C I T JAIPUR vs. M/S OM METAL and MINEARL LTD

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 497 / 2011 Commissioner of Income Tax-I, New Central Revenue Building, Statue Circle, Jaipur (Raj) ----Appellant Versus M/s OM Metals & Minerals Ltd. ( Now Om Metals Infraprojects Ltd.) Om Power, Church Road M.I. Road, Jaipur ----Respondent

_____________________________________________________ For Appellant(s) : Mr. Anuroop Singhi with Mr. Aditya Vijay For Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana, Mr. Mahendra Gargeiya _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Order 22/08/2017 1. By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has dismissed of the department. 2. This Court while admitting the matter framed the following question of law:- “i) Whether on the facts and circumstances of the case, the Tribunal was right and justified in allowing deduction under Section 80IB(4) on insurance and transportation receipts of Rs. 77,61,883/-, ignoring that the insurance and transportation charges were not derived from the manufacturing activity but were merely incidental to the manufacturing activity?” ii) Whether on the facts and circumstances of the case, Tribunal was right and justified in deleting the addition of Rs. 2,09,388/- which was made

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by the Assessing Officer as admittedly the assessee failed to deposit the employee’s contribution to Provident Fund on or before the due date as prescribed under the Provident Fund Rules, which is a mandatory requirement for claiming deduction under Section 36(1)(va) read with 2 (24)(x) of the Act.” 3. The issue regarding 80IB(4) deduction is squarely covered by the decision of Bombay High Court Commissioner of Income Tax, Central II vs. ABG Heavy Industries Ltd. reported in (2010) 322 ITR 323 (Bombay) against which the SLP came to be dismissed on 6th December, 2010 and also decision of this Court in Tax Appeal No. 631/2008 (CIT, Ajmer vs. M/s Shiva Construction Pvt. Ltd.) decided on 25th May, 2017. 4. The issue No.2 regarding Employees Contribution to Provident Fund, now the issue is governed by the decision of Supreme Court the case of Godrej & Boyce Manufacturing Company Limited vs. Deputy Commissioner of Income Tax, Mumbai & Anr. reported in 394 ITR 449 wherein it has been held as under:- “36. Section 14A as originally enacted by the Finance Act of 2001 with effect from 1.4.1962 is in the same form and language as currently appearing in Sub-section (1) of Section 14A of the Act. Sections 14A (2) and (3) of the Act were introduced by the Finance Act of 2006 with effect from 1.4.2007. The finding of the Bombay High Court in the impugned order that Sub- sections (2) and (3) of Section 14A is retrospective has been challenged by the Revenue in another appeal which is presently pending before this Court. The said question,

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therefore, need not and cannot be gone into. Nevertheless, irrespective of the aforesaid question, what cannot be denied is that the requirement for attracting the provisions of Section 14A(1) of the Act is proof of the fact that the

expenditure

sought

be disallowed/deducted had actually been incurred in earning the dividend income. Insofar as the Appellant-Assessee is concerned, the issues stand concluded in its favour in respect of the Assessment Years 1998-1999, 1999-2000 and 2001-2002. Earlier to the introduction of Sub- sections (2) and (3) of Section 14A of the Act, such a determination was required to be made by the Assessing Officer in his best judgment. In all the aforesaid assessment years referred to above it was held that the Revenue had failed to establish any nexus between the expenditure disallowed and the earning of the dividend income in question. In the appeals arising out of the assessments made for some of the assessment years the aforesaid question was specifically looked into from the standpoint of the requirements of the provisions of Sub- sections (2) and (3) of Section 14A of the Act which had by then been brought into force. It is on such consideration that findings have been recorded that the expenditure in question bore no relation to the earning of the dividend income and hence the Assessee was entitled to the benefit of full exemption claimed on account of dividend

income. 37. We do not see how in the aforesaid fact situation a different view could have been taken for the Assessment Year 2002-2003. Sub- sections (2) and (3) of Section 14A of the Act read with Rule 8D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the Assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the Assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the Assessee. It is only thereafter that the provisions of Section

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14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing,

would

become

applicable. 38. In the present case, we do not find any mention of the reasons which had prevailed upon the Assessing Officer, while dealing with the Assessment Year 2002-2003, to hold that the claims of the Assessee that no expenditure was incurred to earn the dividend income cannot be accepted and why the orders of the Tribunal for the earlier Assessment Years were not acceptable to the Assessing Officer, particularly, in the absence of any new fact or change of circumstances. Neither any basis has been disclosed establishing a reasonable nexus between the expenditure disallowed and the dividend income received. That any part of the borrowings of the Assessee had been diverted to earn tax free income despite the availability of surplus or interest free funds available (Rs. 270.51 crores as on 1.4.2001 and Rs. 280.64 crores as on 31.3.2002) remains unproved by any material whatsoever. While it is true that the principle of res judicata would not apply to assessment proceedings under the Act, the need for consistency and certainty and existence of strong and compelling reasons for a departure from a settled position has to be spelt out which conspicuously is absent in the present case. In this regard we may remind ourselves of what has been observed by this Court in Radhasoami Satsang v. Commissioner of Income Tax (1992) 193 ITR (SC) 321 [At Page 329]. We are aware of the fact that strictly speaking res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.” 5. In that view of the matter, both the issues are answered in favour of the assessee against the department.

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