Thiagarajar Mills (P) Limited, Madurai V. DCIT, Madurai

ITA 2078/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8829 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 26-10-2015
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Keywords: Depreciation; Additional depreciation; Earning of tax free income; Capital expenditure
• Section: 143(3); 14A; 6

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER I.T.A.NO S . 2077 AND 2078 /MDS/201 5 ASSESSMENT YEAR S : 20 0 5 - 0 6 AND 2006 - 07 M/S. THIAGARAJAR MILLS (P) LIMITED, KAPPALUR, MADURAI 625 008. [PAN: AA A C T4304R ] VS. THE DEPUTY COMMISSIONER OF INCOME TAX , CIRCLE I(1) , MADURAI . ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : NONE / RESPONDENT BY : SHRI A.V. SREEKANTH , J CIT / DATE OF HEARING : 3 1 . 0 5 .201 6 / DATE OF P RONOUNCEMENT : 15 . 0 7 .20 1 6 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : BOTH THE APPEAL S FILED BY THE ASSESSEE ARE DIRECTED AGAINST SEPARATE ORDER S OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 1 , MADURAI , BOTH DATED 17 . 0 8 .20 1 5 RELEVANT TO THE ASSESSMENT YEA R S 20 0 5 - 0 6 AND 2006 - 07 . THE ONLY COMMON GROUND RAISED IN BOTH THE APPEAL S OF THE ASSESSEE IS WITH REGARD TO CONFIRMATION OF DISALLOWANCE MADE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT]. I.T.A. NO S . 2077 & 2078 /M/ 15 2 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY HAS FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2005 - 06 ON 09.06.2005 ADMITTING A TOTAL INCOME OF .2,89,87,580/ - . THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT ON 27.12.2007 AND THE TOTAL INCOME WAS ARRIVED AT .8,01,98,452/ - AFTER MAKING VARIOUS ADDITIONS/DISALLOWANCES. THE ASSESSEE WENT ON APPEAL BEFORE THE LD. CIT(A) AND THE LD. CIT( A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. AGAINST THE ORDER OF THE LD. CIT(A), BOTH THE ASSESSEE AS WELL AS REVENUE PREFERRED APPEALS BEFORE THE TRIBUNAL. THE TRIBUNAL DECIDED VIDE ITS ORDER UNDER REFERENCE (I) THAT THE ISSUES OF DEDUCTION UNDER SECTIO N 80IA, POOJA & TEMPLE EXPENSES AND ADDITIONAL DEPRECIATION ON WIND MILLS IN FAVOUR OF THE ASSESSEE, AND (II) ISSUES RELATING TO DISALLOWANCE OF EXPENSES UNDER SECTION 14A OF THE ACT AND COST OF REPLACEMENT AS CAPITAL EXPENDITURE, THE TRIBUNAL HAS REMITTED THE MATTERS TO THE FILE OF THE ASSESSING OFFICER FOR RE - EXAMINATION. 3. W ITH REGARD TO DISALLOWANCE UNDER SECTION 14A OF THE ACT, THE FACTS ARE THAT THE ASSESSEE HAS SHOWN DIVIDEND INCOME OF .45,99,049/ - IN THE RETURN OF INCOME. THE ASSESSING OFFICER H AS DISALLOWED A SUM OF .5.76 LAKHS ON ESTIMATION AT THE RATE OF 5% UNDER CERTAIN HEADS OF EXPENSES AS THE ASSESSEE COMPANY WOULD HAVE BEEN INCURRED SOME AMOUNT OF EXPENSES IN EARNING THIS EXEMPT INCOME. THE LD. CIT(A), THOUGH ACCEPTED THE CONTENTION OF TH E ASSESSING OFFICER, RESTRICTED THE DISALLOWANCE TO THE EXTENT OF I.T.A. NO S . 2077 & 2078 /M/ 15 3 .2,36,314/ - UNDER SECTION 14A OF THE ACT BY ADOPTING THE METHOD AS PRESCRIBED UNDER RULE 8D OF THE INCOME TAX RULES. IN THE SECOND ROUND OF LITIGATION, THE ASSESSING OFFICER HAS CALLED FOR EXPLANATION FROM THE ASSESSEE WITH REGARD TO THE EXPENSES INCURRED IN CONNECTION WITH EXEMPTED INCOME UNDER SECTION 14A OF THE ACT VIDE HIS OFFICE LETTER DATED 19.07.2013. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER COMPLETED T HE ASSESSMENT BY CALCULATING THE EXPENDITURE INCURRED FOR EARNING EXEMPTED INCOME AS PRESCRIBED UNDER SECTION 14A R.W. RULE 8D. 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE, THE LD. CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 5. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE SERVICE OF NOTICE. HENCE WE PROCEEDED TO DECIDE THE ISSUE ON MERITS AFTER HEARING THE LD. DR. 6. WE HAVE HEARD THE LD. DR, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THIS CASE, THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2005 - 06 AND THEREFORE, TO DETERMINE THE EXPENDITUR E TO EARN THE EXEMPT INCOME, THE PROVISIONS OF RULE 8D R.W. SECTION 14A HAS NO APPLICATION SINCE THE SAID PROVISIONS OF RULE 8D HAS BEEN NOTIFIED WITH EFFECT FROM 24.03.2008 AND APPLICABLE WITH EFFECT FROM THE I.T.A. NO S . 2077 & 2078 /M/ 15 4 ASSESSMENT YEAR 2008 - 09 ONLY. T HE COORDINATE B ENCH OF THE TRIBUNAL IN THE CASE OF ASSOCIATED ELECTRICAL AGENCIES V. ITO IN I.T.A. NO. 892/MDS/2012 FOR THE ASSESSMENT YEAR 2007 - 08 VIDE ORDER DATED 11.12.2015 HAS FOLLOWED ITS OWN ORDER FOR THE ASSESSMENT YEAR 200 5 - 06 IN I.T.A. NO. 407/MDS/2012 , WHEREIN, THE TRIBUNAL HAS OBSERVED AND HELD AS UNDER: 9. NOW, WE COME TO THE SECOND ISSUE OF DISALLOWANCE U/S 14A (SUPRA). THE ASSESSEE S EXEMPT INCOME BY WAY OF DIVIDEND IS OF .28,14,000/ - AND DISALLOWANCE HAS BEEN MADE AT THE RATE OF 5% OF TOTALING . 1,40,700/ - . THE CONTENTION OF THE ASSESSEE IS THAT DISALLOWANCE IS EXCESSIVE. IN SUPPORT, IT CITES CASE LAW OF HON BLE JURISDICTIONAL HIGH COURT DATED 15.10.2012 IN TAX CASE NO. 2621 OF 2006 TITLED AS M/S. SIMPSON & CO. LTD. V. DCIT, CHENNAI CONFIRMING SUC H DISALLOWANCE AT THE RATE OF 2%. THOUGH THE REVENUE SUPPORTS THE DISALLOWANCE @ 5% OF THE DIVIDEND AMOUNT, HOWEVER, GUIDED BY THE ABOVE SAID CASE LAW, WE MODIFY IT @ 2% OF THE EXEMPT INCOME. 7 . IN VIEW OF THE ABOVE FINDINGS OF THE COORDINATE BENCH OF THE TRIBUNAL, WE ALSO DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE OF EARNING OF EXEMPT INCOME @ 2% OF THE DIVIDEND AMOUNT ONLY BEING THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2005 - 06, WHERE THERE IS NO APPLICATION OF RULE 8D . ACCORDINGLY, TH E GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 8. IN SIMILAR FACTS AND CIRCUMSTANCES ON AN IDENTICAL ISSUE, THE ASSESSEE IS IN APPEAL FOR THE ASSESSMENT YEAR 2006 - 07 IN I.T.A. NO. 2078/MDS/2015 . I.T.A. NO S . 2077 & 2078 /M/ 15 5 IN VIEW OF THE ABOVE FINDINGS IN THE ASSESSMENT YEAR 2005 - 06, WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE OF EARNING OF EXEMPT INCOME @ 2% OF THE DIVIDEND AMOUNT ONLY. THUS, THE APPEAL FILED FOR THE ASSESSMENT YEAR 2006 - 07 ALSO THE GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 9 . IN THE RESULT, BOTH THE APPEAL S FILED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 15 TH JU LY , 201 6 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBE R CHENNAI, DATED, THE 15 . 0 7 .201 6 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.