DCIT 9(3)(2), MUMBAI V. GARWARE POLYSTER LTD, MUMBAI

ITA 5757/MUM/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0214 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2012-2013
• Appeal Filed On: 11-09-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B B RAJENDRA PRASAD
• Assessee Lawyers: APURV GANDHI
• Keywords: Business income; Depreciation; Earning of tax free income; Unabsorbed depreciation; Rule 8D
• Section: 143(3); 14A; 115JB

Judgement Text

1 IN THE INCOME-TAX APPELLATE TRIBUNAL G BENCH MUMB AI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI N.K. PRADHAN, ACCOUNTANT MEMBER ITA NO. 5757/MUM/2017 (ASSESSMENT YEAR 2012-13 ) DCIT- 9(3)(2) 418, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020. VS. M/S GARWARE POLYSTER LTD. GARWARE HOUSE, WESTERN EXPRESS HIGHWAY, VILE PARLE(EAST), MUMBAI-400057. PAN: AAACG0571D APPELLANT RESPONDE NT APPELLANT BY : SHRI B.B. RAJENDRA PRASAD (CIT-DR) RESPONDENT BY : SHRI APURV GANDHI (AR) DATE OF HEARING : 20.03.2019 DATE OF PRONOUNCEMEN T : 27.03.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDE R OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-56, (HEREINAFTER REFERRED A S LD. CIT(A), MUMBAI DATED 15.06.2017, WHICH IN TURN ARISES FROM THE ASS ESSMENT ORDER DATED 03.05.2016 FRAMED UNDER SECTION 143(3) R.W.S 144C(3 ) OF INCOME-TAX ACT. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: I) 'ON THE FACTS, AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT-(A) ERRED IN DIRECTING THE AO TO EXCLUDE THE INVESTMENTS MADE BY THE ASSESSEE IN GARWARE CHEMICALS LTD. WHILE COMPUTING THE DISALLOWANCE OF U/S. 14A READ WITH RULE 80 OF THE I. T. RULES, 1962.' II) 'ON THE FACTS, AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT-(A) ERRED IN DELETING THE DISALLOWANCE OF INTEREST EXPENSES W ITHOUT APPRECIATING THAT SUB-RULE 80(III) STARTS WITH HEADING 'FORMULA FOR D ETERMINATION OF EXPENDITURE' AND THE THREE STEPS UNDER THIS SUB-RUL E TO COMPUTE THE EXPENDITURE IN RELATION TO EXEMPT INCOME AND SHALL BE APPLIED COLLECTIVELY. ITA NO. 5757 MUM 2017-M/S GARWARE POLYSTER LTD. 2 THEREFORE, THE TOTAL DISALLOWANCE U/S. 14A HAS TO B E THE AGGREGATE OF THE AMOUNTS DETERMINED SO BY APPLYING THREE STEPS TOGET HER AND NOT IN ISOLATION AS DONE BY THE - LD. CIT(A)'. III) 'ON THE FACTS, AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN IGNORING THE CBDT CIRCULAR NO.5 OF 2014 DATED 11.02 .2014 WHEREIN IT HAS BEEN CLARIFIED THAT THE TERM 'INCLUDIBLE' IN THE HE ADING SECTION 14A OF THE ACT AND THE HEADING TO RULE 8D OF I.T. RULES, 1962 INDI CATES THAT FOR INVOKING DISALLOWANCE U/S. 14A, IT IS NOT MATERIAL THAT THE ASSESSEE SHOULD HAVE EARNED SUCH EXEMPT INCOME DURING THE FINANCIAL YEAR UNDER CONSIDERATION'. IV) 'ON THE FACTS, AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT-(A) ERRED IN HOLDING THAT PROVISIONS OF SEC 14A CANNOT BE IMP ORTED WHILE COMPUTING BOOK PROFIT U/S. 115JB'. V) 'ON THE FACTS, AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD. CIT-(A) ERRED IN ALLOWING SET OFF OF UNABSORBED DEPRECIATION OF RS. 19,76,20,191/- PERTAINING TO A. Y. 2001-02 AGAINST BUSINESS INCOME OF CURRENT YE AR IGNORING THE FACT THAT THE DEPRECIATION LOSS OF A. Y. 2001-02 CAN BE CARRI ED FORWARD FOR SET OFF FOR A MAXIMUM PERIOD OF 8 YEARS ONLY AS HELD IN THE CASE OF MUMBAI ITAT SPECIAL BENCH IN THE CASE OF TIMES GUARANTY LTD'. 2. AT THE OUTSET OF HEARING, THE LD. AUTHORIZED REPRES ENTATIVE (AR) OF THE ASSESSEE SUBMITS THAT ALL THE GROUNDS OF APPEAL RAI SED BY REVENUE ARE COVERED EITHER IN FAVOUR OF ASSESSEE OR AGAINST THE REVENUE IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2008-099 TO 2011-12 I N ITA NO. 6537/MUM/2016, 5083/MUM/2015, 2208/MUM/2014 & 31/MU M/2015 DATED 27.12.2018. THE LD. AR OF THE ASSESSEE FURNIS HED A TABULATED CHART NARRATING THE GROUNDS OF APPEAL COVERED EITHER IN F AVOUR OF ASSESSEE OR AGAINST THE REVENUE AND COPY OF DECISION OF TRIBUN AL DATED 27.12.2018 FOR ASSESSMENT YEAR 2008-09 TO 2011-12. ITA NO. 5757 MUM 2017-M/S GARWARE POLYSTER LTD. 3 3. AFTER GOING THROUGH THE GROUNDS OF APPEAL AND IN TH E DECISION OF TRIBUNAL, THE LD. DR FOR THE REVENUE AGREED THAT GR OUND NO.1 IS COVERED IN FAVOUR OF REVENUE AND GROUNDS NO. 2 TO 5 ARE COV ERED IN FAVOUR OF ASSESSEE. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO GONE THROUGH THE CONTENTS OF DECISION OF TRIBUNAL FOR ASSESSMENT YEAR 2008-09 TO 2011-12 DATED 27.12.2018. GROUND NO.1 RELATES TO DIRECTING THE AS SESSING OFFICER TO EXCLUDE THE INVESTMENT MADE BY ASSESSEE IN GARWARE CHEMICALS LTD. WHILE COMPUTING THE DISALLOWANCE UNDER SECTION 14A R.W.RULE 8D. WE HAVE NOTED THAT THIS GROUND OF APPEAL IS COVERED AG AINST THE ASSESSEE IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 BY THE ORDER OF TRIBUNAL DATED 27.12.2018. 5. WE HAVE NOTED THAT THE CO-ORDINATE BENCH WHILE DECI DING THE APPEAL FOR AY 2009-10 FOLLOWED THE DECISION OF HONBLE SUPREME COURT IN MAXOPP INVESTMENT DATED 12.02.2008, WHEREIN IT WAS HELD THAT INVESTMENT MADE IN GROUP CONCERN AS STRATEGICAL INV ESTMENT IS ALSO LIABLE FOR DISALLOWANCE UNDER SECTION 14A. THEREFORE, CONS IDERING THE DECISION OF HONBLE SUPREME COURT IN MAXOPP INVESTMENT (SUPR A) THIS GROUND OF APPEAL RAISED BY REVENUE IS ALLOWED. 6. GROUND NO.2 RELATES TO DELETING THE DISALLOWANCE OF INTEREST EXPENSES UNDER RULE 8D. WE HAVE NOTED THAT THIS GROUND OF AP PEAL IS COVERED IN ITA NO. 5757 MUM 2017-M/S GARWARE POLYSTER LTD. 4 FAVOUR OF ASSESSEE IN ASSESSEES OWN CASE FOR ASSES SMENT YEAR 2008-09 TO 2011-12, THE TRIBUNAL PASSED THE FOLLOWING ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 TO 2011-12. 19. FURTHERMORE NO INTEREST DISALLOWANCE CAN BE MA DE U/S 14A OF THE ACT WHEN OWN FUNDS OF THE ASSESSEE ARE SUFFICIENT TO CO VER THE VALUE OF INVESTMENTS FOR THIS PURPOSE RELIANCE CAN BE PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENT: 1. CIT VS. RELIANCE UTILITIES LTD [313 ITR 340 (8 0M)] 2. CIT VS. HDFC BANK LTD [366 ITR 505 (BOM)] 3. HDFC BANK VS. DCIT [383 ITR 529 (BOM)] 20. FOR THE PURPOSE OF DISALLOWANCE U/S 14A OF THE ACT ONLY THOSE INVESTMENTS ARE TO BE CONSIDERED FORM WHICH EXEMPT INCOME HAS B EEN RECEIVED DURING THE YEAR FOR THIS PURPOSE RELIANCE IS PLACED ON FOLLOWI NG JUDICIAL PRONOUNCEMENT: 1. ACIT VS. VIREET INVESTMENT [165 ITD 25 (DEL) (SB )] 2. ACB INDIA VS. ACIT [374 ITR 108 (DEL)] 3. CIT VS. INTERGLOBE ENTERPRISES LTD. (DELHI HIGH COURT) 4. M/S. SLYVEX CABLE CO. PVT. LTD VS. DCIT BEING IT A NO. 8581/MUM/2011 FOR A. Y 2008-09 DATED 24.02.2016. 5. SYNTEX CORP PVT LTD VS. ITO BEING ITA NO. 2994/M UM/2012 DATED 21.06.2018. 21. IN THE A.Y 2009-10, WE FIND THAT ASSESSEE WAS H AVING OWN FUNDS OF RS. 23,758.60 LAKHS AGAINST WHICH INVESTMENT WAS ONLY T O THE TUNE OF RS. 3,810.02 LAKHS. ACCORDINGLY NO DISALLOWANCE OF INTEREST IS W ARRANTED IN TERMS OF JUDICIAL PRONOUNCEMENTS REFERRED ABOVE. 22. FACTS AND CIRCUMSTANCES IN THE A.Y 2010-11 AND 2011-12, WHEREIN THE REVENUE IS AGGRIEVED FOR DELETING THE DISALLOWANCE OF INTEREST SO MADE BY THE A.O U/S 14A OF THE ACT. RESPECTFULLY FOLLOWING THE REASONING GIVEN IN THE A.Y 2009-10 HEREIN ABOVE WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE LD. CIT(A) FOR THE A.Y 2010-11 AND 2011-12 W ITH REGARD TO DELETING DISALLOWANCE OF INTEREST SO MADE U/S 14A OF THE ACT . 7. THEREFORE, CONSIDERING THE DECISION OF TRIBUNAL, WE DO NOT FIND ANY MERIT IN THE GROUNDS OF APPEAL RAISED BY REVENUE. ITA NO. 5757 MUM 2017-M/S GARWARE POLYSTER LTD. 5 8. GROUND NO.3 RELATES TO IGNORING THE CBDT CIRCULAR N O. 5 OF 2014 DATED 22.02.2014. WE HAVE NOTED THAT THIS GROUND OF APPEA L IS COVERED IN FAVOUR OF ASSESSEE IN ASSESSEES OWN CASE FOR ASSES SMENT YEAR 2008-09 TO 2011-12 WHEREIN THE TRIBUNAL HAS PASSED THE FOLL OWING ORDER: 17. HOWEVER, AS PER OUR CONSIDERED VIEW NO DISALLO WANCE IS TO MADE IF THERE IS NO DIVIDEND INCOME DURING THE YEAR, IN THIS REGA RD HON'BLE ITAT, MUMBAI IN THE CASE OF SLYVEX CABLE CO. PVT. LTD VS. DCIT I N ITA NO. 8581/MUM/2011 DATED 24.02.2016, HELD AS UNDER: '6. WE FIND FORCE IN THE SUBMISSION OF THE ASSESSEE THAT ONLY THOSE INVESTMENTS WHICH WOULD YIELD DIVIDEND AND WHICH IS EXEMPT SHOULD BE CONSIDERED FOR DISALLOWANCE UNDER RULE 8D2(III) OF THE ACT. WE ALSO HOLD THAT THE DISALLOWANCE U/S 14A SHOULD NOT EXCEED THE DIVIDEND INCOME EARNED BY THE ASSESSEE. WE DIRECT THE AO TO RECOMPU TED THE DISALLOWANCE TAKING ONLY THOSE INVESTMENTS WHICH YIELD DIVIDEND INCOME AND APPLY RULE 8D(2)(III) AND SUCH DISALLOWANCE SHOULD NOT EXCEED THE DIVIDEND INCOME EARNED BY THE ASSESSEE': 18. IN VIEW OF THE ABOVE WE DIRECT THE A.O TO RESTR ICT THE DISALLOWANCE U/S 14A IN ALL THE YEARS TO THE AMOUNT OF EXEMPT INCOME EAR NED BY THE APPELLANT DURING THE YEAR UNDER CONSIDERATION. WE ALSO FIND SUPPORT FOR THIS CONTENTION IN THE JUDGEMENT OF THE HON'BLE ITAT, MUMBAI IN THE CASE O F DAGA GLOBAL CHEMICALS VS. ACIT IN ITA NO. 5592/MUM/2012 WHEREIN THE ASSESSEE HAD APPEALED AGAINST THE EXCESSIVE DISALLOWANCE MADE U/ S 14A OF THE ACT. THE ITAT SUBSEQUENTLY HELD THAT EVEN IF DISALLOWANCE U/ S 14A OF THE ACT IS MADE, THE SAME SHALL NOT EXCEED THE AMOUNT OF EXEMPT INCO ME EARNED. RELEVANT EXTRACT OF THE SAID JUDGEMENT IS REPRODUCED HEREUND ER; 'AT BEST; IF ANY DISALLOWANCE COULD BE MADE THAT CA N BE RESTRICTED TO RS. 1,485/- WHICH WERE CLAIMED AS DEMAT CHARGES. DISALL OWANCE U/S 14A R. W. RULE 8D CANNOT EXCEED THE EXEMPT INCOME. IN VIEW OF THIS FACT, WE FIND MERIT IN THE CLAIM OF THE ASSESSEE. THE APPEAL OF T HE ASSESSEE IS THEREFORE STOWED': 19. FURTHERMORE NO INTEREST DISALLOWANCE CAN BE MA DE U/S 14A OF THE ACT WHEN OWN FUNDS OF THE ASSESSEE ARE SUFFICIENT TO CO VER THE VALUE OF ITA NO. 5757 MUM 2017-M/S GARWARE POLYSTER LTD. 6 INVESTMENTS FOR THIS PURPOSE RELIANCE CAN BE PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENT: 1. CIT VS. RELIANCE UTILITIES LTD [313 ITR 340 (8 0M)] 2. CIT VS. HDFC BANK LTD [366 ITR 505 (BOM)] 3. HDFC BANK VS. DCIT [383 ITR 529 (BOM)] 20. FOR THE PURPOSE OF DISALLOWANCE U/S 14A OF THE ACT ONLY THOSE INVESTMENTS ARE TO BE CONSIDERED FORM WHICH EXEMPT INCOME HAS B EEN RECEIVED DURING THE YEAR FOR THIS PURPOSE RELIANCE IS PLACED ON FOLLOWI NG JUDICIAL PRONOUNCEMENT: 1. ACIT VS. VIREET INVESTMENT [165 ITD 25 (DEL) (SB )] 2. ACB INDIA VS. ACIT [374 ITR 108 (DEL)] 3. CIT VS. INTERGLOBE ENTERPRISES LTD. (DELHI HIGH COURT) 4. M/S. SLYVEX CABLE CO. PVT. LTD VS. DCIT BEING IT A NO. 8581/MUM/2011 FOR A. Y 2008-09 DATED 24.02.2016. 5. SYNTEX CORP PVT LTD VS. ITO BEING ITA NO. 2994/M UM/2012 DATED 21.06.2018. 9. CONSIDERING THE DECISION OF TRIBUNAL IN EARLIER ORD ERS AS REFERRED ABOVE, WE DO NOT FIND ANY MERIT IN THE GROUNDS OF APPEAL R AISED BY REVENUE. 10. GROUND NO.4 RELATES TO COMPUTING THE BOOK PROFIT UN DER SECTION 115JB ON DISALLOWANCE UNDER SECTION 14A. WE HAVE NOTED TH AT THIS GROUND OF APPEAL IS COVERED BY THE DECISION OF TRIBUNAL IN AS SESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 TO 2011-12 AND BY THE DECIS ION OF SPECIAL BENCH OF DELHI TRIBUNAL IN VIREET INVESTMENT (165 I TR 25 (DELHI SB). THEREFORE, CONSIDERING THE DECISION OF SPECIAL BENC H WHICH WAS FOLLOWED IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 TO 2011- 12, WE DO NOT FIND ANY MERIT IN THE GROUNDS OF APPE AL RAISED BY REVENUE. 11. GROUND NO.5 RELATES TO DISALLOWANCE OF SET OFF OF U NABSORBED DEPRECIATION PERTAINING TO ASSESSMENT YEAR 2001-02 AGAINST THE INCOME OF CURRENT YEAR. WE HAVE NOTED THAT THIS GROUND OF APPEAL IS ALSO COVERED ITA NO. 5757 MUM 2017-M/S GARWARE POLYSTER LTD. 7 IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE BY TH E DECISION OF ASSESSMENT YEAR 2010-11, WHEREIN THE TRIBUNAL PASSE D THE FOLLOWING ORDER: 25. FOR THE A.Y 2010-11 THE REVENUE AGGRIEVED FOR D ELETING DISALLOWANCE OF SET OFF OF UNABSORBED DEPRECIATION PERTAINS TO THE A.YS 1999-00 AND 2000-01. WE HAVE CONSIDERED RIVAL CONTENTIONS AND FOUND THAT THE ISSUE IS COVERED IN FAVOUR OF ASSESSEE VIDE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. ASSOCIATED CABLES PVT LTD DATED 03.08.2018 AND DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF GENERAL MOTORS IN DIA PVT LTD VS. DCIT (354 ITR 244). RESPECTFULLY FOLLOWING THE ABOVE DEC ISIONS OF THE BOMBAY HIGH COURT AND GUJARAT HIGH COURT, WE DO NOT FIND A NY INFIRMITY IN THE ORDER OF THE CIT(A) FOR ALLOWING SET OFF OF UNABSORBED DE PRECIATION PERTAINING TO THE A.YS 1999-00 AND 2000-01 SIMILAR VIEW HAS BEEN TAKE N BY THE DELHI HIGH COURT IN THE CASE OF MOTOR AND GENERAL FINE LTD., R EPORTED IN 393 ITR 60. FOLLOWING THE ABOVE REASONS, WE DO NOT FIND ANY INF IRMITY IN THE ORDER OF THE LD. CIT(A). 12. CONSIDERING THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11 DATED 27.12.2008. WE HAVE F URTHER NOTED THAT WHILE GRANTING RELIEF TO THE ASSESSEE, THE LD. CIT( A) RELIED UPON THE DECISION OF HIS PREDECESSOR FOR ASSESSMENT YEAR 201 0-11 & 2011-12, THE ORDER OF LD. CIT(A) HAS BEEN AFFIRMED BY TRIBUNAL. THEREFORE, WE DO NOT FIND ANY MERIT IN THE GROUNDS OF APPEAL RAISED BY R EVENUE. 13. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 27/03/2019. SD/- SD /- N.K. PRADHAN, PAWAN SINGH ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 27.03.2019 SK ITA NO. 5757 MUM 2017-M/S GARWARE POLYSTER LTD. 8 COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR G BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI