Neelamalai Agro Industries Limited, CHENNAI V. ACIT, CHENNAI

ITA 1224/CHNY/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4562 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 11 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 07-03-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 07-05-2014
• Court: TRIBUNAL
• Department Lawyers: JAIRAM RAIPURA
• Assessee Lawyers: R MEENAKSHISUNDARAM
• Section: 14A; 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: CHENNAI . . . , !.. $ , ) BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.1224/MDS/2014 * * /ASSESSMENT YEAR: 2009-10 M/S.NEELAMALAI AGRO INDUSTRIES LTD., 64, RUKMANI LAKSHMIPATHI SALAI, EGMORE, CHENNAI 600 008. VS. THE ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-IV(4), CHENNAI-600 034. [PAN: AAACN 1143 N ] ( - /APPELLANT) ( ./- /RESPONDENT) - 0 / APPELLANT BY : MR.R.MEENAKSHISUNDARAM, ADV. ./- 0 /RESPONDENT BY : MR.JAIRAM RAIPURA, CIT 0 /DATE OF HEARING : 07.03.2017 0 /DATE OF PRONOUNCEMENT : 03.05.2017 / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER DATED 26.03.2014 OF COMMISSIONER OF INCOME TAX-IV, CHENNA I, IN C.NO.1321(1)/CIT-IV/2013-14 FOR THE AY 2009-10 AND RAISED THE FOLLOWING GROUNDS: ITA NO.1224/MDS/2014 :- 2 -: 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX, CHENNA I-IV DATED 26TH MARCH, 2014 PASSED UNDER SECTION 263 OF THE ACT DIRECTING THE A SSESSING OFFICER TO DISALLOW A SUM OF RS.12,51,353/- UNDER SECTION 14A OF THE ACT AS AGAINST THE DISALLOWANCE OF RS.4,32,426/- MADE BY THE APPELLANT, THUS DIRECTING FURTHER DISALLOWANCE OF RS.8,18,927/- IS WITHOUT JURISDICTION, AGAINST THE PROVISIONS OF LAW AND CONTRARY TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE COMMISSIONER OF INCOME TAX SHOULD HAVE FOUND TH AT EVEN AFTER INTRODUCTION OF SECTION 14A OF THE ACT AND THE CONDITIONS PRESCRIBE D UNDER RULE 8D INTRODUCED SUBSEQUENTLY, UNLESS A SPECIFIC FINDING IS GIVEN TH AT EXPENDITURE HAVE BEEN INCURRED FOR EARNING TAX-FREE INCOME, NO DISALLOWANCE CAN BE MADE BY TAKING RECOURSE TO SECTION 14A OF THE ACT A HAS BEEN HELD IN A NUMBER OF DECISIONS, BOTH BY HIGH COURTS AS WELL AS TRIBUNAL. 3. THE COMMISSIONER OF INCOME TAX SHOULD HAVE FOUND TH AT IN THE APPELLANTS CASE, THE FINANCIAL COST REPRESENTS INTEREST ON WORKING C APITAL LOAN WHICH IS DIRECTLY RELATABLE TO THE INCOME FROM BUSINESS CHARGEABLE TO TAX AND CONSEQUENTLY, NO DISALLOWANCE IN RESPECT THEREOF SHOULD HAVE BEEN MA DE BY TAKING RECOURSE TO SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INC OME TAX RULES. 4. THE COMMISSIONER OF INCOME TAX SHOULD HAVE FOUND TH AT IN THE LIGHT OF THE DECISION OF THE C BENCH OF THIS HONBLE TRIBUNAL DATED 7TH NOVEMBER 2013 IN ITA NO.305/MDS/2013, ALSO RELATING TO ASSESSMENT YEAR 200 9-2010, IT IS NOT PERMISSIBLE TO MAKE ANY DISALLOWANCE UNDER SECTION 14A OF THE ACT UNLESS THE ASSESSING OFFICER PROVES THAT THERE A DIRECT NEXUS B ETWEEN THE INVESTMENT AND THE EXPENDITURE. 5. WITHOUT PREJUDICE TO THE ABOVE CONTENTION, THE COMM ISSIONER OF INCOME TAX SHOULD HAVE FOUND THAT IN THE LIGHT OF THE DECISION OF THE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL COMPANY LIMITED VS. CIT [243 ITR 83] AND CIT VS. MAX INDIA LIMITED [295 ITR 282], WHERE THERE ARE TWO POSSIBLE VIEWS, THE COMMISSIONER CANNOT ASSUME JURISDICTION UNDER SECTION 263 OF THE ACT TO REVISE THE ORDER OF THE ASSESSING OFFICER WHICH HAS BEEN MADE AFTER DETAILED ENQUIRY. 6. IT IS SUBMITTED THAT IN THE LIGHT OF THE ABOVE SUBM ISSIONS, THE ORDER OF THE COMMISSIONER OF INCOME TAX, CHENNAI-IV DATED 26TH M ARCH 2014 PASSED UNDER SECTION 263 OF THE ACT, IS WITHOUT JURISDICTION, AG AINST THE PROVISIONS OF LAW AND CONTRARY TO THE FACTS AND CIRCUMSTANCES OF THE CASE . FOR THESE REASONS AND FOR ANY OTHER REASON THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE HONBLE TRIBUNAL MAY BE PLEASED TO DIRECT THAT THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) TO THE EXTENT A GITATED HEREIN IS NOT IN ACCORDANCE WITH LAW AND FACTS AND CIRCUMSTANCES OF THE CASE AN D ALLOW THE APPELLANTS CONTENTION. 2.0 ALL THE GROUNDS OF THE APPEAL ARE RELATED TO THE ORDERS PASSED BY THE COMMISSIONER OF INCOME TAX (IN SHORT CIT) U/S .263 OF INCOME TAX ACT (IN SHORT THE ACT). IN THIS CASE, THE ASSESS EE HAS FILED THE RETURN OF INCOME ADMITTING TOTAL INCOME OF RS.33,69,191/- ON 26.09.2009. THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT W AS COMPLETED U/S.143(3) ACCEPTING INCOME RETURNED. SUBSEQUENT T O THE COMPLETION OF ASSESSMENT, THE CIT PERUSED THE RECORDS AND FOUND T HAT THE ASSESSEE WAS ITA NO.1224/MDS/2014 :- 3 -: IN RECEIPT OF DIVIDEND INCOME OF RS.1,93,96,172/- A ND IT HAD DISALLOWED 2% OF DIVIDEND INCOME AMOUNTING RS.4,36,426/- TOWAR DS EXPENDITURE U/S.14A OF THE INCOME TAX ACT. FOR THE AY 2009-10, RULE 8D IS APPLICABLE IN RELATION TO EARNING OF THE EXEMPTED INCOME. THE DISALLOWANCE U/S.14A R/W RULE 8D WORKED OUT TO RS.12,51,353/- AS AGAINST THE DISALLOWANCE MADE BY THE ASSESSEE RS. 4,36,426/-. THEREFORE, LD .CIT HELD THAT THE ASSESSMENT FRAMED U/S.143(3) BY THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND ACCORDINGLY, ISSUED NOTICE U/S.263 OF THE ACT TO PROTECT THE INTEREST OF THE REVENUE. THE L D CIT CONSIDERED THE EXPLANATION SUBMITTED BY THE ASSESSEE AND PASSED OR DERS U/S.263 HOLDING THAT THE ASSESSMENT ORDER DATED 01.10.2004 WAS ERRO NEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND ACCO RDINGLY, SET-ASIDE THE ORDERS OF THE AO AND DIRECTED THE AO TO CONDUCT FR ESH INQUIRIES AND RE- COMPUTE THE DISALLOWANCE U/S.14A IN ACCORDANCE WITH THE RULE 8D AFTER GIVING OPPORTUNITY TO THE ASSESSEE. AGAINST THE OR DER PASSED BY THE CIT U/S.263, THE ASSESSEE IS IN APPEAL BEFORE US. 3.0 APPEARING FOR THE ASSESSEE, THE LD.AR ARGUED THAT EVEN AFTER INTRODUCTION RULE 8D THE DISALLOWANCE IS NOT PERMIS SIBLE U/S.14A UNLESS SPECIFIC FINDING IS GIVEN BY THE AO THAT THE EXPEND ITURE INCURRED FOR EARNING THE TAX FREE INCOME IS NOT SATISFACTORY. FU RTHER, THE LD.AR ARGUED THAT DISALLOWANCE U/S.14A IS PERMISSIBLE WHEN THERE IS AN EXPENDITURE INCURRED DIRECTLY OR INDIRECTLY FOR EARNING THE EXE MPTED INCOME. HAVING COMPLETED THE ASSESSMENT U/S.143(3) ACCEPTING THE R ETURN OF INCOME, THE ITA NO.1224/MDS/2014 :- 4 -: QUANTUM OF DISALLOWANCE U/S.14A IS A DEBATABLE ISSU E WHERE TWO VIEWS ARE POSSIBLE AND NO CASE FOR REVISION U/S.263. THE LD.AR VEHEMENTLY ARGUED THAT THE ORDER U/S.263 LACKS JURISDICTION RE QUIRED TO BE QUASHED. ON THE OTHER HAND, THE LD.DR RELIED ON THE ORDERS O F THE LD.CIT. 4.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED ON RECORD. WE HAVE GONE THROUGH THE ASSESSMENT ORDER. AO COMP LETED THE ASSESSMENT ACCEPTING THE RETURNED INCOME. THERE WA S NO INDICATION FROM ASSESSMENT ORDER THAT WHETHER THE AO HAS CALLED FOR THE DETAILS OF EXPENDITURE RELATABLE TO EARNING OF DIVIDEND INCOME . IT IS NOT CLEAR FROM THE ASSESSMENT ORDER, WHETHER THE AO HAS EXAMINED T HE ISSUE OF EXPENDITURE RELATABLE EXEMPTED INCOME. THE RULE 8D HAS MANDATORY APPLICATION FROM THE A.Y 2008-09 ONWARDS AND ESTIMA TED DISALLOWANCE IS NOT PERMITTED. THE LD.CIT HAS TAKEN UP THE CASE FOR REVISION AND FOUND THAT THERE WERE HUGE INVESTMENTS OF RS.15,33,50,31 7/- AND FINANCIAL CHARGES DEBITED TO THE PROFIT & LOSS A/C WAS RS.6,8 1,581/-. THE EXPENDITURE RELATABLE TO EARNING OF DIVIDEND INCOME AS PER RULE 8D WORKED OUT TO RS.12,51,353/- ACCORDING TO THE LD.CI T. FROM THE ASSESSMENT ORDER, THE LD.CIT FOUND THAT THE AO HAS NOT CONDUCTED ANY ENQUIRIES AND COMPLETED THE ASSESSMENT. THEREFORE, THE CIT HELD THAT THE ASSESSMENT WAS ERRONEOUS AND PREJUDICIAL TO THE INT EREST OF REVENUE. FROM THE ASSESSMENT ORDER, NO DETAILS ARE AVAILAB LE AND FOR THE AY 2009-10 ONWARDS THE DISALLOWANCE REQUIRED TO BE MAD E AS PER RULE 8D OF ITA NO.1224/MDS/2014 :- 5 -: INCOME TAX RULES. THE LD.AR HAS NOT MADE OUT A CASE THAT THE AO HAS VERIFIED THE EXPENDITURE AND ACCEPTED THE DISALLOWA NCE MADE BY THE ASSESSEE. THE LD.CIT RELIED ON THE DECISION OF SPEC IAL BENCH ITAT, CHENNAI IN RAJALAKSHMI MILLS LTD. V. ITO 121 ITD 34 3 (CHENNAI). SINCE THE AO HAS NOT MADE ANY INQUIRIES IN RESPECT OF THE EXPENDITURE INCURRED FOR EARNING THE EXEMPTED INCOME THE ASSESSMENT PASS ED BY THE AO WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE AND ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD.CIT AND DISMISS THE A PPEAL OF THE ASSESSEE. 5.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD MAY, 2017, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ! . . $ ) (D.S.SUNDER SINGH) /ACCOUNTANT MEMBER /CHENNAI, 5 /DATED: 3 RD MAY, 2017. TLN 0 .$ 6 76 /COPY TO: 1. - /APPELLANT 4. 8 /CIT 2. ./- /RESPONDENT 5. 6 . /DR 3. 8 ( ) /CIT(A) 6. * /GF