DCIT CIR 8(2), MUMBAI V. INTERSIL INDIA P. LTD, MUMBAI

ITA 1200/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8280 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 31-10-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 15-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: OM PRAKASH MEENA
• Assessee Lawyers: JAYESH DAIDA
• Keywords: Depreciation; Opportunity of being heard; Earning of tax free income; Corroborative evidences; Revenue expenditure; Capital expenditure
• Section: 143(3); 14A; 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I, MUMBAI BEFORE SHRI DINESH KUMAR AGARWAL (J.M.) AND SHRI N.K. BILLAIYA (A.M.) ITA NO. 1328/MUM /2010 ASSESSMENT YEAR : 2006-07 M/S INTERSIL (INDIA) PRIVATE LTD., UNIT A-4, UDYOG SADAN NO. 3, MIDC, ANDHERI (EAST), MUMBAI 400 093. PAN AAACI0954Q VS. DY. COMMISSIONER OF INCOME- TAX- RANGE 8(2), 707A, C-10, 7 TH FLOOR, PRATYAKSHA KAR BHAVAN, BANDRA-KURLA COMPLEX, BANDRA (E), MUMBAI 400 051. (APPELLANT) (RESPONDENT) ITA NO. 1200/MUM /2010 ASSESSMENT YEAR : 2006-07 DY. COMMISSIONER OF INCOME- TAX- CIRCLE 8(2), R. NO. 209, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. VS. M/S INTERSIL (INDIA) PRIVATE LTD., PLOT NO. 54, MAROL INDUSTRIAL AREA, SEEPZ, ANDHERI (EAST), MUMBAI 400 096. PAN AAACI0954Q (APPELLANT) (RESPONDENT) ITA NO. 7493/MUM /2010 ASSESSMENT YEAR : 2007-08 M/S INTERSIL (INDIA) PRIVATE LTD., UNIT A-4, UDYOG SADAN NO. 3, MIDC, ANDHERI (EAST), MUMBAI 400 093. PAN AAACI0954Q VS. ASSTT. COMMISSIONER OF INCOME- TAX- 8(3) (OSD), 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. (APPELLANT) (RESPONDENT) ITA NO. 1200/MUM/2010,1328/MUM/2010 7493/MUM/2010 & 7366/MUM/2011 2 ITA NO. 7366/MUM /2011 ASSESSMENT YEAR : 2008-09 M/S INTERSIL (INDIA) PRIVATE LTD., UNIT A-4, UDYOG SADAN NO. 3, MIDC, ANDHERI (EAST), MUMBAI 400 093. PAN AAACI0954Q VS. DY. COMMISSIONER OF INCOME- TAX- 8(2), 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI JAYESH DAIDA DEPARTMENT BY : SHRI OM PRAKASH MEENA DATE OF HEARING 31-10-2012 DATE OF PRONOUNCEMENT 07-11-2012 O R D E R PER DINESH KUMAR AGARWAL, J.M. THE CROSS APPEALS IN ITA NO. 1328/MUM/2010 AND 1200/MUM/2010 PREFERRED BY THE ASSESSEE AND REVENUE ARE DIRECTED AGAINST THE ORDER DTD. 30-11-2009 PASSED BY THE LD. CIT(A) -17, MUMBAI FOR THE A.Y. 2006-07. THE APPEALS IN ITA NO. 7493/ MUM/2010 AND 7366/MUM/2011 PREFERRED BY THE ASSESSEE ARE DIRECTE D AGAINST THE SEPARATE ORDERS DTD. 13-8-2010 AND 19-8-2011 PASSED BY THE LD. CIT(A) - 17, MUMBAI FOR THE ASSESSMENT YEARS 2007-08 AND 200 8-09 RESPECTIVELY. SINCE FACTS ARE IDENTICAL AND COMMON ISSUES ARE INV OLVED, ALL THESE APPEALS ARE DISPOSED OF BY THIS COMMON ORDER FOR TH E SAKE OF CONVENIENCE. ITA NO. 1200/MUM/2010,1328/MUM/2010 7493/MUM/2010 & 7366/MUM/2011 3 2. BRIEFLY STATED FACTS OF THE CASE EXTRACTED FROM ITA NO. 1328/MUM/2010 FOR A.Y. 2006-07 ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF SOFTWARE FOR PRODUCT DEVELOPMENT & HEALTHCARE BUSINESS. THE RETURN WAS FILED DECLARING AN INCOME OF RS. 84,75,870/-. HOWEVER, THE ASSESSMENT WAS COMPLETED AT AN INCOME OF RS. 2,17,61,080/- INCLUDING DISALLOWAN CE OF INTEREST EXPENDITURE RS. 12,91,525/-, DISALLOWANCE U/S 14A R .W. RULE 8-D RS. 6,51,662/-, REPAIRS AND MAINTENANCE RS. 49,08,865/- AND SOFTWARE DEVELOPMENT EXPENSES RS. 13,24,359/-, VIDE ORDER DT D.26-12-2008 PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). ON APPEAL, THE LD. CIT(A) PARTLY ALLOWED THE APPEAL. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE ASSESSEE AND THE REVENUE BOTH ARE IN APPEAL BEFORE US. ITA NO. 1328/MUM/2010 (BY ASSESSEE FOR A.Y. 2006-07 ) 4. GROUND NO. 1 IS AGAINST THE SUSTENANCE OF DISALL OWANCE OF INTEREST EXPENSES RS. 1,30,410/- U/S 14A OF THE ACT. 5. BRIEFLY STATED FACTS OF THE CASE ARE THAT IT WAS OBSERVED BY THE A.O. THAT THE ASSESSEE COMPANY HAS EARNED DIVIDEND INCOM E OF RS. 1,57,070/- FROM ITS INVESTMENT IN SHARES AND MUTUAL FUNDS AND CLAIMED IT AS EXEMPT INCOME. THE ASSESSEE WAS ASKED TO FURNISH T HE DETAILS OF EXPENSES INCURRED ON EARNING THE EXEMPTED INCOME AN D WAS ALSO ASKED ITA NO. 1200/MUM/2010,1328/MUM/2010 7493/MUM/2010 & 7366/MUM/2011 4 TO GIVE EXPLANATION AS TO WHY THE EXPENDITURE SHOUL D NOT BE DISALLOWED U/S 14A OF THE ACT. IN RESPONSE, IT WAS INTER ALIA SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE NEITHER BORROWED FUNDS F ROM OUTSIDE NOR INCURRED ANY EXPENSES FOR EARNING SUCH EXEMPT INCOM E DURING THE YEAR. HOWEVER, THE A.O. DID NOT ACCEPT THE ASSESSEES EXP LANATION. THE A.O. AFTER APPLYING THE PROVISIONS OF SECTION 14A R.W. R ULE 8D OF THE INCOME TAX RULES, 1962 WORKED OUT THE DISALLOWANCE AT RS. 651662/- AS PER THE WORKING GIVEN AT PAGE 6 & 7 OF THE ASSESSMENT ORDER AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL THE LD. CIT(A) WHILE RELYING ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNA L IN DAGA CAPITAL MANAGEMENT PVT. LTD. 26 SOT 603 : 117 ITD 169 [SB](MUM) UPHELD THE DISALLOWANCE MADE BY THE A.O. 6 . AT THE TIME OF HEARING BOTH PARTIES HAVE AGREED THA T IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DCIT AND OTHERS (201 0) 328 ITR 81 (BOM) THE ISSUE MAY BE SET ASIDE TO THE FILE OF THE A.O. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE Q UESTION OF MAKING THE DISALLOWANCE U/S.14A IS NO MORE RESINTEGRA IN VIEW OF THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF GO DREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DCIT AND OTHERS (201 0) 328 ITR 81 ITA NO. 1200/MUM/2010,1328/MUM/2010 7493/MUM/2010 & 7366/MUM/2011 5 (BOM) HOLDING THAT THE PROVISION OF SECTION 14A ARE APPLICABLE AND THE DISALLOWANCE HAS TO BE WORKED OUT BY THE A.O. ON SO ME REASONABLE BASIS AND NOT UNDER RULE 8D. SINCE THE A.O. WHILE CALCULA TING THE DISALLOWANCE U/S.14A HAS ALSO APPLIED RULE 8D OF THE INCOME TAX RULES, 1962, WHICH IS APPLICABLE FROM THE A.Y. 2008-09, WE RESPECTFULL Y FOLLOWING THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT ( SUPRA) SET ASIDE THE ORDERS PASSED BY THE REVENUE AUTHORITIES ON THIS AC COUNT AND DIRECT THE A.O. TO MAKE DISALLOWANCE, IF ANY, IN THE LIGHT OF THE ABOVE DECISION, AFTER ALLOWING REASONABLE OPPORTUNITY OF BEING HEARD TO T HE ASSESSEE. THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSE. 8. GROUND NO. 2 IS AGAINST THE SUSTENANCE OF DISALL OWANCE OF REPAIRS AND MAINTENANCE OF RS. 54,84,886/-. 9. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT FROM THE PROFIT & LOSS ACCOUNT SUBMITTED BY THE ASSESSEE, IT WAS OBSERVED BY THE A.O. THAT THE ASSESSEE HAS INCURRED REPAIRS AND MAINTENANCE EXPEN SES OF RS. 54,84,886/-. FROM THE DETAILS FURNISHED BY THE ASSE SSEE, THE A.O. OBSERVED THAT THE SAID EXPENDITURE INCLUDED THE AMO UNT PAID ON ACCOUNT OF VARIOUS WORKS WHICH ARE OF ENDURING NATURE. HEN CE, THE ASSESSEE WAS ASKED TO FURNISH THE REASON FOR ALLOWABILITY OF THE SAME. IN RESPONSE, THE ASSESSEE MADE THE FOLLOWING SUBMISSIONS (PAGE 7 PAR A 8.3 A.O.S ORDER):- ITA NO. 1200/MUM/2010,1328/MUM/2010 7493/MUM/2010 & 7366/MUM/2011 6 DETAILS OF REPAIRS & MAINTENANCE HAVE ALREADY BEEN FURNISHED TO YOUR GOODSELF VIDE OUR LETTER DT. 28 TH AUGUST, 2008. PLEASE REFER ANNEXURE XII SCHEDULE II & III. A CLOSER SECURITY OF EACH OF THE EXPENDITURE WILL R EVEAL THE FOLLOWING: 0 NO NEW OR ADDITIONAL ASSET IS BROUGHT INTO EXISTENC E 0 THE BENEFIT OF SUCH EXPENDITURE IS NOT OF AN ENDURI NG NATURE 0 THE EXPENDITURE DOES NOT CHANGE THE NATURE, CHARACT ER OR IDENTITY OF ANY ASSET. 0 THOUGH THE QUANTUM OF EXPENDITURE IS HIGH, THE QUAN TUM OF EXPENDITURE DOES NOT DECIDE THE SAME TO BE OF CA PITAL NATURE. 0 SOME OF THESE EXPENSES ARE INCURRED DUE TO OVERDUE REPAIRS WHICH HAD REMAINED UNATTENDED FOR MANY YEARS. THUS, WE ARE OF THE OPINION THAT ALL THE EXPENSES I NCURRED ON REPAIRS & MAINTENANCE ARE OF REVENUE NATURE AND THE REFORE TO BE ALLOWED AS DEDUCTIBLE EXPENSES. THE A.O. AFTER CONSIDERING THE DETAILS OF EXPENSES FILED BY THE ASSESSEE APPEARING AT PAGE 8-10 OF THE ASSESSMENT ORDER OBSE RVED THAT PURCHASES OF LARGE QUANTITY OF CEMENT, MAJOR PURCHASES OF SAN ITARYWARE, PAINTING, MELAMINE POLISHING, PURCHASE OF PLY FOR FURNITURE, BREAKING OF OLD WALLS, CONSTRUCTION OF NEW WALLS, PLASTERING, FLOORING ETC . ARE ENDURING IN NATURE AND, HENCE, HE TREATED THE SAME AS CAPITAL EXPENDIT URE. THE A.O. AFTER ALLOWING THE DUE DEPRECIATION MADE A DISALLOWANCE O F RS. 49,08,865/-. ON APPEAL, THE LD. CIT(A) WHILE OBSERVING THAT THER E HAS BEEN EXTENSIVE RENOVATION TO THE FACTORY BUILDING ALONG WITH FURNI TURE AND FIXTURES THEREIN, UPHELD THE DISALLOWANCE MADE BY THE A.O. W ITH A DIRECTION TO CORRECT THE FIGURE OF DISALLOWANCE TO RS. 49,36,397 /-. ITA NO. 1200/MUM/2010,1328/MUM/2010 7493/MUM/2010 & 7366/MUM/2011 7 10. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFOR E THE A.O. AND THE LD. CIT(A) FURTHER SUBMITS THAT THE ASSESSEE HAS FI LED COMPLETE DETAILS OF EXPENSES, COPY OF WHICH ARE APPEARING AT PAGE 4 TO 9 OF THE ASSESSEES PAPER BOOK. HE FURTHER SUBMITS THAT SINCE ALL THE EXPENSES HAVE BEEN INCURRED ON REPAIRS AND MAINTENANCE SUPPORTED BY BI LLS, THEREFORE, THE SAME ARE ALLOWABLE AS REVENUE EXPENDITURE AND THE L D. CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE DISALLOWANCE AS CAPITAL EXPENDITURE. HE, THEREFORE, SUBMITS THAT THE DISALLOWANCE MADE BY TH E A.O. AND SUSTAINED BY THE LD. CIT(A) BE DELETED. 11. ON THE OTHER HAND THE LD. D.R. SUPPORTS THE ORD ER OF THE A.O. AND THE LD. CIT(A). 12. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THERE IS NO DISPUTE THAT THE ASSESSEE HAS FILED COMPLETE DETAIL S OF EXPENSES. HOWEVER, THE A.O. WITHOUT EXAMINING THE NATURE OF E XPENDITURE AS TO WHETHER THE EXPENSES HAVE BEEN INCURRED TO PRESERVE AND MAINTAIN AN ALREADY EXISTING ASSET OR THE AMOUNT HAS BEEN SPENT FOR THE PURPOSE OF BRINGING INTO EXISTENCE OF NEW ASSET OR OBTAINING N EW ADVANTAGE, HAS TREATED THE SAME AS CAPITAL EXPENDITURE. ITA NO. 1200/MUM/2010,1328/MUM/2010 7493/MUM/2010 & 7366/MUM/2011 8 13. IN CIT VS. SARAVANA SPINNING MILLS P. LTD. (200 7) 293 ITR 201 (SC) IT HAS BEEN HELD (HEADNOTE) : HELD, REVERSING THE DECISION OF THE HIGH COURT, (I ) THAT THE MANUFACTURING PROCESS IN THE TEXTILE MILL WAS NOT O NE CONTINUOUS INTEGRATED PROCESS ; (II) THAT TO DECIDE THE APPLICABILITY OF SECTION 31 (I) THE TEST WAS NOT WHETHER THE EXPENDITURE WAS REVENUE OR CAPITAL IN N ATURE, BUT WHETHER THE EXPENDITURE WAS CURRENT REPAIRS. THE BASIC TEST WAS TO FIND OUT WHETHER EXPENDITURE WAS INCURRED TO PR ESERVE AND MAINTAIN AN ALREADY EXISTING ASSET, AND THE EXPEND ITURE MUST NOT BE TO BRING A NEW ASSET INTO EXISTENCE OR TO OBTAIN NEW ADVANTAGE. (III) THAT EACH MACHINE INCLUDING THE RING FRAME WA S AN INDEPENDENT AND SEPARATE MACHINE CAPABLE OF INDEPEN DENT AND SPECIFIC FUNCTION AND, THEREFORE, THE EXPENDITURE I NCURRED FOR REPLACEMENT THEREOF WOULD NOT COME WITHIN THE MEANI NG OF CURRENT REPAIRS. THE REPLACEMENT OF THE RING FRAM E CONSTITUTED SUBSTITUTION OF AN OLD ASSET BY A NEW ASSET, AND, T HEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE DID NOT FALL W ITHIN THE MEANING OF CURRENT REPAIRS IN SECTION 31(I). UNDER SECTION 31(I) THE DEDUCTION ADMISSIBLE IS ONL Y FOR CURRENT REPAIRS. THEREFORE, THE QUESTION AS TO WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE CONCEPTUALLY IS REVENUE OR CAPITAL IN NATURE IS NOT RELEVANT FOR DECIDING THE QUESTION WH ETHER SUCH EXPENDITURE COMES WITHIN THE ETYMOLOGICAL MEANING O F THE EXPRESSION CURRENT REPAIRS. IN OTHER WORDS, EVEN IF THE EXPENDITURE IS REVENUE IN NATURE, IT MAY NOT FALL I N THE CONNOTATION OF CURRENT REPAIRS. IN THE ABSENCE OF ANY FINDING ON THE PRINCIPLE LAID DOWN BY THE HONBLE APEX COURT (SUPRA), WE ARE OF THE VIEW THAT IN THE INTEREST OF JUSTICE THE MATTER SHOULD GO BACK TO THE FILE OF THE A.O. AND A CCORDINGLY WE SET ASIDE THE ORDER PASSED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT AND RESTORE THE MATTER TO THE FILE OF THE A.O. TO DECIDE THE SA ME AFRESH IN THE LIGHT OF OUR OBSERVATION HEREINABOVE AND ACCORDING TO LAW AF TER PROVIDING ITA NO. 1200/MUM/2010,1328/MUM/2010 7493/MUM/2010 & 7366/MUM/2011 9 REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, PARTLY ALLOWED FOR S TATISTICAL PURPOSES. 14. GROUND NO. 3 IS AGAINST THE SUSTENANCE OF DISAL LOWANCE OF RS. 13,24,359/- U/S 40(A)(IA) OF THE ACT. 15. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT IT WAS OBSERVED BY THE A.O. THAT THE ASSESSEE HAS PAID RS. 13,24,359/- TOWARDS SOFTWARE DEVELOPMENT EXPENSES ON WHICH TAX WAS DEDUCTIBLE U/ S 194J OF THE ACT. AS THE ASSESSEE HAS NOT DEDUCTED THE TAX ON SUCH EX PENDITURE, THE A.O. DISALLOWED RS. 13,24,359/- U/S 40(A)(IA) OF THE ACT . ON APPEAL, THE LD. CIT(A) AFTER CONSIDERING THE AGREEMENT FILED BY THE ASSESSEE WITH TIGERSTOP SYSTEM PVT. LTD. (TSPL) HELD THAT IT IS A SUB-CONTRACT AND PAYMENT MADE TO TSPL HAS TO BE SUBJECTED TO TDS U/S 194C OF THE ACT AND, HENCE, SUSTAINED THE DISALLOWANCE MADE BY THE A.O. 16. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE WHILE REITERATING THE SAME SUBMISSION AS SUBMITTED BEFORE THE A.O. AND THE LD. CIT(A) FURTHER SUBMITS THAT IN THIS CASE ACCORDING TO THE A.O., THERE IS A DEFAULT U/S 194J OF THE ACT WHEREAS ACCORDING TO TH E LD. CIT(A) THE PAYMENT IS SUBJECTED TO TDS U/S 194C OF THE ACT. TH E LD. COUNSEL FOR THE ASSESSEE WHILE REFERRING TO THE RELEVANT CLAUSES OF COPY OF AGREEMENT WITH TSPL FURTHER SUBMITS THAT SINCE BOTH PARTIES HAVE A PRINCIPAL-TO- PRINCIPAL RELATIONSHIP, THEREFORE, THE TDS PROVISIO NS ARE NOT APPLICABLE. ITA NO. 1200/MUM/2010,1328/MUM/2010 7493/MUM/2010 & 7366/MUM/2011 10 HE FURTHER SUBMITS THAT THE ASSESSEE HAS MADE THE P AYMENT AND NO AMOUNT IN THIS REGARD IS OUTSTANDING AT THE END OF THE FINANCIAL YEAR. HE, THEREFORE, SUBMITS THAT THE DISALLOWANCE MADE BY TH E A.O. U/S 40(A)(IA) AND CONFIRMED BY THE LD. CIT(A) BE DELETED. 17. ON THE OTHER HAND, THE LD. D.R. SUPPORTS THE OR DER OF THE A.O. AND THE LD. CIT(A). 18 . WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. RECEN TLY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS V ADDITIONAL CIT 16 ITR (TRIB) 1 (VISAKHAPATNAM) (SB) HAS HELD THAT THE WORD PAYABLE USED IN SECTION 40(A)(IA) OF THE ACT IS APPLICABLE ONLY TO EXPENDITURE WHICH IS PAYABLE AS ON MARCH 31 OF EVER Y YEAR AND CANNOT BE INVOKED TO DISALLOW THE AMOUNTS WHICH HAVE ALREA DY BEEN PAID DURING THE PREVIOUS YEAR, WITHOUT DEDUCTING TAX AT SOURCE. THE REASONING OF THE TRIBUNAL IN HOLDING THE ABOVE VIEW IS AS FOLLOWS:- I) THE PROVISION OF SECTION 40(A)(IA) OF THE ACT CL EARLY USES THE TERM PAYABLE AND NOT PAID. HENCE, IF THE LITERAL CON STRUCTION OF THIS WORD IS TAKEN, NO WORD CAN BE SUBSTITUTED IN PLACE OF THE WORD PAYABLE NOR CAN ANY NEW WORK BE SUPPLIED IN THE P ROVISION. II) IT IS A BASIC PRESUMPTION THAT AN ENACTMENT BRO UGHT IN BY THE LEGISLATURE IS WELL-THOUGHT OUT AND PROPERLY WORDED IN ORDER TO GIVE MEANING TO ITS INTENT. AFTER RECEIVING REPRESE NTATIONS FROM PROFESSIONAL BODIES THE LEGISLATURE IN THIS PROVISI ON REPLACED THE WORDS CREDITED OR PAID IN THE FINANCE BILL, 2004 WITH PAYABLE IN THE ACT. THE LEGISLATIVE INTENT HAS BEEN MADE CLEAR THAT ONLY THE OUTSTANDING AMOUNT OR THE PROVISION FOR EXPENSE LIA BLE FOR ITA NO. 1200/MUM/2010,1328/MUM/2010 7493/MUM/2010 & 7366/MUM/2011 11 DEDUCTION OF TAX AT SOURCE IS SOUGHT TO BE DISALLOW ED IN THE EVENT THERE IS A DEFAULT OF DEDUCTION OF TAX AT SOURCE. III) WHERE THE LANGUAGE IS CLEAR, THE INTENTION OF THE LEGISLATURE IS TO BE GATHERED FROM THE LANGUAGE USED. WHAT IS TO B E BORNE IN MIND IS AS TO WHAT HAS BEEN SAID IN THE STATUTE, AS ALSO WHAT HAS NOT BEEN SAID. A CONSTRUCTION WHICH REQUIRES FOR IT S SUPPORT, ADDITION OR SUBSTITUTION OF WORDS OR WHICH RESULTS IN REJECTION OF WORDS HAS TO BE AVOIDED, UNLESS IT IS COVERED BY TH E RULE OF EXCEPTION, INCLUDING THAT OF NECESSITY. IN THE PRES ENT PROVISION OF SECTION 40(A)(IA) OF THE ACT THERE IS NO SUCH EXCEP TION AND THE ONLY WORD PROVIDED BY LEGISLATURE IS PAYABLE. IV) SECTION 40(A)(IA) OF THE ACT CREATES A LEGAL FI CTION FOR THE AMOUNTS OUTSTANDING OR REMAINING PAYABLE AT THE END OF EVERY YEAR AS ON 31ST MARCH AND IT CANNOT BE EXTENDED FOR TAXING THE AMOUNTS ALREADY PAID. NO FURTHER LEGAL FICTION FROM ELSEWHERE IN THE STATUTE CAN BE BORROWED TO EXTEND THE FIELD OF SECTION 40(A)(IA) OF THE ACT. THIS FICTION CANNOT BE EXTENDED ANY FUR THER AND, THEREFORE, CANNOT BE INVOKED BY ASSESSING OFFICER T O DISALLOW GENUINE AND REASONABLE AMOUNTS OF EXPENDITURE ALREA DY PAID. V) IT IS A CARDINAL PRINCIPLE OF INTERPRETATION THA T THE WORDS OF A STATUTE MUST BE PRIMA FACIE GIVEN THEIR ORDINARY ME ANING, WHEN THE WORDS OF THE STATUTE ARE CLEAR, PLAIN AND UNAMB IGUOUS. THE WORD PAYABLE USED IN SECTION 40(A)(IA) OF THE ACT IS TO BE ASSIGNED STRICT INTERPRETATION, IN VIEW OF THE OBJECT OF THE LEGISLATION, WHICH IS INTENDED FROM THE REPLACEMENT OF THE WORDS IN TH E PROPOSED AND ENACTED PROVISION FROM THE WORDS AMOUNT CREDITED O R PAID TO PAYABLE. 19. APPLYING THE RATIO OF THE ABOVE DECISION, ONLY THOSE AMOUNTS WHICH ARE REMAINING PAYABLE AS ON THE LAST DAY OF THE PRE VIOUS YEAR, THE PROVISIONS OF SECTION 40(A)(IA) HAS ITS APPLICATION . SO WHAT HAS BEEN PAID DURING THE RELEVANT YEAR WILL NOT BE HIT BY THE SEC TION 40(A)(IA). IN OTHER WORDS, WHAT IS REMAINING AS PAYABLE AS ON THE LAST DAY OF THE ACCOUNTING YEAR ALONE CALLS FOR DISALLOWANCE BY INVOKING THE P ROVISIONS OF SECTION 40(A)(IA). FOR EXAMINATION OF THIS ASPECT OF THE MA TTER, WE SET ASIDE THE ORDER PASSED BY THE REVENUE AUTHORITIES ON THIS ACC OUNT AND RESTORE ITA NO. 1200/MUM/2010,1328/MUM/2010 7493/MUM/2010 & 7366/MUM/2011 12 BACK THE MATTER TO THE FILE OF THE ASSESSING OFFICE R. HE SHALL TAKE APPROPRIATE DECISION ON THIS ISSUE IN ACCORDANCE WI TH THE LAW LAID DOWN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE CI TED SUPRA AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, PARTLY ALLOWED FOR S TATISTICAL PURPOSE. 20. GROUND NO. 4 IS AGAINST THE SUSTENANCE OF DISAL LOWANCE OF EXPENDITURE ON TRANSFER OF RS. 69,31,590/- WHILE CO MPUTING CAPITAL GAIN. 21. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT FROM TH E WORKING OF LONG TERM CAPITAL GAIN, THE ASSESSEE HAS CLAIMED RS. 96, 35,890/- AS COST OF TRANSFER PAID TO MIDC, MAHAPE. THIS AMOUNT COMPRIS ES OF ADDITIONAL PREMIUM OF RS. 69,31,590/- AND TRANSFER FEES OF RS. 27,04,300/-. IN THE ABSENCE OF ANY SUPPORTING EVIDENCE/RECEIPT, THE A.O . AFTER DISALLOWING THE SAME, COMPUTED THE LONG TERM CAPITAL GAIN AT RS . 49,33,965/-. ON APPEAL, THE LD. CIT(A) WHILE OBSERVING THAT THE EXP ENSES INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION THE TRANSFER OF CAPIT AL ASSET SHALL BE DEDUCTED WHILE COMPUTING CAPITAL GAINS AS PER SECTI ON 48(C) HELD THAT THE APPELLANT IS ENTITLED TO ONLY DEDUCTION OF THE EXPE NSES OF RS. 27,04,300/- SUBJECT TO PRODUCTION OF RECEIPT BEFORE THE A.O. 22. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT SINCE THE AMOUNT OF RS. 69,31,590/- HAS BEEN INCURR ED ON BEHALF OF THE ASSESSEE BY THE TRANSFEREE WHICH HAS BEEN ADJUSTED BY THE TRANSFEREE OUT ITA NO. 1200/MUM/2010,1328/MUM/2010 7493/MUM/2010 & 7366/MUM/2011 13 OF SALE CONSIDERATION, THEREFORE, THE ASSESSEE IS E NTITLED TO THE DEDUCTION OF RS. 69,31,590/- WHILE COMPUTING THE CAPITAL GAIN S AND IN SUPPORT HE PLACED ON RECORD THE COPY OF AGREEMENT, CALCULATION OF CAPITAL GAIN, STATEMENT OF ACCOUNTS, COPY OF LETTER DTD. 16-9-200 5 ALONG WITH COPY OF CHEQUES, COPY OF LETTER DTD. 4-2-2005, COPY OF LETT ER DTD. 24-6-2005 AND COPY OF RECEIPT OF RS. 69,54,611/- APPEARING AT PAG E 26 TO 36 OF THE ASSESSEES PAPER BOOK. HE, THEREFORE, SUBMITS THAT THE DISALLOWANCE SUSTAINED BY THE LD. CIT(A) BE DELETED. 23. ON THE OTHER HAND, THE LD. D.R. SUPPORTS THE OR DER OF THE A.O. AND THE LD. CIT(A). 24. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. A BA RE READING OF THE PROVISION U/S 48(I) MAKES IT CLEAR THAT THE EXPENSE S INCURRED WHOLLY AND EXCLUSIVELY IN CONNECTION WITH THE TRANSFER SHALL B E DEDUCTED WHILE COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD CAP ITAL GAINS. WE FIND THAT AS PER MEMORANDUM OF AGREEMENT DTD. 23-5- 2005 BETWEEN DILIGENT MEDIA CORPORATION LTD. (DMC) AND INTERSIL (INDIA) PVT. LTD. (INTERSIL) CL. NO. 4 IN RESPECT OF SALE CONSIDERATI ON READS AS UNDER:- THE SALE CONSIDERATION SHALL BE PAID AS FOLLOWS:- (A) SIMULTANEOUSLY WITH THE EXECUTION OF THIS AGREE MENT DMC SHALL PAY A SUM OF RS. 20,00,000/- TO INTERSIL. (B) IMMEDIATELY UPON MIDC GRANTING ITS NO OBJECTION TO THE PROPOSED TRANSFER/ASSIGNMENT, DMC SHALL PAY TO MIDC ON BEHAL F OF INTERSIL THE FOLLOWING:- ITA NO. 1200/MUM/2010,1328/MUM/2010 7493/MUM/2010 & 7366/MUM/2011 14 (I) THE BALANCE TRANSFER FEE (I.E. TOTAL TRANSFER FEE L ESS RS. 8,75,000/-. (II) FULL AMOUNT OF ADDITIONAL PREMIUM PAYABLE (III) ARREARS OF MUNICIPAL AND OTHER TAXES UPTO 31.03.2005 (C) PAYMENTS MADE UNDER CLAUSE 4(B) ABOVE SHALL BE MADE ON BEHALF OF INTERSIL AND DMC WILL BE ENTITLED TO CREDIT FOR THE SAME WHILST MAKING PAYMENT OF THE BALANCE CONSIDERATION TO INTE RSIL. (D) DMC SHALL PAY THE BALANCE CONSIDERATION [I.E. R S. 1,45,50,000/- LESS THE AGGREGATE OF THE AMOUNTS PAID UNDER CLAUSE S 4(A) AND (B)], WITHIN 30 DAYS OF NO OBJECTION BEING GRANTED BY MIDC FOR THE PROPOSED TRANSFER. 25. FROM THE ABOVE MEMORANDUM OF AGREEMENT IT IS CL EAR THAT THE PAYMENT TO MIDC WAS MADE BY THE TRANSFEREE I.E. DMC ON BEHALF OF THE ASSESSEE AND THE SAME HAS BEEN ADJUSTED BY THE DMC OUT OF THE BALANCE CONSIDERATION PAYABLE TO THE ASSESSEE. SINCE THE A MOUNT OF RS. 67,22,100/- HAS BEEN PAID AS ADDITIONAL PREMIUM TO MIDC, THEREFORE, THE SAME IS ALLOWABLE U/S 48(I) OF THE ACT. AS REG ARDS THE INTEREST OF RS. 2,09,490/- ON DELAYED PAYMENT, THE SAME IS NOT ALLO WABLE IN VIEW OF THE DECISION IN SMT. SITA NANDA VS. CIT (2001) 251 ITR 575 (DELHI), RELIED ON BY THE LD. CIT(A). IN THE ASSESSMENT ORDER IT HAS BEEN OBSERVED BY THE A.O. THAT THE ASSESSEE HAS NOT SUBMITTED ANY RECEIP T OR EVIDENCE IN SUPPORT OF THE CLAIM. SINCE THE AMOUNT OF ADDITION AL PREMIUM RS. 67,22,100/- IS ALLOWABLE U/S 48(I) OF THE ACT, THE A.O. IS DIRECTED TO ALLOW THE SAME AFTER DUE VERIFICATION. THE GROUND TAKEN BY THE ASSESSEE IS, THEREFORE, PARTLY ALLOWED. ITA NO. 1200/MUM/2010,1328/MUM/2010 7493/MUM/2010 & 7366/MUM/2011 15 ITA NO. 1200/MUM/2010 (BY REVENUE FOR A.Y. 2006-07) 26. THE GROUND TAKEN BY THE REVENUE READS AS UNDER: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE OF INT EREST EXPENDITURE OF RS. 12,91,525/- TO ONLY RS. 1,31,410/- WITHOUT APPRECIA TING THE MERIT OF THE ISSUE AND THE FACT THAT THE MATTER FOR THE A.Y. 200 4-05 HAS BEEN RESTORED TO THE A.O. FOR FRESH EXAMINATION BY ITAT. 27. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT FROM TH E P&L ACCOUNT THE A.O. OBSERVED THAT THE ASSESSEE HAS MADE INTEREST P AYMENT AMOUNTING TO RS. 12,91,525/- WHICH INCLUDED INTEREST TO BANKE RS RS. 87,985/-, INTEREST ON LOAN FROM INTERSIL SEMICONDUCTORS PVT. LTD. RS. 1,30,410/- AND INTEREST ON SHORT TERM LOAN FROM DIRECTORS RS. 10,72,089/-. THE ASSESSEE WAS ASKED AS TO WHY INTEREST EXPENDITURE S HOULD NOT BE DISALLOWED IN VIEW OF THE FACT THAT THE ASSESSEE HA S ADVANCED INTEREST FREE LOAN TO ITS SISTER CONCERNS. IN RESPONSE, THE ASSE SSEE SUBMITTED THE DETAILS OF INTEREST PAID AND HAS NOT GIVEN ANY EXPL ANATION OF THE ALLOWABILITY OF THE INTEREST PAID. IN THE ABSENCE OF ANY EXPLANATION, THE A.O. HAS DISALLOWED THE INTEREST AMOUNT OF RS. 12,9 1,525/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. ON APPEAL, THE LD. CIT(A) WHILE OBSERVING THAT THE INTEREST CLAIMED ON CAR LOAN OF RS. 87,985/- IS FOR BUSINESS PURPOSE AND LOANS TAKEN FROM DIRECTORS HA VE BEEN UTILIZED IN MEETING THE DAY-TO-TODAY EXPENSES ALLOWED THE SAME. HOWEVER, SHE CONFIRMED THE DISALLOWANCE OF INTEREST PAID TO INTE RSIL SEMICONDUCTORS PVT. LTD. RS. 1,30,410/-. ITA NO. 1200/MUM/2010,1328/MUM/2010 7493/MUM/2010 & 7366/MUM/2011 16 28. AT THE TIME OF HEARING THE LD. D.R. SUBMITS THA T THE LD. CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE OF INTER EST WITHOUT APPRECIATING THAT ON THE SIMILAR ISSUE THE TRIBUNAL HAS SET ASID E THE MATTER TO THE FILE OF THE A.O. FOR A.Y. 2004-05. HE, THEREFORE, SUBMI TS THAT FOLLOWING THE ORDER OF THE TRIBUNAL, THE ISSUE MAY BE SET ASIDE T O THE FILE OF THE A.O. 29. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSE SSEE SUPPORTS THE ORDER OF THE LD. CIT(A). 30. WE HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS IT IS ALSO NOT IN DISPUT E THAT INTEREST OF RS. 87,985/- WAS PAID ON CAR LOAN WHICH IS FOR THE BUSI NESS PURPOSES AND INTEREST OF RS. 10,72,089/- WAS PAID ON THE LOAN FR OM DIRECTOR FOR MEETING THE DAY-TO-DAY EXPENSES VIZ. ELECTRICITY CH ARGES, SALARY AND REPAIR ETC. WE FURTHER FIND THAT THE SHARE CAPITAL AND RESERVES AND SURPLUS OF THE ASSESSEE COMPANY AS ON 31-3-2006 IS AT RS. 6,09,69,752/- WHEREAS THE AMOUNT OF TOTAL LOANS AND ADVANCES GIVEN IS RS. 3,83,06,275/- WHICH IS LESS THAN THE AMOUNT OF SHARE CAPITAL AND RESERVES SURPLUS. 31. IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (2 009) 313 ITR 340 (BOM) IT HAS BEEN HELD (HEADNOTE) : ITA NO. 1200/MUM/2010,1328/MUM/2010 7493/MUM/2010 & 7366/MUM/2011 17 HELD, DISMISSING THE APPEAL, THAT IF THERE WERE FUN DS AVAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR LOANS TAKEN, THE N A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE IN TEREST-FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INT EREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE TH IS PRESUMPTION WAS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL. THE INTEREST WAS DEDUCT IBLE. 32. IN ABSENCE OF ANY CONTRARY MATERIAL PLACED ON R ECORD BY THE REVENUE WE RESPECTFULLY FOLLOWING THE RATIO OF THE ABOVE DECISION DECLINE TO INTERFERE WITH THE ORDER PASSED BY THE LD. CIT(A ) ON THIS ACCOUNT AND ACCORDINGLY THE GROUND RAISED BY THE REVENUE IS REJ ECTED. ITA NO. 7493/MUM/2010 (BY ASSESSEE FOR A.Y. 2007-08 ) 33. GROUND NO. 1 IS AGAINST THE SUSTENANCE OF DISAL LOWANCE OF RS. 4,00,000/- OUT OF INTEREST. 34. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSESSEE HAS NOT PRESSED THE ABOVE GROUND WHICH WAS NOT OBJECTED TO BY THE LD. D.R. AND ACCORDINGLY THE GROUND TAKEN BY THE ASSESSEE IS DIS MISSED AS NOT PRESSED. 35. GROUNDS NO. 2 & 3 ARE AGAINST THE SUSTENANCE OF DISALLOWANCE OF RS. 53,82,156/- U/S 40(A)(IA) OF THE ACT. 36. GROUND NOS. 1 & 2 IN THE ASSESSEES APPEAL IN ITA NO. 7366/MUM/2011 FOR A.Y. 2008-09 ARE AGAINST THE SUSTENANCE OF DISALLOWANCE OF RS. 40,91,734/- U/S 40(A)(IA) OF TH E ACT. ITA NO. 1200/MUM/2010,1328/MUM/2010 7493/MUM/2010 & 7366/MUM/2011 18 37. AT THE TIME OF HEARING BOTH THE PARTIES HAVE AG REED THAT THE FACTS OF THE ABOVE ISSUES ARE SIMILAR TO THE FACTS OF GROUND NO. 3 FOR THE A.Y. 2006-07, THEREFORE, THE PLEA TAKEN BY THEM IN THE A PPEAL FOR THE SAID ASSESSMENT YEAR MAY BE CONSIDERED WHILE DECIDING TH E ABOVE GROUNDS OF APPEAL. 38. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD WE FIND T HAT THERE IS NO DISPUTE THAT THE FACTS OF THE ABOVE GROUNDS OF APPEAL ARE S IMILAR TO THE FACTS OF THE GROUND OF APPEAL FOR THE A.Y. 2006-07. IN A.Y. 2006-07, WE AFTER FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN MERILYN SHIPPING AND TRANSPORTS (SUPRA) HAVE HELD THAT THE AMOUNT IS ALLOWABLE SUBJECT TO VERIFICATION. FOLLOWING THE SAME REASONS , WE SET ASIDE THE ORDER PASSED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT A ND RESTORE BACK TO THE FILE OF THE A.O. WHO SHALL TAKE APPROPRIATE DEC ISION ON THIS ISSUE IN ACCORDANCE WITH LAW LAID DOWN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE CITED SUPRA AFTER GIVING REASONABLE OPPORT UNITY OF BEING HEARD TO THE ASSESSEE. THE GROUNDS TAKEN BY THE ASSESSEE AR E, THEREFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 1200/MUM/2010,1328/MUM/2010 7493/MUM/2010 & 7366/MUM/2011 19 39. IN THE RESULT, ALL THE APPEALS FILED BY THE ASS ESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE AND THE APPEAL FILE D BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED ON 7-11-2012. SD/- SD/- (N.K. BILLAIYA ) ACCOUNTANT MEMBER (DINESH KUMAR AGARWAL) JUDICIAL MEMBER MUMBAI, DATED : 7-11-2012. RK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- CONCERNED , MUMBAI 4. COMMISSIONER OF INCOME TAX CONCERNED, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH I, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI