DCIT, CHENNAI V. Hansa Vision India Private Limited, CHENNAI

ITA 1869/CHNY/2016

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3897 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 21-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHIVASRINIVAS IRS
• Assessee Lawyers: S SRIDHAR
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . ! ' , #'$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NOS.1868 & 1869/MDS/2016 # % &% / ASSESSMENT YEAR : 2010-11 & 2011-12 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2(2) CHENNAI 600 034. VS. M/S. HANSA VISION INDIA PRIVATE LIMITED (FORMERLY KNOWN AS THIRUVENGADAM INVESTMENTS PVT. LTD) NO.605 & 606, II FLOOR, FILM CHAMBER BUILDING, ANNA SALAI, CHENNAI 600 006. [PAN AABCT 3770E] ( / APPELLANT) ( /RESPONDENT) '( ) * / APPELLANT BY : SHRI. SHIVA SRINIVAS, IRS, JCIT. +,'( ) * /RESPONDENT BY : SHRI. S. SRIDHAR, ADVOCATE ! ) - / DATE OF HEARING : 06-09-2016 ./& ) - / DATE OF PRONOUNCEMENT : 08-09-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THESE APPEALS FILED BY THE REVENUE ARE DIRECTED A GAINST COMMON ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS )-6, CHENNAI FOR THE ABOVE ASSESSMENT YEARS PASSED U/S.143(3) AND 250 OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT). SINCE THE ISSUE IN THESE APPEALS IS COMMON IN NATURE, HENCE T HESE APPEALS ARE ITA NOS.1868 &1869/MDS/16. :- 2 -: COMBINED, HEARD TOGETHER, AND DISPOSED OF BY A COMM ON ORDER FOR THE SAKE OF CONVENIENCE. WE CONSIDER THE FACTS AS NARRA TED IN ITA 1868/MDS/2016 OF ASSESSMENT YEAR 2010-11 FOR ADJUDI CATION. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL:- 2.1. THE CIT(A) ERRED IN EXCLUDING THE INVESTMEN TS MADE BY THE ASSESSEE IN ITS SUBSIDIARY COMPANY FOR THE PURPOSE OF DETERMINATION OF DISALLOWANCE U/S.14A R. W.R. 8D OF THE ACT. 2.2. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE INVESTMENTS MADE BY THE ASSESSEE COMPANY IN ITS SUBSIDIARY COMPANY IS ALSO ENTITLED FOR DIVIDEND AN D HENCE THE SAME SHOULD BE TREATED ON PAR WITH THE OTHER INVEST MENTS MADE. 2.3. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE RE IS NO EXCEPTION PROVIDED IN RULE 8D IN RESPECT OF THE INVESTMENTS MADE IN THE SUBSIDIARY COMPANIES. 2.4. THE ORDER OF THE HON'BLE ITAT ON THE SIMILAR ISSUE IN THE CASE OF M/S.EIH ASSOCIATED HOTELS LIMITED (2 013- TOIL- 796-ITAT-MAD, DT. 17.07.2013) HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND FURTHER APPEAL IN TC A NO.227 OF 2014 IS PENDING BEFORE THE HON'BLE HIGH C OURT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS IN THE BUSINESS OF INVESTMENT IN SHARES AND PROPER TIES AND FILED RETURN OF INCOME ELECTRONICALLY ON 11.10.2010 WITH TOTAL INCOME OF ?1,32,82,444/- AND THE RETURN OF INCOME WAS PROCESS ED U/S.143(1) OF THE ACT. SUBSEQUENTLY, THE CASE WAS SELECTED FOR S CRUTINY AND NOTICE U/S.143(2) OF THE ACT WAS ISSUED. IN COMPLIANCE TO NOTICE, THE LD. AUTHORISED REPRESENTATIVE OF ASSESSEE APPEARED FROM TIME TO TIME AND ITA NOS.1868 &1869/MDS/16. :- 3 -: FURNISHED DETAILS AND CASE WAS DISCUSSED. IN THE A SSESSMENT PROCEEDINGS, THE LD. ASSESSING OFFICER FOUND THAT T HE ASSESSEE COMPANY HAS DISCLOSED INVESTMENTS IN THE BALANCE SH EET AND THE INCOME FROM INVESTMENTS ARE EXEMPTED FROM TAX. FU RTHER, THE ASSESSEE HAS NOT DISALLOWED ANY EXPENDITURE INCURR ED ON EARNING SUCH INCOME AND THE NATURE OF EXPENDITURE BEING ADMINIS TRATIVE AND MANAGERIAL. THE LD. ASSESSING OFFICER APPLYING THE PROVISIONS OF SEC. 14A R.W.R. 8D (II) AND (III) CALCULATED ?1,14,28,96 3/- AND MADE ADDITION TO RETURNED INCOME AND PASSED ORDER U/SE C. 143(3) OF THE ACT DATED 28.03.2013 DETERMINING TOTAL INCOME OF ?2 ,47,11,407/-. AGGRIEVED BY THE ORDER, ASSESSEE FILED AN APPEAL BE FORE COMMISSIONER OF INCOME TAX (APPEALS). 4. IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORISED REPRESENTATIVE OF ASSESSEE ARGUED THE GROUNDS AND E XPLAINED THAT THE LD. ASSESSING OFFICER HAS REJECTED THE EXPLANATIONS WITHOUT ASSIGNING PROPER REASONS AND JUSTIFICATION FOR DISALLOWANCE A ND ALSO FILED WRITTEN SUBMISSIONS ON FACTS AND JUDICIAL DECISIONS. THE AS SESSEE COMPANY HAS MADE INVESTMENTS IN SUBSIDIARY COMPANIES AND SU CH INVESTMENTS ARE TO BE EXCLUDED FOR COMPUTATION OF DISALLOWANCE UNDER RULE 8D (II) AND (III) OF THE INCOME TAX RULES AND UNDER PROVISI ONS OF SEC. 14A OF THE ACT. THE LD. COMMISSIONER OF INCOME TAX (APPEA LS) CONSIDERED THE SUBMISSIONS AND RELIED ON THE DELHI HIGH COURT JUDGMENT IN THE ITA NOS.1868 &1869/MDS/16. :- 4 -: CASE OF M/S. BHARATI OVERSEAS P. LTD IN ITA 802/2015 AND ELABORATELY DEALT ON THIS ISSUE AND DIRECTED THE LD. ASSESSING OFFICER REFERRED AT PARA 8.1, PAGE 10 OF ORDER AS UNDER:- 8.1 THE HONBLE DELHI HIGH COURT HAS THUS HELD THAT IF THERE IS NO INTEREST AMOUNT WHICH WAS NOT DIRECTLY ATTRIBUTABLE TO EITHER THE TAX EXEMPT OR THE TAXABLE INCOME, THEN NO PORTION O F INTEREST SURVIVES FOR ALLOCATION UNDER RULE 8D(II). FOLLOWIN G THE DECISION OF HORI'BLE DELHI HIGH COURT AS ABOVE, THE AO IS DIRECTED TO EXCLUDE THE INTEREST/FINANCE CHARGES ATTRIBUTABLE T O EARNING OF TAXABLE INCOME FROM THE PURVIEW OF COMPUTATION OF D ISALLOWANCE UNDER RULE 8D(II) OF THE INCOME- TAX RULES AND VERI FY WHETHER ANY INTEREST EXPENDITURE REMAINS WHICH IS NOT DIRECTLY ATTRIBUTABLE EITHER TO THE TAXABLE INCOME OR TO THE EXEMPT INCOM E. ONLY THAT PORTION OF INTEREST EXPENDITURE, NOT BEING DIRECTLY ATTRIBUTABLE, HAS TO BE TAKEN FOR ALLOCATION UNDER RULE 8D(2) (II). THE AO IS THEREFORE DIRECTED TO RECOMPUTE THE DISALLOWANCE UNDER 14A OF THE ACT FOR BOTH, THE ASSESSMENT YEARS UNDER CONSIDERATION, AS UNDER: A. EXCLUDE THE INVESTMENTS MADE IN SUBSIDIARY 'COMPANIES FOR THE PURPOSES OF COMPUTATION OF DISALLOWANCE UNDER RULE 8D2(II) & (III) OF THE INCOME-TAX RULES. B. FOR THE PURPOSES OF ALLOCATION OF INTEREST EXPENDITURE UNDER RULE 8D(2)(II), EXCLUDE ALL INTEREST/FINANCE CHARGES WHICH ARE DIRECTLY ATTRIBUTABLE TO EARNING EITHER TAX EXEMPT OR TAXABLE INCOME . AND PARTLY ALLOWED THE APPEAL. AGGRIEVED BY THE CO MMISSIONER OF INCOME TAX (APPEALS) ORDER, THE REVENUE HAS ASSAILE D AN APPEAL BEFORE TRIBUNAL. 5. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE ARG UED THE GROUNDS AND EXPLAINED THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DIRECTING THE LD. ASSESSING OFFICER TO EXCLUDE THE INVESTMENTS MADE IN SUBSIDIARIES COMPANIES FOR THE PURPOSE OF ITA NOS.1868 &1869/MDS/16. :- 5 -: DETERMINING DISALLOWANCE U/S.14A OF THE ACT R.W. RU LE 8D. THE INVESTMENTS CANNOT BE SEGREGATED EVEN THOUGH IN THE SAME MANAGEMENT AND BE TREATED ON PAR WITH OTHER INVEST MENTS. FURTHER, THE REVENUE ON SIMILAR GROUND IN THE CASE OF EIH ASSOCIATED HOTELS LIMITED VS DCIT IN ITA NO.1503/MDS/2012, ASSESSMENT YEAR 2008- 2009 DATED 17.07.2013 HAS NOT ACCEPTED THE DECISION AND APPEAL HAS BEEN FILED BEFORE JURISDICTIONAL HIGH COURT AND PRA YED FOR SET ASIDE THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS). 6. CONTRA, LD. AUTHORISED REPRESENTATIVE RELIED ON T HE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS) AND JUDICIA L DECISIONS AND REPRESENTED THAT INVESTMENTS IN SUBSIDIARY IS NOT F OR EARNING DIVIDEND INCOME BUT WITH BUSINESS MOTIVE AND SUPPORTED HIS A RGUMENTS WITH THE DECISION OF EIH ASSOCIATED HOTELS LIMITED (SUPRA) AND PRAYED FOR DISMISSING THE APPEAL. 7. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERI AL ON RECORD AND JUDICIAL DECISION CITED. THE SOLE CONTE NTION OF THE LD. DEPARTMENTAL REPRESENTATIVE ON THE APPLICABILITY O F PROVISIONS OF SEC. 14A AND RULE 8D(2) ARE MANDATORY. THE LD. ASSESSING OFFICER HAS RIGHTLY CALCULATED DISALLOWANCE BY APPLYING THE RU LE 8D(II) AND (III) IRRESPECTIVE OF THE FACT OF NOT MAKING DISTINCTION BETWEEN INVESTMENTS. FURTHER, THE ASSESSEE COMPANY HAS MADE INVESTMENTS WITH A MOTIVE TO EARN EXEMPTED INCOME AND NO PROPORTIONATE DISALLOWA NCE WAS MADE ITA NOS.1868 &1869/MDS/16. :- 6 -: WHILE COMPUTING TOTAL INCOME IN RESPECT OF EXPENDIT URE INCURRED FOR EARNING SUCH EXEMPTED INCOME. IN THE APPELLATE PRO CEEDINGS, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THE STRATEGIC DECISIONS OF INVESTMENTS OF THE ASSESSEE COMPANY I N SISTER CONCERNS /SUBSIDIARY COMPANY WITH A MOTIVE TO EARN PROFITS AND PROMOTION OF BUSINESS AND RELIED ON THE JUDICIAL DECISIONS AND D IRECTED THE LD. ASSESSING OFFICER IN CALCULATING DISALLOWANCE UNDER RULE 8D (II) AND (III) AND TO EXCLUDE INVESTMENTS MADE IN SUBSIDIARY COMPA NIES. THE LD. AUTHORISED REPRESENTATIVE SUPPORTED HIS ARGUMENTS WITH DECISION OF CO-ORDINATE BENCH IN THE CASE OF EIH ASSOCIATED HOT ELS LIMITED (SUPRA) OBSERVED AT PARA 6 PAGE 10 TO 12 AS UNDER:- 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE RIVA L PARTIES. WE HAVE ALSO EXAMINED THE ORDERS PASSED BY THE AUTHORITIES BELOW AND THE JUDGMENTS/ORDERS CITED BY THE REPRESENTATIVES OF BOTH THE PARTIES. THE FIRST ISSU E IN THE APPEAL OF THE ASSESSEE RELATES TO DIS-ALLOWANCE MAD E U/S. 14A R.W.R. 8D. THE ASSESSING OFFICER HAS MADE DIS- ALLOWANCE TO THE TUNE OF RS. 4,32,66,500/-.THE CONT ENTION OF THE ASSESSEE IS THAT THE ASSESSEE HAS EARNED DIV IDEND INCOME OF 4.6 LAKHS WHICH IS FULLY EXEMPT U/S. 10(34) OF THE ACT. THE ASSESSEE HAS MADE VOLUNTARILY DIS-ALLO WANCE OF 45,927/- U/S. 14A. THE ASSESSEE HAS MADE FRESH INVESTMENTS TO THE TUNE OF 9.4 CRORES DURING THE YEAR. THE ASSESSING OFFICER HELD THAT THE INVESTMENTS HAV E BEEN MADE FROM THE FRESH SECURED LOANS OBTAINED DURING T HE YEAR BY THE ASSESSEE. THE CIT(APPEALS) AFTER GOING THROUGH THE SUBMISSIONS MADE BY THE PARTIES HAS COM E TO THE CONCLUSION THAT THE ASSESSEE HAS MADE INVESTMEN TS FROM ITS OWN FUNDS EXCEPT FOR THE SHORT TERM INVEST MENTS MADE IN HDFC CASH MANAGEMENT FUND AND DSPML CASH PLUS FUND IN RESPECT OF WHICH THE AMOUNTS WERE INVESTED FROM INTEREST BEARING FUNDS BORROWED FROM HBSC. THE REVENUE HAS NOT BEEN ABLE TO CONTROVERT THE FIN DINGS OF CIT(APPEALS). ITA NOS.1868 &1869/MDS/16. :- 7 -: WE ARE OF THE CONSIDERED OPINION THAT THE INVESTMEN TS MADE BY THE ASSESSEE IN THE SUBSIDIARY COMPANY ARE NOT ON ACCOUNT OF INVESTMENT FOR EARNING CAPITAL GAINS OR DIVIDEND INCOME. SUCH INVESTMENTS HAVE BEEN MADE BY THE ASSESSEE TO PROMOTE SUBSIDIARY COMPANY INTO THE HOTEL INDUSTRY. A PERUSAL OF THE ORDER OF THE CIT(APPEALS ) SHOWS THAT OUT OF TOTAL INVESTMENT OF 64,18,19,775/-, 63,31,25,715/- IS INVESTED IN WHOLLY OWNED SUBSIDIA RY. THIS FACT SUPPORTS THE CASE OF THE ASSESSEE THAT THE ASS ESSEE IS NOT INTO THE BUSINESS OF INVESTMENT AND THE INVE STMENTS MADE BY THE ASSESSEE ARE ON ACCOUNT OF BUSINESS EXPEDIENCY. ANY DIVIDEND EARNED BY THE ASSESSEE FRO M INVESTMENT IN SUBSIDIARY COMPANY IS PURELY INCIDENT AL. THEREFORE, THE INVESTMENT MADE BY THE ASSESSEE IN I TS SUBSIDIARY ARE NOT TO BE RECKONED FOR DIS-ALLOWANCE U/S. 14A R.W.R. 8D. THE ASSESSING OFFICER IS DIRECTED TO RE- COMPUTE THE AVERAGE VALUE OF INVESTMENT UNDER THE PROVISIONS OF RULE 8D AFTER DELETING INVESTMENTS MA DE BY THE ASSESSEE IN SUBSIDIARY COMPANY. ACCORDINGLY, TH IS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THAT OF THE REVENUE IS DISMISSED. THE FINDINGS OF THE CIT(APPEALS) ON THE ISSUE ARE ACCORDINGLY MODIFIED . 8. FURTHER, THE CONTENTION OF THE REVENUE BEFORE US TH AT THE REVENUE HAS NOT ACCEPTED THE SAID DECISION OF THE T RIBUNAL AND APPEAL HAS ALREADY BEEN FILED BEFORE JURISDICTIONAL HIGH C OURT AND THE SAME IS PENDING. WE ARE OF THE OPINION THAT MERE PENDENCY OF APPEAL CANNOT BE A REASON TO TAKE DIFFERENT VIEW. THE ORDER OF T HE TRIBUNAL IS BINDING ON ALL AUTHORITIES IN THE STATE OF TAMIL NADU AND P UDUCHERRY. CONSIDERING THE APPARENT FACTS, MATERIAL EVIDENCE A ND JUDICIAL DECISIONS, THE LD. COMMISSIONER OF INCOME TAX (APPE ALS) HAS DEALT ELABORATELY AND DISCUSSED JUDICIAL DECISIONS AND DI RECTED THE LD. ASSESSING OFFICER TO EXCLUDE THE INVESTMENTS MADE I N SUBSIDIARY ITA NOS.1868 &1869/MDS/16. :- 8 -: COMPANIES FOR THE PURPOSE OF COMPUTATION OF DISALLO WANCE U/S.14A R.W.R. 8D(II) &(III) OF THE ACT AND ALSO WRITTEN S UBMISSIONS VIZ-A-VIZ THE EXPLANATIONS AND PARTLY ALLOWED THE APPEAL. WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) ON THE DIRECTION FOR RECOMPUTATION OF DISALLOWANCE U/S EC. 14A R.W.R8D (II) AND (III) AND WE UPHOLD THE ORDER OF THE COMMISSION ER OF INCOME TAX (APPEALS) AND DISMISS THE APPEAL OF THE REVENUE. TH E APPEAL OF THE REVENUE IS DISMISSED. 9. CONSEQUENTLY, THE APPEAL OF THE REVENUE IN ITA NO.1869/MDS/2016 FOR ASSESSMENT YEAR 2011-12 IS DIS MISSED. 10. IN THE RESULT, THE APPEALS OF THE DEPARTMENT IN IT A NOS. 1868 & 1869/MDS/2016 ARE DISMISSED. ORDER PRONOUNCED ON THURSDAY, THE 8TH DAY OF SE PTEMBER, 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ! ' ) (G. PAVAN KUMAR) / JUDICIAL MEMBER / CHENNAI 1 / DATED: 08.09.2016 KV 2 ) +#-34 54&- / COPY TO: 1 . '( / APPELLANT 3. ! 6- () / CIT(A) 5. 4 9: +#-# / DR 2. +,'( / RESPONDENT 4. ! 6- / CIT 6. :;% < / GF