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Shri. S.S.VISWANETHRA RAVI, JM: This appeal by the Revenue is against the order dt: 20-03-2013 passed by the Commissioner of Income Tax-(Appeals),XII, Kolkata for the assessment year 2005-06.
M/s. Ambuja Cement Eastern Ltd 1
In this appeal, the revenue has raised the following grounds of appeal:
1.That on the facts and circumstances of the case Ld. CIT(A) erred in allowing assessee's appeal by holding that remission of sales tax as capital receipt without appreciating the findings of the A.O. who treated that remision of Sale Tax to the tune of Rs.49,34,57,796/- is a revenue receipt.
2. That on the facts and circumstances of the case Ld. CIT(A) erred in allowing assessee's appeal on the basis of the decision of Hon'ble ITAT in assessee's own case for the A.Y.2001-02 & 2002-03 by supersiding the decision of the Hon'ble Calcutta High Court in the case of CIT Vs. Chindwara Fuels (245 ITR 9) which speaks that Sales tax subsidy received after production cannot be treated as capital receipt.
3. Whether on the facts and circumstances of the case, LD.CIT(A) was justified in restricting the disallowance u/s 14A of the I.T. Act, 1961 to 1% of the dividend income, instead of applying the provision of Rule 8D of I.T. Rules, 1962.
The assesse is a company and dealing in the business of manufacturing and selling of Clinker and Cement i.e of Portland Pozzolona Cement (PPC) and sells the product under the known brand name 'Ambuja Cement'. The Assessee has two manufacturing units at Bhatapara in Chattisgarh is a clinkerisation-cum-cement grinding unit and the other unit is at Sankrail in West Bengal which is a grinding unit. The Assessee filed its return of income declaring a total income of Rs.3,94,880/- and under scrutiny notices u/sec’s 143(2) and 142(1) of the Act were issued.
During the scrutiny assessment proceedings, the AO found the assessee collected sales tax to an extent of Rs.49,34,57,796/- and claimed that it is eligible for remission of such sales tax and declared the same as capital receipt in support of which filed a detailed note through its written
M/s. Ambuja Cement Eastern Ltd 2 submissions and also submitted the order of Kolkata Tribunal which decided the same issue in it's own case for A.Y. 2001-02 and 2002-03 in its favour.
According to AO the issue has been decided as a revenue receipt u/s.143(3) of the Act for AY’s 2001-02, 2002-03, 2003-04 and 2004-05 and also observed that an appeal u/s.260A has been suggested to the Hon’ble High Court of Calcutta against the order of the Tribunal and held the amount of Rs. 49,34,57,796/- is as a revenue receipt.
The Assessee questioned the order of AO before the CIT-A. Considering the contentions of the Assessee the CIT-A allowed the claim of the Assessee, the relevant portion of which is reproduced herein below:
Appeal on ground no. 2[a) to 2[f) are against the treatment remission of sales ex as capital receipt to the tune of. During the appellate proceeding the A.R. has submitted that this issue is squarely covered in appellant's favour in its own case for A.Y. 2001-02 and 2002-03 vide Hon'ble Kolkata ITAT's decision in and 2476/Kol of 2005 dt. 05-05-2006. I have considered the finding of the A.O. and case laws quoted in the assessment order. I have also considered the written submission filed by the A.R. along with case laws cited. I find that the Hon'ble Kolkata Tribunal has considered and discussed all the case laws and given its finding in assessee's favour on this issue. Accordingly, assessee's appeal on ground no. 2[a) to 2[f] are allowed.
The Revenue before us by raising aforementioned ground no’s 1 and 2 involving the addition made treating the amount collected on account of sales tax as revenue receipt. The Ld. DR relied on the order of AO. The Ld.AR submits that the issue covered by the order of Kolkata Tribunal in Assessee’s own case for AY 2001-02 and 2002-03 and referred to para 2.7 and 2.8 in page page-131 of paper book and supported the order of CIT-A.
M/s. Ambuja Cement Eastern Ltd 3
Heard rival submissions and perused the material evidence on record. We find that the Assessee deducting sales tax from the taxable income and treating the same as Capital Receipt in earlier assessment years in view of the West Bengal Incentive Scheme, 1999. We find from the order of Tribunal as referred by the Ld.AR placed at page 131 of paper book that it held that the subsidy amounts are non-taxable and are to be treated as capital receipt by relying on order of Special Bench of Bombay Tribunal. The relevant portion of which is reproduced herein below:
2.7 We find that the learned CIT(A) has also impliedly admitted in his appellate order for A.Y 2001-02 that the assessee’s present case comes within the ambit of the decision in the case of Reliance Industries Ltd (supra). He, however, challenges the correctness of the decision of the ITAT, Special Bench, Mumbai in that case. We are rather surprised to read paragraph 14 of his appellate order under, which starts as follows:- “With all due respect, I am unable to subscribe to the views taken and the conclusion drawn by the Hon’ble Special bench, Mumbai.” The learned CIT(A) not only adjudged upon the decision of the ITAT, Special Bench in the above manner, but he also, thereafter, gave his final decision on the issue and framed his order in total defiance of and grossly dishonouring the above mentioned order of ITAT, Special Bench, Mumbai. We are of the considered opinion that the tendency of this sort of challenging and dishonouring the orders on higher judicial forum by the officers of the Department, is highly reprehensible and deserves to be curbed down. We condemn the attitude displayed by the learned CIT(A) in this regard. 2.8 Finally, we hold that the subsidy amounts, for both the years under consideration, are to be treated as capital receipts and hence, non-taxable. We direct the AO to take actions accordingly.
