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IN THE INCOME TAX APPELLATE TRIBUNAL "J" BENCH, MUMBAI
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BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND
SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
/ I.T.A. No.4671/Mum/2012
( / Assessment
Year : 2009-10
The DCIT, Cir.6(1), /
M/s. Jaybharat Textile &
Aayakar Bhavan, Real Estate Pvt. Ltd.,
Vs.
Mumbbai-400 020 11/12, Raghuvanshi Mill
Compound,
Senapati Bapat Marg,
Lower Parel,
Mumbai-400 013
. / . /PAN/GIR No. : AAACJ 5959L
( /Appellant) .. ( / Respondent)
/ Appellant by: Shri S.D. Srivastava
/Respondent by: Shri Salil Kapoor
/ Date of Hearing
:07.05.2015
/Date of Pronouncement :20.05.2015
/ O R D E R
PER N.K. BILLAIYA, AM:
This is an appeal by the Revenue preferred against the order of the
Ld. CIT(A)-14, Mumbai dt. 20.4.2012 pertaining to assessment year
2009-10.
2. The Revenue has raised as many as 7 grounds of appeal. However,
the Ld. Departmental Representative Shri S.D. Srivastava, at the very
2 ITA. No. 4671/M/12
outset, stated that he will put forth his argument only in respect of ground
No. 7 which relates to the deletion of the addition of Rs. 54.97 lakhs
made u/s. 14A of the Act. In respect of other 6 grounds of appeal, the
Ld. DR stated that the Revenue has no case, neither on facts nor on the
point of law.
3. With this factual background, we take each ground of appeal one
by one . Ground No. 1,2 & 3 relate to the allocation of expenses like
interest, depreciation and finance charges between 80IB and non 80IB
units.
3.1. The Ld. CIT(A) has considered these issues vide ground No. 2 of
his order wherein the Ld. CIT(A) observed that the assessee has claimed
deduction u/s. 80IB of the Act in respect of its Silvassa unit. The
deduction was claimed at Rs. 6,60,95,278/-. The AO examined the
allocation of expenses on different units as the assessee was having
taxable profits in other units engaged in trading and manufacturing
activities. The AO was of the firm belief that the expenses like selling
and administration, interest and depreciation are required to be allocated
among different units in the ratio of their turnover. The assessee strongly
objected to this and stated that interest payment has been made on term
loans and depreciation and interest have been allocated by the assessee in
the ratio of fixed assets as these items of expenditures are directly linked
with the fixed assets of respective units and have no relation to the
turnover.
3.2. After considering the facts and the submissions and the allocation
chart, the Ld. CIT(A) was convinced that interest and finance charges
incurred on term loans are taken for a particular unit therefore cannot be
reallocated to other units for the purpose of computation of deduction
3 ITA. No. 4671/M/12
u/s. 80IB of the Act. Similarly, there cannot be any question of
reallocation of depreciation of a particular unit to other units. In respect
of selling and administrative expenses, the Ld. CIT(A) dismissed
assessee's similar contention and agreed with the AO that selling and
administrative expenses have to be allocated in the proportion of sales
turnover. Except for the allocation of selling and administrative expenses
on the basis of turnover, the Ld. CIT(A) deleted the entire reallocation of
expenses made by the AO in respect of interest, finance charges and
depreciation.
4. Aggrieved by this, the Revenue is before us. As mentioned
elsewhere, the Ld. DR has fairly conceded that the Revenue has no case,
we therefore decline to interfere with the findings of the Ld. CIT(A).
Ground No. 1,2 & 3 are accordingly dismissed.
5. Ground No. 4.1 relates to the denial of opportunity to the AO
before admitting new facts as per Rule 46A.
6. The Ld. DR failed to bring any new facts considered by the Ld.
CIT(A) which deprived the AO from making his comment. We,
therefore, do not find any reason to entertain this ground. Ground No. 4.1
is accordingly dismissed.
7. Ground No. 4.2 relates to the deletion of the disallowance of Rs.
42,61,285/- on account of short credit of interest subsidy.
8. The Ld. CIT(A) has considered this issue vide ground No. 3 of the
appeal before him and at para 5.4 the Ld. CIT(A) has observed that he has
looked into the ledger account maintained by the assessee for the subsidy
receivable on the basis of which the subsidy is being disclosed. At para-
4 ITA. No. 4671/M/12
5.6 the Ld. CIT(A) observed that the AO has not been able to understand
the accounts of the assessee. The Ld. CIT(A) further commented that the
AO has not bothered to ascertain as to whether these amounts of subsidy
have already been taxed in earlier years or not. The Ld. CIT(A) further
observed that the AO has considered the subsidy computed by her is in
respect of 5 banks whereas the assessee has actually received subsidy
from two banks i.e. Indian Overseas Bank and UCO Bank. It appears that
the AO has collected information from all the banks without examining
from which bank the assessee has already accounted for the subsidy in
earlier years. The Ld. CIT(A) finally deleted the disallowance made by
the AO holding that once the subsidy has been taxed in accrual basis, the
same cannot be taxed on receipt.
8.1. As mentioned elsewhere, the DR could not bring anything in
support of the assessment order. We, therefore do not find any reason to
interfere with the findings of the Ld. CIT(A). Ground No. 4.2 is
accordingly dismissed.
9. Ground No. 5 relates to the deletion of the addition of interest
payment of Rs. 1,92,703/- made u/s. 43B of the Act.
9.1. This issue has been discussed by the Ld. CIT(A) at para-6 of his
order where he has considered ground No. 4 of the appeal before him and
at para 6.3, the Ld. CIT(A) observed that there is no such disallowance
mentioned by the tax auditors at clause 21 of the Tax Audit report
therefore, it is not known why the AO has disallowed the amount of Rs.
1,92,703/-. On finding no reason for the disallowance, the Ld. CIT(A)
deleted the addition.
5 ITA. No. 4671/M/12
9.2. As the Ld. CIT(A) has deleted the addition by categorically stating
that the AO has not given any reason for the disallowance we decline to
interfere. Ground No. 5 is accordingly dismissed.
10. Ground No. 6 relates to the deletion of the addition of Rs. 15 crores
made u/s. 68 of the Act.
11. While scrutinizing the return of income, the AO noticed that the
assessee had taken an unsecured loan of Rs. 15 crores from Hikal Pro
Estate Pvt. Ltd. The assessee was asked to explain the credits in the light
of the provisions of Sec. 68 of the Act. The assessee furnished
confirmation from the said creditor. Continuing her investigation, the AO
issued notice u/s. 133(6) of the Act. The notice was returned unserved.
When this was brought to the notice of the assessee, the assessee
furnished new address of the loan creditor which happened to be the
address of the assessee itself. In support, the assessee also furnished the
return of income as well as the balance sheet of the said loan creditor for
the assessment year 2009-10. The AO was of the firm belief that the loan
creditor have no capacity to advance a sum of Rs. 15 crores and made the
addition u/s. 68 of the Act.
12. Before the Ld. CIT(A), it was explained that in this line of trade, it
is not uncommon for conversion of a trade debt into a loan. It was
explained that the assessee had purchased material from various suppliers
who in turn had bought the same material from M/s. Hikal Pro Estate
Pvt. Ltd. On the request of these trade creditors, the assessee agreed to
pay the outstanding amounts to M/s. Hikal Pro Estate Pvt. Ltd. which
transaction has been confirmed by the trade creditors as well as the loan
creditors.
6 ITA. No. 4671/M/12
12.1. After considering the facts and the submissions and strongly
drawing support from the decision of the Hon'ble Supreme Court in the
case of CIT Vs Lovely Exportds (P) Ltd 216 CTR 195, the Ld. CIT(A)
deleted the addition.
13. Before us, the Ld. DR could not bring anything in support of the
assessment order.
14. We have given a thoughtful consideration to the findings of the Ld.
CIT(A) in the light of the decision of the Hon'ble Supreme Court in the
case of Lovely Exports (supra). We do not find any reason to interfere
with the findings of the Ld. CIT(A). Ground No. 6 is accordingly
dismissed.
15. Ground No. 7 relates to the deletion of the addition of Rs. 54.97
lakhs made u/s. 14A of the Act.
16. This issue has been considered by the Ld. CIT(A) at para-10 of his
order qua ground No. 8 of assessee's appeal before him. While
scrutinizing the balance sheet of the assessee, during the course of the
scrutiny assessment proceedings, the AO noticed that the assessee
company is having investment in shares. However, the AO noticed that
the assessee has not disallowed any expenditure against the said
investment income. The AO went on to compute the disallowance in the
light of the provisions of Sec. 14A r.w. Rule 8D and computed the
disallowance at Rs. 59,17,265/-.
16.1. It was explained to the Ld. CIT(A) that all the investments are old
investment which have been funded through own reserves and capital. It
was further stated that no notional interest can be assumed to have been
7 ITA. No. 4671/M/12
incurred for disallowance when the investments were made from out of
own capital.
17. After considering the facts and the submissions, the Ld. CIT(A)
observed that the AO has restricted herself to the general discussion
without considering the facts which come out from the accounts of the
assessee. At para-10.7 of his order, the Ld. CIT(A) observed that there is
no expenditure which can be said to be directly relating to income which
does not form part of total income. There is also no interest expenditure
which can be said to be proportionately incurred for earning the dividend
income. The Ld. CIT(A) further observed that the interest expenditure
incurred by the assessee is directly attributable to the fixed assets for
which the term loan has been taken. After making these observations, the
Ld. CIT(A) stated that certain expenditures have to be allocated in the
light of the decision of the Hon'ble Bombay High Court in the case of
Godrej & Boyce Manufacturing Co. Ltd. 238 ITR 81Vs DCIT and
restricted the disallowance at Rs.4,20,265/- and directed to delete the
amount of Rs. 54.97 lakhs.
18. Aggrieved by this, the Revenue is before us.
19. The Ld. DR could not controvert the finding of the fact by the Ld.
CIT(A) that the interest has been paid on term loan taken for the purchase
of the fixed assets and therefore there cannot be any disallowance of
interest as the Ld. CIT(A) has categorically stated that no direct
expenditure has been incurred. We, therefore, decline to interfere with
the addition sustained by the Ld. CIT(A) and simultaneously we also
decline to interfere with the deletion of the addition made by the Ld.
CIT(A). Ground No. 7 is accordingly dismissed.
8 ITA. No. 4671/M/12
20. In the result, the appeal filed by the Revenue is dismissed
Order pronounced in the open court on 20th May, 2015
Sd/- Sd/-
(D.MANMOHAN ) (N.K. BILLAIYA)
/VICE PRESIDENT / ACCOUNTANT MEMBER
Mumbai; Dated :20 May , 2015
th
. ../ RJ , Sr. PS
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. () / The CIT(A)-
4. / CIT
5. , ,
/ DR, ITAT, Mumbai
6. / Guard file.
/ BY ORDER,
//True Copy//
/
(Dy./Asstt. Registrar)
, / ITAT, Mumbai
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