Thiruvengadam Investments Pvt Ltd., CHENNAI V. ACIT, CHENNAI

ITA 542/CHNY/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90502 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 09-06-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 01-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: S SRIDHAR
• Keywords: Reopening of assessment; Business income; Earning of tax free income; Retrospective amendment; Tangible material; Difference of opinion; Change of opinion; Reassessment proceedings
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , . # , $ & BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI V.DURGA RAO, JUDICIAL MEMBER ./ I.T.A.NO . 542/MDS/2013 ( / ASSESSMENT YEAR: 2005-06) M/S. THIRUVENGADAM INVESTMENTS PVT. LTD. (NOW KNOWN AS M/S. HANSA VISION INDIA PVT.LTD.) 605-606, ANNA SALAI, SOUTH INDIAN FILM CHAMBER BUILDING, 2 ND FLOOR,THOUSAND LIGHTS, CHENNAI-600 006. VS ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-III(2), CHENNAI. PAN:AABCT3770E ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. S.SRIDHAR, ADVOCATE /RESPONDENT BY : MR. A.V.SREEKANTH, JCIT /DATE OF HEARING : 9 TH JUNE, 2015 /DATE OF PRONOUNCEMENT : 19 TH JUNE, 2015 / O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I II, CHENNAI DATED 23.01.2013. 2. THE FIRST GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS WITH REGARD TO REOPENING OF ASSESSMENT. BRIEF FACT S OF THE CASE ARE THAT ASSESSEE IS AN INVESTMENT COMPANY MAK ING INVESTMENTS IN SHARES AND FILED ITS RETURN OF INCOM E FOR THE 2 ITA NO.542 /MDS/2013 ASSESSMENT YEAR 2005-06 ON 31.10.2005 DECLARING TO TAL INCOME OF ` NIL AND THE RETURN WAS PROCESSED UNDER SECTION 143(1) OF THE ACT ON 22.03.2007. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE INCOME TAX AC T, 1961 ON 29.12.2010 AS FOLLOWS:- GROSS TOTAL INCOME BEFORE SET OFF OF EARLIER LOSSES : ` 46,73,837 ADD: 1. DISALLOWANCE U/S.14A ON DIVIDEND INCOME : 5,01,000 2. DISALLOWANCE OF SHARE OF LOSS FROM FIRM : 8,91,731 13,92,731 TOTAL INCOME : ` 60,66,568 3. LATER, ASSESSMENT WAS REOPENED BY RECORDING THE REASONS FOR REOPENING OF ASSESSMENT AS FOLLOWS:- 'THE ASSESSEE FILED ITS RETURN OF INCOME ON 31.10.2005 FOR THE ASSESSMENT YEAR 2005-06 ADMITTIN G INCOME OF RS.46,73,837/-. ASSESSMENT U/S 143(3) WAS COMPLETED ON 26.12.2007 AND THE INCOME ASSESSED IS RS.60,66,568/-. IN THE SCRUTINY ASSESSMENT AN AMOUNT OF RS.5,01,000/- WAS DISALLOWECJ U/S 14A AT THE RATE OF 5% ON DIVIDEND INCOME BEING THE ESTIMATED EXPENSES INCURRED FOR EARNING THE DIVIDEND INCOME. DURING THE FINANCIAL YEAR 2004-05 THE ASSESSEE'S INCOME CONSISTS OF RENTAL INCOME, DIVIDEND INCOME, INTEREST FROM DEBENTURES AND OTHERS, INCOME FROM LOG IN ADS. IT IS SEEN FROM THE RECORDS THAT THE ASSESSEE DID N OT HAVE INVESTMENTS UNDER STOCK IN TRADE BUT THE ENTIR E VOLUME OF SHARES OF RS. 14,45,69,7001 - WERE .. HELD ONLY AS INVESTMENTS IN BOOKS.. THE ASSESSEE COMPANY HAS TO REPAY A TERM LOAN OF RS.3,76,47,816/- AND UNSECURED LOAN OF RS.12,65,24, 194/- AS ON 31.3.2005. 3 ITA NO.542 /MDS/2013 IN THE P &. L ACCOUNT FOR THE YEAR ENDED 31.3.2005 A SUM OF RS.27,88,361/- HAS BEEN DEBITED AS FINANCE CHARGES. THE FINANCE CHARGES WAS DEDUCTED 'NEITHER UNDER SECTION 24 NOR UNDER SECTION 57 IN THE COMPUTATION OF INCOME. AS THE ASSESSEE COMPANY HAS NOT OFFERED ANY BUSINESS INCOME IT IS CLEAR THAT THE EXPENDITURE ON FINANCE CHARGES WAS INCURRED ONLY ON THE LOANS BORROWED FOR THE PURPOSE OF INVESTMENT IN SHARES, THE DIVIDEND INCOM E FROM WHICH IS EXEMPT FROM TAX. CONSIDERING THE FACT THAT WITH EFFECT FROM 1.4.2007 THE EXPENDITURE INCURRED TOWARDS EXEMPT INCOME HAS TO BE DETERMINED IN ACCORDANCE WI TH THE METHOD PRESCRIBED UNDER RULE 8D OF INCOME TAX RULES. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION IN THE CASE OF ITO VS DAGA CAPITAL MANAGEMENT 119 ITJ 289(MUMBAI BENCH OF ITAT)'. NOTICE U/S.148 DATED 18.03.2010 WAS ISSUED. NOTICE U/S.143(2) DATED 23.09.2010 WAS ALSO ISSUED. A LETT ER DATED 25.10.2010 FURNISHING THE ASSESSEE WITH REAS ONS FOR REOPENING OF THE ASSESSMENT HAS BEEN ISSUED. NOW, THE ASSESSEE CHALLENGES THE REOPENING OF ASSES SMENTS STATING THAT THIS ONLY MERE CHANGE OF OPINION BY TH E ASSESSING OFFICER AS WELL AS THE COMMISSIONER OF IN COME TAX (APPEALS). THE CLAIM OF THE ASSESSEE WAS REJECT ED BY THE COMMISSIONER OF INCOME TAX (APPEALS) HOLDING THAT REOPENING OF ASSESSMENT IS VALID AND REASSESSMENT PROCEEDINGS WERE INITIATED FOLLOWING DUE PROCEDURE OF LAW. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 4 ITA NO.542 /MDS/2013 4. LEARNED COUNSEL FOR THE ASSESSEE AT THE OUTSET OBJECTED THE REOPENING OF ASSESSMENT ON THE REASON THAT RULE 8D IS BROUGHT INTO STATUTE BOOK WITH EFFECT FR OM 24.03.2008 AND IT IS NOT RETROSPECTIVE AMENDMENT AN D WHEN THE PROVISION OF RULE 8D IS NOT IN STATUTE BOOK, IT CANNOT BE APPLIED. FURTHER, THE COUNSEL SUBMITTED THAT THERE ARE SPECIFIC ADDITIONS MADE UNDER SECTION 14A OF THE ACT AT ` 5,01,000/- TO THE RETURNED INCOME WHILE COMPLETING THE ASSESSM ENT UNDER SECTION 143(3), AS SUCH THE ASSESSING OFFICER CANNOT REOPEN THE CONCLUDED ASSESSMENT IN THIS CASE. ACCOR DING TO HIM, IT IS MERE CHANGE OF OPINION. 5. ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT ASSESSING OFFICER HAS SUFFICIENT TANGIBLE MATERIAL ON RECORD TO COME T O THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. ACCORDING TO THE DEPARTMENTAL REPRESENT ATIVE THE ADEQUACY OF NEW MATERIAL / INFORMATION CANNOT B E QUESTIONED ON THE GROUND THAT IT IS MERE CHANGE OF OPINION AND EFFECT OF TANGIBLE MATERIAL ON ALREADY COMPLE TED ASSESSMENT CAN BE EXAMINED ONLY DURING THE COURSE O F 5 ITA NO.542 /MDS/2013 REASSESSMENT PROCEEDINGS. ACCORDING TO HIM, THE ASSESSMENT WAS REOPENED VALIDLY AND IT SHOULD BE UP HELD. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS ON RECORD. WE HAVE CAREFULLY GONE THROUG H THE REASONS RECORDED BY THE ASSESSING OFFICER FOR REOPE NING OF ASSESSMENT. ADMITTEDLY, IN THIS CASE THE ASSESSING OFFICER INVOKED PROVISIONS OF SECTION 14A OF THE ACT SO AS TO DISALLOW A SUM OF ` 5,01,000/- OF EXPENDITURE INCURRED TO EARN EXEMPT INCOME. IT IS TO BE NOTED THAT BY NOTIFICATION NO. 45/2008 DATED 24.03.2008 , THE CBDT AMENDED THE INCOME TAX RULES BY INTRODUCING RULE 8D AS UNDER:- BY NOTIFICATION NO. 45 OF 2008, DATED MARCH 24,20 08, THE CENTRAL BOARD OF DIRECT TAXES (CBDT), IN EXERCISE O F ITS POWERS UNDER SECTION 295 OF THE SAID ACT READ WITH SUB- SECTION (2) OF SECTION 14A OF THE SAID ACT, MADE TH E 'INCOME- TAX (FIFTH AMENDMENT) RULES, 2008' TO FURTHER AMEND THE SAID RULES (I.E., THE INCOME-TAX RULES, 1962) BY IN TRODUCING RULE 8D THEREIN. CLAUSE 1(2) OF THE INCOME-TAX (FIF TH AMENDMENT) RULES, 2008, CLEARLY STIPULATED THAT THE RULES WOULD COME INTO FORCE FROM THE DATE OF PUBLICATION IN THE OFFICIAL GAZETTE. THE SAID RULE 8D IS AS UNDER (SEE [2008] 299 ITR (ST.) 88) : '8D. METHOD FOR DETERMINING AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME.-(L) WHERE THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNT S OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED W ITH- (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE ; OR 6 ITA NO.542 /MDS/2013 (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR, HE SHALL DETERMINE THE AMOUNT OF EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDANCE WITH THE PROVISIONS OF SUB-RULE (2). (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGR EGATE OF THE FOLLOWING AMOUNTS, NAMELY :- (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME; (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPE NDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH I S NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR R ECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FO RMULA, NAMELY :' A X B C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR ; B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHI CH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME , AS APPEARING IN THE BALANCE-SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR ; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BAL ANCE- SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAS T DAY OF THE PREVIOUS YEAR ; (III) AN AMOUNT EQUAL TO ONE-HALF PER CENT. OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE-SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. (3) FOR THE PURPOSES OF THIS RULE, THE 'TOTAL ASSETS' S HALL MEAN, TOTAL ASSETS AS APPEARING IN THE BALANCE-SHEET EXCL UDING THE INCREASE ON ACCOUNT OF REVALUATION OF ASSETS BUT IN CLUDING THE DECREASE ON ACCOUNT OF REVALUATION OF ASSETS.' 7 ITA NO.542 /MDS/2013 IT IS, THEREFORE, CLEAR THAT DETERMINATION OF AMOUN T OF EXPENDITURE IN RELATION TO EXEMPT INCOME UNDER RULE 8D WOULD ONLY COME INTO PLAY FROM THE INSERTION OF RUL E 8D IN THE INCOME TAX RUES AND IT CANNOT BE SAID THAT IT IS OP ERATIVE RETROSPECTIVELY AND IT WOULD COME FROM THE DATE OF PUBLICATION IN THE OFFICIAL GAZETTE. FROM THE ABOVE NOTIFICATION NO.45 OF 2008 IT IS CLEAR THAT RULE 8D WAS IN OPER ATION WITH EFFECT FROM 24 TH MARCH, 2008 AND IT CANNOT BE REGARDED AS RETROSPECTIVE. IT WAS ALSO HELD BY THE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG CO. LTD VS. DCIT ( 320 ITR 81), WHEREIN INTER-ALIA IT HAS BEEN HELD THAT PROVI SIONS OF RULE 8D ARE APPLICABLE PROSPECTIVELY FROM THE ASSESSME NT YEAR 2008-09 ONWARDS. BEING SO, THE ASSESSING OFFICER IS NOT JUSTIFIED IN REOPENING THE ASSESSMENT BY APPLYING T HE PROVISIONS OF RULE 8D FOR THE ASSESSMENT YEAR 2005- 06. IN OUR OPINION, THIS IS ONLY A MERE CHANGE OF OPINION AS HELD BY THE SUPREME COURT IN THE CASE OF KELVINATOR OF IND IA LTD. (320 ITR 561) . ACCORDINGLY, WE ARE INCLINED TO QU ASH THE ASSESSMENT BY HOLDING THAT REOPENING OF ASSESSMENT IS BAD IN LAW. SINCE WE HAVE QUASHED THE REASSESSMENT PROCEEDINGS, WE REFRAIN TO GO INTO THE OTHER GROUND S RAISED BY 8 ITA NO.542 /MDS/2013 THE ASSESSEE WITH REGARD TO APPLICABILITY OF SECTI ON 14A READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH JUNE, 2015 SD/- SD/- ( . ) ( % ) ( V.DURGA RAO ) ( CHANDRA POOJARI ) ( ) / JUDICIAL MEMBER ) / ACCOUNTANT MEMBER ( /CHENNAI, + /DATED 19 TH JUNE, 2015 SOMU -. /. /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 0 () /CIT(A) 4. 0 /CIT 5. . 4 /DR 6. /GF .