ESSAR TELEHOLDINGS LTD, MUMBAI v. DCIT RG 5(1), MUMBAI

ITA 3850/MUM/2010 | 2005-2006
Pronouncement Date: 29-07-2011 | Result: Partly Allowed

Appeal Details

RSA Number 385019914 RSA 2010
Assessee PAN AAACS4448K
Bench Mumbai
Appeal Number ITA 3850/MUM/2010
Duration Of Justice 1 year(s) 2 month(s) 17 day(s)
Appellant ESSAR TELEHOLDINGS LTD, MUMBAI
Respondent DCIT RG 5(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 29-07-2011
Assessment Year 2005-2006
Appeal Filed On 12-05-2010
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI J. SUDHAKAR REDDY (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NOS. 3850 /MUM/2010 ASSESSMENT YEAR- 2005-06 M/S. ESSAR TELEHOLDINGS LTD. 11 KESHAVRAO KHADYE MARG MAHALAXMI MUMBAI-400 034 PAN-AAACS 4448K VS. THE DCIT RANGE 5(1) AAYAKAR BHAVAN MUMBAI-400 020 APPELLANT BY: SHRI VIJAY MEHTA RESPONDENT BY: SHRI B. JAYA KUMAR O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DT.29.6.2011 PASSED BY THE LD. CIT(A)-9 FOR THE ASS ESSMENT YEAR 2005-06. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE APPELLA NT COMPANY IS ENGAGED IN THE BUSINESS OF INVESTMENT. RETURN OF INCOME SHOWING T OTAL LOSS OF RS. 87 98 40 509/- WAS FILED ON 31.10.2005 ALONGWITH THE COPIES OF AUDITED BALANCE SHEET AND PROFIT AND LOSS ACCOUNT AND THE TAX AUDIT REPORT U/S. 44AB OF THE I .T. ACT. AFTER SCRUTINY OF RETURN DETAILS AND INFORMATION SUBMITTED THE ASSESSING OF FICER COMPUTED TOTAL LOSS OF RS. 65 60 40 509/- U/S. 143(3) OF THE ACT ON 27.12.2007 . WHILE ARRIVING THE AFORESAID LOSS THE AO DISALLOWED FINANCE CHARGES T O THE TUNE OF RS. 22.38 CRORES U/S. 14A OF THE I.T. ACT. DURING THE YEAR THE ASSESSEE COMPANY HAS NOT RECEIVED ANY DIVIDEND OR ANY INCOME IN RESPECT OF INVESTMENT OF SHARES WHICH IS EXEMPT OR OTHERWISE DOES NOT FORM PART OF TOTAL INCOME. THE AO THEREFOR E APPLYING PROVISIONS OF SEC. 14A 2 AND THEREBY DISALLOWING PROPORTIONATE INTEREST ON L OANS TAKEN FOR THE PURPOSE OF INVESTMENT. 3. WHILE ARRIVING THE BOOK PROFIT U/S. 115JB THE A O ADDED PROPORTIONATE FINANCE CHARGES OF RS. 4.06 CRORES RELATED TO EXEMPT INCOME U/S. 10(34) OF THE ACT. DURING THE YEAR THE ASSESSEE COMPANY HAS NOT RECEIVED ANY DIV IDEND OR ANY INCOME IN RESPECT OF INVESTMENT OF SHARES WHICH IS EXEMPT OR OTHERWISE D OES NOT FORM PART OF TOTAL INCOME. THE AO THEREFORE ERRED IN ADDING THE PROPORTIONATE FINANCE CHARGES OF RS. 4.06 CRORES RELATED TO EXEMPT INCOME U/S. 10(34) OF THE ACT WH ILE COMPUTING THE BOOK PROFIT U/S. 115JB OF THE I.T. ACT. 4. AGGRIEVED BY THE ORDER OF THE AO ASSESSEE PREFE RRED AN APPEAL BEFORE THE LD. CIT(A). 5. THE FIRST GROUND RAISED BY THE ASSESSEE READS AS FOLLOWS: 1. THE CIT(A) ERRED IN DIRECTING THE AO TO DISALLO W THE EXPENDITURE AS PER RULE 8D R.W. 14A OF THE I.T. ACT. 1.1 THE CIT(A) ERRED IN ENHANCING THE AMOUNT OF DISALLO WANCE U/S. 14A BY DIRECTING TO DISALLOW THE EXPENDITURE AS PE R RULE 8D AS AGAINST THE DISALLOWANCE MADE BY THE AO BASED ON TH E AVERAGE COST OF FUNDS. 1.2 THE CIT(A) ERRED IN APPLYING RULE 8D OF I.T. RULES TO THE APPELLANT FOR THE A.Y. UNDER APPEAL WITHOUT APPRECIATING THE FACT THAT RULE 8D WAS APPLICABLE FROM A.Y. 2007-08. 6. ON PERUSAL OF THE LD. CIT(A)S ORDER WE FIND T HAT THE CIT(A) HAS CONFIRMED THE AOS ACTION BY APPLYING THE DECISION OF ITAT SPECI AL BENCH MUMBAI IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. (2008) 119 TTJ 289 (MU M) AND HAS THUS APPLIED THE METHOD PROVIDED UNDER RULE 8D OF THE I.T. RULES. A T THIS STAGE IT IS PERTINENT TO NOTE THAT THE DECISION OF SPECIAL BENCH OF TRIBUNAL IN T HE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. (SUPRA) HOLDING THAT RULE 8D IS RETROSPEC TIVE IN NATURE HAS BEEN OVER-RULES BY 3 THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE VS DCIT (2010) 43 DTR 177 (BOM.) WHEREIN IT HAS BEEN HELD THAT RULE 8D W OULD BE APPLICABLE ONLY ON AND FROM A.Y. 2008-09 ONWARDS AND NOT PRIOR TO A.Y. 200 8-09. IN THE LIGHT OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE VS DCIT (SUPRA) WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND HOLD THAT NO DISALLOWANCE U/S. 14A SHALL BE MADE BY APPLYING THE METHOD PROVIDED U/R 8D OF T HE I.T RULES IN THE PRESENT ASSESSMENT YEAR WHICH IS PRIOR TO A.Y. 2008-09. HOWEVER IN CIRCUMSTANCES AS ARE PREVAILING PRESENTL Y AND THE DISALLOWANCE HAS TO BE WORKED OUT BY THE AO ON SOME REASONABLE BASIS AND NOT RULE 8D. UNDER SUCH CIRCUMSTANCES WE SET ASIDE THE IMPUGNED ORDER AND RESTORE THE MATTER TO THE FILE OF THE AO FOR DECIDING THE QUANTUM OF DISALLOWANCE AS PER THE AFORE-NOTED JUDGMENT OF GODREJ & BOYCE (SUPRA) AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7. THE SECOND GROUND RAISED BY THE ASSESSEE READS A S FOLLOWS: THE CIT(A) ERRED IN DIRECTING THE AO TO ADJUST THE BOOK PROFITS COMPUTED U/S. 115JB WITH THE EXPENDITURE AS PER RULE 8D R.W. S.14A OF THE ACT. 8. AS ALREADY HELD IN GROUND NO. 1 THE PROVISIONS O F RULE 8D ARE NOT APPLICABLE TO THE PRESENT A.Y. UNDER CONSIDERATION. THEREFORE D ISALLOWANCE OF EXPENDITURE BY APPLYING RULE 8D IS NOT JUSTIFIED. FURTHER NO ACT UAL EXPENDITURE WAS DEBITED IN THE PROFIT & LOSS ACCOUNT RELATING TO THE EARNING OF EX EMPT INCOME. THEREFORE THE PROVISIONS OF SEC. 14A CANNOT BE IMPORTED INTO WHIL E COMPUTING THE BOOK PROFIT U/S. 115JB OF THE ACT INASMUCH AS CLAUSE (F) OF EXPLANATI ON TO SEC. 115JB REFERS TO THE AMOUNT DEBITED TO THE PROFIT & LOSS ACCOUNT WHICH C AN BE ADDED BACK TO THE BOOK PROFIT WHILE COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. IN THIS CONNECTION RELIANCE CAN BE PLACED UPON THE DECISION OF ITAT DELHI BENCH IN THE CASE OF GOETZE (INDIA) LTD. VS CIT (2009) 32 SOT 101 (DEL) WHEREIN IT HAS BEEN HELD T HAT PROVISIONS OF SUB-SEC. (2) & (3) 4 OF SEC. 14A CANNOT BE IMPORTED INTO CLAUSE (F) OF T HE EXPLANATION TO SEC. 115JA OF THE ACT. IN THIS VIEW OF THE MATTER WE THEREFORE DEL ETE THE DISALLOWANCE OF EXPENSES CONFIRMED BY THE CIT(A) WHILE COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. IN OTHER WORDS NO ADDITION TO THE BOOK PROFIT SHALL BE MADE ON ACCOUNT OF ALLEGED EXPENDITURE INCURRED TO EARN EXEMPT INCOME WHILE COMPUTING INCO ME U/S. 115JB OF THE ACT. THUS GROUND NO. 2 IS DECIDED IN FAVOUR OF THE ASSESSEE. 9. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 29 TH DAY OF JULY 2011 SD/- SD/- (J.SUDHAKAR REDDY) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 29 TH JULY 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR E BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR I.T.A.T MUMBAI 5 DATE INITIALS 1. DRAFT DICTATED ON: 25.6.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 26.07.2011 SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: SR. PS/PS 6. ORDER PRONOUNCED ON: SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: SR. PS/PS 9. DATE ON WHICH FILE GOES TO AR 10. DATE OF DISPATCH OF ORDER: