ESSAR TELEHOLDINGS LTD, MUMBAI V. DCIT RG 5(1), MUMBAI

ITA 1307/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78665 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-04-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 25-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 11-02-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K C P PATNAIC
• Keywords: Earning of tax free income; Proportionate interest; Revised return
• Section: 143(3); 14A; 115JB

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - H BENCH. . , !'#$ '%&'( , &' )* BEFORE S/SH.D.MANMOHAN, VICE-PRESIDEN T & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.1307/MUM/2011, ' ' ' ' + + + + / ASSESSMENT YEAR-2007-08 M/S ESSAR TELEHOLDING LTD. ESSAR HOUSE, 11 K.K.MARG, MAHALAXMI,MUMBAI-400034 VS ACIT 5(1), R.NO.568, 5 TH FLOOR,AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 PAN: AAACS4448K /. ITA NO.1165/MUM/2011, ' ' ' ' + + + + / ASSESSMENT YEAR-2007-08 ACIT 5(1)R.NO.568, 5 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 VS M/S ESSAR TELEHOLDING LTD. ESSAR HOUSE, 11 K.K.MARG, MAHALAXMI,MUMBAI-400034 PAN: AAACS4448K ( ',- / APPELLANT) ( ./,- / RESPONDENT) '%* 0 1 & / REVENUE BY : SHRI K.C.P. PATNAIC '23 '23 '23 '23 1 1 1 1 & && & / ASSESSEE BY : SHRI ANUJ KISNADWALA ' ' ' ' 0 00 0 3' 3' 3' 3' / DATE OF HEARING : 25-03-2014 4+ ' 0 3' / DATE OF PRONOUNCEMENT : 02-04-2014 , 1961 0 00 0 '' '' '' '' 254 )1( & && & '353 '353 '353 '353 )&6 )&6 )&6 )&6 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM &' &' &' &' )* )* )* )* '%&'( '%&'( '%&'( '%&'( & && & ' ' ' ' : CHALLENGING THE ORDER DATED 30.11.2010 OF THE CIT(A )-9,MUMBAI,ASSESSING OFFICER (AO) AND THE ASSESSEE-COMPANY HAVE FILED CROSS APPEALS FOR THE Y EAR UNDER APPEAL.AO HAS RAISED FOLLOWING GROUNDS OF APPEAL : 1. WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW THE LD. CIT(A) IS RIGHT IN DIRECTING TO ALLOW BY APPLING AVERAGE COST OF FUNDS METHOD AND MAKE DISALLOWANCE OF RS. 88. 08 CRORES AS AGAINST DISALLOWANCE OF RS.L05.36 CROR ES MADE AS PER PROVISION OF SEC.14A OF THE IT ACT ?. 2. WHETHER ON THE FACTS AND THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE CIT(A) IS RIGHT IN DECIDING THE ISSUE RELYING ON THE JUDGMENT IN THE C ASE OF M/S GODREJ & BOYCE MANUFACTURING COMPANY LTD. WHEN THE DECISION WAS NOT ACCEPTED BY THE REVENUE CHALLENGED BEFORE THE APEX COURT? GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS UN DER: 1. THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MAD E BY AO UNDER SECTION 14A OF THE INCOME TAX ACT TO THE EXTENT OF RS.88.08 CRORES BASED ON A VERAGE COST OF FUNDS BASIS. 2. THE CIT (A) ERRED IN CONFIRMING THE ADDITION MADE B Y THE AO TO THE BOOK PROFITS COMPUTED U/S 1153B WITH THE EXPENDITURE DISALLOWED UNDER SECTION 14A OF THE ACT TO THE EXTENT OF RS.88.08 CRORES. THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTH ER. 2 ITA NO. ITA NOS.1307 & 1165/MUM/2011 M/S ESSAR TELE HOLDING LTD. THE APPELLANT COMPANY CRAVES LEAVE TO ADD ANY OTHER GROUNDS AND AMEND OR WITHDRAW, ANY OF THE AFORESAID GROUNDS OF APPEAL AS MAY BE A DVISED . ITA/1307/MUM/2011-AY.2007-08: 2 .ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF INVEST MENT,FILED ITS RETURN OF INCOME ON 31.03. 2007 DECLARING LOSS OF RS. 1,23,20,51,442/-.ON 19.0 2.2009 IT FILED A REVISED RETURN SHOWING NIL INCOME.IN THE REVISED RETURN ASSESSEE CLAIMED INDEX ATION ON SALE OF SHARES.AO PASSED THE ASSESSMENT ORDER ON 26.03.2009 U/S. 143(3) OF THE A CT DECLARING THE BUSINESS LOSS OF THE ASSESSEE AT RS. 39,21,70,266/- AND SHORT TERM CAPITAL GAIN ( STCG) OF RS. 21,37,18,825/-. HE ALLOWED THE BUSINESS LOSS TO BE CARRIED FORWARD OF RS. 17.84 CR ORES. BOOK PROFIT U/S.115JB OF THE ACT WAS CALCULATED AT RS. 8,15,07,608/- AO FOUND THAT ASSES SEE HAD MADE INVESTMENT IN SHARES TO THE TUNE OF RS.1260 CRORES. HE HELD THAT EXEMPTION U/S.10(34 ) OF THE ACT WAS AVAILABLE ON PROPORTIONATE INTEREST RELATING TO INVESTMENT MADE IN SHARES,THAT NO TAXABLE INCOME WAS RECEIVED BY THE ASSESSEE DURING THE YEARS.INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT R.W.RULE 8D OF INCOME TAX RULES, 1962 (RULES), HE MADE A DISALLOWANCE OF RS. 105.36 CRORES. 3. BEFORE THE FIRST APPELLATE AUTHORITY (FAA) ASSESSEE ARGUED THAT RULE 8D WAS NOT APPLICABLE RETROSPECTIVELY,THAT AO HAD APPLIED AVERAGE COST OF FUNDS METHOD,FOR MAKING DISALLOWANCE U/S 8D FOR THE AY 2004-05,THAT ACCORDING TO THE METHOD APP PLIED BY THE AO FOR THE ASSESSMENT YEAR 2004-05 DISALLOWANCE WORKED OUT TO RS. 88.08 CRORES AS AGAINST THE DISALLOWANCE OF RS. 105.36 CRORES. ASSESSEE FILED A WORKING OF RS. 88.08 CRORE S BEFORE THE FAA ALONG WITH THE COPIES OF THE ASSESSMENT ORDERS FOR THE AY 2004-05 AND 2005-06.AF TER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE,HE HELD THAT IN VIEW OF THE DECISION OF TH E HONBLE MUMBAI HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (328 ITR 81) RULE 8D COULD NOT BE APPLIED FOR THE AY 2007-08,THAT SOME REASONABLE DISALLOWANCE HAD TO BE MADE TO FULFILL THE REQUIREMENT OF SECTION 14A OF THE ACT.HE DIRECTED THE AO TO APPLY AVERAGE COST OF FUND METHOD AND MAKE DISALLOWANCE ACCORDINGLY,HE FURTHER DIRECTED THE AO THAT IN CASE THE WORKING OF DISALLOWANCE CLAIMED BY THE ASSESSEE (RS. 88.08 CRORES),WAS FOUND TO BE CORRECT SAME SHOULD BE ACCEPTED. 4. BEFORE US,AUTHORISED REPRESENTATIVE(AR) SUBMITTED T HAT PROVISIONS OF RULE 8D OF THE RULES WERE NOT APPLICABLE DURING THE YEAR UNDER APPEAL,TH AT IN THE EARLIER THREE ASSESSMENT YEARS MATTER WAS RESTORED BACK TO THE FILE OF THE AO BY THE TRIB UNAL.DEPARTMENTAL REPRESENTATIVE (DR) AGREED TO THE PROPOSAL OF SENDING BACK THE MATTER TO THE F ILE OF THE AO. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT E BENCH OF MUMBAI TRIBUNAL HAS,WHILE DECIDING THE APPEAL OF THE ASSESSEE FOR THE AY.S.2005-06 AND 2006 -07(ITA/3850/MUM/2010-AY.2005-06,DATED 29.07.2011 A ND ITA/6244/MUM/2010-AY.2006-07, DATED 30.03.2012)HAS RESTORED BACK THE MATTER TO TH E FILE OF THE AO FOR MAKING A REASONABLE PROPORTIONATE DISALLOWANCE.RESPECTFULLY,FOLLOWING T HE SAME WE REMIT BACK THE ISSUE OF DETERMI- NING THE REASONABLE DISALLOAWANCE TO THE FILE OF TH E AO WITH A DIRECTION TO AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE AND TO PASS A SPEAKING ORDER. GROUND NO.1 IS ALLOWED FOR STATISTICAL PURPOSES. 6. NEXT GROUND OF APPEAL IS ABOUT ADDITION MADE BY TH E AO U/S.14A OF THE ACT WHILE COMPUTING THE BOOK PROFITS U/S. 115JB. 7. BEFORE US,AR SUBMITTED THAT IDENTICAL ISSUE WAS DEC IDED IN FAVOUR OF THE ASSESSEE-COMPANY BY THE TRIBUNAL IN THE EARLIER AY.S.WE FIND THAT WHILE DECIDING THE APPEAL FOR THE YEAR 2006- 07(SUPRA) TRIBUNAL HAD HELD AS UNDER: 10.WE HAVE CAREFULLY CONSIDERED THE FINDINGS AND T HE OBSERVATIONS GIVEN BY THE ITAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06 , WHEREIN IT HAS BEEN OBSERVED AND HELD AS UNDER:- 3 ITA NO. ITA NOS.1307 & 1165/MUM/2011 M/S ESSAR TELE HOLDING LTD. AS ALREADY HELD IN GROUND NO.1 THE PROVISIONS OF RU LE 8D ARE NOT APPLICABLE TO THE PRESENT A.Y. UNDER CONSIDERATION. THEREFORE, DISALLOWANCE OF EXPENDITURE BY APPLYING RULE 8D IS NOT JUSTIFIED. FURTHER, NO ACTUAL EXPENDITURE WAS DEBITED IN THE P ROFIT AND LOSS ACCOUNT RELATING TO THE EARNING OF EXEMPT INCOME. THEREFORE, THE PROVISIONS OF SEC. 14 A CANNOT BE IMPORTED INTO WHILE COMPUTING THE BOOK PROFIT U/S. 115JB OF THE ACT INASMUCH AS CLAUS E (F) OF EXPLANATION TO SEC. 115JB REFERS TO THE AMOUNT DEBITED TO THE PROFIT AND LOSS ACCOUNT WHICH CAN BE ADDED BACK TO THE BOOK PROFIT WHILE COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. IN THI S CONNECTION, RELIANCE CAN BE PLACED UPON THE DECISION OF ITAT DELHI BENCH IN THE CASE OF GOETZE (INDIA) LTD. VS. CIT (2009) 32 SOT 101 (DEL), WHEREIN IT HAS BEEN HELD THEN PROVISIONS OF SUB-SEC . (2) & (3) OF SEC. 14A CANNOT BE IMPORTED INTO CLAUSE (F) OF THE EXPLANATION TO SEC. 115JA OF THE ACT. IN THIS VIEW OF THE MATTER, WE THEREFORE, DELETE THE DISALLOWANCE OF EXPENSES CONFIRMED BY TH E CIT(APPEALS) WHILE COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. IN OTHER WORDS, NO ADDITION TO THE BOOK PROFIT SHALL BE MADE ON ACCOUNT OF ALLEGED EXPENDITURE INCURRED TO EARN EXEMPT INCOME WHILE COMPUTING INCOME U/S. 115JB OF THE ACT. THUS GROUND NO. 2 IS DECIDED IN FAVOUR OF THE ASSESSEE. 10.1 THUS, RESPECTFULLY FOLLOWING THE ABOVE DECISIO N, THE ADDITIONAL GROUND OF THE APPEAL IS ALLOWED IN FAVOUR OF THE ASSESSEE THAT NO ADDITION TO THE BOOK PROFIT SHALL BE MADE FOR THE EXPENDITURE OF RS. 113 CRORES WHILE COMPUTING INCOM E U/S. 115JB. 11. IN THE RESULT, THE APPEAL FILED BY THE APPELL ANT IS PARTLY ALLOWED. RESPECTFULLY,FOLLOWING THE ABOVE ORDER,WE DECIDE GR OUND NO.2 IN FAVOUR OF THE ASSESSEE.APPEAL FILED BY THE ASSESSEE IS ALLOWED,IN PART. ITA/1165/MUM/2011-AY.2007-08: 8. EFFECTIVE GROUND OF APPEAL FILED BY THE AO IS ABOUT THE DIRECTION GIVEN BY THE FAA ABOUT DIRECTING THE AO TO ALLOW AVERAGE COST OF FUNDS MET HOD AND MAKE DISALLOWANCE OF RS.88.08 CRORES AS AGAINST DISALLOWANCE OF RS.L05.36 CRORES MADE BY THE AO. WHILE DECIDING THE APPEAL OF THE ASSESSEE-COMPANY W E HAVE ALREADY RESTORED BACK THE MATTER TO THE FILE OF THE AO FOR FRESH ADJUDICATION FOR COMPU TING THE REASONABLE DISALLOWANCE TO BE MADE U/S.14A OF THE ACT.FOLLOWING THE SAME,EFFECTIVE GRO UND OF APPEAL FILED BY THE AO IS ALLOWED FOR STATISTICAL PURPOSES. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS PAR TLY ALLOWED AND THE APPEAL OF THE AO STANDS ALLOWED FOR STATISTICAL PURPOSES. 738 '23 9'' )': 638%; 0 %'3 < = '23 ' 0 ':>0 !?&@A & %; 0 %'3 <. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND APRIL,2014 . )&6 0 4+ ' & ''' C D) ' 2 .< , 201 4 0 5 E SD/- SD/- ( . / D.MANMOHAN) ( '%&'( '%&'( '%&'( '%&'( / RAJENDRA) !'#$ / VICE PRESIDENT &' &' &' &' )* )* )* )* /ACCOUNTANT MEMBER / MUMBAI, D) ' /DATE: 02.04.2014. SK )&6 )&6 )&6 )&6 0 00 0 .3F .3F .3F .3F G&F+3 G&F+3 G&F+3 G&F+3 / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / ',- 2. RESPONDENT / ./,- 3. THE CONCERNED CIT(A)/ H I , 4. THE CONCERNED CIT / H I 5. DR H BENCH, ITAT, MUMBAI / FJ'5 .3 ,P ,P,P ,P , . . ''' . 6. GUARD FILE/ 5' 7' 4 ITA NO. ITA NOS.1307 & 1165/MUM/2011 M/S ESSAR TELE HOLDING LTD. /'F3 /'F3 /'F3 /'F3 .3 .3.3 .3 //TRUE COPY// )&6' ' / BY ORDER, ! / ' %' DY./ASST. REGISTRAR , /ITAT, MUMBAI