TATA PROJECTS LTD, MUMBAI V. DCIT RG 2(3), MUMBAI

ITA 544/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75655 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 20-01-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 27-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GIRIJA DAYAL
• Assessee Lawyers: R R VORA
• Keywords: Earning of tax free income; Wrong claim
• Section: 234B; 14A; 115JB

Judgement Text

, , , , , ,, , IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI , ! ! ! ! ' . # , $% $ $$ $ & & & & BEFORE SRI VIJAY PAL RAO, JM AND D. KARUNAKARA RAO, AM ./ I.T.A. NO. 544/MUM/2012 ( ' ( ' ( ' ( ' ( )( )( )( )( / ASSESSMENT YEAR: 2008-09) TATA PROJECTS LIMITED, RANG UDYAN BUILDING NO.1, 2 ND FLOOR, SITLADEVI TEMPLE ROAD, MAHIM(WEST) MUMBAI- 400016 ' ' ' ' / VS. DY. COMMISSIONER OF INCOME TAX, RANGE-2(3), AAYAKAR BHAWAN, MAHARISHI KARVE RAOD, MUMBAI-400020 * $% ./ PAN :AACT4119L ( *+ / ASSESSEE ) .. ( / REVENUE ) ./ I.T.A. NO. 1677/MUM/2012 ( ' ( ' ( ' ( ' ( )( )( )( )( / ASSESSMENT YEAR: 2008-09) DY. COMMISSIONER OF INCOME TAX, RANGE-2(3), AAYAKAR BHAWAN, MAHARISHI KARVE RAOD, MUMBAI-400020 ' ' ' ' / VS. TATA PROJECTS LIMITED , RANG UDYAN BUILDING NO.1, 2 ND FLOOR, SITLADEVI TEMPLE ROAD, MAHIM(WEST) MUMBAI-400016 * $% ./ PAN : AACT4119L ( / REVENUE ) .. ( *+ / ASSESSEE ) ./ I.T.A. NO.1718/MUM/2013 ( ' ( ' ( ' ( ' ( )( )( )( )( / ASSESSMENT YEAR: 2009-10) DY. COMMISSIONER OF INCOME TAX, RANGE-2(3), AAYAKAR BHAWAN, MAHARISHI KARVE RAOD, MUMBAI-400020 ' ' ' ' / VS. TATA PROJECTS LIMITED , RANG UDYAN BUILDING NO.1, 2 ND FLOOR, SITLADEVI TEMPLE ROAD, MAHIM(WEST) MUMBAI-400016 * $% ./ PAN : AACT4119L ( / REVENUE ) .. ( *+ / ASSESSEE ) ./ C.O. NO.09/MUM/2013 ARISING OUT OF ITA NO.1718/MUM/2013 ( ' ( ' ( ' ( ' ( )( )( )( )( / ASSESSMENT YEAR: 2009-10) TATA PROJECTS LIMITED RANG UDYAN BUILDING NO.1, 2 ND FLOOR, SITLADEVI TEMPLE ROAD, MAHIM(WEST) MUMBAI-400016 ' ' ' ' / VS. DY. COMMISSIONER OF INCOME TAX, RANGE-2(3),AAYAKAR BHAWAN, MAHARISHI KARVE RAOD, MUMBAI-400020 * $% ./ PAN :AACT4119L ( *+ / ASSESSEE ) .. ( / REVENUE ) 2 ITA NO.1667/MUM/2012 & ORS. TATA PROJECTS LTD. . ./ I.T.A. NO. 5881/MUM/2013 ( ' ( ' ( ' ( ' ( )( )( )( )( / ASSESSMENT YEAR: 2010-11 ) TATA PROJECTS LIMITED , RANG UDYAN BUILDING NO.1, 2 ND FLOOR, SITLADEVI TEMPLE ROAD, MAHIM(WEST) MUMBAI-400016 ' ' ' ' / VS. DY. COMMISSIONER OF INCOME TAX, RANGE-2(3), AAYAKAR BHAWAN, MAHARISHI KARVE RAOD, MUMBAI-400020 * $% ./ PAN :AACT4119L ( *+ / ASSESSEE ) .. ( / REVENUE ) ./ I.T.A. NO.6641/MUM/2013 ( ' ( ' ( ' ( ' ( )( )( )( )( / ASSESSMENT YEAR: 2010-11) DY. COMMISSIONER OF INCOME TAX, RANGE-2(3), AAYAKAR BHAWAN, MAHARISHI KARVE RAOD, MUMBAI-400020 ' ' ' ' / VS. TATA PROJECTS LIMITED , RANG UDYAN BUILDING NO.1, 2 ND FLOOR, SITLADEVI TEMPLE ROAD, MAHIM(WEST) MUMBAI-400016 * $% ./ PAN : AACT4119L ( / REVENUE ) .. ( *+ / ASSESSEE ) ./ C.O. NO.10/MUM/2013 ARISING OUT OF ITA NO.6641/MUM/2013 ( ' ( ' ( ' ( ' ( )( )( )( )( / ASSESSMENT YEAR: 2010-11) TATA PROJECTS LIMITED , RANG UDYAN BUILDING NO.1, 2 ND FLOOR, SITLADEVI TEMPLE ROAD, MAHIM(WEST) MUMBAI-400016 ' ' ' ' / VS. DY. COMMISSIONER OF INCOME TAX, RANGE-2(3), AAYAKAR BHAWAN, MAHARISHI KARVE RAOD, MUMBAI-400020 * $% ./ PAN :AACT4119L ( *+ / ASSESSEE ) .. ( / REVENUE ) *+ , - $ / ASSESSEE BY : SHRI R.R. VORA & SHRI NIKHIL TIWARI , - $ / REVENUE BY : SHRI GIRIJA DAYAL ' , .% / DATE OF HEARING : 20/01/2014 /0) , .% / DATE OF PRONOUNCEMENT : 21/ 02/2014 3 ITA NO.1667/MUM/2012 & ORS. TATA PROJECTS LTD. . $1 / O R D E R PER BENCH: THESE THREE SET OF APPEALS BY THE REVENUE CROSS APP EALS AND CROSS OBJECTION BY THE ASSESSEE FOR THE ASSESSMENT YEARS 2008-09, 2009-10 AND 2010-11 AGAINST THE RESPECTIVE ORDERS OF THE CIT(A) . SINCE, COMMON ISSUES ARE RAISED IN THESE APPEALS AND CROSS OBJECT IONS. THEREFORE, FOR THE SAKE OF CONVENIENCE, WE HAVE HEARD ALL THESE APPEAL S AND CROSS OBJECTIONS TOGETHER AND DISPOSED OF THE SAME BY THIS COMPOSITE ORDER. 2. FIRST WE TAKE UP THE CROSS APPEALS AND CROSS OBJ ECTION FOR THE ASSESSMENT YEAR 2010-11. IN THE APPEAL ITA NO.5881 /MUM/2013, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 6 [CI T(A)] HAS CLOSING BALANCE OF ADVANCES OF RS 22,58,01,168 ADDE D TO INCOME OF APPELLANT 1. ERRED IN CONFIRMING ADDITION OF CLOSING BALANCE OF CUSTOMER ADVANCES OF RS 22,58,01,168/-, SHOWN AS ADVANCES IN THE BALA NCE SHEET AS INCOME OF APPELLANT, 2. ERRED IN HOLDING THAT, IF TDS CREDIT IS CLAIMED IN THE RETURN OF INCOME, THE CORRESPONDING INCOME OUGHT TO BE OFFERED TO TAX WITHOUT APPRECIATING THAT INCOME CORRESPONDING TO IMPUGNED TDS WAS NOT ACCRUED DURING THE YEAR UNDER APPEAL; 3. ERRED IN CONFIRMING THE ADDITION OF CUSTOMER AD VANCES ON ACCOUNT OF CLAIM OF CORRESPONDING TAX CREDIT DURING THE YEAR U NDER APPEAL, WITHOUT APPRECIATING THAT ACCRUAL OF INCOME IS NOT DEPENDENT ON YEAR IN WHICH CORRESPONDING CREDIT OF TAXES HAS BEEN CLA IMED, BUT CREDIT OF TAX IS DEPENDENT ON THE YEAR IN WHICH INCOME IS ACCRUED AND OFFERED TO TAX; 4. WITHOUT PREJUDICE TO ABOVE , ERRED IN NOT DIRECTING AO TO GIVE CONSEQUENTIAL RELIEF IN SUBSEQUENT YEARS WHERE THE IMPUGNED AMOUNT IS OFFERED TO TAX BY THE APPELLANT, THEREBY LEADING TO DOUBLE TAXATION OF THE SAME INCOME. DISALLOWANCE OF RS 1,73,75,045!- UNDER SECTION 14A OF THE ACT READ WITH RULE 80 OF THE INCOME-TAX RULES, 1961 (T HE RULES) 5. ERRED IN CONFIRMING DISALLOWANCE OF RS 1,73,75,0 45/- UNDER SECTION 14A OF THE ACT BY INVOKING THE PROVISIONS OF RULE 8 D THE RULES; 6. ERRED IN CONFIRMING THE ACTION OF THE AO IN INV OKING RULE 8D OF THE RULES, WHEREIN THE AO APPLIED RULE 8D WITHOUT RECOR DING ITS JUDICIAL 4 ITA NO.1667/MUM/2012 & ORS. TATA PROJECTS LTD. . SATISFACTION (AS REQUIRED UNDER SECTION 14A OF THE ACT) ON CORRECTNESS OF THE CLAIM MADE BY THE APPELLANT, WHEREIN APPELLA NT SUO-MOTO OFFERED RS 10,17,995/- FOR DISALLOWANCE U/S 14A OF THE ACT; 7. WITHOUT PREJUDICE TO THE ABOVE, FAILED TO APPRE CIATE THAT NO DISALLOWANCE OF INTEREST CAN BE MADE AS ENTIRE INVE STMENT IS MADE OUT OF OWN FUNDS/INTEREST FREE FUNDS AVAILABLE WITH THE APPELLANT; 8. WITHOUT PREJUDICE TO THE ABOVE, EVEN IF INTERES T EXPENDITURE IS CONSIDERED WHILE COMPUTING DISALLOWANCE UNDER SECTI ON 14A OF THE ACT READ WITH RULE 8D OF THE RULES, INTEREST EXPEND ITURE ON LOANS FOR SPECIFIC BUSINESS PURPOSE SHOULD BE EXCLUDED; 9. WITHOUT PREJUDICE TO THE ABOVE, EVEN IF INTERES T EXPENDITURE IS CONSIDERED WHILE COMPUTING DISALLOWANCE UNDER SECTI ON 14A OF THE ACT READ WITH RULE 8D OF THE RULES, NET INTEREST EX PENDITURE (I.E. INTEREST PAID LESS INTEREST RECEIVED) SHOULD BE CON SIDERED AND NOT GROSS INTEREST PAID; 10. WITHOUT PREJUDICE TO THE ABOVE, WHILE COMPUTIN G DISALLOWANCE OF UNDER SECTION 14A OF THE ACT READ WITH RULE 8D, STR ATEGIC INVESTMENTS OF RS 3,73,92,000 (OPENING BALANCE OF I NVESTMENT) AND RS 4,76,90,000/- (CLOSING BALANCE OF INVESTMENT) SH OULD BE EXCLUDED FROM THE COMPUTATION OF TOTAL INVESTMENT AS STRATEG IC INVESTMENTS DOES NOT REQUIRE ANY COST TO BE INCURRED BY THE APP ELLANT; 11. WITHOUT PREJUDICE TO THE ABOVE, AC HAS ERRED I N COMPUTING DISALLOWANCE AS PER RULE 8D OF RS 1,73,75,045/- AS AGAINST, CORRECT COMPUTATION OF RS 1,68,65,986/-, AS COMPUTED BY THE APPELLANT; 12. WITHOUT PREJUDICE TO THE ABOVE, DISALLOWANCE U NDER SECTION 14A OF THE ACT SHOULD TO BE RESTRICTED TO 1% OR 2% OF THE EXEMPT DIVIDEND INCOME; COMMUNITY DEVELOPMENT EXPENSES OF RS. 36,34,584/- 13. ERRED IN NOT GIVING SPECIFIC DIRECTION FOR ALL OWING THE COMMUNITY DEVELOPMENT EXPENSES OF RS. 36,34,584/-, INSTEAD OF MENTIONING THAT DISALLOWANCE MADE BY AC TO BE DELETED. LEVY OF INTEREST UNDER SECTION 234B OF THE ACT. 14. ERRED IN CONFIRMING ACTION OF THE AO IN LEVYING INTEREST UNDER SECTION 234B OF THE ACT. 3. THE GROUND NO.1 TO 4 REGARDING ADDITION OF CLOSI NG BALANCE OF CUSTOMER ADVANCE. THE ASSESSEE IS ENGAGED IN THE B USINESS OF EXECUTING TRUNKEY PROJECTS BOTH IN INDIA AND ABROAD. THE ASS ESSEE BIDS FOR CONTRACTS ON ENGINEERING PROCUREMENT AND CONSTRUCTI ON BASIS (EPC). THE ASSESSEE RECEIVES MOBILIZATION ADVANCE FROM THE CUSTOMERS AGAINST THE CONTRACT AWARDED TO THE ASSESSEE ON EPC. THIS MOBILIZATION ADVANCE COULD BE UP TO MAXIMUM OF 10% OF THE TOTAL CONTRACT VALUE DEPENDING UPON THE TERMS AND CONDITIONS OF THE CONTRACT BETWE EN THE PARTIES. 5 ITA NO.1667/MUM/2012 & ORS. TATA PROJECTS LTD. . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED TDS CREDIT OF RS.35,94,283/- I N THE RETURN OF INCOME THOUGH, THE CORRESPONDING INCOME OF RS.22.93 /- CRORES WAS NOT CONSIDERED FOR COMPUTING THE INCOME. THE AO, ACCOR DINGLY, ASKED THE ASSESSEE WHY THE CORRESPONDING INCOME SHOULD NOT BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. IN REPLY, THE ASSESSE E SUBMITTED THAT THE TDS CREDIT WAS WRONGLY CLAIMED FOR THE AMOUNT WHICH WERE NOT CONSIDERED FOR COMPUTING THE INCOME AND REQUESTED T HE AO THAT THE TDS CREDIT OF RS.35.95 LAKH MAY BE DISALLOWED. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE ON THE GROUND THAT THE A SSESSEE HAS FAILED TO EXPLAIN AS TO HOW WORK RELATING TO THE RECEIPT OF T HE AMOUNT OF RS.22.58 CRORES WAS STILL NOT COMPLETED. ACCORDINGLY, THE A O HELD THAT THE ASSESSEE HAS NOT JUSTIFIED AS TO HOW THE AMOUNTS WERE ENTITL ED TO SHOWN AS ADVANCES. THE AO ACCORDINGLY ADDED THE SAID SUM OF RS.22.93 CRORES OF TOTAL INCOME OF THE ASSESSEE. BEFORE THE CIT(A), T HE ASSESSEE HAS CONTENDED THAT THE ASSESSEE HAS CONSISTENTLY FOLLOW ED THE PERCENTAGE PROJECT COMPLETION METHOD OF ACCOUNTING AS PER ACCO UNTING STANDARD-7 (AS-7). THIS METHOD HAS BEEN CONSISTENTLY FOLLOW ED BY THE ASSESSEE OVER THE YEARS AND THERE IS NO CHANGE IN THE METHOD OF A CCOUNTING DURING THE YEAR UNDER CONSIDERATION. THE ADVANCES RECEIVED FR OM THE CUSTOMER ARE RECOGNIZED AS REVENUE OVER DIFFERENT ASSESSMENT YEA RS BASED ON ACTUAL WORK COMPLETED AND AS PER THE RECOGNIZE PERCENTAGE COMPLETION METHOD. THE ASSESSEE EXPLAINED THAT THE ADVANCES WERE RECOG NIZED IN THE SUBSEQUENT YEARS AS PER PERCENTAGE OF COMPLETION ME THOD. THUS, THE ASSESSEE ALTERNATIVELY CONTENDED THAT THE CREDIT OF TDS OF RS.35.94 LAKHS MAY BE ALLOWED IN THE SUBSEQUENT YEARS IN WHICH THE INCOME IS ASSESSABLE. THE CIT(A) DID NOT ACCEPT THE CONTENTI ON OF THE ASSESSEE ON PRINCIPLE HOWEVER AS REGARDS THE FACTUAL POSITION I T WAS ACCEPTED THAT THE ACTUAL RECEIPT IS RS.22.58 CRORES AND NOT RS.22.93 CRORES. ACCORDINGLY, THE AO WAS DIRECTED TO CONSIDER THE SAID AMOUNT FOR DISALLOWANCE AFTER VERIFICATION. 6 ITA NO.1667/MUM/2012 & ORS. TATA PROJECTS LTD. . 4. BEFORE US, THE LD. AR OF THE ASSESSEE HAS SUBMIT TED THAT THE ASSESSEE IS FOLLOWING THE PERCENTAGE COMPLETION MET HOD REGULARLY AND CONSISTENTLY AND RECOGNIZING THE INCOME. THE MOBILI ZATION ADVANCE RECEIVED BY THE ASSESSEE HAS BEEN RECOGNIZED AS INC OME CORRESPONDING TO THE COMPLETION OF PROJECT AND THEREFORE THE SAID AD VANCE IS SPREAD OVER TO THE YEARS IN WHICH THE PROJECT IS BEING EXECUTED DE PENDING UPON THE TERMS AND CONDITIONS OF THE CONTRACT. THE LD. AR H AS SUBMITTED THAT UNDER THIS METHOD THE REVENUE IS RECOGNIZING AND OF FER TO TAX BASED ON THE PERCENTAGE OF COMPLETION OF WORK FOR EACH PROJE CT/CONTRACT AND DISCLOSURE TO THIS EFFECT HAS BEEN MADE BY THE ASSE SSEE IN THE NOTE FORMING PART OF THE AUDITED ACCOUNTS. HE HAS INVIT ED OUR ATTENTION TO THE NOTE FORMING PART OF THE AUDITED ACCOUNT AT PAGE NO . 43 OF THE PAPER BOOK AND SUBMITTED THAT THE ASSESSEE RECOGNIZED THE REVE NUE BASED ON PERCENTAGE OF COMPLETION OF PROJECT/CONTRACT AS PER AS-7. ON THE BASIS OF PERCENTAGE OF WORK COMPLETED AND CERTIFIED BY THE C USTOMER THE INCOME IS RECOGNIZED AND OFFER TO TAX. EVEN OTHERWISE, THE A SSESSEE ISSUED INVOICES TO THE CUSTOMERS BASED ON WORK CERTIFIED. THE LD. AR HAS FORCEFULLY CONTENDED THAT WHEN THE REVENUE HAS NOT DISTURB THE METHOD CONSISTENTLY FOLLOWED BY THE ASSESSEE AS IT HAS BEEN ACCEPTED OV ER THE YEARS THEN THE ADVANCE RECEIVED BY THE ASSESSEE CANNOT BE TREATED AS INCOME OF THE ASSESSEE ON THE REASON THAT THE REMITTANCE OF ADVAN CE HAS BEEN SUBJECTED TO TDS. THE LD. AR HAS REFERRED TO THE DETAILS OF THE TDS CLAIMED BY THE ASSESSEE ON ADVANCE RECEIPT FROM CUSTOMERS AND SUBM ITTED THAT ONLY A PART OF THE ADVANCE RECEIVED IS IN RESPECT OF THE W ORK COMPLETED DURING THE YEAR UP TO 31 ST MARCH 2010 AND THEREFORE MORE THAN THE AMOUNT OF ADVANCE REPRESENTING THE WORK COMPLETED UP TO 31 ST MARCH 2010 CANNOT BE RECOGNIZED AS INCOME/REVENUE FOR THE YEAR UNDER CONSIDERATION. THE LD. AR HAS THUS SUBMITTED THAT THE ASSESSEE HAS WRO NGLY CLAIMED THE TDS CREDIT OF THE ENTIRE AMOUNT WHICH MAY BE WITHDRAWN/ DISALLOWED. HE HAS FURTHER SUBMITTED THAT THE ADVANCE RECEIVED BY THE ASSESSEE FOR MOBILIZATION AS PER THE TERMS OF THE CONTRACT ARE A DJUSTED AGAINST THE 7 ITA NO.1667/MUM/2012 & ORS. TATA PROJECTS LTD. . PROGRESS BILLING TILL SUCH ADVANCE ARE FULLY RECOVE RED WITHIN THE CONTRACTS COMPLETION PERIOD. MOREOVER THE ADJUSTMENT OF THE ADVANCE AGAINST THE WORK COMPLETED OVER THE PERIOD IS NOT DISCRETION OF THE ASSESSEE BUT IT IS AS PER THE TERMS OF THE CONTRACT AND DEPENDS ON THE DECISION OF THE CLIENTS OF THE ASSESSEE. THE LD. AR HAS POINTED OUT THAT T HE PROPORTIONATE ADVANCE HAS BEEN RECOGNIZED AS REVENUE TO THE EXTEN T OF THE WORK COMPLETED TILL 31 ST MARCH 2010 THEREFORE THE ENTIRE RECEIPT OF ADVANCE CANNOT BE ADDED TO THE INCOME OF THE ASSESSEE FOR T HE YEAR UNDER CONSIDERATION WHEN THE REVENUE IS BEING RECOGNIZED ON THE PERCENTAGE COMPLETION METHOD. IN SUPPORT OF THIS CONTENTION H E HAS RELIED UPON THE FOLLOWING DECISIONS. M/S. FOOTCANDLES FILM PVT. LTD.(ITA NOS.1931 & 1932 /MDS/2012) DATED 8 AUGUST 2013(CHN). HANS ROAD CARRIERS PVT. LTD. (2011)(140TTJ642)(AHD) . SIKKA INTERNATIIONAL FREIGHT SERVICES PVT. LTD. (12 ITR 476) (DEL). M/S LLOYD INSULATION (INDIA) LTD. (ITA NO.2400/DEL/ 11)9 AUGUST 2012(DEL). PRADEEP KUMAR DHIR (109 TTJ 445)(TM)(CHAND). VARSHA G SALUNKE [101 TTJ (TM) 703](MUM). 5. ON THE OTHER HAND, THE LD. DR HAS HEAVILY RELIED UPON THE ORDER OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESS EE HAS CLAIMED THE CREDIT OF TDS OF RS.35.94 LAKHS WHICH WAS ALLOWED D URING THE YEAR, THEREFORE THE CORRESPONDING INCOME IN TERMS OF ADVA NCE OF RS.22.58 CRORES WILL ALSO BE LIABLE TO BE TAX. 6. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD, WE NOTE THAT THERE IS NO DISPUT E SO FAR AS THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE BEING PERCENT AGE PROJECT COMPLETION AS PER THE AS-7. IT IS PERTINENT TO NOT E THAT WHEN THE ASSESSEE IS RECOGNIZING THE REVENUE AND FOLLOWING THE MERCAN TILE SYSTEM OF ACCOUNTING THEN THE IT IS IMMATERIAL WHETHER THE EN TIRE REVENUE RECOGNIZE BY THE ASSESSEE IS RECEIVED DURING THE YEAR OR NOT. AS PER THE TERMS OF THE 8 ITA NO.1667/MUM/2012 & ORS. TATA PROJECTS LTD. . CONTRACT A CERTAIN PERCENTAGE OF CONTRACT OF AMOUNT IS BEING GIVEN TO THE ASSESSEE AS ADVANCE FOR MOBILIZATION KEEPING IN VIE W THE NATURE OF WORK/PROJECT EXECUTED BY THE ASSESSEE. RECEIPT OF PAYMENT DOES NOT AFFECT THE INCOME OF THE ASSESSEE WHEN IT OFFERS TH E INCOME ON THE BASIS OF MERCANTILE SYSTEM. THE CONTROVERSY IN THIS CASE AR ISES BECAUSE THE ASSESSEE CLAIMED THE CREDIT OF TDS DEDUCTED ON THE ADVANCE RECEIVED BY THE ASSESSEE WHICH HAS NOT BEEN ENTIRELY REPRESENTI NG THE WORK COMPLETED TILL END OF FINANCIAL YEAR AS ON 31 ST MARCH 2010. THEREFORE THE RECEIPT OF THE AMOUNT BEING ADVANCE FOR MOBILIZATION WOULD NOT CHANGE THE WORK ACTUALLY COMPLETED BY THE ASSESSEE TILL THE END OF THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION . THE ADVANCE IS NOT FOR THE WORK COMPLETED BUT IT IS ONLY THE ADVANCE T O BE ADJUSTED OVER THE PERIOD OF TERM OF CONTRACT AS PER THE TERMS AND CON DITIONS AGREE BETWEEN THE PARTIES. THEREFORE, THE SOLE POINT INVOLVED IN THE CONTROVERSY IS THE WRONG CLAIM OF CREDIT OF TDS AND THE REMEDY FOR THE SAME WAS TO DISALLOW THE SAID CLAIM AND NOT TO ADD THE CORRESPONDING AMO UNT TO THE INCOME OF THE ASSESSEE WHEN THE ASSESSEE HAS ALREADY OFFERED THE INCOME BASED ON PERCENTAGE COMPLETION METHOD. WE HAVE ALREADY EXPR ESSED OUR VIEW THAT THE RECEIPT OF AMOUNT DOES NOT EFFECT THE INCOME RE COGNIZE ON MERCANTILE SYSTEM OF ACCOUNTING AND AS PER AS-7. THEREFORE, T HE ADDITION MADE BY THE AUTHORITIES BELOW PURELY ON THE GROUND THAT THE ASSESSEE HAS CLAIMED CREDIT OF TDS IN RESPECT OF ADVANCE RECEIPT IS HIGH LY ARBITRARY AND UNJUSTIFIED WHEN THE ASSESSEE HAS WITHDRAWN THE SAI D CLAIM THOUGH, IT WAS NOT ALLOWED BY THE AO. ACCORDINGLY, WE DIRECT THE AO TO DELETE THE ADDITION MADE ON ACCOUNT OF WRONG TDS CLAIM AND DIS ALLOWED THE CREDIT OF TDS CLAIMED BY THE ASSESSEE. 7. GROUND NO.5 TO 12 REGARDING DISALLOWANCE U/S14A. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD RECEIVED DIVID END INCOME OF RS.5.02CORES FROM ITS INVESTMENT IN MUTUAL FUND WHI CH IS CLAIMED EXEMPT FROM THE INCOME TAX. THE ASSESSEE HAS SUO-MOTO DISALLOWED OF 9 ITA NO.1667/MUM/2012 & ORS. TATA PROJECTS LTD. . RS.10,17,955/- U/S 14A OF THE ACT FOR EARNING SUCH EXEMPT DIVIDEND INCOME. THE ASSESSING OFFICER HOWEVER DISALLOWED A N ADDITIONAL AMOUNT OF RS.1,73,75,045/- COMPRISING 94.97 LAKHS ON ACCOU NT OF INTEREST EXPENDITURE OF RS.88.96 LAKHS TOWARDS ADMINISTRATIV E EXPENSES BY APPLYING RULE 8D OF INCOME-TAX RULES. ON APPEAL, T HE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE MADE BY THE AO. 8. BEFORE US, THE LD. AR OF THE ASSESSEE HAS SUBMIT TED THAT THE ENTIRE INVESTMENT ARE OUT OF THE ASSESSEE OWN FUNDS AND NO INTEREST BEARING FUND WAS USED FOR INVESTMENT IN THE MUTUAL FUND. T HEREFORE, THE INTEREST DISALLOWANCE UNDER RULE 8D IS NOT JUSTIFIED. IN SU PPORT OF HIS CONTENTION, THE LD. AR HAS REFERRED TO THE DETAILS OF THE INTER EST FREE FUNDS AVAILABLE WITH THE ASSESSEE AND SUBMITTED THAT DURING THE YEA R UNDER CONSIDERATION THE ASSESSEE HAS REDUCED THE INTEREST BEARING FUND BY REPAYMENT OF LOANS AND THEREFORE NO INVESTMENT WAS MADE DURING THE YEA R OUT OF THE BORROWED FUND. HE HAS FURTHER SUBMITTED THAT THERE WAS NO DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE U/S 14A FOR THE EARLIER ASSESSMENT YEARS. HE HAS REFERRED THE DETAILS OF THE EARLIER ASSESSMENT YEARS IN CHART FILED AND SUBMITTED THAT FOR THE ASSESSMENT YEARS 1 997-1998 TO 1999- 2000 THE ADDITION WAS DELETED BY THE CIT(A) AND FUR THER BY THIS TRIBUNAL AND THEREFORE NO DISALLOWANCE WAS SUSTAINED IN THES E ASSESSMENT YEARS. THE LD. AR HAS POINTED OUT THAT FOR THE A.Y. 2000-0 1 TO 2005-06 THE DISALLOWANCE WAS RESTRICTED TO RS.40,000/- AND 50,0 00/- BY THE CIT(A) AS WELL AS THIS TRIBUNAL. SO FAR AS THE DISALLOWANCE ON ACCOUNT OF INTEREST U/S 14A IS CONCERNED FOR ALL THESE ASSESSMENT YEARS RIGHT FROM 1997-98 TO 2005-06. IT WAS DELETED EITHER BY THE COMMISSIO NER OR BY THE TRIBUNAL. THE DISALLOWANCE ON ACCOUNT OF ADMINISTR ATIVE EXPENSES WERE RESTRICTED TO RS.40,000/- TO 50,000/- FOR THE ASSES SMENT YEARS 2000-01 TO 2005-06. HE HAS FURTHER SUBMITTED THAT FOR THE ASS ESSMENT YEAR 2007- 08, THE LD. CIT(A) DELETED THE DISALLOWANCE MADE ON ACCOUNT OF INTEREST EXPENDITURE AND SINCE RULE 8D WAS NOT APPLICABLE FO R THE SAID 10 ITA NO.1667/MUM/2012 & ORS. TATA PROJECTS LTD. . ASSESSMENT YEAR THEREFORE, THE DISALLOWANCES ON ACC OUNT OF ADMINISTRATIVE EXPENSES WERE RESTRICTED TO 5% OF THE DIVIDEND INCO ME. FOR THE SUBSEQUENT YEAR I.E. 2008-09 AND 2009-10, THE CIT(A ) HAS DELETED THE DISALLOWANCE ON ACCOUNT OF INTEREST EXPENSES AND DI SALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES IS RESTRICTED TO 0.5% OF AVERAGE INVESTMENT AGAINST WHICH BOTH THE DEPARTMENT AND AS SESSEE ARE IN APPEAL/CROSS-OBJECTION BEFORE THE TRIBUNAL. THUS, THE LD. AR HAS SUBMITTED THAT WHEN NO DISALLOWANCE WAS SUSTAINED O N ACCOUNT OF INTEREST EXPENDITURE IN THE EARLIER YEAR BY VIRTUE OF ORDERS OF APPELLATE AUTHORITIES AND INVESTMENT DURING THE YEAR ARE MADE OUT OF ITS OWN FUND AND NOT OUT OF BORROWED FUND THEN THERE IS NO QUEST ION OF DISALLOWANCE OF ANY INTEREST EXPENDITURE. THE LD. AR HAS FURTHER S UBMITTED THAT THE AO HAS NOT GIVEN A FINDING THAT THE ASSESSEE HAS USED THE BORROWED FUND FOR INVESTMENT IN MUTUAL FUND AND THEREFORE WHEN THE AS SESSING OFFICER HAS NOT RECORDED ANY REASON AS TO WHY HE WAS NOT SATISF IED WITH THE EXPLANATION OF THE ASSESSEE THAT NO BORROWED FUND W AS USED FOR INVESTMENT IN MUTUAL FUND THEN THE PROVISION OF SEC TION 14A CANNOT BE INVOKED IN RESPECT OF INTEREST EXPENDITURE. IN SUPP ORT OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF THE COORDINATE B ENCH OF THIS TRIBUNAL IN THE CASE OF RAJSHREE PRODUCTION LTD. VS CIT(A) DATED 13/11/2013 IN ITA NO.5983/MUM/2011. 9. AS REGARD, THE DISALLOWANCE OF ADMINISTRATIVE EXPEN SES, THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE SUO-MOTO DISALLOWED RS.10.17 LAKH WHICH ARE SUFFICIENT CONSIDERING THE NATURE AND VOLUME OF THE TRANSACTION. HE HAS FURTHER SUBMITTED THAT THE AO HAS NOT GIVEN THE FINDING THAT THE ASSESSEE HAS INCURRED ANY EXPENDIT URE FOR EARNING THE EXEMPT INCOME THEREFORE, THE PROVISIONS OF SECTION 14A CANNOT BE INVOKED. ALTERNATIVELY, THE LD. AR HAS SUBMITTED THAT THE DI SALLOWANCE IN EARLIER YEARS HAS BEEN RESTRICTED TO 5% OF THE EXEMPT INCOM E AND THE SAME CAN BE DISALLOWED FOR THESE YEARS ON ACCOUNT OF ADMINIS TRATIVE EXPENSES. ON 11 ITA NO.1667/MUM/2012 & ORS. TATA PROJECTS LTD. . THE OTHER HAND, THE LD. DR HAS RELIED UPON THE ORDE RS OF THE ASSESSING OFFICER AND CIT(A) AND SUBMITTED THAT WHEN RULE 8D IS APPLICABLE FOR THE YEAR UNDER CONSIDERATION THEN THE DISALLOWANCE HAS TO BE COMPUTED AS PER THE FORMULA PROVIDED IN RULE 8D. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORDS. AS REGARDS, THE DISALLOWANCE O F EXPENDITURE U/S 14A, THE ASSESSEE HAS CLAIMED THAT NO BORROWED FUND WAS USED FOR INVESTMENT IN MUTUAL FUNDS ON WHICH THE DIVIDEND INCOME HAS EA RNED BY THE ASSESSEE. THERE IS NO QUARREL ON THIS POINT THAT FO R INVOKING THE PROVISIONS OF SECTION 14A IT IS A PRECONDITION THAT AN EXPEND ITURE HAD BEEN INCURRED BY THE ASSESSEE IN RELATION TO THE INCOME WHICH DOES NOT FORM THE PART OF THE TOTAL INCOME. WE NOTE THAT THE ASSESSING OFFIC ER HAS NOT GIVEN SPECIFIC FINDING THAT THE ASSESSEE HAS UTILIZED THE BORROWED FUND FOR THE PURPOSE OF INVESTMENT IN THE MUTUAL FUND YIELDING T HE EXEMPT DIVIDEND INCOME. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND INTEREST OF JUSTICE, WE SET ASIDE THIS ISSUE OF DIS ALLOWANCE OF INTEREST U/S 14A TO THE AO FOR A LIMITED PURPOSE OF VERIFICATION OF THIS FACT, WHETHER THE ASSESSEE HAS UTILIZED ANY BORROWED FUND FOR THE PUR POSE OF INVESTMENT IN THE MUTUAL FUND ON WHICH THE EXEMPT DIVIDEND INCOME IS EARNED. AS REGARDS THE ADMINISTRATIVE EXPENSES, THERE IS NO DE NIAL THAT CERTAIN EXPENSES ARE BOUND TO BE INCURRED FOR MANAGING SUCH HUGE INVESTMENT BY THE ASSESSEE. EVEN THE ASSESSEE ITSELF HAS DISALLO WED A SUM OF RS.10.17 LAKHS ON THIS ACCOUNT. THE ASSESSEE CLAIMED THAT T HE SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE IS SUFFICIENT CON SIDERING THE NATURE AND VOLUME OF THE TRANSACTIONS. IT IS TO BE NOTED THAT RULE 8D IS APPLICABLE FOR THE YEAR UNDER CONSIDERATION THEREFO RE, THE DISALLOWANCE OF ADMINISTRATIVE EXPENSES HAS TO BE COMPUTED AS PER T HE FORMULA PROVIDED IN RULE 8D. HOWEVER, THE DISALLOWANCE WORK OUT UND ER RULE 8D CANNOT EXCEED THE TOTAL EXPENDITURE CLAIMED BY THE ASSESSE E WHICH CAN BE APPORTIONED TO THE EXEMPT INCOME. THUS WE SET ASID E THIS ISSUE TO THE 12 ITA NO.1667/MUM/2012 & ORS. TATA PROJECTS LTD. . RECORD OF AO FOR THE LIMITED PURPOSE OF COMPUTING T HE TOTAL EXPENDITURE INCURRED BY THE ASSESSEE FOR THE COMPOSITE/INDIVISI BLE ACTIVITIES IN WHICH TAXABLE AND NON-TAXABLE INCOME IS RECEIVED AND IF T HE DISALLOWANCE WORK OUT UNDER RULE 8D ON ACCOUNT OF ADMINISTRATIVE EXPE NSES EXCEEDS THE TOTAL CLAIM OF EXPENDITURE INCURRED FOR THE COMPOSI TE ACTIVITIES RESULTING TAXABLE OR NON-TAXABLE INCOME THEN THE DISALLOWANCE SHOULD BE RESTRICTED TO THE SAID ACTUAL TOTAL CLAIM OF EXPENDITURE. 11. ACCORDINGLY, THE AO IS DIRECTED TO RECOMPUTE TH E DISALLOWANCE AFTER CONSIDERING THE ABOVE ASPECT. 12. GROUND NO.13 IS REGARDING DISALLOWANCE OF COM MUNITY DEVELOPMENT EXPENDITURE. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE INCURRED COMMUNITY DEVELOPMENT EXPENDITURE OF RS.36.34 LAKHS . IN THE COMPUTATION OF INCOME, THE ASSESSEE DISALLOWED THE SAID EXPENDITURE HOWEVER IT WAS CLAIMED BY WAY OF NOTE TO THE RETURN OF INCOME. THE AO HAS NOT ALLOWED THE DEDUCTION OF THE SAME. IN APPE AL, THE CIT(A) HAS ALLOWED THE RELIEF. 13. BEFORE US, THE LD. AR OF THE ASSESSEE HAS SUBMI TTED THAT THOUGHT THERE IS NO GRIEVANCE OF THE ASSESSEE AGAINST THE I MPUGNED ORDER OF CIT(A) HOWEVER IN THE GIVING EFFECT ORDER THE AO DID NOT A LLOW THIS DEDUCTION ON THE GROUND THAT NO ADDITION WAS MADE IN THE ASSESSM ENT ORDER. THUS, THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT BECAU SE OF THE LANGUAGE IN THE CONCLUDING PART OF THE IMPUGNED ORDER OF THE CI T(A) THAT THE ADDITION MADE BY THE AO SHOULD BE DELETED , THE AO HAS NOT GIVEN EFFECT TO THE SAME. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT WHEN THE CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE THEN THIS GROUND DOES NOT ARISES FROM THE IMPUGNED ORDER OF T HE LD. CIT(A) . 14. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY PERUSAL OF THE RECORD; WE NOTED THAT THE LD.CIT(A) HAS ALLOWED THE CLAIM OF THE 13 ITA NO.1667/MUM/2012 & ORS. TATA PROJECTS LTD. . ASSESSEE IN RESPECT OF THE COMMUNITY DEVELOPMENT EX PENSES OF RS.36.43 LAKHS IN PARA 7.3 AND 7.4 AS UNDER:- 7.3. I HAVE CONSIDERED THE FACTS OF THE PRESENT CA SE, THE SUBMISSIONS OF THE APPELLANT AND THE DECISIONS RELIED UPON BY T HE APPELLANT. I FIND THAT THE APPELLANT HAS INCURRED VARIOUS EXPENS ES ON WELFARE OF THE PEOPLE AND LOCAL LABORERS, PEOPLE WORKING ON IT S PROJECT SITES IN REMOTE AREAS. THE EXPENDITURE IS INCURRED TO DEVEL OP THE COMMUNITY AT ITS PROJECT SITES. THIS EXPENDITURE HAS BEEN IN CURRED WITH THE OBJECTIVE OF FULFILLING CORPORATE SOCIAL RESPONSIBI LITY TOWARDS THE PUBLIC AT LARGE. I HAVE ALSO PERUSED LD. CIT(A)S ORDERS IN APPELLANTSS OWN CASE IN EARLIER YEARS I.E. AY 2005-06, AY 2007-08, APPELLANT HAS BEEN ALLOWED. 7.4 IN VIEW OF THE SUBMISSIONS OF THE APPELLANT AND RESPECTFULLY FOLLOWING DECISION OF MY LD. PREDECESSORS IN EARLIE R YEARS, THE DISALLOWANCE OF RS.36,34,584/- IS HEREBY DELETED. 15. IT IS CLEAR FROM THE IMPUGNED ORDER THAT THE CL AIM OF THE ASSESSE WAS ALLOWED EVEN IN THE EARLIER ASSESSMENT YEAR AND THEREFORE BY FOLLOWING THE EARLIER ORDER, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE. HOWEVER IN THE CONCLUDING PARA IN 7.4, IT IS MENTIONED THAT TH E DISALLOWANCE OF 36.34 LAKHS IS HEREBY DELETED. THE ASSESSING OFFICER WH ILE PASSING THE GIVING EFFECT ORDER DT.27/11/2013 HAS DENIED THE RELIEF TO THE ASSESSEE ON FLIMSY GROUND THAT NO ADDITION WAS MADE ON THE ACCOUNT IN THE ASSESSMENT ORDER. THE RELEVANT PART OF THE GIVING EFFECT ORDE R DATED 27/11/2013 OF THE ASSESSING OFFICER IS AS UNDER:- 2. NO RELIEF FOR COMMUNITY DEVELOPMENT EXPENSES AR E ALLOWED AS NO ADDITION WAS MADE ON THIS ACCOUNT IN ASSESSMENT ORDER. (PARA 7.4 OF CIT(A)S ORDER). 16. IT APPEARS THAT THE AO HAS SHOWN TOTAL DISREGA RD AND DEFIANCE TO THE ORDERS OF THE FAA BY PICKING AND CHOOSING THE P ARTICULAR WORDS INSTEAD OF THE FINDING OF THE APPELLATE AUTHORITY. IT APPEARS THAT THE AO HAS ACTED IN A MOST IRRESPONSIBLE MANNER AND BY CIR CUMVENTING THE PROPRIETY OF QUASI JUDICIAL AUTHORITY TO FOLLOW THE DECISION OF THE APPELLATE 14 ITA NO.1667/MUM/2012 & ORS. TATA PROJECTS LTD. . AUTHORITY. WHEN THE ASSESSING OFFICER DID NOT CHOO SE TO CHALLENGE THE ORDER OF THE LD. CIT(A) THEN IT IS HIGHLY INAPPROPR IATE TO NOT GIVE EFFECT TO THE SAME. WE TOOK SERIOUS NOTE OF THE CONDUCT AND THE ACTION OF THE AO WHILE PASSING THE GIVING EFFECT ORDER 27/11/2013 IN THIS CASE. ACCORDINGLY THE AO IS DIRECTED TO ALLOW THE CLAIM O F THE ASSESSEE IN TERMS OF THE IMPUGNED ORDER OF THE CIT(A), WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT. IT IS EXPECTED THAT THE CONCERNED COMM ISSIONER AND CHIEF COMMISSIONER OF INCOME-TAX TO TAKE NOTE OF SUCH TYP E OF MIS-CONDUCTING OF PROCEEDING BY THE ASSESSING OFFICER AND ALSO TAK E THE APPROPRIATE ACTION IN THIS RESPECT. 17. GROUND NO.14 IS REGARDING LEVY OF INTEREST U/S 234B. THE LEVY OF INTEREST U/S 234B IS MANDATORY AND CONSEQUENTIAL AN D THEREFORE NO SPECIFIC FINDING IS REQUIRED. 18. IN THE RESULT, APPEAL OF THE ASSESSEE FOR A.Y.2 010-11 IS PARTLY ALLOWED. 19. FOR THE ASSESSMENT YEAR 2010-11, THE DEPARTMENT HAS RAISED FOLLOWING GROUNDS. I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW., THE LD. CIT(A) ERRED IN ARRIVING AT THE CONCLUSION THAT THE PROVISIONS FOR WARRANTIES AMOUNTING TO RS.2.56 CRORES IS ALLOWABLE WITHOUT APPRECIATING THAT THE SAME WAS A MERE PROVISION AND WAS NOT ALLOWABLE AS DEDUCTION BEING CONTINGENT LIABILITY. II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED DELETING THE ADDITION OF RS.2.56 CRORE ON ACCOUNT OF PROVISIONS FOR WARRANTIES FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF ROTORK CONTROLS INDIA (P) LTD. 314 ITR 62 (SC), WITHOUT APPRECIATING THAT THE SAME WAS NOT APPLICAB LE TO THE ASSESSEE AS IT HAS NOT FULFILLED THE CONDITIONS OF THE AFORESAID DECISION OF SYSTEMATICALLY MAINTAINING DATA OF EARL IER YEAR FOR MAKING SUCH CLAIM OF PROVISION. 20. THE ASSESSEE HAS FILED A CROSS OBJECTION NO.10/ MUM/2014 TO THE DEPARTMENTS APPEAL AND RAISED THE FOLLOWING GROUND S:- 15 ITA NO.1667/MUM/2012 & ORS. TATA PROJECTS LTD. . I. WITHOUT PREJUDICE TO THE GROUND THAT PROVISION FOR WARRANTIES IS ALLOWABLE DURING THE CURRENT YEAR, HAS ERRED IN NOT DIRECTING TO REDUCE THE INCOME IN AY 2012-13 WHEREIN ENTIRE PROV ISION MADE IN THE YEAR UNDER APPEAL WAS REVERSED AND OFFERED TO T AX. II. WITHOUT PREJUDICE TO THE GROUND THAT PROVISION FOR WARRANTIES IS ALLOWABLE DURING THE CURRENT YEAR, ERRED IN NOT DIR ECTING TO ALLOW ACTUAL EXPENDITURE INCURRED WITH REGARD TO WARRANTI ES, DURING THE YEAR UNDER APPEAL. 21. THE ONLY ISSUE ARISES FOR OUR CONSIDERATION AND ADJUDICATION FROM THE DEPARTMENTS APPEAL AS WELL AS THE CROSS OBJECT ION OF THE ASSESSEE IS REGARDING THE DELETION OF ADDITION OF RS.2.56 CRORE S ON ACCOUNT OF PROVISION FOR WARRANTIES 22. WE HAVE HEARD THE LD. DR AS WELL AS LD. AR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, THE LD . AR OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS ALREADY REVERSED TH E WARRANTY PROVISION AND OFFERED TO TAX FOR THE ASSESSMENT YEAR 2012-13. THE CROSS OBJECTION OF THE ASSESSEE IS ONLY TO THE EXTENT THAT IN CASE PROVISION IS NOT ALLOWED IN THIS YEAR. THEN THE SAME IS NOT BE TAXED ON THE REVERSAL OF THE PROVISION OFFERED BY THE ASSESSEE FOR THE ASSESSMEN T YEAR 2012-13. THE LD. AR HAS FURTHER SUBMITTED THAT THE ASSESSEE HAS NO OBJECTION IF THE PROVISION IS DISALLOWED FOR THE YEAR UNDER CONSIDER ATION BUT AT THE SAME TIME IT SHOULD NOT BE TAXED FOR THE A.Y. 2012-13 AS THE ASSESSEE HAS OFFERED THE SAME ON REVERSAL OF THE PROVISION. 23. HAVING CONSIDERED THE STATEMENT OF LD. AR WE SE T-ASIDE THE IMPUGNED ORDER OF THE COMMISSIONER ON THIS ISSUE AN D RESTORE THE ORDER OF THE ASSESSING OFFICER. CONSEQUENTLY, THE AO IS DIRECTED NOT TO TAX THE REVERSAL OF THE PROVISION OFFERED BY THE ASSESSEE F OR THE ASSESSMENT YEAR 2012-13. 24. IN THE RESULT, REVENUES APPEAL IS ALLOWED AND CROSS OBJECTION OF THE ASSESSEE IS DISMISSED. 16 ITA NO.1667/MUM/2012 & ORS. TATA PROJECTS LTD. . 24. FOR THE ASSESSMENT YEAR 2008-09, THE ASSESSEE H AS RAISED FOLLOWING GROUNDS. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-6[CIT(A)]. DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(II I) OF RS.26,00,000/- 1. ERRED IN CONFIRMING DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(III) AT RS.26,00,000/- 2. SHOULD HAVE DIRECTED TO RESTRICT DISALLOWANCE TO RS .2,79,110/- (SUO- MOTO OFFERED BY THE ASSESSEE) AS AO HAS NOT RECORDE D ANY SATISFACTION AS REGARDS CORRECTNESS OF DISALLOWANCE OFFERED WHICH IS MANDATORY CONDITION BEFORE INVOKING RULE 8D. 3. WITHOUT PREJUDICE TO THE ABOVE, FAILED TO APPRECIAT E THAT FOR THE PURPOSE OF RULE 8D(III), THE INVESTMENTS YIELDING T AXABLE INCOME WERE TO BE EXCLUDED FROM THE AVERAGE INVESTMENTS. COMPUTATION OF BOOK PROFITS UNDER SECTION 115JB DISALLOWANCE UNDER SECTION 14A 4. ERRED IN CONFIRMING DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(III) OF RS.26,00,000/- WHILE COMPUTING BOOK PROF ITS UNDER SECTION 115JB, WITHOUT APPRECIATING THAT PROVISIONS OF SECT ION 14A READ WITH RULE 8D CANNOT BE APPLIED WHILE COMPUTING BOOK PROF ITS UNDER SECTION 115JB AND ONLY ACTUAL EXPENSES INCURRED TO EARN EXE MPT INCOME SHOULD BE ADDED TO THE BOOK PROFITS . 25. GROUND NO.1 TO 3 REGARDING DISALLOWANCE U/S 14A . THIS ISSUE HAS BEEN DECIDED BY US IN ASSESSEES APPEAL FOR THE A.Y . 2010-11 IN PARA 7 TO 11 ABOVE. ACCORDINGLY, THIS ISSUE IS SET ASIDE TO THE RECORD OF THE ASSESSING OFFICER FOR LIMITED PURPOSE OF RE-COMPUTA TION OF DISALLOWANCE IN THE SAME TERMS. 26. GROUND NO.4 REGARDING ADJUSTMENT OF DISALLOWANC E MADE U/S 14A WHILE COMPUTING BOOK PROFITS U/S 115JB. IT IS CONS EQUENTIAL TO THE GROUND NO.1 TO 3 AND ACCORDINGLY SET-ASIDE TO THE A O TO GIVE EFFECT AS PER THE OUTCOME OF DISALLOWANCE U/S 14A. 27. THE REVENUE FOR THE A.Y.2008-09 HAS RAISED THE FOLLOWING GROUND. 17 ITA NO.1667/MUM/2012 & ORS. TATA PROJECTS LTD. . 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE UNDER RULE 8D(2) (II) IGNORING THE FACT THAT THE ASSESSEE FAILED TO SUBSTANTIATE THAT INTEREST B EARING FUNDS WERE NOT UTILISED FOR THE PURPOSE OF INVESTMENT RESULTING IN EXEMPT INCOME. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 151 LACS FOR COMPUTING BOOK PROFITS ULS.115JB WITHOUT APPRECIATING THE FACT TH AT THE EXPENSES PERTAINING TO EXEMPT INCOME ARE NOT ALLOWABLE FOR C OMPUTING BOOK PROFIT. 28. THE GROUND NO.1 REGARDING DISALLOWANCE U/S 14A ON ACCOUNT OF INTEREST EXPENSES. WE HAVE HEARD THE LD. DR AS WEL L AS LD. AR AND CONSIDERED THE RELEVANT RECORD. AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY US IN ASSESSEES APPEAL FOR THE A.Y. 2010-11 IN A PARA 7 TO 11 ABOVE . ACCORDINGLY THIS ISSUE IS SET-ASIDE TO THE RECORD O F THE AO ON SAME TERMS. 29. GROUND NO.2 REGARDING ADJUSTMENT OF DISALLOWANC E OF INTEREST U/S 14A WHILE COMPUTING BOOK PROFIT U/S 115JB. THIS IS CONSEQUENTIAL TO GROUND NO.1, ACCORDINGLY THIS ISSUE IS SET-ASIDE TO THE RECORD OF THE AO TO GIVE EFFECT AS PER THE OUTCOME OF GROUND NO.1. 30. FOR THE ASSESSMENT YEARS 2009-10 TH REVENUE HAS RAISED THE FOLLOWING GROUNDS. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN ALLOWING RELIEF TO THE ASSESSEE TO THE EXTENT IMPUGNED IN THE GROUNDS ENUMERATED BELOW; 1. THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND FA CTS OF THE CASE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE UNDER RULE 8 D(2)(II) AND AT THE SAME TIME GIVING THE FINDING THAT THE AO IS DUTY BOUND T O MAKE DISALLOWANCE AS PER RULE 8D THEREBY CONTRADICTING HIMSELF. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE UNDER RULE 8 D(2)(II) IGNORING THE FACT THAT THE ASSESSEE FAILED TO SUBSTANTIATE THAT INTER EST BEARING FUNDS WERE NOT UTILIZED FOR THE PURPOSE OF INVESTMENT RESULTIN G IN EXEMPT INCOME. 18 ITA NO.1667/MUM/2012 & ORS. TATA PROJECTS LTD. . 31. THE ASSESSEE HAS ALSO FILED THE CROSS OBJECTION NO.09/MUM/2014 AND RAISED FOLLOWING GROUNDS. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IIN ALLOWING RELIEF TO THE ASSESSE E TO THE EXTENT IMPUGNED IN THE GROUNDS ENUMERATED BELOW: 1. THE ORDER OF THE C1T(A) IS OPPOSED TO LAW AND FA CTS OF THE CASE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE UNDER RULE 8 D(2)(II) AND AT THE SAME TIME GIVING THE FINDING THAT THE AO IS DUTY BOUND T O MAKE DISALLOWANCE AS PER RULE 8D THEREBY CONTRADICTING HIMSELF 3. ON THE FACTS .CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD. C1T(A) HAS ERRED IN DELETING THE DISALLOWANCE UNDER RULE 8D(2) (II) IGNORING THE FACT THAT THE ASSESSEE FAILED TO SUBSTANTIATE THAT INTEREST BEARING FUNDS WERE NOT UTILIZED FOR THE PURPOSE OF INVESTMENT RESULTING IN EXEMPT INCOME. 32. THE GROUNDS RAISED BY THE REVENUE IN THE APPEA L AS WELL AS BY THE ASSESSEE IN CROSS OBJECTION ARE IDENTICAL TO THE GR OUND NOS. 5 TO 12 OF THE ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2010-11. IN VIEW OF OUR FINDING FOR THE A.Y.2010-11 ,BOTH THE ISSUE OF DISA LLOWANCE U/S 14A RAISED IN THE REVENUES APPEAL AND CROSS OBJECTION OF THE ASSESSEE ARE SET-ASIDE TO THE RECORD OF THE ASSESSING OFFICER WITH SIMILAR DIRECTIONS. 33. IN THE RESULT, CROSS APPEALS AND CROSS OBJECTIO NS BY ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 /02/2014 . $1 , /0) % $ 2' 21 /02/2014 , 0 , 3 SD/- ( D.KARUNAKARA RAO ) SD/ - ( VIJAY PAL RAO) $% / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; 2' /DATED : 21 /02/ 2014 F{X~{T? P.S. 19 ITA NO.1667/MUM/2012 & ORS. TATA PROJECTS LTD. . $1 , 4.5 6$). / COPY OF THE ORDER FORWARDED TO : (1) ' (7. / THE ASSESSEE; (2) / THE REVENUE; (3) 8 ( ) / THE CIT(A); (4) 8 / THE CIT, MUMBAI CITY CONCERNED; (5) 93 4.' , , / THE DR, ITAT, MUMBAI; (6) 3'( : / GUARD FILE. ;. 4. / TRUE COPY $1' / BY ORDER < / = / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI