The ACIT, Cochin V. M/s.Trans Asian Shipping Services P. Ltd, Cochin

ITA 68/COCH/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4054 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 02-08-2018
• Assessment Year: 2012-2013
• Appeal Filed On: 06-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHANTHAM BOSE
• Assessee Lawyers: LEEJOY MATHEW; WILSON THOMAS; JOGY ISSAC
• Keywords: Earning of tax free income; Additional evidence
• Section: 14A; 194C; 68; 69; 6; 10

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI CHANDRA POOJARI, AM & GEORGE GEORGE K., JM I .T.A. NO S . 68 & 6 9 /COCH/ 2017 ASSESSMENT YEAR S : 2012 - 13 & 2013 - 14 THE ASSISTANT COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE- 2(1), KOCHI. VS. M/S. TRANS ASIAN SHIPPING SERVICE PVT. LTD., TRANS ASIA CORPORATE PARK, XIV/396-C, SEAPORT AIRPORT ROAD, CHITTETHUKARA, KAKKANAD, KOCHI-682 037. [PAN: AABCT 2706J] (REVENUE - APPELLANT) (ASSESSEE - RESPONDENT) C.O. NOS. 20 & 21/COCH/2018 (ARSG. OUT OF I.T.A. NOS. 68 & 69/COCH/2017) ASSESSMENT YEARS : 2012 - 13 & 2013 - 14 M/S . TRANS ASIAN SHIPPING SERVICE PVT. LTD., TRANS ASIA CORPORATE PARK, XIV/396-C, SEAPORT AIRPORT ROAD, CHITTETHUKARA, KAKKANAD, KOCHI-682 037. [PAN: AABCT 2706J] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE-2(1), KOCHI. (ASSESSEE - APP ELLANT) (REVENUE - RESPONDENT) REVENUE BY SHRI SHANTHAM BOSE, CIT(DR) ASSESSEE BY SHRI WILSON THOMAS & JOGY ISSAC FCA AND LEEJOY MATHEW D ATE OF HEARING 02/08/2018 DATE OF PRONOUNCEMENT 13 / 0 8 /2018 I.T.A. NOS.68&69/C/2017 & C.O. NOS. 20&21/COCH/2018 2 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THESE APPEALS FILED BY THE REVENUE ARE DIRECTED AGAINST DIFFERENT ORDERS OF THE CIT(A)-I, KOCHI AND PERTAIN TO THE ASSESSMENT YEARS 2012-13 AND 2013-14. THE ASSESSES HAVE ALSO FILED CROSS OBJECTIONS AGAINST THE APPEALS FILED BY THE REVENUE. 2. SINCE THE ISSUES INVOLVED IN THESE APPEALS AND CROSS OBJECTIONS ARE IDENTICAL IN NATURE, THEY WERE CLUBBED TOGETHER, HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER. 3. THE CROSS OBJECTIONS ARE IN SUPPORT OF THE ORDERS OF THE CIT(A). THERE WAS A DELAY OF 305 DAYS IN FILING THE SAME. NO CONDONATION PETITION WAS FILED BY THE ASSESSEE FOR EXPLAINING THE REASONS FOR THE DELAY. HOWEVER, AT THE TIME OF THE HEARING, THE LD. AR MADE AN ENDORSEMENT THAT THE ASSESSEE IS NOT INTERESTED IN PURSUING THE CROSS OBJECTIONS. ACCORDINGLY, THESE CROSS OBJECTIONS ARE DISMISSED AS NOT PRESSED. 4. COMING TO THE REVENUES APPEALS, THE FIRST COMMON GROUND IS THAT THE CIT(A) HAS NOT TAKEN COGNIZANCE OF THE FORM 26AS AND THE BOOKS OF ACCOUNT. I.T.A. NOS.68&69/C/2017 & C.O. NOS. 20&21/COCH/2018 3 5. THE FACTS OF THE CASE ARE THAT THE AO ASKED FOR THE RECONCILIATION OF REVENUE RECEIPTS AS APPEARING IN THE TDS-DRIVEN FORM NO.26AS WITH THE RECEIPTS ADMITTED IN THE BOOKS/STATEMENT OF ACCOUNTS. THE ASSESSEE SUBMITTED A LIST OF THE NAMES OF THE PRINCIPALS WITH THE CORRESPONDING AMOUNTS OF THE RECEIPTS ALONGSIDE THE RESPECTIVE TDS AS APPEARING IN THE FORM 26AS. THE DETAIL OF THE PARTIES WITH CORRESPONDING ENTRIES OF CONTRACT PAYMENTS AND RESPECTIVE TDS CREDITS, WHICH HAD NOT BEEN INCLUDED BY THE ASSESSEE IN ITS RETURN OF INCOME, FILED WERE PROVIDED. BESIDES, DETAILS OF PARTIES SHOWING CORRESPONDING CONTRACT RECEIPTS AS WELL AS THE RESPECTIVE TDS OUT OF WHICH THE ASSESSEE HAD CLAIMED PART INCLUSION OF TURNOVER AND PART CLAIM FOR TDS. FROM THE ABOVE, THE AO OBSERVED THAT OUT OF THE TDS CREDITS TOTALING TO RS.2,89,97,749/- AS PER FORM 26A, SUM OF RS.2,84,61,266/- HAD BEEN CLAIMED BY THE ASSESSEE IN ITS RETURN OF INCOME, LEAVING AN UNCLAIMED BALANCE OF RS.5,36,183/-. THE ASSESSING OFFICER BACK- COMPUTED @2% TDS ON CONTRACT RECEIPTS APPLICABLE U/S. 194C OF THE ACT THE CONTRACT AMOUNT ATTRIBUTABLE TO THE UNCLAIMED TDS AT RS.2,68,24,150/-. THE SAME IS THE POSITION FOR ASSESSMENT YEAR 2013-14 AND ONLY CHANGE IN FIGURES. 6. ON APPEAL, THE CIT(A) DELETED THE ADDITION BY OBSERVING AS FOLLOWS: THE DETAILED EXAMINATIONS DIRECTED TO BE CARRIED OUT BY THE AO WITH THE ASSISTANCE OF TDS AOS AND THE JURISDICTIONAL AOS OF THE DEDUCTORS CONCERNED IS VITAL SINCE UNDER THE SYSTEM-DRIVEN TAX-PAYMENTS AND CREDITS THAT IS THE NORM TODAY, THE POSSIBILITIES OF: A) CLAIMING BOGUS EXPENSES AND REPORTING NON-EXISTENT PAYMENTS AT A LOW COST OF 2% TDS APPLICABLE ON CONTRACTUAL PAYMENTS U/S. 194C; B) THE MAKING OF EMPTY DATA ENTRIES IN THE FORM 26AS NOT CORRESPONDED OR SUBSTANTIATED BY A REAL TDS/TCS PAYMENT INTO THE GOVERNMENT ACCOUNT AND; C) THE WORK BEING DONE BY ONE PARTY AND I.T.A. NOS.68&69/C/2017 & C.O. NOS. 20&21/COCH/2018 4 THE TDS CREDITS ON THE PAYMENTS GOING TO THE KITTY OF ANOTHER (EVEN FAKE AND NON-EXISTENT OR BENAMI) NAME-TENDER ARMED WITH A PAN, BEING AMONG THE VARIOUS POSSIBLE SCAMS CANNOT BE RULED OUT. THE ADDL/JOINT CIT MAY MONITOR AND ENSURE THAT IN THE INSTANT CASE OF THE ASSESSEE ALL OF THE TAXES DUE TO THE GOVERNMENT ARE CORRECTLY COLLECTED AND PROPERLY ACCOUNTED IN THE RESPECTIVE NAMES OF THE ASSESSEES, INCLUDING THE APPELLANT AND THE DEDUCTORS AS ABOVE, AS STATUTORILY MANDATED. 6. THUS, THE CIT(A) AFTER TAKING INTO CONSIDERATION THE RECONCILIATION BETWEEN FORM 26AS AND THE BOOKS OF ACCOUNT WITH REFERENCE TO THE RECEIPTS SUBJECT TO TDS, GRANTED RELIEF TO THE ASSESSEE. 7. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. THE LD. DR SUBMITTED THAT THE CIT(A) OUGHT TO HAVE TAKEN COGNIZANCE THAT FORM 26AS WAS AVAILABLE TO THE ASSESSEE FOR CROSS-VERIFICATION AND FOR RECONCILIATION, AN EXERCISE THAT A PRUDENT BUSINESS HOUSE AS THE ASSESSEE WAS EXPECTED TO COMPLETE BEFORE FILING THE RETURN OF INCOME FOR BOTH THE ASSESSMENT YEARS. IT WAS SUBMITTED THAT THE CIT(A) ERRED IN LEGALLY DIRECTING TO VERIFY THE 128 PARTIES AS APPEARING IN FORM 26AS AND GOT IT RECONCILED FROM THE ASSESSEE AND REOPEN THE ASSESSMENT THEREAFTER ON THE BASIS OF ADDITIONAL EVIDENCE FILED BY THE ASSESSEE BEFORE THE CIT(A) DURING THE COURSE OF APPELLATE PROCEEDINGS WITHOUT CONFRONTING THE SAME TO THE AO BEFORE PASSING THE APPELLATE ORDER. THE LD. DR SUBMITTED THAT THE CIT(A) OUGHT TO HAVE APPRECIATED THAT IT WAS THE ONUS OF THE ASSESSEE TO ESTABLISH THAT THE IMPUGNED RECEIPTS AS PER 26AS STATEMENT DID NOT BELONG TO HIM. I.T.A. NOS.68&69/C/2017 & C.O. NOS. 20&21/COCH/2018 5 8. THE LD. AR ON THE OTHER HAND SUBMITTED THAT ALL THE MATERIAL WERE MADE AVAILABLE TO THE AO AT THE TIME OF ASSESSMENT PROCEEDINGS AND NO NEW DOCUMENTS WERE FILED BEFORE THE CIT(A) SO AS TO SAY THAT THE AO WAS DEPRIVED OF GOING THROUGH THE DOCUMENTS. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. IN THIS CASE, THE ASSESSEE HAS NOT PRODUCED THE RECONCILIATION STATEMENTS WITH REFERENCE TO FORM 26AS AND THE BOOKS OF ACCOUNTS OF THE ASSESSEE. HOWEVER, THE SAME WERE PRODUCED BEFORE THE CIT(A) AND ON THAT BASIS, THE CIT(A) GRANTED RELIEF TO THE ASSESSEE. IN OUR OPINION, THE GRANTING OF RELIEF TO THE ASSESSEE WITHOUT CONFRONTING THE RECONCILIATION STATEMENT TO THE AO AND THEREAFTER, DIRECTION OF THE CIT(A) TO THE AO TO CARRY OUT FURTHER EXAMINATION IS NOT PROPER. 9.1 ACCORDINGLY, WE VACATE THE FINDINGS OF THE CIT(A) IN TOTO AND DIRECT THE ASSESSEE TO PRODUCE ALL THE RECONCILIATION STATEMENTS WHICH WERE PRODUCED BEFORE THE CIT(A) BEFORE THE AO AND THE AO SHALL DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER AFFORDING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. HENCE, THIS GROUND OF APPEALS OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 10. THE NEXT GROUND IS WITH REGARD TO DELETION OF DISALLOWANCE U/S. 14A R.W. RULE 8D FOR BOTH THE ASSESSMENT YEARS WITHOUT GIVING AN OPPORTUNITY OF HEARING I.T.A. NOS.68&69/C/2017 & C.O. NOS. 20&21/COCH/2018 6 TO THE AO TO GO THROUGH THE RECONCILIATION STATEMENT BETWEEN FORM 26AS AND THE BOOKS OF ACCOUNT OF THE ASSESSEE. 11. THE FACTS OF THE CASE ARE THAT THE ASSESSEE HAD RECEIVED DIVIDEND AMOUNTING TO RS.1,82,33,603/- WHICH IS EXEMPT U/S. 10(35) OF THE INCOME TAX ACT, 1961. ACCORDING TO THE ASSESSING OFFICER, UNDER THE PROVISIONS OF SECTION 14A OF THE ACT, NO EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING AN EXEMPT INCOME SHALL BE ALLOWED AGAINST THE TAXABLE PROFITS. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD NOT ATTRIBUTED ANY PORTION OF THE EXPENDITURE DEBITED TO THE P&L ACCOUNT TOWARDS INVESTMENTS AND THE ASSESSEE HAD ALSO MANAGERIAL REMUNERATION AND CLAIMED THE WHOLE OF THE SAME AS EXPENDITURE. ACCORDING TO THE ASSESSING OFFICER, THE MANAGERIAL STAFF AND THE DIRECTORS WERE INVOLVED IN MAKING DECISIONS ON INVESTMENTS. SUCH BEING THE CASE, ACCORDING TO THE ASSESSING OFFICER, A PORTION OF THIS MANAGERIAL REMUNERATION AND DIRECTORS REMUNERATIONS SHOULD ALSO BE ATTRIBUTED TOWARDS THE INVESTMENTS ON RETURN ON WHICH INCOME IS EXEMPT U/S. 10 OF THE INCOME TAX ACT, 1961. ACCORDINGLY, THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.2,16,546/- FOR THE A.Y. 2012-13 AND 2,60,796/- FOR THE A.Y. 2013-14. 12. THE CIT(A) OBSERVED THAT FOR MAKING AN DISALLOWANCE U/S. 14A R.W. RULE 8D, A CLEAR, ACTUAL PROXIMATE CAUSE FOR DISALLOWANCE, WHICH IS THE RELATIONSHIP OF THE EXPENDITURE WITH THE TAX EXEMPT INCOME NEEDS TO BE PROVED OR ESTABLISHED. I.T.A. NOS.68&69/C/2017 & C.O. NOS. 20&21/COCH/2018 7 THE CIT(A) HELD THAT THE ACTUAL EXPENDITURE TOWARDS THE EARNING OF THE TAX- EXEMPT DIVIDEND INCOMES MUST HAVE BEEN INCURRED. ACCORDING TO THE CIT(A), THE ASSESSING OFFICER, ON THE BASIS OF COGENT MATERIAL ON RECORD, HAS TO RECORD HIS SATISFACTION THAT THE SUBMISSIONS MADE BY THE ASSESSEE ARE NOT CORRECT. THE CIT(A) FOUND THAT INTEREST FREE OWNED FUNDS OF THE ASSESSEE WERE NOT IN EXCESS OF THE TAX EXEMPT INCOME-GENERATING INVESTMENTS MADE, WHICH EXCEPTION WOULD HOLD EVEN IF THE FUNDS OF THE ASSESSEE CONSISTED OF MIXED (INTEREST BEARING AND INTEREST FREE) FUNDS AND POSITIVE ACTUAL DIVIDEND INCOMES MUST HAVE BEEN EARNED. 13. THE LD. DR RELIED ON THE ORDERS OF THE ASSESSING OFFICER. THE LD. AR RELIED ON THE ORDERS OF THE CIT(A). 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. IN THIS CASE THERE WAS EXEMPTED INCOME EARNED BY THE ASSESSEE. WHENEVER EXEMPTED INCOME IS EARNED, THE ASSESSEE HAS TO PROVE THAT IT HAS EARNED EXEMPTED INCOME OUT OF OWN FUNDS IN THE FORM OF SHARE CAPITAL RESERVES. FURTHER, THE ASSESSEE HAS TO PROVE THE AVAILABILITY OF OWN FUNDS TO MAKE INVESTMENTS YIELDING EXEMPTED INCOME. HENCE, WE REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER TO DIRECT THE ASSESSEE TO PROVE THAT OWN FUNDS WERE AVAILABLE WITH THE ASSESSEE IN THESE ASSESSMENT YEARS TO MAKE INVESTMENTS YIELDING EXEMPTED INCOME. ACCORDINGLY, WE REMIT THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR FRESH I.T.A. NOS.68&69/C/2017 & C.O. NOS. 20&21/COCH/2018 8 CONSIDERATION. THIS GROUND OF APPEALS OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 15. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13 TH AUGUST, 2018. SD/- SD/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: DATED: 13 TH AUGUST, 2018 GJ COPY TO: 1. M/S. TRANS ASIAN SHIPPING SERVICE PVT. LTD., TRANS ASIA CORPORATE PARK, XIV/396-C, SEAPORT AIRPORT ROAD, CHITTETHUKARA, KAKKANAD. 2. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CORPORATE CIRCLE-2(1), KOCHI. 3. THE COMMISSIONER OF INCOME-TAX(APPEALS)-I, KOCHI. 4. THE PR. COMMISSIONER OF INCOME-TAX, KOCHI 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COCHIN