FDC LTD, MUMBAI V. ACIT 8(1), MUMBAI

ITA 6569/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54899 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 09-08-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 24-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUBACHAN RAM
• Assessee Lawyers: RENU CHOUDHARI; DR K SHIVARAM SHRI AJAY SINGH
• Section: 80IB; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F,MUMBAI BEFORE SHRI T.R. SOOD (AM) & SHRI V. DURGA RAO (JM ) I.T.A.NO.6569/MUM/2009 (A.Y. 2006-07) M/S. FDC LTD., 142-48, GHASWALA ESTATE, S.V.ROAD, JOGESHWARI (W), MUMBAI-400 102. PAN:AAACF0253H VS. ASST. COMMR. OF INCOME-TAX-8(1), AAYKAR BHAVAN, M.K. ROAD, MUMBAI-400 020. APPELLANT RESPONDENT APPELLANT BY DR. K. SHIVARAM, SHRI AJAY SINGH & MS. RENU CHOUDHARI. RESPONDENT BY SHRI S UBACHAN RAM. DATE OF HEARING 09-08-2011 DATE OF PRONOUNCEMENT 12-08-2011 O R D E R PER T.R. SOOD, AM : IN THIS APPEAL, THE ASSESSEE HAS SUBMITTED REVISED GROUNDS, OUT OF WHICH GROUND NO.4 REGARDING ALLOCATION OF COMMUNICATION E XPENSES AND GROUND NO. 6 REGARDING NON-ADJUDICATION OF SOME ISSUES BY CIT (A ) WERE NOT PRESSED AT THE TIME OF HEARING AND, THEREFORE, THE SAME ARE DISMIS SED AS NOT PRESSED. 2. THE OTHER ISSUES RAISED ARE AS UNDER : (1) CONFIRMATION OF DISALLOWANCE U/S.14A. (2) CONFIRMATION OF ALLOCATION OF RESEARCH & DEVEL OPMENT EXPENSES. (3) ALLOCATION OF INTEREST EXPENSES. (4) COMPUTATION OF DEDUCTION U/S.80IB. ISSUE NO. 1: ITA NO 6569/M/09 FDC LTD. 2 3. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DUR ING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS EARNED SOME DI VIDEND INCOME WHICH WAS EXEMPT. THE ASSESSEE HAD DISALLOWED A SUM OF RS.2,0 3,814/- U/S.14A OF THE ACT. THE AO INVOKED RULE 8D AND CALCULATED THE DISALLOWA NCE AT RS.74,81,897/-. 4. ON APPEAL, THE ACTION OF THE AO WAS CONFIRMED BY THE CIT(A) IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF ITO VS. DAGA CAPITAL MANAGEMENT PVT. LTD. (2008) 26 SOT 603 (BOM) (SB). 5. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMI TTED THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG . LTD. VS. DCIT (2010) 328 ITR 81 (BOM.) HAS ALREADY HELD THAT RULE 8D HAS NO RETROSPECTIVE APPLICATION AND, THEREFORE, THE MATTER MAY BE SET ASIDE TO COMP UTE REASONABLE DISALLOWANCE IN THE LIGHT OF THE ABOVE DECISION. 6. ON THE OTHER HAND, THE LD. D.R. STRONGLY SUPPORT ED THE ORDER OF THE CIT(A). 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. LTD. (SUPRA) HAS HELD AS UNDER : HELD, THAT THE PROVISIONS OF RULE 8D OF THE RULES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, WOUL D APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008-09. EVEN PRIO R TO ASSESSMENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLI CABLE, THE ASSESSING OFFICER HAD TO ENFORCE THE PROVISIONS OF SUB- SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE A SSESSING OFFICER IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OF FICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD. THE PROCEEDINGS FOR ASSESSM ENT YEAR 2002-03 WOULD STAND REMANDED TO THE ASSESSING OFFIC ER. THE ASSESSING OFFICER SHOULD DETERMINE AS TO WHETHER T HE ASSESSEE HAD INCURRED ANY EXPENDITURE (DIRECT OR IN DIRECT) IN RELATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUND S WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLA TED UNDER SECTION 14A. THE ASSESSING OFFICER CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. W HILE MAKING THAT DETERMINATION, THE ASSESSING OFFICE SHO ULD PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF ITA NO 6569/M/09 FDC LTD. 3 PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MA TERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. THUS, IT IS CLEAR FROM THE ABOVE THAT RULE 8D HAS NO RETROSPECTIVE APPLICATION. FURTHER, THE HONBLE COURT HAS HELD THAT ONLY REASO NABLE DISALLOWANCE CAN BE MADE IN THE EARLIER YEAR. THEREFORE, WE SET ASIDE T HE ORDER OF LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF AO TO DECIDE T HE SAME IN THE LIGHT OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF GODREJ & BOYCE MFG. LTD. (SUPRA). ISSUE NO. 2: 8. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DUR ING ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS INCURRED CERTA IN RESEARCH & DEVELOPMENT EXPENDITURE. THEREFORE, A QUERY WAS RAISED WHY SUCH EXPENDITURE SHOULD BE ALLOCATED EVEN TO ELIGIBLE UNITS WHERE DEDUCTION U/ S.80IB HAS BEEN CLAIMED. THE ASSESSEE GAVE THE FOLLOWING EXPLANATION : THE PROFITS UNDER SECTION 80IB UNIT ARE TO BE COMP UTED BY APPLYING THE PROVISIONS OF SECTION 28 TO 44. AS PER THE PROVISIONS, R & D EXPENSES ARE ADDED BACK WHILE CALCULATING PROFITS FROM BUSINESS AND THE SAME IS F URTHER ALLOWED U/S.35(2AB) @ 150%. IN CASE R & D EXPENSES, ARE ALLOCATED TO 80IB UNITS, THEY WILL HAVE TO BE F URTHER ADDED TO PROFITS AS PER THE NORMAL PROVISIONS OF IN COME- TAX ACT WHICH WILL FURTHER INCREASE THE PROFITS OF 80IB UNITS. IN VIEW OF THE ABOVE, R&D EXPENSES SHOULD NO T BE ALLOCATED TO 80IB UNITS. THE AO WAS NOT SATISFIED WITH THE ABOVE AND ALLOCAT ED THE RESEARCH & DEVELOPMENT EXPENSES ON THE BASIS OF TURNOVER BEFOR E ALLOWING DEDUCTION U/S.80- IB. 9. THE ACTION OF THE AO WAS CONFIRMED BY THE LD. CI T(A). 10. BOTH THE PARTIES HAVE BEEN HEARD IN DETAIL. 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT IT HAS BEEN POINTED OUT BY THE LD. COUNSEL OF THE ASSESSEE THAT SEPARAT E ACCOUNTS HAVE BEEN ITA NO 6569/M/09 FDC LTD. 4 MAINTAINED FOR ALL THE UNITS AND THIS FACT WAS NOT CONSIDERED BY THE AO. FURTHER, SOME OF THE RESEARCH HAS NOTHING TO DO WITH THE NEW UNITS I.E. ELIGIBLE UNITS WHERE DEDUCTION U/S.80IB HAS BEEN CLAIMED. IN THIS REGARD, HE POINTED OUT THAT, FOR EXAMPLE, BIOTECH RESEARCH WAS IN THE FIELD OF N EW DRUGS AND COULD NOT HAVE BEEN RELATED TO THE ELIGIBLE UNITS. IN ANY CASE, TH E REVENUE ITSELF HAS ALLOCATED ONLY A VERY FEW ITEMS OF THE RESEARCH IN ASSTT. YEA RS 2007-08 AND 2008-09 AND EVEN THE ASSESSEE HAS ACCEPTED THE SAME AND, THEREF ORE, THERE IS NO JUSTIFICATION IN ALLOCATION OF ENTIRE RESEARCH & DEVELOPMENT EXPE NDITURE. THE LD. D.R. HAS POINTED OUT THAT IN THAT CASE THE MATTER HAS TO BE RE-EXAMINED BY THE AO. THEREFORE, WE SET ASIDE THE ORDER OF LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF AO WITH A DIRECTION TO RE-EXAMINE THE ISSUE OF ALLOCATION OF RESEARCH & DEVELOPMENT EXPENDITURE. HE SHOULD DECIDE THE ISSUE AFTER CONSIDERING THE FACT THAT SEPARATE ACCOUNTS HAD BEEN MAINTAINED, WHETHER PARTICULAR EXPENDITURE ON RESEARCH & DEVELOPMENT IS RELATED TO A PARTICULAR U NIT AND ALSO THE BASIS OF ALLOCATION IN THE LATER YEAR, IN ASSTT. YEARS 2007- 08 AND 2008-09 AND THEN DECIDE THE ISSUE. ISSUE NO. 3: 12. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DU RING ASSESSMENT PROCEEDINGS THE AO ALSO OBSERVED THAT THE ASSESSEE HAS INCURRED CERTAIN INTEREST COST AND SOME INTEREST WAS ALSO RECEIVED. THE AO ALLOCATED T HE NET INTEREST TO VARIOUS UNITS ON TURNOVER BASIS. THE ACTION OF THE AO WAS C ONFIRMED BY THE LD. CIT(A). 13. BOTH THE PARTIES HAVE BEEN HEARD IN DETAIL. 14. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT THE MAIN OBJECTION OF THE LD. COUNSEL WAS THAT SOME OF THE INTEREST RELAT ED TO INTEREST PAID ON CERTAIN DEPOSITS OBTAINED FROM C & F DEALERS AND THE SAME C ANNOT BE TREATED AS GENERAL INTEREST EXPENDITURE. WE FURTHER FIND THAT SINCE DE TAILS OF INTEREST COMPONENT HAVE NOT BEEN DISCUSSED BY THE AO, THEREFORE, IN TH E INTEREST OF JUSTICE, WE SET ITA NO 6569/M/09 FDC LTD. 5 ASIDE THE ORDER OF LD. CIT(A) AND REMIT THE SAME BA CK TO THE FILE OF AO WITH A DIRECTION TO CONSIDER VARIOUS COMPONENTS OF INTERES T AND FIRST DETERMINE WHETHER THEY ARE RELATED TO A PARTICULAR UNIT AND THEN ALLO CATION SHOULD BE MADE TO THAT UNIT ONLY AND GENERAL INTEREST EXPENDITURE SHOULD B E ALLOCATED TO ALL THE UNITS ON THE BASIS OF TURNOVER. 15. AFTER HEARING BOTH THE PARTIES, WE FIND THAT TH E AO HAS FURTHER REDUCED AN AMOUNT OF RS.6,82,174/- FROM THE ELIGIBLE PROFITS O F GOA TABLET UNIT ON ACCOUNT OF EXPORT EXPENSES. 16. THE ACTION OF AO WAS CONFIRMED BY THE LD. CIT( A). 17. BOTH THE PARTIES WERE HEARD IN DETAIL. AFTER C ONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT THE MAIN SUBMISSION OF LD . COUNSEL OF THE ASSESSEE WAS THAT EXPORT EXPENSES WERE ALREADY INCLUDED IN THE M ISC. EXPENDITURE AND DETAILS WERE ALSO FILED BUT THE SAME HAS NOT BEEN CONSIDERE D. THEREFORE, IN THE INTEREST OF JUSTICE, WE SET ASIDE THE ORDER OF LD. CIT(A) AN D REMIT THE MATTER BACK TO THE FILE OF AO WITH A DIRECTION TO RE-EXAMINE THE ISSUE AFTER PERUSING THE DETAILS OF EXPENSES AND EXCLUSION OF ANY EXPENDITURE SHOULD BE PROPERLY BROUGHT OUT WITH REASONS. 16. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 12TH DAY OF AUGUST , 2 011. SD/- SD/- (V. DURGA RAO) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 12TH AUGUST, 2011. NG: COPY TO : 1.ASSESSEE. ITA NO 6569/M/09 FDC LTD. 6 2.DEPARTMENT. 3 CIT(A)-16,MUMBAI. 4 CIT-8,MUMBAI. 5.DR,F BENCH,MUMBAI. 6.MASTER FILE. (TRUE COPY) BY ORDER, ASST.REGISTRAR, ITAT, MUMBAI. ITA NO 6569/M/09 FDC LTD. 7 DETAILS DATE INITIALS DESIGNA TION 1. DRAFT DICTATED ON 09-08-2011 SR.PS/ 2. DRAFT PLACED BEFORE AUTHOR 10-08-2011 SR.PS/ 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/ AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9. DATE ON WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER