ACIT, CHENNAI V. Easun Products of India (P) LTd., CHENNAI

ITA 182/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9339 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-05-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 02-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: M VISWANATHAN
• Section: 43B; 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , . !' , $ % BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO. 182/MDS/2016 ' (' / ASSESSMENT YEAR : 2012-13 THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2(1), CHENNAI - 600 034. V. M/S EASUN PRODUCTS OF INDIA (P) LTD., 6 TH FLOOR, TEMPLE TOWER, 672, ANNA SALAI, NANDANAM, CHENNAI - 600 035. PAN : AAACE 7384 C (*+/ APPELLANT) (,-*+/ RESPONDENT) *+ . / / APPELLANT BY : SH. P. RADHAKRISHNAN, JCIT ,-*+ . / / RESPONDENT BY : SH. M. VISWANATHAN, CA 0 . 1$ / DATE OF HEARING : 23.03.2016 2!( . 1$ / DATE OF PRONOUNCEMENT : 19.05.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-6, CHENNAI , DATED 16.12.2015 AND PERTAINS TO ASSESSMENT YEAR 2012-13. 2 I.T.A. NO.182/MDS/16 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DISALLOWANCE MADE UNDER SECTION 14A OF THE INCOME-T AX ACT, 1961 (IN SHORT 'THE ACT') READ WITH RULE 8D OF THE INCOM E-TAX RULES, 1962. 3. SH. P. RADHAKRISHNAN, THE LD. DEPARTMENTAL REPRE SENTATIVE, SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS INVESTED NEARLY ` 26 CRORES IN THE EQUITY SHARES OF OTHER COMPANIES FOR EARNING THE DIVIDEND INCOME. IN FACT , THE ASSESSEE EARNED A DIVIDEND INCOME OF ` 27,22,973/-. THE ASSESSEE HAS ALSO BORROWED SUBSTANTIAL FUNDS AND INCURRED INTEREST EX PENDITURE. THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT NO EXPENDITURE WAS INCURRED FOR EARNING THE DIVIDEND INCOME / EXEM PTED INCOME. HOWEVER, THE ASSESSING OFFICER REJECTED THE CONTENT ION OF THE ASSESSEE AND FOUND THAT THE ASSESSEE HAS PAID INTER EST ON THE BORROWED FUNDS WHICH WERE USED FOR INVESTMENTS. TH E ASSESSING OFFICER FURTHER FOUND THAT THE ASSESSEE HAS TO CERT AINLY DEPLOY SOME OF THE PERSONNEL WORKING IN THE COMPANY FOR MONITOR ING THE INVESTMENTS. THE ASSESSEE HAS ALSO CLAIMED BEFORE THE ASSESSING OFFICER THAT SURPLUS FUNDS WERE AVAILABLE FOR MAKIN G THE INVESTMENTS. HOWEVER, THE ASSESSING OFFICER FOUND THAT ON THE DATE OF INVESTMENTS, THE ASSESSEE HAD NO SURPLUS FUNDS, THEREFORE, BY 3 I.T.A. NO.182/MDS/16 APPLYING RULE 8D(2) OF INCOME-TAX RULES, 1962, HE E STIMATED THE DISALLOWANCE AT ` 1,08,15,631/-. HOWEVER, ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) RESTRICTED THE DISALLOWA NCE TO THE DIVIDEND INCOME EARNED BY THE ASSESSEE. ACCORDING TO THE LD. D.R., RULE 8D PROVIDES FOR METHOD OF COMPUTATION OF EXPENDITURE FOR EARNING THE EXEMPTED INCOME. THEREFORE, WHEN THE A SSESSING OFFICER ESTIMATED THE EXPENDITURE FOR EARNING THE E XEMPTED INCOME BY APPLYING THE PROCEDURE PROVIDED IN RULE 8D, THE CIT(APPEALS) IS NOT JUSTIFIED IN RESTRICTING THE DISALLOWANCE TO TH E INCOME EARNED BY THE ASSESSEE. 4. ON THE CONTRARY, SHRI M. VISWANATHAN, THE LD. RE PRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE CIT(APPEALS) B Y FOLLOWING THE DECISION OF MUMBAI BENCH OF THIS TRIBUNAL IN M/S DA GA GLOBAL CHEMICALS IN I.T.A. NO.5592/MDS/2012 DATED 01.01.20 15, FOUND THAT THE DISALLOWANCE CAN, AT THE BEST, BE TO THE EXTENT OF DIVIDEND INCOME RECEIVED BY THE ASSESSEE. ACCORDINGLY, THE CIT(APPEALS) RESTRICTED THE DISALLOWANCE TO ` 27,22,973/-. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE CIT(APPEALS) FOUND THAT THE ASSESSEE HAS DEMONSTRATED THAT THE I NVESTMENTS 4 I.T.A. NO.182/MDS/16 WERE MADE FROM AND OUT OF THE SURPLUS FUNDS. THE C IT(APPEALS) HAS ALSO FOUND THAT THERE WAS NO MATERIAL AVAILABLE ON RECORD TO SUGGEST THAT THE BORROWED FUNDS WERE USED FOR MAKIN G THE INVESTMENTS. THE ASSESSING OFFICER OBSERVED THAT I N THE IMPUGNED ORDER THAT WHAT IS REQUIRED TO BE SEEN IS WHETHER T HE ASSESSEE HAD SUFFICIENT CASH BALANCE AT THE TIME OF MAKING THE I NVESTMENTS. THIS FACT WAS NOT CONSIDERED BY THE CIT(APPEALS). THE C IT(APPEALS) HAS SIMPLY OBSERVED THAT THE ASSESSEE HAS DEMONSTRA TED THAT THE INVESTMENTS HAVE BEEN MADE OUT OF THE SURPLUS FUNDS . WHAT WAS THE SURPLUS FUND AVAILABLE WITH THE ASSESSEE AND WH AT WAS THE SOURCE OF SURPLUS FUNDS ARE NOT EVEN DISCUSSED IN T HE IMPUGNED ORDER OF THE CIT(APPEALS). IF THE ASSESSEE HAS BOR ROWED FUNDS FOR BUSINESS PURPOSE AND NO DIRECT NEXUS IS AVAILABLE T O INDICATE THAT THE BORROWED FUNDS WERE USED FOR MAKING INVESTMENTS FOR EARNING EXEMPTED INCOME, SECOND LIMB OF RULE 8D(2) PROVIDES FOR COMPUTATION OF EXPENDITURE. THIRD LIMB OF RULE 8D( 2) PROVIDES FOR COMPUTATION OF AN AMOUNT EQUAL TO 0.5% OF AVERAGE V ALUE OF INVESTMENT INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. RULE 8D(2) PROVIDES FOR COMPUTATION OF EXPENDITURE BY AL L THE THREE LIMBS PROVIDED THEREIN ON AGGREGATE BASIS. SINCE THE CIT (APPEALS) HAS NOT CONSIDERED THE AVAILABLE FUNDS WITH THE ASSESSE E AND SOURCE 5 I.T.A. NO.182/MDS/16 THEREOF, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER SHALL RECONSIDER THE ISSUE AFRESH AND FIND OUT WHETHER THE ASSESSEE HAD ANY SURPLUS FUNDS AS OBSERVED BY THE C IT(APPEALS). IF SURPLUS FUNDS WERE AVAILABLE, THE ASSESSING OFFI CER HAS TO CONSIDER SUCH SURPLUS FUNDS FOR MAKING THE INVESTME NTS. SINCE THE ORDER OF CIT(APPEALS) IS NOT CLEAR REGARDING THE AV AILABILITY OF SURPLUS FUNDS AND SOURCE THEREOF, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RECONSIDERED BY THE ASSESSING OFFICER. ACCORDINGLY, THE ORDERS OF THE LOWER AUTH ORITIES ARE SET ASIDE AND THE ENTIRE ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL REC ONSIDER THE ISSUE AFRESH AND FIND OUT THE AVAILABILITY OF SURPLUS FUN DS AND SOURCE THEREOF AND THEREAFTER DECIDE THE ISSUE IN ACCORDAN CE WITH LAW, AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE. 6. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DISA LLOWANCE OF CONTRIBUTION MADE TO ESI AND PROVIDENT FUND. 7. SH. P. RADHAKRISHNAN, THE LD. DEPARTMENTAL REPRE SENTATIVE, SUBMITTED THAT THE ASSESSING OFFICER FOUND DURING T HE COURSE OF ASSESSMENT PROCEEDING THAT THE CONTRIBUTION TO PROV IDENT FUND AND ESI COLLECTED FROM THE EMPLOYEES WAS REMITTED TO TH E RESPECTIVE 6 I.T.A. NO.182/MDS/16 ACCOUNTS BELATEDLY. THE ASSESSEE HAS ALSO CLAIMED DEDUCTION UNDER SECTION 36(1)(VA) OF THE ACT. THE ASSESSEE F URTHER CLAIMED BEFORE THE ASSESSING OFFICER THAT THE EMPLOYEES CO NTRIBUTION TO PROVIDENT FUND AND ESI SHOULD BE TREATED ON PAR WIT H EMPLOYERS CONTRIBUTION. ACCORDING TO THE LD. D.R., THE CONTR IBUTION COLLECTED FROM EMPLOYEES BY THE ASSESSEE TOWARDS PROVIDENT FU ND AND ESI HAS TO BE ALLOWED ONLY WHEN THE PAYMENT WAS MADE WI THIN THE SPECIFIED PERIOD AS PROVIDED UNDER SECTION 36(1)(VA ) OF THE ACT, OTHERWISE THE SAME HAS TO BE TREATED AS INCOME OF T HE ASSESSEE UNDER SECTION 2(24)(X) OF THE ACT. SINCE THE EMPLO YEES CONTRIBUTION WAS BELATEDLY DEPOSITED, THE SAME HAS TO BE TREATED AS INCOME OF THE ASSESSEE. HOWEVER, ACCORDING TO THE LD. D.R., THE CIT(APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE BY P LACING RELIANCE ON THE JUDGMENT OF MADRAS HIGH COURT IN CIT V. INDU STRIAL SECURITY & INTELLIGENCE INDIA PRIVATE LIMITED IN I.T.A. NOS.58 5 AND 586 OF 2015 DATED 24.07.2015. 8. ON THE CONTRARY, SHRI M. VISWANATHAN, THE LD. RE PRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE MADRAS HIGH CO URT IN INDUSTRIAL SECURITY & INTELLIGENCE INDIA PRIVATE LIMITED (SUPR A), AFTER CONSIDERING THE JUDGMENT OF APEX COURT IN CIT V. AL OM EXTRUSIONS 7 I.T.A. NO.182/MDS/16 LIMITED (319 ITR 306), FOUND THAT THE EMPLOYEES CO NTRIBUTION TOWARDS PROVIDENT FUND AND ESI WAS DEPOSITED AFTER THE DUE DATE PROVIDED IN RESPECTIVE PROVISIONS, HOWEVER, BEFORE THE DUE DATE FOR FILING THE RETURN OF INCOME AS SPECIFIED UNDER INCO ME-TAX ACT, THEREFORE, NO DISALLOWANCE CAN BE MADE UNDER SECTIO N 43B OF THE ACT. IN THIS CASE, ACCORDING TO THE LD. REPRESENTA TIVE, THE ASSESSEE HAS ADMITTEDLY PAID BOTH EMPLOYEES AND EMPLOYERS CONTRIBUTION WITHIN THE DUE FOR FILING THE RETURN OF INCOME, THE REFORE, THE CIT(APPEALS) HAS RIGHTLY ALLOWED THE CLAIM OF THE A SSESSEE BY FOLLOWING THE JUDGMENT OF MADRAS HIGH COURT. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE EMPLOYEES AS WELL AS THE EMPLOYER S CONTRIBUTION TO PROVIDENT FUND AND ESI WAS DEPOSITED BEFORE THE DUE DATE FOR FILING OF RETURN OF INCOME. THE MADRAS HIGH COURT IN INDU STRIAL SECURITY & INTELLIGENCE INDIA PRIVATE LIMITED (SUPRA), AFTER C ONSIDERING THE JUDGMENT OF APEX COURT IN ALOM EXTRUSIONS LIMITED ( SUPRA), FOUND THAT EVEN THOUGH THE EMPLOYEES CONTRIBUTION TOWARD S PROVIDENT FUND AND ESI WAS DEPOSITED AFTER THE DUE DATE PRESC RIBED UNDER THE RELEVANT ACT BUT BEFORE THE DUE DATE FOR FILING OF RETURN OF INCOME 8 I.T.A. NO.182/MDS/16 UNDER THE INCOME-TAX ACT, NO DISALLOWANCE CAN BE MA DE UNDER SECTION 43B OF THE ACT. IN VIEW OF THIS JUDGMENT O F MADRAS HIGH COURT IN INDUSTRIAL SECURITY & INTELLIGENCE INDIA P RIVATE LIMITED (SUPRA), THIS TRIBUNAL DO NOT FIND ANY REASON TO IN TERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SA ME IS CONFIRMED. 10. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 19 TH MAY, 2016 AT CHENNAI. SD/- SD/- (. !' ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 19 TH MAY, 2016. KRI. . ,156 76(1 /COPY TO: 1. *+ /APPELLANT 2. ,-*+ /RESPONDENT 3. 0 81 () /CIT(A)-6, CHENNAI 4. PRINCIPAL CIT-2, CHENNAI 5. 69 ,1 /DR 6. :' ; /GF.