DCIT Corporate Circle 3(1), CHENNAI V. TTK Protective Devices Limited, CHENNAI

ITA 2405/CHNY/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5111 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 23-04-2018
• Assessment Year: 2012-2013
• Appeal Filed On: 29-09-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Keywords: Opportunity of being heard; Earning of tax free income; Revenue expenditure
• Section: 14A

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . , . , BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I T.A. NO. 2405 / CHNY /201 7 / ASSESSMENT YEAR :20 1 2 - 1 3 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 3 (1) , NEW BLOCK, 4 TH FLOOR, 121, MAHATMA GANDHI ROAD, NUNGAMBAKKAM, C HENNAI 600 034 . VS. M/S. TTK PROTECTIVE DEVICES LIMITED, NO. 6, CATHEDRAL ROAD, CHENNAI 600 08 6 . [PAN:A A B CT1184G ] ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : MS. S. VIJAYAPRABHA, J CIT / RESPONDENT BY : SHRI SAROJ KUMAR PARIDA, ADVOCATE / DATE OF HEARING : 23 . 0 4 .201 8 / DATE OF P RONOUNCEMENT : 25 . 0 5 .201 8 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 11 , C HENNAI DATED 29 .0 6 .201 7 RELEVANT TO THE ASSESSMENT YEAR 20 1 2 - 1 3 . THE FIRST GROUND RAISED IN THE APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT]. 2. IT WAS THE SUBMISSIONS OF THE LD. DR THAT THE ASSESSEE HAS DECLARED I.T.A. NO . 2 4 05 / CHNY / 17 2 AN EXEMPTED INCOME OF .1,27,86,611/ - FROM INVESTMENTS IN MUTUAL FUNDS UNDER SECTION 10(35) OF THE ACT. IT WAS THE SUBMISSION THAT THE PROVISIONS OF RULE 8D DOES NOT DIFFERENTIATE BETWEEN INVESTMENTS IN SUBSIDIARY/JOINT VENTURE COMPANIES WITH OTHER INVESTMENTS AND THE WORD USED IN THE RULE IS ONLY VALUE OF INVESTMENT AND THEREFORE, THE LD. DR ARGUED THAT THE INVESTMENT IN SUBSIDIARY COMPANY SHALL BE INCLUDED FOR CALCULATION OF DISALLOWANCE UNDER RULE 8D(2). IT WAS FURTHER SUBMISSION THAT THE ASSESSEE MADE INVESTMENTS FROM THE FUNDS AVAILABLE IN THE COMMON KITTY AND THUS, THE ASSESSING OFFICER WAS BOUND TO INVOKE RULE 8D INCLUDING ALL INVESTMENTS FOR CALCULATION OF DISALLOWANCE UNDER SECTION 14A OF THE ACT AND PLEADED FOR RESTORATION OF ASSESSMENT ORDER ON THIS ISSUE. 3. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE MADE INVESTMENTS IN ITS SUBSIDIARY COMPANIES FOR STRATEGIC BUSINESS EXIGENCY AND THUS, THE LD. CIT(A) HAS RIGHTLY FOLLOWED THE DECISION IN THE CASE OF REDINGTON INDIA LTD. V. ADDL. CIT IN TCA NO. 520/2016 DATED 23.12.2016 AND PRAYED FOR ITS CONFIRMATION. 4. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN THIS CASE, THE INVESTMENT PORTFOLIO OF THE ASSESSEE AS ON 31. 03.2012 STOOD AT AN AGGREGATE VALUE OF .19,67,40,245/ - . IN THE STATEMENT OF INCOME, T HE ASSESSEE QUANTIFIED THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D(2)(III) AT I.T.A. NO . 2 4 05 / CHNY / 17 3 .3,75,433/ - . IN THE ASSESSMENT ORDER, I T WAS THE OBSERVATIONS OF THE ASSESSING OFFICER THAT EVEN THOUGH THERE WAS NO EXEMPT INCOME EARNED DURING THE YEAR, SECTION 14A COULD BE INVOKED. THUS, IT APPEARS THAT THE ASSESSEE HAS NOT DECLARED ANY EXEMPT INCOME EARNED OUT OF THE INVESTMENTS OR THE ASSESSING OFFICER COULD FOUND ANY EXEMPT INCOME EAR NED BY THE ASSESSEE, BECAUSE THERE IS NO MENTION IN THE ASSESSMENT ORDER AS TO WHAT IS THE EXEMPT INCOME EARNED BY THE ASSESSEE. SINCE THERE WAS NO EXEMPT INCOME AND THEREBY NO DISALLOWANCE COULD BE MADE IN VIEW OF THE DECISION IN THE CASE REDINGTON INDIA LTD. V. ADDL. CIT (SUPRA), THE LD. CIT(A) DELETED THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. BY REFERRING TO THE GROUNDS OF APPEAL, BEFORE US, THE LD. DR SUBMITTED THAT THE ASSESSEE HAS DECLARED AN EXEMPTED INCOME OF .1,27,86,611/ - FROM INVESTMEN TS IN MUTUAL FUNDS UNDER SECTION 10(35) OF THE ACT. UNDER THE ABOVE FACTS AND CIRCUMSTANCES, WE DIRECT THE ASSESSING OFFICER TO EXAMINE THE ISSUE ONCE AGAIN AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER ALLOWING AN OPPORTUNITY OF BEING HEARD TO THE ASS ESSEE. THUS, THE GROUND RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 5. THE NEXT GROUNDS RAISED IN THE APPEAL OF THE REVENUE ARE THAT THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE EXPENDITURE INCURRED TOWARDS PAYMENT OF LOGO CHARGES AND EXPE NDITURE INCURRED TOWARDS PAYMENT OF ROYALTY WERE REVENUE IN NATURE AND DELETING THE DISALLOWANCE. I.T.A. NO . 2 4 05 / CHNY / 17 4 6. WITH REGARD TO THE ABOVE DISALLOWANCES, IT WAS THE SUBMISSION OF THE LD. DR THAT THE EXPENDITURE INCURRED WITH A VIEW TO BRING INTO EXISTENCE AN ADVANTAGE FOR THE ENDURING BENEFIT OF A TRADE AS EVIDENT FROM PARA 2 OF THE AGREEMENT BETWEEN THE ASSESSEE COMPANY AND M/S. TT KRISHNAMACHRI & CO. LIMITED SHOULD BE HELD AS CAPITAL IN NATURE. IT WAS FURTHER SUBMISSION THAT AGAINST THE ORDER OF THE TRIBUNAL IN ASSES SEE S OWN CASE IN ASSESSMENT YEAR 2001 - 02, THE DEPARTMENT PREFERRED FURTHER APPEAL BEFORE THE HON BLE HIGH COURT AND TO KEEP THE ISSUE ALIVE, THE ORDER OF THE LD. CIT(A) SHOULD BE REVERSED AND RESTORED THAT OF THE ASSESSING OFFICER. 7. ON THE OTHER HAN D, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT BOTH THE ISSUES INVOLVED IN THIS APPEAL ARE SQUARELY COVERED IN FAVOUR OF THE ASSESSEE IN VIEW OF THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR THE ASSESSMENT YEAR 2001 - 02. 8. WE HAV E CONSIDERED THE RIVAL CONTENTIONS. WITH REGARD TO THE DISALLOWANCE OF EXPENDITURE INCURRED TOWARDS LOGO CHARGES AS WELL AS EXPENDITURE INCURRED TOWARDS PAYMENT OF ROYALTY, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO ALLOW BOTH THE CLAIMS AS REVENUE E XPENDITURE BY FOLLOWING THE DECISION OF THE COORDINATE BENCHES OF THE TRIBUNAL IN ASSESSEE S OWN CASE IN I.T.A. NOS. 1826 TO 1830/MDS/2011, 2027/MDS/2011 DATED 31.10.2012 AND I.T.A. NOS. 1587 TO 1589/MDS/2015 DATED 13.11.2015, WHEREIN, IT WAS HELD THAT THE EXPENDITURE INCURRED TOWARDS LOGO CHARGES AS I.T.A. NO . 2 4 05 / CHNY / 17 5 WELL AS PAYMENT OF ROYALTY ARE ALLOWABLE AS REVENUE EXPENDITURE. JUST BECAUSE THE DEPARTMENT PREFERRED FURTHER APPEAL, WE CANNOT TAKE DIFFERENT VIEW UNTIL AND UNLESS THE DECISION OF THE TRIBUNAL IS REVERSED AND MODIFIED. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUES AND ACCORDINGLY, BOTH THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 9 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED ON THE 25 TH MAY, 2018 AT CHENNAI. SD/ - SD/ - (A. MOHAN ALANKAMONY ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 25 . 0 5 .201 8 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.