LANXESS INDIA P.LTD, THANE V. ASST CIT CIR 1, THANE, THANE

ITA 1406/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70867 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 29-08-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 01-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS JOTHILAKSHMI NAYAK
• Assessee Lawyers: ARPIT AGARWAL
• Keywords: Earning of tax free income; Reassessment proceedings
• Section: 143(3); 14A; 148

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI . . , . ! , '# ' $ BEFORE SHRI I.P. BANSAL, JM AND SHRI SANJAY ARO RA, AM ./ I.T.A. NO. 1406/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2006-07 LANXESS INDIA PRIVATE LIMITED, PLOT NO.162,163,164, ROAD NO.27, WAGLE ESTATE, OPP. ITI COLLEGE, MIDC, THANE (W)- 400 604 % % % % / VS. THE ACIT, CIR.1, VARDAAN BLDG., MIDC, WAGLE INDUSTRIAL ESTATE, THANE. ' '# ./ ( ./ PAN/GIR NO. : AACCB 3880A ( ') / APPELLANT ) .. ( *+') / RESPONDENT ) ./ I.T.A. NO. 1780/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2006-07 THE ACIT, CIR.1, VARDAAN BLDG., MIDC, WAGLE INDUSTRIAL ESTATE, THANE. % % % % / VS. LANXESS INDIA PRIVATE LIMITED, PLOT NO.162,163,164, ROAD NO.27, WAGLE ESTATE, OPP. ITI COLLEGE, MIDC, THANE (W)- 400 604 ' '# ./ ( ./ PAN/GIR NO. : AACCB 3880A ( ') / APPELLANT ) .. ( *+') / RESPONDENT ) REVENUE BY MRS. JOTHILAKSHMI NAYAK ASSESSEE BY S/SHRI DHANESH BAFNA & ARPIT AGARWAL % 3 4# / DATE OF HEARING : 29/08/2013 5 & 3 4# / DATE OF PRONOUNCEMENT : 29/08/2013 ./ I.T.A. NO. 1406&1780/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2006-07 2 '6 / O R D E R PER I.P.BANSAL,J.M: THESE ARE CROSS APPEALS AND THEY ARE DIRECTED AGA INST THE ORDER PASSED BY LD. CIT(A)-II, THANE DATED 15/11/2011 FOR ASSESSMEN T YEAR 2006-07. THE GROUNDS OF APPEAL FOR BOTH THE APPEALS ARE AS UND ER: ASSESSEES GROUNDS OF APPEAL IN ITA NO.1406/MUM/201 2: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE HONBLE COMMISSIONER OF INCOME- TAX (APPEALS) {CIT(A)} ER RED IN CONFIRMING THE VALIDITY OF REASSESSMENT PROCEEDINGS INITIATED UNDER SECTION 14 8 OF THE INCOME-TAX ACT, 1961 (THE ACT). IT IS PRAYED THAT THE REASSESSMENT PROCEEDINGS BE T REATED AS BAD IN LAW, ILLEGAL AND VOID AB INITIO AND HENCE ORDER PASSED BY THE LEARNE D AO UNDER SECTION 143(3) R.W.S 147 OF THE ACT BE QUASHED. WITHOUT PREJUDICE TO GROUND 1 ABOVE 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE HONBLE CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE UNDER SECTION 1 4A OF THE ACT. IT IS PRAYED THAT THE LEARNED AO BE DIRECTED TO DEL ETE THE DISALLOWANCE UNDER SECTION 14A OF THE ACT. WITHOUT PREJUDICE TO GROUND 2 ABOVE 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE HONBLE CIT(A) ERRED IN HOLDING THAT HIGHER OF 0.5% OF THE AVERAGE INVESTMENT OR 1% OF PROPORTIONATE EXPENSES RELATABLE TO EXEMPT INCOME IS AN APPROPRIA TE METHOD OF DETERMINING DISALLOWANCE UNDER SECTION 14A OF THE ACT. IT IS PRAYED THAT THE METHOD ADOPTED BY HONBLE CIT (A) BE TREATED AS INAPPROPRIATE AND THE WITHOUT PREJUDICE COMPUTATION OF DISALLOW ANCE UNDER SECTION 14A FURNISHED BY THE APPELLANT, QUANTIFYING THE DISALLO WANCE AT RS. 7,78,755 BE UPHELD. REVENUES GROUNDS OF APPEAL IN ITA NO.1780/MUM/2012 : 1.ON THE FACTS OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE EXPENDITURE OF RS. 70,61,845/- WORKED OUT AND DISAL LOWED BY ASSESSING OFFICER U/S 1 4A R.W. RULE 8D. 2. ON THE FACTS OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ARRIVE AT THE AMOUNT OF ADDITI ON AT RS. 7,78,755/- BEING 0.5% OF THE AVERAGE INVESTMENT AMOUNTING TO RS. 15,57,51,00 0/- WITHOUT ANY BASIS AND THAT TO AFTER EXCLUDING THE STRATEGIC INVESTMENT OF RS. 85,15,39,000/- IN ITS SUBSIDIARY COMPANY. ./ I.T.A. NO. 1406&1780/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2006-07 3 3, ON THE FACTS OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DIRECTING THE ASSESSING OFFICER TO LOOK INTO THE TOTAL EXPENDITUR E INCURRED ON EXPENSES LIKE ADMINISTRATIVE EXPENSES, RENT, SALARIES, INTEREST P AID ON BORROWED FUNDS AND OTHER RELATABLE EXPENSES INCURRED OUT OF COMMON KITTY AND DISALLOW 1% OF THE PROPORTIONATE EXPENSES RELATABLE TO EXEMPT INCOME U /S 14A OF THE I.T. ACT, 1961. 2. BOTH THESE APPEALS RAISE A COMMON ISSUE I.E. RE GARDING DISALLOWANCE MADE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961(THE A CT). THE ASSESSEE COMPANY EARNED EXEMPTED DIVIDEND INCOME OF RS.2,63,19,130/ -. THE AO CALCULATED DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D AT RS.7 0,61,848/-. AN APPEAL WAS FILED BY THE ASSESSEE BEFORE LD. CIT(A). IT WAS CONTENDED THAT RULE 8D COULD NOT BE APPLIED, HENCE, AO WAS NOT RIGHT IN MAKING DISA LLOWANCE UNDER SECTION 14A R.W.R.8D. RELIANCE WAS PLACED ON THE DECISION OF H ONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT, 328 ITR 81(BOM). IN THE ALTERNATIVE, IT WAS SUBMITTED THAT THE DISALLOWANCE , IF ANY, SHOULD BE RESTRICTED TO RS.7,78,755/-. THE ALTERNATIVE CLAIM OF THE ASSESS EE WAS CONSIDERED BY LD. CIT(A) ALONG WITH OTHER SUBMISSIONS AND RELEVANT OB SERVATIONS OF LD. CIT(A) IN THIS REGARD AS UNDER: 5.13. THE APPELLANT HAS ALSO TAKEN AN ALTERNATIVE PLEA THAT 0.5% OF THE AVERAGE INVESTMENTS AMOUNTING TO RS.15,57,51,000/- ( AS WOR KED OUT AT PAGE 279 OF THE PAPER BOOK FILED BY THE APPELLANT) EXCLUDING THE ST RATEGIC INVESTMENT OF RS.85,15,39,000/- IN ITS SUBSIDIARY COMPANY M/S. LA NXESS ABS, SHOULD BE TAKEN FOR THE PURPOSES OF DISALLOWANCE UNDER SECTION 14A, WHICH ACCORDING TO THE APPELLANT COMES TO RS.7,78,7551-. 5.14. THE ABOVE PLEA OF THE APPELLANT CAN BE CONSID ERED FOR DISALLOWANCE U/S. 14A. ALTERNATIVELY, THE AC CAN ALSO LOOK INTO THE TOTAL EXPENDITURE INCURRED ON EXPENSES LIKE ADMINISTRATIVE EXPENSES, RENT, SALARIES, INTER EST PAID ON BORROWED FUNDS AND OTHER RELATABLE EXPENSES INCURRED OUT OF THE COMMON KITTY AND OUT OF THIS TOTAL EXPENDITURE UNDER THE ABOVE HEADS, 1% OF THE PROPOR TIONATE EXPENSES RELATABLE TO EXEMPT INCOME CAN BE DISALLOWED. 5.15. THE AC IS DIRECTED TO WORK OUT THE DISALLOWAN CE BY APPLYING BOTH THE ABOVE REFERRED METHODS AND DISALLOW THE PROPORTIONATE EXP ENSES, WHICHEVER ARE THE HIGHER. 3. THE DEPARTMENT IN ITS APPEAL IS AGITATING THE DECISION OF LD. CIT(A) VIDE WHICH HE HAS ACCEPTED THE ALTERNATE CONTENTION OF THE ASSESSEE. ON THE OTHER HAND, ASSESSEE IN ITS APPEAL IS CONTESTING THE DE CISION OF LD. CIT(A) VIDE WHICH HE HAS DIRECTED THE AO TO ADOPT HIGHER DISALLOWANCE BETWEEN TWO CALCULATIONS I.E. (I) CALCULATION SUBMITTED BY THE ASSESSEE, ACCORDIN G TO WHICH DISALLOWANCE OF ./ I.T.A. NO. 1406&1780/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2006-07 4 RS.7,78,775/- WAS COMPUTED AND (II) DISALLOWANCE RELATING TO TAKING ONE PERCENT OF THE PROPORTIONATE EXPENSES RELATABLE TO EXEMPT INCOME. 4. AFTER NARRATING THE FACTS IT WAS SUBMITTED BY LD . DR THAT DISALLOWANCE WAS RIGHTLY CALCULATED BY AO AT RS.70,61,845/- AND LD. CIT(A) HAS WRONGLY DELETED THE PART DISALLOWANCE. 5. ON THE OTHER HAND, IT WAS SUBMITTED BY LD. AR TH AT AFTER ACCEPTING THE ALTERNATIVE SUBMISSION OF THE ASSESSEE LD. CIT(A) SHOULD NOT HAVE DIRECTED THE AO TO TAKE HIGHER DISALLOWANCE IN RESPECT OF TWO ME THODS. LD. AR SUBMITTED THAT THERE ARE SEVERAL DECISIONS OF ITAT, ACCORDING TO W HICH, IN ASSESSMENT YEARS PRIOR TO A.Y 2008-09, 2% DISALLOWANCE ON DIVIDEND INCOME HAS BEEN CONSIDERED APPROPRIATE. LD. A.R REFERRED TO THE FOLLOWING DEC ISIONS: (1) CIT VS. GODREJ AGROVET LTD., I.T.APPEAL NO.934 /2011(BOM) DT.8/1/2013 (2) GODREJ AGROVET LTD. VS. ACIT, ITA NO.1629/M/20 09, A.Y. 2005-06 DATED 17/9/2010. (3) SYNGENTA INDIA LTD. VS. JCIT, ITA NO.2977/M/20 09, A.Y.2002-03, DATED 31/07/2013 (4) 3DPLM SOFTWARE SOLUTION LTD. VS. ITO, ITA NO. 4583 & 5839/M/2010 DATED 03/07/2013 (5) ITO VS. BPS/SECURITIES (P) LTD., ITA NO.123/K OL/2010 DT. 19/8/2010 (6) CIVIL ENGINEERS ENTERPRISES (P) LTD. VS. DCI T, ITA NO.859/KOL/2010 DATED 19/8/2010. (COPIES OF THE ABOVE ORDERS ARE PLACED ON RECORD AN D COPIES GIVEN TO LD. DR ALSO.) LD. AR FURTHER SUBMITTED THAT THIS POSITION HAS AL SO BEEN ACCEPTED BY HONBLE BOMBAY HIGH COURT VIDE THEIR ORDER DATED 8/1/2012 I N I.T APPEAL NO.934 OF 2011 IN THE CASE OF GODREJ AGROVET LTD.,(COPY PLACED ON RECORD.), THE OBSERVATIONS OF HONBLE HIGH COURT ARE AS UNDER: ./ I.T.A. NO. 1406&1780/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2006-07 5 4. SO FAR AS QUESTION (B) IS CONCERNED, THE TR IBUNAL IN ITS IMPUGNED ORDER DATED17.09.2010 WHILE APPLYING THE DECISION OF THIS COURT IN THE MATTER OF GODREJ (SUPRA) HA DISALLOWED THE EXPENDITURE ONLY TO THE E XTENT OF 2% OF THE TOTAL EXEMPT INCOME EARNED BY THE RESPONDENTASSESSEE ON THE BAS IS ITS ORDER DATED 27.02.2009 FOR THE ASSESSMENT YEAR 2002-2003 AND OR DER DATED 10.09.2009 FOR THE ASSESSMENT YEARS 20032004 AND 2004-05 WHEREIN DISALLOWANCE WAS RESTRICTED TO 2% OF THE EXEMPT INCOME. FURTHER, THE TRIBUNAL HAS REMANDED THE MATTER TO THE ASSESSING OFFICER TO VERIFY THE DISAL LOWANCE CLAIMED AND RESTRICT THE DISALLOWANCE ONLY TO THE EXTENT TO 2% OF THE TOTAL EXEMPT INCOME. \E FIND NO FAULT WITH THE ORDER OF THE TRIBUNAL. IN THE CIRCUMSTANCE S, WE SEE NO REASON TO ENTERTAIN N QUESTION (B) ALSO. 5. ACCORDINGLY, THE APPEAL IS DISMISSED WITH NO ORD ER AS TO COST. LD. AR SUBMITTED THAT EVEN IF DISALLOWANCE IS TO B E UPHELD, THE SAME SHOULD BE RESTRICTED TO 2% OF THE DIVIDEND INCOME. 6. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. IN THE PRESENT CASE THE DISALLOWANCE A S PER ALTERNATIVE SUBMISSION HAS BEEN CALCULATED BY THE ASSESSEE AT RS.7,78,755/ -, WHICH GOES TO 2.95% OF THE DIVIDEND INCOME. THE DEPARTMENT CANNOT POINT OUT A NY DIFFERENCE IN SUCH CALCULATION MADE BY THE ASSESSEE. THERE MAY BE CAS ES WHERE SUCH DISALLOWANCE IN RESPECT OF ASSESSMENT YEARS EARLIER TO A.Y 2008- 09 MAY HAVE BEEN UPHELD UPTO 5% OR MORE OF THE DIVIDEND INCOME BUT DETERMIN ING SUCH FACTOR, FACTS OF EACH CASE HAVE TO BE TAKEN INTO CONSIDERATION. SI NCE A CALCULATION HAS BEEN PLACED ON RECORD WHICH HAS NOT BEEN SHOWN TO BE INC ORRECT, THEREFORE, WE ARE OF THE OPINION THAT THE DISALLOWANCE SHOULD BE MADE AC CORDING TO THE SAID CALCULATION. WE, THEREFORE, UPHELD THE DISALLOWANC E TO THE EXTENT OF RS.7,78,755/- AND REST OF THE DISALLOWANCE IS DELE TED. 7. IN THE RESULT, REVENUES APPEAL IS DISMISSED AND APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON 29/08/2013 . '6 3 & #' 7 8%9 29/08/2013 3 : SD/- SD/- ( SANJAY ARORA) (I.P.BANSAL) /ACCOUNTANT MEMBER '# /JUDICIAL MEMBER MUMBAI; 8% DATED 29/08/2013 ./ I.T.A. NO. 1406&1780/MUM/2012 ( % % % % & & & & / ASSESSMENT YEAR: 2006-07 6 '6 '6 '6 '6 3 33 3 *4;< *4;< *4;< *4;< ='<&4 ='<&4 ='<&4 ='<&4 / COPY OF THE ORDER FORWARDED TO : 1. ') / THE APPELLANT 2. *+') / THE RESPONDENT. 3. > ( ) / THE CIT(A)- 4. > / CIT 5.