M/s. V.Ramakrishna Sons Pvt Ltd., CHENNAI V. DCIT, CHENNAI

ITA 1839/CHNY/2010

• Counselvise Citation: 183921714 RSA 2010
• Duration Of Justice: 1 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 05-07-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 29-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: YOGESH KAMETH JCIT SR
• Keywords: Question of law
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH CHENNAI BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER I.T.A. NO. 1838 & 1839/MDS/2010 ASST. YEAR : 2005-06 & 2006-07 M/S. V.RAMAKRISHNA SONS PVT. LTD., OLD NO,5, NEW NO.9, FIRST CRESCENT PARK ROAD, GANDHI NAGAR, ADYAR, CHENNAI 600 020. PAN : AAACV2307A (APPELLANT) V. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE - III CHENNAI 600 034. (RESPONDENT) APPELLANT BY : SHRI SAROJ KUMAR PARIDA, ADVOCA TE RESPONDENT BY : SHRI YOGESH KAME TH, JCIT, SR.AR DATE OF HEARING : 05 JULY 2012 DATE OF PRONOUNCEMENT : 13 TH JULY 2012 O R D E R PER S.S. GODARA, JUDICIAL MEMBER : THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINS T THE ORDER OF THE CIT(APPEALS) III, CHENNAI DATED 17.9.2010 PERT AINING TO THE ASSESSMENT YEARS 2005-06 AND 2006-07 RESPECTIVELY IN PROCEEDIN GS UNDER SEC.143(3) OF THE INCOME TAX ACT, IN SHORT, THE ACT. SINCE THE GRO UNDS RAISED IN BOTH THE APPEALS ARE THE SAME IE., DISALLOWANCE UNDER SEC.14 A OF THE I.T. ACT HAS BEEN IMPUGNED BY THE ASSESSEE, HENCE, FOR THE SAKE OF CO NVENIENCE AND BREVITY BOTH CASES ARE DECIDED TOGETHER. 2. WE TAKE THE FACTS FROM ITA NO.1838/MDS/2010 A S UNDER :- I.T.A. NO. 1838 & 1839/MDS/2010 2 3. THE ASSESSEE COMPANY IS IN THE BUSINESS OF MANA GING AGENTS WHO FILED ITS RETURN DECLARING AN INCOME OF ` 3,35,818/-. THE ASSESSING OFFICER PROCESSED THE SAME UNDER SEC.143(1) OF THE ACT DETE RMINING A REFUND OF ` 3,21,513/-. THEREAFTER, A NOTICE UNDER SEC.148 OF THE ACT WAS ISSUED. THE ASSESSEE HAD CLAIMED EXEMPTION UNDER SEC.10(34) OF THE ACT TO THE TUNE OF ` 38,71,661/-. IN ITS PROFIT AND LOSS ACCOUNT, IT HA D CLAIMED EXPENSES IN THE FORM OF INTEREST OF ` 15,98,837/- AND OTHER ADMINISTRATIVE EXPENSES. THE ASSESSING OFFICER ISSUED NOTICE OF DISALLOWANCE.. 4. IN RESPONSE TO THE NOTICE, THE ASSESSEE CLAIMED THAT THE AMOUNT HAD BEEN DEPOSITED LONG BACK AND DIVIDEND INCOME, I N QUESTION, WAS IN LUMP SUM RELATING TO YEARS BACK REGARDING WHICH NO EXPEN DITURE HAD BEEN INCURRED. 5. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER NEGATED THE ASSESSEES PLEA THAT NO EXPENDITURE WAS INVOLVED IN EARNING DIVIDEND INCOME BY RELYING ON THE JUDGMENT OF THE HON'BLE SUPREME COUR T IN THE CASE OF CIT V. UNITED GENERAL TRUST (200 ITR 448(S.C) AND DETERMI NED THE QUANTUM OF EXPENDITURE ON PRO-RATA BASIS AND AGAINST THE GROSS RECEIPTS OF ` .60,22,585/- DURING THE YEAR UNDER CONSIDERATION AND INTEREST OF ` .15,98,837/-, AND WORKED OUT THE DISALLOWANCE AT ` 1,38,750/- UNDER SEC.14A OF THE I.T. ACT.. 6. THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(AP PEALS) WHEREIN THE DISALLOWANCE UNDER SEC.14A OF THE ACT STANDS CO NFIRMED AS UNDER :- I HAVE CONSIDERED THE FACTS OF THE CASE, THE REASO NS GIVEN BY THE A.O. AND THE SUBMISSIONS OF LD. AR. I FIND THA T THE CONTENTION OF THE APPELLANT THAT THERE IS NO EXPENS ES INVOLVED IN I.T.A. NO. 1838 & 1839/MDS/2010 3 EARNING DIVIDEND INCOME IS NOT CORRECT AS THE APPEL LANT COMPANY HAS GROSS RECEIPTS OF ` 60,22,585/- DURING THE YEAR UNDER CONSIDERATION AND THE INTEREST PAID IS ` 15,98,837/-. THE APPELLANT HAS RECEIVED DIVIDEND INCOME OF ` 38,71,661/-. AS PER THE APEX COURT DECISION IN THE CASE OF CIT V. UNITE D GENERAL TRUST, REPORTED IN 200 ITR 488 (S.C), A REASONABLE AMOUNT OF DISALLOWANCE IS REQUIRED TO BE MADE BEFORE ALLOWING THE EXEMPTION. KEEPING IN MINE THE ABOVE FACTS AND THE PRECEDENT, THE DISALLOWANCE MADE BY THE A.O. IS FOUND TO BE RE ASONABLE. I FIND NO REASON TO DEVIATE FROM THE FINDINGS GIVEN B Y THE A.O. HENCE, THIS GROUND OF APPEAL IS DISMISSED. HENCE THE ASSESSEE IS AGGRIEVED. 7. REITERATING THE STAND TAKEN BEFORE THE LOWER AU THORITIES AS WELL AS THE PLEAS TAKEN IN THE GROUNDS OF APPEAL, THE A.R. HAS SUBMITTED THAT IN THE ABSENCE OF ANY DIRECT RELATION BETWEEN THE INCOME A S WELL AS THE EXPENDITURE IN QUESTION, NO DISALLOWANCE CAN BE MADE UNDER SEC.14A OF THE ACT. IN THIS REGARD HE HAS ALSO CITED THE CASE LAW OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. HERO CYCLES LTD. (323 ITR 518). 8. THE D.R., ON THE OTHER HAND, RELIED ON THE FIND INGS OF CIT(APPEALS) AND PRAYED FOR REJECTION OF APPEAL. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AT LENGTH AND ALSO PERUSED THE FINDINGS RELEVANT TO THE CASE AS WELL AS CASE LAW CITED. IT EMERGES THAT BEFORE THE ASSESSING OFFICER AS WELL A S CIT(APPEALS) THE ASSESSEES VERSION IS THAT FOR EARNING DIVIDEND INCOME, NO EXP ENDITURE HAD BEEN INCURRED, I.T.A. NO. 1838 & 1839/MDS/2010 4 SINCE THE SAME DATES BACK TO PAST YEARS. WE OBSERV E FROM THE ORDERS THAT THE ASSESSING OFFICER AS WELL AS THE CIT(APPEALS) HAVE NOT ARRIVED AT THE DISALLOWANCE ON THE BASIS OF ANY MATERIAL ON RECORD SO AS TO PROVE DIRECT CO- RELATION BETWEEN THE INCOME AND EXPENDITURE. BY DR AWING SUPPORT FROM THE JUDGMENT OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V. HERO CYCLES LTD. (SUPRA) IN WHICH IT HAS BEEN HELD AS UN DER :- IN VIEW OF FINDING REPRODUCED ABOVE, IT IS CLEAR T HAT THE EXPENDITURE ON INTEREST WAS SET OFF AGAINST THE INCOME FROM INTER EST AND THE I INVESTMENTS IN THE SHARE AND FUNDS WERE OUT OF THE DIVIDEND PRO CEEDS. IN VIEW OF THIS FINDING OF FACT, DISALLOWANCE UNDER S. 14A WAS NOT SUSTAINABLE. WHETHER, IN A GIVEN SITUATION, ANY EXPENDITURE WAS INCURRED WHICH WAS TO BE DISALLOWED, IS A QUESTION OF FACT. THE CONTENTION O F THE REVENUE THAT DIRECTLY OR INDIRECTLY SOME EXPENDITURE IS ALWAYS I NCURRED WHICH MUST BE DISALLOWED UNDER S. 14A AND THE IMPACT OF EXPENDITU RE SO INCURRED CANNOT BE ALLOWED TO BE SET OFF AGAINST THE BUSINESS INCOM E WHICH MAY NULLIFY THE MANDATE OF S. 14A, CANNOT BE ACCEPTED. DISALLOWANCE UNDER S. 14A REQUIRES FINDING OF INCURRING OF EXPENDITURE; WHERE IT IS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAS BEEN INC URRED, DISALLOWANCE UNDER S. 14A CANNOT STAND. IN THE PRESENT CASE FIND ING ON THIS ASPECT, AGAINST THE REVENUE, IS NOT SHOWN TO BE PERVERSE. C ONSEQUENTLY, DISALLOWANCE IS NOT PERMISSIBLE. WE HAVE TAKEN THIS VIEW EARLIER ALSO IN IT APPEAL NO. 504 OF 2008, CIT VS. WINSOME TEXTILE IND USTRIES LTD., DECIDED ON 25TH AUG., 2009, WHEREIN IT WAS OBSERVED AS UNDER : CONTENTION RAISED ON BEHALF OF THE REVENUE IS THAT EVEN IF THE ASSESSEE HAD MADE INVESTMENT IN SHARES OUT OF ITS O WN FUNDS, THE ASSESSEE HAD TAKEN LOANS ON WHICH INTEREST WAS PAID AND ALL THE MONEY AVAILABLE WITH THE ASSESSEE WAS IN CO MMON KITTY, AS HELD BY THIS COURT IN CIT VS. ABHISHEK IN DUSTRIES LTD. (2006) 205 CTR (P&H) 304 : (2006) 286 ITR 1 (P&H) A ND THEREFORE, DISALLOWANCE UNDER S. 14A WAS JUSTIFIED. WE DO NOT FIND ANY MERIT IN THIS SUBMISSION. JUDGM ENT OF THIS COURT IN ABHISHEK INDUSTRIES (SUPRA) WAS ON THE ISS UE OF ALLOWABILITY OF INTEREST PAID ON LOANS GIVEN TO SIS TER CONCERNS, I.T.A. NO. 1838 & 1839/MDS/2010 5 WITHOUT INTEREST. IT WAS HELD THAT DEDUCTION FOR IN TEREST WAS PERMISSIBLE WHEN LOAN WAS TAKEN FOR BUSINESS PURPOS E AND NOT FOR DIVERTING THE SAME TO SISTER CONCERN WITHOU T HAVING NEXUS WITH THE BUSINESS. OBSERVATIONS MADE THEREIN HAVE TO BE READ IN THAT CONTEXT. IN THE PRESENT CASE, ADMI TTEDLY, THE ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION. IN S UCH A SITUATION, S. 14A COULD HAVE NO APPLICATION.' IN VIEW OF THE ABOVE, WE ARE OF THE OPINION THAT NO SUBSTANTIAL QUESTION OF LAW ARISES. THE APPEAL IS DISMISSED. WE ALSO SUBSCRIBE TO THE SAME OPINION. THEREFORE, I N OUR VIEW, BEFORE ANY DISALLOWANCE IS MADE UNDER THE PROVISIONS OF SEC.14 A OF THE ACT, THE DIRECT RELATION BETWEEN INCOME AND EXPENDITURE HAS TO BE P ROVED, WHICH SHOULD BE BASED ON SOME MATERIAL AVAILABLE ON RECORD. 10. AS FAR AS THE CASE LAW RELIED UPON BY THE REV ENUE IS CONCERNED IE., CIT V. UNITED GENERAL TRUST (SUPRA), WE FIND T HE SAME TO BE DISTINGUISHABLE ON FACTS OF THE INSTANT CASE IN THAT CASE, THE HON BLE APEX COURT DID NOT DECIDE THE ISSUE OF CO-RELATION OF EXPENDITURE, BUT HAD D EALT WITH THE SUBMISSION OF REASONABLENESS OF DISALLOWANCE. THEREFORE, THE SAM E IS NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE. CONSEQUENTLY, WE FIND N O REASON TO AGREE WITH THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CONF IRMED BY THE CIT(APPEALS) UNDER SEC.14A OF THE ACT. HENCE, THE ASSESSEES AP PEAL STANDS ALLOWED. I.T.A. NO. 1838 & 1839/MDS/2010 6 11. SIMILARLY, IN VIEW OF OUR FINDINGS HEREIN ABOV E, ITA NO.1809/MDS/2010 ALSO STANDS ACCEPTED. 12. ORDER PRONOUNCED ON FRIDAY, THE 13 TH OF JULY 2012 AT CHENNAI. SD/- SD/- ( N.S. SAINI) ( S.S. GODARA ) ACCOUNTAT MEMBER JUDICIAL MEMBER CHENNAI, DATED : 13 TH JULY 2012 JLS. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-II, COIMBATORE (4) CIT-III, COIMBATORE (5) D.R. (6) GUARD FILE