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Facts
The appeals were filed by the assessee and revenue against the orders of the CIT(A) for assessment years 2009-10, 2011-12, and 2012-13. The core issues involved were disallowance of unabsorbed depreciation, disallowance of contractual expenses, and disallowance of expenses under Section 14A.
Held
The Tribunal held that the issue of unabsorbed depreciation is covered by a coordinate bench decision and is in favor of the assessee. The disallowance of contractual expenses related to Kustore area was deleted as the addition made by the AO was found to be arbitrary and higher than actual payments. Other contractual expenses were restored to the AO for re-adjudication. The issue of grant to school, IICM expenses, and director's salary was allowed in favor of the assessee, following the principle of Goetze (India) Ltd. for additional grounds.
Key Issues
Disallowance of unabsorbed depreciation, contractual expenses, and expenses related to exempt income (Section 14A).
Sections Cited
Sec. 32(2), Sec. 14A, Rule 8D(2), Sec. 40(a)(ia), Sec. 37(1), Rule 46A
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Income Tax Appellate Tribunal, RANCHI BENCH, RANCHI
Before: SHRI GEORGE MATHAN, JM & SHRI RATNESH NANDAN SAHAY, AM
O R D E R Per Bench : These are the cross appeals filed by the assessee and revenue against the separate orders passed by the ld.CIT(A), Ranchi/NFAC, Delhi, dated 20.09.2017 & 19.09.2017 for the assessment years 2009-10, 2011- 2 M/s Bharat Coking Coal Ltd. 12 & 2012-13, respectively. The assessee has also filed cross objections arising out of appeals of revenue for A.Y.2009-2010 & 2011-2012. 2. First, we shall take up the appeals of the revenue filed for A.Y.2009- 2010 and 2011-2012. Ld. AR, at the outset, filed a chart specifying the issues involved in the appeals of the revenue, which reads as follows :-
The first issue is with regard to disallowance of unabsorbed depreciation. It was fairly agreed by both the sides that the issue is squarely covered by the coordinate bench of the Tribunal in assessee’s own case for the assessment year 2008-2009 in order dated 31.03.2023, wherein in para 7, the coordinate bench has held as follows :- 7. Now for the sake of convenience, we first take up the appeal of filed by the revenue. At the time of hearing before this Tribunal, ld. DR submitted that unabsorbed depreciation is allowed to be carried forward for a period of 8 years as per 1996 amendment regarding the provisions of section 32(2) of the Act. Therefore, the ld. CIT(A), Dhanbad erred in allowing the prior period depreciation to the assessee and order passed by the ld. AO needed to be restored. On the other hand, ld. AR submitted that unabsorbed depreciation could be allowed to the assessee to be carried forward 3 M/s Bharat Coking Coal Ltd. and set off even after 8 years without any limit in accordance with section 32(2) as amended by Finance Act, 2001. The ld. AR in order to support his arguments relied on the decision of the Gujarat High Court in the case of General Motors India Pvt. Ltd. vs DCIT (Guj) (2013) 354 ITR 244 (Guj) wherein, the Hon'ble Gujarat High Court has held that unabsorbed depreciation from AY 1997-98 up to 2001- 02 got carried forward to AY 2002-03 and became part of it came to be governed by the provisions of section 32(2) as amended by the Finance Act, 2001 and were available for carry forward and set off against income of subsequent years without any limit. The relevant observations of the Hon'ble Court was as under: "We are of the considered opinion that any unabsorbed depreciation available to an assessee on 1st day of April 2002 (A.Y. 2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001. And once the Circular No. 1004 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y. 1997-98 upto the A.Y. 2001-02 got carried forward to the assessment year 2002-03 and became part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act, 2001 and were available for carry forward and set off against the profits and gains of subsequent years without any limit whatsoever."
In the light of the judicial precedents on the issue especially that of the Hon'ble Gujarat High court in the case of General Motors India Pvt. Ltd. (supra), we find that the issue is covered in favour of the assessee, therefore, the ground taken by the revenue is rejected and the order passed by the ld. CIT(A) in respect of instant issue is sustained.
We have considered the submissions of the both the sides. As it is noticed that the issue of unabsorbed depreciation has already been adjudicated in the assessee’s own case by the coordinate bench of the Tribunal, respectfully following the observations of the coordinate bench of the Tribunal and for the identical reasons, the order of the ld. CIT(A) stands upheld and the issue is held in favour of the assessee and against the revenue.
Next issue is with regard to contractual expenses unpaid liability disallowance. It was submitted by the ld. AR that the these were amount in 4 M/s Bharat Coking Coal Ltd. respect of which the bills had been received but the amount could not be paid during the impugned assessment year and it has been paid in the subsequent year. It was submission that as the bills had been received the assessee had made the provision, the AO disallowed the said provision on the ground that these were only provisions. It was submission that the Ld.CIT(A) has considered these facts and had recognised that the assessee had got the contract work executed and had received the bills and consequently had relied upon the decision of the Hon’ble Supreme Court in the case Bharat Earth Movers reported in 245 ITR 428 (SC) and as the liability had definitely risen the amount had been allowed as expenditure.
In reply, the Ld.CIT DR has vehemently opposed the above submissions of the ld. AR. It was submissions the assessee is a company and the assessee is following mercantile system of accounting and, therefore, if at all the assessee could be given the benefit of the expenses in the year of payment. It was submission that this is only a provision and provision cannot be allowed.
We have considered the rival submissions. A perusal of the order of the Ld.CIT(A) placed at page 39 of its paper book in para 8.2 and 8.3.3 shows that the Ld.CIT(A) has considered the fact that the bills had been raised and the expenses actually related to the impugned assessment year. The assessee having had the contract executed the liability has been incurred insofar as the bills have been raised on the assessee and as it is noticed that the Ld.CIT(A) has followed the principle laid down by the 5 M/s Bharat Coking Coal Ltd. Hon’ble Supreme Court of in the case of Bharat Earth Movers, referred to supra, we find no error in order of the Ld.CIT(A) which calls for any interference on this issue. Consequently, the findings of the Ld.CIT(A) on this issue stands confirmed and this ground of revenue stands dismissed.
The next issue is in regard to the expenses relating to exempt income disallowed u/s.14A of the Act. It was fairly agreed by the both the sides that the issue was fairly covered by the decision of the coordinate bench of this Tribunal in the assessee’s own case for the assessment years 2013-14, 2014-15 in & 304/Ran/2017, dated 18/08/2023, wherein in para 7 to 9 the coordinate bench of this tribunal has held as follows:- 7. Brief facts are that the assessee has received interest and dividend income from Govt. Securities of Rs. 4,41,67,000/- and claimed the same as exempt u/s 10(34) of the Act. Ld. AO on perusal of the profit and loss accounts and books of accounts came to the conclusion that provisions of Section 14A of the Act r.w. Rule 8D of the Rules were applicable on the assessee and after giving a show cause computed the disallowance at Rs. 27,19,753/- comprising of Rs. 9,11,753/- under Rule 8D(2)(ii) and Rs. 17,32,000/- under Rule 8D(2)(iii) of the Rules.
Ld. CIT(A) in the appellate proceedings recorded the finding that assessee’s own interest free funds were sufficient to cover investment made in the securities. Ld. CIT(A) noted that the equity fund of the assessee was Rs. 4,657 Cr whereas average investments were only Rs. 34.64 Cr and, therefore, presumption has to be drawn that sufficient fund was available with the assessee and thus, no disallowance is called for under Rule 8D(2) of the Rules. Ld. CIT(A) relied on various decisions to reach the said conclusion namely, in the cases of CIT Vs. HDFC Bank Ltd. reported in [2014] 366 ITR 505 (Bombay), CIT Vs. Hero Cycles Ltd. reported in [2010] 323 ITR 518 (Punjab & Haryana), CIT Vs. Walfort Share & Stock Brokers (P.) Ltd. reported in [2010] 326 ITR 1 (SC) and CIT Vs. Reliance Utilities & Power Ltd. reported in [2009] 313 ITR 340 (Bombay). Considering these facts and the ratio laid down in the various decisions, we are inclined to uphold the order of Ld. CIT(A) wherein it has held that no disallowance is required under rule 8D(2)(ii) by dismissing the ground no. 2 raised by the Revenue.
6 M/s Bharat Coking Coal Ltd.
We considered the rival submissions. As it is noticed that the issues was fairly covered by the decision of the coordinate bench of this tribunal in the assessee’s own case and as there is no change in the facts, respectfully following the decision of the coordinate bench of this tribunal in the assessee’s own case for the assessment years 2013-14 and 2014-15 referred to supra, the findings of the Ld.CIT(A) on this issue stands confirmed and issue is held against the revenue.
Consequently, the appeal of the revenue in ITA 300/RAN/2017 for the assessment year 2009-10 wherein the second issue is involved stands dismissed and for the assessment year 2011-12 wherein the first issue and the third issue are involved, stands dismissed.
Cross Objections filed by the assessee in the revenue’s appeal being CO Nos.09&11/RAN/2018 in and No.302/2017 for the assessment year 2009-10 and 2011-12 respectively are in support of the order of the ld. CIT(A). As we have already dismissed the revenue’s appeal, therefore, the cross objections filed by the assessee become infructuous and the same are dismissed as infructuous.
Now, we shall take up the appeals of the assessee, wherein the ld. AR has filed a chart specifying the issues involved therein and requested to decide the appeals of the assessee for the years under consideration on issue-wise. The chart reads as follows :-
7 M/s Bharat Coking Coal Ltd.
The first issue is in regard to addition made on contractual expenses related to Kustore area (L.B.Singh). It was submitted by the Ld.AR that the issue was in regard to the contractual payments made to Shri LB Singh and his brothers which has been disallowed by the AO on the ground that Shri LB Singh and his brothers have done no work for the assessee. For the assessment year 2011-2012, the disallowance was Rs.133,93,00,000/-. The Bench had issued a direction to the revenue to provide the breakup of the disallowances and how the figures were arrived at in this assessment order. The order sheet noting reads as follows :-
8 M/s Bharat Coking Coal Ltd.
In respect of the order sheet noting the revenue has filed its written submission in response as follows :-
9 M/s Bharat Coking Coal Ltd. 10 M/s Bharat Coking Coal Ltd. 11 M/s Bharat Coking Coal Ltd. 12 M/s Bharat Coking Coal Ltd. 13 M/s Bharat Coking Coal Ltd. 14 M/s Bharat Coking Coal Ltd. 15 M/s Bharat Coking Coal Ltd. 16 M/s Bharat Coking Coal Ltd. 17 M/s Bharat Coking Coal Ltd. 18 M/s Bharat Coking Coal Ltd. 19 M/s Bharat Coking Coal Ltd. 20 M/s Bharat Coking Coal Ltd. 21 M/s Bharat Coking Coal Ltd. 22 M/s Bharat Coking Coal Ltd. 23 M/s Bharat Coking Coal Ltd. 24 M/s Bharat Coking Coal Ltd. 25 M/s Bharat Coking Coal Ltd. 26 M/s Bharat Coking Coal Ltd.
It was submitted by the Ld. AR that as per the written submissions and clarifications issued by the revenue, the revenue is unable to exactly quantify the amounts, insofar as for the assessment year 2011-12, the reconciliation itself fall short of approximately Rs.69 crore, for the assessment year 2012-13 the reconciliation shortfall is nearly of 27 M/s Bharat Coking Coal Ltd. Rs.27crores and for the assessment year 2009-10 the shortfall is nearly Rs.15 crores. It was also submitted by the Ld. AR that as per the reconciliation provided by the revenue, the revenue has considered the total receipts disclosed by Shri L B Singh and his brothers and their P & L account as also the cheque in hand disclosed in their balance sheet and cash in bank disclosed by them in their balance sheet. This is for the assessment year 2011-2012 and for the assessment year 2012-13 they have included even income tax seizure amount. It was the submission that the assessee has made payment to L B Singh and his brothers on the basis of the tender and the contract awarded to Shri L B Singh and his brothers and on the basis of the bills raised by them as also the quantity of work which was verified by the assessee’s company. It was submission that just because there was a search on Shri L B Singh and his brothers and they had filed a settlement application wherein they have disclosed 98% income for the assessment year 2011-12 and 78.43% for the assessment year 2012-13, the AO has treated the payments made by the assessee to Shri L B Singh and his brothers as not for the purpose of business. However for all the other previous years, the profit disclosed by them at around 5% has been accepted.
The Ld AR to clarify the issue as to from where did the Ld AO get the figures of the impugned additions made for disallowance of contractual payment to L.B Singh & his brothers, drew our attention to the report of the investigation unit which was received by the Ld AO copy of which is reproduced as below:-
28 M/s Bharat Coking Coal Ltd. 29 M/s Bharat Coking Coal Ltd. 30 M/s Bharat Coking Coal Ltd. 31 M/s Bharat Coking Coal Ltd. 32 M/s Bharat Coking Coal Ltd.
It was further submitted by the Ld AR of the assessee that the assessing officer has simply relied upon the report of the investigation unit and has made the disallowance/addition in the hands of the assessee even without verifying and reconciling the actual payment figures.
33 M/s Bharat Coking Coal Ltd.
It was submission by the Ld.AR that admittedly proceedings are going on in the case of Shri L B Singh and his brothers. No proceeding whatsoever have been initiated against the assessee’s company nor its employees. It was submission that the contract payments made by the assessee is liable to allowed. It was also the submission that the disallowances made by the AO are purely arbitrary figures and have no relation to the amounts actually paid by the assessee to Shri L B Singh as is evident from the reconciliation provided by the department. It was submission that the addition as made by the AO in respect of contractual expenses related to Kustore area is liable to be deleted.
In reply, ld. CIT-DR submitted that he was to file further written submission. Ld.CIT-DR also drew our attention to page 24 to 49 of the order of the ld. CIT(A) which are the findings of the ld. CIT(A) for A.Y.2011-2012 in para 3.3 to 3.3.27. It was the submission that the payment made by the assessee company to Shri L.B Singh and his brothers were not for the business purpose of the assessee. It was the submission that the paper work which is claimed to be available with the assessee has not been fully shown. It was the submission that these payments by the assessee company to Shri L.B.Singh and his brothers being not for the purpose of business, the disallowance has been rightly made by the AO and confirmed by the ld. CIT(A).It was further submitted that the issue under examination is allowability of alleged business expenditure claimed by M/s BCCL. In the assessment proceedings as well as during the appellate proceedings numerous instances have been called out by the AO as well as the CIT(A)
34 M/s Bharat Coking Coal Ltd. that no negligible work has been done by Shri LB Singh and group to whom contract charges running into hundreds of crores were paid. In the assessment proceedings of Shri LB Singh and group either entire money received from BCCL has been offered as income and the portion of receipts from BCCL which has not been offered for tax has been added by the AO and confirmed by the ld. CIT(A). The order of the ld. CIT(A) on the facts has finalized the issue and no further fact finding whatsoever has been done on these issues. In appellate order of Shri L B Singh and group it has been clearly held that they are in receipt of money in the guise contract receipt from M/s BCCL against which no work whatsoever has been done. The assessee’s company has not been able to substantiate the work done except paper compliance and Shri L B Singh Group has expressed its inability to furnish any evidence whatsoever of having done any work for M/s BCCL. On the pretext that the documentary evidences of any work done by them has been lost in a fire incident. Based on the order of the AO and CIT(A) and findings in the case of assessment of Shri L B Singh & group and the appellate order, ld. CIT-DR strongly and vehemently requested the Bench to dismiss the appeal of the assessee particularly on the issue of making payment of contractual expenses in respect of Shri L B Singh Group.
We have considered the rival submissions. A perusal of the order of the ld. CIT(A) more specifically at para 3.3 of the order of the ld. CIT(A), the ld. CIT(A) has very categorically brought out the issues raised by the AO, which would be worthwhile to extract the same here as below :-
35 M/s Bharat Coking Coal Ltd. [3.3] 1 have considered the submissions of the appellant and have perused the assessment order as well as the Remand Report/ counter comments of the appellant. I find that the main ground on which the disallowance of expenses was made by the Ld.AO were: a. that Sri Lal Bahadur Singh was a contractor of BCCL (as revealed by the documents/evidences gathered during the course of search operation in his case u/s 132 and as admitted by him. b. that no evidence of carrying any contract work was found during the course of search operation in the case of Sri Lal Bahadur Singh. c. that Sri Lal Bahadur Singh, post search owned up the businesses of several persons. d. that Sri Lal Bahadur Singh admitted that these persons were his conduits and that he was the beneficial owner of all these businesses (see 12 to 17 of the assessment order). e. that there were 101 such entities (24+77) which had received contract payments from BCCL. f that Sri L. B Singh had received the monies in his bank account, however no books of accounts were maintained by either him or any of the concerns whose businesses he had owned up. g that Sri L. B Singh filed an application before the settlement Commission. h. that majority of the payments were made to the group entities (of which he was the beneficial owner) at the fag end of the FY. i. that for the AY 2011-12, before the Settlement Commission, Sri L B Singh offered an income of Rs. 68,50,00,000/- out of receipts of Rs.69,79,20,526/- u/s 153A/139 which was 98.16% of the total receipts. j. that Sri LB Singh made additional disclosure of Rs. 52,93,400/-before the Settlement Commission. k. that the appellant had owned up the businesses of Sri Abhay Pratap Singh, Mitilesh Singh, Nirbhay Pratap Singh, Om Prakash Singh, Pawan Singh. 1. that Sri Lal Bahadur Singh also owned up the business of Smt Laxmi Devi who had receipts of Rs. 23,27,93,110/- from BCCL.
36 M/s Bharat Coking Coal Ltd. m. that the total business owned up by Sri Lal Bahadur Singh was: a. Lal Bahadur Singh - Rs. 85,00,00,000/- (see page 18 ofAO) b. Sri Bharat Singh - Rs. 13,75,92,760/- (see page 17 of AO) c. Smt. Laxmi Devi -Rs. 23,27,93,110/- (see page 17 of AO) d. Sri K.N Singh -Rs. 8,35,90,586/- (see page 20 of AO) e. Sri Bharat Singh –Rs. 1,70,02,000/-(see page 22 of AO) 21. A perusal of the reasons as extracted by the ld.CIT(A), being the reasons the AO has made the addition, shows that all this is on account of a search on Shri Lal Bahadur Singh & group and the report of the investigation unit. The claim is that Shri L.B.Singh is unable to prove that he did any work. Shri L.B.Singh had no evidence. Shri L.B.Singh has subsidiaries. Shri L.B.Singh has gone to the settlement commission. There is no allegation that the assessee is party to this manipulation, if there is any. Why Shri L.B.Singh is not able to prove his work or why Shri L.B.Singh for reasons known to him decided not to prove his contractual work in AY 2011-12 & 2012-13 is best known to Shri L.B.Singh. The assessee is a public sector undertaking. The assessee has followed the Government prescribed protocols for tendering the mining process. All procedural requirements in regard to the tendering has been complied with. The payments have been made after verification. There is no allegation by any authority that there any culpable action by the assessee company to assist Shri L.B.Singh and his brothers in respect of the alleged fraud or manipulation. The assessee is in possession of the bills of work done by the contractor and the verifications thereon as done by the assessee’s staff as also the contracts. The payments have been made by the assessee to Shri L.B.Singh and his brothers for the execution of the contract which was 37 M/s Bharat Coking Coal Ltd. awarded through the tendering process. Such tendering process has not been brought into question by any of the authority including the revenue. It must be mentioned here that the assessee company is a public sector undertaking company books of which is also audited by CAG and also other Government agency. There is no allegation of any non-business expenditure having incurred in respect of the assessee company and especially in regard to the payment to Shri L.B.Singh and his brother or his associated companies.
Coming to the case of Shri L.B.Singh and his brothers, the revenue has taxed the entire contract receipts of Shri L.B.Singh as his income under the head business income. In short, the revenue recognizing that Shri L.B.Singh and his brothers has done business. Once it is held to be business income of Shri L.B.Singh and his brothers, it no more lies to turn around and say that the assessee’s payment to Shri L.B.Singh and his associates are not for the purpose of business.
It would be worthwhile to mention here that the comparative figures in respect of expenses charged to the profit and loss account of the assessee company in regard to the Kustore area, which reads as follows :-
38 M/s Bharat Coking Coal Ltd.
For the assessment year 2009-2010, the addition made by the AO is to an extent of Rs.23,22,00,000/- whereas the total contract payment of the contractors in the Kustore area by the assessee is only Rs.10,73,18,000/-. Similarly in the assessment year 2011-2012 the addition is Rs.1,33,93,00,000/- whereas the total contract is only Rs.28,86,14,000/- and for the assessment year 2012-2013 the addition is Rs.36,44,00,000/- whereas the total contract with all the contractors is only Rs.42,03,00,000/- Though it has been claimed by the revenue that Shri L.B.Singh and his associates were operating not only in in Kustore area but in other area also and, therefore, these figures should not be considered independently. The fact that the addition made on account of the alleged non-business related payment to Shri L.B.Singh and his associates are admittedly far higher than the payments actually made. This also clearly shows that this is not a disallowance of an expenditure which is done by the AO but this an addition that has been made by the AO. It would also be worthwhile to mention here that as per the proceedings against Shri L.B.Singh by CBI, the allegation is only of Rs.1.23 crores. This could be the reasons as to why the reconciliation itself are not coming out from the side of the revenue. In any case, as nothing has been found to show that the assessee has made the payments which are not for the purpose of business, the addition as made by the AO and as confirmed by the ld. CIT(A) under the head contractual expenses related to Kustore area, stands deleted. Consequently, this issue is held in favour of the assessee.
39 M/s Bharat Coking Coal Ltd.
The next issue is in regard to contractual expenses (details not furnished). It was fairly conceded by both the sides that the assessee has not been able to provide the details before the AO and it was admitted that this issue could be restored to the file AO and the assessee would be able to show all the details of the expenses. Consequently, this issue is restored to the file of the AO for re-adjudication after granting the assessee adequate opportunity of being heard. This ground of assessee is partly allowed for statistical purposes.
The next issue is in regard to contractual expenses Barora. It has been admitted by the Ld. AR that the assessee has opted for Vivad Se Vishwas and consequently is not pressing the issue. This ground of appeal
of the assessee is dismissed as not pressed.
27. The next issue is regard to the grant to the school, IICM expenses and the director’s salary. These admittedly were not originally claimed when computing the total income of the assessee but has been claimed by filing additional ground before the Ld.CIT(A) which was not admitted by the Ld.CIT(A). It was the submission that these expenses had been missed to be claimed and the AO may be directed to allow the same in view of the decision of the Hon’ble Supreme Court in the case of Goetze (India) Ltd., reported in [2006] 284 ITR 323 (SC).
28. The Ld.CIT DR submitted that revised returns have not been filed. It was submission that the Ld. CIT(A) was right in disallowing the claim in view of the decision of the Hon’ble Supreme Court in the case of Goetze (India) Ltd. as also the provisions of Rule 46A of IT Rules.