DCIT Corporate Circle 1, Coimbatore V. Sharadha Terry Products Ltd., Coimbatore

ITA 1906/CHNY/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 3822 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 11-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Reopening of assessment; Capital asset; Depreciation; Earning of tax free income; Wrong claim; Tax effect; Revenue expenditure; Capital expenditure; Rule 8D; Set aside
• Section: 14A; 10B; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNALD BENCH: CHEN NAI (CAMP AT COIMBATORE) . . . , , BEFORE SHRI N.R.S. GANESAN , JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBE R ./ ITA NOS.1906, 592 & 1578/CHNY/2018 /ASSESSMENT YEARS: 2009-10, 2010-11 & 2011-12 THE DY. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-1, COIMBATORE. VS. M/S. SHARADHA TERRY PRODUCTS LTD., NO.8, BADRAKALIAMMAN KOVIL ROAD, NELLITHURAI POST, METTUPALAYAM, COIMBATORE 641 305. [PAN : AADCS 0657H ] ( /APPELLANT) ( !' /RESPONDENT) ./ ITA NO.1324/CHNY/2018 /ASSESSMENT YEAR: 2011-12 M/S. SHARADHA TERRY PRODUCTS LTD., NO.8, BADRAKALIAMMAN KOVIL ROAD, NELLITHURAI POST, METTUPALAYAM, COIMBATORE 641 305. VS. THE DY. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-1, COIMBATORE. [PAN: AADCS 0657H] ( /APPELLANT) ( !' /RESPONDENT) # $ / ASSESSEE BY : SHRI S. SRIDHAR, ADVOCATE !' # $ /REVENUE BY : SHRI J.PAVITRAN KUMAR, JCIT % & # '( /DATE OF HEARING : 05.02.2020 )* # '( / DATE OF PRONOUNCEMENT : 05.02.2020 ITA NO.1906, 592, 1578 & 1324CHNY/2018 :- 2 -: / O R D E R PER BENCH : APPEALS IN ITA NOS. 1906, 592 & 1578/CHNY/2018 FOR ASSESSMENT YEARS (AYS) 2009-10 TO 2011-12 OF THE REVENUE AND I TA NO.1324/CHNY/2018 FOR AY 2011-12 OF ASSESSEE ARE DI RECTED AGAINST THE ORDERS PASSED BY THE COMMISSIONER OF INCOME TAX (AP PEALS)-1, COIMBATORE DATED 15.03.2018, 05.12.2017 & 22.02.201 8 RESPECTIVELY. I.T.A NO.1578/CHNY/2018 FOR AY 2011-12 : 2. WHEN THE APPEAL IS TAKEN FOR HEARING SHRI J. PAVITRAN KUMAR, THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE TAX EFFECT INVOLVED IN THIS APPEAL IS LESS THAN RS.50 LAKHS. IN VIEW OF THE LAT EST CIRCULAR ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES (CBDT), INSTRUCTI NG ITS OFFICERS NOT TO FILE AN APPEAL BEFORE THIS TRIBUNAL, WHEREIN THE TA X EFFECT IS LESS THAN RS.50 LAKHS, THIS TRIBUNAL IS OF THE CONSIDERED OPI NION THAT THE APPEAL FILED BY THE REVENUE IS NOT MAINTAINABLE. ACCORDING LY, THE APPEAL OF THE REVENUE STANDS DISMISSED. 3. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO.1578/CHNY/2018 FOR AY 2011-12 IS DISMISSED. ITA NO.1906, 592, 1578 & 1324CHNY/2018 :- 3 -: ITA NO.1906 & 592/CHNY/2018 FOR AYS 2009-10 & 2010- 11 : 4. SHRI J.PAVITRAN KUMAR, THE LD. DEPARTMENTAL RE PRESENTATIVE SUBMITTED THAT THE CIT(A) ALLOWED APPEAL OF THE ASS ESSEE ON THE GROUND THAT THE REOPENING OF ASSESSMENT IS BAD IN LAW. AC CORDING TO THE LD. DEPARTMENTAL REPRESENTATIVE, THE ASSESSMENT WAS REO PENED BEYOND FOUR YEARS, SINCE THERE WAS WRONG CLAIM UNDER SECT ION 10(B) OF THE ACT THEREFORE, THE CIT(A) IS NOT JUSTIFIED IN ALLOWING THE APPEAL OF THE ASSESSEE. 5. WE HEARD SHRI S. SRIDHAR, THE LD. COUNSEL FOR TH E ASSESSEE ALSO AND PERUSED BOTH THE ORDERS OF LOWER AUTHORITIES. T HERE IS NOT EVEN WHISPER IN THE ASSESSMENT ORDER THAT THERE WAS ANY NEGLIGENCE ON THE PART OF THE ASSESSEE IN DISCLOSING THE PARTICULARS WHICH IS REQUIRED FOR COMPLETING THE ASSESSMENT. IT IS ALSO NOT IN DISPU TE THAT THE ASSESSMENT WAS REOPENED AFTER FOUR YEARS THEREFORE, THE PROVIS IONS OF S. 147 OF THE ACT WILL COME INTO OPERATION. UNLESS THE AO ESTABLI SHES THAT THERE WAS ANY NEGLIGENCE ON THE PART OF THE ASSESSEE IN DISCL OSING ALL THE MATERIAL FACTS RELEVANT TO THE ASSESSMENT, THE ASSESSMENT CA NNOT BE REOPENED. IN THIS CASE, IT IS NOT THE CASE OF THE REVENUE THA T THERE WAS ANY NEGLIGENCE ON THE PART OF THE ASSESSEE IN DISCLOSIN G THE MATERIAL FACTS RELEVANT TO THE ASSESSMENT YEARS THEREFORE, THE CIT (A) HAS RIGHTLY ALLOWED THE APPEALS OF THE ASSESSEE AND THE SAME IS CONFIRMED. ITA NO.1906, 592, 1578 & 1324CHNY/2018 :- 4 -: 6. IN THE RESULT, THE APPEALS OF THE REVENUE IN ITA NO.1906 & 592/CHNY/2018 FOR AYS 2009-10 & 2010-11 ARE DISMISS ED. ITA NO.1324/CHNY/2018 FOR AY 2011-12 : 7. THE FIRST GROUND OF APPEAL RELATING TO DISALLOWA NCE OF RS. 31,43,000/- BEING THE EXPENDITURE INCURRED BY THE A SSESSEE FOR REGISTRATION OF TRADE MARK. SHRI S. SRIDHAR, THE L D. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE INCURRED EXPEN DITURE FOR REGISTRATION OF TRADE MARK MICRO COTTON IN FORE IGN COUNTRIES THE PAYMENTS WERE MADE TO ATTORNEYS AND OTHERS IN THE C OURSE OF BUSINESS ACTIVITY THEREFORE, IT HAS TO BE CONSIDERED AS REVE NUE EXPENDITURE. 8. ON THE CONTRARY, SHRI J. PAVITRAN KUMAR, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE MICRO COTTON IT IS A BRAND NAME. REGISTRATION OF TRADE MARK IS NOTHING BUT CREATION OF CAPITAL ASSET THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE IN THE COURSE OF CREATION OF CAPITAL ASSET HAS TO BE NECESSARILY TRE ATED AS CAPITAL EXPENDITURE AND THE SAME CANNOT BE ALLOWED. BY WAY OF REJOINED, THE LD. COUNSEL SUBMITTED THAT IF IT IS TREATED AS A CA PITAL EXPENDITURE THE ASSESSEE IS ENTITLED FOR DEPRECIATION. 9. HAVING HEARD THE LD. COUNSEL AND THE LD. DEPART MENTAL REPRESENTATIVE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE TRADE ITA NO.1906, 592, 1578 & 1324CHNY/2018 :- 5 -: MARK IS NOTHING BUT A CAPITAL ASSET. ADMITTEDLY, T HE ASSESSEE INCURRED THE EXPENDITURE FOR REGISTRATION OF THE TRADE MARK IN FOREIGN COUNTRIES THEREFORE, ANY EXPENDITURE INCURRED BY THE ASSESSEE IN CONNECTION WITH CREATION/ESTABLISH OF CAPITAL ASSET HAS TO BE NECES SARILY BE TREATED AS A CAPITAL EXPENDITURE AND THE ASSESSEE CANNOT CLAIM T HE SAME AS REVENUE EXPENDITURE. HOWEVER, AS RIGHTLY SUBMITTED BY THE LD. COUNSEL FOR THE ASSESSEE, THE ASSESSEE IS ENTITLED FOR DEPRECIATION . THEREFORE, THE AO MAY ALLOW DEPRECIATION AT THE APPLICABLE RATE. 10. THE NEXT ISSUE WITH REGARD TO DISALLOWANCE OF E XPENDITURE U/S. 14A OF THE ACT. SHRI S. SRIDHAR, THE LD. COUNSEL SUBM ITTED THAT THE ASSESSEE HAS OWN FUNDS TO THE TUNE OF RS. 37003 LAKHS IN THE FORM OF SHARE CAPITAL AND RESERVE. THE ADMITTED INVESTMENT IS ONLY RS. 30 3 LAKHS. MOREOVER, FOR THE LIMB 2 OF RULE 8D (2) OF THE INCOME TAX RUL ES, 1962 (IN SHORT THE RULES) AND LIMB 3, THE INVESTMENT WHICH EARNED THE INCOME ALONE HAS TO BE CONSIDERED. THIS ASPECT WAS NEITHER CONSIDERED B Y THE AO NOR BY THE CIT(A) THEREFORE, THE LD. COUNSEL SUBMITTED THAT T HE MATTER MAY BE REMITTED BACK TO THE FILE OF AO. 11. ON THE CONTRARY, SHRI J. PAVITRAN KUMAR, THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT WHETHER THE ASSESSEE HAS INVESTED ITS OWN FUNDS OR THE BORROWED FUNDS, THERE SHOULD BE SO ME EXPENDITURE ITA NO.1906, 592, 1578 & 1324CHNY/2018 :- 6 -: WHICH HAS TO BE DISALLOWED THEREFORE, CIT(A) HAS R IGHTLY CONFIRMED THE DISALLOWANCE MADE BY THE AO. 12. HAVING HEARD THE LD. COUNSEL FOR THE ASSESSEE A ND THE LD. DEPARTMENTAL REPRESENTATIVE, THIS TRIBUNAL IS OF TH E CONSIDERED OPINION THAT IN CASE THE ASSESSEE HAS INVESTED THE BORROWE D FUNDS IT HAS AN IMPACT ON THE EXPENDITURE THEREFORE, IT HAS TO BE A SCERTAINED BEFORE MAKING ANY DISALLOWANCE. MOREOVER, AS RIGHTLY SUBMI TTED BY THE LD. COUNSEL FOR THE ASSESSEE, THE INVESTMENT WHICH EARN ED DIVIDEND INCOME OR EXEMPT INCOME ALONE HAS TO BE CONSIDERED FOR LIM B 2 AND LIMB 3 OF RULE 8D(2) OF THE RULES. THIS ASPECT ALSO NEEDS TO BE RE-EXAMINED. SINCE, BOTH THE AUTHORITIES BELOW HAS EXAMINED THI S ASPECT, THE ORDERS OF THE AUTHORITIES BELOW ARE SET ASIDE AND THE EN TIRE ISSUE WITH REGARD TO THE DISALLOWANCE U/S. 14A OF THE ACT IS REMITTED BA CK TO THE FILE OF AO. THE AO SHALL RE-EXAMINE THE MATTER AFRESH IN THE LI GHT OF THE MATERIAL THAT MAY BE FILED BY THE ASSESSEE AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING A REASONABLE OPPORTUNITY TO THE AS SESSEE. 13. THE NEXT ISSUE ARISING FOR CONSIDERATION IS EXE MPTION CLAIMED U/S. 10B OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE S UBMITTED THAT THE ASSESSEE HAS ALSO EARNED PROFIT BY DOING JOB WORK D URING THE AVAILABLE TIME. ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE THE PROFIT OF THE UNDERTAKING HAS TO BE CONSIDERED FOR EXEMPTION U/S. 10B OF THE ACT. ITA NO.1906, 592, 1578 & 1324CHNY/2018 :- 7 -: PLACING RELIANCE ON THE JUDGMENT OF THE MADRAS HIG H COURT IN THE CASE OF CAMICERIA APPARELS INDIA (P.) LTD. VS. ACIT [201 9] 103 TAXMANN.COM 238 (MAD), THE LD. COUNSEL SUBMITTED THAT UNDER THE SCHEME OF S. 10B OF THE ACT, THE PROFIT OF THE UNDERTAKING HAS TO BE CO NSIDERED THEREFORE, THE MATTER MAY BE REMITTED BACK TO THE FILE OF AO FOR R E-CONSIDERATION IN THE LIGHT OF PROVISIONS OF S. 10B OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT IN THE ASSESSEES OWN CASE T HIS TRIBUNAL DECIDED THE MATTER AGAINST THE ASSESSEE. 14. ON THE CONTRARY, SHRI J. PAVITRAN KUMAR, THE LD . DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT IN VIEW OF DECISION O F THIS TRIBUNAL IN THE ASSESSEES OWN CASE, THE ASSESSEE IS NOT ENTITLED F OR ANY DEDUCTION IN RESPECT OF PROFIT TO EARN DOMESTICALLY UNDER SECTIO N 10B OF THE ACT. 15. HAVING HEARD THE LD. COUNSEL FOR THE ASSESSEE AND THE LD. DEPARTMENTAL REPRESENTATIVE, THIS TRIBUNAL IS OF TH E CONSIDERED OPINION THAT IN VIEW OF THE JUDGMENT OF HONBLE HIGH COURT OF MADRAS HIGH COURT IN THE CASE OF CAMICERIA APPARELS INDIA (P.) LTD. ( SUPRA), THE MATTER NEEDS TO BE RE-EXAMINED. IT IS ALSO NECESSARY TO CO MPUTE THE ELIGIBLE DEDUCTION BY APPLYING THE PROVISIONS OF SUB S. (4) TO S. 10B OF THE ACT. THIS ASPECT NAMING THE JUDGMENT OF THE MADRAS HIGH COURT AND THE PROVISIONS OF SECTION 10B (4) OF THE ACT WAS NOT CONSIDERED BY THE EARLIER BENCH OF THIS TRIBUNAL WHEN THE ISSUE WAS D ECIDED AGAINST THE ASSESSEE. THEREFORE, THIS BENCH OF THE TRIBUNAL IS OF THE CONSIDERED ITA NO.1906, 592, 1578 & 1324CHNY/2018 :- 8 -: OPINION THAT THE DECISION IN THE ASSESSEES OWN CAS E FOR THE EARLIER ASSESSMENT YEARS MAY NOT BE APPLICABLE FOR THE YEAR UNDER CONSIDERATION. ACCORDINGLY, THE ORDERS OF THE BOTH THE AUTHORITIES BELOW ARE SET ASIDE AND THE ISSUE WITH REGARD TO DEDUCTI ON U/S. 10B OF THE ACT IS REMITTED BACK TO THE FILE OF AO. THE AO SHALL RE -CONSIDER THE ISSUE IN THE LIGHT OF JUDGMENT OF MADRAS HIGH COURT IN CAMICERIA APPARELS INDIA (P) LTD (SUPRA), UNDER THE PROVISIONS OF SUB S. (4) TO S. 10B OF TH E ACT AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE. 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IN ITA NOS.1906, 592 & 1578/CHNY/2018 FOR ASSESSMENT YEARS 2009-10, 2010 -11 & 2011-12 STAND DISMISSED. HOWEVER, THE APPEAL FILED BY THE A SSESSEE IN ITA NO.1324/CHNY/2018 FOR ASSESSMENT YEAR 2011-12 STAND S PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH FEBRUARY, 2020 AT CAMP AT COIMBATORE. SD/ - SD/ - ( . ) (S. JAYARAMAN) /ACCOUNTANT MEMBER ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER COIMBATORE, / /DATED: 5 TH FEBRUARY, 2020 . EDN, SR. P.S # !'01 21' /COPY TO: 1. /APPELLANT 2. !' /RESPONDENT 3. % 3' ( )/CIT(A) 4. % 3' /CIT 5. 14 !'5 /DR 6. 6 7& /GF