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Income Tax Appellate Tribunal, DELHI BENCHES “C” : DELHI
Before: SHRI B.P. JAIN & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER :
Appellant, Hindustan Vegetables Oils Corp. Ltd.
hereinafter referred to as “Assessee” by filing the present
appeal sought to set aside the impugned order dated 28.2.2013
passed by the Commissioner of Income-tax (Appeals), XV, New
2 ITA.No.4965/Del/2013 Hindustan Vegetable Oils Corp. Ltd. vs.ACIT Delhi for the asstt. year 2009-10 on the grounds interalia that
:-
“The learned err (Appeal) and Assessing Officer have erred both on fact and in law in disallowing the interest of Rs.19,40,28,714/-, which is a normal business expenditure forming part of the operation of the company. 2. The learned CIT (Appeal) had erred in confirming the disallowance of the interest to the extent of Rs. 16,61,03,405/- which is against the natural justice and wrong application of the facts of the case. 3. The learned CIT (Appeal) has failed to take into account that the loan of Rs. 70 crores taken to implement Voluntary Separation Scheme (VSS) was for the entire company as a whole and not for any particular unit. Hence the disallowance of interest expense of Rs 14,87,50,000 is unlawful and unwarranted. 4. The learned CIT (Appeal) has erred in coming to the conclusion that the units which were closed were forming part and parcel of the appellant company and have common management, common finance and above all, the balance sheet is prepared as one balance sheet for different units under the same management. 5. The learned CIT (Appeal) had erred in disallowing an amount of Rs. 50,53,640 and Rs 1,22,99,765 as interest on working capital loan holding it to be attributable to 7 closed units of the assessee which is highly condemnable. 6. The learned CIT (Appeal) while making this disallowance had completely ignored the fact that the loan was secured by the corporate office. He has further mis- interpreted tests laid down by the apex court in CIT v Prithvi Insurance Co. to arrive at a wrong conclusion that all units were separate but
3 ITA.No.4965/Del/2013 Hindustan Vegetable Oils Corp. Ltd. vs.ACIT actually there exist interlacing with common management and common funds. Accordingly, the interest on working capital cannot be bifurcated towards the running units and the closed units. 7. The CIT(A) had erred in enhancing the income of the appellant by way of taxing capital gains on the assumption that there was a transfer within the meaning of section 2(47) of the Act. 8. The working of long term capital gain by the CIT(Appeal) is wrong and require revision. 9. It is contended that the quantum of consideration is uncertain and not capable of determination during the relevant year under appeal and accordingly no capital gain would be brought to tax in the hands of the appellant. 10.The learned CIT (Appeal) has wrongly interpreted and applied the provisions 'of Section 53A of Transfer of Property Act 1882 to state that there was a transfer within the meaning of Section 2(47) thereby taxing long term capital gains. 11.The learned CIT (Appeal) has ignored the fact that legally the land had not been handed over to DMRC and furthermore Sale consideration figure was also not arrived at during the relevant year under appeal. 12.The learned CIT (Appeal) has wrongly held sale consideration to be definite whereas the same was never defined. An ad hoc payment of Rs 1 Crore was given by DMRC to the appellant; the same was shown as current liabilities in the books. Therefore learned CIT's attempt to take the same as Sale consideration is highly prejudicial and wrong in law. 13.The appellant claims that the huge unabsorbed business
4 ITA.No.4965/Del/2013 Hindustan Vegetable Oils Corp. Ltd. vs.ACIT loss should be quantified and carry forward for setting it off against the future income in accordance with the provisions of the Act. 14 It is contended that the current year business loss if any after the effect of the relief by Hon'ble ITAT, such current year loss should be allowed to be set off against the long term capital gains as computed by the CIT(A). 15. Without prejudice to the above grounds, it is contended that unabsorbed depreciation relating to past years should be quantified and allowed to be set off against the capital gains for the current year as computed by the CIT(A). 16 The provisions of section 234B and 234D is not applicable in the instant case and accordingly charge of interest is wrong and bad in law. 17. Without prejudice to the above contentions it is contended that the interest calculated by the Assessing Officer is wrong and require revision. 18. It is contended that the computation of income is wrong and bad in law. 19. It is contended that the tax calculations are wrong and require revision. 20 The above grounds are independent and without prejudice to one another. “ Condensed grounds of Appeal 1. As per Point No. 1 to 6 of the original grounds of appeal, the Learned CIT(A) have erred both on the facts and in law in confirming the disallowance of the interest to the extent of Rs. 16,61,03,405/-. It is against the natural justice and wrong application of the facts. The Ld. CIT(A) while making this disallowance had completely ignored the fact that the loan was secured by the corporate office. There exist a
5 ITA.No.4965/Del/2013 Hindustan Vegetable Oils Corp. Ltd. vs.ACIT interlacing with common management and common fund. Interest on working capital cannot be bifurcated towards the running units and the closed units. 2. As per Point 7 to 12 of the original grounds of appeal, the Learned CIT(A) had erred in enhancing the income of the appellant by way of taxing capital gain on the assumption that there was a transfer within the meaning of section 2(47). Further Ld. CIT(A) has no jurisdiction to assess a new source of income which is not disclosed either in the return of income or in the assessment order. 3. All remaining points i.e 13 to 20 are same which are mentioned in the original Grounds of Appeal.”
Briefly stated the facts necessary for adjudication of the
controversy at hand are :- The assessee company is a public
sector undertaking , which subsequently approached BIFR,
which has ordered vide order dated 7.12.2001 that in the public
interest this company may be wound up. However, the issue of
winding up is still pending before Delhi High Court. During the
year under assessment only one unit of the assessee company
namely Bread and Breakfast unit (BFF) is operational.
During the assessment proceedings, AO noticed that the
assessee has claimed expenditure on account of interest
payable to the Govt. of India on working capital funds
6 ITA.No.4965/Del/2013 Hindustan Vegetable Oils Corp. Ltd. vs.ACIT borrowed from time to time in the earlier years. AO observed
that since majority of the loan pertains to units which have
been closed the expenditure is related to discontinued business
and is not allowable expenditure against the business of BFF
Unit and consequently made an addition of Rs.19,40,28,714/-
to the total income of the assessee company and thereby
assessed the total income at Rs.3,36,20,560/-.
Assessee carried the matter before Ld.CIT(A) by way of
filing of the appeal. Ld.CIT(A) allowed proportionate relief to
the assessee by reducing the total disallowance to
Rs.16,61,03,405/- as against Rs.19,40,28,714/- made by the
A.O. but further made an addition on account of long term
capital gain to the tune of Rs.92,52,933/-.Subsequently
Ld.CIT(A) u/s154 / 143 (3) /250 allowed the indexation benefit
and benefit of carry forward loss to the assessee. Feeling
aggrieved the assessee has come up before the Tribunal by
impugning the order passed by Ld.CIT(A)
7 ITA.No.4965/Del/2013 Hindustan Vegetable Oils Corp. Ltd. vs.ACIT 5. We have heard the Ld. Authorized Representatives of the
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.
Assessee company by moving an application sought to
raise additional grounds to the following effects :-
“It is contended that the CIT(A) has no jurisdiction to assess a new source of income which is not disclosed either in the return of income or in the assessment order. 2. It is also contended that CIT(A) has no jurisdiction to create/introduce a new head of income and make addition on it.” 7. Keeping in view the facts that additional grounds raised
by the the assessee, though for the first time before the
Tribunal, are allowed as the same are merely question of law
which can otherwise be taken care of by the Tribunal, the
application for additional grounds is allowed.
8 ITA.No.4965/Del/2013 Hindustan Vegetable Oils Corp. Ltd. vs.ACIT Ground No.1 :-
Undisputedly AO has disallowed interest of
Rs.19,40,28,714/- and thereafter Ld.CIT(A) allowed interest of
Rs. 2,79,25,309/- and the assesse company is before the
Tribunal for the balance disallowance of Rs.1,66,03,405/-.
The first contention raised by Ld.AR for the assessee is
that a major component of the interest claimed by the assessee
viz Rs. 14,87,50,000/- is on account of loan taken from the
Govt. in the year 2000-2001 for making the payment to the
employees under voluntary retirement scheme (VRS). There is
no dispute that the principal loan of Rs. 70,00,00,000/- was
taken by the assessee. AO merely disallowed the interest on
the sole ground that the interest claimed does not pertain to
the existing business of the assessee as the assessee is
continuing with only one unit i.e. BFF unit.
In the backdrop of the aforesaid facts and circumstances
the question arises for determination is
9 ITA.No.4965/Del/2013 Hindustan Vegetable Oils Corp. Ltd. vs.ACIT
“as to whether the interest paid by the assessee and disallowed by the A.O. / CIT(A) is of revenue nature and as such allowable expenditure as contended by the assessee company.” 11. Undisputedly during asstt. Year 2012-13 Ld. CIT(A) has
allowed the interest of Rs.20,29,38,031/- being interest on the
loan from Govt. of India by following the decision rendered by
coordinate bench of the Tribunal in assessee’s own case
bearing ITA No. 212/15-16 for asstt. year 2005-06. When the
interest on the same component of loan taken by the assessee
company from Govt. of India for day to day running of the
company and the loan repayable on interest has been allowed
in asstt. year 2005-06 and 2012-13, there is no ground to
disallow the interest claimed by the assessee during the year
under assessment. Moreover, the revenue itself has not
challenged the order passed by the Ld.CIT(A) in assessee’s own
case for asstt. Year 2012-13 by following order of the
coordinate bench of the Tribunal passed in assessee’s own case
10 ITA.No.4965/Del/2013 Hindustan Vegetable Oils Corp. Ltd. vs.ACIT for asstt. Year 2005-06 (Supra), disallowance of interest for the
year under assessment is not sustainable.
Hon’ble Bombay High Court in case cited as Bhor
Industries 264 ITR 180 (Bom) held that VRS expenditure
was incurred to save the expenses and it was to be allowed in
its entirety in the year in which it was incurred and expenditure
could not be spread over the number of years and as such the
allowable expenditure in the instant case as the major
components of the interest claimed by assessee i.e. Rs.
14,87,50,000/- is on account of loan taken from the Govt. of
India for making payment to the employee under voluntary
retirement scheme (VRS). So certainly this is allowable
expenditure.
Furthermore when winding up proceedings are
undisputedly pending before the Hon’ble High Court loan taken
by the assessee company is to be treated as a loan to run the
entire business and the interest component can not be
restricted to BFF unit as has been done by AO/CIT(A). So there
11 ITA.No.4965/Del/2013 Hindustan Vegetable Oils Corp. Ltd. vs.ACIT is not iota of evidence of record that the loan taken on which
interest has been claimed and disallowed by the revenue was
not utilized for running day to day business of the company and
the loan is repayable alongwith interest and as such are
revenue expenses for all intents and purposes so we hereby
delete the addition on account of interest to the tune of Rs.
1,661,03,405/- by determining the ground No. 1 in favour of
the assessee company.
Ground No. 2 and additional ground No. 1,2
Undisputedly neither assessee company has made claim
of capital gain in its return of income nor A.O. has made any
addition on account of capital gain. Ld. AR for the assessee
contended that the Ld. CIT(A) has no jurisdiction to make
addition on account of capital gain and relied upon Full Bench
decision rendered by Hon'ble Delhi High Court in the case cited
as :
CIT vs. Sardari Lal and Co. (DHC Full Bench) 251 ITR 864 (Delhi)
12 ITA.No.4965/Del/2013 Hindustan Vegetable Oils Corp. Ltd. vs.ACIT
So the first legal question arises for determination in this
case
“as to whether Ld. CIT(A) was empowered to make
addition of Rs. 92,52,933/- on account of long term
capital gain particularly when A.O. has not made any
such addition by considering the issue in question.”
Hon'ble Delhi High Court in judgment CIT vs. Sardari Lal
& Company (Full Bench) 251 ITR 864 while deciding the
identical issue held as under :-
“Looking from the aforesaid angles, the inevitable conclusion is that whenever the question of taxability of income from a new source of income is concerned, which had not been considered by the Assessing Officer , the jurisdiction to deal with the same in appropriate cases may be dealt with under section 147/148 of the Act and section 263 of the Act, if requisite conditions are fulfilled. It is inconceivable that in the presence of such specific provisions, a similar power is available to the first appellate authority. That being the position, the decision in Union Tyres’ case (1999)240 ITR 556 of the court expresses the correct view and does not need reconsideration. This reference is accordingly disposed of.”
13 ITA.No.4965/Del/2013 Hindustan Vegetable Oils Corp. Ltd. vs.ACIT 17. When undisputedly the issue as to the taxability of
assessee company on account of long term capital gain has not
been considered by the A.O. by making any such addition while
completing assessment u/s 143(3) which is entirely from a new
source of income, Ld. CIT(A) has no jurisdiction to make
addition on account of long term capital gain except by
invoking provisions contained u/s 263 of the Act.
In the instant case the revenue has neither invoked
provisions contained u/s 147/148 nor provisions contained u/s
263 to tax the new source of income and as such the order
passed by Ld. CIT(A) to the extent of making addition on
account of long term capital gain is beyond jurisdiction and as
such is not sustainable.
So without entering into the merits of this issue we are of
the considered view that the addition made by Ld. CIT(A) to
the tune of Rs. 92,52,933/- on account of long term capital
gain is not sustainable. Hence hereby deleted. So ground No. 2
14 ITA.No.4965/Del/2013 Hindustan Vegetable Oils Corp. Ltd. vs.ACIT and additional ground No. 1 and 2 are determined in favour of
the assessee.
In view of what has been discussed above impugned
order passed by Ld. CIT(A) is not sustainable in the eyes of
law, hence present appeal filed by the assessee company is
hereby allowed.
Order pronounced in the open Court on 22nd September, 2017.
sd/- sd/- (B.P. JAIN) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER
Delhi, Dated 20.9.2017 Veena
Copy to
The appellant 2. The respondent 3. CIT(A) concerned 4. CIT concerned 5. D.R. ITAT ‘G’ Bench, Delhi 6. Guard File.