DCIT 13(3)(2), MUMBAI V. TECHNOTRADE IMPEX INDIA P LTD, MUMBAI

ITA 3835/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0824 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 03-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D V LAKHANI
• Assessee Lawyers: C S GULATI
• Keywords: Earning of tax free income; Proportionate interest
• Section: 143(3); 153A; 234B; 14A; 115JB; 6; 132

Judgement Text

1 GELTEC P LTD IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NOS.1344 TO 1346 /MUM/2016 (ASSESSMENT YEARS: 2008-09 TO 2010-11) GELTEC PVT LTD CAPSULATION PREMISES 1 ST FLOOR, SION TROMBAY ROAD, DEONAR, MUMBAI-88 PAN : AAACB1782H VS ACIT, CENT.CIR.20, MUMBAI APPELLANT RESPONDEDNT APPELLANT BY SHRI D.V. LAKHANI RESPONDENT BY SHRI C.S. GULATI DATE OF HEARING 11-01 -2018 DATE OF PRONOUNCEMENT 24-01-2018 O R D E R PER G MANJUNATHA, AM : THESE THREE APPEALS FILED BY THE ASSESSEE ARE DIRE CTED AGAINST SEPARATE BUT IDENTICAL ORDERS OF CIT(A)-51, MUMBAI DATED 18-11-2015 FOR THE ASSESSMENT YEAR 2008-09, 2009-10 & 2010-11. SI NCE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER, FOR THE S AKE OF CONVENIENCE. 2. THE ASSESSEE HAS RAISED MORE OR LESS COMMON GROUNDS OF APPEAL FOR ALL THE ASSESSMENT YEARS. FOR THE SAKE OF BREV ITY, GROUNDS OF APPEAL RAISED FOR AY 2008-09 ARE REPRODUCED BELOW:- 2 GELTEC P LTD 1.ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LEA RNED COMMR. OF INCOME TAX (APPEALS) HAS ERRED IN REJECTI NG THE CLAIM OF THE APPELLANT THAT NO LEGAL CLAIM CAN BE R AISED BEFORE THE APPELLATE AUTHORITY IN THE APPEAL PROCEE DINGS AGAINST THE ORDER PASSED BY THE ASSESSING OFFICER U /S. 143(3) R.W.S 153A. THE CONCLUSION REACHED BY THE LE ARNED COMRNR. OF INCOME TAX (APPEALS) IS ERRONEOUS. THE APPELLANT PRAYS THAT THE LEGAL CLAIM OF THE APPELLA NT BE ACCEPTED AT THE APPELLATE PROCEEDINGS. 2.ON THE FACTS & CIRCUMSTANCES OF THE CASE THE APPE LLANT PRAYS THAT THE DISALLOWANCE U/S. 14A MADE BY THE LE ARNED ASSESSING OFFICER AT RS. 55,04,079/- BE DELETED. 3.ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LEAR NED COMMR. OF INCOME TAX (APPEALS) HAS IGNORED THE FACT THAT THE APPELLANT HAS ALREADY DISALLOWED RS. 4,15,543/- U/S 14A AT THE TIME OF FILING THE RETURN OF INCOME. THE LEA RNED COMMR. OF INCOME TAX (APPEALS) HAS COMPUTED THE DISALLOWANCE U/S 14A AT RS.4,15,543/- AND HAS MADE THE ADDITION OF RS. 55,04,079/- RESULTING INTO THE ADDI TION OF RS.4,15,543/PLUS THE ADDITION OF RS.55,04,079/-. TH E APPELLANT PRAYS THAT THE ADDITION MADE BY LEARNED C OMMR. OF INCOME TAX (APPEALS) OF RS.55,04,079/- MAY BE DE LETED. 4.ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LEAR NED COMMR. OF INCOME TAX (APPEALS) HAS ERRED IN MAKING ADDITION TO THE BOOK PROFIT OF RS.30,15,774/- BEING THE DISALLOWANCE U/S 14A. THE APPELLANT PRAYS THAT THE ADDITION TO THE BOOK PROFIT TO THE EXTENT OF RS.30,15,774/- IS NOT JUSTIFIED AND THE ADDITION TO THE BOOK PROFIT BE RE STRICTED TO RS.4, 15,543/-. 5.ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LEAR NED CIT (APPEALS) HAS ERRED IN NOT DEALING WITH THE GROUND RELATING TO LEVY OF INTEREST U/S. 234A. THE APPELLANT PRAYS THA T THE INTEREST LEVIED U/S. 234A AT RS. 2,49,290/- MAY BE DELETED. 6.ON THE FACTS & CIRCUMSTANCES OF THE CASE THE LEAR NED CIT (APPEALS) HAS ERRED IN NOT DEALING WITH THE GROUND RELATING TO LEVY OF INTEREST U/S. 234B. THE APPELLANT PRAYS THA T THE INTEREST LEVIED U/S. 234B AT RS. 4,50,916/- MAY BE DELETED. 3 GELTEC P LTD 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING PHARMACEUTICAL PRO DUCTS, FILED ITS RETURNS OF INCOME FOR THE ASSESSMENT YEARS UNDER CO NSIDERATION U/S 139(1) OF THE INCOME-TAX ACT, 1961. A SEARCH & SEI ZURE ACTION U/S 132 OF THE ACT, WAS CONDUCTED ON UNIVERSAL GROUP ON 16- 09-2011. THE ASSESSEE COMPANY IS A GROUP COMPANY IN UNIVERSAL GR OUP AND WAS COVERED UNDER THE SEARCH & SEIZURE ACTION U/S 132(1 ) OF THE ACT. CONSEQUENT TO SEARCH, NOTICES U/S 153A WERE ISSUED CALLING FOR RETURNS OF INCOME. IN RESPONSE TO THE NOTICES, THE ASSESSE E HAS FILED RETURNS OF INCOME ON 28-02-2013. THE ASSESSMENTS WERE COMPLET ED U/S 143(3) R.W.S. 153A ON 27-03-2014 FOR THE ASSESSMENT YEARS 2008-09 TO 2010- 11 WHEREIN THE AO HAS MADE ADDITION TOWARDS DISALLO WANCE OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME U /S 14A AND ALSO MADE ADJUSTMENTS TO BOOK PROFIT COMPUTED U/S 115JB OF THE INCOME-TAX ACT, 1961 IN RESPECT OF DISALLOWANCE U/S 14A OF THE ACT. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED APPEAL BEFORE CIT(A). BEFORE THE CIT(A) ASSESSEE CHALLENGED ADDITION MADE BY THE AO TOWARDS DISALLOWANCE OF EXPENDITURE INCURRED IN REL ATION TO EXEMPT INCOME U/S 14A AND ALSO RE-COMPUTATION OF BOOK PROF IT BY MAKING ADJUSTMENT TOWARDS DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT. 4. THE CIT(A), FOR THE DETAILED REASONS RECORDED IN HI S ORDER, REJECTED GROUND RAISED BY THE ASSESSEE INSOFAR AS DISALLOWAN CE OF EXPENDITURE 4 GELTEC P LTD U/S 14A FOR THE AY 2008-09 BY HOLDING THAT IT WAS S EEN FROM THE ASSESSMENT ORDER THAT THE AO DID NOT MAKE ANY NEW A DDITION IN ORDER U/S 153A, THEREFORE, THE ASSESSEE HAS NO CAUSE FOR GRIEVANCE AS FAR AS DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT. TH E CIT(A) FURTHER OBSERVED THAT SINCE THE ASSESSEE HAS MADE FRESH CLA IM OF RELIEF OUT OF THE ORIGINAL ASSESSMENT ORDER, IN VIEW OF THE DECIS ION OF HONBLE RAJASTHAN HIGH COURT IN THE CASE OF JAI STEELS VS C IT 259 CTR 281(RAJ) CANNOT MAKE ANY FRESH CLAIM TO SEEK DEDUCT ION OR CLAIM EXPENDITURE WHICH HAS NOT BEEN CLAIMED IN ORIGINAL ASSESSMENT, WHICH ALREADY STOOD CONCLUDED. THE CIT(A) FURTHER OBSERV ED THAT INSOFAR AS RECTIFICATION APPLICATION FILED BY THE ASSSSEE WHIC H WAS PENDING BEFORE THE AO, THEREFORE, THE AO WAS DIRECTED TO TAKE A DE CISION ON THE RECTIFICATION APPLICATION FILED BY THE ASSESSEE, AS PER LAW. IF THE ASSESSEE IS STILL LEFT WITH ANY GRIEVANCE THEREAFTE R CAN APPROACH THE APPELLATE AUTHORITY. INSOFAR AS ASSESSMENT YEARS 2 009-10 AND 2010-11, THE CIT(A) UPHELD ADDITION MADE BY THE AO TOWARDS D ISALLOWANCE OF EXPENDITURE U/S 14A IN RESPECT OF PROPORTIONATE INT EREST DISALLOWANCE, BUT NO FURTHER ADDITION TO SUO MOTO DISALLOWANCE M ADE BY THE ASSESSEE TOWARDS DIRECT EXPENDITURE AND OTHER EXPENSES U/R 8 D(2)(I) AND 8D2)(III) OF I.T. RULES, 1962 COULD BE MADE. THE CIT(A) ALSO UPHELD THE ACTION OF THE AO IN RE-COMPUTING BOOK PROFIT U/S 115JB OF THE ACT IN RESPECT OF ADDITION MADE TOWARDS DISALLOWANCE OF EXPENDITURE U /S 14A. AGGRIEVED 5 GELTEC P LTD BY THE ORDER OF CIT(A), ASSESSEE IS IN APPEAL BEFOR E US. 5. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATION IS ADDITION TOWARDS EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME U/S 14A OF THE ACT. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE AO WAS INCORRECT IN DISALLOWING EXPENDITURE IN RESPECT OF INTEREST EXPE NSES WITHOUT APPRECIATING THE FACT THAT THERE IS NO NEXUS BETWEE N INVESTMENT IN SHARES WHICH YIELDED EXEMPT INCOME AND INTEREST EXP ENSES. THE LD.AR FURTHER SUBMITTED THAT THE ASSESSEES INVESTMENTS A RE COVERED OUT OF ITS OWN INTEREST FREE FUNDS AND NO PART OF INTEREST BEA RING FUND HAS BEEN USED FOR MAKING INVESTMENTS, THEREFORE, THE AO WAS INCORRECT IN DISALLOWING PROPORTIONATE INTEREST EXPENSES BY INVO KING RULE 8D(2). THE LD.AR FURTHER SUBMITTED THAT INSOFAR AS ASSESSMENT YEAR 2008-09, THE AO HAS MADE ADDITION OF RS.55,04,079 U/S 14A IGNORI NG THE FACT THAT THE ASSESSEE HAS MADE SUO MOTO DISALLOWANCE OF RS.13,15 ,774 IN THE ORIGINAL RETURN OF INCOME FILED. EVEN THOUGH REVIS ED COMPUTATION IS NOT ACCEPTABLE, THE DISALLOWANCE CONTEMPLATED U/S 14A S HOULD BE RESTRICTED TO SUO MOTO DISALLOWANCE WORKED OUT BY THE ASSESSEE . THE LD.AR, ON THE OTHER HAND, STRONGLY SUPPORTED ORDERS OF THE CI T(A). 6. WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED MATER IALS AVAILABLE ON RECORD. THE ASSESSEE HAS TAKEN A COMMON GROUND OF APPEAL FOR ALL THE THREE ASSESSMENT YEARS CHALLENGING DISALLOWANC E WORKED OUT BY THE AO IN RESPECT OF EXPENDITURE INCURRED IN RELATION T O EXEMPT INCOME U/S 6 GELTEC P LTD 14A OF THE INCOME-TAX ACT, 1961. THE ASSESSEE HAS SUO MOTO DISALLOWED DIRECT EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME U/R 8D(21)(I) AND ALSO OTHER EXPENSES U/R 8D(2)(III) @0 .5% OF THE AVERAGE VALUE OF INVESTMENTS. HOWEVER, THE ASSESSEE DID NO T DISALLOW INTEREST RELATABLE TO EXEMPT INCOME U/S 8D(2)(II). IT IS TH E CONTENTION OF THE ASSESSEE THAT WHEN INVESTMENTS ARE COVERED OUT OF O WN FUNDS, THE QUESTION OF DISALLOWANCE OF INTEREST EXPENDITURE BY INVOKING RULE 8D(2) DOES NOT ARISE. THE ASSESSEE REFERRING TO THE DECI SION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS HDFC BANK L TD (2011) 366 ITR 505 (BOM) SUBMITTED THAT WHERE ASSESSEES OWN FUNDS AND OTHER NON INTEREST BEARING FUNDS WERE MORE THAN INVESTMEN T IN TAX FREE SECURITIES DISALLOWING A PART OF INTEREST PAYMENTS U/S 14A CANNOT BE MADE. THE ASSESSEE ALSO RELIED UPON THE DECISION O F THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES POWER LTD (2009) 313 ITR 340. 7. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATERIAL ON RECORD, WE FIND MERITS IN THE ARGUMENTS OF THE ASSESSEE FOR TH E REASON THAT WHEN INTEREST FREE FUNDS ARE MORE THAN THE INVESTMENTS I N TAX FREE SECURITIES, A GENERAL PRESUMPTION IS DRAWN THAT THE INVESTMENTS I N TAX FREE SECURITIES ARE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE A SSESSEE. THEREFORE, THE QUESTION OF DISALLOWANCE OF INTEREST U/R 8D(2) DOES NOT ARISE. THIS LEGAL PROPOSITION WAS FURTHER SUPPORTED BY THE DECISION O F HONBLE BOMBAY 7 GELTEC P LTD HIGH COURT IN THE CASE OF CIT VS HDFC BANK LTD (SUP RA) WHEREIN IT WAS HELD THAT WHERE ASSESSEES OWN FUNDS AND OTHER NON INTEREST BEING FUNDS WERE MORE THAN INVESTMENTS IN TAX FREE SECURI TIES, DISALLOWING A PART OF INTEREST PAYMENT U/S 14A CANNOT BE MADE. I N YET ANOTHER CASE, THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES POWER LTD (SUPRA) HELD THAT IF THERE ARE FUNDS AVAI LABLE BOTH INTEREST FREE AND OVERDRAFTS AND / OR LOANS ARE TAKEN, THEN A PRE SUMPTION WOULD ARIS THAT INVESTMENT WOULD BE OUT OF THE INTEREST FREE F UNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE F UNDS ARE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE, THE ASSESSEE D EMONSTRATES WITH EVIDENCES THAT ITS INTEREST FREE FUNDS ARE MORE THA N ITS INVESTMENTS IN SHARES, WHICH YIELD EXEMPT INCOME, THEREFORE, WE AR E OF THE CONSIDERED VIEW THAT THE AO WAS INCORRECT IN DISALLOWING PROPO RTIONATE INTEREST BY INVOKING RULE 8D(2)(III) OF INCOME-TAX RULES, 1962. HENCE, WE DELETE THE ADDITION MADE TOWARDS PROPORTIONATE INTEREST AN D RESTRICTS SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE IN RESPECT OF DIR ECT EXPENSES AND OTHER EXPENSES AS PER RULE 8D(2)(I) AND 8D(2)(III) OF I.T. RULES, 1962. AS PER THE ORIGINAL RETURN OF INCOME FILED BY THE A SSESSEE U/S 139(1) WITHOUT HAVING RECOURSE TO THE RETURN FILED U/S 153 A WHERE THE ASSESSEE HAS REVISED ITS SUO MOTO DISALLOWANCE U/S 14A OF TH E INCOME-TAX ACT, 1961 AS THE ASSESSEE CANNOT MAKE ANY FRESH CLAIM IN THE ASSESSMENTS WHICH ARE CONCLUDED OR REACHED FINALITY. 8 GELTEC P LTD 8. T HE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATION IS RECOMPUTATION OF BOOK PROFIT U/S 115JB FOR MAKING ADDITION TOWARD S DISALLOWANCE WORKED OUT U/S 14A OF THE INCOME-TAX ACT, 1961. TH E AO MADE ADJUSTMENTS TOWARDS BOOK PROFIT BY MAKING ADDITION TOWARDS DISALLOWANCE WORKED OUT U/S 14A OF THE INCOME-TAX A CT, 1961. IT IS THE CONTENTION OF THE ASSESSEE THAT NO ADJUSTMENTS COUL D BE MADE TOWARDS DISALLOWANCE WORKED OUT U/S 14A OF THE INCOME-TAX A CT, 1961AS COMPUTATION UNDER CLAUSE (F) OF EXPLANATION 1 TO SE CTION 115JB(2) IS TO BE MADE WITHOUT RESORTING TO COMPUTATION AS CONTEMP LATED U/S 14A R.W.R.8D. THE ASSESSEE RELIED UPON THE SPECIAL BEN CH DECISION OF DELHI TRIBUNAL IN THE CASE OF ACIT VS VIREET INVESTMENTS (P) LTD (2017) 82 TAXMAN.COM 415. 9. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATERIAL ON RECORD, WE FIND THAT THE ISSUE OF RE-COMPUTATION OF BOOK PROFI T IN RESPECT OF DISALLOWANCE U/S 14A IS DIRECTLY COVERED IN FAVOUR OF THE ASSESSEE BY THE ITAT, SPECIAL BENCH DECISION IN ACIT VS VIREET INVE STMENTS (P) LTD (SUPRA) WHEREIN IT WAS HELD THAT CLAUSE (F) OF EXPL ANATION 1 TO SECTION 115JB(2) IS TO BE MADE WITHOUT RESORTING TO COMPUTA TION AS CONTEMPLATED U/S 14A R.W.R.8D. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS MANGAL FINANCE & INVESTMENTS (P) LTD IN ITA NO.377 OF 2013 DATED 10 TH FEBRUARY, 2015 HELD THAT AN AMOUNT DISALLOWED U/S 14A OF THE ACT CANNOT BE ADDED TO ARRIVE AT BOOK PROFIT FOR THE PURPOSE OF 9 GELTEC P LTD SECTION 115JB OF THE ACT. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS INCORRECT IN RECOMPUTING BOOK PROFIT U/S 115JB IN RESPECT OF ADDITION MADE U/S 14A OF THE ACT. HENCE, WE DIRECT THE AO TO DELETE ADDITION MADE TOWARDS DISALLOWANCE WORKED OUT U/S 1 4A OF THE INCOME- TAX ACT, 1961 TO BOOK PROFIT COMPUTED U/S 115JB OF THE ACT. 10. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON IS LEVY OF INTEREST U/S 234B OF OF THE INCOME-TAX ACT, 1961. THE LEVY OF INTEREST U/S 234B IS MANDATORY AND CONSEQUENTIAL IN NATURE IN LINE WI TH THE TOTAL INCOME COMPUTED. THEREFORE, WE DIRECT THE AO TO RECOMPUTE INTEREST LIABILITY U/S 234B IN ACCORDANCE WITH LAW AFTER GIVING EFFECT TO OUR ORDER. 11. IN THE RESULT, APPEALS FILED BY THE ASSESSEE ARE PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JANUARY, 2018. SD/- SD/- (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 24 TH JANUARY, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI