Super Auto Forge Private Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1008/CHNY/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8233 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 04-11-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 22-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V VIVEKANANDAN IRS
• Assessee Lawyers: G BASKAR
• Keywords: Business income; Transfer pricing; International transaction; Earning of tax free income

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . ! ' , #'$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NO.1008/MDS/2014 # % &% / ASSESSMENT YEAR : 2008-2009. M/S. SUPER AUTO FORGE PRIVATE LTD, TS/82/2 METTU STREET, GAMAPATH NAGAR, EKKATTUTHANGAL, CHENNAI 600 097. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(4) CHENNAI [PAN AABCS 0459B ] ( / APPELLANT) ( /RESPONDENT) '( ) * / APPELLANT BY : SHRI. G. BASKAR, ADVOCATE +,'( ) * /RESPONDENT BY : SHRI. V. VIVEKANANDAN, IRS, CIT. ! ) - / DATE OF HEARING : 04-11-2015 ./& ) - / DATE OF PRONOUNCEMENT : 06-01-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-VI, CHENNA I IN ITA NO.1270/13-14/A-VI, DATED 21.02.2014 FOR THE ASSESS MENT YEAR 2008- 2009 PASSED U/S.143(3) R.W.S.92CA(4) AND 250 OF THE INCOME TAX ACT, 1961. ITA NO.1008/MDS/2014. :- 2 -: 2. THE ASSESSEE HAS RAISED TWO GROUNDS I.E (I) DISALLO WANCE U/S.14A OF THE ACT AND (II) DISALLOWANCE OF SETTIN G OFF OF LOSS U/SEC.10AA OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF COLD FO RGED AUTO PARTS AND FILED RETURN OF INCOME ON 23.09.2008 DECLARING TOTAL INCOME OF ;6,08,73,560/- AFTER CLAIMING DEDUCTION U/S.10B OF THE ACT. THE RETURN WAS PROCESSED U/S.143(1) OF THE ACT AND WAS SELECTE D FOR SCRUTINY AND NOTICE U/S.143(2) WAS ISSUED. IN COMPLIANCE TO THE NOTICE THE LD.AR OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FILED D ETAILS. FURTHER, THE LD. AUTHORISED REPRESENTATIVE ALSO FURNISHED DE TAILS OF INTERNATIONAL TRANSACTION ENTERED WITH THE ASSOCIATED ENTERPRISES ALONGWITH ACCOUNTANT REPORT U/S.92E IN FORM NO.3CEB. THE ASS ESSING OFFICER FOR THE PURPOSE OF COMPUTING THE ARMS LENGTH PRICE RE FERRED THE CASE TO TRANSFER PRICING OFFICER WITH NECESSARY APPROVAL FR OM THE COMMISSIONER OF INCOME TAX AND SUBSEQUENTLY, TRANSF ER PRICING OFFICER VIDE ORDER DATED 23.08.2011 HAS SUBMITTED T HE SAME TO THE ASSESSING OFFICER AND HELD THAT NO ADJUSTMENT NEEDE D TO THE VALUE OF THE INTERNATIONAL TRANSACTION ENTERED BY THE ASSESS EE. THE ASSESSING OFFICER HAS EXAMINED THE DETAILS FURNISHED AND ALSO WRITTEN SUBMISSIONS AND CLARIFICATIONS AND PERUSED THE TRAN SFER PRICING OFFICER ORDER PASSED U/S.92CA(3) OF THE ACT AND FINALIZED T HE ASSESSMENT. ITA NO.1008/MDS/2014. :- 3 -: THE ASSESSING OFFICER ON PERUSAL OF PROFIT AND LOSS ACCOUNT FOUND AN AMOUNT OF ;1,64,06,932/- AS DIVIDEND INCOME RECEIV ED ON SHARES AND MUTUAL FUNDS UNITS AND CLAIMED EXEMPTED. THE LD. A UTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE COMPANY HAS MADE INVESTMENTS IN SHARES AND MUTUAL FUNDS ;47,31,60,06 2/- AND EARNED DIVIDEND INCOME AND EXPLAINED THAT ASSESSEE HAS NOT INCURRED ANY EXPENDITURE FOR EARNING EXEMPTED INCOME. ON PERUSA L OF THE BALANCE SHEET AND PROFIT STATEMENT, THE ASSESSEE HAS SECUR ED LOAN AND HAS BEEN PAYING INTEREST OF ;53,94,901/- APART FROM ADM INISTRATIVE OVERHEADS. UNDER THE PROVISIONS OF SEC.14A OF THE ACT, THE ASSESSEE HAS NOT DISALLOWED ANY PORTION OF EXPENDITURE ATTRI BUTABLE TO THE EXEMPTED INCOME IN THE COMPUTATION OF TOTAL INCOME. THE LD. AUTHORISED REPRESENTATIVE FILED WRITTEN SUBMISSIONS AND RELIED ON THE DECISIONS OF SUPREME COURT IN THE CASE OF RAJASTHAN STATE WAREHOUSING CORPORATION VS. CIT (242 ITR 450 ) AND PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS. HERO CYCLES LTD (323 ITR 518) AND SUBMITTED THAT NO EXPENDITURE IS INCURRED FOR EARNING ABOVE EXEMPT INCOME WERE NO DISALLOWANCE OF EXPENDITURE W AS WORKED OUT. FURTHER, RULE 8D HAS COME INTO EFFECT FROM 24.03.20 08 FOR THE ASSESSMENT YEAR 2008-2009 AND RELIED ON DECISIONS AND APPLICABILITY OF LAW. BUT, THE ASSESSING OFFICER HAS CALCULATED DISALLOWANCE U/S.14A UNDER RULE 8D RELYING ON JUDICIAL DECISIONS AND AT TRIBUTED EXPENDITURE ITA NO.1008/MDS/2014. :- 4 -: UNDER RULE 8D ;46,82,087/- AND ADDED TO THE RETURNE D INCOME. THE ASSESSING OFFICER ALSO FURTHER NOT ALLOWED THE SET OFF OF LOSS OF THE ASSESSEE COMPANY. THE ASSESSEE COMPANY SEZ UNIT I S ELIGIBLE FOR DEDUCTION U/S.10AA OF THE ACT AND WHICH HAS RESULTE D IN A LOSS OF ;39,96,024/- AND THE SAME WAS CLAIMED AS SET OFF WI TH BUSINESS INCOME FOR TAXATION PURPOSE. THE ASSESSEE HAS FILE D EXPLANATIONS THAT THERE IS NO BAR IN SET OFF OF LOSS AGAINST BUSINESS INCOME AS THERE IS NO SPECIFIC PROVISIONS THAT BUSINESS INCOME/ INCOME OF THE SEZ SHALL BE SEPARATELY CONSIDERED AND ALSO THE PROVISIONS OF S EC.70 OF THE ACT. THE ASSESSING OFFICER COMPLETED ASSESSMENT BY DISAL LOWING DEDUCTION U/S.10B AND U/S.14A DISALLOWANCE AND LOSS OF SEZ UN IT ASSESSED TOTAL INCOME OF ;19,98,99,336/- AND RAISED DEMAND. AGGRI EVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE PREFER RED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). 4. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS U PHELD THE FINDINGS OF THE ASSESSING OFFICER ON SEC.14A, D ISALLOWANCE AND APPLIED THE JUDICIAL DECISIONS FOR DISALLOWING EXPE NSES U/S.14A UNDER RULE 8D OF THE INCOME TAX RULES BASED ON THE DECI SION OF SUPREME COURT IN THE CASE OF WALLFORT SHARE AND STOCK PVT. LTD 41 DTR 233 AND ALSO BOMBAY HIGH COURT DECISION IN THE CASE OF GODREJ BOYCE MANUFACTURING CO. LTD 328 ITR 81 AND CONFIRMED THE ADDITION. IN THE CASE OF LOSS OF SEZ UNIT, THE SET OFF OF LOSS ARE G OVERNED BY SEC.70 & ITA NO.1008/MDS/2014. :- 5 -: 71 OF THE ACT AND THERE IS NO SPECIFIC MENTION IN T HE PROVISIONS FOR SET OFF OF LOSS HAVING SEZ UNIT AGAINST PROFIT FROM NOR MAL BUSINESS ACTIVITIES AND REJECTED THE SUBMISSIONS BY UPHOLDIN G THE ORDER OF THE ASSESSING OFFICER. AGGRIEVED BY THE ORDER OF THE CI T(A) THE ASSESSEE HAS FILED AN APPEAL BEFORE THE TRIBUNAL. 5. BEFORE US, THE LD. AUTHORISED REPRESENTATIVE REITER ATED HIS SUBMISSIONS MADE IN ASSESSMENT PROCEEDINGS AND IN T HE APPELLATE PROCEEDINGS. IN RESPECT OF DIVIDEND INCOME THE LD. AUTHORISED REPRESENTATIVE DEMONSTRATED THAT THE COMPANY HAS MA DE INVESTMENTS IN SHARES AND MUTUAL FUNDS OUT OF SURPLUS FUNDS AVA ILABLE AND NO PART OF BORROWED FUNDS HAVE BEEN UTILIZED FOR THE PURPOS E OF INVESTMENT AND DURING THE FINANCIAL YEAR 2007-2008. THE ASSESS EE COMPANY HAS RECEIVED AN AMOUNT OF ;1,64,06,932/- AS DIVIDEND I NCOME AND FURTHER EXHIBITED THAT THERE IS NO EXPENDITURE INCURRED IN EARNING SUCH DIVIDEND INCOME. THEREFORE, THERE IS NO DISALLOWAN CE WAS MADE IN THE COMPUTATION OF INCOME AND RELIED ON THE JUDICIAL DE CISIONS OF THE COURT AND ALSO ARGUED ON ALLOWING SETOFF NORMAL BUSINESS PROFIT WITH LOSS OF SEZ UNIT U/SEC.10AA OF THE ACT. 6. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTA TIVE RELIED ON THE ORDER OF THE COMMISSIONER OF INCOME T AX (APPEALS) AND CONTESTED THE ISSUES. ITA NO.1008/MDS/2014. :- 6 -: 7. WE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES, PERUSED THE MATERIAL ON RECORD AND ALSO JUDICIAL DECISIONS CITED. THE ASSESSEE COMPANY HAS MADE INVESTMENT FROM EARLIER YEARS AND RECEIVED DIVIDEND INCOME EVERY YEAR AND DEMONSTRATED THAT FU NDS UTILIZED FOR INVESTMENTS ARE SURPLUS FUNDS OR INTEREST FREE FUND S. THE ASSESSEE EARNED EXEMPT INCOME ;1,64,06,932/-. SINCE RULE 8D PROVISIONS WAS INTRODUCED WITH EFFECT FROM 24.03.2008, WHICH WAS P ROSPECTIVE IN OPERATION AND CANNOT BE REGARDED AS BEING RETROSPEC TIVE AS HELD BY DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD VS. CIT 347 ITR 272. HOWEVER , INCURRING CERTAIN ADMINISTRATIVE EXPENSES CANNOT BE RULED OUT. ACCORDINGLY, PLACING RELIANCE ON THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF SIMPSON & CO LTD IN T.C. NO.2621/2006, DATED 15.10.2012, WE DIRECT THE ASSESSING OFFICER TO DISALLOW 2% OF EXEMPT INCOME AS EXPENDITURE TOWARDS EARNING THAT INCOME. HENCE, THE GROUND OF THE ASSESSEE IS ALLO WED. 8. THE NEXT GROUND OF APPEAL WITH REGARD TO SET OFF OF LOSS FROM SEC.10AA UNIT ;39,96,024/- AGAINST THE NORMAL BUSINESS INCOME. THE LD. AUTHORISED REPRESENTATIVE EXPLAINED THAT TH E ASSESSEE IS HAVING TWO SEPARATE UNITS AND AS PER THE PROVISIONS OF SECS.70 AND 71 SET OFF OF LOSS FROM ONE SOURCE AGAINST THE INCOME FROM ANY OTHER SOURCE UNDER SAME HEAD OF INCOME IS ALLOWED EXCEPT CAPITAL LOSS AND RELIED ON CBDT CIRCULAR NO.07/2013. WE AFTER ANALY ZING THE PROVISIONS ITA NO.1008/MDS/2014. :- 7 -: OF SET OFF AND SEC.10A, THE ASSESSEE COMPANY LOSS FROM THE SEZ UNIT HAS TO CARRIED FORWARD AND SET OFF AGAINST PROFIT O F ELIGIBLE UNITS ONLY. WE DRAW SUPPORT FROM THE DECISION OF DELHI HIGH COU RT IN THE CASE OF CIT VS. KEI INDUSTRIES LTD 373 ITR 575 , WHEREIN IT WAS HELD THAT LOSS SUFFERED BY THE ASSESSEE IN A UNIT ENTITLED FOR EXE MPTION CANNOT BE SET OFF AGAINST INCOME FROM ANY OTHER UNIT NOT ELIGIBLE FOR SUCH EXEMPTION. IN THE PRESENT CASE BY APPLYING THE ABOVE RATIO, WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER OF THE COMMISSIONER OF INC OME TAX (APPEALS) ON THIS GROUND AND ACCORDINGLY DISMISS THE GROUND O F THE ASSESSEE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 6TH DAY OF JANU ARY, 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ! ' ) (G. PAVAN KUMAR) /JUDICIAL MEMBER / CHENNAI 0 / DATED:06.01.2016 KV 1 ) +#-23 43&- / COPY TO: 1 . '( / APPELLANT 3. ! 5- () / CIT(A) 5. 3 89 +#-# / DR 2. +,'( / RESPONDENT 4. ! 5- / CIT 6. 9:% ; / GF