ACIT, CHENNAI V. M/s. South Asia FM Ltd., CHENNAI

ITA 2811/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4891 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 16-03-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 28-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: N DEVANATHAN
• Keywords: Earning of tax free income
• Section: 14A; 147

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , .. ' #$, & '( BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NOS.2809, 2810, 2811, 2812 & 2813/MDS/2016 * +* / ASSESSMENT YEARS : 2009-10 TO 2013-14 & C.O. NOS.184, 185, 186, 187 & 188/MDS/2016 (IN ITA NOS.2809, 2810, 2811, 2812 & 2813/MDS/20160 THE ASSISTANT COMMISSIONER OF INCOME TAX, NON-CORPORATE CIRCLE 15(1), CHENNAI - 600 034. V. M/S SOUTH ASIA FM LTD., NO.73, MURASOLIMARAN TOWERS, MRC NAGAR MAIN ROAD, MRC NAGAR, CHENNAI - 600 028. PAN : AAJCS 6348 B (-./ APPELLANT) ( RESPONDENT & CROSS-OBJECTOR) -. / 0 / APPELLANT BY : SHRI A.V. SREEKANTH, JCIT 12-. / 0 / RESPONDENT BY : SH. N. DEVANATHAN, ADVOCATE ' / 3& / DATE OF HEARING : 16.03.2017 45+ / 3& / DATE OF PRONOUNCEMENT : 20.04.2017 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: IN ALL THE APPEALS OF THE REVENUE, THE COMMON ISS UE ARISES FOR CONSIDERATION IS WITH REGARD TO DISALLOWANCE MA DE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE INCOME-T AX ACT, 1961 (IN SHORT 'THE ACT'). THE ASSESSEE HAS FILED CROSS-OBJ ECTIONS AGAINST THE 2 I.T.A. NOS.2809 TO 2813/MDS/16 C.O. NOS.184 TO 188/MDS/16 VERY SAME ORDERS OF THE CIT(APPEALS). THEREFORE, W E HEARD APPEALS OF THE REVENUE AND CROSS-OBJECTIONS OF THE ASSESSEE TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON O RDER. 2. THERE WAS A DELAY OF 5 DAYS IN FILING THE APPEAL S BY THE REVENUE, FOR ASSESSMENT YEARS 2009-10, 2010-11 AND 2012-13. THE REVENUE HAS FILED PETITIONS FOR CONDONATION OF DELAY. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIVE AND THE L D.COUNSEL FOR THE ASSESSEE. WE FIND THAT THERE WAS SUFFICIENT CA USE FOR NOT FILING THESE APPEALS BEFORE THE STIPULATED TIME. THEREFOR E, WE CONDONE THE DELAY AND ADMIT THE APPEALS. 3. SHRI A.V. SREEKANTH, THE LD. DEPARTMENTAL REPRES ENTATIVE, SUBMITTED THAT THE CIT(APPEALS) DELETED THE DISALLO WANCE MADE BY THE ASSESSING OFFICER ON THE GROUND THAT NO DIVIDEN D INCOME WAS RECEIVED DURING THE YEARS UNDER CONSIDERATION. REF ERRING TO SECTION 14A OF THE ACT AND RULE 8D(2) OF THE INCOME-TAX RUL ES, 1962, THE LD. D.R. SUBMITTED THAT THE CONSTITUTIONAL VALIDITY OF SECTION 14A AND RULE 8D WAS UPHELD BY VARIOUS HIGH COURTS, THEREFOR E, WHENEVER THERE WAS AN EXPENDITURE FOR EARNING EXEMPTED INCOM E OR MAKING INVESTMENT WITH AN INTENTION TO EARN EXEMPTED INCOM E, THE DISALLOWANCE HAS TO BE COMPUTED UNDER RULE 8D(2). ACCORDING TO 3 I.T.A. NOS.2809 TO 2813/MDS/16 C.O. NOS.184 TO 188/MDS/16 THE LD. D.R., RULE 8D(2) DOES NOT RESTRICT THE EXPE NDITURE WITH REGARD TO INCOME. EARNING OF INCOME IS IMMATERIAL FOR DISALLOWING THE EXPENDITURE UNDER SECTION 14A READ WITH RULE 8D (2). IF THE CONTENTION OF THE ASSESSEE IS THAT THERE WAS NO INC OME, THEREFORE, THERE CANNOT BE ANY DISALLOWANCE UNDER RULE 8D(2), THEN THE VERY OBJECT OF INCLUDING RULE 8D(2) WOULD BE DEFEATED. 4. THE LD. DEPARTMENTAL REPRESENTATIVE FURTHER SUBM ITTED THAT WHEN THE ASSESSEE HAS INVESTED MONEY IN SHARES AND DEBENTURES, THE INCOME WHICH IS EXEMPTED UNDER THE PROVISIONS O F INCOME-TAX ACT, IRRESPECTIVE OF THE FACT WHETHER THE ASSESSEE HAS RECEIVED ANY INCOME OR RETURN FROM SUCH INVESTMENT DURING THE YE AR UNDER CONSIDERATION, IN VIEW OF THE FACT THAT THE ASSESSE E HAS INVESTED THE MONEY, THE EXPENDITURE FOR INCURRING SUCH INCOME HA S TO BE DISALLOWED. THE EXPENDITURE HAS TO BE COMPUTED BY APPLYING THE PRINCIPLE PROVISIONS OF RULE 8D(2) OF INCOME-TAX RU LES. THEREFORE, ACCORDING TO THE LD. D.R., THE CIT(APPEALS) IS NOT JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. 5. ON THE CONTRARY, SH. N. DEVANATHAN, THE LD.COUNS EL FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE ADMITTEDLY HA S NOT RECEIVED ANY INCOME DURING THE YEARS UNDER CONSIDERATION. P LACING RELIANCE 4 I.T.A. NOS.2809 TO 2813/MDS/16 C.O. NOS.184 TO 188/MDS/16 ON THE JUDGMENT OF MADRAS HIGH COURT IN REDINGTON ( INDIA) LTD. V. ADDL. CIT IN T.C.A. NO.520 OF 2016 DATED 23.12.2016 , THE LD.COUNSEL SUBMITTED THAT ON IDENTICAL SITUATION, T HE MADRAS HIGH COURT HELD THAT BY APPLYING THE MATCHING CONCEPT, I N A YEAR WHERE THERE IS NO EXEMPTED INCOME, THERE CANNOT BE ANY DI SALLOWANCE IN RELATION TO SUCH ASSUMED INCOME. THEREFORE, ACCORD ING TO THE LD. COUNSEL, THE CIT(APPEALS) HAS RIGHTLY DELETED THE A DDITION MADE BY THE ASSESSING OFFICER. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE PARLIAMENT IN THEIR WISDOM INCLUDED SECTION 14A OF THE ACT WHI CH READS AS FOLLOWS:- EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME (1)FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME U NDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT O F EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. (2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDAN CE WITH SUCH METHOD AS MAY BE PRESCRIBED, IF THE ASSESSING OFFIC ER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATI SFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH 5 I.T.A. NOS.2809 TO 2813/MDS/16 C.O. NOS.184 TO 188/MDS/16 EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FOR M PART OF THE TOTAL INCOME UNDER THIS ACT. (3) THE PROVISIONS OF SUB-SECTION (2) SHALL ALSO APP LY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HA S BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PA RT OF THE TOTAL INCOME UNDER THIS ACT. PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHA LL EMPOWER THE ASSESSING OFFICER EITHER TO REASSESS UNDER SECTION 147 OR PASS AN ORDER ENHANCING THE ASSESSMENT OR REDUCING A REFUND ALREADY MADE OR OTHERWISE INCREASING THE LIABILITY OF THE ASSESS EE UNDER SECTION 154, FOR ANY ASSESSMENT YEAR BEGINNING ON OR BEFORE T HE 1ST DAY OF APRIL, 2001. 7. IN VIEW OF SECTION 14A OF THE ACT, THERE CANNOT BE ANY DEDUCTION IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTA L INCOME. FOR THE PURPOSE OF COMPUTATION OF DISALLOWANCE, THE RULE MA KING AUTHORITY, BY VIRTUE OF POWER CONFERRED ON THEM, PROVIDED A ME THOD UNDER RULE 8D(2) OF INCOME-TAX RULES, 1962. WHENEVER THE ASSESSING OFFICER HAVING REGARD TO THE ACCOUNT OF THE ASSESSE E, WAS NOT SATISFIED THE CORRECTNESS OF CLAIM THAT EXPENDITURE INCURRED BY THE ASSESSEE OR THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED IN RELATION TO THE INCOME WHICH DOES N OT FORM PART OF TOTAL INCOME, HE MAY DETERMINE THE AMOUNT OF EXPEND ITURE IN RELATION TO SUCH INCOME IN ACCORDANCE WITH THE METH OD FOUND IN RULE 8D(2). 6 I.T.A. NOS.2809 TO 2813/MDS/16 C.O. NOS.184 TO 188/MDS/16 8. THE CONSTITUTIONAL VALIDITY OF SECTION 14A OF TH E ACT AND RULE 8D OF INCOME-TAX RULES, 1962 WAS UPHELD BY VARIOUS HIGH COURTS IN THE COUNTRY. THE MADRAS HIGH COURT IN REDINGTON (I NDIA) LTD. (SUPRA) FOUND THAT BY APPLICATION OF MATCHING CONCE PT, WHERE THERE IS NO EXEMPT INCOME, THERE CANNOT BE ANY DISALLOWAN CE OF EXPENDITURE. IN FACT, THE MADRAS HIGH COURT AT PAR AGRAPHS 15 AND 16 IN THEIR JUDGMENT HAS HELD AS UNDER:- 15. THE EXEMPTION EXTENDED TO DIVIDEND INCOME WOULD RELATE ONLY TO THE PREVIOUS YEAR WHEN THE INCOME WA S EARNED AND NONE OTHER AND CONSEQUENTLY THE EXPENDITURE INCU RRED IN CONNECTION THEREWITH SHOULD ALSO BE DEALT WITH IN T HE SAME PREVIOUS YEAR. THUS, BY APPLICATION OF THE MATCHIN G CONCEPT, IN A YEAR WHERE THERE IS NO EXEMPT INCOME, THERE CAN NOT BE A DISALLOWANCE OF EXPENDITURE IN RELATION TO SUCH AS SUMED 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 S CHEME OF THE ACT RATHER THAN DISTORT IT. 16. IN CONCLUSION, WE ARE OF THE VIEW THAT THE PROV ISIONS OF S.14A READ WITH RULE 8D OF THE RULES CANNOT BE MA DE APPLICABLE IN A VACUUM I.E. IN THE ABSENCE OF EXEMPT INCOME. THE QUESTIONS OF LAW ARE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT AND THE APPEAL ALLOWED. NO COSTS. 7 I.T.A. NOS.2809 TO 2813/MDS/16 C.O. NOS.184 TO 188/MDS/16 9. IN VIEW OF THE ABOVE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 10. NOW COMING TO THE CROSS-OBJECTIONS FILED BY THE ASSESSEE, ON PERUSAL OF GROUNDS OF APPEAL, IT IS FOUND THAT T HESE CROSS- OBJECTIONS ARE ONLY TO SUPPORT THE ORDERS OF THE CI T(APPEALS). THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT ALL THE CROSS-OBJECTIONS OF THE ASSESSEE HAVE BECOME INFRUC TUOUS. 11. IN THE RESULT, BOTH, THE APPEALS OF THE REVENUE AS WELL AS THE CROSS-OBJECTIONS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON 20 TH APRIL, 2017 AT CHENNAI. SD/- SD/- ( . . ' #$ ) ( . . . ) (D.S. SUNDER SINGH) (N.R.S. GANESAN) & / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 7 /DATED, THE 20 TH APRIL, 2017. KRI. 8 I.T.A. NOS.2809 TO 2813/MDS/16 C.O. NOS.184 TO 188/MDS/16 / 13#8 98+3 /COPY TO: 1. -. /APPELLANT 2. 12-. /RESPONDENT 3. ' :3 () /CIT(A)-15, CHENNAI-34 4. ' :3 /CIT-6, CHENNAI-34 5. 8; 13 /DR 6. * < /GF.