Pr. Commissioner Of Income Tax Kota. Raj v. M/S Manglam Cement Ltd., Sditya Nagar

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 41/2018 Pr. Commissioner Of Income Tax Kota. Raj ----Appellant Versus M/s Manglam Cement Ltd., Sditya Nagar 326520 Morak TehsilRamganjmandi, Distt. Kota Raj. ----Respondent For Appellant(s) : Ms. Parinitoo Jain with Ms. Shiva GoyalFor Respondent(s): Mr. Sanjay Jhanwar HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYASOrder 10/04/2018 By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal haspartly allowed the appeal of the assessee and dismissed theappeal of the department modifying the order of CIT(A). Counsel for the appellant has framed following questions of law:- “1. Whether the Tribunal was legally justified indeleting the addition of Rs. 2,00,70,600/- made onaccount of disallowance of various expenses (staffwelfare, general charges, gifts, sales promotion andsocial welfare) not incurred wholly and exclusivelyfor the purposes of business and also the samewere neither explained satisfactorily nor supportingevidences were provided by the assesseespecifically when addition were partly confirmed bythe CIT(A)?2.Whether the Tribunal was legally justified indeleting the disallowance of Rs.20,23,898/- madeunder Section 14A specifically when there is no suchpre-condition of receipt of exempt income formaking disallowance for any expenditure relatableto such investment u/s.14As of the Act? 3.Whether the Tribunal was legally justified indeleting the disallowance of Rs.19,60,160/- madeon account of payment of compensation to farmersfor acquisition of their land by holding it to be arevenue expenditure specifically when as per theregistered deeds the seller did not have any right ofownership after the transfer of land to the assesseecompany so it was a capital expenditure?4.Whether the Tribunal was legally justified indeleting the disallowance of Rs.1,32,28,375/- madeon account of payment of demurrage specificallywhen the assessee company was not under anobligation to incur the expenditure in terms ofagreement with another party?5.Whether the Tribunal was legally justified indeleting the disallowance of Rs.33,79,947/- madeon account of expenses incurred for railway sidingas revenue expenditure specifically when theassessee itself has shown it as part of fixed asset inits balance sheet?” Counsel for the appellant contended that the AO has rightlyrecorded the finding on issue 14A and observations of the AO inthis regard reads as under:- “15.4. In view of the provisions of section 14A andin the light of Board’s Circular No. 5/2014 andhaving regard to the accounts of the assessee, Iam not satisfied with the correctness of the claimof the assessee in respect of such explanation inrelation to income which does not part of the totalincome under this Act. Therefore, the disallowanceu/s 14A is calculated as prescribed under Rule 8Dis as under and added to the total income of theassessee:- “I have gone through assessee’s submission and AO’s findings. The Delhi High Court in the recent case ofCheminvest Ltd. vs. CIT [2015] 378 ITR 33/234Taxman 761/16 taxman.com 118 held that thereshould be an actual receipt of exempt incomeduring the relevant year for the purpose ofdisallowance of any expenditure incurred inrelation to such income. Overruling ITAT SpecialBench’s (SB) ruling in this case and following itsown prior ruling in the case of CIT vs. Holcim India(P) Ltd. [2015] 57 taxmann.com 28 (Delhi), theDelhi HC held that there can be no disallowance ofexpense if no exempt income is actually earnedduring the relevant tax year.” However, while considering the matter the Tribunal has observed as under:- “I have gone through assessee’s submission and AO’s findings. The Delhi High Court in the recent case ofCheminvest Ltd. vs. CIT [2015] 378 ITR 33/234Taxman 761/16 taxman.com 118 held that thereshould be an actual receipt of exempt incomeduring the relevant year for the purpose ofdisallowance of any expenditure incurred inrelation to such income. Overruling ITAT SpecialBench’s (SB) ruling in this case and following itsown prior ruling in the case of CIT vs. Holcim India(P) Ltd. [2015] 57 taxmann.com 28 (Delhi), theDelhi HC held that there can be no disallowance ofexpense if no exempt income is actually earnedduring the relevant tax year.” However, while considering the matter the Tribunal has observed as under:- “13.3. We have heard rival contentions, perused thematerial on record and gone through the orders of theauthorities below. We find that the ld. CIT (A) whiledeciding the issue has elaborately discussed thematter. The ld. CIT (A) has deleted the addition byobserving at page 77 and 78 of his order as under : “I have gone through assessee’s submission and AO’sfindings. The Delhi High Court in the recent case of CheminvestLtd. v. CIT (2015) 378 ITR 33/234 Taxman 761/61taxman.com 118 held that there should be an actualreceipt of exempt income during the relevant year forthe purpose of disallowance of any expenditureincurred in relation to such income. Over ruling ITATSpecial Bench’s (SB) ruling in this case and followingits own prior ruling in the case of CIT v. Holcim India(P) Ltd. (2015) 57 taxmann.com 28 (Delhi), the DelhiHC held that there can be no disallowance of expenseif no exempt income is actually earned during therelevant tax year. High Court of Madras in Redington (India) Ltd. v.Additional Commissioner of Income-tax, Co. Range-V,Chennai, 77 taxmann.com. 257 (Madras) Has recently held vide order dated December 23,2016 that – “Section 14A of the Income-tax Act, 1961 read withrule 8D of the Income-tax Rules, 1962 – Expenditureincurred in relation to income not includible in totalincome (Condition precedent) – Assessment year2007-08 – Whether provision of section 14A isrelatable to earning of actual income and not notionalor anticipated income, hence, where there is noexempt income in a year, there cannot be a disallowance of expenditure in relation to an assumedincome – Held, yes. Thus the disallowance made by the A.O. is not held tobe justified and is to be deleted. The ground of appeal is therefore allowed.” The Coordinate Bench of the Tribunal has decided thisissue in the assessee’s own case for the assessmentyear 2010-11 by observing in para 19.3 of its order asunder :- “19.3 We have heard the rival contentions, this issuewe have decided in assessee’s appeal by observing asunder:- “8.2 We have heard the rival contentions we findmerit into the contention of the Ld. Counsel for theassessee that the provisions of section 14A can beinvoked in the event of the AO is not satisfied with thecorrectness of the claim of the expenditure related tothe exempt income. The Hon’ble Supreme Court in therecent judgment in the case of CIT vs. Godrej Boycervs CIT has held that provision of section of 14A can beinvoked when the AO is dissatisfied with the claim ofexpenditure related to the exempt income. The Coordinate Bench of the Tribunal has decided thisissue in the assessee’s own case for the assessmentyear 2010-11 by observing in para 19.3 of its order asunder :- “19.3 We have heard the rival contentions, this issuewe have decided in assessee’s appeal by observing asunder:- “8.2 We have heard the rival contentions we findmerit into the contention of the Ld. Counsel for theassessee that the provisions of section 14A can beinvoked in the event of the AO is not satisfied with thecorrectness of the claim of the expenditure related tothe exempt income. The Hon’ble Supreme Court in therecent judgment in the case of CIT vs. Godrej Boycervs CIT has held that provision of section of 14A can beinvoked when the AO is dissatisfied with the claim ofexpenditure related to the exempt income. 8.3 In the present case the Ld. CIT(A) hasrecomputed the disallowance by applying rule 8D. Hehas disallowed interest expenditure of Rs. 2,38,454/-and administrative expenses of Rs. 6,89,497/-. Thegrievance of the assessee is that the no interestexpenditure is related to the exempt income. As it isclaimed that the entire investment in mutual fundshave been made from own fund. The Ld. CIT(A) hasnot given any reason as to why the contention of theassessee is not acceptable. Revenue has not placedany material rebutting the claim of the asessee.Therefore, out of disallowance of Rs. 9,27,956/- asum of Rs. 2,38,454/- is deleted and Rs. 6,89,497/- issustained. This ground is partly allowed.” Therefore, taking a consistent view, there is nochange into facts and circumstances. This ground ofthe Revenue’s appeal is rejected.” In view of the above, and following the decision of theCoordinate Bench of the Tribunal, we find no reason tointerfere in the order of the ld. CIT (A), same ishereby affirmed. The ground of the revenue isdismissed.” The earlier decision in the case of same assessee was notchallenged by the department before this Court. In that view of the matter, in our considered opinion, havingaccepted the decision for one year, the issue no. 2 does not arise. In other issues we have already concluded the same vide ourjudgment dated 3[rd] April, 2018 in Tax Appeal No. 357/2017wherein it has been held as under:- “Issue no.2 is covered by the decision in ITANo.358/2017 where while considering issueno.3, this court has held as under:- Counsel for the respondent has relied on thedecision of Gujarat High Court in CIT-I vs.Indian Petrochemical Corporation Ltd.(2016) 74 Taxmann.com 163 (Gujarat), ithas been held as under:- 8. We have heard both the learned counseland perused the record. We have also gonethrough the decisions cited before us. TheTribunal has followed its own decision in thecase of Gujarat Narmada Valley FertilizersCo. Ltd. and held in favour of the assessee.This Court in the case of Gujarat State ExportCorporation Ltd. (supra) has held thatpayment of surtax was not an allowablededuction and that by paying the entrancefee to the sports club the assessee had nointention to acquire any capital asset or takeadvantage for the enduring benefit of thebusiness and that by common sensestandards, it could be stated that it was forrunning the business or for bettering theconduct of its business and therefore theamount paid as entrance fee was deductible.In view of the said decision, we find that thequestion raised is required to be answered infavour of the assessee. 11.Taking into account the same, thetribunal has confirmed the finding arrived atby the CIT(A)observing as under:- 10.3 We have heard the rival contentions,perused the material available on record. TheLd. CIT(A) has given a finding on fact byobserving as under:- 11.Taking into account the same, thetribunal has confirmed the finding arrived atby the CIT(A)observing as under:- 10.3 We have heard the rival contentions,perused the material available on record. TheLd. CIT(A) has given a finding on fact byobserving as under:- “In my opinion, the main purpose ofacquiring the land was to extract lime stoneswhich is the raw material for assessee. Afterthe extraction the land becomes unusable forany other purpose. The assessee cannot usethis land perpetually as in the case of anormal agricultural or residential land, this land can be used till its deposit (i.e. limestone) lasts. Therefore, I agree with thefinding of the AO in AY 2008-09 wherein heallowed such expenditure in 20equalinstallments. Considering the above, the AOis directed to allow this expenditure equallyin 20 years including the current year.Therefore, addition of Rs. 46,56,887/- isconfirmed. The AO is directed to allowexpenditure of Rs. 2,45,099/-.” There is no dispute with regard to the factthat the AO himself had allowed expenditurein 20 equal installments in AY 2008-09. Inthe year under appeal, the Revenue has notdemonstrated the change into the facts andthe reason for changing the stand. Therefore,we do not see any reason to interfere intothe order of the Ld. CIT(A), same is herebyaffirmed. This ground is dismissed. 12.We are of the opinion that expenseswhich are done for the business purpose wasrightly allowed by the CIT(A), therefore, thisissue will not arise. Issue no.3 is covered by the decision in ITANo.358/2017 where while considering issueno.5, this court has held as under:-The counsel for the respondent has reliedupon the decision of Gujarat High Court inIndian Petrochemical (supra). 17.The tribunal has upheld the finding ofCIT(A). We are in complete agreement withthe view taken by the tribunal. Therefore,this question will not arise. Issue no.4 is covered by the decision in ITANo.358/2017 where while considering issueno.6, this court has held as under:-The counsel for the respondent has reliedupon on the following decisions:- 19.1 In Mahalakshmi Sugar Mills CompanyLtd. vs. CIT (1984) 19 Taxmann 447 (Delhi),it has been held as under:- Payment of demurrage is not in the natureof damage or penalty and it is merely acharge made by the railway administrationto compensate itself for keeping the goodsof the assessee in its custody beyond aparticular time. Payment of demurrage isincidental to business and its impact is toincrease the cost to the assessee, of thegoodstransported.Therefore,the expenditure on this account can be said tobe laid out wholly any exclusively for theassessee's business. 19.2 In Nanhoomal Jyoti Prasad vs. CIT,(1980) 123 ITR 269 (Allahabad), it hasbeen held as under:- 1. Demurrage charged by part authoritiesis in the nature of compensation for delayin clearing the goods from the godowns ofthe port authorities. It includes amountchargeable for storage and safe custody ofthe goods by the port authorities beyondthe free period allowed under port rules. Inthe instant case, the demurrage paid bythe assessee was not a fine paid for anycriminal act but compensation for use ofthe port facilities beyond the permissiblefree period. 2. once the unauthorized import of goodshad been regularized on payment of fine,commercial expediency dictated the assessto take delivery of the goods after payingthe demurrage failing which its stock-in-trade would have been auctioned by theport authorities to realize their dues. Thepayment was, thus, made by the assesseeto preserve its stock-in-trade and to utilizeit for its manufacturing business. 2. once the unauthorized import of goodshad been regularized on payment of fine,commercial expediency dictated the assessto take delivery of the goods after payingthe demurrage failing which its stock-in-trade would have been auctioned by theport authorities to realize their dues. Thepayment was, thus, made by the assesseeto preserve its stock-in-trade and to utilizeit for its manufacturing business. 3.The impugned expenditure was,therefore, held to be a permissible revenuededuction under Section70(2) both theparties had drawn the High Court'sattention to cases of various types dealingwith litigation costs, penalty paid forbreach of contract, expenses incurred forcarrying on illegal business, money 'lostthrough theft, amount paid as fine forinfraction of law, etc., where questionsregarding the admissibility of expensesarose. The High Court, however, observedthat no useful purpose could be served byreferring to decisions in those cases asnone of them dealt with a case of thepresent type. 20.In our considered opinion, thedemurrage which has been considered wasnot expenses under Section 37 of theIncome Tax Act and the CIT(A) as well asTribunal while considering the same hasrightly observed as under:- 15.3 We have heard the rival contentions,perused the material available on record.We find that the Ld. CIT(A) has given a finding on fact that there is no clause bywhich the demurrages was required to bepaid by the C & F Agent not by theassessee. It is also not brought on recordby the revenue that the assessee hadclaimed such expenditure from C & Fagent. Under these facts, we are of theview that the Ld. CIT(A) has rightlyfollowed the decision of the Hon’ble DelhiHigh court in the case of Mahalaxmi SugarMills Co. Ltd. Vs. CIT and Hon’bleAllahabad High Court in the case ofNanhoomal Jyoti Prasad Vs. CIT (supra).We do not see any merit into the ground ofrevenue’s appeal, same is hereby affirmed.This ground is dismissed. Issue no.5 is covered by the decision in ITANo.358/2017 where while considering issueno.7, this court has held as under:- 16.3 We have heard the rival contentions,perused the material available on record.The issue which required to be adjudicatedis whether the AO was justified indisallowaning the claim of the expenditureincurred on maintenance of railway trackat the railway siding. The AO whiledisallowing the expenditure as relied uponthe judgment of the Hon’ble Madras HighCourt in the case of CIT vs. Madura Coats205 Taxman 357. The contention of theassessee is that the judgment of theHon’ble Madras High Court is notapplicable as the fact is that the caseswere with regard to replacement of oldmachinery and renovation of the buildings.We find that in the case of CIT vs. MaduraCoats (supra) the AO disallowed the claimin respect of replacement of Auto Corneretc by holding that replacement of oldmachinery cannot be treated as therevenue expenditure. This view of the AOwas upheld by the Hon’ble High Court. Inthe present case, it is not the case ofreplacement of old machinery by newmachinery and repair of rented buildings.In the present case the expenditure isincurred on the day to day maintenance ofthe railway tracks at the railway siding.Therefore, we do not see any reason tointerfere into the order of the Ld. CIT(A),same is hereby affirmed. This ground ofRevenue’s appeal is dismissed. 23. In our considered opinion, it was notfor laying new railway lineand the tribunalhas rightly recorded the finding asreproduced above. In that view of the matter, no substantial question of law arises. Hence, the appeal stands dismissed. (VIJAY KUMAR VYAS),J (K.S.JHAVERI),J A.Sharma/121