Jindal Worldwide Ltd., Ahmedabad V. The Dy.CIT.,Cent.Circle-2(1), Ahmedabad

ITSSA 761/AHD/2010

• Counselvise Citation: [2013] 121 COUNSELVISE.COM (IT) 8742 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 15-02-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-12-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 25-10-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: VIJAY RANJAN SHRI K SHRIDHAR
• Keywords: Earning of tax free income; Retrospective amendment
• Section: 143(3); 153A; 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , .. , '# ' $ BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI T.R.MEENA, ACCOUNTANT MEMBER APPEAL(S) BY SL.NO(S) IT(SS)A NO(S) ASSESSMENT YEAR(S) APPELLANT(S) RESPONDENT(S) 1 761/AHD/2010 2002-03 JINDAL WORLDWIDE LTD. SURYARATH 1 ST LANE PANCHVATI AMBAWADI AHMEDABAD PAN : AAACJ 3016 G DCIT CENTRAL CIRCLE-2(1) AHMEDABAD 2. 762/AHD/2010 2003-04 -DO- -DO- 3. 790/AHD/2010 2004-05 -DO- -DO- ASSESSEE BY : SHRI VIJAY RANJAN REVENUE BY : SHRI K.SHRIDHAR, CIT-D.R. / DATE OF HEARING : 14/12/2012 / DATE OF PRONOUNCEMENT : 15/2/13 / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THESE THREE APPEALS HAVE BEEN FILED BY THE ASSESSEE OUT OF WHICH FOR A.YS. 2002-03 & 2003-04 A CONSOLIDATED ORDER WA S PASSED BY THE CIT(A)-III AHMEDABAD DATED 24/08/2010 AND FOR A.Y. 2004-05 THE ORDER WAS DATED 06/09/2010. MOST OF THE GROUNDS ARE COMM ON IN THESE THREE APPEALS, THEREFORE CONSOLIDATED AND HEREBY DECIDED BY THIS SINGLE ORDER. IT(SS)A NOS.761, 762 AND 790/AHD/20 10 JINDAL WORLDWIDE LTD. VS. DCIT AYS - 2002-03, 2003-04 & 2004-05 - 2 - 2.1. GROUND NO.1 IS COMMON FOR ALL THE YEARS AS A LSO IDENTICALLY WORDED; REPRODUCED BELOW:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED CIT(A) ERRED IN REJECTING THE RELEVANT GROUND OF APPEAL RA ISED BEFORE HIM BY THE APPELLANT CHALLENGING THE VALIDITY OF THE PROCE EDINGS INITIATED U/S.153A AND THE CONSEQUENTIAL ASSESSMENT MADE BY T HE ASSESSING OFFICER U/S.153A R.W.S. 143(3) OF THE INCOME-TAX AC T. 2.2. IT WAS NOTED BY THE AO IN THE IMPUGNED ASS ESSMENT ORDERS PASSED U/S.153A R.W.S. 143(3) FOR AYS 2002-03, 2003-04 & 2004-05 ALL DATED 22/12/2009 THAT A SEARCH U/S.132 OF THE IT ACT WAS CONDUCTED ON THE JINDAL GROUP ON 30/08/2007. A NOTICE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 153A WAS ISSUED AND IN RESPONSE RETURN W AS FILED FOR AY 2002-03 DECLARING AN INCOME OF RS.30,23,160/- AND F OR AY 2003-04 THE INCOME WAS DECLARED AT RS.1,34,40,670/-. THE ASSE SSEE-COMPANY IS STATED TO BE IN THE BUSINESS OF MANUFACTURING OF BE D-SHEETS, BED-COVERS, ETC. THE ASSESSEE-COMPANY IS EXPORTING THOSE ARTIC LES. AS FAR AS THE ASSESSMENT ORDERS ARE CONCERNED, THERE IS NO OTHER DISCUSSION BY THE AO PERTAINING TO THE OUTCOME OF THE SEARCH CONDUCTED O N THE ASSESSEE. IMPORTANTLY, THE ADMITTED FACTUAL POSITION IS THAT THE ADDITIONS U/S.153A WERE MADE PERTAINED TO THE CLAIM OF DEDUCTION U/S.8 0HHC, COMPUTATION OF DEDUCTION U/S.80-IB AND FOR ONE YEAR, I.E. AY 20 04-05 AN ADDITION WAS ,ADE BY THE INVOCATION OF SECTION 14A OF THE ACT. HOWEVER, ON PERUSAL OF THE ORDER OF CIT(A), WE HAVE NOTED THAT FOR A.Y. 2003-04 AT THE INITIAL STAGE AN ASSESSMENT U/S.143(3) WAS PASSED ON 24.03. 2005 AND THE TOTAL INCOME WAS ASSESSED AT RS.2,31,53,220/-. IT WAS NO TED THAT THERE THE AO HAD WITHDRAWN THE DEDUCTION U/S.80HHC ON THE DEPB I NCOME. THAT IT(SS)A NOS.761, 762 AND 790/AHD/20 10 JINDAL WORLDWIDE LTD. VS. DCIT AYS - 2002-03, 2003-04 & 2004-05 - 3 - ASSESSMENT ORDER WAS CONFIRMED BY CIT(A) VIDE AN OR DER DATED 26/12/2006. FOR THE SAID AY, I.E. 2003-04 THE ASSE SSEE HAS FILED THE RETURN ON 28/11/2003 DECLARING AN INCOME OF RS.1,34 ,40,670/-. AGAINST THE ORDER OF LD.CIT(A), AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE TRIBUNAL. THE ITAT HAD SET ASIDE THE ISSUE OF DEDUCTION U/S.80HHC TO THE FILE OF THE AO. IT WAS NOTED BY THE CIT(A) THAT THE CONSEQUENTIAL ORDER GIVING EFFECT TO THE VERDICT OF THE TRIBUNAL WAS PENDING BEFORE THE AO. 2.3. NEXT, AS FAR AS THE POSITION OF THE ASSESSMEN T FOR AY 2002-03 IS CONCERNED, THE LD.CIT(A) IN THE IMPUGNED ORDER HAS NOTED THAT THE RETURN DECLARING AN INCOME OF RS.30,23,160/- WAS FILED WHI CH WAS ACCEPTED U/S.143(3) OF THE ACT. FOR AY 2004-05 AS PER THE S TATEMENT OF FACTS, THE ASSESSMENT U/S.143(3) WAS ORIGINALLY MADE ON 30/11/ 2006. AN APPEAL WAS PREFERRED AGAINST THE ASSESSMENT ORDER AND THER EUPON THE LD.CIT(A) HAS DECIDED THE APPEAL VIDE AN ORDER DATED 24/09/20 07. AGAINST THAT ORDER OF LD.CIT(A), THE REVENUE DEPARTMENT HAD FILE D AN APPEAL BEFORE THE TRIBUNAL AND AS PER ITA NO.4239/AHD/2007 & CO N O.14/AHD/2008, THE MATTERS ARE PENDING BEFORE THE TRIBUNAL. 2.4. WITH THIS BRIEF FACTUAL BACKGROUND, THE L D.AR HAS CONTESTED THAT SINCE THE ASSESSMENTS HAVE ALREADY BEEN COMPLETED I N RESPECT OF ALL THESE YEARS AS PER THE ORIGINAL ASSESSMENT ORDERS, THEREF ORE, THERE IS NO REASON TO REASSESS THAT INCOME BY INVOKING THE PROVISIONS OF SECTION 153A OF THE ACT. HE HAS ALSO VEHEMENTLY PLEADED THAT SPECIALLY WHEN THERE WAS NO INCRIMINATING MATERIAL IN RESPECT OF THESE ASSESSME NT YEARS, THEN THERE WAS NO JURISDICTION OF THE AO TO REASSESS THAT VERY INCOME AGAIN IN THE IT(SS)A NOS.761, 762 AND 790/AHD/20 10 JINDAL WORLDWIDE LTD. VS. DCIT AYS - 2002-03, 2003-04 & 2004-05 - 4 - HANDS OF THE ASSESSEE. RELIANCE WAS PLACED ON ALL CARGO LOGISTICS 137 ITD 287 (MUM.)(SB) AND ANIL KUMAR BHATIA 24 TAXMANN .COM 98 (DELHI HIGH COURT). 3. FROM THE SIDE OF THE REVENUE, LD.DR HAS PLEADED THAT AS PER THE SECOND PROVISO TO SECTION 153A, THE OTHER PROCEEDIN GS HAVE BEEN ABATED, THEREFORE THE AO HAD NO OPTION BUT TO PROCEED WITH THESE ASSESSMENT YEARS U/S.153A OF THE ACT AFTER A SEARCH WAS CONDUC TED U/S.132 OF THE ACT. ACCORDING TO HIS ARGUMENT, THERE WAS NO REQUI REMENT FOR AN ASSESSMENT U/S.153A THAT IT SHOULD BE BASED UPON AN Y MATERIAL SEIZED IN THE COURSE OF SEARCH. THE AO HAVING NOT ASSESSED A N INCOME CAN ASSUME JURISDICTION U/S.153A OF THE ACT. FOR THIS LEGAL P ROPOSITION, RELIANCE WAS PLACED ON SHIVNATH PAI HARINARAYAN 117 ITD 74 AND SHAMLATA KAUSHIK 114 ITD 305. 4. WE HAVE HEARD BOTH THE SIDES. WE HAVE ALSO PE RUSED THE MATERIAL PLACED BEFORE US. WE HAVE CAREFULLY EXAMINED THE L EGAL OBJECTION OF THE ASSESSEE IN THE LIGHT OF THE CASE-LAW CITED FROM BO TH THE SIDES. FOR AY 2002-03, IT IS INFORMED, AS PER STATEMENT OF FACTS, THAT AN ASSESSMENT HAD ALREADY BEEN MADE U/S.143(3) OF THE ACT. THEREAFT ER, IN CONSEQUENCE OF THE SEARCH OPERATION, THE IMPUGNED ASSESSMENT ORDER U/S.153A WAS MADE ON 22/12/2009. AS FAR AS AY 2003-04 IS CONCERNED, THE TRIBUNAL HAD ALREADY RESTORED THE ISSUE BACK TO THE FILE OF THE AO; HENCE, IT IS VERY MUCH CLEAR THAT THE PROCEEDINGS FOR THAT ASSESSMENT YEAR WERE NOT YET FINALIZED WHEN THE AO HAD INVOKED THE PROVISIONS OF SECTION 153A OF THE IT(SS)A NOS.761, 762 AND 790/AHD/20 10 JINDAL WORLDWIDE LTD. VS. DCIT AYS - 2002-03, 2003-04 & 2004-05 - 5 - ACT. AS FAR AS AY 2004-05 IS CONCERNED, AGAINST TH E ORIGINAL ASSESSMENT U/S.143(3) DATED 30.11.2006 AN APPEAL WAS FILED BE FORE LD.CIT(A) WHICH WAS DECIDED VIDE AN ORDER DATED 24/09/2007, HOWEVER AN APPEAL HAS BEEN FILED BY THE REVENUE DEPARTMENT AND CROSS OBJECTION HAVE BEEN FILED BY THE ASSESSEE AS PER ITA NO.4239/AHD/2007 AND CO NO. 14/AHD/2008, WHICH ARE PENDING FOR DISPOSAL. UNDER THESE CIRCUM STANCES, WE ARE OF THE CONSIDERED OPINION THAT ALTHOUGH THE AO HAS NOT MEN TIONED IN THE IMPUGNED ASSESSMENT ORDERS PASSED U/S.153A R.W.S. 1 43(3) THE EXISTENCE OF ANY INCRIMINATING MATERIAL BUT BECAUSE OF THE RE ASON THAT THOSE ASSESSMENTS WHICH WERE YET TO BE FINALIZED OR CAN B E SAID TO BE PENDING FOR COMPLETION/FINALIZATION, THEN THOSE WERE ABATED IN VIEW OF THE SECOND PROVISO TO SECTION 153A OF THE ACT. MOREOVER, WE H AVE ALSO NOTED THAT THE TRIBUNAL HAS ALSO SET ASIDE SOME OF THE ISSUES IN ONE OF THE ASSESSMENT YEAR FOR RECONSIDERATION, THEREFORE, IT IS EVIDENT THAT THE PROCEDURE OF ASSESSMENT WAS YET TO BE COMPLETED WHE N THE AO HAS INVOKED THE PROVISIONS OF SECTION 153A OF THE ACT. HOWEVER, WE HEREBY CLARIFY THAT AS PER OUR HUMBLE UNDERSTANDING OF LAW , THERE COULD NOT BE DUPLICACY OF ASSESSMENT OF THE SAME INCOME. THE LA W IS ABSOLUTELY CLEAR AS ALSO WELL SETTLED THAT THE SAME INCOME CANNOT BE TAXED TWICE IN THE HANDS OF THE ASSESSEE FOR AN ASSESSMENT YEAR. WE T HEREFORE DIRECT THE AO THAT THERE SHOULD NOT BE ANY DOUBLE TAXATION IN THE HANDS OF THE ASSESSEE. WITH THESE REMARKS, WE HEREBY HOLD THAT THE PRESENT PROCEEDINGS U/S.153A ARE NOT BAD IN LAW, HENCE WE FIND NO FORCE IN THIS GROUND OF THE ASSESSEE FOR ALL THE YEARS, HENCE HEREBY DISMISSED. IT(SS)A NOS.761, 762 AND 790/AHD/20 10 JINDAL WORLDWIDE LTD. VS. DCIT AYS - 2002-03, 2003-04 & 2004-05 - 6 - 5. GROUND NO.2 FOR ALL THE THREE YEARS IS IN RESPEC T OF CLAIM OF DEPB FOR THE PURPOSE OF DEDUCTION U/S.80HHC OF THE ACT. IT WAS NOTED BY THE AO THAT THE ASSESSEE HAS CLAIMED DEDUCTION U/S.80HH C FOR SALE OF GOODS ON EXPORT REALIZATION. THE ASSESSEE HAS ALSO CLAIM ED THE DEDUCTION ON RECEIPT OF EXPORT INCENTIVES. IN THIS REGARD, IT W AS INFORMED THAT THE ASSESSEE HAS EARNED PROFIT ON TRANSFER OF DUTY ENTI TLEMENT PASS BOOK (DEPB) AS ALSO EARNED PROFIT ON DUTY FREE REPLENISH MENT CERTIFICATE (DFRC). THE AO AS WELL AS CIT(A) HAVE HELD THAT 90% OF THE RECEIPTS ON DEPB TRANSFER IS TO BE EXCLUDED FROM THE ELIGIBL E PROFIT WHILE COMPUTING THE DEDUCTION U/S.80HHC OF THE ACT. THE LD.CIT(A) HAS QUOTED CIT VS. KALPATARU COLOURS AND CHEMICALS (20 10) 328 ITR 451(BOMBAY HIGH COURT) AND UPHELD THE ACTION OF THE AO. 6. THE LATEST POSITION IS THAT THE HONBLE SUPREME COURT IN THE CASE OF TOPMAN EXPORTS 342 ITR 49 (SC) HAS HELD THAT THE P ROFIT ON TRANSFER OF DEPB WOULD BE THE SALE VALUE OF DEPB LESS ITS FACE VALUE, WHICH REPRESENTS THE PROFIT OF THE DEPB. IT IS HELD THA T THE ENTIRE SUM RECEIVED ON SUCH TRANSFER IS NOT CHARGEABLE. FURTHER IT IS CLARIFIED THAT DEPB IS CHARGEABLE AS INCOME U/S.28(IIIB) OF THE ACT IN THE YEAR IN WHICH SUCH PERSON APPLIES FOR DEPB CREDIT AGAINST THE EXPORT, WHEREAS THE PROFIT ON TRANSFER ON DEPB IS CHARGEABLE AS INCOME U/S.28(III D) IN HIS HANDS IN THE YEAR IN WHICH HE MAKES TRANSFER. RESPECTFULLY FOLL OWING THIS DECISION, WE ARE OF THE VIEW THAT THE REVENUE AUTHORITIES HAV E GONE WRONG IN OUTRIGHT REJECTION OF THE CLAIM OF THE ASSESSEE FOR THE YEARS UNDER CONSIDERATION. IN THE FITNESS OF CIRCUMSTANCES AS ALSO FOLLOWING THE VIEW TAKEN BY THE HONBLE APEX COURT, WE DEEM IT PROPER TO RESTORE THIS IT(SS)A NOS.761, 762 AND 790/AHD/20 10 JINDAL WORLDWIDE LTD. VS. DCIT AYS - 2002-03, 2003-04 & 2004-05 - 7 - GROUND BACK TO THE STAGE OF THE AO TO RECOMPUTE THE DEDUCTION IN THE LIGHT OF THE ABOVE DECISION FOR THE YEARS UNDER CON SIDERATION. IN THIS MANNER, WE HEREBY HOLD THAT THIS GROUND OF THE ASSE SSEE IS HEREBY ALLOWED THAT TOO FOR STATISTICAL PURPOSES. 7. GROUND NO.3 FOR ALL THE YEARS IS IDENTICALLY WOR DED AND REPRODUCED BELOW:- 3. PM THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ASSESSING OFFICERS FINDING THAT DEDUCTION U/S.80HHC IS TO BE COMPUTED AFTER REDUCIN G FROM THE ASSESSEES INCOME THE DEDUCTION ALLOWED U/S.80-IB O F THE I.T. ACT. 7.1. THE ASSESSEE HAS CLAIMED A DEDUCTION U/S.80IB OF THE ACT. HOWEVER, ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE AMOUNT OF DEDUCTION U/S.80IB SHOULD NOT BE REDUCED WHILE COMP UTING THE DEDUCTION U/S.80HHC OF THE ACT IN VIEW OF THE PROVISIONS OF S ECTION 80-IA(9) R.W.S.80IB(12) OF THE ACT. THE AO HAS CITED A DECI SION OF ACIT VS. HINDUSTAN MINT & AGRO PRODUCTS PVT.LTD. REPORTED AT 119 ITD 107 (DELHI)(SB) AND RECOMPUTED THE DEDUCTION. THE LD.C IT(A) HAS DIRECTED THE AO TO COMPUTE THE DEDUCTION U/S.80IB OF THE ACT AND REDUCE FROM THE PROFITS OF THE BUSINESS FOR THE PURPOSE OF THE COMP UTATION OF DEDUCTION U/S.80HHC OF THE ACT. BEING AGGRIEVED, NOW THE ASS ESSEE IS FURTHER IN APPEAL. 8. AFTER HEARING THE SUBMISSIONS OF BOTH THE SIDES, WE HAVE NOTED THAT NOW THIS ISSUE STOOD SETTLED BY A DECISION OF HONB LE BOMBAY HIGH COURT PRONOUNCED IN THE CASE OF AN ASSOCIATED CAPSULES 33 2 ITR 42, WHEREIN IT IT(SS)A NOS.761, 762 AND 790/AHD/20 10 JINDAL WORLDWIDE LTD. VS. DCIT AYS - 2002-03, 2003-04 & 2004-05 - 8 - WAS HELD THAT SECTION 80-IA(9) DOES NOT AFFECT THE COMPUTABILITY OF DEDUCTION IN VARIOUS PROVISIONS UNDER THE HEADING C OF CHAPTER-VIA OF THE ACT, AND ONLY AFFECTS THE ALLOWABILITY OF SUCH DEDUCTIONS UNDER OTHER PROVISIONS SO THAT THE AGGREGATE DEDUCTION U/S.80-I A AND OTHER PROVISIONS UNDER HEADING C OF CHAPTER VIA DO NOT EXCEED 100% PROFITS OF THE BUSINESS. THEREFORE, IT WAS HELD THAT THE SUBMISSI ONS PERTAINING TO THE DEDUCTION ALLOWABLE U/S.80HHC HAS TO BE COMPUTED ON THE PROFITS OF THE BUSINESS AS REDUCED BY THE PROFITS ALLOWED AS DEDUC TION U/S.80-IA; WAS AS NOT SUSTAINABLE. RESPECTFULLY FOLLOWING THIS DE CISION, WE HEREBY DIRECT THE AO TO FOLLOW THE DIRECTIONS AND RECOMPUTE THE D EDUCTION IN THE LIGHT OF THE AFORESAID DECISIONS. RESULTANTLY, THIS GROU ND MAY BE TREATED AS ALLOWED. 9. NOW WE ARE LEFT WITH ONLY GROUND NO.4, THAT TOO RAISED FOR AY 2004-05; REPRODUCED BELOW:- (4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LEARNED CIT(A) ERRED IN PARTLY CONFIRMING THE DISALLOWANCES OUT OF INTEREST EXPENDITURE AND OTHER ADMINISTRATIVE U/S.14A. 9.1. THE AO HAS COMPUTED THE DISALLOWANCE BY INVOKI NG THE PROVISIONS OF SECTION 14A OF THE ACT AFTER INVOKING A FORMULA FOR DISALLOWANCE OF INTEREST VIS--VIS INVESTMENT MADE IN PROPORTION T O THE TOTAL FUNDS TO THE ASSESSEE. THE LD.CIT(A) HAS FURTHER EXAMINED THE N ATURE OF INTEREST AND THEREUPON NOTED THAT SOME OF THE INTERESTS, SUCH AS INTEREST ON PACKING, CREDITING AND INTEREST ON FOREIGN BILL DISCOUNTING WAS NOT RELATABLE TO THE BORROWED FUNDS, HENCE, WRONGLY COMPUTED FOR DIS ALLOWANCE U/S.14A OF THE ACT. THE RESULT OF THIS OBSERVATION OF LD.C IT(A) WAS THAT THE AO IT(SS)A NOS.761, 762 AND 790/AHD/20 10 JINDAL WORLDWIDE LTD. VS. DCIT AYS - 2002-03, 2003-04 & 2004-05 - 9 - WAS DIRECTED TO RESTRICT THE DISALLOWANCE OF INTERE ST TO RS.1,40,048/- AS AGAINST THE DISALLOWANCE OF RS.9,57,125/-. LIKEWIS E IN RESPECT OF DISALLOWANCE OF ADMINISTRATIVE EXPENSES, THE LD.CIT (A) HAS RECOMPUTED THE SAME AND DIRECTED THE AO TO DISALLOW THE ADMINI STRATIVE EXPENSES U/S.14A AT RS.2,61,333/- AS AGAINST RS.4,38,589/-. 10. AFTER HEARING THE SUBMISSIONS OF BOTH THE SIDES , WE ARE OF THE VIEW THAT NOW THIS ISSUE HAS TO BE DECIDED IN THE LIGHT OF THE DECISION OF HONBLE BOMBAY HIGH COURT PRONOUNCED IN THE CASE OF GODREJ & BOYCE MFG.CO.LTD. 328 ITR 81(BOM) AS ALSO THE DECISION OF RELIANCE UTILITIES & POWER LTD. 313 ITR 340 (BOM). THE AO HAS TO INVOKE THE PROVISIONS IF THERE IS DIVERSION OF INTEREST BEARIN G FUNDS FOR NON-INTEREST BEARING INVESTMENT. IN THE CASE OF RELIANCE UTILIT IES & POWER LTD., IT WAS NOTED THAT THE ASSESSEE WAS HAVING SUFFICIENT INTER EST-FREE FUNDS OF ITS OWN WHICH WERE GENERATED IN THE COURSE OF THE BUSIN ESS FOR RELEVANT FINANCIAL YEAR, APART FROM SUBSTANTIAL SHAREHOLDERS FUNDS, THEREFORE PRESUMPTION STANDS ESTABLISHED THAT THE INVESTMENTS IN SISTER-CONCERNS WERE MADE BY THE ASSESSEE OUT OF INTEREST-FREE FUND S AND, THEREFORE, NO PART OF INTEREST ON BORROWINGS CAN BE DISALLOWED ON THE BASIS THAT THE INVESTMENTS WERE MADE OUT OF INTEREST BEARING FUNDS . HOWEVER, HON'BLE BOMBAY HIGH COURT PRONOUNCED IN THE CASE OF GODREJ & BOYCE MFG. CO.LTD. MUMBAI VS. DY.CIT IN INCOME TAX APPEAL NO.626 OF 2010 AND WRIT PETITION NO.758 OF 2010 ORDER DATED 12/08/ 2010 [ NOW REPORTED AS 328 ITR 81(BOM)] HAS RESTORED THE ISSUE WITH CERTAIN DIRECTIONS WHICH CAN BE SUMMARIZED AS UNDER:- IT(SS)A NOS.761, 762 AND 790/AHD/20 10 JINDAL WORLDWIDE LTD. VS. DCIT AYS - 2002-03, 2003-04 & 2004-05 - 10 - IN THIS JUDGEMENT AT THE END, THE HON'BLE COURT HAS RECAPITULATED THE CONCLUSION AND PRONOUNCED THAT A FINDING IS REQ UIRED WHETHER THE INVESTMENT IN SHARES IS MADE OUT OF OWN FUNDS OR OU T OF BORROWED FUNDS. A NEXUS IS REQUIRED TO BE ESTABLISHED BETWEEN THE I NVESTMENTS AND THE BORROWINGS. IN SECTION 14A OF THE ACT EXPENDITURE INCURRED I N RELATION TO EXEMPTED INCOME IS TO BE DISALLOWED ONL Y IF THE ASSESSING OFFICER IS SATISFIED WITH THE EXPENDITURE CLAIMED B Y THE ASSESSEE PERTAINING TO THE SAID EXEMPT INCOME. RATHER, THE H ONBLE COURT WAS VERY SPECIFIC THAT IN CASE, NO SUCH EXERCISE WAS CARRIED OUT BY THE ASSESSING OFFICER THEN THE MATTER IS TO BE REMANDED BACK FOR AFRESH INVESTIGATION. IT HAS ALSO BEEN MADE CLEAR THAT THE PROVISO TO SE CTION 14A OF THE ACT WAS EFFECTIVE FROM 2001-02. THE HO N'BLE COURT HAS ALSO POINTED OUT THE IMPORTANCE OF RULE 8D OF THE I.T.RU LES, 1962. IT WAS MADE CLEAR THAT SUB-SECTION (1) TO SECTION 14A WAS INSERTED WITH RETROSPECTIVE EFFECT FROM 01/04/1962, HOWEVER, SUB- SECTIONS (2) & (3) WERE MADE APPLICABLE WITH EFFECT FROM 01/04/2007. THE PROVISO WAS INSERTED WITH RETROSPECTIVE EFFECT FROM 11/05/2001 , HOWEVER RULE 8D WAS INSERTED BY THE INCOME TAX (FIFTH AMENDMENT), RULES, 2008 BY PUBLICATION IN THE GAZETTE DATED 24/03/2008, RELEVA NT FINDINGS ARE REPRODUCED BELOW:- A) THE ITAT HAD RECORDED A FINDING IN THE EARLIE R ASSESSMENTS THAT THE INVESTMENTS IN SHARES AND MUTUAL FUNDS HAVE BEE N MADE OUT OF OWN FUNDS AND NOT OUT OF BORROWED FUNDS AND THAT TH ERE IS NO NEXUS BETWEEN THE INVESTMENTS AND THE BORROWINGS. HOWEVER, IN NONE OF THOSE DECISIONS WAS THE DISALLOWABILITY OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME EARNED OUT OF INVESTMENTS MADE OUT OF OWN FUNDS CONSIDERED. MOREOVER, UNDER SECTION 14A, EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME C AN BE DISALLOWED ONLY IF THE ASSESSING OFFICER IS NOT SAT ISFIED WITH THE IT(SS)A NOS.761, 762 AND 790/AHD/20 10 JINDAL WORLDWIDE LTD. VS. DCIT AYS - 2002-03, 2003-04 & 2004-05 - 11 - CORRECTNESS OF THE EXPENDITURE CLAIMED BY THE ASSES SEE. IN THE PRESENT CASE, NO SUCH EXERCISE HAS BEEN CARRIED OUT AND, THEREFORE, THE TRIBUNAL WAS JUSTIFIED IN REMANDING THE MATTER. B) SECTION 14A WAS INTRODUCED BY THE FINANCE ACT 20 01 WITH RETROSPECTIVE EFFECT FROM 1 APRIL 1962. HOWEVER, I N VIEW OF THE PROVISO TO THAT SECTION, THE DISALLOWANCE THEREUNDE R COULD BE EFFECTIVELY MADE FROM ASSESSMENT YEAR 2001-2002 ONW ARDS. THE FACT THAT THE TRIBUNAL FAILED TO CONSIDER THE APPLI CABILITY OF SECTION 14A IN ITS PROPER PERSPECTIVE, FOR ASSESSMENT YEAR 2001-2002 WOULD NOT BAR THE TRIBUNAL FROM CONSIDERING DISALLO WANCE UNDER SECTION 14A IN ASSESSMENT YEAR 2002-2003. C) THE DECISIONS REPORTED IN SRIDEV ENTERPRISES (SUPRA), MUNJAL SALES CORPORATION (SUPRA) AND RADHASOAMI SATSANG (SUPRA) HOLDING THAT THERE MUST BE CONSISTENCY AND DEFINITE NESS IN THE APPROACH OF THE REVENUE WOULD NOT APPLY TO THE FACT S OF THE PRESENT CASE, BECAUSE OF THE MATERIAL CHANGE INTRODUCED BY SECTION 14A BY WAY OF STATUTORY DISALLOWANCE IN CERTAIN CASES. TH ERE, THE DECISIONS OF THE TRIBUNAL IN THE EARLIER YEARS WOUL D HAVE NO RELEVANCE IN CONSIDERING DISALLOWANCE IN ASSESSMENT YEAR 2002- 2003 IN THE LIGHT OF SECTION 14A OF THE ACT. 73. FOR THE REASONS WHICH WE HAVE INDICATED, WE HA VE COME TO THE CONCLUSION THAT UNDER SECTION 14A(1) IT IS FOR THE ASSESSING OFFICER TO DETERMINE AS TO WHETHER THE ASSESSEE HAD INCURRED A NY EXPENDITURE IN RELATION TO THE EARNING OF INCOME WHICH DOES NOT FO RM PART OF THE TOTAL INCOME UNDER THE ACT AND IF SO TO QUANTIFY THE EXTE NT OF THE DISALLOWANCE. THE ASSESSING OFFICER WOULD HAVE TO ARRIVE AT HIS DETERMINATION AFTER FURNISHING AN OPPORTUNITY TO TH E ASSESSEE TO PRODUCE ITS ACCOUNTS AND TO PLACE ON THE RECORD ALL RELEVANT MATERIAL IN SUPPORT OF THE CIRCUMSTANCES WHICH ARE CONSIDERE D TO BE RELEVANT AND GERMANE. FOR THIS PURPOSE AND IN LIGHT OF OUR OBSERVATIONS MADE EARLIER IN THIS SECTION OF THE JUDGMENT, WE DEEM IT APPROPRIATE AND PROPER TO REMAND THE PROCEEDINGS BACK TO THE ASSESS ING OFFICER FOR A FRESH DETERMINATION. CONCLUSION : IT(SS)A NOS.761, 762 AND 790/AHD/20 10 JINDAL WORLDWIDE LTD. VS. DCIT AYS - 2002-03, 2003-04 & 2004-05 - 12 - 74. OUR CONCLUSIONS IN THIS JUDGMENT ARE AS FOLLOWS ; I) DIVIDEND INCOME AND INCOME FROM MUTUAL FUNDS FALLIN G WITHIN THE AMBIT OF SECTION 10(33) OF THE INCOME TA X ACT 1961, AS WAS APPLICABLE FOR ASSESSMENT YEAR 2002-03 IS NOT INCLUDIBLE IN COMPUTING THE TOTAL INCOME OF THE ASS ESSEE. CONSEQUENTLY, NO DEDUCTION SHALL BE ALLOWED IN RESP ECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, BY VIRTUE OF THE PROVISIONS OF SECTION 14A (1); II) THE PAYMENT BY A DOMESTIC COMPANY UNDER SECTION 115 O(1) OF ADDITIONAL INCOME TAX ON PROFITS DECLARED, DISTR IBUTED OR PAID IS A CHARGE ON A COMPONENT OF THE PROFITS OF T HE COMPANY. THE COMPANY IS CHARGEABLE TO TAX ON ITS PROFITS AS A DISTINCT TAXABLE ENTITY AND IT PAYS TAX IN DIS CHARGE OF ITS OWN LIABILITY AND NOT ON BEHALF OF OR AS AN AGENT F OR ITS SHAREHOLDERS. IN THE HANDS OF THE SHAREHOLDER AS T HE RECIPIENT OF DIVIDEND, INCOME BY WAY OF DIVIDEND DO ES NOT FORM PART OF THE TOTAL INCOME BY VIRTUE OF THE PROV ISIONS OF SECTION 10(33). INCOME FROM MUTUAL FUNDS STANDS ON THE SAME BASIS; III) THE PROVISIONS OF SUB SECTIONS (2) AND (3) OF SECTI ON 14A OF THE INCOME TAX ACT 1961 ARE CONSTITUTIONALLY VALID; IV) THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES A S INSERTED BY THE INCOME TAX (FIFTH AMENDMENT) RULES 2008 ARE NOT ULTRA VIRES THE PROVISIONS OF SECTION 14A, MORE PARTICULARLY SUB SECTION (2) AND DO NOT OFFEND ARTI CLE 14 OF THE CONSTITUTION; V) THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES W HICH HAVE BEEN NOTIFIED WITH EFFECT FROM 24 MARCH 2008 S HALL APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008-09; VI) EVEN PRIOR TO ASSESSMENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORC E THE PROVISIONS OF SUB SECTION (1) OF SECTION 14A. FOR THAT IT(SS)A NOS.761, 762 AND 790/AHD/20 10 JINDAL WORLDWIDE LTD. VS. DCIT AYS - 2002-03, 2003-04 & 2004-05 - 13 - PURPOSE, THE ASSESSING OFFICER IS DUTY BOUND TO DET ERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASON ABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FA CTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTU NITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE R ECORD; VII) THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 SHALL S TAND REMANDED BACK TO THE ASSESSING OFFICER. THE ASSESS ING OFFICER SHALL DETERMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE (DIRECT OR INDIRECT) IN RE LATION TO DIVIDEND INCOME / INCOME FROM MUTUAL FUNDS WHICH DO ES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OFFICER CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHALL PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. (EMPHASIS GIVEN). -10. 1. IN THE LIGHT OF THESE DECISIONS, WE HEREBY RESTORE THIS GROUND BACK TO THE FILE OF AO TO APPLY THE CORRECT LAW AND READJUDICATE THIS ISSUE AFRESH FOLLOWING THE PRECEDENTS CITED HEREINABOVE. RESULTANTLY, THIS GROUND MAY BE TREATED AS ALLOWED BUT FOR STATISTICA L PURPOSES. 11. IN THE RESULT, ALL THE THREE APPEALS ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES ONLY. SD/- SD/- ( .. ) ( ) ( T.R. MEENA ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 15/ 2 /2013 .., . ../ T.C. NAIR, SR. PS IT(SS)A NOS.761, 762 AND 790/AHD/20 10 JINDAL WORLDWIDE LTD. VS. DCIT AYS - 2002-03, 2003-04 & 2004-05 - 14 - '& ' ()* +'*, / COPY OF THE ORDER FORWARDED TO : 1. '#$% / THE APPELLANT 2. &'$% / THE RESPONDENT. 3. ()(*+ , / CONCERNED CIT 4. , ('#) / THE CIT(A)-III, AHMEDABAD 5. /01 & *+, '# '*+, '2) / DR, ITAT, AHMEDABAD 6. 134 5 / GUARD FILE. '&- / BY ORDER, '/# & //TRUE COPY// ./ / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION DATED 11.2.13 (DICTATION-PAD 24 PAGES ATTACHED) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 13.2.13 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S15.2.13 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 15.2.13 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER