Cholayil Private Limited, CHENNAI V. ACIT, CHENNAI

ITA 1073/CHNY/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51908 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 10-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR I VIJAYAKUMAR
• Assessee Lawyers: G VARDINI
• Keywords: Depreciation; Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 80IB

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL CHENNAI C BENCH, CHENNAI. BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER I.T.A. NO. 1073/MDS/2011 ASSESSMENT YEAR: 2007-08 M/S. CHOLAYIL PRIVATE LIMITED (FORMERLY KNOWN AS CHOLAYIL PHARMACEUTICALS PVT. LTD.), J 1583, 15 TH MAIN ROAD, ANNA NAGAR, CHENNAI 600 040. [PAN: AAACC3123B] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(3), CHENNAI 600 034. (APPELLANT) (RESPONDENT) ASSESSEE BY : MS. G. VARDINI, ADVOCATE REVENUE BY : DR. I. VIJAYAKUMAR, CIT DR DATE OF HEARING : 14.09.2011 DATE OF PRONOUNCEMENT 05.10.2011 ORDER PER HARI OM MARATHA, J.M. THIS APPEAL OF THE ASSESSEE, FOR THE ASSESSMENT YE AR 2005-06, IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A) III, CHENNAI, D ATED 08.04.2011. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE MANUFACTURE AND SALE OF AYURVEDIC PR ODUCTS AND SOAP. FOR THE ASSESSMENT YEAR 2007-08, THE ASSESSEE FILED ITS RET URN OF INCOME ON 30.10.2007 DECLARING TOTAL INCOME OF ` .1,05,11,196/- AFTER CLAIMING DEDUCTION UNDER SECTI ON 80IB OF ` .36,49,943/-. THE ASSESSMENT WAS COMPLETED UNDER SE CTION 143(3) ON 31.12.2009 AT A TOTAL INCOME OF ` .1,14,35,288/-. THE ASSESSING OFFICER HAS DISALLOWED CLAIM OF EXPENDITURE OF ` .2,30,942/- UNDER SECTION 14A R.W. RULE 8D AND HAS DISALLOWED CLAIM OF DEDUCTION MADE UNDER SECTIO N 80IB OF ` .6,25,353/- CLAIMED I II I.T.A. NO. .T.A. NO. .T.A. NO. .T.A. NO.1 11 1073 073073 073/MDS/ /MDS/ /MDS/ /MDS/11 1111 11 2 TOWARDS DEPRECIATION AND EXCISE DUTY COMPONENT OF T HE VALUE OF THE MACHINERY. THE ASSESSING OFFICER HAS ALSO REJECTED ASSESSEES CLAIM FOR ALLOWANCE OF ` .10,05,798/- CLAIMED TOWARDS USE OF CAR BY THE DIRE CTORS. HOWEVER, THE LD. CIT(A), AFTER DISCUSSING ALL THE ISSUES IN DETAIL HAS CONFI RMED DISALLOWANCE OF CLAIM OF DEPRECIATION ON THE EXCISE DUTY COMPONENT OF THE VA LUE OF THE MACHINERY AS IT WAS NOT PRESSED BY THE LD. AR AND THE ISSUE REGARDING C LAIM OF DEDUCTION UNDER SECTION 80IB WAS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. HE HAS RESTRICTED DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A TO ` .25,000. HE HAS REJECTED ASSESSEES FRESH CLAIM REGARDING ALLOWANCE OF ` .10,05,798/- TOWARDS USAGE OF MOTOR CAR BY THE DIRECTORS, WHICH HAD BEEN ERRONEOU SLY DISALLOWED BY THE ASSESSEE ITSELF ON THE REASON THAT IT HAD PAID FRIN GE BENEFIT TAX (FBT) ON THE SAME. NOW THE ASSESSEE IS AGGRIEVED ON THESE TWO IS SUES. 3. THE FIRST ISSUE PERTAINS TO DISALLOWANCE SUSTAI NED UNDER SECTION 14A TO THE EXTENT OF ` .25,000/-. THE MAIN PLEA OF THE LD. AR MS. G. VARDI NI IS THAT THE RULE 8D WAS NOT APPLICABLE TO THE YEAR UNDER CONSIDERATION, BECAUSE IT HAS BEEN MADE APPLICABLE W.E.F. THE ASSESSMENT YEAR 2008-09 AND, IN THAT EVENTUALITY, SECTION 14A(1) WOULD APPLY. IT WAS ARGUED THAT THE ASSESSIN G OFFICER WAS OBLIGED TO ASCERTAIN THE EXPENDITURE, WHICH HAD BEEN INCURRED TO EARN THE TAX FREE INCOME. IT WAS FURTHER ARGUED THAT NO EXPENDITURE AT ALL HAS B EEN INCURRED IN RELATION TO THE EXEMPT INCOME, WHICH AROSE ON ACCOUNT OF INVESTMENT OF ` .1,76,49,096/- IN TAX- FREE INCOME DERIVING TERRITORY. THE ASSESSEE HAS N OT ADMITTEDLY DERIVED ANY INCOME OUT OF THESE INVESTMENTS DURING THIS YEAR. T HE ASSESSING OFFICER HAS RELIED ON THE DECISION OF SPECIAL BENCH OF ITAT DELHI BENC H B IN THE CASE OF I II I.T.A. NO. .T.A. NO. .T.A. NO. .T.A. NO.1 11 1073 073073 073/MDS/ /MDS/ /MDS/ /MDS/11 1111 11 3 CHEMINVEST LTD. V. ITO IN ITA NO.87/DEL/2008 DATED 05.08.2009, WHEREIN IT HAS BEEN HELD THAT WHEN THE EXPENDITURE IS INCURRED IN RELATION TO IN COME, WHICH DOES NOT FORM PART OF TOTAL INCOME, IT HAS TO SUFFER DIS ALLOWANCE IRRESPECTIVE OF THE FACT WHETHER ANY INCOME IS EARNED BY THE ASSESSEE OR NOT ; SECTION 14A DOES NOT ENVISAGE ANY SUCH EXCEPTION . IN VIEW OF THE ABOVE, THE ASSESSING OFFICER APPLI ED RULE 8D ALTHOUGH NO EXPENDITURE WAS DIRECTLY ATTRIB UTABLE TO THE INVESTMENTS. THE TOTAL DISALLOWANCE MADE WAS ` .2,30,942/-. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND HAVE GONE T HROUGH THE ENTIRE RECORD AND HAVE FOUND THAT RULE 8D IS NOT APPLICABLE FOR T HIS YEAR. AS PER THE HONBLE BOMBAY HIGH COURTS DECISION RENDERED IN THE CASE O F GODREJ & BOYCE MFG. LTD. V. DCIT, 328 ITR 81 (BOM), RULE 8D IS APPLICABLE ONLY FROM THE ASSESSMENT YEAR 2008-09. FURTHER, THE HONBLE PUNJAB & HARYANA HIGH COURT HAS CLEARLY HELD WHILE DECIDING THE CASE OF CIT V. HERO CYCLES, 323 ITR 51 8 (P&H) THAT UNLESS THERE IS EVIDENCE TO SHOW THAT THE INTEREST BEARING FUNDS HA D BEEN INVESTED IN TAX-FREE INVESTMENTS AND THE NEXUS COULD BE ESTABLISHED BY T HE REVENUE, SECTION 14A COULD NOT BE APPLIED ON MERE PRESUMPTION . EVEN WITH REFERENCE TO THE PROVISIONS OF SECTION 14A(1), WE HAVE NOT FOUND THAT THE ASSES SING OFFICER HAS CORRELATED ANY EXPENSES THAT MIGHT HAVE BEEN INCURRED IN RELATION TO INCOME, WHICH DOES NOT FORM PART OF THE INCOME OF THE ASSESSEE FOR THIS ASSESSM ENT YEAR. THEREFORE, ANY TOKEN DISALLOWANCE WOULD NOT SUBSERVE THE CAUSE OF JUSTIC E IN THE GIVEN FACTS AND THE CIRCUMSTANCES OF THE CASE. BEFORE US ALSO, THE LD. DR COULD NOT CORRELATE ANY PART OF THIS EXPENDITURE TO THE INCOME NOT FORMING PART OF THE TOTAL INCOME OF THE ASSESSEE. CONSEQUENTLY, WE FIND FORCE IN THE GROUND S OF ASSESSEES APPEAL AND I II I.T.A. NO. .T.A. NO. .T.A. NO. .T.A. NO.1 11 1073 073073 073/MDS/ /MDS/ /MDS/ /MDS/11 1111 11 4 ORDER TO DELETE EVEN THE SUSTAINED AMOUNT OF ` . 25,000/- BEING A BASELESS SUSTAINED ADDITION. 5. THE NEXT ISSUE PERTAINS TO DISALLOWANCE OF ` .10,05,798/-, THAT THE ASSESSEE HAD WRONGLY ADDED TO THE INCOME RETURNED PERTAINING TO DISALLOWANCE OF CAR EXPENSES ON ACCOUNT OF PERSONAL USE OF THE CAR BY T HE DIRECTORS. IN THIS REGARD, THE CASE OF THE ASSESSEE IS THAT THIS EXPENDITURE HAS S UFFERED TAX AS IT HAS BEEN SUBJECTED TO FRINGE BENEFIT TAX. AFTER COGITATING T HE REVENUES STAND IN THIS REGARD, WE ARE OF THE CONSIDERED OPINION THAT THIS ISSUE NE EDS TO BE REEXAMINED BY THE ASSESSING OFFICER IN DETAIL. THEREFORE, WE ALLOW TH IS GROUND FOR STATISTICAL PURPOSE AND RESTORE BACK THE SAME TO THE FILE OF THE ASSESS ING OFFICER WITH THE DIRECTION THAT HE SHALL DECIDE THE SAME DE NOVO AFTER GIVING OPPOR TUNITY OF HEARING TO THE ASSESSEE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AND PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 05.10.2011. SD/- SD/- (DR. O.K. NARAYANAN) VICE PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER CHENNAI, DATED, THE 05.10.2011 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.