M/s. Sterling Agro Products Processing Private Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1035/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64632 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 03-12-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 10-05-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: MRS S DEEPA
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH CHENNAI BEFORE DR. O. K. NARAYANAN, VICE PRESIDENT AND SHRI V. DURGA RAO, JUDICIAL MEMBER ---------- ITA NO. 1035/MDS/2012 ASSESSMENT YEAR : 2008-09 M/S. STERLING AGRO PRODUCT PROCESSING PVT. LTD., STERLING TOWERS, 327, ANNA SALAI, CHENNAI-600 018. V. THE ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-VI(4), CHENNAI. (PAN : AACCS8707R) (APPELLANT) (RESPONDENT) APPELLANT BY : MRS. S. DEEPA, CA RESPONDENT BY : SHRI SHAJI P. JACOB, ADDL.CIT DATE OF HEARING : 03.1 2.2012 DATE OF PRONOUNCEMENT : 06.12.201 2 O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(APPEALS)-V, CHENNAI DATED 29-02-2012 FOR THE ASSESSMENT YEAR 2008-09. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY HAD FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER ITA NO.1035/MDS2012 2 CONSIDERATION DECLARING LOSS OF ` 92,07,856/-. THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLE TED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ('THE AC T' FOR SHORT) BY MAKING DISALLOWANCE UNDER SECTION 14A OF THE ACT DETERMINING THE LOSS AT ` 82,18,736/-. IT IS STATED THAT THE ASSESSEE COMPANY HAD UTILIZED ITS OWN FUNDS FOR THE PURPOSE OF INVESTMENT WHEREAS THE ASSESSEE HAS NOT PROVED T HE SAME. MOREOVER, THERE IS A CONSIDERABLE INCREASE IN THE B ORROWALS. THE CLAIM THAT NO EXPENDITURE HAS BEEN INCURRED IS NOT TENABLE AS THE ASSESSEE HAS INCURRED ` 1,04,71,003 AS INTEREST ON OTHERS THE AMOUNT OF WHICH WAS NOT PROVED TO HAVE B EEN UTILIZED FOR THE PURPOSE OF BUSINESS. WITH THE ABO VE OBSERVATION THE ASSESSING OFFICER INVOKED UNDER SEC TION 14A READ WITH RULE 8D AND THE DISALLOWANCE WAS WORKED O UT AT ` 9,89,120/-. 3. ON BEING AGGRIEVED THE ASSESSEE CARRIED THE MATT ER BEFORE THE CIT(APPEALS). THE LEARNED CIT(APPEALS) OBSERVED THAT THE CASE OF THE ASSESSEE IS THAT IT HAD UTILIZ ED ITS OWN FUNDS FOR THE PURPOSE OF INVESTMENT BUT THE ASSESSE E HAD NOT PROVE THE SAME. THE ASSESSING OFFICER ALSO FOUND T HAT THERE WAS CONSIDERABLE INCREASE IN THE BORROWALS AND THE CLAIM THAT ITA NO.1035/MDS2012 3 NO EXPENDITURE HAD BEEN INCURRED WAS NOT TENABLE AS THE ASSESSEE HAD INCURRED ` 1,04,71,003/- AS INTEREST THAT WAS NOT PROVED TO HAVE BEEN INCURRED ONLY FOR THE PURPOSE O F THE BUSINESS OF THE ASSESSEE. IT IS ALSO NOT PROVED TH AT BOTH THE FUNDS SECURED AND UNSECURED HAVE BEEN WHOLLY AND EXCLUSIVELY UTILIZED FOR THE PURPOSE OF THE BUSINES S OF THE ASSESSEE. HE FURTHER OBSERVED THAT THE ASSESSEE HA S NOT BEEN ABLE TO SUBSTANTIATE THAT THE EXPENDITURE INCURRED HAD DIRECT NEXUS WITH BUSINESS PURPOSES EXCLUDING THE INVESTME NTS. THE LEARNED CIT(APPEALS) FURTHER OBSERVED THAT THE HON' BLE SUPREME COURT IN THE CASE OF CIT V. WALFORT SHARE & STOCK BROKERS (P) LTD. (310 ITR 421) AND ALSO THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. V. DCIT (328 ITR 81) HAD APPROVED THAT NO DEDU CTION SHALL BE ALLOWED IN RESPECT OF AN EXPENDITURE INCUR RED BY AN ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT AND THE ASSESSING OFFICE R IS NOT ONLY ENTITLED BUT ALSO DUTY BOUND TO DISALLOW AN EX PENDITURE WHICH IS IN RELATION TO EARNING OF EXEMPT INCOME. THE LEARNED CIT(APPEALS) CONFIRMED THE ORDER PASSED BY THE ASSE SSING OFFICER AND THE APPEAL FILED BY THE ASSESSEE WAS DI SMISSED. ITA NO.1035/MDS2012 4 4. ON BEING AGGRIEVED THE ASSESSEE HAS CARRIED THE MATTER BEFORE THE TRIBUNAL. THE ASSESSEE MADE INVESTMENT TO GENERATE SHORT TERM AND LONG TERM CAPITAL GAINS AND BOTH ARE TAXABLE. THE ASSESSEE PAID AND ALSO RECEIVED INTER EST. THEREFORE SECTION14A AND RULE 8D HAVE NO APPLICATIO N TO THE ASSESSEES CASE. 5. ON THE OTHER HAND, THE LEARNED DR STRONGLY SUPPO RTED THE ORDERS PASSED BY THE AUTHORITIES BELOW. BOTH T HE PARTIES AGREED THAT SIMILAR ISSUE HAS BEEN CONSIDERED BY TH E TRIBUNAL IN ITA NO.2083/MDS/2011 BY ORDER DATED 02-03-2012 I N THE CASE OF M/S. LAKSHMI RING TRAVELLERS V. ACIT. 6. WE HAVE HEARD BOTH THE SIDES, PERUSED THE RECORD S AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS WHETHER RULE 8D RE AD WITH SECTION 14A IS APPLICABLE TO THE CASE OR NOT. THE VERY SAME ISSUE WAS CONSIDERED BY THE CO-ORDINATE BENCH OF TH IS TRIBUNAL IN THE CASE OF M/S. LAKSHMI RING TAVELLERS (SUPRA) AND THE OPERATIVE PORTION OF THE ORDER OF THE TRIBUNAL IS E XTRACTED BELOW : WE CONSIDERED THE ARGUMENTS OF BOTH THE SIDES IN DETAIL. SEC.14A(1) DECLARES THE LAW THAT THE ITA NO.1035/MDS2012 5 EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT SHALL NOT BE ALLOWED AS A DEDUCTION IN COMPUTING THE TAXABLE INCOME OF THE ASSESSEE. SEC.14A(2) PROVIDES FOR DETERMINING THE QUANTUM OF SUCH EXPENDITURE WHICH SHALL NOT BE ALLOWED AS A DEDUCTION. THAT IS THE MACHINERY PROVISION AS FAR AS SEC.14A IS CONCERNED. IN THAT PROVISION, IT HAS BEEN PROVIDED THAT IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE COMPUTATIONS MADE BY AN ASSESSEE, HE SHALL COMPUTE THE QUANTUM IN ACCORDANCE WITH THE METHOD THAT MAY BE PRESCRIBED. FOR THIS MATTER, RULE 8D HAS ALREADY BEEN PRESCRIBED. SUB-SEC.(3) FURTHER PROVIDES THAT EVEN IN A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE WAS INCURRED, THE ASSESSING AUTHORITY HAS TO PRESUME THE INCURRING OF SUCH EXPENDITURE AS PROVIDED UNDER SUB-SEC.(2) READ WITH RULE PRESCRIBED. THEREFORE, IT BECOMES CLEAR THAT EVEN IN A CASE WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE WAS SO INCURRED, THE STATUTE HAS PROVIDED FOR A PRESUMPTIVE EXPENDITURE WHICH HAS TO BE DISALLOWED BY FORCE OF THE STATUTE. IN A DISTANT MANNER, LITERALLY SPEAKING, IT MAY EVEN BE CONSIDERED FOR THE PURPOSE OF CONVENIENCE AS A DEEMING PROVISION. WHEN SUCH DEEMING PROVISION IS MADE ON THE BASIS OF STATUTORY PRESUMPTION, THE ITA NO.1035/MDS2012 6 REQUIREMENT OF FACTUAL EVIDENCE IS REPLACED BY STATUTORY PRESUMPTION AND THE ASSESSING OFFICER HAS TO FOLLOW THE CONSEQUENCES STATED IN THE STATUTE. IT MEANS THAT EVEN IN A CASE WHERE NO EXPENDITURE IS STATED TO HAVE BEEN INCURRED, THE ASSESSING AUTHORITY HAS TO APPLY RULE 8D. AS THE STATUTORY PRESUMPTION SUBSTITUTES THE REQUIREMENT OF FACTUAL EVIDENCE, THE QUESTION OF ENQUIRY DOES NOT ARISE. THEREFORE, WE ARE UNABLE TO AGREE WITH THE ARGUMENT OF THE LEARNED CA. 7. IN VIEW OF THE SPECIFIC FINDING GIVEN BY THE ASS ESSING OFFICER AND THE LEARNED CIT(APPEALS) BY FOLLOWING T HE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. LAKSHMI RING TR AVELLERS (SUPRA), THE APPEAL FILED BY THE ASSESSEE IS DISMIS SED. 8. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED ON THURSDAY, THE 6 TH OF DECEMBER, 2012, AT CHENNAI. SD/- SD/- (DR. O. K. NARAYANAN) ( V.DURGA RAO ) VICE PRESIDENT JUDICIAL MEMBER CHENNAI, DATED THE 06 TH DECEMBER, 2012. H. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE