DCIT Corporate Circle 2(2), CHENNAI V. Hidesign India Pvt. Ltd., CHENNAI

ITA 2496/CHNY/2017

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7887 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: misc
• Appeal Filed On: 13-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Question of law; Revenue expenditure
• Section: 43B; 143(3); 14A

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . , , BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER & SHRI S. JAYARAMAN , ACCOUN TANT MEMBER ./ I T.A. NO. 2496 /MDS/201 7 / ASSESSMENT YEAR :20 13 - 1 4 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2 (2 ) , ROOM NO. 512, 5 TH FLOOR, WANAPARTHY BLOCK, 121, M.G. ROAD, CHENNAI 600 0 34 . VS. M/S. HIDESIGN IN DIA PVT. LTD., OLD. NO. 57/4, NEW NO. 2, ANUGRAHA APARTMENTS, 1 ST STREET, KAMARAJAR AVENUE, ADYAR, CHENNAI 600 020. [PAN:A AC CH0586R ] ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI AR.V. SREENIVASAN, J C IT / RESPONDENT BY : NONE / DATE OF HEARING : 2 4 . 0 1 .201 8 / DATE OF P RONOUNCEMENT : 31 . 0 1 .201 8 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS DI RECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 6 , CHENNAI DATED 16 .0 8 .2017 RELEVANT TO THE ASSESSMENT YEAR 20 1 3 - 1 4 . THE REVENUE HAS RAISED TWO EFFECTIVE GROUND S VIZ., (I) THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE ON ACCOUNT O F EMPLOYEES CONTRIBUTION ON ESI & PF WHEN THE SAME WERE NOT PAID BY THE ASSESSEE AS AN EMPLOYER WITHIN THE DUE DATE OF RELEVANT ACT AND I.T.A. NO . 2496 / M/ 17 2 (II) THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE UNDER SECTION 14A R.W. RULE 8D. 2 . BRIEF FACTS OF THE CA SE ARE THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING LEATHER PRODUCTS AND FILED ITS RETURN OF INCOME ON 16 . 09 .201 3 FOR THE ASSESSMENT YEAR 201 3 - 1 4 ADMITTING TOTAL INCOME OF .2, 7 9, 88 , 380 / - AFTER CLAIMING DEDUCTION UNDER CHAPTER VIA TO THE TUNE OF .2,54,96 ,800/ - . THE RETURN OF INCOME FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT]. SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS SERVED ON 24 .09.2014. IN RESPONSE THERETO, THE ASSESSEE FILED ALL DETAILS. AFTER VERIFICATION OF DETAILS FILED BY THE ASSESSEE AND CONSIDERING THE SUBMISSIONS MADE, THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS COMPLETED BY MAKING VARIOUS ADDITIONS. 2.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER HAS NOTICED THAT THE CONTRIBUTION TO PROVIDENT FUND AND ESI COLLECTED FROM THE EMPLOYEES HAD BEEN REMITTED BELATEDLY. ACCORDINGLY, THE ASSESSING OFFICER TREATED THE DELAYED PAYMENTS REPRESENTING EMPLOYEES CONTRIBUTION TOWARDS PROFIT FUND OF .62,75,801/ - AND ESI OF .7,48,446/ - AS THE INCOME OF THE ASSESSEE AND BROUGHT TO TAX UNDER SECTION 2(24)(X) R.W.S. 36(1)(VA) OF THE ACT. I.T.A. NO . 2496 / M/ 17 3 2.2 DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SHOWN OF .4,25,00,000/ - AS INVESTMENTS WHICH ARE EXEMPT I NCOME YIELDING INVESTMENTS OF THE ASSESSEE. F URTHER , THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS NOT ATTRIBUTED ANY PORTION OF THE EXPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT FOR MAKING INVESTMENTS AND THUS, HE BELIEVED THAT THE ASSESSEE HAS TO INCUR SOME EXPENDITURE EMBEDDED IN THE INDIRECT EXPENDITURE OF THE ASSESSEE TOWARDS MAINTAINING THESE INVESTMENTS. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE ASSESSING OFFICER DETERMINED THE EXPENDITURE COMPONENTS UNDER SECTION 14A R.W. RUL E 8D OF .3,01,431/ - AND BROUGHT TO TAX . 3 . THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) AND CHALLENGED THE ABOVE ADDITIONS. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY RELYING UPON VARIOUS CASE LAW, THE LD. CIT(A) DELETE D BOTH THE ADDITIONS AND ALLOWED THE APPEAL FILED BY THE ASSESSEE. 4 . AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AND CHALLENGED THE ISSUE WITH REGARD TO BELATED REMITTANCE OF EMPLOYEES CONTRIBUTION TO PF & ESI AS WELL AS DELETING THE ADDIT ION MADE UNDER SECTION 14A R.W. RULE 8D . BY REFERRING CBDT CIRCULAR NO. 22/2015 DATED 17.12.2015, THE LD. DR HAS SUBMITTED THAT THE EMPLOYEES CONTRIBUTION OF ESI & PF ARE GOVERNED BY THE SECTION 36(1)(VA) OF THE ACT AND NOT UNDER SECTION 43B OF THE ACT. I T WAS ALSO CONTENDED THAT THE LD. CIT(A) OMITTED TO CONSIDER I.T.A. NO . 2496 / M/ 17 4 THE CBDT CIRCULAR NO. 5/2014, WHEREIN, IT WAS CLARIFIED THAT DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D HAS TO BE MADE EVEN IF THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME IN A PARTICULAR YEAR AND PLEADED THAT THE ORDER OF THE LD. CIT(A) SHOULD BE REVERTED AND RESTORED THAT OF THE ASSESSING OFFICER. 5. DESPITE SERVICE OF NOTICE, [AD ON RECORD], THE ASSESSEE OR HIS REPRESENTATIVE PUT APPEARANCE DURING THE COURSE OF HEARING OF THE APPEAL. HENCE , WE PROCEEDED TO DECIDE BOTH THE ISSUES AFTER CONSIDERING THE SUBMISSIONS OF THE LD. DR 6 . WE HAVE HEARD THE LD. DR , PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSES SING OFFICER NOTICED FROM FORM 3CD THAT THE CONTRIBUTIONS TOWARDS PROFIT FUND OF .62,75,801/ - AND ESI OF .7,48,446/ - TOTALLING TO . 70,24,247/ - HAVE BEEN REMITTED BELATEDLY. SINCE THE ASSESSEE HAS NOT REMITTED THE CONTRIBUTIONS OF EMPLOYEES TO PF AND CONTRIBUTION TO ESI BEFORE DUE DATE, THE ASSESSING OFFICER HELD THAT THE ASSESSEE DO ES NOT QUALIFY FOR CLAIMING DEDUCTION UNDER SECTION 36(1)(VA) OF THE ACT TO AVAIL THE BENEFIT UNDER SECTION 43B OF THE ACT. BY RELYING UPON VARIOUS DECISION S, THE LD. CIT(A) HELD THAT THE ASSESSEE IS ELIGIBLE TO CLAIM AS REVENUE EXPENDITURE IN RESPECT OF E MPLOYEES CONTRIBUTION UNDER SECTION 43B OF THE ACT SINCE THE PAYMENT HAS BEEN MADE BEFORE FILING THE RETURN OF INCOME. IN THIS CASE, I T IS NOT DISPUTED BY THE REVENUE THAT THE ASSESSEE HAS NOT PAID THE EMPLOYEES I.T.A. NO . 2496 / M/ 17 5 CONTRIBUTION RECEIVED BY IT BEFORE THE DUE DATE OF FILING OF THE RETURN. VARIOUS COURTS INCLUDING THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. INDUSTRIAL SECURITY AND INTELLIGENCE INDIA PVT. LTD. IN TCA NOS. 585 & 586 OF 2015 & M.P. NO. 1 OF 2015 DATED 24.07.2015 HELD THAT THERE CAN BE NO DEEMED ADDITION UNDER SECTION 36(1)(VA) R.W.S. 2(24)(X) OF THE ACT, IF THE IMPUGNED AMOUNT HAS BEEN PAID BEFORE THE DUE DATE OF FILING OF THE RETURN. THE RELEVANT PORTION OF THE ORDER OF THE HON BLE HIGH COURT IS REPRODUCED AS UNDER: 5. WE FIND TH AT THE TRIBUNAL HAS RIGHTLY RELIED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT V. ALOM EXTRUSIONS LTD . REPORTED IN 319 ITR 306, WHEREBY, THE SUPREME COURT HELD THAT OMISSION OF SECOND PROVIS O TO SECTION 43B AND AMENDMENT TO FIRST PROVISO BY FINANCE ACT , 2003 ARE CURATIVE IN NATURE AND ARE EFFECTIVE RETROSPECTIVELY, I.E., WITH EFFECT FROM 1.4.1988 I.E., THE DATE OF INSERTION OF FIRST PROVISO. THE DELHI HIGH COURT IN THE CASE OF CIT V. AMIL LTD . REPORTED IN 321 ITR 508 HELD THAT IF THE ASSESSEE HAD DEPOSITED EMPLOYEE'S CONTRIBUTION TOW ARDS PROVIDENT FUND AND ESI AFTER DUE DATE AS PRESCRIBED UNDER THE RELEVANT ACT, BUT BEFORE THE DUE DATE OF FILING OF RETURN UNDER THE INCOME TAX ACT , NO DISALLOWANCE COULD BE MADE IN VIEW OF THE PROVISI ONS OF SECTION 43B AS AMENDED BY FINANCE ACT , 2003. 6. IN THE PRESENT CASE, THE ASSESSEE HAD REMITTED THE EMPLOYEES CONTRIBUTION BEYOND THE DUE DA TE FOR PAYMENT, BUT WITHIN THE DUE DATE FOR FILING THE RETURN OF INCOME. HENCE, FOLLOWING THE ABOVE - SAID DECISIONS, WE FIND NO REASON TO DIFFER WITH THE FINDINGS OF THE TRIBUNAL. ACCORDINGLY, WE FIND NO QUESTION OF LAW MUCH LESS ANY SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATION IN THESE APPEALS. ACCORDINGLY, BOTH THE TAX CASE (APPEALS) STAND DISMISSED. NO COSTS. CONSEQUENTLY, M.P.NO.1 OF 2015 IS ALSO DISMISSED. THE TRIBUNAL HAS ALSO FOLLOWED THE ABOVE DECISION OF THE HON BLE MADRAS HIGH COURT IN DECIDING SIMILAR ISSUE IN VARIOUS CASES . IN VIEW OF THE ABOVE, WE SUSTAIN THE ORDER OF THE LD. CIT(A) DELETING THE ADDITION AND THUS, THE GROUND RAISED BY THE REVENUE IS DISMISSED. I.T.A. NO . 2496 / M/ 17 6 6.1 WITH REGARD TO DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D, IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME ON THE INVESTMENTS MADE BY IT. FURTHER, ON VERIFICATION OF THE DETAILS FILED BY THE AR OF THE ASSESSEE, THE LD. CIT(A) HAS OBSERVED THAT THE INVESTMENT HAS BEEN MADE BY THE ASSESSEE IN A S ISTER COMPANY NAMED HOLI I ACCESSORIES PVT. LTD. UNDER THESE CIRCUMSTANCES, BY REFERRING TO VARIOUS CASE LAW, THE LD. CIT(A) HELD THAT THE ADDITION MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE ACT IS NOT PROPER AND ACCORDINGLY DELETED THE ADDITION . ON PERUSAL OF THE ASSESSMENT ORDER, WE FIND THAT BEFORE THE ASSESSING OFFICER, THE ASSESSEE HAS SUBMITTED THAT DURING THE YEAR, OUT OF HUGE RESERVES OF THE ASSESSEE COMPANY, THE ASSESSEE HAS MADE INVESTMENT OF .1,50,00,000/ - IN SHARES OF HOLII ACCESSORI ES PVT. LTD. AND THE ASSESSING OFFICER HAS NOT DISPUTED THE ABOVE FACTS. ONCE THE ASSESSEE GOT SURPLUS RESERVE FOR MAKING STRATEGIC INVESTMENTS AND MOREOVER, NO EXEMPT INCOME WAS EARNED BY THE ASSESSEE, WE ARE ALSO OF THE CONSIDERED OPINION THAT THE ASSES SING OFFICER WAS INCORRECT TO MAKE DISALLOWANCE UNDER SECTION 14A OF THE ACT BEING EXPENDITURE . THIS VIEW IS DULY FORTIFIED BY THE DECISION IN THE CASE OF REDINGTON (INDIA) LTD. V. ADDL. CIT IN T.C.A. NO. 520 OF 2016 DATED 23.12.2016, WHEREIN, THE HON BLE JURISDICTIONAL HIGH COURT HAS HELD THAT WHEN THERE IS NO EXEMPT INCOME THERE CANNOT BE A DISALLOWANCE OF EXPENDITURE. THE RELEVANT PORTION OF THE JUDGEMENT IS REPRODUCED AS UNDER: I.T.A. NO . 2496 / M/ 17 7 15. THE EXEMPTION EXTENDED TO DIVIDEND INCOME WOULD RELATE ONLY TO THE PRE VIOUS YEAR WHEN THE INCOME WAS EARNED AND NONE OTHER AND CONSEQUENTLY THE EXPENDITURE INCURRED IN CONNECTION THEREWITH SHOULD ALSO BE DEALT WITH IN THE SAME PREVIOUS YEAR. THUS, BY APPLICATION OF THE MATCHING CONCEPT, IN A YEAR WHERE THERE IS NO EXEMPT INC OME, THERE CANNOT BE A DISALLOWANCE OF EXPENDITURE IN RELATION TO SUCH ASSUMED INCOME. (MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. V. CIT (225 ITR 802). THE LANGUAGE OF S. 14A(1) SHOULD BE READ IN THAT CONTEXT AND SUCH THAT IT ADVANCES THE SCHEME OF THE ACT RATHER THAN DISTORT IT. 16. IN CONCLUSION, WE ARE OF THE VIEW THAT THE PROVISIONS OF S. 14A READ WITH RULE 8D OF THE RULES CANNOT BE MADE APPLICABLE IN A VACUUM I.E., IN THE ABSENCE OF EXEMPT INCOME. THE QUESTIONS OF LAW ARE ANSWERED IN FAVOUR OF TH E ASSESSEE AND AGAINST THE DEPARTMENT AND THE APPEAL ALLOWED. NO COSTS. ADMITTEDLY, THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME. UNDER THE ABOVE FACTS AND CIRCUMSTANCES, WE SUSTAIN THE ORDER OF THE LD. CIT(A) DELETING THE ADDITION AND THUS, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 7 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THE 31 ST JANUARY, 2018 AT CHENNAI. SD/ - SD/ - ( S. JAYARAMAN ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 31 . 0 1 .201 8 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.