DCIT, CHENNAI V. TVS Capital Fund Limited, CHENNAI

ITA 2007/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4605 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2017
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 28-03-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 01-07-2016
• Court: TRIBUNAL
• Department Lawyers: V M PRASAD
• Keywords: Capital asset; Question of law
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . , ' # BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO. 2007/MDS/2016 / ASSESSMENT YEAR : 2012-13 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 3 (1), NEW BLOCK, 4 TH FLOOR, 121, MAHATMA GANDHI ROAD, NUNGAMBAKAM, CHENNAI 600 034. VS. M/S. TVS CAPITAL FUND LIMITED, JAYALAKSHMI ESTATES, NO. 29, HADDOWS ROAD, CHENNAI 600 006. [PAN: AAACT 1154H] ( / APPELLANT) ( / RESPONDENT) % & / APPELLANT BY : SHRI M.S.V.M. PRASAD, CIT )*% & / RESPONDENT BY : SHRI SAROJ KUMAR PARIDA, ADVOCATE & /DATE OF HEARING : 28.03.2017 & /DATE OF PRONOUNCEMENT : 04.05.2017 /O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) 11, CHENNAI IN ITA NO. 142/C IT(A)-11/2015-16 DATED 30.03.2016 PASSED U/S. 143(3) OF THE ACT. :-2-: I.T.A. NO. 2007/MDS/2016 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: 2.1 THE ID.CIT(A) ERRED IN DIRECTING THE AO TO RECO MPUTED THE DISALLOWANCE UNDER RULE 80 AFTER EXCLUDING THE APPE LLANT'S INVESTMENT IN SUBSIDIARY COMPANIES. 2.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT RU LE 80(2) DOES NOT DIFFERENTIATE BETWEEN STRATEGIC INVESTMENTS AND INV ESTMENTS IN SUBSIDIARY COMPANIES WITH OTHER INVESTMENTS AND THE WORD USED IS ONLY 'VALUE OF INVESTMENT' AND HENCE THE INVESTMENT IN S UBSIDIARY COMPANY SHALL BE INCLUDED FOR CALCULATION OF DISALLOWANCE U NDER RULE 80(2). 3.1 THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSE SSING OFFICER TO VERIFY THE ASSESSEE COMPANY'S CLAIM OF LONG TERM CA PITAL LOSS CLAIMED AT RS.19,27,24,433/- ON REDEMPTION OF BONDS EVEN THOUG H THERE IS NO TRANSFER IN THE LIGHT OF SECTION 47(IV). 3.2 THE LEARNED CIT(A) OUGHT TO HAVE SEEN THAT THE LONG TERM CAPITAL LOSS IS DUE TO REDEMPTION OF BONDS BY THE A SSESSEE COMPANY ISSUED BY M/S. SRAVANAA PROPERTIES LIMITED AND M/S. SRAVANAA PROPERTIES LIMITED IS A HUNDRED PERCENT (100%) SUBS IDIARY OF THE ASSESSEE COMPANY AND HENCE IT IS NOT A TRANSFER IN VIEW OF SECTION 47(IV) OF THE INCOME TAX ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS IN THE BUSINESS OF INVESTMENT AND PROVIDING MANAGEMENT CON SULTANCY SERVICES AND FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2012-13 ON 30.09.2012 WITH TOTAL INCOME OF RS. 1,38,57,640/- AND THE RETURN OF INCOME WAS PROCESSED U/S. 143(1) OF THE ACT. SUBSEQUENTLY, THE CASE WAS SELE CTED FOR SCRUTINY UNDER CASS AND NOTICE U/S. 143(2) AND 143(1) OF THE ACT WAS IS SUED. IN COMPLIANCE TO NOTICE, LD. AR OF THE ASSESSEE APPEARED AND FILED T HE DETAILS FROM TIME TO TIME. :-3-: I.T.A. NO. 2007/MDS/2016 THE ASSESSING OFFICER ON PERUSAL OF THE FINANCIAL S TATEMENTS FOUND THAT THE ASSESSEE HAS INVESTMENT PORTFOLIO ON 31.03.2012 RS. 4,17,18,000/- AND THE ASSESSEE QUANTIFIED THE DISALLOWANCE OF RS. 13,01,6 00/, BUT THE ASSESSING OFFICER APPLIED THE PROVISIONS OF SECTION 14A R.W.R. 8D(2)( III) OF THE ACT CONSIDERING THE ADMINISTRATIVE EXPENDITURE INVESTMENTS IN PORTFOLIO AND WORKED OUT DISALLOWANCE TO THE EXTENT OF RS. 5,45,11,498/-. SIMILARLY, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE MADE CALCULATIONS ON LONG TERM CAPITAL GAI NS ON ACCOUNT OF ZERO COUPON BOND IN M/S. SARAVANA PROPERTIES AND THE DATE ACQUI SITION BEING 26.03.2009 AND SALE WAS ON 31.03.2012. THE COST ACQUISITION WAS T AKEN RS. 55,25,40,000/- AND THE ASSESSEE WORKED OUT TO LONG TERM CAPITAL LOSS R S. 19,27,24,433/-. THE ASSESSING OFFICER FOUND THAT THE ZERO COUPON BONDS ARE DEBENTURES ISSUED BY M/S. SARAVANA PROPERTIES LTD., AND CANNOT BE TREATE D AS CAPITAL ASSET AND THEREFORE THE ASSESSING OFFICER IS OF THE OPINION T HE LOSS IN RESPECT OF CAPITAL ASSET U/S. 47(X) OF THE ACT CANNOT CONSIDERED AND T HEREFORE LONG TERM CAPITAL LOSS OF RS. 19,27,24,433/- WAS NOT ALLOWED TO CARRY FORW ARD AND ASSESSED INCOME OF RS. 3,75,93,790/- VIDE ORDER U/S. 143(3) DATED 27.0 3.2015. 4. AGGRIEVED BY THE ORDER, THE ASSESSEE HAS FILED A N APPEAL WITH THE CIT(A). IN THE APPELLATE PROCEEDINGS, THE LD. CIT( A) CONSIDERED THE GROUNDS SUBMISSION AND THE FINDINGS OF THE ASSESSING OFFICE R AND IN THE CONSIDERING THE ASSESSEES OWN CASE IN EARLIER ASSESSMENT YEAR 2011 -12 INVESTMENT MADE IN SUBSIDIARIES AND ASSOCIATE COMPANIES WAS EXCLUDED A ND THE LD. CIT(A) HAS FOUND THAT THE ASSESSEE HAS MADE INVESTMENTS IN GRO UP COMPANIES. WITH THESE :-4-: I.T.A. NO. 2007/MDS/2016 OBSERVATIONS THE LD. CIT(A) RELIED ON THE DECISIONS OF THE ASSESSEES OWN CASE AND THE CO-ORDINATE BENCH DECISION AND DIRECTED THE ASSESSING OFFICER TO WORKOUT DISALLOWANCE UNDER THE RULE 8D EXCLUDING THE INVEST MENT IN THE SUBSIDIARY COMPANIES. THE LD. CIT(A) FOUND THAT THE ASSESSEE HAS OBTAINED DEBENTURES AS A SECURITY WHICH BEING CAPITAL ASSET AND CALCULATED CAPITAL LOSS AND THE LD. AO DISALLOWED THE CAPITAL LOSS AND THE TRANSFER OF DEB ENTURES WAS NOT HELD AS TRANSFER OF CAPITAL ASSET U/S. 47(X) OF THE ACT. T HE LD. CIT(A) CONSIDERED THE FINDINGS OF THE ASSESSING OFFICER AND SUBMISSIONS D IRECTED THE ASSESSING OFFICER TO VERIFY THE ASSESSES CLAIM AND DELETE THE DISALL OWANCE AND PARTLY ALLOWED THE APPEAL. 5. AGGRIEVED BY THE CIT(A) ORDER, THE REVENUE HAS F ILED AN APPEAL WITH THE TRIBUNAL. BEFORE US, THE LD. DR ARGUED THAT TH E CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE INVESTMENTS MAD E IN SUBSIDIARY COMPANY UNDER RULE 8D OF THE IT RULES. THE LD. CIT(A) HAS NOT CONSIDERED THE FACT THAT THE VALUE OF INVESTMENT IN SUBSIDIARY COMPANY SHOUL D ALSO BE INCLUDED FOR THE PURPOSE OF CALCULATION OF RULE 8D(2) OF THE ACT. T HE LD. DR RELIED ON THE JUDICIAL DECISIONS AND CO-ORDINATE BENCH DECISIONS. CONTRA, THE LD. AR RELIED ON THE ORDERS OF THE CIT(A) AND ASSESSEES OWN CASE FOR TH E ASSESSMENT YEAR 2011-12. 6. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATE RIALS ON RECORD AND JUDICIAL DECISIONS. THE LD. DRS CONTENTION THAT T HE LD.CIT(A) WAS NOT CORRECT IN DIRECTING THE LD.AO TO DELETE THE INVESTMENT IN THE SUBSIDIARY COMPANIES AND :-5-: I.T.A. NO. 2007/MDS/2016 GROUP CONCERNS, WHILE CALCULATING DISALLOWANCE U/S. 14A OF THE ACT UNDER RULE 8D(III) OF INCOME TAX RULES. WE FOUND THESE INVEST MENTS ARE MADE BY THE ASSESSEE COMPANY FOR THE PURPOSE OF YIELDING BUSINE SS INCOME THOUGH THEY ARE TERMED AS STRATEGIC INVESTMENTS. THE INVESTMENTS A RE MADE FOR BUSINESS PARTICIPATION AND PROFIT MOTIVE. BUT NOT FOR EARNIN G DIVIDEND INCOME. THE FACT REMAINS THESE INVESTMENTS ARE TO BE MADE OUT OF ITS OWN FUNDS AND NOT INTEREST BEARING BORROWED FUNDS. THE LD.AR SUBMITTED THAT T HE ASSESSEE COMPANY HAS ADEQUATE OWN FUNDS IN THE NATURE OF SHARE CAPITAL, RESERVES AND SURPLUS AND SUPPORTED HIS SUBMISSIONS WITH FINANCIAL STATEMENTS AND JUDICIAL DECISIONS. THE LD. DR SUBMITTED THAT THE INVESTMENTS ARE TO OBTAIN CONTROLLING INTEREST IN THE COMPANY AND SUPPORTED WITH THE DECISION OF THE HON BLE HIGH COURT OF KARNATAKA M/S. UNITED BREWERIES LTD. V. DCIT [2016] 72 TAXMAN N.COM 102, HELD AT PARA 8 & 9 WHICH READ AS UNDER: 8. SO FAR AS SECOND QUESTION OF APPLICABILITY OF SEC. 14A OF THE ACT TO THE EXPENSES INCURRED BY THE APPELLANT TOWARDS INTE REST AND OTHERS ON THE LOAN BORROWED IS CONCERNED, THE FINDING OF THE TRIBUNAL IS AT PARAGRAPH11 WHICH READS AS UNDER : '11. THE REVENUE IS IN APPEAL AND WE HAVE CONSIDERE D THE RIVAL CONTENTIONS. IN OUR VIEW, THE RECENT JUDGMENT OF TH E SPECIAL BENCH IN BOMBAY IN ITO V. DAGA CAPITAL MANAGEMENT PVT. LTD. (2009) 312 ITR (AT) 1, IS APPLICABLE TO THE FACTS OF THE PRESENT C ASE. IN THIS ORDER, IT HAS BEEN HELD THAT SECTION 14A IS APPLICABLE EVEN W HERE THE MOTIVE IN ACQUIRING THE SHARES WAS TO OBTAIN CONTROLLING INTE REST IN THE COMPANIES. THE FINDING OF THE COMMISSIONER OF INCOM E-TAX (APPEALS) CANNOT, THEREFORE, BE UPHELD AS IT IS CONTRARY TO T HE DECISION OF THE SPECIAL BENCH. WE, ACCORDINGLY, UPHOLD IN PRINCIPLE THE APPLICABILITY OF SECTION 14A. HOWEVER, IT IS FOR THE ASSESSING OFFIC ER TO ASCERTAIN FROM THE FACTS OF THE CASE AS TO HOW MUCH INTEREST BEARI NG BORROWINGS WAS UTILIZED TO ACQUIRE SHARES IN THE COMPANIES. IT IS ALSO NECESSARY TO SEE :-6-: I.T.A. NO. 2007/MDS/2016 AS TO WHETHER ANY INTEREST BEARING BORROWED FUNDS W ERE USED IN MAKING THE ADVANCES AND EXPENDITURE IN THE CASE OF CASTLE BREWERIES. THIS FACTUAL EXERCISE HAS TO BE CARRIED OUT BY THE ASSESSING OFFICER AFTER GIVING DUE OPPORTUNITY TO THE ASSESS OF BEING HEARD. THE ASSESSING OFFICER MAY MAKE THE DISALLOWANCE OF INTE REST U/S.14A ONLY IF IT IS FOUND THAT INTEREST BEARING BORROWED FUNDS WERE USED TO ACQUIRE SHARES IN THE COMPANIES OR FOR MAKING ADVAN CES TO CASTLE BREWERIES. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH THE ABOVE DIRECTIONS. THE GROUND IS TR EATED AS PARTLY ALLOWED.' 9. THE AFORESAID SHOWS THAT THE TRIBUNAL AFTER HOLDIN G IN PRINCIPLE THE APPLICABILITY OF SEC. 14A, HAS FURTHER DIRECTED THE ASSESSING OFFICER TO ASCERTAIN FROM THE FACTS OF THE CASE AS TO HOW MUCH INTEREST BEARING BORROWINGS WAS UTILIZED TO ACQUIRE SHARES IN THE CO MPANIES AND THE MATTER IS RELEGATED TO THE ASSESSING OFFICER. AS PE R THE LANGUAGE IN SEC.14A, THE ENQUIRY HAS TO BE UNDERTAKEN BY THE AS SESSING OFFICER WHICH HAS BEEN SO ORDERED BY THE TRIBUNAL. HENCE, I T CAN BE SAID THAT THE TRIBUNAL HAS EXERCISED THE DISCRETION WHERE RIG HTS OF BOTH SIDES ARE KEPT OPEN FOR ADMISSIBLE DEDUCTION UNDER SEC.14 A. WHEN SUCH A DISCRETION IS EXERCISED AND THE RIGHTS OF THE APPEL LANT-ASSESSEE IS ALSO KEPT OPEN TO SATISFY THE ASSESSING OFFICER, IT CANN OT BE SAID THAT ANY SUBSTANTIAL QUESTIONS OF LAW WOULD ARISE FOR CONSID ERATION, AS SOUGHT TO BE CANVASSED. IN OUR VIEW, AT THE STAGE OF ENQUI RY UNDER SEC.14A, IT IS OPEN TO THE ASSESSING OFFICER TO INDEPENDENTL Y CONSIDER THE MATTER FOR ADMISSIBILITY OF THE INTEREST ON BORROWI NGS AND IF YES TO WHAT EXTENT. HENCE, WHEN THE QUESTION AT LARGE IS F URTHER TO BE CONSIDERED BY THE ASSESSING OFFICER, WE DO NOT FIND THAT ANY FURTHER OBSERVATIONS ARE REQUIRED TO BE MADE IN THIS REGARD . IN ANY CASE, THE QUESTION OF LAW AS SOUGHT TO BE CANVASSED WOULD NOT ARISE FOR CONSIDERATION AT THIS STAGE ON THE SAID ASPECTS AS SOUGHT TO BE CANVASSED. WE RELY ON THE JUDICIAL DECISIONS AND IN THE INTERE ST OF JUSTICE, WE REMIT THE DISPUTED ISSUE TO THE FILE OF THE LD. AO FOR VERIFI CATION OF INVESTMENTS OF THE ASSESSEE IN SUBSIDIARY COMPANIES WITH OWN FUNDS OR BORROWED FUNDS FOR THE PURPOSE OF DISALLOWANCE U/S.14A OF THE ACT AND THE ASSESSEE SHOULD BE PROVIDED :-7-: I.T.A. NO. 2007/MDS/2016 ADEQUATE OPPORTUNITY OF HEARING BEFORE PASSING THE ORDER ON MERITS. ACCORDINGLY WE REMIT THE DISPUTED ISSUE FOR LIMITED PURPOSE TO THE FILE OF AO AND ALLOW THE GROUND OF THE REVENUE FOR STATISTICAL PURPOSE. 6.1 IN RESPECT OF SECOND DISPUTED ISSUE, CARRY FORW ARD OF CAPITAL LOSS, THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS INADVERTEN TLY MADE A MISTAKE TO ALLOW THE CLAIM BEFORE THE ASSESSING OFFICER AND ALSO LD. AR SUBMITTED THE COPY OF COMPUTATION OF INCOME AND THE LOSS WAS CONSIDERED B Y THE ASSESSEE IN THE RETURN OF INCOME. CONSIDERING THE APPARENT FACTS, JUDICIAL DECISIONS AND THE INFORMATION, WE ARE OF THE OPINION THAT THE ASSESSE E HAS CARRY FORWARD LONG TERM CAPITAL LOSS BUT HAS CLAIMED IN THE COMPUTATION OF INCOME AND SAME CANNOT BE ALLOWED AND SET ASIDE THE DIRECTIONS OF THE LD. CIT (A) AND ALLOW THE GROUND OF APPEAL OF THE REVENUE. IN THE RESULT, REVENUE APPEAL IS PARTLY ALLOWED FO R STATISTICAL PURPOSE. ORDER PRONOUNCED ON THURSDAY, THE 4 TH DAY MAY, 2017 AT CHENNAI. SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER SD/- ( . ) (G. PAVAN KUMAR) $ /JUDICIAL MEMBER /CHENNAI, 0 /DATED: 4 TH MAY, 2017. JPV & )'23 43 /COPY TO: 1. %/ APPELLANT 2. )*% /RESPONDENT 3. 5 ( )/CIT(A) 4. 5 /CIT 5. 3 )'' /DR 6. 9 /GF