RAYMOND LTD, MUMBAI V. ADDL CIT RG 2(3), MUMBAI

ITA 7794/MUM/2010

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2845 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 02-03-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 12-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: Y P TRIVEDI
• Keywords: Scheme of amalgamation; Capital receipt
• Section: 14A

Judgement Text

, D , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI BEFORE SHRI N.K.BILLAIYA, AM AND SHRI AMARJIT SINGH , JM ITA NO.7793/MUM/2010 : ASST.YEAR 2005-2006 ITA NO.7794/MUM/2010 : ASST.YEAR 2006-2007 M/S.RAYMOND LIMITED NEW HIND HOUSE NAROTTAM MORARJEE MARG BALLARD ESTATE, MUMBAI 400 001. PAN : AAACR4896A. / VS. THE DY.COMMISSIONER OF INCOME-TAX CIRCLE 2(3) MUMBAI. ( / APPELLANT) ( / RESPONDENT) /ASSESSEE BY : SHRI Y.P.TRIVEDI '#$ /REVENUE BY : SHRI SANJEEV KASHYAP / DATE OF HEARING : 20.10.2015 / DATE OF PRONOUNCEMENT : 28.10.2015. / O R D E R PER N.K.BILLAIYA (AM) : THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAI NST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) 6, MUMBA I, DATED 09.08.2010 PERTAINING THE ASSESSMENT YEARS 2005-2006 AND 2006- 2007. 2. AS THE FIRST APPELLATE AUTHORITY HAS DECIDED THE APPEALS OF TWO ASSESSMENT YEARS BY CONSOLIDATED ORDER, BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NOS.7793 & 7794/MUM/2010 M/S.RAYMOND LIMITED. 2 ITA NO.7793/MUM/2010 : ASST.YEAR 2005-2006 3. THE FIRST GROUND RELATES TO THE TREATMENT OF INC OME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE ASSESSEE IS AGGRIEV ED BY THE DIRECTION OF THE CIT(A) TO DETERMINE THE ANNUAL VALUE OF THE PRO PERTY AT 12% OF THE COST OF LAND AND BUILDING. AT THE VERY OUTSET, THE COUNS EL FOR THE ASSESSEE FAIRLY CONCEDED THAT THIS ISSUE HAS BEEN DECIDED AGAINST T HE ASSESSEE AND IN FAVOUR OF THE REVENUE BY THE TRIBUNAL VIDE A CONSOL IDATED ORDER DATED 1 ST MAY, 2009 FOR ASSESSMENT YEARS 1999-2000, 2000-2001 AND 2001-2002. 3.1 WE FIND THAT THIS ISSUE HAS BEEN CONSIDERED BY THE TRIBUNAL IN PARA 2.7 OF ITS ORDER AND AT 2.7.1, THE TRIBUNAL HAS FOLLOWE D THE DECISION OF THE CO- ORDINATE BENCH GIVEN FOR ASSESSMENT YEARS 1994-95 A ND 1995-96 TO ASSESSMENT YEAR 1998-99. FOLLOWING THE DECISION OF THE TRIBUNAL, THE APPEAL OF THE ASSESSEE WAS DISMISSED. AS THE LEARNED SENIO R COUNSEL HAS FAIRLY CONCEDED THAT SINCE THIS ISSUE HAS BEEN DECIDED AGA INST THE ASSESSEE BY THE TRIBUNAL, THE SAME VIEW SHOULD BE TAKEN. RESPEC TFULLY FOLLOWING THE FINDING OF THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE (SUPRA) GROUND NO.1 IS DISMISSED. 4. GROUND NO.2 WITH ALL ITS SUB-GROUNDS RELATE TO T HE DISALLOWANCE MADE U/S 14A OF THE ACT READ WITH RULE 8D. 4.1 THIS ISSUE IS NO MORE RES INTEGRA AS THE APPLIC ABILITY OF RULE 8D HAS BEEN HELD TO BE PROSPECTIVE FROM ASSESSMENT YEAR 20 08-2009 BY THE DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF GODREJ & BOYCE LTD. MFG. CO. V. DCIT [(2010) 328 ITR 81 (BOM.)] . WE, THEREFORE, RESTORE THIS ITA NOS.7793 & 7794/MUM/2010 M/S.RAYMOND LIMITED. 3 ISSUE TO THE FILE OF THE A.O. TO BE DECIDED AFRESH WITHOUT APPLYING RULE 8D AFTER GIVING A REASONABLE OPPORTUNITY OF BEING HEAR D TO THE ASSESSEE. GROUND NO.2 WITH ALL ITS SUB-GROUNDS ARE TREATED AS ALLOWE D FOR STATISTICAL PURPOSES. 5. GROUND NO.3 RELATES TO THE TREATMENT OF PREMATUR E REPAYMENT OF SALES- TAX LOAN AT NET PRESENT VALUE AS REVENUE RECEIPT CH ARGEABLE FOR TAX. THIS ISSUE HAS BEEN CONSIDERED BY THE AO AT PARA 5.2 OF HIS ORDER. WHILE SCRUTINIZING THE RETURN OF INCOME, THE AO FOUND THA T IN THE COMPUTATION OF INCOME AT NOTES FORMING PART OF THE COMPUTATION, TH E ASSESSEE HAS MENTIONED THAT SALE-TAX DEFERMENT LOAN U/S 38 OF BO MBAY SALES-TAX ACT, OF RS.1,19,14,723 HAS BEEN REPAID PREMATURELY ON NET P RESENT VALUE OF RS.57,97,097 AND RS.61,17,626 IS CREDITED TO PROFIT AND LOSS ACCOUNT AND THE SAME HAS BEEN TREATED AS CAPITAL RECEIPT. THE ASSES SEE WAS ASKED TO EXPLAIN WHY THE SAID RECEIPT SHOULD NOT BE TREATED AS REVENUE RECEIPT. THE ASSESSEE EXPLAINED THAT IT HAS AVAILED THE BENEFIT OF PREMATURE REPAYMENT OF SALES-TAX LOAN, THUS, THE BENEFIT ACCRUED TO THE AS SESSEE IS ON ACCOUNT OF LOAN TRANSACTION IN WHICH NO DEDUCTION OR ALLOWANCE WAS EVER GRANTED IN EARLIER YEARS, THEREFORE, THE SAID RECEIPT IS A CAP ITAL RECEIPT. THIS SUBMISSION OF THE ASSESSEE WAS DISMISSED BY THE AO, WHO WAS OF THE FIRM BELIEF THAT THE BENEFIT SO DERIVED BY THE ASSESSEE IS NOTHING BUT A KIN TO REFUND / SUBSIDY OF THE SALES-TAX FOR WHICH THE ASSESSEE HAS ALREADY TA KEN BENEFIT, THEREFORE, THE SAME IS HELD TO BE REVENUE RECEIPT. THE ASSESSEE CA RRIED THE MATTER BEFORE THE CIT(A), BUT WITHOUT ANY SUCCESS. 5.1 BEFORE US, THE COUNSEL FOR THE ASSESSEE STATED THAT THIS ISSUE IS NOW SQUARELY COVERED BY THE DECISION OF THE SPECIAL BEN CH OF THE TRIBUNAL IN THE ITA NOS.7793 & 7794/MUM/2010 M/S.RAYMOND LIMITED. 4 CASE OF DCIT V. SULZER INDIA LTD. [(2012) 24 TAXMANN.COM 24 (MUM.) (SB)] IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE COUNSEL FURTHER POINTED OUT THAT THIS ISSUE IS ALSO DECIDED BY THE HONBLE HIGH COURT OF KARNATAKA IN FAVOUR OF THE ASSESSEE IN THE CASE OF CIT V. MCDOWELL & CO. LTD. [(2014) 52 TAXMANN.COM 15 (KARNATAKA)] . THE DEPARTMENTAL REPRESENTATIVE FAIRLY CONCEDED TO THIS. 5.2 WE HAVE CAREFULLY PERUSED THE ORDER OF THE AUTH ORITIES BELOW IN THE LIGHT OF THE DECISIONS RELIED UPON BY THE LEARNED C OUNSEL. WE FIND FORCE IN THE CONTENTION OF THE LEARNED SENIOR COUNSEL. THE FACTS IN ISSUES ARE SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE R EVENUE BY THE DECISIONS CITED HEREINABOVE. THE HONBLE HIGH COURT OF KARNAT AKA HAS LAID DOWN THE RATIO THAT WHERE THE ASSESSEE, DUE TO CERTAIN SCHEM E, MADE PREMATURE PAYMENT OF DEFERRED SALES-TAX AND ON SUCH PAYMENT E NTIRE LIABILITY TO PAY TAX STOOD DISCHARGED, SECTION 41(1) WAS NOT APPLICABLE. A SIMILAR VIEW WAS TAKEN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF SULZER INDIA LTD. (SUPRA). RESPECTFULLY FOLLOWING THE DECISIONS OF THE HONBLE KARNATAKA HIGH COURT AND THE SPECIAL BENCH, GROUND NO.3 IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 6. GROUND NO.4 IS NOT PRESSED AND THE SAME IS DISMI SSED ACCORDINGLY. 7. GROUND NO.5 RELATES TO THE DENIAL OF DEDUCTION C LAIMED U/S 35D OF THE ACT. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCE EDINGS, THE AO FOUND THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S 35D OF THE ACT AT RS.60,00,150, WHICH PERTAINS TO ITS STEEL DIVISION. THE AO FURTHE R NOTICED THAT THE SAID CLAIM WAS NOT MADE IN THE RETURN OF INCOME. ON FURTHER PR OOF THE AO FOUND THAT THE ITA NOS.7793 & 7794/MUM/2010 M/S.RAYMOND LIMITED. 5 ASSESSEE HAD ALREADY SOLD ITS STEEL DIVISION IN FIN ANCIAL YEAR 2000-2001. THE AO WAS OF THE FIRM BELIEF THAT SINCE THE ASSESSEE D OES NOT HAVE BUSINESS ON WHICH SUCH CLAIM IS ASKED, THE SAME CANNOT BE ALLOW ED. THE AO ACCORDINGLY DENIED THE CLAIM OF DEDUCTION U/S 35D OF THE ACT. T HE ASSESSEE CARRIED THE MATTER BEFORE THE CIT(A), BUT WITHOUT ANY SUCCESS. 7.1 BEFORE US THE COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE CLAIM OF DEDUCTION U/S 35D OF THE ACT, IN RESPECT OF STEE L DIVISION SINCE ASSESSMENT YEAR 1996-97. IT IS THE SAY OF THE COUNS EL THAT THERE IS NO PROVISION IN THE ACT BY WHICH THE ASSESSEE CAN BE D ENIED THE CLAIM OF DEDUCTION U/S 35D OF THE ACT ON SALE OF THE UNIT ON WHICH THE CLAIM WAS ALREADY GRANTED. THE DEPARTMENTAL REPRESENTATIVE ST RONGLY SUPPORTED THE FINDING OF THE REVENUE AUTHORITIES. 7.2 WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOW ER AUTHORITIES. SECTION 35D OF THE ACT RELATES TO AMORTIZATION OF CERTAIN P RELIMINARY EXPENSES WHEREBY THE ASSESSEE IS ALLOWED DEDUCTION OF AN AMO UNT EQUAL TO 1/10 TH OF SUCH EXPENDITURE FOR EACH OF THE TEN SUCCESSIVE PRE VIOUS YEARS BEGINNING WITH THE PREVIOUS YEAR IN WHICH THE BUSINESS COMMEN CED OR AS THE CASE MAY BE THE PREVIOUS YEAR IN WHICH THE EXTENSION OF THE UNDERTAKING IS COMPLETED OR THE NEW UNIT COMMENCED PRODUCTION OR OPERATION. THE PAST HISTORY OF THE ASSESSEE WAS THAT THERE IS NO DISPUTE INSOFAR AS TH E ELIGIBILITY CRITERIA OF THE ASSESSEE IS CONCERNED. THE PRELIMINARY EXPENSES WER E INCURRED BY THE ASSESSEE IN ASSESSMENT YEAR 1996-97, WHICH WAS THE FIRST YEAR OF THE CLAIM OF 1/10 TH OF THE EXPENDITURE. SINCE THEN 1/10 TH WAS CLAIMED AND ALLOWED TILL ASSESSMENT YEAR 2001-2002. THE IMPUGNED ASSESSMENT YEAR, I.E., ITA NOS.7793 & 7794/MUM/2010 M/S.RAYMOND LIMITED. 6 ASSESSMENT YEAR 2005-2006 IS THE LAST ASSESSMENT YE AR, I.E., THE TENTH YEAR OF CLAIM OF DEDUCTION, WHICH HAS BEEN DENIED SINCE THE STEEL UNIT HAS BEEN SOLD BY THE ASSESSEE. ON A PERUSAL OF SECTION 35D S HOWS THAT THE ACT IS SILENT IN THE CASE WHEN A UNIT IS SOLD. SECTION 35D (5) OF THE ACT REFERS TO THE TRANSFER BEFORE THE EXPIRY OF THE PERIOD OF 10 YEAR S TO ANOTHER INDIAN COMPANY IN A SCHEME OF AMALGAMATION AND SECTION 35D (5A) REFERS TO THE TRANSFER BEFORE THE EXPIRY OF THE PERIOD IN A SCHEM E OF DEMERGER. THERE IS NO CLAUSE IN THE SECTION WHICH DEBARS THE ASSESSEE FRO M CLAIMING THE EXPENSES AS A WRITE OFF ON SALE OF THE UNDERTAKING. WE, THER EFORE, DO NOT FIND ANY REASON FOR DECLINING THE CLAIM OF THE ASSESSEE. 7.3 LET US CONSIDER THIS ISSUE FROM ANOTHER ANGLE. THE PRELIMINARY EXPENSES WERE INCURRED IN ASSESSMENT YEAR 1996-97 A ND AS PER WELL SETTLED ACCOUNTING PRINCIPLES, THE ASSESSEE WAS ENTITLED TO CLAIM THE ENTIRE EXPENDITURE IN THE FIRST YEAR OF INCURRING THEM. HO WEVER, DUE TO A SPECIFIC PROVISION IN THE ACT, THE AMORTIZATION WAS ALLOWED TO BE CLAIMED AT 1/10 TH IN TEN SUCCESSIVE ASSESSMENT YEARS. ASSUMING THAT THIS PROVISION IS NOT THERE IN THE ACT, THEN THE ENTIRE CLAIM WAS TO BE ALLOWED IN ASSESSMENT YEAR 1996- 97 IRRESPECTIVE OF THE FACT THAT IN SUBSEQUENT YEAR THE UNDERTAKING WAS SOLD. BY THE SAME ANALOGY IF THE UNDERTAKING IS SOLD DURI NG THE INTERVENING PERIOD, THEN THE CLAIM CANNOT BE DENIED. FURTHER AS MENTION ED ELSEWHERE, THE CLAIM CAN BE DENIED IN THE CASE OF AMALGAMATION AND DEMER GER BUT SINCE THE ACT IS SILENT IN THE CASE OF SALE OF UNDERTAKING, IN OU R UNDERSTANDING OF THE LAW, THE REVENUE AUTHORITIES HAVE ERRED IN DENYING THE C LAIM. WE ACCORDINGLY SET ASIDE THE FINDING OF THE CIT(A) AND DIRECT THE AO T O ALLOW THE CLAIM OF ITA NOS.7793 & 7794/MUM/2010 M/S.RAYMOND LIMITED. 7 DEDUCTION U/S 35D OF THE ACT. ACCORDINGLY, GROUND N O.4, WITH ALL ITS SUB- GROUNDS, IS ALLOWED. 8. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ITA NO.7794/MUM/2010 : ASST.YEAR 2006-2007 9. FIRST GROUND RELATES TO THE TREATMENT OF INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. AN IDENTICAL ISSUE HAS BEEN CO NSIDERED BY US IN ITA NO.7793/MUM/2010 QUA GROUND NO.1 OF ITS APPEAL. FOR OUR DETAILED DISCUSSION THEREIN GROUND NO.1 IS DISMISSED. 10. GROUND NO.2 RELATES TO THE DISALLOWANCE MADE U/ S 14A READ WITH RULE 8D. AN IDENTICAL GROUND IS CONSIDERED BY US IN ITA NO.7793/MUM/2010 QUA GROUND NO.2 OF THE SAID APPEAL. FOR SIMILAR REASONS , THIS GRIEVANCE OF THE ASSESSEE IS RESTORED TO THE FILE OF THE AO TO BE DE CIDED AFRESH WITHOUT APPLYING RULE 8D. ACCORDINGLY, GROUND NO.2 IS TREAT ED AS ALLOWED FOR STATISTICAL PURPOSES. 11. GROUND NO.3 RELATES TO THE TREATMENT OF PREMATU RE REPAYMENT OF SALES- TAX LOAN AT NET PRESENT VALUE AS REVENUE RECEIPT. T HIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE R EVENUE BY US IN ITA NO.7793/MUM/2010 QUA GROUND NO.3 OF THAT APPEAL. FOR SIMILAR REASONS, T HIS GROUND OF APPEAL IS ALLOWED. 12. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ITA NOS.7793 & 7794/MUM/2010 M/S.RAYMOND LIMITED. 8 ORDER PRONOUNCED ON THIS 28 TH DAY OF OCTOBER, 2015. !' # $ SD/- (AMARJIT SINGH) SD/- (N.K.BILLAIYA) # / JUDICIAL MEMBER # / ACCOUNTANT MEMBER ! MUMBAI; ! DATED : 28 TH OCTOBER, 2015. DEVDAS* ()*+*, / COPY OF THE ORDER FORWARDED TO : / BY ORDER, ' ( //TRUE COPY// /' (DY./ASSTT. REGISTRAR) , ! / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ) ( ) / THE CIT, MUMBAI. 4. ) / CIT(A) - 6, MUMBAI 5. ',# ((-. , -. , ! / DR, ITAT, MUMBAI 6. #01 2 / GUARD FILE.