M/s. Associated Electrical Agencies, CHENNAI V. ACIT, CHENNAI

ITA 407/CHNY/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2540 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-05-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 30-04-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 27-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T N BETGERI
• Assessee Lawyers: S SRIDHAR
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI [BEFORE SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBE R AND SHRI S.S. GODARA, JUDICIAL MEMBER] I.T.A.NO. 407,408/MDS/2012 ASSESSMENT YEAR : 2005-2006, 2006-2007. M/S. ASSOCIATED ELECTRICAL AGENCIES, POTTIPATTI PLAZA, IIND FLOOR, NUNGAMBAKKAM HIGH ROAD, CHENNAI 600 034 [PAN AABFA 3270B ] VS THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE XV, CHENNAI 600 034. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. S. SRIDHAR, ADV RESPONDENT BY : SHRI. T.N.BETGERI, JCIT. DATE OF HEARING : 30-04-2013 DATE OF PRONOUNCEMENT : 09-05-2013 O R D E R PER S.S. GODARA, JUDICIAL MEMBER THIS TWO APPEALS FILED BY THE ASSE SSEE FOR ASSESSMENT YEARS 2005-2006 AND 2006-2007, ARISE FROM DIFFERENT ORDERS OF CIT(A)- XII, CHENNAI BOTH DATED 20.7.2012, IN ITA NO.635/20 07-08 AND ITA NO.115/2009-2010, RESPECTIVELY. THE RELEVANT PROCE EDINGS FOR I.T.A.NO.407, 408/MDS/2012 :- 2 -: ASSESSMENT YEAR 2005-2006 ARE U/S 143(3) OF THE INC OME TAX ACT; WHEREAS, FOR ASSESSMENT YEAR 2006-2007, THEY ARE UN DER SECTION 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. FROM THE ARRAYS OF GROUNDS, IT APPEARS THAT IN ASSE SSMENT YEAR 2005-2006, THE ASSESSEES GRIEVANCES ARE THAT CIT(A ) HAS WRONGLY CONFIRMED THE DISALLOWANCES MADE BY THE ASSESSING OFFICER REGARDING INTEREST AMOUNT OF E8,67,303/- AND THAT UNDER SEC TION 14A @ 5% OF DIVIDEND EARNED IN THE NATURE OF EXEMPT INCOME. SIMILARLY FOR ASSESSMENT YEAR 2006-2007, WE NOTICE THAT THE ASSE SSEES PLEADINGS CHALLENGE VALIDITY OF RE-OPENING AND ALSO THE DISAL LOWANCE UNDER SECTION 14(A) OF THE ACT (ALIKE ASSESSMENT YEAR 200 5-2006). IN ADDITION TO THIS, IT HAS ALSO FILED AN ADDITIONAL G ROUND OF APPEAL CHALLENGING INTEREST DISALLOWANCE OF E16,06,906/- M ADE BY THE ASSESSING OFFICER AND NOT DEALT WITH BY THE CIT(A ). IN SUPPORT OF ADDITIONAL GROUND ABOVESAID, ITS CONTENTION IS THAT DESPITE SPECIFIC PLEADINGS BEFORE CIT(A), THE SAME HAS BEEN NOWHERE BEEN ADJUDICATED UPON IN THE ORDER UNDER CHALLENGE. IN T HE COURSE OF HEARING AS WELL, THE ASSESSEE PRAYS FOR ADMISSION O F THE ADDITIONAL GROUND; WHICH IS OPPOSED BY THE REVENUE. I.T.A.NO.407, 408/MDS/2012 :- 3 -: 3. WE HAVE HEARD BOTH PARTIES REGARDING ADMISSION OF A DDITIONAL GROUND. IT IS NOTICED FROM THE CASE FILE THAT THE ASSESSEE HAD RAISED THE SAID GROUND (GROUNDS NO.10 TO 12) BEFORE THE CI T(A) IN FORM NO.35. HOWEVER, NO ADJUDICATION BY THE CIT(A) IS F ORTHCOMING AS RIGHTLY POINTED OUT BY THE ASSESSEE. SO, WE ADMIT THE ADDITIONAL GROUND IN ITA NO.408/MDS/2012. 4. IN ITA NO.407/MDS/2012, COMING TO INTEREST DISALLOW ANCES OF E8,67,303/-,IT IS FOUND FROM THE RECORDS THAT THE ASSESSEE HAD FILED ITS RETURN OF INCOME ON 07.10.2005 DECLARING LOSS OF E 3,02,368/-. IN SCRUTINY, THE ASSESSING OFFICER CAME ACROSS INTER EST AND FINANCE CHARGES DEBITED TO PROFIT AND LOSS ACCOUNT INCLUDI NG OCC INTEREST PAID TO BANK OF BARODA. AS PER ASSESSING OFFICER, IN TH E PRECEDING ASSESSMENT YEAR AS WELL, SIMILAR DISALLOWANCE HAD B EEN CONFIRMED BY THE CIT(A) QUA DEBIT BALANCE IN THE NAME OF ASSESS EES SISTER CONCERNS. IN LIGHT THEREOF, VIDE ASSESSMENT ORDER DATED 31.012.2007, HE DISALLOWED/ADDED THE AMOUNT. 5. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL IT IS FOUN D FROM THE CIT(A)S ORDER THAT ITS CONTENTIONS THEREIN WERE T HAT LOANS AND ADVANCES TO SISTER CONCERNS WERE AS PER ITS BUSINE SS REQUIREMENTS. I.T.A.NO.407, 408/MDS/2012 :- 4 -: WE OBSERVE FROM THE CIT(A) ORDER THAT HE HAS REJECT ED THE PLEA FOR WANT OF SUBSTANTIAL EVIDENCE AND HAS ALSO HELD THAT INTEREST BEARING FUNDS HAVE BEEN UTILIZED FOR NON BUSINESS ACTIVITIE S. SIMILARLY, IN THE LOWER APPELLATE PROCEEDINGS, CIT( A) ALSO CAME ACROSS ASSESSEES EXEMPT INCOME REGARDING WHI CH NO EXPENDITURE HAD SEEN ATTRIBUTED. THEREFORE, HE ISSU ED NOTICE UNDER SECTION 14A OF THE ACT AND HELD IN THE ORDE R UNDER CHALLENGE THAT SINCE THE TOTAL DIVIDEND AMOUNT SUM IS OF E28,14,000/-, THEREFORE, DISALLOWANCE @ 5% AMOUNTIN G TO E1,40,700/- HAS TO BE MADE. HENCE, THE ASSESSEE IS IN APPEAL. 6. IN THE COURSE OF HEARING, THE ASSESSEE REITERATES T HE GROUNDS AND ALSO FILED BEFORE US A COPY OF THE ORDER DATED 13.12.2011 IN ITA NO.1495, 1496 & 1497/MDS/2007 AND ITA NO.378/MDS/20 08 FOR ASSESSMENT YEARS 1998-1999, 1999-2000, 2003-2004 AN D 2004-2005. IN LIGHT THEREOF, ITS CONTENTION IS THAT SINCE THE VERY ISSUE OF INTEREST DISALLOWANCE STANDS RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER AND ADMITTEDLY THE AUTHORITIES BELOW HAVE RELIED O N THE ASSESSMENT PROCEEDINGS OF THE SAID ASSESSMENT YEARS, THE GROUN D IN HAND ALSO DESERVES TO SET ASIDE TO THE FILE OF THE ASSESSING OFFICER. I.T.A.NO.407, 408/MDS/2012 :- 5 -: 7. THE REVENUES CONTENTIONS SUPPORT THE CIT(A) ORDER. 8. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH THE CAS E FILE. THE FACTS ARE NOT IN DISPUTE. THE INTEREST DISALLOWANC E IN QUESTION HAS BEEN MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A) FOR THE AMOUNT ADVANCED BY THE ASSESSEE TO ITS SISTER CONCERNS ETC. WE FIND FROM THE ASSESSMENT ORDER THAT ON MERITS THERE IS NO DISCUSSION AND THE ASSESSING OFFICER HAS MERELY RELIED ON THE ASSESSMENT OF PRECEDING ASSESSMENT YEARS. THE CIT(A) HAS AFFIRMED THE ASSESSING OFFICERS FINDINGS. EVEN THE REVENUES DOES NOT DIS PUTE THAT QUA THE SAID ASSESSMENT YEARS, THE ISSUE HAS BEEN SET ASIDE TO THE FILE OF THE ASSESSING OFFICER. HENCE, IN THESE CIRCUMSTANCES, W ITHOUT EXPRESSING ANY OPINION ON MERITS, WE DEEM IT APPROPRIATE TO DI RECT THE ASSESSING OFFICER TO RE-DECIDE THE INTEREST DISALLOWANCE AFTE R GIVING ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. 9. NOW, WE COME TO THE SECOND ISSUE OF DISALLOWANCE U/ S 14A (SUPRA). THE ASSESSEES EXEMPT INCOME BY WAY OF DIVIDEND IS OF E28,14,000/- AND DISALLOWANCE HAS BEEN MADE AT THE RATE OF 5% OF TOTALING E1,40,700/-. THE CONTENTION OF THE ASSESS EE IS THAT DISALLOWANCE IS EXCESSIVE. IN SUPPORT, IT CITES C ASE LAW OF HONBLE JURISDICTIONAL HIGH COURT DATED 15.10.2012 IN TAX C ASE NO.2621 OF I.T.A.NO.407, 408/MDS/2012 :- 6 -: 2006 TITLED AS M/S. SIMPSON & CO. LTD VS. DCIT, C HENNAI CONFIRMING SUCH DISALLOWANCE AT THE RATE OF 2%. THOUGH THE RE VENUE SUPPORTS THE DISALLOWANCE @ 5% OF THE DIVIDEND AMOUNT, HOW EVER, GUIDED BY THE ABOVE SAID CASE LAW, WE MODIFY IT @ 2% OF THE E XEMPT INCOME. 10. CONSEQUENTLY, ITA NO.407/MDS/2012 IS PARTLY ACCEPTE D. 11. NOW WE COME TO ITA NO.408/MDS/2012. IT IS NOTED THA T THERE ARE THREE GROUNDS RAISED (AFTER ADMISSION OF ADDITI ONAL GROUND). FIRST SUBSTANTIVE GRIEVANCE OF THE ASSESSEE IS THAT CIT(A ) HAS WRONGLY REOPENED THE ASSESSMENT BY ISSUING NOTICE DATED 3 0.03.2009 UNDER SECTION 148 OF THE ACT. COMING TO THE FACTS OF TH E CASE IT IS TO BE SEEN THAT FOR THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE HAD FILED ITS RETURN ON 27.10.2006 DECLARING INCOME OF E11,07,579 /-, WHICH WAS SUMMARILY PROCESSED. THEREAFTER, THE ASSESSING O FFICER FORMED AN OPINION THAT SINCE THE ASSESSEE HAD EARNED EXEMPT I NCOME WITHOUT ATTRIBUTING ANY EXPENDITURE TO BE DISALLOWED UNDER SECTION 14A OF THE ACT, ITS INCOME LIABLE TO BE TAXED HAD ESCAPED A SSESSMENT. SO, HE ISSUED REOPENING NOTICE DATED 30.03.2009. ON 29.12 .2009, IN RE- ASSESSMENT FINALIZED, THE ASSESSING OFFICER INVOKE D SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES (IN SHORT THE RULES) AND DISALLOWED E5,51,641/- AS EXPENDITURE FOR EA RNING EXEMPT I.T.A.NO.407, 408/MDS/2012 :- 7 -: INCOME. FURTHER, HE ALSO ADDED OVERDRAFT INTEREST AMOUNT OF E16,06,906 ON THE BASIS OF ASSESSMENTS PERTAINING T O ASSESSMENT YEAR 2004-2005(SUPRA). 12. THE ASSESSEE CARRIED THE MATTER IN APPEAL AND RAISE D THREE GROUNDS I.E. IT CHALLENGED THE VALIDITY OF RE-OPENI NG, THE DISALLOWANCES/ ADDITIONS UNDER SECTION 14A OF THE ACT AND INTERE ST AMOUNT. WE FIND THAT THE CIT(A) HAS TURNED DOWN THE PLEAS ON THE LE GALITY OF REOPENING. REGARDING DISALLOWANCE U/S 14A, HE HAS M ODIFIED THE ADDITION FROM E5,51,641/- TO E1,40,700/- @ 5% OF TH E EXEMPT INCOME AND QUA INTERESTS ADDITION, NO ADJUDICATION HAS BE EN MADE. THIS LEAVES THE ASSESSEE AGGRIE VED. 13. WE HAVE HEARD THE PARTIES IN DETAIL AND PERUSED THE CASE FILE. SO FAR AS THE ASSESSEE GROUND TO THE LEGALITY TO TH E RE-OPENING IS CONCERNED, AS RIGHTLY HELD BY THE CIT(A), IT IS NOT A CASE COVERED BY 1 ST PROVISO TO SECTION 147 OF THE ACT WHEREIN BEFORE RE-OPENING, THERE HAS TO BE A FAILURE ON PART OF THE ASSESSEE TO DIS CLOSE FULLY AND TRULY ALL MATERIAL PARTICULARS NECESSARY FOR HIS ASSESSME NT AS THE REOPENING IS WITHIN FOUR YEARS FROM THE END OF THE RELEVANT A SSESSMENT YEAR. ADMITTEDLY, THE REASON FOR RE-OPENING IS THAT QUA A SSESSEES EXEMPT INCOME, NO EXPENDITURE HAS BEEN ATTRIBUTED, WHICH I S LIABLE TO BE I.T.A.NO.407, 408/MDS/2012 :- 8 -: DISALLOWED UNDER SECTION 14A OF THE ACT. IN THE RE-ASSESSMENT ORDER, HE INVOKED SECTION 14A R.W.S RULE 8D AND DISALLOWED /ADDED AN AMOUNT OF E5,51,614/- IN APPEAL, IT HAS BEEN MODIFIED TO T HAT @ 5% BY THE CIT(A). THAT BEING THE CASE AND MORE PARTICULARLY, SINCE THE ASSESSMENT U/S. 143(1) IS MERELY PROCESSING, WE REJ ECT ASSESSEES CONTENTIONS. 14. THIS LEAVE US WITH THE ASSESSEE PLEADING ON MERITS (SUPRA). THE PARTIES BEFORE US NO NOT DISPUTE THAT THE GROUNDS O N MERITS ARE DISALLOWANCE UNDER SECTION 14A AND INTEREST AMOUNT WHICH ALREADY STAND ADJUDICATED IN ASSESSMENT YEAR 2005-2006. AF TER GOING THROUGH THE CASE FILE, WE FIND THE STAND TAKEN BY THE PARTI ES TO BE FAIR. ACCORDINGLY, WE MODIFY THE DISALLOWANCE UNDER SECTI ON 14A COMPUTED BY THE CIT(A) @5% TO THE @ 2% OF THE DIVIDEND AMOUN T. SO FAR AS THE INTEREST DISALLOWANCE IN CONCERNED, SINCE WE HA VE REMITTED THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER, WE ORDER SAME IS IMPUGNED ASSESSMENT YEAR AS WELL. 15. THEREFORE, THIS APPEAL IS PARTLY ACCEPTED. 16. TO SUM UP, BOTH APPEALS STAND PARTLY ALLOWED. I.T.A.NO.407, 408/MDS/2012 :- 9 -: ORDER PRONOUNCED ON THURSDAY, THE 9TH OF MAY, 201 3, AT CHENNAI. SD/- SD/- (ABRAHAM P. GEORGE) ACCOUNTANT MEMBER (S.S. GODARA) JUDICIAL MEMBER DATED: 9TH MAY, 2013 K.V COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR