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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, JM & SHRI MANOJ KUMAR AGGARWAL, AM
आदेश / O R D E R
Per Manoj Kumar Aggarwal (Accountant Member)
These are cross appeals for A.Y.2011-12 which contest the order of the Ld. Commissioner of Income-Tax (Appeals)-4 [CIT(A)], Mumbai, Appeal No. CIT(A)-4/Tr-334/Appeal-(3)/ACIT.11(1)/2014-15 dated 05/11/2015. The assessment for impugned AY was completed u/s 143(3) by Ld. Assistant Commissioner of Income Tax-11(1), Mumbai [AO] on 17/02/2014. First we take up revenue’s appeal where the following effective grounds of appeal
have been raised before us:-
1. On the facts and circumstances of the case and in law, whether the CIT(A) was justified in holding that the unabsorbed depreciation pertaining to AY 1996-97 to AY 2001-02 was allowable to be carried forward and adjusted after the lapse of 8 (eight) assessment years, in view of the Section 32(2) as substituted by the Finance Act,2001?
2. On the facts and circumstances of the case and in law, whether the CIT(A) was justified in not appreciating that the provision contained in section 32(2) as substituted by the Finance Act,2001 with effect from 1.4.2002, is substantive and is prospectively applicable to A.Ys.2002-03 onwards.
3. On the facts and circumstances of the case and in law, whether the CIT(A) was justified in placing reliance on the Hon’ble Gujarat High Court’s order dated 23.08.2012 in SCA No.1773 of 2012 in the case of General Motors(I) Pvt. Ltd. Vs DCIT, wherein the Supreme Court, while dismissing the SLP filed by the Revenue has expressly kept the question of law open.
4. On the facts and circumstances of the case and in law, whether the CIT(A) was justified in placing reliance on the Hon’ble Gujarat High Court’s order dated 23.08.2012 in SCA No.1773 of 2012, in the case of General Motors (I) Pvt. Ltd. Vs DCIT, wherein the decision of ITAT, Mumbai , ‘E’ Special Bench in the case of DCIT Vs Times Guaranty Ltd (ITA Nos.4917 and 4918 (MUM) of 2008 dated 30.06.2010) was not considered although the Special Bench was specially constituted by the Mumbai Tribunal to decide the issue of applicability of provisions of section 32(2), in view of the amendments made by the Finance Act,1996 and Finance Act,2001, vis a vis carry forward and set-off of the unabsorbed depreciation.
5. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored. &1167/Mum/2016 Indusind Media & Communication Limited Assessment Year 2011-12 2.1 Facts leading to the same are that the assessee being resident corporate assessee engaged in the business of cable television and transmission of satellite channels etc. was assessed u/s 143(3) of the Income Tax Act, 1961 at Rs.38,01,10,120/- under normal provisions as against ‘Nil’ return filed by the assessee on 28/09/2011 which was subsequently revised on 28/09/2012. The sole issue under revenue’s appeal is set-off of brought forward unabsorbed depreciation beyond eight years. 2.2 During assessment proceedings, it was noted that the assessee had brought forward unabsorbed depreciation pertaining to AY 1996-97 to AY 2000-2001 aggregating to Rs.38,90,30,345/- and since eight years had already elapsed to set-off the same, Ld. AO opined that the same could not be allowed to the assessee in terms of provisions of Section 32(2). Accordingly, the same was denied to the assessee. However the assessee contested the same successfully before Ld. CIT(A) vide impugned order dated 05/11/2015 where the Ld. CIT(A) concurred with assessee’s stand and concluded the matter in the following manner:- 4.1 In appeal, it is contended that since the issue has been decided by the Ld. CIT(A) allowing the set off of carry forward unabsorbed depreciation, same may be accepted. The decision of Hon’ble Gujarat High Court in the case of General Motors India Pvt. Ltd. Vs. DCIT 82 DTR 304, the SLP of the Department has been dismissed by the Hon’ble Supreme Court. This decision has been later on followed by the Gujarat High Court in the case of Symbiotics Ltd. V. ACIT 46 Taxman.com 87 (Guj), Sahakari Khand Udyog Mandal 46 Taxman.com 69 and by Hon’ble ITAT, Mumbai in the case of DCIT vs. Bajaj Hindustan Ltd. 147 ITD 709. 4.2 I have considered the issue under appeal carefully. I find that this issue has been decided by my Learned predecessor in A.Y.2009-10 which is as under:- “3.3 I have considered the facts and perused the material on record. It is seen that section 32(2) has been amended by Finance Act,2001 and the amended provisions provides that where, in the assessment of the assessee, full effect ITA Nos.772 &1167/Mum/2016 Indusind Media & Communication Limited Assessment Year 2011-12 cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable for that previous year, owing to the profit or gains chargeable being less than the allowance, then, subject to the provisions of sub-section(2) of section 72 and sub-section(3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance. Therefore, by amendment in section 32(1), unabsorbed depreciation of earlier years became part of the depreciation of the current year and can be allowed to be set off in the future years. The Board has also clarified vide Circular No.14 of 2001 the intent of the amendment that it is for enabling the industry to conserve sufficient funds to replace plant and machinery and accordingly the amendment dispenses with restriction of 8 years for carry forward and set off of unabsorbed depreciation. The AR has placed reliance on the latest decision of Hon’ble Gujarat High Court in the case of General Motors Pvt. Ltd. in of 2012 dated 23.08.2012, wherein, it was held that any unabsorbed depreciation available to an assessee on 1st day of April, 2002 (A.Y.2002-03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act,2001 and once Circular No.14 of 2001 clarified that the restriction of 8 years for carry forward and set off of unabsorbed depreciation had been dispensed with, the unabsorbed depreciation from A.Y.1997-98 to 2001-02 got carried forward to A.Y.2002-03 and became a part thereof, it came to be governed by the provisions of section 32(2) as amended by Finance Act 2001 and were available for carry forward and set off against the profits and gains of subsequent years, without any limit whatsoever. Since the decision of Hon’ble High Court is latest one specified decision relied by the A.O. therefore, respectfully following the aforesaid decision, the A.O is directed to allow the carry forward and set off of unabsorbed depreciation in accordance of provision of section 32(2) of the Act. Accordingly, this ground of appeal is treated as allowed.” 4.3 Respectfully following the decision of my learned predecessor and also the decision of Hon’ble Jurisdictional ITAT and Gujarat High Court, A.O is directed to allow the set off of carry forward unabsorbed depreciation of Rs.38,90,345/- Aggrieved, the revenue is in further appeal before us. 2.3 The Ld. Departmental Representative [DR] contended that the amendment in Section 32 was prospective in nature and therefore, the set- off of brought forward unabsorbed depreciation could not be allowed to the assessee beyond eight years. Per Contra, the Ld. Counsel for Assessee [AR] placed reliance on the stand of Ld. first appellate authority and &1167/Mum/2016 Indusind Media & Communication Limited Assessment Year 2011-12 contended that the issue now stood squarely covered in assessee’s favour by several judicial pronouncements and CBDT Circular No. 14 of 2001.
We have heard the rival contentions and perused relevant material on record. After going through the same, we concur with the stand of Ld. AR that the issue stood covered in assessee’s favour firstly by the order of this Tribunal in assessee’s own case for AY 2009-10 vide ITA No. 9/Mum/2013 order dated 29/01/2016, a copy of which has been placed on record. The co-ordinate bench of the Tribunal in the cited order has followed the ratio of judgment rendered by Hon’ble Gujarat High Court in General Motors India P. Ltd. Vs. DCIT [354 ITR 244]. The revenue could not place on record any contrary judgment to controvert the same. The same is further fortified by CBDT circular No.14 of 2001. Respectfully following the binding judicial precedent, we dismiss revenue’s appeal and concur with the stand of Ld. CIT(A). Resultantly, the revenue’s appeal stands dismissed.
The assessee has raised the following grounds in his appeal:- (i) On facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals) [CIT(A)] has erred in upholding a disallowance of Rs.5,34,72,365/- made u/s 14A r.w.rule 8(D) of the Income Tax Act both in the normal computation as well as book profits computed u/s 115JB of the Income Tax of the Income Tax Act. In doing so, the CIT(Appeals) further erred in observing that the Appellant has not refuted the findings of the Tax Auditor. The quantification of disallowance in the Tax Audit report was without prejudice to the representation made by the Appellant for consideration of the disallowance u/s 14A r.w.rule 8(D) at Rs.Nil. (ii) On facts and circumstances of the case and in law, the CIT(A) has erred in holding that loan processing fees paid of Rs.60 Lacs to GE Money Financial Services Private Ltd. is a capital expenditure. He has further erred in &1167/Mum/2016 Indusind Media & Communication Limited Assessment Year 2011-12 observing that GE Money Financial Services Private Ltd. Is a company belonging to the HInduja Group.
5.1 Facts qua the first ground is that during assessment proceedings, it was noted that disallowance u/s 14A for Rs.5,34,72,365/- as reported in the Tax Audit Report was not made by the assessee in its computation of income. The assessee pointed out that the investment were mainly in shares of unlisted joint venture entities, whose capital gain, when divested would be fully taxable under the head ‘Capital Gains’ and hence, no adjustment of disallowance has been made by the assessee while computing income under the normal provisions as well as under the provisions of Section 115JB. However, not convinced by the reasoning, Ld. AO disallowed the same and added the same while computing income under normal provisions as well as under Section 115JB. 5.2 Aggrieved, the assessee contested the same without any success before Ld. CIT(A) vide impugned order dated 05/11/2015 where Ld. CIT(A) noted that the assessee derived exempt income of Rs.52.02 Lacs which comprised of dividend on Mutual Funds for Rs.51.61 Lacs and other dividend of Rs.0.41 Lacs. It was further noted that the aggregate disallowance u/s 14A read with Rule 8D for Rs.5,34,72,366/- comprised of direct interest disallowance u/r 8D(2)(i) for Rs.5,05,45,559/- and expense disallowance u/r 8D(2)(iii) for Rs.29,26,807/-. It was also appreciated that the investments under various heads viz. investment in Government Securities, Subsidiaries, Group Companies & Mutual Fund reflected &1167/Mum/2016 Indusind Media & Communication Limited Assessment Year 2011-12 increase of Rs.55.20 Crores during the impugned AY. Finally, upon due consideration of factual matrix and placing reliance on the stand of its predecessor for AY 2009-10 in assessee’s own case, Ld. CIT(A) confirmed the stand of Ld. AO. Aggrieved, the assessee is in further appeal before us. 5.3 The second issue under assessee’s appeal is loan processing charges of Rs.60 Lacs. It was noted that the assessee incurred loan processing fees of Rs.75 Lacs and debited Rs.15 Lacs in the Profit & Loss account and treated the balance Rs.60 Lacs as deferred revenue expenditure in the books of accounts. However, during course of assessment proceedings, it further claimed the balance Rs.60 Lacs as revenue expenditure which was disallowed by Ld. AO by placing reliance on the decision of Hon’ble Supreme Court in the case of Goetz India Private Limited [284 ITR 323]. 5.4 Aggrieved, the assessee contested the same without any success before Ld. CIT(A) where, on merits, it was noted that the assessee obtained the loan from GE Capital Services Limited for repayment of unsecured loans which were utilized to make the investments and therefore, the same being, capital in nature, was not allowable to the assessee. Aggrieved, the assessee is in further appeal before us. 5.5 The Ld. Counsel for Assessee [AR], at the outset, drew our attention to the fact that adjustment of disallowance u/s 14A is not called for while arriving at book profits u/s 115JB in view of the decision of Delhi Tribunal (Special Bench) rendered in ACIT Vs. Vireet Investment (P.) Ltd. [82 ITA Nos.772 &1167/Mum/2016 Indusind Media & Communication Limited Assessment Year 2011-12 Taxmann.com 415]. Proceeding further, Ld. counsel for Assessee drew our attention to the fact that the assessee contested the stand of revenue qua disallowance u/s 14A in AY 2009-10 before this Tribunal vide dated 29/01/2016 where the matter, considering the ratio of this Tribunal rendered in in Garware Wall Ropes Ltd. [46 Taxmann.com 18], was remitted back to the file of Ld. AO with certain directions. Qua loan processing fees, the Ld. AR primarily contended that the nature and purpose of loan was irrelevant for determining its allowability and therefore, the same was allowable to the assessee. Reliance has been placed on the decision of Hon’ble Supreme Court in India Cements Ltd. Vs. CIT [60 ITR 52] & Hon’ble Madras High Court in CIT Vs. Super Spinning Mills Ltd. [296 ITR 168] & Hon’ble Bombay High Court in Bajaj Tempo Ltd. Vs. CIT [ITA No. 128 of 2000 22/06/2017].
We have heard the rival contentions and perused relevant material on record. So far as adjustment of disallowance u/s 14A in computation of book profit u/s 115JB is concerned, we find that the matter stood squarely in assessee’s favour by the cited judgment of Delhi Tribunal (Special Bench) rendered in ACIT Vs. Vireet Investment (P.) Ltd. [82 Taxmann.com 415]. Upon perusal of the same, we find that Special Bench, after considering two contrary decision of Hon’ble Delhi High Court titled as CIT Vs. Goetze (India) Ltd. [2014 361 ITR 505] & PCIT Vs. Bhushan Steel Ltd. [ITA 593/2015 dated 29/09/2015], took the view favorable to the assessee in terms of ratio of decision of Hon’ble Supreme Court rendered in CIT Vs. &1167/Mum/2016 Indusind Media & Communication Limited Assessment Year 2011-12 Vegetable Products Limited [1973 88 ITR 192]. The decision in PCIT Vs. Bhushan Steel Ltd., in turn, placed reliance on the decision of Hon’ble Supreme Court rendered in Apollo Tyres Ltd. Vs. CIT [255 ITR 273] which held that the Assessing Officer did not have the jurisdiction to go behind the net profit shown in the Profit & Loss Account except to the extent provided in Explanation to Section 115J. Similar view has been expressed by our jurisdictional Bombay High Court rendered in CIT Vs. JSW Energy Limited [2015 60 Taxmann.com 303], CIT v. Essar Teleholdings Ltd. [ITA No. 438 of 2012, dated 07/08/2014] & CIT Vs. Bengal Finance & Investments Pvt. Limited [ITA No. 337 of 2013 dated 10/02/2015]. Therefore, respectfully following the catena of judgment in assessee’s favour, we, at the outset, hold that adjustment of disallowance u/s 14A was not required to be made in Book Profits for the purpose of Section 115JB. The ground of assessee’s appeal stands allowed to that extent.
So far as the quantum disallowance u/s 14A read with Rule 8D is concerned, we find that the issue arose in assessee’s own case for AY 2009-10 where the matter was remanded back to Ld. AO for reconsideration of assessee’s documentary evidences and ratio of decision of this Tribunal rendered in Garware Wall Ropes Ltd. [supra]. Upon perusal of factual matrix in the present case, we find that the assessee has been saddled with major disallowance of Rs.505.45 Lacs u/r 8D(2)(i) on account of direct interest expenditure. The Ld. AR contended that the investments made in joint ventures were strategic in nature and had to be excluded ITA Nos.772 &1167/Mum/2016 Indusind Media & Communication Limited Assessment Year 2011-12 while arriving at the disallowance u/s 14A. At the same time, it is uncontroverted fact that the gains from sale of those investments were taxable under the head ‘Capital Gains’. As correctly noted by Ld. CIT(A), the assessee failed the refute the findings of Tax Auditor in this regard and could not demonstrate that it did not incur any direct expenditure to make the investments. Therefore, the issue, in our opinion, remains inconclusive and requires reconsideration by Ld. AO. Hence, the matter is remitted back to Ld. AO to re-appreciate the factual matrix with a direction to assessee to justify his stand forthwith, failing which the Ld. AO shall be at liberty to decide the same as per law on the basis of material available on record. This ground stands allowed for statistical purposes.
So far as assessee’s claim of Loan Processing Fees is concerned, we find that the assessee incurred Loan Processing Fees of Rs.75 Lacs out which Rs.15 Lacs were debited to the Profit & Loss account whereas the balance Rs.60 Lacs was treated as deferred revenue expenditure in the books of account. Further, the assessee did not claim the balance Rs.60 Lacs either in computation of income or by filing the revised return of income but claimed the same during the course of assessment proceedings before Ld. AO. It is quite evident from the order of Ld. CIT(A) that the loan has been utilized to repay the existing unsecured loans which were obtained to make various investments. Undisputedly, the sale of investments was chargeable under the head ‘Capital Gains’. In such a scenario, we find that the reliance of Ld. AR on various case laws could not &1167/Mum/2016 Indusind Media & Communication Limited Assessment Year 2011-12 help assessee since the fact of those cases reveals that the loan was utilized for the purpose of capital expansion of assessee’s business and the purpose of the same was capital expenditure. This vital fact is missing in the present case. Further, it is also not evident from material on record that the assessee did not claim the balance deferred revenue expenditure in subsequent years on proportionate basis. Therefore, this matter is also remanded back to the Ld. AO for re-appreciation of the factual matrix on above lines with a direction to assessee to substantiate his stand failing which Ld. AO shall be at liberty to decide the same as per law on the basis of material available on record. Resultantly, this ground of assessee’s appeal also stands allowed for statistical purposes.
In nutshell, revenue’s appeal ITA No.772/Mum/2016 stands dismissed whereas assessee’s appeal stands partly allowed for statistical purposes. Order pronounced in the open court on 17th January, 2018.