ACIT, CHENNAI V. M/s. V. Ramakrishna & Sons, CHENNAI

ITA 66/CHNY/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77330 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 01-05-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 08-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH, CH ENNAI . , . !' !' !' !' , # # # # $ $ $ $ BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER & SHRI V. DURGA RAO, JUDICIAL MEMBER ./ I.T.A.NO.66/MDS/2014 # ' %' / ASSESSMENT YEAR :2007-08 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(4), CHENNAI 600 034. VS. M/S. V. RAMAKRISHNA & SONS PRIVATE LTD., RAMAKRISHNA BUILDINGS, NO.2, DR. P.V. CHERIAN CRECENT, EGMORE, CHENNAI 8. [PAN : AAACV2307A] ( &' &' &' &' /APPELLANT ) ( ()&' ()&' ()&' ()&' / RESPONDENT ) &' * + / APPELLANT BY : SHRI SHAJI P. JACOB, ADDL. CIT ()&' * + / RESPONDENT BY : SHRI SAROJ KUMAR PARIDA, ADVOCATE * , / DATE OF HEARING : 01.05.2014 -% * , /DATE OF PRONOUNCEMENT : 29.05.2014 . . . . / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) III, CHENNAI, DATED 10.09.2013 RELEVANT TO THE ASSESSMENT YEAR 2007-08. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S AN INVESTMENT COMPANY, FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF ` .6,04,27,310/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER HAS I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.6 66 66 66 6/M/ /M/ /M/ /M/1 11 14 44 4 2 OBSERVED THAT THE ASSESSEE HAS CLAIMED ` .5,92,81,110/- AS INCOME EXEMPT UNDER SECTION 10(35) OF THE INCOME TAX ACT. THE ASS ESSEE WAS ASKED TO CLARIFY AS TO WHY 5% OF THE INCOME SHOULD NOT BE DI SALLOWED BY INVOKING SECTION 14A OF THE ACT. THE ASSESSEE HAS FILED DETA ILED REPLY BEFORE THE ASSESSING OFFICER AS UNDER: 'IN REGARD TO THE PROPOSAL TO DISALLOW A PORTION OF EXPENDITURE CLAIMED AS BEING INCURRED TOWARDS EARNING DIVIDEND, IT IS PERT INENT TO LOOK AT THIS PROPOSITION FROM THE VIEW POINT OF SEC. 14A READ WI TH RULE 8D OF THE INCOME-TAX ACT, 1961, WHICH CLEARLY LAYS DOWN THE G OVERNING GUIDELINES TO DEAL WITH A SITUATION LIKE THIS WHERE THE EXPENDITU RE IS INCURRED FOR EARNING INCOME WHICH IS EXEMPT FROM TAX SUCH AS DIR ECT EXPENDITURE AND INDIRECT EXPENDITURE IN THE FORM OF INTEREST. IN TH E CONSTANT CASE IT CAN BE SEEN FROM THE PROFIT AND LOSS ACCOUNT THAT NO PORTI ON OF THE EXPENDITURE (THE VERY CLAIM ITSELF IS MINIMAL) IS ATTRIBUTABLE TO THE EARNING OF EXEMPTED INCOME I.E. DIVIDEND AND HENCE NO AMOUNT CAN BE ATT RIBUTED DIRECTLY TO THE EARNING OF THE DIVIDEND AND NOW WE NEED TO DEAL WIT H THE SECOND PROPOSITION WHEREIN INTEREST EXPENDITURE IF INCURRE D NEEDS TO BE PROPORTIONATED AS PER THE GIVEN FORMULA UNDER THE S AID RULE, WHEREAS IN THE CURRENT PROFIT AND LOSS ACCOUNT OF THE ASSESSEE COMPANY THERE IS NO ITEM OF EXPENDITURE TOWARDS INTEREST AND HENCE DERI VING A NUMBER IN A PROPORTIONATE MANNER FOR THE PURPOSE OF DETERMINATI ON OF DISALLOWANCE AS PER RULE 8D DOES NOT ARISE. ' 3. THE ASSESSING OFFICER, AFTER CONSIDERING THE RE PLY OF THE ASSESSEE HAS OBSERVED AS UNDER: THE ASSESSEE'S REPLY HAS BEEN CONSIDERED. OUT OF T OTAL INCOME OF RS.6.04 CRORES, EXEMPTED INCOME CONSTITUTE RS.5.92 CRORES W HICH IS AROUND 98%. THE ASSESSEE HAS CLAIMED AN EXPENDITURE OF RS.2 LAK HS TO EARN THE DIVIDEND INCOME OF RS.5.92 CRORES. HAVING REGARD TO THE ACCOUNTS, THE CORRECTNESS OF THE CLAIM OF EXPENDITURE IN RELATION TO EXEMPTED INCOME IS NOT JUSTIFIED. AS THE ASSESSEE REQUIRES TO MAINTAIN EMPLOYEES, REGISTERED OFFICE, PRESERVING RECORDS FOR 8 YEARS AND PAYMENT OF HONORARIUM TO DIRECTORS FOR SUCCESSFULLY CARRYING OUT THE BUSINES S, THE ASSESSEE OUGHT TO HAVE INCURRED MORE EXPENDITURE THAN DEBITED TO THE PROFIT AND LOSS ACCOUNT. HENCE, THIS EXPENDITURE IS DETERMINED RESP ECTFULLY FOLLOWING THE DECISIONS OF HON'BLE ITAT IN THE CASE OF INDIAN BAN K MERCHANTS SERVICES LTD REPORTED IN ITA. NO. 420/98. HENCE, IT IS EQUIT ABLE TO DETERMINE 5% OF I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.6 66 66 66 6/M/ /M/ /M/ /M/1 11 14 44 4 3 RS.5,92,81,110/- BEING RS.29,64,055/- AS EXPENDITUR E INCURRED IN RELATION TO EXEMPT INCOME AND THEREFORE THE SAME IS ADDED. 4. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFOR E THE LD. CIT(APPEALS) AND THE LD. CIT(APPEALS), BY FOLLOWING THE DECISION IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2005-0 6 AND 2006-07 IN I.T.A. NOS. 1838 & 1839/MDS/2010 ORDER DATED 13. 07.2012 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 5. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 6. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS SQUARELY COVERED BY ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEARS AN D EVEN FOR THE YEAR UNDER CONSIDERATION I.E. THE ASSESSMENT YEAR 2 007-08, RULE 8D TO SECTION 14A HAS NO APPLICATION TO ASSESSEES CASE. 7. ON THE OTHER HAND, THE LD. DR HAS DUTIFULLY SUP PORTED THE ORDER PASSED BY THE ASSESSING OFFICER. 8. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IN TH IS CASE, THE ASSESSEE HAS CLAIMED ` .5,92,81,110/- AS AN EXEMPT INCOME AND THE ASSESSEE ITSELF HAS CLAIMED AN EXPENDITURE OF ` .2.00 LAKHS TO EARN THE ABOVE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.6 66 66 66 6/M/ /M/ /M/ /M/1 11 14 44 4 4 DIVIDEND INCOME. THE ASSESSING OFFICER WAS OF THE O PINION THAT THE ASSESSEE REQUIRES TO MAINTAIN EMPLOYEES, REGISTERED OFFICE, PRESERVING RECORDS FOR EIGHT YEARS AND PAYMENT OF HONORARIUM T O DIRECTORS FOR SUCCESSFULLY CARRYING OUT THE BUSINESS, THE ASSESSE E OUGHT TO HAVE BEEN INCURRED MORE EXPENDITURE THAN DEBITED TO THE PROFI T AND LOSS ACCOUNT. THEREFORE, THE ASSESSING OFFICER HAS DETERMINED THE EXPENDITURE OF 5% OF ` .5,92,81,110/- BEING ` .29,64,055/- AS EXPENDITURE INCURRED IN RELATION TO EARN EXEMPT INCOME AND THE SAME WAS ADDED TO THE TO TAL INCOME OF THE ASSESSEE. THE LD. CIT(APPEALS), BY FOLLOWING THE DE CISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEARS DE LETED THE ADDITION MADE BY THE ASSESSING OFFICER. WE FIND THAT THE ASS ESSEE ITSELF DISALLOWED AN EXPENDITURE OF ` .2.00 LAKHS AND ADMITTEDLY, RULE 8D TO SECTION 14A HAS NO APPLICATION TO THE YEAR UNDER CONSIDERATION, THE ASSESSMENT YEAR BEING 2007-08. KEEPING IN VIEW OF THE ABOVE FACTS AND CIR CUMSTANCES OF THE CASE, WE ARE OF THE OPINION THAT ` .4.00 LAKHS HAS TO BE CONSIDERED AN EXPENDITURE INCURRED BY THE ASSESSEE TO EARN THE EXEMPT INCOME OF ` .5,92,81,110/-. SINCE THE ASSESSEE HAS ALREADY DECLARED EXPENDITURE OF ` .2.00 LAKHS, WE DIRECT THE ASSESSING OFFICER TO ADD FURTHER AN AMOU NT OF ` .2.00 LAKHS ONLY AS AN EXPENDITURE INCURRED TO EARN THE DIVIDEND INCOME AND CALCULATE TAXABLE INCOME ACCORDINGLY. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.6 66 66 66 6/M/ /M/ /M/ /M/1 11 14 44 4 5 STATISTICAL PURPOSE. ORDER PRONOUNCED ON THURSDAY, THE 29 TH OF MAY, 2014 AT CHENNAI. SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (V. DURGA RAO) JUDICIAL MEMBER CHENNAI, DATED, THE 29.05.2014 VM/- TO: THE ASSESSEE/A.O./CIT(A)/CIT/D.R.