ADDL CIT RG 1(2), MUMBAI V. JOLLY BOARD LTD, MUMBAI

ITA 1099/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87960 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 12-01-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 07-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIVEK A PERAMPURNA
• Keywords: Earning of tax free income; Capital expenditure
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J, MUMBAI . , , !' ! . . #$% & '() , ' BEFORE SHRI D MANMOHAN, VICE PRESIDENT & SHRI N K BILLAIYA, AM ' ./ ITA NO.1099/MUM/2013 * '+* / ASSESSMENT YEAR 2007-08 THE ADDL CIT RG 1(2), MUMBAI VS. JOLLY BOARD LTD. 501 REQA CHAMBERS, 31 SIR V THACKERSEY MARG, MUMBAI- 400 020 PAN AAACJ1006G ( ,- /APPELLANT) ( ./,- /RESPONDENT) APPELLANTS BY : SHRI VIVEK A PERAMPURNA RESPONDENT BY : SHRI JITENDRA JAIN ' ' 0 1& / DATE OF HEARING :13.01.2015. 2+ 0 1& / DATE OF PRONOUNCEMENT : 16.01.2015 (3 (3 (3 (3 / O R D E R PER N K BILLAIYA, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-2, MUMBAI, DATED 01.11.2012 PERTAINING TO A.Y. 2007-08 . THE REVENUE HAS RAISED THREE SUBSTANTIVE GROUNDS OF APPEAL. 2. GROUND NO.1 RELATES TO THE RESTRICTION OF ADDITI ON OF RS.21,17,890/- MADE BY THE AO U/S 14A R.W. RULE 8D TO RS.8,42,277/-. WHIL E SCRUTINIZING THE RETURN OF INCOME, THE AO NOTICED THAT THE ASSESSEE HAS SHOWN DIVIDEND OF RS. 51,74,902/- WHICH WAS CLAIMED AS EXEMPT U/S. 10(35) OF THE I T ACT. THE ASSESSEE WAS ASKED TO GIVE DETAILS OF EXPENDITURE WHICH WERE INCURRED IN RESPECT OF EXEMPT INCOME. THE ASSESSEE CLAIMED THAT NO EXPENDITURE HAS BEEN M ADE FOR THE EARNING OF EXEMPT INCOME. THE AO WAS NOT SATISFIED, HE PROCEEDED BY APPLYING SECTION 14A R.W. RULE ITA NO.1099/MUM/2013 AY 2007-08 2 8D AND COMPUTED THE DISALLOWANCE AT RS.21,17,890/-. BEFORE THE CIT(A) IT WAS STRONGLY CONTENDED THAT APPLICABILITY OF RULE 8D IS PROSPECTIVE AND IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION. THE CIT(A) WAS C ONVINCED THAT RULE 8D IS APPLICABLE FROM AY 2008-09 AS PER THE DECISION OF T HE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. 3 28 ITR 81. THE CIT(A) FURTHER FOUND THAT ALL THE INVESTMENTS MADE IN MUTUAL FUNDS WERE MADE FROM THE MATURITY PROCEEDS OF MUTUAL FUNDS, WHICH WERE INVESTED EARLI ER FROM THE INTEREST FREE ADVANCES OF RS.25 CRORES RECEIVED FROM LODHA DEVELO PERS PRIVATE LTD. HOWEVER, THE CIT(A) OBSERVED THAT THE INVESTMENT OF RS.5.80 CRORES WAS MADE FROM THE CASH CREDIT ACCOUNT ON WHICH THE ASSESSEE PAID INTEREST OF RS.5,54,287/- THE CIT(A) WAS CONVINCED THAT THE DISALLOWANCE ON ACCOUNT OF INTER EST SHOULD BE RESTRICTED TO RS.5,54,287/-. IN SO FAR AS DISALLOWANCE ON ACCOUN T OF ADMINISTRATIVE EXPENSES, THE CIT(A) DIRECTED THE SAME TO BE TAKEN AT 5% AND COMP UTED THE DISALLOWANCE AT RS.2,87,450/- 3. IN SO FAR AS SECOND PART OF THIS ISSUE IS CONCER NED I.E. DISALLOWANCE OUT OF ADMINISTRATIVE EXPENSES, THE CIT(A) HAS RESTRICTED THE DISALLOWANCE AT 5% AND THE SAME IS CONSIDERED TO BE REASONABLE AND NO INTERFER ENCE IS CALLED FOR. IN SO FAR AS THE DISALLOWANCE OUT OF INTEREST IS CONCERNED, WE F IND THAT NEITHER THE AO NOR THE FIRST APPELLATE AUTHORITY HAS LOOKED INTO THE FACT AS TO WHAT INVESTMENTS WERE MADE AND WHAT WERE THE POSITION OF AVAILABILITY OF THE O WN FUNDS AS WELL AS BORROWED FUNDS. THE CIT(A) HAS SIMPLY MENTIONED THAT THE IN VESTMENT HAS COME OUT OF CASH CREDIT ACCOUNT. IN OUR CONSIDERED OPINION THIS NEE DS FURTHER VERIFICATION. WE ACCORDINGLY RESTORE THIS ISSUE TO THE FILE OF THE A O. THE AO IS DIRECTED TO VERIFY THE AVAILABILITY OF FUNDS ON THE DATES OF INVESTMENT. THE AO IS ALSO DIRECTED TO VERIFY WHETHER THE INVESTMENT HAS BEEN MADE OUT OF BORROWE D FUNDS OR OUT OF OWN FUNDS AND DECIDE THE ISSUE AFRESH AS PER THE PROVISIONS O F LAW. GROUND NO.1 AND 2 ARE ALLOWED IN PART FOR STATISTICAL PURPOSES. 4. GROUND NO.3 RELATES TO ALLOWABILITY OF EXPENDITU RE OF RS.12,89,731/- ON ACCOUNT OF MACHINERY DISMANTLING CHARGES. DRAWING SUPPORT FROM THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SITALPUR SUGAR WORKS LTD. 49 ITR 160, THE AO CONSIDERED DISMANTLING CHARGES OF RS.12,89,731/- AS CAPITAL EXPENDITURE. THE ITA NO.1099/MUM/2013 AY 2007-08 3 CIT(A) ALLOWED THE EXPENDITURE BY DRAWING SUPPORT F ROM SPECIAL BENCH DECISION OF THE TRIBUNAL IN THE CASE OF JCIT VS ITC LTD. 112 IT D 57. THE CIT(A) OBSERVED THAT THE SPECIAL BENCH, KOLKATA, HAS DISTINGUISHED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SITALPUR SUGAR WORKS LTD. (SUP RA). WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FINDINGS OF THE AO AND ALSO TH AT OF THE FIRST APPELLATE AUTHORITY. WE FIND THAT THE FACTS OF THE CASE ARE COVERED BY T HE DECISION OF THE TRIBUNAL SPECIAL BENCH, KOLKATA IN THE CASE OF ITC LTD (SUPR A), THE CIT(A) HAS CORRECTLY FOLLOWED THE DECISION WHICH HAS DISTINGUISHED DECIS ION OF THE HONBLE SUPREME COURT IN THE CASE OF SITALPUR SUGAR WORKS LTD. (SUPRA). NO INTERFERENCE IS THEREFORE CALLED FOR. GROUND NO.3 IS ACCORDINGLY DISMISSED. 5. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF JANUARY, 2015. SD/- SD/- (D MANMOHAN) (N K BILLAIYA) /VICE PRESIDENT & & & & '() '() '() '() / ACCOUNTANT MEMBER MUMBAI; 5( DATED : 16 TH JANUARY, 2015. SA (3 (3 (3 (3 0 00 0 .1# .1# .1# .1# 6#+1 6#+1 6#+1 6#+1 / COPY OF THE ORDER FORWARDED TO : 1. ,- /THE APPELLANT. 2. ./,- / THE RESPONDENT. 3. 7 ( ) / THE CIT(A), MUMBAI. 4. 7 / CIT 5. #'89 .1 , , / DR, J BENCH, ITAT, MUMBAI (3 ' / BY ORDER, '/#1 .1 //TRUE COPY// / ' (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI