DCIT, CHENNAI V. M/s. Protectron Electromech P. Ltd., CHENNAI

ITA 157/CHNY/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2406 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 31-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: N DEVANATHAN
• Keywords: Earning of tax free income
• Section: 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER I.T.A. NO. 157/MDS/2013 (ASSESSMENT YEAR : 2009-10) THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(2), CHENNAI - 600 034 . (APPELLANT) V. M/S PROTECTRON ELECTROMECH PVT. LTD., NO.9, ATHIPATTAN STREET, MOUNT ROAD, CHENNAI - 600 001. PAN : AABCP 1103 B (RESPONDENT) C.O. NO. 48/MDS/2013 (IN I.T.A. NO. 157/MDS/2013) (ASSESSMENT YEAR : 2009-10) M/S PROTECTRON ELECTROMECH PVT. LTD., NO.9, ATHIPATTAN STREET, MOUNT ROAD, CHENNAI - 600 001. (APPELLANT) V. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(2), CHENNAI - 600 034 . (RESPONDENT) REVENUE BY : SHRI GURU BASHYAM, JCIT ASSESSEE BY : SHRI N. DEVANATHAN DATE OF HEARING : 02.04.2013 DATE OF PRONOUNCEMENT : 11.04.2013 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEALS OF THE REVENUE AND CROSS-OBJECTI ON OF THE ASSESSEE, DIRECTED AGAINST AN ORDER DATED 31.10.201 2 OF I.T.A. NO. 157/MDS/13 C.O. NO. 48/MDS/13 2 COMMISSIONER OF INCOME TAX (APPEALS)-V, CHENNAI. G RIEVANCE RAISED BY THE REVENUE IS THAT ASSESSEE WAS ALLOWED DEDUCTION UNDER SECTION 80-IB OF INCOME-TAX ACT, 1961 (IN SHORT 'TH E ACT') IN RESPECT OF OF ITS WINDMILLS INCOME. 2. WHEN THE ISSUE CAME UP, LEARNED A.R. SUBMITTED T HAT THE CIT(APPEALS) HAD RELIED ON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS V. ACIT (231 ITR 368). PER CONTRA, LEARNED D.R. SUBMITTED THAT THE DEPARTMENT HAD NOT ACCEPTED THE DECISION OF JURISDICTIONAL HIG H COURT AND HAD MOVED A SPECIAL LEAVE PETITION BEFORE HON'BLE APEX COURT. 4. FACTS APROPOS ARE THAT ASSESSEE CLAIMED A DEDUC TION OF ` 28,82,881/- FOR POWER GENERATED BY ITS WINDMILL. A SSESSING OFFICER WAS OF THE OPINION THAT LOSSES IN THE YEAR PRIOR TO INITIAL ASSESSMENT YEAR HAD TO BE SET OFF AGAINST PROFITS OF INITIAL A SSESSMENT YEAR WHILE COMPUTING DEDUCTION UNDER SECTION 80-IA OF THE ACT. THOUGH THE ASSESSEE RELIED ON THE DECISION OF VELAYUDHASWAMY S PINNING MILLS (SUPRA), THIS WAS NOT ACCEPTED BY THE ASSESSING OFF ICER. HOWEVER, APPEAL OF THE ASSESSEE BEFORE CIT(APPEALS) WAS SUCC ESSFUL. HE FOUND THAT SIMILAR DISALLOWANCE MADE BY THE ASSESSI NG OFFICER IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2008-09, WA S DELETED I.T.A. NO. 157/MDS/13 C.O. NO. 48/MDS/13 3 RELYING ON THE DECISION OF HON'BLE JURISDICTIONAL H IGH COURT IN THE CASE OF VELAYUDHASWAMY SPINNING MILLS (SUPRA). 5. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF CIT(APPEALS), SUBMITTED THAT THE DISALLOWANCE WAS R IGHTLY MADE BY THE A.O. 6. PER CONTRA, LEARNED A.R. SUPPORTED THE ORDER OF LD. CIT(APPEALS). 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THE QUESTION IS WHETHER LOSS PRIOR TO INITIAL ASSES SMENT YEAR SELECTED BY AN ASSESSEE TO CLAIM DEDUCTION UNDER SECTION 80- IB OF THE ACT HAS TO BE SET OFF WHILE COMPUTING THE DEDUCTION UNDER S ECTION 80-IA OF THE ACT. WE FIND THAT THE ISSUE HAS ALREADY BEEN DECID ED IN FAVOUR OF ASSESSEE BY HON'BLE JURISDICTIONAL HIGH COURT IN TH E CASE OF VELAYUDHASWAMY SPINNING MILLS (SUPRA). LD. CIT(APP EALS) HAS FAIRLY APPRECIATED THIS DECISION AND DELETED THE DISALLOWA NCE MADE BY THE ASSESSING OFFICER. HON'BLE JURISDICTIONAL HIGH COU RT HAS CLEARLY HELD THAT LOSS OF YEARS PRIOR TO INITIAL ASSESSMENT YEAR COULD NOT BE SET OFF WHILE COMPUTING DEDUCTION UNDER SECTION 80-IA OF TH E ACT. WE ARE, THEREFORE, OF THE OPINION THAT THERE WAS NO REASON TO INTERFERE WITH THE ORDER OF CIT(APPEALS) IN THIS REGARD. I.T.A. NO. 157/MDS/13 C.O. NO. 48/MDS/13 4 8. APPEAL OF THE REVENUE IS DISMISSED. 9. COMING TO THE CROSS-OBJECTION OF THE ASSESSEE, G RIEVANCE RAISED IS WITH REGARD TO DISALLOWANCE OF EXPENDITUR E, MADE UNDER SECTION 14A OF THE ACT, WHICH WAS CONFIRMED BY THE CIT(APPEALS). 10. FACTS APROPOS ARE THAT ASSESSEE HAD RECEIVED DI VIDEND INCOME OF ` 21,29,578/- AND CLAIMED AS EXEMPT UNDER SECTION 10 (34) OF THE ACT. THOUGH THE ASSESSEE CLAIMED THAT INVESTMENTS WERE ONLY FOR THE PURPOSE OF DEVELOPING ITS BUSINESS, ASSESSING OFFIC ER WAS OF THE OPINION THAT SOME EXPENDITURES ON ESTABLISHMENT AND ADMINISTRATION HAD TO BE ATTRIBUTED FOR EARNING SUCH EXEMPT INCOME . HE, THEREFORE, TOOK THE AVERAGE VALUE OF INVESTMENT AND APPLIED % THEREON FOR ARRIVING AT A DISALLOWANCE OF ` 2,97,234/- UNDER RULE 8D OF INCOME- TAX RULES, 1962. 11. IN ITS APPEAL BEFORE CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT THE INVESTMENTS WERE MADE THROUGH PORTFOLI O MANAGERS AND THE PORTFOLIO MANAGERS WERE PAID MANAGEMENT FEE OF ` 12,90,599/-. ACCORDING TO ASSESSEE, SUCH MANAGEMENT FEE WAS SUO MOTU DISALLOWED BY THE ASSESSEE ITSELF IN ITS COMPUTATIO N OF INCOME APPLYING SECTION 14A OF THE ACT. THEREFORE, SUBMIS SION OF THE I.T.A. NO. 157/MDS/13 C.O. NO. 48/MDS/13 5 ASSESSEE WAS THAT FURTHER DISALLOWANCE OF % OF IN VESTMENTS WAS NOT JUSTIFIED. CIT(APPEALS) WAS, HOWEVER, NOT APPR ECIATIVE OF THIS CONTENTION. ACCORDING TO HIM, THERE WAS SIZEABLE I NVESTMENT OF ` 11.89 CRORES AND SUBSTANTIAL MANAGERIAL TIME WOULD HAVE BEEN DEPUTED IN THE INVESTMENT FUNCTION. ACCORDING TO H IM, THESE WERE NOT ROUTINE DECISIONS THAT WERE TAKEN, BUT, DECISIONS W HICH WERE OF STRATEGIC IMPORTANCE. HE, THEREFORE, FELT THAT RUL E 8D WAS CORRECTLY APPLIED BY THE ASSESSING OFFICER AND CONFIRMED THE DISALLOWANCE MADE. 12. NOW BEFORE US, LEARNED A.R., STRONGLY ASSAILING THE ORDERS OF AUTHORITIES BELOW, SUBMITTED THAT DISALLOWANCE WAS MADE WITHOUT CONSIDERING THAT A DISALLOWANCE HAD ALREADY BEEN MA DE BY THE ASSESSEE. ACCORDING TO HIM, ASSESSEE WAS NOT DOING INVESTMENT DIRECTLY AND IT HAD APPOINTED SPECIFIC PORTFOLIO MA NAGERS AND AN AGREEMENT HAD BEEN ENTERED TO MAKE INVESTMENTS BY P ORTFOLIO MANAGERS. AS PER SUCH AGREEMENT, NO MANAGERIAL INP UT FROM ASSESSEES SIDE WAS REQUIRED. THEREFORE, ACCORDING TO HIM, A DISALLOWANCE UNDER RULE 8D WAS NOT WARRANTED. 13. PER CONTRA, LEARNED D.R. SUPPORTED THE ORDER OF CIT(APPEALS). I.T.A. NO. 157/MDS/13 C.O. NO. 48/MDS/13 6 14. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. WE FIND FROM THE ASSESSMENT ORDER THAT NOTHING WHAT SOEVER HAS BEEN MENTIONED REGARDING ANY DISALLOWANCE ASSESSEE HAD I TSELF MADE UNDER SECTION 14A OF THE ACT, VIS--VIS THE INVESTM ENTS MADE BY IT, WHICH RESULTED IN THE TAX-FREE DIVIDEND INCOME OF ` 21,29,578/-. ASSESSING OFFICER HAD STRAIGHTAWAY APPLIED RULE 8D FOR MAKING A DISALLOWANCE OF ` 2,97,234/-. AS PER ASSESSEE, THE INVESTMENTS WERE MADE THROUGH PORTFOLIO MANAGERS APPOINTED FOR SUCH PURPOSE, AND THE AGREEMENT ENTERED WITH SUCH PORTFOLIO MANAGERS CLEARLY SHOWED THAT INVESTMENTS WERE DONE BY PORTFOLIO MANAGERS WI THOUT ANY INPUTS FROM ASSESSEE. WE ARE OF THE OPINION THAT THE AUTH ORITIES BELOW SHOULD HAVE GONE THROUGH THE AGREEMENT ENTERED BY T HE ASSESSEE WITH THE PORTFOLIO MANAGERS AND THEREAFTER GIVEN A SPECIFIC FINDING AS TO WHY THE AMOUNT, IF ANY, DISALLOWED BY THE ASSESS EE SUO MOTU IN ITS COMPUTATION OF INCOME, WAS NOT SUFFICIENT OR WAS IN CORRECT. THIS EXERCISE HAS NOT BEEN DONE BY ANY OF THE AUTHORITIE S. BEFORE APPLICATION OF SECTION 14A AND RULE 8D, IT IS NECES SARY THAT REASONS ARE GIVEN BY AN ASSESSING OFFICER FOR HIS DISSATISF ACTION OF THE DISALLOWANCE MADE BY SUO MOTU BY AN ASSESSEE WHILE COMPUTING ITS INCOME. WE ARE, THEREFORE, OF THE OPINION THAT THE MATTER REQUIRES A RE-VISIT BY THE ASSESSING OFFICER. WE, THEREFORE, SET ASIDE THE ORDERS I.T.A. NO. 157/MDS/13 C.O. NO. 48/MDS/13 7 OF AUTHORITIES BELOW AND REMIT THE ISSUE REGARDING DISALLOWANCE UNDER SECTION 14A OF THE ACT, BACK TO THE FILE OF THE ASS ESSING OFFICER FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. ASSES SEE SHALL BE GIVEN AN OPPORTUNITY TO EXPRESS ITS CASE. 15. CROSS-OBJECTION OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 16. TO SUMMARIZE THE RESULT, APPEAL OF THE REVENUE IS DISMISSED, WHEREAS, CROSS-OBJECTION OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE 11 TH OF APRIL, 2013, AT CHENNAI. SD/- SD/- (V.DURGA RAO) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 11 TH APRIL, 2013. KRI. COPY TO: ASSESSEE/ASSESSING OFFICER/CIT(A)-V, CHENN AI-34/ CIT, CHENNAI-III, CHENNAI/D.R./GUARD FILE