MAHARASHTRA AGRO INDUSTRIES DEVELOPMENT CORPORATION LTD, MUMBAI V. DCIT CC 31, MUMBAI

ITA 3438/MUM/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59869 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 29-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P C MAURYA
• Assessee Lawyers: ASHOK J PATIL
• Keywords: Opportunity of being heard; Earning of tax free income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B , MUMBAI BEFORE SHIRI G. E. VEERABHADRAPPA, HONBLE PRESIDEN T AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. : 3438 & 3463/MUM/2011 ASSESSMENT YEAR : 2006-07 & 2007-08 THE MAHARSHTRA AGRO INDUSTR IES DEVELOPMENT CORPORATION LTD. KRUSHIUDYOG BHAVAN, AAREY MILK COLONY, GOREGAON (E), MUMBAI-400 065 PAN NO: AAACT 1546 M VS. COMMISSIONER OF INCOME TAX (APPEALS) 12. ROOM NO.509/562, AYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHOK J. PATIL RESPONDENT BY : SHRI P. C. MAURYA DATE OF HEARING : 27.0 2 .2012 DATE OF PRONOUNCEMENT : 02.03.2012 ORDER PER AMIT SHUKLA (J.M.) : THE PRESENT APPEALS HAVE BEEN FILED BY THE APPELLA NT AGAINST ORDER DATED 28.01.2009 PASSED SEPARATELY ON EVEN DATE BY THE LEARNED CIT(APPEALS)-12, MUMBAI FOR THE QUANTUM OF ASSESSME NT PASSED U/S.143(3) FOR THE ASSESSMENT YEARS 2006-07 AND 200 7-08. SINCE THE GROUNDS OF APPEALS AND THE ISSUES INVOLVED ARE COMM ON, THEREFORE, FOR THE SAKE OF CONVENIENCE BOTH THE APPEALS ARE DISPOS ED OF BY A CONSOLIDATED ORDER. ITA NOS : 3438 & 3463/MUM/2011 M/S.M AHARASHTRA AGRO INDUSTRY DEVELOPMENT CORPORATION LIMITED 2 ITA NO. : 3438/MUM/2011 2. THE FIRST GROUND OF APPEAL RELATES TO THE DISALL OWANCE OF EXPENSES OF `. 20,050/- MADE U/S.14A ON ACCOUNT OF EARNING OF DIV IDEND INCOME WHICH IS EXEMPT U/S.10(34). 3. THE FACTS IN BRIEF ARE THAT THE APPELLANT IS AN UNDERTAKING OF MAHARASHTRA GOVERNMENT, WHOSE SHARES ARE HELD BY ST ATE GOVERNMENT (54.5%) AND CENTRAL GOVERNMENT (45.5%). IT IS ENGA GED IN THE BUSINESS OF DEALING WITH AGRO PRODUCTS LIKE FERTILIZERS, PES TICIDES, AGRICULTURAL IMPLEMENTS, CATTLE FEED AND PROCESS FRUIT PRODUCTS AND SETTING UP FOOD PROCESSING UNIT. THE ENTIRE ACTIVITIES REVOLVE ARO UND AGRO BASED DEVELOPMENT. DURING THE COURSE OF ASSESSMENT PROCE EDINGS, THE ASSESSING OFFICER ON PERUSAL OF COMPUTATION OF INCO ME NOTED THAT THE APPELLANT COMPANY HAS CLAIMED AN AMOUNT OF `. 20,050/- AS DIVIDEND INCOME WHICH IS EXEMPT U/S.10(34) OF THE INCOME TAX ACT. THE ASSESSING OFFICER REQUIRED THE APPELLANT TO FURNISH THE DETAILS OF EXPENDITURE INCURRED OR WERE ATTRIBUTABLE TO EARN T HIS EXEMPT INCOME. THE APPELLANT COMPANY CONTENTED THAT NO EXPENSES HA VE BEEN INCURRED FOR THE PURPOSE OF EARNING OF THE DIVIDEND INCOME, HENCE NO DISALLOWANCE U/S.14A IS CALLED FOR. THE ASSESSING OFFICER HOWEV ER REJECTED THE CONTENTION AND APPLIED THE PROVISIONS OF RULE 8D IN SERTED IN THE INCOME TAX RULES 1962 WHICH IS APPLICABLE W.E.F. 24.03.200 8 AFTER HOLDING THAT IT IS A CLARIFICATORY PROVISION AND WOULD BE APPLICABL E IN THE IMPUGNED ASSESSMENT YEAR 2006-07 ALSO. ACCORDINGLY, HE COMP UTED THE DISALLOWANCE UNDER RULE 8D AT `. 3,00,775/-. HOWEVER, HE RESTRICTED THE DISALLOWANCE TO THE EXTENT OF DIVIDEND INCOME I.E. `. 20,050/-. ITA NOS : 3438 & 3463/MUM/2011 M/S.M AHARASHTRA AGRO INDUSTRY DEVELOPMENT CORPORATION LIMITED 3 4. IN THE FIRST APPEAL BEFORE THE LEARNED CIT(APPEA LS), THE SAID GROUND WAS NOT PRESSED AND ACCORDINGLY THE DISALLOWANCE OF `. 20,050/- WAS CONFIRMED AND UPHELD BY THE LEARNED CIT(APPEALS). 5. BEFORE US, THE LEARNED AR STATED THAT DISALLOWAN CE TO THE EXTENT OF DIVIDEND INCOME EARNED AT `. 20,050/- IS NOT SERIOUSLY DISPUTED BY HIM, IN THIS YEAR UNDER APPEAL. ACCORDINGLY THE DISALLO WANCE OF `. 20,050/- MADE U/S.14A IS HEREBY CONFIRMED AND GROUND OF APPE AL NO. 1 IS TREATED AS DISMISSED. 6. THE SECOND ISSUE RELATES TO THE DISALLOWANCE OF EARLIER YEAR EXPENSES AGGREGATING TO `. 49,99,000/-. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE APPELLANT HAS DEBITED A SUM OF `. 49.98 LAKHS AS PRIOR PERIOD EXPENSES (NET) IN THE PROFIT & LOSS A/C. BEFORE THE ASSESSING OFFICER TH E APPELLANT CONTENTED THAT THE ITAT IN ITS OWN CASE IN THE ASSESSMENT Y EAR 1990-91 IN ITA NO.4185/BOM/1993 HAS DECIDED THIS ISSUE IN FAVOUR O F THE APPELLANT AND, THEREFORE, PRIOR PERIOD EXPENSES CANNOT BE DIS ALLOWED. THE ASSESSING OFFICER REJECTED THE CONTENTION OF THE AP PELLANT AND HELD THAT IF THE APPELLANT IS NOT ABLE TO PROVE THAT THE LIABILI TY FOR THE EARLIER YEAR EXPENSES HAS BEEN CRYSTALLISED DURING THE YEAR, THE N NO CLAIM FOR DEDUCTION CAN BE MADE FOR SUCH PRIOR PERIOD EXPENSE S. ACCORDINGLY, THE ENTIRE LIABILITY OF `. 49,98,000/- WAS DISALLOWED ON THE GROUND THAT SAME HAS NOT BEEN CRYSTALLISED DURING THE YEAR AND, THER EFORE, ADDED BACK TO THE INCOME OF THE APPELLANT. 7. BEFORE THE LEARNED CIT(APPEALS) THE APPELLANT MA DE FOLLOWING SUBMISSIONS :- ITA NOS : 3438 & 3463/MUM/2011 M/S.M AHARASHTRA AGRO INDUSTRY DEVELOPMENT CORPORATION LIMITED 4 IN THE INSTANT CASE, AS STATED ABOVE, THE APPELLAN T IS A GOVERNMENT OF MAHARASHTRA UNDERTAKING IN WHICH THE CENTRAL GOVERNMENT ALSO HAS A SUBSTANTIAL STAKE. THE APPEL LANT IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND DISTRI BUTION OF AGRICULTURAL PRODUCTS, NAMELY FERTILIZERS AND AGRIC ULTURAL EQUIPMENTS. THE APPELLANT HAS 32 DIFFERENT MANUFAC TURING AND DISTRIBUTION CENTERS WHERE THE SUPPLIERS SUPPLY FERTILIZERS AND AGRICULTURAL RELATED CHEMICALS INCLUDING PESTIC IDES AND RAW MATERIAL FOR MANUFACTURE AND FORMULATION OF FER TILIZERS. FOR THE RELEVANT YEAR M/S. KRIBHCO HAD MADE A DEMAN D OF APPROX. `. 304 LAKHS AS OUTSTANDING PAYMENTS FOR THE EARLIER YEARS ON THE APPELLANT, WHICH THE APPELLANT DISPUTE D. THEREAFTER, THE REPRESENTATIVES OF M/S. KRIBHCO AND THE APPELLANT AGREED TO SIT TOGETHER AND RECONCILE THE DIFFERENCE. THE SAME WAS ALSO DONE IN THE CASE OF GODAVARI FERT ILIZERS AND OTHER SMALL AND MISCELLANEOUS SUPPLIERS. IN THE CASE OF M/S. KRIBHCO THE RECONCILIATION WAS STILL UNDER PRO CESS AND AN AMOUNT OF `. 32.09 LAKHS WAS ACCEPTED BY THE APPELLANT WHICH WAS PAYABLE TO M/S. KRIBHCO DURING THE RELEVA NT YEAR AND THE SAME WAS PAID TO M/S. KRIBHCO. SIMILAR LY, AN AMOUNT OF `. 86.61 LAKHS WAS PAID IN A.Y. 2007-08. THE ACCOUNT, OF GODAVARI FERTILIZERS WAS SETTLED AT `. 20,00,000/- BEING THE EXPENSES OF THE PRIOR PERIOD. AT THIS JUN CTURE, IT IS PERTINENT TO MENTION THAT A SIMILAR ISSUE HAD ARISE N IN THE CASE OF THE APPELLANT FOR A.Y. 1990-91 AND THE TRIB UNAL HELD THAT AS THE INCOME AS WELL AS THE EXPENSES PERTAINI NG TO THE PRIOR PERIOD WERE OFFERED IN THE RELEVANT YEARS NO DISALLOWANCE WAS CALLED FOR AND GAVE RELIEF TO THE APPELLANT. IT IS FURTHER SUBMITTED THAT DUE TO THE PECULIAR CI RCUMSTANCES AS STATED ABOVE, LOT OF EXPENSES DID NOT REACH THE HEAD OFFICE OF THE APPELLANT AND THE SAME CAME TO LIGHT ONLY WH EN THE APPELLANT UNDERTOOK A JOINT EXERCISE WITH THE SUPPL IERS TO RECONCILE THEIR ACCOUNTS PERTAINING TO EXPENSES FOR THE PRIOR PERIOD AND DURING THE PERIOD WITH RESPECT TO M/S. K RIBHCO AND `. 32.09 LAKHS WAS CRYSTALLIZED AND ACCEPTED BY THE APPELLANT AND THE SAME WAS PAID DURING THE YEAR. TH E SAME WAS THE CASE WITH GODAVARI FERTILIZERS & CHEMICAL L TD. AMOUNTING TO RS.20 IAKHS AND THE CASE OF RCF THE AM OUNT WAS 15.21 LAKHS. IT IS PERTINENT TO MENTION AT THIS JUNCTURE THAT TH E APPELLANT HAS ALSO OFFERED PRIOR PERIOD INCOME OF `. 7.71 LAKHS WHICH WAS ACCEPTED BY THE DEPARTMENT. ITA NOS : 3438 & 3463/MUM/2011 M/S.M AHARASHTRA AGRO INDUSTRY DEVELOPMENT CORPORATION LIMITED 5 7.1 THE LEARNED CIT(APPEALS) NOTED THAT THE SIMILAR ISSUE WAS ALSO INVOLVED IN THE ASSESSMENT YEAR 2005-06 WHEREIN THE CIT(APPEALS) HAS CONFIRMED THE SIMILAR ADDITION OF PRIOR PERIOD EXPE NSES ON SAME FACTS AND ACCORDINGLY CONFIRMED THE DISALLOWANCE AS RAISE D BY THE APPELLANT IN THE GROUNDS OF APPEAL. 8. THE LEARNED AR CONTENTED THAT IN THE ASSESSMENT YEAR 2005-06, THE ITAT IN THE CASE OF APPELLANT IN ITA NO.5178/MU M/2009 HAS SET ASIDE THIS ISSUE OF PRIOR PERIOD EXPENSES TO THE FI LE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION. ON THE OTHER HAND, THE LEARNED DR SUPPORTED THE ORDER OF THE LEARNED CIT(APPEALS). 9. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE LEARNED PARTIES AND ALSO GONE THROUGH THE ORDER OF THE AUTH ORITIES BELOW AND THE ORDER DATED 28.04.2011 PASSED BY THE ITAT FOR THE A SSESSMENT YEAR 2005-06. ON PERUSAL OF THE ITAT ORDER IT IS SEEN THAT THE ITAT HAS NOTED ALL THE RELEVANT FACTS, NATURE OF APPELLANTS BUSIN ESS AND THE DETAILS OF EXPENSES INCURRED AND PAYMENTS MADE IN THE VARIOUS YEARS AND AFTER CONSIDERING THE SAME, THE MATTER HAS BEEN RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER TO SUBSTANTIATE THE CLAIM. IT HAS ALSO BEEN NOTED THAT THE RECONCILIATION OF VARIOUS PARTY ACCOUNTS IN THE GOVERNMENT CONCERNS TAKE LOT OF TIME, THEREFORE, THE EXPENSES GETS CRYS TALLISED ONLY WHEN THEY ARE FOUND TO BE RECONCILED. THEREFORE, RESPECTFULL Y FOLLOWING THE EARLIER YEAR ORDER OF ITAT THE MATTER SHOULD BE SENT BACK T O THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO GIVE ONE MORE OPPORTUNITY TO THE APPELLANT TO SUBSTANTIATE ITS CLAIM FOR THE EARLIER YEARS EXPENSES. THE OPERATIVE PORTION IN THE ORDER FOR SETTING ASIDE IS GIVEN IN THE PARA 13, WHICH FOR THE SAKE OF READY REFERENCE IS REPRODUCED HEREIN BELOW :- ITA NOS : 3438 & 3463/MUM/2011 M/S.M AHARASHTRA AGRO INDUSTRY DEVELOPMENT CORPORATION LIMITED 6 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND TH E LD. CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE AS SESSEE. WE HAVE ALSO GONE THROUGH THE PARTY-WISE DETAILS OF PR IOR PERIOD TRANSACTIONS FROM A.Y. 2005-06 TO 2008-09, FILED BY THE LD. COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING. CO NSIDERING THE TOTALITY OF THE FACTS OF THE CASE, AND CONSIDER ING THE FACT THAT IT IS A STATE GOVERNMENT UNDERTAKING AND CONSI DERING THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT IT TAKES CONSIDERABLE TIME FOR RECONCILIATION OF PARTY ACCOU NTS IN GOVERNMENT CONCERNS, WE, IN THE INTEREST OF JUSTICE , DEEM IT PROPER TO RESTORE THE MATTER BACK TO THE FILE OF A. O. WITH THE DIRECTION TO GIVE ONE MORE OPPORTUNITY TO THE ASSES SEE TO SUBSTANTIATE ITS CLAIM OF EARLIER YEARS EXPENSES OF `. 136.14 LAKHS. THE A.O. SHALL DECIDE THE ISSUE AFRESH AND I N ACCORDANCE WITH LAW, AFTER GIVING DUE OPPORTUNITY O F BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDING LY. THE FIRST GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY, PARTLY ALLOWED FOR STATISTICAL PURPOSE. 10. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES AN D FOLLOWING THE ABOVE ORDER THE MATTER IS RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER WITH A SIMILAR DIRECTION. ACCORDINGLY, THE ASSESSI NG OFFICER SHALL DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW, AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN THE RESULT, THE SECOND GROUND OF APPEAL AS RAISED BY THE APPELLANT IS ALLOWED FOR ST ATISTICAL PURPOSES. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. : 3463/MUM/2011 12. IN THIS YEAR BOTH THE GROUNDS ARE SIMILAR, EXCE PT FOR THE FACT THAT IN GROUND NO. 1, WHICH DEALS WITH THE DISALLOWANCE U/S .14A, THE ASSESSING OFFICER HAS DISALLOWED THE EXPENDITURE OF `. 3,20,405/- AS PER RULE 8D, AS AGAINST EXEMPT DIVIDEND INCOME EARNED AT `. 20,000/-. ITA NOS : 3438 & 3463/MUM/2011 M/S.M AHARASHTRA AGRO INDUSTRY DEVELOPMENT CORPORATION LIMITED 7 13. SINCE IN THE EARLIER YEAR THE ASSESSING OFFICER HIMSELF RESTRICTED THE DISALLOWANCE AT `. 20,500/- WHICH WAS THE AMOUNT OF DIVIDEND INCOME EARNED, THEREFORE, IN THIS YEAR ALSO THE EXPENSES D ISALLOWED CANNOT BE MORE THAN THE DIVIDEND INCOME EARNED, WHICH IN THIS YEAR IS `. 20,000/- ONLY. WE, THEREFORE, RESTRICT THE DISALLOWANCE AT `. 20,000/-. ACCORDINGLY THE APPELLANT GETS RELIEF OF `. 3,00,405/-. IN THE RESULT, GROUND OF APPEAL NO. 1 IS PARTLY ALLOWED. 14. THE GROUND OF APPEAL NO. 2 RELATES TO THE DISAL LOWANCE OF PRIOR PERIOD EXPENSES OF `. 1,23,91,926/-. THIS GROUND IS SIMILAR TO GROUND NO.2 OF ITA NO.3438/MUM/2011 WHICH HAS BEEN DEALT I N PARA 9 AND 10 ABOVE AND THE MATTER IS RESTORED BACK TO THE FILE O F THE ASSESSING OFFICER TO ADJUDICATE AFRESH AFTER GIVING DUE AND REASONABL E OPPORTUNITY TO THE APPELLANT. ACCORDINGLY, THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSE E IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 2 ND DAY OF MARCH, 2012. SD/- - SD/- ( G. E. VEERABHADRAPPA ) ( AMIT SHUKLA ) PRESIDENT JUDICIAL MEMBER MUMBAI, DT: 02.03.2012 ITA NOS : 3438 & 3463/MUM/2011 M/S.M AHARASHTRA AGRO INDUSTRY DEVELOPMENT CORPORATION LIMITED 8 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, B - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI