Jolly Board Ltd, Mumbai vs Department Of Income Tax
- CitationITA No.1099/Mum/2013
Ratio decidendi
The rule this decision rests on
On ground 1, the Tribunal held that disallowance under section 14A read with Rule 8D, where the assessee has claimed no expenditure was incurred for earning exempt income, is to be determined on the basis of whether the investments were made from own funds or borrowed funds and on the availability of funds on the dates of investment; the disallowance of interest attributable to exempt-income investments must be verified on that basis, and the matter is restored to the Assessing Officer to decide afresh in accordance with law. On ground 1, the Tribunal further held that the reasoning of the first appellate authority, which merely recorded that an investment came from a cash credit account without examining the position of own and borrowed funds on the dates of investment, is insufficient, and that such an inquiry requires further verification at the assessing stage. On ground 3, the Tribunal held that where a Special Bench of the Tribunal has distinguished a Supreme Court decision on the same question and its ruling covers the facts of the case, a lower authority following that Special Bench decision is correct, and the claim for allowance of machinery dismantling charges as revenue expenditure is sustained on that basis rather than treating the charges as capital expenditure under the Supreme Court ruling.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
ौी डȣ.मनमोहन, उपाÚय¢, एवं ौी एन.के. ǒबãलैया लेखा सदःय, के सम¢ Before Shri D Manmohan, Vice President & Shri N K Billaiya, AM
आयकर अपील सं./ ITA No.1099/Mum/2013 िनधा[रण वष[ / Assessment Year 2007-08
The Addl CIT Rg 1(2), Jolly Board Ltd. Mumbai 501 Reqa Chambers, Vs. 31 Sir V Thackersey Marg, Mumbai- 400 020 PAN AAACJ1006G (अपीलाथȸ /Appellant) (ू×यथȸ/Respondent)
Appellants By : Shri Vivek A Perampurna Respondent By : Shri Jitendra Jain
सुनवाई कȧ तारȣख / घोषणा कȧ तारȣख / Date of Hearing :13.01.2015. Date of Pronouncement : 16.01.2015
आदे श / O R D E R
Per N K Billaiya, AM:
This appeal by the revenue is directed against the order of the CIT(A)-2, Mumbai, dated 01.11.2012 pertaining to A.Y. 2007-08. The revenue has raised three substantive grounds of appeal.
2. Ground no.1 relates to the restriction of addition of Rs.21,17,890/- made by the AO u/s 14A r.w. Rule 8D to Rs.8,42,277/-. While scrutinizing the return of income, the AO noticed that the assessee has shown dividend of Rs. 51,74,902/- which was claimed as exempt u/s. 10(35) of the I T Act. The assessee was asked to give details of expenditure which were incurred in respect of exempt income. The assessee claimed that no expenditure has been made for the earning of exempt income. The AO was not satisfied, he proceeded by applying section 14A r.w. Rule 2 ITA No.1099/Mum/2013 AY 2007-08
8D and computed the disallowance at Rs.21,17,890/-. Before the CIT(A) it was strongly contended that applicability of Rule 8D is prospective and is not applicable for the year under consideration. The CIT(A) was convinced that Rule 8D is applicable from AY 2008-09 as per the decision of the Hon'ble Jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd. 328 ITR 81. The CIT(A) further found that all the investments made in mutual funds were made from the maturity proceeds of mutual funds, which were invested earlier from the interest free advances of Rs.25 crores received from Lodha Developers Private Ltd. However, the CIT(A) observed that the investment of Rs.5.80 crores was made from the cash credit account on which the assessee paid interest of Rs.5,54,287/- The CIT(A) was convinced that the disallowance on account of interest should be restricted to Rs.5,54,287/-. In so far as disallowance on account of administrative expenses, the CIT(A) directed the same to be taken at 5% and computed the disallowance at Rs.2,87,450/-
3. In so far as second part of this issue is concerned i.e. disallowance out of administrative expenses, the CIT(A) has restricted the disallowance at 5% and the same is considered to be reasonable and no interference is called for. In so far as the disallowance out of interest is concerned, we find that neither the AO nor the first appellate authority has looked into the fact as to what investments were made and what were the position of availability of the own funds as well as borrowed funds. The CIT(A) has simply mentioned that the investment has come out of cash credit account. In our considered opinion this needs further verification. We accordingly restore this issue to the file of the AO. The AO is directed to verify the availability of funds on the dates of investment. The AO is also directed to verify whether the investment has been made out of borrowed funds or out of own funds and decide the issue afresh as per the provisions of law. Ground no.1 and 2 are allowed in part for statistical purposes.
4. Ground no.3 relates to allowability of expenditure of Rs.12,89,731/- on account of machinery dismantling charges. Drawing support from the decision of Hon'ble Supreme Court in the case of Sitalpur Sugar Works Ltd. 49 ITR 160, the AO considered dismantling charges of Rs.12,89,731/- as capital expenditure. The 3 ITA No.1099/Mum/2013 AY 2007-08
CIT(A) allowed the expenditure by drawing support from Special Bench decision of the Tribunal in the case of JCIT vs ITC Ltd. 112 ITD 57. The CIT(A) observed that the Special Bench, Kolkata, has distinguished the decision of the Hon'ble Supreme Court in the case of Sitalpur Sugar Works Ltd. (supra). We have given a thoughtful consideration to the findings of the AO and also that of the first appellate authority. We find that the facts of the case are covered by the decision of the Tribunal Special Bench, Kolkata in the case of ITC Ltd (supra), the CIT(A) has correctly followed the decision which has distinguished decision of the Hon'ble Supreme Court in the case of Sitalpur Sugar Works Ltd. (supra). No interference is therefore called for. Ground no.3 is accordingly dismissed.
5. In the result, the appeal filed by the revenue is partly allowed for statistical purposes.
Order pronounced in the open court on this 16th day of January, 2015.
Sd/- Sd/- (D Manmohan) (N K Billaiya) उपाÚय¢ /Vice President लेखा सदःय/ सदःय ACCOUNTANT MEMBER मुंबई Mumbai; Ǒदनांक Dated : 16th January, 2015.
SA
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), Mumbai. 4. आयकर आयुƠ / CIT
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, 'J' Bench, ITAT, Mumbai
आदे शानुसार/ BY ORDER,
स×याǒपत ूित //True Copy//
प/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, मुंबई / ITAT, Mumbai
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