Jyoti Ceramic Industries P.Ltd, Mumbai vs Assessee

आयकर अपील य अ धकरण, मंब ु ई IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES 'J' MUMBAI सव ी आय.पी. बंसल, या यक सद य एवं नरे कुमार ब लै या, लेखा सद य के सम । BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER

आयकर अपील सं. / ITA No. 352/MUM/2013 नधा रण वष /Assessment Year 2009-10 Jyoti Ceramic Industries Pvt. बनाम/ The ACIT 5(2), Ltd., 5th Floor, Aaykar Bhavan, Vs. B-603, Parle Udyan Co-op. Hsg. MK Road, Soc. Ltd., 25, Park Road, Mumbai -400 020. Vile Parle (East), Mumbai 400 057.

थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAACJ 0247P

(अपीलाथ$ /Appellant) .. (%&यथ$ / Respondent) आयकर अपील सं. / ITA No. 66/MUM/2013 नधा रण वष /Assessment Year 2009-10 The ACIT 5(2), बनाम/ Jyoti Ceramic Industries Pvt. th 5 Floor, Aaykar Bhavan, Ltd., Vs. MK Road, B-603, Parle Udyan Co-op. Mumbai -400 020. Hsg. Soc. Ltd., 25, Park Road, Vile Parle (East), Mumbai 400 057. थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AACPK 1951Q

(अपीलाथ$ /Appellant) .. (%&यथ$ / Respondent)

Assessee by Shri K.Gopal Revenue by : Shri Pawan Kumar Beerla सन ु वाई क( तार*ख / Date of Hearing : 22/06/2015 घोषणा क( तार*ख /Date of Pronouncement : 22/06/2015 आदे श / O R D E R 2 आयकर अपील सं. / ITA No. 352&66/MUM/2013 नधा रण वष /Assessment Year 2009-10

PER I.P.BANSAL, JM:

These are cross appeals and are directed against order passed by Ld. CIT(A)-9, Mumbai dated 16/10/2012 for assessment year 2009-10. Grounds of appeal read as under:

Assessee's Grounds of Appeal:

The following grounds of appeal are distinct and separate and without prejudice to each other:

1. The learned CIT(A) has erred in law and facts in confirming the disallowance under section 14A of the Income Tax Act, 1961 ('the Act') read with Rule 80 of the Income tax Rules, 1962 ('the Rules') as expenses incurred in relation to earn exempt income. The learned CIT(A) has erred in not considering the following:

i. The Learned AO has not recorded dis-satisfaction on records that disallowance made by the appellant was incorrect having regard to the accounts. ii. Rule 80 can be invoked only when the assessing officer is not satisfied with the correctness of the claim of expenditure made by the assessee.

iii. Investments in equity shares and mutual funds are made from owned funds and no expenditure can be attributed in relation to earn exempt income in terms of section 14A of the Act. There is no nexus between the borrowed funds and the investments. The use of Overdraft / Credit facilities is restricted by the banks for business purposes only.

2. Without prejudice to Ground No. 1, the learned CIT (A) has erred in law and facts in not appreciating the fact that the investments in equity shares and mutual funds are made from owned funds and therefore, no disallowance of interest expenditure can be attributed to exempt income. Hence, proportionate interest under section 14A of the Act is unwarranted.

Revenue's Grounds of Appeal:

1. "Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the Assessing Officer to reduce the interest received out of interest payment for computation of disallowance under Rule 8D of the I.T. Rules, 1962?"

2. "Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in granting relief of Rs.8,43,050/- being land leveling charges following the decision of the jurisdictional High Court in the case of M/s. Teksons (P) Ltd., 120 ITR 745, where the facts of the case are different as there the land was being used and here it is kept as vacant and acquired partly in previous year relevant to Assessment Year?"

3 आयकर अपील सं. / ITA No. 352&66/MUM/2013 नधा रण वष /Assessment Year 2009-10

2. It was submitted by Ld. AR that assessee in the present appeal is contesting disallowance under section 14A of the Income Tax Act, 1961 (the Act) only to the extent it relates to interest on the ground that assessee did not utilize borrowed funds for the purpose of making investment in the shares from which the assessee has earned tax free income. Disallowance was made with reference to Rule 8D at a sum of Rs.1,07,05,235/- and after reducing the disallowance suo-moto made by the assessee at a sum of Rs.10,65,556/-, balance addition of Rs.96,39,679/- was made. The calculation of Rule 8D is as under:

"Working of Disallowance u/s.14A-read with Rule 8D(2).

1. Under rule 8D(i) Nil

2. Under rule 8D(ii)

a) Interest paid Rs.91,47,572/- (A)

b)Average of Investment

i) Investments as on 31/3/2009 Rs.96,85,68,048/-

ii) Investments as on 31/03/2008 Rs. 83,57,96,331/-

Total Rs.180,43,64,379 Average of Investments Rs. 902182190/-

c) Average of Assets i) Assets as on 31/03/2009 Rs. 137,65,38,640/- ii) Assets as on 31/03/2008 Rs.128,80,86,670/- Total Rs.266,46,25,310/- Average of Assets Rs.133,23,12,655/- Disallowance is A x B C i.e. 91,47,572 X 9021821190 = Rs. 61,94,324/- 133,23,12,655 3) under Rule 8D (iii) 0.5% of Average of Investments 90,21,82,190/- Rs. 45,10,911/- Total Disallowance under section 14A Rs. 107,05,235/- ===============

The disallowance was contested before Ld. CIT(A) and part relief has been given by Ld.CIT(A) on the ground that only net interest debited to P&L Account should be considered for disallowance under section 14A r.w. rule 8-D. With these findings recorded by Ld. CIT(A), both the parties are aggrieved and have 4 आयकर अपील सं. / ITA No. 352&66/MUM/2013 नधा रण वष /Assessment Year 2009-10

raised aforementioned grounds in assessee's appeal and Ground No.1 in Departmental appeal.

3. It was submitted by Ld. AR that on similar facts and circumstances of the case, the Tribunal in assessment year 2008-09 vide its order dated 15/6/2015 in cross appeals, ITA No. 3005/Mum/2013 (Assessee's appeal) and ITA No.1981/Mum/2013 (Revenue's Appeal) has set aside the addition and restored back this issue to the file of AO with the following observations:

"Having heard the rival submissions, we are of the view that the disallowance made u/s.14A of the Act by the AO requires fresh examination by duly considering the submissions of the assessee in the light of decision of Hon'ble Jurisdictional High Court rendered in the case of HDFC Ltd.(supra). Accordingly, we set aside the order of Ld. CIT(A) on this issue and restore the same to the file of the AO with a direction for fresh examination in the light of the aforesaid discussion.

It was submitted that the matter may be restored back to the file of AO with similar directions.

4. On the other hand, Ld. DR relied upon the order passed by the AO.

5. We have heard both the parties and their contentions have carefully been considered. Following the aforementioned decision of Tribunal in respect of assessment year 2008-09 in the case of assessee itself, we restore this issue to the file of AO with similar directions. Since we are restoring back this issue to the file of AO and the grounds of appeal No.1 raised by the Revenue is also on account of inclusion or otherwise of interest for the purpose of disallowance, both the appeals on this issue are considered to be allowed for statistical purposes in the manner aforesaid.

6. Now we are left with Ground No.2 of Revenue's appeal. This disallowance relates to expenditure incurred by the assessee on the land owned by it and is for the purpose of land leveling charges. It is the case of the 5 आयकर अपील सं. / ITA No. 352&66/MUM/2013 नधा रण वष /Assessment Year 2009-10

assessee that every year after rains the assessee has to level the land, therefore, expenditure incurred on leveling of the land is revenue in nature. Ld. CIT(A) has accepted such contention on the basis of decision of Hon'ble Bombay High Court in the case of Teksons Pvt. Ltd. vs. CIT, 120 ITR 745 on the ground that by leveling the land no capital asset comes into existence and such expenditure cannot be held to be capital in nature. The Revenue is aggrieved by such finding recorded by Ld. CIT(A) and has filed aforementioned ground.

7. We have heard both the parties and their contentions have carefully been considered. No material has been brought on record by the Revenue to contradict the contention of the assessee that land leveling expenses paid by the assessee were not usual expenditure incurred in the course of business as it is the contention of the assessee that these are recurring expenditure to be made after rainy season to level the land. In absence of such material, we find that Ld. CIT(A) did not commit any error in accepting the claim of the assessee. We decline to interfere. This ground of the Revenue is dismissed.

8. In the result, the appeal filed by the assessee is allowed for statistical purposes and appeal filed by the Revenue is partly allowed for statistical purposes in the manner aforesaid.

Order pronounced in the open court on 22/06/2015 आदे श क( घोषणा खुले यायालय म0 1दनांकः 22/06/2015 को क( गई ।

Sd/- Sd/- (नरे कुमार ब लै या / N.K.BILLAIYA) (आय.पी. बंसल / I.P. BANSAL) लेखा सद य / ACCOUNTANT MEMBER या यक सद य / JUDICIAL MEMBER मुंबई Mumbai; 1दनांक Dated 22/06/2015 6 आयकर अपील सं. / ITA No. 352&66/MUM/2013 नधा रण वष /Assessment Year 2009-10

आदे श त ल प अ े षत/Copy of the Order forwarded to :

1. अपीलाथ$ / The Appellant

2. %&यथ$ / The Respondent.

3. आयकर आयु4त(अपील) / The CIT(A)-

4. आयकर आयु4त / CIT

5. 5वभागीय % त न7ध, आयकर अपील*य अ7धकरण, मुंबई / DR, ITAT, Mumbai

6. गाड फाईल / Guard file.

आदे शानस ु ार/ BY ORDER, स&या5पत % त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मंब ु ई / ITAT, Mumbai व. न.स./Vm, Sr. PS