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TMI Blog2015 (12) TMI 1326X X X X Extracts X X X X X X X X Extracts X X X X ..... 60,000 Dividend from UTI Mutual Fund which was Purchased and sold during the year - 7,01,665 ---------------- 33,61,665 The assesee is holding investments as follows:- 31.3.08 31.3.07 Long Term Investments Investment in Noida Power Co Ltd 8,46,97,380 8,46,97,380 Investment in Crescent Power Ltd (Subsidiary) 56,49,99,940 29,99,99,940 Investment in RPG Power Trading CO Ltd 5,00,000 - Current Investments Investment in CESC Ltd 26,98,92,628 - Investment in Reliance Power Ltd 11,28,150 - Less: Change in carrying value of current investment (3,30,924) - 92,08,87,174 38,46,97,320 2.2. Out of the aforesaid investments, the assessee had earned dividend only from CESC Ltd and from UTI Mutual fund which was purchased and sold during the year. The assessee voluntarily disallowed a sum of Rs. 29,760/- u/s 14A of the Act in the return of income. The Learned AO resorted to ignore this disallowance without adducing any reason and without recording any satisfaction in terms of section 14A read with Rule 8D(1) as to why the disallowance made by the assessee is incorrect, and directly applied Rule 8D (2) by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the common kitty. There may not be any immediate correlation between the funds taken for loan and investments in the shares. 2.3.3. He observed that there is no presumption provided in the Act that investments were made out of own funds of the assessee if the assessee has interest free loans, his own capital as share capital, reserves and surpluses and interest bearing loans and is earning exempt and taxable income. 2.3.4. The Learned CITA relied on the following decisions of Jurisdictional High Court in support of his contentions:- ISG Traders Ltd vs CIT reported in 2011- TIOL- 621-HC-KOL-IT "12. In the case before us, the original proceedings being taken in appeal before the Tribunal and the Section 14A having been given retrospective operation in case of pending assessment proceedings, the same would be applicable to the appeal before the Tribunal and also in this appeal before us and thus, the Tribunal below did not commit any illegality in applying the said provisions to the pending proceedings. Thus, the approach of the Assessing officer to work out the prorata interest expenditure as relatable to earning of dividend was quite in conformity with the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alf. We find that sec. 57(iii) deals with any other expenditure ( not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning the income. In a number of cases decided under this provision, it has been held that actual earning of the income is not sine qua non for deciding the deduction of expenditure laid out or expended wholly or exclusively for the purpose of earning the income. Thus, where investment has been made in shares, which did not yield and dividend in the year under consideration, the expenditure incurred for earning the income is deductible notwithstanding the fact that no such income has been earned. We are of the view that ratio of these cases will apply mutatis mutandis under sec. 14A of the Act also while ascertaining the expenditure incurred for earning tax-free income from investment." Cheminvest Ltd vs ITO reported in (2009) 121 ITD 318 (Del ITAT) - what one has to see is whether any expenditure has been incurred by an assessee in relation to an income that does not form part of total income of the assessee under this Act, and if the answer is in affirmative then that expenditure cannot be al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan of Rs. 7 crores. He argued that the Learned AO made this disallowance as if the same is automatically to be applied from Asst Year 2008-09 which is quite evident from the assessment order which is reproduced hereinabove. He argued that the assessee has got sufficient own funds to make these investments and borrowed funds were admittedly not utilized for the same. 2.4.1. He argued that the finding given by the Learned CITA that the Learned AO had recorded his satisfaction in terms of Rule 8D(1) of the Rules is based on incorrect facts. He argued that the recording of satisfaction in terms of section 14A of the Act read with Rule 8D(1) of the IT Rules is mandatory for the Learned AO before resorting to Rule 8D(2) . In this connection , he relied on the following decisions in support of his contentions:- * CIT vs Ashish Jhunjhunwala in G.A.No. 2990 of 2013 in ITAT No. 157 of 2013 dated 8.1.2014 rendered by Calcutta High Court * CIT vs R.E.I. Agro Ltd in GA 3022 of 2013 in ITAT 161 of 2013 dated 23.12.2013 rendered by Calcutta High Court 2.4.2. Alternatively, he argued that the investments that did not yield any dividend income during the year needs to be excluded for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied with the correctness of the claim as regards the claim that "no expenditure" was made by the assessee. Challenging the order of the tribunal, the present appeal has been filed. We have heard Mr.Bhowmik and are of the opinion that no point of law has been raised. Therefore, this appeal is dismissed". The aforesaid two decisions of the Jurisdictional High Court are binding on this tribunal and hence the case laws addressed by the Learned CITA in his order are not considered in this order. We also find that one of the decisions relied upon by the Learned CITA is that of Jurisdictional High Court in the case of Dhanuka & Sons (supra)). We find that the facts in the case of Dhanuka & Sons are totally different from the facts of the instant case and moreover, when there are two conflicting decisions of the same court or different courts on the same issue, then the decision favourable to the assessee has to be followed. Reliance in this regard is placed on the decision of the Hon'ble Apex Court in the case of Vegetable Products reported in 88 ITR 172 (SC). Hence we hold that the action of the Learned AO in directly embarking on Rule 8D(2) of the Rules is not appreciated and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpt only from CESC Ltd and from UTI Mutual Fund (which was purchased and sold during the year itself). Hence even assuming if disallowance is to be made u/s 14A read with Rule 8D, the investments which did not yield any dividend income during the year has to be excluded. We agree with the arguments of the Learned AR in this regard. Reliance in this regard is placed on the following decisions:- * Alliance Infrastructure Projects Pvt Ltd vs DCIT in ITA No. 220 & 1043 (BNG.)/2013 for Asst Years 2009-10 & 2010-11 dated 12.9.2014 (Bangalore Tribunal) * CIT vs Corrtech Energy Pvt Ltd reported in 352 ITR 97 (Guj) * CIT vs Shivam Motors in ITA No. 88 of 2014 dated 5.5.2014 rendered by Allahabad High Court * CIT vs Lakhani Marketing in ITA No. 970 of 2008 rendered by Punjab & Haryana High Court * CIT vs Delite Enterprises in ITA No. 110 of 2009 rendered by Bombay High Court The decision of special bench of Tribunal in the case of Cheminvest Ltd vs CIT reported in 121 ITD 318 had held that disallowance u/s 14A could be made even in an year in which no exempt income was earned or received by the assessee. But this decision has been overruled by Bangalore Tribunal , Gujarat Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat no disallowance u/s 14A of the Act would operate in the facts and circumstances of the case. Accordingly, the ground no. 1(d) raised by the assessee is allowed. 4. The next ground to be decided in this appeal is as to whether provision for leave encashment which has been debited in the profit and loss account based on actuarial valuation to the tune of Rs. 2,00,576/- would come under the ambit of provisions of section 43B of the Act. 4.1. The brief facts of this issue is that assessee debited a sum of Rs. 2,00,576/- in its profit and loss account towards provision for leave encashment based on actuarial valuation. The Learned AO invoked the provisions of section 43B of the Act and sought to disallow the said provision as according to him, the same would be allowed as deduction only in the year in which the same is paid. On first appeal, the Learned CITA confirmed the action of the Learned AO. Aggrieved, the assessee is in appeal before us on the following ground:- "That on the facts and in the circumstances of the case, the learned CIT(Appeals) erred in confirming the action of the Assessing Officer in disallowing a sum of INR 2,00,576 representing amount debited to its Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to deduction out of the gross receipts for the accounting year during which the provision is made for the liability. The liability is not a contingent liability. The High Court was not right in taking the view to the contrary. 13. The appeal succeeds and is allowed. Section 43B(f) is struck down being arbitrary, unconscionable and de hors the apex Court decision in the case of Bharat Earth Movers (supra)". It is observed that the revenue had preferred Special Leave Petition (SLP) before the Hon'ble Supreme Court against the judgement of Hon'ble Calcutta High Court. The Hon'ble Apex Court in SLP proceedings in CC 12060 / 2008 dated 8.9.2008 had held as under:- "The petition was called on for hearing today. Upon hearing counsel the court made the following Order. Issue Notice. In the meantime, there shall be stay of the impugned judgement, until further orders." Later the Hon'ble Supreme Court in CC 22889 / 2008 dated 8.5.2009 had held as under:- "The petition was called on for hearing today. Upon hearing counsel the court made the following Order Delay condoned. Leave granted. Pending hearing and final disposal of the Civil appeal, Department is restr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the asst year under appeal. The Learned AO however observed that these receipts in the form of cess collected out of sale invoices are nothing but trading receipts and hence if the same are not paid within the due date of filing the return of income, then the same are liable for disallowance u/s 43B of the Act by placing reliance on the decision of the Hon'ble Apex Court in the case of Chowringhee Sales Bureau P Ltd vs CIT reported in 87 ITR 542 (SC). The Learned AO accordingly disallowed Rs. 30,44,09,948/- towards RE Cess and Rs. 7,61,02,510/- towards PE Cess. On first appeal, the Learned CITA held that the provisions of section 43B of the Act would come into operation in the facts of the case and also held that though the cess collected from customers becomes payable in the succeeding year as per The West Bengal Rural Employment and Production Act, 1976 , the said Act does not override the Income Tax Act and hence the cess collected from customers would become trading receipts as per the Supreme Court decision relied upon supra. While doing so, the Learned AO did not give deduction for cess paid from 1st April to the due date of filing the return of income u/s 139(1) of the Act e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mary Education Act, 1973 which states that the cess would be collected by the person engaged in the production of coal from the customers and the same would become payable in the succeeding year only. Hence the concept of accrual of liability to pay the cess had not arose during the asst year under appeal. In other words, the cess does not become payable in the asst year under appeal. Now let us go into the provisions of section 43B of the Act which is reproduced herein below:- "[ Certain deductions to be only on actual payment] 43B Notwithstanding anything contained in any other provision of this Act, a deduction other- wise allowable under this Act in respect of- [(a)] any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, or] (b) to [(f) *** *** *** *** *** *** *** *** shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him: [Provided that n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the Learned AO eventhough the assessment was completed u/s 143(3) of the Act. These are the only two scrutiny assessments done by the Learned AO on the assessee prior to the assessment years under appeal. Hence we find lot of force in the arguments of the Learned AR that the principle of consistency should not be given a go by on the ground that principle of res judicata does not apply to income tax proceedings. Reliance in this regard was made on the decision of the Hon'ble Apex Court in the case of Radhasoami Satsang vs CIT reported in 193 ITR 321 (SC), wherein it was held that : As we are aware of the fact that, strictly speaking res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and the parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. We find that the assessee has been consistently following this practice of tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and satisfied that the cess collected from customers have been duly remitted in the succeeding year in accordance with the provisions of The West Bengal Rural Employment and Production Act, 1976 and The West Bengal Primary Education Act, 1973 and was also satisfied with the manner of treatment of the same by the assessee for tax purposes. Having done so, there is no good reason for the revenue to shift its stand in the assessment year under appeal. To this extent, the decisions of the Hon'ble Apex Court and the observation made by the apex court (supra) are relevant to the facts of the instant case. In view of the aforesaid facts and circumstances and in view of the judicial precedents relied upon hereinabove, we hold that the cess collected from customers in the sale invoices shall not be chargeable to tax in the year of collection and accordingly, the grounds raised by the assessee in this regard are allowed. In the result, the appeal of the assessee is partly allowed. ITA No. 1138 / 2012 - Department Appeal 6. The only ground to be decided in the appeal of the revenue is that whether the assessee is entitled to additional depreciation of Rs. 75,400/- on the basis that coal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning of coal is no doubt production. At paragraph 12 of the judgment it said that after winning coal something that was not there comes up, and it is, therefore, a production of coal. The Division Bench followed its own decision in the later case of Khalsa Bros v. CIT [1996] 217 ITR 185. Mr. Bajoria also relied on the interesting case of CIT v. Shann Finance (P) Ltd [1998] 231 ITR 308 where the Supreme Court opined that a financier owning machinery might still be entitled to investment allowance even if the machinery is actually used by its lessee for the purpose of production. Going on the language of sub-sections (1) and (2) of the said section, the Supreme Court found, on an accurate assessment of the language ( we say this with the greatest respect), that the language does not disentitle the financier from investment allowance in the above circumstances. 14. Even considering the later Supreme Court decision given by Mr. Agarwalla, we are still of the opinion that the view taken by our Division Bench as to winning of coal being production is, with due respect, perfectly sound and consistent with common sense. We have absolutely no reason to differ from the reasoning given in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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