AHURA MAZDA MANUFACTURING COMPANY LTD, MUMBAI V. ACIT 10(2), MUMBAI

ITA 5933/MUM/2011

• Counselvise Citation: 593319914 RSA 2011
• Duration Of Justice: 2 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-11-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 29-10-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 24-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAVED AKHTAR
• Assessee Lawyers: C N VAZE
• Keywords: Business income; Earning of tax free income
• Section: 143(3); 14A; 80IB

Judgement Text

, , ,, , INCOME TAX APPELLATE TRIBUNAL,MUMBAI - A BENCH. . .. . . .. . , ,, , / !'# !'# !'# !'# , ' ' ' ' BEFORE S/SH. B.R. MITTAL, JUDICIAL MEMBER & RAJENDR A, ACCOUNTANT MEMBER /. ITA NO.5933/MUM/2011, $ $ $ $ % % % % / ASSESSMENT YEAR-2008-09 AHURA MAZDA MANUFACTURING CO. LTD., MAZDA HOUSE, BEHIND C.I.D OFFICE, L.B.S. MARG, GHATKOPAR (W) MUMBAI-400086 VS ACIT 10(2) AAYAKAR BHAVAN, MUMBAI. PAN: AABCA8284E ( &' / APPELLANT) ( ()&' / RESPONDENT) $*+ $*+ $*+ $*+ , , , , ' '' ' / APPELLANT BY : SHRI C.N.VAZE ! - , ' / REVENUE BY : SHRI JAVED AKHTAR $ $ $ $ - -- - +. +. +. +. / DATE OF HEARING : 29-10-2013 /0% - +. / DATE OF PRONOUNCEMENT : 08-11-2013 $ $ $ $ , 1961 - -- - 254 )1( ' '' ' +1+ +1+ +1+ +1+ '2 '2 '2 '2 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM: CHALLENGING THE ORDER DATED 23.05.2011 OF CIT(A)-21 ,MUMBAI,ASSESSEE HAS FILED FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING IN PRINC IPLE THE ACTION OF THE A.O OF DISALLOWANCE U/S 14A. THE SAID DISALLOWANCE MAY PLEASE BE DELETED. 2. WITHOUT PREJUDICE TO THE ABOVE GROUND, THE LD. CIT( A) HAS ALSO ERRED IN CONFIRMING THE ACTION OF THE A.O OF INCORRECTLY CONSIDERING THE INTEREST ON SPECIFIC TERM LOANS FROM BANK FOR APPELLANTS OWN, NON-EXEMPT BUSINESS INCOME FOR CALCULATION OF DISAL LOWANCE U/S 14A. THUS THE DISALLOWANCE MAY BE RESTRICTED TO RS. 97,139/- AS SHOWN IN THE ANNEXURE . 3. THE LD.CIT(A) HAS ALSO ERRED IN CONFIRMING THE ACTI ON OF A.O OF NOT CONSIDERING THE INTEREST INCOME OF RS. 1,23,983/- FOR CALCULATION OF DEDUCTI ON U/ 80IB. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, SUPPLEMEN T, ALTER AND/OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. ASSESSEE HAD ALSO FILED FOLLOWING ADDITION GROUND O F APPEAL : THE DEDUCTION U/S 80IB TO BE REWORKED WITH REFEREN CE TO DISALLOWANCE U/S 14A. SUBMISSIONS REGARDING THIS GROUND OF APPEAL: - DISALLOWANCE U/S 14A IMPLIES THAT THE DISALLOWANCE RELATES TO THE EXEMPT INCOME U/S 10(2A) I.E. SHARE IN THE TOTAL INCOME OF THE FIRM. WHEN ANY AMO UNT IS DISALLOWED U/S 14A, AS A COROLLARY, THE PROFITS OF AN UNDERTAKING STANDS ENHANCED TO THAT E XTENT. HENCE, DEDUCTION U/S 80IB IS SQUARELY APPLICABLE TO SUCH ENHANCED INCOME. DURING THE COURSE OF HEARING BEFORE US,AUTHORISED R EPRESENTATIVE(AR) DID NOT PRESS THE ADDITI - ONAL GROUND.THEREFORE,SAME IS DISMISSED AS NOT PRES SED. 2 ITA NO. 5933/MUM/2011 AHURA MAZDA MANUFACTURING CO. L TD. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING OF ENGINEERING GOODS,FURNITURE AND OFFICE APPLIANCES, FILED ITS RETURN OF INCOME ON 27 .09.2008 DECLARING TOTAL INCOME AT RS.70.41 LACS. ASSESSING OFFICER(AO)FINALISED THE ASSESSMENT ON 23 .08.2010 U/S 143(3) OF THE ACT DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 74.04 LACS. 2. DURING THE ASSESSMENT PROCEEDINGS, AO FOUND THAT AS SESSEE HAD MADE INVESTMENT TO THE TUNE OF RS. 2.21 CRORES IN M/S. AHURA MAZDA METAL FORMING & FINISHING,WHEREIN IT WAS A PARTNER,THAT IT HAD CLAIMED HUGE EXPENDITURE ON ACCOUNT OF INTEREST TO THE TUNE OF RS.47.72 LACS,THAT IT HAD SHOWN SHARE OF PROFIT FROM THE FROM THE AFORESAID FIRM (1 .33 CRORES),THAT WAS CLAIMED AS EXEMPT U/S.10 (2A)OF THE ACT,THAT THE ASSESSEE HAD BEEN UTILISING THE INTEREST BEARING FUND FOR NON-BUSINESS PURPOSES AND ALSO WITH AN INTENTION TO EARN TAX INC OME U/S 10(2A), THAT CLAIM OF HUGE INTEREST EXPENSE WAS NOT ALLOWABLE AS PER THE PROVISIONS OF SECTION 14AOF THE ACT.HE DIRECTED THE ASSESSEE TO FURNISH THE DETAILS OF PROPORTIONATE EXPENSES AS PER RULE 8D OF THE INCOME TAX RULE,1962 (RULES).IN RESPONSE TO THE DIRECTION ISSUED BY THE AO,ASSESSEE FILED ITS LETTER ON 03.08.2010 FURNISHING THE WORKING OF DISALLOWANCE U/S 14A.AFTE R CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AO HELD THAT SAME WERE NOT ACCEPTABLE,THAT THE ASSE SSEE FAILED TO INCLUDE CERTAIN ITEMS IN RESPECT OF PAYMENT OF INTEREST. REFERRING TO THE ORDER PASS ED IN ASSESSEES OWN CASE FOR AY- 2006-07,AO HELD THAT FIRST APPELLATE AUTHORITY(FAA) HAD CONFIR MED THE ORDER PASSED FOR THE AY-2006-07 WITH REGARD TO DISALLOWANCE.INVOKING THE PROVISIONS OF RULE 8D OF THE RULES HE DISALLOWED RS. 4.07 LACS U/S.14A OF THE ACT. 3. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDER, FAA HELD THAT PROVISIONS OF RULE 8D WERE APPLICABLE FROM AY-2008-09 IN PURSUANCE OF THE DECISION DELIVERED BY THE HONB LE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE MANUFACTURING CO. LTD. (234 CTR 1),THAT EVEN IF THE INVESTMENT IN PARTNERSHIP FIRM WAS MADE WITH A VIEW TO CAPITAL APPRECIATION PROVISIONS OF SECTION 14A R.W. RULE 8D APPLIED, THAT THE ASSESSEE HAD NOT PROVED THAT ITS FUND WERE NOT MIXE D OF BORROWED/INTEREST FREE LOAN TAKEN FOR SPECIFIC PURPOSES, THAT ONCE THE FUNDS WERE MIXED, THE ENTIRE INTEREST EXPENDITURE WERE REQUIRED TO BE CONSIDERED FOR THE PURPOSE OF WORKING OF DISALLO WANCE OF INDIRECT INTEREST EXPENDITURE.FINALLY, HE DIRECTED THE AO TO WORK OUT THE DISALLOWANCE AS PER THE RULE 8D CONSIDERING THE DIRECTIONS GIVEN BY HIM ABOUT THE INVESTMENT MADE IN SARASWAT CO-OPERATIVE BANK BY THE ASSESSEE AND THE OPENING/CLOSING BALANCE IN THE FIRM NAMELY AHURA MA ZDA METAL FORMING & FINISHING. 4. BEFORE US,AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT ASSESSEE HAD ITSELF CALCULATED PROBABLE DISALLOWANCE U/S 14A OF THE ACT,THAT OUT OF THE TOT AL INTEREST OF RS. 47.72 LACS INTEREST AMOUNTING TO RS. 31.81 LACS WAS TERM LOANS OR OTHER LOANS, TH AT AO COULD HAVE MADE MAXIMUM DISALLOWANCE OF RS. 97,139/- ONLY,THAT ASSESSEE HAD SUFFICIENT I NTEREST FREE LOANS FROM SISTER CONCERNS, THAT IT HA D ALSO SUFFICIENT PROFIT FOR MAKING INVESTMENT IN PAR TNERSHIP FIRM.HE REFERRED TO PAGE NO. 2, 4, 5 AND 7 OF THE PAPER BOOK, HE RELIED UPON THE ORDER OF TH E HONBLE BOMBAY HIGH COURT DELIVERED IN THE CASE OF RELIANCE UTILITIES AND POWER LTD.(178 TAXMA N 135).DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE FAA. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.FROM THE DOCUMENTS AVAILABLE IN THE PAPER BOOK IT IS CLEAR THAT INTERE ST EXPENDITURE,AMOUNTING TO RS. 47.72 LACS, INCLUDED TERM LOANS AND OTHER LOANS ALSO.WHILE CALC ULATING THE TAXABLE INCOME OF THE ASSESSEE, AO IS AUTHORISED TO DISALLOW THE EXPENDITURE WHICH AN ASSESSEE CLAIMS TO HAVE INCURRED FOR EARNING EXEMPT INCOME,BUT HE HAS TO MAKE PROPORTIONATE DISA LLOWANCE IN CERTAIN CIRCUMSTANCES ONLY. AFTER CONSIDERING THE FACTS OF THE CASE CONCERNED I F THE INTEREST PAID BY THE ASSESSEE HAD NOT RELATION WITH THE EXEMPT INCOME IT CANNOT BE A DECI DING FACTOR FOR CALCULATING DISALLOWANCE U/S 14A R.W.RULE 8D OF THE RULES. WE FIND THAT WHILE DE TERMINING THE TAX LIABILITY OF THE ASSESSEE AO HAD NOT TAKEN INTO CONSIDERATION THESE VITAL FACTOR . SIMILARLY AVAILABILITY OF SURPLUS, RESERVES AND PROFITS ARE THE FACTORS THAT HAVE TO BE CONSIDERED FOR CALCULATING THE DISALLOWANCE U/S 14A OF THE ACT. IN OUR OPINION FAILURE OF THE AO TO CONSIDER T HESE FACTS AS RESULTED IN EXCESS DISALLOWANCE. 3 ITA NO. 5933/MUM/2011 AHURA MAZDA MANUFACTURING CO. L TD. THEREFORE,IN THE INTEREST OF JUSTICE MATTER IS REST ORED BACK TO THE FILE OF THE AO FOR FRESH ADJUDICA TION.HE IS DIRECTED TO RE-CALCULATE THE 14A DISALLO WANCE R.W. RULE 8D OF THE RULES AFTER AFFORDING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE . GROUNDS NO. 1 AND 2 FILED BY THE ASSESSEE -COMPANY ARE PARTLY ALLOWED. 6. LAST GROUND OF APPEAL IS ABOUT NOT CONSIDERING THE INTEREST INCOME OF RS. 1.23 LACS WHILE CALCULA -TING THE DEDUCTION U/S 80IB OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS, AO FOUND THAT ASSESSEE HAD CLAIMED DEDUCTION U/S 80IB OF THE ACT. ON VERIFICATION OF THE AUDIT REPORT SUBMITTED BY THE ASSESSEE,HE FOUND THAT ASSESSEE HAD CLAIMED DEDUCTION UNDER THE SAID SECTION @ 30% OF THE TOTAL PROFIT AMOUNTING TO RS.1,00,59,962/-, THAT TH E SAID AMOUNT INCLUDED OTHER INCOME OF RS. 2.45 LACS.HE DIRECTED THE ASSESSEE TO JUSTIFY THE CLAIM OF DEDUCTION U/S 80IB OF THE ACT IN RESPECT OF THE PROFITS INCLUDING OTHER INCOME ALSO.HE FURTHER ASKE D THE ASSESSEE AS TO WHY THE DEDUCTION U/S 80IB OF THE ACT SHOULD NOT BE RE-COMPUTED BY EXCLUDING T HE OTHER INCOME. AS PER THE AO, ASSESSEE DID NOT FILE AN EXPLANATION.FOLLOWING THE ORDER FOR THE AY- 2007-08, AO HELD THAT DEDUCTION U/S 80IB ON ACCOUNT OF OTHER INCOME WAS NOT ALLOWABLE,THAT T HE OTHER INCOME BY WAY OF INTEREST DID NOT FORM PART OF INCOME GENERATED THROUGH BUSINESS ACTI VITY AND HENCE WAS NOT ELIGIBLE FOR DEDUCTION. ACCORDINGLY, HE RE-COMPUTED THE DEDUCTION U/S 80IB AND EXCLUDED INTEREST INCOME FROM THE FIGURE OF ELIGIBLE PROFIT. 7. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HE HELD THAT SIMILAR ISSUE WAS DECIDED AGAINST THE ASSESSEE BY HIM FOR THE EARLIER AY, HE REJECTED THE APPEAL FILED BY THE ASSESSEE. 8. BEFORE US,AUTHORISED REPRESENTATIVE(AR) SUBMITTED T HAT INCOME DISALLOWED BY THE AO WAS PART OF THE ELIGIBLE PROFIT,THAT FAA HAD CONFIRMED THE O RDER OF THE AO WITHOUT CONSIDERING THE OBJECTS BEHIND THE PROVISIONS OF SECTION 80IB OF THE ACT.D EPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT INTEREST INCOME IN QUESTION HAD TO RELATION WI TH THE DEDUCTION CLAIMED,THAT IT HAD NO CONNEC - TION WITH THE BUSINESS ACTIVITIES CARRIED OUT BY TH E ASSESSEE,THAT THE ISSUE WAS DECIDED AGAINST THE ASSESSEE BY THE JUDGMENT DELIVERED BY THE HONBLE A PEX COURT DELIVERED IN THE CASE OF PANDIAN CHEMICALS (262 ITR278). 9. WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL BEFORE US.IT IS FOUND THAT THE AO HAD ASKED THE ASSESSEE AS TO WHY THE DEDUCTION U/S 80IB OF THE ACT SHOULD NOT BE RE-COMPUTED BY EXCLUDING THE OTHER INCOME AND ASSESSEE DID NOT FIL E ANY EXPLANATION IN THIS REGARD.INTEREST INCOME IN ITSELF IS A NEUTRAL INCOME-IT CAN OR CANNOT FORM THE PART OF A DEDUCTION.IT IS DUTY OF THE ASSESSE E TO PROVE THAT THE CLAIM MADE BY HIM IS AS PER LAW.I F THERE IS NO IMMEDIATE OR DIRECT NEXUS BETWEEN THE INTEREST RECEIVED AND THE ELIGIBLE AMOUNT FOR C LAIMING DEDUCTION,ASSESSEE IN NOT ENTITLED TO GET IT.IN THE CASE UNDER CONSIDERATION,ASSESSEE HAD FAI LED TO PROVE THE JUSTIFICATION OF CLAIMING DEDUCTION FOR THE INTEREST INCOME.THEREFORE,WE ARE OF THE OPINION THAT ORDER OF THE FAA DOES NOT SUFFER FROM ANY INFIRMITY.GROUND NO.3 IS DECIDED AG AINST THE ASSESSEE. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS PAR TLY ALLOWED. * +3 $*+ 4 5 - 1 2+3 !6 - !+ 78. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH NOVEMBER,2013 . '2 - /0% ' 9 :$ 8 $ , 2013 0 - 1 ; SD/- SD/- ( . < < < < . . B.R.MITTAL) ( !'# !'# !'# !'# / RAJENDRA) / JUDICIAL MEMBER ' ' ' ' /ACCOUNTANT MEMBER 4 ITA NO. 5933/MUM/2011 AHURA MAZDA MANUFACTURING CO. L TD. / MUMBAI, :$ /DATE 08.11.2013 SK '2 '2 '2 '2 - -- - (+= (+= (+= (+= >'=%+ >'=%+ >'=%+ >'=%+ / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / &' 2. RESPONDENT / ()&' 3. THE CONCERNED CIT (A) / ? @ , 4. THE CONCERNED CIT / ? @ 5. DR A BENCH, ITAT, MUMBAI / =A1 (+$ , ,, , , . . . 6. GUARD FILE/ 1 B )=+ )=+ )=+ )=+ (+ (+(+ (+ //TRUE COPY// '2$ / BY ORDER, C / 7 ! DY./ASST. REGISTRAR , /ITAT, MUMBAI