DCIT, CHENNAI V. M/s. MRF Limited, CHENNAI

ITA 1985/CHNY/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73727 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 04-03-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 09-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T N BETGERI
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Earning of tax free income
• Section: 6

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , ! , ' # $ BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT & SHRI VIKAS AWASTHY, JUDICIAL MEMBER . / I.T.A. NO. 1985/MDS/2011 / ASSESSMENT YEAR : 2008-09 DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT, CHENNAI 600 101 ( !% /APPELLANT) VS M/S.MRF LIMITED, NO.124, GREAMS ROAD, CHENNAI -600 006 [PAN: AAACM 4154 G] ( &'!% /RESPONDENT) / APPELLANT BY : SHRI T.N.BETGERI, JCIT / RESPONDENT BY : SHRI R.VIJAYARAGHAVAN , ADV. / DATE OF HEARING : 04-03-2014 ! / DATE OF PRONOUNCEMENT : 04-03-2014 #( / O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THE APPEAL HAS BEEN FILED BY THE REVENUE AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-LTU, CHE NNAI DATED 23-09-2011 RELEVANT TO THE ASSESSMENT YEAR (AY) 200 8-09. THE REVENUE HAS ASSAILED THE ORDER OF THE CIT(APPEALS) PRIMARILY ON TWO ISSUES: I.T.A. NO. 1985/MDS/2011 2 I. DELETING OF DIS-ALLOWANCE U/S.14A R.W.R.8D; II. DELETING OF DIS-ALLOWANCE U/S.40A(I) IN RESPECT OF OVERSEAS PAYMENTS OF PROFESSIONAL AND CONSULTANCY CHARGES WITHOUT DEDUCTING TAX AT SOURCE. 2. THE ASSESSEE IS A MANUFACTURER OF RUBBER TUBES, TYRES AND RUBBER PRODUCTS. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE AY.2008-09 ON 29-09-2008 DECLARING ITS INCOME AS ` 358,57,59,312/-. THE CASE OF THE ASSESSEE WAS SELE CTED FOR SCRUTINY AND NOTICE U/S. 143(2) OF THE INCOME TAX A CT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT) WAS ISSUED TO THE A SSESSEE ON 12-08- 2009. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER MADE CERTAIN ADDITIONS/DIS-ALLOWA NCES INCLUDING DIS-ALLOWANCE U/S.14A & U/S.40A(I). AGGRIEVED AGAINST THE ASSESSMENT ORDER DATED 24-12 -2010, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(APP EALS). THE CIT(APPEALS) VIDE IMPUGNED ORDER ALLOWED BOTH THE I SSUES IN APPEAL. THE REVENUE HAS COME IN APPEAL BEFORE THE TRIBUNAL ASSAILING THE FINDINGS OF CIT(APPEALS). 3. SHRI T.N.BETGERI, APPEARING ON BEHALF OF THE REV ENUE SUBMITTED THAT THE PROVISIONS OF RULE 8D ARE APPLIC ABLE W.E.F. I.T.A. NO. 1985/MDS/2011 3 AY.2008-09 AND AS SUCH THE ASSESSING OFFICER WAS RI GHT IN APPLYING THE SAME. THE CIT(APPEALS) HAS ERRED IN R ESTRICTING DIS-ALLOWANCE TO PER CENT OF INVESTMENTS YIELDING EXEMPT INCOME, WHEREAS, THE ASSESSING OFFICER HAS RIGHTLY COMPUTED THE DIS-ALLOWANCE UNDER RULE 8D BY TAKING PER CENT AS THE AVERAGE VALUE OF INVESTMENT. THE LD.DR FURTHER SUBMITTED T HAT THE SECOND ISSUE IN APPEAL IS WITH REGARD TO DIS-ALLOWANCE U/S .40A(I) IN RESPECT OF PAYMENTS MADE IN FOREIGN CURRENCY TOWARDS PROFES SIONAL AND CONSULTANCY SERVICES. THE PAYMENTS-IN-QUESTION WER E MADE FOR SERVICES WHICH WERE HIGHLY TECHNICAL IN NATURE, THE REFORE, ARE SUBJECT TO THE PROVISIONS OF SECTION 195 OF THE ACT . THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE AT THE TIME OF MAKING PAYMENTS. MOREOVER, THE PAYMENTS MADE WERE FOR THE SERVICES RENDERED IN INDIA. THE LD.DR STRONGLY PRAYED FOR S ETTING ASIDE THE FINDINGS OF THE CIT(APPEALS) ON THESE ISSUES. 4. ON THE OTHER HAND, SHRI R.VIJAYARAGHAVAN, APPEAR ING ON BEHALF OF THE ASSESSEE SUBMITTED THAT AS REGARDS TH E ISSUE OF DIS-ALLOWANCE U/S.14A R.W.R.8D IS CONCERNED, THE SA ME ISSUE HAD COME UP BEFORE THE D BENCH OF THE TRIBUNAL IN ASS ESSEES APPEAL FOR THE SAME AY IN ITA NO.1748/MDS/2011 DECIDED ON 18-01-2012. THE TRIBUNAL HAS REMANDED THE ISSUE BACK TO THE FIL E OF ASSESSING I.T.A. NO. 1985/MDS/2011 4 OFFICER FOR FRESH ADJUDICATION. THE LD.COUNSEL FOR THE ASSESSEE PLACED ON RECORD A COPY OF THE ORDER OF THE TRIBUNA L IN ITA NO.1748/MDS/2011 (SUPRA). AS REGARDS THE SECOND ISSUE, THE LD.COUNSEL SUBMIT TED THAT SINCE THE PAYMENTS HAVE ALREADY BEEN MADE BY THE AS SESSEE THEREFORE, THE CASE OF THE ASSESSEE IS COVERED BY T HE JUDGMENT OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. M/S. VECTOR SHIPPING SERVICES (P) LTD., IN ITA NO.122/13 DECIDED ON 09-07-2013. WHEREIN, THE HONBLE HIGH COURT HAS UPHELD THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF MERILYN SHIPPING AND TRANSPORT VS. ACIT REPORTED AS 16 ITR (TRIB) I. 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRESENTATIVES OF BOTH THE SIDES. WE HAVE ALSO PE RUSED THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE ORDE R OF THE TRIBUNAL REFERRED TO BY THE LD.COUNSEL FOR THE ASSESSEE. AS FAR AS THE ISSUE RELATING TO DIS-ALLOWANCE U/S.14A R.W.R.8D IS CONCE RNED, WE FIND THAT THE SAME ISSUE WAS RAISED IN THE APPEAL BEFORE TRIBUNAL BY THE ASSESSEE FOR THE AY.2008-09. IN THE SAID APPEA L, (I.E., ITA NO.1748/MDS/2011), THE TRIBUNAL HELD AS UNDER: I.T.A. NO. 1985/MDS/2011 5 15. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD V. DCIT (328 ITR 81) HAS HELD THAT RULE 8D IS APPLICABLE FROM ASSESSMENT YEAR 2008-09. NO D OUBT, HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF HERO CYCLES (SUPRA) HAS HELD THAT IT COULD NOT BE TAKEN AS A RU LE THAT SOME EXPENDITURE WAS ALWAYS INCURRED IN RESPECT OF THE E XEMPT INCOME EARNED. HERE, HOWEVER, WE NOTE THAT THE ASSE SSEE ITSELF HAD MADE A DISALLOWANCE OF ` 66,312/-. THEREFORE, WE ARE OF THE OPINION THAT IT CANNOT NOW TURN AROUND AND SAY THAT NO EXPENDITURE WHATSOEVER WAS INCURRED FOR EARNING THE EXEMPT INCOME. AS ALREADY MENTIONED, RULE 8D IS APPLICABLE FOR IMPUGNED ASSESSMENT YEAR. THIS BEING THE CASE, WE A RE OF THE OPINION THAT THE MATTER REQUIRES A FRESH LOOK BY TH E A.O. WE, THEREFORE, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND REMIT THE ISSUE BACK TO THE FILE OF A.O. FOR CONSIDERATIO N AFRESH IN ACCORDANCE WITH LAW. GROUND NO.3 OF THE ASSESSEE IS , THEREFORE, ALLOWED FOR STATISTICAL PURPOSE. IN VIEW OF THE FACT THAT FOR THE SAME AY IN THE APP EAL OF THE ASSESSEE, THE ISSUE HAS BEEN REMITTED BACK TO THE F ILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION, THE SAME ISSUE IN PRESENT APPEAL OF THE REVENUE HAS TO BE REMITTED BACK TO TH E ASSESSING OFFICER TO MAINTAIN THE CONSISTENCY. THE ASSESSING OFFICER SHALL CONSIDER THE ISSUE AFRESH IN ACCORDANCE WITH LAW. ACCORDINGLY, THIS GROUND OF APPEAL OF THE REVENUE IS ALLOWED FOR STAT ISTICAL PURPOSES. I.T.A. NO. 1985/MDS/2011 6 6. THE SECOND ISSUE RAISED IN THE APPEAL IS WITH RE GARD TO DIS-ALLOWANCE U/S.40A(I) IN RESPECT OF PAYMENTS MAD E IN FOREIGN CURRENCY TOWARDS PROFESSIONAL AND CONSULTANCY SERVI CES. IT IS NOT DISPUTED THAT THE ENTIRE PAYMENTS FOR THE ALLEGED T ECHNICAL SERVICES HAS BEEN MADE AND NOTHING IS OUTSTANDING. THE HON BLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. M/S. VECTOR SHIPPING SERVICES (P) LTD. (SUPRA) HAS HELD THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPING AND TRANSPORT VS. ACIT (SUPRA) AS GOOD LAW. THE SPECIAL BENCH OF THE TRIBUNAL IN THE SAID CASE HAS HELD THAT THE PROVISI ONS OF SECTION 40A(I) DO NOT APPLY TO THOSE AMOUNTS WHICH HAVE ALR EADY BEEN PAID BY THE ASSESSEE BEFORE THE CLOSE OF THE RELEVA NT PREVIOUS YEAR. THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. CRESCENT EXPORT SYNDICATE IN ITA NO.20 OF 2013 DECIDED ON 3 RD APRIL, 2013 AND THE HONBLE GUJARAT HIGH COURT IN T HE CASE OF CIT VS. SIKANDARKHAN N. TUNVAR REPORTED AS 33 TAXMAN.COM HAS HELD THAT THE DIS-ALLOWANCE U/S.40A(I) DOES NOT DISTINGU ISH BETWEEN AMOUNT PAID AND PAYABLE. BOTH THE HONBLE HIGH COURTS HAVE NOT APPROVED THE PRINCIPLE LAID DOWN IN THE CASE OF MERILYN SHIPPING AND TRANSPORT VS. ACIT (SUPRA). HOWEVER, THE JUDICIAL PRECEDENCE DEMANDS THAT THE VIEW IN FAVOUR OF THE A SSESSEE SHOULD BE ADOPTED. IN VIEW OF THE JUDGMENT OF THE HONBLE I.T.A. NO. 1985/MDS/2011 7 SUPREME COURT OF INDIA IN THE CASE OF CIT VS. VEGETABLE PRODUCTS LTD., REPORTED AS 88 ITR 192 (SC), WE HAVE TO FOLLOW THE JUDGMENT OF THE HONBLE ALLAHABAD HIGH COURT WHICH IS IN FAV OUR OF THE ASSESSEE. ACCORDINGLY, WE HOLD THAT THE DIS-ALLOWA NCE U/S.40A(I) APPLIES ONLY TO THE AMOUNTS PAYABLE AND NOT TO TH OSE AMOUNTS WHICH ARE ALREADY PAID. THIS GROUND OF APPEAL OF THE REVENUE IS THUS LIABLE TO BE DISMISSED. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ON TUESDAY, THE 04 TH MARCH, 2014 AT CHENNAI. SD/- SD/- (DR. O.K. NARAYANAN) (VI KAS AWASTHY) VICE PRESIDENT JUDICIAL MEMBER DATED: 04 TH MARCH, 2014 TNMM COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR