ADDL CIT RG 6(1), MUMBAI V. JAYABHARAT TEXTILE & REAL ESTATE P.LTD, MUMBAI

ITA 4671/MUM/2012

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0673 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 07-05-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 12-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S D SRIVASTAVA
• Keywords: Depreciation; Notional interest
• Section: 43B; 14A; 80IB; 133(6); 68

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI . , , BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI N.K . BILLAIYA, A CCOUNTANT M EMBER / I .T.A. NO . 4671/MUM/2012 ( / ASSESSMENT YEAR : 2009 - 10 THE DCIT, CIR.6(1), AAYAKAR BHAVAN, MUMBBAI - 400 020 / VS. M/S. JAYBHARAT TEXTILE & REAL ESTATE PVT. LTD., 11/12, RAGHUVANSHI MILL COMPOUND, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI - 400 013 ./ ./ PAN/GIR NO. : AAACJ 5959L ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY: SHRI S.D. SRIVASTAVA / RESPONDENT BY : SHRI SALIL KAPOOR / DATE OF HEARING : 07 . 0 5 .2015 / DATE OF PRONOUNCEMENT : 20 .0 5 .2015 / O R D E R PER N.K. BILLAIYA, AM: THIS IS AN APPEAL BY THE REVENUE PREFERRED AGAINST THE ORDER OF THE LD. CIT(A) - 14, MUMBAI DT. 20.4.2012 PERTAINING TO ASSESSMENT YEAR 2009 - 10. 2. THE REVENUE HAS RAISED AS MANY AS 7 GROUNDS OF APPEAL. HOWEVER, THE LD. DEPARTMENTAL REPRESENTATIVE SHR I S.D. SRIVASTAVA, AT THE VERY ITA. NO. 4671/M/12 2 OUTSET, STATED THAT HE WILL PUT FORTH HIS ARGUMENT ONLY IN RESPECT OF GROUND NO. 7 WHICH RELATES TO THE DELETION OF THE ADDITION OF RS. 54.97 LAKHS MADE U/S. 14A OF THE ACT. IN RESPECT OF OTHER 6 GROUNDS OF APPEAL, THE LD. DR STATED THAT THE REVENUE HAS NO CASE, NEITHER ON FACTS NOR ON THE POINT OF LAW. 3. WITH THIS FACTUAL BACKGROUND, WE TAKE EACH GROUND OF APPEAL ONE BY ONE . GROUND NO. 1,2 & 3 RELATE TO THE ALLOCATION OF EXPENSES LIKE INTEREST, DEPRECIATION AND FINANC E CHARGES BETWEEN 80IB AND NON 80IB UNITS. 3.1. THE LD. CIT(A) HAS CONSIDERED THESE ISSUES VIDE GROUND NO. 2 OF HIS ORDER WHEREIN THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S. 80IB OF THE ACT IN RESPECT OF ITS SILVASSA UNIT. THE DEDUCTION WAS CLAIMED AT RS. 6,60,95,278/ - . THE AO EXAMINED THE ALLOCATION OF EXPENSES ON DIFFERENT UNITS AS THE ASSESSEE WAS HAVING TAXABLE PROFITS IN OTHER UNITS ENGAGED IN TRADING AND MANUFACTURING ACTIVITIES. THE AO WAS OF THE FIRM BELIEF THAT THE EX PENSES LIKE SELLING AND ADMINISTRATION, INTEREST AND DEPRECIATION ARE REQUIRED TO BE ALLOCATED AMONG DIFFERENT UNITS IN THE RATIO OF THEIR TURNOVER. THE ASSESSEE STRONGLY OBJECTED TO THIS AND STATED THAT INTEREST PAYMENT HAS BEEN MADE ON TERM LOANS AND DEPRECIATION AND INTEREST HAVE BEEN ALLOCATED BY THE ASSESSEE IN THE RATIO OF FIXED ASSETS AS THESE ITEMS OF EXPENDITURES ARE DIRECTLY LINKED WITH THE FIXED ASSETS OF RESPECTIVE UNITS AND HAVE NO RELATION TO THE TURNOVER. 3.2. AFTER CONSID ERING THE FACTS AND THE SUBMISSIONS AND THE ALLOCATION CHART, THE LD. CIT(A) WAS CONVINCED THAT INTEREST AND FINANCE CHARGES INCURRED ON TERM LOANS ARE TAKEN FOR A PARTICULAR UNIT THEREFORE CANNOT BE REALLOCATED TO OTHER UNITS FOR THE PURPOSE OF COMPUTATIO N OF DEDUCTION ITA. NO. 4671/M/12 3 U/S. 80IB OF THE ACT. SIMILARLY, THERE CANNOT BE ANY QUESTION OF REALLOCATION OF DEPRECIATION OF A PARTICULAR UNIT TO OTHER UNITS. IN RESPECT OF SELLING AND ADMINISTRATIVE EXPENSES, THE LD. CIT(A) DISMISSED ASSESSEES SIMILAR CONTENTION A ND AGREED WITH THE AO THAT SELLING AND ADMINISTRATIVE EXPENSES HAVE TO BE ALLOCATED IN THE PROPORTION OF SALES TURNOVER. EXCEPT FOR THE ALLOCATION OF SELLING AND ADMINISTRATIVE EXPENSES ON THE BASIS OF TURNOVER, THE LD. CIT(A) DELETED THE ENTIRE REALLOCATI ON OF EXPENSES MADE BY THE AO IN RESPECT OF INTEREST, FINANCE CHARGES AND DEPRECIATION. 4. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. AS MENTIONED ELSEWHERE, THE LD. DR HAS FAIRLY CONCEDED THAT THE REVENUE HAS NO CASE, WE THEREFORE DECLINE TO INTERFER E WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 1,2 & 3 ARE ACCORDINGLY DISMISSED. 5. GROUND NO. 4.1 RELATES TO THE DENIAL OF OPPORTUNITY TO THE AO BEFORE ADMITTING NEW FACTS AS PER RULE 46A. 6. THE LD. DR FAILED TO BRING ANY NEW FACTS CONSIDERED BY THE LD. CIT(A) WHICH DEPRIVED THE AO FROM MAKING HIS COMMENT. WE, THEREFORE, DO NOT FIND ANY REASON TO ENTERTAIN THIS GROUND. GROUND NO. 4.1 IS ACCORDINGLY DISMISSED. 7. GROUND NO. 4.2 RELATES TO THE DELETION OF THE DISALLOWANCE OF RS. 42,61,285/ - ON ACCOUNT OF S HORT CREDIT OF INTEREST SUBSIDY. 8. THE LD. CIT(A) HAS CONSIDERED THIS ISSUE VIDE GROUND NO. 3 OF THE APPEAL BEFORE HIM AND AT PARA 5.4 THE LD. CIT(A) HAS OBSERVED THAT HE HAS LOOKED INTO THE LEDGER ACCOUNT MAINTAINED BY THE ASSESSEE FOR THE SUBSIDY RECEIVABLE ON THE BASIS OF WHICH THE SUBSIDY I S BEING DISCLOSED. AT PARA - ITA. NO. 4671/M/12 4 5.6 THE LD. CIT(A) OBSERVED THAT THE AO HAS NOT BEEN ABLE TO UNDERSTAND THE ACCOU NTS OF THE ASSESSEE. THE LD. CIT(A) FURTHER COMMENTED THAT THE AO HAS NOT BOTHERED TO ASCERTAIN AS TO WHETHER THESE AMOUNTS OF SUBSIDY HA VE ALREADY BEEN TAXED IN EARLIER YEARS OR NOT. THE LD. CIT(A) FURTHER OBSERVED THAT THE AO HAS CONSIDERED THE SUBSIDY COMPUTED BY HER IS IN RESPECT OF 5 BANKS WHEREAS THE ASSESSEE HAS ACTUALLY RECEIVED SUBSIDY FROM TWO BANKS I.E. INDIAN OVERSEAS BANK AND UCO BANK. IT APPEARS THAT THE AO HAS COLLECTED INFORMATION FROM ALL THE BANKS WITHOUT EXAMINING FROM WHICH BANK THE ASSESSEE HAS ALREADY ACCOUNTED FOR THE SUBSIDY IN EARLIER YEARS. THE LD. CIT(A) FINALLY DELETED THE DISALLOWANCE MADE BY THE AO HOLDING THAT ONCE THE SUBSIDY HAS BEEN TAXED IN ACCRUAL BASIS, THE SAME CANNOT BE TAXED ON RECEIPT. 8.1. AS MENTIONED ELSEWH ERE, THE DR COULD NOT BRING ANYTHING IN SUPPORT OF THE ASSESSMENT ORDER. WE, THEREFORE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 4.2 IS ACCORDINGLY DISMISSED. 9. GROUND NO. 5 RELATES TO THE DELETION OF THE ADDI TION OF INTEREST PAYMENT OF RS. 1,92,703/ - MADE U/S. 43B OF THE ACT. 9.1. THIS ISSUE HAS BEEN DISCUSSED BY THE LD. CIT(A) AT PARA - 6 OF HIS ORDER WHERE HE HAS CONSIDERED GROUND NO. 4 OF THE APPEAL BEFORE HIM AND AT PARA 6.3, THE LD. CIT(A) OBSERVED THAT THERE IS NO SUCH DISALLOWANCE MENTIONED BY THE TAX AUDITORS AT CLAUSE 21 OF THE TAX AUDIT REPORT THEREFORE, IT IS NOT KNOWN WHY THE AO HAS DISALLOWED THE AMOUNT OF RS. 1,92,703/ - . ON FINDING NO REASON FOR THE DISALLOWANCE, THE LD. CIT(A) DELETED THE ADD ITION. ITA. NO. 4671/M/12 5 9.2. AS THE LD. CIT(A) HAS DELETED THE ADDITION BY CATEGORICALLY STATING THAT THE AO HAS NOT GIVEN ANY REASON FOR THE DISALLOWANCE WE DECLINE TO INTERFERE. GROUND NO. 5 IS ACCORDINGLY DISMISSED. 10. GROUND NO. 6 RELATES TO THE DELETION OF THE ADDITION OF RS. 15 CRORES MADE U/S. 68 OF THE ACT. 11. WHILE SCRUTINIZING THE RETURN OF INCOME, THE AO NOTICED THAT THE ASSESSEE HAD TAKEN AN UNSECURED LOAN OF RS. 15 CRORES FROM HIKAL PRO ESTATE PVT. LTD. THE ASSESSEE WAS ASKED TO EXPLAIN THE CREDITS IN THE LIGHT OF THE PROVISIONS OF SEC. 68 OF THE ACT. THE ASSESSEE FURNISHED CONFIRMATION FROM THE SAID CREDITOR. CONTINUING HER INVESTIGATION, THE AO ISSUED NOTICE U/S. 133(6) OF THE ACT. THE NOTICE WAS RETURNED UNSERVED. WHEN THIS WAS BROUGHT TO THE NOTICE OF THE ASSESSEE, THE ASSESSEE FURNISHED NEW ADDRESS OF THE LOAN CREDITOR WHICH HAPPENED TO BE THE ADDRESS OF THE ASSESSEE ITSELF. IN SUPPORT, THE ASSESSEE ALSO FURNISHED THE RETURN OF INCOME AS WELL AS THE BALANCE SHEET OF THE SAID LOAN CREDITOR F OR THE ASSESSMENT YEAR 2009 - 10. THE AO WAS OF THE FIRM BELIEF THAT THE LOAN CREDITOR HAVE NO CAPACITY TO ADVANCE A SUM OF RS. 15 CRORES AND MADE THE ADDITION U/S. 68 OF THE ACT. 12. BEFORE THE LD. CIT(A), IT WAS EXPLAINED THAT IN THIS LINE OF TRADE, IT IS NOT UNCOMMON FOR CONVERSION OF A TRADE DEBT INTO A LOAN. IT WAS EXPLAINED THAT THE ASSESSEE HAD PURCHASED MATERIAL FROM VARIOUS SUPPLIERS WHO IN TURN HAD BOUGHT THE SAME MATERIAL FROM M/S. HIKAL PRO ESTATE PVT. LTD. ON THE REQUEST OF THESE TRADE CRED ITORS, THE ASSESSEE AGREED TO PAY THE OUTSTANDING AMOUNTS TO M/S. HIKAL PRO ESTATE PVT. LTD. WHICH TRANSACTION HAS BEEN CONFIRMED BY THE TRADE CREDITORS AS WELL AS THE LOAN CREDITORS. ITA. NO. 4671/M/12 6 12.1. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS AND STRONGLY DRAW ING SUPPORT FROM THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS LOVELY EXPORTDS (P) LTD 216 CTR 195, THE LD. CIT(A) DELETED THE ADDITION. 13. BEFORE US, THE LD. DR COULD NOT BRING ANYTHING IN SUPPORT OF THE ASSESSMENT ORDER. 14. WE HA VE GIVEN A THOUGHTFUL CONSIDERATION TO THE FINDINGS OF THE LD. CIT(A) IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF LOVELY EXPORTS (SUPRA). WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 6 IS ACCORDINGLY DISMISSED. 15. GROUND NO. 7 RELATES TO THE DELETION OF THE ADDITION OF RS. 54.97 LAKHS MADE U/S. 14A OF THE ACT. 16. THIS ISSUE HAS BEEN CONSIDERED BY THE LD. CIT(A) AT PARA - 10 OF HIS ORDER QUA GROUND NO. 8 OF ASSESSEES APPEAL BEFORE H IM. WHILE SCRUTINIZING THE BALANCE SHEET OF THE ASSESSEE, DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE COMPANY IS HAVING INVESTMENT IN SHARES. HOWEVER, THE AO NOTICED THAT THE ASSESSEE HAS NOT DISALLOWED ANY EXPENDITURE AGAINST THE SAID INVESTMENT INCOME . THE AO WENT ON TO COMPUTE THE DISALLOWANCE IN THE LIGHT OF THE PROVISIONS OF SEC. 14A R.W. RULE 8D AND COMPUTED THE DISALLOWANCE AT RS. 59,17,265/ - . 16.1. IT WAS EXPLAINED TO THE LD. CIT(A) THAT ALL THE INVESTMENTS ARE OLD INVESTMENT WHICH HAVE BEEN FUND ED THROUGH OWN RESERVES AND CAPITAL. IT WAS FURTHER STATED THAT NO NOTIONAL INTEREST CAN BE ASSUMED TO HAVE BEEN ITA. NO. 4671/M/12 7 INCURRED FOR DISALLOWANCE WHEN THE INVESTMENTS WERE MADE FROM OUT OF OWN CAPITAL. 17. AFTER CONSIDERIN G THE FACTS AND THE SUBMISSIONS, THE LD. CIT(A) OBSERVED THAT THE AO HAS RESTRICTED HERSELF TO THE GENERAL DISCUSSION WITHOUT CONSIDERING THE FACTS WHICH COME OUT FROM THE ACCOUNTS OF THE ASSESSEE. AT PARA - 10.7 OF HIS ORDER, THE LD. CIT(A) OBSERVED THAT THERE IS NO EXPENDITURE WHICH CAN BE SAID TO BE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. THERE IS ALSO NO INTEREST EXPENDITURE WHICH CAN BE SAID TO BE PROPORTIONATELY INCURRED FOR EARNING THE DIVIDEND INCOME. T HE LD. CIT(A) FURTHER OBSERVED THAT THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE IS DIRECTLY ATTRIBUTABLE TO THE FIXED ASSETS FOR WHICH THE TERM LOAN HAS BEEN TAKEN. AFTER MAKING THESE OBSERVATIONS, THE LD. CIT(A) STATED THAT CERTAIN EXPENDITURES HAV E TO BE ALLOCATED IN THE LIGHT OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. 238 ITR 81VS DCIT AND RESTRICTED THE DISALLOWANCE AT RS. 4,20,265/ - AND DIRECTED TO DELETE THE AMOUNT OF RS. 54.97 LAKHS. 18. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 19. THE LD. DR COULD NOT CONTROVERT THE FINDING OF THE FACT BY THE LD. CIT(A) THAT THE INTEREST HAS BEEN PAID ON TERM LOAN TAKEN FOR THE PURCHASE OF THE FIXED ASSETS AND THEREFORE THERE CANNOT BE ANY DISA LLOWANCE OF INTEREST AS THE LD. CIT(A) HAS CATEGORICALLY STATED THAT NO DIRECT EXPENDITURE HAS BEEN INCURRED. WE, THEREFORE, DECLINE TO INTERFERE WITH THE ADDITION SUSTAINED BY THE LD. CIT(A) AND SIMULTANEOUSLY WE ALSO DECLINE TO INTERFERE WITH THE DELETI ON OF THE ADDITION MADE BY THE LD. CIT(A). GROUND NO. 7 IS ACCORDINGLY DISMISSED. ITA. NO. 4671/M/12 8 20. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED O R DER PRONOUNCED IN THE OPEN COURT ON 20 TH MAY , 2015 SD/ - SD/ - ( D.MANMOHAN ) (N.K. BILLAIYA) /VICE PRESIDENT / ACCOUNTANT MEMBER MUMBAI ; DATED : 20 TH MAY , 2015 . . ./ RJ , 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 . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI