MUMBAI SEZ LTD, MUMBAI V. DCIT CEN CIR 39, MUMBAI

ITA 3072/MUM/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4512 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2007-2008
• Appeal Filed On: 28-04-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D G
• Keywords: Commercial expediency; Rule 8D; Set aside
• Section: 14A; 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D , MUMBAI BEFORE S HRI RAJESH KUMAR (AM ) AND SHRI RAM LAL NEGI (JM) ITA NO. 3072 /MUM/2017 ASSESSMENT Y EAR: 2007 - 08 MUMBAI SEZ LIMITED, 1 ST FLOOR, JAI CENTRE, 34 P.D. MELLO ROAD, OPP. RED GATE MASJID , MUMBAI - 400009 PAN: AABCG2739C VS. THE DCIT, CC - 39, AAYAKAR BHAVAN, GROUND FLOOR, MUMBAI - 400020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI GAUTAM THACKER ( AR ) REVENUE BY : SHRI D.G. PANSARI (D R ) DATE OF HE ARING: 20/02 /201 9 DATE OF PRONOUNCEMENT: 22 / 03 /201 9 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 16.02.2017 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 54 (FO R SHORT THE CIT(A) , MUMBAI, FOR THE ASSESSMENT YEAR 2012 - 13 , WHEREBY THE LD. CIT(A) HAS PARTLY ALLOWED T HE APPEAL FILED BY THE APPELLANT/ ASSESSEE AGAINST ASSESSMENT ORDER PASSED U/S 143 (3) R.W.S 263 OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). 2 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF SETTING UP AND OPERATE INFRASTRUCTURE FACILITIES, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING THE TOTAL INCOME OF RS. 3,06,61,438/ - . THE ASSESSMENT WAS COMPLETED U/S 143 (3) OF THE ACT AND THE AO DETERMINED THE TAXABLE INCOME OF THE ASSESSEE AT RS. 44,20,28,420/ - . 2 ITA NO. 3072 / MUM/2017 ASSESSMENT YEAR: 2007 - 08 3. SUBSEQUENTLY, THE CIT CENTRAL , VIDE ORDER DATED 30.03.2012 PASSED U/S 263 , SET ASIDE THE ASSESSMENT AND DIRECTED THE AO TO RE - EXAMINE THE FOLLOWING ISSUES AND PASSED ORDER AFRESH: A) EXAMINE AND DECIDE AMOUNT OF EXPENSES DISALLOWABLE UNDER RULE 8D(I), 8D(II) AND UNDER RULE 8D(III) OF INCOME TAX RULES AND WILL DECIDE AS SUCH DISALLOWABLE EXPENSES CAN BE ALLOWED AS DEDUCTION OR CAN BE CAPITALIZED TOWARDS WORK - IN - PROGRESS. B) EXAMINE WHETHER SOCIAL WELFARE EXPENSES ARE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND WHETHER THESE EXPENSES CAN BE CAPITALIZED TOWARDS WORK - IN=PROGRESS. C) EXAMINE WHAT MADE THE ASSESSEE TO BORROW RS. 185.00 CRORE FROM BANKS WHEN THESE FUNDS WERE NOT IMMEDIATELY REQUIRED BY THE ASSESSEE AND WILL ALSO EXAMINE HOW IT CAN BE SAID THAT THE DECISION OF THE ASSESSEE TO GIVE RS. 1505.56 CRORE OUT OF THESE FUND TO M/S DIHL IS DECISIO N TAKEN ON ACCOUNT OF COMMERCIAL EXPEDIENCY. HE WILL EXAMINE WHETHER INTEREST EXPENSES BORNE BY THE ASSESSEE ON BORROWED FUNDS GIVEN TO M/S DIHL CAN BE CAPITALIZED TOWARDS WORK - IN - PROGRESS IN THE CASE OF THE ASSESSEE. 4. IN COMPLIANCE THEREOF, THE AO ISS UED NOTICES U/S 143 (2) AND 142 (1) OF THE ACT. IN RESPONSE TO THE SAID NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED BEFORE THE AO AND FILED WRITTEN SUBMISSIONS . THE AO AFTER HEARING THE ASSESSEE REDUCED THE CAPITAL WORK - IN - PROGRESS HOLD ING THAT THE ASSESSEE HAS WRONGLY CAPITALIZED AN AMOUNT OF RS. 73,14,200/ - TOWARDS SOCIAL WELFARE EXPENSES, RS. 1,79,24,895/ - DISALLOWANCE U/S 14A AND RS. 12,62,19,359/ - DIFFERENTIAL RATE OF INTEREST. THE AO ACCORDINGLY DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT RS. 44,11,71,913/ - . THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER PASSED BY THE AO U/S 143 (3) READ WITH SECTION 263 OF THE ACT BEFORE THE LD. CIT (A), WHO AFTER HEARING THE ASSESSEE PARTLY ALLOWED THE APPEAL. HOWEVER, CONFIRMED THE ACTION OF TH E AO IN MAKING DISALLOWANCE TO THE EXTENT OF RS. 96,03,789/ - U/S 14A READ WITH RULE 8D, UPHELD THE ACTION OF AO TO DISALLOW SOCIAL WELFARE EXPENDITURE AND FURTHER CONFIRMED THE ACTION OF AO IN 3 ITA NO. 3072 / MUM/2017 ASSESSMENT YEAR: 2007 - 08 DISALLOWING THE CAPITALIZATION OF DIFFERENTIAL INTEREST TO TH E EXTENT OF RS. 12,62,19,359/ - 5 . AGGRIEVED BY THE ORDER OF LD. CIT (APPEAL S ), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING EFFECTIVE GROUNDS : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE AND IN LAW, IT IS PRAYED THAT TH E HONBLE CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE TO THE EXTENT OF RS. 96,03,789/ - U/S 14A R.W.R. 8D, THE APPELLANT PRAYS THAT THIS DISALLOWANCE MAY PLEASE BE DELETED. 2. ON THE F A CTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE CIT (A) G ROSSLY ERRED IN UPHOLDING THE ACTION OF THE A.O. TO DISALLOW SOCIAL WELFARE EXPENDITURE. 3. ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CASE AND IN LAW, IT IS PRAYED THAT THE HONBLE CIT (A) ERRED IN CONFIRMING THE DISALLOWING THE CAPITALIZATION OF DIFFERENTI AL INTEREST WITHOUT APPRECIATING THE FACTS OF THE CASE PLACED BEFORE HIM DURING APPELLATE PROCEEDINGS TO THE EXTENT OF RS. 12,62,19,359/ - , THE APPELLANT PRAYS THAT THIS DISALLOWANCE MAY PLEASE BE DELETED. 4. THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) IS ILLEGAL, BAD IN LAW, ULTRA VIRES AND CONTRARY TO THE PROVISIONS OF LAW AND FACTS OF THE CASE AND WITHOUT APPRECIATING THE FACTS OF THE CASE IN THEIR PROPER PERSPECTIVE. 5. EACH ONE OF THE ABOVE GROUNDS OF APPEAL IS WITHOUT PREJUDICE TO THE OTHER. 6. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE B BENCH OF THE MUMBAI TRIBUNAL HAS ALLOWED THE APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER PASSED BY THE CIT U/S 263 OF THE ACT , IN ASSESSEES APPEAL ITA NO 3429/MUM/2012 FOR THE ASSESSMENT YEAR UNDER CONSIDERATION . SINCE, THE TRIBUNAL HAS SET ASIDE THE ORDER PASSED BY THE CIT DIRECTING THE AO TO RE - EXAMINE THE ISSUE REGARDING I) CAPITALIZING THE DISALLOWANCE UNDER RULE 8D, II) SOCIAL WELFARE EXPENSES AND III) INTEREST EXPENSES BO RNE BY THE ASSESSEE ON BORROWED FUNDS, THE ASSESSMENT ORDER PASSED U/S 143 (3) READ WITH SECTION 263 OF THE ACT RELATING TO THE SAID ISSUES , THE PRESENT GROUNDS OF APPEAL DO NOT SURVIVE . 4 ITA NO. 3072 / MUM/2017 ASSESSMENT YEAR: 2007 - 08 7. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) FAIRLY ADMITTED THAT THE TRIBUNAL HAS SET ASIDE THE ORDER PASSED BY THE LD. CIT U/S 263 OF THE ACT DIRECTING THE AO TO RE - EXAMINE THE ISSUES IN QUESTION . 8. WE HAVE PERUSED THE MATERIAL ON RECORD . AS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE, THE COORDINATE BENCH HAS SET AS IDE THE ORDER PASSED BY THE LD. CIT U/S 263 OF THE ACT, DIRECTING THE AO TO RE - EXAMINE THE THREE ISSUES DISCUSSED ABOVE, THE ORDER PASSED BY THE AO U/S 143 (3) READ WITH SECTION 263 OF THE ACT HAS BECOME INFRUCTUOUS. SINCE, THE ORDER AGAINST WHICH THE ASS ESSEE HAS FILED THE PRESENT APPEAL HAS BECOME INFRUCTUOUS, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE DO NOT SURVIVE. HENCE, WE DISMISS THE APPEAL OF THE ASSESSEE AS NOT PRESSED. IN THE RESULT, APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2007 - 2008 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND MARCH , 2019 . SD/ - SD/ - ( RAJESH KUMAR ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 22 / 03 / 201 9 ALINDRA, PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . 5 ITA NO. 3072 / MUM/2017 ASSESSMENT YEAR: 2007 - 08 / BY ORDER, //T RUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI