JINDAL STEEL & ALLOYS LTD, MUMBAI v. ACIT 5(2), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J MUMBAI BEFORE SHRI R.V. EASWAR (PRESIDENT) AND SHRI B. RAM AKOTAIAH (A.M.) ITA NO.961/MUM/2009 ASSESSMENT YEAR : 2004-2005 ITA NO.962/MUM/2009 ASSESSMENT YEAR : 2005-2006 JINDAL STEEL & ALLOYS LTD. JINDAL MANSION 5A DR. G. DESHMUKH MARG MUMBAI 400 026. PAN : AAACJ9083H VS. A.C.I.T.-5(2) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M.A. GOHEL RESPONDENT BY : SHRI K. SINGH D.R. O R D E R PER B. RAMAKOTAIAH A.M. THESE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AG AINST THE ORDERS DATED 16.12.2008 OF THE CIT(A)-V MUMBAI RELATING TO ASS ESSMENT YEARS 2004-05 AND 2005-06. ITA NO.961/MUM/2009 ASSESSMENT YEAR : 2004-05 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUN DS. I. COMPUTATION OF BOOK PROFITS U/S.115JB OF THE ACT : 1.1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) [HEREINAFTER REFERRED TO AS CIT(A)] ERRED IN HOLDING THAT THE BOOK PROFIT U/S.115JB OF THE ACT ARE TO BE COMPUTED BY ADDING DISALLOWANCE U/S.14A OF THE ACT READ WITH RULE 8D/LOSS FROM INVESTMENTS OF ` 21 44 563/-. 1.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E PROVISIONS OF SECTION 14A OF THE ACT ARE NOT APPLIC ABLE ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE OF THE ASSESSE E AS THE 2 ASSESSEE DID NOT HAVE ANY INCOME WHICH DOES NOT FOR M PART OF TOTAL INCOME. 1.3 THE ASSESSEE PRAYS THAT THE LEARNED ASSESSING O FFICER BE DIRECTED TO COMPUTE THE BOOK PROFITS U/S.115JB OF THE ACT WITHOUT CONSIDERING THE DISALLOWANCE COMPUTED BY TH E LD CIT(A) IN TERMS OF RULE 8D AND THE BOOK PROFITS COMPUTED BY THE ASSESSEE BE RESTORED. II. DISALLOWANCE U/S.14A OF THE ACT: 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(A) ERRED IN INVOKING THE PROVI SIONS OF RULE 8D FOR COMPUTING THE DISALLOWANCE COMPUTED U/S.14A OF THE ACT AT ` 21 44 563/- AS AGAINST THE DISALLOWANCE COMPUTED BY THE LEARNED ASSESSING OFFICER AT ` 90 163/- AND THEREBY ENHANCING THE ASSESSMENT TO THAT EXTENT. 2.2 THE LEARNED ASSESSING OFFICER AND THE LEARNED C IT(A) FAILED TO APPRECIATE THAT THE PROVISIONS OF SECTION 14A OF THE ACT ARE NOT APPLICABLE ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE AS ASSESSEE DID NOT HAVE ANY INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. 2.3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD ASSESSING OFFICER AND THE LEARNED CIT(A ) FAILED TO APPRECIATE THAT NO BORROWED FUNDS WERE UTILIZED FOR ACQUIRING INVESTMENTS CONCERNED AND HENCE THE PROVISIONS OF S ECTION 14A ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE. 2.4 THE ASSESSEE PRAYS THAT THE DISALLOWANCE U/S.14 A OF THE ACT AS CONFIRMED BY THE CIT(A) IS UNREASONABLE EXCESSIVE AND UNJUSTIFIED AND HENCE BE REDUCED TO A TOKEN AMOUNT AND THE LOSS FOR THE YEAR BE INCREASED ACCORDINGLY. III. DISALLOWANCE OUT OF VEHICLE EXPENSES ` `` ` 1 00 000/-: 3.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD CIT(A) ERRED IN CONFIRMING THE AD-HOC D ISALLOWANCE FOR A SUM OF ` 1 00 000/- MADE BY THE LEARNED ASSESSING OFFICER O UT OF VEHICLE EXPENSES. 3.2 THE LEARNED ASSESSING OFFICER AND THE CIT(A) FA ILED TO APPRECIATE THAT THE ENTIRE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE AND NO PART THEREOF DESERVES TO BE DISALLOWED. 3.3. THE ASSESSEE PRAYS THAT THE DISALLOWANCE OUT O F VEHICLE EXPENSE IS UNREASONABLE EXCESSIVE AND UNJUSTIFIED AND BE DELETED. 3 3. THE ISSUE IN GROUND NO.1 IS WITH REFERENCE TO TH E ADDITION OF AN AMOUNT OF ` 21 44 563/- DISALLOWED INVOKING 14A AND RULE 8D BY THE CIT(A) WHILE DELETING THE PROVISION OF BAD AND DOUBTFUL DEBTS MA DE BY THE ASSESSING OFFICER. IN THE ASSESSMENT THE ASSESSING OFFICER DISALLOWED ONLY THE PROVISION OF DOUBTFUL DEBTS U/S.115JB WHICH WAS ALLOWED BY THE C IT(A) CONSEQUENT TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F HCL COMNET IN CA NO.5800 OF 2008. HOWEVER SINCE HE ARRIVED AT THE DISALLOWANCE U/S.14A IN LATER GROUNDS HE DIRECTED THE ASSESSING OFFICER TO DISALLOW THE SAME AMOUNT U/S.115JB AND THE RELIEF WAS RESTRICTED ACCORDINGLY . 3.1 THE LEARNED COUNSEL POINTED OUT THE FACTS THAT THERE IS NO DIVIDED INCOME AND SO QUESTION OF DISALLOWING THE INTEREST U/S.14A DOES NOT ARISE AND REFERRED TO THE PARA 3.3 OF THE CIT(A) TO SUBMIT THAT THE AS SESSEE HAD NO DIVIDEND INCOME DURING THE YEAR. THE LEARNED DR RELIED ON THE ORDER OF THE ASSESSING OFFICER. 4. SINCE THERE IS NO DIVIDEND INCOME EXEMPT U/S.10( 34) DURING THE YEAR THE ASSESSING OFFICER HAS RIGHTLY NOT CONSIDERED AN Y DISALLOWANCE U/S.14A WHILE COMPUTING INCOME U/S.115JB AND ONLY CONSIDERE D DISALLOWANCE U/S.36(1)(III) UNDER NORMAL COMPUTATION. THE LEAR NED CIT(A) WAS NOT CORRECT IN GIVING A DIRECTION TO ADD BACK THE AMOUNT COMPUT ED U/S.14A READ WITH RULE 8D. SINCE THE RULE 8D DOES NOT APPLY TO THE YEAR U NDER CONSIDERATION THE CIT(A) QUANTIFICATION OF AMOUNT AT ` 21 44 563/- AS AGAINST THE DISALLOWANCE U/S.36(1)(III) MADE BY THE ASSESSING OFFICER AT ` 90 163/- ALSO CANNOT BE APPROVED FOLLOWING THE PRINCIPLE ESTABLISHED BY TH E BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. CO. LTD. VS. DCIT 328 ITR 81(BOM). MOREOVER AS THERE IS NO INCOME WHICH IS EXEMPT QUESTION OF RED UCING THE SAME U/S 115JB ALSO DOES NOT ARISE. THE DIRECTION OF CIT(A) ON THI S ISSUE IS SET ASIDE. THE GROUNDS RAISED BY THE ASSESSEE ARE THEREFORE ALLOW ED. THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION SO MADE. 4 5. THE ISSUE IN GROUND NO.2 IS WITH REFERENCE TO DI SALLOWANCE U/S.36(1)(III) MADE BY THE ASSESSING OFFICER BUT CONSIDERED AND EN HANCED BY THE CIT(A) U/S.14A READ WITH RULE 8D. THE ASSESSING OFFICER FOLLOWING HIS ORDER FOR ASSESSMENT YEAR 2003-04 MADE SIMILAR DISALLOWANCE I N THIS YEAR AS THE FACTS ARE SIMILAR. THE LEARNED AR SUBMITTED THAT THE IS SUE WAS REMITTED BACK TO THE ASSESSING OFFICER IN EARLIER YEAR FOR EXAMINATION O F THE FACTS VIDE PARA 9 OF THE ORDER. HOWEVER IT WAS FURTHER SUBMITTED THAT THE REFERENCE TO THE DECISION OF DAGA CAPITAL MANAGEMENT P. LTD. REPORTED IN 117 IT D 169 HAS TO BE SIMILARLY MODIFIED AS THE SAID DECISION WAS NOT APPROVED BY T HE HIGH COURT. THE LEARNED DR AGREED WITH THE FACTUAL POSITION. 6. WE HAVE CONSIDERED THE ISSUE. THE ITAT IN ASSE SSMENT YEAR 2003-04 IN ASSESSEES OWN CASE IN ITA NO.1550/M/2007 HAS CONSI DERED THE FACTS AND ARGUMENTS AND REMITTED THE MATTER BACK TO ASSESSING OFFICER FOR EXAMINATION. THE RELEVANT PARA 9 IS AS UNDER: HAVING HEARD BOTH THE PARTIES WE FIND THAT THE IS SUE AS TO WHETHER THE INVESTMENTS ARE MADE BY THE PARENT COMP ANY PRIOR TO DEMERGER HAS TO BE VERIFIED BY THE ASSESSING OFFICE R AND THEREFORE WE DIRECT THE ASSESSING OFFICER TO VERIFY THE SAME AND IF IT IS FOUND THAT THE INVESTMENTS ARE ACQUIRED PRIOR TO THE DEME RGER AND NOT OUT OF ANY BORROWED FUNDS THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE INTEREST EXPENDITURE IN ACCORDANCE WITH L AW. THE ASSESSING OFFICER SHALL ALSO KEEP IN MIND THE FINDI NGS OF THE SPECIAL BENCH OF THE TRIBUNAL AT MUMBAI IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. & ORS. IN ITA NO.8057/ M/03 & ORS. DATED 20.10.2008 CITED SUPRA. THIS GROUND OF APPEA L IS THEREFORE ALLOWED FOR STATISTICAL PURPOSES. 6.1 SINCE FACTS ARE TO BE EXAMINED THE MATTER OF D ISALLOWANCE U/S.36(1)(III)/14A WAS RESTORED TO THE FILE OF ASSE SSING OFFICER. THE ASSESSING OFFICER SHALL KEEP IN MIND THE DECISION OF THE HON BLE JURISDICTIONAL COURT IN THE CASE OF GODREJ BOYCE MFG. CO. LTD. VS. DCIT (32 8 ITR 81) (MUM) AND ANY LATER DECISION OF THE JURISDICTIONAL HIGH COURT OR THE SUPREME COURT ON THIS ISSUE AND DECIDE ACCORDINGLY. THE GROUND OF APPEA L IS THEREFORE ALLOWED FOR STATISTICAL PURPOSE. 5 7. THE ISSUE IN GROUND NO.3 IS DISALLOWANCE OF ` 1 00 000/- ON AD-HOC BASIS OF THE VEHICLE EXPENSES. 7.1 THE ASSESSING OFFICER HAS DISCUSSED THIS ISSUES IN PARA 8 OF THE ASSESSMENT ORDER. THE ASSESSEE HAS CLAIMED DEDUCTI ON OF ` 7.12 LAKHS ON ACCOUNT OF VEHICLE MAINTENANCE EXPENSES. ACCORDIN G TO THE ASSESSING OFFICER THE MANUFACTURING ACTIVITY OF THE ASSESSEE HAS CEAS ED SINCE JUNE 2003 AND CONSEQUENTLY ALL MAJOR EXPENSES AS IS REQUIRED FOR CONDUCING THE MANUFACTURING ACTIVITIES OF THE ASSESSEE HAS SUBSTA NTIALLY REDUCED. HOWEVER THE VEHICLE MAINTENANCE EXPENSES REMAIN THE SAME. ON THESE FACTS THE ASSESSING OFFICER HELD THAT PART OF THE BUSINESS EX PENSES HAVE BEEN INCURRED FOR NON BUSINESS PURPOSES. THE ASSESSING OFFICER D ISALLOWED ` 1 LAKH ON THIS ACCOUNT. THE CIT(A) CONFIRMED THE SAME. 7.2 IT WAS THE SUBMISSION OF THE LEARNED COUNSEL TH AT THE OBSERVATION OF ASSESSING OFFICER NO MANUFACTURING ACTIVITY/BUSINES S WAS NOT CORRECT AS THE ASSESSEE HAS SWITCHED OVER FROM MANUFACTURING TO JO B WORK PROCESSING AND REFERRED TO VARIOUS RECEIPTS. IT WAS FURTHER SUBM ITTED THAT THERE WAS NO DISALLOWANCE IN THE PAST AND THE SAME ASSESSING OFF ICER IN THE LATER YEAR WHICH WAS IN APPEAL ALSO HAS NOT MADE ANY DISALLOW ANCE AS ASSESSEE IS IN THE BUSINESS. THE LEARNED DR RELIED ON THE ORDER OF AS SESSING OFFICER AND CIT(A). 8. WE HAVE CONSIDERED THE ISSUE. IT IS A FACT THAT THE ASSESSEE HAD REPORTED JOB WORK RECEIPTS AND ASSESSING OFFICER ALSO RECORD ED IN FIRST PAGE OF THE ORDER THAT THE ASSESSEE IS ALSO IN TRADING OF HR COIL/COL D ROLLED STRIPS/SHEETS. HENCE THE OBSERVATION OF ASSESSING OFFICER THAT THE RE IS NO BUSINESS DURING THE YEAR IS NOT CORRECT. THE ADDITION WAS MADE ON PRES UMPTIONS. CONSIDERING THE FACTS THAT NO DISALLOWANCE WAS MADE IN LATER YEAR O R IN EARLIER YEARS WE ARE OF THE OPINION THAT DISALLOWANCE ON ADHOC BASIS IS NOT WARRANTED. THE ASSESSING OFFICER IS DIRECTED TO DELETE THE SAME. THE GROUND IS ALLOWED. 9. IN THE RESULT APPEAL IS TREATED AS ALLOWED. 6 ITA NO.962/MUM/2009 ASSESSMENT YEAR : 2005-06 10. THE ASSESSEE HAS RAISED THE FOLLOWING G ROUNDS IN THIS YEAR. I. COMPUTATION OF BOOK PROFITS U/S.115JB OF THE ACT : 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD CIT(A) [HEREINAFTER REFERRED TO AS CIT( A)] ERRED IN HOLDING THAT THE BOOK PROFITS U/S.115JB OF THE AC T ARE TO BE COMPUTED BY DEDUCTING DIVIDEND INCOME AFTER DEDUCTI NG DISALLOWANCE U/S.14A OF THE ACT. 1.2 THE ASSESSEE PRAYS THAT THE LEARNED ASSESSING O FFICER BE DIRECTED TO DEDUCT DIVIDEND INCOME CREDITED TO T HE PROFITS AND LOSS ACCOUNT WHILE COMPUTING THE BOOK PROFITS U/S .115JB OF THE ACT AND REDUCE THE CHARGEABLE BOOK PROFITS ACCORD INGLY. II. DISALLOWANCE U/S.14A OF THE ACT: 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD CIT(A) ERRED IN INVOKING THE PROVISIONS OF RULE 8D FOR COMPUTING THE DISALLOWANCE U/S.14A OF THE ACT AT ` 20 54 400/- RESULTING INTO ENHANCEMENT OF THE SAID DISALLOWANCE COMPUTED AT ` 2 03 552/- BY THE LEARNED ASSESSING OFFICER. 2.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD ASSESSING OFFICER AND THE LEARNED CIT(A ) FAILED OT APPRECIATE THAT NO BORROWED FUNDS WERE UTILIZED FOR ACQUIRING INVESTMENTS CONCERNED AND HENCE THE PROVISIONS OF S ECTION 14A OF THE ACT ARE NOT ATTRACTED IN THE CASE OF ASSESSEE. 2.3 THE ASSESSEE PRAYS THAT THE DISALLOWANCE U/S.14 A OF THE ACT AS CONFIRMED B THE CIT(A) IS UNREASONABLE EXCESSIVE AND UNJUSTIFIED AND HENCE BE REDUCED TO A TOKEN AMOUNT AND THE LOSS FOR THE YEAR BE INCREASED ACCORDINGLY. 11. THE GROUNDS ARE SIMILAR TO THE GROUNDS RAISED I N THE APPEAL FOR EARLIER YEAR. HOWEVER THE ISSUES IN GROUND NO.1 AND 2 ARE INTERLINKED AS THERE IS DIVIDEND INCOME DURING THE YEAR. SIMILAR ARGUMENTS WERE ADVANCED IN THIS YEAR. AFTER CONSIDERING THE ARGUMENTS AND EXAMINING THE RECORD WE ARE OF THE CONSIDERED OPINION THAT THE ACTION OF CIT(A) IN IN VOKING THE RULE 8D IN ENHANCING THE DISALLOWANCE FROM ` 2 03 552/- MADE BY THE ASSESSING OFFICER TO ` 20 54 400/- CAN NOT BE UPHELD AS THE CIT(A) BASED HIS WORKING ON THE DECISION OF SPECIAL BENCH OF ITAT IN M/S DAGA CAPI TAL MANAGEMENT P. LTD AND THE JURISDICTIONAL HIGH COURT HAS NOT APPROVED THE SAME FOR THE YEAR 7 UNDER CONSIDERATION. AS PER THE JURISDICTIONAL HIGH COURT DECISION THE AO HAS TO DECIDE THE REASONABLE AMOUNT FOR DISALLOW ANCE U/S.14A. HOWEVER THE ISSUE OF DISALLOWANCE U/S.36(1)(III)/14A WAS RE STORED TO THE ASSESSING OFFICER IN EARLIER YEARS AS CONSIDERED IN PARA 6.1 ABOVE. THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE FACTS AND DETERMINE THE DISALLOWANCE U/S.36(1)(III) AND A REASONABLE AMOUNT ON THE EXEMPT INCOME AS PER THE FACTS AND LAW ON THESE ISSUES.(GODREJ BOYCE MFG. CO. LTD. 328 ITR 81 OR DECISION OF THE SUPREME COURT IF ANY AT THE TIME OF RECONSIDERATIO N). FURTHER TO THE EXTENT OF DISALLOWANCE U/S.14A THE SAME HAS TO BE REDUCED WH ILE CONSIDERING THE EXCLUSION OF AMOUNT OF NET DIVIDEND INCOME WHILE CO MPUTING THE BOOK PROFITS U/S.115JB AS PER GROUND 1.2 RAISED. THE ASSESSING OFFICER IS DIRECTED TO CONSIDER THE DISALLOWANCES ACCORDINGLY AND RECOMPUT E THE TOTAL INCOME/BOOK PROFITS AFTER GIVING THE ASSESSEE DUE OPPORTUNITY. THE GROUNDS ARE ACCORDINGLY CONSIDERED ALLOWED. 12. IN THE RESULT BOTH THE APPEALS ARE CONSIDERED ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 28 TH DAY OF FEBRUARY 2011. SD/- (R.V. EASWAR) PRESIDENT SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER MUMBAI DATED 28 TH FEBRUARY 2011 JANHAVI COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- MUM BAI 4. COMMISSIONER OF INCOME TAX CITY- MUMBAI 5. DEPARTMENTAL REPRESENTATIVE BENCH MUMBA I //TRUE COPY// BY ORDER ASSTT. REGISTRAR ITAT MUMBAI