ASST CIT LTU, MUMBAI V. POWERICA LTD, MUMBAI

ITA 1306/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1672 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 27-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C W ANGOLKAR
• Assessee Lawyers: NILESH PAREKH
• Keywords: Earning of tax free income; Tax effect; Revised return
• Section: 14A; 115JB; 12; 10; 11

Judgement Text

C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ./ I.T.A. NO. 1306 /MUM/2014 ( / ASSESSMENT YEAR : 2010-11) ASST. COMMISSIONER OF INCOME TAX, 29 TH FLOOR, CENTRE -1, WORLD TRADE CENTRE, CUFFE PARADE, MUMBAI 400005. / V. M/S POWERICA LTD., 9 TH FLOOR, BAKHTAWAR, NARIMAN POINT, MUMBAI 400021. ./PAN : AAACP3812E ( /APPELLANT ) .. ( / RESPONDENT ) /C.O. NO. 105/MUM/2015 ARISING OUT OF ITA NO. 1306/MUM/2014 M/S POWERICA LTD., 9 TH FLOOR, BAKHTAWAR, NARIMAN POINT, MUMBAI 400021. / V. ASST. COMMISSIONER OF INCOME TAX, 29 TH FLOOR, CENTRE -1, WORLD TRADE CENTRE, CUFFE PARADE, MUMBAI 400005. ./PAN : AAACP3812E CROSS OBJECTOR .. ( / RESPONDENT ) REVENUE BY : SHRI C.W. ANGOLKAR ASSESSEE BY : SHRI VIJAY MEHTA & SHRI NILESH PAREKH / DATE OF HEARING : 02-11-2016 ! / DATE OF PRONOUNCEMENT : 30-11-2016 ITA 1306/MUM/2014 & C.O. NO. 105/MUM/2014 2 / O R D E R PER B.R. BASKARAN, A.M THIS APPEAL OF THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 04-11-2013 PAS SED BY LD CIT(A)-24, MUMBAI AND THEY RELATE TO THE ASSESSMENT YEAR 2010- 11. BOTH THE PARTIES ARE AGGRIEVED BY THE DECISION RENDERED BY LD CIT(A) ON THE ISSUE OF DISALLOWANCE MADE U/S 14A OF THE ACT. 2. THE CROSS OBJECTION FILED BY THE ASSESSEE IS BARRED BY LIMITATION BY 34 DAYS. THE ASSESSEE HAS FILED A PETITION PRAYING TH E BENCH TO CONDONE THE DELAY. WE HEARD THE PARTIES ON THIS PRELIMINARY IS SUE. HAVING REGARD TO THE SUBMISSIONS MADE IN THE PETITION, WE CONDONE THE DE LAY AND ADMIT THE CO FILED BY THE ASSESSEE. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF M ANUFACTURE OF DIESEL GENERATING SETS & COMPONENTS AND ALSO UNDERTAKES SE RVICE WORKS RELATING TO THE SAME. IN THE ORIGINAL RETURN OF INCOME, THE AS SESSEE COMPUTED DISALLOWANCE U/S 14A OF THE ACT AT RS.40,12,058/-. SUBSEQUENTLY THE ASSESSEE FILED A REVISED RETURN OF INCOME, WHEREIN THE DISAL LOWANCE U/S 14A WAS MADE AT RS.1,69,15,087/-. THE AO NOTICED THAT THE AUDITORS HAVE CERTIFIED THE DIRECT EXPENSES AS RS.40,12,058/- IN THE TAX AUDIT REPORT, BUT THE ASSESSEE HAS TAKEN THE DIRECT EXPENSES AT RS.3,65,504/- IN THE REVISED COMPUTATION WHILE COMPUTING THE DISALLOWANCE AT RS.1,69,15,087/-. AC CORDINGLY HE INCREASED THE DIRECT EXPENSES TO RS.40,12,058/- AND ENHANCED THE DISALLOWANCE TO RS.2,05,61,641/-. ITA 1306/MUM/2014 & C.O. NO. 105/MUM/2014 3 4. THE ASSESSEE HAD COMPUTED THE DISALLOWANCE U/ S 14A TO BE MADE FOR COMPUTING BOOK PROFIT U/S 115JB OF THE ACT AT RS.1, 48,55,299/-, SINCE THE TAX IS PAYABLE ON THE LONG TERM CAPITAL GAINS UNDER THE PR OVISIONS OF SEC. 115JB, I.E., THE LONG TERM CAPITAL GAIN IS EXEMPT UNDER NORMAL P ROVISIONS OF THE ACT, BUT TAX IS PAYABLE THEREON UNDER SEC. 115JB OF THE ACT. HE NCE THE ASSESSEE REDUCED THE DISALLOWANCE U/S 14A PROPORTIONATE TO THE LONG TERM CAPITAL GAIN TO THE TOTAL EXEMPT INCOME. ACCORDINGLY THE ASSESSEE ADDED A SUM OF RS.1,48,55,299/- ONLY TO THE BOOK PROFIT. THE AO, HOWEVER, TOOK THE VIEW THAT THE ENTIRE AMOUNT OF RS.2,05,61,641/- IS REQUIRED TO BE ADDED TO THE TOTAL INCOME AND ACCORDINGLY ADDED THE DIFFERENCE OF RS.57,06,342/- TO THE BOOK PROFIT. 5. THE LD CIT(A) UPHELD THE DISALLOWANCE OF RS. 2,05,61,641/- MADE BY THE AO UNDER NORMAL PROVISIONS OF THE ACT. WITH REGARD TO THE ADDITION TO BE MADE FOR COMPUTING BOOK PROFIT, THE LD CIT(A), IN PRINCI PLE, AGREED WITH THE ASSESSEE FOR REDUCTION OF DISALLOWANCE ATTRIBUTABLE TO LONG TERM CAPITAL GAIN. HOWEVER, HE NOTICED THAT THE ASSESSEE HAD EXCLUDED THE PORTI ON ATTRIBUTABLE TO LONG TERM CAPITAL GAIN FROM THE AMOUNT OF RS.1,69,15,087/-. SINCE THE LD CIT(A) HAD CONFIRMED DISALLOWANCE OF RS.2,05,61,641/-, HE COMP UTED THE AMOUNT ATTRIBUTABLE TO LONG TERM CAPITAL GAIN AT RS.25,02, 327/- AND ACCORDINGLY DIRECTED THE AO TO ADD ONLY RS.1,80,59,114/- (2,05, 61,641 LESS 25,02,327/-) FOR COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. 6. THE REVENUE IS AGGRIEVED BY THE DIRECTION GI VEN BY THE LD CIT(A) TO THE AO TO REDUCE THE AMOUNT TO BE ADDED U/S 14A FOR COM PUTING BOOK PROFIT U/S 115JB OF THE ACT BY RS.25,02,327/-. THE ASSESSEE I S AGGRIEVED BY THE DECISION OF LD CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS.2 ,05,61,641/- UNDER NORMAL PROVISIONS OF THE ACT AND CORRESPONDING INCREASE IN THE DISALLOWANCE WHILE ITA 1306/MUM/2014 & C.O. NO. 105/MUM/2014 4 COMPUTING THE BOOK PROFIT U/S 115JB OF THE ACT. TH E ASSESSEE HAS ALSO TAKEN AN ADDITIONAL GROUND THAT THE DISALLOWANCE OF RS.1, 69,15,087/- MADE BY THE ASSESSEE IN THE REVISED COMPUTATION OF INCOME ITSEL F IS AGAINST THE LAW AND HENCE THE SAME SHOULD ALSO BE REVISED. 7. THE LD A.R SUBMITTED THAT THE ASSESSEE AS WE LL AS THE REVENUE HAS TAKEN THE OPENING AND CLOSING VALUE OF INVESTMENTS AT RS. 33177/- LACS AND RS.33020/- LAKHS RESPECTIVELY. ADVERTING OUR ATTEN TION TO PAGE 21 OF THE PAPER BOOK, WHICH CONTAINS SCHEDULE OF INVESTMENTS, THE LD A.R SUBMITTED THAT THE LIST OF INVESTMENTS INCLUDES FOLLOWING ITEMS:- (A) INVESTMENTS MADE IN SUBSIDIARY COMPANIES (B) INVESTMENTS MADE IN BONDS AND DEBENTURES. THE INCOME REALISED THERE FROM IS TAXABLE. (C) INVESTMENTS MADE IN GROWTH SCHEMES OF MUTUAL FUNDS AND THE ASSESSEE WILL NOT RECEIVE ANY DIVIDEND THERE FROM. THE LD A.R FURTHER SUBMITTED THAT THE ABOVE SAID IN VESTMENTS SHOULD BE EXCLUDED FOR THE PURPOSE OF COMPUTING DISALLOWANCE U/S 14A OF THE ACT. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS BROUGHT FOR WARD MOST OF THE INVESTMENTS FROM THE EARLIER YEARS. INVITING OUR A TTENTION TO PAGE 24 OF THE PAPER BOOK, THE LD A.R SUBMITTED THAT THE ASSESSEE HAS CARRIED OUT TRANSACTIONS IN MUTUAL FUND ONLY DURING THE YEAR UN DER CONSIDERATION BY SELLING PART OF INVESTMENTS PURCHASED IN THE EARLIER YEARS. ACCORDINGLY HE SUBMITTED THAT THE ASSESSEE AS WELL AS THE REVENUE HAS COMMIT TED A MISTAKE IN COMPUTING THE DISALLOWANCE WITHOUT CONSIDERING THE ABOVE SAID FACTUAL ASPECTS AVAILABLE IN THE BOOKS OF ACCOUNTS. 8. THE LD A.R SUBMITTED THAT THE ASSESSEE IS ENT ITLED TO RAISE NEW CLAIMS, WHICH ARE ADMISSIBLE UNDER THE LAW, BEFORE THE TRIB UNAL EVEN IF IT HAS BEEN ITA 1306/MUM/2014 & C.O. NO. 105/MUM/2014 5 ADMITTED IN THE RETURN OF INCOME. HE SUBMITTED THA T THERE IS NO ESTOPPEL AGAINST THE LAW. ACCORDINGLY HE SUBMITTED THAT THE ASSESSEE IS ENTITLED TO PUT FORTH NEW CLAIMS BEFORE THE TRIBUNAL. IN THIS REG ARD, HE PLACED RELIANCE ON THE DECISION RENDERED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. PRUTHVI BROKERS AND SHAREHOLDERS P LTD (2012)(349 ITR 336)( BOM). 9. THE LD A.R ALSO SUBMITTED THAT THE TAX EFFEC T INVOLVED IN THE REVENUES APPEAL IS LESS THAN RS.10.00 LAKHS AND HENCE THE SA ME IS LIABLE TO BE DISMISSED. HE SUBMITTED THAT THE C.O FILED BY THE ASSESSEE IS REQUIRED TO BE ADJUDICATED SEPARATELY, EVEN IF THE REVENUES APPEAL IS DISMISS ED. IN THIS REGARD, HE PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE KERALA HIGH COURT IN THE CASE OF CITY CENTRE BUILDERS & DEVELOPERS (WP(C) NO.7668 OF 2016(G) DATED02-06- 2016), WHEREIN IT WAS HELD THAT A CROSS OBJECTION H AS TO BE TREATED AS AN INDEPENDENT APPEAL AND HAS TO BE DECIDED IRRESPECTI VE OF THE FACT AS TO WHETHER THE APPEAL FILED BY THE DEPARTMENT HAS BEEN DISMISSED ON WHATEVER GROUNDS. 