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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
(A.Y:2006-07) (A.Y:2006-07) Dy. Commissioner of Income Tax, Forbes And Company Ltd. Circle 1(1) (Formerly known as Forbes Mumbai Gokak Ltd.) Vs. Gr. Floor Forbes Bldg, Charnjit Rai Marg, Fort, Mumbai-400 001 Appellant .. Respondent Assessee by .. Gave Dave & Ms. Kadambari Dave, AR Revenue by .. B.S.Bist, DR Date of hearing .. 05-04-2017 Date of pronouncement .. 05-04-2017 O R D E R PER BENCH:
These four cross appeals, two by the assessee and two by the Revenue, are arising out of the different order of CIT(A)-1, Mumbai, in appeal No. CIT(A)- I/IT-322/09-10, CIT(A)-I/IT-151/2011-12 dated 08-03-2011 and 28-02-2013. The Assessment was framed by ACIT Circle-1(1), Mumbai for the A.Y. 2006-07 , 5539/Mum/2011 & 3768, 3774/Mum/2013 Forbes & Co. Ltd.; AY: 2006-07 vide order dated 31-12-2008 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The first common issue in both the cross appeals is as regards to the order of CIT(A) setting aside the order of AO directing him to work out total expenditure i.e. direct or indirect both in relation to exempt income and make disallowance in accordance with the decision of the Hon’ble Bombay High Court in the case of Godrej and Boyce Manufacturing Company Ltd. Vs. DCIT (2010) 328 ITR 81 (Bom). The Revenue has filed this appeal against the finding of CIT(A) that Rule 8D is applicable only for and from AY 2008-09 and not for the relevant assessment year 2006-07. Assessee is in appeal against the order of CIT(A) in not considering the submissions of the assessee.
At the outset, the learned Counsel drew our attention to Para 4.2 of CIT(A)’s order which reads as under: -
“4.2 1 have considered the A.O.'s order as well as the appellant's AIR submission. I have also taken note of the case law in the ease of Godrej & Boyce Mfg. Co. Ltd v/s. DCIT [2010]. Taking note of these facts, I am of the considered view that Rule 8D is applicable only for A.Y.- 08-09 onwards. In view of the same, the application of rule 8D cannot be upheld, in view of the jurisdictional High Court decision. However, the judgement of High court also held that the A.O. should provide reasonable opportunity to the assessee while working out the disallowance on account of expenditure i.e. direct/indirect both on account of exempt income, which are not forming part of total income. In view of the jurisdictional High Court decision, I consider it proper and appropriate to direct the A.O. to provide reasonable opportunity to the appellant and work out the total expenditure i.e. direct or indirect both in relation to exempt income and make the disallowance in accordance to the decision of jurisdictional High Court in the case of Page 2 of 7 , 5539/Mum/2011 & 3768, 3774/Mum/2013 Forbes & Co. Ltd.; AY: 2006-07 M/s Godrej & Boyce Mfg. Co. Ltd. With this observation, the appeal of the appellant is partly allowed.”
In view of the above, the learned Counsel stated that the assessee has earned exempt dividend income of Rs. 11,58,71,222/-, but the assessee has never invested interest bearing funds in the shares and mutual funds from where it has earned tax free exempt income and also other arguments which is not been considered by CIT(A). Even otherwise, the learned Counsel for the assessee stated that this issue stands now covered by the Tribunal’s decision for AY 2005-06 in ITA in and 3789/Mum/2009 for AY 2005-06 order dated 28-02-2017, wherein Tribunal has restored the matter back to the file of the AO by relying the earlier years ITAT order in assessee’s own case by observing Para 7 and 8 as under: -
“7. We have considered the submissions of the parties and perused the material available on record. As could be seen, the learned Commissioner (Appeals) while deciding the issue of disallowance under section 14A has directed the Assessing Officer to compute it by applying rule 8D. However, as held by the Hon'ble Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. v/s DCIT, [2010], 328 ITR 081 (Bom.), the provisions of rule 8D is applicable prospectively from the assessment year 2008– 09 onwards. The Hon'ble Jurisdictional High Court in the said decision has also observed that for prior assessment years disallowance under section 14A can be worked out on a reasonable basis. We have noted, identical issue arose in assessee’s own case for the assessment year 2004–05. The Tribunal, while deciding assessee’s appeal in ITA no.1382/Mum./2009, dated 7th October 2016, has restored the issue back to the file of the Assessing Officer observing as under:–
“5.2 We have heard both parties and perused and carefully considered the material on record; Page 3 of 7 , 5539/Mum/2011 & 3768, 3774/Mum/2013 Forbes & Co. Ltd.; AY: 2006-07 including the judicial pronouncements cited. As contended by the assessee, it is settled position of law that the provisions of Rule 8D of the I.T. Rules, 1962 are applicable prospectively for and from A.Y. 2008- 09 and would not operate for the assessment years prior thereto. In this view of the matter, the learned CIT(A)‟s directions to the AO to work out/compute the disallowance under section 14A of the Act by applying Rule 8D of the Rules is erroneous and we therefore delete the same and in the fitness of things, we direct the AO to re-compute the disallowance under section 14A of the Act afresh, in accordance with the law prevalent for the year under consideration, after affording the assessee adequate opportunity of being heard and to file details/submissions required in this regard. We hold and direct accordingly. Consequently, grounds I and II of the assessee‟s appeal are treated as allowed for statistical purposes.”
8. Respectfully following the decision of the Co–ordinate Bench cited supra, we restore the issue back to the Assessing Officer for deciding afresh keeping in view the directions of the Tribunal after providing reasonable opportunity of being heard to the assessee. Grounds no.(i) and (ii) are allowed for statistical purposes.”
On query from the Bench the learned Sr. DR fairly conceded the position and stated that she has no objection in case the matter remanded back to the file of the AO denovo. In view of the above facts and circumstances we set aside the orders of the lower authorities and restore the matter back to the file of the AO for fresh adjudication on the issue in term of the orders of the Tribunal in AY 2004-05 and 2005-06. On this issue, the appeal of assessee in ITA No. , 5539/Mum/2011 & 3768, 3774/Mum/2013 Forbes & Co. Ltd.; AY: 2006-07 5539/Mum/2011 is remanded back to the file of the AO and allowed for statistical purposes. Revenue’s appeal in is dismissed.
The one more issue in for AY 2006-07 of assessee’s appeal is as regards to the disallowance of interest on loans to subsidiaries at Rs. 42,71,250/-.
At the outset, the learned Counsel for the assessee stated that these are old loans and Tribunal in for AY 2005-06 vide order dated 28-02-2017 has considered the issue following Tribunals order in assessee’s own case for AY 2002-03 and 2003-04 by observing in Para 28 as under: -
“28. We have considered the submissions of the parties and perused the material available on record. Though, the learned Authorised Representative had submitted before us that the issue is covered by earlier orders of the Tribunal for assessment year 2002–03 and 2003– 04, however, after carefully examining the facts of the present case, vis–a–vis the orders of the Tribunal for the earlier assessment years, we find little difference in the facts. Undisputedly, in the earlier assessment years, the first appellate authority had given a categorical finding that the loans and advances given to the subsidiaries were for commercial expediency. However, in the impugned assessment year, the learned Commissioner (Appeals) has observed that the assessee has failed to establish the commercial expediency in advancing interest free funds to the subsidiary. Though, assessee had submitted before the learned Commissioner (Appeals) that the advances were made out of common pool having borrowed funds and self–generated funds, however, the learned Commissioner (Appeals) has observed that in the absence of any verification that the advances to the subsidiary companies was only out of Page 5 of 7 , 5539/Mum/2011 & 3768, 3774/Mum/2013 Forbes & Co. Ltd.; AY: 2006-07 self–generated income, assessee’s claim cannot be accepted. In this context, it is necessary to observe, the Assessing Officer in Para–3.5 of the assessment order has mentioned that the total funds available with the assessee amounted to ` 370,18,68,522, out of which, ` 167,20,18,599, was borrowed funds. Thus, from the aforesaid figures, it is very much evident that the assessee was having sufficient self–generated / interest free funds available with it to make interest free advance of ` 25,67,46,923. In fact, the learned Commissioner (Appeals) has also observed, advances have been made out of common funds available with the assessee which includes both self–generated funds and borrowed funds. As held by the Hon'ble Jurisdictional High Court in CIT v/s Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom), when mixed funds are available with the assessee, the presumption would be, the interest free advances have been made out of the interest free funds available with the assessee. Therefore, applying the ratio of the Hon'ble Jurisdictional High Court (supra), no notional disallowance / adding back of interest attributable to interest free advances can be made. The addition made is, therefore, deleted. Ground no.(v) is allowed.”
In view of the above the learned Counsel for the assessee stated that loans and advances which are under consideration have already been considered by the Tribunal in earlier years and decided the issue in favour of assessee allowing the claim of the assessee. The learned Counsel for the assessee stated that the issue now stands covered in favour of assessee. On the other hand, the learned Sr. DR fairly conceded that there is reduction in loans and advances what was in earlier years. We find that this issue is squarely covered in favour of assessee and against Revenue by the decision of the Tribunal in assessee’s own case. Hence, respectfully following the same we allow the claim of the assessee. The orders of the lower authorities are set aside and this issue of assessee’s appeal is allowed. Page 6 of 7
ITA Nos. 5535, 5539/Mum/2011 & 3768, 3774/Mum/2013 Forbes & Co. Ltd.; AY: 2006-07 9. Coming to and 3774/Mum/2013 for AY 2006-07, i.e. appeal of Revenue and the appeal of assessee, these two appeals are against the orders of Tribunal which was given effect by the AO in regard to disallowance of expenses relatable to exempt income under section 14A of the Act. Since, we have already set aside this issue back to the file of the AO in main appeal of the assessee in ITA No. 5539/Mum2/2011 and Revenue in is dismissed, these two appeals have become infructuous and hence dismissed.
In the result, the appeal of Assessee in is partly allowed for statistical purpose and all other three appeals i.e. the appeal of assessee in ITA No. 3768/Mum/2013 and Revenue’s appeals i.e. in 3774/Mum/2013 are dismissed.
Order pronounced in the open court on 05-04-2017.