HIND FILTERS LIMITED, MUMBAI V. ACIT, CIRCLE-3(1)(2), Mumbai

ITA 101/MUM/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 0185 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2014-2015
• Appeal Filed On: 07-01-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GURBINDER SINGH
• Assessee Lawyers: MANSI PADHIAR
• Keywords: Opportunity of being heard; Earning of tax free income; Additional evidence; Bad and doubtful debts; Rule 8D
• Section: 234B; 14A; 201

Judgement Text

1 I.T.A. NO.101/MUM/2019 IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) I.T.A. NO. 101 /MUM/2019 (ASSESSMENT YEAR 20 14 - 15 ) HIND FILTERS LIMITED 1521 & 1522, MAKER CHAMBERS V 221, BACKBAY RECLAMATION, NARIMAN POINT, MUMBAI - . PAN : BPLHO0039E VS ACIT, CIR. 3(1)(2), MUMBAI APPELLANT RESPONDENT APPELLANT BY MS. MANSI PADHIAR, AR RESPONDENT BY SHRI GURBINDER SINGH , DR DATE OF HEARING 25 - 02 - 2021 DATE OF PRONOUNCEMENT 1 1 - 0 3 - 2021 O R D E R PER SAKTIJIT DEY (JM) - THIS IS AN APPEAL BY THE ASSESSEE AGAINST ORDER DATED 18 - 1 0 - 201 8 OF LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - 8 , MUMBAI FOR THE ASSESSMENT YEAR 20 14 - 15 . 2. IN GROUNDS 1 & 2, ASSESSEE HAS CHALLENGED THE DISALLOWANCE MADE U NDER SECTION 14A OF THE INCOME TAX ACT , 1961 R.W.R.8D. 2 I.T.A. NO.101/MUM/2019 3. BRIEFLY THE FACTS ARE, IN COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD EARNED EXEMPT INCOME BY WAY OF DIVIDEND AMOUNTING TO RS.1,19,32,869/ - . W HEREAS , NO DI SALLOWANCE OF EXPENDITURE ATTRIBUTABLE TO EARNING OF EXEMPT INCOME HAS BEEN MADE BY THE ASSESSEE . THEREFORE, HE CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY DISALLOWANCE SHOULD NOT BE COMPUTED IN TERMS OF RULE 8D. THOUGH , THE ASSESSEE OBJECTED TO THE PROP OSED DISALLOWANCE; HOWEVER, THE ASSESSING OFFICER REJECTING SUCH OBJECTION, PROCEEDED TO DISALLOW AN AMOUNT OF RS.13,70,883/ - COMPRISING OF DISALLOWANCE OF INTEREST EXPENDITURE U NDER RULE 8D(2)(II) AMOUNTING TO RS.1,71,737/ - AND ADMINISTRATIVE EXPENDITURE OF RS.12,29,146/ - U NDER RULE 8D(2)(III) . ASSESSEE CONTESTED THE AFORESAID DISALLOWANCE BEFORE THE FIRST APPELLATE AUTHORITY. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE CONTEXT OF FACTS AND MATERIALS ON RECORD, LEARNED COMMISSIONER (APPEALS) D ELETED THE DISALLOWANCE OF INTEREST EXPENDITURE COMPUTED U NDER RULE 8D(2)(II) . H OWEVER, HE SUSTAINED THE DISALLOWANCE MADE U NDER RULE 8D(2)(III). FURTHER, LEARNED COMMISSIONER (APPEALS) DIRECTED THE ASSESSING OFFICER TO DELETE THE SUO MOT U DISALLOWANCE OF RS.4,05,290 MADE BY THE ASSESSEE U NDER SECTION 14A OF THE ACT. 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED, WHILE COMPUTING DISALLOWANCE U NDER RULE 8D(2)(I I I) R.W.S. 14A OF THE ACT, THE ASSESSING OFFICER SHOULD ONLY CONSIDER THOSE INVESTME NTS , WHICH HAVE YIELDED EXEMPT INCOME DURING THE YEAR. FOR SUCH PROPOSITION, HE RELIED UPON THE DECISION OF ITAT, DELHI SPECIAL BENCH IN CASE OF ACIT VS VIREET INVESTMENTS (P) LTD 165 ITD 27 (DEL). 5. THE LEARNED D EPARTMENTAL R EPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND LEARNED COMMISSIONER (APPEALS). 3 I.T.A. NO.101/MUM/2019 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. IN OUR VIEW, THE CONTENTION OF LEARNED COUNSEL FOR THE ASSESSEE THAT ONLY THOSE INVESTMENTS WHICH HAVE YIELDED EXEMPT INCOME DURING THE YEAR SHOULD BE CONSIDERED FOR COMPUTING DISALLOWANCE U NDER RULE 8D(2)(I I I) IS ACCEPTABLE IN VIEW OF THE RATIO LAID DOWN IN CASE OF ACIT VS VIREET INVESMENTS (P) LTD (SUPRA). ACCORDINGLY, WE DIRECT T HE ASSESSING OFFICER TO COMPUTE THE DISALLOWANCE U NDER RULE 8D(2)(I I I) R.W.S. 14A OF THE ACT, AFTER CONSIDERING ONLY THOSE INVESTMENTS WHICH HAVE YIELDED EXEMPT INCOME DURING THE YEAR. THESE GROUNDS ARE PARTLY ALLOWED. 7. IN GROUND 3, ASSESSEE HAS CHALLENGED DISALLOWANCE OF BAD DEBTS WRITTEN OFF OF RS.50 LAKHS. 8. BRIEFLY THE FACTS ARE, IN COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.50 LAKHS TOWARDS BAD DEB TS WRITTEN OFF. AFTER CALLING UPON THE ASSESSEE TO FURNISH THE DETAILS AND EXAMINING THEM, HE FOUND THAT THE BAD DEBTS REPRESENT INTER CORPORATE DEPOSITS (ICDS) GIVEN TO M/S ANKUR DRUGS & PHARMACEUTICAL LTD . S TATING THAT LENDING IS NO T A BUSINESS OF THE AS SESSEE AND IT IS IN THE NATURE OF A CAPITAL LOSS, THE ASSESSING OFFICER DISALLOWED ASSESSEES CLAIM OF DEDUCTION OF R.50 LAKHS. HOWEVE R , HE ALLOWED THE INTEREST ON BAD DEBTS WRITTEN OFF AMOUNTING TO RS.42,383/ - . LEARNED COMMISSIONER (APPEALS) ALSO SUSTAINE D THE AFORESAID DISALLOWANCE. 9. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED, IT IS NOT THE FIRST TIME THAT THE ASSESSEE HAS GIVEN ICDS TO VARIOUS PARTIES. THEREFORE, THE REASONING OF THE ASSESSING OFFICER THAT THE ASSESSEE IS NOT IN THE BUSINESS OF LEN DING IS INCORRECT. FURTHER, SHE SUBMITTED, IN THE PRECEDING ASSESSMEN T YEARS, THE ASSESSEE HAD EARNED INTEREST INCOME ON THE ICDS GIVEN TO M/S ANKUR DRUGS & PHARMACEUTICAL 4 I.T.A. NO.101/MUM/2019 LTD AND OFFERED IT AS INCOME UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION WH ICH HAS BEEN ACCEPTED BY THE DEPARTMENT. SHE SUBMITTED, EVEN IN THE IMPUGNED ASSESSMENT YEAR, THE ASSESSING OFFICER HAS ALLOWED DEDUCTION IN RESPECT OF INTEREST ON ICDS WRITTEN OFF AS BAD DEBT. THEREFORE, SHE SUBMITTED, WHEN PART OF THE DEBT HAS BEEN TAKEN INTO ACCOUNT FOR COMPUTING PROFIT FOR EARLIER ASSESSMENT YEAR, IT FULFILLS THE CONDITIONS OF SECTION 36(1)(VII) OF THE ACT; HENCE, SHOULD BE ALLOWED. IN SUPPORT OF SUCH CONTENTION, SHE RELIED UPON A DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS PADAMSEE PULP & PAPER MILLS LTD (2016) 634 TAXMANN.COM 283 (BOM). FURTHER, TO DEMONSTRATE THAT THE ASSESSEE HAS OFFERED INTEREST INCOME EARNED ON THE ICDS IN THE PRECEDING ASSESSMENT YEAR, LEARNED COUNSEL FOR THE ASSESSEE SOUGHT PERMISSION OF THE BENCH TO PRODUCE CERTAIN DOCUMENTARY EVIDENCE S BY WAY OF ADDITIONAL EVIDENCE WITH A PRAYER TO ADMIT THEM. 10. THE LEARNED D EPARTMENT A L R EPRESENTATIVE, WHILE STRONGLY RELYING UPON THE OBSERVATIONS OF THE DEPARTMENTAL AUTHORITIES, FURTHER SUBMITTED THAT SINCE THE ADDITIONAL EVIDENCE HAS BEEN FILED FOR THE FIRST TIME, THE ISSUE MAY BE RESTORED BACK TO THE ASSESSING OFFICER FOR FRESH ADJUDICATION. 11. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIALS ON RECORD. UNDISPUTEDLY, ASSESSEES CLAIM OF BAD DEBT WRITTEN OFF ON ACCOUNT OF ICDS GIVEN TO AN ENTITY HAS BEEN REJECTED ON THE GROUND THAT THE ASSESSEE IS NOT IN MONEY LENDING BUSINESS AND SECONDLY, IT IS IN THE NATURE OF CAPITAL LOSS. HOWEVER, IT IS THE CLAIM OF THE ASSESSEE THAT WHEN A PART OF THE DEBT ALONG WITH INTEREST EARNED ON IT HAS BEEN CONSIDERED FOR COMPUTING PROFITS AND GAINS OF BUSINESS OR PROFESSION IN EARLIER ASSESSMENT YEARS AND OFFERED TO TAX, THE REST OF IT, WHICH HAD BECOME BAD DEBT, CANNOT BE DISALLOWED. IN THIS CONTEXT, THE ASSESSEE HAS FURNISHED CERTAIN 5 I.T.A. NO.101/MUM/2019 DOCUMENTARY EVIDENCES, AS ADDITIONAL EVIDENCE. CONSIDERING THE FACT THAT THESE EVIDENCES NOW FURNISHED BY THE ASSESSEE, MAY HAVE A CRUCIAL BEARING FOR DECIDING THE ISSUE, WE ADMIT THEM. HOWEVER, IT IS ALSO A FACT THAT THESE EVIDENCES WERE NOT FILED EARLIER BEFORE THE DEPARTMENTAL AUTHORIT IES . THEREFORE, ASSESSEES CLAIM HAS TO BE FACTUALLY VERIFIED VIS - - VIS THE ADDITIONAL EVIDENCES FURNISHED , AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY, WE RESTORE THE ISSUE TO THE ASSES SING OFFICER FOR FRESH ADJUDICATION, AFTER VERIFYING ASSESSEES CLAIM IN THE CONTEXT OF VARIOUS EVIDENCES FILED INCLUDING THE ADDITIONAL EVIDENCE S NOW FILED BEFORE US. THE ASSESSING OFFICER IS ALSO DIRECTED TO EXAMINE THE RATIO LAID DOWN IN CASE OF CIT VS PADAMSEE PULP & PAPER MILLS LTD (SUPRA) AND ITS APPLICABILITY TO THE FACTS OF ASSESSEES CASE. NEEDLESS TO MENTION, THE ASSESSING OFFICER MUST PROVIDE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE DECIDING THE ISSUE. THIS GROUND IS ALLOWED FOR STATISTIC A L PURPOSE S . 12. GROUND 4 ON THE LEVY OF INTEREST U NDER SECTION 234B OF THE ACT BEING CONSEQUENTIAL, IS NOT REQUIRED TO BE ADJUDICATED AT THIS STAGE. 13. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON 1 1 /0 3 /2021. S D / - S D / - (N.K.PRADHA N) ( SAKTIJIT DEY ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DT : 1 1 /0 3 /2021 PAVANAN 6 I.T.A. NO.101/MUM/2019 COPY TO : 1. APPELLANT 2. RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) 5. THE DR, ITAT, MUMBAI 6. GUARD FILE /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI