DCIT, Madurai V. M/s. V.T.M. Limited, Virudhunagar

ITA 2431/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8016 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2017
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 22-08-2016
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Assessee Lawyers: R SRINIVASAN
• Keywords: Depreciation
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . , ' # BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO. 2431/MDS/2016 / ASSESSMENT YEAR : 2012-13 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE - 2, MADURAI. VS. M/S. VTM LIMITED, SULAKARAI, VIRUDHUNAGAR - 626 003. [PAN: AAACV 3775E] ( / APPELLANT) ( / RESPONDENT) % & / APPELLANT BY : SHRI SHIVA SRINIVAS, JCIT )*% & / RESPONDENT BY : SHRI R. SRINIVASAN, ADVOCATE & /DATE OF HEARING : 22.11.2016 & /DATE OF PRONOUNCEMENT : 24.01.2017 /O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: THE APPEAL OF THE REVENUE IS DIRECTED AGAINST ORDE R OF THE COMMISSIONER OF INCOME TAX (APPEALS)-1, MADURAI IN ITA NO. 0050/2015-16, :-2-: I.T.A. NO. 2431/MDS/2016 DATED 25.04.2016 FOR THE ASSESSMENT YEAR 2012-13 PA SSED U/S. 143(3) AND 250 OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFER RED TO AS 'THE ACT'). 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 2.1 THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ER RED IN DELETING THE DISALLOWANCE MADE U/S. 14A ON THE GROUND THAT BORROWED FUNDS WERE NOT UTILIZED FOR THE PURPOSE OF INVESTMENT IN SHARES, WITHOUT BRINGING FACTS ON RECORD TO CONCLUSIVELY PROVE THA T ONLY OWN FUNDS WERE UTILIZED FOR PURCHASE OF SHARES 2.2 THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE SEEN THE ADDITION ON ACCOUNT OF DISALLOWANCE U/S. 14A HAS B EEN MADE AS PER THE RULE 8 D OF THE IT RULES. 2.3 THE CIT(A), HAS ERRED IN HOLDING THAT THE CLAIM UNDER SECTION 80IA IS TO BE GRANTED WITHOUT SETTING OFF OF THE LOSSES OF THE EARLIER YEARS. 2.4 THE CIT(A) HAS ERRED IN NOT CONSIDERING THAT FA CT THAT PROVISIONS OF SECTION 80IA(5) WHICH SPELLS OUT METHOD OF COMPUTI NG DEDUCTION U/S. 80IA SAYS THAT PROFITS AND GAINS OF ELIGIBLE BUSINESS TO WHICH PROVISIONS OF SECTION 80IA APPLIES TO THE COMPUTAT ION AS IF SUCH ELIGIBLE BUSINESS WERE THE ONLY SOURCE OF INCOME O F THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR. 2.5 THE DECISION OF THE JURISDICTIONAL HIGH COURT I N THE CASE OF M/S. VELAYUDHASAMY SPINNING MILLS LTD., VS ACIT (340 IT R 477) FOR THE :-3-: I.T.A. NO. 2431/MDS/2016 ASSESSMENT YEAR 2007-08 RELIED ON BY THE CIT(A) HA S NOT BECOME FINAL AND SLP IS PENDING BEFORE HON'BLE SUPREME CO URT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY ENGAGED IN MANUFACTURING OF COTTON FABRICATIONS AND FILED R ETURN OF INCOME ON 20.09.2012 WITH TOTAL INCOME OF RS. 6,28,63,700/- A ND THE RETURN OF INCOME WAS PROCESSED U/S. 143(1) OF THE ACT. SUBSEQUENTLY , THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICE U/S. 143(2) OF T HE ACT WAS ISSUED. THE LD. AR OF ASSESSEE APPEARED FROM TIME TO TIME AND FILED DETAILS. THE LD. AO ON PERUSAL OF THE FINANCIAL STATEMENTS FOUND THAT ASSE SSEE COMPANY RECEIVED DIVIDEND INCOME OF RS. 17,60,429/- ON INVESTMENTS A ND UNDER THE PROVISIONS OF SECTION 14A OF THE ACT AND NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO SUCH EXEMPTED I NCOME ON INVESTMENTS WHICH DOES NOT FORM PART OF TOTAL INCOME. IN THE F INANCIAL YEAR 2011-12, THE ASSESSEE COMPANY CLAIMED INTEREST ON BORROWED FUNDS RS. 11,81,779/- AND LD. AR EXPLAINED THAT BORROWED FUNDS WERE NOT UTILI ZED FOR INVESTMENT PURPOSE AND NO PORTION OF INTEREST ON BORROWED CAPI TAL PERTAINS TO SUCH INVESTMENTS. FURTHER, THE INVESTMENTS IN SHARES AN D MUTUAL FUNDS ARE MADE ON THE DECISIONS OF BOARD OF DIRECTORS OF THE COMPA NY AND DIVIDEND INCOME IS RECEIVED WITHOUT INCURRING ANY EXPENDITURE AND ALSO NO EXPENDITURE IN THE NATURE OF ADMINISTRATION OVERHEADS ARE CHARGED. TH E LD. AO HAVING NOT SATISFIED WITH SUBMISSIONS OF LD. AR CALCULATED DIS ALLOWANCE U/S. 14A R.W.R. :-4-: I.T.A. NO. 2431/MDS/2016 8D(II) & (III) RS. 1,13,126/- AND WITH OTHER ADDITI ONS PASSED ORDER U/S. 143(3) OF THE ACT DATED 31.03.2015. AGGRIEVED BY THE ORDE R, THE ASSESSEE FILED AN APPEAL BEFORE COMMISSIONER OF INCOME TAX (APPEALS). 4. IN THE APPELLATE PROCEEDINGS, THE LD. AR ARGUED THE GROUND AND EXPLAINED THAT NO BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF INVESTMENTS. THE LD. COMMISSIONER OF INCOME TAX (A PPEALS) CONSIDERED THE GROUNDS AND SUBMISSIONS AND FINDINGS OF THE LD. AO AND CAME TO A CONCLUSION THAT EXEMPTED INCOME WAS RECEIVED BY THE ASSESSEE. THE LD. CIT(A) ALSO FOUND THAT THE ASSESSING OFFICER HAS NOT RECORDED A NY SATISFACTION ON DISALLOWANCE U/S. 14A IN SPITE OF ASSESSEE COMPANY HAVING ADEQUATE FUNDS AND THE INVESTMENTS IN SHARES IS ONLY RS. 336.96 LA KHS AS AGAINST OWN FUNDS OF RS. 19055.86 LAKHS AND ASSUMED THAT THE BORROWED FUNDS COULD NOT BE UTILIZED FOR INVESTMENT IN SHARES AND DELETED THE D ISALLOWANCE AND PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY T HE COMMISSIONER OF INCOME TAX (APPEALS) ORDER, THE REVENUE HAS ASSAILE D AN APPEAL BEFORE TRIBUNAL. 5. BEFORE US, THE LD. DR ARGUED THAT THE CIT(A) ERR ED IN DELETING THE DISALLOWANCE WITHOUT CONSIDERING ANY PROOF OF FACTS THAT ONLY OWN FUNDS ARE UTILIZED FOR INVESTMENTS AND DISALLOWANCE U/S. 14A R.W.R. 8D ARE APPLICABLE TO :-5-: I.T.A. NO. 2431/MDS/2016 ASSESSEE AND PRAYED FOR ALLOWING THE APPEAL. CONTRA , THE LD. AR RELIED ON THE ORDERS OF THE LD. CIT(A) AND VEHEMENTLY OPPOSED TO THE GROUNDS. 6. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATE RIAL ON RECORD AND JUDICIAL DECISIONS CITED. THE LD. DR ARGUED ON THE APPLICABILITY OF PROVISIONS OF SECTION 14A AND RULE 8D (II) & (III) AND CBDT CIRCU LAR , WHEREAS, THE LD. AR CONTENTION THAT THE ASSESSEE COMPANY MADE INVESTMEN TS OUT OF FUNDS GENERATED IN THE BUSINESS AND THE LOANS OBTAINED WE RE NOT UTILIZED FOR THE PURPOSE OF INVESTMENTS AND THE ASSESSEE COMPANY HAS CLAIMED INTEREST CHARGES IN PROFIT AND LOSS ACCOUNT ON BORROWED FUND S ONLY. THE LD. AR EMPHASIZED THAT THE INVESTMENTS MADE OUT OF INTERNA L ACCRUALS OF BUSINESS OPERATIONS AND OWN FUNDS AND FURTHER SUPPORTED WITH CERTIFICATE OF NET SURPLUS. BUT BEFORE US, THE ASSESSEE COMPANY COULD NOT SUBSTANTIATE THE INVESTMENTS WITH CASH FLOW STATEMENT AND BANK ACCOU NT. THE LD. AO HAS RELIED ON PROVISIONS OF SECTION 14A R.W.R. 8D(II) & (III) AND CALCULATED DISALLOWANCE. CONSIDERING THE APPARENT FACTS AND M ATERIAL ON RECORD, WE REMIT THE DISPUTED ISSUE TO THE FILE OF LD. AO TO V ERIFY WHETHER BORROWED FUNDS ARE UTILIZED FOR THE PURPOSE OF INVESTMENTS AND EXP ENDITURE RELATED TO SUCH INVESTMENTS ARE NOT CHARGED TO PROFIT AND LOSS ACCO UNT AND THEN CALCULATE THE DISALLOWANCE U/S.14A R.W.RULE 8D AND THE ASSESSEE S HALL BE PROVIDED ADEQUATE OPPORTUNITY OF HEARING BEFORE PASSING THE ORDER. THE GROUND OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. :-6-: I.T.A. NO. 2431/MDS/2016 7. THE SECOND GROUND RAISED BY THE REVENUE ON THE D EDUCTION U/S. 80IA OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT ') IN RESPECT OF WINDMILLS. THE LD. AO, RELYING ON PROVISIONS OF SECTION 80IA(5 ) OF THE ACT DENIED THE ASSESSEE DEDUCTION U/S. 80IA, CLAIMED AT RS. 5,01,5 6,020/-, BY NOTIONALLY BRINGING FORWARD AND SETTING OFF LOSS OF THE ELIGIB LE BUSINESS OF THE EARLIER YEARS AND WINDMILLS A SEPARATE UNIT HAS NO POSITIVE INCOME CONSIDERING THE DEPRECIATION FROM THE YEAR OF INSTALLATION. THIS I SSUE, EVEN AS ADMITTED BY THE PARTIES BEFORE US, IS SQUARELY COVERED BY THE DECIS ION BY THE HON'BLE JURISDICTIONAL HIGH COURT IN M/S. SRI VELAYUDHASWAM Y SPINNING MILLS PVT. LTD., VS. CIT (231 ITR 368). THE HON'BLE COURT HAS THERE IN CLARIFIED, THAT NOTWITHSTANDING PROVISIONS OF SECTION 80IA(5), SUCH LOSSES, ALREADY SET OFF, CANNOT BE NOTIONALLY BROUGHT FORWARD AND ADJUSTED F OR COMPUTING DEDUCTION U/S. 80IA OF THE ACT. FURTHER, THE REVENUE HAS NOT ACCEPTED THE JUDGMENT OF MADRAS HIGH COURT AND FILED SPECIAL LEAVE PETITION (SLP) IN THE HON'BLE SUPREME COURT. THE LD. COUNSEL OF THE ASSESSEE SUB MITTED THAT THE HON'BLE SUPREME COURT IN CIVIL APPEAL NO. 2596/2012 HAS DIS MISSED THE SPECIAL LEAVE PETITION FILED BY THE REVENUE IN ORDERS DATED 23.09 .2016. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT SINCE SP ECIAL LEAVE PETITION FILED BEFORE THE APEX COURT IS DISMISSED. THE JUDGMENT O F MADRAS HIGH COURT IS BINDING ON ALL THE AUTHORITIES IN THE STATE OF TAMI L NADU AND UNION TERRITORY OF PONDICHERRY. THEREFORE, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS :-7-: I.T.A. NO. 2431/MDS/2016 RIGHTLY ALLOWED THE CLAIM OF THE ASSESSEE BY FOLLOW ING THE JUDGMENT OF MADRAS HIGH COURT IN VELAYUDHASWAMY SPINNING MILLS (P) LTD ., (SUPRA). ACCORDINGLY, THE TRIBUNAL DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND UPHELD THE CIT(A) ORDER ON THIS GROUND AND DISMISS THE GROUND OF THE REVENUE. 8. IN THE RESULT, THE REVENUE APPEAL FOR THE ASSE SSMENT YEAR 2012- 13 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON TUESDAY, THE 24TH DAY OF JANUAR Y, 2017 AT CHENNAI. S D / - ( ) (SANJAY ARORA) / ACCOUNTANT MEMBER S D / - ( . ) (G. PAVAN KUMAR) $ /JUDICIAL MEMBER /CHENNAI, / /DATED: 24TH JANUARY, 2017 JPV & )'12 32 /COPY TO: 1. APPELLANT 2. )*% /RESPONDENT 3. 4 ( )/CIT(A) 4. 4 /CIT 5. 2 )'' /DR 6. 8 /GF