DCIT 2(2), MUMBAI V. NRC LTD, MUMBAI

ITA 2280/MUM/2013

• Counselvise Citation: 228019914 RSA 2013
• Duration Of Justice: 2 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 22-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 21-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: YOGESH KAMAT SR
• Keywords: Earning of tax free income; Scheme of amalgamation; Revised return; Capital expenditure
• Section: 143(3); 14A

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - B, BENCH , , BEFORE S/SH. JOGINDER S INGH ,JUDICIAL MEMBER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 2280 /MUM/20 1 3 , / ASSESSMENT YEAR - 20 09 - 10 DY. CIT - 2(2) ROOM NO.545, AAYAKAR BHAVAN M.K. ROAD, MUMBAI - 400 020. VS M/S. NRC LIMITED EWART HOUSE, 2ND FLOOR HOMI MOD I STREET, FORT MUMBAI - 400 001. PAN: AAACN 1616 J ( / A PPELLANT ) ( / RESPONDENT ) /ASSESSEE BY : NONE / REVENUE BY :SHRI YOGESH KAMAT - SR.AR / DATE OF HEARING : 22 - 0 6 - 2015 / DATE OF PRONOUNCEMENT : 22 - 0 6 - 2015 , 1961 254 ( 1 ) ORDER U/S.254(1)OF THE INCOME - TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER D ATED 31.12.2012 OF CIT(A) - 5, MUMBAI , THE ASSESSING OFFICER(AO) , HAS RAISED FOLLOWING : 1. THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(2) BASED ON THE FACT THAT THE INVESTMENT M ADE BY THE ASSESSEE ARE QUITE OLD IGNORING THE FACT THAT THE PROVISIONS OF THIS SECTION WOULD APPLY BASED ON THE INVESTMENT MADE BY THE ASSESSEE AT THE BEGINNING AND AT THE END OF THE YEAR AND THEREFORE EVEN OLD INVESTMENTS ARE COVERED BY THE CALCULA TION MECHANISM PROVIDED IN RULE 8D(2). 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(2) IGNORING THE FACT THAT THE AO HAD CORRECTLY MADE THE D ISALLOWANCE IN VIEW OF THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF M/S. GODREJ & BOYCE MFG. CO. LTD. (328 ITR 81). 4. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, THE DECISION OF THE CIT(A) MAY BE SET ASIDE AND T HAT OF THE AO RESTORED. ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF MAN - MADE FIBRES , CHEMICALS AND GENERATION OF POWER FILED ITS RETURN OF INCOME ON 2 9.9.2009 DECLARING TOTAL I NCOME AT RS.NIL . LATER ON IT FILED A REVISED RETURN INCO ME ON 4.8. 20 10 DECLARING TOTAL INCOME AT NIL. IT INCLUDED A LOSS OF RS.103,96,50,605/ - . THE AO COMPLETED THE ASSESSMENT ON 22.11.2011 U / S. 143(3) OF THE ACT DETERMINING THE INCOME OF THE ASSESS E E AT ( - ) RS.91,55,87,041/ - . 2. THE FIRST EFFECTIVE GROUND OF APPEAL IS ABOUT DELETING THE DISALLOWANCE MADE U/S. 14A R.W. RULE 8D(2) OF THE I NCOME TAX R ULES (RULES). DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEES INVESTMENT AS ON 31.3. 20 09 WAS AT RS.15.64 CRORES. HE DIRECTED THE ASSESSEE TO EXPLAI N AS TO WHY THE EXPENSES RELATED TO INVESTMENT SHOULD NOT BE DISALLOWED AS PER PROVISIONS OF S.14A R.W.R.8D. VIDE ITS LETTER , DT.31.10 .20 11 THE ASSESSEE SUBMITTED THAT IT HAD NOT REC EIVE D T AX - FREE 2280/M/13 - NRC - AY :09 - 10 2 DIVIDE N D DURING THE YEAR, THAT THE DIVIDE N D AMO U N TIN G TO RS. 375 / - REC EIVED F ROM CREDIT SOCIETY WAS TAXABLE AND WAS INCLUDED IN THE STATEMENT OF TO T AL INCOME, THAT THERE WAS NO QUESTION OF DISALLOWANCE U/S. 14 A OF THE ACT, THAT IT HAD NOT INCURRED ANY SPECIFIC EXPENDITURE WHICH COULD BE RELATED TO EARNING OF SAID D IVIDEND, THAT THERE WAS NO BORROWING WHICH WAS USED FOR INVESTMENT PURPOSES . THE AO AFTER CONSIDERING THE SUBMISSION OF THE ASESSEE HELD THAT THE ASSESSEE H AD EARNED TAX FREE INCOME , THAT IT HAD NOT CATEGORIZED EXPENSES FOR INCURRING TAX - FREE INCOME , THA T THE ON L Y WAY WAS TO CALCULATE EXPENSES AS PER RULE 8D OF THE R ULES . I NVOKING THE PROVISIONS OF SECTION 14 A R.W. RULE - 8D HE DISALLOWED A N AMOUNT O F RS. 1,24,44,646/ - AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 3. AGGRIEVED BY THE ORDER OF THE AO THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPELLATE A UTHORITY (FAA). BEFORE HIM, IT WAS ARGUED THAT ASSESSEE HAD NOT TAKEN ANY LOAN TO ACQUIRE THE SHARES, THE INCREASE IN INVESTMENT IN THE EARLIER YEARS WAS BECAUSE OF SCHEME OF AMALGAMATION APPROVED BY THE HONBLE H IGH C OURT S OF BOM BAY AND CAL CUTTA , THAT THE APPELLANT HAD RESERVES AND SU R PLUS OF RS. 6 , 682.08 LACS AND SHARE CAPITAL OF RS. 903.59 LACS AS ON 31.3.94, THAT IT HAD SUFFICIENT PROFITS AND INTEREST FREE FUNDS IN THE FORM OF PAID CAPITAL AND RES ERVES/SURPLUSES, THAT IT HAD BORROWED MONEY FOR SPECIFIC PROJECTS RELATED TO CAPITAL EXPENDITURE , THAT THE BORROWED FUNDS WERE MONITORED BY THE BANKS , THAT NO DIVERSION OF SUCH FUNDS COULD TAKE PLACE, THAT THE AO HAD FAILED TO BRING ANY MATERIAL ON RECORD TO SHOW THAT INVESTMENT INCOME WHICH WAS EXEMPT WAS FROM INTEREST BEARING FUNDS, THAT DISALLOWANCE MADE BY AO WAS NOT CALLED FOR. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND ASSESSMENT ORDER THE FAA HELD THAT ALL THE INVESTMENTS WERE BASICALLY OLD BROUGHT FORWARD UNDER VARIOUS AMALGAMATION SCHEMES/REHABILITATION S C H E ME, UNDER BIFR ORDERS, THAT THERE WAS HARDLY ANY INVESTMENT DURING THE YEAR UNDER APPEAL, THAT COMPANY WAS UNDER BIFR. ACCORDINGLY HE DELETED THE DISALLOWANCE MADE BY AO. 4. BEFORE US, DEPARTMENTAL REPRESENTATIVE ( DR ) SUPPORTED THE ORDER OF THE AO. AS STATED EARLIER NO ONE APPEARED ON BEHALF OF THE ASSESSEE. WE HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD.WE FIND THAT ASSESSEE HAD EARNED D IVIDEND INCOME OF RS. 375 ON LY DURING THE YEAR UNDER CONSIDERATION THAT THE D IVIDEND INCOME WAS OFFERED FOR TAXATION BY THE ASSESSEE, THAT THE AO HAD NOT SPECIFIED AS TO HOW MUCH EXPENDITURE WAS CLAIMED BY THE ASSESSEE FOR EARNING TAX FREE INCOME, THAT HE HAS MECHANICALLY APPLIED THE PROVISIONS OF S.14A R.W. RULE 8 D(2) OF THE R ULES . IT IS AL S O FOUND THAT THE AO HAS NOT MENTIONED THAT HOW MUCH INTEREST EXPENDITURE RELATED WITH EXEMPT INCOME WAS CLAIMED BY THE ASSESSEE IN ABSENCE OF ANY DIRECT OR INDIRECT EXPENSE RELATED WITH THE EXEMPT INCOME . W E ARE OF THE OPINION THAT DISALLOWANCE MADE BY AO WAS UNJUSTIFIED. THEREFORE, CONFIRMING THE ORDER OF FAA, WE DISMISS THE EFFECTIVE GROUND OF APPEAL RAISED BY THE AO. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED. . ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JUNE ,2015. 22 ND 2015 SD/ - SD/ - ( / JOGINDER S INGH ) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER 2280/M/13 - NRC - AY :09 - 10 3 / MUMBAI, /DATE: 22 .0 6 .2015 . . . JV . SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , / ITAT, MUMBAI.