M/s. Sicagen India Limited, CHENNAI V. ACIT, CHENNAI

ITA 2102/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57961 (ITAT-CHENNAI)
• Duration Of Justice: 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 23-12-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R B NAIK II
• Assessee Lawyers: S SATHIYANAR AYANAN
• Keywords: Earning of tax free income; Reasonable cause
• Section: 43B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A. NO. 2102/MDS/2011 (ASSESSMENT YEAR : 2008-09) M/S SICAGEN INDIA LTD., 4 TH FLOOR, EAST COAST CENTRE, 534, ANNA SALAI, TEYNAMPET, CHENNAI - 600 018. PAN : AAKCS5770J (APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(3), CHENNAI - 600 034. (RESPONDENT) APPELLANT BY : SHRI S. SATHIYANARAYANAN, ADVOCATE RESPONDENT BY : SHRI R.B. NAIK, CIT-DR -II DATE OF HEARING : 20.02.2012 DATE OF PRONOUNCEMENT : 20.02.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE ASSESSEE, IT IS AGGRI EVED THAT LD. CIT(APPEALS) CONFIRMED A DISALLOWANCE OF EXPENDITUR E ` 19,77,109/- IN RELATION TO DIVIDEND INCOME CLAIMED AS EXEMPT. GROUND NO.2 TAKEN BY THE ASSESSEE IN THIS REGARD IS REPRODUCED HEREUN DER:- 2.1 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAD ER RED IN COMING TO THE CONCLUSION THAT THE ASSESSEE ACCEPTED THE DISALLOWANCE DURING THE COURSE OF ASSESSMENT PROCEE DINGS. I.T.A. NO. 2102/MDS/11 2 2.2 THE APPELLANT REPRESENTATIVE DURING THE ASSESSMENT ONLY PROVIDED THE DETAILS INCLUDING THE COMPUTATION OF POSSIBLE DISALLOWANCE U/S 14A READ W ITH RULE 8D AS REQUIRED BY THE LD. ASSESSING OFFICER. THE ASSESSEE HAD NEVER ACCEPTED TO THE LD. A.O. THAT TH EY ARE LIABLE TO THE DISALLOWANCE U/S 14A READ WITH RULE 8 D. THERE WAS NO SUCH ACCEPTANCE BY THE ASSESSEE AS IND ICATED BY THE LD. A.O. 2.3 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ER RED AND FAILED TO CONSIDER THAT THE ASSESSEE HAD NEVER ADMI TTED THE DISALLOWANCE U/S 14A READ WITH RULE 8D. 2.4 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) OU GHT TO HAVE APPRECIATED THAT SECTION 14A APPLIES ONLY WHEN EXPENDITURE IS INCURRED AND NOT OTHERWISE. 2.5 THE CIT(A) HAS FAILED TO APPRECIATE THE ABOVE A ND HAS ERRED IN APPLYING RULE 8D WHEN NO EXPENDITURE IS IN CURRED BY THE ASSESSEE TO EARN THE DIVIDENDS. 2. APPEAL IS DELAYED BY 40 DAYS. ASSESSEE HAS FILE D A CONDONATION PETITION SUPPORTED BY AN AFFIDAVIT FOR BELATED FILING OF APPEAL. WE ARE SATISFIED THAT REASONABLE CAUSE HAS BEEN SHOWN IN THE SAID PETITION FILED BY THE ASSESSEE. HENCE WE CONDONE THE DELAY AND ADMIT THE APPEAL OF THE ASSESSEE. 3. SHORT FACTS APROPOS ARE THAT ASSESSEE MARKETING BUILDING MATERIALS AND ALSO DOING VEHICLE SALES, TRAVELS, CA RGO, ETC., HAD FILED ITS RETURN FOR THE IMPUGNED ASSESSMENT YEAR ADMITTI NG TOTAL INCOME OF ` 1,95,03,811/-. THOUGH ASSESSEE HAD ADMITTED RECEIP T OF DIVIDEND INCOME OF ` 48,45,710/- AND CLAIMED IT AS EXEMPT, THERE WAS NO I.T.A. NO. 2102/MDS/11 3 DISALLOWANCE OF EXPENDITURE MADE BY THE ASSESSEE IN RELATION TO EARNING OF SUCH INCOME. THE A.O. ASKED THE ASSESSE E TO EXPLAIN WHY PROPORTIONATE AMOUNT OF EXPENDITURE SHOULD NOT BE DISALLOWED UNDER SECTION 14A OF INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). AS PER THE A.O., THROUGH LETTER DATED 20.12.2010, ASSESSEE HAD ADMITTED A SUM OF ` 19,77,109/- AS THE AMOUNT OF DISALLOWANCE THAT WAS TO BE MADE UNDER SECTION 14A OF THE ACT. IT SEEMS ASSESS EE HAD ALSO FILED A WORK SHEET AS TO HOW THE SAID AMOUNT WAS ARRIVED AT. AFTER CONSIDERING THE ABOVE WORK SHEET AS ALSO SUBMISSION S OF THE ASSESSEE, A.O. MADE AN ADDITION OF ` 19,77,109/- UNDER SECTION 14A READ WITH RULE 8D OF INCOME-TAX RULES, 1962. 4. IN ITS APPEAL ASSAILING THE ABOVE ADDITION BEFOR E LD. CIT(APPEALS), SUBMISSION OF THE ASSESSEE WAS THAT R ULE 8D COULD NOT BE ADOPTED FOR ALLOCATION OF EXPENDITURE. AS P ER THE ASSESSEE, IT HAD NOT INCURRED ANY EXPENDITURE FOR EARNING DIVIDE ND INCOME. ONLY EXPENDITURE ACTUALLY INCURRED COULD BE DISALLOWED A ND NO ESTIMATION COULD BE MADE. FURTHER ARGUMENT WAS THAT THE INVES TMENT ON WHICH DIVIDEND INCOME WAS EARNED WAS MADE OUT OF SELF GEN ERATED PROFITS AND NO BORROWED FUNDS INVOLVED. LD. CIT(APPEALS) W AS NOT APPRECIATIVE OF THESE CONTENTIONS. ACCORDING TO HI M, ASSESSEE HAD, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ADMITT ED ITSELF THAT A I.T.A. NO. 2102/MDS/11 4 DISALLOWANCE OF ` 19,77,109/- COULD BE MADE UNDER SECTION 14A OF THE ACT AND THEREFORE, ITS GROUND IN THIS REGARD COULD NOT BE ACCEPTED. 5. NOW BEFORE US, LEARNED A.R., STRONGLY ASSAILING THE ORDERS OF LOWER AUTHORITIES, SUBMITTED THAT THERE WAS NO ADMI SSION AT ANY POINT OF TIME BY THE ASSESSEE THAT ANY AMOUNT WAS DISALLO WABLE UNDER SECTION 14A OF THE ACT. ACCORDING TO LEARNED A.R., ASSESSING OFFICER HAD REQUIRED THE ASSESSEE TO FILE A COMPUTATION UND ER RULE 8D, IN CASE A DISALLOWANCE WAS REQUIRED TO BE MADE. IT DI D NOT MEAN THAT THERE WAS ANY ADMISSION IN THIS REGARD. ACCORDING TO LEARNED A.R., IT WAS ONLY AT THE INSTANCE OF THE A.O. THAT ASSESSEE SUBMITTED SUCH A COMPUTATION AND IT OUGHT NOT HAVE BEEN TAKEN AS AN ADMISSION FOR MAKING DISALLOWANCE. AS PER THE LEARNED A.R., THE INVESTMENTS WERE MADE OUT OF OWN PROFITS AND NO BORROWED FUNDS WERE INVOLVED AND THEREFORE, NO PART OF THE INTEREST ON LOANS COULD H AVE BEEN ALLOCATED AGAINST EARNING OF EXEMPT INCOME. FILING A COPY OF LETTER DATED 16 TH DECEMBER, 2010, ADDRESSED TO THE ASSESSING OFFICER, LEARNED A.R. SUBMITTED THAT EXPENDITURE DIRECTLY RELATED TO EXEM PT INCOME WAS CLEARLY SHOWN BY THE ASSESSEE AS NIL IN THE CALCU LATION MADE UNDER RULE 8D. THEREFORE, ACCORDING TO HIM, THE DISALLOW ANCE MADE WAS ARBITRARY AND OUGHT NOT HAVE BEEN SUSTAINED BY THE LD. CIT(APPEALS). RELIANCE WAS PLACED ON THE DECISION OF HONBLE PUNJ AB & HARYANA I.T.A. NO. 2102/MDS/11 5 HIGH COURT IN THE CASE OF CIT V. WINSOME TEXTILE IN DUSTRIES LTD. (319 ITR 204). 6. PER CONTRA, LEARNED D.R. STRONGLY SUPPORTED THE ORDERS OF LOWER AUTHORITIES. 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THERE IS NO DISPUTE THAT SECTION 14A OF THE ACT AND RULE 8D WERE APPLICABLE TO THE ASSESSEE FOR THE IMPUGNED ASSESSM ENT YEAR 2008- 09. HONBLE BOMBAY HIGH COURT IN THE CASE OF GODRE J & BOYCE MFG. CO. LTD. V. DCIT (328 ITR 81) HAD CLEARLY HELD THAT COMPUTATION AS PER RULE 8D WILL HAVE TO BE APPLIED FROM ASSESSMENT YEAR 2008-09 ONWARDS. ARGUMENT OF THE ASSESSEE IS THAT IT HAD N OT MADE ANY ADMISSION WITH REGARD TO ANY DISALLOWANCE TO BE MAD E IN RESPECT OF THE DIVIDEND INCOME EARNED BY IT. IT IS NOT DISPUT ED THAT A DIVIDEND INCOME OF ` 48,45,710/- WAS EARNED BY IT AND IT WAS CLAIMED AS EXEMPT. ONE OF THE ARGUMENTS OF THE LEARNED A.R. W AS THAT WHOLE OF THE INVESTMENTS ON WHICH DIVIDEND WAS EARNED WAS OU T OF EARNINGS OF THE ASSESSEE AND NOT OUT OF BORROWED FUNDS. IN THI S REGARD, RELIANCE WAS ALSO PLACED ON THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF WINSOME TEXTILE INDUSTRIES LTD . (SUPRA). HOWEVER, WE ARE OF THE OPINION THAT THE CASE COULD NOT BE APPLIED HERE FOR THE REASON THAT THERE THE CONCERNED ASSESS EE HAD NOT MADE I.T.A. NO. 2102/MDS/11 6 ANY CLAIM OF EXEMPTION WITH REGARD TO ANY DIVIDEND. IN ANY CASE, IF WE TAKE A LOOK AT THE LETTER DATED 16 TH DECEMBER, 2010 WRITTEN BY THE ASSESSEE TO THE ASSESSING OFFICER, THE FALSI TY OF THE ASSERTIONS OF THE ASSESSEE IS CLEAR. SAID LETTER READS AS FOL LOWS:- WITH REFERENCE TO THE ABOVE SUBJECT WE ARE SUBMITTI NG THE FOLLOWING DETAILS/DOCUMENTS. 1. RENT, INTEREST, BROKERAGE AND PROFESSIONAL TDS RECO NCILIATION STATEMENT. 2. STATEMENT OF DIVISION WISE INTEREST PAID DETAILS. 3. STATEMENT OF RULE 8D COMPUTATION. 4. IN FORM 3CD ANNEXURE-VII SERIAL NO.5 THE AMOUNT OF RS.8607390/- IS PRINTED INSTEAD OF 860739/-. THE S AID AMOUNT TO THE RELATED PARTY REPRESENTS NET AMOUNT R ECEIVABLE FROM SOUTH INDIA HOUSE ESTATES AND PROPERTIES LIMIT ED. WE ENCLOSED THE STATEMENT OF TRANSACTIONS DURING THE Y EAR FOR YOUR REFERENCE AND VERIFICATION. 5. WE BRING TO YOUR KIND ATTENTION THAT THE ESI & PF P AYMENTS WERE MADE WITHIN THE FINANCIAL YEAR EXCEPT IN CASE OF MARCH 2008 REMITTANCE. ACCORDING TO THE PROVISIONS OF SE CTION 43B THE ABOVE PAYMENTS SHALL BE ALLOWED IN THE PREVIOUS YEAR IN WHICH THEY ARE ACTUALLY PAID. WE ALSO BRING TO YOU R KIND ATTENTION THAT AS PER FIRST PROVISO IF THEY ARE PAI D WITHIN THE DUE DATE OF FILING THE RETURN OF INCOME, IT SHALL B E ALLOWED IN THE PREVIOUS YEAR IN WHICH LIABILITY ARISES. IN OU R CASE, EVEN THE AMOUNT PAYABLE FOR THE MONTH OF MARCH 2008 ARE PAID BEFORE THE DUE DATE FOR FILING THE RETURN OF INCOME . SECOND PROVISO TO SECTION 43B PROVIDING THAT PF AND ESI SH ALL BE ALLOWABLE ONLY WHEN THEY ARE PAID WITHIN THE DUE DA TE AS PER THE RESPECTIVE ACTS WAS OMITTED WITH EFFECT FROM 1. 4.2004. HENCE, THE PF AND ESI PAID WITHIN THE DUE DATE OF F ILING THE RETURN OF INCOME MAY BE ALLOWED AS DEDUCTION DURING THE YEAR. 6. WE HAVE CLAIMED CGCT PAYMENT OF THE LIABILITY FOR T HE FINANCIAL YEAR 2006-07 U/S 43B OF RS.37767/- ON THE BASIS OF PAYMENT MADE DURING THE PREVIOUS YEAR 2007-08. WE ENCLOSE THE CHALLAN COPY. I.T.A. NO. 2102/MDS/11 7 7. WE HAD HIRED THE CARS FROM SOUTH INDIA TRAVELS ON MONTHLY BASIS AND EXPENSES BOOKED BASED ON PAYMENT AND HENCE, THERE IS NO CREDIT TO SOUTH INDIA TRAVELS LI MITED ON THIS ACCOUNT. IT IS NOWHERE MENTIONED IN THE SAID LETTER THAT THE DETAILS WERE BEING FURNISHED AT THE INSTANCE OR ON THE INSISTENCE OF T HE A.O. ASSESSEE HAD GIVEN A STATEMENT OF COMPUTATION UNDER RULE 8D OF THE ACT. EVEN IF WE PRESUME THAT THE STATEMENT WAS GIVEN BY THE ASSESSEE AT THE INSISTENCE OF THE A.O., IF INTEREST OR ANY OTHE R EXPENSES WAS NOT RELATABLE TO THE EXEMPT INCOME, ASSESSEE BY ITSELF WOULD HAVE EXCLUDED SUCH AMOUNTS FROM THE SAID COMPUTATION. T HE SAID COMPUTATION GIVEN BY THE ASSESSEE IS REPRODUCED HER EUNDER:- OB CB AVERAGE EXPENDITURE DIRECTLY RELATED TO EXEMPT INCOME - AVERAGE VALUE OF INVESTMENT 276,428,200 276,321,00 0 276,374,600 AVERAGE VALUE OF TOTAL ASSETS 3,908,731,255 3,872,6 41,000 INCREASE ON ACCOUNT OF REVALUATION - - DECREASE ON ACCOUNT OF REVALUATION - - AVERAGE VALUE OF TOTAL ASSETS 3,908,731,255 3,872,6 41,000 3,890,686,128 TOTAL INTEREST PAID AS PER BOOKS 7,595,000 SPECIFIED AMOUNT 539,510 0.5% OF THE AVERAGE VALUE OF INVESTMENTS 1,381,87 3 DISALLOWANCE 1,921,283 8. ASSESSEE HAD ITSELF MADE A COMPUTATION OF DISALL OWANCE THAT COULD BE MADE UNDER RULE 8D. AGAINST ` 19,21,283/- MENTIONED IN THE ABOVE WORKING, THE A.O. HAS CLEARLY GIVEN THE W ORKING BASED ON RULE 8D AT PARA 2.2 OF HIS ORDER WHICH CAME TO ` 19,77,109/-. IN OUR OPINION, AFTER GIVING A COMPUTATION OF POSSIBLE DIS ALLOWANCE UNDER RULE 8D WHICH, INTER-ALIA, INCLUDED THE INTEREST OU TGOES ALSO, I.T.A. NO. 2102/MDS/11 8 ASSESSEE CANNOT NOW TURN AROUND AND SAY THAT SUCH A COMPUTATION WAS INCORRECT. AN ASSESSEE CANNOT BE ALLOWED TO AP PROBATE OR REPROBATE ACCORDING TO ITS CHOICE. AFTER FURNISHIN G ITS OWN COMPUTATION OF DISALLOWANCE UNDER RULE 8D, IT CANNO T BE ALLOWED TO GO BACK ARGUING THAT SOME OF THE AMOUNTS WERE NOT R ELATABLE TO THE EXEMPT INCOME. FURTHER, THERE IS NOTHING ON RECORD TO SHOW THAT ASSESSING OFFICER HAD INSISTED ON SUCH A COMPUTATIO N FROM THE ASSESSEE. HAVING GIVEN A COMPUTATION OF DISALLOWAN CE, IT CANNOT NOW SAY THAT RULE 8D OUGHT NOT HAVE BEEN APPLIED. AS ALREADY MENTIONED RULE 8D IS, WITHOUT DOUBT, APPLICABLE FRO M THE IMPUGNED ASSESSMENT YEAR. WE CANNOT FIND ANY ERROR IN THE O RDER OF A.O. MAKING ADDITION IN THIS REGARD. ACCORDINGLY, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDERS OF AUTHORITIES BELOW. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT AFTER CONCLUSION OF HEARING ON 20 TH FEBRUARY, 2012. SD/- SD/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 20 TH FEBRUARY, 2012. KRI. I.T.A. NO. 2102/MDS/11 9 COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-V, CHENNAI-34 (4) CIT, CHENNAI-III, CHENNAI (5) D.R. (6) GUARD FILE