M/s. KODAK INDIA LTD., MUMBAI V. ACIT Rg. - 10(1), MUMBAI

ITA 1372/MUM/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3778 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 09-11-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 12-02-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ARVIND SONDE
• Keywords: Opportunity of being heard
• Section: 80HHC; 14A

Judgement Text

1 ITA NO 1372/MUM/2007 I II IN THE INCOME TAX APPELLATE TRIBUNAL N THE INCOME TAX APPELLATE TRIBUNAL N THE INCOME TAX APPELLATE TRIBUNAL N THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH MUMBAI BENCH MUMBAI BENCH MUMBAI BENCH J JJ J MUMBAI MUMBAI MUMBAI MUMBAI BEFORE BEFORE BEFORE BEFORE SHRI D MANMOHAN, VP & SHRI D MANMOHAN, VP & SHRI D MANMOHAN, VP & SHRI D MANMOHAN, VP & SHRI SHRI SHRI SHRI R R R R K PANDA, AM K PANDA, AM K PANDA, AM K PANDA, AM IT ITIT ITA NO A NO A NO A NO. . . . 1372/MUM/2007 1372/MUM/2007 1372/MUM/2007 1372/MUM/2007 (ASSESSMENT YEAR 2002-03) KODAK INDIA LTD 6THFLOOR B WING VINAY BHAVYA COMPLEX 159A CT ROAD, KALINA,SANTACRUZ (E) MUMBAI 98 VS THE ASST COMMR OF INCOME TAX RANGE 10(1), MUMBAI (APPELLANT) (RESPONDENT) PAN PAN PAN PAN AAACK2172J AAACK2172J AAACK2172J AAACK2172J ASSESSEE BY: SHRI ARVIND SONDE REVENUE BY: SHRI NARENDRA SINGH, CIT-DR O OO O R RR R D DD D E EE E R RR R PER PER PER PER R RR R K PANDA K PANDA K PANDA K PANDA: :: : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 17.11.2006 OF THE CIT(A)-X, MUMBAI RELATING TO ASSE SSMENT YEAR 2002-03. 2 AT THE TIME OF HEARING, THE LD COUNSEL FOR THE AS SESSEE DID NOT PRESS GROUNDS OF APPEAL NOS 1 AND 4 FOR WHICH, THE LD DR HAS NO OBJECTION. ACCORDINGLY, THE ABOVE TWO GROUNDS ARE DISMISSED AS NOT PRESSED. 3 GROUNDS OF APPEAL NO.2 BY THE ASSESSEE READS AS U NDER: THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIR MING THE DISALLOWANCE TO THE EXTENT OF ` 51,96,795/- OUT OF LOSS ON FOREIGN EXCHANGE FLUCTU ATION DEBITED TO THE PROFIT AND LOSS ACCOUNT OF THE YEAR ON THE CONTENTION THAT THE SAME IS PART OF THE COSTS OF THE MATERIAL AND S HOULD HAVE BEEN INCLUDED IN THE VALUE OF THE CLOSING STOCK. 3.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE HAD DEBITED AN AMOUNT OF ` 1,73,87,882/- AS FOREIGN EXCHANGE FLUCTUATION LOSS IN RESPECT OF RAW MATERIALS 2 ITA NO 1372/MUM/2007 AND FINISHED GOODS. THE ASSESSING OFFICER ASKED THE ASSESSEE TO FILE THE DETAILS OF FOREIGN EXCHANGE FLUCTUATION LOSS. AFTER CONSID ERING VARIOUS EXPLANATION GIVEN BY THE ASSESSEE, THE ASSESSING OFFICER DISALLOWED A N AMOUNT OF ` . 51,96,795/ ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION LOSS ATTRIB UTABLE TO THE CLOSING STOCK. 3.2 IN APPEAL, THE CIT(A) FOLLOWING THE ORDER OF HI S PREDECESSOR FOR ASSESSMENT YEAR 2001-2 UPHELD THE ACTION OF THE ASSESSING OFF ICER. 4 AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSE SSEE IS IN APPEAL HERE BEFORE US. 5 THE LD COUNSEL FOR THE ASSESSEE REFERRING TO THE COPY OF THE CONSOLIDATED ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AS SESSMENT YEARS 1996-97, 1997-98, 1998-99, 2000-01 AND 2001-02 SUBMITTED THA T THE TRIBUNAL IN THE PRECEDING ASSESSMENT YEARS AS WELL AS SUBSEQUENT YE ARS HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THEREFORE, THE MATTER MA Y BE SENT BACK TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO CONSIDE R THE ORDER OF THE TRIBUNAL AND PASS NECESSARY ORDER AFTER MAKING NECESSARY ADJUST MENTS AS THERE IS SOME CALCULATION ERROR IN THE ORDER OF THE ASSESSING OFF ICER 5.1 THE LD DR, ON THE OTHER HAND FAIRLY CONCEDED TH AT THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND HE HAS NO O BJECTION, IF THE ISSUE IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR C ONSIDERING THE ISSUE IN THE LIGHT OF THE DECISION OF THE TRIBUNAL. 3 ITA NO 1372/MUM/2007 6 AFTER CONSIDERING THE RIVAL SUBMISSIONS MADE BY B OTH THE PARTIES AND IN VIEW OF THE SUBMISSION MADE BY BOTH THE PARTIES THA T THE MATTER MAY BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER FOR DECI DING THE ISSUE IN LIGHT OF THE DECISION TRIBUNAL, WE DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL PAS S APPROPRIATE ORDER ON THIS ISSUE IN THE LIGHT OF THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. WE HOLD AND DIRECT ACCORDINGLY. THIS GROUND OF THE ASSESSEE IS ACCORDI NGLY ALLOWED FOR STATISTICAL PURPOSE. 7 GROUNDS OF APPEAL NO.3 BY THE ASSESSEE READS AS U NDER: THE LD CIT(A) ERRED ON FACTS AND IN LAW IN ATTRIBU TING EXPENSES OF `. 4,82,284/- AS BEING INCURRED BY THE APPELLANT IN RELATION TO THE DIVIDEND INCOME EXEMPT U/S 10(33) OF THE ACT AND DISALLOWING THE SAME U/S 14A OF THE ACT. 7.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSES SEE COMPANY HAS CLAIMED DIVIDEND INCOME AMOUNTING TO ` 37,13,803/- AS EXEMP T U/S 10(33) OF THE ACT. THE ASSESSING OFFICER ASKED THE ASSESSEE TO SUBMIT THE DETAILS OF EXPENSES ATTRIBUTABLE TO THE EARNING OF DIVIDEND INCOME IN V IEW OF THE PROVISIONS OF SEC. 14A OF THE I T ACT. THE ASSESSEE SUBMITTED THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING THE DIVIDEND INCOME. HOWEVER, THE ASSESSING OFFICER REJECTED THE EXPLANATION GIVEN BY THE ASSESSEE. AC CORDING TO HIM, THE EXPENSES INCURRED BY THE ASSESSEE COMPANY, WHICH HAS FACILIT ATED IN MAKING THE INVESTMENT IN SHARES CANNOT BE RULED OUT. RELYING ON THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S GHERZI EASTERN LTD VIDE ITA NO.6 562/BOM/94 , HE OBSERVED THAT THE ASSESSEE COMPANY HAS FAILED TO BRING ANYTHING ON RECORD TO SUBSTANTIATE 4 ITA NO 1372/MUM/2007 THEIR CLAIM OF NOT INCURRING ANY EXPENDITURE IN E ARNING THE DIVIDEND INCOME. THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF `. 4, 92,284/- U/S 14A OF THE I T ACT. WHILE DOING SO, HE NOTED THAT THE TOTAL RECEIP T IN THE YEAR IS ` 753.92 CRORES OUT OF WHICH THE DIVIDEND INCOME IS ` 37.213 LACS, WHICH IS 0.049%. THEREFORE, THE PROPORTIONATE DISALLOWANCE OF 0.049% OF THE TO TAL ADMINISTRATIVE AND OTHER EXPENSES OTHER THAN MANUFACTURING EXPENSES INCURRE D DURING THE YEAR OF ` 100.46 CRORE IS ATTRIBUTABLE TO THE DIVIDEND INCOME . HE ACCORDINGLY DISALLOWED AN AMOUNT OF RS. 4,82,284/- U/S 14A. 8 IN APPEAL, THE CIT(A) UPHELD THE ACTION OF THE AS SESSING OFFICER. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESSEE IS IN A PPEAL HERE BEFORE US. 9 THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT T HE ASSESSING OFFICER IN THE ASSESSMENT ORDER HAS MENTIONED THAT FOR CLAIMI NG PROPORTIONATE DISALLOWANCE ONLY THE TOTAL ADMINISTRATIVE AND OTH ER EXPENDITURE OTHER THAN MANUFACTURING EXPENSES INCURRED DURING THE YEAR HAS TO BE CONSIDERED AS ATTRIBUTABLE TO THE DIVIDEND INCOME CLAIMED EXEMP T U/S 10(33) OF THE ACT. HOWEVER, WHILE CALCULATING THE DISALLOWANCE, HE DID NOT EXCLUDE THE MANUFACTURING EXPENSES; THEREFORE, THE CALCULATION DETERMINED BY THE ASSESSING OFFICER IS ERRONEOUS. HE FURTHER SUBMITTED THAT I N THE EARLIER YEAR, THE CIT(A) HAS DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFI CER U/S 14A FOR WHICH THE REVENUE HAS NOT PREFERRED ANY APPEAL ON THIS ISSUE . FURTHER, ANY EXPENDITURE, WHICH IS ONLY ATTRIBUTABLE FOR EARNING OF DIVIDEND INCOME HAS TO BE DISALLOWED. REFERRING TO THE DECISION OF THE JURISDICTIONAL HIG H COURT IN THE CASE OF CIT VS MAHENDRA SOBHAGCHAND SHAH REPORTED IN 203 ITR 178, HE SUBMITTED THAT THE 5 ITA NO 1372/MUM/2007 ASSESSING OFFICER HAS NO POWER TO BIFURCATE THE EXP ENDITURE ON PRO-RATA BASIS AND DEDUCT PART OF IT FROM THE DIVIDEND INCOME SINC E SUCH ACTION IS NOT IN ACCORDANCE WITH THE SCHEME OF THE ACT AND PROVISOS OF SEC. 57 THEREOF. 9.1 THE LD DR ON THE OTHER HAND SUBMITTED THAT THE MATTER MAY BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJ UDICATION IN THE LIGHT OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF GODREJ & BOYCE MFG P LTD REPORTED IN 328 ITR 81. 10 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE PARTIES, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE DECISION S RELIED UPON BY BOTH THE PARTIES. THERE IS NO DISPUTE TO THE FACT THAT IN A BSENCE OF FURNISHING OF DETAILS BY THE ASSESSEE, THE ASSESSING OFFICER DISALLOWED AN A MOUNT OF RS. 4,82,284/- BEING PROPORTIONATE EXPENSES ATTRIBUTABLE TO EARNING OF D IVIDEND INCOME WHICH HAS BEEN CLAIMED AS EXEMPT. WE FIND IN ABSENCE OF ANY FURTHER DETAILS, THE CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER . IT IS THE SUBMISSION OF THE LD COUNSEL FOR THE ASSESSEE THAT THE CALCULATION MADE BY THE A SSESSING OFFICER, IS ERRONEOUS SINCE HE HAS INCLUDED THE MANUFACTURING EXPENSES FO R CALCULATING PROPORTIONATE DISALLOWANCE U/S 14A ALTHOUGH IN THE ASSESSMENT ORD ER, HE HAS MENTIONED THAT PROPORTIONATE DISALLOWANCE HAS TO BE CLAIMED ON THE BASIS OF ADMINISTRATIVE AND OTHER EXPENSES OTHER THAN MANUFACTURING EXPENSES IN CURRED DURING THE YEAR. IN OUR OPINION, THE MATTER NEEDS FRESH ADJUDICATION AT THE LAVEL OF THE ASSESSING OFFICER IN THE LIGHT OF THE LATEST DECISION OF TH E JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOYCE & MFG P LTD (SUPRA) WHEREIN IT HAS BEEN HELD THAT RULE 8D 6 ITA NO 1372/MUM/2007 IS NOT RETROSPECTIVE AND IS APPLICABLE FROM ASSESS MENT YEAR 2008-09 AND THE DISALLOWANCE FOR EARLIER PERIOD HAS TO BE DETERMINE D ON REASONABLE BASIS. THE ASSESSING OFFICER SHALL GIVE DUE OPPORTUNITY OF BEI NG HEARD TO THE ASSESSEE AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW. WE HOLD A ND DIRECT ACCORDINGLY. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWE D FOR STATISTICAL PURPOSE. 11 GROUND NO.5 BY THE ASSESSEE READS AS UNDER: THE LD CIT(A) ERRED ON FACTS AND IN LAW, IN EXCLUD ING INCOME RECEIVED ON ACCOUNT OF SALE OF SCRAP, MISCELLANEOUS INCOME AND PROFIT ON SALE OF INVESTMENTS FROM PROFITS OF BUSINESS FOR THE PURP OSE OF COMPUTING THE DEDUCTION U/S 80HHC OF THE ACT. 11.1 FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSE SSEE COMPANY HAS CLAIMED AN AMOUNT OF ` 3,06,90,211 AS DEDUCTION U/S 80HHC. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE INCOME RECEIVED ON ACCOUNT OF S ALE OF SCRAP AND LEASE RENTALS SHOULD NOT BE CONSIDERED FOR DISALLOWANCE U NDER CLAUSE (BAA) OF EXPLANATION TO SEC. 80HHC. REJECTING THE EXPLANATIO N OF THE ASSESSEE, THE ASSESSING OFFICER EXCLUDED THE SALE OF SCRAP AND LE ASE RENTALS INCOME FOR CALCULATING DEDUCTION U/S 80HHC. 11.2 IN APPEAL, THE CIT(A) FOLLOWING HIS ORDERS FOR ASSESSMENT YEARS 2000-01 AND 2001-02 REJECTED THE GROUND RAISED BY THE ASSESSEE AND UPHELD THE ACTION OF THE ASSESSING OFFICER . WHILE DOING S O, HE NOTED THAT HIS PREDECESSOR HAD HELD THAT INCOME GENERATED ON SALE OF SCRAP AND LEASE RENTALS ARE NOT DERIVED FROM OPERATIONAL ACTIVITY OF THE AS SESSEE COMPANY. 7 ITA NO 1372/MUM/2007 12 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSE SSEE IS IN APPEAL HERE BEFORE THE TRIBUNAL. 13 AFTER HEARING BOTH THE SIDES, WE FIND SIMILAR IS SUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2001-02. WE FIND, THE TRIBUNAL IN THE CONSOLIDATED ORDER DATED 31.5.2010 AT PARA 49 OF TH E ORDER HAD DISCUSSED THE ISSUE AND HAD HELD AS UNDER: BOTH THE REPRESENTATIVES AGREE BEFORE US THAT THE ISSUE ARISING OUT OF THE AFORESAID GROUND IS MUTATIS MUTADIS IDENTICAL TO TH E ISSUE DECIDED BY THE HONBLE GUJARAT HIGH COURT IN CIT VS HARJIVANDAS JU THABHAI ZAVERI,258 ITR 785(GUJ) AND THE HONBLE MADRAS HIGH COURT IN FENNE R (INDIA) LTD VS CIT 241 ITR 803 (MAD, WHEREIN THEIR LORDSHIPS HAVE GRAN TED RELIEF TO THE ASSESSEE FOR THE REASONS STATED THEREIN. RESPECTFUL LY FOLLOWING THE AFORESAID DECISIONS, WE SET ASIDE THE ORDER OF THE LD CIT(A) AND DIRECT THE ASSESSING OFFICER TO INCLUDE THE INCOME RECEIVED BY THE ASSESSEE ON ACCOUNT OF SALE OF SCRAP, LEASE RENTALS AND CAMERA REPAIR CHARGES FOR THE PURPOSE OF COMPUTING DEDUCTION U/S 80HHC OF THE ACT . THE ASSESSEE THUS GETS RELIEF ACCORDINGLY. 13.1 FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL, WE FIND THE TRIBUNAL AGAIN IN ASSESSEES OWN CASE VIDE ITA NO.6350/M/2008 ORDE R DATED 16.7.2010 FOR THE AY 2003-04 AT PARA 8 OF THE ORDER HAS ALLOWED THE C LAIM OF THE ASSESSEE BY HOLDING AS UNDER: COMING TO THE ISSUE OF LEASE RENTALS, WE FIND THAT THE TRIBUNAL IN THE ASSESSES OWN CASE FOR THE ASSESSMENT YEAR 2001-02 IN ITA NO.8923/MUM/2004, ORDER DATED 31 ST MAY, 2010, J BENCH, ALLOWED THE CLAIM OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE S AME, WE DIRECT THE ASSESSING OFFICER, NOT TO EXCLUDE LEASE RENTALS FRO M PROFITS OF BUSINESS, WHILE COMPUTING RELIEF U/S 80HHC. SIMILARLY, IN THE CASE OF SCRAP SALES, THE 8 ITA NO 1372/MUM/2007 ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE O RDER OF THE TRIBUNAL IN ITS OWN CASE, FOR THE ASST YEAR 2001-02. RESPECTFUL LY FOLLOWING THE COORDINATE BENCH ORDER, WE DIRECT THE ASSESSING OFF ICER NOT TO EXCLUDE PROCEEDS FROM SALE OF SCRAP FROM PROFITS OF BUSINES S, WHILE COMPUTING RELIEF U/S 80HHC. 14 RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBU NAL IN ASSESSEE S OWN CASE AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICE R NOT TO EXCLUDE THE LEASE RENTALS AND SALE OF SCRAP FROM PROFIT OF THE BUSIN ESS WHILE COMPUTING RELIEF U/S 80HHC. THE GROUND RAISED BY THE ASSESSEE IS ACCORD INGLY ALLOWED. 15 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THE 19 TH , DAY OF NOV 2010. SD/- SD/- ( (( ( D D D D MANMOHAN MANMOHAN MANMOHAN MANMOHAN ) )) ) VICE PRESIDENT ( (( ( R K PANDA R K PANDA R K PANDA R K PANDA ) )) ) ACCOUNTANT MEMBER PLACE: MUMBAI : DATED:19 TH , NOV 2010 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI