DCIT, CORPORATE CIRCLE - 1 (1), CHENNAI V. M/S. ACCEL LTD., CHENNAI

ITA 2167/CHNY/2019

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 0415 (ITAT-CHENNAI)
• Duration Of Justice: 5 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 03-07-2024
• Assessment Year: misc
• Appeal Filed On: 21-07-2019
• Result in Favour of: Matter Remanded
• Court: TRIBUNAL
• Keywords: Capital asset; Business income; Depreciation; Revenue expenditure; Capital Gains
• Section: 115JB; 143(2); 13

Judgement Text

आयकर अपीलीय अिधकरण, ’डी’ Ɋायपीठ, चेɄई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘D’ BENCH, CHENNAI ŵी एसएस िवʷनेũ रिव, Ɋाियक सद˟ एवं ŵी जगदीश, लेखा सद˟ के समƗ । Before Shri S.S. Viswanethra Ravi, Judicial Member & Shri Jagadish, Accountant Member आयकर अपील सं./I.T.A. Nos.1910, 2167, 2168 & 2169/Chny/2019 िनधाŊरण वषŊ/Assessment Years: 2007-08, 2012-13, 2013-14 & 2014-15 & C.O. No. 4/Chny/2020 [in ITA No. 2167/Chny/2019 The Deputy Commissioner of Income Tax, Corporate Circle 1(1), Chennai 600 034. Vs. M/s. Accel Limited, No. 75, Nelson Manickam Road, Aminjikarai, Chennai 600 029. [PAN: AAACA3042P] (अपीलाथŎ/Appellant) (ŮȑथŎ/Respondent/Cross Objector) Department by : Shri G. Suresh, JCIT Assessee by : None सुनवाई की तारीख/ Date of hearing : 04.07.2024 घोषणा की तारीख /Date of Pronouncement : 07.08.2024 आदेश /O R D E R PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER: These four appeals filed by the Department are directed against two different orders both dated 29.03.2019 passed by the ld. Commissioner of Income Tax (Appeals) 1, Chennai for the assessment years 2007-08, 2012-13, 2013-14 and 2014-15. 2. None appeared on behalf of the assessee nor filed any application seeking adjournment. Thus, the assessee called absent and treated exparte. I.T.A. Nos.1910 & 2167-2169/Chny/19 & C.O. No. 4/Chny/20 2 3. Since, the issues raised in these appeals are similar based on the same identical facts, with the consent of the ld. DR, we proceed to hear all the appeals together and pass consolidated order for the sake of convenience. 4. We shall take up appeal in I.T.A. No. 2167/Chny/2019 for AY 2012- 13. 5. Ground No. 1 is general in nature and requires no adjudication. 6. Ground No. 2 raised by the Revenue in challenging the action of the ld. CIT(A) in allowing interest in the absence of any business income. 7. Brief facts of the case are that the assessee is a company engaged in the business of trading in computer components, spares and accessories. The assessee filed its return of income declaring total loss of ₹.4,54,53,682/-. Notice under section 143(2) of the Income Tax Act, 1961 [“Act” in short] was issued and in response to which, the Authorised Representative of the assessee appeared. On an examination of the details as filed by the assessee, the Assessing Officer found the claim of deduction on account of payment of interest towards property loan. The Assessing Officer disallowed the same for not adducing any evidence in showing that such interest has been incurred on borrowed capital for the I.T.A. Nos.1910 & 2167-2169/Chny/19 & C.O. No. 4/Chny/20 3 purpose of acquisition/construction of the subjected property. The ld. CIT(A) allowed the said claim on the ground that, the Assessing Officer held interest amount towards property loan as allowed but it was not deducted from rental income while computing the income from house property. The relevant para 7 & 8 of the impugned order is reproduced herein below: “4A(2) Appellate proceedings: Α.Υ.2012-13 During the appellate proceedings, the appellant stated that it has become an investment company and has its income only from purchase and sale of investments, rental income and dividends thereon. The appellant held that leasing out its properties shall be as its business operations and such income should be considered as income from business. It was also stated that if the rental income has to be treated as income from house property, the expenditure to arrive at such income like property and water taxes paid to the statutory authorities and interest on loans taken amounting to Rs. 10,36,714/- to acquire the property has to be allowed. It was submitted that these points were not considered and allowed by the Α.Ο. 4A(3) CIT(A)'s Inferences and Decision: A.Y. 2012-13 The submissions of the appellant were considered vis-à-vis the findings of the AO. The CIT(A) in his order dated 19/6/2016 in the appellant's case for the A.Y. 2011-12 applied the ratio of M/s.Chennai properties & Investments Ltd vs. CIT (in Civil Appeal No.4494 of 2004 judgement of Supreme Court) to the instant case and stated that "the appellant has its main objective of promoting investments and making investments in companies while the main activity is not to acquire properties and to let those properties out. The rentals from the let out properties therefore not being the main objective nor the income there from being the entire income, the ratio in Chennai Properties would not apply. Keeping in view the nature of activities and objects of the company, I am of the considered view that the A.O has rightly brought to tax the income from let out properties under the head income from house property and not business income. This ground of appeal is dismissed". Abiding by this decision, it is hereby stated that the appellant's I.T.A. Nos.1910 & 2167-2169/Chny/19 & C.O. No. 4/Chny/20 4 income shall be treated as income from house property and not business income. On perusal of the assessment order, it is noted that the interest amount of Rs. 10,36,714/- towards property loan was held as allowed but it was not deducted from the rental income while computing the income from house property. Hence, the appellant's submissions in this regard have been found to be tenable. The amount of Rs. 10,36,714/ needs to be deducted from the rental income from property. The A.O. may consider and verify whether the interest on property loan which was held as allowed but not deducted from rental income of the appellant and accordingly allow the said claim. This ground of appeal is partly allowed for the A.Yrs. 2012-13, 2013-14 & 2014-15.” 8. The ld. DR Shri G. Suresh, JCIT relied on the order of the Assessing Officer. 9. Having heard the ld. DR and perused the material available on record, we note that the assessee was an investment company and has its income from purchase and sale of investments, rental income and dividends. The assessee held leasing out its properties and claims the said income from business. It was contended that when the rental income has to be treated as income from house property, the expenditure to arrive at such income, i.e., property and water taxes paid to the statutory authorities and interest on loans taken for the said property has to be allowed as deduction. On perusal of the order of the ld. CIT(A), which was reproduced hereinabove, we note that the ld. CIT(A), considering the submissions of the assessee, pointed out that an error committed by the Assessing Officer in not allowing the deduction on account of interest on loans. As it appears in the same line of argument advanced before the I.T.A. Nos.1910 & 2167-2169/Chny/19 & C.O. No. 4/Chny/20 5 Assessing Officer, but, it was not considered as it is evident from the assessment order. Therefore, we find no infirmity in the order of the ld. CIT(A) in holding that when the income from house property is accepted as business income, the interest paid on borrowed loans should be allowed as deduction. Thus, the ground No. 2 raised by the Revenue is dismissed. 10. Ground Nos. 3 & 4 raised by the Revenue in challenging the action of the ld. CIT(A) in treating long term capital loss on transfer of shares to subsidiary company as revenue loss. 11. The Assessing Officer found the expenses under the head “other expenses”, which were debited to the profit and loss account as loss on sale of investments. According to the Assessing Officer, the gain or loss on sale of its investments would only be under the head ‘capital gains’. Further, he observed that the investment in capital asset as reflected in the balance sheet of the assessee and any gain or loss on sale of such assets would take the character of capital gain or loss, and by observing that such loss cannot partake the character of business loss, treated the same as long term capital loss and allowed to be carry forward. The ld. CIT(A) remitted the matter to the file of the Assessing Officer for verification on the statement made by the assessee before the ld. CIT(A) I.T.A. Nos.1910 & 2167-2169/Chny/19 & C.O. No. 4/Chny/20 6 that it was a genuine loss which was incurred as part of its business and not a write off of its investments. 12. The ld. DR relied on the order of the Assessing Officer. 13. On an examination of the submissions as made by the assessee before the ld. CIT(A), wherein, it was stated that the assessee sold its investment and the profit thereon was offered for taxation and likewise, the loss claimed as business loss in the nature of revenue expenditure, which was incurred as part of its business. On perusal of the impugned order at page 14, we note that the ld. CIT(A), considered the submissions of the assessee and directed the Assessing Officer to verify the same. The relevant part in page 13 to 15 is reproduced herein below: “4D(2) Appellate proceedings: A.Y. 2012-13 During the appellate proceedings, the appellant stated that it had written off its investments on sale as detailed below: (Amount in lacs) Name Loss of sale Accel IT Resources Ltd. 6,10,00,000 Array Solutions (I) Limited 100 Total 6,10,00,100 It was submitted that the company had written off a part of its investments amounting to ₹.6,10,00,100/- and claimed the same and which had been disallowed. The appellant explained that where the investments have been sold at profit, it was offered for tax and where there was a loss the same had been claimed but it was disallowed. The appellant had claimed the said loss as revenue expenditure which was incurred as part of its business. The details I.T.A. Nos.1910 & 2167-2169/Chny/19 & C.O. No. 4/Chny/20 7 regarding the transactions are listed in the Investment Schedule (Schedule 9.2 of the Balance Sheet). 2014-15 Appellate proceedings: During the appellate proceedings, it was explained that the company had written off a sum of ₹.2 crores being the loss on investments based on subsequent sale as impairment of assets. On the basis of the mandatory provisions of AS 13, the loss was claimed by the appellant. 4D(3) CIT(A)’s inferences and decision: The submissions of the appellant were considered vis-a-vis the findings of the AO. The appellant stated that the company had incurred a loss on sale of investments amounting to ₹.6,10,00,100/- during the relevant previous year. It was explained that it was a genuine loss which was incurred as part of its business and it was not a write off of its investments. Although the submissions of the appellant are tenable, the matter is remitted to the A.O. to verify the claim and to allow the expenditure accordingly. This ground of appeal is allowed for statistical purposes for the A.Y. 2012-13.” 14. On perusal of the above, we note that nothing was brought on record to show whether the Assessing Officer acted upon the directions of the ld. CIT(A) in view of the submissions made therein. Therefore, we find no infirmity in the order of the ld. CIT(A) and it is justified. Thus, ground Nos. 3 & 4 raised by the Revenue are dismissed. 15. Ground No. 5 raised by the Revenue in challenging the action of the ld. CIT(A) in remitting the issue of depreciation, general and administrative expenses, finance charges & loss on sale of investments for verification in contravention of provisions of section 251(1)(a) of the Act. I.T.A. Nos.1910 & 2167-2169/Chny/19 & C.O. No. 4/Chny/20 8 16. We find that this ground attain no significance as we have taken a view in confirming the order of the ld. CIT(A) in ground Nos. 3 & 4 regarding in remanding the matter to the file of the Assessing Officer in terms of the submissions made by the assessee before the ld. CIT(A) as we have discussed the same, which were made before the Assessing Officer, which were reiterated before the ld. CIT(A), but, however, the Assessing Officer did not look into the submissions made by the assessee while completing the assessment. Therefore, since we have confirmed the order of the ld. CIT(A) in remanding the matter to the Assessing Officer on examination of submissions of the assessee before the first appellate order, ground No.5 raise by the Revenue attains no significance and dismissed. ITA No. 2168/Chny/2019: AY – 2013-14 17. Ground No. 1 is general in nature and requires no adjudication. 18. Ground No. 2 raised by the Revenue in challenging the action of the ld. CIT(A) in allowing interest in the absence of any business income. Similar ground on identical fact was raised by the Revenue in the assessment year 2012-13, which was adjudicated hereinabove by confirming the order passed by the ld. CIT(A) and the same findings also I.T.A. Nos.1910 & 2167-2169/Chny/19 & C.O. No. 4/Chny/20 9 apply for the assessment year 2013-14 as well. Accordingly, ground No. 2 raised by the Revenue is dismissed. 19. Ground No. 3 raised by the Revenue in challenging the action of the ld. CIT(A) in allowing expenses which partake the character of investment expenses and expended in gross violation of their memorandum of association. 20. We note that the assessee declared business loss in the year under consideration after reducing its profit by ‘finance cost’ and ‘other expenses’. Accordingly, a sum of ₹ 3.49 crores being diminution in value of investments form an item in the schedule for other expenses and sought explanation of the assessee. The assessee submitted its explanation and the same is reproduced in the assessment order in para 4.1 of the assessment order. The contention of the assessee that, it is not a provision to write off was not accepted by the Assessing Officer and accordingly added the same to the income of the assessee under the head “income from business”. 21. We note that the ld. CIT(A) discussed the issue in page 11 & 12 of the impugned order, but under the head “AY 2014-15” instead of AY 2013-14 vide paras 4C(1), 4C(2) and 4A(3). On perusal of the relevant I.T.A. Nos.1910 & 2167-2169/Chny/19 & C.O. No. 4/Chny/20 10 part in para 4A(3), we note that the ld. CIT(A) has observed that while working out the diminution in the value of investments, the returned loss should be considered for the purpose of tax computation. Accordingly, disallowed a sum of ₹.83,09,799/- which should be reduced from the returned loss. Therefore, we find no infirmity in the order of the ld. CIT(A) and it is justified. Thus, ground No. 3 raised by the Revenue is dismissed. 22. Ground No. 4 raised by the Revenue in challenging the action of the ld. CIT(A) in remitting the issue of depreciation, general and administrative expenses, finance charges & loss on sale of investments for verification in contravention of provisions of section 251(1)(a) of the Act. 23. Similar ground raised by the Revenue in the assessment year 2012-13, which was adjudicated hereinabove by confirming the order passed by the ld. CIT(A) and the same findings also apply for the assessment year 2013-14 as well. Accordingly, ground No. 4 raised by the Revenue is dismissed. I.T.A. No. 2169/Chny/2019: AY – 2014-15 24. Ground No. 1 is general in nature and requires no adjudication. I.T.A. Nos.1910 & 2167-2169/Chny/19 & C.O. No. 4/Chny/20 11 25. Ground No. 2 raised by the Revenue in challenging the action of the ld. CIT(A) in allowing interest in the absence of any business income. 26. Similar ground on identical fact was raised by the Revenue in the assessment year 2012-13, which was adjudicated hereinabove by confirming the order passed by the ld. CIT(A) and the same findings also apply for the assessment year 2014-15 as well. Accordingly, ground No. 2 raised by the Revenue is dismissed. 27. Ground No. 3 raised by the Revenue in challenging the action of the ld. CIT(A) in deleting the addition of diminution of investment value. 28. Similar ground raised by the Revenue in the assessment year 2013-14, which was adjudicated hereinabove by confirming the order passed by the ld. CIT(A) and the same findings also apply for the assessment year 2014-15 as well. Accordingly, ground No. 3 raised by the Revenue is dismissed. 29. Ground No. 4 raised by the Revenue in challenging the action of the ld. CIT(A) in remitting the issue of depreciation, general and administrative expenses, finance charges & loss on sale of investments for verification in contravention of provisions of section 251(1)(a) of the Act. I.T.A. Nos.1910 & 2167-2169/Chny/19 & C.O. No. 4/Chny/20 12 30. Similar ground raised by the Revenue in the assessment year 2012-13, which was adjudicated hereinabove by confirming the order passed by the ld. CIT(A) and the same findings also apply for the assessment year 2014-15 as well. Accordingly, ground No. 4 raised by the Revenue is dismissed. 31. Ground No. 5 is general in nature and requires no separate adjudication. I.T.A. No. 1910/Chny/2019: AY – 2007-08 32. Ground Nos. 1 to 5 raised by the Revenue requires no adjudication as it was submitted by the ld. DR that the same are not applicable. Therefore, ground Nos. 1 to 5 raised by the Revenue are dismissed as withdrawn. 33. Ground No. 6 to 9 raised by the Revenue in challenging the action of the ld. CIT(A) in deleting the addition on account of diminution of investment value to book profit. 34. The ld. CIT(A) discussed the issue in detail while taking in account the A.O.’s view in page No. 8 of the impugned order. On perusal of the same, we note that the Assessing Officer, by taking into consideration the order in the case of M/s. Ashok Leyland Limited v. DCIT [2014] 24 I.T.A. Nos.1910 & 2167-2169/Chny/19 & C.O. No. 4/Chny/20 13 taxmann.com 414 of ITAT, Chennai, wherein it was held that diminution in value of assets is not an admissible expenditure for computing income of the assessee when assets are held as investments. Accordingly, the disallowance was made by the Assessing Officer. It was explained before the ld. CIT(A) that the Assessing Officer had not given the benefit of written off of diminution value of investment for the purpose of computation under section 115JB of the Act and further, the dividend which was received was also not deducted while arriving the profit under the provisions of section 115JB of the Act. The ld. CIT(A) held that when the Assessing Officer deleted the disallowance on account of diminution in value of asset, again, the same cannot be added on account of computing book profit under section 115JB of the Act. We note that admittedly, the Assessing Officer had passed revised assessment order dated 31.03.2017 while giving effect to the ITAT order. We note that there is no profit under the normal provisions of Act, but, however, profits under the provisions of section 115 of the Act were computed. Admittedly, the Assessing Officer erred in giving the benefit of write off of diminution in value of investment in the computation of section 115JB of the Act. Therefore, we find no infirmity in the order of the ld. CIT(A) and it is justified. Thus, ground Nos. 6 to 9 raised by the Revenue are dismissed. I.T.A. Nos.1910 & 2167-2169/Chny/19 & C.O. No. 4/Chny/20 14 C.O. No. 4/Chny/Chny/2020 [Arising out of I.T.A. No. 2167/Chny/2019: AY 2012-13] 35. The assessee filed the Cross Objection with a delay of 25 days. The assessee filed an affidavit stating reasons for the said delay and prayed for condonation of that delay. We find that none appeared on behalf of the assessee. However, on perusal of the affidavit and upon hearing the ld. DR, we find that the reasons explained by the assessee are bonafide and therefore, the delay is condoned. 36. We note that the grounds raised in the Cross Objections are in support of the order of the ld. CIT(A). Since we have confirmed the order of the ld. CIT(A), the C.O. filed by the assessee become infructuous and accordingly dismissed. 37. In the result, all the appeals filed by the Revenue and the CO filed by the assessee are dismissed. Order pronounced on 07 th August, 2024 at Chennai. Sd/- Sd/- (JAGADISH) ACCOUNTANT MEMBER (S.S. VISWANETHRA RAVI) JUDICIAL MEMBER Chennai, Dated, 07.08.2024 Vm/- I.T.A. Nos.1910 & 2167-2169/Chny/19 & C.O. No. 4/Chny/20 15 आदेश की Ůितिलिप अŤेिषत/Copy to: 1. अपीलाथŎ/Appellant, 2.ŮȑथŎ/ Respondent, 3. आयकर आयुƅ/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय Ůितिनिध/DR & 5. गाडŊ फाईल/GF.