M/s. Crystal Corp Protection (P) Ltd., Delhi V. DCIT, New Delhi

ITA 6265/DEL/2015

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 7053 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2012-2013
• Appeal Filed On: 26-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SANDIP S NAGA R
• Keywords: Earning of tax free income; Capital receipt; Rule 8D
• Section: 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI C BEN CH, NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI AMIT SHUKLA, JUDICIAL MEMB ER ITA NO. 6265/DEL/2015 [A.Y 2012-13] M/S CRYSTAL CROP PROTECTION [P] LTD. VS. THE D.C. I.T G1-17, G.T. KARNAL ROAD, AZADPUR CIRCLE 6(2) DELHI NEW DELHI PAN: AABCJ 3574 E [APPELLANT] [RESP ONDENT] ASSESSEE BY : SHRI SANDIP S. NAGA R, CA REVENUE BY : SHRI RAJESH KUMAR, S R. DR DATE OF HEARING : 21.01.2021 DATE OF PRONOUNCEMENT : 28.01.2021 ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, THIS APPEAL BY THE ASSESSEE IS PREFERRED AGAINST TH E ORDER OF THE CIT(A)-2, NEW DELHI DATED 31.08.2015 PERTAINING TO A.Y 2012-13. 2 2. THE ONLY GROUND TAKEN IN THE MEMORANDUM OF APPEA L RELATES TO THE ADDITIONS MADE U/S 14A OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT] READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 AMOUNTING TO RS. 20,06,321/-. 3. VIDE LETTER DATED 21.03.2016, THE ASSESSEE HAS A LSO RAISED THE FOLLOWING ADDITIONAL GROUNDS OF APPEAL: 1.1 WE BEG TO REFER TO THE ABOVE APPEAL WHICH IS YET TO BE DISPOSED OF BY YOUR GOODSELF. IN THIS REGARD, WE WOULD HUMBLY R EQUEST FOR INCLUSION OF THE ENCLOSED ADDITIONAL GROUND IN THE ABOVE APPEAL WHICH DOES NOT REQUIRE ANY FURTHER INVESTIGATION OF FACTS. 2.0 CLAIM OF EXCISE DUTY SUBSIDY & INTEREST SUBSIDY AS CAPITAL RECEIPT 2.1 THE ASSESSEE HAS SET UP ONE UNIT IN JAMMU AND K ASHMIR AND BY VIRTUE OF NEW INDUSTRIAL POLICY RECEIVED INTERES T SUBSIDY AND EXCISE DUTY SUBSIDY AMOUNTING TO RS.18,21,922/- & R S. 8,57,05,868/-. IN COMPUTING THE TOTAL TAX LIABILITY , THE SAME WAS CLAIMED AS REVENUE RECEIPT UNDER NORMAL PROVISIONS OF THE ACT. 2.2 THE INTEREST AND EXCISE DUTY SUBSIDY HAS BEEN G RANTED WITH THE OBJECTIVE OF DEVELOPMENT OF INDUSTRIES AND GENERATI ON OF EMPLOYMENT AND CONSIDERING DIE PURPOSE TEST AND SPI RIT, HON'BLE HIGH COURT OF JAMMU & KASHMIR IN THE CASE OF SHREE BALAJI ALLOYS - VS. CIT (2011) 333 ITR 335 (J & K) HELD THAT EXCISE DUTY SUBSIDY, 3 INTEREST SUBSIDY AND INSURANCE SUBSIDY RECEIVED WIT H THE OBJECT OF CREATING AVENUES FOR PERPETUAL EMPLOYMENT, TO ER ADICATE THE SOCIAL PROBLEM OF UNEMPLOYMENT IN THE STATE BY ACCE LERATED INDUSTRIAL DEVELOPMENT IS CAPITAL RECEIPT. FURTHER, YOUR GOODSELF WOULD APPRECIATE THAT CIVIL APPEAL NO. 10061 OF 2011 DATED 19-04- 2016 FILED BY DEPARTMENT HAS BEEN DISMISSED BY HON' BLE APEX COURT. SINCE THE SCHEME AS APPLICABLE IN SHREE BALA JI AHOY IS SAME WITH THE APPELLANT, HENCE THE SUBSIDY IS CAPITAL IN NATURE. 2.3 RELIANCE IS ALSO PLACED ON THE DECISION OF HON 'BLE JURISDICTIONAL ITAT IN THE CASE OF MONTAGE ENTERPRISES PVT LTD.LIT A NO 5124/DEI/2011 , DATED 29-06-20181 WHEREIN IT WAS HELD THAT EXCISE DUTY SUBSIDY TO BE TREATED AS CAPITAL IN NAT URE STANDS UPHELD FROM THE STAGE OF THE HON'BLE SUPREME COURT. ONCE RECEIPT ITSELF HAS BEEN TREATED AS CAPITAL IN NATURE IT CAN NOT BE BOUGHT TO TAX, THEN SAME CANNOT BE HELD TO BE INCLUDABLE IN THE BOOK PROFIT. 3.0 CLAIM OF EDUCATION CESS AS AN ALLOWABLE EXPENDITURE 3.1 THE APPELLANT WISHES TO LODGE CLAIM FOR DEDUCTI ON OF EDUCATION CESS IN COMPUTING TOTAL INCOME IN VIEW OF CBDT CIRCULAR NO. 91/58/66 - ITJ(19) DATED 18-05-1967, WHEREIN IT HAS BEEN CLARI FIED THAT THE EFFECT OF THE OMISSION OF THE WORD 'CESS' FROM SEC. 40(A) (II) OF THE ACT IS THAT ONLY TAXES PAID ARE TO BE DISALLOWE D. 4 3.2 THE RECENT DECISION OF HON'BLE RAJASTHAN HIGH C OURT IN THE CASE OF CHAMBAL FERTILISERS AND CHEMICALS LTD -VS.-JCIT (IT A NO. 52/2018, DATED 31-07-2018) ALSO CONFIRMS THE ABOVE CLAIM MADE BY THE APPELLANT AND THUS CONCLUDES THAT EDUCATION CES S IS AN ALLOWABLE EXPENDITURE IN COMPUTING TOTAL TAX LIABILITY. PRAYER 4.0 IN VIEW OF THE ABOVE, THE APPELLANT MOST RESPEC TFULLY PRAYS FOR ADMISSION OF THE ENCLOSED ADDITIONAL GROUNDS IN THE APPEAL PENDING BEFORE YOUR GOODSELF. YOUR APPELLANT ALSO MOST RESP ECTFULLY CRAVES LEAVE TO ADD, TO AMEND, MODIFY, RESCIND, OR ALTER T HE ADDITIONAL GROUND EITHER BEFORE OR AT THE TIME OF HEARING OF T HE APPEAL. 4. THE REPRESENTATIVES OF BOTH THE SIDES WERE HEARD AT LENGTH, THE CASE RECORDS CAREFULLY PERUSED AND WITH THE ASSISTA NCE OF THE LD. COUNSEL, WE HAVE CONSIDERED THE DOCUMENTARY EVIDENC ES BROUGHT ON RECORD IN THE FORM OF PAPER BOOK IN LIGHT OF RULE 1 8(6) OF ITAT RULES AND HAVE ALSO PERUSED THE JUDICIAL DECISIONS RELIED UPON BY BOTH THE SIDES. 5. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PESTICIDES, INSECTICIDES, HERBICID ES AND FERTILIZERS. RETURN FOR THE YEAR UNDER CONSIDERATION WAS SELECTE D FOR SCRUTINY 5 ASSESSMENT THROUGH CASS AND ACCORDINGLY, STATUTORY NOTICES WERE ISSUED AND SERVED UPON THE ASSESSEE. 6. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEED INGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS EAR NED DIVIDEND INCOME OF RS. 1,44,27,927/- AND SHARE OF PROFIT FROM M/S M ODERN PAPERS AMOUNTING TO RS. 9,72,94,896/- AND CLAIMED THE SAME AS EXEMPT FROM TAX. INVOKING PROVISIONS OF SECTION 14A VIDE QUEST IONNAIRE DATED 12.09.2014, THE ASSESSING OFFICER ASKED THE ASSESSE E TO GIVE WORKING OF DISALLOWANCE U/S 14A OF THE ACT. 7. IN ITS REPLY DATED 14.11.2014, THE ASSESSEE CLAI MED THAT NO EXPENSES ARE LIABLE TO BE DISALLOWED CONTENDING THA T THE INVESTMENT IN MUTUAL FUNDS AND PARTNERSHIP FIRMS WERE MADE OUT OF ISSUE OF EQUITY, INCLUDING FDI RAISED AND NO BORROWED FUNDS WERE USE D FOR THE PURPOSE. IT WAS EXPLAINED THAT THE INVESTMENT IN MUTUAL FUND S WERE TEMPORARY IN NATURE JUST TO USE THE FUNDS, BY THE TIME THE SA ME CAN BE ABSORBED IN THE BUSINESS OF THE ASSESSEE COMPANY. 6 8. AFTER CONSIDERING THE SUBMISSIONS MADE BY THE AS SESSEE, THE ASSESSING OFFICER WAS OF THE FIRM BELIEF THAT PROVI SIONS OF SECTION 14A R.W.R 8D SQUARELY APPLY ON THE FACTS OF THE CASE AN D ACCORDINGLY, COMPUTED THE DISALLOWANCE AT RS. 20,06,321/- 9. THE ASSESSEE AGITATED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 10. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE REI TERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. 11. PER CONTRA, THE LD. DR STRONGLY SUPPORTED THE F INDINGS OF THE ASSESSING OFFICER/LD. CIT(A). 12. HAVING CONSIDERED THE RIVAL CONTENTIONS, WE HAV E CAREFULLY PERUSED THE DOCUMENTARY EVIDENCES BROUGHT ON RECORD . EXHIBIT 95 IS A CERTIFICATE OF FOREIGN INWARD REMITTANCE OF RS. 150 CRORES. EXHIBIT 98 AND 99 ARE COPIES OF BANK STATEMENT OF HSBC BANK ON WHICH WE FIND 7 THAT INVESTMENT IN MUTUAL FUNDS HAVE BEEN MADE OUT OF REMITTANCE RECEIVED AS PER EXHIBIT 95. 13. THESE FACTS CLEARLY SHOW THAT THE ENTIRE INVEST MENTS HAVE BEEN MADE OUT OF OWN FUNDS AND NO BORROWED FUNDS HAVE BE EN USED. HOWEVER, WE ARE OF THE CONSIDERED VIEW THAT FOR EAR NING EXEMPT INCOME, SOME EXPENDITURE NEEDS TO BE DISALLOWED. C ONSIDERING THE FACTS OF THE CASE IN TOTALITY, WE ARE OF THE OPINIO N THAT A DISALLOWANCE OF RS. 2 LAKHS SHOULD MEET THE ENDS OF JUSTICE. WE , ACCORDINGLY, DIRECT THE ASSESSING OFFICER TO RESTORE THE DISALLOWANCE U /S 14A TO RS. 2 LAKHS. GROUND TAKEN IN MEMORANDUM OF APPEAL IS PAR TLY ALLOWED. 14. COMING TO THE ADDITIONAL GROUNDS MENTIONED ELSE WHERE, THE LD. DR STRONGLY OPPOSED TO THE ADMISSION OF ADDITIONAL GROUNDS STATING THAT THIS CLAIM WAS NEVER RAISED BEFORE THE LOWER AUTHOR ITIES, THEREFORE, THE AUTHORITIES BELOW HAD NO OCCASION TO EXAMINE TH E SAME. 15. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE VE HEMENTLY STATED THAT THE ADDITIONAL GROUNDS ARE PURELY LEGAL GROUND S. IT IS THE SAY OF THE LD. COUNSEL FOR THE ASSESSEE THAT SIMILAR ADDIT IONAL GROUNDS WERE 8 RAISED BEFORE THE TRIBUNAL IN A.Y 2011-12 AND THE T RIBUNAL IN ITA NO. 1539/DEL/2016 HAS DECIDED THE ISSUE IN FAVOUR OF TH E ASSESSEE AND AGAINST THE REVENUE. 16. WE HAVE CAREFULLY GONE THROUGH THE ADDITIONAL G ROUNDS RAISED AND HAVE DULY CONSIDERED THE ORDER OF THE CO-ORDINATE B ENCH INN ITA NO. 1539/DEL/2016. WE ARE OF THE CONSIDERED VIEW THAT THOUGH THE CLAIM HAS BEEN DECIDED BY THE CO-ORDINATE BENCH IN FAVOUR OF THE ASSESSEE, BUT THE DOCUMENTS RELATING TO THE CLAIM NEED TO BE EXAMINED. THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY , WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSIN G OFFICER IS DIRECTED TO EXAMINE THE CLAIM OF THE ASSESSEE AND DECIDE THE IS SUE AFRESH CONSIDERING THE ORDER OF THE TRIBUNAL IN ITA NO. 15 39/DEL/2016. ADDITIONAL GROUNDS ARE ALLOWED FOR STATISTICAL PURP OSES. 17. THE ASSESSEE HAS ALSO CLAIMED THAT DEDUCTION OF EDUCATION CESS IN COMPUTATION OF TOTAL INCOME SHOULD BE ALLOWED AS AN EXPENDITURE. 9 18. IN SUPPORT OF ITS CLAIM, STRONG RELIANCE WAS PL ACED ON THE DECISION OF THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CHAMBAL FERTILISERS AND CHEMICALS ITA NO. 52/2018 DATED 31.07.2018. WE DIRECT THE ASSESSING OFFICER TO CONSIDER THIS CLAIM OF THE ASS ESSEE IN LIGHT OF THE SAID DECISION OF THE HON'BLE HIGH COURT. 19. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO . 6265/DEL/2015 IS ALLOWED IN PART FOR STATISTICAL PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 28.01 .2021. SD/- SD/- [ AMIT SHUKLA ] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 28 TH JANUARY, 2021 VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI 10 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P S/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WE BSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 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