DCIT, Bangalore V. M/s United Breweries Ltd.,

ITA 84/BANG/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7014 (ITAT-BANGALORE)
• Duration Of Justice: 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 17-01-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI ADD
• Assessee Lawyers: K R PRADEEP
• Keywords: Revision of order; Earning of tax free income; Retrospective amendment
• Section: 143(3); 14A; 115JB; 263

Judgement Text

ITA NOS.84 & 85 OF 2014 UNITED BREWERIES LTD BANGAL ORE. PAGE 1 OF 8 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BBENCH, BANGALORE BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NOS.84 & 85/BANG/2014 (ASSESSMENT YEAR: 2006-07) DY. COMMISSIONER OF INCOME TAX CIRCLE 12(5) 14/3 4 TH FLOOR, RASTROTHANA BHAVAN, OPP: RBI, NRUPATHUNGA ROAD, BANGALORE 560001 VS. M/S UNITED BREWERIES LTD UB TOWER, LEVEL 12, 14 & 15, UB CITY, VITTAL MALLYA ROAD, BANGALORE 560001 PAN: AAACU 6053 C (APPELLANT) (RESPONDENT) DEPARTMENT BY: DR. P.K. SRIHARI, ADD. CIT, (DR) ASSESSEE BY: SHRI K.R. PRADEEP, CA DATE OF HEARING: 24/11/2014 DATE OF PRONOUNCEMENT: 24/11/2014 O R D E R PER RAJPAL YADAV, J.M. THE PRESENT TWO APPEALS ARE DIRECTED AT THE INSTAN CE OF THE REVENUE AGAINST THE ORDERS OF THE LEARNED CIT (A) D ATED 7.10.2013 AND 9.10.2013 PASSED IN ASSESSMENT YEAR 2 006-07. THE GRIEVANCE OF THE REVENUE IS THAT THE LEARNED CI T (A) HAS ERRED IN DELETING THE ADDITIONS MADE BY THE ASSESSI NG OFFICER U/S 14A OF THE INCOME TAX ACT. 2. BEFORE ADVERTING TO THE SPECIFIC GROUNDS IN BOTH THESE APPEALS, IT IS NECESSARY TO TAKE INTO CONSIDERATION THE BRIEF FACTUAL BACKGRUND GIVING RISE TO TWO APPEALS IN ONE ASSESSMENT YEAR. THE BRIEF FACTS ARE THAT THE ASSESSEE HAS FIL ED ITS RETURN OF INCOME ON 17.11.2006 DECLARING NIL INCOME AND BOOK PROFIT AT RS.62,03,13,718/- U/S 115JB OF THE ACT. AN ASSESSME NT ORDER WAS PASSED U/S 143(3) ON 29.12.2008. THE ASSESSING OFFICER ITA NOS.84 & 85 OF 2014 UNITED BREWERIES LTD BANGAL ORE. PAGE 2 OF 8 MADE A DISALLOWANCE U/S 14A OF THE ACT READ WITH RU LE 8D OF IT RULES, 1962 AMOUNTING TO RS.4,26,75,114/- IN THE NO RMAL COMPUTATION OF THE TOTAL INCOME. THE ASSESSING OFFI CER DID NOT ADD THIS AMOUNT IN THE BOOK PROFIT. THE ASSESSEE HA S CHALLENGED DISALLOWANCE OF THIS AMOUNT IN APPEAL BEFORE THE CI T (A). THE APPEAL HAS BEEN DECIDED BY THE LEARNED CIT (A) VIDE ORDER DATED 7.10.2013, IMPUGNED HEREIN IN ITA NO.84/BANG/2014. SIMULTANEOUSLY, THE LEARNED COMMISSIONER FELT THAT AS PER EXPLANATION-1, CLAUSE (F) TO SECTION 115JB, THE ASS ESSING OFFICER OUGHT TO HAVE COMPUTED THE BOOK PROFIT AFTER INCLUD ING THE DISALLOWANCE MADE U/S 14A. THUS, ACCORDING TO THE L EARNED COMMISSIONER, THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. SHE TO OK ACTION U/S 263 OF THE INCOME TAX ACT AND SET ASIDE THE ASSESSM ENT ORDER VIDE HER ORDER DATED 28.02.2011. THE DIRECTION GIVE N BY THE LEARNED COMMISSIONER IN PARAGRAPH NOS. 8 & 9 READ A S UNDER: 8. TO SUM UP, THE ASSESSMENT ORDER DATED 29.12.2008 PASSED BY THE ACIT, CENTRAL CIRCLE 2(3) BANGALORE U/S 143(3) OF THE I.T. ACT, 1961 FOR THE ASSESSMENT YEAR 2006-07 IS HELD TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE, WITHIN THE MEANING OF SECTION 263 OF THE I.T. ACT. THE ASSESSMENT ORDER IS MODIFIED TO THE EXTENT THAT THE AMOUNT OF RS.4,26,75,114/- (DISALLOWANCE MADE U/S 14A OF THE INCOME TAX ACT, 1961) BEING THE AMOUNT OF INTEREST RELATABLE TO FUNDS INVESTED IN SHARES SHALL BE ADDED TO THE NET PROFIT AS PER PROF IT AND LOSS ACCOUNT FOR THE PURPOSES OF COMPUTATION OF BOOK PROFIT WHILE ARRIVING AT THE TAX PAYABLE U/S 115JB OF THE INCOME TAX ACT, 1961 AS PER THE PROVISIONS OF EXPLANATION 1 OF CLAUSE (F) TO SECTIO N 115JB OF THE INCOME TAX ACT, 1961. 9. IN THE RESULT, THE ORDER OF ASSESSMENT DATED 29.12.2008 PASSED BY THE ACIT, CENTRAL CIRCLE 2(3) BANGALORE U/S 143(3) OF THE I.T. ACT, 1961 FOR THE ASSESSMENT YEAR 2006-07 STANDS MODIFIED TO THE EXTENT THAT THE INCOME U/S 115JB OF THE INCOME TAX ITA NOS.84 & 85 OF 2014 UNITED BREWERIES LTD BANGAL ORE. PAGE 3 OF 8 ACT, 1961 SHALL BE RECOMPUTED BY ADDING THE SUM OF RS.4,26,75,114/- BEING THE AMOUNT RELATABLE TO THE FUNDS INVESTED ON SHARES TO THE BOOK PROFIT COMPUTED BY THE ASSESSING OFFICER AS PER THE ASSESSMENT ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 AND TAX PAYABLE U/S 115JB OF THE INCOME TAX ACT, 1961 SHALL ACCORDINGLY BE RECOMPUTED. THE ASSESSING OFFICER IS DIRECTED TO COMPUTE THE BOOK PROFIT AND THE TAX PAYABLE U/S 115JB OF THE INCOME TAX ACT, 1961 IN ACCORDANCE WITH THE ABOVE DIRECTIONS AND DETERMINE THE TAX PAYABLE BY THE ASSESSEE AS PER THE PROVISIONS OF INCOME TAX ACT, 1961. 3. THE ASSESSING OFFICER HAS PASSED CONSEQUENTIAL O RDER ON 21.01.2013. THIS ORDER WAS CHALLENGED BY THE ASSESS EE IN APPEAL BEFORE THE CIT (A) AND THE LEARNED CIT (A) HAS DECI DED THE APPEAL ON 9.10.2013 WHICH IS IMPUGNED HEREIN IN ITA NO.85/BANG/2014. 4. THE LEARNED CIT (A) IN THE APPEAL AGAINST THE AS SESSMENT ORDER DATED 29.12.2008 HAS HELD THAT THE ASSESSING OFFICER HAS COMPUTED THE DISALLOWANCE U/S 14A READ WITH RULE 8D OF THE INCOME TAX ACT. THE HON'BLE BOMBAY HIGH COURT IN TH E CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT (328 ITR 81) AND THE HON'BLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENTS LTD. VS CIT REPORTED IN 347 ITR 272 (DEL.) HAVE HELD THAT RULE 8D HAS COME ON STATUTE BOOK W.E.F. 24.03.2008. IT IS N OT APPLICABLE WITH RETROSPECTIVE EFFECT. IT IS APPLICABLE FROM AS SESSMENT YEAR 2008-09. SINCE THE ASSESSING OFFICER HAS COMPUTED T HE DISALLOWANCE ON THE BASIS OF RULE 8D, IN THE OPINIO N OF THE LEARNED CIT (A), THE DISALLOWANCE IS NOT SUSTAINABL E, THEREFORE, SHE DELETED THE DISALLOWANCE. ITA NOS.84 & 85 OF 2014 UNITED BREWERIES LTD BANGAL ORE. PAGE 4 OF 8 5. WITH REGARD TO THE ADJUSTMENT IN THE BOOK PROFIT IN PURSUANCE OF ORDER U/S 263, THE LEARNED CIT (A) HAS HELD THAT SINCE NO AMOUNT OF DISALLOWANCE IS AVAILABLE, IN VI EW OF HER FINDINGS ON THE REGULAR ASSESSMENT ORDER, THEREFORE , NO AMOUNT COULD BE ADDED IN THE BOOK PROFIT. SHE ALLOWED THIS APPEAL ALSO. 6. WITH THE ASSISTANCE OF THE LEARNED REPRESENTATIV ES, WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AND GONE THRO UGH THE RECORD CAREFULLY. THE HON'BLE DELHI HIGH COURT IN T HE CASE OF MAXOPP INVESTMENTS LTD (SUPRA) HAS HELD THAT RULE 8D IS APPLICABLE FROM ASSESSMENT YEAR 2008-09, THAT DOES NOT MEAN THAT PRIOR TO THE INTRODUCTION OF THIS RULE, NO AMO UNT CAN BE CONSIDERED AS INCURRED FOR THE PURPOSE OF EARNING T AX FREE INCOME. THE DISALLOWANCE HAS TO BE MADE, FIRST EXAM INING THE ACCOUNTS OF THE ASSESSEE AND IF THE ASSESSING OFFIC ER IS SATISFIED THAT THE ACCOUNTS DO NOT DEPICT TRUE PICTURE, THEN HE CAN WORK OUT THE DISALLOWANCE ON THE BASIS OF A REASONABLE A ND ACCEPTABLE METHOD OF APPORTIONMENT. THE LEARNED CIT (A) OUGHT TO HAVE NOT DELETED THE DISALLOWANCE IN TOTO, RATHER OUGHT TO H AVE EXAMINED WHETHER ANY DISALLOWANCE IS POSSIBLE OR NOT. IN OTH ER WORDS, SHE SHOULD HAVE EXAMINED WHETHER ANY EXPENDITURE ATTRIB UTABLE TO EARNING EXEMPT INCOME CAN BE IDENTIFIED FOR DISALLO WANCE U/S 14A OF THE ACT. SHE HAS SIMPLY OBSERVED THAT RULE 8 D IS NOT APPLICABLE, THEREFORE, ADDITION BY THE ASSESSING OF FICER IS DELETED. THE OBSERVATIONS OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENTS LTD. VS CIT REPORTED IN 347 ITR 272 (DEL.) IS WORTH TO NOTE, IT READ AS UNDER: HOW IS SECTION 14A TO BE WORKED FOR THE PERIOD PRIO R TO THE INTRODUCTION OF RULE 8D? 41. SUB-SECTION (2) OF SECTION 14A, AS WE HAVE SEEN , STIPULATES THAT THE ASSESSING OFFICER SHALL DETERMI NE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOM E ITA NOS.84 & 85 OF 2014 UNITED BREWERIES LTD BANGAL ORE. PAGE 5 OF 8 WHICH DOES NOT FORM PART OF THE TOTAL INCOME IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED. OF COURSE, THIS DETERMINATION CAN ONLY BE UNDERTAKE N IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THIS PART OF SECTION 14A (2) WHIC H EXPLICITLY REQUIRES THE FULFILLMENT OF A CONDITION PRECEDENT IS ALSO IMPLICIT IN SECTION 14A (1) [AS I T NOW STANDS] AS ALSO IN ITS INITIAL AVATAR AS SECTION 14 A. IT IS ONLY THE PRESCRIPTION WITH REGARD TO THE METHOD OF DETERMINING SUCH EXPENDITURE WHICH IS NEW AND WHICH WILL OPERATE PROSPECTIVELY. IN OTHER WORDS, SECTION 14A, EVEN PRIOR TO THE INTRODUCTION OF SUB-SECTIONS (2) & (3) WOULD REQUIRE THE ASSESSING OFFICER TO FIRST REJECT THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXTENT OF SUCH EXPENDITURE AND SUCH REJECTION MUST BE FOR DISCLOSE D COGENT REASONS. IT IS THEN THAT THE QUESTION OF DETERMINATION OF SUCH EXPENDITURE BY THE ASSESSING OFFICER WOULD ARISE. THE REQUIREMENT OF ADOPTING A SPECIFIC METHOD OF DETERMINING SUCH EXPENDITURE HAS BEEN INTRODUCED BY VIRTUE OF SUB-SECTION (2) OF SEC TION 14A. PRIOR TO THAT, THE ASSESSING WAS FREE TO ADOPT ANY REASONABLE AND ACCEPTABLE METHOD. 42. THUS, THE FACT THAT WE HAVE HELD THAT SUB-SECTI ONS (2) & (3) OF SECTION 14A AND RULE 8D WOULD OPERATE PROSPECTIVELY (AND, NOT RETROSPECTIVELY) DOES NOT M EAN THAT THE ASSESSING OFFICER IS NOT TO SATISFY HIMSEL F WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE WITH R EGARD TO SUCH EXPENDITURE. IF HE IS SATISFIED THAT THE AS SESSEE HAS CORRECTLY REFLECTED THE AMOUNT OF SUCH EXPENDIT URE, HE HAS TO DO NOTHING FURTHER. ON THE OTHER HAND, IF HE IS SATISFIED ON AN OBJECTIVE ANALYSIS AND FOR COGENT REASONS THAT THE AMOUNT OF SUCH EXPENDITURE AS CLAI MED BY THE ASSESSEE IS NOT CORRECT, HE IS REQUIRED TO DETERMINE THE AMOUNT OF SUCH EXPENDITURE ON THE BAS IS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. IT WOULD BE APPROPRIATE TO RECALL TH E WORDS OF THE SUPREME COURT IN WALFORT (SUPRA) TO TH E FOLLOWING EFFECT:- THE THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NON-TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UND ER SECTION 14A.' ITA NOS.84 & 85 OF 2014 UNITED BREWERIES LTD BANGAL ORE. PAGE 6 OF 8 SO, EVEN FOR THE PRE-RULE8D PERIOD, WHENEVER THE IS SUE OF SECTION 14A ARISES BEFORE AN ASSESSING OFFICER, HE HAS, FIRST OF ALL, TO ASCERTAIN THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCUR RED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. EVEN WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN REL ATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, THE ASSESSING OFFICER WILL HAVE TO VERIFY THE CORRECTNE SS OF SUCH CLAIM. IN CASE, THE ASSESSING OFFICER IS SATIS FIED WITH THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, THE ASSESSING OFFICER IS TO ACCEPT THE CLAIM OF THE ASS ESSEE INSOFAR AS THE QUANTUM OF DISALLOWANCE UNDER SECTIO N 14A IS CONCERNED. IN SUCH EVENTUALITY, THE ASSESSIN G OFFICER CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE FOR THE PURPOSES OF SECTION14 A (1). IN CASE, THE ASSESSING OFFICER IS NOT, ON THE BASIS OF OBJECTIVE CRITERIA AND AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY, SATISFIED WITH THE CORRECTN ESS OF THE CLAIM OF THE ASSESSEE, HE SHALL HAVE TO REJECT THE CLAIM AND STATE THE REASONS FOR DOING SO. HAVING DO NE SO, THE ASSESSING OFFICER WILL HAVE TO DETERMINE TH E AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOM E WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. HE IS REQUIRED TO DO SO ON THE BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. 7. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE V IEW THAT THE ORDER OF THE LEARNED CIT (A) IS NOT SUSTAINABLE. WE SET ASIDE THE ORDER DATED 7.10.2013 AND RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR RE-ADJUDICATION. THE ASSESSIN G OFFICER SHALL KEEP IN MIND THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD (SUPRA) OR ANY OTHER LATEST DECISION, IF ANY, RENDERED BY THE HON'BLE JURISDICT IONAL HIGH COURT OR OF THE HON'BLE SUPREME COURT ON THIS POINT . 8. THE LEARNED COUNSEL FOR THE ASSESSEE AT THIS STA GE CONTENDED THAT EXPENDITURE U/S 14A MAY NOT AT ALL B E ITA NOS.84 & 85 OF 2014 UNITED BREWERIES LTD BANGAL ORE. PAGE 7 OF 8 DISALLOWED. HE MADE REFERENCE TO THE DECISION OF IT AT MUMBAI IN THE CASE OF KODAK INDIA, REPORTED IN 36 CCH 048 MUM BAI (TRIB.) AND OF THE ITAT BANGALORE BENCH IN THE CASE OF KING FISHER FINVEST INDIA LTD VS. ADD. CIT IN ITA NO.1368/BANG/ 2012. ON DUE CONSIDERATION OF THESE DECISIONS, WE ARE OF THE VIEW THAT WE HAVE SET SIDE THE ISSUE TO THE FILE OF THE ASSESSIN G OFFICER FOR ADJUDICATION ON MERIT. THE ASSESSEE WILL BE AT LIBE RTY TO RAISE ANY PLEA IN SUPPORT OF ITS EXPLANATION THAT NO AMOUNT I S TO BE DISALLOWED U/S 14A. THE ASSESSING OFFICER WILL ADJU DICATE THE ISSUE IN ACCORDANCE WITH THE LAW. OUR OBSERVATION W ILL NOT IMPAIR OR INJURE THE CASE OF THE ASSESSING OFFICER AND WIL L NOT CAUSE ANY PREJUDICE TO THE DEFENSE/EXPLANATION OF THE ASSESSE E. 9. AS FAR AS THE ISSUE AGITATED IN ITA NO.85/BANG/2 014 IS CONCERNED, THE LEARNED CIT IN AN ORDER U/S 263 HAD MADE A CLEAR DIRECTION THAT THE AMOUNT DISALLOWED U/S 14A WOULD BE ADJUSTED IN THE BOOK PROFIT. IN OTHER WORDS, IF ANY DISALLOW ANCE IS BEING MADE BY THE ASSESSING OFFICER, IN THE REGULAR COURS E OF ASSESSMENT, THEN THAT DISALLOWANCE WOULD BE INCLUDE D IN THE BOOK PROFIT, TO BE COMPUTED FOR THE PURPOSE OF SECT ION 115JB. IN OTHER WORDS, IT IS A CONSEQUENTIAL ORDER TO THE REG ULAR ASSESSMENT ORDER. IF THE ASSESSEE HAS ANY GRIEVANCE , ON THE POINT THAT NO ADJUSTMENT COULD BE MADE U/S 115JB, THEN IT COULD HAVE CHALLENGED THAT POINT AGAINST THE ORDER OF THE LEAR NED COMMISSIONER PASSED U/S 263. THIS IS A PROCEEDING W HICH IS AN ORDER GIVING EFFECT PROCEEDING. IN THIS PROCEEDING THE ASSESSING OFFICER CANNOT GO BEYOND THE ORDER OF THE COMMISSIO NER PASSED U/S 263. ONLY THE AMOUNT OF COMPUTATION CAN BE REPL ACED, BECAUSE THE LEARNED COMMISSIONER TOOK IT FROM THE O RIGINAL ASSESSMENT ORDER WHICH HAS BEEN SET ASIDE NOW. THUS , THIS APPEAL IS ALSO ALLOWED FOR STATISTICAL PURPOSE. THE ASSESSING ITA NOS.84 & 85 OF 2014 UNITED BREWERIES LTD BANGAL ORE. PAGE 8 OF 8 OFFICER SHALL REPLACE THE AMOUNT, IF ANY, DISALLOWE D U/S 14A AND INCLUDE THAT AMOUNT IN THE BOOK PROFIT AS PER THE D IRECTIONS OF THE LEARNED COMMISSIONER. 10. IN VIEW OF THIS, BOTH THE APPEALS ARE ALLOWED F OR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH NOVEMBER, 2014. SD/- SD/- (JASON P. BOAZ) (RAJPAL YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE DATED 24 TH NOVEMBER, 2014. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCHES, BANGALORE