DCIT, CHENNAI V. M/s. I B C Ltd., CHENNAI

ITA 2586/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4476 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2017
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 06-09-2016
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Keywords: Earning of tax free income; Wholly owned subsidiary
• Section: 43B; 143(3); 14A

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I T.A. NO. 2 58 6 /MDS/201 6 / ASSESSMENT YEAR :20 1 2 - 1 3 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2 ( 2 ) , ROOM NO. 512, 5 TH FLOOR, WANAPARTHY BLOCK, 121 M.G. ROAD, CHENNAI 600 034. VS. M/S. IBC LIMI TED, NO. 148, 2 ND LINE BEACH, VANGUARD HOUSE, CHENNAI 600 0 0 1 . [PAN: AA A C I7891J ] ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI SHIVA SRINIVAS, JCIT / RESPONDENT BY : NONE / DATE OF HEARING : 01 . 0 3 .201 7 / DATE OF P RONOUNCEMENT : 24 . 0 5 .201 7 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INC OME TAX (APPEALS) 6 , C HENNAI DATED 14 . 0 7 .201 6 RELEVANT TO THE ASSESSMENT YEAR 20 1 2 - 1 3 . THE REVENUE HAS RAISED TWO EFFECTIVE GROUNDS VIZ., (I) THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE UNDER SECTION 14A R.W. RULE 8D AND (II) THE LD. CIT(A) I.T.A. NO . 2 58 6 /M/ 16 2 HAS ERRED IN DELETING THE ADDITION MADE ON ACCOUNT OF BELATED REMITTANCE OF EMPLOYEE S CONTRIBUTION TO PF & ESI. 2. BRIEF FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN THE BUSINESS OF EXPORT & LOCAL SALES OF BARITES AND FILED ITS RETURN OF INCOM E ON 29 . 0 9 .201 2 ADMITTING ITS INCOME OF . 1,99,31,290 / - . THE CASE WAS TAKEN FOR SCRUTINY THROUGH CASS AND ASSESSMENT U NDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] ACT WAS COMPLETED ON 30 . 0 3 .201 5 , BY ASSESSING TOTAL I N COME OF THE ASSESS EE AT . 2,4 7 ,38,047 / - BY MAKING VARIOUS ADDITIONS. 3 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE ASSESSING OFFICER THAT THE ASSESSEE HA S INVESTMENTS OF . 11,56,90,432 / - CAPABLE OF YIELDING EXEMPT INCOME . T HE ASSESSEE HAS NOT SH OWN TO HAVE INCURRED ANY EXPENDITURE DIRECTLY RELATING TO THE ABOVE IN VESTMENTS IN THE PROFIT AND LOSS ACCOUNT, AND MOREOVER, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE HAS MADE CERTAIN TRANSACTIONS WITH RESPECT TO LOANS AND ADVANCES DURING THE Y EAR. FURTHER, THE BORROWED FUNDS AND OWN FUNDS WERE PUT INTO COMMON KITTY FOR THE PURPOSE OF BUSINESS AND INVESTMENTS. MOREOVER, UTILIZATION OF ITS OWN FUNDS FOR THE PURPOSE OF INVESTMENTS WAS NOT DEMONSTRATED BEFORE THE ASSESSING OFFICER. THEREFORE, BY AP PLYING THE PROVISIONS OF SECTION 14A R.W. RULE 8D, THE ASSESSING OFFICER DETERMINED THE I.T.A. NO . 2 58 6 /M/ 16 3 EXPENDITURE TOWARDS MAINTAINING THESE INVESTMENTS AT . 40,69,136 / - AND DISALLOWED THE SAME . 4 . THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). BY RE ITERATING THE SUBMISSIONS AS MADE BEFORE THE ASSESSING OFFICER , THE ASSESSEE HAS SUBMITTED THAT IT HAS NOT EARNED ANY EXEMPT INCOME. THE ASSESSEE ALSO SUBMITTED THAT IT HAD OWN FUNDS IN THE FORM OF SHARE CAPITAL, SHARE APPLICATION MONEY AND RESERVES & SURP LUS TO MAKE THE AFORESAID INVESTMENTS AND MOREOVER THE INVESTMENTS WERE MADE IN M/S. ANDHRA BARITES CORPORATION PVT. LTD, WHICH IS A SUBSIDIARY OF THE ASSESSEE COMPANY. BY RELYING ON VARIOUS CASE LAW, THE ASSESSEE HAS PLEADED TO DELETE THE DISALLOWANCE M ADE BY THE ASSESSING OFFICER. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE , THE LD. CIT(A) HAS OBSERVED THAT THE INVESTMENTS MADE IN SUBSIDIARY CORPORATION IS STRATEGIC BUSINESS DECISIONS AND NOT MADE WITH THE INTENTION OR PURPOSE OF EARNING EXEMPT IN COME AND AS SUCH THESE STRATEGIC INVESTMENTS DID NOT WARRANT DISALLOWANCE UNDER SECTION 14A OF THE ACT IN VIEW OF THE DECISION OF THE TRIBUNAL IN THE CASE OF EIH ASSOCIATED HOTELS V. DCIT IN I.T.A. NO.1503/MDS/2012 DATED 17.07.2015. BY FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL, THE LD. CIT(A) DELETED THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. 5 . ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL AND THE LD. DR HAS SUBMITTED THAT THE ABOVE DECISION OF THE TRIBUNAL HAS NOT I.T.A. NO . 2 58 6 /M/ 16 4 BEEN AC CEPTED BY THE DEPARTMENT AND FURTHER APPEAL IN TCA NO. 227 OF 2014 IS PENDING BEFORE THE HON BLE HIGH COURT. DESPITE SERVICE OF NOTICE [AD ON RECORD], NONE APPEARED ON BEHALF OF THE ASSESSEE AND HENCE WE PROCEEDED TO DECIDE THE APPEAL AFTER HEARING THE LD. DR. 6. WE HAVE HEARD THE LD. DR , PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. ADMITTEDLY, THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME OUT OF INVESTMENTS. MOREOV ER, THE INVESTMENTS ARE MADE OUT OF OWN FUN DS IN THE FORM OF SHARE CAPITAL, SHARE APPLICATION MONEY AND RESERVES & SURPLUS. FURTHER, THE ABOVE INVESTMENTS MADE IN ASSESSEE S WHOLLY OWNED SUBSIDIARY CORPORATION IS STRATEGIC INVESTMENTS AND NOT WITH THE INTENTION TO EARN EXEMPT INCOME. IN THE CASE OF EIH ASSOCIATED HOTELS V. DCIT (SUPRA), THE COORDINATE BENCHES OF THE TRIBUNAL HAS DECIDED THAT THESE STRATEGIC INVESTMENTS MADE IN WHOLLY OWNED SUBSIDIARY DO NOT WARRANT DISALLOWANCE UNDER SECTION 14A OF THE ACT. THE MAIN CONTENTION OF THE LD. DR THAT THE ABOVE DECISION OF THE TRIBUNAL HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND FURTHER APPEAL IN TCA NO. 227 OF 2014 IS PENDING BEFORE THE HON BLE HIGH COURT CANNOT BE A GROUND TO TAKE A DIFFERENT VIEW UNLESS THE DECISION OF THE TRIBUNAL IS MODIFIED OR REVERS ED BY THE HIGH COURT. IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERED OPINION THAT THE LD. CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE MADE UNDER SECTION 14A I.T.A. NO . 2 58 6 /M/ 16 5 OF THE ACT AND W E FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE AND ACCORDI NGLY, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 7. THE NEXT GROUND RAIS ED IN THE APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF . 3, 91,144 / - , BEING BELATED REMITTANCE OF EMPLOYEE S CONTRIBUTION TO PF & ESI AS INCOME AS PER THE PROVISIONS OF SECTION 36(1)(VA) OF THE ACT. 8. ON PERUSAL OF THE SCHEDULES TO FORM 3CD, THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE WAS IN DEFAULT IN REMITTING EMPLOYEE S CONTRIBUTION TOWARDS PF AND ESI TO THE EXTENT OF . 3,37,136 / - AND . 9,346 / - RESPECTIVELY BELATEDLY AND THUS, NOT QUALIFIED FOR CLAIMING D EDUCTION UNDER SECTION 36(1)(VA) OF THE ACT TO AVAIL THE BENEFIT UNDER SECTION 43B OF THE ACT. 9. ON APPEAL, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND BY FOLLOWING THE DECISION 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, THE LD. CIT(A) DELETED THE ADDITION MADE ON THIS ACCOUNT. 10 . ON BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. THE MAIN CONTENTION OF THE LD. DR IS THAT THE DEPARTMENT HAS NOT ACCEPTED THE DECISION IN THE CASE OF CIT V. INDUSTRIAL SECURITY AND INTELLIGENCE INDIA PVT. LTD. (SUPRA) AND A REVIEW PETITION HAS BEEN FILED BEFORE THE HON BLE I.T.A. NO . 2 58 6 /M/ 16 6 HIGH COURT AND THEREFORE, PLE ADED THAT THE ORDER OF THE LD. CIT(A) SHOULD BE REVERTED AND RESTORED THAT OF THE ASSESSING OFFICER. 11 . WE HAVE HEARD THE LD. DR , PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. SINCE THE ASSESSEE HAS NOT REMITTED THE CONTRIBUTION OF EMPLOYEES TOWARDS PF AND ESI BEFORE DUE DATE, THE ASSESSING OFFICER HAS HELD THAT THE ASSESSEE DOES NOT QUALIFY FOR CLAIMING DEDUCTION UNDER SECTION 36(1)(VA) OF THE ACT TO AVAIL THE BENEFIT UNDER SECTION 43B OF THE ACT . BY FOLLOWING THE DECISION 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, THE LD. CIT(A) DELETE D THE ADDITION MADE ON THIS ACCOUNT. IN THIS CASE, I T IS NOT DISPUTED BY THE REVENUE THAT THE ASSES SEE HAS NOT PAID THE EMPLOYEES 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. (SUPRA) HAS HE LD THAT THERE CAN BE NO DEEMED ADDITION UNDER SECTION 36(12)(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. THUS, RESPECTFULLY FOLLOWING THE ABOVE DECISION, THE LD. CIT(A) HAS DELETED THE A DDITION MADE BY THE ASSESSING OFFICER . THE TRIBUNAL HAS ALSO FOLLOWED THE ABOVE DECISION OF THE HON BLE MADRAS HIGH COURT IN DECIDING SIMILAR ISSUE. IN VIEW OF THE ABOVE, I.T.A. NO . 2 58 6 /M/ 16 7 WE FIND NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE AND THUS, THE GROUND RAISED BY THE REVENUE IS DISMISSED. 1 2 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THE 24 TH MAY , 201 7 AT CHENNAI. SD/ - SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL ME MBER CHENNAI, DATED, THE 24 . 0 5 .201 7 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.