GINI TEX P.LTD, MUMBAI V. ACIT CIR 4(2), MUMBAI

ITA 3066/MUM/2011

• Counselvise Citation: 306619914 RSA 2011
• Duration Of Justice: 4 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 13-04-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 18-04-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Keywords: Depreciation; Bonafide belief; Earning of tax free income; Wrong claim; Revised return; Bonafide mistake
• Section: 143(3); 14A; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.3066/M/2011 ASSESSMENT YEAR: 2004-05 GINNI TEX PVT. LTD. 413, JOGANI INDL. ESTATE, J R BORICHA MARG, LOWER PAREL (EAST), MUMBAI 400 011 VS. ACIT, CIRCLE-4(2), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400020 (APPELLANT) (RESPONDENT) ITA NO.3065/M/2011 ASSESSMENT YEAR: 2006-07 GINNI TEX PVT. LTD. 413, JOGANI INDL. ESTATE, J R BORICHA MARG, LOWER PAREL (EAST), MUMBAI 400 011 VS. DCIT, CIRCLE-4(2), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MAYUR KISNADWALA, A.R. REVENUE BY : SHRI NEIL PHILIP, D.R. DATE OF HEARING : 10.07.2015 DATE OF PRONOUNCEMENT : 22.07.2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE ABOVE TITLED TWO APPEALS PREFERRED BY THE SAME ASSESSEE IN RELATION TO ASSESSMENT YEARS 2004-05 AND 2006-07 HAVE BEEN DIRECTED AGAINST THE ORDERS OF THE LD. CIT(A) DATED 07.03.2011 & 08.03.2 011 RESPECTIVELY. THE SAID APPEALS WERE HEARD TOGETHER AND ARE BEING DISP OSED OFF WITH THIS COMMON ORDER. FIRST WE TAKE UP THE ASSESSEES APPEAL FOR A .Y. 2004-05. ITA NO.3066/M/2011 (FOR A.Y. 2004-05) 2. THE ASSESSEE IN THIS APPEAL HAS AGITATED THE LEV Y OF PENALTY UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT (HEREINAFTER REFERR ED TO AS THE ACT). THE ITA NOS.3065 &3066/M/2011 2 ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE A O) LEVIED THE PENALTY, OF RS. 22,78,338/- UNDER SECTION 271(1)(C) OF THE ACT, ON THE GROUND THAT THE ASSESSEE HAD WRONGLY COMPUTED THE DEDUCTION UNDER SECTION 80 IB OF THE INCOME TAX ACT AND FURTHER THAT IT HAD NOT ALLOCATED THE COMMON E XPENSES BETWEEN THE ELIGIBLE UNIT U/S 80IB AND NON-ELIGIBLE UNIT. 3. DURING THE ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE ACT, THE AO NOTED THAT THE THE ASSESSEE HAD FAILED TO SET O FF THE BROUGHT FORWARD LOSSES OF RS. 44,09,426/-OF THE ELIGIBLE UNIT WHILE COMPUT ING DEDUCTION UNDER SECTION 80IB. HE FURTHER NOTED THAT THE ASSESSEE HAD NOT AL LOCATED THE COMMON EXPENSES SUCH AS DIRECTORS REMUNERATION AND DEPREC IATION ON MOTOR CAR BETWEEN THE ELIGIBLE UNIT U/S 80IB AND NON-ELIGIBL E UNIT. THE AO CALLED UPON THE ASSESSEE TO EXPLAIN IN THIS RESPECT. THE ASSES SEE VIDE ITS LETTER DATED 28.11. 2006 EXPLAINED AS UNDER: RE: ASSESSMENT PROCEEDINGS FOR A.Y.2004-05 IN CONTINUATION TO OUR EARLIER LETTER AND AS DISCUS SION HELD WITH YOU WE ARE SUBMITTING THE DETAILS AS FOLLOWS: 1. ALLOCATION OF EXPENSES THE ASSESSEE HAD SUBMITTED THE CONSOLIDATED ACC OUNTS AS ALSO THE DIVISION WISE ACCOUNTS I.E. DIVISION WISE PROFIT & LOSS ACCO UNT AND THE DIVISION WISE BALANCE SHEET AND ACCORDINGLY ALLOCATION OF ALL EXP ENSES ARE EXPLICITLY & ELABORATELY AVAILABLE ON THE RECORDS. THE COMPANY MAINTAINS SEPARATE ACCOUNTS FOR ALL ITS DIVISION AND ALL THE EXPENSES INCURRED BY EACH UNIT ARE DEBITED TO THE R ESPECTIVE UNIT. ACCORDINGLY ALL DIRECT/INDIRECT EXPENSE INCURRED BY EACH UNIT A RE CHARGED TO THE RESPECTIVE UNITS. SIMILARLY ALL VEHICLE EXPENSES USE AT RESPECTIVE LO CATIONS ARE CHARGED TO THE RESPECTIVE UNITS. HOWEVER, COMMON EXPENSES LIKE AUDITORS FEES ARE ALL OCATED TO THE EXEMPT UNIT WHILE COMPUTING THE CLAIM U/S.80IB 2. NOTES CLAIM U/S 80IB IN THE ASSESSMENT YEAR 2003-04 THE COMPANY HAS ALS O STARTED A NEW ACTIVITY OF WEAVING OF FABRICS WHICH WAS AN ELIGIBLE UNIT U/S 8 0IB. NO BENEFIT WAS ALLOWABLE IN AY. 2003-04 IN RESPECT OF THE SAID UNI T ITA NOS.3065 &3066/M/2011 3 4. THE AO HOWEVER HELD THAT AS PER THE EXPRESS PROV ISIONS OF THE SECTION, IT WAS IMPERATIVE ON THE PART OF THE ASSESSEE TO REDUC E THE BROUGHT FORWARD LOSSES FROM THE TOTAL INCOME OF THE UNIT BEFORE CLAIMING 1 00% DEDUCTION U/S 80IB. HE ALSO BEING NOT SATISFIED WITH THE REPLY OF THE ASSE SSEE IN RESPECT OF ALLOCATION OF COMMON EXPENSES, ACCORDINGLY ALLOCATED THE PROPORTI ONATE EXPENSES TO THE TWO UNITS. HE HELD THAT THE ASSESSEE HAD DELIBERATELY FURNISHED THE INACCURATE PARTICULARS OF INCOME. HE ALSO INITIATED PENALTY PR OCEEDINGS. 5. IN THE PENALTY PROCEEDINGS, THE ASSESSEE SUBMITT ED THAT THE ISSUE WAS HIGHLY DEBATABLE AND THAT THE MISTAKE IN COMPUTATIO N OF DEDUCTION WAS BONAFIDE MISTAKE. THERE WAS NO INTENTION ON THE PA RT OF THE ASSESSEE TO FILE INACCURATE PARTICULARS OF INCOME OR CONCEAL OF ITS INCOME. THE AO, HOWEVER, DID NOT AGREE WITH THE CONTENTIONS OF THE ASSESSEE. HE, THEREFORE, CONCLUDED THAT SINCE THE ASSESSEE HAD MADE A CLAIM IN THE RET URN WHICH WAS NOT SUBSTANTIATED IN THE ASSESSMENT PROCEEDINGS, HENCE THE SAME AMOUNTED TO FURNISHING OF INACCURATE PARTICULARS OF INCOME AS P ER THE PROVISIONS OF SECTION 271(1)(C) READ WITH EXPLANATIONS THERETO. HE THERE FORE LEVIED THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT AT THE RATE OF 100% OF THE TAX AMOUNT SOUGHT TO BE EVADED. 6. IN APPEAL BEFORE THE CIT(A), THE ASSESSEE PUT FORWARD AN EXPLANATION THAT A MISTAKE IN THIS RESPECT HAD OCCURRED IN THE AUDIT REPORT WHICH WAS SUBSEQUENTLY MANUALLY CORRECTED BY THE AUDITOR. HOW EVER SUCH CHANGES COULD NOT BE INCORPORATED IN THE RETURN OF INCOME. THE LD. CIT(A) HOWEVER NOTED THAT THE AO HAD OBSE RVED THAT THE ASSESSEE HAD MADE THE MANUAL CHANGES IN THE AUDIT REPORT AFT ER THE RAISING OF QUERY BY HIM TO THE ASSESSEE IN RELATION TO INCORRECT DEDUCT ION. ITA NOS.3065 &3066/M/2011 4 HE ALSO OBSERVED THAT, IN CASE, THE CHARTERED ACCOU NTANT HAD CORRECTED THE MISTAKE AT THE TIME OF SIGNING OF THE AUDIT REPORT U/S 44AB AND HAD INFORMED THE COMPANY THAT THE BROUGHT FORWARD LOSSES HAD TO BE ADJUSTED, THEN THE ASSESSEE COMPANY WAS AT FAULT IN NOT FOLLOWING THE ADVICE OF ITS OWN AUDITOR AND DELIBERATELY CLAIMED EXCESSIVE DEDUCTION U/S 80 IB. THE LD. CIT(A) FURTHER OBSERVED THAT IF THE CASE OF THE ASSESSEE WAS NOT T AKEN UP FOR SCRUTINY, THE ASSESSEE COMPANY COULD HAVE WALKED PASSED BY CLAIMI NG EXCESSIVE DEDUCTION U/S 80IB. THE LD. CIT(A), THEREFORE CONFIRMED THE P ENALTY. THE ASSESSEE HAS, THUS, COME IN APPEAL BEFORE US. 7. THE LD. A.R., BEFORE US, HAS RELIED UPON THE DEC ISION OF THE HONBLE SUPREME COURT IN THE CASE OF PRICE WATERHOUSE COOP ERS PVT. LTD. VS. CIT (2012) 348 ITR 306 (SC) TO CONTEND THAT PENALTY IS NOT LEVIABLE, IF THE MISTAKE IS BONAFIDE AND DUE TO INADVERTENT ERROR. ON THE OTHER HAND, THE LD. D.R. HAS RELIED UPON THE FINDINGS OF THE LOWER AUTHORITIES. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES. WE FIND THAT IN THIS APPEAL, THE ASSE SSEE HAS TAKEN THE PLEA THAT THE MISTAKE IN COMPUTATION OF DEDUCTION UNDER SECTION 8 0IB WAS DUE TO INADVERTENT ERROR. THERE WAS NO CONCEALMENT OF INCOME OR FURNI SHING OF INACCURATE PARTICULARS OF INCOME. THOUGH, ON THE FACE OF IT, THE CONTENTION OF THE LD. A.R. SEEMS TO HAVE FORCE, HOWEVER, WHEN WE GO TO THE REC ORDS OF THE ASSESSMENT ORDER, WE FIND THAT IT IS NOT A CASE WHERE THE ASSE SSEE HAD COME FORWARD AT THE FIRST INSTANCE AND HAD ADMITTED ITS MISTAKE. WHEN A SKED BY THE AO TO GIVE EXPLANATION IN RESPECT OF EXCESSIVE CLAIM OF DEDUCT ION U/S 80IB, THE ASSESSEE HAD PUT FORWARD AN EXPLANATION WHICH WAS NOT FOUND TO BE CORRECT BY THE AO. THE PLEA OF BONAFIDE MISTAKE OR INADVERTENT ERROR H AS BEEN TAKEN FOR THE FIRST TIME IN THE PENALTY PROCEEDINGS. THE AO HAS NOTED T HAT THE ASSESSEE HAD FILED ITA NOS.3065 &3066/M/2011 5 THE RETURN ON 1.11.2004, WHEREAS THE AO VIDE LETTER DATED 27.11.2006 HAD RAISED THE QUERY ABOUT THE NON-ADJUSTMENT OF BROUGH T FORWARDED LOSSES. THE ASSESSEE COMPANY DID NOT ATTEMPT TO CORRECT THE MIS TAKE FOR TWO YEARS FROM THE DATE OF FILING THE RETURN BY WAY OF FILING A REVISE D RETURN. THE ASSESSEE COMPANY DID NOT ADMIT THE MISTAKE IN THE ASSESSMENT PROCEEDINGS. THE CONDUCT OF THE ASSESSEE SHOWS THAT THE PLEA OF BONA FIDE MISTAKE OR INADVERTENT ERROR DURING THE PENALTY PROCEEDINGS SEEMS TO BE AN AFTERTHOUGHT VERSION. IF THE CONTENTION OF THE ASSESSEE OF BONAFIDE MISTAKE OR INADVERTENT ERROR WAS CORRECT, THE ASSESSEE COULD HAVE COME TO THE AO ON RECEIPT OF QUERY ON THE ISSUE AND SHOULD HAVE OFFERED THE EXPLANATION THAT THE COMPUTATION WAS WRONGLY MADE DUE TO SOME BONAFIDE MISTAKE AND THAT IT WAS READY TO OFFER THE INCOME FOR TAX WHICH HAD ESCAPED ASSESSMENT. BUT T HE ASSESSEE DID NOT DO SO RATHER, OFFERED AN EXPLANATION WHICH WAS NOT FOUND TO BE CORRECT BY THE AO. HENCE THE PLEA THAT THE AUDITOR HAD MANUALLY MADE C ORRECTIONS IN THE AUDIT REPORT, BUT THE SAME COULD NOT BE BROUGHT IN THE RE TURN OF INCOME GETS FALSIFIED FROM THE ABOVE FACT. IN THE CASE OF PRICE WATERHOU SE COOPERS PVT. LTD. VS. CIT (SUPRA) UPON WHICH THE LD. A.R. HAS RELIED, TH E CRUCIAL FACT WAS THAT SOON AFTER THE ASSESSEE WAS COMMUNICATED THE REASON FOR REOPENING OF THE ASSESSMENT, THE ASSESSEE REALIZED THE MISTAKE AND B Y A LETTER INFORMED THE AO THAT THERE WAS NO WILLFUL SUPPRESSION OF THE FACTS BY THE ASSESSEE BUT A GENUINE MISTAKE OR OMISSION HAD BEEN COMMITTED. THE ASSESS EE HAD IMMEDIATELY FILED A REVISED RETURN ON THE SAME DAY. A REASSESSMENT O RDER WAS PASSED ON THAT VERY DAY AND THE ASSESSEE PAID THE TAX WITH DUE INT EREST. THE HONBLE SUPREME COURT, AFTER CONSIDERING THE ABOVE CONDUCT OF THE A SSESSEE, HAD OBSERVED THAT IT WAS A BONAFIDE MISTAKE AND INADVERTENT ERROR WHICH HAD NOT BEEN NOTICED BY THE ASSESSEE BUT NOT A CASE OF FURNISHING OF INACCU RATE PARTICULARS OF INCOME OR ATTEMPTING TO CONCEALMENT OF INCOME. IN THE CASE I N HAND, THE AO HAS NOTED ITA NOS.3065 &3066/M/2011 6 THAT THERE WAS A DELIBERATE ATTEMPT ON THE PART OF THE ASSESSEE TO MAKE EXCESSIVE CLAIM OF DEDUCTION. 9. THE OTHER PLEA RAISED BY THE ASSESEE IS THAT THE ISSUE WAS DEBATABLE ON THE DATE OF FILING OF RETURN. THE ASSESSEE WAS UNDE R BONAFIDE BELIEF THAT ITS CLAIM OF DEDUCTION WAS CORRECT AS PER LAW. THE LD. AR OF THE ASSESSEE IN THIS RESPECT HAS RELI ED UPON THE DECESION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE ACIT VS. GOLDMINE SHARES AND FINANCE (P) LTD.[2008]113 ITD 209(AHEMDABAD) AND TH AT OF MUMBAI BENCH OF TRIBUNAL IN THE CASE OF M.PALLONJI & CO. (P) LTD. VS. JCIT [2006] 6 SOT 287. 10. BEFORE GOING THROUGH THE CASE LAWS RELIED UPON BY THE LD. AR, WE MUST POINT OUT HERE THAT THIS PLEA OF THE ASSESSEE IS I N COMPLETE CONTRADICTION TO THE EARLIER PLEA OF BONAFIDE MISTAKE IN COMPUTATION OF INCOME DUE TO INADVERTENT ERROR. BOTH THE PLEAS TAKEN BY THE ASSESSEE ARE MUT UALLY DESTRUCTIVE. IF THE PLEA OF THE ASSESSEE IS THAT THERE IS A BONAFIDE MISTAKE IN CLAIMING THE DEDUCTION, THEN THERE CAN NOT BE A PLEA THAT THE ASSESSEE HAD MADE A CORRECT CLAIM AS PER LAW ACCORDING TO HIS BONAFIDE BELIEF. IF THE LATTER PLEA IS TO BE CONSIDERED THEN THE REASONABLE INFERENCE WILL BE THAT THE ASSESSEE HAS INTENTIONALLY PUT HIS CLAIM BELIEVING IT TO BE CORRECT, THEN THERE CAN NO T BE ANY QUESTION OF BONAFIDE MISTAKE OR ERROR IN CLAIMING THE DEDUCTION. WE DEEM IT PERTINENT TO MENTION HERE THAT EARLIER T HE MATTER WAS HEARD ON 13.04.2015. HOWEVER TO GET MORE CLARIFICATION ABOUT THE MUTUALLY DESTRUCTIVE PLEAS OF THE ASSESSEE, THE MATTER WAS REFIXED FOR H EARING FOR 6.7.2015. WHEN THE LD. AR WAS SPECIFICALLY ASKED ABOUT THE CONTRADICTO RY PLEAS OF THE ASSESSEE, HE, THEN, FAIRLY CONCEDED THAT THE PLEA OF BONAFIDE MISTAKE WAS NOT CORRECT RATHER THE COMPANY WAS UNDER BONAFIDE BELIEF THAT T HE CLAIM OF DEDUCTION WAS CORRECTLY MADE BY IT. AT THIS, THE ATTENTION OF THE LD. AR WAS INVITED TO THE AUDIT REPORT, WHICH INCIDENTALLY WAS PREPARED BY THE LD. AR, SH. MAYUR KISNADWALA ITA NOS.3065 &3066/M/2011 7 HIMSELF, THE LD. AR SUBMITTED THAT DESPITE THE FAC T THAT HE HAD CORRECTED THE AUDIT REPORT BY WAY OF ADJUSTING THE BROUGHT FORWAR D LOSSES, THE COMPANY WAS UNDER STRONG BONAFIDE BELIEF THAT THE DEDUCTION CLA IMED BY IT WAS CORRECT. THE COMPANY HAD CHOSEN TO IGNORE HIS AUDIT REPORT IN VI EW OF THE PROPOSITION OF LAW AS LAID DOWN BY VARIOUS JUDICIAL AUTHORITIES AS WAS AVAILABLE AT THAT TIME. AT THIS THE LD. AR WAS ASKED TO SHOW US THE RELEVAN T CASE LAWS ON THE BASIS OF WHICH THE ASSESSEE COMPANY WAS UNDER BONAFIDE, RATH ER IN STRONG BELIEF (AS IT HAS PUT THE CLAIM AGAINST THE AUDIT REPORT) THAT TH E CLAIM OF DEDUCTION MADE BY IT WAS CORRECT. THE LD. AR , IN REPLY, RELIED UPON THE DECISION REN DERED BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE ACIT VS. GOLDMINE SHAR ES AND FINANCE (P) LTD.( SUPRA) AND THAT OF MUMBAI BENCH OF TRIBUNAL IN THE CASE OF M.PALLONJI & CO. (P) LTD. VS. JCIT (SUPRA). WE HAVE GONE THROUGH THE SAID CASE LAWS. WE FIND TH AT AS PER THE ASSESSMENT ORDER, THE RETURN OF INCOME WAS FILED BY THE ASSESS EE ON 01.11.2004, WHEREAS THE DECISION IN THE CASE ACIT VS. GOLDMINE SHARES AND FINANCE (P) LTD. (SUPRA) WAS DELIVERED ON 30.04.2008. FURTHER THE DA TE OF DECISION IN THE CASE OF M.PALLONJI & CO. (P) LTD. VS. JCIT (SUPRA) WAS DELIVERED ON 12.9.2005. HENCE NEITHER THE SPECIAL BENCH DECISION NOR THE M UMBAI BENCH DECISION OF THE TRIBUNAL WAS AVAILABLE TO THE ASSESSEE AT THE T IME OF FILING OF RETURN. EVEN OTHERWISE, THE SPECIAL BENCH DECISION IS IN FAVOUR OF THE REVENUE AND AGAINST THE PLEA OF THE ASSESSEE. EVEN IN THE MUMBAI BENCH DECISION IN THE CASE OF M.PALLONJI & CO. (P) LTD. VS. JCIT (SUPRA), WE FI ND THAT THE RELEVANT PROVISIONS OF SUB-SECTION 5 OF SECTION 80IA OF THE ACT READ WITH SUB SECTION 13 OF SECTION 80IB HAVE NOT BEEN DISCUSSED BY THE TRIB UNAL IN THE SAID ORDER. IN OUR VIEW, WHEN THE ASSESSEE COMPANY HAD CHOSEN TO M AKE A CLAIM AGAINST THE PLANE STATUTORY PROVISIONS AND ALSO AGAINST THE AUD IT REPORT OF ITS AUDITOR, ITS BELIEF SHOULD HAVE BEEN SUPPORTED BY A DIRECT CASE LAW ON THE ISSUE IN WHICH ITA NOS.3065 &3066/M/2011 8 THE RELEVANT PROVISIONS SHOULD HAVE BEEN INTERPRETE D IN FAVOUR OF THE ASSESSEE BY ANY COURT OF LAW/TRIBUNAL. MOREOVER, NO SUCH PLE A THAT ITS CLAIM WAS SUPPORTED BY ANY DECISION OF ANY COURT OR TRIBUNAL WAS TAKEN DURING THE ASSESSMENT PROCEEDINGS. THE ONLY PLEA REGARDING THE WRONG CLAIM OF DEDUCTION UNDER SECTION 80IB WAS TAKEN AS UNDER: IN THE ASSESSMENT YEAR 2003-04 THE COMPANY HAS AL SO STARTED A NEW ACTIVITY OF WEAVING OF FABRICS WHICH WAS AN ELIGIBL E UNIT U/S 80IB. NO BENEFIT WAS ALLOWABLE IN AY. 2003-04 IN RESPECT OF THE SAID UNIT HENCE THE SUBSEQUENT PLEA THAT THE ASSESSEE WAS UND ER BONAFIDE BELIEF THAT ITS CLAIM OF DEDUCTION WAS CORRECT IS NOTHING BUT AFTERTHOUGHT VERSION, FOR WHICH THE ASSESSEE, OTHERWISE, HAS FAILED TO ESTABL ISH THE BASIS FOR THE SAME. THERE IS NO EXPLANATION PUT FORTH BY THE LD. AR THA T EVEN IF THE ASSESSEE COMPANY WAS OF THE BELIEF THAT ITS CLAIM OF DEDUCTI ON WAS CORRECT, THEN WHY IT HAD NOT CHOSEN TO CONTEST THE MATTER IN APPEAL BEFO RE THE CIT(A) OR ANY OTHER HIGHER AUTHORITY. . HENCE IT CAN NOT BE SAID THAT T HE ISSUE OF CARRY FORWARD OF LOSSES OF ELIGIBLE UNIT WAS A DEBATABLE ISSUE AND T HE ASSESSEE AT THE TIME OF FILING OF RETURN WAS UNDER BONAFIDE BELIEF THAT THE CLAIM MADE BY IT WAS CORRECT. THE ASSESSEE COMPANY HAS FAILED JUSTIFY ITS CLAIM O F DEDUCTION ON BOTH THE GROUNDS I.E. OF BONAFIDE MISTAKE AND ALSO OF BONAFI DE BELIEF OF CORRECT CLAIM. THE OTHER CASE LAWS RELIED UPON BY THE LD. AR ARE Q UITE DISTINGUISHABLE ON THEIR OWN FACTS AND IN OUR VIEW ARE NOT APPLICABLE TO THE FACTS OF THE CASE IN HAND. 11. THE ASSESSEE HAS ALSO NOT OFFERED ANY EXPLANATI ON AS TO HOW ITS ACTION OF NON-ALLOCATION OF COMMON EXPENSES BETWEEN ELIGIBLE AND NON-ELIGIBLE UNIT WAS JUSTIFIED. EVEN WE FIND THAT IN THE SUBSEQUENT YEAR AY 2005-06, THE DISALLOWANCE RELATING TO ALLOCATION OF EXPENSES IN RELATION TO DIRECTORS REMUNERATION AND DEPRECIATION ON MOTOR CAR HAS BEEN CONFIRMED BY THE ITAT IN ITA NO. 2202/M/2011 VIDE ORDER DATED 25.6.2014. ITA NOS.3065 &3066/M/2011 9 12. WE THEREFORE DO NOT FIND ANY INFIRMITY IN THE O RDER OF THE CIT(A) CONFIRMING THE PENALTY. HENCE, THIS APPEAL OF THE ASSESSEE IS THEREFORE DISMISSED. NOW WE TAKE UP THE APPEAL FOR A.Y. 2006-07. ITA NO. 3065/M/2011 (FOR A.Y.2006-07) 13. THE ASSESSEE IN THIS CASE HAS TAKEN THE FOLLOW ING GROUNDS OF APPEAL: AGGRIEVED BY THE ORDER OF THE LEARNED ASSESSING OF FICER (A.O.) AS CONFIRMED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)[CIT (A)] YOUR APPELLANT PREFERS AN APPEAL AGAINST THE SAME ON FOLLOWING GRO UNDS, WHICH IT IS PRAYED, MAY BE CONSIDERED WITHOUT PREJUDICE TO ONE ANOTHER. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE CIT(A) ERRED IN CONFIRMING THE RE-COMPUTATION BY A.O. OF THE DED UCTION U/S.80IB TO THE EXTENT OF COMMON EXPENSES. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.3,91,502/- U/S .14A OF THE ACT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE CIT(A) ERRED IN CONFIRMING THE LEVY OF INTEREST U/S.234B. GROUND NO. 1: 14. THE GROUND NO.1 RELATES TO THE ALLOCATION OF CO MMON EXPENSES BETWEEN 80IB ELIGIBLE UNIT AND NON-ELIGIBLE UNIT. THE AO HA S ALLOCATED THE EXPENSES IN RELATION TO ADVERTISEMENT EXPENSES, SALES PROMOTION EXPENSES, LEASE RENTALS, DIRECTORS REMUNERATION AND DEPRECIATION ON MOTOR C AR. THE LD. AR OF THE ASSESSEE AT THE OUTSET HAS STATED THAT THE ISSUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE FOR EARLIE R ASSESSMENT YEAR AY 2005- 06. WE HAVE PERUSED THE DECISION OF THE TRIBUNAL FO R AY. 2005-06 IN ITA NO. 2202/M/2011 VIDE ORDER DATED 25.6.2014. THE TRIBUNA L IN THE SAID APPEAL(SUPRA) HAS UPHELD THE FINDINGS OF THE CIT(A ) THAT THE EXPENSES RELATING TO SALES PROMOTION AND ADVERTISEMENT WERE RELATING TO FABRIC UNIT I.E. SUITING SHIRTING ETC. AND DID NOT RELATE TO THE ELIGIBLE UN IT AT KARAD WHICH WAS NOT ITA NOS.3065 &3066/M/2011 10 ENGAGED IN MANUFACTURING OF FINAL PRODUCT HENCE, CO ULD NOT BE ALLOCATED TO THE EXPENSES OF THE ELIGIBLE UNIT. THE TRIBUNAL HOWEVER HAS CONFIRMED THE ALLOCATION O F EXPENSES TO THE ELIGIBLE UNIT IN RELATION TO LEASE RENTALS, DIRECTORS REMUN ERATION AND DEPRECIATION ON MOTOR CAR. 15. A PERUSAL OF THE ASSESSMENT ORDER FOR THE YEAR UNDER CONSIDERATION BEFORE US HOWEVER, REVEALS THAT THE ASSESSEE VIDE L ETTER DATE 23.9.2008 HAS SUBMITTED BEFORE THE AO THAT THE KARAD UNIT (ELIGIB LE UNIT ) IS ENGAGED IN MANUFACTURING OF SPECIALIZED FABRICS FOR READY MADE GARMENTS WHICH IS SOLD TO THE MANUFACTURERS OF READYMADE GARMENTS. THE ULT IMATE GARMENTS ARE SOLD BY THE MANUFACTURERS OF END PRODUCT IN THEIR OWN NA ME. THE ASSESSEE THEREFORE HAS NOT TO INCUR ANY ADVERTISEMENT EXPENSES IN RELA TION TO FABRIC MANUFACTURED BY IT. IT HAS ALSO BEEN PLEADED THAT THE OTHER PROD UCT MANUFACTURED AT THE KARAD UNIT I.E. GREY FABRIC IS ALSO A RAW MATERIAL/SEMI F URNISHED PRODUCT AND DOES REQUIRE INCURRING OF ANY ADVERTISING EXPENSES. A PE RUSAL OF THE IMPUGNED ORDER OF THE CIT(A), HOWEVER, REVEALS THAT IN PARA 4.2 O F THE ORDER, THE LD. CIT(A) HAS OBSERVED THAT THE AR OF THE ASSESSEE HAS STATED THAT ADVERTISING AND SALES PROMOTION EXPENSES ARE FOR ALL THE PRODUCTS MANUFAC TURED BY THE ASSESSEE COMPANY . THESE EXPENSES ARE NOT RESTRICTED TO ANY PARTICULAR UNIT OF THE ASSESSEE COMPANY AND ARE COMMON EXPENSES OF ALL THE UNITS. THE LD. CIT(A) AT PAGE 9 OF THE IMPUGNED ORDER HAS FURTHER OBSERVED T HAT DURING THE APPELLATE PROCEEDINGS, HE HAS EXAMINED THE BILLS OF ADVERTISE MENT EXPENSES WHICH SHOWS THAT THAT THE AMOUNT HAS BEEN SPENT BY THE ASSESSEE COMPANY FOR PROMOTING GINI SUITING AND SHIRTING AND GINI FABRICS WHICH AR E MANUFACTURED AT KARAD UNIT. HE HAS FURTHER OBSERVED THAT THE OTHER UNIT O F THE ASSESSEE HAS BEEN PRODUCING ONLY GREY, FOR WHICH THERE WAS NO NEED TO SPEND ADVERTISING EXPENSES. HE HAS BEEN OF THE VIEW THAT THE AO COULD HAVE ALLOCATED HIGHER AMOUNT OF EXPENSES TO THE KARAD UNIT. ITA NOS.3065 &3066/M/2011 11 16. WE FIND THAT THE FACTS NOTED BY THE CIT(A) FOR THE YEAR UNDER CONSIDERATION ARE CONTRARY TO THE FINDINGS OF THE C IT(A) IN THE EARLIER ASSESSMENT YEAR AY 2005-06. SINCE THE ISSUE IS A FA CTUAL ONE, HENCE, THE FINDINGS OF THE TRIBUNAL UPHOLDING THE FACTUAL FIND ING OF THE CIT(A) CANNOT BE SAID TO HAVE ANY BINDING OR PRECEDENT VALUE FOR THE YEAR UNDER CONSIDERATION ESPECIALLY IN THE LIGHTS OF FACTS AND CIRCUMSTANCES AS NARRATED ABOVE. IN OUR VIEW, THIS FACTUAL ASPECT OF THE CASE IS REQUIRED T O BE REEXAMINED BY THE AO AND THE AO HAS TO GIVE A FACTUAL FINDING THAT AS TO ADVERTISING AND SALES PROMOTION EXPENSES RELATE TO WHICH UNIT AND IN RELA TION TO WHICH PRODUCT MANUFACTURED BY THE ASSESSEE AND THEN TO DECIDE THI S ISSUE A FRESH IN ACCORDANCE WITH LAW. 17. HOWEVER IN THE ABSENCE OF ANY CONVINCING ARGUME NT OF THE LD.AR IN RELATION TO DISALLOWANCE/ALLOCATION OF LEASE RENTA L EXPENSES , DIRECTORS REMUNERATION AND DEPRECIATION ON MOTOR CAR, THE FIN DINGS OF THE CIT(A) ARE UPHELD. GROUND NO 2.: 18. THE NEXT GROUND TAKEN BY THE ASSESSEE IS IN REL ATION TO THE ADDITION U/S 14A OF RS.391502/- MADE BY THE AO ON ACCOUNT OF DIS ALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EARNING OF THE EXEMPT INCOME. THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE A O) NOTICED THAT THE ASSESSEE HAD CLAIMED EXEMPT INCOME IN RELATION TO DIVIDEND O N SHARES OF RS. 798095 AND LONG TERM CAPITAL GAINS OF RS.101857/-. HE, THE REFORE, OBSERVED THAT DISALLOWANCE OF EXPENDITURE IN RELATION TO EARNING OF THE ABOVE EXEMPT INCOME WAS REQUIRED TO BE MADE. HE THEREFORE COMPUTED THE DISALLOWANCE U/S 14A IN ACCORDANCE WITH RULE 8D OF THE I.T. RULES. 19. IN APPEAL, THE LD. CIT(A) OBSERVED THAT THE CLA IM OF THE ASSESSEE THAT IT HAD NOT INCURRED ANY EXPENDITURE IN RELATION TO EAR NING OF EXEMPT INCOME COULD ITA NOS.3065 &3066/M/2011 12 NOT BE SAID TO BE CORRECT. HE ALSO OBSERVED THAT AS PER THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT [(2010) 328 ITR 81 (BOM)], RULE 8D WAS NOT APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND THA T THE DISALLOWANCE UNDER SECTION 14A WAS REQUIRED TO BE MADE ON SOME REASONA BLE BASIS. HE, HOWEVER, CONFIRMED THE DISALLOWANCE MADE BY THE AO OBSERVING THAT DISALLOWANCE MADE BY THE AO WAS REASONABLE. AGGRIEVED BY THE ORDER O F THE LD. CIT(A) ON THIS ISSUE, THE ASSESSEE HAS COME IN APPEAL BEFORE US. 20. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE LD. REPRESENTATIVES OF BOTH THE PARTIES AND HAVE ALSO GONE THROUGH THE RECORDS. THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT THE INVESTMENT WAS MADE BY THE A SSESSEE OUT OF ITS OWN FUNDS AND THAT NO INTEREST BEARING FUNDS HAD BEEN U SED FOR MAKING INVESTMENTS IN RELATION TO EARNING OF TAX EXEMPT INCOME. THE LD. DR HAS ON THE OTHER HAS RELIED UPON THE FIN DINGS OF THE LOWER AUTHORITIES. 21. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. IT MA Y BE OBSERVED THAT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPR A), THE HON'BLE BOMBAY HIGH COURT HAS HELD THAT RULE 8D R.W.S. 14A(2) IS N OT ARBITRARY OR UNREASONABLE BUT CAN BE APPLIED, ONLY, IF, THE ASSESSEE'S METHOD IS NOT SATISFACTORY. IT HAS BEEN FURTHER HELD THAT RULE 8D IS NOT RETROSPECTIVE AND APPLIES FROM A.Y. 2008- 09. FOR THE YEARS FOR WHICH RULE 8D IS NOT APPLICAB LE AND IN THE EVENT OF THAT THE AO IS NOT SATISFIED WITH THE EXPLANATION/WORKIN G GIVEN BY THE ASSESSEE, DISALLOWANCE UNDER SECTION 14A HAS TO BE MADE ON A REASONABLE BASIS. ALMOST SIMILAR VIEW HAS BEEN EXPRESSED BY HON'BLE DELHI HI GH COURT IN THE CASE OF 'MAXOPP INVESTMENT LTD. & OTHERS' VS. CIT (247 ITR 162). IT MAY BE FURTHER NOTED THAT THE THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD 313 ITR 340 HAS OB SERVED THAT IF THERE ARE ITA NOS.3065 &3066/M/2011 13 FUNDS AVAILABLE WITH THE ASSESSEE, BOTH INTEREST FR EE AND OVERDRAFT/LOANS TAKEN, THEN PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE ASSESSEE. A SIMILAR VIEW WAS TAKEN BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF HDFC B ANK LTD. IN ITA NO.330 OF 2012. 22. WE FIND THAT THE ABOVE CONTENTIONS OF THE ASSES SEE HAVE NOT BEEN EXAMINED BY THE AO. WE ACCORDINGLY RESTORE THIS ISS UE ALSO TO THE FILE OF THE AO WITH DIRECTION TO EXAMINE THE CONTENTIONS OF THE ASSESSEE IN THE LIGHT OF THE ABOVE DECISIONS OF THE HONBLE JURISDICTIONAL HIGH COURT AND DECIDE THE ISSUE A FRESH. 23. GROUND NO. 3 IS CONSEQUENTIAL AND DOES NOT REQU IRE ANY SPECIFIC ADJUDICATION ON THE ISSUE. IN VIEW OF ABOVE OBSERVA TIONS, THIS APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES .. 24. IN THE RESULT ITA NO. 3066/M/11 FOR AY 2004-05 IS HEREBY DISMISSED AND ITA NO. 3065/M/11 FOR AY 2006-07 IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 22.07.2015. SD/- SD/- (R.C. SHARMA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 22 .07.2015 * PATEL . P.S. ITA NOS.3065 &3066/M/2011 14 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.