National Trust Hosing Finance Ltd., CHENNAI V. ACIT, CHENNAI

ITA 11/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9526 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-02-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 04-01-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Business income; Depreciation; Revenue expenditure
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . . . , . , % BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.10 TO 13/MDS/2016 ( / ASSESSMENT YEAR: 2002-03, 2004-05 , 2006-07 & 2007- 08) M/S. NATIONAL TRUST HOSING FINANCE LTD., SUBRAMANIAN BLDG. GROUND FLOOR, 1/1B, CLUB HOUSE ROAD, ANNA SALAI, CHENNAI-600 002. VS THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-4(2), CHENNAI-34. PAN: AAACM4897L ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR.R.VIJAYARAGHAVAN, ADVOCATE /RESPONDENT BY : MR. P.RADHAKRISHNAN, JCIT /DATE OF HEARING : 18 TH FEBRUARY, 2016 /DATE OF PRONOUNCEMENT : 28 TH APRIL, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- ALL THESE FOUR APPEALS ARE FILED BY THE ASSESSEE AGGRIEVED BY THE SEPARATE ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-8, CHENNAI ALL DATED 20.10.2015 IN ITA NO.44/2009-10. 03/2006-07, 45/20 08-09 & 43/2009-10, PASSED UNDER SECTION 143(3) R.W.S 254 & 250(6) / 143(3) R.W.S 250(6) OF THE ACT. 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS APPEALS, HOWEVER, THE CRUXES OF THE ISSUES ARE AS F OLLOWS:- 2 ITA NO.10 TO 13 /MDS/2016 ITA NO.10/MDS/2016 (ASSESSMENT YEAR : 2002-03): I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ORDER OF TH E LEARNED ASSESSING OFFICER WHO HAD DISALLOWED THE PROFESSIONAL AND CONSULTANCY FEES PAID FOR ` 6,83,000/- TO PWC TOWARDS EQUITY EXPANSION BY HOLDING IT TO BE CAPITAL IN NATURE. II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ORDER OF THE LEARNED ASSESSING OFFICER WHO HAD DISALLOWED 0.5% OF THE AVERAGE INVESTMENTS TOWARDS EXPENDITURE ATTRIBUTABLE FOR EARNING EXEMPT DIVIDED INCOME BY INVOKING SECTION 14A R.W.R 8D. ITA NO.11/MDS/2016 (ASSESSMENT YEAR : 2004-05): I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ORDER OF THE LEARNED ASSESSING OFFICER WHO HAD HELD THAT INTEREST EARNED ON ICD, FD WITH BANKS, DISCOUNTING CHARGES AND IT REFUND WILL BE TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCE AND THEREFORE SUCH INCOME WILL NOT BE ELIGIBLE FOR DEDUCTION UNDER SECTION 36(1)(VIII) OF THE ACT. ITA NO.12/MDS/2016 (ASSESSMENT YEAR : 2006-07): I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ORDER OF THE LEARNED ASSESSING OFFICER WHO HAD DISALLOWED THE CLAIM OF DEPRECIATION ON THE BUILDING RENTED OUT BY THE ASSESSEE. II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ORDER OF THE 3 ITA NO.10 TO 13 /MDS/2016 LEARNED ASSESSING OFFICER WHO HAD HELD THAT INTEREST EARNED ON ICD, FD WITH BANKS, DISCOUNTING CHARGES AND IT REFUND WILL BE TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCE AND THEREFORE SUCH INCOME WILL NOT BE ELIGIBLE FOR DEDUCTION UNDER SECTION 36(1)(VIII) OF THE ACT. ITA NO.13/MDS/2016 (ASSESSMENT YEAR : 2007-08): I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ORDER OF THE LEARNED ASSESSING OFFICER WHO HAD DISALLOWED THE CLAIM OF DEPRECIATION ON THE BUILDING RENTED OUT BY THE ASSESSEE. II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ORDER OF THE LEARNED ASSESSING OFFICER WHO HAD DISALLOWED 0.5% OF THE AVERAGE INVESTMENTS TOWARDS EXPENDITURE ATTRIBUTABLE FOR EARNING EXEMPT DIVIDED INCOME BY INVOKING SECTION 14A R.W.R 8D. 3. BRIEF FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF LONG TERM HOUSING FINANCE, FILED ITS RE TURNS OF INCOME FOR THE RELEVANT ASSESSMENT YEARS. SUBSEQUEN TLY, ASSESSMENTS WERE COMPLETED BY THE LEARNED ASSESSING OFFICER UNDER SECTION 143(3) OF THE ACT WHEREIN CER TAIN ADDITIONS WERE MADE AND THE SAME WAS CONFIRMED BY T HE 4 ITA NO.10 TO 13 /MDS/2016 LEARNED COMMISSIONER OF INCOME TAX (APPEALS), AGGRI EVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE US. ITA NO.10/MDS/2016 : (ASSESSMENT YEAR: 2002-03): GROUND NO.1: DISALLOWANCE OF PROFESSIONAL AND CONSU LTANCY FEES PAID FOR ` 6,83,000/- TO PWC TOWARDS EQUITY EXPANSION 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LEARNED ASSESSING OFFICER THAT THE ASSESSEE HAS PAID RS.6,83,000/- TO M/S. PWC IN CONNECTION WI TH EQUITY EXPANSION ACTIVITY OF THE ASSESSEE. THE LEARNED ASS ESSING OFFICER RELYING IN THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. BOOK BOND INDIA LTD. REPORTED IN 22 5 ITR 798 DISALLOWED THE PAYMENT MADE BY THE ASSESSEE FOR RS.6,83,000/- BECAUSE THE ASSESSEE HAS INCURRED THE SE EXPENSES TOWARDS EXPANSION OF THE CAPITAL BASE OF T HE COMPANY AND THEREFORE NOT IN THE NATURE OF REVENUE EXPENDITURE. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ALSO CONFIRMED THE ORDER OF THE LEARN ED ASSESSING OFFICER ACCEPTING HIS VIEW. 5 ITA NO.10 TO 13 /MDS/2016 4.1 BEFORE US THE LEARNED AUTHORIZED REPRESENTATIV E SUBMITTED THAT THOUGH THE ASSESSEE HAS INCURRED EXP ENDITURE OF RS.6,83,000/- TOWARDS EQUITY EXPANSION, SUCH EXP ANSION HAS NOT TAKEN PLACE AND THEREFORE THE DECISION CITE D BY THE LEARNED ASSESSING OFFICER WILL NOT BE APPLICABLE IN THE CASE OF THE ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE ALSO RELIED IN THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. GENERAL INSURANCE CORPORATION REPORTED IN 2 86 ITR 232 WHEREIN IT WAS HELD THAT EXPENDITURE INCURRED T OWARDS ISSUANCE OF BONUS SHARES WILL BE REVENUE EXPENDITUR E BECAUSE THE BONUS SHARES DOES NOT RESULT IN ANY INF LOW OF FRESH FUNDS. THE LEARNED AUTHORIZED REPRESENTATIVE FURTHER SUBMITTED THAT THE AMOUNT PAID TO M/S. PWC WAS TOWA RDS PREPARATION OF AN INFORMATION MEMORANDUM, IDENTIFIC ATION OF POTENTIAL INVESTORS, ASSISTANCE IN VALUE ANALYSIS, ASSISTANCE IN STRUCTURING THE CONSIDERATION AND THE TRANSACTION, ASSISTANCE IN NEGOTIATIONS AND COORDINATING THE COMPLETION OF THE TRANSACTION. 4.2 THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND, ARGUED IN SUPPORT OF THE REVENUE AND FURTHER STATED 6 ITA NO.10 TO 13 /MDS/2016 THAT THE NATURE OF CONSULTANCY SERVICE RENDERED BY THE CONSULTANTS WERE FOR THE EXPANSION OF THE EQUITY CA PITAL BASE OF THE ASSESSEE COMPANY. 4.3 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREF ULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. THE NATU RE OF SERVICE RENDERED BY M/S. PWC TO THE ASSESSEE COMPANY SUCH AS PREPARATION OF INFORMATION MEMORANDUM, IDENTIFICATION OF POTENTIAL INVESTORS, ASSISTANCE I N VALUE ANALYSIS, ASSISTANCE IN STRUCTURING THE CONSIDERATI ON AND THE TRANSACTION, ASSISTANCE IN NEGOTIATIONS AND COORDIN ATING THE COMPLETION OF THE TRANSACTION WOULD EVENTUALLY BE A TTRIBUTABLE FOR CAPITAL EXPANSION AND THE ASSESSEE HAS INCURRED THE EXPENSES TOWARDS THE SAME. THEREFORE, THE RATIO LAI D DOWN BY THE HONBLE APEX COURT CITED BY THE LEARNED ASSE SSING OFFICER AND RELIED UPON BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WOULD BE APPLICABLE IN THE CAS E OF THE ASSESSEE. IT DOES NOT MATTER WHETHER THE EXPENDITUR E INCURRED HAS RESULTED IN THE EXPANSION OF CAPITAL. WHAT MATTERS IS THE NATURE OF EXPENDITURE INCURRED AND N OT THE BENEFIT THAT IS DERIVED OUT OF THE EXPENDITURE. CON SIDERING THE 7 ITA NO.10 TO 13 /MDS/2016 NATURE OF EXPENSES, IT IS APPARENT THAT THE EXPENDI TURE IS INCURRED FOR THE PURPOSE OF EXPANSION OF CAPITAL AN D THEREFORE CANNOT BE TREATED AS REVENUE EXPENDITURE. HENCE, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDERS OF T HE REVENUE. CONSEQUENTLY, THIS ISSUE IS DECIDED AGAINST THE ASS ESSEE. GROUND NO.2. DISALLOWANCE U/S.14A R.W.R 8D: 5. THE LEARNED ASSESSING OFFICER HAD INVOKED THE PROVISIONS OF SECTION14A R.W.R 8D BECAUSE THE ASSES SEE HAD INVESTED IN SHARES, THE DIVIDEND INCOME OF WHICH, I S EXEMPT FROM TAX AND THEREBY COMPUTED THE DISALLOWANCE BY A DOPTING 0.5% OF THE AVERAGE OF THE OPENING AND CLOSING BALA NCE OF INVESTMENT IN THE RELEVANT ASSESSMENT YEAR WHICH WO RKS OUT TO RS.29,189/-. SINCE THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER IS IN ACCORDANCE WITH THE PROVISI ONS OF THE ACT, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDERS OF THE REVENUE. ACCORDINGLY, THIS GROUND IS ALSO HELD AGAINST THE ASSESSEE. ITA NO.11/MDS/2016 (ASSESSMENT YEAR : 2004-05): INTEREST EARNED ON ICD, FD & IT REFUND AS INCOME F ROM OTHER SOURCES: 8 ITA NO.10 TO 13 /MDS/2016 6. THE ASSESSEE HAD DERIVED INTEREST INCOME AS FOLL OWS:- I) INTEREST ON ICD RS.6,34,019 II) INTEREST ON FD WITH BANKS RS.58,568 III) DISCOUNTING CHARGES RS.31,71,471 IV) IT REFUND RS.25,355 TOTAL RS.38,89,413 6.1 THE ASSESSEE HAD ALSO CLAIMED DEDUCTION UNDE R SECTION 36(1)(VIII) OF THE ACT ON THE INCOME EARNED BY ITS BUSINESS OF PROVIDING LONG TERM HOUSING FINANCE. THE LEARNED ASSESSING OFFICER WAS OF THE OPINION THAT T HE ABOVE INTEREST INCOME OF RS.38,89,413/- HAS TO BE EXCLUDE D FROM THE BUSINESS INCOME OF THE ASSESSEE FOR COMPUTING T HE DEDUCTION AVAILABLE UNDER SECTION 36(1)(VIII) OF TH E ACT BECAUSE THE SAME WAS NOT DERIVED FROM THE BUSINESS OF LONG TERM HOUSING FINANCE AND THE DEDUCTION UNDER SECTIO N 36(1)(VIII) OF THE ACT IS AVAILABLE ONLY WITH RESPE CT TO THE INCOME EARNED BY THE ASSESSEE FROM LONG TERM HOUSIN G FINANCE. THE LEARNED ASSESSING OFFICER RELIED IN V ARIOUS DECISIONS OF THE HIGHER JUDICIARY WHILE ARRIVING AT HIS CONCLUSION, SOME OF WHICH ARE CITED HEREIN BELOW FO R REFERENCE:- 9 ITA NO.10 TO 13 /MDS/2016 I) CIT VS. CAMBAY ELECTRICAL SUPPLY INDL. COMPANY L TD. VS. 134 ITR 84 (SC) & CIT VS. STERLING FOOD REPORTED I N 237 ITR 597 & PANDIAN CHEMICALS REPORTED IN 233 ITR 497 (MAD) WHEREIN THE EXPRESSION DERIVED FROM AND ATTRIBUT ABLE TO WAS VIVIDLY EXPLAINED. II) TUTICORIN ALKALIS CHEMICALS & FERTILIZERS REPO RTED IN 227 ITR 172(SC), SESHASAYEE PAPER & BOARDS LTD., REPORT ED IN 156 ITR 542, WHEREIN IT WAS HELD THAT THE INTERES T RECEIVED FROM SURPLUS FUNDS OF THE COMPANY KEPT IN SHORT TE RM DEPOSIT SHALL BE TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. ACCORDINGLY, THE LEARNED ASSESSING OFFICER EXCLUDE D THE INTEREST INCOME EARNED BY THE ASSESSEE WHILE COMPUT ING THE DEDUCTION UNDER SECTION 36(1)(VIII) OF THE ACT. 6.2 ON APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) FOLLOWING THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.1048 & 787/MDS/2000 D ATED 29.02.2008 CONFIRMED THE ORDER OF THE LEARNED ASSES SING OFFICER. 10 ITA NO.10 TO 13 /MDS/2016 6.3 THE LEARNED AUTHORIZED REPRESENTATIVE COULD NOT CONTROVERT THESE FACTS. SINCE THE TRIBUNAL HAS ALRE ADY DECIDED THE ISSUE IN THE ASSESSEES OWN CASE INCONF ORMITY WITH THE ORDER OF THE LEARNED ASSESSING OFFICER, WH O HAD METICULOUSLY ANALYZED THE ISSUE AND BY RELYING IN T HE VARIOUS DECISIONS OF THE HONBLE APEX COURT HELD THE MATTER AGAINST THE ASSESSEE, WE DO NOT FIND IT NECESSARY TO INTERF ERE WITH THE ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) ON THIS ISSUE. THUS, THIS MATTER IS ALSO DECIDED A GAINST THE ASSESSEE. ITA NO.12/MDS/2016 (ASSESSMENT YEAR : 2006-07): GROUND NO.1 : DISALLOWANCE OF DEPRECIATION: 7. THE LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD CLAIMED DEPRECIATION ON THE BUILDING W HICH WAS LET OUT. IT WAS ALSO OBSERVED THAT THE ASSESSEE HAD RECEIVED AGGREGATE RENT OF RS.5,60,481/- DURING THE RELEVAN T ASSESSMENT YEAR FROM THE ABOVE SAID PROPERTY AND TH E SAME WAS OFFERED TO TAX UNDER THE HEAD INCOME FROM HOUS E PROPERTY. SINCE DEPRECIATION WAS NOT ALLOWABLE IN REGARD TO THE PROPERTY WHICH IS LET OUT AND NOT USED FOR THE BUSINESS OF 11 ITA NO.10 TO 13 /MDS/2016 THE ASSESSEE, THE LEARNED ASSESSING OFFICER DENIED THE DEPRECIATION CLAIMED BY THE ASSESSEE AMOUNTING TO RS.1,71,833/-. 7.1 ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ORDER OF THE LEARNED ASSESS ING OFFICER BY FOLLOWING THE DECISION OF THE TRIBUNAL I N THE ASSESSEES OWN CASE IN ITA NO.167/07-08 DATED 25.08 .2010. IN THIS SITUATION, WE ALSO DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDER OF THE LEARNED COMMISSIONER OF INCOM E TAX (APPEALS). ACCORDINGLY, THIS ISSUE IS ALSO DECIDED AGAINST THE ASSESSEE. GROUND NO.2 - INTEREST EARNED ON ICD, FD & IT REFUND AS INCOME FROM OTHER SOURCES: 8. THIS IDENTICAL ISSUE IS DECIDED AGAINST THE ASSE SSEE IN PARA NO.6 TO 6.3 FOR THE ASSESSMENT YEAR 2004-05 HE REIN ABOVE. FOLLOWING THE SAME FOR THE RELEVANT ASSESSME NT YEAR ALSO THE MATTER IS DECIDED AGAINST THE ASSESSEE. ITA NO.13/MDS/2016 (ASSESSMENT YEAR : 2007-08): GROUND NO.1 : DISALLOWANCE OF DEPRECIATION: 12 ITA NO.10 TO 13 /MDS/2016 9. THIS IDENTICAL ISSUE IS DECIDED AGAINST THE ASSE SSEE IN PARA NO.7 & 7.1 FOR THE ASSESSMENT YEAR 2006-07 H EREIN ABOVE. FOLLOWING THE SAME FOR THE RELEVANT ASSESSME NT YEAR ALSO THE ISSUE IS DECIDED AGAINST THE ASSESSEE. GROUND NO.2 - DISALLOWANCE U/S.14A R.W.R 8D: 10. THIS IDENTICAL ISSUE IS DECIDED AGAINST THE ASS ESSEE IN PARA NO.5 HEREIN ABOVE FOR THE ASSESSMENT YEAR 20 02-03 HEREIN ABOVE. FOLLOWING THE SAME FOR THE RELEVANT ASSESSMENT YEAR ALSO THE MATTTER IS DECIDED AGAINST THE ASSESSEE. 11. IN THE RESULT, ALL THE FOUR APPEALS FILED BY TH E ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 28 TH APRIL, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 28 TH APRIL, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF