DCIT, CHENNAI V. SNJ Distilleries Pvt. Ltd., CHENNAI

ITA 1044/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4416 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 16-03-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 18-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Assessee Lawyers: S VIDHYA
• Keywords: Bogus purchase; Gift; Tax effect; Commercial expediency
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , !.. # $%, ' () BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NOS.1042, 1043 & 1044/MDS/2016 + ,+ / ASSESSMENT YEARS : 2011-12, 2012-13 & 2013-14 THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2(1), INVESTIGATION WING, CHENNAI - 600 034. V. M/S SNJ DISTILLERS PVT. LTD., NEW NO.99, CANAL BANK ROAD, CIT NAGAR, NANDANAM, CHENNAI - 600 035. PAN : AALCS 9312 F (.// APPELLANT) (01.// RESPONDENT) ./ 2 3 / APPELLANT BY : SHRI SUPRIYO PAL, JCIT 01./ 2 3 / RESPONDENT BY : MS. S. VIDHYA, FCA # 2 4' / DATE OF HEARING : 16.03.2017 56, 2 4' / DATE OF PRONOUNCEMENT : 31.05.2017 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: ALL THE THREE APPEALS OF THE REVENUE ARE DIRECTE D AGAINST THE COMMON ORDER PASSED THE COMMISSIONER OF INCOME TAX (APPEALS)-18, CHENNAI, DATED 07.01.2016 AND PERTAIN TO ASSESSMENT YEARS 2011-12, 2012-13 AND 2013-14. THE REFORE, WE 2 I.T.A. NOS.1042 TO 1044/MDS/16 HEARD ALL THE APPEALS TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON ORDER. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS DISAL LOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE I NCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962. 3. SHRI SUPRIYO PAL, THE LD. DEPARTMENTAL REPRESENT ATIVE, SUBMITTED THAT THE ENTIRE INVESTMENT WAS MADE BY TH E ASSESSEE IN THE GROUP CONCERN FOR THE PURPOSE OF BUSINESS. MOR EOVER, NO INCOME WAS EARNED DURING THE ASSESSMENT YEAR 2011-1 2. ACCORDING TO THE LD. D.R., THE CIT(APPEALS) RESTRIC TED THE DISALLOWANCE TO THE EXTENT OF ` 1,70,216/- TO THE EXTENT OF INTEREST PAYMENT MADE BY THE ASSESSEE FOR THE ASSESSMENT YEA R 2011-12. ACCORDING TO THE LD. D.R., DISALLOWANCE HAS TO BE C OMPUTED AS PER THE METHOD PRESCRIBED UNDER RULE 8D(2) OF INCOME-TA X RULES, 1962, THEREFORE, THE CIT(APPEALS) IS NOT JUSTIFIED IN RES TRICTING THE DISALLOWANCE OF INTEREST PAID. REFERRING TO ASSESS MENT YEAR 2012- 13, THE LD. D.R. SUBMITTED THAT THE ASSESSING OFFIC ER DISALLOWED ` 2,08,49,200/-. THE CIT(APPEALS), HOWEVER, ALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT INVESTMENT WAS MADE IN THE 3 I.T.A. NOS.1042 TO 1044/MDS/16 SUBSIDIARY COMPANY CALLED SNJ SUGARS PVT. LTD. AC CORDING TO THE LD. D.R., WHETHER THE INVESTMENT WAS MADE IN SUBSID IARY COMPANY OR OTHER COMPANY, THE METHOD PRESCRIBED IN RULE 8D( 2) HAS TO BE FOLLOWED. THEREFORE, THE CIT(APPEALS) IS NOT JUSTI FIED IN ALLOWING THE CLAIM OF THE ASSESSEE. 4. THE LD. DEPARTMENTAL REPRESENTATIVE FURTHER SUBM ITTED THAT FOR THE ASSESSMENT YEAR 2013-14, THE ASSESSEE DID N OT EARN ANY INCOME, THEREFORE, THE CIT(APPEALS) ALLOWED THE CLA IM OF THE ASSESSEE ON THE GROUND THAT THE DISALLOWANCE HAS TO BE RESTRICTED ONLY TO THE EXTENT OF INCOME. ACCORDING TO THE LD. D.R., RULE 8D(2) DOES NOT REFER EARNING OF INCOME ON THE INVESTMENT. THE ASSESSEE, HENCE, MADE THE INVESTMENT FOR THE PURPOSE OF EARNI NG THE INCOME WHICH IS NOT TAXABLE UNDER THE PROVISIONS OF INCOME -TAX ACT. ACCORDING TO THE LD. D.R., THE EXPENDITURE INCURRED BY THE ASSESSEE HAS TO BE DISALLOWED UNDER SECTION 14A OF THE ACT. THE METHOD OF COMPUTATION OF EXPENDITURE IS PROVIDED IN RULE 8D(2 ), THEREFORE, ACCORDING TO THE LD. D.R., THE CIT(APPEALS) IS NOT JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. 5. ON THE CONTRARY, MS. S. VIDHYA, THE LD. REPRESEN TATIVE FOR THE ASSESSEE, SUBMITTED THAT THE TAX EFFECT INVOLVED IN THE CASE FOR 4 I.T.A. NOS.1042 TO 1044/MDS/16 ASSESSMENT YEAR 2011-12 IS LESS THAN ` 10,00,000/-, THEREFORE, THE APPEAL FOR ASSESSMENT YEAR 2011-12 IS NOT MAINTAINA BLE BEFORE THE TRIBUNAL. FOR THE ASSESSMENT YEARS 2012-13 AND 201 3-14, THE INVESTMENT WAS MADE ONLY IN SUBSIDIARY COMPANY, NAM ELY, SNJ SUGARS PVT. LTD. FOR THE PURPOSE OF BUSINESS. ACCO RDING TO THE LD. REPRESENTATIVE, AT NO POINT OF TIME, THE INVESTMENT WAS MADE FOR THE PURPOSE OF EARNING ANY EXEMPTED INCOME. SINCE THE INVESTMENT WAS MADE IN SNJ SUGARS PVT. LTD., WHICH IS ADMITTED LY A SUBSIDIARY COMPANY OF THE ASSESSEE, ACCORDING TO THE LD. REPRE SENTATIVE, IT IS ONLY A STRATEGIC INVESTMENT FOR THE PURPOSE OF BUSI NESS OF THE ASSESSEE-COMPANY, THEREFORE, THE CIT(APPEALS) HAS R IGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. MOREOVER, IT IS NOT BUS INESS OF THE ASSESSEE-COMPANY TO MAKE INVESTMENTS. THE INVESTME NT WAS MADE ONLY ON ACCOUNT OF BUSINESS EXPEDIENCY. MOREO VER, NO INCOME WAS EARNED BY THE ASSESSEE ON SUCH INVESTMEN T. THE LD. REPRESENTATIVE PLACED HER RELIANCE ON THE JUDGMENT OF MADRAS HIGH COURT IN REDINGTON (INDIA) LTD. V. ADDL. CIT IN T.C .A. NO.520 OF 2016 DATED 23.12.2016. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. FOR THE 5 I.T.A. NOS.1042 TO 1044/MDS/16 ASSESSMENT YEAR 2011-12, THE ASSESSEE HAS PAID INTE REST OF ` 1,70,216/-. THEREFORE, THE CIT(APPEALS) FOUND THAT THE EXPENDITURE INCURRED BY THE ASSESSEE CAN BE RESTRICTED ONLY TO ` 1,70,216/- AND NOT ` 4,67,62,879/-. THE CIT(APPEALS) ALSO CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER TH IRD LIMB OF RULE 8D(2) AT ` 1,25,009/-. ON PERUSAL OF ORDER OF ASSESSMENT IT SH OWS THAT THE ASSESSING OFFICER MADE A DISALLOWANCE OF ` 18,44,187/- FOR THE ASSESSMENT YEAR 2011-12 AND THE TAX EFFECT INVO LVED IS LESS THAN ` 10,00,000/-. THEREFORE, IN VIEW OF THE LATEST CIRC ULAR OF THE CBDT INSTRUCTING ITS OFFICERS NOT TO FILE APPEAL WH EREVER THE TAX EFFECT IS LESS THAN ` 10,00,000/-, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE APPEAL OF THE REVENUE FOR ASSESSME NT YEAR 2011- 12 IS NOT MAINTAINABLE BEFORE THIS TRIBUNAL. 7. NOW COMING TO ASSESSMENT YEARS 2012-13 AND 2013- 14, IT IS NOT IN DISPUTE THAT THE INVESTMENT WAS MADE IN SNJ SUGARS PVT. LTD., WHICH IS A SUBSIDIARY COMPANY OF THE ASSESSEE -COMPANY. WHEN THE INVESTMENT WAS MADE BY THE ASSESSEE-COMPAN Y IN ITS SUBSIDIARY COMPANY FOR THE PURPOSE OF BUSINESS, THI S TRIBUNAL IS OF THE CONSIDERED OPINION THAT SUCH INVESTMENT WAS ONL Y FOR COMMERCIAL EXPEDIENCY AND IT HAS TO BE CONSTRUED AS STRATEGIC 6 I.T.A. NOS.1042 TO 1044/MDS/16 INVESTMENT. IN OTHER WORDS, THE INVESTMENT MADE BY THE ASSESSEE WAS FOR BUSINESS PURPOSE. THEREFORE, AS RIGHTLY OB SERVED BY THE CIT(APPEALS), THE STRATEGIC INVESTMENT MADE IN THE SUBSIDIARY COMPANY CANNOT BE CONSIDERED FOR DISALLOWANCE UNDER SECTION 14A OF THE ACT. THEREFORE, THIS TRIBUNAL IS OF THE CON SIDERED OPINION THAT THE CIT(APPEALS) HAS RIGHTLY DELETED THE DISALLOWAN CE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE ACT. MO REOVER, THE ASSESSEE HA NOT EARN ANY INCOME FROM THE INVESTMENT . THEREFORE, IN VIEW OF THIS THE JUDGMENT OF MADRAS HIGH COURT I N REDINGTON (INDIA) LTD. ( SUPRA ), THERE CANNOT BE ANY DISALLOWANCE AT ALL. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SA ME IS CONFIRMED. 8. THE NEXT ISSUE ARISES FOR CONSIDERATION IS DISAL LOWANCE OF BOGUS PURCHASES TO THE EXTENT OF ` 77,75,800/-. 9. SHRI SUPRIYO PAL, THE LD. DEPARTMENTAL REPRESENT ATIVE, SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED BOG US PURCHASE TO THE EXTENT OF ` 77,75,800/-. THE ASSESSING OFFICER FOUND THAT THE TIN NUMBERS OF THE SO-CALLED DEALERS WERE CANCELLED AND THEY ARE NOT DOING ANY BUSINESS AT ALL. ACCORDING TO THE LD . D.R., THE NOTICE SENT TO ONE R.N. ENTERPRISE WAS RETURNED BY THE POS TAL AUTHORITIES. 7 I.T.A. NOS.1042 TO 1044/MDS/16 ON PHYSICAL VERIFICATION BY THE COMMERCIAL TAX OFFI CERS, IT WAS FOUND THAT THERE WAS NO SUCH DEALER. THEREFORE, TH E ASSESSING OFFICER MADE AN ADDITION OF ` 77,75,800/-. 10. ON THE CONTRARY, MS. S. VIDHYA, THE LD. REPRESE NTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSING OFFICER FOUN D THAT PURCHASES MADE BY THE ASSESSEE FROM R.N. ENTERPRISE AND NAKODA AGENCY WERE BOGUS. REFERRING TO THE ORDER OF THE C IT(APPEALS), THE LD. REPRESENTATIVE SUBMITTED THAT THE ASSESSEE WAS NOT AWARE OF THE FACT THAT TIN NUMBERS OF THESE DEALERS WERE CAN CELLED. HOWEVER, THE ASSESSEE PURCHASED PEN, PENCIL, GIFT P ACKS, ETC. FROM R.N. ENTERPRISE AND NAKODA AGENCY. MERELY BECAUSE THE TIN WAS CANCELLED BY COMMERCIAL TAX DEPARTMENT OF STATE GOV ERNMENT, ACCORDING TO THE LD. REPRESENTATIVE, IT CANNOT BE C ONCLUDED THAT THE ASSESSEE HAS NOT PURCHASED ANYTHING FROM THE ABOVE TWO BUSINESS CONCERNS. THE FACT THAT THE ABOVE SAID TWO BUSINES S CONCERNS WERE CARRYING ON BUSINESS EVEN AFTER CANCELLATION OF TIN REGISTRATION, WAS ESTABLISHED BY THE FACT THAT THEY SOLD PEN, PENCIL, GIFT ITEMS TO THE ASSESSEE, THEREFORE, ACCORDING TO THE LD. REPRESENT ATIVE, THE CIT(APPEALS) HAS RIGHTLY ALLOWED THE CLAIM OF THE A SSESSEE. 8 I.T.A. NOS.1042 TO 1044/MDS/16 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER MADE ADDITION, HOLDING THAT THE PURCHASES A RE BOGUS ON THE GROUND THAT TIN REGISTRATION OF THE DEALERS WAS CAN CELLED BY STATE COMMERCIAL TAX DEPARTMENT. THE PURCHASE BILLS FILE D BY THE ASSESSEE SHOW THAT THERE WERE PURCHASES FROM R.N. E NTERPRISE AND NAKODA AGENCY. IT WAS NOT THE CASE OF THE ASSESSIN G OFFICER THAT THERE WAS NO CONTRA ENTRY IN THE PAYMENT MADE TO R. N. ENTERPRISE. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE A SSESSEE ONLY ON THE GROUND THAT THE TIN REGISTRATION WAS CANCELLED BY STATE COMMERCIAL TAX DEPARTMENT ON 22.02.2013. THE ASSES SING OFFICER HAS NOT MADE ANY INDEPENDENT VERIFICATION WITH REGA RD TO EXISTENCE OF R.N. ENTERPRISE AND NAKODA AGENCY. IT IS ALSO N OT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS NO STOCK AS CLAIM ED. WHEN THE EXISTENCE OF STOCK OR AVAILABILITY OF PEN, PENCIL, GIFT BOXES IS NOT IN DISPUTE, IT SHOWS THAT THE ASSESSEE HAS PURCHASED T HE SAME. MERELY BECAUSE R.N. ENTERPRISE AND NAKODA AGENCY EN GAGED ITSELF IN THE BUSINESS OF SALE OF PEN, PENCIL AND GIFT ITE MS, AFTER THE CANCELLATION OF TIN REGISTRATION BY THE COMMERCIAL TAX DEPARTMENT, THAT CANNOT BE A REASON TO DOUBT THE PURCHASES MADE BY THE ASSESSEE. 9 I.T.A. NOS.1042 TO 1044/MDS/16 12. AT THE BEST, THE STATE COMMERCIAL TAX DEPARTMEN T MAY PROCEED FURTHER AGAINST R.N. ENTERPRISE AND NAKODA AGENCY FOR DOING BUSINESS EVEN AFTER CANCELLATION OF TIN REGIS TRATION. IN THOSE CIRCUMSTANCES, WHEN THE AVAILABILITY OF PURCHASED I TEMS IS NOT IN DISPUTE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT MERELY BECAUSE TINS OF R.N. ENTERPRISE AND NAKODA AGENCY W ERE CANCELLED AND POSTAL AUTHORITIES RETURNED THE LETTE R SENT BY STATE COMMERCIAL TAX DEPARTMENT, THE ASSESSING OFFICER IS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE WITHOUT INDEP ENDENT VERIFICATION. THEREFORE, THIS TRIBUNAL HAS NO REAS ON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY, T HE SAME IS CONFIRMED. 13. IN THE RESULT, ALL THE APPEALS FILED BY THE REV ENUE STAND DISMISSED. ORDER PRONOUNCED ON 31 ST MAY, 2017 AT CHENNAI. SD/- SD/- ( ! . . # $% ) ( . . . ) (D.S. SUNDER SINGH) (N.R.S. GANESAN) ' / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 8 /DATED, THE 31 ST MAY, 2017. KRI. 10 I.T.A. NOS.1042 TO 1044/MDS/16 2 04$9 :9,4 /COPY TO: 1. ./ /APPELLANT 2. 01./ /RESPONDENT 3. # ;4 () /CIT(A)-18, CHENNAI-34 4. PRINCIPAL CIT, CENTRAL-2, CHENNAI 5. 9< 04 /DR 6. !+ = /GF.