RED ROBBIN INTERNATIONAL LTD, MUMBAI V. ITO WD 7(2)(1), MUMBAI

ITA 6748/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5869 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 10-12-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 05-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M L PERUMAL
• Assessee Lawyers: REEPAL G TRALSHAWALA
• Keywords: Depreciation; Proportionate interest; Unabsorbed depreciation
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI R.C SHARMA, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 6748/MUM/2012 ASSESSMENT YEAR: 2007-08 M/S RED ROBIN INTERNATIONAL LTD. BASEMENT, KAPADIA CHAMBERS, DEVJI RATNASEY MARG, DANA BUNDER MUMBAI- 400 009 VS. ITO WD 7(2)(1), 6 TH FLOOR, ROOM NO 670, AAYAKKAR BHAWAN, M.K.ROAD, MUMBAI-400 020 (APPELLANT) (RESPONDENT) PERMANENT ACCOUNT NO. :- AAACR 3408 E ASSESSEE BY : SHRI REEPAL G. TRALSHAWALA REVENUE BY : SHRI M.L.PERUMAL DATE OF HEARING : 12.03.2014 DATE OF PRONOUNCEMENT : 26.03.2014 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LD.CIT(A)-13, MUMBAI DATED 17.01.2010 FOR THE ASSES SMENT YEAR 2007-08. 2. AT THE OUTSET, IT IS OBSERVED THAT THE PRESENT A PPEAL FILED BY THE ASSESSEE IS TIME BARRED BY 135 DAYS AND IN THIS CONNECTION THE ASSESSEE HAS FILED CONDONATION APPLICATION ALONG WITH THE AFFIDAVIT SWORN BY THE M ANAGING DIRECTOR OF THE ASSESSEES COMPANY EXPLAINING THE REASONS FOR THE DELAY IN FIL ING THE APPEAL. IN THE AFFIDAVIT, IT IS AVERRED THAT THE FIRST APPELLATE ORDER WAS SERVE D ON THE ERSTWHILE CONSULTANT AND THERE WAS A CHANGE IN THE ASSESSEE COMPANYS TAX CO NSULTANT. THE ASSESSEE, BEING A DORMANT COMPANY HAD NO TURNOVER IN THE LAST 4 YEARS . FURTHER, THE COMPANY DOES NOT HAVE ANY STAFF OR FULL TIME PROFESSIONALS TO LO OK INTO THE TAX MATTER. CONSIDERING THE FACT THAT THE ASSESSEE HAS BEEN PREVENTED BY SU FFICIENT CAUSE FOR NOT FILING THE APPEAL IN TIME, WE CONDONE THE SAID DELAY AND PROCE ED TO DECIDE THE APPEAL. ITA NO. 6748/MUM/2012 M/S RED ROBIN INTERNATIONAL LTD. ASSESSMENT YEAR: 2007-08 2 3. IN GROUND NO 1, THE ASSESSEE HAS AGITATED THE AC TION OF THE LD.CIT(A) IN PARTLY CONFIRMING THE DISALLOWANCE OF RS 4,15,758/- U/S 14A OF THE INCOME-TAX ACT READ WITH RULE 8D OF THE INCOME TAX RULES. 3.1 BRIEFLY STATED, DURING THE COURSE OF THE ASSESS MENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD MADE INVESTMENTS IN S HARES AMOUNTING TO RS.2,96,85,000/- AND DEBITED ITS P&L ACCOUNT BY A S UM OF RS.32,79,745/- ON ACCOUNT OF FINANCIAL EXPENSES. ACCORDING TO THE ASS ESSEE, THE INVESTMENT WAS MADE FOR EARNING GOOD RETURNS AND FOR WHICH THE ASSESSEE UTILIZED ITS OWN FUND AND NOT FROM THE LOAN TAKEN FROM BANK. HOWEVER, THE AO DID NOT ACCEPT THE SAID CLAIM, AS THE ASSESSEE DID NOT ESTABLISH THE SAME THROUGH FUN D FLOW STATEMENT. ACCORDINGLY, THE AO APPLIED SECTION 14A OF THE INCOME-TAX ACT RE AD WITH RULE 8D OF THE INCOME TAX RULES AND THEREBY WORKED OUT THE DISALLOWANCE O F PROPORTIONATE INTEREST PERTAINING TO INVESTMENT AT RS.5,75,609/-. ON APPEA L, THE LD.CIT(A), AFTER TAKING INTO ACCOUNT OF THE DETAILS OF THE INTEREST, REWORK ED THE DISALLOWANCE BY APPLYING SECTION 14A READ WITH RULE 8D AND THEREBY DETERMINE D THE DISALLOWANCE AT RS.4,15,758. AGGRIEVED BY THE IMPUGNED DECISION, TH E ASSESSEE HAS RAISED THIS GROUND IN THE APPEAL BEFORE US. 3.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOTED THAT THE QUESTION OF MAKING DIS ALLOWANCE U/S 14A IS NO MORE RES INTEGRA IN VIEW OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE LTD. MFG. CO. VS. DCIT [(2010) 328 I TR 81 (BOM)] HOLDING THAT THE PROVISIONS OF SECTION 14A ARE APPLICABLE IN CIR CUMSTANCES AS ARE PREVAILING PRESENTLY AND THE DISALLOWANCE HAS TO BE WORKED OUT BY THE AO ON SOME REASONABLE BASIS AND NOT RULE 8D IN SO FAR AS THE ASSESSMENT YEARS PRIOR TO 2008-09 ARE CONCERNED. PRESENTLY, WE ARE DEALING WITH THE A.Y. 2007-08. IN SUCH YEAR, OBVIOUSLY RULE 8D CANNOT BE APPLIED, BUT THE DISALLOWANCE IS REQUIRED TO BE WORKED OUT ON SOME REASONABLE BASIS. AS THE AUTHORITIES BELOW HAV E COMPUTED THE DISALLOWABLE AMOUNT AS PER RULE 8D, SUCH COMPUTATION CANNOT BE U PHELD. UNDER SUCH CIRCUMSTANCES, WE SET ASIDE THE IMPUGNED ORDER AND RESTORE THE MATTER TO THE FILE OF THE AO FOR DECIDING THE QUANTUM OF DISALLOWANCE, AS PER THE AFORE-NOTED JUDGMENT, ITA NO. 6748/MUM/2012 M/S RED ROBIN INTERNATIONAL LTD. ASSESSMENT YEAR: 2007-08 3 AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HE ARD TO THE ASSESSEE. RESULTANTLY, GROUND NO.1 IS ALLOWED FOR STATISTICAL PURPOSE. 4. IN GROUND NO 2, THE ASSESSEE HAS AGITATED THE AC TION OF THE LD.CIT(A) CONFIRMING THE DECISION OF THE AO IN DENYING THE BE NEFIT OF SET OFF OF UNABSORBED DEPRECIATION CLAIMED BY THE ASSESSEE AGAINST THE IN COME UNDER THE HEAD CAPITAL GAINS. 4.1 BRIEFLY STATED, IN THE COMPUTATION OF INCOME, THE ASSESSEE HAD CLAIMED SET OFF OF ITS UNABSORBED DEPRECIATION AGAINST THE INCO ME COMPRISING SHORT TERM CAPITAL GAIN. ACCORDING TO THE ASSESSEE, THE ASSESSEE COMPA NY HAD A LOSS OF RS.55,19,340/- AND AFTER GIVING NECESSARY EFFECT TO THE PROVISIONS OF THE ACT, THE LOSS WAS INCREASED TO RS.63,96,003/- IN THE INSTANCE OF SOME ERROR IN COMPUTING THE LOSS ON SCRAP OF ASSETS WAS CONSIDERED AS EXPENSES AND AFTER SETTING OFF THE INCOME FROM SHORT TERM CAPITAL GAIN ARISING FROM SALE OF FIXED ASSETS DURI NG THE PREVIOUS YEAR, THERE WERE SOME LOSS TO BE CARRIED FORWARD. ACCORDINGLY, THE A SSESSEE CARRIED FORWARD AND CLAIMED THE SET OFF OF UNABSORBED DEPRECIATION AMOU NTING TO RS.39,70,281/- AGAINST THE INCOME UNDER THE HEAD CAPITAL GAINS. HOWEVER, IN THE ASSESSMENT FRAMED, THE AO HELD THAT THE UNABSORBED DEPRECIATION WAS NOT AL LOWED TO BE SET OFF AGAINST THE INCOME UNDER THE HEAD CAPITAL GAINS. ON APPEAL, T HE LD.CIT(A) CONFIRMED THE DECISION OF THE AO. AGGRIEVED BY THE IMPUGNED DECIS ION, THE ASSESSEE HAS RAISED THIS GROUND IN THE APPEAL BEFORE US. 4.2 HAVING HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD, IT IS PERTINENT TO MENTION THAT THE TRIBUNAL IN THE CASE OF M/S SURESH INDUSTRIES PVT LTD VS ACIT IN ITA NO. 5374/MUM/2011, WHICH HAS BEEN RELIED ON BY THE LD.AR IN SUPPORT OF THE CLAIM OF THE ASSESSEE, HAS HELD THAT UNABSORBED DEPRECIATION CAN BE SET OFF AGAINST ANY INCOME AND THE BROUGHT FORWARD OF UNABSORBED DEPRECIATION IS TREATED AS CURRENT YEARS DEPRECIATION BECAUSE OF T HE LEGAL FICTION, THEREFORE THE TREATMENT GIVEN TO THE CURRENT YEARS DEPRECIATION IS EQUALLY APPLICABLE TO BROUGHT FORWARD DEPRECIATION AFTER APPLICATION OF FINANCE A CT, 2001. IN THE SAID DECISION, THE TRIBUNAL HAS CONSIDERED THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS VIRMANI INDUS. PVT LTD & ORS 216 ITR 607 BY OBSERVING THAT THE RATIO LAID DOWN BY THE HONBLE APEX COURT IN THE SAID CASE STILL HOLD GOOD TO SUPPORT THE PROPOSITION ITA NO. 6748/MUM/2012 M/S RED ROBIN INTERNATIONAL LTD. ASSESSMENT YEAR: 2007-08 4 THAT UNABSORBED DEPRECIATION CAN BE SET OFF AGAINST ANY INCOME. SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN THE CASE OF M/S ELMA ELECTRIC CO. PVT LTD VS ITO IN ITA NO 579/MUM/2009 WHEREIN THE EARLIER DECISION OF THE TRIBUNAL IN THE CASE OF M/S SURESH INDUSTRIES PVT LTD (SUPRA) HAS BEEN RELIED. AFTER NOTING THAT THE EARL IER DECISIONS OF THE TRIBUNAL AFOREMENTIONED ARE APPLIC ABLE TO THE FACTS OF THE PRESENT ASSESSEE, WE DIRECT THE AO TO ALLOW THE SET OFF OF UNABSORBED DEPRECIATION AS CLAIMED BY THE ASSESSEE. RESULTANTLY, GROUND NO. 2 IS ALLOWED. 5. AS REGARDS GROUND NO 3, THE AO IS DIRECTED TO AL LOW THE BENEFIT OF SECTION 80- G ON ACCOUNT OF DONATION OF RS.3,00,501/-, AFTER VE RIFICATION OF THE RELEVANT FACTS AND IN ACCORDANCE WITH LAW, IF THE TAXABLE INCOME BECOM ES POSITIVE AFTER WORKING OUT THE SAME. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 26 TH DAY OF MARCH, 2014. SD/- SD/- (R.C. SHARMA) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 26.03.2014. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.