Tractors and Farm Equipments Ltd., CHENNAI V. DCIT(A)-11, CHENNAI

ITA 1468/CHNY/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 6499 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-04-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2016-2017
• Appeal Filed On: 10-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G. CHANDRABABU
• Keywords: Earning of tax free income; TDS; Rule 8D; Set aside
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . , , , BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER /. I.T.A. NO: 1468/CHNY/2019 / ASSESSMENT YEAR : 2016-17 M/S. TRACTORS AND FARM EQUIPMENT LTD., NO. 35, UTHAMAR GANDHI SALAI, NUNGAMBAKKAM, CHENNAI 600 034. [PAN:AAACT 2761Q] VS. COMMISSIONER OF INCOME TAX (APPEALS) 11, CHENNAI - 34. ( / APPELLANT) ( / RESPONDENT) ' ( / APPELLANT BY : SHRI. R. VIJAYARAGHAVAN, ADVOCATE +,' ( / RESPONDENT BY : SHRI. G. CHANDRABABU, ADDL. CIT ( /DATE OF HEARING : 10.02.2021 ( /DATE OF PRONOUNCEMENT : 07.04.2021 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDE R OF THE COMMISSIONER OF INCOME TAX (APPEALS)- 11, CHENNAI IN ITA NO. 79/18 -19 DATED 13.03.2019 FOR THE ASSESSMENT YEAR 2016-17. :-2-: ITA NO: 1468/CHNY/2019 2. M/S. TRACTORS AND FARM EQUIPMENT LTD., THE ASSES SEE, IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF AUTOMOBILE AND AUTOPARTS . WHILE MAKING THE ASSESSMENT FOR ASSESSMENT YEAR 2016-17, THE ASSESS ING OFFICER, INTER ALIA, QUANTIFIED THE DISALLOWANCE U/S. 14A R.W.R. 8D AT R S. 1,40,98,942/-, FROM WHICH HE DEDUCTED RS. 18,84,252/-, THE AMOUNT VOLUNTARILY DISALLOWED BY THE ASSESSEE AND THEN MADE THE DISALLOWANCE AT RS. 1,22,14,640/- . AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). THE LD. CIT(A) PARTLY ALLOWED THE APPEAL. AGGRIEVED AGAINST THAT ORDER, THE ASSESSEE FILED TH IS APPEAL. 3. THE CASE WAS HEARD THROUGH VIDEO CONFERENCING. THE LD. AR SUBMITTED THAT THE ASSESSEE RECEIVED DIVIDEND INCOME TOWARDS WHICH THE ASSESSEE ITSELF WORKED OUT RS. 18,84,252/- AS AN EXPENDITURE INCURR ED FOR EARNING THE SAID DIVIDEND INCOME. THE AO WITHOUT GIVING ANY COGENT REASONS FOR REJECTING THE CORRECTNESS OF THE DISALLOWANCE OFFERED BY THE ASSE SSEE, MADE THE IMPUGNED DISALLOWANCE U/S. 14A R.W.R. 8D. ON APPEAL, THE LD . CIT(A) WITHOUT APPRECIATING THE FACTS HELD THAT THE INTEREST OF RS. 1.49 CRORES INCURRED TOWARDS DEALER DEPOSITS IS TO BE CONSIDERED FOR DISALLOWANCE U/S. 8D(2)(II) AND RS. 1.22 CRORES IS TO BE CONSIDERED FOR DISALLOWANCE U/S. 8D(2)(III). IN THE ASSESSEES CASE, ALL THE INVESTMENTS HAVE BEEN MADE WITH THE ASSESSEES OWN FUNDS AND NO BORROWINGS WERE USED FOR MAKING THE INVESTMENTS. THEREFORE, T HE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE FOR EARNING THE DIVIDEND INCOME. T HE AO WITHOUT EXAMINING THE ACCOUNTS AND WITHOUT GIVING ANY COGENT REASONS FOR REJECTING THE CORRECTNESS OF THE DISALLOWANCE OFFERED BY THE ASSESSEE MADE THE R OUTINE DISALLOWANCE. THE :-3-: ITA NO: 1468/CHNY/2019 COURT HAVE HELD THAT UNLESS THE AO ESTABLISHES THAT SPECIFIC EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR EARNING EXEMPT INCOME, DISALLOWANCE SHOULD NOT BE MADE U/S. 14A R.W.R. 8D. IN THIS REGARD, THE LD. A R INVITED OUR ATTENTION TO THE DELHI HIGH COURTS DECISION IN THE CASE OF PRADEEP KHANNA VS ACIT IN ITA NO. 953/2015, 399 ITR 146 (DEL), WHEREIN THE HEAD NOTE READ AS UNDER: HELD, IN TAIKISH ENGINEERING PRIVATE LTDS CASE, THIS COURT HAD AFTER ANALYZING S 14A AND R 8D (OF INCOME TAX RULES) HELD THAT SUB-R(1) CATEGORICALLY AND SIGNIFICANTLY STATES THAT AO HAVING REGARD TO A CCOUNT OF ASSESSEE AND ON NOT BEING SATISFIED WITH CORRECTNESS OF CLAIM OF EX PENDITURE MADE BY ASSESSEE OR CLAIM THAT NO EXPENDITURE WAS INCURRED IN RELATI ON TO INCOME WHICH DID NOT FORM PART OF TOTAL INCOME UNDER ACT, COULD GO ON TO DETERMINE DISALLOWANCE UNDER SUB-R (2) TO RULE 8D OF THE RULES-SUB-RULE (2 ) WOULD NOT COME INTO OPERATION UNTIL AND UNLESS SPECIFIC PRE-CONDITION I N SUB-RULE (1) WAS SATISFIED - IN THE PRESENT CASE, AO HAD NOT ANALYSED OBJECTIVEL Y IN TERMS OF DECISION IN SHAH IT WAS FIRSTLY INCUMBENT UPON HIM TO IN FACT EXAMINE ACCOUNTS CLOSELY AND DETERMINE IF AT ALL ANY EXPENDITURE COULD BE AS CRIBED TO TAX EXEMPT DIVIDEND/INTEREST EARNED BY ASSESSEE IF INDEED TA X EXEMPTED INCOME WAS EARNED WITHOUT INTERFERENCE OF ANY EMPLOYEE BUT RAT HER THROUGH SOLICITATION AND ADVERTISEMENT OF BANK QUESTION OF ATTRIBUTING ANY E XPENDITURE COULD NOT ARISE AT ALL IN CIRCUMSTANCES, ORDER WAS SET ASIDE MATTE R WAS REMITTED TO AO FOR FRESH DETERMINATION IN ACCORDANCE WITH JUDGEMENT OF THIS COURT IN TAIKISHA ENGINEERING PRIVATE LIMITEDS CASE. THE LD. AR FURTHER SUBMITTED THAT THE LD. CIT(A) OU GHT TO HAVE HELD THAT ONLY THE AVERAGE VALUE OF INVESTMENTS, INCOME FROM WHICH SHALL NOT FORM PART OF THE TOTAL INCOME, SHOULD BE TAKEN INTO CONSIDERATION FO R COMPUTATION. INVESTMENTS FROM WHICH NO DIVIDEND INCOME WAS RECEIVED SHOULD N OT BE CONSIDERED FOR THE PURPOSES FOR COMPUTING THE DISALLOWANCE . IN THIS REGARD, THE LD. AR RELIED ON THE DECISION OF ACB INDIA LTD., VS ACIT 62 TAXMANN. COM 71 (DELHI) AND FURTHER :-4-: ITA NO: 1468/CHNY/2019 SUBMITTED THAT THE INVESTMENTS WHICH DID NOT YIELD DIVIDEND INCOME SHOULD BE EXCLUDED IN ACCORDANCE WITH THE SPECIAL BENCH DECIS ION OF THE ITAT IN THE CASE OF VREET INVESTMENT LTD. PER CONTRA, THE LD. DR SUPPO RTED THE ORDERS OF THE LOWER AUTHORITIES. 4. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIALS. IT IS SEEN FROM THE ASSESSMENT ORDER THAT THE AO MA DE DISALLOWANCE U/S. 14A MAINLY FOR THE REASON THAT THE INVESTMENT MADE BY T HE ASSESSEE IN THE SUBSIDIARY COMPANY TO THE EXTENT OF RS. 225.17 CRORES WAS NOT CONSIDERED BY THE ASSESSEE FOR THE PURPOSE OF WORKING OF THE DISALLOWANCE U/S. 14A. HOWEVER, IT IS SEEN THAT THE ASSESSEE HAS TAKEN A PLEA BEFORE THE LD. CIT(A) THAT THERE IS NO BORROWINGS IN THE ASSESSEES CASE AND THEREFORE NO DISALLOWANC E IS TO BE MADE UNDER THE RULE 8D(II). THE INVESTMENTS IN SUBSIDIARIES ARE H ELD FOR STRATEGIC PURPOSE. THEREFORE, NO ADMINISTRATIVE EXPENDITURE WAS INCURR ED AS THERE IS NO MONITORING REQUIRED ON SUCH INVESTMENTS AND THE DIVIDEND FROM SUCH INVESTMENTS ARE DIRECTLY CREDITED IN THE ASSESSEES BANK. HOWEVER, THE ASSESSEE VOLUNTARILY DISALLOWED RS. 18.84 LAKHS UNDER THE RULE 8D(III) C ONSIDERING SOME EXPENDITURE RELATING TO BANKING OPERATIONS ETC. THUS, IT APPEA RS FROM THE ORDERS OF THE LOWER AUTHORITIES, THE ASSESSEES PLEA WERE NOT EXAMINED WITH REFERENCE TO ITS ACCOUNTS DULY. THEREFORE, WE DEEM IT FIT TO REMIT THIS ISSU ES BACK TO THE AO FOR A FRESH EXAMINATION. THE ASSESSEE SHALL LAY RELEVANT MATER IAL IN SUPPORT OF ITS CONTENTION BEFORE THE AO AND COMPLY WITH THE REQUIREMENTS OF T HE AO IN ACCORDANCE WITH THE LAW. THE AO ON DUE EXAMINATION OF THEM AND AFT ER GIVING DUE OPPORTUNITY TO :-5-: ITA NO: 1468/CHNY/2019 THE ASSESSEE, SHALL DETERMINE THE ISSUES IN ACCORDA NCE WITH LAW AND PASS A DUE ORDER. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 07 TH APRIL, 2021 AT CHENNAI. SD/- ( . ' ) (DUVVURU RL REDDY) $% /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) % /ACCOUNTANT MEMBER /CHENNAI, 1 /DATED: 07 TH APRIL, 2021 JPV (+3454 /COPY TO: 1. ' / APPELLANT 2. +,' /RESPONDENT 3. 6 ) ( /CIT(A) 4. 6 /CIT 5. 4+ /DR 6. 9 /GF