DCIT CIR 2(2)(2), MUMBAI V. MAHINDRA ENGINEERING SERVICES LTD, MUMBAI

ITA 5285/MUM/2015

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5600 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 09-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: KARTHIK NATARAJAN
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.5285/M/2015 ASSESSMENT YEAR: 2010-11 DY. CIT, CIRCLE-2(2)(2), ROOM NO.549, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 VS. M/S. MAHINDRA ENGINEERING SERVICES LTD., 1 ST FLOOR, B-WING, MAHINDRA TOWER, DR. G.M. BHOSALE MARG, P.K. KURNE CHOWK, WORLI, MUMBAI 400 018 PAN: AADCM 2907L (APPELLANT) (RE SPONDENT) PRESENT FOR: ASSESSEE BY : SHRI KARTHIK NATARAJAN, A.R. REVENUE BY : SHRI AJAY KUMAR, D.R. DATE OF HEARING : 08.04.2019 DATE OF PRONOUNCEMENT : 28.06.2019 O R D E R PER RAJESH KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVEN UE AGAINST THE ORDER DATED 10.08.2015 OF THE COMMISSIO NER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS TH E CIT(A)] RELEVANT TO ASSESSMENT YEAR 2010-11. 2. THE REVENUE HAS RAISED THE FOLLOWING TWO GROUNDS . 1. THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCE OF RS. 19.91 CRO RES U/S 10A, IGNORING THE FACT THAT BUSINESS DONE IN THE NEW STP UNIT WAS A CONTINUATIO N OF THE BUSINESS DONE BY NON STP UNIT AND HENCE INELIGIBLE FOR DEDUCTION U/S IDA . 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD.CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE MADE BY THE A O ADOPTING METHOD OF CALCULATION PROVIDED IN RULE 8D THEREBY OVERLOOKING THE CRUCIAL FACT THAT THIS ITA NO.5285/M/2015 M/S. MAHINDRA ENGINEERING SERVICES LTD. 2 METHOD OF CALCULATION HAS BEEN PRESCRIBED BY THE ST ATUTE AND HELD AS A REASONABLE METHOD BY THE HON'BLE BOMBAY HIGH COURT IN GODREJ & BOYCE MFG. COLTD328ITR81(BOM). 3. THE ISSUE RAISED IN GROUND NO.1 IS AGAINST THE D ELETION OF DISALLOWANCE OF RS.19.91 CRORES UNDER SECTION 10A O F THE ACT. 4. THE FACTS IN BRIEF ARE THAT THE ASSESSEE DURING THE YEAR HAS CLAIMED DEDUCTION UNDER SECTION 10A OF THE ACT AMOU NTING TO RS.19,91,16,470/- IN RESPECT OF STPI UNIT SITUATED AT 128/A, SANGHVI, MOVERS COMPOUND, MUMBAI, PUNE ROAD, CHINCH WADI, PUNE. THE AO NOTED THAT THE CLAIM OF THE ASSESSEE UNDER SECTION 10A OF THE ACT HAS BEEN ALLOWED IN A.Y. 200 7-08 AND SUBSEQUENT YEARS, HOWEVER REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT DEPARTMENT HAS PREFERRED APPEAL BEF ORE ITAT IN A.Y. 2007-08 AND 2008-09. 5. AT THE OUTSET, THE LD. COUNSEL OF THE ASSESSEE P OINTED OUT THAT ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESS EE BY THE CO- ORDINATE BENCH OF THE TRIBUNAL IN ITA NO.2848/M/201 1 A.Y. 2007-08 AND THEREFORE THE GROUND RAISED BY THE REVE NUE SHOULD BE DISMISSED BY FOLLOWING THE CO-ORDINATE BENCH OF THE TRIBUNAL ORDER. 6. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE G ROUNDS OF APPEAL. 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD INCLUDING THE DECISION OF THE CO-ORDINATE BE NCH OF THE TRIBUNAL IN ITA NO.2848/M/2011 A.Y. 2007-08, WE OBS ERVE THAT THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSE E BY ITA NO.5285/M/2015 M/S. MAHINDRA ENGINEERING SERVICES LTD. 3 UPHOLDING THE ORDER OF THE AO AND DISMISSING THE GR OUND RAISED BY THE REVENUE. THE OPERATIVE PART OF THE ORDER IS AS UNDER: 12. THE LD. CIT(A) HAS POINTED OUT THAT THE AO HAS DENIED THE DEDUCTION MAINLY ON THE GROUND THAT BY SETTING UP THE STPI UNIT, THE AP PELLANT HAD NOT STARTED A NEW BUSINESS. THE LD. CIT(A) HAS FURTHER OBSERVED THAT FINDINGS OF THE AO ARE BASED ON AN INADEQUATE PREMISE AS THE AO HAS BASED HIS FINDI NGS ON THE PURCHASE ORDER DATED 15.10.2004 AND THE NATURE OF SERVICES IN THE PRE EXISTING NON STPI UNIT AND THE COMPARABLE RATES OF PRE STPI AND STPI JOBS. WE FIND THAT THE OBSERVATIONS OF THE LD. CIT(A) ARE BASED ON THE EVIDENCE ON RECORD. AS OBSERVED BY THE LD. CIT(A) THE PURCHASE ORDER DATED 15.10.2004 WAS IN CONNECTI ON WITH ONLY A PILOT PROJECT MOUNTED TO TEST THE ABILITY OF THE APPELLANT COMPAN Y TO DO BUSINESS ON A MAGNITUDE AND LEVEL COMPATIBLE TO THE EXPECTATIONS OF ITEC. THE WORK GIVEN FOR THE PILOT PROJECT WAS INITIALLY FOR A SUM OF RS. 9.3 CR ORES, HOWEVER, AFTER SIGNING THE CONTRACT WITH INTERNATIONAL TRUCK AND ENGINE CORPOR ATION (ITEC), THE STPI UNIT EARNED REVENUE OF RS. 42.74 CRORE. AS PER PARA 2.3 OF THE AGREEMENT, WITH THE COMMENCEMENT OF JOINT VENTURE, THE PURCHASE ORDER D ATED STOOD TERMINATED. HENCE, IN OUR CONSIDERED OPINION, THE FINDINGS OF T HE LD. CIT (A) ARE BASED ON THE EVIDENCE ON RECORD AND IN ACCORDANCE WITH THE SETTL ED PRINCIPLES OF LAW. WE, THEREFORE, DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT (A). ACCORDINGLY, WE UPHOLD THE FINDINGS OF THE LD. CIT( A) AND DISMISS BOTH THE GROUNDS OF THE REVENUE'S APPEAL. 8. WE, THEREFORE, RESPECTFULLY FOLLOWING THE DECISI ON OF THE CO- ORDINATE BENCH OF THE TRIBUNAL UPHOLD THE ORDER OF LD. CIT(A) BY DISMISSING THE GROUND RAISED BY THE REVENUE. 9. THE ISSUE RAISED IN GROUND NO.2 IS AGAINST THE O RDER OF LD. CIT(A) RESTRICTING THE DISALLOWANCE MADE BY THE AO UNDER RULE 8D2(III). 10. THE FACTS IN BRIEF ARE THAT DURING THE YEAR ASS ESSEE HAS DERIVED INCOME BY WAY OF DIVIDEND FROM MUTUAL FUNDS OF RS.49,34,637/- WHICH WAS CLAIMED UNDER SECTION 10(3 5) AS EXEMPT AND MADE A SUO-MOTTO DISALLOWANCE OF RS.7,71 ,055/-. ACCORDING TO THE AO, THE DISALLOWANCE HAS TO BE COM PUTED UNDER SECTION 14A OF THE ACT BY APPLYING RULE 8D AND HE A CCORDINGLY COMPUTED THE DISALLOWANCE AT RS.72,37,221/- AND AFT ER ALLOWING ITA NO.5285/M/2015 M/S. MAHINDRA ENGINEERING SERVICES LTD. 4 THE DEDUCTION FOR SUO-MOTO DISALLOWANCE MADE NET A DDITION OF RS.64,66,166/-. 11. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) DE LETED THE DISALLOWANCE BY HOLDING THAT THE ASSESSEES OWN SHA RE CAPITAL AND RESERVES WERE RS.81.89 CRORES WHEREAS THE INVES TMENTS WERE AT RS.21.31 CORES. THE LD. CIT(A) BY FOLLOWING THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V S. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM) AND CIT VS. HDFC BANK LTD. (2014) 366 ITR 505 (BOM) DELETED TH E DISALLOWANCE MADE UNDER RULE 8D2(II), HOWEVER, SUST AINED THE DISALLOWANCE UNDER RULE 8D2(III). THE LD. CIT(A) O BSERVED THAT SINCE THE SUO-MOTO DISALLOWANCE HAS BEEN MADE BY TH E ASSESSEE HIMSELF TO THE TUNE OF RS.7,71,055/- THEREFORE NO F URTHER DISALLOWANCE IS REQUIRED TO BE MADE. ACCORDINGLY, DELETED THE ENTIRE ADDITION MADE BY THE AO. 12. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD INCLUDING THE IMPUGNED ORDER, WE OBSERVE THA T THE LD. CIT(A) HAS CORRECTLY PASSED THE ORDER DELETING THE ADDITION AS MADE BY THE AO UNDER RULE 8D2(II) AND RULE 8D2(III) . THE ADDITION UNDER RULE 8D2(II) WAS DELETED BY FOLLOWIN G THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. CIT VS. RELIANCE UTILITIES AND POWER LTD. (SUPRA) AND CIT VS. HDFC BANK LTD. (SUPRA) BY HOLDING THAT ASSESSEES OWN FU NDS ARE FAR MORE THAN THE INVESTMENTS IN THE INVESTMENTS YIELDI NG EXEMPT INCOME. SO FAR AS THE DISALLOWANCE UNDER RULE 8D2( III) IS CONCERNED, THE LD. CIT(A) OBSERVED THAT NO FURTHER DISALLOWANCE IS REQUIRED AS ASSESSEE HAS SUO-MOTO MADE DISALLOWA NCE OF RS.7,71,055/- WHICH IS AS PER THE RULE 8D2(III) AND THUS DELETED ITA NO.5285/M/2015 M/S. MAHINDRA ENGINEERING SERVICES LTD. 5 THE ADDITION MADE BY THE AO UNDER SECTION 14A OF TH E ACT . WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A ) AND SAME IS HEREBY AFFIRMED BY DISMISSING THE APPEAL OF THE REV ENUE. ORDER PRONOUNCED IN THE OPEN COURT ON 28.06.2019. SD/- SD/- (MAHAVIR SINGH) (RAJESH KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 28.06.2019. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY /ASSTT. REGISTRAR, ITAT, MUMBAI.