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Income Tax Appellate Tribunal, “K”, BENCH
Before: SHRI M.BALAGANESH, AM & SHRI AMARJIT SINGH, JM
आदेश / O R D E R PER M. BALAGANESH (A.M):
This appeal filed by the assessee is against the order of the ld. AO passed u/s.143(3) r.w.s. 144C(13) of the Income Tax Act (hereinafter referred to as Act), giving effect to the direction issued by the ld. Dispute Resolution Panel (in short DRP) u/s.144C dated 30/12/2016 for the A.Y.2012-13.
M/s. Alok Industries 2. This appeal has already been disposed off vide order dated 21/05/2018. While disposing off this appeal, the Tribunal had not given its finding with regard to ground Nos. 5 to 8 raised by the assessee. Accordingly, the miscellaneous application was preferred by the assessee and the same was disposed off by this Tribunal in MA No.650/Mum/2018 dated 13/01/2019 wherein the appeal order already disposed off was recalled to the limited extent for adjudication of ground Nos.5 to 8.
Ground No.5 raised by the assessee is with regard to the issue of disallowance made u/s.14A of the Act read with Rule 8D of the rules to the tune of Rs.10,88,24,122/- while computing the book profits u/s.115JB of the Act. 3.1. The brief facts of this issue are that the assessee derived dividend income of Rs.2,56,66,941/- and claimed the same as exempt u/s.10(34) of the Act. The assessee made suomoto disallowance of Rs.24,42,759/- u/s.14A of the Act in the return of income both under normal provisions of the Act as well as computing the book profits u/s.115JB of the Act. The details of the suo moto disallowance made by the assessee are as under:- Sr. No. Particulars Amount (Rs.) 1. D-MAT expenses 1,28,488/- 2. Salary paid to one 15,42,847/- employee i.e., incharge of these investment activities 3. Other overheads being 7,71,424 50% of salary Total 24,42,759/- M/s. Alok Industries 3.2. The ld. AO observed that the disallowance made by the assessee is not in accordance with the computation mechanism provided in Rule 8D of the rules and accordingly proceeded to invoke Rule 8D(2) thereon and made disallowance of Rs.10,88,24,112/- in all the three limbs of Rule 8D while computing book profits u/s.115JB of the Act after reducing the suo moto disallowance made by the assessee of Rs.24,42,759/-. The action of the ld. AO was upheld by the ld. DRP. 3.3. Aggrieved, the assessee is in appeal before us. 3.4. We have heard the rival submissions. We find that the ld. AO had worked out the disallowance under Rule 8D of the rules as under:- Under Rule 8D(2)(i) - Rs. 128,488/- Under Rule 8D(2)(ii) - Rs.10,34,89,080/- Under Rule 8D(2)(iii) - Rs. 76,49,303/- --------------------- Total Rs.11,12,66,871/- Less – Suo-moto disallowance Made by the assessee Rs. 24,42,759/- =========== Net Disallowance Rs.10,88,24,112/- =========== 3.5. The ld. AR argued that the findings given by this Tribunal vide order dated 21/05/2018 with regard to the issue of disallowance u/s.14A under normal provisions of the Act with specific regard to availability of own funds with the assessee company would be relevant and accordingly, no disallowance of interest need to be made under Rule 8D(2)(ii) while computing the book profits u/s 115JB of the Act also. Similarly, a finding given by this Tribunal vide order dated 21/05/2018 that strategic M/s. Alok Industries investments made by the assessee should also be excluded for the purpose of computation of disallowance under Rule 8D of the rules. The ld. AR prayed for recomputing the disallowance under Rule 8D(2)(iii) by remanding the matter to the file of the AO to decide in the light of Supreme Court decision in the case of Maxopp Investment reported in 402 ITR 640 (SC). 3.6. In response thereto the ld. DR vehemently relied on the order of the ld. DRP. 3.7. We have heard the rival submissions. We find that the Special Bench of Delhi Tribunal in the case of Vireet Investments reported in 165 ITD 27 had held that disallowance u/s.14A of the Act cannot be made by applying the computation mechanism provided in Rule 8D of the rules while computing the book profits u/s.115JB of the Act. Hence, we reject the arguments advanced by the ld. AR. We find that assessee had already made suo moto disallowance of expenses of Rs.24,42,759/- while computing book profits u/s.115JB of the Act, which admittedly represent amounts debited to profit and loss account by the assessee and the disallowance u/s.14A for the purpose of 115JB should be made based on actual amounts debited to the profit and loss account. In this scenario, assessee’s disallowance should be accepted. Since the assessee has voluntarily disallowed this sum of Rs.24,42,759/- u/s.14A while computing book profits u/s.115JB of the Act, no further disallowance need to be M/s. Alok Industries made thereafter. Accordingly, the ground No. 5 raised by the assessee is allowed.
The ground No.6 raised by the assessee is with regard to the action of the ld. DRP in confirming the disallowance of interest of Rs.8,37,01,584/- on proportionate basis u/s.36(1)(iii) of the Act in respect of interest free advances given to the subsidiary and sister concerns of the assessee. 4.1. The brief facts of this issue are that the ld. AO observed that on perusal of the balance sheet, the assessee had shown huge amounts under the head loans and advances given by the assessee. The perusal of the balance sheet reveal that assessee had taken huge secured and unsecured loans and interest has been paid thereon. The interest free advances given by the assessee to subsidiaries and sister concerns were to the tune of Rs.80,15,66,651/-. The assessee has taken loans to the tune of Rs.11139,48,57,633/- and incurred net interest of Rs.1163,21,28,223/-. The assessee submitted that the advances were given to subsidiary and sister concerns out of commercial expediency. The assessee stated that advances given to Alok Retails India Limited, Alok Apparel’s Ltd., in the normal course of business and the assessee company had earned profit from dealings with the said associates and therefore, the purpose of business mentioned in Section 36(1)(iii) is duly satisfied by the assessee. The assessee placed reliance on the decision of Hon’ble Supreme Court in the case of SA Builders Ltd., vs. CIT reported in M/s. Alok Industries 288 ITR 1. The assessee also pleaded that sufficient interest free funds were available with it to explain the interest free advances to subsidiary and sister concerns. The ld. AO did not heed to the contentions of the assessee and accordingly proceeded to disallow the proportionate interest to the expenditure of interest free advances and arrived at the disallowance figure of Rs.8,37,01,584/-, which were upheld by the ld. DRP. 4.2. Aggrieved, the assessee is in appeal before us. 4.3. We have heard rival submissions. At the outset, we find that the ld. AR argued that assessee is having sufficient own funds which is apparent from the face of the balance sheet. The details of available own funds / interest free funds and details of interest free loans given to subsidiaries / associated were explained by the assessee by way of the following table:-
Particulars Opening Amount in Closing Amount in Crores Crores Share capital and 787.79 826.28 warrants Free Reserves and 1196.60 1660.78 Securities Other interest free loans 0.00 0.00 Total 1984.39 2487.06 Advances to subsidiaries 64.08 80.16 / associates 4.4. The ld. AR also placed reliance on the decision of Hon’ble Jurisdictional High Court in the case of Reliance Utilities and Power Ltd., M/s. Alok Industries reported in 313 ITR 340 and also on the decision of this Tribunal rendered in the case of group concern of assessee Alok Infrastructure Ltd., vs. ACIT in and 1651/Mum/2012 for A.Y.2008-09 dated 29/07/2016 wherein the facts and the decision rendered thereon are reproduced hereunder:-
“9. In so far as cross appeal of the Revenue is concerned, the solitary issue relates to action of the CIT(A) in deleting an addition of Rs.53,07,260/-, which was made by the Assessing Officer by invoking the provisions of section 36(1)(iii) of the Act. 9.1 In this context, relevant facts are that the Assessing Officer noticed that assessee company had incurred interest expenditure of Rs.1,66,32,240/- on borrowings of Rs.43.00 crores raised from L&T Infrastructure Finance Company Ltd. The Assessing Officer also noted that during the year under consideration assessee had made investments of Rs.135.00 crores in shares, which was claimed to have been made out of own non-interest bearing funds. The Assessing Officer has noted in the assessment order that on being asked to furnish any nexus between the funds utilized and investments, the assessee failed to do so. The Assessing Officer further noticed that after raising of borrowed funds from L&T Infrastructure Finance Company Ltd. on 8/01/2008, assessee had made two investments namely,(i) Alspon Infrastructure- Rs.10,60,00,000 on 25,26,27/3/2008; and (ii)Ashford Infotech (P) Ltd.- Rs. 50.00 crores on 25/02/2008. The Assessing Officer worked out proportionate interest on such investments and made a total disallowance of Rs.69,50,569/- out of interest expenditure under section. 36(1)(iii) of the Act. A sum of Rs.6,93,624/- related to investment made in Alspon Infrastructure and Rs.62,56,945/- for investment in Ashford Infotech(P) Ltd. Subsequently, the Assessing Officer, on application filed by the assessee under section 154 of the Act, deleted the addition of Rs.6,93,624/- relating to the investment in Alspon Infrastructure.
11. Before the CIT(A), assessee raised various submissions on facts and in law. The assessee pointed out that a sum of Rs.50.00 crores was given to its subsidiary Ashford Infotech (P) Ltd by way of share application money and such subsidiary was also engaged in the M/s. Alok Industries business of construction and development of real estate. For the said reason, it was canvassed that such investment was for furtherance of assessee's business, following the ratio of the decision of the Hon'ble Supreme Court in the case of S.A. Builders Limited vs. CIT, 288 ITR 1(SC). Reliance was also placed on the judgment of the Hon'ble Delhi High Court in the case of Bharti Televentures Ltd , 331 ITR 502 (Del) for the proposition that where interest bearing funds were advanced to subsidiary company, such advances were to be considered for business consideration as profits of the subsidiary would also ultimately become part of the profits of the holding company. An alternative submission was also made by the assessee, which was to the effect that its total shareholder funds, which were free of interest, were in excess of the impugned investments and, therefore, following the ratio of the judgment of the Hon'ble Bombay High Court in the case of CIT. Vs. Reliance Utilities And Power Limited.,313 ITR 340(Bom), it was to be presumed that such investments are out of non- interest bearing funds, and, thus no interest was disallowable. The CIT(A) accepted both the pleas set up by the assessee and has deleted the addition.
12. Before us, the Ld. Departmental Representative has primarily relied upon the order of the Assessing Officer in support of the case of the Revenue, without controverting any of the factual matrix brought out by the CIT(A). Notably, the CIT(A) in para 3.9 of his order has referred to the fund flow statement furnished by the assessee whereby, assessee had owned interest free funds of Rs.193.70 crores and investment in subsidiary was Rs.135.00 crores. On this basis, the CIT(A) has concluded that assessee had sufficient own funds and , therefore, following the judgment of Hon'ble Bombay High Court in the case Reliance Utilities And Power Limited(supra), it can be presumed that no borrowed funds were used to make such investments. As per Hon'ble Bombay High Court, the principle is that, if there are funds available both interest free and interest bearing, then a presumption can be drawn that investments are made out of interest free funds, so long as such interest free funds are sufficient to meet the investments. In our considered opinion, having regard to the fact position brought out by the CIT(A), the proposition laid down by the Hon'ble Bombay High Court in the case of Reliance Utilities And Power Limited(supra) is fully attracted in the present case. Such fact- situation has been enumerated by the CIT(A) in Para 3.4 of his order, which depicts the summarized fund flow position of the assessee, and the same has not been controverted by the Revenue before us, rather the same is also borne out of the material placed in the Paper Book filed before us. Therefore, on this count itself, we find no reason to interfere with the ultimate conclusion of the CIT(A) in deleting the M/s. Alok Industries addition of Rs.62,56,945/-, which we hereby affirm. Thus, on this aspect also Revenue fails.”
4.5. Respectfully following the aforesaid judicial precedents and in view of the fact that assessee has got sufficient own funds, we direct the ld. AO not to make any disallowance of interest of Rs.8,37,01,584/- and accordingly, the disallowance made by the ld. AO is deleted. Accordingly, ground No.6 raised by the assessee is allowed.
The ground No.7 raised by the assessee is with regard to disallowance of employee’s contribution of provident fund to the tune of Rs.74,37,578/- which were paid beyond the due dates prescribed under the PF Act but were paid before the due date of filing the return of income u/s.139(1) of the Act. 5.1. We have heard rival submissions. We find that this issue is also covered in favour of the assessee by the decision of Hon’ble Jurisdictional High Court in the case of CIT vs. Ghatge Patil Transports Ltd., reported in 368 ITR 749 wherein it was observed as under:-
“5. While disallowing the claim for deduction, the department contended that payment of employees' contribution had to be made within the due date viz. on or before the 15th of every succeeding month. Admittedly, these payments were not so made but were paid after the due dates. The Assessing Officer, therefore, disallowed the deduction made to the extent of Rs.32,03,547/-.
6. The Commissioner of Income Tax (Appeals) dismissed the issue of disallowance on account of payment of employees' contribution which was covered under section 36(1)(va) of the I.T. Act relying on the decision of this Court reported in 298 ITR 149 and held that the amendments to section M/s. Alok Industries 43B, on the basis of which relief could have been given to the assessee, were not retrospective. The Tribunal held that disallowance of the employees contribution made on account of provident fund, ESI and pension fund for assessment year 2003-04 was on account of delay in payment of the employees contribution was not sustainable.
The question arising, therefore, is (a) whether the Tribunal was right in ignoring the distinction between the employees contribution and employer's contribution and whether the decision of the Hon'ble Supreme Court in the case of Commissioner of Income Tax V/s.Alom Extrusions Ltd. reported in [2009] 319 ITR 306 would apply only in the cases of employee's contribution and (b) whether the itxa1002-12+1 Tribunal was right in holding that payment of employees contribution is subject to the provisions of section 43B of the I.T. Act entailing that amendment to section 43B would lead to the inclusion of the employers' contribution as well.
Mr. Gupta submitted that the Tribunal erred in deletion of addition of amount to the extent of Rs.32,03,947/- and that the impugned order dated 29th July, 2011 is liable to be quashed. Mr.Gupta relied upon the judgment of Punjab & Haryana in Commissioner of Income-Tax V/s. Lakhani Rubber Works reported in [2010] 326 ITR 415 (P & H) and submitted that question Nos.1 & 2 in that case had already been decided against the revenue in view of the decision of Alom Extrusions Ltd. (supra). It is for this reason that he did not press for an answer to question No.1 in these Appeals.
Mr.Naniwadekar, learned counsel appearing on behalf of the assessee on the other hand relied upon the decision of the Supreme Court upon the decision of Alom Extrusions (supra) and pointed out that the scheme of the Income Tax Act, 1961 as it existed prior to April 1, 1984 and thereafter.
He submitted that Section 43B made it mandatory for the department to grant deduction in computing the income under section 28 in the year in which tax, duty, cess, etc. is actually paid. However, Parliament took cognizance of the fact that the accounting year of a company did not always tally with the due dates under certain statutes and, therefore, by way of the first proviso, an incentive / relaxation was sought to be given in respect of tax, duty, cess or fee by explicitly stating that if such tax, duty, cess or fee is paid before the date of filing of the return under the Income Tax Act, the assessee would be entitled to deduction. It did not apply to contributions to labour welfare funds.
The second proviso resulted in implementation problems and which led to deletion of the second proviso in the Finance Act, 2003 and bringing about uniformity in the first proviso by equating tax, duty, cess and fee with contributions to welfare funds like employees' provident fund, M/s. Alok Industries superannuation. Fund and other welfare funds. The first proviso by Finance Act, 2003 was made applicable with effect from April 1, 2004 and the assessee would argue that it was curative in nature, clarificatory and, therefore, applied retrospectively from 1 st April, 1988. The department argued that it was clarifactory and, therefore, applied prospectively. The Supreme Court held that Finance Act, 2003 would be applicable retrospectively and defaulter who fails to pay the contribution to the welfare fund right upto April 1, 2004 and who pays itxa1002-12+1 the contribution after April 1, 2004, would get the benefit of deduction under section 43B of the I.T. Act. It is held that the Finance Act, 2003 to the extent indicated above would be curative in nature and hence is retrospective. The reason being to be that the employers should not sit on the collected contributions and deprive the workmen of the rightful benefits under social welfare legislations by delaying payment of contributions to the welfare funds.
Mr.Naniwadekar also relied upon the judgment dated 11 th July, 2014 in Income Tax Appeal No.399 of 2012 passed by this Court, to which one of us (S.C.Dharmadhikari,J.) was a party where following two issues of law were raised.:- "(A) Whether on the facts and in the circumstances of the case, the Tribunal, in law, was right in allowing the claim of the Assessee on account of delayed payments of P.F. of employees' contribution amounting to Rs.1,82,77,138/- by relying on the decision of the Hon'ble Supreme Court in the case of CIT Vs/. Alom Extrusions Ltd. (319 ITR 306) ? (B) Whether on the facts and in the circumstances of the case, the Tribunal in law, was right in deleting the disallowance of Rs.10,00,300/- on bond registration charges and allowing the claim of the assessee u/s. 37(1) of the I.T. Act, 1961 ? 13. In that judgment, this Court held that no substantial questions of law would arise since section 43B is inserted in the I.T. Act with effect from 1st April, 1984 by which the mercantile system of accounting with regard to tax, duty and contribution to welfare funds stood discontinued. Under section 43B of the I.T. Act, it became mandatory for the assessee to account for such payment including to welfare funds not on mercantile basis but on cash basis. The judgment further mentions that this situation continued between 1 st April, 1984 and 1st April, 1988. It is also noticed that section 43B was again amended and the first proviso thereto has been added which was restricted to tax, duty, cess or fee excluding labour welfare. In view thereof, the second proviso as follows came to be inserted:- " Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid during the previous year on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36."
M/s. Alok Industries The second proviso was further amended with effect from 1st April, 1989 to read as under:- " Provided further that no deduction shall, in respect of any sum referred to in clause (b), be allowed unless such sum has actually been paid in cash or by issue of a cheque or draft or by any other mode on or before the due date as defined in the Explanation below clause (va) of sub-section (1) of section 36, and where such payment has been made otherwise than in cash, the sum has been realised within fifteen days from the due date."
From a reading of above, it is clear that the employer- assessee would be entitled to deduction only if the contribution to the employee's welfare fund stood credited on or before the due date and not otherwise. It transpires that Industry once again made representations to the Ministry of Finance to remove this anomaly. The result was that an amendment was inserted which came into force with effect from 1st April, 2004 and two changes were made in section 43B firstly by deleting the second proviso and further amendment in the first proviso which reads as under:- " Provided that nothing contained in this section shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return."
In this manner, the amendment provided by Finance Act, 2003 put on par the benefit of deductions of tax, duty, cess and fee on the one hand with contributions to various Employees' Welfare Fundsitxa1002-12+1 on the other. All this came up for consideration before the Hon'ble Supreme Court in the case of Alom Extrusions Ltd. (supra). The Tribunal in the case at hand relied upon the said judgment. There is no reason to fault the order passed by the Tribunal. We are of the view that the decision of the Supreme Court in Alom Extrusions Ltd. applies to employees' contribution as well as employers' contribution. Question Nos.2, 3 & 4 are accordingly answered in favour of the assessee and against the revenue.
The facts in Income Tax Appeal No.1034 of 2012 are similar, except for the change in the assessment year and the questions arise out of the common order of the Tribunal dated 29th July, 2011 and accordingly the question Nos.2, 3 & 4 are answered in favour of the assessee and against the revenue. We hold that both employees' and employer's contributions are covered under the amendment to Section 43B of I.T. Act and the Alom Extrusions judgment. Hence the Tribunal was right in holding that payments thereof are subject to benefits of Section 43B. Both the appeals are disposed of accordingly. No order as to costs.”
M/s. Alok Industries 5.2. Respectfully following the said decision, we delete the disallowance of Rs.74,37,578/- made by the ld. AO.
The ground No.8 raised by the assessee is with regard to disallowance of prior period expenses of Rs.31,44,360/-. The ld. AO observed that as per Clause 22(b) of the assessee’s tax audit report, it was reported that a sum of Rs.31,44,360/- which was debited to profit and loss account was classified as prior period expenditure. The ld. AO observed that since the same does not pertain to the year under consideration, the said expenditure cannot be allowed as deduction during the A.Y.2012-13. When show-caused in this regard, the assessee submitted the party wise break-up of the entire prior period expenditure and stated that these expenses crystallized only in the FY 2011-12 due to receipt of bills, claims from vendors belatedly and therefore, the said expenses were accounted only during the year under appeal. The ld. AO observed that since the assessee is following mercantile system of accounting and that the dates mentioned in the respective bills pertain to F.Y.2010-11 and hence the assessee should have claimed the expenditure in those corresponding years and not in A.Y.2012-13. With these observations, the ld. AO disallowed the said expenditure of Rs.31,44,360/- as prior period expenditure, which was upheld by the ld. DRP. 6.1. Aggrieved, the assessee is in appeal before us.