Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH: ‘E’ NEW DELHI
Before: MS SUCHITRA KAMBLE & SH. PRASHANT MAHARISHI
1 ITA Nos. 3437 & ors/Del/2018
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘E’ NEW DELHI
BEFORE MS SUCHITRA KAMBLE, JUDICIAL MEMBER AND SH. PRASHANT MAHARISHI, ACCOUNTANT MEMBER
I.T.A. No. 3437/DEL/2018 (A.Y 2013-14) & I.T.A. No. 3438/DEL/2018 (A.Y 2014-15)
(THROUGH VIDEO CONFERENCING)
National Fertilizers Ltd. Vs DCIT Core-III, Scope Complex, 7, Cricle-17(2) Institutional Area, Lodhi Road, New Delhi New Delhi AAACN0189N (APPELLANT) (RESPONDENT)
I.T.A. No. 3698/DEL/2018 (A.Y 2014-15) & I.T.A. No. 3697/DEL/2018 (A.Y 2013-14)
ACIT Vs National Fertilizers Ltd. Cirlce-17(2) Core-III, Scope Complex, 7, Room No. 185, 1st Floor, Institutional Area, Lodhi C. R. Building, I. P. Estate, Road, New Delhi New Delhi AAACN0189N (APPELLANT) (RESPONDENT)
Appellant by Sh. Ved Jain, Adv Respondent by Ms. Pramita M. Biswas, CIT DR Date of Hearing 29.07.2021 Date of Pronouncement 30.09.2021
ORDER PER SUCHITRA KAMBLE, JM
2 ITA Nos. 3437 & ors/Del/2018
These four appeals are filed by the assessee and the Revenue against the order dated 28/02/2018 passed by CIT(A)-22,New Delhi for assessment year 2013-14 & 2014-15 respectively.
The grounds of appeal are as under:- I.T.A. No. 3437/DEL/2018 (A.Y 2013-14) Assessee’s appeal 1. “ On the facts and circumstances of the case, the order passed by the learned CIT(A) is bad, both in the eye of law and on the facts. 2. a) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition of an amount of Rs.7,29,769/- made by AO on account of bank guarantee commission invoking the provisions of section 40(a)(ia) of the Income Tax Act. 2 b) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the AO and ignoring the contention of the assessee that in view of the proviso to section 40(a)(ia), the deductee having including the income in its return of income the assessee cannot be treated as assessee in default and hence no disallowance can be made under section 40(a)(ia) of the Act.
I.T.A. No. 3697/DEL/2018 (A.Y 2013-14) Revenue’s appeal
Whether on the facts and circumstances of the case, the Ld CIT (A) is legally justified in deleting the addition of Rs. 6,48,20,000/- on account of accrued interest without considering the fact that the assessee was following mercantile system of accounting and the arbitration award give a right to the assessee to charge simple interest @ 5% per annum on the amount of advance given to M/s Karsan till the date of payment? 2. Whether on the facts and circumstances of the case, the Ld.CIT(A) is legally justified in deleting the disallowance of Rs. 2,59,00,000/- on account of demurrage and wharfage charges by ignoring the provision of the Railway Act, 1989 and Explanation 1 to Section 37(1) of the Income Tax Act 1961 (hereinafter referred to as “ the Act”)?
3 ITA Nos. 3437 & ors/Del/2018
Whether on the facts and circumstances of the case, the Ld. CIT (A) is legally justified in deleting the disallowance of Rs. 3,91,00,000/- on account of write-off value of slow moving stores and spares by ignoring the provision of section 145 of the Act and without appreciating the fact that the assessee is not allowed to adopt any Accounting Standard of itschoice as and when it deemed to be beneficial to it? 4. Whether on the facts and circumstances of the case, the Ld CIT (A) is legally justified in deleting the disallowance of Rs. 25,031/- on account of excess depreciation claimed on UPS (Uninterrupted Power Supply) by holding the UPS as an integral part of computer by ignoring the fact that computers may run without UPS and hence, this was not an integral part 0 computers? 5. Whether on the facts and circumstances of the case, Ld CIT (A) is legally justified in delet the disallowance of Rs. 24,883/- u/s 14A of the Act without considering the legislative irof introducing section 14A of the Act 2001 as clarified by the CBDT’s Circular No. 5.201-r dated 10.02.2014. 6. Whether on the facts and circumstances of the case, Ld CIT (A) is legally justified in deleting disallowance of Rs. 24,883/- u/s 14A of the Act without considering legal principle that allowability or disallowability of expenditure under the Act is not conditional upon the earning of the income as upheld by Hon’ble Supreme Court in the case of CIT Vs. Rajendra Prasad Moody [1978] 115 ITR 519 and without considering ratio decidendi as upheld in the cases of CIT Vs. Walfort Share and Stock Brokers P. Ltd [2010] 326 ITR 1 (SC) and Maxopp Investment Vs CIT [2012] 347 ITR 272 (Delhi) on application of provisions of section 14A of the Act? 7. Whether on the facts and circumstances of the case, Ld CIT (A) is legally justified in deleting disallowance of Rs. 6,45,673/- on account of additional depreciation claimed u/s 32 (1) (iia) of the Act without considering the fact that the relevant provisions are affected w.e.f. 01.04.2013. 8. Whether on the facts and circumstances of the case, the Ld CIT(A) is legally justified in deleting the addition of Rs. 2,42,^01- on account of accrued
4 ITA Nos. 3437 & ors/Del/2018
interest on deposits without considering the fact that the assessee is following mercantile system of accounting? 9. Whether on the facts and circumstances of the case, the Ld CIT (A) is legally justified in deleting the disallowance of Rs. 41,47,983/- on account of ‘repair & maintenance expense’ without considering the facts recorded by the AO in assessment order and also by ignoring the provisions of section 37 (1) of the Act in this regard?” I.T.A. No. 3438/DEL/2018 (A.Y 2014-15) Assessee’s appeal
On the facts and circumstances of the case, the order passed by the learned CIT(A) is bad, both in the eye of law and on the facts. 2 (i) On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in confirming the disallowance of an amount of Rs.76,00,000/- made by AO on account of CSR Expenditure incurred by the assessee (ii) That the disallowance has been confirmed ignoring the submissions along with the evidences filed by the assessee in this regard.
I.T.A. No. 3696/DEL/2018 (A.Y 2014-15) Revenue’s appeal
Whether on the facts and circumstances of the case, the Ld CIT (A) is legally justified in deleting the addition of Rs. 6,48,20,000/- on account of accrued interest without considering the fact that the assessee was following mercantile system of accounting and the arbitration award give a right to the assessee to charge simple interest @ 5% per annum on the amount of advance given to M/s Karsan till the date of payment? 2. Whether on the facts and circumstances of the case, the Ld.CIT(A) is legally justified in deleting the disallowance of Rs. 2,56,00,000/- on account of demurrage and wharfage charges by ignoring the provision of the Railway Act, 1989 and Explanation 1 to Section 37(1) of the Income Tax Act 1961 (hereinafter referred to as “ the Act”)? 3. Whether on the facts and circumstances of the case, the Ld. CIT(A) (A)
5 ITA Nos. 3437 & ors/Del/2018
is legally justified in deleting the disallowance of Rs. 3,07,00,000/- on account of write-off value of slow moving stores and spares by ignoring the provision of section 145 of the Act and without appreciating the fact that the assessee is not allowed to adopt any Accounting Standard of its choice as and when it deemed to be beneficial to it? 4. Whether on the facts and circumstances of the case, Ld CIT (A) is legally justified in deleting the disallowance of Rs. 33,734/- u/s 14A of the Act without considering legislative intent of introducing section 14A of the Act 2001 as clarified by the CBDT’s Circular No. 5/2014 dated 10.02.2014? 5. Whether on the facts and circumstances of the case, Ld CIT (A) is legally justified in deleting disallowance of Rs. 33,734/- u/s 14A of the Act without considering legal principle that allowability or disallowability of expenditure under the Act is not conditional upon the earning of the income as upheld by Hon’ble Supreme Court in the case of CIT Vs. Rajendra Prasad Moody [1978] 115 ITR 519 and without considering ratio decidendi as upheld in the cases of CIT Vs. Walfort Share and Stock Brokers P. Ltd [2010] 326 ITR 1 (SC) and Maxopp Investment Vs CIT [2012] 347 ITR 272 (Delhi) on application of provisions of section 14A of the Act? 6. Whether on the facts and circumstances of the case, the Ld CIT(A) is legally justified in deleting the addition of Rs. 2,42,880/- on account of accrued interest on deposits without considering the fact that the assessee is following mercantile system of accounting?
Firstly, we are taking I.T.A. No. 3437/DEL/2018 (A.Y 2013-14) which is assessee’s appeal and ITA No. 3697/Del/2018 which is Revenue’s appeal
The assessee is engaged in the business of manufacturing of Nitrogenous fertilizers and trading of Industrial Products. It filed its return of income for AY 2013-14 on 27/09/2013 declaring loss of Rs. 253,66,98,124/-. In the assessment u/s 143(3) vide the impugned order, the following additions were made:-
6 ITA Nos. 3437 & ors/Del/2018
(a) Addition on account of Interest accrued on advances given to M/s Karsan Rs. 6,48,20,000/- (b) Disallowance of Demurrage & Wharfage expenses Rs. 2,59,00,000/- (c) Disallowance on account of stores and spares written off expenses Rs. 3,91,00,000/ (d) Disallowance of Repairs and maintenance charges Rs. 41,47,983/- (e) Disallowance of depreciation on UPS and other Rs. 25,037/- computer peripherals (f) Disallowance of expense under section 14A of the Act Rs. 24,883/- (g) Disallowance of additional depreciation Rs. 6,45,673/-
(h) Disallowance of bank guarantee commission Rs. 7,29,769/- (i) Addition on account of interest income Rs. 2,42,880/- (j) Other items written off Rs. 45,57,499/- (k) Income short booked Rs. 39,354/-
Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
The Ld. AR submitted that this appeal is filed by the assessee against the order passed by the CIT(A) confirming the disallowance of Rs. 7,29,769/- made by the Assessing Officer on account of bank guarantee commission invoking Section 40(a)(ia) of the Income Tax Act. The Ld. AR submitted that the Assessing Officer has made the disallowance holding that the notification no. 56/2012 dated 31.12.2012 which provides relief from TDS on specified payments made to Scheduled Banks is effective from 01/01/2013 and will apply prospectively. And thereafter, accordingly, the assessee was liable to deduct TDS on such payments. The CIT(A) confirmed the action of the Assessing Officer and held that the Notification No. 56/2012 dated 31.12.2012 is effective from 01.01.2013. In this regard, the Ld. AR submitted that similar issue came up before the Tribunal in the case of DCIT Vs. M/s Nalwa Steel & Power Ltd. 2021 TMI 66 (ITAT Delhi) dated May 31, 2021 wherein the Tribunal has held that the notification no. 56/2012 dated 31.12.2012 will apply retrospectively. The Ld. AR further relied upon the judgments of Petronet LNG
7 ITA Nos. 3437 & ors/Del/2018
Ltd. Vs. DCIT and (vice versa) 2021 (3) TMI 025 (ITAT DELHI)- March 18, 2021 & DCIT Vs. M/s Puran Associates Pvt. Ltd. (2018 (8) TMI 1961) - ITAT Delhi. Thus, in view of the various decisions of the coordinate Benches, the Notification will apply retrospectively and thus, the above disallowance made by the Assessing Officer and confirmed by the CIT(A) may be deleted.
The Ld. DR relied upon the Assessment Order and the order of the CIT(A).
We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the similar issue is decided by the Tribunal in case of DCIT vs. M/s Nalwa Steel and Power Ltd. 2021 (6) TMI 66 – ITAT Delhi – dated – 31 May, 2021 considering the Notification No. 56/2012 dated 31.12.2012 wherein it is held that “6. We have carefully considered the rival contention and find that the assessee has paid guarantee commission charges of state bank of India for giving guarantee in favour of the seller of coal to the assessee. It is one of the banking services provided by the state bank of India to the assessee. It cannot be said to be a "commission" as intended to u/s 194H of the but it is in the nature of Bank charges charged by the bank for provision of services to the assessee. Now this issue has been decided by the honourable Bombay High Court in case of CIT - TDS (1), Bombay versus Larsen and Toubro Ltd 101 taxmann.com 83 wherein the honourable High Court while dealing with the case for assessment year 2010 - 11 held as Under:- "3. Learned counsel for the Revenue stated that the Revenue had filed an appeal against the judgment of the Tribunal in case of Kotak Securities Ltd but that the appeal was withdrawn on the ground of low tax effect. He has, however, made available a copy of the judgment of the Tribunal in the said case which contains a detailed discussion on the issue at hand. In the said judgment, the Tribunal referred to Section 194H of the Act which requires an assessee responsible for paying any income by way of commission or brokerage to deduct tax at source. The Tribunal was of the opinion that the words "commission or brokerage" must take colour from each other. The Tribunal was of the opinion that the payment in question, though categorized as "bank guarantee commission" is not strictly speaking payment of commission since there is no principal to agent relationship between the payer and the payee. The Tribunal, therefore, held that the requirement of deducting tax at source emanating from Section 194H of the Act in the present case does not arise.
8 ITA Nos. 3437 & ors/Del/2018
We are broadly in agreement with the view of the Tribunal. The so- called bank guarantee commission is not in the nature of commission paid to an agent but it is in the nature of bank charges for providing one of the banking service. The requirement of Section 194H of the Act, therefore, would not arise. No question of law arises. The Income Tax Appeal is dismissed." 7. Therefore, respectfully following the decision of the honourable Bombay High Court rendered in case for assessment year 2010 - 11 and also the Notification No 56/2012 of CBDT which has been considered by several coordinate benches and held that same also applies to earlier period then the date of issue of notification, we hold that the assessee was not required to withheld any tax on bank guarantee charges paid to state bank of India and therefore no disallowance would have been made u/s 40 a (ia) of the act. So we confirm the order of the ld CIT (A) . In view of this ground number (1) of the appeal is dismissed.”
In the present case, the assessee has paid Bank Guarantee Commission to Scheduled Banks approved by RBI and issue of Bank Guarantee is part of Banking services. Vide Finance Act, 2012 following has been inserted in Section 40(a)(ia) of the Income Tax Act, 1961: “Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the proviso to Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the proviso of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first provision of sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date furnishing of return of income by the resident payee referred to in the said proviso.” In the present case also, it is one of the banking services provided by the Scheduled Banks to the assessee as per the norms of the RBI. It cannot be said to be a "commission" as intended to u/s 194H of the but it is in the nature of Bank charges charged by the bank for provision of services to the assessee. Now this issue has been decided by the Hon’ble Bombay High Court in case of CIT - TDS (1), Bombay versus Larsen and Toubro Ltd 101 taxmann.com 83 as well as per Notification No. 56/2012 of the CBDT the said provisions will also applied to earlier period than the date of issue of notification. Thus, the
9 ITA Nos. 3437 & ors/Del/2018
Ground No. 2(a) and 2(b) of the Assessee’s appeal are allowed. Hence appeal of the assessee being ITA No. 3437/Del/2018 is allowed.
As regards Ground No. 1 of the Revenue’s appeal, the Ld. DR submitted that the CIT(A) erred in deleting the addition of Rs. 6,48,20,000/- on account of accrued interest without considering the fact that the assessee was following mercantile system of accounting and the arbitration award give a right to the assessee to charge simple interest @ 5% per annum on the amount of advance given to M/s Karsan till the date of payment. The Ld. DR relied upon the assessment order.
The Ld. AR submitted that the issue is squarely covered by the judgment of Hon’ble Jurisdictional High Court in assessee’s own case for A.Y. 2006-07, 2007-08, 2008-09 and 2009-10 in ITA Nos. 551, 782, 784 and 817 of 2016 dated 24.04.2017.
We have heard both the parties and perused the material available on record. It is pertinent to note that the Hon’ble High Court in assessee’s case for AYs. 2006-07 to 2009-10 held as under: “10. The third ground urged by the Revenue is regarding the failure by ITAT to disclose as part of its income, the interest accrued on the advance made by it to M/s. Karsan. Learned counsel for the Revenue pointed out that by a judgment dated 4th December 2006 of this Court, the arbitral award in favour of the Assessee under the Arbitration Act, 1940 was made rule of the Court. He submitted that although up to that date it could be said that the interest on the advance had not crystallized (as was held by this Court in its order dated 24th September, 2012 in ITA 541/2012 in the Assessee’s own case for the AY 2005-06), for the subsequent AYs the right to receive interest had accrued to the Assessee and should have been added to its income. 11. Learned counsel for the Assessee, on the other hand, states that the concept of ‘real income’ has been accepted by the Supreme Court in Godhra
10 ITA Nos. 3437 & ors/Del/2018
Electricity Co. Ltd. v. CIT, (1997) 225 ITR 746 (SC) and this was followed by this Court in its decision dated 19th May, 2015 in ITA No. 268/2008 (Liquidator Polymerland India Pvt. Ltd. v. DCIT). It is pointed out that where no part of the advance has been able to be recovered by the Assessee, notwithstanding the Award in its favour, no ‘real income’ can be said to have accrued to it. 12. The ITAT has in the impugned order held as under: “There is no dispute that the ICA has awarded interest to the assessee @ 5% p.a. on the advance made to M/s. Karsan. It is also not disputed that the assessee could not made recovery against the advance (principal amount) of Rs. 130.69 crores, an amount of Rs. 1.05 crores only could be recovered leaving balance advance of Rs. 129.64 crores which could not be recovered till date. The notional interest awarded by the International Court of Arbitration, which has now attained finality is a hypothetical income which cannot be subjected to tax. Merely because the said amount has been awarded by way of an order, does not mean that the assessee has received such income. The assessee followed mercantile system of accounting where there cannot be a situation of hypothetical income being taxed” 13. Indeed, it is seen that no part of the advance given by the Assessee to M/s. Karsan has been able to be recovered by it. As pointed out by learned counsel for the Assessee, there was a case registered with the Central Bureau of Investigation (CBI) in that regard and any prospect of the money being recovered has all but vanished. Since no part of the principal amount could actually be recovered by the Assessee, there was no ‘real income’ and the question of adding any notional accrued interest to its income on such amount does not arise. In the entire facts and circumstances of the case, the Court agrees with the concurrent findings of the CIT(A) and ITAT . No substantial question of law arises as regard this issue as well.”
Since, the issue contested in the present ground is identical to that of earlier
11 ITA Nos. 3437 & ors/Del/2018
assessment years and no distinguishing facts were pointed out by the Ld. DR. Ground No. 1 of the Revenue’s appeal is dismissed.
As regards Ground No. 2 of the Revenue’s appeal, the Ld. DR submitted that the CIT(A) erred in deleting the addition of Rs. 2,59,00,000/- made on account of disallowance of demurrage and wharfage charges by ignoring the provision of the Railway Act, 1989 and Explanation 1 to Section 37(1) of the Income Tax Act, 1961. The Ld. DR relied upon the assessment order.
The Ld. AR submitted that the issue is squarely covered by the judgment of Hon’ble Jurisdictional High Court in assessee’s own case for A.Y. 2006-07, 2007-08, 2008-09 and 2009-10 in ITA Nos. 551, 782, 784 and 817 of 2016 dated 24.04.2017.
We have heard both the parties and perused the material available on record. It is pertinent to note that the Hon’ble High Court in assessee’s case for AYs. 2006-07 to 2009-10 held as under: “3. These four appeals seek to raise a common question whether the ITAT was justified in deleting the disallowance of demurrage and wharfage charges, which according to the Revenue was in the nature of penalty and, therefore, not amenable to deduction under Section 37(1) of the Income Tax Act, 1961? 4. The said question already stands answered in favour of the Assessee and against the Revenue by the judgment of this Court in Mahalaxmi Sugar Mills Company v. Commissioner of Income Tax, (1986) 157 ITR 683 (Delhi) and of the Allahabad High Court in Nanhoomal Jyoti Prasad v. Commissioner of Income Tax, (1980) 123 ITR 269 (All). 5. However, learned counsel for the Revenue seeks to rely on the judgment of the Rajasthan High Court in Tata Iron & Steel Co. Ltd. v. Union of India (decision dated 28th January 2014 in SB Civil Misc. Appeal No. 65/1997). Having perused the said judgment, the Court is not persuaded to take a view
12 ITA Nos. 3437 & ors/Del/2018
different from that earlier taken by this Court in Mahalaxmi Sugar Mills Company v. Commissioner of Income-Tax (supra).” Since, the issue contested in the present ground is identical to that of earlier assessment years and no distinguishing facts were pointed out by the Ld. DR. Ground No. 2 of the Revenue’s appeal is dismissed.
As regards Ground No. 3 of the Revenue’s appeal, the Ld. DR submitted that the CIT(A) erred in deleting the disallowance of Rs. 3,91,00,000/- made on account of write-off value of slow moving stores and spares by ignoring the provision of Section 145 of the Act and without appreciating the fact that the assessee is not allowed to adopt any Accounting Standard of its choice as and when it deemed to be beneficial to it. The Ld. DR relied upon the assessment order.
The Ld. AR submitted that the issue is squarely covered by the judgment of Hon’ble Jurisdictional High Court in assessee’s own case for A.Y. 2006-07, 2007-08, 2008- 09 and 2009-10 in ITA Nos. 783, 785, 815 and 816 of 2016 dated 08.02.2017.
We have heard both the parties and perused the material available on record. It is pertinent to note that the Hon’ble High Court in assessee’s case for AYs. 2006-07 to 2009-10 held as under: “5. This Court is of the opinion that the Revenue’s contentions are unmerited. The assessee was all along reflecting the full value of the stock; for the year i.e. AY 2004-05 the CAG had made an observation that Slow-Moving Stock had to be realistically valued. This resulted in a fresh valuation by an engineering expert. Based upon this exercise the valuation was reduced to ₹ 47.76 crores. 6. Having regard to these circumstances, the Revenue’s contention that the acceptance of 5% as the basis for valuing the Slow Moving Stock being unscientific, is baseless in our opinion. Once the engineering expert examined
13 ITA Nos. 3437 & ors/Del/2018
all the heads of stock and valued them, to the best of his judgment, and in the absence of any finding that the 5% was not relatable to such valuation without an alternative valuation or that it is a flawed method of valuation, the AO could not have rejected what was offered as the reduced value of the Slow-Moving Stock. In other words, there is nothing on the record to doubt the bonafides of the valuation. In the event of likelihood of the stocks realizing higher amount than the value shown, the same would be reflected in the subsequent year in the income or profit of the assessee, the Revenue’s contention is without any merit. 7. Nor do we find any reason to subscribe and uphold the AO’s adverse observations that the change in method of valuation was without basis. In fact the observations of the CAG in this case led to the change and adoption of AS-2, which was not previously resorted to. 8. For the above reasons, no substantial questions of law arise in the appeals. They are, accordingly, dismissed.” Since, the issue contested in the present ground is identical to that of earlier assessment years and no distinguishing facts were pointed out by the Ld. DR. Ground No. 3 of the Revenue’s appeal is dismissed.
As regards Ground No. 4 of the Revenue’s appeal, the Ld. DR submitted that the CIT(A) erred in deleting the disallowance of Rs. 25,037/- on account of excess depreciation claimed on UPS (Uninterrupted Power Supply) by holding that the UPS as an integral part of computer by ignoring the fact that computer may run without UPS and hence, this was not an integral part of computers. The Ld. DR relied upon the assessment order.
The Ld. AR submitted that this issue is squarely covered by the order of the Tribunal in the assessee’s own case for the AY 2005-06 ITA no. 2149/Del/2009 dated 15/07/2011.
We have heard both the parties and perused the material available on
14 ITA Nos. 3437 & ors/Del/2018
record. The Tribunal in assessee’s own case for A.Y. 200506 held as under: “14. Ground No. 2 is with regard to the issue as to whether depreciation on UPS is to be allowed at 60% or at normal rate of 25%. 15. The claim of the assessee of depreciation on LAN/WAN and UPS @ 60% has been reduced to 25% by the AO by observing that LAN/WAN and UPS are not essential part of computer system but can only be treated as plant. 16. On an appeal, the learned CIT(A) allowed the assessee’s claim after following the decision of Tribunal, ‘F’ Bench, Delhi in the case of Expeditors International (India) Pvt. Ltd. Vs. ACIT, 118 TTJ 652 (Del), where it was held that printers, scanner, UPS would form integral part of the computer and as such, they are eligible for depreciation at a higher rate as applicable to the computer. 17. Both the parties were heard and orders of the authorities below have been perused. 18. In the case of CIT vs. BSES Yamuna Powers Ltd. (ITA No. 1267/2010), dated 31st August, 2010, the Hon’ble High Court has upheld the order of the Tribunal in allowing the depreciation @ 60% on computer peripherals and accessories such as printers, scanners and server etc. In that case, the Tribunal had followed the decision of coordinate Bench of the Tribunal in the case of ITO vs. Samiran Majumdar (2006) 98 ITD 119 (Kol.) and in the case of Expeditors International (India) (P) Ltd. (supra). 19. Respectfully following the aforesaid decision of the Hon’ble Delhi High Court confirming the Tribunal’s order, we uphold the order of the learned CIT(A) in accepting the assessee’s claim of depreciation @ 60% on UPS and LAN/WAN. Thus, this ground No. 2 raised by the revenue is also rejected.” Since, the issue contested in the present ground is identical to that of earlier assessment years and no distinguishing facts were pointed out by the Ld. DR. Ground No. 4 of the Revenue’s appeal is dismissed.
As regards Ground No. 5 & 6 of the Revenue’s appeal, the Ld. DR
15 ITA Nos. 3437 & ors/Del/2018
submitted that the CIT(A) erred in deleting the disallowance of Rs 24,883/- u/s14A of the Act without considering the legislative intent of introducing Section 14A of the Act, 2001 as clarified by the CBDT’s Circular No. 5/2014 dated 10.02.2014. The Ld. DR submitted that allowability or disallowability of expenditure under the Act is not conditional upon the earning of the income as upheld by the Hon’ble Supreme Court in the case of CIT vs. Rajendra Prasad Moody (1978) 115 ITR 519 and the CIT(A) ignored the ratio decidendi upheld in the cases of CIT vs. Walfort Share and Stock Brokers P. Ltd. (2010) 326 ITR 1 (SC) and Maxopp Investment Vs. CIT (2012) 347 ITR 272 (Delhi) on application of provisions of Section 14A of the Act. The Ld. DR relied upon the assessment order.
The Ld. AR submitted that the disallowance was made under Section 14A despite the fact that no exempt income earned during the year. The fact that no exempt income was earned is evident from Page 21 Para 7.2 of the Assessment Order. The CIT(A) deleted the addition relying upon the decision of Hon’ble Delhi HC in the case of Cheminvest Limited vs. CIT 378 ITR 33. The above view is now being affirmed by Hon’ble Apex court in the case of PCIT V. Oil industries Development Board, [2019] 103 taxmann.com 326 (SC) where in the SLP filed by the Department was dismissed.
We have heard both the parties and perused the material available on record. It is pertinent to note that during the year the assessee has not earned exempt income. This fact was noted by the Assessing Officer. The decision in case of Cheminvestment Ltd. (supra) is apt in the present case. The Hon’ble High Court held as under:
“22. In the impugned order, the ITAT has referred to the decision in Maxopp Investment Ltd. (supra) and remanded the matter to the AO for reconsideration of the issue afresh. The issue in Maxopp Investment Ltd. (supra)was whether the expenditure (including interest on borrowed funds) in respect of investment in shares of operating companies for acquiring and retaining a controlling interest therein was disallowable under Section 14 A
16 ITA Nos. 3437 & ors/Del/2018
of the Act. In the said case admittedly there was dividend earned on such investment. In other words, it was not a case, as the present, where no exempt income was earned in the year in question. Consequently, the said decision was not relevant and did not apply in the context of the issue projected in the present case.
In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression „does not form part of the total income‟ in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year.”
The Ld. AR also relied upon the decision of the Hon’ble Supreme Court in case of PCIT vs. Oil Industries Development Board (supra) wherein the Apex Court has confirmed the view of the Hon’ble Delhi High Court that in the absence of any exempt income, disallowance under Section 14-A of the Act of any amount was not permissible. The decision in Cheminvest Limited (supra) was followed, in the decision of the Hon’ble High Court. In the present assessee’s case also, no exempt income was earned during the year, thus, disallowance u/s 14A of the Act will not be applicable. Hence, Ground No. 5 and 6 of the Revenue’s appeal are dismissed.
As regards Ground No. 7 of the Revenue’s appeal, the Ld. DR submitted that the CIT(A) erred in deleting the disallowance of Rs. 6,45,673/- on account of additional depreciation claimed u/s 32(1)(iia) of the Act without considering the fact that the relevant provisions are applicable w.e.f. 01.04.2013. The Ld. DR relied upon the assessment order.
The Ld. AR submitted that the Assessing Officer was of the view that the benefit is available only to those undertaking which are engaged in the business of manufacture or production of any article or thing. Generation of power according to him cannot be equated with the production of any article or thing. Further clause ii(a), sub-section (1) of Section 32 of the Act was
17 ITA Nos. 3437 & ors/Del/2018
amended with effect from 1 April 2013 and therefore such additional depreciation could be allowed only with effect from 1 April 2013, thus the same was disallowed. The Assessee challenged the same before the CIT(A) who allowed the claim of the assessee relying on the decision of the coordinate bench in case of NTPC vs. DCIT [2012 (5) TMI 127 - ITAT Delhi. The above view is also affirmed by Hon’ble Delhi High court in the case of Pr. Commissioner of Income Tax -6, New Delhi Vs. NTPC Sail Power C. Pvt. Ltd.- 2019 (3) TMI 207 – Delhi High Court dated 18.02.2019.
We have heard both the parties and perused the material available on record. The electricity has been held as good as per the decision of the Hon’ble Apex Court in case of State of Andhra Pradesh vs. NTPC AIR 2002 SC 1895 as relied by the Hon’ble Delhi High Court in case of PCIT vs. NTPC Sail Power C. Pvt. Ltd. (supra). The Hon’ble High Court further held that to deny the benefit of additional depreciation to a generating entity on the basis that electricity is not an article or thing is an artificially restrictive meaning of the provision. Thus, the benefit of additional depreciation under Section 32(1)(iia) has to be granted to the assessee and w.e.f 01.04.2013, the provision has been amended by the Finance Act, 2012 wherein the assessees engaged in the generation of power have expressly been included in the ambit. Thus, the CIT(A) rightly deleted the disallowance. Ground No. 7 of Revenue’s appeal is dismissed.
As regards to Ground No. 8 of the Revenue’s appeal, the Ld. DR submitted that the CIT(A) erred in deleting the addition of Rs. 2,42,880/- on account of accrued interest on deposits without considering the fact that the assessee is following mercantile system of accounting. The Ld. DR relied upon the assessment order.
The Ld. AR submitted that this addition is also made on account of notional interest on advances to Karsan on which the litigation is still pending. The addition was made on the ground that the addition of. Rs.6,48,20,000/- was also made as per Ground No. 1. The CIT(A) also deleted the addition on
18 ITA Nos. 3437 & ors/Del/2018
the line of Ground No. 1 that the Hon’ble courts has already held that the advances given by the assessee to Karsan are pending recovery and cannot be assessed as income of the assessee in this year. Thus, the issue is identical to ground no. 1 as the Assessing Officer himself admitted the same and addition made by the Assessing Officer is uncalled for and rightly deleted by CIT(A).
We have heard both the parties and perused the material available on record. Since, the Ground No. 1 of the Revenue’s appeal and the present Ground No. 8 is related and on the same principle, the findings given hereinabove will be applicable in this ground as well. Hence, Ground No. 8 of the Revenue’s appeal is dismissed.
As regards Ground No. 9 of the Revenue’s appeal, the Ld. DR submitted that the CIT(A) erred in deleting disallowance of Rs. 41,47,983/- on account of repair and maintenance expenses without considering the facts recorded by the Assessing Officer in the Assessment order as well as ignored the provisions of Section 37(1) of the Act. The DR relied upon the assessment order.
The Ld. AR submitted that during the year under consideration the assessee has claimed repair and maintenance expenditure of Rs. 90.38 crores. During the assessment proceedings the assessee submitted the completed details of repair and maintenance charges. The Assessing Officer while passing the assessment order has alleged that for similar nature of items the assessee in one of its unit claimed as revenue expenditure while in some other units it was capitalized. The Ld. AR submitted before the Assessing Officer its explanation that when major equipment is added or replaced, item with similar description need to be capitalized however, if few small parts are replaced with similar description such items are treated as maintenance. The Ld. AR also submitted before the Assessing Officer that there is no estimate that the annual repair and maintenance should be a particular percentage of sales. However disregarding the said above submissions of the assessee, the Assessing Officer computed the disallowance at the rate of 0.63 % of 77.46
19 ITA Nos. 3437 & ors/Del/2018
crores i.e. Rs. 48, 79, 980/- and after allowing the depreciation made the net disallowance of Rs. 41,47,983/- holding that the same shall be treated as the part of block of plant and machineries. The said percentage of 0.63% was calculated on the basis of proportion of amount capitalized over the repair and maintenance in panipat unit. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the CIT(A) and the CIT(A) deleted the disallowance holding that the assessee has given valid explanation for not capitalizing the same item in different unit and disallowance has been made on the presumption basis and ad-hoc basis and deleted the disallowance. The Ld. AR further submitted that the CIT(A) has given the well reason finding and disallowance made by the Assessing Officer is an ad-hoc disallowance and cannot be sustained in view of the following judgments.
� CIT Vs Ms. Shehnaz Hussain 267 ITR 572 (Del. HC) ACIT Vs M/s. Modi Rubber Limited, ITA No.1952/Del/2014 (ITAT Delhi. � ACIT v. Amtek Auto Limited [2006] 112 TTJ 455 � M/s Nine Dot Nine Media work Pvt. Ltd., v. ITO [ITA No. 1262/Del/2016 And ITA No. 863/Del/2016] dated 30.07.2018 � DCIT versus Grintex India Limited ITA No, 1262/Del/2016 And ITA No. 863/Del/2016] ITAT (Del.) dated 30.07.2018 � DCIT Vs Grintex India Limited ITA No, 4622/Del/2016 (Del. Tribunal) � Dhir & Dhir Associates v. ACIT in ITA NO. 2169/Del/2014 dated 16.06.2017 (Del. Tribunal) � ACIT v. Precision Pipes & Profiles Co. Ltd. in ITA No. 4257/Del/2012 dated 12/10/2012.
We have heard both the parties and perused the material available on record. It is pertinent to note that disallowance made by the Assessing Officer is an ad-hoc disallowance. The submission of the Ld. AR that there is no estimate that the annual repair and maintenance should be in consonance
20 ITA Nos. 3437 & ors/Del/2018
with the percentage of sales, is accepted as the Assessing Officer has not given any particular reason on why the said expenses has to be disallowed on ad-hoc basis. The contention of the Ld. DR that Section 37 (1) was not properly followed is also not correct to say as the details of the expenses were before the Assessing Officer which was totally ignored by the Assessing Officer. Thus, the CIT(A) rightly deleted this disallowance. There is no need to interfere with the finding of the CIT(A). Hence, Ground No. 9 of the Revenue’s appeal is dismissed.
Hence, the appeal of the Revenue being ITA No. 3697/Del/2018 is dismissed.
I.T.A. No. 3438/DEL/2018 (A.Y 2014-15) Assessee’s appeal and ITA No. 3697/DEL/2018 Revenue’s appeal
Return of income declaring total loss of Rs. 174,60,08,384/- was e- filed on 26.09.2014. Further the revised return was filed on 18.06.2015 declaring loss of Rs. 177,44,17,908/-. The Assessment order u/s 143(3) was passed on 29.12.2016 thereby making following additions/disallowances: a) Addition on account of Interest accrued on advances given to M/s Karsan (Rs 6,48,20,000/-) b) Disallowance of Demurrage charges (Rs. 2,56,00,000/-) c) Disallowance of slow moving spares (Rs. 3,07,00,000/-) d) Disallowance of Expense u/s 14A (Rs. 33,734/-) e) Addition on account of interest income on deposits of Rs. 1.32 crore (Rs. 2,42,880/-) f) Disallowance on account of other expense written off (Rs. 38,55,996/-) g) Disallowance of income short booked (Rs. 1,76,822/-) h) Disallowance of Corporate Social Responsibility (Rs. 76,00,000/-)
As regards to assessee’s appeal being ITA No. 3438/DEL/2018, the Ld. AR submitted that during the year assessee has incurred and claimed CSR
21 ITA Nos. 3437 & ors/Del/2018
expenditure of Rs. 76,00,000/-. These expenditure have been incurred in compliance of Section 135 of the Companies Act, 2013 and the Companies (Corporate Social Responsibility Policy) Rules, 2014 and thus, these expenditure have been incurred as the statutory obligation of the assessee. The Ld. AR further submitted that the Assessing Officer in the assessment order has made the disallowance of entire CSR expenditure of Rs. 76,00,000/- claimed by the assessee invoking Section 37(1) of the Income Tax Act ignoring the contention of the assessee that no disallowance under Section 37(1) can be made under the provisions of Section 37(1) since amendment vide the Finance (No 2) Act, 2014 whereby Explanation 2 to Section 37(1) was inserted is applicable from AY 2015-16. The CIT(A) has also confirmed the action of the Assessing Officer making the disallowance under Section 37(1) ignoring the contention of the assessee that the amendment made by the Finance Act ,2014 is not the retrospective amendment and will apply w.e.f. AY 2015-16. At the outset, the Ld. AR submitted this issue has come up before ITAT Delhi in various cases wherein it has been held that the Explanation 2 to Section 37(1) of the Income Tax Act will apply prospectively i.e. w.e.f. AY 2015-16. The Ld. AR relied upon the following judgments:
� DCIT vs. Great Eastern Energy Corporation ltd. and (vice-versa) ITA No.3310/Del/2015, ITA No. 3360/Del/2015 & 5728/De!/2016 - Dated 20.11.2019- ITAT Delhi.
� Wapcos Ltd. vs. ADDL. CIT ITA No. 3736/Del/2018-Dated 20.12.2018- ITAT Delhi.
� CENTRAL WAREHOUSING CORPORATION VERSUS ACIT, CIRCLE-3 (1) , C.R. BUILDING, NEW DELHI AND DCIT, CIRCLE-3 (1) , C.R.BUILDING, NEW DELHI VERSUS CENTRAL WAREHOUSING CORPORATION AND (VICE- VERSA)- 2021 (6) TMI 68 - ITAT DELHI- Dated: - 31 May 2021.
22 ITA Nos. 3437 & ors/Del/2018
� NTPC ELECTRIC SUPPLY COMPANY LTD. VERSUS DCIT, CIRCLE 18 (2) , NEW DELHI. (VICE-VERSA)- 2019 (12) TMI 982 - ITAT DELHI Dated. November 15,2019.
� ADDL. CIT vs. M/s. Rites Limited and (Vice-Versa) ITA No.6447/Del./2017, ITA No.6448/Del./2017, CO No.78/Del.2019 (in ITA No.6447/Del./2017)- ITAT Delhi -Dated. 12.01.2021
� THE PRINCIPAL COMMISSIONER OF INCOME TAX, VADODARA VERSUS M/S GUJARAT NARMADA VALLEY FERTILIZER AND CHEMICALS LTD- 2019 (8) TMI 1288 - GUJARAT HIGH COURT- Dated: -16 July 2019.
� The above case is subsequently followed in THE PRINCIPAL COMMISSIONER OF INCOME TAX, VADODARA-3 VERSUS M/S GUJARAT NARMADA VALLEY FERTILIZER AND CHEMICALS LTD. 2019 (8) TMI 1347 - GUJARAT HIGH COURT.
Therefore, the Ld. AR submitted that in view of the above judgments, it is now well settled that the Explanation 2 to section 37(1) of the Act has been introduced w.e.f. 01.04.2015 and thus will apply prospectively i.e. from AY 2015- 16 and the present AY being AY 2014-15, no disallowance can be made by the Assessing Officer.
The Ld. DR submitted that the CIT(A) has rightly confirmed the said disallowance. The Ld. DR relied upon the order of the CIT(A).
We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the evidences produced by the assessee before the Assessing Officer clearly shows that the expenditure was actually incurred on the Corporate Social Responsibility such as construction of auditorium for village school and providing facilities to the colleges in rural areas. These aspects were totally ignored by the Assessing Officer as well as by the CIT(A). These expenditure was incurred in compliance of Section 135 of the Companies Act, 2013 and the Companies (Corporate Social Responsibility
23 ITA Nos. 3437 & ors/Del/2018
Policy) Rules, 2014. This can be seen from the records itself produced during the assessment proceedings by the Assessee. Thus, these expenditure were incurred as the statutory obligation of the assessee. The case laws referred by the Ld. AR are applicable in the present case. In fact, the Explanation 2 to Section 37(1) will be applicable in the Assessment Year 2015-16 and not that of present Assessment Year i.e. 2014-15. Thus, Ground Nos. 2(i) and 2(ii) of the Assessee’s appeal is allowed. Hence appeal of the assessee being ITA No. 3438/Del/2018 is allowed.
As regards Ground No.1 of the Revenue’s appeal relating to addition of Rs. 6,48,20,000/- made on account of interest accrued on advances given to M/s Karsan, the Ld. DR submitted that the same is identical to that of Ground No. 1 of Revenue’s appeal for A.Y. 2013-14. The Ld. DR relied upon the assessment order.
The Ld. AR submitted that the issue is squarely covered by the judgment of Hon’ble Jurisdictional High Court in assessee’s own case for A.Y. 2006-07, 2007-08, 2008-09 and 2009-10 in ITA Nos. 551, 782, 784 and 817 of 2016 dated 24.04.2017.
We have heard both the parties and perused the material available on record. This issue is identical to that of Ground No. 1 of revenue’s appeal for A.Y. 2013-14 and no distinguishing facts are pointed out by the Ld. DR, hence, Ground No. 1 of the Revenue’s appeal is dismissed.
As regards Ground No.2 of the Revenue’s appeal relating to addition of Rs. 2,56,00,000/- on account of disallowance of demurrage and wharfage charges, the Ld. DR submitted that same is identical to that of Ground No. 2 of Revenue’s appeal for A.Y. 2013-14. The Ld. DR relied upon the assessment order.
24 ITA Nos. 3437 & ors/Del/2018
The Ld. AR submitted that the issue is squarely covered by the judgment of Hon’ble Jurisdictional High Court in assessee’s own case for A.Y. 2006-07, 2007-08, 2008-09 and 2009-10 in ITA Nos. 551, 782, 784 and 817 of 2016 dated 24.04.2017.
We have heard both the parties and perused the material available on record. This issue is identical to that of Ground No. 2 of revenue’s appeal for A.Y. 2013-14 and no distinguishing facts are pointed out by the Ld. DR, hence, Ground No. 2 of the Revenue’s appeal is dismissed.
As regards Ground No.3 of Revenue’s appeal relating to disallowance of Rs. 3,07,00,000/- made on account of write-off value of slow moving stores and spares, the Ld. DR submitted that same is identical to that of Ground No. 3 of Revenue’s appeal for A.Y. 2013-14. The Ld. DR relied upon the assessment order.
The Ld. AR submitted that the issue is squarely covered by the judgment of Hon’ble Jurisdictional High Court in assessee’s own case for A.Y. 2006-07, 2007-08, 2008-09 and 2009-10 in ITA Nos. 783, 785, 815 and 816 of 2016 dated 08.02.2017.
We have heard both the parties and perused the material available on record. This issue is identical to that of Ground No. 3 of revenue’s appeal for A.Y. 2013-14 and no distinguishing facts are pointed out by the Ld. DR, hence, Ground No. 3 of the Revenue’s appeal is dismissed.
As regards Ground No. 4 & 5 of the Revenue’s appeal relating to disallowance of Rs. 33,734/- u/s 14A of the Act, the Ld. DR submitted that same is identical to that of Ground No. 5 and 6 of Revenue’s appeal for A.Y. 2013-14. The Ld. DR relied upon the assessment order.
25 ITA Nos. 3437 & ors/Del/2018
The Ld. AR submitted that disallowance was made under section 14A despite the fact no exempt income earned during the year. The fact that no exempt income was earned is evident from Page 16 Para 6.2 of the assessment order. The CIT(A) deleted the addition relying upon the decision of Hon’ble Delhi HC in the case of Cheminvest Limited vs. CIT 378 ITR 33. The above view is now being affirmed by Hon’ble Apex court in the case of PCIT V. Oil Industries Development Board, [2019] 103 taxmann.com 326 (SC) where the SLP filed by the Department was dismissed.
We have heard both the parties and perused the material available on record. It is pertinent to note that this issue is identical to that of Ground No. 5 and 6 of revenue’s appeal for A.Y. 2013-14 and no distinguishing facts are pointed out by the Ld. DR, hence, Ground No. 4 and 5 of the Revenue’s appeal are dismissed.
As regards Ground No. 6 of the Revenue’s appeal relating to addition on account of accrued interest on deposits, the Ld. DR submitted that same is identical to that of Ground No. 8 of Revenue’s appeal for A.Y. 2013-14. The Ld. DR relied upon the assessment order.
The Ld. AR submitted that this addition is also made on account of notional interest on advances to Karsan on which the litigation is still pending. The addition was made on the ground that the addition of Rs.6,48,20,000/- was also made as per Ground No. 1. The CIT(A) also deleted the addition on the line of Ground No. 1 that the Hon’ble Courts has already held that the advances given by the assessee to Karsan pending recovery cannot be assessed as income of the assessee. Thus, the issue is identical to Ground no. 1 as the Assessing Officer himself admitted the same and addition made by the Assessing Officer is uncalled for and rightly deleted by CIT(A). The issue is also identical to Ground No. 8 of the Revenue’s appeal for A.Y. 2013-14.
26 ITA Nos. 3437 & ors/Del/2018
We have heard both the parties and perused the material available on record. This issue is identical to that of Ground No. 8 of revenue’s appeal for A.Y. 2013-14 and no distinguishing facts are pointed out by the Ld. DR, hence, Ground No. 6 of the Revenue’s appeal is dismissed.
Thus, appeal of the Revenue being ITA No. 3696/Del/2018 is dismissed.
In result, both the appeal of the assessee being ITA Nos. 3437/Del/2018 and 3438/Del/2018 are allowed. Both the appeal of the Revenue being ITA Nos. 3696/Del/2018 and 3697/Del/2018 are dismissed. Order pronounced in the Open Court on this Day of September, 2021. Sd/- Sd/- (PRASHANT MAHARISHI) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 30/09/2021 R. Naheed * Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT
ASSISTANT REGISTRAR ITAT NEW DELHI
27 ITA Nos. 3437 & ors/Del/2018