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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
Before: Shri P.M.Jagtap & Shri S.S. Viswanethra Ravi
SHRI S.S. VISWANETHRA RAVI, JM Both these appeals in I.T.A Nos. 430/Kol/2013 by the Assessee and I.T.A Nos. 648/Kol/2013 by the Revenue are directed against common order dt: 18-12-2012 passed by the CIT(A)- VI, Kolkata for the assessment year 2009-10.
1 ITA Nos.430,648/Kol/2013 M/s. Orient Paper & Industries Limited
Since the impugned order of the CIT-A in challenging before us is common, both the appeals, therefore, heard together with the consent of the both parties and a consolidated order is being passed for the sake of convenience.
First we take up the appeal in I.T.A Nos. 430/Kol/2013 by the Assessee and raised ground no-1 as hereunder:
(a) The Commissioner of income – tax (appeal) (CIT(A) erred on the facts of the case and in law in confirming allocation of interest of Rs.2,71,644/- made by the assessing officer (AO) against exempt dividend income under section 14A of the Income- Tax Act (Act) read with Rule 8D of the Income -Tax rules (Rules)
(b) The CIT-(A) erred on the facts of the case and in law in confirming allocation of interest related to/incurred for/ attributable to business as expenses incurred in relation to dividend income.
The learned AR submits that the ground No-1 as raised above is covered by the assessee’s own case for the assessment year 2008 – 2009 passed by the “A” Bench of Kolkata in ITA 170/Kol/2012 and placed on record copy of such order. The learned DR relied on the order of AO.
Heard the rival submissions and also perused the material available on record. The copy of order as submitted by the learned AR goes to show that the “A” Bench of Kolkata in ITA 170/Kol/2012 decided similar issue raised by the assessee in the appeal therein taking into consideration the decision rendered in the case of Hindustan Motors Limited, the relevant portion of which is reproduced herein below:
2 ITA Nos.430,648/Kol/2013 M/s. Orient Paper & Industries Limited
“2. We have heard the arguments of both the sides and also perused the relevant material available on record. As submitted by the ld. Representatives of both the sides, a similar issue as involved in Ground No. 1 relating to the transactions on account of interest under section 14A read with Rule 8D of the Income Tax Rules was also involved in the case of Hindustan Motors Limited in the identical facts and circumstances and the same has already been decided by this Tribunal vide its order dated 20.11.2015 passed in ITA No. 171/KOL/2012. A copy of the said order is also placed on record before us and perusal of the same shows that a similar issue has been decided by the Tribunal in favour of the assessee vide paragraph nos. 10 & 11 of its order, which read as under:- “10. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the investment in shares on which the exempt dividend income is earned by the assessee during the year under consideration was actually made in the earlier years and in the assessment completed for assessment year 2006-07 under section 143(3), no disallowance on account of interest was made by the Assessing Officer under section 14A after recording a finding that the borrowed funds were entirely utilized by the assessee for the purpose of business and the same were not used for making any investment in shares. Even in the assessment completed for A.Y. 2007-08 under section 143(3), no disallowance under section 14A on account of interest was made by the Assessing Officer thereby accepting that the investment in shares was made by the assessee out of its own funds and there was no utilization of interest bearing borrowed funds for making such investment. As pointed out by the ld. Counsel for the assesese from the relevant documentary evidence, the investment made in shares by the assessee-company in the earlier years has continued substantially in the year under consideration and there being no fresh investment made by the assessee in shares, it follows that investment in shares 3 ITA Nos.430,648/Kol/2013 M/s. Orient Paper & Industries Limited
is entirely made by the assessee out of its own funds and there was no utilization of borrowed funds for making such investment as found by the Assessing Officer himself while completing the assessments for the earlier years. In this regard, ld. D.R. has contended that Rule 8D having been made applicable for the year under consideration for the first time, the issue has to be looked into from different angle and the view taken by the Assessing Officer in the earlier years has no relevance. We are unable to accept this contention of the ld. D.R. Once it is found that the investment in shares is made by the assessee out of its own funds and there is no utilization of borrowed funds for making such investment, we are of the view that no disallowance on account of interest under section 14A can be made even by applying Rule 8D as the said Rule 8D will have application only in such cases where there is any nexus between the interest bearing borrowed funds and investment made in shares. Even a perusal of the balance-sheet of the assessee-company as on 31.03.2008 shows that sufficient own funds to the extent of about Rs.132 crores were available with the assessee-company at the relevant time and the same being more than the investment of about Rs.72 crores made in shares, we are of the view that there was no case for making disallowance on account of interest under section 14A even by applying Rule 8D as the assessee had sufficient own fund to make investment in shares and the interest bearing borrowed funds were not utilized for making such investment.
It is also observed that in the computation of total income, disallowance of Rs.2,47,79,104/- was offered by the assessee under section 14A in relation to the expenditure incurred in relation to earning of exempt income and there was no reason given by the Assessing Officer, having regard to the accounts of the assessee, to show his dissatisfaction with the correctness of quantum of expenditure disallowed by the assessee 4 ITA Nos.430,648/Kol/2013 M/s. Orient Paper & Industries Limited
under section 14A. In the case of REI Agro Limited (supra) cited by the ld. Counsel for the assessee, it was held by the Coordinate Bench of this Tribunal that where the assessee makes a claim that only a particular amount is to be disallowed under section 14A and if the Assessing Officer proposes to invoke section 14A, he has to record the satisfaction as to how the claim of the assessee is not correct having regard to the accounts of the assessee. It was held that if there is no such satisfaction recorded by the Assessing Officer, no disallowance could be made by him by invoking the provisions of section 14A. Keeping in view this decision of the Coordinate Bench of this Tribunal in the case of REI Agro Limited, which has been affirmed by the Hon’ble Calcutta High Court, we hold that in the absence of requisite satisfaction recorded by the Assessing Officer showing how the disallowance offered by the assessee under section 14A was not correct having regard to its books of account, it was not permissible to the Assessing Officer in law to invoke section 14A and make a further disallowance. As such, considering all the facts of the case, we are of the view that the disallowance made by the Assessing Officer and confirmed by the ld. CIT(Appeals) under section 14A read with Rule 8D is not sustainable either in law or on the facts of the case and deleting the same, we allow Ground No. 1 of the assessee’s appeal”.
As the issue involved in the present case as well as all the material facts relevant thereto are admittedly similar to the case of M/s. Hindustan Motors Limited (supra), we follow the decision rendered in the said case and delete the disallowance made by the Assessing Officer and confirmed by the ld. CIT(Appeals) under section 14A of the Act read with Rule 8D. Ground No. 1 is accordingly allowed.”
5 ITA Nos.430,648/Kol/2013 M/s. Orient Paper & Industries Limited
Heard rival submissions and perused the relevant material on record. We find that the issue on hand is covered by the order of Kolkata Tribunal supra and following the same, we confirm the order of CIT-A and delete the disallowance made by the AO, accordingly ground no-1 is allowed.
Ground no- 2 raised by the assessee is as reproduced as below:
The CIT(A) erred on the facts of the case and in law in disallowing under section 40 (a)(ia) of the Act, the sum of Rs.14,61,956/- being the installment of lease payment in respect of asset taken on lease. On proper appreciation of the facts of the case and correct construction of law, the CIT(A) should not have held that tax is deductible at source under section 194I of the act from installments and should have allowed Rs.14,61,956 being the installment of lease payment.
The brief facts involving ground no-2, the AO found that the assessee debiting an amount of Rs.14,61,956/- under the head less item no-6 and paid such amount to XL Softeck Systems Limited in Hyderabad, according to assessing officer the assessee replied that no TDS was deducted from said lease payment and the AO for not deducting TDS under section 194I of the act and added such amount for violation of section 40(a)(ia) of the Act. The assessee contended that the impugned addition was the payment towards cost of computers which was made in installments as per finance lease agreement and which was also not debited to the profit and loss account and no TDS is deductible on payments which were towards cost of computers before the CIT-A. After considering the submissions of the assessee the CIT-A opined as under:- 6 ITA Nos.430,648/Kol/2013 M/s. Orient Paper & Industries Limited
“18. I have carefully considered the observations of the Assessing Officer in the assessment order and submissions of the appellant. The appellant has claimed the expenditure as lease rent in the computation whereas in the books of accounts the same has been treated as repayments of instalment. The appellant has claimed TDS is not deductible on repayment of instalment in a finance lease. The assessee has claimed that the amount of such instalment was not debited to P&L a/c. However, the assessee’s claim is not tenable as the appellant itself has claimed the instalment repayments as allowable lease rental expenses. Once the expense is claimed as allowable lease rent then section 194I gets triggered off and tax is deductible thereon. Since the appellant has not deducted tax at source on such expenses during the year, the same are not allowable u/s. 40a(ia) but will be allowed in the year in which TDS is deposited thereon. The appellant has deposited the TDS on 13.03.2012 and has made a prayer that the said amount should be allowed in assessment year 2012-13. I direct that the Assessing Officer should allow the amount of Rs.14,61,956/- after due verification during the assessment proceedings of the relevant year in which the deposit of TDS thereon was done. This ground is partly allowed. “
The learned AR submits that the impugned addition may be considered in view of the 2nd proviso to section 40(a)(ia) of the act and the learned DR relied on referring to paragraph-18 of order of CIT-A and submits that finding of CIT-A is based on record.
Heard rival submissions and perused the relevant material on record. The Hon’ble High Court of Delhi in the case of CIT-1 Vs. Ansal Land Mark Township(P) Ltd while dealing with the case on hand, had an occasion to read down the decision of Agra Bench of Tribunal in ITA 337/Agra/2013 as it was relied on, and held and agreed with the view of Agra Bench of Tribunal reasoning and conclusion to the insertion of second proviso to section 40(a)(ia) of the Act by the legislature. The relevant portion from paras 11 to 14 are reproduced here in below: 7 ITA Nos.430,648/Kol/2013 M/s. Orient Paper & Industries Limited
The first proviso to Section 210 (1) of the Act has been inserted to benefit the Assessee. It also states that where a person fails to deduct tax at source on the sum paid to a resident or on the sum credited to the account of a resident such person shall not be deemed to be an assessee in default in respect of such tax if such resident has furnished his return of income under Section 139 of the Act. No doubt, there is a mandatory requirement under Section 201 to deduct tax at source under certain contingencies, but the intention of the legislature is not to treat the Assessee as a person in default subject to the fulfillment of the conditions as stipulated in the first proviso to Section 201(1). The insertion of the second proviso to Section 40(a) (ia) also requires to be viewed in the same manner. This again is a proviso intended to benefit the Assessee. The effect of the legal fiction created thereby is to treat the Assessee as a person not in default of deducting tax at source under certain contingencies.
Relevant to the case in hand, what is common to both the provisos to Section 40 (a) (ia) and Section 210 (1) of the Act is that the as long as the payee/resident (which in this case is ALIP) has filed its return of income disclosing the payment received by and in which the income earned by it is embedded and has also paid tax on such income, the Assessee would not be treated as a person in default. As far as the present case is concerned, it is not disputed by the Revenue that the payee has filed returns and offered the sum received to tax.
Turning to the decision of the Agra Bench of ITA T in Rajiv Kumar Agarwal v. A CIT (supra ) , the Court finds that it has undertaken a thorough analysis of the second proviso to Section 40 (a)(ia) of the Act and also sought to explain the rationale behind its insertion. In particular, the Court would like to refer to para 9 of the said order which reads as under:
"On a conceptual note, primary justification for such a disallowance is that such a denial of deduction is to compensate for the loss of revenue by corresponding income not being taken into account in computation of taxable income in the hands of the recipients of the payments. Such a policy motivated deduction restrictions should, therefore, not come into 8 ITA Nos.430,648/Kol/2013 M/s. Orient Paper & Industries Limited
play when an assessee is able to establish that there is no actual loss of revenue. This disallowance does deincentivize not deducting tax at source, when such tax deductions are due, but, so far as the legal framework is concerned, this provision is not for the purpose of penalizing for the tax deduction at source lapses. There are separate penal provisions to that effect. Deincentivizing a lapse and punishing a lapse are two different things and have distinctly different, and sometimes mutually exclusive, connotations. When we appreciate the object of scheme of section 40(a)(ia), as on the statute, and to examine whether or not, on a "fair, just and equitable" interpretation of law- as is the guidance from Hon'ble Delhi High Court on interpretation of this legal provision, in our humble understanding, it could not be an "intended consequence" to disallow the expenditure, due to non deduction of tax at source, even in .a situation in which corresponding income is brought to tax in the hands of the recipient. The scheme of Section 40(a)(ia), as we see it, is aimed at ensuring that an expenditure should not be allowed as deduction in the hands of an assessee in a situation in which income embedded in such expenditure has remained untaxed due to tax withholding lapses by the assessee. It is not, in our considered view, a penalty for tax withholding lapse but it is a sort of compensatory deduction restriction for an income going untaxed due to tax withholding lapse. The penalty for tax withholding lapse per se is separately provided for in Section 271 C, and, section 40(a)(ia) does not add to the same. The provisions of Section 40 a)(ia1 as they' existed prior to insertion of second proviso thereto, went much beyond the obvious intentions of the lawmakers and created undue hardships even in cases in which the assessee's tax withholding lapses did not result in any loss to the exchequer. Now that the legislature has been compassionate enough to cure these shortcomings of provision, and thus obviate the unintended hardships, such an amendment in law, in view of the well settled legal position to the effect that a curative amendment to avoid unintended consequences is to be treated in nature even though it may not state so specifically, the insertion of second proviso must be given retrospective effect from the point of time when the related legal provision was introduced. In view of these discussions, as also for the detailed reasons set out earlier, we cannot subscribe to the view that it could have been an "intended consequence" to punish the assessees for non deduction of tax at source by declining the deduction in respect of related payments, even when the corresponding income is duly brought to tax. That will be going 9 ITA Nos.430,648/Kol/2013 M/s. Orient Paper & Industries Limited
much beyond the obvious intention of the section. Accordingly, we hold that the insertion of second proviso to Section 40(a)(ia) is declaratory and curative in nature and it has retrospective effect from 1st April, 2005, being the date from which sub clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004."
The Court is of the view that the above reasoning of the Agra Bench of IT AT as regards the rationale behind the insertion of the second proviso to Section 40(a) (ia) of the Act and its conclusion that the said proviso is declaratory and curative and has retrospective effect from 1st April 2005, merits acceptance.
The Hon’ble High Court supra found that there is a mandatory requirement u/s. 201 to deduct at source, but, however, opined, the assessee cannot be viewed as a person in default in view of the first proviso to section 201(1) of the Act and further that the insertion of second proviso to section 40(a)(ia) of the Act was intended to benefit the assessee and it shall be viewed as in the same manner as that of first proviso to section 201(1) of the Act.
In the present case, the case of the assessee was that the said payment to XL Softech Systems Limited on account of repayment of cost of computers and not debited to the P/L account and did not deduct the tax U/Sec 194I of the Act on such expenses during the year under consideration. The CIT-A has given a categorical finding that the assesse has deposited TDS on such payments on 13-03-12 and directed the AO to verify the same and allow the same in A.Y 2012-13. These facts are not disputed by the both the parties as it can be seen from the record. Therefore, keeping in view of the principle enunciated by the Hon’ble High Court of Delhi supra, we are of the view that the assessee cannot be treated as a defaulter in view of the first proviso to section 201(1) r/w second proviso to section 40(a)(ia) of the Act if the concerned
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payee has taken into account the relevant sum for computing income in his return of income furnished u/s. 139 and has paid tax due on the income declared in such return for the year under consideration. We, therefore, set aside the impugned order of ld. CIT(A) in confirming the disallowance made by the AO u/s. 40(a)(ia) and restore the matter to the file of the AO for deciding the same afresh in the light of first proviso to section 201(1) r/w second proviso to section 40(a)(ia) which are held to be applicable to the year under consideration being retrospective in effect. If the disallowance u/s. 40(a)(ia) is found to be not sustainable by the AO in the year under consideration. The question of allowing deduction for A.Y 2012-13 as directed by CIT-A would not arise. Ground no. 2 raised by the assessee is allowed for statistical purposes.
The additional ground raised by the assessee is that an amount of Rs.767 crores towards certified emission is a capital receipt and not liable for tax. The assessee submits that the said amount has been accounted as other income in the annual report for F.Y 2008 – 2009 and relied on the order in assessee’s own case in ITA 170/Kol/ 12 passed by the “A” Bench of Kolkata Tribunal.
Heard rival submissions and perused the material on record. A perusal of the order of the Tribunal above wherein the Bench observed that a Coordinate Bench while dealing the case in the case of Ultra Tech Cement Ltd allowed the additional ground raised by it before the Tribunal for the first time claiming receipt of Carbon credit as capital receipt by taking support from the decision of Honourable Supreme Court in the case of National Thermal Power Co Ltd vs CIT reported in 229 ITR 383, the relevant portion is reproduced herein below:
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“5. During the course of appellate proceedings before the Tribunal, the assessee has raised the following ground as additional ground with an application seeking admission thereof:-
“For that the sum of Rs.10.36 crores realized on sale of 1,07,353 Units of CERS are capital receipt not liable to tax and the same sum be deleted from the assessed income”.
We have heard the arguments of both the sides on the application of the assessee for admission of the above additional ground. The ld. Counsel for the assessee has contended that although the amount in question received as compensation by the assessee by way of Carbon Credit in respect of its Cement Division was offered to tax in the return of income and the issue relating to its exemption being capital receipt was not raised either before the Assessing Officer or before the ld. CIT(Appeals), the same is being raised before the Tribunal for the first time by way of an additional ground on the basis of various judicial pronouncements coming to the notice of the assessee afterwards, wherein the similar receipt has been held to be a capital receipt not chargeable to tax. He has contended that the issue raised in the additional ground is purely a legal one and since all the material facts relevant to decide the same are already on the record, the same is deserved to be admitted. Although the ld. D.R. has contended that the adjudication of the issue raised by the assessee in the additional ground may require investigation into new facts, he has not been able to point out specifically such facts, which are not available on record. Moreover, as rightly contended by the ld. Counsel for the assessee, the question involved in the additional ground is whether the receipts from Carbon Credit are in the nature of capital or revenue receipt and whatever limited facts, which are required to be considered/examined to decide the same, are already available on record in the annual report itself filed by the assessee-Company.
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While objecting to the admission of additional ground filed by the assessee, the ld. D.R. in support of the Revenue’s case has relied on the decision of the Hon’ble Supreme Court in the case of CIT –vs.- Stepwell Industries Limited & Others reported in 228 ITR 171 and pointed out that the decision of the Tribunal in the said case to allow certain claim made by the assessee for the first time before the Tribunal was not upheld by the Hon’ble Apex Court. It is, however, observed that new claim made by the assessee for the first time before the Tribunal in the said case was allowed by it and since the same was allowed by the Tribunal on assumption of certain facts without verification of the relevant details or particulars, the action of the Tribunal was not upheld by the Hon’ble Supreme Court. The power of the Tribunal to entertain the new claim raised for the first time before it was not under challenged in the said case and as is evident from the question referred to the Hon’ble Supreme Court, the decision of the Tribunal allowing the claim of the assessee for weighted deduction under section 35B of the Act, was challenged on merit. On the other hand, in the case of CIT –vs.- Pruthvi Brokers & Shareholders Pvt. Ltd. reported in 349 ITR 336 (Bom.), the issue specifically raised before the Hon’ble Bombay High Court was regarding the power of the appellate authorities to entertain and consider new claim not made in the return and it was held by the Hon’ble Bombay High Court that the appellate authorities have power to consider claim not made in the return of income. It is also observed that in the case of Ultra Tech Cement Limited (ITA No. 1348/Mum/2012 dated 28.02.2014), a similar issue claiming receipt from Carbon Credit as capital receipt not chargeable to tax was raised by the assessee for the first time before the Tribunal by way of additional ground and the same was admitted by the Coordinate Bench of this Tribunal by relying on the decision of the Hon’ble Supreme Court in the case of National Thermal Power Co. Limited –vs.- CIT reported in 229 ITR 383. Keeping in view the said decision of the Coordinate Bench of this Tribunal as well as having regard to all the relevant aspects of the case as discussed above, we admit the additional ground raised by the assessee and restore the issue raised therein to the file of the Assessing Officer for deciding the same on merit after verifying all the 13 ITA Nos.430,648/Kol/2013 M/s. Orient Paper & Industries Limited
relevant facts of the case from record and after giving the assessee proper and sufficient opportunity of being heard.”
We find that the additional ground raised by the assessee before this Tribunal for the first time but however in view of the finding of “A” bench of Tribunal in assessee’s own case, we’re of the opinion we shall admit additional ground and remand the issue to the AO for verification of all relevant details involving the said additional ground with the liberty to assessee to produce details covering the said issue and AO shall accord sufficient opportunity to the assessee, accordingly additional ground is allowed as indicated above.
ITA 648/Kol/2013 of Revenue 16. This appeal by the revenue filed with the delay of 10 days and same has been explained as owing to administrative reasons. The AO has filed an affidavit in this regard and after perusal of the same and hearing of both parties, we’re of the view of the delay of 10 days in filing the appeal was due to reasonable and sufficient cause. Therefore the delay of 10 days are condoned.
The revenue raised ground no-1 as under: 1. Whether on the facts and circumstances of the case, Ld. CIT-A erred in law in holding that PF contribution of Rs.1,88,075/- deposited after due date and grace period.
The brief facts relating to ground no-1 are that the Assessee is a company. It is engaged in the business of manufacturing and sale of cement, paper and electrical goods. In the course of assessment proceedings the assessee claimed deduction of sums which were paid to PF and ESI authorities as employees share
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of contribution belatedly. The assessee claimed before AO that though the aforesaid contribution were paid belatedly to the concerned authorities they were allowable as deduction because the contribution had been paid on or before the due date for filing the return of income u/s 139(1) of the Act. The AO however was of the view that u/s 36(1)(va) of the Act any contribution of employees shares to ESI and PF cannot be allowed as deduction if the contribution is paid on or before the due date prescribed under the relevant PF and ESI laws. On appeal by the assessee CIT(A) held that payments made on or before the grace period allowed under the respective laws governing payment of PF and ESI should be allowed as deduction. The Revenue has challenged the order of the CIT(A) in so far as it relates to payment of Rs.1,88,075/- which is the due for the month of August, 2008 which was paid by the Assessee on 21.9.2008. It is the case of the revenue that the payment for the month of August, 2008 of PF was paid beyond the grace period and therefore the same ought to have been disallowed by the CIT(A).
We have heard the rival submissions. The Revenue is relying solely on the provisions of Sec. 36(6)(va) of the I.T. Act. But this provision has to be read along with the provisions Sec.2(24)(x) and Sec.43B of the I.T. Act. After examining these provisions, the Hon'ble Supreme Court and High Court have held that if the contribution is deposited by the appellant before the due date of submission of its Return, it will be entitled to deduction - vide the Apex Court decision in CIT vs Vinay Cement Ltd. (213-CTR-268) and CIT vs Alom Extrusions Ltd. (319-ITR- 306), Delhi High Court decisions in the cases of CIT vs P. M. Electronics Ltd. (313-ITR-161) and CIT vs Dharmendra Sharma (297-ITR-320). Keeping in view the judicial decisions referred to above, we are of the view that the payment for the month of August, 2008 paid on 21.9.2008 is a payment made on or before the due
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date of filing the return u/s.139(1) of the Act for AY 2009-10 and therefore the order of the CIT(A) is justified, accordingly ground no-1 is dismissed.
Ground no-2 raised by the revenue is reproduced as under:
Whether on the facts and circumstances of the case, Ld. CIT(A) erred in law in holding that the assessee is the owner of Railway siding even the agreement show that it is not the owner or the exclusive beneficial owner.
The brief facts relevant to the issue on hand is that the assessee claimed depreciation on Railway siding to the extent of Rs.10,29,796/-. During the course of scrutiny proceedings the assessee submitted that the Railway siding is a private siding laid by the Railway administration at cement unit of the assessee situated at Nashirabad. The siding was constructed both on land belonging to the Railway administration and land occupied and used by the assesse and costs of such siding was incurred by the assessee as per the agreement, therefore, according to the assessee it is a private siding having enjoyed an exclusive right on the same and claimed depreciation as an owner of such railway siding. The assessing officer examined the specific clauses in agreement such as i.e. permission to use of the siding by others, conversion of the siding, no transfer, power to terminate the agreement and power to stop traffic and came to a conclusion that the assessee is not the owner or the beneficial owner of the Railway siding and denied depreciation as claimed by the assessee.
In first appeal before the CIT-A, the assessee has submitted that one of the units located at Jalgaon in Maharastra is manufacturing cement. The assessee approached the Railway authorities for the extension of loading facility to its factory 16 ITA Nos.430,648/Kol/2013 M/s. Orient Paper & Industries Limited
at Jalgaon and incurred an expenditure to lay the facility extended to its factory. It is also submitted that the assessee is the owner of such facility using the same for its business for however stated as per the agreement the Railway Department is in charge of running said Railway siding. Further submitted that the siding was laid before the commencement of production of cement at Jalgaon factory and the said expenditure has been capitalised and the assessee entitled to claim depreciation on the same. The CIT-A allowed depreciation as claimed by the assessee by relying on the order of Kolkata Tribunal in the case of ITO vs Mukti properties (P) Limited.
“10. I have carefully considered the observations of the Assessing officer in the assessment order and submission the appellant. The Assessing Officer made an addition of Rs.10,29,796/- on railway siding. The appellant has filed the copy of agreement with Central Railway Administration of Govt. of India in which it has been made clear as given in the submissions of the appellant (supra) that railway siding is owned by M/s. Orient Cement Prop. Orient Papers & Industries Ltd. Since the asset is owned by the appellant, therefore, it has submitted it is entitled for depreciation. Records also reveal that the depreciation is being allowed to the appellant since past several years and it has been allowed consistently by the Assessing Officer after due verification in the assessment order passed u/s. 143(3) of the Income-tax Act, 1961. Therefore, the appellant has stated rule of consistency does apply in the case of the appellant. It has relied upon the case of jurisdictional Hon’ble ITAT in the case of the ITO Vs. Mukti Properties (P) Ltd in ITA No.1243/Kol/2008 dated 23.03.2012 in which it has been observed as follows:- “6. The learned DR relied on the assessment order. On the other hand, the learned counsel for the assessee would submit that the interest claimed in the subsequent AY 2003-04 never disallowed and in the same way this issue for the AY 1998-99 was fully allowed as per the decision/order dated 21-12-2010 [ in Income Tax Appeal No. 95 of 2009 in assessee’s own case] of the Hon’ble Jurisdictional Kolkata High Court [ available in assessee’s paper book pages 40-57, at pages 56]. The Hon’ble Kolkata High Court decided the issue by accepting the plea of the assessee. Hence, this issue is now settled that the same was allowed 17 ITA Nos.430,648/Kol/2013 M/s. Orient Paper & Industries Limited
partly under the head ‘business’ and partly under the head ‘income from house property’. Subsequently, the interest was fully allowed under the head ‘income from house property ‘for AYs 2004-05 and 2005-06. The computation of income for the A.Ys. 2004-05 & 2005-06 was filed before the AO, which he already accepted. That being the position, the consistency has to be followed. There is not application of res judicata and principle of consistency has to be followed, even that unless there is change in facts. Hence, we confirm the impugned order of the learned Commissioner of Income-tax (Appeals), who has rightly disallowed the interest on borrowed fund.” 11. In view of the above facts and circumstances of the case, it is held that the appellant is the owner of the railway siding and is entitle for depreciation. The addition of Rs.10,29,796/- is hereby deleted. This ground of appeal is allowed. “
The learned DR submits that the assessing officer found on an examination of the agreement between assessee and Railway Department that the land, construction and right does not belong to assessee and even siding was made by the Railway and the assessee has paid only cost of such siding. The learned DR also raised a question that if it all land belongs to assessee why assessee requires permission to use such siding for the reason that the assessee does not have any exclusive right on such siding and it is not entitled to claim depreciation and relied on the order of AO.
The learned AR drew our attention to the page no-4 of paper book to the definition of work and also referred to page no- 6 particularly at point no-2 and also the plage no- 9 to the definition of capital cost of new siding. The learned AR supported the order of CIT-A and argued the CIT-A granted relief and held that the Railway siding was owned by assessee and the assessee claiming such a depreciation for the past several years and the said depreciation has been allowed 18 ITA Nos.430,648/Kol/2013 M/s. Orient Paper & Industries Limited
by the revenue and consistently passing orders under section 143(3) of the act and prayed to uphold the order of CIT-A.
Heard rival submissions and perused the material available on record. We find that the appellant revenue consistently allowing such depreciation for the last several years i.e. from 2004 – 2005 onwards and the assessment orders were passed under section 143 (3) after due verification of all relevant details. We also noticed that the assessee incurred expenditure and laid such siding before the commencement of cement production at Jalgaon factory, in our opinion it has to be regarded as fixed asset being in the nature of capital. With reference to the definition of ‘work’ at page no-4 of paper book as referred by the learned AR reveals that wherever the assessee conducts its business operation in pursuance of the agreement such premises has to be considered as ‘work’ and such premises belongs to assessee whether it is occupied by or used by assesse. In present case the fact remains undisputed that the assessee approached the Railway administration to extend the facility of siding to its factory Jalgaon and incurred expenditure in laying the said siding on land partly belonging to the Railway administration and to assesse which is clearly mentioned in page no-6 of paper book. It is also clear from page no-9 of paper book the siding owner shall bear the capital cost of the siding. Therefore taking into consideration all the clauses as discussed above reflecting in the paper book amply show that the assessee has exclusive right over the said Railway siding for the reason the term “work” means a premises where the assesse conducts its business and part of such premises is belonging to assessee and the capital cost of such siding was borne by the assessee therefore we hold that the assessee is an owner of such siding being exclusively used for its business purpose and the assesse is entitled to claim depreciation on such railway siding and we find no infirmity in 19 ITA Nos.430,648/Kol/2013 M/s. Orient Paper & Industries Limited
the order of CIT-A and it is justified, accordingly ground no- 2 raised by the revenue is dismissed.
Ground no- 3 raised by the revenue is as follows: 3. Whether on the facts and circumstances of the case, Ld. CIT-A however, erred in law in holding that the assessee is the owner of HT lines even the agreement show that it is not the owner.
The brief facts involving ground no-3, are that assessee claimed depreciation on HT lines and feeder bay amounting to Rs.3,85,736/-on the ground that the expenditure incurred by laying HT lines and feeder bay were capitalized as the operative expenses prior to the commencement of commercial production at Jalgaon unit. The assessing officer of the view that, the assessee is not the owner of HT lines and feeder bay, thereby denied the depreciation and added such amount to the total income of the assesse. Before the CIT-A the assessee contended that it incurred expenditure in laying HT lines and feeder bay from a designated point up to the factory and the said expenditure was incurred during the establishment of the plant and i.e. before the commencement of commercial business and the said expenditure has been capitalised basing on which the CIT-A allowed the depreciation to the assessee.
As aggrieved by the order of CIT-A the revenue before us in this appeal and supporting ground no-3 the learned DR adopted the arguments advanced for ground no-2 and prayed to allow ground no-3 and relied on the order of AO. The learned AR reiterated the submissions made before the CIT-A and prayed to uphold the order of CIT-A.
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Heard rival submissions and perused the material on record. We find that the assessee admitted that the assesse is not the owner of HT lines and feeder bay before the assessing officer and first appellate authority and the assessee and handed over HT lines and feeder bay to electricity board but however that assessee drawing electricity through said HT lines and feeder bay for its business purposes. We also find the same kind of the depreciation has been allowed by the respondent revenue to the assessee from A.Y. 2001 – 2002 after due verification of all the relevant evidence by the assessing officer resulting to an assessment order under section 143(3) of the act. Therefore, we’re of the opinion that the assessee’s entitled to claim depreciation HT lines and feeder bay and find no merit in ground no-3 raised by the revenue, accordingly it is dismissed.
Ground no- 4 raised by the revenue is as under: 4. Whether on the facts and circumstances of the case, Ld. CIT-A erred in law in deleting the addition made to the commission paid to various parties even the AO found many discrepancies of the rate of commission.
During the course of assessment proceedings the AO found that there is no uniformity in the rate of commission and such commission has no relation to the sales affected by the said receiving parties. According to AO the assessee could not bring on record with any objective reasons of such commission payments, thereby calculated at 3.08% for maximum justified commission under paper division and at 6.26% for fans division, accordingly, added Rs.15,90,523/-to the total income of the assesse. Before the CIT-A, the assessee contended that the commission is being paid to various parties depending upon sale of products of assessee and all the details have been provided to the assessing officer. Further submitted that the AO did not 21 ITA Nos.430,648/Kol/2013 M/s. Orient Paper & Industries Limited
give specific reasons as to how he concluded on maximum justified commission therein for both the divisions, but however, the AO accepted that the said parties rendered service to the assessee and received commission. Considering all aspects as submitted by the assessee the CIT-A deleted the said addition.
In 2nd appeal before us , the learned DR argued that the commission paid in 32. two divisions i.e. for paper division and fans division and raised a question why 1.8% to one party and 6.3% to another party and the distribution of such difference has to be explained and referred to paragraph – 7.3 and drew our attention to show that no uniformity in payment of commission and submitted that the assessee failed to bring on record any objective explanation. Further, the learned DR submitted that the assessee did not do any reasoning why the commission was paid based on quantity or business expediency referring to 1.3% to Nepal, 3.89% to Chennai, 5.68% to Gwalior and 1.16% to Kolkata. The learned DR further argued that there is a wide difference of commission payment between Saudi Arabia and Kolkata at 3.03% and 6.78% respectively. The learned DR argued referring to para-22 of observation of CIT-A that the commission paid on the basis of quantity i.e. metric tonne was not before the AO and the assessee made such submissions for the first time before the CIT-A and in such circumstances the issue go to the AO for denovo assessment.
In reply, the learned AR submits that the variance of difference was owing to quantity of paper product and the Department is not on Rule 46A in this appeal and the argument of sending the issue to the file of AO is not maintainable but however agreed to send the issue to the file of AO.
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Heard rival submissions and perused the relevant material on record. It is noticed from the order of CIT-A that he specifically observed that the commission was paid depending on the quantity, type of paper and type of buyers. The CIT-A specifically held that the rate of commission has no relevance on value of sale. Regarding commission paid in respect of fans division wherein the CIT-A found that it of commission varied with the type of buyer in respect of bulk buyer and canteen source Department and found further that the rate of commission has been accepted by the revenue in the earlier years. Coming to the submissions of the learned DR in respect of wide difference of commission paid to various parties that we’re of the opinion that the AO cannot decide how much of commission is to be paid in the course of business and that the payment of commission is an exclusive prerogative or discretion of the assessee in the course of its business expediency. We find that the said differences as raised by the learned DR was paid to various entities located in India and abroad and we do not see any of the parties are related to the assessee. It is pertinent to note that the assessing officer has accepted the services rendered by the parties who received commission and payment of commission thereon as can be seen from the assessment order where he applied 3.08% and 6.26% to the paper and fan division respectively. We find all the details relating to commission payments were available before the AO and the CIT-A examined the said details and found that payment of commission was made on the basis of quantity of paper and on the sale price of bulk buyer in respect of Fan division, therefore, the arguments of the learned DR is rejected in respect of remanding the issue to the file of AO is concerned. Thus, the order of CIT-A is confirmed and ground no-4 raised by the revenue is dismissed.
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In the result, the appeal in ITA 430/Kol/2013 of assessee is partly allowed and appeal in ITA 648/Kol/2013 of the revenue is dismissed.
Order pronounced in the open Court on 10th August, 2016
Sd/- Sd/- P.M. Jagtap S.S. Viswanethra Ravi Accountant Member Judicial Member Dated: 10.08.2016
**PP/SPS Copies of order forwarded to :- (1) Orient Paper & Industries Limited, 9/1, R.N. Mukherjee Road, 13th Floor, Kolkata-700 001
(2) Joint/Deputy Commissioner of Income Tax, Circle-6, Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-700 069 (3) Commissioner of Income-tax (Appeals)-VI, Kolkata (4) Commissioner of Income Tax, Kolkata (5) The Departmental Representative (6) Guard File True copy By order Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata
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