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Income Tax Appellate Tribunal, KOLKATA ‘C’ BENCH, KOLKATA
Before: Sri N.V. Vasudevan & Sri J. Sudhakar Reddy]
assessee and the revenue, directed against the order of the ld. Commissioner of Income Tax (Appeals)-XII, Kolkata (‘ld. CIT(A)’), passed u/s 250 of the Income Tax Act (the ‘Act’), order dt. 11/07/2014.
First we take up the assessee’s appeal in for the Assessment Year 2009-10. The grounds of appeal for the same read as under:-
2 Hindustan Gum & Chemical Ltd Assessment Year: 2009-10 & I.T.A. No. 2161/Kol/2014 Assessment Year: 2009-10 “1. That on the facts and in the circumstances of the case, the learned CIT (Appeals) erred in not deleting the disallowance of Rs.5,61.305/- treated by learned DCIT as expenses attributable to earning dividend income and did not hold that no expenses have been incurred to earn the said income.
2. That on the facts and in the circumstances of the case, the learned CIT (Appeals) erred in not holding that provision for leave encashment of Rs.17,63,884/- is neither statutory liability nor contingent liability and therefore not to be considered for the purpose of computing disallowance u/s.43B(f) of the I.T. Act, 1961.
3. That on the facts and in the circumstances of the case, the Learned CIT (Appeals) erred in not holding that Penalty of Rs.24,000/- is not paid for violation of any law and therefore the same is allowable as business expenditure. That the appellant craves leave to. add to. alter amend and/or withdraw all or any of the above grounds at or before the hearing of the appeal.”
We have heard the ld. Senior Counsel Shri J.P. Khaitan, on behalf of the assessee and Shri Arindam Bhattacharjee, on behalf of the Revenue. On careful consideration of the papers on record, case laws cited and orders of the Authorities below, we hold as follows:-
Ground No. 1 of the assessee’s appeal is on the disallowance made u/s 14A of the Act.
4.1. The ld. Counsel for the assessee, submits that the Tribunal in the assessee’s own case, in the earlier assessment year, in ITA No. 462/Kol/2014,
3 Hindustan Gum & Chemical Ltd Assessment Year: 2009-10 & I.T.A. No. 2161/Kol/2014 Assessment Year: 2009-10 Assessment Year 2008-09, order dt. 08/03/2017, had considered the issue and held that no disallowance was called for under Rule 8D2(ii) of the Income Tax Rules, 1962 (the ‘Rules’), for the reason that the assessee had sufficient interest from own funds to make the investments and that the assessee has made strategic investments and under those circumstances, no disallowance can be made under Rule 8D2(ii) of the Rules.
4.1.1. The assessee’s submission is that only dividend bearing investments should be taken into account for the purpose of working out disallowance under Rule 8D2(ii) of the Rules.
4.2. On consideration of these submissions, we are of the considered opinion that the issue should be restored to the file of the Assessing Officer with a direction that the disallowance under Rule 8D2(ii) of the Rules, should be determined by applying the following propositions of law:-
The Bombay High Court in the case of HDFC Bank Ltd. v. DCIT (2014) 366 ITR 505(Bom HC), held as follows:-
Income—Expenditure incurred in relation to income not includible in total income—Exempt income—Assessee made investment in tax free securities— AO disallowed proportionate disallowance u/s 14A—Tribunal deleted disallowance holding that investment in tax free securities/investments was made by assessee’s own funds—Held, finding of fact was given by tribunal that assessee's own funds and other non-interest bearing funds were more than investment in the tax—free securities—Said factual position was not disputed—Thus assessee's capital, profit reserves, surplus and current
4 Hindustan Gum & Chemical Ltd Assessment Year: 2009-10 & I.T.A. No. 2161/Kol/2014 Assessment Year: 2009-10 account deposits were higher than the investment in tax-free securities—It would have to be presumed that investment made by the Assessee would be out of the interest-free funds available with Assessee—Tribunal was justified in deleting addition made by AO—Revenues’ appeal dismissed
This Bench of the Tribunal in the assessee’s own case for the earlier Assessment Years, in A.Y. 2008-09, order dt.
08/03/2017 has taken a similar view. The Assessing Officer is directed to apply this proposition of law as laid down in the above decision to the facts of this case and determine the disallowance under Rule 8D2(ii) of the Rules. The claim of the assessee that it has made strategic investments and that these investments should not be considered while computing disallowance under Rule 8D2(ii) of the Rules, has also to be adjudicted by the Assessing Officer.
The Hon’ble Special Bench of the ITAT in the case of ACIT vs. Vireet Investment Pvt Ltd. held that only those investments are to be considered for computing the average value of investment which yielded exempt income during the year.
6.1. The Assessing Officer is directed to apply this proposition of law and work out the disallowance, if any, under Rule 8D2(ii) of the Act. Accordingly, this ground of the assessee is allowed for statistical purposes.
Ground No. 2 is on the disallowance of the provisions for leave encashment.
5 Hindustan Gum & Chemical Ltd Assessment Year: 2009-10 & I.T.A. No. 2161/Kol/2014 Assessment Year: 2009-10 7.1. We find that the Kolkata ‘A’ Bench of the Tribunal in the assessee’s own case for the Assessment Year 2007-08, while adjudicating the same issue remitted the issue to the file of the Assessing Officer to decide the same taking into consideration the outcome of the case in SLP civil 22889/2008 of the file of the Hon’ble Supreme Court.
Respectfully following the same, we set aside this issue to the file of the Assessing Officer, for fresh adjudication in accordance with law.
Ground No. 3 is on the levy of penalty of Rs.24,000/-.
9.1. The Assessing Officer disallowed an amount of Rs.24,000/-, on the ground that it is hit by Explanation 1 to Section 37 of the Act. The assessee submits that this amount was not paid for violation of any law but was just a penalty ordered by the Chief Judicial Magistrate for a finger injury caused to the worker in the assessee’s plant at Bhiwani.
The ld. Counsel for the assessee did not press this ground due to the smallness of the amount. Hence this ground of the assessee is dismissed as not pressed.
In the result, the appeal of the assessee is allowed in part.
12. Now we take up the revenue’s appeal for the Assessment Year 2009-10. The grounds of appeal for the same read as under:-
6 Hindustan Gum & Chemical Ltd Assessment Year: 2009-10 & I.T.A. No. 2161/Kol/2014 Assessment Year: 2009-10 “1. That in the facts and circumstances of the case the Ld. CIT(A) erred in deleting the disallowance of Rs. 10,57,671/ - made u/ s. 10B by the A.O. on account of other income."
2. That in the facts and circumstances of the case the Ld. CIT(A) erred in deleting the disallowance of Rs. 16,17,999/- against the claim of addl. depreciation by the assessee."
3. That in the facts and circumstances of the case the Ld. CIT(A) erred in deleting the addition of Rs. 2,12,48,372/ - made under the head current liabilities without considering the CBDT instruction No. 03/2011."
11. The ld. CIT(A), has dealt with this issue at page 11, para 4.2.1. of his order, wherein he has held as follows:-
“It is noted that, this issue has been decided by the Hon'ble Tribunal in the appellant's favour by vide order dated December 28, 2007 passed in and 277 (Kol) of 2007 for the assessment year 2003-04- and in ITA Nos. 567 and 580/Kol/2009 for the assessment year 2004-05. The Hon'ble Tribunal considered the decision of Hon'ble Supreme Court in the case of CIT v in Sterling Foods (1999) 2371TR 579(SC)) and noted that the same was rendered with reference to section 80HH, whereas the provisions of section 10B were material different. It is also seen that the similar issue has come up for consideration while adjudicating the appellant’s appeal for AY 2007-08 and AY 2008- 09 and the issue was decided in favour of the appellant in Appeal No.428/XII/R-12/10-11 Dated 12.03.2013 & Appeal No.
7 Hindustan Gum & Chemical Ltd Assessment Year: 2009-10 & I.T.A. No. 2161/Kol/2014 Assessment Year: 2009-10 475/XII/12/08-09 dated 13.01.2014 following the above mentioned orders of the jurisdictional ITAT, Kolkata. In the light of the above discussion & findings, after perusing the facts of the case and respectfully following the decision of the Hon’ble Jurisdictional Tribunal in the case of the appellant and the Appellate Orders for A Y 2007-08 & A Y 2008- 09, the addition made by the AO is directed to be deleted. Hence, this ground of appeal is allowed.”
We find that the Tribunal in the assessee’s own case on the very same issue for the Assessment Year 2004-05 up to Assessment Year 2008-09, has adjudicated the issue in favour of the assessee. It was held that rent realized from staff, insurance claim realized in respect of damage of goods, excess liability from sundry creditors written back, for revenue expenses and miscellaneous incomes and receipts including duty draw back have to be treated as income from business and have to be considered while calculating deduction u/s 10B of the Act. The Hon’ble Calcutta High Court in the assessee’s own case for the Assessment Year 2003-04 in judgement dt.
30th June, 2016, has upheld this order of the Tribunal.
Respectfully following the same, we uphold the order of the ld. CIT(A) and dismiss this Ground of the Revenue.
Ground No. 2 is against the direction of the ld. CIT(A) to allow the additional depreciation. The claim for additional depreciation.
8 Hindustan Gum & Chemical Ltd Assessment Year: 2009-10 & I.T.A. No. 2161/Kol/2014 Assessment Year: 2009-10 14.1. This issue is covered in favour of the assessee by the decision of the Kolkata ‘A’ Bench of the Tribunal in the assessee’s own case for the Assessment Year 2007-08 & 2008-09. The ld. CIT(A) has allowed the claim of the assessee by following this order of the Jurisdictional Tribunal.
We find no infirmity in the same. In the result, we uphold the finding of the ld. CIT(A) at para 4.2.2., of his order. In the result, this ground of the Revenue is dismissed.
Ground No. 3 is on the issue of provision for market to market losses.
16.1. The assessee has accounted for the losses that arose due to exchange rate fluctuations. The losses as on 31st March, 2009 was computed and claimed. The Assessing Officer disallowed the same on the ground that this is a notional loss the Kolkata ‘B’ Bench of the Tribunal, for the assessee’s own case for the Assessment Year 2008-09, had adjudicated the issue in favour of the assessee.
16.2. The Tribunal held as follows:- P.T.O.
9 Hindustan Gum & Chemical Ltd Assessment Year: 2009-10 & I.T.A. No. 2161/Kol/2014 Assessment Year: 2009-10
10 Hindustan Gum & Chemical Ltd Assessment Year: 2009-10 & I.T.A. No. 2161/Kol/2014 Assessment Year: 2009-10
The ld. CIT(A) has applied this decision of the Tribunal in the assessee’s own case and granted relief. We find no infirmity in the same and dismiss this ground of the revenue.
To sum up, assessee’s appeal in for the assessment Year 2009-10, is allowed for statistical purposes and revenue’s appeal in ITA No. 1798/Kol/2014 for the Assessment Year 2009-10, is dismissed.
Kolkata, the 25th day of October, 2017.