Simpson & Co. Ltd., CHENNAI V. DCIT, CHENNAI

ITA 1488/CHNY/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8427 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 22-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Keywords: Depreciation; Additional depreciation
• Section: 14A

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 NO. 1488/MDS/2015 # $# /ASSESSMENT YEAR : 2011-12 M/S.SIMPSON & CO.LTD., 861/862, ANNA SALAI, CHENNAI 600 002. PAN: AAACS4909F V. THE DEPUTY COMMISSIONER OF INCOME TAX (LTU-II), CHENNAI 600 101. ( %& /APPELLANT) ( '(%& /RESPONDENT) %& ) * /APPELLANT BY : SHRI SAROJ KUMAR PARIDA, ADVOCATE '(%&)* /RESPONDENT BY : SHRI A.V.SREEKANTH, JCIT + ),! /DATE OF HEARING : 30.08.2016 -$ ),! /DATE OF PRONOUNCEMENT : 23.09.2016 /O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A) -VII, CHENNAI DATED 20.01.2015 AND PERTAINS TO ASSESSMENT YEAR 2011-12. 2. SHRI SAROJ KUMAR PARIDA, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE FIRST ISSUE ARISES FOR CONSIDERA TION IS ASSESSEES CLAIM OF 2 I.T.A. NO. 1488/MDS/2015 DEDUCTION UNDER SECTION 35(2AB) TO THE EXTENT OF RS .690.01 LAKHS AS AGAINST THE CLAIM OF THE ASSESSEE TO THE EXTENT OF RS.705.0 7 LAKHS. THE LEARNED COUNSEL SUBMITTED THAT THE ASSESSING OFFICER DISALL OWED A SUM OF RS.15.07 LAKHS UNDER SECTION 35(2AB) AND ADDED THE SAME TO T HE TOTAL INCOME OF THE ASSESSEE. THE LEARNED COUNSEL FURTHER SUBMITTED THA T THE VERY SAME ISSUE CAME BEFORE THIS TRIBUNAL IN THE ASSESSEES OWN CAS E FOR THE ASSESSMENT YEAR 2005-06 AND THIS TRIBUNAL FOUND THAT THE DEDUCTION UNDER SECTION 35(2AB) COULD BE ALLOWED ONLY TO THE EXTENT OF THE APPROVAL GRANTED BY THE PRESCRIBED AUTHORITY. ACCORDINGLY, CONFIRMED THE SIMILAR DISAL LOWANCE MADE BY THE ASSESSING OFFICER. 3. IN VIEW OF THE ABOVE ORDER OF THIS TRIBUNAL FOR THE ASSESSMENT YEAR 2005-06, ACCORDING TO THE LEARNED COUNSEL, THE ISSU E WAS DECIDED BY THE ASSESSING OFFICER AGAINST THE ASSESSEE. 4. WE HEARD SHRI A.V.SREEKANTH, THE LEARNED DEPARTM ENT REPRESENTATIVE ALSO. SINCE THE APPROVAL OF THE PRESCRIBED AUTHORIT Y IS A PRE-CONDITION FOR THE GRANT OF DEDUCTION UNDER SECTION 35(2AB), THIS TRIB UNAL IS OF THE CONSIDERED OPINION THAT THE CIT(A) HAS RIGHTLY GRANTED DEDUCTI ON TO THE EXTENT OF APPROVAL GRANTED BY THE PRESCRIBED AUTHORITY. THE C LAIM OF THE ASSESSEE OVER AND ABOVE THE APPROVAL GRANTED BY THE PRESCRIBED AU THORITY WAS RIGHTLY DISALLOWED. THEREFORE, THIS TRIBUNAL DO NOT FIND AN Y REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY, T HE SAME IS CONFIRMED. 3 I.T.A. NO. 1488/MDS/2015 5. THE NEXT GROUND OF APPEAL IS WITH REGARD TO THE ADDITIONAL DEPRECIATION. SHRI SAROJ KUMAR PARIDA, THE LEARNED COUNSEL FOR TH E ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER ALLOWED ADDITIONAL DEPRECIATI ON AT THE RATE OF 10%. SINCE THE MACHINERY WAS ACQUIRED IN THE SECOND HALF OF TH E RELEVANT FINANCIAL YEAR, THE ASSESSING OFFICER ALLOWED ONLY 10% OF THE ADDIT IONAL DEPRECIATION AND DISALLOWED THE BALANCE 10%. THE ASSESSEE CLAIMED TH E BALANCE 10% DEPRECIATION DURING THE YEAR UNDER CONSIDERATION. T HE LEARNED COUNSEL SUBMITTED THAT IN THE ASSESSEES OWN CASE IN ASSESS MENT YEAR 2005-06, THIS TRIBUNAL BY PLACING RELIANCE ON ITS EARLIER ORDER I N THE CASE OF M/S.AUTOMOTIVE COACHES & COMPONENTS VS. DCIT IN ITA NO.1789/MDS/20 14 DATED 12.02.2016 ALLOWED THE CLAIM OF THE ASSESSEE. THEREFORE, ACCOR DING TO THE LEARNED COUNSEL, THE ISSUE IS COVERED IN FAVOUR OF THE ASSE SSEE. 6. ON THE CONTRARY, SHRI A.V.SREEKANTH, THE LEARNED DEPARTMENT REPRESENTATIVE SUBMITTED THAT THERE IS NO PROVISION IN THE INCOME TAX ACT FOR CARRY FORWARD OF THE ADDITIONAL DEPRECIATION. THE A DDITIONAL DEPRECIATION CAN BE ALLOWED ONLY FOR THE NEW PLANT AND MACHINERY WHI CH WAS PURCHASED DURING THE YEAR UNDER CONSIDERATION. SINCE THE ASSESSEE AC QUIRED THE MACHINERY IN THE SECOND HALF OF THE EARLIER ASSESSMENT YEAR, THE ASSESSING OFFICER ALLOWED 50% OF THE ADDITIONAL DEPRECIATION AT THE RATE OF 1 0%. IN THE ABSENCE OF PROVISION TO CARRY FORWARD ADDITIONAL DEPRECIATION, THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED A SUM OF RS.11,84,755/-. 4 I.T.A. NO. 1488/MDS/2015 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARNE D REPRESENTATIVE OF THE DEPARTMENT AND ALSO PERUSED THE MATERIAL AVAILA BLE ON RECORD. AN IDENTICAL ISSUE WAS CONSIDERED BY THE COORDINATE BE NCH OF THIS TRIBUNAL IN THE CASE OF M/S.AUTOMOTIVE COACHES & COMPONENTS CITED S UPRA. THIS TRIBUNAL FOUND THAT WHEN THE ASSESSEE PURCHASED NEW PLANT AN D MACHINERY AND USE THE SAME FOR LESS THAN 180 DAYS IN THE EARLIER ASSE SSMENT YEAR, THE ASSESSEE IS ENTITLED FOR ADDITIONAL DEPRECIATION AT THE RATE OF 10% DURING THE YEAR UNDER WHICH THE PLANT AND MACHINERY WAS PURCHASED. THE BA LANCE 10% COULD BE CARRIED FORWARD AND ALLOWED IN THE SUBSEQUENT YEAR. IN THE CASE BEFORE US, THE ASSESSING OFFICER HIMSELF ALLOWED 10% ADDITIONA L DEPRECIATION IN THE EARLIER ASSESSMENT YEAR. THEREFORE, THIS TRIBUNAL I S OF THE CONSIDERED OPINION THAT THE ASSESSEE IS ENTITLED FOR BALANCE 10% DEPRE CIATION DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO ALLO W THE REMAINING 10% OF THE ADDITIONAL DEPRECIATION DURING THE YEAR UNDER CONSI DERATION. 8. THE NEXT ISSUE ARISES FOR CONSIDERATION IS DISAL LOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE INCOME T AX ACT. SHRI SAROJ KUMAR PARIDA, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMIT TED THAT THE ASSESSING OFFICER FOUND THAT THERE WAS AN INVESTMENT DURING T HE YEAR UNDER CONSIDERATION. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, THE INVESTMENT WAS MADE ONLY COMMON GROWTH SCHEME OF MU TUAL FUND AND THE 5 I.T.A. NO. 1488/MDS/2015 INCOME FROM WHICH IS CHARGEABLE TO CAPITAL GAIN ON REDEMPTION. MATURITY OF THE DIVIDEND INCOME WAS RECEIVED FROM THE SUBSIDIAR Y COMPANIES OR THE GROUP COMPANIES. THEREFORE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING DISALLOWANCE BY APPLYING THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES. 9. ON THE CONTRARY, SHRI A.V. SREEKANTH, THE LEARNE D DEPARTMENT REPRESENTATIVE SUBMITTED THAT AS ON 31.03.2011, THE ASSESSING OFFICER FOUND FROM THE BALANCE SHEET THAT A SUM OF RS.49,77,57,15 8/- WAS INVESTED IN THE SHARES AND MUTUAL FUNDS FOR THE PURPOSE OF EARNING INCOME WHICH DO NOT FORM PART OF THE TOTAL INCOME. THE ASSESSEE IN FACT INCURRED EXPENDITURE FOR ESTABLISHMENT AND MANAGEMENT. THE ASSESSING OFFICER ALSO FOUND THAT THE ASSESSEE BORROWED FUNDS TO THE EXTENT OF RS.18,29,7 8,642/-. THE ASSESSEE HAS ALSO TAKEN A DEPOSIT TO THE EXTENT OF RS.65,64, 000/- FROM THE PUBLIC. EVEN THOUGH THE ASSESSEE CLAIMED BEFORE THE ASSESSING OF FICER THAT THE UNSECURED LOAN WERE TOWARDS WORKING CAPITAL, NO MATERIAL AVAI LABLE ON RECORD TO SUGGEST THAT THE UNSECURED LOAN WAS ATTRIBUTABLE TO ANY PAR TICULAR INCOME OF THE ASSESSEE. THEREFORE, RULE 8D (2)(II) IS SQUARELY AP PLICABLE. THE ASSESSEE HAS ALSO BORROWED A SUM OF RS.26 CRORES FROM HOLDING CO MPANY AND PAID SUBSTANTIAL INTEREST. WHEN THE ASSESSEE PAID RS.26 CRORES AS INTEREST TO THE HOLDING COMPANY, IT IS NOT KNOWN HOW THE ASSESSEE C LAIMS THE INVESTMENT IN THE SO CALLED SUBSIDIARY COMPANIES ARE NOT FOR EARN ING EXEMPTED INCOME. THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY APPLIE D THE PROVISION OF RULE 8D(II) OF THE INCOME TAX RULES AND MADE DISALLOWANCE. 6 I.T.A. NO. 1488/MDS/2015 10. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LEARN ED REPRESENTATIVE OF THE DEPARTMENT AND ALSO PERUSED THE MATERIAL AVAILA BLE ON RECORD. AS PER THE BALANCE SHEETS, THE ASSESSEE MADE INVESTMENT DURING THE YEAR UNDER CONSIDERATION TO THE EXTENT OF RS.49,77,57,158/-. THE TOTAL INVESTMENT WAS RS.232,17,15,034/-. THE ASSESSEE APPEARS TO HAVE CL AIMED BEFORE THE ASSESSING OFFICER ON REDEMPTION OF MUTUAL FUNDS, CA PITAL GAIN WAS CHARGEABLE TO TAX. THE ASSESSEE ALSO CLAIMED THAT NO DIVIDEND WAS ADDED TO THE MUTUAL FUND IN WHICH INVESTMENT WAS MADE. THE VERY FACT TH AT THE INCOME FROM MUTUAL FUND WAS EXEMPTED FROM TAXATION IS NOT IN DI SPUTE. THE REDEMPTION OF THE MUTUAL FUNDS AT THE MATURITY PERIOD CANNOT BE A REASON FOR EXCLUDING THE SAME WHILE COMPUTING THE DISALLOWANCE UNDER RULE 8D (2)(II). MOREOVER, EVEN THOUGH THE ASSESSEE CLAIMS BEFORE THE ASSESSING OFF ICER THAT THE INVESTMENT WERE MADE IN GROUP COMPANIES AND SUBSIDIARY COMPANI ES, NO MATERIAL IS AVAILABLE ON RECORD TO SUGGEST THAT THE COMPANY IN WHICH THE ASSESSEE HAS INVESTED IS GROUP COMPANY OF THE ASSESSEE OR THE SU BSIDIARY COMPANY OF THE ASSESSEE. AS RIGHTLY SUBMITTED BY THE LEARNED DEPAR TMENT REPRESENTATIVE, THE ASSESSEE HAS PAID SUBSTANTIAL INTEREST TO THE HOLDI NG COMPANY. THEREFORE, THERE IS NO SUBSTANCE IN THE CLAIM OF THE ASSESSEE. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT RULE 8D(2)(II) IS MANDATORY . THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY COMPUTED THE DISALLOWANCE AS PE R THE STATUTORY REQUIREMENT. ACCORDINGLY, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND THE SAME IS CONFIRMED. 7 I.T.A. NO. 1488/MDS/2015 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. 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.