Sree Akkamamba Textiles Ltd., Tanuku V. The ACIT, Eluru

ITA 402/VIZ/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6514 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 19-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K SETHI
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

ITA NOS.401, 402, 419, 420, 421, 422 & 423/VIZAG/20 16 M/S. SREE AKKAMAMBA TEXTILES LTD., TANUKU 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . ' , % BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./I.T.A.NOS.419 TO 423/VIZAG/2016 ( / ASSESSMENT YEARS: 2008-09 TO 2012-13) ACIT, CIRCLE - 1, ELURU [PAN NO.AACCS4018H] SREE AKKAMAMBA TEXTILES LTD., TANUKU ( ' / APPELLANT) ( ()' / RESPONDENT) ./I.T.A.NOS.401 & 402/VIZAG/2016 ( / ASSESSMENT YEARS: 2010-11 & 2011-12) SREE AKKAMAMBA TEXTILES LTD., TANUKU ACIT, CIRCLE - 1, ELURU ( ' / APPELLANT) ( ()' / RESPONDENT) / APPELLANT BY : SHRI C. SUBRAHMANYAM, AR / RESPONDENT BY : SHRI M.K. SETHI, DR / DATE OF HEARING : 16.11.2017 / DATE OF PRONOUNCEMENT : 23.11.2017 ITA NOS.401, 402, 419, 420, 421, 422 & 423/VIZAG/20 16 M/S. SREE AKKAMAMBA TEXTILES LTD., TANUKU 2 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: THESE APPEALS FILED BY THE DEPARTMENT ARE DIRECTED AGAINST COMMON ORDER OF THE LD. CIT(A) FOR THE ASSESSMENT YEARS 20 08-09 TO 2012-13. THE ASSESSEE ALSO FILED CROSS APPEALS FOR THE ASSESSMEN T YEARS 2010-11 & 2011-12. THESE APPEALS ARE DIRECTED AGAINST THE CO MMON ORDER OF THE LD. CIT(A) IN ITA NO.401/VIZAG/2016 FOR THE A.Y. 2010-1 1 & ITA NO.402/VIZAG/2016 FOR THE A.Y. 2011-12. THE REVENU E HAS RAISED THE FOLLOWING COMMON GROUNDS IN ALL THE APPEALS FOR THE ASSESSMENT YEARS 2008-09 TO 2012-13: 1. THE CIT(A) ERRED IN SO FAR AS DELETING THE DISALLOW ANCE OF INTEREST EXPENDITURE PROPORTIONATE TO THE EXEMPTED INCOME UN DER SECTION 14A OF THE I.T. ACT R.W. RULES 8D OF I.T. RULES IN THE ABSEN CE OF ANY CORRELATION OF INVESTMENTS DONE BY THE ASSESSEE. 2. THE CIT(A) IS NOT JUSTIFIED IN NOT INDEPENDENTLY AD JUDICATING THE ADDITION MADE U/S 14A R.W. RULE 8D, FOR THE ASSESSMENT YEAR 2008-09, KEEPING IN VIEW OF SUB-SECTIONS(2) AND (3) OF SECTION 14A OF T HE ACT. 2. FACTS ARE IN BRIEF THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SOLVENT EXTRACTION AND GENERATION OF POWER. THE AS SESSEE HAS FILED RETURN OF INCOME. THE RETURN FILED BY THE ASSESSEE WAS PR OCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER CALLED AS 'TH E ACT'), THEREAFTER THE CASE OF THE ASSESSEE IS SELECTED FOR SCRUTINY, FOLL OWING DUE PROCEDURE ASSESSMENT IS COMPLETED U/S 143(3) OF THE ACT. IN THE ASSESSMENT ORDER, ITA NOS.401, 402, 419, 420, 421, 422 & 423/VIZAG/20 16 M/S. SREE AKKAMAMBA TEXTILES LTD., TANUKU 3 THE A.O. HAS NOTED THAT THE ASSESSEE COMPANY HAS IN VESTED AN AMOUNT OF ` 3,88,20,798/- IN THE EQUITY SHARES OF THE FOLLOWIN G COMPANIES. A) M/S. ANDHRA SUGARS LIMITED, TANUKU - ` 36,82,298/- B) M/S. ANDHRA FARM CHEMICALS CORPN. LTD. - ` 51,000/- KOVVUR C) THE ANDHRA PRADESH GAS POWER CORPN. LTD. - ` 3,50,87,500/- THE A.O. HAS NOTED THAT THE ASSESSEE HAD RECEIVED DIVIDEND INCOME IN ALL THESE YEARS WHICH WERE CLAIMED AS EXEMPT U/S 10(34) OF THE ACT. THE ASSESSEE HAS NOT ALLOCATED ANY EXPENDITURE ATTR IBUTABLE TO THIS EXEMPT INCOME AND THE A.O. HAS ISSUED A SHOW CAUSE NOTICE CALLING EXPLANATION FROM THE ASSESSEE THAT WHY DISALLOWANCE SHOULD NOT BE MADE AS PER THE PROCEDURE LAID DOWN U/S 14A READ WITH RULE 8D OF TH E ACT. IN RESPONSE, THE ASSESSEE HAS FILED AN EXPLANATION BY STATING TH AT (I) THE TAX FREE INCOME IN QUESTION IS DERIVED AS A DIVIDEND FROM SHARES HE LD BY THE COMPANY IN LIMITED COMPANIES. (II) THIS DIVIDEND INCOME IS EA RNED FROM THE INVESTMENT IN SHARES, WHICH WAS NOT MADE IN THIS YEAR OF ACCOU NT BUT ALL THOSE INVESTMENTS WERE MADE SEVERAL YEARS AGO. (III) FOR EARNING OF THIS DIVIDEND INCOME, NEITHER ANY INTEREST NOR ANY EXPENDITURE IS INCURRED DURING THE YEAR, SINCE THE INVESTMENT WAS MADE LONG AGO OUT OF THE FUNDS GENERATED BY THE COMPANY. THUS, IT IS SUBMITTED THAT NO EXPE NDITURE IS INCURRED FOR EARNING THE SAID DIVIDEND INCOME BY THE COMPANY. T HEREFORE, SECTION 14A ITA NOS.401, 402, 419, 420, 421, 422 & 423/VIZAG/20 16 M/S. SREE AKKAMAMBA TEXTILES LTD., TANUKU 4 OF THE ACT HAS NO APPLICATION TO ASSESSEES CASE SI NCE THAT SECTION COMES INTO PLAY ONLY WHEN THE EXPENDITURE WAS ACTUALLY IN CURRED FOR EARNING THE EXEMPT INCOME. HOWEVER, THE A.O. WAS NOT CONVINCED WITH THE ABOVE EXPLANATION AND HE CAME TO A CONCLUSION THAT IT IS MANDATORY FOR A.O. TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN REL ATION TO THE EARNING OF TAX FREE INCOME AND THAT THE PROVISIONS OF SECTION 14A(2) OF THE ACT WILL APPLY TO THE CASES WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO THE INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOME. ACCORDINGLY, THE A.O. HAS MADE DISALLOWANC E OF SECTION 14A OF THE ACT READ WITH RULE 8D FOR ALL THE ASSESSMENT YEARS, WHICH ARE SUBJECTED TO THE APPEAL. 3. ON APPEAL, IT WAS SUBMITTED BEFORE THE LD. CIT(A ) THAT NO INTEREST EXPENDITURE WAS INCURRED IN RELATION TO THE INVESTM ENTS, THEREFORE, THE A.O. WAS NOT JUSTIFIED IN MAKING THE IMPUGNED DISALLOWAN CE U/S 14A OF THE ACT. THE SECTION 14A OF THE ACT CAN BE INVOKED ONLY IF E XPENDITURE WAS INCURRED BY THE ASSESSEE IN RELATION TO INVESTMENT MADE IN E XEMPT INCOME AND AS ASSESSEE HAS NOT INCURRED ANY EXPENDITURE, THE IMPU GNED DISALLOWANCE U/S 14A OF THE ACT IS TOTALLY UNJUSTIFIED. THE ASSESSE E DID NOT INCUR ANY EXPENDITURE TOWARDS EARNING OF DIVIDEND INCOME AND THEREFORE DISALLOWANCE U/S 14A OF THE ACT IS NOT WARRANTED. THE LD. CIT(A) AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND BY FOLLOWING THE ITA NOS.401, 402, 419, 420, 421, 422 & 423/VIZAG/20 16 M/S. SREE AKKAMAMBA TEXTILES LTD., TANUKU 5 DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL I N THE CASE OF M/S. ANDHRA SUGARS LIMITED FOR THE ASSESSMENT YEAR 2004-05, THE HONBLE ITAT IN ITA NO.162/VIZAG/2006 DATED 20.1.2011 AND ALSO BY FOLLO WING THE SAME ASSESSEES CASE FOR ASSESSMENT YEAR 2007-08, 2008-0 9 & 2010-11 HELD THAT THE DISALLOWANCE MADE TOWARDS INTEREST EXPENDITURE IS NOT JUSTIFIED AND DISALLOWANCE OF INDIRECT EXPENDITURE INVOKING RULE 8D IS UPHELD AND DIRECTED THE A.O. TO RE-COMPUTE THE DISALLOWANCE ACCORDINGLY FOR ALL THE SUBJECTED YEARS. 4. ON BEING AGGRIEVED, REVENUE CARRIED MATTER IN AP PEAL BEFORE THE TRIBUNAL. THE LD. COUNSEL FOR THE ASSESSEE HAS SUB MITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS COVERED BY THE ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL, VISAKHAPATNAM IN ITA NO.224 & 225 OF 2012 FOR THE ASSESSMENT YEAR 2007-08 & 2008-09 BY ORDER DATED 20 .5.2016. HE ALSO RELIED ON THE JUDGEMENT OF THE HONBLE DELHI HIGH C OURT IN ITA NO.548 OF 2015 DATED 23.8.2017. 5. ON THE OTHER HAND, THE LD. D.R. HAS RELIED ON TH E ORDERS OF THE A.O. 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. THE CASE OF THE A.O. IS THAT THE ASSESSEE COMPANY HAS RECEIVED A DIVIDEND INCOME AND CLAIMED EXEMPTION U/S 10(34) OF THE ACT, THEREFORE, THE A.O. HAS ITA NOS.401, 402, 419, 420, 421, 422 & 423/VIZAG/20 16 M/S. SREE AKKAMAMBA TEXTILES LTD., TANUKU 6 DISALLOWED EXPENDITURE ON ESTIMATE BASIS IN ACCORDA NCE WITH THE PROCEDURE LAID DOWN U/S 14A READ WITH RULE 8D. THE CASE OF T HE ASSESSEE IS THAT INVESTMENT MADE BY THE ASSESSEE OUT OF SURPLUS FUND S AND RESERVES NOT BORROWED FUNDS. IT WAS ALSO CASE OF THE ASSESSEE T HAT NO INTEREST EXPENDITURE WAS INCURRED IN RELATION TO THE INVESTM ENTS, THEREFORE, THE A.O. IS NOT JUSTIFIED IN MAKING IMPUGNED DISALLOWANCE U/ S 14A OF THE ACT. WE HAVE GONE THROUGH THE ORDER PASSED BY THE A.O. THE A.O. HAS INVOKED SECTION 14A READ WITH RULE 8D ON THE GROUND THAT TH E ASSESSEE HAS RECEIVED AN EXEMPT INCOME. IN THE ASSESSMENT ORDER , THE A.O. HAS NOT GIVEN ANY FINDING THAT THE INVESTMENTS MADE BY THE ASSESSEE ARE OUT OF BORROWED FUNDS AND THE ASSESSEE HAS INCURRED CERTAI N EXPENDITURE TOWARDS PAYMENT OF INTEREST. THE LD. CIT(A) GAVE A FINDING THAT THE ASSESSEE MADE INVESTMENTS IN EARLIER YEARS OUT OF SURPLUS FU NDS AND RESERVES. THE A.O. IS NOT JUSTIFIED IN INVOKING RULE 14A READ WIT H 8D TO DISALLOW THE EXPENDITURE. UNDER SIMILAR CIRCUMSTANCES, THE COOR DINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. ANDHRA SUGARS LIMITED (SUPRA) HAS CONSIDERED THE ISSUE AND OBSERVED AS UNDER: 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE A.O. DISALLOWED INTEREST ON BORROWED CAPITAL AND INDIRECT EXPENDITURE OF HEAD OFFICE U/S 14A OF THE ACT ON PR O-RATA BASIS. THE A.O. DISALLOWED THE AMOUNT FOR THE REASON THAT THE ASSES SEE HAS EARNED EXEMPT INCOME, HOWEVER, FAILED TO ALLOCATE RELATABL E INTEREST AND OTHER INDIRECT EXPENDITURE ON PRO-RATA BASIS. THE A.O. W AS OF THE OPINION THAT THE ASSESSEE HAS FAILED TO PROVE THAT IT HAS NOT UT ILIZED THE BORROWED FUNDS FOR THE PURPOSE OF INVESTMENT IN SHARES. IT WAS FURTHER OBSERVED ITA NOS.401, 402, 419, 420, 421, 422 & 423/VIZAG/20 16 M/S. SREE AKKAMAMBA TEXTILES LTD., TANUKU 7 THAT AS PER THE AMENDED PROVISIONS OF SECTION 14A O F THE ACT, THERE IS NO DISTINCTION BETWEEN DIRECT AND INDIRECT EXPENDITURE . ONCE THE ASSESSEE HAS EARNED EXEMPT INCOME, THE RELATABLE EXPENDITURE IN RESPECT OF INTEREST AND OTHER INDIRECT EXPENDITURE SHOULD BE D ISALLOWED. IT IS THE CONTENTION OF THE ASSESSEE THAT THE A.O. WAS NOT CO RRECT IN DISALLOWING INTEREST AND INDIRECT EXPENDITURE ON PRO-RATA BASIS . THE ASSESSEE FURTHER CONTENDED THAT THE INVESTMENTS IN SHARES OF COMPANI ES HAVE BEEN MADE 15 TO 20 YEARS BACK AND ASSESSEE HAS NOT UTILIZED B ORROWED FUNDS FOR THE PURPOSE OF INVESTMENTS TO EARN EXEMPT INCOME. IT IS FURTHER CONTENDED THAT EARNING OF DIVIDEND INCOME NEED NOT TO INCUR A NY EXPENDITURE. THE ASSESSEE A MANUFACTURING COMPANY INVESTED ITS SURPL US FUNDS IN ITS SUBSIDIARY COMPANIES, THEREFORE, ITS CASE CANNOT BE CONSIDERED ON PAR WITH AN INVESTMENT COMPANY, WHICH IS INVOLVED IN TH E MAIN BUSINESS OF DEALING IN SHARES AND SECURITIES. THE PROVISIONS O F SECTION 14A OF THE ACT IS MEANT FOR DISALLOWING THE EXPENDITURE RELATABLE TO EARNING OF EXEMPT INCOME, IN THE CASE OF COMPANIES WHERE THE MAJOR BU SINESS IS TRADING IN SHARES AND SECURITIES WITH BORROWED FUNDS. THEREFO RE, THE A.O. WAS NOT CORRECT IN DISALLOWING THE INTEREST AND OTHER INDIR ECT EXPENDITURE BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. 10. THE QUESTION BEFORE US IS WHETHER THE A.O. IS R IGHT IS DISALLOWED INTEREST AND OTHER INDIRECT EXPENDITURE RELATABLE T O EARNING EXEMPT INCOME U/S 14A OF THE ACT. THERE IS NO DISPUTE WITH REGARD TO EARNING EXEMPT INCOME. DURING THE YEAR UNDER CONSIDERATION THE ASS ESSEE HAS EARNED DIVIDEND INCOME, WHICH WAS CLAIMED EXEMPT U/S 10(34 ) OF THE ACT. THE A.O. WAS OF THE OPINION THAT THE ASSESSEE HAS NOT P ROVED THE FACT THAT IT HAS NOT UTILIZED THE BORROWED FUNDS FOR THE PURPOSE OF INVESTMENTS IN SHARES. THEREFORE, IN VIEW OF THE AMENDED PROVISIO NS OF SECTION 14A OF THE ACT, ANY EXPENDITURE RELATABLE TO EARNING OF EX EMPT INCOME SHOULD BE DISALLOWED U/S 14A OF THE ACT. IT IS THE CONTENTION OF THE ASSESSEE THAT IT HAS NOT UTILIZED THE BORROWED FUNDS FOR THE PURPOSE OF EARNING OF EXEMPT INCOME. THERE ARE TWO ASPECTS IN THIS CASE, I.E. D ISALLOWANCE OF INTEREST EXPENDITURE AND DISALLOWANCE OF ADMINISTRATIVE EXPE NDITURE. THE A.O. INVOKED RULE 8D AND WORKED OUT THE PROPORTIONATE IN TEREST AND INDIRECT EXPENSES OF HEAD OFFICE AS PROVIDED UNDER RULE 8D. AS FOR AS INTEREST EXPENDITURE IS CONCERNED, THE ASSESSEE PROVED THAT IT HAS NOT UTILIZED BORROWED FUNDS AND ITS OWN SURPLUS FUND IS INVESTED IN ITS SUBSIDIARY COMPANIES, THAT TOO MORE THAN 15 TO 20 YEARS BACK. THOUGH, THERE IS FURTHER INVESTMENT IN THE FINANCIAL YEAR 2007-08, T HE ASSESSEE PROVED THAT IT HAS SURPLUS FUNDS WHICH WAS INVESTED IN THE SHAR ES AND NO INTEREST BEARING FUNDS ARE DIVERTED FOR INVESTMENTS. THEREFO RE, WE ARE OF THE OPINION THAT THE A.O. WAS NOT CORRECT IN DISALLOWIN G THE INTEREST EXPENDITURE. AS REGARDS THE DISALLOWANCE OF ADMINIS TRATIVE EXPENDITURE OF HEAD OFFICE, THE ASSESSEE CANNOT CLAIM THAT THERE I S NO EXPENDITURE INCURRED TO EARN THE DIVIDEND INCOME. ALTHOUGH INVE STMENTS ARE MADE IN EARLIER YEARS, THE ASSESSEE CANNOT GET AWAY WITH TH E PLEA THAT IT DID NOT INCURRED ANY ADMINISTRATIVE EXPENDITURE FOR DAY TO DAY MANAGEMENT AND MONITORING OF SUCH INVESTMENT PORTFOLIOS. THEREFORE , WE ARE OF THE OPINION ITA NOS.401, 402, 419, 420, 421, 422 & 423/VIZAG/20 16 M/S. SREE AKKAMAMBA TEXTILES LTD., TANUKU 8 THAT ONCE THERE IS EXEMPT INCOME, THE RELATABLE IND IRECT EXPENDITURE SHOULD BE DISALLOWED IN PROPORTION TO THE EXEMPT IN COME. 7. THE HONBLE DELHI HIGH COURT IN THE CASE OF HT M EDIA LIMITED (SUPRA) HAS CONSIDERED THE DECISION OF PRINCIPAL COMMISSION ER OF INCOME TAX VS. BHARAT OVERSEAS PRIVATE LIMITED (2016) 237 TAXMAN 4 17, WHEREIN THE HONBLE HIGH COURT HAS HELD THAT IF THERE IS NO IN TEREST EXPENDITURE, WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCO ME OR RECEIPT, THE QUESTION OF APPLYING FORMULA UNDER RULE 8D(2) WILL NOT ARISE . IN OTHER WORDS, ONE OF THE PRE-REQUISITE FOR THE APPLICABILITY OF THE FORM ULA 8D(2)(II), THE RULES FOR DETERMINING THE EXTENT OF DISALLOWANCE OF INTEREST IS THAT THERE MUST BE SOME INTEREST EXPENSES WHICH ARE NOT ATTRIBUTABLE T O ANY PARTICULAR INCOME OR RECEIPT. IN THE PRESENT CASE, THE A.O. DOES NOT INDICATE WHICH PART OF THE INTEREST EXPENSES FALLS IN THE ABOVE CATEGORY. THE HONBLE DELHI HIGH COURT IN THE CASE OF H.T. MEDIA LIMITED (SUPRA) HAS ALSO CONSIDERED THE DECISION OF MAXOPP INVESTMENTS LIMITED VS. CIT (201 2) 347 ITR 272 (DELHI) AS WELL AS THE DECISION OF THE BOMBAY HIGH COURT IN GODREJ & BOYCE MANUFACTURING COMPANY LIMITED VS. CIT (2010) 328 IT R 81 (BOM) WHEREIN IT HAS OBSERVED THAT THERE WAS TO BE A MINIMUM COMP LIANCE WITH THE MANDATORY REQUIREMENT U/S 14A(2) READ WITH RULE 8D WHICH REQUIRES A.O. TO EXAMINATION OF THE ACCOUNTS OF THE ASSESSEE AND UPON ARRIVING AT A DIS- SATISFACTION AS TO CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. THE A.O. CAN ITA NOS.401, 402, 419, 420, 421, 422 & 423/VIZAG/20 16 M/S. SREE AKKAMAMBA TEXTILES LTD., TANUKU 9 DETERMINE THE AMOUNT OF EXPENDITURE WHICH SHOULD BE DISALLOWED IN ACCORDANCE WITH THE METHOD PRESCRIBED UNDER RULE 8D OF THE RULES. THE COURT EXPLAINED THAT UNLESS SUCH DIS-SATISFACTION W AS RECORDED IN THE MANNER INDICATED U/S 14A OF THE ACT, THE QUESTION O F INVOKING RULE 8D OF RULES AND THE FORMULA THERE UNDER DOES NOT ARISE. IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT GIVEN ANY FINDING IN RESP ECT OF INTEREST EXPENDITURE INCURRED BY THE ASSESSEE. THUS, WE RES PECTFULLY FOLLOWING THE COORDINATE BENCH OF THE TRIBUNAL AND ALSO THE JUDGE MENT OF THE DELHI HIGH COURT IN THE CASE OF H.D. MEDIA LIMITED (SUPRA) WE FIND NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE LD. CIT(A). 8. SO FAR AS THE ASSESSMENT YEARS 2009-10, 2010-11, 2011-12 & 2012-13, THE FACTS ARE SIMILAR. THEREFORE, IN VIEW OF OUR DECISION ABOVE, WE FIND NO REASON TO INTERFERE WITH THE ORDER PASSE D BY THE LD. CIT(A). 9. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE DISMISSED. 10. SO FAR AS CROSS APPEALS FILED BY THE ASSESSEE F OR THE ASSESSMENT YEARS 2010-11 & 2011-12 IN ITA NOS.401 & 402/VIZA G/2016 IN RESPECT OF DISALLOWANCE OF REELING AND DOUBLING CHARGES. FOR THE ASSESSMENT YEAR 2010-11, THE A.O. NOTED THAT THE ASSESSEE HAS CLAIM ED EXPENDITURE TO THE TUNE OF ` 12,59,049/- TOWARDS REELING AND DOUBLING CHARGES P AID TO M/S. SRI VENKATARAYA THREADS PVT. LTD. THE A.O. NOTED THAT SRI M.S.R.V.K. RANGA RAO, DIRECTOR OF THE ASSESSEE COMPANY WAS HAVING A SUBSTANTIAL INTEREST IN ITA NOS.401, 402, 419, 420, 421, 422 & 423/VIZAG/20 16 M/S. SREE AKKAMAMBA TEXTILES LTD., TANUKU 10 M/S. SRI VENKATARAYA THREADS PVT. LTD. HOLDING SUBS TANTIAL SHARES IN THE SAID COMPANY. M/S. SRI VENKATARAYA THREADS PVT. LT D. WAS EXCLUSIVELY ATTENDING THE JOB WORKS OF THE ASSESSEE FOR WHICH P AYMENTS ARE MADE. THE ASSESSEE CALLED UPON TO JUSTIFY THE REASONABLEN ESS OF THE PAYMENTS MADE TO SAID COMPANY. IN RESPONSE TO THAT, THE ASS ESSEE HAS FILED A LETTER DATED 12.12.2012 FILED A DETAILED REPLY BEFORE THE A.O. AS FOLLOWS: IN RESPECT OF REELING AND DOUBLING CHARGES PAID TO N/S. SREE VENKATARAYA THREADS PVT. LTD., WE WRITE TO SUBMIT THAT THE SERV ICES OF THE ABOVE PARTY WERE ENGAGED WITH AN INTENTION TO REDUCE THE COST OF PRO DUCTION. AS YOU MAY BE AWARE THAT THE TEXTILES PROCESSING IS A LABOUR INTE NSIVE AND THE AVERAGE WAGE COST TO THE PERMANENT WORKERS WORKING IN OUR COMPAN Y WAS RS.445/- PER DAY DURING THE PREVIOUS YEAR, WHEREAS THE OUTSIDE WAGES AS PAID BY THE ABOVE UNIT WAS AROUND RS. 150/- PER DAY; BESIDES ALL OTHER COS TS FOR PROCESSING REMAIN THE SAME. HENCE, CHARGES PAID TO N/S. SREE VENKATARAYA THREADS PVT. LTD., WERE MUCH LOWER THAN THE COST OF IN-HOUSE PROCESSING AND ADVANTAGEOUS TO THE COMPANY. FURTHER, IT MAY ALSO PLEASE BE NOTED THAT THERE ARE NO OTHER PARTIES SITUATED IN AND AROUND TANUKU TO CARRYOUT THE REELING AND DOUBL ING SERVICES NOR WE HAVE THE MACHINERY/EQUIPMENT IN OUR MILLS PREMISES TO D O THE SAME PROCESSING. THEREFORE AWARDING THE ABOVE JOB WORK WAS DONE PURE LY IN THE INTEREST AND BENEFIT OF THIS COMPANY AND THE CHARGES PAID THEREO N WERE NOT UNREASONABLE AND EXCESSIVE. ALL THE PAYMENTS WERE MADE BY A/C. P AYEE CHEQUES AFTER DEDUCTION OF TDS AS PER THE DETAILS ALREADY SUBMITT ED AND M/S. SREE VENKATARAYA THREADS PVT. LTD. IS AN ASSESSEE ON YOU R FILES.' 11. THE A.O. AFTER CONSIDERING THE REPLY HE WAS NOT SATISFIED WITH THE REASONABLENESS OF THE PAYMENTS, ACCORDINGLY DISALLO WED 10% OF SUCH PAYMENTS MADE TO THE RELATED PARTY SRI VENKATARAYA THREADS PRIVATE LIMITED DISALLOWANCE WAS MADE U/S 40A(2)(B) OF THE ACT TO THE TUNE OF ` 12,59,049/- FOR THE ASSESSMENT YEAR 2010-11 AND FOR THE SIMILAR REASONS ITA NOS.401, 402, 419, 420, 421, 422 & 423/VIZAG/20 16 M/S. SREE AKKAMAMBA TEXTILES LTD., TANUKU 11 HE ALSO DISALLOWED TO THE TUNE OF ` 15,69,709/- FOR THE ASSESSMENT YEAR 2011-12. 12. ON APPEAL, IT WAS SUBMITTED BEFORE THE LD. CIT( A) THAT THE ASSESSEE HAD INCURRED THE EXPENDITURE FOR THE PURPOSE OF OUT SOURCING THE WORK AND THE WORK STRUCTURE IN THE ASSESSEE COMPANY COMES TO ` 460/- PER DAY FOR THE YEAR ENDING 31.3.2010 AND ` 481/- PER DAY FOR THE YEAR ENDED 31.3.2011 AND THE WORK STRUCTURE ON ACCOUNT OF OUTS OURCING WAS AROUND ` 150/- ONLY AND SUBMITTED THAT THE OUTSOURCING WORK GIVEN TO THE SISTER CONCERN IS BENEFICIAL TO THE ASSESSEE AND THE SAME WORK IS CARRYING SINCE PAST SEVERAL YEARS. THE LD. CIT(A) AFTER CONSIDERI NG THE EXPLANATION GIVEN BY THE ASSESSEE, HE HAS CONFIRMED THE ORDER OF THE A.O. BY OBSERVING AS UNDER: 8.2 THE ASSESSEE WAS ASKED TO CLARIFY ON WHAT BASI S THE PAYMENTS WERE MADE TO THE SISTER CONCERN. IN THIS R EGARD IT WAS SUBMITTED THAT THE PAYMENT WAS MADE AS PER AGREEMEN T ENTERED WITH THE SISTER CONCERN AND IN SUPPORT OF WHICH THE ASSESSEE FILED AGREEMENT DATED 14.03.2009, WHICH WAS EFFECTIVE FRO M 01.04.2009. THE AUTHORIZED REPRESENTATIVE WAS ASKED TO CLARIFY WHETHER ANY AGREEMENT EXISTED FOR THE PRIOR PERIOD THAT WERE THE RATES IN THE EARLIER YEARS. THE AUTHORIZED REPRESEN TATIVE ALSO ASKED TO CLARIFY WHETHER ANY REVISION OF RATES WAS MADE I N THE EARLIER YEARS OR SUBSEQUENT YEARS THE AUTHORISED REPRESENTA TIVE SUBMITTED THAT A 20% REVISION WAS MADE W.E.F. 01.04.2010 BASE D ON A LETTER OF AGREEMENT DATED 19.04.2010 BETWEEN THE PARTIES. THE AUTHORISED REPRESENTATIVE ALSO CLARIFIED THAT AGREE MENT WAS ORIGINALLY ENTERED ON 24TH APRIL, 2000 WITH EFFECT FROM 01.04.2000 AND FOR EVERY SUCCEEDING THERE WAS REVISION OF RATE S AT LO% OVER THE RATES OF PRECEDING YEAR AS PER LETTER OF AGREEMENTS . A COPY OF THE AGREEMENT DATED 24TH APRIL 2000, LETTER DATED 09.04.2001, 19.04.2002, 22.04.2004, 31.03.2006, 24.04.2008 WERE FILED. THE PERUSAL OF THE DETAILS SHOW THAT THERE WAS UPWARD R EVISION OF RATES AT 10% OVER THE PRECEDING YEAR AT EVERY SUCCEEDING YEAR FROM THE ITA NOS.401, 402, 419, 420, 421, 422 & 423/VIZAG/20 16 M/S. SREE AKKAMAMBA TEXTILES LTD., TANUKU 12 YEAR 2000 AND IT WAS 20% INCREASE IN THE YEAR 2010. NO VALID JUSTIFICATION WAS GIVEN FOR SUCH INCREASE EVERY YEA R WHEN THE NATURE OF JOB OUTSOURCED WAS SAID TO BE LOW-END. I FIND TH AT THE ASSESSEE FAILED TO JUSTIFY THE REASONABLENESS OF THE PAYMENT S MADE TO THE SISTER CONCERN. A 10% WAGE RISE EVERY YEAR IS UNCOM MON IN ANY INDUSTRY. IN THESE FACTUAL SCENARIO, I FIND THAT TH E IMPUGNED DISALLOWANCE MADE BY THE AO IS JUSTIFIED AND THE S AME IS UPHELD FOR BOTH THE YEARS (A.Y. 2010-11 & A.Y. 2011-12). 13. ON APPEAL BEFORE US, THE LD. COUNSEL FOR THE AS SESSEE HAS SUBMITTED THAT THE ASSESSING OFFICER WITHOUT VERIFYING THE PA YMENT MADE BY THE RELATED COMPANIES FOR THE JOB WORK SIMPLY DISALLOWA NCE WAS MADE ON THE GROUND THAT THERE WAS AN UPWARD REVISION FOR EVERY YEAR AT 10%, THIS YEAR ASSESSEE HAS REVISED AT 20%. IT IS SUBMITTED THAT ACCORDING TO THE BUSINESS EXPEDIENCY, THE ASSESSEE HAS TO INCREASE 2 0% FOR THE YEAR 2010. IT IS ALSO SUBMITTED THAT SUBSEQUENT YEAR IN 2012-1 3, NO DISALLOWANCE WAS MADE BY THE A.O. 14. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. THE CASE OF THE A.O. IS THAT THE ASSESSEE IS OUTSOURCING JOB WO RK RELATING TO REELING AND DOUBLING FROM SISTER CONCERN NAMELY SRI VENKATARAYA THREADS PVT. LTD. THE ASSESSEE IS REVISING THE PAYMENTS AND INCREASIN G 10% EVERY YEAR, THE YEAR UNDER CONSIDERATION INCREASED TO 20%. THEREFO RE, A.O. BY INVOKING SECTION 40A(2B) OF THE ACT, HE HAS DISALLOWED 10% O F SUCH PAYMENTS MADE TO RELATED PARTY M/S. SRI VENKATARAYA THREADS PVT. LTD. ON APPEAL, THE CIT(A) CONFIRMED THE ORDER OF THE A.O. WE FIND THAT THE A.O. HAS NOT MADE ANY ENQUIRY WHETHER THE PAYMENT MADE BY THE AS SESSEE IS EXCESS ITA NOS.401, 402, 419, 420, 421, 422 & 423/VIZAG/20 16 M/S. SREE AKKAMAMBA TEXTILES LTD., TANUKU 13 ACCORDING TO THE NORMS PREVAILING IN THE SIMILAR IN DUSTRY. IT IS SUBMITTED THAT THE ASSESSEE HAS TO INCREASE THE PRICE FOR THE PURPOSE OF BUSINESS EXPEDIENCY. WE FIND NEITHER A.O. NOR CIT(A) GAVE AN Y REASONS FOR THE DISALLOWANCE. ACCORDINGLY, WE FIND THAT THE A.O. I S NOT JUSTIFIED IN INVOKING SECTION 40A(2)(B) OF THE ACT AND ACCORDINGLY WE SET ASIDE THE ORDER PASSED BY CIT(A) AND WE DIRECT THE A.O. TO ALLOW THE CLAIM OF THE ASSESSEE. 15. EVEN FOR THE ASSESSMENT YEAR 2011-12 ALSO FACTS AND CIRCUMSTANCES ARE SIMILAR AND IN VIEW OF OUR DECISION IN THE ASSE SSMENT YEAR 2010-11, THE APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEA R 2011-12 IS ALSO ALLOWED. 16. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E ARE ALLOWED. 17. IN THE RESULT, THE APPEALS FILED BY THE REVENUE FOR THE ASSESSMENT YEARS 2008-09 TO 2012-13 ARE DISMISSED AND THE APPE ALS FILED BY THE ASSESSEE FOR THE ASSESSMENT YEARS 2010-11 & 2011-12 ARE ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 23 RD NOV17. SD/- SD/- ( . . ' ) ( . ) (D.S. SUNDER SINGH) (V. DURGA RAO) /ACCOUNTANT MEMBER /JUDICIAL MEMBER # /VISAKHAPATNAM: ' /DATED : 23.11.2017 VG/SPS ITA NOS.401, 402, 419, 420, 421, 422 & 423/VIZAG/20 16 M/S. SREE AKKAMAMBA TEXTILES LTD., TANUKU 14 )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT SREE AKKAMAMBA TEXTILES LTD., VE NKATARAYAPURAM, TANUKU-534 215, WEST GODAVARI DIST., A.P. 2. / THE RESPONDENT THE ACIT, CIRCLE-1, ELURU. 3. + / THE PRINCIPAL CIT, RAJAHMUNDRY 4. + ( ) / THE CIT (A), RAJAHMUNDRY 5. # . , . , # / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM