Anabond Ltd., CHENNAI V. DCIT, CHENNAI

CO 74/CHNY/2015

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 0974 (ITAT-CHENNAI)
• Duration Of Justice: 17 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 17-07-2015
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 30-06-2015
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: K HEMALATHA
• Keywords: Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH, CH ENNAI . , . ! ! ! ! , ' ' ' ' # # # # BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A.NO.1275/MDS/2015 ASSESSMENT YEAR : 2010-11 & C.O.NO.74/MDS/2015 [IN I.T.A. NO. 1275/MDS/2015 ] THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE I(1), CHENNAI 600 034. VS. M/S. ANABOND LTD., TYPE II, DR. V.S.I. ESTATE, THIRUVANMIYUR, CHENNAI 600 041. [PAN : AACCA4158Q] ( APPELLANT ) ( RESPONDENT /CROSS OBJECTOR ) DEPARTMENT BY : SHRI P. RADHAKRISHNAN, JCIT ASSESSEE BY : MS. K. HEMALATHA, C.A. $ % / DATE OF HEARING : 13.07.2015 &' $ % /DATE OF PRONOUNCEMENT : 17.07.2015 ( ( ( ( / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJEC TION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMM ISSIONER OF INCOME TAX (APPEALS) 1, CHENNAI, DATED 30.01.2015 RELEVANT TO THE ASSESSMENT YEAR 2010-11. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S ENGAGED IN MANUFACTURING INDUSTRIAL ADHESIVES AND SEALANTS. TH E ASSESSEE FILED ITS RETURN OF INCOME BY DECLARING TOTAL INCOME OF .4,87,38,308/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND AFTER ISSUIN G NOTICE UNDER SECTION I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 12 22 275 7575 75/M/ /M/ /M/ /M/1 11 15 55 5 & && & C.O.NO. C.O.NO. C.O.NO. C.O.NO. 74 7474 74/M/1 /M/1 /M/1 /M/15 55 5 2 143(2) OF THE INCOME TAX ACT, THE ASSESSING OFFICER HAS MADE CERTAIN ADDITIONS/DISALLOWANCES. 3. THE FIRST GROUND OF APPEAL OF THE REVENUE RELAT ES TO APPORTIONMENT OF EXPENDITURE MADE BY THE ASSESSING OFFICER UNDER SEC TION 80IC OF THE ACT. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBS ERVED THAT THE ASSESSEE HAS EARNED OTHER INCOME OF .63,96,440/-. THE OTHER INCOME CONSISTS PRIMARILY OF INTEREST RECEIVED, FREIGHT AND INSURANCE RECOVER ED. THE ABOVE INCOME CANNOT BE SAID TO BE DERIVED BY THE INDUSTRIAL UNDE RTAKING FROM THE MANUFACTURE OF ARTICLES OR GOODS.. HOWEVER, THE ASS ESSEE HAS NOT CONSIDERED A PORTION OF THIS INCOME FOR MEGHALAYA UNIT. WHEN T HIS IS ALLOCATED ON THE TURNOVER BASIS I.E., 27%, THE ASSESSING OFFICER HAS CONSIDERED AN AMOUNT OF .17,27,039/- AS OTHER INCOME RECEIVED BY THE MEGHAL AYA UNIT AND THEREFORE, EXCLUDED THIS INCOME FROM THE PROFITS FOR COMPUTING THE DEDUCTION UNDER SECTION 80IC OF THE ACT. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFOR E THE LD. CIT(A) AND IT WAS SUBMITTED THAT THIS ISSUE WAS ALREADY CONSIDERE D BY THE TRIBUNAL FOR THE ASSESSMENT YEAR 2007-08 AND REMITTED BACK TO THE AS SESSING OFFICER FOR RE- EXAMINATION. THE LD. CIT(A), KEEPING IN VIEW OF THE ORDER OF THE TRIBUNAL, DIRECTED THE ASSESSING OFFICER TO VERIFY THE DETAIL S OF OTHER INCOME SHOWN BY THE ASSESSEE AND AFTER EXCLUDING THE AMOUNT RELATAB LE TO SALE OF SCRAP, THE BALANCE AMOUNT MAY BE TAKEN FOR WORKING OF DISALLOW ANCE UNDER SECTION 80IC OF THE ACT ON PROPORTIONATE BASIS. EVEN BEFORE US, NO DETAILS IN RESPECT OF I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 12 22 275 7575 75/M/ /M/ /M/ /M/1 11 15 55 5 & && & C.O.NO. C.O.NO. C.O.NO. C.O.NO. 74 7474 74/M/1 /M/1 /M/1 /M/15 55 5 3 OTHER SOURCE OF INCOME WERE FILED BY THE ASSESSEE. IN VIEW OF THE ABOVE, WE FIND THAT THE LD. CIT(A), ON THIS ISSUE, HAS CORREC TLY DIRECTED THE ASSESSING OFFICER TO EXAMINE THE DETAILS AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DI SMISSED. 5. THE NEXT GROUND OF APPEAL OF THE REVENUE RELATE S TO DEDUCTION UNDER SECTION 80IC OF THE ACT AMOUNTING TO .28,08,192/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS O BSERVED THAT THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 80IC O F THE ACT AMOUNTING TO .5,73,33,311/- DURING THIS YEAR. ON VERIFICATION OF THE COMPUTATION OF TOTAL INCOME, THE ASSESSING OFFICER HAS NOTED THAT THE AS SESSEE HAS CLAIMED DEDUCTION UNDER SECTION 35(2AB) OF .1,03,66,156/- [1.5 TIMES OF .15,26,431/- BEING CAPITAL EXPENDITURE AND 0.5 TIMES OF .1,61,53,018/- BEING REVENUE EXPENDITURE ON SCIENTIFIC RESEARCH]. HOWEVER, THE A SSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS NOT ALLOCATED THIS T O THE MEGHALAYA UNIT. THE RESEARCH & DEVELOPMENT EXPENDITURE ARE ALLOCATABLE TO ALL THE UNITS OF THE COMPANY AND IT IS NOT MEANT FOR ONE UNIT OF THE COM PANY. HENCE, THE TOTAL EXPENSE CLAIMED OF .1,03,66,156/- IS ALLOCATED TO MEGHALAYA UNIT @ 27. 09%, WHICH WORKS OUT TO .28.08.192/-, DEDUCTED FROM THE PROFITS OF THE MEGH ALAYA UNIT AND ADDED BACK TO THE TOTAL INCOME OF THE ASSE SSEE. 6. WHEN THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A), THE LD. CIT(A), BY FOLLOWING THE DECISION OF THE TR IBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 IN I.T.A. NOS. 1576 & 1577/MDS/2014 I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 12 22 275 7575 75/M/ /M/ /M/ /M/1 11 15 55 5 & && & C.O.NO. C.O.NO. C.O.NO. C.O.NO. 74 7474 74/M/1 /M/1 /M/1 /M/15 55 5 4 DATED 13.11.2014, DECIDED THE ISSUE IN FAVOUR OF TH E ASSESSEE. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER: I HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES O F THE CASE. SIMILAR ISSUE HAS BEEN DECIDED BY THE ITAT IN THE A PPELLANTS OWN CASE FOR THE AY 2008-09 IN ITA NOS. 1576 & 1577/2014 DT. 13. 11.2014 WHEREIN THE SAID ISSUE WAS DECIDED IN FAVOUR OF THE APPELLANT R ELYING ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF ZANDU PHARMACEUTICAL WORKS LIMITED VS. CIT WHEREIN IT WAS HELD THAT IF T HERE IS NO EVIDENCE TO SHOW NEXUS BETWEEN THE BUSINESS OF BRANCHES AND THE EXPENDITURE ON SCIENTIFIC RESEARCH AND DEVELOPMENT, ALLOCATION OF SUCH EXPENSES AMONG BRANCH UNITS IS NOT JUSTIFIED. RESPECTFULLY FOLLOWI NG THE SAME, THE ALLOCATION OF EXPENDITURE ON SCIENTIFIC RESEARCH TO MEGHALAYA UNIT IS NOT JUSTIFIED AND THE AO IS DIRECTED TO DELETE THE SAME . 7. IN VIEW OF THE ABOVE, WE FIND NO INFIRMITY IN T HE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE AND ACCORDINGLY, THE GROUND RA ISED BY THE REVENUE IS DISMISSED. 8. THE NEXT GROUND OF APPEAL IS RELATING TO DISALL OWANCE OF DEVELOPMENT CHARGES AMOUNTING TO .8,70,527/-. ACCORDING TO THE ASSESSING OFFICER, TH E EXPENDITURE INCURRED BY THE ASSESSEE IS CAPITAL IN NATURE. HOWEVER, WHEN THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD . CIT(A), THE LD. CIT(A), BY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2008-09 IN I.T.A. NOS. 1576 & 1577/ MDS/2014 DATED 13.11.2014, WHEREIN THE TRIBUNAL HAS HELD THAT HE E XPENDITURE INCURRED BY THE ASSESSEE ON PURCHASE OF ERP SOFTWARE IS REVENUE IN NATURE, DIRECTED THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE. THERE FORE, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE AN D DISMISS THE GROUND RAISED BY THE REVENUE. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 12 22 275 7575 75/M/ /M/ /M/ /M/1 11 15 55 5 & && & C.O.NO. C.O.NO. C.O.NO. C.O.NO. 74 7474 74/M/1 /M/1 /M/1 /M/15 55 5 5 9. IN SO FAR AS THE CROSS OBJECTION FILED BY THE A SSESSEE IS CONCERNED, WITH REGARD TO DISALLOWANCE UNDER SECTION 14A OF THE ACT , IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSE E HAS ACCOUNTED AN AMOUNT OF .7,58,853/- AS DIVIDEND FROM INVESTMENTS DURING THE YEAR AND CLAIMED THE SAME AS EXEMPT UNDER SECTION 10(34) OF THE ACT. HOWEVER, AS PER THE ASSESSING OFFICER, THE PROVISIONS OF SECTION 14 A OF THE ACT, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THE A SSESSING OFFICER HAS ASKED THE ASSESSEE TO CLARIFY AS TO WHY THE DISALLOWANCE SHALL NOT BE MADE UNDER SECTION 14A R.W. RULE 8D. IT WAS SUBMITTED BEFORE T HE ASSESSING OFFICER THAT NO EXPENDITURE WAS INCURRED FOR EARNING THE DIVIDEN D INCOME AND THEREFORE, SECTION 14A HAS NO APPLICATION. THE ASSESSING OFFIC ER, AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE, BY INVOKING RULE 8D TO SECTION 14A OF THE ACT, DISALLOWED AN AMOUNT OF .11,34,106/-. 10. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFO RE THE LD. CIT(A) AND THE LD. CIT(A), BY FOLLOWING HIS OWN DECISION IN ASSESS EES OWN CASE FOR THE ASSESSMENT YEAR 2009-10 IN ITA NO. 618/11-12/A.I, D IRECTED THE ASSESSING OFFICER TO FOLLOW HIS OWN EARLIER ORDER FOR THE ASS ESSMENT YEAR 2009-10 AND DECIDE THE ISSUE. 11. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT NO EXPENDITURE WAS INCURRED FOR THE PURPOSE OF EARNING THE DIVIDEN D INCOME AND ALSO SUBMITTED THAT THE BORROWED FUNDS ARE NOT AT ALL US ED FOR THE PURPOSE OF I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 12 22 275 7575 75/M/ /M/ /M/ /M/1 11 15 55 5 & && & C.O.NO. C.O.NO. C.O.NO. C.O.NO. 74 7474 74/M/1 /M/1 /M/1 /M/15 55 5 6 INVESTMENTS. TO SUPPORT HIS ARGUMENT, THE LD. COUNS EL FOR THE ASSESSEE HAS FILED COPIES OF BALANCE SHEET AND OTHER DOCUMENTS. 12. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED TH AT NO MATERIAL HAS BEEN PLACED BEFORE THE ASSESSING OFFICER WITH REGARD TO BORROWED FUNDS USED FOR THE PURPOSE OF THE INVESTMENTS. THEREFORE, IT CANNO T BE SAID THAT THE BORROWED FUNDS ARE NOT USED FOR THE PURPOSE OF BUSINESS AND STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 13. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIAL S ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESS EE HAS EARNED DIVIDEND INCOME OF .7,58,583/- AND CLAIMED THE SAME AS EXEMPT UNDER SE CTION 10(34) OF THE ACT. WHEN THE ASSESSING OFFICER HAS ASKED TH E ASSESSEE FOR APPLICATION OF SECTION 14A R.W. RULE 8D, IT WAS SUBMITTED THAT NO EXPENDITURE WAS INCURRED TO EARN THE DIVIDEND INCOME. THE ASSESSING OFFICER, AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE, OBSERVED THAT THE ASSE SSEE HAD INCURRED INTEREST EXPENDITURE ON BORROWED FUNDS THOUGH THE ASSESSEE H AS CLAIMED THAT SUCH BORROWED FUNDS ARE NOT USED FOR THE PURPOSE OF INVE STMENTS IN SHARES, NO MATERIAL HAS BEEN PLACED, ALL FUNDS FOR A COMPANY C OME IN A COMMON KITTY AND IT COMPRISES OF BORROWED FUNDS, SHARE CAPITAL A ND RETAINED EARNINGS (RESERVES & SURPLUS). THE ASSESSING OFFICER HAS FUR THER OBSERVED THAT A COMPANY CANNOT EARN DIVIDEND WITHOUT ITS EXISTENCE OF MANAGEMENT. HE ALSO OBSERVED THAT HE ASSESSEE MUST HAVE BEEN INCURRED A PORTION OF ROUTINE EXPENDITURE TO MAINTAIN ITS ESTABLISHMENT AND ADMIN ISTRATION CAN BE ATTRIBUTABLE TOWARDS THE ACTIVITY OF MAKING INVESTM ENTS TO EARN DIVIDEND. WITH I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 12 22 275 7575 75/M/ /M/ /M/ /M/1 11 15 55 5 & && & C.O.NO. C.O.NO. C.O.NO. C.O.NO. 74 7474 74/M/1 /M/1 /M/1 /M/15 55 5 7 THE ABOVE OBSERVATIONS, BY INVOKING RULE 8D TO SECT ION 14A, THE ASSESSING OFFICER HAS CALCULATED THE DISALLOWANCE. ON APPEAL, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO FOLLOW HIS OWN DECISION IN ASS ESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10 IN ITA NO. 618/11-12/A.I AN D DECIDE THE SAME. BEFORE US, NEITHER THE ASSESSEE FILED THE ORDER OF THE TRIBUNAL NOR BY THE LD. DR. HOWEVER, THE LD. COUNSEL FOR THE ASSESSEE HAS F ILED COPIES OF THE BALANCE SHEET OF MEGHALAYA UNIT AND OTHER DOCUMENTS TO SUPP ORT HIS ARGUMENT THAT THE BORROWED FUNDS ARE NOT USED FOR THE PURPOSE OF INVESTMENT. UNDER THESE CIRCUMSTANCES, IN THE INTEREST OF JUSTICE, WE SET A SIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFIC ER TO CONSIDER THE BALANCE SHEET FILED BY THE ASSESSEE AND DECIDE THE ISSUE AF RESH IN ACCORDANCE WITH LAW. ACCORDINGLY, THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED FO R STATISTICAL PURPOSES. ORDER PRONOUNCED ON FRIDAY, THE 17 TH OF JULY, 2015 AT CHENNAI. SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (V. DURGA RAO) JUDICIAL MEMBER CHENNAI, DATED, THE 17.07.2015 VM/- ( $ )'%*+ ,+'% /COPY TO: 1. -. / APPELLANT, 2. )/-. / RESPONDENT, 3. 0 ( ) /CIT(A), 4. 0 /CIT, 5. +1 )'%' /DR & 6. 2! 3 /GF.