SAMPADA CHEMICALS LTD, MUMBAI V. ASST CIT CEN CIR 30, MUMBAI

ITA 408/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3631 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 18-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN KUMAR SINGH
• Assessee Lawyers: DAVAL SHAH
• Keywords: Reopening of assessment; Earning of tax free income; Tangible material; Difference of opinion; Reason to believe; Change of opinion
• Section: 147; 148; 143(3); 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G ', MUMBAI BEFORE SHRI C.N. PRASAD, HONBLE JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL , HONBLE ACCOUNTANT MEMBER ITA. NO . 408 /MUM / 201 7 (A.Y : 20 0 8 - 09) M/S. SAMPADA CHEMICALS LTD., PARIJAT HOUSE, 1 ST FLOOR, 1076, DR. E. MOSES ROAD, WORLI, MUMBAI 400 018 PAN: AACCS 7980 C V. ASST. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 30, ROOM NO. 403, 4 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400 020 ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI DAVAL SHAH REVENUE BY : SHRI CHAUDHARY ARUN KUMAR SINGH DATE OF HEARING : 11 .12.2018 DATE OF PRONOUNCEMENT : 20 .02.2019 O R D E R PER C.N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE ASSESS EE AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 51 , MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] DATED 22.11.2006 F OR THE ASSESSMENT YEAR 2008 - 09. 2. ASSESSEE CHALLENGED THE ORDER OF THE LD. CIT(A) IN SUSTAINING THE REOPENING OF ASSESSMENT U/S. 147 OF THE ACT AND ON MERITS CHALLENGED THE ORDER OF TH E LD. CIT(A) IN SUSTAINING THE DISALLOWANCE U/S. 14A OF THE ACT AS MADE BY THE ASSESSING OFFICER IN THE RE - ASSESSMENT ORDER PASSED U/S. 143 (3) R.W.S 147 OF THE ACT. 2 ITA. NO. 408/MUM/2017 (A.Y: 2008 - 09) M/S. SAMPADA CHEMICALS LTD., 3. AS FAR AS REOPENING OF THE ASSESSMENT IS CONCERNED , LD. COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ORIGINAL ASSESSMENT WAS COMPLETED U/S. 143 (3) OF THE ACT ON 19.03.2010 AND NOTICE U/S. 148 WAS ISSUED O N 06 .03.2013 AND THE ASSESSMENT U/S. 143(3) R.W.S. 147 WAS COMPLETED ON 31.12.2013 WHICH IS WITH IN THE FOUR YEARS PERIOD. IT WAS FURTHER SUBMITT ED THAT ORIGINAL ASSESSMENT U/S. 143 (3) WAS MADE MAKING DISALLOWANCE U/S.14A AT .35.63 LAKHS. THE ASSESSMENT WAS REOPENED TO DISALLOWANCE INTEREST UNDER RULE 8D(2)(II) AND ALSO TO CONSIDER INVESTMENT S FOR DISALLOWANCE UNDER RULE 8D(2)(III) OF I.T. RULES . 4. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IT IS ONLY A CHANGE OF OPINION AND THERE ARE NO TANGIBLE MATERIALS. ASSESSING OFFICER HAS ALREADY APPLIED HIS MIND WHILE COMPLETING THE ASSESSMENT U/S. 143(3) OF THE ACT. RELIANCE IS PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. KELVINATOR OF INDIA LTD [320 ITR 561]. ON MERITS , IT IS SUBMITTED THAT ASSESSEE HAS EARNED EXEMPT INCOME ONLY TO THE EXTENT OF RS . 11,40,740/ - AS RECORDED BY THE ASSESSING OFFICER IN PARA NO. 10 OF THE ASSESSMENT O RDER. THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AT . 2,56,29,52 8 / - IS NOT JUSTIFIED. PLACING RELIANCE ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF THE PCIT V. STATE BANK OF PATIAL A [99 TAXMAN.COM 286], LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DISALLOWANCE SHOULD BE RESTRICTED TO THE AMOUNT OF EXEMPT INCOME ONLY. 3 ITA. NO. 408/MUM/2017 (A.Y: 2008 - 09) M/S. SAMPADA CHEMICALS LTD., 5. LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE ADDITIONAL GROUND WAS RAISED ON THE SIMILAR DISALLOWANCE OF SECTION 14A MADE WHILE COMPUTING THE BOOK PROFITS U /S. 115JB OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SINCE THIS GROUND IS ONLY A LEGAL GROUND THE SAME MAY BE ADMITTED AND DISPOSED OFF . RELIANCE IS PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE C ASE OF NATIONAL THERMAL POWER CORPORATION V. CIT [229 ITR 383] AND JUTE CORPORATION OF INDIA LTD. V. CIT [187 ITR 688 ] AND T H E DECISION OF FULL BENCH OF THE HONBLE BOM BAY HIGH COURT IN THE CASE OF AHMEDABAD ELECTRICITY CO. LTD V. CIT [ 199 ITR 351 (BOM) ]. 6. ON A PERUSAL OF THE PETITION FOR ADDITIONAL GROUND S, WE SEE THAT THE ASSESSEE IS CHALLENGING THE DISALLOWANCE MADE U/S. 14A WHILE COMPUTING THE BOOK PROFITS, SINCE THIS BEING A LEGAL GROUND THE SAME IS ADMITTED. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT AS FAR AS THIS ISSUE IS CONCERNED IT IS SQUARELY COVERED BY THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF BERMACO ENERGY SYSTEMS LTD V. ACIT IN ITA.N O. 18/ MUM /2017 DATED 14.11.2018 WHEREIN THE COORDINATE BENCH CONSIDERING THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. BENGAL FINANCE & INVESTMENTS PVT. LTD., IN ITA.NO. 33 7 OF 13 DATED 10.02.2015 AND VARIOUS OTHER DECISION S INCLUDING THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V. VIREET INVESTMENT PVT. LTD ., [165 ITD 27] 4 ITA. NO. 408/MUM/2017 (A.Y: 2008 - 09) M/S. SAMPADA CHEMICALS LTD., HELD THAT ADJUSTMENT O F DISALLOWANCE U/S. 14A WAS NOT REQUIRED TO BE MADE IN BOOK PROFITS FOR THE PURPOSE OF SECTION 115 JB OF THE ACT. 7. LD. DR VEHEMENTLY SUP PORTED THE ORDERS OF THE AUTHORITIES BELOW. LD. DR FURTHER PLACED RELIANCE ON THE FOLLOWING DECISIONS IN SUPPORT OF HIS CONTENTIONS THAT DISALLOWANCE U/S. 14A HAS TO B E MADE WHILE COMPUTING THE BOOK PROFITS U/S. 115 JB OF THE ACT. A. CIT V. JSW ENERGY LTD . [68 TAXMANN.COM 244 (SC) ] B. DABUR INDIA LTD., V. ACIT [145 ITD 175] C. DCIT V . VIRAJ PROFILES LTD., [156 ITD 72 ( MUM )] 8. IN THE REJOINDER , LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ALL THESE DECISIONS RENDERED IN THE CASE OF DABUR INDIA LTD., V. ACIT (SUPRA) AND DCIT V. VIRAJ PROFILES LTD., (SUPRA) WERE PRIOR TO THE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT V. VIREET INVESTMENT PVT. LTD., (SUPRA). 9. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. AS FAR AS REOPENING OF ASSESSMENT IS CONCERNED , WE FIND THAT THAT THE ASSESSMENT U/S. 143(3) WAS MADE ON 19.03.2010 WHEREIN THE ASSESSING OFFICER COMPUTED INCOME OF THE ASSESSEE ONLY UNDER NORMAL PROVISIONS OF THE ACT . WHILE COMPUTING THE NORMAL PROVISIONS OF T HE ACT THE ASSESSING OFFICER MADE DISALLOWANCE U/S. 14A AT RS. 35,63,106/ - . LATER ON THE ASSESSING OFFICER REOPENED THE ASSESSMENT ON THE FOLL OWING REASONS: - 5 ITA. NO. 408/MUM/2017 (A.Y: 2008 - 09) M/S. SAMPADA CHEMICALS LTD., THE RETURN OF INCOME WAS FILED ON 30.09.2008 DECLARING TOTAL INCOME OF RS.NIL. THE CASE WAS SELECTED FOR SCRUTINY AND ORDER U /S 143(3) WAS PASSED ON 19 03.20 10 DETERMINING TOTAL INCOME AT RS.NIL. ON VERIFICATION OF RECORDS FOLLOWING DISCREPANCIES ARE FOUND: 1. PROPORTIONATE DISALLOWANCES OF INTEFIEST U/S. 14A R.W.RULE 8D(2)(II) WAS CALCULATED ON THE BASIS OF NET INTEREST OF RS.40,67,336/ - AND NOT ON THE GROSS INTEREST OF RS.3,36 , 88,388/ - .AS PER RULE 8D OF THE INCOME TAX RULE THE PROPORTIONATE DISALLOWANCES OF INTEREST U/S 14A SHOULD BE BASED ON THE G ROSS INTEREST PAID DURING THE YEAR. FURTHER IT WAS OBSERVED THAT AVERAGE VALUE OF INVESTMENT WAS TAKEN AT . 23,98,16,977/ - INSTEAD OF RS.40, 45,92,103/ - [(57,46,11,538 + 23,45,72,668)/2]. ACCORDINGLY, TOTAL DISALLOWANCES U/S 14A R.W.RULE 8D SHOULD BE RS. 2,5 6,29,528/ - INSTEAD OF RS.35,63,106/ - AS DISAL LOWED EARLIER. 2. ON PERUSAL OF ASSESSMENT ORDER AND AS DISCUSSED ABOVE THE ASSESSES WAS LIABLE TO PAY TAX U/S 115JB. THE COMPUTATION OF BOOK PROFIT U/S 115JB HAD NOT BEEN DONE. IN VIEW OF ABOVE, I HAVE REASON TO BELIEVE THAT INCOME HAVE ESCAPED ASSESSMENT SPECIFIED HEREIN ABOVE FOR A.Y .2008 - 09 WITHIN THE MEANING OF SECTION 147. THEREFORE, THIS IS A FIT CASE FOR REOPENING OF ASSESSMENT U/S 147 OF THE INCOME TAX ACT, 1961. ACCORDINGLY, A NOTICE; U/S 148 MAY BE ISSUED, IF APPROVED. 10. AS COULD BE SEEN FROM THE ABOVE REASONS , THE ASSESSMENT WAS REOPENED TO CONSIDER INTEREST DISALLOWANCE AND THE INVESTMENTS FOR COMPUTING THE D ISALLOWANCE UNDER RULE 8D(2)(II ). FURTHER, T HE ASSESSMENT WAS ALSO REOPENED FOR COMPUTING THE LIABILITY U/S. 115JB OF THE ACT WHICH THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT U/S .143 (3) OF THE ACT WAS NOT DONE. ON A PERUSAL OF THE RE - ASSESSMENT ORDER PASSE D U/S. 143 (3) R.W.S 147 OF THE ACT , WE FIND THAT THE INCOME AS COMPUTED UNDER BOOK PROFITS IS MORE THAN THE INCOME AS COMPUT ED UNDER NORMAL PROVISIONS OF THE ACT. IN THE CIRCUMSTANCES , WE HOLD THAT T HERE IS REASON TO BELIEVE THAT THE INCOME HAS ESCAPED ASSESSMENT AND THE REOPENING DONE BY THE ASSESSING OFFICER IS IN ORDER. HENCE GROUND NO. 1 OF THE GROUNDS OF APPEAL CHALLENGI NG THE REOPENI NG THE ASSESSMENT IS DISMISSED. 6 ITA. NO. 408/MUM/2017 (A.Y: 2008 - 09) M/S. SAMPADA CHEMICALS LTD., 11. COMING TO THE MERITS OF THE CASE , IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF PCIT V. STATE BANK OF PATIALA (SUPRA) , WE HOLD THAT THE DISALLOWANCE U/S. 14A SHALL NOT EXCEED THE EXEMPT IN COME THUS WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE U/S. 14A TO THE EXEMPT INCOME RECEIVED BY THE ASSESSEE I.E. . 11,4 0,740/ - AN D RECOMPUTED THE DISALLOWANCE. 12. COMING TO THE DISALLOWANCE MADE U/S. 14A WHILE COMPUTING THE BOOK PROFITS , THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT V. VIREET INVESTMENT PVT. LTD., (SUPRA) WHEREIN THE SPECIAL BENCH OF THE TRIBUNAL HELD THAT COMPUTATION UNDER CLAUS E (F) OF EXPLAN AT ION 1 TO SECTION 115 JB(2) IS TO BE MADE WITHOUT RESORTING TO COMPUTATION AS CONTEMPLATED U/S. 14A R.W. RULE 8D OF I. T . RULES . DECISIONS RELIED ON BY THE LD. DR IN THE CASE OF DCIT V. VIRAJ PROFILES LTD., (SUPRA) AND DABUR INDIA LTD., V. ACIT (SUPRA) A RE PRIOR TO THE SPECIAL BENCH DECISION IN THE CASE OF ACIT V. VIREET INVESTMENT PVT. LTD., (SUPRA) . IN SO FAR AS THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. JSW ENERGY LTD., (SUPRA) IS CONCERNED , WE FIND THAT ONLY THE SLP W AS GRANTED AGAINST T HE ORDER OF THE HON'BLE HIGH COURT I N HOLDING THAT NO APPEAL CA N BE ENTERTAINED AGA INST THE TRIBUNAL ORDER IN REMI TTING THE MATTER BACK TO THE ASSESSING OFFICER FOR RECONSIDERATION OF WORKING OUT DEDUCTION IN TERMS OF SECTION 14A R.W. RULE 8D WHILE COMPUTING BOOK PROFITS U/S. 115JB OF THE ACT, H ENCE THE HON'BLE SUPREME COURT HAS NOT 7 ITA. NO. 408/MUM/2017 (A.Y: 2008 - 09) M/S. SAMPADA CHEMICALS LTD., LAID DOWN ANY RATIO . THUS , THE SAME HAS NO RELI ANCE TO THE FACTS OF THIS CASE. 13. THUS RESPECTFULLY FOLLOWING THE SPECIAL BENCH DECISION , WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER TO DECIDE IN ACCORDANCE WITH LAW LAID DOWN BY THE SPECIAL BENCH DECISION IN THE CASE OF ACIT V. VIREET INVESTMENTS PVT. LTD (SUPRA) AND ALSO KEEPING IN VIEW THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. BENGA L FINANCE & INVESTMENTS PVT. LTD., (SUPRA) . 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE . ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH FEBRUARY, 2019 SD/ - SD/ - ( MAN OJ KUMAR AGGARWAL ) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI / DATED 20/ 02/2019 GIRIDHAR, SR.PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM