M/s. United Breweries Ltd., Bangalore V. ACIT, Bangalore

ITA 468/BANG/2009

• Counselvise Citation: 46821114 RSA 2009
• Duration Of Justice: 2 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 03-05-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 14-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K AMBASTHA CITI
• Assessee Lawyers: K R PRADEEP
• Keywords: Proportionate interest
• Section: 143(3); 14A; 115JB; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SMT. P MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.468 /BANG/2009 (ASST. YEAR 2004-05) M/S UNITED BREWERIES LTD., UB TOWER, 4 TH LEVEL, U.B CITY, NO.24, VITTAL MALLYA ROAD, BANGALORE-560 001. . APPELLANT PAN - AAACU6053C. VS. THE ASST. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-2(3), BANGALORE. . RESPONDENT APPELLATE BY : SHRI K.R PRADEEP, C.A RESPONDENT BY : SHRI S.K AMBASTHA, CIT-I DATE OF HEARING : 03-05-2012 DATE OF PRONOUNCEMENT : 03-05-2012 O R D E R PER P MADHAVI DEVI, JUDICIAL MEMBER : THIS APPEAL IS FILED BY THE ASSESSEE. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (CENTRAL) AT ITA NO.468/B/09 2 BANGALORE DATED 26.03.2009. THE APPEAL ARISES OUT OF THE ORDER U/S 263 OF THE INCOME-TAX ACT, 1961 2. IN THIS APPEAL, THE ASSESSEE IS AGGRIEVED BY THE ORDER OF THE CIT(A) PASSED U/S 263 OF THE INCOME-TAX ACT BY REVI SING ASSESSMENT ORDER DATED 28.12.2006 AND DIRECTING THE AO TO RE-C OMPUTE THE BOOK PROFIT U/S 115JB OF THE INCOME-TAX ACT BY INCREASIN G IT WITH THE INTEREST EXPENDITURE AMOUNT OF RS.7,64,30,760/-. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY WHICH IS IN THE BUSINESS OF MANUFACTURE AND SALE OF BEER, HAD FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2004-05 ON 28.10 .2004 DECLARING A LOSS OF RS.2,98,00,111/- UNDER THE PROVISIONS OF TH E INCOME-TAX ACT AND ALSO BUSINESS PROFIT OF RS.4,18,97,459/- FOR TH E PURPOSE OF SEC. 115JB OF THE INCOME-TAX ACT. THEREAFTER A REVISED R ETURN HAS BEEN FILED ON 8.11.2005 DECLARING THE TOTAL INCOME AS NI L AND BUSINESS PROFIT U/S 115JB AT RS.4,18,97,459/-. DURING THE A SSESSMENT PROCEEDINGS U/S 143(3) OF THE INCOME-TAX ACT, THE A SSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD INCURRED INTEREST EX PENDITURE OF RS.3,24,508,456/- ON BORROWED CAPITAL. HE FURTHER OBSERVED THAT THE INTEREST EXPENDITURE INCLUDED INTEREST ON BORROWED CAPITAL, WHICH IS ITA NO.468/B/09 3 INVESTED FOR PURCHASE OF SHARES FROM WHICH EXEMPT I NCOME OF DIVIDEND IS EARNED AND IS, THEREFORE, DISALLOWABLE U/S 14A OF THE INCOME-TAX ACT. HE OBSERVED THAT SINCE THE BORROWE D FUNDS HAVE BEEN USED BY THE ASSESSEE FOR INVESTMENT IN SHARES, THE ASSESSEE OUGHT TO HAVE DISALLOWED THE RELEVANT INTEREST ON BORROW ED CAPITAL FUNDS AS THE SAME IS NOT ALLOWABLE U/S 14A OF THE INCOME-TAX ACT FROM THE INCOME UNDER THE HEAD INCOME FROM BUSINESS. AS T HE ASSESSEE HAS FAILED TO DO SO, THE AO MADE THE DISALLOWANCE OF TH E PROPORTIONATE INTEREST U/S 14A OF THE INCOME-TAX ACT. 4. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A), WHO DELETED THE ADDITION BY ACCEPTING THE ASSESSEE S SUBMISSION THAT SHARES WERE ACQUIRED NOT WITH A VIEW TO EARN DIVIDE ND BUT WITH A VIEW TO ACQUIRE CONTROLLING INTEREST IN THE COMPANY AND , THEREFORE, SEC. 14A WAS NOT APPLICABLE. 5. THE REVENUE PREFERRED AN APPEAL BEFORE THE TRIBU NAL AND THE TRIBUNAL BY FOLLOWING THE DECISION OF THE SPECIAL B ENCH OF TRIBUNAL AT MUMBAI IN THE CASE OF ITO VS. DAGA CAPITAL MANAGEME NT PVT. LTD., (2009), 312 ITR (AT) 1, REMITTED THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO ASCERTAIN FROM THE FACTS OF TH E CASE AS TO THE ITA NO.468/B/09 4 QUANTUM OF INTEREST BEARING FUNDS WHICH WERE UTILIZ ED TO ACQUIRE SHARES IN THE COMPANY AND IN MAKING THE ADVANCES TO CASTLE BREWERIES. MEANWHILE, THE CIT U/S 263 OF THE INCOME -TAX ACT HAS REVISED THE ORDER OF THE ASSESSMENT AND DIRECTED TH E AO TO APPLY EXPLANATION (F) TO SEC. 115JB AND RE-COMPUTE THE BO OK PROFIT BY INCREASING IT BY THE INTEREST EXPENDITURE AMOUNT D ISALLOWED U/S 14A OF THE ACT 6. AGGRIEVED BY THE REVISED ORDER, THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ISSUE AS TO WHETHER THE DISALLOWANCE U/S 14A IS AT ALL TO BE MADE IS UNDER CONSIDERATION BEFORE THE ASSESSING OFFICER CONSEQUE NT TO THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASS ESSMENT YEAR 2004- 05. HE SUBMITTED THAT THOUGH THE TRIBUNAL HAS DIRE CTED THE AO TO CONSIDER THE ISSUE IN ACCORDANCE WITH THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL AT MUMBAI IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. (CITED SUPRA), THE ISSUE IS NO W COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE JURIS DICTIONAL HIGH COURT AND ALSO THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF GODREJ ITA NO.468/B/09 5 AND BOYCE MANUFACTURING COMPANY LTD. REPORTED IN 32 8 ITR 81, WHEREIN THE DECISION OF THE SPECIAL BENCH OF THE TR IBUNAL AT MUMBAI IN THE CASE OF DAGA CAPITAL (CITED SUPRA) HAS BEEN SET ASIDE AND THE AO IS BOUND TO FOLLOW THE SAME. FURTHER, ACCORDING TO HIM, WHERE THE ISSUE IS DEBATABLE AND TWO VIEWS ARE POSSIBLE, THE REVISION IS NOT MAINTAINABLE AND THE FACT THAT THE ISSUE WAS BEFORE THE COURTS ITSELF SHOWS THAT THE ISSUE WAS DEBATABLE AND THE AO HAS A DOPTED ONE OF THE POSSIBLE VIEWS. WITHOUT PREJUDICE TO HIS CONTENTIO N ABOVE, HE SUBMITTED THAT SINCE THE ISSUE OF EXAMINING THE QUA NTIFICATION OF THE DISALLOWANCE U/S 14A UNDER NORMAL PROVISION OF THE INCOME-TAX ACT IS BEFORE THE AO, THE ISSUE OF APPLICABILITY OF EXPLAN ATION (F) TO SEC. 115JB OF THE INCOME-TAX ACT MAY ALSO BE REMANDED BA CK TO THE FILE OF THE AO TO BE CONSIDERED IN ACCORDANCE WITH THE LEG AL PRECEDENTS ON THE ISSUE. 8. THE LEARNED DR HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 9. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THE RIVAL CONTENTIONS, WE DEEM IT FIT AND PROPER TO DIRECT TH E AO TO RECONSIDER THE ISSUE OF APPLICABILITY OF EXPLANATION (F) TO SE C. 115JB OF THE ITA NO.468/B/09 6 INCOME-TAX ACT IN ACCORDANCE WITH LAW AND THE LEGAL PRECEDENTS ON THE ISSUE WHILE GIVING EFFECT TO THE ORDER OF THE C IT U/S 263 OF THE INCOME-TAX ACT, PARTICULARLY IN VIEW OF THE FACT TH AT THE DISALLWONCE U/S 14A HAS TO BE MADE IN ACCORDANCE WITH THE JUDGM ENT OF THE HONBLE COURTS OF MUMBAI AND KARNATAKA (CITED SUPRA ). 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 3RD MAY , 2012. SD/- SD/- (JASON P BOAZ) (MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER VMS. BANGALORE DATED : 03/05/2012 COPY TO : 1.THE ASSESSEE 2.THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REGISTRAR, I TAT, BANGALORE.