PLASTIBLENDS INDIA LTD, MUMBAI V. DCIT RG 8(2), MUMBAI

ITA 6008/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88526 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 18-04-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 10-10-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Keywords: Depreciation; Earning of tax free income
• Section: 14A; 32

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C MUMBAI . . , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NO.6008/MUM/13 (A.Y.2010-11) PLASTIBLENDS INDIA LIMITED KOLSITE HOUSE, 31, SHAH INDL. ESTATE OFF VEERA DESAI ROAD, ANDHERI (W) MUMBAI-400 053. GIR NO./PAN : AAACP 6287 B (APPELLANT ) VS. THE DCIT RANGE 8(2), MUMBAI. (RESPONDENT) APPELLANT BY : SHRI NITESH JOSHI RESPONDENT BY : SHRI NEIL PHILIP - DR DATE OF HEARING : 25 /02/2015 DATE OF PRONOUNCEMENT : 04 /0 3 /2015 ORDER PER CHANDRA POOJARI, A.M: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 31/7/2013 PASSED BY THE LD. CIT(A) FOR THE ASSESSME NT YEAR 2010-11. THE FIRST GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS AS FOLLOWS :- 1. THE CIT(A) OUGHT TO HAVE HELD THAT THE APPELLAN T HAD DISCLAIMED DEDUCTION BY WAY OF DEPRECIATION UNDER SECTION 32(1 ) OF THE ACT IN THE EARLIER YEARS AND, THEREFORE, THE WRITTEN DOWN VALUE ON WHI CH DEPRECIATION WAS TO BE ALLOWED FOR THE YEAR UNDER CONSIDERATION SHOULD HAV E BEEN HIGHER TO THAT EXTENT. 2. THE BRIEF FACTS OF THE ISSUE ARE THAT, WITH REGA RD TO THE CLAIM OF DEPRECIATION FOR THE THREE DIVISIONS OF DAMAN UNIT, THE AO NOTED THAT THE OPENING WDV OF THE ASSETS OF THIS DIVISION WAS INCO RRECT, IN AS MUCH AS, 2 ITA NO.6008/M UM/13 THE ASSESSEE HAD NOT REDUCED THE DEPRECIATION ALLOW ED BY THE AO FOR THE EARLIER YEARS PRIOR TO ASSESSMENT YEAR 2002-03. BUT FOR THAT YEAR, THE ASSESSEE HAD NOT CLAIMED DEPRECIATION ON THE SAID A SSETS OF THREE DIVISIONS OF THE DAMAN UNIT, WHICH HAD BEEN THRUST UPON THE A SSESSEE BY THE AO DURING THE COURSE OF FINALIZING THE ASSESSMENTS FOR THOSE YEARS. HOWEVER, IN THE ASSESSMENT ORDER THE AO HAS RECOMPUTED THE W DV BY TAKING INTO CONSIDERATION THE DEPRECIATION ALREADY ALLOWED FOR THOSE YEARS. THUS THERE WAS DIFFERENCE IN THE DEPRECIATION CLAIMED AND ALLO WED. 3. ON APPEAL, CIT(A) REJECTED THE CLAIM OF THE ASSE SSEE BY OBSERVING THAT THE ISSUE WAS DECIDED AGAINST THE ASSESSEE BY THE JURISDICTIONAL HIGH COURT IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1997-98 REPORTED IN 318 ITR 352 (PLASTIBLENDS INDIA LTD. VS. CIT)(BOM.) . 4. BEFORE US, THE LD. AR RELIED ON THE ORDER OF TH E TRIBUNAL FOR THE ASSESSMENT YEAR 2008-09 AND 2009-10 IN ITA NO.4080 & 4081/MUM/2012 DATED 12/9/2014, WHEREIN IT WAS HELD AS FOLLOWS:- 5. WE HAVE CAREFULLY PERUSED THE ORDER OF THE TRIBUNAL IN ITA 2757/M106. THE TRIBUNAL AT PARA-2 OF ITS ORDER HAS HELD AS UND ER: 'DURING THE COURSE OF HEARING THE LEARNED COUNSEL F OR THE ASSESSEE POINTED OUT THAT IN THE YEAR IN QUESTION THE ASSESS EE HAS CLAIMED DEPRECIATION AND THERE IS NO QUESTION OF THRUST OF ANY DEPRECIATION BUT ITS GRIEVANCE IS THAT THE FINAL OR DERS OF THE EARLIER YEARS WHICH HAVE NOT BEEN PROPERLY IMPLEMENTED. THE ASSESSEE DESIRES THERE SHOULD BE A SPECIFIC DIRECTI ON TO THE ASSESSING OFFICER ON THIS BEHALF SO AS NOT TO DISTU RB THE FINALITY OF THE ORDERS OF THE ORDERS OF THE EARLIER YEARS. T HE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND, HAS NO OBJECTION IF A SPECIFIC DIRECTION IS GIVEN TO THE ASSESSING OFFICE R. WE, THEREFORE, DIRECT THE ASSESSING OFFICER THAT THE WRITTEN DOWN VALUE A S AT THE BEGINNING OF THE YEAR SHALL BE COMPUTED ONLY ON THE BASIS OF THE ORDERS 3 ITA NO.6008/M UM/13 WHICH HAVE ALREADY REACHED THE FINALITY. IN OTHER W ORDS, THE DEPRECIATION ACTUALLY CLAIMED OR DIRECTED TO BE ALL OWED ONLY SHALL BE TAKEN INTO CONSIDERATION BEFORE ARRIVING THE WRI TTEN DOWN VALUE OF THE ASSETS IN QUESTION. RESPECTFULLY FOLLOWING THE ABOVE FINDINGS OF THE TR IBUNAL (SUPRA), WE HOLD ACCORDINGLY. GROUND NO.1 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 5. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. THE TRIBUNAL IN ASSES SEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 AND 2009-10 OBSERVED THAT D EPRECIATION ACTUALLY CLAIMED ARE DIRECTED TO BE ALLOWED ONLY SHALL BE TA KEN INTO CONSIDERATION BEFORE ARRIVING AT THE WRITTEN DOWN VALUE OF THE AS SETS IN QUESTION. HOWEVER, WHILE DECIDING THIS ISSUE IN ASSESSMENT YE AR 2008-09 AND 2009- 10 THE TRIBUNAL HAS NOT CONSIDERED THE JUDGMENT OF ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1997-98 REPORTED IN ITR 318 ITR 352. IN VIEW OF THIS WE ARE INCLINED TO HOLD THAT FOR THE PURPOSE O F DEDUCTION UNDER CHAPTER-VIA, THE GROSS TOTAL INCOME HAS TO BE COMPU TED INTERALIA BY DEDUCTING DEDUCTIONS ALLOWABLE UNDER SECTION 30 TO SECTION 43D,INCLUDING DEPRECIATION ALLOWABLE UNDER SECTION 32 OF THE INCO ME TAX ACT EVENTHOUGH THE ASSESSEE HAS COMPUTED THE TOTAL INCOME UNDER CH APTER IV BY ITS CLAIMING THE CURRENT DEPRECIATION. WITH THESE OBSER VATIONS WE DISPOSED THE GROUND TAKEN BY THE ASSESSEE . 6. GROUND NO.2 AND 3 WHICH CAME UP FOR OUR CONSIDER ATION ARE AS FOLLOWS :- 2. THE CIT(A) OUGHT TO HAVE HELD THAT THE APPELLA NT HAD ALREADY DISALLOWED RS.15,095/- AS BEING ALLOCABLE UNDER SECTION 14A AN D NO FURTHER EXPENDITURE BY WAY OF ADMINISTRATIVE COST HAD BEEN INCURRED IN RELATION TO EARNING OF EXEMPT INCOME AND, HENCE, NO SUCH ADDITIONAL EXPEN DITURE COULD NOT BE THE SUBJECT MATTER OF DISALLOWANCE UNDER SECTION 14A OF THE ACT. 4 ITA NO.6008/M UM/13 3. THE CIT(A) OUGHT TO HAVE HELD THAT THE DISALLOW ANCE, IF ANY, UNDER SECTION 14A OF THE ACT COULD NOT EXCEED THE AMOUNT OF RS.15 ,095/-. THE CIT(A) ERRED IN UPHOLDING AN ADHOC DISALLOWANCE UNDER SECTION 14 A @ 0.5% OF AVERAGE VALUE OF INVESTMENTS ON THE FIRST DAY AND LAST DAY OF PREVIOUS YEAR. 6.1 FACTS OF THE ISSUE ARE THIS GROUND RELATES TO D ISALLOWANCE OF RS.2,83,314/- AS EXPENDITURE DISALLOWABLE UNDER SEC TION 14A IN RELATION TO THE EXEMPT INCOME AND TREATING THE SAME AS NOT ALLO WABLE EXPENDITURE UNDER SECTION 14A IN COMPUTATION OF THE TOTAL INCOM E BY APPLYING PROVISIONS OF RULE 8D. DURING THE ASSESSMENT PROCEE DINGS THE ASSESSEE HAD SHOWN DIVIDEND INCOME OF RS.14,02,902/- WHICH H AS BEEN CLAIMED AS EXEMPT UNDER SECTION 10(34). THE AO HELD THAT IT WA S NOT POSSIBLE FOR THE ASSESSEE TO HAVE EARNED THE TAX FREE INCOME WHICH I NVOLVED COMPLEX INVESTMENT DECISIONS WITHOUT INCURRING MANAGEMENT A ND ADMINISTRATIVE EXPENSES, ESPECIALLY AS SUCH DECISIONS WERE TAKEN B Y THE BOARD OF DIRECTORS. THE AO THEREFORE, HELD THAT IT WAS VALID TO DISALLOW PROPORTIONATE MANAGEMENT EXPENSES, AND RELIED ON THE FOLLOWING JU DICIAL DECISIONS:- A) CHEMINVEST LTD. (317 ITR 86(AT) AND B) GODREJ & BOYCE MFG. CO.LTD. 234 CTR 1 6.2 THE CIT(A) FOLLOWED THE EARLIER ORDER OF THE CI T(A) IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2008-09 AND 2009-10 A ND DEDUCTED CLAIM OF THE ASSESSEE. AGAINST THIS THE ASSESSEE IS IN AP PEAL BEFORE US. 6.3 WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, FOR THIS CASE THE ABOVE ISSU E WAS DECIDED BY THE ORDER OF THIS TRIBUNAL IN THE ASSESSMENT YEARS 2008 -09 AND 2009-10 IN ITA 5 ITA NO.6008/M UM/13 NOS.4080 & 4081/MUM/2012 DATED 12/9/2014 WHEREIN I T WAS HELD AS FOLLOWS:- 12. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW. A PERUSAL OF THE SCHEDULE OF INVESTMENTS AT PAGE-21 OF THE AN NUAL REPORT FOR THE YEAR SHOWS THAT THE INVESTMENTS AS ON 3 1.3.2007 WERE AT RS. 15.74 CRORES, THE SAME HAS COME DOWN TO RS. 7.41 CRORES ON 31.3.2008. A PERUSAL OF THE CASH FLOW STATEMENT AT PAGE-30 OF THE ANNUAL REPORT SHOW S THAT THE ASSESSEE HAD SUFFICIENT CASH ACCRUALS FROM ITS OWN FUNDS THEREFO RE WE AGREE WITH THE CONTENTION OF THE LD. COUNSEL THAT NO PART OF INTER EST CAN BE DISALLOWED NOR THIS ISSUE IS BEFORE US. HOWEVER, COMING TO THE DIS ALLOWANCE OF OTHER DIRECT OR INDIRECT EXPENDITURE, THE ASSESSEE HAS COMPUTED THE DISALLOWANCE AT RS. 24,304/- BY ALLOCATING THE SALARY PAID TO JUNIOR AC COUNTANT. WE DO NOT AGREE WITH THIS COMPUTATION OF DISALLOWANCE BY THE ASSESS EE. IT IS AN UNDISPUTED FACT THAT INVESTMENT IS A POLICY DECISION TAKEN BY THE B OARD OF DIRECTORS AT THE HIGHEST LEVEL WHICH REQUIRES LOT OF CONSULTANCY FRO M VARIOUS EXPERTS. THEREFORE, THE DISALLOWANCE U/S. 14A R.W. RULE 8D(2 )(III) BECOMES IMPERATIVE, AS THE DISALLOWANCE HAVE BEEN COMPUTED BY THE AO AS PER THE APPLICABLE PROVISIONS OF LAW. WE DO NOT FIND ANY REASON TO INT ERFERE WITH THE DISALLOWANCE. GROUND NO. 2 & 3 ARE ACCORDINGLY DISM ISSED. 6.4 THE FACTS OF THE PRESENT CASE IS SIMILAR TO THE ONE CONSIDERED BY THE TRIBUNAL FOR THE ASSESSMENT YEARS 2008-09 AND 2009- 10 CITED SUPRA. IN VIEW OF THIS, WE ARE INCLINED TO DECIDE THE ISSUE I N FAVOR OF THE ASSESSEE ON SIMILAR LINES. 7. IN THE RESULT APPEAL OF THE ASSESSEE IN ITA NO.6 008/MUM/13 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04/03/2015. !' # $%& 04/03/2015 ! ' SD/ - SD/ - ( . . / I.P. BANSAL) ( / CHANDRA POOJARI ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; $% DATED : 04/03/2015 . % . ./JV, SR. PS 6 ITA NO.6008/M UM/13 ()* ()* ()* ()* +*') +*') +*') +*') / COPY OF THE ORDER FORWARDED TO : 1. ,- / THE APPELLANT 2. (.,- / THE RESPONDENT. 3. / ( ) / THE CIT(A)- 4. / / CIT 5. *0' ()% , , / DR, ITAT, MUMBAI 6. '1 2 / GUARD FILE. % % % % / BY ORDER, .*) () //TRUE COPY// 3 33 3 / 4 4 4 4 5 5 5 5 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI