PLASTIBLENDS INDIA LTD, MUMBAI V. DCIT RG 8(2), MUMBAI

ITA 4080/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83800 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 06-01-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 11-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PARMINDER
• Assessee Lawyers: NITESH S JOSH I
• Keywords: Depreciation; Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C B ENCH, MUMBAI , , ! '#$ , % & BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./I .T.A. NOS. 4080 & 4081/MUM/2012 ( ' ' ' ' / ASSESSMENT YEARS : 2008-09 & 2009-10 M/S. PLASTIBLENDS INDIA LTD., B-45, MAHASHREE COMPOUND, NEW LINKING ROAD, ANDHERI (W), MUMBAI-400 053 / VS. THE DCIT, RANGE 8(2), MUMBAI ( % ./ ) ./ PAN/GIR NO. : AAFPP 8293P ( (* / APPELLANT ) .. ( +,(* / RESPONDENT ) (* - / APPELLANT BY: SHRI NITESH S. JOSHI +,(* . - / RESPONDENT BY: SMT. PARMINDER . /0% / DATE OF HEARING :04.09.2014 12' . /0% / DATE OF PRONOUNCEMENT :12.09.2014 3 / O R D E R PER N.K. BILLAIYA, AM: THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGA INST THE ORDERS OF THE LD. CIT(A)-17, MUMBAI DT.26.4.2012 PERTAININ G TO A.YRS.2008-09 & 2009-10. AS THE LD. CIT(A) HAS DISPOSED OF THE A PPEALS FOR TWO ASSESSMENT YEARS BY A CONSOLIDATED ORDER, THESE APP EALS WERE HEARD ITA NOS. 4080 & 4081/M/2012 2 TOGETHER AND DISPOSE OF BY THIS COMMON ORDER FOR T HE SAKE OF CONVENIENCE AND BREVITY. ITA NO. 4080/M/2012- A.Y. 2008-09 2. THE ASSESSEE HAS RAISED THREE SUBSTANTIVE GROUND S WHICH READ AS UNDER: THE APPELLANT APPEALS AGAINST THE IMPUGNED ORDER D ATED APRIL 26TH 2012, OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-17, MUMBAI (THE CIT(A)) (RECEIVED BY IT ON MAY 4TH, 201 2) UNDER SECTION 253 OF THE INCOME-TAX ACT, 1961 (THE ACT) O N THE FOLLOWING AMONGST OTHER GROUNDS EACH OF WHICH IS IN THE ALTER NATIVE AND WITHOUT PREJUDICE TO ONE ANOTHER: 1. THE CIT(A) OUGHT TO HAVE HELD THAT THE APPELLANT HA D DISCLAIMED DEDUCTION BY WAY OF DEPRECIATION UNDER S ECTION 32(1) OF THE ACT IN THE EARLIER YEARS AND, THEREFOR E, THE WRITTEN DOWN VALUE ON WHICH DEPRECIATION WAS TO BE ALLOWED FOR THE YEAR UNDER CONSIDERATION SHOULD HAVE BEEN HIGHER TO THAT EXTENT. 2. THE CIT(A) OUGHT TO HAVE HELD THAT NO PART OF EX PENDITURE BY WAY OF ADMINISTRATIVE COST HAD BEEN INCURRED IN REL ATION TO EARNING OF EXEMPT INCOME AND, HENCE, SUCH EXPENDITURE COULD NOT BE THE SUBJECT MATTER OF DISALLOWANCE UNDER SECTION 14A OF THE ACT. 3. THE CIT(A) OUGHT TO HAVE HELD THAT THE DISALLOWA NCE, IF ANY, UNDER SECTION 14A OF THE ACT COULD NOT EXCEED THE A MOUNT OF RS.24,304. THE CIT(A) ERRED IN UPHOLDING AN ADHOC D ISALLOWANCE UNDER SECTION 14A @ 0.5% OF AVERAGE VALUE OF INVEST MENT ON THE FIRST DAY AND LAST DAY OF PREVIOUS YEAR. ITA NOS. 4080 & 4081/M/2012 3 3. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT SINCE THE TRIBUNAL IN A.Y. 2003-04 IN ITA NO. 2757/M/06 HAS D ECIDED THE ISSUE RAISED VIDE GROUND NO. 1 OF THE APPEAL, THE SAME VI EW SHOULD BE FOLLOWED. 4. THE LD. DEPARTMENTAL REPRESENTATIVE FAIRLY CONCE DED TO THIS. 5. WE HAVE CAREFULLY PERUSED THE ORDER OF THE TRIBU NAL IN ITA NO. 2757/M/06. THE TRIBUNAL AT PARA-2 OF ITS ORDER HAS HELD AS UNDER: DURING THE COURSE OF HEARING THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT IN THE YEAR IN QUESTION T HE ASSESSEE HAS CLAIMED DEPRECIATION AND THERE IS NO QUESTION OF THRUST OF ANY DEPRECIATION BUT ITS GRIEVANCE IS THAT THE F INAL ORDERS OF THE EARLIER YEARS WHICH HAVE NOT BEEN PROPERLY IMPLEMENTED. THE ASSESSEE DESIRES THERE SHOULD BE A SPECIFIC DIRECTION TO THE ASSESSING OFFICER ON THIS BEHALF SO AS NOT TO DISTURB THE FINALITY OF THE ORDERS OF THE ORDERS OF THE EARLIER YEARS. THE LEARNED DEPARTMENTAL REPRES ENTATIVE , ON THE OTHER HAND, HAS NO OBJECTION IF A SPECIFI C DIRECTION IS GIVEN TO THE ASSESSING OFFICER. WE, THEREFORE, DIRECT THE ASSESSING OFFICER THAT THE WRITTEN DOWN VALUE AS AT THE BEGINNING OF THE YEAR SHALL BE COMPUTED ONLY ON THE BASIS OF THE ORDERS WHICH HAVE ALREADY REACHED THE FINALITY. IN OTHER WORDS, THE DEPRECIATION ACTUALLY CLAIMED OR DIRECTE D TO BE ALLOWED ONLY SHALL BE TAKEN INTO CONSIDERATION BEFO RE ARRIVING THE WRITTEN DOWN VALUE OF THE ASSETS IN QU ESTION. RESPECTFULLY FOLLOWING THE ABOVE FINDINGS OF THE TRIBUNAL (SUPRA), WE HOLD ACCORDINGLY. GROUND NO. 1 IS TREATED AS AL LOWED FOR STATISTICAL PURPOSE. 6. GROUND NO. 2 & 3 RELATE TO THE DISALLOWANCE U/S. 14A R.W. RULE 8D OF THE ACT. ITA NOS. 4080 & 4081/M/2012 4 7. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PRO CEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS EARNED DIVIDEND OF RS . 1,26,99,879/- AND CLAIMED THE SAME AS EXEMPT U/S. 10(34) IN THE COMPU TATION OF INCOME. THE AO FOUND THAT THE ASSESSEE HAS NOT OFFERED ANY DISALLOWANCE OF EXPENDITURE INCURRED FOR EARNING THIS INCOME. THE ASSESSEE WAS ASKED TO FURNISH COMPLETE DETAILS OF THE INVESTMENTS ON WHIC H IT HAD DERIVED THE EXEMPT DIVIDEND INCOME. IT WAS CONTENDED BY THE AS SESSEE THAT IT HAS SUBSTANTIAL RESERVES OUT OF WHICH THE INVESTMENT WA S MADE IN SHARES/MUTUAL FUNDS DERIVING DIVIDEND. IT WAS CLAI MED THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENSES IN EARNING THESE INCO MES AND THEREFORE NO EXPENSES ARE DISALLOWABLE U/S. 14A OF THE ACT. WIT HOUT PREJUDICE TO ITS CLAIM THE ASSESSEE SUBMITTED WORKING OF DISALLOWANC E AT RS. 10,33,153/-. 7.1. THE SUBMISSIONS OF THE ASSESSEE DID NOT FIND F AVOUR WITH THE AO WHO WAS OF THE OPINION THAT A COMPANY CANNOT EARN D IVIDEND WITHOUT ITS EXISTENCE AND MANAGEMENT. INVESTMENT DECISIONS ARE VERY COMPLEX IN NATURE WHICH REQUIRES SUBSTANTIAL MARKET RESEARCH, DAY-TODAY ANALYSIS OR MARKET TRENDS AND DECISIONS WITH REGARD TO ACQUISIT ION, RETENTION AND SALE OF SHARES AT THE MOST APPROPRIATE TIME. MOREOVER T HE INVESTMENT DECISIONS ARE GENERALLY TAKEN IN THE MEETINGS OF TH E BOARD OF DIRECTORS FOR WHICH ADMINISTRATIVE EXPENSES ARE INCURRED. THE AO PROCEEDED BY COMPUTING THE DISALLOWANCE AS PER PROVISIONS OF SEC . 14A R.W. RULE 8D, AN AMOUNT OF RS. 10,33,153/- WAS ADDED TO THE INCOM E OF THE ASSESSEE. 8. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATT ER BEFORE THE LD. CIT(A). AFTER CONSIDERING THE FACTS AND THE SUBMIS SIONS, THE LD. CIT(A) OBSERVED THAT THE AO HAS NOT PASSED ANY SPEAKING O RDER IN SO FAR AS DISALLOWANCE UNDER RULE 8D TO CLAUSE (II) IS CONCER NED. HE ACCORDINGLY ITA NOS. 4080 & 4081/M/2012 5 DIRECTED THE AO TO LOOK INTO THIS WHILE GIVING APP EAL EFFECT TO HIS ORDER AND CONFIRMED THE DISALLOWANCE OF OTHER EXPENDITURE . 9. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. 10. THE LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY SUB MITTED THAT THE ENTIRE INVESTMENTS HAVE BEEN MADE OUT OF OWN FUNDS THEREFORE THERE IS NO QUESTION OF ALLOCATING ANY INTEREST IN SO FAR AS DI SALLOWANCE U/S. 14A IS CONCERNED. FURTHER, THE LD. COUNSEL STATED THAT HE HAS SUO MOTU DISALLOWED RS, 24,304/- TOWARDS RELATED OVERHEADS B EING SALARY OF AN ACCOUNTANT DURING THE COURSE OF THE ASSESSMENT PROC EEDINGS ITSELF. THE SAME IS MOST REASONABLE ON THE FACTS OF THE CASE. 11. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 12. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW. A PERUSAL OF THE SCHEDULE OF INVESTMENTS AT PAGE-21 O F THE ANNUAL REPORT FOR THE YEAR SHOWS THAT THE INVESTMENTS AS ON 31.3 .2007 WERE AT RS. 15.74 CRORES, THE SAME HAS COME DOWN TO RS. 7.41 CRORES ON 31.3.2008. A PERUSAL OF THE CASH FLOW STATEMENT AT PAGE-30 OF TH E ANNUAL REPORT SHOWS THAT THE ASSESSEE HAD SUFFICIENT CASH ACCRUALS FROM ITS OWN FUNDS THEREFORE WE AGREE WITH THE CONTENTION OF THE LD. COUNSEL THA T NO PART OF INTEREST CAN BE DISALLOWED NOR THIS ISSUE IS BEFORE US. HOW EVER, COMING TO THE DISALLOWANCE OF OTHER DIRECT OR INDIRECT EXPENDITUR E, THE ASSESSEE HAS COMPUTED THE DISALLOWANCE AT RS. 24,304/- BY ALLOCA TING THE SALARY PAID TO JUNIOR ACCOUNTANT. WE DO NOT AGREE WITH THIS COMPU TATION OF DISALLOWANCE BY THE ASSESSEE. IT IS AN UNDISPUTED FACT THAT INVESTMENT IS A POLICY DECISION TAKEN BY THE BOARD OF DIRECTORS AT THE HIGHEST LEVEL WHICH ITA NOS. 4080 & 4081/M/2012 6 REQUIRES LOT OF CONSULTANCY FROM VARIOUS EXPERTS. THEREFORE, THE DISALLOWANCE U/S. 14A R.W. RULE 8D(2)(III) BECOMES IMPERATIVE, AS THE DISALLOWANCE HAVE BEEN COMPUTED BY THE AO AS PER TH E APPLICABLE PROVISIONS OF LAW. WE DO NOT FIND ANY REASON TO IN TERFERE WITH THE DISALLOWANCE. GROUND NO. 2 & 3 ARE ACCORDINGLY DIS MISSED. 13. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 4081/M/2012- A.Y. 2009-10 14. GROUND NO. 1 IS IDENTICAL TO GROUND NO. 1 IN IT A NO. 4080/M/2012 THOUGH QUANTUM MAY DIFFER, THEREFORE, ON SIMILAR LI NES, SIMILAR REASONS GROUND NO. 1 IS ALLOWED FOR STATISTICAL PURPOSE. 15. GROUND NO. 2 & 3 ARE IDENTICAL TO GROUND NO. 2 & 3 IN ITA NO. 4080/M/2012 THOUGH QUANTUM MAY DIFFER, THEREFORE, O N SIMILAR LINES, SIMILAR REASONS GROUND NO.2 & 3 ARE DISMISSED. 16. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH SEPTEMBER, 2014 SD/- SD/- (VIJAY PAL RAO ) (N.K. BILLAIYA) / JUDICIAL MEMBER % / ACCOUNTANT MEMBER MUMBAI; 4 DATED : 12 TH SEPTEMBER, 2014 . . ./ RJ , SR. PS ITA NOS. 4080 & 4081/M/2012 7 3 3 3 3 . .. . +/ +/ +/ +/ 5 '/ 5 '/ 5 '/ 5 '/ / COPY OF THE ORDER FORWARDED TO : 1. (* / THE APPELLANT 2. +,(* / THE RESPONDENT. 3. 6 ( ) / THE CIT(A)- 4. 6 / CIT 5. 78 +/ , , / DR, ITAT, MUMBAI 6. 89 : / GUARD FILE. 3 3 3 3 / BY ORDER, ,/ +/ //TRUE COPY// ; ;; ; / < < < < (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI