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Income Tax Appellate Tribunal, KOLKATA ‘A’ BENCH, KOLKATA
Before: Shri P.M. Jagtap & Shri S.S. Viswanethra Ravi
Date of concluding the hearing : April 12, 2017 Date of pronouncing the order : May 12, 2017
O R D E R Per Shri P.M. Jagtap, A.M..: These four appeals, two filed by the assessee and two filed by the Revenue, are cross appeals for Assessment Years 2011-12 and 2012-13 and since the issues involved therein are common, the same have been I.T.A. Nos. 1953 & 1954/KOL./2014 Assessment years: 2011-2012 & 2012-2013 & & 2081/KOL./2014 Assessment years: 2011-2012 & 2012-2013 Page 2 of 9 heard together and are being disposed of by a single consolidated order for the sake of convenience.
First we shall take up the cross appeals for A.Y. 2011-12 being and 2080/KOL/2014, which are directed against the order of ld. Commissioner of Income Tax (Appeals)-XII, Kolkata dated 11.08.2014.
The assessee in the present case is a Company, which is engaged in the business of Manufacturing and Export of Insecticides and Agro Chemicals. The return of income for the year under consideration, i.e. A.Y. 2011-12 was filed by it on 22.09.2011 declaring total income of Rs.30,64,53,814/-. While computing the total income of the assessee under the normal provisions of the Act as well as the book profit under section 115JB of the Act vide an order dated 26.03.2013 passed under section 143(3), the following additions, inter alia, were made by the Assessing Officer:- (i) Disallowance under section 14A Rs.8,12,886/- read with Rule 8D
(ii) Excise Duty Refund Rs.5,59,46,935/- (iii) Interest subsidy Rs.43,37,773/-
Against the order passed by the Assessing Officer under section 143(3), an appeal was preferred by the assessee before the ld. CIT(Appeals) disputing the aforesaid additions made by the Assessing Officer while computing its book profit under section 115JB of the Act as well as its business income under the normal provisions of the Act. After considering the submissions made by the assessee as well as the material available on record, the ld. CIT(Appeals) deleted the additions made by the Assessing Officer on account of excise duty refund and interest subsidy in computing the income of the assessee under the normal provisions of the Act. He, however, confirmed the said two additions
I.T.A. Nos. 1953 & 1954/KOL./2014 Assessment years: 2011-2012 & 2012-2013 & & 2081/KOL./2014 Assessment years: 2011-2012 & 2012-2013 Page 3 of 9 made by the Assessing Officer while computing the book profit of the assessee-company under section 115JB of the Act. He also confirmed the disallowance made by the Assessing Officer under section 14A read with Rule 8D while computing the income of the assessee under the normal provisions of the Act and book profit under section 115JB of the Act.
Aggrieved by the order of the ld. CIT(Appeals), the assessee and Revenue are both in appeal before the Tribunal on the following grounds:- (Assessee’s appeal) (1)That the Ld. CIT(A)-XII, Kolkata was not justified in upholding the action of the ld. Additional Commissioner of Income Tax, Range-12, in adding a sum of Rs.8,12,886/- under section 14A read with Rule 8D, for exempt dividend income of Rs.9,284/- without considering appellant’s submissions judicially.
(2) That the Ld. CIT(A)-XII, Kolkata was not justified in upholding the action of the ld. Additional Commissioner of Income Tax, Range-12, for addition of Rs.5,59,46,535/- (being excise duty refund) and Rs.43,37,773/- (being interest subsidy) in computation of book profits under section 115JB whereas both these items h been treated as capital receipts not liable to Income Tax.
(3) The ld. AO has acted arbitrarily in adding a sum of Rs.8,12,886/- being disallowance under section 14A while computing book profits under section 115JB [Case-Goetz India Ltd. –vs.- CIT (2009) SOT 101 (Delhi).
(Revenue’s appeal) “That is the facts of the case, the Ld. CIT(A) erred in deleting the addition on account of interest subsidy of Rs.43,37,773/- and excise duty refund of Rs.5,59,46,935/- by rejecting the same as revenue receipt, relying his decision in the assessee’s own case for the AY 2010-11, which is pending before Hon’ble ITAT”.
We have heard the arguments of both the sides and also perused the relevant material available on record. As regards the issue involved in I.T.A. Nos. 1953 & 1954/KOL./2014 Assessment years: 2011-2012 & 2012-2013 & & 2081/KOL./2014 Assessment years: 2011-2012 & 2012-2013 Page 4 of 9 Ground No. 1 of assesese’s appeal relating to disallowance made under section 14A read with Rule 8D while computing income of the assessee under the normal provisions of the Act, it is observed that a similar issue was involved in assessee’s own case for AY 2010-11 and vide its order dated 08.03.2017 passed in ITA Nos. 883/KOL/2014 & 1018/KOL/2014, the same has already been decided by the Coordinate Bench of this Tribunal by holding that the disallowance under section 14A read with Rule 8D should be restricted to the extent of exempt income vide paragraph no. 29 of its order, which reads as under:- “29. We have heard the submission of the learned counsel for the Assessee. It was brought to our notice that the Hon'ble ITAT, Kolkata in the case of REI Agro Ltd. Vs. DCIT 144 ITD 141 (Kol-Trib) has held that it is only the investments which yields dividend during the previous year that has to be considered while adopting the average value of investments for the purpose of Rule 8D(2)(ii) & (iii) of the Rules. The aforesaid view of the Tribunal has since been affirmed as correct by the Hon'ble Calcutta High Court in G.A.No.3581 of 2013 in the appeal against the order of the Tribunal in the case of REI Agro Ltd. (supra). In the light of the admitted factual position that the assessee had earned dividend income of only Rs.8,440/- during the previous year, we are of the view that there can be no disallowance u/s 14A of the Act of any sum beyond Rs.8,440/-. Accordingly the addition made u/s 14A of the Act is directed to be restricted to the extent of dividend income of Rs.8,440/-. Gr.No.3 is partly allowed”.
As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to AY 2010-11, we respectfully follow the decision of the Coordinate Bench of this Tribunal for A.Y. 2010-11 and direct the Assessing Officer to restrict the disallowance under section 14A read with Rule 8D to the extent of exempt dividend income. Ground No. 1 of the assessee’s appeal thus is partly allowed.
As regards the issue involved in Ground No. 2 of the assessee’s appeal relating to the addition made on account of excise duty refund and I.T.A. Nos. 1953 & 1954/KOL./2014 Assessment years: 2011-2012 & 2012-2013 & & 2081/KOL./2014 Assessment years: 2011-2012 & 2012-2013 Page 5 of 9 interest subsidy while computing book profit under section 115JB of the Act, it is observed that this issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench of this Tribunal rendered vide its order dated 08.03.2017 (supra) for A.Y. 2010-11, wherein a similar issue has already been decided by the Tribunal in favour of the assessee vide paragraph no. 21 of its order, which reads as under:- “21. The admitted factual and legal position in the present case is that subsidies in question is not in the nature of income. Therefore they cannot be regarded as income even for the purpose of book profits u/s.115JB of the Act though credited in the profit and loss account and have to be excluded for arriving at the book profits u/s.115JB of the Act. We hold accordingly and confirm the order of the CIT(A) in this regard. In light of the aforesaid discussion, we are of the view that the subsidies in question should be excluded for the purpose of determination of book profits u/s. 115JB of the Act. We hold accordingly and allow Gr.No.1 raised by the Assessee”.
Respectfully following the decision of the Coordinate Bench of this Tribunal in assessee’s own case for AY 2010-11 on a similar issue, we direct the Assessing Officer to delete the addition made on account of excise duty refund and interest subsidy while computing the book profit of the assessee-company under section 115JB of the Act and allow Ground No. 2 of the assessee’s appeal.
As regards the issue involved in Ground No. 3 of assessee’s appeal for A.Y. 2011-12 relating to the disallowance made under section 14A read with Rule 8D while computing the book profit of the assessee- company under section 115JB of the Act, it is observed that this issue is consequential to the issue involved in Ground No. 1 of the assessee’s appeal for AY 2011-12, which has been decided by us in the foregoing portion of this order. Following our conclusion drawn in AY 2011-12 on the said issue, we direct the Assessing Officer to restrict the disallowance
I.T.A. Nos. 1953 & 1954/KOL./2014 Assessment years: 2011-2012 & 2012-2013 & & 2081/KOL./2014 Assessment years: 2011-2012 & 2012-2013 Page 6 of 9 under section 14A read with Rule 8D to the extent of exempt dividend income. Ground No. 3 of the assessee’s appeal thus is partly allowed.
As regards the Revenue’s appeal for A.Y. 2011-12 being it is observed that the solitary issue involved therein relating to the deletion by the ld. CIT(Appeals) of the addition made by the Assessing Officer on account of interest subsidy and excise duty refund in computing the income of the assessee under the normal provisions of the Act is squarely covered in favour of the assessee by the order dated 08.03.2017 (supra) of the Coordinate Bench of this Tribunal passed in assessee’s own case for AY 2010-11, wherein a similar issue was decided in favour of the assessee vide Paragraphs No. 11 & 12 of its order, which read as under:- “11. The conclusion of the Hon'ble High Court is that the Excise refund and interest subsidy received in pursuance of New Industrial Policy of the Government have to be considered in the light of the Office Memorandum dt. 14th June, 2002, and the said Office Memorandum makes it explicit that the concessions were given to achieve twin objects viz., acceleration of industrial development in the State of Jammu & Kashmir and generation of employment in that State. The Hon'ble High Court further held that a close reading of the Office Memorandum and the amendments introduced thereto with para 3 of Central Excise Notification Nos. 56 and 57, dt. 11th Nov., 2002, makes it amply clear that the generation of employment so contemplated was not casual or temporary but of permanent nature and the paramount consideration of the Central Government in providing the incentives to new industrial units and substantial expansion of the existing units was generation of employment through acceleration of industrial development in public interest. Such incentives, designed to achieve a public purpose, cannot be construed as production or operational incentives for the benefit of assessees alone. It was further held that making of additional provision in the scheme that the incentives would be available to the eligible industrial units from the date of commencement of commercial production and that these are not to be allowed for creation of new assets cannot be viewed in isolation to treat the incentives as production incentives. Such provisions are intended to I.T.A. Nos. 1953 & 1954/KOL./2014 Assessment years: 2011-2012 & 2012-2013 & & 2081/KOL./2014 Assessment years: 2011-2012 & 2012-2013 Page 7 of 9 ensure that the incentives are made available only to the bona fide industrial units so that the larger public interest of eradicating unemployment is achieved. The Court finally concluded that the incentives received by way of excise duty refund and interest subsidy are capital receipts in the hands of the assessee and therefore not chargeable to tax.
12. The ratio laid down in the aforesaid decision is squarely applicable to the very same subsidy received under the very same scheme of State of Jammu & Kashmir by the Assessee in the present case. We therefore find no grounds to interfere with the conclusions of the CIT(A). The grievance of the revenue in ground No.2 regarding the revised return of income is not valid and has rightly held by the CIT(A) the said revised return of income was valid u/s.139(5) of the Act and was acted upon by the AO. In these circumstances, we find no merit in Ground No.2 raised by the revenue”.
Respectfully following the order of the Tribunal dated 08.03.2017 (supra) in assessee’s own case for A.Y. 2010-11 on a similar issue, we uphold the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue and dismiss the appeal of the Revenue for A.Y. 2011-12.
Now we take up cross appeals for AY 2012-13 in (assessee’s appeal) and ITA No. 2081/KOL/2014 (Revenue’s appeal), which are directed against the order of ld. Commissioner of Income Tax (Appeals)-XII, Kolkata dated 11.08.2014.
After considering the rival submissions and perusing the relevant material available on record, it is observed that the issue involved in Ground No. 1 of the assessee’s appeal for AY 2012-13 relating to the disallowance made under section 14A read with Rule 8D in computing the income of the assessee under the normal provisions of the Act is similar to the one involved in Ground No. 1 of the assessee’s appeal for AY 2011- 12, which has already been decided by us in the foregoing portion of this order. Following our conclusion drawn in AY 2011-12 on the similar
I.T.A. Nos. 1953 & 1954/KOL./2014 Assessment years: 2011-2012 & 2012-2013 & & 2081/KOL./2014 Assessment years: 2011-2012 & 2012-2013 Page 8 of 9 issue, we direct the Assessing officer to restrict the disallowance under section 14A read with Rule 8D to the extent of exempt dividend income earned by the assessee.
As regards the issue involved in Ground No. 2 of the assessee’s appeal for AY 2012-13 relating to the addition made on account of excise duty refund and interest subsidy while computing book profit under section 115JB of the Act, it is observed that this issue is also similar to the issue involved in Ground No. 2 of the assessee’s appeal for AY 2011- 12, which has already been decided by us in the foregoing portion of this order. Following our conclusion drawn in AY 2011-12 on the similar issue, we delete the addition made by the Assessing officer on account of excise duty refund and interest subsidy while computing the book profit under section 115JB and allow Ground No. 2 of the assessee’s appeal.
As regards the issue involved in Ground No. 3 of assessee’s appeal for A.Y. 2012-13 relating to the disallowance made under section 14A read with Rule 8D while computing the book profit of the assessee- company under section 115JB of the Act, it is observed that this issue is consequential to the issue involved in Ground No. 1 of the assessee’s appeal for AY 2012-13, which has been decided by us in the foregoing portion of this order. Following our conclusion drawn in AY 2012-13 on the said issue, we direct the Assessing Officer to restrict the disallowance under section 14A read with Rule 8D to the extent of exempt dividend income. Ground No. 3 of the assessee’s appeal thus is partly allowed.
As regards the only issue involved in Revenue’s appeal for AY 2012- 13 relating to the deletion by the ld. CIT(Appeals) of the addition made by the Assessing Officer on account of interest subsidy and excise duty refund in computing the income of the assessee under the normal provisions of the Act, it is observed that this issue is also similar to the solitary issue involved in the Revenue’s appeal for AY 2011-12, which has I.T.A. Nos. 1953 & 1954/KOL./2014 Assessment years: 2011-2012 & 2012-2013 & & 2081/KOL./2014 Assessment years: 2011-2012 & 2012-2013 Page 9 of 9 already been decided by us in the foregoing portion of this order. Following our conclusion drawn in AY 2011-12 on the similar issue, we direct the Assessing Officer to delete the additions made on account of excise duty refund and interest subsidy while computing the income of the assessee-company under the normal provisions of the Act and dismiss the appeal filed by the Revenue.
In the result, the appeals of the assessee being & 1954/KOL/2014 are partly allowed, while the appeals of the Revenue being ITA No. 2080/KOL/2014 & 2081/KOL/2014 are dismissed. Order pronounced in the open Court on May 12, 2017.