ACIT 3(2)(1), MUMBAI V. JINDAL DRUGS P.LTD, MUMBAI

ITA 1694/MUM/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1421 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 10-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: RAJEEV GUBGOTRA
• Keywords: Business income; Earning of tax free income; Speculation loss
• Section: 14A; 115JB; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI RAJESH KUMAR, ACCOUNTANT MEMBER AND SHRI AMARJEET SINGH, JUDICIAL MEMBER ITA NO.1694/M/2017 ASSESSMENT YEAR: 2012-13 ACIT 3(1)(2), R. NO.608, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 VS. M/S. JINDAL DRUGS PVT. LTD., 6 TH FLOOR, B & C, BAKHTAWAR, NARIMAN POINT, MUMBAI 400 021 PAN: AAACJ1000A (APPELLANT) (R ESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI RAJEEV GUBGOTRA, A.R. REVENUE BY : SHRI ASHOK MEHTA, D.R. DATE OF HEARING : 27.09.2018 DATE OF PRONOUNCEMENT : 14.11.2018 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVEN UE AGAINST THE ORDER DATED 28.11.2016 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2012-13. 2. THE FIRST ISSUE RAISED BY THE REVENUE IS AGAINST THE ORDER OF LD. CIT(A) WRONGLY ALLOWING THE CLAIM OF DEDUCTION OF RS.2,59,79,368/- UNDER SECTION 80IB OF THE ACT AS D ISALLOWED BY THE AO ON THE GROUND THAT PROFIT FROM HEDGING OF ME NTHOL OIL IN THE COMMODITY EXCHANGE DID NOT HAVE A NEXUS WITH TH E MANUFACTURING ACTIVITY OF THE JAMMU UNIT AND IS NO T ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF THE ACT. ITA NO.1694/M/2017 M/S. JINDAL DRUGS PVT. LTD. 2 3. THE LD. A.R., AT THE OUTSET, SUBMITTED BEFORE TH E BENCH THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE IN THE EARLIER YEAR BY THE DECISION OF THE CO-ORDINATE BENCH OF TH E TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.552/M/2015 & ORS. A.Y . 2011-12 & ORS. VIDE ORDER DATED 27.10.17 AND THEREFORE, FOL LOWING THE SAID DECISION THE GROUND RAISED BY THE REVENUE SHOU LD BE DISMISSED. 4. THE LD. D.R. FAIRLY AGREED TO THE CONTENTION OF THE LD. A.R. THAT ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BUT RELIED ON THE GROUND FILED BY THE REVENUE. 5. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ISSUE OF PROFI T FROM HEDGING OF MENTHOL OIL IN THE COMMODITY EXCHANGE WAS TREATE D AS BUSINESS INCOME. THE RELEVANT EXTRACT IS REPRODUCE D AS UNDER: 6. THIS YEAR IT APPEARS THAT THE ASSESSEE INCURRED LOSS FROM HEDGING CONTRACTS IN MENTHOL OIL AND THE ASSESSING OFFICER TREATED SUCH LOSS AS SPECULATION LOSS FOLLOWING THE STAND TAKEN IN EARLIER YEARS THAT THE INCOME FROM HEDGING CONTRACTS IS THE INCOME FROM SPECULATION BUSINESS. IN ASSESSEE'S OWN CASE THE COORDINATE BENCH IN EARLIER YEARS HELD THAT INCOME FROM HEDGIN G CONTRACTS IS A BUSINESS INCOME THUS RESPECTFULLY FOLLOWING THE SAID DECISION WE UP HOLD THE ORDER OF THE LD.CIT(A) IN HOLDING THAT HE HEDGING LOSS IS THE BUSINESS LOSS I N THE CASE OF THE ASSESSEE NOT A SPECULATION LOSS. GROUNDS RAISED BY THE REVENUE ON THIS ISSUE ARE DISMISSED. 6. WE, THEREFORE, RESPECTFULLY FOLLOWING THE DECISI ON OF THE CO- ORDINATE BENCH OF THE TRIBUNAL AS REFERRED TO ABOVE , UPHOLD THE DECISION OF THE LD. CIT(A) IN WHICH THE LD. CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE OR DER OF ITAT IN ASSESSEES OWN CASE IN A.Y. 2006-07. ACCORDINGLY, THE GROUND NO.1 IS DISMISSED BY UPHOLDING THE ORDER OF LD. CI T(A) ON THIS ISSUE. ITA NO.1694/M/2017 M/S. JINDAL DRUGS PVT. LTD. 3 7. THE ISSUE RAISED IN GROUND NO.2 BY THE REVENUE I S AGAINST THE ORDER OF LD. CIT(A) DIRECTING THE DELETION OF D ISALLOWANCE OF RS.1,90,365/- AS MADE BY THE AO TOWARDS EXPENDITURE INCURRED TOWARDS MAINTENANCE OF BUSINESS UNITS AT DAMAN WITH OUT APPRECIATING THE FACT THAT THE SAID UNIT HAS ALREAD Y CLOSED ITS BUSINESS ACTIVITY IN F.Y. 2005-06 AND NO MANUFACTUR ING ACTIVITY WAS BEING CARRIED ON/CONDUCTED AT THE DAMAN UNIT. THE LD. A.R., AT THE OUTSET, SUBMITTED THAT THE ISSUE IS SQ UARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF CO-ORD INATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.552/M /2015 & ORS. A.Y. 2011-12 & ORS. VIDE ORDER DATED 27.10.17. THE LD. A.R. SUBMITTED THAT THE SIMILAR ISSUE OF DISALLOWANCE OF EXPENSES OF DAMAN UNIT WAS INVOLVED IN THE SAID CASE AND THE CO -ORDINATE BENCH OF THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVO UR OF THE ASSESSEE BY DIRECTING THE AO TO ALLOW THE EXPENDITU RE IN COMPUTING THE INCOME OF THE ASSESSEE. 8. THE LD. D.R. FAIRLY CONCEDED TO THE ARGUMENT OF THE LD. A.R. BUT RELIED ON THE GROUNDS OF APPEAL. 9. HAVING HEARD THE RIVAL SUBMISSIONS, WE OBSERVE T HAT THE SIMILAR ISSUE OF DISALLOWANCE EXPENSES RELATING TO DAMAN UNIT WAS DECIDED BY THE CO-ORDINATE BENCH OF THE TRIBUNA L IN ITA NO.552/M/2015 & ORS. A.Y. 2011-12 & ORS. VIDE ORDER DATED 27.10.17 WHEREIN THE CO-ORDINATE BENCH OF THE TRIBU NAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY DIRE CTING THE AO TO ALLOW THE SAID EXPENDITURE FOR COMPUTING THE INCOM E OF THE ASSESSEE. THE CO-ORDINATE BENCH OF THE TRIBUNAL HA S HELD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IN NORMAL MAINTENANCE OF THE BUSINESS HAS TO BE ALLOWED IN SP ITE OF ITA NO.1694/M/2017 M/S. JINDAL DRUGS PVT. LTD. 4 CLOSURE OF THE OPERATION OF THE UNIT. WE, THEREFOR E, RESPECTFULLY FOLLOWING THE SAME, DIRECT THE AO TO ALLOW THE SAID EXPENDITURE. ACCORDINGLY, WE UPHOLD THE ORDER OF LD. CIT(A) BY D ISMISSING THE GROUND OF THE REVENUE. 10. THE ISSUE RAISED IN GROUND NO.3 IS AGAINST THE DELETION OF DISALLOWANCE OF RS.22,25,166/- BY LD. CIT(A) AGAIN ST THE ADDITION MADE BY THE AO UNDER SECTION 14A OF THE AC T READ WITH RULE 8D OF IT RULES. 11. THE FACTS IN BRIEF ARE THAT THE ASSESSEE EARNED A DIVIDEND OF RS.54,79,795/- AGAINST WHICH THE ASSESSEE APPORTION ED RS.72,834/- AS EXPENSES INCURRED FOR EARNING THE SA ID INCOME. THE AO WAS NOT SATISFIED WITH THE WORKING OF THE AS SESSEE AND ACCORDINGLY REWORKED THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D AT RS.22,98,000/- COMPRISING DISALLOWA NCE OF INTEREST OF RS.12,51,854/ UNDER RULE 8D(2)(II) AN D RS.9,73,312/- UNDER RULE 8D2(III) BESIDES THE SUO-M OTO DISALLOWANCE OF THE ASSESSEE RS.72,834/- UNDER RULE 8D2(I). THUS AFTER ALLOWING THE CREDIT OF SUO-MOTO DISALLOW ANCE BY THE ASSESSEE ADDED A NET AMOUNT OF RS.22,25,166/- TO TH E INCOME OF THE ASSESSEE. 12. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) AL LOWED THE APPEAL OF THE ASSESSEE ON TWO GROUNDS. FIRST, THE LD. CIT(A) CAME TO THE CONCLUSION THAT AO HAS NOT RECORDED ANY SATISFACTION AS TO THE SUO-MOTO DISALLOWANCE BEING INCORRECT HAVING REGARDS TO THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE IN ABSENCE OF WHICH RULE 8D COULD NOT BE I NVOKED AND IN SUPPORT OF HIS CONCLUSION, THE LD. CIT(A) RELIED ON A SERIES OF ITA NO.1694/M/2017 M/S. JINDAL DRUGS PVT. LTD. 5 DECISIONS AS MENTIONED IN PARA 5.5.3 OF THE APPELLA TE ORDER. SECOND, THE LD. CIT(A) HAS RECORDED A FINDING OF TH E FACT THAT ASSESSEES OWN FUNDS COMPRISING SHARE CAPITAL AND R ESERVES & SURPLUS ARE RS.544.89 CRORES WHICH WERE FAR MORE TH AN THE INVESTMENTS OF THE ASSESSEE IN SECURITIES YIELDING DIVIDEND INCOME I.E. RS.15.80 CRORE AND THEREFORE NO DISALLO WANCE AS TO THE PROPORTIONATE DISALLOWANCE OF INTEREST UNDER RU LE 8D2(II) IS REQUIRED TO BE MADE. THE LD. CIT(A) RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. R ELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM) WHEREIN IT HAS BEEN HELD THAT WHERE THE INTEREST FREE FUNDS AV AILABLE TO THE ASSESSEE IN THE BUSINESS ARE SUFFICIENT TO MEET THE INVESTMENTS THEN THE PRESUMPTION HAS TO BE DRAWN THAT INVESTMEN TS WERE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSES SEE. FINALLY, THE LD. CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE. 13. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT SO FAR AS THE DISALLOWANCE UN DER RULE 8D2(II) IS CONCERNED, THERE IS FAULT OR INFIRMITY IN THE ORDER OF LD. CIT(A) AS THE LD. CIT(A) HAS RECORDED A FINDING THAT ASSESSEES OWN FUNDS WERE FAR MORE THAN THE INTERES T FREE FUNDS AVAILABLE WITH THE ASSESSEE AND THE LD. CIT(A) HAS RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F CIT VS. RELIANCE UTILITIES AND POWER LTD. (SUPRA). ON THE DISALLOWANCE UNDER RULE 8D2(III), WE FIND THAT THE CO-ORDINATE B ENCH OF THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.552/M /2015 & ORS. A.Y. 2011-12 & ORS. VIDE ORDER DATED 27.10.17 DIRECTED THE DISALLOWANCE OF 5% OF THE DIVIDEND INCOME WHICH IS AS PER THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL I N ASSESSEES ITA NO.1694/M/2017 M/S. JINDAL DRUGS PVT. LTD. 6 OWN CASE IN EARLIER YEAR. THE RELEVANT PARA IS REP RODUCED AS UNDER: 18. IT IS THE SUBMISSION BEFORE US THAT A REASONAB LE DISALLOWANCE MAY BE ESTIMATED. THEREFORE, TAKING THE TOTALITY OF FACTS AND CIRCUMSTANCES INTO CONSIDERATION, WE DIRECT THE ASSESSING OFFICER TO R ESTRICT THE DISALLOWANCE UNDER RULE 8D(2)(III) TO 5% OF THE DIVIDEND INCOME EARNED BY THE ASSESSEE. IN THE RESULT THE GROUND RAISED BY THE ASSESSEE IS PARTLY ALLOWED . WE THEREFORE FOLLOWING THE EARLIER ORDER OF THE TRI BUNAL DIRECT THE AO TO MAKE DISALLOWANCE AT 5% OF THE EXEMPT INCOME UNDER RULE 8D2(III). TO SUM UP THE ORDER OF CIT(A) IS AFFIRMED ON DELETION OF DISALLOWANCE UNDER RULE 8D2(II) WHILE THE DISALLOWA NCE UNDER RULE 8D2(III) IS TO BE MADE AT 5% OF THE EXEMPT INC OME. THE GROUND IS PARTLY ALLOWED. 14. THE ISSUE RAISED IN GROUND NO.4 IS AGAINST THE DELETION OF DISALLOWANCE BY LD. CIT(A) AS MADE BY THE AO UNDER SECTION14A TO THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT. 15. THE FACTS IN BRIEF ARE THAT THE AO HAS ADDED TH E DISALLOWANCE UNDER SECTION14A TO THE BOOK PROFIT OF THE ASSESSEE UNDER SECTION 115JB OF THE ACT. 16. WE HAVE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT TH E ISSUE INVOLVED IN THE PRESENT CASE IS COVERED BY THE DECI SION OF THE SPECIAL BENCH IN THE CASE OF ACIT VS. VIREET INVESTM ENTS PVT. LTD. (2017) 82 TAXMAN.COM 415 (DEL. TRIB. SB) WHER EIN THE SPECIAL BENCH HAS HELD THAT THE COMPUTATION UNDER C LAUSE F OF EXPLANATION 1 TO SECTION 115JB SUB SECTION (II) IS TO BE MADE WITHOUT RESORTING TO THE COMPUTATION AS CONTEMPLATE D UNDER SECTION 14A READ WITH RULE 8D. WE, THEREFORE, FOLL OWING THE SAME DIRECT THE AO DECIDE THE ISSUE IN TERMS OF THE SPEC IAL BENCH ITA NO.1694/M/2017 M/S. JINDAL DRUGS PVT. LTD. 7 DECISIONS AS STATED ABOVE. THE GROUND OF THE REVEN UE IS DISMISSED. 17. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.11.2018. SD/- SD/- ( AMARJEET SINGH) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 14.11.2018. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORDER DY/ASS TT. REGISTRAR, ITAT, MUMBAI.