THE ACIT, 1(1), BHOPAL vs. M/S. SANWARIA AGRO OILS LIMITED, BHOPAL

आदेश /O R D E R

PER SHRI C.M. GARG, JM

This appeals has been filed by the revenue against the order of

the learned CIT(A)-I, Bhopal, dated 17.9.2013 in First Appeal No.

CIT(A)-I/BPL/IT-09/12-13 for the assessment year 2006-07 on the

following grounds :-

ACIT vs.M/s Sanwaria Agro

“On the facts and in the circumstances of the case, the

CIT(Appeal) has erred in –

on account of Warehouse payment.

on account of deferred revenue expenses for Mandideep

Unit.

addition of Rs.14,11,319/- made by the A.O. by applying

provisions of sec.14A of the Act.

disallowance made by the A.O. amounting to

Rs.2,97,395/- u/s 43B”

Apropos ground no. 1 the learned DR supporting the action of

the Assessing Officer submitted that the Assessing Officer was right

in making disallowance of warehouse expenses treating the same as

deferred revenue expenses for Mandideep unit. The learned DR

further submitted that the learned CIT(A) granted relief to the

ACIT vs.M/s Sanwaria Agro

assessee without any basis. Therefore, the same may be set aside

by restoring the order of the Assessing Officer.

our attention towards para 4.4. of the impugned first appellate

order and submitted that the learned CIT(A) granted relief to the

assessee by following the order of the Tribunal dated 29.4.2011

passed in the assessee’s appeal ITA No.80/Ind/2010 and CO

No.3/Ind/2010 wherein the issue was discussed at length and

thereafter the deletion of disallowance of Rs. 10 lacs was upheld,

dismissing the ground of the revenue. The learned AR further

submitted that prevalent rate at the relevant time for wheat and

paddy was Rs. 3/- per bag per month and in case of Tuar and

Soyabean it was Rs. 50/- per bag per month. Therefore the

warehousing rates, which are decided by the State Government,

cannot be held as excessive payment and hence the learned CIT(A)

was right in deleting the addition by following the order of the

Tribunal (supra).

order of the Tribunal for the assessment year 2006-07 dated

29.4.2011 (supra), we observe that the Tribunal dismissed the 3

ACIT vs.M/s Sanwaria Agro

appeal of the revenue on the issue, upholding the of the learned

CIT(A) with the following observations :-

“8. Now we shall deal with ITA No. 80/Ind/2010 where the first ground pertains to deleting the addition of Rs. 10 lacs out of the total addition of Rs. 15 lacs made on account of warehousing charges in view of provisions of section 40A(2)(b) of the Act. The ld. CIT DR defended the assessment order whereas the ld.Counsel for the assessee supported the impugned order.

ACIT vs.M/s Sanwaria Agro

pertaining to the assessment year 2006-07 which arose from the

assessment order dated 14.3.2012 passed u/s 147 read with

section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) and

ITA No. 80/Ind/2010 and CO No. 3/Ind/2010 were also pertaining

to the assessment year 2006-07 which arose from the assessment

order dated 16.12.2008 passed under section 143(3) of the Act and

there is no substantial change in the facts and circumstnaces of the

case. Before us, the learned AR fairly accepted that the cross

objection of the assessee bearing no. 51/Ind/2015 arising out of

ITA No. 706/Ind/2013 was dismissed by the Tribunal vide order

dated 10.3.2016 as the same was not pressed by the assessee.

order it is clear that the Commissioner of Income Tax (Appeals)

followed the order of the ITAT dated 29.4.2011 (supra) and the

learned DR on specific query by the Bench could not controvert the

fact that there is no change in the facts and legal position from the

date of Tribunal order (supra) till date thus we are inclined to note

that the Commissioner of Income Tax (Appeals) is quite correct and 5

ACIT vs.M/s Sanwaria Agro

justified in following the order of the Tribunal and in deleting the

addition made by the Assessing Officer on account of warehouse

payments.

Commissioner of Income Tax (Appeals) has erred in deleting the

addition made by the Assessing Officer on account of deferred

revenue expenditure for Mandideep unit. On the other hand, the

learned counsel for the assessee supported the order of the

Commissioner of Income Tax (Appeals) with the submission that the

the Assessing Officer in the reassessment proceedings again

disallowed the deferred revenue expenses which were disallowed in

the original assessment order. The learned counsel for the assessee

submitted that since the Commissioner of Income Tax (Appeals) has

deleted the said addition in the first appeal, the Assessing Officer

has no jurisdiction to make the addition again in the reassessment

proceedings. In this way, the learned counsel for the assessee

prayed to maintain the order of the Commissioner of Income Tax

(Appeals).

the wake of the facts brought to our notice. We find that the 6

ACIT vs.M/s Sanwaria Agro

coordinate Bench of the Tribunal in the case of the assessee in ITA

Nos. 129/Ind/2007, 156 & 157/Inbd/2010, etc. vide its order

dated 29th April, 2011 in the assessee’s own case has deleted the

similar addition by observing as under :-

“10. The next ground pertains to deleting the addition of Rs.91,27,782/- made on account of deferred revenue expenses for Mandideep unit. The stand of the learned CIT DR is that the trial run expenses were wrongly claimed as there was no electricity connection whereas the ld. Counsel for the assessee contended that the trial and run was made on the basis of diesel/generator and necessary evidence was claimed to have been filed before the department. 11. We have considered the rival submissions of ld. representatives of both sides and perused the material available on record. Brief facts are that the assessee company acquired an old sick unit M/s United Soya Product, Mandideep, purchased vide a tripartite agreement with the seller and financial institution. As per the assessee, the acquired unit was made operational and the trial run production started in the month of April, 2005. It was further claimed that during initial period loss was suffered due to various reasons especially when the plant and machinery was not stabilized. The assessee claimed loss of Rs.1,18,02,476/- by claiming the same as deferred revenue expenditure in its books and claimed it as a business loss whereas the stand of the revenue is that the expenditure was incurred for trial run, therefore, the same is not allowable. However, we are of the view that since it was not disputed that the trial run production started from 1.4.2005 to 30.11.2005, it has to be allowed. The Mandideep unit was claimed to be fully functional from 1.4.2005, consequently, the expenses are revenue expenditure. The commencement of business is not the pre-condition and it is enough if the

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assessee establishes that the unit was set up and the trial run production is started from a particular date. The commercial production at full swing is normally at a later date. Simply because the assessee incurred huge losses at the initial stage, it cannot be said that the assessee has not set up its business. The learned Commissioner of Income Tax (Appeals) has already considered the details of expenses like purchase of raw material, manufacturing expenses, fuel expenses/other expenses. It is also noted that the general manager from Govt. industries centre issued production certificate dated 27.5.2005 with specific mentioning that the production started from 21.4.2005 even mentioning the annual capacity and nature of product. No contrary evidence was furnished by the department, therefore, in view of the decisions relied upon in the impugned order, we find no infirmity in the impugned order, therefore, the same is confirmed. Accordingly, this ground of the revenue is dismissed.” Following the above order of the coordinate Bench of the Tribunal,

we confirm the order of the Commissioner of Income Tax (Appeals).

Accordingly, ground no. 2 of the revenue is dismissed.

addition by the Commissioner of Income Tax (Appeals) of

Rs.13,99,400/- against the addition of Rs.14,11,319/- made by the

Assessing Officer by applying the provisions of section 14A of the

Act.

Officer noted from the accounts and the audit report that during

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the course of assessment proceedings for the assessment year

2006-07 the assessee had invested in shares worth Rs.4.38 crores

as against rs. 3.77 crores in the preceding year. Hence, there is

increase in investments by rs. 61 lacs. He further noted thatg the

assessee during the financial year relevant to the assessment year

2006-07 had shown secured loan of Rs. 47.24 crores and

unsecured loan of Rs. 8.65 crores as against Rs.25.44 crores of

secured loan and Rs. 3.38 crores of unsecured loans last year.

Thus, fresh borrowings had increased by rs. 27.07 crores. The

assessee had debited interest expenditure ofRs. 1,64,21,621/-. The

Assessing Officer also noted that the assessee had claimed exempt

income of Rs. 1,20,67,843/-. Besides this exempt income, the

assessee has also shown business income from other sources. The

Assessing Officer was of the view that as per the provisions of

section 14A of the Act, no deduction shall be made in respect of

expenditure incurred by the assessee in relation to income which

does not form part of the total income under the Act. The Assessing

Officer also noted that the assessee had not deducted any expenses

relating to exempt income and claimed the gross dividend income

as exempt. To support its stand, the assessee submitted before the 9

ACIT vs.M/s Sanwaria Agro

Assessing Officer that no expenditure was incurred relating to

exempt income. However, the Assessing Officer did not accept the

same. The Assessing Officer observed that the following expenditure

of Rs.7,36,738/- was directly related to dividend income which did

not form part of total income :-

Listing fees Rs.66,190/- Membership fees Rs.50,300/- Exchange Fluctuation Rs.5,23,422/- Share Accounting charges Rs.53,87/- Loss on MF investments Rs.42,954/- Total Rs.7,36,738/-

He, therefore, allowed expenses of Rs.7,36,738/- being expenditure

incurred directly in relation to dividend income. So far as interest

expenditure of Rs.1,64,21,621/- is concerned, before the Assessing

Officer, the assessee had given the details as under :-

a. Interest to banks - Rs.1,50,74,551/-

b. Interest to others - Rs. 13,47,070/- Total interest paid - Rs.1,64,21,621/-

The Assessing Officer was of the view that the assessee has

incurred the interest expenditure of Rs.1,64,21,621.- to earn

ACIT vs.M/s Sanwaria Agro

taxable as well as exempted income. He, therefore, worked out the

quantum of expenditure in view of the method prescribed under

Rule 8D of Income Tax Rules, 1962 :-

Rs.1,64,21,621 X Rs.2,38,38,903

Rs.59,07,58,421

= Rs.662,662/-

The Assessing Officer also estimated the other administrative

expenses at an amount equal to one-half per cent of the average of

the value of investment at Rs.11,919/- for earning exempted

income.

disallowance aggregating to Rs.14,11,319/- (Rs.7,36,738 +

Rs.6,62,662 + Rs.11,919/-) and added the same to the total income

of the assessee.

Assessing Officer, the assessee preferred first appellate before the

Commissioner of Income Tax (Appeals). The Commissioner of

Income Tax (Appeals), after considering the issue at length, So far

as direct expenses of Rs. 7,36,738/- are concerned, the

Commissioner of Income Tax (Appeals) observed that since the said 11

ACIT vs.M/s Sanwaria Agro

expenses were not incurred in relation to dividend income, the

Assessing Officer was not justified in making the disallowance

thereof. The Commissioner of Income Tax (Appeals), therefore,

deleted the same. As regards the disallowance of proportionate

interest of Rs. 6,62,662/- relating to exempted income, the

Commissioner of Income Tax (Appeals) observed that since no

expenditure on interest was incurred relating to mutual funds from

which the assessee had earned dividend income, no disallowance

even on proportionate basis can be made out of interest expenses

incurred for the purposes of business. He, therefore, deleted the

same. The Commissioner of Income Tax (Appeals), therefore,

granted relief of Rs.13,99,400/- (Rs.7,36,738/-+Rs.6,62,662/-) in

total.

Tax (Appeals) granting relief of Rs. 13,99,400/-, the revenue is in

appeal before us.

perused the relevant material placed on record of the Tribunal. We

find that the coordinate Bench of the Tribunal had an occasion to

consider the identical issue in the case of Kamal Kumar Jagdish 12

ACIT vs.M/s Sanwaria Agro

Prasad Lath vs. JCIT; ITA No. 264/Ind/2016 and vide order dated

21.6.2016, the Tribunal has decided the issue as under :-

“2. The sum and substance of the grounds of appeal is

that the learned CIT(A) was not justified in upholding the

addition of Rs.9,75,979/- u/s 14A of the Act.

assessee himself made a disallowance of Rs. 28,339/-

and the dividend received was Rs.3,30,419/-. However,

the total investments were of Rs.3,66,77,904/-. During the

course of assessment proceedings, the assessee revised

its disallowance from Rs. 28,339/- to Rs. 55,839/- being

½% of the investment made during the year. However,

rule 8D provides for a disallowance at ½% of the average

investment during the year besides a disallowance of

interest computed in the manner provided in rule 8D. The

Assessing Officer made the disallowance accordingly.

Assessing Officer, the assessee approached the learned

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CIT(A) but in vain. Now the assessee is before the

Tribunal.

the assessee submitted that the learned CIT(A) has grossly

erred in confirming the illegal action of the Assessing

Officer without showing any reasons therefor. The learned

counsel for the assessee relied upon the judgment of the

Bombay High Court in the case of CIT vs. HDFC Bank; in

ITA No. 330/2012 wherein it has been held that if the

assessee’s own fund and other interest bearing funds

were more than the investment in the tax free securities, it

would be presumed that the investment made would be

out of interest free funds. Further reliance was made to the

judgment of various Tribunals in the case of Rainy

Investment Pvt. Ltd. vs. ACIT; ITA No. 5491/Mum/2011

and the CIT vs. Trade Apartment in ITA No.

1277/Kol/2011, Morgan Stanley India Securities vs. ACIT;

ITA No. 5072/Mum/2015 as also the decision in the case

of ITO vs. Karnawati Petrochemicals Pvt. Ltd.; ITA No.

ACIT vs.M/s Sanwaria Agro

2228/Ahd/2012 wherein it has been held that netting of

interest receipts and payments have to be considered.

Moreover, the learned counsel for the assessee submitted

that on the same issue, the Hon'ble Delhi High Court in the

case of Joint Investments Pvt. Ltd. vs. CIT; 372 ITR 694

(Delhi) held that “Thus, Section 14A(2) of the Act and Rule

8D(1) in unison and affirmatively record that the

computation or disallowance made by the assessee or

claim that no expenditure was incurred to earn exempt

income must be examined with reference to the accounts,

and only and when the explanation/claim of the assessee

is not satisfactory, computation under sub Rule (2) to Rule

8D of the Rules is to be made.” Therefore, go on to sub

Rule (2) to Rule 8D of the Rules until and unless the

Assessing Officer has first recorded the satisfaction, which

is mandated by sub Section (2) to Section 14A of the Act

and sub Rule (1) to Rule 8D of the Rules.

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orders of the authorities below as also CBDT Circular No.

5/2014 dated 11.2.2014.

Hon'ble High Court of Delhi in the case of Joint Investment

Pvt. Ltd. (supra) has held as under :-

“9. In the present case, the AO has not firstly disclosed why the appellant/assessee’s claim for attributing Rs.2,97,440/-as a disallowance under Section 14A had to be rejected. Taikisha says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee’s claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO -an aspect which is completely unnoticed by the CIT (A) and the ITAT. The third, and in the opinion of this court, important anomaly which we cannot be unmindful is that whereas the entire tax exempt income is Rs.48,90,000/-, the disallowance ultimately directed works out to nearly 110% of that sum, i.e., Rs.52,56,197/-. By no stretch of imagination can Section 14A or Rule 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A, and is only to the extent of disallowing expenditure “incurred by the assessee in relation to the tax exempt income”. This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case. 10. For the above reasons, the impugned order of the ITAT is set aside. The question of law is answered in favour of the assessee. Consequently, order of the AO is set aside. The

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initiation of penalty proceedings also is set aside. The matter is remitted to the AO for fresh consideration in accordance with the above directions. The appeal is partly allowed.” I, therefore, set aside the orders of the authorities below

with the direction to the Assessing Officer to consider the

above High Court judgments cited above and decide the

issue in view thereof. I order accordingly.”

orders of the authorities below and restore this issue to the file of

the Assessing Officer with the direction to decide the issue in the

light of the directions given in the above order of the Tribunal

(supra).

Income Tax (Appeals) of the disallowance of Rs. 2,22,182/- out of

disallowance made by the Assessing Officer amounting to

Rs.2,97,395/- u/s 43B of the Act.

Officer noted from the audit report that the bonus of Rs. 2,97,395/-

was claimed by the assessee in the year, under consideration,

which was not paid on or before the due date. The Assessing Officer

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observed that this amount is governed by the provisions of section

43B of the Act and the same could be allowed as a deduction only if

the payment is made on or before the due date of furnishing of the

return of income. Since the assessee did not pay the same within

the stipulated period, the Assessing Officer disallowed the same and

added to the total income of the assessee.

the assessee to produce evidence regarding payment of bonus

shown as payable as on 31.3.2006 in the tax audit report

amounting to Rs.2,97,395/-. In response, the assessee furnished

copy of ledger account of the subsequent financial year from which

the Commissioner of Income Tax (Appeals) noticed that the assessee

made the payment of Rs. 2,22,182/- only in the subsequent

assessment year before the due date of filing of the return i.e.

30.11.2006 for the assessment year 2006-07. In this way, the

assessee did not pay the balance amount of Rs.75,213/-

(Rs.2,97,395 – Rs.2,22,182/-) of bonus payable on or before the due

date of filing of the return u/s 139(1) of the assessment year 2006-

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of the Act and the disallowance to the extent of Rs.2,22,182/- was

deleted.

Commissioner of Income Tax (Appeals), the revenue is in appeal

before the Tribunal.

Assessing Officer whereas the learned counsel for the assessee

relied upon the order of the Commissioner of Income Tax (Appeals).

submissions of the parties and the material available on record of

the Tribunal, we are of the view that from the copy of the ledger

account of the subsequent financial year undisputedly the assessee

has made payment of bonus of Rs.2,22,182/- only in the

subsequent assessment year before the due date of filing of the

return i.e. 30.11.2006 for the assessment year 2006-07. On being

asked by the Bench, the learned counsel for the assessee fairly

accepted that the assessee has not paid the balance amount of Rs.

75,213/- on bonus payable on or before the due date of filing of the

return of income for the assessment year 2006-07 and, hence, the

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Commissioner of Income Tax (Appeals) confirmed the disallowance

to this extent. In view of the above facts, we are unable to see any

ambiguity, perversity or any other valid reason to interfere with the

conclusion of the Commissioner of Income Tax (Appeals) as the

assessee is following mercantile system of accounting and the

amount of bonus which has been paid prior to filing of its return

during the next financial year prior to filing of return then the

amount so paid has to be allowed. Accordingly, ground no. 4 of the

revenue is dismissed.

statistical purposes

The order has been pronounced in open Court on 3.5.2017.

Sd/- sd/-

लेखा सद�य �या�यक सद�य (O.P.Meena) (C.M. Garg) Accountant Member Judicial Member

3.5. 2017.

Dn/

ACIT vs.M/s Sanwaria Agro