ESSEL PROPACK LTD ( FORMERLY ESSEL PACKAGING LTD), MUMBAI V. ADDL CIT RG 6(2), MUMBAI

ITA 4109/MUM/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71640 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 18-09-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 20-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C P PATHAK
• Assessee Lawyers: SANJIV M SHAH
• Keywords: Search and seizure; Capital receipt
• Section: 14A; 28

Judgement Text

G IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI .. , !'# $ $ $ $ %&. !.'.. $( ) !'# !* BEFORE SHRI P.M. JAGTAP, AM AND DR. S.T.M. PAVALAN, JM !./ I.T.A. NO. 4109/MUM/2010 ( )( , $-, )( , $-, )( , $-, )( , $-, / / / / ASSESSMENT YEAR : 2005-06 ESSEL PROPACK LTD., 10 TH FLOOR, TIMES TOWER, KAMALA CITY, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI 400 013. ( ( ( ( / VS. ADDL. COMMISSIONER OF INCOME TAX RANGE 6(2), AAYAKAR BHAVAN, M.K. MARG, MUMBAI- 20. #. !./ PAN : AAACE 1568 L ( ./ / // / APPELLANT ) .. ( 01./ / RESPONDENT ) APPELLANT BY SHRI SANJIV M. SHAH RESPONDENT BY : SHRI C.P. PATHAK !($ 2 / // / DATE OF HEARING : 18-09-2013 34- 2 / DATE OF PRONOUNCEMENT : 31-10-2013 [ '5 / O R D E R PER P.M. JAGTAP, A.M . : .. , !'# THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD. CIT(A) 12, MUMBAI DATED 27-11-2009. 2. THE MAIN ISSUE INVOLVED IN THIS APPEAL RELATING TO THE ADDITION OF RS. 76.18 LACS MADE BY THE A.O. AND CONFIRMED BY THE LD . CIT(A) ON ACCOUNT OF DIFFERENCE BETWEEN DEFERRED SALES TAX LIABILITY AND THE AMOUNT PAID ON PRE- PAYMENT OF THIS LIABILITY TREATING THE SAME AS REVE NUE RECEIPTS TAXABLE U/S 41(1) OR 28(IV) OF THE INCOME TAX ACT, 1961 IS RAIS ED BY THE ASSESSEE IN GROUND NO. 1 WHICH READS AS UNDER:- ITA 7381/M/11 2 1) SURPLUS ON ASSIGNMENT OF LOAN LIABILITY: A. THE LD. CIT (A) ERRED IN LAW AND FACTS IN UPHOLD ING ADDITION OF RS. 76.18 LACS BEING DIFFERENCE BETWEEN DEFERRED SA LES TAX LIABILITY AND AMOUNT PAID ON PRE-PAYMENT OF THIS LIABILITY AS REV ENUE RECEIPT TAXABLE UNDER THE PROVISIONS OF ACT. THE REASONS GIVEN BY H IM FOR DOING SO ARE WRONG, CONTRARY TO THE FACTS OF THE CASE AND AGAINS T THE PROVISIONS OF LAW. B. THE LD. CIT (A) ERRED IN LAW AND FACTS IN CONFIR MING ADDITION TO INCOME, BEING THE R DIFFERENCE CREDITED TO CAPITAL RESERVE U/S 41(1) OR 28 (IV) OF THE ACT. THE LD. CIT (A) FAILED TO APPRE CIATE THAT THE CREDIT TO CAPITAL RESERVE IS CAPITAL IN NATURE HENCE ADDITION OF RS. 76.18 LACS IS UNWARRANTED. C. THE LD CIT (A) FAILED TO PROPERLY CONSTRUE THE F ACTS OF THE CASE AND PROVISIONS OF LAW AND UPHELD THE ADDITION ON BA SIS OF ASSUMPTION AND SURMISES WITHOUT ANY FIRM AND INDEPENDENT DECIS ION ON TAXABILITY. D. THE DIFFERENCE BETWEEN DEFERRED SALES TAX LIABIL ITY AND DISCOUNTED VALUE PREPAID (NPV) TAKEN TO CAPITAL RESERVE OUGHT TO HAVE BEEN ACCEPTED AS CAPITAL IN NATURE AND NOT TAXABLE I/S 41 (1) OR 28 (I) (III) OF THE ACT AS HELD BY THE HON. ITAT IN ASSESSEES OWN CASE OF A.Y. 1998- 99. 3. AT THE TIME OF HEARING BEFORE US, THE LD. REPRES ENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS SQUARELY COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH OF ITAT IN THE CASE OF SULZER INDIA LTD. VS. JCIT [2019] 42 SOT 457 (MUM.) (SB) WHEREIN A SI MILAR ISSUE WAS DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE HOLDING T HAT THE AMOUNT OF DEFERRED SALES TAX LIABILITY BEING THE DIFFERENCE BETWEEN TH E NET PRESENT VALUE PAID BY THE ASSESSEE AGAINST THE FUTURE LIABILITY WHICH ARE CREDITED TO THE CAPITAL RESERVE ACCOUNT IN THE BOOKS OF ACCOUNT WAS CAPITAL RECEIPT AND THE SAME COULD NOT BE TREATED AS REMISSION/CESSATION OF LIAB ILITY GIVING ANY BENEFIT TO THE ASSESSEE IN TERMS OF SECTION 41(1) OF THE ACT. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE SPECIAL BENCH OF ITAT IN THE C ASE OF SULZER INDIA LTD. (SUPRA), WE DELETE THE ADDITION MADE BY THE A.O. AN D CONFIRMED BY THE LD. CIT(A) TO THE TOTAL INCOME OF THE ASSESSEE ON SIMIL AR ISSUE AND ALLOW GROUND NO. 1 OF ASSESSEES APPEAL. ITA 7381/M/11 3 4. THE ISSUE RAIDED IN GROUND NO. 2 RELATES TO THE DISALLOWANCE OF RS. 7,01,050/- MADE BY THE A.O. AND CONFIRMED BY THE LD . CIT(A) U/S 14A READ WITH RULE 8-D OF THE INCOME TAX RULES, 1962. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE A.O. THAT THE ASSESSEE HAS MADE INVESTMENT IN EQUIT Y SHARES OF ITS SUBSIDIARIES, THE DIVIDEND INCOME ON WHICH WAS EXEM PT FROM TAX. HE, THEREFORE, APPLIED RULE 8-D OF INCOME TAX RULES, 19 62 TO WORK OUT THE INTEREST AND OTHER EXPENSES ATTRIBUTABLE TO THE INV ESTMENT AT RS. 5,37,067/- AND RS. 1,63,983/- RESPECTIVELY AND MADE A TOTAL DI SALLOWANCE OF RS. 7,01,050/- U/S 14A OF THE ACT. ON APPEAL, THE LD. C IT(A) CONFIRMED THE SAID DISALLOWANCE RELYING ON THE DECISION OF SPECIAL BEN CH OF ITAT IN THE CASE OF DAGA CAPITAL MANAGEMENT REPORTED IN 117 ITD 169 WHE REIN IT WAS HELD THAT RULE 8-D IS APPLICABLE RETROSPECTIVELY. 6. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE M FG. CO. LTD. VS. DCIT (2010) 328 ITR 81 (BOM.), RULE 8-D IS APPLICABLE ON LY PROSPECTIVELY I.E. FROM A.Y. 2008-09. AS FURTHER HELD BY THE HONBLE JURIS DICTIONAL HIGH COURT IN THE SAID CASE, THE DISALLOWANCE U/S 14A OF THE ACT FOR THE YEARS PRIOR TO A.Y 2008- 09 IS REQUIRED TO BE MADE ON SOME REASONABLE BASIS. KEEPING IN VIEW THE SAID DECISION OF THE HONBLE BOMBAY HIGH COURT, WE RESTO RE THIS ISSUE TO THE FILE OF THE A.O. FOR DECIDING THE SAME AFRESH BY COMPUTING THE DISALLOWANCE TO BE MADE U/S 14A OF THE ACT ON SOME REASONABLE BASIS. T HE A.O. IS ALSO DIRECTED TO CONSIDER THE CLAIM OF THE ASSESSEE THAT THE INVE STMENT IN EQUITY SHARES HAVING BEEN MADE OUT OF ITS OWN FUNDS, NO DISALLOWA NCE ON ACCOUNT OF INTEREST U/S 14A OF THE ACT IS CALLED FOR. GROUND N O. 2 OF THE ASSESSEES APPEAL IS ACCORDINGLY TREATED AS PARTLY ALLOWED FOR STATIS TICAL PURPOSE. ITA 7381/M/11 4 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2013. . '5 2 34- 6'(7 31-10-2013 4 2 SD/- SD/- (DR. S.T.M. PAVALAN) (P.M. JAGTAP ) ) !'# JUDICIAL MEMBER !'# / ACCOUNTANT MEMBER MUMBAI ; 6'( DATED 31-10-2013 $.)(.!./ RK , SR. PS '5 2 0)89 :9- '5 2 0)89 :9- '5 2 0)89 :9- '5 2 0)89 :9-/ COPY OF THE ORDER FORWARDED TO : 1. ./ / THE APPELLANT 2. 01./ / THE RESPONDENT. 3. ; () / THE CIT(A)12, MUMBAI. 4. ; / CIT CITY -6, MUMBAI 5. 9$> 0))( , , / DR, ITAT, MUMBAI E BENCH 6. %, ? / GUARD FILE. '5(! '5(! '5(! '5(! / BY ORDER, !19 0) //TRUE COPY// @ @ @ @/ // /!A !A !A !A ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI