ACIT, CHENNAI V. M/s. South India Travels Pvt. Ltd., CHENNAI

ITA 1518/CHNY/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52108 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 08-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revenue expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A. NO. 1518/MDS/2011 (ASSESSMENT YEAR : 2005-06) THE A.C.I.T COMPANY CIRCLE VI(3) CHENNAI (APPELLANT) VS. M/S SOUTH INDIA TRAVELS PVT. LTD., MOUNT VIEW, 111, ANNA SALAI, GUINDY CHENNAI 600 0032. PAN NO. AAACS 3792 E (RESPONDENT) ASSESSEE BY : SHRI VIKRAM VIJAYARAGH AVAN, ADVOCATE DEPARTMENT BY : SHRI SHAJI P. JACOB , SR. DR. DATE OF HEARING : 30.11.2011 DATE OF PRONOUNCEMENT : 30.11.2011 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY DEPARTMENT FOR THE ASSE SSMENT YEAR 2005-06 AGAINST THE ORDER DATED 20.06.2011 OF COMMI SSIONER OF INCOME TAX [A]-VI, CHENNAI BY TAKING THE FOLLOWING GROUNDS OF APPEAL: I.T.A. NO. 1518/MDS/2011 2 2.1 THE LD. CIT(A) ERRED IN DELETING THE DISALLOWA NCE OF RS. 3,40,00,000/- MADE ON ACCOUNT OF INVESTMENT IN INSTR UMENTS FOR THE PURPOSE OF EARNING DIVIDEND INCOME WHICH IS EXEMPT U/S 10(34) AND INTEREST FREE LOAN TO OTHER COMPANIES OUT OF INTEREST BEARING BORROWED FUNDS. 2.2 IT IS SUBMITTED THAT THE ISSUE AHS NOT BECOME FIN AL AND APPEAL HAS BEEN PREFERRED BEFORE THE HON'BLE JURISD ICTIONAL ITAT IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2001-02, 2003-04 & 2004-05 [ITA NO. 89/2004-05 DATE D 16.3.2007, ITA NO. 522/2005-06 DATED 17.8.2007 & IT A NO. 752/2006-07 DATED 17.8.2007]. 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS THAT T HE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS. 3,40,00, 000/- MADE ON ACCOUNT OF INVESTMENT IN INSTRUMENTS FOR THE PURPOS E OF EARNING DIVIDEND INCOME WHICH IS EXEMPT U/S 10(34) OF THE I .T. ACT, 1961 AND INTEREST FREE LOAN TO OTHER COMPANIES OUT OF IN TEREST BEARING BORROWED FUNDS. 3. THE LD. CIT(A) HAS OBSERVED THAT THE ASSESSMENT WAS COMPLETED AFTER DISALLOWING CLAIM OF INTEREST OF RS . 3,40,000/- PAID I.T.A. NO. 1518/MDS/2011 3 TO HDFC BANK ON THE GROUND THAT THE ASSESSEE HAS SU BSEQUENTLY MADE INVESTMENT IN INSTRUMENT FOR EARNING DIVIDEND EXEMPT FROM TAX U/S 10(34) OF THE ACT AND GIVEN INTEREST FREE L OAN TO OTHER COMPANIES. THE LD. CIT(A) HAS FURTHER OBSERVED IN HIS ORDER THAT DURING THE APPEAL PROCEEDINGS, THE LD. A.R. FILED C OPY OF THE ORDERS OF THE TRIBUNAL FOR ASSESSMENT YEARS 2001-02 TO 20 04-05 IN ITA NO. 1901/MDS/2007 DATED 19.9.2008 AND ITA NOS. 2413 & 2414/MDS/2007 DATED 21.11.2008 WHEREIN, ON IDENTICA L FACTS FOR THE EARLIER YEARS, ADDITION MADE ON THE SAME GROUNDS W AS DELETED. THEREFORE, FOLLOWING THE ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS, DELETED THE DISALLOWANCE OF RS. 3,40,00,000/-. 4. BEING AGGRIEVED BY THIS ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. WE FIND I.T.A. NO. 1518/MDS/2011 4 THAT THE TRIBUNAL IN ASSESSMENT YEAR 2001-02 IN ITA NO. 1901/MDS/2007 VIDE ORDER DATED 19.9.2008 HAS HELD A S UNDER: 4. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND SUBMITTED THAT SHRI AL VADIVELU WAS THE CHAIRMAN OF A COMPANY KNOWN AS MCC FINANCE LTD. THE ASSESSEE WAS HOLDING, PREFERENTIAL CAPITAL OF THIS SISTER CONCERN. IN THOSE DAYS MANY FINANCE COMPANIES WERE FACING PROBLEMS AN D EVEN THE MCC FINANCE LTD. WAS FACING DIFFICULTIES. IN FA CT, WINDING UP PROCEEDINGS WERE INITIATED AGAINST MCC FINANCE L IMITED AND THE HON'BLE JURISDICTIONAL HIGH COURT SUGGESTED T HAT IN ANY CASE THE DEPOSITORS SHOULD BE PAID AND, THEREFOR E, DIRECTED THAT ALL THE ALLIED COMPANIES SHOULD CONTRI BUTE IN MAKING THE PAYMENTS TO THE DEPOSIT HOLDERS. HE THEN FILED COPIES OF BANK DRAFTS AND POINTED OUT THAT DRAFTS WE RE DIRECTLY MADE IN THE NAME OF REGISTRAR GENERAL OF H IGH COURT OF MADRAS. HE SUBMITTED THAT THE AMOUNTS WERE DIRECTL Y. DEPOSITED WITH THE HIGH COURT AND SINCE NCC FINANCE LTD., WAS FACING WINGING UP PROCEEDINGS, THE ASSESSEE COM PANY COULD NOT HAVE ENTERED INTO ANY AGREEMENT OR TRANSAC TION WITH THAT COMPANY AND, THEREFORE, THESE AMOUNTS WERE DEBITED IN THE NAME OF AL VADIVELU. HE ARGUED THAT AM OUNTS WERE ADVANCED TO THE BENEFIT OF AL VADIVELU BUT THE A MOUNTS WERE LENT TO MCC FINANCE LTD THAT TOO ON THE BUSINESS, THUS I.T.A. NO. 1518/MDS/2011 5 ELIGIBLE TO DEDUCTION UNDER S. 37(1). THE CONNOTATION OF THE TERM 'WHOLLY AND EXCLUSIVELY FOR THE PURPOSES O F BUSINESS~ AS CONTAINED IN S. 37(1) DOES NOT REQUIRE THAT AN EXPENDITURE MUST BE INCURRED OUR OF NECESSITY. E VEN IF ITC CLASSIC HAD BENEFITED FROM THE EXPENDITURE INCURRED BY THE ASSESSEE, THE SAME COULD STILL BE ALLOWED AS DEDUCTION UNDER S. 37(1) IN THE HANDS -O F THE ASSESSEE IF IT CAN BE ESTABLISHED THAT THE SAME WAS INCURRED WITH A VIEW TO PROMOTE THE BUSINESS NEEDS OF THE ASSESSEE. ITC CLASSIC WAS ENTIRELY DEPENDENT ON THE BRAND NAME OF 'ITC' AS WOULD BE EVIDENT FROM THE EXPLANATORY STATEMENT ANNEXED WITH THE NOTICE SENT TO THE SHAREHOLDERS OF ITC CLASSIC FOR HOLDING THE ANN UAL GENERAL MEETING IN. 1993, CONTAINING THE PROPOSAL T O CHANGE THE NAME OF THE COMPANY FROM CLASSIC FINANCI AL SERVICES & ENTERPRISES LTD TO ITC CLASSIC FINANCE L TD, WHEREIN IT WAS STATED THAT THE CHANGE IN THE NAME SIGNIFIED A GREATER AND MORE FOCUSED COMMITMENT OF THE ITC BRAND TO THE SAID COMPANY. THE MANAGEMENT OF T HE ASSESSEE CONSIDERED THAT THE CLOSURE OF ITC CLASSIC WOULD HAVE HAD TREMENDOUS NEGATIVE IMPACT ON THE SEVERAL INVESTORS WHO HAD PUT MONEY IN THE SAID COMPANY ON THE ASSURANCE OF THE SAME BEING ASSOCIATED WITH THE BRA ND NAME ITC AND ACCORDINGLY THE BUSINESS FRATERNITY AS A WHOLE WOULD HAVE LOST FAITH IN THE BRAND IMAGE OF I TC OF I.T.A. NO. 1518/MDS/2011 6 WHICH THE ASSESSEE WAS THE FLAG-BEARER WHICH WOULD HAVE AFFECTED THE GENERAL BUSINESS OF THE ASSESSEE AND ACCORDINGLY, ASSISTANCE IN REVIVING ITC CLASSIC WOU LD HAVE PROTECTED THE ASSESSEE'S STANDING AS A PROMOTE R AND A PREMIER INDIAN ENTERPRISE AND ACCORDINGLY FUR THER ITS BUSINESS INTERESTS IN THE LONG RUN. IT IS A SET TLED PRINCIPLE OF LAW THAT BUSINESS OR COMMERCIAL EXPEDI ENCY IN THE MATTER OF INCURRING EXPENDITURE MUST BE DECI DED FROM THE PERSPECTIVE OF THE ASSESSEE. JUDGED FROM T HE SAID PRINCIPLE, THE DECISION OF THE ASSESSEE'S MANAGEMENT IN INCURRING THE EXPENDITURE WITH A VIEW TO PROTECT OR SAFEGUARD ITS GOODWILL, WAS BACKED BY SO UND LOGIC AND THE SAME WAS BONAFIDE THUS, EXPENDITURES INCURRED BY THE ASSESSEE FOR THE ASST. YRS. 1998-99 AND1999-2000 AMOUNTING TO RS. 52.79 CRORES AND RS. 2.02 CRORES, RESPECTIVELY SHOULD BE ALLOWED AS DEDUCTION UNDER S. 37(1) WHILE COMPUTING THE BUSINESS PROFITS FOR THE SAID ASSESSMENT YEARS, HAVING BEEN LAID OUT WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE AND ALSO BEING IN THE NATU RE OF REVENUE EXPENDITURES - CI T VS. DELHI SAFE DEPOSITS CO. LTD (1982) 26 CTR (SC) 411: (1982) 133 ITR 756 (SC) CIT VS. NATIONAL BANK LTD (1966) 62 ITR 638 (SC) SASSOON DAVID & CO: (P) LTD VS. CIT (1 979) 10CTR (SC) 383: (1979)118 ITR 261 (5C) AND LAWSON JOHNSON I.T.A. NO. 1518/MDS/2011 7 MATTHEY PIC (1994) 209 ITR 761 (HL) RELIED ON: CIT VS. SIR HAMI M. MEHTA (1943) 11 ITR 142 (BOM) DISTINGUISHED. FOLLOWING THE ABOVE DECISION AND PARTICULARLY IN THE LIGHT OF THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF SA BUILDERS LTD. VS. CIT [SUPRA], WE FIND NOTHING WRONG WITH THE ORDER OF THE CIT(APPEALS) ON THIS ISSUE AND ACCORDIN GLY, THE SAME IS CONFIRMED. 6. THE LD. D.R. ADMITTED THAT THE FACTS OF THE YEAR UNDER CONSIDERATION ARE IDENTICAL WITH THE FACTS IN THE C ASE OF THE ASSESSEE FOR THE ASSESSMENT YEARS 2001-02 TO 2004-0 5. THE LD. D.R. COULD NOT POINT OUT ANY ORDER OF ANY HIGHER AUTHORI TY WHEREIN RELIEF ALLOWED BY THE TRIBUNAL TO THE ASSESSEE IN THE EARL IER YEARS WERE VARIED. NO GOOD REASON COULD BE POINTED OUT BY THE LD. D.R. AS TO WHY THE ORDER PASSED BY THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF IN THE EARLIER YEAR SHOULD NOT BE FOLLOWED I N THIS YEAR ALSO. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY ERROR IN TH E ORDER OF THE LD. CIT(A) WHICH HAS BEEN PASSED AFTER FOLLOWING TH E ORDERS OF THE I.T.A. NO. 1518/MDS/2011 8 TRIBUNAL PASSED IN THE CASE OF THE ASSESSEE IN EARL IER YEARS. THEREFORE, THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT AT THE CLOSE OF HEAR ING IN THE PRESENCE OF THE PARTIES ON 30 TH NOVEMBER, 2011. SD/- SD/- (GEORGE MATHAN) (N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 30 TH NOVEMBER, 2011. VL COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A), CHENNAI (4) CIT, CHENNAI (5) D.R. (6) GUARD FILE