TaxTMI 
TaxTMI 
2015 (12) TMI 1326
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....ame is as below:- Dividend from CESC Ltd - 26,60,000 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 sec....
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.... the assessee for investments in the form of bank account or to show that only the capital funds are being invested in the investments. The funds are used from 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. ....
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....ment of the learned counsel is that only those investments can be taken into account for the purpose of Rule 8D from which income has been earned. No specific argument has been advanced in this behalf. 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 ha....
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....unsecured loan by the assessee at the fag end of the year which was admittedly utilized only for the purpose of business and not for making any investments by the assessee. No interest was debited in respect of this unsecured 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.....
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....T 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 "The Assessing Officer also disallowed the expenditure under section 14A of the Income Tax Act, 1961 without first recording that he was not satisfied 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....
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....allow the expenditure incurred for earning an income which does not form part of the total income. When there is no income which is claimed as exempt, then there is no scope for provisions of section 14A to operate. In the instant case, the assessee derived dividend income which is exempt 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 Hi....
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....use (f) of Explanation to section 115JB of the Act. The disallowance made u/s 14A of the Act read with Rule 8D is only artificial disallowance and obviously the same is not debited in the profit and loss account and the same cannot be imported into clause (f) of Explanation to Section 115JB of the Act. 3.3. We have already held that 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 Lea....
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....the facts of the case at hand we are satisfied that the provision made by the appellant company for meeting the liability incurred by it under the leave encashment scheme proportionate with the entitlement earned by employees of the company, inclusive of the officers and the staff, subject to the ceiling on accumulation as applicable on the relevant date, is entitled 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. ....
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....n the subsequent year, the concerned liability account is debited by the assessee and the entire transactions is not routed through the profit and loss account of the assessee. The assessee has been consistently following this practice over the years commencing from Asst Year 2003-04 onwards. A detailed note in this regard was also mentioned in the notes to tax audit report stating the reasons for not statutorily accruing this receipt in 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 cust....
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.... provisions of section 43B of the Act would not come into operation. In response to this, the Learned DR argued that the cess is collected by the assessee from the sale invoice and hence takes the character of a trading receipt and accordingly relied on the decision of the Hon'ble apex court as stated supra. 5.3. We find that the Learned CITA also had reproduced the relevant provisions of The West Bengal Rural Employment and Production Act, 1976 and The West Bengal Primary 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 b....
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.... facts and circumstances, the decision of the Hon'ble Apex Court in the case of Chowringhee Sales Bureau Pvt Ltd vs CIT reported in 87 ITR 542(SC) is not applicable to the facts of the assessee. 5.3.1. We also find that Asst Year 2003-04 was the first year of operation for the assessee wherein similar addition made by the Learned AO was deleted by the Learned CITA and the revenue had not preferred any appeal against the same before this tribunal. Similarly in Asst Year 2006-07, no disallowance under this head was 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 no....
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.... the same is the compulsion of judicial conscience." In the facts of the instant case, the assessee had commenced its operations from Asst Year 2003-04 and in the very first year, this issue was taken up for disallowance and the same was deleted by the Learned CITA and the revenue chose not to file an appeal before this tribunal. The next scrutiny assessment was made for Asst Year 2006-07 wherein no addition on this account was made. This goes to prove that the revenue had already accepted to the contentions of the assessee on the impugned issue 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 ....
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...." 6.3. We have heard the rival submissions and we find that the only issue is whether the assessee engaged in coal mining could be construed as production of coal and if so, the assessee is entitled for additional depreciation. We find that this issue is squarely covered by the decision of the Jurisdictional High Court in the case of CIT vs G.S.Atwal & Co reported in 254 ITR 592 (Cal) wherein it was held as below:- "13. Following an old and long standing decision given by Chakravarti C.J in 1959, which was later approved by the Supreme Court, the Division Bench opined that the winning 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 lan....