ESSEL PROPACK LTD ( FORMERLY ESSEL PACK LTD), MUMBAI V. ADDL CIT RG 6(2), MUMBAI

ITA 1327/MUM/2012

• Counselvise Citation: 132719914 RSA 2012
• Duration Of Justice: 1 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 05-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 27-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHOK SURI
• Assessee Lawyers: RAJESH CHAMARIA
• Section: 154; 143(3); 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . . , , , BEFORE SHRI N.K. SAINI , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEMBE R . / ITA NO. 1327 / MUM./ 2012 ( / ASSESSMENT YEAR : 20 0 7 08 ) ESSEL PROPACK LTD. (FORMERLY ESSEL PACKAGING LTD.) 10 TH FLOOR, TIMES TOWER KAMLA CITY, SENAPATI BAPAT MARG LOWER PAREL, MUMBAI 400 013 .. / APPELLANT V/S ADDL. COMMISSIONER OF INCOME TAX RANGE 6(2), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AAACE1568L / ASSESSEE BY : MR. RAJESH CHAMARIA / REVENUE BY : MR. ASHOK SURI / DATE OF HEARING 05 . 0 2 .201 4 / DATE OF ORDER 12.02.2014 / ORDER , / PER AMIT SHUKLA , J.M. TH E PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER DATED 22 ND NOVEMBER 2011 , PASSED BY THE COMMISSIONER (APPEALS) X I I , MUMBAI, FOR THE QUANTUM OF ESSEL PROPACK LTD. 2 ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 20 07 08 . 2 . GROUND NO.1 RELATES TO DISALLOWANCE OF ` 75,17,781 U /S 14A . 3 . THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PACKING MATERIAL I.E., MULTILAYER COLLAPSIBLE TUBES USED FOR DENTIFRICE COSMETICS AND OT HER APPLICATIONS. ON A PERUSAL OF THE BALANCE SHEET, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE COMPANY HAS MADE INVESTMENTS IN EQUITY SHARES OF ` 5,50,90,38,831 , WHICH MOSTLY CONSISTS OF INVESTMENT IN FOREIGN SUBSIDIARY AT ` 4,73,88,78,483 AND IN INDIA N SUBSIDIARY AT ` 77,01,60,348. INSOFAR AS THE INVESTMENT IN INDIAN SUBSIDIARY IS CONCERNED, THE ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY THE DISALLOWANCE UNDER SECTION 14A SHOULD NOT BE MADE. IN RESPONSE, THE ASSESSEE SUBMITTED THAT THE INVESTMENTS IN T HE SUBSIDIARY WERE MADE AS STRATEGIC INVESTMENTS AND, HENCE, IT WAS FOR BUSINESS PURPOSE. SECONDLY, THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE TO TAKE CARE OF THE INVESTMENT IN THE INDIAN SUBSIDIARY / ASSOCIATE COMPA NIES. THE DETAILS OF INTEREST FREE FUNDS WERE ALSO SUBMITTED WHICH HAS BEEN INCORPORATED BY THE ASSESSING OFFICER AT PAGE 9 OF THE ASSESSMENT ORDER. LASTLY, IT WAS ALSO SUBMITTED THAT THE PROVISIONS OF RULE 8D WILL NOT BE APPLICABLE IN THE ASSESSMENT YEAR 2007 08 IN VIEW OF THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. V/S DCIT, (2010), 328 ITR 081 (BOM.). THE ASSESSING OFFICER, HOWEVER, MADE THE DISALLOWANCE OF ` 51,23,052 AS PER THE PROVISIONS OF RULE 8D ON THE BASI S OF THE WORKING GIVEN IN PARA 5 AND 6 OF THE ASSESSMENT ORDER. THEREAFTER, HE NOTED THAT THE ASSESSEE, VIDE LETTER DATED 1 ST APRIL 2009, HAS ESTIMATED THE DISALLOWANCE UNDER SECTION 14A AT ` 75,17,781 IN CONSEQUENCE OF THE ORDER PASSED UNDER SECTION 154 D ATED 22 ND MARCH ESSEL PROPACK LTD. 3 2010. THUS, THE ASSESSING OFFICER MADE TOTAL DISALLOWANCE OF ` 75,50,781. 4 . T HE LEARNED COMMISSIONER (APPEALS) ALSO CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WHICH WAS DONE ON THE BASIS OF RULE 8D. 5 . THE LEARNED COUNSEL, BEFORE US, SUBMITTED THAT, ADMITTEDLY, RULE 8D WILL NOT BE APPLICABLE IN THIS YEAR IN VIEW OF THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. CO. LT D. (SUPRA). THEREFORE, THE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE ASSESSIN G OFFICER TO WORK OUT SOME REASONABLE BASIS AFTER CONSIDERING THE ACCOUNTS OF THE ASSESSEE. 6 . T HE LEARNED DEPARTMENTAL REPRESENTATIVE ALSO ADMITTED THAT PROVISIONS OF RULE 8D WILL NOT BE APPLICABLE IN THIS YEAR AND THE MATTER CAN BE RESTORED BACK TO THE FIL E OF THE ASSESSING OFFICER. 7 . AFTER HEARING BOTH THE PARTIES, WE FIND THAT THE HON'BLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. V/S DCIT, (2010), 328 ITR 081 (BOM.), HAS PARTLY REVERSED THE DECISION OF MUMBAI SPECIAL BENCH OF THE TRIBUNAL I N DAGA CAPITAL MANAGEMENT PVT. LTD. [2008] 119 TTJ (MUM.) 289 (SB) AND HAS HELD THAT RULE 8D IS NOT APPLICABLE PRIOR TO THE ASSESSMENT YEAR 2008 09. UNDER THESE CIRCUMSTANCES, WE DEEM IT APPROPRIATE TO SET ASIDE THE IMPUGNED ORDER PASSED BY THE COMMISSIONE R (APPEALS) AND RESTORE THE ISSUE TO THE FILE OF ASSESSING OFFICER FOR DENOVO ADJUDICATION IN LINE WITH THE PROPOSITIONS LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. (SUPRA) AND TO WORK OUT SOME REASONABLE BASIS AFTER EXAMINING THE ACCOUNTS AND GIVING PROPER OPPORTUNITY TO THE ASSESSEE TO EXPLAIN ITS CASE. IF THE ASSESSEE HAS SUFFICIENT INTEREST ESSEL PROPACK LTD. 4 FREE FUNDS FOR MAKING THE INVESTMENT IN SHARES OF SUBSIDIARY COMPANY, THEN NO DISALLOWANCE OF INTEREST EXPENDITURE SHOULD BE M ADE. THE ASSESSING OFFICER IS ALSO DIRECTED NOT TO APPLY THE PROVISIONS OF RULE - 8D, FOR THE IMPUGNED ASSESSMENT YEAR. CONSEQUENTLY, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 8 . GROUND NO.2 RELATES TO ADDITION ON ACCOUNT OF CENVAT CREDIT IN VALUATION O F STOCK . 9 . BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE TOOK A PLEA THAT IF THE ADDITION ON ACCOUNT OF CENVAT CREDIT IS MADE TO THE CLOSING STOCK, THEN THE SAME IS TO BE MADE ON THE OPENING STOCK AND PURCHASES. HE STRONGLY RELIED UPON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN CIT V/S MAHALAXMI GLASS WORKS PVT. LTD., [2009] 318 ITR 116 (BOM.) AND THE DECISION OF THE TRIBUNAL, MUMBAI BENCH, IN JINDAL IRON & STEEL CO. LTD. V/S DCIT, [2013] 33 TAXMAN.COM 96 (MUM.). 10 . THE LEARNED DEPARTMENTAL REP RESENTATIVE SUBMITTED THAT THE LEARNED COMMISSIONER (APPEALS) HAS ALREADY GIVEN THE BENEFIT OF ADJUSTMENT OF THE OPENING STOCK IN THE CURRENT YEAR AFTER TAKING INTO CONSIDERATION THE ADDITION MADE IN THE CLOSING STOCK OF THE PREVIOUS YEAR. HE THUS, STRONGL Y RELIED UPON THE FINDINGS OF THE LEARNED COMMISSIONER (APPEALS). 11 . AFTER CAREFULLY CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT COMPONENT OF CENVAT HAS TO BE ADDED TO THE CLOSING STOCK AND ADJUSTMENT HAS TO BE MADE ACCORDINGLY IN THE OPENING STOCK. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ADJUSTMENT HAS TO BE MADE ON THE PURCHASES ALSO. WE AGREE WITH THE CONTENTIONS OF THE LEARNED COUNSEL THAT FOR THE ESSEL PROPACK LTD. 5 PURPOSE OF VALUATION OF PURCHASE AND SAL E OF GOODS AND INVENTORIES ADJUSTMENT ON ACCOUNT OF TAX, DUTY, CESS OR FEE, ACTUALLY PAID OR INCURRED BY THE ASSESSEE HAS TO BE MADE IN VIEW OF THE PROVISIONS OF SECTION 145A OF THE ACT. THUS, THE ASSESSING OFFICER IS DIRECTED TO MAKE NECESSARY ADJUSTMENT AND GIVE CENVAT CREDIT ON ACCOUNT OF PURCHASES ALSO. GROUND NO.2 OF THE ASSESSEE IS TREATED PARTLY ALLOWED. 12 . 12. IN THE RESULT, ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 12 TH FEBRUARY 2014 ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH FEBRUARY 2014 SD / - . . N.K. SAINI ACCOUNTANT MEMBER SD / - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 12 TH FEBRUARY 2014 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI