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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
Before: Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
1 ITA Nos. 464-465/Kol/2018 Indian Coal Agency, AYs- 2013-14 & 2014-15 आयकर अपील�य अधीकरण, �यायपीठ – “C” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH: KOLKATA (सम�) �ी ऐ. ट�. वक�, �यायीक सद�य एवं डॉ. अजु�न लाल सैनी, लेखा सद�य) [Before Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
I.T.A. No. 464/Kol/2018 Assessment Year: 2013-14 & I.T.A. No. 465/Kol/2018 Assessment Year: 2014-15
Indian Coal Agency Vs. Assistant Commissioner of Income-tax, (PAN: AAAFI7134H) Circle-35, Kolkata. Appellant Respondent
Date of Hearing 17.09.2019 Date of Pronouncement 23 .10.2019 For the Appellant Shri Miraj D. Shah, AR For the Respondent Shri Supriyo Pal, JCIT, Sr. DR
ORDER Per Shri A.T.Varkey, JM Both these appeals preferred by the assessee is against the separate orders of the Ld. CIT(A)-10, Kolkata dated 18.12.2017 for AYs 2013-14 and 2014-15.
At the outset itself, it has been brought to our notice that the grounds of appeal for both the years are similar (except for few ad-hoc additions which are not in there in the AY 2014-15). Therefore, the lead case for adjudication we take up the appeal relating to AY 2013-14 and the result of which will follow for other assessment year 2014-15 also.
Ground nos. 1 and 2 of the assessee’s appeals are not adjudicated since not argued by the Ld. AR during the hearing so, they stands dismissed.
Ground no. 3 is against the action of the Ld. CIT(A) in confirming the action of the AO in disallowing the weighted deduction u/s. 35(1)(ii) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”).
2 ITA Nos. 464-465/Kol/2018 Indian Coal Agency, AYs- 2013-14 & 2014-15 5. Brief facts of the case are that the assessee had made donation of Rs.1,55,00,000/- and Rs.1,16,25,000/- (total Rs.2,71,25,000/-) to M/s. Herbicure Healthcare Bio-Herbal Research Foundation (In short M/s. HHBHRF) and claimed weighted deduction u/s. 35(1)(ii) of the Act which has been disallowed by the AO on the ground that it has come to his knowledge based on the admission of the founder of M/s. HHBHRF and other whistle- blower; and the CIT(E)’s action to cancel the section 12A registration pursuant to the finding that M/s. HHBHRF was indulged in giving accommodation entry to persons who gave donations to it which was bogus. So, the AO added the amount as income of the assessee to the tune of Rs.2,71,25,000/-. At the appellate stage, the assessee pleaded that the subsequent action of the CBDT to withdraw/cancel the registration granted to M/s. Herbicure Healthcare Bio-Herbal Research Foundation with retrospective effect cannot in any way affect the weighted deduction which has to be granted in light of Explanation appended to sec. 35(1)(ii) of the Act. However, the Ld. CIT(A) has confirmed the action of the AO. Aggrieved, the assessee is before us.
We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee had claimed exemption u/s. 35(1)(ii) of the Act for making donation of Rs.1,55,00,000/- to M/s. Herbicure Healthcare Bio-Herbal Research Foundation which enjoyed registration u/s. 35(1)(ii) of the Act granted on 14.03.2008 and renewed vide dated 13.08.2012 which fact has not been disputed. The only ground on which the AO has denied the claim of weighted deduction was that it has come to his knowledge that the founder of M/s. HHBHRF has admitted before the department that it was indulging in the nefarious practice of giving accommodation entry to the entities like assessee and a whistle- blower has also supported this allegation. However, when the AO issued notice u/s. 133(6) to M/s. HHBHRF, it did not support the allegation of AO and on the other hand, corroborated the fact of assessee giving donation of Rs.2,71,25,000/- to it. And it was brought to our notice that the founder of M/s. HHBHRF has retracted the allegation made earlier. And the assessee pleaded before the Ld. CIT(A) that even if the certificate granted u/s. 35(1)(ii) of the Act has been withdrawn retrospectively, that cannot be a ground to disallow the claim of the assessee. We note that this issue is no longer res integra. It is not
3 ITA Nos. 464-465/Kol/2018 Indian Coal Agency, AYs- 2013-14 & 2014-15 in dispute that M/s. HHBHRF was enjoying the approval under Sec. 35(1)(ii) of the Act as on the date of receipt of donation and by retrospective cancellation of approval of the concerned institution, the deduction claimed in respect of the donation given by the assessee cannot be denied. This view of ours has been approved by the Hon’ble Bombay High Court in M/s Seksaria Biswan Sugar Factory Ltd. and Another vs. Inspecting Assistant Commissioner and Others (1990) 184 ITR 123 and we note that this view has been consistently taken when application of weighted deduction has been claimed against M/s. HHBHRF. Moreover, our view is fortified by the Explanation given u/s. 35(1)(ii) of the Act is reproduced under:
“Section 35(1)(ii) - Explanation. The deduction, to which the assessee is entitled in respect of any sum paid to a research association, university, college or other institution to which clause (ii) or clause (iii) applies, shall not be denied merely on the ground that, subsequent to the payment of such sum by the assessee, the approval granted to the association, university, college or other institution referred to in clause (ii) or clause (iii) has been withdrawn.”
We find that there is no provision in section 35(1)(ii) of the Act to withdraw the recognition granted to the assessee therein. When there is no provision for withdrawal of recognition in the Act, the action of the revenue in withdrawing the recognition with retrospective effect from 1.4.2007 is unwarranted. In this regard, the recent decision of the Hon’ble Supreme Court in the case of Industrial Infrastructure Development Corporation (Gwalior) M.P. Ltd vs CIT Gwalior reported in (2018) 90 taxmann.com 281 (SC) wherein it was held that :- 21. In our considered opinion, the CIT had no express power of cancellation of the registration certificate once granted by him to the assessee under Section 12A till 01.10.2004. It is for the reasons that, first, there was no express provision in the Act vesting the CIT with the power to cancel the registration certificate granted under Section 12A of the Act. Second, the order passed under Section 12A by the CIT is a quasi judicial order and being quasi judicial in nature, it could be withdrawn/recalled by the CIT only when there was express power vested in him under the Act to do so. In this case there was no such express power. 22. Indeed, the functions exercisable by the CIT under Section 12A are neither legislative and nor executive but as mentioned above they are essentially quasi judicial in nature. 23. Third, an order of the CIT passed under Section 12A does not fall in the category of "orders" mentioned in Section 21 of the General Clauses Act. The expression "order" employed in Section 21 would show that such "order" must be in the nature of a
4 ITA Nos. 464-465/Kol/2018 Indian Coal Agency, AYs- 2013-14 & 2014-15 "notification", "rules" and "bye laws" etc. (see - Indian National Congress(I) v. Institute of Social Welfare [2002] 5 SCC 685. 24. In other words, the order, which can be modified or rescinded by applying Section 21, has to be either executive or legislative in nature whereas the order, which the CIT is required to pass under Section 12A of the Act, is neither legislative nor an executive order but it is a "quasi judicial order". It is for this reason, Section 21 has no application in this case. 25. The general power, under Section 21 of the General Clauses Act, to rescind a notification or order has to be understood in the light of the subject matter, context and the effect of the relevant provisions of the statute under which the notification or order is issued and the power is not available after an enforceable right has accrued under the notification or order. Moreover, Section 21 has no application to vary or amend or review a quasi judicial order. A quasi judicial order can be generally varied or reviewed when obtained by fraud or when such power is conferred by the Act or Rules under which it is made. (See Interpretation of Statutes, Ninth Edition by G.P. Singh page 893). 26. ………… 27. It is not in dispute that an express power was conferred on the CIT to cancel the registration for the first time by enacting sub-Section (3) in Section 12AA only with effect from 01.10.2004 by the Finance (No.2) Act 2004 (23 of 2004) and hence such power could be exercised by the CIT only on and after 01.10.2004, i.e., (assessment year 2004-2005) because the amendment in question was not retrospective but was prospective in nature. 28. The issue involved in this appeal had also come up for consideration before three High Courts, namely, Delhi High Court in the case of DIT (Exemptions) v. Mool Chand Khairati Ram Trust [2011] 11 taxmann.com 42/199 Taxman 1/339 ITR 622, Uttaranchal High Court in the case of Welham Boys' School Society v. CBDT [2006] 285 ITR 74/[2007] 158 Taxman 199 and Allahabad High Court in the case of Oxford Academy for Career Development v. Chief CIT [2009] 315 ITR 382. 29. All the three High Courts after examining the issue, in the light of the object of Section 12A of the Act and Section 21 of the General Clauses Act held that the order of the CIT passed under Section 12A is quasi judicial in nature. Second, there was no express provision in the Act vesting the CIT with power of cancellation of registration till 01.10.2004; and lastly, Section 21of the General Clauses Act has no application to the order passed by the CIT under Section 12A because the order is quasi judicial in nature and it is for all these reasons the CIT had no jurisdiction to cancel the registration certificate once granted by him under Section 12A till the power was expressly conferred on the CIT by Section 12AA(3) of the Act w.e.f. 01.10.2004. 8. We hold that the ratio decidendi of the aforesaid judgement of the Hon’ble Apex Court would squarely be applicable to the facts of the instant case. Infact the assessee’s case herein falls on a much better footing than the facts before the Hon’ble Apex Court. In the case before Hon’ble Apex Court, the power of cancellation of registration us 12A of the Act was conferred by the Act on the ld CIT w.e.f. 1.10.2004 and the Hon’ble Apex Court
5 ITA Nos. 464-465/Kol/2018 Indian Coal Agency, AYs- 2013-14 & 2014-15 held that prior to that date , no cancellation of registration could happen. But in the instant case, there is absolutely no provision for withdrawal of recognition u/s 35(1)(ii) of the Act . Hence, we hold that the withdrawal of recognition u/s 35(1)(ii) of the Act in the hands of the payee organizations would not affect the rights and interests of the assessee herein for claim of weighted deduction u/s 35(1)(ii) of the Act.
We also find that the co-ordinate bench of this tribunal in exactly similar facts had decided the issue in favour of the assessee in the following cases:- a) Rajda Polymers vs DCIT in ITA No. 333/Kol/2017 for Asst Year 2013-14 dated 8.11.2017. b) Saimed Innovation vs ITO in ITA No. 2231/Kol/2016 for Asst Year 2013-14 dated 13.9.2017. c)DCIT Vs. M/s. Maco Corporation (India) Pvt. Ltd. in ITA No. 16/Kol/2017 for AY 2013- 14 dated 14.03.2018. d) DCIT Vs. M/s. Desmet Reagent Pvt. Ltd. in ITA No. 15/Kol/2017 for AY 2013-14 dated 10.10.2018
The findings of those decisions are not reiterated herein for the sake of brevity.
In view of the aforesaid findings in the facts and circumstances of the case and respectfully following the various judicial precedents relied upon hereinabove, we hold that the ld CITA had wrongly confirmed the disallowance as made by the AO u/s 35(1)(ii) of the Act of Rs. 2,71,25,000/-. Therefore, following the ratio of the aforesaid decisions, we allow this ground of appeal in favour of assessee.
Ground No. 4 of the assessee is against the action of the Ld. CIT(A) in confirming the action of the AO who disallowed proportionate interest expenditure taking note of the fact that the assessee had given Rs. 4,51,68,397/- as interest advance.
Brief facts of the case are that the AO noted that the assessee had given certain individuals an amount of Rs.4,51,68,397/- as interest free advance. Taking note that assessee had borrowed approx. Rs. 30 crore and has claimed interest expenditure on the
6 ITA Nos. 464-465/Kol/2018 Indian Coal Agency, AYs- 2013-14 & 2014-15 borrowed funds, the AO was pleased to disallow proportionate interest expenditure to the tune of Rs.40,65,156/-. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to confirm the same. Aggrieved, the assessee is before us.
We have heard rival submissions and gone through the facts and circumstances of the case. We note that the facts stated aforesaid is not in dispute. However, the main contention of the assessee is that assessee had own funds to the tune of Rs.148.27 cr. and had a profit of approx. Rs.28 cr. in this assessment year, and out of this amount only Rs.4.51 cr. has been given as interest free advance to related and unrelated parties as spelled out by the AO in his order. Since the assessee had own funds of Rs. 148.27 cr. plus Rs. 28 cr. the presumption is that when the assessee has in its possession mixed funds which includes its own fund in sufficient quantity, the presumption that its own funds were utilized for giving interest free advances/loans has to be drawn. This principle has been laid by the Hon’ble Bombay High Court in Reliance Utility & Powers Ltd. Vs. CIT 313 ITR 343 (Bom) and Hon’ble Madras High Court in CIT Vs. Hotel Savera 239 ITR 795 (Mad) and Tin Box Company Vs. CIT (2001) 249 ITR 216 (SC), Hon’ble Calcutta High Court in CIT Vs. Britannia Industries Ltd. 280 ITR 525. Therefore, since the assessee has own funds of Rs.148.27 cr. plus Rs. 28 cr. this year in its possession and the interest free advance amount is only to the tune of Rs.4.51 cr. which is less than 3% of its own funds means, the presumption that has to be drawn in such a scenario is that the interest free advance has been made by the assessee from its own fund and, therefore, no disallowance was warranted and, therefore, we direct deletion of the disallowance confirmed by the Ld. CIT(A) to the tune of Rs. 40,65,156/-. This ground of appeal of assessee is allowed.
Coming to ground nos. 6 to 10, we note that all the ad-hoc disallowances have been made as under: (a) disallowance of Rs.84,825/- made on account of Business Promotion Expenses being 20% of the total expenditure of Rs.4,24,123/-; (b) disallowance of Rs.7,65,740/- made on account of Travelling expenses being 2.5% of the total expenditure of Rs.15,31,480/-;
7 ITA Nos. 464-465/Kol/2018 Indian Coal Agency, AYs- 2013-14 & 2014-15 (c) disallowance of Rs.34,265/- made on account of travelling expenses being 2.5% of the total expenditure of Rs.68,529/-; (d) disallowance of Rs.21,341/- made on account of travelling expenses being 2.5% of the total expenditure of Rs.42,681/- and (e) disallowance of Rs.22,902/- made on account of travelling expenses being 2.5% of the total expenditure of Rs.45,803/-.
Brief facts of the ad-hoc disallowance are that the AO noted that the assessee is a firm and, therefore, there can be expenditure incurred for personal affairs of the partners. Therefore, he made the ad-hoc disallowance on the expenditure claimed by the assessee. The Ld. DR also asserted that since the assessee is a firm, the personal element in the expenditure claimed by the firm cannot be ruled out. So, according to him, the AO has resorted to ad-hoc disallowance which should not be interfered with. However, in his rejoinder, the Ld. AR drew our attention to the fact that the assessee firm has only two partners viz. Mr. N. P. Koya who is aged about 82 years and Mrs. H. Koya aged about 80 years. According to Ld. AR, the assessee firm’s turnover is to the tune of Rs. 56 cr. and the net profit declared by the assessee is to the tune of Rs. 31 cr. i.e. more than 50% of the turnover. It was brought to our notice that the assessee firm is into coal liaisoning and this business requires the assessee’s employees to travel extensively to coal fields, railway offices for getting the wagons on time, power plants which are located at far flung areas etc. According to Ld. AR, the supply of coal to the power plants has to be monitored continuously or else the power plants have to be shut down if there is any deficiency in supply of coal. Therefore, the employees had to be constantly moved and they in-turn have to constantly monitor the movement of coal to various consumers. Therefore, the expenditure has been booked on actual basis only and since the partners are aged more than 80 years the question of personal element in expenditure on the aforesaid claim does not arise. It was also brought to our notice that in the subsequent year ie,AY 2014-15 which is before us, the AO only has made disallowance on two counts i.e. in respect of travelling and business promotion and on other counts he has not made any disallowance.
After having heard the rival submissions, we note that the assessee is into coal business. We also note that there are only two partners aged about 82 and 80 years and the
8 ITA Nos. 464-465/Kol/2018 Indian Coal Agency, AYs- 2013-14 & 2014-15 AO for AY 2014-15 only made disallowance for two counts i.e. for travelling as well as for business promotion and has not made any disallowance for the other counts which is enumerated above. We also note that the assessee firm had a turnover of Rs.56 cr. and the assessee has reflected net profit of Rs.31 cr. which is more than 50% of its turnover over. Taking this fact into consideration, we are of the considered opinion that AO is at liberty to disallow the expenditure if there is any deficiency in the vouchers or bills supporting the incurrence of an expenditure on the reason that expenditure are non-genuine and can be disallowed item wise. However, the action of the AO to disallow the expenditure on ad-hoc basis without rejecting the books of account cannot be accepted, since the action of AO smacks of arbitrariness and cannot be allowed to sustain, therefore, all the ad-hoc disallowances made by the AO and confirmed the Ld. CIT(A) are deleted.
The next ground in respect of confirming the interest u/s. 234B, 234C and 234D of the Act are consequential in nature and since we have deleted all the disallowances the interest levied by AO and confirmed by Ld. CIT(A) is also dismissed.
In the result, both the appeals of the assessee are partly allowed as per the discussion supra.
Order is pronounced in the open court on 23 October, 2019.
Sd/- Sd/- (Dr. A. L. Saini) (Aby. T. Varkey) Accountant Member Judicial Member
Dated : 23 October, 2019
Jd.(Sr.P.S.)
9 ITA Nos. 464-465/Kol/2018 Indian Coal Agency, AYs- 2013-14 & 2014-15 Copy of the order forwarded to: 1. Appellant – Indian Coal Agency, C/o, D. J. Shah & Co., Kalyan Bhavan, 2, Elgin Road, Kolkata-700 020. Respondent – ACIT, Circle-35, Kolkata. 2 3. CIT(A)-10, Kolkata CIT-, , Kolkata. 4. 5. DR, ITAT, Kolkata. (sent through e-mail) /True Copy, By order,
Assistant Registrar