T.V.Sundaram Iyengar & Sons Limited, Madurai V. JCIT, Madurai

ITA 472/CHNY/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2673 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 09-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR B NISCHAL IRS
• Assessee Lawyers: S A BALASUBRAMANYAN
• Keywords: Depreciation; Earning of tax free income; Revised return
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , . ! , '!# BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NO.472/MDS/2015 ' $ %$ / ASSESSMENT YEAR : 2009-2010 T V SUNDRAM IYENGAR & SONS LTD, 7-B, WEST VELI STREET, MADURAI 625 001 VS. THE JOINT COMMISSIONER OF INCOME TAX, RANGE I, MADURAI [PAN AABCT 0159K ] ( / APPELLANT) ( /RESPONDENT) &' ( ) / APPELLANT BY : SHRI. S.A. BALASUBRAMANYAN, ADV *+&' ( ) /RESPONDENT BY : DR. B. NISCHAL, IRS, JCIT. ( , / DATE OF HEARING : 16-11-2015 -.% ( , / DATE OF PRONOUNCEMENT : 13-01-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AG AINST ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, MADU RAI IN ITA NO. 0114/2011-12, DT. 13.01.2015 FOR THE ASSESSMENT YEA R 2009-2010 PASSED U/S.143(3) AND 250 OF THE INCOME TAX ACT, 1 961. ITA NO.472/MDS/2015 :- 2 -: 2. THE ASSESSEE HAS RAISED TWO GROUNDS I.E. (I) DISALL OWANCE OF EXPENDITURE U/S.14A OF THE ACT AND (II) CLAIM OF DE PRECATION ON UPS SYSTEM AND VOLTAGE STABILIZER. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS IN THE BUSINESS OF AUTOMOBILE ENGINEERING, DISTRIBU TORS FOR MOTOR VEHICLES, SPARE PARTS, ACCESSORIES, PETROLEUM PRODU CTS AND LUBRICANTS AND FILED RETURN OF INCOME ON 29.09.2009 ADMITTING TOTAL INCOME OF <24,41,60,868/-. SUBSEQUENTLY FILED REVISED RETURN OF INCOME ON 10.06.2010 ADMITTING TOTAL INCOME AT <24,42,84,932/ - AND WAS PROCESSED U/S.143(1) ON 30.03.2011 AND THE SAID INT IMATION WAS RECTIFIED BY ORDER UNDER 154 OF THE ACT DATED 27.07 .2011. FURTHER THE CASE WAS SELECTED UNDER SCRUTINY AND NOTICE U/S.14 3(2) OF THE ACT WAS ISSUED. IN COMPLIANCE TO THE NOTICE, THE LD. AUTHO RISED REPRESENTATIVE APPEARED FROM TIME TO TIME AND FILED DETAILS CALLED FOR, AND THE ASSESSING OFFICER PERUSED THE DETAILS SUBMITTED AN D MADE AN ADDITION OF INTEREST DISALLOWANCE U/S.36(1) (III) OF THE ACT AND ALSO DISALLOWED EXCESS DEPRECATION ON UPS SYSTEM & VOLTAGE STABIL IZER. THE ASSESSEE COMPANY CLAIMED DEPRECIATION @80% ON THE VALUE ON U PS SYSTEM AND VOLTAGE STABILIZER. BUT THE ASSESSING OFFICER RELY ING ON DECISION OF NESTLE INDIA LTD. VS. DCIT (TTJ DEL 498) DATED 30.0 4.07 ALLOWED DEPRECIATION @25% INSTEAD OF @80% ON WRITTEN DOWN V ALUE AND ITA NO.472/MDS/2015 :- 3 -: DISALLOWED <20,370/- TOWARDS EXCESS DEPRECATION. T HE LAST ADDITION MADE BY THE ASSESSING OFFICER IN RESPECT OF DISALLO WANCE U/S.14A OF THE ACT. THE ASSESSEE COMPANY RECEIVED DIVIDEND I NCOME OF <23,82,94,000/- ON INVESTMENT OF SHARES IN COMPANIE S AND <7,72,000/- INCOME FROM UNITS OF MUTUAL FUNDS AND CLAIMED EXEMPTION U/S.10(33) & U/S. 10(34) OF THE ACT. TH E LD. ASSESSING OFFICER CALLED FOR THE EXPENSES INCURRED BY THE COM PANY FOR EARNING EXEMPT INCOME. THE ASSESSEE COMPANY EXPLAINED THA T NO EXPENSES WERE INCURRED FOR EARNING DIVIDEND INCOME ON THE S HARES AND UNITS OF MUTUAL FUNDS THE DIVIDEND WARRANTS ARE CREDITED DI RECTLY INTO BANK ACCOUNT. BUT THE ASSESSING OFFICER UNDER PRESUMPT ION OF POSSIBILITY, THAT SOME EXPENDITURE WOULD HAVE BEEN INCURRED TO E ARN DIVIDEND AND MUTUAL FUND INCOME AND HAS WORKED OUT DISALLOWANCE OF EXPENDITURE U/S.14A R.W.R 8D APPLYING CLAUSE (II) TO SUB-RULE (2) OF RULE 8D BASED ON THE INVESTMENT, CALCULATED AT <34,45,593/- AND F INALLY COMPLETED ASSESSMENT U/SEC 143(3) OF THE ACT DETERMINING TOTA L INCOME OF <25,06,86,100/-. AGGRIEVED BY THE ORDER OF THE ASSE SSING OFFICER, THE ASSESSEE HAS FILED AN APPEAL BEFORE THE COMMISSIONE R OF INCOME TAX (APPEALS). 4. IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORISED REPRESENTATIVE MADE SUBMISSIONS ON THE NOTIONAL IN TEREST IN RESPECT ITA NO.472/MDS/2015 :- 4 -: OF DISALLOWANCE U/S.36(1)(III) OF THE ACT AND ALSO RAISED GROUNDS ON THE DISALLOWANCE U/S.14A OF THE ACT AND ALSO ASSESSING OFFICER WAS NOT JUSTIFIED IN MAKING AN ADDITION ON ASSUMPTION OF EX PENDITURE HAS BEEN INCURRED TO EARN SUCH EXEMPT INCOME THOUGH NO EXPEN DITURE IS DEBITED TO PROFIT AND LOSS ACCOUNT. THE SYSTEM OF RECEIPT OF DIVIDEND ON SHARES AND UNITS OF MUTUAL FUNDS ARE DIRECTLY CREDI TED UNDER ECS SYSTEM WHERE NO EXPENDITURE IS INCURRED. THE ADDIT ION OF NOTIONAL EXPENDITURE RELATING TO THE EXEMPT INCOME IS NOT J USTIFIED AS THE MAIN BUSINESS OF THE ASSESSEE COMPANY BEING AUTOMOBILE SPARES SALES AND NOT INVESTMENT BASED OPERATION. THE LD. COMMISSIONE R OF INCOME TAX (APPEALS) ACT RELYING ON JUDICIAL DECISIONS DELETED ADDITION OF INTEREST U/SEC. 36 (1)(III) OF THE ACT BUT ON GROUND OF DISA LLOWANCE U/S.14A W.R.S. RULE 8D, ON RELY ON ASSESSEES OWN CASE F OR EARLIER ASSESSMENT YEARS 2005-06 TO 2008-09 AND CONFIRMED THE DISALLOWANCE OF THE ASSESSING OFFICER. ON THE LAST GROUND OF C LAIM OF DEPRECIATION ON UPS SYSTEM AND VOLTAGE STABILIZER, THE LD. COMMI SSIONER OF INCOME TAX (APPEALS) RELIED ON THE DECISION OF ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2005-06 TO 2008-09 CONFIRMED THE O RDER OF THE ASSESSING OFFICER. AGGRIEVED BY THE ORDER OF THE C IT(A) THE ASSESSEE ASSAILED AN APPEAL BEFORE THE TRIBUNAL 5. BEFORE THE TRIBUNAL, THE LD. AUTHORISED REPRESENTAT IVE SUBMITTED THAT GROUNDS ON DISALLOWANCE U/S.14A AN D CLAIM OF ITA NO.472/MDS/2015 :- 5 -: DEPRECIATION ON UPS SYSTEM AND VOLTAGE STABILIZER A RE DEALT BY THE CO- ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN C ASE FOR THE ASSESSMENT YEAR 2005-06 TO 2008-09 IN ITA NO. 833 T O 836/2012, DATED 28.08.2013 AND PLEADED FOR DELETION OF DISALL OWANCE U/S.14A OF THE ACT AS EXEMPTED INCOME IS EARNED WITHOUT INCURR ING EXPENDITURE. 6. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTAT IVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES AND P LEADED FOR DISMISSAL OF APPEAL. 7. WE HEARD THE RIVAL SUBMISSIONS OF BOTH THE PARTIES, PERUSED THE MATERIAL ON RECORD AND JUDICIAL DECISIONS CITED . THE ASSESSEE COMPANY IN THE EARLIER ASSESSMENT YEAR HAS MADE SIM ILAR CLAIM AND CHALLENGED THE SAME BEFORE THE TRIBUNAL ON THE GROU NDS OF DISALLOWANCE U/S.14A R.W.S. 8D AND THE DEPRECATION ON UPS SYSTEM AND VOLTAGE STABILIZER. THE CO-ORDINATE BENCH IN A SSESEES OWN CASE IN ITA NOS. 833 TO 836/MDS/2012,DATED 28.08.2013 FOR T HE ASSESSMENT YEARS 2005-06 TO 2008-09 OBSERVED AT PAGE NO.6 OF PARA 8 AS UNDER:- 8. AFTER GIVING OUR THOUGHTFUL CONSIDERATION TO T HE AFORESAID FACTS, WE FIND THAT THERE IS NO DISPUTE ON FACTUAL POSITION NARRATED ABOVE. IN OTHER WORDS, THE ASSESSING OFFIC ER TOOK 5% OF THE POSTAL AND STATIONERY CHARGES ETC IN MAKING THE DISALLOWANCE UNDER SEC.14A OF THE ACT REGARDING ASS ESSMENT ITA NO.472/MDS/2015 :- 6 -: YEARS 2005-06 AND 2006-07. IN ASSESSMENT YEAR 2007- 08 AND 2008-09, HE FOLLOWED RULE 8D(2)(III) IN COMPUTING T HE DISALLOWANCE. THE COMMISSIONER OF INCOME TAX (APPEA LS) IN ALL CASES HAS FOLLOWED RULE 8D(2)(III) IN RESTRICTI NG THE SAME. IN THIS BACKDROP OF FACTS, WE FIND THAT THE AUTHORITI ES BELOW HAVE NOT PROCEEDED ON CORRECT FACTUAL AND LEGAL POSITION REGARDING DISALLOWANCE PERTAINING TO EXEMPT INCOME IN QUESTIO N UNDER SEC.14A BY INVOKING RULE 8D(2)(III) AS IT HAS THROU GHOUT BEEN THE CASE OF THE ASSESSEE THAT IT HAD NOT INCURRED A NY EXPENSES IN EARNING THE DIVIDEND INCOME. AS STIPULA TED UNDER SEC.14A OF THE ACT, THE AUTHORITIES BELOW HAVE NOWH ERE RECORDED SATISFACTION ABOUT THE CORRECTNESS OF THE ACCOUNTS SUBMITTED BY THE ASSESSEE. NOT ONLY THIS, IN THE CA SE LAW OF GODREJ & BOYCE (SUPRA), THE HONBLE BOMBAY HIGH COU RT HAS HELD THAT RULE 8D COMES INTO EFFECT FROM THE ASSESS MENT YEAR 2008-09. THEREAFTER, THE HONBLE DELHI HIGH COURT H AS FURTHER CLARIFIED THAT EVEN WITH REGARD TO ASSESSMENT YEAR 2008-09, RULE 8D WOULD APPLY ONLY FOR THE PERIOD FROM THE DA TE OF ITS NOTIFICATION IE. 24.3.2008 TO 31.3.2008 AND NOT FRO M 1.4.2007 TO 23.3.2008. THE TRIBUNAL (SUPRA) HAS ALSO FOLLO WED THE CASE LAW OF MAXOPP INVESTMENTS LTD V. CIT AFORESAID. IN THIS VIEW OF THE MATTER, WE HOLD THAT THE IMPUGNED DISALLOWAN CE IN ALL THE ASSESSMENT YEARS HAS BEEN WRONGLY RESTRICTED/AF FIRMED BY THE COMMISSIONER OF INCOME TAX (APPEALS). AT THE S AME TIME, WE ALSO REITERATE THE LEGAL POSITION EMANATIN G FROM THE AFORESAID CASE LAW THAT IN A CASE OF EXEMPT INCOM E NOT COVERED BY RULE 8D, THE DISALLOWANCE UNDER SEC.14A OF THE ACT HAS TO BE MADE BY FOLLOWING REASONABLE METHOD. HE NCE, INSTEAD OF REMITTING BACK THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO RE-EXAMINE THE ASSESSEES CASES AFRESH, WE DEEM IT APPROPRIATE THAT IT WOULD BE IN THE INTEREST OF JUS TICE THAT THE DISALLOWANCE/ADDITION IN QUESTION IN ALL ASSESSMENT YEARS OF 18,72,495/-; 22,16,682/-; 22,83,500/- AND 29,97,170/- IS ITA NO.472/MDS/2015 :- 7 -: FURTHER RESTRICTED TO 50%. WE ORDER ACCORDINGLY AND GRANT PART RELIEF TO THE ASSESSEE. ACCORDINGLY, WE ORDER THAT THE CORRESPONDING GROUNDS IN ALL THE APPEALS STAND PART LY ALLOWED . BUT THIS ASSESSMENT YEAR 2009-2010 BEING FIRST YEAR AFTER AMENDMENT OF RULE 8D, WHERE THE DISALLOWANCE IS HIT BY THIS A MENDMENT. HOWEVER, DISALLOWANCE U/S.14A CANNOT BE MORE THAN E XEMPTED INCOME AS HELD BY DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENT PVT. LTD VS. CIT 372 ITR 694 . THEREFORE IN VIEW OF THE ABOVE JUDGMENT, WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICE R TO VERIFY THE EXEMPTED INCOME AND CALCULATE THE DISALLOWANCE IN T HE LIGHT OF THE ABOVE DECISION. THIS GROUND OF THE ASSESSEE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. 8. ON NEXT GROUND OF CLAIM OF DEPRECIATION ON UPS SYSTEM AND VOLTAGE STABILIZER, THE ASSESSING OFFICER RELIED ON THE DECISION OF NESTLE INDIA LTD (SUPRA ) AND THE SAME WAS CONSIDERED IN ASSESSEE OWN CASE AS ABOVE AT PAGE NO.9 AT PARE NO.10 AS UNDER:- 10. WE HAVE CONSIDERED THE ASSESSEES ARGUMENTS A ND PERUSED THE RELEVANT FINDINGS OF THE AUTHORITIES BE LOW. THE ASSESSEE DOES NOT DISPUTE THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS CONFIRMED THE DISALLOWANCE BY PLA CING RELIANCE ON ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2001- 02. IT HAS NEITHER POINTED OUT ANY DISTINGUISHING FEATURES NOR REBUTTED THE FINDINGS IN QUESTION. THEREFORE, WE DO NOT SEE ITA NO.472/MDS/2015 :- 8 -: ANY REASON TO INTERFERE WITH THE FINDINGS OF THE CO MMISSIONER OF INCOME TAX (APPEALS) UNDER CHALLENGE QUA THE ISS UE OF DEPRECIATION PERTAINING TO UPS AND VOLTAGE STABILIZ ERS. CONSEQUENTLY, THE RELEVANT GROUNDS IN ALL APPEALS S TAND DECIDED AGAINST THE ASSESSEE. WE AFTER CONSIDERING THE FACTS AND REASONED FINDIN G OF COMMISSIONER OF INCOME TAX (APPEALS) ARE NOT INCLINED TO INTERF ERE WITH ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS GROUND AND WE UPHOLD THE SAME. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE I N ITA NO.472/MDS/2015 IS PARTLY ALLOWED FOR STATISTICAL P URPOSE. ORDER PRONOUNCED ON WEDNESDAY, THE 13TH DAY OF JANUARY, 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ! ) (G. PAVAN KUMAR) /JUDICIAL MEMBER / CHENNAI / / DATED: 13.012016. KV 0 ( *',23 43%, / COPY TO: 1 . &' / APPELLANT 3. 5, () / CIT(A) 5. 389 *',' / DR 2. *+&' / RESPONDENT 4. 5, / CIT 6. 9 $ : / GF