DONEAR INDUSTRIES LTD, MUMBAI V. ACIT 8(1), MUMBAI

ITA 6715/MUM/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71050 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 20-05-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 21-09-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J K GARG
• Assessee Lawyers: HARI OM TULSIYA N
• Keywords: Capital asset; Notional interest; Onus to prove
• Section: 14A; 80IB

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - D BENCH. . .. . , !' !' !' !' # # # # $%&' $%&' $%&' $%&' , % % % % () () () () BEFORE S/SH.D.MANMOHAN,VICE-PRESIDENT & RAJENDR A,ACCOUNTANT MEMBER ./ ././ ./ ITA NO.6715/MUM/2010 , + + + +/ // / ASSESSMENT YEAR-2006-07 DONEAR INDUSTRIES LTD. 210, KEY TWO INDUSTRIAL ESTATE, KONDIVITTA LANE, NEAR MIDC, ANDHERI EAST, MUMBAI- 400059 VS. ASST. COMMISSIONER OF INCOME TAX- 8(1), AAYAKAR BHAVAN, M.K.ROAD. MUMBAI- 400 020 PAN: AAACD1688C ( ,- / // / APPELLANT ) ( ./,- / RESPONDENT ) ,- ,- ,- ,- 0 0 0 0 % %% % / APPELLANT BY : SHRI HARIOM TULSIYAN ./,- 1 0 % / RESPONDENT BY : SHRI J.K.GARG 1 11 1 2 2 2 2 / DATE OF HEARING : 29/08/2013 3+ 1 2 / DATE OF PRONOUNCEMENT : 06/09/2013 , 1961 1 11 1 254(1) % %% % &242 &242 &242 &242 (%5 (%5 (%5 (%5 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M: CHALLENGING THE ORDER DTD.16.10.2009 OF THE CIT(A)- 16,MUMBAI ASSESSEE-COMPANY HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.THE LEARNED CIT (APPEAL) HAS ERRED IN CONFIRMING THE EXCLUSI ON OF RS.7,36,938/-BEING THE INCOME EARNED FROM THE SALE OF A SCRAP FOR THE PURPOSES OF COMPUTING THE ELIGIBLE INCOME FOR ALLOWANCE OF DEDUCTION UNDER SECTION 80 IB. 2.THE LEARNED CIT(A) ERRED IN CONFIRMING THE EXCLUSION OF THE INCOME OF RS.5,91,70,507/-ON THE GROUND THAT IT IS APPORTIONABLE TO THE PAYMENT OF PROCESSING CHARGES EVEN THOUGH THE HON BLE TRIBUNAL HAS ALLOWED THE POINT IN FAVOUR OF THE ASSESSEE YEAR AFTER YEAR. 3.THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING THE DISALLOWANC E OF INTEREST OF RS.21,15,000/- UNDER SECTION36(L)(III)ON THE GROUND THAT THE SAME SHOULD BE CONSIDE RED AS RELATABLE TO ACQUISITION OF CAPITAL ASSET. 4.THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING THE ADDITION OF RS. 4,37,665/-BY INVOKING THE RULE 8D UNDER SECTION 1 4A EVEN THOUGH THIS PROVISION WAS NOT APPLICABLE FOR THIS ASSE SSMENT YEAR. 5.THE ASSESSEE CRAVES LEAVE TO ALTER, AMEND, RESCIND AN D SUBSTITUTE ANY OF THE ABOVE-MENTIONED GROUNDS AND ADD ANY FURTHER GROUND BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 2. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING TEXTILES,FILED ITS RETURN OF INCOME ON 16.11.2006 DECLARING TOTAL INCOME OF RS.5.15 CRO RES.ASSESSING OFFICER (AO) FINALISED THE ASSESSMENT ORDER U/S.143(3) OF THE ACT,ON 12.12.200 8,DETERMINING THE TOTAL INCOME AT RS.11.58 CRORES. 2.1. FIRST GROUND OF APPEAL PERTAINS TO EXCLUSION OF RS. 7,36,938/-BEING THE INCOME EARNED FROM THE SALE OF A SCRAP FOR THE PURPOSES OF COMPUTING THE E LIGIBLE INCOME FOR ALLOWANCE OF DEDUCTION UNDER SECTION 80-IB OF THE ACT.DURING THE ASSESSMEN T PROCEEDINGS AO FOUND THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S.80IB IN RESPECT OF 3 UNITS I. E. BALAJI INDUSTRIES @30%, BALAJI TEXTILE @100% AND LAXMI FABRICS @100%, THAT THE ASSESSEE HA D INCLUDED THE INCOME OF SALE OF SCRAP FOR THE COMPUTATION OF DEDUCTION U/S.80IB OF THE ACT.AO WAS OF THE OPINION THAT SCRAP SALE WAS NOT ELIGIBLE FOR DEDUCTION UNDER THE SAID SECTION.RELYI NG UPON THE JUDGMENTS OF THE HONBLE SUPREME COURT AND HONBLE MADRAS HIGH COURT DELIVERED IN TH E CASE OF PANDIAN CHEMICALS (262 ITR 278) AND (270ITR448),HE HELD THAT THE INCOME OF SCRAP SA LE WAS NOT ELIGIBLE FOR DEDUCTION U/S.80IB OF THE ACT. 2.2. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE AND THE ASSESSMENT ORDER HE HELD THAT THE 2 ITA NO. 6715/MUM/2010 DONEAR INDUSTRIES LTD. INCOME ON SALE OF SCRAPE WAS NOT DERIVED FROM MANUF ACTURING ACTIVITY.RELYING UPON THE JUDGMENT OF PANDIAN CHEMICALS OF HONBLE MADRAS HIGH COURT( SUPRA),HE CONFIRMED THE ORDER OF THE AO. 2.3. BEFORE US,AUTHORISED REPRESENTATIVE(AR)SUBMITTED TH AT IN THE EARLIER YEAR FAA HAD ALLOWED THE RELIEF U/S. 80IB, THAT THE SAID ORDER OF THE FA A WAS NOT AGITATED BY THE AO BEFORE THE TRIBUNAL, THAT THE JUDGMENT OF PANDIAN CHEMICALS(SUPRA)DEALT WITH THE ISSUE OF INTEREST ON DEPOSIT, THAT CLAIM IN THE CASE UNDER CONSIDERATION WAS MADE U/S. 80IB OF THE ACT,THAT IN THE CASE OF PANDIAN CHEMICALS(SUPRA) AMOUNT ARISING OUT SALE OF SCRAP W AS NOT DEALT WITH. HE RELIED UPON THE JUDGMENT OF SADHU FORGING LTD. DELIVERED BY THE HON BLE HIGH COURT OF DELHI (336 ITR 444).DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THA T SECTIONS 80HH AND 80IB WERE IDENTICAL, THAT BOTH WERE ABOUT CLAIM OF DEDUCTION,THAT JUDGME NT OF THE CASE OF PANDIAN CHEMICALS (SUPRA) WAS APPLICABLE TO THE FACTS OF THE CASE UNDER CONSI DERATION.HE STRONGLY RELIED UPON THE ORDER OF THE AO AND THE FAA. 2.4 .WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL BEFORE US.WE ARE OF THE OPINION THAT THE PROVISIONS OF SECTION 80HH AND 80IB OF THE ACT OPERATE IN TOTALLY DIFFERENT AREAS BECAUSE THE WORDS USED IN THESE SECTIONS ARE MATERIALLY DIF FERENT. PROVISIONS OF THE SECTION 80HH REQUIRE THAT THE PROFIT & GAIN SHOULD BE DERIVED FR OM THE INDUSTRIAL UNDERTAKING,BUT SECTION 80IB STIPULATES THAT PROFIT SHOULD BE DERIVED FROM ANY BUSINESS OF THE INDUSTRIAL UNDERTAKING . CLEARLY FOR CLAIMING DEDUCTION U/S. 80IB OF THE ACT A DIREC T NEXUS BETWEEN THE ACTIVITY OF INDUSTRIAL UNDERTAKING AND THE PROFITS/GAINS IS NOT A PRE-COND ITION.THEREFORE, INCOME GENERATED OUT OF THE SALE OF SCRAP,IN OUR OPINION,FORMS PART OF THE AMOU NT THAT CAN BE CLAIMED EXEMPT U/S.80IB OF THE ACT.WE FIND THAT DEALING WITH THE ISSUE OF SALE OF SCRAP WITH REGARD TO DEDUCTION U/S. 80IB OF THE ACT HONBLE DELHI HIGH COURT HAS IN THE CASE OF SAD HU FORGING LTD. HAS HELD AS UNDER: WITH THE CONSENT OF THE COUNSEL FOR THE PARTIES, W E HAVE HEARD THE MATTER FINALLY. TO ANSWER THE QUESTIONS IN BOTH THE APPEALS, WE NEED TO CONSIDER, FIRSTLY, AS TO WHETHER THE SCRAP, GENERATED AT VARIOUS STAGES OF MANUFACTURING PROCESS, WAS PART O F MANUFACTURING ACTIVITY OF THE INDUSTRIAL UNIT AND THUS REPRESENTED PROFITS AND GAINS DERIVED FROM THE INDUSTRIAL UNDERTAKING ON THIS ACCOUNT WERE ENTITLED TO DEDUCTION UNDER SECTION 80-IB. .. THERE CANNOT BE ANY TWO OPINIONS THAT MANUFACTURIN G ACTIVITY OF THE TYPE OF MATERIAL BEING UNDERTAKEN BY THE ASSESSEE WOULD ALSO GENERATE SCRA P IN THE PROCESS OF MANUFACTURING. THE RECEIPTS OF SALE OF SCRAP BEING PART AND PARCEL OF THE ACTIVITY AND BEING PROXIMATE THERETO WOULD ALSO BE WITHIN THE AMBIT OF GAINS DERIVED FROM THE INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 80-IB. RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT,WE HOLD T HAT SCRAP GENERATION WAS PART OF MANUFACTU - RING ACTIVITY OF THE INDUSTRIAL UNDERTAKING RUN BY THE ASSESSEE.THEREFORE, REVERSING THE ORDER OF THE FAA,WE DECIDE GROUND NO.1 IN FAVOUR OF THE ASSESSEE . 3. NEXT GROUND OF APPEAL PERTAINS TO EXCLUSION OF THE INCOME OF RS.5,91,70,507/- FROM THE 80IB DEDUCTION ON THE GROUND THAT IT WAS APPORTIONABLE T O THE PAYMENT OF PROCESSING CHARGES.DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT THE ASSESS EE-COMPANY HAD EARNED INCOME WHILE DOING JOB WORK FROM VARIOUS PARTIES AND HAD CLAIMED DEDUC TION ON SUCH INCOME U/S.80IB OF THE ACT.AO WAS OF THE OPINION THAT DEDUCTION WAS NOT AVAILABLE FOR THE INCOME EARNED UNDER THE HEAD PROCESSING CHARGES.THEREFORE,HE DISALLOWED THE CLAI M MADE BY THE ASSESSEE. 3.1. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE,HE HELD THAT THE ASSESSEE-COMPANY HAD EARNED INCOME WHILE DOING JOB WORK FROM VARIOUS PAR TIES,THAT IT HAD CLAIMED DEDUCTION ON SUCH INCOME U/S.80IB,THAT THE ASSESSEE-COMPANY HAD EARNE D INCOME WHILE GETTING JOB WORK DONE FROM VARIOUS PARTIES,THAT IT HAD CLAIMED DEDUCTION ON SU CH INCOME U/S.80IB OF THE ACT.PLACING RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN CASE OF K.RAVINDRANATHAN NAIR(295 ITR 228),HE HELD THAT INCOME RECEIVED FROM PROCESSING CHARGES W AS NOT TO BE FULLY INCLUDED FOR DEDUCTION PURPOSES,THAT ALTHOUGH THE DECISION OF THE HONBLE SUPREME COURT WAS REGARDING THE DEDUCTION U/S.80HHC OF THE ACT-BUT THE RATIO OF SAID DECISION WAS DIRECTLY APPLICABLE TO THE CASE UNDER 3 ITA NO. 6715/MUM/2010 DONEAR INDUSTRIES LTD. CONSIDERATION. FINALLY,HE HELD THAT THE ASSESSEE-CO MPANY WAS NOT ELIGIBLE FOR CLAIMING DEDUCTION U/S.80IB ON THE INCOME RECEIVED ON ACCOUNT OF PROCE SSING CHARGES. 3.2. BEFORE US,AR SUBMITTED THAT A SIMILAR ISSUE FROM TH E AY 1999-2000 ONWARDS WAS DECIDED IN FAVOUR OF THE ASSESSEE, THAT EVEN IN THE APPEAL FOR AY 2007-08 TRIBUNAL HAD ALLOWED THE APPEAL FILED BY THE ASSESSEE, THAT AO AND FAA HAD WRONGLY PLACED RELIANCE ON THE CASE OF K RAVINDRANATHAN NAIR (SUPRA) . HE RELIED UPON THE OR DER OF THE TRIBUNAL DELIVERED FOR THE AYS.200 0-01,2002-03,1999-2000,2003-04, 2004-05 AND 2007-08 (ITA NOS. 2075/MUM/2005, 6875/ MUM/2005,2509-2511/ MUM/2007 701/MUM/2008, 6748/MUM /2011 DATED 30.07.2008, 16.03. 2009,AY-2005-06 ITA NO. 2651/MUM/2008 ORDER DATED 3 0.06.2009, 2007-08 ITA NO. 6748/ MUM/2011 DATED 03.04.2013.) 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. ASSESSEE IN THE AYS.1999-2000 TO2004-05 AND AY.2007-08.WE FURTHER F IND THAT WHILE DECIDING THE APPEAL NO. 6748/MUM/2011 FOR THE AY 2007-08 D BENCH OF THE T RIBUNAL HAD RELIED UPON THE EARLIER ORDERS PASSED BY THE TRIBUNAL IN ASSESSEES OWN CASE.HERE, WE WOULD LIKE TO REPRODUCE THE OPERATIVE PORTION OF THE ORDER OF THE TRIBUNAL FOR THE AY 200 1-02 AND FOR THE AY 2002-03 : 7REGARDING THE SECOND ISSUE, THE CIT(A) HAD ALLOW ED U/S. 80IB ON PROFITS ATTRIBUTABLE TO MANUFA -CTURING ACTIVITIES CARRIED OUT BY THE AS SESSEE ON JOB WORK BASIS FROM OUTSIDE PARTIES. 8.WE HEARD BOTH THE PARTIES. THE. ISSUE IS COVERED BY THE. DECISION OF ITAT MUMBAI BENCH E IN THE CASE OF SHAH ORIGINALS VS ACIT/DCI T 19 SOT 568 (MUM) WHEREIN IT HAS BEEN HELD AS FOL1OWS: , IN VIEW OF THE ABOVE; WE ARE OF THE CONSIDERED OPIN ION THAT JOB-WORK GOT DONE UNDER OWN, SUPERVISION OF THE ASSESSEE CAN BE CONSI DERED TO,BE A PART OF THE MANUFACTURING PROCESS OF THE ASSESSEE AND IN THIS V IES OF MATTE, DYEING AND PRINTING ALTHOUGH GOT DONE AS JOB-WORK CAN QUALIFY AS MANUF ACTURING PROCESS. 9.FOLLOWING THE ABOVE, WE CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THE DEPARTMENTAL APPEAL ON THIS ISSUE ALSO. AFTER CAREFUL CONSIDERATION OF THE ABOVE DECISIONS OF THE COORDINATED BENCHES, WE ARE OF THE OPINION THAT THE FACTS OF THE CASE FOR THE YEAR UND ER CONSIDERATION ARE SIMILAR TO THE FACTS OF EARLIE R AND SUBSEQUENT YEARS.THEREFORE, REVERSING THE ORDER OF THE FAA,WE DECIDE GROUND NO.2 IN FAVOUR OF THE ASSESSEE. 4. NEXT GROUND OF APPEAL DEALS WITH DISALLOWANCE OF IN TEREST OF RS.21,15,000/-U/S.36 (L)(III) OF THE ACT ON THE GROUND THAT THE SAME SHOULD BE CONSIDERE D AS RELATABLE TO ACQUISITION OF CAPITAL ASSETS.DURING THE ASSESSMENT PROCEEDINGS AO FOUND T HAT THE ASSESSEE HAD SHOWN CAPITAL WORK IN PROGRESS OF RS.17,38,81,950/-,THAT THE ASSESSEE HAD NOT CAPITALISED INTEREST EXPENSES INCURRED FOR WORK IN PROGRESS.ACCORDINGLY,A SHOW CAUSE NOTICE WA S ISSUED TO THE ASSESSEE TO EXPLAIN AS WHY INTEREST HAD NOT BEEN CAPITALISED.AFTER CONSIDERING ITS REPLY, THE AO HELD THAT THE PROVISIONS OF SECTION 36(L)(III) AS AMENDED W.E.F. 1/04/2004 WERE APPLICABLE IN THE CASE UNDER CONSIDERATION, THAT AS PER THE AMENDED PROVISIONS, NO DEDUCTION WA S TO BE ALLOWED IN RESPECT OF ANY AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR A CQUISITION OF AN ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE.HE FURTHER HELD THAT ASS ESSEE HAD PAID INTEREST OF RS.1,54,42,462/-,THAT ALTHOUGH THE ASSESSEE HAD NOT BORROWED THE LOAN DIR ECTLY RELATED TO THE ASSETS,BUT INTEREST BEARING FUNDS WERE UTILISED FOR THE ACQUISITION OF CAPITAL ASSETS,THAT THE ASSESSEE HAD ONE COMMON POOL WHERE ALL THE MONEY HAD BEEN KEPT,THAT THE ASSESSEE HAD PAID INTEREST ON TERM LOAN AS WELL AS CASH CREDIT AVAILED FROM BANK,THAT THE ASSESSEE HAD FAIL ED TO FURNISH A SEPARATE CASH FLOW STATEMENT 4 ITA NO. 6715/MUM/2010 DONEAR INDUSTRIES LTD. WHICH COULD CONVINCINGLY PROVE THAT THE FUNDS UTILI SED IN CAPITAL WORK IN PROGRESS WERE NOT OUT OF BORROWED FUNDS.HE FINALLY HELD THAT IN ABSENCE OF A NY DETAILS SUBMITTED BY THE ASSESSEE, DISALLOWANCE OF RS.21,15,000/-HAD TO BE MADE U/S.3 6(1)(III)OF THE ACT UNDER THE HEAD INTEREST PAID. 4.1. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSES SEE,HE HELD THAT AO HAD SPECIFICALLY ASKED THE ASSESSEE TO SUBMIT THE CASH FLOW STATEMENT TO P ROVE THAT NO BORROWED FUNDS HAD BEEN UTILISED FOR ACQUIRING THE CAPITAL ASSETS,THAT NO DETAILS WE RE SUBMITTED BEFORE THE AO OR BEFORE HIM TO SUBSTANTIATE ITS CLAIM,IT WAS A WELL ESTABLISHED LA W THAT THE ASSESSEE HAD TO SUBMIT THE DETAILS BEFORE THE AO TO HIS SATISFACTION FOR CLAIMING ANY DEDUCTION,THAT IT DID NOT FILE ANY DETAILS TO PROVE THE NEXUS BETWEEN BORROWED FUNDS AND UTILISATION FO R ACQUIRING THE CAPITAL ASSETS,THAT IT HAD FAILED TO DISCHARGE ITS ONUS.HE RELIED UPON THE CASES OF HONBLE MADRAS HIGH COURT AND THE HONBLE SUPREME COURT DELIVERED IN THE CASES OF MIR MOHAMAD (38 ITR 413 AND 52 ITR 165). HE FINALLY HELD THAT WHEN INTEREST BEARING BORROWED FUNDS WERE DIVERTED FOR ANY PURPOSE OTHER THAN BUSINESS,INTEREST PAID ON BORROWED FUNDS COULD NOT BE ALLOWED U/S.36(L)(III) OF THE ACT.HE CONFIRMED THE ORDER OF THE AO. 4.2. BEFORE US,AR SUBMITTED THAT ASSESSEE HAD FILED NECE SSARY DETAILS BEFORE THE AO,THAT PROFITS AND RESERVES HAD GONE UP SUBSTANTIALLY WHEREAS THE INTEREST PAYMENT ON LOAN HAD GONE DOWN DURING THE YEAR UNDER CONSIDERATION,THAT NO LOAN WA S RAISED DURING THE YEAR,THAT WORK-IN-PROGRESS HAD ALSO INCREASED,THAT NOTIONAL INTEREST COULD NOT BE TAXED.HE REFERRED TO THE BALANCE SHEET AND THE WORKING OF INTEREST PAID AND RECEIVED BY THE AS SESSEE-COMPANY DURING THE YEAR.DR SUBMITTED THAT ASSESSEE HAD NOT DISCHARGED HIS ONUS TO PROVE THAT INTEREST BEARING BORROWED FUNDS WERE NOT DIVERTED FOR ANY PURPOSE OTHER THAN BUSINESS. 4.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT SHARE CAPITAL,RESERVES AND SURPLUS AS WELL AS WORK-IN-PRO GRESS FOR THE AY UNDER CONSIDERATION HAD GONE UP DRASTICALLY AS COMPARED TO THE FIGURES OF THE LA ST AY.WE ALSO FIND THAT THERE WAS DECREASE IN LOAN PAYMENT BY THE ASSESSEE.WHILE DECIDING THE ISS UE AGAINST THE ASSESSEE THESE VITAL FACTORS WERE NOT CONSIDERED BY THE AO/FAA.BUT,IT IS ALSO A FACT THAT THE ASSESSEE HAD NOT FILED REQUIRED DETAILS BEFORE THE DEPARTMENTAL AUTHORITIES.THEREFO RE,WE ARE OF THE OPINION THAT MATTER NEEDS FURTHER VERI -FICATION.SO,IN THE INTEREST OF JUSTIC E MATTER IS REMITTED BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION OF THE ISSUE IN QUESTION.HE IS D IRECTED TO AFFORD A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. GROUND NO.3 IS ALLOWED IN FAVOUR OF THE ASSESSEE,IN PART. 5 .LAST GROUND OF APPEAL IS ABOUT DISALLOWANCE MADE B Y THE AO UNDER SECTION 14A R.W.RULE 8D OF THE INCOME TAX RULES,1962 (RULES).DURING THE ASSESS MENT PROCEEDINGS AO FOUND THAT THE ASSESSEE COMPANY HAD SHOWN DIVIDEND INCOME OF RS.22,70,550/- AS EXEMPT U/S.10(34) OF THE ACT,THAT NO DISALLOWANCE OF EXPENSES U/S. 14A WAS MADE.FOLLOWIN G THE DECISION OF THE ITAT MUMBAI SPECIAL BENCH IN CASE OF DAGA CAPITAL MANAGEMENT HE COMPUTED THE DISALLOWANCE U/S.14A R.W.R. 8D OF RULES AT RS.4,37,665/- 5.1. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE,HE HELD THAT THE ARGUMENT OF THE ASSESSEE THAT BORROWED FUNDS HAD NOT BEEN UTILISED FOR EARNI NG DIVIDEND INCOME AND NO INTEREST HAS BEEN PAID NOT APPLICABLE IN THE CASE UNDER CONSIDERATION , THAT THE DECISION OF HONBLE MUMBAI SPECIAL BENCH IN CASE OF DAGA MANAGEMENT (SUPRA) WAS RELEVA NT FOR DECIDING THE ISSUE BEFORE HIM,THAT NO INFORMATION WAS SUBMITTED BEFORE THE AO OR BEFOR E HIM TO SUBSTANTIATE ITS CLAIM.FINALLY,HE CONFIRMED THE ORDER OF THE AO. 5.2. BEFORE US, AR SUBMITTED THAT INTEREST HAD NOT BEEN CAPITALIZED BECAUSE NO LOAN HAD BEEN TAKEN AGAINST THE ASSET, THAT PROVISIONS OF RULE 8D OF TH E RULES WERE NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION,THAT THE JUDGMENT RELIED UPON BY THE AO AS WELL AS THE FAA I.E.DAGA CAPITAL MANAGEMENT WAS REVERSED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. (328ITR 81). DR SUBMITTED THAT RULE 8 D DEALT WITH THE DISALLOWANCE, THAT ASSESSEE 5 ITA NO. 6715/MUM/2010 DONEAR INDUSTRIES LTD. HAS EARNED TAX FREE INCOME BUT NOT SHOWN ANY EXPEND ITURE AGAINST IT,THAT ASSESSEE DID NOT FILE DETAILS BEFORE THE AO OR THE FAA IN SUPPORT OF ITS CLAIM. 5.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.THERE IS NO DOUBT THAT THE ORDER OF SPECIAL BENCH OF MUMBAI TRIBUNAL IN TH E CASE OF DAGA CAPITAL MANAGEMENT HAS BEEN REVERSED BY THE HONBLE JURISDICTIONAL HIGH COURT A ND THAT PROVISION OF RULE 8D OF THE RULES ARE NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION.BUT ,IT IS ALSO A FACT THAT THE HONBLE HIGH COURT HAS IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD.HA S HELD THAT A REASONABLE DISALLOWANCE COULD BE MADE AFTER CONSIDERING THE FACTS OF THE CASE CON CERNED.IN OUR OPINION, IN THE INTEREST OF JUSTICE MATTER SHOULD BE REMITTED BACK TO THE FILE OF THE A O FOR FRESH ADJUDICATION. HE SHOULD DECIDED THE ISSUE AFRESH AFTER HEARING THE ASSESSEE AND ASSESSE E IS DIRECTED TO FILE DETAILS BEFORE THE AO,AS REQUIRED BY HIM. GROUND NO.4 IS ALLOWED,IN PART, IN FAVOUR OF THE ASSESSEE. AS A RESULT APPEAL FILED BY THE ASSESSEE STAND PART LY ALLOWED. 6 )7 62 8 ( 9 5 7 % $: 1 $ 2 ;. ORDER PRONOUNCED IN THE O PEN COURT ON 6 TH SEPTEMBER, 2013 (%5 1 3+ % & < =( 6 2 , 2013 1 4 > SD/- SD/- ( . / D. MANMOHAN ) ( $%&' $%&' $%&' $%&' / RAJENDRA) !' !' !' !' / VICE-PRESIDENT % % % % () () () () /ACCOUNTANT MEMBER / MUMBAI, =( /DATE: 06.09 . 2013 SK (%5 (%5 (%5 (%5 1 11 1 .2? .2? .2? .2? @%?+2 @%?+2 @%?+2 @%?+2 / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / ,- 2. RESPONDENT / ./,- 3. THE CONCERNED CIT(A)/ A B , 4. THE CONCERNED CIT / A B 5. DR D BENCH, ITAT, MUMBAI / ?C 4 .2 . , . . & . 6. GUARD FILE/ 4 D / ?2 .2 //TRUE COPY// (%5 / BY ORDER, / $ DY./ASST. REGISTRAR , /ITAT, MUMBAI