ASST CIT 2(1), MUMBAI vs. BAJAJ ELECTRICALS LTD, MUMBAI

महावीर ससुंह, न्याययक सदस्य/ PER MAHAVIR SINGH, JM: These four cross appeals of Revenue and assessee are arising out of the orders of the Commissioner of Income Tax (Appeals)]-4, Mumbai, [in short CIT(A)], in ITA Nos. CIT(A)- 4/AC(O )-2(1)/IT-319/09-10, CIT(A)-4/IT-129/Addl. CIT2(1)/2010-11 dated 29.03.2011, 02.03.2012. The Assessment was framed by the Asst. Commissioner of Income Tax (O ) 2(1), Mumbai (in short ACIT/ITO/ AO) for the A.Ys. 2007-08 & 2008-09 vide order dated 30.12.2009, 23.12.2010, under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).

ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

“1. On the facts and in the circumstances of the case and in law, the Commissioner of Income Tax (Appeals) erred in confirming the disallowance under section 14A of the Income-tax Act (‘the Act’) to the extent of ₹3,34,685/-.”

ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

fairly agreed that about the factual aspects, we find that once the assessee’s own interest free funds in the shape of share capital and reserve and surplus is more than investment in giving tax free bonds of Unit Trust of India, no disallowance on account of can be made. Hence, we delete the addition.

commission expenses of Rs.8,2690,631 on the ground that the appellant itself had foregone the claim for deduction of commission expense during the expense of the assessment proceedings.

ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

namely Nischal Corporate Securities Limited, the assessee vide letter dated 31.03.2009 stated that it is not possible for assessee to provide documentary evidences to substantiate the transaction of commission paid to Nischal Corporate Securities Limited. The assessee in the revise return of income filed on 31.03.2009, suo moto disclosed the commission expenses as income amounting to ₹1,56,29,741/-. Subsequently, during the course of scrutiny assessment proceedings assessee was asked to filed complete details of commission payment and also justification providing name and addresses of the parties, the assessee vide letter dated 29.12.2009 decided to forego of its claim of commission expenses amounting to ₹8,26,90,631/-. The AO as well as CIT(A) has reproduced the relevant letter dated 29.12.2009, wherein the disclosure was made only with a condition that no panel proceedings will be initiated. The assessee also filed revised return of income on 19.12.2009. The AO has not honour the commitment made to the assessee and hence, the assessee challenged the disallowance of commission expenses before Commissioner of Income Tax (Appeals). Before CIT(A) assessee filed various details and submissions but CIT(A) simply confirmed the addition by observing as under: - “Decision I have duly considered the submissions of the AR and the facts of the case. I find that the appellant has admitted before the ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

AO that the commission payment is not genuine. Accordingly, the appellant has filed revised return and paid taxes on the revised income by including the commission paid. In such circumstances, in my considered opinion, the assessee loses the right to appeal as there is no grievance for the assessee. The principle of estoppels would apply and the appellant would be prevented from going back on his admission of payment of bogus commission. It is not the case of the assessee that he was coerced to admit the commission payment as bogus. The assessee’s only contention is that they admitted the bogus commission due to their inability to produce parties which are spread over all over India and in order to buy peace with the Department. According to AR the AO has accepted only one part of his proposal and added the commission paid as their income. At the same time, the AO has also initiated penalty proceedings. That means the proposal to buy peace with the Department has not been accepted in ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

toto. Therefore, he has got a right to appeal. I do not agree with the submissions of the AR. Once the assessee has admitted that commission payment is bogus there is no grievance for which he can appeal. Besides there is no provision in the Income-tax Act according to which there can be any compromise between the Department and the assessee. The addition has been made in accordance with law and based on the facts gathered by the AO. Hence, the addition is upheld and appeal on this ground is dismissed. The case laws cited by the AR are distinguishable on facts. For example, if agriculture income is not taxable, it cannot be taxed even if it is offered by the assessee and the right of appeal in such cases would always be there. In this case, no such facts are there. The assessee has admitted payment of commission as bogus and the same has been added to the total income of the assessee. The principle of resjudicata does not apply to ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

Income-tax proceedings. So even if the AO ahs allowed payment of commission in ensuing years, commission payment is not admissible in this year. Reliance on case law is placed. This ground of appeal is dismissed.”

Aggrieved, now assessee is in appeal before Tribunal.

ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

Jute Corporation Of India Ltd. (1991) 187 ITR 688 (SC) and full Bench decision of Bombay High court in the case of Ahmedabad Electricity Co. Ltd. (1993) 199 ITR 351 (Bom) (FB). We admit the ground adjudicate the same.

We have heard the rival contentions and gone through the 11. facts and circumstances of the case. We noted that this issue has been settled by Hon’ble Supreme Court in the case of cit vs. K. Srinivasan (1972)83 ITR 346 (SC), wherein Hon’ble Supreme Court has considered the issue of super tax and surcharge and held as under: - “In order to determine the point before us, which is of considerable complexity, it is necessary to trace the concept of surcharge in taxation laws in our country. The power to increase federal tax by surcharge by the federal legislature was recommended for the first time in the report of the committee on Indian Constitutional Reforms, volume I, part I. From paragraph 141 of the proposals it appears that the word "surcharge" was used compendiously for the special addition to taxes on income imposed in September, 1931. The Government of India Act, 1935, Part VII, contained

ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

provisions relating to finance, property, contracts and suits. Sections 137 and 138 in Chapter I headed "finance" provided for levy and collection of certain succession duties, stamp duties, terminal tax, taxes on fares and freights, and taxes on income, respectively. In the proviso to section 137 the federal legislature was empowered to increase at any time any of the duties or taxes leviable under that section by a surcharge for federal purposes and the whole proceeds of any such surcharge were to form part of the revenues of the federation. Sub-section (3) of section 138 which dealt with taxes on income related to imposition of a surcharge. Under the Government of India Act, 1935, the surcharge was levied for the first time by the Indian Finance No. 2 Act, 1940. Section 3(1) of that Act read: "Subject to the provisions of this section, the rates of income-tax and rates of super-tax . . . imposed by sub-section (1) of section 7 of the Indian Finance Act, 1940, shall, in ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

respect of the year beginning on the first day of April, 1940, be increased by a surcharge for the purposes of the Central Government ..." Similar phraseology was employed in respect of surcharge on super-tax. The provisions relating to surcharge were omitted in the Finance Acts of 1946 to 1950. It was reintroduced in the Finance Act of 1951 and the same has been continued in the Finance Acts of subsequent years. Special surcharge came to be levied in the Finance Acts of 1958 to 1964 and 1966 to 1971 and the additional surcharge was levied only by the Finance Act of 1963. In the Finance Act of 1951, section 2 relating to income-tax and super-tax provided that these taxes would be levied at the rates specified in Parts I and II of the First Schedule increased in each case by a surcharge for the purpose of the Union. The Finance Act of 1952 was a short document and section 2 thereof simply provided:

ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

"The provisions of section 2 of, and the First Schedule to, the Finance Act, 1951, shall apply in relation to income-tax and super-tax for the financial year 1952-53 as they apply in relation to income-tax and super- tax for the financial year 1951- 52.........." There was no specific mention whatsoever of surcharge in section 2 nor was there any modification of the First Schedule to the Finance Act of 1951 which contained the rates, etc., relating to the surcharge. Similar state of affairs existed with regard to the Finance Acts of 1953, 1954 and 1957. Section 2 of the Finance Act, 1971, is to the effect that the provisions of section 2 and of the First Schedule to the Finance Act, 1970, shall apply in relation to income-tax for the assessment year or, as the case may be, the financial year commencing on the first day of April, 1971, as they apply in relation to income- tax for the assessment year commencing on the first day of April, 1970, with ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

certain modifications set out in the section. The First Schedule to the Finance Act of 1970 was modified and the Schedule so modified contains provisions for a surcharge on income-tax. It is significant that section 2 of the Finance Act of 1971 speaks only of income-tax and not of any surcharge. It is only in the modifications made in the Schedule to the Finance Act of 1970 that there is provision for a surcharge. The above legislative history of the Finance Acts, as also the practice, would appear to indicate that the term "income- tax" as employed in section 2 includes surcharge as also the special and the additional surcharge whenever provided which are also surcharges within the meaning of article 271 of the Constitution. The phraseology employed in the Finance Acts of 1940 and 1941 showed that only the rates of income-tax and super-tax were to be increased by a surcharge for the purpose of the Central Government. In the Finance Act of 1958, the language

ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

used showed that income-tax which was to be charged was to be increased by a surcharge for the purposes of the Union. The word "surcharge" has thus been used to either increase the rates of income-tax and super-tax or to increase these taxes. The scheme of the Finance Act of 1971 appears to leave no room for doubt that the term "income-tax" as used in section 2 includes surcharge. According to article 271, notwithstanding anything in articles 269 and 270, Parliament may at any time increase any of the duties or taxes referred to in those articles by a surcharge for the purposes of the Union and the whole proceeds of any such surcharge shall form part of the consolidated fund of India. Article 270 provides for taxes levied and collected by the Union and distributed between the Union and the States. Clause (1) says that taxes on income other than agricultural income shall be levied and collected by the Government of India and distributed between the Union and the ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

States in the manner provided in clause (2). Article 269 deals with taxes levied and collected by the Union but assigned to the States. The provisions of article 268 which is the first one under the heading "Distribution of revenue between the Union and the States" relate to duties levied by the Union but collected and appropriated by the States. Thus, these articles deal with the levy, collection and distribution of the proceeds of the taxes and duties mentioned therein between the Union and the States. The legislative power of Parliament to levy taxes and duties is contained in articles 245 and 246(1) read with the relevant entries in List I of the Seventh Schedule. As mentioned before, the legislative entry 82 in List I relates to taxes on income other than agricultural income; income- tax, super-tax and surcharge would all fall under this entry. It is in exercise of the legislative power conferred by that entry that the Union Parliament enacts the provision in the Finance Act each year

ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

relating to them. It is that Act which authorises these taxes to be charged and prescribes the rates at which they can be charged. Section 4 of the Act simply provides that where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates income-tax at that rate or those rates shall be charged in accordance thereto and subject to the provisions of the Act. Section 95, which was omitted by the Finance Act of 1965, contained similar provision with regard to super-tax. Although under the Act section 4 is the charging section yet income-tax can be charged only where the Central Act which, in the present case, will be the Finance Act, enacts that income-tax shall be charged for any assessment year at the rate or rates specified therein. The distinction made by the High Court that the surcharge are levied only under the Finance Act and income-tax under the Act may not hold good if the above view which has been pressed on behalf of the revenue were to be accepted. In our

ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

judgment it is unnecessary to express any opinion in the matter because the essential point for determination is whether surcharge is an additional mode or rate for charging income-tax. The meaning of the word "surcharge" as given in the Webster's New International Dictionary includes, among others, "to charge (one) too much or in addition................"; also "additional tax". Thus, the meaning of surcharge is to charge in addition or to subject to an additional or extra charge. If that meaning is applied to section 2 of the Finance Act, 1963, it would lead to the result that income-tax and super-tax were to be charged in four different ways or at four different rates which may be described as : (i) the basic charge or rate (In Part I of the First Schedule); (ii) surcharge ; (iii) special surcharge ; and (iv) additional surcharge calculated in the manner provided in the Schedule. Read in this way, the additional charges form a part of the income-tax and super-tax. It is ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

possible to argue, and that argument has been commended on behalf of the revenue, that the word "surcharge" has been used in article 271 for the purpose of separating it from the basic charge of a tax or duty for the purpose of distributing the proceeds of the same between the Union and the States. The proceeds of the surcharge are exclusively assigned to the Union. Even in the Finance Act itself it is expressly stated that the surcharge is meant for the purpose of the Union.” Taking the same analogy and respectfully following Hon’ble Supreme Court, we are of the view that education-cess is part of the Income tax and cannot be allowed as deduction. This additional ground raised by assessee is dismissed.

learned CIT(A) erred in allowing assessee’s claim of deduction of ₹ 1,08,95,414/- under Section 80IA(4)(iv) ignoring the requirement of setting off the loss of earlier year with the current year’s income. The Ld. CIT(A)’s decision also violates the basic principal of sub section (5) of the Act which stipulates that assessee’s eligible business should be the only source of revenue. This condition further stipulates that it is also applicable for the previous year relevant to the initial assessment year for which the deduction is to be made.”

provisions of section 80IA(4)(iv) of the Act. The said Wind Farm was commissioned in September, 1999 and the assessee as per the provisions of section 80IA of the Act claimed deduction at the option of the assessee for the first time in AY 2005-06. He stated that as per the provisions of section 80IA(2) of the Act, the deduction under section 80IA is available at the option of the assessee for any ten consecutive assessment years out of the 15 years beginning from the year in which the unit begins to generate power. The assessee contended that assessee has not opted to claim deduction under 80IA of the Act for the first five years actually and factually, the assessee had exercised the option to claim deduction under section 80IA of the Act for the first time in AY 2005-06 which is initially assessment year in term of the section. The CIT(A) following the decision of Hon’ble Madrass High court in the case of Velayuthasamy Spinning Mills (P) Ltd., Vs ACIT (2010) 231 CTR 368 allowed the claim of the assessee by observing in para 5 as under: - “5. I have carefully considered the above submissions of the Ld. Counsel of the appellant and the facts of the case. Section 80IA has bene amended by the Finance Act, 1999 w.e.f 1/4/2000. Prior to its amendment, for the purpose of this section, “initial assessment year” was defined as “in the case of an industrial

ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

undertaking or ..means the assessment year relevant to the previous year in which the industrial undertaking begins to manufacture or produce articles or things…..” However, post the amendment of section 80IA vide finance Act 1999, the term “initial assessment year” has not been defined in the Act. In the judicial precedent relied on by the appellant, the Hon’ble High court has held that the first assessment year in which the taxpayer opts to claim the deduction would be the ‘the initial Assessment Year’ from when the eligible business would be treated as the only source of income of the taxpayer. Further, in computing profits qualifying for the deduction in the initial assessment year, the taxpayer is not required on current assessment year on the current year profit. Accordingly, we allow the claim of the assessee. In the instant case, the appellant had been setting off the loss against the income of the earlier years. Accordingly, there is no question of notionally bringing

ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

forward and setting off the same against the current year’s income from the units for which the assessee is claiming deduction under section 80IA. On a careful examination of the facts and circumstances of the case and the judicial precedent relied on by the appellant, it is the apparent that the facts in the said case and in the appellant’s case are same. I have considered the issue, since the facts are identical to that of AY 2006-07, following the decision of the Madras High Court in the case of Velayudhaswamy Spinning Mills (P) Ltd. [231 ITR 368] and my own order for AY 2006-07, this ground of appeal is allowed.”

ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

of the assessee and we upheld the same. This issue of Revenue’s appeal is dismissed.

ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

of section 14A as well as Rule 8D would apply only if the AO is not satisfied with the disallowance made by the Appellant.

ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

to examine the claim of the assessee on account of interest on Buyers credit, Discounting charges and interest on vehicle loan undermining the Finance Act, 2001 effected from 01.06.2001 withdrawing the power of CIT to set aside.”

ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

“The assessee has also claimed in its submissions that it has paid interest on buyers credit ₹53,54,259/- and discounting charges ₹ 15,73,45,096/-. It is explained that when the suppliers extend the credit extra interest is paid, which is known as interest on buyer credit and it has nothing to do with the investment activity. Similarly, discounting charges are related to the credit facility availed by the assessee through bill of exchange from its creditors and, therefore, it is claimed that it also has nothing to do with the investment activity. Similarly, assessee has also claimed that it has paid interest on vehicle loan ₹ 5,25,527/- which could neither have been utilized for any other purpose nor relates to investment activity directly or indirectly. Therefore, AO is directed to examine the claim of the assessee with regard to these three items of interest and if it is found that they are not related to the investment activity but directly related to other business activities, then exclude them from the interest taken for ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

calculating the disallowance under Rule 8D Accordingly, the ground of appeal is partly allowed.” Aggrieved, both Revenue and assessee came in appeal before Tribunal.

the assessee at ₹1,86,718/-. The learned Counsel for the assessee stated that during the year the assessee has received tax free income only from UTI bonds and other investment having no tax free income and hence, disallowance ought to have computed only to the extent of investment made in UTI bonds and not to be computed on other investments of the assessee which have not yielded any tax free income during the relevant year. The learned Counsel for the assessee before us made only request that the AO can be directed to compute the disallowance of expenses relatable to exempt income only qua the investments giving rise to exempt income. For this proposition, the learned Sr. Departmental Representative also agreed.

ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

“2.1 The CIT(A) erred in confirming the action of the AO in disallowing the commission expense amounting to ₹10,92,49,857/- on the ground that the said expenses were not claimed by way of revised return.”

earlier year with the current year’s income. (B) The ld. CIT(A)’s decision also violates the basic principle of Sub section (5) of the Act which stipulates that assessee’s eligible business should be the only source of revenue. This condition further stipulates that it is also applicable for the previous year relevant to the initial assessment year for which the deduction is to be made.”

self-assessment tax under section 140A, ignoring the provisions of law that interest under section 234B should be calculated on the amount that falls short of assessed tax.”

In the assessment order, the shortfall in assessed tax has been calculated as below:

Particulars Amount ₹ Tax on Total Assessed Income 384,420,495 Add: Surcharge @ 10% 38,442,050 Add: Education cess @ 2% 10,85,205 Total Tax 435,548,421 Less: Tax deducted at Source 12,121,664 Less: Advance tax paid 342,000,000

ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

Shortfall in assessed tax 81,426,757 Further, in the said assessment order, interest under section 234B has been computed as shown below:

Amount ₹ Period No. of Months Interest ₹ From To 81,426,757 Apr 08 May 08 2 1,628,535 36,897,748 May 08 Jan 10 20 7,379,550 16,777,298 Jan 10 Dec 10 11 1,845,503 10,858,587 The amount of Rs.36,897,748/- is calculated as under:

Particulars Amount ₹ Amount ₹ A) Shortfall in assessed tax 81,426,757 B) Self-Assessment tax paid on 30 May 2008 52,000,000 Less : C) Interest as per assessment order Under Section 234B for 2 months 1,628,535 Under section 234C 5,842,456 7,470,991 D: BC 44,529,009 Balance payable 36,897,748 The amount of ₹16,777,298 is calculated as under:

Particulars Amount ₹ Amount ₹ A) Balance payable (as calculated above) B) Self-assessment tax paid on 29th 36,897,748 January 2010 27,500,000 Less: C) Interest under section 234B for 20 months as per assessment order 7,379,550 D: B-C 20,120,450 Balance Payable (A-D) 16,777,298 In this regard we noted that as per the provisions of section 234B(2)(i), only the amount of interest paid as part of the self- assessment tax paid, ought to be reduced from tax paid under ITAs No. 3892&4516/Mum/2011, 3789& 3811/Mum/2012

section 140A while computing the interest under section 234B. The said view is also upheld in the case of Hind Rectifiers Limited vs. Deputy Commissioner of Income-tax. The correct working of interest under section 234B is as shown below:

Amount ₹ Period No. of Months Interest ₹ From To 81,426,757 Apr 08 May 08 2 1,628,535 36,265,347 May 08 Jan 10 20 7,253,069 11,961,348 Jan 10 Dec 10 11 1,315,748 10,197,353 The amount of ₹36,265,347 is calculated as under: Particulars Amount ₹ Amount ₹ A) Shortfall in assessed tax 81,426,757 A) Self-assessment tax paid on 30 May 2008 Less: Interest as per return 52,000,000 Under section 234B for 2 months 1,359,600 Under section 234C 5,478,990 6,838,590 D: B-C 45,161,410 Balance payable (A-D) 36,265,347 The amount of ₹11,961,348 is calculated as under: Particulars Amount ₹ Amount ₹ A) Balance payable as calculated above 36,265,3471 B) Self Assessment Tax paid on 28th March 27,500,000 24,3030,999 2008 3,196,001 Less: C) Interest under section 234B D:B-C Balance Payable (A-D) 11,961,348

section 140A of the Act while computing the interest under section 234B of the Act. Hence, we find no infirmity in the order of CIT(A) directing the AO to recompute the interest accordingly under section 234B of the Act. Hence, we confirm the order of CIT(A) and dismiss this ground of Revenue’s appeal.