PALLONJI CO P. LTD, MUMBAI V. ADDL CIT RG 2(2), MUMBAI

ITA 1336/MUM/2009

• Counselvise Citation: 133619914 RSA 2009
• Duration Of Justice: 4 year(s) 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 17-12-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 27-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: J D MISTRI P B CHHAPGAR; A M PATEL IZRFKHZ DH LS
• Keywords: Depreciation; Unabsorbed depreciation
• Section: 14A

Judgement Text

PALLONJI CO P. LTD. - 1 - VK;DJ VIHYH; VF/KDJ.K LH U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI JH ,P- ,Y- DKJOK] V/;{K ,OA JH JKTSUNZ FLAG YS[KK L NL; DS LE{K BEFORE HONBLE PRESIDENT SHRI H.L. KARWA AND SHRI R AJENDRA SINGH ACCOUNTANT MEMBER VK;DJ VIHY LA[;K /ITA NO.1336/MUM/2009 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2005-06 PALLONJI CO P. LTD. C/O TAJ PRINTING WORKS, 46/A, CAWASJI PATEL STREET FORT, MUMBAI 400 001 CUKE @ VS. ADDL CIT RG 2(2) AAYKAR BHAVAN, M.K. MARG MUMBAI 400 020. PAN:_AAACM3525B VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT VK;DJ VIHY LA[;K /ITA NO.2065/MUM/2009 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2005-06 ADDL CIT RG 2(2) AAYKAR BHAVAN, M.K. MARG MUMBAI 400 020. CUKE @ VS. PALLONJI CO P. LTD. C/O TAJ PRINTING WORKS, 46/A, CAWASJI PATEL STREET FORT, MUMBAI 400 001. VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT VIHYKFKHZ DH VKSJ LS @ APPELLANT BY SHRI J.D. MISTRI, P.B. CHHAPGAR AND MS. A.M. PATEL IZR;FKHZ DH VKSJ LS @ RESPONDENT BY SHRI DEEPAK SUTARIYA VKNS'K@ VKNS'K@ VKNS'K@ VKNS'K@ ORDER PER RAJENDRA SINGH THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 28.1.2009 OF CIT(A) FOR THE ASSESSMENT YEARS 2005-06. THE DI SPUTES RAISED IN THESE LQUOKBZ DH RKJH[K @ DATE OF HEARING 27-08-2013 ?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT 30-08-2013 PALLONJI CO P. LTD. - 2 - APPEALS RELATE TO DISALLOWANCE OF CLAIM OF DEDUCTIO N U/S 80IA AND DISALLOWANCE U/S 14A OF THE INCOME TAX ACT. 2. WE FIRST TAKE UP THE APPEAL OF THE ASSESSEE IN I TA NO. 1336/MUM/2009 . THE ONLY DISPUTE RAISED IN THIS APPEAL BY THE ASS ESSEE IS REGARDING DISALLOWANCE OF EXPENSES RELATING TO E XEMPT INCOME U/S 14A OF THE INCOME TAX ACT. THE AO DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD EARNED SUBSTANTIAL INTEREST O N TAX FREE BONDS AMOUNTING TO RS. 1,21,24,500/- WHICH WAS CLAIMED A S EXEMPT U/S 10(15) OF THE INCOME TAX ACT. THE AO ALSO NOTED THAT THE E XEMPT INCOME CONSTITUTED 2.24% OF TOTAL EARNINGS. HE, THEREFORE, DISALLOWED 2.24% OF ADMINISTRATIVE EXPENSES AMOUNTING TO RS. 8,31,238/- . 2.1 IN APPEAL CIT(A) FOLLOWING THE DECISION OF SPEC IAL BENCH OF TRIBUNAL IN CASE OF DAGA CAPITAL MANAGEMENT PVT . LTD. ( 26 SOT 603) HELD THAT DISALLOWANCE OF EXPENSES U/S 14A WAS REQUIRED TO BE MADE AS PER RULE 8D WHICH WAS HAVING RETROSPECTIVE APPLICATION IN VIEW OF THE DECISION O F SPECIAL BENCH. HE, THEREFORE DIRECTED THE AO TO MAKE DISALLOWANCE AS PER RULE 8D . AGGRIEVED BY THE DECISION OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL. 2.2 WE HAVE HEARD BOTH THE PARTIES IN THE MATTER. T HE DISPUTE IS REGARDING DISALLOWANCE OF EXPENSES RELATING TO TAX FREE INCOME. THE AO HAD MADE DISALLOWANCE ON AVERAGE BASIS. HOWEVER THE CIT (A) HAS DIRECTED THE AO TO MAKE DISALLOWANCE AS PER RULE 8D. HONBLE HIG H COURT OF BOMBAY IN CASE OF GODREJ BOYCE MFG CO LTD. (328 ITR 81) HAVE HELD THAT RULE 8D IS APPLICABLE ONLY FROM ASSESSMENT YEAR 2008-09. THE A SSESSMENT YEAR INVOLVED IN THE PRESENT APPEAL IS ASSESSMENT YEAR 2 005-06 AND, THEREFORE, THE RULE 8D IN NOT APPLICABLE IN THIS YEAR. IN RESP ECT OF PRIOR YEARS, HONBLE HIGH COURT HAVE HELD THAT THE DISALLOWANCE IS REQUI RED TO BE MADE BOTH OF DIRECT AND INDIRECT EXPENSES AT A REASONABLE BASIS. THE AO HAS ADOPTED A PARTICULAR METHOD FOR DISALLOWANCE OF EXPENSES THE MERIT OF WHICH HAS NOT BEEN GONE INTO BY CIT(A) AS HE STRAIGHTAWAY APPLIE D RULE 8D. WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A) AND RESTOR E THE MATTER BACK TO HIM FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATI ON IN THE LIGHT OF PALLONJI CO P. LTD. - 3 - JUDGMENT OF HONBLE HIGH COURT OF BOMBAY IN CASE OF GODREJ BOYCE MFG CO LTD. (SUPRA) AND AFTER ALLOWING OPPORTUNITY OF HEAR ING TO THE ASSESSEE. 3. THE APPEAL OF THE REVENUE IN ITA NO. 2065/MUM/20 09. THE ONLY DISPUTE RAISED BY THE REVENUE IN THIS APPEAL IS REG ARDING ALLOWABILITY OF CLAIM OF DEDUCTION U/S 80IA OF THE INCOME TAX ACT. 3.1 BRIEFLY STATED, FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY HAD CONSTRUCTED WIND MILL ELECTRIC GENERATORS WHICH WER E INSTALLED IN FINANCIAL YEAR 1995-96 AT PAZHAVOOR VILLAGE OF TIRUNELVELI DI STRICT IN TAMILNADU. THE ASSESSEE HAD CLAIMED 100% DEPRECIATION ON THE COST OF WIND MILLS IN ASSESSMENT YEAR 1996-97 WHICH HAD BEEN ALLOWED. AO ASKED THE ASSESSEE TO GIVE DETAILS OF UNABSORBED DEPRECIATION AVAILABL E IN THE WIND MILL UNIT IN ASSESSMENT YEAR 2005-06. AS PER THE AO THE ASSESSEE SUBMITTED THAT UNABSORBED DEPRECIATION AVAILABLE FOR SET OFF IN AS SESSMENT YEAR 2005-06 WAS RS. 1,89,04,139/-. THE AO, THEREFORE, OBSERVED THAT THE CARRY FORWARD UNABSORBED DEPRECIATION OF THE EARLIER YEARS RELATI NG TO THE WIND MILLS UNIT WAS SUFFICIENT TO ABSORB THE ENTIRE PROFIT OF THIS YEAR. HE REFERRED TO THE PROVISIONS OF SECTION 80IA (7) AS PER WHICH DEDUCTI ON U/S 80IA IN RESPECT OF A PARTICULAR ELIGIBLE BUSINESS HAS TO BE COMPUTED A S IF THAT WAS THE ONLY SOURCE OF THE INCOME. HE ALSO REFERRED TO THE CIRCU LAR NO. 281 DATED 22.9.1980 ISSUED BY CBDT EMPHASIZING THE POSITION. THE AO, THEREFORE, HELD THAT NO DEDUCTION U/S 80IA WAS ALLOWABLE TO TH E ASSESSEE IN RESPECT OF WIND MILL PROJECT AS AFTER THE SETTING OFF THE UNAB SORBED DEPRECIATION, THERE WAS NET LOSS OF RS. 1,49,22,540/-. AO ALSO OBSERVED THAT SIMILAR DISALLOWANCE U/S 80IA FOR THE SAME REASONS HAD BEEN MADE IN ASSESSMENT YEARS 1997-98 AND 1998-99 WHICH HAD BEEN CONFIRMED THE CIT(A) BUT THE TRIBUNAL HAD ALLOWED THE CLAIM OF THE ASSESSEE. HOW EVER, THE DECISION OF THE TRIBUNAL HAD NOT BEEN ACCEPTED BY THE DEPARTMEN T . THE AO, THEREFORE, MADE THE DISALLOWANCE THIS YEAR ALSO. 3.2 IN APPEAL, CIT(A) OBSERVED THAT THE CLAIM OF TH E ASSESSEE HAD BEEN ALLOWED BY THE TRIBUNAL IN ASSESSMENT YEAR 1997-98 IN ITA NO. 2844/MUM/2000 AND IN ASSESSMENT YEAR 1998-99 IN ITA NO. PALLONJI CO P. LTD. - 4 - 5568/MUM/2003. IT WAS ALSO OBSERVED BY HIM THAT TRI BUNAL HAD ALSO ALLOWED THE CLAIM IN THE IMMEDIATE PRECEDING YEAR I .E. ASSESSMENT YEAR 2004-05. CIT(A) ALSO REFERRED TO THE DECISION OF CH ENNAI BENCH OF TRIBUNAL IN CASE OF MOHAN BREWERIES AND DISTILLERIES LTD. VS . ACIT (114 TTJ 532) IN WHICH IT HAS BEEN HELD THAT PROVISIONS OF SECTION 8 0IA (5) WOULD NOT APPLY IF LOSS PERTAINED TO THE PERIOD PRIOR TO THE FIRST YEA R IN WHICH THE ASSESSEE CLAIMED DEDUCTION U/S 80IA OF THE INCOME TAX ACT. IN THIS CASE, THE DEPRECIATION PERTAINED TO ASSESSMENT YEAR 1996-97 W HEREAS THE ASSESSEE HAD CLAIMED EXEMPTION FOR THE FIRST TIME IN ASSESSM ENT YEAR 1997-98. CIT(A), THEREFORE, FOLLOWING THE DECISION OF TRIBUN AL IN THE ASSESSEES OWN CASE IN THE EARLIER YEARS ALLOWED THE CLAIM OF THE ASSESSEE, AGGRIEVED BY WHICH THE REVENUE IS IN APPEAL BEFORE TRIBUNAL. 4. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECO RDS AND CONSIDERED MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABI LITY OF CLAIM OF DEDUCTION U/S 80IA OF THE INCOME TAX AC IN RESPECT OF WIND MI LL PROJECT WHICH HAD BEEN SET UP BY THE ASSESSEE IN THE ASSESSMENT YEAR 1996-97 IN WHICH YEAR 100% DEPRECIATION HAD BEEN ALLOWED TO THE ASSESSEE. THE ASSESSEE CLAIMED DEDUCTION U/S 80IA FROM ASSESSMENT YEAR 1997-98 ONW ARDS. THE AO HAD DISALLOWED THE CLAIM ON THE GROUND THAT PROFIT OF T HE WIND MILL PROJECT AFTER SETTING OFF THE DEPRECIATION OF THE EARLIER YEAR WA S NIL AND, THEREFORE, NO DEDUCTION WAS REQUIRED TO BE MADE. THE ORDERS OF AO IN ASSESSMENT YEAR 1997-98 AND 1998-99 HAD BEEN UPHELD BY THE CIT(A) B UT IN FURTHER APPEAL, TRIBUNAL REVERSED THE ORDER OF CIT(A) AND ALLOWED T HE CLAIM OF THE ASSESSEE. THE TRIBUNAL IN ASSESSMENT YEAR 1997-98(6 SOT 287) NOTED THAT ENTIRE DEPRECIATION OF THE WIND MILL PROJECT HAD BEEN ABSO RBED AGAINST THE PROFIT OF OTHER BUSINESSES IN ASSESSMENT YEAR 1996-97. THE REFORE, THE AO WAS NOT JUSTIFIED IN COMPUTING THE PROFIT IN ASSESSMENT YEA R 1997-98 ON THE BASIS OF NOTIONAL SETTING OFF OF UNABSORBED DEPRECIATION PERTAINING TO THE WIND MILL PROJECT IN THE EARLIER YEAR. THE TRIBUNAL ACCO RDINGLY HELD THAT THE CLAIM OF DEDUCTION U/S 80IA WAS ALLOWABLE TO THE ASSESSEE . THE SAID DECISION OF THE TRIBUNAL WAS FOLLOWED BY THE TRIBUNAL IN ASSESS MENT YEAR 1998-99 IN ITA NO. 5568/MUM/2003. THE SAME DECISION WAS ALSO F OLLOWED IN ASSESSMENT YEAR 2004-05. THEREFORE, IN OUR VIEW, TH E ISSUE RAISED IN THIS PALLONJI CO P. LTD. - 5 - APPEAL IS COVERED BY THE DECISION OF TRIBUNAL IN AS SESSEES OWN CASE IN EARLIER YEARS. WE, THEREFORE, SEE NO INFIRMITY IN T HE ORDER OF CIT(A) ALLOWING THE CLAIM OF THE ASSESSEE FOLLOWING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE IN EARLIER YEARS. THE ORDER OF CIT(A) IS A CCORDINGLY UPHELD. 5. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES WHEREAS THAT BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED COURT ON 30 -8-2013 SD/- SD/- (H.L. KARWA) (RAJENDRA SINGH) HONBLE PRESIDENT ACCOUNTANT MEMBER SKS SR. P.S, MUMBAI DATED .8.2013 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI