DCIT 3(2), MUMBAI V. THE PAPER PRODUCTS P.LTD, MUMBAI

ITA 6810/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6590 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2004-2005
• Appeal Filed On: 07-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PERMINDER
• Assessee Lawyers: C N VAZE
• Keywords: Business expenditure; Earning of tax free income; Question of law; Revised return
• Section: 14A; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA NO. 6810/MUM/2012 ASSESSMENT YEAR: 2004-05 DCIT 3(2) ROOM NO. 674, 6 TH FLOOR, AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020 VS. M/S. THE PAPER PRODUCTS P. LTD. REGENT CHAMBERS 13 TH FLOOR NARIMAN POINT MUMBAI 400 021 PAN: AAACT 0086 E (APPELLANT) (RESPONDENT) ITA NOS. 6893, 6891 & 6892 /MUM/2012 ASSESSMENT YEARS: 2004-05, 2007-08 & 2008-09 M/S. THE PAPER PRODUCTS P. LTD. REGENT CHAMBERS 13 TH FLOOR NARIMAN POINT MUMBAI 400 021 PAN: AAACT 0086 E VS. ADDL. CIT 3(2) ROOM NO. 674, 6 TH FLOOR, AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI C.N. VAZE & BHADRESH DOSHI REVENUE BY : SMT. PERMINDER DATE OF HEARING : 01.05.2014 DATE OF PRONOUNCEMENT : 07.05.2014 O R D E R PER N.K. BILLAIYA, AM: ITA NO. 6810/MUM/2012, 6893/MUM/2012 ARE CROSS APP EALS BY THE ASSESSEE AND THE REVENUE AGAINST THE VERY SAME ORDER OF THE LD.CIT(A)-4, MUMBAI DATED 17.08.2012 PERTAINING TO A.Y. 2004-05. ITA NO. 6891 /MUM/2012 IS APPEAL BY THE ASSESSEE AGAINST THE ORDER OF THE LD.CIT(A)-4, MUMB AI DATED 17.08.2012 PERTAINING TO A.Y. 2007-08. ITA NO. 6892/MUM/2012 IS APPEAL BY THE ASSESSEE AGAINST THE ORDER OF THE LD.CIT(A)-4, MUMBAI DATED 28.08.2012 P ERTAINING TO A.Y. 2008-09 AS ITA NO. 6810/MUM/2012 ITA NOS. 6891, 6892 & 6893/MUM/2012 M/S. THE PAPER PRODUCTS P. LTD. ASSESSMENT YEARS: 2004-05, 2007-08 & 2008-09 2 COMMON ISSUES ARE INVOLVED IN ALL THESE APPEALS. TH EY WERE HEARD TOGETHER AND DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE AND BREVITY. 2. COMMON GROUND IN ALL THE APPEALS FILED BY THE AS SESSEE FOR A.YRS. 2004-05, 2007-08 AND 2008-09 READ AS UNDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO BY DISALLO WING RS. 20 LAKHS ON ACCOUNT OF WRITE OFF OF 1/10 TH OF NON COMPETE FEES. 3. AS REGARDS THIS COMMON GROUND IN ALL THE THREE Y EARS, THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONCEDED BEFORE US THAT COMMON ISS UE INVOLVED THEREIN RELATING TO DISALLOWANCE OF ASSESSEES CLAIM FOR DEDUCTION ON A CCOUNT OF WRITE OFF OF NON- COMPETE FEES IS SQUARELY COVERED AGAINST THE ASSESS EE BY THIRD MEMBER DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE S OWN CASE FOR A.Y. 1998-99 TO A.Y. 2001-02. HE HAS SUBMITTED THAT THE ASSESSEE, H OWEVER, HAS TAKEN THIS MATTER TO THE HONBLE BOMBAY HIGH COURT WHICH IS STILL PEN DING. HE HAS SUBMITTED THAT THE ISSUE INVOLVED IN THE YEARS UNDER CONSIDERATION BEI NG IDENTICAL WITH THE QUESTION OF LAW ARISING IN THE CASE OF THE ASSESSEE FOR EARLIER YEARS WHICH IS PENDING BEFORE THE HONBLE BOMBAY HIGH COURT. THE ASSESSEE HAS FILED A DECLARATION AS REQUIRED BY THE PROVISIONS OF SECTION 158A(1) OF THE ACT. ACCORDING LY WE DECIDE THIS ISSUE AGAINST THE ASSESSEE FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 1998- 99 TO A.Y. 2001-02 WITH THE RIGHT TO GIVE ASSESSEE TO SEEK AMENDMENT OF THIS ORDER IF NECESSARY SO AS TO BRING THE SAME INCONFORMITY W ITH THE DECISION OF THE HONBLE BOMBAY HIGH COURT. ON THE IDENTICAL QUESTION OF LAW WITH THE SAME BECOMES FINAL FOR A.Y. 1998-99 TO 2001-02. GROUND NO. 1 AND 2 FOR A.Y. 2004-05, GROUND NO. 1 AND 2 OF A.Y. 2007-08 AND GROUND NO. 4 OF A.Y. 2008 -09 OF ASSESSEES APPEAL ARE ACCORDINGLY DISMISSED. 4. GROUND NO. 3 FOR A.Y. 2004-05 READ AS UNDER:- ON FACTS AND CIRCUMSTANCES OF THE CASE ARE IN LAW, THE LD.CIT(A) HAVING ERRED IN CONFIRMING THE DISALLOWANCES OF RS.18,12,1 33/- BEING SHARE ISSUE ASSESSMENT EXPENSES WRITTEN OFF U/S 35D. THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONCEDED BEFORE US THAT THE ISSUE INVOLVED IN THIS GROUND IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE DECISION OF THE TRIBUNAL FOR A.Y. 2000-01 AND 2001-02. THE COUN SEL FURTHER SUBMITTED THAT THE QUESTION OF LAW HAS BEEN ADMITTED BY THE BOMBAY HIG H COURT. THE ASSESSEE HAS ITA NO. 6810/MUM/2012 ITA NOS. 6891, 6892 & 6893/MUM/2012 M/S. THE PAPER PRODUCTS P. LTD. ASSESSMENT YEARS: 2004-05, 2007-08 & 2008-09 3 FILED A DECLARATION AS REQUIRED BY THE PROVISIONS O F SECTION 158 A(1) OF THE ACT. ACCORDINGLY WE DECIDE THIS ISSUE AGAINST THE ASSESS EE FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2000-01 AN D 2001-02 WITH THE RIGHT TO THE ASSESSEE TO SEEK AMENDMENT OF THIS ORDER, IF NECESS ARY, SO AS TO BRING THE SAME INCONFORMITY WITH THE DECISION OF THE HONBLE BOMBA Y HIGH COURT ON THE IDENTICAL QUESTION OF LAW WHEN THE SAME BECOME FINAL OF A.Y. 2000-01 AND 2001-02. GROUND NO. 3 OF A.Y. 2004-05 IS ACCORDINGLY DISMISSED. 5. GROUND NO. 4, 5 AND 6 FOR A.Y. 2004-05 READ AS U NDER:- 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN NOT ADJUDICATING ALTOGETHER THE GROUND RELATING TO INTEREST INCOME AND OTHER INCOME TO BE INCLUDED IN THE ELIGIBLE PROFITS FOR THE PURPOSES OF SECTION 80HHC. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO OF REDUCING OTHER INCOME OF RS.10,75,262/-, RENTAL INCOME OF RS.55,8 00/- AND MACHINERY HIRE CHARGES OF RS.8,54,276/- FROM THE PROFITS FOR COMPU TING DEDUCTION U/S 80HHC. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN NOT FOLLOWING THE HONBLE SU PREME COURTS DECISION IN APPELLANTS OWN CASE AND IN DENYING THE BENEFIT OF NETTING OFF THE INTEREST EXPENSE FROM INTEREST INCOME FOR THE PURPOSE OF CAL CULATING OF DEDUCTION U/S 80HHC. THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US STAT ED THAT THE LD.CIT(A) HAS NOT ADJUDICATED THIS GROUND I.E. GROUND NO. 4 THOUGH TH E SAME WAS TAKEN BEFORE HIM. SIMILARLY, GRIEVANCE RAISED VIDE GROUND NO. 5 AND 6 HAVE NOT BEEN ADJUDICATED BY THE LD.CIT(A) STATING THAT THE ASSESSEE HAS NOT MADE CL AIM IN THE RETURN OF INCOME AND THE CLAIM WAS MADE ONLY IN THE APPELLATE PROCEEDING S. WE HAVE CAREFULLY PERUSED THE ORDER OF THE LD.CIT(A) WE FIND THAT THE LD.CIT( A) HAS REJECTED THE GRIEVANCE OF THE ASSESSEE HOLDING THAT THE ASSESSEE HAD MADE NO SUCH CLAIM IN THE RETURN OF INCOME OR IN THE REVISED RETURN OF INCOME OR BEFORE THE AO AND THIS CLAIM HAS MERELY BEEN MADE DURING APPELLATE PROCEEDINGS. THE FINDING S OF THE LD.CIT(A) ARE CONTRARY TO THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF PRITHVI BROKER AND SHAREHOLDERS IN ITA NO. 3908 OF 2010. RESPECTIV ELY FOLLOWING THE RATIO OF THE HONBLE JURISDICTIONAL HIGH COURT WE RESTORE GROUND NO. 4, 5 AND 6 TO THE FILES OF THE LD.CIT(A). THE LD.CIT(A) IS DIRECTED TO DECIDE THES E GROUNDS A FRESH AS PER THE ITA NO. 6810/MUM/2012 ITA NOS. 6891, 6892 & 6893/MUM/2012 M/S. THE PAPER PRODUCTS P. LTD. ASSESSMENT YEARS: 2004-05, 2007-08 & 2008-09 4 PROVISIONS OF LAW AND AFTER GIVING A REASONABLE OPP ORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NO. 4, 5 AND 6 ARE ACCORDINGLY ALL OWED FOR STATISTICAL PURPOSES. 6. GROUND NO. 7 AND 8 RELATE TO THE DISALLOWANCE U/ S 14A OF THE ACT. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THE AO FOUND T HAT THE ASSESSEE HAS CLAIMED DIVIDEND INCOME OF RS.1,41,80,929/- AS EXEMPT INCOM E. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE EXPENSES ATTRIBUTABLE TO THIS INCOME SHOULD NOT BE DISALLOWED, IN VIEW OF THE PROVISIONS OF SECTION 14A. ASSESSEE REPLIED THAT THE INVESTMENTS HAVE BEEN MADE OUT OF THE SURPLUS GENERATED AND NO EXTRA EFFORTS HAVE BEEN BY THE COMPANY FOR EARNING THIS DIVIDEND. THE EXPLANATION OF THE ASSESSEE DID NOT FIND FAVOUR FROM THE AO WHO WENT ON TO COMPUTE THE DISAL LOWANCE ON PRO RATA BASIS RELATABLE TO EXEMPT INCOME AND DISALLOWED RS.14,89, 103/-. ASSESSEE CARRIED THE MATTER BEFORE THE LD.CIT(A) BUT WITHOUT ANY SUCCESS . AGGRIEVED BY THIS ASSESSEE IS BEFORE US. 7. THE COUNSEL FOR THE ASSESSEE REITERATED WHAT HA S BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES WE HAVE CAREFULLY PERUSED THE ORD ERS OF THE LOWER AUTHORITIES. HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GO DREJ AND BOYCE LTD. 328 ITR 81 HAS HELD THAT REASONABLE EXPENSES HAS TO BE ALLOCAT ED TOWARDS EARNING OF EXEMPT INCOME U/S 14A OF THE ACT. THE AO HAS ALLOCATED THE EXPENSES ON PRO RATA BASIS THE SAME HAS BEEN CONFIRMED BY THE LD.CIT(A). SINCE THE EXPENSES HAVE BEEN ALLOCATED ON A REASONABLE BASIS, WE DO NOT FIND ANY ERROR OR INFIRMITY IN THE FINDINGS OF THE LD.CIT(A). GROUND NO. 7 AND 8 FOR A.Y. 2004-05 ARE ACCORDINGLY DISMISSED. 8. A SIMILAR DISALLOWANCE HAS BEEN MADE IN A.Y. 200 7-08 WHEREIN WE FIND THAT THE AO HAS INVOKED RULE 8D FOR COMPUTING THE DISALL OWANCE. IT IS NOW WELL SETTLED THAT APPLICATION OF RULE 8D IS W.E.F. A.Y. 2008-09 AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE (SUPRA). WE THEREFORE, RESTORE THIS ISSUE FOR A.Y. 2007-08 TO THE FILES OF THE AO. AO IS DIRE CTED TO COMPUTE A REASONABLE DISALLOWANCE U/S 14A WITHOUT INVOKING RULE 8D OF TH E ACT. GROUND NO. 3 AND 4 FOR A.Y. 2007-08 ARE ALLOWED FOR STATISTICAL PURPOSES. 9. IN ASSESSMENT YEAR 2007-08 THE ASSESSEE HAS ALSO CHALLENGED LEVY OF INTEREST U/S 234(C) OF THE ACT. THE GRIEVANCE OF THE ASSESSE E IS THAT THE AO HAS CHARGED INTEREST U/S 234(C) OF THE ACT ON THE ASSESSED INCO ME AND NOT ON THE RETURNED ITA NO. 6810/MUM/2012 ITA NOS. 6891, 6892 & 6893/MUM/2012 M/S. THE PAPER PRODUCTS P. LTD. ASSESSMENT YEARS: 2004-05, 2007-08 & 2008-09 5 INCOME. WE HAVE CAREFULLY PERUSED THE ORDER OF THE LOWER AUTHORITIES IN THE LIGHT OF THE PROVISIONS OF SECTION 234(C) OF THE ACT. WE FIN D FORCE IN THE GRIEVANCE OF THE ASSESSEE THE AO IS DIRECTED TO CHARGE INTEREST U/S 234(C) OF THE ACT ON THE RETURN INCOME AS PER THE PROVISIONS OF THE LAW. GROUND NO. 5 FOR A.Y. 2007-08 IS ALLOWED FOR STATISTICAL PURPOSES. 10. GROUND NO. 1 FOR A.Y. 2008-09 READ AS UNDER:- 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE ON ACCOUNT OF MARKED TO MARKET LOSSES ON FOREIGN EXCHANGE CONTRACTS AMOUNTING TO RS.1,16, 25,490/-. [[[[ 11. A SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 2009-10 IN I.T.A. 7761/MUM/2012. THE TRIBUNAL AT PA RA 8 ON PAGE 6 OF ITS ORDER DIRECTED THE AO TO ALLOW THE LOSS CLAIMED BY THE AS SESSEE ON ACCOUNT OF MARKED TO MARKET LOSSES ON FOREIGN EXCHANGE CONTRACT. FACTS A ND ISSUES BEING IDENTICAL RESPECTIVELY FOLLOWING THE DECISION OF THE CO-ORDIN ATE BENCH IN ASSESSEES OWN CASE THE AO IS DIRECTED TO ALLOW THE LOSSES ON FOREIGN E XCHANGE CONTRACT AMOUNTING TO RS.1,16,25,490/-. GROUND NO. 1 OF A.Y. 2008-09 IS ALLOWED. 12. GROUND NO. 2 READ AS UNDER:- ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF PENALTY PAID TO EXCISE AUTHORITIES OF RS.55,00,000/-. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PROCEE DINGS THE AO NOTICED THAT THE ASSESSEE HAS PAID AN AMOUNT OF RS. 55 LAKHS AS EXCI SE PENALTY FOLLOWING THE ORDER OF THE HONBLE HON'BLE SUPREME COURT, THE SAME HAS BEE N CLAIMED AS EXPENDITURE DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE W AS ASKED JUSTIFY ITS CLAIM. ASSESSEE FILED A REPLY STATING THAT IT HAS CLAIMED AS A BUSINESS EXPENDITURE RELYING UPON THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE C ASE OF PANNALAL NAROTTAM DAS 67 ITR 667. THE AO REJECTED THE CLAIM OF THE ASSESS EE STATING THAT IN SUBSEQUENT DECISION IN THE CASE OF ROHIT PULP AND PAPER MILLS 79 TAXMAN 168 HONBLE BOMBAY HIGH COURT HAS DISALLOWED THE CLAIM OF PENALTY AS B USINESS EXPENDITURE. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD.CIT(A) BU T WITHOUT ANY SUCCESS. AGGRIEVED BY THIS THE ASSESSEE IS BEFORE US COUNSEL FOR THE A SSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. WE HAVE CAR EFULLY PERUSED THE ORDERS OF THE LOWER AUTHORITIES. WE HAVE ALSO THE BENEFIT OF GOIN G THROUGH THE DECISION OF THE ITA NO. 6810/MUM/2012 ITA NOS. 6891, 6892 & 6893/MUM/2012 M/S. THE PAPER PRODUCTS P. LTD. ASSESSMENT YEARS: 2004-05, 2007-08 & 2008-09 6 HONBLE SUPREME COURT WHEREIN PENALTY OF RS. 55 LAK HS HAS BEEN CONFIRMED BY THE HONBLE SUPREME COURT. THE PENALTY WAS LEVIED FOR T HE INFRINGEMENT OF THE EXCISE RULES AND REGULATIONS THEREFORE THE SAME CANNOT BE CONSIDERED AS BUSINESS EXPENDITURE. WE THEREFORE, DO NOT FIND ANY REASON T O INTERFERE WITH THE FINDINGS OF THE LD.CIT(A). GROUND NO. IS ACCORDINGLY DISMISSED. 13. GROUND NO. 3 RELATES TO THE DISALLOWANCE U/S 14 A READ WITH RULE 8D. AS MENTIONED ELSEWHERE RULE 8D IS APPLICABLE FROM THE YEAR UNDER CONSIDERATION. THE AO MADE DISALLOWANCES U/S 14A, AND THE DISALLOWANCE HAS BEEN COMPUTED AS PER RULE 8D. WE THEREFORE, DO NOT FIND ANY REASON TO IN TERFERE WITH THE FINDINGS OF THE CIT(A). GROUND NO. 3 IS ACCORDINGLY DISMISSED. 14. COMING TO THE REVENUES APPEAL FOR A.Y. 2004-05 THE GRIEVANCE READ AS UNDER:- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) WAS JUSTIFIED INTERPRETING THE P ROVISIONS OF SECTION 80IB SO AS TO REDUCE THE PROFITS AND GAINS WHILE WORKING OU T DEDUCTION U/S 80HHC, BY AN AMOUNT OF DEDUCTION GRANTED/ALLOWED U/S 80IB. THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASS ESSEE BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ASSOCIATED CAPSULES P. LTD. 197 TAXMAN 84. WE THEREFORE, DO NOT FIND ANY ERROR OR INFIRMIT Y IN THE FINDINGS OF THE LD.CIT(A). THE APPEAL FILED BY THE REVENUE IS ACCORDINGLY DISM ISSED. 15. IN THE RESULT APPEAL FILED BY THE REVENUE IS DISMISSED AND THAT OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 07 TH DAY OF MAY, 2014. SD/- SD/- (I.P. BANSAL) (N.K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 07.05.2014. *SRIVASTAVA 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.