ACIT, NEW DELHI vs. M/S. VRV FOODS LTD., NOIDA

PER KULDIP SINGH, JUDICIAL MEMBER :

Since common questions of facts and law have been raised

in all the aforesaid appeals for Assessment Years 2010-11 and

2 ITA No.6639/Del./2014 ITA No.4121/Del./2016 ITA No.4456/Del./2016 2011-12 (cross appeals), the same are being disposed off by way of

composite order to avoid repetition of discussion.

as ‘the assessee’) by filing the present appeals sought to set aside

the impugned orders dated 15.10.2014 & 30.05.2016 passed by

Commissioner of Income-tax (Appeals) – 19, New Delhi &

Commissioner of Income-tax (Appeals) – 9, New Delhi qua the

Assessment Years 2010-11 & 2011-12 on the grounds inter alia

that:-

“AY 2010-11. 1. The Lower authorities have erred and were not justified in passing the impugned respective orders in haste and arbitrarily, in total disregard to the principles of Natural Justice on the ground that the evidences/ document/ details furnished during the course of assessment were plainly brushed aside without any cogent reason or confronting the appellant with the nature of discrepancy if those were found to be not tenable/ acceptable: 2. On that facts and circumstances of the case and in law, lower authorities have erred and were not justified in making an addition of Rs 65,7311- u/s 14A of the Income Tax Act read with rule 80 as against the exempt income of Rs 8,000/- in a mechanical manner and on hypothetical basis, when the rule should have been applied only in respect of those investments on which exempt income was earned. 3. On the facts and circumstances of the case and in law, lower authorities have erred and were not justified in making an aggregate addition of Rs.189,55.126/- on account of variations in the confirmations from creditors without confronting the appellant about the discrepancies noticed and in total disregard to the documents and explanations submitted on record. 4. On the facts and circumstances of the case and in law, lower authorities have erred and were not justified in making a disallowance of Rs.7,85,160/- u/s 36(1)(iii) of the Income Tax

3 ITA No.6639/Del./2014 ITA No.4121/Del./2016 ITA No.4456/Del./2016 Act, without bringing about the case of any diversion of interest bearing funds in total disregard to the fact that no new investment was made during the year.

AY 2011-12 “1. The Lower authorities have erred and were not justified in passing the impugned respective orders in haste and arbitrarily, in total disregard to the principles of Natural Justice on the ground that the evidences/ document/ details furnished during the course of assessment were plainly brushed aside without any cogent reason or confronting the appellant with the nature of discrepancy if those were found to be not tenable/ acceptable.

referred to as ‘the Revenue’) by filing the present appeal sought to

4 ITA No.6639/Del./2014 ITA No.4121/Del./2016 ITA No.4456/Del./2016 set aside the impugned order dated 30.05.2016 passed by

Commissioner of Income-tax (Appeals)–9, New Delhi qua the

Assessment Year 2011-12 on the grounds inter alia that:-

“1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs.66,578/- on account of disallowance u/s 14A r.w.r. 8D(iii). 2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.98,688/- u/s 36(1)(va) on account of delay in Employee's Contribution to PF. 3. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs.1,96,79,942/- u/s 40(a)(ia) on disallowance for non-deduction of tax on commission expenses."

BRIEF FACTS OF ITA NO.6639/DEL/2014 (ASSESSMENT YEAR 2010-11 – ASSESSEE’S APPEAL)

marketing of I.M.F.L. country liquor and marketing of

vanaspati/edible oil. Assessing Officer (AO) by invoking the

provisions contained under section 14A of the Income-tax Act,

1961 (for short ‘the Act’) read with Rule 8D of the Income-tax

Rules, 1962 (for short ‘the Rules’) made addition of Rs.65,731/- on

the ground that to earn the dividend income, assessee has not made

suo motu disallowance and in the previous year, assessee company

itself made a disallowance of Rs.64,329/- u/s 14A of the Act.

unexplained credits by the assessee on the ground that genuineness

5 ITA No.6639/Del./2014 ITA No.4121/Del./2016 ITA No.4456/Del./2016 of the transaction has not been proved and balance has not been

reconciled. AO further made addition of Rs.7,85,160/- by

calculating the interest on the amount of Rs.65.43 lakhs @ 12% on

the ground that assessee company utilized its funds for the purpose

of giving interest free loan of Rs.65.43 lakhs. AO computed the

tax demand of Rs.4,45,550/- and thereby assessed the book profit

of Rs.50,37,345/- u/s 115JB of the Act.

BRIEF FACTS OF ITA NO.4121/DEL/2016 (ASSESSMENT YEAR 2011-12 – ASSESSEE’S APPEAL)

on the ground that the assessee has failed to reconcile the balance

and on the ground that the notices issued u/s 133 (6) either returned

back or not complied with and balances are yet to be reconciled.

AO further made aggregate addition of Rs.15,19,688/- out of an

amount of Rs.35,10,494/- on account of non-confirmations from

the creditors. AO further made addition of Rs.7,85,160/- on

account of disallowance made u/s 36(1)(iii) of the Act on account

of diversion of interest bearing funds.

BRIEF FACTS OF ITA NO.4456/DEL/2016 (ASSESSMENT YEAR 2011-12 – REVENUE’S APPEAL)

of employees’ share of provident fund on or before the due date u/s

36(1)(va) of the Act. AO further made addition of

6 ITA No.6639/Del./2014 ITA No.4121/Del./2016 ITA No.4456/Del./2016 Rs.1,96,79,942/- by way of disallowance claimed by the assessee

on account of rebate or discounts and treated the same as

commission being in the nature of incentives given on the basis of

sale performance and disallowed for non-deduction of TDS on the

same.

CIT (A) who has confirmed the additions in AY 2010-11 by

dismissing the appeal and in AY 2011-12, the ld. CIT (A) deleted

the addition of Rs.66,578/-, Rs.98,688/- & Rs.1,96,79942/- made

by the AO u/s 14A r/w Rule 8D, u/s 36(1)(va) and u/s 40(a)(ia)

respectively by partly allowing the appeal. Feeling aggrieved, the

assessee has come up before the Tribunal by way of filing the

present appeal in AY 2010-11 and in AY 2011-12, both the

assessee as well as Revenue have come up before the Tribunal by

way of filing the cross appeals.

parties to the appeal, gone through the documents relied upon and

orders passed by the revenue authorities below in the light of the

facts and circumstances of the case.

GROUND NO.1 OF ASSESSEE’S APPEAL FOR AYs 2010-11 & 2011-12

7 ITA No.6639/Del./2014 ITA No.4121/Del./2016 ITA No.4456/Del./2016 10. Ground No.1 of assessee’s appeal for AYs 2010-11 & 2011-

12 is general in nature, hence needs no adjudication.

GROUND NO.2 OF ASSESSEE’S APPEAL FOR AY 2010-11

GROUND NO.1 OF REVENUE’S APPEAL FOR AY 2011-12

contained u/s 14A of the Act r/w Rule 8D to the tune of

Rs.65,731/- & Rs.66,578/- for AYs 2010-11 & 2011-12

respectively has been confirmed by the ld. CIT(A). It is

undisputed fact that during the year under assessment, assessee

company has received dividend income of Rs.8,000/- on its old

investment of Rs.12,400/- in AY 2010-11 in Punjab & National

Bank. Assessee has come up with categoric case that it has not

incurred any direct expenses to earn the exempt income of

Rs.8,000/-. AO, without recording his dissatisfaction that working

given by the assessee company is not correct, mechanically

invoked the provisions of section 14A read with Rule 8D which is

not permissible under law.

disallowance cannot be more than the exempt income earned

during the year under assessment as has been held by Hon’ble

Delhi High Court in case of Joint Investments Pvt. Ltd. vs. CIT

8 ITA No.6639/Del./2014 ITA No.4121/Del./2016 ITA No.4456/Del./2016 (2015) 372 ITR 694 (Del.). So, we are of the considered view that

AO/CIT(A) have erred in making disallowance of Rs.65,731/- for

AY 2010-11 u/s 14A as against the exempt income of Rs.8,000/-

mechanically, so the disallowance is ordered to be restricted to

Rs.8,000/- equivalent to the exempt income earned by the assessee

company. Ground No.2 of assessee’s appeal for AY 2010-11 is

partly allowed in favour of the assessee.

AO on account of disallowance made u/s 14A r/w Rule 8D(iii)

which has been challenged by the Revenue. Perusal of the

impugned order passed by the ld. CIT (A) in para 3 goes to prove

that during the year under assessment, the assessee company

received an amount of Rs.8,800/- as dividend income. Ld. CIT (A)

deleted the addition on the ground that assessee has never claimed

dividend income in the computation of income by returning

following findings :-

“3.1 In this case the appellant has submitted that it has not claimed the dividend income / in the computation of income. The appellant has relied the decision of CIT vs. Corrtech Energy (P.) Ltd. (2014) 45 taxman.corn 116 (Gujarat) that the assessee did not make any claim for exemption in such a situation under section 14A could have no application The appellant has also relied the decision of CIT vs Shivam Motors judgement dated 05.05.2014 of Hon'ble Allahabad High Court where it was held that "In the absence of any interest free income, there cannot be any disallowance as no corresponding expenditures were incurred to earn a particular tax free income." In the above circumstances and in view of the above decisions that assessee

9 ITA No.6639/Del./2014 ITA No.4121/Del./2016 ITA No.4456/Del./2016 has not claimed exempt income. So, no disallowance can be made. Therefore, the addition made by the AO is hereby deleted.” 14. We are of the considered view that though the assessee has

earned dividend income of Rs.8,800/- as against disallowance of

Rs.66,578/- made by the AO but has not claimed the same as

dividend income in the computation of income, in these

circumstances, no disallowance can be made u/s 14A read with

Rule 8D. So, we find no illegality or perversity in the findings

returned by the ld. CIT (A). Ground No.1 of Revenue’s appeal for

AY 2011-12 is determined against the Revenue.

GROUND NO.3 OF ASSESSEE’S APPEAL FOR AY 2010-11

GROUND NO.2 & 3 OF ASSESSEE’S APPEAL FOR AY 2011-12

making addition of Rs.1,89,55,126/- & Rs.35,10,494/- in AYs

2010-11 & 2011-12 respectively go to prove that the addition has

been made by the AO merely on the ground that information called

for u/s 133 (6) of the Act from various parties to confirm the

balance outstanding as on year end with assessee and the AO has

found discrepancies on the reply by the parties and in some of the

cases, replies were not given by the parties to the AO, an addition

has been made. Assessee filed reply explaining the discrepancies

10 ITA No.6639/Del./2014 ITA No.4121/Del./2016 ITA No.4456/Del./2016 pointed out by the AO vide reply dated 10.03.2014 but the same

has been rejected by writing one sentence that “the same was duly

considered but not found acceptable.” We are of the considered

view that when the assessee has duly filed PAN, ITR to establish

genuineness of the transaction, the addition cannot be made merely

on the basis of fact that information u/s 133 96) has not been filed

by some of the creditors.

make/confirm the addition without considering the reply of the

assessee and without procuring the presence of such sundry

creditors to whom the notices u/s 133(6) were issued by using

coercive method. In AY 2011-12, AO as well as ld. CIT (A) have

made/confirmed the addition of Rs.15,19,688/- out of amount of

Rs.35,10,494/- challenged vide ground no.3 on account of non-

confirmation from creditors which had resulted into double

taxation as the similar addition was made in the preceding years.

that, “the assessee was to provide information called for along

with proof of identity on the assessee’s letter-head with cop of PAN

and ITR to establish the genuineness of the transaction.” We are

constrained to record that information called for need not be

furnished on the letter-head when it is otherwise supported with

11 ITA No.6639/Del./2014 ITA No.4121/Del./2016 ITA No.4456/Del./2016 requisite documents. All these facts show that the addition has

been made merely on the basis of conjectures and surmise and the

issue is required to be remitted back to the AO to decided afresh

after providing opportunity of being heard to the assessee, so as to

reconcile the discrepancies arisen out of the reply of various parties

given in response to notice u/s 133 (6). So, ground no. 3 of

assessee’s appeal for AY 2010-11 & grounds no.2 & 3 of

assessee’s appeal for AY 2011-12 are determined in favour of the

assessee company for statistical purposes.

GROUND NO.4 OF ASSESSEE’S APPEAL FOR AYs 2010-11 & 2011-12

free loan to M/s. Global Industries & Services Ltd. to the tune of

Rs.65.43 lakhs which the assessee has claimed to be a business

advance. AO made addition of Rs.7,85,160/- each in AYs 2010-11

& 2011-12 by way of disallowance u/s 36 (1)(iii) of the Act on the

ground that the assessee has not brought on record any evidence to

prove that interest free loans given to M/s. Global Industries &

Services Ltd. was for business purposes and thereby charged

average rate @ 12%.

disallowance contended inter alia that the said loan has been given

12 ITA No.6639/Del./2014 ITA No.4121/Del./2016 ITA No.4456/Del./2016 out of own interest free loan from the assessee company; that

assessment in the earlier years were completed u/s 143 (3) of the

Act but no such disallowance has been made; from the order

passed by the AO as well as ld. CIT (A) it has come on record that

AO as well as ld. CIT (A) have not addressed the contentions

raised by the assessee that the loan has been advanced out of its

own interest free funds and the same were given for business

expediency.

No doubt, Hon’ble Delhi High Court in case of Punjab 20.

Stainless Steel Industries vs. CIT-VII (2010) 324 ITR 396 (Delhi)

relied upon by the ld. DR for the Revenue held that when advances

have been made out of borrowed funds and not out of credit

balance available with assessee company, interest has to be

disallowed.

with specific defence that the advance has been made out of

interest free funds and the same has been made for business

expediency, the applicability of the judgment relied upon by the ld.

DR for the Revenue is to be seen after marshalling of the facts

pleaded by the assessee only.

be decided by passing a speaking order. Accordingly, this issue is

13 ITA No.6639/Del./2014 ITA No.4121/Del./2016 ITA No.4456/Del./2016 remitted back to the AO to decide afresh after providing

opportunity of being heard to the assessee. Ground No.4 of

assessee’s appeal for AYs 2010-11 & 2011-12 are determined in

favour of the assessee for statistical purposes.

GROUND NO.5 OF ASSESSEE’S APPEAL FOR AY 2010-11

authorities have wrongly computed tax demand of Rs.4,45,550/-

by not allowing the complete tax credit of TCS and TDS. We are

of the considered view that this issue has been arisen out of some

clerical error on the part of the AO who has not taken into

consideration TCS and TDS credit for computing the tax liability.

So, we direct the AO to verify the TCS and TDS credits claimed

by the assessee and computed the tax liability accordingly, hence

Ground No.5 of assessee’s appeal for AY 2010-11 is determined in

favour of the assessee for statistical purposes.

GROUND NO.2 OF REVENUE’S APPEAL FOR AY 2011-12

AO u/s 36(1)(va) on account of delay in filing the employees’

contribution to provident fund on the ground that the assessee has

made payment before filing of the return of income.

14 ITA No.6639/Del./2014 ITA No.4121/Del./2016 ITA No.4456/Del./2016 25. However, by now, it is settled principle of law that as per

provisions contained u/s 36(1)(va) explanation, assessee would be

entitled for deduction qua the sum received from any of his

employee to which provisions under sub-section (x) of clause 24 of

section 2 is applicable only if such sum is credited in the

employees account in the relevant funds or funds on or before the

due date. Due date is defined in the explanation as the date by

which the assessee is required by an employer to credit employees

contribution to the employees account in the relevant fund under

any act or rule or order or notification thereunder. Identical issue

has been decided by the coordinate Bench of the Tribunal in case

cited as Eagle Trans Shipping & Logistics (India)(P.) Ltd. vs.

ACIT (2019) 178 ITD 849 against the assessee by returning

following findings :-

“9. When we examine the issue in controversy in the light of the provisions contained u/s 36(1)(va) of the Act, it is apparently clear that the assessee would be entitled for deductions qua the sum received from any office employee to which provisions under sub-section (x) of clause (24) of section 2 is applied only, if such sum is credited by the assessee to the employees account in the relevant fund or funds on or before the due date. Due date is further defined in the Explanation, which means, the date by which the assessee is required as an employer to credit employees contribution to the employees account in the relevant fund under any Act or rule or order or notification issued thereunder or any standing order or award or service or otherwise. Meaning thereby, in case, employer fails to deposit the entire amount towards employees contribution on account of PF & ESI with concerned department on or before the due date under PF & ESI, the assessee shall not be entitled for deduction to that extent.

15 ITA No.6639/Del./2014 ITA No.4121/Del./2016 ITA No.4456/Del./2016

“7. The issue here concerns the interplay of Section 2(24)(x) of the Act read with Section 36(1)( va) of the Act alongside provisions of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (especially Regulation 38 of the Employees' Provident Funds Scheme, 1952) and the provisions of the Employees' State Insurance Act, 1948. The AO had brought to tax amounts which were deducted by the employer/assessee from the salaries and wages payable to its employees, as part of their contributions. It is not in dispute that the employer's right to claim deductions under the main part of Section 43-B of the Act is not an issue. The question the AO had to then decide was whether the amounts deducted from the salaries of the employees which had to be deposited within the stipulated time (in terms of notification/circular dated 19.03.1964 which was modified on 24.10.1973), as far as the EPF contribution went and the period of three weeks as far as the ESI contributions went. The AO made a tabular analysis with respect to the contributions deducted and actually deposited. The cumulative effect of notifications under the Employees' Provident Funds Act, 1952 and the Employees State Insurance Act, 1948 was that in respect of the EPF Scheme contributions the deductions were to be deposited within 15 days of the succeeding wage period with a grace period of 5 days; for ESI contributions the deposit with the concerned statutory authority had to be made within three weeks of the succeeding wage month/period. The

16 ITA No.6639/Del./2014 ITA No.4121/Del./2016 ITA No.4456/Del./2016 CIT in this case confirmed the additions - made by the AO based on the entire amounts that were disallowed. The ITAT however granted complete relief.

of the Tribunal, we are of the considered view that the ld. CIT (A)

has erred in deleting the addition of Rs.98,688/- made by the AO.

17 ITA No.6639/Del./2014 ITA No.4121/Del./2016 ITA No.4456/Del./2016 So, the findings returned by the ld. CIT (A) are hereby set aside

and order passed by the AO on this issue is hereby restored.

Consequently, Ground No.2 is decided in favour of the Revenue.

GROUND NO.3 OF REVENUE’S APPEAL FOR AY 2011-12

u/s 40(a)(ia) of the Act on account of disallowance for non-

deduction of tax on commission expenses which has been

challenged by the Revenue.

a sum of Rs.1,16,12,646/- on account of rebate and discount from

sales and the assessee has further claimed expenditure under the

head ‘rebate & discount’ of Rs.80,67,296/- in P&L account and

has noticed the details of rebate and discount amounting to

Rs.1,42,74,307/-. AO proceeded to conclude that the assessee has

allowed incentive @ 10% on sales to various parties which

amounted to commission within the meaning of explanation of

section 194H of the Act and thereby disallowed the same u/s 194H

of the Act.

entertaining additional evidence filed by the assessee qua which

remand report was called reached the conclusion that the assessee

18 ITA No.6639/Del./2014 ITA No.4121/Del./2016 ITA No.4456/Del./2016 company has given rebate and discount on sales which cannot be

treated as commission. When it is undisputed case of the assessee

company that the payment has been directly given to the vendee

and not through any commission agent, it cannot be treated as

commission. During the preceding years, such payment has been

treated as rebate and discount and not commission and the AO has

not been able to distinguish the facts of the instant case with that of

the preceding years.

view that when it is rebate and discount and not commission, no

TDS is required to be deducted. Consequently, we are of the

considered view that CIT (A) has rightly deleted the addition,

hence ground no.3 is determined against the Revenue.

is partly allowed for statistical purposes, the appeal filed by the

assessee for AY 2011-12 is allowed for statistical purposes and the

appeal filed by the Revenue for AY 2011-12 is partly allowed. Order pronounced in open court on this 16th day of December, 2019.

Sd/- sd/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated the 16th day of December, 2019 TS

19 ITA No.6639/Del./2014 ITA No.4121/Del./2016 ITA No.4456/Del./2016