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Facts
This is a consolidated order for multiple appeals filed by both the assessee (M/s. Coal India Ltd.) and the Revenue against the orders of the CIT(A) for assessment years 2011-12 to 2014-15. The appeals involve various grounds related to disallowances and additions made by the Assessing Officer.
Held
The Tribunal condoned the delay in filing some of the Revenue's appeals. Various grounds raised by both parties regarding disallowance of provision for mark-to-market loss, prior period expenditure, notional lease rent, penalty charges, corporate social responsibility (CSR) expenses, and issues under Section 14A and 115JB were adjudicated upon.
Key Issues
The core issues revolved around the allowability of various expenses and provisions, the applicability of Section 14A and Rule 8D, and the computation of book profits under Section 115JB.
Sections Cited
14A, 115JB, 37(1), 92CA(3), 80G, 135
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Income Tax Appellate Tribunal, KOLKATA ‘C’ BENCH, KOLKATA
Before: SHRI PRADIP KUMAR CHOUBEY & SHRI RAKESH MISHRA
1.3 Since the issues are common, all the eight appeals were heard together and are being decided vide this common order for the sake of convenience and brevity.
The assessee has raised the following grounds of appeal in “1) That on the facts and circumstances of the case, the learned CIT(Appeals) erred in confirming the action of the Assessing Officer in disallowing a sum of Rs. 48,72,00,000/- crores on account of provision for mark to market loss both under the normal provisions and while computing book profits under section 115JB of the Act. 2) That on the facts and circumstances of the case, the learned CIT(Appeals) erred in confirming the action of the Assessing Officer in disallowing period expenditure amounting to Rs. 19,25,000/- without appreciating that the expenditure crystallized during the year. 3) That on the facts and in the circumstances of the case, the learned CIT(Appeals) erred in confirming the action of the Assessing Officer in “Next ground No.06 relates to the addition of interest of Rs.99,51,89,000/- on the ground that the interest accrued on FD of shifting and rehabilitation fund custodian amounting to Rs.99,51,89,000/- which was added in the hands of the appellant. In this regard the appellant has submitted as under:- "During the relevant previous year, the Board of Directors of CIL pursuant to a decision taken by the Ministry of Coal, Government of India has set up a rehabilitation fund for the purpose of shifting and rehabilitation, dealing with fire and stabilization of the areas under ECL and BCCL, being two subsidiaries of CIL. According to the said decision, the Board of directors of CIL has directed its subsidiaries (except ECL and BCCL) to contribute to the fund an amount i) State Bank of Travancore v. CIT [1986] 158 ITR 102 (SC) & CIT v. Shiv Prakash Janak Raj & Co. (P.) Ltd. [1996]
88. Taxman 536/222 ITR 183 (SC) ii) Rajkot District Gopalak Co-op. Milk Producers' Union Ltd. v. CIT [1993] 204 UR 590 (Guj.) "Keeping in view of the ruling of the above case, it is submitted before your goodself for appreciation that, for the interest to be treated as 'income' of the assessee, the assessee must have a title over such receipt and where the receipt has been diverted by an overriding title under an obligation, such receipt cannot be considered as the real income of the appellant company. The mandate of Ministry of Coal letter is clear that Coal India Limited cannot utilize the money for its “Perusal of fact and argument of the AO shows that the appellant is claiming as a custodian of the fund received from two subsidiaries i.e. ECL & BCCL. The appellant has further relying over the decision of CIT(A) for the AY 2004- 05 on 04- 06-2008 wherein it has held that the appellant is just a custodian of the fund then the interest income is not taxable in the hands of Custodian. It is seen that the fund is claimed to be utilised for specific purpose, that is shifting and rehabilitation for dealing with fire and stabilizing of the error in ECL & BCCL and the appellant has been assigned duty to monitor the implementation of the above action plan. Therefore, the action of the AO for creating the interest in its P & L Account has been treated as unjustified, submission of the appellant shows that the appellant has been clearly instructed to distinguish between its own fund and shifting and rehabilitation fund. The appellant has further claimed that TDS deducted by bank treating it as owner of the fund has been considered by the appellant and the appellant company has under taken to claim the credits of it and subsequently contributing equal amount to the fund. From the perusal of aforesaid fact and as per earlier judgement of CIT(A) it is seen that the appellant is custodian of the said fund and was thus acting for custodian such welfare fund on behalf of its two subsidiaries company namely ECL & BCCL. The said fund was also allowable to hand over to said subsidiaries company and no benefit was derived by the appellant. Perusal of fact shows that such fund was created to be utilised for rehabilitation and shifting it was not for the business of the appellant himself but it was for the purpose of said two subsidiary as such the interest income arose from the instant FD was to be utilised for carrying out running activity and thus the same interest income was also revenue in nature which is to be taxed in the hands of the real owners each i.e. his two subsidiaries namely ECL and BCCL. The AO is hereby directed to further verify from the jurisdictional AO of the ECL & BCCL, the subsidiaries company, whether they have included the said interest income of Rs.99,51,89,000/- in proportion to their share of fund maintained by them with the appellants in their receipts and deserve it for taxation. The revenue is to be treated in the hand of the real owners and the AO is directed to ensure that the aforesaid interest has been taxed in the hands of ECL & BCCL. The appellant being a custodian was not the rightful owner of the fund. Therefore, the appellant cannot be taxed. Therefore the addition made on this account by the AO is hereby deleted from the hands of the appellant and directed to be taxed in the hands of ECL & BCCL and the ground of appeal is allowed.” 9.4 The Ld. DR relied upon the order of the Ld. AO and requested that 9.5 The Ld. AR argued that this issue is covered by the order of the Tribunal in the assessee’s own case for AY 2009-10 and AY 2010-11. The assessee in this regard has submitted as under:
At the outset, it is humbly submitted that the aforesaid issue is covered in favour of the appellant by the order of the Hon’ble Tribunal in the assessee’s own case for AYs 2009-10 and 2010 11 wherein it has been held that the entire fund, including interest is utilized, by the assessee as a custodian, in the manner directed by the concerned Ministries of the Government of India and hence not taxable as income in the hands of the appellant (Page 265- 270 of Paperbook). The appellant is merely a custodian of the fund and it has no control over it. Further, the Committee of Disputes vide letter F.No. CIT(Judicial)/COD 2009-10/1561 dated 21-01-2010 has declined permission to CBDT to pursue the said issue in further appeal before the Tribunal in earlier assessment years. Further, reliance can also be placed on the decision of the Hon’ble Jurisdictional Kolkata ITAT in the case of DCIT vs. West Bengal State Electricity Transmission Co. Ltd. [ITA No.1822/Kol /2012 (Kol ITAT), Order dated 30 October 2014]. The position that contribution to rehabilitation fund is not taxable as income of the appellant has also been accepted by the Ld. AO in previous as well as subsequent years. It is therefore prayed that the Revenue’s appeal be dismissed. Further, it is re-iterated that Section 115JB of the Act, is a self-contained code and it does not warrant any such upward adjustment in respect of income not credited to the accounts on the basis of Form 26AS. Hence, the addition in this regard is without any basis and liable to be quashed. Reliance in this regard can be placed on the decision of Hon’ble Supreme Court in the case of Apollo Tyres [255 ITR 273 (SC)]. a) If plant was given on lease to any other organization, it would fetch rent at market rates. b) The cancellable operating lease agreement with SECL was nothing but a colourable devise to shift its taxable income to its subsidiaries. c) The old and obsoleteness of the plant given by the assessee on lease must not be a reason for reduction in lease rent. d) A notional rent value based on the market rental value is adoptable as taxable income from the property even if it is kept under lock and key.
10.2 The aforesaid disallowance was confirmed by the Ld. CIT(A) during the appellate proceedings by holding as under:
I have perused the submission of the appellant and the order of the AO. It is undoubtedly clear that the annual lettable value of the property though claimed as business income was of Rs. 18 Crore since 1995. The AO has clearly observed in his findings that the rental value was reduced in 2006- 07 from 18 Crore to 7.5 Cr and since then it was offered by the appellant as income but AO found that the appellant has reduced the rental value of its subsidiaries under the guise of incurring of losses. The AO observed that DCC was a unit of the assessee company started commercial production since 1991-92 and transferred to its subsidiary company M/s. SECL. from April 1995. The entire plant was given under lease to its subsidiary company for operating the same for commercial production. The appellant 11.2 The Ld. CIT(A) confirmed the addition made by the Ld. AO by holding as under:
Perusal of aforesaid facts shows that the penalty was accrued as per the policy of the company before filing of return. There was no debate over the penalty charges during the year and it was as per policy of the company and the penalty was receivable. The appellant is showing subsequent decisions which happened in the later years to justify its action for not accounting the same for income. The subsequent action will not be justify the earlier action of the appellant once the penalty charge were accrued then on mercantile system of accounting, it should have been shown as an income in his books of account. Keeping in view of the aforesaid facts the action of the AO is hereby upheld and the ground of appeal is dismissed. The appellant has argued that aforesaid income should not have been considered for computation of book profit u/s.115 JB. The argument of the appellant is not correct because the appellant was following Mercantile system of account and aforesaid was already accrued hence it should have been part of his income. Therefore the AO was justified to consider the same for the book profit u/s.115 JB. The action of the AO on this account is confirmed and the appeal of the appellant on this ground is also dismissed. The case laws cited by the appellant are factually different.
11.3 Before us, it is submitted by the Ld. AR as under: “In this regard it is submitted that as stated above, out of the nine parties, six parties were such from whom the amount had been received/security deposit forfeited in subsequent years and the same was accordingly offered to tax in the corresponding assessment years. Hence, an amount of Rs. 1.12 crores should not be added back to the computation of Income as it would lead to double taxation in the hands of the appellant. With regard to the balance amount of Rs 1.73 crores, the remaining three parties have not agreed to pay such sum even though the same has accrued as per the agreement. The third parties have filed an appeal against Coal India. Limited and the High Court of Meghalaya has allowed the petition against the appellant, thus, making the sum un-realizable (Page 325-331 of Paperbook for AY 2012-13).
“Argument 1 - Equity contribution is not an international transaction The transaction of advancement of share application money was not in the nature of international transaction (as defined in section 92B of the Act) and hence was outside the purview and scope of chapter X of the Act. The Ld. TPO/AO failed to appreciate that the funds remitted to the AE is in the nature of shareholder activity. Reliance is also placed on the decision of Hon’ble Hyderabad Tribunal in the case of M/S Hill Country Properties
“Disallowance of CSR Expenses of Rs. 41.7 crores (Department's Ground, AY 2014-15) 5.1 During the year, the assessee made expenditure under the head corporate social responsibility amounting to Rs. 141.70 crores. Out of this, Rs. 100 crore was made towards Chief Minister's relief fund and this amount, therefore, was suo-moto disallowed by the assessee in its account and claimed deduction under section 80G. However, the the rest of the amount, the assessee claimed that since the explanation 2 to section 37(1) of the Act relating to disallowance of CSR expenses that has been incurred pursuant to section 135 of the Companies Act 2013, was applicable from AY 32.3 We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. CIT(A). Out of the expenditure of ₹14169.76 Lakh incurred a sum of ₹10,000/-
Ground No. 12 relates to the Ld. CIT(A) erring in deleting the addition on the ground which is not a provision or contingent liability and relates to medical expenses for retired employees. 33.1 The Ld. CIT(A) deleted the addition as the same was allowable u/s 37(1) of the Act having been actually incurred by the assessee towards its retired employees as per finding in sub-para 3 of para 21 of the appeal order.
33.2 The Ld. AR has submitted as under in this regard:
“During the year under consideration, the Assessee has provided for medical expenses for retired employees amounting to 19.56 crores. The same was disallowed by the Ld. AO during the assessment proceedings stating that the same is not incurred in relation to the business of the Assesssee (Page 10 of the Assessment order (AY 2014-15)). The Ld. CIT(Appeals) has discussed the matter and decided the issue in 33.4. Ground No. 13 being general in nature does not need separate 33.5 In the result, the Revenue’s appeal in is partly allowed for statistical purposes.
In the result, the appeals filed by the assessee in 467/KOL/2018 and 1406, 1407/KOL/2019 are partly allowed for statistical purposes and the appeals filed by the Revenue in 623/KOL/2018 and 1696, 1697/KOL/2019 are partly allowed for statistical purposes.