ACIT Corporate Circle 3(1) , CHENNAI V. Tamilnadu Sugar Corporation Ltd. , CHENNAI

ITA 2055/CHNY/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5044 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 23-08-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V S JAYAKUMAR
• Assessee Lawyers: N MADHAVAN
• Keywords: Earning of tax free income; Commercial expediency
• Section: 14A; 12; 2

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . , , BEFORE SHRI DUVVURU RL REDDY , JUDICIAL MEMBER & SHRI S. JAYARAMAN, ACCOUNT ANT MEMBER I.T.A. NO S . 1827 & 1828/MDS/2017 ASSESSMENT YEAR S : 20 1 2 - 13 & 2013 - 14 TAMIL NADU SUGAR CORPORATION LTD., 690, EVR BUILDING, ANNA SALAI, CHENNAI 600 035 . [PAN: A A A CT1308B ] VS. THE INCOME TAX OFFICER , CORPORATE WARD 3 (1) , C HENNAI . ( / APPELLANT ) ( / RESPONDENT ) I.T.A. NOS. 2 054 & 2 055/MDS/2017 ASSESSMENT YEARS: 20 12 - 13 & 201 3 - 1 4 & C.O. NOS. 150 & 151/MDS/2017 [IN I.T.A. NOS. 2054 & 2055/MDS/2017] THE INCOME TAX OFFICER, CORPORATE WARD 3(1), CHENNAI. VS. TAMIL NADU SUGAR C ORPORATION LTD., 690, EVR BUILDING, ANNA SALAI, CHENNAI 600 035. ( APPELLANT ) ( RESPONDENT /CROSS OBJECTOR ) ASSESSEE BY : SHRI V. S. JAYAKUMAR , ADVOCATE / RESPONDENT BY : SHRI N. MADHAVAN, ADDL. CIT / DATE OF HE ARING : 13 . 1 2 .201 7 / DATE OF P RONOUNCEMENT : 05 . 0 1 .201 8 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : THESE CROSS APPEALS FILED BY THE ASSESSEE AS WELL AS REVENUE ARE DIRECTED AGAINST SEPARATE ORDER S OF THE LD. COMMISSIO NER OF INCOME TAX I.T.A. NO S . 1827 - 1828, 2054 - 2055 /M/ 17 & C.O. NOS. 150 - 151/M/17 2 (APPEALS) 1 1 , CHENNAI DATED 19 .0 5 .201 7 AND 23.05.2017 RELEVANT TO THE ASSESSMENT YEAR 201 2 - 13 AND 2013 - 14 RESPECTIVELY . THE ASSESSEE ALSO FILED CROSS OBJECTIONS AGAINST THE APPEALS FILED BY THE REVENUE. THE FIRST COMMON GROUND RAISED IN B OTH THE APPEALS OF THE ASSESSEE IS THAT THE LD. CIT(A) ERRED IN SUSTAINING THE DISALLOWANCE MADE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] R.W. RULE 8D OF .28,01,000/ - , WHICH WAS THE AMOUNT EQUAL TO DIVIDEND INCOME RECEIVED BY THE ASSESSEE. AGAINST THE RESTRICTION OF DISALLOWANCE TO THE EXTENT OF DIVIDEND EARNED BY THE ASSESSEE, THE REVENUE IS IN APPEAL FOR BOTH THE ASSESSMENT YEAR. FURTHER, AGAINST THE CO NFIRMATION OF ADDITION OF INTEREST ON LOAN OF .2,54,372/ - , THE ASSESSEE IS ALSO IN APPEAL FOR THE ASSESSMENT YEAR 2012 - 13. 2. BY RELYING ON THE GROUNDS OF APPEAL, IT WAS THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE INVESTMENTS WERE MADE MAINLY WITH THE SUBSIDIARY COMPANY OF THE ASSESSEE AND THUS, NO DISALLOWANCE SHOULD BE MADE BY INVOKING THE PROVISIONS OF SECTION 14A R.W.S. RULE 8D IN VIEW OF THE DECISION OF THE TRIBUNAL IN THE CASE OF EIH ASSOCIATED HOTELS LTD. V. DCIT IN I.T.A. NOS. 1 503 & 1624/MDS/2012 DATED 17.07.2013 . HENCE, THE LD. CIT(A) HAS ERRED IN NOT DELETING THE ENTIRE DISALLOWANCE MADE BY THE ASSESSING OFFICER. I.T.A. NO S . 1827 - 1828, 2054 - 2055 /M/ 17 & C.O. NOS. 150 - 151/M/17 3 3. PER CONTRA, THE LD. DR VEHEMENTLY ARGUED THAT THE ORDER OF THE TRIBUNAL IN THE CASE OF EIH ASSOCIATED HOTELS LTD. V. DCIT IN I.T.A. NOS. 1503 & 1624/MDS/2012 DATED 17.07.2013 HAS NOT ATTAINED FINALITY AND SINCE THE DEPARTMENT HAS PREFERRED AN APPEAL BEFORE THE HON BLE MADRAS HIGH COURT AND THE SAME IS PENDING IN TCA NO. 227/14, THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE SHOULD NOT BE ACCEPTED. HE FURTHER ARGUED THAT THERE IS NO PROVISION IN SECTION 14A OF THE ACT TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME DECLARED BY THE ASSESSEE AND PLEADED THAT THE ORDER PASSED BY THE LD. CIT(A) SHOULD BE SET ASIDE AND RESTORED THAT OF THE ASSESSING OFFICER. 4. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE ALSO PERUSED THE PAPER BOOK FILED BY ASSESSEE. ON VERIFICATION OF T HE ACCOUNTS OF THE ASSESSEE, THE ASSESSING OFFICER NOTICED THAT THE INVESTMENT PORTFOLIO OF THE ASSESSEE AS ON 31.03.2012 STANDS AT AN AGGREGATE VALUE OF .36,29,77,025/ - . THE ASSESSEE EARNED A DIVIDEND INCOME OF .28,01,000/ - AND CLAIMED EXEMPTION UNDER SECTION 10(34) OF THE ACT. SINCE THE ASSESSEE HAS NOT ADMITTED ANY EXPENDITURE ATTRIBUTABLE TO EARNING OF THE EXEMPT INCOME, BY INVOKING THE PROVISIONS OF SECTION 14A R.W. RULE 8D, THE ASSESSING OFFICER DISALLOWED A SUM OF .1,18,25,845/ - AND BROUGHT TO TAX. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE ASSESSEE HAS SUBMITTED I.T.A. NO S . 1827 - 1828, 2054 - 2055 /M/ 17 & C.O. NOS. 150 - 151/M/17 4 BEFORE THE LD. CIT(A) THAT THE ASSESSEE BEING A GOVERNMENT OF TAMIL NADU UNDERTAK ING, MADE INVESTMENTS IN SUBSIDIARY COMPANIES DUE TO COMMERCIAL EXPEDIENCY, TO PROMOTE A COMPANY IN THE SAME AREA OF MANUFACTURE OF SUGAR. FURTHER, WITH REGARD TO INVESTMENT IN TAMIL NADU NEWSPRINT LTD., WHICH IS ALSO ANOTHER COMPANY OF TAMIL NADU GOVERNME NT, THE BYPRODUCT OF THE ASSESSEE COMPANY VIZ., BAGASSE, CAN BE USED FOR NEWS PRINT PAPER, ETC. HOWEVER, WITHOUT ASCERTAINING AS TO WHETHER THE INVESTMENTS MADE BY THE ASSESSEE ARE IN ITS SUBSIDIARY AND FOR COMMERCIAL EXPEDIENCY, BY RELYING ON VARIOUS CASE LAW INCLUDING THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT JOINT INVESTMENTS PVT. LTD. V. CIT 372 ITR 694, THE LD. CIT(A) RESTRICTED THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE. 5. IN THIS CASE, THE LD. COU NSEL FOR THE ASSESSEE HAS ARGUED THAT THE INVESTMENTS WERE MADE MAINLY WITH THE SUBSIDIARY COMPANY OF THE ASSESSEE AND THUS, NO DISALLOWANCE SHOULD BE MADE BY INVOKING THE PROVISIONS OF SECTION 14A R.W.S. RULE 8D IN VIEW OF THE DECISION OF THE TRIBUNAL IN THE CASE OF EIH ASSOCIATED HOTELS LTD. V. DCIT. WE FIND FORCE IN THE ARGUMENTS OF THE LD. COUNSEL. HOWEVER, ON PERUSAL OF THE NOTE 11 TO NON - CURRENT INVESTMENTS, WE FIND THAT THE TOTAL INVESTMENTS AS ON 31.03.2012 AND AS ON 31.03.2013 IS .36,29,77,025/ - , WHICH INCLUDES VARIOUS INVESTMENTS IN VARIOUS COOPERATIVE BANKS. THE ASSESSEE HAS NOT FILED ANY COGENT EVIDENCE TO SHOW THAT THE I.T.A. NO S . 1827 - 1828, 2054 - 2055 /M/ 17 & C.O. NOS. 150 - 151/M/17 5 ABOVE INVESTMENTS ARE MADE ONLY IN THE SUBSIDIARY OF THE ASSESSEE . UNDER THE ABOVE FACTS AND CIRCUMSTANCES, WE SET ASIDE THE OR DER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO VERIFY AS TO WHETHER THE INVESTMENTS MADE BY THE ASSESSEE ARE IN ITS SUBSIDIARY AND IF IT IS SO, NO DISALLOWANCE COULD BE MADE IN VIEW OF THE DECISION OF THE TRIBUNAL I N THE CASE OF EIH ASSOCIATED HOTELS V. DCIT (SUPRA). THUS, THE GROUND RAISED BY THE ASSESSEE FOR BOTH THE ASSESSMENT YEARS IS ALLOWED FOR STATISTICAL PURPOSES. 6. THE NEXT GROUND RAISED IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2012 - 13 RELAT ES TO CONFIRMATION OF ADDITION OF INTEREST ON LOAN OF .2,54,372/ - . IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE ADVANCED AN INTEREST FREE LOAN OF .22,11,931/ - TO ITS SUBSIDIARY COMPANY, M/S. PERAMBALUR SUGAR MILLS LTD. THE ASSESSEE HAS ALSO DEBITED AN AMOUNT OF .5,03,03,929 / - AS EXPENDITURE ON INTEREST. THE ASSESSEE WAS ASKED TO CLARIFY THE ALLOWABILITY OF SUCH AN INTEREST FREE LOAN TO ITS SUBSIDIARY COMPANY WHILE INTEREST EXPENDITURE WAS CLAIMED IN ITS PROFIT AND LOSS ACCOUNT. WHEN THE ASSESSEE WAS SHOW - CAUSED, IT WAS THE S UBMISSION OF THE ASSESSEE THAT THE INTEREST PAYMENT WAS TOWARDS GOVERNMENT OF TAMIL NADU. SINCE THE ASSESSEE ADVANCED AN INTEREST FREE LOAN AND DEBITED AN INTEREST EXPENDITURE, THE ASSESSING OFFICER ESTIMATED THE INTEREST ON THE LOAN AMOUNT OF .22,11,931/ - AT THE RATE OF 11.5% I.T.A. NO S . 1827 - 1828, 2054 - 2055 /M/ 17 & C.O. NOS. 150 - 151/M/17 6 AMOUNTING TO .2,54,372/ - AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE. 6.1 WE HAVE HEARD THE RIVAL CONTENTIONS. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HA S SUBMITTED THAT THE ASSESSEE HAD SURPLUS FUNDS TO A D VANCE INTEREST FREE LOAN TO ITS SUBSIDIARY FOR COMMERCIAL EXPEDIENCY. OTHERWISE ALSO, BY RELYING ON THE DECISION IN THE CASE OF CIT V. RPG TRANSMISSIONS LTD. 359 ITR 673 (MAD), THE LD. COUNSEL FOR THE AS SESSEE HAS ARGUED THAT INTEREST ON BORROWED CAPITAL IS AN ALLOWABLE DEDUCTION IF THE INVESTMENTS ARE MADE FOR STRATEGIC BUSINESS PURPOSES. THE ASSESSEE HAS ADVANCED AN INTEREST FREE LOAN OF .22,11,931/ - TO M/S. PERAMBALUR SUGAR MILLS LTD., WHO IS ENGAGED IN MANUFACTURE OF SUGAR. THE INTEREST FREE LOAN WAS ADVANCED PURELY DUE TO BUSINESS EXPEDIENCY WHEN THEY ARE IN NEED FOR THE SAME FOR THEIR RUNNING OF THE BUSINESS. WE HAVE PERUSED THE CASE LAW RELIED ON BY THE LD. COUNSEL. WE ALSO FIND THAT SIMILAR DECISION WAS RENDERED BY THE HON BLE MADRAS HIGH COURT IN THE CASE OF CIT V. SPENCERS AND CO. LTD. 359 ITR 644. NO MATERIAL WAS ADDUCED BY THE DEPARTMENT TO SHOW THAT THE BORROWED CAPITAL WAS UTIL IZED BY THE ASSESSEE FOR NON - BUSINESS PURPOSES. UNDER THE ABOVE FACTS AND CIRCUMSTANCES AND RESPECTFULLY FOLLOWING THE DECISIONS OF THE HON BLE MADRAS HIGH COURT IN THE CASE OF CIT V. SPENCERS AND CO. LTD. (SUPRA) AND CIT V. RPG TRANSMISSIONS (SUPRA), WE D ELETE THE DISALLOWANCE I.T.A. NO S . 1827 - 1828, 2054 - 2055 /M/ 17 & C.O. NOS. 150 - 151/M/17 7 OF INTEREST EXPENDITURE MADE BY THE ASSESSING OFFICER. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 7. IN THE APPEALS OF THE REVENUE, THE EFFECTIVE GROUND RAISED IN BOTH THE APPEALS RELATE TO RESTRICTION OF DISALLOWANCE . IT WAS THE CONTENTION OF THE ASSESSEE IN ITS APPEALS FOR BOTH THE ASSESSMENT YEARS THAT THE INVESTMENTS HAVE BEEN MADE IN ITS SUBSIDIARY AND ARE STRATEGIC INVESTMENTS. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, WE SET ASIDE THE ORDERS OF THE LD. CIT( A) AND REMITTED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION AS TO WHETHER THE INVESTMENTS MADE BY THE ASSESSEE ARE IN ITS SUBSIDIARY AND IF IT IS SO, NO DISALLOWANCE COULD BE MADE IN VIEW OF THE DECISION OF THE TRIBUNAL IN THE CAS E OF EIH ASSOCIATED HOTELS V. DCIT (SUPRA). DURING THE COURSE OF HEARING, THE PLEA RAISED BY THE LD. DR THAT THE ORDER OF THE TRIBUNAL IN THE CASE OF EIH ASSOCIATED HOTELS V. DCIT(SUPRA) HAS NOT ATTAINED FINALITY AND THE DEPARTMENT HAS PREFERRED AN APPEAL BEFORE THE HON BLE MADRAS HIGH COURT AND THE SAME IS PENDING, CANNOT BE A GROUND TO TAKE A DIFFERENT VIEW. ACCORDINGLY, BOTH THE APPEALS FILED BY THE REVENUE ARE DISMISSED. 8. AGAINST THE APPEALS OF THE REVENUE, THE ASSESSEE ALSO FILED CROSS OBJECTIONS CONTENDING THAT THE INVESTMENTS REPRESENT COMMERCIAL EXPEDIENCY TO MAKE SUCH INVESTMENTS. SINCE WE HAVE SET ASIDE THE ORDERS OF THE LD. CIT(A) ON THIS ISSUE TO VERIFY AS TO WHETHER THE INVESTMENTS MADE I.T.A. NO S . 1827 - 1828, 2054 - 2055 /M/ 17 & C.O. NOS. 150 - 151/M/17 8 BY THE ASSESSEE ARE IN ITS SUBSIDIARY FOR COMMERCIAL E XPEDIENCY, THE CROSS OBJECTIONS FILED BY THE ASSESSEE BECOME INFRUCTUOUS AND ACCORDINGLY STAND DISMISSED. 9 . IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE IN I.T.A. NO. 1827/MDS/2017 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES, I.T.A. NO. 1828/MDS/201 7 IS ALLOWED FOR STATISTICAL PURPOSES AND BOTH THE CROSS OBJECTIONS ARE DISMISSED. BOTH THE APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON THE 05 TH JANUARY, 2018 AT CHENNAI. SD/ - SD/ - ( S. JAYARAMAN ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 05 . 0 1 .201 8 V M/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.