DCIT CC 21, MUMBAI V. UNITED SHIPPERS LTD, MUMBAI

ITA 1858/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79084 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 17-04-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 07-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Retrospective amendment
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BEN CH, MUMBAI JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOT; IKY JKO] U;KF;D LNL; ,OA JH JKTSUNZZ JH JKTSUNZZ JH JKTSUNZZ JH JKTSUNZZ] YS[KK LNL; DS LE{K ] YS[KK LNL; DS LE{K ] YS[KK LNL; DS LE{K ] YS[KK LNL; DS LE{K BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER VK;DJ VIHY LA[;K / ITA NO.1858/MUM/2011 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2006-07 ASST. COMMISSIOENR OF INCOME TAX, ROOM NO. 403, AAYAKAR BHAVAN, MUMBAI. VS. M/S. UNITED SHIPPERS LTD. UNITED INDIA BUILDING, 02 ND FLOOR, SIR P.M. ROAD, MUMBAI 400 001. PAN:-AAACU0764C APPELLANT RESPONDENT REVENUE BY/ JKTLO DH VKSJ LS JKTLO DH VKSJ LS JKTLO DH VKSJ LS JKTLO DH VKSJ LS SHRI MAURYA PRATAP ASSESSEE BY / FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS SHRI BHUPENDRA KARKHANIS ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 27.12.2010 OF CIT FOR A.Y. 2006-07. THE REVENUE HAS RAISED FOLLOW ING GROUNDS IN THIS APPEAL:- 1) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD.CIT(A) IS JUSTIFIED IN DIRECTION THE ASSESSING O FFICER TO DISALLOW THE EXPENSES U/S 14A ON REASONABLE BASIS BY FOLLOWING T HE DECISION OF BOMBAY HIGH COURT IN THE CASE OF MY S. GODREJ & BOYCE MFG. CO. LTD. VS. DCIT WHEREIN IT HAS HELD THAT PROVISION OF RULE 8D DOES NOT HAVE RETROSPECTIVE EFFECT WHEN THIS FINDING OF BOMBAY HI GH COURT HAS NOT BE DATE OF HEARING 02.6.2014 DATE OF PRONOUNCEMENT 04.6.2014 M/S. UNITED SHIPPERS LTD 2 | P A G E ACCEPTED AND DEPARTMENT IS IN APPEAL BEFORE THE SUP REME COURT ON THIS ISSUE. 2 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD.CIT(A) IS JUSTIFIED IN HOLDING THAT PROVISIONS O F SECTION 41(1) OF THE I.T.ACT ARE NOT APPLICABLE TO UNPROVED LIABILITIES SHOWN IN THE BALANCE SHEET ON THE GROUND THAT THE ASSESSEE HAS OFFERED T HESE LIABILITIES TO TAX IN THE A.Y.2010-11. 3) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD.CIT(A) IS JUSTIFIED IN HOLDING THAT UNPROVED LIA BILITIES CANNOT BE BROUGHT TO TAX IN THE CURRENT YEAR AS IT WILL AMOUN T TO DOUBLE TAXATION AS THE ASSESSEE HAS OFFERED THESE LIABILITIES TO TAX I N THE A.Y .2010-11. 4) THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND AND /OR TO ALTER ANY OF THE GROUNDS OF APPEAL, IF NEED BE. 2. GROUND NO. 1 IS REGARDING APPLICABILITY OF RULE 8D FOR DISALLOWANCE U/S 14A. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONS IDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFICER HAS MADE DISALLOWA NCE U/S 14A BY APPLYING RULE 8D OF INCOME TAX RULES. 3. ON APPEAL, CIT(A) HAS HELD THAT RULE 8D IS NOT A PPLICABLE FOR THE A.Y. UNDER CONSIDERATION IN VIEW OF THE DECISION OF HONBLE JU RISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO LTD. (328 ITR 81) AND ACC ORDINGLY RESTRICTED THE DISALLOWANCE BEING REASONABLE TO RS. 75,000/- IN PA RA 2.1 AS UNDER:- 2.1 I HAVE PERUSED THE ASSESSMENT ORDER AS WELL AS THE WRITTEN SUBMISSIONS OF THE APPELLANT. AFTER THE DECISION OF JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD., IT IS CLEAR THAT RULE 8D CANNOT BE APPLIED IN' THIS YEAR. HOWEVER, A REASONABLE AMOUNT OF INDIRECT EXPENDITURE CAN BE DI SALLOWED FOR EARNING SUCH EXEMPT INCOME. IN THE APPELLANT'S CASE , THE DIVIDEND ON INVESTMENTS BY WAY OF CHEQUES (THREE IN NUMBER), IS CREDITED DIRECTLY TO ITS ECS ACCOUNT. AS SUCH, IT WOULD BE FAIR AND R EASONABLE TO M/S. UNITED SHIPPERS LTD 3 | P A G E RESTRICT THE DISALLOWANCE TO RS. 75,000 / - ONLY, S O AS TO TAKE CA.RE OF ANY INDIRECT EXPENDITURE WHICH MAY HAVE BEE INCURRED TO EARN THIS INCOME. THE APPEAL ON THIS GROUND IS PARTLY ALLOWED . 4. THE GRIEVANCE OF THE REVENUE IN THIS APPEAL IS T HAT THE REVENUE HAS NOT ACCEPTED THE DECISION OF JURISDICTIONAL HIGH COURT. SINCE THE DECISION HAS NOT BEEN REVERSED OR STAYED, THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF CIT(A) QUA THIS ISSUE. 5. GROUND NO. 2 AND 3 IS REGARDING ADDITION U/S 41 (1) OF THE INCOME TAX ACT. 6. WE HAVE HEARD THE LD. DR AS WELL AS LD. AUTHORIZ ED REPRESENTATIVE AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASS ESSING OFFICER HAS NOTED FROM THE DETAILS FILED BY THE ASSESSEE THAT THE ASSESSEE HAS MADE THE PROVISIONS FOR LIABILITY OF TRANSSHIPMENT CHARGES FOR THE A.Y. UND ER CONSIDERATION AMOUNTING TO RS. 21,88,827/-. ON QUERY THE ASSESSEE SUBMITTED THAT T HESE CHARGES ARE PAID BY THE AGENTS BUT SINCE THE ASSESSEE HAS NOT RECEIVED THE BILLS FROM THE AGENTS FOR REIMBURSEMENT OF THE AMOUNTS, THEREFORE, THE ASSES SEE HAS SHOWN THESE CHARGES PAYABLE UNDER THE HEAD PROVISION FOR TRANSSHIPMENT CHARGES. THE ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATION OF THE ASSES EE AND MADE THE ADDITION OF THE SAID AMOUNT U/S 41(1) OF INCOME TAX ACT. 7. ON APPEAL, CIT(A) HAS DELETED THE ADDITION BY TA KING INTO CONSIDERATION THE FACT THAT THE ASSESSEE ITSELF HAS OFFERED THE SAID AMOUNT TO TAX IN THE A.Y. 2010-11 IN PARA 3.1 AS UNDER:- 3.1 I HAVE PERUSED THE FACTS O F THE CASE AND THE ASSESSMENT ORDER. IT IS A FACT THAT THE ASSESSEE MAINTAINS ACCOUNT ON MERCANTILE BASIS M/S. UNITED SHIPPERS LTD 4 | P A G E AND CAN MAKE A PROVISION FOR AN EXPENSE IN THE ACCOUNTS ON AN ESTIMATE BASIS, ONCE IT IS DETERMINED THAT THE LIAB ILITY ON AN EXPENDITURE HAS ACCRUED, EVEN THE ACTUAL DETERMINAT ION OF AMOUNT IS NOT POSSIBLE. IF THE BUSINESS LIABILITY ARRIVES ON AN ACCOUNTING YEAR, THE LIABILITY MAY HAVE TO BE QUANTIFIED AND D ISCHARGED AT A FUTURE DATE. THE LIABILITY TO PAY THE MUMBAI PORT T RUST HAS CRYSTALLIZED AND THE PAYMENT WAS MADE BY THE AGENTS APPOINTED BY THE COMPANY. AS SUCH, THE APPELLANT HAD. THE LIABIL ITY TOWARDS THE AGENTS IN QUESTION. IN THIS CONNECTION, THE APPELLANT POINTED OUT THAT THIS PROVISION OF LIABILITY AMOUNTING TO '{21,88,827/ - HAS BEEN O FFERED TO TAX IN A.Y. 2010-11 BY THE APPELLANT COMPANY. THE APPELLAN T FILED COMPUTATION OF TOTAL INCOME AND BALANCE SHEET & P&L A / C TOGETHER WITH THE SCHEDULES ALONG WITH LEDGER ACCOUNT OF MIS CELLANEOUS RECEIPT WHICH THE ACCOUNT HAS BEEN CREDITED WITH AN D IT IS CLEAR THAT THE APPELLANT HAS ITSELF CREDITED THE ACCOUNT U/S 41(1), WITH THIS LIABILITY FOR A.Y. 2010-1L. THE AO WAS NOT CORRECT 111 UNILATERALLY MAKING AN ADDITION U/S 41(1) BY ENTERING INTO DOMAI N OF THE BUSINESS MAN. THE ALLOWANCE AND DEDUCTION HAS TO BE ALLOWED FOR THIS YEAR TAKING INTO ACCOUNT THE FACT THAT THIS AM OUNT HAS BEEN OFFERED BY THE APPELLANT ITSELF AS ITS INCOME U/S 41(1) FOR A.Y. 2010- 11. OTHERWISE, IT WILL LEAD . TO DOUBLE ADDITION OF THE SAME RECEIPTS. THE DISALLOWANCE SO MADE IS DELETED. 8. WE FURTHER NOTE THAT FOR A.Y. 2010-11, THE ASSES SEE HAS OFFERED THE TOTAL INCOME OF RS. 13,50,00,000/- INCLUSIVE OF RS. 21,88 ,827/- UNDER THE HEAD MISCELLANEOUS INCOME COMPRISING OF THE SAME AMOUNT WHICH HAS BEEN ADDED BY THE ASSESSING OFFICER FOR THE YEAR UNDER CONSIDERAT ION. THEREFORE, WHEN THERE IS NO M/S. UNITED SHIPPERS LTD 5 | P A G E REVENUE EFFECT IN RESPECT OF THIS AMOUNT THEN WE D O NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF CIT(A) QUA THIS ISSUE AND THE SAME IS UPHELD. 9. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT TODAY I.E 4 -6-2014 SD/- SD/- ( RAJENDRA ) (VIJAY PAL RAO) (ACCOUNTANT MEMBER/ YS[KK LNL; YS[KK LNL; YS[KK LNL; YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; ) MUMBAI DATED 4-6 -2014 SKS SR. P.S, COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, J BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI