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Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRI H. S. SIDHU & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. These are the appeals filed by the assessee and the revenue against the order of the ld CIT(A)-XVIII, New Delhi dated 28.02.2014 for the Assessment Year 2009-10 2. The assessee has raised the following grounds of appeal:-
Rites Limited V DCIT DCIT V Rites Limited A Y 2009-10 “1(i). That on the facts and circumstances of the case, the CIT(A) was not justified in sustaining addition of Rs. 201.66 on mobilization advance on notional and hypothetical basis even though no such income had accrued or accounted for in the books of accounts. (ii) That the issue of alleged interest is of contingent nature and there is no valid basis for such addition. 2(i) That on the facts and circumstances of the case, the ld CIT(A) was not justified in sustaining disallowance of Rs. 1125844/- u/s 14A of the Income Tax Act, 1961 without proper appreciation of facts or finding that the assessee has incurred any expenses which is relatable to claim of exempt income or any such related investment. (ii) That impugned disallowance is in total regard to provisions of section 14A and principle laid down by Delhi High Court in the case of Maxopp Investment Ltd. Vs. CIT 347 ITR 272. 3(i) That addition of Rs. 48.87 crores on protective basis is consequential to addition of Rs. 71.26 crores made by the revenue authorities in assessment year 2008-09. (ii) That in case, addition of Rs. 71.26 crore or any part of the same is sustained in assessment year 2008-09, there is no factual or legal basis for addition of Rs. 44.87 in assessment year 2009-10 even under protective assessment.
That orders of the lower authorities are not justified on facts and same are bad in law.”
The revenue has raised the following grounds of appeal:- “1. Whether on the facts and in the circumstances of the case, the ld CIT(A) has erred in deleting the addition of Rs. 19236000/- made by the AO on account Rites Limited V DCIT DCIT V Rites Limited A Y 2009-10 of disallowance of the assessee’s claim of deduction for prior period expenses, even when the assessee was following mercantile system of accounting, wherein prior period expenses are not admissible as deduction.
2. Whether on the facts and in the circumstances of the case, the ld CIT(A) has erred in deleting the addition of Rs. 19236000/- made by the AO on account of disallowance of the assessee’s claim of deduction for prior period expenses, without discussing the issue on merits and merely on the basis of the issue having been decided in assessee’s favour by the Hon’ble ITAT in earlier Assessment Year 2000-01 to 2007-08, even though every Assessment Year is an independent year and involves independent facts.”
4. Factual matrix of the case is that assessee company engaged in technical consultancy and export business filed its return of income on 25/09/2009 at Rs. 1965150476/– subsequently revised on 29, March 2011 at Rs. 1 915900220/-. The assessment under section 143 (3) of the act was passed on 03/03/2013 determining total income of Rs. 1956428064/–. Three disallowances were made with respect to prior period expenses, interest on mobilization advances and disallowances under section 14 A, read with rule 8D of the income tax act. Assessee contested them before the Ld. CIT (A), who deleted the disallowance of Rs. 1 92.36 Lacs of prior period expenses relying upon the decision of the Hon’ble Delhi High Court in appellant’s own case, confirmed the addition of Rs. 2 0 1.66 Lacs on account of mobilization advance as well as the disallowance under section 14A of Rs. 1125844/–. He also confirmed the addition of Rs. 71.26 crores on account of interest on projects on receipt basis. In view of this, both the parties have challenged the order of the first appellate authority before us.
Rites Limited V DCIT DCIT V Rites Limited A Y 2009-10 5. We first take up the appeal of the assessee in ITA No. 2826/DEL/2014. 6. The first ground of appeal is against the addition of Rs. 201.66 Lacs being interest on mobilization advance confirmed by Ld. CIT (A). It was noted by the Ld. assessing officer that as per notes on accounts No. 14 of schedule P interest of Rs. 201.66 Lacs on mobilization advance due from the executive agency has not been recognized as income, although the same has become due during the financial year 2008 – 09 relevant to assessment year 2009 –
10. Therefore, according to the Ld. assessing officer this amount should have been included in the income of the assessee. The assessee submitted before the Ld. assessing officer that that this amount refers to the fraud committed by an agency in earlier years and there is no certainty about the realization of this amount, therefore, the said amount cannot be recognized as income. The Ld. assessing officer rejected the contention of the assessee and made the addition. Ld. CIT appeal following the order of his predecessor for assessment year 2008 – 09 confirmed the above addition. Therefore, assessee has challenged it before us.
7. The Ld. authorized representative submitted that as per Para No. 7.2 of the order of the Ld. CIT appeal it is been stated that the order of the Ld. CIT (A) for assessment year 2008 – 09 was under challenge before the income tax appellate tribunal and therefore pending that appeal, the CIT appeal has followed the decision of his predecessor. He further submitted that now appeal of the assessee for 2008 – 09 has been decided by the coordinate bench wide order dated 20/01/2016 wherein in Para No. 10, the above disallowance has been deleted. Therefore, he submitted that issue is squarely covered in favour of the assessee.
8. Ld. departmental representative vehemently supported the order of lower authorities.
9. We have carefully considered the rival contentions and also perused the order of the coordinate bench dated 20 January 2016 in assessee’s own case for assessment Rites Limited V DCIT DCIT V Rites Limited A Y 2009-10 year 2008 – 09 in ITA No. 2149/DEL/2013 wherein in while deciding ground No. 2 of the appeal of the assessee against confirmation of the addition of Rs. 2 0 1.66 Lacs in the nature of contingent claim, in Para No. 10 the coordinate bench has held that the above amount has not been crystallized and therefore the same cannot be treated as income in the hands of the assessee. It was further held that assessee being a government undertaking is been following a system of accounting as per which all the items of income and expenditure are treated as accrue only after the approval is granted by competent authority. Further, the coordinate bench deleted the above addition. Therefore, respectfully following the decision of the coordinate bench in assessee’s own case for assessment year 2008 2009 we also direct the Ld. AO to delete the above addition. In the result, we reverse the finding of the Ld. CIT (A) and allow ground No. 1 of the appeal of the assessee.
10. Ground No. 2 of the appeal of the assessee is against confirmation of the disallowance of Rs. 1 125844/– under section 14 A of the income tax act, 1961. During the year assessee has received dividend of Rs. 3 072 3566/– and claimed it as an exempt under section 10 (34) of the act. The assessee has claimed that no expenditure has been incurred by it to on the said exempted income. During the assessment proceedings, the Ld. assessing officer asked the assessee that why rule 8D under section 14 A should not be applied in case of the assessee. Subsequently, after considering the submission of the assessee disallowance of Rs. 1 125844/– was made. The Ld. CIT (A) confirmed the disallowance. Assessee is in appeal before us.
The Ld. authorized representative submitted that Ld. assessing officer has not noted his satisfaction with respect to examination of the books of accounts rejecting the explanation of the assessee that it has not incurred any expenditure with respect to the above income. He referred to the decision of the Hon’ble Delhi High Court in Rites Limited V DCIT DCIT V Rites Limited A Y 2009-10 case of CIT versus Taikisah Engineers India limited 370 ITR 338, Maxopp investment Ltd versus CIT 347 ITR 272 and CIT versus om Prakash Khaitan 138 DTR 197 (DEl).
Ld. departmental representative relied upon the orders of the lower authorities and submitted that when the assessee could not substantiate the explanation that no expenditure has been incurred by it for earning exempt income. The Ld. AO was right in applying provisions of rule 8D of the income tax rules, 1962 for disallowing some under section 14 A of the income tax act.
We have carefully considered the rival contention and also perused the orders of the lower authorities. During the course of assessment proceedings the assessee was asked that why provisions of Rule 8D should not be applied for disallowing some under section 14 A of the income tax act, despite the claim of the assessee that it has not incurred any expenditure for earning exempt income. According to the provisions of section 14A(2), the Ld. assessing officer before invoking the applicability of Rule 8D should have explained as to why the voluntary disallowances or no disallowances made by the assessee was unreasonable and unsatisfactory. We failed to find any such satisfaction recorded by the Ld. assessing officer. The satisfaction is mandatory in view of the judicial precedents of the jurisdictional High Court laid down before us by the Ld. authorized representative. Therefore, respectfully following the judicial precedent of the jurisdictional High Court we direct the Ld. assessing officer to delete the disallowance of RS. 112 5844/– under section 14A of the income tax act applying the provisions of Rule 8D of the Income Tax Rules, 1962. Reversing the finding of the Ld. first appellate authority, we allow ground No. 2 of the appeal of the assessee.
Ground No. 3 of the appeal of the assessee is with respect to the addition of Rs. 48.87 crores on protective basis consequential to the addition of Rs. 71.26 crores Rites Limited V DCIT DCIT V Rites Limited A Y 2009-10 made by the revenue authorities in the assessment year 2008 – 09. The Ld. AO has submitted that the above issue is covered against the assessee vide ground No. 3 of the appeal of the assessee in assessment year 2008 – 09 decided by the coordinate bench in assessee’s own case in ITA No. 2149/del/2013 wherein wide Para No. 12 the above addition being difference between Rs. 166.62 crores and Rs. 71.26 crores is upheld in assessment year 2008 - 2009. As they disallowances been deleted in assessment year 2008 – 09 the addition is required to be confirmed in this year. In view of this ground, No. 3 of the appeal of the assessee is dismissed.
In the result, appeal of the assessee is partly allowed.
ITA No. 3026/Del/14 is appeal of the revenue wherein revenue has contested the deletion of the addition of Rs. 1,9236000/– on account of disallowance of the assessee’s claim of deduction supplier period expenses even when the assessee was following the market system of accounting. The Ld. assessing officer has disallowed this sum based on schedule am of the balance sheet which are specified that that the sum of Rs. 192.36 Lacs have been debited to the profit and accounts relating to the prior period. The assessee contested that decision of the Gujarat High Court in the case of Saurashtra cement and chemical industries versus CIT213ITR 525 squarely covered the issue in favour of the assessee. However, the Ld. assessing officer rejected the contention of the assessee and made above disallowance. Ld. CIT(A) deleted, the deponent disallowance in view of the decision of the Hon’ble Delhi High Court in the appellant’s own case for assessment year 2006 – 07 and 2007 – 08 dated 16/12/2013 wherein the Hon’ble Delhi High Court has decided the issue in favour of the appellant by upholding the finding of the coordinate bench as well as the Ld. 1st appellate authority.