10. THE LD D.R FAIRLY ADMITTED THAT THE TAX EFFE CT INVOLVED IN THE APPEAL OF THE REVENUE IS LESS THAN RS.10.00 LACS. WITH REGAR D TO THE CROSS OBJECTION FILED BY THE ASSESSEE, THE LD D.R SUBMITTED THAT THE ASSE SSEE HAS VOLUNTARILY DISALLOWED A SUM OF RS.1.69 CRORES U/S 14A OF THE A CT IN THE REVISED RETURN OF INCOME AND HENCE THE ASSESSEE CANNOT PLEAD FOR REDU CTION OF THE SAME. 11. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE RECORD. WE HAVE NOTICED EARLIER THAT THE INVESTMENTS HELD BY THE AS SESSEE INCLUDED INVESTMENTS MADE IN THE SUBSIDIARIES, BONDS, DEBENTURES, GROWTH SCHEME OF MUTUAL FUNDS. THE INTEREST FROM BONDS AND DEBENTURES ARE NOT EXEM PT AND THE GROWTH ITA 1306/MUM/2014 & C.O. NO. 105/MUM/2014 6 SCHEMES OF MUTUAL FUNDS DO NOT YIELD ANY DIVIDEND. THE INVESTMENTS MADE IN SUBSIDIARY COMPANIES, ACCORDING TO THE ASSESSEE, AR E STRATEGIC INVESTMENTS. FURTHER THE ASSESSEE HAS SUBMITTED (PAGE 24 OF PAPE R BOOK) THAT IT HAS CARRIED OUT FEW TRANSACTIONS DURING THE YEAR UNDER CONSIDER ATION ONLY IN THE MUTUAL FUNDS BY WAY OF WITHDRAWING MONEY FROM THE BROUGHT FORWARD BALANCE. ACCORDINGLY IT WAS SUBMITTED THAT THE PROVISIONS OF RULE 8D SHOULD NOT HAVE BEEN MECHANICALLY APPLIED UNDER THE FACTS OF THE PR ESENT CASE. WE FIND MERIT IN THE ABOVE SAID SUBMISSIONS OF THE ASSESSEE. THE LD A.R ALSO SUBMITTED THAT THE ASSESSEE IS ENTITLED TO PUT FORTH NEW CLAIMS AN D IN THAT REGARD HE HAS PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF PRUTHVI BROKERS AND SHAREHOLDERS P LTD (SUP RA). THE LD A.R ALSO SUBMITTED THAT THERE IS NO ESTOPPEL AGAINST THE LAW AND HENCE THE ASSESSEE COULD PLEAD FOR RECTIFICATION OF DISALLOWANCE WRONG LY MADE BY THE ASSESSEE. WE AGREE WITH THE SAID CONTENTIONS OF THE ASSESSEE ALS O. THE PURPOSE OF ASSESSMENT IS TO DETERMINE THE CORRECT TOTAL INCOME OF THE ASSESSEE. HENCE WRONG APPLICATION OF PROVISIONS OF THE ACT NEEDS TO BE CORRECTED IN ORDER TO ARRIVE AT THE CORRECT TOTAL INCOME. 12. WE HAVE NOTICED THAT CERTAIN VITAL FACTS CON CERNING THE INVESTMENTS HAVE NOT BEEN PROPERLY DEALT WITH BOTH BY THE ASSESSEE A S WELL AS THE TAX AUTHORITIES. HENCE, WE ARE OF THE VIEW THAT THE ISSUE RELATING T O DISALLOWANCE U/S 14A OF THE ACT REQUIRES FRESH EXAMINATION AT THE END OF THE AO . ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND RES TORE THE SAME TO THE FILE OF THE AO FOR EXAMINING THE SAME AFRESH. 13. THE REVENUE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN HOLDING THAT THE DISALLOWANCE ATTRIBUTABLE TO LONG TERM CAPITAL GAIN IS REQUIRED TO BE EXCLUDED ITA 1306/MUM/2014 & C.O. NO. 105/MUM/2014 7 FOR MAKING ADDITION TO THE NET PROFIT FOR THE PURPO SES OF COMPUTING BOOK PROFIT U/S 115JB OF THE ACT. EVEN THOUGH THE REVENUES AP PEAL IS REQUIRED TO BE DISMISSED ON THE GROUND OF TAX EFFECT INVOLVED THER EIN, WE PREFER TO ADJUDICATE THE SAME ON MERIT, SINCE THE SAME IS CONNECTED WITH THE ISSUE URGED BY THE ASSESSEE. A PERUSAL OF THE PROVISIONS OF SEC. 10(3 8) WOULD SHOW THAT THE PROVISO TO SEC. 10(38) STATES THAT THE INCOME BY WA Y OF LONG TERM CAPITAL GAIN OF A COMPANY SHALL BE TAKEN INTO ACCOUNT IN COMPUTI NG THE BOOK PROFIT AND INCOME TAX PAYABLE UNDER SECTION 115JB. THE RELEVAN T PROVISION OF SEC. 115JB (CLAUSE F OF EXPLANATION 1) READS AS UNDER:- (F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABL E TO ANY INCOME TO WHICH SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREFORE) OR SECTION 11 OR SECTION 12 APPLY; SO FOR THE PURPOSE OF COMPUTING THE AMOUNT OF EXPEN DITURE RELATABLE TO ANY INCOME TO WHICH SECTION 10 APPLY, THE PROVISIONS OF SEC. 10(38) RELATING TO LONG TERM CAPITAL GAINS ARE REQUIRED TO BE EXCLUDED. AC CORDINGLY WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN DOWNSIZING THE AMOUNT OF DISALLOWANCE, BY EXCLUDING THE DISALLOWANCE ATTRIBUTABLE TO LONG TER M CAPITAL GAINS, TO BE ADDED TO THE NET PROFIT FOR COMPUTING BOOK PROFIT U/S 115 JB OF THE ACT, I.E., HIS ACTION, IN OUR VIEW, IS IN ACCORDANCE WITH THE LAW. 14. HOWEVER, SINCE WE HAVE RESTORED THE MATTER OF DISALLOWANCE U/S 14A OF THE ACT TO THE FILE OF THE AO, THE AMOUNT OF DISALLOWAN CE TO BE ADDED TO NET PROFIT U/S 115JB OF THE ACT MAY UNDERGO A CHANGE. ACCORDI NGLY, WHILE APPROVING THE PRINCIPLE FOLLOWED BY THE LD CIT(A), WE ARE OF THE VIEW THAT THE QUANTUM OF DISALLOWANCE TO BE ADDED TO NET PROFIT NEEDS TO BE SET ASIDE TO THE FILE OF THE AO. ACCORDINGLY WE RESTORE THIS ISSUE TO THE FILE OF THE AO. ITA 1306/MUM/2014 & C.O. NO. 105/MUM/2014 8 15. IN THE RESULT, THE APPEAL FILED BY THE REVEN UE IS TREATED AS PARTLY ALLOWED AND THE CROSS OBJECTION OF THE ASSESSEE IS TREATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER, 2016. ! $ %& '( 30-11-2016 ) * SD/- SD/- (PAWAN SINGH ) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER % MUMBAI ; ' DATED 30-11-2016 .:../ R.K. R.K. R.K. R.K. , EX. SR. PS \ !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ; ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. ; / CIT- CONCERNED, MUMBAI 5. >?) ::@A , @A! , % / DR, ITAT, MUMBAI C BENCH 6. )CD E / GUARD FILE. / BY ORDER, > : //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , % / ITAT, MUMBAI