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Income Tax Appellate Tribunal, RANCHI BENCH, RANCHI
Before: Shri Rajesh Kumar & Shri Sonjoy Sarma]
ORDER Per Shri Sonjoy Sarma, JM: These two appeals, one filed by the revenue being and other filed by the assessee being ITA No. 290/Ran/2017 are directed against
2 & 298/Ran/2017 & C.O. No. 07/Ran/2018 AY: 2008-09 M/s. Bharat Coking Coal Limited the order of Ld. CIT(A), Dhanbad dated 19.09.2017 and the same are being disposed of along with the cross-objection filed by the assessee being C.O. No. 07/Ran/2018 (arising out of ITA No. 298/Ran/2017)
The revenue has raised the following grounds of appeal:
“Unabsorbed depreciation:- The provision u/s 32(2) of the LT. Act, 1961 regarding carry forward and set off of unabsorbed depreciation in the recent past, has been amended twice. The first amendment was brought about by the Finance Act, 1996 and the subsequent amendment was brought about by the Finance Act 2001. In the light of the said amendments the treatment of unabsorbed depreciation has been different in three different periods [as observed in the case of DCIT vs Time Guaranty Limited (2010) 131 TTJ (Mumbai) (SB) 257] and the pre amendment treatment up to A.Y. 1996-97, Post 1996 amendment treatment for A.Y. 1997-98 to A.Y. 2001-02 and post 2001 amendment, treatment for A. Y. 2002-03 and onwards are different. Pre-amendment treatment up to A.Y. 1996-97. Current year's depreciation i.e. current depreciation u/s 31(1) can be set off against income under any head within the same year and unabsorbed depreciation is to be carried forward to subsequent year and in the subsequent, year it will be treated as current deprecation in addition to the subsequent year's depreciation. Post 1996 amendment treatment for A.Y. 1997-98 to A.Y. 2001-02 (i) First unadjusted depreciation allowance for A.Y. 1997-98 shall be carried forward for set off against income under any head for a maximum period of 8 A.Y. starting from A.Y. 1997-98. (ü) Current depreciation for the year u/s 32(1) (for each year separately starting for A.Y. 1997-98 to A.Y. 2001-02) can be set off firstly against business income and then against income under any other head. (üi) Amount of current depreciation for A.Y. 1997-98 to 2001-02 which could not be set off, called the "second unabsorbed depreciation allowance" shall be 3 & 298/Ran/2017 & C.O. No. 07/Ran/2018 AY: 2008-09 M/s. Bharat Coking Coal Limited carried forward for a maximum period of eight A.Y. - shall be set-off only against income under the head "profit and gain of business or profession". Post 2001 amendment treatment for A.Y. 2002-03 and onwards (i) First unadjusted deprecation allowance can be set off upto A.Y. 2004-05 against income under any head. (ü) Current depreciation for A.Y. 2002-03 can be set-off against income under any head. (iiü) The third unadjusted depreciation allowance can be carry forward against income under any head like current depreciation, in perpetuity. Inference Ld. CIT (A), Dhanbad has erred in applying the post (2001) amendment treatment of carry forward and set-off of carried forward loss to the previous two period i.e. upto A.Y. 1996-97 and from 1997-98 to A.Y. 2001-02 as will and thus he erred in escalating the amount B/F and C/F of loss beyond 8 years, where as it is categorically mentioned that the 1996 amendment is applicable for A.Y. 1997-98 and onwards and 2001 amendment is effective for A.Y. 2002-03 and onwards. Prospective / retrospective effect of amendment. The Bombay High Court held that the amendment of 2002 was only clarificatory and applied to all pending proceedings on or after amendment. This case was further elaborated by Hon'ble Supreme Court in “Virtual Soft System Ltd vs CIT 289 ITR 83”. In which it was held there was nothing in the statute to suggest that 2022 amendment was declaratory and applied to all pending cases. It was purely a case of amendment to the statute. There is no assumption as to its retrospectivity. Retrospectivity has to be enacted specifically in the fiscal statute and more so in the case of panel provisions. Otherwise, it would be contradictory or derogatory to Article 20(1) of the Constitution of India. Notes on clauses on the amendment specifically mentioned that the amendment would take effect from 01.04.2013. In view of the matter, the Hon’ble Supreme Court overruled the Bombay High Court view. Therefore, the ld. CIT(A), Dhanbad erred in allowing the prior period depreciation, which was rightly disallowed by then Assessing Officer.
4 & 298/Ran/2017 & C.O. No. 07/Ran/2018 AY: 2008-09 M/s. Bharat Coking Coal Limited Store Purchase of Rs. 6,78,69,000/- Ld. CIT(A) erred in allowing “store purchase” to the extent of Rs. 6,78,69,000/- in Kustore area because the bills/vouchers could not be produced in the course of assessment. In later years, it is found that there was fictitious payment in Kustore area. Keeping in mind the unholy nexus of the employees, the excess payment cannot be ruled out.”
Brief facts of the case are that the appellant produces coal and is a wholly owned subsidiary of Coal India Limited filed its return of income through e- filing on 26.09.2008 declaring total income at Nil. The assessee filed the revised return of income on 19.02.2009. The case of the assessee was selected for scrutiny assessment and notices u/s 143(2) as well as u/s 142(1) were issued to the assessee. The ld. AO on the examination of the books of accounts made the following additions/disallowances:
Sl. No. Description Amount (Rs.) 1 Disallowance of depreciation 33,77,40,312/- 2 Stock difference 49,47,59,000/- 3 Disallowance out of repairs & maintenance 7,41,75,000/- 4 Repair of building and plant & machinery for pay 2,62,24,766/- office 5 Repairs and maintenance 2,06,44,292/- 6 Store purchase 6,78,69,000/- 7 Explosive purchases 49,43,85,000/-
The ld. AO further disallowed the brought forward unabsorbed depreciation loss of Rs. 944,77,29,240/- for the AYs 1996-97, 1997-98 & 1999- 2000 by recalculating the brought forward unabsorbed depreciation / loss of the preceding years at Rs. 942,13,59,936/- (AY 2000-01 to AY 2005-06) instead of Rs. 1886,90,89,176/- (AY 1996-97 to 2005-06) and restricting the same for
Aggrieved by the above order passed by the ld. AO, assessee preferred an appeal before the ld. CIT(A) where the appeal of the assessee was partly allowed.
Dissatisfied with the above order assessee as well as revenue both have filed their appeal before the Tribunal raising various grounds of appeal.
7. Now for the sake of convenience, we first take up the appeal of filed by the revenue. At the time of hearing before this Tribunal, ld. DR submitted that unabsorbed depreciation is allowed to be carried forward for a period of 8 years as per 1996 amendment regarding the provisions of section 32(2) of the Act. Therefore, the ld. CIT(A), Dhanbad erred in allowing the prior period depreciation to the assessee and order passed by the ld. AO needed to be restored. On the other hand, ld. AR submitted that unabsorbed depreciation could be allowed to the assessee to be carried forward and set off even after 8 years without any limit in accordance with section 32(2) as amended by Finance Act, 2001. The ld. AR in order to support his arguments relied on the decision of the Gujarat High Court in the case of General Motors India Pvt. Ltd. vs DCIT (Guj) (2013) 354 ITR 244 (Guj) wherein, the Hon’ble Gujarat High Court has held that unabsorbed depreciation from AY 1997-98 up to 2001-02 got carried forward to AY 2002-03 and became part of it came to be governed by the provisions of section 32(2) as amended by the Finance Act, 2001 and were available for carry forward and set off against income of subsequent years without any limit. The relevant observations of the Hon’ble Court was as under:
“We are of the considered opinion that any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A.Y. 2002-03) will be dealt with in 6 & 298/Ran/2017 & C.O. No. 07/Ran/2018 AY: 2008-09 M/s. Bharat Coking Coal Limited accordance with the provisions of section 32(2) as amended by Finance Act, 2001. And once the Circular No. 1004 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y. 1997-98 upto the A.Y. 2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years without any limit whatsoever.”
In the light of the judicial precedents on the issue especially that of the Hon’ble Gujarat High court in the case of General Motors India Pvt. Ltd. (supra), we find that the issue is covered in favour of the assessee, therefore, the ground taken by the revenue is rejected and the order passed by the ld. CIT(A) in respect of instant issue is sustained.
Another issue raised by the revenue before us in respect of store purchase of Rs. 6,78,69,000/- made by the assessee and same has been allowed by the ld. CIT(A) in his order although assessee could not produce necessary bills/vouchers during the assessment proceedings before the AO. On the other hand, ld. AR submitted before us that the ld. CIT(A) was justified by allowing of Rs. 6,78,69,000/- out of total claim of Rs. 19,39,98,000/- under the head store purchases in respect of Kustore area. During the assessment proceedings, the details along with the major copies of bills and vouchers were duly filed before the Assessing Officer and same were test check and no discrepancy was found in the bills and vouchers filed by the assessee. He also contended that such expenses on store purchases were always claimed in past as well as in future by the assessee and no addition was made except the assessment year under consideration. He further stated that the ld. AO, in his remand report dated 27.11.2013 in 9th paragraph at page 2 has stated as under:
“The assessee has submitted that all the records has been burnt due to fire in the office of the area on 08.05.2011, a copy of FIR lodged with the police is endorsed. It was stated by the assessee that no disallowance was made in the past. It was also submitted that none of the auditors including CAG has been given any 7 & 298/Ran/2017 & C.O. No. 07/Ran/2018 AY: 2008-09 M/s. Bharat Coking Coal Limited adverse remark and no such disallowance has ever been made in the past. I have no comments to make on it.” Therefore, the claim of assessee needs to be allowed. He also contended that the accounts of the assessee are subject to audit at different levels such as internal and statutory auditors and finally its accounts were audited by CAG of India. The ld. AR stated that in such report no adverse comment has been made by any of them. Moreover, payments could not have been made by assessee without due authorization and passing through different channel of approvals as well as authorization process as laid down by the Coal India Ltd. and the Board of appellant company. Therefore, such claim made could not have been doubted. Therefore, the ground taken by the revenue is liable to be dismissed.
We, after hearing the rival submission of the parties on this issue and material available on record, find that assessee has submitted most of the bills of expenditure before the ld. AO but due to fire in the office of the assessee, balance bills could not be produced at the time of hearing. Besides that the books of accounts were subject to audit at various levels and its final accounts were also audited by Comptroller and Auditor General of India and no adverse comments has been made by such Govt. Authority. In such a situation, disallowance made by the AO of Rs. 6,78,69,000/ under the head of store purchases cannot be sustained. In our considered opinion, the ld. CIT(A) rightly allowed the claim of the assessee under the head of store purchase to the extent of Rs. 6,78,69,000/-. Accordingly, we sustained the order passed by the ld. CIT(A) and ground raised by the revenue is dismissed. Since we have dismissed the revenue’s appeal and the cross-objection filed by the assessee stands allowed.
Now, we would like to decide ITA No. 290/Ran/2017.
“1. For that the ld. CIT(A) was not justified in making the addition of Rs. 22,53,48,000/- by disallowance under the head contractual expenses. Ld. AO had made disallowance of Rs. 7,41,75,000/-. Ld. CIT(A) enhanced disallowance made by ld. AO to Rs. 22,53,48,000/- on the grounds that TDS was not deducted in violation of provision of section 40(a)(ia). The disallowance made is unjustified and illegal. Ld. CIT(A) was not justified in making the enhancement of the disallowance. 1.1 For that the TDS was duly made from the bills at the time of making the payment, as such, it is not correct to say that no TDS was deducted. Disallowance u/s 40(a)(ia) is not called for. As such, disallowance made by ld. CIT(A) for Rs. 22,53,48,000/- is unjustified and illegal.
2. For that ld. CIT(A) was not justified in not considering the submission made by the appellant for allowance of (i) grant to schools amounting to Rs. 1.9532 crores, (ii) IICM expenses amounting to Rs. 1.275 crores and (iii) Directors salary/remuneration amounting to Rs. 0.4381 crores mentioned u/s 40A(2)(b). These expenses were added by appellant in computation by mistake, none of the expenditure are disallowable as per income tax act. Ld. CIT(A) should have considered on merit the allowability of the expenses incurred by the appellant which is not disputed. It may be mentioned that Hon’ble Apex Court and High courts has held that the AO should assess the income, as taxable and even if assessee has offered, non-taxable income as taxable. Ld. AO should not have assessed the income which is not assessable under the Income Tax Act. Ld. CIT(A) was, therefore, not justified in not admitting and considering the grounds raised
by the appellant.
3. For that the other grounds in details will be argued at the time of hearing.”
13. At the time of hearing, ld. counsel for the assessee submitted that while framing the assessment u/s 143(3) of the Act an addition on account of Rs. 7,41,75,000/- was made by the ld. AO due to non-furnishing of bills and vouchers before him. However, during the appellate proceedings before the ld. CIT(A), the appellant had filed complete details of the aforesaid amount of Rs. 7,41,75,000/- and the remand report was also called from the ld. AO and in the remand report dated 27.11.2013 furnished by the ld. AO stated as under:
9 & 298/Ran/2017 & C.O. No. 07/Ran/2018 AY: 2008-09 M/s. Bharat Coking Coal Limited “The assessee has submitted a list of expenditure on account of contractual expenditure for a sum of Rs. 7,41,75,000/- which was not filed at the time of original assessment. On verification of the said list, no discrepancy has been detected.” Therefore, the contention of the ld. AR is that the deficiency found at the time of original assessment duly met by the appellant, therefore, the addition should have been deleted. However, during the appellate proceeding before the ld. CIT(A) has to enhanced the disallowance made by the ld. AO to Rs. 22,53,48,000/- on the ground that TDS was not deducted which was a violation of provisions of section 40(a)(ia) of the Act. The contention of the ld. AR, in this regard is that in the month of November, 2013 an audit objection was raised in respect of non-deduction of TDS u/s 194C on the entire amount of expenses of Rs. 23,53,48,000/- claimed by the assessee but no action was taken upon the assessee by the department on such issue. However, during the course of appellate proceedings, the ld. CIT(A) has issued an enhancement notice to the appellant vide letter dated 26.05.2017 u/s 251(1) read with section 251(1)(2) to show cause that if TDS was not deducted u/s 194 and for this reason the amount of Rs. 22,53,48,000/- claimed as contractual expenses in respect of assessee should not be disallowed u/s 40(a)(ia) of the Act. However, the appellant has objected to such notice issued by the ld. CIT(A) stating that it is barred by limitation as no fresh enquiry could be done by the ld. AO since the ld. CIT(A) powers are co-terminus with that of assessing officer and requested for dropping of such proceeding. The ld. AR further contended that TDS on such persons were duly deducted at the time of making such payment in the subsequent years and they have filed complete evidence in this regard to prove the fact. The ld. AR, reliance on the decision of co-ordinate Ranchi bench in ITA No. 195/Ran/2016 in the case of Sri Binay Kumar Singh vs ACIT, Circle-3, Ranchi, where the Tribunal held that enhancement of fresh issue or new section cannot be made at appellate stage. Therefore, enhancement made by the ld. CIT(A)
10 & 298/Ran/2017 & C.O. No. 07/Ran/2018 AY: 2008-09 M/s. Bharat Coking Coal Limited needed to be set aside. On the other hand, ld. DR supported the order passed by the ld. CIT(A) on this issue.
We after hearing the rival submission of the parties and perusing the material available on record and going through the decision rendered by the co- ordinate bench in the case of Sri Binay Kumar Singh vs ACIT, we adopt the above view and direct the assessing officer to delete the impugned addition. Accordingly ground no. 1 raised by the assessee is allowed.
In ground no. 2, ld. AR submitted that ld. CIT(A) was not justified by not considering the submission made by the appellant for allowance of three claims namely (i) grant to schools amount to Rs. 1.9532 crores (ii) IICM expenses amounting to Rs. 1.275 crores and (iii) Directors salary/remuneration amounting to Rs. 0.4381 crores mentioned u/s 40A(2)(b). Since the aforesaid expenses were added by appellant while computing its income suo moto and none of the expenditure were claimed and therefore no disallowance was raised to the assessee. During the appellate proceeding before the ld. CIT(A), the assessee filed additional ground and prayed for its admission. The grounds raised by the appellant were not considered by relying on the judgement of the Apex Court in the case of Goetz India Ltd. vs CIT (2006) 284 ITR 383 (SC). On the other hand, ld. DR supported the order passed by the ld. CIT(A) and submitted that the order passed by the ld. CIT(A) is a reasoned order. Therefore, the grounds taken by the assessee were dismissed by ld. CIT(A).
We after hearing the rival submission and perusing the material available on record, we find that the assessee has added these expenses and disallowed while computing its income due to mistake whereas none of these expenditures were to be disallowed as per the Income Tax Act. In our considered view these expenses are to be allowed considering the decision of Hon’ble Jharkhand High Court in Tax Appeal No. 17 & 18 of 2001 dated 01.01.2012 in the case of CIT
11 & 298/Ran/2017 & C.O. No. 07/Ran/2018 AY: 2008-09 M/s. Bharat Coking Coal Limited Ranchi vs Central Coalfields Ltd. wherein Hon’ble Jurisdictional High Court held that expenditures under the head community development, sports, recreation, game, guest house were allowable revenue expenses which are similar to grant of school. However for verification, we are restoring the issues to the file of the AO.
In the result, appeal of the revenue is dismissed and appeal by the assessee is partly allowed as well as cross-objection by the assessee is allowed.