DATAMATICS LTD ( NOW AMALGAMATED WITH DATAMATICS GLOBAL SERVICES LTD), MUMBAI V. ADDL CIT RG 8(1), MUMBAI

ITA 486/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49268 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 20-01-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Capital asset; Opportunity of being heard
• Section: 14A; 12

Judgement Text

1 ITA NO. 485 & 486/MUM/2010 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI D BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI PRAMOD KUMAR, AM & SHRI VIJAY PAL RAO , JM ITA NO. 485/MUM/2010 (ASST YEAR 2005-06) DATAMATICS TECHNOLOGIES LTD (NOW KNOWN AS DATAMATICS GLOBAL SERVICES LTD) UNIT NO.117 120 SDF IV, SEEPZ ANDHERI (E) MUMBAI 96 VS THE ADDL COMMR OF INCOME TAX RANGE 8(1), MUMBAI ( APPELLANT ) (RESPONDENT) PAN NO. AAACD4471B ITA NO. 486/MUM/2010 (ASST YEAR 2005-06) DATAMATICS LTD (NOW KNOWN AS DATAMATICS GLOBAL SERVICES LTD) UNIT NO.117 120 SDF IV, SEEPZ ANDHERI (E) MUMBAI 96 VS THE ADDL COMMR OF INCOME TAX RANGE 8(1), MUMBAI (APPELLANT) (RESPONDENT) PAN NO. AAACD4471B A SSESSEE BY SHRI J P BAIRAGRA REVENUE BY SHRI C G K NAIR PER VIJAY PAL RAO, JM THESE APPEALS ARE FILED BY TWO DIFFERENT ASSESSES AGAINST THE RESPECTIVE ORDERS OF THE CAIT(A) BOTH DATED 20.11.2009 FOR THE ASSESSMENT YE ARS 2005-06 AND 2006-07 RESPECTIVELY. SINCE THESE ASSESSES ARE SISTER CONCERNS AND SOME O F THE ISSUES ARE COMMON IN THESE APPEALS; THEREFORE, FOR THE SAKE OF CONVENIENCE, WE HEARD THESE APPEALS TOGETHER AND ARE BEING DISPOSED OF BY THIS COMPOSITE ORDER. ITA NO.485/MUM/2010 2 IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLO WING EFFECTIVE GROUNDS: 2 ITA NO. 485 & 486/MUM/2010 I) THE LD CIT(A) ERRED IN CONFIRMING THE DISALLOWAN CE U/S 14A OF THE INCOME TAX ACT OF RS. 61,44,738/- AS AGAINST DISALLOWANCE MADE BY THE APPELLANT COMPANY OF RS. 5,66,366/- II) THE LD CIT(A) FURTHER ERRED IN HOLDING THAT RUL E 8D IS APPLICABLE RETROSPECTIVE AND THEREBY APPLICABLE FOR THIS YEAR ALSO. III) THE LD CIT(A) FURTHER ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN NOT ALLOWING DEDUCTION ON ACCOUNT OF PRELIMINARY EXPENS ES U/S 35D OF THE I T ACT, 1961 OF RS. 16,89,776/ 3 GROUND NOS. 1 & 2 REGARDING THE DISALLOWANCE U/S 14A. 3.1 THE ASSESSEE HAS DIVIDEND INCOME OF RS. 2,90,28 ,659/- DURING THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER MADE THE DISAL LOWANCE OF RS. 61,44,738/- U/S 14A OF THE I T ACT BY APPLYING RULE 8D OF THE I T RULES. 3.2 ON APPEAL, THE CIT(A) CONFIRMED THE DISALLOWAN CE MADE BY THE ASSESSING OFFICER . 4 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL A S THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. IN VIEW OF THE DECIS ION OF THE JURISDICTION HIGH COURT IN THE CASE OF GODREJ BOYCE & MFG. CO LTD VS ACIT REPORTED IN 328 ITR 81, PROVISIONS OF SEC. 14A R.W.R RULE 8D IS NOT APPLICABLE FOR THE ASSESSMEN T YEAR 2005-06; THEREFORE, THE DISALLOWANCE MADE BY THE LOWER AUTHORITIES UNDER RU LE 8D OF I T RULES IS NOT SUSTAINABLE. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE CIT(A) A ND REMAND THE MATTER TO THE FILE OF THE AO TO ADJUDICATE THE ISSUE AFRESH IN VIEW OF THE DE CISION OF THE JURISDICTIONAL HIGH COURT CITED SUPRA. NEEDLESS TO SAY THE ASSESSING OFFICER SHALL GIVE DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSE. 5 GROUND NO.3 IS REGARDING THE DISALLOWANCE OF DEDU CTION U/S 35D ON ACCOUNT OF PRELIMINARY EXPENSES. 3 ITA NO. 485 & 486/MUM/2010 6 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL A S THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT FOR THE ASSESSMENT YEAR 2004-05 THIS ISSUE WAS REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER AND IN THE GIVING EFFECT ORDER TO THE ORDER OF THE TRIBUNAL, THE ASSESSING OFFICER HAS ALLOWED THE CLAIM OF THE ASSESSEE. HE FILED A COPY OF THE GIVING EFFECT ORDER DATED 22.3.2011 AT PAGES 62 TO 64 OF THE PAPER BOOK. 6.1 WE FIND THAT FOR THE ASSESSMENT YEAR 2004-05, T HE ISSUE OF PRELIMINARY EXPENSES WAS REGARDING THE INCREASE OF AUTHORIZED CAPITAL, W HICH IS THE SAME AS IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THEREFORE, WHEN THE ASSE SSING OFFICER HAS ALLOWED THE CLAIM OF DEDUCTION U/S 35D ON ACCOUNT OF INCREASE IN SHARE C APITAL FOR THE ASSESSMENT YEAR 2004-05, THE SAME CANNOT BE DISALLOWED FOR THE ASSESSMENT YE AR UNDER CONSIDERATION. ACCORDINGLY, WE ALLOW THE CLAIM OF THE ASSESSEE U/S 35D. ITA NO. 486/MUM/2010 7 IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLO WING EFFECTIVE GROUNDS: I) THE LD CIT(A) ERRED IN CONFIRMING THE DISALLOWAN CE OF RS. 26,53,105/- U/S 36(1)(III OF THE I T ACT, 1961. II) THE LD CIT(A) FURTHER ERRED IN CONFIRMING THE D ISALLOWANCE U/S 14A OF THE IT ACT, 1961 OF RS. 36,83,260/- AS AGAINST DISALLOWANCE AS PER RULE 8D OF RS. 8,46,278/- III) THE LD CIT(A) FURTHER ERRED IN HOLDING THAT RL 8D IS APPLICABLE RETROSPECTIVE AND THEREBY APPLICABLE FOR THIS YEAR ALSO. 8 GROUND NO.1 REGARDING THE DISALLOWANCE OF INTERES T U/S 36(1)(III) OF THE I T ACT 8.1 THE ASSESSING OFFICER DISALLOWED THE INTEREST P AID IN RESPECT OF THE APPRECIATION OF THE ASSET BY APPLYING THE PROVISIONS OF SEC. 36(1)( III) OF THE I T ACT, BECAUSE THE ASSESSEE 4 ITA NO. 485 & 486/MUM/2010 HAS SHOWN CAPITAL WORK IN PROGRESS IN THE BALANCE S HEET. THEREFORE, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSET WAS NOT PUT TO USE D URING THE YEAR UNDER CONSIDERATION. 8.2 ON APPEAL, THE CIT(A) HAS CONFIRMED THE DISALLO WANCE MADE BY THE ASSESSING OFFICER. 9 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL A S THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD AR OF THE ASSE SSEE HAS SUBMITTED THAT THE ASSESSEE HAS NOT UTILIZED ANY INTEREST BEARING FUNDS FOR ACQUIRI NG THE CAPITAL ASSET, WHICH HAS SHOWN AS CAPITAL WORK IN PROGRESS. HE HAS FURTHER SUBMITTED THAT THE PAYMENT FOR ACQUIRING THE CAPITAL ASSETS IS MADE OUT OF THE ASSESSEES SHARE CAPITAL, RESERVES AND SURPLUS. HE HAS REFERRED THE BALANCE SHEET OF THE ASSESSEE AND SUBM ITTED THAT THE ASSESSEE IS HAVING ITS OWN FUNDS OF RS. 38.48 CRORES WHEREAS THE ASSESSEE HAS TAKEN THE LOAN OF RS. 13.68 CRORES FROM THE FINANCIAL INSTITUTIONS AND BANKS FOR A SPE CIFIC PURPOSE. HE HAS FURTHER SUBMITTED THAT THE LOANS TAKEN FROM OTHERS WERE RS. 1.46 CROR ES ONLY. THE LD AR OF THE ASSESSEE HAS POINTED OUT THAT THE MAJOR PART OF THE INTEREST IS PAID TO THE FINANCIAL INSTITUTIONS AND BANKS IS RS. 73,72,257/- OUT OF THE TOTAL INTEREST OF RS. 91,87,883/-. FURTHER, THE ASSESSEE HAS RECEIVED INTEREST DURING THE YEAR OF RS. 13,50,644/ -. THEREFORE, THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE ADHOC DISALLOWANCE MADE BY T HE ASSESSING OFFICER IS UNWARRANTED AND UNJUSTIFIED. HE HAS POINTED OUT THAT THE TRIBU NAL, IN THE CASE OF THE ASSESSEE AND ITS SISTER CONCERN, FOR THE AY 2004-05 HAS DECIDED SIMI LAR ISSUE IN FAVOUR OF THE ASSESSEE. THE COPY OF THE ORDER OF THE TRIBUNAL FOR AY 2004-05 IS PLACED AT PAGES 35 TO 46 OF THE PAPER BOOK. 9.1 ON THE OTHER HAND, THE LD DR HAS RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 5 ITA NO. 485 & 486/MUM/2010 10 WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PER USED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE FIND IDENTICAL ISSUE OF DISALLOWANCE OF INTEREST U/S 36(1)(III) ON ACCOUNT OF CAPITAL WORK IN PROGRESS SHOWN BY THE A SSESSEE HAS BEEN DELETED BY THE TRIBUNAL BY COMPOSITE ORDER DATED 25.3.2010 IN VIEW OF THE FACT THAT THE ASSESSEE WAS HAVING ITS OWN FUNDS OF MORE THAN RS. 3 CRORES AND THE MAJOR AMOUNT OF INTEREST PAID BY THE ASSESSEE IS IN RESPECT OF THE LOANS TAKEN FROM B ANK AND FINANCIAL INSTITUTIONS FOR A SPECIFIC PURPOSE. THEREFORE, FOLLOWING THE DECISION OF THE T RIBUNAL FOR AY 2004-05, WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REV ENUE ON THIS ISSUE. 11 GROUND NOS 2 & 3 RELATES TO DISALLOWANCE U/S 14A . 12 THIS ISSUE IS IDENTICAL TO THE ISSUE NO.1 & 2 IN APPEAL NO. 485/MUM/2010. WE HAVE ALREADY RESTORED THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN THE LIGHT OF THE DECISION OF THE JURISDICTIONAL HIG H COURT IN THE CASE OF GODREJ BOYCE MFG CO P LTD (SUPRA). FOLLOWING THE SAME RATIO, WE RESTORE THIS ISSUE ALSO TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN THE LIGHT OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOYCE MFG (SUPRA). WE HOLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTI CAL PURPOSE. 13 IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE ARE PARTLY ALLOWED AND PARTLY FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THE 30 TH DAY OF JUNE 2011. SD/- SD/- ( PRAMOD KUMAR ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 30 TH JUNE 2011 RAJ* 6 ITA NO. 485 & 486/MUM/2010 COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI