Appeal Details
Counselvise Citation
[2017] 130 COUNSELVISE.COM (IT) 7990 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
5 month(s) 7 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
03-02-2017
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
A
Assessment Year
2012-2013
Appeal Filed On
26-08-2016
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A, CHENNAI , ! ' . ' $ %, & ! %' BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ ITA NO.2475/MDS/2016 & ) '*) / ASSESSMENT YEAR : 2012-13 DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-2(1), CHENNAI 600 034. (,-/ APPELLANT ) VS. GALFAR ENGINEERING & CONTRACTING INDIA PVT. LTD., NO.154, VELACHERY MAIN ROAD, CHENNAI 600 042. [PAN: AADCG 4274G ] (./,-/ RESPONDENT) ,- 0 1 / APPELLANT BY : SHRI H.KABILA, JT. CIT ./,- 0 1 /RESPONDENT BY : SHRI G.SRIKANTH, C.A $ ' 0 2 /DATE OF HEARING : 30.11.2016 3* 0 2 /DATE OF PRONOUNCEMENT : 03.02.2017 / O R D E R PER SANJAY ARORA, AM : THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST T HE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-6, CHENNAI (CI T(A) FOR SHORT) DATED 27.06.2016, ALLOWING THE ASSESSEES APPEAL CONTESTI NG ITS ASSESSMENT U/S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) DAT ED 20.03.2015 FOR ASSESSMENT YEAR (AY) 2012-13. 2 ITA NO.2435 /MDS/2016 (AY 2012-13) DY. CIT V. GALFAR E NGINEERING & CONTRACTING INDIA PVT. LTD. 2. THE ISSUE ARISING IN THE INSTANT APPEAL IS THE SU STAINABILITY OR OTHERWISE IN LAW OF THE DISALLOWANCE U/S. 14A OF THE ACT, EFFECTED B Y THE ASSESSING OFFICER (AO) IN THE SUM OF . 36,66,350/- APPLYING R. 8D OF THE INCOME TAX RULE S, 1962 (THE RULES), SINCE DELETED BY THE LD. CIT(A). IT MAY BE NECESSARY TO STATE THE BACK- GROUND FACTS OF THE CASE. THE ASSESSEE-COMPANY IS I N THE BUSINESS OF CONSTRUCTIONS OF ROADS UNDER PROJECTS CONCEIVED BY THE STATE ROAD DEVELOPMENT CORPORATIONS (SRDCS) AND NATIONAL HIGHWAY AUTHORITY OF INDIA (NHAI). IT, ALONG WITH OTHER STAKEHOLDERS, LIKE ITSELF, FORMS S PECIAL PURPOSE VEHICLES (SPVS) TO BID FOR AND OBTAIN CONTRACTS FOR THE DEVE LOPMENT AND MAINTENANCE OF ROADS IN THE COUNTRY. ON THE STRENGTH OF THEIR EQUI TY, THE SPVS TIE FOR FACILITIES FROM VARIOUS SOURCES TO FUND THE DEVELOPMENT OF THE ROAD PROJECTS. THE ASSESSEE, BEING A SHAREHOLDER, IS A NOMINATED CONTR ACTOR TO EXECUTE THE PROJECTS AWARDED TO THE SPVS. THE ASSESSEE-RESPONDENT HAS AC CORDINGLY EXECUTED PROJECTS SECURED BY THE SPVS, INCOME FROM WHICH FOR MS PART OF ITS TOTAL INCOME AS BUSINESS INCOME. THE ASSESSEES CLAIM IS THAT IT S BUSINESS AND THAT OF THE SPVS IS INTERDEPENDENT, SO THAT THE INVESTMENT (BY WAY OF SHARES) IN SPVS SHALL NOT ATTRACT DISALLOWANCE U/S. 14A, WHICH IS ONLY IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO INCOME NOT FORMING PART OF THE TOTAL INCOME. IT HAS NOT RECEIVED ANY DIVIDEND INCOME DURING THE YEAR, NOR I N FACT ANY TO DATE (AS INFORMED BY THE LD. AR), SO THAT S. 14A WILL IN ANY CASE HAVE NO APPLICATION FOR THE CURRENT YEAR. THE ASSESSEE HAS BEEN ALLOWED REL IEF BY THE FIRST APPELLATE AUTHORITY FOLLOWING THE DECISION BY THE TRIBUNAL IN ASST. CIT V. ORIENTAL STRUCTURAL ENGINEERS (IN ITA NO.4245/DEL/ 2011 DATED 02.12.2011) AND ASST. CIT V. BASKARAN [2015] 152 ITD 844 (CHNY). THE FORMER DECISION IS R ENDERED ON SIMILAR FACTS, WHILE IN THE LATTER, DISALLOWANCE U/S. 14A WAS FOUND NOT MAINTAINABLE IN THE ABSENCE OF INCOME NOT FORMING P ART OF THE TOTAL INCOME. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 3 ITA NO.2435 /MDS/2016 (AY 2012-13) DY. CIT V. GALFAR E NGINEERING & CONTRACTING INDIA PVT. LTD. THE PRINCIPAL FACTS ARE NOT IN DISPUTE, AND THE ENT IRE INVESTMENT (OF . 240.402 CR.) IN SHARES IS IN SPVS, THE PROJECTS BID AND BEING DEVELOPED BY WHICH ARE EXECUTED BY THE ASSESSEE AS A NOMINATED CONTRACTOR. AS PER THE BUSINESS MODEL, THE INVESTMENT IN SHARES BECOMES THUS AN INT EGRAL PART OF ITS BUSINESS, I.E., AS ANY OTHER BUSINESS INVESTMENT. THE SAME IS NOT TO WARD EARNING ANY TAX EXEMPT INCOME, AS IN THE FORM OF DIVIDEND OR CAPITAL GAINS (ON THE TRANSFER OF SHARES), BUT FOR CARRYING ON ITS BUSINESS, INCOME FROM WHICH FOR MS PART OF THE TOTAL INCOME. THE NON RECEIPT OF DIVIDEND INCOME IS THUS NOT A COINCI DENCE, BUT AN INCIDENT OF ITS BUSINESS. THE CAPITAL GAINS, WHICH WOULD BE TAX-EXE MPT ONLY WHERE THE SHARES ARE LISTED, SHALL ARISE ONLY ON THE TRANSFER OF SHARES AND, THUS, LIQUIDATION OF OR EXIT FROM BUSINESS. THE TWO ARGUMENTS ADVANCED BY THE ASSESSE E, AND WHICH APPEALED TO THE LD. CIT(A), THUS MERGE OR COALESCE INTO A SINGLE CAS E, AND HAVE THEREFORE TO BE CONSIDERED IN UNISON AND NOT IN ISOLATION, I.E., THAT THE ARRANGEMENT IS NOT TOWARD EARNING ANY TAX-EXEMPT INCOME . THE EARNING OF THE SAME, PARTICULARLY BY WAY OF DIVIDEND, WE ARE CONSCIOUS, IS NOT EXCLUDED BY THE TERMS OF THE ARRANGEMENT. THAT, HOWEVER, WOULD ONLY BE, AS WE UNDERSTAND, AN OUTSID E POSSIBILITY, AND CANNOT DETRACT FROM THE FACT THAT THE ARRANGEMENT IS ESSEN TIALLY A BUSINESS ARRANGEMENT FOR EARNING BUSINESS INCOME, AND WHICH THE ASSESSEE HAS IN FACT ESTABLISHED AS A MATTER OF FACT, UNDERTAKING BUSINESS ONLY ON ITS STRENGTH . THE MATTER, IT MAY BE APPRECIATED, IS PRINCIPALLY ONE OF FACT. HOW COULD EXPENDITURE INCURRED IN RESPECT OF A BUSINESS ARRANGEMENT, I.E., FOR EARNING TAXABL E (BUSINESS) INCOME, BE CONSIDERED AS IN RELATION TO TAX-EXEMPT INCOME ON T HE BASIS THAT EMBEDDED IN THE SAID ARRANGEMENT IS THE POSSIBILITY OF EARNING DIVI DEND INCOME. THE RELATION OR THE NEXUS BETWEEN THE EXPENDITURE INCURRED AND INCOME, WHICH THOUGH THE INCURRING OF EXPENDITURE ITSELF CANNOT ENSURE, THAT MAY STAND TO BE EARNED, IS TO BE LIVE AND CLEAR. ONCE IT IS SO, THEN ALL EXPENDITURE, DIRECT OR INDIRECT, WOULD STAND TO BE IDENTIFIED AND CONSIDERED FOR DISALLOWANCE, WHICH I S ONLY OF ACTUAL EXPENDITURE, WITH R.8D PROVIDING A BASIS FOR ITS ESTIMATION. THE SAID INCOME WOULD IN FACT REQUIRE ITS CONSENT AS A SHAREHOLDER AND, TWO, MAY ARISE YEARS LATER. THE APPLICATION 4 ITA NO.2435 /MDS/2016 (AY 2012-13) DY. CIT V. GALFAR E NGINEERING & CONTRACTING INDIA PVT. LTD. OF S. 14A FOR THE YEAR FOR WHICH SUCH INCOME ARISES IS NOT EXCLUDED. THE DECISION IN ORIENTAL STRUCTURAL ENGINEERS (SUPRA), THE FACTS AND CIRCUMSTANCES OF WHICH ARE LARGELY THE SAME, ON IT BEING CARRIED TO THE HON'BL E HIGH COURT AT THE INSTANCE OF THE REVENUE (IN ITA NO.605/2012 DATED 15.01.2013/CO PY ON RECORD - REPORTED AT [2013] 216 TAXMAN [1992] (DEL) (MAG)), WAS NOT INTE RFERED WITH BY THE HON'BLE COURT, UPHOLDING IN EFFECT THE RESTRICTION OF THE D ISALLOWANCE U/S. 14A TO 2% OF THE DIVIDEND INCOME, I.E., AS AGAINST THAT WORKED U/R. 8D, EVEN AS THE YEAR INVOLVED IN THAT CASE WAS AY 2008-09, FOR WHICH R.8D IS OTHERWI SE APPLICABLE. THE HON'BLE COURT, NOTING THE FACTS RECORDED BY THE TRIBUNAL - AT PARA 6.3 OF ITS ORDER, REPRODUCING THE SAME (AT PARA 2), FOUND IT TO BE A QUESTION OF FACT, SO THAT NO EXPENSES HAD BEEN INCURRED FOR EARNING ANY EXEMPT I NCOME - A FACT WHICH IT FOUND HAD SINCE BEEN SETTLED BY THE TRIBUNAL, EVEN AS ALR EADY EXPRESSED BY US. IN VIEW OF THE FOREGOING, WE FIND NO INFIRMITY AND, THEREFORE, NO REASON TO INTERFERE WITH THE IMPUGNED ORDER. WE DECIDE ACCORD INGLY. 4. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED ON FEBRUARY 3, 2017 AT CHENNAI . SD/- SD/- ( . ' $ %) ( ) ( G. PAVAN KUMAR ) ( SANJAY ARORA ) & ! / JUDICIAL MEMBER !/ ACCOUNTANT MEMBER / CHENNAI, 5 / DATED, FEBRUARY 3, 2017 . EDN 6 0 .&278 98*2 / COPY TO: 1. ,- / APPELLANT, 2. ./,- / RESPONDENT, 3. $ :2 () / CIT(A), 4. $ :2 / CIT, 5. 8';< .&2& / DR & 6. <=) > / GF
