A.C.I.T. CENTRAL CIRCLE 33, MUMBAI V. JAYSHREE PETROCHEMICALS PVT. LTD., MUMBAI

ITA 7292/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71868 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 24-09-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 31-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B P K
• Assessee Lawyers: S ATISH CHANDAK
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL J JJ J BENCH, BENCH, BENCH, BENCH, MUMBAI MUMBAI MUMBAI MUMBAI , . , . , ! ! ! ! '# '# '# '# BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM & & & & SHRI SHRI SHRI SHRI D. KARUNAKARA RAO D. KARUNAKARA RAO D. KARUNAKARA RAO D. KARUNAKARA RAO, AM , AM , AM , AM ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO.7292/MUM/2011 7292/MUM/2011 7292/MUM/2011 7292/MUM/2011 ( $% $% $% $% & & & & / ASSESSMENT YEAR :2008-09) ACIT, CENTRAL CIRCLE 33, ROOM NO. 32(2), GROUND FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MARINE LINES, MUMBAI-400020 % % % % / VS. M/S JAYSHREE PETROCHEMICALS PVT. LTD., RAGHUVANSHI MILL COMPOUND, SENAPATI BAPAT MARG, LOWER PAREL (W) MUMBAI-400013 #' ! ./ ( ./ PAN/GIR NO. :AAACJ0934B ( ') / APPELLANT APPELLANT APPELLANT APPELLANT) .. ( *+') / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) $% $%$% $% ,- ,- ,- ,- . / . / . / . / /ASSESSEE BY : SHRI SATISH CHANDAK & SHRI MANI JAIN # # # # . / . / . / . / / REVENUE BY : SHRI B. P. K. PANDA % % % % . .. . -! -! -! -! / DATE OF HEARING : 25 TH NOVEMBER 2013 01& 01& 01& 01& . .. .-! -! -! -! /DATE OF PRONOUNCEMENT: 29 TH NOVEMBER 2013 '2 / O R D E R PER : , . . / VIJAY PAL RAO, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 30.8.2011 OF COMMISSIONER OF INCOME TAX(APPEALS) FO R THE ASSESSMENT YEAR 2008-09. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL: I) WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LEARNED CIT (A) IS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO MAKE DISALLOWANCE UNDER SECTION 1 4A AS PER DECISION OF ITAT MUMBAI BENCH IN THE CASE OF DCIT VS. HDFC B ANK LTD, 217/ MUM! 2008 WHEN DISALLOWANCE FOR THIS YEAR HAS TO MADE AS PER THE PROVISIONS OF RULE 8D IN ACCORDANCE WITH TH E DECISION OF MUMBAI HIGH COURT IN THE CASE OF GODREJ AND BOYCE MANUFACTURING COMPANY LTD. 234CTR 1. ITA NO.7292/M/2011 M/S JAYSHREE PETROCHEMICALS PVT. LTD. 2 II) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (A) IS JUSTIFIED IN DIR ECTING THE ASSESSING OFFICER TO MAKE DISALLOWANCE UNDER SECTIO N 1 4A AS PER DECISION OF ITAT MUMBAI BENCH IN THE CASE OF DCIT V S. HDFC BANK LTD. 217/ MUM! 2008 WHEN LEARNED CIT (A) COULD NOT FIND ANY ERROR IN THE COMPUTATION OF DISALLOWANCE MADE A S PER RULE 8D BY THE ASSESSING OFFICER. 2. THE ONLY ISSUE ARISES FOR OUR CONSIDERATION AND ADJUDICATION IS REGARDING DISALLOWANCE OF ADMINISTRATIVE EXPENSES U /S 14A R.W.R 8D. THE A.O NOTICED THAT THE ASSESSEE HAS MADE INVESTMENT O F ` 53.65 CRORES DURING THE YEAR UNDER CONSIDERATION. THE A.O ASKED THE ASSESSEE TO EXPLAIN AS TO WHY DISALLOWANCE U/S 14A SHOULD NOT B E MADE. THE A.O FINALLY MADE A DISALLOWANCE OF ` 27,68,708/- U/S 14 A BY APPLYING RULE 8D. ON APPEAL, THE CIT(A) HAS RELIED UPON THE DECISION OF THIS TRIBUNAL IN CASE OF DCIT VS HDFC BANK LTD. AND DIRECTED TO THE A.O C OMPUTED THE DISALLOWANCE U/S 14A IN THE LIGHT OF THE SAID DECIS ION AND NOT BY APPLYING RULE 8D. 3. BEFORE US THE LD. D.R HAS POINTED OUT THE DECISI ON RELIED UPON BY THE CIT(A) IN THE CASE OF HDFC IS FOR THE ASSESSMEN T YEAR 2005-06 IN WHICH RULE 8D IS NOT APPLICABLE AND THEREFORE, THE CIT(A) COMMITTED AN ERROR IN FOLLOWING THE SAID DECISION OF THIS TRIBUN AL. ON THE OTHER HAND, THE LD. A.R HAS FAIRLY CONCEDED THAT THOUGH RULE 8D IS APPLICABLE IN THE YEAR UNDER CONSIDERATION HOWEVER, THE DISALLOWANCE MADE BY THE A.O IN RESPECT OF THE INDIRECT EXPENSES BY APPLYING RULE 8 D IS MORE THAN THE ACTUAL EXPENDITURE DEBITED BY THE ASSESSEE TO THE P ROFIT AND LOSS ACCOUNT. THEREFORE, THE ACTION OF THE A.O IS NOT JUSTIFIED W HEN THE DISALLOWANCE IS MORE THAN THE ACTUAL EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT. HE ITA NO.7292/M/2011 M/S JAYSHREE PETROCHEMICALS PVT. LTD. 3 HAS RELIED UPON THE VARIOUS DECISIONS OF THIS TRIBU NAL INCLUDING THE DECISION OF DELHI BENCHES OF THIS TRIBUNAL IN CASE OF GILLETTE GROUP INDIA PVT. LTD. VS ACIT IN ITA NO. 267//2012 DATED 23.3.2 012. THE LD. A.R HAS REFERRED THE SCHEDULE 14 TO THE BALANCE SHEET AND S UBMITTED THAT THE TOTAL ADMINISTRATIVE EXPENDITURE BOOKED BY THE ASSESSEE T O THE PROFIT AND LOSS ACCOUNT IS ` 19 LACS WHEREAS THE A.O DISALLOWED 27, 68,708/-. THUS, THE LD. A.R HAS SUBMITTED THAT THE DISALLOWANCE U/S 14A CAN NOT BE MORE THAN THE ACTUAL EXPENDITURE BOOKED TO THE PROFIT AND LOSS AC COUNT. FURTHER THE SAID EXPENDITURE HAS BEEN INCURRED FOR THE ENTIRE BUSINE SS ACTIVITIES OF THE ASSESSEE AND THEREFORE, THE EXPENDITURE WHICH HAS B EEN INCURRED IN RELATION TO EARNING EXEMPT INCOME CAN BE DISALLOWED . 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFICER HAS WORKE D OUT THE DISALLOWANCE U/S 14A BY CONSIDERING THE DIRECT EXPENDITURE AS WE LL AS INDIRECT EXPENDITURE. THE DIRECT EXPENDITURE HAS BEEN WORKED OUT BY THE A.O AS UNDER: THE ASSESSEE HAS ALSO INCURRED FOLLOWING EXPENSES WHICH ARE DIRECTLY CONNECTED WITH THE EARNING OF EXEMPTED INC OME. A. DELIVERY CHARGES ` 25,641 B. D MAT CHARGES ` 2,15,411 C. TRANSACTION CHARGES ` 4,11,401 ` 6,52,453 5. THUS, IT IS CLEAR THAT APART FROM THE DIRECT EXP ENDITURE INCURRED FOR EARNING THE EXEMPT INCOME THE A.O HAS ALSO DISALLOW ED INDIRECT EXPENDITURE AND WORKED OUT THE SAME @ 0.5% AVERAGE INVESTMENT. THUS, ITA NO.7292/M/2011 M/S JAYSHREE PETROCHEMICALS PVT. LTD. 4 THE TOTAL DISALLOWANCE U/S 14A HAS BEEN MADE BY THE A.O AT ` 34,21,161/-. THE ASSESSEE HAS NOT DISPUTED THE DISALLOWANCE OF D IRECT EXPENSES AND THE GRIEVANCES OF THE ASSESSEE WAS ONLY WITH RESPEC T TO THE APPORTIONMENT OF THE INDIRECT EXPENSES WORKED OUT B Y THE A.O UNDER RULE 8D OF THE INCOME TAX RULES. AT THE OUTSET WE NOTE T HAT THE CIT(A) HAS COMPLETELY IGNORED THE FACT THAT RULE 8D IS APPLICA BLE FOR THE YEAR UNDER CONSIDERATION AND THEREFORE, THE FINDING OF THE CIT (A) IS NOT SUSTAINABLE EVEN IN THE LIGHT OF THE DECISION OF HONBLE JURISD ICTION HIGH COURT IN CASE OF GODREJ & BOYCE MFG. CO. LTD. VS DCIT 328 ITR 81. HOWEVER, THE UNDERLINED PRINCIPLE OF SECTION 14A IS TO ENSURE TH AT THE TAX INCENTIVE GIVEN BY WAY OF EXEMPTION OF CERTAIN CATEGORIES OF INCOMES SHALL NOT REDUCE THE TAX PAYABLE ON NON-EXEMPT INCOME BY DEBI TING THE EXPENSES INCURRED TO EARN THE EXEMPT INCOME AGAINST THE TAXA BLE INCOME. THUS, THE EXPENSES INCURRED TO EARN EXEMPT INCOME CANNOT BE A LLOWED AND ONLY THE EXPENSES RELATABLE TO THE EARNING OF TAXABLE INCOME SHALL BE ALLOWED. IF THERE IS EXPENDITURE DIRECTLY OR INDIRECTLY INCURRE D IN RELATION TO THE EXEMPT INCOME THE SAME CANNOT BE ALLOWED AGAINST TH E INCOME WHICH IS TAXABLE. THUS, FOR ATTRACTING THE PROVISION OF SECT ION 14A THERE SHOULD BE PROXIMATE CAUSE FOR DISALLOWANCE WHICH HAS RELATION SHIP WITH THE TAX EXEMPT INCOME. THE APPORTIONMENT OF EXPENDITURE IS NEEDED WHEN EXPENDITURE IS INCURRED IN RELATION TO COMPOSITE/IN DIVISIBLE BUSINESS WHICH RESULTS THE EARNING OF BOTH TAXABLE AND NON-TAXABLE INCOME. THEREFORE IN ORDER TO DISALLOWED THE EXPENDITURE U/S 14A THERE M UST BE A LIVE NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE INCOME NOT FORMING PART OF THE TOTAL INCOME. IN THE CASE IN HAND THE DETAILS OF DI RECT AND INDIRECT ITA NO.7292/M/2011 M/S JAYSHREE PETROCHEMICALS PVT. LTD. 5 EXPENSES BOOKED BY THE ASSESSEE TO THE PROFIT AND L OSS ACCOUNT ARE GIVEN IN SCHEDULE 14 AT PAGE NO. 6 OF THE PAPER BOOK AS U NDER: SCHEDULE NO. 14 SELLING & ADMINISTRATIVE CHARGES AUDIT FEES 13260 13224 BANK CHARGES 25858 2318 CONVEYANCE & TRAVELLING EXPENSES 44285 101054 DELIVERY CHARGES 25641 7306 D MAT CHARGES 215411 99927 FILLING FEES 1500 900 LEGAL & PROFESSIONAL CHARGES 28000 100000 LOADING & UNLOADING EXPENSES 23522 55115 PACKING CHARGES 84530 101326 POSTAGE, TELEGRAMME & TELEPHONE CHARGES 50331 49988 PRINTING & STATIONERY 25214 81011 PROFESSION TAX 2500 2500 REPAIRS & MAINTENANCE EXPENSES 21512 80256 SALARY 873720 811424 STAFF WELFARE EXPENSES 16701 19970 TRANSACTION CHARGES 411401 419769 TRANSPORT CHARGES 35781 91160 RENT, RATES & TAXES 1900 73722 TOTAL 1901068 2110970 6. THE A.O HAS CONSIDERED DELIVERY CHARGES, DMAT CH ARGES AND TRANSACTION CHARGES AS DIRECT EXPENSES AND WORKED O UT THE SAME AT ` 6,52,453/- WHICH THE ASSESSEE HAS NOT DISPUTED. AS REGARDS, THE REMAINING EXPENSES THE A.O HAS WORKED OUT THE SAME AT ` 27,68 ,708/-. THUS, IT IS CLEAR THAT OUT OF ` 12.48 LACS INDIRECT EXPENSES TH E A.O HAS DISALLOWED ` 27.68 LACS. WE FIND FROM THE DETAILS AS GIVEN ABOVE THAT APART FROM THE DIRECT EXPENSES NO OTHER EXPENSES HAS LIVE NEXUS FO R EARNING THE EXEMPT INCOME. ACCORDINGLY, WE HOLD THAT THE DISALLOWANCE OF INDIRECT EXPENSES BY APPLYING RULE 8D IS NOT JUSTIFIED AS THERE IS NO DIRECT NEXUS BETWEEN THE EXPENDITURE AND THE EXEMPT INCOME WHICH IS PRER EQUISITE FOR APPLYING ITA NO.7292/M/2011 M/S JAYSHREE PETROCHEMICALS PVT. LTD. 6 SECTION 14A. EVEN OTHERWISE THE RULE 8D CAN BE INVO KED ONLY WHEN SECTION 14A IS ATTRACTED AND NOT OTHERWISE. THE SCH EME AND PURPOSE OF SECTION 14A IS TO DISALLOW THE CLAIM OF THE EXPENSE S INCURRED IN RELATION TO EARNING THE INCOME NOT FORMING PART OF THE TOTAL IN COME. THEREFORE, THE DISALLOWANCE OF EXPENDITURE IS ALWAYS IN RELATION T O THE CLAIM OF EXPENDITURE AND IT CANNOT BE MORE THAN THE CLAIM IT SELF. AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE DELHI BENCHES OF THE TRI BUNAL IN CASE OF GILLETTE GROUP INDIA PVT. LTD. VS ACIT AND CONCLUDE D IN PARA 6 AS UNDER: 6. FROM THE ABOVE, IT IS EVIDENT THAT AS PER SUB-S ECTION (1) OF SECTION 14A, NO DEDUCTION IS TO BE ALLOWED IN RESPE CT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. SUB-SECTION (2) OF SECTION 14A PROVIDES THE PROCEDURE FOR DETERMINATION OF SUC H EXPENDITURE BY THE ASSESSING OFFICER. THE BOARD HAS ALSO PRESCRIBED RULE 8D FOR DETERMINING THE EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING OF EXEMPT INCOME. THUS, TH E DISALLOWANCE CAN BE MADE UNDER SUB-SECTION (1) FOR THE EXPENDITURE INCURRED FOR EARNING OF EXEMPT INCOME. IN THE CASE UNDER APPEAL BEFORE US, FROM THE PERUSAL OF THE ASS ESSEES PROFIT & LOSS ACCOUNT, IT IS EVIDENT THAT THE TOTAL EXPEND ITURE INCURRED WAS 49,04,028/- ONLY. THUS, THE ASSESSEE CLAIMED TH E DEDUCTION FOR THE EXPENDITURE OF 49,04,028/- WHICH IS DEBITED TO THE PROFIT & LOSS ACCOUNT. THE DISALLOWANCE CANNOT EXCEED THE EX PENDITURE ACTUALLY CLAIMED BY THE ASSESSEE. WE, THEREFORE, AC CEPT THE ASSESSEES CONTENTION THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE LEARNED CIT( A) IN EXCESS OF TOTAL EXPENDITURE DEBITED TO PROFIT & LOSS ACCOU NT WAS UNJUSTIFIED. ACCORDINGLY, WE RESTRICT THE DISALLOWA NCE TO THE EXTENT OF EXPENDITURE ACTUALLY CLAIMED BY THE ASSES SEE I.E. 49,04,028/-. 7. IN VIEW OF THE ABOVE DISCUSSION WE DO NOT FIND A NY MERITS IN THE APPEAL OF THE REVENUE. ITA NO.7292/M/2011 M/S JAYSHREE PETROCHEMICALS PVT. LTD. 7 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 29 TH DAY OF NOVEMBER 2013 SD/- SD/- ( . ) ! '# (D. KARUNAKARA RAO) ACCOUNTANT MEMBER ( ) $ '# (VIJAY PAL RAO) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 29 TH NOVEMBER 2013 SUBODH COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI