TMI Blog2016 (12) TMI 1141X X X X Extracts X X X X X X X X Extracts X X X X ..... d to appear before the AO and produce all necessary evidences and explanations in support of its contentions that no prejudice is caused to Revenue by making payment of taxes on the total income arising in its entirety from sale of DEPB licenses in the subsequent assessment year. Addition u/s 14A of the Act read with Rule 8D - Held that:- The assessee has earned exempt income and offered disallowance to the tune of ₹ 3,32,482/- under Rule 8D(2)(iii) of 1962 Rules as administrative and indirect expenses @ 0.5% of average investment held by the assessee. There are sufficient own funds available with the assessee for the investment and no borrowed funds were stated to be utilized by the assessee for making investments in shares and mutual funds capable of earning tax-free income. The assessee has also filed financial statements which reveal that the assessee has own funds available in its hand which are far in excess of investments made in the shares, mutual funds and other securities yielding tax-exempt income. Perusal of audited financial statements for the financial year 2009-10 will reveal that the assessee’s own funds are to the tune of ₹ 12.47 crores as at 31- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... never been disputed by the department; Disallowance of ₹ 9,l2,886/- under section l4A read with Rule 8D 4. erred in confirming the additional disallowance of ₹ 9,12,886 under section 14A read with Rule 8D (i.e. over and above suo-mote disallowance of ₹ 3,32,482/-); 5. failed to appreciate that where the investments have been made from owned funds and not from borrowed funds, interest cannot be disallowed under section 14A read with Rule 8D of the Act; 6. failed to appreciate that the appellant has suo-moto disallowed ₹ 3,32,482/- while computing disallowance under section 14A read with Rule 8D of the Act (i.e. 0.5% of average value of investment) and hence no further disallowance is required under section 14A of the Act. Each of the ground is independent and without prejudice to one another. 3. The Brief facts of the case are that the assessee is a firm engaged in the business of exports. It was observed by the A.O. from perusal of the accounts that the assessee has received ₹ 8,74,936/- on sale of DEPB licenses which was not offered for taxation. The assessee was asked to explain as to why the receipt of above sale proceed of DEPB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res. As such, the assessee's claim that no expenditure was incurred for investment was not correct and the same was rejected by the AO. The A.O., accordingly, worked out the total disallowable amount of interest amounting to ₹ 9,43,034/- u/r 8D(2)(ii) of 1962 Rules r.w.r. Section 14A of the Act of 1961, while the AO disallowed ₹ 3,32,482/- towards administrative expenses u/r 8D(2)(iii) of 1962 Rules read with Section 14A of the Act and thus, the total disallowance worked out by the AO comes to ₹ 12,75,516/- u/s 14A of the Act read with Rule 8D of 1962 Rules, out of which ₹ 3,32,482/- was disallowed voluntarily by the assessee of its own u/r 8D(2)(iii) of 1962 Rules and the balance of ₹ 9,12,886/- was disallowed by the AO u/r 8D(2)(ii) of 1962 Rules read with Section 14A of the Act of 1961, and added the same to the total income of the assessee vide assessment order dated 28-02-2013 passed by the AO u/s 143(3) of the Act. 4. Aggrieved by the assessment order dated 28-02-2013 passed by the A.O. u/s. 143(3) of the Act, the assessee filed its first appeal before the ld. CIT(A). 5. Before the ld. CIT(A) , the assessee submitted vide its stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exports' under any scheme of the Government of India is by itself income chargeable to income tax under the head profits and gains of business or profession which means that DEPB is a cash assistance receivable by a person against exports under the scheme of Government of India and under clause (iiib) of section 28 of the Act is chargeable to income tax under the head profits and gains of business or profession even before it is transferred by the assessee. Under clause (iiid) of Section 28 of the Act , any profit on transfer of DEPB is chargeable to income tax under the head Profits and Gains of Business or Profession as an item separate from cash assistant under clause (iiib) of Section 28 of the Act. The word profit means the gross proceeds of a business transaction less the costs of the transaction. Thus, the face value of DEPB will fall under clause (iiib) of Section 28 of the Act, the difference between the sale value and the face value of the DEPB will fall under clause (iiid) of Section 28 of the Act. Thus, the assessee s contention was rejected by the learned CIT(A) as the Hon ble Supreme Court has not indicated that aforesaid decision in Topman Exports(supra) wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t used borrowed funds for making investment and that the investments were made out of own capital cannot be accepted and hence since Rule 8D of 1962 Rules is applicable w.e.f. assessment year 2008-09 as held by Hon ble Bombay High court in the case of Godrej and Boyce Manufacturing Company Limited(supra), then as per appellate orders dated 08-05-2014 passed by learned CIT(A) proportionate disallowance for interest has to be made as per Rule 8D of 1962 Rules relying on decisions of Hon ble Bombay High Court in the case of Godrej and Boyce Manufacturing Company Limited (2010) 328 ITR 81(Bom.) . 6. Aggrieved by the appellate order dated 08-05-2014 passed by the ld. CIT(A), the assessee is in appeal before the Tribunal. 7. The ld. Counsel for the assessee submitted before the Tribunal that there is a sale of DEPB license in the subsequent year and the assessee has received ₹ 8,74,936/- against the same and offered for taxation in the subsequent year , while the DEPB license was received during the year. There is no loss to the Revenue as the whole amount has been offered for taxation albeit in the subsequent year when the DEPB licenses were sold. The ld. Counsel for the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and not taxable. Further it is was submitted that Hon ble Supreme Court has held that if the tax rate remains the same and the income is brought to tax in the next year, then it is fruitless to undertake such litigation as nothing is going to add to the public coffers. With respect to the disallowance u/s 14A of the Act read with Rule 8D of the 1962 Ruless the ld. Counsel submitted that the assessee has voluntarily disallowed 0.5% of average investments held whereby ₹ 3,32,482/- was offered for disallowance u/s 14A of the Act r.w.r. Rule 8D(2)(iii) of 1962 Rules. The assessee has invested its own funds in making investments and as such no disallowance can be made under Rule 8D(2)(ii) of 1962 Rules r.w.s 14A of the Act. The assessee has own funds to the tune of ₹ 12.74 crores as at 31- 03-2010 and ₹ 12.37 crores as at 31-03-2009, while the investment was only ₹ 4.65 crores as at 31-03-2010 and ₹ 8.65 crores as at 31-03-2009, as are reflected in audited financial statements which are placed in paper book. The ld. Counsel relied on the decision of Hon ble Bombay High Court in the case of CIT v. HDFC Bank Ltd., (2014)366 ITR 505 (Bom) , CIT v. Relianc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he material available on record including the case laws cited by the both parties. We find that the assessee is an exporter and the assessee has applied for DEPB licenses which has been granted for an amount of ₹ 8,74,936/- during the impugned assessment year but the face value of the DEPB licenses granted to the assessee as placed in paper book page 73-92 are to the tune of ₹ 10,94,118/- which need reconciliation so that correct income is brought to tax. The said licenses are placed by the assessee in paper book filed with the Tribunal at page 73-92 . It is the say of the assessee that on receipt of the DEPB licenses, no income has accrued. All the formalities have to be completed with the Custom authorities w.r.t. verifications and registrations after receipt of DEPB license and then only the income will accrue and due on the face value of DEPB license u/s 28(iiib) of the Act as contemplated by Hon ble Supreme Court in the case of Topman Exports(supra). Thus, it is the say of the assessee that the taxability shall arose when the DEPB license is accrued and due . It is the say of the assessee that the only after the entire verification and registration formalities with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Bom) and also the order of the Commissioner of Income Tax (Appeals) in its own case for the assessment years 1995-96 to 1997-98. 7. By his order dated 24th March 2004, the Assessing Officer did not accept the assessee's claim on the ground that the taxability of such benefits is covered by Section 28(iv) of the Income Tax Act, 1961 (for short 'the Act') which provides that the value of any benefit or perquisite, whether convertible into money or not, arising from a business or a profession is income. According to the Assessing Officer, along with an obligation of export commitment, the assessee gets the benefit of importing raw material duty free. When exports are made, the obligation of the assessee is fulfilled and the right to receive the benefit becomes vested and absolute, at the end of the year. In the year under consideration, the export obligation had been made and the accounting entries were based on such fulfilment. The Assessing Officer distinguished Jamshri on the ground that it pertained to the assessment year 1985-86 when the export promotion scheme was totally different and the taxability of such a benefit was examined only with reference to Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her on facts and in circumstances of the case and in law ITAT is justified in law in holding by following its decision in the case of Jamshri Ranjitsinghji Spg. Wvg. Mills Ltd. v. Inspecting Asstt. Commissioner [1961] 41 ITD 142 (Bom), that advance license benefit and DEPB benefits are taxable in the year in which these are actually utilized by the assessee and not in the year of receipts. 14. By the impugned order, the High Court declined to admit the appeal filed by the Revenue under Section 260-A of the Act. 15. It was submitted before us by learned counsel for the Revenue that in view of the provisions of Section 28(iv) of the Act, the value of the benefit obtained by the assessee is its income and is liable to tax under the head Profits and gains of business or profession . We are unable to accept the contention of learned counsel for the Revenue for several reasons. 16. Section 28(iv) of the Act reads as follows:- '28. Profits and gains of business or profession.- The following income shall be chargeable to income-tax under the head Profits and gains of business or profession - ** ** (iv) the value of any benefit or perquisite, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the customs authorities to pass on the benefit of duty free imports to the assessee until the goods are actually imported and made available for clearance. The benefits represent, at best, a hypothetical income which may or may not materialise and its money value is therefore not the income of the assessee. 22. In Godhra Electricity Co. Ltd. v. CIT, [1997] 225 ITR 746/91 Taxman 351 (SC) this Court reiterated the view taken in Shoorji Vallabhdas Co. (supra)and Morvi Industries Ltd. (supra). 23. Godhra Electricity is rather instructive. In that case, it was noted that the High Court held that the assessee would be obliged to pay tax when the profit became actually due and that income could not be said to have accrued when it is based on a mere claim not backed by any legal or contractual right to receive the amount at a subsequent date. The High Court however held on the facts of the case that the assessee had a legal right to recover the consumption charge in dispute at the enhanced rate from the consumers. 24. This Court did not accept the view taken by the High Court on facts. Reference was made in this context to CIT v. Birla Gwalior (P.) Ltd. [1973] 89 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e import to the assessee even without any imports having been made; and the probability or improbability of realisation of the benefits by the assessee considered from a realistic and practical point of view (the assessee may not have made imports), it is quite clear that in fact no real income but only hypothetical income had accrued to the assessee and Section 28(iv) of the Act would be inapplicable to the facts and circumstances of the case. Essentially, the Assessing Officer is required to be pragmatic and not pedantic. 28. Secondly, as noted by the Tribunal, a consistent view has been taken in favour of the assessee on the questions raised, starting with the assessment year 1992-93, that the benefits under the advance licences or under the duty entitlement pass book do not represent the real income of the assessee. Consequently, there is no reason for us to take a different view unless there are very convincing reasons, none of which have been pointed out by the learned counsel for the Revenue. 29. In Radhasoami Satsang Saomi Bagh v. CIT [1992] 193 ITR 321/60 Taxman 248 (SC) this Court did not think it appropriate to allow the reconsideration of an issue for a subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter any further but in respect of some assessment years the matter was taken up in appeal before the Bombay High Court but without any success. That being so, the Revenue cannot be allowed to flip-flop on the issue and it ought let the matter rest rather than spend the tax payers' money in pursuing litigation for the sake of it. 32. Thirdly, the real question concerning us is the year in which the assessee is required to pay tax. There is no dispute that in the subsequent accounting year, the assessee did make imports and did derive benefits under the advance licence and the duty entitlement pass book and paid tax thereon. Therefore, it is not as if the Revenue has been deprived of any tax. We are told that the rate of tax remained the same in the present assessment year as well as in the subsequent assessment year. Therefore, the dispute raised by the Revenue is entirely academic or at best may have a minor tax effect. There was, therefore, no need for the Revenue to continue with this litigation when it was quite clear that not only was it fruitless (on merits) but also that it may not have added anything much to the public coffers. 33. For the aforesaid reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficient own funds available with the assessee for the investment and no borrowed funds were stated to be utilized by the assessee for making investments in shares and mutual funds capable of earning tax-free income. The assessee has also filed financial statements which reveal that the assessee has own funds available in its hand which are far in excess of investments made in the shares, mutual funds and other securities yielding tax-exempt income. Perusal of audited financial statements for the financial year 2009-10 (page 27-67/paper book) will reveal that the assessee s own funds are to the tune of ₹ 12.47 crores as at 31-03-2010 and ₹ 12.37 crores as at 31-03-2009, while investments capable of yielding exempt income are to the tune of ₹ 4.65 crores as at 31- 3-2010 and ₹ 8.65 crores as at 31-03-2009. We agree with the proposition and contentions of the assessee that presumption will apply unless contrary is brought on record by the Revenue , that the assessee has made investment in shares , mutual funds and other securities capable of yielding exempt income out of its own surplus funds unless contrary is brought on record by the AO keeping in view the d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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