M/S DHARANI CREDIT AND FINANCE PVT LTD, CHENNAI V. DCIT (OSD) CORPORATE RANGE 1, CHENNAI

ITA 656/CHNY/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6752 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 22-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: N DEVANATHAN
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 15

Judgement Text

, , IN THE INCOM E TAX APPELLATE TRIBUNAL , A BENCH, CHENNAI , . , BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO . 656 / CHNY /201 8 ( / ASSE SSMENT YEAR: 201 3 - 1 4 ) M/S. DHARANI CREDIT AND FINANCE PVT. LTD., NO.57, PGP HOUSE, STERLING ROAD, NUNGAMBAKKAM, CHENNAI 34. VS THE DEPUTY COMMISSIONER OF INCOME TAX (OSD) , CORPORATE RANGE - 1 , CHENNAI - 34. PAN: AA BCD6155F ( / APPELLANT) ( / RESPONDENT ) & ./ I.T.A.NO .657/CHNY/2018 ( / ASSE SSMENT YEAR: 2014 - 15) M/S. DHARANI CREDIT AND FINANCE PVT. LTD., NO.57, PGP HOUSE, STERLING ROAD, NUNGAMBAKKAM, CHENNAI 34. VS THE INCOME TAX OFFICER, CORPORATE WARD 1(4), CHENNAI - 34 PAN: AABCD6155F ( / APPELLANT) ( / RESPONDENT ) / APPELLANT BY : SHRI N. DEVANATHAN, ADVOCATE / RESPONDENT BY : SHRI AR.V. SREENIV A SAN, JCIT / DATE OF HEARING : 1 4 .02 . 201 9 / DATE OF PRONOUNCEMENT : 12 . 0 4 .2019 / O R D E R PER A. MOHAN ALANKAMONY, AM: - TH ESE APPEAL S BY THE ASSESSEE ARE DIRECTED AGAINST THE COMMON O RDER PASSED BY THE LEARNED COMMI SSIONER OF INCOME 2 ITA NO S .656 & 657 /CHNY/2018 TAX(APPEALS ) - 3 , CHENNAI , DATED 30.11.2017 IN ITA NO. 303 & 227/15 - 16/A - 1 FOR THE ASSESSMENT YEAR S 201 3 - 1 4 & 2014 - 15 PASSED U/S. 250(6) R.W.S. 143(3) OF THE ACT. 2 . THE ASSESSEE HA S RAISED SEVERAL IDENTICAL G ROUNDS IN ITS APPEAL HOWEVER THE CRUX OF THE ISSUE IS THAT THE LD.CIT( A) HAS ERRED BY SUSTAINING THE DISALLOWANCE U/S.14A OF THE ACT OF RS.18,67,232/ - & 18,68,496 MADE BY THE LD.AO FOR THE ASSESSMENT YEAR 2013 - 14 & 2014 - 15 RESPECTIVELY . 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINES S OF INVESTMENT AND CONSULTANCY ON INVESTMENT, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEARS 2013 - 14 & 2014 - 15 ON 28.09.2013 & 29.09.2014 ADMITTING NIL INCOME & LOSS OF RS.14,39,900/ - FOR THE ASSESSMENT YEARS 2013 - 14 & 2014 - 15 RESPECTIVELY. THE CA SES WERE SELECTED FOR SCRUTINY UNDER CASS AND NOTICE U/S.143(2) OF THE ACT WAS ISSUED ON 03.09.2014 & 18.09.2015 FOR THE ASSESSMENT YEARS 2013 - 14 & 2014 - 15 RESPECTIVELY. FINALLY ASSESSMENT ORDERS WERE PASSED U/S.143(3) OF THE ACT ON 04.11.2015 & 31.05.2016 WHEREIN THE LD.AO MADE DISALLOWANCE OF RS.18,67,232/ - & RS.18,68,496/ - FOR 3 ITA NO S .656 & 657 /CHNY/2018 THE ASSESSMENT YEARS 2013 - 14 & 2014 - 15 RESPECTIVELY INVOKING THE PROVISIONS OF SECTION 14A R.W.R.8D OF THE RULES. 4. ON APPEAL, THE LD.CIT(A) SUSTAINED THE ADDITION MADE BY THE LD.AO BY FOLLOWING THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN RAYALA CORPORATION WHEREIN IT WAS HELD THAT DISALLOWANCE OF EXPENDITURE INCURRED TOWARDS EARNING EXEMPT INCOME SHOULD BE RESTRICTED TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE LD.CIT(A) THE ASSESSEE IS NOW IN APPEAL BEFORE US. 5. BEFORE US THE LD.AR ARGUED BY STATING THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE FOR EARNING EXEMPT INCOME. IT WAS THEREFORE PLEADED THAT THE ADDITION MADE BY THE LD.AO WHICH WAS FURTHER SUSTAINED BY THE LD.CIT(A) MAY BE DELETED. THE LD.DR ON THE OTHER HAND ARGUED IN SUPPORT OF THE ORDER OF THE LD.AO. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS ON RECORD. FROM THE FACTS OF THE CASE, WE FIND THAT NEITHER THE LD.AO NOR THE LD.CIT(A) HAD EXTENSIVELY EXAMINED THE ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS EARNING DIVIDE ND INCOME WHICH IS EXEMPT FROM TAX. IT ALSO APPEAR S THAT THE 4 ITA NO S .656 & 657 /CHNY/2018 ASSESSEE HAS ALSO NOT COMPUTED THE EXPENDITURE INCURRED BY IT FOR EARNING EXEMPT INCOME . IN SIMILAR SITUATION ON THE VERY SAME ISSUE ON AN EARLIER OCCASION WE HAVE HELD IN THE CASE ITA NOS.1729 & 1730/CHNY/2016 VIZ., DCIT VS. M/S. STHITHI INSURANCE SERVICES PVT. LTD., VIDE ORDER DATED 18.06.2018 AS FOLLOWS: - 5.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY PERUSED THE MATERIALS ON RECORD. IT IS APPARENT FROM THE FACTS OF THE CASE, THAT THE A SSESSEE HAS MADE HUGE INVESTMENTS IN SHARES WHICH EARN DIVIDEND INCOME EXEMPT FROM TAX. ACCORDING TO SECTION 14A OF THE ACT THE EXPENDITURE INCURRED TOWARDS EARNING EXEMPT INCOME CANNOT ALLOWED AS DEDUCTION FROM THE TAXABLE INCOME OF THE ASSESSEE. IN THE C ASE OF THE ASSESSEE, IT IS EVIDENT THAT FOR THE PROCESS OF DECISION MAKING AS TO WHICH SHARES THE ASSESSEE HAS TO INVEST, DIS - INVESTED, AND AT WHAT POINT OF TIME ETC., WILL INVOLVE COST. SUCH EXPENDITURES INCURRED TOWARDS EARNING DIVIDEND INCOME WHICH IS E XEMPT FROM TAX CANNOT BE CLAIMED AS DEDUCTION FROM THE TAXABLE PROFIT OF THE ASSESSEE COMPANY. AS PER THE PROVISIONS OF THE ACT, THE ASSESSEE IS BOUND TO COMPUTE THE ACTUAL EXPENSES INCURRED BY IT TOWARDS INVESTMENT THAT WOULD EARN EXEMPT INCOME AND DISALL OW THE SAME. IN THE CASE OF THE ASSESSEE, SUCH COMPUTATION IS NEITHER MADE NOR THE EXPENDITURE TOWARDS EARNING EXEMPT DISALLOWED BY THE ASSESSEE. THEREFORE WE ARE OF THE VIEW THAT THE LD.AO WAS RIGHT IN HIS REALM TO INVOKE THE PROVISIONS OF SECTION 14A R.W .R.8D OF THE RULES. FURTHER IT IS PERTINENT TO MENTION THAT THERE IS NO CORRELATION BETWEEN THE DIVIDEND INCOME EARNED BY THE ASSESSEE AND THE EXPENDITURE INCURRED BY THE ASSESSEE TOWARDS INVESTMENT THAT EARNS EXEMPT INCOME. FOR EXAMPLE: - DURING A PARTICUL AR YEAR THE ASSESSEE WOULD NOT HAVE EARNED ANY DIVIDEND INCOME THOUGH IT HAS MADE HEAVY INVESTMENTS DURING THE PREVIOUS YEAR OR THE EARLIER YEARS, BUT THE ASSESSEE IS BOUND TO INCUR COST FOR ACQUIRING / MAINTAINING /DIS - INVESTING SUCH INVESTMENTS. HENCE IT CANNOT BE INFERRED THAT THE DIVIDEND INCOME WOULD BE DIRECTLY PROPORTIONAL TO THE EXPENDITURE INCURRED ON THE INVESTMENT EARNING EXEMPT INCOME. THEREFORE WE DO NOT FIND ANY MERIT IN THE ORDER OF THE LD.CIT(A) FOR HAVING RESTRICTED THE DISALLOWANCE U/S.14A OF THE ACT TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE. HOWEVER SINCE THE ASSESSEE HAS NOT COMPUTED ITS ACTUAL EXPENDITURE INCURRED TOWARDS THE INVESTMENT THAT EARNS EXEMPT INCOME, IN THE INTEREST OF JUSTICE, WE REMIT BACK THE MATTER TO THE FILE OF LD.AO FOR BOTH THE ASSESSMENT YEARS THEREBY AFFORDING ONE MORE OPPORTUNITY TO THE ASSESSEE TO WORK OUT THE ACTUAL EXPENDITURE INCURRED BY IT TOWARDS THE INVESTMENT THAT EARN EXEMPT INCOME AND DISALLOW THE SAME. WE FURTHER HEREBY DIRECT THE LD.AO TO VER IFY THE COMPUTATION SUBMITTED BY THE ASSESSEE FOR BOTH THE ASSESSMENT YEARS AND THEREAFTER DECIDE THE MATTER IN ACCORDANCE WITH LAW AND MERIT. 5 ITA NO S .656 & 657 /CHNY/2018 SINCE THE FACTS & ISSUE OF THE SE RELEVANT CASE S BEFORE US IS IDENTICAL TO THE CASE DECIDED BY THIS BENCH OF TH E TRIBUNAL CITED HEREIN ABOVE, WE REMIT BACK THE MATTER TO THE FILE OF LD.AO WITH SIMILAR DIRECTION. 7 . IN THE RESULT BOTH THE APPEAL S OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES AS INDICATED HEREIN ABOVE. ORDER PRONOUNCED ON THE 12 TH APRIL , 2019 AT CHENNAI. SD/ - SD/ - / CHENNAI, / DATED 12 TH APRIL , 2019 RSR / COPY TO: 1. / APPELLANT 2. /RESPONDENT 3. ( ) / CIT(A) 4. / CIT 5. / DR 6. / GF ( ) (GEORGE MATHAN) / JUDICIAL MEMBER ( . ) (A. MOHAN ALANKAMONY) /ACCOUNTANT MEMBER