Tractors and Farm Equipments Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1505/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8304 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 26-05-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , ! .#$#%, ' !( BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ./ ITA NO.1505/MDS/2016 % *% / ASSESSMENT YEAR : 2011-12 M/S TRACTORS AND FARM EQUIPMENT LTD. , NO.35, NUNGAMBAKKAM HIGH ROAD, NUNGAMBAKKAM, CHENNAI - 600 034 PAN : AAACT 2761 Q V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 3(1), CHENNAI - 600 034. (,-/ APPELLANT) (./,-/ RESPONDENT) ,- 0 1 / APPELLANT BY : SH. R. VIJAYARAGHAVAN, ADVOCATE ./,- 0 1 / RESPONDENT BY : SHRI SHIVA SRINIVAS, JCIT 2 0 3' / DATE OF HEARING : 04.08.2016 45* 0 3' / DATE OF PRONOUNCEMENT : 30.09.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 11, CHEN NAI, DATED 30.03.2016 AND PERTAINS TO ASSESSMENT YEAR 2011-12. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DISALLOWANCE MADE BY THE ASSESSING OFFICER TO THE E XTENT OF 2 I.T.A. NO.1505/MDS/16 ` 4,87,77,924/- UNDER SECTION 14A OF THE INCOME-TAX A CT, 1961 (IN SHORT 'THE ACT'). 3. SHRI R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE A SSESSEE, SUBMITTED THAT THE ASSESSEE EARNED DIVIDEND INCOME OF ` 27,02,66,864/- AND CLAIMED THE SAME AS EXEMPT UNDER SECTION 10(34) OF THE ACT. THE ASSESSING OFFICER FOUND TH AT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE FOR EARNING THE EX EMPT INCOME. ACCORDING TO THE LD. COUNSEL, THE INVESTMENTS WERE MADE OUT OF THE ASSESSEES OWN FUNDS. THE ASSESSEE HAD ITS OWN FUN DS AS ON 31.03.2010 AT ` 130,342.43 LAKHS AND AS ON 31.03.2011, THE AVAILABLE FUNDS WITH THE ASSESSEE WAS ` 170,654.87 LAKHS. THE ASSESSEE HAS ALSO GENERATED CASH SURPLUS TO THE EXT ENT OF ` 39,633.28 LAKHS AND A PORTION OF THIS AMOUNT WAS IN VESTED IN THE MUTUAL FUNDS. ACCORDING TO THE LD. COUNSEL, NO BOR ROWED FUNDS WERE USED FOR INVESTMENT FOR EARNING THE EXEMPT INC OME. 4. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITT ED THAT THE INVESTMENTS IN THE SUBSIDIARY COMPANY WERE MADE LON G BACK. THE DISALLOWANCE UNDER SECTION 14A OF THE ACT CAN BE MA DE ONLY IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECT NESS OF THE CLAIM MADE BY THE ASSESSEE. IN THIS CASE, ACCORDING TO T HE LD. COUNSEL, 3 I.T.A. NO.1505/MDS/16 THE ASSESSEE HAS NOT MADE ANY CLAIM AT ALL, THERE I S NO QUESTION OF ANY NON-SATISFACTION BY THE ASSESSING OFFICER. THE ASSESSEE ITSELF FOUND THAT A SUM OF ` 29 LAKHS CAN BE DISALLOWED AS EXPENDITURE FOR EARNING THE EXEMPT INCOME. THE ASSESSING OFFICER P ROCEEDED TO DISALLOW A SUM OF ` 8,66,34,772/- BY APPLYING RULE 8D OF INCOME-TAX RULES, 1962. PLACING RELIANCE ON THE ORDER OF THIS TRIBUNAL IN TAMILNADU POWER FINANCE & INFRASTRUCTURE DEVELOPMEN T CORPORATION LTD. V. ACIT IN I.T.A. NO.1813/MDS/2014 DATED 19.02.2016, THE LD. COUNSEL SUBMITTED THAT ONLY 0.5 % OF THE AVERAGE VALUE OF THE INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY O F THE PREVIOUS YEAR, HAS TO BE TAKEN INTO CONSIDERATION. 5. ON THE CONTRARY, SHRI SHIVA SRINIVAS, THE LD. DE PARTMENTAL REPRESENTATIVE, SUBMITTED THAT ADMITTEDLY, THE ASSE SSEE INVESTED FUNDS IN MUTUAL FUNDS AND SHARES AND EARNED EXEMPT INCOME TO THE EXTENT OF ` 27,02,66,864/-. ACCORDING TO THE LD. D.R., THE ASS ESSING OFFICER FOUND THAT THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE FOR EARNING OF EXEMPT INCOME. BY CONSIDERING THE VOLUM E OF PORTFOLIO OF INVESTMENT, THE ASSESSING OFFICER FOUND THAT THE AS SESSEE SHOULD 4 I.T.A. NO.1505/MDS/16 HAVE INCURRED EXPENDITURE IN THE FORM OF MANAGERIAL , ADMINISTRATIVE AND MONITORING PURPOSE. ACCORDING TO THE LD. D.R., THE ASSESSING OFFICER CATEGORICALLY RECORDED A FINDING THAT HE IS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED. ACCORDINGLY, HE COMPUTED THE DISALLOWANCE UNDER SEC TION 14A OF THE ACT READ WITH RULE 8D OF INCOME-TAX RULES, 1962 . ACCORDING TO THE LD. D.R., THE ASSESSING OFFICER FOUND THAT THER E WAS NO DIRECT EXPENDITURE INCURRED BY THE ASSESSEE FOR MAKING THE INVESTMENTS. HOWEVER, THE ASSESSING OFFICER FOUND THAT THERE WAS INDIRECT EXPENDITURE. IN OTHER WORDS, THE INTEREST PAID BY THE ASSESSEE IS NOT RELATABLE TO ANY PARTICULAR INCOME EARNED BY TH E ASSESSEE. THEREFORE, ACCORDING TO THE LD. D.R., THE SECOND LI MB OF RULE 8D(2) IS SQUARELY APPLICABLE. MOREOVER, THE ASSESSING OF FICER HAS ALSO TAKEN THE AVERAGE VALUE OF INVESTMENT ON THE FIRST DAY AND LAST DAY OF PREVIOUS YEAR AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE AND INCOME FROM WHICH DOES NOT FORM PART OF TOTAL I NCOME. THE ASSESSING OFFICER HAS TAKEN 0.5%. ULTIMATELY, THE ASSESSING OFFICER HAS TAKEN THE AGGREGATE OF SECOND AND THIRD LIMB OF RULE 8D(2) AND COMPUTED THE DISALLOWANCE OF ` 8,95,34,771/-. AFTER DEDUCTING THE EXPENDITURE CLAIMED BY THE ASSESSEE TO THE EXTENT O F ` 29 LAKHS, ACCORDING TO THE LD. D.R., THE ASSESSING OFFICER DE TERMINED THE 5 I.T.A. NO.1505/MDS/16 DISALLOWANCE AT ` 8,66,34,771/-. THIS DISALLOWANCE WAS RIGHTLY CONFIRMED BY THE CIT(APPEALS). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE FIRST SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE IS T HAT WHEN THE ASSESSEE INVESTED ITS OWN FUNDS, RULE 8D2(II) OF TH E INCOME-TAX RULES, 1962 IS NOT APPLICABLE AT ALL. IN THE CASE BEFORE US, ADMITTEDLY, THE ASSESSEE BORROWED LOAN FOR THE PURP OSE OF BUSINESS. THE ASSESSEE ALSO PAID INTEREST ON THE B ORROWED LOAN. THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE D OES NOT RELATE TO ANY PARTICULAR INCOME. IN OTHER WORDS, WHEN THE BO RROWED FUNDS MIXED WITH THE ASSESSEES OWN FUNDS, IT CANNOT BE I DENTIFIED FROM WHICH PART OF FUNDS THE INVESTMENT WAS MADE. IN OT HER WORDS, WHEN THE INTEREST PAID BY THE ASSESSEE ON THE FUNDS BORR OWED FOR BUSINESS IS NOT RELATABLE TO ANY PARTICULAR ITEM OF INCOME, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE SECO ND LIMB OF RULE 8D(2) WOULD COME INTO OPERATION. IN OTHER WORDS, T HE DISALLOWANCE HAS TO BE COMPUTED UNDER RULE 8D(2)(II) OF INCOME-T AX RULES, 1962. 7. WE HAVE CAREFULLY GONE THROUGH THE DECISION OF T HIS TRIBUNAL IN TAMILNADU POWER FINANCE & INFRASTRUCTURE DEVELOP MENT 6 I.T.A. NO.1505/MDS/16 CORPORATION LTD. (SUPRA). IN THE CASE BEFORE THIS TRIBUNAL IN TAMILNADU POWER FINANCE & INFRASTRUCTURE DEVELOPMEN T CORPORATION LTD. (SUPRA), THERE WAS A SPECIFIC FIND ING BY THIS TRIBUNAL THAT THE ASSESSEE HAS NOT INCURRED ANY EXP ENDITURE FOR MAKING INVESTMENT. THEREFORE, THIS TRIBUNAL FOUND THAT THE DISALLOWANCE HAS TO BE COMPUTED ONLY UNDER THIRD LI MB OF RULE 8D(2). ACCORDINGLY, THIS TRIBUNAL FOUND THAT THE C OMPUTATION HAS TO BE MADE WITH REGARD TO AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT FORM PART OF TOTAL INCOME OF THE ASS ESSEE. IN THE CASE BEFORE US, THE FACTS ARE ENTIRELY DIFFERENT. THE ASSESSEE ADMITTEDLY BORROWED FUNDS FOR THE PURPOSE OF BUSINE SS AND PAID INTEREST. THE INTEREST PAID BY THE ASSESSEE IS NOT RELATABLE TO ANY PARTICULAR INCOME. THEREFORE, THE SECOND LIMB OF R ULE 8D(2) IS SQUARELY APPLICABLE. 8. WE HAVE CAREFULLY GONE THROUGH THE ORDER OF THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS FOUND THAT THER E WAS NO DIRECT EXPENDITURE RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. THEREFORE, HE COMPUTED THE DISALLOWANCE UN DER THE SECOND LIMB OF RULE 8D(2) AND ALSO COMPUTED THE AVE RAGE AMOUNT / EXPENDITURE TO THE EXTENT OF ` 8,66,34,771/-. THEREFORE, THIS TRIBUNAL 7 I.T.A. NO.1505/MDS/16 IS OF THE CONSIDERED OPINION THAT THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER. THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON 30 TH SEPTEMBER, 2016 AT CHENNAI. SD/- SD/- ( ! .#$#% ) ( . . . ) (ABRAHAM P. GEORGE) (N.R.S. GANESAN) ' / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 7 /DATED, THE 30 TH SEPTEMBER, 2016. KRI. 0 .389 :9*3 /COPY TO: 1. ,- /APPELLANT 2. ./,- /RESPONDENT 3. 2 ;3 () /CIT(A) 11, CHENNAI-34 4. PRINCIPAL CIT-3, CHENNAI 5. 9< .3 /DR 6. =% > /GF.