CLARIANT CHEMICALS (INDIA) LTD, THANE V. DEPUTY COMMISSIONER OF INCOME TAX (OSD) CIRCLE-1, MUMBAI

ITA 7125/MUM/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 6104 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 15-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SS IYENGAR
• Assessee Lawyers: P J PARDIWALLA
• Keywords: Earning of tax free income; Rule 8D
• Section: 234B; 14A

Judgement Text

1 I.T.A. NO.6617/MUM/2018 THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI PRAMOD KUMAR (VICE PRESIDENT) AND SHRI SAKTIJIT DEY ( JUDICIAL MEMBER) I.T.A. NO.6617/MUM/2018 (ASSESSMENT YEAR : 2009-10) CLARIANT CHEMICALS (INDIA) LTD RELIABLE TECH PARK, THANE-BELAPUR ROAD AIROLI, MUMBAI-400 078 PAN : AAACC5602P VS DEPUTY COMMISSIONER OF INCOME-TAX, RANGE-1(1)(1), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY SHRI P.J. PARDIWALLA (AR) RESPONDENT BY SHRI S.S. IYENGAR (DR) DATE OF HEARING 11-01-2021 DATE OF PRONOUNCEMENT 19/01/2021 O R D E R PER SAKTIJIT DEY (JM), THIS IS AN APPEAL BY THE ASSESSEE AGAINST ORDER DATED 29-9-2017 OF LD.CIT(A)-6, MUMBAI FOR THE ASSESSMENT YEAR 2010-11. 2. IN GROUND NO.1 ASSESSEE HAS CHALLENGED DISALLOWANCE OF RS.67,43,535/- U/S 14A OF THE ACT. 3. BRIEFLY, THE FACTS ARE THAT THE ASSESSEE, A RESIDENT COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF CHEMICALS. FOR THE ASSESSMENT YEAR UNDER DISPUTE, ASSESSEE FILED 2 I.T.A. NO.6617/MUM/2018 ITS RETURN OF INCOME ON 01-10-2010 DECLARING TOTAL INCOME OF RS.183,60,62,672/-. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS RECEIVED EXEMPT INCOME BY WAY O DIVIDEND AMOUNTING TO RS.4,24,96,310 WHEREAS THE ASSESSEE ITSELF HAS DISALLOWED AN AMOUNT OF RS.4,24,963 U/S 14A OF THE ACT. NOTICING THAT THE ASSESSEE HAS DEBITED INTEREST EXPENDITURE OF RS.1,01,05,000 TO THE P&L ACCOUNT WHEREAS IT HAS NOT ALLOCATED ANY INTEREST EXPENDITURE TOWARDS EARNING OF EXEMPT INCOME, HE CALLED UPON THE ASSESSEE TO EXPLAIN WHY EXPENDITURE INCURRED SHOULD NOT BE PROPORTIONATELY ALLOCATED U/R 8D R.W.S. 14A OF THE I.T. ACT. THOUGH THE ASSESSEE OBJECTED TO THE PROPOSED DISALLOWANCE, HOWEVER, THE AO WAS NOT CONVINCED. REJECTING ASSESSEES CLAIM AND CONTENTION, THE AO COMPUTED DISALLOWANCE U/S 14A R.W.R. 8D AT RS.95,53,042/- COMPRISING OF INTEREST EXPENDITURE DISALLOWED U/R 8D(2)(II) AT RS.23,84,544/- AND ADMINISTRATIVE EXPENDITURE DISALLOWED U/R 8D(2)(III) AT RS.71,68,498/-. AFTER DEDUCTING THE SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE OF RS.4,25,963/-, THE AO MADE A NET DISALLOWANCE OF RS.91,28,079/-. ASSSESSEE CONTESTED THE ABOVE DISALLOWANCE BEFORE THE FIRST APPELLATE AUTHORITY. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THE CONTEXT OF FACTS AND MATERIALS ON RECORD, LD. COMMISSIONER (APPEALS), HAVING FOUND THAT THE ASSESSEE HAS SUFFICIENT OWN FUNDS AVAILABLE TO TAKE CARE OF THE INVESTMENT, DELETED THE DISALLOWANCE OF INTEREST EXPENDITURE MADE U/R 8D(2)(II); HOWEVER, HE SUSTAINED THE DISALLOWANCE OF ADMINISTRATIVE EXPENDITURE MADE U/R 8D(2)(III). 4. SHRI PERCY PARDIWALLA, LD.SENIOR COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED THAT THE AO HAS NOT RECORDED PROPER SATISFACTION IN TERMS OF SECTION 14A(2) OF THE ACT. DRAWING OUR ATTENTION TO THE OBSERVATIONS OF THE AO, THE LD.SENIOR COUNSEL SUBMITTED THAT ON COMPLETE MISCONCEPTION OF FACT THAT THE ASSESSEE HAS AVAILED HUGE AMOUNT OF LOAN DURING THE YEAR TO MAKE INVESTMENT IN MUTUAL FUNDS, THE AO HAS REJECTED THE SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE. HE SUBMITTED, DURING THE YEAR, THE ASSESSEE HAD NOT TAKEN ANY LOAN FROM ANY BANK OR FINANCIAL INSTITUTION. DRAWING OUR ATTENTION TO THE BALANCE-SHEET OF THE ASSESSEE, HE SUBMITTED, THE SO-CALLED LOAN REFERRED TO BY THE AO IS ONLY A LOAN RECEIVED FROM STATE GOVERNMENT TOWARDS SALES-TAX DEFERMENT SCHEME. THUS, HE SUBMITTED, IN ABSENCE OF PROPER SATISFACTION BEING RECORDED, DISALLOWANCE HAS TO BE DELETED. THE LD.DR SUBMITTED THAT ASSESSEE HAS NOT MAINTAINED SEPARATE ACCOUNT OF EXPENDITURE FOR TAXABLE AND EXEMPT INCOME. THEREFORE, ALL 3 I.T.A. NO.6617/MUM/2018 EXPENDITURE INCURRED BY THE ASSESSEE HAS TO BE ALLOCATED TOWARDS EARNING OF EXEMPT INCOME IN TERMS OF RULE 8D. 5. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL AVAILABLE ON RECORD. UNDISPUTEDLY, THE ASSESSEE HAS MADE SUO MOTO DISALLOWANCE OF EXPENDITURE ATTRIBUTABLE TOWARDS EARNING OF EXEMPT INCOME. THEREFORE, AS PER THE MANDATE OF SECTION 14A, THE AO HAS TO RECORD SATISFACTION THAT THE DISALLOWANCE MADE BY THE ASSESSEE IS INCORRECT, HAVING REGARD TO ITS BOOKS OF ACCOUNT. AS COULD BE SEEN, THE PRIMARY REASON FOR WHICH THE AO REJECTED THE COMPUTATION OF DISALLOWANCE BY THE ASSESSEE IS ON THE ASSUMPTION THAT THE ASSESSEE BORROWED HUGE FUNDS FOR INVESTING IN EXEMPT INCOME EARNING ASSETS. HOWEVER, ON PERUSAL OF THE BALANCE SHEET OF THE ASSESSEE CLEARLY INDICATE THAT THE ASSESSEE HAS NOT BORROWED ANY INTEREST BEARING FUNDS. RATHER, THE LOAN REFERRED TO BY THE AO IS NOTHING BUT THE LOAN RECEIVED FROM THE STATE GOVERNMENT UNDER THE SALES-TAX DEFERMENT SCHEME. THEREFORE, IT IS AMPLY CLEAR THAT THE ASSESSEE HAS NOT UTILIZED ANY INTEREST BEARING FUNDS FOR INVESTING IN EXEMPT INCOME YIELDING ASSET. THE AFORESAID FACT CLEARLY DEMONSTRATE THAT THE SATISFACTION RECORDED BY THE AO WHILE REJECTING THE SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE IS IMPROPER AND WITHOUT PROPERLY EXAMINING THE BOOKS OF ACCOUNT OF THE ASSESSEE. THAT BEING THE CASE, THE CONDITIONS OF SECTION 14A(2) R.W.R 8D ARE NOT SATISFIED. THEREFORE, WE DELETE THE ADDITION OF RS.67,43,535. THIS GROUND IS ALLOWED. 6. GROUND 2 IS ON THE ISSUE OF LEVY OF INTEREST U/S 234B OF THE ACT BEING CONSEQUENTIAL IN NATURE, DOES NOT REQUIRE ADJUDICATION; HENCE DISMISSED. 7. BESIDES THE ABOVE, THE ASSESSEE VIDE LETTER DATED 24-04-2019 HAS RAISED THE FOLLOWING ADDITIONAL GROUND AS GROUND 3:- THE APPELLANT SUBMITS THAT HAVING REGARD TO THE PROVISION OF ARTICLE-10 OF THE INDIA- SWITZERLAND DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) THE APPELLANT BE HELD LIABLE TO PAY TAX UNDER SECTION 115-O OF THE INCOME TAX ACT, 1961 (THE ACT) AT THE RATE OF 10% ON THE DIVIDEND THAT IS PAYABLE TO A RESIDENT OF SWITZERLAND. 4 I.T.A. NO.6617/MUM/2018 8. ON A QUERY FROM THE BENCH, THE LD.DR DID NOT RAISE ANY OBJECTION FOR ADMISSION OF ADDITIONAL GROUND. ACCORDINGLY, THE ADDITIONAL GROUND IS ADMITTED FOR ADJUDICATION. 9. THE LD.SENIOR COUNSEL OF THE ASSESSEE SUBMITTED THAT AS PER ARTICLE 10 OF INDO SWITZERLAND DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA), THE ASSESSEE IS LIABLE TO PAY DIVIDEND DISTRIBUTION TAX TO A RESIDENT OF SWITZERLAND @10% AS PER SECTION 115-O OF THE ACT. HE SUBMITTED, WHILE DECIDING IDENTICAL ISSUE IN ASSESSEES OWN CASE IN EARLIER ASSESSMENT YEAR, THE TRIBUNAL HAS ACCEPTED ASSESSEES CLAIM AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE LD.DR FAIRLY ACCEPTED THE AFORESAID FACTUAL POSITION. 10. HAVING CONSIDERED RIVAL SUBMISSION, WE FIND THAT WHILE DECIDING IDENTICAL ISSUE IN CASE OF SGS INDIA (P>) LTD. VS. ADDL.CIT, [2017] 83 TAXMANN.COM 163 CITED BY THE LEARNED SENIOR COUNSEL OF THE ASSESSEE, THE MUMBAI BENCH HAS RESTORED THE ISSUE TO THE FIRST APPELLATE AUTHORITY. CONSIDERING THE FACT THAT THIS ISSUE WAS NOT RAISED BEFORE THE DEPARTMENTAL AUTHORITIES, BUT HAS BEEN RAISED FOR THE FIRST TIME BEFORE THE TRIBUNAL, WE ARE INCLINED TO RESTORE THIS ISSUE TO THE ASSESSING OFFICER FOR FRESH ADJUDICATION AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND KEEPING IN VIEW THE DECISIONS TO BE CITED BY THE ASSESSEE. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19/01/2021. ( PRAMOD KUMAR) (SAKTIJIT DEY) VICE PRESIDENT JUDICIAL MEMBER MUMBAI, DATED : / 01/2021. PAVANAN, SR.P.S (ON CONTRACT) 5 I.T.A. NO.6617/MUM/2018 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONENT. 3. THE CIT(A) 4. 4. THE CIT 5. D.R., ITAT, MUMBAI. 6. GUARD FILE. //TRUE COPY// BY ORDER I.T.A.T., MUMBAI. DATE INITIAL 1. DRAFT DICTATED ON 10-01-2021 SR.P.S. 2. DRAFT PLACED BEFORE THE AUTHOR. 11-01-2021 SR.P.S. 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.P.S. 6. KEPT FOR PRONOUNCEMENT SR.P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S. 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 6 I.T.A. NO.6617/MUM/2018 10. DATE OF DISPATCH OF ORDER 11. DICTATION PAD IS ENCLOSED.