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Income Tax Appellate Tribunal, : ‘B’ BENCH, KOLKATA
Before: Shri M. Balaganesh & Shri S.S.Viswanethra Ravi
Since the issues raised in both the appeals are on identical facts and circumstances, we proceed to hear both the appeals together and dispose of the same by a consolidated order with the consent of both the parties for the sake of convenience. & 1274/Kol/2015 A.Ys 2009-10 & 2010-11- by the revenue Ground no. 1 in 1273/Kol/2015 - A.Y 2009-10 Ground no. 1 in 1274/Kol/2015 - A.Y 2009-10 3. Ground no. 1 in both the appeals raised by the revenue for the A.Ys 2009-10 & 2010-11 regarding deletion of disallowance of interest and expenses u/s. 14A r.w.r 8D of the I.T Rules, 1962.
4. We find that the assessee on its own made disallowance of Rs.2,25,833/- for the purpose of section 14A. The AO made disallowance & 1274/Kol/2015 2 M/s. Philips Carbon Black Ltd under Rule 8D(2)(ii) & (iii) of the I.T Rules, 1962 to an extent of Rs. 1,16,08,167/-( Rs.1,18,34,000 – Rs.2,25,833) for the A.Y 2009-10 & Rs.1,58,30,500/- (Rs. 1,61,31,000 – Rs.3,00,500) for the A.Y 2010-11.
The CIT-A considered that the assessee having its own fund which is more than the investment and as such deleted the said disallowance of Rs. 1,16,08,167/- for the A.Y 2009-10 & Rs.1,58,30,500/- for the A.Y 2010-11. He also held that suomotu disallowance made by the assessee is reasonable and as such deleted both the disallowances made thereon for the purpose of section 14A.
The ld. DR relied on the orders of AO.
On the other hand, the ld. AR placed his reliance on the order dt. 31-07-2017 of Co-ordinate Bench of ITAT, Kolkata in the case of DCIT Vs. Century Ply Boards (I) Ltd in and referred to para 20.1 of the said order at page 43 of the paper book, which reads as under:- 20.1 Now coming to the disallowance made by the AO under rule 80(2)(iii) of the Rules, we find that Ld. CIT(A) has given direction to AO to consider only those investments which have yielded the dividend income during the year after having reliance in the order of Co-ordinate Bench of this Tribunal in the case of REI Agro Ltd. (supra) in ITA NO.1331/Ko1l2011 which was subsequently affirmed by the Hon'ble jurisdictional High Court. In the light of above reasoning, we hold that the order of the Ld. CIT(A) is correct and in accordance with law and no interference is called for. Accordingly, we uphold the same. This ground of Revenue's appeal is dismissed.”
We find that the CIT-A held that the assessee has shown capital reserve fund more than the investments made. Therefore, it is to be presumed that such investment made out of its own fund and, the disallowance made under Rule 8D(2)(ii) of the IT Rules, 1962 is not maintainable and we confirm the impugned order of the CIT-A.
As regards the disallowance under Rule 8D(2)(iii) of the IT Rules, 1962, the Co-ordinate Bench of ITAT, Kolkata in the case of DCIT Vs. Century Ply Boards (I) Ltd in for the A.Y 2010-11, directed the AO to make disallowance in respect of investments that had yielded exempt income by placing reliance on the order of the Hon’ble High Court of Calcutta in ITA Nos. 1273 & 1274/Kol/2015 3 M/s. Philips Carbon Black Ltd the case of REI Agro Ltd and referred to para 20.1/at page 43 of the paper book, which reads as under:- “20.1 Now coming to the disallowance made by the AO under rule 8D(2)(iii) of the Rules, we find that Ld. CIT(A) has given direction to AO to consider only those investments which have yielded the dividend income during the year after having reliance in the order of Co-ordinate Bench of this Tribunal in the case of REI Agro Ltd. (supra) in ITA NO.1331/Ko1l2011 which was subsequently affirmed by the Hon'ble jurisdictional High Court. In the light of above reasoning, we hold that the order of the Ld. CIT(A) is correct and in accordance with law and no interference is called for. Accordingly, we uphold the same. This ground of Revenue's appeal is dismissed.”
In view of above, we find no infirmity in the impugned orders of CIT-A and are is justified. Ground no. 1 raised by the revenue in & 1274/Kol/2015 for the A.Ys. 2009-10 & 2010-11 are dismissed. Ground no. 2 in A.Y 2009-10 Ground no. 3 in A.Y 2010-11
Ground no.2 raised by the revenue for the A.Y 2009-10 & ground no. 3 raised by the revenue for the A.Y 2010-11 are relating to deletion of disallowance of 25% of air craft flying right charges.
The ld. DR relied on the orders of the AO.
13. The ld. AR submits that the issue in hand is covered by the order dt. 12-08-2016 in assessee’s own case for the A.Ys 2006-07 & 2008-09 in & 2124/Kol/2013 and referred to paras 12 to 17 of the order dt. 12-08-2016 at pages 6-8 of the paper book.
After hearing both the parties, we find that the issue in hand is covered by the order dt. 12-08-2016 in asessee’s own case for the A.Ys 2006-07 & 2008-09. Relevant portion of which is reproduced herein below:- “12. Ground no.2 raised by the revenue is as under:- 2. Whether Ld CIT(A)-XII, Kolkata, was justified in holding that expenditure of Rs. 85,00,000/- as flying rights charge was allowable business expenditure on the basis of decision of the CIT(A)-XXXIV, Kolkata in assessee's own case for Asst year 2005-06, when the said decision is challenged before the Hon'ble ITAT, Kolkata? 13. Brief facts of this issue are that the AO during the course of assessment proceedings found that the assessee company had incurred aircraft rent amounting to Rs.3,40,00,000/- and the same was claimed as an expenditure in the return. The assessee has made the following submission in support of its claim. & 1274/Kol/2015 4 M/s. Philips Carbon Black Ltd
During the previous year, the assessee incurred flying rights charges of Rs.3,40, 00, 000/- for the aircraft flying rights taken by the assessee from Spencer Travel Services Ltd. The assessee entered into an agreement dated 17.11.03 with M/s Spencer Travel Services Ltd whereby the assessee agreed to take exclusive flying rights of an aircraft being a Beechjet 400 Aircraft. In consideration of the same the assessee also agreed to pay a sum of Rs.340 lacs per annum to M/s Spencer Travel Services Ltd towards flying rights charges. The assessee company is the largest carbon black manufacturer in the country having manufacturing facilities at Durgapur, Baroda and Cochin. The assessee company also generates power and sells power from its unit at Baroda. The assessee also has offices and warehouses at different locations in the country. The customers are also scattered in different parts of the country and outside. To cater to the business needs of the company the company had decided to take on hire the exclusive flying rights of an aircraft and thus entered into the agreement dated 17.11.03 with M/s Spencer Travel Services Ltd (copy attached). By virtue of the said agreement the assessee was always made available of the aircraft for the flying needs of its senior officials. If a reference is made to the aforesaid agreement, Spencer Travel Services Ltd was to incur all costs and expenses associated with the operation of the aircraft. The assessee was not required to pay anything over and above the sum of Rs.340 lacs agreed between the parties irrespective of the use of the aircraft. The aircraft flying rights were taken considering the business needs of the assessee and the aircraft was used by very senior officials of the company for the purposes of business and furtherance thereof
14. The AO after considering the above submissions of the assessee and following the similar payments made in AY 2005-06 disallowed 25% of the expenditure of Rs.340 lacs, amounting to Rs.85,00,00/- being non-business purpose and added the same to the total income of the assessee.
15. On first appeal, the CIT-A relying on his earlier order dated 30-11-2011 for AY 2005-06 deleted the disallowance 25% of the expenditure incurred on aircraft flying rights charges.
16. Aggrieved by such order of the CIT-A, now the Revenue before the Tribunal by raising by above ground.
17. At the time of hearing before us, the assessee submits that the issue involved in this appeal is squarely covered in favour of the assessee by an order dated 30th October, 2014 of the Hon’ble High Court at Calcutta in GA No. 1382 of 2014 & 2390 of 2014/ITAT 31 of 2014 & 107 of 2014 in assessee’s own case for the A.Y 2005-06 placed at pages 36-37 & 51-52 respectively of the assessee’s paper book. In this case the revenue preferred appeal before the Hon’ble Calcutta High Court, wherein the revenue’s appeal was dismissed by upholding the order dated 13th November, 2013 of the Tribunal in for the AY 2005-06 on similar issue and in ITA No.741/Kol/2012 & 939/K/2012 for AY 2007-08. The Ld. DR conceded that the Hon’ble High Court of Calcutta dismissed their appeal. In view of the same and respectfully following , ground no-2 of revenue’s appeal is dismissed.”
In view of above, we find no infirmity in the impugned orders of the CIT-A. Ground nos. 2 & 3 raised by the revenue in their respective appeals for the A.Ys 2009-10 & 2010-11 are dismissed. Ground no. 3 in A.Y 2009-10 Ground no. 4 in A.Y 2010-11
Ground nos. 3 & 4 for the A.Ys 2009-10 & 2010-11 raised by the revenue are relating to allowability of retainer ship fees paid to M/s. Sreebala P.Ltd. & 1274/Kol/2015 5 M/s. Philips Carbon Black Ltd
The ld. AR submits that this issue is covered by the order dt. 12-08- 2016 in assessee’s own case for the A.Ys 2006-07 & 2008-09 in & 2124/Kol/2013 and referred to paras 18 to 23 at pages 8-10 of the paper book.
On the other hand, the ld. DR did not controvert the same and did not bring on record any material contrary to the above.
19. After hearing both the parties, we find that the issue in hand is covered by the order dt. 12-08-2016 in asessee’s own case for the A.Ys 2006-07 & 2008-09. Relevant portion of which is reproduced herein below:- “18. Ground no.3 raised by the revenue is as under:- 3. Whether Ld CIT(A)-XII, Kolkata, was justified in holding that expenditure of Rs.12,26,700/- as retainer-ship fee was allowable business expenditure when the A.O made the addition on the ground that the: track record of the party to render such service was not known ? 19. The AO found that the assessee had made payments of Rs.12,26,700/- to M/s. Sreebala P.Ltd. The assessee has made the following submissions:- "During the previous year, retainership fees amounting to Rs.12267001- was paid to M/s Sreebala Pvt Ltd. The aforesaid party catered to the customers in the non-tyre segment, which are widely scattered, and are in large numbers, and for which purposes the assessee company appointed Sreebala (P) Ltd as their consultant for market development in the non-tyre segment for sale of carbon black in Eastern India since 1994. The role of the party envisages identification of the customers, procurement of the orders from these customers, coordinating supplies and arranges collection from these parties. The payments to the party have always been made by account payee cheques. The details of payments made to M/s. Sreebala Pvt. Ltd are attached herewith. We also attach herewith copy of the renewal agreement with the aforesaid party.”
20. The AO after considering the above submissions of the assessee being similar payments made in AY 2005-06 disallowed the amount of Rs.12,26,700/- for the assessment year under consideration and added back the same to the total income of the assessee. 21. On first appeal, the CIT-A found that the issue of allowability of payment of retainership/consultancy charges paid to M/s. Sreebala P.Ltd came up before the ITAT, Kolkata in assessee’s case in a.y 1996-97 and 1997-98. The Tribunal vide its order dated 26-7-04 in & 747/Kol/03 held that the payments made to M/s. Sreebala P.Ltd were allowable as business expenses. He further found that the Tribunal in assessee’s own case for AY 1998-99 in ITA No. 232/K/04 dated 05.05.05 and for AY 1999-2000 in ITA No.1818/K/05 dtd. 30.01.06 followed its earlier order for AY 1996-97 and 1997-98 and allowed the claim of assessee regarding retainership fees paid to M/s. Sree Bala P.Ltd The disallowance in AY 2003-04 and 2004-05 was deleted by the CIT(A). The Tribunal in ITA No.1447/Kol/06 dated 22.09.06 and ITA No.566/K/09 dated 10.06.11 had upheld the orders of the CIT(A) deleting the said disallowance. The CIT-A relying on order of Tribunal and following his earlier orders deleted the disallowance being treating as business expenditure 22. Aggrieved by such order of the CIT(A) now the revenue is in appeal before us by raising the above mentioned ground. 23. At the time of hearing before us, the assessee submits that the issue involved in this ground is squarely covered in favour of assessee and against the revenue by the order of the Hon’ble Calcutta High Court dated 30th October, 2014 in GA No.1382 of 2014/ITAT 31 of 2014, wherein the revenue’s appeal was dismissed by upholding the order dated of the Tribunal in ITA No. 235/Kol/2012 for the AY 2005-06. & 1274/Kol/2015 6 M/s. Philips Carbon Black Ltd
The Ld. DR conceded that the Hon’ble High Court of Calcutta dismissed their appeal. Respectfully following the same, this ground of revenue is dismissed.
In view of above, we find no infirmity in the impugned orders of the CIT-A. Thus, ground nos. 3 & 4 for the A.Ys 2009-10 & 2010-11 raised by the revenue are dismissed.
Ground nos. 4 & 5 raised by the revenue for the A.Y 2009-10 is relating to disallowance of 25% towards guest house expenses.
The ld. AR submits that the issue in hand is covered by the order dt. 12-08-2016 in assessee’s own case for the A.Ys 2006-07 & 2008-09 in & 2124/Kol/2013 and referred to paras 24 to 29 at pages 10 -11 of the said order.
On the other hand, the ld. DR did not controvert the same and did not bring on record any material contrary to the above.
After hearing both the parties, we find that the issue in hand is covered by the order dt. 12-08-2016 in assessee’s own case for the A.Ys 2006-07 & 2008-09. Relevant portion of which is reproduced herein below:- “24. Ground no.4 raised by Revenue reads as under:- Whether Ld CIT(A)-XII, Kolkata. was justified in holding that expenditure of Rs. 19,33,576/- as 25/'0 of Guest House Expenses was allowable business expenditure on the basis of decision of the Hon'ble ITAT, Kolkata in assessee's own case for Asst year 2000-01 and 2001-02, whereas the Hon'ble Mumbai ITAT in the case of New India Extrusion Ltd -vs- CIT [46 SOT Mum (10 Taxman 165) held the issue in favour of revenue? 25. During the assessment proceedings the AO found that the assessee filed the details of miscellaneous expenses along with Tax Audit Report, wherein it was observed that the assessee has incurred expenditure on guest house of Rs.77,34,306/-. The AO, that being nature of expenses as was in AY 2005-06, disallowed 25% of the total expenses of Rs.19,33,576/- and added the same to the total income of the assessee. On 1st appeal, the CIT-A following the order dt: 29-07-2005 of Tribunal in ITA 26. 1071/Kol/2005 deleted the said disallowance. 27. Aggrieved by such order of the CIT(A) now the revenue is in appeal before us by raising the above mentioned ground. 28. At the time of hearing before us, the assessee submits that the issue in hand is squarely covered in favour of assessee and against the revenue by the order of the Hon’ble Jurisdictional Calcutta High Court vide order dated 23-02-2012 & 30-10-2014 in GA Nos. 276 of 2012 & ITAT 12 of 2012 & 1382 of 2014/ITAT 31 of 2014 (in for the AY 2005-06), wherein the revenue’s appeal was dismissed by upholding the order dated 13th November, 2013 of the Tribunal in ITA No. 235/Kol/2012 for the AY 2005-06 on similar issue. The Ld. ITA Nos. 1273 & 1274/Kol/2015 7 M/s. Philips Carbon Black Ltd
DR conceded that the Hon’ble High Court of Calcutta dismissed their appeal. Respectfully following the same, this ground of revenue is dismissed. 29. The appeal in filed by the revenue for AY 2006-07 is dismissed as stated above.”
In view of above, we find no infirmity in the impugned order of the CIT-A. Thus, ground nos. 4 & 5 for the A.Y 2009-10 raised by the revenue are dismissed.
Ground no. 6 is relating to allowability of licence fees paid to M/s. RPG Enterprises Ltd.
The ld. AR submits that the issue in hand is covered by the order dt. 12-08-2016 in assessee’s own case for the A.Y 2008-09 in and referred to paras 32 to 37 of the said order at page 12-14 of the paper book.
On the other hand, the ld. DR did not controvert the same and did not bring on record any material contrary to the above.
After hearing both the parties, we find that the issue in hand is covered by the order dt. 12-08-2016 in asessee’s own case for the A.Ys 2006-07 & 2008-09. Relevant portion of which is reproduced herein below:- “32. Ground no.4 raised by revenue reads as under:- 4. Whether Ld CIT(A)-XII, Kolkata, was justified in holding that expenditure of Rs. 2,91,00,000/- as Licence Fee paid to RPG Enterprise was allowable business expenditure on the basis of decision of the Hon'ble ITA T, Kolkata in assessee's own case for Asst year 2004-05, whereas the Revenue has filed appeal before the Hon'ble ITAT, kolkata against the CIT(A)'s decision on same issue for Asst year 2004-05 ?
33. During the assessment proceedings the AO found that the assessee has paid license fees of Rs.2,91,00,000/- to RPG Enterprises. The assessee submitted as under:- "Phillips Carbon Black Ltd is one of the licencee companies of Mls RPG Enterprises Ltd having entered into a licence agreement with them (copy of agreement attached}. As a licencee of RPG Enterprises Ltd, we enjoy various services, as and when required, and the services are provided by RPG Enterprises Ltd (at cost), who have experts employed and/or engaged in various areas of business run on modern lines. In competitive environment, the services are absolutely essential but it is very difficult for the company to employ experts in all fields of business on its own. As licencee of RPG Enterprises Ltd we enjoy the services of their experts readily, as and when required, though at cost. Major areas where services are provided by RPG Enterprises Ltd include, amongst others, (a) Human resources, (b) Strategic planning (c) Corporate finance, (d) Management information, & 1274/Kol/2015 8 M/s. Philips Carbon Black Ltd
(e) Forex management, (f) Taxation and legal, (g) Total quality management, (h) Project development, (i) Information technology, (j) Corporate governance, etc.
It is with the timely support of such services provided by RPG Enterprises Ltd that the company has become the largest carbon black manufacturer in the country and the largest exporter of carbon black from India. It is also one of most cost efficient production center. The company started its production facility at Durgapur and had further acquired production facilities at Baroda in Gujarat and Cochin in Kerala and substantially expanded the production capacities. With these production facilities in place the company caters easily to markets in East, West and South India. Needless to mention, that there is a considerable saving that has arisen to the company. It all became possible since it enjoyed the services of experts of RPG Enterprises Ltd readily and timely, though at cost. The entire business strategy of our company in areas of exports, capacity enhancement, acquisition of capacities in other parts of India for geographical spread to have outposts in the consuming centers are all results of timely and strategic planning done by M/s RPG Enterprises Ltd for us. "
34. The AO found that in past assessments similar payments made to M/s. RPG Enterprises Ltd as licence fees and were disallowed and since the nature of agreement was same in earlier years. The AO disallowed Rs. 2,91,00,000/- and added the same to the total income of the assessee.
On first appeal, the CIT-A after considering the various submissions and relying on earlier orders of the ITAT allowed the claim of assessee as deduction.
Aggrieved by such order of the CIT-A now the revenue is in appeal before us by raising the above mentioned ground.
At the time of hearing before us, the assessee submits that the issue involved in this appeal is squarely covered in favour of assessee and against the revenue by the order of ITAT in & CO No.39/Kol/09 for the AY 2004-05 and the order of the Hon’ble Calcutta High Court vide order dated 23-02-2012 for the AY 2004-05, wherein the Hon’ble Calcutta High Court has dismissed the revenue’s appeal on this issue. The Ld. DR conceded that the Hon’ble High Court of Calcutta dismissed their appeal. Therefore, in view of the same, we dismiss the ground no-4 raised by the Revenue.”
In view of above, we find no infirmity in the impugned order of the CIT-A. Thus, ground no.6 for the A.Y 2009-10 raised by the revenue is dismissed.
Ground no’s. 7 & 8 are relating to allowability of unrealized loss on foreign exchange fluctuation.
The ld. DR relied on the order of the AO. On the other hand, the ld.AR submits that the issue in hand is covered in favour of assessee by the decision of the Hon’ble Supreme Court in the case of Woodward Governor India Pvt. Ltd reported in 312 ITR 254(SC). The Co-ordinate Bench of this Tribunal in the case of Dhunseri Petrochem & Tea Ltd (ITA No. 1224/Kol/2014 dt. 03-05-2017) & Hindustan Gum & Chemicals Ltd (ITA Nos. 462 & 752/Kol/2014 dt. 08-03-2017 followed the principle & 1274/Kol/2015 9 M/s. Philips Carbon Black Ltd enunciated by the Hon’ble Supreme Court in the case of supra and referred to paras 18 to 20 of order dt. 03-05-2017 at pages 45 to 59 of the paper book. He relied on the impugned order of the CIT-A.
Heard rival submissions and perused the record including the paper book. It is noticed that the assessee claimed loss of Rs.46.58 crores on account of foreign exchange fluctuation. We noticed that the assessee has shown gain in its profit & loss account on account of foreign exchange fluctuation for the A.Y 2010-11 and the AO assessed the same as income on account of forward contract gain, in the same way, in our opinion, the AO should have taken the loss due to unrealized forward contract for the A.Y under consideration as real loss. The CIT-A held the same as real loss and the assessee is entitled to claim as deduction. We find that similar issue on identical facts and circumstances, this Tribunal has decided the issue by placing reliance on the decision of the Hon’ble Supreme Court in the case of Woodward Governor India Pvt. Ltd supra , wherein held that loss recorded due to foreign exchange fluctuation is an allowable deduction. Relevant portion of the order dt. 03-05-2017 is reproduced herein below for better understanding:- paras 18 to 20 of the said order at page 49 to 51 of the paper book. “18. We have heard rival contentions and perused the materials available on record. From the aforesaid discussion, we find that the AO treated the loss arising on account of forward contracts in foreign currency which has not been settled in the year under consideration as notional loss. However the ld. CIT(A) allowed such loss having reliance on judgment of the Hon’ble Delhi High Court in the case CIT Vs Woodward Governor India Ltd. reported in 294 ITR 451. In rejoinder ld. DR stated that the said judgment of the Hon'ble Delhi High Court was delivered much earlier whereas the Instruction No. 3/2010 was issued dated 23.03.2010. Thus the instruction issued by the CBDT was not considered by the Hon'ble Delhi High Court. However, we find that the instructions issued by the CBDT are not binding on the Courts. So there is no value in the argument of the ld. DR. However, we disagree with the view of the AO on the ground that the adjustment was made by the assessee in terms of AS 11 issued by ICAI and in pursuance of mercantile system of accounting as notified u/s 145 of the Act. The relevant extract of Accounting Standard 11 is reproduced below:- “3.6 The Accounting Standards (A) 11, the Effects of changes in Foreign Exchange Rates (revised 2003), issued by the Council of the Institute of Chartered Accountants of India, comes into effect in respect of accounting periods commencing on or after 1-4-2004. Relevant extract of the Accounting Standard is reproduced as follows:- ‘9. A foreign currency transactions should be recorded on initial recognition in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transactions. 10… 11 (a) At each balance sheet date foreign currency monetary items should be reported using the closing rate. However, in certain circumstances, the closing rate may not reflect with reasonable accuracy the amount in reporting currency that is likely to be realized from, or required to disburse, a foreign currency monetary item at the balance sheet date, e.g. where there are restrictions on remittances or where the closing rate is unrealistic and it is not possible to effect an exchange of currencies at that rate at the balance sheet date. In such circumstances, the relevant monetary item & 1274/Kol/2015 10 M/s. Philips Carbon Black Ltd should b reported in the reporting currency at the amount which is likely to be realized from, or required to disburse, such item at the balance sheet date: 11(b)…. 11(c)… 12. Cash receivables and payables are examples of monetary items….
Exchange differences arising on the settlement of monetary items or on reporting an enterprise’s monetary items at rates different from those at which they were initially recorded during the period, or reported in previous financial statements, should be recognized as income or as expenses in the period in which they arise…”
At this juncture we also wish to reproduce the provisions of Section 145 of the Act which reads as under:- “3.4 As per section 145 of the Act, ‘(1) Income chargeable under the head “Profits and gains of business or profession” or “income from other sources” shall, subject to the provisions of sub-section (2), be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. (2) The Central Government may notify in the Official Gazette from time to time accounting standards to be followed by any class of assessees or in respect of any class of income. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144.”
20. We also find support from the decision of Hon’ble Delhi High Court in the case of CIT vs Woodward Governor India Private Limited [2007] 294 ITR 451 (Del) where it was held that:- “We affirm the decision of the Income-tax Appellate Tribunal in Oil and natural Gas Corporation Ltd. V. Deputy CIT (Asstt.) [2003] 261 ITR (AT) 1 (Delhi) which rightly follows the settled position as explained in the judgment of the Hon'ble Supreme Court which we have referred to. We, therefore, reject the submission of the Appellant in these appeals that the increase in liability on account of the fluctuation in the rate of foreign exchange remaining on the last day of the financial year is notional or contingent and, therefore, cannot be allowed as a deduction.” From the aforesaid discussion we find no reason to interfere in the order of Ld CIT(A) and accordingly we uphold. Hence this ground of Revenue’s appeal is dismissed. In view of above, we find no infirmity in the impugned order of the CIT-A. Ground nos. 7 & 8 raised by the revenue are dismissed.
In view of above, we find no infirmity in the impugned order of the CIT-A and it is justified. Ground nos. 7 & 8 raised by the revenue in for the A.Y 2009-10 are dismissed.
35. Ground no. 2 raised by the revenue in the appeal for the A.Y 2010-11 is relating to deletion of disallowance of Rs.1,58,30,500/- made on account of book profit u/s. 115JB of the Act.
36. The ld. DR relied on the order of the AO. On the other hand, the ld.AR submits that the assessee on its own disallowed a sum of Rs.3,00,500/- for the purpose of section 14A r.w.r 8D of the IT Rules, 1962. The AO disallowed the same by invoking Rule 8D(2)(ii) & (iii) while computing the book profit u/s. 115JB of the Act. The CIT-A deleted the same and found suo motu disallowance made by assessee is reasonable & 1274/Kol/2015 11 M/s. Philips Carbon Black Ltd for the purpose of disallowance under clause (f) to Explanation 1 to Section 115JB of the Act.
37. The ld. AR refers to the order dt. 15-12-2017 of this Co-ordinate Bench (ITAT, Kolkata) in the case of TMT Viniyogan Ltd Vs. DCIT, in A.Y 2008-09 and referred to para 14 of the said order at pages 81-82 of the paper book.
On the other hand, the ld. DR relied on the order of the AO. However, he did not controvert the above submissions of the ld.AR by bringing any contrary material on record.
Heard rival submissions and perused the record including the case law/order as relied on by the assessee. On perusal of record, we find that the similar issue was decided by this Co-ordinate Bench, ITAT, Kolkata in the case of TMT Viniyogan Pvt. Ltd supra as referred by the ld.AR before us, wherein the Tribunal held that no disallowance could be made u/s. 14A while computing the book profit u/s. 115JB of the Act and remanded the matter to the file of AO for computing the disallowance under clause (f) to section 115JB of the Act by placing reliance on the decision of the Hon’ble High Court of Calcutta in the case of CIT Vs. Jayshree Tea Industries Ltd in GA No. 1501 of 2014 (ITAT No. 47 of 2014) dt. 19-11- 14. Relevant partition of order dt. 15-12-2017 is reproduced herein below for better understanding:- 14. We have heard the rival submissions and perused the materials available on record. The issue in the instant case relates to the disallowances made by Assessing Officer u/s 14A r.w.r 8D of the Income Tax Rules while determining the income under normal computation of· income. The disallowance of the same was also made while determining the profit u/s 115JB of the Act. However, we note that in recent judgment of Special Bench of Hon'ble Delhi Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. reported in 82 Taxmann.com 415 that the disallowances made u/s 14A r.w.r. 8D cannot be the subject matter of disallowances while determining the net profit u/s 115JB of the Act. Relevant portion of the said order is reproduced below: "In view of above discussion, the computation under clause (f) of Explanation 1 to section 115JB(2), is to be made without resorting to the computation as contemplated under section 14A, read with rule 8D of the Income-tax Rules, 1962. " The ratio laid down by the Hon'ble Tribunal is squarely applicable to the facts of the case. Thus it can be concluded that the disallowance made under section 14A r.w.r 8D cannot be resorted while determining the expenses as mentioned under clause (f) to explanation 1 of section 115JB of the Act. & 1274/Kol/2015 12 M/s. Philips Carbon Black Ltd
However it is also clear that the disallowance needs to be made in terms of the provisions of clause (f) to section 115JB of the Act while determining the book profit. In holding so we draw our support from the judgment of Hon'ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. in GO NO.1501 of 2014 (ITAT NO.47 of 2014) dated 19.11.14 wherein it was held that the disallowance in relation to exempted income needs to be made as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. The relevant extract of the judgment is reproduced below:- "we find computation of the amount of expenditure relatable to exempted income of the assessee must be made since the assessee has not claimed such expenditure to be Nil. Such computation must be made by applying clause (f) of Explanation 1 under section 115JB of the Act. We remand the matter for such computation to be made by the learned Tribunal. We accept the submission of Mr. Khaitan, learned Senior Advocate that the provision of section 115JB in the matter of computation is a complete code in itself and resort need not and cannot be made to section 14A of the Act. " In view of above we hold that the disallowances made under the provisions of Sec. 14A r.w.s 8D of the IT Rules, cannot be applied to the provision of Sec.115JB of the Act as per direction of the Hon'ble jurisdictional High Court in the case of CIT Vs. Shree Tea Industries Ltd. (Supra). Therefore, the AO shall work out the disallowances in terms of the clause (f) to Explanation-1 of Sec. 115JB of the Act independently after considering the expenses debited in the profit & loss account as mandated under the provisions of law. Therefore we are inclined to restore this issue to the file of AO for fresh adjudication in accordance to law and in the light of above discussion. Thus this ground of appeal of the assessee is allowed for statistical purposes."
40. In view of the above decision of Hon’ble High Court of Calcutta and respectfully following the same, we remand the matter to the AO and to work the disallowance in terms of clause (f) to Explanation-1 of Section 115JB of the Act for the purpose of book profit. Ground no. 2 raised by the revenue in for the A.Y 2010-11 is allowed for statistical purpose.
41. Ground no. 5 raised by the revenue in for the A.Y 2010-11 is regarding deletion of adhoc disallowance made on account of misc. expenses.
42.The ld. DR relied on the order of the AO. On the other hand, the ld. submits that the assessee claimed misc. expenses of Rs. 3,48,10,000/-. For non furnishing of details, the AO by placing his reliance in the case of CIT Vs. Southern Sea Food Ltd reported in 215 ITR 176 disallowed the same @ 20% i.e Rs.69,62,001/-. He further submits that no defect or adverse inference was reported by the statutory auditor, Internal Auditor and by the tax auditor. The assessee is a public limited company and as such the assessee is liable to incur many petty expenses and for which making every detail is difficult. Considering the same the CIT-A deleted the said & 1274/Kol/2015 13 M/s. Philips Carbon Black Ltd disallowance made by the AO on this issue. He supported the order of the CIT-A.
Heard rival submissions and perused the record. We find that the assessee claimed the misc. expenses and without there being any evidence to that effect the AO made the disallowance. The CIT-A considering the submissions of assessee in respect no inference or adverse remark whatsoever was made by the statutory auditor in the tax audit deleted the same. But, however, taking into consideration the facts and circumstances of the case, we find that the AO was justified in disallowing the same at 25% of claimed expenses. Therefore, we reverse the impugned order of the CIT-A and restore the order of AO on this issue. Thus, ground no. 5 raised by the revenue in for the A.Y 2010-11 is allowed to that extent.
Ground no. 6 raised by the revenue in for the A.Y 2010-11 is relating to deletion of disallowance of Rs. 10,89,099/- on account of Puja & Temple expenses.
The AO found that the assessee claimed Puja & Temple expenses of Rs.10,89,099/- and disallowed the same as under:-
“8. Puja & temple expenses: On perusal of detail furnished wrt miscellaneous expenses of Rs.32.88 Cr, it is seen that the assessee claimed Puja & temple expenses of Rs.10,89,099/-. AR of the assessee asked to furnish the detail in this regard and explain the nature of such expenses in respect of business expediency of such expenses. In response it was explained that these are regular expenses generally done to cover the social need of the employee and other compulsion so should be allowable but it was not established that how these expenses are compulsory for business expediency. Considering the facts and circumstances of the case, the expenses claimed under this head of Rs.10,89,099 is disallowed and added to the total income of the assessee.”
The CIT-A directed the AO to delete the disallowance of Rs.10,89,099/- by stating as under:- “8.2. I have carefully considered the submission of the AR of the appellant and the impugned order of the AO. I have also perused the judicial precedents on this issue relied upon by the appellant in its submissions. In Para 8 of the impugned order, the AO stated that the pooja & temple expenses did not involve any business expediency and disallowed the same. The appellant has factories located in different states of India. Small temples are constructed in the factory premises to cater to the religious beliefs & sentiments of the labour/workers employed at the factory. Accordingly small rituals &. ceremonies are performed at these temples as required under the local customs such as on occasion of Vishwakarma, Diwali, Onam etc. The expenses incurred at the temples & 1274/Kol/2015 14 M/s. Philips Carbon Black Ltd
located in the factories being in the nature of staff welfare expenses is claimed as deduction from the profits of the business. I find that this issue stands squarely covered in the assessee's favour in light of the CBDT File No.13A206D-IT(A-II) dated 3.10.1968 wherein it was stated that the expenses incurred on poojas by companies is an allowable expense. I further find that this particular issue has also been extensively dealt with by various High Courts. Support can be drawn from the decisions of the Punjab & Haryana High Court in the case of Atlas Cycle Industries Ltd. [134 ITR 458], Allahabad High Court in the case Brijramandas and Sons [142 ITR 509] and Delhi High Court in the cases of CIT VS Mohan Meakin Limited [189 Taxmann 377] & CIT Vs Dalmia Cement (Bharat) Limited [212 Taxman 126]. In all these decisions the pooja expenses incurred by the assessee was allowed as a business expenditure treating it to be a welfare measure for employees. In view of the CBDT Notification and the aforementioned decisions of the High Courts, I have no hesitation in holding that pooja expenses were allowable as deduction from the profits of the business. The AO is accordingly directed to delete the disallowance of Rs.10,89,099/- in full. Ground No.5 is therefore allowed.”
The ld. DR relied on the order of the AO. On the other hand, the ld.AR placed his reliance on the said CBDT Instruction dt. 03-10-1968.
Heard rival submissions and perused the record. We find that the CIT-A placed his reliance on various case laws of Hon’ble High Courts and CBDT Instruction. The Hon’ble High Courts allowed such expenses treating the same as welfare measure for employees. Thus, the CIT-A was right in directing the AO to delete the same. We find no infirmity in the impugned order of the CIT-A and it is justified. Ground no. 6 raised by the revenue in for the A.Y 2010-11 is dismissed.
In the result, the appeal filed by the revenue in for the A.Y 2009-10 is dismissed and the appeal filed by the revenue in ITA No. 1274/Kol/2015 for the A.Y 2010-11 partly allowed for statistical purpose. Order pronounced in the open court on 04-07-2018
Sd/- Sd/- M. Balaganesh S.S. Viswanethra Ravi Accountant Member Judicial Member Dated : 04-07-2018 **PP(Sr.P.S.) Copy of the order forwarded to:
1. 1. Appellant/department: The Deputy Commissioner of Income-tax, Circle-10(2), P-7 Chowringhee Square, 3rd Floor, Kolkata-700 069. 2 Respondent/assessee: M/s. Philips Carbon Black Ltd, 31 Netaji Subhash Road, Kolkata-700 001.
3. The CIT(A), Kolkata & 1274/Kol/2015 15 M/s. Philips Carbon Black Ltd
CIT , Kolkata 5. DR, Kolkata Benches, Kolkata