMENT OF RS.12,41,447/-. EVEN FOR OTHER DEPOSITS OF TDS, NO DETAILS HAVE BEEN BROUGHT ON RECORD AS TO WHEN TAX WAS DEDUCTED AND DEPOSITED. THE MATTER, THEREFORE, REQU IRES RECONSIDERATION AT THE LEVEL OF THE LD. CIT(A). WE, ACCORDINGLY, 13 ITA.NO.5820/DEL./2015 M/S. KUMAON MANDAL VIKAS NIGAM LTD., NAINITAL. SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE T HIS ISSUE TO HIS FILE WITH A DIRECTION TO REDECIDE THIS ISSUE IN ACC ORDANCE WITH LAW, BY GIVING REASONS FOR DECISION ON MERIT IN THE APPELLATE ORDER, BY GIVING REASONABLE, SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NO.2 OF APPEAL OF THE DEPARTMENT IS ALLOWED FOR STATISTICAL PURPOSES. 9. GROUND NO.3 IS AS UNDER : 3. LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION MADE ON ACCOUNT OF INTEREST EARNED ON EARMARKED FUNDS WITHOUT APPRECIATING THE FACTS THAT THE CORPORATIONS FINANCIAL AFFAIRS BEIN G IN MESS, ABSENCE OF BALANCE SHEET TO PROVE THAT INTERE ST IS LIABILITY AND NOT USED FOR OWN PURPOSE AND RECOMMENDATION OF THE STATUTORY AUDITOR THAT THE CORPORATION SHOULD STOP USING AND CREDITING THE INTEREST ON EAR MARKED FUND IN ITS INCOME, THE INTE REST IS BEING TREATED AS INCOME FROM OTHER SOURCES AS PE R DEFINITION OF INTEREST GIVEN IN SECTION 28A AND INC LUDES ANY SERVICE FEE OR OTHER CHANGE IN RESPECT OF ANY C REDIT FACILITY WHICH HAS NOT BEEN UTILIZED. 14 ITA.NO.5820/DEL./2015 M/S. KUMAON MANDAL VIKAS NIGAM LTD., NAINITAL. 10. THROUGH THIS GROUND, THE ASSESSEE CHALLENGED T HE ORDER OF THE A.O. BEFORE LD. CIT(A) IN MAKING ADDIT ION OF RS.1,01,87,691/- ON ACCOUNT OF TREATMENT GIVEN TO L IABILITY FOR EARMARKED FUNDS BEING TREATED AS INCOME OF THE ASSE SSEE. THE A.OS FINDING REVOLVE AROUND THE FACT THAT ASSESSEE COULD NOT PRODUCED THE BALANCE SHEET. THE ASSESSEE CHALLENGED THE ADDITION BEFORE THE LD. CIT(A). IT WAS SUBMITTED TH AT KMVN LTD., (ASSESSEE) ALSO WORKS AS A GOVERNMENT CONSTRUCTION AGENCY LIKE PWD AND HAVE A FULL-FLEDGED WORKING CONSTRUCTI ON DIVISION. THE GOVERNMENT ALLOTS CONSTRUCTION WORK TO THE CONS TRUCTION DIVISION OF THE CORPORATION AND ADVANCE IS GIVEN TO PERFORM THESE CONTRACTS. THE UNUTILIZED AMOUNT OF THE ADVAN CE SO GIVEN, HAS GIVEN A NOMENCLATURE EARMARKED FUND. AS PER T HE ROUTINE BUSINESS PRACTICE, THE SAID BALANCE AMOUNT IS KEPT AS FIXED DEPOSIT IN THE BANK AND INTEREST IS EARNED ON THAT. THE A.O. ADDED SUCH INTEREST TO THE INCOME OF THE CORPORATIO N. THE C & AG OF INDIA, FOR THE YEAR ENDING 31 ST MARCH, 1999 COMMENDED THAT IN SPITE OF BEING COMMENTED UPON BY C & AG OF INDI A ON AMOUNTS OF THE COMPANYS INTEREST EARNED DURING THE YEAR ON 15 ITA.NO.5820/DEL./2015 M/S. KUMAON MANDAL VIKAS NIGAM LTD., NAINITAL. UNSPENT EARMARKED FUND, WAS NOT CREDITED TO THE EAR MARKED FUND. THIS HAS RESULTED IN UNDERSTATEMENT OF LOSS F OR THE YEAR AND UNDERSTATEMENT OF CURRENT LIABILITY BY THE CORRESPO NDING AMOUNT . ACCORDING TO THE COMMENTS OF C & AG OF INDIA, THE INTEREST INCOME EARNED ON THE EARMARKED FUNDS SHALL BE TRANSFERRED AND CREDITED TO THE EARMARKED FUNDS AND THE CORPORATION HAS NO AUTHORITY TO USE, EXPEND OR UTIL ISE THE INTEREST EARNED FOR ITS OWN PURPOSES. IN A.Y. 2010- 2011 THE LD. CIT(A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE LD. CIT(A) FOLLOWING THE ORDER FOR A.Y. 2010-2011 DELETED THE ADDITION. 11. AFTER CONSIDERING THE SUBMISSIONS OF THE LD. D .R, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF T HE DEPARTMENT. THE ASSESSEE BEING A GOVERNMENT COMPANY , ITS ACCOUNTS ARE COMPULSORILY AUDITED BY C & AG OF INDI A. IN EARLIER YEAR, C & AG OF INDIA HAS DIRECTED THAT INTEREST EA RNED DURING THE YEAR ON UNSPENT EARMARKED FUND SHOULD BE CREDIT ED TO THE SAME EARMARKED FUND. ASSESSEE IS BOUND TO FOLLOW TH E DIRECTIONS OF C & AG OF INDIA. THE ASSESSEE, THEREF ORE, CORRECTLY 16 ITA.NO.5820/DEL./2015 M/S. KUMAON MANDAL VIKAS NIGAM LTD., NAINITAL. TAKEN THE INTEREST TO SUCH FUND AND RIGHTLY CONTEND ED THAT IT HAS NO AUTHORITY TO USE, EXPEND OR UTILISE THE INTE REST EARNED FOR ITS OWN PURPOSES. THEREFORE, WHEN INTEREST ON EARMA RKED FUND IS NOT RELATED TO THE ASSESSEE AND SHALL HAVE TO BE SPENT FOR SPECIFIC PURPOSE, IT COULD NOT BE TREATED AS INCOME OF THE ASSESSEE. THE LD. CIT(A), CORRECTLY, DELETED THE AD DITION. GROUND NO.3 OF THE APPEAL OF THE DEPARTMENT IS DISMISSED. 12. GROUND NO.4 READS AS UNDER: 4. LD. CIT(A) HAS ERRED IN LAW AND ON FACTS OF TH E CASE IN DELETING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE UNDER SECTION 14A WITHOUT APPRECIATING THE FACTS THAT THE CALCULATED EXPENSES U/S 14A BY T HE SPECIAL AUDITOR WERE MADE EXCLUSIVELY FOR THE INCOM E WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. 13. THE A.O. DISALLOWED RS.25,17,000/- UNDER SECTI ON 14A OF THE I.T. ACT BY HOLDING THAT DIVIDEND INCOME EARNED BEING TAX FREE, WOULD BE HIT BY THE PROVISIONS OF SECTION 14A OF THE I.T. ACT. THE ASSESSEE CHALLENGED THE ADDITION BEFORE TH E LD. CIT(A) 17 ITA.NO.5820/DEL./2015 M/S. KUMAON MANDAL VIKAS NIGAM LTD., NAINITAL. AND REFERRED TO REMARKS OF THE SPECIAL AUDITOR IN A UDIT REPORT IN WHICH HE HAS STATED THAT ASSESSEE HAS INVESTED RS.1025.29 LAKHS IN SHARES OF VARIOUS COMPANIES. THE DIVIDEND FROM SHARE IS EXEMPT FROM TAX US 10(34). ACCORDINGLY, SECTION 14A IS APPLICABLE AND DISALLOWANCE MAY BE CONSIDERED. THE ASSESSEE ALSO REFERRED TO ANOTHER PART OF THE SPECIAL AUDITO RS REPORT IN WHICH AUDITOR HAS SIMILARLY POINTED OUT THAT ASSESSEE HAS INVESTED IN SHARES OF VARIOUS COMPANIES IN A SUM OF RS.1025.29 LAKHS AND NO DIVIDEND INCOME IS RECEIVED ON THE SAI D INVESTMENT. ASSESSEE, THEREFORE, CONTENDED THAT SINCE NO EXEMPT INCOME HAVE BEEN EARNED ON SUCH INVESTMENTS, THEREFORE, SECTION 14A WOULD NOT APPLY. THE LD. CIT (A) IN A.Y. 2010-2011 DELETED THE SIMILAR ADDITION. THE LD. CIT (A) FOLLOWING HIS ORDER FOR A.Y. 2010-2011 DELETED THE ADDITION. 14. AFTER CONSIDERING THE SUBMISSIONS OF THE LD. D .R, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF T HE REVENUE. THE SPECIAL AUDITOR WAS APPOINTED BY THE INCOME TAX DEPARTMENT WHO HAS REPORTED THAT THOUGH ASSESSEE HA S MADE 18 ITA.NO.5820/DEL./2015 M/S. KUMAON MANDAL VIKAS NIGAM LTD., NAINITAL. INVESTMENTS IN SHARES OF VARIOUS COMPANIES, BUT, NO DIVIDEND IS RECEIVED ON SUCH INVESTMENTS. IT IS, THEREFORE, CLE AR THAT NO DIVIDEND INCOME HAVE BEEN RECEIVED OR EARNED BY THE ASSESSEE. NO OTHER FACT BROUGHT ON RECORD AGAINST THE ASSESSE E. IN THE CASE OF CHEMINVEST LTD., 378 ITR 33, THE HONBLE DE LHI HIGH COURT HELD THAT NO DISALLOWANCE BE MADE UNDER SECTION 14A WHEN NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE. SINCE, ASSESSEE DID NOT EARN ANY EXEMPT INCOME IN ASSESSME NT YEAR UNDER APPEAL, THEREFORE, NO DISALLOWANCE IS PERMISS IBLE. GROUND NO.4 OF THE DEPARTMENT IS DISMISSED. 15. IN THE RESULT, APPEAL OF THE DEPARTMENT IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (LP SAHU) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DELHI, DATED 02 ND MAY, 2018 VBP/- 19 ITA.NO.5820/DEL./2015 M/S. KUMAON MANDAL VIKAS NIGAM LTD., NAINITAL. COPY TO 1. THE APPLICANT 2. THE RESPONDENT 3. CIT(A) CONCERNED 4. CIT CONCERNED 5. D.R. ITAT D BENCH, DELHI 6. GUARD FILE. // BY ORDER // ASSISTANT REGISTRAR : ITAT DELHI BENCHES : DELHI.