NEON LABORATORIES LTD, MUMBAI V. DCIT CEN CIR 38, MUMBAI

ITA 8468/MUM/2011

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9090 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2015
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 05-01-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 13-12-2011
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN SR
• Assessee Lawyers: V G GINDE
• Section: 14A

Judgement Text

IN THE INCO ME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI B.R. BASKARAN , ACCOUNTANT MEMBER ./I.T.A. NO. 8468/M/2011 ( / ASST. YEAR : 2008 - 2009 ) ./I.T.A. NO. 4189/M/2012 ( / ASST. YEAR : 2009 - 2010 ) NEON LABORATORIES LTD., 140 DAMJI SHAMJI INDL COMPLEX, MAHAKALI CAVES ROAD, ANDHERI (E), MUMBAI 400 093. . / VS. ACIT, CENTRAL CIRCLE - 38, MUMBAI 400 020. ./ PAN : AAACN1299D ( / APPELLANT) .. ( / RESPONDENT ) ./I.T.A. NO. 8593/M/2011 ( / ASST. YEAR : 2008 - 2009 ) ./I.T.A. NO. 4434/M/2012 ( / ASST. YEAR : 2009 - 2010 ) ACIT, CENTRAL CIRCLE - 38, MUMBAI 400 020. / VS. NEON LABORATORIES LTD., 140 DAMJI SHAMJI INDL COMPLEX,MAHAKALI CAVES ROAD,ANDHERI (E), MUMBAI 400 0 93 . ./ PAN : AAACN1299D ( / APPELLANT) .. ( / RESPONDENT ) / A SSESSEE BY : SHRI V.G. GINDE / REVENUE BY : SHRI ASGHAR ZAIN, SR. AR / DATE OF HEARING : 08.01.2015 / DATE OF PRONOUNCEMENT : 08 .01.2015 / O R D E R PER I.P. BANSAL, JM : THESE ARE CROSS APPEALS AND THEY ARE DIRECTED AGAINST TWO SEPARATE ORDERS PASSED BY THE LD CIT (A) - 41, MUMBAI DATED 20.10.2011 AND 23.4.2012 FOR AYS 2008 - 09 AND 2009 - 2010 RESPECTIVELY. GROUNDS OF APPEAL FOR THE AY 2008 - 2009 (BY ASSESSEE) 1. ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AND ALSO IN LAW, THE LD CIT (A) ERRED IN SUSTAINING A PART OF THE DISALLOWANCE OF RS. 24,56,527/ - MADE BY 2 THE LD ASSESSING OFFICER U/S 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES 1962. 2. THE LD CIT (A) FAILED TO APPRECIATE THAT THE LOAN PROCESSING CHARGES OF RS. 7,05,800/ - PAID BY THE APPELLANT COULD NOT BE TREATED AS INTEREST ON BORROWINGS SO AS TO INCLUDE IT IN THE WORKING OF DISALLOWANCE U/S 14A READ WITH RULE 8D. IN VIEW OF THE ABOVE, THE AP PELLANT PRAYS THAT THE DISALLOWANCE U/S 14A SUSTAINED BY THE LD CIT (A) BE DELETED. GROUNDS OF APPEAL FOR THE AY 2008 - 2009 (BY REVENUE) 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) WAS JUSTIFIED IN PARTLY ALLOWIN G THE ASSESSEES APPEAL RELATING TO DISALLOWANCE OF EXPENDITURE U/S 14A VIDE RUE 8D OF I.T. RULES. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO RECOMPUTED THE DIS ALLOWANCE OF EXPENDITURE U/S 14A AS PER RULE 8D AFTER EXCLUDING THE AMOUNT OF RS. 50,40,711/ - WHEN ASSESSEE COULD NOT PROVE THAT ONLY INTEREST BEARING FUNDS WERE USED WHOLLY FOR BUSINESS PURPOSE ONLY AND NOT FOR SHARE INVESTMENTS. GROUNDS OF APPEAL FOR TH E AY 2009 - 2010 (BY ASSESSEE) 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN NOT ALLOWING CLAIM OF ASSESSEE THAT TOTAL INTEREST EXPENSES OF RS. 60,90,174/ - SHOULD NOT BE CONSIDERED WHILE COMPUTING DISALLOWANCE U/S 14A R.W.R 8D SINCE THE APPELLANT HAS ;SUBSTANTIAL INTEREST INCOME OF RS. 2,36,66,206/ - ( INTEREST FROM CUSTOMERS RS. 35,006/ + INTEREST ON TDR RS. 33,92,254/ - + OTHER INTEREST RS. 2,02,38,946/ - ) DULY CREDITED TO P/L A/C. THE LD CIT (A) HAS PARTLY ALLOWED THE APPELLANTS CLAIM BY ALLOWING RELIEF ON INTEREST PAID RS. 54,11,781/ - ON DISTRIBUTOR DEPOSIT. THUS, CIT (A) ERRED IN CONSIDERING RS. 6,78,793/ - TO BE FORMED PART OF COMPUTATION OF INTEREST DISALLOWANCE U/S 14A R.W.R 8D. 2. ON THE FACTS AND IN THE CIRCUMS TANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN CONFIRMING ADDITION OF RS. 6,78,393/ - ON A/C OF EXPENSES U/S 14A R.W.R 8D AND REJECTING APPELLANTS SUBMISSION FOR ADDITION ON A/C OF EXPENSES U/S 14A R.W.R 8D AT RS. 1,25,000/ - GROUNDS OF APPEAL FOR THE AY 2009 - 2010 (BY REVENUE ) 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DIRECTING TO EXCLUDE INTEREST OF RS. 50,87,379/ - PAID ON DEPOSITS RECEIVED FROM DISTRIBUTORS FOR THE WORKING OF DISALLOWANCE U/S 14A OF THE ACT IGNORING THE FACT THAT THE ASSESSEE COULD NOT PROVE THAT ONLY INTEREST BEARING FUNDS WERE USED WHOLLY FOR BUSINESS PURPOSE ONLY AND NOT FOR SHARE INVESTMENTS. 2. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT (A) ON THE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2. ISSUE INVOLVED IN ALL THESE APPEALS IS COMMON. FOR AY 2009 - 2010, DISALLOWANCE U/S 14A READ WITH RULE 8D HAS BEEN COMPUTED BY ASSESSING OFFICER AT RS. 18,76,743/ - AND AFTER REDUCING RS. 10,000/ - , WHICH WAS ALREADY DISALLOWED BY THE ASSESSEE, ADDITION OF RS. 18,66,743/ - IS MADE WHICH COMPRISES OF DISALLOWANCE OF A SUM OF RS. 11,43,175/ - ON ACCOUNT OF INTEREST AND A SUM OF RS. 7,33,568/ - IS ON ACCOUNT OF OTHER EXP ENSES BEING AN AMOUNT EQUAL TO % OF THE AVERAGE VALUE OF 3 INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME. SIMILARLY, FOR AY 2008 - 2009, DISALLOWANCE U/S 14A READ WITH RULE 8D HAS BEEN COMPUTED BY ASSESSING OFFICER AT RS. 24,56,527 / - WHICH COMPRISES OF DISALLOWANCE OF A SUM OF RS. 16,83,034 / - ON ACCOUNT OF INTEREST AND A SUM OF RS. 7,73,493 / - IS ON ACCOUNT OF OTHER EXP ENSES BEING AN AMOUNT EQUAL TO % OF THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME. 3. IN THE APPEALS F ILED BEFORE THE LD CIT (A), SOME PART OF THE RELIEF HAS BEEN GRANTED ON ACCOUNT OF DISALLOWANCE OF INTEREST. ACCORDING TO THE LD CIT (A) INTEREST ON DEPOSITS RECEIVED BY THE ASSESSEE FROM ITS DISTRIBUTORS AMOUNTING TO RS. 50,40,711/ - FOR AY 2008 - 09 AND RS . 50,87,379/ - FOR AY 2009 - 10 WOULD NOT BE INCLUDED AS THE SAME DID NOT HAVE ANY RELATION TO THE EXPENDITURE INCURRED FOR EARNING OF THE DIVIDEND INCOME. THEREFORE, TO THAT EXTENT DISALLOWANCE HAS BEEN DELETED BY THE LD CIT (A) . T HE DEPARTMENT IS AGGRIEVE D TO THE EXTENT DISALLOWANCE HAS BEEN UPHELD BY THE LD CIT (A) THE ASSESSEE IS AGGRIEVED TO THE EXTENT DISALLOWANCE HAS BEEN SUSTAINED BY THE LD CIT (A). 4. BOTH THE APPEALS WERE ARGUED TOGETHER AND THEY WERE ALSO HEARD TOGETHER. FOR THE SAKE OF CONVENIEN CE, THESE APPEALS ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER. 5. AT THE OUTSET, IT WAS THE CASE OF THE LD AR THAT WITHOUT GOING INTO THE MERITS OF THE ORDER OF LD CIT (A), THE ASSESSEE IS ENTITLED TO GET ENTIRE RELIEF ON THE ISSUE OF INTEREST AS PER THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HDFC BANK (366 ITR 505). FOR THIS PURPOSE, LD AR HAS REFERRED TO THE BALANCE SHEET FOR AY 2008 - 09, COPY OF WHICH IS PLACED AT PAGE 1 OF THE PAPER BOOK FOR BOTH 4 THE YEARS. FOR AY 2008 - 20 09, SHAREHOLDERS FUNDS AND RESERVE AND SURPLUS AS ON THE DATE OF ACCOUNTING YEAR IS A SUM OF RS. 34,48,93,322/ - AND INVESTMENT IN SHARES AND SECURITIES GIVING RAISE TO TAX FREE INCOME IS ONLY A SUM OF RS. 10,64,40,467/ - AND AS ON 31.3.2008 SHARE CAPITAL A ND RESERVE AND SURPLUS IS A SUM OF RS. 54,41,80,401/ - AS AGAINST INVESTMENTS OF RS. 28,07,33,142/ - . 6. SIMILARLY, FOR AY 2009 - 2010, AT THE END OF 31.3.2009, THE SHARE CAPITAL AND RESERVE AND SURPLUS ARE A SUM OF RS. 76,89,06,078/ - AS AGAINST INVESTMENT OF RS. 1,26,94,122/ - . THUS, LD AR SUBMITTED THAT INVESTMENT IN THE SHARES AND SECURITIES FROM WHERE INTEREST FREE INCOME HAS BEEN EARNED BY THE ASSESSEE IS MUCH LESS THAN THE ASSESSEES OWN FUNDS. THEREFORE, NO DISALLOWANCE COULD HAVE BEEN MADE U/S 14A IN TH E SHAPE OF INTEREST. 7. ON THE OTHER COMPONENT OF DISALLOWANCE WHICH IS ON ACCOUNT OF OTHER EXPENSES IT WAS SUBMITTED BY THE LD AR THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE, AS PER REPLY, HAD SUBMITTED TO THE ASSESSING OFFICER THAT DISA LLOWANCE, IF ANY, WAS CALLED FOR ONLY TO THE EXTENT OF RS. 1,25,000/ - AND HE SUBMITTED THAT THESE SUBMISSIONS OF THE ASSESSEE ARE RECORDED AT PAGE 3 OF THE ASSESSMENT ORDER. THE CALCULATION OF DISALLOWANCE SUBMITTED BY THE ASSESSEE IS AS UNDER: STAFF SALA RY 5,000 X 12 = 60,000/ - RENT 2,500 X 12 = 30,000/ - INCIDENTAL EXPENSES 2,500 X 12 = 30,000/ - DEMAT CHARGES = 5,000/ - 1,25,000/ - 5 8. LD A R SUBMITTED THAT AS PER THE REQUIREMENT OF SECTION 14A OF THE ACT, ASSESSING OFFICER IS REQUIRED TO RECORD HIS SATISFACTION REGARDING NON - ACCEPTANCE OF THE SUBMISSIONS OF THE ASSESSEE AND FROM THE ASSESSMENT ORDER IT IS CLEAR THAT NO SUCH SATISFACTION HAS BEEN RECORDED BY THE ASSESSING OFFICER. THEREFORE, EXCESS DISALLOWANCE MADE BY THE ASSESSING OFFICER I.E., RS. 7,73,493/ - AS AGAINST 1,25,000/ - DISALLOWED BY THE ASSESSEE IS WRONG AND SHOULD BE DELETED. SIMILARLY FOR AY 2009 - 2010 AN AMOUNT OF RS. 10,000/ - DISALLOWED BY THE ASSESSEE SHOULD BE ACCEPTED AS AGAINST THE AMOUNT DISALLOWED BY THE ASSESSING OFF ICER OF RS. 7,33,568/ - . 9. LD DR RELIED UPON THE ORDER PASSED BY THE ASSESSING OFFICER AND SUBMITTED THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER SHOULD BE UPHELD AND MAINTAINED. 10. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENTIONS HAVE CAREF ULLY BEEN CONSIDERED. SO FAR AS IT RELATES TO THE COMPONENT OF DISALLOWANCE IN THE SHAPE OF INTEREST, IT HAS BEEN DEMONSTRATED BY THE LD AR WITH THE HELP OF FINANCIAL STATEMENTS THAT ASSESSEES OWN FUNDS COMPRISING OF SHARE CAPITAL AND RESERVES EXCEEDED T HE ENTIRE INVESTMENT FROM WHERE THE ASSESSEE HAS EARNED TAX FREE INCOME. THEREFORE, ACCORDING TO THE RATIO OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK (SUPRA) , DISALLOWANCE OF INTEREST IS NOT CALLED FOR. THE RELEVANT FIGURES HAVE ALREADY BEEN DESCRIBED IN THE ABOVE PART OF THIS ORDER. THEREFORE, TO THE EXTENT OF DISALLOWANCE ON ACCOUNT OF INTEREST HAS BEEN UPHELD BY THE LD CIT (A), THE SAME IS DELETED AND DEPARTMENTAL APPEALS FOR BOTH THE YEARS ARE DISMISSED AND ASSESSEES G ROUND NO.1 FOR BOTH THE YEARS IS PARTLY ALLOWED. 6 11. GROUND NO.2 OF ASSESSEES APPEAL WHICH RELATES TO OTHER EXPENSES. W E DO NOT FIND FORCE IN THE SUBMISSIONS MADE BY THE LD AR. THE ASSESSEE HAS ONLY MADE DISALLOWANCES ON ESTIMATION AND FOR AY 2008 - 2009 T HE ASSESSING OFFICER HAS SPECIFICALLY MENTIONED THAT THE ASSESSEES CONTENTIONS CANNOT BE ACCEPTED AND AFTER OBSERVING SO, HE HAS PROCEEDED TO MAKE DISALLOWANCE. THEREFORE, IT IS NOT A CASE WHERE THE ASSESSING OFFICER HAS NOT REJECTED THE CONTENTION OF TH E ASSESSEE. FOR AY 2009 - 2010, THE ASSESSEE HAS ONLY MADE DISALLOWANCE OF RS. 10,000/ - WHICH IS CONTRARY EVEN TO THE DISALLOWANCE CALCULATED BY THE ASSESSEE ITSELF IN RESPECT OF AY 2008 - 2009. THUS, IT IS CLEAR THAT THERE IS NO SUBSTANCE IN THE CALCULATION S SUBMITTED BY THE ASSESSEE AS AGAINST THAT DISALLOWANCE ON ACCOUNT OF OTHER EXPENSES HAVE BEEN CALCULATED AS PER THE STATUTORY FORMULA IN WHICH NO DEFECT COULD BE POINTED OUT BY THE ASSESSEE. THEREFORE, GROUND NO.2 RAISED BY THE ASSESSEE IN BOTH THE ASSE SSMENT YEARS IS DISMISSED. 12 IN THE RESULT, ASSESSEES APPEALS ARE PARTLY ALLOWED AND DEPARTMENTAL APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH JANUARY, 2015. SD/ - SD/ - (B.R. BASKARAN) (I.P. BANSAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; 8 .1.2015 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 7 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI