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Income Tax Appellate Tribunal, Kolkata Bench, KOLKATA
Before: SRI ABY T.VARKEYAND SHRI WASEEM AHMED
IN THE INCOME TAX APPELLATE TRIBUNAL Kolkata Bench, KOLKATA (Bench- “A”)
BEFORE SRI ABY T.VARKEY, JUDICIAL MEMBERAND SHRI WASEEM AHMED, ACCOUNTANT MEMBER
I.T. A. No. 2627/Kol/2013 Assessment Years: 2009-10
D.C.I.T. Circle-10, P-7, M/s Vishal Retail Ltd. Chowringhee Square, -Vs- Plot No. 8, Pocket-2, Block-A, 3rd Floor, Kolkata-700 069 Khasra No.335/336, NH-8, Rangpuri, New Delhi-110037 [PAN :AABCV5632P]
(Appellant) (Respondent) For the Appellant Shri Sallong Yaden, Addl. CIT. Sr. DR For the Respondent Shri K.K. Chhaparia, FCA & Shri Nirav Sheth, ACA Date of Hearing 11.01.2017 Date of Pronouncement 15.03.2017
ORDER Per Waseem Ahmed, AM 1. This is an appeal preferred by the Revenue against the order of the Ld. CIT(A)-XII, Kolkata, dated 19.08.2013 for assessment year 2009-10. 2. The facts in brief are that the assessee, in the present case is a Limited Company and is engaged in the business of dealing in wide variety of retail merchandise. The assessee for the year under consideration filed its return of income declaring total loss of Rs.1,35,24,57,920/-. Thereafter, the case was selected for scrutiny and accordingly notices u/s 143(2)/143(1) of the Income Tax Act, 1961 (hereinafter the ‘Act’) were issued upon the assessee. The assessment was framed u/s143(3) of the Act at a total loss of Rs. 1.15.40.13.968/-, after making certain additions/disallowances to the total income of the assessee.
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The first issue raised by the Revenue in this appeal is that, the Ld. CIT(A) erred in deleting the addition made by the AO to the tune of Rs.13,54,945/-, on account of violation of the provision of Section 43B of the Act. 4. The AO during the assessment proceedings observed from Annexure-E of the Tax Audit Report that the assessee has failed to make the payment for ESI, PF and VAT during the year within the stipulated time as mentioned under respective Act. Therefore, the same was disallowed and added to the total income of the assessee. 5. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that the amount of Rs.13,549,45/- referred in Annexure-E of the Tax Audit Report represents the amount pertaining to the A.Y. 2007-08 and A.Y. 2008-09 for Rs.9,66,010/- and Rs.3,88,935/- respectively. The same amount was disallowed by the assessee in those years and added to the total income of those years as discussed above. The same amount was also not paid during the year under consideration but the same was re-iterated in Form 3CD as it was one of the requirements to show the outstanding amount. As such, the aforesaid amount is not required to be disallowed for the year under consideration. The Ld. CIT(A) considering the submission of the assessee has deleted the addition made by the AO by observing as under: “I have carefully considered the assessment order, paper book and written submissions filed by the appellant. The AO has disallowed Rs.13,54,945/- u/s. 43B of IT Act on the ground that the appellant has not paid ESSI, PF & VAT during the year. However, it is seen that the AO has misinterpreted the facts of the case. The said amount of Rs.13,54,945/- has not been debited in the accounts of the instant year. In fact, in Annexure “E” of Tax Audit Report (Page 189 of Paper Book) it is mentioned that the aid amount represents sum which was not allowed in the earlier years. The said clause is intended to allow in the instant year, the disallowances made in the preceding years, if the relevant amount has been paid in the instant year. The amount of Rs.13,54,945/- represent amount disallowed in earlier years and which was not paid in the instant year and hence cannot be allowed. However, in disallowing the said sum again is clearly a mistake and was not warranted. The appellant has also submitted relevant extracts of Tax Audit Reports and assessment orders of AY 2007-08 and A.Y 2008-09, which also clearly substantiates the assessee contention the said sum of Rs.13,54,945/- represent Rs.9,66,010/- disallowed in A.Y 2007-08 and Rs.3,88,935/-disallowed in A.Y. 2008-09 respectively. To sum up, in the light of the above discussion and considering the facts of the case, it is held that the AO has erred in disallowing Rs.13,54,945/- u/s 43B of the Income Tax Act. Thus, this ground of appeal is allowed in favour of the appellant company.”
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Being aggrieved by the order of the Ld. CIT(A) the Revenue is in appeal before us on the following ground of appeal: 1. Whether Ld. CIT(A)-XII, Kolkata, was justified in accepting the claim of assessee that the disallowance made u/s.43B regarding non-payment of ESI, PF and VAT was erroneous on the part of the AO ? The Ld. CIT(A)-XII, Kolkata on the basis of Annexure “E” of Tax Audit Report has allowed the appeal without apprehending the said Section properly.”
The Ld. DR vehemently supported the order of the AO, whereas the Ld. AR before us filed the paper book beginning from Page 1 up to Page 280 and re-iterated the submissions as made before the Ld. CIT(A). 7. We have heard the rival contention and perused the materials available on record. In the instant case the AO has invoked the provisions of Sections 43B of the Act by observing that the assessee failed to pay the amount of PF, ESI and VAT within the stipulated time. However, the Ld. CIT(A) found that the impugned amount has already been disallowed in the earlier assessment years and, therefore, the same is not required to be disallowed in the current year. 8. On examination of the order of the lower authorities and other records available before us we find that the amount disallowed by the AO pertains to the A.Y. 2007-08 and 2008-09, as evident from the assessment order which are placed on pages 207 to 209 and 214 to 217. As the impugned amount does not pertain to the year under consideration, therefore, the same cannot be disallowed under the provisions of Section 43B of the Act. In view of the above we find no infirmity in the order of the Ld. CIT(A) and we uphold the same. Hence, this ground of appeal of the Revenue is dismissed. 9. The second issued raised by the Revenue in this appeal is that the Ld. CIT(A) erred in deleting the additions made by the AO for Rs.9,75,16,996/-, on account of non-payment of interest within the stipulated time as envisaged u/s43B of the Act. 10. The assessee has claimed interest expenses for Rs.9,75,16,996/- on unsecured debentures in its profit & loss account. But the payment for the same was not made within the time as stipulated u/s43B of the Act. On question by the AO about the non-payment of interest, the assessee submitted that the time for the payment for the impugned interest was extended for another 2 years which is ending on 31.03.2011. However, the AO disregarded the contention of 3
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the assessee on the ground that no evidence for such deferment was submitted. As such the AO disallowed the interest of Rs.9,75,16,996/- and added to the total income of the assessee.
Aggrieved the assessee preferred an appeal before the Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that the interest on un-secured debentures from LIC Mutual Funds is not covered within the clause (d) & (e) of Section 43B of the Act. Therefore, the disallowance of interest by virtue of provisions of Section 43B is not warranted. The Ld. CIT(A) considering the submissions of the assessee reversed the order of the AO by observing as under: “Thus, clause (d) and (e) of aforesaid section, if applicable on interest to LIC Mutual Fund, the question of disallowance u/s 43B will arise. Clause (e) of section 43B deals with interest payment w.r.to loan from scheduled bank. 'Scheduled Bank' as per Explanation 4 to section 43B read with section 11 (5) (iii) of Income Tax Act does not include LIC Mutual Fund. Now coming to clause (d) of section 43B, the said clause (d) of Section 43B, the said clause deals with interest payment w.r.fo loan from 'public financial institution' or 'state financial corporation' or 'state industrial investment corporation'. Going by the meaning of these financial institution/corporation as per Explanation 4 below section 43B, I find that the name of 'LIC Insurance Corporation' is appearing within the list of institutions specified in section 4A of Companies Act read with Explanation 4 of section 43B(a) of Income Tax Act. Thus, if interest due to Life Insurance Corporation is not paid within stipulated period as per section 43B, the same is disallowable. However, in the instant case, interest payment related to 'LIC Mutual Fund' and not 'Life Insurance Corporation'. The term 'Mutual Fund' is not defined in Income Tax Act. Thus, it is worth referring to SEBI (Disclosure & Investor Protection) Guidelines, 2000 which have defined 'Mutual Fund' and 'Public Financial Institution'. The relevant portion is reproduced below: 1.2.1 (xixa) "Mutual Fund" means a mutual fund registered with the Board under the SEBI (Mutual Funds) Regulations, 1966. 1.2.1 (xxiv) "Public Financial Institution" means institution, included in or notified for the purposes of section 4A of the Companies Act, 1956. Thus, I find that ‘Mutual Fund’ and ‘Public Financial Institution’ are covered by separate clause. The LIC Mutual Fund is not ‘Public Financial Institution’ as per section 4A of the Company Act, 1956. However, section 43B covers only Financial Institute and not Mutual Fund. Thus, it can be concluded that interest payment to LIC Mutual Fund is not covered u/s 43B of the Income Tax Act. In the light of the above discussion and finding, I conclude that the A.O. has erred in interpreting the definition of ‘Public Financial Institution’. Therefore, I held that ‘LIC Mutual Fund’ is not a public financial institution. Hence, it is held that the A. O. has erred in disallowing Rs.9,75,16,996/- being ‘interest provision’ on LIC Mutual Fund made in the accounts, as per section 43B of Income Tax Act and therefore the impugned disallowance made by the AO is hereby deleted. Thus, this ground of appeal is allowed in favour of the appellant company.” Being aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us on the following ground of appeal: 4
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“2. Whether the Ld. CIT(A)-XII, Kolkata, was justified on a comprehensive note with subtle interpretation differentiates the entities of a Mutual Fund and Public Financial Institution and thus concluded that the interest payment to LIC Mutual Fund does not come under the purview of Section 43B of I.T. Act ?”
The ld. DR before us submitted that the LIC mutual fund is a public financial institutions as a specified under section 4 of SEBI (disclose and investor protection) clause guidelines 2000. The ld DR in support of his claim has also submitted the copy of the order of Central Information Commission (CIC for short) wherein the CIC in complaint No. CIC/AT/C/2007/0216, 365, 462, 498,540,511 and complaint numbers CIC/AT/C/2008/ 172,342,655,487, Appeal No.CIC/AT/2007/0735,729,1370 and Appeal No. CIC/AT/A/2008/1420 has held that the LIC mutual fund is the public Financial Institution. On the other hand, ld. AR for the assessee submitted that the name of LIC mutual fund is not an appearing in the list of public financial institution as appearing u/s 40A of Companies Act that the name of LIC is appearing but the name of LIC mutual fund is not appearing in the list as discussed above as such the provisions of section 43B of the Act aren’t not applicable to the assessee in the above facts and circumstances. Therefore, the interest expense claimed by the assessee on the money borrowed from the LIC mutual fund cannot be disallowed. The AR relied on the order of ld CIT(A). 13. We have heard the rival contention of both the parties and perused the materials available on record. The issue, in the instant case relates to the disallowance made by the AO for the interest expenses claimed by the assessee on the money borrowed from LIC mutual fund. It was held that the LIC mutual fund is a public financial institution and therefore it is duly covered under the provisions of section 43B of the Act. However, the Ld. CIT(A) allowed relief to the assessee by observing that LIC mutual fund is not our public financial institution and therefore it is out of the purview of section 43B of the Act. Now, the issue before us arises so as to whether the LIC mutual fund in the instant case is the public financial institution or not. The public financial institution has not been defined under the income tax Act. But the same has been defined under the Companies Act. Therefore at this juncture, it is important to reproduce the provisions of section 4A for the better understanding of the case which reads as under : 5
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“4A(1) Each of the financial institutions specified in this sub-section shall be regarded, for the purposes of this Act, as a public financial institution, namely:- (i) The Industrial Credit and Investment Corporation of India Limited, a company formed and registered under the Indian Companies Act, 1913(7 of 1913); (ii) (ii) the Industrial Finance Corporation of India, established under section 3 of the Industrial Finance Corporation Act, 1948 (15 of 1948); (iii) The Industrial Development Bank of India, established under section 3 of the Industrial Development Bank of India Act, 1964 (18 of 1964); (iv) The Life Insurance Corporation of India, established under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956); (v) The Unit Trust of India, established under section 3 of the Unit Trust of India Act, 1963 (52 of 1963); (vi) The Infrastructure Development Finance Company Limited, a company formed and registered under the Act;]” A plain reading of the above provision reveals that the Life Insurance Corporation of India comes within the ambit for public financial institution. The name of LIC mutual fund is not appearing in the definition of public financial institution as defined u/s 4A of the Companies Act, 1956. However, the fact that the LIC mutual fund is an arm of the Life Insurance Corporation of India cannot be ignored. When the Life Insurance Corporation of India is covered under the definition of public financial institution being a parent company then also the same analogy shall be extended to the arm of it. Hence, we are of the view that the definition of public financial institution should also cover the LIC mutual fund being an arm of Life Insurance Corporation of India. It is also important to note that LIC mutual fund was established on 20th April 1989 by Life Insurance Corporation of India, being an associate company of India's premier and most trusted brand, LIC Mutual Fund is one of the well known players in the asset management sphere. With a systematic investment discipline coupled with a high standard of financial ethics and corporate governance, LIC Mutual Fund is emerging as a preferred Investment Manager amongst the investor fraternity. The definition of public financial institution came with effect from 1st February 1975 and since then life insurance Corporation is treated as public financial institution. On the contrary, the LIC mutual fund was established dated 20th April 1989 which shows that the LIC mutual fund came into existence much after the date when Life Insurance Company of India was established. Therefore, on this count also the LIC mutual fund should be treated as public financial institution. 6
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It was also observed that CIC has treated the LIC mutual fund as a public financial institution in its order dated 28-10-2009 where the issue was raised under the Right to Information Act. The relevant part of the order is reproduced below:- “38. As regards LIC Mutual Fund Assets Management Co. Limited, the 5respondents have submitted that the ratio of judgment in the case of Tamil Nadu Road Development company is not applicable to LIC Mutual fund since LIC Mutual Fund is an independent organization and not substantially financed by appropriate government. The submissions of the respondents fall to convince. The LIC of India is a body established, constituted, owned and controlled by Central Government which is the Appropriate Government for the LIC of India and the funding by LIC of India and their general control over the functioning of thee LIC Mutual Fund can be nothing but an indirect funding and control by the Appropriate Government, LIC of India is publics authority having been constituted by an Act of Parliament. LIC of India in turn in order to further carry out their public function have formed LIC Mutual Fund approved for formation ‘through subsidiary’ which has to function under LIC’s control. The respondent Mutual Fund is fully financed and administratively controlled by the LIC of India through a Board of Trustees. The trustees of the Board who manage the LIC Mutual Fund are appointed with the approval of LIC of India. LIC of India has the power to change the Trustees from time to time. The corpus of the Trust amounting to Rs.10 lakhs was contributed by the LIC. The Trust Deed provides that a further sum not exceeding Rs.25 crores shall be made available as initial contribution to the Trust by the LIC. The LIC has floated the Mutual Fund to mop up the additional savings from the public in rural and semi-urban areas and it would be receiving considerable amount of insurance business from the Mutual Fund. LIC of India for the above purpose provides to the Mutual Fund all suitable help and guidance which includes payment of initial corpus of the Trust, financial assistance to the Trust, renting out premises after housing the Mutual Fund, provision of initial office equipment and deputation of suitable employees etc. the Chairman of LIC is authorized to take such administrative decisions as may be required periodically so as to ensure the smooth launching of the LIC Mutual Fund and its successful operation. 39. Now coming to GIC Housing Finance Limited, the Commission’s finding is not any different. The shareholding of six Public Authorities in GIC Housing Finance is 47.68% and coupled with the control they exercise over the GIC Housing Finance is sufficient to bring them within the ambit of the definition of “Public Authority” as defined in Section 2(h) of the Right to Information Act, 2005.” In view of above we find that the interest expenses claimed by the assessee to the LIC Mutual Fund are covered under the provisions of section 43B of the Act. Accordingly the assessee was required to make the payment of the interest before the due date of filing income tax returns as specified under section 139(1) of the Act. Hence we have no hesitation to reverse the order of ld CIT(A). Hence, this ground of appeal raised by the Revenue is allowed.
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The last issue raised by the Revenue in this appeal is that the Ld. CIT(A) erred in restricting the additional depreciation from Rs.2,89,58,125/- to Rs.24,934,785/- thereby giving relief to the assessee for Rs.40,23,440/-. 15. The assessee in the year under consideration has claimed additional depreciation for Rs.2,89,58,125/- on the Plant and Machinery in terms of 1st proviso to section 32(iia) of the Act. However, the assessee failed to submit the documentary evidence for the utilization of Plant and Machinery in the manufacturing of any article or thing in support of additional depreciation claimed by it. Therefore, the additional depreciation claimed by the assessee was disallowed and added to the total income of the assessee. 16. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A). The assessee before the Ld. CIT(A) submitted the details of the additional depreciation as given under: Particulars Installed at showroom Installed at factory Total Air conditioner 2,42,83,685/- NIL/- 2,42,83,685/- Plant & Machinery 6,51,100/- 40,23,340/- 46,74,440/- Total 2,49,34,785/- 40,23,340/- 2,89,58,125/-
The assessee further submitted before the ld CIT(A) that there is no condition under the act that the machine should be utilized only for the purpose of manufacturing of any article or thing. However, the ld CIT(A) after considering the submission of the assessee has given the relief in part by observing as under:- “It is evident from the above that during the instant year the appellant has claimed additional depreciation on assets installed at Factory s well as Showrooms. However, as per section 32(iia) of the Income Tax Act additional depreciation is available when the plant and machinery were not installed at any office premises or any residential accommodation, including accommodation in the nature of a guest-house. It is allowable only on plant & machinery used for the manufacturing process. Thus, in view of the above, I am of the opinion that the appellant is not eligible to claim additional depreciation on assets installed at showroom amounting to Rs.2,49,34,785/-. Thus, considering the aforesaid facts of the case and applicable laws, I direct the AO to restrict the disallowance to Rs.2,49,34,785/- instead of Rs.2,89,58,125/- as made by th AO in the assessment order. Therefore, this ground of appeal is partly allowed.”
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Being aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us on the following grounds of appeal: “Whether Ld. CIT(A)-XII, Kolkata, was justified in restricting the additional depreciation to Rs.24,934,785/- as made by the A.O., without verifying utilization of such plant and machinery?” 17. The Ld. DR before us submitted that the relief has been given by the Ld. CIT(A) merely on the basis of additional evidences which were admitted by him in contravention to the provisions of Rule 46A of the Income Tax Rules, 1962. On the other hand, the Ld. AR submitted that no additional evidences were submitted before the Ld. CIT(A). The Ld. AR drew our attention on pages 46 to 54 of the paper book, where the necessary details of the plant and machinery installed at the factory and show-room was placed. The Ld. AR, relied on the order of the Ld. CIT(A). 18. We have heard the rival contention of both the parties and perused the materials available on record. The issue in the instant case relates to the disallowance of additional depreciation claimed by the assessee on plant and machinery installed in the factory of the assessee. However, the Ld. CIT(A) allowed relief to the assessee by observing that the plant and machinery was installed at the factory premises of the assessee. However, Ld. CIT(A) allowed relief to the assessee by observing that the plant and machinery was installed at the factory premises of the assessee. Now, the issue before us arises so, as to whether the additional depreciation claimed by the assessee is eligible for deduction u/s 32(iia) of the Act. 18.1 At this juncture, we find important to reproduce the provisions of section 32(iia) of the Act which reads as under :
(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing 26[or in the business of generation or generation and distribution of power], a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii) : Provided that no deduction shall be allowed in respect of— (A) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person; or (B) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house; or (C) any office appliances or road transport vehicles; or 9
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(D) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any one previous year;]
A plain reading of the above provisions reveals that the additional depreciation is available to the assessee who is engaged in the business of manufacturing or production of any article or thing. It is not necessary that the machine should be utilized only in the manufacture or production of any article or thing. The AO has disallowed the additional depreciation on the ground that the assessee failed to provide the requisite documents in support of his claim of additional deposition. However the learned CIT(A) has given relief to the assessee in part without calling remand report from the AO which is in contravention to the provisions of Rules 46A of Income Tax Rules, 1962. It is nowhere clear what was the manufacturing activity of the assessee and whether it was actually engaged in some manufacturing activity or not as required under the Act. It is because on perusal of Tax Audit Report of the assessee in form number 3CD we find that the assessee has mentioned its nature of the business as under : “Chain of retail showrooms dealing in wide variety of retail merchandise etc.” In view of above, we find that the issue of additional deposition has not been examined by the AO and therefore the same needs to be examined again in the light of above stated facts. Therefore we are inclined to restore this issue to the file of AO for fresh adjudication in accordance with the law. Hence, this ground of appeal of the assessee is allowed for the statistical purposes. In the result the appeal filed by the Revenue is partly allowed for statistical purposes. 19.
Order pronounced in the Court on 15.03.2017.
Sd/- Sd/- [A.T.Varkey] [Shri Wassem Ahmed] Judicial Member Accountant Member
Dated : 15.03.2017
11 I.T. A. No. 2627/Kol/2013 Assessment Years: 2009-10
{SC SPS}/*Dkp/sr.P.s
Copy of the order forwarded to: 1. Appellant –DCIT, Circle-10, P-7, Chowringhee Square, 3rd Floor, Kolkata-69 2. Respondent – M/s Vishat Retail Ltd. Plot No. 8, Pocket-2, Block-A, Khasra No. 335/336, NH-8, Rangpuri, New Delhi-110037 3. CIT(A)- Kolkata. 4. CIT – , Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.
By Order
Asstt.Registrar, ITAT, Kolkata Benches