M/s. Simpson & General Finance Co. Ltd., CHENNAI V. ACIT, CHENNAI

ITA 2470/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7759 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 24-08-2016
• Court: TRIBUNAL
• Department Lawyers: H KABILA JCIT
• Keywords: Capital asset; Depreciation
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . , ' # BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO. 2470/MDS/2016 / ASSESSMENT YEAR : 2011-12 M/S. SIMPSON & GENERAL FINANCE CO LTD., NO. 861/862, ANNA SALAI, CHENNAI - 600 002. [PAN: AABCS 1868A] VS. THE ASST. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE -6(2), CHENNAI. ( / APPELLANT) ( / RESPONDENT) % & / APPELLANT BY : SHRI SAROJ KUMAR PARIDA, ADVOCATE )*% & / RESPONDENT BY : SHRI H. KABILA, JCIT & /DATE OF HEARING : 28.11.2016 & /DATE OF PRONOUNCEMENT : 23.02.2017 /O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: THE ASSESSEE FILED AN APPEAL AGAINST THE ORDER O F COMMISSIONER OF INCOME TAX (APPEALS) -15, CHENNAI IN ITA NO. 560/CI T(A)-15/2013-14 DATED 23.05.2016 PASSED U/S. 143(3) AND 250 OF THE INCOME TAX ACT. :-2-: I.T.A. NO. 2470/MDS/2016 2. THE ASSESSEE HAS RAISED TWO SUBSTANTIVE GROUNDS: 2.1 THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDI TION OF PRINCIPAL PORTION OF LEASE RENT AS INCOME OF THE APPELLANT. 2.2 THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOW ANCE OF EXPENDITURE RELATING TO EARNING THE DIVIDEND IN ACCORDANCE WIT H RULE 8D. IN RESPECT OF THE FACTS THAT THE INVESTMENT WERE MADE OUT OF EXPENDITURE AND COULD BE DEDUCTED FROM TAX. 3. THE BRIEF FACTS OF THE CASE THAT THE ASSESSEE I S A NON-BANKING FINANCIAL COMPANY ENGAGING IN BUSINESS OF BILL DISCOUNTING, H IRE PURCHASE AND LEASING, MUTUAL FUNDS AND INSURANCE AGENCY AND FILED THE RET URN OF INCOME FOR THE ASSESSMENT YEAR 2011-12 ON 26.09.2011 WITH TOTAL IN COME OF RS. 1,18,80,275/- , WHICH WAS PROCESSED U/S. 143(1). SUBSEQUENTLY, NOT ICE U/S. 143(2) OF THE ACT WAS ISSUED. IN COMPLIANCE TO THE NOTICE, THE LD. A R APPEARED FROM TIME TO TIME AND FILED THE DETAILS. THE ASSESSING OFFICER ON A PERUSAL OF THE FINANCIAL STATEMENTS, FOUND THAT THE ASSESSEE HAS INCOME FROM LEASE INCOME AND CERTAIN SPECIFIC DETAILS WERE CALLED FOR. THE ASSESSEE FILE D DETAILS WITH THE TOTAL LEASE RENT RECEIVED RS. 13,58,286/-, OF WHICH ONLY RS. 1,85,99 0/- HAD BEEN OFFERED IN THE PROFIT AND LOSS ACCOUNT AND THE BALANCE RS. 11,72,2 96/- CONSIDERED AS PRINCIPAL, TAKEN IN THE BALANCE SHEET. THE ASSESSEE, IN COMPLI ANCE TO THE SHOW CAUSE NOTICE AS TO WHY ONLY INTEREST WAS OFFERED AND NOT THE PRI NCIPAL, EXPLAINED OF FOLLOWING ACCOUNTING STANDARD-19 OF ICAI. HENCE, THE PRINCIPA L PORTION WAS NOT TAXABLE AND IT HAD NOT CLAIMED ANY DEPRECIATION IN THE BOOKS OF ACCOUNTS AND NO ADJUSTMENT :-3-: I.T.A. NO. 2470/MDS/2016 WAS MADE TO RENTAL INCOME ON LEASED ASSET/S FOR INC OME TAX PURPOSES. BUT THE LD. AO IS OF THE OPINION THAT THE SYSTEM OF ACCOUNT S IS NOT IN ACCORDANCE WITH LAW AND THE ASSESSEE HAS TO OFFER THE ENTIRE LEASE RENT , I.E., BOTH PRINCIPAL AND INTEREST, BECAUSE THE LEASED ASSET IS TREATED AS A CAPITAL ASSET. WITH THESE FINDINGS, THE LD. AO ADDED THE DIFFERENCE AMOUNT OF RS. 11,72,296/- TO THE TOTAL INCOME OF THE ASSESSEE. 4. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN A PPEAL WITH THE CIT(A). THE LD. CIT(A) CONSIDERED THE FINDINGS OF THE SUBMI SSIONS AND DISCUSSED AT PAGE 3 OF HIS ORDER, AND THE JURISDICTIONAL HIGH COURT D ECISION IN APPELLANT'S OWN CASE IN TC APPEALS 124 TO 130/2014 FOR THE ASSESSMENT YE AR 2002-03 TO 2008-09, WHERE THE LORDSHIP HAVE DISMISSED THE TAX APPEALS A ND THE SAME IS BINDING ON THE ASSESSEE AND CIT(A) HAS DISMISSED THE ASSESSEE 'S GROUND AGGRIEVED BY THE ORDER, ASSESSEE FILED APPEAL BEFORE THE TRIBUNA L. BEFORE US, LD. AR ARGUED THE GROUNDS AND ON THE ACCOUNTING ASPECTS AND AS -1 9. WE FIND THE ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE AND UPHOLD TH E ORDER OF THE CIT(A). 5. IN THE SECOND GROUND, THE LD. AO FOUND THAT THE ASSESSEE COMPANY HAS DIVIDEND INCOME OF INVESTMENT RS. 6,03,575/-AND CLAIMED EXEMPTION U/S. 10(34)OF THE ACT. BUT THE ASSESSEE HAS NOT DISALLOW ED THE PROPORTIONATE EXPENDITURE U/S. 14A OF THE ACT AND FILED SUBMISSIO NS IN LETTER DATED 02.12.2013 AND EXPLAINED THAT THE COMPANY HAS NOT INCURRED ANY EXPENDITURE OR OTHER CHARGES TO EARN THE DIVIDEND AND ALSO THE INVESTMEN TS ARE MADE 20 YEARS BACK. :-4-: I.T.A. NO. 2470/MDS/2016 THE LD. AO CONSIDERED THE SUBMISSIONS AND THE PROVI SIONS APPLICABLE UNDER RULE 8D AND RELIED ON THE DECISION OF SUPREME COURT IN T HE CASE OF CIT VS. WALFORT SHARE AND STOCK PRIVATE LIMITED 41 DTR 233 DATED 06 .07.2010. THE LD. AO APPLIED THE PROVISIONS U/S. 14A OF THE ACT AND WOR KED OUT DISALLOWANCE R.W.R. 8D(2)(III) AND RELIED ON THE DECISIONS REFERRED AT PAGE 4 OF HIS ORDER. IN APPEAL, THE LD. CIT(A) RELIED ON THE DECISION OF THE TRIBU NAL IN THE CASE OF SIVA INDUSTRIES & HOLDING LTD. VS ACIT IN 54 SOT 49, CHENNAI THAT EVEN IN A YEAR WHERE NO EXEMPTED INCOME WAS EARNED DISALLOWANCE U /S. 14A SHALL APPLY. 