MINAL INDUSTRIES LIMITED , MUMBAI V. DEPUTY COMMISSIONER OF INCOME TAX -10(2)(2), MUMBAI

ITA 7419/MUM/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 5954 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 28-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA ANJARIA
• Keywords: Transfer pricing; Opportunity of being heard; Rule 8D
• Section: 10AA; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC, MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER ITA NO. 7419 /MUM/201 7 (A.Y: 20 11 - 12) M/S. MINAL INDUSTRIES LIMITED 603, A WING , MINAL COMPLEX OFF SAKI VIHAR ROAD ANDHERI (E) , MUMBAI 400 072 PAN: AABCM 3102 D V. D EPUT Y COMMISSIONER OF INCOME TAX 10(2)(2) MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI KIRAN MEHTA DEPARTMENT BY : SHRI CHAITANYA ANJARIA DATE OF HEARING : 13 .06.2019 DATE OF PRONOUNCEMENT : 31 .07 .2019 O R D E R PER C.N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 57 , MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] FOR THE A.Y. 2011 - 12. 2. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN ITS APPEAL: - 1. (A) IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT, THE LEARNED CIT (A) ERRED IN CONFIRMING AN ADDITION OF RS. 521,193 MADE BY THE LEARNED AO BY TAKING THE FAIR ARM'S LENGTH INTEREST RATE IN RESPECT OF LOANS GIVEN TO ASSOCIATED ENTERPRISES (AE) @ 10.50 % AS AGAINST INTEREST RATE OF 5% CHARGED BY THE APPELLANT. (B) WHILE CONFIRMING THE SAID ADDITION THE LEARNED CIT(A) GRAVELY E RRED IN HOLDING THAT THE LEARNED AO AND THE LEARNED TPO HAD APPLIED INTEREST RATE OF 5.23% 2 ITA NO. 7419/MUM/2017 (A.Y: 2011 - 12) M/S. MINAL INDUSTRIES LIMITED IN RESPECT OF THE IMPUGNED LOANS TO AE AND THAT THE APPELLANT HAD ACCEPTED THE SAID INTEREST RATE. (C) IT IS RESPECTFULLY SUBMITTED THAT INTEREST RATE OF 5.23% WAS A CCEPTED BY THE DEPARTMENT FOR THE NEXT ASSESSMENT YEAR, I.E FOR AY: 2012 - 13 AND IT WAS THE CONTENTION OF THE APPELLANT THAT THE SAME INTEREST RATE MAY ALSO BE ADOPTED FOR THE YEAR IN APPEAL. UNFORTUNATELY, THE LEARNED CIT (A) ERRED IN HOLDING THAT INTEREST RATE OF 5.23% WAS ADOPTED FOR THE YEAR IN REFERENCE AND THUS, CONFIRMING THE IMPUGNED ADDITION ON AN ALL TOGETHER ERRONEOUS BASIS. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING AN ADDITION OF RS.583,810 MADE U/S 14A READ WITH RULE 8D. 3. IN THE FACTS AND CIRC UMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN CONFIRMING THE REDUCTING IN QUANTUM OF DEDUCTION U/S 1 AA BY RS.32,47,697 (I.E. RS. 33,67,697 ORIGINALLY DISALLOWED BY THE LEARNED AO MINUS RS . 120,000 ALLOWED BY THE LEARNED CIT(A) 3. AT THE TIME OF HEARING LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT GROUND NO .1 IS NOT PRESSED . IN VIEW OF THE OF THE SUBMISSIONS OF THE LD.COUNSEL FOR THE ASSESSEE GROUND NO . 1 IS DISMISSED AS NOT PRESSED. 4. GROUND NO .2 IS WITH REGARD TO CONFIRMING THE ADDITIO N/DISALLOWANCE MADE U/S. 14A R.W. RULE 8D OF I.T. RULES AT .5 , 83 , 810/ - . THE ASSESSING OFFICER W HILE COMPLETING THE ASSESSMENT INVOKING RULE 8D OF I.T. RULES MADE DISALLOWANCE OF .27 ,179/ - TOWARDS INTEREST UNDER RULE 8D(2)(II) OF I.T.RULES AND 0.5% OF THE AVERAGE INVESTMENTS TOWARDS ADMINISTRATIVE EXPENSES AT . 5 , 56 , 631/ - UNDER RULE 8D(2)(III) OF I.T. RULES , TOTALING TO .5 , 83 , 810/ - . IT WAS CONTENDED BEFORE THE ASSESSING OFFICER THAT ASSESSEE EARNED ONLY SHARE OF PROFIT AND HAS NOT INCURR ED INTEREST EXPENSES OR ANY OTHER EXPENSES TO EARN SHARE OF PR OFIT FROM THE PARTNERSHIP FIRM AND T HEREFORE, THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE TO SHARE OF PROFIT FROM P ARTNERSHIP FIRM SINCE THE SAME IS SUBJECT 3 ITA NO. 7419/MUM/2017 (A.Y: 2011 - 12) M/S. MINAL INDUSTRIES LIMITED TO TAX IN THE HANDS OF THE PARTN ERSHIP FIRM. HOWEVER NOT AGREEING WITH THE CONTENTIONS OF THE ASSESSEE THE ASSESSING OFFICER FOLLOWING T HE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD V. DCIT IN ITXA.NO. 626 OF 2010 DATED 12.08.2010 COMPU TED T HE DISALLOWANCE U/S. 14A R.W. RULE 8D OF I.T. RULES. ON APPEAL LD.CIT(A) SUSTAINED THE ADDITION/DISALLOWANCE. 5. LD. COUNSEL FOR THE ASSESSEE REITERATED T H E SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. HE ALSO PLACED RELIANCE ON THE DECISION OF THE MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. C. MAHENDRA INTERNATIONAL LTD. V. ACIT IN ITA.NO. 2706 /MUM/2013 D ATED 28.09.201 5 IN SUPPORT OF HIS CONTENTION THAT SECTION 14A HAVE NO APPLICATION TO SHARE OF PROFIT FROM THE PARTNERSHIP FIRM. 6. LD. DR VEHEME NTLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW . 7. HEARD RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE CONTENTION OF THE ASSESSEE THAT THE PROVISIONS OF SECTION 14A OF THE ACT ARE NOT APPLICABLE TO SHARE OF PROFIT FROM PARTNERSHIP FIRM SINCE THE SAME IS SUBJECT TO TAX IN THE HANDS OF PARTNERSHIP FIRM IS DECIDED BY THE SPECIAL BENCH OF AHMADABAD TRIBUNAL IN THE CASE OF SHRI VISHNU ANANT MAHAJAN V. ACIT IN ITA.NO. 3002/ AHD /2009 DATED 25.05.2012 IN FAVOUR OF THE REVENUE HOLDING THAT PROVISIONS OF SECTION 14A APPLIES TO 4 ITA NO. 7419/MUM/2017 (A.Y: 2011 - 12) M/S. MINAL INDUSTRIES LIMITED THE SHARE OF PR OFIT EARNED FROM PARTNERSHIP FIRM , FOLLOWING THE SAID DECISION I REJECT THE CO NTENTIONS OF THE ASSESSEE. 8. THE OTHER CONTENTION OF THE ASSESSEE THAT PROVISIONS OF SECTION 14A HAVE NO APPLICATION TO STRATEGIC INVESTMENTS IS ALSO NOW SETTLED BY THE HON'BLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. V. CIT [402 ITR 640] . 9. THE ASSESSEE ALSO SUBMITTED THAT INVESTMENTS TO THE EXTENT OF .18 ,37,500/ - W ERE MADE IN THE M/S. MINAL INTERNATIONAL FZE SHARJHA AN O VERSEAS COMPANY , AND THEREFORE, T HE PROVISIONS OF SECTION 14A WOULD NOT APPLY TO SUCH INVESTMENTS . THE CONTENTION OF THE ASSESSEE HAS TO BE EXAMINED BY THE ASSESSING OFFICER AS TO WHETHER THE DIVIDENDS FROM M/S. MINAL INTERN ATIONAL FZE SHARJHA ARE TAXABLE OR TAX F REE AND ACCORDINGLY THE PROVISIONS HAVE TO BE APPLIED. ASSESSING OFFICER SHALL ALSO DECIDE THE ISSUE KEEPING IN VIEW THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. V. CIT (SUPRA) AND THE SPECIAL BENCH OF DELHI TRIBUNAL IN THE CASE OF ACIT V. VIREET INVESTMENTS PRIVATE LIMITED [165 ITD 27] . THUS, THIS ISSUE OF DISALLOWANCE U/S. 14A R.W. RULE 8D IS RESTORED TO THE FILE OF THE ASSESSING OFFICER TO DECIDE IN VIEW OF THE ABOVE OBSERVATIONS, A FTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE . 5 ITA NO. 7419/MUM/2017 (A.Y: 2011 - 12) M/S. MINAL INDUSTRIES LIMITED 10. THE LAST GROUNDS OF APPEAL IN THE APPEAL OF THE ASSESSEE IS REGARDING RESTRICTING THE DEDUCTION U/S. 10AA OF THE ACT BY ALLOCATION OF EXPENSES BETWEEN SEZ AND NON - SEZ UNITS OF THE ASSESSEE . 11. BRIEFLY STATED , THE FACTS ARE, THE ASSESSING OFFICER W HILE COMPLETING THE ASSESSMENT NOTICED THAT ASSESSEE HAS TWO UNITS ONE IS NON - SEZ AND THE OTHER IS SEZ UNIT I N RESPECT OF WHICH DEDUCTION U/S. 10AA WAS CLAIMED BY THE ASSESSEE. UNIT - WISE PROFIT AND LOSS ACCOUNT WAS REQUIRED TO BE FURNISHED BY THE ASSESSEE AND O N A PERUSAL OF THE SAME ASSESSING OFFICER NOTICED THAT DIRECTORS REMUNERATION HAS NOT BEEN ALLOCATED TO THE SEZ UNIT . HE ALSO NOTICED THAT ADMINISTRATIVE , SELLING AND OTHER EXPENSES HAVE NOT BEEN ALLOCATED IN THE RATIO OF SALES TO TURNOVER . DURING THE ASSESSMENT PROCEEDINGS ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY THESE EXPENSE S SHOULD NOT BE ALLOCATED TO THE SE Z UNIT IN THE RATIO OF SALES . ASSESSEE CONTENDED THAT SEZ UNIT IS AN INDEPENDENT UNIT OF ITS OWN WITH ALL NECESSARY INFRASTRUCTURE AND THAT IT HAS BORNE ITS OWN EXPENSES AND THE NUMBER OF TRANSACTION ARE LIMITED. THEREFO RE, IT WAS SUBMITTED THAT THERE WAS NO JUSTIFICATION FOR ANY OTHER ALLOCATION OF EXPENSES FROM HEAD OFFICE. NOT CONVINCED WITH THE SUBMISSIONS OF THE ASSESSEE THE ASSESSING OFFICER ALLOCATED ADMINISTRATIVE , SELLING AND OTHER EXPENSES AND DIRECTORS REMUNER ATION ON THE BASIS OF T HE TURNOVER BETWEEN SEZ AND NON - SEZ UNITS. ACCORDINGLY, THE ASSESSING OFFICER RESTRICTED THE DEDUCTION 6 ITA NO. 7419/MUM/2017 (A.Y: 2011 - 12) M/S. MINAL INDUSTRIES LIMITED U/S.10AA OF THE ACT. ON APPEAL THE LD.CIT(A) SUSTAINED THE ACTION OF THE ASSESSING OFFICER IN ALLOCATING THE EXPENSES ON SALE S TO TURNOVER BASIS BETWEEN SEZ UNIT AND NON - SEZ UNIT . HOWEVER, HE DIRECTED THE ASSESSING OFFICER TO EXCLUDE DIRECTORS REMUNERATION OF . 1,20,000/ - FROM ALLOCATION AND DISALLOWANCE . 12. LD. COUNSEL FOR THE ASSESSEE BEFORE ME SUBMITS THAT THE ASSESSING OFFICER ALLOCATED THE EXPENSES ON TURNOVER BASIS WHEREAS THE ASSESSEE HAS TAKEN THE EXPENDITURE ON ACTUALS. HE SUBMITS THAT SEPARATE BOOKS OF ACCOUNTS HAVE BEEN MAINTAINED BY THE ASSESSEE FOR BOTH THE UNITS. IT WAS ALSO FURTHER SUBMITT ED THAT 10AA UNIT HAS BEEN COMMENCED IN OCTOBER 2010 SO THERE IS NO JUSTIFICATION OF ALLOCATION OF EXPENSES ON THE BASIS OF TURNOVER . IT WAS ALSO FURTHER SUBMITTED THAT NO SUCH DISALLOWANCE HAS BEEN MADE IN LATER ASSESSMENT YEARS I N WHICH SCRUTI N Y ASSESSMENT WAS ALSO MADE. 13. LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 14. HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. IT IS THE CONTENTION OF THE ASSESSEE THAT ASSESSEE MAINTAINS SEPARATE BOOKS OF ACCOUNTS AND THE EXPENDITURE HAVE BEEN RECORDED ON ACTUAL BASIS FOR BOTH SEZ UNIT AND N ON - SEZ UNIT . HOWEVER, THE OBSERVATION OF THE ASSESSING OFFICER WAS THAT THE ASSESSEE COULD NOT 7 ITA NO. 7419/MUM/2017 (A.Y: 2011 - 12) M/S. MINAL INDUSTRIES LIMITED PRODUCE ANY EVIDENCES TO SHOW THAT ASSESSEE HAS ACTUALLY INCURRED EXPENSES FOR TH E PARTICULAR UNIT. IT WAS ALSO THE SUBMISSION OF THE ASSESSEE THAT IN NO NE OF THE ASSESSMENT YEARS LATER TO THIS ASSESSMENT YEAR , EVEN IN SCRUTINY ASSESSMENTS NO SUCH ALLOCATION WAS MADE RESTRICTING THE DISALLOWANCE U/S. 10AA OF THE ACT. IN VIEW OF THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE AND ALSO THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER , I AM OF THE VIEW THAT THIS ISSUE HAS TO BE E XAMINED AFRESH BY THE ASSESSING OFFICER ESPECIALLY WHEN SEPARATE BOOKS OF ACCOUNTS WERE MAINTAINED BY THE ASSESSEE FOR BOTH THE UNITS . THUS , THIS ISSUE IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR D ENOVO ADJUDICATION IN ACCORDANCE WITH LAW. NEEDLESS TO SAY THAT THE ASSESSING OFFICER SHALL PROVIDE ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE . 15. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICA L PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THE 31 ST JULY 2019 SD / - (C.N. PRASAD) JUDICIAL MEMBER MUMBAI / DATED 31 / 0 7 / 2019 GIRIDHAR , S R. PS 8 ITA NO. 7419/MUM/2017 (A.Y: 2011 - 12) M/S. MINAL INDUSTRIES LIMITED COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM