GODREJ AGROVET LTD, MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX-14(3)(1), MUMBAI

ITA 4375/MUM/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4240 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2012-2013
• Appeal Filed On: 13-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN KUMAR SINGH
• Keywords: Earning of tax free income; Revised return; Rule 8D

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH MUMBAI BEFORE SHRI MAHAVIR SINGH, JM & SHRI M.BALAGANESH, AM ITA NO. 4375/ MUM/20 1 7 ( ASSESSMENT YEAR : 2012 - 13 ) M/S. GODREJ AGROVET LTD., C/O. KALYANIWALLA & MISTRY LLP, ESPLANADE HOUSE , 2 ND FLOOR 29, HAZARIMAL SOMANI MARG FORT, MUMBAI 400 001 VS. DY. COMMISSIONER OF INCOME TAX - 14(3)(1), ROOM NO.455, 4 TH FLOOR AAYAKAR BHAVAN, M.K. MARG MUMBAI 400 020 PAN/GIR NO. AAACG0617Q ( APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY SHRI AKRAM KHAN REVENUE BY SHRI CHAUDHARY ARUN KUMAR SINGH DATE OF HEARING 06 / 03 /201 9 DATE OF PRONOUNCEMENT 13 / 03 /201 9 / O R D E R PER M. BALAGANESH (A.M) : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) - 22, [HEREINAFTER REFERRED TO AS THE LD CITA] , MUMBAI DATED 14/03/2017 FOR A.Y.2012 - 13 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961. ITA NO.4375/MUM/2017 M/S. GODREJ ADGROVET LTD., 2 2. THE GROUND NOS. 1 TO 4 RAISED BY THE ASSESSEE IS WITH REGARD TO ACTION OF THE LD. CIT(A) IN CONFIRMING THE DISALLOWANCE U/S.14A OF THE ACT READ WITH RULE 8D(2)(III) OF THE RULES UNDER NORMAL PROVISIONS OF THE ACT. THE GROUND NO.5 RAISED BY THE ASSESSEE IS WITH REGARD TO THE ACTION OF THE LD. CIT(A) IN CONFIRMING THE DISALLOWA NCE U/S.14A OF THE ACT WHILE COMPUTING BOOK PROFITS U/S.115JB OF THE ACT. 3. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSESSEE IS A PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING CATTLE FEEDS, POULTRY FEEDS, AGRI INPUTS, OIL PALM PLANT ATIONS AND LIVE BIRDS AND HAD FILED ITS RETURN OF INCOME FOR THE A.Y . 2012 - 13 ON 30/11/2012 DECLARING TOTAL INCOME OF RS.84,99,66,509/ - . THEREAFTER, THE ASSESSEE FILED REVISED RETURN OF INCOME ON 29/03/2014 DECLARING TOTAL INCOME OF RS.86,00,68,750/ - . THE LD. AO OBSERVED THAT ASSESSEE COMPANY HAD RECEIVED DIVIDEND OF RS.74,98,983/ - WHICH HAD BEEN CLAIMED AS EXEMPT INCOME U/S.10(34) OF THE ACT. THE ASSESSEE HAD MADE SUOMOTO DISALLOWANCE OF EXPENSES TO THE TUNE OF RS.27,70,985/ - TOWARDS EARNING OF DIVIDEND IN COME. THE ASSESSEE ALSO EXPLAINED BEFORE THE AO THAT IT HAD CONSIDERED THE SALARIES OF MANAGING DIRECTOR, EXECUTIVE VICE PRESIDENT, COMPANY SECRETARY, SECRETARY TO THE MANAGING DIRECTOR AND GENERAL MANAGER - FINANCE IN ADDITION TO OFFICE EXPENSES INCURRED BY THE OFFICES O F ABOVE TOP MANAGEMENT PERSONNEL. THE ASSESSEE ALSO STATED THAT IT HAD DULY CONSIDERED THE EXPENSES INCURRED ON TRAVEL, CONVEYANCE AND RENT ITA NO.4375/MUM/2017 M/S. GODREJ ADGROVET LTD., 3 PERTAINING TO THE AREA OCCUPIED BY THE SAID PERSONNEL WHILE CONSIDERING THE WORKINGS OF SUO MOTO DISAL LOWANCE OF EXPENSES U/S.14A OF THE ACT TO THE TUNE OF RS.27,70,985/ - . THE ASSESSEE ALSO PLEADED THAT THE INVESTMENTS MADE BY IT ARE STRATEGIC INVESTMENTS AND THAT NO DISALLOWANCE U/S.14A OF THE ACT IS REQUIRED TO BE MADE. THE ASSESSEE ALSO STATED THAT IT HAD SUFFICIENT OWN FUNDS IN ITS KITTY FOR MAKING INVESTMENTS AND PLACED RELIANCE ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD., REPORTED IN 313 ITR 340 (BOM) AND PLEADED THAT NO DISALLOWANCE OF INTERE ST NEED TO BE MADE UNDER SECOND LIMB OF RULE 8D(2). THE ASSESSEE FURTHER STATED THAT INVESTMENTS MADE IN FOREIGN COMPANIES SHOULD BE EXCLUDED WHILE COMPUTING THE DISALLOWANCE U/S.14A OF THE ACT AS THE DIVIDEND RECEIVED FROM SUCH COMPANY, IF ANY , WOULD NOT BE EXEMPT IN THE HANDS OF THE ASSESSEE COMPANY. THE ASSESSEE ALSO PLEADED THAT INVESTMENTS MADE IN CERTAIN COMPANIES FOR CONSIDERATION OTHER THAN CASH SHOULD ALSO BE EXCLUDED WHILE COMPUTING THE DISALLOWANCE U/S.14A OF THE ACT. THE ASSESSEE FILED DETAILED BREAK - UP OF THE AFORESAID CONTENTIONS BEFORE THE LD. AO. THE LD. AO RECORDED SATISFACTION THAT THE DISALLOWANCE MADE BY THE ASSESSEE IS INCORRECT AND ACCORDINGLY , PROCEEDED TO COMPUTE THE DISALLOWANCE IN THE COMPUTATION MECHANISM PROVIDED IN RULE 8D(2) OF THE RULES AND MADE THE FOLLOWING DISALLOWANCE : - ITA NO.4375/MUM/2017 M/S. GODREJ ADGROVET LTD., 4 A. UNDER RULE 8D(2)(II) - RS.1,67,29,510/ - B. UNDER RULE 8D(2)(III) - RS. 55,23,233/ - ------------------------------- TOTAL RS.2,22,52,743/ - LESS: DISALLOWED VOLUNTARILY RETURN OF INCOME RS. 27,70,985/ - ------------------------------ DISALLOWANCE TO BE MADE RS.1,94,81,758/ - ------------------------------ 3. 1 . THE LD. AO MADE THE DISALLOW ANCE U/S.14A OF THE ACT READ WITH RULE 8D OF THE RULES IN THE SUM OF RS.1,94,81,758/ - BOTH UNDER NORMAL PROVISIONS OF THE ACT AS WELL AS BOOK PROFITS COMPUTED U/S.115JB OF THE ACT AND COMPLETED THE ASSESSMENT. 4 . THE LD. CIT(A) DELETED THE DISALLOWANCE M ADE UNDER SECOND LIM B OF RULE 8D(2) OF THE RULES ON THE GROUND THAT ASSESSEE IS HAVING SUFFICIENT OWN FUNDS AND HENCE, NO DISALLOWANCE OF INTEREST NEED TO BE MADE IN THE FACTS OF THE INSTANT CASE. WITH REGARD TO DISALLOWANCE MADE UNDER THIRD LIMB OF RULE 8 D(2), THE LD. CIT(A) SUSTAINED THE DISALLOWANCE IN THE SUM OF RS.55,23,233/ - BOTH UNDER NORMAL PROVISIONS AS WELL AS U/S.115JB OF THE ACT. 5 . AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US. 6 . WE HAVE HEARD RIVAL SUBMISSIONS. WE FIND THAT ONLY ISSUE TO BE DE CIDED BEFORE US IS WITH REGARD TO VALIDITY OF DISALLOWANCE MADE UNDER ITA NO.4375/MUM/2017 M/S. GODREJ ADGROVET LTD., 5 THIRD LIMB OF RULE 8D(2) OF THE RULES. IT IS NOT IN DISPUTE THAT ASSESSEE HAD SUO MOTO MADE DISALLOWANCE OF CERTAIN ADMINISTRATIVE EXPENSES IN THE SUM OF RS.27,70,985/ - IN THE RETURN OF INCOME BY GIVING THE PROPER WORKINGS THEREON. IT IS NOT IN DISPUTE THAT THE LD. AO HAD DULY RECORDED HIS SATISFACTION FOR IGNORING THE SAID WORKINGS AND RESORT ED TO COMPUTATION MECHANISM UNDER RULE 8D OF THE RULES. THE ARGUMENTS ADVANCED BY THE LD. AR BEFO RE US HAS GOT LOT OF FORCE IN AS MUCH AS THE INVESTMENTS MADE IN FOREIGN COMPANIES SHOULD BE EXCLUDED ; THE DISALLOWANCE VOLUNTARILY MADE BY THE ASSESSEE SHOULD BE EXCLUDED WHILE COMPUTING THE FINAL DISALLOWANCE U/S.14A OF THE ACT ; AND DISALLOWANCE UNDER THIRD LIMB OF RULE 8D OF THE RULES SHOULD BE RESTRICTED TO ONLY THOSE INVESTMENTS WHICH HAD ACTUALLY FETCHED DIVIDEND INCOME BY THE ASSESSEE DURING THE YEAR. WE FIND THAT THE ISSUE OF INVESTMENTS MADE IN THE CATEGORY OF STRATEGIC INVESTMENT HAVE ALREADY BE EN HELD AGAINST THE ASSESSEE BY THE RECENT DECISION OF HONBLE SUPREME COURT IN THE CASE OF MAXO P P INVESTMENTS LTD., VS CIT REPORTED IN 402 ITR 640 (SC) . 6 .1. IN VIEW OF THE AFORESAID FACTS, WE DIRECT THE LD. AO TO CONSIDER ONLY THOSE INVESTMENTS WHICH HA D ACTUALLY YIELDED DIVIDEND INCOME TO THE ASSESSEE DURING THE YEAR FOR COMPUTING THE DISALLOWANCE UNDER THIRD LIMB OF RULE 8D(2) TOWARDS ADMINISTRATIVE EXPENSES AND FROM THE FIGURE ARRIVED THEREON, THE LD. AO SHOULD REDUCE THE DISALLOWANCE ALREADY MADE IN THE SUM OF RS.27,70,985/ - WHILE GIVING EFFECT TO THIS ORDER. THE DISALLOWANCE ITA NO.4375/MUM/2017 M/S. GODREJ ADGROVET LTD., 6 HOWEVER, SHOULD BE RESTRICTED TO THE MINIMUM OF RS.27,70,985/ - MADE VOLUNTARILY BY THE ASSESS EE. ACCORDINGLY, GROUNDS NOS.1 TO 4 RAISED BY THE ASSESSEE ARE PARTLY ALLOWED FOR STA TISTICAL PURPOSES. 6 .2. WITH REGARD TO DISALLOWANCE U/S.14A READ WITH RULE 8D OF THE RULES WHILE COMPUTING BOOK PROFITS U/S.115JB OF THE ACT, THE SPECIAL BENCH OF DELHI TRIBUNAL HAD ALREADY HELD IN THE CASE OF ACIT VS. VIREET INVESTMENTS PVT. LTD., REPORT ED IN 165 ITD 27 THAT COMPUTATION MECHANISM PROVIDED IN RULE 8D OF THE RULES CANNOT BE APPLIED FOR MAKING DISALLOWANCE U/S.14A OF THE ACT WHILE COMPUTING BOOK PROFIT U/S.115JB OF THE ACT, AND THAT THE ACTUAL EXPENSES DEBITED TO THE P & L ACCOUNT SHOULD ONL Y BE CONSIDERED FOR THAT PURPOSES. IN THE INSTANT CASE, THE ASSESSEE HAD CULLED OUT THE ACTUAL EXPENSES INCURRED IN THE SUM OF RS.27,70,985/ - AS BEING EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING EXEMPT INCOME, WHICH, IN OUR CONSIDERED OPINION, SHOULD B E DISALLOWED WHILE COMPUTING THE BOOK PROFITS U/S.115JB OF THE ACT. 6 .3. WE FIND THAT THE ASSESSEE PLACED RELIANCE ON CERTAIN ORDERS OF THIS TRIBUNAL IN ITS OWN CASE FOR THE EARLIER YEARS WHEREIN DISALLOWANCE AT CERTAIN PERCENTAGE OF DIVIDEND INCOME HAD BEEN SOUGHT TO BE DISALLOWED U/S.14A. WE FIND THAT IN THE INSTANT CASE, THE LD. AO HAD DULY RECORDED HIS SATISFACTION AND RESORTED TO COMPUTATION MECHANISM PROVIDED IN THE STATEMENT UNDER RULE 8D(2) OF THE RULES WHICH CANNOT BE FOUND FAULT IN ITA NO.4375/MUM/2017 M/S. GODREJ ADGROVET LTD., 7 THE FACTS OF INSTANT CASE. ACCORDINGLY, THE ARGUMENTS ADVANCED BY THE ASSESSEE AND THE LD. AR IN THIS REGARD ARE DISMISSED. ACCORDINGLY, THE GROUNDS NOS.1 TO 5 RAISED BY THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 7 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13 / 03 /201 9 SD/ - ( MAHAVIR SINGH ) SD/ - ( M.BALAGANESH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED 13 / 03 /201 9 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//