Shuka Consultancy Services Pvt Ltd., CHENNAI V. DCIT, CHENNAI

ITA 1961/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4090 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 29-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNANJCIT
• Assessee Lawyers: V NAGAPRASAD
• Keywords: Gift; Earning of tax free income; Non-deduction of tax; Notional interest
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , .. ' #$, & '( BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.1961/MDS/2016 * +* / ASSESSMENT YEAR : 2010-11 M/S REDPHOENIX CONSULTANCY PVT. LTD. (PRESENTLY: TIRUNELVELI VAYU ENERGY GENERATION PVT. LTD.), JHAVER PLAZA, III FLOOR, NO.1-A NUNGAMBAKKAM HIGH ROAD, CHENNAI - 600 034. PAN : AACCR 7329 G V. THE JOINT COMMISSIONER OF INCOME TAX, COMPANY RANGE V, (NOW DCIT CORPORATE CIRCLE 6(1), CHENNAI - 600 034. (-./ APPELLANT) (/0-./ RESPONDENT) ./ ITA NO.2647/MDS/2016 * +* / ASSESSMENT YEAR : 2010-11 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 3(1), CHENNAI - 600 034. V. M/S TIRUNELVELI VAYU ENERGY GENERATION PVT. LTD., (FORMERLY M/S SHUKLA CONSULTANCY PVT. LTD.), OLD NO.20/1-B, NEW NO.8, VALLIAMMAL ACHI STREET, KOTTURPURAM, CHENNAI - 600 085. PAN : AABCT 2250 P (-./ APPELLANT) (/0-./ RESPONDENT) *12 3 4 /ASSESSEE BY : SHRI V. NAGAPRASAD, CA 5 3 4 /REVENUE BY : SH. P. RADHAKRISHNAN, JCIT ' 3 2& / DATE OF HEARING : 18.04.2017 67+ 3 2& / DATE OF PRONOUNCEMENT : 05.07.2017 2 I.T.A. NO.1961/MDS/16 I.T.A. NO.2647/MDS/16 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: BOTH THE APPEALS OF THE ASSESSEE AND REVENUE ARE DIRECTED AGAINST THE VERY SAME ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-15, CHENNAI, DATED 10.03.2016 AND PERTAIN TO ASSESSMENT YEAR 2010-11. 2. LETS FIRST TAKE ASSESSEES APPEAL IN I.T.A. NO.1961/MDS/2016. 3. THE FIRST ISSUE ARISES FOR CONSIDERATION IS DISA LLOWANCE OF ` 50,14,353/- BEING THE EXPENDITURE INCURRED FOR THE PURPOSE OF DISTRIBUTION OF GIFTS TO LOCAL PEOPLE. 4. SHRI V. NAGAPRASAD, THE LD. REPRESENTATIVE FOR T HE ASSESSEE, SUBMITTED THAT THE ASSESSEE ENTERED INTO AN AGREEME NT WITH M/S PPN POWER GENERATING COMPANY PVT. LTD. FOR CARRYING OUT LIAISONING SERVICES. AS PER THE AGREEMENT, THE ASS ESSEE WAS EXPECTED TO ASSIST M/S PPN POWER GENERATING COMPANY PVT. LTD. IN DEALING WITH VARIOUS STATUTORY AND NON-STATUTORY BO DIES. THE ASSESSEE WAS ALSO EXPECTED TO NEGOTIATE WITH LOCAL PEOPLE FOR 3 I.T.A. NO.1961/MDS/16 I.T.A. NO.2647/MDS/16 ENSURING SMOOTH OPERATION OF THE PLANT IN THE LOCAL ITY. ACCORDING TO THE LD. REPRESENTATIVE, THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT IN ORDER TO MAINTAIN GOOD RELATION WIT H LOCAL PEOPLE, THE ASSESSEE HAS DISTRIBUTED GIFTS TO THE EXTENT OF ` 50,14,353/-. ACCORDING TO THE LD. REPRESENTATIVE, IT IS ABSOLUTE LY REQUIRED FOR THE ASSESSEE TO MAINTAIN GOOD RELATION WITH LOCAL PEOPL E SO THAT THE AGREEMENT WITH M/S PPN POWER GENERATING COMPANY PVT . LTD. CAN BE CARRIED OUT WITHOUT ANY HINDRANCE. 5. REFERRING TO THE AGREEMENT, A COPY OF WHICH IS A VAILABLE AT PAGE 2 OF THE PAPER-BOOK, THE LD. REPRESENTATIVE FO R THE ASSESSEE SUBMITTED THAT UNLESS THE ASSESSEE GIVES SOME GIFTS TO THE LOCAL PEOPLE, IT MAY NOT BE ABLE TO LIAISON PROPERLY AND EFFECTIVELY SO AS TO ENSURE THAT THE PLANT OF M/S PPN POWER GENERATING C OMPANY PVT. LTD. IS OPERATING WITHOUT ANY PROBLEM FROM LOCAL PE OPLE. ACCORDING TO THE LD. REPRESENTATIVE, EVEN THOUGH THERE WAS PR OHIBITION IN THE AGREEMENT FOR GIVING GIFT, LOAN, ETC. TO GOVERNMENT OFFICIALS AND POLITICAL PARTIES OR THE OFFICERS OF THE COMPANY OR POTENTIAL CUSTOMERS OF THE COMPANY, THERE WAS NO PROHIBITION FOR GIVING GIFT OR LOAN TO THE LOCAL PEOPLE WHO ARE NOT CONNECTED WITH EITHER THE ASSESSEE OR M/S PPN POWER GENERATING COMPANY PVT. LTD. IN THE ABSE NCE OF ANY 4 I.T.A. NO.1961/MDS/16 I.T.A. NO.2647/MDS/16 AGREEMENT PROHIBITING THE ASSESSEE FROM GIVING GIFT TO THE LOCAL PEOPLE, ACCORDING TO THE LD. REPRESENTATIVE, GIVING SUCH GIFTS CANNOT BE CONSIDERED TO BE NON-BUSINESS PURPOSE. THE VERY BUSINESS OF THE ASSESSEE IS TO LIAISON WITH LOCAL PEOPLE. NO D OUBT, THERE WAS PROHIBITION IN GIVING GIFTS TO STATUTORY AND NON-ST ATUTORY AUTHORITIES, HOWEVER, THERE WAS NO PROHIBITION IN GIVING SUCH GI FTS TO LOCAL PEOPLE WHO ARE NOT CONNECTED EITHER WITH THE ASSESSEE OR W ITH M/S PPN POWER GENERATING COMPANY PVT. LTD. THEREFORE, ACCO RDING TO THE LD. REPRESENTATIVE, THE GIFTS GIVEN BY THE ASSESSEE IS FOR THE PURPOSE OF MAINTAINING GOOD RELATION WITH LOCAL PEO PLE FOR SMOOTH FUNCTION OF THE PLANT AND IT HAS TO BE ALLOWED AS R EVENUE EXPENDITURE. 6. ON THE CONTRARY, SH. P. RADHAKRISHNAN, THE LD. D EPARTMENTAL REPRESENTATIVE, SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDING, THE ASSESSING OFFICER FOUND THAT THE AS SESSEE CLAIMED PURCHASE OF PAINTINGS, SAREES CD TV IRON BOX, MOBIL E PHONES, ETC. WHICH WERE GIVEN AS GIFTS. ON A QUERY FROM THE ASS ESSING OFFICER, THE ASSESSEE EXPLAINED THAT TO FACILITATE SMOOTH FU NCTIONING OF PLANT IN THE VILLAGE, IT WAS NECESSARY TO MAINTAIN CORDIA L RELATION WITH LOCAL PEOPLE. THEREFORE, THE ASSESSEE PRESENTED PAINTING S, LCD TV, 5 I.T.A. NO.1961/MDS/16 I.T.A. NO.2647/MDS/16 SAREES, FITNESS MACHINE, DVD PLAYER, IRON BOX, ETC. ACCORDING TO THE LD. D.R., THE AGREEMENT WITH M/S PPN POWER GENE RATING COMPANY PVT. LTD. CLEARLY PROHIBITS THE ASSESSEE FR OM OFFERING GIFTS, LOAN TO ANY GOVERNMENT OFFICIAL OR ANY MEMBER OF TH E POLITICAL PARTY OR ANY PERSON CONNECTED WITH THE COMPANY, THEREFORE , GIVING GIFT IS TOTALLY PROHIBITED AS PER THIS AGREEMENT. THE ASSE SSEE NOW CLAIMS THAT GIVING GIFT TO THE LOCAL PEOPLE IS NOT PROHIBI TED. AS PER THE AGREEMENT, THERE WAS PROHIBITION FOR GIVING GIFTS T O ANY GOVERNMENT OFFICIAL WHETHER IN STATUTORY OR NON-STATUTORY BODI ES AND EMPLOYEES OF THE COMPANY AND TO THE POTENTIAL CUSTOMERS. THE REFORE, THE ASSESSEE CANNOT NOW CLAIM THAT GIFT GIVEN TO THE LO CAL PEOPLE IS FOR THE PURPOSE OF BUSINESS. THE LD. D.R. FURTHER SUBM ITTED THAT THE ASSESSEE HAS NOT PRODUCED DETAILS OF THE GIFTS GIVE N TO THE LOCAL PEOPLE, THEREFORE, THE ASSESSING OFFICER COULD NOT VERIFY WHETHER THE GIFTS WERE, IN FACT, GIVEN TO THE LOCAL PEOPLE. TH EREFORE, ACCORDING TO THE LD. D.R., THE CIT(APPEALS) HAS RIGHTLY CONFIRME D THE ADDITION MADE BY THE ASSESSING OFFICER. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE APPEARS TO HAVE PURCHASED GIFT ARTICLES TO THE EXTE NT OF ` 50,14,353/- 6 I.T.A. NO.1961/MDS/16 I.T.A. NO.2647/MDS/16 THE ASSESSEE CLAIMS THAT SAREES, FITNESS MACHINE, D VD PLAYER, IRON BOX WERE PURCHASED AND GIFTED TO THE LOCAL PEOPLE S O THAT M/S PPN POWER GENERATING COMPANY PVT. LTD. CAN OPERATE ITS PLANT PEACEFULLY IN THE LOCALITY. THE FACTS REMAINS THAT THE NO MATERIAL IS AVAILABLE ON RECORD EITHER FOR PURCHASE OF THE SO-C ALLED GIFT ARTICLES OR FOR DISTRIBUTION OF THE SAME. IN THOSE CIRCUMST ANCES, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSEE HAS TO PRODUCE NECESSARY MATERIAL FOR PURCHASE OF GIFT ARTICLES AN D DISTRIBUTION BEFORE THE ASSESSING OFFICER. UNLESS IT IS PROVED THAT MATERIALS WERE PURCHASED AND DISTRIBUTED TO THE LOCAL PEOPLE FOR THE PURPOSE OF MAINTAINING GOOD RELATIONSHIP, THE CLAIM OF THE ASSESSEE CANNOT BE ALLOWED. THEREFORE, THIS TRIBUNAL IS OF THE CON SIDERED OPINION THAT THE MATTER NEEDS TO BE RE-EXAMINED BY THE ASSE SSING OFFICER. ACCORDINGLY THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE DISALLOWANCE OF ` 50,14,353/- IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE- EXAMINE THE MATTER AFRESH ON THE BASIS OF THE MATERIAL THAT MAY BE FILED BY THE ASSESSEE AND THEREAFTER DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW, AFTER GIVING A REASONABLE OPPORTUNITY TO THE A SSESSEE. 7 I.T.A. NO.1961/MDS/16 I.T.A. NO.2647/MDS/16 8. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DISA LLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 40(A)(I A) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). 9. WE HAVE HEARD SHRI V. NAGAPRASAD, THE LD. REPRES ENTATIVE FOR THE ASSESSEE AND SH. P. RADHAKRISHNAN, THE LD. DEPARTMENTAL REPRESENTATIVE. THE CIT(APPEALS) CONFIRMED THE DIS ALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT BY FOLLOWING THE JUDGMENT OF CALCUTTA HIGH COURT IN CIT V. CRESCENT EXPORT SYNDI CATE (2013) 216 TAXMAN 258, HOLDING THAT SECTION 40(A)(IA) IS APPLI CABLE NOT ONLY TO THE AMOUNT PAID BUT ALSO REMAINS TO BE PAID. NOW T HE CONTENTION OF THE ASSESSEE BEFORE THIS TRIBUNAL IS THAT THE DECIS ION OF SPECIAL BENCH OF THIS TRIBUNAL IN MERILYN SHIPPING AND TRAN SPORT V. ACIT IN 136 ITD 23 WAS CONFIRMED BY ALLAHABAD HIGH COURT IN VECTOR SHIPPING SERVICES (P) LTD. (2013) 357 ITR 642. IT IS ALSO AN ADMITTED FACT THAT APEX COURT RECENTLY HELD THAT SE CTION 40(A)(IA) IS APPLICABLE NOT ONLY TO THE AMOUNT PAID BUT ALSO THE AMOUNT REMAINS TO BE PAID. IN FACT, THE APEX COURT UPHELD THE JUD GMENT OF CALCUTTA HIGH COURT IN CRESCENT EXPORT SYNDICATE (SUPRA). I N VIEW OF THE ABOVE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTE RFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SA ME IS CONFIRMED. 8 I.T.A. NO.1961/MDS/16 I.T.A. NO.2647/MDS/16 10. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DIS ALLOWANCE OF ` 10,46,815/- BEING THE EXPENDITURE TOWARDS AIR FARE AND PAYMENT TO HOTEL ACCOMMODATION. 11. SHRI V. NAGAPRASAD, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THESE EXPENDITURES WERE INCURRED FOR EXPLORING A NEW BUSINESS AND THE ASSESSING OFFICER HAS MADE ADDITIO N ARBITRARILY. 12. ON THE CONTRARY, SH. P. RADHAKRISHNAN, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE DEBITED AN AMOUNT OF ` 10.62 LAKHS UNDER THE HEAD TRAVELLING EXPENSES. ON PERUSAL OF THE DETAILS PRODUCED BY THE ASSESSEE, THE ASSESSING OFFICER FOUND THAT THE PAYMENT WAS MADE TO FIVE STAR HOTELS LIKE PARK HOTELS. THE REMAINING BALANCE AMOUNT WAS INCURRED TOWARDS AIR T RAVEL. ACCORDING TO THE LD. D.R., THE ASSESSEE WAS CARRYIN G ON THE BUSINESS OF LIAISONING SERVICE FOR M/S PPN POWER GE NERATING COMPANY PVT. LTD. AS PER THE AGREEMENT, ACCORDING TO THE LD. D.R., THE ASSESSEE WAS EXPECTED TO DO LIAISON WORK WITH STATUTORY AND NON-STATUTORY AUTHORITIES. IN THIS CASE, THE T RAVEL WAS UNDERTAKEN BY OUTSIDERS WHOSE EXPENDITURE WAS BOOKE D BY THE ASSESSEE AS EXPENDITURE. ACCORDING TO THE LD. D.R. , EXPLORATION OF 9 I.T.A. NO.1961/MDS/16 I.T.A. NO.2647/MDS/16 NEW BUSINESS IS NOT THE BUSINESS OF THE ASSESSEE. THE BUSINESS OF THE ASSESSEE IS ONLY TO DO LIAISON WORK, THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY ALLOWED THE COST OF THE EMPLOYE ES TRAVEL TO THE EXTENT OF ` 15,450/- AND THE BALANCE OF ` 10,46,815/- WAS DISALLOWED. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE BUSINESS OF THE ASSESSEE IS TO DO LIAISON WITH STATUTORY AND NO N-STATUTORY AUTHORITIES FOR THE PURPOSE OF SMOOTH FUNCTIONING O F THE PLANT PUT UP BY M/S PPN POWER GENERATING COMPANY PVT. LTD. THE ASSESSEE CLAIMS THAT PAYMENT WAS MADE TO STAR HOTELS LIKE PA RK HOTELS. IT IS NOT KNOWN WHY THE PAYMENT WAS MADE TO STAR HOTELS W HEN THE ASSESSEE WAS EXPECTED TO DO LIAISON WORK IN THE ARE A WHERE THE PLANT WAS SITUATED. PROBABLY, THE ASSESSEE OR ITS EMPLOYEES MAY HAVE TO MEET THE GOVERNMENT OFFICIALS FOR GETTING T HE REQUIRED PERMISSION OR LICENSE TO CARRY ON THE BUSINESS ACTI VITY. THE DETAILS OF THE PERSONS WHO STAYED IN THE HOTELS ARE NOT AVA ILABLE ON RECORD. IT IS ALSO NOT KNOWN THE PURPOSE FOR WHICH THEY STA YED IN STAR HOTELS. IN THE ABSENCE OF ANY DETAILS, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSEE HAS TO PRODUCE THE DETAIL S OF THE PERSONS WHO STAYED IN HOTELS AND THE DETAILS OF THE PERSONS WHO TRAVELLED BY 10 I.T.A. NO.1961/MDS/16 I.T.A. NO.2647/MDS/16 AIR, TO THE ASSESSING OFFICER. ACCORDINGLY, GIVING ONE MORE OPPORTUNITY TO THE ASSESSEE MAY NOT PREJUDICE THE I NTEREST OF THE REVENUE. THEREFORE, THE ORDERS OF BOTH THE LOWER A UTHORITIES ARE SET ASIDE AND THE ISSUE OF DISALLOWANCE OF ` 10,46,815/- IS REMITTED BACK TO THE ASSESSING OFFICER. THE ASSESSING OFFICER SH ALL RE-EXAMINE THE ISSUE AFRESH IN THE LIGHT OF THE MATERIAL THAT MAY BE FILED BY THE ASSESSEE AND THEREAFTER DECIDE THE ISSUE IN ACCORDA NCE WITH LAW, AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESS EE. 14. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DIS ALLOWANCE OF ` 5,00,000/- BEING THE EXPENDITURE INCURRED IN MAKING ADVERTISEMENT FILM, TO SPREAD AWARENESS AMONG THE LOCAL PEOPLE. 15. SHRI V. NAGAPRASAD, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE DEBITED A SUM OF ` 5,00,000/- ON ACCOUNT OF ADVERTISEMENT FILM ON WHICH TAX WAS NOT DEDUCTED. THEREFORE, THE ASSESSING OFFICER DISALLOWED THE CLA IM OF THE ASSESSEE UNDER SECTION 40(A)(IA) OF THE ACT. ACCOR DING TO THE LD. REPRESENTATIVE, IT IS NOT A CASE OF NON-DEDUCTION O F TAX. THE ASSESSEE DEDUCTED TAX AT THE RATE OF 2% INSTEAD OF 5%. THEREFORE, ACCORDING TO THE LD. REPRESENTATIVE, IT IS A CASE O F SHORT DEDUCTION, HENCE, SECTION 40(A)(IA) OF THE ACT IS NOT APPLICAB LE AT ALL. 11 I.T.A. NO.1961/MDS/16 I.T.A. NO.2647/MDS/16 16. WE HAVE HEARD LD. DEPARTMENTAL REPRESENTATIVE A LSO. THE LD. D.R. SUBMITTED THAT THE ASSESSEE HAS DEDUCTED T AX AT 2% ON THE PAYMENT MADE TO M/S V.V. COMMUNICATIONS FOR MAKING ADVERTISEMENT FILM. ACCORDING TO THE LD. D.R., UND ER SECTION 194J OF THE ACT, TAX HAS TO BE DEDUCTED AT THE RATE OF 5 %, THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE CLAIM OF THE ASSESSEE UNDER SECTION 40(A)(IA) OF THE ACT. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. SECTION 40(A)(IA) OF THE ACT MAKES IT CLEAR THAT WHENEVER THE ASSESSE E HAS TO DEDUCT TAX, THE SAME HAS TO BE DEDUCTED AT THE TIME OF MAK ING PAYMENT OR GIVING CREDIT. IF THERE IS A FAILURE TO DEDUCT TA X, THEN THE EXPENDITURE CANNOT BE ALLOWED AS DEDUCTION. IN THIS CASE, IT I S NOT A CASE OF NON-DEDUCTION OF TAX. IT IS A CASE OF SHORT DEDUCT ION. THE ASSESSEE DEDUCTED 2% AS TDS INSTEAD OF 5%. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE PROVISIONS OF SECTI ON 40(A)(IA) OF THE ACT MAY NOT BE APPLICABLE IN RESPECT OF SHORT DEDUC TION. AT THE BEST, THE ASSESSING OFFICER MAY DISALLOW THE PROPORTIONAT E AMOUNT TO WHICH TAX WAS NOT DEDUCTED. SINCE THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT SECTION 40(A)(IA) OF THE AC T CANNOT BE MADE 12 I.T.A. NO.1961/MDS/16 I.T.A. NO.2647/MDS/16 APPLICABLE WHEN THERE WAS SHORT DEDUCTION OF TAX, T HERE CANNOT BE ANY DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT . ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE. THE ADDITION MADE BY THE ASSESSING OFFICER IS DELETED. 18. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DIS ALLOWANCE OF INTEREST TO THE EXTENT OF ` 35,66,880/-. 19. SHRI V. NAGAPRASAD, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE HAD DISCLOSED WORKING I N PROGRESS OF ` 40.56 LAKHS. THE ASSESSEE HAS ALSO DISCLOSED ` 62.50 LAKHS AND ` 95.10 LAKHS AS ADVANCES TOWARDS EXPENDITURE. ACCOR DING TO THE LD. REPRESENTATIVE, THE ASSESSEE HAS INCURRED ` 40.56 LAKHS FOR RENOVATION OF BUILDING OF THE DIRECTOR WHICH WAS AL SO USED AS REGISTERED OFFICE OF THE ASSESSEE-COMPANY. ACCORDI NG TO THE LD. REPRESENTATIVE, THE BUILDING WAS TAKEN ON LEASE BY THE COMPANY AND IT WAS USED AS RESIDENCE AND ALSO REGISTERED OFFICE OF THE ASSESSEE- COMPANY. THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT BORROWED FUNDS WERE DIVERTED FOR NON-BUSINESS PURPOSE. ACCORDING TO THE LD. REPRESENTATIVE, THE FUNDS WERE BORROWED FOR ACQUISITION OF WIND ENERGY GENERATOR A ND NO BORROWED FUNDS WERE DIVERTED FOR NON-BUSINESS PURPOSE. THE INTEREST-FREE 13 I.T.A. NO.1961/MDS/16 I.T.A. NO.2647/MDS/16 LOAN AVAILABLE WITH THE ASSESSEE ALONE UTILISED FOR MAKING ADVANCES. THE LD. REPRESENTATIVE FURTHER SUBMITTED THAT EVEN IF THE ADVANCES MADE BY THE ASSESSEE WERE NOT FOR BUSINESS , THERE WAS NO DEBIT TO THE PROFIT & LOSS ACCOUNT, THEREFORE, T HERE CANNOT BE ANY ADDITION ON NOTIONAL BASIS. THE ASSESSING OFFICER FAILED TO EXAMINE THE NATURE OF ADVANCES GIVEN BY THE ASSESSEE. THER EFORE, ACCORDING TO THE LD. REPRESENTATIVE, THE DISALLOWAN CE MADE BY THE ASSESSING OFFICER TOWARDS NOTIONAL INTEREST TO THE EXTENT OF ` 35,66,880/- IS NOT JUSTIFIED. 20. ON THE CONTRARY, SH. P. RADHAKRISHNAN, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE ADVANCE D MONEY FOR THE PURPOSE OF TAKING THE BUILDING ON LEASE WHICH W AS USED AS RESIDENCE OF THE DIRECTOR, THEREFORE, THE FUNDS WER E DIVERTED FOR NON- BUSINESS PURPOSE. MERELY BECAUSE THE ASSESSEE CLAI MS THAT THE REGISTERED OFFICE OF THE COMPANY WAS ALSO IN THE SA ME PLACE, IT CANNOT BE ACCEPTED UNLESS THERE IS A DOCUMENTARY EV IDENCE TO SHOW THE SAME. ON A QUERY FROM THE BENCH, WHEN THE ASSESSEE HAS NOT CLAIMED THE PAYMENT OF INTEREST BY DEBITING THE SAME TO PROFIT & LOSS ACCOUNT, HOW THE SAME CAN BE DISALLOW ED? THE LD. D.R. SUBMITTED THAT IT HAS TO BE VERIFIED WHETHER T HE ASSESSEE 14 I.T.A. NO.1961/MDS/16 I.T.A. NO.2647/MDS/16 DEBITED THE PAYMENT IN PROFIT & LOSS ACCOUNT AND CL AIMED THE SAME AS EXPENDITURE. 21. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE PAYMENT OF INTEREST TO THE EXTENT OF ` 35,66,880/- WAS DISALLOWED BY THE ASSESSING OFFICER ON THE GROUND THAT THE BORROWED F UNDS WERE DIVERTED TO NON-BUSINESS PURPOSE. THE ASSESSEE NOW CLAIMS THAT THE SAME WAS NOT CLAIMED AS EXPENDITURE AND IT WAS ALSO NOT DEBITED IN THE PROFIT & LOSS ACCOUNT. THIS FACT HA S TO BE VERIFIED. MOREOVER, WHETHER THE BUILDING TAKEN ON LEASE WAS U SED AS REGISTERED COMPANY ALSO NEEDS TO BE VERIFIED. SINC E SUCH FACTUAL VERIFICATION IS REQUIRED, THIS TRIBUNAL IS OF THE C ONSIDERED OPINION THAT THE MATTER NEEDS TO BE RE- EXAMINED BY THE ASSESSIN G OFFICER. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES AR E SET ASIDE AND THE ISSUE OF DISALLOWANCE OF ` 35,66,880/- IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RECONSIDER THE ISSUE IN THE LIGHT OF THE MATERIAL THAT MAY BE FILE D BY THE ASSESSEE AND THEREAFTER DECIDE THE ISSUE AFRESH, IN ACCORDAN CE WITH LAW, AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE. 15 I.T.A. NO.1961/MDS/16 I.T.A. NO.2647/MDS/16 22. THE NEXT ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DISALLOWANCE OF ` 49,33,541/- BEING THE LIAISONING SERVICE CHARGES. 23. SHRI V. NAGAPRASAD, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE HAS PAID LIAISONING SER VICE CHARGES AT THE RATE OF 6%. THE ASSESSING OFFICER DISALLOWED T HE PAYMENT OF ` 49,33,541/- ON THE GROUND THAT THE PAYMENT WAS MADE AT THE RATE OF 3% IN EARLIER YEARS. ACCORDING TO THE LD. REPRE SENTATIVE, THE PAYMENT OF LIAISONING SERVICE CHARGES WAS NOT IN DI SPUTE. DUE TO ESCALATION OF COST, THE ASSESSEE WAS FORCED TO PAY THE SERVICE CHARGES AT 6%, THEREFORE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN SAYING THAT PAYMENT WAS IN EXCESS. ACCORDING TO TH E LD. REPRESENTATIVE, THE PAYMENT NEEDS TO BE MADE AS PER MARKET RATE, THEREFORE, THE ASSESSING OFFICER IS NOT JUSTIFIED I N DISALLOWING THE CLAIM OF THE ASSESSEE. 24. ON THE CONTRARY, SH. P. RADHAKRISHNAN, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT IN THE EARLIER YEARS , THE PAYMENT WAS MADE AT 3% AND THIS YEAR THE ASSESSEE CLAIMS ENHANC ED RATE OF 6%. IN FACT, THE TURNOVER OF ASSESSEE WAS HIGHER W HEN COMPARED TO EARLIER YEARS. ACCORDING TO THE LD. D.R., THE ONLY REASON ADDUCED BY THE ASSESSEE FOR INCREASE IN SERVICE CHARGES WAS THAT THE 16 I.T.A. NO.1961/MDS/16 I.T.A. NO.2647/MDS/16 DIRECTOR HAS SPENT MORE TIME. THE ASSESSING OFFICE R FOUND THAT SINCE THE PAYMENT WAS MADE IN EXCESS TO THE PAYMENT MADE IN THE EARLIER YEARS, ACCORDING TO THE LD. D.R., THE SAME WAS DISALLOWED. 25. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE PAYMENT OF SERVICE CHARGES IS NOT IN DISPUTE. THE ASSESSING O FFICER FOUND THAT IN EARLIER YEARS, THE SERVICE CHARGES WERE PAID ONL Y AT THE RATE OF 3%, THEREFORE, THE PAYMENT OF SERVICE CHARGES AT 6% WAS EXCESSIVE. NO DOUBT, THE SERVICE CHARGES HAVE TO B E PAID AT MARKET RATE. THE ASSESSEE CLAIMS THAT DUE TO ESCALATION O F CHARGES, THE SERVICE CHARGES HAVE TO BE PAID AT INCREASED COST. WHEN THE ASSESSEE HAS PAID SERVICE CHARGES AT THE RATE OF MA RKET VALUE, THE SAME CANNOT BE DISALLOWED BY THE ASSESSING OFFICER. IN THE EARLIER YEARS, SIMILAR SERVICE CHARGES WERE PAID TO THE DIR ECTOR AT THE RATE OF 3%. THE RATES ARE INCREASING DAY BY DAY AND COS T OF SERVICE WAS ALSO INCREASING SIMULTANEOUSLY. THEREFORE, THE ASS ESSING OFFICER CANNOT PLACE RELIANCE ON THE RATE PAID IN THE EARLI ER ASSESSMENT YEARS. WHAT IS TO BE SEEN IS WHETHER THE SERVICE W AS RENDERED BY THE DIRECTOR AND WHETHER THE ASSESSEE HAS PAID AT 6 %. IT IS NOT IN DISPUTE THAT THE DIRECTOR HAS RENDERED SERVICE AND PAYMENT WAS 17 I.T.A. NO.1961/MDS/16 I.T.A. NO.2647/MDS/16 MADE TO HIM AT 6%. IN VIEW OF THE ABOVE, THIS TRIB UNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER IS NO T JUSTIFIED IN DISALLOWING THE CLAIM OF THE ASSESSEE. ACCORDINGLY , THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ADDITIO N OF ` 49,33,541/- IS DELETED. 26. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DIS ALLOWANCE OF ` 10,45,753/- AS AGAINST DISALLOWANCE OF ` 1,13,99,293/- MADE BY THE ASSESSING OFFICER. 27. SHRI V. NAGAPRASAD, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSING OFFICER FOUND THAT THE ASSESSEE WAS CARRYING ON TRADING IN SHARES ON A LARGE SCALE AND ON REGULAR BASIS. THE ASSESSEE WAS MAINTAINING TRADING ACCOUNT WITH M /S ADITYA BIRLA MONEY LTD. ACCORDING TO THE LD. REPRESENTATIVE, DU RING THE YEAR UNDER CONSIDERATION, THE ASSESSEE MADE TRANSACTIONS TO THE EXTENT OF ` 98.07 CRORES IN RELATION TO MORE THAN 200 SHARES OF DIFFERENT COMPANIES. THE ASSESSEE HAS NOT ENTERED THE TRANSA CTIONS ON DAY BY DAY BASIS IN THE BOOKS. THE ASSESSEE IS MAINTAI NING INVESTMENT PORTFOLIO ALSO. SOME OF THE INVESTMENTS WERE MADE IN SHARES. ACCORDING TO THE LD. REPRESENTATIVE, THE SHARES WHE REIN INVESTMENTS WERE MADE HAS TO BE TREATED AS CAPITAL GAIN ON SALE . HOWEVER, THE 18 I.T.A. NO.1961/MDS/16 I.T.A. NO.2647/MDS/16 ASSESSING OFFICER HAS TAKEN SALE OF SHARES AS BUSIN ESS INCOME INSTEAD OF CAPITAL GAIN. 28. ON THE CONTRARY, SH. P. RADHAKRISHNAN, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE IN FACT INVESTED IN THE SHARES OF MORE THAN 200 DIFFERENT COMPANIES. THE A SSESSEE SINGLED OUT ONE COMPANYS SHARES, NAMELY, M/S APOLL O HOSPITAL ENTERPRISE LTD. AND CLAIMED THE SAME AS INVESTMENT. THE PROFIT ON SALE OF SHARES OF M/S APOLLO HOSPITAL ENTERPRISE LT D. WAS CLAIMED AS CAPITAL GAIN. ACCORDING TO THE LD. D.R., THE ASSES SING OFFICER AFTER TAKING INTO CONSIDERATION MATERIAL AVAILABLE ON REC ORD AND TRANSACTIONS OF THE ASSESSEE, FOUND THAT IT IS ONLY A BUSINESS TRANSACTION. 29. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS INVESTED IN SHARES IN MORE THAN 200 DIFFERENT COMPANIES. OTHER THAN M/S APOLLO HOSPITA L ENTERPRISE LTD., THE ASSESSEE ITSELF TREATED THE PROFIT ON SALE OF S HARES AS BUSINESS PROFIT. IN RESPECT OF INVESTMENTS IN SOME OF THE C OMPANIES, THE ASSESSEE CLAIMS AS CAPITAL GAIN. EVEN THOUGH THE A SSESSEE SYSTEMATICALLY ENGAGED IN PURCHASE AND SALE OF SHAR ES, THE 19 I.T.A. NO.1961/MDS/16 I.T.A. NO.2647/MDS/16 ASSESSEE CAN MAINTAIN TWO PORTFOLIOS ONE PORTFOLI O FOR BUSINESS AND ANOTHER ONE FOR INVESTMENTS. IN ORDER TO FIND OUT WHETHER THE ASSESSEE INVESTED THE FUNDS IN M/S APOLLO HOSPITAL ENTERPRISE LTD. AS A TRADER OR FOR INVESTMENT, THE INTENTION OF THE ASSESSEE AT THE TIME OF INVESTMENT NEEDS TO BE ASCERTAINED. WHEN T HE LAW PERMITS THE ASSESSEE TO MAINTAIN TWO PORTFOLIOS, ONE FOR IN VESTMENT AND ANOTHER FOR BUSINESS, THIS TRIBUNAL IS OF THE CONSI DERED OPINION THAT THE ASSESSING OFFICER HAS TO ASCERTAIN THE INTENTIO N OF THE ASSESSEE IN INVESTING MONEY IN THE SHARES OF M/S APOLLO HOSP ITAL ENTERPRISE LTD. SINCE THE INTENTION OF THE ASSESSEE WAS NOT A SCERTAINED AND BROUGHT ON RECORD, THIS TRIBUNAL IS OF THE CONSIDER ED OPINION THAT THE MATTER NEEDS TO BE RECONSIDERED. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ENTIRE ADDI TION MADE BY THE ASSESSING OFFICER IS REMITTED BACK TO THE FILE OF T HE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE-EXAMINE TH E MATTER AFRESH AFTER CONSIDERING THE MATERIAL THAT MAY BE FILED BY THE ASSESSEE AND THEREAFTER DECIDE THE SAME IN ACCORDANCE WITH LAW, AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE. 30. NOW COMING TO THE REVENUES APPEAL IN I.T.A. NO.2647/MDS/2016, THE ONLY ISSUE ARISES FOR CONSIDE RATION IS WITH 20 I.T.A. NO.1961/MDS/16 I.T.A. NO.2647/MDS/16 REGARD TO DISALLOWANCE MADE BY THE ASSESSING OFFICE R UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME-TAX RUL ES, 1962. 31. SH. P. RADHAKRISHNAN, THE LD. DEPARTMENTAL REPR ESENTATIVE, SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED THE EXPENDITURE FOR EARNING EXEMPT INCOME BY APPLYING THE PROVISIONS OF RULE 8D. HOWEVER, THE CIT(APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE DISALLOWANCE CANNOT EXCEED THE EXEMPTED INCOME. ACCORDING TO THE LD. D.R., RULE 8D DOES NO T SAY THAT THE ASSESSEE HAS TO EARN EXEMPTED INCOME FOR THE PURPOS E OF DISALLOWING THE EXPENDITURE INCURRED. IRRESPECTIVE OF THE INCOME EARNED BY THE ASSESSEE ON THE INVESTMENTS MADE, ACC ORDING TO THE LD. D.R., THE DISALLOWANCE HAS TO BE MADE BY COMPUT ING THE EXPENDITURE UNDER RULE 8D. IN OTHER WORDS, ACCORDI NG TO THE LD. D.R., SECTION 14A OF THE ACT DOES NOT DEPEND UPON A NY EXEMPT INCOME EARNED BY THE ASSESSEE. REFERRING TO SECTIO N 14A OF THE ACT, THE LD. D.R. SUBMITTED THAT THE EXPENDITURE IN RELATION TO INCOME, WHICH IS NOT INCLUDED IN THE TOTAL INCOME, HAS TO BE DISALLOWED, THEREFORE, THE CIT(APPEALS) IS NOT JUST IFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. 21 I.T.A. NO.1961/MDS/16 I.T.A. NO.2647/MDS/16 32. ON THE CONTRARY, SHRI V. NAGAPRASAD, THE LD. RE PRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE MADRAS HIGH CO URT IN REDINGTON (INDIA) LTD. V. ADDL. CIT (2017) 77 TAXMA NN.COM 257 FOUND THAT THE DISALLOWANCE CANNOT BE MADE ON NOTIO NAL BASIS. ACCORDING TO THE LD. REPRESENTATIVE, WHEN THE ASSES SEE HAS NOT EARNED ANY INCOME ON THE INVESTMENT MADE, THERE CAN NOT BE ANY DISALLOWANCE OF THE SO-CALLED EXPENDITURE. THEREFO RE, IF AT ALL THE ASSESSEE HAS EARNED ANY INCOME, IT CANNOT EXCEED TH E INCOME EARNED BY THE ASSESSEE. THEREFORE, ACCORDING TO TH E LD. REPRESENTATIVE, THE CIT(APPEALS) BY PLACING HIS REL IANCE ON THE JUDGMENT OF DELHI HIGH COURT IN JOINT INVESTMENT PV T. LTD. V. CIT (ITA NO.117/2015), HAS RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE. 33. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE CIT(APPEALS) FOUND THAT THE DISALLOWANCE UNDER SECT ION 14A OF THE ACT CANNOT EXCEED THE EXEMPT INCOME, BY PLACING REL IANCE ON THE JUDGMENT OF DELHI HIGH COURT IN JOINT INVESTMENT PV T. LTD. (SUPRA). THE MADRAS HIGH COURT IN THE CASE OF REDINGTON (IND IA) LTD. (SUPRA) HAS TAKEN A SIMILAR VIEW. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY 22 I.T.A. NO.1961/MDS/16 I.T.A. NO.2647/MDS/16 REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUT HORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 34. IN THE RESULT, THE ASSESSEES APPEAL IN I.T.A. NO.1961/MDS/2016 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE REVENUES APPEAL IN I.T.A. NO.2647/MDS/2016 IS DISM ISSED. ORDER PRONOUNCED ON 5 TH JULY, 2017 AT CHENNAI. SD/- SD/- ( . . ' #$ ) ( . . . ) (D.S. SUNDER SINGH) (N.R.S. GANESAN) & / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 9 /DATED, THE 5 TH JULY, 2017. KRI. 3 /2#: ;:+2 /COPY TO: 1. *12 /ASSESSEE 2. ASSESSING OFFICER 3. ' <2 () /CIT(A)-15, CHENNAI-34 4. ' <2 /CIT-6, CHENNAI-34 5. := /2 /DR 6. * > /GF.