DCIT Vs Daawat Foods Ltd. (ITAT Delhi)
Conclusion : In present facts of the case, there were issues pertaining to disallowance under Section 40A(3); disallowance u/s 14A read with Rule 8D; short deduction of TDS u/s 40(a)(ia); undisclosed sales/difference in stock valuations and deduction u/s 80IB (11A) of the Income Tax Act, 1961. All these issues have gone into the favour of the Appellant/ Assessee, most of them were covered by the Assessee’s own previous case serving best precedents.
Held : The first main point in the present case was pertaining to disallowance under Section 40A(3), wherein the amount was paid in respect of freight payments made to transporters and truck operator inter-alia for purchase of paddy. The Ld. AR submitted that this issue is decided against the assessee in its own case for A.Y. 2008-09 in ITA No. 4158/Del/2013. The Hon’ble tribunal observed that no distinguishing facts brought out by the assesse as well as the revenue and as the issue is already covered in the earlier case, therefore the appeal of the assesse pertaining to this issue was allowed.
The second point in the present case pertains to disallowance of Rs. 5,10,020/- u/s 14A read with Rule 8D, wherein the assesse submitted that the amount was received as share in partnership which was claimed as exempted u/s 10 of the Income Tax Act, 1961. Further, it was submitted that AO erred in making disallowance under Section 14A of the Act without recording his satisfaction for denying the claim made by the Assessee and also submitted that under Rule 8D (2)(iii), what is disallowable is an amount equal to 1/2 percentage of the average value of investment, the income from which does not or shall not form part of the total income for which corresponding charts were submitted. The Hon’ble Tribunal observed that the contentions of the assesse were correct and as per the chart given by the assessee, the AO was directed to verify the same and the assessee be given opportunity of hearing by following principles of natural justice. Ground No. 8 and 9 are partly allowed for statistical purpose.
The third point in the present case pertains to short deduction of TDS u/s40(a)(ia), wherein the assessee submitted that the issue relating to non deduction of TDS is decided against the assessee in its own case for A.Y. 2008-09 in ITA No. 4158/Del/2013 vide order dated 19.01.2021, wherein it is held that no disallowance under Section 40(a)(ia) is sustainable in cases of short-deduction of TDS. This view is also decided by the Tribunal in case of LT Foods Ltd., a group company in ITA No. 4164/Del/2013 for A.Y. 2007-08 in favour of the assessee therein. The submissions were accepted by the Hon’ble tribunal and assesse was provided relief on this point.
The fourth point pertains to difference in stock valuations, wherein the assesse submitted that there was no evidence for undisclosed sale which was pointed out by the AO or CIT(A) in their respective orders. It was also submitted that the assessee has been consistently following the well accepted principle of valuation of inventory at cost or net realizable value (NRV) whichever is lower, as propounded by the ICAI vide Accounting Standard – 2 on ‘Valuation of Inventory’. The Hon’ble Tribunal while providing relief to the assessee held that the Assessing Officer has taken the stock on the assumption basis and not on the basis of actual weight. Even sales tax department has accepted the sales made by the assessee during the year under consideration and no adverse inference has been drawn on this account. The books of accounts have also been statutorily audited with no adverse comments by the auditors. The assessee was following consistent method of valuation of stock which is in accordance with the well accepted principle of accounting propounded by the ICAI, and also has been approved/accepted for the purpose of the computing the taxable income by various Courts and Tribunals from time to time. Further, it was also held that there is no evidence for undisclosed sale which was pointed out by the Assessing Officer or by the CIT(A) in their respective orders.
The last point pertains to deduction u/s 80IB (11A) of the Act which was appealed by the revenue, wherein it was submitted that, that the assessee has integrated business and is claiming old machinery and its depreciation in earlier year which needs to be verified by the AO. Further, it was submitted that the assessee is mostly involved in billing and thus cannot claim depreciation. The assessee submitted that this issue is covered in favour of the assessee by the Tribunal in case of No. 4046/Del/2013 wherein the Tribunal on identical facts allowed deduction claimed under Section 80IB (1 1A) of the Act. It was held that Section 80IB (1 1A) of the Act mandates that the undertaking of the assessee should be engaged in an ‘integrated business’ and the assessee has demonstrated that the combining or co-ordinating of the three elements i.e. handling, storage and transportation of food grains is harmonious interrelated as whole activity and thus eligible for deduction under Section 80IB( 11A) of the Act. In the present assessee’s case, the assessee has demonstrated that the assessee fulfilled the parameters of the exemptions.
FULL TEXT OF THE ORDER OF ITAT DELHI
These two appeals are filed by the assessee and Revenue against the order dated 28/03/2 103 passed by CIT(A)- XXXIII, New Delhi for Assessment Year 2009-10.
2. The grounds of appeal are as under:-
ITA No. 4042/DEL/2013 (Revenue’s appeal)
“1. On the facts and in the circumstance of the case the CIT(A) has erred in deleting the addition of Rs 4 904354/- made by the Assessing Officer under section 69 of the income tax act, 1961.
2. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the 50% of the total addition of Rs 14413318/- made by the A.O by applying he G.P. rate on the undisclosed sales.
3. On the facts and in the circumstances of the case, the CIT(A) has erred in directing the Assessing Officer to allow deduction under section 80IB(1 1A) of the Income tax Act, 1961.
4. On the facts and in the circumstances of the case, the CIT(A) has erred in holding that the assessee is engaged in the integrated business of transportation handling and storage of food grains and conditions contained in section80IB(1 1A) are fulfilled and, therefore, entitled to the deduction under section 80IB(1 1 A) of the Act.
5. On the facts and in the circumstances of the case, the CIT(A) has failed to appreciate the bare facts of the case that the plant & machinery put to use prior to 01.04.2001 in Bahalgarh Unit, constituted more than 20% due to which condition for deduction was not fulfilled.
6. The Oder of the CIT(A) is erroneous and is not tenable on facts and in law.
ITA No. 4159/DEL/2013 (Assessee’s appeal)
1. That search conducted under Section 132 is illegal, bad in law and without jurisdiction and assessment made U/s 143(3) is also illegal, bad in law and without jurisdiction.
2. That the impugned assessment order passed under section 143(3) is illegal, bad in law and barred by time limitation.
3. That reference to special audit under section 142(2A) is illegal and bad in law and the report submitted by the special auditor is illegal, bad in law and without jurisdiction.
4. That the special auditor has erred on facts and in law in scrutinizing and auditing those issues which are not part of the terms of reference and has exceeded his jurisdiction in making observations about those issues in the audit report submitted.
5. That in view of the facts and circumstances of the case and in law the A.O. has erred in completing the assessment U/s 143(3) at Rs.23,42,4 9, 777/- as against returned income of Rs. 1,35,27,247/- (after disallowing deduction under chapter VIA) when there is no seized material pertaining to this year. The additions made are unjust, unlawful, bad in law, without jurisdiction and are also highly excessive.
On Disallowance of Payment in Contravention of Section 40A(3)
6. That, in view of the facts and circumstances of the case and in law, the A.O. and subsequently CIT(A) has erred in law and on facts in holding that the assessee has made cash payments to various concern which are to be disallowed U/s 40A(3) of the Act.
7. That, in view of the facts and circumstances of the case, the A. 0. and subsequently CIT(A) has failed to appreciate that payment of Rs. 6,71,641/- is made out of commercial expediency.
Addition U/s 14A r/w Rule 8D
8. That in view of thefacts and circumstances of the case and in law the A.0./CIT(A) has erred in making disallowance to the tune of Rs. 5,10,020/- u/s 14A read with Rule 8D of the Act. The disallowance made is unjust, unlawful and is also highly excessive.
9. That CIT(A), in view of the facts and circumstances of the case, has erred in law and on facts in not appreciating that assessing officer has failed to record the satisfaction with the correctness of the claim of the assessee in respect of expenditure in relation to income which does not form part of total income under the Act before making disallowance U/s 14A r/w rule 8D of the Act.
Disallowance of expenses on account of Non-Deduction and Short-Deduction of TDS
10. That CIT(A), in view of the facts and circumstances of the case, has erred in law and on facts in only allowing the part relief in respect of disallowance made U/s 40(a)(ia) by the A0. The CIT(A) should have deleted the entire addition/disallowance on this account.
11. Without prejudice to the above, the CIT(A), in view of the facts and circumstances of the case, has erred in law and on facts in holding that where TDS has been deducted at lesser rate the disallowance U/s 40(a)(ia) of the Act is required to be made. The CIT(A) has failed to appreciate that no disallowance U/s 40(a) (i a) of the Act is required to be made where TDS has been deducted at lesser rate.
12. That CIT(A), in view of the facts and circumstances of the case, has erred in law and on facts in upholding the addition/disallowance U/s 40(a)(ia) on account of freight charges paid to various/different truck owner. The CIT(A) has also failed to appreciate that provision of Section 1 94C are not applicable to such payment and no TDS is required to be made on such payment.
13. That CIT(A) has failed to appreciate that the provision of Section 40(a)(ia) are not applicable in respect of disallowances made by the AO and disallowance are unjust, unlawful and without any legal basis.
Addition of Rs. 8.45,658/- on account of expenditure on increase in authorized share capital being of capital nature.
14. That, in view of the facts and circumstances of the case and in law the A.O. has erred in law and on facts in holding that the amount of Rs. 8,45,658/- spent towards increase in authorized capital is capital expenditure in nature and not a revenue expenditure and CIT(A) has erred in law and on facts in upholding the same.
Addition on account of alleged undisclosed sales/Difference in stock valuation
15. That in view of the facts and circumstances of the case and in law the A.O./CIT(A) has erred in law and on facts in confirming an addition on account of alleged undisclosed sales/different in stock valuation to the extent of Rs. 72,06,659/-. The said action is illegal, bad in law, contrary to facts on record.
16. Without prejudice to the Ground No. 15 that in view of the facts and circumstances of the case and in law the addition made is highly excessive.
17. That the explanations given, evidence produced and material placed and made available on record have not been properly considered and judicially interpreted and the same do not justify the addition made.
18. That the addition/disallowance made is based on mere surmises and conjunctures and the same cannot be justified by any material on record and is highly excessive.
19. That the interest U/s 234B and 234C has been wrongly and illegally charged as there is no delay in filling of return and there is no default of payment of Advance tax as the receipt / income is liable to TDS and it could not have anticipated such additions. In any case the interest charged has been wrongly worked out and is excessive.
20. That all the above grounds are independent to each other and mutually exclusive.”
3. Original return of income was field on 30/09/2009 declaring total income of Rs.1,35,27,247/-. A search u/s 132 was carried out in Daawat Group of cases including the assessee company on 10/02/2009. Statutory notice u/s 143(2) was issued on 2/8/20 10. The Assessing Officer vide its order dated 24/12/2010 called for special audit u/s 142 (2A) for Assessment Year 2009-10 which was submitted on 22/6/2011 by the special auditor through their report. The Assessing Officer passed assessment order dated 19/08/2011 thereby assessed total income at Rs. 23,42,49,777/- after making additions.
4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
5. First we are taking up appeal of the assessee whereby the Ld. AR submitted that Ground No. 1 to 5 and Ground No. 14 are not pressed. Hence, Ground No. 1 to 5 and 14 are dismissed.
6. As regards Ground No. 6 & 7 of the assessee’s appeal relating to disallowance under Section 40A(3) at Rs. 6,31,641/-, the Ld. AR submitted that the Assessing Officer made addition to the extent of Rs. 5,58,296/- under Section 40A(3) of the Act in respect of freight payments made to transporters and truck operator inter-alia for purchase of paddy. The Ld. AR submitted that this issue is decided against the assessee in its own case for A.Y. 2008-09 in ITA No. 4158/Del/2013 order dated 19.01.2021, wherein the Tribunal relying upon the order passed in the case of L T Foods Ltd., group company of the assessee upheld the disallowance under Section 40A(3) to the extent of Freight payments made to transporters and truck operator. In relation to disallowance for Rs. 66,333/- , being depreciation on capital expenditure of Rs. 5,35,468, the Ld. AR submitted that such amount was paid to various parties for acquiring fixed assets in the assessment year 2008-09 and the Assessing Officer did not consider the same. The Ld. AR submitted that this aspect is covered in favour of the assessee in assessee’s own case for A.Y. 2008-09 in ITA No. 4158/Del/2013.
7. The Ld. DR relied upon the Assessment Order and the order of the CIT(A).
8. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that disallowance under Section 40A(3) at Rs. 6,31,641/- and more particularly the aspect of addition to the extent of Rs. 5,58,296/- under Section 40A(3) of the Act in respect of freight payments made to transporters and truck operator inter-alia for purchase of paddy, is already covered against the assessee in assessee’s own case in A.Y. 2008-09 in ITA No. 4158/Del/2013 order dated 19.01.2021, wherein the Tribunal relying upon the order passed in the case of L T Foods Ltd., group company of the assessee upheld the disallowance under Section 40A(3) to the extent of Freight payments made to transporters and truck operator. The Tribunal in L T Foods held as under:
“13. We have gone through the record in the light of the submissions made on either side. It is an admitted fact that the addition in this case was made on the basis of the very same seized material that was considered by the Ld. DRP in assessee’s own case for the assessment years 2008-09 and 2009-10 by order dated 4/9/2012. It is also an admitted fact that the Ld. DRP directed the Assessing Officer not to make the addition on this issue. Such a finding has become final and as on the date it is not get disturbed. Further, the Revenue does not dispute the fact that the four individuals declared such income and surrendered the same while duly paying the taxes thereon. If at all those four individuals were not liable to pay such amount, the Revenue should not have accepted the same in their hands. Having accepted the contention of those four individuals and collecting the tax in their hands, it is not open for the revenue now to such individuals were not liable to pay tax, but it is the company and company alone that is liable to pay tax. Revenue cannot approbate and reprobate and shift its stands.
14. While accepting the stand taken by the assessee that since the tax was collected in the hands of the four individuals who are the promoters of the company and this fact was taken notice by the 1d. DRP while passing the order dated 4/9/2012 in assessee’s own case for the assessment years 2008-09 and 2009-10 and to direct the Assessing Officer not to make any addition on this issue, we hold that the impugned addition cannot be sustained. We, accordingly, dismiss this ground. Grounds No. 5 and 6 are general in nature and do not require any adjudication.”
In the present assessment year i.e. 2009-10 also there is no distinguishing facts brought out by the assessee. Thus, this addition to the extent of Rs. 5,58,296/- is sustained. As regards to disallowance for Rs. 66,333/- , being depreciation on capital expenditure of Rs. 5,35,468, this aspect is covered in favour of the assessee in assessee’s own case for A.Y. 2008-09 in ITA No. 4158/Del/2013. As relates to other payments disallowed u/s 40A(3) towards Rs. 47,012/- the similar addition is deleted in earlier assessment year 2008-09 by the Tribunal in ITA No. 4158/Del/2013. The facts are identical in the present assessment year as well as no new facts were brought on record by the Revenue, therefore, this element is allowed. Hence, Ground Nos. 6 to 7 are partly allowed.
9. As regards Ground No. 8 & 9 of assessee’s appeal relating to disallowance of Rs. 5,10,020/- u/s 14A read with Rule 8D, the Ld. AR submitted that during the previous year relevant to the assessment year under consideration, received income amounting to Rs. 5,10,200/- as share of its profit in partnership firm namely M/s Agro Industries, Amritsar. The said income was claimed as exempt under Section 10 of the Act in the return of income. The Ld. AR submitted that the Assessing Officer erred in making disallowance under Section 1 4A of the Act without recording his satisfaction for denying the claim made by the Assessee. The Assessing Officer erred in considering exempt income earned as share in profit from partnership firm for the purpose of disallowance under Section 14A of the Act. The Ld. AR further submitted that investments, in any case, was made out of own funds and not borrowed funds and therefore, there was no warrant to make any disallowance out of interest expenditure. Thus, the Assessing Officer erroneously applied Rule 8D. The Ld. AR relied upon the following decisions:
a) Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT 394 ITR 449 (SC)
b) Maxopp Investment Ltd. vs. CIT 91 taxmann.com 154 (SC)
c) L T Foods (ITA No. 4164/Del/2013 order dated 30.09.2020 which is a group concern of the assessee)
The Ld. AR further submitted that under Rule 8D (2)(iii), what is disallowable is an amount equal to /2 percentage of the average value of investment, the income from which does not or shall not form part of the total income. In view of the aforesaid, /2 percentage of the average value of investments made only in Raghunath Agro Industries claimed as exempt under Section 10(34) of the Act was to be taken into consideration for the purpose of clause (iii), as against total investments appearing in balance sheet for the relevant year. Thus, strictly in terms of Section 14A of the Act read with Rule 8D(2)(iii) of the Income Tax Rules, 1962, the actual amount of disallowance amounts to Rs. 23,634/- as tabulated hereunder:
