EXCEL INDUSTRIES LTD, MUMBAI V. DCIT CEN CIR 38, MUMBAI

ITA 1067/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87870 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 30-04-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 14-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KIRIT R KAMDAR
• Assessee Lawyers: NEIL PHILIP
• Keywords: Earning of tax free income; Tax effect
• Section: 14A

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI , . . ! '# , ' $ BEFORE SHRI VIJAY PAL RAO, JM & SHRI B R BASKARAN, AM ITA NO.8278/MUM/2011: ASST.YEAR 2008-2009 DCIT CC.33 R.NO.32(1), GR. FLOOR, AAYAKAR BHAVAN M.K. RD. MUMBAI-400 020 ! ! ! ! / VS. M/S. EXCEL INDUSTRIES LTD. 184-187, EXCEL ESTATE, S.V. RD. JOGESHWARI (W) MUMBAI -400 102 PAN : AAACE2488F ( &' / // / APPELLANT) ( ()&' / RESPONDENT) ITA NO.1067/MUM/2012: ASST.YEAR 2008-2009 M/S. EXCEL INDUSTRIES LTD. 184-187, EXCEL ESTATE, S.V. RD. JOGESHWARI (W) MUMBAI -400 102 PAN : AAACE2488F ! ! ! ! / VS. DCIT CC.33 R.NO.32(1), GR. FLOOR, AAYAKAR BHAVAN M.K. RD. MUMBAI-400 020 ( &' / // / APPELLANT) ( ()&' / RESPONDENT) &' * ** * + ' + ' + ' + ' / APPELLANT BY : SHRI NEILPHILIP (DR) ()&' * + ' * + ' * + ' * + ' / RESPONDENT BY : SHRI KIRIT R. KAMDAR (AR) ! * ,-# / / / / DATE OF HEARING : 19.11.2014 ./0 * ,-# / DATE OF PRONOUNCEMENT :02 .01.2015 '1 '1 '1 '1 / O R D E R SHRI VIJAY PAL RAO ( JM) : THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 21.09.2011 OF THE CIT(A) FOR THE ASSESSMENT YEAR 2008-09. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS AS UNDER; 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFI RMING THE ACTION OF THE DEPUTY COMMISSIONER OF INCOME-TAX IN DISALLO WING AN AMOUNT OF RS 61,50,964 UNDER SECTION 14A OF THE INCOME-TAX ACT ('THE ACT') IN RESPECT OF EXPENDITURE INCURRED FOR EARNING TAX-FRE E INCOME. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE ITA NOS .1067&8278/ MUM/2011, 2 COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFI RMING THE ACTION OF THE DEPUTY COMMISSIONER OF INCOME-TAX IN TAXING ADV ANCE LICENCE BENEFIT UTILIZED/WRITTEN OFF, DFIA BENEFIT RECEIVABLE UTILI ZED / WRITTEN OFF AND ADVANCE LICENCE I DFIA OBLIGATION AGGREGATING TO RS 28,36,888, THEREBY RESULTING IN DOUBLE TAXATION OF AN AMOUNT A GGREGATING TO RS 28,36,888. 3.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF -TAX IN DISALLOWING A SUM OF RS 2226,000 OUT OF INTEREST PAID ATTRIBUTABLE TO INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE DEPUTY COMMISSIONER OF INCOME LOAN TO A SUBSIDIARY. 4. WITHOUT PREJUDICE TO THE GROUND OF APPEAL NO. 3, THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING THE ACT ION OF THE DEPUTY COMMISSIONER OF INCOME-TAX IN CONSIDERING THE RATE OF INTEREST ON BORROWINGS 14% FOR MAKING THE AFORESAID DISALLOWA NCE OUT OF INTEREST PAID. 3. GROUND NO.1 REGARDED DISALLOWANCE U/S.14A, THE A SSESSEE RECEIVED DIVIDEND OF RS.80,45,298/- FROM THE DOMESTIC COMPANIES AND RS.1 3,85,100/- FROM TAX FREE US 64 BONDS OF UTI. THUS TOTAL AMOUNT OF RS.94,30,398/- W AS CLAIMED AS EXEMPT U/S.10(34) AND U/S.10(15) OF THE I.T. ACT. THE AO NOTED THAT ASSESSEE HAS PAID INTEREST ON BORROWED FUNDS AND ALSO MADE INVESTMENT IN SHARES/U NITS. THE AO ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE TO EXPLAIN AS TO WHY D ISALLOWANCE U/S.14A NOT BE MADE. THE ASSESSEE CONTENDED BEFORE THE AO THAT ASSESSEE HAS NOT USED ANY BORROWED FUND FOR MAKING INVESTMENT IN QUESTION AND MOST OF THE I NVESTMENTS ARE VERY OLD. IT WAS FURTHER CONTENDED THAT THE ASSESSEE HAS NOT INCURRE D ANY EXPENDITURE FOR EARNING DIVIDEND INCOME THEREFORE; NO DISALLOWANCE IS CALLE D FOR U/S.14A. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND HELD THAT THE RULE 8D OF I.T. RULES IS APPLICABLE FOR THE YEAR UNDER CONSIDERATION AND ACC ORDINGLY WORKED OUT THE DISALLOWANCE OF RS.61,51,000/-THE ASSESSEE CHALLENG ED THE ACTION OF THE AO BEFORE THE CIT(A). THE CIT(A) CONFIRMED THE DISALLOWANCE M ADE BY THE AO ON THE GROUND THAT IT IS TO BE COMPUTED AS PER RULE 8D. 4. BEFORE US, LD. AR OF THE ASSESSEE HAS SUBMITTED THAT THE INVESTMENTS HELD BY THE ASSESSEE ARE OLD INVESTMENT, AND MADE FROM OWN FUND S. THEREFORE, NO INTEREST EXPENDITURE WAS INCURRED FOR INVESTMENT IN QUESTION . THE LD.AR HAS REFERRED THE DETAILS OF TIME PERIOD WHEN INVESTMENTS WERE MADE AND SUBMI TTED THAT MOST OF THE INVESTMENTS ARE VERY OLD EVEN MADE MORE THAN 10 YEARS BACK. HE HAS FURTHER CONTENDED THAT SHARES IN EXCEL CROP CARE LIMITED HAVE BEEN RECEIVED AS A RESULT OF DEMERGER OF EXCEL ITA NOS .1067&8278/ MUM/2011, 3 INDUSTRIES LTD. HENCE, THE INVESTMENT IN SHARES EXC EL CROP CARE LTD. WAS NOT MADE OUT OF BORROWED FUNDS AND ACCORDINGLY, NO EXPENDITURE O N INTEREST CAN BE ATTRIBUTED TO SUCH INVESTMENT. HE HAS POINTED OUT THAT THE INCOME FROM SHARES OF SARASWAT CO-OPERATIVE BANK LIMITED IS NOT TAX FREE INCOME, HENCE SUCH INV ESTMENT NEED TO BE EXCLUDED IN COMPUTING AVERAGE INVESTMENT FOR THE PURPOSE OF DIS ALLOWANCE U/S.14A. THE LD. AR HAS REFERRED THE EARLIER ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE AND SUBMITTED THAT ONLY 2% WAS ESTIMATED AS REASONABLE DISALLOWANCE U/ S.14A. HE HAS ALSO RELIED UPON THE DECISIONS OF THIS TRIBUNAL IN CASE OF M/S. JM FINAN CIAL LIMITED V. ACIT DATED 26.03.2014 IN ITA NO.4521/MUM/2012 AS WELL AS IN CA SE OF GARWARE WALL ROPES LIMITED, VS. ACIT DATED 15.01.2014 IN ITA NO.5408/M UM/2012 AND SUBMITTED THAT THE TRIBUNAL HAS HELD THAT SECTION 14A WILL NOT BE APPL IED IN THE CASE OF INVESTMENT IN THE SUBSIDIARY FOR THE PURPOSE OF HOLDING THE CONTROLLI NG STACK. THUS, THE LD. AR HAS SUBMITTED THAT THE DISALLOWANCE MADE BY THE AO IS L IABLE TO BE DELETED. THE LD. AR POINTED OUT THAT WHEN THE ASSESSEE ITSELF MADE A DI SALLOWANCE 10% OF THE DIVIDEND INCOME IN THE COMPUTATION OF INCOME THEN NO FURTHER DISALLOWANCE IS CALLED FOR IN THE CASE OF THE ASSESSEE. ON THE OTHER HAND, LD. DR HAS RELIED UPON THE ORDER OF THE ASSESSING OFFICER AS WELL AS CIT(A) AND SUBMITTED T HAT WHEN THE ASSESSEE HAS CLAIMED EXEMPT INCOME AMOUNTING TO RS.94,30,398/- THEN THE PROVISIONS OF SECTION 14A ARE APPLICABLE AND THE DISALLOWANCE HAS TO BE WORKED O UT AS PER RULE 8D OF THE INCOME TAX RULES. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD . THE ASSESSEE CLAIMED TO HAVE USED ITS OWN FUND AND NOT BORROWED FUND FOR INVESTMENT MADE IN THE SHARES AND BONDS. IT WAS ALS O CONTENDED BY THE ASSESSEE THAT THE INVESTMENT ARE VERY OLD AND NO EXPENDITURE WAS INCU RRED FOR EARNING DIVIDEND INCOME. FURTHER MOST OF INVESTMENTS ARE IN GROUP CONCERN FO R STRATEGIC INVESTMENT AND NOT FOR EARNING THE DIVIDEND INCOME. IT IS PERTINENT TO NOT E THAT SINCE BEGINNING THERE HAS BEEN A DISALLOWANCE U/S.14A AS IT IS EVIDENT FROM THE ORDE R OF THIS TRIBUNAL IN THE EARLIER ASSESSMENT YEAR. PRIOR TO THIS YEAR RULED 8D WAS NO T APPLICABLE THEREFORE, THE DISALLOWANCE WAS BASED ON REASONABLE ESTIMATES. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION RULE 8D IS APPLICABLE AND THE WORKING OF DISALLOWANCE HAS TO BE AS PER ITA NOS .1067&8278/ MUM/2011, 4 FORMULA PROVIDED UNDER RULE 8D AND THERE IS NO SCO PE OF ANY ESTIMATION OF DISALLOWANCE UNDER SECTION 14A. RULE 8D STIPULATES SEPARATE DISALLOWANCES FOR DIRECT AND INDIRECT EXPENDITURE AS WELL AS THE INDIRECT EX PENDITURE ON THE ACCOUNT OF INTEREST AND ADMINISTRATIVE EXPENSES. THERE IS NO DISPUTE RE GARDING THE DIRECT EXPENDITURE WHICH IS ONLY RS.835/-. THE DISPUTE BEFORE US IS REGARDIN G INDIRECT EXPENDITURE ON ACCOUNT OF INTEREST EXPENSES AS WELL AS ADMINISTRATIVE AND GEN ERAL MANAGERIAL EXPENSES. DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAS SHOWN 7 INVES TMENTS DETAILS WHICH ARE GIVEN BY THE ASSESSING OFFICER AS UNDER; SR. NO. NAME OF THE COMPANY NO. OF SHARES AMOUNT OF DIVIDEND (RS.) INVESTMENT (RS.IN LACS) 1. BANK OF INDIA 35900 53850 16.16 2. PUNJAB CHEMICALS & CROP PROTECTION LIMITED 584977 1462442 309.00 3. TRANSMETAL LIMITED 888750 1333125 177.75 4. EXCEL CROP CARE LIMITED 100000 375000 0.40 4. SARASWAT CO-OP. BANK LTD. 2500 4500 0.25 6. TIL LIMITED 4285 12855 1.53 7. TRANSPEK SILOX 1067450 4803525 286.08 OUT OF THE ABOVE 7 INVESTMENT ONLY 2 INVESTMENT VIZ THE BANK OF INDIA AND TIL LIMITED ARE NON-GROUP CONCERN. FURTHER THE INCOME F ROM THE INVESTMENT IN THE SHARES OF SARASWAT CO-OP. BANK LIMITED IS NOT TAX FREE THEREF ORE; FOR THE PURPOSE OF DISALLOWANCE UNDER SECTION 14A THE INVESTMENT IN SARASWAT CO-OP. BANK SHALL BE EXCLUDED. THE REMAINING 4 INVESTMENTS ARE IN GROUP CONCERNS OF TH E ASSESSEE. 6. WE FURTHER NOTED THAT SOME OF THE INVESTMENTS AR E VERY OLD AND THERE IS NO FREQUENT MOVEMENT OF PURCHASE AND SALE. IN CASE OF INVESTMENT IN PUNJAB CHEMICALS & CROP PROTECTION LIMITED THE LAST INVESTMENT WAS MAD E IN THE YEAR 1994-95. THEREFORE, THE INVESTMENT IS VERY OLD HOWEVER IN THE YEAR 2003 -04 BONUS SHARES WERE RECEIVED BY THE ASSESSEE. THOUGH THE ASSESSEE HAS CLAIMED TO HA VE MADE THE INVESTMENT IN ITA NOS .1067&8278/ MUM/2011, 5 PUNJAB CHEMICALS & CROP PROTECTION LIMITED AS STRAT EGIC BUSINESS INVESTMENT HOWEVER WE NOTE THAT THE ASSESSEE HAS BEEN SELLING SHARES I N THE SAID COMPANY ON REGULAR INTERVALS FIRST IN THE YEAR 1993-94 THEN 2002-03, 2 003-04 AND 2004-05. THEREFORE, INVESTMENT IN PUNJAB CHEMICALS & CROP PROTECTION LI MITED WOULD NOT FALL CATEGORY OF STRATEGIC INVESTMENT WHEN THE ASSESSEE IS SELLING O UT SHARES FREQUENTLY. SO FAR AS THE INVESTMENTS IN SUBSIDIARIES IS CONCERN THE CO-ORDIN ATE BENCH IN THIS TRIBUNAL IN CASE OF JM FINANCIAL LIMITED AS WELL AS GARWARE WALL ROPES LIMITED (SUPRA) HAS TAKEN A VIEW THAT SECTION 14A WOULD NOT BE APPLICABLE ON SUCH IN VESTMENT IN SUBSIDIARY FOR HOLDING CONTROLLING STACK. THEREFORE, THE SAID VIEW IS APPL ICABLE ONLY IN THE CASE OF SUBSIDIARY AND NOT IN THE GROUP CONCERN. AS REGARDS THE INVEST MENT IN EXCEL CROP CARE LIMITED THE SAME WAS AS A RESULT OF DEMERGER OF THE EXCEL INDUS TRIES LIMITED AND THEREFORE, IT WOULD NOT FALL UNDER THE CATEGORY OF ACQUIRING THE SHARES BY PAYMENT OF ANY CONSIDERATION. ACCORDINGLY, FOR THE PURPOSE OF COMP UTING DISALLOWANCE AS PER RULE 8D THE INVESTMENT IN SUBSIDIARIES INCLUDING EXCEL CRO P CARE LIMITED AS WELL AS THE INVESTMENT WHICH DOES NOT YIELD TAX FREE INCOME AS IN THE CASE OF SARASWAT CO-OP. BANK SHALL BE EXCLUDED FROM THE AVERAGE INVESTMENT. 7. THE ASSESSEE HAS VEHEMENTLY CONTENDED THAT ASSES SEE HAS NOT USED BORROWED FUND FOR THE PURPOSE OF INVESTMENT. IT IS PERTINENT TO NOTE THAT NEITHER THE ASSESSEE FURNISHED PROPER RELEVANT DETAILS TO SHOW AVAILABIL ITY OF ITS OWN FUND NOR THE AUTHORITIES BELOW HAVE EXAMINED THE SAID FACTUM OF AVAILABILITY FUND. THEREFORE, AVAILABILITY OF OWN FUND IN RESPECT OF THE INVESTMENT REQUIRES PROP ER VERIFICATION AND EXAMINATION AT THE LEVEL OF THE AO. ACCORDINGLY, AO IS DIRECTED TO VERIFY AND DECIDED THIS ISSUE AS PER LAW. AS REGARDS THE ADMINISTRATIVE EXPENSES THE ASS ESSEE ITSELF DISALLOWED 10% OF THE EXEMPT INCOME WITHOUT APPLYING RULE 8D. FOR THE YEA R UNDER CONSIDERATION THE COMPUTATION OF DISALLOWANCE SHALL BE AS PER THE FO RMULA PROVIDE UNDER RULE 8D AND NOT ON THE BASIS OF ESTIMATION. AS WE HAVE ALREADY DIRE CTED THE AO THAT THE INVESTMENT IN THE SUBSIDIARY AND NOT YIELDING TAXABLE INCOME SHA LL BE EXCLUDED FROM THE AVERAGE INVESTMENT THEREFORE, THE DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES SHALL BE COMPUTED ACCORDINGLY. IT IS MADE CLEAR THAT DISALL OWANCE COMPUTED UNDER RULE 8D SHALL NOT BE MORE THAN THE ACTUAL EXPENDITURE AT TRIBUTABLE FOR EARNING THE TAX FREE ITA NOS .1067&8278/ MUM/2011, 6 INCOME AND DEBITED IN THE PROFIT AND LOSS ACCOUNT. THE AO TO EAR MARK THE EXPENSES WHICH CAN BE ATTRIBUTABLE FOR EARNING TAXABLE AS WE LL AS TAX FREE INCOME. THE EXPENDITURE INCURRED EXCLUSIVELY FOR BUSINESS ACTIV ITY CANNOT BE INCLUDED IN SUCH ATTRIBUTABLE EXPENSES FOR THE PURPOSE OF DISALLOWAN CE U/S.14A. HENCE, THIS ISSUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 8. GROUND NO.2 REGARDING ADVANCE LICENCE BENEFIT UT ILIZE/WRITTEN OFF. THIS GROUND OF THE ASSESSEES APPEAL BECOMES ANFRACTUOUS IN VIE W OF FINDING ON THE GROUND NO.1 OF THE REVENUES APPEAL, ACCORDINGLY DISMISSED. 9. GROUND NO.3 & 4 REGARDING DISALLOWANCE OF INTERE ST FOR INTEREST FREE ADVANCES AND RATE OF INTEREST. 10. WE HAVE HEARD LD. AR AS WELL AS LD. DR AND CONS IDERED RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT AN IDENTICAL IS SUE HAS BEEN CONSIDERED BY THIS TRIBUNAL FOR THE ASSESSMENT YEAR 2007-08 IN PARA 4. 1 AND 5.1 AS UNDER; 4.1 AFTER HEARING BOTH THE SIDES WE FIND THE A.O. D ISALLOWED AN AMOUNT O RS.2,24,000/- OUT OF INTEREST PAID ATTRIBUTABLE TO OTHER LOANS. I N APPEAL THE LD. CIT(A) FOLLOWING THE ORDERS OF HIS PREDECESSOR FOR A.Y.1999-2000 TO 2005 -06 UPHELD THE ACTION OF THE A.O. WE FIND SIMILAR ISSUE HAD COME UP BEFORE THE TRIBUN AL IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR VIDE ITA NO.4 134/MUM/2009. WE FIND THE TRIBUNAL AT PARA NO.17&18 OF THE ORDER HAS DECIDED THE ISSUE AND RESTORED THE SAME TO THE FILE OF THE A.O. FOR FRESH ADJUDICATION. FOLLOW ING THE SAME RATIO, THIS GROUND BY THE ASSESSEE IS RESTORED TO THE FILE OF THE A>O. FOR FR ESH ADJUDICATION IN TERMS OF THE DECISION OF THE TRIBUNAL IN THE PRECEDING ASSESSMEN T YEAR. THIS GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PUR POSE. 5.1 AFTER HEARING BOTH THE SIDES WE FIND THIS IS A N ALTERNATIVE GROUND TO GROUNDS OF APPEAL NO.3&4 BY THE ASSESSEE. WE FIND THE ASSESSEE HAD TAKEN SIMILAR GROUND IN THE PRECEDING ASSESSMENT YEAR AND THE TRIBUNAL HELD THA T THIS GROUND IS CONSEQUENTIAL AND ACCORDINGLY SET ASIDE THE ISSUE TO THE FILE OF THE A.O. IN VIEW OF THE FACT THAT GROUNDS OF APPEAL NO.2 & 3 HAS ALREADY BEEN RESTORED TO THE FI LE OF THE A.O. FOR FRESH ADJUDICATION. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR THIS GROUND I S SET ASIDE TO THE FILE OF THE A.O. THIS GROUND BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. ACCORDINGLY, THE FOLLOWING EARLIER ORDER OF THIS T RIBUNAL WE SET ASIDE THE ISSUE OF DISALLOWANCE INTEREST AS WELL AS RATE OF INTEREST T O THE RECORD OF THE ASSESSING OFFICER ON SIMILAR TERMS AND DIRECTIONS. ITA NOS .1067&8278/ MUM/2011, 7 11. REVENUE HAS RAISE FOLLOWING GROUNDS: '1.WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS . 36,63,053/- MADE BY THE A.O. ON ACCOUNT OF ADVANCE LICENSE / DUTY FREE REPLENISH MENT CERTIFICATE (DFRC)/EFIA BENEFIT RECEIVABLE BY HOLDING THAT THE HON'BLE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT IN EAR LIER YEARS IN ASSESSEE'S OWN CASE.' 2. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN DELETING THE ADDITION OF RS. 96,16,892/- ON ACCOUNT OF PASS BOOK BENEFIT RECEIVABLE BY HOLDING THAT THE HON'BLE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT IN EARLIER YEA RS IN ASSESSEE'S OWN CASE.' 3.'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) WAS JUSTIFIED IN DELETING THE REVERSAL OF ADVANCE LICEN SE OBLIGATION AMOUNTING TO RS. 11,00,942/- BY HOLDING THAT THE HON'BLE TRIB UNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT IN EARLIER YEARS IN ASSE SSEE'S OWN CASE.' 12. GROUND NO.1 & 2 REGARDING TAXABILITY OF ADVANCE LICENCE/DUTY FREE REPLENISHMENT CERTIFICATE BENEFIT AS WELL AS TAXABI LITY OF PASS BOOK BENEFIT RECEIVABLE. 13. WE HAVE HEARD LD. DR AS WELL AS LD. AR AND CONS IDERED RELEVANT MATERIAL ON RECORD. IT WAS POINTED OUT THAT AN IDEN TICAL ISSUE HAS BEEN DECIDED BY THE HONBLE SUPREME COURT IN CASE OF THE ASSESSEE F OR THE ASSESSMENT YEAR 2001- 02 IN 358 ITR 295(SC). WE FIND THAT THE HONBLE SUP REME COURT WHILE DEALING WITH THE IDENTICAL QUESTION IN ASSESSEES OWN CASE HAS HELD IN PARA 21,27,28,31 &32 AS UNDER: 21. IN SO FAR AS THE PRESENT CASE IS CONCERNED, E VEN IF IT IS ASSUMED THAT THE ASSESSEE WAS ENTITLED TO THE BENEFITS UNDER THE ADV ANCE LICENCES AS WELL AS UNDER THE DUTY ENTITLEMENT PASS BOOK, THERE WAS NO CORRES PONDING LIABILITY ON THE CUSTOMS AUTHORITIES TO PASS ON THE BENEFIT OF DUTY FREE IMPORTS TO THE ASSESSEE UNTIL THE GOODS ARE ACTUALLY IMPORTED AND MADE AVAI LABLE FOR CLEARANCE. THE BENEFITS REPRESENT, AT BEST, THE HYPOTHETICAL INCOM E WHICH MAY OR MAY NOT MATERIALIZE AND ITS MONEY VALUE IS, THEREFORE, NOT THE INCOME OF THE ASSESSEE. X X X X X X X X X X X X X X X X X X X X X X X X X X.. 27. APPLYING THE THREE TESTS LAID DOWN BY VARIOUS D ECISION OF THIS COURT, NAMELY WHETHER THE INCOME ACCRUED TO THE ASSESSEE I S REAL OR HYPOTHETICAL, WHETHER THERE IS A CORRESPONDING LIABILITY OF THE O THER PARTY TO PASS ON THE BENEFITS OF DUTY FREE IMPORT TO THE ASSESSEE EVEN W ITHOUT ANY IMPORTS HAVING BEEN MADE; AND THE PROBABILITY OR IMPROBABILITY OF REALI ZATION OF THE BENEFITS BY THE ASSESSEE CONSIDERED FROM THE REALISTIC AND PRACTICA L POINT OF VIEW( THE ASSESSEE MAY NOT HAVE MADE IMPORTS), IT IS QUITE CLEAR THAT IN FACT NO REAL INCOME BUT ONLY ITA NOS .1067&8278/ MUM/2011, 8 HYPOTHETICAL INCOME HAD ACCRUED TO THE ASSESSEE AND SECTION 28(IV) OF THE ACT WOULD BE INAPPLICABLE TO THE FACTS AND CIRCUMSTANCE S OF THE CASE. ESSENTIALLY, THE ASSESSING OFFICER IS REQUIRED TO BE PRAGMATIC AND N OT PEDANTIC. 28. SECONDLY AS NOTED BY THE TRIBUNAL, A CONSISTENT VIEW HAS BEEN TAKEN IN FAVOUR OF THE ASSESSEE ON THE QUESTIONS RAISED, STA RTING WITH THE ASSESSMENT YEAR 1992-93, THAT THE BENEFITS UNDER THE ADVANCE LICENC ES OR UNDER THE DUTY ENTITLEMENT PASS BOOK DO NOT REPRESENT THE REAL INC OME OF THE ASSESSEE. CONSEQUENTLY, THERE IS NO REASON FOR US TO TAKE A D IFFERENT VIEW UNLESS THERE ARE VERY CONVINCING REASONS, NONE OF WHICH HAVE BEEN PO INTED OUT BY THE LEARNED COUNSEL FOR THE REVENUE. X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X 31. THIRDLY, THE REAL QUESTION CONCERNING US IS THE YEAR IN WHICH THE ASSESSEE IS REQUIRED TO PAY TAX. THERE IS NO DISPUTE THAT IN TH E SUBSEQUENT ACCOUNTING YEAR, THE ASSESSEE DID MAKE IMPORTS AND DID DERIVE BENEFI TS UNDER THE ADVANCE LICENCE AND THE DUTY ENTITLEMENT PASS BOOK AND PAID TAX THE REON. THEREFORE, IT IS NOT AS IF THE REVENUE HAS BEEN DERIVED OF ANY TAX. WE ARE TOL D THAT THE RATE OF TAX REMAINED THE SAME IN THE PRESENT ASSESSMENT YEAR AS WELL AS IN THE SUBSEQUENT ASSESSMENT YEAR. THEREFORE, THE DISPUTE RAISED BY T HE REVENUE IS ENTIRELY ACADEMIC OR AT BEST MAY HAVE A MINOR TAX EFFECT. TH ERE WAS, THEREFORE, NO NEED FOR THE REVENUE TO CONTINUE WITH THIS LITIGATION WH EN IT WAS QUITE CLEAR THAT NOT ONLY WAS IT FRUITLESS (ON MERITS) BUT ALSO THAT IT MAY NOT HAVE ADDED ANYTHING MUCH TO THE PUBLIC COFFERS. 32. FOR THE AFORESAID REASONS, WE DISMISS THE CIVIL APPEALS WITH NO ORDER AS TO COSTS, BUT WITH THE HOPE THAT THE REVENUE IMPLEMENT S ITS LITIGATION POLICY A LITTLE MORE PRACTICALLY AND A LITTLE MORE SERIOUSLY. THIS ISSUE IS NOW SETTLED BY THE HONBLE SUPREME CO URT IN ASSESSEES OWN CASE. ACCORDINGLY GROUND NO.1 & 2 OF THE REVENUES APPEAL ARE DISMISSED. 14. GROUND NO.3 REGARDING TAXABILITY OF ADVANCE LIC ENSE OBLIGATION REVERSED. 15. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND CONSIDERED RELEVANT MATERIAL ON RECORD. THIS ISSUE HAS BEEN CONSIDERED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.2005-06 AS WELL AS FOR THE ASSESSM ENT YEAR 2006-07. THE CIT(A) HAS DELETED THE ADDITION BY FOLLOWING EARLIE R ORDER OF THIS TRIBUNAL. IT IS PERTINENT TO NOTE THAT IN THE EARLIER YEAR TRIBUNAL HAS DELETED THE ADDITION ON THE GROUND THAT THE ASSESSEE DID NOT CLAIM THIS EXPENDI TURE IN THE EARLIER YEAR AND THEREFORE, SAME CANNOT BE TAXED AT THE TIME OF REVE RSING BACK. ACCORDINGLY, AO DIRECTED TO VERIFY THE FACT WHETHER THE EXPENDITURE OF ADVANCE LICENCE OBLIGATION IN QUESTION WAS CLAIMED BY THE ASSESSEE IN THE EARL IER YEAR OR NOT AND THEN DECIDE THIS ISSUE. ITA NOS .1067&8278/ MUM/2011, 9 16. IN THE RESULT, THE CROSS APPEALS ARE PARTLY ALL OWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THIS 2 ND DAY OF JANUARY, 2015 . '1 * ./0 2!3 02.01.2014 / * 9 SD/- SD/- ( B.R. BASKARAN ) ( VIJAY PAL RAO , ) '# / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; 2! DATED : 2 ND JANUARY, 2015. PATEL* '1 * (, :'0, '1 * (, :'0, '1 * (, :'0, '1 * (, :'0,/ COPY OF THE ORDER FORWARDED TO : 1. &' / THE APPELLANT 2. ()&' / THE RESPONDENT. 3. ; ( ) / THE CIT, MUMBAI. 4. ; / CIT(A)-9 , MUMBAI 5. 9 (,! , , / DR, ITAT, MUMBAI 6. 9> ? / GUARD FILE. '1! '1! '1! '1! / BY ORDER, ), (, //TRUE COPY// @ @@ @/ // /A A A A ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI