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Income Tax Appellate Tribunal - Mumbai

Reliance Industrial Infrastructure ... vs Assessee

                 IN THE INCOME TAX APPELLATE TRIBUNAL
                     MUMBAI BENCH 'K' : MUMBAI

     BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI RAJENDRA SINGH,(AM)

                          ITA No.7106/Mum/2007
                          Assessment Year : 2003-04
                          ITA No.7107/Mum/2007
                          Assessment Year : 2004-05

Reliance Industrial Infrastructure
5th Floor, NKM International House
Backbay Reclamation
Babubhai Chinai Road
Mumbai-20.                                             .....(Appellant)
P.A. No.(AAACR 7637 P)

Vs.

Dy. Commissioner of Income tax
Range-3(3)
Aayakar Bhavan, Room No.617
M.K. Road
Mumbai-20.                                           .....(Respondent)


                    Appellant by : Shri A.V. Sonde
                  Respondent by : Shri Surendra Kumar

                                  ORDER

Per D.K. AGARWAL (JM).

These two appeals preferred by the assessee are directed against the separate orders dated 26.9.2007 and 8.10.2007 passed by the Ld. CIT(A) for the Assessment Years 2003-04 and 2004-05 respectively. Since facts are identical and issue involved is common, both these appeals are disposed of by this common order for the sake of convenience.

2. Briefly stated facts of the case extracted from ITA No.7106/M/2007 for Assessment Year 2003-04 are that the assessee 2 ITA No.7106 & 07/M/07 A.Y:03-04 & 04-05 company is engaged in the business of construction, setting up of industrial infrastructure and project related activities, filed return declaring total income of Rs.17,21,40,124/-. During the course of assessment proceeding it was interalia observed by the Assessing Officer that the assessee has claimed dividend income of Rs.10,55,85,520/- being exempt u/s.10(23G) of the Income tax Act, 1961(the Act). The assessee was asked to give details of expenses incurred for earning exempt income and also to show cause as to why the proportionate expenses incurred and claimed during the year shall not be made attributable to earning of exempt income. The assessee in its reply stated that the investment in securities giving rise to the exempt income have been made out of internal accruals and therefore, no interest bearing borrowed funds have been utilised in the investment in securities giving rise to the exempted income and no part of interest expenses can be attributed to the earning of exempted income. The Assessing Officer after considering the assessee's submission was of the view that the contention of the assessee cannot be accepted. The Assessing Officer in view of the provisions of sec.14A and the decision of the Tribunal in Gherzi Eastern Ltd. in ITA No.6562/Bom/94 dated 23.9.2002, Maganlal Chagganlal Pvt. Ltd. 236 ITR 456 (Bom.) and Distributors (Baroda) Pvt. Ltd. 155 ITR 120(SC) and also keeping in view that the assessee has not furnished any reply for incurring of administrative and other expenses in earning the exempted income, made proportionate disallowance of Rs.1,98,86,498/- being 12.36% of administrative and other expenses incurred during the year Rs.16,08,94,000/- and added to the income of the assessee. The Assessing Officer after making some other disallowances completed the assessment at an income of Rs.19,24,53,900/- vide order dated 3.1.2006 passed u/s.143(3) of the 3 ITA No.7106 & 07/M/07 A.Y:03-04 & 04-05 Act. On appeal, the Ld. CIT(A) while upholding the applications of provision sec.14A held that the expenses on plant and utilities Rs.60,00,000/-, power and fuel Rs.3,83,24,430/-, rates & taxes Rs.28,64,197/- and insurance Rs.1,49,68,779/- cannot be considered for computing the disallowance, directed the Assessing Officer to re- compute the disallowance in accordance with his direction.

3. Being aggrieved by the order of the ld. CIT(A) the assessee is in appeal before us.

4. Ground No.1 is against the sustenance of disallowance of Rs.1,22,03,640/- u/s.14A of the Act.

5. At the time of hearing both parties have agreed that this issue stands covered by the judgment of Hon'ble Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd., vs. DCIT, therefore, the issue may be decided accordingly.

6. Having carefully heard the submissions of the rival parties and perusing the material available on record, we find merit in plea of the parties that the issue stands covered by the recent judgment of the Hon'ble Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. vs. DCIT in Income tax Appeal No.626 of 2010 and Writ Petition No.758 of 2010 dated 12.8.2010 since reported in (2010) 328 ITR 81 (Bom.) wherein Their Lordships after considering the decision of the Tribunal in Daga Capital Management Pvt. Ltd. (117 ITD 169 (Mum)(SB), while holding that the provisions of sub sections (2) and (3) of sec.14A of the Act are constitutionally valid have held vide placitum 88(vi) appearing at page 138 of the ITR as under :

A.Y:03-04 & 04-05 " (vi) Even prior to Assessment Year 2008-09, when Rule 8D was not applicable, the Assessing Officer has to enforce the provisions of sub section (1) of section 14A. For that purpose, the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act.

The Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record;"

Respectfully following the above judgment we set aside the orders passed by the revenue authorities on this account and send back the matter to the file of the Assessing Officer who shall decide the same afresh in the light of the directions of the Hon'ble Jurisdictional High Court in the above cited case after providing reasonable opportunity of being heard to the assessee and accordingly the ground taken by the assessee are partly allowed for statistical purposes.

7. Additional ground No.1 is against the levy of interest u/s.234D of the Act.

8. At the time of hearing the ld. counsel for the assessee submits that this issue is squarely covered in favour of the assessee by the decision of Special Bench of the Tribunal in Ekta Promoters P. Ltd. and recently by Hon'ble Jurisdictional High Court in CIT vs. Bajaj Hindustan Ltd. in Income tax Appeal No.198 of 2009 dated 15.4.2009 and Director of Income Tax vs. Jacabs Civil Incorporated (2010) 235 CTR (Del.) 123. He also placed on record the copy of the said decisions of the Hon'ble Jurisdictional High Court.

9. On the other hand the ld. DR supports the order of the Assessing Officer and the Ld. CIT(A) .

A.Y:03-04 & 04-05

10. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that the issue of levy of interest u/s.234D of the Act is covered in favour of the assessee by the decision of the Special Bench of the Tribunal in ITO vs. Ekta Promoters P. Ltd. (2008) 305 ITR (AT) 1(Del.)(SB) wherein it has been held (page-33 ):

"In view of the above discussion our answer to question referred to us is that interest under section 234D is chargeable from the Assessment Year 2004-05 and it could not be charged for earlier years even though regular assessment for these years are framed after June 1, 2003, or the refund was granted for those years after the said date."

11. In Bajaj Hindustan supra, it has been held vide para-5 of the judgment as under:-

"So far as the last question is concerned, it is seen that the subject provision came on Statute book w.e.f. 1/6/2003. If that be so, the said provision does not have retrospective effect. In this view of the matter, we do not see appeal giving rise to any substantial question of law. Appeal is, therefore, dismissed in limini with no order as to costs."

12. In Jacabs Civil Incorporated (supra), it has been held that sec.234D was applicable only from the assessment year 2004-05 onwards and not in the earlier assessment years and, therefore, no interest under that provision could be levied for the period prior to the assessment year 2004-05.

13. Applying the ratio of the above decisions to the facts of the present case we find that the assessment order was passed on 18.9.2006 i.e. after June 1, 2003 for the Assessment Year under consideration i.e. 2003-04. The interest u/s.234D is not chargeable as the same is chargeable for Assessment Year 2004-05 and accordingly the additional ground taken by the assessee is allowed.

A.Y:03-04 & 04-05 ITA No. 7107/M/07 (AY: 2004-05)

14. Ground No.1 is against the sustenance of disallowance u/s.14A and ground No.2 is general in nature.

15. After hearing the rival parties and perusing the material available on record and keeping in view of our finding recorded in ground No.1 in the appeal for the Assessment Year 2003-04 in para -6 of this order we direct the Assessing Officer to follow our aforesaid directions and decide the issue accordingly. The ground taken by the assessee is therefore partly allowed for statistical purposes.

16. In the result, assessee's appeals stand partly allowed for statistical purposes.

Order pronounced in the open court on 19.11.2010.

     Sd/-                                        Sd/-
(RAJENDRA SINGH)                             ( D.K. AGARWAL )
ACCOUNTANT MEMBER                             JUDICIAL MEMBER

Mumbai, Dated:   19.11.2010.
Jv.

Copy to: The Appellant
         The Respondent
         The CIT, Concerned, Mumbai
         The CIT(A) Concerned, Mumbai
         The DR " " Bench

True Copy
                                               By Order

                               Dy/Asstt. Registrar, ITAT, Mumbai.