HALDIA PETROCHEMICALS LIMITED,KOLKATA vs ITO, WARD - 12(4), KOLKATA, KOLKATA

Income Tax Appellate Tribunal, KOLKATA ‘A’ BENCH, KOLKATA

Before: Shri P.M. Jagtap & Shri S.S. Viswanethra Ravi

I.T.A. No. 47/KOL./2010 Assessment year: 2006-2007 ITA No. 450/KOL/2011 Assessment Year: 2007-2008, ITA No. 2114/KOL/2009 Assessment Year: 2006-2007 & ITA No. 278/KOL/2011 Assessment Year: 2007-2008 Page 1 of 22

IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA ‘A’ BENCH, KOLKATA

Before Shri P.M. Jagtap, Accountant Member and Shri S.S. Viswanethra Ravi, Judicial Member

I.T.A. No. 2114/KOL/ 2009 Assessment Year: 2006-2007

Haldia Petrochemicals Limited,..................................................Appellant 1, Aucland Place, Kolkata-700 017 [PAN: AAACH 7360 R] -Vs.-

Income Tax Officer,......................................................................Respondent Ward-12(4), Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-700 069 -A N D – I.T.A. No. 278/KOL/ 2011 Assessment Year: 2007-2008

Haldia Petrochemicals Limited,....................................................Appellant 1, Aucland Place, Kolkata-700 017 [PAN: AAACH 7360 R] -Vs.- Deputy Commissioner of Income Tax,...........................................Respondent Circle-12, Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-700 069

-A N D –

I.T.A. Nos. 47/KOL/ 2010 Assessment Year: 2006-2007 & I.T.A. Nos. 450/KOL/ 2011 Assessment Year: 2007-2008

Deputy Commissioner of Income Tax,...........................................Appellant Circle-12, Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-700 069

-Vs.- M/s. Haldia Petrochemicals Limited,..........................................Respondent 1, Aucland Place, Kolkata-700 017 [PAN: AAACH 7360 R]

Appearances by: Shri Harkamal Chakravorty, G.M. (Fin.), FCA, for the assessee Shri Rajat Subhra Biswas, CIT, D.R.., for the Department

Date of concluding the hearing : June 06, 2016 Date of pronouncing the order : July 29, 2016

O R D E R Per Shri P.M. Jagtap :- These four appeals, two filed by the assessee being ITA Nos. 2114/KOL/2009 and 278/KOL/2011 and two filed by the Revenue being ITA Nos. 47/KOL/2010 and 450/KOL/2011 are cross appeals for assessment years 2006-07 and 2007-08. Since the issues involved therein are common, the same have been 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. 2006-07, which are directed against the order of the ld. Commissioner of Income Tax (Appeals)-XII, Kolkata dated 29.09.2009.

At the time of hearing before us, Ground No. 1 raised in the appeal of the assessee for A.Y. 2006-07 relating to the applicability of MAT provisions of section 115JB has not been pressed by the ld. counsel for the assessee. The same is accordingly dismissed as not pressed.

The next issue involved in Grounds No. 2 & 3 in assessee’s appeal for A.Y. 2006-07 relates to the assessee’s claim for deduction on account

of deferred revenue expenses and the same is raised by way of the following grounds:- “(2) For that the CIT(A) erred in holding that deferred revenue expenses amounting to Rs.15,46,30,000/- were not deductible in computing income under the Income Tax Act.

(3) For that the CIT(A) erred in dismissing the alternative ground that the deferred revenue expenses amounting to Rs.15,46,30,000/- were required to be included in the actual cost of the assets for allowing depreciation under section 32 of the Income Tax Act.

The assessee in the present case is a Company, which is engaged in the business of manufacturing and sale of Polymers and other Petrochemical Products. The return of income for the year under consideration, i.e. A.Y. 2006-07 was filed by it on 17.11.2006 declaring total income at ‘nil’. In the Profit & Loss Account filed along with the said return, a sum of Rs.160.67 millions was debited by the assessee on account of amortization of miscellaneous expenditure. In support of its claim for the said deduction, it was explained by the assessee that indirect expenditure of Rs.805.65 millions was incurred by it before the commencement of commercial production on 01.08.2001 and the same was written off over a period of five years beginning from assessment year 2002-03. It was claimed that the expenditure so incurred was in the nature of revenue and the same, therefore, was allowable as deduction being deferred revenue expenditure. The Assessing Officer did not find merit in the claim made by the assessee on this count and disallowed the deduction claimed by the assessee on account of deferred revenue expenditure holding that there was no provision in the Act for allowing such deduction. On appeal, the ld. CIT(Appeals) confirmed the disallowance made by the Assessing Officer on this issue.

At the time of hearing before us, the ld. representatives of both the sides have agreed that this issue is squarely covered in favour of the assessee by the decision of this Tribunal rendered in assessee’s own case for A.Y. 2005-06 vide its order dated 13.04.2016 passed in ITA Nos. 581 & 587/KOL/2009, wherein the alternative claim of the assessee as raised in Ground No. 3 of the present appeal to include the deferred revenue expenditure in the actual cost of the assets for allowing depreciation under section 32 of the Act was allowed by the Tribunal for the following reasons given in paragraph no. 17 of its order:- “17. From the aforesaid discussion, we find that the assessee has incurred expenses prior to the commencement of business and classified as deferred revenue expenditure. The assessee started claiming those expenses after the commencement of business 1/5th over the period of 5 years. However, the lower authorities disallowed the same on the ground that there is no provision under the Act to claim the deferred revenue expenses. From the facts of the case we observe that the AO is not skeptical about the genuineness of the expenses incurred. The whole amount of Rs. 154.64 million has been incurred in connection of business prior to the commencement of commercial production. Any expense incurred in connection to the business is an allowable expenditure. From the above explained citations of the cases denying the non existence of deferred revenue expenditure term in the act is not reasonable and tenable. In our considered view, all the expenses incurred prior to the commencement of production should be capitalized with the fixed assets of the assessee and depreciation should be allowed thereon accordingly as per law. In this connection, we are relying in the decision of Hon'ble Supreme Court in the case of Challapalli Sugars Ltd v. CIT (1975) 98 ITR 167 (SC) where the head notes is as reproduced:- “As the expression “actual cost” has not been defined, it should be construed in the sense which no commercial man would misunderstand. For this purpose it would be necessary to ascertain the connotation of the expression in accordance with the normal rules of accountancy prevailing in commerce and industry. The accepted accountancy rule for determining cost of fixed assets is to include all expenditure necessary to bring such assets into existence and to put them in working condition. In case money is borrowed by a newly started company which is in the process of constructing and erecting its plan, the interest incurred before the commencement of production on such borrowed money can be capitalized and

added to the cost of the fixed assets created as a result of such expenditure.

We are also relying in the guidance note issued by the Institute of Chartered Accountant of India on treatment of expenditure during construction period where it was recommended that the indirect expenditure incurred during the construction period should be capitalized as part of indirect construction cost to the extent to which the expenditure is indirectly related to construction or if incidental thereto. An illustrative list of such possible items of expenditure which would qualify for inclusion for the purpose of capitalization has been provided including the following:- “(a) Expenditure on employees who are either assigned to construction work or to supervision over construction work including salaries, provident fund and other benefits, staff welfare expenses, etc.

(b) Expenditure on technical and other consultants.

(c) General administrative and office expenditure which is indirectly related or incidental to construction, including, as may be appropriate, stationery and printing, rent, rates and taxes, postage and telegrams, travel and conveyance etc. (d) Appropriate insurance charges. (e) Appropriate expenditures on maintenance and operation of vehicles. (f) Appropriate expenditures in connection with temporary structures and service facilities built or acquired specially for the purpose of construction (see paragraphs 9.4 and 9.5 of this Note). (g) Preliminary project expenditure to the extent to which it is capitalized as part of the construction cost (see paragraph 3 of this Note). (h) Financial expenses including interest and other similar charges (see paragraph 4 of the Note). (i) Depreciation on fixed assets as well as on temporary structure and other facilities used during the period of construction (see paragraph 9.4 and 9.5 of this Note). (j) Expenses on test runs (see paragraph 11 of this Note). (k) Expenses on land grading and leveling (see paragraph 96 of this Note).

Taking a consistent view by the decision of Hon’ble Supreme Court and reliance in the aforesaid guidance note we reverse the orders of authorities below. Hence, this ground of the assessee is allowed”.

Respectfully following the order of the Tribunal dated 13.04.2016 (supra) in assessee’s own case on a similar issue for A.Y. 2005-06, we decide this issue in favour of the assessee and allow Ground No. 3 of its appeal.

The issue involved in Ground No. 4 of the assessee’s appeal for A.Y. 2006-07 relates to the disallowance of Rs.4,83,40,000/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) under section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962.

In its return of income filed for the year under consideration, i.e. A.Y. 2006-07, dividend income earned by the assessee amounting to Rs.39.30 crores was claimed to be exempt under section 10(34) of the Act. No disallowance on account of expenditure incurred in relation to the said exempt income, however, was offered by the assessee as required by the provisions of section 14A on the ground that no such expenditure was actually incurred by it. The Assessing Officer did not accept the stand of the assessee and computed the expenditure incurred by the assessee in relation to the exempt dividend income by applying Rule 8D at Rs.48.34 million and made a disallowance to that extent under section 14A. On appeal, the ld. CIT(Appeals) confirmed the disallowance made by the Assessing Officer on this issue.

At the time of hearing before us, the ld. representatives of both the sides have agreed that a similar issue relating to the disallowance made under section 14A has already been decided by the Tribunal in assessee’s own case for A.Y. 2005-06 vide paragraph no. 25 of its order dated 13.04.2016 (supra), which reads as under:- “25. We have heard rival contentions and perused the materials available on record. Before us Ld. AR submitted that under section 14A(1) disallowance can be made only

in respect of “expenditure incurred.” Here the assessee has not incurred any expenditure in relation to dividend income. Hence Provision of section 14A do not apply at all. Assessee has relied on citation of the following cases:

1.CIT vs. Hero Cycles Ltd [ 323 ITR 518]- P&H High Court

Maxopp Investment Limited vs. CIT [(2012)347 ITR 272 (Delhi High Court)]

CIT vs. Torrent Power Ltd. [2014] 363 ITR 474 (Gujarat High Court)

It was held that Rule 8D was not applicable in the AY 2005-06 to 2007- 08.Rule 8D came into existence from 24.03.2008 and hence it was not applicable for the assessment year under consideration. In this support Ld.AR has relied on the judgement of Bombay High Court in case of Godrej & Boyce Mfg. Co. Ltd., Mumbai Vs. DCIT [(2010) 328 ITR 81 (Bom).

On the other hand, Ld. DR vehemently relied on the orders of authorities Below. On perusal of appellate order, we find that direction has been issued to Assessing Officer for making disallowance in terms of provision of Sec. 14A r.w.s. 8D of the IT Rules, 1962. However we understand that the Rule 8D of the IT Rules came into effect from 24.03.2008 and the instant case before us is for AY 2005-06. Therefore, the provisions of Rule 8D of the IT Rules is not applicable in assessee’s present case. We further find that prior to insertion of Rule 8D of the IT Rules various courts have held that the disallowance in terms of provision of Sec. 14A of the Act should be restricted @ 1% of dividend income. On the other hand the ld. DR vehemently supported the order of authorities below. However we disagree with the order of the lower authorities and put our reliance in GA No. 3019 of 2012 in ITAT No. 243 of 2012 of Hon'ble jurisdictional High Court in the case of CIT v. M/s R.R.Sen & Brothers (P) Ltd., where the Hon'ble court has held:

“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. The appeal is dismissed.” In this view of the matter, we reverse the orders of authorities below and directed the Assessing Officer to make disallowance @ 1% of dividend income. Accordingly, this ground of assessee’s appeal is allowed in part”.

10.

As the issue involved in the year under consideration as well as all the material facts relevant thereto are similar to that of A.Y. 2005-06, we respectfully follow the order of the Tribunal for A.Y. 2005-06 and direct

the Assessing Officer to restrict the disallowance under section 14A to 1% of the exempt dividend income. Ground No. 4 of the assessee’s appeal for A.Y. 2006-07 is thus partly allowed.

11.

Ground No. 5 raised in the appeal of the assessee for A.Y. 2006-07 is an additional ground, which involves the issue relating to the levy of interest under section 234D of the Act on the ground that the provisions of section 234D have no application when the refund already paid is subsequently reduced due to retrospective amendment made in the Income Tax Act.

12.

Since the issue sought to be raised by the assessee in the additional ground involves purely a question of law and the adjudication of the same does not involve investigation into new facts, the additional ground raised by the assessee has been admitted by us relying on the decision of the Hon’ble Supreme Court in the case of National Thermal Power Corporation –vs.- CIT reported in 229 ITR 383.

13.

In support of the assessee’s case on the issue raised in the additional ground challenging the levy of interest under section 234D, the ld. counsel for the assessee submitted that the assessee-company had declared book profit of Rs.285.01 crores under section 115JB for A.Y. 2006-07 and the tax payable thereon at Rs.23.98 crores. As the assessee- company had paid advance tax and TDS of Rs.26.75 crores, refund of the excess tax along with interest aggregating to Rs.3.07 crores was granted to the assessee as per intimation issued under section 143(1) on 31.01.2008. Subsequently, in the assessment completed under section 143(3) vide an order dated 30.12.2008, the Assessing Officer added back provision for deferred tax liability, provision for doubtful advance and provision for doubtful debts aggregating to Rs.163.18 crores to the book

profit as per the amendment made by the Finance Act, 2008 and 2009 under section 115JB with retrospective effect from 01.04.2001 and raised a demand for additional MAT of Rs.13.73 crores. He also levied interest of Rs.20.25 lakhs under section 234D on the refund that had been granted to the assessee under section 143(1).

14.

The ld. counsel for the assessee submitted that the book profit of the assessee-company under section 115JB was worked out and accepted under section 143(1) as per the law prevalent at the relevant time as settled by the decision of the Hon’ble Calcutta High Court in the case of Balrampur Chini Mills [214 CTR 684(Cal.) and the Hon’ble Supreme Court in the case of HCL Conmet [305 ITR 409 (SC)]. He submitted that when the refund was granted to the assessee vide intimation issued under section 143(1) on 31.01.2008, retrospective amendments made by the Finance Act, 2008 & 2009 were not in the Statute and the said refund thus was granted in accordance with law as prevalent at the relevant time. He contended that the refund so granted, therefore, could not be treated as excess refund and interest under section 234D, which is payable on excess refund, could not be charged in assessee’s case. In support of this contention, he relied on the decision of the Hon’ble Calcutta High Court in the case of Emami Limited –vs.- CIT reported in 337 ITR 470, wherein interest charged under sections 234B and 234C in the similar situation was cancelled.

15.

On the other hand, the ld. D.R. did not raise any material contention and left the matter to be decided by the Tribunal in accordance with law.

16.

We have considered the rival submissions and also perused the relevant material available on record. There is no dispute that the refund granted to the assessee as per the intimation issued under section 143(1)

on 31.01.2008 was in accordance with law as prevalent at the relevant time. The additional tax liability, however, was raised against the assessee in the assessment completed by the Assessing Officer under section 143(3) as a result of amendment made in section 115JB by the Finance Act, 2008 and 2009 with retrospective effect from 01.04.2001 and the refund granted by the assessee as per the intimation issued under section 143(1) became payable by the assessee. The refund granted to the assessee accordingly was treated by the Assessing Officer as excess refund and interest under section 234D was levied by him on such excess refund. In the case of Emami Limited –vs.- CIT (supra) cited by the ld. counsel for the assessee, a similar issue situation had arisen in the context of levy of interest under sections 234B and 234C and the interest charged by the Assessing Officer under sections 234B and 234C was cancelled by the Hon’ble Jurisdictional High Court for the following reasons given in paragraphs no. 9 to 11 of its order:- “9. In the case before us, the last date of the relevant financial year was 31st March, 2001 and on that day, admittedly, the appellant had no liability to pay any amount of advance tax in accordance with the then law prevailing in the country. Consequently, the appellant paid no advance tax and submitted its regular return on 31st Oct., 2001 within the time fixed by law wherein it declared its total income and the book profit both as nil. However, consequent to the amendment of the provisions contained in s. 115JB of the Act by virtue of Finance Act, 2002 which was published in the official gazette on 11th May, 2002 giving retrospective effect to the amendment from 1st April, 2001, the appellant first voluntarily paid a sum of Rs. 1,55,62,511 on account of the tax payable on book profit as provided in amended provision of s. 115JB and then filed its revised return of 31st March, 2003 declaring its business income as nil but the book profit under s. 115JB as Rs. 20,63,65,711. The AO accepted such return of income but imposed interest under ss. 234B and 234C of the Act amounting to Rs.44,00,937 and Rs. 11,78,960 respectively.

10.

In our opinion, the amended provision of s. 115JB having come into force w.e.f. 1st April, 2001, the appellant cannot be held defaulter of payment of advance tax. As pointed out earlier, on the last date of the financial year preceding the relevant assessment year, as the book profit of the appellant in accordance with the then provision of law was nil, we cannot conceive of any "advance tax" which in essence is payable within the last day of the financial year

preceding the relevant assessment year as provided in ss. 207 and 208 or within the dates indicated in s. 211 of the Act which inevitably falls within the last date of financial year preceding the relevant assessment year. Consequently, the assessee cannot be branded as a defaulter in payment of advance tax as mentioned above.

11.

At this stage, we may profitably rely upon the observations of the Supreme Court in the case of Star India (P) Ltd. vs. CCE (2006) 201 CTR (SC) 63 : (2006) 280 ITR 321 (SC) strongly relied upon by Mr. Bajoria, where the apex Court in the context of imposition of service tax by the Finance Act, 2002 with retrospective effect held that the liability to pay interest would arise only on default and is really in the nature of quasi-punishment and thus, although the liability to pay tax arose due to retrospective effect of law, same should not entail the punishment of payment of interest”.

17.

Although the aforesaid decision in the case of Emami Limited was rendered by the Hon’ble Jurisdictional High Court in the context of levy of interest under sections 234B and 234C, we are of the view that the ratio and spirit of the said decision is equally applicable in the present case involving levy of interest under section 234D in the identical facts situation. We, therefore, apply the ratio of the said decision of the Hon’ble Jurisdictional High Court and direct the Assessing Officer to cancel the interest charged under section 234D.

18.

Now we take up the appeal of the Revenue for A.Y. 2006-07, which involves the following grounds:- (1) On the facts and in the circumstances of the case, ld. CIT(A) has erred in deleting the disallowances of Rs.15,57,70,000/- on account of freight expenses, being receivables of the appellant and in the nature of balance sheet item.

(2) On the facts and in the circumstances of the case, ld. CIT(A) erred in deleting the disallowances made u/s 2(24)(x) read with sec. 36(1)(va) of the I.T. Act on account of delayed deposit of employees contribution towards ESI.

(3) On the facts and in the circumstances of the case, ld. CIT(A) erred in deleting addition of Rs.31,70,000/- on

account of provision for doubtful advances which was added for computation of book profit u/s 115JB of the I.T. Act since the debts of the advances were unascertained.

19.

As agreed by the ld. representative of both the sides, the issue involved in Ground No.1 of the Revenue’s appeal for A.Y. 2006-07 is squarely covered in favour of the assessee by the decision of this Tribunal in assessee’s own case for A.Y. 2005-06 rendered vide its order dated 13.04.2016 (supra), wherein a similar issue was decided in favour of the assessee vide paragraph no. 35, which reads as under:- “35. We have heard rival contentions and perused the materials available on record. Before us Ld. DR vehemently supported the order of AO and left the issue to the discretion of the Bench whereas Ld AR relied the order of Ld CIT(A). From the aforesaid rival materials, we find that the AO has disallowed the freight expenses on the ground that assessee has made short recovery from the customers and similar addition was made in the earlier assessment year. However, the AO has not disputed the quantum of expenses incurred by the assessee on freight. From the submission of Ld. AR we find that out of the total disallowance made by the AO towards freight expenses, a sum of Rs.86,59,000/- was incurred on the stock transfer by the assessee from the factory to the depots. In our view, the question of disallowance of freight expenses in connection with the stock transfer does not arise. This freight expense has direct connection with the business of the assessee. For other freight expenses, the reason given by the AO for the disallowance is not tenable as the AO has not pointed out any reasonable reasons for the same. There is no doubt that the assessee had made short recovery from the customers but the reasons for the same were duly explained by the assessee. Accordingly the Ld. CIT(A) has given the relief to the assessee and on this point of view Ld. DR has not brought anything on record contrary to the findings of the Ld CIT(A). In view of above, we find no infirmity in the order of Ld CIT(A) and we uphold the same. Hence, this ground of Revenue’s appeal is dismissed”.

20.

As the issue involved in the year under consideration, i.e. A.Y. 2006-07 as well as all the material facts relevant thereto are similar to the A.Y. 2005-06, we respectfully follow the order of the Tribunal for A.Y. 2005-06 and uphold the impugned order of the ld. CIT(Appeals) deleting the disallowance of Rs.15,57,70,000/- made by the Assessing Officer on

account of freight. Ground No. 1 of the Revenue’s appeal is accordingly dismissed.

21.

The issue raised in Ground No. 2 of the Revenue’s appeal for A.Y. 2006-07 relating to the deletion by the ld. CIT(Appeals) of the disallowance made by the Assessing Officer on account of delayed deposit of employees contribution towards ESI has not been pressed by the ld. D.R. at the time of hearing before us. The same is accordingly dismissed as not pressed.

22.

As regards Ground No. 3 of the Revenue’s appeal for A.Y. 2006-07, the ld. representatives of both the sides have agreed that the issue involved therein relating to the deletion by the ld. CIT(Appeals) of the addition of Rs.31,70,000/- on account of provision for doubtful advances while computing book profit under section 115JB is squarely covered in favour of the revenue and against the assessee by the decision of this Tribunal rendered vide its order dated 13.04.2016 in assessee’s own case for A.Y. 2005-06, wherein a similar issue was decided against the assessee vide paragraph no. 45, which reads as under:- “45. We have heard rival contentions and perused the materials available on record. Before us Ld. DR supported the order of AO whereas Ld AR supported the order of learned CIT(A). From the aforesaid discussion, we find that AO has treated the provision created against the doubtful debts and advances as the provision for unascertained liability. Therefore for computing the book profit under the provisions of MAT deduction for such provisions was disallowed and added to the book profit. However in our considered view the provision for Sec. 115JB speaks for the provisions created for unascertained liabilities therefore we disagree with the view of the AO. In this connection, we are putting our reliance in the decision of Hon’ble Apex Court in the case of CIT vs. HCL Comnet Systems and Services Ltd (2007) 305 ITR 409 where it was held as under:- “As stated above, the said Explanation has provide six items, i.e., Item Nos (a) to (f) which if debited to the profit and loss account can be added back to the net profit for computing the book profit. In this case, we are concerned with Item No. (c) which refers to the provision for bad and doubtful debt. The provision for bad and doubtful debt can be added back to the net profit only if Item (c) stands attracted. Item (C) deals

with amount(s) set aside as provision made for meeting liabilities, other than ascertain liabilities. The assessee’s case would, therefore, fall within the ambit of Item (c) only if the amount is set aside as provision; the provision is made for meeting a liability; and the provision should be for other than ascertained liability, i.e., it should be for an unascertained liability. In other words, all the ingredients should be satisfied to attract item (c) of the Explanation to Sec. 115JA. In our view, Item (c) is not attracted. There are two types of “debt”. A debt is payable by the assessee is where the assessee has to pay the amount to others whereas the debt receivable by the assessee is an amount which the assessee has to receive from others. In the present case “debt” under consideration is “debt receivable” by the assessee. The provision for bad and doubtful debt, therefore, is made to cover up the probable diminution in the value of asset, i.e., debt which is an amount receivable by the assessee. Therefore, such a provision cannot be said to be a provision for liability, because even if a debt is not recoverable no liability could be fastened upon the assessee. In the resent case, the debt is the amount receivable by the assessee and not any liability payable by the assessee and, therefore, any provision made towards irrecoverability of the debt cannot be said to be a provision for liability. Therefore, in our view Item (c) of the Explanation is not attracted to the facts of the present case. In the circumstances, the AO was not justified in adding back the provision for doubtful debts of Rs.92,5,187/- under clause (c) of the Explanation to Section 115JA of the 1961 Act.”

In view of above, we have no hesitation to uphold the order of Ld CIT(A). Hence this ground of appeal of the Revenue is dismissed”.

23.

Respectfully following the order of the Tribunal for A.Y. 2005-06 on a similar issue, we reverse the impugned order of the ld. CIT(Appeals) on this issue and confirm the addition made by the Assessing Officer on account of provision of doubtful advances for the purpose of computing book profit of the assessee-company under section 115JB. Ground No. 3 of Revenue’s appal for AY 2006-07 is accordingly allowed.

24.

During the course of appellate proceedings before the Tribunal, the Revenue has raised an additional ground for A.Y. 2006-07 challenging the deletion by the ld. CIT(Appeals) of the interest charged by the Assessing Officer under section 234B on the tax payable by the assessee as per computation of book profit under section 115JB. Since the issue raised by

the Revenue in the additional ground is purely a legal one and the adjudication of the same does not require investigation into new facts, the additional ground raised by the Revenue has been admitted by us. As agreed by the ld. representatives of both the sides, the issue raised by the Revenue in the additional ground relating to levy of interest under section 234B is squarely covered in favour of the assessee and against the Revenue by the order of this Tribunal in assessee’s own case for A.Y. 2005-06, wherein a similar issue was decided by the Tribunal against the assessee. Following the order of the Tribunal in assessee’s own case for A.Y. 2005-06, we reverse the impugned order of the ld. CIT(Appeals) cancelling the interest charged by the Assessing Officer under section 234B and restore that of the Assessing Officer on this issue. The additional ground raised by the Revenue is accordingly allowed.

25.

Now we take up the cross appeals for A.Y. 2007-08, which are directed against the order of the ld. CIT(Appeals)-XII, Kolkata dated 14.12.2010.

26.

Ground No. 1 raised by the assessee in A.Y. 2007-08 challenging to applicability of MAT provisions of section 115JB has not been pressed by the ld. counsel for the assessee at the time of hearing before us. The same is accordingly dismissed.

27.

In Ground No. 2 of its appeal for A.Y. 2007-08, the assessee- company has challenged the levy of interest under sections 234B and 234C on additional tax liability arising as a result of amendments made in the Income Tax Act with retrospective effect.

28.

As agreed by the ld. representatives of both the sides, this issue is squarely covered in favour of the assessee by the order of this Tribunal

dated 13.04.2016 in assessee’s own case for A.Y. 2005-06, wherein a similar issue was decided vide paragraph no. 12 as under:- “12. At the outset, we find that the issue is squarely covered in favour of the assessee in terms of Hon’ble jurisdictional High Court in the case of Emami Ltd. Vs. CIT (2011) 337 ITR 470 (Cal). The head note of the order reads as under : “Interest under ss. 234B and 234C – Chargeability– Retrospective amendment of law- There was no liability of the assessee to make payment of the advance tax on the last day of the financial year i.e. 31st march, 2001 when its book profit was nil according to s. 115JB – Provision of s. 115JB having been amended by the Finance Act, 2002, with retrospective effect from 1st April, 2001, the assessee cannot be held defaulter of payment of advance tax – Where on the last date of the financial year preceding the relevant assessment year, the assessee had no liability to Assessment Year advance tax, he cannot be asked to pay interest in term of s. 234B and s. 234C for default in making payment of tax in advance which was physically impossible.”

As the issue is already covered by the decision of Hon'ble jurisdictional High Court in favour of assessee, we accordingly direct the AO not to charge any interest under section 234B & 234C of the Act on account of retrospective amendment in clause (h) & (i) to explanation 1 of section 115JB of the Act. Hence we allow this ground of appeal of the assessee”.

29.

Respectfully following the order of this Tribunal in assessee’s own case for A.Y. 2005-06 as well as the decision of the Hon’ble Jurisdictional High Court in the case of Emami Limited (supra), we cancel the interest imposed under sections 234B and 234C and allow Ground No. 2 of the assessee’s appeal for A.Y. 2007-08.

30.

As regards Grounds No. 3 & 4 of the assessee’s appeal for A.Y. 2007- 08, it is observed that the issue involved therein relating to the assessee’s claim for deduction on account of deferred revenue expenditure is similar to the one involved in Grounds No. 2 & 3 of the assessee’s appeal for A.Y. 2006-07, which has already been decided by us in the foregoing portion of this order. Following our conclusion drawn in A.Y. 2006-07, we direct the Assessing Officer to include the deferred revenue expenditure incurred by the assessee in the cost of acquisition of

respective assets for the purpose of allowing depreciation under section 32. Ground No. 4 of the assessee’s appeal for A.Y. 2007-08 is accordingly allowed.

31.

As regards Ground No. 5 of the assessee’s appeal for A.Y. 2007-08, it is observed that the issue involved therein relating to the disallowance made under section 14A read with Rule 8D is similar to the one involved in Ground No. 4 of the assessee’s appeal for A.Y. 2006-07, which has already been decided by us in the foregoing portion of this order. Following our conclusion drawn in A.Y. 2006-07, we restrict the disallowance made under section 14A to 1% of the exempt income. Ground No. 5 of the assessee’s appeal for A.Y. 2007-08 is thus partly allowed.

32.

As regards Ground No. 1 of the Revenue’s appeal for A.Y. 2007-08, it is observed that the issue involved therein relating to the deletion by the ld. CIT(Appeals) of the disallowance of Rs.16,20,20,000/- made by the Assessing Officer on account of freight is similar to the one involved in Ground No. 1 of the revenue’s appeal for A.Y. 2006-07, which has already been decided by us in the foregoing portion of this order. Following our conclusion drawn in A.Y. 2006-07, we uphold the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue. Ground No. 1 of the Revenue’s appeal for A.Y. 2007-08 is accordingly dismissed.

33.

In Ground No. 2 of its appeal for A.Y. 2007-08, the Revenue has challenged the action of the ld. CIT(Appeals) in allowing the claim of the assessee for deduction on account of prior period expenses.

34.

During the course of assessment proceedings for the year under consideration, i.e. A.Y. 2007-08, a letter dated 16.12.2009 was filed by the

assessee stating that the expenses of Rs.10,68,92,551/- claimed in A.Y. 2008-09 actually pertained to A.Ys. 2006-07 and 2007-08. A request, therefore, was made by the assessee to the Assessing Officer to disallow the said expenses in A.Y. 2008-09 and allow the same to the extent of Rs.6,86,59,021/- in the year under consideration, i.e. A.Y. 2007-08 and the balance amount in A.Y. 2006-07. The Assessing Officer, however, did not accept this claim of the assessee on the ground that the same was not made by the assessee in the return of income.

35.

On appeal, the ld. CIT(Appeals), however, directed the Assessing Officer to allow the claim of the assesese on this issue for the following reasons given in paragraph no. 17 to 22 of his impugned order:- “17. I have considered the submission of the appellant and perused the assessment order. I have also gone through the letter dated 16.12.2009 filed by the appellant before the AO and the judicial pronouncement relied upon by the appellant, vide letter dated 16.12.2009 the appellant had submitted before the A.O. as under:-

Sub.(1) Return u/s. 139 of the Income Tax Act, 1961 (Act); AY. 2008-09 (2) Rectification u/s. 154 of the Act- AY. 2006-07

(3) Correction of Income under assessment; AY. 2007-08

We have filed return u/s. 139 of the Act for the captioned assessment year and claimed deduction of Rs.21,06,52,404/- in computation of income as VAT adjustments. However, out of the above sum Rs.3,82,33,530/- and Rs.6,8659,021/- pertain to F.Y. 2005-06 (AY. 2006-07) and F.Y. 2006-07(A.Y. 2007-08) respectively totalling Rs.10,68,92,551/-.

Therefore, due to our mistake the prior year expenses amounting to Rs.10,68,92,551/- have not been added back to the computation of income in AY. 2008-09. therefore, we request that the same may be corrected during the assessment proceedings for the AY. 2008-09. No tax implication arises due to this inadvertent error.

In the meantime, it is requested that the deduction of Rs.3,82,33,530/- and Rs.6,86,59,021/- be allowed in the computation of our income for AY 2006-07 and AY 2007-08 respectively.

As the assessment proceedings of AY. 2006-07 has been completed we request that the deduction of Rs.3,82,33,530/- be allowed u/s. 154 of the Act and for A. Y. 2007-08, as the assessment proceedings are in progress, the deduction of Rs. 6,86,59,021/- may be allowed in the assessment order u/s. 143(3) of the Act. We place reliance on the decision of the Hon'ble Tribunal reported in [2008] 301 ITR 304 (Delhi) and [1998] 234 ITR 541 (Mad) in this connection.

This letter is submitted in triplicate for placing separately in your files for AY 2006-07 to AY. 2008-09."

18.

From the letter dated 16-12-2009 it is apparent that the appellant has requested the A.O. to make the addition of Rs.10,68,92,551/- in A.Y. 2008- 09 while completing the assessment for that year because the aforesaid expenses pertains to AY 2006-07 and AY 2007-08. It was further submitted before the AO that out of the aforesaid amount, claim to the extent of Rs. 6,86,59,021/- should be allowed in the assessment for AY 2007-08 as the said amount relates to this assessment year. However as mentioned above, the AO has rejected the claim for deduction of Rs.6,86,59,021/- for the reason that some was not claimed in the return of income. On careful consideration of the facts and in law, I am of the opinion that the A.O was not justified in rejecting the claim of the appellant. First of all the appellant had requested to add the said amount in A.Y. 2008-09 and allow the claim in the year under appeal. Thus, when the said amount is being added in one assessment year and the claim has been made for deduction in the assessment year in which it is actually allowable as per law. Secondly, it is not the case of the A.O. that the claim made by the appellant through above referred letter was not at all allowable to the appellant under the provisions of Act. In the case of National Thermal Power Corporation Vs, CIT reported in 229 ITR 383 (SC), the Hon'ble Supreme Court has held that u/s. 254 of the Act the Tribunal may, after giving both the parties to appeal an opportunity of being heard, pass such orders therein as it thinks fit. The power of the Tribunal in dealing with appeals is, thus, expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. if, for example, as a result of a judicial decision given while appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction denied, we do not see any reason why the assessee should be

prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. While deciding the issue as above, the Hon'ble Supreme Court has considered its earlier decision in the case of Jute Corporation of India Ltd.. Vs. CIT reported in 187 ITR 688 (SC).

19.

In the case of Emerson Network Power India Ltd. Vs. ACIT reported in 27 SOT 593 (BOM), the Hon'ble Bombay ITAT has held as under: "Business expenditure'- Allowability - Claim made at the time of assessment - Claim not made in original return nor made by way of valid revised return but made in the course of assessment - A.O was obliged to give due relief to assessee or entertain its claims if admissible as per law even through the assessee had not filed revised return - Legitimate claim of assessee should not be rejected on technical ground - Chincago Pneumatic India Ltd. Vs. Dy. CIT (2007) 15 SOT 252 (Mumbai) followed".

20.

In the case of Franco Indian Pharmaceuticals Pvt. Ltd. Vs. ITO report in 3 ITR (Trib.) 754 (MUM), the Hon'ble ITAT, Mumbai has held as under:

"Business expenditure - Allowability - Assessee made additional claim of deduction of bad debts on the ground that a clerical/arithmetical error occurred in the return - claim not made in original return nor made by way of a revised return but made in the course of assessment- AO and CIT(A) rejected the claim following the decision of the Supreme Court in Goetze (lndia) Ltd. Vs. CIT (2006) 204 CTR (SC) 182 : (2006) 284 ITR 323 (SC) on the ground that no revised return was filed for making such additional claim - Powers of the Tribunal to admit additional ground or claim are not affected - Facts are on record by way of letter of the assessee before the AO hence claim is admitted - As neither AO nor the CIT(A) has considered the issue on merits, the issue is set aside to the file of AO for fresh adjudication. "

21.

In the case of CIT Vs. Jindal Drilling & Industries Ltd. reported in 301 ITR 304 (Delhi) it was held by the Hon'ble Delhi High Court that since, the revenue itself has concluded that the assessee was not entitled to claim the expenditure in the AY. 1990-91 but only in an earlier assessment year, and that claim was made by the assessee for the AY. 1989-90, as a result of a direction given by the Commissioner u/s. 263 of the Act to recomputed the income of the assessee, no error was committed both by the CIT(Appeal} and the Tribunal in concluding that the AO ought to have taken these facts into consideration for the purposes of computing the correct income of the assessee.

22.

In the case of appellant company it has specifically submitted before the AO that the expenditure to the extent of Rs.10,68,92,551/- claimed in AY. 2008-09, is required to be added back in that assessment year because same pertained to AY 2006-07 & 2007-08. The appellant claimed that the deduction of Rs.6.86,59,021/- should be allowed as deduction in the year under appeal i.e. in AY. 200,7-08. In view of above facts, and the judicial pronouncements relied upon by the appellant company, I am of the opinion that the claim of Rs.6,86,59,021/- is allowable to the appellant company. The AO is directed to allow the claim of the appellant which was made before him vide letter dated 16.12.2009. Needless to mention that the aforesaid amount of Rs.6,86,59,021/- will be added back in the total income of the appellant company in AY 2008-09 as admitted by the appellant itself. The ground no. 4 is allowed”.

36.

We have heard the arguments of both the sides and also perused the relevant material available on record. It is observed that the expenditure in question claimed by the assessee in A.Y. 2008-09 actually pertained to the year under consideration, i.e. A.Y. 2007-08 as found by the ld. CIT(Appeals) and there is nothing brought on record by the ld. D.R. to dispute this position. Moreover, the genuineness of the said expenditure was never disputed even by the Assessing Officer and a reasonable request made by the assessee to allow the said expenditure in the year to which it pertained, i.e. A.Y. 2007-08 and not in A.Y. 2008-09 was not accepted by the Assessing Officer merely on the ground that no such claim was made by the assessee in the return of income. As rightly observed by the ld. CIT(Appeals), the purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of the assessee in accordance with law and the Assessing Officer, therefore, was duty bound to consider the request made by the assessee for allowing the expenditure in question in the year to which it pertained. The ld. CIT(Appeals), in our opinion, therefore, was fully justified in allowing the claim of the assessee for the expenditure in question with a further direction to the Assessing Officer to disallow the same in A.Y. 2008-09. We, therefore, find no infirmity in the impugned order of the ld.

CIT(Appeals) on this issue and upholding the same, we dismiss Ground No. 2 of the Revenue’s appeal for A.Y. 2007-08.

37.

In the result, the appeals of the assessee for A.Y. 2006-07 and 2007-08 and the Revenue’s appeal for A.Y. 2006-07 are partly allowed, whereas the appeal of the Revenue for A.Y. 2007-08 is dismissed. Order pronounced in the open Court on July 29, 2016.

Sd/- Sd/- (S.S. Viswanethra Ravi) (P.M. Jagtap) Judicial Member Accountant Member Kolkata, the 29th day of July, 2016

Copies to : (1) Deputy Commissioner of Income Tax, Circle-12, Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-700 069

(2) Income Tax Officer, Ward-12(4), Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-700 069

(3) M/s. Haldia Petrochemicals Limited, 1, Aucland Place, Kolkata-700 017

(4) Commissioner of Income-tax (Appeals)-XII, Kolkata, (5) Commissioner of Income Tax, Kolkata (6) The Departmental Representative (7) Guard File By order

Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S.

HALDIA PETROCHEMICALS LIMITED,KOLKATA vs. ITO, WARD - 12(4), KOLKATA, KOLKATA