DCIT, New Delhi V. M/s. Indo Gulf Industries Ltd., New Delhi

ITA 6473/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97275 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 18-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 03-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income; Source of fund; Additional evidence
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : D NEW DELHI BEFORE SHRI N.K.SAINI, AM AND SHRI C.M.GARG , J .M. ITA NO. 6473 /DEL/20 13 ASSESSMENT YEAR : 20 0 8 - 09 D CIT, CIRCLE 11(1) V VS. INDO GULF INDUSTRIES LTD. NEW DELHI FLAT NO.213, RECTANGLE ONE SAKET DISTRICT CENTRE, SAKET NEW DELHI 110 017 PAN: AAAC 10120L (APPELLANT) (RESPONDENT ) APPELLANT BY : - SHRI ATIQ AHMAD, SR.D.R. RESPONDENT B Y : - SH. NARENDR KUMAR VERMA, ADV. O R D E R PER C.M.GARG , J.M. THIS APPEAL BY THE REVENUE HAS BEEN DIRECTED AGAINST THE ORDER OF THE LD.CIT(A) - XV, NEW DELHI DATED 6.9.2013 IN APPEAL NO.242/10 - 11/CIT(A)XV FOR THE A.Y. 2008 - 09. THE GROUNDS RAISED BY THE REVENUE READ AS UNDER. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.12,63,670/ - MADE U/S 14A IN ACCORDANCE WITH RULE 8D. 2. ON THE FACTS AND CIRCUMST ANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN ADMITTING THE ADDITIONAL EVIDENCES UNDER RULE 46A WITHOUT PROVIDING OPPORTUNITY TO THE AO FOR EXAMINATION OF THE SAME. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN H OLDING THE LOSS OF RS.5,72,463/ - BEING INCURRED ON FARM OPERATION BY HOLDING THAT THE LOSS WAS AGRICULTURAL IN NATURE WHICH CANNOT BE SET OFF WITH TAXABLE INCOME, WHILE THE ASSESSEE HAD CLAIMED THE LOSS ON ACCOUNT OF PRODUCTION OF RAW MATERIAL FOR SELF CON SUMPTION . ITA NO. 6473/DEL/2013 A.Y. 2008 - 09 INDO GULF INDUSTRIES LTD. 2 1 . 1 . GROUND NO.4 IS GENERAL IN NATURE. 2. BRIEFLY STATED THE FACTS GIVING RISE TO THE PRESENT APPEAL ARE THAT THE A.O. SELECTED THE CASE FOR SCRUTINY AND COMPLETED THE ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) AT TOTAL LOSS OF RS.17,85,39,860/ - AS AGAINST THE RETURNED LOSS OF RS. 18,05,97,247/ - . IN THE ASSESSMENT ORDER THE A.O. MADE CERTAIN DISALLOWANCES PERTAINING TO DISALLOWANCE OF EXPENSES U/S 14A OF THE ACT R.W. RULE 8D OF THE I.T. RULES, 1962, DISALLOWANCE FOR DEPRECIATION ON COMPUTER ACCESSORIES, DISALLOWANCE OF LOSS IN REGA RD TO AGRICULTURAL INCOME AND A SMALL DISALLOWANCE OF THE CHARGES ON ACCOUNT OF DELAYED PAYMENT OF TAX DEDUCTED AT SOURCE. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD.CIT(A) WHICH WAS ALLOWED ON ALL FOUR GROUNDS. 3. BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THIS TRIBUNAL IN THIS SECOND APPEAL WITH THE GROUNDS REPRODUCED HEREINABOVE. 4. IT IS RELEVANT TO MENTION THAT BESIDES ADMISSION AND CONSIDERATION OF ADDITIONAL EVIDENCE IN VIOLATION OF RULE 46A OF THE I.T. RULES, 1962 THE REVENUE HAS ONLY CH ALLENGED DELETION OF DISALLOWANCE MADE U/S 14A OF THE ACT R.W. RULE 8D OF THE RULES AND ON THE ISSUE OF DELETION OF ADDITION MADE BY DISALLOWING LOSS RELATED TO AGRICULTURAL INCOME. 5. GROUND NO.2 : APROPOS GROUND NO.2 WE HAVE HEARD BOTH THE SIDES AND CA REFULLY PERUSED THE RELEVANT MATERIAL PLACED ON RECORD INTER ALIA ASSESSMENT ORDER, THE IMPUGNED ORDER OF THE LD.CIT(A) AND PAPER BOOK FILED BY THE ASSESSEE RUNNING OVER 60 PAGES. THE LD.D.R. VEHEMENTLY CONTENDED THAT THE LD.CIT(A) ADMITTED AND CONSIDERED ADDITIONAL EVIDENCE DURING THE FIRST APPELLATE PROCEEDINGS IN CONTRAVENTION OF RULE 46A OF THE I.T. RUL E S AND THE SAME WAS NOT SUBMITTED BEFORE THE A.O. DURING THE ASSESSMENT PROCEEDINGS. THE LD.COUNSEL FOR THE ASSESSEE STRONGLY SUPPORTING THE IMPUGNED O RDER SUBMITTED THAT AS PER CERTIFICATION PLACED BELOW THE INDEX OF THE ASSESSEE S PAPER BOOK IT IS AMPLY CLEAR THAT THE SUBMISSIONS AND OTHER DOCUMENTS PLACED FROM SL.NO.2 TO 4 WERE SUBMITTED BEFORE THE LD.CIT(A) AND ACCEPTED WRITTEN SUBMISSIONS ALL DOCUM ENTARY EVIDENCE WAS SUBMITTED ITA NO. 6473/DEL/2013 A.Y. 2008 - 09 INDO GULF INDUSTRIES LTD. 3 BEFORE THE A.O. AND THERE WAS NO NEW OR ADDITIONAL EVIDENCE WHICH WAS FIRST TIME SUBMITTED BEFORE THE LD.CIT(A). 6. ON A CAREFUL CONSIDERATION OF THE SUBMISSIONS AT THE VERY OUTSET, A BARE READING OF THE IMPUGNED ORDER OF THE FIRST APPELLATE AUTHORITY SPREAD OVER 8 PAGES, WE ARE UNABLE TO SEE ANY NARRATION OR FACTS SHOWING THAT THE ASSESSEE SUBMITTED ANY ADDITIONAL EVIDENCE WHICH WAS NOT SUBMITTED BEFORE THE A.O. THE ASSESSEE HAS SUBMITTED COPIES OF THE ADDITIONAL SUBMISSIONS DATED 6.3.2013, WRITTEN SUBMISSIONS ALONG WITH ANNEXURE DT. 6.1.2012 AND 2.2.2012 FILED BY THE ASSESSEE AND A COPY OF THE STATEMENT OF FACTS AND GROUNDS OF APPEAL FILED BEFORE THE LD.CIT(A) AND WE ARE UNABLE TO SEE ANY DOCUMENTARY EVIDENCE WHICH WAS FIRST TIME SUBMITTED BEFORE THE LD.CIT(A). WE MAY ALSO POINT OUT THAT THE WRITTEN SUBMISSIONS, ADDITIONAL SUBMISSIONS AND DOCUMENTARY EVIDENCES SUBMITTED AT PAGES 29 TO 49 OF THE ASSESSEE S PAPER BOOK, IT IS AMPLY CLEAR THAT THESE EVIDENCES WAS FILED ALONG WIT H WRITTEN AND ADDITIONAL SUBMISSIONS BEFORE THE FIRST APPELLATE AUTHORITY AND THE SAME WAS ALSO BROUGHT TO THE NOTICE OF THE A.O. DURING THE FIRST APPELLATE PROCEEDINGS. IN VIEW OF OUR ABOVE DISCUSSIONS, WE REACH TO A CONCLUSION THAT THE LD.CIT(A) HAS NO T ADMITTED OR CONSIDERED ANY ADDITIONAL EVIDENCE IN VIOLATION OR CONTRAVENTION OF RULE 46A OF THE I.T. RULES. THUS, GROUND NO.2 OF THE REVENUE BEING DEVOID OF MERITS IS DISMISSED. 7. GROUND NO.1 : APROPOS GROUND NO.1 THE LD.D.R. SUPPORTING THE ACTION OF T HE A.O. SUBMITTED THAT THE ASSESSEE HAS INCURRED EXPENSES TO MANAGE ITS HUGE INVESTMENTS WHICH MAY YIELD EXEMPT INCOME AND THE ASSESSEE FAILED TO CALCULATE SUCH EXPENSES IN A REASONABLE MANNER TO ASCETRTAIN THE TRUE AND CORRECT PICTURE OF ITS INCOME AND E XPENSES. THEREFORE, THE A.O. RIGHTLY INVOKED PROVISIONS OF S.14A OF THE ACT R.W. RULE 8D OF THE I.T. RULES. THE LD.D.R. FURTHER POINTED OUT THAT THE LD.CIT(A) GRANTED RELIEF WITHOUT ANY BASIS AND JUSTIFIED REASONS, THEREFORE, THE IMPUGNED ORDER MAY BE SE T ASIDE BY RESTORING THE SAME BACK TO THE A.O. 8. REPLYING TO THE ABOVE, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE A.O. IGNORED TWO IMPORTANT FACTS THAT THE ASSESSEE MADE INVESTMENTS IN ITA NO. 6473/DEL/2013 A.Y. 2008 - 09 INDO GULF INDUSTRIES LTD. 4 SHARES IN THE A.Y. 1995 - 96 AND SOME OTHER INVESTMENTS WERE MADE PRIOR TO THE FINANCIAL PERIOD AND THERE WAS NO NEW INVESTMENTS DURING THE FINANCIAL PERIOD UNDER CONSIDERATION I.E. F.Y. 2007 - 08. THE LD.COUNSEL ALSO POINTED OUT THAT THE ASSESSEE HAS NOT RECEIVED ANY DIVIDEND INCOME DURING THE YEAR AND THERE WAS NO PORTFOLIO MANAGER ENGAGED FOR THE PURPOSE OF MANAGEMENT OF IVNESTMENTS. THEREFORE, IN VIEW OF THE RATIO OF THE JUDGEMENT OF HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. HOLCIM INDIA P.LTD. (2014) REPORTED IN TIOL - 1586(DEL), NO DISALLOWANCE U/S 14A OF THE ACT R.W. RULE 8D OF THE I.T. RULES, 1962 CAN BE MADE AND THE LD.CIT(A) WAS QUITE JUSTIFIED IN GRANTING RELIEF TO THE ASSESSEE. 9. ON A CAREFUL CONSIDERATION OF THE ABOVE SUBMISSIONS WE NOTE THAT THE LD.CIT(A) GRANTED RELIEF TO THE ASSESSEE WITH THE FOL LOWING OBSERVATIONS AND CONCLUSIONS. 6.2. THE PROVISIONS OF SECTION 14A(2) REQUIRE SATISFACTION OF THE LD. A O AND THE CLAIM OF THE APPELLANT THAT FULL EXPENSES WERE INCURRED FOR EARNING TAX EXEMPT INCOME WAS INCORRECT. THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS MAXOPP INVESTMENT LT D.: 347 ITR 272 HELD THAT SUCH SATISFACTION SHOULD BE ON COGENT GROUNDS. I FIND THAT THE LD. AO HAS DISALLOWED THE CLAIM OF THE APPELLANT WITHOUT HAVING VERIFIED THE SOURCE OF FUNDING IN VARIOUS SHARES, WHICH WAS MADE LAS TLY IN F.Y.1995 - 96. THE DETAILS OF THE BORROWINGS OF F.Y.1995 - 96 SHOW THAT THOSE WERE FOR A SPECIFIC PURPOSE AND THE FACT THAT THE APPELLANT HAD SIGNIFICANT OWN FUNDS OF RS.16.96 CRORES, WHILE IT HAD MADE INVESTMENT OF RS.1.23 CRORES DURING THAT YEAR. HENC E, BY NO STRETCH OF IMAGINATION IT CAN BE HELD THAT INTEREST EXPENSES DURING THE CURRENT YEAR HAD ANYTHING TO DO WITH THE INVESTMENT MADE IN 1995 - 96. SINCE THE APPELLANT HAS NOT RECEIVED ANY DIVIDEND INCOME DURING THE YEAR AND IN VIEW OF THE PLEA OF THE AP PELLANT THAT NO PORTFOLIO MANAGER WAS ENGAGED FOR THIS PURPOSE, THERE WAS NO POSSIBILITY OF HAVING ANY SPECIFIC ADMINISTRATIVE EXPENSES FOR EARNING THE DIVIDEND INCOM E. 6.3 IN VIEW OF THIS, I HOLD THAT THE ACTION OF THE A O IN APPLYING PROVISIONS OF RULE 8 D WAS WITHOUT ANY COGENT GROUNDS AND THEREFORE, THE DISALLOWANCE ITA NO. 6473/DEL/2013 A.Y. 2008 - 09 INDO GULF INDUSTRIES LTD. 5 MADE BY INVOKING RULE 8 D IS NOT SUSTAINABLE. ACCORDINGLY, GROUND NO.1 IS ALLOWED IN FAVOUR OF THE APPELLANT. 10. ON A VIGILANT READING OF THE CERTIFICATE ISSUED BY THE AUDITOR OF THE ASS ESSEE COMPANY DT. 4.1.2012 PLACED AT PAGE 39 OF THE ASSESSEE S PAPER BOOK, WE NOTE THAT THE AUDITOR OF THE COMPANY HAS CERTIFIED THAT DURING THE PREVIOUS YEAR ENDED ON 31.3.2008 RELEVANT TO THE A.Y. 2008 - 09 THE ASSESSEE COMPANY HAD NOT EARNED ANY DIVIDEND INCOME OR ANY OTHER EXEMPT INCOME DURING THE P.Y. HENCE, AS PER THE RATIO OF THE JUDGEMENT OF HON BLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF CIT VS. HOLCIM INDIA P.LTD. (SUPRA) NO DISALLOWANCE U/S 14A OF THE ACT R.W. RULE 8D OF THE I.T.RULES CA N BE MADE. WE MAY ALSO POINT OUT THAT IT IS NOT THE CASE OF THE A.O. THAT THE ASSESSEE MADE INVESTMENTS IN SHARES OR OTHER SECURITIES DURING THE RELEVANT FINANCIAL PERIOD AND THE ASSESSEE INCURRED EXPENSES FOR PORTFOLIO MANAGEMENT AND OTHER ADMINISTRATIVE ACTIVITIES FOR EARNING THE DIVIDEND INCOME. THE LD.CIT(A) WHILE DELETING THE ADDITION IS ALSO SUPPORTED BY THE JUDGEMENT OF HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. MAXOPP INVESTMENTS LTD. (SUPRA) AND HENCE WE ARE UNABLE TO SEE ANY PERVERSITY, AM BIGUITY OR ANY VALID REASON TO INTERFERE WITH THE SAME. THUS GROUND NO.1 OF THE REVENUE HAVING NO MERITS IS DISMISSED. 11. GROUND NO.3 : APROPOS GROUND NO.3 THE LD.D.R. TOOK US THROUGH PARA NO.4 OF THE ASSESSMENT ORDER AND SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE DEBITED LOSS FROM AGRICULTURAL F A RM RS.5,72,463/ - . THE LD.D.R. FURTHER SUBMITTED THAT THE ASSESSEE REPLIE D BEFORE THE A.O. THAT IT IS THE LOSS ON ACCOUNT OF PROVISION OF RAW MATERIAL FOR SELF CONSUMPTION PURPOSES, THEREFORE, THE LOSS FROM FA RM WAS RIGHTLY DEBITED TO THE PROFIT AND LOSS ACCOUNT. THE LD.D.R. ALSO CONTENDED THAT IN THE ABSENCE OF ANY SUPPORTIN G FACTS AND CIRCUMSTANCES, THE A.O. RIGHTLY HELD THAT THE REFERRED LOSS WAS BOGUS AND ACCORDINGLY THE SAME WAS RIGHTLY ADDED BACK TO THE RETURNED INCOME OF THE ASSESSEE. THE LD.D.R. ALSO POINTED OUT THAT THE LD.CIT(A) HAD DISMISSED THE ACTION OF THE A.O. WITHOUT ANY BASIS. THEREFORE THE IMPUGNED ADDITION MAY KINDLY BE RESTORED. ITA NO. 6473/DEL/2013 A.Y. 2008 - 09 INDO GULF INDUSTRIES LTD. 6 12. REPLYING TO THE ABOVE, THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE FURNISHED DETAILS OF EXPENSES AND INCOME IN RESPECT OF THE OPERATIONS FOR CULTIVATION OF S UGAR CANE AND SUCH OPERATIONAL EXPENSES WERE INCURRED FOR DEVELOPING HIGH QUALITY SUGAR CANE SEEDS WHICH COULD BE DISTRIBUTED TO THE PARTNERS WHICH IN TURN WOULD GROW HIGH QUALITY SUGAR CANE AND SUPPLY THE SAME TO THE ASSESSEE S SUGAR MILLS, THEREFORE, TH E LOSS DEBITED BY THE ASSESSEE TO ITS PROFIT AND LOSS A/C RELATED TO ITS BUSINESS OPERATIONS AND FOR THE PURPOSE OF BUSINESS. THEREFORE THE SAME WAS ALLOWABLE AS EXPENDITURE. THE LD.COUNSEL FOR THE ASSESSEE ALSO POINTED OUT THAT THE A.O. COULD NOT BRING ANY ADVERSE EVIDENCE TO SHOW THAT THE SAID CLAIM OF LOSS OF THE ASSESSEE WAS BOGUS AND THE VIEW TAKEN BY THE LD.CIT(A) IS QUITE JUSTIFIED AND CORRECT. 13. ON A CAREFUL CONSIDERATION OF THE ABOVE SUBMISSIONS, FROM A BARE READING OF THE IMPUGNED ORDER OF THE LD.CIT(A), WE NOTE THAT THE LD.CIT(A) GRANTED RELIEF TO THE ASSESSEE WITH THE FOLLOWING CONCLUSION. 6. 3 REGARDING GROUND NO.2 OF THE APPEAL RELATING TO DISALLOWANCE ON LOSS FROM THE AGRICULTURAL BUSINESS OF THE APPELLANT, I FIND THAT THERE IS NO COGENT A DVERSE EVIDENCE WITH THE A O THAT SUCH A CLAIM OF LOSS WAS BOGUS. MOREOVER, SINCE THE INCOME FROM FARM OPERATION HAS BEEN SHOWN AS AGRICULTURAL IN NATURE, THE LOSS ARISING IN ANY CASE CANNOT BE SET OFF AGAINST TAXABLE INCOME OR TO BE CARRIED FORWARD IN SUBS EQUENT YEARS. A CCORDINGLY, THE ACTION OF THE A O DOES NOT HAVE ANY TAX IMPLICATION. THE ADDITION MADE TO THE INCOME ON THIS GROUND IS NOT SUSTAINABLE. MOREOVER, BEFORE ME, THE LD. AR OF THE APPELLANT FURNISHED DETAILS OF EXPENSES AND INCOME IN RESPECT OF TH E OPERATIONS FOR CULTIVATION OF SUGARCANE AND INFORMED THAT SUCH OPERATIONS WERE INCURRED FOR DEVELOPING HIGH QUALITY SUGARCANE SEEDS WHICH COULD BE DISTRIBUTED TO THE FARMERS WHICH IN TURN WOULD GROW SUGARCANE AND SUPPLY THEM TO THE APPELLANT'S SUGAR MILL S. ON CAREFUL CONSIDERATION OF THE ABOVE FACTS, I FIND NO REASON FOR UPHOLDING ADDITION MADE ON THIS GROUND. ACCORDINGLY, THIS GROUND IS ALSO ALLOWED IN FAVOUR OF THE APPELLANT. ITA NO. 6473/DEL/2013 A.Y. 2008 - 09 INDO GULF INDUSTRIES LTD. 7 14. IN VIEW OF THE ABOVE WE OBSERVE THAT THE A.O. HAS NOT BROUGHT ANY ADVERS E EVIDENCE AGAINST THE ASSESSEE TO ESTABLISH THAT THE CLAIM OF LOSS SUBMITTED BY THE ASSESSEE WAS BOGUS. PER CONTRA WE OBSERVE THAT THE LD.CIT(A) PROPERLY CONSIDERED THE FACTS AND CIRCUMSTANCES WHEREIN THE ASSESSEE SUSTAINED THE IMPUGNED LOSS IN RESPECT O F DEVELOPING AND CULTIVATION OF HIGH QUALITY SUGAR CANE SEEDS WHICH ARE TO BE DISTRIBUTED TO THE FARMERS WHICH IN TURN WOULD GROW SUGAR CANE AND SUPPLY THEM TO THE ASSESSEE S SUGAR MILL. HOWEVER, WE MAY POINT OUT THAT IF THE ASSESSEE IS CLAIMING ANY AGRIC ULTURAL INCOME THERE FROM , AND CLAIMING THE SAME AS EXEMPT INCOME THEN SUCH LOSS CANNOT BE ALLOWED TO BE SET OFF AGAINST THE TAXABLE INCOME. HENCE THIS ISSUE IS RESTORED TO THE FILE OF A.O. WITH A DIRECTION THAT THE CLAIMED LOSS FROM THE FARM OPERATIONS MAY BE ALLOWED IF THE ASSESSEE HAS NOT SHOWN EXEMPT AGRICULTURAL INCOME AND THE SAME BE SET OFF AGAINST THE TAXABLE INCOME OR TO BE CARRIED FORWARD AS LOSS IN SUBSEQUENT YEAR. ACCORDINGLY GROUND NO.3 OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES AS INDICATED ABOVE. 15. IN THE RESULT THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH SEPTEMBER , 2015. SD/ - SD/ - ( N.K.SAINI ) ( C.M. GARG ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: THE 18 TH SEPTEMBER , 2015 *MANGA ITA NO. 6473/DEL/2013 A.Y. 2008 - 09 INDO GULF INDUSTRIES LTD. 8 COPY OF THE ORDER FORWARDED TO: 1.APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR