TIME TECHNOPLAST LTD, MUMBAI V. DCIT RG 8(3), MUMBAI

ITA 8126/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75184 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 21-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 24-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M L PERUMAL
• Keywords: Depreciation; Earning of tax free income
• Section: 14A; 115JB; 80IB; 32; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E , MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO S . 8126/M/2010 & 7576/M/2011 ASSESSMENT YEAR: 2007 - 08 & 2008 - 09 M/S. TIME TECHNOPLAST LIMITED, 102, TODI COMPLEX, 35, SAKI VIHAR ROAD, ANDHERI (EAST), MUMBAI 400072 PAN: AAACT2783J VS. ADDL. C OMMISSIONER OF I NCOME T AX, R ANGE - 8(3), MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RAKE SH JOSHI, A.R. REVENUE BY : SHRI M.L. PERUMAL, D.R. DATE OF HEARING : 21.11. 2013 DATE OF PRONOUNCEMENT : 02.01.2014 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THESE TWO APPEALS FILED BY THE ASSESSEE ARE RELATING TO DIFFERENT ASSESSMENT YEARS I.E. A.Y. 2007 - 08 AND A.Y. 2008 - 09 RESPECTIVELY. SINCE BOTH THE APPEALS ARE RELATING TO THE SAME ASSESSEE INVOLVING IDENTICAL ISSUES, HENCE THE SAME ARE DISPOSED OFF WITH THIS COMMON ORDER. ITA NO. 8126 /M / 20 1 0 FOR A.Y. 2007 - 08 2. THE ASSESSEE HAS TAKEN FOLLOWING MAIN GROUNDS OF APPEAL. 1. ON THE FACT AND CIRCUMSTANCES OF THE CASE AS WELL AS IN L AW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN DISALLOWING THE CLAIM OF DEPRECIATION OF RS. 2 , 2 4 , 96 , 8 21 / - WITHOUT CONSIDERING T HE FACTS & CIRCUMSTANCES OF THE CASE. ITA NOS.7576/M11 &8126/M/10 M/S. TIME TECHNOPLAST LTD. 2 2. ON THE FACT S AND CIRCUMSTANCES OF THE CASE AS WELL AS IN L AW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN TREAT ING THE INTEREST INCOME OF RS. 91 , 88 , 354 / - AS INCOME NOT DERIVED FROM THE BUSINESS AND ACCORDINGLY NOT ELIGIBLE FOR DEDUCTION U/S 80IB OF THE INCOME TAX ACT, 1961 WITHOUT CONSIDERING THE FACTS & CIRCUMSTANCES OF THE CASE. 3 . THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE THE SAID GROUND OF APPEAL. APART FROM T HAT THE ASSESSEE VIDE LETTER DATED 19.11.2013 HAS TAKEN THE FOLLOWING ADDITIONAL GROUND OF APPEAL. 1. ON THE FACT S AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN NOT ALLOWING THE INTEREST INCOME TO BE SET OFF AGAINST THE INTEREST EXPENSES , WHICH HAS DIRECT NEXUS WITH EACH OTHER, WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. GROUND NO 1: 3 . THE AO NOTICED THAT DEPRECIATION U/S.32 WAS NOT CLAIMED BY THE ASSESSEE ON UNITS DAMAN - II AND BADDI - I WHICH WERE ELIGIBLE FOR 80IB DEDUCTION. THE DEPRECIATION WAS NOT CLAIMED WITH INTENTION TO MAXIMIZE THE DEDUCTION U/S.80IB IN EARLIER YEARS AND TO CLAIM DEPRECIATION IN LATER YEARS. THE AO AS PER DETAILED WORKING GIVEN IN HIS ASSESSMENT ORDER , COMPULSORILY ALLOWED THE DEPRECIATION ON DAMAN - II AND BADDI - I UNIT FOR ASSESSMENT YEARS 2002 - 03 TO 2006 - 07. AS PER THE REVISED COMPUTATION OF DEPRECIATION, THE DEPRECIATION TO BE ALLOWED F OR ASSESSMENT YEAR 2007 - 08 WORKED OUT TO RS. 5,62, 62,182/ - AGAINST THE CLAIM OF RS. 7,87,59,003/ - . THEREFORE, EXCESS DEPRECIATION OF RS.2,24,96,821/ - WAS DISALLOWED. THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO OBSERVING THAT THE ISSUE WAS SQUARELY COVERED AGAINST THE ASSESS E E BY THE DECISION OF THE HON BLE MUMBAI HIGH COURT IN THE CASE OF PLASTBLENDS INDIA LIMITED VS. CIT IN APPEAL NO.1282 OF 2007. ITA NOS.7576/M11 &8126/M/10 M/S. TIME TECHNOPLAST LTD. 3 4. THE LD. REPRESENTATIVE OF THE ASSESSEE HAS BEEN FAIR ENOUGH TO ADMIT THAT THE ISSUE, SO FAR THE LEGAL POSITION AS ON TODAY IS CONCERNED, IS SQUARELY C OVERED BY THE DECISION OF THE HONBLE MUMBAI HIGH COURT IN THE CASE OF PLASTBLENDS INDIA LIMITED VS. CIT 318 ITR 352(SUPRA) WHEREIN THE H ONBLE HIGH COURT HAS HELD AS UNDER: FOR ALL THE AFORESAID REASONS, WE HOLD THAT THE QUANTUM OF DEDUCTION UNDER SECTIO N 80 - IA IS NOT DEPENDENT UPON THE ASSESSEE CLAIMING OR NOT CLAIMING DEPRECIATION, BECAUSE, UNDER SECTION 80 - IA THE QUANTUM OF DEDUCTION HAS TO BE DETERMINED BY COMPUTING TOTAL INCOME FROM BUSINESS AFTER DEDUCTING ALL DEDUCTIONS ALLOWABLE UNDER SECTIONS 30 TO 43D OF THE ACT. IN THE RESULT, WE ANSWER THE QUESTION REFERRED TO US SET OUT AT PARA 1 ABOVE IN THE AFFIRMATIVE, THAT IS, FOR THE PURPOSES OF DEDUCTION UNDER CHAPTER VI - A, THE GROSS TOTAL INCOME HAS TO BE COMPUTED, INTER ALIA, BY DEDUCTING THE DEDUCTIO NS ALLOWABLE UNDER SECTIONS 30 TO 43D OF THE ACT, INCLUDING DEPRECIATION ALLOWABLE UNDER SECTION 32 OF THE ACT, EVEN THOUGH THE ASSESSEE HAS COMPUTED THE TOTAL INCO ME UNDER CHAPTER IV BY DISCLAIM ING THE CURRENT DEPRECIATION. THIS ISSUE IS ACCORDINGLY DEC IDED AGAINST THE ASSESSEE AND THE FINDINGS OF THE CIT(A) ON THIS ISSUE ARE HEREBY UPHELD. GROUND NO. 2 & AD D ITIONAL GROUND 5. THE ASSESSEE DERIVED INTEREST INCOME FROM FIXED DEPOSITS. THIS INCOME WAS TREATED BY AO AS INCOME FROM OTHER SOURCES ON THE GROU ND THAT THE SAME IS NOT DERIVED FROM INDUSTRIAL ACTIVITY AND THUS NOT ELIGIBLE FOR DEDUCTION U/S.80IB OF THE INCOME TAX ACT . THE LD. CIT(A) CONFIRMED THE ADDITIONS OBSERVING AS UNDER: 7.3 IT IS EVIDENT FROM THE ABOVE THAT THE DECISIONS RELIED UPON BY THE ASSESSEE ARE NOT RELEVANT TO THE FACTS OF THE CASE. 7.3.2 THE FACTS OF THE CASE ARE SQUARELY COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. PANDIAN CHEMICALS LTD. (SUPRA) WHEREIN THE INTEREST ON ELECTRICITY DEPOSIT OR ON BA NK DEPOSIT WAS NOT CONSIDERED ELIGIBLE FOR DEDUCTION U/S.80HH ON THE GROUND THAT THE INCOME WAS NOT DERIVED FROM INDUSTRIAL UNIT. FURTHER INCENTIVE U/S.80IB IS GIVEN TO ENCOURAGE INDUSTRIAL ACTIVITY, HENCE DEDUCTION IS GIVEN ON INCOME FROM INDUSTRIAL ACTI VITY NOT ON INTEREST INCOME FROM MERE DEPOSITING THE AMOUNT WITH BANK OR ANY OTHER INSTITUTION. 7.4 IN VIEW OF THE ABOVE DISCUSSION THE ACTION OF THE AO IN DISALLOWING CLAIM U/S.80IB ON INTEREST INCOME IS CONFIRMED. ITA NOS.7576/M11 &8126/M/10 M/S. TIME TECHNOPLAST LTD. 4 6 . IN VIEW OF THE LEGAL POSITION AS DISCUSSED ABOVE IN HIS ORDER BY THE CIT(A), WE DO NOT FIND ANY INFIRMITY IN HIS ORDER HOLDING THAT INTEREST INCOME FROM FIXED DEPOSITS BEING NOT THE INCOME FROM INDUSTRIAL ACTIVITY IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF THE ACT. HOWEVER TH E ASSESSEE, VIDE ADDITIONAL G ROUND, HAS CLAIMED SET OFF OF THE INTEREST EXPENDITURE AGAINST THE INTEREST INCOME PLEADING THAT THE SAID EXPENDITURE HAS DIRECT NEXUS WITH THE INTEREST INCOME. THE SAID CONTENTION OF THE ASSESSEE HAS NOT BEEN ADJUDICATED BY T HE AUTHORITIES BELOW. UNDER SUCH CIRCUMSTANCES THE ISSUE TAKEN VIDE ADDITIONAL GROUND REGARDING THE SET OFF OF INTEREST EXPENDITURE AGAINST THE INTEREST INCOME IS RESTORED BACK TO THE FILE OF THE AO WITH A DIRECTION TO ADJUDICATE THE SAME AFTER GIVING PRO PER OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS CASE IF THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE WOULD HAVE DIRECT NEXUS WITH THE INTEREST INCOME THEN THE SAME WILL BE ALLOWED BY THE AO. THIS ISSUE IS THUS ALLOWED FOR STATISTICAL PURPOSES. 7 . IN THE RESULT, THIS APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.7576/M/2011 FOR A.Y. 2008 - 09 8. ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPEAL : 1. ON THE FACT S AND CIRCUMSTANCES OF THE CASE AS WELL AS IN L AW, THE LEARNED CIT (A) HAS ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN DISALLOWING THE CLAIM OF DEPRECIATION OF RS. 1 , 02 , 20 , 038 / - WITHOUT CONSIDERING THE FACTS & CIRCUMSTANCES OF THE CASE. 2. ON THE FACT S AND CIRCUMSTANCES OF THE CASE AS WELL AS IN L AW, THE LEARNE D CIT(A) HAS ERRED IN PARTLY CONFIRMING THE DISALLOWANCES OF EXPENSES WHICH WERE DISALLOWED BY ASSESSING OFFICER BY INVOKING PROVISION OF SECTION 14A OF THE INCOME TAX ACT, 1961 WITHOUT CONSIDERING THE FACTS & CIRCUMSTANCES OF THE CASE. 3. ON THE FACT S & CIRCUMSTANCES OF THE CASE AS WELL AS IN L AW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN TREAT ING THE INTEREST INCOME OF RS. 66,04,286 / - AS INCOME NOT DERIVED FROM THE BUSINESS AND ACCORDINGLY NOT ELIGIBLE FOR DEDUCTION U/S 80IB OF ITA NOS.7576/M11 &8126/M/10 M/S. TIME TECHNOPLAST LTD. 5 THE INCOME TAX ACT, 1961 WITHOUT CONSIDERING THE FACTS & CIRCUMSTANCES OF THE CASE. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE THE SAID GROUND OF APPEAL. APART FROM THE ABOVE STATED GROUNDS, THE ASSESSEE VIDE LETTER DATED 19. 11.2013 HAS TAKEN THE FOLLOWING ADDITIONAL GROUND S OF APPEAL. 1. ON THE FACT S AND CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF ASSESSING OFFICER IN NOT ALLOWING THE INTEREST INCOME TO BE SET OFF AG AINST THE INTEREST EXPENSES WHILE CALCULATING DEDUCTION U/S.80IB, WHICH HAS DIRECT NEXUS WITH EACH OTHER, WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. ON THE FACT S AND CIRCUMSTANCES OF THE CASE AS WELL AS IN L AW, THE LEARNED ASSESSING O FFICER HAS ERRED IN MAKIN G AN ADDITION ON ACCOUNT OF DISALLOWANCES MADE U/S.14A OF RS.2,07,01,191/ - DETERMINED AS PER RULE 8D, WHILE COMPUTING THE BOOK PROFIT U/S.115JB OF THE INCOME TAX ACT, WITHOUT APPRECIATING THE FACT THAT RULE 8D APPLIES ONLY TO SECTI ON 14A AND NOT TO SECTION 115JB OF THE INCOME TAX ACT AND THERE WERE NO DIVIDEND INCOME EARNED BY THE APPELLANT DURING THE YEAR UNDER CONSIDERATION. GROUND NO.1 9. THE GROUND NO.1 TAKEN IN THIS APPEAL IS IDENTICAL TO GROUND NO.1 TAKEN IN ITA NO. 8126/M/2 010 FOR ASSESSMENT YEAR 2007 - 08 . IN VIEW OF OUR OBSERVATION MADE ABOVE, THE GROUND NO.1 OF THE PRESENT APPEAL IS ALSO ACCORDINGLY DECIDED AGAINST THE ASSESSEE. GROUND NO.2 , GROUND NO. 3 & ADDITIONAL GROUND N O. 1 THESE GROUNDS ARE INTER LINKED, HENCE A RE TAKEN TOGETHER FOR ADJUDICATION. VIDE GROUND N O. 2 THE ASSESSEE HAS CONTESTED THE PARTLY CONFIRMATION OF THE DISALLOWANCE MADE UNDER SECTION 14A OF THE INCOME TAX ACT . WHILE CONFIRMING THE SAID DISALLOWANCE, THE LD. CIT(A) DIRECTED THE AO TO REMOV E ITA NOS.7576/M11 &8126/M/10 M/S. TIME TECHNOPLAST LTD. 6 THE INTEREST AMOUNT OF RS. 5 , 65 , 83 , 913/ - , BEING INTEREST ON TERM LOANS, WHILE WORKING DISALLOWANCE UNDER SECTION 14 A READ WITH RULE 8D OF THE I.T. RULES. HOWEVER , THE PLEA OF THE ASSESSEE THAT DISALLOWANCE UNDER SECTION 14A COULD NOT BE MADE WAS REJECT ED. A PERUSAL OF THE ASSESSMENT ORDER REVEALS THAT DUE OPPORTUNITY WAS GRANTED BY THE AO TO THE ASSESSEE TO SUBMIT ITS CASE AS TO WHY THE DISALLOWANCE UNDER SECTION 14 A READ WITH RULE 8D BE MADE. AFTER CONSIDERING THE SUBMISSIONS OF THE REPRESENTATIVE O F THE ASSESSEE AND AFTER DUE APPLICATION OF MIND, THE AO RECORDED WELL REASONED DISSATISFACTION REGARDING THE CLAIM OF THE ASSESSEE THAT NO DISALLOWANCE BE MADE OR SOME DISALLOWANCE ON ADHOC BASIS BE MADE UNDER THIS HEAD. AFTER REJECTING THE CONTENTION OF THE A SSESSEE, HE WORKED THE DISALLOWA NCE UNDER RULE 8D OF THE I.T. RULES. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN PARTLY CONFIRMING THE DISALLOWANCE AGREEING WITH THE WELL REASONED ORDER OF THE AO ON THE ISSUE. 10. THE CIT(A) HAS FU RTHER CONFIRMED THE ACTION OF THE AO IN TRE ATING THE INTEREST INCOME OF RS. 66 , 04 , 286/ - AS INCOME NOT DERIVED FROM THE BUSINESS AND AS SUCH NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB OF THE ACT OBSERVING AS UNDER: 4.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE LD. COUNSEL BUT IN VIEW OF THE RECENT DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. LIBERTY INDIA 317 ITR 218 (SC) WHEREIN THE HONBLE SUPREME COURT HAS CLEARLY HELD THAT SUCH INCOME IS NOT TO BE TREATED AS INCOME DERIVED FROM THE IND USTRIAL UNDERTAKING ETC. AND DEDUCTION U/S 80IB CAN NOT BE TAKEN ON SUCH INTEREST INCOME, THEREFORE THIS GROUND OF APPEAL IS DISMISSED IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF LIBERTY INDIA (SUPRA). HENCE, THIS GROUND OF APPEA L IS DISMISSED. ITA NOS.7576/M11 &8126/M/10 M/S. TIME TECHNOPLAST LTD. 7 11. IN VIEW OF THE LEGAL POSITION AS DISCUSSED ABOVE IN HIS ORDER BY THE CIT(A), WE DO NOT FIND ANY INFIRMITY IN HIS ORDER ON THIS ASPECT OF THE ISSUE. 12. HOWEVER , THE ASSESSEE, VIDE ADDITIONAL GROUND NO.1 , HAS CLAIMED SET OFF OF THE I NTEREST EXPENDITURE AGAINST THE INTEREST INCOME PLEADING THAT THE SAID EXPENDITURE HAS DIRECT NEXUS WITH THE INTEREST INCOME. THE SAID CONTENTION OF THE ASSESSEE HAS NOT BEEN ADJUDICATED BY THE AUTHORITIES BELOW. UNDER SUCH CIRCUMSTANCES THE ISSUE TAKEN VIDE ADDITIONAL GROUND REGARDING THE SET OFF OF INTEREST EXPENDITURE AGAINST THE INTEREST INCOME IS RESTORED BACK TO THE FILE OF THE AO WITH A DIRECTION TO ADJUDICATE THE SAME AFTER GIVING PROPER OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS CASE IF THE INTER EST EXPENDITURE CLAIMED BY THE ASSESSEE WOULD HAVE DIRECT NEXUS WITH THE INTEREST INCOME THEN THE SAME WILL BE ALLOWED BY THE AO. THIS ISSUE IS THUS ALLOWED FOR STATISTICAL PURPOSES. ADDITIONAL GROUND NO.2 13. THE ASSESS E E VIDE THIS ADDITIONAL GROUND, HAS CONTESTED THE ACTION OF THE LOWER AUTHORITIES IN MAKING THE ADDITION ON ACCOUNT OF DISALLOWANCES MADE U/S.14A OF RS.2,07,01,191/ - DETERMINED AS PER RULE 8D, WHILE COMPUTING THE BOOK PROFIT U/S.115JB OF THE INCOME TAX ACT . THE CONTENTION OF THE LD. AR H AS BEEN THAT RULE 8D APPLIES ONLY TO SECTION 14A AND NOT TO SECTION 115JB OF THE INCOME TAX ACT AND THAT THERE WAS NO DIVIDEND INCOME EARNED BY THE APPELLANT DURING THE YEAR UNDER CONSIDERATION. 1 4 . WE HAVE ALREADY UPHELD THE ACTION OF THE LOWER AUTHORITI ES APPLYING RULE 8D WHILE MAKING DISALLOWANCE UNDER SECTION 14 A OF THE ACT SUBJECT TO SET OFF OF THE INTEREST EXPENDITURE AGAINST INTEREST INCOME IF BOTH THE COMPONENTS HAVE DIRECT NEXUS WITH EACH OTHER AS DIRECTED IN THE PRECEDING PARAS OF THE ORDER. 1 5 . I T MAY BE FURTHER OBSERVED THAT CO - ORDINATE BENCH OF THE T RIBUNAL, INCIDENTALLY CONSISTING OF BOTH OF US (MEMBERS), IN THE CASE OF M/S. GODREJ ITA NOS.7576/M11 &8126/M/10 M/S. TIME TECHNOPLAST LTD. 8 CONSUMER PRODUCTS LIMITED ITA NO.4963/M/11 (A.Y. 2007 - 08) , DECIDED ON 20.11.13 WHILE DEALING WITH THE IDENTIC AL ISSUE , HAS HELD THAT THE AMOUNT OF EXPENDITURE DISALLOWABLE UNDER SECTION 14A IS TO BE ADDED BACK WHILE COMPUTING BOOK PROFIT UNDER CLAUSE (F) OF THE EXPLANATION (1) TO SECTION 115 JB OBSERVING AS UNDER: 24. VIDE GROUND NO.5 OF ITS APPEAL, THE ASSESSE E HAS AGITATED THE ACTION OF THE LD. CIT(A) IN RELYING UPON THE PROVISIONS OF SECTION 14A OF THE ACT WHILE COMPUTING THE AMOUNT OF EXPENDITURE FOR EARNING EXEMPT INCOME WHICH IS LIABLE FOR BEING ADDED BACK TO THE BOOK PROFITS AS PER THE PROVISIONS OF SECT ION 115JB OF THE INCOME TAX ACT. THE SUBMISSIONS OF THE LD. A.R. HAS BEEN THAT SECTION 115JB OF THE ACT IS A SEPARATE CODE BY ITSELF AND THE PROVISIONS OF SECTION 14A CANNOT BE APPLIED FOR COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT. IN SUPP ORT OF HIS SUBMISSIONS HE HAS RELIED UPON AN AUTHORITY OF THE DELHI BENCH OF THE ITAT STYLED AS GOETZE (INDIA) LTD. VS. CIT [2009] 32 SOT 101 (DELHI) WHICH HAS BEEN SUBSEQUENTLY FOLLOWED BY THE OTHER BENCHES OF THE TRIBUNAL IN THE FOLLOWING CASES: 1 . OVIR A LOGISTICS LTD. (ITA NO.3230/MUM/2012 & 2439/MUM/2012) DATED AUGUST 30, 2013. 2 . BENGAL FINANCE & INVESTMENTS PRIVATE LTD. (ITA NO.5937/MUM/2010) DATED JULY 31, 2012 3 . ESSAR TELEHOLDINGS LTD. (ITA NO.3850/MUM/2010) DATED JULY 29, 2011 4 . GOETZE (INDIA) LTD. REPOR TED IN 32 SOT 101. 25. ON THE OTHER HAND THE LD. D.R. HAS RELIED UPON ANOTHER AUTHORITY OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. RBK SHARE BROKING (P) LTD. [2013]37 TAXMANN.COM 128, WHEREIN IT HAS BEEN HELD THAT THE AMOUNT DISALLOWAB LE UNDER SECTION 14A IS TO BE ADDED BACK WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB. 26. IN VIEW OF THE DIVERGENT VIEWS OF THE DIFFERENT BENCHES OF THE TRIBUNAL ON THIS ISSUE, IT HAS BECOME INCUMBENT UPON US TO DISCUSS THE LAW LAID DOWN BY THE DELH I BENCH OF THE ITAT IN THE CASE OF GOETZE (INDIA) LTD. AND THE MUMBAI BENCH OF THE ITAT IN THE CASE OF RBK SHARE BROKING (P) LTD. IN THE LIGHT OF THE PROVISIONS OF SECTION 14A AS WELL AS SECTION 115JB OF THE ACT. ITA NOS.7576/M11 &8126/M/10 M/S. TIME TECHNOPLAST LTD. 9 27. IN GOETZE (INDIA) LTD. THE DELHI BEN CH OF THE ITAT WHILE HOLDING THAT THE PROVISIONS OF SECTION 14A CANNOT BE IMPORTED TO CLAUSE (F) OF THE EXPLANATION TO SECTION 115JA HAS OBSERVED AS UNDER: 4.6 WE HAVE CONSIDERED THE FACTS OF THE CASE AND RIVAL SUBMISSIONS. WE MAY AT THE OUTSET CONSIDE R THE PROVISIONS CONTAINED IN CLAUSE (F) OF THE EXPLANATION TO SECTION 115JA AND SUB - SECTION (1) OF SECTION 14A OF THE ACT. UNDER THE AFORESAID CLAUSE (F) THE AMOUNT OF EXPENDITURE RELATABLE TO ANY ADDED TO THE BOOK PROFIT. UNDER THE PROVISIONS CONTAINED IN SECTION 14A, NO DEDUCTION IS TO BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. SINCE WE ARE DEALING WITH THE ISSUE OF EXPENDITURE RELATING TO DIVIDEND IN COME, A MATTER FALLING UNDER CHAPTER III, IT BECOMES CLEAR ON PERUSAL OF THESE TWO PROVISIONS THAT THEY ARE SIMILAR IN NATURE. CLAUSE (F) USES THE WORDS EXPENDITURE RELATABLE TO ANY INCOME, WHILE SECTION 14A USES THE WORDS EXPENDITURE INCURRED BY THE A SSESSEE IN RELATION TO INCOME. THESE WORDS HAVE THE SAME MEANING. WE MAY ALSO ADD HERE THAT SECTION 14A CONTAINS TWO MORE SUB - SECTION, SUB - SECTION (2) AND SUB - SECTION (3), WHICH DO NOT FIND A PLACE IN THE CLAUSE (F). THEREFORE, INSOFAR AS COMPUTATION O F ADJUSTED BOOK PROFIT IS CONCERNED, PROVISIONS OF SUB - SECTION (2) AND SUB - SECTION (3) OF SECTION 14A CANNOT BE IMPORTED INTO CLAUSE (F). 28. FROM THE PERUSAL OF THE ABOVE REPRODUCED OBSERVATIONS OF THE DELHI BENCH OF THE ITAT, IT CAN BE GATHERED THAT T HE DELHI BENCH OF THE TRIBUNAL HAS CATEGORICALLY HELD THAT THE PROVISIONS OF SUB - SECTION (1) OF SECTION 14A AND CLAUSE (F) OF THE EXPLANATION TO SECTION 115JA ARE SIMILAR IN NATURE AND HAVE THE SAME MEANING. HOWEVER, IT HAS BEEN OBSERVED THAT THE OTHER TW O SUB SECTIONS OF 14A I.E. SUB SECTION (2) AND SUB SECTION (3) DO NOT FIND A PLACE IN CLAUSE (F) OF THE EXPLANATION TO SECTION 115JA, HENCE IT WAS HELD THAT SO FAR THE COMPUTATION OF ADJUSTED BOOK PROFIT IS CONCERNED, PROVISIONS OF SUB SECTION (2) AND SUB SECTION (3) OF SECTION 14A CANNOT BE IMPORTED INTO CLAUSE (F). WITH DUE RESPECT TO THE FINDING GIVEN BY THE DELHI BENCH OF THE ITAT, WE MAY OBSERVE THAT THE CASE BEFORE THE DELHI BENCH OF THE TRIBUNAL IN GOETZE (INDIA) LTD. (SUPRA) WAS RELATED TO ASSESSME NT YEAR 2000 - 01 WHEREAS SUB SECTION (2) AND SUB SECTION (3) TO SECTION 14A HAVE BEEN INSERTED BY THE FINANCE ACT, 2006 W.E.F. 01.04.07. MEANING THEREBY PRIOR TO 01.04.07, THE PROVISIONS OF SECTION 14A WERE AKIN TO THE PROVISIONS OF CLAUSE (F) OF THE EXPLA NATION TO SECTION 115JA. SINCE THE CASE BEFORE THE DELHI BENCH OF ITA NOS.7576/M11 &8126/M/10 M/S. TIME TECHNOPLAST LTD. 10 THE TRIBUNAL WAS PERTAINING TO ASSESSMENT YEAR 2000 - 01, UNDER SUCH CIRCUMSTANCES, THE PROVISIONS OF SUB SECTION (2) AND SUB SECTION (3) OF SECTION 14A OTHERWISE WERE NOT APPLICABLE FOR THAT YEAR, SO FAR THE COMPUTATION OF THE ADJUSTMENT OF BOOK PROFITS WAS CONCERNED. WE MAY FURTHER OBSERVE THAT THE DIFFERENT PROVISIONS OF THE ACT ARE TO BE READ IN HARMONY AND IN CONSONANCE WITH EACH OTHER, UNLESS OR UNTIL SPECIFICALLY PROVIDED TO BE READ OTHERWISE. WHEN WE READ SECTION 14A WITH CLAUSE (F) OF THE EXPLANATION TO SECTION 115JA OR CLAUSE (F) OF THE EXPLANATION (1) TO SECTION 115JB, WE DO NOT FIND THAT THEY HAVE ANY TYPE OF CONFLICT WITH EACH OTHER. WHAT HAS BEEN PROVIDED UNDER SUB SECTION (1 ) OF SECTION 14A IS THAT THE EXPENDITURE INCURRED FOR EXEMPT INCOME IS NOT ALLOWABLE AS A DEDUCTION WHEREAS UNDER SUB SECTION (2) A METHOD OF COMPUTATION OF SUCH EXPENDITURE HAS BEEN PROVIDED AND IN SUB SECTION 3 TO SECTION 14A IT HAS BEEN MENTIONED THAT S UCH METHOD WOULD BE APPLICABLE EVEN IN CASES WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO EXEMPT INCOME. UNDER CLAUSE (F) OF THE EXPLANATION (1) OF SECTION 115JB IT HAS BEEN PROVIDED THAT THE AMOUNT OF EXPENDITURE RELATABLE TO EXEMPT INCOME IS TO BE ADDED BACK IN THE BOOK PROFITS WHILE COMPUTING TAX UNDER SECTION 115JB. THE CONTENTION OF THE LD. A.R. THAT ONLY THE EXPENDITURE WHICH FINDS MENTION IN THE PROFIT AND LOSS ACCOUNT IS REQUIRED TO BE ADDED BACK AND NOT TH E EXPENDITURE AS ASSESSED UNDER SECTION 14A DOES NOT HAVE ANY FORCE AS NO SUCH PROVISION IS THERE UNDER SECTION 115JB. WHEN WE READ THE PROVISIONS OF SECTION 14A ALONG WITH SECTION 115JB, IT BECOMES CLEAR THAT THE EXPENDITURE RELATABLE TO EXEMPT INCOME AS PROVIDED UNDER SUB SECTION (1) OF SECTION 14A IS REQUIRED TO BE ADDED BACK WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB. WE DO NOT FIND ANY CONFLICTION IN THE ABOVE SAID TWO PROVISIONS OF THE ACT. THE MUMBAI BENCH OF THE TRIBUNAL WHILE DEALING WITH TH E SIMILAR ISSUE IN RBK SHARE BROKING (P) LTD. HAS OBSERVED AS UNDER: 6. BE THAT AS IT MAY, WE WILL PROCEED TO DECIDE THIS GROUND ON MERITS AS WELL BECAUSE IT INVOLVES A PURE LEGAL ISSUE AS TO WHETHER THE AMOUNT DISALLOWED U/S 14A CAN BE ADDED WHILE COMP UTING THE BOOK PROFIT U/S 115JB OF THE ACT. THE LEARNED AR RELIED ON CERTAIN DECISIONS TO BRING HOME THE POINT THAT THE AMOUNT DISALLOWED U/S 14A CANNOT BE ADDED TO NET PROFIT FOR COMPUTING `BOOK PROFIT U/S 115JB. ON THE OTHER HAND, THE LEARNED DEPARTMENT AL REPRESENTATIVE TOOK US THROUGH THE LANGUAGE OF CLAUSE (F) OF EXPLANATION (1) TO SECTION 115JB, AS PER WHICH THE AMOUNT OF EXPENDITURE RELATABLE TO ANY EXEMPT INCOME IS TO BE ADDED BACK TO THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT. AT THIS JUNC TURE, IT WOULD BE RELEVANT TO NOTE THAT `BOOK PROFIT U/S 115JB IS COMPUTED AS PER EXPLANATION (1) TO SUB - SECTION (2) OF SECTION 115JB. THIS EXPLANATION PROVIDES THAT BOOK PROFIT MEANS NET PROFIT AS ITA NOS.7576/M11 &8126/M/10 M/S. TIME TECHNOPLAST LTD. 11 SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT P REVIOUS YEAR PREPARED UNDER SUB - SECTION (2) AS INCREASED BY CERTAIN AMOUNTS SPECIFIED UNDER CLAUSES (A) TO (I) IF DEBITED TO THE PROFIT AND LOSS ACCOUNT AND CLAUSE (J) IF NOT CREDITED TO THE PROFIT AND LOSS ACCOUNT. THE AMOUNT SO DETERMINED IS FURTHER ADJU STED BY REDUCING THE AMOUNTS SPECIFIED IN CLAUSES (I) TO (VII). THE AMOUNT WHICH EVENTUALLY RESULTS IS THE AMOUNT OF `BOOK PROFIT ON WHICH TAX LIABILITY IS DETERMINED U/S 115JB. CLAUSE(F) TO EXPLANATION (1) PROVIDES THAT THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT SHALL BE INCREASED BY : (F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE 38 THEREOF) OR SECTION 11 OR SECTION 12 APPLY;. A BARE PERUSAL OF CLAUSE (F) OF EXPLANATION (1) MAKES IT ABUNDANTLY CLEAR THAT THE AMOUNT OF EXPENDITURE RELATABLE TO ANY EXEMPT INCOME, OTHER THAN SECTION 10(38), IS LIABLE TO BE ADDED BACK TO THE AMOUNT OF NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT. WHEN WE TURN TO THE LANGUA GE OF SECTION 14A, IT TRANSPIRES THAT IT TALKS OF DISALLOWING ANY EXPENDITURE INCURRED `IN RELATION TO INCOME NOT INCLUDIBLE IN THE TOTAL INCOME. SUB - SECTION (1) OF THIS PROVISION PROVIDES THAT : FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. THE EXPRESSION IN RELATION TO USED FOR MAKING DISALLOWANCE U/S 14A HAS BEEN EMPL OYED IN EXPLANATION (1) TO SECTION 115JB(2) AS EXPENDITURE RELATABLE TO, IN MORE OR LESS THE SAME FORM. IT IS MANIFEST THAT THE AMOUNT OF DIVIDEND IS EXEMPT U/S 10(33) [NOT SECTION 10(38)] OF THE ACT. THUS ANY EXPENDITURE RELATABLE TO THE EXEMPT DIVIDE ND INCOME WOULD FALL UNDER CLAUSE (F). THE LD. AR ARGUED THAT UNLESS AN AMOUNT IS SPECIFICALLY DEBITED TO THE PROFIT AND LOSS ACCOUNT IN RESPECT OF AN EXEMPT INCOME, THE SAME CANNOT BE BROUGHT WITHIN THE PURVIEW OF CLAUSE (F) OF THE EXPLANATION 1 TO SECTIO N 115JB(2). HE STATED THAT SINCE THE DISALLOWANCE U/S 14A IS COMPUTED AS PER RULE 8D, THE ORIGIN OF THE EXPENSES DISALLOWED CANNOT BE TRACED TO THE PROFIT AND LOSS ACCOUNT AND HENCE IT CANNOT BE COVERED WITHIN THE MISCHIEF OF CLAUSE (F) OF THE EXPLANATION. WE FAIL TO FIND ANY LOGIC IN THIS SUBMISSION BECAUSE OF THE CLEAR LANGUAGE OF THE EXPLANATION 1, WHICH PROVIDES IN UNEQUIVOCAL TERMS THAT THE AMOUNT OF EXPENDITURE `RELATABLE TO THE EXEMPT INCOME SHALL BE ADDED BACK. NEITHER THE LANGUAGE OF CLAUSE (F) EX PRESSLY REFERS TO THE AMOUNT SPECIFICALLY DEBITED TO THE PROFIT AND LOSS ACCOUNT NOR THERE CAN BE AN IMPLICATION IN THIS REGARD. WHAT HAS BEEN CONTEMPLATED BY THE PROVISION IS THE AMOUNT OF THE EXPENDITURE `RELATABLE TO THE EXEMPT INCOME. FURTHER, THE AMO UNT DISALLOWABLE U/S 14A IS ALWAYS PART OF THE EXPENSES SPECIFICALLY DEBITED TO THE PROFIT AND LOSS ACCOUNT. IT IS AXIOMATIC THAT UNLESS ANY EXPENDITURE IS INCURRED AND CLAIMED AS DEDUCTION, THERE CAN BE NO QUESTION OF ANY HYPOTHETICAL DISALLOWANCE U/S 14A . IT, THEREFORE, FOLLOWS THAT THE AMOUNT DISALLOWABLE U/S 14A IS COVERED UNDER CLAUSE(F) OF EXPLANATION (1) TO SECTION 115JB(2). OUR VIEW IS FORTIFIED BY ANOTHER ORDER DATED 29 AUGUST, 2012 PASSED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF ESQUIRE P. LTD, MUMBAI (ITA NO.5688/MUM/2011). AS THE ASSESSMENT YEAR UNDER CONSIDERATION IS ASSESSMENT YEAR 2008 - 2009 IN ITA NOS.7576/M11 &8126/M/10 M/S. TIME TECHNOPLAST LTD. 12 WHICH DISALLOWANCE U/S 14A IS REQUIRED TO BE COMPUTED AS PER RULE 8D AND FURTHER IT IS THIS AMOUNT WHICH HAS BEEN DISALLOWED AND ALSO ADDED TO THE AMOUNT OF NET PROFIT FOR COMPUTING `BOOK PROFIT U/S 115JB, WE SEE NO REASON TO DISTURB THE IMPUGNED ORDER ON THIS ISSUE. THIS GROUND FAILS . 29. THE VIEW TAKEN BY THE MUMBAI BENCH OF THE TRIBUNAL IS THE LATEST VIEW WHICH HAS BEEN TAKEN AFTER DULY C ONSIDERING THE PREVIOUS DECISIONS AS HAS BEEN MENTIONED IN THE OPENING LINES OF PARA 6 OF THE ORDER AS REPRODUCED ABOVE. WE ARE IN AGREEMENT WITH THE LATEST VIEW OF THE MUMBAI BENCH OF THE TRIBUNAL TAKEN IN THE CASE OF RBK SHARE BROKING (P) LTD. AND IN VI EW OF OUR OBSERVATIONS MADE ABOVE, IT IS HELD THAT THE AMOUNT OF EXPENDITURE DISALLOWABLE UNDER SECTION 14A IS TO BE ADDED BACK WHILE COMPUTING BOOK PROFIT UNDER CLAUSE (F) OF THE EXPLANATION (1) TO SECTION 115 JB. 16. IN VIEW OF THE OBSERV ATIONS MADE ABOVE IN THE CASE OF GODREJ CONSUMER PRODUCTS LTD. (SUPRA), IT IS HELD THAT THE EXPENDITURE FOUND DISALLOWABLE UNDER SECTION 14A CAN BE ADDED BACK WHILE COMPUTING BOOK PROFITS UNDER SECTION 115 JB OF THE ACT. SINCE IN THE CASE IN HAND, WE HAVE RESTORED THE ISSUE OF SET OFF OF INTEREST EXPENDITURE AGAINST INTEREST INCOME HAVING THE DIRECT NEXUS, TO THE FILE OF THE A.O. , HENCE , IT IS HELD THAT WHATSOEVER EXPENDITURE WOULD BE FOUND BY THE AO AS DISALLOWABLE UNDER SECTION 14A, THE SAME CAN BE ADDED BACK WHIL E COMPUTING BOOK PROFIT UNDER SECTION 115JB IN THE CASE OF THE ASSESSEE. 17. IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND OF JANUARY, 201 4 . SD/ - SD/ - ( D. KARUNAKARA RAO ) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED:02.01.2014 . * KISHORE ITA NOS.7576/M11 &8126/M/10 M/S. TIME TECHNOPLAST LTD. 13 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERN ED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.