DCIT, CHENNAI V. Best & Crompton Engineering Ltd., CHENNAI

ITA 368/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8205 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 18-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVAS
• Keywords: 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.368/MDS/2016 * +* / ASSESSMENT YEAR : 2010-11 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(2), CHENNAI - 600 034. PAN : AAACB 2753 N V. M/S BEST & CROMPTON ENGINEERING LTD., NO.28, SIDCO INDUSTRIAL ESTATE, AMBATTUR, CHENNAI - 600 034. (-./ APPELLANT) (/0-./ RESPONDENT) -. 1 2 / APPELLANT BY : SHRI SHIVA SRINIVAS, JCIT /0-. 1 2 / RESPONDENT BY : NONE ' 1 3& / DATE OF HEARING : 28.09.2016 45+ 1 3& / DATE OF PRONOUNCEMENT : 28.10.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) -1, CHENNA I, DATED 14.12.2015 AND PERTAINS TO ASSESSMENT YEAR 2010-11. 2. NO ONE APPEARED FOR THE ASSESSEE INSPITE OF SERV ICE OF NOTICE BY RPAD. THE REGISTRY HAS PLACED ON RECORD THE POSTAL 2 I.T.A. NO.368/MDS/16 ACKNOWLEDGEMENT AS PROOF OF SERVICE OF NOTICE ON TH E ASSESSEE. THEREFORE, WE HEARD THE LD. DEPARTMENTAL REPRESENTA TIVE AND PROCEEDED TO DISPOSE OF THE APPEAL ON MERIT. 3. SHRI SHIVA SRINIVAS, THE LD. DEPARTMENTAL REPRES ENTATIVE, SUBMITTED THAT THE FIRST ISSUE ARISES FOR CONSIDERA TION IS DISALLOWANCE OF EMPLOYEES CONTRIBUTION. ACCORDING TO THE LD. D .R., THE ASSESSEE COULD NOT PAY THE EMPLOYEES CONTRIBUTION WITHIN TH E DUE DATE PRESCRIBED UNDER THE PROVISIONS OF THE RELEVANT ACT , HOWEVER, IT WAS PAID WITHIN THE DUE DATE FOR RETURN OF INCOME. THE CIT(APPEALS) BY PLACING RELIANCE ON THE JUDGMENT OF MADRAS HIGH COU RT IN CIT V. NEXUS COMPUTER (P) LTD. (2009) 313 ITR 414, ALLOWED THE CLAIM OF THE ASSESSEE. THE LD. D.R. SUBMITTED THAT HE IS PL ACING HIS RELIANCE ON THE OBSERVATION MADE BY THE ASSESSING OFFICER. 4. WE HAVE CONSIDERED THE SUBMISSIONS LD. DEPARTMEN TAL REPRESENTATIVE AND PERUSED THE RELEVANT MATERIAL AV AILABLE ON RECORD. THE CIT(APPEALS), IN FACT, PLACED HIS RELI ANCE ON THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN NEXUS COMP UTER (P) LTD. (SUPRA). THE CIT(APPEALS) HAS ALSO REFERRED TO THE JUDGMENT OF DELHI HIGH COURT IN AIMIL LTD. (321 ITR 508). IN V IEW OF THE JUDGMENT OF MADRAS HIGH COURT IN NEXUS COMPUTER (P) LTD. (SUPRA), 3 I.T.A. NO.368/MDS/16 THIS TRIBUNAL HAS NO REASON TO INTERFERE WITH THE O RDER OF THE LOWER AUTHORITY AND ACCORDINGLY, THE SAME IS CONFIRMED. 5. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DISA LLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE ACT. 6. SHRI SHIVA SRINIVAS, THE LD. DEPARTMENTAL REPRES ENTATIVE, SUBMITTED THAT THE ASSESSING OFFICER DISALLOWED THE EXPENDITURE FOR EARNING THE EXEMPT INCOME BY APPLYING THE PROVISION S OF RULE 8D OF THE INCOME-TAX RULES, 1962. HOWEVER, THE CIT(APPEA LS) FOUND THAT THE DISALLOWANCE HAS TO BE CONFINED ONLY TO THE EXT ENT OF INCOME EARNED BY THE ASSESSEE. REFERRING TO THE PROVISION S OF RULE 8D, THE LD. D.R. SUBMITTED THAT THERE ARE THREE LIMBS IN RU LE 8D(2). THE ASSESSING OFFICER HAS TO COMPUTE THE EXPENDITURE IN ALL THE THREE LIMBS AND THE AGGREGATE OF ALL THE THREE LIMBS HAS TO BE TAKEN INTO CONSIDERATION. REFERRING TO THE ASSESSMENT ORDER, THE LD. D.R. SUBMITTED THAT THE ASSESSING OFFICER FOUND THAT THE RE WAS NO DIRECT EXPENDITURE FOR EARNING THE EXEMPT INCOME. HOWEVER , THE ASSESSEE HAS BORROWED FUNDS FOR THE BUSINESS AND TH E INTEREST PAID BY THE ASSESSEE CANNOT BE ATTRIBUTABLE TO ANY PART OF INCOME OF THE ASSESSEE. THEREFORE, ACCORDING TO THE LD. D.R., TH E INTEREST EXPENDITURE, WHICH IS NOT ATTRIBUTABLE TO ANY PART OF THE INCOME OF 4 I.T.A. NO.368/MDS/16 THE ASSESSEE, HAS TO BE COMPUTED IN A METHOD PRESCR IBED UNDER LIMB (II) OF RULE 8D(2). MOREOVER, UNDER LIMB (III ) OF RULE 8D(2), 0.5% OF AVERAGE INVESTMENT DURING THE YEAR UNDER CO NSIDERATION, WHICH RESULTED IN INCOME, HAS TO BE TAKEN INTO CONS IDERATION. THEREFORE, ACCORDING TO THE LD. D.R., ONLY FOR THE PURPOSE OF COMPUTING EXPENDITURE UNDER THIRD LIMB OF RULE 8D(2 ), THE DISALLOWANCE HAS TO BE RESTRICTED TO THE INCOME WHI CH DOES NOT FORM PART OF TOTAL INCOME. IN RESPECT OF OTHER TWO LIMB S, THERE IS NO QUESTION OF RESTRICTION TOWARDS THE INCOME EARNED B Y THE ASSESSEE. THEREFORE, ACCORDING TO THE LD. D.R., THE CIT(APPEA LS) IS NOT JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. DEPARTMENTAL REPRESENTATIVE AND PERUSED THE RELEVAN T MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO GONE THROUGH THE JUDGMENT OF DELHI HIGH COURT IN CHEMINVEST LTD. V. CIT (378 ITR 33). THE DELHI HIGH COURT FOUND THAT WHEN THE ASSESSEE HAS NOT EAR NED ANY TAXABLE INCOME IN THE RELEVANT ASSESSMENT YEAR IN Q UESTION, THE CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT F OR DISALLOWANCE. REFERRING TO THE JUDGMENT OF APEX CO URT IN CIT V. RAJENDRA PRASAD MOODY (1978) 115 ITR 519, THE DELHI HIGH COURT 5 I.T.A. NO.368/MDS/16 FOUND THAT THE JUDGMENT OF APEX COURT CANNOT BE USE D IN THE REVERSE TO CONTEND THAT EVEN IF NO INCOME HAS BEEN RECEIVED, THE EXPENDITURE INCURRED CAN BE DISALLOWED UNDER SECTIO N 14A OF THE ACT. THE DELHI HIGH COURT HAD NO OCCASION TO CONSI DER THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RULES, 1962 . SO LONG AS RULE 8D REMAINS IN THE STATUTE BOOK, THIS TRIBUNAL BEING STATUTORY CREATION UNDER THE INCOME-TAX ACT, CANNOT IGNORE TH E PROVISIONS OF RULE 8D. SECTION 14A(2) CLEARLY SAYS THAT THE ASSES SING OFFICER SHALL DETERMINE THE EXPENDITURE INCURRED IN ACCORDA NCE WITH THE METHOD PRESCRIBED UNDER RULE 8D OF THE INCOME-TAX R ULES, 1962. THE DELHI HIGH COURT HAD NO OCCASION TO CONSIDER TH E PROVISIONS OF SECTION 14A(2) OF THE ACT AND RULE 8D OF INCOME-TAX RULES, 1962. THE CIT(APPEALS) WITHOUT CONSIDERING THE PROVISIONS OF RULE 8D(2), SIMPLY ALLOWED THE CLAIM OF THE ASSESSEE BY PLACING RELIANCE ON THE JUDGMENT OF DELHI HIGH COURT. THEREFORE, THIS TRIB UNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RECO NSIDERED BY THE CIT(APPEALS) BY APPLYING THE PROVISIONS OF RULE 8D( 2) OF THE INCOME-TAX RULES, 1962. ACCORDINGLY, THE ORDER OF THE CIT(APPEALS) IS SET ASIDE AND THE ISSUE OF DISALLOWANCE MADE UND ER SECTION 14A OF THE ACT IS REMITTED BACK TO THE FILE OF THE CIT( APPEALS). THE CIT(APPEALS) SHALL RE-EXAMINE THE MATTER AFRESH IN THE LIGHT OF RULE 6 I.T.A. NO.368/MDS/16 8D AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WI TH LAW, AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S PARTLY ALLOWED. ORDER PRONOUNCED ON 28 TH OCTOBER, 2016 AT CHENNAI. SD/- SD/- ( . . ' #$ ) ( . . . ) (D.S. SUNDER SINGH) (N.R.S. GANESAN) & / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 7 /DATED, THE 28 TH OCTOBER, 2016. KRI. 1 /3#8 98+3 /COPY TO: 1. -. /APPELLANT 2. /0-. /RESPONDENT 3. ' :3 () /CIT(A)-1, CHENNAI 4. ' :3 /CIT, CHENNAI-1, CHENNAI 5. 8; /3 /DR 6. * < /GF.