ACIT, CHENNAI V. C.R.Narayana Rao LLP, CHENNAI

ITA 275/CHNY/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4348 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 30-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R KUMAR
• Assessee Lawyers: SHIVA SRINIVAS
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: CHENNAI . . . , !.. $ , ) BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.275/MDS/2017 * * /ASSESSMENT YEAR: 2012-13 THE ASST. COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE-1(1), (FORMERLY KNOWN AS BUSINESS CIRCLE-I), CHENNAI. VS. M/S.C.R.NARAYANA RAO, LLP, NO.10, KARPAGAMBAL NAGAR, MYLAPORE, CHENNAI-600 004. [PAN: AAEFC 3272 C ] ( - /APPELLANT) ( ./- /RESPONDENT) - 0 / APPELLANT BY : MR.R.KUMAR, ADV. ./- 0 /RESPONDENT BY : MR.SHIVA SRINIVAS, JCIT 0 /DATE OF HEARING : 12.04.2017 0 /DATE OF PRONOUNCEMENT : 08.06.2017 / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 15.11.2016 OF COMMISSIONER OF INCOME TAX (APPEALS)- 2, CHENNAI, IN ITA NO.42/CIT(A)-2/2015-16 FOR THE AY 2012-13 AND RAIS ED THE FOLLOWING GROUNDS: ITA NO.275/MDS/2017 :- 2 -: 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO LA W, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT(A) ERRED IN DELETING THE DISALLO WANCE MADE U/S.14A R.W. RULE 8D OF RS.60,000/- 2.1 THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT DIS ALLOWANCE U/S.14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE YEAR. 2.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT DIS ALLOWANCE U/S.14A R.W. RULE 8D WAS APPLICABLE IN THE INSTANT CASE AS THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.5,76,163/- DURING THE YEAR AND THAT THE RESOURCES OF THE ASSES SEE HAVE BEEN UTILIZED IN EARNING THE EXEMPT INCOME. 2.3 THE LEARNED CIT(A) ERRED IN DELETING THE DISALL OWANCE EFFECTED U/S.14A WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD HELD IN VESTMENTS IN SHARES AND MUTUAL FUNDS, CAPABLE OF EARNING EXEMPT INCOME, THEREBY ATTRACTIN G THE PROVISIONS OF SEC.14A READ WITH RULE 8D. 2.4 THE LEARNED CIT(A) FAILED TO APPRECIATE THE FACT THAT EVEN IN THE ABSENCE OF EXEMPT INCOME, IF EXEMPT INCOME BEARING INVESTMENTS ARE AV AILABLE IN A PARTICULAR YEAR, THE PROVISIONS OF SEC.14A READ WITH RULE 8D SHALL HAVE APPLICABILITY AND THE ASSESSING OFFICER IS BOUND TO DISALLOW THE EXPENDITURE THUS WORKED OUT. 2.5 THE CIT(A) FAILED TO APPRECIATE THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE HAS HELD THAT THE PROVISIONS OF SUB SECTIONS (2) AND (3) OF SECTION 14A OF THE INCOME TAX ACT 1961 ARE CONSTITUTIONALLY VALID AND THAT THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES AS INSERTED BY THE INCOME TAX (FIF TH AMENDMENT) RULES 2008 ARE NOT ULTRA VIRES THE PROVISIONS OF SECTION 14A, MORE PAR TICULARLY SUB SECTION (2) AND DO NOT OFFEND ARTICLE 14 OF THE CONSTITUTION; 3. THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDI TION MADE IN RESPECT OF EMPLOYEES CONTRIBUTION TOWARDS PF OF RS.35,35,037/- WHICH WAS REMITTED BEYOND THE PRESCRIBED DUE DATES. 3.1 THE LEARNED CIT(A) ERRED IN DELETING THE ADDITIO N MADE IN RESPECT OF DELAYED REMITTANCE OF ITS EMPLOYEES CONTRIBUTION OF PROVIDENT FUND DES PITE THE FACT THAT CIRCULAR NO.22/2015 DATED 17.12.2015 CLEARLY APPLIES TO CLAIM OF DEDUCT ION RELATING EMPLOYERS CONTRIBUTION AND NOT FOR EMPLOYEES CONTRIBUTION TO WELFARE FUNDS. 4. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT ANY RECEIVED SUM RECEIVED ON ACCOUNT OF EMPLOYEES CONTRIBUTION TO PROVIDENT FUND NOT REMIT TED WITHIN THE DUE DATE IS TO BE TREATED AS THE INCOME OF THE ASSESSEE AND TAXED IN HIS HAND S AS PER PROVISIONS OF SEC.2(24)(X) OF THE I.T. ACT, 1961. 4.1 FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASID E AND THAT OF THE A.O. RESTORED. 2.0 GROUND NOS.1 TO 2.5 ARE RELATED TO THE DISALLOWANC E OF SEC.14A R.W.R. 8D (2)(III) OF INCOME TAX ACT. DURING THE A SSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAS DERIVED INCOME O F RS.5,76,163/- FROM DIVIDEND AND DID NOT MAKE ANY EXPENDITURE TOWARDS T HE EARNING OF ITA NO.275/MDS/2017 :- 3 -: DIVIDEND INCOME. THE ASSESSEE HAS NOT BORROWED ANY FUNDS FOR THE PURPOSE OF INVESTMENT IN SHARES. THEREFORE, THE AO DISALLOWED THE EXPENDITURE OF RS.60,000/- BY APPLYING RULE 8D(2)(I II) OF IT RULES. 2.1 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WEN T ON APPEAL BEFORE THE CIT(A) AND LD.CIT(A) DELETED THE ADDITIO N AS UNDER: 5.2. DISALLOWANCE U/S 14A: THE ASSESSING OFFICER OBSERVED THAT ALTHOUGH THE ASS ESSEE HAS DERIVED INCOME OF RS.5,76,163/- FROM DIVIDEND, THE ASSESSEE DID NOT M AKE ANY DISALLOWANCE TOWARDS EXPENDITURE RELATABLE TO THE EXEMPT INCOME AS PER T HE PROVISIONS OF SECTION 14A. THE ASSESSING OFFICER ALSO NOTICED THAT THE ASSESSEE HAD NO INVESTMENTS EITHER AT THE BEGINNING OF THE YEAR OR AT THE END OF THE YEAR. TH E ASSESSEE, HOWEVER, HAD INVESTED AN AMOUNT OF RS.1.20 CRORES IN HDFC MUTUAL FUND AND RE DEEMED IT IN THE SAME YEAR IN WHICH HE RECEIVED THE DIVIDEND. ALTHOUGH THE INVESTMENTS AS PER THE BALANCE SHEET AT THE END OF THE PREVIOUS YEAR I.E. AS ON 31.3.2011 AND THE END OF THE CURRENT YEAR I.E. 31.3.2012 ARE BOTH NIL, THE ASSESSING OFFICER TOOK THE AVERAGE INV ESTMENTS AS RS.1.20 CRORES AND COMPUTED THE EXPENDITURE RELATABLE TO EXEMPT INCOME IN ACCORDANCE WITH PROVISIONS OF SECTION 14A R.W.R. 8D, WHICH IS EQUIVALENT TO 0.5% OF RS.1.20 CRORES. THUS, AN AMOUNT OF RS.60,000/- WAS DISALLOWED AND ADDED BACK TO THE BU SINESS INCOME. THE APPELLANT HAS CONTENDED THAT THERE IS NO DIRECT INTEREST PAYMENT FOR MAKING THE INVESTMENT IN MUTUAL FUNDS AS THE INTEREST EXPENDIT URE IS NIL. FURTHER, SINCE THE OPENING BALANCE AS WELL AS CLOSING BALANCE OF INVESTMENT IN MUTUAL FUNDS WAS NIL, THE THIRD LIMB COMPUTATION I.E. 0.5% OF AVERAGE INVESTMENT IS NOT APPLICABLE, SINCE ACCORDING TO THE APPELLANT, RULE 8D RECKONS COMPUTATION BASED ON THE AVERAGE AMOUNT OF OPENING INVESTMENT AND CLOSING INVESTMENT. THE WORDINGS OF THE LIMB(III) OF RULE 8D(2) ARE VERY CLEAR, AND READ AS FOLLOWS: 8D(2)(III): AN AMOUNT EQUAL TO ONE-HALF PERCENT OF T HE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. IN VIEW OF THE ABOVE, THE CONTENTION OF THE APPELLA NT THAT THE THIRD LIMB OF RULE 8D(2) IS NOT APPLICABLE, IS ACCEPTED. THE ADDITION OF RS.60,000/ - U/S.14A IS HENCE, DELETED. THIS GROUND IS ALLOWED. 2.3 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED ON RECORD. THE ASSESSEE HAS INVESTED AN AMOUNT OF RS.1.20 CR. IN HDFC MUTUAL FUNDS AND REDEEMED IT IN THE SAME YEAR AND THE INVE STMENTS AS PER THE ITA NO.275/MDS/2017 :- 4 -: BALANCE SHEET DATED 31.03.2011 AND 31.03.2012 BOTH WERE NIL. THEREFORE, THE LD.CIT(A) OBSERVED THAT THE INVESTME NT APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEARS WAS NIL HENCE RULE 8D(2)(III) IS NOT APPLICABLE IN ASSESSEES CASE. THE DISALLOWANCE REQUIRED TO BE CO MPUTED TAKING THE AVERAGE BALANCES AS ON THE FIRST DAY AND THE LAST D AY OF THE FINANCIAL YEAR AND IF THERE IS NO BALANCE OUTSTANDING ON THE RELEV ANT DATES THE RESULTANT BALANCE WOULD BE NIL AND NO DISALLOWANCE IS CALLED FOR. THE DEPARTMENT CANNOT GO BEYOND THE RULE AND IMPORT ITS OWN DATES FOR MAKING THE DISALLOWANCE. IN THE INSTANT CASE, AVERAGE VALUE OF INVESTMENT WORKS OUT TO NIL AND NO DISALLOWANCE IS CALLED FOR U/R.8D(2)( III). THEREFORE, WE DO NOT HAVE ANY HESITATION TO UPHOLD THE ORDER OF THE LD.CIT(A) AND ACCORDINGLY DISMISS THE REVENUES APPEAL. 3.0 GROUND NOS.3 TO 4 ARE RELATED TO THE ADDITION IN R ESPECT OF CONTRIBUTION TOWARDS PF AMOUNTING TO RS.35,35,037/- WHICH WAS REMITTED BEYOND THE DUE DATE SPECIFIED UNDER THE RELEVANT AC TS. THE AO MADE ADDITION AS PER THE FACTS DISCUSSED IN PAGE NO.3 PA RA NO.4 OF THE ASSESSMENT ORDER AS UNDER: 4. FROM SCHEDULES TO FORM 3CD REPORT, IT IS NOTICED THAT THE ASSESSEE HAS REMITTED THE EMPLOYEE AND EMPLOYERS CONTRIBUTION OF PF BEYOND THE DUE DATES FOR THE MONTH OF AUGUST, DECEMBER AND MARCH. AS AGAINS T DUE DATE 20 TH OF SUCCEEDING MONTH THE ASSESSEE HAS REMITTED THE TAXE S BEYOND THE DUE DATE BUT BEFORE FILING OF THE RETURN OF INCOME. AS PER THE P ROVISIONS SEC.36(1)(VA) ANY SUM RECEIVED BY THE ASSESSEE FROM ANY OF HIS EMPLOYEES TO WHICH THE PROVISIONS OF CUB-CLAUSE (X) OF CLAUSE (24) OF SECTION 2 APPLY, I F SUCH SUM IS CREDITED BY THE ASSESSEE TO THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND OR FUNDS ON OR BEFORE THE DUE DATE UNDER ANY ACT, RULE, ORDER OR NOTIFICATION ISSUED THERE-UNDER. WHEN THIS WAS BROUGHT TO THE NOTICE OF THE ASSESSEE, THE ASSE SSEE FIRM VIDE ITS LETTER DATED 28.3.2015 STATED THAT THE PAYMENTS WERE MADE WITHIN THE DUE DATE, OF FILING OF ITA NO.275/MDS/2017 :- 5 -: THE RETURN OF INCOME AND HENCE ALLOWABLE UNDER SECT ION 43B. THE ASSESSEES CONTENTION IS NOT ACCEPTABLE IN RESPECT OF THE EMPL OYEES CONTRIBUTION. THEREFORE, THE FOLLOWING AMOUNTS CONTRIBUTED BY THE EMPLOYEES TOWARDS PROVIDENT FUND BUT NOT REMITTED WITHIN THE DUE DATE IS DISALLOWED UNDE R SECTION 36(1)(VA) OF THE ACT AND ADDED TO BUSINESS INCOME. MONTH DATE OF REMITTANCE AMOUNT AUGUST, 2011 21 - 9 - 2011 RS.10,19,402 DECEMBER, 2011 21 - 1 - 2012 RS.13,17,267 MARCH, 2012 23 - 4 - 2012 RS.11,98,368 TOTAL RS.35,35,037 3.1 THE LD.CIT(A) DELETED THE ADDITION STATING THAT TH E ASSESSEE REMITTED THE PF TO THE ACOUNT BEFORE THE DUE DATE O F FILING THE RETURN OF INCOME AND NO DISALLOWANCE IS CALLED FOR. THE LD C IT (A) PLACED THE RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS. I) ITAT, C BENCH, CHENNAI IN THE CASE OF EXPRESS PUB LICATIONS (MADURAI) LTD. VS. DCIT IN ITA NO.1885/MDS/2012. II) ITAT, A BENCH, CHENNAI IN THE CASE OF ACIT VS. M/ S.FORWARD SHOES (INDIA) PVT. LTD. IN ITA NO.183/MDS/2016. III) DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF INDUSTRIAL SECURITY & INTELLIGENCE INDIA PVT. LTD. TAX CASE (APPEAL) NOS.585 & 586 OF 2015 & M.P.NO.1 OF 2015. 3.2 THE LD.CIT(A) DELETED THE ADDITION PLACING RELIANC E ON THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF INDUSTRIAL SECURITIES AND INVESTMENTS REPORTED IN (2015) 7 TML 1063 (MADRAS). ITA NO.275/MDS/2017 :- 6 -: RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT, WE UPHOLD THE ORDER OF THE LD.CIT(A) AND THE REVENUE APPEAL ON THIS GROUND IS DISMISSED. 4.0 IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON JUNE 08, 201 7, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ! . . $ ) (D.S.SUNDER SINGH) /ACCOUNTANT MEMBER /CHENNAI, 5 /DATED: JUNE 08, 2017. TLN 0 .$6 76 /COPY TO: 1. - /APPELLANT 4. 8 /CIT 2. ./- /RESPONDENT 5. 6 . /DR 3. 8 ( ) /CIT(A) 6. * /GF