The Chemical Engineering Corporation P Ltd., CHENNAI V. ACIT Corporate Circle 3(1), CHENNAI

ITA 2375/CHNY/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7357 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 27-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAYAPRABHA
• Assessee Lawyers: M K SANTHANARAMAN
• Keywords: Capital asset; Earning of tax free income; Non-deduction of tax
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B BENCH, CHENNAI . , . , BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A.NO.2375/CHNY/2017 ( / ASSESSMENT YEAR: 2012-13) M/S. THE CHEMICAL ENGINEERING CORPORATION P LTD., (NOW CEC FLAVOURS AND FRAGRANCES PVT. LTD., NO.10/25, PERUMAL KOIL GARDEN, 1 ST LANE, SOWCARPET, CHENNAI 600 079. VS THE ACIT, CORPORATE CIRCLE 3(1), CHENNAI 34. PAN: AAACT2310H ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI M.K. SANTHANARAMAN, CA / RESPONDENT BY : SMT. VIJAYAPRABHA, JCIT /DATE OF HEARING : 09.05.2018 /DATE OF PRONOUNCEMENT : 17.07.2018 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-11, CHENNAI DATED 29.06.2017 IN ITA NO.91/2015-16/CIT(A)-11 FOR THE ASSESSMENT YEAR 2012-13 PASSED U/S.250(6) R.W.S. 143(3) OF THE ACT. 2 ITA NO.2375/CHNY /2017 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS APPEAL HOWEVER THE CRUXES OF THE ISSUES ARE THAT:- (I) THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.8,91,300/- U/S.40(A)(IA) OF THE ACT TOWARDS NON-DEDUCTION OF TAX AT SOURCE FOR THE FOLLOWING PAYMENTS:- A) PAYMENT TO DUBAI WORLD TRADE CENTRE TOWARDS STALL RENT RS.5,68,960/- B) PAYMENT TO EXHIBIT WORLD TOWARDS STALL INSTALLATION & DISMANTLING - RS.3,22,340/- (II) THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.60,000/- BY INVOKING THE PROVISIONS OF SECTION 14A R.W.R. 8D OF THE RULES. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING FOOD FLAVOURS & VISCOSE CAPSULES, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2012-13 ON 29.09.2012 ADMITTING LOSS OF RS.62,72,364/-. INITIALLY THE RETURN WAS PROCESSED U/S.143(1) OF THE ACT AND SUBSEQUENTLY THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICE U/S.142(1) OF THE ACT WAS ISSUED ON 12.06.2014 & 29.12.2014. FINALLY ASSESSMENT ORDER WAS PASSED U/S.143(3) OF THE 3 ITA NO.2375/CHNY /2017 ACT ON 20.03.2015 WHEREIN THE LD.AO MADE ADDITION OF RS.89,845/- BY INVOKING THE PROVISIONS OF SECTION14A R.W.R. 8D OF THE RULES, RS.14,26,998/- TOWARDS DISALLOWANCE U/S.40(A)(IA) OF THE ACT AND RS.80,027/- TOWARDS PURCHASE OF CAPITAL ASSETS. 4. GROUND NO. 2(I) : SUSTAINING THE ADDITION OF RS.5,68,960/- & RS.3,22,340/- TOWARDS PAYMENT MADE TO DUBAI WORLD TRADE CENTRE AND EXHIBIT WORLD RESPECTIVELY:- THE LD.AO AS WELL AS THE LD.CIT(A) WERE OF THE OPINION THAT THE PAYMENT MADE TO DUBAI WORLD TRADE CENTRE TOWARDS STALL RENT FOR RS.5,68,960/- AND PAYMENT MADE TO EXHIBIT WORLD TOWARDS STALL INSTALLATION AND DISMANTLING FOR RS.3,22,340/- ARE IN THE NATURE OF FEE FOR TECHNICAL SERVICES, ETC., WHEREBY THE ASSESSEE IS BOUND TO DEDUCT TAX DEDUCTED AT SOURCE. THEREFORE THE LD.AO AS WELL AS THE LD.CIT(A) OPINED THAT THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT WOULD BE APPLICABLE AND ACCORDINGLY DISALLOWED THE EXPENDITURE AGGREGATING TO RS.8,91,300/-. 4.1 AT THE OUTSET WE DO NOT FIND ANY MERIT IN THE ORDERS OF THE LD.REVENUE AUTHORITIES ON THIS ISSUE. PAYMENT MADE TO DUBAI WORLD TRADE CENTRE TOWARDS STALL RENT IS NOTHING BUT FEE PAID FOR PARTICIPATION IN THE EXHIBITION ORGANIZED BY THE WORLD TRADE CENTRE 4 ITA NO.2375/CHNY /2017 IN DUBAI AND ALLOCATION OF A SPACE IN THE EXHIBITION AREA. SIMILARLY PAYMENT MADE TO M/S.EXHIBIT WORLD TOWARDS STALL INSTALLATION AND DISMANTLING IS AN AMOUNT PAID BY THE ASSESSEE ABROAD, FOR SERVICES RENDERED ABROAD. THEREFORE FOR BOTH THESE ABOVE EXPENDITURES, THE PROVISIONS OF TAX DEDUCTED AT SOURCE WILL NOT APPLY BECAUSE THE INCOME ATTRIBUTABLE TO THE AMOUNT RECEIVED BY THE RECIPIENT ABROAD IS NOT TAXABLE IN INDIA. THEREFORE WE HEREBY DIRECT THE LD.AO TO DELETE THE ADDITION MADE BY INVOKING THE PROVISIONS OF SECTION 40A(IA) OF THE ACT FOR RS.5,68,960/- AND RS.3,22,340/- BEING THE AMOUNT PAID TO DUBAI WORLD TRADE CENTRE AND EXHIBIT WORLD RESPECTIVELY. IT IS ORDERED ACCORDINGLY. 5. GROUND NO.2(II) : DISALLOWANCE U/S.14A R.W.R. 8D OF THE RULES:- THE LD.AO DISALLOWED AN AMOUNT OF RS.89,845/- INVOKING THE PROVISIONS OF SECTION 14A R.W.R.8D OF THE RULES BECAUSE THE ASSESSEE HAD INVESTED AN AMOUNT OF RS.9,25,000/- IN PARTNERSHIP FIRM EARNING AGRICULTURAL INCOME OF RS.60,000/- WHICH IS EXEMPT FROM TAX. ON APPEAL, THE LD.CIT(A) RESTRICTED THE DISALLOWANCE TO RS.60,000/- BY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT WHEREIN IT WAS HELD THAT THE DISALLOWANCE U/S.14A OF THE ACT CANNOT EXCEED THE EXEMPT INCOME. 5 ITA NO.2375/CHNY /2017 5.1 AT THE OUTSET WE DO NOT AGREE WITH THE FINDING OF THE LD.AO BECAUSE HE HAS NOT MADE ANY FINDING FROM THE STATEMENT OF ACCOUNTS SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE HAD INCURRED EXPENDITURE TOWARDS EARNING EXEMPT INCOME SPECIFICALLY WHEN THE ASSESSEE HAD CLAIMED BEFORE THE LD.REVENUE AUTHORITIES THAT HE HAD NOT INCURRED ANY EXPENDITURE FOR EARNING AGRICULTURAL INCOME AND ANY SUCH EXPENDITURE WAS ABSORBED WHILE ARRIVING AT THE AGRICULTURAL INCOME. FURTHER THE LD.REVENUE AUTHORITIES HAD NOT MADE ANY CONTRARY FINDING. HENCE THE ORDER OF THE LD.CIT(A) IN SUSTAINING THE ADDITION OF RS.60,000/- IS ALSO ERRONEOUS. THEREFORE WE HEREBY DIRECT THE LD.AO TO DELETE THE ADDITION MADE BY INVOKING THE PROVISIONS OF SECTION 14A R.W.R. 8D OF THE RULES. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 17 TH JULY, 2018 AT CHENNAI. SD/- SD/- ( . ) ( . ) ( DUVVURU RL REDDY ) ( A. MOHAN ALANKAMONY ) /JUDICIAL MEMBER / ACCOUNTANT MEMBER /CHENNAI, /DATED 17 TH JULY, 2018 6 ITA NO.2375/CHNY /2017 RSR /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. ( )/CIT(A) 4. /CIT 5. /DR 6. /GF