GLOBAL CALCIUM PRIVATE LIMITED, HOSUR V. ACIT COMPANY CIRCLE II(2), CHENNAI

ITA 1229/CHNY/2018

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5450 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 11-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS G D JAYANTHI ANGAYARKANNI
• Assessee Lawyers: M VISWANATHAN
• Keywords: Business income; Depreciation; Additional depreciation; Earning of tax free income
• Section: 14A; 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , , ' BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER / .I.T.A. NO. 1229/CHNY/2018 /ASSESSMENT YEAR : 2005-06 GLOBAL CALCIUM PVT. LTD. NO. 125 & 126, SIPCOT INDUSTRIAL COMPLEX, HOSUR 635 126. [PAN: AAACG 2998N] VS. ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(2), CHENNAI 34. ( /APPELLANT) ( /RESPONDENT) ASSESSEE BY : SHRI. M. VISWANATHAN, CA REVENUE BY : MRS. G.D. JAYANTHI ANGAYARKANNI, JCIT $ /DATE OF HEARING : 30.08.2018 $ /DATE OF PRONOUNCEMENT : 31.10.2018 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-13, CHENNAI IN ITA NO. 80/C IT(A)-13/AY 2005-06 DATED 01.12.2017 FOR ASSESSMENT YEAR 2005-06. :- 2 -: ITA NO.1229/CHNY/2018 2. M/S. GLOBAL CALCIUM PVT. LTD., THE ASSESSEE, IS A MANUFACTURER OF BULK DRUGS AND CHEMICALS FOR FOOD AND PHARMACEUTICA L APPLICATION. WHILE MAKING THE ASSESSMENT FOR ASSESSMENT YEAR 2005-06, THE AO, INTER ALIA, DISALLOWED ADDITIONAL DEPRECIATION CLAIMED ON THE C OST OF WINDMILL, MADE DISALLOWANCE U/S. 14A, DISALLOWED 10% FINANCIAL CHA RGES ON THE GROUNDS THAT NON-INTEREST BEARING LOANS WERE ADVANCED TO CO MPANIES WHEREIN THE DIRECTORS OF THE ASSESSEE COMPANY ARE INTERESTED, A SSESSED THE RENT RECEIVED FROM STAFF QUARTERS (NON-FACTORY BUILDING) AND ADMITTED UNDER THE HEAD BUSINESS AS AN INCOME FROM HOUSE PROPERTY AND CONSEQUENTLY DISALLOWED THE DEPRECIATION CLAIMED BY THE ASSESSEE . AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A) . TH E LD. CIT(A) DISMISSED THE APPEAL. AGAINST THE ORDER OF THE LD. CIT(A), T HE ASSESSEE FILED THIS APPEAL. 3. THE AR SUBMITTED THAT THE AO DISALLOWED THE CLAI M OF ADDITIONAL DEPRECIATION ON THE WINDMILL FOR THE REASON THAT TH E ASSESSEE HAS NOT PRODUCED ANY ARTICLE OR THING USING THE WINDMILL BU T FOR POWER. THOUGH THE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF CIT VS M/S. HITECH ARAI LTD (TC(A) NO. 670 & 671 OF 2009), WHEREIN IT WAS H ELD THAT THE NEW MACHINERY OR PLANT NEED NOT HAVE ANY OPERATIONAL CO NNECTIVITY TO THE ARTICLE OR THING THAT WAS BEING MANUFACTURED BY THE TAX PAYER AND JURISDICTIONAL HIGH COURT MADURAI DECISION IN VTM L TD VS CIT, MADURAI ETC WERE RELIED BEFORE THE LD. CIT(A), HE DISMISSED THE APPEAL. THE AR :- 3 -: ITA NO.1229/CHNY/2018 FURTHER SUBMITTED IN THE ASSESSEES CASE THE CIT IN VOKED THE JURISDICTION U/S. 263 ON THIS ASPECT VIDE HIS PROCEEDINGS IN C.N O 218(90)/CIT-263-09- 10 DATED 26.02.2010, HOWEVER, DROPPED THE PROCEEDIN GS BY HIS LETTER DATED 19.03.2010. IN VIEW OF THE ABOVE FACTS & CIR CUMSTANCES, THE AR PLEADED THAT THE DISALLOWANCE MADE BY THE AO & CONF IRMED BY THE LD. CIT(A) BE DELETED. PER CONTRA, THE LD. DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 4. WE HEARD THE RIVAL SUBMISSIONS. THE AR HAS MADE OUT A CASE IN ASSESSEES FAVOUR, SUPRA. FOLLOWING THE JURISDICTI ONAL HIGH COURT DECISIONS IN THE CASES OF CIT VS M/S. HI TECH ARAI LTD., & V TM LTD VS CIT, MADURAI, SUPRA, THE ASSESSEES GROUNDS OF APPEAL ARE ALLOWED ON THIS ISSUE. 5. THE NEXT ISSUE IS DISALLOWANCE U/S. 14A. THE AR SUBMITTED THAT THE ASSESSEE RECEIVED DIVIDEND OF RS. 5,46,641/- AND CL AIMED IT AS AN EXEMPT INCOME, TOWARDS WHICH IT HAS NOT SHOWN ANY EXPENDIT URE. THE AO DETERMINED U/S. 14A R.W.R. 8D RS. 1,56,453/- AN EXP ENDITURE RELATABLE TO THE EXEMPT INCOME. AGGRIEVED, THE ASSESSEE FILED A N APPEAL. THE LD. CIT(A) AFTER CONSIDERING THE DECISIONS IN THE CASES OF CHEM INVEST VS CIT, 378 ITR 33 (DEL), THIS TRIBUNAL DECISION IN THE CAS E OF ACIT VS M. BHASKARA, 152 ITD 844, HELD THAT DISALLOWANCES COULD BE RESTR ICTED TO THE EXTENT OF EXEMPT INCOME AND IN THIS CASE, THE DISALLOWANCE MA DE BY THE AO BEING AT RS 1,58,453/-, WHICH IS LESS THAN THE EXEMPT INCOME EARNED BY THE :- 4 -: ITA NO.1229/CHNY/2018 ASSESSEE, CONFIRMED THE DISALLOWANCE MADE BY THE AO . IN THIS REGARD, THE AR SUBMITTED THAT THE IMPUGNED DIVIDEND WAS EARNED ON THE OLD INVESTMENTS MADE IN THE EARLIER YEARS AND THERE ARE NO EXPENSES INCURRED TO EARN IT. HENCE, HE PLEADED TO DELETE THE ADDITI ON. PER CONTRA, THE LD. DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 6. WE HEARD THE RIVAL SUBMISSIONS. THOUGH SECTION 14A R.W.R 8D IS NOT APPLICABLE FOR THIS ASSESSMENT YEAR I.E., FOR ASSES SMENT YEAR 2005-06, THIS TRIBUNAL CONSISTENTLY HELD THAT DISALLOWANCE OF REA SONABLE SUM IS WARRANTED AND 2% OF THE EXEMPT INCOME COULD BE A REASONABLE S UM WHICH COULD BE DISALLOWED. ACCORDINGLY, WE DIRECT THE AO TO RESTR ICT THE DISALLOWANCE ACCORDINGLY. THE CORRESPONDING APPEAL GROUNDS ARE ALLOWED PARTLY. 7. THE NEXT ISSUE IS DISALLOWANCE OF 10% FINANCIAL CHARGES ON THE GROUNDS THAT NON-INTEREST BEARING LOANS WERE ADVANC ED TO COMPANIES WHEREIN THE DIRECTORS OF THE ASSESSEE COMPANY ARE I NTERESTED. IN THIS REGARD, THE AO FOUND THAT THE ASSESSEE HAS ADVANCED NON-INTEREST BEARING FUND AT RS. 43,45,000/-, IN TOTAL, TO TWO COMPANIES VIZ., BEBLOC INDIA PRIVATE LTD & GLOBAL SUPPLIERS PVT. LTD., WHEREIN THE DIRECTORS OF THE ASSESSEE COMPANY ARE INTERESTED. SINCE, THE ASSESS EE HAS INCURRED FINANCIAL CHARGES OF RS. 29,71,724/-, THE AO DISALL OWED 10% OF SUCH CHARGES ON THE TOTAL LOANS. AGGRIEVED, THE ASSESSE E FILED AN APPEAL BEFORE THE LD. CIT(A). THE AR SUBMITTED BEFORE THE LD. CI T(A) THAT THE ASSESSEE :- 5 -: ITA NO.1229/CHNY/2018 COMPANY IS A PROFIT MAKING COMPANY, IT HAS ACCUMULA TED CASH SURPLUS OUT OF ITS BUSINESS INCOME THAT WERE SUBJECTED TO TAX. SUCH INTERNAL ACCRUALS HAVE BEEN USED FOR TEMPORARY SHORT LENDING TO GROUP COMPANIES. THE ASSESSEE DOES NOT USE ANY OWN FUNDS OR WORKING CAPI TAL FUNDS FOR THIS PURPOSE. UNLESS SUCH FINDING IS MADE, THE DISALLOW ANCE SHOULD NOT BE MADE. HOWEVER, THE LD. CIT(A) UPHELD THE DISALLOWA NCE. IN THE FACTS AND CIRCUMSTANCES, THE AR PLEADED FOR DELETION OF SUCH DISALLOWANCE. THE LD. DR RELIED ON ORDERS OF THE LOWER AUTHORITIES. 8. WE HEARD THE RIVAL SUBMISSIONS. THOUGH THE ASSES SEE PLEADED BEFORE THE LOWER AUTHORITIES THAT THE COMPANY IS A PROFIT MAKING COMPANY, IT HAS ACCUMULATED CASH SURPLUS OUT OF ITS BUSINESS INCOME THAT WERE SUBJECTED TO TAX, SUCH INTERNAL ACCRUALS HAVE BEEN USED FOR TEMPORARY SHORT LENDING TO GROUP COMPANIES, THE ASSESSEE DOES NOT USE ANY OWN FUNDS OR WORKING CAPITAL FUNDS FOR THIS PURPOSE, UN LESS SUCH FINDING IS MADE, THE DISALLOWANCE SHOULD NOT BE MADE ETC, WE F IND THAT THE LOWER AUTHORITIES HAVE NOT RECORDED ANY FINDING ON THE AS SESSEES PLEA. IN THE FACTS AND CIRCUMSTANCES, WE DEEM IT FIT TO REMIT T HIS ISSUE BACK TO THE AO FOR A FRESH EXAMINATION IN ACCORDANCE WITH LAW. TH E ASSESSEE SHALL PLACE RELEVANT MATERIALS BEFORE THE AO IN SUPPORT OF ITS CONTENTION AND THE AO AFTER GIVING ADEQUATE OPPORTUNITY TO THE ASSESSEE D ECIDE THIS ISSUE IN ACCORDANCE WITH LAW. HENCE, THE CORRESPONDING GROU NDS ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. :- 6 -: ITA NO.1229/CHNY/2018 9. THE NEXT ISSUE IS COMPUTATION OF RENTAL INCOME D ERIVED FROM STAFF QUARTERS UNDER THE HEAD HOUSE PROPERTY. IN THIS RE GARD, THE AR DID NOT PRESS THE GROUNDS OF APPEAL AND HENCE, THE CORRESPO NDING GROUNDS ARE TREATED AS DISMISSED. SINCE, THIS GROUND IS DISMIS SED, CONSEQUENTIALLY THE ISSUE ON THE DEPRECIATION CLAIM ON SUCH PROPERTIES ARE ALSO TREATED AS DISMISSED. 10. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 31 ST DAY OF OCTOBER, 2018 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) /ACCOUNTANT MEMBER /CHENNAI, ) /DATED: 31 ST OCTOBER , 2018 JPV $*+,-, /COPY TO: 1. / /APPELLANT 2. *0/ /RESPONDENT 3. 1 ) (/CIT(A) 4. 1 /CIT 5. ,* /DR 6. 4 /GF