M/s. Bhushan Steel Ltd., New Delhi V. ACIT, New Delhi

ITA 816/DEL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81955 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 28-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 08-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A MISHRA
• Keywords: Depreciation; Earning of tax free income; Retrospective amendment; Retraction
• Section: 14A; 115JB; 132

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A : NEW DELHI BEFORE SHRI G. D. AGARWAL, HON BLE VICE PRESIDENT AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO. 607/DEL/2013 ASSESSMENT YEAR 2008 - 09 DCIT, CENTRAL CIRCLE - 13, NEW DELHI VS. M/S. BHUSHAN STEEL, LTD. 1 ST FLOOR, F - BLOCK, INTERNATIONAL TRADE TOWER, NEHRU PLACE, NEW DELHI ITA NO. 816/DEL/2013 ASSESSMENT YEAR 2008 - 09 M/S. BHUSHAN STEE L , LTD. 1 ST FLOOR, F - BLOCK, INTERNATIONAL TRADE TOWER, NEHRU PLACE, NEW DELHI VS. ACIT, CENTRAL CIRCLE - 13, NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY : ASHWANI KUMAR, CA RESPONDENT BY : SMT. A. MISHRA, CIT DR O R D E R PER A. T. VARKEY , JUDICIAL MEMBER THESE ARE CROSS - APPEALS PREFERRED BY THE REVENUE AND THE ASSESSEE AGAINST THE ORDER OF THE LD CIT(A) - I, NEW DELHI DATED 27.11.2012 FOR THE ASSESSMENT YEAR 2008 - 09. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER: - 1. THE ORDER OF THE LD CIT(A) IS NOT CORRECT IN LAW AND FACTS. 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE THE LD CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY AO ON ACCOUNT OF DISALLOWANCE OF RS.86,19,96,884/ - ON ACCOUNT OF SALES TAX EXEMPTION CLAIMED AS CAPITAL SUB SIDY BE THE ASSESSEE. PAGE 2 OF 13 3. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE THE LD CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.9,95,426/ - ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON THE ASSETS (BUILDING) NOT REGISTERED IN THE NAME OF THE COMPANY CLAIMED B Y THE ASSESSEE. 4. THE LD CIT(A) HAS DELETED THE ADDITION MADE BY AO AMOUNTING TO RS.1,72,82,880/ - ON ACCOUNT OF DISALLOWANCE OF REDUCTION OF THE CLAIM OF DEDUCTION U/S 8OIA OF THE IT ACT ON ACCOUNT OF SYNCHRONIZATION CHARGES NOT REDUCED BY ASSESSEE FROM PROFITS OF ELIGIBLE UNITS. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.8,40,000/ - MADE BY THE AO BEING EXPENSES PAID OUT OF UNDISCLOSED SOURCES. 6. THE LD CIT(A) HAS DELETED THE ADDITION MADE BY T HE AO AMOUNTING TO RS.1,15,00,000/ - IN BOOKS PROFITS ON A/C OF PROVISION FOR FBT REDUCED BY ASSESSEE FROM BOOKS PROFITS WITHOUT APPRECIATING THE FACTS THAT IT IS NOT PERMISSIBLE ACCORDINGLY TO EXPLANATION NO.1 TO SECTION 115JB OF THE IT ACT. 3. AT THE OUT SET, THE LD AR POINTED OUT THAT THE ISSUES INVOLVED IN GROUND NO.2 TO 4 AND 6 OF THE REVENUE S APPEAL ARE IDENTICAL TO THE ISSUES RAISED IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR 2007 - 08. IN THE SAID YEAR THE CO - ORDINATE BENCH VIDE ORDER S DATED 07.06.201 0 AND 22.09.2011 IN ITA NO.1487/DEL/2010 & ITA NO.706/DEL/2010 RESPECTIVELY DECIDED THE ISSUES AS UNDER: - 4. IN RESPECT TO GROUND NO.2 IT WAS HELD AS UNDER: - WE HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECORDS. LD. AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THESE ISSUES STAND COVERED IN FAVOUR OF THE ASSESSEE BY THIS TRIBUNAL DECISION IN ASSESSEE'S OWN CASE FOR A.Y. 2006 - 07 IN ITA NO. 1075/DEL /2009 VIDE ORDER DATED 13.11.2009. IN THE SAID ORDER THE TRIBUNAL HAD DECIDED THESE ISSUES AS UNDER: - GROUND NO. 1: - 2.1 THE ASSESSEE IS RUNNING A PLANT LOCATED AT SAHIBABAD DISTRICT GHAZIABAD, UP, A NOTIFIED BACKWARD AREA, CONSEQUENTLY ENTITLED TO EXEMP TION UNDER THE PROVISIONS OF THE UP SALES TAX ACT. THE QUANTUM PAGE 3 OF 13 AND PERIOD OF THE SUBSIDY DEPENDANT ON THE POINT OF TIME AT WHICH THE PLANT COMMENCED PRODUCTION AND IS DETERMINABLE AS A PERCENTAGE OF THE FIXED CAPITAL INVESTMENT. IN THE COMPUTATION OF INCOM E FILED ALONG WITH THE RETURN OF INCOME, THE AMOUNT OF SUBSIDY AVAILED BY THE COMPANY DURING THE YEAR UNDER CONSIDERATION HAS BEEN TREATED AS CAPITAL SUBSIDY AND CONSEQUENTLY REDUCED FROM THE TAXABLE INCOME . THE STAND OF THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT ON SIMILAR FACTS, ASSESSEE'S CLAIM FOR A. Y. 1994 - 95 TO 2001 - 02, HAS BEEN ALLOWED BY THE ITAT. THE ASSESSING OFFICER, HOWEVER, DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE ON THE GROUND THAT THE MATTER WAS SUBJUDICE BEFORE THE HIGH COURT. IN APPEAL, THE CIT(A)ALLOWED THE CLAIM OF THE ASSESSEE BY PLACING RELIANCE ON EARLIER ORDERS OF THE ITAT IN ASSESSEE'S OWN CASE AS ALSO THE ORDERS OF CIT(A) IN ASSESSEE'S OWN CASE FOR A. Y. 2002 - 03 TO 2005 - 06. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 2.2 AFTER HAVING BOTH SIDES WE FIND THAT T HE ISSUE STANDS ALREADY CONCLUDED AGAINST THE DEPARTMENT BY THE AFORESAID ORDERS OF THE TRIBUNAL IN ASSESSEE'S OWN CASE. WE ALSO FIND THAT THE ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF SPECIAL BENCH OF THE ITAT IN THE CASE OF DC/T VS. RELIANCE INDUSTRIES LTD. (2004) 88 ITD 273. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THE ISSUE IN QUESTION BEING IN CONFORMITY WITH EARLIER ORDERS OF THE TRIBUNAL, WE UPHOLD THE SAME. 5. IN RESPECT TO GROUND NO.3 IT WAS HELD AS UNDER: - 3.1 THE ASSESSEE CLAIMED DEPRECIATION ON ASSETS, WHICH WERE NOT REGISTERED IN THE ASSESSEE'S NAME. THERE IS NO DISPUTE AS TO THE FACT THAT THOSE ASSETS WERE USED IN THE COURSE OF ASSESSEE'S BUSINESS AND THE CIT(A) FOUND THAT THE ITAT IN THE ASSESSEE'S O WN CASE FOR ALL THE EARLIER YEARS I.E. 1994 - 95 TO 2005 - 06 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF PODDAR CEMENT LTD. 226 ITR 625 AND MYSORE MINERALS LTD. 239 PAGE 4 OF 13 I TR 775. 3.2 AFTER HEARING BOTH THE SIDES WE FIND THAT THE CIT.(A) HAS NOT COMMITTED ANY ERROR IN FOLLOWING THE DECISIONS OF THE ,ITAT IN ASSESSEE'S OWN CASE WHICH THEMSELVES ARE BASED UPON THE BINDING PRECEDENT OF THE APEX COURT, AS CITED SUPRA. WE DECLINE TO INTERFE RE. 6. IN RESPECT TO GROUND NO.4 IT WAS HELD AS UNDER: - 5. APROPOS GROUND NO.1, IT WAS SUBMITTED THAT GROUND NO.1 HAS TO BE DECIDED AGAINST THE ASSESSEE AND REFERENCE IN THIS REGARD HAS BEEN MADE TO THE ITAT ORDERS DATED 28 TH AUGUST, 2009 IN ITA NO.2104/DEI/2008 FOR ASSESSMENT YEAR 2005 - 06 VIDE PARA 6.4 AND ALSO ORDER DATED 13 TH NOVEMBER 2009 IN ITA NO.807/DEI/2009 IN RESPECT OF ASSESSMENT YEAR 2006 - 07 VIDE PARA NO.S.4. THE GROUNDS RELATE TO COMPUTATION OF DEDUCTION U/S 80LA A FTER REDUCTION OF A SUM OF 1,72,82,880/ - ON ACCOUNT OF SYNCHRONIZATION CHARGES. COPIES OF THE AFOREMENTIONED ORDERS OF THE TRIBUNAL ARE ALSO FILED ALONG WITH THE CHART. FOR THE SAKE OF CONVENIENCE FROM THE AFOREMENTIONED DECISION DATED 28 TH AUGUST, 2009 TH E RELEVANT PORTION WHEREBY THE DISALLOWANCE WAS UPHELD IS REPRODUCED: - 6.4 WE HAVE CONSIDERED THE RIVAL CONTENTIONS. THE ASSESSEE S MAIN CONTENTION THAT THE ASSESSING OFFICER WAS NOT RIGHT IN REDUCING SYNCHORONIZATION CHARGES FROM THE PROFITS OF THE ELIGIBLE UNITS FOR COMPUTATION OF EXEMPTION U/S 80 - IA, CANNOT BE ACCEPTED. THE AS SESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THE SYNCHRONIZATION CHARGES THAT: WERE LEVIED BY THE U.P. POWER CORPORATION WERE NOT CRYSTALLIZED AND CONSEQUENTLY THE ACCRUAL OF LIABILITY HAS TAKEN PLACE DURING THE RELEVANT PREVIOUS YEAR. ALTHOUGH THE ASSESSEE HAS NOT DEBITED THE SAME TO THE P&L A/C THE ASSESSING OFFICER IS DUTY BOUND TO REDUCE THE SAID SUM FROM THE PROFITS OF THE ELIGIBLE UNIT FOR PROPER COMPUTATION OF DEDUCTION U/S BO - IA OF THE ACT. THE PAYABILITY OF THESE PAGE 5 OF 13 LIABILITIES MAY DEPEND UPON THE DECISION OF THE HIGH COURT BUT THE LIABILITY ITSELF HAS CRYSTALISED DURING THE YEAR IN QUESTION. IN OUR VIEW THE LEARNED CIT (A) WAS RIGHT IN REJECTING THE MAIN CONTENTION OF THE ASSESSEE. WE SEE NO REASON TO INTERFERE. 6.5 AS REGARDS THE ALTERNATIVE CONTENTION OF THE ASSESSEE ON THE AFOREMENTIONED ISSUE, IT WAS CLAIMED THAT THE ASSESSING OFFICER WAS NOT CORRECT IN REDUCING THE AMOUNT OF SYNCHRONIZATION CHARGES FROM THE PROFITS OF THE ELIGIBLE UNITS FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80IA OF THE ACT WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAS NOT DEBITED SYNCHRONIZATION CHARGES TO THE P&L A/C ON THE GROUND THAT IT WAS NOT ASCERTAINED LIABILITY. IT WAS SUBMITTED THAT IN CASE SYNCHRONIZATION CHARGES WERE TO BE REDUCED FROM THE PROFITS O F THE ELIGIBLE UNIT, THE SAME WOULD HAVE BEEN DEBITED TO THE P&L A/C AND SUCH WOULD HAVE TO BE REWORKED ACCORDINGLY. THIS ASPECT HAS BEEN CORRECTLY APPRECIATED BY THE CIT. (A) AND THE A.O. WAS DIRECTED TO VERIFY THE FACTUM OF DEBIT TO THE P&L A/E. IN OUR V IEW THE DIRECTION GIVEN BY THE LEARNED CIT (A) IS FAIR AND REASONABLE AND DOES NOT CALL FOR ANY INTERFERENCE.' 7 . THE AFOREMENTIONED ORDER WAS FOLLOWED IN SUBSEQUENT YEAR I.E., FOR ASSESSMENT YEAR 2006 - 07. THEREFORE, AFTER HEARING BOTH THE PARTIES, RES PECTFULLY FOLLOWING THE AFOREMENTIONED DECISION OF THE TRIBUNAL, IN THE CASE OF THE ASSESSEE ITSELF, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE AND GROUND NO.1 IS DISMISSED. 8 . IN RESPECT TO GROUND NO.6 IT WAS HELD AS UNDER: - 12. AFTER HEARING BOTH THE PARTIES, SO AS IT RELATES TO THE AMOUNT OF RS. 21,55,44,187/ - , WE DECIDE THE ISSUE AGAINST THE ASSESSEE IN VIEW OF AFOREMENTIONED RETROSPECTIVE AMENDMENT IN THE PROVISIONS PAGE 6 OF 13 OF SECTION 115JB. FOR THE REMAINING AMOUNT OF RS.1,17,68,617/ - , WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE RESPECTFULLY FOLLOWING THE AFOREMENTIONED DECISION OF COORDINATE BENCH IN THE CASE OF ITO VS. VINTAGE DISTILLERS LTD. (SUPRA). IT MAY BE MENTIONED HERE THAT NO CONTRARY DECISION WAS BROUGHT TO OUR NOTICE. THEREFORE, GROUND NO.4 I S PARTLY ALLOWED IN THE MANNER AFORESAID. 9 . LD DR RELIED ON THE ORDERS OF THE AO AND SUBMITTED THAT THE APPEALS OF THE DEPARTMENT AGAINST THE ORDER OF THE TRIBUNAL ARE PENDING BEFORE THE HON BLE HIGH COURT. 10 . WE HAVE HEARD BOTH THE PARTIES AND FIND T HAT THERE IS NO CHANGE IN FACTS AND CIRCUMSTANCES OF THE CASE AS COMPARED TO THE PRECEDING ASSESSMENT YEAR 2007 - 08. THEREFORE RESPECTFULLY FOLLOWING THE ORDER OF THE CO - ORDINATE BENCH WE REJECT THE GROUND NOS. 2 TO 4 & 6 RAISED BY THE REVENUE. 1 1 . GROUND NO.5 OF THE REVENUE S APPEAL IS RELATED TO ADDITION OF RS.8,40,000/ - ON ACCOUNT OF ALLEGED PERKS PAID OUT OF UN - DISCLOSED SOURCES. 1 2 . THE AO HAS OBSERVED THAT IN THE COURSE OF SEARCH OPERATION SHRI R.N. MAHINDRU , PRESIDENT TECHNICAL ADMITTED THAT HE WAS RECEIVING THE PERKS IN CASH FROM THE ASSESSEE COMPANY. IN THIS STATEMENT HE HAD ADMITTED THAT HE HAS RECEIVED PERKS OF RS.70,000/ - PER MONTH IN THE INSTANT ASSESSMENT YEAR. ON THE BASIS OF SAID STATEMENT THE AO HE LD THAT THE PAYMENT OF RS.8,40,000/ - WAS PAID OUT OF UNEXPLAINED INCOME OF THE ASSESSEE COMPANY. 13 . THE LD CIT(A) HAS DELETED THE ADDITION BY HOLDING AS UNDER: - 6.2 I HAVE GONE THROUGH THE OBSERVATIONS OF THE ASSESSING OFFICER AND THE SUBMISSIONS OF T HE APPELLANT. IN MY OPINION, THE MATTER HAS NOT BEEN PAGE 7 OF 13 UNDERSTOOD IN PROPER PERSPECTIVE. IN THE PRIVATE CORPORATE SECTOR, THERE IS A PRACTICE OF OFFERING THE REMUNERATION TO EMPLOYEES IN A PACKAGE CONSISTING OF TAXABLE CASH SALARY AND A NON - TAXABLE COMPONENT OF REIMBURSABLE PERQUISITES. TOGETHER, THE TWO ELEMENTS CONSTITUTE THE PACKAGE WHICH IS TERMED AS 'COST TO COMPANY' OR CTC. IN SUCH CASES, THE PAYMENT IS UNDISPUTEDLY INCURRED BY THE EMPLOYER COMPANY WHILE FOR THE REIMBURSEMENTS THE EMPLOYEE ESCAPES TAXAT ION. KEEPING THIS IN VIEW, VARIOUS RULES ARE PRESCRIBED UNDER THE INCOME - TAX RULES, 1962 TO TAX PERQUISITES. IN FACT, TO CURB THE PRACTICE, FRINGE BENEFIT TAX (FBT) WAS INTRODUCED IN THE I.T. ACT, 1961 VIDE FINANCE ACT, 2005 W.E.F 0.1.04.2005. HOWEVER, DUE TO COMPLICATIONS OF ADMINISTRATION AND COMPLIANCE OF THE TAX, IT WAS WITHDRAWN BY THE FINANCE ACT, 2009. 6.3 FROM THE ABOVE, IT WOULD BE APPARENT THAT SUCH PERQUISITES, IF AT ALL, ARE TAXABLE IN THE HAND OF THE EMPLOYEE AND NOT OF THE EMPLOYER, FOR WHIC H IT IS A COST OR EXPENDITURE. BE THAT AS IT MAY, ON MERITS THE ADDITION CANNOT BE SUSTAINED IN THIS A. Y. AS THERE IS NO EVIDENCE TO SUGGEST THAT ANY SUCH PERQUISITE WAS ACTUALLY PAID BY THE APPELLANT TO ITS EMPLOYEE SH. MAHINDRU. WHEN A SEARCH AND SEIZUR E HAS BEEN CONDUCTED AND NO EVIDENCE FOUND THAT ANY PAYMENT HAD BEEN MADE AS PERQUISITE TO THE EMPLOYEE, MERE ADMISSION COULD NOT BE THE SOLE BASIS FOR REACHING THE CONCLUSION THAT SIMILAR PAYMENT MIGHT HAVE BEEN MADE FOR OTHER YEARS INCLUDING THIS PREVIOU S YEAR ALSO. NO DOUBT ADMISSION MADE DURING THE COURSE OF SEARCH IS GOOD EVIDENCE. IT IS, HOWEVER, NOTED THAT THE ADMISSION MADE BY SH. MAHINDRU WAS LATER RETRACTED ON 18.06.2010. THIS WAS AFTER A COPY OF HIS STATEMENT U/S 132(4) WAS HANDED OVER TO HIM ON 15.06.2010. THUS, THE RETRACTION WAS MADE IN THE CASE IMMEDIATELY AFTER RECEIPT OF COPY OF THE STATEMENT. AS ALREADY STATED, THE AFORESAID PERQUISITE CAN BE TAXED, IF AT ALL, IN THE HANDS OF THE EMPLOYEE AND NOT IN THE HAND OF THE EMPLOYER COMPANY UNLESS T HERE IS EVIDENCE THAT SUCH PERQUISITE HAS BEEN PAID OUT OF UNACCOUNTED SOURCES OR NOT RECORDED IN THE BOOKS OF ACCOUNT. NO SUCH EVIDENCE APPEARS TO HAVE BEEN FOUND IN THE SEARCH AGAINST THE APPELLANT. IN THE CIRCUMSTANCES THE ADDITION MADE CANNOT BE LEGALL Y SUSTAINED AND IS, PAGE 8 OF 13 THEREFORE, DELETED. APPELLANT GETS RELIEF OF RS.8,40,000/ - . 1 4 . HAVING CONSIDERED THE RIVAL SUBMISSIONS WE FIND THAT THERE IS NO MATERIAL WITH THE REVENUE TO MAKE THE IMPUGNED ADDITION. SINCE STATEMENT WAS RETRACTED BY SHRI MEHENDRU ON 18 TH JUNE 2010, WHEREIN SHR I MAHENDRU HAD STATED AS UNDER: - 'I HAVE BEEN PROVIDED WITH A COPY OF THE STATEMENT RECORDED DURING THE COURSE OF SEARCH U/S 132 AT THE PREMISES OF M/S BHUSHAN STEEL LIMITED ON 03 - 03 - 2010. IN THIS CONNECTION, I WISH TO SUBMIT AS FOLLOWS: - (1) I AM AN OLD MAN AGED MORE THAN 70 YEARS - AND WAS IN VERY TENSE FRAME OF MIND AND SHOCKED AT THE SUDDEN TURN OF EVENTS ON 03 - 03 - 2010 WHEN A LARGE NUMBER OF PEOPLE ACCOMPANIED WITH POLICE PROTECTION CONDUCTED A SEARCH OPERATION AT THE PREMI SES OF M/S BHUSHAN STEELS LIMITED. (2) DURING THE COURSE OF SEARCH, MY STATEMENT WAS RECORDED AND THE SAME WAS DONE WHEN. I WAS IN A SUBSTANTIALLY TROUBLED STATE OF MIND AND NOT IN THE BEST OF SENSE AND UNABLE TO COMPREHEND FULLY AND COMPLETELY WHAT WAS HAPPENING AROUND ME. (3) AS SUCH UPON GOING THROUGH THE COPY OF THE STATEMENT WHICH HAS, SUBSEQUENTLY, BEEN HANDED OVER TO ME ON 15 - 06 - 2010, I FIND THAT CERTAIN STATEMENTS HAVE BEEN ATTRIBUTED TO ME AND CONCLUSIONS DRAWN WHICH DO NOT CONVEY THE FACTUAL S TATE OF AFFAIRS AND AS SUCH WERE NEVER CONVEYED BY ME AND DO NOT REFLECT ANY PART OF WHAT I INTENDED TO CONVEY DURING THE RECORDING OF THE STATEMENT. (4) I DO NOT RECEIVE ANY PERQUISITES IN CASH FROM M/S BHUSHAN STEELS LIMITED OF WHICH I AM THE PRESIDENT AND THE STATEMENT ATTRIBUTED TO ME VIDE QUESTION NOS. 12, 13 AND 14 ARE NOT TRUE. THE NOTING OF NON - TAXABLE PERQUISITES DO NOT PAGE 9 OF 13 CARRY ANY IOTA OF SIGNIFICANCE THERETO. (5) I HEREBY COMPLETELY DENY THE FACT THAT ANY PERQUISITES/ SALARY HAVE BEEN RECEIVED B Y ME IN CASH. ALL PAYMENTS HAVE BEEN MADE TO ME BY CHEQUE AND STAND DULY ACCOUNTED FOR IN MY BANK ACCOUNT. (6) I HEREBY RETRACT FROM THE STATEMENT ALLEGEDLY MADE BY ME UNDER A DISTURBED STATE OF MIND AND UNDER EXTREME MENTAL TENSION WHEREBY IT WAS SOUGHT TO BE CONCLUDED THAT CERTAIN SUMS HAD BEEN RECEIVED BY ME IN CASH FROM MY EMPLOYER AND CONSEQUENTLY NOT OFFERED TO TAX WHICH IS CONTRARY TO AND AT COMPLETE VARIANCE WITH THE FACTUAL POSITION. IT IS AGAIN REITERATED THAT MY ENTIRE SALARY IS RECORDED IN THE BANK ACCOUNT AND IS MADE SUBJECT TO TAX IN MY RETURN OF INCOME. 15 . HAVING REGARD TO THE ABOVE RETRACTION AND THE FACT THAT THERE IS NO OTHER MATERIAL FOUND DURING THE COURSE OF SEARCH OR EVEN GATHERED IN THE COURSE OF ASSESSMENT PROCEEDINGS TO CORROBORAT E THE INITIAL STATEMENT OF SHRI MAHENDRU, WE ARE INCLINED TO UPHOLD THE ORDER OF THE LD CIT(A) AND DISMISS THIS GROUND OF THE REVENUE. 1 6 . IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED. 1 7 . COMING TO THE APPEAL PREFERRED BY THE ASSESSE, THE GROUNDS OF APPEAL ARE AS FOLLOWS: - 1. THAT THE ORDER DATED 27 - 11 - 2012 PASSED U/S 250 OF THE INCOME TAX ACT, 1961 BY THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) I, NEW DELHI IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH AS HE WAS NOT JUSTIFIED TO T HE ACTION OF THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 13, NEW DELHI IN ADDING BACK A SUM OF RS. 89,00,000/ - UNDER SECTION 14 - A OF THE INCOME TAX ACT, 1961 ON ACCOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME WHILE COMPUTI NG INCOME UNDER THE NORMAL PROVISIONS OF THE INCOME TAX ACT, 1961. PAGE 10 OF 13 2. THAT THE ORDER DATED 27 - 11 - 2012 PASSED U/S 250 OF THE INCOME TAX ACT, 1961 BY THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) I, NEW DELHI IS AGAINST LAW AND FACTS ON THE FILE IN AS MU CH AS HE WAS NOT JUSTIFIED TO UPHOLD THE ACTION OF THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 13, NEW DELHI IN MAKING AN ADJUSTMENT OF RS. 89,00,000/ - ON ACCOUNT OF EXPENDITURE ON EARNING OF EXEMPT INCOME TO THE BOOK PROFIT FOR THE PU RPOSE OF COMPUTATION OF MAT LIABILITY U/S 115JB OF THE INCOME TAX ACT, 1961. 3. THAT THE ORDER DATED 27 - 11 - 2012 PASSED U/S 250 OF THE INCOME TAX ACT, 1961 BY THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) I, NEW DELHI IS AGAINST LAW AND FACTS ON THE FIL E IN AS MUCH AS HE WAS NOT JUSTIFIED TO UPHOLD THE ACTION OF THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 13, NEW DELHI IN AS MUCH AS THE LD COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT APPRECIATING THAT THE ORDER PASSED BY THE ASS ESSING OFFICER IS WITHOUT JURISDICTION AND BAD IN LAW AS THE JURISDICTION U/S 153 IS VITIATED. 1 8 WE FIND THAT GROUND NO.3 WAS NOT PRESSED, SO THE SAME IS DISMISSED 1 9 . GROUND NO. 1 IS REGARDING ADDITIO N OF RS.89 LAKHS U/S 14A OF THE ACT . 20 . THE AO OBSERVED THAT THE ASSESSEE COMPANY HAD MADE INVESTMENTS IN EQUITY SHARES AND WAS EARNING DIVIDEND INCOME, WHICH WAS CLAIMED AS EXEMPT. IN THE AFORESAID BACK - DROP , THE APPELLANT DISALLOWED SUO - MOTT O SUM OF RS. 2 LAKH AS EXPENDITURE INCURRED FOR EARN ING EXEMPT INCOME, IN THE COMPUTATION OF INCOME. HOWEVER DURING THE ASSESSMENT PROCEEDING , THE ASSESSEE CLAIMED THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING EXEMPT INCOME. THE AO REJECTED SUCH A STAND OF THE ASSESSEE AND COMPUTED THE DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D AT RS.91 LAKHS. BUT RESTRICTED THE DISALLOWANCE TO RS. 89 LAKHS BECAUSE THE ASSESSEE ITSELF HAS DISALLOWED RS.2 LAKHS IN THE COMPUTATION OF INCOME. THE LD CIT(A) HAS AFFIRMED THE DISALLOWANCE BY CONCLUDING AS UNDER: - 5.2. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND THE SUBMISSIONS ON BEHALF OF THE APPELLANT. RULE 80 IS APPLICABLE IN CASES WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME OR WHEN THE PAGE 11 OF 13 ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE. IT WAS HELD BY THE ASSESSING OFFICER THAT 'AS PER THE PROVISIONS OF SECTION 14A, IT IS NOT AT ALL MANDATORY THAT ASSESSEE SHOULD HAVE ACTUALLY EAR NED THE EXEMPT INCOME (HEREIN THIS CASE DIVIDEND INCOME FROM SHARES) OR EVEN THAT HE SHOULD HAVE ACTUALLY INCURRED ANY EXPENSES FOR EARNING SUCH INCOME DURING THAT YEAR FOR DISALLOWING THE EXPENDITURE INCURRED IN RELATION TO SUCH EXEMPT INCOME. IT IS THE P OTENTIAL OF EARNING SUCH EXEMPT INCOME (HEREIN THIS CASE DIVIDEND FROM INVESTMENT) AND THE EXPENSES CALCULATED ON PRESUMPTIVE BASIS (AS PER METHOD GIVEN IN RULE 80) WHICH MAKES THE ASSESSEE ELIGIBLE FOR SUCH DISALLOWANCE. IT IS JUST LIKE THE CASE WHERE ASS ESSEE HAS EARNED SOME EXEMPT INCOME DURING THE RELEVANT ASSESSMENT YEAR FROM ITS INVESTMENT BUT STILL IT HAS INCURRED CERTAIN EXPENSES IN RELATION TO SUCH INVESTMENT (WHICH ARE 10 BE CALCULATED AS PER RULE 80) FROM WHERE SUCH EXEMPT INCOME HAS BEEN GENERAT ED, HENCE, WHATEVER EXPENSES (AS CALCULATED AS PER RULE 80) HAVE BEEN INCURRED SHALL BE REDUCED FROM THAT EXEMPT INCOME AND THERE WILL BE LOSS IN EXEMPT INCOME HEAD, WHERE SUCH LOSS (LOSS IN EXEMPT INCOME HEAD) CANNOT BE CLAIMED FROM NON - EXEMPT INCOME. IN THIS CONTEXT, THE DECISION OF IT AT, DELHI IN THE CASE OF ACIT VS CHEMINVEST LTD 317 ITR 86 IS RELIED UPON. IN THE ABOVE MENTIONED CASE, THE ITA T HAS OBSERVED THAT THE DISALLOWANCE U/S 14A CAN BE MADE EVEN IF THERE IS NO EXEMPT INCOME GENERATED FROM THAT INVESTMENT.' 5.3 THE CASE LAWS RELIED UPON BY THE AR RELATE TO THE LAW AS IT EXISTED BEFORE INTRODUCTION OF RULE 80. THE ITAT (DELHI) RULING IN THE CASE CITED BY THE ASSESSING OFFICER IS SPECIFICALLY IN THE CONTEXT OF INSTANCES WERE NO EXEMPT INCOME IS GENERATED FROM THE INVESTMENTS. IN THE PRESENT CASE, ADMITTEDLY INVESTMENTS HAVE BEEN MADE THAT WOULD YIELD INCOMES WHICH WILL NOT PART OF TOTAL INCOME OF THE APPELLANT. IF RULE 8D IS TO BE APPLIED, IT CANNOT BE APPLIED IN PART. ACCORDINGLY, AND FOLLOWING THE RULING OF HON'BLE ITAT (DELHI) IN ACIT VS CHEMINVEST LTD., THIS GROUND OF APPEAL IS DISMISSED. 2 1 . IN THE INSTANT CASE, IT IS AN ADMITTED POSITION THAT ASSESSEE HAD MADE INVESTMENTS OF RS.53.73 CRORES AT THE CLOSE OF THE YEAR. IT IS ALSO NOT IN DISPU TE THAT THERE WAS DIVIDEND INCOME FROM SUCH INVESTMENTS WHICH WAS CLAIMED AS EXEMPT. ALSO ASSESSEE HAD MADE AN ADHOC DISALLOWANCE U/S 14A OF RS. 2 LAKHS IN THE INSTANT YEAR , IN THE RETURN FILED BEFORE THE AO. THE ASSESSMENT YEAR IS 2008 - 09 AND AS SUCH RULE 8D IS APPLICABLE, THUS ONCE SECTION 14A COMES INTO OPERATION, THEN DISALLOWANCE AS MANDATED U/S 14A READ WITH RULE 8D COMES INTO FORCE. NO SPECIFIC CHALLENGE HAS BEEN MADE AGAINST THE PAGE 12 OF 13 COMPUTATION MADE BY THE AO APPLYING RULE 8D. THEREFORE WE ARE INCLINED TO AFFIRM THE ORDER OF THE LD CIT(A) AND THEREFORE APPEAL OF THE ASSESSEE FAILS. 2 2 . GROUND NO.2 PERTAINS TO DISALLOWANCE OF RS.89 LAKHS U/S 14A WHILE COMPUTING THE INCOME U/S 115JB OF THE ACT. 2 3 . THE LD CIT(A) HAS HELD THAT CLAUSE ( F ) OF THE EXPLANATIO N I TO SECTION 115JB OF THE ACT, POSTULATES THAT ANY EXPENDITURE RELATABLE TO ANY INCOME TO SECTION 10 OF THE ACT WARRANTS ADJUSTMENT TO THE BOOKS PROFITS. IN OTHER WORDS, THE BOOK - PROFITS WILL BE INCREASED BY ANY EXPENDITURE ALLOCABLE TO EXEMPT INCOME. THE LD COUNSEL HAD INVITED OUR ATTENTION TO DECISION IN THE CASE OF ACIT VS. SPRAY ENGINEERING DEVICES LTD. 53 SOT 70 (CHANDIGARH BENCH OF ITAT) WHEREIN IT WAS HELD THAT DISALLOWANCE U/S 14A IS NOT COVERED BY ANY OF THE CLAUSES OF EXPLANATION (1) TO SECTIO N 115JB OF THE ACT. WHEREIN IT WAS HELD AS UNDER: - THE HON BLE SUPREME COURT HAD LAID DOWN THE PRINCIPLE THAT THE ASSESSING OFFICER WHILE COMPUTING INCOME UNDER SECTION 115J HAD POWER TO EXAMINE WHETHER THE BOOKS OF ACCOUNT WERE PROPERLY MAINTAINED IN ACC ORDANCE WITH THE COMPANI ES ACT AND FURTHER HAD LIMITED POWER OF MAKING ADDITIONS/DEDUCTIONS AS PROVIDED FOR IN THE EXPLANATION TO THE SAID SECTION. IN VIEW OF THE PRINCIPLE LAID DOWN BY THE HON'BLE SUPREME COURT IN APOLLO TYRES LIMI TED CASE (SUPRA) THE ASS ESSING OFFICER HAS LIMITED JURISDICTION WHILE COMPUTING THE BOOK PROFITS UNDER SECTION 115JB OF THE ACT I.E. THERE IS NO JURISDICTION TO GO BEYOND THE NET PROFIT SHOWN IN THE PROFIT & LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN THE EXPLANATION TO SECTION 115JB OF THE ACT. IT MAY BE POINTED OUT THA T THE PROVISIONS OF SECTION 115JB AND 115 J, WHICH WERE BEFORE THE HON'BLE SUPREME COURT IN APOLLO TYRES LTD (SUPRA), ARE PARI METRIA. AS PER THE EXPLANATION TO SECTION 115JB OF THE ACT, BO OK PROFIT IS DEFINED TO BE THE NET PROFIT SHOWN IN THE PROFIT & LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEARS AS INCREASED/REDUCED BY THE AMO UNTS SPECIFIED IN THE CLAUSES MENTIONED THEREUNDER. THE DISALLOWANCE WORKED IN THE HANDS OF THE ASSESSEE UNDER THE PROVISIONS OF SECTION 14A OF THE ACT IS NOT COVERED BY THE AFORESAID CLAUSES AND CONSEQUENTLY WE ARE IN CONFORMITY WITH THE ORDER OF THE C I T (APPEALS) IN ALLOWING THE CLAIM OF THE ASSESSEE BY HOLDING THAT NO ADDITION OF RS. 14,05,700/ - IS WARRANTED, WHILE COMPUTING THE BOOK PROFITS UNDER SECTION 115JB OF THE ACT. THE GROUND NOS. 1 (I) AND L(II) RAISED BY THE REVENUE ARE THUS DISMISSED.' PAGE 13 OF 13 2 4 . WE RESPECTFULLY CONCUR AND THEREFORE DELETE THE ADJ USTMENT RS.89 LAKHS TO THE BOOK PROFITS , WHILE COMPUTING THE INCOME U/S 115JB OF THE ACT. THEREFORE WE ALLOW THIS GROUND OF THE APPEAL OF THE ASSESSEE. 2 5 . IN THE RESULT THE ASSESSEE S APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 .10.2014. SD/ - SD/ - (G. D. AGRAWAL ) (A. T. VARKEY) VICE - PRESIDENT JUDICIAL MEMBER DATED: 31 /10/2014 A K VERMA COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI