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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
Before: Shri Amit Shukla, & Shri Ashwani Taneja
आदेश / O R D E R Per Ashwani Taneja (Accountant Member): This appeal has been filed by the assessee against order of Ld. Commissioner of Income Tax(Appeals)-22, Mumbai, {(in short ‘CIT(A)’}, dated 05.03.2012 passed against assessment 2 Alkyl Amines Chemicals order u/s 143(3) of the Act, dated 14.12.2011 for the A.Y.2009-10 on the following grounds: “1.1 On the facts and in circumstances of the case the Commissioner of Income Tax (Appeals)- 22, Mumbai ["the CIT(A)"] erred in not appreciating the fact that the Assessing Officer [ The A.O.] had not recorded the satisfaction on an objective basis regarding the working made by the Appellant for the purpose of disallowance u/s.14A of the Income Tax Act,1961(" the Act ) having regards to its accounts. 1.2 The Learned CIT(A) erred in not appreciating the fact that the A.O. had not established that borrowings were utilized for making tax free investments in as much as own funds were more then the tax free investments and as such the presumption was that such investments were made out of owned funds in the light of the decision of the Bombay High Court in the case of CIT vs. Reliance Utilities & Powers Ltd. 1.3 The Learned CIT(A) erred in confirming the action of A.O. while disallowing u/s.14A(2) of the Act r.w.r Rule8D(ii) of the Income Tax Rules,1962 ("The Rules") being alleged expenses incurred to earn tax free income other than those offered by the Appellant u/s.14A(2) r.w.r Rule8D(iii). 1.4 The appellant prays that it be held that provisions of Rule 8D(ii) would not be applicable. 1.5. The Appellant prays that the said disallowance be deleted. 1.6 Without Prejudice to the above, the Appellant prays that the disallowance be restricted to Rs. 1,13,031/- instead of Rs.11,11,000/-. 2.1 The CIT (A) erred in confirming the action of the A.O in disallowing Rs. 2,12,74,805/- by treating it as prior period expenses. 2.2 The CIT(A) erred in not admitting the facts submitted before him after perusing the submission made by the Appellant on the alleged ground that the said submission not produced before the A.O.
3 Alkyl Amines Chemicals 2.3 Without prejudice to above, the A.O. erred in making double addition of Rs.21,11,405 while treating the expenses as prior period expenses. 2.4 The Appellant prays that the said disallowance be deleted. 3.1 The CIT(A) erred in giving no specific findings on justification of allowability or disallowability of the expenses u/s.35(2AB) of the Act made by the A.O. and instead directing the A.O. to dispose of the rectification application expeditiously. 3.2 The Appellant prays that the said deduction u/s 35(2AB) be allowed. 4.1 The CIT(A) erred in confirming the action of the A.O. in treating the interest income of Rs. 24,13,000/- earned by the Appellant as "Income from other sources". 4.2 The CIT(A) erred in not appreciating the fact that the said interest income on Fixed deposit were earned in the course of carrying on business. 4.3 The Appellant prays that the interest income so earned on the said fixed deposits be assessed as "Profits and gains from Business and Professional" instead of "Income from Other Source". 5.1 The CIT(A) erred in confirming the action of the A.O. in adding the sum of Rs. 11,11,000/-, being the expenses disallowed under Rule 8D of the Rules r.w.s 14A of the Act, while computing Book Profit u/s. 115JB on the alleged ground that the said expense were incurred in relation to earning of exempt income for the purpose of provision of clause (f) of Explanation to Section 115JB of the Act. In the light of the decision of M/S. Essar Teleholdings Ltd. vs. DCIT (ITA No.3850/Mum/2010) held that provisions of sub sec.(2) & (3) of section14A cannot be imported into clause(f) of the Explanation to sec.115JA of the Act. 5.2 The A.O. erred in not appreciating the legal position as laid down by Hon'ble Mumbai Tribunal in the case of M/s. Essar Teleholdings Ltd. vs. DCIT (ITA No.3850/Mum/2010). 5.3 The Appellant prays that in the absence of any proximity having been proved between earning 4 Alkyl Amines Chemicals exempt income and expenditure attributable to earning such exempt income, it be held that no expenditure would be said "relatable to" any income to which sec 10 or 11 or 12 of the Act apply, and as such no addition under Clause (f) of Explanation 1 to Sec 1153B of the Act would be made. 6.1 The CIT(A) erred in confirming the action of the A.O. in making an addition to the computation of book profits u/s. 1151B of the Act, a sum of Rs. 1,48,70,295/- on the basis that the impugned expenses were pertaining to earlier years. 6.2 The Appellant prays that the said addition be deleted. The CIT(A) erred in confirming the action of the A.O. in making an addition to the computation of book profits u/s.1153B of the Act, a sum of Rs.4,07,000/- on the alleged ground that even permanent reduction in value of asset is diminution in the value of the asset. 7.2 The appellant prays that the said addition be deleted. 8.1 The Appellant craves leave to add, to amend or to alter any of the above grounds of appeal.”
During the course of hearing, arguments were made by Shri Divyesh I. Shah & Amit A. Desai, Authorised Representatives (ARs) on behalf of the Assessee and by Shri Ganesh Bare, Departmental Representative (DR) on behalf of the Revenue.
Ground No.1.1 to 1.6: These grounds deal with the disallowance u/s 14A. We have heard both the parties on this issue. Ld. Counsel submitted that the assessee had voluntarily made disallowance of Rs.1.13 lakhs. It was shown to AO as per a note sheet submitted to the AO, and there were no bases to make further disallowance. It has been submitted that the entire investment has been made either in the subsidiary companies or associated company for strategic reasons. Further, investment made in the foreign company is also for 5 Alkyl Amines Chemicals strategic reasons and the same would earn taxable amount of dividend. It has been further shown to us that assessee has ‘own funds’ which are in far excess of investment made in ‘tax free securities’. It was further submitted that similar issue had come up before the Tribunal in A.Y. 2008-09 wherein vide order dated 3rd July 2013 in it was held by the Tribunal that the assessee had sufficient interest free funds and therefore, no disallowance was liable to be made u/s 14A. 3.1. Per contra, Ld. DR relied upon the orders of the lower authorities. 3.2. We have gone through entire material placed before us. It is noted from the balance sheet of the assessee that own funds of the assessee were to the tune of Rs.6316.79 lakhs as against total amount of investment of Rs.230.26 lakhs. Under these circumstances, we do not find any justification for disallowance u/s 14A on account of interest, as was held by the Hon’ble Bombay High Court in the case of CIT v. HDFC Bank Ltd. 366 ITR 505. It is further noted that entire investment has been made either in the 100% subsidiary companies or in associated companies in which assessee holds more than 37% shares. Thus, entire investment is a strategic investment. It is further noted by us that one of the investment is made into a foreign company which will earn taxable amount of dividend. Thus, for this reason also disallowance u/s 14A is not justified. Similar view has been taken by the Tribunal in assessee’s own case for A.Y. 2008-09. Thus, respectfully following with the order of the Tribunal and 6 Alkyl Amines Chemicals Hon’ble High Court has stated above, we direct the AO to restrict the disallowance u/s 14A to a some of Rs.1,13,031/- as was made voluntarily by the assessee in its return of income. Thus, grounds raised
by the assessee in this regard are allowed.
4. Ground No.2.1 & 2.2 were not pressed and therefore, dismissed.
5. Ground No.2.3: The assessee has submitted that while making disallowance out of prior period expenses, the AO has inadvertently made double addition of Rs.21,11,405/- and he requested for an appropriate direction to the AO to delete the disallowance to the extent of double addition. 5.1. Per contra, Ld. DR had no objection in this regard. Accordingly, we send this issue back to the file of the AO and direct him to verify the facts and if it has led to double disallowance then to that extent disallowance should be reduced. The AO shall give adequate opportunity of hearing to the assessee before deciding this issue afresh. This ground may be treated as partly allowed for statistical purposes.
6. Ground No.3.1: This ground has been supported by an additional ground no.3.1. In this ground, Ld. Counsel has submitted that while making disallowance of the expenses u/s 35(2AB) of the Act, the AO had inadvertently disallowed capital expenses to the tune of Rs.61,21,833/- which were not debited in the Profit and Loss account and therefore, disallowance to this extent should be reduced for which an appropriate direction may be issued to the AO.
7 Alkyl Amines Chemicals 6.1. Per contra, Ld. DR submitted that this issue may be remitted back to the AO for verification of this fact. 6.2. We have considered the submissions of both the parties and found that in the total addition of Rs.1,25,68,293/-, there was included a sum of Rs.64,46,460/- which was debited in the Profit and Loss account and already offered for disallowance in the computation of income filed by the assessee with its Return whereas the balance amount of Rs.61,21,833/- was on account of capital expenditure which was stated to be not debited in the Profit and Loss account. Thus, in the interest of fairness and justice, we remit this issue back to the file of the AO with the direction to disallow only that part of expenses which have been debited in the Profit and Loss account. Further, in case there is a double disallowance, then disallowance should be reduced accordingly. The AO shall give adequate opportunity of hearing to the assessee, before deciding this issue afresh the AO shall take into consideration on objective basis, details and documents as may be submitted by the assessee. This ground may be treated as partly allowed for statistical purposes.
Ground No.4.1 to 4.3: These grounds deal with the action of AO in treating the interest income of Rs.24,13,000/- earned by the assessee, as ‘income from other sources’. 7.1. During the course of hearing it transpired that though, the AO had made discussion in the body of the assessment order but while making computation of taxable income in the concluding part of the assessment order, the AO has treated the interest income as part of business income. Thus, as on 8 Alkyl Amines Chemicals date there is no grievance nor there is any cause of action arising out of the assessment order. Under these circumstances, we treat these grounds as infructuous at this stage and dismiss them as such.
Ground No.51. to 6.2: These grounds are consequential and therefore dismissed.
Ground No.7.1 & 7.2: In these grounds, assessee has challenged the action of lower authorities in making addition of Rs.4,07,000/- while computing book profits u/s 115JB of the Act, being the amount of assets written off.
9.1. With the assistance of both the parties, we have gone through the return and accounts shown before us. It is noted that assessee has debited a sum of Rs. 4.07 lacs in its Profit and Loss account. But, it has been added back to the book profits by the AO while computing book profits u/s 115JB. We find force in the arguments of Ld. Counsel that while computing book profit in the assessment order; the provisions of section 115JB do not permit making addition of those items which have not been prescribed to be added u/s 115JB. The AO has also not given any justification why this amount has been added back. Thus, we direct the AO to delete this amount for the amount of book profit. This ground may be treated as allowed.
9 Alkyl Amines Chemicals 10. In the result, the appeal filed by the Assessee is allowed.
Order pronounced in the open court on 05th August, 2016.