ITO 2(2)(3), MUMBAI V. MEDITAB SPECIALTIES P.LTD, MUMBAI

ITA 78/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7235 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 07-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T A KHAN DR SHRI V MOHAN
• Assessee Lawyers: IN CIRCUMSTANCES OF CA SE
• Keywords: Earning of tax free income
• Section: 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI R. C. SHARMA , AM AND SHRI AMARJIT SINGH, JM / I .T.A. NO. 78 / MUM/ 201 6 ( / ASSESSMENT YEAR: 20 1 1 - 12 ) ITO - 2(2)(3) AAYAKAR BHAVAN, R. NO.542, M.K. ROAD, MUMBAI / V S. MEDITAB SPECIALITIES PVT. LTD. 12, GUNBOW STREET FORT, MUMBAI - 400001 ./ ./ PAN/GIR NO. : AAACM 6124 A ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING : 22 . 0 3 .201 8 / DATE OF PRONOUNCEMENT : 04.0 5 . 201 8 / O R D E R PER AMARJIT SINGH, J M: THE REVENUE HAS FILED THE PRESENT APPEAL AGAINST THE ORDER DATED 15 . 10 .201 5 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 5 , MUMBAI [HEREINAFTE R REFERRED TO AS THE CIT(A)] RELEVANT TO THE A.Y. 20 11 - 1 2 . 2 . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - ' 1. WHETHER ON THE FACT AND IN CIRCUMSTANCES OF THE CASE AND IN LA W, THE LD.CIT(A) HAS ERRED IN DIRECTING THE AO TO EXCLUDE THE EXPENDITURE INCOME DEVELOPMENT - OF SEZ FOR COMPUTING THE DISALLOWANCE U/S 14A WITHOUT APPRECIATING THE FACT THAT THE BOMBAY HIGH COURT VIDE ITS ORDER DT. 5.3.2013 FOR THE AY,2007 - 08, HAS SPECIFI CALLY STATED THAT OBSERVATIONS OF THE TRIBUNAL IN 1TA NO.6835 OF MUM/2010 DT.8.6.2012 FOR REVENUE BY : SHRI T. A. KHAN (DR) ASSESSEE BY: SHRI V. MOHAN (AR) ITA NO. 78 /M/2016 A.Y.20 11 - 12 2 AY.2007 - 08, ARE BEYOND THE OF THE APPEAL FILED BEFORE THE TRIBUNAL AND HAS DIRECTED THE AO TO INDEPENDENTLY APPLY HIS MIND TO THE ISSUE. 2. THE APPELLANT PRAYS THAT T HE ORDER OF THE LD. CIT (A) BE SET ASIDE 01 ABOVE GROUNDS AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 3 . THE BRIEF FACTS OF THE CASE ARE THAT THE A SSESSEE FILED ITS RETURN OF INCOME ON 30 .0 9 .20 1 1 DECLARING TOTA L INCO ME TO THE TUNE OF RS.NIL / - . THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 143(2) OF THE ACT WAS ISSUED ON 12.08.2013 WHICH WAS SERVED U PON THE ASSESSEE ON 13.08.2013. THEREFORE, NOTICE U/S 142(1) OF THE ACT DATED 22.08.2013 ALONG WITH DETAILS QUESTIONNAIRE WAS ISSUED AND SERVED UPON THE ASSESSEE. THE ASSESSEE COMPANY WAS ENGAGED IN THE MANUFACTURING OF PHARMACEUTICAL PRODUCTS. IT WAS NOTI CED THAT THE ASSESSEE S INVESTMENT WAS TO THE TUNE OF RS.240,58,36,369/ - AND THE ASSESSEE EARNED THE EXEMPT INCOME TO THE TUNE OF RS. 29,87,453/ - . THEREFORE, NOTICE WAS GIVEN IN CONNECTION WITH DISALLOWANCE U/S 14A OF THE ACT . BY GIVING AN OPPORTUNITY OF BE ING HEARD TO THE ASSESSEE , THE DISALLOWANCE U/S 14A R.W. RULE 8D OF THE ACT WAS MADE TO THE TUNE OF RS.71,00,400 / - . THE INCOME OF THE ASSESSEE WAS ASSESSED TO THE TUNE OF RS. 36,54,128/ - AND BOOK PROFIT TO THE TUNE OF RS.NIL. THE ASSESSEE WAS NOT SATISFIED ON ACCOUNT OF DISALLOWANCE OF CLAIM U/A 14A OF THE ACT, THEREFORE, FILED AN APPEAL BEFORE THE CIT(A) AND THE CIT(A) DIRECTED THE AO TO EXCLUDE THE AMOUNT OF INVESTMENT IN THE SEZ WHILE ASSESSING THE EXPENDITURE TO EARN THE EXEMPT INCOME IN VIEW OF DECISIO N IN THE ASSESSEES OWN CASE IN ITA NO. 6835/M/2010 DATED 08.06.2012 . THE REVENUE WAS NOT SATISFIED, THEREFORE, THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US. ITA NO. 78 /M/2016 A.Y.20 11 - 12 3 4. WE HAVE HEARD THE ARGUMENT ADVANCED BY THE LD. REPRESENTATIVE OF THE PARTIES AND PERUSED T HE RECORD. THE CIT(A ) HAS DIRECTED THE AO TO EXCLUDE THE INVESTMENT IN THE SEZ FOR THE PURPOSE OF ASSESSING THE EXPENDITURE TO INCUR THE EXEMPT INCOME U/S 14A OF THE ACT IN VIEW OF THE DECISION IN THE ASSESSEES OWN CASE IN ITA. NO. 6835/M/2010 DATED 08.06 .2012 . THE CONTROVERSY HAS BEEN DECIDED BY THE CIT(A) ON THE DECISION OF THE HONBLE ITAT IN THE ASSESSEES OWN CASE IN ITA. NO. 6835/M/2010 DATED 08.06.2012 . THEREAFTER THE MATTER OF CONTROVERS Y WENT UP BEFORE THE HIGH COURT AND THE MATTER WAS RESTORED BE FORE THE TRIBUNAL. WHILE ARGUING THE CASE , THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT TO END THE MATTER OF CONTROVERSY , THE EXPENDITURE TO EARN THE EXEMPT INCOME BE RESTRICTED TO THE EXEMPT INCOME IN VIEW OF THE DECISION OF HONBLE ITAT IN THE ASSESSEES OWN CASE IN ITA. NO.5604/M/2011 DATED 18.08.2017 . THE FINDING OF THE HONBLE ITAT IN THE SAID CASE IS HEREBY REPRODUCED BELOW AS UNDER .: - 8. WE HAVE PATIENTLY AND CAREFULLY HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIONS RELIED UPON BY BOTH THE PARTIES. AT THE OUTSET, WE MUST PUT IT ON RECORD CHAT, TEAMED AUTHORIZED REPRESENTATIVE HAS RESTRICTED HIS CONTENTION ON THE DISPUTED ISSUE OF DISALLOWANCE MADE UNDER SECTION 14A R/W RU LE 8D ONLY ON THE PROPOSITION TRUST THE DISALLOWANCE UNDER SECTION 14A CANNOT EXCEED THE EXEMPT INCOME EARNED IN A PARTICULAR ASSESSMENT YEAR. IN THIS CONTEXT, THE; LEANED AUTHORIZED REPRESENTATIVE HAS FINANCIAL A CHART BEFORE US AS PER WHICH THE EXEMPT IN COME EARNED IN THE ASSESSMENT YEARS UNDER ARE AS UNDER: - A.Y. 2008 - 09 RS.6,04,377 A.Y. 2010 - 11 9,130 A.Y. 2012 - 13 NIL ITA NO. 78 /M/2016 A.Y.20 11 - 12 4 IN VIEW OF THE AFORESAID SUBMISSION OF THE LD. AUTHORIZED REPRESENTATIVE, WE ARE CALLED UPON TO DECIDE THE LIMITED ISSUE, WHETHER THE DISALLOWANCE U/S 14A RULE 8D TO BE RESTRICTED 10 THE EXEMPT INCOME EARNED IN A PARTICULAR ASSESSMENT YEAR. TO COUNTER THE AFORESAID PROPOSITION OF THE LD. AUTHORISED REPRESENTATIVE, THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMITTED THAT THE PROVISIONS OF SECTION 14A R/W RULE 8D BEING MANDATORY IN NATURE, THE ASSESSING OFFICER HAS TO COMPUTE THE DISALLOWANCE UNDER SECTION 14A TERMS OF THE METHOD PRESCRIBED UNDER SECTION RULE & 8D. WE ARE UNABLE TO AGREE WITH THE CONTENTION OF THE LEARNED DEPARTMENTAL R EPRESENTATIVE. IN THE CASE OF CHEMINVEST LTD. V/S CIT, ITA 749/2014, DATED 2 SEPTEMBER 2015, THE HON'BLE DELHI HIGH COURT HAS HELD THAT NO DISALLOWANCE UNDER SECTION 14A OF THE ACT, CAN BE MADE THE ABSENCE OF EXEMPT INCOME. IN CASE OF CIT V/S JOINT INVESTM ENT LTD., ITA R.Q.H7/20A5 DATED 25 TH FEBRUARY 2015, THE HONBLE DELHI HIGH COURT HAS HELD THE DISALLOWANCE UNDER SECTION 14A CANNOT SWALLOW THE ENTIRE EXEMPT INCOME. FOLLOWING THE AFORESAID RATIO OF THE HON'BLE DELHI HIGH COURT, DIFFERENT BENCHES OF THE TR IBUNAL HAVE HELD THAT DISALLOWANCE UNDER SECTION 14A R/W RULE 8D CANNOT EXCEED THIRD EXEMPT INCOME EARNED BY TOE ASSESSED IN A PARTICULAR ASSESSMENT YEAR. IN FACT, ITAT, DELHI SPECIAL BENCH, IN CASES OR ACIT V/S VIREET INVESTMENT PVT. LTD, (SUPRA) HAS HELD THAT ONLY INVESTMENTS YIELDING EXEMPT INCOME DURING THE YEAR CAN BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INVESTMENT. IN CONTRAST, THE DECISIONS RELIED UPON BY THE LD. DEPARTMENT REPRESENTATIVE IN NO WAY CONTRADICT THE AFORESAID RATIO. ON A CAREFU L READING OF THE DECISION IN CASE OF DISTRIBUTORS (BARODA) PVT. LTD. (SUPRA), CLOTH TRADERS PVT. LTD. (SUPRA) ACG ASSOCIATED CAPSULES P. LTD. (SUPRA) WE ARE CONVINCED THAT THESE DECISIONS ARE IN NO WAY CONNECTED TO THE ISSUE IN DISPUTE IN THE PRESENT APPEA LS. AS FAR AS THE DECISIONS IN WALFORT SHARES AND STOCK BROKERS (SUPRA), GODREJ & BOYCE MFG. CO. PVT. LTD. (SUPRA) ARE CONCERNED THOUGH THEY ARE IN THE CONTEXT OF SECTION 14A OF THE ACT. HOWEVER, THESE DECISIONS CANNOT BE SAID TO BE LAYING DOWN THE RATIO T HAT EVEN IN ABSENCE OF EXEMPT INCOME DISALLOWANCE UNDER SECTION. 14A CAN BE MADE OR THE DISALLOWANCE U/S 14A SHOULD NOT BE RESTRICTED TO THE EXEMPT INCOME EARNED IN A PARTICULAR ASSESSMENT YEAR. LD. DEPARTMENT REPRESENTATIVE HAS FAILED TO BRING TO OUR NOTI CE EVEN A SINGLE DECISION WHICH DIRECTLY COUNTERS THE PROPOSITION PUT FORWARD BY THE LD. AUTHORISED REPRESENTATIVE. IN THE AFORESAID VIEW OF THE MATTER, FOLLOWING THE RATIO LAID DOWN IN THE DECISIONS REFERRED TO ABOVE BY US, WE HOLD THAT IF IN A ITA NO. 78 /M/2016 A.Y.20 11 - 12 5 PARTICULAR ASSESSMENT YEAR, THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME, NO DISALLOWANCE U/S 14A, CAN BE MADE. SIMILARLY, THE DISALLOWANCE U/S 14A CAN BE MADE. EXCEED THE EXEMPT INCOME EARNED IN A PARTICULAR ASSESSMENT YEAR. IN TERM OF OUR AFORESAID OBSERVATIONS, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE U/S 14A TO %RS.6,04,377 IN A.Y. 2008 - 09 AND RS.9,130 IN A.Y. 2011 - 12. IN A.Y. 2012 - 13, ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME, THEREFORE, NO DISALLOWANCE U/S 14A CAN BE MADE. IN VIEW OF THE OUR REASONING ABO VE, THE GROUNDS RAISED BY THE DEPARTMENT IN ITS APPEAL HAVE BECOME REDUNDANT, HENCE, DISMISSED. 10. BEFORE PARTING, WE MUST CLARIFY THAT WE HAVE NOT EXPRESS WE ANY OPINION ON THE ISSUE OF APPLICABILITY OF SECTION 14A TO THE INVESTMENTS MADE IN SEZ, WHICH I S LEFT OPEN TO BE DECIDED ON ITS OWN MERIT, IF IT ARISES IN ANY OTHER ASSESSMENT YEAR. 11. IN VIEW OF THE AFORESAID GROUNDS RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. 12. IN THE RESULT, ASSESSEES APPEALS ARE PARTLY ALLOWED AND REVENUES APPEALS ARE DISMISS ED. 5 . ON APPR AISAL OF THE ABOVE MENTIONED ORDER, WE NOTICED THAT BOTH THE ISSUES HAVE BEEN RAISED BY THE REVENUE BEFORE HIGH COURT AGAINST THE ORDER OF TRIBUNAL IN A.Y. 2007 - 08 WHICH HAVE BEEN SET ASIDE BY HIGH COURT AND THE MATTER WAS RESTORED BACK TO THE FILE OF ITAT. HOWEVER IN THE SECOND ROUND ASSESSEE DID NOT PRESS THESE GROUNDS AND TRIBUNAL HAS RESTRICTED THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME IN THE ASSESSEES OWN CASE IN ITA. NO. 5604/M/2011 VIDE ORDER DATED 18.08.2017 . ACCORDINGLY, W E R ESTRICT THE DISALLOWANCE U/S 14A R.W. RULE 8D OF THE ACT TO THE EXTENT OF EXEMPT I NCOME. ACCORDINGLY, WE PARTLY ALLOWED THE APPEAL OF THE REVENUE. ITA NO. 78 /M/2016 A.Y.20 11 - 12 6 6 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS HEREBY ALLOWED IN PART . ORDER PRONOUNCED IN THE OPE N COURT ON 04. 0 5 . 2018 . SD/ - SD/ - ( R. C. SHARMA ) ( AMARJIT SINGH) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; DATED : 04. 05 . 2018 VIJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, //TRUE COPY// / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI