AIR INDIA LTD, MUMBAI V. CIT (A) V, MUMBAI

ITA 3827/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48594 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 12-06-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJJEV AGARWAL
• Assessee Lawyers: D S SHUKLA
• Keywords: Business income; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI R,S. SYAL, A.M. AND SHRI V. DURGA RAO, J.M. ` ITA NO. 3827/MUM/2009 ASSESSMENT YEAR: 2006-07 M/S AIR INDIA LTD., APPELLANT M/S NACIL (AIR INDIA LTD.) AIR INDIA BUILDING, NARIMAN POINT, MUMBAI 400 021. (PAN AAACA9213E) VS. INCOME TAX OFFICER-5(1) (1), RESPONDENT MUMBAI. APPELLANT BY : MR. D.S. SHUKLA RESPONDENT BY : MR. RAJJEV AGARWAL . ORDER PER V. DURGA RAO, J.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)- V, MUMBAI, PASSED ON 23/03/2009 FOR THE ASS ESSMENT YEAR 2005-06. 2. GROUND NO. 1 IS DIRECTED AGAINST THE DISALLOWANC E OF PENALTY OF RS. 38,93,533/-. 3. THE ASSESSING OFFICER NOTICED FROM THE TAX AUDIT REPORT THAT THE ASSESSEE HAD PAID AN AMOUNT OF RS. 38,93,553/- ON A CCOUNT OF FINE & PENALTIES. ON BEING ASKED TOP EXPLAIN AS TO WHY THE SAID PENALTY SHOULD NOT BE DISALLOWED, THE ASSESSEE FILED ITS SU BMISSIONS VIDE LETTER DT. 12/12/2007, THE CONTENTS OF WHICH WERE E XTRACTED BY THE ASSESSING OFFICER AT PAGE 5 OF HIS ORDER. AFTER CON SIDERING THE SUBMISSIONS, THE ASSESSING OFFICER DISALLOWED THE P ENALTY OF RS. ITA NO. 3490/M/2010 LEE & MUIRHEAD P. LTD. 2 38,93,553/- OBSERVING THAT THE PENALTY PAID BY THE ASSESSEE CANNOT BE ALLOWED AS DEDUCTION IN VIEW OF EXPLANATION TO S ECTION 37(1) OF THE ACT AND FOLLOWING THE ORDER OF CIT(A) IN EARLIER YE AR IN ASSESSEES OWN CASE. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 4. THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER FOLLOWING THE DECISION OF ITAT IN APPEAL NO . 6865/MUM/05 FOR AY 2001-02 VIDE ORDER DATED 31/10/2008. AGGRIEVED B Y THE ORDER OF CIT(A), THE ASSESSEE CARRIED THE MATTER IN APPEAL B EFORE THE ITAT. 5. AFTER HEARING THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT SIMI LAR ISSUE CAME UP BEFORE THE ITAT IN ASSESSEES OWN CASE FOR ASSESSME NT YEAR 2001-02 AND 2002-03 WHEREIN THE ITAT HELD AS UNDER:- 16. WE HAVE CONSIDERED THE ISSUE. FIRST OF ALL, AS SUBMITTED THESE FINES AND PENALTIES ARE PAID BY THE ASSESSEE COMPANY ON BEHALF OF PASSENGERS/CARGO AND THESE ARE DIRECTLY N OT LEVIED ON THE ASSESSEE COMPANY. BUT THE ASSESSEE COMPANY CHOS E TO DISCHARGE THESE AS A PART OF COMMERCIAL ACTIVITY SO AS TO AVOID SEIZURE OF THE AIRCRAFT. HOWEVER, THIS ARGUMENT WAS NOT PLACED BEFORE ANY LOWER AUTHORITIES AND THE NATURE OF PENA LTY/FINE HAD NOT BEEN EXAMINED IN DETAIL AT ALL. CONSIDERING THA T THE COD HAS NOT PERMITTED TO AGITATE THIS ISSUE IN ASSESSMENT Y EAR 2002-03 WE ARE OF THE OPINION THAT THE AMOUNT CANNOT BE ALL OWED AS BUSINESS EXPENDITURE IN THE ABSENCE OF ANY JUSTIFIC ATION FOR PAYMENT OF PENALTY OR FINE AS A COMMERCIAL EXPEDIEN CY. IN THESE CIRCUMSTANCES, WE ARE INCLINED TO AGREE WITH THE LE ARNED CIT(A)S OPINION. CONSEQUENTLY, THE GROUND IS REJECTED. 6. SINCE THE ISSUE UNDER CONSIDERATION IS IDENTICAL TO THAT OF THE CASE DECIDED BY THE ITAT IN ASSESSEES OWN CASE FOR AY 2001-02 AND 2002-03, WE RESPECTFULLY FOLLOW THE SAME AND IN THE LIGHT OF THAT WE CONFIRM THE ORDER OF CIT(A) IN SUSTAINING THE DISAL LOWANCE OF PENALTY OF RS. 38,93,553/- MADE BY THE ASSESSING OFFICER. A CCORDINGLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. ITA NO. 3490/M/2010 LEE & MUIRHEAD P. LTD. 3 7. GROUND NO. 2 IS INTEREST DISALLOWANCE U/S 14A OF RS. 12,83,199/-. 8. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD GIVEN INTEREST FREE LOAN OF RS. 15 CRORES TO M/S VAYUDOOT LTD. THE ASSESSING OFFICER HELD THAT SINCE THE ASSESSEE HAD NOT PROVID ED ANY INTEREST ON THESE LOANS, IT HAD DIVERTED BORROWED FUNDS FOR NON BUSINESS PURPOSE. HE, THEREFORE, COMPUTED THE INTEREST DISALLOWABLE A T THE RATE OF 15% AND MADE AN ADDITION OF RS. 2,25,00,000/-. THE CIT (A) FOLLOWING THE ORDER OF ITAT FOR AY 2001-02 & 2002-03 IN ASSESSEE S OWN CASE DIRECTED THE ASSESSING OFFICER TO TAX THE INTEREST AS BUSINESS INCOME. 9. THE LEARNED REPRESENTATIVES OF THE PARTIES HAVE FAIRLY CONCEDED THAT THIS ISSUE IS SQUARELY COVERED BY THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. CO. LTD., [2010] 328 ITR 81 (BOM.) WHEREIN THE HONBLE COURT HELD AS UNDER:- THAT THE PROVISIONS OF RULE 8D OF THE RULES WHICH H AVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, WOULD APP LY WITH EFFECT FROM ASSESSMENT YEAR 2008-09. EVEN PRIOR TO ASSESSM ENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE AO HA D TO ENFORCE THE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. F OR THAT PURPOSE, THE AO IS DUTY BOUND TO DETERMINE THE EXPENDITURE W HICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE AO MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FA CTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTU NITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECOR D. THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 WOULD STAND REMANDED TO THE AO. THE AO SHOULD DETERMINE AS TO WHETHER TH E ASSESSEE HAD INCURRED ANY EXPENDITURE (DIRECT OR INDIRECT) I N RELATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECT ION 14A. THE AO CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE A PPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE AO SHOULD PROV IDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING O N THE FACTS AND CIRCUMSTANCES OF THE CASE. 10. IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE J URISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. ( SUPRA), WE REMIT THE ITA NO. 3490/M/2010 LEE & MUIRHEAD P. LTD. 4 MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE SAID JUDGMENT OF THE HON BLE JURISDICTIONAL HIGH COURT AFTER PROVIDING REASONABLE OPPORTUNITY O F BEING HEARD TO THE ASSESSEE. 11. GROUND NO. 3 IS IN RESPECT OF MISCELLANEOUS EXP ENSES OF RS. 5,34,196/-. 12. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD INCURRED MISCELLANEOUS EXPENSES OF RS. 5,34,496/- ON DISINVE STMENT OF HCI LTD. ACCORDING TO THE ASSESSING OFFICER, THE ASSESS EE HAD NOT GIVEN THE EXPLANATION OF CLAIMING THE SAID EXPENDITURE AS REVENUE EXPENDITURE. THE ASSESSING OFFICER WAS OF THE VIEW THAT AS THE EXPENSES WERE FOR DISINVESTMENT OF HCI LTD., THE NA TURE OF EXPENDITURE WAS CAPITAL, THEREFORE, HE DISALLOWED T HE SAME AS CAPITAL EXPENDITURE. BEFORE THE CIT(A), THE ASSESSEE HAD NO T FILED ANY SUBMISSIONS ON THIS ISSUE. THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER OBSERVING AS UNDER:- 8.3 I HAVE CONSIDERED THE FACTS OF THE CASE. THE NA TURE OF EXPENSES SHOWS THAT THE EXPENSES ARE NOT RELATED TO THE BUSINESS OF THE APPELLANT. IT IS RELATED TO DISINVESTMENT OF HCI LTD. THE EXPENDITURE IS NOT FOR THE PURPOSE OF BUSINESS OF T HE APPELLANT AND IT RELATES TO HCI LTD. THE NATURE OF EXPENDITUR E IS CAPITAL AND NOT REVENUE. ACCORDINGLY, THE ASSESSING OFFICER HAS RIGHTLY NOT ALLOWED THESE EXPENSES AS REVENUE EXPENSES IN THE H ANDS OF THE APPELLANT. THIS GROUND OF APPEAL IS NOT ALLOWED. 13. AFTER HEARING THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSING THE RECORD AS WELL AS GOING THROUGH THE OR DERS OF THE AUTHORITIES BELOW, WE FIND THAT THE ASSESSEE HAS IN CURRED THE MISCELLANEOUS EXPENSES OF RS. 5,34,196/- ON DISINVE STMENT OF HCI LTD. BEFORE THE REVENUE AUTHORITIES, THE ASSESSEE H AS NOT ESTABLISHED OR PROVED BY WAY OF EXPLANATION OR EVIDENCE THAT TH E EXPENDITURE INCURRED IS IN THE NATURE OF REVENUE. THE CIT(A) HE LD THAT THE EXPENDITURE IS NOT FOR THE PURPOSE OF BUSINESS OF T HE ASSESSEE AND IT RELATES TO HCI LTD. AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITA NO. 3490/M/2010 LEE & MUIRHEAD P. LTD. 5 THE CASE, WE FIND NO INFIRMITY IN THE ORDER OF CIT( A) IN CONFIRMING ACTION OF THE ASSESSING OFFICER IN TREATING THE MIS CELLANEOUS EXPENSES OF RS. 5,34,196/- AS CAPITAL EXPENDITURE. THUS, T HIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 29 TH APRIL, 2011. SD/- SD/- (R.S.SYAL) (V. DURGA R AO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 29 TH APRIL, 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, A BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV