ACIT CORPORATE CIRCLE 6(1), CHENNAI V. SHRIRAM PROPERTIES PVT LTD., CHENNAI

ITA 2995/CHNY/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2546 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 01-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B SAGADEVAN JCIT
• Assessee Lawyers: RAJIV RAGHAV MENON
• Keywords: Earning of tax free income
• Section: 14A; 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI , . , % BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI S.JAYARAMAN, ACCOUNTANT MEMBER / I.T.A. NO.2995/CHNY/2018 /ASSESSMENT YEAR: 2014-15 THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-6(1), CHENNAI-600 034. VS M/S. SHRIRAM PROPERTIES PVT.LTD., LAKSHMI NEELA RITE, CHOICE CHAMBER,1 ST FLOOR,NO,9, BAZULLAH ROAD, T.NAGAR, CHENNAI-600 017. PAN:AAFCS5801D ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. B.SAGADEVAN,JCIT /RESPONDENT BY : MR. RAJIV RAGHAV MENON, ADVOCATE /DATE OF HEARING : 07.03.2019 /DATE OF PRONOUNCEMENT : 07.03.2019 / O R D E R PER S.JAYARAMAN, AM: THE REVENUE FILED THIS APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-15, CHENNAI, IN ITA NO.398/ 2016-17 CIT(A)-15 DATED 25.07.2018 FOR THE ASSESSMENT YEAR 2014-15. 2. THE REVENUE FILED AN AFFIDAVIT PLEADING TO CON DONE TWO DAYS DELAY IN FILING OF APPEAL. AFTER HEARING BOTH THE P ARTIES, WE CONDONE THE DELAY IN FILING OF APPEAL AND ADMIT THE SAME FOR HE ARING. 2 ITANO.2995/CHNY/2018 3. M/S. SHRIRAM PROPERTIES PVT. LTD, THE ASSESS EE, IS ENGAGED IN PROPERTY DEVELOPMENT. WHILE MAKING THE ASSESSMENT F OR THE ASSESSMENT YEAR 2014-15, THE ASSESSING OFFICER, INT ER-ALIA, DISALLOWED BRAND LICENCE FEE AND MADE DISALLOWANCE UNDER SECTI ON 14A READ WITH RULE 8D. THE ASSESSEE FILED AN APPEAL BEFORE THE CI T(A). THE LD CIT(A) ALLOWED THE APPEAL RELYING ON THIS TRIBUNAL DECISIO N IN ASSESSEES CASE FOR THE ASSESSMENT YEAR 2012-13. AGGRIEVED AGAINST THAT ORDER, THE REVENUE FILED THIS APPEAL WITH THE FOLLOWING GROUN DS:- 1. THE ORDER OF THE LD. CIT(A) IS CONTRARY TO THE LAW AND FACTS OF THE CASE. 2. THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANC E OF BRAND LICENSE FEE OF RS. 21,11,513/- RELYING UPON THE DEC ISION OF HONBLE TRIBUNALS CHENNAI A BENCH VIDE ITS ORDER ITA NO.2827/MDS/2016 FOR THE A.Y. 20 12-13 IN THE ASSES SEES OWN CASE DECIDED IN FAVOUR OF THE ASSESSEE. 2.1. THE LD. CIT(A) FAILED TO APPRECIATE THAT THE R EVENUE HAS FILED AN APPEAL AGAINST THE ORDER OF THE HONBL E TRIBUNAL BEFORE THE HONBLE HIGH COURT MADRAS, WHICH IS STIL L PENDING. 2.2. THE LD. CIT(A) ERRED IN TREATING THE EXPENDITU RE ON BRAND LICENSE FEE AS REVENUE IN NATURE, THOUGH THE ASSESSEE WAS GETTING AN ENDURING BENEFIT IN ACQUIRI NG THE INTANGIBLE ASSET. 3. THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANC E U/S 14A OF RS.11,18,20,816/- RELYING UPON THE DECISION OF H ONBLE TRIBUNALS CHENNAI A BENCH VIDE ITS ORDER ITA NO.2827/MDS/2016 FOR THE A.Y. 2012-13 IN THE ASSESS EES OWN CASE DECIDED IN FAVOUR OF THE ASSESSEE. 3.1. THE LD. CIT(A) FAILED TO APPRECIATE THAT THE R EVENUE HAS FILED AN APPEAL AGAINST THE ORDER OF THE HONBL E TRIBUNAL BEFORE THE HONBLE HIGH COURT MADRAS, WHICH IS PEND ING. 3 ITANO.2995/CHNY/2018 4. THE LD. DR PRESENTED THE CASE ON THE LINES O F THE GROUNDS OF APPEAL. PER CONTRA, THE LD. AR SUPPORTED THE ORDER OF THE LD. CIT(A). 5. WE HEARD THE RIVAL SUBMISSIONS AND GONE THRO UGH THE RELEVANT MATERIAL. ON THE ABOVE ISSUES, THE RELEVANT PORTION OF THE ORDER OF THIS TRIBUNAL IN ITA NO.2827/MDS/2016 DATED 29.03.2017 I N THE ASSESSEES CASE IS EXTRACTED AS UNDER:- 3. WE HAVE HEARD SHRI SHIVA SRINIVAS, THE LD. DEPA RTMENTAL REPRESENTATIVE AND SHRI R. SIVARAMAN, THE LD.COUNSE L FOR THE ASSESSEE. IT WAS BROUGHT TO THE NOTICE OF THIS BEN CH THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THIS BENCH OF THE TRIBUNAL IN SHRIRAM TRANSPORT FINANCE CO. LTD. V. DCIT IN I.T.A. NO.454 /MDS/2016. THIS TRIBUNAL VIDE ITS ORDER DATED 24.08.2016 FOUND THAT THE PAYMENT WAS MADE BY THE ASSESSEE FOR USING LOGO WHICH BELONGS T O SHRIRAM OWNERSHIP TRUST. SINCE THE PAYMENT WAS MADE FOR US ING THE LOGO WHICH BELONGS TO SHRIRAM OWNERSHIP TRUST, THIS TRIBUNAL F OUND THAT THE PAYMENT MADE BY THE ASSESSEE IS IN THE REVENUE FIEL D. IN VIEW OF THE ORDER OF THIS TRIBUNAL ON IDENTICAL ISSUE, THIS TRI BUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUT HORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 4. THE NEXT ISSUE ARISES FOR CONSIDERATION IS DISAL LOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE INCO ME-TAX ACT, 1961 (IN SHORT 'THE ACT'). 5. SHRI SHIVA SRINIVAS, THE LD. DEPARTMENTAL REPRES ENTATIVE, SUBMITTED THAT THE ASSESSEE MADE INVESTMENT WITH TH E INTENTION TO EARN DIVIDEND INCOME WHICH IS EXEMPTED FROM TAXATION. T HE ASSESSING OFFICER FOUND THAT THE EXPENDITURE WAS NOT COMPUTED UNDER RULE 8D OF INCOME-TAX RULES, 1962. SINCE THE ASSESSEE BEING A COMPANY, ACCORDING TO THE LD. D.R., THE ASSESSEE HAS TO NECE SSARILY INCUR EXPENDITURE AT THE MANAGERIAL LEVEL FOR MAKING DECI SION TO INVEST THE FUNDS, THEREFORE, A PORTION OF EXPENDITURE INCURRED BY THE ASSESSEE WOULD BE RELATABLE TO THE INCOME WHICH IS OTHERWISE NOT TAXABLE UNDER THE PROVISIONS OF INCOME-TAX ACT. HOWEVER, ON APPE AL BY THE ASSESSEE, THE CIT(APPEALS) ALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT NO DIVIDEND INCOME WAS EARNED DURING THE YEAR UNDER CONSIDERATION. ACCORDING TO THE LD. D.R., EARNING OF DIVIDEND INCO ME IS IMMATERIAL WHEN THE EXPENDITURE WAS COMPUTED UNDER RULE 8D(2). WHEN THE ASSESSEE BORROWED FUNDS AND PAID INTEREST, DEFINITE LY A PART OF EXPENDITURE INCURRED BY THE ASSESSEE HAS TO BE RELA TABLE TO EARNING OF DIVIDEND INCOME. MOREOVER, THE SALARY PAID TO MANA GERIAL STAFF FOR 4 ITANO.2995/CHNY/2018 TAKING DECISION TO INVEST THE MONEY, A PART OF SALA RY PAID TO THEM RELATES TO EXPENDITURE FOR EARNING THE INCOME. THEREFORE, ACCORDING TO THE LD. D.R., THE CIT(APPEALS) IS NOT JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THERE WAS NO INCOME. 6. ON THE CONTRARY, SHRI R. SIVARAMAN, THE LD.COUNS EL FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE HAS NOT EARNE D ANY DIVIDEND INCOME DURING THE YEAR UNDER CONSIDERATION. PLACIN G RELIANCE ON THE JUDGMENT OF MADRAS HIGH COURT IN REDINGTON (INDIA) LTD. V. ADDL. CIT (2017) 77 TAXMANN.COM 257, THE LD.COUNSEL SUBMITTED THAT ON IDENTICAL CIRCUMSTANCES, THE MADRAS HIGH COURT FOUND THAT BY APPLYING THE MATCHING CONCEPT IN A YEAR WHERE THERE IS NO EXEMPT ED INCOME, THERE CANNOT BE ANY DISALLOWANCE OF EXPENDITURE. THEREFO RE, ACCORDING TO THE LD. COUNSEL, THE CIT(APPEALS) HAS RIGHTLY ALLOWED T HE CLAIM OF THE ASSESSEE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE MADE INVESTMENT IN THE SHARES OF OTHER COMPANIES. EVEN THOUGH THE ASSESSEE CLAIMED BEFORE THE ASSESSI NG OFFICER THAT THE INVESTMENT WAS PARTLY MADE IN SUBSIDIARY COMPAN IES, IT IS NOT KNOWN HOW SUCH COMPANIES ARE SUBSIDIARY COMPANIES O F THE ASSESSEE. IT IS ALSO NOT KNOWN HOW MANY SHARES OF THE SAID CO MPANIES IN WHICH THE INVESTMENT WAS MADE, WERE HELD BY THE ASSESSEE AT THE RELEVANT POINT OF TIME. THEREFORE, THIS TRIBUNAL IS UNABLE TO FIND OUT WHETHER THE INVESTMENT IS REALLY MADE IN THE SUBSIDIARY COMPANI ES. 8. NOW COMING TO THE CONTENTION OF THE LD.COUNSEL F OR THE ASSESSEE THAT THERE WAS NO INCOME FROM SUCH INVESTM ENT DURING THE YEAR UNDER CONSIDERATION, THE CONTENTION OF THE LD. D.R. IS THAT IRRESPECTIVE OF THE INCOME, THE EXPENDITURE HAS TO BE COMPUTED AS PER THE METHOD PRESCRIBED UNDER RULE 8D(2). 9. WE HAVE CAREFULLY GONE THROUGH THE RULE 8D(2) OF THE INCOME- TAX RULES, 1962, WHICH READS AS FOLLOWS:- METHOD FOR DETERMINING AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME (1) WHERE THE ASSESSING OFFICER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF THE PREVIOUS YEAR, IS NOT SATI SFIED WITH- (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE M ADE BY THE ASSESSEE ; OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDIT URE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR, HE SHALL DETERMINE THE AMOUNT OF 5 ITANO.2995/CHNY/2018 EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDANC E WITH THE PROVISIONS OF SUB-RULE (2). (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE OF FOLLOWING AMOUNTS, NAMELY:- (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING T O INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME ; (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXP ENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR IS NOT DIRECTLY A TTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY :- A X B C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTERE ST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE( I) INCURRED DURING THE PREVIOUS YEAR ; B = THE AVERAGE OF 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 ; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE-SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR ; (III) AN AMOUNT EQUAL TO ONE-HALF PER CENT. OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALAN CE-SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. (3) FOR THE PURPOSES OF THIS RULE, THE 'TOTAL ASSE TS' SHALL MEAN, TOTAL ASSETS AS APPEARING IN THE BALANCE-SHEET EXCLUDING THE INCREASE ON ACCOUNT OF REVALUATION OF ASSETS BUT INCLUDING THE DECREASE ON ACCOUNT OF REVALUATION OF ASSETS. 10. WE HAVE ALSO CAREFULLY GONE THROUGH THE JUDGMEN T OF MADRAS HIGH COURT IN REDINGTON (INDIA) LTD. (SUPRA). THE MADRA S HIGH COURT HAS OBSERVED AT PARAGRAPHS 14 AND 15 AS FOLLOWS:- 6 ITANO.2995/CHNY/2018 14. NOTHING MUCH TURNS ON THE USE OF THE WORD INCL UDABLE AND THE PHRASE UNDER THE ACT IN S.14A AND WE ARE NOT PERSUADED TO ACCEPT THE EMPHASIS LAID OR THE INTERPRETATION OF T HE SAME BY THE REVENUE. AN ASSESSMENT IN TERMS OF THE INCOME-TAX ACT IS SPECIFIC TO AN ASSESSMENT YEAR AND RELATED PREVIOUS YEAR. S .4 OF THE ACT, WHICH IMPOSES THE CHARGE TO TAX READS THUS: CHARGE OF INCOME-TAX 4. (1) WHERE ANY CENTRAL ACT ENACTS THAT INCOME-TA X SHALL BE CHARGED FOR ANY ASSESSMENT YEAR AT ANY RATE OR R ATES, INCOME-TAX AT THAT RATE OR THOSE RATES SHALL BE CHA RGED FOR THAT YEAR IN ACCORDANCE WITH AND SUBJECT TO THE PRO VISIONS (INCLUDING PROVISIONS FOR THE LEVY OF ADDITIONAL IN COME-TAX) OF, THIS ACT IN RESPECT OF THE TOTAL INCOME OF THE PREV IOUS YEAR OF EVERY PERSON: PROVIDED THAT WHERE BY VIRTUE OF ANY PROVISION OF THIS ACT INCOME-TAX IS TO BE CHARGED IN RESPECT OF THE INCOM E OF A PERIOD OTHER THAN THE PREVIOUS YEAR, INCOME-TAX SHA LL BE CHARGED ACCORDINGLY. THUS, WHERE THE STATUTE INDENTED THAT INCOME SHALL BE RECOGNIZED FOR TAXATION IN RESPECT OF ANY PREVIOUS OTHER THAN THAT IMMEDIATELY PRECEDING THE RELEVANT ASSESSMENT YEAR, THE PROVISI ON SHALL EXPRESSLY STATE SO. THE PROVISIONS OF S.10 IN CHAP TER III OF THE ACT DEALING WITH INCOMES NOT INCLUDED IN THE TOTAL INC OME COMMENCES WITH THE PHRASE IN COMPUTING THE TOTAL INCOME OF A PREVIOUS YEAR, ANY INCOME FALLING WITHIN ANY OF THE FOLLOWING CLAU SES SHALL NOT BE INCLUDED 15. THE EXEMPTION EXTENDED TO DIVIDEND INCOME WOUL D RELATE ONLY TO THE PREVIOUS 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 WHER E THERE IS NO EXEMPT INCOME, THERE CANNOT BE A DISALLOWANCE OF EX PENDITURE IN RELATION TO SUCH ASSUMED INCOME. MADRAS INDUSTRIAL INVESTMENT CORPN.LTD. V. CIT (1997) 225 ITR 802/91 TAXMAN 340 (SC). THE LANGUAGE OF S.14A (1) SHOULD BE READ IN THAT CONTEX T AND SUCH THAT IT ADVANCES THE SCHEME OF THE ACT RATHER THAN DISTORT IT. 11. IN VIEW OF THE JUDGMENT OF MADRAS HIGH COURT, T HIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 7 ITANO.2995/CHNY/2018 12. THE NEXT ISSUE ARISES FOR CONSIDERATION IS COMP UTATION OF BOOK PROFIT UNDER SECTION 115JB OF THE ACT. 13. WE HAVE HEARD SHRI SHIVA SRINIVAS, THE LD. DEPA RTMENTAL REPRESENTATIVE AND SHRI R. SIVARAMAN, THE LD. COUNS EL FOR THE ASSESSEE. THE CIT(APPEALS), BY FOLLOWING THE ORDER OF THIS TRIBUNAL, DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. IN FACT, THE CIT(APPEALS) REPRODUCED THE ORDER OF THIS TRIBUNAL. SINCE THE CIT(APPEALS) HAS FOLLOWED THE ORDER OF THIS TRIBUNA L, THERE CANNOT BE ANY GRIEVANCE ON THE PART OF THE REVENUE. THEREFOR E, THIS TRIBUNAL FINDS NO REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 6. SINCE THE ABOVE DECISION IS RENDERED IN THE ASSESSEES CASE FOR THE EARLIER ASSESSMENT YEAR AND THERE IS NO CHANGE IN T HE FACTS & CIRCUMSTANCES OF THE CASE, FOLLOWING THE ABOVE OR DER OF THIS TRIBUNAL, WE REJECT THE GROUNDS RAISED BY THE REVENUE. 7. IN THE RESULT, THE REVENUES APPEAL IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH MARCH, 2019 AT CHENNAI SD/- SD/- ( ) ( . ) (GEORGE MATHAN) (S.JAYARAMAN) ( ! / JUDICIAL MEMBER) ( ! / ACCOUNTANT MEMBER) /CHENNAI, # /DATED 07 TH MARCH, 2019 SOMU '( )( /COPY TO: 1. APPELLANT 2. RESPONDENT 3. * ( ) /CIT(A) 4. * /CIT 5. ( . /DR 6. 1 /GF