IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "C", MUMBAI
BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND
SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
ITA No. 6810/Mum/2012
Assessment Year: 2004-05
DCIT 3(2) M/s. The Paper Products P.
Room No. 674, 6th Floor, Ltd.
Aayakar Bhavan M.K. Road Vs. Regent Chambers 13th Floor
Mumbai-400 020 Nariman Point
Mumbai 400 021
PAN: AAACT 0086 E
(Appellant) (Respondent)
ITA Nos. 6893, 6891 & 6892 /Mum/2012
Assessment Years: 2004-05, 2007-08 & 2008-09
M/s. The Paper Products P. Addl. CIT 3(2)
Ltd. Room No. 674, 6th Floor,
Regent Chambers 13th Floor Vs. Aayakar Bhavan M.K. Road
Nariman Point Mumbai-400 020
Mumbai 400 021
PAN: AAACT 0086 E
(Appellant) (Respondent)
Assessee by Shri C.N. Vaze & Bhadresh
:
Doshi
Revenue by : Smt. Perminder
Date of hearing : 01.05.2014
Date of Pronouncement : 07.05.2014
ORDER
PER N.K. BILLAIYA, AM:
ITA No. 6810/Mum/2012, 6893/Mum/2012 are cross appeals by the Assessee
and the Revenue against the very same order of the Ld.CIT(A)-4, Mumbai dated
17.08.2012 pertaining to A.Y. 2004-05. ITA No. 6891/Mum/2012 is appeal by the
assessee against the order of the Ld.CIT(A)-4, Mumbai dated 17.08.2012 pertaining
to A.Y. 2007-08. ITA No. 6892/Mum/2012 is appeal by the Assessee against the
order of the Ld.CIT(A)-4, Mumbai dated 28.08.2012 pertaining to A.Y. 2008-09 as
ITA No. 6810/Mum/2012
2 ITA Nos. 6891, 6892 & 6893/Mum/2012
M/s. The Paper Products P. Ltd.
Assessment Years: 2004-05, 2007-08 & 2008-09
common issues are involved in all these appeals. They were heard together and
disposed of by this common order for the sake of convenience and brevity.
2. Common ground in all the appeals filed by the assessee for A.Yrs. 2004-05,
2007-08 and 2008-09 read as under:-
"On the facts and circumstances of the case and in law the Ld.CIT(A) has
erred in confirming the action of the AO by disallowing Rs. 20 lakhs on
account of write off of 1/10th of non compete fees."
3. As regards this common ground in all the three years, the learned counsel for
the assessee has conceded before us that common issue involved therein relating to
disallowance of assessee's claim for deduction on account of write off of non-
compete fees is squarely covered against the assessee by third member decision of
the Co-ordinate Bench of this Tribunal in assessee's own case for A.Y. 1998-99 to
A.Y. 2001-02. He has submitted that the assessee, however, has taken this matter
to the Hon'ble Bombay High Court which is still pending. He has submitted that the
issue involved in the years under consideration being identical with the question of
law arising in the case of the assessee for earlier years which is pending before the
Hon'ble Bombay High Court. The assessee has filed a declaration as required by the
provisions of section 158A(1) of the Act. Accordingly we decide this issue against the
assessee following the decision of the Tribunal in assessee's own case for A.Y. 1998-
99 to A.Y. 2001-02 with the right to give assessee to seek amendment of this order
if necessary so as to bring the same inconformity with the decision of the Hon'ble
Bombay High Court. On the identical question of law with the same becomes final
for A.Y. 1998-99 to 2001-02. Ground No. 1 and 2 for A.Y. 2004-05, Ground No. 1
and 2 of A.Y. 2007-08 and Ground No. 4 of A.Y. 2008-09 of assessee's appeal are
accordingly dismissed.
4. Ground No. 3 for A.Y. 2004-05 read as under:-
"On facts and circumstances of the case are in law, the Ld.CIT(A) having
erred in confirming the disallowances of Rs.18,12,133/- being share issue
assessment expenses written off u/s 35D."
The learned counsel for the assessee has conceded before us that the issue
involved in this ground is squarely covered against the assessee by the decision of
the Tribunal for A.Y. 2000-01 and 2001-02. The counsel further submitted that the
question of law has been admitted by the Bombay High Court. The assessee has
ITA No. 6810/Mum/2012
3 ITA Nos. 6891, 6892 & 6893/Mum/2012
M/s. The Paper Products P. Ltd.
Assessment Years: 2004-05, 2007-08 & 2008-09
filed a declaration as required by the provisions of section 158 A(1) of the Act.
Accordingly we decide this issue against the assessee following the decision of the
Tribunal in assessee's own case for A.Y. 2000-01 and 2001-02 with the right to the
assessee to seek amendment of this order, if necessary, so as to bring the same
inconformity with the decision of the Hon'ble Bombay High Court on the identical
question of law when the same become final of A.Y. 2000-01 and 2001-02. Ground
No. 3 of A.Y. 2004-05 is accordingly dismissed.
5. Ground No. 4, 5 and 6 for A.Y. 2004-05 read as under:-
"4. On the facts and circumstances of the case and in law, the
Ld.CIT(A) has erred in not adjudicating altogether the ground relating to
interest income and other income to be included in the eligible profits for the
purposes of section 80HHC.
5. On the facts and circumstances of the case and in law, the
Ld.CIT(A) has erred in confirming the action of the AO of reducing `Other
income' of Rs.10,75,262/-, rental income of Rs.55,800/- and machinery hire
charges of Rs.8,54,276/- from the profits for computing deduction u/s
80HHC.
6. On the facts and circumstances of the case and in law, the
Ld.CIT(A) has erred in not following the Hon'ble Supreme Court's decision in
appellant's own case and in denying the benefit of netting off the interest
expense from interest income for the purpose of calculating of deduction u/s
80HHC."
The learned counsel for the assessee before us stated that the Ld.CIT(A) has not
adjudicated this ground i.e. Ground No. 4 though the same was taken before him.
Similarly, grievance raised vide ground no. 5 and 6 have not been adjudicated by the
Ld.CIT(A) stating that the assessee has not made claim in the return of income and
the claim was made only in the appellate proceedings. We have carefully perused
the order of the Ld.CIT(A) we find that the Ld.CIT(A) has rejected the grievance of
the assessee holding that the assessee had made no such claim in the return of
income or in the revised return of income or before the AO and this claim has merely
been made during appellate proceedings. The findings of the Ld.CIT(A) are contrary
to the decision of the Hon'ble Jurisdictional High Court in the case of Prithvi Broker
and Shareholders in ITA No. 3908 of 2010. Respectively following the ratio of the
Hon'ble Jurisdictional High Court we restore ground no. 4, 5 and 6 to the files of the
Ld.CIT(A). The Ld.CIT(A) is directed to decide these grounds a fresh as per the
ITA No. 6810/Mum/2012
4 ITA Nos. 6891, 6892 & 6893/Mum/2012
M/s. The Paper Products P. Ltd.
Assessment Years: 2004-05, 2007-08 & 2008-09
provisions of law and after giving a reasonable opportunity of being heard to the
assessee. Ground No. 4, 5 and 6 are accordingly allowed for statistical purposes.
6. Ground No. 7 and 8 relate to the disallowance u/s 14A of the Act. During the
course of the assessment proceedings the AO found that the assessee has claimed
dividend income of Rs.1,41,80,929/- as exempt income. The assessee was asked to
explain as to why the expenses attributable to this income should not be disallowed,
in view of the provisions of section 14A. Assessee replied that the investments have
been made out of the surplus generated and no extra efforts have been by the
company for earning this dividend. The explanation of the assessee did not find
favour from the AO who went on to compute the disallowance on pro rata basis
relatable to exempt income and disallowed Rs.14,89,103/-. Assessee carried the
matter before the Ld.CIT(A) but without any success. Aggrieved by this assessee is
before us.
7. The counsel for the assessee reiterated what has been submitted before the
lower authorities we have carefully perused the orders of the lower authorities.
Hon'ble Jurisdictional High Court in the case of Godrej and Boyce Ltd. 328 ITR 81
has held that reasonable expenses has to be allocated towards earning of exempt
income u/s 14A of the Act. The AO has allocated the expenses on pro rata basis the
same has been confirmed by the Ld.CIT(A). Since the expenses have been allocated
on a reasonable basis, we do not find any error or infirmity in the findings of the
Ld.CIT(A). Ground No. 7 and 8 for A.Y. 2004-05 are accordingly dismissed.
8. A similar disallowance has been made in A.Y. 2007-08 wherein we find that
the AO has invoked Rule 8D for computing the disallowance. It is now well settled
that application of Rule 8D is w.e.f. A.Y. 2008-09 as held by the Hon'ble Bombay
High Court in the case of Godrej and Boyce (supra). We therefore, restore this issue
for A.Y. 2007-08 to the files of the AO. AO is directed to compute a reasonable
disallowance u/s 14A without invoking Rule 8D of the Act. Ground No. 3 and 4 for
A.Y. 2007-08 are allowed for statistical purposes.
9. In Assessment Year 2007-08 the assessee has also challenged levy of interest
u/s 234(c) of the Act. The grievance of the assessee is that the AO has charged
interest u/s 234(c) of the Act on the assessed income and not on the returned
ITA No. 6810/Mum/2012
5 ITA Nos. 6891, 6892 & 6893/Mum/2012
M/s. The Paper Products P. Ltd.
Assessment Years: 2004-05, 2007-08 & 2008-09
income. We have carefully perused the order of the lower authorities in the light of
the provisions of section 234(c) of the Act. We find force in the grievance of the
assessee the AO is directed to charge interest u/s 234(c) of the act on the return
income as per the provisions of the law. Ground No. 5 for A.Y. 2007-08 is allowed
for statistical purposes.
10. Ground No. 1 for A.Y. 2008-09 read as under:-
"1.On the facts and circumstances of the case and in law, the Ld.CIT(A) has
erred in confirming the disallowance on account of marked to market losses
on foreign exchange contracts amounting to Rs.1,16,25,490/-."
[[[[
11. A similar issue was considered by the Tribunal in assessee's own case in A.Y.
2009-10 in I.T.A. 7761/Mum/2012. The Tribunal at para 8 on page 6 of its order
directed the AO to allow the loss claimed by the assessee on account of marked to
market losses on foreign exchange contract. Facts and issues being identical
respectively following the decision of the Co-ordinate Bench in assessee's own case
the AO is directed to allow the losses on foreign exchange contract amounting to
Rs.1,16,25,490/-. Ground no. 1 of A.Y. 2008-09 is allowed.
12. Ground No. 2 read as under:-
"On facts and circumstances of the case and in law, the Ld.CIT(A) has
erred in confirming disallowance of penalty paid to excise authorities of
Rs.55,00,000/-."
During the course of the scrutiny assessment proceedings the AO noticed that the
assessee has paid an amount of Rs. 55 lakhs as excise penalty following the order of
the Hon'ble Hon'ble Supreme Court, the same has been claimed as expenditure
during the year under consideration. The assessee was asked justify its claim.
Assessee filed a reply stating that it has claimed as a business expenditure relying
upon the judgment of the Bombay High Court in the case of Pannalal Narottam Das
67 ITR 667. The AO rejected the claim of the assessee stating that in subsequent
decision in the case of Rohit Pulp and Paper Mills 79 taxman 168 Hon'ble Bombay
High Court has disallowed the claim of penalty as business expenditure. The
assessee carried the matter before the Ld.CIT(A) but without any success. Aggrieved
by this the assessee is before us counsel for the assessee reiterated what has been
submitted before the lower authorities. We have carefully perused the orders of the
lower authorities. We have also the benefit of going through the decision of the
ITA No. 6810/Mum/2012
6 ITA Nos. 6891, 6892 & 6893/Mum/2012
M/s. The Paper Products P. Ltd.
Assessment Years: 2004-05, 2007-08 & 2008-09
Hon'ble Supreme Court wherein penalty of Rs. 55 lakhs has been confirmed by the
Hon'ble Supreme Court. The penalty was levied for the infringement of the excise
rules and regulations therefore the same cannot be considered as business
expenditure. We therefore, do not find any reason to interfere with the findings of
the Ld.CIT(A). Ground no. is accordingly dismissed.
13. Ground no. 3 relates to the disallowance u/s 14A read with Rule 8D. As
mentioned elsewhere Rule 8D is applicable from the year under consideration. The
AO made disallowances u/s 14A, and the disallowance has been computed as per
Rule 8D. We therefore, do not find any reason to interfere with the findings of the
CIT(A). Ground No. 3 is accordingly dismissed.
14. Coming to the Revenue's appeal for A.Y. 2004-05 the grievance read as
under:-
"Whether on the facts and in the circumstances of the case and in
law, the Ld.CIT(A) was justified interpreting the provisions of section 80IB so
as to reduce the profits and gains while working out deduction u/s 80HHC, by
an amount of deduction granted/allowed u/s 80IB".
This issue is squarely covered in favour of the assessee by the decision of the
Hon'ble Bombay High Court in the case of Associated Capsules P. Ltd. 197 taxman
84. We therefore, do not find any error or infirmity in the findings of the Ld.CIT(A).
The appeal filed by the revenue is accordingly dismissed.
15. In the result appeal filed by the Revenue is dismissed and that of the
Assessee is partly allowed for statistical purposes.
Order pronounced in the open court on this 07th day of May, 2014.
Sd/- Sd/-
(I.P. BANSAL) (N.K. BILLAIYA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dated: 07.05.2014.
*Srivastava
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR "C" Bench
//True Copy//
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.
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