M/s. CREATIVE MOBUS FABRICS LTD., MUMBAI v. ITO Wd. - 6(2)(2), MUMBAI

ITA 1406/MUM/2007 | 2004-2005
Pronouncement Date: 11-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 140619914 RSA 2007
Assessee PAN AAACC5458P
Bench Mumbai
Appeal Number ITA 1406/MUM/2007
Duration Of Justice 3 year(s) 10 month(s) 28 day(s)
Appellant M/s. CREATIVE MOBUS FABRICS LTD., MUMBAI
Respondent ITO Wd. - 6(2)(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 11-01-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 11-01-2011
Date Of Final Hearing 23-12-2010
Next Hearing Date 23-12-2010
Assessment Year 2004-2005
Appeal Filed On 13-02-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH MUMBAI BEFORE SHRI D. MANMOHAN VICE PRESIDENT AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. 1406/MUM/2007 (ASSESSMENT YEAR: 2004-05) M/S. CREATIVE MOBUS FABRICS LTD. INCOME TAX OFFICER - 6(2)(2) 229 ADHYERU INDUSTRIAL ESTATE MUMBAI SUN MILL COMPOUND VS. LOWER PAREL MUMBAI 400013 PAN - AAACC 5458 P APPELLANT RESPONDENT APPELLANT BY: SHRI VIJAY MEHTA RESPONDENT BY: SHRI P.N. DEVDASAN O R D E R PER B. RAMAKOTAIAH A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- VI MUMBAI DATED 13.12.2006. 2. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1. ON FACTS AND IN LAW THE LEARNED CIT(A) ERRED I N CONFIRMING THE DISALLOWANCE OF RS.5 00 000/- MADE BY THE ASSESSING OFFICER U/S. 14A OF THE INCOME-TAX ACT. UNDER THE FACTS AND CIRC UMSTANCES OF THE MATTER HE OUGHT TO HAVE CONFIRMED THE SAID DISALLO WANCE. 2. ON FACTS AND IN LAW THE LEARNED CIT(A) ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO ALLOW DEDUCTION U/S. 80-IB ON EXPORT ENTITLEMENTS (DEPB) OF RS1 29 84 691/-. UNDER THE F ACTS AND CIRCUMSTANCES OF THE MATTER HE OUGHT TO HAVE DIREC TED THE ASSESSING OFFICER TO ALLOW DEDUCTION U/S. 80-IB ON EXPORT ENTITLEMENTS. 3. ON FACTS AND IN LAW THE LEARNED CIT(A) ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO ALLOW DEDUCTION U/S. 80HHC OF THE INCOME-TAX ACT 1961. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER HE OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER TO ALL OW DEDUCTION U/S. 80-HHC. 4. ON FACTS AND IN LAW THE LEARNED CIT(A) ERRED IN NOT CONSIDERING RS.1 29 84 691/- BEING THE PREMIUM ON TRANSFER OF D EPB LICENCE AS EXPORT INCENTIVE ELIGIBLE FOR DEDUCTION U/S. 80- HHC. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER HE OUGHT TO HAVE DIRECTED THE ITA NO. 1406/MUM/2007 M/S. CREATIVE MOBUS FABRICS LTD. 2 ASSESSING OFFICER TO ALLOW DEDUCTION U/S. 80-HHC ON PREMIUM ON TRANSFER OF DEPB LICENCE. 5. ON FACTS AND IN LAW THE LEARNED CIT(A) ERRED IN UPHOLDING THE LEVY OF INTEREST U/S. 234-B AT A SUM OF ` 3 15 186/- CONTRARY TO THE CIRCULAR NO. 02/2006 DATED 17.1.2006 (F. NO. 142/1/ 2006). UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER HE OUGHT NOT TO HAVE UPHELD THE LEVY OF INTEREST U/S. 234B. 6. ON FACTS AND IN LAW THE LEARNED CIT(A) ERRED IN UPHOLDING THE LEVY OF INTEREST U/S. 234-D CONTRARY TO THE CIRCULAR NO. 02/2006 DATED 17.1.2006 (F. NO. 142/1/2006). UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER HE OUGHT NOT TO HAVE UPHELD THE LEVY OF INTEREST U/S. 234B. 3. GROUND NO. 1 PERTAINS TO THE ISSUE OF DISALLOWANCE UNDER SECTION 14A ON THE EXEMPT INCOME EARNED BY THE ASSESSEE FROM MU TUAL FUNDS. DURING THE YEAR ASSESSEE RECEIVED AN INCOME OF ` 1 09 61 332/- AS DIVIDEND AND CLAIMED EXEMPT UNDER SECTION 10(34) OF THE I.T. ACT . WITH REFERENCE TO EXPENSES INCURRED ON THE SAME THE ASSESSEE SUBMITTE D THAT NO EXPENSES ARE INCURRED ON THE SAME. THE A.O. CONSIDERED THAT THE ASSESSEE MUST HAVE SPENT ADMINISTRATIVE EXPENSES FOR EARNING DIVIDEND INCOME WHICH IS ALSO SUBSTANTIAL ESTIMATED THE DISALLOWANCE AT ` 5 00 000/-. ASSESSEE CONTESTED THE SAME BEFORE THE CIT(A) WHO CONFIRMED THE ABOVE ESTIMATION. 4. BEFORE US THE LEARNED COUNSEL SUBMITTED THE DETAILS OF INVESTMENTS MADE BY THE ASSESSEE COMPANY AND THE INCOMES EARNED TO SUBMIT THAT THERE ARE ONLY 4 DIVIDENDS RECEIVED BY THE ASSESSEE WHICH ARE AS UNDER: - ENTRY NO. SCRIPT DATE DIVIDEND AMT. 1 2 3 4 IDBI PRINCIPAL FUND BIRLA INDEX FUND SUNDARAM BOND BIRLA INDEX FUND 26/09/2003 23/10/2003 02/01/2004 09/02/2004 26 61 485.64 34 23 464.18 38 67 683.04 10.08 699.27 TOTAL DIVIDEND INCOME 1 09 61 332.13 OUT OF THE ABOVE FOUR INVESTMENTS IN BIRLA INDEX F UND WAS MADE ON 18.10.2003 AND SOLD ON 16.02.2004 AT ` 1 CRORE ON WHICH DIVIDENDS ARE EARNED TWICE DURING THE YEAR. WITH REFERENCE TO IDB I PRINCIPAL INCOME FUND THE INVESTMENT WAS MADE ON 15.09.2003 AND SOLD ON 0 5.01.2004 ON WHICH ONE DIVIDEND WAS RECEIVED AND WITH REFERENCE TO SUN DARAM BOND THE ITA NO. 1406/MUM/2007 M/S. CREATIVE MOBUS FABRICS LTD. 3 INVESTMENT WAS MADE ON 26.12.2003 WHICH WAS NOT SOL D DURING THE YEAR BUT RECEIVED DIVIDEND ON 02.01.2004. IT WAS HIS SUBMIS SION THAT THERE ARE ONLY FIVE TRANSACTIONS OF MUTUAL FUNDS THREE INVESTMENT S AND TWO SALES AND ABOUT 26 TRANSACTIONS OF PURCHASE OF MARUTI UDYOG S HARES SESA GOA SHARES AND CREATIVE TEXTILE MILLS WHICH HAS BECOME STOCK SUBSEQUENTLY. THERE ARE ONLY SALE OF MARUTI UDYOG SHARES AND SESA GOA SHARE S WHEREAS THE INVESTMENT IN CREATIVE TEXTILE MILLS LTD. IS CONTIN UING AS THE COMPANY BECAME SUBSIDIARY COMPANY. THERE ARE ALSO INVESTMEN TS IN POWER TRADING CORPORATION. THESE ARE THE ONLY TRANSACTIONS UNDERT AKEN BY THE COMPANY BUT THE MAIN BUSINESS IS CLOTH BUSINESS AND EXPORTS IN WHICH THE TURNOVER WAS ` 37.44 CRORES AND THE ASSESSEE HAS EARNED INCOME OF ` 1.5 CORES ON WHICH DEDUCTIONS UNDER SECTION 80IB AND 80G WERE MA DE. CONSIDERING THE MAJOR ACTIVITY OF CLOTH EXPORT THE INVESTMENT IS VE RY INCIDENTAL AND ASSESSEE HAS IN FACT NOT SPENT ANY AMOUNT SO AS TO DISALLOW THE AMOUNT OF ` 5 LAKHS. 5. THE LEARNED D.R. HOWEVER SUBMITTED THAT THE FACT THAT THE ASSESSEE HAS INVESTED IN MUTUAL FUNDS WHICH EARNED DIVIDENDS WHICH ARE TAX FREE ALSO RESULTED IN LOSS BY SALE OF MUTUAL FUNDS DO IN DICATE THE LOT OF EFFORTS HAS GONE INTO TAX PLANNING AND SO ADMINISTRATIVE EXPEND ITURE ON THE ABOVE IS REASONABLY DISALLOWED BY THE A.O. AND CONFIRMED BY THE CIT(A). 6. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE MATTE R. THERE IS NO DENIAL OF THE FACT THAT THE ASSESSEE HAS INVESTED I N THREE MUTUAL FUNDS OF ` 1 CRORE EACH ON WHICH SUBSTANTIAL DIVIDEND INCOME WAS EARNED. APART FROM THAT THE ASSESSEE ALSO INVESTED IN EQUITY SHARES OF STOCKS AND EARNED PROFIT BY WAY OF CAPITAL GAINS. ASSESSEE ALSO INVESTED IN PRIMARY ISSUES OF POWER TRADING CORPORATION AND IN SUBSIDIARY COMPANY TO TH E EXTENT OF ` 2.5 CRORES. EVENTHOUGH ASSESSEES MAIN ACTIVITY IS CLOTH EXPORT S WHICH HAS SUBSTANTIAL TURNOVER IT CANNOT BE DENIED THAT ASSESSEE ALSO DE VOTED SOME TIME AND ENERGY IN MAKING INVESTMENTS. CONSIDERING THE SUBMI SSIONS OF THE LEARNED COUNSEL WE ARE OF THE OPINION THAT SOME EXPENDITURE WAS INCURRED BUT THE ESTIMATION OF REASONABLE EXPENDITURE BY THE AO IN OUR VIEW IS ON THE HIGHER SIDE. THEREFORE WE CONSIDER 2% OF THE EXEMPT AMOUNT AS REASONABLE ITA NO. 1406/MUM/2007 M/S. CREATIVE MOBUS FABRICS LTD. 4 EXPENDITURE. THE A.O. IS DIRECTED TO CONSIDER THE D ISALLOWANCE AT 2% OF THE INCOME SO CLAIMED AS EXEMPT. GROUND IS CONSIDERED P ARTLY ALLOWED. 7. GROUND NO. 2 PERTAINS TO THE CLAIM OF DEDUCTION UND ER SECTION 80IB OF EXPORT ENTITLEMENTS (DEPB). IT WAS FAIRLY CONCEDED THAT CONSEQUENT TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F LIBERTY INDIA 317 ITR 218 THE ISSUE IS TO BE DECIDED AGAINST THE ASSESSEE . THEREFORE THE GROUND IS REJECTED. 8. GROUND NOS. 3 & 4 PERTAIN TO THE ISSUE OF 80HHC. GR OUND NO. 3 PERTAINS TO THE MAIN CLAIM OF 80HHC WHICH THE A.O. HAS NOT ALLOWED ON THE REASON THAT: (A) ASSESSEE HAS NOT CLAIMED 80HHC AS THERE IS NO INCOME FOR CLAIMING EXEMPTION UNDER SECTION 80IB; AND (B) THAT THE AUDIT REPORT UNDER SECTION 80HHC HAS NOT BEEN FURNISHED IN FORM NO. 10 CCAC ALONGWITH RETURN OF INCOME. ASSESSEE CONTESTED THE ISSUE BEFO RE THE CIT(A) WITHOUT FILING ANY AUDIT REPORT AS PRESCRIBED. THE CIT(A) R EJECTED THE GROUND ON THE REASON THAT THERE WAS NO POSITIVE INCOME TO BE CONS IDERED FOR 80HHC. GROUND NO. 4 IS WITH REFERENCE TO THE CLAIM OF 80HH C ON THE TRANSFER OF DEPB LICENCE. THE LEARNED COUNSEL SUBMITTED THAT TH E ASSESSEE HAS NOT FURNISHED AUDIT REPORT BUT IT SHOULD NOT PREVENT TH E ASSESSEE IN CLAIMING THE AMOUNT IN CASE THE INCOMES BECOME POSITIVE. WITH RE FERENCE TO THE ISSUE OF DEPB LICENCE IT WAS FAIRLY SUBMITTED THAT THE MATTE R REQUIRES RE-EXAMINATION BY THE A.O. IN VIEW OF THE PRINCIPLES ESTABLISHED B Y THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF KALPATARU COLOURS AND CHEMICAL S 328 ITR 451. IT WAS ALSO HIS CONTENTION THAT IF THE MATTER IS TO BE REM ANDED BACK TO THE A.O. THE ISSUES WITH REFERENCE TO 80HHC SHOULD BE LEFT OPEN SO AS TO CONSIDER CLAIMS AFRESH. 9. THE LEARNED D.R. HOWEVER OPPOSED THE CONTENTIONS AND SUBMITTED THAT THE ASSESSEE HAS NOT FILED THE AUDIT REPORT AN D ACCORDINGLY THE CLAIM OF 80HHC CANNOT BE ALLOWED. HOWEVER HE FAIRLY ADMITTE D THAT THE ISSUE REGARDING DEPB CAN BE RESTORED BACK TO THE FILE OF THE A.O. 10. WE HAVE CONSIDERED THE ISSUE. AS PER THE AO ORDER THERE SEEMS TO BE NO INCOME TO BE CONSIDERED FOR DEDUCTION UNDER SECT ION 80HHC AFTER CLAIMING DEDUCTION UNDER SECTION 80IB. THEREFORE AS SESSEE WOULD NOT HAVE ITA NO. 1406/MUM/2007 M/S. CREATIVE MOBUS FABRICS LTD. 5 MADE ANY CLAIM UNDER SECTION 80HHC AT THE TIME OF F ILING THE RETURN BUT LEFT A NOTE IN THE RETURN OF INCOME FOR ALTERNATE CLAIM IN CASE THERE IS TAXABLE INCOME. THE ISSUE OF DEDUCTION UNDER SECTION 80HHC ON PREMIUM ON TRANSFER OF DEPB LICENCE IS TO BE RESTORED TO THE F ILE OF THE A.O. TO CONSIDER IT AFRESH IN THE LIGHT OF THE PROVISIONS OF SECTION 80 HHC AND THE PRINCIPLES ESTABLISHED ON THE ISSUE BY THE ABOVE REFERRED HON' BLE BOMBAY HIGH COURT DECISION (OR ANY OTHER PRONOUNCEMENT OF THE HON'BLE SUPREME COURT ON THIS ISSUE IF RECEIVED BY THE TIME THE ORDERS ARE BEING IMPLEMENTED) THE A.O. CAN RE-EXAMINE THE CLAIM OF 80HHC IN CASE THERE IS POSI TIVE INCOME TO BE CONSIDERED FOR DEDUCTION UNDER SECTION 80HHC. IN CA SE THERE IS INCOME COMPUTED BEFORE ALLOWING DEDUCTION U/S 80HHC THE A O IS DIRECTED TO GIVE AN OPPORTUNITY TO ASSESSEE FOR FILING THE AUDIT REP ORT IN PRESCRIBED FORM WHICH IS ONLY A TECHNICAL REQUIREMENT BEFORE FINAL ISING THE ISSUE. WITH THIS DIRECTION THE ISSUES IN GROUND NOS. 3 & 4 ARE RESTO RED TO THE FILE OF THE A.O. TO CONSIDER IT AFRESH ACCORDING TO THE LAW. 11. GROUND NOS. 5 & 6 PERTAIN TO LEVY OF INTEREST UNDER SECTION 234B AND 234D WHICH THE ASSESSEE CLAIMS ARE CONTRARY TO TH E BOARD CIRCULAR NO. 02/2006 DATED 17.01.2006. SINCE THE ISSUES IN GROUN D NOS. 3 & 4 ARE RESTORED TO THE A.O. FOR FRESH CONSIDERATION THE A .O. IS DIRECTED TO EXAMINE THE LEVY OF INTEREST UNDER SECTIONS 234B AND 234D K EEPING IN MIND THE BOARD CIRCULAR ISSUED IN THIS REGARD WHICH IS BINDI NG ON THE REVENUE AUTHORITIES. ACCORDINGLY THE ISSUES IN GROUND NOS. 5 & 6 ARE ALSO RESTORED TO THE FILE OF THE A.O. TO CONSIDER IT AFRESH. 12. IN THE RESULT APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH JANUARY 2011. SD/- SD/- (D. MANMOHAN) (B. RAMAKOTAIAH) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI DATED: 11 TH JANUARY 2011 ITA NO. 1406/MUM/2007 M/S. CREATIVE MOBUS FABRICS LTD. 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) VI MUMBAI 4. THE CIT VI MUMBAI CITY 5. THE DR C BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.