GANDHI SPECIAL TUBES LTD, MUMBAI V. ADDL CIT 5(1), MUMBAI

ITA 6025/MUM/2013

• Counselvise Citation: 602519914 RSA 2013
• Duration Of Justice: 1 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2010-2011
• Appeal Filed On: 11-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR BORA
• Assessee Lawyers: PRIYANKA J MARU
• Keywords: Depreciation; Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI BEFORE S/ SHRI R.C. SHARMA, (AM) AND SANJAY GARG, (JM) . . , , , ./ I .T.A. NO. 6025 / MUM/20 13 ( / ASSESSMENT YEAR : 20 10 - 11 ) GANDHI SPECIAL TUBES LTD., 201 - 204, PLAZA, 2 ND FLOOR, 55, HUGHES ROAD, NEXT TO DHARAM PALACE, MUMBAI - 400007 / VS. ADDL. COMMISSIONER OF INCOME TAX CIR 5(1), AAYAKAR BHAVAN , M K ROAD, MUMBAI - 400020 ( / APPELLANT ) .. ( / RESPONDENT ) ./ ./PAN/GIR NO. : AAAC G1 2 61C / APPELLANT BY SHRI PRIYANKA J MARU / RESPONDENT BY SHRI VIJAY KUMAR BORA / DATE OF HEARING : 11.5. 201 5 / DATE OF PRONOUNCEMENT : 24. 7.2015 / O R D E R PER SANJAY GARG, JUDICIAL MEMBER: PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAIN ST THE ORDER DATED 13.9.2013 PASSED BY THE LD. CIT(A) - 9, MUMBAI FOR THE ASSESSMENT YEAR 2010 - 11. 2. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: I. A. THE LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO IN DISALLOWING CLAIM FOR DEDUCTION OF RS .2,85,44,114/ - U/S 80IA OF THE ACT; B. THE LD. CIT(A) FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DISALLOWANCE OF CLAIM OF RS.2,85,44,114/ - U/S 80IA OF THE ACT IS UNWARRANTED AND UNJUSTIFIED ; C. THE APPELLANT PRAYS THAT CLAIM OF RS.2,85,44,114/ - U/S 80IA OF THE ACT BE ALLOWED; ITA. NO .6025 /MUM/20 13 2 II. A. THE LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO IN DISALLOWING RS.10,39,188/ - UNDER RULE 8D R.W.S.14A OF THE ACT; B. T HE LD.CIT(A) FAILED TO APPRECIATE A ND OUGHT TO HAVE HELD THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE DISALLOWANCE UNDER RULE 8D R.W.S.14A OF THE ACT OF RS. 10,39,188/ - IS UNWARRANTED AND UNJUSTIFIED ; C. THE APPELLANT PRAYS THAT THE DISALLOWANCE UNDER RULE 8D R.W.S.14A OF THE ACT OF RS.10,39,188/ - BE DELETED 3. GROUND NO.I : THE ASSESSEE VIDE GROUND NO.I (A) HAS AGITATED THE DISALLOWANCE OF CLAIM OF DEDUCTION U/S 80IA OF THE INCOME TAX ACT, 1961 (THE ACT). 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80IA OF THE ACT AT RS.2,85,44,114 / - ON PROFIT DERIVED FROM GENERATION OF POWER FROM WIND MILL. THE AO OBSERVED THAT THE WIND MILL POWER DIVISION WERE SET UP BY THE COMPANY AT FIVE DIFFERENT LOCATIONS FROM TIME TO TIME DURING THE RELEVANT ASSESSMENT YEAR 2004 - 05, 2005 - 06, 2006 - 07 AND 2008 - 09 AND SINCE THEN , VARIOUS LOSSES/DEPRECIATION IN RESPECT OF THE SAID WIND MILL HAVE BEEN ACCUMULATED EXCEEDING THE PROFIT DERIVED BY THE ASSESSEE FROM THE SAID WIND MILL IN T HE PRESENT ASSESSMENT YEAR. THE ASSESSEE DID NOT CLAIM DEDUCTION U/S 80IA IN THE EARLIER YEARS/IN THE YEAR OF INSTALLATION OF WIND MILL. HE, HOWEVER, CLAIMED DEDUCTION IN THE SUBSEQUENT YEARS. HOWEVER, THE AO WAS OF THE OPINION THAT THE CLAIM OF DEDUCT ION U/S. 80IA SHOULD BEGIN IN THE YEAR OF INSTALLATION OF THE WINDMILL. IN RESPONSE TO SHOWCAUSE NOTICE , THE ASSESSEE SUBMITTED THAT IT WAS ENTITLED TO CLAIM DEDUCTION U/S. 80IA OF THE ACT FOR 10 CONSECUTIVE ASSESSMENT YEARS OUT OF 15 YEARS AND OPTED TO CL AIM DEDUCTION BEGINNING FROM THE YEAR IN WHICH THERE WAS POSITIVE INCOME IN THE HANDS OF THE ASSESSEE. THE ASSESSING OFFICER WAS HOWEVER OF THE OPINION THAT THE ASSESSEE WAS DUTY BOUND TO CLAIM DEDUCTION U/S. 80IA(5) FROM THE INITIAL YEAR OF INSTALLATION . HE ACCORDINGLY , DISALLOWED THE CLAIM OF DEDUCTION IN THE YEAR UNDER CONSIDERATION. THE LD. CIT(A) ALSO UPHELD THE DISALLOWANCE OF DEDUCTION MADE BY AO. THE ASSESSEE THUS HAS COME IN APPEAL BEFORE US. ITA. NO .6025 /MUM/20 13 3 5 . AT THE OUTSET , THE LD. AR HAS STATED THAT THE ISSU E IS COVERED BY THE DECISION OF THE MUMBAI BENCH OF TRIBUNAL IN THE ASSESSEES OWN CASE IN I.T.A. NO. 3902/MUM/2012 (AY: 2009 - 10) ORDER DATED 17.9.2014. WE HAVE GONE THROUGH THE SAID ORDER OF THE TRIBUNAL. A PERUSAL OF THE SAID ORDER OF THE TRIBUNAL I N ASSESSEES CASE (SUPRA) SHOWS THAT THE TRIBUNAL HAS RESTORED THE MATTER TO THE FILE OF THE AO WHILE RELYING UPON THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (P) LTD. VS. ACIT (2010) 231 CTR (MAD) 368 (BCAJ ). WE MAY FURTHER OBSERVE THAT THE HONBLE MADRAS HIGH COURT IN THE ABOVE CITED CASE HAS OBSERVED THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION U/S 80IA FOR 10 CONSE CUTIVE YEARS OUT OF 15 YEARS AND THAT INITIAL YEAR OF BENEFIT CAN BE DECIDED BY THE AS SESSEE. LOSSES AND DEPRECIATION OF THE YEARS EARLIER TO THE INITIAL ASSESSMENT YEAR WHICH HAVE ALREADY BEEN ABSORBED AGAINST PROFITS OF OTHER BUSINESSES CANNOT BE NOTIONALLY BROUGHT FORWARD AND SET OFF AGAINST THE PROFITS OF THE ELIGIBLE BUSINESS FOR COMPU TING THE DEDUCTION U/S.80 - IA. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE OWN CASE OF THE ASSESSEE FOR E ARLIER ASSESSMENT YEARS I.E. AY 2009 - 10, WE RESTORE THIS ISSUE TO THE FILE OF THE AO TO DECIDE THIS ISSUE AFRESH AS PER THE DIRECTION G IVEN BY THE TRIBUNAL IN THE EARLIER ASSESSMENT YEAR. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 6 . GROUND NO.II: THE ASSESSEE HAS AGITATED THE CONFIRMATION OF DISALLOWANCE OF RS.10,39,188/ - UNDER SECTION 14 A OF THE INCOME TAX ACT, 1961, READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 . 7 . THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME FROM MUTUAL FUNDS OF RS.1,00,89,722/ - AND INTEREST ON TAX FREE BONDS OF RS.50,71,644/ - . HOWEVER, TH E ASSESSEE HAD NOT DISALLOW ANY EXPENDITURE AGAINST THE SAID EXEMPT INCOME UNDER SECTION 14A OF THE ACT . THE ASSESSEE, ON BEING ASKED TO EXPLAIN, SUBMITTED THAT THE ASSESSEE HA D NOT INCURRED ANY EXPENDITURE FOR EARNING OF EXEMPT INCOME. HOWEVER, THE AO OB SERVED THAT THE DIVIDEND CANNOT BE EARNED UNLESS THERE IS INVESTMENT OF MONEY IN ACQUIRING THE SHARES/MUTUAL FUNDS AND THAT THE DECISIONS RELATING TO ITA. NO .6025 /MUM/20 13 4 INVESTMENT IN SHARES ARE VERY COMPLEX IN NATURE. IT REQUIRE S SUBSTANTIAL MARKET RESEARCH, DAY - DO - DAY ANA LYSIS OF MARKET TRENDS TO DECIDE WITH REGARD TO ACQUISITION, RETENTION AND SALES OF SHARES AT THE MOST APPROPRIATE TIME. THE AO, THEREFORE, REJECTED THE CLAIM OF THE ASSESSEE THAT IT HAD NOT INCURRED ANY EXPENDITURE TO EARN DIVIDEND INCOME. HE, THEREAFTER , HELD THAT AS PER DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. 328 ITR 81, RULE 8D WAS APPLICABLE FOR THE YEAR UNDER CONSIDERATION. HE ACCORDINGLY , CALCULATED THE DISALLOWANCE U/S 14A ON ACCOUNT OF ADMINIST RATIVE EXPENSES AS PER THE PROVISIONS OF RULE 8D I.E. AT THE RATE OF 0.5% OF THE AVERAGE VALU E OF INVESTMENT. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. THUS, THE ASSESSEE HAS COM E IN APPEAL BEFORE US. 8 . WE HAVE HEARD TH E RIVAL CONTENTIONS OF THE PARTIES AND HAVE ALSO GONE THROUGH THE RECORD . THE LD. AR OF THE ASSESSEE BROUGHT OUR ATTENTION TO PAGE 12 OF THE ASSESSMENT ORDER TO SHOW THAT THE ASSESSEE HAD NOT INVESTED HIS MONEY IN SHARE S. THE ASSESSEE HAD MADE SOME INVES TMENT IN TAX FREE BONDS AND THE REMAINING INVESTMENT OF THE ASSESSEE WAS IN MUTUAL FUNDS , WHICH DO NOT REQUIRE SUBSTANTIAL MARKET RESEARCH OR DAY - TO - DAY MONITORING . HE, THEREFORE, SUBMITTED THAT THE ASSESSEE MADE INVESTMENT IN BONDS AND MUTUAL FUNDS WHICH DO NOT REQUIRE ANY EXPENDITURE . WE FIND THAT THE AO HAS NOT LOOKED INTO THE CONTENTION OF THE ASSESSEE THAT THE INVESTMENT IN MUTUAL FUNDS WERE ONE TIME INVESTMENT S AND D ID NOT REQUIRE DAY - DO - DAY ANALYSIS OF MARKET TRENDS FOR TAKING DECISION WITH REGARD TO ACQUISITION, RETENTION AND SALES . IT MAY BE FURTHER OBSERVED THAT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA) ,T HE HON'BLE BOMBAY HIGH COURT HAS HELD THAT RULE 8D R.W.S. 14A(2) IS NOT ARBITRARY OR UNREASONABLE AND ALSO NOT RETROSPECT IVE AND APPLIES FROM A.Y. 2008 - 09. IT HAS BEEN FURTHER HELD THAT UNDER SECTION 14A OF THE INCOME TAX ACT, RESORT CAN BE MADE TO RULE 8D OF THE INCOME TAX RULES FOR DETERMINING THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME, IF, THE AO IS NOT SATISF IED WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THE SATISFACTION OF THE ASSESSING OFFICER HAS TO BE ARRIVED AT, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. SUB SECTION (2) OF SECTION 14A OF THE ACT DOES NOT IP SO FACTO ENABLE THE ASSESSING OFFICER TO APPLY THE METHOD PRESCRIBED BY THE ITA. NO .6025 /MUM/20 13 5 RULES STRAIGHTAWAY WITHOUT CONSIDERING WHETHER THE CLAIM MADE BY THE ASSESSEE IN RESPECT SUCH EXPENDITURE IS CORRECT. THE SATISFACTION OF THE ASSESSING OFFICER MUST BE ARRIVED AT O N AN OBJECTIVE BASIS. IN A SITUATION , WHERE THE ACCOUNTS OF THE ASSESSEE FURNISH AN OBJECTIVE BASIS FOR THE ASSESSING OFFICER TO ARRIVE AT A SATISFACTION IN REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, THERE WOULD BE NO WARRANT FOR TAKING RECOU RSE TO THE METHOD PRESCRIBED BY THE RULES. AN OBJECTIVE SATISFACTION CONTEMPLATES A NOTICE TO THE ASSESSEE, AN OPPORTUNITY TO THE ASSESSEE TO PLACE ON RECORD ALL THE RELEVANT FACTS INCLUDING HIS ACCOUNTS AND RECORDING OF REASONS BY THE ASSESSING OFFICER IN THE EVENT THAT HE COMES TO THE CONCLUSION THAT HE IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. 9 . HOWEVER, A PERUSAL OF THE ASSESSMENT ORDER REVEALS THAT THE AO HAS NOT FOLLOWED THE GUIDELINES OF OBJECTIVE SATISFACTION AS LAID DOWN BY THE H ONBLE BO MBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE (SUPRA) WHILE MAKING THE DISALLOWANCE. HE WITHOUT RECORDING ANY REASONING FOR HIS DISSATISFACTION WITH REGARD TO THE WORKING/CLAIM OF THE ASSESSEE , MADE A GENERAL OBSERVATIONS THAT THE INVESTMENT IN SHARES REQ UIRES EXPENDITURE TO BE INCURRED FOR MARKET RESEARCH, DAY - DO - DAY ANALYSIS OF MARKET TRENDS ETC. HE HAS NOT GIVEN ANY FINDING REGARDING THE CONTENTIONS OF THE ASSESSEE THAT THE INVESTMENTS WERE MADE IN MUTUAL FUNDS AND IN THAT CASE NO SUCH EXPENDITURE WAS REQUIRED TO BE INCURRED. HE HAS FAILED TO PROPERLY APPLY THE PROPOSITION OF LAW AS LAID DOWN BY THE HO N BLE JURISDICTIONAL HIGH COURT IN THE CA S E OF GODREJ & BOYCE (SUPRA). T HE LD.CIT(A) HAS ALSO IGNORED THE MANDATE OF SECTION 14A OF THE ACT WHILE CONFI RMING THE DISALLOWANCE. 10 . SO KEEPING IN VIEW OF THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE, WE RESTORE THIS ISSUE BACK TO THE FILE OF THE AO WITH A DIRECTION THAT THE AO WILL GIVE OPPORTUNITY TO THE ASSESSEE TO PLACE ON RECORD ALL THE RELEVANT F ACTS INCLUDING ITS ACCOUNTS AND THEN TO EXAMINE THE COMPUTATION/CALCULATION MADE IN THIS REGARD BY THE ASSESSEE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE AO WILL BE AT LIBERTY TO CALL FOR ANY RECORD/EVIDENCES OR STATEMENT ETC. FROM THE ASSESSEE AS MAY BE REQUIRED BY HIM FOR DECIDING THE ISSUE UNDER CONSIDERATION. AFTER GOING ITA. NO .6025 /MUM/20 13 6 THROUGH THE DETAILS PROVIDED BY THE ASSESSEE, THE AO WILL DECIDE THE ISSUE AFRSH IN ACCORDANCE WITH LAW BY WAY OF SPEAKING ORDER. NEEDLESS TO SAY, THE ASSESSEE WILL CO - OPERAT E AND PROMPTLY SUPPLY THE NECESSARY DETAILS ETC. TO THE AO FOR DECIDING THE ISSUE UNDER CONSIDERATION. 11 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 24TH JULY, 2015 . 24TH JULY, 2 01 5 SD SD ( . . / R.C. SHARMA ) ( / SANJAY GARG ) /ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI: 24TH JULY, 2015 . . . ./ SRL , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - CONCERNED 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI CONCERNED 6. / GUARD FILE. / BY OR DER, TRUE COPY (ASSTT. REGISTRAR) , /ITAT, MUMBAI