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

ITA 554/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8582 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-09-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 10-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHIVA SRINIVASJCIT
• Assessee Lawyers: S A BALASUBRAMANYAN
• Keywords: Business expenditure
• 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.554/MDS/2016 * +* / ASSESSMENT YEAR : 2011-12 M/S T V SUNDRAM IYENGAR & SONS PRIVATE LIMITED (FORMERLY KNOWN AS TV SUNDRAM IYENGAR & SONS LTD.), 7-B, WEST VELI STREET, MADURAI 625 001. PAN : AABCT 0159 K V. THE JOINT COMMISSIONER OF INCOME TAX, RANGE I, MADURAI. (-./ APPELLANT) (/0-./ RESPONDENT) -. 1 2 / APPELLANT BY : SHRI S.A. BALASUBRAMANYAN, ADVOCAT E /0-. 1 2 / RESPONDENT BY : SHRI SHIVA SRINIVAS, JCIT ' 1 3& / DATE OF HEARING : 28.07.2016 45+ 1 3& / DATE OF PRONOUNCEMENT : 15.09.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 1, MADUR AI, DATED 30.12.2015 AND PERTAINS TO ASSESSMENT YEAR 2011-12. 2 I.T.A. NO.554/MDS/16 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IS EXPE NDITURE INCURRED BY THE ASSESSEE ON HIGHER EDUCATION OF REL ATIVES OF THE DIRECTORS. 3. SHRI S.A. BALASUBRAMANYAN, THE LD.COUNSEL FOR TH E ASSESSEE, SUBMITTED THAT WHEN AN IDENTICAL ISSUE CA ME BEFORE THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR THE ASSESSM ENT YEAR 2010- 11, THIS TRIBUNAL AFTER REFERRING TO THE JUDGMENT O F MADRAS HIGH COURT IN K. SUBRAMANIAM BROS V. CIT (250 ITR 306), FOUND THAT IT IS THE LIABILITY OF PARENTS TO EDUCATE THEIR CHILDREN, THEREFORE, THERE WAS NO BUSINESS EXPENDITURE FOR THE COMPANY. THE TRIBU NAL FURTHER FOUND THAT THERE WAS NO BUSINESS PURPOSE IN INCURRI NG EXPENDITURE ON THE EDUCATION OF THE GRANDCHILDREN /CHILDREN OF THE DIRECTORS. IN VIEW OF THE ABOVE DECISION OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE, THIS ISSUE IS COVERED AGAINST THE ASSESSEE. 4. WE HAVE HEARD SHRI SHIVA SRINIVAS, THE LD. DEPAR TMENTAL REPRESENTATIVE ALSO. THE LD. D.R. SUBMITTED THAT I N VIEW OF THE JUDGMENT OF MADRAS HIGH COURT IN K. SUBRAMANIAM BRO S (SUPRA), THE TRIBUNAL IN THE EARLIER ASSESSMENT YEAR DECIDED THE MATTER 3 I.T.A. NO.554/MDS/16 AGAINST THE ASSESSEE. THEREFORE, ACCORDING TO THE LD. D.R., THE SAME ORDER MAY BE FOLLOWED. 5. WE HAVE CONSIDERED THE SUBMISSIONS ON EITHER SID E AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS RIGHTLY SUBMITTED BY THE LD.COUNSEL FOR THE ASSESSEE AND TH E LD. D.R., THE ASSESSEE INCURRED EXPENDITURE ON THE EDUCATION OF G RANDCHILDREN AND CHILDREN OF THE DIRECTORS OF THE ASSESSEE-COMPA NY. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT IT IS TH E RESPONSIBILITY OF EACH PARENT TO GIVE BEST POSSIBLE EDUCATION TO THEI R CHILDREN. FOR GIVING EDUCATION TO THE CHILDREN, NO BUSINESS PURPO SE WOULD BE SERVED TO THE ASSESSEE-COMPANY. A SIMILAR VIEW WAS TAKEN BY THE MADRAS HIGH COURT IN K. SUBRAMANIAM BROS (SUPRA). T HIS JUDGMENT OF THE MADRAS HIGH COURT WAS FOLLOWED BY THIS TRIBU NAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2010-11. I N VIEW OF THE ABOVE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTE RFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SA ME IS CONFIRMED. 6. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DISA LLOWANCE OF INTEREST PAID BY THE ASSESSEE ON BORROWINGS TO THE EXTENT OF 3%. 4 I.T.A. NO.554/MDS/16 7. SHRI S.A. BALASUBRAMANYAN, THE LD.COUNSEL FOR TH E ASSESSEE, SUBMITTED THAT THE ASSESSEE ACCEPTED DEPO SITS FROM PUBLIC AND PAID INTEREST AT THE RATE OF 9% ON FIXED DEPOSITS AND IN RESPECT OF CUMULATIVE DEPOSITS, THE ASSESSEE HAS PA ID 9.7% TO 10.20%. THE ASSESSEE-COMPANY, IN FACT, PAID INTERE ST TO THE EXTENT OF ` 2026.15 LAKHS DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAS PAID, OUT OF THE INTEREST FREE FUNDS, TO THE EXTENT OF ` 1500 LAKHS TO ITS SUBSIDIARY COMPANY M/S TVS SRICHA KRA LTD. THE RATE OF INTEREST CHARGED BY THE ASSESSEE IS 7% PER ANNUM. THERE WAS A DIFFERENCE OF 3%. ACCORDING TO THE LD. COUNS EL, THE ASSESSEE BORROWED FUNDS AT THE RATE OF 10% AND ADVANCED THE SAME TO SISTER CONCERN AT 7%. THE ASSESSING OFFICER HAS TAKEN THE DIFFERENCE OF 3% AS INCOME OF THE ASSESSEE. 8. ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE, T HERE WAS A REGULAR TRANSACTION BETWEEN THE ASSESSEE-COMPANY AN D M/S TVS SRICHAKRA LTD., WHO IS ONE OF THE SUPPLIER OF GOODS TO THE ASSESSEE. IN THE COURSE OF ITS BUSINESS ACTIVITY, THE ASSESSE E HAS ADVANCED ` 1500 LAKHS AND ALSO CHARGED INTEREST AT THE RATE OF 7%. THE ASSESSING OFFICER SIMPLY REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT NO EVIDENCE WAS PRODUCED BY THE ASSESSE E. THE 5 I.T.A. NO.554/MDS/16 VOLUMINOUS DOCUMENT PRODUCED BY THE ASSESSEE TO PRO VE THE BUSINESS TRANSACTION WAS NOT CONSIDERED BY THE CIT( APPEALS). THE LD.COUNSEL FURTHER SUBMITTED THAT SELF-GENERATED FU NDS WERE AVAILABLE TO THE ASSESSEE MORE THAN THE DEPOSITS RE CEIVED FROM THE PUBLIC AND BORROWED FUNDS, THEREFORE, THERE IS NO Q UESTION OF ANY DISALLOWANCE OF INTEREST. 9. ON THE CONTRARY, SHRI SHIVA SRINIVAS, THE LD. DE PARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE HAS BOR ROWED LOAN FOR THE PURPOSE OF BUSINESS AND PAID INTEREST TO THE EX TENT OF ` 2026.15 LAKHS DURING THE YEAR UNDER CONSIDERATION. THE ASS ESSING OFFICER FOUND THAT THE ASSESSEE HAS ADVANCED ` 1500 LAKHS TO M/S TVS SRICHAKRA LTD., MADURAI AND CHARGED INTEREST AT THE RATE OF 7%. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE PAID INTE REST AT THE RATE OF 10% ON THE BORROWED FUNDS, HOWEVER, CHARGED INTE REST AT THE RATE OF 7% ON THE MONEY ADVANCED TO M/S TVS SRICHAKRA LT D. THE ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT FOR ENSURING UNINTERRUPTED SUPPLY OF GOODS, THE ASSESSEE ADVANCE D MONEY AT THE RATE OF 7%. HOWEVER, NO MATERIAL IS AVAILABLE ON RECORD THE NATURE OF GOODS SUPPLIED BY M/S TVS SRICHAKRA LTD. THEREFORE, 6 I.T.A. NO.554/MDS/16 ACCORDING TO THE LD. D.R., THE CIT(APPEALS) HAS RIG HTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. FROM THE MATERIAL AVAILABLE ON RECORD, IT APPEARS THAT THE A SSESSEE HAS BORROWED FUNDS FROM BANK AND OTHER FINANCIAL INSTIT UTIONS AND PAID INTEREST AT THE RATE OF 10%. THE ASSESSEE HAS ALSO RECEIVED DEPOSITS FROM PUBLIC. THE ASSESSEE HAS ADVANCED A SUM OF ` 15 CRORES TO M/S TVS SRICHAKRA LTD. AND CHARGED INTERE ST AT THE RATE OF 7%. EVEN THOUGH THE ASSESSEE CLAIMS THAT THE ADVAN CE WAS PAID TO ENSURE UNINTERRUPTED SUPPLY OF GOODS, NO MATERIAL I S AVAILABLE ON RECORD TO SUGGEST THE NATURE OF GOODS SUPPLIED BY M /S TVS SRICHAKRA LTD. AT THE BEST, WE MAY SAY THAT IT IS AN ADVANCE PAID BY THE ASSESSEE FOR PURCHASING GOODS FROM M/S TVS SRIC HAKRA LTD. HOWEVER, IT IS FOR THE ASSESSEE TO PRODUCE NECESSAR Y MATERIAL INDICATING THE NATURE OF GOODS SAID TO BE PURCHASED FROM M/S TVS SRICHAKRA LTD. THE ASSESSEE HAS NOT PRODUCED ANY D ETAILS WITH REGARD TO THE SO-CALLED MATERIAL PURCHASED FROM M/S TVS SRICHAKRA LTD. THIS TRIBUNAL IS OF THE CONSIDERED OPINION TH AT UNLESS THE ASSESSEE PRODUCES THE DETAILS OF THE MATERIAL SUPPL IED BY M/S TVS 7 I.T.A. NO.554/MDS/16 SRICHAKRA LTD., THE CLAIM CANNOT BE ALLOWED. THERE FORE, IN THE INTEREST OF JUSTICE, ONE MORE OPPORTUNITY NEEDS TO BE GIVEN TO THE ASSESSEE TO PRODUCE NECESSARY MATERIAL WITH REGARD TO GOODS SUPPLIED BY M/S TVS SRICHAKRA LTD. GIVING ONE OPPO RTUNITY TO PRODUCE NECESSARY MATERIAL WOULD NOT PREJUDICE THE INTERESTS OF REVENUE. ACCORDINGLY, THE ORDERS OF THE AUTHORITIE S BELOW ARE SET ASIDE AND THE ISSUE OF DISALLOWANCE OF INTEREST TO THE EXTENT OF ` 41,68,767/- IS REMITTED BACK TO THE FILE OF THE ASS ESSING OFFICER. THE ASSESSING OFFICER SHALL RE-EXAMINE THE MATTER I N THE LIGHT OF THE DETAILS OF THE GOODS THAT WERE SUPPLIED BY M/S TVS SRICHAKRA LTD. AND THEREAFTER DECIDE THE SAME, IN ACCORDANCE WITH LAW, AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE. 11. THE NEXT GROUND OF APPEAL IS WITH REGARD TO DIS ALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). 12. SHRI S.A. BALASUBRAMANYAN, THE LD.COUNSEL FOR T HE ASSESSEE, SUBMITTED THAT THE ASSESSING OFFICER DISA LLOWED THE EXPENDITURE SAID TO BE INCURRED IN EARNING DIVIDEND INCOME TO THE EXTENT OF ` 3889.35 LAKHS. ACCORDING TO THE LD. COUNSEL, THE ASSESSEE MADE INVESTMENT TO THE EXTENT OF ` 7750.61 LAKHS DURING 8 I.T.A. NO.554/MDS/16 THE YEAR UNDER CONSIDERATION AND ACQUIRED DIVIDEND INCOME OF ` 3889.35 LAKHS. ACCORDING TO THE LD. COUNSEL, NO EX PENDITURE WAS INCURRED. SINCE NO EXPENDITURE WAS INCURRED, ACCOR DING TO THE LD. COUNSEL, THERE CANNOT BE ANY DISALLOWANCE. MOREOVE R, THE LD.COUNSEL SUBMITTED THAT THE ASSESSEE INVESTED ITS OWN FUNDS IN THE SHARES AND ACQUIRED DIVIDEND INCOME. THEREFORE , ACCORDING TO THE LD. COUNSEL, THERE CANNOT BE ANY DISALLOWANCE. 13. ON THE CONTRARY, SHRI SHIVA SRINIVAS, THE LD. D EPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE ADMITTE DLY BORROWED FUNDS FOR THE PURPOSE OF BUSINESS. THEREFORE, THE EXPENDITURE INCURRED BY THE ASSESSEE CANNOT BE ATTRIBUTED TO AN Y PARTICULAR INCOME. MOREOVER, DURING THE YEAR UNDER CONSIDERAT ION, THE ASSESSEE HAS INVESTED A SUM OF ` 7750.61 LAKHS IN THE SHARES. THEREFORE, THE DISALLOWANCE HAS TO BE COMPUTED BY A PPLYING RULE 8D(2)(II) & (III) OF THE INCOME-TAX RULES, 1962. T HE ASSESSING OFFICER HAS APPLIED RULE 8D FOR MAKING DISALLOWANCE . THEREFORE, ACCORDING TO THE LD. D.R., THE CIT(APPEALS) HAS RIG HTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE 9 I.T.A. NO.554/MDS/16 ASSESSEE BORROWED FUNDS FOR THE PURPOSE OF BUSINESS AND ALSO DIVERTED SUBSTANTIAL AMOUNT IN THE FORM OF ADVANCE TO M/S TVS SRICHAKRA LTD. THE ASSESSEE NOW CLAIMS THAT THE IN VESTMENT WAS MADE OUT OF ITS OWN FUNDS AND NO EXPENDITURE WAS IN CURRED. THE FACT REMAINS THAT THE EXPENDITURE INCURRED BY THE A SSESSEE FOR PAYMENT OF INTEREST ON THE BORROWED FUNDS CANNOT BE ATTRIBUTED TO ANY PARTICULAR INCOME. WHEN THE ASSESSEE BORROWED SUBSTANTIAL AMOUNT AND PAID INTEREST, IT CANNOT BE SAID THAT NO EXPENDITURE WAS INCURRED FOR EARNING EXEMPTED INCOME. EVEN ASSUMIN G FOR ARGUMENT SAKE THAT THE ASSESSEE INVESTED ITS OWN FU NDS IN THE SHARES, THIRD LIMB OF RULE 8D(2) WOULD COMING INTO OPERATION. THEREFORE, 0.5% OF AVERAGE INVESTMENT MADE DURING T HE YEAR UNDER CONSIDERATION, WHICH RESULTED INCOME AND WHICH DOES NOT FORM PART OF TOTAL INCOME, HAS TO BE TAKEN INTO CONSIDERATION . IN VIEW OF THE ABOVE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION T HAT THE ASSESSING OFFICER HAS RIGHTLY COMPUTED THE DISALLOWANCE BY AP PLYING PROVISIONS OF RULE 8D(2). THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUT HORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 10 I.T.A. NO.554/MDS/16 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 15 TH SEPTEMBER, 2016 AT CHENNAI. SD/- SD/- ( . . ' #$ ) ( . . . ) (D.S. SUNDER SINGH) (N.R.S. GANESAN) & / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 7 /DATED, THE 15 TH SEPTEMBER, 2016. KRI. 1 /3#8 98+3 /COPY TO: 1. -. /APPELLANT 2. /0-. /RESPONDENT 3. ' :3 () /CIT(A)-1, MADURAI 4. PRINCIPAL CIT-1, MADURAI 5. 8; /3 /DR 6. * < /GF.