M/S ITC LIMITED,KOLKATA vs. CIT, KOLKATA-III, KOLKATA

आदेश /O R D E R

PER Waseem Ahmed, Accountant Member:-

These three appeals are filed by the same assessee against orders of Commissioner of Income Tax-3, Kolkata in appeals No.CIT-3/Kol/263/2014- 15/6030-32, CIT-III/DC(Hq)-3/Kol/243/u/s263/2013-14/7183-85-2012-13/ 8984 dated 18/19/03/2015, 26.03.2014 & 30.03.2013. Assessments were framed by ACIT,Range-8,/JCIT(OSD) Circle-8/DCIT, Circle-8, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide their orders dated 31.03.2013, 28.12.2011 and 31.12.2010 for assessment years 2009-10, 2008-09 & 2007-08 respectively.

ITA No.301/Kol/15, 684/Kol/14 & 1027/Kol/13 A.Ys 09-10, 08-09 & 07-08 ITC Ltd. v. CIT Kol-3 Page 2 2. At the time of hearing none appeared on behalf of Revenue and DR filed the adjournment application for 16 cases. The bulk adjournment in 16 cases is not accepted. So we decided to hear these cases without the appearance of Ld. DR from Revenue. However, in the present cases, we find that these are old appeals and have been fixed for hearing as many as eight times (including today’s hearing). Hence, we rejected the adjournment application and proceeded for hearing Ld. Senior Authorized Representative, Shri J.P.Khaitan and Bikash Chanda appearing on behalf of assessee.

ITA No.301/Kol/15, 684/Kol/14 & 1027/Kol/13 A.Ys 09-10, 08-09 & 07-08 ITC Ltd. v. CIT Kol-3 Page 3 6. For that the learned Commissioner of Income Tax was not justified in disallowing interest income on excess dividend distribution tax paid. Any such excess tax paid has to be refunded together with interest under section 244A, as rightly granted by the Assessing Officer.

Accordingly, ld. CIT issued notice for the clarification on the above subject- matter for which assessee submitted that a deduction of Rs.868,67,534/- in respect of excise duty on closing tock was claimed in the AY 2009-10 and

ITA No.301/Kol/15, 684/Kol/14 & 1027/Kol/13 A.Ys 09-10, 08-09 & 07-08 ITC Ltd. v. CIT Kol-3 Page 4 same was added back in the computation of income for the subsequent AY 2010-11. Similarly a deduction of Rs.372,89,01,394/- was claimed in the earlier AY i.e. 2008-09 and added back in the computation of income for AY 2009-10.The tax rate for both the AYs was 33.99%. Besides above, AO has allowed the relief of the excise duty element in the finished goods by virtue of the provisions of Sec. 43B of the Act after exhaustive examination.

4.1 The assessee in connection with the interest granted under section 244A of the Act submitted that the assessee is very much entitled for interest on the excess DDT paid by the assessee in terms of provisions of Sec. 244A of the Act and relied on the CBDT circular No. 549 dated 31.10.1989. However, the Ld. CIT has disregarded the claim of assessee by observing that the element of excise duty in the closing stock was neutralized by deducting the element of excise duty in the opening stock for the relevant year. Therefore, further deduction of excise duty element in the closing stock will amount to double deduction. Regarding the interest on excess DDT the ld. CIT held that there is no provision under the Act to allow the interest on the refund of the excess DDT paid. Therefore the interest granted on the refund of excess DDT and double deduction of excise duty by the order of AO is erroneous in so far as it is prejudicial to the revenue. Hence, file was restored to the file of AO for fresh adjudication after necessary verification of the facts and reasonable opportunity to the assessee.

ITA No.301/Kol/15, 684/Kol/14 & 1027/Kol/13 A.Ys 09-10, 08-09 & 07-08 ITC Ltd. v. CIT Kol-3 Page 5 year i.e. AY 2008-09 and added back in the computation in AY 2009-10 The computation of income statements for assessment years 2008-09, 2009-10 & 2010-11 are placed on pages 1 to 6 of the paper book. The tax rate for both the years was 33.99%. The ld. AR drew our attention on page 28 of the paper book where auditor certificate is placed certifying that the opening and closing stock does not include the excise duty. Our attention was also drawn on page 7 & 8 of the paper book where the notice was issued by the assessing officer regarding seeking the clarification about the excise element in the closing stock of the company. The reply for the same is placed on page 15 of the paper book. The certified true copy of the note sheet explaining the submission and discussion of the excise duty matter was placed on page 46 of the paper book with the relevant date 22/3/2013. The deduction was claimed and allowed in the assessment in line with the judgment of Hon’ble Supreme Court decision in the case of Berger Paints India Limited vs. CIT (2004) [266 ITR 99 (SC)]. Therefore, the claiming of the deduction for excise duty on closing stock in AY 2009-10 of Rs.868,67,87,534/- and offering it for tax in the next assessment year i.e. AY 2010-11 was not prejudicial to the interest of the Revenue in AY 2009-10. The Assessing Officer had exhaustively examined the above claim during the assessment for AY 2009- 10 and allowed the deduction in accordance with the abovementioned judgments of Hon’ble Apex Court.

6.1 Regarding the payment of interest under section 244A it was submitted that the interest of Rs.58,10,576/- on refund of excess DDT paid by the company has been correctly granted as per the provisions of the Act. None appeared on behalf of Revenue.

6.2 From the aforesaid discussion, we find that the ld. CIT found from the impugned order of the AO that the assessment has been framed without considering and examining the issue of excise duty on closing stock which resulted the double deduction to the assessee in profit & loss account and in

ITA No.301/Kol/15, 684/Kol/14 & 1027/Kol/13 A.Ys 09-10, 08-09 & 07-08 ITC Ltd. v. CIT Kol-3 Page 6 the computation of income. At the same time the AO also granted refund of excess DDT paid along with the interest for which there is no provision under the Act. Therefore the ld. CIT held the order of the AO erroneous in so far as it is prejudicial to the revenue. However, now to arrive at the correct conclusion of the case, we deem it necessary to reproduce the relevant provisions of section 263 of the Act. (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the [Assessing] Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he, my, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment….”

The sum and substance of the above reproduced section 263(1) can be summarized in the following points:-: 1) The commissioner may call for an examine the record of any proceeding under the Act; 2) If he considers that the order passed by the AO is (i) Erroneous; and (ii) Is prejudicial to the interest of Revenue; 3) He has to give an opportunity of hearing in this respect to the assessee; and 4) He has to make or cause to make such enquiry as he deems necessary; 5) He may pass such order thereon as the circumstances of the case justify including, (i) An order enhancing or, (ii) Modifying the assessment or (iii) Cancelling the assessment and directing a fresh assessment.

ITA No.301/Kol/15, 684/Kol/14 & 1027/Kol/13 A.Ys 09-10, 08-09 & 07-08 ITC Ltd. v. CIT Kol-3 Page 7 6.3 Now in the light of above words, we have to examine as to whether the order of the ld. CIT is a valid order in the light of the above stated points/ provisions of section 263 of the Act.

6.4 Regarding the issue of excise duty we find from the case in hand, that the issue was duly examined by the AO evident as under:- (a) Questionnaire issued u/s 142(1) dt. 10.01.2013, the relevant portion is extracted below:- “6. As per the computation of Income (Revised) (Statement No. 14), the amount of Excise duty on closing stock of finished goods as at 3.03.2009 is claimed u/s. 43B in this assessment year at Rs.868,67,87,534/-. On the other hand the amount of excise duty on closing stock of finished goods as on 31.03.2008 claimed u/s. 43B in the AY 2008-09 and written back as per column no. 26 of the computation of income (Revised) is Rs.372,89,01,394/-. Therefore, there is a net deduction claim of Rs.495,78,86,140/-. Deduction towards excise duty payable on closing stock as claimed by the assessee by way of debiting it in the profit & loss account is allowable u/s. 43B of the Income tax Act. 1961 subject to its actual payment within due date of filing of the return. If the deduction is allowed once there is no question of further allowance of deduction under the same head.

In connection with the above observations you are hereby required to furnish an explanation in respect of the method of accounting followed for accounting of excise duty on closing stock and claim of the same in the profit and loss account and in the computation of income u/s. 43B of the Act.

In response to the notice issued u/s 142(1) of the Act, the reply of the assessee stand as under:- “1. Claim for excise duty on closing stock in the return for AY 2009-10 (item No. 6 of your requisition dt. 10.01.2013) i. Out of the total excise duty on closing stock of Rs.871.20 crores (which has not been charged to the P&L account of FY 2008-09) we have claimed in the return for AY 2009-1, as per Section 43B, only Rs.686.68 crores which has been paid within the due date of filing return for AY 2009-10.

ITA No.301/Kol/15, 684/Kol/14 & 1027/Kol/13 A.Ys 09-10, 08-09 & 07-08 ITC Ltd. v. CIT Kol-3 Page 8 ii. There is no charge of excise duty on closing stock as on 31.03.2009 in the profit and loss account of FY 2008-09 i.e the deduction for excise duty on closing stock as on 31.03.2009 of Rs.868.68 crores has not been claimed by / allowed through the profit & loss account to the company in AY 2009-10.”

(b) Order sheet entry on dated 06.03.2013 and 22.03.2013 which are placed at pages 45 & 46 of the paper book, the relevant portions are extracted below:- 06/3/13 ARs, Shri K. Mukherjee S. Seksaria,& Shri G.Goel appeared and in course of hearing of the case, filed the details as per the letter of the co. dated 06/3/2013 and the same was placed on record. The case was partly heard and discussed and adjourned to 12.03.2013 at 4.30 p.m.

Sd/- KM Sd-Illegible Sd/- illegible Sd/- Illegible 6/3/13 6/3/13 ”

“22/3/13 ARs, Shri S. Seksaria, Shri G.Goel and Ms K. Mukherjee, appeared and in course of hearing, the details filed in respect of claim excise duty on closing stock u/s 43B was discussed and explained by them for further hearing and discussion, the case is adjourned to 25/3/2013 at 4.30 p.m.

Sd/- KM Sd-Illegible Sd/- illegible Sd/- Illegible 22/3/13 22/3/13 ”

From a perusal of the order u/s. 263 of the Act, we find that the Ld. CIT has exercised jurisdiction u/s. 263 of the Act on the ground that the AO did not conduct any enquiry with regard to excise duty in closing stock vis-à-vis Sec. 43B of the Act and grant of refund with interest u/s. 244A of the Act on refund of dividend distribution tax. This is clear if we read para-5 of the Ld. CIT’s order. The facts are set out in the earlier para-6 of this order, however shows that the AO made the necessary enquiries with regard to the excise duty as well as dividend distribution tax.

In the context of above we find the support from the judgments of Hon’ble Delhi High Court in the case of CIT Vs. Sunbeam Auto Ltd. (2011) 332 ITR

ITA No.301/Kol/15, 684/Kol/14 & 1027/Kol/13 A.Ys 09-10, 08-09 & 07-08 ITC Ltd. v. CIT Kol-3 Page 9 167 (Del) and in the case of CIT v. Anil Kumar Sharma (2011) 335 ITR 83 (Del), held that the fact as to whether the AO has applied his mind or not need not necessarily be determined from what has been stated in the assessment order alone, it has to be examined as to whether any inquiry was at all conducted by the AO. There exists a difference between lack of inquiry and inadequate inquiry. If there were any inquiry, even inadequate that would not give an occasion to exercise jurisdiction u/s 263 of the Act.

Besides the above, we also find the various orders of the court on the above issue and on that basis it can be concluded that the order of AO is not prejudicial to the interest of the Revenue. Some of those cases are listed below:-

As per the above said Supreme Court decision in the case of Berger paints India Ltd. Vs. CIT [266 ITR 99] deduction u/s. 43B is to be fully allowed for excise duty and other duties on payment basis inclusive of the amount included in closing stock. An extract of the said decision is given below: ‘The entire amount of excise duty / customs duty paid the assessee in a particular accounting year is allowable u/s. 43B of the Income Tax Act, 1961, as a deduction in respect of that year, irrespective of the amount of excise duty / customs duty included in the violation of the assessee’s closing stock at the end of the accounting year as relating thereto’

The Supreme Court also noted the observations made in Indian Communication Network Pvt. Ltd. v. IAC of IT [206 ITR (AT) 96 (1994) (Delhi Special Bench of the IT] which is given below: ‘We would like to make it absolutely clear that the removal of the amount in question from the figure of closing stock is not tantamount to a ‘tinkering’ of the closing stock but allowing to the assessee the effective deduction to which it is entitled under section 43B. We would also like to emphasize that in the subsequent assessment year, the assessee’s opening stock would stand reduced by a corresponding figure since it can avail of a ‘double deduction’

ITA No.301/Kol/15, 684/Kol/14 & 1027/Kol/13 A.Ys 09-10, 08-09 & 07-08 ITC Ltd. v. CIT Kol-3 Page 10 Also, on exactly the same facts, the Kolkata Tribunal in Exide Industries Ltd. vs. DCIT [134 ITD 351 (2012) has held that there is no case of double deduction and the claim for deduction is valid in law. In the present case the facts are that a deduction of Rs.868,67,87,534/- in respect of excise duty on closing stock was claimed in AY 2009-10 and the same was added back in the computation of income for the following assessment year i.e. AY 2010-11. The tax rate for both the years was 33.99%. Similarly, a deduction of Rs.372,89,01,394/- was claimed in the earlier assessment year i.e. AY 2008- 09 and added back in the computation in AY 2009-10. The deduction was claimed and allowed in the assessment in line with the Hon’ble Supreme Court’s decision in the case of Berger paints India Ltd. (supra) and as per the said decision of Hon’ble Supreme Court, deduction u/s. 43B is to be fully allowed for excise duty and other duties on payment basis inclusive of the amount included in closing stock. Here, we give below an extract of the said decision:- “The entire amount of excise duty / customs duty paid by the assessee in a particular accounting year is allowable u/s. 43B of the Income Tax Act, 1961, as a deduction in respect of that year, irrespective of the amount of excise duty / customs duty included in the valuation of the assessee’s closing stock at the end of the accounting year as relating thereto.”

6.5 In view of above discussion, we find that the order passed by the ld. CIT u/s 263 of the Act is not erroneous in so far as it is prejudicial to the revenue.

Regarding the interest on the refund granted by the AO under section 244A of the Act, let us understand the provisions of section 244A which is reproduced below :

“(1) Where refund of any amount becomes due to the assessee under this Act he shall, subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely:- (a) Where the refund is out of any tax paid under section 115WJ or collected at source under section 206C or paid by way of advance tax or treated as paid under section 199, during the financial year immediately preceding the assessment year, such interest shall be calculated at the rate of one-

ITA No.301/Kol/15, 684/Kol/14 & 1027/Kol/13 A.Ys 09-10, 08-09 & 07-08 ITC Ltd. v. CIT Kol-3 Page 11 half percent for every month or part of a month comprised in the period from the 1std day of April of the assessment year to the date n which the refund is granted: Provided that no interest shall be payable if the amount of refund is less than ten per cent of the tax as determined under sub-section (1) of section 115WE or sub-section (1) of section 143 or on regular assessment; (b) In any other case, such interest shall be calculated at the rate of one half per cent for every month or part of a month comprised in the period or periods from the date or, as the case may be, dates of payment of the tax or penalty to the date on which the refund is granted….”

From the aforesaid provisions of Section 244A we find that it applies to all refunds that arise under the Income Tax Act. The Section begins with “where refund of any amount becomes due to the assessee under this Act….” DDT is nothing but an “additional income tax” for which the charging section is section 115-O of the Income tax Act, Section 115-O lays down that – ‘Notwithstanding anything contained in any other provision of this Act and subject to the provisions of this section, in addition to the income- tax chargeable in respect of the total income of a domestic company for any assessment year, any amount declared, distributed or paid by such company by way of dividends (whether interim or otherwise) on or after the 1st day of April, 2003, whether out of current or accumulated profits shall be charged to additional income-tax (hereinafter referred to as tax on distributed profits)….” Thus where any refund arises on account of excess payment of DDT, it is a refund becoming due to the assessee under the Act and interest under Section 244A is applicable on the same. Clause (a) of Section 244A(1) deals with refunds that arise on account of excess payment of advance tax, TDS/TCS. Clause (b) of section 244A(1) applies to refunds that arise “in any other case”. As such, Clause (b) is of wide import and any payment which does not fall in clause (a), are covered under clause (b) – like refund of excess tax payment made against demand raised, refund of excess self assessment tax paid, refund of excess DDT paid, refund of TDS deposited, refund of interest levied u/s. 201(1A), refund of penalty, etc. Refund of excess DDT paid falls clearly under clause (b) i.e. “in any other case” and there is no reasons to think otherwise. We also find the support from CBDT circular clarifying its intent to grant interest on all refunds due to an assessee under the Income Tax Act, as evident from its circular no. 549 dated 31.10.1989. While insertion of a new interest section u/s 244 for interest on refunds, the CBDT had clarified in the said circular that apart from being complicated, the earlier sections for refund/interest had left certain gaps for which interest was not paid by the department to the assessee for money remaining with the Government. To

ITA No.301/Kol/15, 684/Kol/14 & 1027/Kol/13 A.Ys 09-10, 08-09 & 07-08 ITC Ltd. v. CIT Kol-3 Page 12 remove this inequity, as also to simplify the provisions in this regard, the Amending Act, 1987 has inserted a new section 244A in the Income-tax Act, applicable from the assessment year 1989-90 and onwards, which contains all the provisions for payment of interest by the department on delay in the grant of refunds. We also find that support for our conclustion in the Judicial precedents on the issue of interest on refund due u/s. 244A(1)(b) of the Act. IT is not out of place to point out the Income Tax department has in a similar way contended at various judicial forums across the country that there are no provisions for payment of interest on refund due to self-assessment tax and all in the cases the appellant and judicial authorities have held that interest has to be granted u/s. 244A(1)(b) on self assessment tax. Reference can be made to the following case laws which have upheld the grant of interest on refund of self assessment tax: (1) Asst Comm. of Income tax vs. M/s Kerala Transport Co. -2013 (10) TMI 1232 9Kerala High Court) (2) Comm. of Income tax, Coimbatore vs ABT Industries Ltd. – 2013 – TIOL - 332-High Court-MAD-IT (Madras High Court) (3) Addl. CIT vs Royal Bank of Scotland N.V. [2011] 15 taxmann. Com 333 (Kolkata Tribunal) (4) CIT vs Vijaya bank – [TS-481-High Court-2011 (KAR)] (Karnataka High Court) (5) CIT Vs SIV Industries Ltd. (2007-2 TMI 30 (HC)9Madras High Court)

In fact, recently the Supreme Court in the case of Union of India v. Tata Chemicals Ltd. (2014) 43 taxmann.com 240 (SC)has upheld the right of a deductor to claim interest on excess TDS deposited to and refunded by revenue subsequently. The Supreme Court has clearly held that: ‘ …Interest payment is a statutory obligation and non-discretionary in nature to the assessee. In tune with the aforesaid general principle, Section 244A is drafted and enacted. The language employed in Section 244A of the Act is clear and plain. It grants substantive right of interest and is not procedural. The principles for grant of interest are the same as under the provisions of Section 244 applicable to assessments before 01.04.1989, albeit with clearly of application as contained in Section 244A;

In view of above provisions, we find that the assessee is very much entitled to have the refund along with the interest. Therefore we deem it that the AO’s order is not erroneous in so far as it is prejudicial to the revenue. Hence provisions of section 263 are not applicable and should be dropped we allow this ground of appeal of the assessee accordingly.

ITA No.301/Kol/15, 684/Kol/14 & 1027/Kol/13 A.Ys 09-10, 08-09 & 07-08 ITC Ltd. v. CIT Kol-3 Page 13 7. Since issues are common in remaining appeals of assessee in ITA No. 684/Kol/2014 and 1027/Kol/2013 for AYs 2008-09 and 2007-08 and taking a consistent view in ITA No. 301/Kol/2015 for AY 2009-10 in terms of para-5 to 6.5 of this order, we allow those assessee’s appeals also.