BLUE STAR LTD, MUMBAI V. DCIT 1(1), MUMBAI

ITA 2509/MUM/2011

• Counselvise Citation: 250919914 RSA 2011
• Duration Of Justice: 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2001-2002
• Appeal Filed On: 31-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P C MAURYA
• Assessee Lawyers: FIROZE A ARJUNA
• Keywords: Earning of tax free income
• Section: 14A; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH -MUMBAI BEFORE SHRI B.R. MITTAL,(J.M.) AND SHRI RAJENDRA SINGH,(A.M.) ITA NO.2509/MUM/2011 ASSESSMENT YEARS : 01-02 BLUE STAR LTD. KASTURI BUILDING MOHAN T. ADVANI CHOWK JAMSHEDJI TATA ROAD MUMBAI PIN-400 020. P.A. NO.(AAACB 4487 D) DY. COMMISSIONER OF INCOME TAX 1(1) AAYAKAR BHVAN MUMBAI. ( APPELLANT ) VS. ( RESPONDENT ) APPELLANT BY SHRI FIROZE A. ARJUNA RESPONDENT BY : : SHRI P.C. MAURYA DATE OF HEARING : 24.1.12 DATE OF PRONOUNCEMENT : 3 .2.2012 O R D E R PER RAJENDRA SINGH (AM) THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER D ATED 20.10.2010 OF CIT(A) FOR THE ASSESSMENT YEAR 2001-02. THE DISPUTE RAISED IN THIS APPEAL RELATES TO DISALLOWANCE OF EXPENDI TURE UNDER SECTION 14A OF THE IT ACT AND DISALLOWANCE OF DEDUCTION U NDER SECTION 80IB IN RELATION TO DUTY DRAWBACK. 2. WE FIRST TAKE UP THE DISPUTE RELATING TO DISALLOWAN CE OF EXPENSES UNDER SECTION 14A OF THE ACT. THE AO IN THE ORIGINAL ASSESSMENT DATED ITA NO. 2509/M/11 A.Y.01-02 2 16.3.2004 HAD DISALLOWED INTEREST ON BORROWED FUNDS RELATING TO EXEMPT DIVIDEND INCOME AT RS.18,15,600/- ON THE BASIS OF AVERAGE RATE OF INTEREST OF BORROWINGS. IN THE FIRST ROUND OF APPEAL, CIT(A) HAD NOT ADJUDICATED THIS ISSUE AND THEREFORE THE TRIBUNAL VIDE ORDER DATED 23.9.2009, IN ITA NO.3363/M/01 HAD RESTORED THE ISSUE TO THE FILE OF AO FOR FRESH ORDER IN ACCORDANCE WITH LAW. IN THE FRESH ORDER DATED 26.3.2009 THE AO MADE THE DISALLOWANCE UNDER SECTION 14 A AT RS.62,05,144/- FOLLOWING RULE 8D. THE ASSESSEE DISPUTED T HE DECISION OF AO AND SUBMITTED BEFORE CIT(A) THAT SINCE RULE 8D WAS NOT APPLICABLE IN VIEW OF JUDGMENT OF HONBLE BOMBAY HIGH COURT IN CASE OF GODREJ AND BOYCE MFG. CO. VS. DCIT (328 ITR 81) AND THEREFORE, DISALLOWANCE MADE COULD NOT EXCEED SUM OF RS.18,15,600/- DISALLOWED BY THE AO IN THE ORIGINAL ASSESSMENT. CIT(A) HOWEVER R ESTORED THE ISSUE TO THE FILE OF AO FOR WORKING OUT THE DISALLOWAN CE ON MERIT AFTER PROVIDING REASONABLE OPPORTUNITY OF HEARING TO THE A SSESSEE. AGGRIEVED BY THE SAID DECISION ASSESSEE IS IN APPEAL. 2.1 BEFORE US, THE LD. AR SUBMITTED THAT THE AO IN T HE ORIGINAL ORDER HAD ALREADY MADE DISALLOWANCE ON MERIT WITHOUT APPLYI NG RULE 8D. SUBSEQUENTLY, HOWEVER, AFTER THE ASSESSMENT ORDER HAD BE EN SET ASIDE BY THE TRIBUNAL, AO MADE DISALLOWANCE UNDER RULE 8D. SINCE RULE 8D WAS NOT APPLICABLE, THE ORIGINAL DISALLOWANCE MADE BY A O HAS TO BE UP HELD. THE LD. DR ON THE OTHER HAND PLACED RELIANCE O N THE ORDER OF CIT(A). 2.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTE R CAREFULLY. THE DISPUTE IS REGARDING DISALLOWANCE OF EX PENSES UNDER SECTION 14A IN RELATION TO EXEMPT INCOME. AO IN THE O RIGINAL ASSESSMENT ORDER HAD DISALLOWED THE INTEREST EXPENSES OF RS.18,15,600/- IN RELATION TO EXEMPT DIVIDEND INCOME UNDER SECTION ITA NO. 2509/M/11 A.Y.01-02 3 14A. IN THE FRESH ASSESSMENT SUBSEQUENT TO THE ORDER OF T HE TRIBUNAL, THE AO MADE DISALLOWANCE UNDER RULE 8D. IN VIEW OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN CASE OF GODREJ AND B OYCE MFG. CO. (SUPRA), RULE 8D IS APPLICABLE ONLY FROM ASSESSMENT YEAR 2 008-09 AND THEREFORE HAD NO APPLICATION IN THE IMPUGNED ASSESSMENT ORDER I.E. ASSESSMENT YEAR 2001-02. THEREFORE, THE DISALLOWANCE HAD TO BE MADE ON REASONABLE BASIS HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF EACH CASE. IN THIS CASE THE AO HAD ALREADY M ADE DISALLOWANCE ON THE MERITS OF THE CASE AFTER HEARING THE ASSESSEE IN THE FIRST GROUND OF APPEAL AT RS .18,15,600/-. CIT(A) HAS NOT GIVEN ANY ADVERSE FINDING ON THE MERITS OF THE SAID DISALLOWANCE AND THEREFORE, DISALLOWANCE ORIGINALLY MADE BY AO HAS TO BE UPHELD. CIT(A) IS NOT JUSTIFIED IN DIRECTING THE AO TO RE-WORK OUT THE DISAL LOWANCE AS THE SAID DISALLOWANCE HAD ALREADY BEEN MADE BY THE AO ON THE M ERITS OF THE CASE IN THE ORIGINAL ASSESSMENT WITHOUT EMPLOYING RULE 8D . WE THEREFORE, SET ASIDE THE DIRECTION OF CIT(A) AND UPHOL D THE DISALLOWANCE OF RS.18,15,600/- MADE BY AO IN THE ORIGI NAL ASSESSMENT. 3. THE SECOND DISPUTE IS REGARDING DISALLOWANCE OF DEDUCTI ON UNDER SECTION 80 IB IN RELATION TO DUTY DRAWBACK OF RS.1,27,2 8,000/-. THE AO HAD DISALLOWED THE CLAIM OF DEDUCTION UNDER SECTION 8 0IB IN RELATION TO DUTY DRAWBACK HOLDING THAT THE SAME WAS NO T THE PROFIT DERIVED FROM THE BUSINESS OF INDUSTRIAL UNDERTAKING. I N APPEAL, CIT(A) HAD CONFIRMED THE DISALLOWANCE FOLLOWING THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF LIBERTY INDIA LTD. (318 ITR 218). AGGRIEVED BY SAID DECISION, ASSESSEE IS IN APPEAL BEFORE TR IBUNAL. ITA NO. 2509/M/11 A.Y.01-02 4 3.1 BEFORE US, THE LD. AUTHORISED REPRESENTATIVE FOR T HE ASSESSEE SUBMITTED THAT THE AO DISALLOWED CLAIM OF DEDUCTION IN RESPECT OF DUTY DRAWBACK IN THE ORDER DATED 26.3.2009 IN PURSUANCE TO THE DIRECTION OF ITAT TO DECIDE THE ISSUE IN ACCORDANCE WITH LAW. THEREFOR E, THE ISSUE WAS TO BE DECIDED AS PER LAW PREVAILING ON 26.3.2009. IT WAS POINTED OUT THAT THE JUDGMENT OF HON'BLE SUPREME COURT IN TH E CASE OF LIBERTY INDIA LTD.(SUPRA), WAS DATED 31.8.2009 AND WAS THUS NO T AVAILABLE ON THE DATE OF PASSING THE ORDER BY THE AO. THEREFORE, T HE SAID JUDGMENT COULD NOT BE TAKEN INTO ACCOUNT. FOR THE SAID PROPOSITI ON, HE PLACED RELIANCE ON THE JUDGMENT OF (I) HONBLE APEX COURT IN THE CASE OF CIT VS. HINDUSTAN ELECTRO GRAPHITES LTD. (243 ITR 48); (II) B.N. SHARMA VS. CIT (226 ITR 442)(SC) AND CIT VS. ONKAR SARAN AND SO NS (195 ITR 1) (SC). THE LD. DR STRONGLY SUPPORTED THE ORDERS OF AUTH ORITIES BELOW. 3.2 WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING ALLOWA BILITY OF DEDUCTION UNDER SECTION 80IB IN RELATION TO DUTY DRAWB ACK OF RS.1,27,28,000/-. THE DEDUCTION UNDER SECTION 80IB IS A VAILABLE IN RESPECT OF PROFIT DERIVED FROM BUSINESS OF THE UNDERTAK ING. THE ISSUE IS WHETHER DUTY DRAWBACK CAN BE CONSIDERED AS PROFIT DERI VED FROM THE BUSINESS OF THE UNDERTAKING. WE FIND THAT THE SAME ISSU E HAD ALREADY BEEN CONSIDERED BY THE HON'BLE SUPREME COURT IN CASE OF LIBERTY INDIA LTD. (317 ITR 218) IN WHICH HON'BLE SUPREME COURT HE LD THAT THE DEDUCTION UNDER SECTION 80IB IS ALLOWABLE ONLY IN RESPECT OF PROFIT DERIVED FROM ELIGIBLE BUSINESS WHICH DOES NOT COVER THE PROFIT FROM SOURCES BEYOND THE FIRST DEGREE. THEREFORE, IT WAS HELD THAT ONLY PROFIT DERIVED DIRECTLY FROM ELIGIBLE BUSINESS OF THE UNDERTA KING AND NOT ANY INCIDENTAL PROFIT OR PROFIT ATTRIBUTABLE TO THE ELIG IBLE BUSINESS CAN BE ALLOWED. THE ELIGIBLE BUSINESS OF THE UNDERTAKING SHO ULD BE THE ITA NO. 2509/M/11 A.Y.01-02 5 IMMEDIATE AND DIRECT SOURCE OF PROFIT. THE HON'BLE SUP REME COURT ALSO HELD THAT DUTY DRAWBACK /DEPB INCOME AROSE FROM T HE INCENTIVE SCHEME OF THE GOVERNMENT AND WAS NOT DERIVED FROM THE BUSINESS OF THE UNDERTAKING. IT WAS THUS HELD THAT DUTY DRAW BACK WOULD NOT BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IB. IT IS A SET TLED LEGAL POSITION THAT LAW DECLARED BY HON'BLE SUPREME COURT IS APPLICABL E FROM INCEPTION I.E. FROM THE DATE FROM WHICH PROVISIONS WERE INCORPORATED AND NOT FROM THE DATE OF JUDGMENT. THE LD. AR FOR THE ASSESSEE HAS PLACED RELIANCE ON CERTAIN JUDGMENTS AS MENTIONED IN PA RA 3.1 EARLIER IN SUPPORT OF THE PLEA THAT THE JUDGMENT OF HONBLE APEX COURT WOULD APPLY ONLY FROM THE DATE OF JUDGMENT BUT THE SAID JUDGMENTS ARE DISTINGUISHABLE AND NOT APPLICABLE TO THE ISSUE UND ER CONSIDERATION. ALL THESE JUDGMENTS RELATE TO LEVY OF PENALTY AND ACCOR DINGLY IT WAS HELD IN THOSE CASES THAT LAW APPLICABLE ON THE DATE OF F ILING OF RETURN OF INCOME WILL BE THE LAW APPLICABLE FOR THE LEVY OF PEN ALTY. THESE CASES DO NOT LAY DOWN THE PROPOSITION THAT THE JUDGMENT OF HONBLE APEX COURT WILL APPLY ONLY FROM THE DATE, THE JUDGMENT IS DELIVERED. THE ARGUMENTS ADVANCED BY THE LD. AUTHORISED REPRESENTATIV E HAVE NO MERIT AND ARE ACCORDINGLY REJECTED. THE ORDER OF CIT( A) DISALLOWING THE CLAIM OF DEDUCTION UNDER SECTION 80 IB IN RELATION TO DUTY DRAWBACK IS UPHELD. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 3.2.2012. SD/- SD/- (B.R. MITTAL) JUDICIAL MEMBER (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 3.2.2012. JV. ITA NO. 2509/M/11 A.Y.01-02 6 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.