WELSPUN INDIA LTD, MUMBAI V. DCIT 7(3), MUMBAI

ITA 6094/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75605 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 15-07-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 06-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MITESH SHAH; F V IRANI
• Keywords: Depreciation; Opportunity of being heard; Earning of tax free income; Proportionate interest
• Section: 143(3); 14A; 6

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL G , BENCH MUMBAI , BEFORE : SHRI R.C.SHARMA , A M AND SHRI SANJAY GARG , J M ITA NO. 6733 / MUM/20 1 0 ( ASSESSMENT YEAR : 2006 - 0 7 ) DCIT - 7(3), MUMBAI VS. M/S W E LSPUN INDIA LTD., TRADE WORLD, B WING, 9 TH FLOOR, KAMALA MILLS COMPOUND, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI - 400 013 PAN/GIR NO. : A A AC W 1259 N ( APPELLANT ) .. ( RESPONDENT ) AND ITA NO.6094/MUM/2010 ( ASSESSMENT YEAR :2006 - 07) M/S W E LSPUN INDIA LTD., TRADE WORLD, B WING, 9 TH FLOOR, KAMALA MILLS COMPOUND, SENAPATI BAPAT MARG, LOWE R PAREL, MUMBAI - 400 013 VS. DCIT - 7(3), MUMBAI PAN/GIR NO. : AAACW 1259 N ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : SHRI F.V.IRANI & SHRI MITESH SHAH /REVENUE BY : SHRI JAVED AKHTAR DATE OF HEARING : 10 TH FEBRUARY , 201 4 DATE OF PRONOUNCEMENT : 19 TH FEBRUARY , 201 4 O R D E R PER R.C.SHARMA ( A .M.) : THIS ORDER SHALL GOVERN THE DISPOSAL OF TWO CONNECTED APPEAL S I.E. ITA NO. 6733/M/201 0 , WHICH IS FILED BY THE REVENUE AND ITA ITA NO S . 6 733 &6 094 /20 1 0 2 NO. 6094/M/2010, WHICH IS FILED BY THE ASSESSEE , AGAINST THE ORDER OF CIT(A), DATED 13 - 5 - 2010 , FOR THE ASSESSMENT YEAR 200 6 - 0 7 , IN THE MATTER OF ORDER PASSED UNDER SECTION 143(3) OF THE I.T. A CT. 2 . SINCE THE COMMON ISSUES ARE INVOLVED IN BOTH THE CASES, THEREFORE, FOR THE SAKE OF CONVENIENCE , BOTH THE CASES HAVE BEEN HEARD AND DISPOSED OF BY THIS CONSOLIDATED ORDER TOGETHER. 3 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 4 . C ONCIS E LY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURING TEXTILES PRODUCTS. DURING THE COURSE OF SCRUTINY ASSESSMENT, THE AO DISALLOWED ASSESSEES CLAIM OF DEPRECIATION AND INTEREST OF RS. 16,22,368/ - A ND RS. 24 LAKHS, RESPECTIVELY. THE AO ALSO DISALLOWED EXPENSES BY INVOKING PROVISIONS OF SECTION 14A OF THE ACT. 5 . BY THE IMPUGNED ORDER, THE CIT(A) AFTER FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001 - 02, DELETED THE DISALLOWANCE MADE ON ACCOUNT OF DEPRECIATION AND INTEREST. HOWEVER, DISALLOWANCE MADE UNDER SECTION 14A WAS CONFIRMED. 6 . THE REVENUE IN ITS APPEAL I.E. ITA NO.6733/M/2010 , IS AGGRIEVED BY THE ORDER OF CIT(A) FOR DELETING THE DISALLOWANCE ON ACC OUNT OF DEPRECIATION AND INTER EST . 7 . FROM THE RECORD, WE FOUND THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001 - 02 HELD THAT THE ORDER PASSED BY ITA NO S . 6 733 &6 094 /20 1 0 3 THE AO IS NOT SUSTAINABLE ON THE PLEA THAT REASONABLE OPPORTUNITY OF BEING HEARD BEFORE PASSING THE ORDER UNDER SEC TION 142(2A) WAS NOT GIVEN, THEREFORE, THE ASSESSMENT BASED ON SPECIAL AUDIT REPORT PASSED UNDER SECTION 142(2A) IS NOT SUSTAINABLE. AGAINST THIS ORDER OF ITAT, THE DEPARTMENT HAS NOT FILED ANY APPEAL, WHEREAS THE APPEAL FILED BY THE REVENUE FOR ASSESSMENT YEAR S 1998 - 99 TO 2003 - 04 HAS BEEN DISMISSED BY THE HON BLE HIGH COURT PASSED IN ITA NO.(L) NO.1825/ OF 2009 IN CIT - 7 V/S M/S WELSPUN INDIA LIMITED, VIDE DATED 6 TH AUGUST 2009 AND ITA(L) NO. 1826 OF 2009 IN THE CASE OF CIT VS. M/S WELSPUN INDIA LIMITED, VID E DATED 10 - 8 - 2009 AS WELL AS INCOME TAX APPEALS (L) NO. 2113 TO 2115 OF 2009 FOR ASSESSMENT YEARS 2000 - 01, 1999 - 200 AND 1998 - 99, RESPECTIVELY, VIDE ORDER DATED 10 - 9 - 2009 . IN THE SUBSEQUENT ASSESSMENT YEAR I.E. 2004 - 05 & 2005 - 06 , THE ASSESSEES CLAIM FOR DEP RECIATION AND INTEREST WAS AGAIN DISALLOWED BY THE AO , HOWEVER, THE CIT(A) DELETED THE DISALLOWANCE AGAINST WHICH THE ASSESSEE WAS IN FURTHER APPEAL BEFORE THE TRIBUNAL . TRIBUNAL IN ITS ORDER DATED 30 - 4 - 2010, AFTER HAVING THE FOLLOWING OBSERVATIONS CONFIR MED THE ORDER OF CIT(A), WHO DELETED THE DISALLOWANCE OF DEPRECIATION : - 7. WE HAVE CONSECRATED THE RIVAL CONTENTION AND RELEVANT RECORDS. IT IS EVIDENT FROM THE ASSESSMENT ORDER THAT THE AO HAS NOT MADE ANY INDEPENDENT INQUIRY ON THE ISSUE OF DISALLOWANC E OF DEPRECIATION ON THE ASSETS BUT HE HAS SIMPLY FOLLOWED THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2001 - 02 AS WELL AS SPECIAL AUDIT REPORT PASSED UNDER SECTION 142(2A). SINCE THE ORDER OF APPOINT MENT OF SPECIAL AUDITOR U/S.142(2A) FOR THE ASSESSMENT YEAR ALONG WITH THE ASSESSMENT ORDERS FOR THE ASSESSMENT YEARS 2001 - 02 TO 2003 - 04 HAS BEEN QUASHED BY THIS TRIBUNAL. THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE ITA NO S . 6 733 &6 094 /20 1 0 4 BY HOLDING THAT THE ORDER OF APPOINTMENT OF SPECIAL AUDITOR U/S 142(2A) WAS NOT AS P ER LAW, AND THEREFORE, CONSEQUENTIAL ASSESSMENT IS NOT SUSTAINABLE. THE ORDER OF THIS TRIBUNAL HAS BEEN CONFIRMED BY THE JURISDICTIONAL HIGH COURT WHEN THE APPEALS FILED BY THE REVENUE ARE DISMISSED BY THE ORDER AS REFERRED BY THE LEARNED AR OF THE ASSESSE E. SINCE THE ADDITION WAS MADE PURELY ON THE BASIS OF SPECIAL AUDIT REPORT AND ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2001 - 2002 AND NO INDEPENDENT INQUIRY OR ADJUDICATION ON THE ISSUE HAS BEEN DONE BY THE AO, AND WHEN THE SAID SPECIAL AUDIT REPORT AS WEL L AS CONSEQUENTIAL ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2001 - 02 WAS QUASHED BY THE CIT(A), THEN THIS TRIBUNAL AND CONFIRMED BY THE JURISDICTIONAL HIGH COURT, WE DO NOT FIND ANY MERIT IN THE CONTENTION OF THE LEARNED DR THAT THE EARLIER ORDER FOR THE AS SESSMENT YEAR 2001 - 02 WILL NOT OPERATE AS RESJUDICATA. ACCORDINGLY, WE DECIDE THIS ISSUE AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 8. SIMILARLY, DISALLOWANCE OF INTEREST WAS DELETED BY THE TRIBUNAL AFTER HAVING THE FOLLOWING OBSERVATIONS: - 8. GROUNDS OF APPEAL NO.2 IS REGARDING DISALLOWANCE OF PROPORTIONATE INTEREST ON INTEREST FREE ADVANCES IN RESPECT OF M/ S RAMA PETROCHEMICAL LTD. THIS ISSUE IS ONLY IN APPEAL NO. 5060/MUM/2007 . 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND RELEVANT RECORD. WE NOTED THAT THE AO HAS DISALLOWED THE PROPORTIONATE INTEREST ON THE INTEREST FREE ADVANCES ONLY ON THE BASIS OF ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2001 - 02 AND SPECIAL AUDIT REPORT. SINCE THE AO HAS NOT MADE ANY INDEPENDENT INQUIRY AND ISSUE WAS NO T ADJUDICATED INDEPENDENTLY BUT SIMPLY FOLLOWED THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2001 - 02 AS WELL AS SPECIAL AUDIT REPORT, THEREFORE, THE DISALLOWANCE CANNOT BE SUSTAINED IN VIEW OF THE FACT THAT SPECIAL AUDIT REPORT WAS HELD BY THE TRIBUNAL AS ILLEGAL AND IS NOT AS PER LAW AND CONSEQUENTIAL ASSESSMENT WAS ALSO QUASHED. MOREOVER, THE ORDER OF THE TRIBUNAL HAS BEEN CONFIRMED BY THE JURISDICTIONAL HIGH COURT WHEN THE APPEALS FILED BY THE REVENUE ARE DISMISSED VIDE ORDERS MENTIONED IN THE FORGOING P ARAGRAPHS. ACCORDINGLY , THIS ISSUE IS DECIDED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSE E . 9 . WE HAVE GONE THROUGH THE ORDERS OF LOWER AUTHORITIES. DURING THE YEAR UNDER CONSIDERATION, THE AO HAS DISALLOWED THE DEPRECIATION AND ITA NO S . 6 733 &6 094 /20 1 0 5 INTEREST ON THE BAS IS OF ASSESSMENT ORDER FOR THE A.Y. 2001 - 02 AND THE SPECIAL AUDIT REPORT, WITHOUT MAKING ANY SEPARATE INQUIRY. THE ENTIRE DISALLOWANCE WAS BASED ON THE FINDINGS MADE BY THE AO DURING THE ASSESSMENT YEAR 2001 - 02 AND THE REPORT OF SPECIAL AUDIT . AS THE FACTS AND CIRCUMSTANCES OF THE ASSESSMENT YEAR UNDER CONSIDERATION ARE SAME AS DISCUSSED BY THE TRIBUNAL IN AFOREMENTIONED ORDER , RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE DATED 13 - 4 - 2010, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE CIT(A) DELETING DISALLOWANCE OF DEPRECIATION AND INTEREST . ACCORDINGLY, THE APPEAL OF THE REVENUE IS DISMISSED. 10 . I N APPEAL OF THE ASSESSEE I.E ITA NO.6094/M/2010 , THE ASSESSEE IS AGGRIEVED FOR DISALLOWANCE MADE UNDER SECTION 14A R. W.RULE 8D. 11 . THE AO MADE THE DISALLOWANCE FOR THE FACTS STATED BY HIM IN HIS ASSESSMENT ORDER U/S.14A R.W.RULE 8D(II)/(III). THE ASSESSEE HAD BORROWED LOANS OF RS. 8395.25 MILLION AS AT 31/3/2006 AS DETAILED HEREUNDER : - RS.IN MILLION 1. SECURED LO ANS 7972.17 2. UNSECURED LOANS 423.08 TOTAL RS. 8395.25 -------------- IT HAS BEEN CONTENDED THAT THESE LOANS ARE TAKEN BY WAY OF DEBENTURES TERM LOANS FROM BANKS AND FINANCIAL INSTITUTIONS, HIRE PURCHASE FINANCE FROM BANKS, WORKING CAPITAL AND SHORT TERM LOAN FROM BANKS. IT WAS ALSO ITA NO S . 6 733 &6 094 /20 1 0 6 SUBMITTED THAT ALL THESE LOANS ARE TAKEN FOR SPECIFIC PURPOSES ONLY. AGAIN THE PURPOSE OF TAKING THESE LOANS HAS BEEN DISCLOSED IN THE BALANCE SHEET AS AT 31/3/2006 AS PER REQUIREMENT OF THE COMPANIES ACT. IT WAS SU BMITTED THAT NO PART OF THESE LOANS WERE UTILIZED FOR MAKING INVESTMENT IN SHARES WHICH IS EVIDENT FROM THE DISCLOSURE OF PURPOSE FOR WHICH LOAN IS TAKEN. THE BANKS AND FINANCIAL INSTITUTIONS NORMALLY MAKE PAYMENTS DIRECTLY TO THE SUPPLIERS OR REIMBURSE TO THE ASSESSEE IN CASE PAYMENT IS MADE BY THE ASSESSEE TO THE SUPPLIERS DIRECTLY. HOWEVER, THE AO WAS NOT CONVINCED WITH ASSESSEES EXPLANATION, ACCORDINGLY DISALLOWANCE WAS MADE U/S.14A WHICH WAS CONFIRMED BY CIT(A). 1 2 . THE CONTENTION OF THE LEARNED AR W AS THAT THE AO HAS MADE THIS DIS ALLOWANCE BY INVOKING PROVISIONS RULE 8D, WHICH IS APPLICABLE ONLY FROM ASSESSMENT YEAR 2008 - 09. FURTHERMORE, NO EXPENDITURE WAS ALLEGED TO BE INCURRED FOR EARNING THE EXEMPT INCOME. 1 3 . IT IS NOW WELL SETTLED PRINCIPLE OF LAW THAT THE OF RULE 8D IS APPLICABLE W.E.F. ASSESSMENT YEAR 2008 - 09 AS PER THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT, REPORTED IN (2010) 328 ITR 81 (BOM). THEREFORE, RESPECTFULLY FOLLOWING T HE AFORESAID DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, WE RESTORE THIS ISSUE BACK TO THE FILE OF THE AO. THE AO IS DIRECTED TO RE COMPUTE A REASONABLE DISALLOWANCE AFTER CONSIDERING THE ITA NO S . 6 733 &6 094 /20 1 0 7 EXPENSES DIRECTLY AND INDIRECTLY INCURRED FOR EARNING EXEMPT I NCOME. ACCORDINGLY, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 1 4 . IN THE RESULT, APPEAL FILED BY THE REVENUE (I.E. ITA NO.6733/M/10) IS DISMISSED WHEREAS APPEAL OF THE ASSESSEE (I.E. ITA NO.6094/M/10) I S ALLOWED FOR STATISTICAL PURPOSES . (I.E. ITA NO.6733/M/10) (I.E. ITA NO.6094/M/10) ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19 TH FEB . 201 4 . 19 TH FEB,2014 SD/ - SD/ - ( ) ( SANJAY GARG ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 19 / 02/ 2014 /PKM , PS COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) - X, MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//