Rattha Holding Company Pvt Ltd., CHENNAI V. DCIT, CHENNAI

ITA 1016/CHNY/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4564 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 25-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA; DR M SRINIVASA RAO
• Assessee Lawyers: B RAMAKRISHNAN
• Keywords: Reopening of assessment; Capital asset; Revenue expenditure; Capital expenditure; Set aside
• Section: 14A; 250; 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , ! ' # , % #& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ./ ITA NOS.1014, 1015 & 1016/CHNY/2017 ) *) / ASSESSMENT YEARS: 2009-10, 2012-13 & 2013-14 M/S RATTHA HOLDING COMPANY PVT. LTD., 6 TH FLOOR, TOWER C, TEK MEADOWS, NO.51, RAJIV GANDHI SALAI, SHOLINGANALLUR, CHENNAI - 600 119. PAN : AACCR 8160 K V. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 5(1), CHENNAI - 600 034. (,-/ APPELLANT) (./,-/ RESPONDENT) ,- 0 1 / APPELLANT BY : SH. B. RAMAKRISHNAN, FCA ./,- 0 1 / RESPONDENT BY : DR. M. SRINIVASA RAO, CIT & MS. S. VIJAYAPRABHA, JCIT 2 0 3% / DATE OF HEARING : 12.03.2019 45* 0 3% / DATE OF PRONOUNCEMENT : 24.05.2019 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER : ALL THE THREE APPEALS OF THE ASSESSEE ARE DIRECTE D AGAINST THE COMMON ORDER PASSED BY THE COMMISSIONER OF INCO ME TAX (APPEALS) -3, CHENNAI, DATED 28.02.2017 AND PERTAIN TO ASSESSMENT YEARS 2009-10, 2012-13 AND 2013-14. SINCE COMMON I SSUES ARISE 2 I.T.A. NOS.1014 TO 1016/CHNY/17 FOR CONSIDERATION IN ALL THESE APPEALS, WE HEARD TH ESE APPEALS TOGETHER AND DISPOSING THE SAME BY THIS COMMON ORDE R. 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IS DISA LLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE I NCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). 3. SH. B. RAMAKRISHNAN, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT FOR ALL THE THREE ASSESSME NT YEARS, THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME WHICH I S EXEMPTED FROM TAXATION. PLACING RELIANCE ON THE JUDGMENT OF MADRAS HIGH COURT IN CIT V. CHETTINAD LOGISTICS (P.) LTD. (2017 ) 80 TAXMANN.COM 221, THE LD. REPRESENTATIVE SUBMITTED THAT WHEN THE ASSESSEE HAS NOT EARNED ANY EXEMPTED INCOME, THERE CANNOT BE ANY DISALLOWANCE UNDER SECTION 14A OF THE ACT. THE LD. REPRESENTATIVE HAS ALSO PLACED HIS RELIANCE ON THE DECISION OF APE X COURT IN CIT V. CHETTINAD LOGISTICS (P.) LTD. (2018) 95 TAXMANN.COM 250 AND SUBMITTED THAT THE SPECIAL LEAVE PETITION FILED BY THE REVENUE WAS DISMISSED BY THE APEX COURT. 4. WE HEARD DR. M. SRINIVASA RAO, THE LD. DEPARTMEN TAL REPRESENTATIVE ALSO. SINCE, ADMITTEDLY, THERE WAS NO DIVIDEND 3 I.T.A. NOS.1014 TO 1016/CHNY/17 INCOME EARNED BY THE ASSESSEE DURING THE YEARS UNDE R CONSIDERATION, THIS TRIBUNAL IS OF THE CONSIDERED O PINION THAT THERE CANNOT BE ANY DISALLOWANCE UNDER SECTION 14A OF THE ACT. THE CIT(APPEALS) BY PLACING HIS RELIANCE ON THE DECISIO N OF THIS TRIBUNAL, DISMISSED THE APPEAL OF THE ASSESSEE. HOWEVER, NOW THE LD. REPRESENTATIVE FOR THE ASSESSEE HAS BROUGHT TO THE NOTICE OF THIS BENCH THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN CHETTINAD LOGISTICS (P.) LTD. (SUPRA). IN VIEW OF THIS JUDGM ENT OF MADRAS HIGH COURT WHICH IS BINDING ON THIS TRIBUNAL, THERE CANN OT BE ANY DISALLOWANCE WHEN THERE WAS NO EXEMPTED INCOME. TH EREFORE, THIS TRIBUNAL IS UNABLE TO UPHOLD THE ORDERS OF THE LOWE R AUTHORITIES. ACCORDINGLY, ORDERS OF BOTH THE AUTHORITIES BELOW A RE SET ASIDE AND THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDE R SECTION 14A OF THE ACT IS DELETED. 5. FOR THE ASSESSMENT YEAR 2013-14, THE ASSESSEE HA S RAISED A GROUND WITH REGARD TO ADVANCES WRITTEN OFF TO THE EXTENT OF 7,86,11,656/-. 6. SH. B. RAMAKRISHNAN, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE IS IN THE BUS INESS OF CIVIL CONSTRUCTION. DURING THE COURSE OF BUSINESS ACTIVI TY, ACCORDING TO 4 I.T.A. NOS.1014 TO 1016/CHNY/17 THE LD. REPRESENTATIVE, THE ASSESSEE ENGAGED THE SE RVICES OF TWO PRIVATE COMPANIES, NAMELY, M/S CLASSIC BUILDERS (MA DRAS) PVT. LTD. AND M/S NIWAS FOUNDATIONS PVT. LTD. FOR GETTING APP ROVAL OF BUILDING PERMIT / PLAN FROM CMDA AND ALSO FOR GETTING CLEARA NCES REQUIRED FOR CONSTRUCTION OF MULTISTORIED COMPLEX FROM VARIO US OTHER AUTHORITIES. THE ASSESSEE, ACCORDING TO THE LD. RE PRESENTATIVE, IN FACT, DEDUCTED TAX AT THE TIME OF PAYMENT. SUBSEQU ENTLY, THERE WAS DISPUTE BETWEEN THE PARTIES AND THE PARTIES, WHO RE CEIVED THE MONEY, COULD NOT OBTAIN THE CLEARANCES AS PROMISED. AFTER SETTLING THE DISPUTE, ACCORDING TO THE LD. REPRESENTATIVE, T HE ASSESSEE PAID THE AMOUNT AS ADVANCE OVER AND ABOVE THE AMOUNT CRE DITED INTO PARTIES ACCOUNT AND THE SAME WAS WRITTEN OFF AS BA D DEBT. ON A QUERY FROM THE BENCH, FOR GETTING CLEARANCE AND APP ROVAL OF BUILDING PERMIT / PLAN, WHAT IS REQUIRED IS THE ENGAGEMENT O F SERVICES OF CIVIL ENGINEER OR ARCHITECT OR STRUCTURAL ENGINEER, WHAT IS REQUIREMENT FOR THE ASSESSEE TO PAY SUCH A HUGE MONEY TO OTHER PRIV ATE COMPANIES? THE LD. REPRESENTATIVE CLARIFIED THAT T HE ASSESSEE IN THE COURSE OF BUSINESS ACTIVITY, THOUGHT TO PAY THE MONEY TO THESE COMPANIES SINCE THEY ARE WELL VERSED IN GETTING APP ROVAL AND OTHER CLEARANCES REQUIRED FOR MULTISTORIED BUILDING. THE REFORE, ACCORDING 5 I.T.A. NOS.1014 TO 1016/CHNY/17 TO THE LD. REPRESENTATIVE, THE CIT(APPEALS) IS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING O FFICER. 7. ON THE CONTRARY, DR. M. SRINIVASA RAO, THE LD. D EPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE PAYMENT WAS MADE IN THE COURSE OF CREATION / CONSTRUCTION OF CAPITAL ASSET. THERE FORE, ACCORDING TO THE LD. D.R., IT IS A CAPITAL EXPENDITURE. HENCE, IT CANNOT BE ALLOWED AS REVENUE EXPENDITURE. MOREOVER, ACCORDING TO THE LD. D.R., IT IS NOT KNOWN WHY THE PAYMENT WAS MADE TO M/S CLASSIC B UILDERS (MADRAS) PVT. LTD. AND M/S NIWAS FOUNDATIONS PVT. L TD.? ADMITTEDLY, THE PAYMENT WAS MADE DURING THE YEAR UN DER CONSIDERATION. THEREFORE, ACCORDING TO THE LD. D.R ., IT CANNOT BE ALLOWED AS REVENUE EXPENDITURE DURING THE YEAR UNDE R CONSIDERATION. FOR THE PURPOSE OF CLAIMING A DEBT AS BAD DEBT, ACCORDING TO THE LD. D.R., THE ASSESSEE HAS TO ESTA BLISH THE CONDITIONS PROVIDED IN SECTION 36(2) OF THE ACT. H ENCE, ACCORDING TO THE LD. D.R., IT IS NOT A DEBT AT ALL. MOREOVER, ACCORDING TO THE LD. D.R., THE ABOVE SAID PAYMENT DOES NOT REFLECT AS IN COME IN THE PROFIT & LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERAT ION. ACCORDING TO THE LD. D.R., IT IS NOT A BUSINESS OUTSTANDING W HICH CAN BECOME BAD. THE UNILATERAL WRITTEN OFF THE ADVANCES DOES NOT QUALIFY ITSELF 6 I.T.A. NOS.1014 TO 1016/CHNY/17 FOR CLAIMING AS BAD DEBT UNDER SECTION 36(2) OF THE ACT. THEREFORE, ACCORDING TO THE LD. D.R., THE CIT(APPEALS) HAS RIG HTLY CONFIRMED THE DISALLOWANCE. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE CLAIMS THAT THE PAYMENT WAS MADE TO TWO PRIVATE COM PANIES FOR THE PURPOSE OF GETTING CLEARANCE FROM VARIOUS AUTHORITI ES AND ALSO APPROVAL FOR CONSTRUCTION OF BUILDING. FOR THE PUR POSE OF CONSTRUCTION OF A BUILDING, THE ASSESSEE HAS TO SUB MIT BEFORE THE CONCERNED AUTHORITIES A BUILDING PLAN FOR APPROVAL AND PAY THE DEVELOPMENT CHARGES AND OTHER CHARGES THAT MAY BE R EQUIRED UNDER THE STATUTORY PROVISION. IT IS NOT IN DISPUTE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF MULTISTO RIED COMPLEXES. THEREFORE, THE ASSESSEE HAS TO PREPARE THE NECESSAR Y BUILDING PLAN, CONSULT THE STRUCTURAL ENGINEERS, ARCHITECT OR EXPE RT IN CIVIL CONSTRUCTION. THEREFORE, IT IS OBVIOUS THAT THE AS SESSEE ENGAGED M/S CLASSIC BUILDERS (MADRAS) PVT. LTD. AND M/S NIW AS FOUNDATIONS PVT. LTD. AND MADE THE PAYMENT. 9. THE REVENUE IS NOT DISPUTING THE PAYMENT MADE BY THE ASSESSEE. THE MAIN CONTENTION OF THE REVENUE IS TH AT THE CONDITION 7 I.T.A. NOS.1014 TO 1016/CHNY/17 UNDER SECTION 36(2) OF THE ACT WAS NOT COMPLIED WIT H. WHEN THE PAYMENT WAS MADE DURING THE COURSE OF BUSINESS FOR PREPARING THE NECESSARY PLAN AND GETTING APPROVAL / SANCTION, THE PAYMENT MADE BY THE ASSESSEE IS IN THE REVENUE FIELD. THE PAYME NT WAS MADE IN THE COURSE OF REGULAR BUSINESS ACTIVITY. HENCE, IT HAS TO BE ALLOWED UNDER SECTION 37 OF THE ACT. 10. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS O F SECTION 36(2) OF THE ACT. FOR THE PURPOSE OF CLAIMING DEBT AS BAD DEBT, THE ASSESSEE HAS TO ESTABLISH THAT THE DEBT OR PART THE REOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE A SSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT WAS WRITTEN OFF OR OF AN EARLIER PREVIOUS YEAR OR THE MONEY WAS LENT IN T HE ORDINARY COURSE OF MONEY LENDING BUSINESS. IN THIS CASE, TH E CIT(APPEALS) FOUND THAT THE PAYMENT WAS NOT ROUTED THROUGH PROFI T & LOSS ACCOUNT. THE CIT(APPEALS) ALSO FOUND THAT THE AMOU NT SHALL BE REFLECTED AS INCOME IN THE RELEVANT YEAR. SECTION 36(2) OF THE ACT CLEARLY SAYS THAT THE AMOUNT SHALL BE TAKEN INTO AC COUNT IN COMPUTING INCOME OF THE RELEVANT YEAR OR ANY OF THE EARLIER YEAR. IT IS NOT THE CASE OF THE REVENUE THAT THE AMOUNT DID NOT FORM PART OF THE INCOME OF THE ASSESSEE IN THE EARLIER YEAR. EVEN O THERWISE, THE 8 I.T.A. NOS.1014 TO 1016/CHNY/17 ADVANCE PAYMENT MADE BY THE ASSESSEE COULD NOT BE R ECOVERED. THEREFORE, IT IS TRADING LOSS. HENCE, BOTH THE AUT HORITIES BELOW ARE NOT JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSES SEE. ACCORDINGLY, THIS TRIBUNAL IS UNABLE TO UPHOLD THE ORDERS OF BOT H THE AUTHORITIES BELOW. HENCE, THE ORDERS OF BOTH THE AUTHORITIES B ELOW ARE SET ASIDE AND THE ADDITION MADE IS DELETED. 11. THE ASSESSEE HAS ALSO RAISED GROUNDS WITH REGAR D TO REOPENING OF ASSESSMENT FOR THE ASSESSMENT YEAR 200 9-10 AND ALSO INVESTMENT MADE IN THE GROUP CONCERNS FOR STRATEGIC ALLY PURPOSES. 12. THESE GROUNDS WERE NOT ARGUED BY THE LD. REPRES ENTATIVE FOR THE ASSESSEE EVEN THOUGH IT WAS SPECIFICALLY BROUGH T TO HIS NOTICE IN THE COURSE OF HEARING. WE HAVE ALSO CAREFULLY GONE THROUGH THE REASONS RECORDED FOR REOPENING THE ASSESSMENT AND A LSO THE FACT RELATING TO INVESTMENT IN THE GROUP CONCERNS. AFTE R GOING THROUGH THE MATERIAL, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SA ME IS CONFIRMED. 13. IN THE RESULT, ALL THE THREE APPEALS FILED BY T HE ASSESSEE ARE PARTLY ALLOWED. 9 I.T.A. NOS.1014 TO 1016/CHNY/17 ORDER PRONOUNCED IN THE COURT ON 24 TH MAY, 2019 AT CHENNAI. SD/- SD/- ( ! ' # ) ( . . . ) (INTURI RAMA RAO) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 7 /DATED, THE 24 TH MAY, 2019. KRI. 0 .389 :9*3 /COPY TO: 1. ,- /APPELLANT 2. ./,- /RESPONDENT 3. 2 ;3 () /CIT(A)-3, CHENNAI-34 4. PRINCIPAL CIT- 5, CHENNAI 5. 9< .3 /DR 6. ) = /GF.