DCIT, CHENNAI V. Tractors and Farm Equipments Ltd., CHENNAI

ITA 2106/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8067 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 27-10-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 12-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DURAI PANDIAN
• Keywords: Wholly owned subsidiary; Reasonable cause
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , . , $ % BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO. 2106/MDS/2016 / ASSESSMENT YEAR : 2011-12 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 3(1) NEW BLOCK, 4 TH FLOOR, 121, MAHATMA GANDHI ROAD, NUNGAMBAKKAM, CHENNAI 600 034. VS. M/S. TRACTORS AND FARM EQUIPMENTS LTD. NO. 35, POTTIPATTI PLAZA, NUNGAMBAKKA HIGH ROAD, CHENNAI 600 034. [PAN AAACT2761Q] ( / APPELLANT) ( /RESPONDENT) ' ( / APPELLANT BY : SHRI. DURAI PANDIAN, JCIT. *+' ( /RESPONDENT BY : SHRI. SAROJ KUMAR PARIDA, ADVOCATE ( / DATE OF HEARING : 27-10-2016 ( / DATE OF PRONOUNCEMENT : 02-11-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-11, CHENNAI F OR THE ABOVE ASSESSMENT YEARS PASSED U/S.143(3) R.W.S. 92CA(4) A ND 144C(1)AND 250 OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT). ITA NO. 2106/MDS/2016 :- 2 -: 2. BEFORE WE PROCEED FOR HEARING THERE IS A DELAY O F 17 DAYS IN FILING THE APPEAL OF THE REVENUE. THE LD. DR FILED CONDONATION PETITION AND EXPLAINED THE CIRCUMSTANCES FOR DELAY WHICH ARE NOT DELIBERATE. FURTHER, LD. AR OF THE ASSESSEE HAS NO SERIOUS OBJE CTIONS FOR CONDONATION OF DELAY. AFTER HEARING THE SUBMISSIONS, WE ARE SA TISFIED WITH THE REASONABLE CAUSE SUBMITTED IN AFFIDAVIT FOR FILING THE APPEAL BELATEDLY. THEREFORE, THE DELAY IS CONDONED AND APPEAL IS ADMI TTED. 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 2.1. THE ID.CIT(A) ERRED IN DIRECTING THE AO TO RE- COMPUTER THE DISALLOWANCE UNDER RULE 8D AFTER EXCLU DING THE APPELLANT'S INVESTMENT IN SUBSIDIARY COMPANIES. 2.2. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT RULE 8D(2) DOES NOT DIFFERENTIATE BETWEEN STRATEGIC INVE STMENTS AND INVESTMENTS IN SUBSIDIARY COMPANIES WITH OTHER INVE STMENTS AND THE WORD USED IN THE RULE IS ONLY 'VALUE OF INV ESTMENT' AND HENCE THE INVESTMENT IN SUBSIDIARY COMPANY SHALL BE INCLUDED FOR CALCULATION OF DISALLOWANCE UNDER RULE 8D(2). 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS IN THE BUSINESS OF MANUFACTURE AND SALE OF TRACTORS, E NGINEERING PLASTIC COMPONENTS AND BATTERIES AND TRADING IN RELATED PAR TS AND ATTACHMENTS AND FILED RETURN OF INCOME ELECTRONICALLY ON 30.11. 2011 WITH TOTAL INCOME OF @ 547,94,70,605/- AND THE RETURN OF INCOME WAS P ROCESSED U/S.143(1) OF THE ACT. SUBSEQUENTLY, THE CASE WAS SELECTED FO R SCRUTINY AND NOTICE U/S. 143(2) OF THE ACT WAS ISSUED. IN COMPLIANCE T O NOTICE, THE LD. AUTHORISED REPRESENTATIVE OF ASSESSEE APPEARED FROM TIME TO TIME AND ITA NO. 2106/MDS/2016 :- 3 -: FURNISHED DETAILS AND CASE WAS DISCUSSED. IN THE A SSESSMENT PROCEEDINGS, THE LD. ASSESSING OFFICER FOUND THE AS SESSEE COMPANY HAS INTERNATIONAL TRANSCATION AND A REFERENCE U/S. 92CA (1) OF THE ACT WAS MADE TO T.P.O FOR DETERMINING THE ARM'S LENGTH PRIC E AND THE LD. TPO PASSED THE ORDER ON 25.11.2014 WITH NO ADJUSTMENT T O ALP. THE ASSESSEE COMPANY HAS INVESTMENTS PORTFOLIO IN THE B ALANCE SHEET RS. 961,45,76,000/- AND THE DIVIDEND INCOME FROM INVES TMENTS RS. 27,02,66,864/- WAS CLAIMED EXEMPTED FROM TAX U/S. 1 0(34) OF THE ACT. FURTHER, THE ASSESSEE HAS DISALLOWED ADHOC EXPENDIT URE OF RS. 29,00,000/- FOR EARNING SUCH INCOME. THE LD. ASSES SING OFFICER APPLYING THE PROVISIONS OF SEC. 14A R.W.R. 8D (II) AND (III) CALCULATED @8,66,34,771/- AND MADE ADDITION TO THE RETURNED INCOME WITH OTHER ADDITIONS AND PASSED ORDER U/SEC. 143(3) R.W.S 92CA(4) AND 144C( 1) OF THE ACT DATED 27.03.2015 DETERMINING TOTAL INCOME OF @558,71,10,9 20/-. AGGRIEVED BY THE ORDER, ASSESSEE FILED AN APPEAL BEFORE COMMISSI ONER OF INCOME TAX (APPEALS). 5. IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORISE D REPRESENTATIVE OF ASSESSEE ARGUED THE GROUND OF DISALLOWANCE 14A R .W.S RULE 8D AND EXPLAINED THAT THE LD. ASSESSING OFFICER HAS REJECT ED THE EXPLANATIONS WITHOUT ASSIGNING REASONS AND JUSTIFICATION FOR DIS ALLOWANCE AND FILED WRITTEN SUBMISSIONS ON FACTS AND LAW. THE ASSESSEE COMPANY HAS MADE INVESTMENTS IN SUBSIDIARY COMPANIES AND SUCH INVEST MENTS ARE TO BE ITA NO. 2106/MDS/2016 :- 4 -: EXCLUDED FOR COMPUTATION OF DISALLOWANCE UNDER RULE 8D (II) AND (III) OF THE INCOME TAX RULES AND UNDER PROVISIONS OF SEC. 1 4A OF THE ACT. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THE SUBMISSIONS AT PAGE 2 TO 4 OF THE ORDER AND RELIED ON CO-ORDINATE BENCH DECISION DCIT VS K H ARINF PVT LTD (2015) 64 TAXMANN.COM 409 ELAB ORATELY DEALT AND DIRECTED THE LD. ASSESSING OFFICER AT PARA 4.3.4 OF PAGE 6 OF ORDER AS UNDER:- '4.3.4 NOW COMING TO THE THIRD PART OF RULE 8D (2 )(III), THE APPELLANT'S HAS SUBMITTED THAT THE AO HAS WRONGLY INCLUDED THE INVESTMENT IN SUBSIDIARY COMPANIES. HOWEVER, SUCH SUBMISSION WAS NOT MADE BEFORE THE ASSESSING OFFICER AND THERE IS NO MENTIO N OF SUCH FACT IN THE ASSESSMENT ORDER. HOWEVER, THE COURTS HAVE HELD TH AT THE INVESTMENT IN SUBSIDIARY COMPANIES SHOULD BE EXCLUDED FROM THE COMPUTATION OF RULE 8D. THEREFORE, THE AO IS DIRECTED TO EXAMINE THE APPELLANT'S SUBMISSION IN THIS REGARD AND TO RE-COMPUTE RULE 8D IN VIEW OF THE ABOVE REMAKRS. HOWEVER, THE AO HAS TO TAKWE NOTE O F AO'S DISALLOWANCE U/S. 14A OF RS. 29,00,000/- BY APP;YIN G RULE 8D. ACCORDINGLY, THE APPELLANT'S GROUND WITH REGARD TO RULE 8D(2)(III) IS PARTLY ALLOWED. AND PARTLY ALLOWED THE APPEAL. AGGRIEVED BY THE OR DER OF COMMISSIONER OF INCOME TAX(A), THE REVENUE HAS ASSAILED AN APPEA L BEFORE TRIBUNAL. 6. BEFORE US, THE LD. DEPARTMENTAL REPRESENTAT IVE ARGUED THE GROUNDS AND EXPLAINED THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DIRECTING THE LD. ASSESSING OFFICER TO EXCLUDE THE INVESTMENTS MADE IN SUBSIDIARIES COMPANIES FOR THE PURPOSE OF DETERMINING DISALLOWANCE U/S.14A OF THE ACT R.W. RU LE 8D. THE INVESTMENTS CANNOT BE SEGREGATED EVEN THOUGH IN THE SAME MANAGEMENT ITA NO. 2106/MDS/2016 :- 5 -: AND BE TREATED ON PAR WITH OTHER INVESTMENTS. FUR THER, THE REVENUE ON SIMILAR GROUND IN THE CASE OF EIH ASSOCIATED HOTELS LIMITED VS DCIT IN ITA NO.1503/MDS/2012, ASSESSMENT YEAR 2008-2009 DAT ED 17.07.2013 HAS NOT ACCEPTED THE DECISION AND APPEAL HAS BEEN F ILED BEFORE JURISDICTIONAL HIGH COURT AND PRAYED FOR SET ASIDE THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS). 7. CONTRA, LD. AUTHORISED REPRESENTATIVE RE LIED ON THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS) AND JUDICIAL D ECISIONS AND REPRESENTED THAT INVESTMENTS IN SUBSIDIARY IS NOT F OR EARNING DIVIDEND INCOME BUT WITH BUSINESS MOTIVE AND SUPPORTED HIS A RGUMENTS WITH THE DECISION OF EIH ASSOCIATED HOTELS LIMITED (SUPRA) AND PRAYED FOR DISMISSING THE APPEAL. 8. WE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL ON RECORD AND JUDICIAL DECISION CITED. THE SOLE CONTENTION O F THE LD. DEPARTMENTAL REPRESENTATIVE ON THE APPLICABILITY OF PROVISIONS O F SEC. 14A AND RULE 8D(2) ARE MANDATORY. THE LD. ASSESSING OFFICER HAS RIGHTLY CALCULATED DISALLOWANCE BY APPLYING THE RULE 8D(II) AND (III) IRRESPECTIVE OF THE FACT OF NOT MAKING DISTINCTION BETWEEN INVESTMENTS. FUR THER, THE ASSESSEE COMPANY HAS MADE INVESTMENTS WITH A MOTIVE TO EARN EXEMPTED INCOME AND INADEQUATE PROPORTIONATE DISALLOWANCE WAS MADE WHILE COMPUTING TOTAL INCOME IN RESPECT OF EXPENDITURE INCURRED FOR EARNING SUCH ITA NO. 2106/MDS/2016 :- 6 -: EXEMPTED INCOME. IN THE APPELLATE PROCEEDINGS, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THE STRATEGIC DECIS IONS OF INVESTMENTS OF THE ASSESSEE COMPANY IN SISTER CONCERNS /SUBSIDI ARY COMPANY WITH A MOTIVE TO EARN PROFITS AND PROMOTION OF BUSINESS AN D RELIED ON THE JUDICIAL DECISIONS AND DIRECTED THE LD. ASSESSING O FFICER IN CALCULATING DISALLOWANCE UNDER RULE 8D(III) AND TO EXCLUDE INVE STMENTS MADE IN SUBSIDIARY COMPANIES. THE LD. AUTHORISED REPRESENT ATIVE SUPPORTED HIS ARGUMENTS WITH DECISION OF CO-ORDINATE BENCH IN TH E CASE OF EIH ASSOCIATED HOTELS LIMITED (SUPRA) OBSERVED AT PARA 6 PAGE 10 TO 12 AS UNDER:- 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE RIVA L PARTIES. WE HAVE ALSO EXAMINED THE ORDERS PASSED BY THE AUTH ORITIES BELOW AND THE JUDGMENTS/ORDERS CITED BY THE REPRESE NTATIVES OF BOTH THE PARTIES. THE FIRST ISSUE IN THE APPEAL OF THE ASSESSEE RELATES TO DIS-ALLOWANCE MADE U/S. 14A R.W .R. 8D. THE ASSESSING OFFICER HAS MADE DIS-ALLOWANCE TO THE TUNE OF RS. 4,32,66,500/-.THE CONTENTION OF THE ASSESSEE IS THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF 4.6 LAKHS WHICH IS FULLY EXEMPT U/S. 10(34) OF THE ACT. THE ASSESS EE HAS MADE VOLUNTARILY DIS-ALLOWANCE OF 45,927/- U/S. 14A. THE ASSESSEE HAS MADE FRESH INVESTMENTS TO THE TUNE OF 9.4 CRORES DURING THE YEAR. THE ASSESSING OFFICER HELD THAT THE INVESTMENTS HAVE BEEN MADE FROM THE FRESH SECURED L OANS OBTAINED DURING THE YEAR BY THE ASSESSEE. THE CIT(A PPEALS) AFTER GOING THROUGH THE SUBMISSIONS MADE BY THE PAR TIES HAS COME TO THE CONCLUSION THAT THE ASSESSEE HAS MADE INVESTMENTS FROM ITS OWN FUNDS EXCEPT FOR THE SHORT TERM INVESTMENTS MADE IN HDFC CASH MANAGEMENT FUND AND DSPML CASH PLUS FUND IN RESPECT OF WHICH THE AMOUNT S WERE INVESTED FROM INTEREST BEARING FUNDS BORROWED FROM HBSC. THE REVENUE HAS NOT BEEN ABLE TO CONTROVERT T HE FINDINGS OF CIT(APPEALS). WE ARE OF THE CONSIDERED OPINION THAT THE INVESTMEN TS MADE BY THE ASSESSEE IN THE SUBSIDIARY COMPANY ARE NOT O N ITA NO. 2106/MDS/2016 :- 7 -: ACCOUNT OF INVESTMENT FOR EARNING CAPITAL GAINS OR DIVIDEND INCOME. SUCH INVESTMENTS HAVE BEEN MADE BY THE ASSE SSEE TO PROMOTE SUBSIDIARY COMPANY INTO THE HOTEL INDUST RY. A PERUSAL OF THE ORDER OF THE CIT(APPEALS) SHOWS THAT OUT OF TOTAL INVESTMENT OF 64,18,19,775/-, 63,31,25,715/- IS INVESTED IN WHOLLY OWNED SUBSIDIARY. THIS FACT SUPP ORTS THE CASE OF THE ASSESSEE THAT THE ASSESSEE IS NOT INTO THE BUSINESS OF INVESTMENT AND THE INVESTMENTS MADE BY THE ASSESSEE ARE ON ACCOUNT OF BUSINESS EXPEDIENCY. ANY DIVIDEND EARNED BY THE ASSESSEE FROM INVESTMENT IN SUBSIDIARY COMPANY IS PURELY INCIDENTAL. THEREFORE, THE INVESTMENT MADE BY THE ASSESSEE IN ITS SUBSIDIARY A RE NOT TO BE RECKONED FOR DIS-ALLOWANCE U/S. 14A R.W.R. 8D. T HE ASSESSING OFFICER IS DIRECTED TO RE-COMPUTE THE AVE RAGE VALUE OF INVESTMENT UNDER THE PROVISIONS OF RULE 8D AFTER DELETING INVESTMENTS MADE BY THE ASSESSEE IN SUBSIDIARY COMP ANY. ACCORDINGLY, THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THAT OF THE REVENUE IS DISMISSED. THE F INDINGS OF THE CIT(APPEALS) ON THE ISSUE ARE ACCORDINGLY MODIF IED. 9. FURTHER, THE CONTENTION OF THE REVENUE BEFORE US TH AT THE REVENUE HAS NOT ACCEPTED THE SAID DECISION OF THE T RIBUNAL AND APPEAL HAS ALREADY BEEN FILED BEFORE JURISDICTIONAL HIGH C OURT AND THE SAME IS PENDING. WE ARE OF THE OPINION THAT MERE PENDENCY OF APPEAL CANNOT BE A REASON TO TAKE DIFFERENT VIEW. THE ORDER OF THE TRIBUNAL IS BINDING ON ALL AUTHORITIES IN THE STATE OF TAMIL NADU AND PUDU CHERRY. CONSIDERING THE APPARENT FACTS, MATERIAL EVIDENCE AND JUDICIAL DECISIONS, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS DEALT ELAB ORATELY AND DISCUSSED JUDICIAL DECISIONS AND DIRECTED THE LD. A SSESSING OFFICER TO EXCLUDE THE INVESTMENTS MADE IN SUBSIDIARY COMPANIE S FOR THE PURPOSE OF COMPUTATION OF DISALLOWANCE U/S.14A R.W.R. 8D(III) OF THE ACT AND ALSO WRITTEN SUBMISSIONS VIZ-A-VIZ THE EXPLANATIONS AND PARTLY ALLOWED THE ITA NO. 2106/MDS/2016 :- 8 -: APPEAL. WE ARE NOT INCLINED TO INTERFERE WITH THE O RDER OF COMMISSIONER OF INCOME TAX (APPEALS) ON THE DIRECTION FOR RECOMPUTA TION OF DISALLOWANCE U/SEC. 14A R.W.R8D(III) AND WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND DISMISS THE APPEAL OF THE REVENUE. THE APPEAL OF THE REVENUE IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 2 ND DAY OF NOVEMBER, 2016, AT CHENNAI. SD/- ( ) (CHANDRA POOJARI) ! / ACCOUNTANT MEMBER SD/- ( . ) (G. PAVAN KUMAR) $ ! / JUDICIAL MEMBER / CHENNAI, 1 / DATED: 2 ND NOVEMBER, 2016 JPV ( *$34 54 / COPY TO: 1 . ' / APPELLANT 3. 6 () / CIT(A) 5. 4 *$$ / DR 2. *+' / RESPONDENT 4. 6 / CIT 6. ; / GF