NOCIL LTD, MUMBAI V. DCIT 1(2), MUMBAI

ITA 1993/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78650 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Assessment Year: 2007-2008
• Appeal Filed On: 10-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MOURYA PRATAP
• Keywords: Opportunity of being heard; Rule of consistency; Earning of tax free income; Deemed to accrue or arise in india
• Section: 14A; 115JB; 145

Judgement Text

J IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI SANJAY GARG, JM ./I.T.A. NO.1993/M/2011 ( / ASSESSMENT YEAR: 2007 - 2008 ) NOCIL LIMITED, MAFATLAL HOUSE, BACKBAY RECLAMATION, MUMBAI - 400 020. / VS. THE DY. COMMISSIONER OF INCOME TAX - 1(2), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400020. ./ PAN : AAACN 4412 E ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : MS. ARATI VISSANJI / RESPONDENT BY : SHRI MOURYA PRATAP, DR / DATE OF HEARING : 01.04.2014 / DATE OF PRONOUNCEMENT : 01.04.2014 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 10.3.2011 IS AGAINST THE ORDER OF THE CIT (A) - 2, MUMBAI DATED 21.1.2011 FOR THE ASSESSMENT YEAR 2007 - 2008. 2. IN THIS APPEAL, THE ASSESSEE RAISED THE GROUNDS WHICH READ AS UNDER: I . IN ASSESSING THE INCOME OF THE APPELLANT UNDER THE NORMAL PROVISIONS OF THE ACT, I.E, OTHER THAN U/S 115JB OF THE ACT. 1. ADJUSTMENT U/S 145A OF THE ACT 1961 IN RESPECT OF CENVAT 9,47,286/ - 1.1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN CONFIRMING THE MANNER OF ADJUSTMENT CARRIED OUT BY THE AO UNDER SECTION 145 OF THE ACT OF ADJUSTING CENVAT ONLY IN THE VALUE OF OPENING AND CLOSING STOCK. 1.2. IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) OUGHT TO HAVE DIRECTED THE AO TO MAKE ADJUSTMENT OF CENVAT NOT ONLY IN THE VALUE OF OPENING AND CLOSING STOCK BUT ALSO TO THE VALUE OF PURCHASE AND SALES IN TERMS OF PROVISIONS OF SECTION 145A OF THE ACT AND CONSEQUENTLY OUGHT TO HAVE DIRECTED THE AO TO CA RRY OUT ADJUSTMENT OF CENVAT TO VALUE OF PURCHASES AND SALES. 2. DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT RS.4,51,405 / - 2.1 IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO OF DISALL OWING EXPENDITURE OF RS. 4,51,405/ - U/S 14A OF THE ACT BY INVOKING RULE 8D(1)(III) OF THE INCOME TAX RULES, 1962. 2.2. IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) OUGHT TO HAVE DIRECTED THE AO THAT NO DISALLOWANCE OF EXPEN DITURE WAS REQUIRED TO BE MADE U/S 14A OF THE ACT AND CONSEQUENTLY, OUGHT TO HAVE 2 DIRECTED THE AO TO DELETE THE DISALLOWANCE MADE OF RS. 4,51,405/ - U/S 14A OF THE ACT. II. IN ASSESSING DEEMED INCOME OF THE APPELLANT U/S 115JB OF THE ACT . 1. DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT RS. 4,51,405/ - 1.1. IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN CONFIRMING THE ACTION OF THE AO OF DISALLOWING EXPENDITURE OF RS. 4,51,405/ - U/S 14A OF THE ACT BY INVOKING RULE 8D(1)(III) OF THE IT RULES. 1.2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) OUGHT TO HAVE DIRECTED THE AO THAT NO DISALLOWANCE OF EXPENDITURE IS REQUIRED TO BE MADE U/S 14A OF THE ACT AND CONSEQUENTLY, OUGHT TO HAVE DIRECTED THE LD AO TO DELETE THE DISALLOWANCE MADE OF RS. 4,51,405/ - U/S 14A OF THE ACT. 3. AT THE OUTSET, MS. ARATI VISSANJI, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE ABOVE MENTIONED GROUNDS AND MENTIONED THAT GROUND NO.1 RELATES TO THE ADJUSTMENT U/S 1 45 OF THE ACT IN RESPECT OF CENVAT AMOUNTING TO RS.9,47,286/ - . IN THIS REGARD, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT AN IDENTICAL ISSUE WAS DECIDED BY THE ITAT, MUMBAI IN ASSESSEES OWN CASE FOR THE AY S 1998 - 99 & 1999 - 2000 VIDE ITA NO.3495 & 3677/MUM /2003 AND OTHERS DATED 17 TH SEPTEMBER, 2010 , WHEREIN THE TRIBUNAL REMITTED MATTER TO THE FILE OF THE AO TO ADJUDICATE THE ISSUE AFRESH . PARA 60 TO 62 OF THE SAID ORDER OF THE TRIBU NAL ARE RELEVANT IN THIS REGARD. 4. ON THE OTHER HAND, LD DR DUTIFULLY RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AND THE RELEVANT MATERIAL PLACED BEFORE US. WE HAVE ALSO PERUSED THE SAID ORDER OF THE TRIBUNAL DATED 17 TH SEPTEMBER, 2010 ( SUPRA) AND FIND THAT PARA 60 TO 62 OF THE TRIBUNALS ORDER ARE RELEVANT TO THE ISSUE UNDER CONSIDERATION AND THE SAME READ AS UNDER: 60. GROUND NOS. 3 TO 6 RELATE TO CONFIRMATION OF ENHANCEMENT IN THE VALUE OF CLOSING STOCK BY AN AMOUNT OF RS. 3,47,35,561 / - . 61. LD REPRESENTATIVES AGREE THAT THIS ISSUE IS REQUIRED TO BE REMITTED BACK TO THE FILES OF THE AO FOR FRESH ADJUDICATION IN THE LIGHT OF, INTER ALIA, DECISION OF A COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF CYANAMID AGRO LTD VS. ADDITIONAL CIT (121 TTJ 606), WHEREIN THE COORDINATE BENCH HAS, INTER ALIA OBSERVED AS UNDER: 19. IN OUR CONSIDERED VIEW, THE GROSS METHOD HAS GOT TO BE FOLLOWED AS PER PROVISIONS OF SECTION 145A IN CONTRACT WITH THE NET METHOD AS MANDATED UNDER THE SAID SECTION, WHICH IN OUR VIEW, WILL PUT AN END TO THE UNNECESSARY LITIGATION. ACCORDING TO OUR LIMITED UNDERSTANDING, THERE MAY NOT BE ANY SUBSTANTIAL BENEFIT OUR LOSS TO THE ASSESSEE BY FOLLOWING GROSS METHOD IN RESPECT OF THE INPUTS AND THE INVENTORIES ETC AS MANDATED U NDER SECTION 145A. WE ACCORDINGLY CONSIDER IT APPROPRIATE TO DIRECT THE AO TO GO THROUGH THE EXERCISE AND WORK OUT THE ADDITION OR RELIEF, AS THE CASE MAY BE, BY MAKING THE FOLLOWING ADJUSTMENTS IN ACCORDANCE WITH SECTION 145A READ WITH 3 THE DECISION OF TH E DELHI HIGH COURT IN THE CASE OF MAHAVIR ALUMINIUM LTD (SUPRA), AFTER GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE: A. VALUE OF OPENING STOCK INCLUSIVE OF ELEMENT OF TAXES, EVEN IF THE MODVAT CREDIT IS AVAILABLE IN RESPECT OF THE SAME. B. DEBIT THE PURCHASES INCLUSIVE OF TAXES, EVEN IF MODVAT CREDIT IS AVAILABLE IN RESPECT OF THE SAME. C. CREDIT THE SALES AS PER THE BILLS AND ADD THE MODVAT CREDIT THAT HAS ACCRUED TO THE ASSESSEE IN RESPECT OF THE CONSUMPTION OF THE INPUTS INCLUDING IN RESP0ECT OF THE OPENING STOCK. D. VALUE THE CLOSING STOCK INCLUSIVE OF ELEMENT OF TAXES WITHOUT DEDUCTION OF MODVAT CREDIT AVAILABLE TO THE ASSESSEE IN RESPECT OF THE UNUTILIZED STOCKS. IF THE MODVAT CREDIT ACCRUED ON CONSUMPTION OF INPUTS IS NOT CREDITED, THE ASSESEE W ILL GET DOUBLE DEDUCTION FOR THE TAXES PAID ON INPUTS. FIRSTLY, ON OPENING STOCK AND SECONDLY, ON EXCLUSION OF MODVAT CREDIT ACCRUING ON THE SAME. WE DIRECT THE AO TO GO THROUGH THE EXERCISE INDICTED ABOVE AND WORK OUT THE CONSEQUENCES, IF ANY. WE DIREC T ACCORDINGLY. 62. WE, ACCORDINGLY, REMIT THE MATTER TO THE FILE OF THE AO FOR FRESH ADJUDICATION, INTER ALIA, IN THE IN THE LIGHT OF THE ABOVE DECISION OF THE COORDINATE BENCH. 6. CONSIDERING THE ABOVE SETTLED NATURE OF THE ISSUE AND ALSO FOLLOWING THE PRINCIPLE OF CONSISTENCY, WE REMIT THE MATTER INVOLVED IN GROUND NO.1 TO THE FILE OF THE AO FOR A FRESH ADJUDICATION WITH IDENTICAL DIRECTIONS. AO SHALL GRANT A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND NO.1 RAISED BY TH E ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 7. REGARDING GROUND NO.2, T HE ONLY ISSUE EMANATING FROM THIS GROUND IS THE DISALLOWANCE OF RS. 4, 51,405/ - U/S 14A READ WITH RULE 8D MADE BY THE AO AND CONFIRMED BY THE CIT (A). AT THE OUTSET, MS. ARATI VISSA NJI , LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S. GODREJ AGROVET LTD VIDE INCOME TAX APPEAL NO. 934 OF 2011, DATED 8.1.2013 AND MENTIONED THAT THE IN VIEW OF THE ABOVE MENTIONED JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY , THE ITAT MAY RESTRICT THE DISALLOWANCE U/S 14A TO 5% OF THE EXEMPT INCOME. 8. O N THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 9. WE HEARD BOTH THE PARTIES AND PERUSED THE ORD ERS OF THE REVENUE. IT IS A FACT THAT THE RELEVANT ASSESSMENT YEAR IS 2007 - 08 UNDER CONSIDERATION IS OUTSIDE THE SCOPE OF PROVISIONS OF RULE 8D. THE SAID PROVISIONS CANNOT BE TREATED AS APPLICABLE TO THE A.Y.2007 - 0 8 UNDER CONSIDERATION, WHEN THE SAME IS PR ECLUDED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT, REPORTED IN (2010) 328 ITR 81(BOM) . THE HONBLE BOMBAY HIGH COURT ALSO IN THE CASE OF CIT VS. M/S. GODREJ AGROVET LTD VIDE INCOME TAX APPEAL NO. 934 4 OF 2011, DA TED 8.1.2013 , HAS HELD THAT PERCENTAGE OF THE EXEMPT INCOME CAN CONSTITUTE A REASONABLE ESTIMATE FOR MAKING DISALLOWANCE IN THE YEARS EARLIER TO THE ASSESSMENT YEAR 2008 - 09. THE RELEVANT PORTION OF THE SAID JUDGMENT OF THE BOMBAY HIGH COURT (SUPRA) READS A S UNDER: '4. SO FAR AS QUESTION (B) IS CONCERNED, THE TRIBUNAL IN ITS IMPUGNED ORDER DATED 17.9.2010 WHILE APPLYING THE DECISION OF THIS COURT IN THE MATTER OF GODREJ (SUPRA) HAS DISALLOWED THE EXPENDITURE ONLY TO THE EXTENT OF 2% OF THE TOTAL EXEMPT INCO ME EARNED BY THE RESPONDENT - ASSESSEE ON THE BASIS ITS ORDER DATED 27.2.2009 FOR THE ASSESSMENT YEAR 2002 - 2003 AND ORDER DATED 10.9.2009 FOR THE ASSESSMENT YEARS 2003 - 2004 AND 2004 - 2005 WHEREIN DISALLOWANCE WAS RESTRICTED TO 2% OF THE EXEMPT INCOME. FURTHER ; THE TRIBUNAL HAS REMANDED THE MATTER TO THE AO TO VERIFY THE DISALLOWANCE CLAIMED AND RESTRICT THE DISALLOWANCE ONLY TO THE EXTENT TO 2% OF THE TOTAL EXEMPT INCOME. WE FIND NO FAULT WITH THE ORDER OF THE TRIBUNAL. ' 10. THEREFORE, CONSIDERING THE BINDING NATURE OF THE ABOVE MENTIONED HONBLE HIGH COURTS JUDGMENT AND THE 5% OF THE EXEMPT INCOME OFFERED BY THE LD COUNSEL FOR DISALLOWANCE U/S 14A OF THE ACT, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE ACCORDINGLY . AC CORDINGLY, GROUND NO.2 RAISED BY THE ASSESSEE IS ALLOWED PARTLY. 11. GROUND NO.3, IS NOT PRESSED BY THE LD COUNSEL CONSIDERING ITS CONSEQUENTIAL NATURE OF THE ISSUE. THEREFORE, AFTER HEARING THE LD DR IN THIS REGARD, WE DISMISSED THE SAID GROUND NO.3 AS INFRUCTUOUS. 12. IN THE RESULT, APPEA L OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST APRIL, 2014. SD/ - SD/ - (SANJAY GARG) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 1.4.2014 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, 5 ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBA I