Tamilnadu Power Finance & Infrastructure Development Corpn Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1813/CHNY/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7926 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 7 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 24-06-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARUN C BHARATH
• Assessee Lawyers: R VIJAYARAGHAVAN
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO. 1813/MDS/2014 ( )( / ASSESSMENT YEAR : 2010-11 M/S TAMILNADU POWER FINANCE & INFRASTRUCTURE DEVELOPMENT CORPN LTD., TUFIDCO POWERFIN TOWER, 490/3-4, ANNA SALAI, NANDANAM, CHENNAI - 600 035. PAN : AAACT 2840 A V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(1), CHENNAI - 600 034. (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SH. R. VIJAYARAGHAVAN, ADVOCATE -.+, / 0 / RESPONDENT BY : SH. ARUN C. BHARATH, CIT 1 / 2% / DATE OF HEARING : 04.02.2016 3') / 2% / DATE OF PRONOUNCEMENT : 19.02.2016 / 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)-III, CHENN AI, DATED 20.01.2014 AND PERTAINS TO ASSESSMENT YEAR 2010-11. 2 I.T.A. NO.1813/MDS/14 2. SH. R. VIJAYARAGHAVAN, THE LD.COUNSEL FOR THE AS SESSEE, SUBMITTED THAT THE ASSESSEE, A STATE GOVERNMENT UND ERTAKING, RECEIVED TAX FREE INCOME DURING THE YEAR UNDER CONS IDERATION. ACCORDING TO THE LD. COUNSEL, THE ASSESSEE INVESTED ` 5 CRORES IN 5.45% TAX FREE BOND 2005 ISSUED BY CHENNAI METROPOL ITAN WATER SUPPLY AND SEWERAGE BOARD. ACCORDING TO THE LD. CO UNSEL, THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE. THE LD. COUNSEL FURTHER SUBMITTED THAT THE RESERVE AVAILABLE TO THE ASSESSE E TO THE EXTENT OF ` 54,54,90,000/- WAS, IN FACT, UTILISED FOR MAKING IN VESTMENT OF ` 5 CRORES. HOWEVER, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE UNDER SECTION 14A OF THE INCOME-TAX ACT, 1 961 (IN SHORT 'THE ACT') ON THE GROUND THAT THE ASSESSEE COULD HA VE INCURRED MANAGERIAL, ADMINISTRATIVE AND MONITORING EXPENSES. ACCORDING TO THE LD. COUNSEL, THE ASSESSEE BEING STATE GOVERNMEN T UNDERTAKING AND THE BUSINESS OF THE ASSESSEE IS TO FINANCE INFR ASTRUCTURE FACILITIES, NO EXTERNAL EXPENSES WERE INCURRED. TH EREFORE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT J USTIFIED. 3. ON THE CONTRARY, SH. A.B. KOLI, THE LD. DEPARTME NTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE HAD INV ESTED ` 5 CRORES IN THE TAX FREE BONDS ISSUED BY CHENNAI METR OPOLITAN WATER 3 I.T.A. NO.1813/MDS/14 SUPPLY AND SEWERAGE BOARD. REFERRING TO SECTION 14 A OF THE ACT AND RULE 8D OF INCOME-TAX RULES, 1962, THE LD. D.R. SUBMITTED THAT EVEN IF THE ASSESSEE CLAIMS THAT NO EXPENDITURE WAS INCURRED, THE ASSESSING OFFICER HAS TO EXAMINE THE MATTER AND FIN D OUT WHETHER THE ASSESSEE HAS ACTUALLY INCURRED ANY EXPENDITURE FOR EARNING THE INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. I N THE CASE BEFORE US, ACCORDING TO THE LD. D.R., THE ASSESSEE CLAIMS THAT THE RESERVE AVAILABLE WITH THE ASSESSEE WAS UTILISED FOR MAKING INVESTMENT. FOR MAKING INVESTMENT, THE ASSESSEE HAS TO TAKE ADMINIS TRATIVE DECISION BY TAKING INTO CONSIDERATION OF THE MARKET SITUATION. THEREFORE, THE ASSESSEE HAS TO NATURALLY INCUR MANA GERIAL, ADMINISTRATIVE EXPENSES. APART FROM THAT, THE ASSE SSEE ALSO NEEDS TO INCUR EXPENDITURE TO MONITOR THE INVESTMENT. IN VIEW OF THE ABOVE, ACCORDING TO THE LD. D.R., IT CANNOT BE SAID THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE AT ALL. HENCE, THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. THE LD. D.R. PLACED HIS RELIANC E ON THE ORDER OF THIS TRIBUNAL IN I.T.A. NO.2083/MDS/2011 DATED 02.0 3.2012 IN M/S LAKSHMI RING TRAVELLERS V. ACIT. 4 I.T.A. NO.1813/MDS/14 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE ASSESSEE-COMPANY IS OWNED BY STATE GOVERNMENT. THE ASSESSEE- COMPANY IS IN THE BUSINESS OF FINANCE AND CREATING INFRASTRUCTURE FACILITIES. THEREFORE, IN THE COURSE OF ITS REGULA R BUSINESS ACTIVITY, THE ASSESSEE WOULD HAVE ALL THE INFORMATION RELATIN G TO MARKET SITUATION IN THE FIELD OF FINANCE, INVESTMENT, ETC. IT IS NOT IN DISPUTE THAT THE ASSESSEE UTILISED THE RESERVES AVAILABLE T O THE EXTENT OF ` 54,54,90,000/- FOR MAKING INVESTMENT IN CHENNAI MET ROPOLITAN WATER SUPPLY AND SEWERAGE BOARD. 5. WE HAVE CAREFULLY GONE THROUGH THE ORDER OF THIS TRIBUNAL IN LAKSHMI RING TRAVELLERS (SUPRA) RELIED ON BY THE LD . D.R. IN THE SAID CASE, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TR AVEL. IN THOSE FACTUAL SITUATION, THE TRIBUNAL FOUND THAT EVEN IN A CASE WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE WAS INCURRED, T HE STATUTE HAS PROVIDED FOR A PRESUMPTIVE EXPENDITURE WHICH HAS TO BE DISALLOWED. IN THE CASE BEFORE US, THE BUSINESS OF THE ASSESSEE IS FINANCE AND INFRASTRUCTURE. THEREFORE, THE PRESUMPTION IS THAT THE ASSESSEE HAS ALL THE INFORMATION AND EXPERTISE FOR TAKING DECISI ON FOR MAKING THE INVESTMENT. HOWEVER, THE EXECUTIVES OF THE ASSESSE E-CORPORATION 5 I.T.A. NO.1813/MDS/14 HAVE TO SPEND CONSIDERABLE TIME IN ASSESSING THE MA RKET TREND FOR MAKING INVESTMENT. 6. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RULES, 1962, WHICH READS AS FOLLOWS: - (1) WHERE THE ASSESSING OFFICER HAVING REGARD TO TH E ACCOUNTS OF THE ASSESSEE OF THE PREVIOUS YEAR, IS NOT SATI SFIED WITH- (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE ; OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITU RE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR, HE SHALL DETE RMINE THE AMOUNT OF EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDA NCE WITH THE PROVISIONS OF SUB-RULE (2). (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DOE S NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE O F FOLLOWING AMOUNTS, NAMELY:- (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO I NCOME WHICH DOES NOT FORM PART OF TOTAL INCOME ; (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPEN DITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR IS NOT DIRECTLY A TTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY :- B A X--- C 6 I.T.A. NO.1813/MDS/14 WHERE A =AMOUNT OF EXPENDITURE BY WAY OF INTEREST OT HER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR ; B =THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM W HICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARI NG IN THE BALANCE- SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAS T DAY OF THE PREVIOUS YEAR ; C =THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE-SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR ; (III) AN AMOUNT EQUAL TO ONE-HALF PER CENT. OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE-SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS Y EAR. 3. FOR THE PURPOSES OF THIS RULE, THE 'TOTAL ASSET S' SHALL MEAN, TOTAL ASSETS AS APPEARING IN THE BALANCE-SHEET EXC LUDING THE INCREASE ON ACCOUNT OF REVALUATION OF ASSETS BUT INCLUDING THE DECREASE ON ACCOUNT OF REVALUATION OF ASSETS. RULE 8D WAS INTRODUCED WITH EFFECT FROM 24.03.2008. THEREFORE, THE SAME IS VERY MUCH APPLICABLE FOR THE YEAR UNDER CON SIDERATION. WHEN THE ASSESSING OFFICER IS NOT SATISFIED ABOUT T HE CORRECTNESS OF THE CLAIM OF EXPENDITURE OR THE ASSESSEES CLAIM TH AT NO EXPENDITURE WAS INCURRED, THEN THE ASSESSING OFFICER SHALL RECO MPUTE THE EXPENDITURE BY APPLYING THE PROCEDURE LAID DOWN IN RULE 8D(2). AS PER SUB-RULE (2) OF RULE 8D, THE AGGREGATE OF THE T HREE LIMBS PROVIDED THEREIN HAS TO BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF COMPUTING THE EXPENDITURE. IN THE CASE BEFORE U S, THE ASSESSEE ADMITTEDLY UTILIZED THE RESERVE AVAILABLE TO THE EX TENT OF 7 I.T.A. NO.1813/MDS/14 ` 54,54,90,000/-. THEREFORE, NO DIRECT EXPENDITURE WAS INCURRED FOR EARNING THE INCOME WHICH DOES NOT FORM PART OF TOTA L INCOME. THE ASSESSEE ALSO HAS NOT INCURRED ANY EXPENDITURE BY W AY OF INTEREST. THEREFORE, THE SECOND LIMB OF THE RULE 8D(2) IS NOT APPLICABLE. NOW COMING TO THE THIRD LIMB, THE AMOUNT EQUAL TO 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 BALAN CE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE P REVIOUS YEAR, HAS TO BE TAKEN INTO CONSIDERATION. THIS TRIBUNAL IS O F THE CONSIDERED OPINION THAT THE THIRD LIMB OF RULE 8D(2) HAS TO BE APPLIED. THEREFORE, THE COMPUTATION MADE BY THE ASSESSING OF FICER BY ADOPTING SECOND LIMB OF RULE 8D(2) MAY NOT BE CORRE CT. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES AR E MODIFIED AND THE ASSESSING OFFICER IS DIRECTED TO TAKE 0.5% OF THE A VERAGE VALUE OF THE INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME AS APPEARING IN THE BALANCE SHEET OF T HE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR , AS EXPENDITURE FOR EARNING INCOME. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. 8 I.T.A. NO.1813/MDS/14 ORDER PRONOUNCED ON 19 TH FEBRUARY, 2016 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 19 TH FEBRUARY, 2016. KRI. / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. 1 92 () /CIT(A)-III, CHENNAI-34 4. 1 92 /CIT, CHENNAI-III, CHENNAI-34 5. 7: -2 /DR 6. ( ; /GF.