BAYER MATERIAL SCIENCE P. LTD, MUMBAI V. ACIT RG 10, MUMBAI

ITA 4395/MUM/2011

• Counselvise Citation: 439519914 RSA 2011
• Duration Of Justice: 2 year(s) 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 19-12-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 31-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PREETAM SINGH
• Assessee Lawyers: MAYUR KISNADWALA
• Keywords: Earning of tax free income; Deemed to accrue or arise in india; Prejudicial to interest; Revised return
• Section: 263; 10; 143(3); 14A; 115JB

Judgement Text

VK;DJ VIH VK;DJ VIH VK;DJ VIH VK;DJ VIHY YY YH HH H; VF/KDJ.K ; VF/KDJ.K ; VF/KDJ.K ; VF/KDJ.K CH CHCH CH [KAMIHB EQACBZ [KAMIHB EQACBZ [KAMIHB EQACBZ [KAMIHB EQACBZ INCOME TAX APPELLATE TRIBUNAL MUMBAI - B BENCH MUMBAI . , , BEFORE S/SH.D.MANMOHAN, VICE-PRESIDEN T & RAJENDRA,ACCOUNTANT MEMBER !' # !' # !' # !' # /. /./. /. ITA NOS. 4395/MUM/2011, %&' %&' %&' %&' ( ( ( ( / // / ASSESSMENT YEAR 2005-06 BAYER MATERIAL SCIENCE PVT. LTD. OLYMPIA, FIRST FLOOR, CENTRAL AVENUE, HIRANANDANI GARDENS, POWAI, MUMBAI-400076 VS. ACIT RANGE-10, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 PAN: AAACB2419H ( #)* APPELLANT ) ( +,)* / RESPONDENT) #)* #)* #)* #)* '- '-'- '- . . . . / // / APPELLANT BY :SHRI MAYUR KISNADWALA +,)* '- . / RESPONDENT BY :SHRI PREETAM SINGH /0 /0 /0 /0 '- '-'- '- 1 1 1 1 / DATE OF HEARING : 19 . 12 .2013 2 (' '- 1 / DATE OF PRONOUNCEMENT : 29 . 01 .201 4 !' !' !' !' #%&% #%&% #%&% #%&% , 1961 '- '-'- '- & & & & 254 ) )) ) 1 ( (( ( ' '' ' #151 #151 #151 #151 !6 !6 !6 !6 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,A.M. CHALLENGING THE ORDER DATED 28.03.2011 OF THE CIT(A )-10, MUMBAI, ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE ORDER PASSED BY LEARNED CIT IS BAD IN LAW. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, LEARNED CIT ERRED IN MODIFYING THE ORDER PASSED BY THE AO U/S 143(3). THE APPELLANT CRAVES TO ADD, ALTER, AMEND, DELETE O R MODIFY ANY OR ALL OF THE ABOVE REFERRED GROUNDS O F APPEAL ON OR BEFORE THE DATE OF HEARING. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005-0 6 WAS FILED BY THE ASSESSEE ON 29.10.2005 DECLARING TOTAL INCOME AT RS.NIL.ON 24.07.2006 IT F ILED A REVISED RETURN,DECLARING TOTAL INCOME AT RS.45,00,622/-.THE ASSESSEE COMPUTED THE BOOK PROFI T,AS PER THE PROVISIONS OF SECTION 115JB (2) OF THE ACT,AT RS.22,34,59,604/-.ASSESSING OFFICER(A O)FINALISED THE ASSESSMENT U/S.143(3) OF THE ACT,ON 30.12.2008 ASSESSING THE TOTAL INCOME AT RS. 1,80,37,299/-.EXPENSES TO THE TUNE OF RS.86, 23,528/- WAS DISALLOWED U/S 14A OF THE ACT AS INCUR RED IN RELATION TO THE DIVIDEND INCOME OF RS. 2,70,78,699/- WHICH DID NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE U/S 10(34).AS THE TAX ON THE TOTAL INCOME COMPUTED;AS PER THE PROVISIONS OF THE ACT;WAS LESS THAN 7.5% OF THE BOOK PROFIT COMPUTED U/S 115JB(2), THE TOTAL INCOME WAS COMPUTE D UNDER THE DEEMING PROVISIONS OF SECTION 115JB(1)AT RS. 22,34,59,604/-. 2. AFTER PERUSING THE RECORDS OF THE ASSESSEE,CIT FOUN D THAT THE BOOK PROFIT HAD NOT BEEN COMPUTED AS PER THE PROVISIONS OF SECTION 115JB(2),THAT UNDE R CLAUSE(F) OF THE EXPLANATION I TO SEC. 115 JB (2)THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCO UNT WAS REQUIRED TO BE INCREASED BY THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME T O WHICH SECTION 10(OTHER THAN THE PROVISIONS 2 ITA NO. 4395/MUM/2011 BAYER MATERIAL SCIENCE PVT. LT D . CONTAINED IN CLAUSE (23G) THEREOF) OR SECTION 10A/1 0B OR SECTION 11/12 APPLIED,THAT EXPENSES TO THE TUNE OF RS.86,23,528/-;INCURRED IN RELATION TO THE DIVIDEND INCOME EXEMPT U/S.10(34) OF THE ACT;WAS NOT ADDED UNDER CLAUSE (F) TO THE NET PROFI T SHOWN IN THE PROFIT & LOSS ACCOUNT TO ARRIVE AT THE BOOK PROFIT U/S 115JB(2).HENCE,VIDE LETTER DATE D 27.01.2011, THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE ORDER U/S 143(3) DATED 30.12.20 08 SHOULD NOT BE TREATED AS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE AND SET ASI DE FOR FRESH ASSESSMENT. 3. AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSES SEE,HE HELD THAT HE WAS UNABLE TO ACCEPT THE ARGUMENT THAT SECTION 14A APPLIED ONLY TO THE COMPU TATION OF INCOME UNDER CHAPTER IV AND THE SAID SECTION COULD NOT BE READ INTO SECTION 115JB W HICH WAS PART OF CHAPTER XII-13 OF THE ACT, THAT THE METHODOLOGY OF DETERMINING OR ASCERTAINING THE EXPENDITURE INCURRED IN RELATION TO INCOME TO WHICH THE PROVISIONS OF SECTION 10 APPLIED HAD N OT BEEN LAID DOWN IN SECTION 115JB,THAT THE AO HAD QUANTIFIED THE EXPENSES INCURRED IN RELATION TO THE EXEMPT INCOME UNDER SECTION 14A AND ADDED A SUM OF RS. 86,23,528/- IN THE COMPUTATION O F TOTAL INCOME AS PER THE REGULAR PROVISIONS OF THE ACT,THAT HE FAILED TO ADD THE SAID AMOUNT UNDER CLAUSE (F) OF THE EXPLANATION I TO SEC.115JB WHILE COMPUTING THE BOOK PROFIT U/S 115JB(2),THAT H E WAS NOT SUBSTITUTING THE VIEWS OF THE AO ABOUT QUANTIFICATION OF THE EXPENSES INCURRED IN RE LATION TO EXEMPT INCOME.HE FURTHER HELD THAT THE ISSUE OF U/S.14A WAS NOT THE SUBJECT MATTER OF APPE AL BEFORE THE FIRST APPELLATE AUTHORITY(FAA), THAT THE ORDER OF THE AO HAD NOT MERGED WITH THAT O F THE FAA,HENCE HE COULD INVOKE THE POWERS OF REVISION U/S.263 OF THE ACT,THAT APPEAL OF THE A SSESSEE WAS PENDING BEFORE THE FAA.REFERRING TO THE DECISION OF TECHNICO ENTERPRISE (P) LTD.(206 IT R 36) OF HONBLE CALCUTTA HIGH COURT HE HELD THAT THE DOCTRINE OF MERGER COULD OPERATE ON MATTER S WHICH WERE THE SUBJECT MATTER OF DECISION BY THE FAA AND IT COULD NOT HAVE ANY APPLICATION TO MA TTERS WHICH WERE NOT TAKEN ON APPEAL BY THE ASSESSEE OR WHICH HAD NOT BEEN CONSIDERED BY THE FA A,THAT AN INCORRECT ASSUMPTION OF FACT OR AN INCORRECT APPLICATION OF LAW WOULD SATISFY THE REQU IREMENT OF THE ORDER BEING ERRONEOUS U/S.263 AND IF DUE TO AN ERRONEOUS ORDER OF THE AO REVENUE WAS LOSING TAX LAWFULLY PAYABLE BY A PERSON IT SHOULD BE CERTAINLY PREJUDICIAL TO THE INTERESTS OF THE REVENUE.HE FURTHER HELD THAT THE TOTAL INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2006-07 HAD BEEN ASSESSED UNDER THE DEEMING PROVISIONS OF SECTION 115JB(L),THAT THE FAILURE OF THE AO TO A DD THE EXPENSES OF RS. 86,23,528/-; QUANTIFIED BY THE AO TO BE INCURRED IN RELATION TO THE DIVIDEN D INCOME EXEMPT U/S 10(34) UNDER CLAUSE (F) OF THE EXPLANATION 1 TO SECTION 1I5JB(2);HAD RESULTED IN THE REVENUE LOSING TAX LAWFULLY PAYABLE BY THE ASSESSEE,THAT THE ORDER U/S 143(3) DATED 30.L2 .2008 WAS,THEREFORE, BOTH ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE.AS A RE SULT,HE MODIFIED THE ORDER OF THE AO TO THE EXTENT OF RS.86,23,528/-.HE DIRECTED THE AO TO ADD THE SAI D AMOUNT UNDER CLAUSE (F) OF THE EXPL. 1 TO SECTION 115JB(2) TO THE NET PROFIT SHOWN IN THE PRO FIT AND LOSS ACCOUNT TO ARRIVE AT THE DEEMED INCOME OF THE ASSESSEE U/S.115JB(1) FOR THE ASSESSM ENT YEAR 2006-2007 AND TO ISSUE REVISED NOTICE OF DEMAND U/S.156 OF THE ACT. 4. BEFORE US,AUTHORISED REPRESENTATIVE(AR) SUBMITTED T HAT ORDER PASSED BY THE AO WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO REVENUE,THAT ISSUES WE RE EXAMINED BY THE AO AND HE HAD ARRIVED AT A LOGICAL CONCLUSION.HE REFERRED TO PARAGRAPH 4 OF TH E ORDER OF THE CIT AND SUBMITTED THAT ISSUE WAS BEFORE THE FIRST APPELLATE AUTHORITY,THAT CIT SHOUL D NOT HAVE INVOKED THE PROVISIONS OF SECTION 263 OF THE ACT.HE RELIED UPON THE CASES OF MALABAR INDUSTRIAL CO.LTD.(284ITR83)AND GABRIEL INDIA LTD.(203ITR108).HE ALSO RELIED UPON THE CASES OF GOETZE INDIA LTD.(32SOT101),BENGAL FINANCE AND INVESTMENT PVT.LTD.(ITA5620/MUM2010,DAT ED 31.07.2012-AY.2007-08),ESSAR TELEHOLDING LTD. (ITA/3850/MUM/2010,DATED29.07.2001 )AND RELIANCE INDUSTRIAL INFRASTRUCTURE LTD.(ITA NO.69-70 /MUM/2009,DATED 05.04.2013-AY.200 5-06 AND 2006-07)WHEREIN IT HAS BEEN HELD THAT WHILE COMPUTING THE INCOME U/S.115JB OF T HE ACT DISALLOWANCE, MADE AS PER THE PROVISIONS OF SECTION 14A OF THE ACT,CANNOT BE CONS IDERED.DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE CIT. 3 ITA NO. 4395/MUM/2011 BAYER MATERIAL SCIENCE PVT. LT D . 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT ISSUE OF COMPUTATION OF INCOME U/S.115JB OF THE ACT, WITH RE GARD TO SECTION 14A HAS BEEN DISCUSSED IN THE CASES RELIED UPON BY THE AR IN THE CASE OF RELIANCE INDUSTRIAL INFRASTRUCTURE LTD. (SUPRA) THE ISSUE HAS BEEN DISCUSSED AS UNDER: 8.AS REGARDS THE ADDITION OF THE AMOUNT OF DISALLO WANCE, AS COMPUTED U/S 14A WHILE COMPUTING THE BOOK PROFIT U/S 115JB IS CONCERNED, W E NOTE THAT THE DELHI BENCH OF THIS TRIBUNAL IN THE CASE OF GOETZE (INDIA) LTD (SUPRA) HAS HELD THAT FOR COMPUTATION OF ADJUSTED BOOK PROFIT. THE PROVISIONS OF SEC.14A CAN NOT BE IMPORTED INTO CLAUSE (F) OF THE EXPLANATION TO SEC.115JB. 8.1.A SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL I N THE CASE M/S BENGAL FINANCE & INVESTMENTS P LTD (SUPRA) IN PARA 5 AS UNDER: 5.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE ASSESSING OFFICER ADDED THE AMOUNT DISALLOWED BY HIM U/S 14A TO THE TUNE OF RS.78.84 LAKH TO THE BOOK PROFIT COMPUTED U/S 115JB . THE LEARNED CIT(A) ORDERED FOR THE DELETION OF THIS AMOUNT. THE LEARNED AR HAS PLACED ON RECORD A COPY OF THE ORDER PASSED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S.ESSAR TELEHOLDINGS LTD. V. DCIT IN ITA NO.3850/MUM/2010 IN WHICH IT HAS BEEN HELD THAT THE AMOUNT DISALLOWED U/S I4A CANNOT BE ADDED TO THE AMOUNT OF BOOK PROFIT U/S I 15J8. IN THIS ORDER IT HAS BEEN LAID DOWN THAT UNLESS A PARTICULAR EXPENDITURE IS DEBITED TO THE PROFIT AND LOSS ACCOUNT RELATING TO THE EARNING OF EXEMPT INCOME, THE SAME CANNOT BE IMPORTED INTO THE COMPUTATION OF BOOK PROFIT AS CLAUSE (F) OF EXPLANATION I TO SECTI ON 115JB WHICH ONLY REFERS TO THE AMOUNT DEBITED TO THE PROFIT AND LOSS ACCOUNT. IN REACHING THIS CONCLUSION THE MUMBAI BENCH RELIED ON ANOTHER ORDER OF THE DELHI BENCH IN THE CASE GOETZE (INDIA) LTD. V. CIT ((2009) 32 SOT 101(DEL.)]LAYING DOWN SIMILAR PROPOSITION.THE LEARNED AR HAS ALSO PLACED ON RECORD ONE MORE ORDER PASSED BY THE DELHI BENCH IN THE CASE OF QUIPPO TELECOM INFRASTRUCTURE LTD. V. ACIT IN ITA NO.4931 /DEL/20 10 IN WHICH IT HAS BEEN REITERATED THAT THE AMOUNT DISALLOWED U/S 14A CANNOT BE CONSIDERED WHILE COMPUTING BOOK PROFI T U/S 115JB OF THE ACT. NO CONTRAN,DECISION HAS BEEN BRO UGHT ON RECORD BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. IN VIEW OF THESE FACTS , WE ARE OF THE CONSIDERED OPINION THAT THE LEARNED CIT(A) WAS JUSTIFIED IN DIRECTING THAT THE AMOUNT OF DISALLOWANCE U/S 14A CANNOT BE CONSIDERED WHILE COMPUTING BOOK PROFIT U/S 115JB. 8.2THEREFORE, IT IS CLEAR THAT THE AMOUNT DISALLOWE D U/S 1 4A CANNOT BE CONSIDERED WHILE COMPUTING THE BOOK PROFIT U/S 115JB OF THE ACT. THE RE ARE OTHER DECISIONS OF THE TRIBUNAL AS RELIED UPON THE ID AR WHEREIN THE TRIBUNAL HAS T AKEN A SIMILAR VIEW. 8.3AS REGARDS THE DECISION IN THE CASE OF ESQUIRE P VT LTD (SUPRA), RELIED UPON BY THE ID DR, WE NOTE THAT IN THE SAID DECISION, THE ISSUE OF AMOUNT DISALLOWED U/S 1 4A TO BE CONSIDERED WHILE COMPUTING THE BOOK PROFIT U/S.115J B HAS NOT BEEN DISCUSSED; BUT ONLY IN THE CONCLUDING PARA, WHILE THE TRIBUNAL REMANDED TH E ISSUE OF DISALLOWANCE U/S 1 4A HAS ALSO MADE A PASSING REFERENCE AS UNDER: IN CASE ANY AMOUNT IS DISALLOWED U/S 14A, WE MAKE IT CLEAR THAT THE AMOUNT ALSO HAS TO BE DISALLOWED UNDER THE PRO VISIONS OF SEC.115JB 8.4SINCE THE ISSUE HAS BEEN ADJUDICATED AFTER AN EL ABORATE DISCUSSION BY THE TRIBUNAL IN VARIOUS DECISIONS REFERRED ABOVE; THEREFORE, RESPEC TFULLY FOLLOWING THE DECISIONS AS RELIED UPON BY THE LD. AR,WE DECIDE THIS ISSUE IN FAVOUR O F THE ASSESSEE AND AGAINST THE REVENUE.. 5.1. AFTER CONSIDERING THE DECISION OF THE CO-ORDINATE B ENCHES OF MUMBAI AND DELHI TRIBUNAL DELIVERED IN THE MATTERS OF GOETZE INDIA LTD.,BENGA L FINANCE AND INVESTMENT PVT. LTD., ESSAR TELEHOLDING LTD(SUPRA),WE ARE OF THE OPINION THAT C IT WAS NOT JUSTIFIED IN INVOKING THE PROVISIONS OF 263 OF THE ACT AND THAT AMOUNT DISALLOWED U/S. 1 4A CANNOT BE CONSIDERED WHILE COMPUTING THE BOOK PROFIT U/S. 115JB OF THE ACT. 4 ITA NO. 4395/MUM/2011 BAYER MATERIAL SCIENCE PVT. LT D . WE FIND THAT WHILE FINALISING THE ASSESSMENT AO HAD CALLED FOR DETAILS OF EXEMPT INCOME AND HAD MADE A A DISALLOWANCE OF RS. 86.23 LACS U/.S14A OF THE ACT.WHILE COMPUTING THE INCOME UNDER THE MAT PROVISIONS HE DID NOT CONSIDER THE DISALLOW ANCE MADE U/S. 14A FOR CALCULATING PAYABLE TAX. IN THESE CIRCUMSTANCES, WE ARE OF THE OPINION THAT AO HAD TAKEN AN INFORMED DECISION .FOR INVOKING REVISIONARY POWERS CIT HAS TO PROVE THAT O RDER WAS NOT ONLY PREJUDICIAL TO INTEREST OF REVENUE BUT ALSO ERRONEOUS.COURTS ARE OF THE OPINIO N THAT IF THE AO PREFERS ONE OF THE TWO POSSIBLE VIEWS,CIT CANNOT HOLD SUCH ORDER ERRONEOUS AND PREJ UDICIAL TO INTEREST OF REVENUE.WE ARE OF THE OPINION THAT BY NOT CALCULATING THE DISALLOWANCE MA DE U/S.14A OF THE ACT,WHILE COMPUTING THE INCOME U/S.115JB OF THE ACT AO HAD NOT COMMITTED AN Y LEGAL OR FACTUAL MISTAKE.WE DECIDE THE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSE E AND HOLD THAT ORDER PASSED BY THE CIT U/S. 263 WAS NOT IN ACCORDANCE WITH THE PROVISIONS OF LAW. AS A RESULT, APPEAL FILED BY THE ASSESSEE STAN DS ALLOWED. 718 %&91 : ; '- 50 # < '- 1 =. ORDER PRONOUNCED IN THE OPEN CO URT ON 29 TH DAY OF JANUARY,2014. !6 '- 2 (' / > !6 '- 2 (' / > !6 '- 2 (' / > !6 '- 2 (' / > 29 ,2014 ' '- 50 ' '- 50 ' '- 50 ' '- 50. .. . SD/- SD/- ( . / D.MANMOHAN) ( / RAJENDRA) / VICE-PRESIDENT / ACCOUNTANT MEMBER /C0/ MUMBAI, D' /DATE: 29.01 . 2014. SK !6 !6 !6 !6 '- '-'- '- +%1%E +%1%E +%1%E +%1%E #FE(1 #FE(1 #FE(1 #FE(1/ COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / #)* 2. RESPONDENT / +,)* 3. THE CONCERNED CIT(A)/ CG # !' !/H , 4. THE CONCERNED CIT/ CG !' !/H 5. DR B BENCH, ITAT, MUMBAI / EI5 +%1%%& CH CHCH CH J , !.#../C0 6. GUARD FILE/ 5 70 ,E1 ,E1 ,E1 ,E1 +%1 +%1+%1 +%1 //TRUE COPY// !6/ / BY ORDER, / ' ' DY./ASST. REGISTRAR !' # #%&'' , /C0 /ITAT, MUMBAI