ADDITIONAL COMMISSIONER OF INCOME TAX , RANGE-8(3), MUMBAI V. TIME TECHNOPLAST LTD, MUMBAI

ITA 4932/MUM/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0852 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-12-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 14-07-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: D G
• Keywords: Earning of tax free income; Tax effect
• Section: 271(1)(c); 14A; 115JB; 12; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI RAM LAL NEGI, JM ITA NO S . 4932 & 4925/MUM/2017 ( ASSESSMENT YEAR: 2009 - 10 ) ACIT, CIRCLE - 11(3)(1) ROOM NO. 204, AAYAKAR BHAVAN, 2 ND FLOOR, M. K. MARG, MUMBAI - 4 00 020 VS. M/S. TIME TECHNOPLAST LTD. 102, TODI COMPLEX, SAKI VIHAR ROAD, ANDHERI (E), MUMBAI - 400 072 PAN/GIR NO. AAACT 2783 J ( APPELLANT ) : ( RESPONDENT ) APPELLANT BY : SHRI RAKESH JOSHI RESPONDENT BY : SHRI D. G. PANSARI DATE OF HEARING : 19.11.2018 DATE OF PRONOUNCEMENT : 03.12 .2018 O R D E R PER SHAMIM YAHYA, A. M.: ITA NOS.4932/MUM/2017 THIS A PPEAL BY THE REVENUE IS DIRECTED AGAINST THE O RDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 18, MUMBAI (LD.CIT(A) FOR SHORT ) DATED 22.03.2017 AND PERTAINS TO THE A SSESSMENT YEAR (A.Y.) 2009 - 10. 2. THE GROUNDS OF APPEAL READ AS UNDER: 1. 'ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE, THE LEARNED CIT (A) ERRED IN DELETING THE ADDITION OF RS. 1,63,56,149/ - MADE BY THE AO U/S.14A R.W. RULE 8D WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF COMPOSITE ACTIVITY ALSO AND PART OF EXPENDITURE WHICH RELATABLE TO EARNING OF EXEMPT INCOME HAS BEEN INCURRED FOR DAY - TO - DAY ACTIVITIES.' 2. 'ON THE FACTS A ND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) ERRED IN DELETING THE ADDITION OF RS. 1,63,56,149/ - MADE BY THE AO U/S.14A R.W. RULE 8D WITHOUT APPRECIATING THE FACT THAT THE DISALLOWANCE U/S,14A R.W. RULE 8D IS 2 ITA NO S . 4932 & 4925 /MUM/2017 M/S. TIME TECHNOPLAST LTD. MANDATORY W.E.F A.Y. 2008 - 09 AS PER JURISDICTIONAL HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DOT (334 CTR 1) WHEREIN IT UPHELD CONSTITUTIONAL VALIDITY OF SUB - SECTION (2) AND (3) OF SECTION 14A.' 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEAR NED CIT(A) ERRED IN DELETING THE ADDITION OF RS. 1,63,56,149 / - MADE BY THE AO WHILE COMPUTING BOOK PROFIT U/S. 115 JB WITHOUT APPRECIATING THE FACT THAT AS PER EXPLANATION L(F) TO SECTION 115JB(2) PROVIDES FOR DISALLOWANCE OF EXPENDITURE RELATABLE TO ANY INC OME TO WHICH SECTION 10 (OTHER PROVISIONS CONTAINED IN CLAUSE (38) THEREOF OR SECTION 11 OF SECTION 12 IS APPLICABLE AND THE AO RIGHTLY ADDED THE SAME W HILE COMPUTING BOOK PROFIT U/S.115 JB OF THE ACT.' 4. 'THE APPELLANT PRAYS THAT THE ORDER OF THE CCT' ( A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE A.O. BE RESTORED.' APROPOS DISALLOWANCE U/S. 14A: 3. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF HDPE PLASTIC DRUMS/BARRELS. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER (A.O. FOR SHORT) MADE A DISALLOWANCE U/S. 14A AMOUNTING TO RS.1,63,56,149/ - . 4. UPON THE ASSESSEES APPEAL, THE LD. CIT(A) DELETED THE ADDITION BY OBSERVING THAT THE ASSESSEE HAS MADE STRATEGIC INVESTMENT IN SUBSIDIARIES AND THAT THE SHARE CAPITAL AND RESERVES OF THE COMPANY STOOD AT RS.428.22 CRORES AND THE ASSESSEE HAS MADE INVESTMENT IN SHARES OF SUBSIDIARY OF OVERSEAS COMPANY OF RS.129.32 CRORES. HENCE, HE HELD THAT THE MAIN SOURCE OF INVESTMENT WAS SHARE CAPITAL AND RESERVE AND SURPLUS. HENCE, HE DIRECTED FOR DELETION OF THE ADDITION. 5. AGAINST THIS ORDER, THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. THE LD. COUNSEL OF THE ASSESSEE FAIRLY AGREED THAT IN VIEW OF THE HONBLE APEX COURT DECISION IN THE CAS E OF MAXOPP INVESTMENT LTD. VS. CIT [2018] 402 ITR 640 (SC) , THE GROUND THAT THE ASSESSEE 3 ITA NO S . 4932 & 4925 /MUM/2017 M/S. TIME TECHNOPLAST LTD. HAS MADE A STRATEGIC INVESTMENTS IN THE SUBSIDIARY COMPANY , CANNOT ENTITLE THE ASSESSEE THE RELIEF GRANTED BY THE LD. CIT(A) IN THIS REGARD. FURTHERMORE , HE SUBMITTED THAT SINCE THE RESERVES AND SURPLUS ARE MORE THAN SUFFICIENT TO COVER THE INVESTMENT AND MOREOVER INCOME FROM FOREIGN SUBSIDIARY IS TAXABLE, NO DISALLOWANCE ON ACCOUNT OF INTEREST IS REQUIRED U/S. 14A. HOWEVER, HE PLEADED THAT IN VIEW OF THE TRIBUNAL SPEC IAL BENCH IN THE CASE OF VIREET INVESTMENT PVT. LTD. AND ANR. (2017) 165 ITD 0027 (DELHI) ((SB)) , THE DISALLOWANCE WITH RESPECT TO RULE 8D(2)(III) SHOULD BE RESTRICTED ONLY TO THE AVERAGE VALUE OF THE INVESTMENT WHICH HAD YIELDED EXEMPT INCOME. 7. UPON C AREFUL CONSIDERATION, WE FIND OURSELVES IN AGREEMENT WITH THE SUBMISSION OF THE LD. COUNSEL OF THE ASSESSEE. WE DIRECT THAT IN MAKING THE DISALLOWANCE WITH RESPECT TO SECTION 14A, THE A.O. SHOULD FOLLOW THE SPECIAL BENCH DIRECTION IN THE CASE OF VIREET INV ESTMENT PVT. LTD. AND ANR. (SUPRA) AND THE DISALLOWANCE SHOULD BE RESTRICTED TO AVERAGE VALUE OF THOSE INVESTMENTS WHICH HAD YIELDED EXEMPT INCOME. THE ORDER OF THE LD. CIT(A) IS ACCORDINGLY, MODIFIED. APROPOS GROUND RELATING TO DELETIONOF THE ADDITION O F RS.1,63,56,149/ - WHILE COMPUTING BOOK PROFIT U/S. 115JB : 8. ON THIS ISSUE ALSO THE LD. COUNSEL OF THE ASSESSEE FAIRLY AGREED THAT ON THIS ISSUE ALSO THE RATIO FROM THE SPECIAL BENCH DECISION IN THE CASE OF VIREET INVESTMENT PVT. LTD. AND ANR. (SUPRA) C AN BE FOLLOWED. ACCORDINGLY, WE DIRECT THE A.O. THAT DISALLOWANCE U/S. 115JB IN CONNECTION WITH EXPENDITURE INCURRED ON EARNING EXEMPT INCOME SHOULD 4 ITA NO S . 4932 & 4925 /MUM/2017 M/S. TIME TECHNOPLAST LTD. NOT BE MADE IN ACCORDANCE WITH RULE 8D, RATHER, DISALLO WANCE SHOULD BE MADE AS PER EXPLANATION TO SECTION 1 15JB OF THE INCOME TAX ACT, 1961. 9. HENCE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE ALSO AND DIRECT THE A.O. TO FOLLOW THE DECISION OF THE SPECIAL BENCH IN THIS ISSUE ALSO. THE SPECIAL BENCH ON THIS ISSUE HAS HELD THAT NO DISALLOWANCE U/S. 14A CAN BE DONE WHILE COMPUTING THE BOOK PROFIT U/S.115JB. HOWEVER, THE SPECIAL BENCH HAS HELD THE DISALLOWANCE IN RESPECT OF EXPENDITURE INCURRED FOR EXEMPT INCOME SHOULD BE DONE AS PER THE MANDATE OF EXPLANATION TO SECTION 115JB. HENCE, THIS ISSUE IS ALS O ENTITLED TO FOLLOW THE SPECIAL BENCH DIRECTION ON THIS ISSUE. 10. IN THE RESULT, THIS APPEAL BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 4925/MUM/2017 11 . THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE DELETION BY THE L D. CIT(A) - 18, MUMBAI DATED 22.03.2017 OF THE PENALTY LEVIED U/S. 271(1)(C) AMOUNTING TO RS.11,29,547/ - . 1 2 . AT THE OUTSET, IT TRANSPIRES THAT THE TAX EFFECT OF THE RELIEF GRANTED BY THE LD. CIT(A) IS BELOW RS.20 LACS, AS PER THE LIMIT FIXED BY THE CBDT FOR FILING THE APPEAL BEFORE THE ITAT VIDE CBDT CIRCULAR NO. 3/2018, F. NO. 279/MISC.142/2007 - ITJ (PT) DATED 11 TH JULY, 2018 ISSUED BY CENTRAL BOARD OF DIRECT TAXES, DEPARTMENT OF REVENUE, MINISTRY OF FINANCE, GOVERNMENT OF INDIA. 5 ITA NO S . 4932 & 4925 /MUM/2017 M/S. TIME TECHNOPLAST LTD. 1 3 . WE HAVE GONE THROUGH THE ORDER OF THE LD. C IT(A) AND THE GROUNDS OF APPEAL. IT HAS BEEN FOUND THAT THE TAX EFFECT IN THE APPEAL IS LESS THAN RS. 20 LACS. 14 THE LD. DEPARTMENTAL REPRESENTATIVE FAIRLY AGREED TO THE ABOVE PROPOSITION THAT TH IS APPEAL IS NOT MAINTAINABLE IN LI GHT OF THE ABOVE SAID CBDT CIRCULAR. HE ALSO DID NOT POINT THAT TH IS APPEAL FALL IN THE EXCEPTIONS CARVED OUT IN THE ABOVE SAID CIRCULAR. ACCORDINGLY, TH IS APPEAL FILED BY THE REVENUE STANDS DISMISSED. 1 5 . IN THE RESULT, THIS APPEAL BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 03.12.2018 SD/ - SD/ - ( RAM LAL NEGI ) (S HAMIM YAHYA) J UDICIAL MEMBER A CCOUNTANT MEMBER MUMBAI ; DATED : 03.12.2018 ROSHANI , SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT - CONCERNED 5. DR, ITAT, MUMBAI 6. GUARD F ILE BY ORDER, (DY./ASSTT. REGISTRAR) ITAT, MUMBAI