Birla Global Finance Co. Ltd, Mumbai vs Department Of Income Tax

आदे श / O R D E R 2 ITA NO.6630&7530/MUM/2010(A.Y. 2007-08)

Per Sanjay Garg, Judicial Member:

The above titled cross appeals, one by the assessee and other by the Revenue are directed against the order of Ld. CIT(A)-4, Mumbai dated 05/08/2010. These appeals are being disposed of by this common order.

2. First we take up assessee's appeal in ITA No.6630/Mum/2010. The assesee has taken the following grounds of appeal.

"1. On the facts and in the circumstances of the case and in law, the learned AO has erred in disallowing an additional sum of Rs.32,19,195/- u/s. 14A read with rule 8D. The learned AO be directed to delete the disallowance so made.

2. On the facts and in the circumstances of the case and in law, the AO erred in disallowing an amount of Rs.13,03,506/- claim u/s. 35D towards 1/5th of the share issue expense incurred in F.Y. 2006-07, on account of expansion of business."

2.1 Ground no.1 relates to disallowance of Rs.32,19,195/- made by the AO under section 14A of the Income Tax Act, 1961 r.w. Rule 8D of the Income Tax Rules. The brief facts are that the AO noticed that assessee had received tax exempt dividend income of Rs.39,72,043/-. However, the assessee had disallowed a sum of Rs.25,34,001/- only towards expenditure incurred in relation to earning of exempt income. The AO however calculated the disallowance invoking Rule 8D of the Income Tax Rules at Rs.32,19,195/- and made the addition accordingly. In appeal Ld. CIT(A) upheld disallowance so made by the AO. Being aggrieved, the assessee has come in appeal before us on this appeal.

2.2 We have considered the rival submissions of the representatives of the parties and have also gone through the record. It may be observed that the assessment year involved in this appeal is assessment year 2007-08. The Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Company Ltd. vs. DCIT, 328 ITR 81 3 ITA NO.6630&7530/MUM/2010(A.Y. 2007-08)

(Bom) has held that Rule 8D r.w.s. 14A(2) is not arbitrary or unreasonable and also not retrospective and applies from assessment year 2008-09. For the prior period to assessment year to 2008-09, the disallowance has to be worked out by the AO on some reasonable basis. We find that in this case, the AO has straight away applied Rule 8D, which is not applicable for the year under consideration in the light of the decision given by Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Company Ltd. (supra). Even in case Rule 8D is applicable still the same cannot be applied straight away ignoring the calculation given by the assessee. The disallowance under Rule 8D can be made if AO is not satisfied with the correctness of the claim made by the assessee in respect of such expenditure. Hence, in view of our above observation, this issue is restored back to the file of AO with a direction to give the assessee a reasonable opportunity to place on record all relevant facts including its accounts and examine the computation calculation made in this regard by the assessee regarding the suo-motu disallowance of Rs.25,34,001/-If the AO will not be satisfied with the working given by the assessee, then he will record his dissatisfaction in this regard by way of a speaking order and will be at liberty to make the disallowance on some reasonable basis.

3. Vide ground No.2, the assessee has agitated the disallowance of an amount of Rs.13,03,506/- claimed under section 35D of the Income Tax Act, 1961 towards 1/5th of the share issue expenses incurred on account of expansion of business. The AO rejected the claim of the assessee observing that firstly, assessee was not a company and hence was not eligible for deduction under section 35D of the Act and secondly, the expenses incurred by the assessee as per the provisions of section 35D should be in respect of public subscriptions of shares/debentures of the company. However, in the present case the assessee has increased share capital by way of private placement by its holding company hence, the deduction under section 35D of the Act was not allowable. In first appeal the Ld. CIT(A) confirmed the disallowance so made by the AO. The assessee is thus in appeal before us.

4 ITA NO.6630&7530/MUM/2010(A.Y. 2007-08) 3.1 We have heard the rival contentions of the Ld. Representatives of the parties and also gone through the record. Ld. AR of the Assessee has vehemently contended that the activities of the assessee company falls in the definition of industrial activity. However, he could not rebut the contention that as per the provisions of section 35D of the Act, the deduction is admissible in connection with the issue for public subscription of shares or debentures of a company. However, in the case in hand the assessee had increased the share capital by way of private placement with its holding company M/s. Aditya Birla Nuvo Ltd , hence, deduction under section 35D of the Act is not allowable to the assessee. This issue is accordingly decided against the assessee.

4. Now we take up Revenue's appeal in ITA No.7530/Mum/2010. The grounds of appeal raised by the Revenue read as under:

"1.The order of the CIT(A) is opposed to law and facts of the case. 2(a) On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in holding that the provision of Rs.1,32,18,459/- made on account of leave salary shall he allowed as deduction as the provision was on the basis of actuarial estimation irrespective of the fact that allowance of such provision of expense is prohibited under the provisions of section 43B(f) of the I.T.Act.

2(b) On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in holding that the provision of Rs.1,32,18,459/- made on account of leave salary shall he allowed as deduction merely on the fact that the provision was based on actuarial estimation without appreciating that under section 43B of the I.T.Act an amount shall he allowed as deduction in the previous year in which such sum is actually paid irrespective of the previous year in which the liability to pay was incurred according to the method of accounting employed by the assessee.

2(c) On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in holding that the provision of Rs.1,32,18,459/- made on account of leave salary on the basis of actuarial estimation shall be allowed as 5 ITA NO.6630&7530/MUM/2010(A.Y. 2007-08)

deduction without appreciating that the unpaid amount even if estimated on actuarial basis cannot override the provisions of section 43B(f) of the I.T.Act".

4.1 Revenue through its ground of appeal has agitated the action of Ld. CIT(A) in deleting the disallowance of Rs.1,32,18,459/- on account of leave salary. The AO added a sum of Rs.1,32,18,459/- into the income of the assessee under the provisions of section 43 of the Income Tax Act, 1961 on account of provision for leave encashment, however, the same had not been paid during the year. Ld. CIT(A) deleted the said disallowance relying upon the decision of ITAT in the case of Universal Medicare Pvt. Ltd. vs. ACIT in ITA No.6191/Mum/2008. Aggrieved by the order of Ld. CIT(A) the Revenue has come in appeal before us.

4.2 At the outset Ld. AR of the assessee has produced before us a copy of order of the Tribunal in the case of the sister concern of the assessee M/s. Birla Insurance Advisory & Broking Services Ltd., in ITA No.7531/Mum/2010. The Tribunal in the said case has restored the matter on the identical issue to the file of the AO while relying upon the decision in the case of Essar Exploration and Production India Ltd. vs. ACIT in ITA No.6189/Mum/2011 order dated 8/8/2012. The operating part of the order for the sake of convenience is reproduced as under:

"3. At the outset Ld. AR of the assessee has produced before us a copy of order of the Tribunal dated 8/8/2012 in ITA No.6189/Mum/2011 in the case of Essar Exploration & Production India Ltd. vs. ACIT, order dated 8/8/2012 , in which similar issue came up for consideration of ITAT. Before ITAT reference was made to the aforementioned decision in the case of M/s. Universal Medicare Pvt. Ltd. vs. ACIT(supra), and after hearing both the parties and considering the issue that in another matter in the case of Exide Industries Ltd. vs. Union of India, 292 ITR 470 (Cal), where provisions of section 43B(f) were held to be arbitrary and in Special Leave Petition before Hon'ble Apex Court vide order dated 8/9/2008 the judgment of Hon'ble Culcutta High has been stayed and also the fact that Hon'ble Bombay High Court has admitted the issue in consideration in the appeal filed by the 6 ITA NO.6630&7530/MUM/2010(A.Y. 2007-08)

department in the case of M/s. Universal Medicare Pvt. Ltd.(supra), the matter was restored back to the file of AO with the following observations:

"7. We observe that Mumbai Tribunal by its order dated 30.3.2009 in the case of Universal Medicare Pvt Ltd. (supra) allowed the claim of provision for leave encashment on the basis of decision of Hon'ble apex Court in the case of Bharat Earth Movers (supra) as the Honble Calcutta High Court in the case of Exide Industries (supra) struck down the provision of section 43B(f) being arbitrary, unconscionable. Further, the department filed SLP before Hon'ble apex Court against the decision of Hon'ble Calcutta High Court in the case of Exide Industries Ltd (supra) by its order dated 8.9.2008 in SLP No.12060/2008 has stayed the operation of judgment of Hon'ble Calcutta High Court. Further, it is also a fact that Hon'ble Bombay High Court has admitted the issue under consideration in the appeal filed by department in the case of Universal Medicare Pvt Ltd (supra). At the time of hearing, Id A.R. submitted that the said appeal is yet to be disposed of. We also observe that ITAT Kolkata Bench by its order dated 30.1.2012 considered the said issue and by following earlier decision on identical issue in the case Ernst & Young Pvt Ltd. (supra) has restored the matter to the file of AC with a direction to adjudicate the same as per decision of Hon'ble apex Court in the case of Exide Industries Ltd (supra), In view of above and respectfully following the earlier decisions (supra), we set aside the orders of authorities below and restore the matter back to the file of AO for adjudication afresh as per the decision of Hon'ble apex Court in the case of Exide Industries Ltd (supra)."

3.1 Referring to the above observation it was pleaded by Ld. A.R that the matter may be restored back to the file of AO with similar directions.

4. Ld. D.R did not have any objection to such request of Ld. A.R.

5. In this view of the situation, after hearing both the parties, respectfully following subsequent decision of the Tribunal on this issue in the case of Essar Exploration & Production India Ltd.,(supra), we restore this issue to the file of A.O with similar directions. The relevant observations have already been reproduced. We direct accordingly".

7 ITA NO.6630&7530/MUM/2010(A.Y. 2007-08) 4.3 The Ld. Representatives of the parties submitted that they have no objection if the matter in this case also be restored to the file of AO with a direction to decide the same in the light of above reproduced directions. This issue is accordingly restored to the file of AO to decide the same as per the directions given in the case of sister concern of the assessee as reproduced above.

5. In the result, appeal of the assessee is partly allowed for statistical purposes and appeal of the Revenue is allowed for statistical purposes.

Order pronounced in the open court on 23/01/2015 . आदे श कȧ धोषणा खुले Ûयायालय मɅ Ǒदनांकः 23 /01/2015 को कȧ गई ।

Sd/- Sd/- (R.C.SHARMA) (SANJAY GARG) लेखा सदःय /ACCOUNTANT MEMBER Ûयाियक सदःय /JUDICIAL MEMBER मुंबई Mumbai; Ǒदनांक Dated 23/01/2015

आदे श कȧ ूितिलǒप अमेǒषत/Copy षत of the Order forwarded to : 1. अपीलाथȸ / The Appellant 2. ू×यथȸ / The Respondent. 3. आयकर आयुƠ(अपील) / The CIT(A)- 4. आयकर आयुƠ / CIT 5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai 6. गाड[ फाईल / Guard file. आदे शानुसार/ ार BY ORDER, स×याǒपत ूित //True Copy// उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुंबई / ITAT, Mumbai व.िन.स Sr. PS-VM