ACIT 1(1), MUMBAI V. FRIGORIFICO ALLANA LTD, MUMBAI

ITA 6873/MUM/2011

• Counselvise Citation: 687319914 RSA 2011
• Duration Of Justice: 2 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-11-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 05-11-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 10-10-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JITENDRA JAIN
• Assessee Lawyers: VIJAY SHANKAR
• Keywords: Earning of tax free income
• Section: 14A; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MU MBAI BEFORE SHRI RAJENDRA SINGH,AM AND SHRI VIVEK VARMA , JM ./ I.T.A. NO.2448/M/2011 ( / ASSESSMENT YEAR: 2007-08) & ./ I.T.A. NO. 7061/M/2011 ( / ASSESSMENT YEAR: 2008-09) FRIGORIFICO ALLANA LIMITED, ALLANA HOUSE, ALLANA ROAD, COLABA MUMBAI 400001 / VS. ADDL. CIT RG.1(1) AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020 ./ ./PAN/GIR NO. AAACF0861F ( /APPELLANT ) : ( / RESPONDENT ) ./ I.T.A. NO.6873/M/2011 ( / ASSESSMENT YEAR: 2008-09) ADDL. CIT RG.1(1) AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020 / VS. FRIGORIFICO ALLANA LIMITED, ALLANA HOUSE, ALLANA ROAD, COLABA MUMBAI 400001 ./ ./PAN/GIR NO. AAACF0861F ( /APPELLANT ) : ( / RESPONDENT ) 2 ITA NOS. 2448,7061&6873/M/2011 / APPELLANT BY : SHRI JITENDRA JAIN / RESPONDENT BY : MS. VIJAY SHANKAR ! / DATE OF HEARING : 05.11.2013 '#$% ! / DATE OF PRONOUNCEMENT : 05 .11.2013 &' / O R D E R PER BENCH RAJENDRA SINGH, A. M.: THE APPEAL BY THE ASSESSEE FOR A.Y.2007-08 AND THE CROSS APPEALS FOR A.Y.2008-09 ARE DIRECTED AGAINST THE ORDER DATED 30 .11.09 AND 13.07.2011 OF CIT(A) FOR A.Y.2007-08 AND 2008-09 RESPECTIVELY. TH ESE APPEALS WHICH WERE HEARD TOGETHER AND ALSO INVOLVE COMMON ISSUES ARE B EING DISPOSED OFF BY A SINGLE CONSOLIDATED ORDER FOR SAKE OF CONVENIENCE. 2. WE FIRST TAKE UP THE APPEALS OF THE ASSESSEE IN ITA NO.2448/M/11(A.Y.2007-08) AND ITA NO.7061/M/11(A.Y. 2008-09 . THE DISPUTES RAISED IN BOTH THE APPEALS ARE IDENTIFIED WHICH REL ATE TO ALLOWABILITY OF EXEMPTION U/S.80IB IN RELATION TO INCENTIVES. THE ASSESSEE HA S ALSO RAISED AN ADDITIONAL GROUND IN WHICH PLEA HAS BEEN RAISED THAT IN CASE INCENTIV ES ARE NOT FOUND ELIGIBLE FOR DEDUCTION, THE CORRESPONDING EXPENSES INCURRED FOR EARNING INCENTIVES SHOULD BE REDUCED FROM SUCH INCOME. 2.1. THE FACTS IN BRIEF ARE THAT THE ASSESSEE WHO W AS ENGAGED IN THE BUSINESS OF PROCESSING, PRESERVATION AND PACKAGING OF FRUITS HA D CLAIMED DEDUCTION, IN RESPECT OF DUTY ENTITLEMENT PASS BOOK(DEPB) AND VISHESH KRI SHI GRAM UPAJ 3 ITA NOS. 2448,7061&6873/M/2011 YOJANA(VKGUY) AMOUNTING TO RS.58,95,090/- FOR A.Y.2 007-08 AND RS.47,4,559/- FOR A.Y. 2008-09. THE ASSESSEE CLAIMED DEDUCTION U/ S.80IB IN RESPECT OF THE INCENTIVES ALSO. THE AO, HOWEVER, ASKED THE ASSESSE E TO EXPLAIN AS TO WHY DEDUCTION IN RESPECT OF INCENTIVES SHOULD NOT BE DI SALLOWED IN VIEW OF THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF LIBERT Y INDIA[(2009) 317 ITR 218]. THE ASSESSEE SUBMITTED THAT HONBLE SUPREME COURT I N CASE OF LIBERTY INDIA (SUPRA) WAS CONCERNED WITH THE DEDUCTION U/S.80IB I N RESPECT OF THE INCENTIVES WHEN THE LANGUAGE USED IN THE SECTION WAS PROFITS DERIVED FROM INDUSTRIAL UNDERTAKING WHEREAS THE ASSESSEE HAD CLAIMED DEDUC TION U/S.80IB(11A) IN WHICH THE LANGUAGE USED WAS PROFITS GAINS DERIVED FROM T HE BUSINESS OF UNDERTAKING. THEREFORE, THE JUDGMENT OF HONBLE SUPREME COURT WA S NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE AO, HOWEVER, DID NOT ACCEP T ARGUMENTS ADVANCED AND OBSERVED THAT ONLY THE PROFITS DERIVED FROM THE BUS INESS OF UNDERTAKING COULD BE EXEMPT WHICH WAS NOT SO IN THE PRESENT CASE AS INCE NTIVE WAS NOT DERIVED FROM THE BUSINESS OF UNDERTAKING. HE THEREFORE, DISALLOWED T HE CLAIM OF THE DEDUCTION. IN APPEAL, CIT(A) AGREED WITH THE FINDING OF AO THAT T HE INCENTIVE WAS NOT DERIVED FROM THE BUSINESS UNDERTAKING BUT IT FLOWED FROM TH E SCHEME FRAMED BY THE CENTRAL GOVERNMENT. IT WAS, THEREFORE, NOT THE PROFITS DERI VED FROM ELIGIBLE BUSINESS U/S.80IB. HE, ACCORDINGLY, CONFIRMED THE DISALLOWAN CE MADE BY AO AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL . 2.2. BEFORE US, LEARNED AR FOR THE ASSESSEE REITERA TED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES THAT THE JUDGMENT OF HONB LE SUPREME COURT IN CASE OF LIBERTY INDIA(SUPRA) WAS NOT APPLICABLE TO THE YEA R UNDER CONSIDERATION IN WHICH LANGUAGE OF THE SECTION HAD UNDERGONE CHANGE AND DE DUCTION U/S.80IB(11A) WAS ALLOWABLE IN RESPECT OF BUSINESS OF UNDERTAKING WHI CH IS MUCH WIDER IN SCOPE COMPARED TO THE PHRASE PROFITS FROM INDUSTRIAL UND ERTAKING USED THE EARLIER. IT 4 ITA NOS. 2448,7061&6873/M/2011 WAS ALSO SUBMITTED THAT IN CASE THE CLAIM OF THE AS SESSEE WAS REJECTED, THE COST INCURRED IN EARNING OF THE INCENTIVES SHOULD ALSO B E EXCLUDED WHILE EXCLUDING THE INCENTIVES AT THE TIME OF COMPUTATION OF DEDUCTION U/S.80IB. THE LEARNED DR, ON THE OTHER HAND, STRONGLY SUPPORTED THE ORDERS OF AU THORITIES BELOW AND ARGUED THAT THE ISSUE WAS FULLY COVERED BY THE JUDGMENT OF HON BLE SUPREME COURT IN CASE OF LIBERTY INDIA (SUPRA). THE LEARNED DR ALSO OBJECTE D TO ADDITIONAL GROUND RAISED BY THE ASSESSEE ON THE GROUND THAT FACTS RELATING TO I NCURRING OF EXPENDITURE FOR EARNING OF INCENTIVES WERE NOT ON RECORD AND THEREF ORE, SUCH ISSUE COULD NOT RAISED BEFORE THE TRIBUNAL. 2.3. IN REPLY, THE LEARNED AR FOR THE ASSESSEE SUBM ITTED THAT THE ASSESSEE HAD NOT RAISED THE ISSUE FOR THE FIRST TIME BEFORE THE TRIB UNAL BUT THIS ISSUE HAD ALSO BEEN RAISED BEFORE CIT(A) IN GROUND NO.3.4 FOR A.Y.2007- 08. MOREOVER IT WAS ALSO POINTED OUT SUCH CLAIM WAS ONLY CONSEQUENTIAL AS ON DENIAL OF DEDUCTION U/S.80IB, NOT ONLY THE INCOME BUT ALSO THE EXPENSES SHOULD BE EXCLUDED IN RELATION TO THE INCENTIVES. 2.4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY OF DEDUCTION U/S. 80IB IN RESPECT OF INCENTIVES SUCH AS DEPB RECEIVED BY THE ASSESSEE FROM THE GOVE RNMENT. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF PROCESSING, PRESERVATION AND PACKAGING OF FRUITS AND ACCORDINGLY WAS ELIGIBLE FOR DEDUCTION U/S.80IB(11A ). THE ISSUE WHETHER DEDUCTION U/S.80IB COULD BE ALLOWED IN RESPECT OF INCENTIVES HAD BEEN CONSIDERED BY HONBLE SUPREME COURT IN CASE OF LIBERTY OF INDIA (SUPRA) I N WHICH THE HONBLE SUPREME COURT HELD THAT THE ONLY PROFIT DERIVED FROM ELIGIB LE BUSINESS WAS ENTITLED FOR DEDUCTION U/S.80IB AND THE SECTION DID NOT COVERED PROFIT FROM SOURCE BEYOND THE FIRST DEGREE. IN OTHER WORDS INCIDENTAL PROFITS OR THE PROFITS ATTRIBUTABLE OF THE 5 ITA NOS. 2448,7061&6873/M/2011 BUSINESS FOR THE UNDERTAKING WHICH ARE NOT DIRECTLY DERIVED FROM ELIGIBLE BUSINESS ARE NOT TO BE CONSIDERED FOR DEDUCTION. 2.5. THE LEARNED AR FOR THE ASSESSEE HAS ARGUED THA T THE SAID JUDGMENT IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE AS THE LANGUAGE USED IN U/S.80IB APPLICABLE FOR THE ASSESSMENT YEAR WITH WHICH THE H ONBLE SUPREME COURT WAS CONCERNED PROFITS AND GAINS DERIVED FROM THE UNDE RTAKING WHEREAS THE LANGUAGE USED IN SECTION 80IB(11A) WITH WHICH THE ASSESSEE I S CONCERNED IN PROFITS AND GAINS DERIVED FROM THE BUSINESS OF THE UNDERTAKING WHICH HAS WIDER SCOPE AND THEREFORE INCLUDES INCIDENTAL PROFITS ALSO SUCH AS INCENTIVES. WE ARE HOWEVER, UNABLE TO EXCEPT ARGUMENTS ADVANCED BY THE LEARNED AR. THE HONBLE SUPREME COURT IN CASE OF LIBERTY OF INDIA (SUPRA) WAS CONCE RNED WITH A.Y.2001-02 WHEN THE LANGUAGE USED WAS THE PROFITS AND GAINS DERIVED FROM ANY BUSINESS REFERRED IN SUB-SECTION (3) I.E. THE ELIGIBLE BUSINESS. THEREFO RE, IT IS CLEAR THAT EVEN IN A.Y.2001-02 ONLY THE PROFITS AND GAINS DERIVED FROM ELIGIBLE BUSINESS OF UNDERTAKING WAS ENTITLED FOR DEDUCTION. MOREOVER TH IS ASPECT HAD ALSO BEEN ARGUED BEFORE HONBLE SUPREME COURT BY THE DEPARTMENT THAT FOR ALL PRACTICAL PURPOSES THE WORDS ELIGIBLE BUSINESS AND INDUSTRIAL UNDERTAKI NG HAD BEEN USED INTERCHANGEABLY AND THEREFORE, THERE WAS NO MATERIA L DIFFERENCE BETWEEN SECTION 80I AND SECTION 80IB. THE HONBLE SUPREME COURT HAD DECIDED THE ISSUE AFTER CONSIDERING THESE SUBMISSIONS AND THEREFORE, THE AR GUMENT RAISED BY THE LEARNED AR CANNOT BE ACCEPTED. IT IS ALSO PERTINENT TO POIN T OUT HERE THAT IN VIEW OF JUDGMENT OF HONBLE SUPREME COURT IN CASE LIBERTY O F INDIA (SUPRA), ONLY PROFITS AND GAINS DERIVED FROM THE ELIGIBLE BUSINESS HAS TO BE CONSIDERED. IN OTHER WORDS, DIRECT SOURCE OF SUCH PROFITS HAS TO BE THE ELIGIBL E BUSINESS. THEREFORE, THE ARGUMENT BASED ON THE PHRASEOLOGY PROFITS AND GAI NS FROM INDUSTRIAL UNDERTAKING AND PROFITS AND GAINS FROM BUSINESS U NDERTAKING ARE NOT RELEVANT AS THE DIRECT SOURCE OF THE INCENTIVES IS THE SCHEME O F THE GOVERNMENT AND NOT THE 6 ITA NOS. 2448,7061&6873/M/2011 UNDERTAKING OR THE BUSINESS OF UNDERTAKING. THEREFO RE, IN OUR VIEW, THE ISSUE IS FULLY COVERED BY THE JUDGMENT OF HONBLE SUPREME CO URT IN CASE OF LIBERTY OF INDIA (SUPRA). WE ACCORDINGLY, CONFIRM ORDER OF CIT (A) DENYING THE CLAIM OF DEDUCTION U/S.80IB. 2.6. WE HOWEVER FIND SUBSTANCE IN THE ADDITIONAL GR OUND RAISED BY THE ASSESSEE REGARDING EXCLUSION OF EXPENSES ALSO INCURRED FOR E ARNING OF INCENTIVES. SUCH PLEA IN OUR VIEW IS ONLY CONSEQUENTIAL. THE ASSESSEE HAD CLAIMED DEDUCTION IN RESPECT OF INCENTIVES ALSO AND IF INCENTIVES ARE TO BE EXCLUDE D FOLLOWING THE JUDGMENT OF HONBLE SUPREME COURT IN CASE OF LIBERTY INDIA (SUP RA), THE CORRESPONDING EXPENSES IF ANY INCURRED FOR EARNING FOR INCENTIVE HAVE ALSO TO BE EXCLUDED. WE THEREFORE, DO NOT FIND ANY MERIT IN THE ARGUMENT AD VANCED BY THE LEARNED DR THAT THE ADDITIONAL GROUND SHOULD NOT BE ENTERTAINED. TH E GROUND HAD BEEN RAISED BEFORE CIT(A) ALSO AND IT IS NOT THAT THE GROUND HAS BEEN RAISED FOR THE FIRST TIME BEFORE THE TRIBUNAL. EVEN OTHERWISE BEING CONSEQUENTIAL IN NATURE, THE CLAIM HAS TO BE CONSIDERED WHILE GIVING EFFECT TO THE JUDGMENT OF T HE HONBLE SUPREME COURT IN CASE OF LIBERTY INDIA (SUPRA). WE ACCORDINGLY, RES TORE TO THIS ASPECT TO THE FILE OF CIT(A) TO EXAMINE THE ISSUE RELATING TO INCURRING O F EXPENDITURE FOR EARNING OF THE INCENTIVES AND IN CASE IT IS FOUND THAT EXPENSES HA VE BEEN INCURRED THESE HAVE ALSO TO BE EXCLUDED WHILE EXCLUDING THE INCENTIVES FROM THE COMPUTATION OF DEDUCTION U/S.80IB. THE CIT(A) WILL PASS ORDER ON THIS ASPECT AFTER ALLOWING OPPORTUNITY, OF HEARING TO THE ASSESSEE. 3. THE APPEAL OF THE REVENUE IN ITA NO.6873/M/11 FOR THE A.Y.2008-09. THE ONLY DISPUTE RAISED BY THE REVENUE IN THIS APPEAL I N REGARDING DISALLOWANCE OF EXPENSES RELATING TO EXEMPT INCOME U/S.14A OF THE I T ACT. THE AO DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE MADE INVESTMENT OF 7 ITA NOS. 2448,7061&6873/M/2011 RS.70,16,55,407/- ON WHICH DIVIDEND INCOME HAD BEEN DECLARED IN A.Y.2007-08 AND EARLIER YEARS WHICH WAS EXEMPT U/S.10 OF THE IT ACT. AO, THEREFORE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY EXPENSES SHOULD NOT DISALLOWED IN RELATION TO SUCH INVESTMENTS AS PER RULE 8D. THE ASSESSEE SUBMITTED THAT IT HAD NOT EARNED ANY DIVIDEND INCOME DURING THE YEAR. THE ASSESSEE HOWEV ER OFFERED FOR DISALLOWANCE THE DIRECT EXPENSES BEING DEMAT CHARGES FOR WHICH 5 61/- THE ASSESSEE FURTHER SUBMITTED THAT THE INVESTMENTS HAD BEEN MADE OUT OF OWN FUND AND THEREFORE, NO INTEREST EXPENDITURE HAD BEEN INCURRED. THE AO, HOW EVER, OBSERVED THAT EVEN IF NO DIVIDEND INCOME HAD BEEN EARNED DURING THE YEAR THE INCOME IF EARNED WAS EXEMPT AND, THEREFORE, PROVISIONS OF SECTION 14A WERE APP LICABLE. IT WAS ALSO OBSERVED BY HIM THAT RULE 8D WAS APPLICABLE IN CASE FOR THE ASS ESSEE FOR THE RELEVANT ASSESSMENT YEAR 2008-09 AS HELD HONBLE HIGH COURT OF BOMBAY I N CASE OF GODREJ BOYCE MFG CO [ 328 ITR 81] . AO, THEREFORE, COMPUTED THE DISALLOWANCE AS PER RULE 8D @ .5% OF THE INVESTMENTS WHICH CAME TO RS.3509194/- IN AD DITION TO THE DISALLOWANCE FOR DIRECT EXPENDITURE OF RS.561/-. AO THUS DISALLOWED TOTAL SUM OF RS.35,09,755/-. 3.1. IN APPEAL, THE ASSESSEE SUBMITTED BEFORE CIT( A) THAT AO WAS NOT JUSTIFIED IN DISALLOWANCE OF RS.35,09,755/-. IT WAS ALSO SUBMITT ED THAT NO DISALLOWANCE U/S. 14A COULD BE MADE AS THE ASSESSEE HAD NOT EARNED AN Y DIVIDEND INCOME FROM THE INVESTMENT MADE. THE CIT(A) AGREED WITH THE SUBMISS IONS OF THE ASSESSEE THAT NO DISALLOWANCES COULD BE MADE AS THERE WAS NO DIVIDEN D INCOME. HE THEREFORE, DIRECTED THE AO TO DELETE THE ADDITION MADE AGGRIEV ED BY WHICH THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 3.2. BEFORE US THE LEARNED DR ASSAILED THE ORDER OF CIT(A). IT WAS SUBMITTED THAT CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT PROVISIONS U/S.14A WERE NOT APPLICABLE IF NO DIVIDEND INCOME WAS EARNED. IT WAS ARGUED THAT T HE INCOME FROM THE 8 ITA NOS. 2448,7061&6873/M/2011 INVESTMENTS WAS IN THE FORM OF DIVIDEND WHICH WAS E XEMPT AND THEREFORE, SECTION 14A WAS APPLICABLE. HE PLACED RELIANCE ON THE DECIS ION OF SPECIAL BENCH OF THE TRIBUNAL IN CASE OF M/S. CHEMI INVESTMENT LIMITED [317 ITR 86]. THE LEARNED AR FOR THE ASSESSEE DID NOT RAISE ANY DISPUTE RELATING TO THE APPLICABILITY OF PROVISIONS OF SECTION 14A EVEN IF NO DIVIDEND INCOME WAS EARNE D. HOWEVER, IT WAS POINTED OUT BY HIM THAT THE CIT(A) HAD NOT DECIDED ON MERIT AND THEREFORE THE ISSUE WAS REQUIRED TO RESTORE BACK. IT WAS ALSO SUBMITTED THA T IN AN IDENTICAL CASE OF THE SISTER CONCERN I.E., M/S. FRIGORIFICO ALLANA LIMITED, THE TRIBUNAL IN ITA NO.6870/M/11 FOR A.Y.2008-09 HAD RESTORED THE ISSUE TO LOWER AUT HORITIES. 3.3. WE HAVE PERUSED THE RECORDS AND CONSIDERED MAT ERIAL CAREFULLY. THE DISPUTES IN REGARDING DISALLOWANCE OF EXPENSES U/S.14A IN RE LATION TO INVESTMENT MADE IN SHARES/UNITS INCOME FROM WHICH WAS EXEMPT FROM TAX. THE ASSESSEE HAD EARNED DIVIDEND INCOME FROM THESE INVESTMENTS IN THE EARLI ER YEARS WHICH WAS EXEMPT FROM TAX. DIVIDEND INCOME WAS EXEMPT FROM TAX THIS YEAR ALSO BUT THE ASSESSEE HAD NOT EARNED ANY DIVIDEND INCOME DURING THE YEAR. THE CIT(A) HAS HELD THAT PROVISIONS OF SECTION 14A ARE NOT APPLICABLE IF NO DIVIDEND INCOME IS ACTUALLY EARNED. THE ORDER OF CIT(A) CANNOT BE UPHELD AS THE SAME IS CONTRARY TO THE DECISION OF SPECIAL BENCH OF TRIBUNAL IN CASE OF M/ S. CHEMI INVESTMENT LIMITED (SUPRA). THE ORDER OF CIT(A) IS, THEREFORE, SET ASI DE ON THIS POINT. THE CIT(A) HAS NOT DECIDED THE ISSUE ON MERIT REGARDING THE QUANTU M OF DISALLOWANCE ON WHICH SPECIFIC PLEA HAD BEEN RAISED BY THE ASSESSEE BEFOR E HIM. WE THEREFORE, RESTORE THIS ISSUE TO THE FILE OF CIT(A) FOR PASSING AFRESH ORDE R ON MERIT AFTER NECESSARY EXAMINATION AND AFTER THE ALLOWING OPPORTUNITY TO T HE ASSESSEE. 9 ITA NOS. 2448,7061&6873/M/2011 4. IN THE RESULT THE APPEAL OF THE REVENUE IS ALLOW ED FOR STATISTICAL PURPOSES WHEREAS THOSE BY THE ASSESSEE ARE PARTLY ALLOWED FO R STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 05.11. 2013 SD/- SD/- (VIVEK VERMA ) (RAJ ENDRA SINGH) () & / JUDICIAL MEMBER & / ACCOUNTANT MEMBER * + MUMBAI; ,& DATED : 05 .11.2013 .). ./A.K.PATEL . PS ! '#$% &%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. 4 ( ) / THE CIT(A) 4. 4 / CIT - CONCERNED 5. 789 ) ):; , ! :;% , * + / DR, ITAT, MUMBAI 6. 9=> / GUARD FILE ' / BY ORDER, (/') * (DY./ASSTT. REGISTRAR) , * + / ITAT, MUMBAI