ACIT 2(1), MUMBAI vs. FIRESTORM ELECTRONICS CORP LTD, MUMBAI

In respect of ground No.1, the ld. Authorized Representative for the assessee submitted that the Assessing Officer erred in applying the provisions of Rule 8D to the Assessment Year 2006-07. The ld. Authorized Representative for the assessee submitted that the provisions of Rule 8D apply w.e.f. assessment year 2008-09. To buttress his submissions, the ld. AR placed reliance on the decision of Hon'ble Jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. DCIT, 328 ITR 81. The CIT(A) granted part relief to the assessee by accepting that provisions of Rule 8D would not apply and restricted the disallowance to 5% of the dividend income earned. The ld. Authorized Representative for the assessee submitted that estimation of disallowance by CIT(A) is on higher side, he prayed that disallowance u/s. 14A of the Act should be restricted to 1% of the exempt income earned during the relevant period. In support of his submissions the ld. Authorized Representative for the assessee placed reliance on the following decisions: (i) CIT vs. HSBC Invest Direct (India) Ltd. in Income Tax Appeal No.1026 of 2014 decided by Hon'ble Bombay High Court vide order dated 19/12/2016. (ii) Allahabad Bank vs. ACIT in for Assessment Year 2006-06 decided by Kolkata Bench of the Tribunal vide order dated 16/03/2016. (iii) MBSK Finvest Pvt. Ltd. vs. ITO in ITA No.345/Kol/2012 for Assessment Year 2006-07 decided by Kolkata Bench of the Tribunal vide order dated 04/04/2012.

Per contra, Shri Hoshang Boman Iranirepresenting the Department vehemently supporting the findings of CIT(A) submitted that in assessment year 2007-08 and 2008-09 the Tribunal confirmed the disallowance u/s. 14A of the Act @5% of exempt income earned during the relevant period. The assessee raised grounds assailing disallowance u/s 14A of the Act @5% in appeal, however, the same were not pressed. Thus, the disallowance u/s. 14A of the Act @ 5% confirmed by the CIT(A) attained finality. The ld. Departmental Representative further submits that similar was the situation with respect to foreign travel expenses. The CIT(A) disallowed 50% of foreign travel expenses and the same was accepted by the assessee. The assessee did not press the ground raised before the Tribunal. In respect of disallowance of bad debts, the ld. Departmental Representative supported the findings of the CIT(A). The ld. Departmental Representative asserted that it is fictitious loss through arrangement of the debt within the group companies. It is not a trading debt as claimed by the assessee. 6.1 In so far as enhancement made by the CIT(A), the ld. Departmental Representative submits that the CIT(A) has co-terminus and extensive powers with that of the Assessing Officer. The CIT(A) issued show cause notice before enhancing the assessment. Due opportunity was granted to the assessee to make its submissions. The CIT(A) after considering the submissions of the assessee passed the order of enhancement. The ld. Departmental Representative further pointed that the issue of Non-compete fees was not 8 Dandvati Investments & Trading Company Pvt. Ltd. Firestorm Electronics Corporation Pvt. Ltd.

We have heard the submissions made by rival sides and have examined the orders of authorities below. We have also considered the decisions on which the respective sides have placed reliance to buttress their arguments. The first issue in appeal by the assessee is with respect to disallowance u/s. 14A of the Act. The CIT(A) has estimated disallowance u/s. 14A of the Act at the rate of 5% of the exempt income earned. We find similar disallowance was made in assessment years 2007-08 and 2008-09. The assessee though carried the issue in appeal before Tribunal in but did not press the ground of appeal. The provisions of Rule 8D were introduced w.e.f. assessment year 2008-09, prior to assessment year 2008-09 disallowance u/s. 14A of the Act was made on mere estimation. The only criteria was reasonableness. The ld. Authorized Representative of the assessee has placed reliance on the decision of Tribunal and the Hon'ble Bombay High Court, wherein disallowance has been restricted to 1%. A perusal of the impugned order reveals that the assessee before the CIT(A) has prayed for restricting the disallowance to 2% of the exempt income by placing reliance on 9 Dandvati Investments & Trading Company Pvt. Ltd. Firestorm Electronics Corporation Pvt. Ltd.

In ground No.2 of appeal, the assessee has assailed disallowance of bad debts. The assessee is an Investment Company. The assessee has purportedly taken over inter corporate deposits from following companies: (i) Shaw Wallace Executive Welfare & Benefit Company - Rs. 27,57,042/- (ii) HarshitFinlease & Investments Ltd. - Rs.1,13,83,136/- (iii) Hindustan Dorr- Oliver Ltd. - Rs.53,71,118/- Total - Rs.1,95,11,296/- The aforesaid inter corporate deposits were given by the aforesaid entities to Mather & Platt Fire System Ltd. During the period relevant to the assessment year under appeal the assessee could recover only Rs.90,00,000/- towards full and final settlement. The remaining amount of Rs.1,05,11,296/- is claimed as bad debts. The contention of the assessee is that the irrecoverable debt was a business loss as the assessee failed to recover the debt in the normal course of business. We find that the CIT(A) has upheld the findings of Assessing Officer on this issue by observing as under: “5.4 …………………..It could be seen that the transaction were between the companies of Jumpo Group as a result of re-arrangement of business interests and it could not be shown as to how the advances effected in May, 2005 became non recoverable by July, 2005. The facts revealed that these are internal adjustments in the group and these adjustments are similar to zero sum game and it cannot be established that there was actually a business loss of the appellant company. It is also not established by facts and figures as to how the loss crystallized in A.Y.2006-07. These appear to be fictional losses the facts in regard to which are within the special knowledge of the 10 Dandvati Investments & Trading Company Pvt. Ltd. Firestorm Electronics Corporation Pvt. Ltd.

The ld. Authorized Representative for the assessee narrating the facts of the case submitted that assessment order u/s. 143(3) was passed in the case of assessee on 31/12/2008. The assessee filed an appeal before the CIT(A) on 29/01/2009. The Assessing Officer issued notice u/s. 148 of the Act on 03/12/2010. The CIT(A) issued notice for enhancement on the same issue which was recorded in the reason for reopening on 29/07/2011. The assessment order u/s. 143(3) r.w.s. 147 of the Act was passed on 16/12/2011. The assessee filed appeal before the CIT(A) against reassessment order on 19/01/2012. The CIT(A) passed the order in appeal arising out of original assessment order on 09/03/2012. The CIT(A) passed the order in appeal arising out of reassessment proceedings on 26/12/2013. The ld. Authorized Representative for the assessee submits that in the first instance the issue was examined by the Assessing Officer during assessment proceedings u/s. 143(3)of the Act. To support his submissions the ld. Authorized Representative for the assessee referred to the submissions made before the Assessing Officer dated 21/10/2008 at pages 47 and 48 of the Paper Book and submissions dated 26/12/2008 at pages 67 to 69 of the Paper Book. The ld. Authorized Representative for the assessee pointed that Assessing Officer after examining the issue accepted the explanation furnished by the assessee and 14 Dandvati Investments & Trading Company Pvt. Ltd. Firestorm Electronics Corporation Pvt. Ltd.

The ld. Authorized Representative for the assessee further assailing reassessment proceedings argued that the assessee replied to the show cause notice dated 03/12/2020 u/s. 148 of the Act on 20/12/2010. The reply of the assessee is at pages 26 and 27 of the paper book. The assessee had requested the Assessing Officer for providing copy of reasons for reopening. The assessee vide letter dated 04/01/2011 again requested the Assessing Officer to provide reasons for reopening. The reasons for reopening were furnished to the assessee on 23/09/2011 i.e. almost after nine months from first request for providing reasons for reopening. The assessee furnished objections to the reasons for reopening on 05/12/2011. The Assessing Officer disposed of the objections on the same date. Thereafter, within a short span of 11 days from the date of disposing of objections, passed the assessment order u/s. 148 r.w.s. 143(3) on 16/12/2011. The said assessment order has been passed in utter violation of the law laid down by Hon'ble Bombay High Court in the case of Asian Paints Ltd. vs. DCIT, 296 ITR 90 (Bom). Therefore, the impugned order is liable to be set-aside on this ground alone. The ld. Authorized Representative for the assessee further submits that there is no escapement of income. The assessee had disclosed Non-compete fees under the head “capital gains”, the same was examined and accepted by the Assessing Officer during assessment proceedings. In reassessment proceedings the Assessing Officer had merely changed the head of income from “Capital Gains” to “Business Income”. Therefore, the conditions necessary for invoking provisions of section 147 of the Act are absent. The ld. Authorized Representative for the assessee further pointed that during pendency of 15 Dandvati Investments & Trading Company Pvt. Ltd. Firestorm Electronics Corporation Pvt. Ltd.

Per contra, the ld. Departmental Representative vehemently defended the impugned order and prayed for dismissing the appeal of assessee. The ld. Departmental Representative pointed that the reasons for reopening were provided to the assessee on 23/09/2011. The assessee thereafter took two months to file objections against the reasons for reopening. On the same date the Assessing Officer passed a separate speaking order rejecting objections of the assessee. The Assessing Officer had no other option but to pass the assessment order within11 days otherwise the assessment order would have become time barred.

We have heard the submissions made by rival sides and have examined the orders of authorities below. A perusal of documents on record reveal that during assessment proceedings u/s. 143(3) of the Act, the Assessing Officer had called for the details including agreement related to purchase/sale of shares of Shaw Wallace Group companies from the assessee. The Non- compete fees covenant was part of the agreement for sale and purchase of shares. This fact clearly emerges from the reply of assessee dated 26/12/2008 (at page 67 of the paper book). Since, the issue was examined by the Assessing Officer during assessment proceedings and the Assessing Officer allowed Non-compete fees under the head “capital gains” this indicates that the Assessing Officer after having examined the issue formed an opinion that Non-compete fees is taxable under the head “capital gains”. Once the issue has been examined by the Assessing Officer in assessment proceedings, the 16 Dandvati Investments & Trading Company Pvt. Ltd. Firestorm Electronics Corporation Pvt. Ltd.

Since, we have decided the jurisdictional issue in favour of the assessee, ground No.2 raised in the appeal on merits is not deliberated upon.

In the result, appeal by the assessee is allowed. (A.Y.2006-07)- Assessee’s Appeal (A.Y.2006-07)- Revenue’s Appeal 20. These cross appeals by the assessee and the Department are directed against the order of CIT(A) -1, Mumbai dated 09/03/2012 for the assessment year 2006-07.

Shri Yogesh Thar appearing on behalf of the assessee submitted at the outset that the facts in the appeal by the assessee are similar to the facts in the case of Dandvati Investments & Trading Company Pvt. Ltd. in ITA No.3638/Mum/2012 (supra). The assessee in present appeal has raised two grounds: (i) Disallowance u/s. 14A of the Act; and (ii) Enhancement of income in respect of Non-compete fees.

Both sides heard. We find that the facts germane to the appeal are similar to the facts in the case of Dandvati Investments & Trading Company Pvt. Ltd. (supra).

In ground-I of appeal the assessee is seeking deletion of disallowance made u/s14A of the Act. While making disallowance u/s 14A of the Act in respect of exempt income earned during the relevant period, the Assessing Officer invoked Rule 8D and made disallowance of Rs.73,63,900/-. In First Appellate proceedings, the CIT(A) held that the provisions of Rule 8D would not apply and restricted disallowance to Rs.3,59,165/- i.e. @ 2% of the total exempt income. We find no infirmity in the findings of CIT(A), ergo ground –I of appeal is dismissed.

The ground no. II and III of appeal are directed against enhancement of total income as a result of taxing non- compete fee as “Business Income”. The assessee has offered non-compete fee under the head “Capital Gains”. The grounds of appeal and the facts in appeal are pari materia to the grounds and facts in (supra). Therefore, the detailed reasoning giving in aforesaid appeal above (para-11) while deciding the grounds would mutatis mutandis apply to the present set of grounds. Consequently, ground no. II and III are dismissed for parity of reasons.

In the result, appeal of the assessee is dismissed.

The Revenue in appeal has raised solitary ground assailing the findings of CIT(A) in restricting disallowance u/s.14A of the Act to 2% of the total exempt income. The said ground of appeal by the Revenue corresponds to ground No-I in appeal by the assessee. We have upheld the findings of CIT(A) while deciding appeal of the assessee. Hence, the solo ground raised in the appeal of Revenue is dismissed.

In the result, appeal by the Revenue is dismissed. (A.Y.2006-07)- Assessee’s Appeal

This appeal by the assessee is directed against the order of CIT(A) -1, Mumbai dated 26/12/2013, for the Assessment Year 2006-07. The appeal emanates from reassessment proceedings in the case of assessee. The assessee in appeal has assailed validity of reopening of assessment and the addition on merits.

Both sides are unanimous in stating that the facts in the appeal are similar to the facts in appeal (supra) by the assessee’s group company. The submissions made in the aforesaid appeal would be applicable to the facts of the present appeal. 31. We find that the reasons for reopening are verbatim except for the amount and number of equity shares. The date of notice u/s148 of the Act and the date of assessment order passed under section 143(3) r.w.s. 147 of the Act are same. The reassessment order in both the cases is on same lines and reasons. On account of parity of facts, the findings given while deciding appeal