ELDER PROJECTS LTD, MUMBAI V. DCIT CC 6(1), MUMBAI

ITA 815/MUM/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0671 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 03-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJGURU; CHAUDHARY ARUN KUMAR SINGH
• Keywords: Opportunity of being heard; Earning of tax free income; Question of law
• Section: 43B; 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E , MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI RAJESH KUMAR , HON'BLE ACCOUNTANT MEMBER ITA NO. 815 /MUM/201 7 (A.Y: 2012 - 13) M/S. ELDER PROJECTS LTD., ELDER HOUSE C - 9, DALIA INDUSTRIAL ESTATE OFF. VEERA DESAI ROAD ANDHERI (W), MUMBAI 400 058 PAN: AAACE 7387 B V. D .C.I.T. CENTRAL CIRCLE 6 (1) MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PRATIK JAIN & SHRI MANI JAIN DEPARTMENT BY : SHRI RAJGURU & SHRI CHAUDHARY ARUN KUMAR SINGH DATE OF HEARING : 26 .10.2018 DATE OF PRONOUNCEMENT : 14 .11 .2018 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) 54, MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] DATED 06.10.2016 FOR THE ASSESSMENT YEAR 2012 - 13. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN ITS APPEAL: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. COMMISSIONER OF INCOME TAX (A) ERRED IN PASSING THE APPELLATE ORDER WITHOUT AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE APPELLANT. 2 ITA NO.815/MUM/2017 (A.Y: 2012 - 13) M/S. ELDER PROJECTS LTD., 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. COMMISSIONER OF INCOME TAX (A) ERRED IN CONFIRMING THE AO'S ACTION OF MAKING ADDITION OF .74,44,214/ - BY INVOKING PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE IT ACT AND THE REASONS ASSIGNED FOR DOING SO ARE WRONG AND CONTRARY TO THE PROVISION OF THE INCOME TAX ACT AND RULES MADE THERE UNDER. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW T HE LD. COMMISSIONER OF INCOME TAX(A) ERRED IN CONFIRMING THE AO'S ACTION OF MAKING ADDITION OF .91,88,564/ - TO RETURNED INCOME BY INVOKING THE PROVISION OF SECTION 14A RW RULE 8D OF THE INCOME TAX ACT, 1961, WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE AC T AND THE REASONS ASSIGNED FOR DOING SO ARE WRONG AND CONTRARY TO THE PROVISION OF THE INCOME TAX ACT AND RULES MADE THERE UNDER. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. COMMISSIONER OF INCOME TAX (A) ERRED IN CONFIRMING THE AO'S A CTION OF MAKING ADDITION OF .5,06,765/ - TO RETURNED INCOME BY INVOKING THE PROVISION OF SECTION 43B OF THE INCOME TAX ACT, 1961, AND THE REASONS ASSIGNED FOR DOING SO ARE WRONG AND CONTRARY TO THE PROVISION OF THE INCOME TAX ACT AND RULES MADE THERE UNDER . 3. IT IS SUBMITTED THAT THE GROUND NO.1 IS GENERAL IN NATURE AND THEREFORE, THE SAME MAY BE DISMISSED. HENCE THE SAME IS DISMISSED. 4. COMING TO GROUND NO.2 ASSESSEE IS CHALLENGING THE ORDER OF THE LD.CIT(A) IN SUSTAINING THE DISALLOWANCE OF .74,44,214/ - B Y INVOKING PROVISIONS OF SECTION 14A R.W. RULE 8D OF THE ACT. IN THIS CONNECTION IT IS SUBMITTED BY THE ASSESSEE THAT, ASSESSEE EARNED EXEMPT INCOME OF .17,44,35 0/ - AND TO THAT EXTENT THE ASSESSEE ALREADY MADE DISALLOWANCE IN THE COMPUTATION OF INCOME, T HEREFORE, IT IS SUBMITTED THAT SINCE THE ENTIRE EXEMPT INCOME HAS BEEN DISALLOWED NO DISALLOWANCE IS REQUIRED TO BE MADE. FOR THIS PROPOSITION HE PLACED RELIANCE ON THE DECISION OF THE COORDINATE BENCH IN THE CASE OF M/S. PEST CONTROL INDIA PVT LTD. V. DC IT IN ITA.NO. 5048/MUM/2016 DATED 31.10.2017. 5. COMING TO GROUND NO.3, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER WHILE COMPUTING THE BOOK PROFITS MADE 3 ITA NO.815/MUM/2017 (A.Y: 2012 - 13) M/S. ELDER PROJECTS LTD., DISALLOWANCE U/S. 14A R.W. RULE 8D OF THE ACT. LD. COUNSEL FOR THE ASSESSEE SUBMIT TED THAT IN VIEW OF THE DECISION OF THE SPECIAL BENCH IN THE CASE OF ACIT V. VIREET INVESTMENTS PRIVATE LIMITED [165 ITD 27] THE MATTER MAY BE DECIDED. 6. COMING TO THE GROUND NO. 4, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT, THE ASSESSING OFFICER WHILE COM PLETING THE ASSESSMENT DISALLOWED PROVISION FOR LEAVE ENCASHMENT OF .5,06 ,768/ - . LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT PROVISION OF LEAVE ENCASHMENT IS AN ASCERTAINED LIABILITY AND THEREFORE THE SAME CANNOT BE DISALLOWED U/S. 43B OF THE ACT. 7. LD. CO UNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE COORDINATE BENCH IN THE CASE OF IDEA CELLULAR LTD. V ACIT IN ITA.NO. 4445/MUM/2013 DATED 27.05.2016 SUBMITTED THAT ON IDENTICAL ISSUE THE MATTER WAS RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH CERTAIN DIRECTIONS. THE SAME DIRECTIONS MAY BE GIVEN IN THIS CASE ALSO. 8. LD. DR STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. IN SO FAR AS GROUND NO.2 IS CONCERNED, IT IS AN UNDISPUTED FACT THAT THE ASSESSEE DISALLOWED ENTIRE EXEMPT INCOME THEREFORE, NO FURTHER DISALLOWANCE IS REQUIRED TO BE MADE. IT HAS BEEN HELD IN VARIOUS CASES THAT THE DISALLOWANCE U/S.14A R.W. RULE 8D CANNOT 4 ITA NO.815/MUM/2017 (A.Y: 2012 - 13) M/S. ELDER PROJECTS LTD., EXCEED THE EXEMPT INCOME. THE HON'BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF PRINCIPAL COMMISSIONER OF INCOME TAX - I V. M/S EMPIRE PACKAGE PVT. LTD IN ITA.NO. 415 OF 2015 DATED 12.01.2016, DISMISSED THE APPEAL OF THE REVENUE HOLDING THAT THERE IS NO SUBSTANTIAL QUESTION OF LAW ARISE IN THE APPEAL ON THE FOLLOWING QUESTION RAISED BY THE REVENUE: - 'WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE ITAT IS JUSTIFIED IN LAW TO HOLD THAT THE DISALLOWANCE MADE UNDER SECTION 14A READ WITH RULE 8D CANNOT EXCEED THE EXEMPT INCOME, IN THE ABSENCE OF ANY SUCH RESTRICTION BEING THERE IN THE RELEVANT SECTION OR RULE?' THE HON'BLE HIGH COURT AFFIRMED THE ORDER OF THE ITAT IN HOLDING THAT THE DISALLOWANCE U/S. 14A R.W. RULE 8D AS WORKED OUT BY THE ASSESSING OFFICER IS NOT IN ACCORDANCE WITH LAW FOR THE REASON THAT ASSESSING OFFICER HAS DISALLOWED ENTIRE TAX EXEMPT INCOME AND THIS IS NOT PERMISSIBLE IN VIEW OF THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT. 10. THE HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENT PRIVATE LIMITED IN ITA.NO. 117/15 DATED 25.02.2015 HELD THAT BY NO STRETCH OF IMAGINATION CAN SECTION 14A OR RULE 8D BE INTERPRETED SO AS TO MEAN THAT ENTIRE TAX EXEMPT INCOME IS TO BE DISALLOWED. 11. FURTHER , WE FIND THAT CONSIDERING THE ABOVE TWO DECISIONS THE COORDINATE BENCH IN THE CASE OF SANGHAVI EXPORTS INTERNATIONAL P. LTD V. ACIT IN ITA.NO.3405/MUM/2015 DATED 10 .07.2017 HELD THAT DISALLOWANCE SHOULD NOT BE MORE THAN THE DIVIDEND INCOME BY OBSERVING AS UNDER: - 4. WE HAVE PERUSED THE ASSESSMENT ORDER AND FIND THAT THE ASSESSEE EARNED EXEMPT INCOME OF RS. 1,70,000/ - ONLY DURING THIS ASSESSMENT YEAR AND THE ASSESS ING OFFICER BY INVOKING THE PROVISION OF SECTION 14A MADE DISALLOWANCE AT 5 ITA NO.815/MUM/2017 (A.Y: 2012 - 13) M/S. ELDER PROJECTS LTD., RS.54,66,813/ - . THE HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENT PRIVATE LIMITED IN ITA.NO. 117/15 DATED 25.02.2015 HELD THAT BY NO STRETCH OF IMAGINATION CAN SECTION 14 A OR RULE 8D BE INTERPRETED SO AS TO MEAN THAT ENTIRE TAX EXEMPT INCOME IS TO BE DISALLOWED. SIMILARLY, PUNJAB AND HARYANA HIGH COURT IN THE CASE OF PCIT V. EMPIRE PACKAGE PRIVATE LIMITED IN ITA.NO. 415/2015 HELD THAT DISALLOWANCE SHOULD NOT EXCEED EXEMPT INCOME. IN THE CASE ON HAND SINCE THE ASSESSEE RECEIVED DIVIDEND INCOME OF RS.1,70,000/ - AS RECORDED IN THE ASSESSMENT ORDER THE DISALLOWANCE SHOULD NOT BE MORE THAN RS.1,70,000/ - . THUS WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF DIVIDEND INCOME I.E. RS.1,70,000/ - AND DELETE THE BALANCE AMOUNT AND COMPUTE THE INCOMES ACCORDINGLY. 12. THUS, RESPECTIVELY FOLLOWING THE SAID DECISIONS, WE DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE U/S. 14A OF THE ACT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. 13. COMING TO GROUND NO.3 I.E. REGAR DING THE DISALLOWANCE MADE U/S. 14A R.W. RULE 8D WHILE COMPUTING THE BOOK PROFITS THE ISSUE IS NOW SETTLED BY THE SPECIAL BENCH IN THE CASE OF ACIT V . VIREET INVESTMENTS PRIVATE LI MITED (SUPRA). THUS, WE DIRECT THE ASSESSING OFFICER TO COMPUTE THE DISALLOWANCE FOLLOWING THE DECISION OF THE SPECIAL BENCH. THIS GROUND IS PARTLY ALLOWED. 14. COMING TO GROUND NO.4, WE FIND THAT THE SIMILAR ISSUES CAME UP BEFORE THE COORDINATE BENCH IN THE CASE OF IDEA CELLULAR LTD. V ACIT (SUPRA) AND THE COORDINATE BENCH HELD AS UNDER: - 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. UNDISPUTEDLY, THE DEDUCTION CLAIMED BY THE ASSESSEE IS ONLY A PROVISION S AND NO PAYMENT WAS ACTUALLY MADE BY THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR. THEREFORE, IN TERMS OF SECTION 43B(F), IT IS NOT ALLOWABLE. HOWEVER, IN THE CASE OF EXIDE INDUSTRIES LTD. (SUPRA), THE HONBLE CALCUTTA HIGH COURT HAD STRUCK DOWN THE PRO VISIONS OF SECTION 43B(F) AS UNCONSTITUTIONAL. HOWEVER, THE DEPARTMENT BEING AGGRIEVED OF THE SAID JUDGMENT HAD PREFERRED APPEAL BEFORE THE HON'BLE SUPREME COURT AND THE HON'BLE SUPREME COURT WHILE ADMITTING THE APPEAL OF THE DEPARTMENT IN SPECIAL LEAVE TO APPEAL (CIVIL) NO.22889 OF 2008, HAD DIRECTED THE ASSESSEE TO PAY TAX AS IF SECTION 43B(F) IS IN THE STATUTE BOOK, HOWEVER, THE ASSESSEE PERMITTED TO CLAIM THE DEDUCTION IN THE RETURN OF INCOME. IT IS OBSERVED, FOLLOWING THE AFORESAID ORDER OF THE HON'BLE SUPREME COURT, 6 ITA NO.815/MUM/2017 (A.Y: 2012 - 13) M/S. ELDER PROJECTS LTD., THE TRIBUNAL, MUMBAI BENCH, IN BIRLA SUNLIFE ASSET MANAGEMENT CO. LTD. (SUPRA), HELD AS UNDER: 9. IN VIEW OF THE OBSERVATIONS OF THE HONBLE SUPREME COURT, IN OUR VIEW, IT WILL BE PROPER TO DISPOSE OF THIS APPEAL IN THE LIGHT OF THE ORDE R OF THE HONBLE SUPREME COURT DATED 08.05.2009 PASSED IN THE CASE OF CIT VS. EXIDE INDUSTRIES LTD. (SUPRA). WE THEREFORE DISPOSE OF THE PRESENT APPEAL WITH A DIRECTION THAT THE ASSESSEE WILL PAY THE TAX AS IF SECTION 43B(F) IS ON THE STATUTE BOOK, HOWEV ER, TILL THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. EXIDE INDUSTRIES LTD. (SUPRA), THE REVENUE WILL NOT RECOVER THE PENALTY AND INTEREST WHICH MAY ACCRUE TILL THE DECISION OF THE APPEAL BY THE HONBLE SUPREME COURT IN THE CASE OF E XIDE INDUSTRIES LTD. IT WOULD BE OPEN TO THE DEPARTMENT TO RECOVER THE OUTSTANDING INTEREST DEMAND IN CASE THE CIVIL APPEAL OF THE DEPARTMENT IN THE CASE OF EXIDE INDUSTRIES LTD. (SUPRA) IS ALLOWED BY THE HONBLE SUPREME COURT. SUBJECT TO OUR ABOVE OBSE RVATIONS, THE MATTER IS RESTORED TO THE FILE OF THE AO TO BE ADJUDICATED AFRESH AS PER THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF EXIDE INDUSTRIES LTD. (SUPRA). 8. IN TERMS WITH THE DIRECTIONS OF THE HON'BLE SUPREME COURT AND THE CO ORDINATE BENCH REFERRED TO ABOVE, WE RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION THAT ASSESSEE WILL PAY THE TAX AS IF SECTION 43B(F) IS ON THE STATUTE BO OK. HOWEVER, TILL THE DECISION OF THE HON'BLE SUPREME COURT IS RENDERED IN CASE OF CIT V/S EXIDE INDUSTRIES LTD. (SUPRA), THE DEPARTMENT WILL NOT RECOVER THE PENALTY AND INTEREST WHICH MAY ACCRUE TILL THE DECISION OF THE APPEAL IN THE CASE OF EXIDE INDUSTR IES LTD. (SUPRA). IT WOULD BE OPEN TO THE DEPARTMENT TO RECOVER THE OUTSTANDING INTEREST PAYMENT ONCE THE APPEAL IN THE CASE OF EXIDE INDUSTRIES LTD. (SUPRA) IS DECIDED IN FAVOUR OF THE DEPARTMENT. WITH THE AFORESAID OBSERVATIONS, WE RESTORE THE MATTER BAC K TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING AFRESH IN TERMS WITH THE DECISION OF THE HON'BLE SUPREME COURT IN EXIDE INDUSTRIES LTD. (SUPRA). GROUND NO.1, IS AL LOWED FOR STATISTICAL PURPOSES. 15. RESPECTFULLY FOLLOWING THE SAID DECISION, WE DIRECT THE ASSESSING OFFICER TO DECIDE THE ISSUE FOLLOWING THE OBSERVATION OF THE TRIBUNAL IN THE CASE OF IDEA CELLULAR LTD. V ACIT (SUPRA). THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 16. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE 14 TH NOVEMBER , 2018 SD/ - SD/ - ( R AJESH KUMAR) ) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI / DATED 14 / 11 / 2018 GIRIDHAR , SR. PS 7 ITA NO.815/MUM/2017 (A.Y: 2012 - 13) M/S. ELDER PROJECTS LTD., COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 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