ACIT 10(1), MUMBAI V. GODREJ AGROVET LTD, MUMBAI

ITA 6838/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9118 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 05-12-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 10-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T A KHANDR
• Keywords: Earning of tax free income
• Section: 14A; 115JB; 10

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -GBENCH MUMBAI , , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND AMARJIT SINGH,JUDICIAL MEMBER ./I.T.A./6838/MUM/2014, / ASSESSMENT YEAR: 2010-11 ACIT-10(2), 432, AAYAKAR BHAVAN, 4 TH FLOOR M.K. MARG, MUMBAI-20. VS. M/S. GODREJ AGROVET LTD. GATE NO.2, PIROJSHA NAGAR, EASTERN EXPRESS HIGHWAY VIKHROLI (E),MUMBAI-400 079. PAN:AAACG 0617 Q ( /APPELLANT ) ( / RESPONDENT) . / C.O. NO.72/MUM/2016 (ARISING OUT OF ./I.T.A./6838/MUM/2014, / ASSESSMENT YEAR: 2010-11) M/S. GODREJ AGROVET LTD. MUMBAI-79. VS. ACIT-10(2), MUMBAI-400 020. ( /CROSS OBJECTOR ) ( / RESPONDENT) / REVENUE BY: SHRI T.A. KHAN-DR /ASSESSEE BY:S/ SHRI AKRAM KHAN & RAUNAK VARDHAN -AR / DATE OF HEARING: 05.12.2016 / DATE OF PRONOUNCEMENT: 06/01/2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , / PER RAJENDRA A.M. - CHALLENGING THE ORDER DATED 14.08.2014 OF CIT(A)-21 MUMBAI THE ASSESSING OFFICER (A.O.) AND THE ASSESSEE HAVE FILED APPEAL/CROSS OBJECTION( CO)FOR THE YEAR UNDER CONSIDERATION. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING OF ANIMAL FEEDS AND TRADING OF AGRICULTURAL PRODUCTS FILED ITS RETURN OF INCOME ON 8.10.2010,DECLARING TOTAL INCOME AT RS.15.60 CRORES.THE AO COMPLETED ASSESSMENT,U/S.143 (3) OF THE ACT,ON 06.03.2013 DETERMIN -ING ITS INCOME AT RS.18.53 CRORES. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT DIRECTING THE A O TO RESTRICT THE DISALLOWANCE U/S. 14A OF THE ACT R.W.R. 8D OF THE INCOME TAX RULE 1962, ( RULES )TO 0.5% OF THE AVERAGE INVESTMENTS. DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT ASSESSEE HAD RECEIVED DIVIDEND OF RS.72.25 LAKHS WHICH HAD BEEN CLAIMED AS EXEMPT FRO M TAX U/S.10(34) OF THE ACT, THAT IT HAD DISALLOWED EXPENDITURE OF RS.25.24 LAKHS ON ITS OWN .THE AO ,AFTER SEEKING AN EXPLANATION IN THAT REGARD FROM ASSESSEE,MADE DISALLOWANCE OF RS.3 .02 CRORES U/S.14A OF THE ACT. 3. DURING THE APPELLATE PROCEEDINGS, HE FIRST APPELLAT E AUTHORITY (FAA) HELD THAT ASSESSEES SHARE CAPITAL AND RESERVE WAS RS.331.81 CRORES ,THA T IT HAD MADE INVESTMENT OF RS.195 CRORES, 6838 /M/14& C.O.72/16-GODREJ AGROVET 2 THAT THE SHARE CAPITAL AND RESERVES WERE MORE THAN THE INVESTMENTS MADE.REFERRING TO THE JUDGMENTS OF RELIANCE UTILITIES AND POWER LTD. (31 3ITR340),HE DELETED THE ADDITION MADE ON INTEREST EXPENDITURE.HE FURTHER DIRECTED THE AO TO COMPUTE 0.5% OF AVERAGE INVESTMENT AS ADMINISTRATIVE EXPENSES,EXCLUDING FOREIGN INVEST MENT OF RS.9 CRORES,AS THE INCOME ARISING OF THE SAID INVESTMENT WAS NOT EXEMPT. 4. DURING THE COURSE OF HEARING BEFORE US,IT WAS BROUG HT TO OUR NOTICE THAT WHILE DECIDING THE APPEAL FOR THE EARLIER(AY 2005-06 IN ITA NO.1629/MU M/09 DATED 17.9.2010; AY 2006-07 ITA NO.1613/MUM/2011 AND 4897/MUM/2012 DATED 22.8.2 014; ITA NO.5464/MUM/2011 & C.O.NO.127/MUM/2012 FOR AY 2007-08 DT.05.10.2012., ITA NO.8489/MUM/2011 & ITA NO.152/MUM/2012, DT. 5.07.2016 FOR AY 2008-09),THE TRIBUNAL HAS DELIBERATED UPON THE ISSUE,THAT THE HON'BLE BOMBAY HIGH COURT HAD DECIDE D THE INCOME TAX APPEAL NO.934 OF 2011,FILED BY THE DEPARTMENT ON 08.01.2013. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT WHILE DECIDING APPEAL FOR THE AY 2007-08 THE TRIBUNAL HAS DEALT WITH THE ISSUE AS UNDER :- 7. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS HELD BY THE HON'BLE BOMBAY HIGH COURT I N THE CASE OF GODREJ BOYCE MFG. CO.LTD. (SUPRA), RULE 8D OF INCOME-TAX RULES,1962 IS APPL ICABLE ONLY FROM ASSESSMENT YEAR 2008-09. AS FURTHER HELD BY THE HON'BLE BOMBAY HIGH COURT I N THE SAID CASE, DISALLOWANCE U/S.14A IS REQUIRED TO BE MADE FOR THE YEARS PRIOR TO ASSESSM ENT YEAR 2008-09 BY FOLLOWING SOME REASONABLE METHOD AFTER TAKING INTO CONSIDERATION THE FACTS AND CIRCUMSTANCES OF THE CASE. IN THE PRESENT CASE, THIS ISSUE HAS ALREADY BEEN EXAMI NED ON MERIT BY THE LEARNED CIT(APPEALS) AND ON SUCH EXAMINATION, HE HAS FOUND THAT THE ENTI RE INVESTMENT IN SHARES MADE BY THE ASSESSEE COMPANY OUT OF ITS OWN FUNDS AND NO INTERE ST EXPENDITURE INCURRED BY IT WAS IN RELATION TO THE EARNING OF EXEMPT DIVIDEND INCOME . THE FINDINGS RECORDED BY THE LEARNED CIT(APPEALS) IN THIS CONTEXT IN HIS IMPUGNED ORDER HAVE ALREADY BEEN EXTRACTED BY US IN THE FOREGOING PORTION OF THIS ORDER AND AT THE TIME OF HEARING BEFORE US, THE LEARNED DR HAS NOT BEEN ABLE TO CONTROVERT OR REBUT THE SAID FMDINGS. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED ON RECORD A COPY OF ANNUAL ACCO UNTS OF THE ASSESSEE COMPANY FOR THE YEAR UNDER CONSIDERATION, A PERUSAL OF WHICH SHOWS THAT OWN FUNDS TO THE EXTENT OF RS.84.23 CRORES WERE AVAILABLE WITH THE ASSESSEE AT THE RELEVANT TI ME WHICH WERE SUFFICIENT TO COVER THE INVESTMENT OF RS.42.40 CRORES MADE IN THE SHARES. THE INVESTMENT IN SHARES THUS WAS NOT MADE BY THE ASSESSEE OUT OF ANY INTEREST BEARING BORROW ED FUNDS AND THERE BEING NO INTEREST EXPENDITURE INCURRED IN RELATION TO EARNING OF EX EMPT DIVIDEND INCOME, WE FIND OURSELVES IN AGREEMENT WITH THE LEARNED CIT(APPEALS) THAT DISA LLOWANCE OUT OF INTEREST EXPENDITURE U/S. 14A WAS NOT WARRANTED. 8. AS REGARDS THE DISALLOWANCE U/S.14A ON ACCOUNT O F COMMON ADMINISTRATIVE EXPENSES, IT IS OBSERVED THAT THE COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2005-06 HAS ALREADY, HELD THAT SUCH DISALLOWANCE TO THE EXTENT OF 2% OF THE TOTAL EXEMPT INCOME IS QUITE FAIR AND REASONABLE. KEEPING IN VI EW THE SAID DECISION OF THE TRIBUNAL IN ASSESSEE'S OWN CASE FOR THE EARLIER YEAR AND HAVING REGARD TO THE SPECIFIC FINDINGS, GIVEN BY THE LEARNED CIT(APPEALS) AS DISCUSSED, ABOVE, WE FIND NO INFIRMITY: IN THE IMPUGNED ORDER OF THE 6838 /M/14& C.O.72/16-GODREJ AGROVET 3 LEARNED CIT(APPEALS) DELETING THE ADDITION OF RS. L,07,74,935/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE U/S 14A AND UPHOLDING THE SAME ON THIS ISSUE, WE DISMISS THE APPEAL FILED BY THE REVENUE. 9. IN ITS CROSS OBJECTION, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS : 1. THE CROSS OBJECTOR SUBMITS THAT RULE 8D CANNOT B E APPLIED FOR COMPUTING DISALLOWANCE UNDER SECTION 14A FOR THE ASSESSMENT YEAR 2007-08. 2. WITHOUT PREJUDICE, THE DISALLOWANCE UNDER SECTION 14A READ WITH SECTION 8D CANNOT EXCEED RS.80,71,2 04/- IN ANY VIEW OF THE MATTER. 3. THE CROSS OBJECTOR SUBMITS THAT SECTION 14A AND R ULE 8D CANNOT BE IMPORTED INTO SECTION 115JB FOR T HE PURPOSE OF ARRIVING AT 'THE AMOUNT OF EXPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT, WHICH IS RE LATABLE TO ANY INCOME TO WHICH SECTION 10 APPLIES'. 10. AT THE TIME OF HEARING BEFORE US, THE LEARNED C OUNSEL FOR THE ASSESSEE HAS NOT PRESSED GROUND NO. L AND 3. THE SAME ARE ACCORDINGLY DISMIS SED AS NOT PRESSED. 11. THE REMAINING GROUND RELATING TO ASSESSEE'S ALT ERNATIVE CLAIM ON THE ISSUE OF DISALLOWANCE U/S.14A HAS BECOME INFRUCTUOUS AS A RESULT OF OUR D ECISION RENDERED ABOVE UPHOLDING THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) GIVING R ELIEF TO THE ASSESSEE ON THE ISSUE OF DISALLOWANCE U/S. 14A WHILE DISPOSING OF THE APPEAL OF THE REVENUE. THE SAME IS ACCORDINGLY DISMISSED. RESPECTFULLY FOLLOWING THE ABOVE,WE DECIDE THE EFF ECTIVE GROUND OF APPEAL AGAINST THE AO. . / C.O. NO.72/MUM/2016 : 6. WHILE ARGUING THE C.O. THE AR DID NOT PRESS GR.NO.7 , HENCE,SAME STANDS DISMISSED. REST OF THE GROUNDS (GOA 1-6) DEAL WITH DISALLOWANC E MADE BY THE AO U/S. 14A R.W.R.8D OF THE RULES WHEREIN THE FAA HAD DIRECTED THE AO TO RE -COMPUTE THE ADMINISTRATIVE EXPENSES TO MAKE DISALLOWANCE.WE FIND THAT THE HON'BLE BOMBAY H IGH COURT HAS,WHILE DECIDING THE APPEAL FILED BY THE DEPARTMENT(SUPRA),HELD AS UNDER :- 4. SO FAR AS QUESTION (B) IS CONCERNED, THE TRIBU NAL IN ITS IMPUGNED ORDER DATED 17.09.2010 WHILE APPLYING THE DECISION OF THIS COURT IN THE MATTER OF GODREJ (SUPRA) HAS DISALLOWED THE EXPENDITURE ONLY TO THE EXTENT OF 2% OF THE TOTAL EXEMPT INCOME EARNED BY THE RESPONDENT- ASSESSEE ON THE BASIS IT ORDER DATED 27.02.2009 FOR THE 2002-2003 AND ORDER DATED 10.09.2009 FOR ASSESSMENT YEAR 2003-2004 AND 2004-0 5 WHEREIN THE DISALLOWANCE WAS RESTRICTED TO 2% OF THE EXEMPT INCOME. FURTHER, TH E TRIBUNAL HAS REMANDED THE MATTER TO THE ASSESSING OFFICER TO VERIFY THE DISALLOWANCE CLAIM ED AND RESTRICT THE DISALLOWANCE ONLY TO THE EXTENT TO 2% OF THE TOTAL EXEMPT INCOME. WE FIND NO FAULT WITH THE ORDER OF THE TRIBUNAL. IN THE CIRCUMSTANCES, WE SEE NO REASON TO ENTERTAIN QU ESTION (B) ALSO. ACCORDINGLY,WE,DIRECT THE AO TO RESTRICT THE DISALL OWANCE TO 2% OF THE EXEMPT INCOME. AS A RESULT APPEAL FILED BY AO STANDS DISMISSED AND CO OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 06 TH JANUARY, 2017. , 2017 SD/- SD/- ( / AMARJIT SINGH ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 06.01.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 6838 /M/14& C.O.72/16-GODREJ AGROVET 4 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR B BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.