IN INCOME TAX APPELLATE TRIBUNAL BENCH : KOLKATA [Before Hon ble Sri N.V.Vasudevan, JM & Dr.Arjun Lal Saini, AM] I.T.A Nos. 1106 to 1109/Kol/2013 Assessment Years : 2004-05, 2006-07,2007-08 & 2008-09 D.C.I.T., Circle-12, -vs.- M/s. J.C.T. Ltd. Kolkata Kolkata [PAN : AAACJ 6733 E] (Appellant) (Respondent) For Appellant : Shri Angam Shaiza, CIT For Respondent : Shri A.K.Gupta, FCA Date of Hearing : 25.08.2016. Date of Pronouncement : 19.10.2016. ORDER Per N.V.Vasudevan, JM ITA No.1106/Kol/2013 A.Y.2004-05 : This is appeal by Revenue against order dated 07.02.2013 of CIT(A)-XII, Kolkata relating to AY 2004-05. 2. Ground No.1 raised by revenue in this appeal reads as follows :- 1. Whether on facts and in circumstances of case, ld. CIT(A) was justified in allowing sum of Rs.1,69,41,519/- towards liability of Excise under Section 43B of I.T.Act. 3. Assessee is company in which public are substantially interested. During previous year it carried on business of manufacturing and selling of textiles, yarns, nylon and polyester Filament yarn, Polyster Chips, Nylon Chips, Steel Wires, Wire Ropes, Polyester Staple Fibre, Partially oriented yarn etc., and export of these products. In course of assessment proceedings, AO noticed that as Annexure IV of Tax Audit Report, valuation of closing stock lying at year-end was made at cost price or net realizable value whichever is lower and was exclusive of excise 2 ITA Nos.1106 to 1109/Kol/2013 J.C.T. Ltd. A.Y.2004-05,2006-07 to 2008-09 duty. AO also noticed that as per Annexure V(a), V(b), V(c) and V(d) of Tax Audit Report, excise duty liabilities in respect of finished goods were as follows :- Filament Division, Hoshairpur Rs.13,51,378/- Textile Division, Phagwara Rs.26,20,554/- Textile Division, Sriganganagar Rs.13,75,000/- Steel Division, Hoshiarpur Rs.15,94,587/- Rs.1,69,41,519/- 4. As per provisions of Sec.145-A of Income Tax Act, 1961 (Act), prior to its Substitution by Finance (No. 2) Act, 2009 (w.e.f. 1-4-2010), read as follows: 145A. Method of accounting in certain cases. Notwithstanding anything to contrary contained in section 145 valuation of purchase and sale of goods and inventory for purposes of determining income chargeable under head Profits and gains of business or profession shall be (a) in accordance with method of accounting regularly employed by assessee; and (b) further adjusted to include amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by assessee to bring goods to place of its location and condition as on date of valuation. Explanation: For purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for time being in force, shall include all such payment notwithstanding any right arising as consequence to such payment. 5. According to AO, as per provisions of Sec.145-A of Act, Assessee ought to have added excise duty liability to value of closing stock. He accordingly called upon Assessee to show cause as to why excise duty liability should not be added back to value of closing stock as per provisions of Section 145A. In reply, assessee submitted that in accordance with method of accounting regularly and consistently followed by assessee, excise duty in respect of 2 3 ITA Nos.1106 to 1109/Kol/2013 J.C.T. Ltd. A.Y.2004-05,2006-07 to 2008-09 finished goods lying at factory premises is accounted for at time of removal/clearance of such stocks from factory premises in pursuance of Rules 8 of Central Excise Rules. Therefore, even where stock after manufacture lies in factory or in godown of manufacturer, there is no liability incurred for paying excise duty. If there is no liability toward excise duty payable on finished stock, same could not form part of value of closing stock. Without prejudice to foregoing submissions, assessee also submitted that since similar addition of amount of Rs.2,50,99,120/- to closing stock as on 31-03-2003 was done for AY 2003-04 by AO, value of opening stock as on 01-04-2003 should be increased by same amount. 6. AO however held that liability for payment of excise duty is incurred by assessee when process of manufacture is complete in relation to that excisable item and in coming to above conclusion referred to decisions of Hon ble Madras High Court in case of CIT vs English Electric Co. of India ltd. 243 ITR 612 (Mad). CIT vs. Dynavision Ltd. 267 ITR 600 (Mad). AO was therefore of view that as per provisions of Section 145A, excise duty element has to be added to closing stock as liability to pay excise duty arises moment excisable good is produced or manufactured. assessee s method not to include same in closing stock is, therefore, not correct. Regarding submission of assessee that in earlier year closing stock was enhanced on same reasoning and therefore in this year opening stock value needs to be enhanced by amount by which closing stock of earlier year was enhanced, AO held that assessee has preferred appeal before CIT(A) against assessment order for year 2002-03 and that decision of CIT(A) has not been received so far. Hence, there is no justification to change figure of opening stock as corresponding closing stock figure is still being adjudicated. 3 4 ITA Nos.1106 to 1109/Kol/2013 J.C.T. Ltd. A.Y.2004-05,2006-07 to 2008-09 7. assessee also submitted that excise duty payable on finished goods of Steel Division (amounting to Rs.15,94,587/-) has been paid before due date of filing return and hence, amount should be allowed as deduction on payment basis. AO however found that Assessee has not submitted copies of challans in support of said payments. In these circumstances, claim of assessee for deduction of sum of Rs.15,94,587/- was also rejected by AO. Thus AO added sum of Rs.1,69,41,519/- to total income of assessee. 8. Before CIT(A), Assessee apart from reiterating submissions made before AO submitted that AO has not properly applied ratio of decisions rendered by Hon ble Madras High Court in case of (i)CIT v English Electric Company of India Ltd 243 ITR 512 (ii) CIT Vs Dynavision Ltd 267 ITR 600. It was submitted that Madras High Court has clearly observed in decisions that "Inclusion of excise duty in valuation of closing stock was held to be permissible only if liability for that amount in excise duty account was given deduction. It was pointed out that ruling rendered by Hon ble Madras High Court took into consideration fact no allowance was given by AO for payment of Excise duty under section 43B which has been paid prior to date of submission of return. Hon ble Court took into consideration fact that if duty element due is included while valuing closing stock, result would be anomalous and therefore, liability was deductible for purpose of arriving at profits for year and only when such deduction was given, amount could be added to value of closing stock and thus, excise duty liability is not to be included in valuation of closing stock. 9. After considering submissions of Assessee, CIT(A) deleted addition made by AO observing as follows :- 4. I have considered finding of A.O. in his order dt. 29-12-2006 and written submission filed by A.R. during appellate proceeding. Appeal on 4 5 ITA Nos.1106 to 1109/Kol/2013 J.C.T. Ltd. A.Y.2004-05,2006-07 to 2008-09 ground no. 1 (i), (ii), (iii) and (iv) are against addition of Rs. 16941519/- to value of closing stock of finished goods on account of excise duty payable on finished goods. A.R. in his written submission has mentioned that this issue is squarely covered in favour of assessee vide CIT(Appeal) 's order in appeal no. 24/C1T(A)-X/Cir-10/04-05 dt. 04-10-2005 in assessee's own case. I have seen order of my predecessor and I find that detailed and speaking order has been passed by my predecessor on this issue. Therefore, there is no reason to interfere with finding of Ld. CIT(A)-X, Kolkata on same issue in assessee's own case in his order for A.Y. 2001-02. Thus, assessee's appeal on ground no. 1 (i), (ii), (iii) and (iv) are allowed. 10. Aggrieved by order of CIT(A) revenue has raised ground No.1 before Tribunal. At time of hearing of appeal, it was agreed by parties that identical issue has already been decided by Tribunal in A.Y.2001-02 in assessee s own case and decision of CIT(A) for A.Y.2001-02 based on which addition was deleted by CIT(A) in impugned order, was upheld by Tribunal. 11. We have perused decision of Tribunal in assessee s case in A.Y.2001-02 in ITA NO.126/Kol/2006 order dated 15.02.2013. Tribunal on identical issue held as follows :- 5. We have heard rival submissions and carefully considered same. This issue has now been decided in favour of assessee by Hon'ble Bombay High Court in case of CIT -vs- Loknete Balasaheb Desai S.S.K. Ltd., in which Hon ble High Court has observed as under: "Section 145A of Income-tax Act, 1961, was inserted by Finance (No. 2) Act, 1998, with effect from April 1, 1999. It provides for valuation of purchase and sale of goods and inventory for purposes of determining . the. income chargeable under head "Profits and gains of business or profession". expression "incurred by assessee" in section 1 45A(b) is followed by words "to bring goods to place of its location and condition as on date of valuation ". Thus, expression "incurred by assessee" relates to liability determined as tax, duty, cess or fee payable in bringing goods to place of its location and condition of-the goods. Explanation to section 145A(b) makes it further clear that income "chargeable' under head "Profits and gains of business " shall be adjusted by , . amount paid as tax, duty, cess or fee. Therefore, expression "incurred" in section 145A (b) must be construed to mean liability actually incurred by assessee. Though 5 6 ITA Nos.1106 to 1109/Kol/2013 J.C.T. Ltd. A.Y.2004-05,2006-07 to 2008-09 date of manufacture is relevant date for dutiability, relevant date for duty liability is date on which goods are cleared. In other words, in. respect of excisable goods; manufactured and lying in stock, excise duty liability would get crystallised on date of clearance of goods and not on date of manufacture. assessee was engaged in business of manufacture and sale of white sugar. In assessment year 2001-02 Assessing Officer held that excise duty on sugar manufactured but not sold and lying in closing stock was liability incurred by assessee under section 145A(b) and had to be considered for disallowance under section 43B of Act. Tribunal deleted addition. On appeal to High Court: Held, that manufactured sugar 1vas lying in stock and was not cleared from factory. Therefore, Tribunal was justified in holding that in respect of unsold sugar lying in stock, Central excise liability .was not incurred and consequently addition of excise duty made by Assessing Officer to value of excisable goods was liable to be deleted. No contrary decision was brought to our knowledge by ld.D.R. In view of these facts, in our opinion, no interference is called for in order of CIT(A). Hence, ground no.1 taken by Revenue stands dismissed. As ground no.1 taken by Revenue is dismissed and decided in favour of assessee, so C.O. filed by assessee, in support of order of CIT(A), becomes infructuous. Hence, C.O. filed by assessee is dismissed being infructuous. 12. In A.Y. 2002-03 and 2003-04 in ITA No.1640/Kol/2006 and ITA NO.1064/Kol/2008 respectively by order dated 15.02.2013 Tribunal followed decision in A.Y.2001-02 on identical issue. Respectfully following decisions of Tribunal referred to above, we uphold order of CIT(A) and dismiss ground no.1 raised by revenue. 13. Ground No.2 raised by revenue reads as follows :- 2. Whether on facts and in circumstances of case, Ld. CIT(A) was justified in allowing interest on interest free loan of Rs.25,09,37,839/- u/s 36 (1)(iii). 6 7 ITA Nos.1106 to 1109/Kol/2013 J.C.T. Ltd. A.Y.2004-05,2006-07 to 2008-09 14. Assessing Officer disallowed Interest and Financing charges of Rs. 25,09,37,839/- u/s 36(1)(iii) of Act, on ground that loans / advances were given to subsidiary companies and other companies free of interest out of borrowed funds which were not utilised for purpose of business, although sum of Rs.25,00,97,839/- had been debited to Profit and Loss Account for year ended 31st march 2004 towards Interest etc but excluding Lease Rent (Rs. 266,69,967 - 16,593,128 lease rent). 15. details of loans and Advances allegedly given by Assessee to its subsidiary companies and other companies along with Statement of Account are given as under:- Subsidiary Companies 1.M/s. Chohal Exports Limited Rs. 20,76,61,960/ 2.M/s. Polytex Fibres Trading Limited Rs113,86,84,136/- 3.M/s. Gupta & Syal Limited Rs. 36,49,616/- Rs.134,99,95,712/- Other Companies 1.M/s. Narandas Rajaram & Company Ltd Rs 88,10,87,753 2.M/STeju Holdings Pvt Limited Rs. 72,50,00,000 16. Assessee explained nature of loans given to subsidiary and other companies and as to why disallowance u/s.36(1)(iii) of Act ought not to have been made by AO, as follows: Subsidiary Companies (i)Gupta & Syal Ltd. Assessee submitted copy of statement of account of aforesaid party and pointed out that it would be apparent from statement of Account of M/S Gupta Syal Ltd submitted that no advance had been given to them. All Debit 7 8 ITA Nos.1106 to 1109/Kol/2013 J.C.T. Ltd. A.Y.2004-05,2006-07 to 2008-09 entries apart from Rs 2,480/- pertains to payment of electric charges which were realized by assessee prior to date of payment. Hence, these transactions will not come under head "Loans & Advances". Regarding payment of Rs.2,480/- towards Advance Tax, it was pointed out that it was made on behalf of Subsidiary Company which was subsequently realized. Both opening balance and dosing balance are same. As no advances were paid, question of charging interest does not arise. (ii)Polytex Fibres Trading Limitd: Assessee pointed out that it had paid Rs 500/- & Rs 300/- towards expenses on behalf of them which were subsequently realised. Both opening and closing balances are same. No fresh advances were given apart from above entries. No interest was charged. (iii) Chohal Exports Ltd: Assessee pointed out that during year Assessee had paid sum of Rs 15 lac out of credit balance with current account with Bank of Baroda, Parliament Street Branch, New Delhi - 1100001 and Assessee has also realised sum of Rs 21,00,000/-. Apart from above, Assessee incurred expenses on their behalf which had been realised during year. Assessee pointed out that it would be apparent from statement of Account that closing balance as on 31/03/2004 was Rs.20,76,61,959.55 while opening balance was Rs 20,85,07,790.55. Assessee submitted that it would be clear from above statement that Assessee had received more than Rs 7 lacs during year 2003-04. Advance of Rs 15 Lacs was paid out of current Account with Bank of Baroda.(credit balance). Xerox copy of bank statement was also enclosed. It was submitted that said sum was not paid out of borrowed fund, but from own fund. Xerox copy of Bank Statement was submitted in support of such transaction. Other Companies:- 8 9 ITA Nos.1106 to 1109/Kol/2013 J.C.T. Ltd. A.Y.2004-05,2006-07 to 2008-09 Narandas Rajaram & Co Ltd(interest free) Rs. 88,10,87,753 Assessee furnished copy of Statement of Accounts of Narandas Rajaram & Co Ltd and submitted that during previous year Assessee had paid Rs.5000/- on their behalf for expenses which had been realised, which is neither Loan nor Advance. Moreover, Assessee had realised sum of Rs.8,60, 59,774/- against dues of Rs.96,71,47,527/- brought forward from earlier year. Advance to Teju Holdings Private Limited Rs.172, 50, 00,000/- Assessee filed statement of account of this party and submitted that were no movement of funds during year 2003-2004. outstanding balance as on 31.03.2003 was closing balance as at 31.03.2004. Advance to JCT Chemicals and Fibres Limited: Rs.8,80,000 Assessee pointed out that advances were paid from Assessee's own business realisations received by cheque from its customers which were deposited to Bank, prior to date of giving such advances, advances were paid by cheques. copy of Bank Statements as well as vouchers and Bank Deposit Slips etc., were also filed to substantiate Assessee s contention. 17. Assessee further pointed out that Loans and advances given in earlier years were out of own generated fund. As such, no interest was charged. Moreover, advances were paid out of mixed composite fund where business realizations were also deposited. Assessee submitted that it was settled law that where loans are made out of mixed composite fund where business realizations were also deposited and when there is sufficient own fund as well as borrowed money, presumption is that money is advanced out of own capital instead of borrowed fund. Assessee placed reliance on decision of Hon ble A.P. High Court in case of CIT Vs Gopikrishna Murlidhar 47 ITR 469 (AP) whihch was followed by Gujrat High Court in 9 10 ITA Nos.1106 to 1109/Kol/2013 J.C.T. Ltd. A.Y.2004-05,2006-07 to 2008-09 Digvijay Cement Co Ltd Vs CIT 138 ITR 45. It was further pointed out that in actual business situations, borrowed fund and own fund are kept in common pool. Even in case of Cash Credit A/cs, Overdraft A/cs. own funds are deposited therein and where interest free advances are made by cheques, advances were debited to Cash Credit /Overdraft A/cs. As such, amount advanced is relatable to own funds deposited in that account from time to time. Assessee highlighted that sufficient interest free funds were available for purpose of making such advances, or that advances having been made when there were no such borrowing and subsequent borrowing were also utilized for purpose of business. Assessee relied on decision of Hon ble Allahabad High Court in case of CIT Vs Radico Khaitan Ltd. (2005) 274 ITR 354(All) wherein it was held that where interest free loan had been made to sister concerns in earlier years and no interest were disallowed in earlier year, disallowance could not be made in relevant Assessment Year particularly when assessee had sufficient fund on a/c. of Share Capital, Share Premium, Reserve & Surplus out of which advance to sister concern could have been made. Assessee also gave details of availability of own funds. It was further submitted that for sake of argument, if Assessing Officer's view is taken correct, it means that all borrowed fund had been utilised for purpose of giving advances and loans to aforementioned companies and no borrowed fund had been utilised for acquiring fixed assets and to meet working capital requirements which is not only untrue and incorrect but also absurd. Hence, it was argued that Assessing officer's action is not tenable in law. 18. Apart from above, it was also submitted that interest and finance charges also include bill collection charges, cheque collection charges, cheque collection /discounting charges, bank charges paid for export bills, interest paid on vehicle loan, interest paid to Customs and Excise Authorities, Commission paid on Letter of Credit, payment made to various parties of LC's against supplies, Overdue interest paid to raw 10 11 ITA Nos.1106 to 1109/Kol/2013 J.C.T. Ltd. A.Y.2004-05,2006-07 to 2008-09 material suppliers, interest on workers/employees security deposit, incidental and bank charges, interest on F.D and corporate deposits etc., which were not in nature of Interest on Loans totaling to Rs.91,42 5,305.54/-. If all these payments are deducted from total payment of interest and finance charges, total interest outgo on Loan will be substantially reduced. 19. It was further pointed out that Commissioner of Income Tax (Appeal) -V and Commissioner of Income Tax (Appeal) -X have allowed such payments in assessment year 1998-99 & 2001-02 respectively and that Department had not filed any appeal before Income Tax Appellate Tribunal against Order of Commissioner of Income tax (Appeals)-V for assessment year 1998-99. 20. Without prejudice to above, Assessee furnished comparative statement of Loan outstanding as on 31.03.2000,as on 31.03.2001 as on 31.03.2002 as on 31.03.2003 and as on 31.03.2004 : Secured: As on As on As on As on As on 31.03.2000 31.03.2001 31.03.2002 31.03.2003 31.03.2004 Interest 122,44,25,990 X 12,11,54,000 8,07,69,600 79,137,600 bearing Debentures Zero Rated X 59,98,46,800 58,58,81,100 53,50,33,300 533,306,300 Debentures Term Loans 250,82,21,329 155,55,49,407 81,65,86,703 66,47,42,232 580,920,389 Cash Credit 187,80,55,451 76,84,58,690 58,71,39,108 67,45,99,435 755,959,375 Unsecured: As on As on As on As on As on 31.03.2000 31.03.2001 31.03.2002 31.03.2003 31.03.2004 Interest 113,44,02,206 18,44,58,602 15,68,79,103 21,64,06,691 237,426,731 bearing Non Interest 42,00,000 28,00,000 161,400,000 160,000,000 160,000,000 bearing 674,93,04,796 311,11,13,499 242,90,40,014 233,15,51,258 234,67,50,395 11 12 ITA Nos.1106 to 1109/Kol/2013 J.C.T. Ltd. A.Y.2004-05,2006-07 to 2008-09 It was argued that from above chart it would be evident that outstanding loans have decreased in assessment Year 2004-05. closing balance as at 31/03/2004 was Rs.234,67,50,395/- which include non interest bearing loan of Rs.693,306,300/- and interest bearing loan of Rs.16,53,444,095/-.The increase in total loans in comparison to 2003 was on account of hike in Cash Credit Loan and hike in receipt of Fixed Deposits from public. As these loans were not utilised for giving loans and advances to subsidiary and other companies, interest on such loans should not be disallowed as advances were given long back before receiving these loans and deposits. It was pointed out that Loans outstanding as on 31.03.2004 are Rs.234,67,50,395 while loans outstanding as on 31.03.2000 are Rs.674,93,04,796. It means that assessee had repaid loan to tune of Rs.440,25,54,401 which is more than 65% of Rs.674,934,796/-. It was argued that even for sake of argument if it is considered that borrowed fund were utilised for purpose of giving loan to subsidiary and other companies then by same analogy repayment/waiver of such loan amounting to Rs.4402,554,401 should have been deducted from advances given to subsidiary and other companies while disallowing interest u/s 36(l)(iii) of Act. It was submitted that if old loans are repaid, same should not be subject matter of disallowance of interest on advances given in earlier years. old loans which have been refunded / waived should have been deducted from advances given in earlier years. Assessee also pointed out that in case of cash Credit account interest is charged on current debit balance as old debts are realised first from deposit. If interest is charged for current debit balance, same could not be disallowed on basis of inference that advance were given in earlier years out of old borrowed funds. 21. Assessee also drew attention to two statements of year wise Advances given and loan received starting from Assessment Year 90-91 to 31/03/2004 which were also submitted at time of Assessment proceedings. It was argued that it would be 12 13 ITA Nos.1106 to 1109/Kol/2013 J.C.T. Ltd. A.Y.2004-05,2006-07 to 2008-09 evident from said statement that interest free loan had been made to subsidiary companies and other companies, but no interest was disallowed till assessment year 1993-94 as there were huge profits as well as huge funds received by Assessee by issue of Share Capital at premium. In assessment year 1994-95 in assessment U/S 147/143(3) of Act, interest was disallowed on advances given to subsidiary companies, although advances were given out of own generated fund. appeal against such disallowance was pending before Hon'ble Calcutta High Court. In assessment year 1995-96 no interest was disallowed on advances given to subsidiary companies but interest was disallowed in respect of advances given to other companies which was allowed by Hon'ble Income Tax Appellate Tribunal Kolkata. appeal was filed by Department before Kolkata High Court. On this issue appeal before Kolkata High Court is pending for Assessment Year 1996-97. Appeal is pending before Hon'ble Tribunal for Assessment Year 2001-02, 2002- 03 & 2003-04. Appeal was pending before CIT (Appeal) - V for Assessment Year 1999-2000. In Assessment Year 2001-2002, 2002-2003 & 2003-2004 learned CIT(A)-X and CIT(A)- XII had allowed interest U/S 36(1)(iii) of Act. Interest was also not disallowed in assessment on advances given to subsidiary companies for assessment years 1995-96,1996-97,1997-98 and 2000-01. It was submitted that as such, no interest should be disallowed on advances given upto 31/3/2000 to subsidiary companies which has been brought forward in assessment year 2003-2004 following decision of Hon'ble Karnataka High Court given in case of Commissioner of Income Tax Vs Sridev Enterprises192 ITR 165 (Ker).The Court held that if interest is allowed as being for business purposes, different stand cannot be taken by department in subsequent year on sane loan. It was argued that Learned Assessing Officer has not considered all these submissions and disallowed interest U/S 36(1)(iii) on basis of his predecessor's comments and opinion without applying his mind and as such addition should have been deleted. At last for sake of argument taken as granted that 13 14 ITA Nos.1106 to 1109/Kol/2013 J.C.T. Ltd. A.Y.2004-05,2006-07 to 2008-09 Loans / advances were given in earlier years out of borrowed funds to subsidiary and other associate companies, but same was paid for business consideration and same was utilised by subsidiary & other associate companies for purpose of business. If loans & advances were given for purpose of business consideration , interest on such loans & advances will not be disallowed. Reliance was placed on decision of Hon ble Supreme Court in case of S.A. Builders Ltd. Vs. CIT (Appeals) (2007) 288 ITR 1, Munjal Sales Corporation (2008) 298 ITR 298. above decision has been followed in case of CIT vs Rockman Cycle Industries Ltd (2009) 176 Taxman 21 (Punj. & Har). In view of facts stated above, evidences and aforementioned decisions, Assessee pleaded that no interest ought to have been disallowed. 22. CIT(A) deleted addition made by AO for following reason :- 5. Appeal on grounds no. 2(i), (ii), (iii), (iv), (v), (vi) and (vii) are against disallowance of interest of Rs. 250937839/- paid on capital borrowed for purpose of business. A.R. has filed written submission in which he has mentioned that this issue is covered in favour of assessee vide Kolkata Tribunal B Bench order in ITA No. 1135/Kol/2003 dt. 15-06-2012 in assessee's own case. Respectfully following order of Hon'ble ITAT on same issue in assessee's own case. Appeal on grounds no. 2(i), (ii), (iii), (iv), (v), (vi) and (vii) are allowed. 23. Aggrieved by order of CIT(A), revenue has raised ground No.2 before Tribunal. We have heard rival submissions. At time of hearing it was brought to our notice that this Tribunal considered very same issue which was subject matter of disallowance u/s 36(1)(iii) of Act in A.Y.2003-04 and this Tribunal has deleted disallowance of interest in ITA Nos. 1136 & 1137/Kol/2003 and 268/Kol/2004 for A.Y.1996-97 to 1998-99 by following tribunal s order in ITA No.1135/Kol/2013 dated 15.06.2012 for A.Y.1994-95. It was not disputed before us that aforesaid findings of tribunal equally apply to present assessment year also. 14 15 ITA Nos.1106 to 1109/Kol/2013 J.C.T. Ltd. A.Y.2004-05,2006-07 to 2008-09 Respectfully following decision of Tribunal referred to above we uphold order of CIT(A) and dismiss ground No.2 raised by revenue. 24. In result appeal of revenue is dismissed. ITA No.1107/Kol/2013 A.Y.2006-07 : 25. This is appeal by Revenue against order dated 07.02.2013 of CIT(A)- XII, Kolkata relating to AY 2006-07. 26. Ground No.1 and 2 raised by revenue in this appeal read as follows :- 1. Whether on facts and in circumstances of case, ld. CIT(A) was justified in allowing sum of Rs.1,36,29,630/- towards liability of Excise duty under Section 43B of I.T.Act. 2. Whether on facts and in circumstances of case, Ld. CIT(A) was justified in allowing interest on interest free loan of Rs.20,15,650/- u/s 36 (1)(iii). 27. It is not in dispute before us that issues raised in ground nos. 1 and 2 are identical to ground nos. 1 and 2 of revenue in ITA No.1106/Kol/2013 and arise on identical facts and circumstances. Following reasons given while deciding identical grounds for A.Y.2005-06 in ITA NO.1106/Kol/2013 we uphold order of CIT(A) and dismiss ground nos. 1 and 2 raised by revenue. 28. Ground No.3 raised by revenue reads as follows :- 3. Whether on facts and in circumstances of case, Ld. CIT(A) was justified in treating capital gain of Rs.53,04,906/- from sale of land as business income. 29. During previous year assessee sold land situated at Phagwara which it had acquired during year ending 31.01.1980. land was purchased by Assessee for purpose of expansion of its Mills situated at Phagwara. Assessee decided to 15 16 ITA Nos.1106 to 1109/Kol/2013 J.C.T. Ltd. A.Y.2004-05,2006-07 to 2008-09 sell surpIus land lying with Mills for raising funds for use in business as Assessee was facing accute paucity of funds. Accordingly, land was sold plot by plot according to requirements of funds for past 2 to 3 years. land was converted from agricultural land to residential status with view to get more price. Although land was sold at Rs. 15,15,750/- but in terms of Section 50C full value of consideration was taken at Rs. 36,31,800/- for computing Capital Gains as per law. land was never considered as stock in trade. 30. Similarly land situated at JCT Enclave, Jagraon, Punjab was sold during year 2005-06 which was acquired prior to 01.04.1981 ( acquired between 31.01.58 and 31.01.66). Assessee had carried out improvement to property so acquired on 31.01.2001 and on 01-04-2004. land was purchased as agricultural land for setting up factory. Ginning factory was set up there prior to 01.04.l981.Ginning Factory was closed on account of change of production method and as result land was lying vacant. vacant land was sold in order to meet Assessee s requirement of funds. land was agricultural land at time of sale. No conversion was done by Assessee . land was never treated as Stock in Trade. 31. Long Term capital gain (LTCG) on sale of aforesaid land was offered to tax under head Capital Gain . learned A.O was of view that gain in question was assessable under head Income from Business . 32. According to AO assessee made additions to land by purchase as well as pursuant to amalgamation during financial year 2005-06. According to Assessee no land was acquired by Assessee during year 2005-2006. Assessee drew attention to fixed assets Schedule as well Tax Audit Report where details of additions to Fixed Assets were given. summary of same is as follows: 16 17 ITA Nos.1106 to 1109/Kol/2013 J.C.T. Ltd. A.Y.2004-05,2006-07 to 2008-09 Particulars Amount Ref Opening Balance as on 01.04.2005 51,962,195.00 Schedule E of Accounts Addition on account of amalgamation 3,532,050.00 -----------Do---------------- Addition on account of Revaluation 1,019,790,658.00 Schedule B of Accounts (Ref Note-7 of Schedule-IX of Accounts) 1,075,284,903.00 Less:Sale during year 2005-2006 1,865,109.00 Balance as at 31.03.2006 1,073,419,794.00 33. According to Assessee, therefore inference drawn by Assessing Officer as to purchase of land during year 2005- 06 to establish another line of business was contrary to facts.. Assessee reiterated its stand that it was facing acute shortage of fund and thus, question of purchase of land (either underdeveloped land or agricultural land) does not arise. Assessee pointed out that development of land (at Jagron, Punjab) which was purchased long back was done in 2000-01 and 2004-05. These lands were never considered as stock in trade. It was all along used as Fixed Asset. land was used as asset of Assessee for purpose of business i.e running ginning factory and Mills. After closing down Ginning Factory and surplus land of Mill at Phagwara sold at profit to meet requirements of funds. transaction i.e sale / profit was shown under head' Capital Gains'. sale was for realization of investment which cannot be termed as adventure in nature of trade. It was submitted that purchase of land was not with intension to resale at profit but sale of land was only realization of investment and utilizing same for purpose of requirements of funds. Obviously, surplus in such case, will not be trading or business profit, because transaction is one of realization of asset in capital investment rather than one in course of trade carried on by assessee or adventure in nature of trade. Moreover, if motive of assessee was to engage in another line of business, assessee must have sold land and within 2/3 years 17 18 ITA Nos.1106 to 1109/Kol/2013 J.C.T. Ltd. A.Y.2004-05,2006-07 to 2008-09 from date of purchase of land. But this motive is totally absent. It was argued that Assessing Officer has not at all brought any circumstances or evidence on record to show that at time of purchase of property, assessee had intention to sell property. It was submitted that merely Carving out plots in portion of land, without proof of anything more, cannot give rise to conclusion that transaction is adventure in nature of trade. As far as land situated at JCT Enclave, Jagroan, Punjab, is concerned, Assessee pointed out that land was purchased on 31.01.58 and 31.01.66 for purpose of business i.e setting up of ginning factory. This land was sold during year 2005-2006. There was no series of transactions of purchase. Hence, Assessing Officer's conclusion of continuous processes is not correct. It was submitted that Profit earned on sale of land had been correctly considered as 'Capital Gains' by appellant. It was argued that learned Assessing Officer has erred in deciding same as another line of business and considered profit as Income from business. 34. It was submitted that term business covers every facet of occupation carried on by person with view to earning profits. Though profit motive is one of primary requisites of business, it is not essential ingredient of business. Risk, uncertainty, foresightedness to visualize imponderables and capacity to overcome unforeseen hurdles are essential requisites for business activities. person looks for safety of principal amount when he intends to invest money for purpose other then business or trade. As against this, business involves some risk in transaction. very word 'business' connotes chance plus risk. It was argued that following above principles it would be apparent form transaction of sale of land that main motive of Assessee was to collect fund to meet capital requirements as it was facing acute shortage of funds. Assessee had not engaged in occupation of dealer in land with view to earn profit Transaction as dealer in land where there is scheming and organization on part of person constitutes occupation in 18 19 ITA Nos.1106 to 1109/Kol/2013 J.C.T. Ltd. A.Y.2004-05,2006-07 to 2008-09 nature of trade. This ingredient is absent in sale transaction. Moreover, purchase of land long back did not involve any risk and uncertainty. Investment in land was safe. There was no risk and uncertainty in realizing amount of investment if sold. As to Assessing Officer's view of continuous process, it is true that land situated at Phgwara was sold in preceding years as well, but this land was acquired by Company once only in 31.01.1980 for purpose of business. land was not purchased in continuous process. Hence Assessing Officer's action is not tenable and liable to be vacated. 35. On consideration of above submissions, CIT(A) held as follows :- Appeal on grounds no. 3(i) & (ii) are against order of long term capital gains arising from sale of land as business income. A.O. in his assessment order has mentioned that assessee made improvement of agricultural land at JCT Enclave, Jagraon, Punjab. assessee got it converted from agricultural to residential use. assessee incurred further expenditure for its improvement and sold land for profit. same thing has happened at Phagwara, Punjab. A.O. treated it as another line of business of assessee ond profit earned from such transactions were treated as business income. A.R. in his written submission filed has mentioned that plot situated at Phagwara, Punjab was acquired in year 1980. This land was purchased by company for purpose of expansion of its mills situated at Phagwara, Punjab. Now, it was decided to sale surplus land lying with mills for using money in business as company was facing acute paucity of funds. Accordingly, land was sold plot by plot as per requirements of funds for last 2 or 3 years. land was converted from agricultural land to residential one with view to get more price. Similarly, land situated at JCT, Enclave, Jagraon, Punjab was acquired in year 1958 and 1966. It was also purchased for setting of factory. Ginning factory was set off there in 1981 . At present since factory was closed on account of change of production method. land was lying vacant. vacant land was sold in order to meet requirement of funds. A.R. has emphasized that land was never treated as stock-in-trade. A.R. has further pointed out that A.O's finding that assessee made additions to land on purchase and addition on account of amalgamation during F.Y. 2005-06 was wrong. No land was acquired by company during F. Y. 2005-06. It was clear from fixed assets scheduled as well as TAX AUDIT REPORT (TAR). A.R. has relied upon DCM case in which it was held " where property in question was held by assessee for several years in capital account and was shown in balance sheet of assessee as capital 19 20 ITA Nos.1106 to 1109/Kol/2013 J.C.T. Ltd. A.Y.2004-05,2006-07 to 2008-09 assets, profit corned by assessee on sale of said property was to be assessed under head "Capital Gains" and not under head "Income From Business". CIT Vs. DCM Ltd. (2010) (320 ITR 307)(Del.). I have considered finding of A.O. and written submission as well as case laws brought on record by A.R. It is clear that land sold by assessee was acquired by it more than 25 years ago and it was shown as capital assets in its balance sheet for last 25 years. It was never converted into stock-in-trade. Therefore, keeping in view decision of Hon'ble Delhi High Court in case of DCM Ltd. (supra), assessee's income from sale of land should be treated as capital gains and not as business income. Thus, assessee's appeal on grounds no. 3{i) & (ii) are allowed. 36. Aggrieved by order of CIT(A) revenue has preferred ground no.3 before Tribunal. We have heard rival submissions. ld. Counsel for assessee relied on order of CIT(A). ld. DR relied on order of AO. 37. We have considered rival submissions. Hon ble Supreme Court in case of G. Venkataswamy Naidu Vs. CIT 35 ITR 594 (SC) has laid down guide-lines as to when transaction could be considered as adventure in nature of trade. Hon ble Supreme Court has laid down that where property is held for fairly long number of years and income there from is enjoyed then income accruing as result of sale of such property that would be case of capital accretion and not adventure in nature of trade when property is sold. guiding factors that are relevant in such cases have been laid down as follows. Was purchase by trader and purchase of commodity and its resale allied to his usual trade or business or incidental to it. nature of commodity purchased and resold and quantity thereof. subsequent act done by purchaser before resale and frequency of such transaction. Hon ble court has, explained that above rules are not general or universal test, and is only helpful tools to enable court to come to definite conclusion. total effect of all relevant factors and circumstances would determine character of transaction and only some general assistance could be taken from guide-lines laid down above. 20 21 ITA Nos.1106 to 1109/Kol/2013 J.C.T. Ltd. A.Y.2004-05,2006-07 to 2008-09 38. Keeping in mind principles laid down in aforesaid judgment which principles are still applied in deciding question whether person has indulged in adventure in nature of business or not, we shall now look at facts of present case. land situated at Phagwara, Punjab was acquired in year 1980. This land was purchased by Assessee for purpose of expansion of its mills situated at Phagwara, Punjab. It was decided to sell surplus land lying with mills for using money in business as Assessee was facing acute paucity of funds. Accordingly, land was sold plot by plot as per requirements of funds for last 2 or 3 years. land was converted from agricultural land to residential one with view to get more price. Similarly, land situated at JCT, Enclave, Jagraon, Punjab was acquired in year 1958 and 1966. It was also purchased for setting of factory. Ginning factory was set off there in 1981 . Since factory was closed on account of change of production method, land was lying vacant and vacant land was sold in order to meet requirement of funds. facts of case suggest that intention of Assessee at time of purchase was never to indulge in trading in land but was for setting up factory premises for carrying out manufacturing which was its main line of business. length of period of ownership clearly suggests that acquisition of property was not for sale within short period of time. frequency or number of similar transactions by Assessee also shows that it is not done systematic and continuously over period of time. Supplementary work on or in connection with property realized, also does not suggest that it was done in nature of business but was only for easy marketability of property. Most importantly, property was sold to meet financial requirements of Assessee and not for realization of any profit. Overall consideration of all relevant material shows that motive was never to indulge in trading in land. inference one can draw from surrounding circumstances of case is that Assessee never wanted to indulge in any adventure in nature of trade so as to constitute gains on sale of property giving raise to Income from Business . We are of view that conclusions drawn by CIT(A) 21 22 ITA Nos.1106 to 1109/Kol/2013 J.C.T. Ltd. A.Y.2004-05,2006-07 to 2008-09 are just and proper. We therefore confirm order of CIT(A) and dismiss ground no.3 raised by revenue. 39. Ground No.4 raised by revenue reads as follows :- 4. Whether on facts and in circumstances of case, Ld. CIT(A) was justified in allowing Rs.8,61,892/- as provision for wealth tax for computing book profit u/s 115JB. 40. Assessee being company provisions of Sec.115JB of Act were applicable to it. While computing book profits in accordance with provisions of Sec.115JB of Act, Assessing Officer added back wealth tax provision of Rs. 8,61,892/- on ground that wealth tax being direct tax has to be included in the' book profit as is done in case of provision for income tax. 41. Before CIT(A), Assessee submitted that finding of Assessing Officer is totally unreasonable and unjustified. It was submitted that provisions of Sec.115JB of Act are silent with regard adding wealth tax provision. It was submitted that though Wealth tax is direct tax, yet law maker while enacting Sec.115JB of Act never thought it fit to include in clause (a) to Explanation to Section 115JB, provision for wealth tax. Hence, provision for wealth tax should not be added back with book profit. It was argued that Fringe Benefit Tax is also direct tax but it is allowable deduction in computation of book profit u/s. 115JB of Act and in this regard attention was drawn to Board Circular No, 8/2005 dtd. 29.08.2005 ref. FAQ No. 103. It was argued that if Assessing Officer's contention is taken as correct, then Fringe Benefit Tax should have been added with book profit. But it is not done. It was argued that Assessing Officer had also disregarded decision of Hon'ble ITAT, Kolkata given in case of Usha Martin Industries Ltd. Vs. CIT (2003) 81 TTJ (Cal) 518. Special bench of ITAT, Kolkata had decided in case of CIT Vs. Usha Martin Industries Ltd. 288 ITR (2007) 63 that there was no provision for making addition with regard to any provision for wealth tax in Explanation to 1I5JA of Act. 22 23 ITA Nos.1106 to 1109/Kol/2013 J.C.T. Ltd. A.Y.2004-05,2006-07 to 2008-09 It was argued that same explanation is also used in section 115JB. Accordingly, Assessing Officer's action was based on surmises and conjecture and thus, was unreasonable &. totally unjustified. 42. CIT(A) agreed with contentions of assessee. He held as follows : 9. Appeal on ground no. 6{i) & (ii) are against disallowance of Rs. 8,61,892/- under deduction of provision for W.T. while computing book profit u/s. 115JB. AR. has filed written submission in which he has mentioned that this issue is covered in favour of assessee vide Kolkata Tribunal Special Bench decision in case of JCIT VS. Usha Martine Industries Ltd. 2881TR (2007) 63 in its decision Hon' ble Tribunal has held 11 there is no provision for making addition with regard to any provision for Wealth Tax in explanation to Sec. 115JA. 'The same explanation is also used in Sec. 115JB of IT. Act, 1961. I have considered finding of A.O. and decision of Jurisdictional Tribunal on same issue in Usha Martine Industries case (supra). I find that this issue is squarely covered vide this order of Special Bench of Kolkata Tribunal. Thus, assessee's appeal on grounds no. 6{i) and (ii) are allowed. 43. Aggrieved by order of CIT(A) revenue has raised ground no.4 before Tribunal. 44. We have heard submissions of ld. Counsel for assessee and ld. DR. ld. Counsel for assessee relied on order of CIT(A). ld. DR relied on order of AO. ITAT in case of Usha Martine Industries Ltd. (supra) has also decided on identical issue and it has been held as follows :- 7. Now coming to provision of wealth-tax of Rs.1,25,000 made by assessee which have also been added by authorities below to net profit for computing book profit within meaning of s.115JA of Act, we hold that cl.(a) of said Explanation provides for disallowance of any provision made for income-tax only. Since term wealth-tax chargeable under WT Act, 1957, cannot be held as income-tax, provision of Rs.1,25,000 made in P&L a/c for its liability to pay wealth-tax cannot be added back to net profit for purpose of computing book profit by invoking provision of cl.(a) or any other clause being cls. (b) to (f) of Explanation of s.115JA(2) of Act. We agree with contention of learned authorized representative of assessee that provision 23 24 ITA Nos.1106 to 1109/Kol/2013 J.C.T. Ltd. A.Y.2004-05,2006-07 to 2008-09 made for wealth-tax cannot be equated to any liability towards income-tax and accordingly, cannot be disallowed while computing book profit by invoking cl.(a) of Explanation to s.115JA(2) of Act. 45. same view has also been taken by Hon ble Bombay High Court in case of CIT vs Echjay Forgings Pvt. Ltd. 251 ITR 15 (Bom). In view of aforesaid precedents of issue we do not find any merits in ground no.4 raised by revenue. Consequently ground no.4 raised by revenue is dismissed. ITA No.1108/Kol/2013 A.Y.2007-08 : 46. This is appeal by Revenue against order dated 07.02.2013 of CIT(A)- XII, Kolkata relating to AY 2007-08. 47. Ground Nos.1 to 3 raised by revenue in this appeal read as follows :- 1. Whether on facts and in circumstances of case, ld. CIT(A) was justified in allowing sum of Rs.1,79,75,892/- towards liability of Excise duty under Section 43B of I.T.Act. 2. Whether on facts and in circumstances of case, Ld. CIT(A) was justified in allowing interest on interest free loan of Rs.68,31,978/- u/s 36 (1)(iii). 3. Whether on facts and in circumstances of case, Ld. CIT(A) was justified in allowing Rs.7,46,024/- as provision for wealth tax for computing book profit u/s 115JB. 48. It was not disputed by parties before us at time of hearing that aforesaid grounds are identical to ground nos. 1,2 and 4 raised by revenue in ITA No.1107/Kol/2013 and arise from identical facts and circumstances. For reasons stated while deciding appeal in ITA No.1107/Kol/2013 we dismiss ground nos. 1 to 3 raised by revenue. 49. In result appeal by revenue is dismissed. 24 25 ITA Nos.1106 to 1109/Kol/2013 J.C.T. Ltd. A.Y.2004-05,2006-07 to 2008-09 ITA No.1109/Kol/2013 A.Y.2008-09 : 50. This is appeal by Revenue against order dated 07.02.2013 of CIT(A)- XII, Kolkata relating to AY 2008-09. 51. Ground Nos.1 to 3 raised by revenue in this appeal read as follows :- 1. Whether on facts and in circumstances of case, ld. CIT(A) was justified in allowing sum of Rs.1,10,01,948/- towards liability of Excise duty under Section 43B of I.T.Act. 2. Whether on facts and in circumstances of case, Ld. CIT(A) was justified in allowing interest on interest free loan of Rs.58,93,838/- u/s 36 (1)(iii). 3. Whether on facts and in circumstances of case, Ld. CIT(A) was justified in allowing Rs.11,83,635/- as provision for wealth tax for computing book profit u/s 115JB. 52. It was not disputed by parties before us at time of hearing that aforesaid grounds are identical to ground nos. 1,2 and 4 raised by revenue in ITA No.1107/Kol/2013 and arise from identical facts and circumstances. For reasons stated while deciding appeal in ITA No.1107/Kol/2013 we dismiss ground nos. 1 to 3 raised by revenue. 53. In result appeal by revenue is dismissed. 54. In result all appeals of revenue are dismissed. Order pronounced in Court on 19.10.2016. Sd/- Sd/- [Dr.Arjun Lal Saini] [ N.V.Vasudevan ] Accountant Member Judicial Member Dated : 19.10.2016. [RG PS] 25 26 ITA Nos.1106 to 1109/Kol/2013 J.C.T. Ltd. A.Y.2004-05,2006-07 to 2008-09 Copy of order forwarded to: 1. M/s. JCT Ltd., 18,Monilal Saha Lane, 2nd Floor, P.S.New Market, Kolkata-700013. 2. D.C.I.T., Circle-12, Kolkata. 3. CIT(A)-XII, Kolkata. 4. CIT-IV, Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata. True copy By Order Asstt.Registrar, ITAT, Kolkata Benches 26 D.C.I.T., Circle-12, Kolkata v. M/s. J.C.T. Ltd