Travancore Textiles P Ltd., CHENNAI V. ITO, CHENNAI

ITA 3193/CHNY/2018

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 2204 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 26-11-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Rule of consistency

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , . , % BEFORE SHRI V.DURGA RAO , JUDICIAL MEMBER AND SHRI G.MANJUNATHA, ACCOUNTANT MEMBER ./ I.T.A.NOS.3193 /CHNY/2018 & 176/CHNY/2019 ( / ASSESSMENT YEARS: 2014-15 & 2015-16) M/S. THE TRAVANCORE TEXTILES P.LTD. 22, HADDOWS ROAD, CHENNAI-600 006. VS THE INCOME TAX OFFICER, CORPORATE WARD-3(2), CHENNAI. PAN: AAACT 2492E ( /APPELLANT) /RESPONDENT/ / APPELLANT BY : MR.S.SRIDHAR, ADVOCATE /RESPONDENT BY : MR. SURESH PERIASAMY, JCIT /DATE OF HEARING : 01.02.2021 /DATE OF PRONOUNCEMENT : 03.03.2021 / O R D E R PER G.MANJUNATHA, AM: THESE TWO APPEALS FILED BY ASSESSEE ARE DIRECTED A GAINST SEPARATE, BUT IDENTICAL ORDERS OF LEARNED CIT(A)-11 , CHENNAI DATED 16.10.2018 AND 31.10.2018 AND PERTAIN TO ASS ESSMENT YEARS 2014-15 AND 2015-16. SINCE, FACTS ARE IDENT ICAL AND ISSUES ARE COMMON, FOR THE SAKE OF CONVENIENCE, THE SE APPEALS WERE HEARD TOGETHER AND DISPOSED OFF BY THIS CONS OLIDATED ORDER. 2. THE ASSESSEE HAS MORE OR LESS FILED COMMON GRO UNDS OF APPEAL FOR BOTH ASSESSMENT YEARS, THEREFORE, FOR T HE SAKE OF 2 ITA NOS. 3193/CHNY/2018 & 176/CHNY/2019 BREVITY, GROUNDS OF APPEAL FILED IN ITA NO.3193/CHN Y/2018 FOR ASSESSMENT YEAR 2014-15 ARE REPRODUCED AS UNDER:- 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (AP PEALS) - II, CHENNAI DATED 16.10.2018 IN L.T.A.NO. 172/16-17 FOR THE ABOVE MENTIONED ASSESSMENT YEAR IS CONTRARY TO LAW, FACTS, AND IN THE CIRCUMSTANCES OF THE CASE. 2. THE CIT (APPEALS) ERRED IN SUSTAINING THE A PPORTIONMENT OF THE EXPENSES RELATABLE TO THE EARNING OF EXEMPTED A GRICULTURAL INCOME FOR MAKING DISALLOWANCE AND CONSEQUENTLY ERR ED IN SUSTAINING THE ADDITION OF RS.3,95,650/- IN THE COM PUTATION OF TAXABLE TOTAL INCOME WITHOUT ASSIGNING PROPER REASO NS AND JUSTIFICATION. 3. THE CIT (APPEALS) FAILED TO APPRECIATE THAT HA VING NOT DISPUTED THE FACT OF THE MAINTENANCE OF SEPARATE BO OKS OF ACCOUNTS, THE APPORTIONMENT OF EXPENSES FOR MAKING DISALLOWANCE OF APPORTIONED EXPENSES NOTIONALLY REL ATABLE TO THE EARNING OF THE AGRICULTURAL INCOME WAS WHOLLY UNJUS TIFIED. 4. THE CIT (APPEALS) FAILED TO APPRECIATE THAT THE MECHANISM OF THE APPORTIONMENT OF EXPENSES FOR MAKING DISALLO WANCE OF SUCH EXPENSES ON THE PRESUMPTION OF LIVE LINK WITH THE EARNING OF EXEMPTED AGRICULTURAL INCOME WAS WRONG, INCORRECT, INVALID, ERRONEOUS AND NOT SUSTAINABLE IN LAW. 5. THE CIT(APPEALS) WENT WRONG IN RECORDING FI NDINGS IN PARA 5 OF THE IMPUGNED ORDER IN THIS REGARD WHILE NOT JU STIFYING THE SUSTENANCE OF THE ADDITION IN CONSEQUENCE TO THE DI SALLOWANCE OF EXPENSES ON IRRATIONAL BASIS OF APPORTIONMENT ON TH E FURTHER PRESUMPTION OF LIVE NEXUS OF INCURRING OF SUCH EXPE NSES FOR EARNING TAX FREE INCOME. 6. THE ACIT FAILED TO APPRECIATE THAT THERE WAS N O PROPER OPPORTUNITY GIVEN BEFORE PASSING OF THE IMPUGNED OR DER AND ANY ORDER PASSED IN VIOLATION OF THE PRINCIPLES OF NATU RAL JUSTICE WOULD BE NULLITY IN LAW. 3. BRIEF FACTS ARE THAT ASSESSEE COMPANY MAINLY ENG AGED IN THE BUSINESS OF GROWING AND SELLING COFFEE FILED I TS RETURN OF 3 ITA NOS. 3193/CHNY/2018 & 176/CHNY/2019 INCOME FOR ASSESSMENT YEAR 2014-15 ADMITTING TOTA L INCOME OF ` 2,65,140/-. THE CASE HAS BEEN TAKEN UP FOR SCRUTIN Y AND DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER NOTICED THAT ASSESSEE HAS MAINTAINED SEPARA TE BOOKS OF ACCOUNT FOR AGRICULTURAL ACTIVITY AND NON-AGRICULTU RAL ACTIVITY. THE BOOKS OF ACCOUNT OF AGRICULTURAL ACTIVITY WAS SEPAR ATELY AUDITED BY INDEPENDENT AUDITOR. IN THE HEAD OFFICE MAIN SOU RCE OF INCOME OF THE ASSESSEE FOR IMPUGNED ASSESSMENT YEA R IS INTEREST ON DEPOSITS AND AGAINST THIS ASSESSEE HAS CLAIMED VARIOUS EXPENSES INCLUDING AUDIT FEE, SALARY AND W AGES, DIRECTORS REMUNERATION, ELECTRICITY EXPENSES ETC. THE ASSESSING OFFICER WAS OF THE OPINION THAT EXPENSES CLAIMED AT HEAD OFFICE ARE RELATED TO MAIN BUSINESS ACTIVITY OF AGRICULTURAL OPERATIONS AS WELL AS NON-AGRICULTURAL OPERATIONS AND HENCE, NEEDS TO BE PROPORTIONATELY APPORTIONED TO AGRICULT URAL INCOME AND NON-AGRICULTURAL INCOME. ACCORDINGLY, BY TAKING RATIO OF AGRICULTURAL INCOME AND NON-AGRICULTURAL INCOME, TO TAL EXPENSES OF ` 9,49, 555/- HAS BEEN APPORTIONED TO AGRICULTURAL IN COME TO THE EXTENT OF ` 3,95,650/- AND CONSEQUENTLY, RECOMPUTED INCOME RETURNED FROM NON-AGRICULTURAL ACTIVITY AT ` 6,60,790/-. 4 ITA NOS. 3193/CHNY/2018 & 176/CHNY/2019 SIMILARLY, THE ASSESSING OFFICER HAS REDUCED AGRICU LTURAL INCOME DECLARED BY ASSESSEE ON ACCOUNT OF APPORTIONMENT OF HEAD OFFICE EXPENSES TO THE TUNE OF ` 3,95,650/-. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFO RE FIRST APPELLATE AUTHORITY, BUT COULD NOT SUCCEED. THE LE ARNED CIT(A) FOR THE DETAILED REASONS RECORDED IN APPELL ATE ORDER SUSTAINED ADDITION MADE BY ASSESSING OFFICER TOWARD S APPORTIONMENT OF EXPENSES TOWARDS AGRICULTURAL INCO ME AND NON-AGRICULTURAL INCOME ON THE GROUND THAT HEAD OFF ICE EXPENSES LIKE STAFF SALARY, DIRECTORS SALARY AND OTHER EXPENSES DEFINITELY HAVE BEARING ON THE PROFITABILITY OF AGR ICULTURAL DIVISION. AGGRIEVED BY THE LEARNED CIT(A) ORDER, ASSESSEE IS IN APPEAL BEFORE US. 5. THE LEARNED AR FOR ASSESSEE SUBMITTED THAT ASSES SING OFFICER HAS ERRED IN APPORTIONMENT OF HEAD OFFICE E XPENSES TO AGRICULTURAL INCOME AND NON-AGRICULTURAL INCOME WIT HOUT CONSIDERING THE FACT THAT ASSESSEE HAS MAINTAINED S EPARATE SET OF BOOKS OF ACCOUNT FOR BOTH ACTIVITIES AND HENCE, QUESTION OF ALLOCATION OF HEAD OFFICE EXPENSES TO AGRICULTURAL OPERATIONS DOES NOT ARISE, MORE PARTICULARLY WHEN EXPENDITURE INCURRED AT 5 ITA NOS. 3193/CHNY/2018 & 176/CHNY/2019 HEAD OFFICE HAD NO BEARING ON AGRICULTURAL ACTIVITY . HE FURTHER SUBMITTED THAT IF AT ALL EXPENSES INCURRED AT HEAD OFFICE IS HAVING ANY BEARING ON AGRICULTURAL OPERATIONS, THEN IT IS ONLY THE DIRECTOR REMUNERATION BECAUSE DIRECTOR IS OVERSEEI NG AGRICULTURAL OPERATIONS AND HENCE, EXCEPT DIRECTOR REMUNERATION, NO OTHER EXPENSES CAN BE APPORTIONED AGAINST AGRICULTURAL OPERATIONS AND NON-AGRICULTURAL OPERAT IONS. 6. THE LEARNED DR ON THE OTHER HAND, STRONGLY SUPPO RTING THE ORDER OF LEARNED CIT(A) SUBMITTED THAT WHEN MA IN BUSINESS ACTIVITY OF THE ASSESSEE IS ONLY GROWING AND SELLIN G COFFEE, THEN THERE IS NO REASON TO SEGREGATE HEAD OFFICE EXPENSE S AND PLANTATION EXPENSES AND WHATEVER EXPENSES INCURRED BY ASSESSEE INCLUDING EXPENSES AT HEAD OFFICE ARE RE LATED TO MAIN BUSINESS ACTIVITY OF AGRICULTURAL OPERATIONS A ND HENCE, ASSESSING OFFICER WAS RIGHT IN ALLOCATING EXPENSES TO AGRICULTURAL INCOME AND NON-AGRICULTURAL INCOME. 7. WE HAVE HEARD BOTH PARTIES, PERUSED MATERIALS AV AILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW ADMITTEDLY, THE ASSESSEE HAS MAINTAINED SEPARATE BO OKS OF ACCOUNTS FOR AGRICULTURAL ACTIVITY AND FOR HEAD O FFICE 6 ITA NOS. 3193/CHNY/2018 & 176/CHNY/2019 OPERATIONS. FURTHER, AT HEAD OFFICE LEVEL EXCEPT I NTEREST INCOME, NO OTHER BUSINESS ACTIVITY WAS CARRIED OUT FOR IMPUGNED ASSESSMENT YEAR . FURTHER, ON PERUSAL OF EXPENSES C LAIMED AT HEAD OFFICE LEVEL, WE FIND THAT EXCEPT DIRECTOR REM UNERATION ALL OTHER EXPENSES ARE RELATED TO BUSINESS ACTIVITY OF THE ASSESSEE. FURTHER, IT WAS CLAIM OF ASSESSEE BEFORE THE ASSESS ING OFFICER THAT DIRECTOR SALARY IS RELATED TO AGRICULTURAL OPE RATIONS BECAUSE DIRECTOR PERSONALLY TAKES CARE OF ESTATE ACTIVITY. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT IF AT ALL ALLOCATIO N OF EXPENSES IS REQUIRED BETWEEN AGRICULTURAL INCOME AND NON-AGRICU LTURAL INCOME, THEN ONLY DIRECTORS REMUNERATION CAN BE AP PORTIONED TO AGRICULTURAL OPERATIONS AND NON-AGRICULTURAL OPERAT IONS. SINCE ASSESSEE HIMSELF HAS ADMITTED THAT AGRICULTURAL OP ERATIONS WERE TAKEN CARE OF BY THE DIRECTOR, WE ARE OF THE CONSIDERED VIEW THAT REMUNERATION TO THE DIRECTOR AMOUNTING TO ` 3,00,000/- IS RELATED TO AGRICULTURAL OPERATIONS A ND HENCE, DIRECT THE ASSESSING OFFICER TO RESTRICT APPORTIONMENT OF EXPENSES TO THE EXTENT OF DIRECTORS REMUNERATION. ACCORDINGLY, APPORTIONMENT OF ALL OTHER EXPENSES IN THE RATIO OF AGRICULTURAL INCOME AND NON-AGRICULTURAL INCOME HAS BEEN DELETED . 7 ITA NOS. 3193/CHNY/2018 & 176/CHNY/2019 8. IN THE RESULT, APPEAL FILED BY ASSESSEE FOR ASSE SSMENT YEAR 2014-15 IS PARTLY ALLOWED. 9. COMING BACK TO ASSESSMENT YEAR 2015-16. THE ASSESSING OFFICER HAS ASSESSED INTEREST INCOME UNDE R THE HEAD INCOME FROM OTHER SOURCES AND FURTHER DISALLOWED TO TAL EXPENDITURE INCURRED AT HEAD OFFICE ON THE GROUND T HAT SAID EXPENDITURE IS RELATABLE TO AGRICULTURAL OPERATIONS OF THE ASSESSE. WE FIND THAT THE ASSESSING OFFICER IS FOL LOWING DIFFERENT METHOD OF APPORTIONMENT OF EXPENSES FOR EACH YEAR. IN THE EARLIER FINANCIAL YEAR, HE HAS APPORTIONED E XPENSES IN THE RATIO OF AGRICULTURAL INCOME AND NON-AGRICULTURAL I NCOME AND FOR CURRENT FINANCIAL YEAR, HE HAS DISALLOWED TOTAL EXP ENSES INCURRED AT HEAD OFFICE LEVEL ON THE GROUND THAT T HEY ARE RELATED TO AGRICULTURAL OPERATIONS. IT IS WELL SETT LED PRINCIPLE OF LAW THAT ALTHOUGH RES JUDICATA IS NOT APPLICABLE TO INCOME-TAX PROCEEDINGS BUT PRINCIPLE OF CONSISTENCY NEEDS TO B E FOLLOWED. THE ASSESSING OFFICER HAVING ACCEPTED FACT THAT HEA D OFFICE EXPENSES NEEDS TO BE APPORTIONED BETWEEN AGRICULTU RAL INCOME AND NON-AGRICULTURAL INCOME, HAS ERRED IN DI SALLOWING 8 ITA NOS. 3193/CHNY/2018 & 176/CHNY/2019 TOTAL EXPENSES FOR IMPUGNED ASSESSMENT YEAR WITHOUT THERE BEING ANY CHANGE IN FACTS. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT ASSESSING OFFICER HAS ERRED IN DISALLOWIN G TOTAL EXPENDITURE INCURRED AT HEAD OFFICE AND CONSIDERED AS EXPENDITURE INCURRED FOR AGRICULTURAL OPERATIONS. F URTHER, FOR IMPUGNED ASSESSMENT YEAR ALSO, IF WE CONSIDER NATUR E OF EXPENDITURE INCURRED AT HEAD OFFICE, DIRECTOR REMUN ERATION AND OTHER EXPENDITURE ARE SIMILAR TO EXPENDITURE INCURR ED FOR PREVIOUS FINANCIAL YEAR. FURTHER, FOR IMMEDIATELY P RECEDING FINANCIAL YEAR, WE HAVE CONSIDERED IDENTICAL ISSUE AND HELD THAT EXCEPT DIRECTOR REMUNERATION NO OTHER EXPENSES CAN BE APPORTIONED TO AGRICULTURAL INCOME AND NON-AGRICULT URAL INCOME. THEREFORE, CONSISTENT WITH VIEW TAKEN BY US FOR IMM EDIATELY PRECEDING YEAR, WE ARE OF THE CONSIDERED VIEW THAT ONLY DIRECTOR REMUNERATION CAN BE APPORTIONED TO AGRICULTURAL OPE RATIONS BECAUSE DIRECTOR IS PERSONALLY TAKING CARE OF ESTAT E ACTIVITY. HENCE, WE DIRECT THE ASSESSING OFFICER TO CONSIDER DIRECTOR REMUNERATION TO AGRICULTURAL OPERATIONS. 10. AS REGARDS INTEREST INCOME, THE ASSESSING OFF ICER IN THE IMMEDIATELY PRECEDING YEAR HAS ACCEPTED INTEREST INCOME 9 ITA NOS. 3193/CHNY/2018 & 176/CHNY/2019 OFFERED BY ASSESSEE UNDER THE HEAD INCOME FROM BUSI NESS HAS SUDDENLY CHANGED HEAD OF INCOME TO INCOME FROM OTH ER SOURCES WITHOUT THERE BEING ANY CHANGE IN FACTS AN D CIRCUMSTANCES FOR IMPUGNED ASSESSMENT YEAR . THERE FORE, WE DIRECT THE ASSESSING OFFICER TO CONSIDER INTEREST INCOME UNDER THE HEAD INCOME FROM BUSINESS AS CLAIMED BY ASSE SSEE AND FURTHER DIRECT THE ASSESSING OFFICER TO ALLOW EXPE NDITURE INCURRED AT HEAD OFFICE EXCEPT DIRECTOR SALARY AGA INST INTEREST INCOME. 11. IN THE RESULT, APPEAL FILED BY THE ASSESSEE FO R ASSESSMENT YEAR 2015-16 IS PARTLY ALLOWED. 12. AS A RESULT, BOTH APPEALS FILED BY ASSESSEE AR E PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD MARCH, 2021 SD/- SD/- ( . ) ( . ) (V.DURGA RAO) ( G.MANJUNATHA ) ' $ / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER ' /CHENNAI, ' / DATED 3 RD MARCH , 2021 DS )* +* /COPY TO: 1. APPELLANT 2. RESPONDENT 3. , () /CIT(A) 4. , /CIT 5. * 1 /DR 6. /GF .