National Cooperative Development Corporation, New Delhi v. DCIT, New Delhi

ITA 444/DEL/2010 | 2001-2002
Pronouncement Date: 11-03-2011 | Result: Partly Allowed

Appeal Details

RSA Number 44420114 RSA 2010
Assessee PAN AAACN1964F
Bench Delhi
Appeal Number ITA 444/DEL/2010
Duration Of Justice 1 year(s) 1 month(s) 9 day(s)
Appellant National Cooperative Development Corporation, New Delhi
Respondent DCIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 11-03-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 11-03-2011
Date Of Final Hearing 17-02-2011
Next Hearing Date 17-02-2011
Assessment Year 2001-2002
Appeal Filed On 01-02-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES E: NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA VICE PRESIDENT AND SHRI RAJPAL YADAV JUDICIAL MEMBER ITA NO. 444/DEL/2010 ASSESSMENT YEAR: 2001-02 NATIONAL COOPERATIVE DEVELOPMENT CORPORATION VS. D CIT 4 SIRI INSTITUTIIONAL AREA HAUZ KHAS NEW DELHI. CIRCLE 13(1) AAACN1964F NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. K.V.S.R. KRISHNA CA RESPONDENT BY : SH. PE EYUSH SONKAR SR. DR ORDER PER RAJPAL YADAV J.M. THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE O RDER OF LD. CIT(A) DATED 24.12.09 PASSED FOR A.Y. 2001-02. THE GROUND S OF APPEAL TAKEN BY THE ASSESSEE ARE NOT IN CONSONANCE WITH RULE 8 OF I TAT RULES THEY ARE DESCRIPTION AND ARGUMENTATIVE IN NATURE. IN BRIEF LD. COUNSEL OF THE ASSESSEE HAS POINTED OUT THAT COD HAS GRANTED PERMI SSION TO THE ASSESSEE ONLY ON TWO ISSUES FOR CHALLENGING THE ORD ER OF CIT(A). THUS TWO ISSUES ARE: - 1) DISALLOWANCE OF DEDUCTION OF 40% OF INCOME U/S 3 6(1)(III) 2) DISALLOWANCE OF EXPENSES U/S 14A OF THE ACT. ITA NO. 444/D/10 2 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HA S FILED ITS RETURN OF INCOME ON 22.10.01 DECLARING AN INCOME OF RS. 39 91 91 320/-. THE LD. AO HAS REOPENED THE ASSESSMENT BY ISSUANCE OF A NOTICE US/ 148 OF THE INCOME TAX ACT. IN THE REASSESSMENT PROCEEDING HE ISSUED NOTICE U/S 143(2) AND 142(1) OF THE ACT. HE DIRECTED THE ASSE SSEE TO EXPLAIN AS TO HOW THE DIVIDEND OF RS. 21 15 500/- MISCELLANEOUS RECEIPT OF RS. 64 19 096/- AND INTEREST OF RS. 22 77 52 315/- QUAL IFY FOR DEDUCTION FOR THE PURPOSE OF SPECIAL RESERVE U/S 36(1)(VIII) OF THE I NCOME TAX ACT. THE ASSESSEE HAS SUBMITTED ITS REPLY VIDE LETTER DATED 3.07.2007 AS WELL AS 23.11.07. ACCORDING TO THE ASSESSEE IT IS A GOVERN MENT CORPORATION ENGAGED IN PROVIDING LONG TERM FINANCE AND THE ENTI RE INCOME HAS NEXUS ONLY TO THE BUSINESS OF PROVIDING LONG TERM FINANCE FOR AGRICULTURAL INDUSTRIAL AND INFRASTRUCTURAL DEVELOPMENT. INTEREST FROM BAN K IS ON SHORT PERIOD OF FDS FOR THE PERIOD THE AMOUNT IS RECEIVED BACK AND FURTHER DISBURSED FOR A LONG TERM LOAN. DIVIDEND IS RECEIVED FROM INVESTME NT MADE IN 1986 IN IFCO AND IN 1981 IN KRIBHKO. MISCELLANEOUS RECEIPTS ARE INCOME FROM SALE OF NEWSPAPERS SALE OF SCRAP AND SALE OF TENDER FORMS. THE AO DID NOT ACCEPT THE CONTENTION OF ASSESSEE HE OBSERVED THAT THESE R ECEIPTS DO NOT QUALIFY FOR DEDUCTION FOR THE PURPOSE OF SPECIAL RESERVE U/ S 36(1)(VIII) OF THE ACT @ 40% ON THE TOTAL INCOME EARNED DURING THE YEAR. HE DISALLOWED THE CLAIM OF ASSESSEE. 3. THE APPEAL TO THE CIT(A) DID NOT BRING ANY RELIE F TO THE ASSESSEE. LD. FIRST APPELLATE AUTHORITY HAS NOT RECORDED ANY INDE PENDENT FILING RATHER HE ITA NO. 444/D/10 3 CONCUR WITH THE FINDING RECORDED BY HIS PREDECESSOR IN A.Y. 1999-2000. ACCORDING TO THE CIT(A) HE HAS FOLLOWED THIS FINDIN G OF A.Y. 1999-2000 IN A.Y. 2007-08. APART FROM EXTRACTING THE FINDING OF CIT(A) IN A.Y. 1999-2000 HE DID NOT FIND ANY OTHER MATERIAL FOR DISCUSSION. 4. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT AN I DENTICAL ISSUE CAME UP BEFORE THE TRIBUNAL IN A.Y. 2007-08 IN ITA NO. 4 706/D/09. HE PLACED ON RECORD COPY OF THE TRIBUNALS ORDER. HE POINTED OU T THAT THE TWO ISSUES PERMITTED BY THE COD IN THE PRESENT ASSESSMENT YEAR WERE AVAILABLE IN A.Y. 2007-08. THE FIRST ISSUE RELATES TO DISALLOWA NCE OF DEDUCTION AT 40% OF INCOME U/S 36(1)(VIII). THE OTHER ISSUE RELATES TO DISALLOWANCE OF EXPENSES U/S 14A OF THE ACT. THE SECOND ISSUE WAS NOT TAKEN UP BY THE AO IN THE ASSESSMENT ORDER. A NOTICE FOR ENHANCEMENT OF INCO ME WAS GIVEN BY THE LD. CIT(A) DURING THE APPELLATE PROCEEDING. THE DI SALLOWANCE HAS BEEN MADE BY THE LD. CIT(A). IN A.Y. 2007-08 THE TRIBUN AL HAS HELD THAT DISALLOWANCE U/S 14A WOULD BE RESTRICTED TO 10% OF THE DIVIDEND INCOME. THUS BOTH THE ISSUES ARE SQUARELY COVERED IN FAVOU R OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL. THE LD. DR WAS UNABLE TO CO NTROVERT THE CONTENTION OF LD. COUNSEL FOR THE ASSESSEE. 5. WE HAVE DULY CONSIDERED THE RIVAL CONTENTION AND GONE THROUGH THE REPORT CAREFULLY. WE FIND THAT THE TRIBUNAL WHILE CONSIDERING THESE ISSUES IN A.Y. 2007-08 HAS RELIED UPON THE ORDER OF THE TRIBU NAL IN A.Y. 1999-2000 AND A.Y. 2004-05. THE ISSUE OF DISALLOWANCE U/S 36 (1)(VIII) APPEARS TO HAVE ITA NO. 444/D/10 4 COME UP FOR THE FIRST TIME IN A.Y. 1999-2000. THE DISCUSSION MADE BY THE TRIBUNAL IN BOTH THE ISSUES READ AS UNDER: - THE PRESENT APPEAL IS FILED BY THE ASSESSEE AGAIN ST THE ORDER DATED 16.10.2009 PASSED BY THE LD. COMMIS SIONER OF INCOME TAX (APPEALS) FOR THE A.Y. 2007-08. 2. IN THIS CASE THE COMMITTEE ON DISPUTES HAS GRAN TED PERMISSION TO THE ASSESSEE TO PURSUE THIS APPEAL WI TH REGARD TO THE FOLLOWING TWO ITEMS: - (1) DISALLOWANCE OF DEDUCTION OF 40% OF INCOME U/S 36(1)(VIII). (2) DISALLOWANCE OF EXPENSES U/S 14A OF THE ACT. 3. GROUND NOS. 1 TO 9 RAISED BY THE ASSESSEE ARE WI TH REGARD TO THE FIRST ISSUE RELATING TO THE DISALLOWA NCE OF DEDUCTION OF 40% OF INCOME U/S 36(1)(VIII) OF THE A CT. 4. IN THE RETURN OF INCOME THE ASSESSEE HAS CLAIME D DEDUCTION U/S 36(1)(VIII) OF THE ACT AMOUNTING TO R S. 31 89 54 262/- BEING 40% OF RS. 79 73 85 656/- TRAN SFERRED TO SPECIAL RESERVE AFTER EXCLUDING RECEIPT OF INTER EST OF RS. 27 10 66 248/- ON LOANS GRANTED FOR LESS THAN FIVE YEARS. IN THE ASSESSMENT THE AO DISALLOWED THE DEDUCTION U/S 36(1)(VIII) TO THE EXTENT OF RS. 28 75 86 725/- BEI NG 40% OF NET AMOUNT OF RS. 71 89 66 812/-. THE DETAILS OF T HE AMOUNT ON WHICH DEDUCTION U/S 36(1)(VIII) HAS BEEN DENIED BY THE AO ARE AS UNDER: - PARTICULARS AMOUNT (RS.) LESS: EXPENSES DEDUCTED BY AO (APPORTIONED) (RS.) AMOUNT ON WHICH DEDUCTION U/S 36(1)(VIII) NOT ALLOWED (RS.) A. INTEREST ON BANK DEPOSITS 75 44 47 439 7 54 44 744 67 90 02 695 B. INCOME ON INVESTMENTS 52 50 000 2 62 500 49 87 500 C. SERVICE CHARGES ON SDF LOANS 2 66 11 476 12 72 085 2 53 39 391 D. INTEREST ON ADVANCES/DEPOSITS 13 40 393 NIL 13 40 393 E. MISC. RECEIPTS 82 96 833 NIL 82 96 833 TOTAL 79 59 46 141 7 69 79 329 71 89 66 812 ITA NO. 444/D/10 5 5. ON AN APPEAL THE LD. CIT(A) CONFIRMED THE AOS ORDER ON THE GROUND THAT THE AFORESAID PROFITS HAVE NOT D ERIVED FROM LONG TERM FINANCING. 6. HENCE THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 7. IN THE COURSE OF HEARING OF THIS APPEAL IT HAS BEEN POINTED OUT BY BOTH THE PARTIES THAT IDENTICAL ISSU E HAD COME FOR CONSIDERATION BEFORE THE INCOME TAX APPELL ATE TRIBUNAL DELHI BENCH F NEW DELHI IN THE ASSESS EES OWN CASE PERTAINING TO THE ASSESSMENT YEARS 1999-20 00 AND 2004-05 WHERE THE TRIBUNAL VIDE ITS ORDER DATED 20.11.2009 IN ITA NOS. 167 & 168/DEL/2008 HAS DECI DED THIS ISSUE AGAINST THE ASSESSEE BY OBSERVING AND HO LDING AS UNDER: - 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT ONLY DISPUTE TO BE DECIDED BY US AS TO WHETHER THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 36(1)(VIII) WITH REGARD TO THREE TYPE OF INCOMES I.E. DIVIDEND RECEIVED BY THE ASSESSEE ON LONG TERM INVESTMENT INTEREST FROM BANK ACCOUNTS FROM SHORT TERM DEPOSITS AND SERVICE CHARGES ON SDF LOANS. WE FEEL THAT FOR THIS PURPOSE WE SHOULD REPRODUCE THE PROVISIONS OF SEC. 36(1)(VIII) AS IT WAS ON THE STATUTE BOOK DURING THE RELEVANT PERIOD. THE SAME HAS BEEN PRODUCED BY THE LD.CIT(A) ON PAGE NO.20 OF HIS ORDER AND FROM THERE WE REPRODUCE IT HEREIN BELOW: - (I) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF MATTER DEALT WITH THEREIN COMPUTING THE INCOME REFERRED TOP IN SEC. 28 - ITA NO. 444/D/10 6 (I).. (VIII) IN RESPECT OF ANY SPECIAL RESERVE CREATED AND MAINTAINED BY A FINANCIAL CORPORATION WHICH IS ENGAGED IN PROVIDING LONG TERM FINANCE FOR INDUSTRIAL OR AGRICULTURAL DEVELOPMENT OR DEVELOPMENT OF INFRASTRUCTURE FACILITY IN INDIA. AN AMOUNT NOT EXCEEDING FORTY PER CENT OF THE PROFITS DERIVED FROM SUCH BUSINESS OF PROVIDING LONG TERM FINANCE (COMPUTED UNDER THE HEAD PROFITS AND GAINS OF PROFESSION BEFORE MAKING ANY DEDUCTION UNDER THIS CLAUSE EXPLANATION IN THIS CLAUSE (A). (E)LONG TERM FINANCE MEANS ANY LOAN OR ADVANCE WHERE THE TERMS UNDER WHICH MONEY ARE LOANED OR ADVANCED PROVIDE FOR REPAYMENT ALONG WITH INTEREST THEREOF DURING A PERIOD OF NOT LESS THAN FIVE YEARS. 12. AFTER REPRODUCING THE PROVISIONS OF SEC. 36(1)(VIII) IT HAS BEEN NOTED BY THE CIT(A)THAT THE DEDUCTION WILL BE AVAILABLE TO THE ASSESSEE TO THE EXTENT OF 40% OF PROFITS DERIVED FROM BUSINESS OF PROVIDING LONG TERM FINANCE. IT HAS BEEN HELD BY THE CIT(A) THAT THESE THREE INCOMES ARE NOT PROFITS DERIVED FROM BUSINESS OF PROVIDING LONG TERM FINANCE. THE CONTENTION OF THE ASSESSEE IS THAT EVEN FINANCING BY WAY ITA NO. 444/D/10 7 OF INVESTING IN SHARES IS ALSO AKIN TO PROVIDING LONG TERM FINANCE AND HENCE DIVIDEND ON SUCH INVESTMENT IS ALSO PROFIT FROM THE BUSINESS OF PROVIDING LONG TERM FINANCE. REGARDING INTEREST FROM BANKS ON SHORT TERM DEPOSIT IT IS THE CLAIM OF THE ASSESSEE THAT SINCE THE SOURCE OF DEPOSIT IT IS THE CLAIM OF THE ASSESSEE THAT SINCE THE SOURCE OF FUND WITH THE ASSESSEE IS LONG TERM FUNDING FROM GOVERNMENT OF INDIA LOANS BONDS AND TERM LOANS AND IN THE COURSE OF PROVIDING FUNDS THESE FUNDS WERE SURPLUS WITH THE ASSESSEE FOR THE A SHORT PERIOD AND IN ORDER TO MITIGATE INTEREST EXPENDITURE THESE FUNDS WERE GIVEN TO BANKS ON SHORT TERM DEPOSITS AND HENCE THIS INTEREST INCOME IS ALSO PROFIT FROM BUSINESS OF PROVIDING LONG TERM FINANCE. REGARDING SERVICE CHARGES ON SDF LOANS IT IS THE SUBMISSION THAT SINCE SDF LOANS ARE LONG TERM THIS INCOME IS ALSO PROFIT DERIVED FROM BUSINESS OF PROVIDING LONG TERM FINANCE. WE ARE NOT IN AGREEMENT WITH LD. AR OF THE ASSESSEE WITH REGARD TO ALL THESE THREE ITEMS BECAUSE WE FEEL THAT THIS ASPECT IS NOW COVERED AGAINST THE ASSESSEE BY THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF LIBERTY INDIA V. CIT(SUPRA). IN THIS CASE HONBLE APEX COURT WAS CONSIDERING THE DISPUTE AS TO WHETHER DUTY DRAWBACK RECEIPTS OF DEPB BENEFITS FROM PART OF THE NET PROFITS OF ELIGIBLE INDUSTRIAL UNDERTAKINGS FOR THE PURPOSE OF DEDUCTION U/S 80I/80IA/80IB OF THE I.T. ACT 1961. IN THESE SECTIONS ALSO DEDUCTION IS ITA NO. 444/D/10 8 ALLOWABLE ON PROFITS AND GAINS DERIVED FROM ELIGIBLE BUSINESS. ELIGIBLE BUSINESS HAS BEEN DEFINED IN SUB SECTIONS 3 TO 11 AND 11A OF SEC.80IB. SUB SECTION 1 OF SEC. 80IB IS RELEVANT WHICH CONTAINS SIMILAR PROVISIONS AS CONTAINED IN SEC. 36(1)(VIII) REPRODUCED AS ABOVE. WE THEREFORE REPRODUCE THE PROVISIONS OF SUB SECTION 1 OF SEC. 80IB WHICH IS AS UNDER: - 80IB. (1) WHERE THE GROSS TOTAL INCOME OF AN ASSESSEE INCLUDES ANY PROFITS AND GAINS DERIVED FROM ANY BUSINESS REFERRED TO IN SUB-SECTIONS (3) TO [911) (11A) & (11B)] (SUCH BUSINESS BEING HEREINAFTER REFERRED TO AS THE ELIGIBLE BUSINESS) THERE SHALL IN ACCORDANCE WITH THE SUBJECT TO THE PROVISIONS OF THIS SECTION BE ALLOWED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE A DEDUCTION FROM SUCH PROFITS AND GAINS OF AN AMOUNT EQUAL TO SUCH PERCENTAGE AND FOR SUCH NUMBER OF ASSESSMENT YEARS AS SPECIFIED IN THIS SECTION. 13. WHEN WE COMPARE THE PROVISIONS OF SEC. 36(1)(VIII) AND SEC. 80IB(1) WE FIND THAT IN BOTH CASES DEDUCTION IS ALLOWABLE IN RESPECT OF PROFITS DERIVED FROM RELEVANT BUSINESS. IN THAT CASE ALSO THE DUTY DRAWBACK RECEIPT AND DEPB BENEFITS ARE RECEIVED BY THE ASSESSEE IN CONNECTION WITH SALE PROCEEDS OF GOODS PRODUCED BY THE INDUSTRIAL UNDERTAKING IN THE ITA NO. 444/D/10 9 COURSE OF EXPORT. BUT STILL IT WAS HELD BY HONBLE APEX COURT THAT DUTY DRAWBACK RECEIPTS/DEPB BENEFITS DO NOT FORM PART OF THE NET PROFITS OF ELIGIBLE INDUSTRIAL UNDERTAKING FOR THE PURPOSE OF SEC. 80I/80IA/80IB OF I.T. ACT. HONBLE APEX COURT HAS DRAWN DIFFERENCE BETWEEN INCOME DERIVED FROM INDUSTRIAL UNDERTAKING AND PROFITS ATTRIBUTABLE TO INDUSTRIAL UNDERTAKINGS. IT WAS HELD BY HONBLE APEX COURT THAT THE WORDS DERIVED FROM ARE NARROWER IN CONNOTATION AS COMPARED TO THE WORDS ATTRIBUTABLE TO. IT WAS FURTHER HELD THAT BY USING THE EXPRESSION DERIVED FROM PARLIAMENT INTENDED TO COVER SOURCE NOT BEYOND THE FIRST DEGREE. BY APPLYING THE SAME LOGIC WE ARE OF THE CONSIDERED OPINION THAT THESE THREE RECEIPTS CAN BE SAID TO BE PAR OF PROFIT/INCOME ATTRIBUTABLE TO BUSINESS OF PROVIDING LONG TERM FINANCE BUT THESE RECEIPTS CANNOT BE SAID TO BE PROFITS DERIVED FROM SUCH BUSINESS OF PROVIDING LONG TERM FINANCE AND HENCE THESE RECEIPTS ARE NOT ELIGIBLE FOR DEDUCTION U/S 36(1)(VIII). WE HOLD SO BECAUSE WE ARE OF THE CONSIDERED OPINION THAT INVESTMENT IN SHARES IS FOR EARNING DIVIDEND INCOME AND THE DIVIDEND CANNOT BE SAID TO BE PROFIT DERIVED FROM PROVIDING OF LONG TERM FINANCE. NOTHING WAS SHOWN TO US THAT INVESTMENT IN SHARES WERE MADE AS A MEANS OF PROVIDING LONG TERM FINANCE AND THAT IT IS NOT AN INVESTMENT DECISION OF THE ASSESSEE. REGARDING BANK INTEREST IT IS ADMITTED POSITION ITA NO. 444/D/10 10 THAT THESE FDS/DEPOSITS WERE FOR SHORT PERIOD AND EVEN IF IT IS FOR A LONG PERIOD IT IS DEPOSIT WITH BANK AND NOT PROVIDING OF LONG TERM FINANCE TO BANKS AND HENCE NOT ELIGIBLE FOR DEDUCTION U/S 36(1)(VIII). REGARDING SERVICE CHARGES ON SDF LOANS WE FIND THAT ADMITTEDLY THERE IS NO FINANCE GIVEN BY THE ASSESSEE AS THE ENTIRE FINANCING IN SDF LOANS IS BY THE GOVT. AND NOT BY THE ASSESSEE AND THE ASSESSEE IS GETTING ONLY SOME SERVICE CHARGES FOR RENDERING CERTAIN SERVICES IN THAT CONNECTION. HENCE THIS RECEIPT CAN BE SAID TO BE ATTRIBUTABLE TO THE BUSINESS OF PROVING LONG TERM FINANCE BUT CANNOT BE SAID TO BE DERIVED FROM THE BUSINESS OF PROVIDING LONG TERM FINANCE. 14. REGARDING THE CONTENTION OF LD. AR OF THE ASSESSEE THAT IN EARLIER YEARS AND IN SUBSEQUENT YEARS DEDUCTION WAS ALLOWED TO THE ASSESSEE U/S 36(1)(VIII) WITH REGARD TO THESE RECEIPTS WE FIND THAT RELEVANT ASSESSMENT ORDERS FOR THOSE YEARS ARE AVAILABLE ON PAGES 162 TO 185 OF THE PAPER BOOK. IN THIS REGARD WE FIND THAT SIMILAR DEDUCTION IS SAID TO BE ALLOWED BY THE DEPARTMENT WITH REGARD TO THESE THREE RECEIPTS IN ASSESSMENT YEARS 2002-03 AND 2003-04 BUT ACTION HAS BEEN TAKEN BY THE DEPARTMENT SUBSEQUENTLY U/S 148 AND U/S 263 AND HENCE THE ASSESSMENT ORDERS OF THESE TWO YEARS ARE NOT RELEVANT. REGARDING EARLIER YEARS WE ALSO FIND THAT UPTO A.Y. 1995-96 THE PROVISIONS OF ITA NO. 444/D/10 11 SEC. 36(1)(VIII) WERE DIFFERENT AND AS PER THOSE PROVISIONS DEDUCTION WAS ALLOWABLE TO AN ELIGIBLE ASSESSEE TO THE EXTENT TO 40% OF TOTAL INCOME COMPUTED BEFORE MAKING ANY DEDUCTION U/S 36(1)(VIII) AND CHAPTER VIA. HENCE UPTO A.Y.1995-96 DEDUCTION WAS TO BE ALLOWED TO THE ASSESSEE WITHOUT EXCLUDING ANY PART OF THESE THREE RECEIPTS. AS PER AMENDMENT BY THE FINANCE ACT 1995 WITH EFFECT FROM 1.4.1996 THE PROVISIONS HAVE BEEN CHANGED AND AS PER THE CHANGED PROVISIONS DEDUCTION WAS ALLOWABLE TO THE EXTENT OF 40% OF THE PROFITS DERIVED FROM SUCH BUSINESS OF PROVIDING LONG TERM FINANCE. EVEN AFTER THIS AMENDMENT IN SEC. 36(1)(VIII) THE DEPARTMENT HAS ALLOWED DEDUCTION U/S 36(1)(VIII) WITH REGARD TO THESE THREE RECEIPTS ALSO IN A.Y. 1996-97 1997-98 AND 1998-99 AND FOR THIS REASON IT IS THE CLAIM OF THE ASSESSEE THAT BY APPLYING THE RULE OF CONSISTENCY SUCH DEDUCTION SHOULD BE ALLOWED IN THE PRESENT YEARS ALSO. IN THIS REGARD WE FIND THAT IN THE PRESENT YEAR I.E. A.Y.1999-2000 THE ASSESSMENT WAS REOPENED BY THE AO U/S 147/148 AND SUCH NOTICE U/S 148 WAS ISSUED ON 30.3.06. BY THAT TIME TIME LIMIT HAD EXPIRED FOR ISSUING SUCH NOTICES U/S 148 FOR EARLIER YEARS BECAUSE MORE THAN SIX YEARS HAVE ALREADY ELAPSED BY THAT TIME. AS PER THE PROVISIONS OF SEC. 149 NO NOTICE U/S 148 CAN BE ISSUED AFTER EXPIRY OF SIX YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR AND HENCE THE ITA NO. 444/D/10 12 DEPARTMENT WAS DEBARRED FROM REOPENING THESE OLD ASSESSMENTS AND HENCE UNDER THESE FACTS IT CANNOT BE SAID THAT DEPARTMENT CANNOT REOPEN THE ASSESSMENTS FOR THOSE YEARS ALSO FOR WHICH TIME LIMIT HAS NOT EXPIRED ONLY BECAUSE THE DEPARTMENT CANNOT REOPEN SOME EARLIER ASSESSMENT YEARS FOR WHICH THE TIME LIMIT HAS EXPIRED. IN SUCH A CASE IT WILL ALWAYS BE A SITUATION THAT ON SAME ISSUE DEPARTMENT HAS WRONGLY ALLOWED SOME BENEFITS TO THE ASSESSEE WHICH WAS NOT ALLOWABLE AS PER LAW AND SINCE THE DEPARTMENT HAD NOTICED THE MISTAKE LATE AND CANNOT REOPEN THE CASES OF SOME OF THE EARLIER YEARS IT CANNOT BE SAID THAT THE DEPARTMENT CANNOT RECTIFY THE MISTAKE IN SUBSEQUENT YEARS ALSO BECAUSE THE DEPARTMENT HAS MADE A MISTAKE IN EARLIER YEARS WHICH CANNOT BE RECTIFIED BY THE DEPARTMENT BECAUSE OF EXPIRY OF LIMITATION PERIOD. UNDER THIS FACTUAL POSITION WE FEEL THAT THIS CLAIM OF THE ASSESSEE ALSO DESERVES TO BE REJECTED IN VIEW OF THESE PECULIAR FACTS OF THE PRESENT CASE. THE JUDGMENTS CITED BY LD. AR OF THE ASSESSEE IN THIS REGARD ARE NOT RELEVANT IN VIEW OF THESE PECULIAR FACTS OF THE PRESENT CASE. 15. ONE MORE CONTENTION WAS RAISED BY THE ASSESSEE WITH REGARD TO THE JUDGMENT OF HONBLE APEX COURT IN CONNECTION WITH SEC. 80I/80IA/80IB. IT HAS BEEN SUBMITTED THAT THE JUDGMENTS OF HONBLE APEX COURT ARE NOT APPLICABLE. IT WAS SUBMITTED THAT THE JUDGMENT ITA NO. 444/D/10 13 OF APEX COURT ARE NOT APPLICABLE. IT WAS SUBMITTED THAT THE JUDGMENT OF APEX COURT RENDERED IN THE CASE OF LIBERTY INDIA LIMITED (SUPRA) IS NOT APPLICABLE IN THE PRESENT CASE BECAUSE THE JUDGMENT IS IN CONNECTION WITH SEC. 80IA/80IB AND THE DISPUTE IN THE PRESENT CASE IS WITH REGARD TO SEC. 36(1)(VIII). IN THIS REGARD THE RELIANCE HAVE BEEN PLACED ON THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF PADMA SUNDARA RAO (SUPRA). IT HAS BEEN HELD BY HONBLE APEX COURT IN THIS CASE THAT COURTS SHOULD NOT PLACE RELIANCE ON DECISIONS WITHOUT DISCUSSING AS TO HOW THE FACTUAL SITUATION FITS IN WITH THE FACTS SITUATION OF THE DECISION ON WHICH RELIANCE IS PLACED. WE FEEL THAT AS PER THIS JUDGMENT OF HONBLE APEX COURT BEFORE PLACING RELIANCE ON A PARTICULAR JUDGMENT IT HAS TO BE SEEN THAT THE FACTUAL SITUATION OF THE PRESENT CASE FITS IN WITH THE FACT SITUATION OF SUCH DECISION. IN THE PRESENT CASE WE HAVE ALREADY NOTED THAT IN THE PRESENT CASE AS WELL AS IN THE CASE OF LIBERTY INDIA (SUPRA) THE DISPUTE IS REGARDING THE WORDS DERIVED FROM. IN BOTH THESE CASES WE HAVE NOTED THAT ITEMS OF PROFIT IN DISPUTE ARE ELIGIBLE TO BE REGARDED AT INCOME ATTRIBUTABLE TO THE ELIGIBLE BUSINESS BUT THE SAME CANNOT BE REGARDED AS PROFIT DERIVED FROM ELIGIBLE BUSINESS. HENCE WE FIND THAT DUE CARE HAS BEEN TAKEN BY US TO FIND OUT THAT THE FACT SITUATION IN THE PRESENT CASE AND IN THE CASE OF LIBERTY INDIA (SUPRA) ARE IDENTICAL ITA NO. 444/D/10 14 ALTHOUGH THE SECTION INVOLVED IN BOTH THE CASES ARE DIFFERENT AND HENCE WE FEEL THAT THE OBJECTION RAISED BY THE ASSESSEE IN THIS REGARD IS WITHOUT MERIT AND DESERVES TO BE REJECTED. WE REJECT THE SAME. 16. ONE ALTERNATIVE ARGUMENT WAS RAISED BY THE ASSESSEE THAT EVEN IF INTEREST INCOME FROM BANK HAS TO BE EXCLUDED FROM THE PROFIT OF THE ASSESSEE FOR THE PURPOSE OF CALCULATION OF DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 36(1)(VIII) THE GROSS RECEIPT CANNOT BE EXCLUDED AND ONLY AFTER DEDUCTING INTEREST EXPENDITURE FROM PROFIT OF BUSINESS BECAUSE THE ASSESSEE IS CLAIMING DEDUCTION U/S 36(1)(VIII) FROM NET PROFIT AND NOT FROM GROSS RECEIPT. AGAINST THIS IT WAS THE OBJECTION OF LD. DR OF THE REVENUE THAT COD HAS PERMITTED THE ASSESSEE TO PURSUE THE ISSUE IN CONNECTION WITH ALLOWABILITY OF DEDUCTION U/S 36(1)(VIII) WITH REGARD TO THESE THREE RECEIPTS AND COD HAS NOT PERMITTED THE ASSESSEE TO RAISE THE DISPUTE REGARDING THE QUANTUM OF EXCLUSION MADE BY THE AO FROM PROFIT OF BUSINESS FOR THE PURPOSE OF COMPUTING DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 36(1)(VIII). IN THIS REGARD WE ARE NOT IN AGREEMENT WITH LD. DR OF THE REVENUE THAT COD HAS NOT GRANTED PERMISSION TO THE ASSESSE TO RAISE THIS ASPECT OF THE MATTER. WHEN COD HAS PERMITTED THE ASSESSEE TO CONTEST THE ISSUE REGARDING ALLOWABILITY OF DEDUCTION U/S 36(1)(VIII) THE ALTERNATIVE CLAIM OF THE ASSESSEE IS PART OF THE BROADER PERMISSION ITA NO. 444/D/10 15 GRANTED BY COD AND HENCE WE ARE OF THE VIEW THAT THE ASSESSEE IS ENTITLED TO RAISE THIS DISPUTE ALSO. 17. NOW WE EXAMINE THIS ALTERNATIVE CONTENTION OF THE ASSESSEE THAT ENTIRE RECEIPT ON ACCOUNT OF BANK INTEREST CANNOT BE REDUCED FROM BUSINESS PROFIT FOR THE PURPOSE OF CALCULATING DEDUCTION U/S 36(1)(VIII) ALLOWABLE TO ASSESSEE. THE CLAIM OF THE ASSESSEE IS THAT EVEN IF IT IS HELD THAT BANK INTEREST ON TEMPORARY DEPOSITS IS NOT ELIGIBLE FOR DEDUCTION U/S 36(1)(VIII) THEN ALSO ONLY THE NET INTEREST INCOME AFTER DEDUCTING CORRESPONDING INTEREST EXPENDITURE SHOULD BE REDUCED FROM BUSINESS PROFIT. WE ARE IN AGREEMENT WITH LD. AR OF THE ASSESSEE ON THIS ASPECT AND ACCORDINGLY WE HOLD THAT IF THE ASSESSEE CAN SHOW AND ESTABLISH THAT ANY PART OF INTEREST EXPENDITURE HAS A DIRECT NEXUS WITH EARNING OF INTEREST FROM BANK SUCH INTEREST EXPENDITURE TO THE EXTENT NEXUS IS ESTABLISHED BY THE ASSESSEE SHOULD BE REDUCED FROM INTEREST INCOME FROM BANK AND ONLY SUCH NET INTEREST INCOME SHOULD BE EXCLUDED FROM BUSINESS PROFIT FOR THE PURPOSE OF CALCULATING DEDUCTION ALLOWABLE TO THE ASSESSEE U/S 36(1)(VIII). WITH THESE OBSERVATIONS WE SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE IN BOTH THE YEARS AND RESTORE THIS MATTER BACK TO THE FILE OF AO FOR A FRESH DECISION AS PER ABOVE DISCUSSION. IN THIS REGARD WE FEEL THAT THE JUDGMENT OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF CIT V. ITA NO. 444/D/10 16 SH. RAM HONDA POWER EQUIPMENT AS REPORTED IN 289 ITR 475 (DEL.) IS DIRECTLY APPLICABLE BECAUSE IN THIS JUDGMENT NECESSARY GUIDE LINES HAVE BEEN LAID DOWN BY HONBLE DELHI HIGH COURT WITH REGARD TO GRANTING OF NETTING OF THE INTEREST. THE AO SHOULD DECIDE THIS ASPECT IN THE LIGHT OF THIS JUDGMENT OF HONBLE DELHI HIGH COURT AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THIS ASPECT IS DECIDED IN FAVOUR OF THE ASSESSEE IN BOTH YEARS FOR STATISTICAL PURPOSES BECAUSE NETTING IS TO BE ALLOWED BY THE AO ONLY TO THE EXTENT NEXUS IS ESTABLISHED BY THE ASSESSEE AND IN THE LIGHT OF THE ABOVE SAID JUDGMENT OF HONBLE DELHI HIGH COURT. 8. SINCE THE ISSUE HAS ALREADY BEEN DECIDED BY THE COORDINATE BENCH OF THE TRIBUNAL AND THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE ARE IDENTICAL TO THE FACTS IN THE ASSESSMENT YEARS 1999-2000 AND 2004-05 AS DE CIDED BY THE TRIBUNAL WE UPHOLD THE ORDER OR THE CIT(A) IN HOLDING THAT THE ASSESSEE IS NOT ENTITLED TO GET DEDUCTION U/S 36(1)(VIII) ON THE ITEMS INVOLVED IN THIS GROUND OF APPEAL. WE THEREFORE UPHOLD THE ORDER OF THE CIT(A) ON TH IS ISSUE. 9. HOWEVER IN THE COURSE OF HEARING OF THIS APPEAL THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT EVEN IF DISALLOWANCE U/S 36(1)(VIII) IS CALLED FOR IN RESPE CT OF INTEREST INCOME DIVIDEND INTEREST ON ADVANCES OAR DEPOSITS MISCELLANEOUS RECEIPTS AND SERVICE CHARGES OF SDF L OANS ONLY THE NET PROFIT IS TO BE CONSIDERED FOR THE PUR POSE OF DISALLOWANCE U/S 36(1)(VIII) OF THE ACT. THIS ALTE RNATIVE CONTENTION WAS ALSO RAISED BY THE ASSESSEE BEFORE T HE TRIBUNAL IN EARLIER YEARS I.E. ASSESSMENT YEARS 199 9-2000 ITA NO. 444/D/10 17 AND 2004-05 AND THIS ALTERNATIVE CONTENTION HAS BEE N DECIDED BY THE TRIBUNAL VIDE PARA 16 & 17 OF THE OR DER WHICH HAS ALREADY BEEN REPRODUCED HEREINABOVE. IN ADDITI ON TO THE ABOVE THE ASSESSEE HAS PRODUCED BEFORE US A WO RKING OF DISALLOWANCE FOR OUR CONSIDERATION. HOWEVER TH IS WORKING WAS NOT BEFORE THE AO. WE THEREFORE DIRECT THE A O TO WORK OUT THE NET PROFIT WHICH IS LIABLE TO BE DISALLOWED AS DEDUCTION U/S 36(1)(VIII) AFTER CONSIDERING THE ASS ESSEES CONTENTIONS. THE ASSESSEE SHALL APPEAR BEFORE THE AO AND FILE ITS WORKING FOR THE PURPOSE OF DISALLOWANCE OF INCOME U/S 36(1)(VIII) OF THE ACT. WE ORDER ACCORDINGLY. 10. NEXT ISSUE IS WITH REGARD TO THE DISALLOWANCE O F EXPENSES U/S 14A OF THE ACT. 11. IN THE ASSESSMENT THE AO HAS DISALLOWED SUM OF RS. 1 61 44 459/- BY APPLYING RULE 8D OF THE INCOME TAX RULES U/S 14A OF THE ACT. HOWEVER ON AN APPEAL THE CIT (A) MADE CERTAIN MODIFICATIONS AND RESTRICTED THE DISALLOWAN CE TO RS. 2 04 810/- BY APPLYING RULE 8D OF INCOME TAX RULES. 12. IN THE COURSE OF HEARING IT HAS BEEN POINTED O UT THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. V. DCIT (2010) 234 CTR (BOM.) 1 WHERE IT IS HELD THAT RULE 8D SHALL BE APPLICABLE O NLY FROM THE A.Y. 2008-09 AND IS NOT TO BE APPLIED RETROSPEC TIVELY. RESPECTFULLY FOLLOWING THE DECISION OF HONBLE BOMB AY HIGH COURT AS REFERRED TO ABOVE WE HOLD THAT THE DISALL OWANCE U/S 14A IN THE PRESENT CASE SHALL NOT BE MADE BY APPLYI NG RULE 8D OF THE INCOME TAX RULES. THEREFORE THE ORDERS OF THE AUTHORITIES BELOW WHERE DISALLOWANCE HAS BEEN MADE UNDER RULE 8D ARE SET ASIDE. 13. NOW WE COME TO THE QUESTION AS TO WHETHER ANY DISALLOWANCE U/S 14A IS CALLED FOR IN THE PRESENT C ASE. IN THE PRESENT CASE THE ASSESSEE HAS RECEIVED DIVIDEND OF RS. ITA NO. 444/D/10 18 4 59 000/- WHICH HAS BEEN CLAIMED TO BE EXEMPTED UN DER THE ACT. DIVIDEND HAS BEEN RECEIVED IN RESPECT OF THE INVESTMENT MADE IN THE SHARES OF INDIAN POTASH LTD. THE ASSESSEE PURCHASED 17 000/- SHARES OF RS. 10/- EACH AGGREGATING TO RS. 1 70 000/-IN 1976. SUBSEQUENTLY THERE WAS RIGHT ISSUE IN 1985 OF EQUAL NUMBER OF SHARES. THE LAST RIGHT ISSUE WAS IN 1996 AND THE OTHER ISSUES ARE TH E BONUS ISSUES. THE ASSESSEE HAS RECEIVED DIVIDEND ON THE SHARES PURCHASED IN EARLIER YEAR. NO ACTUAL EXPENDITURE H AS BEEN POINTED OUT TO HAVE BEEN INCURRED BY THE ASSESSEE I N EARNING THE DIVIDEND INCOME. HOWEVER SOME ADMINIS TRATIVE EXPENSES MIGHT HAVE BEEN INCURRED BY THE ASSESSEE. WE THEREFORE ESTIMATE 10% OF DIVIDEND INCOME AS EXPEN SES INCURRED FOR EARNING DIVIDEND INCOME WHICH IS EXEMP TED. WE THEREFORE RESTRICT THE DISALLOWANCE TO RS. 4 5 90/-. THE ASSESSING OFFICER SHALL MODIFY THE ASSESSMENT ORDER ACCORDINGLY. 14. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED IN THE MANNER AS INDICATED ABOVE. 15. THIS DECISION IS PRONOUNCED IN THE OPEN COURT O N 31.12.2011. 6. ON DUE CONSIDERATION OF THE ABOVE FACTS AND CIRC UMSTANCES WE DO NOT FIND ANY DISPARITY ON FACTS. THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND AO IS DIRECTED TO GIVE SAME AFFECT IN THIS ASSE SSMENT YEAR AS WAS GIVEN IN A.Y. 2007-08. THE DISALLOWANCE U/S 14A WOULD B E RESTRICTED TO 10% OF THE TOTAL DIVIDEND INCOME. ITA NO. 444/D/10 19 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.3.11 SD/- SD/- (G.E. VEERABHADRAPPA) (RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER * KAVITA DATED: 11.3.11 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT