DCIT CORPORATE 5 (2), CHENNAI V. M/S PRECISION INFOMATIC (MADRAS) PVT LTD, CHENNAI

ITA 1688/CHNY/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 1472 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 17-05-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: B RAMAKRISHNAN
• Keywords: Business income; Earning of tax free income; Rule 8D; Set aside
• Section: 5(2); 14A; 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . . . , , [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ] ./I.T.A. NO.1688/CHNY/2018 ! / ASSESSMENT YEAR : 2014-2015. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 5(2) CHENNAI. VS. M/S. PRECISION INFOMATIC (MADRAS) PVT LTD, OLD NO.150, NEW NO.22, HABIBULLAH ROAD, T. NAGAR, CHENNAI 600 017. [PAN AAACP 6434G] ( / APPELLANT) ( /RESPONDENT) '# $ % / APPELLANT BY : SHRI. SRIDHAR DORA, IRS, JCIT &' '# $ % /RESPONDENT BY : SHRI. B. RAMAKRISHNAN, FCA ( ) $ * /DATE OF HEARING : 04-06-2019 +,! $ * /DATE OF PRONOUNCEMENT : 13-06-2019 / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGA INST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-3, CHEN NAI (CIT(A) FOR SHORT) DATED 27.02.2018 FOR THE ASSESSMENT YEAR (AY ) 2014-15. ITA NO.1688/CHNY/2018. :- 2 -: 2. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPEA L: 1. THE ORDER OF THE ID CIT(A) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2.1 THE ID CIT(A) ERRED III DIRECTING THE AO TO DEL ETE THE ADDITION MADE TOWARDS UNDERSTATEMENT OF TURNOVER TO THE TUNE OFRS.7,56,20,161/-. 2.2 THE ID CIT(A) OUGHT TO HAVE APPRECIATED THAT TH E ASSESSEE FAILED TO PRODUCE PROPER EVIDENCE I DOCUME NTS IN SUPPORT OF ITS CLAIM THAT THE DIFFERENCE BETWEEN THE SALES FIGURE AS PER THE FINANCIALS VIS-A-VIS RETURN S FILED UNDER SERVICE TAX / VAT WERE DUE TO THE FACT THAT I N THE CASE OF COMPOSITE NATURE OF SERVICES INVOLVING MATE RIAL AND LABOUR, THE ASSESSEE WAS UNABLE TO IDENTIFY THE M UPFRONT AND BOTH THESE SERVICES WERE TAKEN INTO CONSIDERATION IN SERVICE TAX RETURN AS WELL AS VAT, WHICH RESULTED IN OVERLAPPING OF RECEIPTS UNDER BOT H CATEGORIES. 2.3 THE ID CIT(A) OVERLOOKED THE FACT THAT THE ASSE SSEE PUT FORWARD CONTRADICTORY STATEMENTS DURING THE SCR UTINY PROCEEDINGS AND WHILE SUBMITTING REJOINDER TO THE REMAND PROCEEDINGS INASMUCH AS THE CLAIM OF THE ASSESSEE DURING THE SCRUTINY PROCEEDING WAS THAT FO R COMPREHENSIVE AMC CHARGES IT SHOWED 70% & 30% RESPECTIVELY IN SERVICE TAX AND VAT REGIME, WHEREAS IN THE REJOINDER IT WAS SUBMITTED THAT THEY HAVE SHOWN 70% OF THE COMPREHENSIVE AMC IN BOTH SERVICE TAX RETURN / VAT. 2.4 THE ID CIT(A) FAILED TO APPRECIATE THAT IN PROV ING A CLAIM THE PRIMARY ONUS IS ON THE ASSESSEE WHICH IT FAILED TO DISCHARGE AND THE CLAIM OF OVERLAPPING OF REVENU E UNDER SERVICE TAX I VAT HAVE BEEN ACCEPTED BY THE I D CIT(A) MERELY BASED ON A RECONCILIATION STATEMENT F ILED BY THE ASSESSEE, WITHOUT ANY EVIDENTIARY VALUE. 3.1 THE ID CIT(A) ERRED III DELETING THE DISALLOWAN CE U/S 36(1)(VA) MADE BY THE AO TO THE TUNE OF RS. 77 ,41, 882 I - ON EMPLOYEE'S CONTRIBUTION TOWARDS EPF IESI, ON ITA NO.1688/CHNY/2018. :- 3 -: ACCOUNT OF BELATED REMITTANCE INTO GOVERNMENT ACCOU NT, NOT CONFORMING TO THE DUE DATES AS PER RELEVANT ACT S. 3.2 THE ID CIT(A) FAILED TO NOTE THAT AS PER THE DE CISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS MADRAS RADIATORS AND PRESSING LIMITED (2003) 129 TAXMANN 709, THE EMPLOYEES' CONTRIBUTION RECEIVED B Y THE EMPLOYER WOULD BE INCOME IN HIS HANDS AND THAT WOULD BE ALLOWED AS PERMISSIBLE DEDUCTION UNDER CLA USE (VA) OF SEC.36(1) IN COMPUTING THE BUSINESS INCOME U/S 28, PROVIDED THE ASSESSEE CREDITS THE SAME TO THE RELEVANT FUND AS PER THE DUE DATES SPECIFIED. 3.3 THE ID CIT(A) OUGHT TO HAVE NOTED THAT AS PER T HE DECISION OF THE HON'BLE GUJARATH HIGH COURT IN THE CASE OF CIT II VS GUJARATH STATE ROAD TRANSPORT CORPORAT ION, AS PER THE DEFINITION OF 'INCOME' U/S 2(24)(X), ANY SUM RECEIVED BY THE ASSESSEE FROM HIS EMPLOYEES AS CONTRIBUTION TO ANY PF OR SUPERANNUATION FUND ETC., AS PER THE RELEVANT ACTS, IS TO BE TREATED AS INCOME A ND THE EMPLOYER-ASSESSEE IS ELIGIBLE TO CLAIM DEDUCTIO N OF SUCH AMOUNT AS PER EXPLANATION TO SEC.36(1)(V) ONLY WHEN THE SAME IS CREDITED INTO THE RELEVANT FUND WI THIN THE DUE DATES SPECIFIED UNDER THOSE ACTS. 4.1 THE ID CIT(A) ERRED IN DELETING THE DISALLOWANC E U/S.14A R.W.R 8D MADE BY THE AO TO THE TUNE OF RS.47,23,545J-, RELYING ON THE DECISION OF THE JURISDICTIONAL ITAT IN THE CASE OF SHRI M. BHASKARA N, HOLDING THAT THE DISALLOWANCE CANNOT BE MADE IN THE ABSENCE OF EXEMPT INCOME EARNED DURING A YEAR. 4.2 THE ID CIT(A) ERRED IN NOT APPRECIATING THE FAC T THAT THE ASSESSEE HAD HUGE VALUE OF INVESTMENTS IN MUTUA L FUNDS IN ITS SUBSIDIARY COMPANIES, CAPABLE OF EARNI NG EXEMPT INCOME AND CLAIMED NO INTEREST EXPENDITURE ATTRIBUTABLE TO SUCH INVESTMENTS, THEREBY ATTRACTIN G THE PROVISIONS OF SEC.14A READ WITH RULE 8D. 4.3 THE ID CIT(A) OUGHT TO HAVE NOTED THAT AS PER T HE DECISION OF THE HON'BLE MUMBAI BENCH OF THE TRIBUNA L IN THE CASE OF M/S. DAGA CAPITAL MANAGEMENT PRIVATE LIMITED (117 ITR 169), RULE 8D IS APPLICABLE IN ALL CASES WHEREIN EVEN THERE IS NO EXEMPT INCOME IS EARNED. ITA NO.1688/CHNY/2018. :- 4 -: 4.4 THE ID CIT(A) FAILED TO NOTE THAT THE BOARD, VI DE CIRCULAR NO.5 OF 2014, HAS CLARIFIED THAT THE DISAL LOWANCE IS APPLICABLE EVEN IN CASES WHERE NO EXEMPT INCOME WAS EARNED DURING THE YEAR, BUT THERE IS A POSSIBIL ITY OF EARNING THE EXEMPT INCOME. 5. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 3. THE BRIEF FACTS OF THE CASE ARE AS UNDER: THE RESPONDENT-ASSESSEE NAMELY M/S. PRECISION INFO MATIC (MADRAS) PVT LTD, IS A COMPANY INCORPORATED UNDER T HE PROVISIONS OF THE COMPANY ACT, 1956. IT IS ENGAGED IN THE BUSIN ESS OF TRADING AND PROVIDING SERVICE FOR COMPUTER HARDWARE PRODUCTS. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2014-15 WAS FILED ON 28.11.2014 DISCLOSING NIL INCOME. AGAINST THE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED BY THE INCOME TAX OFFICER , CORPORATE WARD 5 (2), CHENNAI, (HEREINAFTER REFERRED AS AO ') VIDE ORDER DATED 28.12.2016 PASSED U/S.143(3) OF THE INCOME TAX AC T, 1961 (IN SHORT THE ACT) AT TOTAL INCOME OF D9,34,69,020/-. W HILE DOING SO, THE ASSESSING OFFICER MADE AN ADDITION ON ACCOUNT OF AL LEGED UNDERVALUATION OF CLOSING STOCK OF D7,56,20,161/-, ADDITION U/S.36(1) (VA) OF THE ACT OF D77,41,882/- AND DISALLOWANCE U /S.14A R.W.R. 8D FOR D47,23,545/-. THE FACTS RELEVANT TO THE ISSUE OF U NDER VALUATION OF ITA NO.1688/CHNY/2018. :- 5 -: CLOSING STOCK WAS SET OUT VIDE PARA 3 OF THE ASSESS MENT ORDER. THE SUM AND SUBSTANCE CASE OF THE ASSESSING OFFICER IS THAT AG AINST ACTUAL SALES OF D145,56,09,534/- AND SALES D120,21,90,762 /- WAS ACTUALLY DISCLOSED AND THE BALANCE AMOUNT OF D25,34,18,772/- WAS TREATED AS SUPPRESSED TURNOVER ON WHICH GROSS PROFIT RATE OF 29.84% WAS ADOPTED BY THE ASSESSING OFFICER ON AN ADDITION O F D7,56,20,161/- WAS MADE. THE ASSESSING OFFICER ALSO MADE A DISALLO WANCE OF D77,41,882/- BEING EMPLOYEES CONTRIBUTION TOWARDS E MPLOYEES PROVIDENT FUND AND EMPLOYEES STATE INSURANCE WHICH ARE NOT MADE WITHIN THE STIPULATED PERIOD UNDER THE PROVISIONS O F RESPECTIVE STATUTE, PLACING RELIANCE ON THE DECISION OF HONBLE GUJARA T HIGH COURT IN THE CASE OF CIT VS. GUJARAT STATE ROAD TRANSPORT CORPORATION (2 014) 41 TAXMANN.COM 100 AND THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. MADRAS RADIATORS AND PRESSINGS LTD (2003) 1 29 TAXMAN 709 . THE ASSESSING OFFICER ALSO MADE A DISALLOWANCE OF D47,23,545/- UNDER THE PROVISIONS OF SECTION 14A R. W.R 8D. 4. BEING AGGRIEVED BY THE ABOVE ADDITIONS, AN APPEAL W AS PREFERRED BEFORE LD. CIT(A), WHO VIDE IMPUGNED ORDE R DELETED THE ADDITION ON ACCOUNT OF SUPPRESSED SALES BY HOLDING THAT DIFFERENCE REFLECTED IN THE PROFIT AND LOSS ACCOUNT ADOPTED BY THE ASSESSEE ON ACCOUNT OF DUPLICATION OF BOTH VAT AND SERVICE TAX PURPOSE. AS ITA NO.1688/CHNY/2018. :- 6 -: REGARDS TO, DISALLOWANCE OF D77,41,882/- MADE U/S. 36(1) (VA) OF THE ACT AND AN ADDITION U/S.14A OF THE ACT FOR D47,23, 545/-, LD. COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE AD DITIONS. 5. BEING AGGRIEVED BY THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), REVENUE IS IN APPEAL BEFORE US CHA LLENGING THE CORRECTNESS OF THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). THE GROUNDS OF APPEAL NO.1 & 5 ARE GENER AL IN NATURE THEREFORE, DOES NOT REQUIRE ANY ADJUDICATION. 6. GROUND NO.2 CHALLENGES THE DIRECTION OF THE LD. COM MISSIONER OF INCOME TAX (APPEALS) DELETING THE ADDITION ON AC COUNT OF UNDERSTATEMENT OF THE TURNOVER. IT IS SUBMITTED TH AT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) OUGHT NOT TO HAVE CONCLUDED THE DIFFERENCE IN TURNOVER AS REFLECTED IN PROFIT AND LOSS ACCOUNT AND THE TURNOVER ADOPTED BY THE ASSESSING OFFICER IS O NLY ON ACCOUNT OF OVERLAPPING OF TURNOVER UNDER SERVICE TAX AND VAT. IT IS FURTHER SUBMITTED THAT ASSESSEE HAD MADE CONTRADICTORY STA TEMENTS BEFORE THE ASSESSING OFFICER AND THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN RESPECT OF AMP CHARGES AND ASSESSEE H AS FAILED TO PROVE THE DIFFERENCE IS ONLY ON ACCOUNT OF OVERLAPPING OF TURNOVER UNDER SERVICE TAX AND VAT. IT IS FURTHER SUBMITTED THAT THE LD. COMMISSIONER ITA NO.1688/CHNY/2018. :- 7 -: OF INCOME TAX (APPEALS) OUGHT NOT TO HAVE DELETED T HE DISALLOWANCE U/S.36(1) (VA) OF THE ACT IN THE LIGHT OF THE DECIS ION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. MADRAS RADIATORS AND PRESSING LTD (2003) 129 TAXMAN 709 . FURTHER, IT IS SUBMITTED THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) OUGHT NOT TO HAVE DELETED AN ADDITION OF D47,23,545/- MADE U/S.14A OF THE ACT BY HOLDING THAT IN THE ABSENCE OF ANY EXEMPT INCOME, NO DISALLOWANCE C AN BE MADE U/S.14A OF THE ACT. 7. ON THE OTHER HAND, THE ASSESSEE PLACED RELIANCE ON THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL S). 8. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. GROUND NO.2, CHALLENGES THE CORRECTNESS OF THE FINDINGS IN DELETING THE ADDITION ON ACCOUNT OF SUPPRESSED TURN OVER. FROM THE PERUSAL OF THE ASSESSMENT ORDER, THE ADDITION ON AC COUNT OF SUPPRESSED TURNOVER WAS MADE TAKING INTO CONSIDERAT ION THE STATEMENTS OF OPENING BALANCE, TOTAL PURCHASES, TO TAL SALES AND CLOSING SALES IN RESPECT OF EACH ITEM, WHICH IS SCH EDULED IN PARA 5 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER ALSO R ECORDED A CATEGORICAL FINDING THAT ASSESSEE HAD ACCEPTED THE FACTUM OF SUPPRESSION OF TURNOVER AND THE ASSESSEE HAD NOT DI SPUTED THE RATE OF ITA NO.1688/CHNY/2018. :- 8 -: GROSS PROFIT APPLIED ON THE SUPPRESSED TURNOVER. I T IS ONLY BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) APPELLANT COMPANY ADOPTED DIFFERENT STAND SAYING THAT DIFFERENCE IN TURNOVER HAD ARISEN ON ACCOUNT OF TURNOVER OVERLAPPING UNDER VAT/SERVICE TAX. THE ASSESSING OFFICER CAME TO A CONCLUSION THAT DIFFER ENCE IN THE TURNOVER IS BASED ON THE QUANTITATIVE FIGURES I.E. OPENING S TOCK, PURCHASES, SALES AND CLOSING STOCK AND THE STATEMENT IS FURNISHED BY THE ASSESSEE HIMSELF, THE ASSESSING OFFICER RECORDED THE FINDING THAT IT IS ADMITTED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS. NO MATERIALS WERE FILED BEFORE THE LD. COMMISSIONER OF INCOME TA X (APPEALS) SHOWING THE QUANTITATIVE DETAILS FILED BY THE AS SESSING OFFICER IS FALSE. THERE IS NOTHING ON RECORD TO SHOW THAT SA LES FIGURE SHOWN IN THE STATEMENT DOES NOT INCLUDE VAT / SERVICE TAX. IN THE CIRCUMSTANCES, THE CONCLUSION DRAWN BY THE LD. COMM ISSIONER OF INCOME TAX (APPEALS) APPEARS TO BE CONTRARY TO THE MATERIAL ON RECORD. THEREFORE, THE FINDINGS OF THE LD. COMMISSI ONER OF INCOME TAX (APPEALS) CANNOT BE SUSTAINED. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND RE STORE THE ORDER OF THE ASSESSING OFFICER ON THIS ISSUE. 9. GROUND NO.3, CHALLENGES THE CORRECTNESS OF THE FIN DINGS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IN DEL ETING THE ADDITION ITA NO.1688/CHNY/2018. :- 9 -: OF D77,41,882/- MADE U/S.36(1) (VA) OF THE ACT. FR OM THE PERUSAL OF THE ASSESSMENT ORDER, IT IS CLEAR THAT THAT THE ASS ESSING OFFICER HAD MADE THE DISALLOWANCE OF EMPLOYEES CONTRIBUTION OF EPF/ESI ON THE GROUND THAT THE SAID MONEY WAS NOT PAID WITHIN THE DUE DATE SPECIFIED IN THE STATUTE. IT IS SIGNIFICANT TO NOTE THAT THER E IS NO MATERIAL ON RECORD TO SHOW THAT THE SAID CONTRIBUTION WAS MADE WITHIN THE DUE DATE FOR FILING THE RETURN OF INCOME. THE LD. COMM ISSIONER OF INCOME TAX (APPEALS) DELETED THE ADDITION ON THE GROUND T HAT PAYMENTS ARE MADE WITHIN THE DUE DATE OF FILING OF RETURN OF INC OME AND NOT WITHIN THE TIME STIPULATED U/S.36(1) (VA) OF THE ACT. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. M/S. INDUSTRIAL SECURITY &INTELLIGENCE INDIA PVT. LTD IN TC NOS.585 & 586 OF 2015, DATED 2 4.07.2015, HAD HELD THAT WHEN EPF/ESI CONTRIBUTION ARE MADE WITHIN DUE DATE OF FILING THE RETURN, THE SAME SHOULD BE ALLOWED AS DEDUCTION . THEREFORE, WE RESTORE THIS ISSUE BACK TO THE FILE OF THE ASSESSIN G OFFICER TO EXAMINE WHETHER CONTRIBUTION TOWARDS EPF/ESI ARE MADE WITHI N THE DUE DATE OF FILING OF RETURN, IF SO, THE SAME SHOULD BE ALLOWED AS DEDUCTION. GROUND NO.3 RAISED BY THE REVENUE IS PARTLY ALLOWE D FOR STATISTICAL PURPOSE. 10. GROUND NO.4 CHALLENGES THE DECISION OF THE LD. COMM ISSIONER OF INCOME TAX (APPEALS) IN DELETING THE ADDITION OF D47,23,545/-, ITA NO.1688/CHNY/2018. :- 10 -: U/S.14A R.W.R.8D ON THE GROUND THAT NO RESORT CAN BE MADE TO PROVISIONS OF SECTION 14A OF THE ACT IN THE ABSEN CE OF ANY EXEMPT INCOME. THE DECISION OF THE LD. COMMISSIONER OF IN COME TAX (APPEALS) IS IN CONSONANCE WITH THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF REDINGTON (INDIA) LTD. VS. ACI T (2017) 77 TAXMANN.COM 257, AND THIS JUDGMENT WAS AFFIRMED BY THE HONBLE APEX COURT JUDGMENT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT, CIVIL APPEAL NOS.104 TO 109/2015, DATED 12.02.2018 . ACCORDINGLY, GROUND NO.4 RAISED BY THE REVENUE IS DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 13TH DAY OF JUNE, 2019, AT CHE NNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ) (INTURI RAMA RAO) /ACCOUNTANT MEMBER - ) / CHENNAI . / DATED:13TH JUNE, 2019 KV $ &*01 21!* / COPY TO: 1 . '# / APPELLANT 3. ( 3* () / CIT(A) 5. 16 &*7 / DR 2. &' '# / RESPONDENT 4. ( 3* / CIT 6. 8 9) / GF