K.Dhandapani & Co.Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1133/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64387 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 04-10-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 22-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Earning of tax free income; Revenue expenditure; Reassessment proceedings
• Section: 143(3); 14A; 148; 11

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL B BENCH, CHENNAI. BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER & SHRI S.S. GODARA, JUDICIAL MEMBER I.T.A. NOS.1131, 1132, 1133 AND 1134/MDS/2012 ASSESSMENT YEARS : 2002-03, 03-04, 04-05 & 06-07 M/S. K. DHANDAPANI & CO. LTD., C-20, T.V.K. INDUSTRIAL ESTATE, GUINDY, CHENNAI 600 032. [PAN:AAACK1318C] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(4), CHENNAI 34. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S. SRIDHAR, ADVOCATE RESPONDENT BY : SHRI GURU BASHYAM, JCIT DATE OF HEARING : 0 4 . 1 0 .201 2 DATE OF PRONOUNCEMENT : 10.10.2012 ORDER PER S.S. GODARA, JUDICIAL MEMBER THESE FOUR APPEALS HAVE BEEN PREFERRED BY THE ASSE SSEE AGAINST DIFFERENT ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) III, CHENNAI ALL DATED 12.03.2012 IN ITA NO. 385/09-10/A.III, IT A NO. 384/09-10/A.III, ITA NO. 778/06-07/A.III AND ITA NO. 655/08-09/A.III RES PECTIVELY, FOR THE ASSESSMENT YEARS 2002-03, 2003-04, 2004-05 AND 2006 -07 IN PROCEEDINGS UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME TAX A CT 1961 [IN SHORT THE ACT]. 2. DURING THE COURSE OF HEARING, THE AR OF THE ASS ESSEE HAS FAIRLY STATED I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .1 11 1131 TO 1134 131 TO 1134 131 TO 1134 131 TO 1134/M/ /M/ /M/ /M/12 1212 12 2 THAT IN I.T.A. NOS. 1131, 1133 & 1134/MDS/2012 THE ISSUE INVOLVED IS IDENTICAL WITH RESPECT TO DISALLOWANCE OF EXPENDITU RE UNDER SECTION 14A OF THE ACT. HE HAS FURTHER SUBMITTED THAT IN ALL THE THREE CASES, THE CIT(A) HAS ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFI CER IN RESPECT OF THE EXPENDITURE IN EARNING EXEMPT INCOME UNDER SECTION 14A OF THE ACT. ON THE OTHER HAND, THE DR HAD SUPPORTED THE ORDERS OF THE CIT(A) AND FINDINGS CONTAINED THEREIN. IN VIEW OF THE FACT THAT THE PAR TIES BEFORE US ARE AT VARIANCE IN THEIR RESPECTIVE STANDS, WE FRAME THE F OLLOWING ISSUE IN ALL THE ABOVE THREE APPEALS FOR OUR ADJUDICATION: WHETHER THE CIT(A) HAS WRONGLY CONFIRMED THE DISAL LOWANCE OF EXPENDITURE UNDER SECTION 14A OF THE ACT AS MADE BY THE ASSESSING OFFICER? AS ALREADY STATED, SINCE THE ISSUE INVOLVED IN ALL THE ABOVE THREE CASES IS THE SAME, WE TAKE UP I.T.A. NO. 1131/MDS/2012 AS LEAD CASE. 3. THE FACTS OF THE CASE AS TAKEN FROM THE RECORD ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURI NG AND TRADING OF ELECTRICAL GOODS, WHO FILED ITS RETURN FOR THE ASSE SSMENT YEAR 2002-03 ON 31.10.2002 AND DECLARED ITS INCOME AS ` .NIL. THE ASSESSING OFFICER PASSED ASSESSMENT ORDER ON 29.03.2005 UNDER SECTION 143(3) OF THE ACT ASSESSING BOOK PROFIT AT ` .21,77,023/- AND DISALLOWED AN AMOUNT OF ` .63,55,000/- CLAIMED AS EXEMPT INCOME. THEREAFTER, THE ASSESSING OFFICER REOPENED THE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .1 11 1131 TO 1134 131 TO 1134 131 TO 1134 131 TO 1134/M/ /M/ /M/ /M/12 1212 12 3 ASSESSMENT BY ISSUING NOTICE UNDER SECTION 148 OF T HE ACT ON 23.03.2009 ON THE FOLLOWING GROUNDS: THE ASSESSEE HAD CLAIMED EXEMPTION U/S 10(33) TO T HE EXTENT OF ` .63,55,090/- TOWARDS DIVIDEND RECEIPTS. AS PER SEC. 14A OF THE I.T ACT ANY EXPENDITURE RELATING TO INCOME WHICH DOES NOT F ORM PART OF TAXABLE INCOME IS NOT AN ALLOWABLE DEDUCTION. IF THIS IS CO NSIDERED, THE CARRIED FORWARD LOSS WILL BE REDUCED. THE ASSESSEE HAS DEBITED ` . 51. 77 LAKHS AS EXCISE DUTY AS EXPENDITURE IN THE P&L A/C. BUT IN THE TOTAL TURNOVER OF ` .2129.48 LAKHS, NO QUANTUM OF SALES RETURN, EXCISE DUTY AND OTHER DETA ILS WERE FURNISHED. SINCE IN THE ASST. YEAR 2002-03 AND 2003-04 THE ASS ESSEE HAS DEDUCTED EXCISE DUTY TWICE BOTH FROM THE SALES AND IN THE P& L A/C, IT IS CLEAR THAT THE ASSESSEE HAS DEDUCTED EXCISE DUTY TWICE. 4. THEREAFTER, THE ASSESSING OFFICER MADE DISALLOW ANCE OF ` .1,27,301/- BY HOLDING THAT CONSEQUENT TO CIT(A)S ORDER, THE D ISALLOWANCE OF EXPENDITURE WAS ADOPTED AT THE RATE OF 2% OF ` .63,55,090/-. ACCORDINGLY, AN AMOUNT OF ` .1,27,301/- WAS DISALLOWED AND REDUCED FROM THE ASS ESSEES BOOK PROFITS. FURTHER, THE SAID AMOUNT WAS ALSO RED UCED FROM THE ASSESSEES TOTAL LOSS OF ` .32,67,955/-. 5. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL, WH EREIN THE DISALLOWANCE IN QUESTION MADE BY THE ASSESSING OFFI CER HAS BEEN CONFIRMED BY THE CIT(A) BY HOLDING AS UNDER: 5.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSIONS OF THE LD. AR. I HAVE GONE THROUGH THE DECISION RELIED ON BY THE LD. AR. THE APPELLANT HAS NOT GIVEN ANY DETAILS . IN ABSENCE OF RELEVANT DETAILS AND FAILURE ON PART OF ASSESSEE TO PROVE THAT THERE IS NO NEXUS BETWEEN THE EXEMPT INCOME AND EXPENDITURE DEB ITED TO PROFIT & LOSS ACCOUNT, IT IS NOT PROPER TO INTERFERE WITH TH E DISALLOWANCE MADE BY THE AO. IT CANNOT BE SAID THAT THE AO WAS NOT REASO NABLE IN TREATING 2 I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .1 11 1131 TO 1134 131 TO 1134 131 TO 1134 131 TO 1134/M/ /M/ /M/ /M/12 1212 12 4 PER CENT OF EXEMPT INCOME AS EXPENDITURE RELATABLE TO EXEMPT INCOME. HENCE, THE GROUND IS DISMISSED. THEREFORE, WE ARE SEIZED OF THE INSTANT APPEAL FILE D BY THE ASSESSEE. 6. THE AR FOR THE ASSESSEE HAS REFERRED TO THE FIN DINGS OF THE ASSESSING OFFICER AS WELL AS THE CIT(A) AND VEHEMENTLY ARGUED THAT IN THE ABSENCE OF ANY CONCLUSION REGARDING ANY EXPENDITURE INCURRED A ND EXEMPT INCOME EITHER BY THE ASSESSING OFFICER OR BY THE CIT(A), T HE DISALLOWANCE UNDER SECTION 14A OF THE ACT HAS BEEN WRONGLY CONFIRMED . HE HAS ALSO REFERRED TO CASE LAW [2010] 323 ITR 518 CIT V. HERO CYCLES LTD. (P&H) TO BUTTRESS HIS PLEA THAT BEFORE MAKING ANY DISALLOWANCE UNDER SECT ION 14A OF THE ACT, NEXUS BETWEEN THE EXPENDITURE INCURRED AND INCOME G ENERATED HAS TO BE PROVED. IN THE ALTERNATIVE, HE HAS PRAYED THAT THE ISSUE BE RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR DECISION AFRESH IN ACC ORDANCE WITH LAW SO AS TO DECIDE ABOUT THE LIVE NEXUS BETWEEN EXEMPT INCOME A ND ALLEGED EXPENDITURE. 7. OPPOSING THE ARGUMENTS LEAD BY THE AR, THE DR H AS STRONGLY SUPPORTED THE CIT(A)S ORDER AND PRAYED FOR UPHOLDI NG THE SAME. 8. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION ON T HE MATTER AND ALSO GONE THROUGH THE RELEVANT FINDINGS AND CASE LAW REF ERRED (SUPRA). IT EMERGES THAT IN THE INSTANT CASE, THE ASSESSING OFFICER HAS REOPENED THE ASSESSMENT I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .1 11 1131 TO 1134 131 TO 1134 131 TO 1134 131 TO 1134/M/ /M/ /M/ /M/12 1212 12 5 UNDER SECTION 148 R.W.S. 147 OF THE ACT. IT IS AL SO NOTICED THAT WHILST MAKING THE DISALLOWANCE AT THE RATE OF 2% OF THE EXPENDITU RE ATTRIBUTABLE TO EARNING EXEMPT INCOME UNDER SECTION 14A OF THE ACT, RELIA NCE HAS BEEN PLACED ON CIT(A)S ORDER. HOWEVER, NEITHER OF THE PARTIES BEF ORE US HAD BEEN ABLE TO PRODUCE COPY OF THE CIT(A)S ORDER AS RELIED UPON B Y THE ASSESSING OFFICER. FURTHER, THERE IS NO POSITIVE FINDING OF NEXUS BETW EEN ALLEGED EXPENDITURE AND ASSESSEES EXEMPT INCOME. FACED WITH THIS SITUA TION, WE DEEM IT APPROPRIATE THAT THE ISSUE DESERVES TO BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR DECISION AFRESH IN ACCORDANCE WITH LAW AFTER AFFORDING ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. IT IS ALSO CLARIFIED THAT THE ASSESSING OFFICER WOULD ALSO TAKE INTO CONSIDERATIO N THE CASE LAW AS CITED BY THE ASSESSEE (SUPRA) BEFORE US AS WELL AS THE ORDER OF THE CIT(A); IF ANY, WHILST DECIDING THE ISSUE AFRESH. SO THE APPEAL IS ACCEPTED FOR STATISTICAL PURPOSE. 9. IN VIEW OF THE FACT THAT THE PARTIES ARE IN UNI SON THAT ALL THE THREE APPEALS INVOLVE THE VERY SAME ISSUE, WE PASS THE SA ME ORDER IN I.T.A. NOS. 1133 AND 1134/MDS/2012 AS WELL. ACCORDINGLY, I.T.A. NOS. 1131, 1133 AND 1134/MDS/2 012 ARE ALLOWED FOR STATISTICAL PURPOSE. I.T.A. NO. 1132/MDS/2012 [A.Y.: 2003-04] 10. IN THIS CASE, THE ASSESSEE HAS CHALLENGED THE ORDER OF THE CIT(A) IN I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .1 11 1131 TO 1134 131 TO 1134 131 TO 1134 131 TO 1134/M/ /M/ /M/ /M/12 1212 12 6 HOLDING THAT THE SUM OF ` .27.47 LAKHS PAID BY THE ASSESSEE TOWARDS WORKERS SETTLEMENT PERTAINED TO EARLIER YEARS AS PRIOR PERI OD EXPENSES ON THE GROUND THAT THE SAID AMOUNT WAS SETTLED DURING THE RELEVAN T ASSESSMENT YEAR. 11. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HAD FILED ITS RETURN OF INCOME ON 25.11.2003 AND DECLARED LOSS OF ` .1,98,10,132/-. THE ASSESSING OFFICER PASSED ASSESSMENT ORDER UNDER SECTION 143(3 ) OF THE ACT ON 18.03.2006 AND ACCEPTED THE ASSESSEES LOSS RETURNE D. THEREAFTER, THE ASSESSING OFFICER ISSUED NOTICE UNDER SECTION 148 O F THE ACT AND REOPENED THE ASSESSMENT ON THE FOLLOWING GROUNDS: - IN THE COMPUTATION OF INCOME, A SUM OF ` .27,47,463/- HAS BEEN DEDUCTED AS DEFERRED REVENUE EXPENDITURE. THE ABOVE EXPENDITURE IS NOT AN ALLOWABLE EXPENDITURE UNDER THE PROVISIONS OF TH E I. T. ACT. - THE ASSESSEE HAS WRITTEN OFF A SUM OF ` .2,40,000/- TOWARDS GOODWILL. - THE ASSESSEE HAD DELETED A SUM OF ` .24,51,000/- FROM THE TOTAL VALUE OF LAND HELD, HOWEVER NO CAPITAL GAIN WAS OFFERED AS I NCOME. - THE ASSESSEE HAS DEBITED ` .70.14 LAKHS AS EXCISE DUTY AS EXPENDITURE IN THE P&L A/C. BUT IN THE TOTAL TURNOVER OF ` .2050 LAKHS, THE ASSESSEE HAS NOT INCLUDED THE EXCISE DUTY OF ` .70.14 LAKHS AND HAS DEDUCTED THE SAME FROM THE GROSS TURNOVER. HENCE, THE DEDUCTION HAS B EEN MADE TWICE. IN REASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD DEDUCTED AN AMOUNT OF ` .27.47 LAKHS IN THE COMPUTATION STATEMENT IN THE NATURE OF DEFERRED REVENUE EXPENDITURE. THE ASS ESSEE SUPPORTED THE SAME VIDE LETTER DATED 11.12.2009 STATING THEREIN T HAT THE SAID AMOUNT WAS, IN FACT, EXPENSES INCURRED QUA SETTLEMENT OF DUES T O WORKERS, WHICH HAD I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .1 11 1131 TO 1134 131 TO 1134 131 TO 1134 131 TO 1134/M/ /M/ /M/ /M/12 1212 12 7 BEEN CLAIMED AS EXPENSES IN THE COMPUTATION STATEME NT. THE ASSESSING OFFICER VIDE ORDER DATED 30.12.2009 DISALLOWED THE SAID AMOUNT BY HOLDING THAT THE ASSESSEE HAD FAILED TO PROVE THAT THE LIAB ILITY IN QUESTION PERTAINED TO THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSME NT YEAR. PER ASSESSING OFFICER, THE SAME COULD NOT HAVE BEEN CLAIMED AS DE FERRED REVENUE EXPENDITURE. ACCORDINGLY, THE ABOVE SAID CLAIM WAS DISALLOWED AND ADDED BACK IN ASSESSEES INCOME. 12. IN APPEAL AS WELL, THE CIT(A) HAS CONFIRMED AS SESSING OFFICERS FINDING BY OBSERVING HEREIN BELOW: 4.1 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSIONS OF THE LD. AR. THE LD. AR HAS NOT FILED COPY OF ANY AGREEMENT BETWEEN THE WORKERS AND THE MANAGEMENT TO PROVE THAT THE DISPUTE WAS SETTLED DURING THE YEAR. IN ABSENCE OF THE AGREEMENT OR MOU, THE TERMS AND CONDITIONS OF SETTLEMENT CANNOT BE VERIFIED. THE AMOUNT CLAIMED BY THE APPELLANT CANNOT ALSO BE VERI FIED IN ABSENCE OF SUCH DETAILS. THE DETAILS WERE NOT GIVEN BEFORE THE AO OR THE UNDERSIGNED. IN ABSENCE OF THE NECESSARY DETAILS, I T IS NOT POSSIBLE TO ACCEPT THAT THE LIABILITY HAS ACCRUED AND CRYSTALLI ZED DURING THE YEAR. HENCE, THE GROUND IS DISMISSED. HENCE, THE ASSESSEE IS AGGRIEVED. 13. REITERATING THE PLEA RAISED BEFORE THE AUTHORI TIES BELOW, THE AR HAS VEHEMENTLY ARGUED THAT THE CIT(A) HAS WRONGLY CONFI RMED THE AOS FINDING QUA THE ISSUE INVOLVED IN THE INSTANT APPEAL. HE HA S FURTHER SUBMITTED THAT THE AMOUNT IN QUESTION WAS, IN FACT, SETTLEMENT QUA PAYMENT MADE BY THE ASSESSEE TO ITS WORKERS IN FURTHERANCE TO SETTLEMEN T OF DUES, WHICH WAS A I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .1 11 1131 TO 1134 131 TO 1134 131 TO 1134 131 TO 1134/M/ /M/ /M/ /M/12 1212 12 8 CERTAIN LIABILITY. HE HAS ALSO CONTENDED THAT THE A SSESSEE HAD WRITTEN OFF THE SAID EXPENDITURE IN ITS BOOKS OVER A PERIOD OF 5 YE ARS. HE HAS ALSO STATED THAT, IN PRINCIPLE, THE AUTHORITIES BELOW HAVE NOT DISPUTED THE ASSESSEES CLAIM. PER HIM, THE ONLY REASON FOR REJECTING THE C LAIM CITED BY THE ASSESSING OFFICER AS WELL AS CIT(A) IS THAT THE ASSESSEE HAS NOT BEEN ABLE TO PROVE ITS CLAIM. WITH REFERENCE TO THE SAME, THE AR HAS SUBMI TTED THAT THE ASSESSING OFFICER BE DIRECTED TO GRANT THE ASSESSEE ONE MORE OPPORTUNITY TO PROVE ITS CASE BY WAY OF COGENT EVIDENCE. IN THIS MANNER, ACC EPTANCE OF THE APPEAL HAS BEEN PRAYED BY LD. AR. 14. ON BEHALF OF THE REVENUE, THE DR HAS CHOSEN TO PLACE RELIANCE ON THE ORDER OF THE CIT(A) AND PRAYED FOR REJECTION OF THE APPEAL. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND A LSO GONE THROUGH THE RELEVANT FINDINGS OF THE ASSESSING OFFICER AS WELL AS CIT(A) QUA THE ISSUE IN HAND. IT TRANSPIRES THAT BEFORE THE ASSESSING OFFIC ER AS WELL AS THE CIT(A), THE ASSESSEE HAS CLAIMED THE AMOUNT IN QUESTION AS DEFERRED REVENUE EXPENDITURE ON THE GROUND THAT THE SAME WAS PAID TO ITS WORKERS IN FURTHERANCE TO A SETTLEMENT ARRIVED AT BETWEEN THEM . IT IS ALSO NOTICED THAT NEITHER BEFORE THE ASSESSING OFFICER NOR THE CIT(A) , THE ASSESSEE FILED ANY COGENT DETAILS IN SUPPORT OF THE CLAIM OF ` .27.47 LAKHS. WE FIND FROM THE ASSESSMENT ORDER THAT THE ASSESSEE HAS ONLY REFERRE D TO ITS COMPUTATION STATEMENT AND THERE IS NO OTHER MATERIAL REFERRED I N SUPPORT OF THE SAME. IN APPEAL AS WELL BEFORE THE CIT(A), NO EVIDENCE WHATS OEVER WAS LEAD BY THE I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .1 11 1131 TO 1134 131 TO 1134 131 TO 1134 131 TO 1134/M/ /M/ /M/ /M/12 1212 12 9 ASSESSEE. IT IS NOT THE CASE OF THE ASSESSEE THAT T HE AUTHORITIES BELOW DID NOT AFFORD ADEQUATE OPPORTUNITY OF HEARING EITHER T O RAISE THE CLAIM OR TO PROVE THE SAME. IT IS BORNE OUT FROM THE RECORD THA T DESPITE THE FACT THAT THE ASSESSING OFFICER HAD REJECTED THE ASSESSEES CLAIM FOR WANT OF DETAILS, THE ASSESSEE DID NOT MAKE ANY EFFORT TO PRODUCE THE SAM E BEFORE THE CIT(A) AS WELL. IN VIEW THEREOF, WE SEE NO JUSTIFICATION TO G RANT THE ASSESSEE ONE MORE INNINGS TO PROVE ITS CASE; THAT TOO AT THIS BELATED STAGE. BE THAT IT MAY, IT IS FOR THE CONCERNED ASSESSEE TO RAISE ITS CLAIM AS WE LL AS AND TO PROVE IT IN ACCORDANCE WITH LAW. IT IS A TRITE PROPOSITION OF L AW THAT IN THE ABSENCE OF SUBSTANTIATION, A CLAIM RAISED BY AN ASSESSEE CANNO T BE ACCEPTED. IN VIEW OF THE SAME, WE FIND NO JUSTIFICATION EITHER TO INTERF ERE IN THE FINDINGS OF THE CIT(A) OR TO RESTORE THE ISSUE BACK TO THE ASSESSIN G AUTHORITY. ACCORDINGLY, WE UPHOLD THE DISALLOWANCE OF ` .27,47 LAKHS AS MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A). 16. TO SUM UP, I.T.A. NOS. 1131, 1133 AND 1134/MDS /2012 ARE ACCEPTED FOR STATISTICAL PURPOSE AND I.T.A. NO. 1132/MDS/201 2 STANDS DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 10 TH OF OCTOBER, 2012 AT CHENNAI. SD/- SD/- (N.S. SAINI) ACCOUNTANT MEMBER (S.S. GODARA) JUDICIAL MEMBER CHENNAI, DATED, THE 10.10.2012 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.