ACIT, Circle - 10, Kolkata, Kolkata V. DIC India Ltd, Kolkata

ITA 221/KOL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78386 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2014
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 10-02-2012
• Court: TRIBUNAL
• Department Lawyers: SABOORUL HASAN USMANI
• Assessee Lawyers: D S DAMLE
• Keywords: Wholly owned subsidiary; Difference of opinion; Change of opinion
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH A , KOLKATA [BEFORE HONBLE SRI P.K.BANSAL, AM & HONBLE SRI MAHAVIR SINGH, JM] ITA NO.221/KOL/2012 ASSESSEMNT YEAR : 2003-04 A.C.I.T., CIRCLE-10, -VS- DIC INDIA LTD. KOLKATA KOLKATA (PAN:AABCC 0703 C) C.O.NO.27/KOL/2012 A/O ITA NO.221/KOL/2012 ASSESSMENT YEAR : 2003-04 ( CROSS OBJECTOR ) - (RESPONDENT) DIC INDIA LTD. . A.C.I.T., CIRCLE-10, KOLKATA -VERSUS- KOLKATA (PAN:AABCC 0703 C) FOR THE APPELLANT: SHRI SABOORUL HASAN USMANI, JCIT, SR.DR FOR THE RESPONDENT: SHRI D.S.DAMLE, FCA DATE OF HEARING : 24.07.2014 DATE OF PRONOUNCEMENT : 24.07.2014. / ORDER PER SHRI P.K.BANSAL, AM THIS APPEAL OF THE REVENUE AS WELL AS CROSS OBJECTI ON OF THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-XII, K OLKATA DATED 14.11.2011 2. IN THE REVENUES APPEAL THE REVENUE HAS TAKEN T HE FOLLOWING EFFECTIVE GROUNDS OF APPEAL :- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD.CITA) IS JUSTIFIED IN DELETING THE ADDITION ON ACCOUNT OF PROPORTIONAT E MANAGEMENT EXPENSES AMOUNTING TO RS.80,73,295/- FOR EARNING THE DIVIDEND WITHOUT APPRECIATING THE DECISION OF APEX COURT IN THE CASE OF CIT VS UNITED GENERAL TRUST IN DIA [00 ITR 488]. 2.1. WHILE IN THE CROSS OBJECTION THE ASSESSEE HAS TAKEN THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL :- 1. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN LAW & ON FACTS IN NOT DECIDING GROUND NOS. 1 TO 6 & 10 OF THE MEMORANDUM OF APPEAL WHEREIN ITA NO.221/KOL/2012& C.O.27/KOL/2012 DIC INDIA LTD. A.YR.2003-04 2 THE APPELLANT HAD CHALLENGED VALIDITY AND LEGALITY OF THE PROCEEDINGS U/S 147 OF THE INCOME TAX ACT. 2. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND HAVING REGARD TO THE MATERIAL FACTS AND EVIDENCES ON RECORD THE CIT(A) O UGHT TO HAVE HELD INITIATION OF PROCEEDINGS U/S 147 WAS AB INITIO VOID SINCE THE RE ASONS TO BELIEVE U/S 148 WERE RECORDED UPON CHANGE OF OPINION AND WITHOUT HAVING REGARD TO THE MATERIAL FACTS ON RECORD. 3. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE CIT(A) OUGHT TO HAVE HELD THAT THE PROCEEDINGS U/S 147 WERE INITIATED WI THOUT SATISFYING THE CONDITIONS PRECEDENT AND THEREFORE THE ORDER PASSED CONSEQUENT THERETO WAS AB INITIO VOID AND LIABLE TO BE CANCELLED. 4. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE CIT(A) OUGHT TO HAVE FOUND THAT NOTICE U/S 148 ALLEGEDLY BEARING THE DAT E OF 31 ST MARCH 2008 WAS SERVED THROUGH THE NOTICE SERVER ON 13.06.2008 WHICH INDIC ATED THAT THE PROCEEDINGS WERE IN FACT BEYOND PERIOD OF 4 YEARS AND THE FIRST PROVISO TO SEC.147 OF THE ACT NOT HAVING SATISFIED; THE PROCEEDINGS U/S 147 SHOULD HAVE BEEN HELD TO BE BAD IN LAW AS THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE TRULY & FULLY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. 5. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE THE ORDER U/S 147/143(3) BE HELD TO BE BAD IN LAW AND THEREFORE BE CANCELLED. 3. AT THE OUTSET THE LD. AR OF THE ASSESSEE BEFORE US CONTENDED THAT DURING A.YR.2005-06 SIMILAR ISSUE HAS ARISEN. THE AO HAD M ADE SIMILAR DISALLOWANCE OF INTEREST IN RESPECT OF INVESTMENT IN DIC COATINGS P VT. LTD. WHEN THE MATTER WENT BEFORE THE LD. CIT(A) THE LD. CIT(A) VIDE ITS ORDER DATED 08.07.2011 DELETED THE ADDITION. BUT AGAINST SUCH ORDER THE REVENUE HAS NO T COME IN APPEAL BEFORE THE TRIBUNAL. IN THE PRINCIPLE OF RES JUDICATA NO APPEA L HAS BEEN FILED BY THE REVENUE DURING THE IMPUGNED ASSESSMENT YEAR. IN CASE IF THE APPEAL OF THE REVENUE IS DISMISSED AND THE APPEAL OF THE ASSESSEE IS ADMITTE D THEN THE CROSS OBJECTION FILED BY THE ASSESSEE WILL BE TREATED AS NOT PRESSED. EVEN O THER WISE ON MERIT ALSO THE LD. AR CONTENDED THAT NO ADDITION CAN BE MADE IN RESPECT O F THE PROPORTIONATE MANAGEMENT EXPENSES AND IN NONE OF THE EARLIER YEARS SUCH DISA LLOWANCE WAS MADE BY THE AO EXCEPT IN THE SUBSEQUENT YEAR 2005-06 WHICH WAS DEL ETED BY THE LD. CIT(A). 4. THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORD ER OF AO. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y CONSIDERED THE SAME ALONG WITH THE ORDERS OF THE TAX AUTHORITIES BELOW. WE NO TED THAT IN THIS CASE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON 31.03.2006 ON TO TAL INCOME OF RS.6,93,09,470/- IN ITA NO.221/KOL/2012& C.O.27/KOL/2012 DIC INDIA LTD. A.YR.2003-04 3 WHICH THE DIVIDEND INCOME WAS ASSESSED UNDER THE HE AD INCOME FROM OTHER SOURCES AT RS.2,36,56,925/- AND THE DEDUCTION U/S 80M OF TH E ACT WAS ALLOWED IN RESPECT OF THE SAID AMOUNT. THE DIVIDEND INCOME WAS EARNED BY THE ASSESSEE ON THE SHARES FROM ITS WHOLLY OWNED SUBSIDIARY M/S..DIC COATINGS INDIA LTD . SUBSEQUENTLY AO INITIATED PROCEEDINGS U/S 147 OF THE ACT ON THE ALLEGED GROUN D OF ESCAPING ASSESSMENT AS PROPORTIONATE EXPENSES WERE NOT TO BE REDUCED FROM THE DIVIDEND INCOME FOR ARRIVING AT THE QUALIFYING AMOUNT FROM WHICH RELIEF U/S 80M OF THE ACT WAS TO BE ALLOWED IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT I N THE CASE OF CIT VS UNITED GENERAL TRUST LTD. 200 ITR 488. NOTICE FOR THE INIT IATION OF THE PROCEEDINGS U/S 148 OF THE ACT DATED 31.03.2008 WAS SERVED ON THE ASSESSEE ON 13.06.2008. SUBSEQUENTLY THE AO IN THE ASSESSMENT MADE U/S 143(3) READ WITH SECT ION 147 OF THE ACT DISALLOWED THE PROPORTIONATE MANAGEMENT EXPENSES AS COMPUTED BY HI M AMOUNTING TO RS.80,73,295/- THE AVERAGE RATE OF INTEREST ON THE AVERAGE LOAN @ 7.49% ON IDENTICAL GROUND AND REASONING THE INCOME TAX ASSESSMENT FOR A.YR.2000 -01 WAS ALSO REOPENED BY THE AO ON 3 RD DECEMBER, 2003 RELYING ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VS UNITED GENERAL TRUST LTD. (SUPRA). W HEN THIS MATTER WENT BEFORE THE LD. CIT(A) THE LD. CIT(A) HAS GIVEN A FINDING THAT THER E WAS NO MATERIAL ON RECORD WHICH IN ANY MANNER THAT BORROWED FUNDS WERE UTILISED BY THE ASSESSEE FOR MAKING INVESTMENT IN SHARES. UNLESS THE NEXUS BETWEEN THE EXPENDITURE AND THE EARNING OF THE DIVIDEND FROM INVESTMENT IN SHARES WERE PROVED, DIS ALLOWANCE ON ESTIMATE BASIS CANNOT BE MADE. THE LD. CIT(A) QUASHED THE RE-ASSES SMENT. ON FURTHER APPEAL THE TRIBUNAL UPHELD THE ORDER OF THE CIT(A) VIDE ITS OR DER DATED 28 TH APRIL, 2006. THE ASSESSEE ACQUIRED SHARES OF THE WHOLLY SUBSIDIARY C OMPANY IN THE A.YR.1998-99. THEREFORE THERE WAS NO FINDING THAT THE INVESTMENT IN THE SUBSIDIARY WAS MADE OUT OF THE BORROWED FUNDS IN A.YR.1998-99 TO A.YR.2002-03 AND ALSO IN A.YR.2004-05. WE NOTED THAT IN A.YR.2005-06 THE AO HAS MADE SIMILAR DISALLOWANCES WHICH WAS DELETED BY THE LD. CIT(A), AGAINST WHICH THE REVENUE HAS NO T FILED ANY APPEAL. DURING THE IMPUGNED YEAR ALSO WE NOTED THAT THE LD. CIT(A) HAS GIVEN A CATEGORICAL FINDING THAT THE INVESTMENT IN THE SUBSIDIARY COMPANY WAS MADE I N THE FINANCIAL YEAR 1997-98 AND THEREAFTER NO FURTHER INVESTMENT WAS MADE BY THE A SSESSEE IN THE SUBSIDIARY COMPANY. IT IS NOT A CASE WHERE THE BORROWED FUNDS WERE UTIL IZED BY THE ASSESSEE FOR ACQUIRING ITA NO.221/KOL/2012& C.O.27/KOL/2012 DIC INDIA LTD. A.YR.2003-04 4 INVESTMENTS. THE INVESTMENTS ACQUIRED IN THE EARLIE R YEAR CONTINUED TO BE HELD BY THE ASSESSEE AND IN A.YR.1998-99 THE AO HAS NOT RECORDE D ANY FINDING THAT THE BORROWED FUNDS WERE UTILIZED BY THE ASSESSEE FOR ACQUIRING S HARES OF COATS COATING PVT. LTD. IN VIEW OF THIS FACT THE LD.CIT(A) DELETED THE ADDITIO N BY OBSERVING AS UNDER :- 10. THE ASSESSEES GRIEVANCE CAN ALSO BE VIEWED FR OM ANOTHER ANGLE. IN THE IMPUGNED ORDER THE AO DISALLOWED INTEREST PAID OF RS.80,73,2 95/- ON THE GROUND THAT IT WAS NOT DEDUCTIBLE U/S 36(1)(III) IN COMPUTING BUSINESS INC OME BECAUSE BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF EARNING DIVIDEND. IN A. YR.2003-04 DIVIDEND WAS HOWEVER CHARGEABLE TO TAX. IN FACT IN THE IMPUGNED ORDER TH E DIVIDEND INCOME HAS BEEN INCLUDED IN THE GROSS TOTAL INCOME OF THE APPELLANT. IN COMP UTING THE INCOME BY WAY OF DIVIDEND; INTEREST PAID ON BORROWED FUNDS WAS PERMISSIBLE TO BE DEDUCTED U/S 57(III) OF THE ACT. THE AO WAS THEREFORE NOT JUSTIFIED IN ALTOGETHER D ISALLOWING INTEREST PAID ON BORROWED FUNDS ON THE PLEA THAT IT WAS INCURRED IN RELATION TO EARNING OF DIVIDEND. VIEWED FORM ANY ANGLE THEREFORE THERE WAS NO JUSTIFICATION FOR THE AO TO DISALLOW IN ENTIRETY THE INTEREST OF RS.80,73,295/- IN COMPUTING TOTAL INCOM E OF THE APPELLANT FOR THE A.Y.2003- 04. DISALLOWANCE OF RS.80,73,295/- AS MADE BY THE A O IN THE IMPUGNED ORDER IS THEREFORE DIRECTED TO BE DELETED. 5.1. WE DO NOT FIND ANY ILLEGALITY OR INFIRMITY IN THE FINDINGS GIVEN BY THE LD. CIT(A). EVEN NO COGENT MATERIAL OR EVIDENCE WAS FIL ED BEFORE US SO THAT WE MAY BE COMPELLED TO REVERSE THE FINDINGS OF THE LD. CIT(A) . UNDER THESES CIRCUMSTANCES WE CONFIRM THE ORDER OF THE LD. CIT(A) BY DELETING THE DISALLOWANCE OF THE PROPORTIONATE MANAGEMENT EXPENSES. SINCE WE HAVE ALREADY CONFIRME D THE ORDER OF THE LD. CIT(A) BY DELETING THE DISALLOWANCE WE DISMISS THE CROSS O BJECTION FILED BY THE ASSESSEE AS NOT PRESSED. 6. IN THE RESULT THE APPEAL FILED BY THE REVENUE AS WELL AS THE CROSS OBJECTION FILED BY THE ASSESSEE STAND DISMISSED. ORDER PRONOUNCED IN THE COURT ON 24.07.2014. SD/- SD/- [MAHAVIR SINGH ] [P.K.BANSAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 24.07.2014. R.G.(.P.S.) ITA NO.221/KOL/2012& C.O.27/KOL/2012 DIC INDIA LTD. A.YR.2003-04 5 COPY OF THE ORDER FORWARDED TO: 1. M/S.DIC INDIA LTD., TRANSPORT DEPOT ROAD, TARATOLLA , KOLKATA-700088. 2 A.C.I.T., CIRCLE-10, KOLKATA 3 . CIT KOLKATA 4 . CIT(A)-XII, KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY, BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES