TAFE Motors and Tractors Limited, CHENNAI V. ACIT, CHENNAI

ITA 1403/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8396 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 20-05-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: R VIJAYARAGHAVAN
• Section: 14A; 147

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , . , ! ' BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NOS.1402, 1403 & 1404/MDS/2016 # $# /ASSESSMENT YEARS: 2009-10, 2011-12 & 2012-13 M/S.TAFE MOTORS AND TRACTORS LIMITED, NO.35, NUNGAMBAKKAM HIGH ROAD, NUNGAMBAKKAM, CHENNAI 600 034. PAN : AACCT 2459B V. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE -3(1), CHENNAI 600 034. ( %& /APPELLANT) ( '(%& /RESPONDENT) %& ) * /APPELLANT BY : SHRI R.VIJAYARAGHAVAN, ADVOCATE '(%&)* /RESPONDENT BY : SHRI A.V.SREEKANTH, JCIT + ),! /DATE OF HEARING : 03.08.2016 -$ ),! /DATE OF PRONOUNCEMENT : 23.09.2016 /O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: ALL THE THREE APPEALS OF THE ASSESSEE ARE DIRECTE D AGAINST THE RESPECTIVE ORDER OF CIT(A) -11 FOR THE ASSESSMENT Y EARS 2009-10, 2011-12 & 2 I.T.A. NOS.1402, 1403 & 1404/MDS/2016 2012-13. SINCE COMMON ISSUE ARISES FOR CONSIDERATIO N IN ALL THE APPEALS, WE HEARD THE SAME TOGETHER AND DISPOSING OF THE SAME B Y THIS COMMON ORDER. 2. SHRI R.VIJAYARAGHAVAN, THE LEARNED COUNSEL FOR T HE ASSESSEE SUBMITTED THAT THE ONLY ISSUE RAISED FOR CONSIDERATION IS THA T COMPUTATION OF DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OF THE RULES. S HRI R.VIJAYARAGHAVAN, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SOM E OF THE INVESTMENT MADE BY THE ASSESSEE RESULTED IN TAXABLE INCOME. WHAT WA S TO BE DISALLOWED IS THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE. SINCE THE INCOME WHICH FORMS PART OF THE TOTAL INCOME CANNOT BE CONSIDERED FOR DISALLOWANCE UNDER SECTION 14A, THE SAME SHALL BE E XCLUDED WHILE COMPUTING THE DISALLOWANCE UNDER RULE 8D(2). THIS FACT WAS NO T CONSIDERED BY BOTH THE AUTHORITIES BELOW. MOREOVER, THE TERM LOAN WAS AVAI LED BY THE ASSESSEE IN THE EARLIER ASSESSMENT YEAR WHICH WAS USED FOR THE PURP OSE FOR WHICH THE LOAN WAS OBTAINED. THEREFORE, THE BORROWED FUNDS WERE NOT US ED FOR EARNING EXEMPTED INCOME. 3. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSE E, THE LOAN WAS SPECIFICALLY SANCTIONED FOR A SPECIFIC PROJECT AND THE SAME CANNOT BE DIVERTED FOR MAKING INVESTMENT. THEREFORE, ACCORDING TO THE LEARNED COUNSEL, THE LOAN BORROWED BY THE ASSESSEE FOR A SPECIFIC PROJECT CAN NOT BE CONSIDERED AS DISALLOWANCE UNDER SECTION 14A. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ENTIRE INVESTMENT WAS MADE FROM THE PROFIT OF THE ASSESSEE. THEREFORE, THERE CANNOT BE ANY DISALLOWANCE. 3 I.T.A. NOS.1402, 1403 & 1404/MDS/2016 4. ON THE CONTRARY, SHRI A.V.SREEKANTH, THE LEARNED DEPARTMENT REPRESENTATIVE SUBMITTED THAT THERE CANNOT BE ANY D ISALLOWANCE WITH REGARD TO THE INCOME WHICH FORMS PART OF THE TOTAL INCOME. TH E DISALLOWANCE HAS TO BE DETERMINED UNDER RULE 8D ONLY IN RESPECT OF INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE. IN THIS CASE, THE ASSESSEE ESTIMATED THE DISALLOWANCE WITHOUT FOLLOWING RULE 8D. THEREFORE, AT THE INITIAL ASSESSMENT, THE AO DISALLOWED THE CLAIM BY ASSUMING THE EXPENDI TURE AT 5% OF THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. SUBSE QUENTLY, THE ASSESSMENT WAS RE-OPENED UNDER SECTION 147 OF THE INCOME TAX A CT AND THE AO COMPUTED THE DISALLOWANCE UNDER RULE 8D (2) OF THE INCOME TA X RULES. SINCE DISALLOWANCE IS COMPUTED STRICTLY AS PER RULE 8D (2 ) AFTER REOPENING THE CIT(A) AS RIGHTLY CONFIRMED THE ORDER OF THE AO. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE GR OUNDS OF APPEAL, THE LEARNED COUNSEL FOR THE ASSESSEE RAISED AN ISSUE WITH REGAR D TO RE-OPENING OF THE ASSESSMENT. HOWEVER, NO ARGUMENT WAS ADVANCED DURIN G THE COURSE OF HEARING. THEREFORE, THE ISSUE RAISED BY THE ASSESSE E WITH REGARD TO RE-OPENING OF THE ASSESSMENT IS DISMISSED. 6. NOW COMING TO THE MERIT OF THE APPEAL, THE FIRST CLAIM OF THE ASSESSEE WAS THAT THE INVESTMENT WHICH RESULTED TAXABLE INCO ME CANNOT BE CONSIDERED FOR DISALLOWANCE UNDER RULE 8D. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT 4 I.T.A. NOS.1402, 1403 & 1404/MDS/2016 THE INCOME WHICH FORMS PART OF THE TOTAL INCOME CAN NOT BE CONSIDERED FOR ANY DISALLOWANCE AT ALL. WHAT IS TO BE DISALLOWED UNDER RULE 8D IS AN EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING THE INCOME WHI CH DOES NOT FORM PART OF THE TOTAL INCOME. IN THE CASE BEFORE US, THE AO HAS STRICTLY APPLIED THE PROVISIONS OF RULE 8D (2). IN FACT, THE AO HAS TAKE N THE DIRECT EXPENDITURE WITH REGARD TO THE FIRST LIMB OF RULE 8D (2)(I) AT RS.4, 00,000/-. THIS WAS DELETED BY CIT (A) ON THE GROUND THAT THERE WAS NO DIRECT EXPE NDITURE INCURRED BY THE ASSESSEE. THE CIT (A) HAS ALSO FOUND THAT THE AO OB SERVED THAT THE ASSESSEE MADE DISALLOWANCE UNDER SECTION 14A AT 5% OF THE IN COME WITHOUT FOLLOWING RULE 8D. IN FACT, THE CIT (A) COMPUTED THE DISALLOW ANCE BY APPLYING THE SECOND AND THIRD LIMBS OF RULE 8D(2). THE MAIN CLAI M OF THE ASSESSEE IS THAT THE LOAN WAS BORROWED FOR A SPECIFIC PROJECT. THERE FORE, THERE CANNOT BE ANY DISALLOWANCE IN SECOND LIMB OF RULE 8D (2). THIS TR IBUNAL IS UNABLE TO ACCEPT THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSES SEE. WHEN THE ASSESSEE BORROWED LOAN IN THE EARLIER ASSESSMENT YEARS FOR A SPECIFIC PROJECT AND WITHOUT REPAYING THE SAME, INVEST THE PROFIT IN THE SHARES AND BONDS WHICH RESULTED EXEMPTED INCOME, IT CANNOT BE SAID THAT THE ASSESSE E HAS INVESTED ITS OWN FUNDS. HAD THE ASSESSEE REPAID THE LOAN FROM THE PR OFIT EARNED IN THE EARLIER ASSESSMENT YEARS OR DURING THE CURRENT ASSESSMENT Y EARS, THE LIABILITY FOR PAYMENT OF INTEREST WOULD BE REDUCED CONSIDERABLY. HOWEVER, WITHOUT REPAYING THE LOAN BORROWED FOR THE SO CALLED SPECIFIC PROJEC T, THE ASSESSEE CHOOSE TO INVEST IN THE SHARES AND BONDS WHICH RESULTED IN EX EMPTED INCOME. THEREFORE, THE ASSESSEE HAS INCURRED EXPENDITURE WHICH CANNOT BE CONTRIBUTED TO ANY 5 I.T.A. NOS.1402, 1403 & 1404/MDS/2016 PARTICULAR INCOME. IN OTHER WORDS, THE SECOND LIMB OF RULE 8D(2) IS CLEARLY APPLICABLE IN SUCH CIRCUMSTANCES. MOREOVER, EVEN AS SUMING FOR ARGUING SAKE, THE ASSESSEE HAS INVESTED ITS OWN FUNDS, THE THIRD LIMB OF RULE 8D(2) WOULD COME INTO OPERATION. THEREFORE, 0.5% OF THE AVERAGE INVESTMENT WHICH RESULTED EXEMPTED INCOME HAS TO BE CONSIDERED FOR D ISALLOWANCE. THE ORDER OF CIT(A) CLEARLY SHOWS THAT THE CIT(A) HAS APPLIED RU LE 8D(2)(II) AND RULE 8D(2)(III). THEREFORE, THIS TRIBUNAL DO NOT FIND AN Y REASON TO INTERFERE WITH THE ORDER OF THE CIT (A). ACCORDINGLY, THE SAME IS CONF IRMED. 7. IN THE RESULT, ALL THE THREE APPEALS FILED BY TH E ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON 23 RD SEPTEMBER, 2016 AT CHENNAI. SD/- SD/- ( . ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) ! /ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, . /DATED, THE 23 RD SEPTEMBER, 2016. SP. ) ',/0 10$, /COPY TO: 1. %& /APPELLANT 2. '(%& /RESPONDENT 3. + 2, ( )/CIT(A) 4. + 2, /CIT, 5. 03 ', /DR 6. 4# 5 /GF.