ACIT Corporate Circle 6(1), CHENNAI V. Savorit Limited, CHENNAI

ITA 2043/CHNY/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0052 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 27-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBASHRI
• Assessee Lawyers: A SUSHMA HARINI
• Keywords: Business income; Depreciation; Earning of tax free income; Question of law; Rule 8D; Set aside
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: CHENNAI , , ( BEFORE SHRI GEORGE MATHAN , JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ./ ITA NO.2043/CHNY/2018 /ASSESSMENT YEAR: 2013-14 THE ASST. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-6(1), AAYAKAR BHAVAN, WANAPARTHY BLOCK, 7 TH FLOOR, 121, M.G.ROAD, CHENNAI-600 034. VS. M/S.SAVORIT LTD., NO.22, NORTH TERMINUS ROAD, TOLLGATE, CHENNAI-600 081. [PAN: AAACS 9903 R] ( * /APPELLANT) ( +,* /RESPONDENT) DEP ARTMENT BY : MS.SUBASHRI, JCIT ASSESSEE BY : MS.A. SUSHMA HARINI, ADV. . /DATE OF HEARING : 25.03.2019 . /DATE OF PRONOUNCEMENT : 25.03.2019 / O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-15, CHENNAI, I N ITA NO.030/2016- 17/CIT(A)-15 DATED 28.03.2018 FOR THE AY 2013-14. 2. MS.SUBASHRI, JCIT., REPRESENTED ON BEHALF OF THE REVENUE AND MS.A. SUSHMA HARINI, ADV., REPRESENTED ON BEHALF OF THE ASSESSEE. ITA NO.2043/CHNY/2018 :- 2 -: 3. IN THE REVENUES APPEAL, REVENUE RAISED THE FOL LOWING GROUNDS: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) IS CONTRARY TO THE LAW AND FACTS OF THE CASE. 2. THE LD. CIT(A) ERRED IN DIRECTING THE AO TO TAX IN COME DECLARED BY THE ASSESSEE UNDER THE HEAD INCOME FOR HOUSE PROPERTY INSTEAD OF BUSIN ESS INCOME ASSESSED BY AO. 2.1. THE LD.CIT(A) RELIED UPON THE DECISION OF THE HONBLE ITATS ORDER IN ITA NO.2487/MDS/2014 IN THE ASSESSEES OWN CASE FOR THE A.Y.2011-12, WHICH HAS NOT REACHED FINALITY. 3.THE CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE M ADE U/S.14A R.W.R.8D TO THE EXTENT OF EXEMPT INCOME EARNED. 3.1) THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THE DI SALLOWANCE U/S.14A READ WITH RULE 8D NEED TO BE INVOKED EVEN WHEN THE ASSESSEE HAD NOT E ARNED ANY EXEMPT DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. 3.2) THE CIT(A) OUGHT TO HAVE APPRECIATED THAT AS PER THE CBDT CIRCULAR NO.5/2014 HAS BEEN CLARIFIED THAT DISALLOWANCE U/S.14A R.W.R. 8D H AS TO BE MADE EVEN IF TAXPAYER IN PARTICULAR YEAR HAS NOT EARNED ANY EXEMPT INCOME AN D THAT THERE IS NO PROVISION IN THE ACT OR RULES WHICH PROVIDES FOR DISALLOWANCE TO BE REST RICTED TO THE DIVIDEND EARNED. 3.3) SIMILAR DECISION OF THE APPELLATE FORUM IN VARI OUS CASES HAVE NOT BEEN ACCEPTED AND FURTHER APPEAL IS PENDING BEFORE THE HONBLE HIGH C OURT. 3.4) THE LD CIT(A) ERRED IN DIRECTING THE AO TO DELETE THE ADDITION U/S.14A, HOLDING THAT THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME DURING THE YEAR WHEN RULE 8D DOES NOT MAKE ANY DISTINCTION AND THE INTENTION OF THE ASSESSEE I N MAKING SUCH INVESTMENT IS RELEVANT TO DECIDE THE ISSUE AS HELD BY THE APEX COURT IN RAJEN DRA PRASAD MOODY (115 ITR 519) AND NOT THE ACTUAL EARNING OF INTEREST IN A PARTICULAR YEAR. 3.5) THE LD CIT(A) ERRED IN NOT FOLLOWING THE BINDING DECISION OF ITAT CHENNAI BENCH IN SIVA INDUSTRIES & HOLDINGS LTD VS ACIT (ITA 1039/MDS /2014.2108/MDS/2012, 687 & 884/MDS/2014 DATED 07/10/2016) HAS HELD THAT THE DISAL LOWANCE U/S.14A NEED NOT TO BE RESTRICTED TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE. 3.6) THE LD CIT(A) FAILED TO NOTE THAT AS PER SECTIO N 14A READ WITH RULE 8D CLARIFIED THE LEGISLATIVE INTENT THAT EXPENSES INCURRED CAN BE AL LOWED ONLY TO THE EXTENT THEY ARE RELATABLE TO THE EARNING OF TAXABLE INCOME. NO EXPE NDITURE, WHETHER DIRECT OR INDIRECT, WHICH IS NOT ATTRIBUTABLE OR RELATABLE TO EARNING O F TAXABLE INCOME CAN BE ALLOWED 3.7 THE LD CIT(A) FAILED TO NOTE THAT THE ASSESSEE ITSELF HAS DISALLOWED SOME AMOUNT U/S.14A GIVES REASONABLE BELIEF AND SATISFACTION THA T EXPENDITURE WAS INCURRED IN RELATION TO THE EXEMPTED INCOME. 3.8 THE CIT(A) FAILED TO CONSIDER THE JUDGMENT IN TH E SIMILAR ISSUE BY THE HONBLE HIGH COURT OF IN THE CASE OF BHARAT BEEDI WORKS (P) LTD, VS ADDL. CIT, RANGE 2 MANGALORE (2016) 74 TAXMANN.COM 95 (KARNATAKA) HC) CLEARLY EXPLAINS T HE BURDEN IS UPON THE ASSESSEE TO SHOW AND PROVE THAT INTEREST FREE FUND FAR EXCEEDS THE VALUE OF INVESTMENTS AND THEREAFTER, TO JUSTIFY THE QUANTIFICATION OF AMOUNT TOWARDS DIS ALLOWANCE FOR THE EXEMPTED INCOME 3.9 THE LD CIT(A) ERRED IN NOT FOLLOWING THE BINDING DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF M/S.MAXOPP INVESTMENT PVT. LTD VS CIT (DELHI) DT:12.02.2018 WHEREIN IT HAS HELD THAT EVEN AT THE TIME OF INVESTING INTO THOSE SHARES, THE ASSESSEE KNOWS THAT IT MAY GENERATE DIVIDEND INCOME AS WELL AND AS AND WHEN SU CH DIVIDEND INCOME IS GENERATED THAT WOULD BE EARNED BY THE ASSESSEE. ITA NO.2043/CHNY/2018 :- 3 -: 4 FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED A T THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS ) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 4. IT WAS SUBMITTED BY THE LD.DR THAT GROUND NOS.2 & 2.1, THE ISSUES ARE SQUARELY COVERED BY THE DECISION OF THE CO-ORDI NATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.874/M DS/2016 DATED 29.07.2016, WHEREIN, IT HAS BEEN HELD AS FOLLOWS: 5. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESS EE HAS RELIED ON THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2010-11 IN I.T.A. NO. 2238/MDS/2013 DATED 30.01.2014 AND SUBMITTED THAT THE ABOVE DECISION OF THE TRIBUNAL SHOULD BE FOLLOWED FOR THE ASSESSMENT YEAR UNDER AP PEAL. 6. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. SIMILAR ISSUE ON IDENTICAL FA CTS CAME BEFORE THE TRIBUNAL FOR THE ASSESSMENT YEAR 2010-11 (SUPRA) IN ASSESSEES OWN CA SE, WHERE, THE TRIBUNAL HAS OBSERVED AS UNDER: 5. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPRE SENTATIVES OF BOTH THE SIDES. WE HAVE ALSO PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE JUDGMENT RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE. THE CASE OF THE ASSESSEE IS, THAT THERE HAS BEEN SUBSTANTIAL DECLINE IN THE GRINDING BUSINESS OF THE ASSESSEE. THE GODOWNS WHICH WERE EARLIER USED BY THE ASSESSEE FOR ITS BUSINESS PURPOSE ARE LYING VACANT. SINCE THERE IS NO INTENTION ON THE PART OF ASSESSEE TO REVIVE THE BUSINESS, THE ASSESSEE HAS FORMED A SEPARATE RENTAL DIVISION TO MANAGE THE RENTING OF GODOWNS AND THE INCOME FROM RENTING/LEASING OF GODOW NS IS RETURNED AS INCOME FROM HOUSE PROPERTY. THE CIT(APPEALS) HAS DIS-ALLOW ED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT, THE ASSESSEE HAS BEEN RETURNING THE INCOME FROM LETTING OF GODOWN AS ITS BUSINESS INCOME FROM 1975 TO 31-03- 2008 AND THE SAME WAS ACCEPTED BY THE DEPARTMENT. THE ASSESSEE HAS NOW CH ANGED ITS STAND AND CLAIMED THE INCOME FROM LETTING OF GODOWNS AS INCOME FROM HOUSE PROPERTY MERELY TO CLAIM NOTIONAL DEDUCTION U/S.24(A) OF THE ACT. THE AS SESSEE HAS BEEN CLAIMING DEPRECIATION ON THE GODOWN BUILDINGS SINCE BEGINNIN G. NOW, THAT THE WRITTEN DOWN VALUE OF THE GODOWNS HAS EXHAUSTED THE ASSESSEE SHI FTED THE HEAD OF INCOME TO CLAIM DOUBLE DEDUCTION. 6. IT IS AN ADMITTED FACT, THAT EARLIER THE ASSESSE E HAS BEEN CLAIMING DEPRECIATION ON THE GODOWNS AND HAS BEEN RETURNING THE RENTAL IN COME FROM THE GODOWNS AS INCOME FROM BUSINESS. IT IS ALSO NOT DISPUTED THA T THERE HAS BEEN RECESSION IN THE GRINDING BUSINESS OF THE ASSESSEE AND ONE OF THE MI LLS WAS CLOSED DOWN WAY BACK IN THE YEAR 2002 AND ANOTHER MILL IS WORKING AT A REDU CED CAPACITY. THE ASSESSEE IS NOT USING THE GODOWNS FOR HIS BUSINESS PURPOSES ANY MORE. IT IS A WELL SETTLED LAW THAT IF THE PRIMARY OBJECT IS TO LEASE OR LET OUT P ROPERTY, THE INCOME DERIVED FROM PROPERTY WOULD BE REGARDED AS INCOME FROM HOUSE PR OPERTY. ON THE OTHER HAND, IF THE INTENTION OF THE ASSESSEE IS TO EXPLOIT A COMME RCIAL ASSET BY CARRYING ON COMMERCIAL ACTIVITY, THE INCOME WOULD HAVE TO BE TR EATED AS INCOME FROM BUSINESS. WHAT HAS TO BE SEEN IS WHETHER THE LETTI NG OUT OF THE PROPERTY CONSTITUTES A DOMINANT ASPECT OF THE TRANSACTION OR WHETHER IT IS SUBSERVIENT TO THE MAIN BUSINESS OF THE ASSESSEE. THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF UNIVERSAL PLAST LTD., VS. CIT REPORTED AS 237 ITR 4 54 (SC) HAS LAID DOWN GENERAL PRINCIPLES TO DETERMINE WHETHER THE INCOME FROM LET TING OR LEASING OF THE PROPERTY IS TO BE ASSESSED AS INCOME FROM HOUSE PROPERTY O R BUSINESS INCOME. THE SAME ARE RE-PRODUCED HEREIN BELOW: ITA NO.2043/CHNY/2018 :- 4 -: (1) NO PRECISE TEST CAN BE LAID DOWN TO ASCERTAIN W HETHER INCOME (REFERRED TO BY WHATEVER NOMENCLATURE, LEASE, AMOUNT, RENTS, LICENCE FEE) RECEIVED BY AN ASSESSEE FROM LEASING OR LETTING OUT OF ASSET S WOULD FALL UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'; (2) IT IS A MIXED QUESTION OF LAW AND FACT AND HAS T O BE DETERMINED FROM THE POINT OF VIEW OF A BUSINESSMAN IN THAT BUSINESS ON THE FACTS AND IN THE CIRCUMSTANCES OF EACH CASE, INCLUDING TRUE INTERPRE TATION OF THE AGREEMENT UNDER WHICH THE ASSETS ARE LET OUT; (3) WHERE ALL THE ASSETS OF THE BUSINESS ARE LET OUT , THE PERIOD FOR WHICH THE ASSETS ARE LET OUT IS A RELEVANT FACTOR TO FIND OUT WHETHER THE INTENTION OF THE ASSESSEE IS TO GO OUT OF BUSINESS ALTOGETHER OR TO COME BACK AND RESTART THE SAME; (4) IF ONLY A FEW OF THE BUSINESS ASSETS ARE LET OUT TEMPORARILY, WHILE THE ASSESSEE IS CARRYING OUT HIS OTHER BUSINESS ACTIVIT IES, THEN IT IS A CASE OF EXPLOITING THE BUSINESS ASSETS OTHERWISE THAN EMPLO YING THEM FOR HIS OWN FOR MAKING PROFIT FOR THAT BUSINESS; BUT IF THE BUS INESS NEVER STARTED OR HAS STARTED BUT CEASED WITH NO INTENTION TO BE RESUMED, THE ASSETS ALSO WILL CEASE TO BE BUSINESS ASSETS AND THE TRANSACTION WIL L ONLY BE EXPLOITATION OF PROPERTY BY AN OWNER THEREOF, BUT NOT EXPLOITATION OF BUSINESS ASSETS. 7. THE HONBLE APEX COURT IN AN UN-AMBIGUOUS WORDS HAS EXPLAINED THAT IN CASE THE ASSESSEE IS USING ANY ASSET/PROPERTY FOR HIS BU SINESS PURPOSES AND THE BUSINESS CEASES WITH NO INTENTION TO RESUME, THE AS SET CEASES TO BE BUSINESS ASSET AND THE INCOME ARISING THERE FROM SHALL NOT BE TREA TED AS BUSINESS INCOME. 8. IN THE PRESENT CASE, INITIALLY THE ASSESSEE WAS USING GODOWNS FOR HIS BUSINESS PURPOSES. AFTER THE DOWNFALL OF THE BUSINESS, THE A SSESSEE RENTED THE GODOWNS TO THIRD PARTIES. FINALLY, WHEN THE ASSESSEE HAD NO IN TENTION TO REVIVE HIS BUSINESS, IT CREATED A RENTAL DIVISION FOR THE PURPOSE OF RENTIN G OF THE GODOWNS AND ASSESSED THE INCOME ARISING FROM THE LETTING OF GODOWNS AS INCOME FROM HOUSE PROPERTY. ONCE THE ASSET CEASES TO BE A BUSINESS/COMMERCIAL ASS ET, ANY INCOME ARISING THERE FROM SHOULD NOT BE REGARDED AS BUSINESS INCOME. 9. IN VIEW OF OUR ABOVE OBSERVATIONS AND THE LAW LA ID DOWN BY THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF UNIVERSAL PLAST LTD., VS. CIT (SUPRA), WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE HAD RIGHTLY TR EATED THE INCOME FROM RENTING/LEASING OF GODOWNS UNDER THE HEAD INCOME FR OM HOUSE PROPERTY. WE ARE NOT IN CONSONANCE WITH THE FINDINGS OF THE CIT(APPE ALS). THE IMPUGNED ORDER IS SET ASIDE AND THE APPEAL OF THE ASSESSEE IS ALLOWED. 7. BY FOLLOWING THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF UNIVERSAL PLAST LTD. V. CIT (SUPRA) THE TRIBUNAL HAS HELD THAT ONCE THE ASSET CEASES TO BE A BUSINESS/COMMERCIAL ASSET, ANY INCOME ARISING THERE FROM SHOULD NOT BE REGARDED AS BUSINESS INCOME. THE LD. DR COULD NOT CONTROVERT TH E ABOVE FINDINGS OF THE TRIBUNAL. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE CO ORDINATE BENCH OF THE TRIBUNAL, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 5. IN REPLY, THE LD.AR VEHEMENTLY SUPPORTED THE ORD ER OF THE AO AND THE LD.CIT(A). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. ITA NO.2043/CHNY/2018 :- 5 -: 7. AS IT IS NOTICED THAT THE ISSUES IN THE REVENUE S APPEAL IN GROUND NOS.2 & 2.1 ARE SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE, REFERR ED TO SUPRA, THE FINDINGS OF THE LD.CIT(A) ON THIS ISSUE STANDS CONFIRMED. 8. IN REGARD TO GROUND NO.3 TO 3.9 OF THE REVENUES APPEAL, IT WAS SUBMITTED BY THE LD.DR THAT THE ISSUES ARE SQUARELY COVERED BY THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO.874/MDS/2016 DATED 29.07.2016, WHERE IN, IT HAS BEEN HELD AS FOLLOWS: 15. IN THE INSTANT CASE, IT IS AN ADMITTED FACT THA T THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE BY WAY PAYMENT OF INTEREST DURING THE P REVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT. N OW, FROM THE ABOVE JUDGEMENT OF THE HONBLE DELHI HIGH COURT, IT HAS BEEN MADE IT CLEAR THAT THERE SHOULD BE AN ACTUAL RECEIPT, WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. IN VIEW OF THE ABOVE JUDGEMENT OF THE HONBLE DELHI HIGH COURT, THE RELI ANCE PLACED BY THE DEPARTMENT IN THE CASE OF ESCORTS LTD. V. ACIT 102 TTJ 522, WHEREIN I T WAS HELD THAT INDIRECT MANAGEMENT AND ADMINISTRATIVE EXPENSES QUALIFY FOR DISALLOWANC E UNDER SECTION 14A OF THE ACT DOES NOT HOLD GOOD. THE DEPARTMENT COULD NOT CONTROVERT THE ABOVE DECISION OF THE HONBLE DELHI HIGH COURT. RESPECTFULLY FOLLOWING THE ABOVE JUDGEM ENT OF THE HONBLE DELHI HIGH COURT, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DI SMISSED. 9. IT WAS SUBMITTED BY THE LD.AR THAT DURING THE RE LEVANT AY ALSO THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME. 10. IN REPLY, THE LD.AR VEHEMENTLY SUPPORTED THE OR DER OF THE AO AND THE LD.CIT(A) 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. ITA NO.2043/CHNY/2018 :- 6 -: 12. AS IT IS NOTICED THAT THE ISSUES IN THE REVENUE S APPEAL IN RESPECT OF GROUND NOS.3 TO 3.9 ARE SQUARELY COVERED BY THE DEC ISION OF THE CO- ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES O WN CASE, REFERRED TO SUPRA, THE FINDINGS OF THE LD.CIT(A) ON THIS ISSUE STANDS CONFIRMED. 13. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 25 TH DAY OF MARCH, 2019 IN CHENNAI. SD/- SD/- ( ) ( INTURI RAMA RAO ) /ACCOUNTANT MEMBER ( ) (GEORGE MATHAN) /JUDICIAL MEMBER /CHENNAI, 3 /DATED: 25 TH MARCH, 2019. TLN . +45 65 /COPY TO: 1. * /APPELLANT 4. 7 /CIT 2. +,* /RESPONDENT 5. 5 + /DR 3. 7 ( ) /CIT(A) 6. /GF