DCIT CIR 2(2), MUMBAI V. ULTRA TECH CEMENTS LTD, MUMBAI

ITA 8143/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75769 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 20-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 25-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJESH RANJAN PRASAD
• Assessee Lawyers: ARVIND SONDE SHRI S B KABRA
• Keywords: Earning of tax free income; Proportionate interest; Question of law; Assessment record; Right to appeal; Capital receipt; Benefit of exemption
• Section: 14A; 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F B ENCH, MUMBAI . , !'# , $% &'() , $* +, $ # BEFORE SHRI D.MANMOHAN, VP AND SHRI N.K. BILLAIY A, AM ./ I.T.A. NO.7502/MUM/2010 ( - - - - / ASSESSMENT YEAR :2007-08 M/S. ULTRA TECH CEMENT LTD., AHURA CENTRE, B WING 2 ND FLOOR, MAHAKALI CAVES ROAD, ANDHERI (E), MUMBAI-400 093 / VS. THE ADDL CIT, RANGE 2(2), AAYAKAR BHAVAN, MUMBAI-400 020 ./ I.T.A. NO.8143/MUM/2010 ( - - - - / ASSESSMENT YEAR :2007-08 THE ADDL CIT, RANGE 2(2), AAYAKAR BHAVAN, MUMBAI-400 020 / VS. M/S. ULTRA TECH CEMENT LTD., AHURA CENTRE, B WING 2 ND FLOOR, MAHAKALI CAVES ROAD, ANDHERI (E), MUMBAI-400 093 ./ I.T.A. NO.1348/MUM/2012 ( - - - - / ASSESSMENT YEAR :2008-09 M/S. ULTRA TECH CEMENT LTD., AHURA CENTRE, B WING 2 ND FLOOR, MAHAKALI CAVES ROAD, ANDHERI (E), MUMBAI-400 093 / VS. THE ADDL CIT, RANGE 2(2), AAYAKAR BHAVAN, MUMBAI-400 020 M/S. ULTRATECH CEMENT 2 ./ I.T.A. NO.1831/MUM/2012 ( - - - - / ASSESSMENT YEAR :2008-09 THE ADDL CIT, RANGE 2(2), AAYAKAR BHAVAN, MUMBAI-400 020 / VS. M/S. ULTRA TECH CEMENT LTD., AHURA CENTRE, B WING 2 ND FLOOR, MAHAKALI CAVES ROAD, ANDHERI (E), MUMBAI-400 093 ,/ $* ./ 01 ./ PAN/GIR NO. : AAACL 6442L ( /2 / APPELLANT ) .. ( 34/2 / RESPONDENT ) /2 5 $ / ASSESSEE BY: SHRI ARVIND SONDE SHRI S.B. KABRA 34/2 6 5 $ / DEPARTMENT BY: SHRI RAJESH RANJAN PRASAD 6 7* / DATE OF HEARING :20.02.2014 8- 6 7* / DATE OF PRONOUNCEMENT :28.02.2014 +$9 / O R D E R PER N.K. BILLAIYA, AM: ITA NO. 7502/M/2010 AND ITA NO. 1348/M/2012 ARE FIL ED BY THE ASSESSEE AND ITA NO. 8143/M/10 AND ITA NO. 1831/M/1 2 ARE CROSS APPEALS FILED BY THE REVENUE , ARE AGAINST THE VERY SAME ORDER OF THE LD. CIT(A) FOR ASSESSMENT YEARS 2007-08 AND 2008-09. S INCE ALL THESE APPEALS WERE HEARD TOGETHER, THEY ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA NO. 8143/M/2010 A.Y. 2007-08- REVENUES APPEA L 2. THE FIRST GROUND OF THE REVENUE IS GENERAL IN NA TURE AND NEED NO SEPARATE ADJUDICATION. M/S. ULTRATECH CEMENT 3 3. GROUND NO. 2.1 & 2.2 RELATE TO THE ALLOWABILITY OF DEDUCTION U/S. 80IA IN RESPECT OF CAPTIVE POWER GENERATING DG SETS . 4. AN IDENTICAL ISSUE CAME UP FOR ADJUDICATION BEF ORE THE TRIBUNAL IN ASSESSEES OWN CASE IN A.Y. 2004-05, 2005-06 AND 20 06-07 IN ITA NOS. 7735 & 7736/MUM/2007 AND ITA NO. 2604/M/09. A PERU SAL OF THE AFORESTATED ORDERS OF THE TRIBUNAL SHOWS THAT IN A. Y. 2004-05 AND 2005- 06, THE TRIBUNAL HAS CONSIDERED THIS ISSUE IN PARA -10 ON PAGE-6 OF ITS ORDER AND AT PARA-11.1 ON PAGE-9 OF ITS ORDER HAS C ONFIRMED THE ORDER OF THE LD. CIT(A) WHO ALLOWED CLAIM U/S. 80IA IN RESPE CT OF CAPTIVE POWER GENERATING DG SETS. AS NO NEW DISTINGUISHING FACTS /DECISIONS HAVE BEEN BROUGHT BEFORE US, RESPECTFULLY FOLLOWING THE DECIS IONS OF THE TRIBUNAL (SUPRA), GROUND NO. 2.1 AND 2.2 ARE DISMISSED. 5. GROUND NO. 3.1 AND 3.2 RELATE TO THE ALLOWABILIT Y OF DEDUCTION U/S. 80IA IN RESPECT OF THE RAIL SYSTEMS. 6. A SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL I N ASSESSEES OWN CASE IN A.YRS. 2004-05, 2005-06 AND 2006-07 IN ITA NOS. 7735 & 7736/MUM/2007 AND ITA NO. 2604/M/09. THIS ISSUE HA S BEEN CONSIDERED BY THE TRIBUNAL AT PARA-13 ON PAGE-9 OF ITS ORDER AND AT PARA- 17 ON PAGE-13, THE TRIBUNAL CONFIRMED THE DECISION OF THE LD. CIT(A) WHO ALLOWED DEDUCTION U/S. 80IA IN RESPECT OF RAIL SYSTEMS. AS NO DISTINGUISHING FACTS/DECISIONS HAVE BEEN BROUGHT BE FORE US, RESPECTFULLY FOLLOWING THE FINDINGS OF THE TRIBUNAL (SUPRA), GRO UND NO. 3.1 AND 3.2 ARE DISMISSED. 7. GROUND NO. 4 RELATES TO THE GRIEVANCE THAT THE L D. CIT(A) ERRED IN HOLDING THAT THE SALES TAX EXEMPTION BENEFIT OF RS. 171.65 CRORES IS A CAPITAL RECEIPT NOT CHARGEABLE TO INCOME TAX. M/S. ULTRATECH CEMENT 4 8. A SIMILAR ISSUE WAS CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN A.YRS. 2004-05, 2005-06 AND 2006-07 IN ITA NOS. 7735 & 7736/MUM/2007 AND ITA NO. 2604/M/09. A PERUSAL OF THE ORDERS OF THE TRIBUNAL SHOWS THAT THIS ISSUE WAS CONSIDERED BY TH E TRIBUNAL IN A.YRS 2004-05 AND 2005-06 AT PARA-4 ON PAGE-4 OF ITS ORDE R AND AT PAGE-6 ON PARA-6 OF ITS ORDER, THE TRIBUNAL HELD THAT SALES T AX EXEMPTION BENEFIT IS ON ACCOUNT OF CAPITAL RECEIPT NOT LIABLE TO TAX. FACT S AND ISSUES BEING IDENTICAL, RESPECTFULLY FOLLOWING THE FINDINGS OF T HE TRIBUNAL, GROUND NO. 4 IS DISMISSED. 9. GROUND NO. 5.1 AND 5.2 RELATE TO THE DELETION OF ADDITION MADE U/S. 14A R.W. RULE 8D. 10. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PR OCEEDINGS, THE ASSESSEE WAS ASKED VIDE QUESTIONNAIRE DT. 25.8.2009 AS TO WHY DISALLOWANCE SHOULD NOT BE MADE U/S. 14A R.W. RULE 8D OF THE ACT IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO INCO ME NOT INCLUDED IN TOTAL INCOME. THE ASSESSEE FILED A DETAILED REPLY DT. 1 1.12.2009 AND 10.3.2010. IT WAS EXPLAINED THAT THERE IS NO ELEME NT OF BORROWING WHATSOEVER IN THE INVESTMENT. IT WAS ALSO EXPLAINE D THROUGH A CASH FLOW STATEMENT THAT THERE WAS A CASH SURPLUS OF RS. 1113 .09 CRORES FOR THE YEAR ENDED 31.3.2007 FROM OPERATING ACTIVITIES AFTER PAY MENT OF TAXES HENCE THE QUESTION OF INVOLVEMENT OF BORROWED FUNDS IN UN ITS OF MUTUAL FUNDS DOES NOT ARISE AT ALL. IT WAS ALSO STRONGLY CONTEN DED THAT RULE 8D IS NOT APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERAT ION. THE ASSESSEE ALSO GAVE AN ALTERNATIVE WORKING OF THE DISALLOWANCE U/S . 14A COMPUTING THE DISALLOWANCE AT RS. 12,80,145/- WHICH IS INCORPORAT ED BY THE AO AT PAGE 19 & 20 OF THE ASSESSMENT ORDER. THE SUBMISSIONS O F THE ASSESSEE DID NOT FIND ANY FAVOUR FROM THE AO WHO WAS OF THE FIRM BEL IEF THAT THE ASSESSEE HAS HOTCH POTCH OF BORROWED FUNDS AND OWN FUNDS WHI CH HAVE BEEN USED M/S. ULTRATECH CEMENT 5 FOR MAKING EXEMPT INVESTMENT. THE AO WAS ALSO OF TH E BELIEF THAT THE ASSESSEE HAS CERTAINLY INCURRED SOME EXPENDITURE TO EARN INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. THE AO ALSO RE JECTED THE WORKING OF DISALLOWANCE GIVEN BY THE ASSESSEE. THE AO FINALLY CONCLUDED THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE THAT EXPENDITURE HAS BEEN INCURRED FOR EARNING EXEMPT IN COME AND WENT ON TO COMPUTE THE DISALLOWANCE U/S. 14A R.W. RULE 8D AND COMPUTED THE SAME AT RS. 71,073,131/-. 11. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) AND VEHEMENTLY ARGUED THAT THE INVESTMENTS WERE MADE OU T OF OWN FUNDS AND NO BORROWED FUNDS WERE INVOLVED IN PURCHASE OF UNIT S OF MUTUAL FUND DURING THE YEAR. THEREFORE, THE DISALLOWANCE OF IN TEREST AT RS. 5,73,89,227/- IS UNCALLED FOR. REGARDING DISALLOWA NCE OF OTHER EXPENDITURE, THE ASSESSEE GAVE A CALCULATION OF DIS ALLOWANCE WHICH IS AT PAGE-10 OF LD. CIT(A)S ORDER AND ALSO AT PAGE-26 O F THE PAPER BOOK. 11.1. AFTER CONSIDERING THE CASH FLOW STATEMENT, TH E LD. CIT(A) WAS CONVINCED THAT NO BORROWED FUNDS WERE INVOLVED IN P URCHASE OF UNITS OF MUTUAL FUND AND DIRECTED THE AO TO DELETE THE ADDIT ION OF RS. 5,73,89,227/- BEING INTEREST DISALLOWED BY THE AO. HOWEVER, THE LD. CIT(A) WAS OF THE OPINION THAT THE DISALLOWANCE OF OTHER EXPENSES WERE NOT SUPPORTED BY SOLID EVIDENCE THEREFORE CANNOT B E ACCEPTED AND UPHELD THE DISALLOWANCE OF OTHER EXPENSES MADE BY THE AO A T RS. 1,36,93,914/-. 12. AGGRIEVED BY THIS, REVENUE IS BEFORE US. THE A SSESSEE HAS QUESTIONED THIS FINDING OF THE LD. CIT(A) IN ITS AP PEAL IN ITA NO. 7502/M/2010 VIDE GROUND NO. 1.1 & 1.2. 13. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SU PPORTED THE FINDINGS OF THE AO. IT IS THE SAY OF THE LD. DR TH AT THE ASSESSEE HAS NOT M/S. ULTRATECH CEMENT 6 EXPLAINED ITS CASH FLOW STATEMENT, THEREFORE, THE L D. CIT(A) ERRED IN DELETING THE PROPORTIONATE INTEREST DISALLOWED BY T HE AO AT RS. 5,73,89,227/-. 14. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTEN TION TO THE CASH FLOW STATEMENT WHICH IS AT PAGES 69 TO 75 OF THE PA PER BOOK. IT IS THE SAY OF THE LD. COUNSEL THAT THE ASSESSEE HAS PURCHASED UNITS OF MUTUAL FUND OUT OF ITS OWN FUNDS WHICH CAN BE EASILY SEEN FROM THE CASH FLOW STATEMENTS. IN SO FAR AS DISALLOWANCE OF OTHER EXP ENDITURE IS CONCERNED, THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE CALCULATION GIVEN BY THE ASSESSEE BEFORE BOTH THE LOWER AUTHORI TIES AND STATED THAT THE DISALLOWANCE CALCULATED BY THE ASSESSEE IS VERY REA SONABLE. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE ORDERS OF THE LOWER AUTHORITIES. WE FIND THAT THE AO HAS MADE THE DISALLOWANCE U/S. 14A R.W. RULE 8D. IT IS NOW SETT LED THAT RULE 8D IS APPLICABLE FROM A.Y. 2008-09 BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTUR ING CO. LTD. VS DCIT 328 ITR 81. THEREFORE, RULE 8D CANNOT BE APPL IED DURING THE IMPUGNED ASSESSMENT YEAR. A PERUSAL OF THE CASH FL OW STATEMENT SUGGESTS THAT THE ASSESSEE HAS PURCHASED UNITS OUT OF ITS OW N FUNDS. HOWEVER, IN ALL FAIRNESS, WE RESTORE THIS ISSUE BACK TO THE FIL ES OF THE AO. THE AO IS DIRECTED TO CLOSELY VERIFY THE CASH FLOW STATEMENT TO SEE WHETHER THE ASSESSEE HAS PURCHASED UNITS FROM ITS OWN FUNDS. I F FOUND CORRECT, THE INTEREST OF RS. 5,73,89,227/- WOULD STAND DELETED. IN SO FAR AS DISALLOWANCE OF OTHER EXPENSES IS CONCERNED, THE AS SESSEE HAS GIVEN THE FOLLOWING WORKING: M/S. ULTRATECH CEMENT 7 I) FULLY SALARY OF 2 EXECUTIVES WHO WERE ONLY PARTLY LOOKING AFTER ACTIVITY OF INVESTMENT IN MUTUAL FUND RS.. 4,37,237/- II) PROPORTIONATE SALARY OF CHIEF FINANCIAL OFFICER IN THE RATIO OF INVESTMENT TO TOTAL ASSETS ABOUT 10% RS. 5,34,930/- III) EXPENDITURE IN RESPECT OF 542 ENTRIES PERTAINING TO INVESTMENT RS. 54,200/- RS.10,26,367/- 16. THE EXEMPT INCOME SHOWN BY THE ASSESSEE IS AT R S. 2,31,19,355/- AND THE DISALLOWANCE CALCULATED BY THE ASSESSEE AT RS. 10,26,367/- COMES TO 4.43% OF THE TOTAL EXEMPT INCOME. IN OUR CONSID ERED VIEW, THIS DISALLOWANCE APPEARS TO BE REASONABLE CONSIDERING T HE NATURE OF DISALLOWANCE AS COMPUTED BY THE ASSESSEE MENTIONED HEREINABOVE. TO SUM UP, THE INTEREST PART SHALL BE CONSIDERED BY TH E AO AFTER VERIFICATION AS PER OUR DIRECTIONS GIVEN HEREINABOVE AND THE ADD ITION OF OTHER EXPENSES STANDS DELETED. GROUND NO. 5.1 & 5.2 ARE A LLOWED IN PART FOR STATISTICAL PURPOSE. 17. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 7502/MUM/2010- A.Y. 2007-08 ASSESSEES AP PEAL 18. VIDE GROUND NO. 1.1 & 1.2 THE ASSESSEE IS AGGRI EVED BY THE ORDER OF THE LD. CIT(A) WHO PARTLY CONFIRMED THE DISALLOW ANCE MADE BY THE AO U/S. 14A OF THE ACT. M/S. ULTRATECH CEMENT 8 19. WE HAVE DISCUSSED THIS ISSUE AT LENGTH IN REVEN UES APPEAL IN ITA NO. 8143/M/2010 VIDE GROUND NO. 5.1 & 5.2 WHEREIN W E HAVE RESTORED THE ISSUE OF VERIFICATION OF INTEREST BACK TO THE F ILES OF THE AO AND HAS DELETED THE DISALLOWANCE OF OTHER EXPENDITURE AND U PHELD THE WORKING OF DISALLOWANCE OF OTHER EXPENDITURE BY THE ASSESSEE A T RS. 10,26,367/-. FOR THE DETAILED REASONS GIVEN IN REVENUES APPEAL, ASS ESSEES APPEAL VIDE GROUND NO. 1.1 AND 1.2 ARE ACCORDINGLY ALLOWED. 20. GROUND NO. 2 RELATES TO THE DISALLOWANCE OF EXP ENDITURE OF RS. 22,82,919/- INCURRED FOR PURCHASE FOR SOFTWARE. 21. AN IDENTICAL ISSUE CAME UP FOR HEARING BEFORE T HE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 1751/M/09 AND ITA NO . 2064/M/09 WHICH HAS BEEN CONSIDERED BY THE TRIBUNAL VIDE PARA -14 ON PAGE 5 OF ITS ORDER AND AT PARA-17 ON PAGE-6 HAS CONFIRMED THE IM PUGNED DISALLOWANCE. NO DISTINGUISHING FACTS HAVE BEEN BR OUGHT BEFORE US, RESPECTFULLY FOLLOWING THE FINDINGS OF THE TRIBUNAL (SUPRA) IN ASSESSEES OWN CASE, GROUND NO. 2 IS DISMISSED. 22. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 1831/MUM/2012- A.Y. 2008-09 REVENUES APP EAL 23. THE FIRST GRIEVANCE OF THE REVENUE RELATES TO T HE GRANTING OF DEDUCTION U/S. 80IA OF THE ACT IN RESPECT OF RAIL R AIL SYSTEMS. 24. A SIMILAR ISSUE HAS BEEN DECIDED BY US IN REVEN UES APPEAL VIDE ITA NO. 8143/MUM/2010 FOR ASSESSMENT YEAR 2007-08 I N GROUND NO. 3.1 & 3.2 IN THAT APPEAL. OUR FINDINGS ARE AT PARA NO . 5 & 6 ON PAGE-3. FACT BEING IDENTICAL, FOLLOWING OUR OWN DECISION AS MENT IONED HEREINABOVE, GROUND NO. 1 IS DISMISSED. M/S. ULTRATECH CEMENT 9 25. GROUND NO. 2 RELATES TO THE ALLOWANCE OF SALES TAX EXEMPTION BENEFIT OF RS. 136.18 CRORES AS CAPITAL RECEIPT NOT LIABLE TO TAX. 26. AN IDENTICAL ISSUE HAS BEEN DECIDED BY US IN RE VENUES APPEAL FOR A.Y. 2007-08 IN ITA NO. 8143/M/10 VIDE GROUND NO. 4 OF THAT APPEAL. FACT BEING IDENTICAL, FOLLOWING OUR OWN DECISION AS MENTIONED HEREINABOVE, GROUND NO. 2 IS DISMISSED. 27. GROUND NO. 3 RELATES TO THE GRIEVANCE THAT LD. CIT(A) ERRED IN DIRECTING THE AO TO EXCLUDE TAXABLE INVESTMENT IN U NITS OF GROWTH FUND. 28. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT T HE AO HIMSELF HAS EXCLUDED THE INVESTMENT IN UNITS OF GROWTH FUND WHI LE CALCULATING THE DISALLOWANCE U/S. 14A OF THE ACT. THE LD. CIT(A) S EEMS TO HAVE GIVEN THIS DIRECTION WITHOUT APPRECIATING THE FACT OF THE CASE. THE GENERAL OBSERVATIONS MADE BY THE LD. CIT(A) ARE UNCALLED FO R THOUGH THIS GRIEVANCE NEED NO SEPARATE ADJUDICATION. 29. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ITA NO. 1348/M/12 A.Y. 2008-09 ASSESSEES APPEA L 30. THE FIRST GRIEVANCE OF THE ASSESSEE RELATES TO THE DISALLOWANCE MADE U/S. 14A R.W. RULE 8D OF THE ACT. 31. THIS ISSUE HAS BEEN DISCUSSED AT LENGTH BY US I N ITA NO. 8143/M/10 AND 7502/M/10 FOR A.Y. 2007-08 WHEREIN WE HAVE DIRECTED THE AO TO VERIFY FROM THE CASH FLOW STATEMENTS WHET HER THE INVESTMENTS IN THE UNITS HAVE BEEN MADE OUT OF OWN FUNDS OR BOR ROWED CAPITAL AND THEN DECIDE WHETHER THE PROPORTIONATE INTEREST HAS TO BE DISALLOWED. IN SO FAR AS OTHER DISALLOWANCE OF EXPENDITURE IS CONCERN ED, NO DOUBT RULE 8D IS VERY MUCH APPLICABLE FOR THE YEAR UNDER CONSIDER ATION. BUT AT THE SAME M/S. ULTRATECH CEMENT 10 TIME IT IS INCUMBENT UPON THE AO TO FIRST SHOW FALL ACIES IN THE COMPUTATION OF DISALLOWANCES MADE BY THE ASSESSEE W ITH REGARD TO THE BOOKS OF ACCOUNTS. WE THEREFORE, RESTORE THIS ISSU E BACK TO THE FILES OF THE AO WITH THE DIRECTION THAT SO FAR AS DISALLOWANCE OF INTEREST IS CONCERNED, FOLLOW THE FINDINGS OF A.Y. 2007-08 AND IN RESPECT OF THE DISALLOWANCE OF OTHER EXPENDITURE IS CONCERNED, WE FIND THAT THE AS SESSEE HAS COMPUTED THE DISALLOWANCE AS UNDER: A)FULL SALARY OF AN EXECUTIVE WHO WAS PARTLY LOOKING AFTER THE ACTIVITY OF INVESTMENT IN MUTUAL FUND - RS.1,51,041/- B)50% SALARY OF AN EXECUTIVE WHO WAS ONLY PARTLY LOOKING AFTER THE ACTIVITY OF INVESTMENT IN MUTUAL FUND -RS. 2,24,880/- C)PAYMENT MADE TO CONSULTANT FOR OUTSOURCING OF A PERSON FOR THE WORKING RELATING TO INVESTMENT ACTIV ITY -RS. 1,45,810/- THE TOTAL DISALLOWANCES COMPUTED BY THE ASSESSEE COMES TO -RS. 5,21,731/- ============ IN ADDITION TO THIS, WE FIND THAT AS AN ABUNDANT CAUTION THE ASSESSEE HAS ALSO DISALLOWED INTEREST ON WHOLE OF CASH CREDI T AMOUNTING TO RS. 44,93,553/-. THUS THE TOTAL DISALLOWANCE MADE BY THE ASSESSEE COMES TO RS. 50,15,284/-. 32. IN OUR CONSIDERATE VIEW, THE DISALLOWANCES MADE BY THE ASSESSEE IN RESPECT OF OTHER EXPENDITURE (OTHER THAN INTEREST) IS REASONABLE AND THEREFORE NO FURTHER DISALLOWANCE IS CALLED FOR. T HE AO IS DIRECTED TO ONLY VERIFY THE DISALLOWABILITY OF PROPORTIONATE IN TEREST AFTER CLOSE VERIFICATION OF THE CASH FLOW CHART. GROUND NO. 1 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. M/S. ULTRATECH CEMENT 11 33. GROUND NO. 2 RELATES TO THE DISALLOWANCE OF A S UM OF RS. 77,27,928/- IN RESPECT OF EMPLOYEE STOCK OPTION EXP ENSES. 34. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PR OCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DEB ITED EMPLOYEE COMPENSATION EXPENSES OF RS. 2,44,55,470/- IN RESPE CT OF ISSUE OF STOCK OPTION TO THE DEFERRED EMPLOYEES COMPENSATION EXPE NSES ACCOUNT BY GIVING CREDIT TO THE EMPLOYEES STOCK OPTION OUTSTA NDING. THE AO FURTHER NOTICED THAT OUT OF THE AFORESAID EXPENSES, AMOUNT OF RS. 77,27,928/- HAS BEEN AMORTIZED FOR THE YEAR UNDER C ONSIDERATION. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE ABOVE E XPENSES MAY NOT BE DISALLOWED AS THE LIABILITY TO INCUR THE SAME HAS NOT BEEN ASCERTAINED AS WELL AS THE EXPENSES INCURRED RELATES TO ISSUE OF S HARE CAPITAL. 34.1. THE ASSESSEE FILED A DETAILED REPLY VIDE LETT ER DT. 27.12.2010 AND EXPLAINED THAT AS PER THE SECURITIES EXCHANGE BOARD OF INDIA (SEBI) GUIDELINES ON EMPLOYEE STOCK OPTION SCHEME (ESOP), ACCOUNTING IN RESPECT OF OPTIONS GRANTED DURING ANY ACCOUNTING PE RIOD, THE ACCOUNTING VALUE OF THE OPTIONS SHALL BE TREATED AS ANOTHER FO RM OF EMPLOYEE COMPENSATION IN THE FINANCIAL STATEMENT OF THE COMP ANY. IT WAS FURTHER EXPLAINED THAT SEBI REGULATIONS MANDATE THAT THE DI FFERENCE BETWEEN THE MARKET PRICES AND THE PRICE AT WHICH THE OPTION IS EXERCISED BY THE EMPLOYEES TO BE AMORTIZED ON A STRAIGHT LINE BASIS OVER THE VESTING PERIOD. THE EXPLANATION OF THE ASSESSEE DID NOT FIND ANY FA VOUR FROM THE AO WHO WAS OF THE FIRM BELIEF THAT STOCK OPTION IS SIMILAR TO THAT OF PUBLIC ISSUE OF SHARES THUS THE EXPENSES INCURRED ARE FOR THE INCR EASE OF THE SHARE CAPITAL BASE OF THE COMPANY. THE AO ALSO REJECTED THE CLAI M THAT ALLOTMENT OF SHARES UNDER ESOP SCHEME AS PER SEBI REGULATIONS. THE AO OBSERVED THAT COMPLIANCE OF SEBI REGULATIONS DOES NOT ALTER THE CHARACTER OF SHARE CAPITAL. THE AO DISALLOWED THE ENTIRE EXPENDITURES CONCLUDING THAT THE M/S. ULTRATECH CEMENT 12 EXPENSES RELATED TO ISSUE OR EXPANSION OF SHARE CAP ITAL IS EXPENSES OF CAPITAL IN NATURE. 35. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MAT TER BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS CONSIDERED THIS GRIEVAN CE OF THE ASSESSEE AT PARA-7 ON PAGE-29 OF HIS ORDER. IT WAS THE CLAIM OF THE ASSESSEE THAT THE EMPLOYEES STOCK OPTION EXPENSES WAS A ALLOWABLE EXP ENDITURE WHICH HAS BEEN DEBITED BY FOLLOWING WELL RECOGNIZED PRINCIPLE OF ACCOUNTING . AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, TH E LD. CIT(A) OBSERVED THAT ESOP IS NOTHING BUT BENEFIT OR INCOME FORGONE BY THE ASSESSEE THEREFORE, SUCH ACTION CANNOT BE CONSIDERED AS AN E XPENDITURE ALLOWABLE UNDER THE I.T. ACT. THE LD. CIT(A) FURTHER RELIED UPON THE DECISION OF THE TRIBUNAL IN THE CASE OF VIP INDUSTRIES LTD. VS DCIT (2010-TIOL-654- ITAT-MUM) AND HELD THAT SINCE THE ASSESSEE HAD NOT INCURRED ANY EXPENDITURE BUT HAD MERELY RECEIVED LESSER AMOUNT O F PREMIUM, THE SAME COULD NOT AMOUNT TO EXPENDITURE WITHIN THE MEANING OF SEC. 37 OF THE ACT. 36. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY RELIED UPON THE DECISION OF T HE SPECIAL BENCH OF BANGALORE IN THE CASE OF BIOCON LTD. VS DCIT IN IT A NO. 368/BANG/2010. THE LD. COUNSEL ALSO RELIED UPON TH E DECISION OF CHENNAI BENCH IN ITA NO. 1384/MDS/2004 IN THE CASE OF DCIT VS PVP VENTURES LTD. IT IS THE SAY OF THE LD. COUNSEL THAT THE SPEC IAL BENCH HAS ALLOWED THE EXPENDITURE IN RESPECT OF ESOP WHEREIN THE SPE CIAL BENCH HAS CONSIDERED AT LENGTH THE SEBI GUIDELINES. IN OUR C ONSIDERATE VIEW, THE ALLOWABILITY OF THE CLAIM OF THE ASSESSEE HAS TO BE CONSIDERED AFRESH IN THE LIGHT OF THE FINDINGS OF THE SPECIAL BENCH (SUPRA). WE THEREFORE, RESTORE THIS ISSUE BACK TO THE FILES OF THE AO. THE AO IS DIRECTED TO CONSIDER THE CLAIM OF THE ASSESSEE IN THE LIGHT OF THE DECISION OF THE SPECIAL BENCH OF M/S. ULTRATECH CEMENT 13 ITAT IN THE CASE OF BIOCON LTD (SUPRA) AFTER MAKING NECESSARY VERIFICATION AND AFTER GIVING A REASONABLE OPPORTUN ITY OF BEING HEARD TO THE ASSESSEE. GROUND NO. 2 IS ALLOWED FOR STATISTI CAL PURPOSE. 37. THE ASSESSEE HAS ALSO RAISED TWO ADDITIONAL GRO UNDS WHICH READ AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO CONS IDER THAT; PROCEEDS REALIZED FROM SALE OF CERTIFIED EMISSION R EDUCTION (CERS) GENERATED OUT OF CAPITAL PROJECTS REGISTERED WITH UNFCCC AMOUNTING TO RS. 7,64,56,908/- DURING THE FINANCIAL YEAR 2007-08 I.E. A.Y 2008-09, BE TREATED AS CAPITAL RECEIPTS. 2.(I) THE APPELLANT HAS DEVELOPED, OPERATES & MAINT AINS JETTY/PORT SITUATED AT KOVAYA IN THE STATE OF GUJA RAT UNDER AGREEMENT WITH THE GUJARAT MARITIME BOARD. THE JET TY/PORT COMMENCED ITS OPERATIONS IN FINANCIAL YEAR 1997-98 I.E. A.Y. 1998-99. (II) UNDER PROVISO TO SEC. 80-IA(2), THE DEDUCTION CAN BE CLAIMED FOR ANY TEN CONSECUTIVE YEARS OUT OF TWENTY YEARS BEGINNING FROM THE YEAR IN WHICH THE ENTERPRISE DEV ELOPS, OPERATES AND MAINTAINS THE INFRASTRUCTURE FACILITY 38. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SU BMITTED THAT THE ADDITIONAL GROUNDS SHOULD NOT BE ADMITTED AS , FIRS TLY, THESE ISSUES WERE NEVER RAISED BEFORE THE LOWER AUTHORITIES, SECONDLY , THEY REQUIRE EXAMINATION OF FACTS. 39. THE LD. SENIOR COUNSEL RESPONDED BY STATING THA T FACTS RELATING TO THE ISSUES INVOLVED IN THE ADDITIONAL GROUNDS ARE V ERY MUCH PRESENT IN THE ASSESSMENT RECORD. IT IS ONLY BECAUSE OF THE SUBSE QUENT JUDICIAL DECISIONS, THE ASSESSEE WAS PROMPTED TO RAISE THESE GROUNDS BEFORE THE TRIBUNAL. M/S. ULTRATECH CEMENT 14 40. WE HAVE CAREFULLY CONSIDERED THE OBJECTIONS OF THE LD. DR. THE HONBLE SUPREME COURT IN THE CASE OF NATIONAL THERM AL POWER CO. LTD VS CIT 229 ITR 383 HAS HELD AS UNDER: IF, AS A RESULT OF A JUDICIAL DECISION GIVEN WHILE THE APPEAL IS PENDING BEFORE THE TRIBUNAL, IT IS FOUND THAT A NON-TAXABLE ITEM IS TAXED OR A PERMISSIBLE DEDUCTION IS DENIED, THER E IS NO REASON WHY THE ASSESSEE SHOULD BE PREVENTED FROM RAISING T HAT QUESTION BEFORE THE TRIBUNAL FOR THE FIRST TIME, SO LONG AS THE RELEVANT FACTS ARE ON RECORD IN RESPECT OF THAT ITEM. THERE IS NO REASON TO RESTRICT THE POWER OF THE TRIBUNAL UNDER S. 254 ONLY TO DECI DE THE GROUNDS WHICH ARISE FROM THE ORDER OF CIT(A). BOTH THE ASS ESSEE AS WELL AS THE DEPARTMENT HAVE A RIGHT TO FILE AN APPEAL/CROSS OBJECTIONS BEFORE THE TRIBUNAL. TRIBUNAL SHOULD NOT BE PREVE NTED FROM CONSIDERING QUESTION OF LAW ARISING IN ASSESSMENT P ROCEEDINGS ALTHOUGH NOT RAISED EARLIER. 41. DRAWING SUPPORT FROM THE AFOREMENTIONED FINDING S OF THE HONBLE SUPREME COURT, LET US NOW CONSIDER THE ADDITIONAL G ROUNDS ONE BY ONE. 42. THE FIRST ADDITIONAL GROUND RELATES TO THE CLAI M OF PROCEEDS REALIZED FROM SALE OF CERTIFIED EMISSION REDUCTION (CERS) AM OUNTING TO RS. 7,64,56,908/- AS CAPITAL RECEIPTS. 43. WE FIND THAT THE ASSESSEE HAS SHOWN THE SALE CO NSIDERATION OUT OF SALE PROCEEDS OF CARBON CREDIT UNDER THE HEAD OTH ER INCOME AS REVENUE RECEIPTS WHICH NOW IT WANTS TO CLAIM AS CAPITAL RE CEIPTS IN THE LIGHT OF THE DECISION OF THE TRIBUNAL. SINCE NO NEW FACTS HAVE TO BE VERIFIED SO FAR AS THIS CLAIM IS CONCERNED REALIZATION OF CARBON CREDI T ARE ALREADY SHOWN UNDER THE HEAD OTHER INCOME. RESPECTFULLY FOLLOW ING THE DECISION OF THE TRIBUNAL CITED HEREUNDER: M/S. ULTRATECH CEMENT 15 1) ITAT HYDERABAD BENCH IN THE CASE OF MY HOME POWER L TD. VS DCIT IN ITA NO. 1114/HYD/2009 2) ITAT CHENNAI BENCH IN THE CASE OF SRI VELAYUDASWAM Y SPINNING MILLS (P) LTD. VS DCIT IN ITA NO. 582/MDS/ 2013 3) ITAT CHENNAI BENCH IN THE CASE OF AMBIKA COTTON MI LLS LTD. VS DCIT IN ITA NO. 1836/MDS/2012; WE DIRECT THE AO TO TREAT THE PROCEEDS REALIZED FRO M SALE OF CERTIFIED EMISSION REDUCTION (CERS) GENERATED OUT OF CAPITAL PROJECTS REGISTERED WITH UNFCCC AS CAPITAL RECEIPTS. ADDITIONAL GROUND NO. 1 IS ACCORDINGLY ALLOWED. 44. IN SO FAR AS IT RELATES TO THE CLAIM OF ADDITI ONAL GROUND NO. 2 IN RESPECT OF THE DEDUCTION U/S. 80IA(2), IN OUR VIEW THOUGH IT IS A LEGAL CLAIM WHICH INVOLVES QUESTION OF LAW BUT AT THE SAM E TIME WE FIND THAT FACTS RELATING TO THIS CLAIM HAVE NOT AT ALL BEEN D ISCUSSED/CONSIDERED AT THE ASSESSMENT STAGE EXCEPT THAT THE ASSESSEE IS HAVIN G A JETTY , NOTHING MORE IS CONSIDERED AT THE ASSESSMENT STAGE. THE COUNSEL POINTED OUT THAT IN THE SUBSEQUENT ASSESSMENT YEAR A.Y 2009 -10 , THE CLAIM OF THE ASSESSEE HAS BEEN ALLOWED . IN OUR UNDERSTANDING OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF NTPC [SUPRA ]), THE FA CTS ON RECORD MEAN THE RECORD FOR THE YEAR UNDER CONSIDERATION . MOR EOVER THE CLAIM U/S. 80IA HAS TO BE TESTED ON MANY FACTORS. HAVING AN I NFRASTRUCTURE FACILITY IS ONLY ONE OF THEM. SINCE OTHER FACTORS HAVE NOT BEE N CONSIDERED AND NEED TO BE VERIFIED BY BRINGING COGENT EVIDENCES ON RECO RD, WE DECLINE TO ADMIT THE ADDITIONAL GROUND NO. 2, FOLLOWING THE RA TIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF NTPC (SUPRA). THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. M/S. ULTRATECH CEMENT 16 45. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IN ITA NO. 8143/M/2010 IS PARTLY ALLOWED FOR STATISTICAL PURPO SE, ITA NO. 7502/M/2010 IN ASSESSEES APPEAL IS PARTLY ALLOWED, ITA NO. 1831/M/2012 IN REVENUES APPEAL IS DISMISSED AND IT A NO. 1348/M/2012, IS PARTLY ALLOWED FOR STATISTICAL PURP OSE ORDER PRONOUNCED IN THE OPEN COURT ON 28.4.2014 . +$9 6 - * $ : ;+ < 28.4.2014 6 = SD/- SD/- (D.MANMOHAN ) (N.K. BILLAIYA) !'# / VICE PRESIDENT $* +, / ACCOUNTANT MEMBER MUMBAI; ;+ DATED 28.4.2014 . . ./ RJ , SR. PS +$ +$ +$ +$9 99 9 6 66 6 37& 37& 37& 37& >$&-7 >$&-7 >$&-7 >$&-7 / COPY OF THE ORDER FORWARDED TO : 1. /2 / THE APPELLANT 2. 34/2 / THE RESPONDENT. 3. ? ( ) / THE CIT(A)- 4. ? / CIT 5. &@= 37 , , / DR, ITAT, MUMBAI 6. = / GUARD FILE. +$9 +$9 +$9 +$9 / BY ORDER, 4&7 37 //TRUE COPY// ! !! ! / 0 0 0 0 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI