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 ITO vs. Vikram A. Pradhan (ITAT Mumbai)

M/s. Shalimar Visuals P. Ltd. 39, Juhu Beach Mumbai 400049 Vs. DCIT, Circle 8(3) 2nd Floor, Aayakar Bhavan M.K. Road, Mumbai 400020
August, 26th 2014
               IN THE INCOME TAX APPELLATE TRIBUNAL
                         "SMC" Bench, Mumbai

                 Before Shri D. Manmohan, Vice President

                      ITA No. 2391&2392/Mum/2014
                   (Assessment Years: 2007-08 & 2008-09)

     M/s. Shalimar Visuals P. Ltd.      DCIT, Circle 8(3)
     39, Juhu Beach                 Vs. 2nd Floor, Aayakar Bhavan
     Mumbai 400049                      M.K. Road, Mumbai 400020
                            PAN - AABCS1096A
               Appellant                        Respondent

                         ITA No. 3065/Mum/2014
                         (Assessment Year: 2007-08)

     DCIT, Circle 8(3)                M/s. Shalimar Visuals P. Ltd.
     2nd Floor, Aayakar Bhavan    Vs. 39, Juhu Beach
     M.K. Road, Mumbai 400020         Mumbai 400049
                           PAN - AABCS1096A
              Appellant                        Respondent

                   Assessee by:     Shri Arun G. Verma
                   Revenue by:      Shri Ravinder Sindhu

                   Date of Hearing:       07.08.2014
                   Date of Pronouncement: 22.08.2014

                                  ORDER

Per D. Manmohan, V.P.

     These appeals are directed against the common order passed by the
CIT(A)-18, Mumbai and they pertain to assessment years 2007-08 and
2008-09. In respect of AY 2007-08 there are cross appals whereas for AY
2008-09 the appeal was filed by the assessee company.

2.    The only issue involved in the appeal filed by the assessee for AY
2007-08 is with regard to taxation of sales tax benefits received under Power
Policy in respect of windmills.

3.    The case of the assessee is that sales tax subsidy received by the
assessee under Power Policy of the State Government was in lieu of setting
up of windmills in Maharashtra and therefore it has to be treated as capital
in nature whereas the AO as well as the CIT(A) erred in treating the same as
                                        2       ITA No. 2391,2392&3065/Mum/2014
                                                         M/s. Shalimar Visuals P. Ltd.

revenue receipt. In respect of AY 2008-09 also the first ground pertains to
taxability of sales tax benefit received. It deserves to be noticed that identical
issue was considered by the ITAT, Mumbai in assessee's own case for earlier
assessment years (ITA No. 2012&4560/Mum/2009 dated 08.01.2014)
wherein the Tribunal upheld the view taken by the tax authorities. Against
the order passed by the ITAT the assessee preferred an appeal before the
Hon'ble High Court of Judicature (IT Appeal No. 866 of 2014) which is
pending before the Hon'ble Bombay High Court. Under these circumstances
the assessee filed a declaration under section 158A of the Act (Form No. 8)
with regard to the above mentioned issue.

4.    Section 158A provides that the Appellate Authority, before whom a
declaration is furnished, shall call for a report from the AO on the
correctness of the claim made by the assessee and, where the AO makes a
request to the Appellate Authority to give him an opportunity of being heard
in the matter, the Appellate Authority shall allow him such opportunity.
Accordingly the Departmental Representative was directed to inform the AO
and to furnish a report in this regard. Vide letter dated 05.08.2014 by the
AO (Dy. Commissioner of Income Tax 8(3), Mumbai) addressed to the Senior
Authorised Representative, Office of the CIT-DR, Mumbai it is admitted that
the legal issue involved herein is identical with the issue that was
considered by the Tribunal in the appeal for AY 2005-06 and the same is
pending before the Hon'ble Bombay High Court. It was, however, stated that
except the change in the name of the purchaser the legal issue is identical.

5.    The learned D.R. admitted that the facts are not in dispute and in the
particular factual matrix the legal conclusions that need to be drawn should
be identical in the assessment years under consideration and thus the
earlier order of the Tribunal can be applied mutatis mutandis.

6.     Having regard to the circumstances the Bench accepts the request
made by the assessee under section 158A of the Act and dispose of the
appeal filed by the assessee for AY 2007-08 and ground No. 1 in respect of
AY 2008-09. In other words, this issue stands covered by the order of the
Tribunal in assessee's own case for earlier year and when the decision on
the question of law raised before the superior forum becomes final it should
                                      3       ITA No. 2391,2392&3065/Mum/2014
                                                       M/s. Shalimar Visuals P. Ltd.

be applied to the relevant case and the assessee is entitled to the benefit
provided under section 158A. As the things stand today, the appeal filed by
the assessee for AY 2007-08 is treated as dismissed and ground No. 1 in the
appeal for AY 2008-09 is rejected on the same terms.

7.    In respect of AY 2008-09 three more grounds were urged before the
Tribunal, which are taken up in seriatim. Vide ground No. 2 the assessee
contends that the CIT(A) erred in not deleting the disallowance of `16,361/-,
made by the AO under section 14A read with Rule 8D of the IT Rules.




8.    As could be noticed from page No. 8 of the assessment order, the
assessee received dividend income from mutual funds and shares,
amounting to `7,79,175/-. The assessee has not voluntarily disclosed any
expenditure pertaining to the above exempt income except Demat charges of
`449/-. When called upon to explain, the assessee submitted that the
income from mutual fund and dividend income are directly credited to its
bank account under ECS and accordingly there is no need to spend any
expenditure on the same. It was also submitted that the investments in
shares and mutual fund were made out of its surplus and interest free
funds. Therefore no further disallowance can be made under section 14A of
the Act. The AO, without any further reasons as to why section 14A is
applicable, merely proceeded to compute the amount disallowable under
Rule 8D of I.T. Rules which works out to `16,361/-. On an appeal the
learned CIT(A) merely observed that interest part can be excluded because
no borrowed funds were used for investment but he has also not given any
reasons as to why section 14A is made applicable in this case. At the time of
hearing the learned counsel adverted our attention to the order of the ITAT
"J" Bench, Mumbai in the case of J.K. Investors (Bombay) Ltd. (ITA No. 7858
& 5851/Mum/ 2011 dated 13.03.2013) and in particular referred to page
No. 26 of the paper book to submit that in order to invoke Rule 8D the AO
has to record satisfaction with regard to the incorrectness of the claim of the
assessee, having regard to the accounts maintained by it. In an event where
the AO has not doubted the correctness of the claim of the assessee and
straight away embarked upon computing the disallowance under Rule 8D
r.w.s. 14A, the same would not stand the test of law. He further submitted
                                      4       ITA No. 2391,2392&3065/Mum/2014
                                                       M/s. Shalimar Visuals P. Ltd.

that the Department has not filed any appeal against the order passed by
the Tribunal in the case of J.K. Investors (Bombay) Ltd. and thus it has
attained finality. In assessee's case also neither the AO nor the CIT(A)
furnished any reason as to why the books of account maintained by the
assessee are incorrect; in fact the assessee's claim was that no expenditure
was incurred in relation to exempt income and the AO has not recorded his
satisfaction to disprove the correctness of the claim in which event the
disallowance under section 14A read with Rule 8D is not tenable.

9.    On the other hand, the learned D.R. relied upon the orders passed by
the AO as well as the CIT(A).

10.   I have carefully considered the rival submissions and carefully
perused the record. The facts are not in dispute. The case of the assessee is
that no expenditure was incurred in earning the exempt income. There is no
finding by the AO or the CIT(A) to the effect that the books of accounts
maintained by the assessee are not susceptible for verification. Under these
circumstances I am of the view that the AO was not justified in computing
the disallowance under section 14A read with Rule 8D of the I.T. Rules. The
disallowance of `16,361/-, which was further reduced by the CIT(A), is
hereby set aside/cancelled. Ground No. 2 is accordingly allowed.

11.   Vide ground No. 3 the assessee contends that the CIT(A) erred in
confirming the disallowance of deduction under section 80IA with reference
to (i) interest income of `18,098/- on delayed payment of sale proceeds and
(ii) sundry credits of ` 1,661/- written back as income.

12.   At the time of hearing the learned counsel adverted attention of the
Bench to page 52 of the paper book to submit that in the case of group
company, i.e. Sun-n-Sand Hotels Pvt. Ltd. (ITA No. 5645/Mum/2012 dated
19.05.2014) ITAT "E" Bench, Mumbai held that interest on delayed payment
of sale price of its product can be regarded as being "derived" from the
industrial undertaking for the purpose of section 80IB of the Act and on the
same analogy even for the purpose of section 80IA the interest received
should be treated as profit derived by an undertaking.
                                       5      ITA No. 2391,2392&3065/Mum/2014
                                                       M/s. Shalimar Visuals P. Ltd.

13.   The learned D.R. admitted that the issue stands covered by the
aforestated decision.

14.   With regard to the excess provision written back the case of the
assessee is that in the immediately preceding years the transmission
charges payable to MSEB were provided and were considered in computing
deduction under section 80IA. In this year this was reversed as the same
was provided excessively. Therefore it was credited to the Profit & Loss
Account; it was treated as profit under section 41(1) of the Act.

15.   On the other hand, the learned D.R. relied upon the orders passed by
the tax authorities by submitting that it is an excess provision and hence it
cannot be treated as profit in this year.

16.   I have carefully considered the submissions. Section 41(1) speaks of
the expenditure incurred by the assessee and claimed as deduction in an
earlier year. In the instant case the assessee claimed to have debited
transmission charges payable to MSEB whereas in this year it was written
back and therefore it has to be treated as profit of the year under
consideration which is eligible for deduction under section 80IA. I direct the
AO accordingly.

17.   Ground No. 4 is with regard to the correctness of levy of interest of
`17,911/- under section 234C of the Act. It is not in dispute that the
assessee paid second instalment of advance tax of `8,00,000/- on
17.09.2007 which was due on 15.09.2007. The instalment could not be paid
on 15.09.2009 on account of bank holiday due to Ganesh Chaturthi and
16.09.2007 being a Sunday, which was a bank holiday. The next available
date was 17.09.2007 on which date the assessee paid the second instalment
of advance tax whereas according to the AO the last date for payment of
instalment was 15.09.2007 and failure to pay the instalment of advance tax
would automatically attract provisions of section 234C of the Act. The AO as
well as the CIT(A) were of the view that interest is chargeable under section
234C of the Act and thus the assessee preferred an appeal before the
Tribunal.
                                          6      ITA No. 2391,2392&3065/Mum/2014
                                                          M/s. Shalimar Visuals P. Ltd.

18.     The learned counsel for the assessee adverted the attention of the
Bench to the circular issued by CBDT (Circular No. 676 dated 14.01.1994)
which categorically says that if the last date for payment of any instalment
of advance tax is a bank holiday the assessee can make the payment on the
immediately following working day and in such cases mandatory interest
leviable under section 234B and 234C of the Act would not be charged. It
was therefore submitted that the circular issued by the CBDT is binding on
the tax authorities and interest is not chargeable under section 234C.

19.     The learned D.R. has not disputed the factual matrix of the case.

20.     Under these circumstances I hold that the tax authorities have erred
in charging interest under section 234C of the Act with reference to the
advance tax instalment paid on 17.09.2007. Assessing Officer is directed
accordingly. Appeal is partly allowed.

21.     Following grounds were urged in Revenue's appeal: -

      "(i)   On the facts and in the circumstances of the case and in law, the
             Ld. CIT(A) erred in deleting the disallowance of Rs.41,60,506j-
             made u/s. 80IA(4)(iv) of the Act for A.Y. 2007- 08 holding that the
             provisions of section 80IA(5) were no applicable for the loss and
             unabsorbed depreciation for the years prior to the initial year of
             claim which had already been set-off against the other business
             income."
      (ii)   On the facts and in the circumstances of the case and in law, the
             Ld. CIT(A) erred in relying on the decision of Hon'ble Madras High
             Court in the case of Velayudhaswamy Spinning Mills Pvt. Ltd.
             (2012) (340 ITR 477)(Mad), judgment of Chennai Tribunal in the
             case of Mohan Breweries & Distilleries Ltd. (2009) [311 ITR (AT)
             346] (Chennai).
      (iii) On the facts and in the circumstances of the case and in law, the
            Ld. CIT(A) erred in not appreciating that these judicial
            pronouncements were rendered without having been informed
            about certain statutory provisions (such as the non-obstante clause
            of Section 80IA) that are directly relevant.
      (iv) On the facts and in the circumstances of the case and in law, the
           Ld. CIT(A) erred in ignoring the ratio laid down by decisions in the
           cases of ACIT Vs. Gold Mine Shares & Finance (P) Ltd. [112 ITD
           209 (SB) (AHD)] and M/s. Hyderabad Chemicals Supplies Ltd. Vs.
           ACIT (ITAT Hyderabad) in ITA No.352/Hyd/2005 dated
           21.01.2011, wherein it is held that despite absorption in earlier
           years, loss of eligible units was to be set off against the profits
           before computing deduction u/s. 80IA(4).
                                         7       ITA No. 2391,2392&3065/Mum/2014
                                                          M/s. Shalimar Visuals P. Ltd.

      (v)   On the facts and in the circumstances of the case and in law, the
            Ld. CIT(A) erred in ignoring the decision of jurisidictional ITAT,
            Mumbai in the case of Hercules Hoists Ltd. Vs. ACIT [ITA
            nos.7944, 7946, 2255 & 7943/Mum/2011] wherein the Tribunal
            had also held that the unabsorbed depreciation/ business loss is
            to be notionally carried forward and set- off against the profits of
            eligible units u/s. 80IA(5) for the purpose of deduction u/s. 80IA of
            the Income-tax Act, 1961."

In short the case of the Revenue is that the CIT(A) erred in deleting the
disallowance of `41,60,506/- made under section 80IA(4)(iv) of the Act.

22.    At the time of hearing the learned counsel for the assessee submitted
that the claim of the assessee was rejected by the CIT(A) and hence there is
no grievance for the Revenue to file an appeal.

23.    It deserves to be noticed that the case of the Revenue before the
Tribunal is that the CIT(A) erred in following the order of the Hon'ble Madras
High Court in the case of Velayudhaswamy Spinning Mills Pvt. Ltd. 340 ITR
477 and the order of the ITAT Chennai Benches in the case of Mohan
Breweries & Distilleries Ltd. 311 ITR (AT) 346 ignoring the ratio laid down by
the decision of the ITAT Ahmedabad Special Bench in the case of Gold Mine
Shares & Finance P. Ltd. 112 ITD 209 wherein it was stated that despite
absorption in earlier years, loss of eligible units was to be set off against the
profits before computing deduction under section 80IA(4). In other words,
the Department is of the view that unabsorbed depreciation/business loss is
to be notionally carried forward and set off against the profits of eligible
units under section 80IA(5) for the purpose of deduction under section 80IA
of the Income Tax Act.

24.    In para 3.1 the learned CIT(A) observed as under: -
      "Sub-sec (5) provides that notwithstanding anything
      contained in any other provisions of the Act, the profits
      and gains of an eligible business should have for the
      purpose of determining the quantum of deduction under
      sub-sec. (1) for the assessment year immediately
      succeeding the initial assessment year or any
      subsequent assessment year, be computed as if such
      eligible business were the only source of income of the
      assessee during the previous year relevant to the initial
      assessment year and to every subsequent assessment
      year up to and including the assessment year for which
                                      8        ITA No. 2391,2392&3065/Mum/2014
                                                        M/s. Shalimar Visuals P. Ltd.




       the determination is to be made. In the case of the
       assessee, in the initial assessment year i.e. A.Y. 2002-
       03 and subsequent years up to A.Y. 2006-07, the gross
       total income of the eligible business of windmill was
       negative after taking into account the notional brought
       forward business loss and unabsorbed depreciation
       allowance and after setting of the balance of such
       notional loss and depreciation, this year there was a
       positive gross total income as per the working filed and
       accordingly the assessee will be entitled to the
       deduction u/s 80-IA in respect of the balance profit of
       Rs.91,45,793/- for A.Y. 2007-08, thus the revised claim
       of the assessee was rejected."

25.     The learned counsel for the assessee submitted that the CIT(A) having
dismissed the appeal, Revenue cannot be stated to be aggrieved and
therefore this ground becomes infructuous. In the light of the submission of
the learned counsel, which was not controverted by the learned D.R., the
grounds of appeal filed by the Revenue are dismissed as infructuous.

26.     In the result, ITA No.2392/Mum/ 2014 is partly allowed and ITA
No.2391/Mum/2014 & ITA No. 3065/Mum/2014 are dismissed.

Order pronounced in the open court on 22nd August, 2014.

                                                           Sd/-
                                                     (D. Manmohan)
                                                      Vice President

Mumbai, Dated: 22nd August, 2014

Copy to:

   1.   The   Appellant
   2.   The   Respondent
   3.   The   CIT(A) ­ 18, Mumbai
   4.   The   CIT­ 8, Mumbai City
   5.   The   DR, "SMC" Bench, ITAT, Mumbai

                                                       By Order

//True Copy//
                                                  Assistant Registrar
                                          ITAT, Mumbai Benches, Mumbai
n.p.

 
 
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