TATA PROJECTS LTD, MUMBAI V. ACIT CIRCLE - 2(3)(1), MUMBAI

ITA 459/MUM/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4368 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 31-01-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMIT PRATAP SINGHLD
• Assessee Lawyers: RAJAN VORALD
• Keywords: Depreciation; Earning of tax free income; Bad and doubtful debts; Rule 8D; Set aside
• Section: 143(3); 244A; 14A; 22

Judgement Text

ITA NO. 459/MUM/2019 TATA P ROJECTS LIMITED ASSESSMENT YEAR :20 11 - 12 1 IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI , , BEFORE HONBLE SHRI MAHAVIR SINGH, VP AND HONBLE SHRI MANOJ KUMA R AGGARWAL, AM ( HEARING THROUGH VIDEO CONFERENCI NG MODE) ./ I.T.A. NO. 459 / MUM/ 2019 ( / ASSESSMENT YEAR : 2011 - 12 ) TATA PROJECTS LIMITED 2 ND TO 4 TH FLOORS , TRANSOCEAN HOUSE LAKE BOULEVARD ROAD HIRANANDANI BUSINESS PARK HIRANANDANI GA RDENS , MHADA COLONY POWAI , MUMBAI - 400 076 . / VS. ACIT - 2(3)(1) AAY KAR BHAVAN MAHARSHI KARVE ROAD MUMBAI - 400 020. ./ ./ PAN/GIR NO . AAACT - 4119 - L ( / APPELLANT ) : ( / RESPONDENT ) ASSESSEE BY : SHRI RAJAN VORA - LD.A R REV ENUE BY : SHRI AMIT PRATAP SINGH - LD.DR / DATE OF HEARING : 07/10/2020 / DATE OF PRONOUNCEMENT : 22/10/2020 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY ASSESSEE F OR ASSESSMENT YEAR [IN S HORT REFERRED TO AS AY] 20 11 - 12 CONTEST THE ORDER OF LD. COMMISSIONER OF INCOME - TAX (APPEALS) - 6, MUMBAI, [IN SHORT REFERRED TO AS CIT(A)], APPEAL NO. CIT(A) - 6/IT - 76 /201 7 - 18 DATED 10/10/2018 ON FOLLOWING GROUND S: - ITA NO. 459/MUM/2019 TATA P ROJECTS LIMITED ASSESSMENT YEAR :20 11 - 12 2 DISALLOWANCE UNDER SECTION 1 4A OF THE INCOM E - TAX ACT ('ACT') READ WITH RULE 8D (III) OF RS 1 , 09 ,16, 151/ - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN NOT FOLLOWING THE DIRECTIONS OF THE HON'BLE ITAT TO RESTRICT THE DISALLOW A NCE UNDE R SECTION 14A TO THE EXTENT OF ACTUAL CLAIM OF ADMINISTRATIVE EXPENSES APPORTIONED TO THE EXEMPT INCOME AMOUNTING TO RS. 24.5 LAKHS . NON - GRANTING OF INTEREST UNDER SECTION 244A OF THE ACT 2 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN THE LAW, TH E COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN NOT ADJUDICATING THE GROUND PERTAINING TO NON - GRANTING OF INTEREST UNDER SECTION 244A OF THE ACT FROM THE FIRST DAY OF ASSESSMENT YEAR TO THE DATE ON WHICH REFUND IS GRANTED. IT IS EV IDENT THA T THE ASSESSEE IS PRI MARILY AGGRIEVED BY INDIRECT EXPENDITURE DISALLOWANCE U/S 14A WHICH HAS BEEN COMPUTED AS PER RULE 8 D(2)(III). THE ISSUE OF INTEREST DISALLOWANCE MADE BY LD. AO U/ R 8D(2)(II) HAS ALREADY ATTAINED FINALITY AND THE SAME IS NOT UN DER DISPUT E AND NOT A SUBJECT MATTER OF PRESENT APPEAL . 2. THIS IS THE SECOND ROUND OF L ITIGATION S INCE THE MATTER IN THE FIRST ROUND WAS REMANDED BACK TO THE FILE OF ASSESSING OFFICER [AO] BY COOR DINATE BENCH OF THIS TRIBUNAL VIDE ITA NO.1018/M UM/2015 ORD ER DATED 1 7/10/2016 WITH THE FOLLOWING DIRECTIONS : - 5. W E HAVE HEAR D THE RIVAL CONTENTIONS AND PERUSED THE RECORD. WE NOTICED THAT AN IDENTICAL ISSUE HAS BEEN RESTORED TO THE FILE OF THE ASSESSING OFFICER IN ASSESSEES OWN CASE BY THE COORDINATE BENCH IN A .Y. 2008 - 0 9 TO 2010 - 11 (REFERRED ABOVE) WITH FOLLOWING DIRECTIONS: IT IS TO BE NOTED THAT RULE 8D IS APPLICABLE FOR THE YEAR UNDER CONSIDERATION THEREFORE, THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES HAS TO BE COMPUTED AS PER THE FORMULA PROV IDED IN RULE 8 D. HOWEVER , THE DISALLOWANCE WORKED OUT UNDER RULE 8D CANNOT EXCEED THE TOTAL EXPENDITURE CLAIMED BY THE ASSESSEE WHICH CAN BE APPORTIONED TO THE EXEMPT INCOME. THUS WE SET ASIDE THIS ISSUE TO THE RECORD OF AO FOR THE LIMITED PURPOSE OF COMPU TING THE TOTAL EXPENDITU RE INCURRED BY THE ASSESSEE FOR THE COMPOSITE/INDIVISIBLE ACTIVITIES IN WHICH TAXABLE AND NON - TAXABLE INCOME IS RECEIVED AND IF THE DISALLOWANCE WORK OUT UNDER RULE 8D ON ACCOUNT OF ADMINISTRATIVE EXPENSES EXCEEDS THE TOTAL CLAIM OF EXPENDITURE I NCURRED FO R THE COMPOSITE ACTIVITIES RESULTING TAXABLE OR NON - TAXAB LE INCOME THEN THE DISALLOWANCE SHOULD BE RESTRICTED TO THE SAID ACTUAL TOTAL CLAIM OF EXPENDITURE . 6. CONSISTENT WITH THE VIEW TAKEN BY THE COORDINATE BENCH, WE SET ASIDE THE ORDER PASSED BY THE LEA RNED CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FIL E OF THE ASSESSING OFFICER FOR CONSIDERING THE ISSUE AFRESH BY DULY CONSIDERING ALL THE TYPES ITA NO. 459/MUM/2019 TATA P ROJECTS LIMITED ASSESSMENT YEAR :20 11 - 12 3 OF CONTENTIONS THAT MAY BE RAISED AND ALL THE MATERIALS THAT MAY BE PRODUCED B Y THE ASSESSEE. FROM THE PERUSAL OF AFORESAID DIRECTIONS, IT IS CLEAR THAT THE ISS UE HAS BEEN RESTORED BACK TO THE FILE OF LD. AO FOR FRESH ADJUDICATION A F T ER CONSIDERING VARIOUS SUBMISSIONS RAISED BY THE ASSESSEE . 3. 1 ACCOR DINGLY, AN ASSESSMENT WAS FRAMED U/S 143(3) R.W .S. 254 ON 15/12/2017 . DURING ASSESSMENT PROCEEDINGS THE ASSESSEE SU BMITTED TABULAR BREAK - UP OF INVESTMENTS HELD BY IT AS ON 31 / 03 / 2011 & AS ON 31/03/2010. IT WAS SUBMITTED THAT OUT OF TOTAL INVESTMENTS AS ON 31/03/2011, RS.978.56 LACS WERE MADE IN THE PAS T FOR BUSI N ESS PURPOSES AND NOT WITH AN INTENTION TO MAKE GAINS AND EAR N DIVIDEND AND NO MONITO RING WAS REQUIRED TO MAINTAIN S UCH INVE STMENTS . THE REMAINING INVESTMENTS WERE MAINLY MUTUAL FUND INVESTMENTS. AGAINST THE S AME, THE ASSESSEE APPORTION ED AS WEL L AS SUO - M OT O DISALLOWED AGGREGA TE EXPENDITURE OF RS.16,5 1 ,524/ - WHILE COMPUTING ITS INCO ME. T HE DETAILS OF THE SAME WERE AS FOLLOWS: - (I) TELEPHONE EXPENSES RS.35 , 000 / - (II) STATIO NERY EXPENSES RS.2,04 ,000 / - (III) SALARIES RS.14,12,524/ - (BASED ON PROPO RTIONATE T IME SPE NT BY CERTAIN EMPLOYEES ) THE DISALLOWANCE OF SALARY WAS ARRIVED AT AS UNDER: SR. NO. NAME OF EMPLOYEE COST TO COMPANY (RS) PROPORTION OF TIME SPENT AMOUNT (RS) 1. K S KRISHNAN 3,998,964 10 PERCENT 399,896 2. R B ALASUBRAMANIAM 1,342,904 25 PE RCENT 3 35,726 3. N SIVALAI SENTHILNATHAN 1,827,304 25 PERCENT 454,826 4. KVS PRAVAKAR 880,304 25 PERCENT 220,076 TOTAL 14,12,524 T HE RATIONALE FOR THE SAME WAS THAT INVE STMEN T S WERE MADE IN MUTUAL F UNDS OUT OF ADVANCES RECEIVED FRO M CUSTOMERS AND WERE INVESTED ITA NO. 459/MUM/2019 TATA P ROJECTS LIMITED ASSESSMENT YEAR :20 11 - 12 4 W ITHIN A SPAN OF 3 - 4 DAYS FROM RECEIPT. ONCE INVESTMENTS WERE MA DE, NOTHING FURTHER WAS R EQUIRED AS DIVIDEND WAS REINVESTED O R DIRECTLY CREDIT ED TO ASSESSEE S BANK ACCOUNT . THE GENERAL MANAGER AND HEAD OF FINA NCE WOULD TAKE A FINAL CALL AFTE R THE SENIOR ACC OUNTS OFFICER HAD IDENTIFIED INVESTMENT TO BE MADE. HENCE, THE SAME WOULD JUSTIFY THE DIS ALLOWANCE OF PROPORTIONATE SALARY AND SMALL AMOUNT OF OVERHEADS . IT W AS SUBMITTED THAT NO OTHER EXP ENDITURE WAS INCURRED TO MA INTAIN THE INVE STMENTS AN D HENC E, THE SU O - M OT O DISALLOWANCE WAS TO BE ACCEPTED. THE PERU SAL OF COMP UTATION O F INCOME WOULD SHOW THAT THE ASSESSEE HAS EARNED EXEMPT DIVI DEND INCOME OF RS.1146.37 LAC S DURING THE YEAR . 3.2 HOWEVER, LD.AO OPINED THAT THE APPORTI ONMENT OF EXPENDITURE C OULD N OT BE ESTA BLISHE D BY THE ASSESSEE AND HEN CE, THE DISALLOWANCE W AS TO BE COMPUTED AS PER RULE 8D ONLY. FOR MAINTAINING INVESTMENT SYSTEMIC MO NITORING WAS INEVITABLE WHICH WOULD ENTAIL INCURRENCE OF COMMON EXPEN SES SUCH AS MOTOR VEHICLE , TRAVELLING , LE GAL - PR O F ESSIONAL CHARG ES ETC . THEREFORE, THE DISALLOWANCE WAS COMPUTED AT RS.125.67 L ACS , BEING 0.5% OF AVERAGE INVESTMENTS OF RS.251.35 CRORES HELD BY THE ASSESSEE DURING THE YEAR . AFTER ADJU STING SUO - MOTO DI SALLOWANCE OF RS.16.51 LACS AS OFFERED BY THE A SSESSE E IN ITS C OMPUTATION OF INCOME, THE DIFFERENTIAL AMOUNT OF RS. 109.16 LACS WAS FURT HER ADDED TO THE INCOME OF THE ASSESSEE. 4. UPON FURTHER APPEAL , FOLLOWING T HE DECIS ION OF HON BLE BOMB AY HIGH COURT IN PR.CIT V/S BALLARPUR INDUSTRIES LTD. (ITA NO.51 OF 20 1 6 DATED 1 3/10/2016) , LD. AO WAS DIRECTED TO EXCLUDE THOS E INVESTMENTS WHICH DID NOT YIELD ANY EXEMPT INCO ME DURING THE YEAR . THE AFO RESAID ITA NO. 459/MUM/2019 TATA P ROJECTS LIMITED ASSESSMENT YEAR :20 11 - 12 5 DIRECTIONS REDUCED THE OVERALL DISALLOWANCE FROM RS.125.67 LACS TO RS.123.02 LACS. STILL A GGRIE VED, THE ASSESS EE IS UNDER FURT HER APPEAL BEFOR E US. 5. THE LEARNED AUTHORIZED REPRESENTATIVE FOR ASSESSEE (AR), SHRI RAJAN VORA , DRAWING ATTENTION TO ASSES SEE S FINANCIAL STATEMENTS, SUBMITTED T HAT THE APPORTIONMENT MADE BY THE ASSESSEE WAS FAIR & REASONABLE AND THEREFO RE, TH E DIFFEREN TIAL DISALLOWA NCE WAS NOT SUSTAINABLE. THE LD. DEPARTMENTAL REPRESENTATIVE (DR), SHRI AMIT PRATAP SINGH, ON THE OTHER HAND, SUBMITTED THAT THE DISALLOWANCE WAS MANDATORILY TO BE COMPUTED IN TERMS OF RULE 8D(2)(III) ONLY . 6. WE HAVE CAREFULL Y CONS IDERED THE RIVAL SUBMISSIONS AND PERUSED RELEVANT MATERIAL ON RECO RD. THE ISSUE BEFORE US IS IN NARROW COMPA SS I.E. QUANTUM OF INDIRECT / ADMINISTRATIVE EXPENDITURE DISALLOWANCE U/R 8D(2)(III) . WE FIND TH AT THE ASSESSEE HAS MADE ADHOC DISALLOWANCE OF RS.16 .51 LACS O UT OF TELEPHONE EXPENSES, STATI O NERY EXPENSES AND SAL ARY EXPENSES. THE SALARIE S COMPONENT IS BASED ON ESTIMATED PROPORTIONATE TIME SP ENT BY CERTAIN EMPLOYEES WH O COULD BE SAID TO HAVE DEVOTED TIME TO WARDS INVESTMEN T ACTIVITY. THE DISALLOWAN CE IS IN THE RAN GE OF 10 % TO 25% OF SALARY COST OF THESE PERSONNEL. HOWEVER, THE LD. AO WAS NOT SATISFIED WITH THE AFORE SAID DISALLOWANCE SINCE THE ASSESSEE WOULD HAVE INCURRED EXPENDITURE UNDER O THER HEADS AS WEL L. 7. FROM ASSESSEE S SUBMIS SIONS TO LD. C IT(A) ON 08/10/2 018 , WE FIND THAT THE ASSESSEE HAS I DENTIFIED EXPENSES RELATED TO ITS BUSINESS OPERATIONS AS WELL AS EXPENSES RELATED TO COMPOSITE ACTIVITY UNDER EACH ITA NO. 459/MUM/2019 TATA P ROJECTS LIMITED ASSESSMENT YEAR :20 11 - 12 6 OF THE HEAD AND AS AN ALTERNATIVE , PROPOSED DISALLOWANCE OF RS.2 4.50 LACS IN THE FOLLOWIN G MANN ER: - REVE NUE AMOUNT ( IN CRORES ) TOTAL TAXABLE RECEIPTS (A) 3, 044.58 TOTAL EXEMPT INCOME (B) 10.02 TOTAL RECEIPTS : (C)= (A)+(B) 3,054.60 NATURE OF EXPENSE AMOUNT IN CRORES ) TOTAL EXPENSES RELATED TO OPERATIONS (D) 2,756.58 EXPENSES RELATED TO C OMPOSI TE ACTIVIT IES RENT 12.18 POSTAGE, TELEPH ONE, TELEGRAM & TELEX 3,83 PRINTING & STATIONERY 2.00 AMORTIZATION FOR DIMINUTION IN INVESTMENT VALUE OF 0.76 CRORES** MISCELLANEOUS EXPENSES 13.62 TOTAL EXPENSES RELATED TO COMPOSITE ACTIVITIES (E) 31 .63 T OTAL EXPEN SES DEBITED TO PROFIT AN D LOSS ACCOUNT (F) =(D)+(E) 2,788.20 DISALLOWANCE UNDER SECTION 14A COMPOSITE EXPENSES APPORTIONED TO EXEMPT INCOME: (G) = (E) * (B)/ (C) [31.63X 10.02/ 3054.60] 0.1037 EMPLOYEE COST APPORTIONED TO EXEMPT INC OME AS PER RETUR N OF INCOME : (H) 0.1413 TOTAL EXPENSES APPOINTABLE TO EXEMPT INCOME : (I) = (G) + (H) [0.1037 + 0.1413] 0.2450 REVENUE AMOUNT ( IN CRORES ) TAXABLE RECEIPTS CONTRACT REVENUE 3025.01 OTHER INCOME 19.56 TOTAL TAXABLE RECEIPTS (A) 3044 .58 E XEMPT INCO ME DIVID END FROM CURRENT INVESTMENT 10.02 TOTAL EXEMPT INCOME (B) 10.02 TOTAL RECEIPTS : (C) = (A) + (B) 3054.60 NATURE OF EXPENSE AMOUNT (IN CRORES ) EXPENSES RELATED TO OPERATIONS PROJECT EXECUTION EXPENSE 2388.14 RAW MATERI ALS CO NSUMED 92 .22 CHANGES IN INVENTORY 1.02 INTEREST 14.72 DEPRECIATION 23.07 EMPLOYEE COST 170.43 REPAIRS & MAINTENANCE P&M 1.61 REPAIRS & MAINTENANCE BUILDING 0.03 ITA NO. 459/MUM/2019 TATA P ROJECTS LIMITED ASSESSMENT YEAR :20 11 - 12 7 FR O M THE PERU SAL OF ABOVE COMPUTATIONS, IT IS QUITE EVIDENT THAT THE ASSESSEE HAS IDENTIFIED THE COMPOSITE EXPENDITURE UNDER EACH HEAD AND APPORTIONED THE COMPOSITE EXPE NDITURE IN THE RAT IO OF EXEMPT INC OME VIS - - VIS TOTAL RECEIPTS DURING TH E YEAR. THE EMPLOYEE COST HAS SEPARATELY BEEN APPORTIONED ON THE BASI S OF TIME DEVOTED B Y CERTAIN EMPLOYEES WHICH COULD BE SAID TO HAVE BE EN ENGAGED IN INVESTMENT ACTIVITIES. U PON PERUSAL OF THE SAME, W E FIND THAT TH IS METHOD OF COMPUTING THE DISALLOWANCE WAS VERY FAIR, REASONABLE AND SCIENTIFIC AND THEREFORE, WAS TO BE ACCEPTED. AS PER THE PROVISIONS OF SEC .14A , DISALLOWANCE HAS TO BE COMPUTED HAVING REGARDS TO THE ACCOU NTS OF THE ASSESSEE AND IF THE SA ID REPAIRS & MAINTENANCE OTHERS 2.85 PROCESSING CHARGES 3.14 POWER & FUEL 4.5 5 STO RES & SPAR ES CONSUMED 1. 58 RATES & TAXES 1.22 INSURANCE 0.94 MOTOR VEHICLE EXPENSES 12.41 TRAVELLING EXPENSES 14.97 PROFESSIONAL & LEGAL CHARGES 7.43 STAFF RECRUITMENT/ TRAINING EXPENSES 0.46 BUSINESS DEVELOPMENT EXPENDITURE 1.17 BAD DEBTS/ P ROVISI ON FOR DOU BTFUL DEBTS 3. 54 PROVISION FOR DOUBTFUL ADVANCES REVERSED 1.74 EXCHANGE LOSS 1.79 BRAND EQUITY CONTRIBUTION 7.56 TOTAL EXPENSES RELATED TO OPERATIONS (D) 2756.58 EXPENSES RELATED TO COMPOSITE ACTIVITIES RENT 12.18 POSTAGE, TEL EPHONE , TELEGRAM & TELEX 3.83 PRINTING & STATIONERY 2.00 AMORTIZATION FOR DIMINUTION IN INVESTMENT VALUE OF 0.76 CRORES** 0.76 MISCELLANEOUS EXPENSES 13.62 TOTAL EXPENSES RELATED TO COMPOSITE ACTIVITIES (E) 32.38 TOTAL EXPENSES DEBITED TO PROFIT A ND LOS S ACCOUNT (F) 2788.96 ITA NO. 459/MUM/2019 TATA P ROJECTS LIMITED ASSESSMENT YEAR :20 11 - 12 8 METHOD ADOPTE D BY THE A SSESSEE WAS FOUND TO BE NOT SATISFACTORY , ONLY THEN THE COMPUTATION WAS TO BE DONE AS PER RULE 8D. THEREFORE, WE ARE OF THE CONSID ERED OPINION THAT THE COMPUTATIONS MADE BY ASSESSEE TO IDENTIFY THE DISALLOWANCE WAS QUITE FAIR AND REASONABLE. WE ORDER SO. THE AGGREGATED D ISALLOWANCE U/R 8D(2)(III) IS ACCEPTED AT RS.24.50 LACS. SINCE THE ASSESSEE HAS ALREADY DISALLOWED A SUM OF RS .16 , 51 ,524/ - IN ITS COMPUTATION OF INCOME, THE NET DISALLOWANCE WOULD WO RK OUT TO BE R S. 7,98,4 76/ - . THE LD.AO IS DIRECTED TO RECOM PUTE ASSESSEE S INCOME IN TERMS OF OUR ABOVE ORDER. 8. IN G ROUND N O.2, THE ASSESSEE IS AGGRIEVED BY NON - G RANT OF INTEREST U/S 244A OF THE ACT. IN TH IS REGARD, IT WOULD SUFFICE ON OUR PART TO DIRECT LD. AO TO GRAN T INTEREST IN ACCORDANCE WITH LAW. 9. THE AP PEAL STANDS PARTLY ALLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED ON 22 ND OC TOBER, 2020. SD/ - SD/ - (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) / VICE PRESIDENT / ACCOUNTANT MEMBER MUMBAI; DATED : 22/10/2020 SR.PS, JAISY VARGHESE / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE C IT(A) 4. / CIT CO NCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE ITA NO. 459/MUM/2019 TATA P ROJECTS LIMITED ASSESSMENT YEAR :20 11 - 12 9 / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MU MBAI.