Indian Renewable Energy Development ... vs Assessee

DCIT (LTU), vs Indian Renewable Energy Development Agency Ltd., NBCC Plaza, New Delhi. Pushp Vihar, Sector-III, New Delhi. (Appellant) (Respondent)

Appellant by: S/Shri S. Krishnan, V. Raja Kumar,Adv. Respondent by : Shri R.I.S. Gill, CIT DR Date of Hearing: 11.03.2015 Date of pronouncement: 29/05/2015

1 ITA 1183/D/2010, 542/D/2013 1110/D/D/2010, 371/D/2013

ORDER

PER CHANDRA MOHAN GARG, JUDICIAL MEMBER

These appeals have been preferred against the order of CIT(A)-LTU,

New Delhi dated 14.01.2010 in Appeal No. 02/08-09 for AY 2003-04. Since

both the appeals have arisen from one order of the CIT(A), therefore, we are

disposing them both by this consolidated order.

2. The Revenue has raised sole ground which reads as under:-

ITA 1110/D/2010

"On the facts and in the circumstances of the case, the ld. CIT(A) has erred in holding that the income of the assessee is derived from providing long term finance to entitle it for claim of deduction u/s 36(1)(viii)."

3. The assessee has also raised followed grounds for our consideration:-

ITA No. 1183/Del/2010

"1. Disallowance of filing fees paid to ROC -

RS.64,00,000

The Ld.CIT(A)-LTU has wrongly upheld that the filing fees paid to ROC amounting to Rs.64,00,000 is of the capital nature. This filing fees was paid to enhance financial business of IREDA and was fully allowable. Accordingly, the filing fees paid to ROC is required to be allowed as revenue expenditure.

2. Decrease in the deduction u/s 36(1)(viia)(c) of the Income tax Act, 1961 from Rs.l,79,29,080 to RS.93,53,978 resulting in an disallowance of Rs.85,75,102.

2 ITA 1183/D/2010, 542/D/2013 1110/D/D/2010, 371/D/2013

The Ld. CIT(A) has wrongly upheld the computation of deduction u/s 36(1)(viia)(c) by the DCIT(LTU) at Rs.93,53,978 i.e. 5% of business income. As per the provisions of Income Tax Act such deduction is allowable @ 5% of the total income amounting to Rs.1,79,29,080."

Ground No. 1 of the revenue and ground no. 2 of the assessee

4. We have heard arguments of both the sides and carefully perused the

relevant material placed on record. In the beginning of the argument, ld.

Counsel of the assessee submitted a copy of the order of ITAT Delhi "C" Bench

dated 21.11.2014 in assessee's own cases/appeals in ITA No. 3742/D/2001 for

AY 1998-99 and other 16 appeals and submitted that the issue of deduction u/s

36(1)(vii) & 36(1)(viia)(c) of the Income Tax Act, 1961 (for short the Act) have

been sent back to the AO for taking a fresh decision for subsequent AY 2004-

05, therefore, sole ground no.1 of the revenue and ground no. 2 of the assessee

may kindly be restored to the file of the AO on the same line as the issues are

squarely covered by the decision of the Tribunal (supra) on these issues. Ld. DR

fairly accepted that the issue of said deduction u/s 36(1)(vii) & 36(1)(viia)(c) of

the Act has been restored to the file of the AO for AY 2004-05 and the facts and

circumstances of the present case are also similar to the facts and circumstances

3 ITA 1183/D/2010, 542/D/2013 1110/D/D/2010, 371/D/2013

of AY 2004-05. The department has no serious objection if the issue is restored

to the file of AO for a fresh adjudication as per law.

5. On careful consideration of above submissions, we note that ITAT 'C'

Bench Delhi in assessee's own case for AY 2004-05 has restored the same issue

to the file of AO with following observations and conclusion:-

" There are two cross appeals - one by the assessee and the other by the Revenue - which arise out of the order passed by the amounting to CIT(A) on 14.12.2007. First ground raised by the Revenue is against the direction given to the AO for calculating disallowance of expenses relating to earning of exempt income. Second ground of the Revenue's appeal is against the deletion of disallowance of deduction u/s 36(1)(viii) amounting to Rs.19,13,03,000/-. The assessee is aggrieved against the treatment of different items of income as discussed above being considered as 'Income from other sources' as against its claim of 'Profit and gains of business or profession. The next issue is against the granting of exemption u/s 10(23G) and the last issue is about the computation of deduction u/s 36(1)(viia)(c). The first ground about the filing of revised return not bearing any acknowledgement of department, was not pressed by the Id. AR.

11. After considering the rival submissions and perusing the relevant material on record, we find that the authorities below have followed the view taken by them on this issue in earlier years without any elaborate discussion about the nature of items of income considered as 'Income from other sources' as against the assessee's claim of 'Business income.' Following the view taken for the above earlier years, we set aside the impugned order and remit the matter to the file of AO for taking decision as regards each of the above items of income falling under the, head 'Income from other sources' or 'Profits and gains of business or profession.' It is only thereafter that the question of exemption u/s 10(23G) can be decided and the question of disallowance of expenses incurred in relation to the exempt income. The decision about the deduction u/s 4 ITA 1183/D/2010, 542/D/2013 1110/D/D/2010, 371/D/2013

36(1)(viii) and 36(1)(viia)(c) is, again, dependent on the nature of the items of income as discussed above. This matter is, therefore, sent back to the AO for taking a decision as per law, after allowing a reasonable opportunity of being heard to the assessee. "

6. On careful consideration of facts and circumstances of the present case,

we note that the AO also made addition of Rs.85,75,102 to the total income of

the assessee on this issue by holding that the deduction u/s 36(1)(viia) (c) of the

Act is allowable in respect of business income only. During first appellate

proceedings, the CIT(A) confirmed the action of the AO by holding that the base

for allowing deduction refers to the computation of income in respect of income

as referred to in section 28 of the Act and the appellant would be allowed

deduction only in so far as the income relates to business income.

7. We also note that the sole ground of the revenue is related to the addition

made by the AO u/s 36(i)(viii) of the Act wherein the AO held that the

deduction under said section is admissible to a financial corporation which is

engaged in providing long term finance for industrial or agricultural

development or development of infrastructure facility in India or by a public

company formed and registered in India with the main object of carrying on the

business of providing long term finance for construction or purchase of houses

in India for residential purposes. The AO has simply followed the directions of

the CIT in the order passed u/s 263 of the Act and had made addition of

Rs.7,48,31,822 to the total income of the assessee.

5 ITA 1183/D/2010, 542/D/2013 1110/D/D/2010, 371/D/2013

8. During first appellate proceedings, the CIT(A) has deleted the said

addition after detailed deliberations on the facts, circumstances and relevant

provisions of the Act on this issue. The CIT(A) had accepted and followed the

order of his predecessor for previous assessment year i.e. 2003-04 which is the

year under consideration in these appeals. The CIT(A) deleted the addition by

following the order for preceding year and directed the AO to allow deduction to

the assessee as per provisions of section 36(1)(viii) of the Act. We also note that

the ITAT "C" Bench Delhi in the order passed for AY 2004-05 in assessee's

own appeal has also restored this issue to the file of AO for fresh consideration

with the directions as reproduced hereinabove. The impugned order of the

CIT(A) in the present appeal has been passed on the same line i.e. for AY 2004-

05, therefore, in view of submissions of both the sides, this issue is also restored

to the file of AO for a fresh adjudication on similar lines as was directed by the

Tribunal in the order for AY 2004-05 (supra). Accordingly, sole ground of the

revenue and ground no. 2 of the assessee are restored to the file of AO with

these directions that the AO shall take a fresh decision on both the issues as per

provisions of the Act after affording due opportunity of hearing for the assessee

and without being influenced with the earlier assessment and impugned order.

Ground no.1 of the assessee in ITA NO.1183/De/2010

9. Apropos ground no. 2, we have heard arguments of both the sides and

carefully perused the relevant material placed on record. Ld. Counsel of the

6 ITA 1183/D/2010, 542/D/2013 1110/D/D/2010, 371/D/2013

assessee submitted that the CIT(A) has wrongly upheld the addition made by the

AO on account of filing fees paid to Registrar of Companies (ROC) amounting

to Rs. 64 lakh. Ld. counsel further submitted that this filing fees was paid to

enhance financial base of the assessee and hence was fully allowable as revenue

expenditure. Replying to the above, ld. DR, supporting the action of the AO and

the impugned order of the CIT(A), submitted that the issue is squarely covered

in favour of the revenue by the judgment of Hon'ble Supreme Court in the

case of Punjab State Industrial Development Corporation Ltd. vs CIT 225

ITR 792 (SC) and judgment in the case of Brooke Bond (India) Ltd. vs CIT

225 ITR 798 (SC).

10. On careful consideration of above submissions, we note that the AO has

made addition on account of filing fees paid to ROC with following

observations:-

"'1. Filing Fee paid to ROC The filing fee of Rs.64,00,000/- which was paid to the Registrar of Companies in connection with the expansion of the capital base of the assessee company from RS.300 Crores to Rs.400 Crores during the year under consideration and claimed in the profit and loss account under the head 'Administrative Expenses' (Schedule-'O'). The same is in the nature of capital expenditure and is therefore not allowable. Moreover, it clearly constitutes capital expenditure in view of the ratio of the decisions of the Hon'ble Supreme Court in the case of Punjab State Industrial Development Corporation Limited vs. CIT 225 ITR 792 and Brooke Bond India Limited vs. CIT 225 ITR 798. The assessee has not distinguished the aforesaid judicial pronouncements, but has attempted to make out a case that it was necessary for the business and therefore, the same should be 7 ITA 1183/D/2010, 542/D/2013 1110/D/D/2010, 371/D/2013

allowed. It is to be seen that all the expenses whether capital or revenue can be termed as business expenditure. Just because expenditure is for the business it does not partake the character of revenue expenditure. In fact, nothing turns on it in law in deciding whether expenditure is of revenue nature or of capital nature.

In view of the judicial pronouncements cited above and considering the nature of expenditure, I hold that the same is of capital nature and hence deserves to be disallowed."

11. During first appellate proceedings, the CIT(A) upheld the addition with

following conclusion:-

"I have considered the submissions of the appellant, the findings of the AO and the facts on record. The filing fees of Rs. 6400000/- was paid to the Registrar of Company in connection with the expansion of the capital base of the appellant company from Rs. 300.00 crores to Rs. 400.00 crores during the assessment year under consideration. The only submission of the appellant is that the above expenditure was necessary for business and therefore it should be allowed as revenue expenditure. I am in agreement with tile views of the AO that the decisions of the decision of the Hon'ble Supreme Court in the case of Punjab State Indl. Devp.Corp. Ltd. Vs CIT 225 ITR 792 and Brooke Bond India Ltd. Vs CIT 225 ITR 798 are squarely applicable in the appellant's case. The action of the AO in treating the above expenditure as capital expenditure is as per law. This ground of appeal is dismissed."

12. As per facts of the present case, undisputedly and admittedly, the assessee

paid filing fees of Rs. 64 lakh to the ROC in connection with the expansion of

the capital base of the appellant company from Rs.300 crore to Rs.400 crore

during the assessment year under consideration. The only contention of the

assessee company is that the said expenditure was necessary and for the purpose

of business of the assessee, therefore, the same should be allowed as revenue 8 ITA 1183/D/2010, 542/D/2013 1110/D/D/2010, 371/D/2013

expenditure. At the same time, we respectfully take cognizance of the judgment

of Hon'ble Supreme Court in the case of Punjab Industrial Development

Corporation Ltd. vs CIT (supra) and judgment in the case of Brooke Bond

(India) Pvt. Ltd. vs CIT (supra) wherein speaking for the apex court, their

lordships categorically held that the expenditure incurred by a company in

connection with issue of shares with a view to increase its share capital is

directly related to the expansion of capital base of the company and, therefore,

the same is capital expenditure, even it may incidentally help in the business of

company and in the profit making.

13. Ld. Counsel of the assessee has placed reliance on the decision of

Hon'ble Delhi High Court in the case of CIT vs Citi Financial Consumer

Fin.Ltd. 335 ITR 29, Hon'ble Gujarat High Court decision in the case of

CIT vs Laxmi Talkies 275 ITR 125, we respectfully note that the facts and

circumstances of the present case are clearly distinguishable from the facts and

circumstances of the judgment of Hon'ble Delhi High Court and Hon'ble

Gujarat High Court. Per contra, the facts and circumstances of the present case

are similar to the facts and circumstances of the cases as relied by both the AO

as well as the CIT(A) viz. judgment of Hon'ble Supreme Court viz. Punjab State

Industrial Corporation (supra) and Brooke Bond (India) Pvt. Ltd. vs CIT (supra)

and the issue is squarely covered in favour of the revenue by these decisions.

Under above noted facts and circumstances, we are unable to see any infirmity,

9 ITA 1183/D/2010, 542/D/2013 1110/D/D/2010, 371/D/2013

ambiguity or any other valid reason to interfere with the conclusion of the

CIT(A) confirming the addition made by the AO. Accordingly, ground no. 1 of

the revenue being devoid of merits is dismissed.

14. In the result, the appeal of the Revenue in ITA No. 1110/D/2010 and

ground no. 2 of the assessee in ITA No.1183/Del/2010 is deemed to be allowed

for statistical purposes and ground no. 1 of the assessee is dismissed.

Assessee's appeal in ITA No. 542/D/2013 and revenue's appeal in ITA 371/D/2013 for AY 2003-04

15. These appeals by the assessee and revenue have arisen from the order of

CIT(A)-LTU New Delhi dated 7.11.2012 in Appeal No. 15/12-13/CIT(A)-LTU

for AY 2003-04. The grounds raised by the assessee in ITA 542/D/2013 read as

under:-

"The ld. CIT(A) has wrongly upheld the contention of ACIT in imposing the penalty u/s 271(1)( c) of I.T.Act, 1961 of Rs.23,52,000/- being 100% tax sought to be evade on ROC fees of Rs.64,00,000/- paid for increasing the authorized share capital.

In this regard it has been clarified that all the particulars of ROC fee was accurately furnished during the assessment proceedings as well as appeal proceedings."

The sole ground raised by the revenue in ITA 371/D/2013 reads as under:-

"1. On the facts and circumstances of the case and in law, the Ld. CIT (Appeals)-LTU has erred in deleting the penalty u/s 271 (1)(c) in respect of disallowance of deduction of Rs. 85,75,103/- u/s 36 (1) (viia) (c) made by the assessing officer and confirmed by the CIT (A) in quantum appeals."

10 ITA 1183/D/2010, 542/D/2013 1110/D/D/2010, 371/D/2013

16. Apropos sole ground of the assessee, we have heard arguments of both the

sides and carefully perused the relevant material placed on record. Ld. counsel

of the assessee submitted that the CIT(A) has wrongly upheld the contention of

ACIT in imposing the penalty u/s 271(1)(c) of I.T.Act, 1961 of Rs.23,52,000/-

being 100% tax sought to be evaded on ROC fees of Rs.64,00,000/- paid for

increasing the authorized share capital from Rs. 300 crore to Rs. 400 corre. Ld.

Counsel vehemently contended that the assessee company clarified before the

revenue authorities that all the particulars of filing fees deposited with the ROC

were accurately furnished during the assessment proceedings as well as

appellate proceedings and the same were also furnished during penalty and

appeal proceedings. Therefore, it cannot be held that the assessee furnished

wrong particulars of its income or has furnished inaccurate particulars to attract

the penalty u/s 271(1)( c) of the Act.

17. Ld. Counsel has drawn our attention towards operative part of the penalty

order in the second part of para 4.5 and submitted that firstly, the AO noted that

the assessee has failed in the gamble of evading tax and the wrong claim of the

assessee was deducted and the amount was brought to tax. Ld. Counsel further

pointed out that in the last sentence as the operative part, the AO further

observed that the assessee has filed wrong particulars of income within the

meaning of section 271(1)(c) of the Act and hence, penalty is leviable. Ld.

Counsel further pointed out that as per decision of Hon'ble Supreme Court in

11 ITA 1183/D/2010, 542/D/2013 1110/D/D/2010, 371/D/2013

the case of CIT vs Reliance Petroproducts Pvt. Ltd. 322 ITR 158 (SC), the

penalty u/s 271(1)( c) of the Act is not leviable merely because the claim of the

assessee was not accepted or was not found to be acceptable by the revenue. Ld.

counsel has further drawn our attention towards paper book page no. 16-28 and

submitted that the assessee placed all the relevant papers and evidence before

the AO to establish this fact that the assessee paid Rs. 64 lakh to the ROC

towards filing fees for increasing the authorised capital of the assessee.

18. Replying to the above, ld. DR supported the action of the AO as well as

the CIT(A) and submitted that when it is a well-settled proposition of the Act as

per decision of Hon'ble Supreme Court that the expenditure is incurred by a

company in connection with the issue of shares with a view to increase its share

capital and the same is capital expenditure which is not allowable as revenue

expenditure, then the assessee company was not bona fide in making such claim

which was not allowable. Ld. AR vehemently contended that in this situation,

the AO and the CIT(A) rightly held that the assessee placed a wrong claim and

furnished wrong particulars of its income, therefore, the penalty was rightly

levied u/s 271(1)( c) of the Act.

19. On careful consideration of above submissions, at the very outset, we may

point out that the revenue authorities have disallowed the claim of the assessee

towards filing fees paid to the ROC for increasing authorised share capital but

the revenue authorities have not disputed the quantum and purpose of the

12 ITA 1183/D/2010, 542/D/2013 1110/D/D/2010, 371/D/2013

expenditure which has properly found place in the statement of accounts of the

assessee submitted before the AO. It is not the case of the revenue that the

assessee had made a claim of expenditure which was not actually incurred or the

assessee claimed an amount of expenditure which was not correct. From

operative part of the penalty order, the main allegation of the AO is that the

assessee has filed a wrong claim and therefore, the assessee has clearly filed

wrong particulars of income. Under above noted facts and circumstances, we

decline to accept the claim of the AO that the assessee has filed wrong

particulars of its income. At the same time, we are inclined to hold that the fact

remains that the assessee placed a claim towards filing fees paid to ROC for

increasing the authorised share capital which was not found acceptable during

quantum proceedings and the same attained finality.

20. In view of above, we respectfully take notice of the decision of Hon'ble

Supreme Court in the case of Reliance Petroproducts (supra) wherein it was held

thus:-

"It was, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnished all the

13 ITA 1183/D/2010, 542/D/2013 1110/D/D/2010, 371/D/2013

details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the Revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature.

21. In view of above, we reach to a conclusion that the AO imposed penalty

on wrong premises merely because the claim of the assessee which was fully

disclosed in the statement of income was not found to be acceptable by the

department but it cannot be held that the assessee either furnished wrong

particulars of its income or has concealed particulars of its income to attract

penalty u/s 271(1)(c) of the Act. Hence, impugned penalty levied on the

assessee is not sustainable and thus, sole ground of the assessee in ITA No.

452/Del/2013 for AY 2003-04 is allowed and the AO is directed to delete the

penalty.

Revenue's appeal in ITA No. 371/Del/2013 for AY 2003-04

22. Apropos sole ground of the Revenue, as reproduced hereinabove, we have

heard arguments of both the sides and carefully perused the relevant material

placed on record before us, inter-alia, quantum assessment and appeal order,

penalty and penalty appeal order and paper book of the assessee spread over 47

pages and citations and legal propositions relied by both the sides.

14 ITA 1183/D/2010, 542/D/2013 1110/D/D/2010, 371/D/2013

23. The Ld. DR pointed out that CIT(A) has erred in deleting the penalty u/s

271(1) (c) of the Act in respect of disallowance of deduction u/s 36(1) (vii) (c)

of the Act made by the AO and confirmed by the CIT(A) in quantum

proceedings. The Ld. DR further contended that the assessee should have

claimed Rs.93,53,977/- instead of Rs.1,79,29,080/- on income from other

sources and up to this extent, the assessee had furnished wrong and inaccurate

particulars of its income within the meaning of Section 271(1) (c) of the Act,

hence penalty was rightly levied on the assessee. The Ld. DR vehemently

contended that the CIT(A) was not correct and justified in deleting the penalty

merely because the issue is debatable and there may be a possibility of a

different opinion or view by the higher judicial forum. The Ld. DR pointed out

this issue is very clear and the assessee claimed higher amount without any

bonafide reason, hence, penalty was leviable.

24. Replying to the above and supporting the impugned order, the Ld.

Counsel of the assessee submitted that the same issue being debatable has been

remitted back to the file for fresh adjudication for A.Y 2004-05 by the ITAT

Bench "C" order dated 21/11/2014 (supra) and hence, the quantum assessment

and appeal order on the basis of which the penalty was levied do not survive

and hence, the penalty order cannot be held as sustainable. The Ld. Counsel

further pointed out that even otherwise when the issue on which disallowance or

15 ITA 1183/D/2010, 542/D/2013 1110/D/D/2010, 371/D/2013

addition has been made is debatable having two possible views, then penalty is

not imposable.

25. On careful consideration of above, at the beginning, we note that

undisputedly, the issue of allowability of claim of the assesssee for A.Y 2004-

05 has been restored to the file of the AO for fresh adjudication by the order of

the Tribunal dated 21/11/2014. Further, we also note that on similar lines,

respectfully following the order of the Tribunal for A.Y 2004-05 (supra), we

have restored the same issue to the file of the AO for fresh consideration, while

disposing and adjudicating Ground No. 2 of the assessee in ITA No.

1183/Del/2010 for A.Y 2003-04 by the earlier part of this order.

26. In this situation, we hold that since the quantum assessment and appeal

order for A.Y 2003-04, on the basis of which penalty was levied do not survive

and the order of second round of assessment is awaited, then the issue of

sustainability or validity of the penalty order and impugned order becomes

academic and infructuous and hence, the same does not survive for

adjudication before this Tribunal and thus, we dismiss the sole ground of the

Revenue without any detailed deliberations on merit. Accordingly, sole ground

of the Revenue in ITA No. 371/Del/2003 is dismissed as infructuous.

16 ITA 1183/D/2010, 542/D/2013 1110/D/D/2010, 371/D/2013

27. In the result, appeal of the assessee in ITA No. 542/Del/2013 is allowed

and appeal of the Revenue in ITA No. 371/Del/2013 in penalty proceedings is

dismissed.

Order pronounced in the open court on 29.05.2015.

Sd/- Sd/- (S. V. MEHROTRA) (CHANDRAMOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER

DT. 29th MAY 2015 'GS'

Copy forwarded to:-

1. Appellant 2. Respondent 3. C.I.T.(A) 4. C.I.T. 5. DR By Order

Asstt.Registrar

17 ITA 1183/D/2010, 542/D/2013 1110/D/D/2010, 371/D/2013

18