6. BEFORE US, THE LD. AR SUBMITTED THAT THE COMPAN Y HAS NOT INCURRED ANY EXPENDITURE TO EARN DIVIDEND INCOME AND THESE I NVESTMENTS ARE MADE MORE THAN 20 YEARS BACK AND THE ASSESSING OFFICER HAS ER RED IN CALCULATING THE DISALLOWANCE U/S. 14A R.W.R. 8D RS. 1,55,880/- THO UGH THESE INVESTMENTS WERE MADE BY THE ASSESSEE OUT OF THE SHARE CAPITAL AND SUPPORTED HIS ARGUMENTS WITH THE DECISIONS OF HONBLE P & H HIGH COURT, CIT V. HERO CYCLES LTD ., 323 ITR 518 AND DELHI TRIBUNAL DECISION IN THE CASE OF ACIT V. SUN INVESTMENTS 8 ITR 33. FURTHER, THERE IS NO INCREASE IN INVESTMENT IN COMP ARISON TO THE EARLIER YEAR AS ON 31.03.2010 AND 31.03.2011 AND PRAYED FOR ALLOWIN G THE APPEAL. CONTRA, THE LD. DR RELIED ON THE ORDERS OF THE LOWER AUTHORITIE S AND OPPOSED THE GROUNDS. 7. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MAT ERIAL ON RECORD AND JUDICIAL DECISIONS CITED. THE LD. AR'S CONTENTION THAT THE ASSESSEE HAS RECEIVED DIVIDEND INCOME WITHOUT INCURRING ANY EXPENDITURE A ND SINCE NO EXPENDITURE HAS :-5-: I.T.A. NO. 2470/MDS/2016 INCURRED AND DISALLOWANCE IS NOT WARRANTED. WHEREA S LD AO HAS WORKED OUT THE DISALLOWANCE AT RS. 1,55,880/-. 8. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI AL ON RECORD. THE EXPENDITURE INCURRED, AND WHICH MAY THEREFORE BE DI SALLOWED U/S. 14A R/W R. 8D, IS DIRECT OR INDIRECT EXPENDITURE. THE ASSESSEE'S A RGUMENT OF THE INVESTMENTS BEING MADE MUCH EARLIER TO THE CURRENT YEAR, HAS IM PLICATION ONLY WITH REGARD TO THEIR FINANCING COST, I.E., INTEREST EXPENDITURE, D IRECT OR INDIRECT, OR EVEN PARTLY EACH. THAT IS, IT HAS NO BEARING TO THE INDIRECT, A DMINISTRATIVE EXPENDITURE, WHICH IS LIABLE TO BE DISALLOWED FOLLOWING ESTIMATION UND ER RULE 8D(2)(III). THIS IS AS THE SAME IS IN THE NATURE OF MAINTENANCE EXPENDITURE, W HICH IS INCURRED FROM YEAR AND YEAR, IRRESPECTIVE OF THE DATE OF THE ACQUISITI ON OF THE RELEVANT CAPITAL ASSET. THERE IS NO MATERIAL ADDUCED AT ANY STAGE, MUCH LES S WITH REFERENCE TO THE ACCOUNTS, TO INDICATE, EVEN PRIMA FACIE , OF NO SUCH EXPENDITURE HAVING BEING INCURRED. ITS DISALLOWANCE IS THEREFORE CONFIRMED. AS REGARDS THE INTEREST COST, WE CONSIDER IT PROPER THAT THE MATTER IS RESTORED TO T HE FILE OF THE AO TO ALLOW THE ASSESSEE AN OPPORTUNITY TO PRESENT ITS CASE OF NO I NTEREST EXPENDITURE HAVING BEING INCURRED DURING THE YEAR BEFORE HIM. THE AO S HALL ADJUDICATE ISSUING DEFINITE FINDINGS OF FACT. WE DECIDE ACCORDINGLY. :-6-: I.T.A. NO. 2470/MDS/2016 9. IN THE RESULT, THE ASSESSEE APPEAL IS PARTLY AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THURSDAY, THE 23RD DAY OF FEBRU ARY, 2017 AT CHENNAI. SD/ - ( ) (SANJAY ARORA) / ACCOUNTANT MEMBER SD/ - ( . ) (G. PAVAN KUMAR) $ /JUDICIAL MEMBER /CHENNAI, / /DATED: 23RD FEBRUARY, 2017 JPV & )'12 32 /COPY TO: 1. % / APPELLANT 2. )*% /RESPONDENT 3. 4 ( )/CIT(A) 4. 4 /CIT 5. 2 )'' /DR 6. 8 /GF