GODREJ INDUSTRIES LIMITED, MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX (HQ)(JUDL.) COMMISSIONER OF INCOME TAX - 14, MUMBAI

ITA 1148/MUM/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 0097 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: G
• Assessment Year: 2012-2013
• Appeal Filed On: 27-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: FAROOKH IRANI
• Keywords: Depreciation; Earning of tax free income; Rule 8D
• Section: 14A; 115JB; 37(1); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “G”, MUMBAI BEFORE SHRI G.S. PANNU, HON’BLE PRESIDENT AND SHRI SAKTIJIT DEY, HON’BLE JUDICIAL MEMBER ITA No. 1148/MUM/2018 Assessment Year: 2012-13 Godrej Industries Ltd., Kalyaniwalla & Mistry LLP, 2 nd Floor, Esplanade House, 29, Hazarimal Somani Marg, Fort, Mumbai - 400001 PAN: AAACG2953R Vs. The Assistant Commissioner of Income Tax, (HQ) (Judl), CIT-14, Aayakar Bhavan, 4 th Floor, M.K. Marg, Mumbai - 400020 (Appellant) (Respondent) ITA No. 982/MUM/2018 Assessment Year: 2012-13 Jt. Commissioner of Income Tax, (OSD)-14(1)(2), Room No. 475, 4 th Floor, Aayakar Bhavan, Maharashi Karve Road, Mumbai - 400079 Vs. Godrej Industries Ltd., Pirojshanagar, Eastern Express Highway, Vikhroli, Mumbai - 400079 PAN: AAACG2953R (Appellant) (Respondent) Assessee by : Shri Farookh Irani (AR) Revenue by : Shri Neehar Ranjan Pandey (CIT DR) Date of Hearing : 21/10/2021 Date of order: 17/01/2022 O R D E R PER BENCH Captioned cross appeals arise out of order dated 17.11.2017 of learned Commissioner of Income Tax (Appeals)-22, Mumbai for the assessment year 2012-13. 2 ITA Nos. 1148 & 982/MUM/2018 Assessment Year: 2012-13 ITA No. 1148/Mum/2018 (Appeal by the assessee) 2. In ground no. 1, assessee has challenged the disallowance of interest expenditure under rule 8D(2)(ii) r.w.s. 14A of the Income Tax Act, 1961. 3. Briefly the facts are, the assessee is a resident company engaged in the business of manufacturing/processing and trading in industrial chemicals. For the assessment year under dispute, assessee filed its return of income on 28.11.2012 declaring total loss of Rs. 8,82,53,286/- under the normal provisions of the Act and book profit of Rs. 8,43,45,190/- under section 115JB of the Act. In course of assessment proceedings, the assessing officer (AO) noticed that in the year under consideration the assessee has earned exempt income, whereas, assessee has suo motu disallowed an amount of Rs. 78,40,364/- under section 14A of the Act. To verify the correctness of disallowance made by the assessee, the AO called for necessary details and ultimately proceeded to compute disallowance under rule 8D r.w.s. 14A at Rs. 2640.64 lacs. The amount so disallowed included interest expenditure of Rs. 2133.88 lacs disallowed under rule 8D(2)(ii). In appeal proceeding learned Commissioner (Appeals) upheld the disallowance. 4. Before us, learned Counsel for the assessee submitted, while deciding identical issue in assessee’s own case in assessment year 2011-12, the Tribunal has deleted the disallowance. Thus, he submitted, the issue is squarely covered by the decision of the Tribunal. 5. Learned Departmental Representative, though, agreed that the issue is covered of the decision of the Tribunal, however, he relied upon the observations of the Departmental Authorities. 3 ITA Nos. 1148 & 982/MUM/2018 Assessment Year: 2012-13 6. We have considered rival submissions and perused the materials on record. The primary contention of the assessee contesting the disallowance of interest expenditure is, interest free funds available with the assessee is much more than the investment made. Notably, while deciding identical issue in assessee’s own case in assessment year 2011-12 in ITA No. 1823- 1858/Mum/2017 dated 05.07.2019, the Tribunal has held as under:- “6. We have heard rival contentions and gone through the facts and circumstances of the case. We noted that the CIT(A) has categorically given a finding that whatever the investments made by assessee out of own funds are the interest free funds available with the assessee in the instruments giving rise to exempt income, the same should not be disallowed. This view has support of Hon’ble Bombay High Court in the case of CIT Vs. HDFC Bank Ltd., [366 ITR 505]. The CIT(A) has discussed the availability of own funds and even in earlier years, identical is the position, the CIT(A) has discussed this in para 7.3 of this order which is reproduced as under: “ 7.3 I have considered the facts and circumstances of the case and the appellant’s submissions. I find that this issue of disallowance u/s 14A has been considered by my Id. predecessors and the Hon'ble ITAT for various earlierA.Y.s. It is seen that my ld. predecessor for Assessment Years 2008-09, 2009-10 and 2010-11 has followed Rule 6D but has recomputed the disallowance and has excluded certain investments based on the relevant facts for each Assessment Year, on the ground Thai the Hon'ble ITAT had given a finding that there were no borrowings attributable to investments in earlier years and consequent thereto, if such investments were still held by the Appellant Company in the current year, then no disallowance of interest expenditure was warranted on such investments. Along the same line of earlier years, the appellant has demonstrated that the investments of Rs 6,804.16 lakhs made during the year under consideration was out of its net own available funds of Rs. 11,024.66 lakhs............................” 7. Clearly, the available interest free funds with the assessee i.e. the own funds are more than the investment made in the instrument giving rise to exempt income and investment is out of mixed funds. Hence, the 4 ITA Nos. 1148 & 982/MUM/2018 Assessment Year: 2012-13 presumption is in favour of assessee in view of the decision of Hon’ble High Court in the case of HDFC Bank Ltd. (supra). Hence, we find no infirmity in the order of CIT(A) and this issue of Revenue’s appeal is dismissed.” 7. The Revenue has not disputed the fact that the interest free fund available with the assessee in the year under consideration is more than the investment made. Therefore, respectfully following the decision of the coordinate Bench, as referred to above, we delete the disallowance made by the AO. Ground no. 1 is allowed. 8. In ground no. 2 to 4, the assessee has raised the issue of non- applicability of section 14A read with Rule 8D to strategic investments made in subsidiary companies. 9. At the outset, learned Counsel for the assessee fairly submitted that the issue has to be decided against the assessee in view of the decision of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. Vs. CIT (402 ITR 640). 10. Learned Departmental Representative agreed with the aforesaid submission. 11. Having considered rival submissions and keeping in view the ratio laid down by the Hon’ble Supreme Court in case of Maxopp Investment Ltd. Vs. CIT (supra), we hold that assessee’s contention that provisions of section 14A read with Rule 8D would not be applicable to strategic investments made in subsidiary companies is unacceptable. Accordingly, we dismiss these two grounds. 5 ITA Nos. 1148 & 982/MUM/2018 Assessment Year: 2012-13 12. In ground no. 3, assessee has challenged disallowance of administrative expenditure under Rule 8D(2)(iii) r.w.s. 14A of the Act. Learned Counsel for the assessee submitted, the assessee has suo motu disallowed expenses which are directly relatable to the earning of exempt income as per Rule 8D(2)(i). He submitted, the assessee has furnished the specific details of such expenditure before the Departmental Authorities. Further, he submitted, besides these expenditures, the assessee has not incurred any other expenditure. He submitted, identical disallowance made in assessment year 2011-12 was deleted by restricting the disallowance to the extent of suo motu disallowance made by the assessee. 13. Learned Departmental Representative relied upon the observations of the Departmental Authorities. 14. We have considered rival submissions and perused the materials on record. Undisputedly, the assessee on its own has disallowed an amount of Rs. 78,40,364/- towards expenditure incurred for earning the exempt income. While deciding identical issue in assessee’s own case in assessment year 2011- 12 (supra) has restricted the disallowance under section 14A read with Rule 8D(2) to the extent of suo motu disallowance made by the assessee. The observations of the Tribunal in this regard are as under:- “8. As regards the ground raised by assessee relating to disallowance of administrative and other expenses under Rule 8D2(iii) of the Rules, we noted that the assessee has made suo motto disallowance of ₹46,85,029/-, this will meet any anticipated cost that some expenditure was incurred by the company. At best cost of the funding and investment department of the company which has been assigned the task of managing the investment portfolio of the company as one of their many responsibility could possibly be covered. The said funding 6 ITA Nos. 1148 & 982/MUM/2018 Assessment Year: 2012-13 and investment department is in-charge of the financial activities of the company besides handling strategic function. Hence, we are of the view that the expenditure attributable to the earning of dividend income which has been offered by assessee suo motto for disallowance u/s.14A of the Act r.w.r. 8D2(iii) amounting to ₹46.85 Lakhs is reasonable. 7. As regards the issue of order of CIT(A), directing the AO to take the average rate of investment by excluding from the total investments, the investment income from which are subject to tax and the investment in subsidiary companies, excluding investments which are giving rise to income which are subject to tax, we are of the view that the assessee suo motto disallowed a sum of ₹46.85 Lakhs, which is quite reasonable and AO is directed to restrict to that extent only. This issue of assessee’s appeal is allowed and that of Revenue is dismissed.” 15. Facts being identical, respectfully following the aforesaid observations of the coordinate Bench we direct the AO to restrict the disallowance to extent of suo motu disallowance made by the assessee. This ground is allowed. 16. In ground no. 5, the assessee has contested the disallowance made under section 14A read with Rule 8D while computing book profit under section 115JB of the Act. 17. We have considered rival submissions and perused the material on record. This issue is no more res integra in view of the decision of Special Bench of the Tribunal in case of ACIT vs. Vireet Investment Pvt. Ltd. (82 taxmann.com 415). In fact, following the aforesaid decision of the Special Bench, the coordinate Bench in assessee’s own case in assessment year 2011- 12 (supra) has decided the issue as under: “9. As regards the disallowance made by AO and restricted by CIT(A) of expenses relatable to exempt income u/s.14A of the Act r.w.r.8D(2) while computing book profits u/s.115JB of the Act, we noted that this issue is squarely covered in favour of assessee and against Revenue by the decision of the Special Bench of this Tribunal in the case of ACIT Vs. 7 ITA Nos. 1148 & 982/MUM/2018 Assessment Year: 2012-13 Vireet Investment Pvt. Ltd., in ITA No.502/Del/2012, dt.16-06-2017, ITAT-Delhi, wherein it was held that - the provisions of Section 14A r.w.r.8D(2) of the Rules will not apply wherever book profit is computed u/s.115JB of the Act. Respectfully following the said decision of the Special Bench, we direct the AO not to make any disallowance under rule 8D(2) while computing book profits u/s.115JB of the Act. This issue of assessee’s appeal is allowed.” 18. Respectfully following the decision of the coordinate Bench, as referred to above, we direct the AO not to make any disallowance under Rule 8D(2) r.w.s. 14A while computing book profit under section 115JB of the Act. This ground is allowed. 19. In ground no. 6, the assessee has challenged the disallowance of amortization of the premium paid on leasehold land. Briefly the facts are, in the return of income for the year under consideration the assessee had claimed deduction of Rs. 1,16,125/- towards amortization of premium paid towards leasehold land. However, both the AO and learned Commissioner (Appeals) disallowed the claim. 20. Before us, learned Counsel for the assessee fairly submitted that in the preceding year the Tribunal has decided the issue against the assessee. Learned Departmental Representative agreed with the aforesaid submission. 21. Having considered rival submissions and perused the materials on record, we find, while deciding identical issue in assessee’s own case in assessment year 2011-12 (supra), the Tribunal has held as under:- “11. As regards to the said ground, it is observed that the issue involved therein relating to disallowance amounting to ` 1,16,125/- made by the A.O. and confirmed by the CIT(A) on account of amortization of premium paid by the assessee for leasehold land is 8 ITA Nos. 1148 & 982/MUM/2018 Assessment Year: 2012-13 squarely covered against the assessee by the orders of the Tribunal in assessee’s own case for earlier years i.e. A.Ys. 2006-07 to 2010-11. Respectfully following the said orders of the Tribunal, we confirm the disallowance made by the A.O. and sustained by the CIT(A) on this issue and dismiss ground No. 7 of the assessee’s appeal. This issue of assessee’s appeal is dismissed.” 22. Facts being identical, respectfully following the consistent view of the co- ordinate Bench, we uphold the disallowance. This ground is dismissed. 23. In ground no. 7, assessee has challenged the addition made on account of unutilized Cenvat credit of Rs. 73,85,146/-. 24. We have considered rival submissions and perused the materials on record. It is a common point between the parties that identical issue arising in assessee’s own case in assessment year 2011-12 has been decided in favour of the assessee following the decision of the Hon’ble jurisdictional High Court in assessee’s own case. We find, identical issue came up for consideration before the Tribunal in assessee’s own case in assessment year 2011-12 (supra). While deciding the issue, the Tribunal has held as under:- “12. The next common issue in these cross appeals is as regards the order of CIT(A), deleting the addition of un-utilized CENVAT Credit of ₹ 2,17,32,640/- by directing the AO to recast the accounts of excise duty and other taxes. For this Assessee has raised the following ground No. 8: - “The learned Commissioner of Income Tax (Appeals) erred in not following the Appellate Orders of earlier years and in not deleting the disallowance concerning the unutilized Cenvat credit of ₹2,17,32,640/- and in directing the Assessing Officer to recast the accounts of the Appellant by considering the element of excise duty and other taxes in the opening stock, purchases, sales and inventory” Revenue has raised the following Ground No.2: - 9 ITA Nos. 1148 & 982/MUM/2018 Assessment Year: 2012-13 “On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of ₹2,17,32,640/- as CENVET Credit on closing stock” 13. We have heard rival contentions and gone through the facts and circumstances of the case. We noted that the CIT(A) has considered the earlier year’s order of ITAT and CIT(A) particularly referred to the order of predecessor CIT(A) for the AY.2006-07, dt.20-12-2010, wherein the matter was sent back to the file of AO with a direction to recast the accounts of the assessee by considering the elements of excise and other taxes in the opening stock, purchases, sales and inventory. The increase, if any, on account of these adjustments should be added to the income of assessee. We find that this issue is squarely covered in favour of assessee and against Revenue in assessee’s own case by the decision of the Hon'ble Bombay High Court for the AY.2008-09 in ITA No.1126 of 2016 dated 09.01.2016, wherein Hon’ble Bombay High court held as under: - “2 The issue pertains to inclusion of cenvat credit balance as part of the closing stock. We noticed that the Supreme Court in the case of Commissioner of Income Tax v/s Indo Nippon Chemicals Co Ltd reported in 261 ITR 275 confirmed the decision of the High Court in which the accounting practice consistently followed by the Assessee of excluding Modvat credit (which was prevailing at the relevant time and which was later on replaced by cenvat in the valuation of closing stock.) Following the judgment of the Supreme Court in the case of Indo Nippon Chemicals Co Ltd (supra), a Division Bench of this Court in the case of Commissioner of Income Tax v/s Diamond Dye Chem Ltd 396 ITR 536 dismissed the Revenue's Appeal making following observations: - “We have considered the submissions. It is not disputed that the assessee was liable to excise duty. The assessee got credit in the excise duty already paid on the raw materials purchased by it and utilized in the manufacturing of excisable goods. The assessee was adopting the exclusive method, i.e., valuing the raw materials on the purchase price minus (-) the Modvat credit. The same would be permissible. The apex court in the case of Indo Nippon Chemicals Co. Ltd (supra) while affirming the order of the High Court, has observed that the income was not generated to the extent of Modvat credit or unconsumed raw material. Merely because the Modvat credit was irreversible credit offered to 10 ITA Nos. 1148 & 982/MUM/2018 Assessment Year: 2012-13 manufacturers upon purchase of duty paid raw materials, that would not amount to income which was liable to the taxed under the Act. It is also held that whichever method of accounting is adopted, the net result would be the same” 14. Respectfully, following the Hon’ble Bombay High court, we allow this issue of assessee’s appeal and dismiss the issue of revenue’s appeal.” 25. Facts being identical, respectfully following the decision of the co- ordinate Bench in assessee’s own case, we allow assessee’s ground. 26. Ground no. 8 of the assessee reads as under:-. “8) The learned Commissioner of Income Tax (Appeals) erred in holding that the Hon’ble ITAT had decided the issue concerning the value to be adopted with regards to the opening written down value of the block of assets against the Appellant. Having regard to the facts of the case and the provisions of law, the Appellant submits that the Assessing Officer be directed to accept the written down value of the block of assets and to allow depreciation, as claimed by the Appellant as per its Return of Income.” 27. At the outset, the learned Counsel for the assessee fairly submitted that in earlier years the Tribunal has decided the issue against the assessee. Learned Departmental Representative agreed with the aforesaid submission. 28. Having considering rival submissions, we find, while deciding identical issue in assessee’s own case in assessment year 2011-12 (supra), the co- ordinate Bench has held as under:- “15. The next issue in this appeal of assessee relates to depreciation on the opening written down value of the block of assets. For this assessee has raised the following ground No. 9: - “Gr.9. The learned Commissioner of Income Tax (Appeals) erred in holding that the Hon'ble ITAT had decided the issue concerning the value to be adopted with regards to the opening 11 ITA Nos. 1148 & 982/MUM/2018 Assessment Year: 2012-13 written down value of the book of assets against the Appellant. Having regard to the facts of the case and the provisions of law, the Appellant submits that the Assessing Officer be directed to accept the written down value of the block of assets and to allow depreciation, as claimed by the Appellant as per its return of income. 16. As regards to the said ground, it is observed that the issue involved therein relating to assessee’s claim for depreciation on the opening written down value of the block of assets as per the appellate order for immediately preceding assessment year is also squarely covered against the assessee by the decision of the Tribunal in assessee’s own case for A.Ys. 2003-04 to 2010-11, this has also been affirmed by the ITAT. Respectfully, following the same, we uphold the impugned order of CIT(A) on this issue. This issue of assessee’s appeal is dismissed.” 29. Facts being identical, respectfully following the decision of co-ordinate Bench in assessee’s own case, we dismiss the ground. 30. The appeal is partly allowed. ITA No. 982/Mum/2018 (Appeal by the Revenue) 31. In ground no. 1, Revenue has challenged allowance of assessee’s claim of deduction on account of Employee Stock Option Plan expenses u/s 37(1) of the Act. 32. As could be seen from the facts on record, aforesaid deduction claimed by the assessee was disallowed by the AO on the ground that it is a contingent liability. Whereas, learned Commissioner (Appeals) allowed assessee’s claim following the decision of Special Bench of the Tribunal in case of Biocon Ltd. vs. DCIT, 144 ITD 21. 33. Before us, learned Counsel for the assessee submitted that the decision of the Special Bench in case of Biocon Ltd. (supra) has been upheld by the 12 ITA Nos. 1148 & 982/MUM/2018 Assessment Year: 2012-13 Hon’ble Karnataka High Court, as reported in 430 ITR 151. Further, he relied upon the decision of the co-ordinate Bench in case of Mahindra & Mahindra Ltd., ITA No. 1449/Mum/2016 dated 19.06.2020. 34. Having considered rival submissions and perused the materials on record, we are of the view that the issue is squarely covered by the decision rendered in case of Biocon Ltd. (supra). Therefore, we do not find any reason to differ with the view expressed by learned Commissioner (Appeals). This ground is dismissed. 35. Ground no. 2, 3 and 4 are on the issue of disallowance made under section 14A read with Rule 8D. In view of our decision in ground no. 1, 2, 3, 4 and 5 of assessee’s appeal decided in the earlier part of this order, these grounds having become infructuous do not require separate adjudication. 36. In ground no. 5, Revenue has raised the issue of Cenvat credit. Since, we have already decided identical issue raised by the assessee in the corresponding ground, being ground no. 7 of assessee’s appeal in ITA No. 1148/Mum/2018 (supra), this ground has become infructuous, hence, dismissed. 37. Accordingly, appeal is partly allowed. 38. In the result, both the appeals are partly allowed. Sd/- Sd/- (G.S. PANNU) PRESIDENT (SAKTIJIT DEY) JUDICIAL MEMBER म ुंबई Mumbai; दिन ुंक Dated: 17/01/2022 13 ITA Nos. 1148 & 982/MUM/2018 Assessment Year: 2012-13 Alindra, PS आदेश प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपील र्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आय क्त(अपील) / The CIT(A)- 4. आयकर आय क्त / CIT 5. दिभ गीय प्रदिदनदि, आयकर अपीलीय अदिकरण, म ुंबई / DR, ITAT, Mumbai 6. ग र्ड फ ईल / Guard file. आदेशानुसार/ BY ORDER, सत्य दपि प्रदि //True Copy// उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीिीय अतिकरण, म ुंबई / ITAT, Mumbai