DCIT, Chengalput V. Bharat Scans Pvt. Ltd., CHENNAI

ITA 648/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8732 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 18-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R CLEMENT RAMESH KUMAR
• Assessee Lawyers: PRABAKARAN PAUL
• Keywords: Depreciation; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . , . , # $ BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NO.648/MDS/2016 ( / ASSESSMENT YEAR: 2010-11) THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE -I(2), CHENNAI-600 034. VS M/S. BHARAT SCANS PVT.LTD., 197, PETERS ROAD, ROYAPETTAH, CHENNAI-600 034. PAN: AABCB2272K ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. R.CLEMENT RAMESH KUMAR, ADDL.CIT /RESPONDENT BY : MR. PRABAKARAN PAUL, C.A /DATE OF HEARING : 23 RD MAY,2016 /DATE OF PRONOUNCEMENT : 22 ND JULY, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL IS FILED BY THE REVENUE AGGRIEVED BY TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)- 1, CHENNAI DATED 03.09.2015 IN ITA NO.182/13-14 PA SSED UNDER SECTION 143(3) R.W.S. 250(6) OF THE ACT. 2. THE REVENUE HAS RAISED SEVERAL GROUNDS IN ITS AP PEAL, HOWEVER, THE CRUXES OF THE ISSUES ARE AS FOLLOWS:- I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN RESTRICTING THE DISALLOWANCE TO 0.5% OF INVESTMENTS AS PROVIDED IN LIMB (III) OF RULE 8D O F INCOME TAX RULES TOWARDS EARNING OF EXEMPT INCOME. II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN ALLOWING 40% OF DEPRECIATION ON MEDICA L 2 ITA NO.648MDS/2016 EQUIPMENTS INSTEAD OF 15% ALLOWED BY THE LEARNED ASSESSING OFFICER. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY RUNNING SCAN CENTRE AND LABORATORY FILED I TS RETURN OF INCOME ON 07.10.2010 FOR THE ASSESSMENT YEAR 20 10-11 ADMITTING INCOME OF `1,42,45,310/-. THE CASE WAS S ELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS COMP LETED BY THE LEARNED ASSESSING OFFICER UNDER SECTION 143(3) OF THE ACT ON 19.03.2013 MAKING CERTAIN ADDITIONS INVOKING THE PROVISIONS OF SECTION 14A R.W.R 8D AND DISALLOWAN CE UNDER THE HEAD DEPRECIATION. SUBSEQUENTLY, ON APPEAL, T HE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ALLOWED THE CL AIM OF DEPRECIATION @ 40% AND RESTRICTED THE DISALLOWANCE UNDER SECTION 14A BY APPLYING THE THIRD LIMB OF RULE 8D(I I) I.E. 0.5% OF THE AVERAGE VALUE OF INVESTMENTS WAS DIRECT ED TO BE DISALLOWED AS ATTRIBUTABLE FOR EARNING EXEMPT INCOM E, AGAINST WHICH THE REVENUE IS IN APPEAL BEFORE US. GROUND NO.1: DISALLOWANCE UNDER SECTION 14A R.W.R 8 D: 4.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE LEARNED ASSESSING OFFICER THAT THE A SSESSEE HAD MADE INVESTMENTS TO THE TUNE OF ` 3,15,74,971/- INCOME 3 ITA NO.648MDS/2016 FROM WHICH IS EXEMPT FROM TAX. THEREFORE, THE LEAR NED ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT R.W.R 8D AND THEREBY COMPUTED THE DISALLOWA NCE OF `13,86,323/-. ON APPEAL, THE LEARNED COMMISSIONER O F INCOME TAX (APPEALS) FOLLOWING HIS PREDECESSORS OR DER GRANTED CERTAIN RELIEF TO THE ASSESSEE. THE GIST OF THE ORDER IS EXTRACTED HEREIN BELOW FOR REFERENCE: 4.2 I HAVE CAREFULLY CONSIDERED THE FACTS, ORDER OF THE AO, SUBMISSIONS MADE BY THE APPELLANT AND MATERIAL ON R ECORD. I FIND THAT ON SIMILAR ISSUE IN APPELLANT'S OWN CASE FOR AY. 2009-10 IN ITA NO.665/11-12/AIII, MY ID.PREDECESSOR , AFTER DETAILED DISCUSSION, DELETED THE DISALLOWANCE MADE UNDER LIMB(II) AND RESTRICTED TO DISALLOWANCE MADE UNDER LIMB(III) VIDE HER ORDER IN ITA NO.665/11-12/AIII DATED 18.2. 2013. IN THAT ORDER IT WAS HELD AS UNDER: ' .... FROM ABOVE, IT IS CLEAR THAT NO PART OF INTE REST BEARING FUNDS HAVE BEEN USED FOR MAKING INVESTMENTS AND THE REFORE DISALLOWANCE ON ACCOUNT OF INTEREST PAYMENT IS NOT CALLED FOR. REFERENCE MAY ALSO BE HAD TO CIT V. RELIANCE UTILIT IES AND POWER LTD (213 ITR 340). THE BOMBAY HIGH COURT IN T HE CASE OF RELIANCE UTILITIES(SUPRA) HAD DEALT THIS ISSUE A ND HAD PROVIDED A REFINEMENT TO THIS ISSUE AS DETAILED BEL OW: 'WHERE AN ASSESSEE HAS HIS OWN FUNDS AS WELL AS BORROWED FUNDS, A PRESUMPTION CAN BE MADE THAT THE ADVANCES FOR NON-BUSINESS PURPOSES HAVE BEEN MADE OUT OF THE OWN FUNDS AND THAT THE BORROWED FUNDS HAVE NOT BEEN USED FOR THIS PURPOSE. ACCORDINGLY, THE DISALLOWANCE OF THE INTEREST ON TH E BORROWED FUNDS IS NOT JUSTIFIED. ' THUS, HAVING HELD THAT NO DISALLOWANCE ON ACCOUNT O F INTEREST PAYMENT IS CALLED FOR, THE APPLICATION OF SECOND LI MB OF RULE 80(2) BY THE AO IS HELD AS NOT JUSTIFIED. THUS THE DISALLOWANCE MADE BY THE AO IS DIRECTED TO BE DELETED. HOWEVER, I AM UNABLE TO AGREE TO THE CONTENTION OF THE APPELLANT THAT NO EXPENSES AT ALL WERE INCURRED IN RESPECT OF EARNING OF EXEMPT INCOME INASMUCH AS THE EFFORTS OF THE EMPLOYEES GO IN TRACKING THE INVESTMENT, PURCHASE AND SALE OF CASH MANAGEMENT FUNDS, DEPOSIT OF THE DIVIDEND WARRANTS, PORTFOLIO MANAGEMENT ETC. THE APPELLANT HAS MADE INVESTMENTS WHICH ARE LIKELY TO YIELD EXEMPT INCOME IN FUTURE. THE AV ERAGE VALUE 4 ITA NO.648MDS/2016 OF INVESTMENTS IS RS.58,72,661/-. THUS, THE DISALLO WANCE AMOUNT IS DIRECTED TO BE COMPUTED BY APPLYING THE T HIRD LIMB OF RULE 80(2) I.E., 0.5% OF THE AVERAGE VALUE OF IN VESTMENTS IS DIRECTED TO BE DISALLOWED AS ATTRIBUTABLE TO EARNIN G OF EXEMPT INCOME. THIS VALUE WORKS OUT TO RS.29,363/- WHICH I S DISALLOWED AS PER THE REQUIREMENT OF SECTION 14A. T HE APPELLANT GETS A RELIEF OF RS.2,78,213/- ON THIS CO UNT. THIS GROUND IS PARTLY ALLOWED.' 4.2.1 SINCE THE FACTS ARE SIMILAR FOR BOTH THE -YEARS, FOLLOWING THE ABOVE DECISION, I DIRECT THE AO TO DELETE THE DISAL LOWANCE MADE UNDER LIMB(II). THE DISALLOWANCE IS RESTRICTED TO L IMB(III) OF RULE 8D. THIS GROUND OF APPEAL IS THEREFORE PARTLY ALLOWED. 4.2 SINCE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ONLY FOLLOWED HIS PREDECESSORS ORDER AND GRANTED RELIEF TO THE ASSESSEE, WE DO NOT FIND IT N ECESSARY TO INTERFERE WITH HIS ORDER ON THIS ISSUE. THEREFORE, WE HEREBY SUSTAIN THE ORDER OF THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) ON THIS ISSUE. GROUND NO.2: DEPRECIATION @ 40% ON MEDICAL EQUIPMENTS: 5.1 IT WAS OBSERVED BY THE LEARNED ASSESSING OFFICE R THAT DURING THE RELEVANT ASSESSMENT YEAR THE ASSESSEE HA S CLAIMED DEPRECIATION @ 40% ON THE MEDICAL DIAGNOSIS EQUIPMENTS PURCHASED IN THE ASSESSMENT YEAR 2009-10 . SINCE THE LEARNED ASSESSING OFFICER HAD RESTRICTED THE CLAIM OF DEPRECIATION FROM 40% TO 15% FOR THE EARLIER ASS ESSMENT 5 ITA NO.648MDS/2016 YEAR, FOR THE RELEVANT ASSESSMENT YEAR ALSO THE SAM E STAND WAS TAKEN. 5.2 ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FOLLOWING THE ORDER OF THE CHENNAI BENCH OF THE TRIBUNAL IN ITA NO.1300/MDS/2013 DATED 13.02.2014 FOR THE ASSESSMENT YEAR 2009-10 IN THE ASSESSEES OWN CASE DIRECTED THE LEARNED ASSESSING OFFICER TO GRANT DEP RECIATION @ 40%. IN THIS SITUATION, WE DO NOT FIND IT NECESSA RY TO INTERFERE WITH THE ORDER OF THE LEARNED COMMISSIONE R OF INCOME TAX (APPEALS) BECAUSE HE HAS DECIDED THE ISS UE FOR THE RELEVANT ASSESSMENT YEAR FOLLOWING THE ORDER OF THE CHENNAI BENCH OF THE TRIBUNAL OF THE EARLIER ASSESS MENT YEAR. THEREFORE, WE HEREBY CONFIRM THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 22 ND JULY, 2016 SD/- SD/- ( . ) ( . ) (G.PAVAN KUMAR) ( A.MOHAN ALANKAM ONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 22 ND JULY, 2016 SOMU 6 ITA NO.648MDS/2016 *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF