Infrastructure Development Finance Company Limited, CHENNAI V. DCIT Corporate Circle 2(2), CHENNAI

CO 13/CHNY/2018

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3923 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 9 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 03-07-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 22-02-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: SREENIVASA RAOCITD R
• Keywords: Earning of tax free income; Bad and doubtful debts; Condonation of delay
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI , , BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER & SHRI S.JAYARAMAN , ACCOUNTANT MEMBER I.T.A.NOS.1912 & 1913/CHNY/2017 & C.O. NOS.12 & 13/CHNY/2018 ASSESSMENT YEARS : 2009-09 & 2009-10 THE DEPUTY COMMISSIONER OF INCOME TAX, ROOM NO.512, 5 TH FLOOR, WANAPARTHY BLOCK, CHENNAI-34. VS. M/S. INFRASTRUCTURE DEVELOPMENT FINANCE COMPANY LIMITED , KRM TOWERS, 8 TH FLOOR, NO.1,HARRINGTON ROAD, CHETPET, CHENNAI 600 031. [PAN AAACI 2663 N] (APPELLANT) (RESPONDENT / CROSS OBJECTOR) / APPELLANT BY : MR.SREENIVASA RAO,CIT,D.R /RESPONDENT BY : MR.FARROKH V.IRANI, C.A ! / DATE OF HEARING : 03 - 0 7 - 201 8 '#$% ! / DATE OF PRONOUNCEMENT : 03 - 0 7 - 201 8 / O R D E R PER BENCH THESE ARE APPEALS FILES BY THE REVENUE AGAINST T HE COMMON ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-9 , CHENNAI IN ITA NOS. 37(2010-11) & 54 (2011-12)/CIT(A)-9 DATED 28.0 4.2017 FOR ASSESSMENT YEARS 2008-09 & 2009-10 AND CORRESPONDIN GLY, THE ITA NOS.1912 & 1913/CHNY/17 C.O. NOS.12 & 13/CHNY/2018 :- 2 -: ASSESSEE FILED CROSS OBJECTIONS IN SUPPORT OF THE ORDER OF LD.CIT(A), INVOLVING IDENTICAL ISSUES, THEREFORE, THE APPEALS AND CROSS-OBJECTIONS ARE TAKEN UP TOGETHER FOR ADJUDICATION. 2. MR.SREENIVASA RAO REPRESENTED ON BEHALF OF THE REVENUE, AND MR.FARROKH V.IRANI REPRESENTED ON BEHALF OF THE ASSESSEE. 3. BOTH THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DELAYED BY 102 DAYS FOR WHICH THE ASSESSEE HAD FILED AFFIDA VITS FOR CONDONATION OF DELAY OF 101 DAYS. THE ASSESSEE HAS PRESENTED T HESE AFFIDAVITS, WHICH WERE FOUND TO BE DEFECTIVE AND NOTICES FOR RE CTIFICATION OF DEFECTS HAS BEEN ISSUED TO THE ASSESSEE ON 23.02.20 18. THE SAME HAS NOT BEEN RECTIFIED, CONSEQUENTLY BOTH THE CROSS OBJ ECTIONS FILED BY THE ASSESSEE STAND DISMISSED ON ACCOUNT OF THE DEFECTS IN FILING OF THE CONDONATION PETITIONS. ACCORDINGLY, THE TWO CROSS O BJECTIONS FOR ASSESSMENT YEARS 2008-09 & 2009-10 ARE DISMISSED IN LIMINIE ON ACCOUNT OF DELAY. 4. IN RESPECT OF THE APPEALS OF REVENUE, THE LD.A. R SUBMITTED A CHART BEFORE US IN RESPECT OF THE VARIOUS GROUNDS R AISED BY THE REVENUE IN ITS APPEALS. EACH OF THE ISSUES ARE DISP OSED OFF ON GROUND NUMBER WISE MENTIONED IN GROUNDS OF APPEAL BY THE R EVENUE. 5. GROUNDS NOS.1 & 5 IN BOTH THE APPEALS OF REVENUE AR E GENERAL IN NATURE AND NO SPECIFIC ARGUMENT HAS BEEN RAISED FOR ITA NOS.1912 & 1913/CHNY/17 C.O. NOS.12 & 13/CHNY/2018 :- 3 -: THESE GROUNDS. HENCE, GROUNDS NOS. 1 & 5 OF THE REV ENUE DOES NOT CALL FOR ANY ADJUDICATION. 6. GROUNDS NOS.2 TO 2.5 ARE AGAINST THE DISALLOWAN CE MADE U/S.14A R.W.RULE 8D OF INCOME TAX RULES, 1962. IT W AS SUBMITTED BY LD.D.R THAT LD. ASSESSING OFFICER HAD MADE DISAL LOWANCE OF NEARLY ` 91.11 CRORES FOR ASSESSMENT YEAR 2008-09 AND ` 132.96 CRORES FOR ASSESSMENT YEAR 2009-10 BY INVOKING THE PROVISIONS OF THE SECTION 14A IN RESPECT OF DIVIDEND INCOME RECEI VED THE ASSESSEE. IT WAS A SUBMISSION THAT ON APPEALS, LD .CIT(A) HAD RESTORED THE ISSUE TO THE FILE OF LD. ASSESSING OFF ICER FOR RE-ADJUDICATION FOR VERIFICATION WHETHER THE ASSESS EES OWN FUNDS WERE AVAILABLE MORE THAN THE INVESTED FUNDS AT THE TIME OF MAKING INVESTMENT IN THE EXEMPT INCOME YIELDING INSTRUMENT S. IT WAS A SUBMISSION THAT THE ORDER OF THE CIT(APPEALS) WAS LIABLE TO BE REVERSED AND THE ORDER OF LD. ASSESSING OFFICER IS RESTORED. 7. IN REPLY, LD.A.R SUBMITTED THAT THE ISSUE WAS S QUARELY COVERED BY THE DECISION OF CO-ORDINATE BENCH OF THI S TRIBUNAL IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2003-04, 20 04-05 & 2005-06 TO 2007-08 IN ITA NOS.2065 & 2066/MDS./2011 AND ITA NOS.99 TO 100/MDS./2012 VIDE ORDER DATED 28 TH SEPTEMBER, 2012. IT WAS A SUBMISSION THAT LD.CIT(A) HAD FOLLOWED THE DECISION OF THE CO-ORDINATE BENCH OF CHENNAI TRIBUNAL IN ASSESS EE'S OWN CASE ITA NOS.1912 & 1913/CHNY/17 C.O. NOS.12 & 13/CHNY/2018 :- 4 -: CITED SUPRA AT PARA NO.7.3.5. LD.A.R SUPPORTED THE ORDER OF THE LD.CIT(APPEALS.) 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PER USAL OF ORDER OF THE LD.CIT(A) UNDER PARA NO.7.3.4 AT PAGE NO.9 SHOWS THAT THE LD.CIT(A) HAS EXTRACTED THE PARA NO.4.6 OF THE ORDER OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE'S OW N CASE FOR ASSESSMENT YEAR 2003-04,2004-05 & 2005-06 TO 2007-0 8 VIDE ORDER DATED 28.09.2012 FOLLOWING THE TRIBUNAL DECIS ION AT PARA NO.7.3.5 AT PAGE NO.10. AS THE LD.CIT(A) HAS FOLLOWED THE JUDICIAL DISCIPLINE ON THIS ISSUE, WE FIND NO REASON TO INTERFERE IN THE ORDER OF THE CIT(APPEALS), AND ON IDENTICAL FINDINGS, THE SAID ISSUES IN GROUNDS NOS.2 TO 2.5 ARE RESTORED TO THE FILE OF LD . ASSESSING OFFICER FOR RE-ADJUDICATION. 9. IN RESPECT OF GROUNDS NOS.3 TO 3.1, IT WAS SUBM ITTED BY LD.D.R THAT THE ISSUE WAS AGAINST THE ACTION OF TH E LD.CIT(A) IN DIRECTING THE LD. ASSESSING OFFICER TO COMPUTE THE PROFITS FOR THE PURPOSE OF DEDUCTION U/S.36(1)(VIII) OF THE ACT BY ALLOCATING THE EXPENDITURE IN PROPORTION TO THE INTEREST BEARING F UND AND INTEREST FREE FUNDS. IT WAS A SUBMISSION THAT THIS ISSUE WAS ALSO RESTORED TO THE FILE OF LD. ASSESSING OFFICER FOR RE-ADJUDICATI ON. IT WAS A SUBMISSION THAT THE ORDER OF THE CIT(APPEALS) WAS L IABLE TO BE REVERSED. ITA NOS.1912 & 1913/CHNY/17 C.O. NOS.12 & 13/CHNY/2018 :- 5 -: 10. IN REPLY, THE LD.A.R SUBMITTED THAT THIS ISSU E WAS SQUARELY COVERED BY THE DECISION OF CO-ORDINATE BEN CH OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE REFERRED TO SUPRA W HEREIN THE ISSUE IS RESTORED TO THE FILE OF LD. ASSESSING OFFICER FO R RE-ADJUDICATION. HE VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(APPEA LS). 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIALS AVAILABLE ON RECORD. A PERUSAL OF PAR A NO.9.3.1 OF THE ORDER OF THE CIT(APPEALS) CLEARLY SHOWS THAT LD.CIT (A) HAS FOLLOWED THE DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE IN ASSESSEE'S OWN CASE FOR ASSE SSMENT YEAR 2003-04,2004-05 & 2005-06 TO 2007-08 REFERRED TO SU PRA WHEREIN LD.CIT(A) HAS ALSO EXTRACTED PARA NO.11.3 OF THE OR DER OF THIS TRIBUNAL DATED 28.09.2012 REFERRED TO SUPRA. THIS BEING SO, WE FIND NO REASON TO INTERFERE IN THE ORDER OF THE CIT (APPEALS) ON THIS ISSUE, AND HIS FINDINGS STAND UPHELD. CONSEQUENTLY, GROUNDS NOS.3 TO 3.1 ARE RESTORED TO THE FILE OF LD. ASSESSING OF FICER FOR RE- ADJUDICATION. 12. IN RESPECT OF GROUND NOS.4 TO 4.2, , IT WAS SU BMITTED BY LD.D.R THAT THE ISSUE WAS AGAINST THE ACTION OF TH E LD.CIT(A) IN DIRECTING THE LD. ASSESSING OFFICER TO WORK OUT THE DEDUCTION U/S.36(1)(VIIA)(C) OF THE ACT ON THE INCOME WITHOUT DEDUCING THE ELIGIBLE PROFITS U/S.36(1)(VIIA)(C) OF THE ACT NOT EXCEEDING 5% OF THE TOTAL INCOME BEFORE MAKING ANY DEDUCTION U/S.36 (1)(VIIA)(C) OR ITA NOS.1912 & 1913/CHNY/17 C.O. NOS.12 & 13/CHNY/2018 :- 6 -: UNDER CHAPTER VIA OF THE ACT. IT WAS THE PRAYER THA T THE ORDER OF THE LD. ASSESSING OFFICER WAS LIABLE TO BE RESTORED . 13. IN REPLY, LD.A.R DREW OUR ATTENTION TO THE ORD ER OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ASSESSEE F OR ASSESSMENT YEARS 2000-02 & 2001-02 IN TAX CASE NO.1288 & 1290 OF 2007 DATED 08.09.2015 WHEREIN IN PARA NO.25 TO 33, THE H ONBLE JURISDICTIONAL HIGH COURT HELD AS FOLLOWS:- 25. THAT LEAVES US ONLY WITH THE THIRD QUESTION IN T.C.(A) NO.1288 OF 2007 AND THE FIFTH QUESTION IN T.C.(A) N O.1290 OF 2007. SINCE THEY ARE IDENTICAL, THEY ARE EXTRACTED ONLY ONCE AS FOLLOWS:- WHETHER THE INCOME TAX APPELLATE TRIBUNAL ERRED IN HOLDING THAT THE DEDUCTION TO WHICH THE APPELLANT W AS ENTITLED UNDER SECTION 36(1)(VIIA)(C) OF THE ACT WA S TO BE GRANTED AFTER REDUCING FROM THE APPELLANT'S INCO ME, THE DEDUCTION TO WHICH THE APPELLANT WAS ENTITLED U NDER SECTION 36(1)(VIII) OF THE ACT? 26. IN SHORT, THE QUESTION THAT FALLS FOR CONSIDERA TION IS AS TO WHETHER THE DEDUCTION SHOULD FIRST BE ALLOWED IN TE RMS OF SECTION 36(1)(VIII) FOR THE APPLICATION OF THE DEDU CTION UNDER SECTION 36(1)(VIIA)(C). 27. ALL THE THREE AUTHORITIES WERE OF THE UNANIMOUS VIEW THAT THERE IS A DISTINCTION BETWEEN THE TWO TYPES OF DED UCTION. THE DEDUCTION ALLOWABLE UNDER SECTION 36(1)(VIII), AFTE R ITS AMENDMENT UNDER THE FINANCE ACT, 1995, IS ON THE PR OFITS DERIVED FROM BUSINESS. THE DEDUCTION ALLOWABLE UNDE R SECTION 36(1)(VIIA)(C) IS ON THE TOTAL INCOME. THEREFORE TH E AUTHORITIES HELD THAT THE DEDUCTION UNDER CLAUSE (VIII) WILL HA VE TO BE COMPUTED FIRST BEFORE APPLYING THE DEDUCTION UNDER CLAUSE (VIIA)(C). 28. BUT KEEPING ASIDE THE AMENDMENT INTRODUCED IN 1 995 FOR A MOMENT, IF WE HAVE A LOOK AT THE IMPORT OF SECTION 36(1) BY ITSELF, IT IS CLEAR THAT SUB-SECTION (1) OF SECTION 36 LISTS OUT THE MATTERS IN RESPECT OF WHICH DEDUCTIONS CAN BE ALLOW ED WHILE COMPUTING THE INCOME REFERRED TO IN SECTION 28. CLA USES (I) TO (XI) OF SUB-SECTION (1) OF SECTION 36 DID NOT MAKE ANY OF THOSE MATTERS DEPENDENT UPON ONE ANOTHER. IF AN ASSESSEE IS ENTITLED TO THE BENEFIT UNDER ONE CLAUSE OF SUB-SECTION (1) OF SECTION 36, ITA NOS.1912 & 1913/CHNY/17 C.O. NOS.12 & 13/CHNY/2018 :- 7 -: THE ASSESSEE WAS NOT DEPRIVED OF THE BENEFIT OF TH E OTHER CLAUSE. THIS IS HOW SEVERAL CLAUSES IN SUB-SECTION (1) HAVE BEEN ARRANGED. 29. IT IS TRUE THAT BEFORE THE AMENDMENT INTRODUCED UNDER THE FINANCE ACT, 1995, THE DEDUCTION TO BE ALLOWED UNDE R CLAUSE (VIIA)(C) AND CLAUSE (VIII) WERE PLACED ON PAR. THE DEDUCTION WAS ONLY ON THE TOTAL INCOME. BUT, AS RIGHTLY CONTENDE D BY THE LEARNED COUNSEL FOR THE APPELLANT, THE AMENDMENT DI D NOT CHANGE THE CHARACTER OF THE DEDUCTION, BUT CHANGED MERELY THE METHOD OF COMPUTATION. INSTEAD OF DIRECTING THE AS SESSEE TO COMPUTE IT AT 40 PERCENT ON THE TOTAL INCOME, THE A MENDMENT DIRECTED THE ASSESSEE TO COMPUTE THE DEDUCTION AT 4 0 PERCENT ON THE PROFITS DERIVED OUT OF BUSINESS. 30. SUCH AN INTERPRETATION IS WHAT APPEARS TO BE BO RNE OUT BY THE MEMORANDUM EXPLAINING THE PROVISIONS IN THE FIN ANCE BILL, 1995, WHEREUNDER THE AMENDMENT WAS INTRODUCED. THE RELEVANT PORTION OF THE MEMORANDUM READS AS UNDER:- UNDER CLAUSE (VIII) OF SUB-SECTION (1) OF SECTI ON 36 OF THE INCOME TAX ACT, 1961, AN APPROVED FINANCIAL CORPORATION ENGAGED IN PROVIDING LONG-TERM FINANCE FOR INDUSTRIAL OR AGRICULTURAL DEVELOPMENT IN INDIA, OR AN APPROVED PUBLIC COMPANY FORMED AND REGISTERED IN INDIA WITH THE MAIN OBJECT OF CARRYING ON BUSINESS OF PROVIDING LONG-TERM FINANCE FOR CONSTRUCTION OR PURCHASE OF RESIDENTIAL HOUSES, IS ENTITLED FOR A DEDUCTION OF AN AMOUNT NOT EXCEEDING 40 PER CENT OF ITS TOTAL INCOME CARRIED TO A SPECIAL RESERVE. THE DEDUCTION IS ALLOWED ON THE TOTAL INCOME AND NOT WI TH REFERENCE TO THE INCOME FROM THE ACTIVITIES SPECIFI ED IN SECTION 36(1)(VIII). THESE ORGANISATIONS HAVE DIVERSIFIED THEIR ACTI VITIES AND ARE CLAIMING DEDUCTION UNDER THIS SECTION EVEN IN RESPECT OF THEIR INCOME FROM ACTIVITIES OTHER THAN THOSE SPECIFIED IN THIS SECTION. THERE IS NO JUSTIFICATI ON FOR ALLOWING THE DEDUCTION WITH REFERENCE TO INCOME FRO M OTHER ACTIVITIES OR FROM SOURCES OTHER THAN BUSINES S. IT IS, THEREFORE, PROPOSED TO LIMIT THE DEDUCTION OF 4 0 PER CENT ONLY TO THE INCOME DERIVED FROM PROVIDING LONG - TERM FINANCE FOR THE ACTIVITIES SPECIFIED IN SECTIO N 36(1)(VIII). IT WILL THUS TAKE OUTSIDE THE PURVIEW OF DEDUCTION, INCOME ARISING FROM OTHER BUSINESS ACTIV ITIES OR FROM SOURCES OTHER THAN BUSINESS. 31. IF EACH OF THE CLAUSES UNDER SUB-SECTION (1) OF SECTION 36 IS INDEPENDENT IN ITS OPERATION AND IF EACH ONE OF THE M DOES NOT DEPEND UPON THE OTHER CLAUSE FOR THE EXTENSION OF T HE BENEFIT, ITA NOS.1912 & 1913/CHNY/17 C.O. NOS.12 & 13/CHNY/2018 :- 8 -: THEN THE INTERPRETATION GIVEN BY THE RESPONDENT CAN NOT BE ACCEPTED. 32. YET ANOTHER DISTINCTION BROUGHT FORTH BY THE LE ARNED COUNSEL FOR THE APPELLANT, ALSO DESERVES CONSIDERATION. WH ILE THE BENEFIT OF DEDUCTION UNDER CLAUSE (VIIA)(C) IS AVAILABLE TO ANY PUBLIC FINANCIAL INSTITUTION OR STATE FINANCIAL CORPORATIO N OR STATE INDUSTRIAL INVESTMENT CORPORATION, IN RESPECT OF A PROVISION FOR BAD AND DOUBTFUL DEBTS, THE BENEFIT OF THE DEDUCTIO N UNDER CLAUSE (VIII) IS AVAILABLE ONLY FOR THE FINANCIAL C ORPORATIONS ENGAGED IN PROVIDING LONG-TERM FINANCE FOR INDUSTRI AL OR AGRICULTURAL DEVELOPMENT OR DEVELOPMENT OF INFRASTR UCTURE FACILITY IN INDIA. THEREFORE, IF THE INTERPRETATIO N AS GIVEN BY THE AUTHORITIES ARE ACCEPTED, THE BENEFIT THAT WILL ACC RUE TO A FINANCE CORPORATION INCORPORATED IN INDIA AND PROVIDING LON G-TERM FINANCE FOR INFRASTRUCTURE DEVELOPMENT WOULD BE LES SER THAN WHAT IS RECEIVED BY THE FOREIGN BANKS AND FOREIGN F INANCIAL INSTITUTIONS. THIS COULD NOT HAVE BEEN THE PURPORT OF THE AMENDMENT BROUGHT FORTH UNDER THE FINANCE BILL, 199 5. 33. THEREFORE THE THIRD QUESTION IN T.C.(A) NO.128 8 OF 2007 AND THE FIFTH QUESTION IN T.C.(A) NO.1290 OF 2007 A RE ALSO ANSWERED IN FAVOUR OF THE ASSESSEE. IN FINE, BOTH THE TAX CASE APPEALS ARE ALLOWED. NO COSTS. IT WAS A SUBMISSION THAT THE ISSUE WAS LIABLE TO BE HELD IN FAVOUR OF THE ASSESSEE. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIALS AVAILABLE ON RECORD. AS IT IS NOTICE D THAT THE ISSUE WAS SQUARELY COVERED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN ASSESSEE'S OWN CASE FOR ASSESSMENT YE ARS 2000-02 & 2001-02 REFERRED TO SUPRA, RESPECTFULLY FOLLOWING T HE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT CITED SUPRA, IT IS HELD THAT ASSESSEE IS ENTITLED TO REDUCTION U/S.36(1)(VIIA)(C ) OF THE ACT ON THE INCOME OF ASSESSEE WITHOUT REDUCING THE ASSESSE ES ENTITLED DEDUCTION U/S.36(1)(VIII) OF THE ACT. ITA NOS.1912 & 1913/CHNY/17 C.O. NOS.12 & 13/CHNY/2018 :- 9 -: 15. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AND BOTH THE CROSS OBJECTIONS FILED BY THE ASSESSEE STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AFTER CONCLUSION OF HEARING ON 03 RD JULY ,2018, AT CHENNAI. SD / - SD/ - ( ) (S. JAYARAMAN) ! /ACCOUNTANT MEMBER ( ) (GEORGE MATHAN) ' ! / JUDICIAL MEMBER & / CHENNAI ' / DATED: 03 RD JULY, 2018. K S SUNDARAM ( ) *+ , +$ / COPY TO: 1 . / APPELLANT 3. ( ( - () / CIT(A) 5. +01 23 / DR 2. / RESPONDENT 4. ( ( - / CIT 6. 145 6 / GF