MEDITAB SPECIALITIES PVT. LTD., Mumbai V. ACIT 2(2)(2), Mumbai

ITA 3395/MUM/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 4941 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 21-05-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Tax effect; Rule 8D; Set aside
• Section: 142(1); 10AA; 14A; 143(1); 201; 143(2); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI RAJESH KUMAR , AM AND SHRI AMARJIT SINGH, JM / I.T.A. NO. 3395 /MUM/201 9 ( / ASSESSMENT YEAR: 201 4 - 15 ) MEDITAB SPECIAL I TIES PVT. LTD. UNIT NO.SB - 901 & SB 902, EMPI RE TOWER BUILDING, GUT NO.31, CLOUD CITY CAMPUS, THANE, BELAPUR ROAD, AIROLI, NAVI MUMBAI . / VS. ACIT - 2(2)(2) 5 TH FLOOR, AAYAKAR BHAVAN, M.K. MARG, ROOM NO.545, MUMBAI - 400020. ./ ./ PAN/GIR NO. : AAACM6124A ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING: 11 / 01 / 20 2 1 /DATE OF PRONOUNCEMENT: 01 / 0 4 / 20 21 / O R D E R PER AMARJIT SINGH, JM: THE ASSESSEE HA D FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 18 . 03 .201 9 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 5 , MUMBAI [ HEREINAFTE R REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 2014 - 1 5 . 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1. DISALLOWANCE OF RS. 40,91,150 (RS. 131,04,740 - RS. 90,13,590) UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES - TAX EFFECT RS. 13,90,580 A) THE LEARNED COMMISSIO NER OF INCOME TAX (APPEALS) - 5, MUMBAI, [HEREINAFTER REFERRED TO AS THE CIT (A) HAS ERRED IN NOT ACCEPTING THE SUBMISSION THAT IN A CASE WHERE THERE ASSESSEE BY : SHRI V. MOHAN REVENUE BY: SHRI BHARAT ANDHALE ITA NO. 3395 /M/201 9 A.Y. 20 1 4 - 15 2 IS NO RECEIPT OF TAX FREE INCOME THERE SHOULD NOT BE ANY DISALLOWANCE UNDER SECTION 14A OF THE ACT. THE LEARNED CIT (A) OUGHT TO HAVE CONSIDERED THE ORDER OF HONOURABLE ITAT DATED 18.08.2017 IN APPELLANT'S OWN CASE FOR AY 2012 - 13. B) THE LEARNED CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 40,91,150 UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME - TAX RULES, 1962 (RULES'). C) THE LEARNED CIT (A) HAS ERRED IN UPHOLDING THE INCLUSION OF THE AMOUNT OF RS. 26,72,17,710/ - SPENT ON DEVELOPMENT OF SEZ AS PART OF INVESTMENT FOR COMPUTING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT D) WITHOUT PREJUDICE, THE LEARNED CIT (A) HAS ERRED IN CONSIDERING THE INCOME ARISING OUT OF AMOUNT OF RS. 26,72,17,710/ - SPENT ON DEVELOPMENT OF SEZ AS EXEMPT INCOME WITHOUT APPRECIATING THAT INCOME IF ANY ARISING OUT OF DEVELOPMENT OF SEZ IS NOT AN EXE MPT INCOME BUT AVAILABLE FOR DEDUCTION FROM TOTAL INCOME. THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED THE FACT THAT NO INCOME HAS ARISEN FROM THE SAID DEVELOPMENT OF SEZ DURING THE YEAR UNDER CONSIDERATION. E) WITHOUT PREJUDICE, THE LEARNED CIT (A) HAS ERRED IN IGNORING THE CBDT CIRCULAR NO. 7/DV/2013 DATED 16.07.2013 CLARIFYING THAT IRRESPECTIVE OF THEIR PLACEMENT IN CHAPTER III, SECTIONS 10AA PROVIDE FOR DEDUCTION FROM THE TOTAL INCOME. F) WITHOUT PREJUDICE TO ABOVE. THE LEARNED CIT (A) HAS ER RED IN CONSIDERING INVESTMENTS ON WHICH NO EXEMPT INCOME IS ITA NO. 3395 /M/201 9 A.Y. 20 1 4 - 15 3 WINED DURING THE YEAR UNCLE' CONSIDERATION FOR COMPUTING DISALLOWANCE UNDER SECTION 14A OF THE ACT R.W. RULE 8D OF THE RULES. 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS R ETURN OF INCOME ON 30 . 11 .201 4 DECLARING TOTAL INCOME OF RS. NIL FOR THE A.Y.2014 - 15 . THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT. THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS . NOTICES U/A 143(2) & 142(1) OF THE I. T. ACT, 1961 WERE ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PHARMACEUTICALS PRODUCTS H AVING ITS FORMULATION MANUFA CTURING PLANT A T GOA, DAMAN & SATARA. THE ASSESSEE HAS SHOWN THE INVESTMENT OF RS.2,89,50,67,184/ - IN THE YEAR UNDER CO NSIDERATION. THE AO APPLIED THE PROVISIONS U/S 14A R.W. RULE 8D AND ASSESSED THE EXPENDITURE TO EARN THE EXEMPT INCOME IN SUM OF RS. 1,31,04,740/ - . THE TOTAL INCOME OF THE ASSESSEE WAS ASSESSED IN SUM OF RS. 9,41,61,890/ - . FEELING AGGRIEVED, THE ASSESSEE FIL ED AN APPEAL BEFORE THE CIT(A) WHO PARTLY ALLOWED THE CLAIM OF THE ASSESSEE BUT THE ASSESSEE WAS NOT SATISFIED , THEREFORE, THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US. ISSUE NO . 1 (A) 4 . WE HAVE HEARD THE ARGUMENTS ADVANCED BY THE LD. REPRESENTATIVE OF THE PARTIES AND PERUSED THE RECORD. THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE ASSESSEE DID NOT EARN THE EXEMPT INCOME, THEREFORE, NO DISALLOWANCE IS REQUIRED IN VIEW OF THE PROVISIONS U/S 14A R.W. RULE 8D. IT IS ALSO ARGUED THAT THE IS SUE HAS DULY BEEN COVERED BY THE DECISION OF THE HONBLE ITAT IN THE ASSESSEES OWN CASE FOR THE A.Y.2010 - 11, HENCE, NO DISALLOWANCE IS REQUIRED IN VIEW OF THE PROVISIONS U/S 14A R.W. RULE 8D. HOWEVER, ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE DEPAR TMENT HAS ITA NO. 3395 /M/201 9 A.Y. 20 1 4 - 15 4 STRONGLY RELIED UPON THE ORDER PASSED BY THE CIT(A) IN QUESTION. IT IS ADMITTED THAT THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME IN THE ASSESSMENT YEAR IN QUESTION. THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE ITAT IN THE ASSESSEE S OWN CASE IN ITA. NO.3393/MUM/2016 FOR THE A.Y. 2010 - 11 DATED 18.08.2017. THE RELEVANT FINDING IS HEREBY REPRODUCED AS UNDER.: - 8. WE HAVE PATIENTLY AND CAREFULLY HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIONS RELIED UPON BY BOTH THE PARTIES - AT THE OUTSET, WE MUST PUT IT ON RECORD THAT LEARNED AUTHORIZED REPRESENTATIVE HAS RESTRICTED HIS CONTENTION ON THE DISPUTED ISSUE. OF DISALLOWANCE MADE UNDER SECTION 14A R/W RULE 8D ONLY ON THE P ROPOSITION THAT THE DISALLOWANCE UNDER SECTION 14A CANNOT EXCEED THE EXEMPT INCOME EARNED IN A PARTICULAR ASSESSMENT YEAR. IN THIS CONTEXT, THE LEARNED AUTHORIZED REPRESENTATIVE HAS FURNISHED A CHART BEFORE US AS PER WHICH THE EXEMPT INCOME EARNED IN THE A SSESSMENT YEARS UNDER APPEAL ARE AS UNDER: - A.Y. 2008 - 09 RS.6,04,377 A.Y. 2010 - 11 RS.9,130 A.Y.2012 - 13 RS. NIL 9. IN VIEW OF THE AFORESAID SUBMISSIONS OF THE LEARNED AUTHORIZED REPRESENTATIVE, WE ARE CALLED UPON TO DECIDE THE LIMITED ISSUE, WHETHER THE DISALLOWANCE UNDER SECTION 14A R/W RULE 8D HAS TO BE RESTRICTED TO THE EXEMPT INCOME EARNED IN A PARTICULAR ASSESSMENT YEAR TO COUNTER THE AFORESAID PROPOSITION OF THE LEARNED AUTHORIZED REPRESENTATIVE, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTE D THAT THE PROVISIONS OF SECTION 14A R/W RULE 8D BEING MANDATORY IN NATURE, THE ASSESSING OFFICER HAS TO COMPUTE THE DISALLOWANCE UNDER SECTION 14A IN TERMS OF THE METHOD PRESCRIBED UNDER SECTION RULE 811 WE ARE UNABLE TO AGREE WITH THE CONTENTION OF THE L EARNED DEPARTMENTAL REPRESENTATIVE. IN CASE OF CHEMINVEST LTD. VIS CIT, ITA. 749/2014, DATED SEPTEMBER 2015, THE HON'BLE DELHI HIGH COURT HAS HELD THAT NO DISALLOWANCE UNDER SECTION 14A OF THE ACT, CAN BE MADE IN THE ABSENCE OF EXEMPT INCOME:. IN CASE OF C IT V/S JOINT INVESTMENT PVT. LTD., ITA NO 117/2015 DATED 25'' FEBRUARY 20)5, THE HON'BLE DELHI HIGH COURT ITA NO. 3395 /M/201 9 A.Y. 20 1 4 - 15 5 HAS HELD THAT THE DISALLOWANCE UNDER SECTION 14A CANNOT SWALLOW THE ENTIRE EXEMPT INCOME. FOLLOWING THE AFORESAID RATIO OF THE HON'BLE DELHI HIGH COUR T, DIFFERENT BENCHES OF THE TRIBUNAL HAVE HELD THAT DISALLOWANCE UNDER SECTION 14A R/W RULE 8D, CANNOT EXCEED THE EXEMPT INCOME EARNED BY THE ASSESSEE IN A PARTICULAR ASSESSMENT YEAR. IN FACT, [TAT, DELHI SPECIAL BENCH, IN THE CASE OR ACIT V/S VIREET INVES TMENT PVT. LTD. (SUPRA) HAS HELD THAT ONLY INVESTMENTS YIELDING EXEMPT INCOME DURING THE YEAR CAN BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INVESTMENT. IN CONTRAST, THE DECISIONS RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE IN NO WAY CONTRADIC T THE AFORESAID RATIO4 ON A CAREFUL READING OF THE DECISION IN CASE OF DISTRIBUTORS (BARODA) PVT. LTD, (SUPRA); CLOTH TRADERS PVT. LTD. (SUPRA, ACG ASSOCIATED CAPSULES PVT. LTD. (SUPRA), WE ARE CONVINCED THAT THESE DECISIONS ARE IN NO WAY CONNECTED TO THE ISSUE IN DISPUTE IN THE PRESENT APPEALS. AS FAR AS THE DECISIONS IN WALFORT SHARES AND STOCK BROKERS (SUPRA), GODREJ & BOYCE MFG. CO. PVT. LTD. (SUPRA) ARE CONCERNED, THOUGH THEY ARE IN THE CONTEXT OF SECTION 14A OF THE ART. HOWEVER, THESE DECISIONS CANNOT BE SAID TO BE LAYING DOWN THE RATIO THAT EVER) IN ABSENCE OF EXEMPT INCOME DISALLOWANCE UNDER SECTION 14A CAN BE MADE OR THE DISALLOWANCE UNDER SECTION 14A SHOULD NOT RESTRICTED TO THE EXEMPT INCOME EARNED IN A PARTICULAR ASSESSMENT YEAR. LEARNED DEPARTME NTAL REPRESENTATIVE HAS FAILED TO BRING TO OUR NOTICE EVEN A SINGLE DECISION WHICH DIRECTLY COUNTERS THE PROPOSITION PUT FORWARD BY THE LEARNED AUTHORIZED REPRESENTATIVE. IN THE AFORESAID VIEW OF THE MATTER, FOLLOWING THE RATIO LAID DOWN IN THE DECISION RE FERRED TO ABOVE BY US, WE HOLD THAT IF IN A PARTICULAR ASSESSMENT YEAR, THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME, NO DISALLOWANCE UNDER SECTION 14A, CAN BE MADE. SIMILARLY, EARNED IN A PARTICULAR ASSESSMENT YEAR. IN TERMS OF OUR AFORESAID OBSERVATIONS , WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE UNDER SECTION 14A TO RS.6,04,377 IN ASSESSMENT YEAR 2008 - 09 AND RS.9,130 IN ASSESSMENT YEAR 2011 - 12. IN ASSESSMENT IN YEAR 2012 - 13, ASSESSEE HAS NOT EARNED ANY, 'EXEMPT INCOME, THEREFORE, NO DI SALLOWANCE UNDER SECTION 14A CAN BE MADE. IN VIEW OF OUR REASONING ABOVE, THE GROUNDS RAISED BY THE DEPARTMENT IN ITS APPEAL HAVE BECOME REDUNDANT, HENCE, DISMISSED. 5. SINCE THE ISSUE HAS DULY BEEN COVERED BY THE DECISION OF THE HONBLE ITAT IN THE ASSES SEES OWN CASE (SUPRA), THEREFORE, WE SET ASIDE THE FINDING OF THE CIT(A) ON THIS ISSUE AND DELETE THE ADDITION RAISED IN VIEW OF THE ITA NO. 3395 /M/201 9 A.Y. 20 1 4 - 15 6 PROVISIONS 14A R.W RULE 8D. ACCORDINGLY, WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AGAINST THE REVENUE. ISSUE NO. 1 B TO 1F 6. SINCE THE ISSUE NO. 1A HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE, THEREFORE, DECISION UPON THE ISSUE NO. 1B TO 1F BECAME ACADEMIC IN NATURE, THEREFORE, NO T REQUIRED FOR ADJUDICATION. 7 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS HEREBY P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 01 /0 4 /20 2 1 SD / - SD / - ( RAJESH KUMAR ) (AMARJIT SINGH) / ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; DATED : 01 /0 4 /20 2 1 V IJAY PAL SINGH ( SR. P.S. ) / 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. / BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR ) , / ITAT, MUMBAI