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Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. This appeal is filed by the ld AO for Assessment Year 2009-10 against the order of the ld CIT (A)-7, New Delhi dated 22.12.2014. Assessee has filed cross objections. 2. The ld AO has raised effectively three grounds of appeal as under:-
1. On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 194481158/- made on account of depreciation claimed by the assessee at a higher rate by not appreciating that the facts of the case on which relied is different from the case of the assessee company." 2.1 "In the facts and under the circumstances, the Ld. CIT(A) has erred in law in deleting the disallowance of u/s 14A r.w.r. 8D of Rs. Page | 1 16146530/- by admitting fresh explanation of the assessee without referring to the A.O. for verification which is in violation of Provisions of sub-Rule (3) of Rule 46A." 2.2 In the facts and under the circumstances, the Ld. CIT(A) has erred in deleting the disallowance u/s 14A r.w.r. 8D Rs. 16146530/- without following the mandatory procedure under Rule 46A and in view of violation of Rule 46A, matter had to be restored to the Assessing Officer for fresh to decide the matter.” 3.1 In the facts and under the circumstances of the case, the Ld. CIT(A) has erred in deleting of Rs. 1108226/- on account of balances lying in sundry creditors account without waiting the report from the A.O.. Since the remand report sent within the time allowed by the CIT(A)." 3.2 In the facts and under the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 11082226/- without following the mandatory procedure under Rule 46A and matter has to be restored to the A.O. for fresh to decide the matter."
The assessee has raised the following grounds of appeal in cross objection:- “1. That on the facts and in the circumstances of the case, the ld Commissioner of Income-tax (Appeals) (here-in-after referred to as Ld CIT(Appeals) erred in confirming the action of the AO in making disallowance of claim leave encashment on provision basis of Rs. 73,252/-.”
4. Brief facts of the case shows that the assessee is a company engaged in the business of providing mobile drilling rig services to oil and gas industry on hire.
5. It filed its return of income on 30.09.2009 showing a loss of Rs. 30,01,54,795/-. The assessment u/s 143(3) of the Act was passed on 28.12.2011 determining the loss of Rs. 6,99,81,195/-. The ld AO made following additions/ disallowances a. disallowance of excess depreciation of Rs. 19,44,81,158/-, b. disallowance of unpaid leave encashment of Rs. 73,252/-, c. disallowance u/s 14A of Rs. 1,61,46,530/- and d. Addition on account of unverified creditors of Rs. 1,10,82,226/-.
6. The assessee preferred an appeal before the ld CIT (A). The ld CIT (A) confirmed the disallowance of Rs. 73252/- on account of unpaid leave encashment and all other disallowance were deleted and hence revenue is in appeal. On the issue of disallowance of unpaid leave encashment, the assessee has filed cross objection.
7. We first go to the appeal of the ld AO. The first ground of appeal is with respect to the disallowance of Rs. 194481158/- on account of depreciation Page | 2 claimed by the assessee on rigs on hire @60% whereas the ld AO granted it @15%. The brief facts of the issue shows that the assessee has claimed depreciation @60% on equipment amounting to Rs. 25,93,08,213/- stating that these are oil rigs owned by the assessee, which are rented out to other parties. The ld AO held that the same should be allowed @ 15% and not @ 60% for the reason that assessee is not a „mineral oil concern‟ as it is supplying equipment on hire to all other mineral oil concern and is giving it on hire and not using for its business purpose. Hence, the ld AO allowed the depreciation on the above plant of Rs. 64827052/- against Rs. 25309219/- claimed by the assessee, disallowed the balance of Rs. 194481158/-. The ld CIT(A) considered the claim of the assessee and held that the oil rigs are wholly owned by the appellant and are used for the purpose of the business of the appellant, which is to give these assets on lease. He held that the oil rigs are large structure with the equipment for removing the oil from under sea. He further relied upon the decision of the Hon'ble Delhi High Court in case of CIT Vs. HLS India Ltd 335 ITR 292. Therefore, the ld AO is in appeal against the same.
The ld DR relied heavily on the order of the ld AO.
The ld AR submitted that the issue is squarely covered in favour of the assessee in assessee‟s own case for Assessment Year 2007-08 and 2008-09 where ITAT has allowed the claim of the assessee of depreciation @60% on the above equipment.
We have carefully considered the rival contentions and perused the orders of the lower authorities. The identical issue arose in the case of the assessee for Assessment Year 2007-08 wherein, the coordinate bench in dated 18.12.2018 vide para No. 7 and 8 of the order allowed the claim of the assessee following the decision of the Hon'ble Delhi High Court in HLS India Ltd (supra) against which the Special Leave Petition is also dismissed on 16.02.2012 vide SLP(E) No. 2723/2012 by the Honourable Supreme court. The ld AO also agreed that though the issue is covered by that decision but the SLP was preferred before the Hon‟ble Supreme Court, therefore it has not been allowed. Now, Hon SC has also dismissed SLP. Now the issue is squarely covered in favour of the assessee. Therefore, respectfully following the decision of the coordinate bench for Assessment Year 2007-08 as well as the order of the coordinate bench on identical issue for Assessment Year 2008-09 dated 03.04.2019 in assessee/s own case, we direct the ld AO to grant depreciation on this asset @60%. Accordingly, ground No. 1 of the appeal of the ld AO is dismissed.
Ground No. 2 of the appeal is with respect to the disallowance u/s 14A read with Rule 8D of Rs. 16146530/- made by ld AO but deleted by the ld CIT (A). The facts of the issue shows that the assessee has made an investment of Rs. 16.07 crores as on 31.03.2019 in equity shares and redeemable convertible bonds in various companies which were joint venture of the assessee company. The ld AO asked the assessee about the disallowance made by the assessee u/s 14A. The assessee submitted that no dividend is earned during the year. It was further stated that these are strategic investment made with a view to enhance the business interest of the company, investment is made from internal funds and no expenditure has been incurred which has direct or indirect links with the exempt income. The ld AO disregarded the contention of the assessee and applied Rule 8D and disallowed Rs. 16146530/- u/s 14A of the Act. The assessee challenged the same before the ld CIT (A) who held that the ld AO has not recorded any satisfaction with respect to the correctness of the claim of the assessee that it has not incurred any expenditure to earn exempt income. Therefore, he deletes the disallowance. The ld AO is in appeal.
The ld DR supported the order of the ld AO. The ld AR supported the order of the ld CIT (A).
We have carefully considered the rival contentions and find that ld CIT (A) is correct that the ld AO has failed to record satisfaction about the correctness of the claim of the assessee that it has not incurred any expenditure to earn the exempt income. It is also true that the assessee has not received any exempt income during the year. Thus in absence of exempt income, relying on the decision of the Hon'ble Delhi High Court in case of Cheminvest Ltd Vs. CIT 378 ITR 33 wherein, it has been held that there should be actual receipt of exempt income and section 14A will not apply if no exempt income is received during the relevant previous year. In view of this, we confirm the order of the ld CIT (A) and direct the ld AO to delete the disallowance u/s 14A of the Act. Ground No. 2 of the appeal is dismissed.
Ground No. 3 is with respect to addition of Rs. 1108226/- on account of balances lying in sundry creditors account. The issue of the case shows that before the ld AO assessee was required to furnish details of sundry creditors with complete details viz name, address and assessment particulars. The assessee furnished the details on 05.10.2011 with a list of 22 creditors but according to the ld AO addresses were incomplete and PAN of the none of the creditors was provided. On further opportunity, assessee submitted confirmation of some creditors, thus in absence of complete information the ld AO made the addition of Rs. 11082226/- pertaining to 19 creditors. On appeal before the ld CIT (A), the assessee submitted the complete information with respect to those creditors. The ld CIT (A) asked the AO to submit the remand report, however, the ld AO did not submit the remand report and therefore, the ld CIT (A) asked the explanation of the assessee. He further held that all these creditors are existing, there is no remission or cessation of any liability with respect to them and therefore, he deleted the addition.
The ld DR referred to the ground No. 3 and stated that the ld CIT (A) should have waited for the remand report and further it was submitted within the time allowed by the ld CIT (A). It was further stated that the addition of the creditors should have been upheld by the ld CIT (A) without admitting the explanation of the assessee, which was not before the ld AO. 16. The ld AR vehemently supported the order of the ld CIT (A) stating that all the creditors are outstanding creditors in the books of account of the assessee and they have confirmed their account. It was further stated that none of the creditors or their liability are not non-existence. 17. We have carefully considered the rival contentions and perused the orders of the lower authorities. At para No. 13 and 14 of the order of the ld CIT (A), where the assessee explained each of creditors. The assessee also referred to various accounts of those creditors for Assessment Year 2009-10 and 2010-11 wherein, in the subsequent period the payments have been made to the above parties and there is no outstanding balance. It was further submitted that with respect to the most of the creditors the confirmation has been received and submitted before the ld CIT (A). In case of all other creditors the specific bank account of the assessee was also produced this shows that the payments are made through account payee cheques. With respect to the one party wherein, it has been shown that certain amounts with respect to the above parties have also written back which have been offered for taxation. For all other creditors the assessee has submitted the PAN as well as ledger accounts from the books of assessee for the subsequent years. In view of the above overwhelming evidence produced by the assessee which could not be controverted by the ld DR we find no infirmity in the order of the ld CIT(A) in deleting the addition of Rs. 11082226/- as there is neither cessation of the liability nor the creditors are found to be non existing. In the result ground No. 3 of the appeal is dismissed.
In the result, appeal filed by the ld AO is dismissed.
Now we come to the cross objection filed by the assessee wherein, it has challenged the confirmation of disallowance of Rs. 73252/- with respect to leave encashment provision. The issue of this cross objection shows that the assessee has made a provision of the above sum but it has not been paid until the date of filing of return. Therefore, the ld AO u/s 43B (f), disallowed the above sum. On appeal of the ld CIT (A), the above disallowance was confirmed.
The assessee submitted that the assessee has made a provision of leave encashment and the same does not fall u/s 43B (f) relying on the decision of Exide industries Vs. Union of India 292 ITR 470(Cal). The ld AR also referred to the decision of the coordinate bench in assessee‟s own case for Assessment Year 2008-09 wherein, identical disallowance is deleted.
The ld DR stated that the issue is squarely covered against the decision of the Hon'ble Supreme Court in Exide Industries case wherein, the decision of the Hon'ble Kolkata High Court has been stayed.
We have carefully considered the rival contentions and find that Special Leave petition filed before Hon'ble Supreme Court, wherein, decision of the Hon‟ble Kolkata High Court has been stayed. We have carefully considered rival contentions and find that in case of CIT Vs. Exide Industries Ltd in SLP No. 22889/2008 the Hon'ble Supreme Court has held that the assessee shall pay the tax as if section 43B(f) is on the statue and would be entitled