Murugappa Management Services Limited, CHENNAI V. ACIT Corporate Circle 4(3), CHENNAI

ITA 1176/CHNY/2019

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1797 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 23-04-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A SUNDARARAJAN
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Depreciation; Earning of tax free income; Revenue expenditure; Rule 8D
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: CHENNAI , ' # $ # % . ' '( , ) * BEFORE SHRI INTURI RAMA RAO, AC COUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ ITA NOS.1176 & 1177/CHNY/2019 ) + ,+ /ASSESSMENT YEARS: 2013-14 & 2014-15 M/S. MURUGAPPA MANAGEMENT SERVICES LTD., GROUND FLOOR, DATE HOUSE NO.234, NSC BOSE ROAD, CHENNAI 600 001. VS. ASST. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-4(3), CHENNAI. [PAN: AAACT 1164F] ( -. /APPELLANT) ( /0-. /RESPONDENT) -. 1 2 / APPELLANT BY : SHRI R. VIJAYARAGHAVAN, ADV. /0-. 1 2 /REVENUE BY : SHRI A. SUNDARARAJAN, ADDL. CIT # 1 3 /DATE OF HEARING : 11.11.2019 45, 1 3 / DATE OF PRONOUNCEMENT : 21.11.2019 6 / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER : THESE TWO APPEALS FILED BY THE ASSESSEE AGAINST THE COMMON ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)-8, CHENNAI (HEREINAFTER CALLED AS CIT(A)) DATED 01.02.2019 F OR THE ASSESSMENT YEARS (AYS) 2013-14 & 2014-15. ITA NOS.1176 & 1177/CHNY/2019 :- 2 -: 2. SINCE, THE IDENTICAL FACTS AND ISSUES ARE INVOLV ED IN THESE APPEALS, WE PROCEED TO DISPOSE THE SAME VIDE THIS COMMON ORD ER. 3. FOR THE SAKE OF CONVENIENCE AND CLARITY THE FACT S RELEVANT IN ITA NO.1176/CHNY/2019 FOR ASSESSMENT YEAR 2013-14 ARE S TATED HEREIN. 4. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APP EAL IN ITA NO.1176/CHNY/2019: 1. THE ORDER OF THE COMMISSIONER OF INCOMETAX (APP EALS) IS CONTRARY TO LAW, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE COMMISSIONER OF INCOMETAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENDITURE TOWARDS INTER FACE COMM UNICATIONS AMOUNTING TO RS.2,62,47,445/- AS CAPITAL IN NATURE AND ALLOWED DEPRECIATION 25%. 2.1 THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THE APPELLANT HAS INCURRED THIS EX PENDITURE TOWARDS PRODUCTION, OF ADVERTISEMENT CONTENT AND SHOULD BE ALLOWED AS REVENUE EXPENDITURE. 2.2 THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT THIS EXPENDITURE WAS INCURRED ON B EHALF OF THE GROUP COMPANIES AND SAME WAS REIMBURSED BY THE COMPANIES AND HENCE EXPENDITURE IS NOT CAPITAL IN NATURE. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N CONFIRMING THE DISALLOWANCE U/S 14A R.W.R 8D AMOUNTING TO RS.2,65, 167/-. 3.1 THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE APPRECIATED THAT DURING THE YEAR THE APPELLANT HAS NOT RECEIVED ANY DIVIDEND INCOME HENCE NO DISALLOWANCE IS CALLED FOR U/S 14A BY APPLYING RULE 8D. APPELLANT RELIES ON THE DECISION OF MADRAS HIGH COURT IN THE CASE OF M/S. REDINGTON INDIA LIMITED ( 77 TAXMAN.COM 257(MAD). 4. THE APPELLANT CRAVES LEAVE TO FILE ADDITIONAL GR OUNDS AT THE TIME OF HEARING. ITA NOS.1176 & 1177/CHNY/2019 :- 3 -: 5. THE BRIEF FACTS OF THE CASE ARE AS UNDER: THE APPELLANT NAMELY M/S. MURUGAPPA MANAGEMENT SER VICES LTD., IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF T HE COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF CONSULTANCY SERVICES FOR ITS GROUP OF COMPANIES. THE RETURN OF INCOME FOR THE AY 2013 -14 WAS FILED ON 27.09.2013 DISCLOSING TOTAL INCOME OF RS. 1,67,39,2 10/-. AGAINST THE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED BY T HE ASST. CIT, CORPORATE CIRCLE-4(1), CHENNAI (HEREINAFTER CALLED AO) VIDE ORDER DATED 24.03.2016 PASSED U/S. 143(3) R/W S. 92CA(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) AT TOTAL INCOME OF RS. 11 ,49,17,480/-. WHILE DOING SO, THE AO MADE THE FOLLOWING DISALLOWANCES: INCOME RETURNED RS. 1,67,39,210/- ADD: DISALLOWANCE OF CONSULTATION FEE RS. 7,77,05,822/- DISALLOWANCE OF LEASE HIRE CHARGES RS. 5,21,697/- DISALLOWANCE OF EXPENDITURE RS.2,62,47,445/- LESS: ALLOW DEPRECIATION (RS. 65,61,861/-) DISALLOWANCE U/S. 14A RS. 2,65,167/- -------------------------- RS. 9,81,78,270/- -------------------------- ASSESSED INCOME RS. 11,49,17,480/- -------------------------- 6. BEING AGGRIEVED, AN APPEAL WAS PREFERRED BEFORE LD. CIT(A), WHO VIDE IMPUGNED ORDER DIRECTED THE AO TO DELETE THE A DDITION ON ACCOUNT OF DISALLOWANCE OF CONSULTANCY FEE FOLLOWING THE DECIS ION OF THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.2992/MDS/2016 FOR AY 2012-13 FOR EARLIER YEARS. HOWEVER, THE LD. CIT(A) CONFIRMED T HE ADDITION MADE U/S. ITA NOS.1176 & 1177/CHNY/2019 :- 4 -: 14A OF THE ACT AND THE DISALLOWANCE OF EXPENDITURE INCURRED TOWARDS OF TV FILMS HOLDING THAT IT TO BE AS CAPITAL EXPENDITU RE. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US IN THE PRESENT APPE AL. 7. GROUNDS OF APPEAL NOS. 1 & 4 ARE GENERAL IN NAT URE DO NOT REQUIRE ANY ADJUDICATION. GROUNDS OF APPEAL NO.2 CHALLENGE D THE DECISION OF LD. CIT(A) CONFIRMING THE ACTION OF AO INCURRING EXPEND ITURE TOWARDS OF PRODUCTION OF TV FILMS HOLDING IT TO BE CAPITAL EXP ENDITURE. IT IS SUBMITTED BEFORE US THAT THE LOWER AUTHORITIES HAD NOT APPREC IATED THE NATURE OF THE TRANSACTION AS THE EXPENDITURE WAS INCURRED TOWARDS PRODUCTION OF ADVERTISEMENT CONTENT IN A TV FILM COST OF WHICH IS RECOVERED FROM THE ASSOCIATED COMPANIES AND OFFERED TO TAX. ON THE OT HER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE PLACED RELIANCE ON THE ORDERS OF LOWER AUTHORITIES. 8. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THE EXPENDITURE INCURRED IN QUESTION WAS ADMITTEDLY INCURRED ON POPULARIZING THE MURUGAPPA BRAND IN THE FORM O F TV FILM. THE PLEA THAT THE EXPENDITURE WAS INCURRED ON BEHALF OF ITS GROUP CONCERN, WHICH THE APPELLANT BELONGS TO. IT WAS RECOVERED FROM THE GROUP CONCERN. THEREFORE, THE QUESTION OF DISALLOWANCE DOES NOT AR ISE IS NOT BORN OUT OF THE MATERIAL ON RECORD. IT IS ALTOGETHER NEW PLEA WHICH REQUIRES ITA NOS.1176 & 1177/CHNY/2019 :- 5 -: VERIFICATION OF FACTS AND IN THE ABSENCE OF SPECIFI C GROUNDS OF APPEAL, IN ABSENCE OF AN APPLICATION ON ADMISSION, THIS NEW GR OUND OF APPEAL, THE TRIBUNAL CANNOT ENTERTAIN THIS PLEA. THEREFORE, TH IS GROUND OF APPEAL CANNOT BE ENTERTAINED. AS REGARDS, TO THE CONTENTIO N OF APPELLANT THAT THE EXPENDITURE SHOULD BE ALLOWED AS REVENUE. THIS GRO UND OF APPEAL RUNS COUNTER TO THE SUBMISSION OF THE ASSESSEE THAT THE EXPENDITURE WAS INCURRED ON BEHALF OF THE SISTER CONCERN OF THE APP ELLANT. THIS CONTENTION ALSO CANNOT BE ALLOWED FOR THE REASON THAT THE MONE Y WAS NOT EXPENDED FOR THE PURPOSE OF ASSESSEES BUSINESS AND THEREFOR E, WE DO NOT FIND ANY MERIT IN THE CONTENTION OF THE APPELLANT. ACCORDIN GLY, THIS GROUND OF APPEAL IS DISMISSED. 9. GROUND OF APPEAL NO.3 CHALLENGES THE DECISION OF THE LOWER AUTHORITIES CONFIRMING THE ADDITION OF RS. 2,65,167 /-. THE AO MADE A DISALLOWANCE OF RS. 2,65,167/- U/S. 14A OF THE ACT R/W R. 8D OF THE INCOME TAX RULES. THE CONTENTION OF THE APPELLANT THAT NO DIVIDEND INCOME WAS EARNED AND THEREFORE, THE PROVISION OF S. 14A OF TH E ACT CANNOT BE INVOKED WAS NOT ACCEPTED BY THE LOWER AUTHORITIES O N THE GROUND THAT THE DECISION OF HONBLE HIGH COURT OF MADRAS IN THE CAS E OF REDINGTON INDIA LTD. VS. ACIT [2017] 392 ITR 633 (MAD) IS BEING CHALLENGED BEFORE THE HON'BLE SUPREME COURT. NOW, IT IS WELL SETTLED LAW THAT THE PROVISIONS OF S. 14A OF THE ACT CANNOT BE APPLIED IN CASES WHERE THE ASSESSEE HAS NOT ITA NOS.1176 & 1177/CHNY/2019 :- 6 -: EARNED ANY EXEMPT INCOME. IN THE LIGHT OF THIS SET TLED POSITION OF LAW, WE DIRECT THE AO TO DELETE THE ADDITION U/S. 14A OF TH E ACT. ACCORDINGLY, THIS GROUND OF APPEAL IS PARTLY ALLOWED. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO.1176/CHNY/2019 FOR ASSESSMENT YEAR 2013-14 IS PA RTLY ALLOWED. ITA NO.1177/CHNY/2019 FOR ASSESSMENT YEAR 2014-15: 11. THE ISSUE IN THE PRESENT APPEAL RELATES TO THE ADDITION U/S. 14A OF THE ACT. ADMITTEDLY, THE ASSESSEE HAD NOT EARNED A NY EXEMPT INCOME DURING THE YEAR RELEVANT TO THE PREVIOUS YEAR UNDER CONSIDERATION. NOW, IT IS SETTLED POSITION OF LAW THAT THE HONBLE JURISDI CTIONAL HIGH COURT IN THE CASES OF REDINGTON (INDIA) LTD. VS. ACIT [2017] 392 ITR 633 (MAD) AND CHETTINAD LOGISTICS PVT. LTD. 248 TAXMAN 55 (MAD) HAD HELD THAT IN THE ABSENCE OF EXEMPT INCOME, THE PROVISIONS OF S. 14A OF THE ACT CANNOT BE TRIGGERED. KEEPING IN VIEW OF THE ABOVE LEGAL POSIT ION, WE HELD THAT NO PROVISIONS OF S. 14A OF THE ACT CAN BE MADE. 12. IN THE RESULT, APPEAL IN ITA NO.1177/CHNY/2019 FOR ASSESSMENT YEAR 2014-15 IS ALLOWED. ITA NOS.1176 & 1177/CHNY/2019 :- 7 -: 13. IN THE RESULT, APPEAL IN ITA NO.1176/CHNY/2019 FOR ASSESSMENT YEAR 2013-14 FILED BY THE ASSESSEE IS PARTLY ALLOWE D AND APPEAL IN ITA NO.1177/CHNY/2019 FOR ASSESSMENT YEAR 2014-15 FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THE 21 ST DAY OF NOVEMBER, 2019 IN CHENNAI. SD/- SD/- ( . ) (DUVVURU RL REDDY) /JUDICIAL MEMBER ( ) (INTURI RAMA RAO) /ACCOUNTANT MEMBER /CHENNAI, 7 /DATED: 21 ST NOVEMBER, 2019. EDN, SR. P.S 6 1 /)389 :9,3 /COPY TO: 1. -. /APPELLANT 2. /0-. /RESPONDENT 3. # ;3 ( )/CIT(A) 4. # ;3 /CIT 5. 9<= /)3) /DR 6. =(+ > /GF