In view of the order dt. 05-05-2006 of Tribunal supra in Assessee’s own case for A.Ys. 2001-02 and 2002-03 in and 2476/Kol /2005 and in the facts and circumstances of the case, we hold that the Assessee is eligible for claiming the sales tax collected in this appeal as capital receipt, accordingly, the ground nos. 1 and 2 involving such addition are hereby dismissed.
M/s. Ambuja Cement Eastern Ltd 4
Ground no-3 is relating to Disallowance to an extent Rs. 10,15,610/- as made u/s 14A of the Act. During the year under consideration, the Assessee earned dividend income of Rs. 1,41,68,275/- and the entire amount was claimed as exempt in terms of the provisions of section 10(35) of the Act. In explanation, the assessee submitted that the entire dividend income has been made out of investments out of accruals in earlier years and no direct expenses have been incurred for earning such dividend income and submitted no disallowance u/s 14A is maintainable. The AO disallowed proportionate management expenses comprising of employee's remuneration, miscellaneous expenses and director's fees amounting to Rs. 10,15,610/- u/s 14A of the Act.
The Assessee questioned the order of AO before the CIT-A in respect of disallowance as made under section 14A of the Act. Considering the contentions of the Assessee the CIT-A restricted the disallowance the claim of the Assessee to 1%, the relevant portion of which is reproduced herein below:
7. Appeal on ground no. 4(a) and 4(b) are against the disallowance of Rs.10,15,610/- u/s. 14A read with Rule 80. The A.R. in his written submission filed as pointed out that no expenditure should be allowed on this ground because the assessee has not incurred any expenditure to earn exempted income. I have considered the finding of the AO and the written submission filed by the A.R. I think the jurisdictional tribunal in its third member decision in the case of M/s. Philips Carbon Black ltd has held that 1% of the total exempted income should be taken as expenditure incurred for earning the exempted income. Accordingly, A.O addition is restricted to 1% of Rs.1,41,68,275/- i.e Rs.1,41,680/-, thus, assessee’s appeal on ground no. 4(a) and 4(b) are partly allowed.
Having not satisfied with order of CIT-A, the Revenue is before us and the Ld.DR relied on the order of AO. The Ld.AR
M/s. Ambuja Cement Eastern Ltd 5 reiterated the submissions as made before the AO and CIT-A and supported the order of CIT-A.
Heard rival submissions and perused the material evidence on record. As rightly pointed by the Ld.AR the provision of Rule 8D came into force from 01-04-2007 relevant to A.Y 2007-08 and the impugned order was passed involving the return of income filed for the A.Y.2005-06 and, therefore, the applicability of the provisions of Rule 8D therewith, in our opinion, does not apply to the year under consideration. But, however, we find that the order of CIT-A is justified in respect of restricting the disallowance at 1%, as he has rightly taken into consideration the observations of the Third Member decision of Kolkata Tribunal in the case of M/s. Philips Carbon Black ltd held that 1% of the total exempted income should be taken as expenditure incurred for earning the exempted income. We also take support from the Hon’ble Jurisdictional High Court of Calcutta in the case of CIT vs M/S R.R.Sen & Brothers in GA No.3019/12 in ITAT No.243/2012 upheld the decision of the Kolkata Tribunal in computing the expenditure at 1% of dividend income. The relevant portion of which is reproduced herein below:
The Court:- The assessee did not show any expenditure incurred by him for the purpose of earning the money which is exempted under the income tax. The Tribunal has computed expenditure at 1 per cent of such dividend income which, according to them, is the thumb rule applied consistently. We find no reason to interfere.
In the light of principle laid down by the Hon’ble Jurisdictional High Court of Calcutta and in view of the discussion herein above, M/s. Ambuja Cement Eastern Ltd 6 we are of the view the order of CIT-A does not require our interference and it is justified, accordingly, the ground no-3 raised by the Revenue fails and it is dismissed.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the open Court on 16th November, 2016 Sd/- Sd/- M.Balaganesh S.S. Viswanethra Ravi Accountant Member Judicial Member Copies to : **PP/SPS (1) Appellant/Department: (2) Respondent/Assessee: (3)Commissioner of Income-tax (Appeals) (4) Commissioner of Income Tax, Kolkata (5) The Departmental Representative (6) Guard File By order Assistant Registrar, Income Tax Appellate Tribunal Kolkata
M/s. Ambuja Cement Eastern Ltd 7