Thriveni Earth Movers Private Ltd., Salem V. JCIT, Salem

ITA 308/CHNY/2015

• Counselvise Citation: 30821714 RSA 2015
• Duration Of Justice: 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 04-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: G BASKAR
• Keywords: Revenue expenditure
• Section: 14A; 80G

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , . !' , $ % BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.308/MDS/2015 ' (' / ASSESSMENT YEAR : 2011-12 M/S THRIVENI EARTH MOVERS PRIVATE LTD., 22/110, GREENWAYS ROAD, FAIRLANDS, SALEM 636 016. PAN : AABCT 6759 R V. THE JOINT COMMISSIONER OF INCOME TAX, RANGE I, SALEM. (*+/ APPELLANT) (,-*+/ RESPONDENT) *+ . / / APPELLANT BY : SH. G. BASKAR, ADVOCATE ,-*+ . / / RESPONDENT BY : SH. P. RADHAKRISHNAN, JCIT 0 . 1$ / DATE OF HEARING : 07.04.2015 2!( . 1$ / DATE OF PRONOUNCEMENT : 29.05.2015 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), SALEM, DATED 28.11.2014 AND PERTAINS TO ASSESSMENT YEAR 2011-12. 2 I.T.A. NO.308/MDS/15 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DISALLOWANCE OF EXPENDITURE INCURRED BY THE ASSESSE E FOR EARNING EXEMPTED INCOME UNDER SECTION 14A OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). 3. SHRI G. BASKAR, THE LD.COUNSEL FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSING OFFICER HAS DISALLOWED ` 91,28,736/- BEING THE EXPENDITURE INCURRED FOR EARNING EXEMPTED INCOME. ACCORDING TO THE LD.COUNSEL, THE ASSESSEE HAS INCURRED DIRECT EX PENSES TOWARDS WAGES AND SALARIES TO THE EXTENT OF ` 13,19,500/-. THE ASSESSING OFFICER HAS ALSO ESTIMATED THE PROPORTIONATE INTERE ST ON THE AVERAGE INVESTMENTS TO THE EXTENT OF ` 38,47,355/-. ACCORDING TO THE LD.COUNSEL, THE ASSESSEE HAS NOT RECEIVED ANY DIVID END INCOME FROM FOUR COMPANIES. THEREFORE, THERE IS NO JUSTIF ICATION IN DISALLOWING ANY CLAIM OF THE ASSESSEE. THE LD.COUN SEL PLACED HIS RELIANCE ON THE DECISION OF THIS BENCH OF THE TRIBU NAL IN ACIT V. MR. M. BASKARAN IN I.T.A. NO.1717/MDS/2013 DATED 31.07. 2014. THE LD.COUNSEL FURTHER SUBMITTED THAT APART FROM MUTUAL FUNDS, THE ASSESSEE HAS INVESTED FUNDS IN ITS SUBSIDIARY COMPA NY WHICH IS ALSO IN THE NATURE OF SAME LINE OF BUSINESS AS THAT OF THE ASSESSEE. ACCORDING TO THE LD.COUNSEL, NO INVESTMENT WAS MADE WITH AN INTENTION TO EARN DIVIDEND INCOME. ACCORDING TO TH E LD.COUNSEL, THE 3 I.T.A. NO.308/MDS/15 INTENTION WAS TO DIVERSIFY THE BUSINESS THROUGH SIS TER CONCERN. THEREFORE, ACCORDING TO THE LD.COUNSEL, THE PROVISI ONS OF SECTION 14A OF THE ACT ARE NOT APPLICABLE. THE LD.COUNSEL HAS PLACED RELIANCE ON THE DECISIONS OF THIS BENCH OF THE TRIB UNAL IN EIH ASSOCIATED HOTELS LIMITED V. DCIT IN I.T.A. NO.1503 /MDS/2012 DATED 17.07.2013 AND MUMBAI BENCH OF THIS TRIBUNAL IN ACIT V. SMART CHIP LTD. (2014) 41 CCH 0392 AND J.M. FINANCI AL LTD. V. ADDL. CIT IN I.T.A. NO.4521/MUM/2012 DATED 26.03.20 14. THE LD.COUNSEL HAS ALSO PLACED RELIANCE ON THE DECISION OF INTERGLOBE ENTERPRISES LTD. V. DCIT (2014) 40 CCH 022. THE LD .COUNSEL SUBMITTED THAT THE ASSESSING OFFICER MAY BE DIRECTE D TO EXCLUDE THE INVESTMENT MADE IN SHARE CAPITAL OF THE SUBSIDIARY COMPANY M/S MAA TARANI LOGISTICS LTD. 4. SHRI G. BASKAR, THE LD.COUNSEL FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS DISALLOWED A PORTION OF THE S ALARY APPLYING RULE 8D OF THE INCOME-TAX RULES, 1962 TO THE EXTENT OF .5% OF AVERAGE INVESTMENTS. THE LD.COUNSEL SUBMITTED THAT NO BORROWED FUNDS ARE UTILIZED FOR MAKING INVESTMENTS. ACCORDIN G TO THE LD.COUNSEL, ONLY THE INVESTMENT IN THE EXEMPTED ASS ET SHOULD BE RECKONED AND NOT THE ENTIRE INVESTMENTS IN SHARES A ND MUTUAL FUNDS. THE LD.COUNSEL PLACED HIS RELIANCE ON THE J UDGMENT OF DELHI 4 I.T.A. NO.308/MDS/15 HIGH COURT IN THE CASE OF ACB INDIA LIMITED V. ACIT IN ITA 615/2014 DATED 24.03.2015. A COPY OF THE ORDER HAS BEEN FILED BY THE ASSESSEE. 5. THE LD.COUNSEL FOR THE ASSESSEE FURTHER SUBMITTE D THAT THE ASSESSEE IS MAINLY ENGAGED IN PROVIDING CONTRACT MI NING SERVICES AT VARIOUS MINES LOCATED IN REMOTE AND TRIBAL AREAS OF ODISHA. ACCORDING TO THE LD.COUNSEL, THESE VILLAGES, WHERE THE ASSESSEE WAS CARRYING ON MINING OPERATION, HAVE NO ADEQUATE DRINKING WATER, MEDICAL FACILITIES, SCHOOLS, ETC. THE LD.COUNSEL F URTHER SUBMITTED THAT THESE VILLAGES HAVE NO PROPER ROAD FACILITIES ALSO. THE IRON ORE MINING OPERATIONS REQUIRE CLEARANCES FROM POLLUTION CONTROL BOARD AND OTHER STATUTORY AUTHORITIES. WHENEVER PERMISSI ON WAS SOUGHT FOR RENEWAL OF EXISTING QUANTITY OF PRODUCTION, IT IS MANDATORY FOR THE DISTRICT COLLECTOR TO HOLD PUBLIC HEARING TO ASCERT AIN THE VIEW OF THE VILLAGERS. ACCORDING TO LD.COUNSEL, THIS PUBLIC HE ARING WAS CONDUCTED BY COLLECTOR WITH AN INTENTION TO ENSURE THAT THE OPERATION OF THE ASSESSEE-COMPANY ENHANCES THE SOCIO ECONOMIC CONDITION OF PUBLIC IN THE LOCAL COMMUNITY. IN ORDER TO WIN THE GOODWILL OF THE PEOPLE AND TO ENHANCE THEIR SOCIO ECONOMIC STATUS, THE ASSESSEE- COMPANY UNDERTOOK VARIOUS PROJECTS FOR UPLIFTMENT O F THE POOR VILLAGES AND TRIBALS. THE CONSENT OF THE GOVERNMEN T TO CONTINUE THE 5 I.T.A. NO.308/MDS/15 MINING OPERATION IS DEPENDENT ON THE POSITIVE IMPAC T CREATED BY THE ASSESSEE-COMPANY IN THE LOCALITY. THEREFORE, ACCOR DING TO THE LD.COUNSEL, SEVERAL PROGRAMMES WERE CARRIED OUT TO TAKE CARE OF THE LOCAL PUBLIC. IN FACT, ACCORDING TO THE LD.COU NSEL, THE ASSESSEE HAS INCURRED EXPENDITURE IN REPAIR, RENOVATION AND MAINTENANCE OF HOSPITALS, SCHOOLS, COLLEGES AND CO-OPERATIVE SOCIE TY WHICH ARE LOCATED IN THE MINES AREA WHERE THE ASSESSEE OPERAT ES. ACCORDING TO THE LD.COUNSEL, THE EXPENDITURE WAS INCURRED BY THE ASSESSEE FOR MAINTAINING HOSPITALS, SCHOOLS AND COLLEGES AND PRO VIDING MEDICAL FACILITIES AND EDUCATION FACILITIES TO THE VILLAGES SURROUNDING THE AREA WHERE THE MINING OPERATION WAS CARRIED ON BY THE AS SESSEE. THIS EXPENDITURE WOULD GO TO EXTEND THE CONFIDENCE, TRUS T AND GOODWILL OF THE LOCAL COMMUNITY. THEREFORE, THE EXPENDITURE IN CURRED BY THE ASSESSEE HAS TO BE ALLOWED AS REVENUE EXPENDITURE. THE LD.COUNSEL PLACED RELIANCE ON THE JUDGMENT OF THE M ADRAS HIGH COURT IN THE CASE OF CIT V. VELUMANICKAM LODGE (200 9) 317 ITR 338 AND SUBMITTED THAT THE ASSESSEE BEFORE THE MADR AS HIGH COURT IN VELUMANICKAM LODGE (SUPRA) HAS CONSTRUCTED HOCKE Y STADIUM IN THE DISTRICT COLLECTORATE COMPLEX FOR THE USE OF PU BLIC AT LARGE. THE EXPENDITURE INCURRED BY THE ASSESSEE FOR CONSTRUCTI ON OF HOCKEY STADIUM WAS ALLOWED AS REVENUE EXPENDITURE. THEREF ORE, THE EXPENDITURE INCURRED BY THE ASSESSEE ON REPAIRING, RENOVATION AND 6 I.T.A. NO.308/MDS/15 MAINTENANCE OF HOSPITALS, SCHOOLS, COLLEGES AND CO- OPERATIVE SOCIETYS BUILDING ALSO NEEDS TO BE ALLOWED AS REVE NUE EXPENDITURE. 6. ON THE CONTRARY, SH. P. RADHAKRISHNAN, THE LD. D EPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE DECLARE D DIVIDEND INCOME TO THE EXTENT OF ` 3,35,49,162/- AS EXEMPT FROM TAXATION. HOWEVER, NO EXPENDITURE WAS SHOWN FOR EARNING THIS INCOME. THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT THE INVESTMENTS HAD BEEN MADE OUT OF FREE RESERVES AND PROFITS AND NO PART OF THE BORROWED FUNDS WAS USED FOR MAKING SUCH INVESTMENTS . THE ASSESSEE FURTHER CLAIMED THE DIRECT EXPENDITURE IN THE FORM OF SALARIES AND WAGES TO THE EXTENT OF ` 13,19,500/- AND AT THE BEST, THE ASSESSEE ADMITTED BEFORE THE ASSESSING OFFICER THAT THE INDIRECT EXPENDITURE ATTRIBUTABLE TO EARNING THE EXEMPTED IN COME WOULD BE TO THE EXTENT OF ` 6,00,000/-. REFERRING TO SECTION 14A(1) OF THE ACT , THE LD. D.R. POINTED OUT THAT NO EXPENDITURE WOULD BE ALLOWED AS DEDUCTION IN RESPECT OF EXEMPTED INCOME. REFERRING TO SECTION 14A(2) OF THE ACT, THE LD. D.R. SUBMITTED THAT THER E IS A STATUTORY OBLIGATION ON THE PART OF THE ASSESSING OFFICER TO DETERMINE THE EXPENDITURE INCURRED TO EARN THE EXEMPTED INCOME IN ACCORDANCE WITH RULE 8D OF THE INCOME-TAX RULES, 1962. THEREF ORE, THE ASSESSING OFFICER COMPUTED THE EXPENDITURE UNDER SE CTION 14A(2) 7 I.T.A. NO.308/MDS/15 R.W.R 8D OF THE INCOME-TAX RULES, 1962. ACCORDINGL Y, THE TOTAL EXPENDITURE DETERMINED BY THE ASSESSING OFFICER WAS ` 91,28,736/-. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL ON RECORD. ADMITTEDL Y, THE ASSESSEE CLAIMED DIVIDEND INCOME OF ` 3,35,49,162/- AS EXEMPTED FROM INCOME-TAX. HOWEVER, NO EXPENDITURE WAS SHOWN FOR EARNING SUCH EXEMPTED INCOME. THE CLAIM OF THE ASSESSEE BEFORE THIS TRIBUNAL IS THAT NO DIVIDEND WAS RECEIVED FROM THE INVESTMENTS MADE IN FOUR COMPANIES. THEREFORE, THERE WAS NO JUSTIFICATION I N DISALLOWING THE CLAIM OF THE ASSESSEE UNDER SECTION 14A OF THE ACT. IF NO DIVIDEND WAS RECEIVED BY THE ASSESSEE FROM THE FOUR COMPANIE S, IT IS NOT KNOWN FROM WHERE THE ASSESSEE HAS RECEIVED EXEMPTED INCOME TO THE EXTENT OF ` 3,35,49,162/-. THE ASSESSEE CLAIMED THAT THE ENTIR E INVESTMENTS WERE MADE FROM RESERVES AND PROFITS AVA ILABLE WITH THE ASSESSEE AND NO PART OF THE BORROWED FUNDS WAS USED FOR MAKING THE INVESTMENTS. THE DETAILS OF THE BORROWED FUNDS AND AVAILABILITY OF FREE RESERVES AND PROFITS ARE NOT AVAILABLE ON R ECORD. WE HAVE ALSO CAREFULLY GONE THROUGH THE CASE LAWS RELIED ON BY THE LD.COUNSEL FOR THE ASSESSEE. FOR APPLYING THOSE CA SE LAWS, IT IS NECESSARY TO FIND OUT WHETHER THE INVESTMENTS WERE MADE FROM THE BORROWED FUNDS OR FROM INTEREST FREE FUNDS AVAILABL E WITH THE 8 I.T.A. NO.308/MDS/15 ASSESSEE. IT IS ALSO NECESSARY TO FIND OUT WHETHER THE ASSESSEE HAS RECEIVED EXEMPTED INCOME FROM THOSE INVESTMENTS. O NLY AFTER ASCERTAINING THOSE FACTS, THE CASE LAWS RELIED ON B Y THE LD.COUNSEL WOULD BE APPLIED. IN THE ABSENCE OF DETAILS ON THE FILE OF THIS TRIBUNAL, THIS TRIBUNAL IS OF THE CONSIDERED OPINIO N THAT THE MATTER NEEDS TO BE RECONSIDERED BY THE ASSESSING OFFICER. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE. THE ENTIRE ISSUE OF DISALLOWANCE UNDER SECTION 14A OF THE ACT IS REMITT ED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFIC ER SHALL RECONSIDER THE ISSUE AFRESH AFTER CONSIDERING THE INTEREST FRE E FUNDS AVAILABLE WITH THE ASSESSEE, INCLUDING THE PROFITS AND THE EX TENT OF BORROWED FUNDS, AND THE EXTENT OF THE EXEMPTED INCOME EARNED BY THE ASSESSEE AND THEREAFTER DECIDE THE ISSUE IN ACCORDA NCE WITH LAW AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE . 8. NOW COMING TO THE EXPENDITURE INCURRED BY THE AS SESSEE TO THE EXTENT OF ` 55,73,062/-, THE ASSESSEE CLAIMS THAT THE EXPENSES WERE INCURRED FOR REPAIR, RENOVATION AND MAINTENANC E OF HOSPITALS, SCHOOLS, COLLEGES AND CO-OPERATIVE SOCIETY BUILDING . HOWEVER, THE ASSESSING OFFICER FOUND THAT APART FROM MAINTAINING HOSPITALS, SCHOOLS, COLLEGES AND CO-OPERATIVE SOCIETY BUILDING , THE ASSESSEE ALSO DONATED TO AMRUTH DEVELOPMENT SOCIETY AND KUDI MI VIKAS 9 I.T.A. NO.308/MDS/15 PARISHAD. THE ASSESSEE ALSO MADE PAYMENTS TO SARAS WATHI SISHU MANDIR, ADARSH ODISHA FOUNDATION AND ADIVASI VIKAS SAMITHI. THE ASSESSING OFFICER DISALLOWED THIS CLAIM ON THE GROU ND THAT THE CLAIM OF THE ASSESSEE HAS NO JUSTIFICATION AND THE PAYMEN TS MADE BY THE ASSESSEE WERE TO THE INSTITUTIONS WHICH WERE NOT RE COGNIZED UNDER SECTION 80G OF THE ACT. SINCE THE MAIN ISSUE OF DI SALLOWANCE UNDER SECTION 14A OF THE ACT IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ISSUE OF DISALLOWANCE OF ` 55,73,062/- ALSO NEEDS TO BE RECONSIDERED BY THE ASSESSING OFFICER. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE. THE ISSUE OF DISALLOWANCE OF ` 55,73,062/- IS ALSO REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. IT IS NEEDLESS TO POINT OUT THAT WHILE RECONSIDERING THE ISSUE, THE A SSESSING OFFICER SHALL TAKE INTO CONSIDERATION THE JUDGMENT OF MADRA S HIGH COURT IN THE CASE OF VELUMANICKAM LODGE (SUPRA) AND OTHER MA TERIALS THAT WOULD BE FILED BY THE ASSESSEE AND THEREAFTER DECID E THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTU NITY TO THE ASSESSEE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. 10 I.T.A. NO.308/MDS/15 ORDER PRONOUNCED ON 29 TH MAY, 2015 AT CHENNAI. SD/- SD/- (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) (. !' ) ( . . . ) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 29 TH MAY, 2015. KRI. . ,156 76(1 /COPY TO: 1. *+ /APPELLANT 2. ,-*+ /RESPONDENT 3. 0 81 () /CIT(A), SALEM 4. 0 81 /CIT, SALEM 5. 69 ,1 /DR 6. :' ; /GF.