HINDUSTAN COMPOSITES LTD, MUMBAI V. DCIT 10(2), MUMBAI

ITA 4750/MUM/2011

• Counselvise Citation: 475019914 RSA 2011
• Duration Of Justice: 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2008-2009
• Appeal Filed On: 13-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Assessee Lawyers: R S GORADIA
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 115JB

Judgement Text

ITA NO.4750 OF 2011 HINDUSTAN COMPOSITES LTD MUMBAI-H BENCH PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL 'H' BENCH, MUMBAI BEFORE SHRI SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER ITA NO.4750/MUM/2011 (ASSESSMENT YEARS: 2008-09) HINDUSTAN COMPOSITES LTD B-11, PARAGON CONDOMINIUM VS DCIT 10 (2) AAYAKAR BHAVAN PANDURANG BUDHKAR MARG MK ROAD WORLI, MUMBAI MUMBAI 400020 PAN NO:AAACH 0973 N (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI R.S. GORADIA, RESPONDENT BY: SHRI V.V. SHASTRI, DR DATE OF HEARING: 19/04/2012 DATE OF PRONOUNCEMENT: 30/04/2012 O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY ASSESSEE AGAINST THE ORDERS OF THE C IT (A)-21 MUMBAI DATED 8.4.2001 IN WHICH ASSESSEE IS CONTESTI NG THE DISALLOWANCES MADE UNDER SECTION 14A BOTH UNDER NOR MAL COMPUTATION AND ALSO WHILE COMPUTING THE BOOK PROFI TS UNDER SECTION 115JB. ASSESSEE RAISED TWO GROUNDS. WE HAVE HEARD THE LEARNED COUNSEL AND THE LEARNED DEPARTMENTAL REPRES ENTATIVE IN DETAIL. 2. AT THE OUTSET THE LEARNED COUNSEL REFERRING TO THE FACTS OF THE CASE SUBMITTED THAT THE ISSUE IN ASSESSMENT YEAR 20 07-08 WAS SENT TO THE FILE OF THE ASSESSING OFFICER AND HE HAS NO OBJECTION IF THE MATTER IS RESTORED TO THE FILE OF THE ASSESSING OFF ICER WITH ASSESSEES ITA NO.4750 OF 2011 HINDUSTAN COMPOSITES LTD MUMBAI-H BENCH PAGE 2 OF 5 SUBMISSIONS ON FACTS. THE LEARNED DEPARTMENTAL REPR ESENTATIVE ALSO CONSENTED TO THE SAME. 3. ASSESSEE COMPANY IS A WIDELY HELD PUBLIC LIMITED CO MPANY AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SELLING OF BRAKE LINING. DURING THE YEAR ASSESSEE CLAIMED DIVI DEND INCOME OF ` .7,26,634/- AS EXEMPT UNDER SECTION 10(34). THE ASS ESSING OFFICER COMPLETED THE ASSESSMENT UNDER SECTION 143(3) DETER MINING THE TOTAL LOSS AFTER DISALLOWING THE INTEREST EXPENSES OF ` .37,15,257/- AND OTHER INDIRECT EXPENSES OF ` .3,23,407/- UNDER SECTION 14A R.W. RULE 8D. IT WAS THE SUBMISSION THAT ASSESSEE HAS IN VESTED IN SHARES OUT OF OWN FUNDS AND THE INVESTMENT IN GROUP COMPAN IES STARTED WAY BACK IN 1995 AND GAVE A CHART OF YEAR-WISE INVE STMENT WITH THE SUBMISSION THAT DURING THE YEAR ENDING MARCH 2008, THERE WERE NO FRESH INVESTMENTS AND SO DISALLOWANCE WAS NOT CORRE CT. IT IS ALSO SUBMITTED THAT THE INTEREST AND OTHER AMOUNTS PAID ARE FOR THE PURPOSE OF BUSINESS ONLY AND NOTHING CAN BE CONSIDE RED TOWARDS SECTION 14A AS MOST OF THE LOANS OBTAINED ON WHICH THE INTEREST WAS PAID PERTAIN TO TERM LOANS AND FOREIGN CURRENCY TER M LOANS FOR INVESTMENT IN PLANT & MACHINERY, WORKING CAPITAL LO ANS AND ALSO INTEREST FREE SALES TAX LOANS ETC., WHICH ARE UTILI ZED IN THE BUSINESS ONLY. THE ASSESSEE RELIED ON THE PRINCIPLES LAID DO WN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. WALL FORT SHAR ES & BROKERS LTD STATING THAT THERE IS NO PROXIMATE CAUSE FOR DI SALLOWANCE WITH THE TAX EXEMPT INCOME AND FURTHER IN THE CASE OF JU RISDICTIONAL HIGH COURT CIT VS. K. RAHEJA CORPORATION (P) LTD IN ITA NO.1260 OF 2009. THE LEARNED COUNSEL ALSO RELIED ON THE MUMBAI BENCH OF HON'BLE ITAT IN THE CASE OF CIT V BSES LTD. (2008) 113 TTJ 227 (MUM.) AND IN YATISH TRADING CO. (P) LTD, IN ITA NO.456/MUM/20 09 DATED 10.11.2010. THE LEARNED COUNSEL ALSO RELIED ON VARI OUS PROPOSITIONS TO SUBMIT THAT THE INTEREST PAID PERTAINS TO BUSINE SS ACTIVITY AND NOTHING CAN BE DISALLOWED UNDER SECTION 14A. FURTHE R EVEN WITH ITA NO.4750 OF 2011 HINDUSTAN COMPOSITES LTD MUMBAI-H BENCH PAGE 3 OF 5 REFERENCE TO ADMINISTRATIVE EXPENSES OF ` .3,23,407/- IT WAS HIS SUBMISSION THAT ALL THE DIVIDENDS WERE RECEIVED FRO M THE GROUP COMPANIES AND THERE WAS NO DIRECT OR INDIRECT EXPEN SES FOR EARNING THAT INCOME. 4. AFTER CONSIDERING THE ABOVE SUBMISSIONS AND EXAMINI NG THE FACTS, WE ARE OF THE OPINION THAT THE ISSUE OF DISA LLOWANCE UNDER SECTION 14A IS TO BE RE-DETERMINED CONSEQUENT TO TH E FINDINGS IN ASSESSMENT YEAR 2007-08. IT IS A FACT THAT ASSESSEE HAS NOT MADE ANY FRESH INVESTMENT IN THIS YEAR NOR BORROWALS SPE CIFICALLY FOR INVESTMENT AND THEREFORE, WHATEVER FUNDS ARE THERE IN ASSESSMENT YEAR 2007-08 WITH REFERENCE TO DIVERSION OF FUNDS/I NVESTMENT IN SHARES, THE SAME MAY BE APPLICABLE IN THIS YEAR AS WELL. THEREFORE, WITHOUT GOING INTO THE MERITS OF THE ARGUMENTS, WE RESTORE THE ISSUES TO THE FILE OF ASSESSING OFFICER TO EXAMINE THE FACTS AND DECIDE MATTER AFRESH AFTER GIVING DUE OPPORTUNITY T O ASSESSEE. WITH THESE DIRECTIONS THE ISSUE IN GROUND NO.1 REGARDING DISALLOWANCE UNDER SECTION 14A IS CONSIDERED ALLOWED FOR STATIST ICAL PURPOSES. 5. GROUND NO.2 IS ON THE ISSUE OF MAKING SIMILAR ADJUS TMENTS WHILE COMPUTING THE BOOK PROFITS UNDER SECTION 115J B. IT WAS THE CONTENTION THAT THE DEEMING PROVISIONS CONTAINED IN SECTION 14A CANNOT BE APPLIED TO SECTION 115JB. EVEN THOUGH THE ASSESSEE MADE ELABORATE CONTENTIONS ON THE ISSUE, THE CIT (A ) BRIEFLY DISMISSED THE GROUND RAISED BY ASSESSEE HOLDING AS UNDER: 3.1. I HAVE CONSIDERED THE FACTS OF THE CASE. IN T HE CASE UNDER CONSIDERATION, THE APPELLANT WAS HAVING BOOK LOSS AND THEREFORE, THE PROVISIONS OF SECTION 115JB WERE NOT APPLICABLE. THE TOTAL INCOME WAS WORKED OUT UNDER SECTION 143(3) OF THE ACT AND TAX WAS ALSO LEVIED A S PER OTHER PROVISIONS OF THE ACT AND NOT UNDER SECTION 1 15JB OF THE ACT. THOUGH IN THE ASSESSMENT ORDER THE ASSE SSING OFFICER MADE ADJUSTMENT IN THE BOOK PROFIT BY ADDIN G THEREIN THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT, BUT THE SAME WAS ACADEMIC ONLY IN VIEW OF THE OVERALL BOOK LOSS. IN ANY CASE THE ADJUSTMENT MADE BY ITA NO.4750 OF 2011 HINDUSTAN COMPOSITES LTD MUMBAI-H BENCH PAGE 4 OF 5 THE ASSESSING OFFICER IN THE BOOK PROFIT ON ACCOUNT OF DISALLOWANCE UNDER SECTION 14A WAS AS PER PROVISION S OF SECTION 115JB OF THE ACT AND THEREFORE, NO INTERFER ENCE IS REQUIRED. THIS GROUND OF APPEAL IS THEREFORE, DISMI SSED. 6. THE LEARNED COUNSEL RELIED ON THE COORDINATE BENCH DECISION IN THE CASE OF NATIONAL COMMODITY & DERIVATIVES EXC HANGE LTD., IN ITA NO.2923/MUM/2010 DECIDED BY THE F BENCH OF MU MBAI FOLLOWING THE DECISION IN GOETZ INDIA LTD VS. CIT 3 2 SOT 101 (DEL.). THE LEARNED DEPARTMENTAL REPRESENTATIVE HOWEVER, RE LIED ON THE ORDERS OF THE ASSESSING OFFICER AND THE CIT (A) TO SUBMIT THAT THE EXPENDITURE WAS RELATABLE TO INCOME TO WHICH SECTIO N 10 APPLIES AND THE SAME CAN BE CONSIDERED UNDER SECTION 115JB AS WELL. 7. WE HAVE HEARD THE PARTIES. IN THE INSTANT CASE THE ASSESSING OFFICER CONSIDERED THE SAME AMOUNT DISALLOWED UNDER SECTION 14A DISCUSSED ABOVE IN THE ABOVE GROUND AGAIN FOR DISAL LOWANCE WHILE WORKING OUT BOOK PROFITS UNDER SECTION 115JA. AS RI GHTLY CONSIDERED BY CIT(A) THERE IS ONLY NET LOSS AND EXERCISE BY AO IS ONLY ACADEMIC IN NATURE. HOWEVER, THE LEGAL ISSUE TO BE CONSIDE RED IS WHETHER THE DISALLOWANCE UNDER SECTION 14A IS ALSO TO BE MADE U NDER SECTION 115JB. IT WAS ALREADY HELD BY THE COORDINATE BENCH IN THE CASE OF NATIONAL COMMODITY & DERIVATIVES EXCHANGE LTD., IN ITA NO.2923/MUM/2010 DATED 26.8.2011 THAT PROVISIONS OF SECTION 14A CANNOT BE IMPORTED INTO WHILE COMPUTING THE BOO K PROFIT UNDER SECTION 115JB OF THE ACT. IT WAS CONSIDERED THAT PR OVISIONS OF SUB- SECTION 2 AND 3 OF SECTION 14A CANNOT BE IMPORTED I NTO CLAUSE F OF EXPLANATION TO SECTION 115JB OF THE INCOME TAX ACT RELYING ON THE DECISION OF THE COORDINATE BENCH IN THE CASE OF GOE TZ INDIA LTD VS. CIT 32 SOT 101 (DEL.). IT WAS HELD IN THE ABOVE REF ERRED CASE OF GOETZ INDIA LTD THAT UNDER CLAUSE (F) OF THE EXPLANATION TO SECTION 115JA, THE AMOUNT OF EXPENDITURE RELATABLE TO ANY I NCOME TO WHICH ANY OF THE PROVISIONS OF CHAPTER III APPLY HAS TO B E ADDED TO THE BOOK PROFIT. UNDER THE PROVISIONS CONTAINED IN SECTION 1 4A, NO DEDUCTION IS TO BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. SINCE THE ISSUE OF EXPENDITURE RELATED TO DIVIDEND INCOME, A MATTER FALLING UNDER CHAPTER III, IT WAS CLEAR ON P ERUSAL OF THESE TWO PROVISIONS THAT THEY ARE SIMILAR IN NATURE. CLAUSE (F) USES THE WORDS EXPENDITURE RELATABLE TO ANY INCOME, WHILE SECTIO N 14A USES THE WORDS EXPENDITURE INCURRED BY ASSESSEE IN RELATION TO INCOME. THESE WORDS HAVE THE SAME MEANING. FURTHER, SECTION 14A C ONTAINS TWO MORE SUB-SECTIONS, SUB-SECTION (2) AND SUB-SECTION (3), WHICH DO NOT ITA NO.4750 OF 2011 HINDUSTAN COMPOSITES LTD MUMBAI-H BENCH PAGE 5 OF 5 FIND A PLACE IN CLAUSE (F). THEREFORE, INSOFAR AS C OMPUTATION OF ADJUSTED BOOK PROFIT IS CONCERNED, PROVISIONS OF SU B-SECTION (2) AND SUB-SECTION (3) OF SECTION 14A CANNOT BE IMPORTED I NTO CLAUSE (F) OF THE EXPLANATION TO SECTION 115JA. 8. IN VIEW OF THE ABOVE, RESPECTFULLY FOLLOWING THE PR INCIPLES LAID DOWN WE HOLD THAT THERE IS NO CASE FOR MAKING ADDIT ION WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF TH E ACT. IN OTHER WORDS NO ADDITION UNDER BOOK PROFIT SHALL BE MADE O N ACCOUNT OF ALLEGED EXPENDITURE, IF ANY INCURRED TO EARN EXEMPT INCOME U/S 14A WHILE COMPUTING THE INCOME UNDER SECTION 115JB. THI S GROUND IS DECIDED IN FAVOUR OF ASSESSEE. 9. IN THE RESULT, APPEAL FILED BY ASSESSEE IS CONSIDER ED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH APRIL, 2012. SD/- SD/- (S.S.GODARA) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 30 TH APRIL, 2012. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, H BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI