DCIT CC 3(4) CEN RG 3, MUMBAI vs. WELSPUN SYNTEX LTD, MUMBAI

Revenue by: Ms. Sunita Bill (CIT-DR) Assessee by: ShriMitesh Shah सुनवाईकीतारीख / Date of Hearing:05.12.2016 घोषणाकीतारीख /Date of Pronouncement: 20.01.2017 आदेश / O R D E R

PER AMARJIT SINGH, JM:

1. Whether on the facts and in the circumstances of the case and in law whether the Ld. CIT(A) was justified in excluding the discounting and banking charges from interest expenditure while computing disallowance u/s.14A without realizing that the discounting and banking charges are nothing but financial cost of obtaining banking funds and are akin to interest expenditure.”

3. The brief facts of the case are that a search operation u/s.132 of the Income Tax Act, 1961 ( in short “the Act”) was conducted on 13.10.2010 in Welspun group of cases. The assessee was inter alia covered in the search operation. These cases were centralized in this circle. Notice u/s.153A of the Act was issued on 04.08.2011 and served upon the assessee asking the assessee to file the return of income for the A.Y.2006-07. In response to the notice issued u/s.153A of the Act, the assessee filed its return of income on 16.09.2011 for the A.Y.2006-07 declaring total income at Rs.Nil. The assessee filed its original return of income u/s.139(1) of the Act on 29.11.2006, declaring total income to the tune of Rs.3,27,113/-. Thus, in the return filed pursuance to notice u/s.153A of the Act, income was reduced by Rs.3,27,113/-. Thereafter, the notice u/s.143(2) of the Act was issued on 17.05.2012 and duly served upon the assessee. Subsequently, notices u/s.142(1) of the Act was also issued. The Assessing Officer disallowed the expenditure incurred to earn the exempt income u/s.14A of the Act to the tune of Rs.77,37,438/- specifically, in view of the direction of the Hon’ble Income Tax Appellate Tribunal Mumbai bench vide order dated 15.02.2012 in & 2936/Mum/2011, for the A.Y.2006-07 & 2007-08 A.Y.2006-07 & 2007-08 and also disallowed exemption u/s.10(23D) of the Act to the tune of Rs.3,27,113/- and professional fees to the tune of Rs.17,00,000/- and assessed the income to the tune of Rs.Nil. Feeling aggrieved the assessee filed the present appeal before CIT(A) who directed the Assessing Officer to not to include the discount and bank charges since it was not interest in true sense and directed the Assessing Officer to treat 0.5% of the investment as attributable towards administrative expenses but the revenue was not satisfied, therefore present appeal has been filed before us. ISSUE NO.1:- 4. Under this issue the learned representative of the revenue has argued that the expenditure incurred to earn the exempt income is liable to be computed strictly in view of the direction of the Hon’ble Income Tax Appellate Tribunal Mumbai bench vide order dated 15.02.2012 in & 2936/Mum/2011, for the A.Y.2006-07 & 2007-08 but the CIT(A) has wrongly directed the Assessing Officer to calculate the expenditure to earn the exempt income to apply the provision @ 0.5% on account of administrative expenses u/s.14A r.w.Rule 8D (iii) of the Act and also directed the Assessing Officer to not to include the discounting and bank charges since it is not an interest, therefore, in the said circumstances the order of the CIT(A) in question is not liable to be sustainable in the eyes of law and the Assessing Officer is liable to be directed to follow the directions in the above mentioned cases dated 15.02.2012 in accordance with law. However, on the other hand the learned representative of the assessee has refuted the said contention. The order of the CIT(A) in A.Y.2006-07 & 2007-08 question has been perused in which the Assessing Officer has been directed to not to include the discount and bank charges since it is not a true sense in assessing the expenditure to earn the exempt income. The CIT(A) has also directed to the Assessing Officer in treating the 0.5% of the investment as attributable towards administrative expenses. No doubt the direction contained in the order in question has diverted the sense of the order passed Hon’ble Income Tax Appellate Tribunal Mumbai bench vide order dated 15.02.2012 in & 2936/Mum/2011, for the A.Y.2006-07 & 2007-08. Since order of the Hon’ble Income Tax Appellate Tribunal (supra) in which the directions has been given to the Assessing Officer is required to be implemented in accordance with law, therefore, we are of the view that the order passed by the CIT(A) in question is not liable to be sustainable in the eyes of law. Hence, we set aside the order in question and direct the Assessing Officer to reassess the expenditure incurred to earn the exempt income strictly in accordance with directions contained in the order dated 15.02.2012 in accordance with law by giving an opportunity of being heard to the assessee. Accordingly, we set aside the finding of the CIT(A) on this issue and restore the file to the Assessing Officer to decide the matter a fresh in view of the above said directions. Accordingly, this issue is decided in favour of the Revenue against the assessee.

ITA No.2144/Mum/2015 (A.Y.2007-08):- 6. The revenue has raised the following grounds:-

A.Y.2006-07 & 2007-08 “1. Whether on the facts and in the circumstances of the case and in law whether the Ld. CIT(A) was justified in excluding the discounting and banking charges from interest expenditure while computing disallowance u/s.14A without realizing that the discounting and banking charges are nothing but financial cost of obtaining banking funds and are akin to interest expenditure.”

7. The facts of the present case are quite similar to the above said however the figures are different. The matter of controversy involved is also the same which has been involved in the above mentioned appeal. Since this matter of controversy has already been adjudicated in therefore we decide this appeal also on the basis of the finding given in the above said appeal on the issues which has been taken in this appeal also.

8. In the result, both the appeals filed by the revenue are hereby ordered to be Allowed.

Order pronounced in the open court on 20th January, 2007. (RAJENDRA) (AMARJIT SINGH) लेखासद" / ACCOUNTANT MEMBER "ाियकसद"/JUDICIAL MEMBER मुंबई Mumbai; िदनांकDated : 20th January, 2017 MP A.Y.2006-07 & 2007-08