DY CIT RG 2(1), V. M/S CENTRAL BANK OF INDIA,

ITA 4449/MUM/2003

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101189 (ITAT-MUMBAI)
• Duration Of Justice: 12 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 03-02-2015
• Assessment Year: 1998-1999
• Appeal Filed On: 06-06-2003
• Court: TRIBUNAL
• Department Lawyers: DEEPKANT PRASAD
• Assessee Lawyers: RAJNIKANT CHANI; F V IRANIJ
• Keywords: Earning of tax free income; Bad and doubtful debts
• Section: 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER I.T.A. NO. 4449/M/2003 (AY: 1998 - 1999 ) I.T.A. NO. 4450/M/2003 (AY: 1999 - 2000 ) DCIT, RANGE - 2(1), AAYAKAR BHAVAN, R.NO.575, 5 TH FLOOR, MUMBAI 500 020. / VS. M/S. CENTRAL BANK OF INDIA, CHANDER MUKHI NARIMAN POINT, MUMBAI 400 021. ./ PAN : AAACC2498P ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI DEEPKANT PRASAD, DR / RESPONDENT BY : SHRI F.V. IRANIJ & RAJNIKANT CHANI / DATE OF HEARING : 06.08.2015 / DATE OF PRONOUNCEMENT : 23 .09.2015 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION. BOTH THESE APPEALS ARE FILED BY THE REVENUE FOR THE AYS 1998 - 99 AND 1999 - 2000. SINCE, THE ISSUES RAISED IN BOTH THESE APPEALS ARE INTER - CONNECTED, THEREFORE, FOR THE SAKE OF CONVENI ENCE, THEY ARE CLUBBED, HEARD TOGETHER AND DISPOSED OF IN THIS CONSOLIDATED ORDER. APPEAL WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAS OF THIS ORDER. ITA NO.4449/M/2003 (AY 1998 - 99) 2. THIS APPEAL FILED BY THE REVENUE ON 6.6.2003 IS AGAINST THE ORDER OF THE CIT (A) - XXXII, MUMBAI DATED 31.3.2003. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN DIRECTING THE AO TO RECOMPUTED THE BOOK PROFIT U/S 115JA AFTER CONSIDERING THE DEBIT OF BAD DEBTS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF INTEREST ACCRUED ON SECURITIES HELD BY THE ASSESSEE ON DA Y TO DAY BASIS. 2 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF INTEREST RELATING TO ZERO - COUPON SECURITIES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN DELETING THE DISALLOWANCE MADE BY THE AO IN RESPECT OF BROKEN PERIOD INTEREST ON PURCHASE OF SECURITIES. 5 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN HOLDING THAT QUANTUM OF EXEMPT INCOME U/S 10 CANNOT BE BROUGHT DOWN BY AD - HOC ALLOCATION OF THE EXPENSES TO EARN SUCH INCOME AND FURTHER ERRED IN HOLDING THAT SUCH EXPENSES CANNOT BE ADDED BACK TO THE BOOK PROFIT AND FURTHER ERRED IN DELETING THE ADDITION MADE BY THE A O BY REDUCTION OF EXEMPTION U/S 10 AS CLAIMED BY THE ASSESSEE. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN DIRECTING THE AO TO ALLOW THE CLAIM OF INDEXATION OF THE ASSESSEE IN RESPECT OF BONDS AND DEBENTURES AS CLAIMED BY THE ASSESSEE. 3. AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE FILED A LETTER DATED 6.8.2015 AND INFORMED THAT THE GROUND NOS.1, 2, 3, 4 AND 6 OF THE REVENUES APPEAL SHOULD NOT BE ENTERTAINED AS THESE GROUNDS WERE NOT APPROVED BY THE COMMITT EE OF DISPUTE (COD) AT THE RELEVANT POINT OF TIME. FURTHER, HE ALSO INFORMED THAT THE REVENUES ATTEMPTS TO MOVE A MISCELLANEOUS APPLICATION (MA) , CONSIDERING THE SUBSEQUENT JUDGMENT OF THE HONBLE SUPREME COURT , WAS ALSO NOT ENTERTAINED BY THE TRIBUNAL I N THE ASSESSEES OWN CASE FOR THE AY 1997 - 98. 4. AFTER HEARING THE LD DR FOR THE REVENUE AND ON PERUSAL OF PARA 2 OF MA NO.730/MUM/2012 (ARISING OUT OF ITA NO. 4448/MUM/2003) FOR THE AY 1997 - 98, DATED 17.5.2013, WE ARE OF THE OPINION THAT THE SAID GROUND NOS.1, 2, 3, 4 AND 6 OF THIS APPEAL SHOULD BE DISMISSED IN LIMINE . THAT LEAVES, GROUND NO.5 ALONG FOR ADJUDICATION NOW AND THE SAME RELATES TO THE DISALLOWANCE U/S 14A OF THE ACT IN RESPECT OF THE EXEMPT INCOME. IN THIS REGARD, LD COUNSEL FOR THE ASSESS EE SUBMITTED THAT AO DISALLOWED EXPENSES OF RS. 10.54 CRS ON THE PRINCIPLE OF PROPORTIONATE. CIT (A) DELETED THE SAID ADDITION. THEREFORE, THE REVENUE IS IN APPEAL. 5. BEFORE US, LD COUNSEL FOR THE ASSESSEE DEMONSTRATED THAT ASSESSEE HAS SUFFICIENT FUN DS AND THEREFORE, NO DISALLOWANCE IS CALLED FOR ON ACCOUNT OF INTEREST VIDE RULE 8D(2)(II) OF IT RULES, 1962. IN THIS REGARD, HE RELIED ON VARIOUS DECISIONS INCLUDING THAT OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RELIANCE UT ILITIES & POWER LTD [2009] 313 ITR 340, WITH WHICH WE AGREE. REGARDING THE DISALLOWANCE OUT OF ADMINISTRATIVE EXPENSES, LD COUNSEL FOR THE ASSESSEE 3 SUBMITTED THAT DISALLOWANCE OF A REASONABLE PERCENTAGE OF THE EXEMPT INCOME IS AN ACCEPTED METHOD OF QUANTI FYING THE DISALLOWANCE OF EXPENSES FOR THE AYS PRIOR TO AY 2008 - 2009, THE YEAR OF AMENDMENT TO RULE 8D OF IT RULES, 1962. IN THIS REGARD, LD COUNSEL FOR THE ASSESSEE FILED DECISIONS OF THE TRIBUNAL IN THE CASES OF DCIT VS. HDFC BANK LTD IN ITA NOS. 4529/M /2 005 AND OTHERS, DATED 29.6.2011 AND ORDER OF THE TRIBUNAL IN THE CASE OF BANK OF INDIA VS. ACIT IN ITA NO.1498/MUM/2011 FOR THE AY 2001 - 2002, DATED 9.4.2014 AND SUBMITTED THAT DISALLOWANCE @ 1% OF THE EXEMPT INCOME IN THE CASE OF BANKS IS ACCEPTED AS A REASONABLE BASIS. FURTHER, HE ALSO REFERRED TO THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. GODREJ AGROVET LTD VS. ACIT IN ITA NO.1629/MUM/2009, DATED 17.9.2010, WHICH WAS SUBSEQUENTLY RATIFIED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE SAME CAS E. THIS CASE IS RELEVANT FOR THE PROPOSITION THAT THE DISALLOWANCE OF 2% OF THE EXEMPT INCOME IS FOUND REASONABLE BY THE HONBLE HIGH COURT. 6. AFTER HEARING BOTH THE PARTIES ON THIS ISSUE AND ON PERUSAL OF THE SAID ORDERS OF THE TRIBUNAL (SUPRA) AS WELL AS THE BINDING JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AGROVET (SUPRA), WE ARE OF THE OPINION THAT THE DISALLOWANCE @ 2% OF THE EXEMPT INCOME AS UPHELD BY THE HONBLE HIGH COURT, IS APPROPRIATE. THE SAID JUDGMENT WAS NOT REFERRED TO BY THE TRIBUNAL IN ITS ORDERS CITED IN PARA 5 ABOVE. FOR THE SAKE OF COMPLETENESS OF THIS ORDER THE RELEVANT PARA OF THE HIGH COURTS JUDGMENT IS EXTRACTED AS FOLLOWS: '4. SO FAR AS QUESTION (B) IS CONCERNED, THE TRIB UNAL IN ITS IMPUGNED ORDER DATED 17.9.2010 WHILE APPLYING THE DECISION OF THIS COURT IN THE MATTER OF GODREJ (SUPRA) HAS DISALLOWED THE EXPENDITURE ONLY TO THE EXTENT OF 2% OF THE TOTAL EXEMPT INCOME EARNED BY THE RESPONDENT - ASSESSEE ON THE BASIS ITS ORDER DATED 27.2.2009 FOR THE ASSESSMENT YEAR 2002 - 2003 AND ORDER DATED 10.9.2009 FOR THE ASSESSMENT YEARS 2003 - 2004 AND 2004 - 2005 WHEREIN DISALLOWANCE WAS RESTRICTED TO 2% OF THE EXEMPT INCOME. FURTHER; THE TRIBUNAL HAS REMANDED THE MATTER TO THE AO TO VERIFY THE DISALLOWANCE CLAIMED AND RESTRICT THE DISALLOWANCE ONLY TO THE EXTENT TO 2% OF THE TOTAL EXEMPT INCOME. WE FIND NO FAULT WITH THE ORDER OF THE TRIBUNAL. ' 7. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT THE AO SHOULD BE DIRECTED TO RESTRICT THE DI SALLOWANCE TO 2% OF THE TOTAL EXEMPT INCOME IN THE LINES OF THE DISCUSSED BY THE HONBLE HIGH COURT IN THE ABOVE REFERRED CASES. ACCORDINGLY , GROUND NO.5 OF THE REVENUE IS PARTLY ALLOWED . 8. IN RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED . 4 ITA NO.4450/M/2003 (AY 1999 - 2000) 9. THIS APPEAL FILED BY THE REVENUE ON 6.6.2003 IS AGAINST THE ORDER OF THE CIT (A) - XXXII, MUMBAI DATED 31.3.2003. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN DIRECTING THE AO TO RECOMPUTED THE BOOK PROFIT AFTER REDUCING THERE FROM THE RELEVANT DEBIT FOR THE BAD DEBTS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF INTEREST ACCRUED UPON THE SECURITIES HELD BY THE ASSESSEE ON DAY TO DAY BASIS TILL THE LAST DAY OF FINANCIAL YEAR. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF BROKEN PERIOD INTEREST ON PURCHASE OF SECURITIES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN DELETING THE ADDITION MADE BY THE AO BY THE REDUCTION O F THE EXEMPTION AND FURTHER ERRED IN DELETING THE INCREASE IN BOOK PROFITS MADE BY AO IN TERMS OF EXPLANATION - F TO SECTION 115J. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) HAS ERRED IN DIRECTING THE AO TO VERIFY THE CL AIM OF THE ASSESSEE AS REGARDS INDEXATION COST IN RESPECT OF BONDS AND DEBENTURES AND TO ACCORDINGLY RECTIFY THE COMPUTATION OF CAPITAL GAINS. 10. AS MENTIONED ABOVE, WHILE ADJUDICATING THE REVENUES APPEAL FOR THE AY 1998 - 99, GROUND NOS.1, 2, 3 AND 5 WERE NOT APPROVED BY THE COD. ACCORDINGLY, THE R EASONS DESCRIBED IN PARA 4 ABOVE, THE SAID GROUNDS ARE DISMISSED IN LIMINE. THAT LEAVES, GROUND NO.4 FOR ADJUDICATION AND IT RELATES TO THE DISALLOWANCE OF REASONABLE EXPENDITURE U/S 14A OF THE ACT AS RELAT ABLE TO THE EXEMPT INCOME. IDENTICAL ISSUE WAS ADJUDICATED BY US IN THE ABOVE PARAS OF THIS ORDER WHILE DECIDING THE REVENUES APPEAL FOR THE AY 1998 - 99 VIDE GROUND NO.5 OF THE SAID APPEAL. CONSIDER THE FACTS AND SIMILARITY OF THE ISSUES, WE FIND OUR DEC ISION GIVEN IN CONNECTION WITH THE SAID GROUND NO.5 OF THE APPEAL FOR THE AY 1998 - 99 SQUARELY APPLIES TO THE GROUND NO.4 OF THE INSTANT APPEAL TOO. ACCORDINGLY, AO I S DIRECTED TO GIVE EFFECT TO THE JUDGMENT OF THE HONBLE HIGH COURT (SUPRA) IN THE SAME LI NES AS DISCUSSED ABOVE. THUS, GROUND NO.4 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 11. IN THE RESULT , BOTH THE APPEAL S OF THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 5 ORDER PRONOUNCED IN THE OPEN COURT ON 2 3 R D SEPTEMBER, 2015. S D / - S D / - (AMIT SHUKLA) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 2 3 .9 .2015 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI