Natesan Synchrocones Pvt. Ltd., CHENNAI V. DCIT Corporate Circle 4(2), CHENNAI

ITA 1991/CHNY/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7773 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 21-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HOMI RAJVANSH
• Keywords: Earning of tax free income
• Section: 143(3); 142(1); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B BENCH, CHENNAI . . . , . , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.1991/CHNY/2018 ( / ASSESSMENT YEAR: 2015-2016) M/S. NATESAN SYNCHROCONES PVT. LTD., 54/4, PAULWELLS ROAD, SRIPURAM, ST. THOMAS MOUNT, CHENNAI 600 016. VS THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 4(2), CHENNAI. PAN: AAACN2399A ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI N. ARJUN RAJ, CA / RESPONDENT BY : SHRI HOMI RAJ VANSH, CIT /DATE OF HEARING : 10.04.2019 /DATE OF PRONOUNCEMENT : 11.04.2019 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-8, CHENNAI, DATED 23.05.2018 IN ITA NO.33/17-18 FOR THE ASSESSMENT YEAR 2015-16 PASSED U/S. 250(6) R.W.S. 143(3) OF THE ACT. 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS APPEAL HOWEVER THE CRUX OF THE ISSUE IS THAT THE LD.CIT(A) HAS ERRED IN 2 ITA NO.1991/CHNY/2018 CONFIRMING THE ADDITION MADE BY THE LD.AO AMOUNTING TO RS.9,23,939/- TOWARDS DISALLOWANCE U/S.14A R.W.R. 8D OF THE RULES. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURE OF SYNCHROCONES AND SYNCHRONIZERS RINGS AND GENERATION OF ELECTRICITY THROUGH WIND MILLS, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2015-16 ELECTRONICALLY ON 31.10.2015 ADMITTING TOTAL INCOME OF RS.11,39,05,840/-. THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICE U/S.143(2) & 142(1) OF THE ACT WAS ISSUED ON 28.07.2016 & 29.06.2017 RESPECTIVELY. FINALLY ASSESSMENT ORDER WAS PASSED U/S.143(3) OF THE ACT ON 17.11.2017 WHEREIN THE LD.AO MADE ADDITION OF RS.9,23,939/- TOWARDS DISALLOWANCE U/S.14A OF THE ACT. ON APPEAL THE LD.CIT(A) CONFIRMED THE ADDITION MADE BY THE LD.AO. 4. AT THE OUTSET, WE FIND THAT NEITHER THE LD.AO NOR THE LD.CIT(A) HAD EXTENSIVELY EXAMINED THE ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS EARNING DIVIDEND INCOME WHICH IS EXEMPT FROM TAX. IT ALSO APPEAR THAT THE ASSESSEE HAS ALSO NOT COMPUTED THE EXPENDITURE INCURRED BY IT FOR EARNING EXEMPT INCOME IN ORDER TO CONVINCE THE LD.AO THAT NO FURTHER DISALLOWANCE IS WARRANTED AS PER 3 ITA NO.1991/CHNY/2018 THE PROVISIONS OF SECTION 14A(2) OF THE ACT. IN SIMILAR SITUATION ON THE VERY SAME ISSUE ON AN EARLIER OCCASION WE HAVE HELD IN THE CASE IN ITA NOS.1729 & 1730/CHNY/2016 VIZ., DCIT VS. M/S. STHITHI INSURANCE SERVICES PVT. LTD., VIDE ORDER DATED 18.06.2018 AS FOLLOWS:- 5.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS ON RECORD. IT IS APPARENT FROM THE FACTS OF THE CASE, THAT THE ASSESSEE HAS MADE HUGE INVESTMENTS IN SHARES WHICH EARN DIVIDEND INCOME EXEMPT FROM TAX. ACCORDING TO SECTION 14A OF THE ACT THE EXPENDITURE INCURRED TOWARDS EARNING EXEMPT INCOME CANNOT ALLOWED AS DEDUCTION FROM THE TAXABLE INCOME OF THE ASSESSEE. IN THE CASE OF THE ASSESSEE, IT IS EVIDENT THAT FOR THE PROCESS OF DECISION MAKING AS TO WHICH SHARES THE ASSESSEE HAS TO INVEST, DIS-INVESTED, AND AT WHAT POINT OF TIME ETC., WILL INVOLVE COST. SUCH EXPENDITURES INCURRED TOWARDS EARNING DIVIDEND INCOME WHICH IS EXEMPT FROM TAX CANNOT BE CLAIMED AS DEDUCTION FROM THE TAXABLE PROFIT OF THE ASSESSEE COMPANY. AS PER THE PROVISIONS OF THE ACT, THE ASSESSEE IS BOUND TO COMPUTE THE ACTUAL EXPENSES INCURRED BY IT TOWARDS INVESTMENT THAT WOULD EARN EXEMPT INCOME AND DISALLOW THE SAME. IN THE CASE OF THE ASSESSEE, SUCH COMPUTATION IS NEITHER MADE NOR THE EXPENDITURE TOWARDS EARNING EXEMPT DISALLOWED BY THE ASSESSEE. THEREFORE WE ARE OF THE VIEW THAT THE LD.AO WAS RIGHT IN HIS REALM TO INVOKE THE PROVISIONS OF SECTION 14A R.W.R.8D OF THE RULES. FURTHER IT IS PERTINENT TO MENTION THAT THERE IS NO CORRELATION BETWEEN THE DIVIDEND INCOME EARNED BY THE ASSESSEE AND THE EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS INVESTMENT THAT EARNS EXEMPT INCOME. FOR EXAMPLE:- DURING A PARTICULAR YEAR THE ASSESSEE WOULD NOT HAVE EARNED ANY DIVIDEND INCOME THOUGH IT HAS MADE HEAVY INVESTMENTS DURING THE PREVIOUS YEAR OR THE EARLIER YEARS, BUT THE ASSESSEE IS BOUND TO INCUR COST FOR ACQUIRING / MAINTAINING /DIS-INVESTING SUCH INVESTMENTS. HENCE IT CANNOT BE INFERRED THAT THE DIVIDEND INCOME WOULD BE DIRECTLY PROPORTIONAL TO THE EXPENDITURE INCURRED ON THE INVESTMENT EARNING EXEMPT INCOME. THEREFORE WE DO NOT FIND ANY MERIT IN THE ORDER OF THE LD.CIT(A) FOR HAVING RESTRICTED THE 4 ITA NO.1991/CHNY/2018 DISALLOWANCE U/S.14A OF THE ACT TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE. HOWEVER SINCE THE ASSESSEE HAS NOT COMPUTED ITS ACTUAL EXPENDITURE INCURRED TOWARDS THE INVESTMENT THAT EARNS EXEMPT INCOME, IN THE INTEREST OF JUSTICE, WE REMIT BACK THE MATTER TO THE FILE OF LD.AO FOR BOTH THE ASSESSMENT YEARS THEREBY AFFORDING ONE MORE OPPORTUNITY TO THE ASSESSEE TO WORK OUT THE ACTUAL EXPENDITURE INCURRED BY IT TOWARDS THE INVESTMENT THAT EARN EXEMPT INCOME AND DISALLOW THE SAME. WE FURTHER HEREBY DIRECT THE LD.AO TO VERIFY THE COMPUTATION SUBMITTED BY THE ASSESSEE FOR BOTH THE ASSESSMENT YEARS AND THEREAFTER DECIDE THE MATTER IN ACCORDANCE WITH LAW AND MERIT. FOLLOWING THE SAME RATIO WE HEREBY REMIT BACK THE MATTER TO THE FILE OF LD.AO WITH SIMILAR DIRECTIONS. 6. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES AS INDICATED HEREIN ABOVE. ORDER PRONOUNCED ON THE 11 TH APRIL, 2019 AT CHENNAI. SD/- SD/- /CHENNAI, /DATED 11 TH APRIL, 2019 RSR /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( ) /CIT(A) 4. /CIT 5. /DR 6. /GF ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER