Income Tax Appellate Tribunal - Delhi
Orient Craft Ltd, New Delhi vs Department Of Income Tax on 27 March, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'E' DELHI
BEFORE SHRI I.P. BANSAL AND SHRI K.G. BANSAL
ITA No. 1416(Del)/2009
Assessment year: 2004-05
M/s Orient Craft Limited, Deputy Commissioner of Income
F-8, Okhla Industrial Area, Vs. tax, Circle 13(1), New Delhi.
Phase-I, New Delhi.
PAN: AAACO0068M
ITA No. 1942(Del)/2009
Assessment year: 2004-05
Deputy Commissioner of Income Orient Craft Ltd.,
Tax, Circle 13(1), New Delhi. Vs. F-8, Okhla Industrial Area,
Phase-I, New Delhi.
(Appellant) (Respondent)
Assessee by : S/Shri Salil Aggarwal, Gautam Jain,
& Shailesh Gupta, Advocates
Department by: Mrs. Renu Jouhri, CIT, DR
Date of hearing : 27.03.2012
Date of pronouncement: 04 .04.2012
ORDER
PER K.G. BANSAL : AM These cross appeals of the assessee and the revenue were argued in a consolidated manner by the ld. counsel for the assessee and the ld. CIT, DR. Therefore, a consolidated order is passed.
2 ITA Nos. 1416&1942(Del)2009
2. Ground no. 1 in the appeal of the assessee is general in nature, which was not argued by the ld. counsel. Therefore, this ground is dismissed.
3. Ground no. 2 is to the effect that the ld. CIT(Appeals) erred on facts and in law in directing the AO to compute the disallowance u/s 14A of the Income-tax Act, 1961, by resorting to the provision contained in Rule 8D of the Income-tax Rules, 1962, ignoring the fact that the said rule was inserted in the Act by the Finance Act, 2008 with effect from 01.04.2008. In this connection, it has been mentioned in the assessment order that the assessee received dividend on shares and units amounting to Rs. 1,64,13,069/-. This amount is not included in the total income. It was submitted that the investment in shares and units was made from own funds and it had capital and reserves of Rs. 6.39 crore and Rs. 138.18 crore respectively. It was further submitted that no expenditure has been debited in the accounts in relation to the earning of income. The AO noted that the assessee has claimed administrative and other expenses amounting to more than Rs. 32.00 crore. The amount would include expenses incurred in relation to the management and monitoring of the investments. Further, he segregated expenses under eight heads totaling to more than Rs. 21.31 crore, which are common expenses, and which 3 ITA Nos. 1416&1942(Del)2009 were incurred partly for earning the aforesaid income. Therefore, out of these expenses, he allocated a sum of Rs. 6,68,500/- towards earning of dividend income. This amount was disallowed in computing the total income. In the impugned order, the ld. CIT(Appeals) referred to the decision of Tribunal in the case of Daga Capital Management (P) Ltd. and others and held that the disallowance should be worked out under Rule 8D. Therefore, he directed the AO to consider the disallowance under the said rule.
3.1 Before us, the case of the ld. counsel is that Rule 8D has come into force with effect from 01.04.2008, therefore, it is not applicable to the proceedings of the assessee for assessment year 2004-05. It is submitted that no expenditure whatsoever has been incurred for earning dividend from shares and units. Therefore, no disallowance ought to have been made. In reply, the ld. CIT, DR would submit that it would be unimaginable that no expenditure has been incurred for earning dividend income. The AO has enumerated various heads of expenditure which are common to earning of dividend and other incomes. Therefore, the disallowance made by the AO is reasonable.
4 ITA Nos. 1416&1942(Del)20093.2 We have considered the facts of the case and submissions made before us. The issue regarding applicability of Rule 8D is no longer res- integra as it is covered by the decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. Vs. DCIT (2010) 194 Taxman 203. It has been held that the aforesaid rule is applicable to the proceedings of assessment year 2008-09 and onwards. The provisions contained in section 14A and Rule 8D are not ultra vires. In years prior to assessment year 2008-09, the AO can have regard to all the facts of the case and thereafter decide the question of disallowance on a reasonable basis. We find that the AO has furnished elaborate arguments as to how expenses under eight heads are common expenses. Thereafter, he has allocated a part of this expenditure to earning of dividend income on pro rata basis. However, the ld. CIT(Appeals) has not gone into this matter at all as he relied on the decision of the Tribunal in the case of Daga Capital Management (P) Ltd. (supra). This decision is contrary to the decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. (supra) to the extent that it holds Rule 8D to be operative retrospectively. In such a situation, the order of the AO has to be examined as to whether the disallowance made by him was reasonable or not. This has not done by the ld. CIT(Appeals). Therefore, the matter 5 ITA Nos. 1416&1942(Del)2009 is restored to his file for fresh decision to be made after hearing both the parties. Thus, this ground is treated as allowed for statistical purpose.
4. Ground nos. 3 and 4 are in regard to the treatment to be meted out to interest of Rs. 2,71,081/- on fixed deposits. The case of the assessee was that the amount represents business income and, therefore, this has to be included in the profits of business for computing deduction u/s 80HHC. These grounds have not been pressed by the ld. counsel obviously because of the decision of territorial High Court in the case of CIT Vs. Shri Ram Honda Power Equipment (2007) 289 ITR 475 (Del). Thus, these grounds are dismissed as not pressed.
5. Coming to the appeal of the revenue, two grounds have been taken that on the facts and in the circumstances of the case, the ld. CIT(Appeals) erred in directing the AO to treat -(i) premium on sale of quota amounting to Rs. 10,10,617/- as other receipts under Explanation (baa) of section 80HHC, and (ii) DEPB income of Rs.17,59,31,629/- as other receipts under the aforesaid Explanation. Both the parties furnished their respective arguments in the matter. The Bench also drew their attention towards the decision of Hon'ble Supreme Court in the case of 6 ITA Nos. 1416&1942(Del)2009 Topman Exports Vs. CIT (2012) 205 Taxman 119. Broadly speaking , the decision is that face value of the licence is income in the year of its receipt u/s 28(iiib), while profit (sale price minus face value) is the income in the year of sale u/s 28(iiid). The deduction u/s 80HHC has to be worked out accordingly. As this decision has not been considered by any of the lower authorities, we think it fit to restore the matter to the file of the ld. CIT(Appeals) for afresh adjudication by following this decision. Therefore, both the grounds of the revenue are also taken as allowed for statistical purpose.
6. In the result, both the appeals are allowed for statistical purposes.
Sd/- sd/- (I.P. Bansal)) (K.G. Bansal) Judicial Member Accountant Member SP Satia Copy of the order forwarded to:- Orient Craft Ltd., New Delhi. Dy. CIT, Circle 13(1), New Delhi. CIT(A) CIT, The D.R., ITAT, New Delhi. Assistant Registrar.