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Income Tax Appellate Tribunal, PANAJI
Before: SHRI RAVISH SOOD & SHRI JAMLAPPA D BATTULL
आयकर अपील�य अ�धकरण �यायपीठ, पणजी म�। IN THE INCOME TAX APPELLATE TRIBUNAL, PANAJI (Through virtual Court- at Raipur) BEFORE SHRI RAVISH SOOD, JUDICIAL MEMBER AND SHRI JAMLAPPA D BATTULL, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No. 380/PAN/2017 �नधा�रण वष� / Assessment Year : 2009-10 Infrastructure Logistics Pvt. Ltd. Cidade De Goa, Vainguinim Beach, Dona Paula, Goa-403 004. PAN : AAACI9107R .......अपीलाथ� / Appellant बनाम / V/s. The Joint Commissioner of Income Tax, Range-1, Panaji-Goa, ……��यथ� / Respondent आयकर अपील सं. / ITA No. 381/PAN/2017 �नधा�रण वष� / Assessment Year : 2009-10 The Assistant Commissioner of Income Tax, Central Circle, Panaji-Goa, .......अपीलाथ� / Appellant बनाम / V/s.
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Infrastructure Logistics Pvt. Ltd. Cidade De Goa, Vainguinim Beach, Dona Paula, Goa-403 004 PAN : AAACI9107R ……��यथ� / Respondent Assessee by : Shri Nishant Thakkar, AR & Ms. Jasmini, AR Revenue by : Shri Sourabh Nayak, DR सुनवाई क� तार�ख / Date of Hearing : 24.02.2022 घोषणा क� तार�ख / Date of Pronouncement : 13.05.2022 आदेश/ ORDER PER RAVISH SOOD, JM: The captioned cross-appeals filed by the assessee and revenue are directed against the order passed by the CIT(Appeals)-2, Panaji, dated 28.09.2017, which in turn arises from the order passed by the A.O under Sec.143(3) of the Income-tax Act, 1961 (for short ‘the Act’) dated 19.12.2011for assessment year 2009-10. Before us the assessee has assailed the impugned order on the following grounds of appeal:
“1. The order of the Commissioner of Income Tax (Appeals)-2 Panaji-Goa (hereinafter referred to as CIT(A) is opposed to law and facts of the case. 2. (a) The CIT(A) erred in confirming the disallowance made by the Assessing Officer (AO) under section 14A of the Act read with rule 8D of the Income Tax Rules, 1962 amounting to Rs.15,03,242/-. The whole of the additions be deleted in full.
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(b) The CIT(A) erred in not deciding about AO’s recording of satisfaction in invoking the provisions of section 14A of the Act read with rule 8D of the Income Tax Rules, 1962. (c) Without prejudice to the ground numbers 2(a) & (b), the CIT(A) in not allowing the alternative ground of the appellant that the average of the value of investments which yielded exempted income alone is to be considered for calculating disallowance as per rule 8D(2)(iii) and not on the basis of the average of total value of investments appeared in the audited balance sheet of the appellant as at 31/03/2009. 3. The CIT(A) legally erred in confirming the additions in the sum of Rs.90,29,928/- by observing that the advances /deposits in respect of two parties can reasonable be taken as ceased and no longer payable. The whole of the addition be deleted in full. 4. The appellant craves leave to add, to alter or vary any of the grounds of appeal set out hereinabove.”
Also, the assessee has raised before us an additional ground of appeal which reads as under: “5. The CIT(A) legally erred in confirming the addition of Rs.2,56,625/- made by the AO relatable to unpaid credit balance as on 31.03.2009 by observing that the same is no longer payable.” On the other hand the revenue has challenged the impugned order on the following grounds of appeal:
“1. In the facts and circumstances of the case, the CIT(A)-2, Panaji erred in deleting the additions of Rs.10,89,334/- made by way of disallowance of contributions to temple/panchayat by admitting the additional evidences in violation to Rule 46A(3) of Income Tax Rules, 1962. 2. In the facts and circumstances of the case, the CIT(A)-2, Panaji erred in deleting the addition of Rs.9,96,547/- made u/s.41(1). 3. In facts and circumstances of the case, the CIT(A)-2, Panaji erred in deleting the additions u/s.28(iv) of Rs.2,31,40,951/- related to Zeenath Transport Co., ‘kariganur Iron Steel Pvt. Ltd. And MSPL Ltd. By admitting
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the additional evidences in violation to Rule 46A(3) of Income Tax Rules, 1962. 4. Any other grounds of appeal to be raised.”
Succinctly stated, the assessee company which is engaged in the business of extraction, cargo handling and trading of iron ore had e-filed its return of income for the assessment year 2009-10 on 30.09.2009, declaring an income of Rs.41,37,20,510/-. The return of income filed by the assessee was initially processed as such u/s. 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment u/s.143(2) of the Act.
Assessment was, thereafter, framed by the A.O vide his order passed u/s.143(3) dated 19.12.2011 determining the income of the assessee company at Rs.45,08,77,004/- after, inter alia, making the following additions/disallowances:
Sl. No. Particulars Amount ( in Rs.) 1. Disallowance u/s.14A of the Act Rs. 15,03,242/- 2. Disallowance of contribution to Temple Rs. 10,89,334/- 3. Disallowance u/s.40(a)(ia) of the Act Rs. 11,39,867/- 4. Addition towards cessation of liabilities Rs. 9,96,547/- u/s.41(1) of the Act
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Addition of un-paid creditors/advances Rs.3,24,27,504/-
Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals). After deliberating at length on the contentions advanced by the assessee the CIT(Appeals) vacated certain additions/disallowances made by the A.O, viz. (i) disallowance of donation to temple: Rs.10,89,334/-; (ii) disallowance u/s.40(a)(ia) of the Act : Rs.11,39,867/-; and (iii) addition made by the A.O u/s.41(1) of the Act : Rs.9,96,547/-. As regards the addition by the AO of unpaid creditors/advances u/s. 28(iv) of the Act amounting to Rs.3,24,27,504/-, the CIT(Appeals) taking cognizance of the fact that in case of three parties, viz. (i). M/s S.S. Soya Future Resources: Rs.50 lacs (ii). M/s KMMI Steels (P) Ltd. : Rs.40,29,928/-; and (iii). M/s Essar Logistics Ltd.: Rs.2,56,625/-, the balances were though claimed by the assessee company to be outstanding towards the said respective parties in its balance sheet, but it had not been able to obtain their confirmations thus, sustained the addition to the extent of Rs.92,86,553/- while for vacated the balance addition of Rs. 2,31,40,951/-.In so far the disallowance made by the AO u/s.14A r.w Rule 8D(2)(iii)of the Income Tax Rules, 1963 (for short ‘the Rules’) of Rs. 15,03,242/- was concerned, the CIT(Appeals) not finding favor
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with the claim of the assessee that no part of its claim for deduction of expenditure could be attributed/related to earning of exempt dividend income, upheld the disallowance that was worked out by the AO under Sec. 14A r.w Rule 8D(2)(iii). Accordingly, the CIT(Appeals) on the basis of observations recorded in his order partly allowed the appeal.
Both the assessee and Revenue being aggrieved with the order of the CIT(Appeals) have carried the matter in appeal before us.
We have heard the ld. Authorized Representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions.
Before proceeding any further, we shall deal with the maintainability of the additional ground of appeal raised by the assessee before us. It is the claim of the Ld. Authorized Representative (for short “A.R”) for the assessee, that the assessee company had inadvertently omitted to assail the addition of Rs.2,56,625/-,i.e, qua the unpaid credit balance of one party, viz. M/s Essar Logistics Ltd. that had thereafter been upheld by the CIT(Appeals),
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therefore, the same has been raised by way of an additional ground of appeal before us.
Per contra, the Ld. DR did not raise any serious objection to the raising of the aforesaid additional ground of appeal by the assessee before us.
After having heard the parties, we find substantial force in the claim of the Ld. AR that the assessee company had inadvertently omitted to assail the addition of Rs.2,56,625/- (supra) that formed part of the addition of Rs.3,24,27,504/- that was made by the A.O towards unpaid creditors/advances, therefore, the additional ground of appeal so raised by the assessee before us merits admission.
Adverting to the merits of the case, we shall first take up the grievance of the assessee company as regards the upholding of the disallowance of administrative expenses under Sec. 14A r.w Rule 8D(2)(iii) by the CIT(Appeals). On a perusal of the orders of the lower authorities, we find that though the assessee had during the year under consideration received exempt dividend income of Rs.34,02,730/-, however, it had not offered any disallowance of expenditure u/s. 14A of the Act. On being
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queried as to why disallowance may not be computed as per methodology contemplated under Rule 8D, it was claimed by the assessee that it was in the business of extraction, export of cargo handling and trading of iron ore and was in the normal course of its business parking its surplus funds with the banks. It was stated by the assessee that as certain mutual fund managers who were attached with the banks would approach him for making investments in mutual funds, therefore, in order to keep good relations with the banks and financial institutions and to effectively use the surplus funds it had as per their advice invested a small portion of the said funds in mutual funds. It was claimed by the assessee that mutual funds officials would collect the forms and cheques from its office and render all the services at its doorsteps. It was claimed before the A.O that except for issuing of cheques in favour of the funds and accounting the statements in its books of account (the cost of which was negligible), no other activity was done by the company qua its aforesaid exempt income yielding investments. It was, thus, the claim of the assessee that no cost/expenses could be attributed towards earning of the exempt income. As regards the interest bearing funds/loans that were reflected in its balance sheet, it was the claim of the assessee that the same were raised for purchasing vehicles/tippers and had not been used for making any investment in the exempt income
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yielding mutual funds. Although the AO accepted the claim of the assessee that no part of the interest bearing funds were diverted for making investments in exempt income yielding mutual funds, but was not persuaded to subscribe to its claim that no part of the administrative expenditure could be attributed to earning of the exempt dividend income or maintaining of its corresponding investment portfolio. Observing, that some part of the expenditure would have been incurred by the assessee towards earning of exempt dividend income, the AO triggered the provisions of Sec. 14A of the Act and computed the disallowance as per the methodology contemplated under Rule 8D(2)(iii) at an amount of Rs. 15,03,242/-.
Before us, it was the claim of the Ld. Authorized Representative (for short ‘AR’) for the assessee that the A.O had wrongly assumed jurisdiction and computed the disallowance of Rs.15,03,242/- under Sec. 14A in the hands of the assessee company. Elaborating on his aforesaid contention, it was submitted by the Ld. AR, that though the assessee in the course of the assessment proceedings on being queried as to why no part of the expenses were attributed towards earning of exempt dividend income of Rs.34,02,730/- had came forth with reasons for not doing so, however, the A.O without recording his dissatisfaction as regards the said claim of the
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assessee in reference to its books of account had dislodged the same and mechanically computed the disallowance under the aforesaid statutory provision by triggering the mechanism contemplated in Rule 8D(2)(iii) of the Rules. In support of his aforesaid contention that before taking recourse to Sec. 14A(2) and triggering the mechanism contemplated in Rule 8D an A.O remains under a statutory obligation to record his dissatisfaction as regards the disallowance offered by the assessee u/s.14A of the Act, the Ld. AR relied on the judgments of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. Vs. CIT, New Delhi (2018) 91 taxmann.com 154(SC) and Godrej & Boyce Manufacturing Company Ltd. vs. DCIT [2017] 81 taxmann.com 111 (SC). It was submitted by the Ld. AR that as laid down by the Hon’ble Apex Court in its aforesaid judicial pronouncements, it was mandatory on the part of the A.O to record his dissatisfaction as regards the claim of disallowance of expenditure incurred for earning of the exempt dividend income, failing which he was divested of his jurisdiction from working out the disallowance u/s.14A r.w Rule 8D of the Rules. Also, support was drawn by the Ld. AR from the judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. Sociedade De Fomento Industrial (P). Ltd. (2020) 429 ITR 358 ( Bom.) and that of the Hon’ble High Court of Delhi in the case of H.T Media Ltd. Vs. Pr. CIT (2017) 399 ITR 576 ( Delhi). It was
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submitted by the Ld. AR that as per the judgment of the Hon’ble Jurisdictional High Court in the case of Sociedade De Fomento Industrial (P). Ltd (supra), the A.O prior to embarking upon the provisions of Sec. 14A(2) and triggering the mechanism contemplated in Rule 8D was obligated to reject the disallowance offered by the assesee and give a clear finding as to how the other expenditure claimed by the assessee against its non-exempt income was related to its exempt income. It was claimed by the Ld. AR that as the A.O had failed to record his dissatisfaction as per the mandatory obligation that was cast upon it, therefore, he had wrongly assumed jurisdiction and computed the disallowance u/s.14A r.w Rule 8D(2)(iii),which being unsustainable in the eyes of law was liable to be vacated on the said count itself. Also, the Ld. AR in order to canvass the aforesaid position of law had drawn support from the judgment of the Hon’ble High Court of Delhi in the case of H.T Media Ltd. (supra).
Per contra, the Ld. Departmental Representative (for short ‘DR’) relied on the orders of the lower authorities. It was submitted by the Ld. DR that as the A.O had after referring to the scheme of Sec. 14A of the Act and considering the facts involved in the case before him triggered the
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provisions of section 14A r.w Rule 8D(2)(iii) of the Rules, therefore, no infirmity did emerge from his order.
After giving a thoughtful consideration to the issue in hand in the backdrop of the aforesaid contentions advanced by the Ld. Authorized Representatives of both the parties, we find substantial force in the claim of the Ld. AR. Admittedly, pursuant to the judgment of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. Vs. CIT, New Delhi (2018) 91 taxmann.com 154(SC), the A.O prior to dislodging the disallowance, if any, offered by the assessee u/s.14A of the Act remains under a statutory obligation to record his dissatisfaction as regards the correctness of the said claim of the assessee in reference to its accounts and therein, categorically record the reasons as to why the claim of the assessee qua the disallowance so offered by him is not being accepted. On a similar footing would be a case where the assessee had not attributed any part of the expenditure for earning of exempt dividend income and, the A.O is not satisfied with the said claim. Apart from that we find that the Hon’ble Jurisdictional High Court in the case of CIT Vs. Sociedade De Fomento Industrial (P). Ltd (supra) had observed, that the A.O before rejecting the disallowance offered by the assessee remains under a statutory obligation to give a clear finding with
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reference to the accounts of the assessee that the other expenditure which were being claimed qua the non-exempt income were in fact related to its exempt income. Also, as stated by the Ld. AR, and rightly so, a similar view had been taken by the Hon’ble High Court of Delhi in the case of H.T Media Ltd. Vs. Pr. CIT (2017) 399 ITR 576 ( Delhi). Now, in the case before us, we find that the A.O had though deliberated at length on the scheme of section 14A of the Act, but had failed to give any reason as to why the claim of the assessee that no part of the expenditure could be attributed towards earning of exempt income was not to be accepted. Although, the CIT(Appeals) in his order had tried to improve upon the aforesaid lapse of the A.O, but a perusal of his observations too do not inspire much of confidence, as the statutory obligation requiring recording of a clear finding with reference to the assessee’s accounts that the expenditure claimed by the assessee to have been incurred in respect of its non-exempt income was in fact related to its exempt income, is not found to be satisfied. Although the CIT(Appeals) had referred to the assessee’s claim for deduction of certain expenses, but the same are more or less in the nature of general observations which would not suffice the satisfaction of the obligation that is cast upon the revenue for dislodging the claim of the assessee qua attribution of any part of the expenditure for earning of exempt dividend income. Be that as it may, we,
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in terms of our aforesaid observations, concur with the claim of the Ld. AR that as the A.O had failed to record his dissatisfaction as regards the claim of the assessee that no part of the expenditure claimed as deduction could be attributed towards earning of exempt dividend income, therefore, he had wrongly assumed jurisdiction u/s.14A of the Act, as a result whereof the disallowance of Rs. 15,03,242/- determined by him by triggering the mechanism contemplated in Rule 8D(2)(iii) cannot be sustained and is liable to be vacated. As we have vacated the disallowance made by the A.O u/s.14A(2)(iii) for want of valid jurisdiction on his part, therefore, we refrain from adverting to the other contentions that have been advanced by the Ld. AR qua sustainability of the said disallowance on merits which are left open. Thus, the Ground of appeal No.2 raised by the assessee is allowed in terms of our aforesaid observations.
Now we shall deal with the claim of the Revenue that the CIT(Appeals) had erred in law and facts of the case in vacating the disallowance of the assessee’s claim for deduction of contributions to temple/panchayat of Rs.10,89,334/-. On a perusal of the orders of the lower authorities, we find that the assessee had during the year under consideration raised a claim for deduction of its contributions of
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Rs.10,89,334/- to temple/panchayat etc. Observing, that the contributions made by the assessee to the temple/panchayat were not eligible for deduction u/s.80G of the Act, the A.O disallowed the assessee’s claim for deduction of the aforesaid amount in question.
On a perusal of the order of the CIT(Appeals), we find that he had after taking cognizance of the fact that the aforesaid contributions /expenditure were incurred by the assesse for the purpose of smoothly running its business, i.e., without any disturbance from the inhabitants of the surrounding villages, therefore, the same, as claimed by the assessee, was duly eligible for deduction u/s.37 of the Act. For the sake of clarity, the observations of the CIT(Appeals) qua the aforesaid issue are culled out as under: “4.3 I have gone through the assessment order and the submissions of the appellant. It is not denied that the appellant is maintaining the regular books of account which are audited. The appellant has produced necessary proof of incurring expenditure and business need as the appellant has mines in and around the villages where this expenditure has been incurred. This expenditure is necessary for the appellant to incur so as to run its business smoothly without any disturbance from the people in the surrounding villages. The AO has not been able to prove that the expenditure in question is personal expenditure or capital expenditure and hence, the expenditure disallowed by the AO amounting to Rs.10,89,334/- is hereby deleted. Ground No.3 is allowed.”
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We have heard the ld. Authorized Representative for both the parties and perused the orders of the lower authorities as regards the aforesaid issue in hand. After giving a thoughtful consideration to the observations of the CIT(Appeals), we find no infirmity in the view taken by him. Admittedly, it is a matter of fact borne from record that the assessee company is engaged in the business of mining and extraction of iron ore, logistics and export. On a perusal of the record, we find that the assessee company had made certain contributions and also incurred expenses which were claimed by it as a deduction by including the same as a part of its other mining cost, as under:
Sl. No. Particular Amount 1 Payment to Shri Bhavbani Mandir, 150,000 Jirnoddhar Samiti at Redi 2 Shri Devi MauliDevastan Mandir 500000 6,50,000/- Jirnoddhar Committee twds reconstruction of sabhamandhap of mandir at Redi 3 Village panchayat KundneBicholim 100000 for panchayat 4 Payment to Gram Panchayat Redi 25000 1,25,000/- tods development fund 5 Goa infrastructure Development 40000 Co. Pvt. Ltd. for improvement at sonshi near Mina 6 Purchase of material for 74878 samshanshet at Redi 7 Paid to Ravindra M Arwart for 70000 Tiroda Public Hearing
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8 Payment towards purchase of 52465 hydratelime for advalpal 9 Payment for wiring connection 21000 done at mine office 10 Payment to Yogeshwar soldering 17600 & tin maker for purchase of zinc sheet metal core boxes 11 Purchase of bent type fencing 38391/- 3,14,334/- poles 10,89,334/- 10,89,334/-
However, the A.O being of the view that the aforesaid payments were in the nature of donations to temple/panchayat had disallowed the same, for the reason that they were not eligible for deduction u/s.80G of the Act.
In our considered view, as observed by the CIT(Appeals), and rightly so, the aforesaid contributions/expenditure which are neither in the nature of personal expenditure or capital expenditure and have been incurred by the assessee company in order to facilitate running of its business of mining smoothly, i.e., without any disturbance from the people in the surrounding villages thus, being in the nature of an expenditure incurred by the assessee wholly and exclusively for the purpose of its business was allowable as a deduction u/s. 37(1) of the Act. Accordingly, finding no infirmity in the view taken by the CIT(Appeals) who had vacated the aforesaid disallowance of
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the assessee’s claim for deduction of Rs.10,89,334/-, we uphold the same. Thus, the Ground of appeal No.1 raised by the revenue is dismissed in terms of our aforesaid observations.
We shall now advert to the grievance of the Revenue that the CIT(Appeals) had erred in law and on facts of the case in vacating the addition of Rs.9,96,547/- that was made by the A.O u/s.41(1) of the Act.
As is discernible from the records, we find that as the assessee in the course of the proceedings before the A.O had failed to furnish confirmations in respect of four creditors aggregating to Rs.9,96,547/-, therefore, the A.O had brought the same to tax in its hand under Sec. 41(1) of the Act.
On appeal, it was the claim of the assessee before the CIT(Appeals) that due to dispute with the aforesaid parties as regards the quantity/quality of work done/goods supplied, their confirmations could not be filed in the course of the assessment proceedings with the A.O. It was, however, the claim of the assessee before the CIT(Appeals) that as the credit balances in respect of all the four creditors in question had been written off in its books of accounts for the succeeding years, i.e., A.Y.2012-13 and A.Y.2014-15 and had been offered as income in the said respective years, therefore,
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there was no justification on the part of the A.O in treating the liabilities in question as having been ceased during the year under consideration, i.e., in A.Y.2009-10. The CIT(Appeals) finding favour with the aforesaid claim of the assessee, and taking cognizance of the fact that the A.O had failed to substantiate that the liability of the assesee company towards the aforesaid four creditors in question had ceased during the year under consideration ,i.e., in A.Y 2009-10 thus, concurred with him that addition of the same could not have been made in its hand u/s.41(1) of the Act during the year in question. The CIT(Appeals) while concluding as hereinabove had drawn support from the judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. Chase Bright Steel Pvt. Ltd., 177 ITR 128 (Bom.)and vacated the aforesaid addition of Rs.9,96,547/- that was made by the A.O u/s.41(1) of the Act.
After having given a thoughtful consideration to the aforesaid issue in hand, we find substance in the claim of the Ld. AR that as the A.O had failed to substantiate his claim that the outstanding liability of the assesee company towards the aforesaid four creditors in question had ceased to exist during the year under consideration, therefore, the same could not have been brought to tax in its hand u/s.41(1) of the Act during the year
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under consideration, i.e., A.Y.2009-10. At this stage, we may herein observe, that though cessation of a trading liability, inter alia, would lead to addition of the same in the hands of an assessee u/s. 41(1) of the Act, but then onus is cast upon the Revenue to establish that the assessee had during the year under consideration obtained some benefit in respect of such trading liability by way of remission as cessation thereof. Our aforesaid conviction is fortified by the order of this Tribunal in the case of G.N Agarwal (HUF) Vs. JCIT, ITA No.201/PNJ/2013 dated 18.07.2014 wherein involving identical facts, the Tribunal had vacated the addition made by the A.O u/s.41(1) of the Act, observing as under: “We have heard the rival submissions and carefully considered the same. We noted that the total outstanding liabilities in the books of the assessee as on 31.03.2001 were to the extent of Rs.75,75,693/- and there was debit balance of Rs.26,44,862/-. The AO added sum of Rs.49,30,831/- being the difference of creditors and debtors. CIT(A) reduced the addition to Rs.20,58,095/- on the basis that the Assessee has already settled liabilities to the extent of Rs.28,72,736/- upto 31.03.2010 either by making payment or by writing back the sum but sustained addition of Rs.20,58,095/- which relate to the unrecovered advances. We may clarify that so far the claim of the assessee in respect of unrecovered advances are concerned, the assessee can claim deduction only u/s 36(1)(vii) in the year in which these debts have been written off by the assessee in his books of accounts. It is an undisputed fact that the said amount has not been written off by the Assessee during the impugned assessment year. So far as the addition made u/s 41(1) is concerned, the onus, in our opinion, lies on the Revenue to prove that the liability has ceased during the impugned assessment year. Merely liability has become barred by limitation will not prove that the liability of the Assessee has ceased. The liability ceases when it has become barred by limitation and assessee has unequivocally expressed its intention not to honour the liability even when demanded. Our aforesaid view is duly supported by the decision of the jurisdiction High Court in the case of CIT s. Chase Bright Steel Pvt Ltd., 177 ITR 128. We, therefore, set aside the order
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of CIT(A) and delete the addition made by the AO as ultimately the addition which remains sustained by CIT(A) relates to the sundry creditors and the liability outstanding against the assessee. As far as the unrecovered balance in respect of the advances is concerned, the same has already been allowed by the AO while making the net addition to Rs. 49,30,831/- out of the sum of Rs. 75,75,693/- even though these unrecovered debtors have to be allowed, as observed by us earlier, in the year in which they have been written off. We, therefore, set aside the order or CIT(A) and delete the addition of Rs. 49,30,831/- respectfully following the decision of the jurisdiction High court. In the result, the grounds taken by the Revenue stand dismissed while the ground taken by the Assessee stands allowed." In the case before us, it is an uncontroverted fact that the assessee had claimed that the outstanding liabilities towards the aforementioned four creditors had ceased to exist in the period relevant to A.Y.2012-13 and A.Y.2014-15, and the said respective amounts were offered as its income for the said years. Backed by the aforesaid facts, we are in agreement with the Ld. AR that now when it is the claim of the assessee that the impugned liabilities had ceased to exist in the aforementioned succeeding years, then, in case the A.O was to hold otherwise, he was obligated to substantiate on the basis of irrefutable material that the said outstanding liabilities had in fact ceased to exist during the year under consideration itself, i.e., A.Y.2009- 10. Having failed to do so, we are of the considered view that the A.O could not have summarily concluded that the cessation of the aforementioned outstanding liability had occasioned during the year under consideration, i.e., AY 2009-10. We, thus, in terms of our aforesaid observations, finding no infirmity in the view taken by the CIT(Appeals) who had rightly vacated
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the addition of Rs.9,96,547/- made by the A.O u/s.41(1) of the Act, uphold the same. Thus, the Ground of appeal No.2 raised by the Revenue is dismissed in terms of our aforesaid observations.
We shall now advert to the common grievance of the assessee/ revenue wherein they have assailed the action of the CIT(Appeals) in partly sustaining/vacating the addition of Rs.3,24,27,504/- made by the A.O u/s. 28(iv) of the Act. As is discernible from the records, the assesee had received advances/deposits in the preceding years from 6 parties, i.e., for providing handling services in connection with its business which stood reflected in its ‘balance sheet’ on 31.03.2009, as under: (i) Zeenath Transport Co. Rs.1,43,00,000/- (ii) Kariganur Iron Steel (P) Ltd. Rs. 67,43,530/- (iii) S.S. Soya/ Future Resources Rs. 50,00,000/- (iv) KMMI Steels (P) Ltd. Rs. 40,29,928/- (v) MSPL Ltd. Rs. 20,97,421/- (vi) Essar Logistics Ltd. Rs. 2,56,625/- Total Rs.3,24,27,504/- As the assessee explained its inability to submit confirmations of the aforementioned parties, therefore, the A.O being of the view that as the said amount of deposits/advances were not anymore payable by the assessee to
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them, thus, the same were in the nature of benefit of perquisite within the meaning of section 28(iv) of the Act. Accordingly, the A.O made an addition of Rs.3,24,27,504/- u/s.28 (iv) of the Act.
On appeal, it was the claim of the assessee before the CIT(Appeals) that as there were certain disputes with the aforesaid parties, therefore, their confirmations could not be placed on record in the course of the assessment proceedings. On merits, the assessee had drawn support from certain documentary evidences in support of its claim that the respective outstanding liabilities qua the aforesaid six parties had not ceased to exist. It was, thus, the claim of the assessee that now when its liability towards the aforementioned parties was very much surviving therefore, the genesis of the impugned addition made by the A.O was misconceived and misplaced. For the sake of clarity, the submissions of the assessee before the CIT(Appeals) qua the aforesaid six depositors in question is culled out as under: “1. Zeenath transport Co. Rs.1,43,00,000/- The appellant is showing credit balance to the party's account as on date in its books of account. The party vide his letter dated 27.08.2008 (previous year relevant to the assessment year under appeal) had requested for return of the said deposit (copy of the letter enclosed as Annexure "A"). This letter was filed before the AO at the time of assessment proceedings. The said amount is thus refundable and or adjustable against future services to the said party.
24 Infrastructure Logistics Pvt. Ltd. ITA Nos.380 & 381/PAN/2017
Kariganur Iron Steel (P) Ltd. Rs.67,43,530/- The appellant is showing credit balance to the party's account as on date. The party vide his email dated 2'd August 2008 (previous year relevant to the assessment year under appeal) confirmed the balance due by the appellant by filing their statement of account for the period 01.04.2004 to 31.03.2008 (copy of the email is enclosed as Annexure "B"). This documents was also filed before the AO at the time of assessment proceedings. The said amount is therefore still refundable and or adjustable against future services to the said party. 3. S.S. Soya/Future resource Rs.50,00,000/- This amount was received on 8.2.2008 for handling of their iron ore fines by the appellant company. The appellant submits that this is still payable to the said party on their demanding the money or adjustable against future supply of services. 4. KMMI Steels (P) Ltd. Rs.40,29,928/- This amount was received on 8.2.2008 for handling of their iron ore fines by the appellant company. The appellant submits that this is still payable to the said party on their demanding the money or adjustable against future supply of services. 5. MSPL Ltd. Rs.20,97,421/- Your appellant states that as on date a sum of Rs.6,58,378/- is showing credit balance to the aforesaid party's account comprising of three ledger accounts (copies enclosed collectively as Annexure "C"). The party is insisting to refund the money as is confirmed from their email in the month of May, 2014 (copy enclosed as Annexure "D"). The party also confirmed the balance vide its letter dated 30.9.2009 which is enclosed herewith for your reference as Annexure "E". This was also filed before the AO. Your appellant therefore submits that the balance due to the party is refundable as on date. 6. Essar Logistics Ltd. Rs.2,56,625/- This pertains to the amount of tax deducted at source by the said party belatedly and remained to be paid to them as and when demanded by them. In the light of our aforesaid detailed submissions, we request your honour to allow our appeal and direct the AO accordingly."
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As is discernible from the order of the CIT(Appeals), we find that finding favour with the claim of the assessee that its outstanding lability towards three parties, viz. (i) M/s. Zeenath Transport Co.: Rs.1,43,00,000/- (ii) M/s. Kariganur Iron Steel Pvt. Ltd.: Rs.67,43,530/- and (iii) M/s. MSPL Ltd.: Rs.20,97,421/- was on the basis of their respective confirmations proved to be outstanding and payable as on 31.03.2009,the CIT(Appeals) was of the view that the addition of Rs.2,31,40,951/- made by the A.O could not be sustained and was liable to be vacated. As regards the advances/deposits in respect of the remaining three parties, viz. (i) M/s. S.S. Soya Future Resources: Rs.50 lacs; (ii) M/s. KMMI Steels Pvt. Ltd.: Rs.40,29,928/- and (iii) M/s. Essar Logistics Ltd.: Rs.2,56,625/-, it was observed by the CIT(Appeals) that as the assessee had even after almost 8 years from the end of previous year on which the advances/deposits had been received from the respective parties, failed to substantiate on the basis of supporting confirmations that the said liabilities were as on date outstanding, therefore, concurred with the A.O that the said respective amounts had ceased and were no longer payable. Accordingly, the CIT(Appeals) on the basis of his aforesaid observations sustained the addition as regards three advances/deposits of Rs.92,86,553/- (out of total addition of Rs.3,24,27,504/- made by the A.O.)
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Before us, Shri Nishant Thakkar, the Ld. AR has assailed the validity of addition of the advances/deposits that were made by the A.O u/s. 28(iv) of the Act. Elaborating on his aforesaid contention, it was submitted by the Ld. AR that as section 28(iv) of the Act contemplates charging of the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession to income-tax under the head Profits and gains of business or profession, therefore, now when advances/deposits received by the assessee would not fall within the realm of “………any benefit or perquisite, whether convertible into money or not”, therefore, the provisions of section 28(iv) of the Act could not have been triggered for making an addition of the aforesaid amount as the income of the assessee company. In order to support his aforesaid contention the Ld. AR had relied on the judgment of the Hon’ble Supreme Court in the case of Commissioner of Income-tax Vs. Mahindra & Mahindra Ltd. (2018) 404 ITR 1 (SC). It was submitted by the Ld. AR that the Hon’ble Apex Court in its aforesaid order had observed, that for invoking provisions of section 28(iv) of the Act, the benefit received has to be in some form other than in shape of money, and since waiver amount represented cash/money, therefore, the provisions of section 28(iv) would not be applicable. By way of an analogy, it
27 Infrastructure Logistics Pvt. Ltd. ITA Nos.380 & 381/PAN/2017
was claimed by the Ld. AR that now when waiver of loan for acquiring a capital asset has been held as a benefit in shape of money, which would take it beyond the realm of Sec. 28(iv) of the Act, therefore, on a similar footing the alleged cessation of the outstanding liabilities in the case of the present assessee company, i.e., advances/deposits of the aforesaid six parties in question could also not be brought to tax within the realm of section 28(iv) of the Act. In sum and substance, it was claimed by the Ld. AR that as section 28(iv) presupposes the benefit received to be in some form other than in shape of money, therefore, as per the ratio decidendi of the judgment of the Hon’ble Supreme Court in the case of Mahindra and Mahindra Ltd. (supra) the cessation of the advances/deposits as alleged by the department would not trigger the provisions of the said statutory provision.
On the contrary, it was the claim of the Ld. DR that as the cessation of advances/deposits had resulted to a benefit to the assessee, therefore, the A.O had rightly held the same as its income u/s. 28(iv) of the Act.
After having given a thoughtful consideration to the aforesaid contentions of the Ld. Authorized Representatives of both the parties in the backdrop of the orders of the lower authorities, we find substantial force in
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the claim of the Ld. AR that the invoking of provisions of section 28(iv) of the Act pre-supposes any benefit or perquisite whether convertible into money or not, arising from business or the exercise of a profession. As observed by the Hon’ble Supreme Court in the case of Commissioner Vs. Mahindra & Mahindra Ltd. (supra), for invoking the provisions of section 28(iv) of the Act, benefit received has to be in some form other than in shape of money. Observing, that as the waiver of loan for acquiring a capital asset in the case before them represented cash/money, the Hon’ble Apex Court in its aforesaid order had concluded that the provisions of section 28(iv) of the Act would not be applicable. For the sake of clarity the relevant observations of the Hon’ble Supreme Court are culled out as under :
“12) The first issue is the applicability of Section 28 (iv) of the IT Act in the present case. Before moving further, we deem it apposite to reproduce the relevant provision herein below:- “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 profession”, -- xxx---- (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession; ----x xx---” 13) On a plain reading of Section 28 (iv) of the IT Act, prima facie, it appears that for the applicability of the said provision, the income which can be taxed shall arise from the business or profession. Also, in order to invoke the provision of Section 28 (iv) of the IT Act, the benefit which is
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received has to be in some other form rather than in the shape of money. In the present case, it is a matter of record that the amount of Rs. 57,74,064/- is having received as cash receipt due to the waiver of loan. Therefore, the very first condition of Section 28 (iv) of the IT Act which says any benefit or perquisite arising from the business shall be in the form of benefit or perquisite other than in the shape of money, is not satisfied in the present case. Hence, in our view, in no circumstances, it can be said that the amount of Rs 57,74,064/- can be taxed under the provisions of Section 28 (iv) of the IT Act.” As in the case before us, it is the claim of the Revenue that the advances/deposits that were received by the assessee in the preceding years were no more payable, therefore, the same were to be held as its income u/s. 28(iv) of the Act. We are of a strong conviction that as the view taken by the AO, i.e, assessing of the alleged cessation of the assessee’s liability qua the advances/deposits of Rs. 3,24,27,504/- as its income under Sec. 28(iv), is not found to be in conformity with the judgment of the Hon’ble Supreme Court in the case of Mahindra & Mahindra Ltd. (supra), thus, the same cannot be sustained and is liable to be vacated on the said count itself. As stated by the Ld. AR, and rightly so, as cessation of a capital receipt of an amount by the assessee, i.e., deposits/advances for providing handling services that were received by the assessee in the normal course of its business in the preceding years, would undisputedly represent cash/money and is not in the nature of benefit or perquisite other than any shape of money, therefore, the provisions of section 28(iv) of the Act would
30 Infrastructure Logistics Pvt. Ltd. ITA Nos.380 & 381/PAN/2017
not get triggered. We, thus, in terms of our aforesaid observations finding favour with the claim of the Ld. AR that the alleged cessation of the asessee’s liability towards the aforementioned six parties qua the advances /deposits that were received from them for providing handling services in connection with its business would not fall within the realm of Sec. 28(iv) of the Act, therefore, the addition of Rs.3,24,27,504/- so made by the A.O by triggering the said statutory provision i.e Sec. 28(iv) of the Act, cannot be sustained and is liable to be struck down on the said count itself.
As we being principally in agreement with the claim of the Ld. AR that no part of the alleged cessation of the outstanding advances/deposits towards the aforementioned 6 parties amounting to Rs.3,24,27,504/- could have been made under Sec. 28(iv) of the Act, therefore, having concurred with the claim of the Ld. AR that the A.O for want of valid assumption of jurisdiction could not have added the aforesaid amount of Rs.3,24,27,504/- under Sec.28(iv) of the Act, we refrain from adverting to the other contentions that have been advanced by the Ld. Authorized Representatives of both the parties in their attempt to support their respective claims as regards the sustainability/deletion of the order of the CIT(Appeals) who had partly upheld the addition made by the A.O u/s.28(iv) of the Act, which,
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thus, are left open. Thus, Grounds of appeal No.(s) 3 raised by both the assessee/revenue a/w. the additional ground of appeal raised by the assessee are disposed off in terms of our aforesaid observations.
In the result, appeal of the assessee in ITA No.380/PAN/2017 is allowed while for, the appeal of the Revenue in ITA No.381/PAN/2017 is dismissed in terms of our aforesaid observations.
Order pronounced in open Court on 13th day of May, 2022. Sd/- Sd/- JAMLAPPA D BATTULL RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; �दनांक / Dated : 13th May, 2022 **SB आदेशक���त�ल�पअ�े�षत / Copy of the Order forwarded to :- अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(Appeals), Panaji, Goa. 4. The CIT, Panaji, Goa. �वभागीय��त�न�ध,आयकरअपील�यअ�धकरण, 5. पणजी / DR, ITAT, Panaji. गाड�फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // True Copy // �नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur.
32 Infrastructure Logistics Pvt. Ltd. ITA Nos.380 & 381/PAN/2017
Date 1 Draft dictated on 09.05.2021 Sr.PS/PS 2 Draft placed before author 11.05.2021 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr. Sr.PS/PS PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order